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PRINCIPAL FUNDS, INC. (“PFI”)
Class A Shares
Class C Shares
Class J Shares
Institutional Class Shares
Class R-1 Shares
Class R-2 Shares
Class R-3 Shares
Class R-4 Shares
Class R-5 Shares
Class R-6 Shares
The date of this Prospectus is March 1, 2018
The ticker symbols for series and share classes begin on the next page.













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


1


Ticker Symbols by Share Class
Fund
A
C
J
Inst.
R-1
R-2
R-3
R-4
R-5
R-6
California Municipal
SRCMX
SRCCX
 
PCMFX
 
 
 
 
 
 
Core Plus Bond
PRBDX
PBMCX
PBMJX
PMSIX
PBOMX
PBMNX
PBMMX
PBMSX
PBMPX
 
Diversified International
PRWLX
PDNCX
PIIJX
PIIIX
PDVIX
PINNX
PINRX
PINLX
PINPX
 
Equity Income
PQIAX
PEUCX
 
PEIIX
PIEMX
PEINX
PEIOX
PEIPX
PEIQX
 
Finisterre Unconstrained Emerging Markets Bond
PFUEX
 
 
PFUMX
 
 
 
 
 
 
Global Diversified Income
PGBAX
PGDCX
 
PGDIX
 
 
 
 
 
PGBLX
Global Real Estate Securities
POSAX
POSCX
 
POSIX
 
 
PGRKX
PGRVX
PGRUX
PGRSX
Government & High Quality Bond
CMPGX
CCUGX
PMRJX
PMRIX
PMGRX
PFMRX
PRCMX
PMRDX
PMREX
 
Government Money Market
 
 
 
PGVXX
 
 
 
 
 
 
High Yield
CPHYX
CCHIX
 
PHYTX
 
 
 
 
 
PHYFX
High Yield I
PYHAX
 
 
PYHIX
 
 
 
 
 
 
Income
CMPIX
CNMCX
PIOJX
PIOIX
PIOMX
PIONX
PIOOX
PIOPX
PIOQX
PICNX
Inflation Protection
PITAX
PPOCX
PIPJX
PIPIX
PISPX
PBSAX
PIFPX
PIFSX
PBPPX
 
International Emerging Markets
PRIAX
PMKCX
PIEJX
PIEIX
PIXEX
PEASX
PEAPX
PESSX
PEPSX
PIIMX
International I
PFAFX
 
 
PINIX
PPISX
PSPPX
PRPPX
PUPPX
PTPPX
PIIDX
LargeCap Growth
PRGWX
PLGCX
PGLJX
PGLIX
PLSGX
PCPPX
PLGPX
PEPPX
PDPPX
 
LargeCap Growth I
PLGAX
 
PLGJX
PLGIX
PCRSX
PPUNX
PPUMX
PPUSX
PPUPX
PLCGX
LargeCap S&P 500 Index
PLSAX
PLICX
PSPJX
PLFIX
PLPIX
PLFNX
PLFMX
PLFSX
PLFPX
 
LargeCap Value
PCACX
PLUCX
PVLJX
PVLIX
PLSVX
PLVNX
PLVMX
PLVSX
PLVPX
 
LargeCap Value III
 
 
PLVJX
PLVIX
PESAX
PPSNX
PPSFX
PPSSX
PPSRX
 
MidCap
PEMGX
PMBCX
PMBJX
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
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
 
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 2065
 
 
 
PLJIX
PLJAX
PLJBX
PLJCX
PLJDX
PLJEX
 

2


Ticker Symbols by Share Class
Fund
A
C
J
Inst.
R-1
R-2
R-3
R-4
R-5
R-6
Principal LifeTime Hybrid Income
 
 
PHJFX
PHTFX
 
 

 

PLTYX
Principal LifeTime Hybrid 2015
 
 
PHJMX
PHTMX
 
 
 
 
 
PLRRX
Principal LifeTime Hybrid 2020
 
 
PHJTX
PHTTX
 
 
 
 
 
PLTTX
Principal LifeTime Hybrid 2025
 
 
PHJQX
PHTQX
 
 
 
 
 
PLFTX
Principal LifeTime Hybrid 2030
 
 
PHJNX
PHTNX
 
 
 
 
 
PLZTX
Principal LifeTime Hybrid 2035
 
 
PHJJX
PHTJX
 
 
 
 
 
PLRTX
Principal LifeTime Hybrid 2040
 
 
PHJEX
PLTQX
 
 
 
 
 
PLMTX
Principal LifeTime Hybrid 2045
 
 
PHJYX
PHTYX
 
 
 
 
 
PLNTX
Principal LifeTime Hybrid 2050
 
 
PHJUX
PHTUX
 
 
 
 

PLJTX
Principal LifeTime Hybrid 2055
 
 
PHJBX
PLTNX
 
 

 

PLHTX
Principal LifeTime Hybrid 2060
 
 
PHJGX
PLTHX
 
 
 
 
 
PLKTX
Principal LifeTime Hybrid 2065
 
 
PHJDX
PLHHX
 
 
 
 
 
PLHRX
Real Estate Securities
PRRAX
PRCEX
PREJX
PIREX
PRAEX
PRENX
PRERX
PRETX
PREPX
PFRSX
SAM Balanced
SABPX
SCBPX
PSAJX
PSBIX
PSBGX
PSBVX
PBAPX
PSBLX
PSBFX
 
SAM Conservative Balanced
SAIPX
SCIPX
PCBJX
PCCIX
PCSSX
PCNSX
PCBPX
PCBLX
PCBFX
 
SAM Conservative Growth
SAGPX
SCGPX
PCGJX
PCWIX
PCGGX
PCGVX
PCGPX
PCWSX
PCWPX
 
SAM Flexible Income
SAUPX
SCUPX
PFIJX
PIFIX
PFIGX
PFIVX
PFIPX
PFILX
PFIFX
 
SAM Strategic Growth
SACAX
SWHCX
PSWJX
PSWIX
PSGGX
PSGVX
PSGPX
PSGLX
PSGFX
 
Short-Term Income
SRHQX
STCCX
PSJIX
PSHIX
PSIMX
PSINX
PSIOX
PSIPX
PSIQX
 
SmallCap
PLLAX
PSMCX
PSBJX
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
PPVIX
PCPTX
PKARX
PJARX
PSTWX
PLARX
PSMVX
Tax-Exempt Bond
PTEAX
PTBCX
 
PITEX
 
 
 
 
 
 

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TABLE OF CONTENTS
FUND SUMMARIES
CALIFORNIA MUNICIPAL FUND
CORE PLUS BOND FUND
DIVERSIFIED INTERNATIONAL FUND
EQUITY INCOME FUND
FINISTERRE UNCONSTRAINED EMERGING MARKETS BOND FUND
GLOBAL DIVERSIFIED INCOME FUND
GLOBAL REAL ESTATE SECURITIES FUND
GOVERNMENT & HIGH QUALITY BOND FUND
GOVERNMENT MONEY MARKET FUND
HIGH YIELD FUND
HIGH YIELD FUND I
INCOME FUND
INFLATION PROTECTION FUND
INTERNATIONAL EMERGING MARKETS FUND
INTERNATIONAL FUND I
LARGECAP GROWTH FUND
LARGECAP GROWTH FUND I
LARGECAP S&P 500 INDEX FUND
LARGECAP VALUE FUND
LARGECAP VALUE FUND III
MIDCAP FUND
MIDCAP GROWTH FUND
MIDCAP GROWTH FUND III
MIDCAP S&P 400 INDEX FUND
MIDCAP VALUE FUND I
MIDCAP VALUE FUND III
MONEY MARKET FUND
OVERSEAS FUND
PRINCIPAL CAPITAL APPRECIATION FUND
PRINCIPAL LIFETIME STRATEGIC INCOME FUND
PRINCIPAL LIFETIME 2010 FUND
PRINCIPAL LIFETIME 2015 FUND
PRINCIPAL LIFETIME 2020 FUND
PRINCIPAL LIFETIME 2025 FUND
PRINCIPAL LIFETIME 2030 FUND
PRINCIPAL LIFETIME 2035 FUND
PRINCIPAL LIFETIME 2040 FUND
PRINCIPAL LIFETIME 2045 FUND
PRINCIPAL LIFETIME 2050 FUND
PRINCIPAL LIFETIME 2055 FUND
PRINCIPAL LIFETIME 2060 FUND
PRINCIPAL LIFETIME 2065 FUND




PRINCIPAL LIFETIME HYBRID INCOME FUND
PRINCIPAL LIFETIME HYBRID 2015 FUND
PRINCIPAL LIFETIME HYBRID 2020 FUND
PRINCIPAL LIFETIME HYBRID 2025 FUND
PRINCIPAL LIFETIME HYBRID 2030 FUND
PRINCIPAL LIFETIME HYBRID 2035 FUND
PRINCIPAL LIFETIME HYBRID 2040 FUND
PRINCIPAL LIFETIME HYBRID 2045 FUND
PRINCIPAL LIFETIME HYBRID 2050 FUND
PRINCIPAL LIFETIME HYBRID 2055 FUND
PRINCIPAL LIFETIME HYBRID 2060 FUND
PRINCIPAL LIFETIME HYBRID 2065 FUND
REAL ESTATE SECURITIES FUND
SAM (STRATEGIC ASSET MANAGEMENT) BALANCED PORTFOLIO
SAM (STRATEGIC ASSET MANAGEMENT) CONSERVATIVE BALANCED PORTFOLIO
SAM (STRATEGIC ASSET MANAGEMENT) CONSERVATIVE GROWTH PORTFOLIO
SAM (STRATEGIC ASSET MANAGEMENT) FLEXIBLE INCOME PORTFOLIO
SAM (STRATEGIC ASSET MANAGEMENT) STRATEGIC GROWTH PORTFOLIO
SHORT-TERM INCOME FUND
SMALLCAP FUND
SMALLCAP GROWTH FUND I
SMALLCAP S&P 600 INDEX FUND
SMALLCAP VALUE FUND II
TAX-EXEMPT BOND FUND
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
PORTFOLIO HOLDINGS INFORMATION
MANAGEMENT OF THE FUNDS
PRICING OF FUND SHARES
CONTACT PRINCIPAL FUNDS, INC.
PURCHASE OF FUND SHARES
REDEMPTION OF FUND SHARES
EXCHANGE OF FUND SHARES
DIVIDENDS AND DISTRIBUTIONS
FREQUENT PURCHASES AND REDEMPTIONS
TAX CONSIDERATIONS
CHOOSING A SHARE CLASS AND THE COSTS OF INVESTING
DISTRIBUTION PLANS AND INTERMEDIARY COMPENSATION
FUND ACCOUNT INFORMATION
FINANCIAL HIGHLIGHTS
APPENDIX A - DESCRIPTION OF BOND RATINGS
ADDITIONAL INFORMATION







CALIFORNIA MUNICIPAL FUND
Objective:
The Fund seeks to provide as high a level of current income that is exempt from federal and state personal income tax as is consistent with prudent investment management and preservation of capital.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy 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 412 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
Inst.
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)
3.75%
None
None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)
1.00%
1.00%
None
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
 
Share Class
 
A
C
Inst.
Management Fees
0.45%
0.45%
0.45%
Distribution and/or Service (12b-1) Fees
0.25%
1.00%
N/A
Other Expenses
 
 
 
Interest Expense
0.05%
0.05%
0.05%
Remainder of Other Expenses
0.07%
0.14%
0.12%
Total Other Expenses
0.12%
0.19%
0.17%
Total Annual Fund Operating Expenses
0.82%
1.64%
0.62%
Expense Reimbursement (1)
N/A
N/A
(0.06)%
Total Annual Fund Operating Expenses after Expense Reimbursement
0.82%
1.64%
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 Institutional Class shares. It is expected that the expense limit will continue through the period ending February 28, 2019; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. The calculation of costs takes into account any applicable contractual fee waivers and/or expense reimbursements for the period noted in the table above. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
 
1 year
3 years
5 years
10 years
Class A
$456
$627
$813
$1,350
Class C
267
517
892
1,944
Institutional Class
57
192
340
769

5



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
$167
$517
$892
$1,944
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 39.8% of the average value of its portfolio.
Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in 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. 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 also invests in inverse floating rate obligations (variable rate debt instruments that pay interest at rates that move in the opposite direction of prevailing interest rates), which are generally more volatile than other types of municipal obligations and may involve leverage.
Under normal circumstances, the Fund maintains an average portfolio duration that is within ±50% of the duration of the Bloomberg Barclays California Municipal Bond Index, which as of December 31, 2017 was 5.82 years . The Fund is not managed to a particular maturity.
During the fiscal year ended October 31, 2017, the average ratings of the Fund’s fixed-income assets, based on market value at each month-end, were as follows (all ratings are by Moody’s):
10.09% in securities rated Aaa
16.50% in securities rated Baa
0.11% in securities rated Caa
0.00% in securities rated D
41.96% in securities rated Aa
3.79% in securities rated Ba
0.00% in securities rated Ca
6.12% in securities not rated
16.20% in securities rated A
5.23% in securities rated B
0.00% in securities rated C
 
Principal Risks
The value of your investment in the Fund changes with the value of the Fund's investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund, in alphabetical order, are:
Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.
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.

6



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 www.principalfunds.com.
The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for 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), the performance shown in the table for Institutional Class shares is that of the Fund's Class A shares, adjusted to reflect the fees and expenses of Institutional Class shares. However, where the adjustment for fees and expenses results in performance for Institutional Class shares that is higher than the historical performance of the Class A shares, the historical performance of Class A shares is used (without respect to sales charges, which are not applicable to Institutional Class Shares). These adjustments result in performance for such periods that is no higher than the historical performance of the Class A shares.
Total Returns as of December 31
chart-1e3914da623ff7ad4f5.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
)%

7



Average Annual Total Returns
For the periods ended December 31, 2017
1 Year
5 Years
10 Years
Class A Return Before Taxes
2.86%
3.30%
3.94%
Class A Return After Taxes on Distributions
2.86%
3.30%
3.94%
Class A Return After Taxes on Distributions and Sale of Fund Shares
3.01%
3.39%
3.96%
Class C Return Before Taxes
5.00%
3.16%
3.38%
Institutional Class Return Before Taxes
7.14%
4.21%
4.40%
Bloomberg Barclays California Municipal Index (reflects no deduction for fees, expenses, or taxes)
5.63%
3.36%
4.72%
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
James Noble (since 2013), Portfolio Manager
James Welch (since 2014), Portfolio Manager
Purchase and Sale of Fund Shares
Share Class
Investment Type
Purchase Minimum Per Fund
A and C
Initial Investment
$1,000(1)
A and C
Initial Investment for accounts with an Automatic Investment Plan (AIP)
$100
A and C
Subsequent Investments
$100(1)(2)
Institutional
There are no minimum initial or subsequent investment requirements for eligible purchasers.
N/A
(1) 
Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.
(2) 
For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.
You may purchase or redeem shares on any business day (normally any day when the New York Stock Exchange is open for regular trading) through your plan, intermediary, or Financial Professional; by sending a written request to Principal Funds at P.O. Box 8024, Boston, MA 02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight mail); calling us at 1-800-222-5852; or accessing our website (www.principalfunds.com).
Tax Information
While the Fund intends to distribute income that is exempt from regular federal and 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.


8



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 412 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
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
Distribution and/or Service (12b-1) Fees
0.25%
1.00%
0.15%
N/A
0.35%
0.30%
0.25%
0.10%
N/A
Other Expenses
0.27%
0.46%
0.24%
0.01%
0.53%
0.45%
0.32%
0.28%
0.26%
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
1.03%
1.97%
0.90%
0.52%
1.39%
1.26%
1.08%
0.89%
0.77%
Fee Waiver and Expense Reimbursement (1)(2)
(0.14)%
(0.21)%
(0.06)%
(0.06)%
(0.06)%
(0.06)%
(0.06)%
(0.06)%
(0.06)%
Total Annual Fund Operating Expenses after Fee Waiver and Expense Reimbursement
0.89%
1.76%
0.84%
0.46%
1.33%
1.20%
1.02%
0.83%
0.71%
(1)    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 0.06% (expressed as a percent of average net assets on an annualized basis). It is expected that the fee waiver will continue through the period disclosed; however, Principal Funds, Inc. and PGI, the parties to the agreement may mutually agree to terminate the fee waiver prior to the end of the period.
(2)     Principal Global Investors,LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.88% 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, 2019; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

9



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
$677
$909
$1,575
Class C
279
598
1,043
2,279
Class J
186
281
493
1,102
Institutional Class
47
161
285
647
Class R-1
135
434
755
1,663
Class R-2
122
394
686
1,517
Class R-3
104
338
590
1,312
Class R-4
85
278
487
1,091
Class R-5
73
240
422
949
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
$598
$1,043
$2,279
Class J
86
281
493
1,102
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 128.3% of the average value of its portfolio.
Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in 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, 2017 was 5.98 years .
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.

10



During the fiscal year ended October 31, 2017, the average ratings of the Fund’s fixed-income assets, based on market value at each month-end, were as follows (all ratings are by Moody’s):
43.83% in securities rated Aaa
24.43% in securities rated Baa
0.83% in securities rated Caa
0.00% in securities rated D
4.43% in securities rated Aa
8.66% in securities rated Ba
0.01% in securities rated Ca
1.27% in securities not rated
11.71% in securities rated A
4.83% in securities rated B
0.00% in securities rated C
 
Principal Risks
The value of your investment in the Fund changes with the value of the Fund's investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund, in alphabetical order, are:
Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund's initial investment.
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).
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.

11



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, result in changes to expense ratios and increased expenses, 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 www.principalfunds.com.
The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for 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.

12



Total Returns as of December 31
chart-f48ec3277ca59ddbc9f.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, 2017
1 Year
5 Years
10 Years
Class A Return Before Taxes
0.56%
1.32%
3.21%
Class A Return After Taxes on Distributions
(0.53)%
0.34%
2.04%
Class A Return After Taxes on Distributions and Sale of Fund Shares
0.35%
0.56%
1.99%
Class C Return Before Taxes
2.57%
1.22%
2.76%
Class J Return Before Taxes
3.48%
2.10%
3.57%
Institutional Class Return Before Taxes
4.89%
2.49%
4.03%
Class R-1 Return Before Taxes
3.98%
1.60%
3.12%
Class R-2 Return Before Taxes
4.07%
1.72%
3.25%
Class R-3 Return Before Taxes
4.24%
1.89%
3.43%
Class R-4 Return Before Taxes
4.43%
2.09%
3.64%
Class R-5 Return Before Taxes
4.65%
2.22%
3.76%
Bloomberg Barclays U.S. Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)
3.54%
2.10%
4.01%
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

13



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.


14



DIVERSIFIED INTERNATIONAL FUND
Objective:
The Fund seeks long-term growth of capital.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy 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 412 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)
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%
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
0.82%
0.82%
0.82%
0.82%
0.82%
0.82%
0.82%
0.82%
0.82%
Distribution and/or Service (12b-1) Fees
0.25%
1.00%
0.15%
N/A
0.35%
0.30%
0.25%
0.10%
N/A
Other Expenses
0.28%
0.41%
0.23%
0.02%
0.54%
0.46%
0.33%
0.29%
0.27%
Total Annual Fund Operating Expenses
1.35%
2.23%
1.20%
0.84%
1.71%
1.58%
1.40%
1.21%
1.09%
Expense Reimbursement (1)
N/A
(0.15)%
N/A
—%
N/A
N/A
N/A
N/A
N/A
Total Annual Fund Operating Expenses after Expense Reimbursement
1.35%
2.08%
1.20%
0.84%
1.71%
1.58%
1.40%
1.21%
1.09%
(1)     Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 2.08% for Class C and 0.85% for Institutional Class shares. It is expected that the expense limits will continue through the period ending February 28, 2019; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

15



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
$680
$954
$1,249
$2,085
Class C
311
683
1,181
2,553
Class J
222
381
660
1,455
Institutional Class
86
268
466
1,037
Class R-1
174
539
928
2,019
Class R-2
161
499
860
1,878
Class R-3
143
443
766
1,680
Class R-4
123
384
665
1,466
Class R-5
111
347
601
1,329
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
$683
$1,181
$2,553
Class J
122
381
660
1,455
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 46.7% 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 20 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).
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.

16



Equity Securities Risk. The value of equity securities could decline if the issuer's financial condition declines or in response to overall market and economic conditions. A fund's principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
Growth Stock Risk. If growth companies do not increase their earnings at a rate expected by investors, the market price of the stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.
Small and Medium Market Capitalization Companies Risk. Investments in small and medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.
Value Stock Risk. Value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by a fund, or the events that would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock that appears to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
Redemption 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, result in changes to expense ratios and increased expenses, 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 www.principalfunds.com.
The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for 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.
During 2010, Class R-5 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.

17



Total Returns as of December 31
chart-5aacdabc0c7f16e5f12.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, 2017
1 Year
5 Years
10 Years
Class A Return Before Taxes
21.08%
6.40%
0.77%
 
Class A Return After Taxes on Distributions
20.81%
6.27%
0.73%
 
Class A Return After Taxes on Distributions and Sale of Fund Shares
12.36%
5.15%
0.77%
 
Class C Return Before Taxes
26.07%
6.83%
0.68%
 
Class J Return Before Taxes
27.26%
7.76%
1.42%
 
Institutional Class Return Before Taxes
28.67%
8.16%
1.90%
 
Class R-1 Return Before Taxes
27.62%
7.22%
1.01%
 
Class R-2 Return Before Taxes
27.76%
7.35%
1.14%
 
Class R-3 Return Before Taxes
27.95%
7.56%
1.32%
 
Class R-4 Return Before Taxes
28.22%
7.76%
1.52%
 
Class R-5 Return Before Taxes
28.32%
7.90%
1.72%
(1) 
MSCI ACWI Ex-U.S. Index (reflects no deduction for fees, expenses, or taxes)
27.19%
6.80%
1.84%
 
(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

18



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 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.


19



EQUITY INCOME FUND
Objective:
The Fund seeks to provide current income and long-term growth of income and capital.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. 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 412 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
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
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)
1.00%
1.00%
None
None
None
None
None
None
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
 
Share Class
 
A
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
0.13%
0.12%
0.01%
0.53%
0.45%
0.32%
0.28%
0.26%
Total Annual Fund Operating Expenses
0.89%
1.63%
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
0.89%
1.63%
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. It is expected that the expense limit will continue through the period ending February 28, 2019; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.

20



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
$636
$818
$1,016
$1,586
Class C
266
514
887
1,933
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
$166
$514
$887
$1,933
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 23.3% of the average value of its portfolio.
Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in dividend-paying equity securities at the time of purchase. The Fund usually invests in equity securities of companies with large and medium market capitalizations. 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.
Medium Market Capitalization Companies Risk . Investments in medium sized companies may involve greater risk and price volatility than investments in larger, more mature companies.
Value Stock Risk. Value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by a fund, or the events that would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock that appears to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.

21



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, result in changes to expense ratios and increased expenses, 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 www.principalfunds.com.
The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for 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 Classes R-1, R-2, R-3, R-4, and R-5 shares (March 1, 2010), the performance shown in the table for these newer classes is that of the Fund's Class A shares, adjusted to reflect the respective fees and expenses of each class. However, where the adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class A shares, the historical performance of the Class A shares is used (without respect to sales charges, if not applicable to the newer class). These adjustments result in performance for such periods that is no higher than the historical performance of Class A shares.

22



Total Returns as of December 31
chart-9cbcd7e451bfd3838ee.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, 2017
1 Year
5 Years
10 Years
Class A Return Before Taxes
13.89%
12.29%
6.78%
Class A Return After Taxes on Distributions
12.24%
11.45%
6.16%
Class A Return After Taxes on Distributions and Sale of Fund Shares
9.17%
9.71%
5.38%
Class C Return Before Taxes
18.68%
12.75%
6.59%
Institutional Class Return Before Taxes
21.03%
14.02%
7.84%
Class R-1 Return Before Taxes
19.96%
13.02%
6.89%
Class R-2 Return Before Taxes
20.12%
13.18%
7.03%
Class R-3 Return Before Taxes
20.37%
13.39%
7.22%
Class R-4 Return Before Taxes
20.54%
13.59%
7.41%
Class R-5 Return Before Taxes
20.72%
13.73%
7.52%
Russell 1000 Value Index (reflects no deduction for fees, expenses, or taxes)
13.66%
14.04%
7.10%
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), Portfolio Manager
David W. Simpson (since 2008), Portfolio Manager
Nedret Vidinli (since 2017), Associate Portfolio Manager

23



Purchase and Sale of Fund Shares
Share Class
Investment Type
Purchase Minimum
Per Fund
A and C
Initial Investment
$1,000(1)
A and C
Initial Investment for accounts with an Automatic Investment Plan (AIP)
$100
A and C
Subsequent Investments
$100(1)(2)
Institutional, R-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.


24



FINISTERRE UNCONSTRAINED EMERGING MARKETS BOND FUND
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 412 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
Inst.
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)
3.75%
None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)
1.00%
None
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
 
Share Class
 
A
Inst.
Management Fees
1.02%
1.02%
Distribution and/or Service (12b-1) Fees
0.25%
N/A
Other Expenses:
 
 
     Dividend and Interest Expense on Short Sales
0.01%
0.01%
     Remainder of Other Expenses
10.80%
0.25%
Total Other Expenses
10.81%
0.26%
Total Annual Fund Operating Expenses
12.08%
1.28%
Expense Reimbursement (1)
(10.60)%
(0.15)%
Total Annual Fund Operating Expenses after Expense Reimbursement
1.48%
1.13%
(1)     Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.47% for Class A and 1.12% for Institutional Class shares. It is expected that the expense limits will continue through the period ending February 28, 2019; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. The calculation of costs takes into account any applicable contractual fee waivers and/or expense reimbursements for the period noted in the table above. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
 
1 year
3 years
5 years
10 years
Class A
$520
$2,760
$4,694
$8,450
Institutional Class
115
391
688
1,532
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  465.3% of the average value of its portfolio.

25



Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment
purposes, in bonds and other fixed-income securities that are tied economically to an emerging market country, and in derivatives on such investments. The types of fixed-income securities in which the Fund invests include asset-backed securities (securitized products), convertible bonds, credit- and index-linked securities, non-registered and restricted securities (including those issued in reliance on Rule 144A and Regulation S), securities issued by distressed or bankrupt issuers, and securities issued by the U.S government or U.S. government-sponsored enterprises. The Fund actively trades portfolio securities. 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.
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 market countries. Emerging market countries include frontier market countries.
The Fund uses derivatives to enhance return and to hedge and manage 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 uses forward contracts, futures, options, and swaps. The Fund invests in cash and cash equivalents to support certain of these investments, as well as for other purposes.
The Fund’s investment process focuses primarily on market level analysis of global markets and political developments and their impact on individual countries and companies in emerging markets. The Fund uses a top-down portfolio construction 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 Fund invests, without limitation, in high yield securities (also known as “junk”) 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). The Fund's holdings range in maturity from overnight to 30 years or more and are not subject to any minimum credit rating standard.
During the fiscal year ended October 31, 2017, the average ratings of the Fund’s fixed-income assets, based on market value at each month-end, were as follows (all ratings are by Moody’s):
0.00% in securities rated Aaa
16.55% in securities rated Baa
1.80% in securities rated Caa
0.00% in securities rated D
0.49% in securities rated Aa
29.52% in securities rated Ba
0.47% in securities rated Ca
21.15% in securities not rated
10.82% in securities rated A
19.20% 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.

26



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, 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.
Defensive Strategy Risk. Because emerging market debt markets are particularly susceptible to adverse market, economic, political, and other conditions, the Fund is more prone to take a defensive position and invest a significant portion of its assets in cash and cash equivalents in response to abnormal market conditions. 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.

27



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.
Volatility Mitigation Risk.  Volatility mitigation strategies may increase fund transaction costs, which could increase losses or reduce gains. These strategies may not protect the fund from market declines and may reduce the fund’s participation in market gains.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852 or online at www.principalfunds.com.
The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, results would be lower. The table shows, for 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 (July 11, 2016).

28



Total Returns as of December 31
chart-81ff82c6179d7702a22.jpg
Highest return for a quarter during the period of the bar chart above:
Q1 '17
4.74
%
Lowest return for a quarter during the period of the bar chart above:
Q4 '17
0.77
%
Average Annual Total Returns
For the periods ended December 31, 2017
1 Year
Life of Fund
Class A Return Before Taxes
6.64%
5.44%
Class A Return After Taxes on Distributions
3.36%
2.33%
Class A Return After Taxes on Distributions and Sale of Fund Shares
3.85%
2.77%
Institutional Class Return Before Taxes
11.23%
8.62%
JPM CEMBI Broad Diversified Index (reflects no deduction for fees, expenses, or taxes)
7.96%
5.74%
JPM EMBI Global Diversified Index (reflects no deduction for fees, expenses, or taxes)
10.26%
5.31%
JPM GBI-EM Global Diversified Index (reflects no deduction for fees, expenses, or taxes)
15.21%
6.98%
Finisterre Unconstrained Emerging Markets Bond Blended Index (reflects no deduction for fees, expenses, or taxes)
11.13%
6.05%
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 class.
Performance of the 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 weighting of the Finisterre Unconstrained Emerging Markets Bond Blended Index are: 33.33% JPM CEMBI Broad Diversified Index; 33.33% EMBI Global Diversified Index; and 33.33% GBI-EM Global Diversified Index.
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)

29



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

30



GLOBAL DIVERSIFIED INCOME FUND
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 412 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
Inst.
R-6
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)
3.75%
None
None
None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)
1.00%
1.00%
None
None
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
 
Share Class
 
A
C
Inst.
R-6
Management Fees
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
0.03%
0.03%
0.03%
0.03%
Remainder of Other Expenses (1)
0.09%
0.10%
0.05%
0.01%
Total Other Expenses
0.12%
0.13%
0.08%
0.04%
Total Annual Fund Operating Expenses
1.09%
1.85%
0.80%
0.76%
Fee Waiver and Expense Reimbursement (2) (3)
(0.01)%
(0.01)%
(0.02)%
(0.01)%
Total Annual Fund Operating Expenses after Fee Waiver and Expense Reimbursement
1.08%
1.84%
0.78%
0.75%
(1)     Based on estimated amounts for the current fiscal year (Class R-6).
(2)    Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund's Management Fees through the period ending 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 0.75% for Institutional Class shares. In addition, for Class R-6, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending February 28, 2019; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

31



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
$481
$708
$952
$1,653
Class C
287
581
1,000
2,168
Institutional Class
80
253
442
988
Class R-6
77
242
421
941
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
$187
$581
$1,000
$2,168
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 120.1% 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. The fixed income portion of the Fund is not managed to a particular maturity or duration. 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 derivative strategies, primarily in an effort to reduce risk. 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.
The Fund invests in foreign and emerging market securities of issuers located throughout the world. Under normal market conditions, the Fund holds investments tied economically to at least 10 countries and invests at least 30% of its net assets in foreign, including emerging market, 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 invest in such categories to varying degrees at any time, add categories, or discontinue using a category. 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 as determined by PGI. The primary purpose of this investment strategy is to reduce portfolio volatility in the Fund.

32



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 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, 2017, the average ratings of the Fund’s fixed-income assets, based on market value at each month-end, were as follows (all ratings are by Moody’s):
8.48% in securities rated Aaa
13.62% in securities rated Baa
15.72% in securities rated Caa
0.22% in securities rated D
0.79% in securities rated Aa
20.72% in securities rated Ba
0.20% in securities rated Ca
12.45% in securities not rated
2.51% in securities rated A
25.10% in securities rated B
0.19% in securities rated C
 

33



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.

34



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 a fund, or the events that would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock that appears to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate 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.

35



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, result in changes to expense ratios and increased expenses, 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 www.principalfunds.com.
The bar chart shows the investment returns of the Fund’s Class A shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges on Class A shares; if they did, 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 R-6 shares (June 12, 2017), the performance shown in the table for Class R-6 shares is that of the Fund's Institutional Class shares, adjusted to reflect the fees and expenses of Class R-6 shares. These adjustments result in performance for such periods that is no higher than the historical performance of the Institutional Class shares.

36



Total Returns as of December 31
chart-021e305bb97b495a762.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
)%
Average Annual Total Returns
For the periods ended December 31, 2017
1 Year
5 Years
Life of Fund
Class A Return Before Taxes
5.71%
4.83%
10.61%
Class A Return After Taxes on Distributions
3.89%
2.76%
8.07%
Class A Return After Taxes on Distributions and Sale of Fund Shares
3.38%
2.83%
7.47%
Class C Return Before Taxes
8.01%
4.82%
10.24%
Institutional Class Return Before Taxes
10.23%
5.97%
11.39%
Class R-6 Return Before Taxes
10.25%
5.95%
11.34%
Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index (reflects no deduction for fees, expenses, or taxes)
7.50%
5.78%
13.87%
Bloomberg Barclays Global Credit Index (reflects no deduction for fees, expenses, or taxes)
9.19%
2.86%
6.63%
Bloomberg Barclays Global High Yield Index (reflects no deduction for fees, expenses, or taxes)
10.43%
5.67%
13.85%
MSCI ACWI Value Index (reflects no deduction for fees, expenses, or taxes)
18.26%
9.46%
10.73%
Global Diversified Income Blended Index (reflects no deduction for fees, expenses, or taxes)
12.24%
5.72%
10.15%
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.

37



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)
Purchase and Sale of Fund Shares
Share Class
Investment Type
Purchase Minimum Per Fund
A and C
Initial Investment
$1,000(1)
A and C
Initial Investment for accounts with an Automatic Investment Plan (AIP)
$100
A and C
Subsequent Investments
$100(1)(2)
Institutional and R-6
There are no minimum initial or subsequent investment requirements for eligible purchasers.
N/A
(1) 
Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.
(2) 
For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.
You may purchase or redeem shares on any business day (normally any day when the New York Stock Exchange is open for regular trading) through your plan, intermediary, or Financial Professional; by sending a written request to Principal Funds at P.O. Box 8024, Boston, MA 02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight mail); calling us at 1-800-222-5852; or accessing our website (www.principalfunds.com).
Tax Information
The Fund’s distributions you receive are generally subject to federal income tax as ordinary income or capital gain and may also be subject to state and local taxes, unless you are tax-exempt or your account is tax-deferred in which case your distributions would be taxed when withdrawn from the tax-deferred account.
Payments to Broker-Dealers and Other Financial Intermediaries
For Class R-6 shares, the Fund and its related companies do not pay broker-dealers or other financial intermediaries (such as a bank, insurance company, investment adviser, etc.) for the sale of Fund shares or related services.
For the other share classes, if you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment adviser, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, or to recommend one share class of the Fund over another share class. Ask your salesperson or visit your financial intermediary's website for more information.

38



GLOBAL REAL ESTATE SECURITIES FUND
Objective:
The Fund seeks to generate a total return.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Class A Shares of Principal Funds, Inc. More information about these and other discounts is available from your financial professional and in “Choosing a Share Class and The Costs of Investing” beginning on page 412 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
Inst.
R-3
R-4
R-5
R-6
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)
5.50%
None
None
None
None
None
None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)
1.00%
1.00%
None
None
None
None
None
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
 
Share Class
 
A
C
Inst.
R-3
R-4
R-5
R-6
Management Fees
0.87%
0.87%
0.87%
0.87%
0.87%
0.87%
0.87%
Distribution and/or Service (12b-1) Fees
0.25%
1.00%
N/A
0.25%
0.10%
N/A
N/A
Other Expenses
0.21%
0.25%
0.09%
0.34%
0.30%
0.28%
0.01%
Total Annual Fund Operating Expenses
1.33%
2.12%
0.96%
1.46%
1.27%
1.15%
0.88%
Expense Reimbursement (1)
N/A
—%
(0.02)%
N/A
N/A
N/A
—%
Total Annual Fund Operating Expenses after Expense Reimbursement
1.33%
2.12%
0.94%
1.46%
1.27%
1.15%
0.88%
(1)    Principal Global Investors, LLC ("PGI"), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 2.20% for Class C and 0.94% for Institutional Class shares. In addition, for Class R-6, the expense limit will maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) not to exceed 0.02%, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses). It is expected that the expense limits will continue through the period ending February 28, 2019; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. The calculation of costs takes into account any applicable contractual fee waivers and/or expense reimbursements for the period noted in the table above. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
 
1 year
3 years
5 years
10 years
Class A
$678
$948
$1,239
$2,063
Class C
315
664
1,139
2,452
Institutional Class
96
304
529
1,176
Class R-3
149
462
797
1,746
Class R-4
129
403
697
1,534
Class R-5
117
365
633
1,398
Class R-6
90
281
488
1,084

39



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
$215
$664
$1,139
$2,452
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 67.3% of the average value of its portfolio.
Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of U.S. and non-U.S. companies principally engaged in the real estate industry at the time of purchase. For the Fund's investment policies, a real estate company has at least 50% of its assets, income or profits derived from products or services related to the real estate industry. Real estate companies include real estate investment trusts ("REITs") and companies with substantial real estate holdings such as paper, lumber, hotel and entertainment companies as well as those whose products and services relate to the real estate industry such as building supply manufacturers, mortgage lenders, and mortgage servicing companies. The Fund invests in equity securities regardless of market capitalization (small, medium or large). The Fund invests in value equity securities, which is an investment strategy that emphasizes buying equity securities that appear to be undervalued.
REITs are pooled investment vehicles that invest in income producing real estate, real estate related loans, or other types of real estate interests. REITs in the U.S. are corporations or business trusts that are permitted to eliminate corporate level federal income taxes by meeting certain requirements of the Internal Revenue Code.
Some foreign countries have adopted REIT structures that are very similar to those in the United States. Similarities include pass through tax treatment and portfolio diversification. Other countries may have REIT structures that are significantly different than the U.S. or may not have adopted a REIT like structure at all. The Fund invests a significant percentage of its portfolio in REITs and foreign REIT-like entities.
The Fund typically invests in foreign securities of at least three countries and at least 30% of its net assets in foreign securities.
The Fund concentrates its investments (invest more than 25% of its net assets) in securities in the real estate industry.
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.
Value Stock Risk. Value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by a fund, or the events that would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock that appears to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).

40



Industry Concentration Risk. A fund that concentrates investments in a particular industry or group of industries has greater exposure than other funds to market, economic and other factors affecting that industry or group of industries.
Real Estate. A fund concentrating in the real estate industry can be subject to the risks associated with direct ownership of real estate, securities of companies in the real estate industry, and/or real estate investment trusts.
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, result in changes to expense ratios and increased expenses, 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 www.principalfunds.com.
The bar chart shows the investment returns of the 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.
For periods prior to the inception date of Class R-6 shares (November 25, 2014) and Classes R-3, R-4, and R-5, shares (March 1, 2016), the performance shown in the table for these newer classes is that of the Fund's Institutional Class shares, adjusted to reflect the respective fees and expenses of each class. These adjustments result in performance for such periods that is no higher than the historical performance of the Institutional Class shares.
During 2010, the Institutional Class experienced a significant withdrawal of monies by an affiliate. As the remaining shareholders held relatively small positions, the total return amounts expressed herein are greater than those that would have been experienced without the withdrawal.

41



Total Returns as of December 31
chart-9e758ad003e6f0424fe.jpg
Highest return for a quarter during the period of the bar chart above:
Q2 '09
30.77
 %
Lowest return for a quarter during the period of the bar chart above:
Q4 '08
(29.65
)%
Average Annual Total Returns
For the periods ended December 31, 2017
1 Year
5 Years
10 Years
Class A Return Before Taxes
8.03%
5.92%
3.95%
 
Class A Return After Taxes on Distributions
6.53%
4.38%
2.50%
 
Class A Return After Taxes on Distributions and Sale of Fund Shares
4.91%
4.01%
2.47%
 
Class C Return Before Taxes
12.45%
6.28%
3.68%
 
Institutional Class Return Before Taxes
14.73%
7.56%
5.41%
(1) 
Class R-3 Return Before Taxes
14.22%
7.03%
4.89%
(1) 
Class R-4 Return Before Taxes
14.27%
7.19%
5.07%
(1) 
Class R-5 Return Before Taxes
14.64%
7.36%
5.21%
(1) 
Class R-6 Return Before Taxes
14.77%
7.54%
5.40%
(1) 
FTSE EPRA/NAREIT Developed Index NR (reflects no deduction for fees, expenses or taxes)
10.36%
6.32%
3.28%
 
(1)    During 2010, the Institutional Class experienced a significant withdrawal of monies by an affiliate. As the remaining shareholders held relatively small positions, the total return amounts expressed herein are greater than those that would have been experienced without the withdrawal.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class A shares only and would be different for the other share classes.
Management
Investment Advisor:
Principal Global Investors, LLC
Sub-Advisor and Portfolio Managers:
Principal Real Estate Investors, LLC
Simon Hedger (since 2007), Portfolio Manager
Anthony Kenkel (since 2010), Portfolio Manager
Kelly D. Rush (since 2007), Portfolio Manager

42



Purchase and Sale of Fund Shares
Share Class
Investment Type
Purchase Minimum Per Fund
A and C
Initial Investment
$1,000(1)
A and C
Initial Investment for accounts with an Automatic Investment Plan (AIP)
$100
A and C
Subsequent Investments
$100(1)(2)
Institutional, R-3, R-4, R-5, and R-6
There are no minimum initial or subsequent investment requirements for eligible purchasers.
N/A
(1) 
Some exceptions apply; see "Purchase of Fund Shares - Minimum Investments" for more information.
(2) 
For accounts with an AIP, the subsequent automatic investments must total $1,200 annually if the initial $1,000 minimum has not been met.
You may purchase or redeem shares on any business day (normally any day when the New York Stock Exchange is open for regular trading) through your plan, intermediary, or Financial Professional; by sending a written request to Principal Funds at P.O. Box 8024, Boston, MA 02266-8024 (regular mail) or 30 Dan Road, Canton, MA 02021-2809 (overnight mail); calling us at 1-800-222-5852; or accessing our website (www.principalfunds.com).
Tax Information
The Fund’s distributions you receive are generally subject to federal income tax as ordinary income or capital gain and may also be subject to state and local taxes, unless you are tax-exempt or your account is tax-deferred in which case your distributions would be taxed when withdrawn from the tax-deferred account.
Payments to Broker-Dealers and Other Financial Intermediaries
For Class R-6 shares, the Fund and its related companies do not pay broker-dealers or other financial intermediaries (such as a bank, insurance company, investment adviser, etc.) for the sale of Fund shares or related services.
For the other share classes, if you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment adviser, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, or to recommend one share class of the Fund over another share class. Ask your salesperson or visit your financial intermediary's website for more information.

43



GOVERNMENT & HIGH QUALITY BOND FUND
Objective:
The Fund seeks to provide a high level of current income consistent with safety and liquidity.
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 412 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)
2.25%
None
None
None
None
None
None
None
None
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV when Sales Load is paid, whichever is less)
1.00%
1.00%
1.00%
None
None
None
None
None
None
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
 
Share Class
 
A
C
J
Inst.
R-1
R-2
R-3
R-4
R-5
Management Fees
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
0.50%
Distribution and/or Service (12b-1) Fees
0.25%
1.00%
0.15%
N/A
0.35%
0.30%
0.25%
0.10%
N/A
Other Expenses
0.16%
0.18%
0.18%
0.03%
0.53%
0.45%
0.32%
0.28%
0.26%
Total Annual Fund Operating Expenses
0.91%
1.68%
0.83%
0.53%
1.38%
1.25%
1.07%
0.88%
0.76%
Expense Reimbursement (1)
(0.03)%
(0.05)%
N/A
—%
(0.09)%
(0.09)%
(0.09)%
(0.09)%
(0.09)%
Total Annual Fund Operating Expenses after Expense Reimbursement
0.88%
1.63%
0.83%
0.53%
1.29%
1.16%
0.98%
0.79%
0.67%
(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 0.88% for Class A, 1.63% for Class C, 0.53% for Institutional Class, 1.29% for Class R-1, 1.16% for Class R-2, 0.98% for Class R-3, 0.79% for Class R-4, and 0.67% for Class R-5 shares. It is expected that the expense limits will continue through the period ending February 28, 2019; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limits prior to the end of the period.

44



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
$313
$506
$715
$1,317
Class C
266
525
908
1,983
Class J
185
265
460
1,025
Institutional Class
54
170
296
665
Class R-1
131
428
747
1,650
Class R-2
118
388
678
1,503
Class R-3
100
331
581
1,298
Class R-4
81
272
479
1,076
Class R-5
68
234
414
934
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
$166
$525
$908
$1,983
Class J
85
265
460
1,025
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 22.6% of the average value of its portfolio.
Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in debt securities issued by the U.S. government, its agencies or instrumentalities or debt securities that are rated, at the time of purchase, AAA by S&P Global Ratings ("S&P Global") or Aaa by Moody's Investors Service, Inc. ("Moody's"), or, if unrated, in the opinion of those selecting such investments, are of comparable quality including but not limited to mortgage securities such as agency and non-agency collateralized mortgage obligations, and other obligations that are secured by mortgages or mortgage-backed securities (securitized products). The Fund also invests in mortgage-backed securities that are not issued by the U.S. government, its agencies or instrumentalities or rated lower than AAA by S&P Global, AAA by Fitch, or Aaa by Moody's (or of comparable quality), including collateralized mortgage obligations, and in other obligations that are secured by mortgages or mortgage-backed securities.
Under normal circumstances, the Fund maintains an average portfolio duration that is within ±25% of the duration of the Bloomberg Barclays Fixed-Rate MBS Index, which as of December 31, 2017 was 4.43 years . The Fund is not managed to a particular maturity.

45



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: