Supplement dated March 15, 2013

to the Classes Institutional, R-1, R-2, R-3, R-4 and R-5 Shares Prospectus

for Principal Funds, Inc.

dated December 28, 2012

(as supplemented on February 8, 2013)

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

FUND SUMMARIES

Global Multi-Strategy Fund

Global Multi-Strategy Fund

On or about April 10, 2013, under the Principal Investment Strategies heading, after the Credit Long/Short and Distressed Credit paragraph, add:

Emerging Market Long/Short Credit. The emerging markets credit opportunities strategy is designed to benefit from opportunities in emerging market, liquid, high grade, high yield, stressed, distressed and other corporate or sovereign credits. This strategy takes long and short exposure to selected emerging market issuers when factors have been identified which the Fund believes will drive substantial appreciation or depreciation of the particular exposure. The geographical focus of the investment strategy is derived from the dynamics of economic and political developments as well as the specific nature of local jurisdictions in the emerging markets.