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PRINCIPAL FUNDS, INC. (“PFI”)
Effective June 23, 2017, remove Class P Shares from the following list of share classes.
Class A Shares
Class C Shares
Class J Shares
Class P Shares
Institutional Class Shares
Class R-1 Shares
Class R-2 Shares
Class R-3 Shares
Class R-4 Shares
Class R-5 Shares
Class R-6 Shares
The date of this Prospectus is March 1, 2017, as revised May 2, 2017 and previously supplemented on
March 17, 2017, March 24, 2017, March 27, 2017, April 7, 2017, and May 2, 2017.








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











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




On June 23, 2017, remove column P from the Ticker Symbols by Share Class table.
Ticker Symbols by Share Class
Fund
A
C
J
P
Inst.
R-1
R-2
R-3
R-4
R-5
R-6
California Municipal
SRCMX
SRCCX
 
PLBTX
PCMFX
 
 
 
 
 
 
Core Plus Bond
PRBDX
PBMCX
PBMJX
 
PMSIX
PBOMX
PBMNX
PBMMX
PBMSX
PBMPX
 
Diversified International
PRWLX
PDNCX
PIIJX
PDIPX
PIIIX
PDVIX
PINNX
PINRX
PINLX
PINPX
 
Equity Income
PQIAX
PEUCX
 
PEQPX
PEIIX
PIEMX
PEINX
PEIOX
PEIPX
PEIQX
 
Finisterre Unconstrained Emerging Markets Bond
PFUEX
 
 
PFUBX
PFUMX
 
 
 
 
 
 
Global Diversified Income
PGBAX
PGDCX
 
PGDPX
PGDIX
 
 
 
 
 
 
Global Real Estate Securities
POSAX
POSCX
 
POSPX
POSIX
 
 
PGRKX
PGRVX
PGRUX
PGRSX
Government & High Quality Bond
CMPGX
CCUGX
PMRJX
PGSPX
PMRIX
PMGRX
PFMRX
PRCMX
PMRDX
PMREX
 
High Yield
CPHYX
CCHIX
 
PYHPX
PHYTX
 
 
 
 
 
PHYFX
High Yield I
PYHAX
 
 
 
PYHIX
 
 
 
 
 
 
Income
CMPIX
CNMCX
PIOJX
PIMPX
PIOIX
PIOMX
PIONX
PIOOX
PIOPX
PIOQX
PICNX
Inflation Protection
PITAX
PPOCX
PIPJX
 
PIPIX
PISPX
PBSAX
PIFPX
PIFSX
PBPPX
 
International Emerging Markets
PRIAX
PMKCX
PIEJX
PIEPX
PIEIX
PIXEX
PEASX
PEAPX
PESSX
PEPSX
PIIMX
International I
PFAFX
 
 
PTRPX
PINIX
PPISX
PSPPX
PRPPX
PUPPX
PTPPX
PIIDX
LargeCap Growth
PRGWX
PLGCX
PGLJX
PGLPX
PGLIX
PLSGX
PCPPX
PLGPX
PEPPX
PDPPX
 
LargeCap Growth I
PLGAX
 
PLGJX
PVCPX
PLGIX
PCRSX
PPUNX
PPUMX
PPUSX
PPUPX
PLCGX
LargeCap Growth II
 
 
PPLJX
 
PPIIX
PDASX
PPTNX
PPTMX
PPTSX
PPTPX
 
LargeCap S&P 500 Index
PLSAX
PLICX
PSPJX
 
PLFIX
PLPIX
PLFNX
PLFMX
PLFSX
PLFPX
 
LargeCap Value
PCACX
PLUCX
PVLJX
PVFPX
PVLIX
PLSVX
PLVNX
PLVMX
PLVSX
PLVPX
 
LargeCap Value III
 
 
PLVJX
 
PLVIX
PESAX
PPSNX
PPSFX
PPSSX
PPSRX
 
MidCap
PEMGX
PMBCX
PMBJX
PMCPX
PCBIX
PMSBX
PMBNX
PMBMX
PMBSX
PMBPX
PMAQX
MidCap Growth
 
 
PMGJX
 
PGWIX
PMSGX
PGPPX
PFPPX
PIPPX
PHPPX
 
MidCap Growth III
 
 
PPQJX
 
PPIMX
PHASX
PPQNX
PPQMX
PPQSX
PPQPX
 
MidCap S&P 400 Index
 
 
PMFJX
 
MPSIX
PMSSX
PMFNX
PMFMX
PMFSX
PMFPX
PMAPX
MidCap Value I
 
 
PVEJX
 
PVMIX
PLASX
PABUX
PMPRX
PABWX
PABVX
 
MidCap Value III
PVCAX
 
PMCJX
PMVPX
PVUIX
PMSVX
PKPPX
PJPPX
PMPPX
PLPPX
PCMIX
Money Market
PCSXX
PPCXX
PMJXX
 
PVMXX
 
 
 
 
 
 
Overseas
 
 
 
 
PINZX
PINQX
PINSX
PINTX
PINUX
PINGX
 
Principal Capital Appreciation
CMNWX
CMNCX
 
PCFPX
PWCIX
PCAMX
PCANX
PCAOX
PCAPX
PCAQX
 
Principal LifeTime Strategic Income
PALTX
 
PLSJX
 
PLSIX
PLAIX
PLSNX
PLSMX
PLSSX
PLSPX
 
Principal LifeTime 2010
PENAX
 
PTAJX
 
PTTIX
PVASX
PTANX
PTAMX
PTASX
PTAPX
 
Principal LifeTime 2015
 
 
 
 
LTINX
LTSGX
LTASX
LTAPX
LTSLX
LTPFX
 
Principal LifeTime 2020
PTBAX
 
PLFJX
 
PLWIX
PWASX
PTBNX
PTBMX
PTBSX
PTBPX
 
Principal LifeTime 2025
 
 
 
 
LTSTX
LTSNX
LTADX
LTVPX
LTEEX
LTPDX
 
Principal LifeTime 2030
PTCAX
 
PLTJX
 
PMTIX
PXASX
PTCNX
PTCMX
PTCSX
PTCPX
 
Principal LifeTime 2035
 
 
 
 
LTIUX
LTANX
LTVIX
LTAOX
LTSEX
LTPEX
 
Principal LifeTime 2040
PTDAX
 
PTDJX
 
PTDIX
PYASX
PTDNX
PTDMX
PTDSX
PTDPX
 
Principal LifeTime 2045
 
 
 
 
LTRIX
LTRGX
LTRSX
LTRVX
LTRLX
LTRDX
 
Principal LifeTime 2050
PPEAX
 
PFLJX
 
PPLIX
PZASX
PTENX
PTERX
PTESX
PTEFX
 
Principal LifeTime 2055
 
 
 
 
LTFIX
LTFGX
LTFSX
LTFDX
LTFLX
LTFPX
 
Principal LifeTime 2060
 
 
PLTAX
 
PLTZX
PLTRX
PLTBX
PLTCX
PLTMX
PLTOX
 
Principal LifeTime Hybrid Income
 
 
 
 
PHTFX
 
 

 

PLTYX
Principal LifeTime Hybrid 2015
 
 
 
 
PHTMX
 
 
 
 
 
PLRRX
Principal LifeTime Hybrid 2020
 
 
 
 
PHTTX
 
 
 
 
 
PLTTX
Principal LifeTime Hybrid 2025
 
 
 
 
PHTQX
 
 
 
 
 
PLFTX
Principal LifeTime Hybrid 2030
 
 
 
 
PHTNX
 
 
 
 
 
PLZTX
Principal LifeTime Hybrid 2035
 
 
 
 
PHTJX
 
 
 
 
 
PLRTX
Principal LifeTime Hybrid 2040
 
 
 
 
PLTQX
 
 
 
 
 
PLMTX
Principal LifeTime Hybrid 2045
 
 
 
 
PHTYX
 
 
 
 
 
PLNTX
Principal LifeTime Hybrid 2050
 
 
 
 
PHTUX
 
 
 
 

PLJTX
Principal LifeTime Hybrid 2055
 
 
 
 
PLTNX
 
 

 

PLHTX
Principal LifeTime Hybrid 2060
 
 
 
 
PLTHX
 
 
 
 
 
PLKTX
Real Estate Securities
PRRAX
PRCEX
PREJX
PIRPX
PIREX
PRAEX
PRENX
PRERX
PRETX
PREPX
PFRSX
SAM Balanced
SABPX
SCBPX
PSAJX
PQRBX
PSBIX
PSBGX
PSBVX
PBAPX
PSBLX
PSBFX
 
SAM Conservative Balanced
SAIPX
SCIPX
PCBJX
PCBTX
PCCIX
PCSSX
PCNSX
PCBPX
PCBLX
PCBFX
 
SAM Conservative Growth
SAGPX
SCGPX
PCGJX
PCGMX
PCWIX
PCGGX
PCGVX
PCGPX
PCWSX
PCWPX
 
SAM Flexible Income
SAUPX
SCUPX
PFIJX
PFITX
PIFIX
PFIGX
PFIVX
PFIPX
PFILX
PFIFX
 
SAM Strategic Growth
SACAX
SWHCX
PSWJX
PSGHX
PSWIX
PSGGX
PSGVX
PSGPX
PSGLX
PSGFX
 
Short-Term Income
SRHQX
STCCX
PSJIX
PSTPX
PSHIX
PSIMX
PSINX
PSIOX
PSIPX
PSIQX
 
SmallCap
PLLAX
PSMCX
PSBJX
PSFPX
PSLIX
PSABX
PSBNX
PSBMX
PSBSX
PSBPX
PSMLX
SmallCap Growth I
 
 
PSIJX
 
PGRTX
PNASX
PPNNX
PPNMX
PPNSX
PPNPX
PCSMX
SmallCap S&P 600 Index
 
 
PSSJX
 
PSSIX
PSAPX
PSSNX
PSSMX
PSSSX
PSSPX
PSPIX
SmallCap Value II
PSVAX
 
PSMJX
PSCPX
PPVIX
PCPTX
PKARX
PJARX
PSTWX
PLARX
PSMVX
Tax-Exempt Bond
PTEAX
PTBCX
 
PTETX
PITEX
 
 
 
 
 
 































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TABLE OF CONTENTS

3





4



CALIFORNIA MUNICIPAL FUND
On March 13, 2017, the Board of Directors of Principal Funds, Inc. (“PFI”) approved the automatic conversion of Class P shares into Institutional Class shares. After June 22, 2017, Class P shares will no longer be available for purchase. Following the close of business on June 23, 2017, Class P shares will automatically convert into Institutional Class shares of the same Fund on the basis of the share classes’ relative net asset values on such date without the imposition of a sales charge or any other charge. At such time, delete references to Class P from this Prospectus.
Objective:
The Fund seeks to provide as high a level of current income that is exempt from federal and state personal income tax as is consistent with prudent investment management and preservation of capital.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $100,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.
Shareholder Fees (fees paid directly from your investment)
 
Share Class
 
A
C
P
Inst.
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)
3.75%
None
None
None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)
1.00%
1.00%
None
None
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
 
Share Class
 
A
C
P
Inst.
Management Fees
0.45%
0.45%
0.45%
0.45%
Distribution and/or Service (12b-1) Fees
0.25%
1.00%
N/A
N/A
Other Expenses
 
 
 
 
Interest Expense
0.05%
0.05%
0.05%
0.05%
Remainder of Other Expenses
0.07%
0.15%
0.12%
0.71%
Total Other Expenses
0.12%
0.20%
0.17%
0.76%
Total Annual Fund Operating Expenses
0.82%
1.65%
0.62%
1.21%
Expense Reimbursement (1)
N/A
N/A
(0.06)%
(0.65)%
Total Annual Fund Operating Expenses after Expense Reimbursement
0.82%
1.65%
0.56%
0.56%
(1)    Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.51% for Class P and 0.51% for Institutional Class shares. It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

5




Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. The calculation of costs takes into account any applicable contractual fee waivers and/or expense reimbursements for the period noted in the table above. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
 
1 year
3 years
5 years
10 years
Class A
$456
$627
$813
$1,350
Class C
268
520
897
1,955
Class P
57
192
340
769
Institutional Class
57
320
602
1,408
With respect to Class C shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):
 
1 year
3 years
5 years
10 years
Class C
$168
$520
$897
$1,955
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 27.9% of the average value of its portfolio.
Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in California municipal obligations (securities issued by or on behalf of state or local governments and other public authorities) at the time of purchase. Generally, these municipal obligations pay interest that is exempt from state personal income tax and federal income tax. These obligations may include bonds that generate interest payments that are subject to the alternative minimum tax. Under normal circumstances, the Fund maintains an average portfolio duration that is within ±50% of the duration of the Bloomberg Barclays California Municipal Bond Index, which as of December 31, 2016 was 6.08 years. The Fund may invest up to 20% of its assets in below investment grade bonds (sometimes called “high yield bonds” or "junk bonds") which are rated at the time of purchase Ba1 or lower by Moody's Investors Service, Inc. ("Moody's") and BB+ or lower by S&P Global Ratings ("S&P Global") (if the bond has been rated by only one of those agencies, that rating will determine whether the bond is below investment grade; if the bond has not been rated by either of those agencies, those selecting such investments will determine whether the bond is of a quality comparable to those rated below investment grade). The Fund is not managed to a particular maturity. The Fund also invests in inverse floating rate obligations, which are generally more volatile than other types of municipal obligations and may involve leverage.
During the fiscal year ended October 31, 2016, the average ratings of the Fund’s fixed-income assets, based on market value at each month-end, were as follows (all ratings are by Moody’s):
9.45% in securities rated Aaa
9.63% in securities rated Baa
0.00% in securities rated Caa
0.00% in securities rated D
46.31% in securities rated Aa
4.17% in securities rated Ba
0.00% in securities rated Ca
7.77% in securities not rated
17.38% in securities rated A
5.29% in securities rated B
0.00% in securities rated C
 

6




Principal Risks
The value of your investment in the Fund changes with the value of the Fund's investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund, in alphabetical order, are:
Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate risk and credit quality risk. The market value of fixed-income securities generally declines when interest rates rise, and an issuer of fixed-income securities could default on its payment obligations.
Geographic Concentration Risk. A fund that invests significant portions of its assets in municipal obligations and bonds in particular geographic areas (a particular state, such as California, or a particular country or region) has greater exposure than other funds to economic conditions and developments in those areas.
High Yield Securities Risk. High yield fixed-income securities (commonly referred to as "junk bonds") are subject to greater credit quality risk than higher rated fixed-income securities and should be considered speculative.
Inverse Floating Rate Investments Risk. Inverse floating rate investments are extremely sensitive to changes in interest rates and in some cases their market value may be extremely volatile.
Leverage Risk. Leverage created by borrowing or certain types of transactions or investments may impair the fund's liquidity, cause it to liquidate positions at an unfavorable time, increase volatility of the fund's net asset value, or diminish the fund's performance.
Municipal Obligations Risk. Principal and interest payments on municipal securities may not be guaranteed by the issuing body and may be payable only from a particular source. That source may not perform as expected and payment obligations may not be made or made on time.
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund's average portfolio duration, the more sensitive the fund will be to changes in interest rates.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852 or online at:
For Classes A, C, and P shares - www.principalfunds.com.
For Institutional Class shares - www.principal.com.
The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.
For periods prior to the inception date of Institutional Class shares (March 1, 2015) and Class P shares (August 24, 2015), the performance shown in the table for Institutional Class and Class P shares is based on the performance of the Fund's Class A shares, adjusted to reflect the respective fees and expenses of each class. Where this adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class A shares, the historical performance of Class A shares is used for the newer class (without respect to sales charges, if not applicable to the newer class). These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the Class A shares.
The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods prior to that date is based on the performance of the predecessor fund.
The predecessor fund's Class A shares commenced operations on July 25, 1989.

7




Total Returns as of December 31 (Class A shares)
pfi1031pros_chart-25784.jpg
Highest return for a quarter during the period of the bar chart above:
Q3 '09
11.85
 %
Lowest return for a quarter during the period of the bar chart above:
Q4 '08
(10.08
)%
Average Annual Total Returns
For the periods ended December 31, 2016
1 Year
5 Years
10 Years
Class A Return Before Taxes
(3.92)%
3.90%
3.10%
Class A Return After Taxes on Distributions
(3.92)%
3.90%
3.10%
Class A Return After Taxes on Distribution and Sale of Fund Shares
(0.98)%
3.94%
3.30%
Class C Return Before Taxes
(1.98)%
3.72%
2.55%
Class P Return Before Taxes
0.06%
4.77%
3.53%
Institutional Class Return Before Taxes
(0.02)%
4.77%
3.53%
Bloomberg Barclays California Municipal Index (reflects no deduction for fees, expenses, or taxes)
(0.14)%
3.85%
4.44%
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class A shares only and would be different for the other share classes.
Management
Investment Advisor and Portfolio Managers:    
Principal Global Investors, LLC
James Noble (since 2013), Portfolio Manager
James Welch (since 2014), Portfolio Manager

8




Purchase and Sale of Fund Shares
Share Class
Investment Type
Purchase Minimum Per Fund
A and C
Initial Investment
$1,000(1)
A and C
Initial Investment for accounts with an Automatic Investment Plan (AIP)
$100
A and C
Subsequent Investments
$100(1)(2)
P and Institutional
There are no minimum initial or subsequent investment requirements for eligible purchasers.
N/A
(1) 
Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.
(2) 
For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.
You may purchase or redeem shares on any business day (normally any day when the New York Stock Exchange is open for regular trading) through your plan, intermediary, or Financial Professional; by sending a written request to Principal Funds at P.O. Box 8024, Boston, MA 02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight mail); calling us at 1-800-222-5852; or accessing our website (www.principalfunds.com).
Tax Information
While the Fund intends to distribute income that is exempt from regular federal and California income taxes, a portion of the Fund’s distributions may be subject to California or federal income taxes or to the federal alternative minimum tax.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment adviser, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, or to recommend one share class of the Fund over another share class. Ask your salesperson or visit your financial intermediary’s website for more information.


9




CORE PLUS BOND FUND
Objective:
The Fund seeks to provide current income and, as a secondary objective, capital appreciation.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $100,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.
Shareholder Fees (fees paid directly from your investment)
 
Share Class
 
A
C
J
Inst.
R-1
R-2
R-3
R-4
R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)
3.75%
None
None
None
None
None
None
None
None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)
1.00%
1.00%
1.00%
None
None
None
None
None
None
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
 
Share Class
 
A
C
J
Inst.
R-1
R-2
R-3
R-4
R-5
Management Fees
0.49%
0.49%
0.49%
0.49%
0.49%
0.49%
0.49%
0.49%
0.49%
Distribution and/or Service (12b-1) Fees (1)
0.25%
1.00%
0.15%
N/A
0.35%
0.30%
0.25%
0.10%
N/A
Other Expenses (1)
0.25%
0.52%
0.14%
0.01%
0.54%
0.46%
0.33%
0.29%
0.27%
Acquired Fund Fees and Expenses
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
0.01%
Total Annual Fund Operating Expenses
1.00%
2.02%
0.79%
0.51%
1.39%
1.26%
1.08%
0.89%
0.77%
Fee Waiver and Expense Reimbursement (2)(3)
(0.11)%
(0.26)%
(0.01)%
(0.01)%
(0.01)%
(0.01)%
(0.01)%
(0.01)%
(0.01)%
Total Annual Fund Operating Expenses after Fee Waiver and Expense Reimbursement
0.89%
1.76%
0.78%
0.50%
1.38%
1.25%
1.07%
0.88%
0.76%
(1)    Expense information in the table has been restated to reflect current fees.
(2)    Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund's Management Fees through the period ending February 28, 2019. The fee waiver will reduce the Fund's Management Fees by 0.01% (expressed as a percent of average net assets on an annualized basis). It is expected that the fee waiver will continue through the period disclosed; however, Principal Funds, Inc. and PGI, the parties to the agreement may mutually agree to terminate the fee waiver prior to the end of the period.
(3)     Principal Global Investors,LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.88% for Class A and 1.75% for Class C shares. It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

10




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
$462
$670
$895
$1,543
Class C
279
607
1,063
2,326
Class J
180
250
437
976
Institutional Class
51
161
283
638
Class R-1
140
438
759
1,667
Class R-2
127
398
690
1,521
Class R-3
109
341
593
1,315
Class R-4
90
282
491
1,094
Class R-5
78
244
426
952
With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):
 
1 year
3 years
5 years
10 years
Class C
$179
$607
$1,063
$2,326
Class J
80
250
437
976
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 168.4% 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 bonds or other debt securities at the time of purchase. The bonds and other debt securities in which the Fund invests include intermediate maturity fixed-income securities, which are rated, at the time of purchase, BBB- or higher by S&P Global Ratings ("S&P Global") or Baa3 or higher by Moody's Investors Service, Inc. ("Moody's”). The fixed-income securities in which the Fund invests include securities issued or guaranteed by the U.S. government or its agencies or instrumentalities (including collateralized mortgage obligations); asset-backed securities or mortgage-backed securities (securitized products); corporate bonds; and securities issued or guaranteed by foreign governments payable in U.S. dollars. The Fund also invests in foreign securities, and up to 20% of its assets in below investment grade bonds (sometimes called “high yield bonds” or "junk bonds") which are rated at the time of purchase Ba1 or lower by Moody's and BB+ or lower by S&P Global (if the bond has been rated by only one of those agencies, that rating will determine whether the bond is below investment grade; if the bond has not been rated by either of those agencies, those selecting such investments will determine whether the bond is of a quality comparable to those rated below investment grade). The Fund is not managed to a particular maturity. Under normal circumstances, the Fund maintains an average portfolio duration that is within ±25% of the duration of the Bloomberg Barclays U.S. Aggregate Bond Index, which as of December 31, 2016 was 5.89 years.

11




The Fund actively trades portfolio securities and enters into dollar roll transactions which may involve leverage. The Fund utilizes derivative strategies for hedging or managing fixed income exposure. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. Specifically, the Fund invests in Treasury futures or interest rate swaps to manage the fixed-income exposure (including for hedging purposes) and credit default swaps to increase or decrease, in an efficient manner, exposures to certain sectors or individual issuers.
During the fiscal year ended October 31, 2016, the average ratings of the Fund’s fixed-income assets, based on market value at each month-end, were as follows (all ratings are by Moody’s):
49.85% in securities rated Aaa
20.30% in securities rated Baa
0.91% in securities rated Caa
0.01% in securities rated D
4.50% in securities rated Aa
6.69% in securities rated Ba
0.02% in securities rated Ca
1.16% in securities not rated
13.14% in securities rated A
3.41% in securities rated B
0.01% in securities rated C
 
Principal Risks
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.
Credit Default Swaps. Credit default swaps involve special risks in addition to those associated with swaps generally because they are difficult to value, are highly susceptible to liquidity and credit risk, and generally pay a return to the party that has paid the premium only in the event of an actual default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial difficulty). The protection “buyer” in a credit default contract may be obligated to pay the protection “seller” an upfront payment or a periodic stream of payments over the term of the contract provided generally that no credit event on a reference obligation has occurred. If a credit event occurs, the seller generally must pay the buyer the “par value” (full notional value) of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described in the swap, or the seller may be required to deliver the related net cash amount, if the swap is cash settled. The Fund may be either the buyer or seller in the transaction.
Currency Contracts. Derivatives related to currency contracts involve the specific risk of government action through exchange controls that would restrict the ability of the fund to deliver or receive currency.
Futures and Swaps. Futures and swaps involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the future or swap; possible lack of a liquid secondary market for a future or swap and the resulting inability to close a future or swap when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate risk and credit quality risk. The market value of fixed-income securities generally declines when interest rates rise, and an issuer of fixed-income securities could default on its payment obligations.
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).

12




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 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.
Portfolio Turnover (Active Trading) Risk. High portfolio turnover (more than 100%) caused by actively trading portfolio securities may result in accelerating the realization of taxable gains and losses, lower fund performance and increased brokerage costs.
Real Estate Securities Risk. Investing in real estate securities subjects the fund to the risks associated with the real estate market (which are similar to the risks associated with direct ownership in real estate), including declines in real estate values, loss due to casualty or condemnation, property taxes, interest rate changes, increased expenses, cash flow of underlying real estate assets, regulatory changes (including zoning, land use and rents), and environmental problems, as well as to the risks related to the management skill and creditworthiness of the issuer.
Redemption Risk. A fund that serves as an underlying fund for a fund of funds is subject to certain risks. When a fund of funds reallocates or rebalances its investments, an underlying fund may experience relatively large redemptions or investments. These transactions may cause the underlying fund to sell portfolio securities to meet such redemptions, or to invest cash from such investments, at times it would not otherwise do so, and may as a result increase transaction costs and adversely affect underlying fund performance. Moreover, a fund of fund's redemptions or reallocations among share classes of an underlying fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Securitized Products Risk. Investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Unscheduled prepayments on securitized products may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk).
U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.
U.S. Government-Sponsored Securities Risk. Securities issued by U.S. government-sponsored or -chartered enterprises such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852 or online at:
For Classes A, C, and J - www.principalfunds.com.
For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.
The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.

13




For periods prior to the inception date of Class C shares (January 16, 2007), the performance shown in the table for Class C is based on the performance of the Fund's Class R-3 shares, adjusted to reflect the fees and expenses of Class C. These adjustments result in performance for such periods that is no higher than the historical performance of the Class R-3 shares, which were first sold on December 6, 2000.
Total Returns as of December 31 (Class A shares)
pfi1031pros_chart-26298.jpg
Highest return for a quarter during the period of the bar chart above:
Q3 '09
9.08
 %
Lowest return for a quarter during the period of the bar chart above:
Q4 '08
(6.25
)%
Average Annual Total Returns
For the periods ended December 31, 2016
1 Year
5 Years
10 Years
Class A Return Before Taxes
(0.25)%
1.80%
3.04%
Class A Return After Taxes on Distributions
(1.16)%
0.83%
1.81%
Class A Return After Taxes on Distribution and Sale of Fund Shares
(0.14)%
0.96%
1.84%
Class C Return Before Taxes
1.70%
1.72%
2.58%
Class J Return Before Taxes
2.66%
2.59%
3.36%
Institutional Class Return Before Taxes
3.99%
2.97%
3.85%
Class R-1 Return Before Taxes
3.09%
2.07%
2.95%
Class R-2 Return Before Taxes
3.26%
2.21%
3.08%
Class R-3 Return Before Taxes
3.43%
2.40%
3.26%
Class R-4 Return Before Taxes
3.64%
2.60%
3.47%
Class R-5 Return Before Taxes
3.75%
2.72%
3.58%
Bloomberg Barclays U.S. Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)
2.65%
2.23%
4.34%
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
•    William C. Armstrong (since 2000), Portfolio Manager
Tina Paris (since 2015), Portfolio Manager
Timothy R. Warrick (since 2000), Portfolio Manager

14




Purchase and Sale of Fund Shares
Share Class
Investment Type
Purchase Minimum Per Fund
A, C, and J
Initial Investment
$1,000(1)
A, C, and J
Initial Investment for accounts with an Automatic Investment Plan (AIP)
$100
A, C, and J
Subsequent Investments
$100(1)(2)
Institutional, R-1, R-2, R-3, R-4, and R-5
There are no minimum initial or subsequent investment requirements for eligible purchasers.
N/A
(1) 
Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.
(2) 
For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.
You may purchase or redeem shares on any business day (normally any day when the New York Stock Exchange is open for regular trading), through your plan, intermediary, or Financial Professional; by sending a written request to Principal Funds at P.O. Box 8024, Boston, MA 02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight mail); calling us at 1-800-222-5852; or accessing our website (www.principalfunds.com).
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.


15




DIVERSIFIED INTERNATIONAL FUND
On March 13, 2017, the Board of Directors of Principal Funds, Inc. (“PFI”) approved the automatic conversion of Class P shares into Institutional Class shares. After June 22, 2017, Class P shares will no longer be available for purchase. Following the close of business on June 23, 2017, Class P shares will automatically convert into Institutional Class shares of the same Fund on the basis of the share classes’ relative net asset values on such date without the imposition of a sales charge or any other charge. At such time, delete references to Class P from this Prospectus.
Objective:
The Fund seeks long-term growth of capital.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.
Shareholder Fees (fees paid directly from your investment)
 
Share Class
 
A
C
J
P
Inst.
R-1
R-2
R-3
R-4
R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)
5.50%
None
None
None
None
None
None
None
None
None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)
1.00%
1.00%
1.00%
None
None
None
None
None
None
None
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
 
Share Class
 
A
C
J
P
Inst.
R-1
R-2
R-3
R-4
R-5
Management Fees
0.83%
0.83%
0.83%
0.83%
0.83%
0.83%
0.83%
0.83%
0.83%
0.83%
Distribution and/or Service (12b-1) Fees (1)
0.25%
1.00%
0.15%
N/A
N/A
0.35%
0.30%
0.25%
0.10%
N/A
Other Expenses (1)
0.28%
0.47%
0.18%
0.55%
0.02%
0.54%
0.46%
0.33%
0.29%
0.27%
Total Annual Fund Operating Expenses
1.36%
2.30%
1.16%
1.38%
0.85%
1.72%
1.59%
1.41%
1.22%
1.10%
Expense Reimbursement (2)
N/A
(0.22)%
N/A
(0.35)%
N/A
N/A
N/A
N/A
N/A
N/A
Total Annual Fund Operating Expenses after Expense Reimbursement
1.36%
2.08%
1.16%
1.03%
0.85%
1.72%
1.59%
1.41%
1.22%
1.10%
(1)    Expense information in the table has been restated to reflect current fees.
(2)     Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 2.08% for Class C shares. In addition, for Class P, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.20%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

16




Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
 
Share Class
 
A
C
J
Inst.
R-1
R-2
R-3
R-4
R-5
Management Fees
0.83%
0.83%
0.83%
0.83%
0.83%
0.83%
0.83%
0.83%
0.83%
Distribution and/or Service (12b-1) Fees (1)
0.25%
1.00%
0.15%
N/A
0.35%
0.30%
0.25%
0.10%
N/A
Other Expenses (1)
0.28%
0.47%
0.18%
0.02%
0.54%
0.46%
0.33%
0.29%
0.27%
Total Annual Fund Operating Expenses
1.36%
2.30%
1.16%
0.85%
1.72%
1.59%
1.41%
1.22%
1.10%
Expense Reimbursement (2)(3)
N/A
(0.22)%
N/A
—%
N/A
N/A
N/A
N/A
N/A
Total Annual Fund Operating Expenses after Expense Reimbursement
1.36%
2.08%
1.16%
0.85%
1.72%
1.59%
1.41%
1.22%
1.10%
(1)    Expense information in the table has been restated to reflect current fees.
(2)     Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 2.08% for Class C shares. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.
(3)     Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.85% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
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
$957
$1,254
$2,095
Class C
311
697
1,210
2,619
Class J
218
368
638
1,409
Class P
105
402
722
1,627
Institutional Class
87
271
471
1,049
Class R-1
175
542
933
2,030
Class R-2
162
502
866
1,889
Class R-3
144
446
771
1,691
Class R-4
124
387
670
1,477
Class R-5
112
350
606
1,340

17




With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):
 
1 year
3 years
5 years
10 years
Class C
$211
$697
$1,210
$2,619
Class J
118
368
638
1,409
Effective June 23, 2017, delete the preceding Example section and replace with the following:
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
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
$957
$1,254
$2,095
Class C
311
697
1,210
2,619
Class J
218
368
638
1,409
Institutional Class
87
271
471
1,049
Class R-1
175
542
933
2,030
Class R-2
162
502
866
1,889
Class R-3
144
446
771
1,691
Class R-4
124
387
670
1,477
Class R-5
112
350
606
1,340
With respect to Classes C and J shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):
 
1 year
3 years
5 years
10 years
Class C
$211
$697
$1,210
$2,619
Class J
118
368
638
1,409
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 48.2% 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 that are invested in any one country or denominated in any one currency, but the Fund typically invests in foreign securities of at least 30 countries. Primary consideration is given to securities of corporations of developed areas, such as Japan, Western Europe, Canada, Australia, Hong Kong, Singapore and New Zealand; however, the Fund also invests in emerging market securities. The Fund invests in equity securities regardless of market capitalization size (small, medium or large) and style (growth or value).

18




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 companies stocks also typically lack the dividend yield that can lessen price declines in market downtowns.
Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.
Value Stock Risk. Value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by the fund, or the events that the portfolio manager believed would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock judged to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
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 Risk. A fund that serves as an underlying fund for a fund of funds is subject to certain risks. When a fund of funds reallocates or rebalances its investments, an underlying fund may experience relatively large redemptions or investments. These transactions may cause the underlying fund to sell portfolio securities to meet such redemptions, or to invest cash from such investments, at times it would not otherwise do so, and may as a result increase transaction costs and adversely affect underlying fund performance. Moreover, a fund of fund's redemptions or reallocations among share classes of an underlying fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852 or online at:
For Classes A, C, J, and P - www.principalfunds.com.
For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.
The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.
For periods prior to the inception date of Class C shares (January 16, 2007) and Class P shares (September 27, 2010), the performance shown in the table for Classes C and P is based on the performance of the Fund's Class R-3 shares, adjusted to reflect the respective fees and expenses of each class. Where this adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class R-3 shares, the historical performance of Class R-3 shares is used for the newer class. These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of the Class R-3 shares, which were first sold on December 6, 2000.

19




During 2010, the R-5 Class experienced a significant one-time gain approximately $0.08/share as the result of a settlement in an SEC administrative proceeding. If such a gain had not been recognized, the total return amounts expressed herein would have been lower.
Total Returns as of December 31 (Class A shares)
pfi1031pros_chart-26108.jpg
Highest return for a quarter during the period of the bar chart above:
Q2 '09
21.03
 %
Lowest return for a quarter during the period of the bar chart above:
Q3 '08
(24.17
)%
Average Annual Total Returns
 
For the periods ended December 31, 2016
1 Year
5 Years
10 Years
Class A Return Before Taxes
(5.82)%
4.58%
(0.29)%
 
Class A Return After Taxes on Distributions
(5.88)%
4.49%
(0.54)%
 
Class A Return After Taxes on Distribution and Sale of Fund Shares
(2.89)%
3.78%
0.09%
 
Class C Return Before Taxes
(1.99)%
5.06%
(0.38)%
 
Class J Return Before Taxes
(1.07)%
5.91%
0.31%
 
Class P Return Before Taxes
0.05%
6.16%
0.49%
 
Institutional Class Return Before Taxes
0.26%
6.33%
0.82%
 
Class R-1 Return Before Taxes
(0.71)%
5.42%
(0.06)%
 
Class R-2 Return Before Taxes
(0.58)%
5.54%
0.06%
 
Class R-3 Return Before Taxes
(0.31)%
5.75%
0.25%
 
Class R-4 Return Before Taxes
(0.13)%
5.94%
0.44%
 
Class R-5 Return Before Taxes
(0.01)%
6.07%
0.65%
(1) 
MSCI ACWI Ex-U.S. Index (reflects no deduction for fees, expenses, or taxes)
4.50%
5.00%
0.96%
 
(1) 
During 2010, the Class experienced a significant one-time gain of approximately $0.08/share as the result of a settlement in an SEC administrative proceeding. If such gain had not been recognized, the total return amounts expressed herein would have been lower.
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
Paul H. Blankenhagen (since 2003), Portfolio Manager
Juliet Cohn (since 2004), Portfolio Manager

20




Purchase and Sale of Fund Shares
Share Class
Investment Type
Purchase Minimum Per Fund
A, C, and J
Initial Investment
$1,000(1)
A, C, and J
Initial Investment for accounts with an Automatic Investment Plan (AIP)
$100
A, C, and J
Subsequent Investments
$100(1)(2)
P, Institutional, R-1, R-2, R-3, R-4, and R-5
There are no minimum initial or subsequent investment requirements for eligible purchases.
N/A
(1) 
Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.
(2) 
For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.
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.


21




EQUITY INCOME FUND
On March 13, 2017, the Board of Directors of Principal Funds, Inc. (“PFI”) approved the automatic conversion of Class P shares into Institutional Class shares. After June 22, 2017, Class P shares will no longer be available for purchase. Following the close of business on June 23, 2017, Class P shares will automatically convert into Institutional Class shares of the same Fund on the basis of the share classes’ relative net asset values on such date without the imposition of a sales charge or any other charge. At such time, delete references to Class P from this Prospectus.
Objective:
The Fund seeks to provide 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. This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.
Shareholder Fees (fees paid directly from your investment)
 
Share Class
 
A
C
P
Inst.
R-1
R-2
R-3
R-4
R-5
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)
5.50%
None
None
None
None
None
None
None
None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)
1.00%
1.00%
None
None
None
None
None
None
None
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
 
Share Class
 
A
C
P
Inst.
R-1
R-2
R-3
R-4
R-5
Management Fees
0.51%
0.51%
0.51%
0.51%
0.51%
0.51%
0.51%
0.51%
0.51%
Distribution and/or Service (12b-1) Fees
0.25%
1.00%
N/A
N/A
0.35%
0.30%
0.25%
0.10%
N/A
Other Expenses
0.15%
0.14%
0.09%
0.01%
0.53%
0.45%
0.32%
0.28%
0.26%
Total Annual Fund Operating Expenses
0.91%
1.65%
0.60%
0.52%
1.39%
1.26%
1.08%
0.89%
0.77%

22




Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and replace with the following:
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
 
Share Class
 
A
C
Inst.
R-1
R-2
R-3
R-4
R-5
Management Fees
0.51%
0.51%
0.51%
0.51%
0.51%
0.51%
0.51%
0.51%
Distribution and/or Service (12b-1) Fees
0.25%
1.00%
N/A
0.35%
0.30%
0.25%
0.10%
N/A
Other Expenses
0.15%
0.14%
0.01%
0.53%
0.45%
0.32%
0.28%
0.26%
Total Annual Fund Operating Expenses
0.91%
1.65%
0.52%
1.39%
1.26%
1.08%
0.89%
0.77%
Expense Reimbursement (1)
N/A
N/A
—%
N/A
N/A
N/A
N/A
N/A
Total Annual Fund Operating Expenses after Expense Reimbursement
0.91%
1.65%
0.52%
1.39%
1.26%
1.08%
0.89%
0.77%
(1)    Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.52% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
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
$638
$824
$1,026
$1,608
Class C
268
520
897
1,955
Class P
61
192
335
750
Institutional Class
53
167
291
653
Class R-1
142
440
761
1,669
Class R-2
128
400
692
1,523
Class R-3
110
343
595
1,317
Class R-4
91
284
493
1,096
Class R-5
79
246
428
954
With respect to Class C shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):
 
1 year
3 years
5 years
10 years
Class C
$168
$520
$897
$1,955

23




Effective June 23, 2017, delete the preceding Example section and replace with the following:
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
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
$638
$824
$1,026
$1,608
Class C
268
520
897
1,955
Institutional Class
53
167
291
653
Class R-1
142
440
761
1,669
Class R-2
128
400
692
1,523
Class R-3
110
343
595
1,317
Class R-4
91
284
493
1,096
Class R-5
79
246
428
954
With respect to Class C shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):
 
1 year
3 years
5 years
10 years
Class C
$168
$520
$897
$1,955
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 16.4% 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 dividend-paying equity securities at the time of purchase. The Fund usually invests in equity securities of companies with large and medium market capitalizations. For this Fund, companies with large market capitalizations are those with market capitalizations within the range of companies comprising the Russell 1000® Value Index (as of December 31, 2016, this range was between approximately $394.9 million and $634.4 billion). The Fund invests in value equity securities, an investment strategy that emphasizes buying equity securities that appear to be undervalued. The Fund also invests in real estate investment trusts and securities of foreign issuers.
Principal Risks
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 Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.

24




Value Stock Risk. Value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by the fund, or the events that the portfolio manager believed would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock judged to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
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 Risk. A fund that serves as an underlying fund for a fund of funds is subject to certain risks. When a fund of funds reallocates or rebalances its investments, an underlying fund may experience relatively large redemptions or investments. These transactions may cause the underlying fund to sell portfolio securities to meet such redemptions, or to invest cash from such investments, at times it would not otherwise do so, and may as a result increase transaction costs and adversely affect underlying fund performance. Moreover, a fund of fund's redemptions or reallocations among share classes of an underlying fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852 or online at:
For Classes A, C, and P - www.principalfunds.com.
For Institutional Class and Classes R-1, R-2, R-3, R-4, and R-5 - www.principal.com.
The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for each share class of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.
The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods prior to that date is based on the performance of the predecessor fund.
For periods prior to the inception date of Classes R-1, R-2, R-3, R-4, and R-5 shares (March 1, 2010) and Class P shares (September 27, 2010), the performance shown in the table for Classes P, R-1, R-2, R-3, R-4, and R-5 shares is based on the performance of the Fund's Class A shares, adjusted to reflect the respective fees and expenses of each class. Where this adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class A shares (without respect to sales charges, if not applicable to the newer class), the historical performance of the Class A shares is used for the newer class. These adjustments for these newer classes result in performance for such periods that is no higher than the historical performance of Class A shares. The predecessor fund's Class A shares commenced operations on May 31, 1939.

25




Total Returns as of December 31 (Class A shares)
pfi1031pros_chart-26911.jpg
Highest return for a quarter during the period of the bar chart above:
Q3 '09
13.97
 %
Lowest return for a quarter during the period of the bar chart above:
Q4 '08
(19.82
)%
Average Annual Total Returns
For the periods ended December 31, 2016
1 Year
5 Years
10 Years
Class A Return Before Taxes
8.80%
10.75%
5.28%
Class A Return After Taxes on Distributions
7.84%
10.15%
4.61%
Class A Return After Taxes on Distribution and Sale of Fund Shares
5.74%
8.51%
4.14%
Class C Return Before Taxes
13.30%
11.19%
5.10%
Class P Return Before Taxes
15.50%
12.33%
6.07%
Institutional Class Return Before Taxes
15.58%
12.45%
6.32%
Class R-1 Return Before Taxes
14.59%
11.49%
5.39%
Class R-2 Return Before Taxes
14.73%
11.63%
5.53%
Class R-3 Return Before Taxes
14.90%
11.83%
5.71%
Class R-4 Return Before Taxes
15.14%
12.04%
5.90%
Class R-5 Return Before Taxes
15.30%
12.18%
6.00%
Russell 1000 Value Index (reflects no deduction for fees, expenses, or taxes)
17.34%
14.80%
5.72%
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 2010), Head of Equities, Portfolio Manager
David W. Simpson (since 2008), Portfolio Manager
Nedret Vidinli (since 2017), Associate Portfolio Manager


26




Purchase and Sale of Fund Shares
Share Class
Investment Type
Purchase Minimum
Per Fund
A and C
Initial Investment
$1,000(1)
A and C
Initial Investment for accounts with an Automatic Investment Plan (AIP)
$100
A and C
Subsequent Investments
$100(1)(2)
P, Institutional, R-1, R-2, R-3, R-4, and R-5
There are no minimum initial or subsequent investment requirements for eligible purchasers.
N/A
(1) 
Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.
(2) 
For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.
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.


27




FINISTERRE UNCONSTRAINED EMERGING MARKETS BOND FUND
On March 13, 2017, the Board of Directors of Principal Funds, Inc. (“PFI”) approved the automatic conversion of Class P shares into Institutional Class shares. After June 22, 2017, Class P shares will no longer be available for purchase. Following the close of business on June 23, 2017, Class P shares will automatically convert into Institutional Class shares of the same Fund on the basis of the share classes’ relative net asset values on such date without the imposition of a sales charge or any other charge. At such time, delete references to Class P from this Prospectus.
Objective:    The Fund seeks to generate total returns from current income and capital appreciation.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $100,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.
Shareholder Fees (fees paid directly from your investment)
 
Share Class
 
A
P
Inst.
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)
3.75%
None
None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)
1.00%
None
None
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
 
Share Class
 
A
P
Inst.
Management Fees
1.02%
1.02%
1.02%
Distribution and/or Service (12b-1) Fees
0.25%
N/A
N/A
Other Expenses (1)
0.60%
0.43%
0.43%
Total Annual Fund Operating Expenses
1.87%
1.45%
1.45%
Expense Reimbursement (2)
(0.40)%
(0.30)%
(0.33)%
Total Annual Fund Operating Expenses after Expense Reimbursement
1.47%
1.15%
1.12%
(1)    Based on estimated expenses for the current fiscal year.
(2)     Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.47% for Class A, 1.15% for Class P and 1.12% for Institutional Class shares. It is expected that the expense limits will continue through the period ending February 28, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

28




Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and footnotes and replace with the following:
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
 
Share Class
 
A
Inst.
Management Fees
1.02%
1.02%
Distribution and/or Service (12b-1) Fees
0.25%
N/A
Other Expenses (1)
0.60%
0.43%
Total Annual Fund Operating Expenses
1.87%
1.45%
Expense Reimbursement (2)
(0.40)%
(0.33)%
Total Annual Fund Operating Expenses after Expense Reimbursement
1.47%
1.12%
(1)    Based on estimated expenses for the current fiscal year.
(2)     Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.47% for Class A and 1.12% for Institutional Class shares. It is expected that the expense limits will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
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
Class A
$519
$903
Class P
117
429
Institutional Class
114
426
Effective June 23, 2017, delete the preceding Example section and replace with the following:
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
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
Class A
$519
$903
Institutional Class
114
426
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance.  From July 11, 2016, the date operations commenced, through October 31, 2016, the Fund’s annualized portfolio turnover rate was 511.0% of the average value of its portfolio.

29




Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment
purposes, in bonds, debt securities and other fixed-income securities, and in derivatives on such investments, that are tied economically to an emerging market country. The Fund considers a security to be tied economically to an emerging market country if the issuer of the security has its principal place of business or principal office in an emerging market country, has its principal securities trading market in an emerging market country, or derives a majority of its revenue from emerging markets countries. Emerging market countries include frontier market countries. The Fund actively trades portfolio securities.
The Fund follows an investment process that focuses primarily on market level analysis of global markets and political developments and their impact on individual countries and companies in emerging markets. The portfolio construction process for the Fund will follow a top-down process, blending both fundamental and technical considerations. The unconstrained nature of the investment strategy provides greater flexibility to identify opportunities across asset classes, capital structures, maturities, and currencies.
The types of fixed-income securities that the Fund can invest in include bonds, asset-backed securities (securitized products), convertible bonds, contingent convertible securities (hybrid bonds that will, when the issuers capital ratio falls below a predetermined trigger level, be converted into an equity security), credit and index linked securities, and non-registered or restricted securities (including those issued in reliance on Rule 144A and Regulation S). These types of securities may be issued by stressed, distressed and bankrupt issuers. The Fund's investments also include U.S government securities and U.S. government-sponsored or -chartered enterprises securities.
The Fund may invest, without limitation, in high yield securities (also known as “junk bonds”) rated at the time of purchase Ba1 or lower by Moody’s Investors Services, Inc., and BB+ or lower by S&P Global Ratings ("S&P Global") (if the security has been rated by only one of these agencies, that rating will determine whether the security is below investment grade; if the security has not been rated by either of those agencies, those selecting such investments will determine whether the security is of a quality comparable to those rated below investment grade). Holdings may range in maturity from overnight to 30 years or more and will not be subject to any minimum credit rating standard. The Fund also utilizes derivatives to enhance return, hedge the value of its assets against adverse movements, and manage certain investment risks. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. Specifically, the Fund expects to use forward contracts, futures, options, and swaps. The Fund holds cash to support certain of these investments.
The Fund is considered non-diversified, which means it can invest a higher percentage of assets in securities of individual issuers than a diversified fund.
Emerging market debt markets are particularly sensitive to adverse or unstable market, economic, political and/or other conditions. During such periods of uncertainty in these markets, the Fund is likely to take a temporary defensive position and invest a significant portion of its assets in cash and cash equivalents.
During the fiscal year ended October 31, 2016, the average ratings of the Fund’s fixed-income assets, based on market value at each month-end, were as follows (all ratings are by Moody’s):
0.00% in securities rated Aaa
26.38% in securities rated Baa
3.31% in securities rated Caa
0.00% in securities rated D
1.36% in securities rated Aa
30.12% in securities rated Ba
0.00% in securities rated Ca
14.27% in securities not rated
8.10% in securities rated A
16.46% in securities rated B
0.00% in securities rated C
 
Principal Risks
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:
Convertible Securities Risk. Convertible securities are bonds, notes, debentures, preferred stock or other securities which are convertible into common stock. Convertible securities are subject to credit and interest rate risks associated with fixed income securities and to stock market risk associated with equity securities.
Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.

30




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.
Distressed Investments Risk. A fund’s investment in instruments involving loans, loan participations, bonds, notes, non-performing and sub-performing mortgage loans, many of which are not publicly traded, may involve a substantial degree of risk for the following reasons. These instruments may become illiquid and the prices of such instruments may be extremely volatile. Valuing such instruments may be difficult and a fund may lose all of its investment, or it may be required to accept cash or securities with a value less than the fund’s original investment. Issuers of distressed securities are typically in a weak financial condition and may default, in which case the fund may lose its entire investment.
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.
Frontier Markets Risk. Frontier market countries are emerging market countries, but generally have small economies or less mature capital markets than more developed emerging markets, and, as a result, the risks of investing in emerging market countries are magnified in frontier countries. The markets of frontier countries typically have low trading volumes and the potential for extreme price volatility and illiquidity.
Temporary Defensive Strategy Risk. In taking a large cash position, the Fund’s performance may be adversely affected as the Fund may not be able to benefit from an upswing in the market. Further, the Fund may be unable to pursue or achieve its investment objective when employing such a defensive strategy.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate risk and credit quality risk. The market value of fixed-income securities generally declines when interest rates rise, and an issuer of fixed-income securities could default on its payment obligations.
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.
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.

31




Non-Diversification Risk. A non-diversified fund may invest a high percentage of its assets in the securities of a small number of issuers and is more likely than diversified funds to be significantly affected by a specific security’s poor performance.
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.
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.
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 yield from many other fixed-income securities.
U.S. Government-Sponsored Securities Risk. Securities issued by U.S. government-sponsored or -charted enterprises such as the Federal Home Loan Mortgage Corporation, the Federal National; Mortgage Association, and the Federal Home Loan Banks are not issued or guaranteed by the U.S. Treasury.
Performance
No performance information is shown below because the Fund has not yet had a calendar year of performance.
The Fund's performance is benchmarked against the JPM CEMBI Broad Diversified Index. Performance information provides an indication of the risks of investing in the Fund. Past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future. You may get updated performance information by calling 1-800-222-5852 or online at:
For Class A and P - www.principalfunds.com.
For Institutional Class - www.principal.com.
Management
Investment Advisor:    
Principal Global Investors, LLC
Sub-Advisor and Portfolio Managers:
Finisterre Capital LLP
•    Damien Buchet, Portfolio Manager (since 2016)
•    Arthur Duchon-Doris, Assistant Portfolio Manager (since 2016)
Christopher Watson, Portfolio Manager (since 2016)
Purchase and Sale of Fund Shares
Share Class
Investment Type
Purchase Minimum Per Fund
A
Initial Investment
$1,000(1)
A
Initial Investment for accounts with an Automatic Investment Plan (AIP)
$100
A
Subsequent Investments
$100(1)(2)
P and Institutional
There are no minimum initial or subsequent investment requirements for eligible purchasers.
N/A
(1) 
Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.
(2) 
For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.
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).

32




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.

33




GLOBAL DIVERSIFIED INCOME FUND
On March 13, 2017, the Board of Directors of Principal Funds, Inc. (“PFI”) approved the automatic conversion of Class P shares into Institutional Class shares. After June 22, 2017, Class P shares will no longer be available for purchase. Following the close of business on June 23, 2017, Class P shares will automatically convert into Institutional Class shares of the same Fund on the basis of the share classes’ relative net asset values on such date without the imposition of a sales charge or any other charge. At such time, delete references to Class P from this Prospectus.
Objective:
The Fund seeks 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 452 of the Fund’s prospectus and “Multiple Class Structure” beginning on page 6 of the Fund’s Statement of Additional Information.
Shareholder Fees (fees paid directly from your investment)
 
Share Class
 
A
C
P
Inst.
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)
3.75%
None
None
None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)
1.00%
1.00%
None
None
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
 
Share Class
 
A
C
P
Inst.
Management Fees
0.72%
0.72%
0.72%
0.72%
Distribution and/or Service (12b-1) Fees
0.25%
1.00%
N/A
N/A
Other Expenses:
 
 
 
 
Dividend and Interest Expense on Short Sales
0.10%
0.10%
0.10%
0.10%
Remainder of Other Expenses
0.12%
0.13%
0.10%
0.04%
Total Other Expenses
0.22%
0.23%
0.20%
0.14%
Acquired Fund Fees and Expenses
0.01%
0.01%
0.01%
0.01%
Total Annual Fund Operating Expenses
1.20%
1.96%
0.93%
0.87%

34




Effective June 23, 2017, delete the preceding Annual Fund Operating Expenses table and replace with the following:
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
 
Share Class
 
A
C
Inst.
Management Fees
0.72%
0.72%
0.72%
Distribution and/or Service (12b-1) Fees
0.25%
1.00%
N/A
Other Expenses:
 
 
 
Dividend and Interest Expense on Short Sales
0.10%
0.10%
0.10%
Remainder of Other Expenses
0.12%
0.13%
0.04%
Total Other Expenses
0.22%
0.23%
0.14%
Acquired Fund Fees and Expenses
0.01%
0.01%
0.01%
Total Annual Fund Operating Expenses
1.20%
1.96%
0.87%
Expense Reimbursement (1)
N/A
N/A
—%
Total Annual Fund Operating Expenses after Expense Reimbursement
1.20%
1.96%
0.87%
(1)    Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.76% for Institutional Class shares. The expense cap has been added to limit the potential increase in "Other Expenses" that otherwise may occur due to an expected decrease in the number of Institutional Class shareholders of the Fund. It is expected that the expense limit will continue through the period ending June 30, 2018; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
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
$493
$742
$1,010
$1,775
Class C
299
615
1,057
2,285
Class P
95
296
515
1,143
Institutional Class
89
278
482
1,073
With respect to Class C shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):
 
1 year
3 years
5 years
10 years
Class C
$199
$615
$1,057
$2,285

35




Effective June 23, 2017, delete the preceding Example section and replace with the following:
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
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
$493
$742
$1,010
$1,775
Class C
299
615
1,057
2,285
Institutional Class
89
278
482
1,073
With respect to Class C shares, you would pay the following expenses if you did not redeem your shares (all other classes would be the same as in the above example):
 
1 year
3 years
5 years
10 years
Class C
$199
$615
$1,057
$2,285
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 101.1% of the average value of its portfolio.
Principal Investment Strategies
The Fund generally invests a majority of its assets in fixed income securities, such as high yield bonds (also known as "junk" bonds), preferred securities, commercial mortgage-backed securities, and emerging market debt securities, in an effort to provide incremental yields over a portfolio of government securities. In addition, the Fund invests in equity securities to provide incremental dividend yields and diversify fixed-income related risks in the Fund. The Fund generally invests a portion of its assets in equity securities of global companies principally engaged in the real estate industry, equity securities of global infrastructure companies, and value equities of global companies. As described below, the Fund will use some derivative strategies. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. The Fund actively trades portfolio securities.
As a Fund that invests globally, some of the Fund's strategies involve investing in foreign securities. The Fund typically invests in foreign securities of at least 10 countries and at least 30% of its net assets in foreign securities.
In managing the Fund, Principal Global Investors, LLC ("PGI"), the Fund’s investment advisor, determines the Fund's strategic asset allocation among the following general investment categories, which are executed by PGI and multiple sub-advisors: high yield, preferred securities, emerging market debt, global real estate, commercial mortgage-backed securities, global value equity, and publicly-traded infrastructure. The Fund may add additional investment categories. The Fund seeks to provide yield by having those selecting investments for the Fund focus on those securities offering the best potential for yield, taking risk into consideration, within their respective investment categories.
The Fund also purchases and sells call and put options on equity indexes and exchange-traded funds (“ETFs”) in order to obtain long or short exposures to certain asset categories of the Fund. The primary purpose of this investment strategy is to reduce portfolio volatility in the Fund. PGI determines the asset categories on which this strategy is applied, which may include global real estate securities, global value equity, and/or publicly-traded infrastructure investments.

36




A portion of the Fund's assets is invested in high yield and other income-producing securities including bank loans and corporate bonds. These include foreign securities issued in both USD and non-USD. "High yield" securities are below investment grade bonds (sometimes called "junk bonds") which are rated at the time of purchase Ba1 or lower by Moody's Investors Service, Inc. ("Moody's") and BB+ or lower by S&P Global Ratings ("S&P Global") (if the bond has been rated by only one of those agencies, that rating will determine whether the bond is below investment grade; if the bond has not been rated by either of those agencies, those selecting such investments will determine whether the bond is of a quality comparable to those rated below investment grade). These securities offer a higher yield than other, higher rated securities, but they carry a greater degree of risk and are considered speculative with respect to the issuer's ability to pay interest and to repay principal. This portion of the Fund also invests in currency forwards and currency options to hedge currency risk.
A portion of the Fund's assets is invested primarily in preferred securities of U.S. and non-U.S. companies. This portion of the Fund focuses primarily on the financial services, real estate investment trust ("REIT"), and utility industries.
A portion of the Fund's assets is invested in a diversified portfolio of fixed income securities issued primarily by governments, their agencies, local authorities and instrumentalities, and corporate entities domiciled in or exercising the predominant part of their economic activities in emerging markets. This portion of the Fund is not managed to a particular maturity or duration. This portion of the Fund also invests in interest rate swaps or Treasury futures to manage fixed income exposure; credit default swaps to increase or decrease in an efficient manner exposures to certain sectors or individual issuers; total return swaps to increase or decrease in an efficient manner exposures to certain sectors; and currency forwards and currency options to hedge currency risk and express views on the direction of currency. Here, "emerging market country" means any country which is considered to be an emerging country by the international financial community (including the MSCI Emerging Markets Index) and any country included in any J.P. Morgan Emerging Market Bond Index. These countries generally exclude the U.S., Canada, Japan, Hong Kong, Singapore, Australia, and New Zealand, and most nations located in Western Europe.
A portion of the Fund's assets is invested in equity securities of global real estate companies. A real estate company has at least 50% of its assets, income or profits derived from products or services related to the real estate industry. Real estate companies include REITs, REIT-like entities, and companies with substantial real estate holdings such as paper, lumber, hotel and entertainment companies as well as building supply manufacturers, mortgage lenders, and mortgage servicing companies.
A portion of the Fund’s assets is invested in commercial mortgage-backed securities, which are bonds that are secured by first mortgages on commercial real estate.
A portion of the Fund's assets is invested in a diversified portfolio of value equity securities of companies located or operating in the U.S. and foreign countries, including emerging markets. The Fund invests in equity securities regardless of market capitalization (small, medium or large). Investing in value equity securities, is an investment strategy that emphasizes buying equity securities that appear to be undervalued.
A portion of the Fund's assets is invested in publicly-listed infrastructure companies (domestic and foreign public utility, energy, and transportation companies). Publicly-listed infrastructure equity securities trade on an exchange and include companies involved to a significant extent in providing products, services or equipment for: transportation (including toll roads, airports, railways, and ports); the generation, transmission or distribution of electricity, gas or water (utilities); or telecommunications activities as well as in companies involved in the discovery, development, production, generation, transmission, refinement, measurement, trading, marketing or distribution of energy.
During the fiscal year ended October 31, 2016, the average ratings of the Fund’s fixed-income assets, based on market value at each month-end, were as follows (all ratings are by Moody’s):
1.95% in securities rated Aaa
16.15% in securities rated Baa
15.64% in securities rated Caa
0.32% in securities rated D
1.12% in securities rated Aa
23.69% in securities rated Ba
0.38% in securities rated Ca
11.21% in securities not rated
 3.51% in securities rated A
26.02% in securities rated B
0.01% in securities rated C
 

37




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 may cause it to underperform other funds with a similar investment objective.
Bank Loans Risk. Changes in economic conditions are likely to cause issuers of bank loans (also known as senior floating rate interests) to be unable to meet their obligations. In addition, the value of the collateral securing the loan (if any) may decline, causing a loan to be substantially unsecured. Underlying credit agreements governing the bank loans, reliance on market makers, priority of repayment and overall market volatility may harm the liquidity of loans.
Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.
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 to swaps generally, because they are difficult to value, are highly susceptible to liquidity and credit risk, and generally pay a return to the party that has paid the premium only in the event of an actual default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial difficulty). The protection “buyer” in a credit default contract may be obligated to pay the protection “seller” an upfront payment or a periodic stream of payments over the term of the contract provided generally that no credit event on a reference obligation has occurred. If a credit event occurs, the seller generally must pay the buyer the “par value” (full notional value) of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described in the swap, or the seller may be required to deliver the related net cash amount, if the swap is cash settled. The Fund may be either the buyer or seller in the transaction.
Currency Contracts. Derivatives related to currency contracts involve the specific risk of government action through exchange controls that would restrict the ability of the fund to deliver or receive currency.
Equity Index/Exchange-traded Fund (“ETF”) Call Options. A fund that writes equity index/exchange-traded fund (“ETF”) call options forgoes, during the option’s life, the opportunity to profit from increases in the market value of the index on which the call option has been written above the sum of the premium and the strike price of the call, but retains the risk of loss should the price of the underlying index decline (net of premiums received). In addition, a fund bears the risk that the index/ETF on which the call option has been written behaves differently than the underlying stocks in the portfolio, which would limit the ability of the call option overwriting strategy to reduce portfolio volatility.
Forward Contracts, Futures and Swaps. Forward contracts, futures, and swaps involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the forward contract, future, or swap; possible lack of a liquid secondary market for a forward contract, future, or swap and the resulting inability to close a forward contract, future, or swap when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.
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.

38




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 Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.
Value Stock Risk. Value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by the fund, or the events that the portfolio manager believed would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock judged to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate risk and credit quality risk. The market value of fixed-income securities generally declines when interest rates rise, and an issuer of fixed-income securities could default on its payment obligations.
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.
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.
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.
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.

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Redemption Risk. A fund that serves as an underlying fund for a fund of funds is subject to certain risks. When a fund of funds reallocates or rebalances its investments, an underlying fund may experience relatively large redemptions or investments. These transactions may cause the underlying fund to sell portfolio securities to meet such redemptions, or to invest cash from such investments, at times it would not otherwise do so, and may as a result increase transaction costs and adversely affect underlying fund performance. Moreover, a fund of fund's redemptions or reallocations among share classes of an underlying fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Securitized Products Risk. Investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Unscheduled prepayments on securitized products may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk).
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:
For Classes A, C, and P - www.principalfunds.com.
For Institutional Class - www.principal.com.
The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, the results would be lower. The table shows, for each class of shares of the Fund and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Fund), how the Fund’s average annual total returns compare with those of one or more broad measures of market performance.
Life of Fund results are measured from the date the Fund's shares were first sold (December 15, 2008).
For periods prior to the inception date of Class P shares (September 27, 2010), the performance shown in the table for Class P shares is based on the performance of the Fund's Institutional Class shares, adjusted to reflect the fees and expenses of Class P shares. These adjustments for Class P shares result in performance for such periods that is no higher than the historical performance of the Institutional Class shares, which were first sold on December 15, 2008.
Total Returns as of December 31 (Class A shares)
pfi1031pros_chart-25708.jpg
Highest return for a quarter during the period of the bar chart above:
Q2 '09
20.93
 %
Lowest return for a quarter during the period of the bar chart above:
Q3 '11
(8.15
)%

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Average Annual Total Returns
For the periods ended December 31, 2016
1 Year
5 Years
Life of Fund
Class A Return Before Taxes
5.18%
5.91%
10.71%
Class A Return After Taxes on Distributions
2.87%
3.77%
8.08%
Class A Return After Taxes on Distribution and Sale of Fund Shares
3.02%
3.75%
7.53%
Class C Return Before Taxes
7.44%
5.91%
10.39%
Class P Return Before Taxes
9.56%
6.99%
11.41%
Institutional Class Return Before Taxes
9.62%
7.05%
11.53%
Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index (reflects no deduction for fees, expenses, or taxes)
17.13%
7.36%
14.69%
Bloomberg Barclays Global Credit Index (reflects no deduction for fees, expenses, or taxes)
5.43%
3.40%
6.32%
Bloomberg Barclays Global High Yield Index (reflects no deduction for fees, expenses, or taxes)
14.27%
7.37%
14.28%
MSCI ACWI Value Index (reflects no deduction for fees, expenses, or taxes)
12.57%
8.96%
9.82%
Global Diversified Income Blended Index (reflects no deduction for fees, expenses, or taxes)
10.25%
6.32%
9.89%
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 each component of the blended index is also shown. The weightings for the Global Diversified Income Blended Index are: 40% Bloomberg Barclays Global Credit Index; 30% Bloomberg Barclays Global High Yield Index; and 30% MSCI ACWI Value Index. The custom or blended index returns reflect the allocation in effect for the time period(s) for which the fund returns are disclosed. Previous weightings or allocations of the custom or blended index are not restated.
Management
Investment Advisor and Portfolio Managers:
Principal Global Investors, LLC
Jake S. Anonson (since 2014), Portfolio Manager
Jessica S. Bush (since 2014), Portfolio Manager
Marcus W. Dummer (since 2014), Portfolio Manager
Kelly A. Grossman (since 2010), Portfolio Manager
Benjamin E. Rotenberg (since 2014), Portfolio Manager
Sub-Advisors:
Analytic Investors, LLC
Colonial First State Asset Management (Australia) Limited
DDJ Capital Management, LLC
Logan Circle Partners, L.P.
Post Advisory Group, LLC
Principal Real Estate Investors, LLC
Spectrum Asset Management, Inc.
Stone Harbor Investment Partners LP
W. H. Reaves & Co., Inc. (doing business as Reaves Asset Management)

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Purchase and Sale of Fund Shares
Share Class
Investment Type
Purchase Minimum Per Fund
A and C
Initial Investment
$1,000(1)
A and C
Initial Investment for accounts with an Automatic Investment Plan (AIP)
$100
A and C
Subsequent Investments
$100(1)(2)
P and Institutional
There are no minimum initial or subsequent investment requirements for eligible purchasers.
N/A
(1) 
Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.
(2) 
For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.
You may purchase or redeem shares on any business day (normally any day when the New York Stock Exchange is open for regular trading) through your plan, intermediary, or Financial Professional; by sending a written request to Principal Funds at P.O. Box 8024, Boston, MA 02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight mail); calling us at 1-800-222-5852; or accessing our website (www.principalfunds.com).
Tax Information
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.

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