PRINCIPAL FUNDS,
INC. (“PFI”)
Class A
Shares
Class C
Shares
Class J
Shares
Institutional
Class Shares
Class R-1
Shares
Class R-2
Shares
Class R-3
Shares
Class R-4
Shares
Class R-5
Shares
Class R-6
Shares
Class S
Shares
The date of this Prospectus is
______________.
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Ticker
Symbols by Share Class |
Fund |
A |
C |
J |
Inst. |
R-1 |
R-2 |
R-3 |
R-4 |
R-5 |
R-6 |
S |
Blue Chip |
PBLAX |
PBLCX |
PBCJX |
PBCKX |
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PGBEX |
PGBFX |
PGBGX |
PGBHX |
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Bond Market
Index |
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PBIJX |
PNIIX |
PBIMX |
PBINX |
PBOIX |
PBIPX |
PBIQX |
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Capital
Securities |
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PCSFX |
Diversified Real
Asset |
PRDAX |
PRDCX |
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PDRDX |
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PGDRX |
PGDSX |
PGDTX |
PDARX |
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Dynamic Floating Rate High
Income |
PDYAX |
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PDYIX |
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EDGE MidCap |
Pending |
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PEDGX |
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PEDMX |
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Global
Multi-Strategy |
PMSAX |
PMSCX |
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PSMIX |
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PGLSX |
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Global
Opportunities |
PGLAX |
PGOCX |
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PGOIX |
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International Equity
Index |
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PIDIX |
PILIX |
PINEX |
PIIOX |
PIIPX |
PIIQX |
PFIEX |
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International Small
Company |
PICAX |
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PISMX |
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PFISX |
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Multi-Manager Equity
Long/Short |
PGMMX |
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PGPIX |
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PGPMX |
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Opportunistic
Municipal |
PMOAX |
PMODX |
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POMFX |
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Origin Emerging
Markets |
POEYX |
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POEIX |
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POEFX |
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Preferred
Securities |
PPSAX |
PRFCX |
PPSJX |
PPSIX |
PUSAX |
PPRSX |
PNARX |
PQARX |
PPARX |
PPREX |
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Real Estate Debt
Income |
PRDYX |
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PRDIX |
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PRDHX |
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Small-MidCap Dividend
Income |
PMDAX |
PMDDX |
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PMDIX |
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PMDHX |
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SystematEx
International |
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PSOMX |
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PSTMX |
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SystematEx Large
Value |
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PSLVX |
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Beginning on January 1, 2021, paper
copies of the Fund's annual and semi-annual shareholder reports will no longer
be sent by mail, unless the shareholder requests paper copies. Reports will
instead be available on a website, and shareholders will be notified by mail
when the report is posted and provided with the website address to access the
report. Shareholders who have already elected to receive reports electronically
will not be affected by these changes. A shareholder may elect to receive
reports electronically by sending an email to __________or by calling
_______________. A shareholder may elect to receive all future reports in paper
by notifying the Fund or the shareholder’s financial intermediary.
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.
TABLE OF
CONTENTS
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FUND SUMMARIES |
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Blue Chip Fund |
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Bond Market Index
Fund |
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Capital Securities
Fund |
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Diversified Real Asset
Fund |
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Dynamic Floating Rate High
Income Fund |
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EDGE MidCap
Fund |
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Global Multi-Strategy
Fund |
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Global Opportunities
Fund |
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International Equity Index
Fund |
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International Small Company
Fund |
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Multi-Manager Equity
Long/Short Fund |
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Opportunistic Municipal
Fund |
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Origin Emerging Markets
Fund |
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Preferred Securities
Fund |
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Real Estate Debt Income
Fund |
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Small-MidCap Dividend Income
Fund |
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SystematEx International
Fund |
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SystematEx Large Value
Fund |
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ADDITIONAL INFORMATION ABOUT
INVESTMENT STRATEGIES AND RISKS |
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PORTFOLIO HOLDINGS
INFORMATION |
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MANAGEMENT OF THE
FUNDS |
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PRICING OF
FUND SHARES |
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CONTACT PRINCIPAL FUNDS,
INC. |
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PURCHASE OF FUND
SHARES |
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REDEMPTION OF FUND
SHARES |
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EXCHANGE OF FUND
SHARES |
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DIVIDENDS AND
DISTRIBUTIONS |
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FREQUENT PURCHASES AND
REDEMPTIONS |
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TAX
CONSIDERATIONS |
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CHOOSING A SHARE CLASS AND THE
COSTS OF INVESTING |
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DISTRIBUTION PLANS AND
INTERMEDIARY COMPENSATION |
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FUND ACCOUNT
INFORMATION |
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APPENDIX A – DESCRIPTION
OF BOND RATINGS |
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APPENDIX B – ADDITIONAL
FUND-SPECIFIC INFORMATION |
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APPENDIX C -
INTERMEDIARY-SPECIFIC SALES CHARGE WAIVERS AND REDUCTIONS |
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APPENDIX D - FINANCIAL
HIGHLIGHTS |
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ADDITIONAL
INFORMATION |
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BLUE CHIP
FUND
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Objective: |
The Fund seeks long-term
growth of capital. |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund. You may
qualify for sales charge discounts if you and your family invest, or agree to
invest in the future, at least $50,000 in Class A shares of Principal
Funds, Inc. More information about these and other discounts is available from
your financial professional and in “Choosing a Share Class and The Costs of
Investing” beginning on page ___ of the Fund’s prospectus, Appendix C to the
prospectus titled "Intermediary-Specific Sales Charge Waivers and Reductions",
and “Multiple Class Structure” beginning on page __ of the Fund’s Statement of
Additional Information.
Shareholder Fees
(fees paid directly from your investment)
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Share
Class |
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A |
C |
J |
Inst. |
R-3 |
R-4 |
R-5 |
R-6 |
Maximum Sales Charge (Load)
Imposed on Purchases (as a percentage of offering price) |
5.50% |
None |
None |
None |
None |
None |
None |
None |
Maximum Deferred Sales Charge
(Load) (as a percentage of the offering price or NAV when Sales Load is
paid, whichever is less) |
1.00% |
1.00% |
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)
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Share
Class |
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A |
C |
J |
Inst. |
R-3 |
R-4 |
R-5 |
R-6 |
Management Fees |
0.68% |
0.68% |
0.68% |
0.68% |
0.68% |
0.68% |
0.68% |
0.68% |
Distribution and/or Service
(12b-1) Fees |
0.25% |
1.00% |
0.15% |
N/A |
0.25% |
0.10% |
N/A |
N/A |
Other Expenses (1) |
0.22% |
0.26% |
0.21% |
0.01% |
0.32% |
0.28% |
0.26% |
0.01% |
Total Annual
Fund Operating Expenses |
1.15% |
1.94% |
1.04% |
0.69% |
1.25% |
1.06% |
0.94% |
0.69% |
Expense Reimbursement
(2)
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N/A |
N/A |
N/A |
None |
N/A |
N/A |
N/A |
None |
Total Annual
Fund Operating Expenses after Expense Reimbursement |
1.15% |
1.94% |
1.04% |
0.69% |
1.25% |
1.06% |
0.94% |
0.69% |
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(1) |
Based on estimated amounts for
the current fiscal year (Class J). |
(2) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s expenses by paying, if necessary, expenses normally payable by the
Fund, (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses) to
maintain a total level of operating expenses (expressed as a percent of
average net assets on an annualized basis) not to exceed 0.81% 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 0.01%, (excluding interest
expense, expenses related to fund investments, acquired fund fees and
expenses, and other extraordinary expenses). It is expected that the
expense limits will continue through the period ending December 30, 2019;
however, Principal Funds, Inc. and PGI, the parties to the agreement, may
mutually agree to terminate the expense limits prior to the end of the
period. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. The calculation of costs takes into account any applicable
contractual fee waivers and/or expense reimbursements for the period noted in
the table above. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
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1
year |
3
years |
5
years |
10
years |
Class
A |
$661 |
$895 |
$1,148 |
$1,871 |
Class
C |
297 |
609 |
1,047 |
2,264 |
Class
J |
206 |
331 |
574 |
1,271 |
Institutional
Class |
70 |
221 |
384 |
859 |
Class
R-3 |
127 |
397 |
686 |
1,511 |
Class
R-4 |
108 |
337 |
585 |
1,294 |
Class
R-5 |
96 |
300 |
520 |
1,155 |
Class
R-6 |
70 |
221 |
384 |
859 |
With respect to Class 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):
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1
year |
3
years |
5
years |
10
years |
Class
C |
$197 |
$609 |
$1,047 |
$2,264 |
Class
J |
106 |
331 |
574 |
1,271 |
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 annualized portfolio turnover rate was 27.1% 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 equity securities of companies with large market capitalizations at
the time of purchase that, in the opinion of Principal Global Investors, LLC
(the Fund’s investment advisor), display characteristics of a “blue chip”
company. For this Fund, companies with large market capitalizations are those
with market capitalizations similar to companies in the Russell 1000 Growth®
Index (as of April 30, 2018, this range was between approximately $1.4 billion
and $838.5 billion). In PGI’s view, “blue chip” companies typically
display some or all of the following characteristics: (1) large,
well-established and financially sound companies; (2) issuers with market
capitalizations in the billions; (3) are considered market leaders or among
the top three companies in its sector; and (4) commonly
considered household names. The Fund tends to focus on securities of
companies that show potential for growth of capital as well as an expectation
for above average earnings. The Fund invests in securities of foreign
companies.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund, in alphabetical order,
are:
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
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Growth
Stock Risk.
If growth companies do not
increase their earnings at a rate expected by investors, the market price
of the stock may decline significantly, even if earnings show an absolute
increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market
downturns. |
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Small and
Medium Market Capitalization Companies Risk. Investments in small and medium sized companies
may involve greater risk and price volatility than investments in larger,
more mature companies. |
Foreign Currency
Risk. Risks of investing in securities
denominated in, or that trade in, foreign (non-U.S.) currencies include changes
in foreign exchange rates and foreign exchange restrictions.
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).
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 by calling
1-800-222-5852 or online at www.principalfunds.com.
Using the historical performance of
the Fund's Institutional Class shares, adjusted as described below, the bar
chart shows the investment returns of the Fund’s Class A shares for each full
calendar year of operations for 10 years (or, if shorter, the life of the Fund).
These annual returns do not reflect sales charges on Class A shares; if they
did, results would be lower. The table shows for the last one, five, and ten
calendar year periods (or, if shorter, the life of the Fund), how the Fund’s
average annual total returns compare with those of one or more broad measures of
market performance.
Life of Fund returns are measured
from the date the Fund's shares were first sold (June 14, 2012).
For periods prior to the inception
date of Classes A and C shares (September 30, 2013), Classes R-3, R-4, and R-5
shares (March 29, 2016), Class R-6 shares (January 3, 2017), and Class J shares
(September 11, 2017), the performance shown in the bar chart for Class A shares
and the table for Classes A, C, J, R-3, R-4, R-5 and R-6 shares is that of the
Fund's Institutional Class shares, adjusted to reflect the respective fees and
expenses of each class. However, where this adjustment for fees and expenses
results in performance for a newer class that is higher than the historical
performance of the Institutional Class shares, the historical performance of the
Institutional Class shares is used. These adjustments for these newer classes
result in performance for such periods that is no higher than the historical
performance of the Institutional Class shares, which were first sold June 14,
2012.
Total Returns as
of December 31 (1)
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Highest
return for a quarter during the period of the bar chart
above: |
Q1
'13 |
10.03% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q3
'15 |
(4.58)% |
(1)
The year-to-date return as of September 30, 2018 was 17.53% for Class A shares.
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Average
Annual Total Returns |
For the
periods ended December 31, 2017 |
1 Year |
5
Year |
Life of
Fund |
Class A
Return Before Taxes |
21.22% |
14.24% |
14.73% |
Class A
Return After Taxes on Distributions |
20.43% |
13.74% |
14.26% |
Class A
Return After Taxes on Distributions and Sale of Fund
Shares |
12.66% |
11.34% |
11.84% |
Class C
Return Before Taxes |
26.30% |
14.67% |
15.03% |
Class J
Return Before Taxes |
27.40% |
15.81% |
16.19% |
Institutional
Class Return Before Taxes |
28.86% |
16.19% |
16.59% |
Class R-3
Return Before Taxes |
28.09% |
15.55% |
15.92% |
Class R-4
Return Before Taxes |
28.43% |
15.79% |
16.16% |
Class R-5
Return Before Taxes |
28.54% |
15.92% |
16.29% |
Class R-6
Return Before Taxes |
28.86% |
16.16% |
16.54% |
Russell 1000 Growth Index
(reflects no deduction for fees, expenses, or taxes) |
30.21% |
17.33% |
16.93% |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts. After-tax returns are shown for Class A shares only and would be
different for the other share classes.
Management
Investment
Advisor and Portfolio Managers:
Principal Global Investors,
LLC
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K. William Nolin (since 2012),
Portfolio Manager |
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Tom Rozycki (since 2012),
Portfolio Manager |
Purchase and Sale
of Fund Shares
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Share
Class |
Investment
Type |
Purchase
Minimum
Per
Fund |
A, C and
J |
Initial
Investment |
$1,000(1) |
A, C and
J |
Initial Investment for accounts
with an Automatic Investment Plan (AIP) |
$100 |
A, C and
J |
Subsequent
Investments |
$100(1)(2) |
Institutional,
R-3, R-4, R-5 and R-6 |
There are no minimum initial or
subsequent investment requirements for eligible
purchasers. |
N/A |
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(1) |
Some exceptions apply; see
"Purchase of Fund Shares - Minimum Investments" for more
information. |
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(2) |
For accounts with an AIP, the
subsequent automatic investments must total $1,200 annually if the initial
$1,000 minimum has not been met. |
You may purchase or redeem shares on
any business day (normally any day when the New York Stock Exchange is open for
regular trading) through your plan, intermediary, or Financial Professional; by
sending a written request to Principal Funds at P.O. Box 8024, Boston, MA
02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight
mail); calling us at 1-800-222-5852; or accessing our website
(www.principalfunds.com).
Class C shares are subject to a
10-year automatic conversion plan whereby Class C shares held for ten years
after purchase will automatically convert to Class A shares of the same Fund.
See “Purchase of Fund Shares” in the Prospectus 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
For Class R-6 shares, the Fund and
its related companies do not pay broker-dealers or other financial
intermediaries (such as a bank, insurance company, investment adviser, etc.) for
the sale of Fund shares or related services.
For the other share classes, if you
purchase the Fund through a broker-dealer or other financial intermediary (such
as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment, or to recommend one share class of
the Fund over another share class. Ask your salesperson or visit your financial
intermediary's website for more information.
BOND MARKET INDEX
FUND
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Objective: |
The Fund seeks to provide
current income. |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund.
Shareholder Fees
(fees paid directly from your investment)
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Share
Class |
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J |
Inst. |
R-1 |
R-2 |
R-3 |
R-4 |
R-5 |
Maximum Deferred Sales Charge
(Load) (as a percentage of the offering price or NAV at the time Sales
Load is paid, whichever is less) |
1.00% |
None |
None |
None |
None |
None |
None |
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
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Share
Class |
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J |
Inst. |
R-1 |
R-2 |
R-3 |
R-4 |
R-5 |
Management Fees |
0.25% |
0.25% |
0.25% |
0.25% |
0.25% |
0.25% |
0.25% |
Distribution and/or Service
(12b-1) Fees |
0.15% |
N/A |
0.35% |
0.30% |
0.25% |
0.10% |
N/A |
Other Expenses |
0.30% |
0.01% |
0.54% |
0.46% |
0.33% |
0.29% |
0.27% |
Acquired Fund Fees and
Expenses |
0.01% |
0.01% |
0.01% |
0.01% |
0.01% |
0.01% |
0.01% |
Total Annual
Fund Operating Expenses |
0.71% |
0.27% |
1.15% |
1.02% |
0.84% |
0.65% |
0.53% |
Fee Waiver and Expense
Reimbursement (1)
(2) |
(0.10)% |
(0.10)% |
(0.10)% |
(0.10)% |
(0.10)% |
(0.10)% |
(0.10)% |
Total Annual
Fund Operating Expenses after Fee Waiver and Expense
Reimbursement |
0.61% |
0.17% |
1.05% |
0.92% |
0.74% |
0.55% |
0.43% |
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(1) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund's Management Fees through the period ending December 30, 2019. The
fee waiver will reduce the Fund's Management Fees by 0.10% (expressed as a
percent of average net assets on an annualized basis). It is expected that
the fee waiver will continue through the period disclosed; however,
Principal Funds, Inc. and PGI, the parties to the agreement may mutually
agree to terminate the fee waiver prior to the end of the
period. |
(2) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s expenses by paying, if necessary, expenses normally payable by the
Fund, (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses) to
maintain a total level of operating expenses (expressed as a percent of
average net assets on an annualized basis) not to exceed 0.71% for Class
J, 0.16% for Institutional, 1.04% for Class R-1, 0.91% for Class R-2,
0.73% for Class R-3, 0.54% for Class R-4, and 0.42% for Class R-5 shares.
It is expected that the expense limits will continue through the period
ending December 30, 2019; however, Principal Funds, Inc. and PGI, the
parties to the agreement, may mutually agree to terminate the expense
limits prior to the end of the
period. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. The calculation of costs takes into account any applicable
contractual fee waivers and/or expense reimbursements for the period noted in
the table above. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Class
J |
$162 |
$217 |
$385 |
$873 |
Institutional
Class |
17 |
77 |
142 |
333 |
Class
R-1 |
107 |
355 |
623 |
1,389 |
Class
R-2 |
94 |
315 |
554 |
1,239 |
Class
R-3 |
76 |
258 |
456 |
1,028 |
Class
R-4 |
56 |
198 |
352 |
801 |
Class
R-5 |
44 |
160 |
286 |
655 |
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 |
$62 |
$217 |
$385 |
$873 |
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 annualized portfolio turnover rate was 117.8% of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the Fund
uses a passive investment approach known as "sampling" to invest at least 80% of
its net assets, plus any borrowings for investment purposes, in investments
designed to track the Bloomberg Barclays U.S. Aggregate Bond Index (the "Index")
at the time of purchase. The Index is composed of investment grade, fixed rate
debt issues with maturities of one year or more, including government
securities, corporate securities, and asset-backed and mortgage-backed
securities (securitized products). The Index is rebalanced monthly to reflect
securities that have dropped out of or entered the Index in the preceding month.
Because of the practical difficulties and expense of purchasing all of the
securities in the Index, the Fund does not purchase all of the securities in the
Index. Instead, the Fund uses a sampling methodology to purchase securities with
generally the same risk and return characteristics of the Index. Under normal
circumstances, the Fund maintains an average portfolio duration that is in line
with the duration of the Index, which as of August 31, 2018 was 6.00 years. The
Fund will not concentrate (i.e., invest more than 25% of its assets) its
investments in a particular industry except to the extent the Index is so
concentrated. Because the Fund's portfolio turnover rate during the most recent
fiscal year was more than 100%, the Fund is considered actively traded.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund, in alphabetical order,
are:
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
generally increases when interest rates fall. Higher 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.
Index Fund
Risk. An index fund has operating and
other expenses while an index does not. As a result, over time, index funds tend
to underperform the index. The correlation between fund performance and index
performance may also be affected by the type of passive investment approach used
by a fund (sampling or replication), changes in securities markets, changes in
the composition of the index, and the timing of purchases and sales of fund
shares.
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.
Portfolio
Turnover (Active Trading) Risk. High portfolio turnover (more than
100%) caused by actively trading portfolio securities may result in accelerating
the realization of taxable gains and losses, lower fund performance and
increased brokerage costs.
Real Estate
Securities Risk.
Investing in real
estate securities subjects the fund to the risks associated with the real estate
market (which are similar to the risks associated with direct ownership in real
estate), including declines in real estate values, loss due to casualty or
condemnation, property taxes, interest rate changes, increased expenses, cash
flow of underlying real estate assets, regulatory changes (including zoning,
land use and rents), and environmental problems, as well as to the risks related
to the management skill and creditworthiness of the issuer.
Redemption 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.
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
The following information provides
some indication of the risks of investing in the Fund. Past performance (before
and after taxes) is not necessarily an indication of how the Fund will perform
in the future. You may get updated performance information by calling
1-800-222-5852 or online at www.principalfunds.com.
The bar chart shows the investment
returns of the Fund’s Institutional Class shares for each full calendar year of
operations for 10 years (or, if shorter, the life of the Fund). The table shows
for the last one, five, and ten calendar year periods (or, if shorter, the life
of the Fund), how the Fund’s average annual total returns compare with those of
one or more broad measures of market performance.
Life of Fund returns are measured
from the date the Fund's shares were first sold (December 30,
2009).
For periods prior to the inception
date of Class J shares (March 16, 2010), the performance shown in the table for
Class J shares is that of the Fund's Institutional Class shares, adjusted to
reflect the fees and expenses of the Class J shares. These adjustments
result in performance for such periods that is no higher than the historical
performance of the Institutional Class shares, which were first sold on December
30, 2009.
During 2014, the Institutional Class
experienced a significant withdrawal of monies by an affiliate. As the remaining
shareholders held relatively small positions, the total return amounts expressed
herein are greater than those that would have been experienced without the
withdrawal.
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q3
'11 |
3.76% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'16 |
(3.12)% |
(1)
The year-to-date return as of September 30, 2018 was (1.74)% for Institutional Class
shares.
|
|
|
|
|
|
|
Average
Annual Total Returns |
|
For the
periods ended December 31, 2017 |
1 Year |
5
Years |
|
Life of
Fund |
|
Institutional
Class Return Before Taxes |
3.31% |
1.94% |
(1) |
3.33% |
(1) |
Institutional
Class Return After Taxes on Distributions |
2.27% |
1.01% |
(1) |
2.45% |
(1) |
Institutional
Class Return After Taxes on Distributions and Sale of Fund
Shares |
1.87% |
1.05% |
(1) |
2.21% |
(1) |
Class J
Return Before Taxes |
1.97% |
1.24% |
(1) |
2.60% |
(1) |
Class R-1
Return Before Taxes |
2.46% |
0.84% |
|
2.30% |
|
Class R-2
Return Before Taxes |
2.52% |
0.96% |
|
2.42% |
|
Class R-3
Return Before Taxes |
2.71% |
1.15% |
|
2.61% |
|
Class R-4
Return Before Taxes |
2.80% |
1.34% |
|
2.80% |
|
Class R-5
Return Before Taxes |
3.09% |
1.46% |
|
2.93% |
|
Bloomberg Barclays U.S.
Aggregate Bond Index (reflects no deduction for fees, expenses, or
taxes) |
3.54% |
2.10% |
|
3.59% |
|
|
|
|
|
|
|
(1)
During 2014,
the Institutional Class experienced a significant withdrawal of monies by
an affiliate. As the remaining shareholders held relatively small
positions, the total return amounts expressed herein are greater than
those that would have been experienced without the
withdrawal. |
|
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts. After-tax returns are shown for Institutional Class shares only and
would be different for the other share classes.
Management
Investment
Advisor:
Principal Global Investors,
LLC
Sub-Advisor and
Portfolio Managers:
BNY Mellon Asset Management North
America Corporation (Effective on or about January 2, 2019, this Sub-Advisor
will change its name to Mellon Corporation.)
|
|
• |
Paul Benson (since 2015),
Managing Director, Head of Multi-Factor and Index Fixed Income Portfolio
Management |
|
|
• |
Gregg Lee (since 2010), Vice
President, Senior Portfolio Manager, Fixed
Income |
|
|
• |
Nancy G. Rogers (since 2015),
Director, Senior Portfolio Manager, Fixed
Income |
|
|
• |
Stephanie Shu (since 2015),
Director, Senior Portfolio Manager, Fixed
Income |
Purchase and Sale
of Fund Shares
|
|
|
|
Share
Class |
Investment
Type |
Purchase
Minimum
Per
Fund |
J |
Initial
Investment |
$1,000(1) |
J |
Initial Investment for accounts
with an Automatic Investment Plan (AIP) |
$100 |
J |
Subsequent
Investments |
$100(1)(2) |
Institutional,
R-1, R-2, R-3, R-4, and R-5 |
There are no minimum initial or
subsequent investment requirements for eligible
purchasers. |
N/A |
|
|
(1) |
Some exceptions apply; see
"Purchase of Fund Shares - Minimum Investments" for more
information. |
|
|
(2) |
For accounts with an AIP, the
subsequent automatic investments must total $1,200 annually if the initial
$1,000 minimum has not been met. |
You may purchase or redeem shares on
any business day (normally any day when the New York Stock Exchange is open for
regular trading) through your plan, intermediary, or Financial Professional; by
sending a written request to Principal Funds at P.O. Box 8024, Boston, MA
02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight
mail); calling us at 1-800-222-5852; or accessing our website
(www.principalfunds.com).
For retirement plan investors,
effective as of the close of the New York Stock Exchange on January 31, 2017,
Class R-1 and Class R-2 shares will no longer be available for purchase from new
retirement plans except in limited circumstances. See Purchase of Fund Shares
for additional 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
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment, or to recommend one share class of the Fund over another share
class. Ask your salesperson or visit your financial intermediary's website for
more information.
CAPITAL
SECURITIES FUND
|
|
Objective: |
The Fund seeks to provide
current income. |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund.
Shareholder Fees
(fees paid directly from your investment): None
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
Share
Class |
|
S |
Management Fees |
0.00% |
Other Expenses |
0.07% |
Acquired Fund Fees and
Expenses |
0.01% |
Total Annual
Fund Operating Expenses |
0.08% |
Expense Reimbursement
(1) |
(0.07)% |
Total Annual
Fund Operating Expenses after Expense Reimbursement (2) |
0.01% |
|
|
|
(1) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has agreed contractually to limit the
Fund's expenses attributable to Class S shares by paying, expenses
normally payable by the Fund, (excluding interest expense, expenses
related to fund investments, acquired fund fees and expenses, and other
extraordinary expenses) to maintain a total level of operating expenses
(expressed as a percent of average net assets on an annualized basis) not
to exceed 0.00%. It is expected that the expense limit will continue
permanently (and in any event, through December 30, 2019); however,
Principal Funds, Inc. and PGI, the parties to the agreement, may mutually
agree to terminate the expense limit. |
(2) |
The table reflects that
Principal Global Investors, LLC ("PGI"), the investment advisor, is
absorbing all expenses of the Fund. You should be aware, however, that the
Fund is an integral part of "wrap-fee" programs, including those sponsored
by registered investment advisors and broker-dealers unaffiliated with the
Fund. Participants in these programs pay a "wrap" fee to the sponsor of
the program. You should read carefully the wrap-fee brochure provided to
you by your sponsor or your registered investment advisor. The brochure is
required to include information about the fees charged to you by the
sponsor and the fees paid to the registered investment
advisor. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. The Example also assumes
that your investment has a 5% return each year and that the Fund’s operating
expenses remain the same. The calculation of costs takes into account any
applicable contractual fee waivers and/or expense reimbursements for the period
noted in the table above. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Class
S |
$1 |
$3 |
$6 |
$13 |
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 annualized portfolio turnover rate was 8.4% 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 capital securities at the time of
purchase. Capital securities include Tier 2 subordinated debt securities issued
by U.S. and non-U.S. financial institutions (including, but not limited to,
banks and insurance companies), contingent convertible securities (“Cocos”), as
well as preferred securities, including preferred stock and junior subordinated
debt, issued by U.S. and non-U.S. corporations, financial institutions, and
other issuers for purposes of satisfying regulatory capital requirements or
obtaining rating agency credit. Capital securities may pay fixed rate or
adjustable rate distributions and generally have a payment "preference" over
common stock, but are junior to the issuer's senior debt in a liquidation of the
issuer’s assets. Cocos are hybrid debt securities typically issued by banking
institutions that have contractual equity conversion or principal write-down
features that are triggered by regulatory capital thresholds or regulatory
actions calling into question the issuing banking institution’s continued
viability as a going-concern if the conversion trigger were not
exercised.
Tier 2 and preferred securities
purchased by the Fund are issued by companies with senior debt rated at the time
of purchase BBB- or higher by S&P Global Ratings ("S&P Global") or Baa3
or higher by Moody's Investors Service, Inc. ("Moody's"). The Fund may invest up
to 100% of its assets in below investment grade (sometimes called “junk”)
preferred securities which are rated at the time of purchase Ba1 or lower by
Moody's and BB+ or lower by S&P Global (if the preferred security has been
rated by only one of those agencies, that rating will determine whether the
preferred security is below investment grade; if the preferred security has not
been rated by either of those agencies, those selecting such investments will
determine whether the preferred security is of a quality comparable to those
rated below investment grade), provided that the issuer of such below investment
grade preferred securities has senior debt outstanding that is rated at the time
of purchase BBB- or higher by S&P Global or Baa3 or higher by Moody's. The
Fund is not managed to a particular maturity or duration.
The Fund concentrates its
investments (invests more than 25% of its net assets) in securities in the U.S.
and non-U.S. (foreign) financial services (i.e., banking, insurance and
commercial finance) industry.
During the fiscal year ended August
31, 2017, the average ratings of the Fund’s fixed-income assets, based on market
value at each month-end, were as follows (all ratings are by
Moody’s):
|
|
|
|
|
0.00% in securities rated
Aaa |
64.22% in securities rated
Baa |
0.00% in securities rated
Caa |
0.00% in securities rated
D |
0.00% in securities rated
Aa |
20.48% in securities rated
Ba |
0.00% in securities rated
Ca |
1.01% in securities not
rated |
11.38% in securities rated
A |
2.91% in securities rated
B |
0.00% in securities rated
C |
|
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund, in alphabetical order,
are:
Contingent
Convertible Securities Risk. In addition to the general risks
associated with fixed-income securities and convertible securities, the risks of
investing in contingent convertible securities (“CoCos”) include the risk that a
CoCo may be written down, written off or converted into an equity security when
the issuer’s capital ratio falls below a specified trigger level, or in a
regulator’s discretion depending on the regulator’s judgment about the issuer’s
solvency prospects. Due to these features, CoCos may have substantially greater
risk than other securities in times of financial stress. If the trigger level is
breached, the issuer’s decision to write down, write off or convert a CoCo may
result in the fund's complete loss on an investment in CoCos with no chance of
recovery even if the issuer remains in existence.
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
generally increases when interest rates fall. Higher 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.
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).
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.
Industry
Concentration Risk. A
fund that concentrates investments in a particular industry or group of
industries has greater exposure than other funds to market, economic and other
factors affecting that industry or group of industries.
|
|
• |
Financial
Services. A fund concentrating in
financial services companies may be more susceptible to adverse economic
or regulatory occurrences affecting financial services companies.
Financial companies may be adversely affected in certain market cycles,
including periods of rising interest rates, which may restrict the
availability and increase the cost of capital, and declining economic
conditions, which may cause credit losses due to financial difficulties of
borrowers. Because many types of financial companies are especially
vulnerable to these economic cycles, the Fund’s investments in these
companies may lose significant value during such periods.
|
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.
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
The following information provides
some indication of the risks of investing in the Fund. Past performance (before
and after taxes) is not necessarily an indication of how the Fund will perform
in the future. You may get updated performance information by calling
1-800-222-5852 or online at www.principalfunds.com.
The bar chart shows the investment
returns of the Fund’s Class S shares for each full calendar year of operations
for 10 years (or, if shorter, the life of the Fund). 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.
Life of Fund returns are measured
from the date the Fund's shares were first sold (March 14, 2014).
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'17 |
4.21% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q1
'16 |
(0.81)% |
(1)
The year-to-date return as of September 30, 2018 was (0.94)% for Class S shares.
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2017 |
1 Year |
Life of
Fund |
Class S
Return Before Taxes |
11.56% |
6.45% |
Class S
Return After Taxes on Distributions |
9.75% |
4.45% |
Class S
Return After Taxes on Distributions and Sale of Fund
Shares |
7.16% |
4.21% |
ICE BofA Merrill Lynch U.S. All
Capital Securities Index (reflects no deduction for fees, expenses, or
taxes) |
10.55% |
7.13% |
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 S shares only and would be
different for the other share classes.
Management
Investment
Advisor:
Principal Global Investors,
LLC
Sub-Advisor and
Portfolio Managers:
Spectrum Asset Management,
Inc.
|
|
• |
Fernando (“Fred”) Diaz (since
2014), Portfolio Manager |
|
|
• |
Roberto Giangregorio (since
2014), Portfolio Manager |
|
|
• |
L. Phillip Jacoby, IV (since
2014), Chief Investment Officer and Portfolio
Manager |
|
|
• |
Manu Krishnan (since 2014),
Portfolio Manager |
|
|
• |
Mark A. Lieb (since 2014),
President and Chief Executive Officer |
Purchase and Sale
of Fund Shares
Eligibility to invest in the Capital
Securities Fund is limited to certain wrap-fee program accounts. Only wrap-fee
program accounts as to which Spectrum and/or Principal Global Investors, LLC
(PGI) have an agreement with the wrap-fee program's sponsor ("Sponsor") or the
wrap account owner to provide investment advisory or sub-advisory services
(either directly or by providing a model investment portfolio created and
maintained by Spectrum and/or PGI to the Sponsor or one or more
Sponsor-designated investment managers) (Eligible Wrap Accounts) are eligible to
purchase shares of the Fund. References to Wrap Fee Adviser shall mean Spectrum
and/or PGI in their role providing such services to Eligible Wrap
Accounts.
A client agreement with the Sponsor
to open an account in the Sponsor's wrap-fee program typically may be obtained
by contacting the Sponsor or your financial advisor. Purchase and sale decisions
regarding Fund shares for your wrap-fee account ordinarily will be made by the
Wrap Fee Adviser, the Sponsor or a Sponsor-designated investment manager,
depending on the particular wrap-fee program in which your wrap-fee account
participates. If your wrap-fee account's use of the Wrap Fee Adviser's
investment style is terminated by you, the Sponsor, or the Wrap Fee Adviser,
your wrap-fee account will cease to be an Eligible Wrap Account, and you will be
required to redeem all your shares of the Capital Securities Fund. Each Eligible
Wrap Account, by purchasing shares, agrees to any such redemption.
There are no minimum initial or
subsequent investment requirements for Eligible Wrap Accounts. Eligible Wrap
Accounts may purchase or redeem shares on any business day (normally any day
when the New York Stock Exchange is open for regular trading) through its
intermediary.
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
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment, or to recommend one share class of the Fund over another share
class. Ask your salesperson or visit your financial intermediary's website for
more information.
DIVERSIFIED REAL
ASSET FUND
|
|
Objective: |
The Fund seeks a long-term
total return in excess of inflation. |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund. You may
qualify for sales charge discounts if you and your family invest, or agree to
invest in the future, at least $100,000 in Class A shares of Principal
Funds, Inc. More information about these and other discounts is available from
your financial professional and in “Choosing a Share Class and The Costs of
Investing” beginning on page ___ of the Fund’s prospectus, Appendix C to the
prospectus titled "Intermediary-Specific Sales Charge Waivers and Reductions",
and “Multiple Class Structure” beginning on page __ of the Fund’s Statement of
Additional Information.
Shareholder Fees
(fees paid directly from your investment)
|
|
|
|
|
|
|
|
|
|
Share
Class |
|
A |
C |
Inst. |
R-3 |
R-4 |
R-5 |
R-6 |
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 at the time 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 |
C |
Inst. |
R-3 |
R-4 |
R-5 |
R-6 |
Management Fees |
0.80% |
0.80% |
0.80% |
0.80% |
0.80% |
0.80% |
0.80% |
Distribution and/or Service
(12b-1) Fees |
0.25% |
1.00% |
N/A |
0.25% |
0.10% |
N/A |
N/A |
Other Expenses |
0.48% |
0.30% |
0.12% |
0.33% |
0.29% |
0.27% |
0.03% |
Acquired Fund Fees and
Expenses |
0.01% |
0.01% |
0.01% |
0.01% |
0.01% |
0.01% |
0.01% |
Total Annual
Fund Operating Expenses |
1.54% |
2.11% |
0.93% |
1.39% |
1.20% |
1.08% |
0.84% |
Fee Waiver and Expense
Reimbursement (1)(2) |
(0.31)% |
(0.13)% |
(0.07)% |
(0.03)% |
(0.03)% |
(0.03)% |
(0.04)% |
Total Annual
Fund Operating Expenses after Fee Waiver and Expense
Reimbursement |
1.23% |
1.98% |
0.86% |
1.36% |
1.17% |
1.05% |
0.80% |
|
|
|
|
|
|
(1) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s Management Fees through the period ending December 30, 2019. The
fee waiver will reduce the Fund's Management Fees by 0.03% (expressed as a
percent of average net assets on an annualized basis). It is expected that
the fee waiver will continue through the period disclosed; however,
Principal Funds, Inc. and PGI, the parties to the agreement, may mutually
agree to terminate the fee waiver prior to the end of the
period. |
(2) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s expenses by paying, if necessary, expenses normally payable by the
Fund, (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses) to
maintain a total level of operating expenses (expressed as a percent of
average net assets on an annualized basis) not to exceed 1.22% for Class
A, 1.97% for Class C, 0.85% and for Institutional Class shares. In
addition, for Class R-6, the expense limit will maintain "Other Expenses"
(expressed as a percent of average net assets on an annualized basis) not
to exceed 0.02%, (excluding interest expense, expenses related to fund
investments, acquired fund fees and expenses, and other extraordinary
expenses). It is expected that the expense limits will continue through
the period ending December 30, 2019; however, Principal Funds, Inc. and
PGI, the parties to the agreement, may mutually agree to terminate the
expense limits prior to the end of the
period. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. The calculation of costs takes into account any applicable
contractual fee waivers and/or expense reimbursements for the period noted in
the table above. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Class
A |
$496 |
$814 |
$1,155 |
$2,115 |
Class
C |
301 |
648 |
1,122 |
2,431 |
Institutional
Class |
88 |
289 |
508 |
1,137 |
Class
R-3 |
138 |
437 |
758 |
1,666 |
Class
R-4 |
119 |
378 |
657 |
1,452 |
Class
R-5 |
107 |
340 |
593 |
1,314 |
Class
R-6 |
82 |
264 |
462 |
1,033 |
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 |
$201 |
$648 |
$1,122 |
$2,431 |
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 annualized portfolio turnover rate was 65.1% 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 investments related to real assets and
real asset companies. The Fund seeks to achieve its investment objective by
allocating its assets among general investment categories related to real assets
and real asset companies (which include tangible assets and investments that are
expected to perform well in periods of rising or high inflation) such as the
following: infrastructure, natural resources and timber, commodities, real
estate companies, foreign currency, and certain bonds and fixed income
securities (such as inflation-indexed bonds, U.S. treasury and agency notes and
bonds, and floating rate debt). The Fund purchases derivative instruments. 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 strategies that are
executed by multiple sub-advisors. PGI has considerable latitude in allocating
the Fund's assets. The Fund will use 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.
The Fund
concentrates its investments (invests more than 25% of its net assets) in
securities in the real estate and energy/natural resources industries. The Fund
invests in U.S. and foreign securities. The Fund may invest in equity securities
regardless of market capitalization size (small, medium, or large) and style
(growth or value). The fixed income portion of the Fund is not managed to a particular
maturity or duration.
The Fund invests in
domestic and foreign publicly-listed infrastructure companies. Publicly-listed
infrastructure equity securities trade on an exchange and include, but are not
limited to, companies involved in the ownership and/or operations of
infrastructure assets within the transportation, communications, water,
electricity transmission and distribution, and oil and gas storage, processing
and transportation industries. The Fund invests in MLPs, and in particular, in
the mid-stream category of MLPs, which is generally comprised of pipelines used
to gather, process, transport, and distribute natural resources such as natural
gas, crude oil, and refined petroleum products.
Natural resources
generally include precious metals, such as gold, silver and platinum, ferrous
and nonferrous metals, such as iron, aluminum and copper, strategic metals such
as uranium and titanium, hydrocarbons such as coal, oil and natural gas,
timberland, and undeveloped real property. The Fund invests in securities of
companies that primarily own, explore, mine, process or otherwise develop
natural resources, timber and wood products, or agricultural commodities and
products, or that supply goods and services to such companies. These include
companies contributing to and/or profiting from, these sectors, especially those
active in production, processing and supply chain services. Part of the natural
resources strategy is managed by PGI using a passive management strategy in
which PGI purchases all of the securities in the S&P Global Natural
Resources Index, and weighs them equally, in an attempt to match or exceed the
performance of the index.
Commodities are
assets that have tangible properties, such as oil, coal, natural gas,
agricultural products, industrial metals, livestock and precious metals. To gain
exposure to the commodities markets without investing directly in physical
commodities, the Fund invests in a combination of commodity index-linked notes
and fixed-income securities. Commodity index-linked notes are derivative debt
instruments with principal and/or coupon payments linked to the performance of
commodity indices. These notes are sometimes referred to as "structured notes"
because the terms of these notes may be structured by the issuer and the
purchaser of the note. The value of these notes will rise or fall in response to
changes in the underlying commodity index and will be subject to credit and
interest rate risks that typically affect debt securities. The fixed income
securities are primarily short-term U.S. Treasury and Agency notes and
bonds.
The Fund
invests in a
wholly-owned subsidiary of the Fund organized under the laws of the Cayman
Islands (the “Cayman Subsidiary”). The Fund invests in the Cayman Subsidiary to
gain exposure to the commodity markets within the limitations of the federal tax
law requirements applicable to regulated investment companies (“RICs”) under the
Internal Revenue Code (the “Code”). The Cayman Subsidiary invests in
commodity-linked derivatives, including commodity-linked swaps, commodity
futures contracts and/or options on commodities, as well as instruments such as
fixed income securities, cash and cash equivalents and/or U.S. government
securities, either as investments or to serve as margin or collateral for the
Cayman Subsidiary's derivatives positions.
The Fund invests in
equity securities of companies that have at least 50% of its assets, income or
profits derived from products or services related to the real estate industry
("real estate companies"). Real estate companies include real estate investment
trusts ("REITs"), REIT-like entities, and companies with substantial real estate
holdings such as paper, lumber, hotel and entertainment companies as well as
building supply manufacturers, mortgage lenders, and mortgage servicing
companies.
The Fund invests
in currency forward
contracts and options for the purpose of hedging risk and providing total
return. This portion of the Fund invests in currencies of economically and
politically stable industrialized nations, and approximately 20 of the most
liquid emerging market currencies. To help preserve purchasing power, when
domestic inflation increases, the Fund seeks to invest in currencies in
countries where inflation remains low and stable.
The Fund invests in
inflation-indexed bonds issued by the U.S. and non-U.S. governments, their
agencies or instrumentalities and U.S. and non-U.S. corporations.
Inflation-indexed bonds are fixed-income securities that are structured to
provide protection against inflation. The value of the bond's principal or the
interest income paid on the bond is adjusted to track changes in an official
inflation measure.
The Fund invests in
below-investment-grade (sometimes called “junk”) or comparable unrated floating
rate debt (also known as bank loans, syndicated loans, leveraged loans or senior
floating rate interests). Floating rate debt has a variable coupon that resets
periodically, with interest payments determined by a representative interest
rate index (e.g. LIBOR or the federal funds rate) plus a fixed spread. As a
result, the coupon payments vary, or “float” with prevailing market interest
rates.
During the fiscal year ended August
31, 2017, the average ratings of the Fund’s fixed-income assets, based on market
value at each month-end, were as follows (all ratings are by
Moody’s):
|
|
|
|
|
41.56% in securities rated
Aaa |
5.84% in securities rated
Baa |
3.24% in securities rated
Caa |
0.10% in securities rated
D |
0.00% in securities rated
Aa |
23.93% in securities rated
Ba |
0.05% in securities rated
Ca |
6.86% in securities not
rated |
0.65% in securities rated
A |
17.77% in securities rated
B |
0.00% in securities rated
C |
|
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund, in alphabetical order,
are:
Asset Allocation
Risk. A fund's
selection and weighting of asset classes and allocation among sub-advisors 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.
Cayman Subsidiary
Risk. A fund is subject
to the particular risks associated with the investments of the Fund’s
wholly-owned Cayman Subsidiary, namely Commodity-Related Investments Risk,
Counterparty Risk and Derivatives Risk. The Cayman Subsidiary is not registered
under the Investment Company Act and is not subject to all the investor
protections of the Investment Company Act. The laws of the Cayman Islands and/or
the United States (including the IRS position on income earned from wholly-owned
subsidiaries described in past IRS private letter rulings) may change, resulting
in the inability of the fund and/or the Cayman Subsidiary to operate as
described in this Prospectus.
Commodity-Related
Investments Risk.
The value of
commodities investments will generally be affected by overall market movements
and factors specific to a particular industry or commodity, which may include
weather, embargoes, tariffs, and economic health, political, international
regulatory and other developments. Exposure to the commodities markets may
subject the fund to greater volatility than investments in traditional
securities.
Counterparty
Risk. Counterparty risk is the risk that
the counterparty to a contract or other obligation will be unable or unwilling
to honor its obligations.
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.
|
|
• |
Commodity
Index-Linked Notes. Commodity index-linked notes expose the fund to
movements in commodity prices. They are also subject to credit,
counterparty, and interest rate risk. Commodity index-linked notes are
often leveraged. At the maturity of the note, the fund may receive more or
less principal than it originally invested. The fund may also receive
interest payments on the note that are less than the stated coupon
interest payments. |
|
|
• |
Currency
Contracts. Derivatives related to
currency contracts involve the specific risk of government action through
exchange controls that would restrict the ability of the fund to deliver
or receive currency. |
|
|
• |
Forward
Contracts, Futures and Swaps. Forward contracts, futures,
and swaps involve specific risks, including: the imperfect correlation
between the change in market value of the instruments held by the fund and
the price of the forward contract, future or swap; possible lack of a
liquid secondary market for a forward contract, future or swap and the
resulting inability to close a forward contract, future or swap when
desired; counterparty risk; and if the fund has insufficient cash, it may
have to sell securities from its portfolio to meet daily variation margin
requirements. |
|
|
• |
Options.
Options involve specific risks,
including: imperfect correlation between the change in market value of the
instruments held by the fund and the price of the options, counterparty
risk, difference in trading hours for the options markets and the markets
for the underlying securities (rate movements can take place in the
underlying markets that cannot be reflected in the options markets), and
an insufficient liquid secondary market for particular
options. |
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
|
|
• |
Growth
Stock Risk.
If growth companies do not
increase their earnings at a rate expected by investors, the market price
of the stock may decline significantly, even if earnings show an absolute
increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market
downturns. |
|
|
• |
Small and
Medium Market Capitalization Companies Risk. Investments in small and medium sized companies
may involve greater risk and price volatility than investments in larger,
more mature companies. |
|
|
• |
Value Stock
Risk. Value stocks may continue to
be undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that
appears would cause the stock price to increase may not occur as
anticipated or at all. Moreover, a stock that appears to be undervalued
actually may be appropriately priced at a low level and therefore would
not be profitable for the fund. |
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
generally increases when interest rates fall. Higher 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.
Foreign Currency
Risk. Risks of investing in securities
denominated in, or that trade in, foreign (non-U.S.) currencies include changes
in foreign exchange rates and foreign exchange restrictions.
Foreign
Securities Risk.
The risks of foreign
securities include loss of value as a result of: political or economic
instability; nationalization, expropriation or confiscatory taxation; settlement
delays; and limited government regulation (including less stringent reporting,
accounting, and disclosure standards than are required of U.S.
companies).
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.
Industry
Concentration Risk. A
fund that concentrates investments in a particular industry or group of
industries has greater exposure than other funds to market, economic and other
factors affecting that industry or group of industries.
|
|
• |
Energy/Natural
Resources. A fund concentrating in
energy/natural resource companies may be affected by numerous factors,
including events occurring in nature, inflationary pressures,
international politics, the success of exploration projects, commodity
prices, energy conservation, taxes and other government regulations. In
addition, interest rates and general economic conditions may affect the
demand for energy/natural resources. For example, events occurring in
nature (such as earthquakes or fires in prime energy/natural resource
areas) and political events (such as coups, military confrontations or
acts of terrorism) can affect overall supply of energy/natural resources
and the value of companies involved in energy/natural
resources. |
|
|
• |
Real
Estate.
A fund concentrating in the real
estate industry is subject to the risks associated with direct ownership
of real estate, securities of companies in the real estate industry,
and/or real estate investment trusts. |
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.
Master Limited
Partnership ("MLP") Risk. MLPs are publicly-traded limited
partnership interests or units. An MLP that invests in a particular industry
(e.g., oil and gas) will be harmed by detrimental economic events within that
industry. As partnerships, MLPs may be subject to less regulation (and less
protection for investors) under state laws than corporations. In addition, MLPs
may be subject to state taxation in certain jurisdictions, which may reduce the
amount of income an MLP pays to its investors.
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.
Real Estate
Investment Trusts (“REITs”) Risk. In addition to risks associated with
investing in real estate securities, REITs are dependent upon management skills,
are not diversified, and are subject to heavy cash flow dependency, risks of
default by borrowers, and self-liquidation. Investment in REITs also involves
risks similar to risks of investing in small market capitalization companies,
such as limited financial resources, less frequent and limited volume trading,
and may be subject to more abrupt or erratic price movements than larger company
securities. A REIT could fail to qualify for tax-free pass-through of income
under the Internal Revenue Code. Fund shareholders will indirectly bear their
proportionate share of the expenses of REITs in which the fund invests.
Real Estate
Securities Risk.
Investing in real
estate securities subjects the fund to the risks associated with the real estate
market (which are similar to the risks associated with direct ownership in real
estate), including declines in real estate values, loss due to casualty or
condemnation, property taxes, interest rate changes, increased expenses, cash
flow of underlying real estate assets, regulatory changes (including zoning,
land use and rents), and environmental problems, as well as to the risks related
to the management skill and creditworthiness of the issuer.
Redemption 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.
U.S. Government
Securities Risk.
Yields available from
U.S. government securities are generally lower than yields from many other
fixed-income securities.
Performance
The following information provides
some indication of the risks of investing in the Fund. Past performance (before
and after taxes) is not necessarily an indication of how the Fund will perform
in the future. You may get updated performance information by calling
1-800-222-5852 or online at www.principalfunds.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.
Life of Fund returns are measured
from the date the Fund's shares were first sold (March 16,
2010).
For periods prior to the inception
date of Class R-6 shares (December 31, 2014), and Classes R-3, R-4, and R-5
shares (March 29, 2016), the performance shown in the table for these newer
classes is that of the Fund's Institutional Class shares, adjusted to reflect
the respective fees and expenses of each class. However, where this adjustment
for fees and expenses results in performance for a newer class that is higher
than the historical performance of the Institutional Class shares, the
historical performance of the Institutional Class shares is used. These
adjustments result in performance for such periods that is no higher than the
historical performance of the Institutional Class shares, which were first sold
March 16, 2010.
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q4
'11 |
7.04% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q3
'15 |
(10.42)% |
(1)
The year-to-date return as of September 30, 2018 was 0.52% for Class A shares.
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2017 |
1
Year |
5
Years |
Life of
Fund |
Class A
Return Before Taxes |
5.59% |
0.83% |
3.36% |
Class A
Return After Taxes on Distributions |
4.89% |
0.30% |
2.82% |
Class A
Return After Taxes on Distributions and Sale of Fund
Shares |
3.31% |
0.46% |
2.51% |
Class C
Return Before Taxes |
7.99% |
0.85% |
3.12% |
Institutional
Class Return Before Taxes |
10.17% |
1.99% |
4.29% |
Class R-3
Return Before Taxes |
9.55% |
1.46% |
3.75% |
Class R-4
Return Before Taxes |
9.84% |
1.66% |
3.95% |
Class R-5
Return Before Taxes |
9.97% |
1.79% |
4.08% |
Class R-6
Return Before Taxes |
10.24% |
2.01% |
4.29% |
Diversified Real Asset
Strategic Index (reflects no deduction for fees, expenses, or
taxes) |
10.38% |
1.62% |
3.29% |
Bloomberg Barclays U.S.
Treasury TIPS Index (reflects no deduction for fees, expenses, or
taxes) |
3.01% |
0.13% |
3.28% |
S&P Global Infrastructure
Index (reflects no deduction for fees, expenses, or taxes) |
19.07% |
8.30% |
7.19% |
S&P Global Natural
Resources Index (reflects no deduction for fees, expenses, or
taxes) |
21.98% |
1.89% |
1.43% |
Bloomberg Commodity Index
(reflects no deduction for fees, expenses, or taxes) |
1.70% |
(8.45)% |
(4.92)% |
FTSE EPRA/NAREIT Developed
Index (reflects no deduction for fees, expenses, or taxes) |
10.36% |
6.32% |
8.43% |
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.
Performance of a blended index shows
how the Fund’s performance compares to a blend of indices with similar
investment objectives. Performance of the components of the blended index are
also shown. The weightings of the Diversified Real Asset Strategic Index are as
follows: 35% Bloomberg Barclays U.S. Treasury TIPS Index, 20% S&P Global
Infrastructure Index, 20% S&P Global Natural Resources Index, 15% Bloomberg
Commodity Index, and 10% FTSE EPRA/NAREIT Developed Index. The blended index
returns reflect the allocation described in the preceding sentence.
Management
Investment
Advisor and Portfolio Managers:
Principal Global Investors,
LLC
|
|
• |
Jake S. Anonson (since 2014),
Portfolio Manager |
|
|
• |
Jessica S. Bush (since 2014),
Portfolio Manager |
|
|
• |
Marcus W. Dummer (since 2014),
Portfolio Manager |
|
|
• |
Kelly A. Grossman (since
2010), Portfolio Manager |
|
|
• |
Benjamin E. Rotenberg (since
2014), Portfolio Manager |
Sub-Advisors:
BlackRock Financial Management,
Inc.
BNP PARIBAS ASSET MANAGEMENT USA,
Inc.
BNY Mellon Asset Management North
America Corporation (Effective on or about January 2, 2019, this Sub-Advisor
will change its name to Mellon Corporation.)
Credit Suisse Asset Management,
LLC
Macquarie Capital Investment
Management LLC
Pictet Asset Management SA
Principal Real Estate Investors,
LLC
RARE Infrastructure (North America)
Pty Limited
Symphony Asset Management LLC
Tortoise Capital Advisors,
L.L.C.
Sub-Sub-Advisor:
BlackRock International
Limited
Purchase and Sale
of Fund Shares
|
|
|
|
Share
Class |
Investment
Type |
Purchase
Minimum
Per
Fund |
A and
C |
Initial
Investment |
$1,000(1) |
A and
C |
Initial Investment for accounts
with an Automatic Investment Plan (AIP) |
$100 |
A and
C |
Subsequent
Investments |
$100(1)(2) |
Institutional,
R-3, R-4, R-5, and
R-6 |
There are no minimum initial or
subsequent investment requirements for eligible
purchasers. |
N/A |
|
|
(1) |
Some exceptions apply; see
"Purchase of Fund Shares - Minimum Investments" for more
information. |
|
|
(2) |
For accounts with an AIP, the
subsequent automatic investments must total $1,200 annually if the initial
$1,000 minimum has not been met. |
You may purchase or redeem shares on
any business day (normally any day when the New York Stock Exchange is open for
regular trading) through your plan, intermediary, or Financial Professional; by
sending a written request to Principal Funds at P.O. Box 8024, Boston, MA
02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight
mail); calling us at 1-800-222-5852; or accessing our website
(www.principalfunds.com).
Class C shares are subject to a
10-year automatic conversion plan whereby Class C shares held for ten years
after purchase will automatically convert to Class A shares of the same Fund.
See “Purchase of Fund Shares” in the Prospectus 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
For Class R-6 shares, the Fund and
its related companies do not pay broker-dealers or other financial
intermediaries (such as a bank, insurance company, investment adviser, etc.) for
the sale of Fund shares or related services.
For the other share classes, if you
purchase the Fund through a broker-dealer or other financial intermediary (such
as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment, or to recommend one share class of
the Fund over another share class. Ask your salesperson or visit your financial
intermediary's website for more information.
DYNAMIC FLOATING
RATE HIGH INCOME FUND
On June 12, 2018, the Board of
Directors of Principal Funds, Inc. approved the Plan of Liquidation and
Termination (the “Plan”) for the Dynamic Floating Rate High Income Fund (the
“Fund”). Shares of the Fund are no longer available for purchase from new
investors. Pursuant to the Plan, on the Liquidation Date, all outstanding shares
will be redeemed at net asset value, proceeds will be sent to shareholders of
record, and the Fund will discontinue its operations. The Plan set a Liquidation
Date of on or about October 19, 2018; however, the Liquidation Date has been
postponed to a date that will be set by the Fund’s officers. Such date has not
yet been determined.
Instead of waiting until the
Liquidation Date, shareholders may voluntarily redeem or exchange
shares in accordance with the policies and procedures described in the
Prospectus. Shareholders should consult their tax advisers regarding the tax
treatment of the liquidation and any prior redemption or exchange.
The Fund has ceased its ordinary
course of business and has departed from its stated investment objective and
policies as it prepares to liquidate and distribute its assets to
shareholders. As of the date of this supplement, the Fund’s portfolio is
positioned primarily in cash and cash equivalents. This may adversely
affect the Fund’s yield.
Effective October 20, 2018, the
Fund’s investment adviser, Principal Global Investors, LLC, has voluntarily
agreed to limit the Fund’s expenses by paying, if necessary, expenses normally
payable by the Fund (excluding interest expense, expenses related to fund
investments, acquired fund fees and expenses, and other extraordinary expenses)
to maintain a total level of operating expenses (expressed as a percent of
average net assets on an annualized basis) not to exceed 0.00% for all share
classes of the Fund. This voluntary expense limit may be terminated at any
time.
Objective: The Fund seeks to provide a high
level of current income.
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund. You may
qualify for sales charge discounts if you and your family invest, or agree to
invest in the future, at least $100,000 in Class A shares of Principal
Funds, Inc. More information about these and other discounts is available from
your financial professional and in “Choosing a Share Class and The Costs of
Investing” beginning on page ___ of the Fund’s prospectus, Appendix C to the
prospectus titled "Intermediary-Specific Sales Charge Waivers and Reductions",
and “Multiple Class Structure” beginning on page __ of the Fund’s Statement of
Additional Information.
Shareholder Fees
(fees paid directly from your investment)
|
|
|
|
|
Share
Class |
|
A |
Inst. |
Maximum Sales Charge (Load)
Imposed on Purchases (as a percentage of offering price) |
3.75% |
None |
Maximum Deferred Sales Charge
(Load) (as a percentage of the offering price or NAV at the time Sales
Load is paid, whichever is less) |
1.00% |
None |
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Share
Class |
|
A |
Inst. |
Management Fees |
0.65% |
0.65% |
Distribution and/or Service
(12b-1) Fees |
0.25% |
N/A |
Other Expenses |
0.89% |
0.75% |
Acquired Fund Fees and
Expenses |
0.02% |
0.02% |
Total Annual
Fund Operating Expenses |
1.81% |
1.42% |
Expense Reimbursement
(1) |
(0.69)% |
(0.65)% |
Total Annual
Fund Operating Expenses after Expense Reimbursement |
1.12% |
0.77% |
|
|
|
(1) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s expenses by paying, if necessary, expenses normally payable by the
Fund, (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses) to
maintain a total level of operating expenses (expressed as a percent of
average net assets on an annualized basis) not to exceed 1.10% for Class A
and 0.75% for Institutional Class shares. It is expected that the expense
limits will continue through the period ending December 30, 2019; however,
Principal Funds, Inc. and PGI, the parties to the agreement, may mutually
agree to terminate the expense limits prior to the end of the
period. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. 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 |
$485 |
$858 |
$1,256 |
$2,367 |
Institutional
Class |
79 |
385 |
714 |
1,646 |
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 annualized portfolio turnover rate was 104.0% of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the Fund
invests at least 80% of its net assets, plus any borrowings for investment
purposes, in floating rate debt securities, including bank loans and corporate
bonds, and other investment companies that provide investment exposure to such
floating rate securities. Floating interest rates vary with and are periodically
adjusted to reflect changes in a generally recognized base interest rate such as
LIBOR (London Interbank Offered Rate) or the prime rate. Floating rate debt
securities are often below investment grade rated securities (sometimes called
“high yield” or “junk”) which are rated at the time of purchase Ba1 or lower by
Moody’s Investors Services, Inc. (“Moody’s”) or BB+ or lower by S&P Global
Ratings (“S&P Global”) (if the security has not been rated by either of
those agencies, the Sub-Advisor will determine whether the security is of a
quality comparable to those rated below investment grade). The Fund also invests
in US and non-US fixed-rate loans, investment grade and below investment grade
corporate bonds. Under normal circumstances, the Fund maintains an average
portfolio duration that is within 0 to 2 years. The Fund actively trades
portfolio securities. From time to time, the Fund borrows to purchase securities
prior to the settlement of bank loan sales transactions.
The Fund uses derivative instruments
for hedging, managing fixed income exposure, managing foreign currency exposure,
and/or mitigating volatility. A derivative is a financial arrangement, the value
of which is derived from, or based on, a traditional security, asset, or market
index. Specifically, the Fund invests in futures contracts (including Treasury,
sovereign bond and volatility futures) and/or interest rate swaps to manage the
fixed-income exposure (including for hedging purposes) and credit default swaps
to increase or decrease, in an efficient manner, exposure to certain sectors or
individual issuers. The Fund uses forwards to manage its foreign currency
exposure.
During the fiscal year ended August
31, 2017, the average ratings of the Fund’s fixed-income assets, based on market
value at each month-end, were as follows (all ratings are by
Moody’s):
|
|
|
|
|
0.00% in securities rated
Aaa |
13.42% in securities rated
Baa |
4.29% in securities rated
Caa |
0.00% in securities rated
D |
0.00% in securities rated
Aa |
49.46% in securities rated
Ba |
0.05% in securities rated
Ca |
1.07% in securities not
rated |
0.00% in securities rated
A |
31.71% in securities rated
B |
0.00% in securities rated
C |
|
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund, in alphabetical order,
are:
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.
Borrowing
Risk. Borrowing can increase fund expenses
due to interest payments to lenders and related expenses. Such borrowing also
might reduce the fund’s return if the yield on the investments purchased is less
than the borrowing costs.
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. |
|
|
• |
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. |
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
generally increases when interest rates fall. Higher 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.
Foreign
Securities Risk.
The risks of foreign
securities include loss of value as a result of: political or economic
instability; nationalization, expropriation or confiscatory taxation; settlement
delays; and limited government regulation (including less stringent reporting,
accounting, and disclosure standards than are required of U.S.
companies).
Hedging
Risk. A fund that implements a hedging
strategy using derivatives and/or securities could expose the fund to the risk
that can arise when a change in the value of a hedge does not match a change in
the value of the asset it hedges. In other words, the change in value of the
hedge could move in a direction that does not match the change in value of the
underlying asset, resulting in a risk of loss to the fund.
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.
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.
Portfolio
Turnover (Active Trading) Risk. High portfolio turnover (more than
100%) caused by actively trading portfolio securities may result in accelerating
the realization of taxable gains and losses, lower fund performance and
increased brokerage costs.
Volatility
Mitigation Risk.
Volatility mitigation
strategies may increase fund transaction costs, which could increase losses or
reduce gains. These strategies may not protect the fund from market
declines and may reduce the fund’s participation in market gains.
Performance
The following information provides
some indication of the risks of investing in the Fund. Past performance (before
and after taxes) is not necessarily an indication of how the Fund will perform
in the future. You may get updated performance information by calling
1-800-222-5852 or online at www.principalfunds.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.
Life of Fund returns are measured
from the date the Fund's shares were first sold (September 10,
2014).
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q3
'16 |
4.35% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'15 |
(3.74)% |
(1)
The year-to-date return as of September 30, 2018 was 3.09% for Class A shares.
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2017 |
1
Year |
Life of
Fund |
Class A
Return Before Taxes |
(0.16)% |
1.23% |
Class A
Return After Taxes on Distributions |
(1.94)% |
(0.77)% |
Class A
Return After Taxes on Distributions and Sale of Fund
Shares |
(0.10)% |
0.00% |
Institutional
Class Return Before Taxes |
3.95% |
2.75% |
S&P/LSTA Leveraged Loan 100
Index (reflects no deduction for fees, expenses, or taxes) |
3.31% |
2.94% |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts. After-tax returns are shown for Class A shares only and would be
different for the other share classes.
Management
Investment
Advisor and Portfolio Managers:
Principal Global Investors,
LLC
|
|
• |
Mark P. Denkinger (since
2014), Portfolio Manager |
|
|
• |
Jason Hahn (since 2014),
Portfolio Manager |
|
|
• |
Josh Rank (since 2014),
Portfolio Manager |
|
|
• |
Darrin E. Smith (since 2014),
Portfolio Manager |
Purchase and Sale
of Fund Shares
|
|
|
|
Share
Class |
Investment
Type |
Purchase
Minimum
Per
Fund |
A |
Initial
Investment |
$1,000(1) |
A |
Initial Investment for accounts
with an Automatic Investment Plan (AIP) |
$100 |
A |
Subsequent
Investments |
$100(1)(2) |
Institutional |
There are no minimum initial or
subsequent investment requirements for eligible
purchasers. |
N/A |
|
|
(1) |
Some exceptions apply; see
"Purchase of Fund Shares - Minimum Investments" for more
information. |
|
|
(2) |
For accounts with an AIP, the
subsequent automatic investments must total $1,200 annually if the initial
$1,000 minimum has not been met. |
You may purchase or redeem shares on
any business day (normally any day when the New York Stock Exchange is open for
regular trading) through your plan, intermediary, or Financial Professional; by
sending a written request to Principal Funds at P.O. Box 8024, Boston, MA
02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight
mail); calling us at 1-800-222-5852; or accessing our website
(www.principalfunds.com).
Tax
Information
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
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment, or to recommend one share class of the Fund over another share
class. Ask your salesperson or visit your financial intermediary's website for
more information.
EDGE MIDCAP
FUND
|
|
Objective: |
The Fund seeks long-term
growth of capital. |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund. You may
qualify for sales charge discounts if you and your family invest, or agree to
invest in the future, at least $50,000 in Class A shares of Principal Funds,
Inc. More information about these and other discounts is available from your
financial professional and in “Choosing a Share Class and The Costs of
Investing” beginning on page ___ of the Fund’s prospectus, Appendix C to the
prospectus titled "Intermediary-Specific Sales Charge Waivers and Reductions",
and “Multiple Class Structure” beginning on page __ of the Fund’s Statement of
Additional Information.
Shareholder Fees
(fees paid directly from your investment):
|
|
|
|
|
|
Share
Class |
|
|
A |
Inst. |
R-6 |
Maximum Sales Charge (Load)
Imposed on Purchases (as a percentage of offering price) |
5.50% |
None |
None |
Maximum Deferred Sales Charge
(Load) (as a percentage of the offering price or NAV at the time Sales
Load is paid, whichever is less) |
1.00% |
None |
None |
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
|
Share
Class |
|
A |
Inst. |
R-6 |
Management Fees |
0.75% |
0.75% |
0.75% |
Distribution and/or Service
(12b-1) Fees |
0.25% |
N/A |
N/A |
Other Expenses (1) |
0.38% |
0.03% |
0.06% |
Total Annual
Fund Operating Expenses |
1.38% |
0.78% |
0.81% |
Expense Reimbursement
(2)
|
(0.18)% |
—% |
(0.04)% |
Total Annual
Fund Operating Expenses after Expense Reimbursement |
1.20% |
0.78% |
0.77% |
|
|
|
|
|
(1) |
Based on estimated amounts for
the current fiscal year (Class A). |
(2) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s expenses by paying, if necessary, expenses normally payable by the
Fund, (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses) to
maintain a total level of operating expenses (expressed as a percent of
average net assets on an annualized basis) not to exceed 1.20% for Class A
and 0.90% for Institutional Class shares. In addition, for Class R-6, the
expense limit will maintain "Other Expenses" (expressed as a percent of
average net assets on an annualized basis) not to exceed 0.02%, (excluding
interest expense, expenses related to fund investments, acquired fund fees
and expenses, and other extraordinary expenses). It is expected that the
expense limits will continue through the period ending December 30, 2019;
however, Principal Funds, Inc. and PGI, the parties to the agreement, may
mutually agree to terminate the expense limits prior to the end of the
period. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. 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 |
$666 |
$946 |
$1,247 |
$2,102 |
Institutional
Class |
80 |
249 |
433 |
966 |
Class
R-6 |
79 |
255 |
446 |
998 |
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 annualized portfolio turnover rate was 11.9% of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the Fund
invests at least 80% of its net assets, plus any borrowings for investment
purposes, in equity securities of companies with medium market capitalizations
at the time of purchase. For this Fund, companies with medium market
capitalizations are those with market capitalizations within the range of
companies comprising the Russell Midcap ®
Index (as of April 30, 2018,
this range was between approximately $879.6 million and $41.0 billion). The Fund
invests in real estate investment trust ("REIT") securities.
The Fund invests in equity
securities with value and/or growth characteristics and constructs an investment
portfolio that has a "blend" of equity securities with these characteristics.
Investing in value equity securities is an investment strategy that emphasizes
buying equity securities that appear to be undervalued. The growth orientation
selection emphasizes buying equity securities of companies whose potential for
growth of capital and earnings is expected to be above average. The Fund does
not have a policy of preferring one of these categories over the
other.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund, in alphabetical order,
are:
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
|
|
• |
Growth
Stock Risk.
If growth companies do not
increase their earnings at a rate expected by investors, the market price
of the stock may decline significantly, even if earnings show an absolute
increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market
downturns. |
|
|
• |
Small and
Medium Market Capitalization Companies Risk. Investments in small and medium sized companies
may involve greater risk and price volatility than investments in larger,
more mature companies. |
|
|
• |
Value Stock
Risk. Value stocks may continue to
be undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that
appears would cause the stock price to increase may not occur as
anticipated or at all. Moreover, a stock that appears to be undervalued
actually may be appropriately priced at a low level and therefore would
not be profitable for the fund. |
Real Estate
Investment Trusts (“REITs”) Risk. In addition to risks associated with
investing in real estate securities, REITs are dependent upon management skills,
are not diversified, and are subject to heavy cash flow dependency, risks of
default by borrowers, and self-liquidation. Investment in REITs also involves
risks similar to risks of investing in small market capitalization companies,
such as limited financial resources, less frequent and limited volume trading,
and may be subject to more abrupt or erratic price movements than larger company
securities. A REIT could fail to qualify for tax-free pass-through of income
under the Internal Revenue Code. Fund shareholders will indirectly bear their
proportionate share of the expenses of REITs in which the fund invests.
Real Estate
Securities Risk.
Investing in real
estate securities subjects the fund to the risks associated with the real estate
market (which are similar to the risks associated with direct ownership in real
estate), including declines in real estate values, loss due to casualty or
condemnation, property taxes, interest rate changes, increased expenses, cash
flow of underlying real estate assets, regulatory changes (including zoning,
land use and rents), and environmental problems, as well as to the risks related
to the management skill and creditworthiness of the issuer.
Redemption 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 by calling
1-800-222-5852 or online at www.principalfunds.com.
The bar chart shows the investment
returns of the Fund’s Institutional Class shares for each full calendar year of
operations for 10 years (or, if shorter, the life of the Fund). The table shows
for the last one, five, and ten calendar year periods (or, if shorter, the life
of the Fund), how the Fund’s average annual total returns compare with those of
one or more broad measures of market performance.
Life of Fund returns are measured
from the date the Fund's shares were first sold (September 28,
2015).
For periods prior to the inception
date of Class A shares (______, 2018) and Class R-6 shares (January 3, 2017),
the performance shown in the table for Class A and R-6 shares is that of the
Fund's Institutional Class shares, adjusted to reflect the fees and expenses of
each class. However, where this adjustment for fees and expenses results in
performance for a newer class that is higher than the historical performance of
the Institutional Class shares, the historical performance of the Institutional
Class shares is used. These adjustments result in performance for such periods
that is no higher than the historical performance of the Institutional Class
shares, which were first sold September 28, 2015.
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q1
'16 |
9.58% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q2
'17 |
1.99% |
(1)
The year-to-date return as of September 30, 2018 was 8.72% for Institutional Class
shares.
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2017 |
1 Year |
Life of
Fund |
Class A
Return Before Taxes |
7.30% |
14.28% |
Class A
Return After Taxes on Distributions |
7.04% |
13.29% |
Class A
Return After Taxes on Distribution and Sale of Fund Shares |
4.35% |
10.73% |
Institutional
Class Return Before Taxes |
14.00% |
17.63% |
Class R-6
Return Before Taxes |
14.77% |
17.96% |
Russell MidCap Index (reflects
no deduction for fees, expenses, or taxes) |
18.52% |
16.86% |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts. After-tax returns are shown for Class A shares only and would be
different for the other share classes.
Management
Investment
Advisor and Portfolio Managers:
Principal Global Investors,
LLC
|
|
• |
Daniel R. Coleman (since
2015), Portfolio Manager |
|
|
• |
Theodore Jayne (since 2015),
Portfolio Manager |
Purchase and Sale
of Fund Shares
|
|
|
|
Share
Class |
Investment
Type |
Purchase
Minimum
Per
Fund |
A
|
Initial
Investment |
$1,000(1) |
A
|
Initial Investment for accounts
with an Automatic Investment Plan (AIP) |
$100 |
A
|
Subsequent
Investments |
$100(1)(2) |
Institutional
and R-6 |
There are no minimum initial or
subsequent investment requirements for eligible
purchasers. |
N/A |
You may purchase or redeem shares on
any business day (normally any day when the New York Stock Exchange is open for
regular trading) through your plan, intermediary, or Financial Professional; by
sending a written request to Principal Funds at P.O. Box 8024, Boston, MA
02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight
mail); calling us at 1-800-222-5852; or accessing our website
(www.principalfunds.com).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
For Class R-6 shares, the Fund and
its related companies do not pay broker-dealers or other financial
intermediaries (such as a bank, insurance company, investment adviser, etc.) for
the sale of Fund shares or related services.
For Institutional Class shares, if
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment, or to recommend one share class of
the Fund over another share class. Ask your salesperson or visit your financial
intermediary's website for more information.
GLOBAL
MULTI-STRATEGY FUND
|
|
Objective: |
The Fund seeks to achieve
long-term capital appreciation with an emphasis on positive total returns
and managing volatility. |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund. You may
qualify for sales charge discounts if you and your family invest, or agree to
invest in the future, at least $100,000 in Class A shares of Principal
Funds, Inc. More information about these and other discounts is available from
your financial professional and in “Choosing a Share Class and The Costs of
Investing” beginning on page ___ of the Fund’s prospectus, Appendix C to the
prospectus titled "Intermediary-Specific Sales Charge Waivers and Reductions",
and “Multiple Class Structure” beginning on page __ of the Fund’s Statement of
Additional Information.
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 at the time 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 |
1.56% |
1.56% |
1.56% |
1.56% |
Distribution and/or Service
(12b-1) Fees |
0.25% |
1.00% |
N/A |
N/A |
Other Expenses: |
|
|
|
|
Dividend and
Interest Expense on Short Sales |
0.54% |
0.54% |
0.54% |
0.54% |
Reverse
Repurchase Agreement Interest Expense |
0.04% |
0.04% |
0.04% |
0.04% |
Remainder of
Other Expenses (1) |
0.13% |
0.19% |
0.07% |
0.01% |
Total Other
Expenses |
0.71% |
0.77% |
0.65% |
0.59% |
Acquired Fund Fees and
Expenses |
0.04% |
0.04% |
0.04% |
0.04% |
Total Annual
Fund Operating Expenses |
2.56% |
3.37% |
2.25% |
2.19% |
Fee Waiver and Expense
Reimbursement (2)(3) |
(0.04)% |
(0.04)% |
(0.04)% |
(0.04)% |
Total Annual
Fund Operating Expenses after Fee Waiver and Expense
Reimbursement |
2.52% |
3.33% |
2.21% |
2.15% |
|
|
|
(1) |
Based on estimated amounts for
the current fiscal year (R-6). |
(2) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s Management Fees through the period ending December 30, 2019. The
fee waiver will reduce the Fund's Management Fees by 0.04% (expressed as a
percent of average net assets on an annualized basis). It is expected that
the fee waiver will continue through the period disclosed; however,
Principal Funds, Inc. and PGI, the parties to the agreement, may mutually
agree to terminate the fee waiver prior to the end of the
period. |
(3) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s expenses by paying, if necessary, expenses normally payable by the
Fund, (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses) to
maintain a total level of operating expenses (expressed as a percent of
average net assets on an annualized basis) not to exceed 2.75% for Class C
and 1.63% for Institutional Class shares. In addition, for Class R-6, the
expense limit will maintain "Other Expenses" (expressed as a percent of
average net assets on an annualized basis) not to exceed 0.02%, (excluding
interest expense, expenses related to fund investments, acquired fund fees
and expenses, and other extraordinary expenses). It is expected that the
expense limits will continue through the period ending December 30, 2019;
however, Principal Funds, Inc. and PGI, the parties to the agreement, may
mutually agree to terminate the expense limits prior to the end of the
period. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. The calculation of costs takes into account any applicable
contractual fee waivers and/or expense reimbursements for the period noted in
the table above. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Class
A |
$621 |
$1,138 |
$1,681 |
$3,159 |
Class
C |
436 |
1,032 |
1,752 |
3,655 |
Institutional
Class |
224 |
699 |
1,201 |
2,582 |
Class
R-6 |
218 |
681 |
1,171 |
2,521 |
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 |
$336 |
$1,032 |
$1,752 |
$3,655 |
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 annualized portfolio turnover rate was 317.6% of the average value of its
portfolio.
Principal
Investment Strategies
Principal Global Investors, LLC
("PGI"), the Fund's investment advisor, seeks to combine diversified investment
strategies efficiently and systematically so that the Fund generates a positive
total return with relatively low volatility and low sensitivity or correlation
to market indices. In managing the Fund, PGI allocates the Fund’s assets among
the investment strategies described below, which one or more of the Fund's
sub-advisors execute. PGI has considerable latitude in allocating the Fund's
assets. The Fund will use 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.
The Fund invests in a broad range of
instruments including, but not limited to, equities, bonds, currencies,
commodities, convertible securities, and bank loans. Under normal market
conditions, the Fund invests in securities of issuers located throughout the
world, including the U.S., invests at least 30% of its net assets in foreign and
emerging market securities, and holds investments tied economically to at least
twenty countries.
The Fund invests in equity
securities regardless of market capitalization size (small, medium, or large)
and style (growth or value). The Fund invests in investment-grade and 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 fixed income portion of the Fund is not managed to a
particular maturity or duration. The Fund actively trades portfolio
securities.
The Fund invests in derivative
instruments. A derivative is a financial arrangement, the value of which is
derived from, or based on, a traditional security, asset, or market index. The
strategies use different types of derivative instruments for various purposes,
including to gain exposure to securities and to attempt to reduce risk. The Fund
may invest in money market funds in order to provide collateral for certain
derivative positions and other financial instruments and to provide asset
coverage for certain derivative positions and other financial instruments that
create obligations to make future payments to third parties.
The Fund takes long and short
positions in securities and derivative instruments. When taking a short
position, the Fund may sell an instrument that it does not own and then borrow
to meet its settlement obligations. Short positions benefit from a decrease in
price of the underlying instrument and lose value if the price of the underlying
instrument increases. Long positions profit if the value of the instrument
increases. Simultaneously engaging in long investing and short selling reduces
the net exposure to general market movements. The Fund also takes relative value
positions in an effort capitalize on price differences between similar
securities or relative value among securities of the same company.
Credit/Distressed.
This strategy uses a
flexible approach to invest primarily in fixed income securities and instruments
related to credit, currencies and interest rates, while employing risk
management strategies. This strategy uses a variety of techniques to obtain
market exposure, such as derivative instruments, including options, futures,
forwards and swaps (including credit default swaps); entering into a series of
purchase and sale contracts; purchasing securities on a when-issued, delayed
delivery or forward commitment basis; and engaging in short sales. This strategy
may obtain investment exposure substantially through derivatives instruments,
may use such instruments in an effort to minimize volatility, and may use equity
futures for hedging purposes.
A portion of this strategy takes
long and short positions in selected emerging market issuers when those
selecting such investments identify factors (such as macro-economic factors,
country-specific factors, or credit-specific factors) that they believe will
drive substantial appreciation or depreciation of the particular exposure. The
strategy's geographic focus is derived from economic and political developments
and the specific nature of local jurisdictions in the emerging
markets.
Equity
Long/Short. This strategy provides long and
short exposure to a diversified portfolio of U.S. and foreign, including
emerging market, equity securities. Those selecting such investments
simultaneously invest long in equities they expect to increase in value and
either short sells equities they expect to decrease in value, or hedges equity
market exposure another way (for example, by using derivatives such as futures
or options). This strategy uses two methods of analysis: fundamental analysis,
which examines a company's financial statements and operations, especially
sales, earnings, products, management and competition; and quantitative
analysis, which uses mathematical models to evaluate a company's measurable
characteristics such as revenue, earnings, margins and market
share.
Event-Driven. This strategy invests in securities
on the basis that a specific event or catalyst will affect future prices. This
strategy attempts to capitalize on price discrepancies and returns generated by
corporate activity, such as merger arbitrage, where the Fund holds a long/short
portfolio of stocks of companies involved in mergers.
Global
Macro. This strategy provides long and
short exposure to a broad spectrum of global assets (including equities,
currencies, fixed income securities, bonds, commodities, and interest rates) in
an effort to profit from movement in the prices of securities that are highly
sensitive to macroeconomic conditions. The managed futures portion of this
strategy uses quantitative selection models to help predict movements in these
markets. In pursuing this strategy, the Fund, either directly or through its
wholly-owned subsidiary organized under the laws of the Cayman Islands (the
“Cayman Subsidiary”) invests in commodity-linked derivatives and in instruments
such as fixed income securities, cash and cash equivalents and/or U.S.
government securities, either as investments or to serve as margin or collateral
for derivative positions.
Commodities are assets that have
tangible properties, such as oil, coal, natural gas, agricultural products,
industrial metals, livestock and precious metals. In pursuing certain commodity
strategies, the Fund invests its assets in the Cayman Subsidiary to gain
exposure to the commodity markets within the limitations of the federal tax law
requirements applicable to regulated investment companies (“RICs”) under the
Internal Revenue Code (the “Code”). The Fund's investments in its Cayman
Subsidiary at any time will not exceed 25% of the Fund's net
assets.
Market Neutral.
This strategy invests
in long and short positions across different asset classes (including equity and
fixed income securities) in an effort to neutralize market risk exposure. The
fixed income portion seeks product types that have attractive return
characteristics with low volatility. This strategy uses arbitrage, which is the
simultaneous purchase and sale of assets in an effort to exploit price
differences of identical or similar securities on different markets or in
different forms. The fixed-income arbitrage portion seeks to exploit mispricing
of various, liquid fixed income or interest rate sensitive securities and
provides long and short exposure to developed country bond and currency markets,
investment grade and high yield credit markets, and forward mortgage-backed
securities trading in the to-be-announced ("TBA") markets. The convertible
arbitrage portion structures trades using multiple securities within a
convertible bond issuer's capital structure. This strategy may also use
derivatives to hedge against a decline in interest rates or credit
exposure.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund, in alphabetical order,
are:
Arbitrage Trading
Risk. The underlying
relationships between securities in which the fund takes arbitrage investment
positions may change in an adverse manner, in which case the fund may realize
losses.
Asset Allocation
Risk. A fund's selection and weighting of
asset classes and allocation among sub-advisors 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.
Cayman Subsidiary
Risk. A fund is subject
to the particular risks associated with the investments of the Fund’s
wholly-owned Cayman Subsidiary, namely Commodity-Related Investments Risk,
Counterparty Risk and Derivatives Risk. The Cayman Subsidiary is not registered
under the Investment Company Act and is not subject to all the investor
protections of the Investment Company Act. The laws of the Cayman Islands and/or
the United States (including the IRS position on income earned from wholly-owned
subsidiaries described in past IRS private letter rulings) may change, resulting
in the inability of the fund and/or the Cayman Subsidiary to operate as
described in this Prospectus.
Commodity-Related
Investments Risk.
The value of
commodities investments will generally be affected by overall market movements
and factors specific to a particular industry or commodity, which may include
weather, embargoes, tariffs, and economic health, political, international
regulatory and other developments. Exposure to the commodities markets may
subject the fund to greater volatility than investments in traditional
securities.
Convertible
Securities Risk.
Convertible securities
are securities that are convertible into common stock. Convertible securities
are subject to credit and interest rate risks associated with fixed-income
securities and to stock market risk associated with equity
securities.
Counterparty
Risk. Counterparty risk
is the risk that the counterparty to a contract or other obligation will be
unable or unwilling to honor its obligations.
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. |
|
|
• |
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. |
Emerging Markets
Risk. Investments in
emerging market countries may have more risk than those in developed market
countries because the emerging markets are less developed and more illiquid.
Emerging market countries can also be subject to increased social, economic,
regulatory, and political uncertainties and can be extremely
volatile.
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
|
|
• |
Growth
Stock Risk.
If growth companies do not
increase their earnings at a rate expected by investors, the market price
of the stock may decline significantly, even if earnings show an absolute
increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market
downturns. |
|
|
• |
Small and
Medium Market Capitalization Companies Risk. Investments in small and medium sized companies
may involve greater risk and price volatility than investments in larger,
more mature companies. |
|
|
• |
Value Stock
Risk. Value stocks may continue to
be undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that
appears would cause the stock price to increase may not occur as
anticipated or at all. Moreover, a stock that appears to be undervalued
actually may be appropriately priced at a low level and therefore would
not be profitable for the fund. |
Event-Driven
Trading Risk. Event-driven trading involves the
risk that the special situation may not occur as anticipated, if at all, and
that the market price of a stock declines.
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
generally increases when interest rates fall. Higher 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.
Foreign Currency
Risk. Risks of
investing in securities denominated in, or that trade in, foreign (non-U.S.)
currencies include changes in foreign exchange rates and foreign exchange
restrictions.
Foreign
Securities Risk.
The risks of foreign
securities include loss of value as a result of: political or economic
instability; nationalization, expropriation or confiscatory taxation; settlement
delays; and limited government regulation (including less stringent reporting,
accounting, and disclosure standards than are required of U.S.
companies).
Hedging
Risk. A fund that implements a hedging
strategy using derivatives and/or securities could expose the fund to the risk
that can arise when a change in the value of a hedge does not match a change in
the value of the asset it hedges. In other words, the change in value of the
hedge could move in a direction that does not match the change in value of the
underlying asset, resulting in a risk of loss to the fund.
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.
Investment
Company Securities Risk. A fund that invests in another
investment company (for example, another fund or an exchange-traded fund
(“ETF”)) is subject to the risks associated with direct ownership of the
securities in which such investment company invests. Fund shareholders
indirectly bear their proportionate share of the expenses of each such
investment company.
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.
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.
Portfolio
Turnover (Active Trading) Risk. High portfolio turnover (more than
100%) caused by actively trading portfolio securities may result in accelerating
the realization of taxable gains and losses, lower fund performance and
increased brokerage costs.
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.
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). With respect to securities
that are deliver in TBA transactions, there is a risk that the actual securities
received by the portfolio may be less favorable than what was anticipated when
entering into the transaction.
Short Sale
Risk. A short sale involves the sale by
the fund of a security that it does not own with the hope of purchasing the same
security at a later date at a lower price. A fund may also enter into a short
derivative position through a futures contract or swap agreement. If the price
of the security or derivative has increased during this time, then the fund will
incur a loss equal to the increase in price from the time that the short sale
was entered into plus any premiums and interest paid to the third party.
Therefore, short sales involve the risk that losses may be exaggerated,
potentially losing more money than the actual cost of the investment. Also,
there is the risk that the third party to the short sale may fail to honor its
contract terms, causing a loss to the fund.
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
The following information provides
some indication of the risks of investing in the Fund. Past performance (before
and after taxes) is not necessarily an indication of how the Fund will perform
in the future. You may get updated performance information by calling
1-800-222-5852 or online at www.principalfunds.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.
Life of Fund returns are measured
from the date the Fund's shares were first sold (October 24, 2011).
For periods prior to the inception
date of Class C shares (June 14, 2012) and Class R-6 shares (June 12,
2017), the performance shown in the table for Classes C and R-6 shares is that
of the Fund's Institutional Class shares, adjusted to reflect the respective
fees and expenses of each class. However, where this adjustment for fees and
expenses results in performance for a newer class that is higher than the
historical performance of the Institutional Class shares, the historical
performance of the Institutional Class shares is used. These adjustments result
in performance for such periods that is no higher than the historical
performance of the Institutional Class shares, which were first sold on October
24, 2011.
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q1
'12 |
2.81% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q3
'15 |
(1.99)% |
(1)
The year-to-date return as of September 30, 2018 was (0.45)% for Class A shares.
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2017 |
1 Year |
5
Years |
Life of
Fund |
Class A
Return Before Taxes |
2.26% |
2.48% |
2.81% |
Class A
Return After Taxes on Distributions |
1.33% |
2.01% |
2.37% |
Class A
Return After Taxes on Distributions and Sale of Fund
Shares |
1.49% |
1.82% |
2.09% |
Class C
Return Before Taxes |
4.39% |
2.46% |
2.68% |
Institutional
Class Return Before Taxes |
6.59% |
3.64% |
3.82% |
Class R-6
Return Before Taxes |
6.56% |
3.63% |
3.79% |
HFRI (Hedge Fund Research Inc.)
Fund-of-Funds Composite Index (reflects no deduction for
taxes) |
7.77% |
4.00% |
3.93% |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts. After-tax returns are shown for Class A shares only and would be
different for the other share classes.
Management
Investment
Advisor and Portfolio Managers:
Principal Global Investors,
LLC
|
|
• |
Jake S. Anonson (since 2014),
Portfolio Manager |
|
|
• |
Jessica S. Bush (since 2014),
Portfolio Manager |
|
|
• |
Marcus W. Dummer (since 2014),
Portfolio Manager |
|
|
• |
Kelly A. Grossman (since
2010), Portfolio Manager |
|
|
• |
Benjamin E. Rotenberg (since
2014), Portfolio Manager |
Sub-Advisors:
AQR Capital Management,
LLC
Ascend Capital, LLC
CNH Partners, LLC
Finisterre Capital LLP
Graham Capital Management,
L.P.
KLS Diversified Asset Management
LP
Loomis, Sayles & Company,
L.P.
Los Angeles Capital Management and
Equity Research, Inc.
Sound Point Capital Management,
LP
Wellington Management Company
LLP
York Registered Holdings,
L.P.
Purchase and Sale
of Fund Shares
|
|
|
|
Share
Class |
Investment
Type |
Purchase
Minimum
Per
Fund |
A and
C |
Initial
Investment |
$1,000(1) |
A and
C |
Initial Investment for accounts
with an Automatic Investment Plan (AIP) |
$100 |
A and
C |
Subsequent
Investments |
$100(1)(2) |
Institutional
and R-6 |
There are no minimum initial or
subsequent investment requirements for eligible
purchasers. |
N/A |
|
|
(1) |
Some exceptions apply; see
"Purchase of Fund Shares - Minimum Investments" for more
information. |
|
|
(2) |
For accounts with an AIP, the
subsequent automatic investments must total $1,200 annually if the initial
$1,000 minimum has not been met. |
You may purchase or redeem shares on
any business day (normally any day when the New York Stock Exchange is open for
regular trading) through your plan, intermediary, or Financial Professional; by
sending a written request to Principal Funds at P.O. Box 8024, Boston, MA
02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight
mail); calling us at 1-800-222-5852; or accessing our website
(www.principalfunds.com).
Class C shares are subject to a
10-year automatic conversion plan whereby Class C shares held for ten years
after purchase will automatically convert to Class A shares of the same Fund.
See “Purchase of Fund Shares” in the Prospectus 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
For Class R-6 shares, the Fund and
its related companies do not pay broker-dealers or other financial
intermediaries (such as a bank, insurance company, investment adviser, etc.) for
the sale of Fund shares or related services.
For the other share classes, if you
purchase the Fund through a broker-dealer or other financial intermediary (such
as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment, or to recommend one share class of
the Fund over another share class. Ask your salesperson or visit your financial
intermediary's website for more information.
GLOBAL
OPPORTUNITIES FUND
On September 12, 2018, the Board of
Directors of Principal Funds, Inc. (“PFI”) approved the forced conversion of
this Fund's Class C shares into Class A shares. Effective November 30, 2018,
Class C shares of the Fund were no longer available for purchase by new
investors. Following the close of business on January 11, 2019, Class C shares
will automatically convert into Class A shares of the Fund on the basis of the
share classes’ relative net asset values on such date without the imposition of
a sales charge or any other charge. At such time, delete references to Class C
shares of the Fund from this prospectus.
|
|
Objective: |
The Fund seeks long-term
growth of capital. |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund. You may
qualify for sales charge discounts if you and your family invest, or agree to
invest in the future, at least $50,000 in Class A shares of Principal
Funds, Inc. More information about these and other discounts is available from
your financial professional and in “Choosing a Share Class and The Costs of
Investing” beginning on page ___ of the Fund’s prospectus, Appendix C to the
prospectus titled "Intermediary-Specific Sales Charge Waivers and Reductions",
and “Multiple Class Structure” beginning on page ___ of the Fund’s Statement of
Additional Information.
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) |
5.50% |
None |
None |
Maximum Deferred Sales Charge
(Load) (as a percentage of the offering price or NAV at the time 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 |
0.83% |
0.83% |
0.83% |
Distribution and/or Service
(12b-1) Fees |
0.25% |
1.00% |
N/A |
Other Expenses |
0.90% |
2.08% |
0.02% |
Total Annual
Fund Operating Expenses |
1.98% |
3.91% |
0.85% |
Expense Reimbursement
(1) |
(0.48)% |
(1.66)% |
—% |
Total Annual
Fund Operating Expenses after Expense Reimbursement |
1.50% |
2.25% |
0.85% |
|
|
|
(1) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s expenses by paying, if necessary, expenses normally payable by the
Fund, (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses) to
maintain a total level of operating expenses (expressed as a percent of
average net assets on an annualized basis) not to exceed 1.50% for Class
A, 2.25% for Class C and 0.85% for Institutional Class shares. It is
expected that the expense limits will continue through the period ending
December 30, 2019; however, Principal Funds, Inc. and PGI, the parties to
the agreement, may mutually agree to terminate the expense limits prior to
the end of the period. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. The calculation of costs takes into account any applicable
contractual fee waivers and/or expense reimbursements for the period noted in
the table above. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Class
A |
$694 |
$1,093 |
$1,517 |
$2,693 |
Class
C |
328 |
1,040 |
1,870 |
4,026 |
Institutional
Class |
87 |
271 |
471 |
1,049 |
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 |
$228 |
$1,040 |
$1,870 |
$4,026 |
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 annualized portfolio turnover rate was 117.1% of the average value of its
portfolio.
Principal
Investment Strategies
Under normal market circumstances,
the Fund invests in equity securities of issuers located throughout the world,
including the U.S., invests at least 30% of its net assets in foreign and
emerging market securities, and holds investments tied economically to at least
ten countries. The Fund has a flexible investment strategy and may invest in
equity securities regardless of market capitalization (small, medium, or large)
and style (growth or value). The Fund invests in value equity securities, an
investment strategy that emphasizes buying equity securities that appear to be
undervalued. The Fund also invests in growth equity securities, an investment
strategy that emphasizes buying equity securities of companies whose potential
for growth of capital and earnings is expected to be above average. The Fund
actively trades portfolio securities.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund, in alphabetical order,
are:
Emerging Markets
Risk. Investments in
emerging market countries may have more risk than those in developed market
countries because the emerging markets are less developed and more illiquid.
Emerging market countries can also be subject to increased social, economic,
regulatory, and political uncertainties and can be extremely
volatile.
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
|
|
• |
Growth
Stock Risk. If growth companies do
not increase their earnings at a rate expected by investors, the market
price of the stock may decline significantly, even if earnings show an
absolute increase. Growth company stocks also typically lack the dividend
yield that can lessen price declines in market
downturns. |
|
|
• |
Small and
Medium Market Capitalization Companies. Investments in small and medium sized companies
may involve greater risk and price volatility than investments in larger,
more mature companies. |
|
|
• |
Value Stock
Risk. Value stocks may continue to
be undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that
appears would cause the stock price to increase may not occur as
anticipated or at all. Moreover, a stock that appears to be undervalued
actually may be appropriately priced at a low level and therefore would
not be profitable for the fund. |
Foreign Currency
Risk. Risks of
investing in securities denominated in, or that trade in, foreign (non-U.S.)
currencies include changes in foreign exchange rates and foreign exchange
restrictions.
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).
Portfolio
Turnover (Active Trading) Risk. High portfolio turnover (more than
100%) caused by actively trading portfolio securities may result in accelerating
the realization of taxable gains and losses, lower fund performance and
increased brokerage costs.
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 by calling
1-800-222-5852 or online at www.principalfunds.com.
Using the historical performance of
the Fund's Institutional Class shares, adjusted as described below, the bar
chart shows the investment returns of the Fund’s Class A shares for each full
calendar year of operations for 10 years (or, if shorter, the life of the Fund).
These annual returns do not reflect sales charges on Class A shares; if they
did, results would be lower. The table shows for the last one, five, and ten
calendar year periods (or, if shorter, the life of the Fund), how the Fund’s
average annual total returns compare with those of one or more broad measures of
market performance.
Life of Fund returns are measured
from the date the Fund's shares were first sold (December 28,
2012).
For periods prior to the inception
date of Classes A and C shares (September 30, 2013), the performance shown in
the bar chart for Class A shares and the table for Classes A and C shares is
that of the Fund's Institutional Class shares, adjusted to reflect the
respective fees and expenses of each class. These adjustments result in
performance for such periods that is no higher than the historical performance
of the Institutional Class shares, which were first sold December 28,
2012.
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q4
'13 |
9.11% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q3
'15 |
(6.80)% |
(1)
The year-to-date return as of September 30, 2018 was 3.51% for Class A shares.
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2017 |
1 Year |
5
Year |
Life of
Fund |
Class A
Return Before Taxes |
14.91% |
8.09% |
8.22% |
Class A
Return After Taxes on Distributions |
11.14% |
6.49% |
6.61% |
Class A
Return After Taxes on Distributions and Sale of Fund
Shares |
9.23% |
5.82% |
5.93% |
Class C
Return Before Taxes |
19.69% |
8.51% |
8.62% |
Institutional
Class Return Before Taxes |
22.31% |
10.06% |
10.18% |
MSCI All Country World Index
(ACWI) (reflects no deduction for fees, expenses, or
taxes) |
23.97% |
10.80% |
10.95% |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts. After-tax returns are shown for Class A shares only and would be
different for the other share classes.
Management
Investment
Advisor and Portfolio Managers:
Principal Global Investors, LLC
|
|
• |
Christopher Ibach (since
2012), Portfolio Manager |
|
|
• |
Mustafa Sagun (since 2012),
Chief Investment Officer & Portfolio Manager
|
Purchase and Sale
of Fund Shares
|
|
|
|
Share
Class |
Investment
Type |
Purchase
Minimum
Per
Fund |
A and
C |
Initial
Investment |
$1,000(1) |
A and
C |
Initial Investment for accounts
with an Automatic Investment Plan (AIP) |
$100 |
A and
C |
Subsequent
Investments |
$100(1)(2) |
Institutional |
There are no minimum initial or
subsequent investment requirements for eligible
purchasers. |
N/A |
|
|
(1) |
Some exceptions apply; see
"Purchase of Fund Shares - Minimum Investments" for more
information. |
|
|
(2) |
For accounts with an AIP, the
subsequent automatic investments must total $1,200 annually if the initial
$1,000 minimum has not been met. |
You may purchase or redeem shares on
any business day (normally any day when the New York Stock Exchange is open for
regular trading) through your plan, intermediary, or Financial Professional; by
sending a written request to Principal Funds at P.O. Box 8024, Boston, MA
02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight
mail); calling us at 1-800-222-5852; or accessing our website
(www.principalfunds.com).
Tax
Information
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
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment, or to recommend one share class of the Fund over another share
class. Ask your salesperson or visit your financial intermediary's website for
more information.
INTERNATIONAL
EQUITY INDEX FUND
|
|
Objective: |
The Fund seeks long-term
growth of capital. |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund.
Shareholder Fees
(fees paid directly from your investment): None
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
|
|
|
|
|
Share
Class |
|
Inst. |
R-1 |
R-2 |
R-3 |
R-4 |
R-5 |
R-6 |
Management Fees |
0.25% |
0.25% |
0.25% |
0.25% |
0.25% |
0.25% |
0.25% |
Distribution and/or Service
(12b-1) Fees |
N/A |
0.35% |
0.30% |
0.25% |
0.10% |
N/A |
N/A |
Other Expenses |
0.07% |
0.59% |
0.51% |
0.38% |
0.34% |
0.32% |
0.07% |
Acquired Fund Fees and
Expenses |
0.01% |
0.01% |
0.01% |
0.01% |
0.01% |
0.01% |
0.01% |
Total Annual
Fund Operating Expenses |
0.33% |
1.20% |
1.07% |
0.89% |
0.70% |
0.58% |
0.33% |
Expense Reimbursement
(1)(2) |
(0.01)% |
N/A |
N/A |
N/A |
N/A |
N/A |
(0.03)% |
Total Annual
Fund Operating Expenses after Expense Reimbursement |
0.32% |
1.20% |
1.07% |
0.89% |
0.70% |
0.58% |
0.30% |
|
|
|
|
|
|
|
|
|
(1) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s expenses by paying, if necessary, expenses normally payable by the
Fund, (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses) to
maintain a total level of operating expenses (expressed as a percent of
average net assets on an annualized basis) not to exceed 0.31% for
Institutional Class shares. It is expected that the expense limit will
continue through the period ending December 30, 2019; 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. |
(2) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s expenses by paying, if necessary, expenses normally payable by the
Fund, (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses) to
maintain "Other Expenses" (expressed as a percent of average net assets on
an annualized basis) not to exceed 0.02% for Class R-6 shares through the
period ending December 30, 2018 and 0.04% from December 31, 2018 through
the period ending December 30, 2019. (The table reflects the 0.04% limit
on "Other Expenses" for the entire period.) It is expected that the
expense limit will continue through the period ending December 30, 2019;
however, Principal Funds, Inc. and PGI, the parties to the agreement, may
mutually agree to terminate the expense limit prior to the end of the
period. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. The Example also assumes
that your investment has a 5% return each year and that the Fund’s operating
expenses remain the same. The calculation of costs takes into account any
applicable contractual fee waivers and/or expense reimbursements for the period
noted in the table above. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Institutional
Class |
$33 |
$105 |
$184 |
$417 |
Class
R-1 |
122 |
381 |
660 |
1,455 |
Class
R-2 |
109 |
340 |
590 |
1,306 |
Class
R-3 |
91 |
284 |
493 |
1,096 |
Class
R-4 |
72 |
224 |
390 |
871 |
Class
R-5 |
59 |
186 |
324 |
726 |
Class
R-6 |
31 |
103 |
182 |
415 |
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 annualized portfolio turnover rate was 24.7% 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 securities that compose the MSCI EAFE NR Index (the "Index") at the
time of purchase. The Index is a market-weighted equity index designed to
measure the equity performance of developed markets (Europe, Australia, New
Zealand, and Far East, which includes Hong Kong, Japan and Singapore), excluding
the United States and Canada. The Index includes growth and value stocks and is
rebalanced semi-annually. The Fund employs a passive investment approach
designed to attempt to track the performance of the Index. In seeking its
objective, the Fund typically employs a replication strategy which involves
investing in the securities that make up the Index, in the same approximate
proportions as the Index. The Fund utilizes exchange-traded funds ("ETFs") and
derivative strategies (including index futures) on a daily basis to gain
exposure to the Index in an effort to minimize tracking error relative to the
benchmark. A derivative is a financial arrangement, the value of which is
derived from, or based on, a traditional security, asset, or market index. The
Fund will not concentrate (invest more than 25% of its assets) its investments
in a particular industry except to the extent the Index is so
concentrated.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund, in alphabetical order,
are:
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.
|
|
• |
Futures.
Futures contracts involve specific
risks, including: the imperfect correlation between the change in market
value of the instruments held by the fund and the price of the futures
contract; possible lack of a liquid secondary market for a futures
contract and the resulting inability to close a futures contract when
desired; counterparty risk; and if the fund has insufficient cash, it may
have to sell securities from its portfolio to meet daily variation margin
requirements. |
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
|
|
• |
Growth
Stock Risk.
If growth companies do not
increase their earnings at a rate expected by investors, the market price
of the stock may decline significantly, even if earnings show an absolute
increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market
downturns. |
|
|
• |
Value Stock
Risk. Value stocks may continue to
be undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that
appears would cause the stock price to increase may not occur as
anticipated or at all. Moreover, a stock that appears to be undervalued
actually may be appropriately priced at a low level and therefore would
not be profitable for the fund. |
Foreign Currency
Risk. Risks of
investing in securities denominated in, or that trade in, foreign (non-U.S.)
currencies include changes in foreign exchange rates and foreign exchange
restrictions.
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).
Index Fund
Risk. An index fund has operating and
other expenses while an index does not. As a result, over time, index funds tend
to underperform the index. The correlation between fund performance and index
performance may also be affected by the type of passive investment approach used
by a fund (sampling or replication), changes in securities markets, changes in
the composition of the index, and the timing of purchases and sales of fund
shares.
Investment
Company Securities Risk. A fund that invests in another
investment company (for example, another fund or an exchange-traded fund
(“ETF”)) is subject to the risks associated with direct ownership of the
securities in which such investment company invests. Fund shareholders
indirectly bear their proportionate share of the expenses of each such
investment company.
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 by calling
1-800-222-5852 or online at www.principalfunds.com.
The bar chart shows the investment
returns of the Fund’s Institutional Class shares for each full calendar year of
operations for 10 years (or, if shorter, the life of the Fund). The table shows
for the last one, five, and ten calendar year periods (or, if shorter, the life
of the Fund), how the Fund’s average annual total returns compare with those of
one or more broad measures of market performance.
Life of Fund returns are measured
from the date the Fund's shares were first sold (December 30,
2009).
For periods prior to the inception
date of Class R-6 shares (January 3, 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. However, where this
adjustment for fees and expenses results in performance for Class R-6 shares
that is higher than the historical performance of the Institutional Class
shares, the historical performance of the Institutional Class shares is used.
These adjustments result in performance for such periods that is no higher than
the historical performance of the Institutional Class shares, which were first
sold December 30, 2009.
Total Returns as
of December 31
(1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q3
'10 |
17.39% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q3
'11 |
(20.25)% |
(1)
The year-to-date return as of September 30, 2018 was (1.39)% for Institutional Class
shares.
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2017 |
1 Year |
5
Years |
Life of
Fund |
Institutional
Class Return Before Taxes |
24.86% |
7.30% |
5.74% |
Institutional
Class Return After Taxes on Distributions |
23.87% |
5.93% |
4.77% |
Institutional
Class Return After Taxes on Distributions and Sale of Fund
Shares |
14.92% |
5.63% |
4.54% |
Class R-1
Return Before Taxes |
23.79% |
6.36% |
4.81% |
Class R-2
Return Before Taxes |
23.92% |
6.51% |
4.94% |
Class R-3
Return Before Taxes |
24.17% |
6.69% |
5.14% |
Class R-4
Return Before Taxes |
24.36% |
6.90% |
5.34% |
Class R-5
Return Before Taxes |
24.58% |
7.03% |
5.47% |
Class R-6
Return Before Taxes |
24.76% |
7.22% |
5.66% |
MSCI EAFE NR Index (reflects no
deduction for fees, expenses, or taxes) |
25.03% |
7.90% |
6.31% |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts. After-tax returns are shown for Institutional Class shares only and
would be different for the other classes.
Management
Investment
Advisor and Portfolio Managers:
Principal Global Investors,
LLC
|
|
• |
Jeffrey A. Schwarte (since
2016), Portfolio Manager |
|
|
• |
Aaron J. Siebel (since 2018),
Portfolio Manager |
Purchase and Sale
of Fund Shares
There are no minimum initial or
subsequent investment requirements for an eligible purchaser. You may
purchase or redeem shares on any business day (normally any day when the New
York Stock Exchange is open for regular trading) through your plan,
intermediary, or Financial Professional; by sending a written request to
Principal Funds at P.O. Box 8024, Boston, MA 02266-8024 (regular mail) or 30 Dan
Road, Canton, MA 02021-2809 (overnight mail); calling us at 1-800-222-5852; or
accessing our website (www.principalfunds.com).
For retirement plan investors,
effective as of the close of the New York Stock Exchange on January 31, 2017,
Class R-1 and Class R-2 shares will no longer be available for purchase from new
retirement plans except in limited circumstances. See Purchase of Fund Shares
for additional 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
For Class R-6 shares, the Fund and
its related companies do not pay broker-dealers or other financial
intermediaries (such as a bank, insurance company, investment adviser, etc.) for
the sale of Fund shares or related services.
For the other classes, if you
purchase the Fund through a broker-dealer or other financial intermediary (such
as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment, or to recommend one share class of
the Fund over another share class. Ask your salesperson or visit your financial
intermediary's website for more information.
INTERNATIONAL
SMALL COMPANY FUND
|
|
Objective: |
The Fund seeks long-term
growth of capital. |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund. You may
qualify for sales charge discounts if you and your family invest, or agree to
invest in the future, at least $50,000 in Class A shares of Principal
Funds, Inc. More information about these and other discounts is available from
your financial professional and in “Choosing a Share Class and The Costs of
Investing” beginning on page ___ of the Fund’s prospectus, Appendix C to the
prospectus titled "Intermediary-Specific Sales Charge Waivers and Reductions",
and “Multiple Class Structure” beginning on page __ of the Fund’s Statement of
Additional Information.
Shareholder Fees
(fees paid directly from your investment)
|
|
|
|
|
|
Share
Class |
|
A |
Inst. |
R-6 |
Maximum Sales Charge (Load)
Imposed on Purchases (as a percentage of offering price) |
5.50% |
None |
None |
Maximum Deferred Sales Charge
(Load) (as a percentage of the offering price or NAV at the time Sales
Load is paid, whichever is less) |
1.00% |
None |
None |
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
|
Share
Class |
|
A |
Inst. |
R-6 |
Management Fees |
1.04% |
1.04% |
1.04% |
Distribution and/or Service
(12b-1) Fees |
0.25% |
N/A |
N/A |
Other Expenses |
1.63% |
0.04% |
0.05% |
Acquired Fund Fees and
Expenses |
0.01% |
0.01% |
0.01% |
Total Annual
Fund Operating Expenses |
2.93% |
1.09% |
1.10% |
Expense Reimbursement
(1)
(2) |
(1.32)% |
—% |
(0.01)% |
Total Annual
Fund Operating Expenses after Expense Reimbursement |
1.61% |
1.09% |
1.09% |
|
|
|
|
|
|
|
|
|
(1) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s expenses by paying, if necessary, expenses normally payable by the
Fund, (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses) to
maintain a total level of operating expenses (expressed as a percent of
average net assets on an annualized basis) not to exceed 1.60% for Class A
and 1.20% for Institutional Class shares. It is expected that the expense
limits will continue through the period ending December 30, 2019; however,
Principal Funds, Inc. and PGI, the parties to the agreement, may mutually
agree to terminate the expense limits prior to the end of the
period. |
(2) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s expenses by paying, if necessary, expenses normally payable by the
Fund, (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses) to
maintain "Other Expenses" (expressed as a percent of average net assets on
an annualized basis) not to exceed 0.02% for Class R-6 shares through the
period ending December 30, 2018 and 0.04% from December 31, 2018 through
the period ending December 30, 2019. (The table reflects the 0.04% limit
on "Other Expenses" for the entire period.) It is expected that the
expense limit will continue through the period ending December 30, 2019;
however, Principal Funds, Inc. and PGI, the parties to the agreement, may
mutually agree to terminate the expense limit prior to the end of the
period. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. The Example also assumes
that your investment has a 5% return each year and that the Fund’s operating
expenses remain the same. The calculation of costs takes into account any
applicable contractual fee waivers and/or expense reimbursements for the period
noted in the table above. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Class
A |
$705 |
$1,289 |
$1,898 |
$3,534 |
Institutional
Class |
111 |
347 |
601 |
1,329 |
Class
R-6 |
111 |
349 |
605 |
1,339 |
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 annualized portfolio turnover rate was 58.8% 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 equity securities of companies with small market capitalizations at
the time of purchase. For this Fund, companies with small market capitalizations
are those with market capitalizations within the range of companies comprising
the MSCI World ex-USA Small Cap Index (as of May 31, 2018, this range was
between approximately $12.0 million and $9.8 billion). The Fund may invest in
equity securities regardless of style (growth or value). The Fund invests
primarily in foreign equity securities. The Fund typically invests in foreign
securities of more than 10 countries but has no limitation on the percentage of
assets that is invested in each country or denominated in any currency. Primary
consideration is given to securities of corporations of developed areas, such as
Japan, Western Europe, Canada, Australia, and New Zealand.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund’s investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund, in alphabetical order,
are:
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
|
|
• |
Growth
Stock Risk.
If growth companies do not
increase their earnings at a rate expected by investors, the market price
of the stock may decline significantly, even if earnings show an absolute
increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market
downturns. |
|
|
• |
Small and
Medium Market Capitalization Companies Risk. Investments in small and medium sized companies
may involve greater risk and price volatility than investments in larger,
more mature companies. |
|
|
• |
Value Stock
Risk. Value stocks may continue to
be undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that
appears would cause the stock price to increase may not occur as
anticipated or at all. Moreover, a stock that appears to be undervalued
actually may be appropriately priced at a low level and therefore would
not be profitable for the fund. |
Foreign Currency
Risk. Risks of
investing in securities denominated in, or that trade in, foreign (non-U.S.)
currencies include changes in foreign exchange rates and foreign exchange
restrictions.
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).
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 by calling
1-800-222-5852 or online at www.principalfunds.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.
Life of Fund returns are measured
from the date the Fund's shares were first sold (June 11, 2014).
For periods prior to the inception
date of Institutional Class shares (December 31, 2014) and Class R-6 shares
(January 3, 2017), the performance shown in the table for these newer classes is
that of the Fund's Class A shares, adjusted to reflect the respective fees and
expenses of each class. However, where this adjustment for fees and expenses
results in performance for a newer class that is higher than the historical
performance of the Class A shares, the historical performance of the Class A
shares is used (without respect to sales charges, which do not apply to
Institutional Class or 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, which were first sold June 11, 2014.
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q3
'17 |
9.36% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q3
'15 |
(6.44)% |
(1)
The year-to-date return as of September 30, 2018 was (3.01)% for Class A shares.
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2017 |
1 Year |
|
Life of
Fund |
Class A
Return Before Taxes |
28.09% |
|
6.93% |
Class A
Return After Taxes on Distributions |
26.22% |
|
6.42% |
Class A
Return After Taxes on Distributions and Sale of Fund
Shares |
16.44% |
|
5.28% |
Institutional
Class Return Before Taxes |
35.77% |
|
8.88% |
Class R-6
Return Before Taxes |
36.19% |
|
8.69% |
MSCI World ex USA Small Cap
Index (reflects no deduction for fees, expenses, or taxes) |
31.04% |
|
7.49% |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts. After-tax returns are shown for Class A shares only and would be
different for the other share classes.
Management
Investment
Advisor and Portfolio Managers:
Principal Global Investors,
LLC
|
|
• |
Tiffany N. Lavastida (since
2014), Portfolio Manager |
|
|
• |
Brian W. Pattinson (since
2014), Portfolio Manager |
Purchase and Sale
of Fund Shares
|
|
|
|
Share
Class |
Investment
Type |
Purchase
Minimum
Per
Fund |
A |
Initial
Investment |
$1,000(1) |
A |
Initial Investment for accounts
with an Automatic Investment Plan (AIP) |
$100 |
A |
Subsequent
Investments |
$100(1)(2) |
Institutional
and R-6 |
There are no minimum initial or
subsequent investment requirements for eligible
purchasers. |
N/A |
|
|
(1) |
Some exceptions apply; see
"Purchase of Fund Shares - Minimum Investments" for more
information. |
|
|
(2) |
For accounts with an AIP, the
subsequent automatic investments must total $1,200 annually if the initial
$1,000 minimum has not been met. |
You may purchase or redeem shares on
any business day (normally any day when the New York Stock Exchange is open for
regular trading) through your plan, intermediary, or Financial Professional; by
sending a written request to Principal Funds at P.O. Box 8024, Boston, MA
02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight
mail); calling us at 1-800-222-5852; or accessing our website
(www.principalfunds.com).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
For Class R-6 shares, the Fund and
its related companies do not pay broker-dealers or other financial
intermediaries (such as a bank, insurance company, investment adviser, etc.) for
the sale of Fund shares or related services.
For the other share classes, if you
purchase the Fund through a broker-dealer or other financial intermediary (such
as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment, or to recommend one share class of
the Fund over another share class. Ask your salesperson or visit your financial
intermediary's website for more information.
MULTI-MANAGER
EQUITY LONG/SHORT FUND
|
|
Objective: |
The Fund seeks long-term
growth of capital with lower volatility than the global equity
markets. |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund. You may
qualify for sales charge discounts if you and your family invest, or agree to
invest in the future, at least $50,000 in Class A shares of Principal
Funds, Inc. More information about these and other discounts is available from
your financial professional and in “Choosing a Share Class and The Costs of
Investing” beginning on page ___ of the Fund’s prospectus, Appendix C to the
prospectus titled "Intermediary-Specific Sales Charge Waivers and Reductions",
and “Multiple Class Structure” beginning on page __ of the Fund’s Statement of
Additional Information.
Shareholder Fees
(fees paid directly from your investment)
|
|
|
|
|
|
Share
Class |
|
|
A |
Inst. |
R-6 |
Maximum Sales Charge (Load)
Imposed on Purchases (as a percentage of offering price) |
5.50% |
None |
None |
Maximum Deferred Sales Charge
(Load) (as a percentage of the offering price or NAV at the time Sales
Load is paid, whichever is less) |
1.00% |
None |
None |
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
|
Share
Class |
|
A |
Inst. |
R-6 |
Management Fees |
1.57% |
1.57% |
1.57% |
Distribution and/or Service
(12b-1) Fees |
0.25% |
N/A |
N/A |
Other Expenses: |
|
|
|
Dividend and
Interest Expense on Short Sales |
0.82% |
0.82% |
0.82% |
Remainder of
Other Expenses |
28.04% |
29.56% |
0.06% |
Total Other
Expenses |
28.86% |
30.38% |
0.88% |
Acquired Fund Fees and
Expenses |
0.04% |
0.04% |
0.04% |
Total Annual
Fund Operating Expenses |
30.72% |
31.99% |
2.49% |
Expense Reimbursement
(1) |
(27.84)% |
(29.46)% |
(0.04)% |
Total Annual
Fund Operating Expenses after Expense Reimbursement |
2.88% |
2.53% |
2.45% |
|
|
|
(1) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s expenses by paying, if necessary, expenses normally payable by the
Fund, (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses) to
maintain a total level of operating expenses (expressed as a percent of
average net assets on an annualized basis) not to exceed 2.02% for Class A
and 1.67% for Institutional Class shares. In addition, for Class R-6, the
expense limit will maintain "Other Expenses" (expressed as a percent of
average net assets on an annualized basis) not to exceed 0.02%, (excluding
interest expense, expenses related to fund investments, acquired fund fees
and expenses, and other extraordinary expenses). It is expected that the
expense limits will continue through the period ending December 30, 2019;
however, Principal Funds, Inc. and PGI, the parties to the agreement, may
mutually agree to terminate the expense limits prior to the end of the
period. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. 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 |
$825 |
$5,327 |
$7,811 |
$10,178 |
Institutional
Class |
$256 |
$5,162 |
$7,777 |
$10,143 |
Class
R-6 |
$248 |
$772 |
$1,322 |
$2,823 |
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 annualized portfolio turnover rate was 301.2% 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 equity securities and derivatives on equity securities, at the time
of purchase. Principal Global Investors, LLC (“PGI"), the Fund’s investment
advisor, strategically allocates the Fund's assets among investment strategies,
which one or more of the Fund’s sub-advisors execute using various methods such
as fundamental analysis and systematic framework. PGI retains considerable
latitude in allocating the Fund's assets. The Fund will use 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.
The Fund has a flexible investment
strategy and invests in a broad range of equity securities, exchange-traded
funds, and derivatives instruments. The Fund invests in U.S. and foreign,
including emerging market, securities, particularly in Europe. Although the Fund
focuses on securities of mid- to large-capitalization companies, it may invest
in equity securities regardless of market capitalization size (small, medium or
large). The Fund invests in value equity securities, an investment strategy that
emphasizes buying equity securities that appear to be undervalued. The Fund also
invests in growth equity securities, an investment strategy that emphasizes
buying equity securities of companies whose potential for growth of capital and
earnings is expected to be above average. The Fund uses derivative instruments,
including swaps, futures and options, to gain exposure to a variety of
securities or mitigate volatility and forwards to manage its foreign currency
exposure. The Fund uses hedging techniques to attempt to reduce the risk of
investment positions. The Fund actively trades portfolio
securities.
The Fund takes long and short
positions in equity securities, exchange-traded funds, and derivative
instruments. When taking a short position, the Fund may sell an instrument that
it does not own and then borrow to meet its settlement obligations. A short
position will benefit from a decrease in price of the underlying instrument and
loses value if the price of the underlying instrument increases. The Fund also
invests a portion of the proceeds it receives from short sales into long
positions. Long positions profit if the price of the instrument increases.
Simultaneously engaging in long investing and short selling seeks to reduce the
net exposure of the overall portfolio to general market movements.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund, in alphabetical order,
are:
Asset Allocation
Risk. A fund's
selection and weighting of asset classes and allocation among sub-advisors may
cause it to underperform other funds with a similar investment
objective.
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.
|
|
• |
Currency
Contracts. Derivatives related to
currency contracts involve the specific risk of government action through
exchange controls that would restrict the ability of the fund to deliver
or receive currency. |
|
|
• |
Forward
Contracts, Futures and Swaps. Forward contracts, futures,
and swaps involve specific risks, including: the imperfect correlation
between the change in market value of the instruments held by the fund and
the price of the forward contract, future or swap; possible lack of a
liquid secondary market for a forward contract, future or swap and the
resulting inability to close a forward contract, future or swap when
desired; counterparty risk; and if the fund has insufficient cash, it may
have to sell securities from its portfolio to meet daily variation margin
requirements. |
|
|
• |
Options.
Options involve specific risks,
including: imperfect correlation between the change in market value of the
instruments held by the fund and the price of the options, counterparty
risk, difference in trading hours for the options markets and the markets
for the underlying securities (rate movements can take place in the
underlying markets that cannot be reflected in the options markets), and
an insufficient liquid secondary market for particular
options. |
Emerging Markets
Risk. Investments in
emerging market countries may have more risk than those in developed market
countries because the emerging markets are less developed and more illiquid.
Emerging market countries can also be subject to increased social, economic,
regulatory, and political uncertainties and can be extremely
volatile.
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
|
|
• |
Growth
Stock Risk.
If growth companies do not
increase their earnings at a rate expected by investors, the market price
of the stock may decline significantly, even if earnings show an absolute
increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market
downturns. |
|
|
• |
Small and
Medium Market Capitalization Companies. Investments in small and medium sized companies
may involve greater risk and price volatility than investments in larger,
more mature companies. |
|
|
• |
Value Stock
Risk. Value stocks may continue to
be undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that
appears would cause the stock price to increase may not occur as
anticipated or at all. Moreover, a stock that appears to be undervalued
actually may be appropriately priced at a low level and therefore would
not be profitable for the fund. |
European Focus
Risk. A fund that focuses its investments
in securities of European companies may be particularly susceptible to economic,
political, regulatory or other events or conditions affecting issuers and
countries in Europe. Currency devaluations could occur or could continue to
occur. Debt problems of the private or public sectors in a single European Union
(EU) country can pose significant economic risks to the EU as a whole.
Additionally, the United Kingdom's vote to leave the EU, commonly known as
“Brexit,” may have significant political and financial consequences for European
markets and the broader global economy, including greater market volatility and
illiquidity, currency fluctuations, and deterioration in economic activity. As a
result, the fund’s performance may be more volatile than the performance of a
more geographically diversified fund.
Foreign Currency
Risk. Risks of
investing in securities denominated in, or that trade in, foreign (non-U.S.)
currencies include changes in foreign exchange rates and foreign exchange
restrictions.
Foreign
Securities Risk.
The risks of foreign
securities include loss of value as a result of: political or economic
instability; nationalization, expropriation or confiscatory taxation; settlement
delays; and limited government regulation (including less stringent reporting,
accounting, and disclosure standards than are required of U.S.
companies).
Hedging
Risk. A fund that implements a hedging
strategy using derivatives and/or securities could expose the fund to the risk
that can arise when a change in the value of a hedge does not match a change in
the value of the asset it hedges. In other words, the change in value of the
hedge could move in a direction that does not match the change in value of the
underlying asset, resulting in a risk of loss to the fund.
Investment
Company Securities Risk. A fund that invests in another
investment company (for example, another fund or an exchange-traded fund
(“ETF”)) is subject to the risks associated with direct ownership of the
securities in which such investment company invests. Fund shareholders
indirectly bear their proportionate share of the expenses of each such
investment company.
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. In particular,
investing the proceeds of short sales may amplify leverage risk.
Portfolio
Turnover (Active Trading) Risk. High portfolio turnover (more than
100%) caused by actively trading portfolio securities may result in accelerating
the realization of taxable gains and losses, lower fund performance and
increased brokerage costs.
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.
Short Sale
Risk. A short sale involves the sale by
the fund of a security that it does not own with the hope of purchasing the same
security at a later date at a lower price. A fund may also enter into a short
derivative position through a futures contract or swap agreement. If the price
of the security or derivative has increased during this time, then the fund will
incur a loss equal to the increase in price from the time that the short sale
was entered into plus any premiums and interest paid to the third party.
Therefore, short sales involve the risk that losses may be exaggerated,
potentially losing more money than the actual cost of the investment. Also,
there is the risk that the third party to the short sale may fail to honor its
contract terms, causing a loss to the fund.
By investing the proceeds received
from selling securities short, a fund could be deemed to be employing a form of
leverage, which creates special risks. The use of leverage may increase a fund’s
exposure to long securities positions and make any change in the fund’s NAV
greater than it would be without the use of leverage. This could result in
increased volatility of returns. There is no guarantee that any leveraging
strategy a fund employs will be successful during any period in which it is
employed.
Volatility
Mitigation Risk.
Volatility mitigation
strategies may increase fund transaction costs, which could increase losses or
reduce gains. These strategies may not protect the fund from market
declines and may reduce the fund’s participation in market gains.
Performance
The following information provides
some indication of the risks of investing in the Fund. Past performance (before
and after taxes) is not necessarily an indication of how the Fund will perform
in the future. You may get updated performance information by calling
1-800-222-5852 or online at www.principalfunds.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.
Life of Fund returns are measured
from the date the Fund's shares were first sold (March 31, 2016).
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q3
'17 |
4.73% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q2
'17 |
0.68% |
(1)
The year-to-date return as of September 30, 2018 was 0.09% for Class A shares.
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2017 |
1 Year |
Life of
Fund |
Class A
Return Before Taxes |
5.74% |
3.95% |
Class A
Return After Taxes on Distributions |
4.21% |
2.97% |
Class A
Return After Taxes on Distributions and Sale of Fund
Shares |
3.86% |
2.80% |
Institutional
Class Return Before Taxes |
12.06% |
7.71% |
Class R-6
Return Before Taxes |
12.21% |
7.79% |
HFRX Equity Hedge Index
(reflects no deduction for fees, expenses, or taxes) |
9.98% |
7.45% |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts. After-tax returns are shown for Class A shares only and would be
different for the other share classes.
Management
Investment
Advisor and Portfolio Managers:
Principal Global Investors,
LLC
|
|
• |
Jake S. Anonson (since 2016),
Portfolio Manager |
|
|
• |
Jessica S. Bush (since 2016),
Portfolio Manager |
|
|
• |
Marcus W. Dummer (since 2016),
Portfolio Manager |
|
|
• |
Benjamin E. Rotenberg (since
2016), Portfolio Manager |
Sub-Advisors:
AQR Capital Management,
LLC
Gotham Asset Management,
LLC
Sirios Capital Management,
L.P.
Three Bridges Capital,
LP
Purchase and Sale
of Fund Shares
|
|
|
|
Share
Class |
Investment
Type |
Purchase
Minimum
Per
Fund |
A |
Initial
Investment |
$1,000(1) |
A |
Initial Investment for accounts
with an Automatic Investment Plan (AIP) |
$100 |
A |
Subsequent
Investments |
$100(1)(2) |
Institutional
and R-6 |
There are no minimum initial or
subsequent investment requirements for eligible
purchasers. |
N/A |
|
|
(1) |
Some exceptions apply; see
"Purchase of Fund Shares - Minimum Investments" for more
information. |
|
|
(2) |
For accounts with an AIP, the
subsequent automatic investments must total $1,200 annually if the initial
$1,000 minimum has not been met. |
You may purchase or redeem shares on
any business day (normally any day when the New York Stock Exchange is open for
regular trading) through your plan, intermediary, or Financial Professional; by
sending a written request to Principal Funds at P.O. Box 8024, Boston, MA
02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight
mail); calling us at 1-800-222-5852; or accessing our website
(www.principalfunds.com).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
For Class R-6 shares, the Fund and
its related companies do not pay broker-dealers or other financial
intermediaries (such as a bank, insurance company, investment adviser, etc.) for
the sale of Fund shares or related services.
For the other share classes, if you
purchase the Fund through a broker-dealer or other financial intermediary (such
as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment, or to recommend one share class of
the Fund over another share class. Ask your salesperson or visit your financial
intermediary's website for more information.
OPPORTUNISTIC
MUNICIPAL FUND
On September 12, 2018, the Board of
Directors of Principal Funds, Inc. (“PFI”) approved the forced conversion of
this Fund's Class C shares into Class A shares. Effective November 30, 2018,
Class C shares of the Fund were no longer available for purchase by new
investors. Following the close of business on January 11, 2019, Class C shares
will automatically convert into Class A shares of the Fund on the basis of the
share classes’ relative net asset values on such date without the imposition of
a sales charge or any other charge. At such time, delete references to Class C
shares of the Fund from this prospectus.
|
|
Objective: |
The Fund seeks to provide a
high level of income that is exempt from federal income tax while
protecting investors’ capital. |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund. You may
qualify for sales charge discounts if you and your family invest, or agree to
invest in the future, at least $100,000 in Class A shares of Principal
Funds, Inc. More information about these and other discounts is available from
your financial professional and in “Choosing a Share Class and The Costs of
Investing” beginning on page ___ of the Fund’s prospectus, Appendix C to the
prospectus titled "Intermediary-Specific Sales Charge Waivers and Reductions",
and “Multiple Class Structure” beginning on page __ of the Fund’s Statement of
Additional Information.
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 at the time 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 |
0.50% |
0.50% |
0.50% |
Distribution and/or Service
(12b-1) Fees |
0.25% |
1.00% |
N/A |
Other Expenses: |
|
|
|
Interest
Expenses |
0.06% |
0.06% |
0.06% |
Remainder of
Other Expenses |
0.14% |
0.25% |
0.23% |
Total Other Expenses
|
0.20% |
0.31% |
0.29% |
Total Annual
Fund Operating Expenses |
0.95% |
1.81% |
0.79% |
Expense Reimbursement
(1) |
—% |
(0.10)% |
(0.11)% |
Total Annual
Fund Operating Expenses after Expense Reimbursement |
0.95% |
1.71% |
0.68% |
|
|
|
(1) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s expenses by paying, if necessary, expenses normally payable by the
Fund, (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses) to
maintain a total level of operating expenses (expressed as a percent of
average net assets on an annualized basis) not to exceed 0.90% for Class
A,1.65% for Class C, and 0.62% for Institutional Class shares. It is
expected that the expense limits will continue through the period ending
December 30, 2019; however, Principal Funds, Inc. and PGI, the parties to
the agreement, may mutually agree to terminate the expense limits prior to
the end of the period. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. The calculation of costs takes into account any applicable
contractual fee waivers and/or expense reimbursements for the period noted in
the table above. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Class
A |
$468 |
$666 |
$881 |
$1,498 |
Class
C |
274 |
560 |
971 |
2,118 |
Institutional
Class |
69 |
241 |
428 |
968 |
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 |
$174 |
$560 |
$971 |
$2,118 |
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 annualized portfolio turnover rate was 67.9% of the average value of its
portfolio.
Principal
Investment Strategies
Under normal circumstances, the Fund
invests at least 80% of its net assets, plus any borrowings for investment
purposes, in municipal obligations (securities issued by or on behalf of state
or local governments and other public authorities). Municipal obligations pay
interest that is exempt from federal income tax. The Fund has a flexible
investment strategy and invests in obligations of any duration and credit
quality, including below investment grade bonds (sometimes called “high yield
bonds” or "junk bonds") which are rated at the time of purchase Ba1 or lower by
Moody's Investors Service, Inc. ("Moody's") and BB+ or lower by S&P Global
Ratings ("S&P Global") (if the bond has been rated by only one of those
agencies, that rating will determine whether the bond is below investment grade;
if the bond has not been rated by either of those agencies, those selecting such
investments will determine whether the bond is of a quality comparable to those
rated below investment grade). The Fund is not managed to a particular maturity
or duration.
The Fund invests in other debt
obligations, including (but not limited to) taxable municipal obligations, U.S.
Treasury securities, obligations of the U.S. Government, its agencies and
instrumentalities (“Agency Securities”) and exchange-traded funds ("ETFs") to
gain exposure to the municipal market.
The Fund uses derivative
instruments. A derivative is a financial arrangement, the value of which is
derived from, or based on, a traditional security, asset, or market index. The
Fund invests in futures contracts to hedge against changes in interest rates or
as a substitute for the purchase of portfolio securities. The Fund also invests
in inverse floating rate instruments, which are generally more volatile than
other types of municipal obligations and may involve leverage, to enhance
investment income.
During the fiscal year ended August
31, 2017, the average ratings of the Fund’s fixed-income assets, based on market
value at each month-end, were as follows (all ratings are by
Moody’s):
|
|
|
|
|
1.77% in securities rated
Aaa |
26.84% in securities rated
Baa |
1.05% in securities rated
Caa |
0.00% in securities rated
D |
13.02% in securities rated
Aa |
9.14% in securities rated
Ba |
0.00% in securities rated
Ca |
20.24% in securities not
rated |
19.77% in securities rated
A |
8.17% in securities rated
B |
0.00% in securities rated
C |
|
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund, in alphabetical order,
are:
Counterparty
Risk. Counterparty risk
is the risk that the counterparty to a contract or other obligation will be
unable or unwilling to honor its obligations.
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.
|
|
• |
Futures.
Futures contracts involve specific
risks, including: the imperfect correlation between the change in market
value of the instruments held by the fund and the price of the futures
contract; possible lack of a liquid secondary market for a futures
contract and the resulting inability to close a futures contract when
desired; counterparty risk; and if the fund has insufficient cash, it may
have to sell securities from its portfolio to meet daily variation margin
requirements. |
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
generally increases when interest rates fall. Higher 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.
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 Yield
Securities Risk.
High yield fixed-income
securities (commonly referred to as "junk bonds") are subject to greater credit
quality risk than higher rated fixed-income securities and should be considered
speculative.
Inverse Floating
Rate Investments Risk.
Inverse floating rate
investments are extremely sensitive to changes in interest rates and in some
cases their market value may be extremely volatile.
Investment
Company Securities Risk. A fund that invests in another
investment company (for example, another fund or an exchange-traded fund
(“ETF”)) is subject to the risks associated with direct ownership of the
securities in which such investment company invests. Fund shareholders
indirectly bear their proportionate share of the expenses of each such
investment company.
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.
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
The following information provides
some indication of the risks of investing in the Fund. Past performance (before
and after taxes) is not necessarily an indication of how the Fund will perform
in the future. You may get updated performance information by calling
1-800-222-5852 or online at www.principalfunds.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.
Life of Fund returns are measured
from the date the Fund's shares were first sold (June 14, 2012).
For periods prior to the inception
date of Institutional Class shares (March 10, 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 this adjustment for fees and expenses results in performance for
the Institutional Class 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 does not apply to Institutional Class).
These adjustments result in performance for such periods that is no higher than
the historical performance of the Class A shares, which were first sold June 14,
2012.
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q1
'14 |
6.17% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'16 |
(6.58)% |
(1)
The year-to-date return as of September 30, 2018 was 0.68% for Class A shares.
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2017 |
1 Year |
5
Year |
Life of
Fund |
Class A
Return Before Taxes |
6.04% |
3.77% |
4.62% |
Class A
Return After Taxes on Distributions |
6.04% |
3.77% |
4.60% |
Class A
Return After Taxes on Distributions and Sale of Fund
Shares |
5.05% |
3.76% |
4.44% |
Class C
Return Before Taxes |
8.30% |
3.77% |
4.54% |
Institutional
Class Return Before Taxes |
10.52% |
4.72% |
5.45% |
Bloomberg Barclays Municipal
Bond Index (reflects no deduction for fees, expenses, or
taxes) |
5.45% |
3.02% |
3.30% |
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.
Management
Investment
Advisor and Portfolio Managers:
Principal Global Investors,
LLC
|
|
• |
James Noble (since 2012),
Portfolio Manager |
|
|
• |
James Welch (since 2014),
Portfolio Manager |
Purchase and Sale
of Fund Shares
|
|
|
|
Share
Class |
Investment
Type |
Purchase
Minimum
Per
Fund |
A and
C |
Initial
Investment |
$1,000(1) |
A and
C |
Initial Investment for accounts
with an Automatic Investment Plan (AIP) |
$100 |
A and
C |
Subsequent
Investments |
$100(1)(2) |
Institutional |
There are no minimum initial or
subsequent investment requirements for eligible
purchasers. |
N/A |
|
|
(1) |
Some exceptions apply; see
"Purchase of Fund Shares - Minimum Investments" for more
information. |
|
|
(2) |
For accounts with an AIP, the
subsequent automatic investments must total $1,200 annually if the initial
$1,000 minimum has not been met. |
You may purchase or redeem shares on
any business day (normally any day when the New York Stock Exchange is open for
regular trading) through your plan, intermediary, or Financial Professional; by
sending a written request to Principal Funds at P.O. Box 8024, Boston, MA
02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight
mail); calling us at 1-800-222-5852; or accessing our website
(www.principalfunds.com).
Tax
Information
While the Fund intends to distribute
income that is exempt from regular federal and possibly some state income taxes,
a portion of the Fund’s distributions may be subject to federal income taxes or
to the federal alternative minimum tax. A portion of the Fund’s distributions
likely will be subject to state income taxes depending on the state’s
rules.
Payments to
Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a
broker-dealer or other financial intermediary (such as a bank, insurance
company, investment adviser, etc.), the Fund and its related companies may pay
the intermediary for the sale of Fund shares and related services. These
payments may create a conflict of interest by influencing the broker-dealer or
other intermediary and your salesperson to recommend the Fund over another
investment, or to recommend one share class of the Fund over another share
class. Ask your salesperson or visit your financial intermediary’s website for
more information.
ORIGIN EMERGING
MARKETS FUND
|
|
Objective: |
The Fund seeks long-term
growth of capital. |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund. You may
qualify for sales charge discounts if you and your family invest, or agree to
invest in the future, at least $50,000 in Class A shares of Principal
Funds, Inc. More information about these and other discounts is available from
your financial professional and in “Choosing a Share Class and The Costs of
Investing” beginning on page ___ of the Fund’s prospectus, Appendix C to the
prospectus titled "Intermediary-Specific Sales Charge Waivers and Reductions",
and “Multiple Class Structure” beginning on page __ of the Fund’s Statement of
Additional Information.
Shareholder Fees
(fees paid directly from your investment)
|
|
|
|
|
|
Share
Class |
|
A |
Inst. |
R-6 |
Maximum Sales Charge (Load)
Imposed on Purchases (as a percentage of offering price) |
5.50% |
None |
None |
Maximum Deferred Sales Charge
(Load) (as a percentage of the offering price or NAV at the time Sales
Load is paid, whichever is less) |
1.00% |
None |
None |
Annual
Fund Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
|
Share
Class |
|
A |
Inst. |
R-6 |
Management Fees |
1.19% |
1.19% |
1.19% |
Distribution and/or Service
(12b-1) Fees |
0.25% |
N/A |
N/A |
Other Expenses |
4.22% |
0.05% |
0.04% |
Acquired Fund Fees and
Expenses |
0.01% |
0.01% |
0.01% |
Total Annual
Fund Operating Expenses |
5.67% |
1.25% |
1.24% |
Expense Reimbursement
(1)
(2) |
(3.91)% |
—% |
—% |
Total Annual
Fund Operating Expenses after Expense Reimbursement |
1.76% |
1.25% |
1.24% |
|
|
|
|
|
|
(1) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s expenses by paying, if necessary, expenses normally payable by the
Fund, (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses) to
maintain a total level of operating expenses (expressed as a percent of
average net assets on an annualized basis) not to exceed 1.75% for Class A
and 1.25% for Institutional Class shares. It is expected that the expense
limits will continue through the period ending December 30, 2019; however,
Principal Funds, Inc. and PGI, the parties to the agreement, may mutually
agree to terminate the expense limits prior to the end of the
period. |
(2) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s expenses by paying, if necessary, expenses normally payable by the
Fund, (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses) to
maintain "Other Expenses" (expressed as a percent of average net assets on
an annualized basis) not to exceed 0.02% for Class R-6 shares through the
period ending December 30, 2018 and 0.04% from December 31, 2018 through
the period ending December 30, 2019. (The table reflects the 0.04% limit
on "Other Expenses" for the entire period.) It is expected that the
expense limit will continue through the period ending December 30, 2019;
however, Principal Funds, Inc. and PGI, the parties to the agreement, may
mutually agree to terminate the expense limit prior to the end of the
period. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. The Example also assumes
that your investment has a 5% return each year and that the Fund’s operating
expenses remain the same. The calculation of costs takes into account any
applicable contractual fee waivers and/or expense reimbursements for the period
noted in the table above. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Class
A |
$719 |
$1,818 |
$2,902 |
$5,550 |
Institutional
Class |
127 |
397 |
686 |
1,511 |
Class
R-6 |
126 |
393 |
681 |
1,500 |
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 annualized portfolio turnover rate was 66.3% 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 equity securities of emerging market companies at the time of
purchase. The Fund considers a security to be tied economically to an emerging
market country (an “emerging market security”) if the issuer of the security has
its principal place of business or principal office in an emerging market
country, has its principal securities trading market in an emerging market
country, or derives a majority of its revenue from emerging market
countries.
"Emerging market country" means any
country which is considered to be an emerging country by the international
financial community (including the MSCI Emerging Markets Index or Bloomberg
Barclays Emerging Markets USD Aggregate Bond Index). The Fund invests in equity
securities of small, medium, and large market capitalization companies and in
growth and value stocks.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund, in alphabetical order,
are:
Emerging Markets
Risk. Investments in
emerging market countries may have more risk than those in developed market
countries because the emerging markets are less developed and more illiquid.
Emerging market countries can also be subject to increased social, economic,
regulatory, and political uncertainties and can be extremely
volatile.
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
|
|
• |
Growth
Stock Risk.
If growth companies do not
increase their earnings at a rate expected by investors, the market price
of the stock may decline significantly, even if earnings show an absolute
increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market
downturns. |
|
|
• |
Small and
Medium Market Capitalization Companies Risk. Investments in small and medium sized companies
may involve greater risk and price volatility than investments in larger,
more mature companies. |
|
|
• |
Value Stock
Risk. Value stocks may continue to
be undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that
appears would cause the stock price to increase may not occur as
anticipated or at all. Moreover, a stock that appears to be undervalued
actually may be appropriately priced at a low level and therefore would
not be profitable for the fund. |
Foreign Currency
Risk. Risks of investing in securities
denominated in, or that trade in, foreign (non-U.S.) currencies include changes
in foreign exchange rates and foreign exchange restrictions.
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).
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 by calling
1-800-222-5852 or online at www.principalfunds.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.
Life of Fund returns are measured
from the date the Fund's shares were first sold (January 23, 2015).
During 2015, Class A experienced a
significant withdrawal of monies by an affiliate. As the remaining shareholders
held relatively small positions, the total return amounts expressed herein are
greater than those that would have been experienced without the
withdrawal.
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q1
'17 |
15.13% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'16 |
(9.91)% |
(1)
The year-to-date return as of September 30, 2018 was (11.06)% for Class A shares.
|
|
|
|
|
Average
Annual Total Returns |
|
For the
periods ended December 31, 2017 |
1 Year |
Life of
Fund |
|
Class A
Return Before Taxes |
42.29% |
6.40% |
(1) |
Class A
Return After Taxes on Distributions |
42.45% |
6.43% |
(1) |
Class A
Return After Taxes on Distributions and Sale of Fund
Shares |
24.37% |
5.09% |
(1) |
Institutional
Class Return Before Taxes |
51.03% |
8.30% |
|
Class R-6
Return Before Taxes |
51.04% |
8.29% |
|
MSCI Emerging Markets NR Index
(reflects no deduction for fees, expenses, or taxes) |
37.28% |
7.98% |
|
(1)
During 2015,
the Class experienced a significant withdrawal of monies by an affiliate.
As the remaining shareholders held relatively small positions, the total
return amounts expressed herein are greater than those that would have
been experienced without the
withdrawal. |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts. After-tax returns are shown for Class A shares only and would be
different for the other share classes.
Management
Investment
Advisor:
Principal Global Investors,
LLC
Sub-Advisor and
Portfolio Managers:
Origin Asset Management LLP
|
|
• |
John Birkhold (since 2015),
Partner |
|
|
• |
Chris Carter (since 2015),
Partner |
|
|
• |
Nigel Dutson (since 2015),
Partner |
|
|
• |
Tarlock Randhawa (since 2015),
Partner |
|
|
• |
Grace Tolley (since 2017),
Portfolio Manager |
Purchase and Sale
of Fund Shares
|
|
|
|
Share
Class |
Investment
Type |
Purchase
Minimum
Per
Fund |
A |
Initial
Investment |
$1,000(1) |
A |
Initial Investment for accounts
with an Automatic Investment Plan (AIP) |
$100 |
A |
Subsequent
Investments |
$100(1)(2) |
Institutional
and R-6 |
There are no minimum initial or
subsequent investment requirements for eligible
purchasers. |
N/A |
|
|
(1) |
Some exceptions apply; see
"Purchase of Fund Shares - Minimum Investments" for more
information. |
|
|
(2) |
For accounts with an AIP, the
subsequent automatic investments must total $1,200 annually if the initial
$1,000 minimum has not been met. |
You may purchase or redeem shares on
any business day (normally any day when the New York Stock Exchange is open for
regular trading) through your plan, intermediary, or Financial Professional; by
sending a written request to Principal Funds at P.O. Box 8024, Boston, MA
02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight
mail); calling us at 1-800-222-5852; or accessing our website
(www.principalfunds.com).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
For Class R-6 shares, the Fund and
its related companies do not pay broker-dealers or other financial
intermediaries (such as a bank, insurance company, investment adviser, etc.) for
the sale of Fund shares or related services.
For the other share classes, if you
purchase the Fund through a broker-dealer or other financial intermediary (such
as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment, or to recommend one share class of
the Fund over another share class. Ask your salesperson or visit your financial
intermediary's website for more information.
PREFERRED
SECURITIES FUND
|
|
Objective: |
The Fund seeks to provide
current income. |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund. You may
qualify for sales charge discounts if you and your family invest, or agree to
invest in the future, at least $100,000 in Class A shares of Principal
Funds, Inc. More information about these and other discounts is available from
your financial professional and in “Choosing a Share Class and The Costs of
Investing” beginning on page ___ of the Fund’s prospectus, Appendix C to the
prospectus titled "Intermediary-Specific Sales Charge Waivers and Reductions",
and “Multiple Class Structure” beginning on page __ of the Fund’s Statement of
Additional Information.
Shareholder Fees
(fees paid directly from your investment)
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
Class |
|
A |
C |
J |
Inst. |
R-1 |
R-2 |
R-3 |
R-4 |
R-5 |
R-6 |
Maximum Sales Charge (Load)
Imposed on Purchases (as a percentage of offering price) |
3.75% |
None |
None |
None |
None |
None |
None |
None |
None |
None |
Maximum Deferred Sales Charge
(Load) (as a percentage of the offering price or NAV at the time Sales
Load is paid, whichever is less) |
1.00% |
1.00% |
1.00% |
None |
None |
None |
None |
None |
None |
None |
Annual Fund
Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
Class |
|
A |
C |
J |
Inst. |
R-1 |
R-2 |
R-3 |
R-4 |
R-5 |
R-6 |
Management Fees |
0.70% |
0.70% |
0.70% |
0.70% |
0.70% |
0.70% |
0.70% |
0.70% |
0.70% |
0.70% |
Distribution and/or Service
(12b-1) Fees |
0.25% |
1.00% |
0.15% |
N/A |
0.35% |
0.30% |
0.25% |
0.10% |
N/A |
N/A |
Other Expenses |
0.11% |
0.11% |
0.18% |
0.07% |
0.53% |
0.45% |
0.32% |
0.28% |
0.26% |
0.02% |
Total Annual
Fund Operating Expenses |
1.06% |
1.81% |
1.03% |
0.77% |
1.58% |
1.45% |
1.27% |
1.08% |
0.96% |
0.72% |
Expense Reimbursement
(1) |
N/A |
N/A |
N/A |
—% |
N/A |
N/A |
N/A |
N/A |
N/A |
—% |
Total Annual
Fund Operating Expenses after Expense Reimbursement |
1.06% |
1.81% |
1.03% |
0.77% |
1.58% |
1.45% |
1.27% |
1.08% |
0.96% |
0.72% |
|
|
|
(1) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s expenses by paying, if necessary, expenses normally payable by the
Fund, (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses) to
maintain a total level of operating expenses (expressed as a percent of
average net assets on an annualized basis) not to exceed 0.81% for
Institutional Class shares. In addition, for Class R-6, the expense limit
will maintain "Other Expenses" (expressed as a percent of average net
assets on an annualized basis) not to exceed 0.02%, (excluding interest
expense, expenses related to fund investments, acquired fund fees and
expenses, and other extraordinary expenses). It is expected that the
expense limit will continue through the period ending December 30, 2019;
however, Principal Funds, Inc. and PGI, the parties to the agreement, may
mutually agree to terminate the expense limit prior to the end of the
period. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated 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 |
$479 |
$700 |
$938 |
$1,621 |
Class
C |
284 |
569 |
980 |
2,127 |
Class
J |
205 |
328 |
569 |
1,259 |
Institutional
Class |
79 |
246 |
428 |
954 |
Class
R-1 |
161 |
499 |
860 |
1,878 |
Class
R-2 |
148 |
459 |
792 |
1,735 |
Class
R-3 |
129 |
403 |
697 |
1,534 |
Class
R-4 |
110 |
343 |
595 |
1,317 |
Class
R-5 |
98 |
306 |
531 |
1,178 |
Class
R-6 |
74 |
230 |
401 |
894 |
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 |
$184 |
$569 |
$980 |
$2,127 |
Class
J |
105 |
328 |
569 |
1,259 |
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 annualized portfolio turnover rate was 16.1% 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 borrowing for investment
purposes, in preferred securities at the time of purchase. Preferred securities
typically include preferred stock and various types of junior subordinated debt
and trust preferred securities. Preferred securities may pay fixed rate or
adjustable rate distributions and generally have a payment "preference" over
common stock, but are junior to the issuer's senior debt in a liquidation of the
issuer’s assets.
The Fund also
invests in contingent convertible securities (“Cocos”), which are hybrid debt
securities typically issued by non-US banking institutions that have contractual
equity conversion or principal write-down features that are triggered by
regulatory capital thresholds or regulatory actions calling into question the
issuing banking institution’s continued viability as a going-concern if the
conversion trigger were not exercised.
Preferred securities purchased by
the Fund are of companies with senior debt rated at the time of purchase BBB- or
higher by S&P Global Ratings ("S&P Global") or Baa3 or higher by Moody's
Investors Service, Inc. ("Moody's") or, if unrated, of comparable quality in the
opinion of those selecting such investments. If securities are rated differently
by the rating agencies, the highest rating is used. The Fund also invests up to
40% of its assets in below investment grade preferred securities and bonds
(sometimes called “high yield bonds” or "junk bonds") which are rated at the
time of purchase Ba1 or lower by Moody's and BB+ or lower by S&P Global (if
the bond has been rated by only one of those agencies, that rating will
determine whether the bond is below investment grade; if the bond has not been
rated by either of those agencies, those selecting such investments will
determine whether the bond is of a quality comparable to those rated below
investment grade). The Fund invests in other debt obligations, including (but
not limited to) U.S. Treasury securities and obligations of the U.S. Government,
its agencies and instrumentalities. The Fund invests in foreign
securities.
The Fund concentrates its
investments (invests more than 25% of its net assets) in securities in the
financial services (i.e., banking, insurance and commercial finance)
industry.
During the fiscal year ended August
31, 2017, the average ratings of the Fund’s fixed-income assets, based on market
value at each month-end, were as follows (all ratings are by
Moody’s):
|
|
|
|
|
0.00% in securities rated
Aaa |
65.05% in securities rated
Baa |
0.00% in securities rated
Caa |
0.00% in securities rated
D |
0.18% in securities rated
Aa |
20.84% in securities rated
Ba |
0.00% in securities rated
Ca |
1.04% in securities not
rated |
10.00% in securities rated
A |
2.89% in securities rated
B |
0.00% in securities rated
C |
|
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund, in alphabetical order,
are:
Contingent
Convertible Securities Risk. In addition to the general risks
associated with fixed-income securities and convertible securities, the risks of
investing in contingent convertible securities (“CoCos”) include the risk that a
CoCo may be written down, written off or converted into an equity security when
the issuer’s capital ratio falls below a specified trigger level, or in a
regulator’s discretion depending on the regulator’s judgment about the issuer’s
solvency prospects. Due to these features, CoCos may have substantially greater
risk than other securities in times of financial stress. If the trigger level is
breached, the issuer’s decision to write down, write off or convert a CoCo may
result in the fund's complete loss on an investment in CoCos with no chance of
recovery even if the issuer remains in existence.
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
generally increases when interest rates fall. Higher 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.
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).
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.
Industry
Concentration Risk. A
fund that concentrates investments in a particular industry or group of
industries has greater exposure than other funds to market, economic and other
factors affecting that industry or group of industries.
|
|
• |
Financial
Services. A fund concentrating in
financial services companies may be more susceptible to adverse economic
or regulatory occurrences affecting financial services companies.
Financial companies may be adversely affected in certain market cycles,
including periods of rising interest rates, which may restrict the
availability and increase the cost of capital, and declining economic
conditions, which may cause credit losses due to financial difficulties of
borrowers. Because many types of financial companies are especially
vulnerable to these economic cycles, the Fund’s investments in these
companies may lose significant value during such periods.
|
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.
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.
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 by calling
1-800-222-5852 or online at www.principalfunds.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 Class R-6 shares (January 3, 2017), the performance shown in the table
for Class R-6 is that of the Fund's Institutional Class shares, adjusted to
reflect the fees and expenses of Class R-6. However, where this adjustment for
fees and expenses results in performance for Class R-6 that is higher than the
historical performance of the Institutional Class shares, the historical
performance of the Institutional Class shares is used. These adjustments result
in performance for such periods that is no higher than the historical
performance of the Institutional Class shares, which were first sold May 1,
2002.
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'09 |
38.89% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q3
'08 |
(20.97)% |
(1)
The year-to-date return as of September 30, 2018 was (1.12)% for Class A shares.
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2017 |
1 Year |
5 Years |
10
Years |
Class A
Return Before Taxes |
6.07% |
5.32% |
7.45% |
Class A
Return After Taxes on Distributions |
4.65% |
3.30% |
5.33% |
Class A
Return After Taxes on Distributions and Sale of Fund
Shares |
4.14% |
3.47% |
5.14% |
Class C
Return Before Taxes |
8.41% |
5.35% |
7.06% |
Class J
Return Before Taxes |
9.27% |
6.06% |
7.64% |
Institutional
Class Return Before Taxes |
10.50% |
6.45% |
8.18% |
Class R-1
Return Before Taxes |
9.66% |
5.57% |
7.28% |
Class R-2
Return Before Taxes |
9.77% |
5.73% |
7.42% |
Class R-3
Return Before Taxes |
9.91% |
5.91% |
7.61% |
Class R-4
Return Before Taxes |
10.14% |
6.10% |
7.81% |
Class R-5
Return Before Taxes |
10.35% |
6.24% |
7.95% |
Class R-6
Return Before Taxes |
10.52% |
6.38% |
8.08% |
ICE BofA Merrill Lynch U.S. All
Capital Securities Index (reflects no deduction for fees, expenses, or
taxes) |
10.55% |
6.82% |
N/A |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts. After-tax returns are shown for Class A shares only and would be
different for the other share classes.
Management
Investment
Advisor:
Principal Global Investors,
LLC
Sub-Advisor and
Portfolio Managers:
Spectrum Asset Management,
Inc.
|
|
• |
Fernando (“Fred”) Diaz (since
2010), Portfolio Manager |
|
|
• |
Roberto Giangregorio (since
2010), Portfolio Manager |
|
|
• |
L. Phillip Jacoby, IV (since
2002), Chief Investment Officer and Portfolio
Manager |
|
|
• |
Manu Krishnan (since 2010),
Portfolio Manager |
|
|
• |
Mark A. Lieb (since 2009),
President and Chief Executive Officer |
|
|
• |
Kevin Nugent (since 2014),
Vice President and Portfolio Manager |
Purchase and Sale
of Fund Shares
|
|
|
|
Share
Class |
Investment
Type |
Purchase
Minimum
Per
Fund |
A, C, and
J |
Initial
Investment |
$1,000(1) |
A, C, and
J |
Initial Investment for accounts
with an Automatic Investment Plan (AIP) |
$100 |
A, C, and
J |
Subsequent
Investments |
$100(1)(2) |
Institutional,
R-1, R-2, R-3, R-4, R-5 and R-6 |
There are no minimum initial or
subsequent investment requirements for eligible
purchasers. |
N/A |
|
|
(1) |
Some exceptions apply; see
"Purchase of Fund Shares - Minimum Investments" for more
information. |
|
|
(2) |
For accounts with an AIP, the
subsequent automatic investments must total $1,200 annually if the initial
$1,000 minimum has not been met. |
You may purchase or redeem shares on
any business day (normally any day when the New York Stock Exchange is open for
regular trading) through your plan, intermediary, or Financial Professional; by
sending a written request to Principal Funds at P.O. Box 8024, Boston, MA
02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight
mail); calling us at 1-800-222-5852; or accessing our website
(www.principalfunds.com).
For retirement plan investors,
effective as of the close of the New York Stock Exchange on January 31, 2017,
Class R-1 and Class R-2 shares will no longer be available for purchase from new
retirement plans except in limited circumstances. See Purchase of Fund Shares
for additional information.
Class C shares are subject to a
10-year automatic conversion plan whereby Class C shares held for ten years
after purchase will automatically convert to Class A shares of the same Fund.
See “Purchase of Fund Shares” in the Prospectus 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
For Class R-6 shares, the Fund and
its related companies do not pay broker-dealers or other financial
intermediaries (such as a bank, insurance company, investment adviser, etc.) for
the sale of Fund shares or related services.
For the other share classes, if you
purchase the Fund through a broker-dealer or other financial intermediary (such
as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment, or to recommend one share class of
the Fund over another share class. Ask your salesperson or visit your financial
intermediary's website for more information.
REAL ESTATE DEBT
INCOME FUND
|
|
Objective: |
The Fund seeks to provide
current income. |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund. You may
qualify for sales charge discounts if you and your family invest, or agree to
invest in the future, at least $100,000 in Class A shares of Principal
Funds, Inc. More information about these and other discounts is available from
your financial professional and in “Choosing a Share Class and The Costs of
Investing” beginning on page ___ of the Fund’s prospectus, Appendix C to the
prospectus titled "Intermediary-Specific Sales Charge Waivers and Reductions",
and “Multiple Class Structure” beginning on page __ of the Fund’s Statement of
Additional Information.
Shareholder Fees
(fees paid directly from your investment)
|
|
|
|
|
|
Share
Class |
|
A |
Inst. |
R-6 |
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 at the time Sales
Load is paid, whichever is less) |
1.00% |
None |
None |
Annual
Fund Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
|
Share
Class |
|
A |
Inst. |
R-6 |
Management Fees |
0.55% |
0.55% |
0.55% |
Distribution and/or Service
(12b-1) Fees |
0.25% |
N/A |
N/A |
Other Expenses |
3.27% |
0.04% |
0.09% |
Total Annual
Fund Operating Expenses |
4.07% |
0.59% |
0.64% |
Expense Reimbursement
(1) |
(3.07)% |
—% |
(0.07)% |
Total Annual
Fund Operating Expenses after Expense Reimbursement |
1.00% |
0.59% |
0.57% |
|
|
|
|
|
(1) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s expenses by paying, if necessary, expenses normally payable by the
Fund, (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses) to
maintain a total level of operating expenses (expressed as a percent of
average net assets on an annualized basis) not to exceed 1.00% for Class A
and 0.70% for Institutional Class shares. In addition, for Class R-6, the
expense limit will maintain "Other Expenses" (expressed as a percent of
average net assets on an annualized basis) not to exceed 0.02%, (excluding
interest expense, expenses related to fund investments, acquired fund fees
and expenses, and other extraordinary expenses). It is expected that the
expense limits will continue through the period ending December 30, 2019;
however, Principal Funds, Inc. and PGI, the parties to the agreement, may
mutually agree to terminate the expense limits prior to the end of the
period. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. 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 |
$473 |
$1,296 |
$2,133 |
$4,297 |
Institutional
Class |
60 |
189 |
329 |
738 |
Class
R-6 |
58 |
198 |
350 |
792 |
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 annualized portfolio turnover rate was 13.1% 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 debt securities of U.S. companies principally engaged in the real
estate industry at the time of purchase. A real estate company has at least 50%
of its assets, income or profits derived from products or services related to
the real estate industry. Real estate companies include real estate investment
trusts ("REITs") and companies with substantial real estate holdings such as
paper, lumber, hotel and entertainment companies as well as those whose products
and services relate to the real estate industry include building supply
manufacturers, mortgage lenders and mortgage servicing companies. Of those real
estate industry investments, the Fund will invest primarily in securitized
products, including commercial mortgage-backed securities (“CMBS”), which are
bonds that are secured by first mortgages on commercial real estate. REITs are
pooled investment vehicles that invest in income producing real estate, real
estate related loans, or other types of real estate interests. REITs are
corporations or business trusts that are permitted to eliminate corporate level
federal income taxes by meeting certain requirements of the Internal Revenue
Code. The Fund is not managed to a particular maturity or duration.
The Fund concentrates its
investments (invest more than 25% of its net assets) in securities in the real
estate industry.
During the fiscal year ended August
31, 2017, the average ratings of the Fund’s fixed-income assets, based on market
value at each month-end, were as follows (all ratings are by
Moody’s):
|
|
|
|
|
35.06% in securities rated
Aaa |
12.23% in securities rated
Baa |
1.31% in securities rated
Caa |
0.00% in securities rated
D |
10.62% in securities rated
Aa |
0.75% in securities rated
Ba |
0.00% in securities rated
Ca |
21.01% in securities not
rated |
12.48% in securities rated
A |
6.54% in securities rated
B |
0.00% in securities rated
C |
|
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund, in alphabetical order,
are:
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
generally increases when interest rates fall. Higher 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.
Industry
Concentration Risk. A
fund that concentrates investments in a particular industry or group of
industries has greater exposure than other funds to market, economic and other
factors affecting that industry or group of industries.
|
|
• |
Real
Estate. A fund concentrating in
the real estate industry is subject to the risks associated with direct
ownership of real estate, securities of companies in the real estate
industry, and/or real estate investment
trusts. |
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.
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.
Real Estate
Investment Trusts (“REITs”) Risk. In addition to risks associated with
investing in real estate securities, REITs are dependent upon management skills,
are not diversified, and are subject to heavy cash flow dependency, risks of
default by borrowers, and self-liquidation. Investment in REITs also involves
risks similar to risks of investing in small market capitalization companies,
such as limited financial resources, less frequent and limited volume trading,
and may be subject to more abrupt or erratic price movements than larger company
securities. A REIT could fail to qualify for tax-free pass-through of income
under the Internal Revenue Code. Fund shareholders will indirectly bear their
proportionate share of the expenses of REITs in which the fund invests.
Real Estate
Securities Risk.
Investing in real
estate securities subjects the fund to the risks associated with the real estate
market (which are similar to the risks associated with direct ownership in real
estate), including declines in real estate values, loss due to casualty or
condemnation, property taxes, interest rate changes, increased expenses, cash
flow of underlying real estate assets, regulatory changes (including zoning,
land use and rents), and environmental problems, as well as to the risks related
to the management skill and creditworthiness of the issuer.
Redemption 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.
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).
Performance
The following information provides
some indication of the risks of investing in the Fund. Past performance (before
and after taxes) is not necessarily an indication of how the Fund will perform
in the future. You may get updated performance information by calling
1-800-222-5852 or online at www.principalfunds.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.
Life of Fund returns are measured
from the date the Fund's shares were first sold (December 31,
2014).
For periods prior to the inception
date of Class R-6 shares (January 3, 2017), the performance shown in the table
for R-6 shares is that of the Fund's Institutional Class shares, adjusted to
reflect the fees and expenses of Class R-6 shares. However, where this
adjustment for fees and expenses results in performance for Class R-6 shares
that is higher than the historical performance of the Institutional Class
shares, the historical performance of the Institutional Class shares is used.
These adjustments result in performance for such periods that is no higher than
the historical performance of the Institutional Class shares, which were first
sold December 31, 2014.
During 2016, Class A experienced a
significant withdrawal of monies by an affiliate. As the remaining shareholders
held relatively small positions, the total return amounts expressed herein are
greater than those that would have been experienced without the
withdrawal.
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q2
'16 |
4.05% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q4
'16 |
(2.78)% |
(1)
The year-to-date return as of September 30, 2018 was 1.13% for Class A shares.
|
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2017 |
1 Year |
|
Life of
Fund |
|
Class A
Return Before Taxes |
0.01% |
(1) |
0.58% |
(1) |
Class A
Return After Taxes on Distributions |
(1.31)% |
(1) |
(0.74)% |
(1) |
Class A
Return After Taxes on Distributions and Sale of Fund
Shares |
0.00% |
(1) |
(0.16)% |
(1) |
Institutional
Class Return Before Taxes |
4.21% |
|
1.85% |
|
Class R-6
Return Before Taxes |
4.41% |
|
1.87% |
|
Bloomberg Barclays CMBS ERISA
Eligible Index (reflects no deduction for fees, expenses, or
taxes) |
3.35% |
|
2.54% |
|
(1)
During 2016,
the Class experienced a significant withdrawal of monies by an affiliate.
As the remaining shareholders held relatively small positions, the total
return amounts expressed herein are greater than those that would have
been experienced without the
withdrawal. |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts. After-tax returns are shown for Class A shares only and would be
different for the other share classes.
Management
Investment
Advisor:
Principal Global Investors,
LLC
Sub-Advisor and
Portfolio Managers:
Principal Real Estate Investors,
LLC
|
|
• |
Scott M. Carson (since 2014),
Portfolio Manager |
|
|
• |
Marc Peterson (since 2014),
Portfolio Manager |
Purchase and Sale
of Fund Shares
|
|
|
|
Share
Class |
Investment
Type |
Purchase
Minimum
Per
Fund |
A |
Initial
Investment |
$1,000(1) |
A |
Initial Investment for accounts
with an Automatic Investment Plan (AIP) |
$100 |
A |
Subsequent
Investments |
$100(1)(2) |
Institutional
and R-6 |
There are no minimum initial or
subsequent investment requirements for eligible
purchasers. |
N/A |
|
|
(1) |
Some exceptions apply; see
"Purchase of Fund Shares - Minimum Investments" for more
information. |
|
|
(2) |
For accounts with an AIP, the
subsequent automatic investments must total $1,200 annually if the initial
$1,000 minimum has not been met. |
You may purchase or redeem shares on
any business day (normally any day when the New York Stock Exchange is open for
regular trading) through your plan, intermediary, or Financial Professional; by
sending a written request to Principal Funds at P.O. Box 8024, Boston, MA
02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight
mail); calling us at 1-800-222-5852; or accessing our website
(www.principalfunds.com).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
For Class R-6 shares, the Fund and
its related companies do not pay broker-dealers or other financial
intermediaries (such as a bank, insurance company, investment adviser, etc.) for
the sale of Fund shares or related services.
For the other share classes, if you
purchase the Fund through a broker-dealer or other financial intermediary (such
as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment, or to recommend one share class of
the Fund over another share class. Ask your salesperson or visit your financial
intermediary's website for more information.
SMALL-MIDCAP
DIVIDEND INCOME FUND
|
|
Objective: |
The Fund seeks to provide
current income and long-term growth of income and
capital. |
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund. You may
qualify for sales charge discounts if you and your family invest, or agree to
invest in the future, at least $50,000 in Class A shares of Principal
Funds, Inc. More information about these and other discounts is available from
your financial professional and in “Choosing a Share Class and The Costs of
Investing” beginning on page ___ of the Fund’s prospectus, Appendix C to the
prospectus titled "Intermediary-Specific Sales Charge Waivers and Reductions",
and “Multiple Class Structure” beginning on page __ of the Fund’s Statement of
Additional Information.
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) |
5.50% |
None |
None |
None |
Maximum Deferred Sales Charge
(Load) (as a percentage of the offering price or NAV at the time 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 |
0.76% |
0.76% |
0.76% |
0.76% |
Distribution and/or Service
(12b-1) Fees |
0.25% |
1.00% |
N/A |
N/A |
Other Expenses |
0.16% |
0.16% |
0.13% |
0.02% |
Acquired Fund Fees and
Expenses |
0.23% |
0.23% |
0.23% |
0.23% |
Total Annual
Fund Operating Expenses |
1.40% |
2.15% |
1.12% |
1.01% |
Expense Reimbursement
(1)
|
(0.04)% |
(0.04)% |
(0.03)% |
—% |
Total Annual
Fund Operating Expenses after Expense Reimbursement |
1.36% |
2.11% |
1.09% |
1.01% |
|
|
|
|
|
|
|
(1) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s expenses by paying, if necessary, expenses normally payable by the
Fund, (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses) to
maintain a total level of operating expenses (expressed as a percent of
average net assets on an annualized basis) not to exceed 1.13% for Class
A, 1.88% for Class C and 0.86% for Institutional Class shares. In
addition, for Class R-6, the expense limit will maintain "Other Expenses"
(expressed as a percent of average net assets on an annualized basis) not
to exceed 0.02%, (excluding interest expense, expenses related to fund
investments, acquired fund fees and expenses, and other extraordinary
expenses). It is expected that the expense limits will continue through
the period ending December 30, 2019; however, Principal Funds, Inc. and
PGI, the parties to the agreement, may mutually agree to terminate the
expense limits prior to the end of the
period. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund’s operating expenses
remain the same. The calculation of costs takes into account any applicable
contractual fee waivers and/or expense reimbursements for the period noted in
the table above. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Class
A |
$681 |
$965 |
$1,270 |
$2,134 |
Class
C |
314 |
669 |
1,151 |
2,480 |
Institutional
Class |
111 |
353 |
614 |
1,360 |
Class
R-6 |
103 |
322 |
558 |
1,236 |
With respect to Class C shares, you
would pay the following expenses if you did not redeem your shares (all other
classes would be the same as in the above example):
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Class
C |
$214 |
$669 |
$1,151 |
$2,480 |
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 annualized portfolio turnover rate was 25.5% 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 dividend-paying equity securities of companies with small to medium
market capitalizations at the time of purchase. For this Fund, companies with
small to medium market capitalizations are those with market capitalizations
similar to companies in the Russell 2500 Value Index (as of April 30, 2018, the
range of the index was between approximately $16.8 million and $16.2 billion).
The Fund invests in value equity securities, an investment strategy that
emphasizes buying equity securities that appear to be undervalued. The Fund's
investments include the securities of foreign issuers and real estate investment
trusts.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund, in alphabetical order,
are:
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
|
|
• |
Small and
Medium Market Capitalization Companies. Investments in small and medium sized companies
may involve greater risk and price volatility than investments in larger,
more mature companies. |
|
|
• |
Value Stock
Risk. Value stocks may continue to
be undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that
appears would cause the stock price to increase may not occur as
anticipated or at all. Moreover, a stock that appears to be undervalued
actually may be appropriately priced at a low level and therefore would
not be profitable for the fund. |
Foreign Currency
Risk. Risks of
investing in securities denominated in, or that trade in, foreign (non-U.S.)
currencies include changes in foreign exchange rates and foreign exchange
restrictions.
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
Investment Trusts (“REITs”) Risk. In addition to risks associated with
investing in real estate securities, REITs are dependent upon management skills,
are not diversified, and are subject to heavy cash flow dependency, risks of
default by borrowers, and self-liquidation. Investment in REITs also involves
risks similar to risks of investing in small market capitalization companies,
such as limited financial resources, less frequent and limited volume trading,
and may be subject to more abrupt or erratic price movements than larger company
securities. A REIT could fail to qualify for tax-free pass-through of income
under the Internal Revenue Code. Fund shareholders will indirectly bear their
proportionate share of the expenses of REITs in which the fund invests.
Real Estate
Securities Risk.
Investing in real
estate securities subjects the fund to the risks associated with the real estate
market (which are similar to the risks associated with direct ownership in real
estate), including declines in real estate values, loss due to casualty or
condemnation, property taxes, interest rate changes, increased expenses, cash
flow of underlying real estate assets, regulatory changes (including zoning,
land use and rents), and environmental problems, as well as to the risks related
to the management skill and creditworthiness of the issuer.
Redemption 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 by calling
1-800-222-5852 or online at www.principalfunds.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.
Life of Fund returns are measured
from the date the Fund's shares were first sold (June 6,
2011).
For periods prior to the inception
date of Class C shares (June 14, 2012) and Class R-6 shares (January 3, 2017),
the performance shown in the table for these newer classes is that of the Fund's
Institutional Class shares, adjusted to reflect the respective fees and expenses
of each class. However, where this adjustment for fees and expenses results in
performance for a newer class that is higher than the historical performance of
the Institutional Class shares, the historical performance of the Institutional
Class shares is used. These adjustments result in performance for such periods
that is no higher than the historical performance of the Institutional Class
shares, which were first sold on June 6, 2011.
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q1
'13 |
12.32% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q3
'15 |
(8.49)% |
(1)
The year-to-date return as of September 30, 2018 was 2.75% for Class A shares.
|
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2017 |
1 Year |
5
Year |
Life of
Fund |
Class A
Return Before Taxes |
6.74% |
13.11% |
12.09% |
Class A
Return After Taxes on Distributions |
5.28% |
11.84% |
10.92% |
Class A
Return After Taxes on Distributions and Sale of Fund
Shares |
4.79% |
10.15% |
9.45% |
Class C
Return Before Taxes |
11.15% |
13.50% |
12.15% |
Institutional
Class Return Before Taxes |
13.30% |
14.82% |
13.50% |
Class R-6
Return Before Taxes |
13.35% |
14.78% |
13.43% |
Russell 2500 Value Index
(reflects no deduction for fees, expenses, or taxes) |
10.36% |
13.27% |
11.85% |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts. After-tax returns are shown for Class A shares only and would be
different for the other share classes.
Management
Investment
Advisor and Portfolio Managers:
Principal Global Investors,
LLC
|
|
• |
Daniel R. Coleman (since
2011), Portfolio Manager |
|
|
• |
Sarah E. Radecki (since 2018),
Portfolio Manager |
|
|
• |
David W. Simpson (since 2011),
Portfolio Manager |
Purchase and Sale
of Fund Shares
|
|
|
|
Share
Class |
Investment
Type |
Purchase
Minimum
Per
Fund |
A and
C |
Initial
Investment |
$1,000(1) |
A and
C |
Initial Investment for accounts
with an Automatic Investment Plan (AIP) |
$100 |
A and
C |
Subsequent
Investments |
$100(1)(2) |
Institutional
and R-6 |
There are no minimum initial or
subsequent investment requirements for eligible
purchasers. |
N/A |
|
|
(1) |
Some exceptions apply; see
"Purchase of Fund Shares - Minimum Investments" for more
information. |
|
|
(2) |
For accounts with an AIP, the
subsequent automatic investments must total $1,200 annually if the initial
$1,000 minimum has not been met. |
For retail investors (i.e.,
non-employer sponsored retirement plan investors), effective as of the close of
the New York Stock Exchange on December 1, 2016, and for employer-sponsored
retirement plan investors, effective as of the close of the New York Stock
Exchange on January 6, 2017, the Small-MidCap Dividend Income Fund will no
longer be available for purchases from new investors except in limited
circumstances. See the section Purchase
of Fund Shares
for additional
information.
You may purchase or redeem shares on
any business day (normally any day when the New York Stock Exchange is open for
regular trading) through your plan, intermediary, or Financial Professional; by
sending a written request to Principal Funds at P.O. Box 8024, Boston, MA
02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight
mail); calling us at 1-800-222-5852; or accessing our website
(www.principalfunds.com).
Class C shares are subject to a
10-year automatic conversion plan whereby Class C shares held for ten years
after purchase will automatically convert to Class A shares of the same Fund.
See “Purchase of Fund Shares” in the Prospectus 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
For Class R-6 shares, the Fund and
its related companies do not pay broker-dealers or other financial
intermediaries (such as a bank, insurance company, investment adviser, etc.) for
the sale of Fund shares or related services.
For the other share classes, if you
purchase the Fund through a broker-dealer or other financial intermediary (such
as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment, or to recommend one share class of
the Fund over another share class. Ask your salesperson or visit your financial
intermediary's website for more information.
SYSTEMATEX
INTERNATIONAL FUND
Objective: The Fund seeks long-term growth of
capital.
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund.
Shareholder Fees
(fees paid directly from your investment): None.
Annual
Fund Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
|
Share Class
|
|
Inst. |
R-6 |
Management Fees |
0.60% |
0.60% |
Distribution and/or Service
(12b-1) Fees |
N/A |
N/A |
Other Expenses |
1.27% |
0.18% |
Total Annual
Fund Operating Expenses |
1.87% |
0.78% |
Expense Reimbursement
(1)(2) |
(1.12)% |
(0.14)% |
Total Annual
Fund Operating Expenses after Expense Reimbursement |
0.75% |
0.64% |
|
|
|
(1) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s expenses by paying, if necessary, expenses normally payable by the
Fund, (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses) to
maintain a total level of operating expenses (expressed as a percent of
average net assets on an annualized basis) not to exceed 0.75% for
Institutional Class shares. It is expected that the expense limit will
continue through the period ending December 30, 2019; 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. |
(2) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s expenses by paying, if necessary, expenses normally payable by the
Fund, (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses) to
maintain "Other Expenses" (expressed as a percent of average net assets on
an annualized basis) not to exceed 0.02% for Class R-6 shares through the
period ending December 30, 2018 and 0.04% from December 31, 2018 through
the period ending December 30, 2019. (The table reflects the 0.04% limit
on "Other Expenses" for the entire period.) It is expected that the
expense limit will continue through the period ending December 30, 2019;
however, Principal Funds, Inc. and PGI, the parties to the agreement, may
mutually agree to terminate the expense limit prior to the end of the
period. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. The Example also assumes
that your investment has a 5% return each year and that the Fund’s operating
expenses remain the same. The calculation of costs takes into account any
applicable contractual fee waivers and/or expense reimbursements for the period
noted in the table above. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Institutional
Class |
$77 |
$479 |
$907 |
$2,099 |
Class
R-6 |
65 |
235 |
420 |
953 |
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 annualized portfolio turnover rate was 44.3% of the average value of its
portfolio.
Principal
Investment Strategies
The Fund invests primarily in
foreign equity securities. The Fund has no limitation on the percentage of
assets invested in any one country or denominated in any one currency, but the
Fund typically invests in foreign securities of at least 3 countries and at
least 40% of its net assets in foreign securities. The Fund invests in equity
securities of small, medium, and large market capitalization companies and in
growth and value stocks. In an attempt to match or exceed the performance of the
Fund's benchmark index (the MSCI EAFE NR Index), the Fund uses a systematic
approach to purchase certain equity securities in the index and to exclude or
adjust the weight of certain equity securities relative to the
index.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund, in alphabetical order,
are:
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
|
|
• |
Growth
Stock Risk.
If growth companies do not
increase their earnings at a rate expected by investors, the market price
of the stock may decline significantly, even if earnings show an absolute
increase. Growth company stocks also typically lack the dividend yield
that can lessen price declines in market
downturns. |
|
|
• |
Small and
Medium Market Capitalization Companies Risk. Investments in small and medium sized companies
may involve greater risk and price volatility than investments in larger,
more mature companies. |
|
|
• |
Value Stock
Risk. Value stocks may continue to
be undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that
appears would cause the stock price to increase may not occur as
anticipated or at all. Moreover, a stock that appears to be undervalued
actually may be appropriately priced at a low level and therefore would
not be profitable for the fund. |
Foreign Currency
Risk. Risks of
investing in securities denominated in, or that trade in, foreign (non-U.S.)
currencies include changes in foreign exchange rates and foreign exchange
restrictions.
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).
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 by calling
1-800-222-5852 or online at www.principalfunds.com.
The bar chart shows the investment
returns of the Fund’s Institutional Class shares for each full calendar year of
operations for 10 years (or, if shorter, the life of the Fund). The table shows
for the last one, five, and ten calendar year periods (or, if shorter, the life
of the Fund), how the Fund’s average annual total returns compare with those of
one or more broad measures of market performance.
Life of Fund returns are measured
from the date the Fund's shares were first sold (September 22,
2015).
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q1
'17 |
7.32% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q1
'16 |
(2.80)% |
(1)
The year-to-date return as of September 30, 2018 was (0.74)% for Institutional Class
shares.
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2017 |
1 Year |
Life of
Fund |
Institutional
Class Return Before Taxes |
24.28% |
12.54% |
Institutional
Class Return After Taxes on Distributions |
23.20% |
11.84% |
Institutional
Class Return After Taxes on Distributions and Sale of Fund
Shares |
14.77% |
9.75% |
Class R-6
Return Before Taxes |
25.02% |
12.93% |
MSCI EAFE NR Index (reflects no
deduction for fees, expenses, or taxes) |
25.03% |
12.73% |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts. After-tax returns are shown for Institutional Class shares only and
would be different for the other share classes.
Management
Investment
Advisor and Portfolio Managers:
Principal Global Investors,
LLC
|
|
• |
Mark R. Nebelung (since 2015),
Portfolio Manager |
|
|
• |
Jeffrey A. Schwarte (since
2015), Portfolio Manager |
Purchase and Sale
of Fund Shares
|
|
|
|
Share
Class |
Investment
Type |
Purchase
Minimum Per Fund |
Institutional
and R-6 |
There are no minimum initial or
subsequent investment requirements for eligible purchases. |
N/A |
You may purchase or redeem shares on
any business day (normally any day when the New York Stock Exchange is open for
regular trading) through your plan, intermediary, or Financial Professional; by
sending a written request to Principal Funds at P.O. Box 8024, Boston, MA
02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight
mail); calling us at 1-800-222-5852; or accessing our website
(www.principalfunds.com).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
For Class R-6 shares, the Fund and
its related companies do not pay broker-dealers or other financial
intermediaries (such as a bank, insurance company, investment adviser, etc.) for
the sale of Fund shares or related services.
For the other share classes, if you
purchase the Fund through a broker-dealer or other financial intermediary (such
as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment, or to recommend one share class of
the Fund over another share class. Ask your salesperson or visit your financial
intermediary's website for more information.
SYSTEMATEX LARGE
VALUE FUND
Objective: The Fund seeks long-term growth of
capital.
Fees and Expenses
of the Fund
This table describes the fees and
expenses that you may pay if you buy and hold shares of the Fund.
Shareholder Fees
(fees paid directly from your investment): None.
Annual
Fund Operating Expenses
(expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
Share
Class |
|
R-6 |
Management Fees |
0.40% |
Distribution and/or Service
(12b-1) Fees |
N/A |
Other Expenses |
0.72% |
Total Annual
Fund Operating Expenses |
1.12% |
Expense Reimbursement
(1) |
(0.70)% |
Total Annual
Fund Operating Expenses after Expense Reimbursement |
0.42% |
|
|
|
(1) |
Principal Global Investors, LLC
("PGI"), the investment advisor, has contractually agreed to limit the
Fund’s expenses by paying, if necessary, expenses normally payable by the
Fund, (excluding interest expense, expenses related to fund investments,
acquired fund fees and expenses, and other extraordinary expenses) to
maintain a total level of operating expenses (expressed as a percent of
average net assets on an annualized basis) not to exceed 0.42% for R-6
shares. It is expected that the expense limit will continue through the
period ending December 30, 2019; however, Principal Funds, Inc. and PGI,
the parties to the agreement, may mutually agree to terminate the expense
limit prior to the end of the
period. |
Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated. The Example also assumes
that your investment has a 5% return each year and that the Fund’s operating
expenses remain the same. The calculation of costs takes into account any
applicable contractual fee waivers and/or expense reimbursements for the period
noted in the table above. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
|
|
|
|
|
|
|
1
year |
3
years |
5
years |
10
years |
Class
R-6 |
$43 |
$286 |
$549 |
$1,300 |
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 annualized portfolio turnover rate was 46.6% 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 equity securities of companies with large market capitalizations at
the time of purchase. For this Fund, companies with large market capitalizations
are those with market capitalizations within the range of companies comprising
the Russell 1000®
Value Index
(which as of April 30, 2018 ranged between approximately $879.6 million and
$477.9 billion). The Fund invests in value equity securities, an investment
strategy that emphasizes buying equity securities that appear to be undervalued.
In an attempt to match or exceed the performance of the Fund's benchmark index,
the Fund uses a systematic approach to purchase certain equity securities in the
index and to exclude or adjust the weight of certain equity securities relative
to the index.
Principal
Risks
The value of your investment in the
Fund changes with the value of the Fund's investments. Many factors affect that
value, and it is possible to lose money by investing in the Fund. An investment
in the Fund is not a deposit of a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. The
principal risks of investing in the Fund, in alphabetical order,
are:
Equity Securities
Risk. The value of equity securities could
decline if the issuer’s financial condition declines or in response to overall
market and economic conditions. A fund's principal market segment(s) (such as
market capitalization or style) may underperform other market segments or the
equity markets as a whole.
|
|
• |
Value Stock
Risk. Value stocks may continue to
be undervalued by the market for extended periods, including the entire
period during which the stock is held by a fund, or the events that
appears would cause the stock price to increase may not occur as
anticipated or at all. Moreover, a stock that appears to be undervalued
actually may be appropriately priced at a low level and therefore would
not be profitable for the fund. |
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 by calling
1-800-222-5852 or online at www.principalfunds.com.
The bar chart shows the investment
returns of the Fund’s Class R-6 shares for each full calendar year of operations
for 10 years (or, if shorter, the life of the Fund). 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.
Life of Fund returns are measured
from the date the Fund's shares were first sold (September 22,
2015).
Total Returns as
of December 31 (1)
|
|
|
|
Highest
return for a quarter during the period of the bar chart
above: |
Q4
'16 |
6.78% |
Lowest
return for a quarter during the period of the bar chart
above: |
Q2
'17 |
1.33% |
(1)
The year-to-date return as of September 30, 2018 was 4.60% for Class R-6 shares.
|
|
|
|
Average
Annual Total Returns |
For the
periods ended December 31, 2017 |
1 Year |
Life of
Fund |
Class R-6
Return Before Taxes |
15.17% |
15.66% |
Class R-6
Return After Taxes on Distributions |
14.52% |
14.73% |
Class R-6
Return After Taxes on Distributions and Sale of Fund
Shares |
9.13% |
11.85% |
Russell 1000 Value Index
(reflects no deduction for fees, expenses, or taxes) |
13.66% |
16.00% |
After-tax returns are calculated
using the historical highest individual federal marginal income tax rates and do
not reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor’s tax situation and may differ from those shown. The after-tax
returns shown are not relevant to investors who hold their Fund shares through
tax-deferred arrangements, such as 401(k) plans or individual retirement
accounts. After-tax returns are shown for Class R-6 shares only and would be
different for the other share classes.
Management
Investment
Advisor and Portfolio Managers:
Principal Global Investors,
LLC
|
|
• |
Mark R. Nebelung (since 2015),
Portfolio Manager |
|
|
• |
Jeffrey A. Schwarte (since
2015), Portfolio Manager |
Purchase and Sale
of Fund Shares
|
|
|
|
Share
Class |
Investment
Type |
Purchase
Minimum Per Fund |
R-6 |
There are no minimum initial or
subsequent investment requirements for eligible
purchasers. |
N/A |
You may purchase or redeem shares on
any business day (normally any day when the New York Stock Exchange is open for
regular trading), through your plan, intermediary, or Financial Professional; by
sending a written request to Principal Funds at P.O. Box 8024, Boston, MA
02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight
mail); calling us at 1-800-222-5852; or accessing our website
(www.principalfunds.com).
Tax
Information
The Fund’s distributions you receive
are generally subject to federal income tax as ordinary income or capital gain
and may also be subject to state and local taxes, unless you are tax-exempt or
your account is tax-deferred in which case your distributions would be taxed
when withdrawn from the tax-deferred account.
Payments to
Broker-Dealers and Other Financial Intermediaries
For Class R-6 shares, the Fund and
its related companies do not pay broker-dealers or other financial
intermediaries (such as a bank, insurance company, investment adviser, etc.) for
the sale of Fund shares or related services.
For the other share classes, if you
purchase the Fund through a broker-dealer or other financial intermediary (such
as a bank, insurance company, investment adviser, etc.), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other intermediary and your salesperson to
recommend the Fund over another investment, or to recommend one share class of
the Fund over another share class. Ask your salesperson or visit your financial
intermediary's website for more information.
ADDITIONAL
INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Each Fund’s investment objective is
described in the summary section for each Fund. The summary section also
describes each Fund’s principal investment strategies, including the types of
securities in which each Fund invests, and the principal risks of investing in
each Fund. The principal investment strategies are not the only investment
strategies available to each Fund, but they are the ones each Fund primarily
uses to achieve its investment objective.
Except for Fundamental Restrictions
described in the Fund's Statement of Additional Information ("SAI"), the Board
of Directors may change any Fund's objective or investment strategies without a
shareholder vote if it determines such a change is in the best interests of the
Fund. If there is a material change to a Fund's investment objective or
investment strategies, you should consider whether the Fund remains an
appropriate investment for you. There is no guarantee that each Fund will meet
its objective.
Each Fund is designed to be a
portion of an investor's portfolio. No Fund is intended to be a complete
investment program. Investors should consider the risks of a Fund before making
an investment; it is possible to lose money by investing in a Fund.
Active
Management
The performance of a fund that is
actively managed will reflect in part the ability of those managing the
investments of the fund to make investment decisions that are suited to
achieving the fund's investment objective. Actively-managed funds may invest
differently from the benchmark against which the Fund's performance is compared.
When making decisions about whether to buy or sell equity securities,
considerations may include, among other things, a company’s strength in
fundamentals, its potential for earnings growth over time, its ability to
navigate certain macroeconomic environments, the current price of its securities
relative to their perceived worth and relative to others in its industry, and
analysis from computer models. When making decisions about whether to buy or
sell fixed-income investments, considerations may include, among other things,
the strength of certain sectors of the fixed-income market relative to others,
interest rates, a range of economic, political and financial factors, the
balance between supply and demand for certain asset classes, the credit quality
of individual issuers, the fundamental strengths of corporate and municipal
issuers, and other general market conditions.
Models, which may assist portfolio
managers and analysts in formulating their securities trading and allocation
decisions by providing investment and risk management insights, may also expose
a fund to risks. Models may be predictive in nature, which models depend
heavily on the accuracy and reliability of historical data that is supplied by
others and may be incorrect or incorrectly input. The fund bears the risk that
the quantitative models used will not be successful in identifying trends or in
determining the size and direction of investment positions that will enable the
fund to achieve its investment objective. In addition, “model prices” will
often differ substantially from market prices, especially for instruments with
complex characteristics, such as derivative instruments.
An active fund's investment
performance depends upon the successful allocation of the fund's assets among
asset classes, geographical regions, industry sectors, and specific issuers and
investments. There is no guarantee that these allocation techniques and
decisions will produce the desired results. It is possible to lose money on an
investment in a fund as a result of these allocation decisions. If a fund's
investment strategies do not perform as expected, the fund could underperform
other funds with similar investment objectives or lose money. Moreover, buying
and selling securities to adjust the fund’s asset allocation may increase
portfolio turnover and generate transaction costs.
Investment advisors with large
assets under management in a Fund, or in other funds that have the same strategy
as a Fund, may have difficulty fully investing such Fund’s assets according to
its investment objective due to potential liquidity constraints and high
transaction costs. Typically, small-cap, mid-cap and emerging market equity
funds are more susceptible to such a risk. A Fund may add additional investment
advisors or close the Fund to new investors to address such risks.
Passive
Management (Index Funds)
Index funds use a passive, or
indexing, investment approach. Funds that are pure index funds do not attempt to
manage market volatility, use defensive strategies or reduce the effect of any
long-term periods of poor stock or bond performance. Some index funds attempt to
fully replicate their relevant target index by investing primarily in the
securities held by the index in approximately the same proportion of the
weightings in the index. However, because of the difficulty of executing some
relatively small securities trades, other index funds may use a "sampling"
approach and may not be invested in the less heavily weighted securities held by
the index. Some index funds may invest in index futures and/or exchange-traded
funds on a daily basis in an effort to minimize tracking error relative to the
benchmark.
It is unlikely that an index fund's
performance will perfectly correlate with the performance of the fund's relevant
index. An index fund's ability to match the performance of its index may be
affected by many factors, such as fund expenses, the timing of cash flows into
and out of the fund, changes in securities markets, and changes in the
composition of the index.
Cash
Management
Funds may have uninvested cash
balances pending investment in other securities, pending payment of redemptions,
or in other circumstances where liquidity is necessary or desirable. A Fund may
hold uninvested cash; invest it in cash equivalents such as money market funds,
including the Principal Funds, Inc. Government Money Market Fund; lend it to
other Funds pursuant to the Funds' interfund lending facility; and/or invest in
other instruments that those managing the Fund’s assets deem appropriate for
cash management purposes. Generally, these types of investments offer less
potential for gains than other types of securities. To attempt to provide
returns similar to its benchmark, a Fund may invest uninvested cash in stock
index futures contracts or exchange-traded funds (“ETFs”), including Principal
Exchange-Traded Funds ETFs. In selecting such investments, the Advisor may have
conflicts of interest due to economic or other incentives to make or retain an
investment in certain affiliated funds instead of in other investments that may
be appropriate for the Fund.
Liquidity
Certain fund holdings may be deemed
to be less liquid or illiquid because they cannot be readily sold without
significantly impacting the value of the holdings. A fund is exposed to
liquidity risk when trading volume, lack of a market maker, or legal
restrictions impair its ability to sell particular securities or close
derivative positions at an advantageous price. Funds with principal investment
strategies that involve securities of companies with smaller market
capitalizations, foreign securities, derivatives, high yield bonds and bank
loans or securities with substantial market and/or credit risk tend to have the
greatest exposure to liquidity risk.
Liquidity risk also refers to the
risk of unusually high redemption requests, redemption requests by certain large
shareholders such as institutional investors or asset allocators, or other
unusual market conditions that may make it difficult for a fund to sell
investments within the allowable time period to meet redemptions. Meeting such
redemption requests could require a fund to sell securities at reduced prices or
under unfavorable conditions, which would reduce the value of the
fund.
Market Volatility
and Securities Issuers
The value of a fund's portfolio
securities may decrease in response to overall stock or bond market movements.
Markets tend to move in cycles, with periods of rising prices and periods of
falling prices. Stocks tend to go up and down in value more than bonds. If a
fund's investments are concentrated in certain sectors, its performance could be
worse than the overall market. The value of an individual security or particular
type of security can be more volatile than the market as a whole and can perform
differently from the value of the market as a whole. The value of a security may
decline for reasons directly related to the issuer, such as management
performance, financial leverage, and reduced demand for the issuer’s goods or
services.
Temporary
Defensive Measures
From time to time, as part of its
investment strategy, a Fund may invest without limit in cash and cash
equivalents for temporary defensive purposes in response to adverse market,
economic, or political conditions. For this purpose, cash equivalents include:
bank notes, bank certificates of deposit, bankers' acceptances, repurchase
agreements, commercial paper, and commercial paper master notes, which are
floating rate debt instruments without a fixed maturity. In addition, a Fund may
purchase U.S. government securities, preferred stocks, and debt securities,
whether or not convertible into or carrying rights for common stock. There is no
limit on the extent to which a Fund may take temporary defensive measures. In
taking such measures, a Fund may lose the benefit of upswings and may limit its
ability to meet, or fail to achieve, its investment objective.
Strategy and Risk
Table
The following table lists each Fund
and identifies whether the strategies and risks discussed in this section
(listed in alphabetical order) are principal, non-principal (meaning they are
relevant to a Fund but to a lesser degree than those designated as principal),
or not applicable for each Fund. Each fund is also subject to the risks of any
underlying funds in which it invests.
The SAI contains additional
information about investment strategies and their related risks.
|
|
|
|
|
|
|
INVESTMENT
STRATEGIES
AND
RISKS |
BLUE
CHIP |
BOND
MARKET
INDEX |
CAPITAL
SECURITIES |
DIVERSIFIED
REAL
ASSET |
DYNAMIC
FLOATING RATE HIGH INCOME |
Arbitrage
Trading |
Not Applicable |
Not Applicable |
Not Applicable |
Non-Principal |
Not
Applicable |
Bank Loans (also known as
Senior Floating Rate Interests) |
Not Applicable |
Not Applicable |
Not Applicable |
Principal |
Principal |
Cayman
Subsidiary |
Not Applicable |
Not Applicable |
Not Applicable |
Principal |
Not
Applicable |
Commodity-Related
Investments |
Not Applicable |
Not Applicable |
Not Applicable |
Principal |
Not
Applicable |
Contingent Convertible
Securities |
Not Applicable |
Not Applicable |
Principal |
Not Applicable |
Non-Principal |
Convertible
Securities |
Non-Principal |
Not Applicable |
Non-Principal |
Non-Principal |
Non-Principal |
Counterparty
Risk |
Not Applicable |
Non-Principal |
Not Applicable |
Principal |
Principal |
Derivatives |
Non-Principal |
Non-Principal |
Not Applicable |
Principal |
Principal |
Emerging
Markets |
Not Applicable |
Non-Principal |
Not Applicable |
Non-Principal |
Non-Principal |
Equity
Securities |
Principal |
Not Applicable |
Non-Principal |
Principal |
Non-Principal |
|
Principal |
Not Applicable |
Non-Principal |
Principal |
Non-Principal |
• Small and Medium
Market Capitalization Companies |
Principal |
Not Applicable |
Non-Principal |
Principal |
Non-Principal |
|
Non-Principal |
Not Applicable |
Non-Principal |
Principal |
Non-Principal |
Fixed Income
Securities |
Non-Principal |
Principal |
Principal |
Principal |
Principal |
Foreign
Currency |
Principal |
Non-Principal |
Non-Principal |
Principal |
Non-Principal |
Foreign
Securities |
Principal |
Non-Principal |
Principal |
Principal |
Principal |
Geographic Concentration
(Municipal Obligations) |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Hedging |
Not Applicable |
Not Applicable |
Not Applicable |
Non-Principal |
Principal |
High Yield
Securities |
Not Applicable |
Not Applicable |
Principal |
Principal |
Principal |
Industry
Concentration |
Not Applicable |
Non-Principal(1) |
Principal |
Principal |
Not
Applicable |
Inverse Floating Rate
Investments |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Investment Company
Securities |
Non-Principal |
Not Applicable |
Not Applicable |
Non-Principal |
Non-Principal |
Leverage |
Non-Principal |
Non-Principal |
Not Applicable |
Principal |
Principal |
Master Limited Partnerships
("MLPs") |
Non-Principal |
Not Applicable |
Not Applicable |
Principal |
Not
Applicable |
Municipal Obligations and
AMT-Subject Bonds |
Not Applicable |
Non-Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Portfolio
Duration |
Non-Principal |
Principal |
Principal |
Principal |
Non-Principal |
Portfolio Turnover (Active
Trading) |
Non-Principal |
Principal |
Non-Principal |
Non-Principal |
Principal |
Preferred
Securities |
Non-Principal |
Not Applicable |
Principal |
Non-Principal |
Non-Principal |
Real Estate Investment Trusts
("REITs") |
Non-Principal |
Non-Principal |
Non-Principal |
Principal |
Not
Applicable |
Real Estate
Securities |
Non-Principal |
Principal |
Non-Principal |
Principal |
Not
Applicable |
Redemption and Large
Transaction Risk |
Principal |
Principal |
Not Applicable |
Principal |
Not
Applicable |
Securitized
Products |
Not Applicable |
Principal |
Not Applicable |
Non-Principal |
Not
Applicable |
Short Sales |
Not Applicable |
Not Applicable |
Not Applicable |
Non-Principal |
Non-Principal |
U.S. Government and U.S.
Government Sponsored Securities |
Not Applicable |
Principal |
Non-Principal |
Principal |
Non-Principal |
Volatility
Mitigation |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Principal |
(1) An Index Fund
may concentrate its investments in a particular industry only to the extent that
the relevant index is so concentrated.
|
|
|
|
|
|
|
INVESTMENT
STRATEGIES
AND
RISKS |
EDGE
MIDCAP |
GLOBAL
MULTI-STRATEGY |
GLOBAL
OPPORTUNITIES |
INTERNATIONAL
EQUITY INDEX |
INTERNATIONAL
SMALL COMPANY |
Arbitrage
Trading |
Not Applicable |
Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Bank Loans (also known as
Senior Floating Rate Interests) |
Not Applicable |
Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Cayman
Subsidiary |
Not Applicable |
Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Commodity-Related
Investments |
Not Applicable |
Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Contingent Convertible
Securities |
Not Applicable |
Non-Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Convertible
Securities |
Non-Principal |
Principal |
Not Applicable |
Non-Principal |
Non-Principal |
Counterparty
Risk |
Not Applicable |
Principal |
Not Applicable |
Non-Principal |
Non-Principal |
Derivatives |
Not Applicable |
Principal |
Non-Principal |
Principal |
Non-Principal |
Emerging
Markets |
Not Applicable |
Principal |
Principal |
Non-Principal |
Non-Principal |
Equity
Securities |
Principal |
Principal |
Principal |
Principal |
Principal |
|
Principal |
Principal |
Principal |
Principal |
Principal |
• Small and Medium
Market Capitalization Companies |
Principal |
Principal |
Principal |
Non-Principal |
Principal |
|
Principal |
Principal |
Principal |
Principal |
Principal |
Fixed Income
Securities |
Non-Principal |
Principal |
Not Applicable |
Not Applicable |
Non-Principal |
Foreign
Currency |
Not Applicable |
Principal |
Principal |
Principal |
Principal |
Foreign
Securities |
Not Applicable |
Principal |
Principal |
Principal |
Principal |
Geographic Concentration
(Municipal Obligations) |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Hedging |
Not Applicable |
Principal |
Non-Principal |
Not Applicable |
Non-Principal |
High Yield
Securities |
Not Applicable |
Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Industry
Concentration |
Not Applicable |
Not Applicable |
Not Applicable |
Non-Principal(1) |
Not
Applicable |
Inverse Floating Rate
Investments |
Not Applicable |
Non-Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Investment Company
Securities |
Non-Principal |
Principal |
Not Applicable |
Principal |
Non-Principal |
Leverage |
Not Applicable |
Principal |
Non-Principal |
Not Applicable |
Non-Principal |
Master Limited Partnerships
("MLPs") |
Non-Principal |
Non-Principal |
Non-Principal |
Not Applicable |
Not
Applicable |
Municipal Obligations and
AMT-Subject Bonds |
Not Applicable |
Non-Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Portfolio
Duration |
Non-Principal |
Principal |
Not Applicable |
Not Applicable |
Non-Principal |
Portfolio Turnover (Active
Trading) |
Non-Principal |
Principal |
Principal |
Non-Principal |
Non-Principal |
Preferred
Securities |
Non-Principal |
Non-Principal |
Not Applicable |
Not Applicable |
Non-Principal |
Real Estate Investment Trusts
("REITs") |
Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Real Estate
Securities |
Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Redemption and Large
Transaction Risk |
Principal |
Principal |
Principal |
Principal |
Principal |
Securitized
Products |
Not Applicable |
Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Short Sales |
Not Applicable |
Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
U.S. Government and U.S.
Government Sponsored Securities |
Not Applicable |
Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Volatility
Mitigation |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
(1) An Index Fund
may concentrate its investments in a particular industry only to the extent that
the relevant index is so concentrated.
|
|
|
|
|
|
|
INVESTMENT
STRATEGIES AND RISKS |
MULTI-MANAGER
EQUITY LONG/SHORT |
OPPORTUNISTIC
MUNICIPAL |
ORIGIN
EMERGING MARKETS |
PREFERRED
SECURITIES |
REAL ESTATE
DEBT INCOME |
Arbitrage
Trading |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Bank Loans (also known as
Senior Floating Rate Interests) |
Non-Principal |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Cayman
Subsidiary |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Commodity-Related
Investments |
Not Applicable |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Contingent Convertible
Securities |
Non-Principal |
Not Applicable |
Not Applicable |
Principal |
Not
Applicable |
Convertible
Securities |
Non-Principal |
Not Applicable |
Not Applicable |
Non-Principal |
Not
Applicable |
Counterparty
Risk |
Principal |
Principal |
Not Applicable |
Not Applicable |
Non-Principal |
Derivatives |
Principal |
Principal |
Not Applicable |
Non-Principal |
Non-Principal |
Emerging
Markets |
Principal |
Not Applicable |
Principal |
Not Applicable |
Not
Applicable |
Equity
Securities |
Principal |
Not Applicable |
Principal |
Non-Principal |
Not
Applicable |
|
Principal |
Not Applicable |
Principal |
Non-Principal |
Not
Applicable |
• Small and Medium
Market Capitalization Companies |
Principal |
Not Applicable |
Principal |
Non-Principal |
Not
Applicable |
|
Principal |
Not Applicable |
Principal |
Non-Principal |
Not
Applicable |
Fixed Income
Securities |
Non-Principal |
Principal |
Not Applicable |
Principal |
Principal |
Foreign
Currency |
Principal |
Not Applicable |
Principal |
Non-Principal |
Non-Principal |
Foreign
Securities |
Principal |
Not Applicable |
Principal |
Principal |
Non-Principal |
Geographic Concentration
(Municipal Obligations) |
Not Applicable |
Non-Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Hedging |
Principal |
Principal |
Not Applicable |
Non-Principal |
Not
Applicable |
High Yield
Securities |
Non-Principal |
Principal |
Not Applicable |
Principal |
Non-Principal |
Industry
Concentration |
Not Applicable |
Not Applicable |
Not Applicable |
Principal |
Principal |
Inverse Floating Rate
Investments |
Not Applicable |
Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Investment Company
Securities |
Principal |
Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Leverage |
Principal |
Principal |
Not Applicable |
Non-Principal |
Not
Applicable |
Master Limited Partnerships
("MLPs") |
Non-Principal |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
Municipal Obligations and
AMT-Subject Bonds |
Not Applicable |
Principal |
Not Applicable |
Not Applicable |
Not
Applicable |
Portfolio
Duration |
Not Applicable |
Principal |
Not Applicable |
Principal |
Principal |
Portfolio Turnover (Active
Trading) |
Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Non-Principal |
Preferred
Securities |
Non-Principal |
Not Applicable |
Not Applicable |
Principal |
Principal |
Real Estate Investment Trusts
("REITs") |
Non-Principal |
Not Applicable |
Non-Principal |
Non-Principal |
Principal |
Real Estate
Securities |
Non-Principal |
Not Applicable |
Non-Principal |
Non-Principal |
Principal |
Redemption and Large
Transaction Risk |
Principal |
Principal |
Principal |
Principal |
Principal |
Securitized
Products |
Non-Principal |
Not Applicable |
Not Applicable |
Not Applicable |
Principal |
Short Sales |
Principal |
Not Applicable |
Not Applicable |
Not Applicable |
Not
Applicable |
U.S. Government and U.S.
Government Sponsored Securities |
Not Applicable |
Principal |
Not Applicable |
Non-Principal |
Not
Applicable |
Volatility
Mitigation |
Principal |
Not Applicable |
Not Applicable |
Non-Principal |
Not
Applicable |
|
|
|
|
|
INVESTMENT
STRATEGIES
AND
RISKS |
SMALL-MIDCAP
DIVIDEND INCOME |
SYSTEMATEX
INTERNATIONAL |
SYSTEMATEX
LARGE VALUE |
Arbitrage
Trading |
Not Applicable |
Not Applicable |
Not
Applicable |
Bank Loans (also known as
Senior Floating Rate Interests) |
Not Applicable |
Not Applicable |
Not
Applicable |
Cayman
Subsidiary |
Not Applicable |
Not Applicable |
Not
Applicable |
Commodity-Related
Investments |
Not Applicable |
Not Applicable |
Not
Applicable |
Contingent Convertible
Securities |
Not Applicable |
Not Applicable |
Not
Applicable |
Convertible
Securities |
Non-Principal |
Non-Principal |
Non-Principal |
Counterparty
Risk |
Not Applicable |
Non-Principal |
Non-Principal |
Derivatives |
Not Applicable |
Non-Principal |
Non-Principal |
Emerging
Markets |
Not Applicable |
Not Applicable |
Not
Applicable |
Equity
Securities |
Principal |
Principal |
Principal |
|
Non-Principal |
Principal |
Non-Principal |
• Small and Medium
Market Capitalization Companies |
Principal |
Principal |
Non-Principal |
|
Principal |
Principal |
Principal |
Fixed Income
Securities |
Non-Principal |
Not Applicable |
Not
Applicable |
Foreign
Currency |
Principal |
Principal |
Not
Applicable |
Foreign
Securities |
Principal |
Principal |
Non-Principal |
Geographic Concentration
(Municipal Obligations) |
Not Applicable |
Not Applicable |
Not
Applicable |
Hedging |
Not Applicable |
Not Applicable |
Not
Applicable |
High Yield
Securities |
Not Applicable |
Not Applicable |
Not
Applicable |
Industry
Concentration |
Not Applicable |
Not Applicable |
Not
Applicable |
Inverse Floating Rate
Investments |
Not Applicable |
Not Applicable |
Not
Applicable |
Investment Company
Securities |
Non-Principal |
Non-Principal |
Non-Principal |
Leverage |
Not Applicable |
Not Applicable |
Not
Applicable |
Master Limited Partnerships
("MLPs") |
Non-Principal |
Non-Principal |
Non-Principal |
Municipal Obligations and
AMT-Subject Bonds |
Not Applicable |
Not Applicable |
Not
Applicable |
Portfolio
Duration |
Non-Principal |
Non-Principal |
Non-Principal |
Portfolio Turnover (Active
Trading) |
Non-Principal |
Non-Principal |
Non-Principal |
Preferred
Securities |
Non-Principal |
Non-Principal |
Non-Principal |
Real Estate Investment Trusts
("REITs") |
Principal |
Non-Principal |
Non-Principal |
Real Estate
Securities |
Principal |
Non-Principal |
Non-Principal |
Redemption and Large
Transaction Risk |
Principal |
Principal |
Principal |
Securitized
Products |
Not Applicable |
Not Applicable |
Not
Applicable |
Short Sales |
Not Applicable |
Not Applicable |
Not
Applicable |
U.S. Government and U.S.
Government Sponsored Securities |
Not Applicable |
Not Applicable |
Not
Applicable |
Volatility
Mitigation |
Not Applicable |
Not Applicable |
Not
Applicable |
Arbitrage
Trading
A fund employing arbitrage
strategies has the risk that anticipated opportunities do not play out as
planned, resulting in potentially reduced returns or losses to the fund as it
unwinds failed trades. For example, with respect to the convertible arbitrage
strategy, an issuer may default or may be unable to make interest and dividend
payments when due; with respect to the merger arbitrage strategy, the merger
deal may terminate before closing, thereby imposing losses to the
fund.
Bank Loans (also
known as Senior Floating Rate Interests)
Bank loans typically hold the most
senior position in the capital structure of a business entity (the "Borrower"),
are secured by specific collateral, and have a claim on the Borrower's assets
and/or stock that is senior to that held by the Borrower's unsecured
subordinated debtholders and stockholders. The proceeds of bank loans primarily
are used to finance leveraged buyouts, recapitalizations, mergers, acquisitions,
stock repurchases, dividends, and, to a lesser extent, to finance internal
growth and for other corporate purposes. Bank loans are typically structured and
administered by a financial institution that acts as the agent of the lenders
participating in the bank loan. Most bank loans that will be purchased by a fund
are rated below-investment-grade (sometimes called “junk”) or will be comparable
if unrated, which means they are more likely to default than investment-grade
loans. A default could lead to non-payment of income which would result in a
reduction of income to the fund, and there can be no assurance that the
liquidation of any collateral would satisfy the Borrower's obligation in the
event of non-payment of scheduled interest or principal payments, or that such
collateral could be readily liquidated. Most bank loans are not traded on any
national securities exchange. Bank loans generally have less liquidity than
investment-grade bonds and there may be less public information available about
them. Bank loan interests may not be considered “securities,” and purchasers
therefore may not be entitled to rely on the anti-fraud protections of the
federal securities laws.
The primary and secondary market for
bank loans may be subject to irregular trading activity, wide bid/ask spreads
and extended trade settlement periods, which may cause a fund to be unable to
realize full value and thus cause a material decline in a fund's net asset
value. Because transactions in bank loans may be subject to extended settlement
periods, a fund may not receive proceeds from the sale of a bank loan for a
period of time after the sale. As a result, sale proceeds may not be available
to make additional investments or to meet a fund’s redemption obligations for a
period of time after the sale of the bank loans, which could lead to a fund
having to sell other investments, borrow to meet obligations, or borrow to
remain fully invested while awaiting settlement.
Bank loans pay interest at rates
which are periodically reset by reference to a base lending rate plus a spread.
These base lending rates are generally the prime rate offered by a designated
U.S. bank or the London InterBank Offered Rate (LIBOR) or the prime rate offered
by one or more major U.S. banks.
Bank loans generally are subject to
mandatory and/or optional prepayment. Because of these prepayment conditions and
because there may be significant economic incentives for the borrower to repay,
prepayments may occur.
Cayman
Subsidiary
The Diversified Real Asset Fund and
the Global Multi-Strategy Fund may each invest up to 25% of its total assets in
its respective wholly-owned subsidiary organized under the laws of the Cayman
Islands (a “Cayman Subsidiary”). The Cayman Subsidiaries are not registered as
investment companies under the Investment Company Act of 1940, as amended (the
"1940 Act"), and are not subject to all the investor protections of the 1940
Act. However, a fund investing in a Cayman Subsidiary wholly owns and controls
such Cayman Subsidiary, and the Funds and Cayman Subsidiaries are managed by
Principal Global Investors, LLC ("PGI"). Moreover, the Funds’ Board of Directors
have oversight responsibility for the Funds' investment activities, including
investments in a Cayman Subsidiary, and over a fund’s role as sole shareholder
of a Cayman Subsidiary. Each Cayman Subsidiary is overseen by its own board of
directors consisting of three directors. The directors for each Cayman
Subsidiary are Nora M. Everett and Michael J. Beer (both interested directors of
the Fund) and Tracy Bollin (Chief Financial Officer of the Fund). The
Diversified Real Asset Fund and the Global Multi-Strategy Fund are the sole
shareholders of their respective Cayman Subsidiary, and shares of the Cayman
Subsidiaries will not be sold or offered to other investors.
Each Cayman Subsidiary has entered
into a separate management agreement with PGI whereby PGI provides advisory and
accounting agency services to the Cayman Subsidiary. Further, PGI, on behalf of
the Cayman Subsidiary owned by the Diversified Real Asset Fund, has entered into
a subadvisory agreement with Credit Suisse (a current sub-advisor of the
Diversified Real Asset Fund). PGI, on behalf of the Cayman Subsidiary owned by
the Global Multi-Strategy Fund, has entered into a subadvisory agreement with
AQR (a current sub-advisor of the Global Multi-Strategy Fund).
A Fund that invests in a Cayman
Subsidiary is indirectly exposed to the particular risks associated with the
Cayman Subsidiary’s investments. The Cayman Subsidiaries invest in
commodity-linked derivatives, including commodity-linked swaps, commodity
futures contracts and options on commodities. Each Cayman Subsidiary may invest
in other instruments, including fixed income securities, cash and cash
equivalents and U.S. government securities, either as investments or to serve as
margin or collateral for the Cayman Subsidiary's derivatives positions. To the
extent that a Fund invests in its respective subsidiary, it will be subject to
the particular risks associated with the Cayman Subsidiary’s
investments.
The principal purpose of investing
in a Cayman Subsidiary is to allow a fund to gain exposure to the commodity
markets within the limitations of the federal tax law requirements applicable to
regulated investment companies (“RICs”) under the Internal Revenue Code (the
“Code”). To qualify as a RIC, a fund must meet certain requirements regarding
the source of its income, the diversification of its assets and the distribution
of its income. If a fund fails to qualify as a RIC, it could be subject to
federal income tax on its net income at regular corporate rates (without
reduction for distributions to shareholders). When distributed, that income
would also be taxable to shareholders as an ordinary dividend to the extent
attributable to a fund’s earnings and profits. Shareholders of that fund would
therefore be subject to diminished returns. The Funds rely on the reasoning set
forth in certain private letter rulings issued to other regulated investment
companies from the IRS confirming that income derived from a Cayman Subsidiary
will constitute qualifying income to a fund for RIC purposes. However, the IRS
no longer issues private letter rulings to that effect, and is reportedly
reexamining its position with respect to structures of this kind. The Funds have
not obtained such a private letter ruling.
Moreover, the Cayman Islands
currently does not impose any income, corporate or capital gains tax, or
withholding tax, on the Cayman Subsidiaries. If the laws of the Cayman Islands
were changed and a Cayman Subsidiary was required to pay Cayman Islands taxes,
this may impact a fund’s returns based upon the percentage of assets allocated
to commodities at that time.
The IRS recently issued proposed
regulations which if finalized would clarify that Cayman Subsidiary’s earnings
will only be treated as qualifying income if there is a corresponding
distribution to the Fund. The inability of a Cayman Subsidiary to make
distributions corresponding to its earnings could impact the Fund’s ability to
qualify as a RIC.
Changes in the laws of the United
States and/or the Cayman Islands, particularly with respect to tax laws, could
result in the inability of the Funds and/or the Cayman Subsidiaries to operate
as described in this prospectus and could negatively affect the Funds and their
shareholders.
Commodity-Related
Investments
Commodities are assets that have
tangible properties, such as oil, coal, natural gas, agricultural products,
industrial metals, livestock, and precious metals. The value of commodities
investments will generally be affected by overall market movements and factors
specific to a particular industry or commodity, which may include weather,
embargoes, tariffs, and health, political, international, and regulatory
developments. Economic and other events (whether real or perceived) can reduce
the demand for commodities, which may reduce market prices and cause the value
of fund shares to fall. The frequency and magnitude of such changes cannot be
predicted. Exposure to commodities and commodities markets may subject a fund to
greater volatility than investments in traditional securities. No active trading
market may exist for certain commodities investments, which may impair the
ability of a fund to sell or to realize the full value of such investments in
the event of the need to liquidate such investments. In addition, adverse market
conditions may impair the liquidity of actively traded commodities investments.
Certain types of commodities instruments (such as commodity swaps) are subject
to the risk that the counterparty to the instrument will not perform or will be
unable to perform in accordance with the terms of the instrument.
Contingent
Convertible Securities ("CoCos")
Contingent convertible securities
(“CoCos”) are hybrid debt securities intended to either convert into equity or
have their principal written down upon the occurrence of certain “triggers.” The
triggers are generally linked to regulatory capital thresholds or regulatory
actions calling into question the issuing banking institution’s continued
viability as a going-concern if the conversion trigger were not exercised.
CoCos’ unique equity conversion or principal write-down features are tailored to
the issuing banking institution and its regulatory requirements. Some additional
risks associated with CoCos include, but are not limited to, the
following:
|
|
• |
The occurrence of a conversion
event is inherently unpredictable and depends on many factors, some of
which will be outside the issuer’s control. Because of the uncertainty
regarding whether a conversion event will occur, it may be difficult to
predict when, if at all, a CoCo will be converted to equity, and a fund
may suffer losses as a result. |
|
|
• |
CoCos may have no stated
maturity and fully discretionary coupons. This means coupon (i.e.,
interest) payments can be canceled at the banking institution’s discretion
or at the request of the relevant regulatory authority in order to help
the bank absorb losses, without causing a
default. |
|
|
• |
CoCos are usually issued in
the form of subordinated debt instruments to provide the appropriate
regulatory capital treatment. If an issuer liquidates, dissolves or
winds-up before a conversion to equity has occurred, the rights and claims
of the holders of the CoCos (such as a fund) against the issuer generally
rank junior to the claims of holders of unsubordinated obligations of the
issuer. In addition, if the CoCos are converted into the issuer’s
underlying equity securities after a conversion event (i.e., a “trigger”),
each holder will be further subordinated. |
|
|
• |
The value of CoCos is
unpredictable and is influenced by many factors including, without
limitation: the creditworthiness of the issuer and/or fluctuations in such
issuer’s applicable capital ratios; supply and demand for CoCos; general
market conditions and available liquidity; and economic, financial and
political events that affect the issuer, its particular market or the
financial markets in general. Moreover, the performance of CoCos may be
correlated with one another and as a result negative information of one
issuer may cause decline in the value of CoCos of many other
issuers. |
Due to these features, CoCos may
have substantially greater risk than other securities in times of financial
stress. If the trigger level is breached, the issuer’s decision to write down,
write off or convert a CoCo may result in the fund's complete loss on an
investment in CoCos with no chance of recovery even if the issuer remains in
existence.
Convertible
Securities
Convertible securities are usually
fixed-income securities that a fund has the right to exchange for equity
securities at a specified conversion price. Convertible securities could also
include corporate bonds, notes, or preferred stocks of U.S. or foreign issuers.
Convertible securities allow a fund to realize additional returns if the market
price of the equity securities exceeds the conversion price. For example, a fund
may hold fixed-income securities that are convertible into shares of common
stock at a conversion price of $10 per share. If the market value of the shares
of common stock reached $12, the fund could realize an additional $2 per share
by converting its fixed-income securities.
Convertible securities have lower
yields than comparable fixed-income securities. In addition, at the time a
convertible security is issued the conversion price exceeds the market value of
the underlying equity securities. Thus, convertible securities may provide lower
returns than non-convertible fixed-income securities or equity securities
depending upon changes in the price of the underlying equity securities.
However, convertible securities permit a fund to realize some of the potential
appreciation of the underlying equity securities with less risk of losing its
initial investment.
Depending on the features of the
convertible security, a fund will treat a convertible security as a fixed-income
security, equity security, or preferred security for purposes of investment
policies and limitations because of the unique characteristics of convertible
securities. Funds that invest in convertible securities may invest in
convertible securities that are below investment grade (sometimes referred to as
"junk"). Many convertible securities are relatively illiquid.
Counterparty
Risk
Counterparty risk is the risk that
the counterparty to a contract or other obligation will be unable or unwilling
to honor its obligations. If a counterparty fails to meet its contractual
obligations, goes bankrupt, or otherwise experiences a business interruption, a
fund could miss investment opportunities or otherwise hold investments it would
prefer to sell, resulting in losses for the fund. In addition, a fund may suffer
losses if a counterparty fails to comply with applicable laws or other
requirements. Counterparty risk is pronounced during unusually adverse market
conditions and is particularly acute in environments in which financial services
firms are exposed to systemic risks.
Derivatives
Generally, a derivative is a
financial arrangement, the value of which is derived from, or based on, a
traditional security, asset, or market index. A fund may invest in certain
derivative strategies to earn income, manage or adjust the risk profile of the
fund, replace more direct investments, or obtain exposure to certain markets. A
fund may enter into forward commitment agreements, which call for the fund to
purchase or sell a security on a future date at a fixed price. A fund may also
enter into contracts to sell its investments either on demand or at a specific
interval.
The risks associated with derivative
investments include:
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increased volatility of a fund
and/or the failure of the investment to mitigate volatility as
intended; |
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the inability of those
managing investments of the fund to predict correctly the direction of
securities prices, interest rates, currency exchange rates, asset values,
and other economic factors; |
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losses caused by unanticipated
market movements, which may be substantially greater than a fund's initial
investment and are potentially unlimited; |
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the possibility that there may
be no liquid secondary market, which may make it difficult or impossible
to close out a position when desired; |
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the possibility that the
counterparty may fail to perform its obligations;
and |
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the inability to close out
certain hedged positions to avoid adverse tax
consequences. |
There are many different types of
derivatives and many different ways to use them. The specific derivatives that
are principal strategies of each Fund are listed in its Fund
Summary.
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Commodity Index-Linked Notes
are derivative debt instruments issued by U.S. and foreign banks,
brokerage firms, insurance companies and other corporations with principal
and/or coupon payments linked to the performance of commodity indices.
These notes expose a fund to movements in commodity prices. They are also
subject to credit, counterparty, and interest rate risk. Commodity
index-linked notes are often leveraged, increasing the volatility of each
note's market value relative to changes in the underlying commodity index.
At the maturity of the note, a fund may receive more or less principal
than it originally invested. A fund may also receive interest payments on
the note that are less than the stated coupon interest
payments. |
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Credit Default Swap Agreements
may be entered into by a fund as a "buyer" or "seller" of credit
protection. Credit default swap agreements involve special risks because
they may be difficult to value, are highly susceptible to liquidity and
credit risk, and generally pay a return to the party that has paid the
premium only in the event of an actual default by the issuer of the
underlying obligation (as opposed to a credit downgrade or other
indication of financial difficulty). Credit default swaps can increase
credit risk because a fund has exposure to both the issuer of the
referenced obligation and the counterparty to the credit default
swap. |
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Foreign Currency Contracts
(such as foreign currency options and foreign currency forward and swap
agreements) may be used by funds to increase exposure to a foreign
currency or to shift exposure to foreign currency fluctuations from one
country to another. A forward currency contract involves a privately
negotiated obligation to purchase or sell a specific currency at a future
date at a price set in the contract. For currency contracts, there is also
a risk of government action through exchange controls that would restrict
the ability of a fund to deliver or receive
currency. |
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Forwards, futures contracts
and options thereon (including commodities futures); options (including
put or call options); and swap agreements and over-the-counter swap
agreements (e.g., interest rate swaps, total return swaps and credit
default swaps) may be used by funds for hedging purposes in order to try
to mitigate or protect against potential losses due to changing interest
rates, securities prices, asset values, currency exchange rates, and other
market conditions; non-hedging purposes to seek to increase the fund’s
income or otherwise enhance return; and as a low-cost method of gaining
exposure to a particular market without investing directly in those
securities or assets. These derivative investments are subject to special
risk considerations, particularly the imperfect correlation between the
change in market value of the instruments held by a fund and the price of
the derivative instrument. If a fund has insufficient cash, it may have to
sell securities from its portfolio to meet daily variation margin
requirements, even when it may be disadvantageous to do so. Options and
Swap Agreements also involve counterparty risk. With respect to options,
there may be difference in trading hours for the options markets and the
markets for the underlying securities (rate movements can take place in
the underlying markets that cannot be reflected in the options markets)
and an insufficient liquid secondary market for particular
options. |
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Index/structured securities.
Certain derivative securities are described more accurately as
index/structured securities, which are derivative securities whose value
or performance is linked to other equity securities (such as depositary
receipts), currencies, interest rates, indices, or other financial
indicators (reference indices). |
Emerging
Markets
The Funds consider a security to be
tied economically to an emerging market country (an “emerging market security”)
if the issuer of the security has its principal place of business or principal
office in an emerging market country, has its principal securities trading
market in an emerging market country, or derives a majority of its revenue
from emerging market countries.
Usually, the term “emerging market
country” (also called a "developing country") means any country that is
considered to be an emerging country by the international financial community
(including the MSCI Emerging Markets Index or Bloomberg Barclays Emerging
Markets USD Aggregate Bond Index). These countries generally exclude the U.S.,
Canada, Japan, Hong Kong, Singapore, Australia, New Zealand, and most nations
located in Western Europe.
Investments in companies of emerging
market countries are subject to higher risks than investments in companies in
more developed countries. These risks include:
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increased social, political,
and economic instability; |
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a smaller market for these
securities and low or nonexistent trading volume that results in a lack of
liquidity and greater price volatility; |
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lack of publicly available
information, including reports of payments of dividends or interest on
outstanding securities; |
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foreign government policies
that may restrict opportunities, including restrictions on investment in
issuers or industries deemed sensitive to national
interests; |
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relatively new capital market
structure or market-oriented economy; |
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the possibility that recent
favorable economic developments may be slowed or reversed by unanticipated
political or social events in these
countries; |
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restrictions that may make it
difficult or impossible for a fund to vote proxies, exercise shareholder
rights, pursue legal remedies, and obtain judgments in foreign courts;
and |
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possible losses through the
holding of securities in domestic and foreign custodial banks and
depositories. |
In addition, many developing
countries have experienced substantial and, in some periods, extremely high
rates of inflation for many years. Inflation and rapid fluctuations in inflation
rates have had and may continue to have negative effects on the economies,
currencies, interest rates, and securities markets of those
countries.
Repatriation of investment income,
capital, and proceeds of sales by foreign investors may require governmental
registration and/or approval in some developing countries. A fund could be
adversely affected by delays in or a refusal to grant any required governmental
registration or approval for repatriation.
Further, the economies of developing
countries generally are heavily dependent upon international trade and,
accordingly, have been and may continue to be adversely affected by trade
barriers, exchange controls, managed adjustments in relative currency values and
other protectionist measures imposed or negotiated by the countries with which
they trade.
Equity
Securities
Equity securities include common
stocks, convertible securities, depositary receipts, rights (an offering of
common stock to investors who currently own shares which entitle them to buy
subsequent issues at a discount from the offering price), and warrants (the
right to purchase securities from the issuer at a specified price, normally
higher than the current market price). Common stocks, the most familiar type,
represent an equity (ownership) interest in a corporation. The value of a
company's stock may fall as a result of factors directly relating to that
company, such as decisions made by its management or lower demand for the
company's products or services. A stock's value may also fall because of factors
affecting not just the company, but also companies in the same industry or in a
number of different industries, such as increases in production costs. The value
of a company's stock may also be affected by changes in financial markets that
are relatively unrelated to the company or its industry, such as changes in
interest rates or currency exchange rates. In addition, a company's stock
generally pays dividends only after the company invests in its own business and
makes required payments to holders of its bonds and other debt. For this reason,
the value of a company's stock will usually react more strongly than its bonds
and other debt to actual or perceived changes in the company's financial
condition or prospects.
Some funds focus their investments
on certain market capitalization ranges. Market capitalization is defined as
total current market value of a company's outstanding equity securities. The
market capitalization of companies in a fund’s portfolios and their related
indexes will change over time, and, except to the extent consistent with its
principal investment strategies (for example, for an index fund that uses a
replication strategy), a fund will not automatically sell a security just
because it falls outside of the market capitalization range of its
index(es).
Growth
Stock
The prices of growth stocks may be
based largely on expectations of future earnings, and their prices can decline
rapidly and significantly in reaction to negative news about such factors as
earnings, revenues, the economy, political developments, or other news. Growth
stocks may underperform value stocks and stocks in other broad style categories
(and the stock market as a whole) over any period of time and may shift in and
out of favor with investors generally, sometimes rapidly, depending on changes
in market, economic, and other factors. As a result, a fund that holds
substantial investments in growth stocks may underperform other funds that
invest more broadly or favor different investment styles. Because growth
companies typically reinvest their earnings, growth stocks typically do not pay
dividends at levels associated with other types of stocks, if at
all.
Small
and Medium Market Capitalization Companies
Investments in companies with
smaller market capitalizations may involve greater risks and price volatility
(wide, rapid fluctuations) than investments in larger, more mature companies.
Small company stocks may decline in price as large company stocks rise, or rise
in price while larger company stocks decline. The net asset value of a fund that
invests a substantial portion of its assets in small company stocks may
therefore be more volatile than the shares of a fund that invests solely in
larger company stocks. Small companies may be less significant within their
industries and may be at a competitive disadvantage relative to their larger
competitors. Smaller companies may be less mature than larger companies. At this
earlier stage of development, the companies may have limited product lines,
reduced market liquidity for their shares, limited financial resources, or less
depth in management than larger or more established companies. While smaller
companies may be subject to these additional risks, they may also realize more
substantial growth than larger or more established companies.
Unseasoned issuers are companies
with a record of less than three years continuous operation, including the
operation of predecessors and parents. Many unseasoned issuers also may be small
companies and involve the risks and price volatility associated with smaller
companies. Unseasoned issuers by their nature have only a limited operating
history that can be used for evaluating the company's growth prospects. As a
result, these securities may place a greater emphasis on current or planned
product lines and the reputation and experience of the company's management and
less emphasis on fundamental valuation factors than would be the case for more
mature growth companies.
Value
Stock
Value stocks present the risk that
they may decline in price or never reach their expected full market value
because the market fails to recognize the stock's intrinsic worth. Value stocks
may underperform growth stocks and stocks in other broad style categories (and
the stock market as a whole) over any period of time and may shift in and out of
favor with investors generally, sometimes rapidly, depending on changes in
market, economic, and other factors. As a result, a fund that holds substantial
investments in value stocks may underperform other funds that invest more
broadly or favor different investment styles.
Fixed-Income
Securities
Fixed-income securities include
bonds and other debt instruments that are used by issuers to borrow money from
investors (examples include corporate bonds, convertible securities,
mortgage-backed securities, U.S. government securities and asset-backed
securities). The issuer of a fixed-income security generally pays the investor a
fixed, variable, or floating rate of interest. The amount borrowed must be
repaid at maturity. Some debt securities, such as zero coupon bonds, do not pay
current interest, but are sold at a discount from their face
values.
Fixed-income securities are
sensitive to changes in interest rates. In general, fixed-income security prices
rise when interest rates fall and fall when interest rates rise. An increase in
interest rates from the current, historically low interest rate environment may
lead to heightened volatility and redemptions alongside reduced liquidity and
dealer market-making capacity in fixed income markets. If interest rates fall,
issuers of callable bonds may call (repay) securities with high interest rates
before their maturity dates; this is known as call risk. In this case, a fund
would likely reinvest the proceeds from these securities at lower interest
rates, resulting in a decline in the fund's income. Floating rate securities
generally are less sensitive to interest rate changes but may decline in value
if their interest rates do not rise as much, or as quickly, as interest rates in
general. Conversely, floating rate securities will not generally increase in
value if interest rates decline.
Fixed-income securities are also
affected by the credit quality of the issuer. Investment-grade debt securities
are medium and high quality securities. Some bonds, such as lower grade or
"junk" bonds, may have speculative characteristics and may be particularly
sensitive to economic conditions and the financial condition of the issuers.
Credit risk refers to the possibility that the issuer of the security will not
be able to make principal and interest payments when due.
Funds may invest in fixed-income
securities of companies with small- or medium-sized market capitalizations.
Investments in companies with smaller market capitalizations may involve greater
risks, price volatility (wide, rapid fluctuations), and less liquidity than
investments in larger, more mature companies.
Foreign
Currency
Certain of a fund’s investments will
be denominated in foreign currencies or traded in securities markets in which
settlements are made in foreign currencies. Any income on such investments is
generally paid to a fund in foreign currencies. In addition, funds may engage in
foreign currency transactions for both hedging and investment purposes, as well
as to increase exposure to a foreign currency or to shift exposure to foreign
currency fluctuations from one country to another.
The value of foreign currencies
relative to the U.S. dollar varies continually, causing changes in the dollar
value of a fund’s portfolio investments (even if the local market price of the
investments is unchanged) and changes in the dollar value of a fund’s income
available for distribution to its shareholders. The effect of changes in the
dollar value of a foreign currency on the dollar value of a fund’s assets and on
the net investment income available for distribution may be favorable or
unfavorable. Transactions in non-U.S. currencies are also subject to many of the
risks of investing in foreign (non-U.S.) securities; for example, changes in
foreign economies and political climates are more likely to affect a fund that
has foreign currency exposure than a fund that invests exclusively in U.S.
companies and currency. There also may be less government supervision of foreign
markets, resulting in non-uniform accounting practices and less publicly
available information. Transactions in foreign currencies, foreign currency
denominated debt and certain foreign currency options, futures contracts and
forward contracts (and similar instruments) may give rise to ordinary income or
loss to the extent such income or loss results from fluctuations in the value of
the foreign currency concerned.
A fund may incur costs in connection
with conversions between various currencies. In addition, a fund may be required
to liquidate portfolio assets, or may incur increased currency conversion costs,
to compensate for a decline in the dollar value of a foreign currency occurring
between the time when a fund declares and pays a dividend, or between the time
when a fund accrues and pays an operating expense in U.S. dollars. To protect
against a change in the foreign currency exchange rate between the date on which
a fund contracts to purchase or sell a security and the settlement date for the
purchase or sale, to gain exposure to one or more foreign currencies or to “lock
in” the equivalent of a dividend or interest payment in another currency, a fund
might purchase or sell a foreign currency on a spot (i.e., cash) basis at the prevailing
spot rate.
Currency hedging involves some of
the same general risks and considerations as other transactions with similar
instruments (i.e., derivative instruments) and hedging. Currency transactions
are also subject to additional risks. Because currency control is of great
importance to the issuing governments and influences economic planning and
policy, purchases and sales of currency and related instruments can be adversely
affected by government exchange controls, limitations or restrictions on
repatriation of currency, and manipulations or exchange restrictions imposed by
governments. These forms of governmental actions can result in losses to a fund
if it is unable to deliver or receive currency or monies in settlement of
obligations. They could also cause hedges the fund has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Settlement of a currency forward contract for the purchase of
most currencies must occur at a bank based in the issuing nation. The ability to
establish and close out positions on trading options on currency futures
contracts is subject to the maintenance of a liquid market that may not always
be available.
Foreign
Securities
The Funds consider a security to be
tied economically to countries outside the U.S. (a “foreign security”) if the
issuer of the security has its principal place of business or principal office
outside the U.S., has its principal securities trading market outside the U.S.,
or derives a majority of its revenue from outside the U.S.
Foreign companies may not be subject
to the same uniform accounting, auditing, and financial reporting practices as
are required of U.S. companies. In addition, there may be less publicly
available information about a foreign company than about a U.S. company.
Securities of many foreign companies are less liquid and more volatile than
securities of comparable U.S. companies. Commissions on foreign securities
exchanges may be generally higher than those on U.S. exchanges.
Foreign markets also have different
clearance and settlement procedures than those in U.S. markets. In certain
markets, there have been times when settlements have been unable to keep pace
with the volume of securities transactions, making it difficult to conduct these
transactions. Delays in settlement could result in temporary periods when a
portion of fund assets is not invested and earning no return. If a fund is
unable to make intended security purchases due to settlement problems, the fund
may miss attractive investment opportunities. In addition, a fund may incur a
loss as a result of a decline in the value of its portfolio if it is unable to
sell a security.
With respect to certain foreign
countries, there is the possibility of nationalization, expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments that could affect a fund's investments in those countries. In
addition, a fund may also suffer losses due to differing accounting practices
and treatments. Investments in foreign securities are subject to laws of the
foreign country that may limit the amount and types of foreign investments.
Changes of governments or of economic or monetary policies, in the U.S. or
abroad, changes in dealings between nations, currency convertibility or exchange
rates could result in investment losses for a fund.
Foreign securities are often traded
with less frequency and volume, and therefore may have greater price volatility
than is the case with many U.S. securities. Brokerage commissions, custodial
services, and other costs relating to investment in foreign countries are
generally more expensive than in the U.S. Though the fund intends to acquire the
securities of foreign issuers where
there are public trading markets, economic or political turmoil in a country in
which a fund has a significant portion of its assets or deterioration of the
relationship between the U.S. and a foreign country may reduce the liquidity of
a fund's portfolio. The fund may have difficulty meeting a large number of
redemption requests. Furthermore, there may be difficulties in obtaining or
enforcing judgments against foreign issuers.
A fund may invest in a foreign
company by purchasing depositary receipts. Depositary receipts are certificates
of ownership of shares in a foreign-based issuer held by a bank or other
financial institution. They are alternatives to purchasing the underlying
security but are subject to the foreign securities risks to which they
relate.
If a fund’s portfolio is
over-weighted in a certain geographic region, any negative development affecting
that region will have a greater impact on the fund than a fund that is not
over-weighted in that region.
Geographic
Concentration (Municipal Obligations)
Greater risks may arise from the
geographic concentration (a particular state, such as California or a particular
country or region) of investments, as well as the current and past financial
condition of municipal issuers in the case of a municipal fund. In addition to
factors affecting the state or regional economy, certain constitutional
amendments, legislative measures, executive orders, administrative regulations,
court decisions, and voter initiatives could result in adverse consequences
affecting municipal obligations. See the SAI for a more detailed description of
these risks.
Hedging
Hedging is a strategy that can be
used to limit or offset investment risk. The success of a fund’s hedging
strategy will be subject to the ability of those managing the fund's investments
to correctly assess the degree of correlation between the performance of the
instruments used in the hedging strategy and the performance of the investments
in the portfolio being hedged. Since the characteristics of many securities
change as markets change or time passes, the success of a fund’s hedging
strategy will also be subject to the ability of those managing the fund's
investments to continually recalculate, readjust, and execute hedges in an
efficient and timely manner. For a variety of reasons, those managing the fund's
investments may not seek to establish a perfect correlation between such hedging
instruments and the portfolio holdings being hedged. Such imperfect correlation
may prevent a fund from achieving the intended hedge or expose a fund to risk of
loss. In addition, it is not possible to hedge fully or perfectly against any
risk, and hedging entails its own costs.
High Yield
Securities
Below investment grade bonds, which
are rated at the time of purchase Ba1 or lower by Moody's Investors Service,
Inc. ("Moody's") and BB+ or lower by S&P Global Ratings ("S&P Global")
(if the bond has been rated by only one of those agencies, that rating will
determine if the bond is below investment grade; if the bond has not been rated
by either of those agencies, those managing investments of the fund will
determine whether the bond is of a quality comparable to those rated below
investment grade), are sometimes referred to as high yield or "junk bonds" and
are considered speculative. Such securities could be in default at time of
purchase.
Investment in high yield bonds
involves special risks in addition to the risks associated with investment in
highly rated debt securities. High yield bonds may be regarded as predominantly
speculative with respect to the issuer's continuing ability to meet principal
and interest payments. Moreover, under certain circumstances, such securities
may be less liquid than higher rated debt securities.
Analysis of the creditworthiness of
issuers of high yield securities may be more complex than for issuers of higher
quality debt securities. The ability of a fund to achieve its investment
objective may, to the extent of its investment in high yield bonds, be more
dependent on such credit analysis than would be the case if the fund were
investing in higher quality bonds.
High yield bonds may be more
susceptible to real or perceived adverse economic and competitive industry
conditions than higher-grade bonds. The prices of high yield bonds have been
found to be less sensitive to interest rate changes than more highly rated
investments, but more sensitive to adverse economic downturns or individual
corporate developments. If the issuer of high yield bonds defaults, a fund may
incur additional expenses to seek recovery. To the extent that such high yield
issuers undergo a corporate restructuring, such high yield securities may become
exchanged for or converted into reorganized equity of the underlying issuer.
High yield bonds oftentimes include complex legal covenants that impose various
degrees of restriction on the issuer’s ability to take certain actions, such as
distribute cash to equity holders, incur additional indebtedness, and dispose of
assets. To the extent that a bond indenture or loan agreement does not contain
sufficiently protective covenants or otherwise permits the issuer to take
certain actions to the detriment of the holder of the fixed-income security, the
underlying value of such fixed-income security may decline.
The secondary market on which high
yield bonds are traded may be less liquid than the market for higher-grade
bonds. Less liquidity in the secondary trading market could adversely affect the
price at which a fund could sell a high yield bond and could adversely affect
and cause large fluctuations in the daily price of the fund's shares. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of high yield bonds, especially
in a thinly traded market.
The use of credit ratings for
evaluating high yield bonds also involves certain risks. For example, credit
ratings evaluate the safety of principal and interest payments, not the market
value risk of high yield bonds. Also, credit rating agencies may fail to change
credit ratings in a timely manner to reflect subsequent events. If a credit
rating agency changes the rating of a portfolio security held by a fund, the
fund may retain the security if those managing the investments of the fund think
it is in the best interest of shareholders.
Industry
Concentration
A fund that concentrates its
investments (invests more than 25% of its net assets) in a particular industry
(or group of industries) is more exposed to the overall condition of the
particular industry than a fund that invests in a wider variety of industries. A
particular industry could be affected by economic, business, supply-and-demand,
political, or regulatory factors. Companies within the same industry could react
similarly to such factors. As a result, a fund’s concentration in a particular
industry would increase the possibility that the fund’s performance will be
affected by such factors.
Inverse Floating
Rate Investments
Inverse floating rate investments
are variable rate debt instruments that pay interest at rates that move in the
opposite direction of prevailing interest rates. Inverse floating rate
investments tend to underperform the market for fixed rate bonds in a rising
interest rate environment. Inverse floating rate investments have varying
degrees of liquidity. Inverse floating rate investments in which the funds may
invest may include derivative instruments, such as residual interest bonds or
tender option bonds. Such instruments are typically created by a special purpose
trust that holds long-term fixed rate bonds and sells two classes of beneficial
interests: short-term floating rate interests, which are sold to third party
investors, and the inverse floating residual interests, which are purchased by
the funds. The funds generally invest in inverse floating rate investments that
include embedded leverage, thus exposing the funds to greater risks and
increased costs. The market value of a "leveraged" inverse floating rate
investment generally will fluctuate in response to changes in market rates of
interest to a greater extent than the value of an unleveraged investment. A fund
making such an investment will segregate on its books liquid securities having a
value equal to the market value of the bonds underlying the “leveraged” inverse
floating rate investment.
Investment
Company Securities
Securities of other investment
companies, including shares of closed-end investment companies, unit investment
trusts, various exchange-traded funds ("ETFs"), and other open-end investment
companies, represent interests in professionally managed portfolios that may
invest in a variety of instruments. Certain types of investment companies, such
as closed-end investment companies, issue a fixed number of shares that trade on
a stock exchange or over-the-counter at a premium or a discount to their net
asset value. Others are continuously offered at net asset value, but may also be
traded in the secondary market. ETFs are often structured to perform in a
similar fashion to a broad-based securities index. Investing in ETFs involves
generally the same risks as investing directly in the underlying instruments.
Investing in ETFs involves the risk that they will not perform in exactly the
same fashion, or in response to the same factors, as the index or underlying
instruments. Shares of ETFs may trade at prices other than NAV.
A fund that invests in another
investment company is subject to the risks associated with direct ownership of
the securities in which such investment company invests. Fund shareholders
indirectly bear their proportionate share of the expenses of each such
investment company, including its advisory and administrative fees. The Fund
would also continue to pay its own advisory fees and other expenses.
Consequently, the Fund and its shareholders would, in effect, absorb two levels
of fees with respect to investments in other investment companies.
A fund may invest in affiliated
underlying funds, and those who manage such fund's investments and their
affiliates may earn different fees from different underlying funds and may have
an incentive to allocate more fund assets to underlying funds from which they
receive higher fees.
Leverage
If a fund makes investments in
futures contracts, forward contracts, swaps and other derivative instruments,
these instruments provide the economic effect of financial leverage by creating
additional investment exposure, as well as the potential for greater loss. If a
fund uses leverage through activities such as borrowing, entering into short
sales, purchasing securities on margin or on a “when-issued” basis or purchasing
derivative instruments in an effort to increase its returns, the fund has the
risk of magnified capital losses that occur when losses affect an asset base,
enlarged by borrowings or the creation of liabilities, that exceeds the net
assets of the fund. The net asset value of a fund employing leverage will be
more volatile and sensitive to market movements. Leverage may involve the
creation
of a liability that requires the
fund to pay interest. Leveraging may cause a fund to liquidate portfolio
positions to satisfy its obligations or to meet segregation requirements when it
may not be advantageous to do so. To the extent that a fund is not able to close
out a leveraged position because of market illiquidity, a fund’s liquidity may
be impaired to the extent that it has a substantial portion of liquid assets
segregated or earmarked to cover obligations.
Master Limited
Partnerships ("MLPs")
A master limited partnership ("MLP")
that invests in a particular industry (e.g., oil and gas) will be harmed by
detrimental economic events within that industry. For example, the business of
certain MLPs is affected by supply and demand for energy commodities because
such MLPs derive revenue and income based upon the volume of the underlying
commodity produced, transported, processed, distributed, and/or marketed. Many
MLPs are also subject to various federal, state and local environmental laws and
health and safety laws as well as laws and regulations specific to their
particular activities.
MLPs tend to pay relatively higher
distributions than other types of companies. The amount of cash that an MLP can
distribute to its partners will depend on the amount of cash it generates from
operations, which will vary from quarter to quarter depending on factors
affecting the market generally and on factors affecting the particular business
lines of the MLP. Available cash will also depend on the MLP's level of
operating costs (including incentive distributions to the general partner),
level of capital expenditures, debt service requirements, acquisition costs (if
any), fluctuations in working capital needs and other factors.
Certain benefits derived from
investment in MLPs depend largely on the MLPs being treated as partnerships for
federal income tax purposes. As a partnership, an MLP has no federal income tax
liability at the entity level. MLPs taxed as partnerships file a partnership tax
return for U.S. federal, state and local income tax purposes and communicate the
Fund’s allocable share of the MLP’s income, gains, losses, deductions and
expenses via a “Schedule K-1.” Each year, the Fund will send you an annual tax
statement (Form 1099) to assist you in completing your tax returns. In some
circumstances the Fund may need to send you a corrected Form 1099, which could
require you to amend your tax returns. For example, if the Fund keeps MLP
investments until the basis (generally the price paid for the units, as adjusted
downwards with each distribution and allocation of deductions and losses, and
upwards with each allocation of taxable income and gain) is zero, subsequent
distributions will be taxable to the Fund at ordinary income rates and
shareholders may receive a corrected Form 1099.
If, as a result of a change in
current law or a change in an MLP's business, an MLP was treated as a
corporation for federal income tax purposes, the MLP would be obligated to pay
federal income tax on its income at the corporate tax rate. If an MLP was
classified as a corporation for federal income tax purposes, the amount of cash
available for distribution would be reduced and the distributions received might
be taxed entirely as dividend income.
To the extent a distribution
received by a fund from an MLP is treated as a return of capital, the fund's
adjusted tax basis in the interests of the MLP will be reduced, which may
increase the fund's tax liability upon the sale of the interests in the MLP or
upon subsequent distributions in respect of such interests.
Municipal
Obligations and AMT-Subject Bonds
The term “municipal obligations”
generally is understood to include debt obligations issued by municipalities to
obtain funds for various public purposes. The two principal classifications of
municipal bonds are "general obligation" and "revenue" bonds. General obligation
bonds are secured by the issuer's pledge of its full faith and credit, with
either limited or unlimited taxing power for the payment of principal and
interest. Revenue bonds are not supported by the issuer's full taxing authority;
generally, they are payable only from the revenues of a particular facility, a
class of facilities, or the proceeds of another specific revenue
source.
AMT-subject bonds are municipal
obligations issued to finance certain "private activities," such as bonds used
to finance airports, housing projects, student loan programs, and water and
sewer projects. Interest on AMT-subject bonds is an item of tax preference for
purposes of the federal individual alternative minimum tax ("AMT"). See "Tax
Considerations" for a discussion of the tax consequences of investing in the
fund.
Current federal income tax laws
limit the types and volume of bonds qualifying for the federal income tax
exemption of interest, which may have an effect upon the ability of the fund to
purchase sufficient amounts of tax-exempt securities.
Portfolio
Duration
Average duration is a mathematical
calculation of the average life of a bond (or for a bond fund, the average life
of the fund's underlying bonds, weighted by the percentage of the fund's assets
that each represents) that serves as a useful measure of its price risk.
Duration is an estimate of how much the value of the bonds held by a fund will
fluctuate in response to a change in interest rates. For example, if a fund has
an average duration of 4 years and interest rates rise by 1%, the value of the
bonds held by the fund will decline by approximately 4%, and if the interest
rates decline by 1%, the value of the bonds held by the fund will increase by
approximately 4%. Longer term bonds and zero coupon bonds are generally more
sensitive to interest rate changes. Duration, which measures price sensitivity
to interest rate changes, is not necessarily equal to average
maturity.
Portfolio
Turnover (Active Trading)
"Portfolio Turnover" is the term
used in the industry for measuring the amount of trading that occurs in a fund's
portfolio during the year. For example, a 100% turnover rate means that on
average every security in the portfolio has been replaced once during the year.
Funds with high turnover rates (more than 100%) are considered actively-traded
and often have higher transaction costs (which are paid by the fund), may result
in higher taxes when fund shares are held in a taxable account, and may lower
the fund's performance. High portfolio turnover can result in a lower capital
gain distribution due to higher transaction costs added to the basis of the
assets or can result in lower ordinary income distributions to shareholders when
the transaction costs cannot be added to the basis of assets. Both events
reduce fund performance.
Please consider all the factors when
you compare the turnover rates of different funds. You should also be aware that
the "total return" line in the Financial Highlights section reflects portfolio
turnover costs.
Preferred
Securities
Preferred securities include
preferred stock and various types of junior subordinated debt and trust
preferred securities. Preferred securities may pay fixed rate or adjustable rate
distributions and generally have a payment "preference" over common stock, but
are junior to the issuer's senior debt in a liquidation of the issuer’s assets.
Preference would mean that a company must pay on its preferred securities before
paying on its common stock, and that any claims of the preferred security holder
would typically be ahead of common stockholders' claims on assets in a corporate
liquidation.
Holders of preferred securities
usually have no right to vote for corporate directors or on other matters. The
market value of preferred securities is sensitive to changes in interest rates
as they are typically fixed income securities; the fixed-income payments are
expected to be the primary source of long-term investment return. While some
preferred securities are issued with a final maturity date, others are perpetual
in nature. In certain instances, a final maturity date may be extended and/or
the final payment of principal may be deferred at the issuer’s option for a
specified time without triggering an event of default for the issuer. In
addition, an issuer of preferred securities may have the right to redeem the
securities before their stated maturity date. For instance, for certain types of
preferred securities, a redemption may be triggered by a change in federal
income tax or securities laws. As with call provisions, a redemption by the
issuer may reduce the return of the security held by the fund. Preferred
securities may be subject to provisions that allow an issuer, under certain
circumstances to skip (indefinitely) or defer (possibly up to 10 years)
distributions. If a fund owns a preferred security that is deferring its
distribution, the fund may be required to report income for tax purposes while
it is not receiving any income.
Preferred securities are typically
issued by corporations, generally in the form of interest or dividend bearing
instruments, or by an affiliated business trust of a corporation, generally in
the form of beneficial interests in subordinated debentures or similarly
structured securities. The preferred securities market is generally divided into
the $25 par “retail” and the $1,000 par “institutional” segments. The $25 par
segment includes securities that are listed on the New York Stock Exchange
(exchange traded), which trade and are quoted with accrued dividend or interest
income, and which are often callable at par value five years after their
original issuance date. The institutional segment includes $1,000 par value
securities that are not exchange-listed (over the counter), which trade and are
quoted on a “clean” price, i.e., without accrued dividend or interest income,
and which often have a minimum of 10 years of call protection from the date of
their original issuance. Preferred securities can also be issued by real estate
investment trusts and involve risks similar to those associated with investing
in real estate investment trust companies.
Real Estate
Investment Trusts ("REITs")
REITs involve certain unique risks
in addition to the risks associated with investing in the real estate industry
in general (such as possible declines in the value of real estate, lack of
availability of mortgage funds, or extended vacancies of property). REITs are
characterized as: equity REITs, which primarily own property and generate
revenue from rental income; mortgage REITs, which invest in real estate
mortgages; and hybrid REITs, which combine the characteristics of both equity
and mortgage REITs. Equity REITs may be affected by changes in the value of the
underlying property owned by the REITs, while mortgage REITs may be affected by
the quality of any credit extended. REITs are dependent upon management skills,
are not diversified, and are subject to heavy cash flow dependency, risks of
default by borrowers, and
self-liquidation. A fund that invests in a REIT is subject to the REIT’s
expenses, including management fees, and will remain subject to the fund's
advisory fees with respect to the assets so invested. REITs are also subject to
the possibilities of failing to qualify for the special tax treatment accorded
REITs under the Code, and failing to maintain their exemptions from registration
under the 1940 Act.
Regular REIT dividends received by a
Fund from a REIT will not qualify for the corporate dividends-received deduction
and generally will not constitute qualified dividend income for U.S. income tax
purposes. Any distribution of income attributable to regular REIT dividends from
a Fund’s investment in a REIT will not qualify for the deduction that would be
available to a non-corporate shareholder were the shareholder to own such REIT
directly.
Investment in REITs also involves
risks similar to those associated with investing in small market capitalization
companies. REITs may have limited financial resources, may trade less frequently
and in a limited volume, and may be subject to more abrupt or erratic price
movements than larger company securities.
Real Estate
Securities
Investing in securities of companies
in the real estate industry subjects a fund to the special risks associated with
the real estate market and the real estate industry in general. Generally,
companies in the real estate industry are considered to be those that have
principal activity involving the development, ownership, construction,
management or sale of real estate; have significant real estate holdings, such
as hospitality companies, healthcare facilities, supermarkets, mining, lumber
and/or paper companies; and/or provide products or services related to the real
estate industry, such as financial institutions that make and/or service
mortgage loans and manufacturers or distributors of building supplies.
Securities of companies in the real estate industry are sensitive to factors
such as loss to casualty or condemnation, changes in real estate values,
property taxes, interest rates, cash flow of underlying real estate assets,
occupancy rates, government regulations affecting zoning, land use and rents,
and the management skill and creditworthiness of the issuer. Companies in the
real estate industry may also be subject to liabilities under environmental and
hazardous waste laws.
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.
As an example, as of August 31,
2017, Principal Funds, Inc. ("PFI") and Principal Variable Contracts Funds, Inc.
("PVC") funds of funds owned the following percentages, in the aggregate, of the
outstanding shares of the underlying funds listed below. Principal Global
Investors, LLC ("PGI") is the advisor to the PFI and PVC funds of funds and is
committed to minimizing the potential impact of redemption and large transaction
risk on underlying funds to the extent consistent with pursuing the investment
objectives of the funds of funds that it manages. However, PGI may face
conflicts of interest in fulfilling its responsibilities to all such
funds.
|
|
|
Fund |
Total
Percentage
of
Outstanding
Shares
Owned |
|
|
Blue Chip Fund |
88.33% |
Bond Market Index
Fund |
85.47% |
Diversified Real Asset
Fund |
25.21% |
EDGE MidCap
Fund |
99.55% |
Global Multi-Strategy
Fund |
46.28% |
Global Opportunities
Fund |
98.06% |
International Equity Index
Fund |
50.24% |
International Small Company
Fund |
99.53% |
Multi-Manager Equity Long/Short
Fund |
44.59% |
Origin Emerging Markets
Fund |
67.39% |
Preferred Securities
Fund |
7.31% |
Real Estate Debt Income
Fund |
98.31% |
Small-MidCap Dividend Income
Fund |
18.84% |
Securitized
Products
Securitized products are fixed
income instruments that represent interests in underlying pools of collateral or
assets. The value of the securitized product is derived from the performance,
value, and cash flows of the underlying asset(s). The specific securitized
products that are principal strategies of each Fund are listed in its Fund
Summary.
A fund’s investments in securitized
products are subject to risks similar to traditional fixed income securities,
such as credit, interest rate, liquidity, prepayment, extension, and default
risk, as well as additional risks associated with the nature of the assets and
the servicing of those assets. Prepayment risk may make it difficult to
calculate the average life of a fund’s investment in securitized products.
Securitized products are generally issued as pass-through certificates, which
represent the right to receive principal and interest payments collected on the
underlying pool of assets, which are passed through to the security holder.
Therefore, repayment depends on the cash flows generated by the underlying pool
of assets. The securities may be rated as investment-grade or
below-investment-grade.
|
|
• |
Mortgage-backed
securities (“MBS”) represent an interest in a pool of underlying mortgage
loans secured by real property. MBS are sensitive to changes in interest
rates, but may respond to these changes differently from other fixed
income securities due to the possibility of prepayment of the underlying
mortgage loans. If interest rates fall and the underlying loans are
prepaid faster than expected, the fund may have to reinvest the prepaid
principal in lower yielding securities, thus reducing the fund’s income.
Conversely, rising interest rates tend to discourage refinancings and the
underlying loans may be prepaid more slowly than expected, reducing a
fund’s potential to reinvest the principal in higher yielding securities
and extending the duration of the underlying loans. In addition, when
market conditions result in an increase in default rates on the underlying
loans and the foreclosure values of the underlying real estate is less
than the outstanding amount due on the underlying loan, collection of the
full amount of accrued interest and principal on these investments may be
doubtful. The risk of such defaults is generally higher in the case of
underlying mortgage pools that include sub-prime mortgages (mortgages
granted to borrowers whose credit histories would not support conventional
mortgages). |
|
|
• |
Commercial
mortgage-backed securities (“CMBS”) represent an interest in a pool of
underlying commercial mortgage loans secured by real property such as
retail, office, hotel, multi-family, and industrial properties. Certain
CMBS are issued in several classes with different levels of yield and
credit protection, and the CMBS class in which a fund invests usually
influences the interest rate, credit, and prepayment
risks. |
|
|
• |
Asset-backed
securities (“ABS”) are backed by non-mortgage assets such as company
receivables, truck and auto loans, student loans, leases and credit card
receivables. ABS entail credit risk. They also may present a risk that, in
the event of default, the liquidation value of the underlying assets may
be inadequate to pay any unpaid interest or
principal. |
Short
Sales
A fund enters into a short sale by
selling a security it has borrowed (typically from a broker or other
institution) with the hope of purchasing the same security at a later date at a
lower price. A fund may also take a short position in a derivative instrument,
such as a future, forward or swap. If the market price of the security or
derivatives increases, the fund will suffer a (potentially unlimited) loss when
it replaces the security or derivative at the higher price. In certain cases,
purchasing a security to cover a short position can itself cause the price of
the security to rise further, thereby exacerbating the loss. In addition, a fund
may not always be able to borrow the security at a particular time or at an
acceptable price. Before a fund replaces a borrowed security, it is required to
designate on its books cash or liquid assets as collateral to cover the fund’s
short position, marking the collateral to market daily. This obligation limits a
fund’s investment flexibility, as well as its ability to meet redemption
requests or other current obligations. A short position in a derivative
instrument involves the risk of a theoretically unlimited increase in the value
of the underlying instrument. Short sales also involve transaction and other
costs that will reduce potential fund gains and increase potential fund
losses.
Certain funds may also invest the
proceeds received from short selling securities, which creates additional
leverage. Using such leverage allows the fund to use the proceeds to purchase
additional securities, thereby increasing its exposure to assets, such that its
total assets may be greater than its capital. Leverage also magnifies the
volatility of changes in the value of the fund’s portfolio. The effect of the
use of leverage by the fund in a market that moves adversely to its investments
could result in substantial losses to the fund, which would be greater than if
the fund were not leveraged. Because a short position loses value as the
security’s price increases, the loss on a short sale is theoretically
unlimited.
The short sale proceeds utilized by
a fund to leverage investments are collateralized by all or a portion of such
fund’s portfolio. Accordingly, a fund may pledge securities in order to effect
short sales, utilize short sale proceeds or otherwise obtain leverage for
investment or other purposes. Should the securities pledged to brokers to secure
the fund’s margin accounts decline in value, the fund could be subject to a
“margin call”, pursuant to which the fund must either deposit additional funds
or securities with the broker or suffer mandatory liquidation of all or a
portion of the pledged securities to compensate for the decline in value. The
banks and dealers that provide leverage to the fund have discretion to change
the fund’s margin requirements at any time. Changes by counterparties in the
foregoing may result in large margin calls, loss of leverage and forced
liquidations of positions at disadvantageous prices. The utilization of short
sale proceeds for leverage will cause the fund to be subject to higher
transaction fees and other costs.
U.S. Government
and U.S. Government-Sponsored Securities
U.S. Government securities, such as
Treasury bills, notes and bonds and mortgage-backed securities guaranteed by the
Government National Mortgage Association (Ginnie Mae), are supported by the full
faith and credit of the United States; others are supported by the right of the
issuer to borrow from the U.S. Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; and still others are supported only by the credit of the issuing
agency, instrumentality, or enterprise.
Although U.S. Government-sponsored
enterprises such as the Federal Home Loan Mortgage Corporation (Freddie Mac) and
the Federal National Mortgage Association (Fannie Mae) may be chartered or
sponsored by Congress, they are not funded by Congressional appropriations, and
their securities are not issued by the U.S. Treasury nor supported by the full
faith and credit of the U.S. Government.
There is no assurance that the U.S.
Government would provide financial support to its agencies and instrumentalities
if not required to do so. In addition, certain governmental entities have been
subject to regulatory scrutiny regarding their accounting policies and practices
and other concerns that may result in legislation, changes in regulatory
oversight and/or other consequences that could adversely affect the credit
quality, availability, or investment character of securities issued by these
entities. The value and liquidity of U.S. Government securities may be affected
adversely by changes in the ratings of those securities.
Volatility
Mitigation
Volatility mitigation strategies may
increase fund transaction costs, which could increase losses or reduce gains.
These strategies may not protect the fund from market declines and may reduce
the fund’s participation in market gains.
PORTFOLIO
HOLDINGS INFORMATION
A description of the Fund's policies
and procedures with respect to disclosure of the Fund's portfolio securities is
available in the Fund's Statement of Additional Information.
MANAGEMENT OF THE
FUNDS
The Manager and
Advisor
Principal Global Investors, LLC
(“PGI”), an indirect subsidiary of Principal Financial Group, Inc.
("Principal®"), serves as the manager and
advisor for the Fund. Through the Management Agreement with the Fund, PGI
provides investment advisory services and certain corporate administrative
services for the Fund.
|
|
Advisor: |
Principal
Global Investors, LLC (“PGI”), 711 High Street, Des Moines,
IA 50392, is part of a diversified global asset management organization
which utilizes a multi-boutique strategy of specialized investment groups
and affiliates to provide institutional investors and individuals with
diverse investment capabilities, including fixed income, equities, real
estate, currency, asset allocation and stable value. PGI also has asset
management offices of affiliate advisors in non-U.S. locations including
London, Singapore, Tokyo, Hong Kong and Sydney. PGI has been an investment
advisor since 1998. |
|
|
Funds: |
In fulfilling its investment
advisory responsibilities, PGI provides day-to-day discretionary
investment services (directly making decisions to purchase or sell
securities) for the following Funds: |
|
|
– |
Blue Chip (services provided
by "Aligned Investors", a specialized boutique of
PGI) |
|
|
– |
a portion of Diversified Real
Asset (one or more strategies that seek to track the performance of an
index related to a particular sector or asset
class) |
|
|
– |
Dynamic Floating Rate High
Income |
|
|
– |
EDGE MidCap (services provided
by "Edge Asset Management", a specialized boutique of
PGI) |
|
|
– |
International Equity
Index |
|
|
– |
International Small
Company |
|
|
– |
Opportunistic
Municipal |
|
|
– |
Small-MidCap Dividend Income
(services provided by "Edge Asset Management", a specialized boutique of
PGI) |
|
|
– |
SystematEx
International |
Several of the Funds have multiple
Sub-Advisors. A team within Principal Portfolio StrategiesSM, a specialized boutique of PGI and
whose members are identified in each Fund summary and listed below, determines
the portion of those Funds’ assets that each Sub-Advisor will manage and may
reallocate Fund assets among the Sub-Advisors from time-to-time. This team
agrees on allocation decisions and shares authority and responsibility for
day-to-day portfolio management, with no limitation on the authority of one
portfolio manager in relation to another.
The decision to reallocate Fund
assets between PGI acting in a discretionary advisory capacity and the
Sub-Advisors may be based on a variety of factors, including but not limited to:
the investment capacity of PGI and each Sub-Advisor, portfolio diversification,
volume of net cash flows, fund liquidity, investment performance, investment
strategies, changes in PGI or each Sub-Advisor's firm or investment
professionals, or changes in the number of Sub-Advisors. Ordinarily,
reallocations of Fund assets among Sub-Advisors occur as a Sub-Advisor
liquidates assets in the normal course of portfolio management or with net new
cash flows; however, at times existing Fund assets may be reallocated among
Sub-Advisors.
The Fund summaries identified the
portfolio managers and the funds they manage. Additional information about the
portfolio managers follows. References to Principal® include the entire Principal
organization.
As reflected in the fund summaries,
the day-to-day portfolio management, for some funds, is shared by multiple
portfolio managers. In each such case, except for the Blue Chip Fund, the
portfolio managers operate as a team, sharing authority and responsibility for
research and the day-to-day management of the portfolio with no limitation on
the authority of one portfolio manager in relation to another. For the Blue Chip
Fund, Mr. Nolin and Mr. Rozycki work as a team, sharing day-to-day management of
the Fund; however, Mr. Nolin has ultimate decision making authority. Mr. Rozycki
may execute trades in Mr. Nolin’s absence.
Jake S. Anonson
was with
Principal® from 1998-2010 and re-joined
Principal® in 2012. Mr. Anonson is responsible
for the asset allocation and manager selection for Principal Portfolio
StrategiesSM. Mr. Anonson earned a bachelor’s
degree in Finance and Economics from the University of Northern Iowa and an
M.B.A. from Iowa State University. He has earned the right to use the Chartered
Financial Analyst designation.
Jessica S. Bush
has been with
Principal® since 2006. Ms. Bush is responsible
for the asset allocation and manager selection for Principal Portfolio
StrategiesSM. Ms. Bush earned a bachelor’s
degree in Business Administration from the University of Michigan. She has
earned the right to use the Chartered Financial Analyst
designation.
Daniel R.
Coleman has been with
Principal® since 2001, holding various
investment management roles on the Edge Asset Management equity team, including
Portfolio Manager and some senior management roles. He earned a bachelor's
degree in Finance from the University of Washington and an M.B.A. from New York
University.
Mark P. Denkinger
has been with
Principal® since 1990. He earned a bachelor’s
degree in Finance and an M.B.A. with a Finance emphasis from the University of
Iowa. Mr. Denkinger has earned the right to use the Chartered Financial Analyst
designation.
Marcus W. Dummer
has been with
Principal® since 2003. Mr. Dummer is
responsible for the asset allocation and manager selection for Principal
Portfolio StrategiesSM. Mr. Dummer earned a bachelor’s
degree in Finance and an M.B.A. from the University of Utah. He has earned
the right to use the Chartered Alternative Investment Analyst
designation.
Kelly A. Grossman
has been with
Principal® since 1991. Ms. Grossman is
responsible for the asset allocation and manager selection for Principal
Portfolio StrategiesSM. Ms. Grossman earned a bachelor’s
degree in Mathematics and Computer Science from the University of Northern
Iowa. Ms. Grossman is a Fellow of the Society of Actuaries and a member of
the American Academy of Actuaries.
Jason
Hahn has been with
Principal® since 2004. He earned a bachelor's
degree in Finance and Economics and an M.B.A. in Finance from the University of
Iowa. Mr. Hahn has earned the right to use the Chartered Financial Analyst
designation.
Christopher Ibach
has been with
Principal® since 2000. He earned a bachelor’s
degree in Electrical Engineering and an M.B.A. in Finance from the University of
Iowa. He has earned the right to use the Chartered Financial Analyst
designation.
Theodore
Jayne has been with
Principal® since 2015. Prior to that, he was a
Managing Director and Portfolio Manager at Wellington Management Company, LLP
from 1998 to 2014. He earned a bachelor’s degree in Anthropology from Harvard
University. Mr. Jayne has earned the right to use the Chartered Financial
Analyst designation.
Tiffany N.
Lavastida has been with
Principal® since 1997. She earned a bachelor’s
degree in Finance and an M.B.A. from the University of Iowa. Ms. Lavastida has
earned the right to use the Chartered Financial Analyst
designation.
Mark R.
Nebelung has been with
Principal® since 1997. Mr. Nebelung is an
employee of Principal Global Investors (Europe) Limited and manages Principal
Fund assets through PGI pursuant to a participating affiliate arrangement. He
earned his bachelor's degree in Actuarial Science and Statistics from the
University of Waterloo, Canada. He has earned the right to use the Chartered
Financial Analyst designation.
James
Noble has been with
Principal® since 2010. He earned a bachelor’s
degree in Finance and an M.B.A. from Hofstra University.
K. William
Nolin has been with
Principal® since 1993. He earned a bachelor’s
degree in Finance from the University of Iowa and an M.B.A. from the Yale School
of Management. Mr. Nolin has earned the right to use the Chartered Financial
Analyst designation.
Brian W.
Pattinson has been with
Principal® since 1994. He earned a bachelor’s
degree and an M.B.A. in Finance from the University of Iowa. Mr. Pattinson has
earned the right to use the Chartered Financial Analyst
designation.
Sarah E. Radecki
joined Principal in
1999. Ms. Radecki earned bachelor’s degrees in political science
and economics from Saint Mary’s College of California and a master’s degree in
economics from the University of California at Santa Barbara. She has earned the
right to use the Chartered Financial Analyst designation.
Josh
Rank has been with
Principal® since 2013. Prior to that, he
worked at Aviva Investors Americas from 2005 to 2013. He earned a bachelor's
degree in Finance from Iowa State University. Mr. Rank has earned the right to
use the Chartered Financial Analyst designation.
Benjamin E.
Rotenberg has been with
Principal® since 2014. Prior to that, he was
employed at Cliffwater LLC from 2007-2014. Mr. Rotenberg is responsible for the
asset allocation and manager selection for Principal Portfolio
StrategiesSM. Mr. Rotenberg earned a bachelor’s
degree in International Relations and Russian from Pomona College. He has earned
the right to use the Chartered Financial Analyst and the Chartered Alternative
Investment Analyst designations.
Tom
Rozycki has been with
Principal® since 2001. He earned a bachelor’s
degree in Finance from Drake University. Mr. Rozycki has earned the right to use
the Chartered Financial Analyst designation.
Mustafa Sagun
has been with
Principal® since 2000. He earned a bachelor’s
degree in Electronics and Engineering from Bogazici University, Turkey, and an
M.B.A. in International Economics and Ph.D. in Finance from the University of
South Florida. He has earned the right to use the
Chartered Financial Analyst designation.
Jeffrey A.
Schwarte has been with
Principal® since 1993. He earned a bachelor’s
degree in Accounting from the University of Northern Iowa. Mr. Schwarte is a CPA
and has earned the right to use the Chartered Financial Analyst
designation.
Aaron J.
Siebel has been with
Principal ®
since 2005. He earned a
bachelor’s degree in Finance from the University of Iowa.
David W.
Simpson has been with
Principal® since 2003. He earned a bachelor's
degree from the University of Illinois and an M.B.A. in Finance from the
University of Wisconsin. Mr. Simpson has earned the right to use the Chartered
Financial Analyst designation.
Darrin E. Smith
has been with
Principal® since 2007. He earned a bachelor’s
degree in Economics from Iowa State University and an M.B.A. from Drake
University. Mr. Smith has earned the right to use the Chartered Financial
Analyst designation.
James
Welch has been with
Principal® since 2014. Prior to that, Mr.
Welch was a Senior Portfolio Manager at Castleton Partners, where he was
employed from 2013 to 2014; and, from 2009 to 2012, he worked at Standish Mellon
Asset Management. Mr. Welch earned a bachelor's degree in Economics from the
Pennsylvania State University.
The
Sub-Advisors
PGI has signed contracts with
various Sub-Advisors. Under the sub-advisory agreements, the Sub-Advisor agrees
to assume the obligations of PGI to provide investment advisory services to the
portion of the assets of a specific Fund allocated to it by PGI. For these
services, PGI pays the Sub-Advisor a fee.
PGI or the Sub-Advisor provides the
Fund's Board with a recommended investment program. The program must be
consistent with the Fund's investment objective and policies. Within the scope
of the approved investment program, the Sub-Advisor advises the Fund on its
investment policy and determines which securities are bought or sold, and in
what amounts.
The Fund summaries identified the
sub-advisors, portfolio managers and the funds they manage. Additional
information follows.
|
|
Sub-Advisor:
|
AQR Capital
Management, LLC (“AQR”) , Two Greenwich Plaza,
Greenwich, CT 06830, formed in 1998, is an investment management firm that
employs a disciplined multi-asset global research process.
|
|
|
Funds:
|
a portion of Global
Multi-Strategy. AQR may use any of the Fund’s investment strategies,
including investments through the Fund’s Cayman Subsidiary.
|
a portion of Multi-Manager Equity
Long/Short
|
|
Sub-Advisor: |
Ascend
Capital, LLC (“Ascend”), 4 Orinda Way, Suite 200-C,
Orinda, California 94563, has been an SEC-registered investment advisor
since 2006. |
|
|
Fund: |
a portion of Global
Multi-Strategy. Ascend will primarily use the equity long/short strategy;
however, it may use any of the Fund’s investment
strategies. |
|
|
Sub-Advisor: |
BlackRock
Financial Management, Inc. (“BlackRock”), 55 East 52nd Street, New
York, New York 10055, is a registered investment adviser organized in
1994. BlackRock and its affiliates manage investment company and other
portfolio assets. |
Sub-Sub-Advisor: BlackRock
International Limited ("BIL"), Exchange Place One, 1 Semple
Street, Edinburgh EH3 8BL, Scotland, is a registered investment adviser that was
founded in 1995.
Fund: a portion of Diversified Real Asset
(inflation-indexed bonds strategy)
BlackRock and BIL, with PGI's
consent, have entered into a sub-sub-advisory agreement for the Diversified Real
Asset Fund. Under the agreement, BIL has agreed to carry out certain investment
advisory obligations of BlackRock to manage the Diversified Real Asset Fund’s
assets. BlackRock will allocate to BIL a portion of the Diversified Real Asset
Fund assets it manages.
|
|
Sub-Advisor: |
BNP PARIBAS
ASSET MANAGEMENT USA, Inc.
("BNP"), 200 Park
Avenue, 11th Floor, New York, NY 10166, was founded
in 1972 and
became a U.S. registered investment advisor with the Securities and
Exchange Commission in 1975. |
|
|
Fund: |
a portion of
Diversified Real Asset (currency
strategy) |
Effective on or
about January 2, 2019, delete the below reference to BNY Mellon Asset Management
North America Corporation and refer to the "Mellon Corporation" entry later in
this list of Sub-Advisors:
|
|
Sub-Advisor:
|
BNY Mellon
Asset Management North America Corporation (“BNY Mellon AMNA”)
, BNY Mellon Center, One
Boston Place, Boston, MA 02108, is a multi-asset investment adviser
providing clients with a wide range of investment solutions.
|
|
|
Fund(s):
|
Bond Market Index and a
portion of Diversified Real Asset (a portion of the natural resources
strategy) |
The day-to-day portfolio management
of the Bond Market Index Fund is shared by multiple portfolio managers who work
as a team. Gregg Lee is the lead portfolio manager.
Paul Benson
joined BNY Mellon AMNA
in 2005. He earned a B.A. from the University of Michigan, Ann Arbor. He has
earned the right to use the Chartered Financial Analyst
designation.
Gregg Lee
joined BNY Mellon AMNA
in 1989. He earned a B.S. from the University of California at Davis in
Managerial Economics. He has earned the right to use the Chartered Financial
Analyst designation.
Nancy G. Rogers
joined BNY Mellon AMNA
in 1987. She earned a B.S. in Marketing and Finance and an M.B.A. from Drexel
University. She has earned the right to use the Chartered Financial Analyst
designation.
Stephanie Shu
joined BNY Mellon AMNA
in 2001. She earned a B.S. in Operations Research and Statistics from Fudan
University, Shanghai, China and an M.S. from Texas A&M University. She has
earned the right to use the Chartered Financial Analyst
designation.
|
|
Sub-Advisor: |
CNH
Partners, LLC (“CNH”), Two Greenwich Plaza,
Greenwich, CT 06830, is a merger arbitrage, convertible arbitrage and
diversified arbitrage research affiliate of
AQR. |
|
|
Fund: |
a portion
of Global
Multi-Strategy. CNH may use any of the Fund’s investment strategies,
including investments through the Fund’s Cayman Subsidiary.
|
|
|
Sub-Advisor:
|
Credit
Suisse Asset Management, LLC (“Credit Suisse”) , Eleven Madison Avenue, New
York, NY, 10010, is the New York-based Registered Investment Adviser of
Credit Suisse Asset Management (CSAM). CSAM, which is part of the
International Wealth Management Division of Credit Suisse Group AG, is a
global asset manager with a focus on Alternative Investments and select
Traditional Investments. |
|
|
Fund:
|
a portion of Diversified Real
Asset (commodity index-linked notes and, indirectly through a Cayman
subsidiary, commodity derivatives) |
|
|
Sub-Advisor: |
Finisterre
Capital LLP (“Finisterre”), 10 New Burlington Street,
London, England W1S 3BE, manages emerging market assets for a variety of
investors. |
|
|
Fund: |
a portion of Global
Multi-Strategy. Finisterre will primarily use the credit/distressed
strategy; however, it may use any of the Fund’s investment
strategies |
|
|
Sub-Advisor:
|
Gotham
Asset Management, LLC (“Gotham”), 535 Madison Avenue, 30th
Floor, New York, NY 10022, is a registered investment adviser that manages
long/short and long-only investment
strategies. |
|
|
Fund:
|
a portion of Multi-Manager
Equity Long/Short |
|
|
Sub-Advisor: |
Graham
Capital Management, L.P. (“Graham”), 40 Highland Avenue,
Rowayton, Connecticut, 06853, founded in 1994, is an investment management
firm that focuses on global macro-oriented
strategies. |
|
|
Fund: |
a portion of Global
Multi-Strategy. Graham will primarily use the global macro strategy;
however, it may use any of the Fund’s investment strategies.
|
|
|
Sub-Advisor: |
KLS
Diversified Asset Management LP (“KLS”), 452 Fifth Avenue,
22nd Floor, New York, NY
10018,
has been an
SEC-registered investment advisor since
2011. |
|
|
Fund: |
a portion of Global
Multi-Strategy (market neutral strategy) |
|
|
Sub-Advisor: |
Loomis,
Sayles & Company, L.P. (“Loomis Sayles”), One Financial Center, Boston,
Massachusetts 02111, is an investment advisory firm that was founded in
1926. |
|
|
Fund: |
a portion of Global
Multi-Strategy (credit/distressed
strategy) |
|
|
Sub-Advisor: |
Los Angeles
Capital Management and Equity Research, Inc. ("Los Angeles
Capital"), 11150
Santa Monica Boulevard, Suite 200, Los Angeles, CA 90025, founded in 2002,
is a registered investment adviser offering risk-controlled, active equity
management services to a broad range of institutional
investors. |
|
|
Fund: |
a portion of Global
Multi-Strategy. Los Angeles Capital will primarily use the equity
long/short strategy; however, it may use any of the Fund’s investment
strategies. |
|
|
Sub-Advisor: |
Macquarie
Capital Investment Management LLC (“Macquarie”), 125 West 55th Street, New York, NY 10019,
founded in 2004, is a registered investment advisor that is dedicated to
the management of infrastructure securities
accounts. |
|
|
Fund: |
a portion of Diversified Real
Asset (infrastructure strategy) |
Effective on or
about January 2, 2019, add the following:
|
|
Sub-Advisor:
|
Mellon
Corporation (“Mellon”) , BNY Mellon Center, One
Boston Place, Boston, MA 02108, is a multi-asset investment adviser
providing clients with a wide range of investment solutions.
|
|
|
Fund(s):
|
Bond Market Index and a
portion of Diversified Real Asset (a portion of the natural resources
strategy) |
The day-to-day portfolio management
of the Bond Market Index Fund is shared by multiple portfolio managers who work
as a team. Gregg Lee is the lead portfolio manager.
Paul Benson
joined Mellon
Corporation in 2005. He earned a B.A. from the University of Michigan, Ann
Arbor. He has earned the right to use the Chartered Financial Analyst
designation.
Gregg Lee
joined Mellon
Corporation in 1989. He earned a B.S. from the University of California at Davis
in Managerial Economics. He has earned the right to use the Chartered Financial
Analyst designation.
Nancy G. Rogers
joined Mellon
Corporation in 1987. She earned a B.S. in Marketing and Finance and an M.B.A.
from Drexel University. She has earned the right to use the Chartered Financial
Analyst designation.
Stephanie Shu
joined Mellon
Corporation in 2001. She earned a B.S. in Operations Research and Statistics
from Fudan University, Shanghai, China and an M.S. from Texas A&M
University. She has earned the right to use the Chartered Financial Analyst
designation.
|
|
Sub-Advisor: |
Origin
Asset Management LLP (“Origin”), One Carey Lane, London, EC2V
8AE, UK manages global equity securities for institutional
clients. |
|
|
Fund: |
Origin Emerging
Markets |
The portfolio managers operate as a
team, sharing authority and responsibility for research and the day-to-day
management of the portfolio with no limitation on the authority of one portfolio
manager in relation to another.
John Birkhold
has been with Origin
since 2009. He earned a B.S. and M.E. in Systems Engineering from the University
of Virginia and an M.B.A. in Finance from the University of
Chicago.
Chris Carter
has been with Origin
since 2005. Mr. Carter is a graduate of Gonville & Caius College, University
of Cambridge, with an M.A. Honours Degree in Economics and
Philosophy.
Nigel Dutson
has been with Origin
since 2005. Mr. Dutson is a graduate of Surrey University with a B.Sc. Joint
Honours Degree in Mathematics & Economics.
Tarlock Randhawa
has been with Origin
since 2005. Mr. Randhawa is a graduate of Brunel University with a B.Sc. Joint
Honours Degree in Mathematics & Management.
Grace Tolley
has been with Origin
since 2015. Prior to joining Origin, she was employed at Buck Consultants from
2014 to 2015, and at Aon Hewitt from 2010 to 2014. Ms. Tolley has earned a First
Class B.Sc. Honours Degree in Mathematics from the University of
Birmingham.
|
|
Sub-Advisor: |
Pictet
Asset Management SA (“Pictet”), 60 Route Des Acacias, Geneva,
Switzerland 1211-73, is authorized and regulated by the FINMA in
Switzerland and the SEC in the U.S. and has been an investment advisor
since 2006. Pictet provides asset management services for institutional
investors and investment funds. |
|
|
Fund: |
a portion of
Diversified Real Asset (natural resources
strategy) |
|
|
Sub-Advisor: |
Principal
Real Estate Investors, LLC (“Principal - REI”), 711 High Street, Des Moines,
IA 50392, was founded in 2000 and manages commercial real estate across
the spectrum of public and private equity and debt investments, primarily
for institutional investors. |
|
|
Funds: |
a portion of Diversified Real
Asset (real estate strategy) |
Real Estate Debt Income
As reflected in the fund summaries,
the day-to-day portfolio management, for some funds, is shared by multiple
portfolio managers. The portfolio managers operate as a team, sharing authority
and responsibility for research and the day-to-day management of the portfolio
with no limitation on the authority of one portfolio manager in relation to
another.
Scott M. Carson
has been with Principal
- REI since 2003. He earned a bachelor’s degree in Finance from Iowa State
University. Mr. Carson has earned the right to use the Chartered Financial
Analyst designation.
Marc
Peterson has been with
Principal - REI since 1992. He earned a bachelor’s degree in Accounting from
Luther College and an M.B.A. from Drake University. Mr. Peterson has earned the
right to use the Chartered Financial Analyst designation.
|
|
Sub-Advisor: |
RARE
Infrastructure (North America) Pty Limited (“RARE”), Level 13, 35 Clarence
Street, Sydney, Australia 2000, is a registered investment adviser founded
in 2009 and specializes solely in global infrastructure.
|
|
|
Fund: |
a portion of Diversified Real
Asset (infrastructure strategy) |
|
|
Sub-Advisor: |
Sirios
Capital Management, L.P. ("Sirios"), One International Place,
30th Floor, Boston, MA 02110, is a fundamental, bottom-up research-driven
investment firm founded in 1999. |
|
|
Fund: |
a portion of Multi-Manager
Equity Long/Short |
|
|
Sub-Advisor:
|
Sound Point
Capital Management, LP (“Sound Point”), 375 Park Avenue, 33rd Floor,
New York, NY 10152, founded in 2009, is a registered investment advisor
that provides investment advice and portfolio management
services. |
|
|
Fund: |
a portion of Global
Multi-Strategy. Sound Point will primarily use the credit/distressed
strategy; however, it may use any of the Fund’s investment
strategies. |
|
|
Sub-Advisor: |
Spectrum
Asset Management, Inc. (“Spectrum”), 2 High Ridge Park, Stamford,
CT 06905, founded in 1987, manages portfolios of preferred securities for
corporate, pension fund, insurance and endowment clients, open-end and
closed-end mutual funds, and separately managed account programs for high
net worth individual investors as well as providing volatility mitigation
solutions for some client portfolios. |
|
|
Funds: |
Capital
Securities |
Preferred Securities
The day-to-day portfolio management
is shared by a team of portfolio managers (Messrs. Diaz, Giangregorio, Jacoby,
Krishnan, and Lieb), under the leadership of the Chief Investment Officer (who
also chairs the Investment Committee) in conjunction with the Credit and
Research Team. This group has the authority and responsibility for research,
credit selection, ongoing portfolio management and trading. For the Preferred
Securities Fund, the volatility mitigation strategies are managed by a team
consisting of Mr. Jacoby, Mr. Krishnan, and Mr. Nugent; however, Mr. Nugent is
primarily responsible for day-to-day portfolio management for the volatility
mitigation strategies.
Fernando (“Fred”)
Diaz joined Spectrum in
2000.
Roberto
Giangregorio joined
Spectrum in 2003. Mr. Giangregorio earned a B.S. and M.S. in Mechanical
Engineering from S.U.N.Y. at Stony Brook and the University of
Wisconsin-Madison, respectively. He also earned an M.B.A. in Finance from
Cornell University.
L. Phillip
Jacoby, IV joined
Spectrum in 1995. Mr. Jacoby earned a B.S. in Finance from the Boston University
School of Management.
Manu
Krishnan joined
Spectrum in 2004. Mr. Krishnan earned a B.S. in Mechanical Engineering from the
College of Engineering, Osmania University, India, an M.S. in Mechanical
Engineering from the University of Delaware, and an M.B.A. in Finance from
Cornell University. Mr. Krishnan has earned the right to use the Chartered
Financial Analyst designation.
Mark A.
Lieb founded Spectrum
in 1987. Mr. Lieb earned a B.A. in Economics from Central Connecticut State
College and an M.B.A. in Finance from the University of Hartford.
Kevin
Nugent joined Spectrum
in 2012. Mr. Nugent earned a B.A. from Ohio Wesleyan University.
|
|
Sub-Advisor: |
Symphony
Asset Management LLC (“Symphony”), 555 California Street, Suite
3100, San Francisco, CA 94104-1534, is a diversified alternative
investment manager and was founded in
1994. |
|
|
Fund: |
a portion of Diversified Real
Asset (floating rate debt strategy) |
|
|
Sub-Advisor: |
Three
Bridges Capital, LP ("Three Bridges"), 810 7th Avenue, 32nd Floor,
New York, NY 10019, is an independent, specialist investment management
firm focused on European Equities, founded in 2011 by Gene
Salamon. |
|
|
Fund: |
a portion of Multi-Manager
Equity Long/Short |
|
|
Sub-Advisor: |
Tortoise
Capital Advisors, L.L.C. ("Tortoise"), 11550 Ash Street, Suite 300,
Leawood, Kansas 66211, formed in October 2002, specializes in essential
assets investing. |
|
|
Fund: |
a portion of Diversified Real
Asset (master limited partnership
strategy) |
|
|
Sub-Advisor: |
Wellington
Management Company LLP (“Wellington”) has its principal offices at
280 Congress Street, Boston, Massachusetts 02210. Wellington is a
professional investment counseling firm that provides investment services
to investment companies, employee benefit plans, endowments, foundations,
and other institutions. |
|
|
Fund: |
a portion of Global
Multi-Strategy. Wellington will primarily use the equity long/short
strategy; however, it may use any of the Fund’s investment
strategies. |
|
|
Sub-Advisor: |
York
Registered Holdings, L.P. (“York”), 767 Fifth Avenue, 17th Floor,
New York, NY 10153, was formed in 2012 as part of a group of companies
established in 1991 that manages capital across various strategies. York
and certain of its affiliates manage capital for hedge funds, private
equity funds, mutual funds, UCITS III-compliant funds and separately
managed accounts for institutional
investors. |
|
|
Fund: |
a portion of Global
Multi-Strategy. York will primarily use the event-driven strategy;
however, it may use any of the Fund’s investment
strategies. |
The SAI provides additional
information about each portfolio manager’s compensation, other accounts managed
by the portfolio manager, and the portfolio manager’s ownership of securities in
the Fund.
Fees Paid to
PGI
Each Fund, with the exception of the
Capital Securities Fund, pays PGI a fee for its services, which includes the fee
PGI pays to Sub-Advisors, as applicable.
The Capital Securities Fund will not
pay PGI a fee for its services and PGI will not pay Spectrum a fee for
Spectrum's sub-advisory services to the Fund. This arrangement recognizes that
the Wrap Fee Adviser will receive a fee through the wrap fee program that takes
into account the value of any shares of the Fund held by Eligible Wrap
Accounts.
|
|
|
|
|
Management
Fee Schedule (as a percentage of the average daily net
assets) |
Fund |
All
Assets |
Capital
Securities |
0.00% (1) |
|
|
(1) |
The table reflects that
Principal Global Investors, LLC ("PGI"), the investment advisor, is
absorbing all expenses of the Capital Securities Fund. You should be
aware, however, that the Capital Securities Fund is an integral part of
"wrap-fee" programs, including those sponsored by registered investment
advisors and broker-dealers unaffiliated with the Capital Securities Fund.
Participants in these programs pay a “wrap” fee to the wrap-fee program's
sponsor ("Sponsor"). You should read carefully the wrap-fee brochure
provided to you by your Sponsor or your registered investment advisor. The
brochure is required to include information about the fees charged to you
by the Sponsor and the fees the Sponsor pays to your registered investment
advisor. |
The fee the Funds paid (as a
percentage of the average daily net assets) for the fiscal year ended August 31,
2017 was:
|
|
|
|
Blue Chip Fund |
0.68 |
% |
Bond Market Index
Fund |
0.25 |
% |
Capital Securities
Fund |
0.00 |
% |
Diversified Real Asset
Fund |
0.80 |
% |
Dynamic Floating Rate High
Income Fund |
0.65 |
% |
EDGE MidCap
Fund |
0.75 |
% |
Global Multi-Strategy
Fund |
1.56 |
% |
Global Opportunities
Fund |
0.83 |
% |
International Equity Index
Fund |
0.25 |
% |
International Small Company
Fund |
1.04 |
% |
Multi-Manager Equity Long/Short
Fund |
1.57 |
% |
Opportunistic Municipal
Fund |
0.50 |
% |
Origin Emerging Markets
Fund |
1.19 |
% |
Preferred Securities
Fund |
0.70 |
% |
Real Estate Debt Income
Fund |
0.55 |
% |
Small-MidCap Dividend Income
Fund |
0.76 |
% |
SystematEx International
Fund |
0.60 |
% |
SystematEx Large Value
Fund |
0.40 |
% |
Availability of the discussions
regarding the basis for the Board of Directors approval of various management
and sub-advisory agreements is as follows:
|
|
|
|
|
|
|
Semi-Annual
Report to Shareholders
for the
period ending February 28, 2018 |
Annual
Report to Shareholders
for the
period ending August 31, 2018 |
Fund |
Management
Agreement |
Sub-Advisory
Agreement |
Management
Agreement |
Sub-Advisory
Agreement |
Diversified Real
Asset |
X |
X |
|
X |
Multi-Manager Equity
Long/Short |
X |
X |
|
X |
All Other Funds |
X |
X |
|
|
Voluntary
Waivers
Dynamic
Floating Rate High Income Fund
Effective October 20, 2018, PGI has
voluntarily agreed to limit the Fund’s expenses by paying, if necessary,
expenses normally payable by the Fund (excluding interest expense, expenses
related to fund investments, acquired fund fees and expenses, and other
extraordinary expenses) to maintain a total level of operating expenses
(expressed as a percent of average net assets on an annualized basis) not to
exceed 0.00% for all share classes of the Fund. This voluntary expense limit may
be terminated at any time.
Manager of
Managers
The Fund operates as a Manager of
Managers. Under the conditions of an order previously received from the SEC (the
"unaffiliated order"), the Fund and PGI may enter into and materially amend
agreements with Sub-Advisors, other than those affiliated with PGI, without
obtaining shareholder approval. PGI may, without obtaining shareholder
approval:
|
|
• |
hire one or more
Sub-Advisors; |
|
|
• |
change
Sub-Advisors; and |
|
|
• |
reallocate management fees
between itself and Sub-Advisors. |
The SEC has granted an amended
exemptive order that expands the relief of the unaffiliated order to allow PGI
to enter into and materially amend agreements with wholly-owned affiliated
sub-advisors (affiliated sub-advisors which are at least 95% owned, directly or
indirectly, by PGI or an affiliated person of PGI) (the "wholly-owned
order").
Further, the Fund has applied to the
SEC for another amended exemptive order, which if granted would allow PGI to
also enter into and materially amend agreements with majority-owned affiliated
sub-advisors (affiliated sub-advisors which are at least 50% owned, directly or
indirectly, by PGI or an affiliated person of PGI) (the "majority-owned order").
There is no assurance, however, that the SEC will grant the majority-owned
order.
PGI has ultimate responsibility for
the investment performance of each Fund that utilizes a Sub-Advisor due to its
responsibility to oversee Sub-Advisors and recommend their hiring, termination,
and replacement. No Fund will rely on the unaffiliated order, the wholly-owned
order, the majority-owned order, or any future order until it receives approval
from its shareholders (or, in the case of a new Fund, the Fund’s sole initial
shareholder before the Fund is available to the other purchasers).
The shareholders of the following
Funds have approved reliance on the wholly-owned order as well as the
majority-owned order (should the SEC grant that relief in the future): Dynamic
Floating Rate High Income Fund, EDGE MidCap Fund, International Small Company
Fund, Multi-Manager Equity Long/Short Fund, Origin Emerging Markets Fund, Real
Estate Debt Income Fund, SystematEx International Fund and SystematEx Large
Value Fund. The remaining Funds have approved the Fund's reliance on the
unaffiliated order.
PRICING OF
FUND SHARES
Each Fund’s shares are bought and
sold at the current share price. The share price of each class of each Fund is
calculated each day the New York Stock Exchange (“NYSE”) is open (share prices
are not calculated on the days on which the NYSE is closed for trading,
generally New Year’s Day, Martin Luther King, Jr. Day, Washington’s
Birthday/ Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas). The share price is determined as of the
close of business of the NYSE (normally 3:00 p.m. Central Time). When
an order to buy or sell shares is received, the share price used to fill the
order is the next price we calculate after we receive the order (in proper form)
at our transaction processing center in Canton, Massachusetts. To process your
transaction (purchase, redemption, or exchange) on the day we receive it, we
must receive the order (with complete information):
|
|
• |
on a day that the NYSE is open
and |
|
|
• |
before the close of trading on
the NYSE (normally 3:00 p.m. Central
Time). |
Orders received after the close of
the NYSE or on days that the NYSE is not open will be processed on the next day
that the NYSE is open for normal trading. The Funds will not treat an intraday
unscheduled disruption in NYSE trading as a closure of the NYSE and will price
its shares as of 3:00 p.m. Central Time, if the particular disruption directly
affects only the NYSE.
For all classes (except Class S), if
we receive an application or purchase request for a new mutual fund account or
subsequent purchase into an existing account that is accompanied by a check and
the application or purchase request does not contain complete information, we
may hold the application (and check) for up to two business days while we
attempt to obtain the necessary information. If we receive the necessary
information within two business days, we will process the order using the next
share price calculated. If we do not receive the information within two business
days, we will return the application and check to you.
For all Funds, the share price is
calculated by:
|
|
• |
taking the current market
value of the total assets of the Fund |
|
|
• |
subtracting liabilities of the
Fund |
|
|
• |
dividing the remainder
proportionately into the classes of the
Fund |
|
|
• |
subtracting the liability of
each class |
|
|
• |
dividing the remainder by the
total number of shares outstanding for that
class. |
With respect to any portion of a
Fund’s assets invested in other registered investment companies, that portion of
the Account's NAV is calculated based on the price (NAV or market, as
applicable) of such other registered investment companies.
Notes:
|
|
• |
If market quotations are not
readily available for a security owned by a Fund, its fair value is
determined using a policy adopted by the Directors. Fair valuation pricing
is subjective and creates the possibility that the fair value determined
for a security may differ materially from the value that could be realized
upon the sale of the security. |
|
|
• |
A Fund's securities may be
traded on foreign securities markets that generally complete trading at
various times during the day before the close of the NYSE. Foreign
securities and currencies are converted to U.S. dollars using the exchange
rate in effect at the close of the NYSE. Securities traded outside of the
Western Hemisphere are valued using a fair value policy adopted by the
Fund. These fair valuation procedures are intended to discourage
shareholders from investing in the Fund for the purpose of engaging in
market timing or arbitrage transactions. |
|
|
• |
The trading of foreign
securities generally or in a particular country or countries may not take
place on all days the NYSE is open, or may trade on days the NYSE is
closed. Thus, the value of the foreign securities held by the Fund may
change on days when shareholders are unable to purchase or redeem
shares. |
|
|
• |
Certain securities issued by
companies in emerging market countries may have more than one quoted
valuation at any point in time. These may be referred to as local price
and premium price. The premium price is often a negotiated price that may
not consistently represent a price at which a specific transaction can be
effected. The Fund has a policy to value such securities at a price at
which the Advisor expects the securities may be
sold. |
CONTACT PRINCIPAL
FUNDS, INC.
Contact information for Principal
Funds, Inc. (“Principal Funds”) is as follows:
Mailing Addresses:
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Regular Mail |
Overnight
Mail |
Principal
Funds |
Principal
Funds |
P.O. Box 8024 |
30 Dan Road |
Boston, MA
02266-8024 |
Canton, MA
02021-2809 |
You may speak with a Client
Relations Specialist by calling 1-800-222-5852, between 7:00 a.m. and
7:00 p.m. Central Time on any day that the NYSE is open.
To obtain Automated Clearing House
(“ACH”) or wire instructions, please contact a Client Relations
Specialist.
For additional information about
Principal Funds, Inc., go to www.principalfunds.com.
PURCHASE OF FUND
SHARES
Principal Funds, Inc. offers funds
in multiple share classes: A, C, J, Institutional, R-1, R-2, R-3, R-4, R-5,
R-6, and S. Funds available in multiple share classes have the same
investments, but differing expenses. Classes A, C, J, Institutional, R-1, R-2,
R-3, R-4, R-5, R-6, and S shares are available in this prospectus.
The Fund reserves the right to
refuse or cancel any purchase orders, including those by exchange, for any
reason. For example, the Fund does not intend to permit market timing because
short-term or other excessive trading into and out of the Funds may harm
performance by disrupting portfolio management strategies and by increasing
expenses. Accordingly, the Fund may reject any purchase orders from market
timers or investors that, in PGI's opinion, may be disruptive to the Fund. For
these purposes, PGI may consider an investor’s trading history in the Fund or
other Funds sponsored by Principal Life and accounts under common ownership or
control.
PGI may recommend to the Board, and
the Board may elect, to close certain funds or share classes to new investors or
to close certain funds or share classes to new and existing
investors.
Principal Funds will not issue
certificates for shares.
No salesperson, broker-dealer or
other person is authorized to give information or make representations about a
Fund other than those contained in this Prospectus. Information or
representations not contained in this prospectus may not be relied upon as
having been provided or made by Principal Funds, a Fund, PGI, any Sub-Advisor,
or Principal Funds Distributor, Inc.
Small-MidCap
Dividend Income Fund
For retail investors (i.e.,
non-employer sponsored retirement plan investors), effective as of the close of
the New York Stock Exchange on December 1, 2016, and for employer-sponsored
retirement plan investors, effective as of the close of the New York Stock
Exchange on January 6, 2017, the Small-MidCap Dividend Income Fund (the “Fund”)
will no longer be available for purchases from new investors except in limited
circumstances.
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Shareholders, including those
in omnibus accounts, who own shares of the Fund as of December 1, 2016
(for retail investors, i.e., non-employer sponsored retirement plan
investors) or January 6, 2017, (for employer sponsored retirement plan and
IRA investors), may continue to make purchases, exchanges, and dividend or
capital gains reinvestment in existing
accounts. |
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Registered Investment Advisor
(RIA) and bank trust firms that have an investment allocation to the
Small-MidCap Dividend Income Strategy (i.e. investments in the same
strategy used in collective investment trust, insurance separate accounts,
or separately managed accounts) in a fee-based, wrap or advisory account,
may add new clients, or purchase shares in the Fund. The Fund will not be
available to new RIA and bank trust
firms. |
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Shareholders through accounts
at private banks may continue to purchase shares and exchange into the
Fund. Private Banks that have an investment allocation to the Small-MidCap
Dividend Income Strategy may add new clients to the Fund. The Fund will
not be available to private bank or private bank platforms not already
investing in the Small-MidCap Dividend Income
Strategy. |
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Shareholders in broker/dealer
wrap or fee-based programs that have an investment allocation to the Fund
may continue to purchase shares and exchange into the Fund. Existing
broker/dealer wrap or fee-based programs may add new
participants. |
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Shareholders in certain types
of retirement plans (including 401(k)s, SEPs, SIMPLEs, 403(b)s, etc.) may
continue to purchase shares and exchange into the Fund. New participants
in these plans may elect to purchase shares of the
Fund. |
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Retirement plans in transition
as of the closure date will have until January 6, 2017, to fund any new
accounts in the Fund. |
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Shareholders within brokerage
accounts may continue to purchase shares of the Fund; however, new
brokerage accounts will not be permitted to begin investing in the Fund
after December 1, 2016. |
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529 plans that include the
Fund within their investment options may continue to purchase shares and
exchange into the Fund. |
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Investors who have a direct
investment in the Small-MidCap Dividend Income Strategy may, subject to
the approval of the Distributor, purchase shares in the
Fund. |
At the sole discretion of the
Distributor, the Fund may permit certain types of investors to open new
accounts, impose further restrictions on purchases, or reject any purchase
orders, all without prior notice.
Dynamic
Floating Rate High Income Fund
Shares of the Fund are no longer
available for purchase by new investors. Pursuant to the Plan of Liquidation and
Termination approved by the Fund’s Board, all outstanding shares will be
redeemed at net asset value, proceeds will be sent to shareholders of record,
and the Fund will discontinue its operations on the Liquidation Date, which date
will be, but has not yet been, determined by the Fund's officers.
Procedures for
Opening an Account
Classes
A and C Shares
Shares of the Funds are generally
purchased through Financial Professionals. Financial Professionals may establish
shareholder accounts according to their procedures or they may establish
shareholder accounts directly with the Fund by visiting our website to obtain
the appropriate forms.
Your Financial Professional can help
you buy shares of the Funds by mail, through bank wire, direct deposit, or
Automatic Investment Plan (“AIP”). No wires are accepted on days when the NYSE
is closed or when the Federal Reserve is closed (because the bank that would
receive your wire is closed). An investment in the Fund may be held in various
types of accounts, including individual, joint ownership, trust, and business
accounts. The Fund also offers a range of custodial accounts for those who wish
to invest for retirement and/or education expenses. Prospective shareholders
should consult with their Financial Professional before making decisions about
the account and type of investment that are appropriate for them.
Class J
Shares
Class J shares are currently
available through registered representatives of:
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•
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Principal Securities, Inc.
("PSI") who are also employees of Principal Life distribution channels
used to directly market certain products and services of subsidiaries of
Principal Financial Group, Inc. as well as provide retirement plan
services and education on topics such as investing and retirement. These
PSI registered representatives are with Principal Connection (part of
Principal Bank), and |
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Selected broker-dealers that
have entered into a selling agreement to offer Class J
shares. |
Class J shares are also available
through an online IRA rollover tool on www.principalfunds.com.
For more information about Class J
shares of the Funds, please call Principal Connection at 1-800-243-4380,
extension 704.
Institutional
Class and Classes R-1, R-2, R-3, R-4, R-5, R-6, and S Shares
Shares may be purchased from
Principal Funds Distributor, Inc. (“PFD” or the "Distributor”). The Distributor
is an affiliate of Principal Life Insurance Company and with it are subsidiaries
of Principal Financial Group, Inc. and members of Principal®. There are no sales charges on
Institutional Class or Classes R-1, R-2, R-3, R-4, R-5, R-6, and S shares of the
Fund.
Shareholder accounts for the Fund
are maintained under an open account system. Under this system, an account is
opened and maintained for each investor (generally an omnibus account, plan
level account, or institutional investor). Each investment is confirmed by
sending the investor a statement of account showing the current purchase or sale
and the total number of shares owned. The statement of account is treated by the
Fund as evidence of ownership of Fund shares. Contact your Financial
Professional for additional information on how to buy shares.
Verification of
Identity
To help the government fight the
funding of terrorism and money laundering activities, Federal law requires
financial institutions to obtain, verify, and record information that identifies
each person who opens an account. When you open an account, we (or your
Financial Professional) may ask for your name, address, date of birth, and other
information that will allow us (or your Financial Professional) to verify your
identity. We (or your Financial Professional) may also ask to see your driver’s
license or other identifying documents.
If concerns arise with verification
of your identity, no transactions, other than redemptions, will be permitted
while we attempt to reconcile the concerns. If we are unable to verify your
identity on a timely basis, we may close your account or take such other action
as we deem appropriate.
Principal Funds will not establish
accounts with foreign addresses. If an existing shareholder with a
U.S. address moves to a foreign location and updates the address on the
shareholder’s account, we are unable to process any purchases or exchanges on
that account. Principal Funds will not establish accounts that are for the
benefit of a business/organization that is illegal under Federal and/or state
law (such as a marijuana clinic) or a person who owns or receives income from
such an entity or whose source of funds is illegal.
Eligible
Purchasers
You must be an eligible purchaser
for a particular share class to buy shares of a Fund available in that share
class. PGI reserves the right to broaden or limit the designation of eligible
purchasers. Not all of the Funds are offered in every state. Please check with
your Financial Professional or our home office for state
availability.
Institutional
Class and Classes R-1, R-2, R-3, R-4, R-5, and R-6 Shares
Some eligible purchasers (as listed
below) purchase shares through plans or other intermediaries; such plans or
intermediaries may impose fees in addition to those charged by the Funds. The
services or share classes available to you may vary depending upon how you wish
to purchase shares of the Fund. Each investor's financial considerations are
different. You should speak with your Financial Professional to help you decide
which share class is best for you.
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Eligible
purchasers currently include, but are not limited to: |
Institutional |
R-1 |
R-2 |
R-3 |
R-4 |
R-5 |
R-6 |
retirement and pension plans to
which Principal Life Insurance Company (“Principal Life”) provides
recordkeeping services |
X |
X |
X |
X |
X |
X |
X |
separate accounts of Principal
Life |
X |
X |
X |
X |
X |
X |
X |
Principal Life or any of its
subsidiaries or affiliates |
X |
X |
X |
X |
X |
X |
X |
any fund distributed by PFD if
the fund seeks to achieve its investment objective by investing primarily
in shares of mutual funds |
X |
X |
X |
X |
X |
X |
X |
clients of Principal Global
Investors, LLC |
X |
X |
X |
X |
X |
X |
X |
certain employer sponsored
retirement plans with plan level omnibus accounts |
X |
X |
X |
X |
X |
X |
X |
certain pension plans and
employee benefit plans |
X |
X |
X |
X |
X |
X |
X |
certain retirement account
investment vehicles administered by foreign or domestic pension
plans |
X |
X |
X |
X |
X |
X |
X |
an investor who buys shares
through an omnibus account with certain intermediaries, such as a
broker-dealer, bank, or other financial institution, pursuant to a written
agreement between the intermediary and PFD or its
affiliate |
X |
X |
X |
X |
X |
X |
X |
certain retirement plan clients
that have an organization, approved by Principal Life, for purposes of
providing plan recordkeeping services |
X |
X |
X |
X |
X |
X |
X |
investors investing at least
$1,000,000 per fund |
X |
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X |
sponsors, recordkeepers, or
administrators of wrap account, mutual fund asset allocation, or fee-based
programs or participants in those programs |
X |
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X |
certain institutional investors
that provide recordkeeping for retirement plans or other employee benefit
plans |
X |
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X |
institutional clients that
Principal Life has approved for purposes of providing plan
recordkeeping |
X |
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X |
institutional investors
investing for their own account, including banks, trust companies,
financial intermediaries, corporations, endowments and
foundations |
X |
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X |
collective trust funds, fund of
funds or other pooled investment vehicles, and entities acting for the
account of a public entity |
X |
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X |
certain clients of a private
banking division pursuant to a written agreement between the bank and PFD
or its affiliate |
X |
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X |
the portfolio manager of any
adviser to the fund |
X |
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X |
certain institutional investors
with special arrangements (for example, insurance companies, employee
benefit plans, retirement plans, and Section 529 Plans, among
others) |
X |
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X |
retirement plans and IRAs
investing through a retirement marketplace enabled by state
legislation |
X |
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Class
R-1 and Class R-2 Shares
For retirement plan investors,
effective as of the close of the New York Stock Exchange on January 31, 2017,
Class R-1 and Class R-2 shares will no longer be available for purchase from new
retirement plans except in limited circumstances. However, if a retirement plan
currently offers Class R-1 or Class R-2, such plans will be allowed to continue
to invest in these share classes through: Funds they currently offer in their
plans or Funds they add to their plans.
Class S
Shares
Eligibility to invest in the Capital
Securities Fund is limited to certain wrap-fee program accounts. Only wrap-fee
program accounts as to which Spectrum and/or Principal Global Investors, LLC
("PGI") have an agreement with the wrap-fee program’s sponsor (“Sponsor”) or the
wrap account owner to provide investment advisory or sub-advisory services
(either directly or by providing a model investment portfolio created and
maintained by Spectrum and/or PGI to the Sponsor or one or more
Sponsor-designated investment managers) ("Eligible Wrap Accounts") are eligible
to purchase shares of the Fund. References to Wrap Fee Adviser shall mean
Spectrum and/or PGI in their role providing such services to Eligible Wrap
Accounts.
A client agreement with the Sponsor
to open an account in the Sponsor’s wrap-fee program typically may be obtained
by contacting the Sponsor or your financial advisor. Purchase and sale decisions
regarding Fund shares for your wrap account ordinarily will be made by the Wrap
Fee Adviser, the Sponsor or a Sponsor-designated investment manager, depending
on the particular wrap-fee program in which your wrap account participates. If
your wrap-fee account’s use of the Wrap Fee Adviser’s investment style is
terminated by you, the Sponsor or the Wrap Fee Adviser, your wrap account will
cease to be an Eligible Wrap Account and you will be required to redeem all your
shares of the Capital Securities Fund. Each Eligible Wrap Account, by purchasing
shares, agrees to any such redemption.
Minimum
Investments
Classes
A, C, and J Shares
Principal Funds has a minimum
initial investment amount of $1,000 and a minimum subsequent investment amount
of $100. Initial and subsequent investment minimums apply on a per-fund basis
for each Fund or Portfolio in which a shareholder invests.
Shareholders must meet the minimum
initial investment amount of $1,000 unless an Automatic Investment Plan ("AIP")
is established. With an AIP, the minimum initial investment is $100. Accounts or
automatic payroll deduction plans established with an AIP that do not meet the
minimum initial investment must maintain subsequent automatic investments that
total at least $1,200 annually.
Minimum initial and subsequent
investments may be waived on accounts set up for: certain employee benefit
plans; retirement plans qualified under Internal Revenue Code
Section 401(a); payroll deduction plans submitting contributions in an
electronic format devised and/or approved by the Fund; and purchases through an
omnibus account with a broker-dealer, investment advisor, or other financial
institution.
Institutional
Class and Classes R-1, R-2, R-3, R-4, R-5, R-6, and S Shares
There are no minimum initial or
subsequent investment requirements for an investor who otherwise qualifies as an
eligible purchaser.
Payment
Classes
A, C, and J Shares
Payments are to be made via personal
or financial institution check (for example, a bank or cashier’s check). We
consider your purchase of Fund shares by check to be your authorization to make
an automated clearing house (“ACH”) debit entry to your account. We reserve the
right to refuse any payment that we feel presents a fraud or money laundering
risk. Examples of the types of payments we will not accept are cash, starter
checks, money orders, travelers’ checks, credit card checks, and foreign
checks.
The Funds may, in their discretion
and under certain limited circumstances, accept securities as payment for Fund
shares at the applicable net asset value (“‘NAV”). For federal income tax
purposes, a purchase of shares with securities will be treated as a sale or
exchange of such securities on which the investor will generally realize a
taxable gain or loss. Each Fund will value securities used to purchase its
shares using the same method the Fund uses to value its portfolio securities as
described in this prospectus.
You may reinvest your redemption
proceeds, dividend payment or capital gain distribution without an initial sales
charge or contingent deferred sales charge, in the same share class of any other
Fund of Principal Funds within 90 days of the date of the redemption. To
purchase the shares without a sales charge (initial or contingent deferred) as
described in this section, the shareholder must notify Principal Funds at the
time of reinvestment that the shareholder is reinvesting proceeds within 90 days
of the date of redemption. The original redemption will be considered a sale for
federal (and state) income tax purposes even if the proceeds are reinvested
within 90 days. If a loss is realized on the sale, the reinvestment may be
subject to the “wash sale” rules resulting in the postponement of the
recognition of the loss for tax purposes.
Your Financial Professional can help
you make a Direct Deposit from your paycheck (if your employer approves) or from
a government allotment. Direct Deposit allows you to deposit automatically all
or part of your paycheck (or government allotment) to your Principal Funds
account(s). You can request a Direct Deposit Authorization Form to give to your
employer or the governmental agency (either of which may charge a fee for this
service). Shares will be purchased on the day the ACH notification is received
by the transfer agent’s bank. On days when the NYSE is closed, but the bank
receiving the ACH notification is open, your purchase will be priced at the next
calculated share price.
Your Financial Professional can help
you establish an Automatic Investment Plan ("AIP"). You may make regular monthly
investments with automatic deductions from your bank or other financial
institution account. You select the day of the month the deduction is to be made
(if none is selected, the investment will be made on the 15th of the month). If that date is a
non-trading day, we will process the deduction on the next trading day. If the
next trading day falls in the next month or year, we will process the deduction
on the day before your selected day.
Institutional
Class and Classes R-1, R-2, R-3, R-4, R-5, R-6, and S Shares
Payments are generally to be made
through your plan or intermediary. We reserve the right to refuse any payment
that we feel presents a fraud or money laundering risk. Examples of the types of
payments we will not accept are cash, starter checks, money orders, travelers’
checks, credit card checks, and foreign checks.
For Institutional Class shareholders
investing through a retirement marketplace enabled by state legislation, please
contact Principal Funds by calling 1-800-222-5852, between 7:00 a.m.
and 7:00 p.m. Central Time on any day that the NYSE is open.
Automatic
Conversion of Class C Shares
On September 12, 2018, PFI’s Board
of Directors approved a 10-year automatic conversion plan to exchange Class C
shares for Class A shares. Beginning January 22, 2019, Class C shares held for
ten years after purchase will automatically convert to Class A shares of the
same Fund. The automatic conversion will generally occur on the 22 nd
day of each month or, if the
22 nd
day is not a business day, on
the next business day (each, a “Conversion Date”). If the tenth anniversary of a
purchase of Class C shares falls on a Conversion Date, a shareholder’s Class C
shares will be automatically converted on that date. If the tenth anniversary
occurs between Conversion Dates, a shareholder’s Class C shares will be
automatically converted on the next Conversion Date after such anniversary.
Automatic conversions will be on the basis of the NAV per share, without the
imposition of any sales charge (including a CDSC), fee or other charge.
Automatic conversions of Class C shares will constitute tax-free exchanges for
federal income tax purposes.
Class C shares of a Fund acquired
through a reinvestment of dividends and distributions will convert to Class A
shares of the Fund on the Conversion Date pro rata with the converting Class C
shares of that Fund that were not acquired through reinvestment of dividends and
distributions.
Class C shares held through a
financial intermediary in certain omnibus accounts may be converted by the
financial intermediary once it is determined that the Class C shares have been
held for the required period. It is the financial intermediary’s (and not the
Fund’s) responsibility to maintain appropriate supporting records and to ensure
that the shareholder is credited with the proper holding period, and it is the
responsibility of the shareholder or their financial intermediary to determine
that the shareholder is eligible for the conversion. Please consult with your
financial intermediary if you have any questions.
REDEMPTION OF
FUND SHARES
Under normal circumstances, you may
redeem shares of any class of the Fund at any time. There is no fee for any
redemption. The Fund Board of Directors has determined that it is not necessary
to impose a fee upon the redemption of fund shares, because the Fund has adopted
transfer restrictions as described in EXCHANGE OF FUND SHARES.
The shares you redeem will have the
NAV per share that is next computed after the Fund receives and accepts your
redemption order in proper and complete form. The amount you receive will be
reduced by any applicable CDSC except as noted below; see CHOOSING A SHARE CLASS
AND THE COSTS OF INVESTING - One-Time Fee - Contingent Deferred Sales Charge
("CDSC") - CDSC
Waiver . Your redemption proceeds will
generally be sent on the next business day (a day when the NYSE is open for
normal business) following the date on which your request is received and
accepted in proper and complete form. Although you can redeem your shares at any
time, if you purchased shares by check or ACH and subsequently request a
redemption of those shares, your redemption proceeds will generally be delayed
for seven calendar days after the purchase to allow a sufficient period of time
to ensure your recent payment has been cleared by the relevant bank. To redeem
shares purchased by check or ACH within the previous seven days, the Funds
require redemption requests with respect to those shares to be submitted in
writing or by telephone, unless you contact the Fund and make an alternate
arrangement .
Under unusual circumstances,
Principal Funds may suspend redemptions, or postpone payments for more than
seven days, as permitted by federal securities law.
Under normal circumstances, the
Funds expect to meet redemption requests through holdings of cash, the sale of
investments held in cash equivalents, and/or by selling liquid index futures or
other instruments used for cash management purposes. In situations in which such
holdings are not sufficient to meet redemption requests, a Fund will typically
borrow money through the Fund’s interfund lending facility or through a bank
line-of-credit. Funds may also choose to sell portfolio assets for the purpose
of meeting such requests. Each Fund further reserves the right to distribute “in
kind” securities from the Fund’s portfolio in lieu (in whole or in part) of cash
under certain circumstances, including under stressed market conditions.
The agreement for
the above-mentioned line of credit is with BNY Mellon. The Bond Market Index and
Diversified Real Asset Funds will not be permitted to use the line of credit
because an affiliate of BNY Mellon serves as a sub-advisor for those Funds. Such
Funds expect to meet requests using the other methods outlined
above.
Classes A, C, and
J Shares
You will be charged a $10 wire fee
if you have the sale proceeds wired to your bank. It may take additional
business days for your financial institution to post this payment to your
account at that financial institution. At your request, the check will be sent
overnight (a $15 overnight fee will be deducted from your account unless other
arrangements are made).
Distributions from IRA, SEP, SIMPLE,
403(b), and SAR-SEP accounts may be taken as:
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lump sum of the entire
interest in the account, |
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partial interest in the
account, or |
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periodic payments of either a
fixed amount or an amount based on certain life expectancy
calculations. |
Tax penalties may apply to
distributions before the participant reaches age 59 ½.
Selling shares may create a gain or
a loss for federal (and state) income tax purposes. You should maintain accurate
records for use in preparing your income tax returns.
Generally, sales proceeds
are:
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payable to all owners on the
account (as shown in the account registration)
and |
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mailed to the address on the
account (if not changed within last 15 days) or sent by wire or ACH
to previously authorized U.S. bank account.
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For other payment arrangements,
please call Principal Funds. You should also call Principal Funds for special
instructions that may apply to sales from accounts:
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when an owner has
died; |
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for certain employee benefit
plans; or |
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owned by corporations,
partnerships, agents, or fiduciaries. |
Except as described above, you may
redeem shares of the Funds in any of the following ways:
By
Mail
To sell shares by mail, you
must:
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Send a letter or our
distribution form which is signed by an owner of the
account, |
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Specify the account number,
and |
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Specify the number of shares
or the dollar amount to be sold. |
If you send a letter rather than our
distribution form, the letter must be in a form acceptable to the
Fund.
By
Telephone or Website, in amounts of $100,000 or less
To sell shares by
telephone:
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The request may be made by a
shareholder or by the shareholder’s Financial
Professional. |
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The combined amount requested
from all funds to which the redemption request relates is $100,000 or
less. |
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The address on the account
must not have been changed within the last 15 days and telephone
privileges must apply to the account from which the shares are being
sold. |
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If previously authorized, wire
or ACH can be sent to a shareholder’s U.S. bank
account. |
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If our phone lines are busy or
our website is unavailable, you may need to send in a written sell
order. |
Telephone and/or Website redemption
privileges are NOT available for all account types.
Classes A, C, J,
and Institutional Shares - Systematic Withdrawal Plans
You may set up a systematic
withdrawal plan on a monthly, quarterly, semiannual, or annual basis to sell
enough shares to provide a fixed amount of money ($100 minimum amount; the
required minimum is waived to the extent necessary to meet the required minimum
distribution as defined by the Internal Revenue Code).
You can set up a systematic
withdrawal plan by:
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completing the applicable
section of the application, |
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sending us your written
instructions, |
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completing a Systematic
Withdrawal Plan Request form, or |
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calling us if you have
telephone privileges on the account (telephone privileges may not be
available for all types of accounts). |
Your systematic withdrawal plan
continues until:
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you instruct us to stop
or |
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your Fund account balance is
zero. |
When you set up the withdrawal plan,
you select which day you want the sale made (if none is selected, the sale will
be made on the 15th of the month). If the selected date is not a trading
day, the sale will take place on the preceding trading day (if that day falls in
the month or year before your selected date, the transaction will take place on
the next trading day after your selected date). If telephone privileges apply to
the account, you may change the date or amount by telephoning us. Sales made
under your systematic withdrawal plan will reduce and may eventually exhaust
your account. The Fund from which the systematic withdrawal is made makes no
recommendation as to either the number of shares or the fixed amount that you
withdraw.
Institutional
Class and Classes R-1, R-2, R-3, R-4, R-5, and R-6 Shares
You may redeem shares of the Funds
in any of the following ways:
Through
an Employer Sponsored Retirement Plan Administrator or
Record-Keeper
If you own Fund shares in an
eligible retirement or employee benefit plan, you must sell your shares through
the plan’s administrator or record-keeper.
Through
your Financial Professional
If your Fund shares are held for you
in nominee form, you must sell those shares through your intermediary or
dealer.
By
Mail
To sell shares by mail, you
must:
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• |
Send a letter or our
distribution form which is signed by an owner of the account,
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• |
Specify the account number,
and |
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• |
Specify the number of shares
or the dollar amount to be sold. |
If you send a letter rather than our
distribution form, the letter must be in a form acceptable to the
Fund.
By
Telephone
To sell shares by
telephone:
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• |
Telephone privileges must
apply to the account from which the shares are
sold. |
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• |
A shareholder or the
shareholder’s Financial Professional may request to sell shares by
telephone. |
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• |
A maximum amount (listed
below) of redemption requests will be permitted per day per account, as
the combined amount from all funds, provided the proceeds are to be sent
to a previously authorized U.S. bank
account: |
◦$10,000,000 for Institutional
Class.
◦$500,000 for Classes R-1, R-2, R-3,
R-4, R-5, and R-6.
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• |
A maximum of $500,000 of
redemption requests will be permitted per day, as the combined amount from
all funds, provided the proceeds are to be sent by check through the mail
to the address on the account and such address must not have changed
within the last 15 days. |
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• |
If our telephone lines are
busy, you may need to send in a written sell
order. |
Class S
Shares
The Eligible Wrap Account may redeem
shares of the Fund upon request. If you cease to be an Eligible Purchaser, you
will be required to redeem all your shares of the Capital Securities Fund. Each
Eligible Wrap Account, by purchasing shares, agrees to any such redemption. An
Eligible Wrap Account may redeem shares through its intermediary.
Distributions in
Kind
Payment for shares of the Funds
tendered for redemption is ordinarily made by check. However, the Funds may
determine that it would be detrimental to the remaining shareholders of a Fund
to make payment of a redemption order wholly or partly in cash. Under certain
circumstances, therefore, each of the Funds may pay the redemption proceeds in
whole or in part by a distribution of “in kind” of securities from the Fund’s
portfolio in lieu of cash. If a Fund pays the redemption proceeds in kind, the
redeeming shareholder might incur brokerage or other costs in selling the
securities for cash. In addition, the securities received will be subject to
market risk until sold. Typically, such in kind redemptions would be distributed
pro rata. Each Fund will value securities used to pay redemptions in kind using
the same method the Fund uses to value its portfolio securities as described in
this prospectus.
EXCHANGE OF FUND
SHARES
An exchange between Funds is a
redemption of shares of one Fund and a concurrent purchase of shares in another
Fund with the redemption proceeds. All exchanges completed on the same day are
considered a single exchange for purposes of the exchange limitations described
below. To prevent excessive exchanges, and under other
circumstances where the
Fund Board of Directors or PGI believes it is in the best interests of the
Fund, the Fund reserves the right to revise or terminate this exchange
privilege, limit the amount or further limit the number of exchanges, reject any
exchange or close an account.
Classes A, C, and
J Shares
Your shares in the Funds (except
Money Market) may be exchanged without a sales charge or CDSC for the same class
of any other Principal Funds. However, the original purchase date of the shares
from which an exchange is made is used to determine if newly acquired shares are
subject to a CDSC when they are sold. The Fund reserves the right to revise or
terminate the exchange privilege at any time.
You may exchange shares
by:
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• |
sending a written request to
Principal Funds, |
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• |
calling us, if you have
telephone privileges on the account. |
Exchanges
from Money Market Fund
Class A shares of Money Market
Fund may be exchanged into:
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• |
Class A shares of other
Funds. |
|
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• |
If Money Market Fund shares
were acquired by direct purchase, a sales charge will be imposed on the
exchange into other Class A shares. |
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• |
If Money Market Fund shares
were acquired by (1) exchange from other Funds, (2) conversion
of Class B shares, or (3) reinvestment of dividends earned on
Class A shares that were acquired through exchange, no sales charge
will be imposed on the exchange into other Class A
shares. |
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• |
Class C shares of other
Funds - subject to the applicable
CDSC. |
Automatic
Exchange Election
This election authorizes an exchange
from one Fund of Principal Funds to another Fund of Principal Funds on a
monthly, quarterly, semiannual, or annual basis. You can set up an automatic
exchange by:
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completing the Automatic
Exchange Election section of the
application, |
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calling us if telephone
privileges apply to the account from which the exchange is to be
made, |
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sending us your written
instructions, or |
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• |
completing an Automatic
Exchange Election form. |
Your automatic exchange continues
until:
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• |
you instruct us to stop (by
calling us if telephone privileges apply to the account or sending us your
written instructions) or |
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• |
your Fund account balance of
the account from which shares are redeemed is
zero. |
You may specify the day of the
exchange (if none is selected, the exchange will be made on the 15th of the month). If the selected
day is not a trading day, the sale will take place on the preceding trading day
(if that day falls in the month or year before your selected date, the
transaction will take place on the next trading day after your selected date).
If telephone privileges apply to the account, you may change the date or amount
by telephoning us.
General
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• |
An exchange by any joint owner
is binding on all joint owners. |
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• |
If you do not have an existing
account in the Fund to which the exchange is being made, a new account is
established. The new account has the same owner(s), dividend and capital
gain options and dealer of record as the account from which the shares are
being exchanged. |
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• |
All exchanges are subject to
the minimum investment and eligibility requirements of the Fund being
acquired. |
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• |
You may acquire shares of a
Fund only if its shares are legally offered in your state of
residence. |
When money is exchanged or
transferred from one account registration or tax identification number to
another, the account holder is relinquishing his or her rights to the money.
Therefore, exchanges and transfers can only be accepted by telephone if the
exchange (transfer) is between:
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• |
accounts with identical
ownership, |
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• |
an account with a single owner
to one with joint ownership if the owner of the single owner account is
also an owner of the account with joint
ownership, |
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• |
a single owner to a Uniform
Transfers to Minors Act (“UTMA”) account if the owner of the single owner
account is also the custodian on the UTMA account,
or |
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• |
a single or jointly owned
account to an IRA account to fund the yearly IRA contribution of the owner
(or one of the owners in the case of a jointly owned
account). |
The exchange is treated as a sale of
shares for federal (and state) income tax purposes and may result in a capital
gain or loss.
Fund shares used to fund an employee
benefit plan may be exchanged only for shares of other Funds available to the
employee benefit plan. Such an exchange must be made by following the procedures
provided in the employee benefit plan and the written service
agreement.Institutional
Class and Classes R-1, R-2, R-3, R-4, R-5, and R-6 Shares
A shareholder, which may include a
beneficial owner of shares held in nominee name or a participant in a
participant-directed employee benefit plan, may exchange Fund shares under
certain circumstances. In addition to any restrictions an intermediary (which
may include, without limitation, an employee retirement plan or other employee
benefit plan, plan administrator, plan record keeper, or managed account
provider) imposes, Fund shares may be exchanged, without charge, for shares of
the same share class of any other Fund of the Principal Funds, provided
that:
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• |
the shareholder has not
exchanged shares of the Fund within 30 days preceding the exchange, unless
the shareholder is exchanging into the Money Market
Fund, |
|
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• |
the share class of such other
Fund is available through the
intermediary, |
|
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• |
the share class of such other
Fund is available in the shareholder’s state of residence,
and |
|
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• |
with respect to shares
purchased through an intermediary that is willing and able to impose the
30-day exchange or repurchase restriction described below, the shareholder
has not exchanged shares of the Fund within 30 days preceding the
exchange, unless the shareholder is exchanging into the Money Market
Fund. |
With respect to shares purchased
through an intermediary that is willing and able to impose a 30-day exchange or
repurchase restriction, an order to purchase shares of any Fund, except shares
of the Money Market Fund, will be rejected if the shareholder redeemed shares
from that Fund within the preceding 30-day period. The 30-day exchange or
purchase restriction does not apply to exchanges or purchases made on a
scheduled basis such as scheduled periodic portfolio rebalancing transactions or
to transactions by managers of funds of funds in shares of the underlying
Funds.
If Fund shares are purchased through
an intermediary that is unable or unwilling to impose the 30-day exchange or
repurchase restriction described above, Fund management may waive this
restriction based on:
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• |
exchange and repurchase
limitations that the intermediary is able to impose if, in management’s
judgment, such limitations are reasonably likely to prevent excessive
trading in Fund shares; or |
|
|
• |
the implementation of other
transaction monitoring management believes is reasonably likely to
identify and prevent excessive trading in Fund
shares. |
The Funds’ transfer agent employs
transaction monitoring that management believes is reasonably likely to identify
and prevent excessive trading in Fund shares. The 30-day exchange or repurchase
restriction described above is not imposed with respect to shares held directly
with the Funds’ transfer agent. However, such shares may be purchased through an
intermediary that imposes such an exchange or repurchase
restriction.
Class S
Shares
Class S shares of the Capital
Securities Fund are not subject to exchange.
DIVIDENDS AND
DISTRIBUTIONS
Dividends are based on estimates of
income, expenses, and shareholder activity for the Fund. Actual income,
expenses, and shareholder activity may differ from estimates; consequently,
differences, if any, will be included in the calculation of subsequent
dividends. The Funds pay their net investment income to record date
shareholders; this record date is the business day before the payment date. The
payment schedule is as follows:
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The Opportunistic Municipal
Fund declares dividends of its daily net investment income each day its
shares are priced. The Fund pays out its accumulated declared dividends
monthly. |
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• |
The Capital Securities,
Dynamic Floating Rate High Income, Preferred Securities, and Real Estate
Debt Income Funds pay their net investment income
monthly. |
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• |
The Small-MidCap Dividend
Income Fund pays its net investment income quarterly in March, June,
September, and December. |
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|
• |
The Blue Chip, Bond Market
Index, Diversified Real Asset, EDGE Midcap, Global Multi-Strategy, Global
Opportunities, International Equity Index, International Small Company,
Multi-Manager Equity Long/Short, Origin Emerging Markets, SystematEx
International, and SystematEx Large Value Funds pay their net investment
income annually in December. |
For more details on the payment
schedule, go to: www.principalfunds.com/taxcenter.
Net realized capital gains, if any,
are distributed annually in December. Payments are made to shareholders of
record on the business day before the payable date. Capital gains may be taxable
at different rates, depending on the length of time that the Fund holds its
assets.
For all classes (except Class S),
dividend and capital gains distributions will be reinvested, without a sales
charge, in shares of the Fund from which the distribution is paid; however, you
may authorize (on your application or at a later time) the distribution to
be:
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|
• |
invested in shares of another
of the Principal Funds without a sales charge (distributions of a Fund may
be directed only to one receiving Fund);
or |
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• |
paid in cash, if the amount is
$10 or more. |
All income dividend and capital
gains distributions, if any, on a Fund's Class S shares are paid out in
cash.
Generally, for federal income tax
purposes, Fund distributions are taxable as ordinary income, except that any
distributions of long-term capital gains will be taxed as such, regardless of
how long Fund shares have been held. Special tax rules apply to Fund
distributions to Individual Retirement Accounts and other retirement plans. A
tax advisor should be consulted to determine the suitability of the Fund as an
investment by such a plan and the tax treatment of distributions by the Fund. A
tax advisor can also provide information on the potential impact of possible
foreign, state, and local taxes. A Fund’s investments in foreign securities may
be subject to foreign withholding taxes. In that case, the Fund’s yield on those
securities would be decreased.
To the extent that distributions the
Fund pays are derived from a source other than net income (such as a return of
capital), you will receive a notice disclosing the source of such distributions.
Furthermore, such notice will be posted monthly on our website at
www.principalfunds.com/sources-of-distribution. You may request a copy of all
such notices, free of charge, by telephoning 1-800-222-5852. The amounts and
sources of distributions included in such notices are estimates only and you
should not rely upon them for purposes of reporting income taxes. The Fund will
send shareholders a Form 1099-DIV for the calendar year that will tell
shareholders how to report these distributions for federal income tax
purposes.
A Fund’s payment of income dividends
and capital gains has the effect of reducing the share price by the amount of
the payment. Distributions from a Fund, whether received in cash or reinvested
in additional shares, may be subject to federal (and state) income tax. For
these reasons, buying shares of a Fund shortly before it makes a distribution
may be disadvantageous to you.
FREQUENT
PURCHASES AND REDEMPTIONS
The Funds are not designed for, and
do not knowingly accommodate, frequent purchases and redemptions of fund shares.
If you intend to trade frequently and/or use market timing investment
strategies, you should not purchase these Funds.
Frequent purchases and redemptions
pose a risk to the Funds because they may:
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Disrupt the management of the
Funds by: |
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• |
forcing the Funds to hold
short-term (liquid) assets rather than investing for long-term growth,
which results in lost investment opportunities for the Funds;
and |
|
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• |
causing unplanned portfolio
turnover; |
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• |
Hurt the portfolio performance
of the Funds; and |
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• |
Increase expenses of the Funds
due to: |
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• |
increased broker-dealer
commissions and |
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• |
increased recordkeeping and
related costs. |
Certain Funds may be at greater risk
of harm due to frequent purchases and redemptions. For example, those Funds that
invest in foreign securities may appeal to investors attempting to take
advantage of time-zone arbitrage. The Funds have adopted procedures to “fair
value” foreign securities owned by the Funds each day to discourage these market
timing transactions in shares of the Funds.
For all Classes (except Class S),
the Board of Directors of the Funds has also adopted policies and procedures
with respect to frequent purchases and redemptions of shares of the Funds. The
Funds monitor shareholder trading activity to identify and take action against
abuses. When we do identify abusive trading, we will apply our policies and
procedures in a fair and uniform manner. While our policies and procedures are
designed to identify and protect against abusive trading practices, there can be
no certainty that we will identify and prevent abusive trading in all instances.
If we are not able to identify such excessive trading practices, the Funds and
their shareholders may be
harmed. The harm of undetected
excessive trading in shares of the underlying funds in which the funds of funds
invest could flow through to the funds of funds as they would for any fund
shareholder.If we, or a Fund, deem abusive trading practices to be occurring, we
will take action that may include, but is not limited to:
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|
• |
Rejecting exchange
instructions from the shareholder or other person authorized by the
shareholder to direct exchanges; |
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Restricting submission of
exchange requests by, for example, allowing exchange requests to be
submitted by 1st class U.S. mail
only and disallowing requests made by facsimile, overnight courier,
telephone or via the internet; |
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Limiting the number of
exchanges during a year; and |
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• |
Taking such other action as
directed by the Fund. |
The Funds have reserved the right to
accept or reject, without prior written notice, any exchange requests. In some
instances, an exchange may be completed before a determination of abusive
trading. In those instances, we will reverse the exchange and return the account
holdings to the positions held before the exchange. We will give the shareholder
written notice in this instance.
Institutional
Class and Classes R-1, R-2, R-3, R-4, R-5, and R-6 Shares
In addition to taking any of the
foregoing actions, if we, or a Fund, deem abusive trading practices to be
occurring, we may require a holding period of a minimum of 30 days before
permitting exchanges among the Funds where there is evidence of at least one
round-trip exchange (exchange or redemption of shares that were purchased within
30 days of the exchange/redemption).
The Funds have adopted an exchange
frequency restriction for these classes, described above in “Exchange of
Fund Shares” to limit excessive trading in fund shares.
Class S
Shares
After considering various factors,
including the intended use of the Capital Securities Fund as an investment
vehicle for a specific purpose, the limited availability of Fund shares to
investors, and the anticipated manner in which purchase and redemption decisions
will be made and implemented, the Fund’s Board has determined that it is not
necessary to impose a redemption fee or excessive trading restrictions to
implement the Fund’s policy of not knowingly accommodating excessive trading in
Fund shares.
TAX
CONSIDERATIONS
It is a policy of the Funds to make
distributions of substantially all of their respective investment income and any
net realized capital gains. Shareholders are responsible for federal income tax
(and any other taxes, including state and local income taxes, if applicable) on
dividends and capital gains distributions whether such dividends or
distributions are paid in cash or (except for Class S shares) are reinvested in
additional shares. Special tax rules apply to distributions from IRAs and other
retirement accounts. You should consult a tax advisor to determine the
suitability of the Fund as an investment by such a plan and the tax treatment of
Fund distributions.
Generally, dividends paid by the
Funds from interest, dividends, or net short-term capital gains will be taxed as
ordinary income. Distributions properly designated by the Fund as deriving from
net gains on securities held for more than one year are taxable as such
(generally at a 15% tax rate for individuals and taxable trusts, some
individuals and taxable trusts will be subject to a 20% tax rate), regardless of
how long you have held your shares. Distributions of investment income properly
designated by the Fund as derived from “qualified dividend
income” will be taxed at the rates
applicable to long-term capital gains. Some high-income individuals and taxable
trusts will be subject to a Medicare 3.8% tax on unearned net investment
income.
Because of tax law requirements, you
must provide the Fund with an accurate and certified taxpayer identification
number (for individuals, generally a Social Security number) to avoid
“back-up” withholding, which is imposed at a
rate of 24%. The Fund is required in certain cases to withhold and remit to the
U.S. Treasury 24% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder who has provided
either an incorrect tax identification number or no number at all, who is
subject to backup withholding by the Internal Revenue Service for failure to
report the receipt of interest or dividend income properly, or who has failed to
certify to the Fund that it is not subject to backup withholding or that it is a
corporation or other "exempt recipient."
A shareholder recognizes gain or
loss on the sale or redemption of shares of the Fund in an amount equal to the
difference between the proceeds of the sales or redemption and the shareholder's
adjusted tax basis in the shares. All or a portion of any loss so recognized may
be disallowed if the shareholder purchases other shares of the Fund within 30
days before or after the sale or redemption. In general, any gain or loss
arising from (or treated as arising from) the sale or redemption of shares of
the Fund is considered capital gain or loss (long-term capital gain or loss if
the shares were held for longer than one year). However, any capital loss
arising from the sales or redemption of shares held for six months or less is
disallowed to the extent of the amount of exempt-interest dividends received on
such shares and (to the extent not disallowed) is treated as a long-term capital
loss to the extent of the amount of capital gain dividends received on such
shares. Capital losses in any year are deductible only to the extent of capital
gains plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income
under current rules.
If a shareholder incurs a sales
charge in acquiring shares of the Fund, disposes of such shares less than 91
days after they are acquired, and subsequently acquires shares of the Fund or
another fund at a reduced sales charge pursuant to a right to reinvest at such
reduced sales charge acquired in connection with the acquisition of the shares
disposed of, then the sales charge on the shares disposed of (to the extent of
the reduction in the sales charge on the shares subsequently acquired) shall not
be taken into account in determining gain or loss on the shares disposed of but
shall be treated as incurred on the acquisition of the shares subsequently
acquired.
Any gain resulting from the
redemption or exchange (except for Class S shares, which are not subject to
exchange), of your shares will generally also be subject to tax. For shares
acquired after January 1, 2012, you will need to select a cost basis method to
be used to calculate your reported gains and losses prior to or at the time of
any redemption or exchange (except for Class S shares, which are not subject to
exchange). If you do not select a method, the Funds’ default method of average cost will
be applied to the transactions. The cost basis method used on your account could
significantly affect your taxes due and should be carefully considered. You
should consult your tax advisor for more information on your own tax situation,
including possible foreign, state, and local taxes.
Investments by a Fund in certain
debt instruments or derivatives may cause the Fund to recognize taxable income
in excess of the cash generated by such instruments. As a result, the Fund could
be required at times to liquidate other investments to satisfy its distribution
requirements under the Internal Revenue Code. The Fund’s use of derivatives will also
affect the amount, timing, and character of the Fund’s distributions.
Early in each calendar year, each
Fund will notify you of the amount and tax status of distributions paid to you
for the preceding year.
A dividend or distribution made
shortly after the purchase of shares of a Fund by a shareholder, although in
effect a return of capital to that shareholder, would be taxable to that
shareholder as described above, subject to a holding period requirement for
dividends designated as qualified dividend income.
The information contained in this
prospectus is not a complete description of the federal, state, local, or
foreign tax consequences of investing in the Funds. You should consult your tax
advisor before investing in the Funds.
Funds Investing
in Securities Generating Tax-Exempt Income
Distributions designated as
“exempt-interest
dividends” by Funds investing in securities
generating tax-exempt income are generally not subject to federal income tax.
However, if you receive Social Security or railroad retirement benefits, you
should consult your tax advisor to determine what effect, if any, an investment
in such Funds may have on the federal taxation of your benefits. Some Funds
invest in “AMT-subject bonds,” which are municipal obligations
issued to finance certain “private activities,” such as bonds used to finance
airports, housing projects, student loan programs, and water and sewer projects.
Interest on AMT-subject bonds is an item of tax preference for purposes of the
federal individual alternative minimum tax (“AMT”). A portion of such Funds'
distributions may, therefore, be subject to federal income taxes or to the
federal alternative minimum tax. Some Funds may invest a portion of their assets
in securities that generate income that is not exempt from federal (or state and
local) income tax. Income exempt from federal tax may be subject to state and
local income tax. In addition, any capital gains distributed by such Funds will
be taxable as described in this section. A portion of the dividends paid by such
Funds may be exempt from California State personal income tax, but not from
California State franchise tax or California State corporate income tax.
Corporate taxpayers should consult their tax advisor concerning the California
state tax treatment of investments in such Funds.
CHOOSING A SHARE
CLASS AND THE COSTS OF INVESTING
Before you invest, you should
understand the characteristics of each share class so you can be sure to choose
the class that is right for you. Fund and share class selections must be made at
the time of purchase.
Classes differ regarding the costs
associated with buying, redeeming, and holding shares. Which class is best for
you depends upon:
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|
• |
the dollar amount you are
investing, |
|
|
• |
the amount of time you plan to
hold the investment, |
|
|
• |
any plans to make additional
investments in the Principal Funds, and |
|
|
• |
eligibility to purchase the
class. |
The following sections describe the
fees and expenses you may pay if you invest in a Fund. You may pay both one-time
fees and ongoing fees. Fees and expenses are important because they lower your
earnings. Before investing, you should be sure you understand the nature of
different costs. Your Financial Professional can help you with this process and
can help you choose the share class and Fund or Funds that are appropriate for
you based upon your investment objective, risk tolerance and other factors.
Financial Professionals may receive different compensation depending upon which
class of shares you purchase.
Fees and Expenses
of the Funds
Classes
A, C, and J Shares
These share classes may include a
front-end sales charge and/or contingent deferred sales charge. There is no
sales charge on shares of the Funds purchased with reinvested dividends or other
distributions. You may obtain more information about sales charge reductions and
waivers from your Financial Professional.
In some cases, the initial sales
charge or contingent deferred sales charge may be waived or reduced. Appendix C
to this prospectus, titled "Intermediary-Specific Sales Charge Waivers and
Reductions", contains information about intermediary-specific sales charge
waivers and reductions that will be available if you purchase Fund shares
through those intermediaries. The prospectus discusses the initial sales charge
or contingent deferred sales charge waivers or reductions that will be available
if you purchase Fund shares directly from the Fund or through another
intermediary not listed on Appendix C.
In all instances, to receive a
waiver or reduction in the initial sales charge or contingent deferred sales
charge, you or your Financial Professional must let the Fund know at the time
you purchase or redeem shares that you qualify for such a waiver or reduction.
It may be necessary for you to provide information and records, such as account
statements, to determine your eligibility. If you or your Financial Professional
do not let the Fund know that you are eligible for a waiver or reduction, you
may not receive a sales charge discount to which you are otherwise
entitled.
Class C
Shares
Class C shares may not be
suitable for large investments. Due to the higher expenses associated with
Class C shares, it may be more advantageous for investors currently
purchasing, intending to purchase, or with existing assets in amounts that may
qualify for a reduced sales charge on Class A shares, including through
Rights of Accumulation and/or Statement of Intent, to purchase Class A
shares. Class C shares have higher annual expenses than Class A shares
because they are subject to higher distribution fees.
The Fund seeks to prevent
investments in Class C shares by shareholders with at least $1 million
of investments in Principal Funds eligible for inclusion pursuant to Rights of
Accumulation. If you are making an initial purchase of Principal Funds of
$1,000,000 or more and have selected Class C shares, the purchase will be
of Class A shares of the Fund(s) you have selected. If you are making
subsequent purchases into your existing Principal Funds Class C share
accounts and the combined value of the subsequent investment and your existing
Classes A, B, C, and J share accounts combined for Rights of
Accumulation purposes exceeds $1,000,000, the subsequent investment will be
applied to purchase Class A shares of the Fund(s) you have
selected.
Institutional
Class and Classes R-1, R-2, R-3, R-4, R-5, R-6, and S Shares
Fund shares are sold without a
front-end sales charge and do not have a contingent deferred sales charge. For
Institutional Class and Classes R-1, R-2, R-3, R-4, R-5, and R-6 shares, there
is no sales charge on Fund shares purchased with reinvested dividends or other
distributions; for S Class shares, Fund shares are not purchased with reinvested
dividends or other distributions.
One-Time Fee -
Initial Sales Charge
Class A
Shares
The offering price for Class A
shares is the NAV next calculated after receipt of an investor’s order in proper
form by the Fund or its servicing agent, plus any applicable initial sales
charge as shown in the table below. The right-hand column in the table indicates
what portion of the sales charge is paid to Financial Professionals and their
brokerage firms (“dealers”) for selling Class A shares.
Note:
Because of rounding in
the calculation of the offering price, the actual maximum front-end sales charge
paid by an investor may be higher or lower than the percentages noted.
For more information regarding
compensation paid to dealers, see “Distribution Plans and Intermediary
Compensation.”
|
|
|
|
|
|
|
Diversified
Real Asset, Dynamic Floating Rate High Income, Global Multi-Strategy and
Real Estate Debt Income Funds |
|
Amount of
Purchase |
Class A
Sales Charge as % of: |
Dealer
Allowance |
|
|
Offering
Price |
Amount
Invested |
as % of
Offering Price |
|
Less than
$100,000 |
3.75% |
3.90% |
3.00% |
|
$100,000 but less than
$250,000 |
2.75% |
2.83% |
2.25% |
|
$250,000 but less than
$500,000 |
1.50% |
1.52% |
1.00% |
|
$500,000 or
more |
0.00% |
0.00% |
0.00%* |
* |
The Distributor may pay
authorized dealers commissions on purchases of Class A shares over
$500,000 calculated as follows: 1.00% on purchases between $500,000 and
$4,999,999, 0.50% on purchases between $5 million and $49,999,999, and
0.25% on purchases of $50 million or more. The commission rate is
determined based on the cumulative investments over the life of the
account combined with the investments in existing Classes A, C, and J
shares. |
|
|
|
|
|
|
|
Preferred
Securities Fund |
|
Amount of
Purchase |
Class A
Sales Charge as % of: |
Dealer
Allowance |
|
|
Offering
Price |
Amount
Invested |
as % of
Offering Price |
|
Less than
$100,000 |
3.75% |
3.90% |
3.00% |
|
$100,000 but less than
$250,000 |
2.75% |
2.83% |
2.25% |
|
$250,000 or
more |
0.00% |
0.00% |
0.00%* |
* |
The Distributor may pay
authorized dealers commissions on purchases of Class A shares over
$250,000 calculated as follows: 1.00% on purchases between $250,000 and
$4,999,999, 0.50% on purchases between $5 million and 49,999,999, and
0.25% on purchases of $50 million or more. The commission rate is
determined based on the cumulative investments over the life of the
account combined with the investments in existing Classes A, C, and J
shares. |
|
|
|
|
|
|
|
Opportunistic
Municipal Fund |
|
Amount of
Purchase |
Class A
Sales Charge as % of: |
Dealer
Allowance |
|
|
Offering
Price |
Amount
Invested |
as % of
Offering Price |
|
Less than
$100,000 |
3.75% |
3.90% |
3.00% |
|
$100,000 but less than
$250,000 |
2.75% |
2.83% |
2.25% |
|
$250,000 or
more |
0.00% |
0.00% |
0.00%* |
* |
The Distributor may pay
authorized dealers commissions on purchases of Class A shares over
$250,000 calculated as follows: 1.00% on purchases between $250,000 and
$4,999,999, 0.75% on purchases between $5 million and $9,999,999, 0.50% on
purchases between $10 million and 49,999,999, and 0.25% on purchases of
$50 million or more. The commission rate is determined based on the
cumulative investments over the life of the account combined with the
investments in existing Classes A, C, and J
shares. |
|
|
|
|
|
|
|
Blue Chip,
EDGE MidCap, Global Opportunities, International Small Company,
Multi-Manager Equity Long/Short, Origin Emerging Markets, and Small-MidCap
Dividend Income Funds |
|
Amount of
Purchase |
Class A
Sales Charge as % of: |
Dealer
Allowance |
|
|
Offering
Price |
Amount
Invested |
as % of
Offering Price |
|
Less than
$50,000 |
5.50% |
5.82% |
4.75% |
|
$50,000 but less than
$100,000 |
4.75% |
4.99% |
4.00% |
|
$100,000 but less than
$250,000 |
3.75% |
3.90% |
3.00% |
|
$250,000 but less than
$500,000 |
3.00% |
3.09% |
2.50% |
|
$500,000 but less than
$1,000,000 |
2.00% |
2.04% |
1.75% |
|
$1,000,000 or
more |
0.00% |
0.00% |
0.00%* |
* |
The Distributor may pay
authorized dealers commissions on purchases of Class A shares over $1
million calculated as follows: 1.00% on purchases between $1,000,000 and
$4,999,999, 0.50% on purchases between $5 million and $49,999,999, and
0.25% on purchases of $50 million or more. The commission rate is
determined based on the cumulative investments over the life of the
account combined with the investments in existing Classes A, C, and J
shares. |
Initial
Sales Charge Waiver or Reduction
Class A shares of the Funds may be
purchased without a sales charge or at a reduced sales charge. The availability
of certain sales charge waivers and reductions will depend on whether you
purchase your shares directly from the Fund or through a financial intermediary.
Intermediaries may have different policies and procedures regarding the
availability of initial (front-end) sales charge waivers or reductions.
Such
intermediary-specific sales charge variations are described in Appendix C to
this prospectus, titled "Intermediary-Specific Sales Charge Waivers and
Reductions."
If
you
purchase Fund
shares through an intermediary listed on Appendix C, you will be eligible to the
receive only the intermediary's applicable waivers and reductions described on
Appendix C. If you purchase Fund shares directly from the Fund or through an
intermediary not listed on Appendix C, you will be eligible to receive only the
following initial sales charge waivers and reductions. In all instances, it is your
responsibility to notify the Fund or your financial intermediary at the time of
purchase of any relationship or other facts qualifying you for sales charge
waivers or reductions.
Initial
Sales Charge Waiver - For Purchases of Fund Shares From the Fund or Through
Intermediaries Not Listed on Appendix C
|
|
• |
No initial sales charge will
apply to purchases of Fund shares if the purchase is of sufficient size as
disclosed in the preceding “Class A Sales Charges”
table. |
|
|
• |
You may reinvest the Funds’
Class A share redemption proceeds without a sales charge within 90 days of
the redemption, if you previously paid a sales charge. Shares invested
directly within the Class A Money Market Fund are not eligible for this
waiver; however, shares in the Money Market Fund that were obtained by
exchange of another Fund that imposed an initial sales charge are
eligible. |
|
|
• |
A Fund’s Class A shares
may be purchased without an initial sales charge by the following
individuals, groups, and/or entities: |
|
|
• |
current and former Directors
of Principal Funds, member companies of Principal®, and their active or retired
employees, officers, directors, brokers, or agents (for the life of the
account). This also includes their immediate family members (spouse,
domestic partner, children (regardless of age and including in-laws), and
parents, including in-laws) and trusts created by or primarily for the
benefit of these individuals; |
|
|
• |
any employee or registered
representative (and their immediate family members and employees) of an
authorized broker-dealer or company that makes available shares of a
Fund; |
|
|
• |
clients investing in Class A
shares through a “wrap account” or investment product offered through
broker-dealers, registered investment advisors, and other financial
institutions under which clients may pay a fee to the broker-dealer,
registered investment advisor, or financial
institution; |
|
|
• |
any investor who buys Class A
shares through an omnibus account held by financial intermediaries, such
as a bank, broker-dealer, or other financial institution, and that does
not accept or charge the initial sales
charge; |
|
|
• |
financial intermediaries who
offer shares to self-directed investment brokerage accounts;
and |
|
|
• |
retirement plans or benefit
plans, or participants in such plans, where the plan’s investments in the
Fund are part of an omnibus account. For clarification, such plans do not
include individual retirement arrangements under IRC Section 408, such as
Simplified Employee Pensions (SEP), SIMPLE IRAs or other
IRAs. |
|
|
• |
The following two bullet
points are only applicable to intermediaries that are affiliated with
Principal Financial Group, Inc. A Fund’s Class A shares may be purchased
without an initial sales charge by the following individuals, groups,
and/or entities: |
•Premier Credit Union when the shares
are owned directly with Principal Funds; and
•non-ERISA clients of Principal
Global Investors LLC.
Initial
Sales Charge Reduction - For Purchases of Fund Shares From the Fund or Through
Intermediaries Not Listed on Appendix C
|
|
(1) |
Rights of Accumulation. The
sales charge varies with the size of your purchase. Purchases made by you,
your spouse or domestic partner, your children (including children of your
spouse or domestic partner) age 25 or under, and/or a trust created by or
primarily for the benefit of such persons (together “a Qualified
Purchaser”) will be combined along with the value of existing Classes A,
C, and J shares of Principal Funds owned by such persons, to determine the
applicable sales charge. Class A shares of the Money Market Fund are not
included in the calculation unless they were acquired in exchange from
other Principal Fund shares. If the total amount being invested in the
Principal Funds is near a sales charge breakpoint, you should consider
increasing the amount invested to take advantage of a lower sales
charge. |
|
|
(2) |
Statement of Intent (SOI).
Qualified Purchasers may obtain reduced sales charges by signing an SOI.
The SOI is a nonbinding obligation on the Qualified Purchaser to purchase
the full amount indicated in the SOI. Purchases made by you, your spouse
or domestic partner, or the children of you, your spouse or domestic
partner up to and including the age of 25 and/or a trust created by or
primarily for the benefit of such persons (together “a Qualified
Purchaser”) will be combined along with the value of existing Classes A,
C, and J shares of Principal Funds owned by such persons. Purchases of
Class A shares of Money Market Fund are not included. The sales charge is
based on the total amount to be invested in a 13-month period. If the
intended investment is not made (or shares are sold during the 13-month
period), sufficient shares will be sold to pay the additional sales charge
due. If a shareholder who signs an SOI dies within the 13-month period, no
additional front-end sales charge will be required and the SOI will be
considered met. An SOI is not available for 401(a) plan
purchases. |
|
|
(3) |
The maximum sales charge that
applies to purchases of Class A shares by qualified plans
administered by Expertplan, Inc. that were previously converted from B
share plans is the sales charge that applies to purchases of at least
$250,000 but less than $500,000 as described in the sales charge tables;
the regular sales charge applies to purchases of $500,000 or more in such
accounts and to all purchases of the Diversified Real Asset Fund, Global
Multi-Strategy Fund, and Preferred Securities Fund
shares. |
|
|
(4) |
The maximum sales charge for
all purchases made in an account that is included in a SIMPLE IRA, SEP,
SAR-SEP, non-qualified deferred compensation, or payroll deduction plan
established before March 1, 2002 with Principal Management
Corporation as the Funds’ transfer agent, is the sales charge that applies
to purchases of at least $100,000 but less than $250,000 as described in
the sales charge tables; the regular sales charge applies to purchases of
$250,000 or more in such accounts and to all purchases of the Diversified
Real Asset Fund, Global Multi-Strategy Fund, and Preferred Securities Fund
shares. The reduced sales charge applies to purchases made by or on behalf
of participants to such plans who became participants on or before
July 28, 2007. |
Class C
Shares
Purchases of Class C shares are not
subject to a front-end sales load. The offering price for Class C shares is
the NAV next calculated after receipt of an investor’s order in proper form by
the Fund or its servicing agent, with no initial sales charge. The Distributor
currently pays authorized dealers commissions of up to 1.00% of the amount
invested in Class C shares.
Institutional
Class and Classes J, R-1, R-2, R-3, R-4, R-5, R-6, and S Shares
Purchases of these classes of shares
are not subject to a front-end sales load. The offering price for such shares is
the NAV next calculated after receipt of an investor’s order in proper form by
the Fund or its servicing agent, with no initial sales charge.
One-Time Fee -
Contingent Deferred Sales Charge (“CDSC”)
If you sell (redeem) shares and the
CDSC is imposed, it will reduce the amount of sales proceeds.
The CDSC is based on the lesser of
the market value at the time of redemption or the initial purchase price of the
shares sold. The CDSC does not apply to shares purchased with reinvested
dividends or other distributions. The CDSC is not charged on exchanges. However,
the original purchase date of the shares from which an exchange is made
determines if the newly acquired shares are subject to the CDSC when they are
sold.
If you sell some but not all of the
shares in your account, the shares not subject to a CDSC will be sold first.
Other shares will be sold in the order purchased (first in, first out). The CDSC
does not apply to shares redeemed according to a systematic withdrawal plan
limited to no more than 1.00% per month (measured cumulatively for non-monthly
plans) of the value of the Fund account at the time, and beginning on the date,
the systematic withdrawal plan is established.
Class A
Shares
Class A shares purchased in amounts
that are of sufficient size to qualify for a 0.00% sales charge, as disclosed in
the “Class A Sales Charges” table, are generally subject to a CDSC of 1.00% if
the shares are redeemed during the first 12 months after purchase, unless the
dealer, at its discretion, has waived the commission. The Distributor may pay
authorized dealers commissions up to 1.00% of the price of such
purchases.
There is no CDSC on Class A shares
of the Money Market Fund that are directly purchased by the shareholder. Class A
shares of the Money Market Fund that are obtained through an exchange of another
Fund's shares are generally subject to a CDSC of 1.00% on certain redemptions
made within 12 months following purchases of Fund shares that are of sufficient
size to qualify for a 0.00% sales charge as disclosed in the “Class A Sales
Charges” table.
The CDSC generally applicable to
redemptions of Class A shares made within 12 months after purchase will not be
imposed on redemptions of shares purchased through an omnibus account with
certain financial intermediaries, such as a bank or other financial institution,
where no sales charge payments were advanced for purchases made through these
entities.
Class C
Shares
Each initial and subsequent purchase
of Class C shares is subject to a CDSC of 1.00% for a period of 12 months from
the date of purchase. Shares will be redeemed first from shares purchased
through reinvested dividends and capital gain distributions, which are not
subject to the CDSC, and then in order of purchase. Within 90 days after the
sale of Class C shares, you may reinvest any amount of the sale proceeds in
Class C shares and those shares purchased will not be subject to the 12-month
CDSC.
Class J
Shares
If you sell your Class J shares
within 18 months of purchase, a CDSC may be imposed on the shares sold. The
CDSC, if any, is determined by multiplying by 1.00% the lesser of the market
value at the time of redemption or the initial purchase price of the shares
sold. Within 90 days after the sale of Class J shares, you may reinvest the
amount of the sale proceeds into any Principal Funds Class J shares Fund; shares
purchased by redemption proceeds are not subject to the eighteen-month
CDSC.
Institutional
Class and Classes R-1, R-2, R-3, R-4, R-5, R-6, and S Shares
These share classes are not subject
to a CDSC.
CDSC
Waiver
The CDSC may be waived on
Classes A, C, and J shares of the Funds; waivers vary depending on how
shares are purchased. Certain waivers and reductions apply when shares are
purchased directly from the Fund; others apply when shares are purchased through
an intermediary. Intermediaries may have different policies and procedures
regarding the availability of waivers or reductions of the CDSC. Such
intermediary-specific sales charge variations are described in Appendix C to
this prospectus, titled "Intermediary-Specific Sales Charge Waivers and
Reductions."
If
you purchase Fund shares through an intermediary listed on Appendix C, you will
be eligible to the receive only the intermediary's applicable waivers and
reductions described on Appendix C. If you purchase Fund shares directly from
the Fund or through an intermediary not listed on Appendix C, you will be
eligible to receive only the following CDSC waivers and reductions. In all instances, it is your
responsibility to notify the Fund or your financial intermediary at the time of
redemption of any facts qualifying you for sales charge waivers or reductions.
CDSC
Waiver - For Purchases of Fund Shares From the Fund or Through Intermediaries
Not Listed on Appendix C
For Classes A, C, and J shares, the
CDSC is waived on shares:
|
|
• |
redeemed within 90 days after
an account is re-registered due to a shareholder's
death; |
|
|
• |
redeemed to pay surrender
fees; |
|
|
• |
redeemed to pay retirement
plan fees; |
|
|
• |
redeemed involuntarily from
accounts with small balances; |
|
|
• |
redeemed due to the
shareholder's disability (as defined by the Internal Revenue Code)
provided the shares were purchased before the disability;
|
|
|
• |
redeemed from retirement plans
to satisfy minimum distribution rules under the Internal Revenue
Code; |
|
|
• |
redeemed from a retirement
plan to assure the plan complies with the Internal Revenue
Code; |
|
|
• |
redeemed from retirement plans
qualified under Section 401(a) of the Internal Revenue Code due to the
plan participant's death, disability, retirement, or separation from
service after attaining age 55; |
|
|
• |
redeemed from retirement plans
to satisfy excess contribution rules under the Internal Revenue Code;
or |
|
|
• |
redeemed using a systematic
withdrawal plan (up to 1% per month (measured cumulatively with respect to
non-monthly plans) of the value of the fund account at the time, and
beginning on the date, the systematic withdrawal plan begins). (The free
withdrawal privilege not used in a calendar year is not added to the free
withdrawal privileges for any following
year.) |
For Class J shares, the CDSC also is
waived on shares:
|
|
• |
redeemed that were purchased
pursuant to the Small Amount Force Out program (SAFO);
or |
|
|
• |
of the Money Market Fund
redeemed within 30 days of the initial purchase if the redemption proceeds
are transferred to another Principal IRA, defined as either a fixed or
variable annuity issued by Principal Life Insurance Company to fund an
IRA, a Principal Bank IRA product, or a WRAP account IRA sponsored by
Principal Securities, Inc. |
Ongoing
Fees
The ongoing fees are the operating
expenses of a Fund, which are described in the “Annual Fund Operating Expenses”
table included in the Summary for each Fund. These expenses reduce the value of
each share you own. Because they are ongoing, they increase the cost of
investing in the Funds.
With the exception of Class S of the
Capital Securities Fund, each Fund pays ongoing fees to PGI and others who
provide services to the Fund. These fees include:
|
|
• |
Management Fee (all Classes
except Class S) — Through the Management Agreement with the Fund, PGI has
agreed to provide investment advisory services and corporate
administrative services to the Fund. |
|
|
• |
Distribution Fee (Classes A,
C, J, R-1, R-2, R-3, and R-4) — Each Fund has adopted a distribution
plan under Rule 12b-1 of the Investment Company Act of 1940 for the
foregoing classes. Under the plan, these classes of each Fund pay a
distribution fee based on the average daily NAV of the Fund. These fees
pay distribution and other expenses for the sale of Fund shares and for
services provided to shareholders. Because they are ongoing fees, over
time, these fees may exceed other types of sales
charges. |
|
|
• |
Other Expenses — (all Classes
except Class S) - A portion of expenses that are allocated to all classes
of the Fund. Other expenses include interest expense, expenses related to
fund investments, and index licensing fees. Additional examples of other
expenses include: |
|
|
• |
Transfer Agent Fee (all
Classes except Class S) - Principal Shareholder Services, Inc.
(“PSS”) has entered into a Transfer Agency Agreement with the Fund under
which PSS provides transfer agent services to these classes. For Class J
shares, these services are currently provided at a rate that includes a
profit; for Classes A, C, and Institutional Class shares, these services
are currently provided at cost. The Fund does not pay for these services
for Classes R-1, R-2, R-3, R-4, R-5, and R-6
shares. |
|
|
• |
Certain Operating Expenses
(Institutional Class and Classes A, C, J, and R-6) - expenses of
registering and qualifying shares for sale, the cost of producing and
distributing reports and prospectuses to shareholders of these classes,
the cost of shareholder meetings held solely for shareholders of these
classes, and other operating expenses of the
Fund. |
|
|
• |
Service Fee (Classes R-1, R-2,
R-3, R-4, and R-5) - PGI has entered into a Service Agreement
with the Fund under which PGI is required to provide certain personal
services to shareholders (plan sponsors) and beneficial owners (plan
members), such as responding to plan sponsor and plan member
inquiries. |
|
|
• |
Administrative Services Fee
(Classes R-1, R-2, R-3, R-4, and R-5) - PGI has entered into an
Administrative Services Agreement with Principal Funds under which PGI is
required to provide shareholder and administrative services for retirement
plans and other beneficial owners of Fund
shares. |
|
|
• |
Acquired Fund Fees and
Expenses (all Classes except Class S) - fees and expenses charged by other
investment companies in which a Fund invests a portion of its
assets. |
Class S
Shares
The Capital Securities Fund does not
pay any direct advisory, administrative, or other fees. PGI, the investment
advisor, has contractually agreed to absorb all expenses of the Capital
Securities Fund. PGI also pays or absorbs expenses attributable to Class S
shares by paying expenses normally payable by the Capital Securities Fund,
excluding interest expense.
DISTRIBUTION
PLANS AND INTERMEDIARY COMPENSATION
Distribution
and/or Service (12b-1) Fees
Principal Funds Distributor, Inc.
("PFD" or the "Distributor") is the distributor for the shares of Principal
Funds, Inc. PFD is an affiliate of Principal Life Insurance Company and with it
is a subsidiary of Principal Financial Group, Inc. and member of
Principal®.
Principal Funds has adopted a
distribution plan pursuant to Rule 12b-1 under the Investment Company Act for
each of the Classes A, C, J, R-1, R-2, R-3, and R-4 shares of Principal Funds.
Under the 12b-1 plans, except as noted below, each Fund makes payments from its
assets attributable to the particular share class to the Fund’s Distributor for
distribution-related expenses and for providing services to shareholders of that
share class. Payments under the 12b-1 Plans are made by the Funds to the
Distributor pursuant to the 12b-1 Plans regardless of the expenses incurred by
the Distributor. When the Distributor receives Rule 12b-1 fees, it may pay some
or all of them to intermediaries whose customers are shareholders of the Funds
for sales support services and for providing services to shareholders of that
share class. Intermediaries may include, among others, broker-dealers,
registered investment advisors, banks, trust companies, pension plan
consultants, retirement plan administrators, and insurance companies. These
intermediaries include Principal Securities, Inc., a broker-dealer affiliated
with PGI. Because Rule 12b-1 fees are paid out of Fund assets and are ongoing
fees, over time they will increase the cost of your investment in the Funds and
may cost you more than other types of sales charges.
The maximum annual Rule 12b-1 fee
for distribution related expenses and/or for providing services to shareholders
under each 12b-1 plan (as a percentage of average daily net assets)
is:
|
|
|
Share
Class |
Maximum
Annualized Rate
12b-1
Fee |
A |
0.25% |
C |
1.00% |
J |
0.15% |
R-1 |
0.35% |
R-2 |
0.30% |
R-3 |
0.25% |
R-4 |
0.10% |
The Distributor generally uses Rule
12b-1 fees to finance any activity that is primarily intended to result in the
sale of shares and for providing services to shareholders of the share class,
and the activities vary depending on the share class. In addition to shareholder
services, examples of such sales or distribution related expenses include, but
are not limited to:
|
|
• |
Compensation to salespeople
and selected dealers, including ongoing commission
payments. |
|
|
• |
Printing of prospectuses and
statements of additional information and reports for other than existing
shareholders, and preparing and conducting sales
seminars. |
Examples of services to shareholders
include furnishing information as to the status of shareholder accounts,
responding to telephone and written inquiries of shareholders, and assisting
shareholders with tax information.
Payments under the 12b-1 plans will
not automatically terminate for funds that are closed to new investors or to
additional purchases by existing shareholders. The Fund Board will determine
whether to terminate, modify, or leave unchanged the 12b-1 plans when the Board
directs the implementation of the closure of a Fund.
Classes
A and C Shares
Generally, to receive 12b-1 fees
from the Distributor, dealers or other intermediaries must be the dealer of
record for shares with average daily net assets of at least $100,000. Generally,
Class A shares must be held for three months before these fees are paid. In the
case of Class C shares, generally these fees are not paid until such shares have
been held for twelve months.
Class J
Shares
Effective December 31, 2016, the
Distributor has voluntarily agreed to limit the Distribution Fees attributable
to Class J. The voluntary fee waiver will reduce the Fund’s Distribution Fees by
0.03%. The voluntary waiver may be revised or terminated at any time without
notice to shareholders.
Commissions,
Finder’s Fees, and Ongoing Payments
See "Choosing a Share Class and The
Costs of Investing" for more details.
Class A
Shares
All or a portion of the initial
sales charge that you pay may be paid by the Distributor to intermediaries
selling Class A shares. The Distributor may pay these intermediaries a
commission of up to 1.00% on purchases of $1,000,000 or more (or $500,000 or
more depending on the Fund purchased), excluding purchases by qualified
retirement plans in omnibus accounts which are not subject to initial sales
charges.
In lieu of commissions, the
Distributor may pay intermediaries a finder’s fee on initial investment by
qualified retirement plans in omnibus accounts which are not subject to initial
sales charges, provided the selling intermediary notifies the Distributor within
90 days of the initial investment that the transaction is eligible for the
payment of a finder’s fee. The finder’s fee on such initial investments may be
up to 1.00% on initial investments between $500,000 and $4,999,999, 0.50% on
initial investments between $5 million and $49,999,999, 0.25% on initial
investments of $50 million or more. Initial investments include transfers,
rollovers and other lump sum purchases, excluding ongoing systematic
investments, made within 90 days of the initial funding of the account. The
intermediary shall, upon request by the Distributor provided within 90 days of
the triggering event, refund the finder’s fee to the Distributor to the extent
shares are redeemed within 12 months of the initial investment or trading
restrictions are placed on the account in accordance with the Funds' frequent
trading policy.
Classes
A, J, R-1, R-2, R-3, and R-4 Shares
Additionally, the Distributor
generally makes ongoing 12b-1 fee payments to your intermediary at a rate that
varies by class, as noted above under “Distribution and/or Service (12b-1)
Fees.”
Class C
Shares
The Distributor will pay, at the
time of your purchase, a commission to your intermediary equal to 1.00% of your
investment. Additionally, the Distributor generally makes ongoing 12b-1 fee
payments to your intermediary as noted above under “Distribution and/or Service
(12b-1) Fees.”
Additional
Payments to Intermediaries
Shares of the Funds are sold
primarily through intermediaries, such as brokers, dealers, investment advisors,
banks, trust companies, pension plan consultants, retirement plan
administrators, and insurance companies.
Classes
A, C, and J Shares
In addition to payments pursuant to
12b-1 plans, sales charges, commissions and finder’s fees, including
compensation for referrals, PGI or its affiliates enter into agreements with
some intermediaries pursuant to which the intermediaries receive payments for
providing services relating to Fund shares. Examples of such services are
administrative, networking, recordkeeping, sub-transfer agency and shareholder
services. In some situations, the Fund will reimburse PGI or its affiliates for
making such payments; in others, the Fund may make such additional payments
directly to intermediaries.
PGI or its affiliates may also pay,
without reimbursement from the Fund, compensation from their own resources to
certain intermediaries that support the distribution of shares of the Fund or
provide services to Fund shareholders.
Such additional payments may vary,
but generally do not exceed: (a) 0.25% of the current year's sales of Fund
shares by that intermediary and/or (b) 0.25% of average net asset value of Fund
shares held by clients of such intermediary.
The Distributor and its affiliates
may pay a bonus or other consideration or incentive to intermediaries if an
employee covered under an employer sponsored benefit program purchases a product
from an affiliate of Distributor with the assistance of a registered
representative of an affiliate of Distributor, if the intermediary sold the
funding vehicle the employer sponsored benefit program utilizes or if the
intermediary subsequently became the broker of record with regard to the
employer sponsored benefit program.
Institutional
Class and Classes R-1, R-2, R-3, R-4, and R-5 Shares
In addition to payments pursuant to
12b-1 plans, PGI or its affiliates enter into agreements with some
intermediaries pursuant to which the intermediaries receive payments for
providing services relating to Fund shares. Examples of such services are
administrative, networking, recordkeeping, sub-transfer agency and/or
shareholder services. For Classes R-1, R-2, R-3, R-4, and R-5 shares, such
compensation is generally paid out of the Service Fees and Administrative
Service Fees that are disclosed in this prospectus as Other Expenses. For
Institutional Class shares, in some situations, the Fund will reimburse PGI or
its affiliates for making such payments; in others, the Fund may make such
payments directly to the intermediaries.
PGI or its affiliates may also pay,
without reimbursement from the Fund, compensation from their own resources to
certain intermediaries that support the distribution of shares of the Fund or
provide services to Fund shareholders.
For Institutional Class shares, such
payments may vary, but generally do not exceed: (a) 0.10% of the current year’s
sales of Fund shares by that intermediary or (b) 0.10% of the average net asset
value of Fund shares held by clients of such intermediary.
Principal Life Insurance Company is
one such intermediary that provides services relating to Fund shares held in
retirement plans, and it is typically paid some or all of the Service Fees and
Administrative Service Fees pertaining to such plans, and it also receives
compensation paid by PGI from its own resources.
Institutional
Class and Classes A, C, J, R-1, R-2, R-3, R-4, and R-5 Shares
The intermediary may pay to its
Financial Professionals some or all of the amounts the Distributor and its
affiliates pay to the intermediary.
The amounts paid to intermediaries
vary by share class and by Fund.
In some cases, the Distributor and
its affiliates will provide payments or reimbursements in connection with the
costs of conferences, educational seminars, training and marketing efforts
related to the Funds. Such activities may be sponsored by intermediaries or the
Distributor. The costs associated with such activities may include travel,
lodging, entertainment, and meals. In some cases, the Distributor will also
provide payment or reimbursement for expenses associated with transactions
("ticket") charges and general marketing expenses.
For more information, see the
Statement of Additional Information (SAI).
The payments described in this
prospectus may create a conflict of interest by influencing your Financial
Professional or your intermediary to recommend the Fund over another investment,
or to recommend one share class of the Fund over another share class. Ask your
Financial Professional or visit your intermediary's website for more information
about the total amounts paid to them by PGI and its affiliates, and by sponsors
of other investment companies your Financial Professional may recommend to
you.
Your intermediary may charge you
additional fees other than those disclosed in this prospectus. Ask your
Financial Professional about any fees and commissions they charge.
Classes
S and R-6 Shares
The Distributor and its affiliates
do not pay compensation to intermediaries for distribution or other services for
Classes S and R-6 shares. For more information, see the Statement of Additional
Information (SAI).
FUND ACCOUNT
INFORMATION
Statements
You will receive quarterly
statements for the Funds you own, or if you purchase through a third party
intermediary, on a periodic basis established by such intermediary. Such
statements provide the number and value of shares you own, transactions during
the period, dividends declared or paid, and other information. The year-end
statement includes information for all transactions that took place during the
year. Please review your statement as soon as you receive it. Keep your
statements, as you may need them for tax reporting purposes.
Generally, each time you buy, sell,
or exchange shares in Principal Funds, you will receive a confirmation shortly
thereafter. It summarizes all the key information - what you bought or sold, the
amount of the transaction, and other important information.
Certain purchases and sales are only
included on your quarterly statement. These include accounts:
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• |
when the only activity during
the quarter are: |
|
|
• |
purchases of shares from
reinvested dividends and/or capital
gains, |
|
|
• |
purchases under an Automatic
Investment Plan, |
|
|
• |
sales under a Systematic
Withdrawal Plan, or |
|
|
• |
purchases or sales under an
Automatic Exchange Election; |
|
|
• |
conversion of Class C shares
into Class A shares |
|
|
• |
used to fund certain
individual retirement or individual pension plans;
or |
|
|
• |
established under a payroll
deduction plan. |
If you need information about your
account(s) at other times, you may call us or access your account on the
internet.
Orders Placed by
Intermediaries
Principal Funds may have an
agreement with your intermediary, such as a broker-dealer, third party
administrator, or trust company, that permits the intermediary to receive orders
on behalf of the Fund until 3 p.m. Central Time. The agreement may include
authorization for your intermediary to designate other intermediaries
(“sub-designees”) to receive orders on behalf of the Fund on the same terms that
apply to the intermediary. In such cases, if your intermediary or a sub-designee
receives your order in correct form by 3 p.m. Central Time, transmits it to the
Fund, and pays for it in accordance with the agreement, the Fund will price the
order at the next net asset value per share it computes after your intermediary
or sub-designee received your order.
The time at which the Fund prices
orders and the time until which the Fund or your intermediary or sub-designee
will accept orders may change in the case of an emergency or if the NYSE closes
at a time other than 3 p.m. Central Time.
Transactions
through Financial Institutions/Professionals
Financial institutions and dealers
may charge their customers a processing or service fee in connection with the
purchase or redemption of Fund shares. The amount and applicability of such a
fee is determined and disclosed to its customers by each individual financial
institution or dealer. Processing or service fees typically are fixed, nominal
dollar amounts and are in addition to the sales and other charges described in
this prospectus and the SAI.
Your financial institution or dealer
will provide you with specific information about any processing or service fees
you will be charged.
Telephone and
Internet Instructions
The Funds reserve the right to
refuse telephone and/or internet instructions. You are liable for a loss
resulting from a fraudulent telephone or internet instruction that we reasonably
believe is genuine. We use reasonable procedures to assure instructions are
genuine. If the procedures are not followed, we may be liable for loss due to
unauthorized or fraudulent transactions. The procedures include: recording all
telephone instructions, requiring the use of a password (Personal Identification
Number) for internet instructions, requesting personal identification
information, and sending written confirmation to the shareholder’s address of
record.
If you elect telephone privileges,
instructions regarding your account(s) may be given to us via the telephone or
internet. Your instructions:
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|
• |
may be given by calling
us; |
|
|
• |
may be given via our website
for certain transactions (for security purposes you need a user name and
password to use any of the internet services, including viewing your
account information on-line. If you don’t have a user name or password,
you may obtain one at our website); or |
|
|
• |
may be given to your Financial
Professional (a person employed by or affiliated with broker/dealer firms)
who will in turn contact us with your
instructions. |
Instructions received from one owner
are binding on all owners. In the case of an account owned by a corporation or
trust, instructions received from an authorized person are binding on the
corporation/trust unless we have a written notification requiring that more than
one authorized person execute written instructions.
Signature
Guarantees
For all classes (except Class S),
certain transactions require that your signature be guaranteed. A signature
guarantee may help protect your account against fraud. If required, the
signature(s) must be guaranteed by a commercial bank, trust company, credit
union, savings and loan, national securities exchange member, or brokerage firm
that participates in a Medallion program recognized by the Securities Transfer
Association. A signature guaranteed by a notary public or savings bank is not
acceptable. We reserve the right to require a signature guarantee on any
transaction.
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|
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|
Signature
guarantees are required in any of the following
circumstances: |
A |
C |
J |
Inst. |
R-1 |
R-2 |
R-3 |
R-4 |
R-5 |
R-6 |
if you sell more than $100,000
(in the aggregate) from the Funds |
X |
X |
X |
|
|
|
|
|
|
|
if you sell more than $500,000
(in the aggregate) from the Funds |
|
|
|
X |
X |
X |
X |
X |
X |
X |
if you sell more than
$10,000,000 if you have the proceeds sent electronically to a previously
authorized U.S. bank account |
|
|
|
X |
|
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|
|
|
|
if a sales proceeds check is
payable to a party other than the account shareholder(s) |
|
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|
X |
X |
X |
X |
X |
X |
X |
if a sales proceeds check is
payable to a party other than the account shareholder(s) or Principal
Life, Principal Bank, a retirement plan trustee or custodian that has
agreed in writing to accept a transfer of assets from the Fund or
Principal Securities, Inc. payable through Pershing |
X |
X |
X |
|
|
|
|
|
|
|
to change ownership of an
account |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
to add telephone transaction
services and/or wire or ACH redemption privileges to an existing account
if there is not a common owner between the bank account and mutual fund
account |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
to change bank account
information designated under an existing telephone withdrawal plan if
there is not a common owner between the bank account and mutual fund
account |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
to wire or ACH to a
shareholder’s U.S. bank account not previously authorized or when the
request does not include a voided check or deposit slip indicating a
common owner between the bank account and mutual fund
account |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
to exchange or transfer among
accounts with different ownership |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
to have a sales proceeds check
mailed to an address other than the address on the account or to the
address on the account if it has been changed within the preceding 15
days |
X |
X |
X |
X |
X |
X |
X |
X |
X |
X |
Reservation of
Rights
Principal Funds reserves the right
to amend or terminate the special plans described in this prospectus.
Shareholders will be notified of any such action to the extent required by
law.
Such plans include, for example,
automatic investment, systematic withdrawal, waiver of Fund minimums for certain
accounts and waiver or reduction of the sales charge or contingent deferred
sales charge for certain purchasers.
Classes A, C, and
J Shares - Minimum Account Balance
Each Fund has a minimum required
account balance of $1000. The Fund reserves the right to redeem all shares in
your account if the value of your account falls below $1000. The Fund will mail
the redemption proceeds to you. An involuntary redemption of a small account
will not be triggered by market conditions alone. The Fund will notify you
before involuntarily redeeming your account. You will have 30 days to make an
additional investment of an amount that brings your account up to the required
minimum. The Funds reserve the right to increase the required
minimum.
Householding
To avoid sending duplicate copies of
materials to households, mailings for accounts held by members of your household
may be combined so that only one copy of each prospectus, annual and semiannual
reports will be mailed. In addition, your account information may be included
with other householded accounts on the same quarterly and annual statements. The
consolidation of these mailings, called householding, benefits Principal Funds
and our shareholders through reduced printing and mailing expenses. If you
prefer to receive multiple copies of these materials, you may write or call
Principal Funds. Householding will be stopped within thirty (30) days after we
receive your request.
Multiple
Translations
This prospectus may be translated
into other languages. In the event of any inconsistencies or ambiguity as to the
meaning of any word or phrase in a translation, the English text will
prevail.
Financial
Statements
Shareholders will receive annual
financial statements for the Funds, audited by the Funds’ independent registered
public accounting firm. Shareholders will also receive a semiannual financial
statement that is unaudited.
APPENDIX A –
DESCRIPTION OF BOND RATINGS
Moody's
Investors Service, Inc. Rating Definitions:
Long-Term Obligation
Ratings
Ratings assigned on Moody's global
long-term obligation rating scales are forward-looking opinions of the relative
credit risk of financial obligations issued by non-financial corporates,
financial institutions, structured finance vehicles, project finance vehicles,
and public sector entities. Long-term ratings are assigned to issuers or
obligations with an original maturity of one year or more and reflect both on
the likelihood of default on contractually promised payments and the expected
financial loss suffered in the event of default.1
1
For certain
structured finance, preferred stock and hybrid securities in which payment
default events are either not defined or do not match investor’s expectations
for timely payment, the ratings
reflect the likelihood of impairment and the expected financial loss in the
event of impairment.
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Aaa: |
Obligations rated Aaa are
judged to be of the highest quality, subject to the lowest level of credit
risk. |
|
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Aa: |
Obligations rated Aa are
judged to be of high quality and are subject to very low credit
risk. |
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A: |
Obligations rated A are
considered upper-medium grade and are subject to low credit
risk. |
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Baa: |
Obligations rated Baa are
subject to moderate credit risk. They are considered medium-grade and as
such may possess certain speculative
characteristics. |
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Ba: |
Obligations rated Ba are
judged to be speculative and are subject to substantial credit
risk. |
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B: |
Obligations rated B are
considered speculative and are subject to high credit
risk. |
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Caa: |
Obligations rated Caa are
judged to be speculative of poor standing and are subject to very high
credit risk. |
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Ca: |
Obligations rated Ca are
highly speculative and are likely in, or very near, default, with some
prospect of recovery of principal and
interest. |
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C: |
Obligations rated C are the
lowest rated class of bonds and are typically in default, with little
prospect for recovery of principal or
interest. |
NOTE: Moody's appends numerical
modifiers, 1, 2, and 3 to each generic rating classification from Aa through
Caa. The modifier 1 indicates that the obligation ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates a ranking in the lower end of that generic rating category.
Additionally, a “(hyb)” indicator is appended to all ratings of hybrid
securities issued by banks, issuers, financial companies, and securities
firms.*
* By their
terms, hybrid securities allow for the omission of scheduled dividends,
interest, or principal payments, which can potentially result in impairment if
such an omission occurs. Hybrid securities may also be subject to contractually
allowable write-downs of principal that could result in impairment. Together the
hybrid indicator, the long-term obligation rating assigned to a hybrid security
is an expression of the relative credit risk associated with that
security.
SHORT-TERM NOTES: Short-term ratings
are assigned to obligations with an original maturity of thirteen months or less
and reflect both on the likelihood of a default on contractually promised
payments and the expected financial loss suffered in the event of default.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (or related
supporting institutions) have a superior ability to repay short-term debt
obligations.
Issuers rated Prime-2 (or related
supporting institutions) have a strong ability to repay short-term debt
obligations.
Issuers rated Prime-3 (or related
supporting institutions) have an acceptable ability to repay short-term
promissory obligations.
Issuers rated Not Prime do not fall
within any of the Prime rating categories.
US MUNICIPAL SHORT-TERM DEBT: The
Municipal Investment Grade (MIG) scale is used to rate US municipal bonds of up
to three years maturity. MIG ratings are divided into three levels - MIG 1
through MIG 3 - while speculative grade short-term obligations are designated
SG.
MIG 1 denotes superior credit
quality, afforded excellent protection from highly reliable liquidity support,
or demonstrated broad-based access to the market for refinancing.
MIG 2 denotes strong credit quality
with ample margins of protection, although not as large as in the preceding
group.
MIG 3 notes are of acceptable credit
quality. Liquidity and cash-flow protection may be narrow and market access for
refinancing is likely to be less well-established.
SG denotes speculative-grade credit
quality and may lack sufficient margins of protection.
Description
of S&P Global Ratings' Credit Rating Definitions:
S&P Global's credit rating, both
long-term and short-term, is a forward-looking opinion of the creditworthiness
of an obligor with respect to a specific obligation. This assessment takes into
consideration the creditworthiness of guarantors, insurers, or other forms of
credit enhancement on the obligation.
The credit rating is not a
recommendation to purchase, sell or hold a security, inasmuch as it does not
comment as to market price or suitability for a particular
investor.
The ratings are statements of
opinion as of the date they are expressed furnished by the issuer or obtained by
S&P Global from other sources S&P Global considers reliable. S&P
Global does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or for other circumstances.
The ratings are based, in varying
degrees, on the following considerations:
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• |
Likelihood of payment -
capacity and willingness of the obligor to meet its financial commitment
on an obligation in accordance with the terms of the
obligation; |
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|
• |
Nature of and provisions of
the obligation; |
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|
• |
Protection afforded by, and
relative position of, the obligation in the event of bankruptcy,
reorganization, or other arrangement under the laws of bankruptcy and
other laws affecting creditor's rights. |
LONG-TERM CREDIT
RATINGS:
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AAA: |
Obligations rated ‘AAA’ have
the highest rating assigned by S&P Global. The obligor’s capacity to
meet its financial commitment on the obligation is extremely
strong. |
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AA: |
Obligations rated ‘AA’ differ
from the highest-rated issues only in small degree. The obligor’s capacity
to meet its financial commitment on the obligation is very
strong. |
|
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A: |
Obligations rated ‘A’ have a
strong capacity to meet financial commitment on the obligation although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher-rated
categories. |
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BBB: |
Obligations rated ‘BBB’
exhibit adequate protection parameters; however, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to meet financial commitment on the
obligation. |
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|
BB, B, CCC, |
Obligations rated ‘BB’, ‘B’,
‘CCC’, ‘CC’, and ‘C’ are regarded, on balance, as having
significant |
|
|
CC, and C: |
speculative characteristics.
‘BB’ indicates the lowest degree of speculation and ‘C’ the highest degree
of speculation. While such obligations will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties
or major risk exposures to adverse
conditions. |
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BB: |
Obligations rated ‘BB’ are
less vulnerable to nonpayment than other speculative issues. However it
faces major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor’s
inadequate capacity to meet its financial commitment on the
obligation. |
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B: |
Obligations rated ‘B’ are more
vulnerable to nonpayment than ‘BB’ but the obligor currently has the
capacity to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair this
capacity. |
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CCC: |
Obligations rated ‘CCC’ are
currently vulnerable to nonpayment and is dependent upon favorable
business, financial, and economic conditions for the obligor to meet its
financial commitment on the obligation. If adverse business, financial, or
economic conditions occur, the obligor is not likely to have the capacity
to meet its financial commitment on the
obligation. |
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CC: |
Obligations rated ‘CC’ are
currently highly vulnerable to nonpayment. The ‘CC’ rating is used when a
default has not yet occurred but S&P Global expects default to be a
virtual certainty, regardless of anticipated time to
default. |
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|
C: |
The rating ‘C’ is highly
vulnerable to nonpayment, the obligation is expected to have lower
relative seniority or lower ultimate recovery compared to higher rated
obligations. |
|
|
D: |
Obligations rated ‘D’ are in
default, or in breach of an imputed promise. For non-hybrid capital
instruments, the ‘D’ rating category is used when payments on an
obligation are not made on the date due, unless S&P Global believes
that such payments will be made within five business days in the absence
of a stated grace period or within the earlier of the stated grace period
or 30 calendar days. The rating will also be used upon filing for
bankruptcy petition or the taking of similar action and where default is a
virtual certainty. If an obligation is subject to a distressed exchange
offer the rating is lowered to ‘D’. |
Plus (+) or Minus (-): The ratings
from ‘AA’ to ‘CCC’ may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
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NR: |
Indicates that no rating has
been requested, that there is insufficient information on which to base a
rating or that S&P Global does not rate a particular type of
obligation as a matter of policy. |
SHORT-TERM CREDIT RATINGS: Ratings
are graded into four categories, ranging from ‘A-1’ for the highest quality
obligations to ‘D’ for the lowest.
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|
A-1: |
This is the highest category.
The obligor’s capacity to meet its financial commitment on the obligation
is strong. Within this category, certain obligations are designated with a
plus sign (+). This indicates that the obligor’s capacity to meet its
financial commitment on these obligations is extremely
strong. |
|
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A-2: |
Issues carrying this
designation are somewhat more susceptible to the adverse effects of the
changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor’s capacity to meet its
financial commitment on the obligation is
satisfactory. |
|
|
A-3: |
Issues carrying this
designation exhibit adequate capacity to meet their financial obligations.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet it financial
commitment on the obligation. |
|
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B: |
Issues rated ‘B’ are regarded
as vulnerable and have significant speculative characteristics. The
obligor has capacity to meet financial commitments; however, it faces
major ongoing uncertainties which could lead to obligor’s inadequate
capacity to meet its financial
obligations. |
|
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C: |
This rating is assigned to
short-term debt obligations that are currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic
conditions to meet its financial commitment on the
obligation. |
|
|
D: |
This rating indicates that the
issue is either in default or in breach of an imputed promise. For
non-hybrid capital instruments, the ‘D’ rating category is used when
payments on an obligation are not made on the date due, unless S&P
Global believes that such payments will be made within five business days
in the absence of a stated grace period or within the earlier of the
stated grace period or 30 calendar days. The rating will also be used upon
filing for bankruptcy petition or the taking of similar action and where
default is a virtual certainty. If an obligation is subject to a
distressed exchange offer the rating is lowered to
‘D’. |
MUNICIPAL SHORT-TERM NOTE RATINGS:
S&P Global rates U.S. municipal notes with a maturity of less than three
years as follows:
|
|
SP-1: |
A strong capacity to pay
principal and interest. Issues that possess a very strong capacity to pay
debt service is given a "+" designation. |
|
|
SP-2: |
A satisfactory capacity to pay
principal and interest, with some vulnerability to adverse financial and
economic changes over the terms of the
notes. |
|
|
SP-3: |
A speculative capacity to pay
principal and interest. |
APPENDIX B –
ADDITIONAL FUND-SPECIFIC INFORMATION
International
Equity Index Fund
THIS FUND IS NOT SPONSORED,
ENDORSED, SOLD OR PROMOTED BY MSCI INC. (“MSCI”), ANY OF ITS AFFILIATES, ANY OF
ITS INFORMATION PROVIDERS OR ANY OTHER THIRD PARTY INVOLVED IN, OR RELATED TO,
COMPILING, COMPUTING OR CREATING ANY MSCI INDEX (COLLECTIVELY, THE “MSCI
PARTIES”). THE
MSCI INDEXES ARE THE EXCLUSIVE PROPERTY OF MSCI. MSCI AND THE MSCI INDEX
NAMES ARE SERVICE MARK(S) OF MSCI OR ITS AFFILIATES AND HAVE BEEN LICENSED FOR
USE FOR CERTAIN PURPOSES BY PGI. NONE OF THE MSCI PARTIES MAKES ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE ISSUER OR OWNERS OF THIS
FUND OR ANY OTHER PERSON OR ENTITY REGARDING THE ADVISABILITY OF INVESTING IN
FUNDS GENERALLY OR IN THIS FUND PARTICULARLY OR THE ABILITY OF ANY MSCI INDEX TO
TRACK CORRESPONDING STOCK MARKET PERFORMANCE. MSCI OR ITS AFFILIATES ARE
THE LICENSORS OF CERTAIN TRADEMARKS, SERVICE MARKS AND TRADE NAMES AND OF THE
MSCI INDEXES WHICH ARE DETERMINED, COMPOSED AND CALCULATED BY MSCI WITHOUT
REGARD TO THIS FUND OR THE ISSUER OR OWNERS OF THIS FUND OR ANY OTHER PERSON OR
ENTITY. NONE OF THE MSCI PARTIES HAS ANY OBLIGATION TO TAKE THE NEEDS OF
THE ISSUER OR OWNERS OF THIS FUND OR ANY OTHER PERSON OR ENTITY INTO
CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE MSCI INDEXES.
NONE OF THE MSCI PARTIES IS RESPONSIBLE FOR OR HAS PARTICIPATED IN THE
DETERMINATION OF THE TIMING OF, PRICES AT, OR QUANTITIES OF THIS FUND TO BE
ISSUED OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY OR THE
CONSIDERATION INTO WHICH THIS FUND IS REDEEMABLE. FURTHER, NONE OF THE
MSCI PARTIES HAS ANY OBLIGATION OR LIABILITY TO THE ISSUER OR OWNERS OF THIS
FUND OR ANY OTHER PERSON OR ENTITY IN CONNECTION WITH THE ADMINISTRATION,
MARKETING OR OFFERING OF THIS FUND.
ALTHOUGH MSCI SHALL OBTAIN
INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF THE MSCI INDEXES
FROM SOURCES THAT MSCI CONSIDERS RELIABLE, NONE OF THE MSCI PARTIES WARRANTS OR
GUARANTEES THE ORIGINALITY, ACCURACY AND/OR THE COMPLETENESS OF ANY MSCI INDEX
OR ANY DATA INCLUDED THEREIN. NONE OF THE MSCI PARTIES MAKES ANY WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE ISSUER OF THE FUND,
OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY, FROM THE USE OF ANY MSCI
INDEX OR ANY DATA INCLUDED THEREIN. NONE OF THE MSCI PARTIES SHALL HAVE
ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS OF OR IN CONNECTION
WITH ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. FURTHER, NONE OF THE MSCI
PARTIES MAKES ANY EXPRESS OR IMPLIED WARRANTIES OF ANY KIND, AND THE MSCI
PARTIES HEREBY EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE, WITH RESPECT TO EACH MSCI INDEX AND ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL ANY OF
THE MSCI PARTIES HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE,
CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
No purchaser, seller or holder of
this security, product or fund, or any other person or entity, should use or
refer to any MSCI trade name, trademark or service mark to sponsor, endorse,
market or promote this security without first contacting MSCI to determine
whether MSCI’s permission is required. Under no circumstances may any
person or entity claim any affiliation with MSCI without the prior written
permission of MSCI.
Diversified Real
Asset Fund
Macquarie Capital Investment
Management LLC ("Macquarie") is not an authorized deposit-taking institution for
the purposes of the Banking Act 1959 (Commonwealth of Australia). Macquarie
obligations do not represent deposits or other liabilities of Macquarie Bank
Limited ABN 46 008 583 542 (“MBL”). MBL does not guarantee or otherwise provide
assurance in respect of the obligations of Macquarie, unless noted
otherwise.
Global
Multi-Strategy Fund
Due to the timing of the HFRI family
of indices finalizing their index performance, HFRI may revise historical
performance data up to four months following the calendar year end. The index
performance shown was calculated using current, available data at the time of
filing, but is subject to change outside of the control of the Fund and its
affiliates.
APPENDIX C –
INTERMEDIARY-SPECIFIC SALES CHARGE WAIVERS AND REDUCTIONS
Certain intermediaries have
different policies and procedures regarding the availability of sales charge
waivers and reductions, which are discussed below. In all instances, it is the
purchaser’s responsibility to notify the Fund or the purchaser’s financial
intermediary at the time of purchase of any relationship or other facts
qualifying the purchaser for sales charge waivers or reductions. In order to
receive a waiver or reduction offered by one intermediary or the Fund, the
purchaser must purchase Fund shares from the Fund or intermediary offering the
waiver or reduction. Please see the section of the prospectus entitled “CHOOSING
A SHARE CLASS AND THE COSTS OF INVESTING” for more information on sales charges
and waivers available for different classes.
Currently, the following
intermediaries have implemented a schedule of sales charge waivers and
reductions, as described below: Ameriprise Financial, Merrill Lynch, Morgan
Stanley Wealth Management, and Raymond James.
Ameriprise
Financial
Automatic
Exchange of Class C Shares Held Through Ameriprise Financial
Class C shares held in an Ameriprise
Financial account will automatically exchange to Class A shares in the month of
the 10-year anniversary of the purchase date. To the extent that the prospectus
elsewhere provides for an automatic exchange with respect to such shares
following a shorter holding period, that automatic exchange will apply following
such shorter period.
Initial
Sales Charge Waivers on Class A Shares Available at Ameriprise
Financial
The following
information applies to Class A purchases if you have an account with or
otherwise purchase fund shares through Ameriprise Financial. Effective June 15,
2018, if you purchase Class A Fund shares through an Ameriprise Financial
platform or account you will be eligible only for the following initial sales
charge waivers and reductions, which differ from those disclosed elsewhere
in this prospectus or the SAI.
|
|
• |
Employer-sponsored retirement
plans (e.g., 401(k) plans, 457 plans, employer-sponsored 403(b) plans,
profit sharing and money purchase pension plans and defined benefit
plans). However, the initial sales charge waiver does not apply to SEP
IRAs, Simple IRAs or SAR-SEPs. |
|
|
• |
Shares purchased through an
Ameriprise Financial investment advisory program (if an Advisory or
similar share class for such investment advisory program is not
available). |
|
|
• |
Shares purchased by third
party investment advisors on behalf of their advisory clients through
Ameriprise Financial’s platform (if an Advisory or similar share class for
such investment advisory program is not
available). |
|
|
• |
Shares purchased through
reinvestment of capital gains distributions and dividend reinvestment when
purchasing shares of the same fund (but not any other fund within the same
fund family). |
|
|
• |
Shares exchanged from Class C
shares of the same fund in the month of or following the 10-year
anniversary of the purchase date. To the extent that this prospectus
elsewhere provides for a waiver with respect to such shares following a
shorter holding period, that waiver will apply to exchanges following such
shorter period. To the extent that this prospectus elsewhere provides for
a waiver with respect to exchanges of Class C shares for load waived
shares, that waiver will also apply to such
exchanges. |
|
|
• |
Employees and registered
representatives of Ameriprise Financial or its affiliates and their
immediate family members. |
|
|
• |
Shares purchased by or through
qualified accounts (including IRAs, Coverdell Education Savings Accounts,
401(k)s, 403(b) accounts subject to ERISA and defined benefit plans) that
are held by a covered family member, defined as an Ameriprise financial
advisor and/or the advisor’s spouse, advisor’s lineal ascendant (mother,
father, grandmother, grandfather, great grandmother, great grandfather),
advisor’s lineal descendant (son, step-son, daughter, step-daughter,
grandson, granddaughter, great grandson, great granddaughter, including
through adoption) or any spouse of a covered family member who is a lineal
descendant. |
|
|
• |
Shares purchased from the
proceeds of redemptions within the same fund family, provided (1) the
repurchase occurs within 90 days following the redemption, (2) the
redemption and purchase occur in the same account, and (3) redeemed shares
were subject to a front-end or deferred sales load (known as Rights of
Reinstatement). |
Merrill
Lynch
If you purchase Fund shares through
a Merrill Lynch platform or account you will be eligible only for the following
sales charge waivers (initial sales charge waivers and contingent deferred sales
charge (“CDSC”) waivers) and reductions, which differ from those disclosed
elsewhere in this prospectus or the SAI.
Initial
Sales Charge Waivers on Class A Shares Available at Merrill Lynch
|
|
• |
Employer-sponsored retirement,
deferred compensation and employee benefit plans (including health savings
accounts) and trusts used to fund those plans, provided that the shares
are not held in a commission-based brokerage account and shares are held
for the benefit of the plan. |
|
|
• |
Shares purchased by or through
a 529 Plan. |
|
|
• |
Shares purchased through a
Merrill Lynch affiliated investment advisory program.
|
|
|
• |
Shares purchased by third
party investment advisors on behalf of their advisory clients through
Merrill Lynch’s platform. |
|
|
• |
Shares of funds purchased
through the Merrill Edge Self-Directed platform.
|
|
|
• |
Shares purchased through
reinvestment of capital gains distributions and dividend reinvestment when
purchasing shares of the same fund (but not any other fund within the fund
family). |
|
|
• |
Shares exchanged from Class C
(i.e. level-load) shares of the same fund in the month of or following the
10-year anniversary of the purchase date.
|
|
|
• |
Employees and registered
representatives of Merrill Lynch or its affiliates and their family
members. |
|
|
• |
Directors or Trustees of the
Fund, and employees of the Fund’s investment adviser or any of its
affiliates, as described in this prospectus.
|
|
|
• |
Shares purchased from the
proceeds of redemptions within the same fund family, provided (1) the
repurchase occurs within 90 days following the redemption, (2) the
redemption and purchase occur in the same account, and (3) redeemed shares
were subject to a front-end or deferred sales load (known as Rights of
Reinstatement). |
CDSC
Waivers on Class A and C Shares Available at Merrill Lynch
|
|
• |
Death or disability of the
shareholder |
|
|
• |
Shares sold as part of a
systematic withdrawal plan as described in the Fund’s prospectus
|
|
|
• |
Return of excess contributions
from an IRA Account |
|
|
• |
Shares sold as part of a
required minimum distribution for IRA and retirement accounts due to the
shareholder reaching age 70½ |
|
|
• |
Shares sold to pay Merrill
Lynch fees but only if the transaction is initiated by Merrill
Lynch |
|
|
• |
Shares acquired through a
right of reinstatement |
|
|
• |
Shares held in retirement
brokerage accounts, that are exchanged for a lower cost share class due to
transfer to a fee based account or platform (applicable to A and C shares
only) |
Initial
Sales Charge Reductions Available at Merrill Lynch: Breakpoints, Rights of
Accumulation & Letters of Intent
|
|
• |
Breakpoints as described in
this prospectus. |
|
|
• |
Rights of Accumulation (ROA)
which entitle shareholders to breakpoint discounts will be automatically
calculated based on the aggregated holding of Class A shares and Class C
shares of fund family assets held by accounts within the purchaser’s
household at Merrill Lynch. Eligible fund family assets not held at
Merrill Lynch may be included in the ROA calculation only if the
shareholder notifies his or her financial advisor about such
assets. |
|
|
• |
Letters of Intent (LOI) which
allow for breakpoint discounts based on anticipated purchases of Class A
shares and Class C shares within a fund family, through Merrill Lynch,
over a 13-month period of time. |
Morgan
Stanley Wealth Management
Initial
Sales Charge Waivers on Class A Shares Available at Morgan Stanley Wealth
Management
Effective July 1, 2018, if you
purchase Class A Fund shares through a Morgan Stanley Wealth Management
transactional brokerage account you will be eligible only for the following
initial sales charge waivers, which differ from those disclosed elsewhere in
this prospectus or the SAI.
|
|
• |
Employer-sponsored retirement
plans (e.g., 401(k) plans, 457 plans, employer-sponsored 403(b) plans,
profit sharing and money purchase pension plans and defined benefit
plans). For purposes of this provision, employer-sponsored retirement
plans do not include SEP IRAs, Simple IRAs, SAR-SEPs or Keogh
plans. |
|
|
• |
Morgan Stanley employee and
employee-related accounts according to Morgan Stanley’s account linking
rules. |
|
|
• |
Shares purchased through
reinvestment of dividends and capital gains distributions when purchasing
shares of the same fund. |
|
|
• |
Shares purchased through a
Morgan Stanley self-directed brokerage
account. |
|
|
• |
Class C (i.e., level-load)
shares that are no longer subject to a contingent deferred sales charge
and are converted to Class A shares of the same fund pursuant to Morgan
Stanley Wealth Management’s share class conversion
program. |
|
|
• |
Shares purchased from the
proceeds of redemptions within the same fund family, provided (i) the
repurchase occurs within 90 days following the redemption, (ii) the
redemption and purchase occur in the same account, and (iii) redeemed
shares were subject to a front-end or deferred sales
charge. |
Raymond
James
Effective March 1, 2019,
shareholders purchasing fund shares through a Raymond James & Associates,
Inc., Raymond James Financial Services, Inc., & Raymond James affiliates
(“Raymond James”) platform or account will be eligible only for the following
load waivers (front-end sales charge waivers and contingent deferred, or
back-end, sales charge waivers) and discounts, which may differ from those
disclosed elsewhere in this fund’s prospectus or SAI.
Front-end
sales load waivers on Class A shares available at Raymond James
|
|
• |
Shares purchased in an
investment advisory program. |
|
|
• |
Shares purchased through
reinvestment of capital gains distributions and dividend reinvestment when
purchasing shares of the same fund (but not any other fund within the fund
family). |
|
|
• |
Employees and registered
representatives of Raymond James or its affiliates and their family
members as designated by Raymond James. |
|
|
• |
Shares purchased from the
proceeds of redemptions within the same fund family, provided (1) the
repurchase occurs within 90 days following the redemption, (2) the
redemption and purchase occur in the same account, and (3) redeemed shares
were subject to a front-end or deferred sales load (known as Rights of
Reinstatement). |
|
|
• |
A shareholder in the Fund’s
Class C shares will have their shares converted at net asset value to
Class A shares (or the appropriate share class) of the Fund if the shares
are no longer subject to a CDSC and the conversion is in line with the
policies and procedures of Raymond James.
|
CDSC
Waivers on Classes A and C shares available at Raymond James
|
|
• |
Death or disability of the
shareholder. |
|
|
• |
Shares sold as part of a
systematic withdrawal plan as described in the fund’s prospectus.
|
|
|
• |
Return of excess contributions
from an IRA Account. |
|
|
• |
Shares sold as part of a
required minimum distribution for IRA and retirement accounts due to the
shareholder reaching age 70½ as described in the fund’s prospectus.
|
|
|
• |
Shares sold to pay Raymond
James fees but only if the transaction is initiated by Raymond
James. |
|
|
• |
Shares acquired through a
right of reinstatement. |
Front-end
load discounts available at Raymond James: breakpoints, and/or rights of
accumulation
|
|
• |
Breakpoints as described in
this prospectus. |
|
|
• |
Rights of accumulation which
entitle shareholders to breakpoint discounts will be automatically
calculated based on the aggregated holding of fund family assets held by
accounts within the purchaser’s household at Raymond James. Eligible fund
family assets not held at Raymond James may be included in the rights of
accumulation calculation only if the shareholder notifies his or her
financial advisor about such assets. |
APPENDIX D –
FINANCIAL HIGHLIGHTS
To be filed by amendment.
Additional information about the
Fund is available in the Statement of Additional Information dated _________,
which is incorporated by reference into this prospectus. Additional information
about the Funds’ investments is available in the Fund’s annual and semiannual
reports to shareholders. In the Fund’s annual report, you will find a discussion
of the market conditions and investment strategies that significantly affected
the Funds’ performance during the last fiscal year. The Statement of Additional
Information and the Fund’s annual and semiannual reports can be obtained free of
charge by writing Principal Funds, P.O. Box 8024, Boston, MA
02266-8024. In addition, the Fund makes its Statement of Additional Information
and annual and semiannual reports available, free of charge, on our website
www.principalfunds.com/prospectuses. To request this and other information about
the Fund and to make shareholder inquiries, telephone
1-800-222-5852.
Information about the Fund
(including the Statement of Additional Information) can be reviewed and copied
at the Securities and Exchange Commission’s Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room
may be obtained by calling the Commission at 1-202-551-8090. Reports and other
information about the Fund are available on the EDGAR Database on the
Commission’s internet site at www.sec.gov. Copies of this information may be
obtained, upon payment of a duplicating fee, by electronic request at the
following e-mail address: [email protected], or by writing the Commission’s
Public Reference Section, 100 F Street, N.E., Washington, D.C.
20549-1520.
PFI has entered into a management
agreement with Principal Global Investors, LLC (“PGI”). PFI and/or PGI, on
behalf of the Funds, enter into contractual arrangements with various parties,
including, among others, the Funds’ sub-advisors, distributor, transfer agent
and custodian, who provide services to the Funds. These arrangements are between
PFI and/or PGI and the applicable service provider. Shareholders are not parties
to, or intended to be third-party beneficiaries of, any of these arrangements.
Such arrangements are not intended to create in any individual shareholder or
group of shareholders any right, including the right to enforce such
arrangements against the service providers or to seek any remedy thereunder
against PGI or any other service provider, either directly or on behalf of PFI
or any Fund.
This prospectus provides information
that you should consider in determining whether to purchase shares of a Fund.
This prospectus, the Statement of Additional Information, or the contracts that
are exhibits to PFI’s registration statement are not intended to give rise to
any agreement or contract between PFI and/or any Fund and any investor, or give
rise to any contract or other rights in any individual shareholder, group of
shareholders or other person other than any rights conferred explicitly by
federal or state securities laws that may not be waived.
The U.S. government does not
insure or guarantee an investment in any of the Funds.
Shares of the Funds are not deposits
or obligations of, or guaranteed or endorsed by, Principal Bank or any other
financial institution, nor are shares of the Funds federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency.
Principal Funds, Inc. SEC File
811-07572