PFI 1031 Annual Update 030123

PRINCIPAL FUNDS, INC.

(“PFI” or the “Registrant”)

Class A Shares
Class C Shares
Class J Shares
Institutional Class Shares
Class R-1 Shares
Class R-3 Shares
Class R-4 Shares
Class R-5 Shares
Class R-6 Shares

The date of this Prospectus is March 1, 2023.

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

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

FUNDS OF THE REGISTRANT

(each, a “Fund” and, together, the “Funds”)

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

	Ticker Symbols by Share Class
Fund/Portfolio	A	C	J	Inst.	R-1	R-3	R-4	R-5	R-6
Principal LifeTime Hybrid 2060			PHJGX	PLTHX					PLKTX
Principal LifeTime Hybrid 2065			PHJDX	PLHHX					PLHRX
Principal LifeTime Hybrid 2070			PLKJX	PLKSX					PLKRX
Real Estate Securities	PRRAX	PRCEX	PREJX	PIREX	PRAEX	PRERX	PRETX	PREPX	PFRSX
SAM Balanced	SABPX	SCBPX	PSAJX	PSBIX	PSBGX	PBAPX	PSBLX	PSBFX
SAM Conservative Balanced	SAIPX	SCIPX	PCBJX	PCCIX	PCSSX	PCBPX	PCBLX	PCBFX
SAM Conservative Growth	SAGPX	SCGPX	PCGJX	PCWIX	PCGGX	PCGPX	PCWSX	PCWPX
SAM Flexible Income	SAUPX	SCUPX	PFIJX	PIFIX	PFIGX	PFIPX	PFILX	PFIFX
SAM Strategic Growth	SACAX	SWHCX	PSWJX	PSWIX	PSGGX	PSGPX	PSGLX	PSGFX
Short-Term Income	SRHQX	STCCX	PSJIX	PSHIX	PSIMX	PSIOX	PSIPX	PSIQX
SmallCap	PLLAX	PSMCX	PSBJX	PSLIX	PSABX	PSBMX	PSBSX	PSBPX	PSMLX
SmallCap Growth I			PSIJX	PGRTX	PNASX	PPNMX	PPNSX	PPNPX	PCSMX
SmallCap S&P 600 Index			PSSJX	PSSIX	PSAPX	PSSMX	PSSSX	PSSPX	PSPIX
SmallCap Value II			PSMJX	PPVIX	PCPTX	PJARX	PSTWX	PLARX	PSMVX
Tax-Exempt Bond	PTEAX	PTBCX		PITEX

Table of Contents

Fund Summaries
California Municipal Fund	4
Core Fixed Income Fund	9
Core Plus Bond Fund	14
Diversified Income Fund	20
Diversified International Fund	26
Equity Income Fund	31
Finisterre Emerging Markets Total Return Bond Fund	35
Global Emerging Markets Fund	41
Global Real Estate Securities Fund	46
Government & High Quality Bond Fund	51
Government Money Market Fund	56
High Income Fund	60
High Yield Fund	65
Inflation Protection Fund	69
International Fund I	74
LargeCap Growth Fund I	79
LargeCap S&P 500 Index Fund	84
LargeCap Value Fund III	89
MidCap Fund	93
MidCap Growth Fund	98
MidCap Growth Fund III	102
MidCap S&P 400 Index Fund	106
MidCap Value Fund I	111
Money Market Fund	116
Overseas Fund	120
Principal Capital Appreciation Fund	125
Principal LifeTime Strategic Income Fund	129
Principal LifeTime 2010 Fund	135
Principal LifeTime 2015 Fund	141
Principal LifeTime 2020 Fund	147
Principal LifeTime 2025 Fund	153
Principal LifeTime 2030 Fund	159
Principal LifeTime 2035 Fund	165
Principal LifeTime 2040 Fund	171
Principal LifeTime 2045 Fund	177
Principal LifeTime 2050 Fund	182
Principal LifeTime 2055 Fund	188
Principal LifeTime 2060 Fund	193
Principal LifeTime 2065 Fund	199
Principal LifeTime 2070 Fund	204
Principal LifeTime Hybrid Income Fund	209
Principal LifeTime Hybrid 2015 Fund	215
Principal LifeTime Hybrid 2020 Fund	221
Principal LifeTime Hybrid 2025 Fund	227
Principal LifeTime Hybrid 2030 Fund	233
Principal LifeTime Hybrid 2035 Fund	239
Principal LifeTime Hybrid 2040 Fund	245

Principal LifeTime Hybrid 2045 Fund	251
Principal LifeTime Hybrid 2050 Fund	257
Principal LifeTime Hybrid 2055 Fund	263
Principal LifeTime Hybrid 2060 Fund	269
Principal LifeTime Hybrid 2065 Fund	275
Principal LifeTime Hybrid 2070 Fund	281
Real Estate Securities Fund	286
SAM (Strategic Asset Management) Balanced Portfolio	292
SAM (Strategic Asset Management) Conservative Balanced Portfolio	298
SAM (Strategic Asset Management) Conservative Growth Portfolio	304
SAM (Strategic Asset Management) Flexible Income Portfolio	310
SAM (Strategic Asset Management) Strategic Growth Portfolio	316
Short-Term Income Fund	321
SmallCap Fund	326
SmallCap Growth Fund I	330
SmallCap S&P 600 Index Fund	334
SmallCap Value Fund II	339
Tax-Exempt Bond Fund	344
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS	349
PORTFOLIO HOLDINGS INFORMATION	380
MANAGEMENT OF THE FUNDS	380
PRICING OF FUND SHARES	389
CONTACT PRINCIPAL FUNDS, INC.	390
PURCHASE OF FUND SHARES	390
Redemption of Fund Shares	395
EXCHANGE OF FUND SHARES	399
DIVIDENDS AND DISTRIBUTIONS	401
FREQUENT PURCHASES AND REDEMPTIONS	402
TAX CONSIDERATIONS	403
Choosing a Share Class and the Costs of Investing	404
DISTRIBUTION PLANS AND INTERMEDIARY COMPENSATION	411
FUND ACCOUNT INFORMATION	413
APPENDIX A—DESCRIPTION OF BOND RATINGS	A-1
APPENDIX B—INTERMEDIARY-SPECIFIC SALES CHARGE WAIVERS AND REDUCTIONS	B-1
APPENDIX C — FINANCIAL HIGHLIGHTS	C-1
ADDITIONAL INFORMATION	D

California Municipal Fund

Objective

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

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the tables and examples below. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $100,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial intermediary and in “Choosing a Share Class and The Costs of Investing” beginning on page 404 of the Fund’s Prospectus, Appendix B to the Prospectus titled “Intermediary-Specific Sales Charge Waivers and Reductions,” and “Multiple Class Structure” beginning on page 4 of the Fund’s Statement of Additional Information.

If you purchase Institutional Class shares through certain programs offered by certain financial intermediaries, you may be required to pay a commission and/or other forms of compensation to the broker, or to your Financial Professional or other financial intermediary.

Shareholder Fees (fees paid directly from your investment)

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

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

	Share Class
	A	C	Inst.
Management Fees(1)	0.40%	0.40%	0.40%
Distribution and/or Service (12b-1) Fees	0.25%	1.00%	N/A
Other Expenses:
Interest Expense	0.06%	0.06%	0.06%
Remainder of Other Expenses	0.06%	0.13%	0.08%
Total Other Expenses	0.12%	0.19%	0.14%
Total Annual Fund Operating Expenses	0.77%	1.59%	0.54%
Expense Reimbursement(2)	N/A	N/A	(0.02)%
Total Annual Fund Operating Expenses after Expense Reimbursement	0.77%	1.59%	0.52%

(1)

Fees have been restated to reflect current fees.

(2)

Principal Global Investors, LLC (“PGI”), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and tax reclaim recovery expenses and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.46% for Institutional Class shares. It is expected that the expense limit will continue through the period ending February 29, 2024; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period. Subject to applicable expense limits, the Fund may reimburse PGI for expenses incurred during the current fiscal year.

Example

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

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

	1 year	3 years	5 years	10 years
Class A	$451	$612	$787	$1,293
Class C	262	502	866	1,669
Institutional Class	53	171	300	675

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

	1 year	3 years	5 years	10 years
Class C	$162	$502	$866	$1,669

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in Annual Fund Operating Expenses or in the Example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 38.90% of the average value of its portfolio.

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in California municipal obligations (securities issued by or on behalf of state or local governments and other public authorities) at the time of purchase. Generally, these municipal obligations pay interest that is exempt from state personal income tax and federal income tax. These obligations may include bonds that generate interest payments that are subject to the federal individual alternative minimum tax. The Fund’s investment in municipal obligations include industrial revenue bonds. The Fund invests up to 20% of its assets in below investment grade bonds (sometimes called “high yield bonds” or “junk bonds”), which are rated at the time of purchase Ba1 or lower by Moody’s Investors Service, Inc. (“Moody’s”) and BB+ or lower by S&P Global Ratings (“S&P Global”) (if the bond has been rated by only one of those agencies, that rating will determine whether the bond is below investment grade; if the bond has not been rated by either of those agencies, those selecting such investments will determine whether the bond is of a quality comparable to those rated below investment grade). The Fund also invests in inverse floating rate obligations (variable rate debt instruments that pay interest at rates that move in the opposite direction of prevailing interest rates), which are generally more volatile than other types of municipal obligations and may involve leverage.

Under normal circumstances, the Fund maintains an average portfolio duration that is within ±50% of the duration of the Bloomberg California Municipal Bond Index, which as of January 31, 2023 was 5.24 years. The Fund is not managed to a particular maturity.

Principal Risks

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

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

Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.

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

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

Industrial Revenue Bond Risk. The Fund will be sensitive to, and its performance will depend to a greater extent on, the overall condition and performance of industrial revenue bonds. These revenue bonds are issued by or on behalf of public authorities to obtain funds to finance various public and/or privately operated facilities, including those for business and manufacturing, housing, sports, pollution control, airport, mass transit, port, and parking facilities. These bonds are normally secured only by the revenues from the project and not by state or local government tax payments. Consequently, the credit quality of these bonds is dependent upon the ability of the user of the facilities financed by the bonds and any guarantor to meet its financial obligations.

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

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

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

Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.

Redemption and Large Transaction Risk. Ownership of the Fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the Fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to Fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.

Performance

The following information provides some indication of the risks of investing in the Fund. Past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information at www.PrincipalAM.com.

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

For periods prior to the inception date of Institutional Class shares (March 1, 2015), the performance shown in the table for Institutional Class shares is that of the Fund’s Class A shares, adjusted to reflect the fees and expenses of Institutional Class shares. However, where the adjustment for fees and expenses results in performance for Institutional Class shares that is higher than the historical performance of the Class A shares, the historical performance of Class A shares is used (without respect to sales charges, which are not applicable to Institutional Class shares). These adjustments result in performance for such periods that is no higher than the historical performance of the Class A shares.

Total Returns as of December 31

Highest return for a quarter during the period of the bar chart above:	Q1 2014	5.67%
Lowest return for a quarter during the period of the bar chart above:	Q1 2022	(7.07)%

Average Annual Total Returns
For the periods ended December 31, 2022

	1 Year	5 Years	10 Years
Class A Return Before Taxes	(14.04)%	(0.13)%	1.96%
Class A Return After Taxes on Distributions	(14.04)%	(0.13)%	1.96%
Class A Return After Taxes on Distributions and Sale of Fund Shares	(7.39)%	0.50%	2.23%
Class C Return Before Taxes	(12.29)%	(0.19)%	1.63%
Institutional Class Return Before Taxes	(10.39)%	0.91%	2.55%
Bloomberg California Municipal Bond Index (reflects no deduction for fees, expenses, or taxes)	(8.17)%	1.25%	2.30%

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

Investment Advisor and Portfolio Managers

Principal Global Investors, LLC

•

James Noble (since 2013), Portfolio Manager

•

James Welch (since 2014), Portfolio Manager

Purchase and Sale of Fund Shares

For Classes A and C shares, the required minimum initial investment per Fund is generally $1,000, and the minimum initial investment per Fund for accounts with an Automatic Investment Plan (“AIP”) is $100. The required minimum subsequent investment per Fund is generally $100; however, for accounts with an AIP, subsequent automatic investments must total $1,200 annually if the initial $1,000 has not been met. Some exceptions apply; see “Purchase of Fund Shares – Minimum Investments” for more information.

For Institutional Class shares, there are no minimum initial or subsequent investment requirements for eligible purchasers.

You may purchase or redeem shares on any business day (normally any day when the New York Stock Exchange is open for regular trading) through your plan, intermediary, or Financial Professional by sending a written request to Principal Funds at P.O. Box 219971, Kansas City, MO 64121-9971 (regular mail) or 430 W. 7th Street, Ste. 219971, Kansas City, MO 64105-1407 (overnight mail); calling us at 1-800-222-5852; or accessing our website (www.principal.com).

Class C shares are subject to an 8-year automatic conversion plan whereby Class C shares held for eight years after purchase will automatically convert to Class A shares of the same Fund.

See Purchase of Fund Shares for more information.

Tax Information

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

Payments to Broker-Dealers and Other Financial Intermediaries

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

Core Fixed Income Fund

SHARE CLASS CONVERSION NOTICE: On December 13, 2022, the Fund’s Board of Directors approved the conversion of the Fund’s Class C shares into Class A shares. Following the close of business on May 19, 2023, Class C shares of the Fund will automatically convert into Class A shares of the Fund on the basis of the share classes’ relative net asset values on such date. The conversion will not result in the imposition of a sales charge or any other charge. As a result of the conversion, the affected shareholders will be in a better position with respect to expenses, as expenses are lower for Class A shares than for the current Class C shares. The Fund expects these share class conversions will not constitute taxable sales or exchanges to shareholders. Effective as of the close of the New York Stock Exchange on March 24, 2023, Class C shares will no longer be available for purchase except in limited circumstances.

On or about May 19, 2023, delete references to Class C shares of this Fund, including information regarding the conversion plan, from the Prospectus.

Objective

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

Fees and Expenses of the Fund

If you purchase Institutional Class or Class R-6 shares through certain programs offered by certain financial intermediaries, you may be required to pay a commission and/or other forms of compensation to the broker, or to your Financial Professional or other financial intermediary.

Shareholder Fees (fees paid directly from your investment)

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

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

	Share Class
	A	C	J	Inst.	R-1	R-3	R-4	R-5	R-6
Management Fees(1)	0.37%	0.37%	0.37%	0.37%	0.37%	0.37%	0.37%	0.37%	0.37%
Distribution and/or Service (12b-1) Fees	0.25%	1.00%	0.15%	N/A	0.35%	0.25%	0.10%	N/A	N/A
Other Expenses	0.13%	0.24%	0.11%	0.13%	0.53%	0.32%	0.28%	0.26%	0.00%
Acquired Fund Fees and Expenses	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%
Total Annual Fund Operating Expenses	0.76%	1.62%	0.64%	0.51%	1.26%	0.95%	0.76%	0.64%	0.38%
Expense Reimbursement(2)	N/A	N/A	N/A	(0.04)%	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	0.76%	1.62%	0.64%	0.47%	1.26%	0.95%	0.76%	0.64%	0.38%

(1)

Fees have been restated to reflect current fees.

(2)

Example

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

	1 year	3 years	5 years	10 years
Class A	$301	$462	$638	$1,146
Class C	265	511	881	1,692
Class J	165	205	357	798
Institutional Class	48	160	281	637
Class R-1	128	400	692	1,523
Class R-3	97	303	525	1,166
Class R-4	78	243	422	942
Class R-5	65	205	357	798
Class R-6	39	122	213	480

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

	1 year	3 years	5 years	10 years
Class C	$165	$511	$881	$1,692
Class J	65	205	357	798

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in fixed-income securities. The Fund invests primarily in a diversified pool of investment-grade fixed-income securities, including corporate securities, U.S. government securities, asset-backed securities and mortgage-backed securities (securitized products) (including collateralized mortgage obligations), and foreign securities. “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. If the security has been rated by only one of those agencies, that rating will determine whether the security is investment grade. If securities are rated differently by the rating agencies, the highest rating is used. The Fund is not managed to a particular maturity. Under normal circumstances, the Fund maintains an average portfolio duration that is within ±25% of the duration of the Bloomberg U.S. Aggregate Bond Index, which as of January 31, 2023 was 6.43 years.

Principal Risks

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

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

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

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

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

Performance

For periods prior to the inception date of Class R-6 shares (November 25, 2014), the performance shown in the table for Class R-6 shares is that of the Fund’s Class A shares, adjusted to reflect the fees and expenses of Class R-6 shares. However, where the adjustment for fees and expenses results in performance for Class R-6 shares that is higher than the historical performance of the Class A shares, the historical performance of the Class A shares is used (without respect to sales charges, which are not applicable to Class R-6 shares). These adjustments result in performance for such periods that is no higher than the historical performance of the Class A shares.

Total Returns as of December 31

Highest return for a quarter during the period of the bar chart above:	Q2 2020	5.87%
Lowest return for a quarter during the period of the bar chart above:	Q1 2022	(5.80)%

Average Annual Total Returns
For the periods ended December 31, 2022

	1 Year	5 Years	10 Years
Class A Return Before Taxes	(14.99)%	(0.54)%	0.96%
Class A Return After Taxes on Distributions	(15.81)%	(1.53)%	(0.24)%
Class A Return After Taxes on Distributions and Sale of Fund Shares	(8.85)%	(0.78)%	0.22%
Class C Return Before Taxes	(14.66)%	(0.93)%	0.55%
Class J Return Before Taxes	(13.72)%	0.05%	1.28%
Institutional Class Return Before Taxes	(12.82)%	0.17%	1.51%
Class R-1 Return Before Taxes	(13.41)%	(0.58)%	0.69%
Class R-3 Return Before Taxes	(13.22)%	(0.29)%	1.00%
Class R-4 Return Before Taxes	(12.96)%	(0.08)%	1.20%
Class R-5 Return Before Taxes	(12.88)%	0.04%	1.32%
Class R-6 Return Before Taxes	(12.66)%	0.30%	1.50%
Bloomberg U.S. Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)	(13.02)%	0.02%	1.06%

Investment Advisor and Portfolio Managers

Principal Global Investors, LLC

•

John R. Friedl (since 2005), Portfolio Manager

•

Scott J. Peterson (since 2010), Portfolio Manager

Purchase and Sale of Fund Shares

For Classes A, C, and J shares, the required minimum initial investment per Fund is generally $1,000, and the minimum initial investment per Fund for accounts with an Automatic Investment Plan (“AIP”) is $100. The required minimum subsequent investment per Fund is generally $100; however, for accounts with an AIP, subsequent automatic investments must total $1,200 annually if the initial $1,000 has not been met. Some exceptions apply; see “Purchase of Fund Shares – Minimum Investments” for more information.

For Classes R-1, R-3, R-4, R-5, R-6, and Institutional Class shares, there are no minimum initial or subsequent investment requirements for eligible purchasers.

Effective January 31, 2017, the Registrant no longer offers Class R-1 shares for purchase from new retirement plans, except in limited circumstances.

Class C shares are subject to an 8-year automatic conversion plan whereby Class C shares held for eight years after purchase will automatically convert to Class A shares of the same Fund.

Effective as of the close of the New York Stock Exchange on March 24, 2023, Class C shares will no longer be available for purchase except in limited circumstances.

See Purchase of Fund Shares for more information.

Tax Information

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

Payments to Broker-Dealers and Other Financial Intermediaries

Core Plus Bond Fund

Objective

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

Fees and Expenses of the Fund

Shareholder Fees (fees paid directly from your investment)

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

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

	Share Class
	A	J	Inst.	R-1	R-3	R-4	R-5
Management Fees(1)	0.49%	0.49%	0.49%	0.49%	0.49%	0.49%	0.49%
Distribution and/or Service (12b-1) Fees	0.25%	0.15%	N/A	0.35%	0.25%	0.10%	N/A
Other Expenses	0.23%	0.23%	0.15%	0.54%	0.33%	0.29%	0.27%
Acquired Fund Fees and Expenses	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%	0.01%
Total Annual Fund Operating Expenses	0.98%	0.88%	0.65%	1.39%	1.08%	0.89%	0.77%
Expense Reimbursement(2)	(0.13)%	N/A	(0.08)%	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	0.85%	0.88%	0.57%	1.39%	1.08%	0.89%	0.77%

(1)

Fees have been restated to reflect current fees.

(2)

Principal Global Investors, LLC (“PGI”), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and tax reclaim recovery expenses and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.84% for Class A and 0.56% for Institutional Class shares. It is expected that the expense limits will continue through the period ending February 29, 2024; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period. Subject to applicable expense limits, the Fund may reimburse PGI for expenses incurred during the current fiscal year.

Example

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

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

	1 year	3 years	5 years	10 years
Class A	$459	$663	$884	$1,520
Class J	190	281	488	1,084
Institutional Class	58	200	354	803
Class R-1	142	440	761	1,669
Class R-3	110	343	595	1,317
Class R-4	91	284	493	1,096
Class R-5	79	246	428	954

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

	1 year	3 years	5 years	10 years
Class J	$90	$281	$488	$1,084

Portfolio Turnover

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in bonds or other debt securities at the time of purchase. Such investments include securities issued or guaranteed by the U.S. government or its agencies or instrumentalities (including collateralized mortgage obligations); asset-backed securities and mortgage-backed securities (securitized products); corporate bonds; and foreign securities, including emerging market securities. The Fund invests in investment-grade securities and, with respect to up to 25% of its assets, in below investment grade securities (sometimes called “high yield” or “junk”), which are rated at the time of purchase Ba1 or lower by Moody’s Investors Service, Inc. (“Moody’s”) and BB+ or lower by S&P Global Ratings (“S&P Global”) (if the security has been rated by only one of those agencies, that rating will determine whether the security is below investment grade; if the security has not been rated by either of those agencies, those selecting such investments will determine whether the security is of a quality comparable to those rated below investment grade; if securities are rated differently by the rating agencies, the highest rating is used). The Fund is not managed to a particular maturity. Under normal circumstances, the Fund maintains an average portfolio duration that is within ±25% of the duration of the Bloomberg U.S. Aggregate Bond Index, which as of January 31, 2023 was 6.43 years. The Fund’s strategies may result in the active and frequent trading of the Fund’s portfolio securities.

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

Principal Risks

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

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

•

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

•

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

•

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

Emerging Markets Risk. Investments in emerging markets may have more risk than those in developed markets because the emerging markets are less developed and more illiquid. Emerging markets can also be subject to increased social, economic, regulatory, and political uncertainties and can be extremely volatile. The U.S. Securities and Exchange Commission, the U.S. Department of Justice, and other U.S. authorities may be limited in their ability to pursue bad actors in emerging markets, including with respect to fraud.

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

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

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

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

Performance

Total Returns as of December 31

Highest return for a quarter during the period of the bar chart above:	Q2 2020	5.34%
Lowest return for a quarter during the period of the bar chart above:	Q2 2022	(6.07)%

Average Annual Total Returns
For the periods ended December 31, 2022

	1 Year	5 Years	10 Years
Class A Return Before Taxes	(17.59)%	(0.91)%	0.58%
Class A Return After Taxes on Distributions	(18.32)%	(2.33)%	(0.62)%
Class A Return After Taxes on Distributions and Sale of Fund Shares	(10.39)%	(1.18)%	(0.02)%
Class J Return Before Taxes	(15.32)%	(0.13)%	0.98%
Institutional Class Return Before Taxes	(14.25)%	0.19%	1.33%
Class R-1 Return Before Taxes	(14.86)%	(0.64)%	0.47%
Class R-3 Return Before Taxes	(14.60)%	(0.31)%	0.78%
Class R-4 Return Before Taxes	(14.48)%	(0.15)%	0.96%
Class R-5 Return Before Taxes	(14.33)%	(0.03)%	1.09%
Bloomberg U.S. Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)	(13.02)%	0.02%	1.06%

Investment Advisor and Portfolio Managers

Principal Global Investors, LLC

•

William C. Armstrong (since 2000), Portfolio Manager

•

Bryan C. Davis (since 2022), Portfolio Manager

Purchase and Sale of Fund Shares

For Classes A and J shares, the required minimum initial investment per Fund is generally $1,000, and the minimum initial investment per Fund for accounts with an Automatic Investment Plan (“AIP”) is $100. The required minimum subsequent investment per Fund is generally $100; however, for accounts with an AIP, subsequent automatic investments must total $1,200 annually if the initial $1,000 has not been met. Some exceptions apply; see “Purchase of Fund Shares – Minimum Investments” for more information.

For Classes R-1, R-3, R-4, R-5, and Institutional Class shares, there are no minimum initial or subsequent investment requirements for eligible purchasers.

Effective January 31, 2017, the Registrant no longer offers Class R-1 shares for purchase from new retirement plans, except in limited circumstances.

See Purchase of Fund Shares for more information.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

Diversified Income Fund

Objective

The Fund seeks income.

Fees and Expenses of the Fund

Shareholder Fees (fees paid directly from your investment)

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

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

	Share Class
	A	C	Inst.	R-6
Management Fees(1)	0.64%	0.64%	0.64%	0.64%
Distribution and/or Service (12b-1) Fees	0.25%	1.00%	N/A	N/A
Other Expenses	0.11%	0.12%	0.11%	0.04%
Acquired Fund Fees and Expenses	0.01%	0.01%	0.01%	0.01%
Total Annual Fund Operating Expenses	1.01%	1.77%	0.76%	0.69%
Expense Reimbursement(2)	N/A	N/A	(0.07)%	(0.02)%
Total Annual Fund Operating Expenses after Expense Reimbursement	1.01%	1.77%	0.69%	0.67%

(1)

Fees have been restated to reflect current fees.

(2)

Principal Global Investors, LLC (“PGI”), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and tax reclaim recovery expenses and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.68% for Institutional Class shares. In addition, for Class R-6, the expense limit will maintain “Other Expenses” (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02% (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and tax reclaim recovery expenses and other extraordinary expenses). It is expected that the expense limits will continue through the period ending February 29, 2024; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period. Subject to applicable expense limits, the Fund may reimburse PGI for expenses incurred during the current fiscal year.

Example

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

	1 year	3 years	5 years	10 years
Class A	$474	$684	$912	$1,565
Class C	280	557	959	1,883
Institutional Class	70	236	415	936
Class R-6	68	219	382	857

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

	1 year	3 years	5 years	10 years
Class C	$180	$557	$959	$1,883

Portfolio Turnover

Principal Investment Strategies

The Fund generally invests a majority of its assets in fixed-income securities, such as investment-grade corporate bonds, high yield bonds (also known as “junk” bonds), preferred securities, commercial mortgage-backed securities, and emerging market debt securities, in an effort to provide incremental yields over a portfolio of government securities. Such securities include instruments with variable or floating interest rates. The fixed-income portion of the Fund is not managed to a particular maturity or duration. The Fund invests in foreign, including emerging market, securities. The Fund uses derivative strategies. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index.

In managing the Fund, Principal Global Investors, LLC (“PGI”), the Fund’s investment advisor, determines the Fund's strategic asset allocation among actively managed and passively managed (index) strategies that are executed by PGI and multiple sub-advisors. PGI has considerable latitude in allocating the Fund's assets among the general investment categories listed below. The Fund uses strategies and sub-advisors to varying degrees and may change allocations, add new or eliminate existing strategies and sub-advisors, and temporarily or permanently reduce allocations from time to time such that the Fund would have little or no assets allocated to a particular strategy or sub-advisor.

•

Investment-grade corporate securities, which are rated at the time of purchase Baa3 or higher by Moody’s Investors Service (“Moody’s”) or BBB- or higher by S&P Global Ratings (“S&P Global”).

•

High yield and other income-producing securities, including bank loans and corporate bonds. “High yield” securities are below investment grade securities (sometimes called “junk”), which are rated at the time of purchase Ba1 or lower by Moody's and BB+ or lower by S&P Global. These securities offer a higher yield than other, higher rated securities, but they carry a greater degree of risk and are considered speculative with respect to the issuer's ability to pay interest and to repay principal. This portion of the Fund also invests in currency forwards and currency options to hedge currency risk.

•

Preferred securities, focusing primarily on the financial services and utility industries.

•

Diversified portfolio of fixed-income securities, including those issued by governments and their agencies and corporate entities in emerging markets. This portion of the Fund also invests in interest rate swaps or Treasury futures to manage fixed-income exposure; credit default swaps to increase or decrease in an efficient manner exposures to certain sectors or individual issuers; total return swaps to increase or decrease in an efficient manner exposures to certain sectors; and currency forwards and currency options to hedge currency risk and express views on the direction of currency.

•

Securitized products such as asset-backed securities and mortgage-based securities, including commercial mortgage-backed securities, which are bonds secured by first mortgages on commercial real estate.

Principal Risks

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

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

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

•

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

•

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

Floating and Variable Rate Securities Risk. The market prices of securities with variable and floating interest rates are generally less sensitive to interest rate changes than are the market prices of securities of fixed interest rates. Floating and variable rate securities may decline in value if market interest rates or interest rates paid by them do not move as expected. Floating and variable rate securities may be subject to greater liquidity risk than other debt securities, meaning that there may be limitations on the Fund’s ability to sell the securities at any given time.

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

Index (Passive) Strategy Risk. An index (passive) fund (or passive strategy that is part of a fund) has operating and other expenses while an index does not. As a result, over time, index funds tend to underperform the index. The correlation between an index strategy’s performance and index performance may also be affected by the type of passive investment approach used (sampling or replication), changes in securities markets, changes in the composition of the index, and the timing of purchases and sales of shares.

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

Performance

For periods prior to the inception date of Class R-6 shares (June 12, 2017), the performance shown in the table for Class R-6 shares is that of the Fund’s Institutional Class shares, adjusted to reflect the fees and expenses of Class R-6 shares. These adjustments result in performance for such periods that is no higher than the historical performance of the Institutional Class shares.

Total Returns as of December 31

Highest return for a quarter during the period of the bar chart above:	Q4 2020	8.39%
Lowest return for a quarter during the period of the bar chart above:	Q1 2020	(17.02)%

Average Annual Total Returns
For the periods ended December 31, 2022

	1 Year	5 Years	10 Years
Class A Return Before Taxes	(14.82)%	0.03%	2.79%
Class A Return After Taxes on Distributions	(16.33)%	(1.63)%	0.92%
Class A Return After Taxes on Distributions and Sale of Fund Shares	(8.65)%	(0.56)%	1.41%
Class C Return Before Taxes	(13.04)%	0.05%	2.56%
Institutional Class Return Before Taxes	(11.20)%	1.14%	3.52%
Class R-6 Return Before Taxes	(11.20)%	1.14%	3.52%
Bloomberg U.S. Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)	(13.02)%	0.02%	1.06%

Investment Advisor and Portfolio Managers

Principal Global Investors, LLC

•

Jessica S. Bush (since 2014), Portfolio Manager

•

Benjamin E. Rotenberg (since 2014), Portfolio Manager

•

May Tong (since 2021), Portfolio Manager

Sub-Advisors

Nuveen Asset Management LLC

PineBridge Investments LLC

Polen Capital Credit, LLC (f/k/a DDJ Capital Management, LLC)

Post Advisory Group, LLC

Principal Real Estate Investors, LLC

Spectrum Asset Management, Inc.

Purchase and Sale of Fund Shares

For Class R-6 and Institutional Class shares, there are no minimum initial or subsequent investment requirements for eligible purchasers.

Class C shares are subject to an 8-year automatic conversion plan whereby Class C shares held for eight years after purchase will automatically convert to Class A shares of the same Fund.

See Purchase of Fund Shares for more information.

Tax Information

Payments to Broker-Dealers and Other Financial Intermediaries

Diversified International Fund

Objective

The Fund seeks long-term growth of capital.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the tables and examples below. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial intermediary and in “Choosing a Share Class and The Costs of Investing” beginning on page 404 of the Fund’s Prospectus, Appendix B to the Prospectus titled “Intermediary-Specific Sales Charge Waivers and Reductions,” and “Multiple Class Structure” beginning on page 4 of the Fund’s Statement of Additional Information.

Shareholder Fees (fees paid directly from your investment)

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

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

	Share Class
	A	J	Inst.	R-1	R-3	R-4	R-5	R-6
Management Fees	0.74%	0.74%	0.74%	0.74%	0.74%	0.74%	0.74%	0.74%
Distribution and/or Service (12b-1) Fees	0.25%	0.15%	N/A	0.35%	0.25%	0.10%	N/A	N/A
Other Expenses	0.24%	0.25%	0.17%	0.57%	0.36%	0.32%	0.30%	0.04%
Total Annual Fund Operating Expenses	1.23%	1.14%	0.91%	1.66%	1.35%	1.16%	1.04%	0.78%
Expense Reimbursement(1)	N/A	N/A	(0.03)%	N/A	N/A	N/A	N/A	N/A
Total Annual Fund Operating Expenses after Expense Reimbursement	1.23%	1.14%	0.88%	1.66%	1.35%	1.16%	1.04%	0.78%

(1)

Principal Global Investors, LLC (“PGI”), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and tax reclaim recovery expenses and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.85% for Institutional Class shares. It is expected that the expense limit will continue through the period ending February 29, 2024; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period. Subject to applicable expense limits, the Fund may reimburse PGI for expenses incurred during the current fiscal year.

Example

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

	1 year	3 years	5 years	10 years
Class A	$668	$919	$1,188	$1,957
Class J	216	362	628	1,386
Institutional Class	90	287	501	1,117
Class R-1	169	523	902	1,965
Class R-3	137	428	739	1,624
Class R-4	118	368	638	1,409
Class R-5	106	331	574	1,271