filingbody.htm - Generated by SEC Publisher for SEC Filing

485APOS 1 filingbody.htm PRINCIPAL FUNDS, INC. - PEA ADDING CLASSES TO SHORT-TERM INCOME filingbody.htm - Generated by SEC Publisher for SEC Filing

Registration No. 33-59474

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

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POST-EFFECTIVE AMENDMENT NO. 82 TO

FORM N-1A

REGISTRATION STATEMENT

under

THE SECURITIES ACT OF 1933

and

REGISTRATION STATEMENT

under

THE INVESTMENT COMPANY ACT OF 1940

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PRINCIPAL FUNDS, INC.

formerly Principal Investors Fund, Inc.

(Exact name of Registrant as specified in Charter)

The Principal Financial Group

Des Moines, Iowa 50392

(Address of principal executive offices)

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Telephone Number (515) 248-3842

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	Copy to:
MICHAEL D. ROUGHTON	JOHN W. BLOUCH, Esq.
The Principal Financial Group	Dykema Gossett PLLC
Des Moines, Iowa 50392	Franklin Square, Suite 300 West
	1300 I Street, N.W.
	Washington, DC 20005-3306
	(Name and address of agent for service)
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It is proposed that this filing will become effective (check appropriate box)
	immediately upon filing pursuant to paragraph (b) of Rule 485
	on (date), pursuant to paragraph (b) of Rule 485
	60 days after filing pursuant to paragraph (a)(1) of Rule 485
	on (date) pursuant to paragraph (a)(1) of Rule 485
	75 days after filing pursuant to paragraph (a)(2) of Rule 485
	on (date) pursuant to paragraph (a)(2) of Rule 485
XXXX	on a date to be determined pursuant to paragraph (a)(3) of Rule 485
If appropriate, check the following box:)
	This post-effective amendment designates a new effective date for a previously filed post-effective amendment.


	EXPLANATORY NOTE
The Amendment contains a facing page, amendment to the March 1, 2010 Class J shares prospectus, amendment for the March 1, 2010
Class R-1, R-2, R-3, R-4 and R-5 shares prospectus, an amendment for the March 1, 2010 SAI, Part C and signature page.
The Amendment incorporates by reference the following:

•	The Prospectus for Class J shares, dated March 1, 2010, included in Post-Effective Amendment No. 80 to the registration statement on
	Form N-1A filed on February 26, 2010, pursuant to paragraph (b) of Rule 485 (SEC Accession No. 0000898745-10-000048);
•	The Prospectus for R-1, R-2, R-3, R-4, and R-5 Class shares, dated March 1, 2010, included in Post-Effective Amendment No. 79 to the
	registration statement on Form N-1A filed on February 26, 2010, pursuant to paragraph (b) of Rule 485 (SEC Accession No. 0000898745-
	10-000046);
•	The Statement of Additional Information dated March 1, 2010, included in Post-Effective Amendment No. 76 to the registration statement
	on Form N-1A filed on February 26, 2010, pursuant to paragraph (b) of Rule 485 (SEC Accession No. 0000898745-10-000040);
•	Supplements to the March 1, 2010 Class J shares Prospectus dated and filed March 1, 2010 (SEC Accession No. 0000898745-10-
	000136), March 17, 2010 (SEC Accession No. 0000898745-10-000183), and May 3, 2010 (SEC Accession No. 0001126328-10-000200);
•	Supplements to the March 1, 2010 R-1, R-2, R-3, R-4, and R-5 Class shares Prospectus dated and filed March 1, 2010 (SEC Accession
	No. 0000898745-10-000139), March 17, 2010 (SEC Accession No. 0000898745-10-00184), and May 3, 2010 (SEC Accession No.
	0001126328-10-000202); and
•	Supplement to the March 1, 2010 Statement of Additional Information dated and filed March 17, 2010 (SEC Accession No.
	0000898745-10-000185) and May 3, 2010 (SEC Accession No. .0001126328-10-000206).

The Amendment is not being filed to update or amend the other prospectuses for any other series of the Registrant that have a fiscal year end
of October 31. The Amendment is not being filed to update or amend the prospectuses or statement of additional information for the other
series of the Registrant that have a fiscal year end of August 31.

RULE 461 REQUEST FOR ACCELERATION: Attached to this filing is a transmittal letter in which the Registrant and the Principal
Underwriter request accelerated effectiveness to May 6, 2010, or as soon thereafter as practicable.


Supplement dated _____, 2010
to the Class J Shares Prospectus
for Principal Funds, Inc.
dated March 1, 2010
(As Supplemented on March 1, 2010, March 17, 2010, and May 3, 2010)

This supplement updates information currently in the Prospectus. Retain this supplement with the Prospectus.


Insert the following fund summary:

SHORT-TERM INCOME FUND

Objective: The Fund seeks to provide as high a level of current income as is consistent with prudent
investment management and stability of principal.

Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment)

		Class J

Maximum Deferred Sales Charge (Load)		1.00%
(as a percentage of dollars subject to charge)

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

Estimated for the year ended October 31, 2010			Class J
Management Fees			0.48%
Distribution and/or Service (12b-1) Fees			0.45
Other Expenses			0.26
	Total Annual Fund Operating Expenses		1.19%
Expense Reimbursement			0.12
Total Annual Fund Operating Expenses After Expense Reimbursement			1.07%

Principal has contractually agreed to limit the Fund’s expenses attributable to Class J shares and, if necessary,
pay expenses normally payable by the Fund, excluding interest expense, through the period ending
February 29, 2012. The expense limit will maintain a total level of operating expenses (expressed as a percent
of average net assets on an annualized basis) not to exceed 1.07%.

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. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:

	1 year	3 years
Class J	$209	$364

You would pay the following expenses if you did not redeem your shares:
	1 year	3 years
Class J	$109	$364


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 40.8% of the average value of its portfolio.

Investor Profile: The Fund may be an appropriate investment for investors seeking diversification by

investing in a fixed-income mutual fund.

Principal Investment Strategies

The Fund invests in high quality short-term bonds and other fixed-income securities that, at the time of

purchase, are rated BBB- or higher by Standard & Poor’s Rating Service or Baa3 or higher by Moody’s

Investors Service, Inc. or, if unrated, in the opinion of Edge Asset Management, Inc. (“Edge”) of comparable

quality. Under normal circumstances, the Fund maintains an effective maturity of five years or less and a dollar-

weighted average duration of three years or less. The Fund’s investments may also include corporate securities,

U.S. and foreign government securities, repurchase agreements, mortgage-backed and asset-backed

securities, and real estate investment trust securities.

The Fund may invest in foreign fixed-income securities, primarily bonds of foreign governments or their political

subdivisions, foreign companies and supranational organizations, including non-U.S. dollar-denominated

securities and U.S. dollar-denominated fixed-income securities issued by foreign issuers and foreign branches

of U.S. banks. The Fund may invest in preferred securities. The Fund may enter into dollar roll transactions,

which may involve leverage. The Fund may utilize derivative strategies, which are financial contracts whose

value depends upon, or is derived from, the value of an underlying asset, reference rate, or index, and may

relate to stocks, bonds, interest rates, currencies or currency exchange rates, and related indexes. Derivative

strategies may include certain options transactions, financial futures contracts, swaps, currency forwards, and

related options for purposes such as earning income and enhancing returns, managing or adjusting the risk

profile of the Fund, replacing more traditional direct investments, or obtaining exposure to certain markets. This

Fund may be used as part of a fund of funds strategy.

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. The principal risks of investing in the Fund,

in alphabetical order, are:

Derivatives Risk. Transactions in derivatives (such as options, futures, and swaps) may increase volatility,

cause the liquidation of portfolio positions when not advantageous to do so and produce disproportionate

losses. Certain Fund transactions, such as reverse repurchase agreements, loans of portfolio securities, and the

use of when-issued, delayed delivery or forward commitment transactions, or derivative instruments, may give

rise to leverage, causing the Fund to be more volatile than if it had not been leveraged.

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 Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic

instability; nationalization, expropriation or confiscatory taxation; changes in foreign exchange rates and foreign

exchange restrictions; settlement delays; and limited government regulation (including less stringent reporting,

accounting, and disclosure standards than are required of U.S. companies).

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.

Prepayment Risk. Unscheduled prepayments on mortgage-backed and asset-backed securities 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).

Real Estate Securities Risk. Real estate securities (including real estate investment trusts ("REITs")) are

subject to the risks associated with direct ownership of real estate, including declines in value, adverse

economic conditions, increases in expenses, regulatory changes and environmental problems. A REIT could fail

to qualify for tax-free pass-through of income under the Internal Revenue Code, and Fund shareholders will

indirectly bear their proportionate share of the expenses of REITs in which the Fund invests.

Underlying Fund Risk. An underlying fund to a fund of funds may experience relatively large redemptions or investments as the fund of funds periodically reallocates or rebalances its assets. These transactions may cause the underlying fund to sell portfolio securities to meet such redemptions, or to invest cash from such investments, at times it would not otherwise do so, and may as a result increase transaction costs and adversely affect underlying fund performance.

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 an indication of the risks of investing in the Fund. The bar chart shows the investment returns of the Fund’s Class J shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Fund). These annual returns do not reflect sales charges; if they did, results would be lower. The table shows, for Class J 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 to the returns of one or more broad-based market indices. 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 online at www.principalfunds.com or by calling 1-800-222-5852.

The Fund commenced operations after succeeding to the operations of another fund on January 12, 2007. Performance for periods prior to that date is based on the performance of the predecessor fund which commenced operations on November 1, 1993. The performance of Class J shares, for periods prior to the date Class J shares were first sold is based upon the performance of Class A shares adjusted to reflect the fees and expenses of Class J shares.


Highest return for a quarter during the period of the bar chart above:	Q2 ’09	3.92%
Lowest return for a quarter during the period of the bar chart above:	Q4 ’08	-1.90%


Average Annual Total Returns
For the periods ended December 31, 2009	1 Year	5 Years	10 Years
Class J Return Before Taxes	9.68%	3.67%	4.46%
Class J Return After Taxes on Distributions	8.33%	2.33%	2.88%
Class J Return After Taxes on Distribution and Sale of Fund Shares	6.26%	2.34%	2.86%
Citigroup Broad Investment Grade Credit 1-3 Years Index (reflects no deduction for fees,
expenses, or taxes)	11.04%	4.73%	5.50%

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.


Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
Edge Asset Management, Inc.
•	Scott J. Peterson (since 2010), Portfolio Manager

Purchase minimums per fund (some exceptions apply):

•	Initial Investment		$1,000
	• For accounts with an Automatic Investment Plan (AIP)		$100

•	Subsequent Investments		$100
	• 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 Financial Professional; by sending a written request to
Principal Funds at P.O. Box 55904, Boston, MA 02205; calling us at 800-222-5852; or accessing our website
(www.principalfunds.com).

Tax Information
The Fund’s distributions are generally taxable to you as ordinary income, capital gains, or a combination of the
two, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or an individual
retirement 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.

CERTAIN INVESTMENT STRATEGIES AND RELATED RISKS

On page 206, in the “High Yield Securities” section, add the Short-Term Income Fund to the list of funds in the first sentence
of the first paragraph.

On page 210, in the “Small and Medium Capitalization Companies” section, add the Short-Term Income Fund to the list of
funds in the second sentence of the first paragraph.

MANAGEMENT OF THE FUNDS

Fees Paid to Principal
On page 227, dd the following information to the table under this heading:

	Short-Term Income Fund	0.48%

On page 227, in the "Fees Paid to Principal" sub-section, add the following information before the paragraph that
begins, "The Fund operates as a Manager of Managers."

The Distributor has voluntarily agreed to limit the Short-Term Income Fund’s Distribution and/or Service (12b-1)
Fees normally payable by the Fund. The expense limit will maintain the level of Distribution and/or Service (12b-1)

Fees (expressed as a percent of average net assets on an annualized basis) not to exceed 0.40% for Class J

shares. The expense limit may be terminated at any time.

DIVIDENDS AND DISTRIBUTIONS

On page 230, add the Short-Term Income Fund to the list of funds in the first bullet in this section.


Supplement dated ________, 2010
to the R-1, R-2, R-3, R-4, and R-5 Classes Prospectus
for Principal Funds, Inc.
dated March 1, 2010
(As Supplemented on March 1, 2010, March 17, 2010, and May 3, 2010)

This supplement updates information currently in the Prospectus. Retain this supplement with the Prospectus.


Insert the following fund summary:

SHORT-TERM INCOME FUND

Objective: The Fund seeks to provide as high a level of current income as is consistent with prudent
investment management and stability of principal.

Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment):	None


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

Estimated for the year ended October 31, 2010	Class R-1	Class R-2	Class R-3	Class R-4	Class R-5
Management Fees	0.48%	0.48%	0.48%	0.48%	0.48%
Distribution and/or Service (12b-1) Fees	0.35	0.30	0.25	0.10	N/A
Other Expenses	0.54	0.46	0.33	0.29	0.27
Total Annual Fund Operating Expenses	1.37	1.24	1.06	0.87	0.75
Expense Reimbursement	0.07	0.06	0.07	0.08	0.07
Total Annual Fund Operating Expenses	1.30%	1.18%	0.99%	0.79%	0.68%
After Expense Reimbursement

Principal has contractually agreed to limit the Fund’s expenses attributable to Class R-1, Class R-2, Class R-3,
Class R-4, and Class R-5 shares and, if necessary, pay expenses normally payable by the Fund, excluding
interest expense, through the period ending February 29, 2012. The expense limit will maintain a total level of
operating expenses (expressed as a percent of average net assets on an annualized basis not to exceed 1.30%
for Class R-1, 1.18% for Class R-2, 0.99% for Class R-3, 0.79% for Class R-4, and 0.68% for Class R-5.


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

The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund’s operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:


	1 year	3 years
Class R-1	$132	$426
Class R-2	$120	$386
Class R-3	$101	$329
Class R-4	$81	$268
Class R-5	$69	$231

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