As filed with the Securities and Exchange Commission on January 16, 2014.

Registration No. 333-________

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM N-14

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

[ ] Pre-Effective Amendment No. ___

[ ] Post-Effective Amendment No. ____

PRINCIPAL FUNDS, INC.

(Exact name of Registrant as specified in charter)

650 8th Street, Des Moines, Iowa 50309

(Address of Registrant's Principal Executive Offices)

515-235-9328

(Registrant's Telephone Number, Including Area Code)

Adam U. Shaikh

Assistant Counsel, Principal Funds, Inc.

650 8^th Street

Des Moines, Iowa 50309

(Name and Address of Agent for Service)

Copies of all communications to:
	JOSHUA B. DERINGER
	Drinker Biddle & Reath, LLP
	One Logan Square, Ste 2000
	Philadelphia, PA 19103-6996
	215-988-2959

Approximate date of proposed public offering: As soon as practicable after this Registration Statement becomes effective.

Title of Securities Being Registered: J, R-1, R-2, R-3, R-4, R-5, and Institutional Class Shares common stock, par value $.01 per share.

No filing fee is due because an indefinite number of shares have been registered in reliance on Section 24(f) under the Investment Company Act of 1940, as amended.

PRINCIPAL FUNDS, INC.

650 8th Street, Des Moines, Iowa 50309

1-800-222-5852

February ____, 2014

Dear Shareholder:

A Special Meeting of Shareholders of Principal Funds, Inc. (“PFI”) will be held at 650 8th Street, Des Moines, Iowa 50309, on April 18, 2014 10:00 a.m. Central Time (the “Meeting”).

At the Meeting, shareholders of the SmallCap Growth Fund II (the “Acquired Fund”) will be asked to consider and approve a Plan of Acquisition (the “Plan”) providing for the reorganization of the Acquired Fund into the SmallCap Growth Fund I (the “Acquiring Fund”).

Under the Plan: (i) the Acquiring Fund will acquire all the assets, subject to all the liabilities, of the Acquired Fund in exchange for shares of the Acquiring Fund; (ii) the Acquiring Fund shares will be distributed to the shareholders of the Acquired Fund; and (iii) the Acquired Fund will liquidate and terminate (the “Reorganization”). As a result of the Reorganization, each shareholder of the Acquired Fund will become a shareholder of the Acquiring Fund. The total value of all shares of the Acquiring Fund issued in the Reorganization will equal the total value of the net assets of the Acquired Fund. The number of full and fractional shares of the Acquiring Fund received by a shareholder of the Acquired Fund will be equal in value to the value of that shareholder’s shares of the Acquired Fund as of the close of regularly scheduled trading on the New York Stock Exchange (“NYSE”) on the closing date of the Reorganization. Holders of Class J, Class R-1, Class R-2, Class R-3, Class R-4, Class R-5 and Institutional Class shares of the Acquired Fund will receive, respectively, Class J, Class R-1, Class R-2, Class R-3, Class R-4, Class R-5 and Institutional Class shares of the Acquiring Fund. The Reorganization is expected to occur as of the close of regularly scheduled trading on the NYSE on April 25, 2014. All share classes of the Acquired Fund will vote in the aggregate and not by class with respect to the Reorganization.

The value of your investment will not be affected by the Reorganization. Furthermore, in the opinion of legal counsel, no gain or loss will be recognized by any shareholder for federal income tax purposes as a result of the Reorganization.

*****

Enclosed you will find a Notice of Special Meeting of Shareholders, a Proxy Statement/Prospectus, and a proxy card for shares of each Acquired Fund you owned as of January 28, 2014, the record date for the Meeting. The Proxy Statement/Prospectus provides background information and concisely describes in detail the matters to be voted on at the Meeting.

The Board of Directors has unanimously voted in favor of the proposed Reorganization and recommends that you vote FOR the Proposal.

In order for shares to be voted at the Meeting, we urge you to read the Proxy Statement/Prospectus and then complete and mail your proxy card(s) in the enclosed postage-paid envelope, allowing sufficient time for receipt by us by April 16, 2014 or otherwise vote in a manner provided below by such date. As a convenience, we offer three options by which to vote your shares:

By Internet: Follow the instructions located on your proxy card.

By Phone: The phone number is located on your proxy card. Be sure you have your control number, as printed on your proxy card, available at the time you call.

By Mail: Sign your proxy card and enclose it in the postage-paid envelope provided in this proxy package.

We appreciate your taking the time to respond to this important matter. Your vote is important. If you have any questions regarding the Reorganization, please call our shareholder services department toll free at 1-800-222-5852.

Sincerely,

Nora M. Everett

President and Chief Executive Officer

PRINCIPAL FUNDS, INC.

650 8th Street

Des Moines, Iowa 50309

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To the Shareholders of the SmallCap Growth Fund II:

Notice is hereby given that a Special Meeting of Shareholders (the “Meeting”) of the SmallCap Growth Fund II ( the “Acquired Fund”), a separate series of Principal Funds, Inc. (“PFI”), will be held at 650 8th Street, Des Moines, Iowa 50309, on April 18, 2014, at 10:00 a.m. Central Time. A Proxy Statement/Prospectus providing information about the following proposal to be voted on at the Meeting is included with this notice. The Meeting is being held to consider and vote on such proposal as well as any other business that may properly come before the Meeting or any adjournment thereof:

Proposal Approval of a Plan of Acquisition providing for the reorganization of the SmallCap Growth Fund II into the SmallCap Growth Fund I.

The Board of Directors of PFI recommends that shareholders of the Acquired Fund vote FOR the Proposal.

Approval of the Proposal will require the affirmative vote of the holders of at least a “Majority of the Outstanding Voting Securities” (as defined in the accompanying Proxy Statement/Prospectus) of the Acquired Fund.

Each shareholder of record at the close of business on January 28, 2014 is entitled to receive notice of and to vote at the Meeting.

Please read the attached Proxy Statement/Prospectus.

By order of the Board of Directors

Nora M. Everett

President and Chief Executive Officer

February ____, 2014

Des Moines, Iowa

PRINCIPAL FUNDS, INC.

650 8th Street

Des Moines, Iowa 50309

______________________

PROXY STATEMENT/PROSPECTUS

SPECIAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 18, 2014

RELATING TO THE REORGANIZATION OF THE SMALLCAP GROWTH FUND II INTO THE SMALLCAP GROWTH FUND I

This Proxy Statement/Prospectus is furnished in connection with the solicitation by the Board of Directors (the “Board” or “Directors”) of Principal Funds, Inc. (“PFI”) of proxies to be used at a Special Meeting of Shareholders of PFI to be held at 650 8th Street, Des Moines, Iowa 50309, on April 18, 2014 at 10:00 a.m. Central Time (the “Meeting”).

At the Meeting, shareholders of the SmallCap Growth Fund II (the “Acquired Fund”) will be asked to consider and approve a Plan of Acquisition (the “Plan”) providing for the reorganization of the Acquired Fund into the SmallCap Growth Fund I (the “Acquiring Fund”). Each of the Acquired Fund and the Acquiring Fund are generally referred to herein as a "Fund" and collectively, as the "Funds."

Under the Plan: (i) the Acquiring Fund will acquire all the assets, subject to all the liabilities, of the Acquired Fund in exchange for shares of the Acquiring Fund; (ii) the Acquiring Fund shares will be distributed to the shareholders of the Acquired Fund; and (iii) the Acquired Fund will liquidate and terminate (the “Reorganization”). As a result of the Reorganization, each shareholder of the Acquired Fund will become a shareholder of the Acquiring Fund. The total value of all shares of the Acquiring Fund issued in the Reorganization will equal the total value of the net assets of the Acquired Fund. The number of full and fractional shares of the Acquiring Fund received by a shareholder of the Acquired Fund will be equal in value to the value of that shareholder’s shares of the Acquired Fund as of the close of regularly scheduled trading on the New York Stock Exchange (“NYSE”) on the closing date of the Reorganization. Holders of Class J, Class R-1, Class R-2, Class R-3, Class R-4, Class R-5 and Institutional Class shares of the Acquired Fund will receive, respectively, Class J, Class R-1, Class R-2, Class R-3, Class R-4, Class R-5 and Institutional Class shares of the Acquiring Fund. The Reorganization is expected to occur as of the close of regularly scheduled trading on the NYSE on April 25, 2014. All share classes of the Acquired Fund will vote in the aggregate and not by class with respect to the Reorganization.

This Proxy Statement/Prospectus contains information shareholders should know before voting on the Reorganization. Please read it carefully and retain it for future reference. The Annual and Semi-Annual Reports to Shareholders of PFI contain additional information about the investments of the Acquired and Acquiring Funds, and the Annual Report contains discussions of the market conditions and investment strategies that significantly affected the Acquired and Acquiring Funds during the fiscal year ended October 31, 2013. Copies of these reports may be obtained without charge by writing PFI at the address noted above or by calling our shareholder services department toll free at 1-800-247-4123.

A Statement of Additional Information dated _______, 2014 (the “Statement of Additional Information”) relating to this Proxy Statement/Prospectus has been filed with the Securities and Exchange Commission (“SEC”) and is incorporated by reference into this Proxy Statement/Prospectus. PFI’s Prospectus, dated March 1, 2013 and as supplemented, (File No. 033-59474) and the Statement of Additional Information for PFI, dated March 1, 2013 and as supplemented (“PFI SAI”), have been filed with the SEC and, insofar as they relate to the Acquired Funds, are incorporated by reference into this Proxy Statement/Prospectus. Copies of these documents may be obtained without charge by writing to PFI at the address noted above or by calling our shareholder services department toll free at 1-800-222-5852. You may also call our shareholder services department toll free at 1-800-222-5852 if you have any questions regarding the Reorganization.

PFI is subject to the informational requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940 (the “1940 Act”) and files reports, proxy materials and other information with the SEC. Such reports, proxy materials and other information may be inspected and copied at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 (information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-551-5850). Such materials are also available on the SEC’s EDGAR Database on its Internet site at www.sec.gov, and copies may be obtained, after paying a duplicating fee, by email request addressed to publicinfo@sec.gov or by writing to the SEC’s Public Reference Room.

The SEC has not approved or disapproved these securities or passed upon the accuracy or adequacy of this Proxy Statement/Prospectus. Any representation to the contrary is a criminal offense.

The date of this Proxy Statement/Prospectus is February ____, 2014.

TABLE OF CONTENTS
INTRODUCTION		3
THE REORGANIZATION		3
PROPOSAL:	Approval of a Plan of Acquisition Providing for the Reorganization of the SmallCap Growth Fund II into the SmallCap Growth Fund I	4
	Comparison of Acquired and Acquiring Funds	4
	Comparison of Investment Objectives and Strategies	6
	Comparison of Principal Investment Risks	6
	Fees and Expenses of the Funds	7
	Performance	9
	Reasons for the Reorganization	11
	Board Consideration of the Reorganization	11
INFORMATION ABOUT THE REORGANIZATION		12
	Plan of Acquisition	12
	Description of the Securities to Be Issued	12
	Federal Income Tax Consequences	13
CAPITALIZATION		14
ADDITIONAL INFORMATION ABOUT THE FUNDS		15
	Certain Investment Strategies and Related Risks of the Funds	15
	Multiple Classes of Shares	22
	Costs of Investing in the Funds	22
	Distribution Plans and Intermediary Compensation	23
	Other Payments to Financial Intermediaries	24
	Pricing of Fund Shares	24
	Purchase of Fund Shares	25
	Redemption of Fund Shares	28
	Exchange of Fund Shares	31
	Frequent Purchases and Redemptions	32
	Dividends and Distributions	33
	Tax Considerations	33
	Portfolio Holdings Information	34
VOTING INFORMATION		34
OUTSTANDING SHARES AND SHARE OWNERSHIP		35
FINANCIAL HIGHLIGHTS		36
FINANCIAL STATEMENTS		41
LEGAL MATTERS		41
OTHER INFORMATION		41
APPENDIX A Forms of Plans of Acquisition		A-1

2

INTRODUCTION

This Proxy Statement/Prospectus is being furnished to shareholders of the Acquired Fund to provide information regarding the Plan and the Reorganization.

Principal Funds, Inc. PFI is a Maryland corporation and an open-end management investment company registered with the SEC under the Investment Company Act of 1940, as amended (the "1940 Act"). PFI currently offers 66 separate series or funds (the “PFI Funds”), including the Acquired and Acquiring Funds. The sponsor of PFI is Principal Life Insurance Company (“Principal Life”), and the investment advisor to the PFI Funds is Principal Management Corporation (“PMC”). Principal Funds Distributor, Inc. (the “Distributor” or “PFD”) is the distributor for all share classes of the Acquired and Acquiring Funds. Principal Life, an insurance company organized in 1879 under the laws of Iowa, PMC and PFD are indirect, wholly-owned subsidiaries of Principal Financial Group, Inc. (“PFG”). Their address is the Principal Financial Group, Des Moines, Iowa 50309.

Investment Management. Pursuant to an investment advisory agreement with PFI with respect to the Acquired and Acquiring Funds, PMC provides investment advisory services and certain corporate administrative services to the Funds. As permitted by the investment advisory agreement, PMC has entered into sub-advisory agreements with respect to the Acquired and Acquiring Funds as follows:

Acquired Fund	Sub-Advisor
SmallCap Growth Fund II	Emerald Advisers, Inc. ("Emerald") *
Acquiring Fund	Sub-Advisor
SmallCap Growth Fund I	AllianceBernstein L.P. ("AllianceBernstein") Brown Advisory, LLC ("Brown") Columbus Circle Investors ("CCI")

*Upon completion of the Reorganization, Emerald will become an additional sub-advisor to the Acquiring Fund.

Each of PMC, AllianceBernstein, Brown, CCI, and Emerald is registered with the SEC as an investment advisor under the Investment Advisers Act of 1940.

AllianceBernstein is located at 1345 Avenue of the Americas, New York, NY 10105.

Brown is located at 901 South Bond Street, Suite 400, Baltimore, Maryland 21231.

CCI is located at Metro Center, One Station Place, Stamford, CT 06902. CCI is an affiliate of PMC and a member of the Principal Financial Group.

Emerald is located at 3175 Oregon Pike, Leola, PA 17540.

THE REORGANIZATION

At its meeting held on December 10, 2013, the Board of Directors of PFI (the “Board”), including all the Directors who are not “interested persons” (as defined in the 1940 Act) of PFI (the “Independent Directors”), approved the Reorganization pursuant to the Plan providing for the combination of the Acquired Fund into the Acquiring Fund. The Board concluded with respect to the combination that the Reorganization is in the best interests of the Acquired Fund and the Acquiring Fund and that the interests of existing shareholders of each Fund will not be diluted as a result of the Reorganization. The factors that the Board considered in deciding to approve the Reorganization as to the Acquired Fund are discussed under the proposal under “Information About the Reorganization -- Board Consideration of the Reorganization.”

The Reorganization contemplates: (i) the transfer of all the assets, subject to all of the liabilities, of the Acquired Fund to the Acquiring Fund in exchange for shares of the Acquiring Fund; (ii) the distribution to Acquired Fund shareholders of the Acquiring Fund shares; and (iii) the liquidation and termination of the Acquired Fund. As a result of the Reorganization, each shareholder of the Acquired Fund will become a shareholder of the Acquiring Fund. In the Reorganization, the Acquiring Fund will issue a number of shares with a total value equal to the total value of the net assets of the Acquired Fund, and each shareholder of the Acquired Fund will receive a number of full and fractional shares of the Acquiring Fund with a value equal to the value of that shareholder’s shares of the Acquired Fund, as of the close of regularly scheduled trading on the NYSE on the closing date of the Reorganization (the “Effective Time”). The closing date of the Reorganization is expected to be April 25 2014. Holders of Institutional Class, Class J, Class R-1, Class R-2, Class R-3, Class R-4, and Class R-5 shares of SmallCap Growth Fund II will receive, respectively, Institutional Class, Class J, Class R-1, Class R-2, Class R-3, Class R-4, and Class R-5 shares of SmallCap Growth Fund I. The terms and conditions of the Reorganization are more fully described below in this Proxy Statement/Prospectus and in the Form of the Plan attached hereto as Appendix A.

3

The Board believes that the Reorganization of the Acquired Fund into the Acquiring Fund will serve the best interests of the shareholders of both Funds. The Acquired and Acquiring Funds have experienced similar investment performance, with the Acquired Fund outperforming the Acquiring Fund over the one and three-year periods ended September 30, 2013. The Acquiring Fund has a far greater asset base (approximately $1.8 billion in assets as of October 31, 2013) compared to the Acquired Fund (approximately $212 million in assets as of October 31, 2013). The Acquiring Fund, as a fund with greater assets, may be expected to afford shareholders of the Acquired Fund, on an ongoing basis, greater prospects for growth and efficient management. The Funds have the same investment objectives in that both seek to provide long-term growth of capital, and they also have similar principal policies and risks in that both invest principally in equity securities of companies with small market capitalizations.

The Acquiring Fund has a higher advisory fee than the Acquired Fund. The Acquired Fund shareholders, however, are expected to see similar overall net operating expense ratios with respect to all share classes, taking into account a contractual management fee waiver, which is effective until February 28, 2015. If this management fee waiver is not extended, the Acquiring Fund expenses could increase to a level that may be higher than currently experienced by shareholders of the Acquired Fund. Combining the Funds will not result in any dilution of the interests of existing shareholders of the Funds.

In the opinion of legal counsel, the Reorganization will qualify as a tax-free reorganization and, for federal income tax purposes, no gain or loss will be recognized as a result of the Reorganization by the Acquired or Acquiring Fund shareholders. Please see “Information About the Reorganization -- Federal Income Tax Consequences” for a discussion the tax consequences to the Acquired Fund and its shareholders of disposing of portfolio securities, as described below, and their relation to available pre-reorganization capital losses of that Acquired Fund.

The Reorganization will not result in any material change in the purchase, redemption, and exchange procedures followed with respect to the distribution of shares. See “Additional Information About the Funds -- Purchases, Redemptions and Exchanges of Shares.”

With respect to the Reorganization, the Acquired Fund is expected to achieve the greatest benefit from the reorganization. As discussed above and as a result of the reorganization, shareholders of the Acquired Fund will become shareholders of an Acquiring Fund that has similar historical performance and better prospects for growth than the Acquired Fund, and they are not expected to experience increased fund operating expenses. The expenses and out-of-pocket fees incurred in connection with the Reorganization, including printing, mailing, and legal fees will be paid for by PMC. The costs are estimated to be $25,000. The Acquired Fund will pay any trading costs associated with disposing, prior to the Reorganization, of any portfolio securities of the Acquired Fund that would not be compatible with the investment objectives and strategies of the Acquiring Fund and reinvesting the proceeds in securities that would be compatible. The trading costs are estimated to be $29,000 with an approximate gain of $7,597,000 on a U.S. GAAP basis. The per share capital gain is estimated to be $0.48.

PROPOSAL:

Approval of a Plan of Acquisition Providing for the Reorganization of the

SmallCap Growth Fund II into the SmallCap Growth Fund I

Shareholders of the SmallCap Growth Fund II (the “Acquired Fund”) are being asked to approve the reorganization of the Acquired Fund into the SmallCap Growth Fund I (the “Acquiring Fund”).

Comparison of Acquired and Acquiring Funds

The following table provides comparative information with respect to the Acquired and Acquiring Funds. As indicated in the table, the Funds have the same investment objectives in that both Funds seek to provide long-term growth of capital. In addition, both Funds invest primarily in securities of small-cap companies. Both Funds invest in growth equity securities; growth orientation emphasizes buying equity securities of companies whose potential for growth of capital and earnings is expected to be above average.

SmallCap Growth Fund II (Acquired Fund)		SmallCap Growth Fund I (Acquiring Fund)
Approximate Net Assets as of October 31, 2013
$211,925,000		$1,834,039,000
Investment Advisor:	PMC (for both funds)
Sub-Advisors and Portfolio Managers:
Emerald		AllianceBernstein
Joseph W. Garner has been with Emerald since 1994. He earned a B.A. in Economics from Millersville University and an M.B.A. from the Katz Graduate School of Business, University of Pittsburgh.		Bruce K. Aronow has been with AllianceBernstein since 1999. He earned a B.A. in Philosophy and Economics from Colgate University. Mr. Aronow has earned the right to use the Chartered Financial Analyst designation.

4

SmallCap Growth Fund II (Acquired Fund)	SmallCap Growth Fund I (Acquiring Fund)
Kenneth G. Mertz II has been with Emerald since 1992. He earned a B.A. in Economics from Millersville University. Mr. Mertz has earned the right to use the Chartered Financial Analyst designation. Stacey L. Sears has been with Emerald since 1992. She earned a B.S. in Business Administration from Millersville University and an M.B.A. from Villanova University.	N. Kumar Kirpalani has been with AllianceBernstein since 1999. He earned a BTech from the Indian Institute of Technology and an M.B.A. from the University of Chicago. Mr. Kirpalani has earned the right to use the Chartered Financial Analyst designation.
	Samantha S. Lau has been with AllianceBernstein since 1999. She earned a B.S. in Finance and Accounting from the Wharton School of the University of Pennsylvania. She has earned the right to use the Chartered Financial Analyst designation.
	Wen-Tse Tseng has been with AllianceBernstein since2006. Prior to joining the firm, he spent four years as the healthcare portfolio manager for the small-cap growth team at William D. Witter (the same team had previously managed assets for Weiss, Peck & Greer). He earned a B.S. from National Taiwan University, an M.S. in Molecular Genetics and Microbiology from Robert Wood Johnson Medical School-University of Medicine and Dentistry of New Jersey, and an M.B.A. from Graziadio School of Business and Management at Pepperdine University.
	Brown
	Christopher A. Berrier has been with Brown since 2005 and has been partner and co-portfolio manager of the Firm's Small-Cap Growth Strategy since he joined the Firm. Mr. Berrier earned an A.B. from Princeton University.
	Timothy W. Hathaway has been with Brown since 1995 and has been partner and co-portfolio manager of the Firm's Small-Cap Growth Strategy since 2005. Mr. Hathaway earned a B.A. from Randolph-Macon College and an M.B.A. from Loyola College in 2001. He has earned the right to use the Chartered Financial Analyst Designation.
	CCI
	Clifford G. Fox has been with CCI since 1992. He earned an M.B.A. from the Stern School of Business, New York University and a B.S. from the Wharton School, University of Pennsylvania. Mr. Fox has earned the right to use the Chartered Financial Analyst designation.
	Katerina Wasserman has been with CCI since 2000. She earned a B.S. in Biochemistry from the State University of New York at Stony Brook and a master’s of Public Administration from the Robert F. Wagner Graduate School at New York University.
	Emerald
	(To be added upon the Reorganization.)
PMC	PMC
Mariateresa Monaco. Ms. Monaco has worked as a portfolio manager for Principal since 2009. Previously, she worked as a portfolio manager for Principal Global Investors, LLC, where she worked as a portfolio manager since 2005. Prior to that, Ms. Monaco worked for Fidelity Management and Research. She earned a master’s degree in Electrical Engineering from Politecnico di Torino, Italy, a master’s degree in Electrical Engineering from Northeastern University, and an M.B.A. from the Sloan School of Management at the Massachusetts Institute of Technology.	Mariateresa Monaco. (See portfolio manager biographical profiles under Acquired Fund) EMERALD (To be added upon the Reorganization. See portfolio manager biographical profiles under Acquired Fund)

5

SmallCap Growth Fund II (Acquired Fund)		SmallCap Growth Fund I (Acquiring Fund)
Comparison of Investment Objectives and Strategies
Investment Objective:	Both Funds seeks long-term growth of capital.
Principal Investment Strategies:
Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies with small market capitalizations at the time of each purchase. For this Fund, companies with small market capitalizations are those with market capitalizations equal to or smaller than the greater of: 1) $2.5 billion or 2) the highest market capitalization of the companies in the Russell 2000® Growth Index (as of December 31, 2012, this range was between approximately $27.9 million and $4.7 billion). The Fund invests in growth equity securities; growth orientation emphasizes buying equity securities of companies whose potential for growth of capital and earnings is expected to be above average. Principal Management Corporation invests between 10% and 35% of the Fund's assets in equity securities in an attempt to match or exceed the performance of the Fund's benchmark index by purchasing securities in the index while slightly overweighting and underweighting certain individual equity securities relative to their weight in the Fund's benchmark index.		Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies with small market capitalizations at the time of each purchase. For this Fund, companies with small market capitalizations are those with market capitalizations equal to or smaller than the greater of: 1) $6.0 billion or 2) the highest market capitalization of the companies in the Russell 2000® Growth Index (as of December 31, 2012, the range was between approximately $27.9 million and $4.7 billion). The Fund invests in growth equity securities; growth orientation emphasizes buying equity securities of companies whose potential for growth of capital and earnings is expected to be above average. Principal Management Corporation invests between 10% and 35% of the Fund's assets in equity securities in an attempt to match or exceed the performance of the Fund's benchmark index by purchasing securities in the index while slightly overweighting and underweighting certain individual equity securities relative to their weight in the Fund's benchmark index.

The investment objective of each Fund may be changed by the Board without shareholder approval.

Additional information about the investment strategies and the types of securities in which the Funds may invest is discussed below under “Certain Investment Strategies and Related Risks of the Funds” as well as in the Statement of Additional Information.

The Statement of Additional Information provides further information about the portfolio manager(s) for each Fund, including information about compensation, other accounts managed and ownership of Fund shares.

Comparison of Principal Investment Risks

In deciding whether to approve the Reorganization, shareholders should consider the amount and character of investment risk involved in the respective investment objectives and strategies of the Acquired and Acquiring Funds. Because the Funds have identical investment objectives and substantially similar principal policies, the Funds’ risks are substantially similar. Many factors affect the value of investments in the Funds, and it is possible to lose money by investing in either Fund.

Risks Applicable to both Funds:

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 large cap, mid cap or small cap stocks, or growth or value stocks, may underperform other market segments or the equity markets as a whole. Investments in smaller companies and mid-size companies may involve greater risk and price volatility than investments in larger, more mature companies.

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.

Risk Applicable to Acquiring Fund:

Risk of Being an Underlying Fund. A fund is subject to the risk of being an underlying fund to the extent that a fund of funds invests in the fund. An underlying fund of 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.

6

Fees and Expenses of the Funds

The tables below compare the fees and expenses of the shares of the Acquired and Acquiring Funds. In the Reorganization, the holders of Class R-1, Class R-2, Class R-3, Class R-4, Class R-5 ("Retirement Class shares"), Institutional Class, and Class J shares of the Acquired Fund will receive, respectively, Class R-1, Class R-2, Class R-3, Class R-4, Class R-5, and Institutional Class, and Class J shares of the Acquiring Fund.

Shareholder Fees (fees paid directly from your investment) (for both Funds)

Class J
Maximum Deferred Sales Charge (Load) (as a percentage of the offering price or NAV at the time Sales Load is paid, whichever is less)	1.00%

The Retirement Class and Institutional Class shares are not subject to sales charges or redemption fees.

Fees and Expenses as a % of average daily net assets

The following table shows: (a) the ratios of expenses to average net assets of the Acquired Fund for the fiscal year ended October 31, 2013; (b) the ratios of expenses to average net assets of the Acquiring Fund for the fiscal year ended October 31, 2013; and (c) the pro forma expense ratios of the Acquiring Fund for the fiscal year ending October 31, 2013 assuming that the Reorganization had taken place at the commencement of that fiscal year.

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

Class	Management Fees	12b-1 Fees	Other Expenses	Total Operating Expense Ratio	Fee Waiver		Total Operating Expenses After Expense Reimbursement
(a) SmallCap Growth Fund II (Acquired Fund)
Institutional	1.00	‑	0.04	1.04	0.02	(1)	1.02
J	1.00	0.25	0.39	1.64	0.06	(1)(2)(3)	1.58
R-1	1.00	0.35	0.55	1.90	0.02	(1)	1.88
R-2	1.00	0.30	0.47	1.77	0.02	(1)	1.75
R-3	1.00	0.25	0.34	1.59	0.02	(1)	1.57
R-4	1.00	0.10	0.30	1.40	0.02	(1)	1.38
R-5	1.00	‑	0.28	1.28	0.02	(1)	1.26
(b) SmallCap Growth Fund I ( Acquiring Fund)
Institutional	1.08	‑	0.01	1.09	0.07	(4)	1.02
J	1.08	0.25	0.25	1.58	0.08	(2)(4)	1.50
R-1	1.08	0.35	0.53	1.96	0.07	(4)	1.89
R-2	1.08	0.30	0.45	1.83	0.07	(4)	1.76
R-3	1.08	0.25	0.32	1.65	0.07	(4)	1.58
R-4	1.08	0.10	0.28	1.46	0.07	(4)	1.39
R-5	1.08	‑	0.26	1.34	0.07	(4)	1.27
(c) SmallCap Growth Fund I (Acquiring Fund)      (Pro forma assuming Reorganization)
Institutional	1.08	‑	0.01	1.09	0.07	(4)(5)	1.02
J	1.08	0.25	0.25	1.58	0.08	(2)(4)(5)	1.50
R-1	1.08	0.35	0.53	1.96	0.07	(4)(5)	1.89
R-2	1.08	0.30	0.45	1.83	0.07	(4)(5)	1.76
R-3	1.08	0.25	0.32	1.65	0.07	(4)(5)	1.58
R-4	1.08	0.10	0.28	1.46	0.07	(4)(5)	1.39
R-5	1.08	‑	0.26	1.34	0.07	(4)(5)	1.27

(1)

Principal Management Corporation ("Principal"), the investment advisor, has contractually agreed to limit the Fund's Management Fees through the period ending February 28, 2015. The fee waiver will reduce the Fund's Management Fees by 0.02% (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 Principal, the parties to the agreement may agree to terminate the fee waiver prior to the end of the period.

(2)

Principal Funds Distributor, Inc. ("the Distributor") has contractually agreed to limit the Distribution Fees attributable to Class J. The limit will maintain the level of Distribution Fees not to exceed 0.24%. It is expected that the fee waiver will continue through the period ending February 28, 2015; however, Principal Funds, Inc. and the Distributor, the parties to the agreement, may agree to terminate the fee waiver prior to the end of the period.

7

(3)	Principal Management Corporation ("Principal"), 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 1.58% for Class J shares. It is expected that the expense limit will continue through the period ending February 28, 2015; however, Principal Funds, Inc. and Principal, the parties to the agreement, may agree to terminate the expense limit prior to the end of the period.
(4)	Principal Management Corporation ("Principal"), the investment advisor, has contractually agreed to limit the Fund's Management Fees through the period ending February 28, 2016. The fee waiver will reduce the Fund's Management Fees by 0.072% (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 Principal, the parties to the agreement may agree to terminate the fee waiver prior to the end of the period.
(5)	Principal Management Corporation ("Principal"), 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 1.52% for Class J, 1.02% for Institutional, 1.89% for R-1, 1.76% for R-2, 1.58% for R-3, 1.39% for R-4, and 1.27% for R-5 shares. It is expected that the expense limit will continue through the period ending February 28, 2016; however, Principal Funds, Inc. and Principal, the parties to the agreement, may agree to terminate the expense limit prior to the end of the period.

Examples: The following examples are intended to help you compare the costs of investing in shares of the Acquired and Acquiring Funds. The examples assume that fund expenses continue at the rates shown in the table above, that you invest $10,000 in the particular fund for the time periods indicated and that all dividends and distributions are reinvested. The examples also assume that your investment has a 5% return each year. The examples also take into account the relevant contractual expense limit until the date of expiration. The examples should not be considered a representation of future expense of the Acquired or Acquiring fund. Actual expense may be greater or less than those shown.

If you sell your shares at the end of the period:		1 Year		3 Years		5 Years		10 Years
SmallCap Growth Fund II (Acquired Fund)	Institutional Class	$	104	$	329	$	572	$	1,269
	Class J		261		510		885		1,938
	Class R-1		191		595		1,024		2,220
	Class R-2		178		555		957		2,082
	Class R-3		160		500		863		1,887
	Class R-4		140		441		764		1,678
	Class R-5		128		404		700		1,543
SmallCap Growth Fund I (Acquiring Fund)	Institutional Class		104		338		593		1,321
	Class J		253		490		852		1,870
	Class R-1		192		607		1,050		2,279
	Class R-2		179		568		983		2,141
	Class R-3		161		512		889		1,948
	Class R-4		140		453		789		1,738
	Class R-5		129		416		726		1,606
SmallCap Growth Fund I (Acquiring Fund)	Institutional Class		104		338		593		1,321
(Pro forma assuming Reorganization)	Class J		253		490		852		1,870
	Class R-1		192		607		1,050		2,279
	Class R-2		179		568		983		2,141
	Class R-3		161		512		889		1,948
	Class R-4		140		453		789		1,738
	Class R-5		129		416		726		1,606
If you do not sell your shares at the end of the period:		1 Year		3 Years		5 Years		10 Years
SmallCap Growth Fund II (Acquired Fund)	Class J	$	161	$	510	$	885	$	1,938
SmallCap Growth Fund I (Acquiring Fund)	Class J		153		490		852		1,870
SmallCap Growth Fund I (Acquiring Fund)	Class J		153		490		852		1,870
(Pro forma assuming Reorganization)

8

Portfolio Turnover

Each of the Funds 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 for shareholders who hold Fund shares 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 portfolio turnover rate for the Acquired Fund was 78.5% of the average value of its portfolio while the portfolio turnover rate for the Acquiring Fund was 74.7%.

Investment Management Fees/Sub-Advisory Arrangements

Each Fund pays its investment advisor, PMC, an advisory fee which for each Fund is calculated as a percentage of the Fund’s average daily net assets pursuant to the following fee schedule:

SmallCap Growth Fund II (Acquired Fund)	SmallCap Growth Fund I (Acquiring Fund)
First $500 million 1.00% Next $500 million 0.98% Next $500 million 0.96% Over $1.5 billion 0.95%	First $500 million 1.10% Next $500 million 1.08% Next $500 million 1.06% Next $500 million 1.05% Next $1 billion 1.04% Over $3 billion 1.03%

The sub-advisor to each Fund receives sub-advisory fees paid by PMC and not by the Fund.

A discussion of the basis of the Board’s approval of the advisory and sub-advisory agreements with respect to the Acquired and Acquiring Funds is available in PFI’s Annual Report to Shareholders for the fiscal year ended October 31, 2013.

Performance

The following information provides an indicator of the risks of investing in the Funds. The bar chart below shows how each Fund’s total return has varied year-by-year, while the table below shows each Fund’s performance over time (along with the returns of a broad-based market index for reference). Annual returns do not reflect any applicable sales charges and would be lower if they did. A Fund's 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.

CALENDAR YEAR TOTAL RETURN (%) AS OF 12/31 EACH YEAR (Institutional Class Shares)

SmallCap Growth Fund II (Acquired Fund)

Highest return for a quarter during the period of the bar chart above:	Q1 '12	19.14	%
Lowest return for a quarter during the period of the bar chart above:	Q4 '08	-29.82	%

9

CALENDAR YEAR TOTAL RETURN (%) AS OF 12/31 EACH YEAR (Institutional Class Shares)

SmallCap Growth Fund I (Acquiring Fund)

Highest return for a quarter during the period of the bar chart above:	Q2 ‘09	19.78	%
Lowest return for a quarter during the period of the bar chart above:	Q4 ‘08	-29.22	%

Average Annual Total Returns (%) (with Maximum Sales Charge) for periods ended December 31, 2013
	1 Year		5 Years		10 Years
SmallCap Growth Fund II (Acquired Fund)
Institutional Class Return Before Taxes	47.39	%	22.52	%	8.15	%
Institutional Class Return After Taxes on Distributions	43.28		21.83		7.49
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	29.36		18.45		6.60
Class J Return Before Taxes	45.55		21.84		7.35
Class R-1 Return Before Taxes	46.18		21.46		7.21
Class R-2 Return Before Taxes	46.30		21.60		7.36
Class R-3 Return Before Taxes	46.47		21.83		7.54
Class R-4 Return Before Taxes	46.70		22.03		7.74
Class R-5 Return Before Taxes	47.04		22.19		7.87
Russell 2000 Growth Index (reflects no deduction for fees, expenses, or taxes)	43.30		22.58		9.41

Average Annual Total Returns (%) (with Maximum Sales Charge) for periods ended December 31, 2013
	1 Year		5 Years		10 Years
SmallCap Growth Fund I (Acquiring Fund)
Institutional Class Return Before Taxes	43.00	%	26.16	%	10.31	%
Institutional Class Return After Taxes on Distributions	39.24		25.04		9.58
Institutional Class Return After Taxes on Distribution and Sale of Fund Shares	26.67		21.69		8.47
Class J Return Before Taxes	41.25		25.31		9.44
Class R-1 Return Before Taxes	41.66		25.10		9.36
Class R-2 Return Before Taxes	41.88		25.27		9.50
Class R-3 Return Before Taxes	42.14		25.48		9.70
Class R-4 Return Before Taxes	42.31		25.71		9.90
Class R-5 Return Before Taxes	42.52		25.82		10.03
Russell 2000 Growth Index (reflects no deduction for fees, expenses, or taxes)	43.30		22.58		9.41

_________________________________

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.

10

Reasons for the Reorganization

The Board believes that the Reorganization of the Acquired Fund into the Acquiring Fund will serve the best interests of the shareholders of both Funds. The Acquired and Acquiring Funds have experienced similar investment performance, with the Acquired Fund outperforming the Acquiring Fund over the one and three-year periods ended October 31, 2013. The Acquiring Fund has a far greater asset base (approximately $1.8 billion in assets as of October 31, 2013) compared to Acquired Fund (approximately $212 million in assets as of October 31, 2013). The Acquiring Fund, as a fund with greater assets, may be expected to afford shareholders of the Acquired Fund, on an ongoing basis, greater prospects for growth and efficient management. The Funds have the same investment objectives in that both seek to provide long-term growth of capital, and they also have similar principal policies and risks in that both invest principally in equity securities of companies with small market capitalizations.

Board Consideration of the Reorganization

At its December 10, 2013 meeting, the Board considered information presented by PMC, and the Independent Directors were assisted by independent legal counsel. The Board requested and evaluated such information as it deemed necessary to consider the Reorganization. At the meeting, the Board unanimously approved the Reorganization after concluding that participation in the Reorganization is in the best interests of the Acquired Fund and the Acquiring Fund and that the interests of existing shareholders of the Funds will not be diluted as a result of the Reorganization.

In determining whether to approve the Reorganization, the Board made inquiry into a number of matters and considered, among others, the following factors, in no order of priority:

(1) the investment objectives and principal investment strategies and risks of the Funds;

(2) identical fundamental investment restrictions;

(3) estimated trading costs associated with disposing of any portfolio securities of the Acquired Fund and reinvesting the proceeds in connection with the Reorganization;

(4) expense ratios and available information regarding the fees and expenses of the Funds;

(5) comparative investment performance of and other information pertaining to the Funds;

(6) the prospects for growth of and for achieving economies of scale by the Acquired Fund in combination with the Acquiring Fund;

(7) the absence of any material differences in the rights of shareholders of the Funds;

(8) the financial strength, investment experience and resources of AllianceBernstein, Brown and CCI , which currently serve as sub-advisors to the Acquiring Fund as well as the proposed addition of Emerald to the Acquiring Fund following the Reorganization;

(9) any direct or indirect benefits, including potential economic benefits, expected to be derived by PMC and its affiliates from the Reorganization;

(10) the direct or indirect federal income tax consequences of the Reorganization, including the expected tax-free nature of the Reorganization and the impact of any federal income tax loss carry forwards and the estimated capital gain or loss expected to be incurred in connection with disposing of any portfolio securities that would not be compatible with the investment objectives and strategies of the Acquiring Fund;

(11) the fact that the Reorganization will not result in any dilution of Acquired or Acquiring Fund shareholder values;

(12) the terms and conditions of the Plan; and

(13) possible alternatives to the Reorganization including liquidation of the Acquired Fund or continuing the Acquired Fund as currently operated.

The Board’s decision to recommend approval of the Reorganization was based on a number of factors, including the following:

(1) it should be reasonable for shareholders of the Acquired Fund to have similar investment expectations after the Reorganization because the Funds have the same investment objectives and substantially similar principal investment strategies and risks;

(2) AllianceBernstein, Brown, CCI and the addition of Emerald, as sub-advisors responsible for managing the assets of the Acquiring Fund may be expected to provide high quality investment advisory services and personnel for the foreseeable future;

(3) the Acquiring Fund has a higher advisory fee than the Acquiring Fund, however the Acquired Fund shareholders are expected to see the similar overall net operating expense ratios with respect to all share classes, taking into account a contractual management fee waiver.

(4) the Acquiring Fund has outperformed the Acquired fund for the one-, and three-year periods ended September 30, 2013; and

(5) the combination of the Acquired and Acquiring Funds may be expected to afford shareholders of the Acquired Fund on an ongoing basis greater prospects for growth and efficient management.

11

INFORMATION ABOUT THE REORGANIZATION

Plan of Acquisition

The terms of the Plan are summarized below. The summary is qualified in its entirety by reference to the Form of the Plan attached as Appendix A to this Proxy Statement/Prospectus.

Under the Plan, the Acquiring Fund will acquire all the assets, subject to all the liabilities, of the Acquired Fund. We expect that the closing date will be April ___, 2014, or such earlier or later date as PMC may determine, and that the Effective Time of the Reorganization will be as of the close of regularly scheduled trading on the NYSE (normally 3:00 p.m., Central Time) on that date. Each Fund will determine its net asset values as of the close of trading on the NYSE using the procedures described in its then current prospectus (the procedures applicable to the Acquired Fund and the Acquiring Fund are identical). The Acquiring Fund will issue to the Acquired Fund a number of shares of each share class with a total value equal to the total value of the net assets of the corresponding share class of the Acquired Fund outstanding at the Effective Time.

Immediately after the Effective Time, the Acquired Fund will distribute to its shareholders Acquiring Fund shares of the same class as the Acquired Fund shares each shareholder owns in exchange for Acquired Fund shares of that class. Acquired Fund shareholders will receive a number of full and fractional shares of the Acquiring Fund that are equal in value to the value of the shares of the Acquired Fund that are surrendered in the exchange. In connection with the exchange, the Acquiring Fund will credit on its books an appropriate number of its shares to the account of each Acquired Fund shareholder, and the Acquired Fund will cancel on its books all its shares registered to the account of that shareholder.

The Plans may be amended, but no amendment may be made which in the opinion of the Board would materially adversely affect the interests of the shareholders of the Acquired Fund. The Board may abandon and terminate the Plan at any time before the Effective Time if it believes that consummation of the transaction contemplated by the Plan would not be in the best interests of the shareholders of any or all of the Funds.

Under the Plan related to the Reorganization , PMC will pay all of the out-of-pocket costs in connection with the transaction contemplated under this Plan.

If a Reorganization is not consummated for any reason, the Board will consider other possible courses of action, including the liquidation (and termination) of the Acquired Fund.

Description of the Securities to Be Issued

PFI is a Maryland corporation that is authorized to issue its shares of common stock in separate series and separate classes of series. Each of the Acquired and Acquiring Funds is a separate series of PFI, and the Class J, Class R-1, Class R-2, Class R-3, Class R-4, Class R-5 and Institutional Class shares of common stock of the Acquiring Fund to be issued in connection with the Reorganization represent interests in the assets belonging to that series and have identical dividend, liquidation and other rights, except that expenses allocated to a particular series or class are borne solely by that series or class and may cause differences in rights as described herein. Expenses related to the distribution of, and other identified expenses properly allocated to, the shares of a particular series or class are charged to, and borne solely by, that series or class, and the bearing of expenses by a particular series or class may be appropriately reflected in the net asset value attributable to, and the dividend and liquidation rights of, that series or class.

All shares of PFI have equal voting rights and are voted in the aggregate and not by separate series or class of shares except that shares are voted by series or class: (i) when expressly required by Maryland law or the 1940 Act and (ii) on any matter submitted to shareholders which the Board has determined affects the interests of only a particular series or class.

The share classes of the Acquired Fund have the same rights with respect to the Acquired Fund that the share classes of the Acquiring Fund have with respect to the Acquiring Fund.

Shares of all Funds, when issued, have no cumulative voting rights, are fully paid and non-assessable, have no preemptive or conversion rights and are freely transferable. Each fractional share has proportionately the same rights as are provided for a full share.

12

Federal Income Tax Consequences

To be considered a tax-free “reorganization” under Section 368 of the Internal Revenue Code of 1986, as amended (the “Code”), a reorganization must exhibit a continuity of business enterprise. Because the Acquiring Fund will use a portion of the Acquired Fund’s assets in its business and will continue the Acquired Fund’s historic business, the combination of the Acquired Fund into the Acquiring Fund will exhibit a continuity of business enterprise. Therefore each combination will be considered a tax-free “reorganization” under applicable provisions of the Code. In the opinion of tax counsel to PFI, no gain or loss will be recognized by the Acquired Funds or its shareholders in connection with each combination, the tax cost basis of the Acquiring Fund shares received by shareholders of the Acquired Fund will equal the tax cost basis of their shares in the Acquired Fund, and their holding periods for the Acquiring Fund shares will include their holding periods for the Acquired Fund shares.

Capital Loss Carryforward. As of October 31, 2013, the Acquired Fund had no accumulated capital loss carryforwards.

Capital Gains from Disposition of Portfolio Securities. The disposition of portfolio securities by the Acquired Fund prior to and in connection with the Reorganization could result in the Acquired Fund incurring long-term and short-term capital gains. Any such capital gains will be passed through to the shareholders of the Acquired Fund and will be subject to taxation as described below.

Distribution of Income and Gains. Prior to the Reorganization, each Acquired Fund, whose taxable year will end as a result of the Reorganization, will declare to its shareholders of record one or more distributions of all of its previously undistributed net investment income and net realized capital gain, including capital gains on any securities disposed of in connection with the Reorganization. Such distributions will be made to shareholders before the Reorganization. An Acquired Fund shareholder will be required to include any such distributions in such shareholder’s taxable income. This may result in the recognition of income that could have been deferred or might never have been realized had the Reorganization not occurred.

The foregoing is only a summary of the principal federal income tax consequences of the Reorganization and should not be considered to be tax advice. There can be no assurance that the Internal Revenue Service will concur on all or any of the issues discussed above. You may wish to consult with your own tax advisors regarding the federal, state, and local tax consequences with respect to the foregoing matters and any other considerations which may apply in your particular circumstances.

13

CAPITALIZATION

The following tables show as of October 31, 2013: (i) the capitalization of the Acquired Fund; (ii) the capitalization of the Acquiring Fund; and (iii) the pro forma combined capitalization of the Acquiring Fund as if the Reorganization has occurred as of that date. As of October 31, 2013, both the Acquired Fund and the Acquiring Fund had outstanding seven classes of shares; Class J, Institutional, R-1, R-2, R-3, R-4, and R-5.

The Acquired Fund will pay any trading costs associated with the disposing of any portfolio securities of the Acquired Fund that would not be compatible with the investment objectives and strategies of the Acquiring Fund and reinvesting the proceeds in securities that would be compatible. The trading costs are estimated to be $29,000 with an approximate gain of $7,597,000 ($0.48 per share) on a U.S. GAAP basis.

		Net Assets(000s)		NAV		Shares (000s)
SmallCap Growth Fund II	J	$	27,747	$	11.73	2,365
(Acquired Fund)	Institutional	166,118		13.68		12,140
	R-1	1,157		12.61		92
	R-2	2,952		12.23		241
	R-3	3,774		12.68		298
	R-4	3,970		12.96		306
	R-5	6,207		13.22		470
		$	211,925			15,912
SmallCap Growth Fund I	J	$	30,644	$	12.63	2,426
(Acquiring Fund)	Institutional	1,729,462		14.80		116,857
	R-1	2,783		13.52		206
	R-2	4,061		13.25		307
	R-3	18,858		13.64		1,383
	R-4	16,584		14.04		1,181
	R-5	31,647		14.36		2,204
		$	1,834,039			124,564
Decrease in shares outstanding of the Acquired	J					(168	)
Fund to reflect the exchange of shares of the	Institutional					(916	)
Acquiring Fund.	R-1					(6	)
	R-2					(18	)
	R-3					(21	)
	R-4					(23	)
	R-5					(38	)
SmallCap Growth Fund I	J	$	58,391	$	12.63	4,623
(Acquiring Fund)	Institutional	1,895,580		14.80		128,081
(pro forma assuming Reorganization)	R-1	3,940		13.52		292
	R-2	7,013		13.25		530
	R-3	22,632		13.64		1,660
	R-4	20,554		14.04		1,464
	R-5	37,854		14.36		2,636
		$	2,045,964			139,286
* Less than $500
** Less than $.005 per share

14

ADDITIONAL INFORMATION ABOUT THE FUNDS

Certain Investment Strategies and Related Risks of the Funds

This section provides information about certain investment strategies and related risks of the Funds. The Statement of Additional Information contains additional information about investment strategies and their related risks.

Some of the principal investment risks vary between the Funds and the variations are described above. The value of each Fund’s securities may fluctuate on a daily basis. As with all mutual funds, as the values of each Fund’s assets rise or fall, the Fund’s share price changes. If an investor sells Fund shares when their value is less than the price the investor paid, the investor will lose money. As with any security, the securities in which the Funds invest have associated risk.

The table below identifies the strategies and risks that apply to the Funds and indicates for each Fund whether such strategies and risks are principal, non-principal or not applicable.

INVESTMENT STRATEGIES AND RISKS	SMALLCAP GROWTH I	SMALLCAP GROWTH II
Convertible Securities	Non-Principal	Non-Principal
Derivatives	Non-Principal	Non-Principal
Equity Securities	Principal	Principal
Exchange Traded Funds (ETFs)	Non-Principal	Non-Principal
Fixed-Income Securities	Non-Principal	Non-Principal
Foreign Securities	Non-Principal	Non-Principal
Hedging	Non-Principal	Non-Principal
Initial Public Offerings ("IPOs")	Non-Principal	Non-Principal
Leverage	Non-Principal	Non-Principal
Liquidity Risk(1)	Non-Principal	Non-Principal
Management Risk(1)	Non-Principal	Non-Principal
Market Volatility and Issuer Risk(1)	Non-Principal	Non-Principal
Master Limited Partnerships	Non-Principal	Non-Principal
Portfolio Turnover	Non-Principal	Non-Principal
Preferred Securities	Non-Principal	Non-Principal
Real Estate Investment Trusts	Non-Principal	Non-Principal
Real Estate Securities	Non-Principal	Non-Principal
Repurchase Agreements	Non-Principal	Non-Principal
Royalty Trusts	Non-Principal	Non-Principal
Small and Medium Market Capitalization Companies	Principal	Principal
Temporary Defensive Measures	Non-Principal	Non-Principal
Underlying Funds	Principal	Not Applicable

⁽¹⁾  These risks are not deemed principal for purposes of this table because they apply to almost all funds; however, in certain circumstances, they could significantly affect the net asset value, yield, and total return.

Convertible Securities

Convertible securities are usually fixed-income securities that a fund has the right to exchange for equity securities at a specified conversion price. Convertible securities could also include corporate bonds, notes or preferred stocks of U.S. or foreign issuers. The option allows the fund to realize additional returns if the market price of the equity securities exceeds the conversion price. For example, the fund may hold fixed-income securities that are convertible into shares of common stock at a conversion price of $10 per share. If the market value of the shares of common stock reached $12, the fund could realize an additional $2 per share by converting its fixed-income securities.

Convertible securities have lower yields than comparable fixed-income securities. In addition, at the time a convertible security is issued the conversion price exceeds the market value of the underlying equity securities. Thus, convertible securities may provide lower returns than non-convertible fixed-income securities or equity securities depending upon changes in the price of the underlying equity securities. However, convertible securities permit the fund to realize some of the potential appreciation of the underlying equity securities with less risk of losing its initial investment.

Depending on the features of the convertible security, the fund will treat a convertible security as either a fixed-income or equity security for purposes of investment policies and limitations because of the unique characteristics of convertible securities. Funds that invest in convertible securities may invest in convertible securities that are below investment grade. Many convertible securities are relatively illiquid.

15

Derivatives

A fund may invest in certain derivative strategies to earn income, manage or adjust the risk profile of the fund, replace more direct investments, or obtain exposure to certain markets. Generally, a derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. Certain derivative securities are described more accurately as index/structured securities. Index/structured securities are derivative securities whose value or performance is linked to other equity securities (such as depositary receipts), currencies, interest rates, indices, or other financial indicators (reference indices).

There are many different types of derivatives and many different ways to use them. Futures, forward contracts, and options are commonly used for traditional hedging purposes to attempt to protect a fund from loss due to changing interest rates, securities prices, asset values, or currency exchange rates and as a low-cost method of gaining exposure to a particular market without investing directly in those securities or assets. A fund may enter into put or call options, futures contracts, options on futures contracts, over-the-counter swap contracts (e.g., interest rate swaps, total return swaps and credit default swaps), currency futures contracts and options, options on currencies, and forward currency contracts for both hedging and non-hedging purposes. A fund also may use foreign currency options and foreign currency forward contracts to increase exposure to a foreign currency or to shift exposure to foreign currency fluctuations from one country to another. A forward currency contract involves a privately negotiated obligation to purchase or sell a specific currency at a future date at a price set in the contract. A fund will not hedge currency exposure to an extent greater than the approximate aggregate market value of the securities held or to be purchased by the fund (denominated or generally quoted or currently convertible into the currency). A fund may enter into forward commitment agreements, which call for the fund to purchase or sell a security on a future date at a fixed price. A fund may also enter into contracts to sell its investments either on demand or at a specific interval.

Generally, a fund may not invest in a derivative security unless the reference index or the instrument to which it relates is an eligible investment for the fund or the reference currency relates to an eligible investment for the fund.

The return on a derivative security may increase or decrease, depending upon changes in the reference index or instrument to which it relates. If a fund's sub-advisor hedges market conditions incorrectly or employs a strategy that does not correlate well with the fund's investment, these techniques could result in a loss. These techniques may increase the volatility of a fund and may involve a small investment of cash relative to the magnitude of the risk assumed.

The risks associated with derivative investments include:

• the risk that the underlying security, interest rate, market index, or other financial asset will not move in the direction Principal Management Corporation (“Principal”) and/or sub-advisor anticipated;

• the possibility that there may be no liquid secondary market which may make it difficult or impossible to close out a position when desired;

• the risk that adverse price movements in an instrument can result in a loss substantially greater than a fund's initial investment;

• the possibility that the counterparty may fail to perform its obligations; and

• the inability to close out certain hedged positions to avoid adverse tax consequences.

Swap agreements involve the risk that the party with whom the fund has entered into the swap will default on its obligation to pay the fund and the risk that the fund will not be able to meet its obligations to pay the other party to the agreement.

Credit default swap agreements involve special risks because they may be difficult to value, are highly susceptible to liquidity and credit risk, and generally pay a return to the party that has paid the premium only in the event of an actual default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial difficulty). Credit default swaps can increase credit risk because the fund has exposure to both the issuer of the referenced obligation and the counterparty to the credit default swap.

Forward and futures contracts are subject to special risk considerations. The primary risks associated with the use of these contracts are (a) the imperfect correlation between the change in market value of the instruments held by the fund and the price of the forward or futures contract; (b) possible lack of a liquid secondary market for a forward or futures contract and the resulting inability to close a forward or futures contract when desired; (c) losses caused by unanticipated market movements, which are potentially unlimited; (d) the sub-advisor’s inability to predict correctly the direction of securities prices, interest rates, currency exchange rates, asset values, and other economic factors; (e) the possibility that the counterparty will default in the performance of its obligations; and (f) if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements, and the fund may have to sell securities at a time when it may be disadvantageous to do so.

For currency contracts, there is also a risk of government action through exchange controls that would restrict the ability of the fund to deliver or receive currency.

Some of the risks associated with options include imperfect correlation, 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.

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Equity Securities

Equity securities include common stocks, convertible securities, depositary receipts, rights (a right is an offering of common stock to investors who currently own shares which entitle them to buy subsequent issues at a discount from the offering price), and warrants (a warrant grants its owner the right to purchase securities from the issuer at a specified price, normally higher than the current market price). Common stocks, the most familiar type, represent an equity (ownership) interest in a corporation. The value of a company's stock may fall as a result of factors directly relating to that company, such as decisions made by its management or lower demand for the company's products or services. A stock's value may also fall because of factors affecting not just the company, but also companies in the same industry or in a number of different industries, such as increases in production costs. The value of a company's stock may also be affected by changes in financial markets that are relatively unrelated to the company or its industry, such as changes in interest rates or currency exchange rates. In addition, a company's stock generally pays dividends only after the company invests in its own business and makes required payments to holders of its bonds and other debt. For this reason, the value of a company's stock will usually react more strongly than its bonds and other debt to actual or perceived changes in the company's financial condition or prospects. Some funds focus their investments on certain market capitalization ranges. Market capitalization is defined as total current market value of a company's outstanding equity securities. The market capitalization of companies in the fund’s portfolios and their related indexes will change over time and, the fund will not automatically sell a security just because it falls outside of the market capitalization range of its index(es). Stocks of smaller companies may be more vulnerable to adverse developments than those of larger companies.

Exchange Traded Funds ("ETFs")

Generally, ETFs invest in a portfolio of securities, but they may also invest in other assets, such as securities indices, government bonds, or currencies. ETFs are a type of index or actively managed fund bought and sold on a securities exchange. An ETF trades like common stock. Shares in an index ETF represent an interest in a fixed portfolio of securities designed to track a particular market index. A fund could purchase shares issued by an ETF to gain exposure to a portion of the U.S. or a foreign market while awaiting purchase of underlying securities or for other reasons. The risks of owning an ETF generally reflect the risks of owning the underlying securities or other assets they are designed to track, although ETFs have management fees that increase their costs. Fund shareholders indirectly bear their proportionate share of the expenses of the ETFs in which the fund invests.

Fixed-Income Securities

Fixed-income securities include bonds and other debt instruments that are used by issuers to borrow money from investors (some examples include corporate bonds, convertible securities, mortgage-backed securities, U.S. government securities and asset-backed securities). The issuer generally pays the investor a fixed, variable, or floating rate of interest. The amount borrowed must be repaid at maturity. Some debt securities, such as zero coupon bonds, do not pay current interest, but are sold at a discount from their face values.

• Interest Rate Changes:  Fixed-income securities are sensitive to changes in interest rates. In general, fixed-income security prices rise when interest rates fall and fall when interest rates rise. If interest rates fall, issuers of callable bonds may call (repay) securities with high interest rates before their maturity dates; this is known as call risk. In this case, a fund would likely reinvest the proceeds from these securities at lower interest rates, resulting in a decline in the fund's income. Average duration is a mathematical calculation of the average life of a bond (or bonds in a bond fund) that serves as a useful measure of its price risk. Duration is an estimate of how much the value of the bonds held by a fund will fluctuate in response to a change in interest rates. For example, if a fund has an average duration of 4 years and interest rates rise by 1%, the value of the bonds held by the fund will decline by approximately 4%, and if the interest rates decline by 1%, the value of the bonds held by the fund will increase by approximately 4%. Longer term bonds and zero coupon bonds are generally more sensitive to interest rate changes. Duration, which measures price sensitivity to interest rate changes, is not necessarily equal to average maturity.

• Credit Risk:  Fixed-income security prices are also affected by the credit quality of the issuer. Investment grade debt securities are medium and high quality securities. Some bonds, such as lower grade or "junk" bonds, may have speculative characteristics and may be particularly sensitive to economic conditions and the financial condition of the issuers. Credit risk refers to the possibility that the issuer of the security will not be able to make principal and interest payments when due.

Foreign Securities

PMC defines foreign securities as those issued by:

• companies with their principal place of business or principal office outside the U.S. or

• companies whose principal securities trading market is outside the U.S.

Foreign companies may not be subject to the same uniform accounting, auditing, and financial reporting practices as are required of U.S. companies. In addition, there may be less publicly available information about a foreign company than about a U.S. company. Securities of many foreign companies are less liquid and more volatile than securities of comparable U.S. companies. Commissions on foreign securities exchanges may be generally higher than those on U.S. exchanges.

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Foreign markets also have different clearance and settlement procedures than those in U.S. markets. In certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct these transactions. Delays in settlement could result in temporary periods when a portion of fund assets is not invested and earning no return. If a fund is unable to make intended security purchases due to settlement problems, the fund may miss attractive investment opportunities. In addition, a fund may incur a loss as a result of a decline in the value of its portfolio if it is unable to sell a security.

With respect to certain foreign countries, there is the possibility of expropriation or confiscatory taxation, political or social instability, or diplomatic developments that could affect a fund's investments in those countries. In addition, a fund may also suffer losses due to nationalization, expropriation, or differing accounting practices and treatments. Investments in foreign securities are subject to laws of the foreign country that may limit the amount and types of foreign investments. Changes of governments or of economic or monetary policies, in the U.S. or abroad, changes in dealings between nations, currency convertibility or exchange rates could result in investment losses for a fund. Finally, even though certain currencies may be convertible into U.S. dollars, the conversion rates may be artificial relative to the actual market values and may be unfavorable to fund investors. To protect against future uncertainties in foreign currency exchange rates, the funds are authorized to enter into certain foreign currency exchange transactions.

Foreign securities are often traded with less frequency and volume, and therefore may have greater price volatility, than is the case with many U.S. securities. Brokerage commissions, custodial services, and other costs relating to investment in foreign countries are generally more expensive than in the U.S. Though the fund intends to acquire the securities of foreign issuers where there are public trading markets, economic or political turmoil in a country in which a fund has a significant portion of its assets or deterioration of the relationship between the U.S. and a foreign country may reduce the liquidity of a fund's portfolio. The fund may have difficulty meeting a large number of redemption requests. Furthermore, there may be difficulties in obtaining or enforcing judgments against foreign issuers.

A fund may choose to invest in a foreign company by purchasing depositary receipts. Depositary receipts are certificates of ownership of shares in a foreign-based issuer held by a bank or other financial institution. They are alternatives to purchasing the underlying security but are subject to the foreign securities risks to which they relate.

Hedging

The success of a fund’s hedging strategy will be subject to the sub-advisor’s ability to correctly assess the degree of correlation between the performance of the instruments used in the hedging strategy and the performance of the investments in the portfolio being hedged. Since the characteristics of many securities change as markets change or time passes, the success of a fund’s hedging strategy will also be subject to the sub-advisor’s ability to continually recalculate, readjust, and execute hedges in an efficient and timely manner. For a variety of reasons, the sub-advisor may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Such imperfect correlation may prevent a fund from achieving the intended hedge or expose a fund to risk of loss. In addition, it is not possible to hedge fully or perfectly against any risk, and hedging entails its own costs.

Initial Public Offerings ("IPOs")

An IPO is a company's first offering of stock to the public. IPO risk is that the market value of IPO shares will fluctuate considerably due to factors such as the absence of a prior public market, unseasoned trading, the small number of shares available for trading and limited information about the issuer. The purchase of IPO shares may involve high transaction costs. IPO shares are subject to market risk and liquidity risk. In addition, the market for IPO shares can be speculative and/or inactive for extended periods of time. The limited number of shares available for trading in some IPOs may make it more difficult for a fund to buy or sell significant amounts of shares without an unfavorable impact on prevailing prices. Investors in IPO shares can be affected by substantial dilution in the value of their shares by sales of additional shares and by concentration of control in existing management and principal shareholders.

When a fund's asset base is small, a significant portion of the fund's performance could be attributable to investments in IPOs because such investments would have a magnified impact on the fund. As the fund's assets grow, the effect of the fund's investments in IPOs on the fund's performance probably will decline, which could reduce the fund's performance. Because of the price volatility of IPO shares, a fund may choose to hold IPO shares for a very short period of time. This may increase the turnover of the fund's portfolio and lead to increased expenses to the fund, such as commissions and transaction costs. By selling IPO shares, the fund may realize taxable gains it will subsequently distribute to shareholders.

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Leverage

If a fund makes investments in futures contracts, forward contracts, swaps and other derivative instruments, these instruments provide the economic effect of financial leverage by creating additional investment exposure, as well as the potential for greater loss. If a fund uses leverage through activities such as borrowing, entering into short sales, purchasing securities on margin or on a “when-issued” basis or purchasing derivative instruments in an effort to increase its returns, the fund has the risk of magnified capital losses that occur when losses affect an asset base, enlarged by borrowings or the creation of liabilities, that exceeds the net assets of the fund. The net asset value of a fund employing leverage will be more volatile and sensitive to market movements. Leverage may involve the creation of a liability that requires the fund to pay interest. Leveraging may cause a fund to liquidate portfolio positions to satisfy its obligations or to meet segregation requirements when it may not be advantageous to do so. To the extent that a fund is not able to close out a leveraged position because of market illiquidity, a fund’s liquidity may be impaired to the extent that it has a substantial portion of liquid assets segregated or earmarked to cover obligations.

Liquidity Risk

A fund is exposed to liquidity risk when trading volume, lack of a market maker, or legal restrictions impair the fund's ability to sell particular securities or close derivative positions at an advantageous price. Funds with principal investment strategies that involve securities of companies with smaller market capitalizations, foreign securities, derivatives, high yield bonds and bank loans or securities with substantial market and/or credit risk tend to have the greatest exposure to liquidity risk.

Management Risk

If a Sub-Advisor's investment strategies do not perform as expected, the fund could underperform other funds with similar investment objectives or lose money.

• Active Management: The performance of a fund that is actively managed will reflect in part the ability of PMC and/or sub-advisor(s) to make investment decisions that are suited to achieving the fund's investment objective. Funds that are actively managed are prepared to invest in securities, sectors, or industries differently from the benchmark.

• Passive Management: Index funds use a passive, or indexing, investment approach. Pure index funds do not attempt to manage market volatility, use defensive strategies or reduce the effect of any long-term periods of poor stock or bond performance. Index funds attempt to replicate their relevant target index by investing primarily in the securities held by the index in approximately the same proportion of the weightings in the index. However, because of the difficulty of executing some relatively small securities trades, such funds may not always be invested in the less heavily weighted securities held by the index. An index fund's ability to match the performance of their relevant index may be affected by many factors, such as fund expenses, the timing of cash flows into and out of the fund, changes in securities markets, and changes in the composition of the index. Some index funds may invest in index futures and/or exchange traded funds on a daily basis to gain exposure to the Index in an effort to minimize tracking error relative to the benchmark.

Market Volatility and Issuer Risk

The value of a fund's portfolio securities may go down in response to overall stock or bond market movements. Markets tend to move in cycles, with periods of rising prices and periods of falling prices. Stocks tend to go up and down in value more than bonds. If the fund's investments are concentrated in certain sectors, its performance could be worse than the overall market. The value of an individual security or particular type of security can be more volatile than the market as a whole and can perform differently from the value of the market as a whole. The value of a security may decline for reasons directly related to the issuer, such as management performance, financial leverage and reduced demand for the issuer’s goods or services. It is possible to lose money when investing in a fund.

Master Limited Partnerships

Master limited partnerships ("MLPs") tend to pay relatively higher distributions than other types of companies. The amount of cash that each individual MLP can distribute to its partners will depend on the amount of cash it generates from operations, which will vary from quarter to quarter depending on factors affecting the market generally and on factors affecting the particular business lines of the MLP. Available cash will also depend on the MLPs' level of operating costs (including incentive distributions to the general partner), level of capital expenditures, debt service requirements, acquisition costs (if any), fluctuations in working capital needs and other factors. The benefit derived from investment in MLPs depends largely on the MLPs being treated as partnerships for federal income tax purposes. As a partnership, an MLP has no federal income tax liability at the entity level. If, as a result of a change in current law or a change in an MLP's business, an MLP were treated as a corporation for federal income tax purposes, the MLP would be obligated to pay federal income tax on its income at the corporate tax rate. If an MLP were classified as a corporation for federal income tax purposes, the amount of cash available for distribution would be reduced and the distributions received might be taxed entirely as dividend income.

Portfolio Turnover

"Portfolio Turnover" is the term used in the industry for measuring the amount of trading that occurs in a fund's portfolio during the year. For example, a 100% turnover rate means that on average every security in the portfolio has been replaced once during the year. Funds that engage in active trading may have high portfolio turnover rates. Funds with high turnover rates (more than 100%) often have higher transaction costs (which are paid by the fund) and may lower the fund's performance. Please consider all the factors when you compare the turnover rates of different funds. You should also be aware that the "total return" line in the Financial Highlights section reflects portfolio turnover costs.

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Preferred Securities

Preferred securities generally pay fixed rate dividends and/or interest (though some are adjustable rate) and typically have "preference" over common stock in payment priority and the liquidation of a company's assets - preference means that a company must pay on its preferred securities before paying on its common stock, and the claims of preferred securities holders are typically ahead of common stockholders' claims on assets in a corporate liquidation. Holders of preferred securities usually have no right to vote for corporate directors or on other matters. The market value of preferred securities is sensitive to changes in interest rates as they are typically fixed income securities - the fixed-income payments are expected to be the primary source of long-term investment return. While some preferred securities are issued with a final maturity date, others are perpetual in nature. In certain instances, a final maturity date may be extended and/or the final payment of principal may be deferred at the issuer’s option for a specified time without triggering an event of default for the issuer. In addition, an issuer of preferred securities may have the right to redeem the securities prior to their stated maturity date. For instance, for certain types of preferred securities, a redemption may be triggered by a change in federal income tax or securities laws. As with call provisions, a redemption by the issuer may reduce the return of the security held by the fund. Preferred securities may be subject to provisions that allow an issuer, under certain circumstances to skip (indefinitely) or defer (possibly up to 10 years) distributions. If a fund owns a preferred security that is deferring its distribution, the fund may be required to report income for tax purposes while it is not receiving any income.

Preferred securities are typically issued by corporations, generally in the form of interest or dividend bearing instruments, or by an affiliated business trust of a corporation, generally in the form of beneficial interests in subordinated debentures or similarly structured securities. The preferred securities market is generally divided into the $25 par “retail” and the $1,000 par “institutional” segments. The $25 par segment includes securities that are listed on the New York Stock Exchange (exchange traded), which trade and are quoted with accrued dividend or interest income, and which are often callable at par value five years after their original issuance date. The institutional segment includes $1,000 par value securities that are not exchange-listed (over the counter), which trade and are quoted on a “clean” price, i.e., without accrued dividend or interest income, and which often have a minimum of 10 years of call protection from the date of their original issuance.

Real Estate Investment Trusts

Real estate investment trust securities ("REITs") involve certain unique risks in addition to those risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack of availability of mortgage funds, or extended vacancies of property). REITs are characterized as: equity REITs, which primarily own property and generate revenue from rental income; mortgage REITs, which invest in real estate mortgages; and hybrid REITs, which combine the characteristics of both equity and mortgage REITs. Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, risks of default by borrowers, and self-liquidation. As an investor in a REIT, the fund will be subject to the REIT’s expenses, including management fees, and will remain subject to the fund's advisory fees with respect to the assets so invested. REITs are also subject to the possibilities of failing to qualify for the special tax treatment accorded REITs under the Internal Revenue Code, and failing to maintain their exemptions from registration under the 1940 Act.

Investment in REITs involves risks similar to those associated with investing in small market capitalization companies. REITs may have limited financial resources, may trade less frequently and in a limited volume, and may be subject to more abrupt or erratic price movements than larger company securities.

Real Estate Securities

Investing in securities of companies in the real estate industry, subjects a fund to the special risks associated with the real estate market and the real estate industry in general. Generally, companies in the real estate industry are considered to be those that have principal activity involving the development, ownership, construction, management or sale of real estate; have significant real estate holdings, such as hospitality companies, healthcare facilities, supermarkets, mining, lumber and/or paper companies; and/or provide products or services related to the real estate industry, such as financial institutions that make and/or service mortgage loans and manufacturers or distributors of building supplies. Securities of companies in the real estate industry are sensitive to factors such as loss to casualty or condemnation, changes in real estate values, property taxes, interest rates, cash flow of underlying real estate assets, occupancy rates, government regulations affecting zoning, land use and rents, and the management skill and creditworthiness of the issuer. Companies in the real estate industry may also be subject to liabilities under environmental and hazardous waste laws.

Repurchase Agreements

Repurchase agreements typically involve the purchase of debt securities from a financial institution such as a bank, savings and loan association, or broker-dealer. A repurchase agreement provides that the fund sells back to the seller and that the seller repurchases the underlying securities at a specified price on a specific date. Repurchase agreements may be viewed as loans by a fund collateralized by the underlying securities. This arrangement results in a fixed rate of return that is not subject to market fluctuation while the fund holds the security. In the event of a default or bankruptcy by a selling financial institution, the affected fund bears a risk of loss. To minimize such risks, the fund enters into repurchase agreements only with parties a Sub-Advisor deems creditworthy (those that are large, well-capitalized and well-established financial institutions). In addition, the value of the securities collateralizing the repurchase agreement is, and during the entire term of the repurchase agreement remains, at least equal to the repurchase price, including accrued interest.

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Royalty Trusts

A royalty trust generally acquires an interest in natural resource or chemical companies and distributes the income it receives to its investors. A sustained decline in demand for natural resource and related products could adversely affect royalty trust revenues and cash flows. Such a decline could result from a recession or other adverse economic conditions, an increase in the market price of the underlying commodity, higher taxes or other regulatory actions that increase costs, or a shift in consumer demand. Rising interest rates could harm the performance and limit the capital appreciation of royalty trusts because of the increased availability of alternative investments at more competitive yields. Fund shareholders will indirectly bear their proportionate share of the royalty trusts' expenses.

Small and Medium Market Capitalization Companies

Funds may invest in securities of companies with small- or mid-sized market capitalizations. Market capitalization is defined as total current market value of a company's outstanding common stock. Investments in companies with smaller market capitalizations may involve greater risks and price volatility (wide, rapid fluctuations) than investments in larger, more mature companies. Small companies may be less significant within their industries and may be at a competitive disadvantage relative to their larger competitors. While smaller companies may be subject to these additional risks, they may also realize more substantial growth than larger or more established companies.

Smaller companies may be less mature than larger companies. At this earlier stage of development, the companies may have limited product lines, reduced market liquidity for their shares, limited financial resources, or less depth in management than larger or more established companies. Unseasoned issuers are companies with a record of less than three years continuous operation, including the operation of predecessors and parents. Unseasoned issuers by their nature have only a limited operating history that can be used for evaluating the company's growth prospects. As a result, these securities may place a greater emphasis on current or planned product lines and the reputation and experience of the company's management and less emphasis on fundamental valuation factors than would be the case for more mature growth companies.

Temporary Defensive Measures

From time to time, as part of its investment strategy, a fund may invest without limit in cash and cash equivalents for temporary defensive purposes in response to adverse market, economic, or political conditions. To the extent that a fund is in a defensive position, it may lose the benefit of upswings and limit its ability to meet its investment objective. For this purpose, cash equivalents include: bank notes, bank certificates of deposit, bankers' acceptances, repurchase agreements, commercial paper, and commercial paper master notes which are floating rate debt instruments without a fixed maturity. In addition, the fund may purchase U.S. government securities, preferred stocks, and debt securities, whether or not convertible into or carrying rights for common stock.

There is no limit on the extent to which a fund may take temporary defensive measures. In taking such measures, a fund may fail to achieve its investment objective.

Underlying Funds

An underlying fund to a fund of funds may experience relatively large redemptions or purchases as the fund of funds periodically reallocates or rebalances its assets. These transactions may accelerate the realization of taxable income if sales of portfolio securities result in gains and could increase transaction costs. In addition, when a fund of funds reallocates or redeems significant assets away from an underlying fund, the loss of assets to the underlying fund could result in increased expense ratios for that fund.

PMC is the advisor to the Principal LifeTime Funds, SAM Portfolios, and each of the underlying funds. Principal Global Investors, LLC ("PGI") is Sub-Advisor to the Principal LifeTime Funds and Edge Asset Management, Inc. ("Edge") is the Sub-Advisor to the SAM Portfolios. Principal, PGI, and Edge are committed to minimizing the potential impact of underlying fund risk on underlying funds to the extent consistent with pursuing the investment objectives of the fund of funds which it manages. Each may face conflicts of interest in fulfilling its responsibilities to all such funds.

As of October 31, 2013, PFI SAM Portfolios, PFI Principal LifeTime Funds, PVC SAM Portfolios and PVC Principal LifeTime Accounts owned, in the aggregate, 50.95% of the outstanding shares of the SmallCap Growth Fund I.

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Multiple Classes of Shares

The Board of Directors of PFI has adopted an 18f-3 Plan for each of the Funds. Under these plans, the Funds offer the following share classes: Class R-1, Class R-2, Class R-3, Class R-4, Class R-5, Class J, and Institutional Class. The shares are the same except for differences in class expenses, including any Rule 12b-1 fees and any applicable sales charges, excessive trading and other fees.

Costs of Investing in the Funds

Fees and Expenses of the Funds

The fees and expenses of the Funds are described below. Depending on the class of your shares, you may incur one-time or ongoing fees or both. One-time fees include sales or redemption fees. Ongoing fees are the operating expenses of a Fund and include fees paid to the Fund’s manager, underwriter and others who provide ongoing services to the Fund. The Class R-1, R-2, R-3, R-4, and Class R-5 shares are collectively referred to herein as the "Retirement Class shares."

Fees and expenses are important because they lower your earnings. However, lower costs do not guarantee higher earnings. For example, a fund with no front-end sales charge may have higher ongoing expenses than a fund with such a sales charge.

One-time fees

Institutional and Retirement Class Shares:

Institutional Class and Retirement Class Shares are sold without a front-end sales charge and do not have a contingent deferred sales charge. There is no sales charge on Institutional Class or Retirement Class shares of the Funds purchased with reinvested dividends or other distributions.

Class J

The Class J shares of the Funds are sold without a front-end sales charge. There is no sales charge on shares purchased with reinvested dividends or other distributions.

If you sell your Class J shares within 18 months of purchase, a contingent deferred sales charge (CDSC) may be imposed on the shares sold. The CDSC, if any, is determined by multiplying by 1.00% the lesser of the market value at the time of redemption or the initial purchase price of the shares sold.

The CDSC is waived on shares:

• that were purchased pursuant to the Small Amount Force Out program (SAFO);

• redeemed within 90 days after an account is re-registered due to a shareholder’s death; or

• redeemed due to a shareholder’s disability (as defined in the Internal Revenue Code) provided the shares were purchased prior to the disability;

• redeemed from retirement plans to satisfy minimum distribution rules under the Internal Revenue Code;

• sold using a systematic withdrawal plan (up to 1% per month (measured cumulatively with respect to nonmonthly plans) of the value of the Fund account at the time, and beginning on the date, the systematic withdrawal plan is established);

• that were redeemed from retirement plans to satisfy excess contribution rules under the Internal Revenue Code; or

Ongoing fees

Ongoing Fees reduce the value of each share. Because they are ongoing, they increase the cost of investing in the Funds.

Each Fund pays ongoing fees to PMC and others who provide services to the Fund. These fees include:

• Management Fee -- Through the Management Agreement with the Fund, PMC has agreed to provide investment advisory services and administrative services to the Fund.

• Other Expenses -- A portion of expenses that are allocated to all classes of the Fund.

• Distribution Fee -- Each of the Funds has adopted a distribution plan under Rule 12b-1 of the 1940 Act for its Retirement Class shares, and Class J shares. Each Fund pays a distribution fee based on the average daily net asset value (NAV) of the Fund. These fees pay distribution and other expenses for the sale of Fund shares and for services provided to shareholders. Over time, these fees may exceed other types of sales charges.

• Transfer Agent Fee -- Principal Shareholder Services, Inc. (“PSS”) has entered into a Transfer Agency Agreement with the Fund under which PSS provides transfer agent services. These services are currently provided at cost.

• Acquired Fund Fees and Expenses -- Fees and expenses charged by other investment companies in which a Fund invests a portion of its assets.

Retirement Class Shares Only

• Service Fee -- PMC has entered into a Service Agreement with PFI under which PMC performs personal services for shareholders.

• Administrative Service Fee -- PMC has entered into an Administrative Services Agreement with PFI under which PMC provides shareholder and administrative services for retirement plans and other beneficial owners of beneficial owners of Fund shares.

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Class J and Institutional Class shares of the Funds also pay expenses of registering and qualifying shares for sale, the cost of producing and distributing reports and prospectuses to shareholders, and the cost of shareholder meetings held solely for Class J and Institutional Class shares respectively.

Distribution Plans and Intermediary Compensation

Institutional Class Shares

None of the Funds has adopted a 12b-1 Plan for Institutional Class shares.

Retirement Class Shares

PFI has adopted a distribution plan pursuant to Rule 12b-1 under the Investment Company Act for each of the Class R-1, R-2, R-3 and R-4 shares. Under the 12b-1 Plans, each Fund makes payments from its assets attributable to the particular share class to the Fund's Distributor for distribution-related expenses and for providing services to shareholders of that share class. Payments under the 12b-1 plans are made by the Funds to the Distributor pursuant to the 12b-1 plans regardless of the expenses incurred by the Distributor. When the Distributor receives Rule 12b-1 fees, it may pay some or all of them to intermediaries whose customers are shareholders of the funds for sales support services and for providing services to shareholders of that share class. Intermediaries may include, among others, broker-dealers, registered investment advisors, banks, trust companies, pension plan consultants, retirement plan administrators, and insurance companies. Because Rule 12b-1 fees are paid out of Fund assets and are ongoing fees, over time they will increase the cost of your investment in the Funds and may cost you more than other types of sales charges.

The maximum annual Rule 12b-1 distribution and/or service fee (as a percentage of average daily net assets) for each of the above classes of the Funds are set forth below:

Share Class	12b-1 Fee
R-1	0.35%
R-2	0.30%
R-3	0.25%
R-4	0.10%

Retirement Plan Services. Each Fund pays a Service Fee and Administrative Services Fee to PMC for providing services to retirement plan shareholders. PMC typically pays some or all of these fees to Principal Life Insurance Company, which has entered into an agreement to provide these services to the retirement plan shareholders. PMC may also enter into agreements with other intermediaries to provide these services, and pay some or all of the Fees to such intermediaries.

Plan recordkeepers, who may have affiliated financial intermediaries that sell shares of the funds, may be paid additional amounts. In addition, financial intermediaries may be affiliates of entities that receive compensation from the Distributor for maintaining retirement plan “platforms” that facilitate trading by affiliated and non-affiliated financial intermediaries and recordkeeping for retirement plans.

The amounts paid to plan recordkeepers for recordkeeping services, and their related service requirements may vary across fund groups and share classes. This may create an incentive for financial intermediaries and their Investment Representatives to recommend one fund complex over another or one class of shares over another.

Class J Shares

Each Fund has adopted a 12b-1 plan for its Class J shares. Under the 12b-1 Plans, the Funds may make payments from assets attributable to the particular share class to the Distributor for distribution related expenses and for providing services to shareholders of that share class. Because Rule 12b-1 fees are ongoing fees, over time they will increase the cost of an investment in the Funds and may cost more than paying other types of sales charges.

The maximum annual Rule 12b-1 distribution and/or service fee (as a percentage of average daily net assets) for each of the above classes of the Acquiring Funds is set forth below:

Share Class	12b-1 Fee
Class J	0.25%

The proceeds from the Rule 12b-1 fees paid by Class J shareholders, together with any applicable contingent deferred sales charge, are paid to the Distributor. The Distributor generally uses these fees to finance any activity that is primarily intended to result in the sale of shares. Examples of such expenses include compensation to salespeople and selected dealers (including financing the commission paid to the dealer at the time of the sale), printing of prospectuses and statements of additional information and reports for other than existing shareholders, and preparing and conducting sales seminars. The Distributor also uses the fees to provide services to existing shareholders, including without limitation, services such as furnishing information as to the status of shareholder accounts, responding to telephone and written inquiries of shareholders, and assisting shareholders with tax information.

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Other Payments to Financial Intermediaries

If one mutual fund sponsor makes greater payments than another, your Financial Professional and his or her intermediary may have an incentive to recommend one fund complex over another. Similarly, if your Financial Professional or his or her intermediary receives more distribution assistance for one share class versus another, then they may have an incentive to recommend that share class.

Financial Professionals who deal with investors on an individual basis are typically associated with an intermediary. Financial Professionals may receive some or all of the amounts paid to the intermediary with which he or she is associated. You can ask your Financial Professional for information about any payments he or she or the intermediary receives from the Distributor, its affiliates or the Fund and any services provided.

Please speak with your Financial Professional to learn more about the total amounts paid to your Financial Professional and his or her intermediary by the Funds, the Distributor and its affiliates, and by sponsors of other mutual funds he or she may recommend to you. You should also carefully review disclosures made by your Financial Professional at the time of purchase.

Although a Fund may use brokers who sell shares of the Funds to effect portfolio transactions, the sale of shares is not considered as a factor by PMC or the Fund’s Sub-Advisors when selecting brokers to effect portfolio transactions.

Your intermediary may charge you additional fees other than those disclosed in this prospectus. Ask your Financial Professional about any fees and commissions they charge.

Additionally, in some cases the Distributor and its affiliates will provide payments or reimbursements in connection with the costs of conferences, educational seminars, training and marketing efforts related to the Funds. Such activities may be sponsored by intermediaries or the Distributor. The costs associated with such activities may include travel, lodging, entertainment, and meals. In some cases the Distributor will also provide payment or reimbursement for expenses associated with transactions ("ticket") charges and general marketing expenses.

Pricing of Fund Shares

Each Fund’s shares are bought and sold at the current share price. The share price of each class of each Fund is calculated each day the New York Stock Exchange (“NYSE”) is open (share prices are not calculated on the days on which the NYSE is closed for trading, generally New Year’s Day, Martin Luther King, Jr. Day, Washington’s Birthday/ Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas). The share price is determined as of the close of business of the NYSE (normally 3:00 p.m. Central Time). When an order to buy or sell shares is received, the share price used to fill the order is the next price we calculate after we receive the order at our transaction processing center in Canton, Massachusetts. To process your purchase order on the day we receive it, we must receive the order (with complete information):

• on a day that the NYSE is open and

• prior to the close of trading on the NYSE (normally 3 p.m. Central Time).

Orders received after the close of the NYSE or on days that the NYSE is not open will be processed on the next day that the NYSE is open for normal trading.

If we receive an application or purchase request for a new mutual fund account or subsequent purchase into an existing account that is accompanied by a check and the application or purchase request does not contain complete information, we may hold the application (and check) for up to two business days while we attempt to obtain the necessary information. If we receive the necessary information within two business days, we will process the order using the next share price calculated. If we do not receive the information within two business days, the application and check will be returned to you.

For each Fund the share price is calculated by:

• taking the current market value of the total assets of the Fund

• subtracting liabilities of the Fund

• dividing the remainder proportionately into the classes of the Fund

• subtracting the liability of each class

• dividing the remainder by the total number of shares outstanding for that class.

Notes:

• If market quotations are not readily available for a security owned by a Fund, its fair value is determined using a policy adopted by the Directors. Fair valuation pricing is subjective and creates the possibility that the fair value determined for a security may differ materially from the value that could be realized upon the sale of the security.

• A Fund’s securities may be traded on foreign securities markets that generally complete trading at various times during the day prior to the close of the NYSE. Foreign securities and currencies are converted to U.S. dollars using the exchange rate in effect at the close of the NYSE. Securities traded outside of the Western Hemisphere are valued using a fair value policy adopted by the Fund. These fair valuation procedures are intended to discourage shareholders from investing in the Fund for the purpose of engaging in market timing or arbitrage transactions.

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• The trading of foreign securities generally or in a particular country or countries may not take place on all days the NYSE is open, or may trade on days the NYSE is closed. Thus, the value of the foreign securities held by the Fund may change on days when shareholders are unable to purchase or redeem shares.

• Certain securities issued by companies in emerging market countries may have more than one quoted valuation at any point in time. These may be referred to as local price and premium price. The premium price is often a negotiated price that may not consistently represent a price at which a specific transaction can be effected. The Fund has a policy to value such securities at a price at which the Sub-Advisor expects the securities may be sold.

Purchase of Fund Shares

Principal Funds, Inc. offers funds in multiple share classes: A, B, C, J, P, Institutional, R-1, R-2, R-3, R-4, and R-5. Funds available in multiple share classes have the same investments, but differing expenses. Classes Institutional, J, R-1, R-2, R-3, R-4, and R-5 shares are offered by the Acquired and Acquiring Funds. .

The Fund may reject or cancel any purchase orders for any reason. For example, the Fund does not intend to permit market timing because short-term or other excessive trading into and out of the Funds may harm performance by disrupting portfolio management strategies and by increasing expenses. Accordingly, the Fund may reject any purchase orders from market timers or investors that, in PMC's opinion, may be disruptive to the Fund. For these purposes, PMC may consider an investor's trading history in the Fund or other Funds sponsored by Principal Life and accounts under common ownership or control.

PMC may recommend to the Board, and the Board may elect, to close certain funds or share classes to new and existing investors.

Shares may be purchased from the Distributor. The Distributor is an affiliate of Principal Life Insurance Company and with it are subsidiaries of Principal Financial Group, Inc. and members of the Principal Financial Group. There are no sales charges on Institutional, R-1, R-2, R-3, R-4, and R-5 Class shares of the Fund.

Shareholder accounts for the Fund are maintained under an open account system. Under this system, an account is opened and maintained for each investor (generally an omnibus account, plan level account, or institutional investor). Each investment is confirmed by sending the investor a statement of account showing the current purchase or sale and the total number of shares owned. The statement of account is treated by the Fund as evidence of ownership of Fund shares. Share certificates are not issued.

For Class R-1, Class R-2, Class R-3, Class R-4 and Class R-5

Only eligible purchasers may buy Institutional, R-1, R-2, R-3, R-4, and R-5 Class shares of the Funds. Principal Management Corporation reserves the right to broaden or limit the designation of eligible purchasers. Not all of the Funds are offered in every state. Please check with your financial advisor or our home office for state availability. Some eligible purchasers (as listed below) purchase shares through plans or other arrangements; such plans or arrangements may impose fees in addition to those charged by the Funds. The services or share classes available to you may vary depending upon how you wish to purchase shares of the Fund. Each investor's financial considerations are different. You should speak with your financial professional to help you decide which share class is best for you.

At the present time, eligible purchasers of Institutional, R-1, R-2, R-3, R-4, and R-5 Class shares include but are not limited to:

• retirement and pension plans to which Principal Life Insurance Company (“Principal Life”) provides recordkeeping services;

• separate accounts of Principal Life;

• Principal Life or any of its subsidiaries or affiliates;

• any fund distributed by PFD if the fund seeks to achieve its investment objective by investing primarily in shares of mutual funds;

• clients of Principal Global Investors, LLC;

• certain employer sponsored retirement plans with plan level omnibus accounts;

• certain pension plans and employee benefit plans;

• certain retirement account investment vehicles administered by foreign or domestic pension plans;

• an investor who buys shares through an omnibus account with certain intermediaries, such as a broker-dealer, bank, or other financial institution, pursuant to a written agreement between the intermediary and PFD or its affiliate; and

• certain retirement plan clients that have an organization, approved by Principal Life, for purposes of providing plan recordkeeping services.

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For Institutional Class

Only eligible purchasers may buy Institutional Class shares of the Funds. At the present time, eligible purchasers of Institutional Class shares also include but are not limited to:

• investors investing at least $1,000,000 per fund;

• sponsors, recordkeepers, or administrators of wrap account or mutual fund asset allocation programs or participants in those programs (such accounts and programs must trade in an omnibus relationship);

• institutional clients that Principal Life has approved for purposes of providing plan recordkeeping;

• institutional investors investing for their own account, including banks, trust companies, financial intermediaries, corporations, endowments and foundations;

• collective trust funds, fund of funds or other pooled investment vehicles, and entities acting for the account of a public entity;

• clients of a private banking division pursuant to a written agreement between the bank and PFD or its affiliate; and

• the portfolio manager of any adviser to the fund.

Shares may be purchased from the Distributor. The Distributor is an affiliate of Principal Life Insurance Company and with it are subsidiaries of Principal Financial Group, Inc. and members of the Principal Financial Group. There are no sales charges on Institutional, R-1, R-2, R-3, R-4, and R-5 Class shares of the Fund.

Shareholder accounts for the Fund are maintained under an open account system. Under this system, an account is opened and maintained for each investor (generally an omnibus account, plan level account, or institutional investor). Each investment is confirmed by sending the investor a statement of account showing the current purchase or sale and the total number of shares owned. The statement of account is treated by the Fund as evidence of ownership of Fund shares. Share certificates are not issued.

The Fund may reject or cancel any purchase orders for any reason. For example, the Fund does not intend to permit market timing because short-term or other excessive trading into and out of the Funds may harm performance by disrupting portfolio management strategies and by increasing expenses. Accordingly, the Fund may reject any purchase orders from market timers or investors that, in Principal's opinion, may be disruptive to the Fund. For these purposes, Principal may consider an investor's trading history in the Fund or other Funds sponsored by Principal Life and accounts under common ownership or control.

Payments are to be made via personal or financial institution check (for example, a bank or cashier's check). We reserve the right to refuse any payment that we feel presents a fraud or money laundering risk. Examples of the types of payments we will not accept are cash, money orders, travelers' checks, credit card checks, and foreign checks.

PMC may recommend to the Board, and the Board may elect, to close certain funds to new and existing investors.

Note: No salesperson, dealer or other person is authorized to give information or make representations about a Fund other than those contained in this Prospectus. Information or representations not contained in this prospectus may not be relied upon as having been provided or made by PFI, a Fund, PMC, any Sub-Advisor, or PFD.

Retirement Class Shares

The Retirement Class shares may be purchased through retirement plans, though not all plans offer each Fund. Such plans may impose fees in addition to those charged by the Funds. The services or share classes available to you may vary depending upon how you wish to purchase shares of the Fund. Each share class represents investments in the same portfolio of securities, but each class has its own expense structure, allowing you to choose the class that best meets your situation (not all classes are available to all plans). Each investor’s financial considerations are different. You should speak with your financial professional to help you decide which share class is best for you.

Only eligible purchasers may buy R-1, R-2, R-3, R-4, and R-5 Class shares of the Funds. At the present time, eligible purchasers include but are not limited to:

• retirement and pension plans to which Principal Life provides recordkeeping services;

• separate accounts of Principal Life;

• Principal Life or any of its subsidiaries or affiliates;

• any fund distributed by PFD if the fund seeks to achieve its investment objective by investing primarily in shares of mutual funds;

• clients of Principal Global Investors, LLC.;

• certain pension plans;

• certain retirement account investment vehicles administered by foreign or domestic pension plans;

• an investor who buys shares through an omnibus account with certain intermediaries, such as a broker-dealer, bank, or other financial institution, pursuant to a written agreement; and

• certain retirement plan clients that have an approved organization for purposes of providing plan record keeping services.

PMC reserves the right to broaden or limit the designation of eligible purchasers. Not all of the Funds are offered in every state. Please check with your financial advisor or our home office for state availability.

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Shares may be purchased from PFD. PFD is an affiliate of Principal Life Insurance Company and with it are subsidiaries of Principal Financial Group, Inc. and members of the Principal Financial Group. There are no sales charges on R-1, R-2, R-3, R-4, and R-5 Class shares of the Fund.

Shareholder accounts for the Fund are maintained under an open account system. Under this system, an account is opened and maintained for each investor (generally an omnibus account or a plan level account). Each investment is confirmed by sending the investor a statement of account showing the current purchase or sale and the total number of shares owned. The statement of account is treated by the Fund as evidence of ownership of Fund shares. Share certificates are not issued.

The Fund may reject or cancel any purchase orders for any reason. For example, the Fund does not intend to permit market timing because short-term or other excessive trading into and out of the Funds may harm performance by disrupting portfolio management strategies and by increasing expenses. Accordingly, the Fund may reject any purchase orders from market timers or investors that, in PMC’s opinion, may be disruptive to the Fund. For these purposes, PMC may consider an investor's trading history in the Fund or other Funds sponsored by Principal Life and accounts under common ownership or control.

Payments may be made via personal or financial institution check (for example, a bank or cashier's check). We reserve the right to refuse any payment that we feel presents a fraud or money laundering risk. Examples of the types of payments we will not accept are cash, money orders, travelers' checks, credit card checks, and foreign checks.

PMC may recommend to the Board, and the Board may elect, to close certain funds or share classes to new and existing investors.

Note: No salesperson, dealer or other person is authorized to give information or make representations about a Fund other than those contained in this Prospectus. Information or representations not contained in this prospectus may not be relied upon as having been provided or made by PFI, a Fund, PMC, any Sub-Advisor, or PFD.

Class J Shares

Class J shares are currently available only through registered representatives of:

• Princor Financial Services Corporation who are also employees of Principal Life (These registered representatives are sales counselors of Principal Connection, a distribution channel used to directly market certain products and services of the companies of the Principal Financial Group.);

• selected broker-dealers selling Class J shares in conjunction with health savings accounts; and

• selected broker-dealers that have entered into a selling agreement to offer Class J shares.

For more information about Class J shares of the Funds, please call the Connection at 1-800-243-4380, extension 1000.

Fill out the PFI (or the IRA, SEP or SIMPLE) application completely. You must include:

• the name you want to appear on the account;

• the PFI Fund in which you want to invest;

• the amount of the investment;

• your Social Security number; and

• other required information.

Each Fund requires a minimum initial investment of $1,000. Subsequent investment minimums are $100.

• PFI may reject or cancel any purchase orders for any reason. For example, PFI does not intend to permit market timing because short-term or other excessive trading into and out of the Funds may harm performance by disrupting portfolio management strategies and by increasing expenses. Accordingly, PFI may reject any purchase orders from market timers or investors that, in PMC's opinion, may be disruptive to the Funds. For these purposes, PMC may consider an investor's trading history in the Funds or other Funds sponsored by Principal Life and accounts under common ownership or control. PMC may recommend to the Board, and the Board may elect, to close certain funds to new and existing investors.

• If you are making an initial purchase of PFI of $1,000,000 or more and have selected Class J shares, the purchase will be of Class A shares of the Fund(s) you have selected. If you are making subsequent purchases into your existing PFI Class J share accounts and the combined value of the subsequent investment and your existing Class A, Class B, Class C, and Class J share accounts combined for Rights of Accumulation purposes exceeds $1,000,000, the subsequent investment will be applied to purchase Class A shares of the Fund(s) you have selected. Purchases made by you, your spouse or domestic partner, your children, the children of your spouse or domestic partner up to and including the age of 25 and/or a trust created by or primarily for the benefit of such persons (together “a Qualified Purchaser”) will be combined along with the value of existing Class A, B, C, and J shares of PFI owned by such persons, to determine the applicable sales charge. Class A shares of Money Market Fund are not included in the calculation unless they were acquired in exchange from other PFI shares.

However, if you have selected a Fund which does not offer A shares, we will contact you for instructions as to how to allocate your purchase.

• The minimum investment applies on a per Fund level, not on the total investment being made.

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To eliminate the need for safekeeping, PFI will not issue certificates for shares. PFI may periodically close to new purchases of shares or refuse any order to buy shares if PMC determines that doing so would be in the best interests of PFI and its shareholders.

Accounts with foreign addresses cannot be established. If an existing shareholder with a U.S. address moves to a foreign location and updates the address on the shareholder's account, we are unable to process any purchases or exchanges on that account.

Payments are to be made via personal or financial institution check (for example, a bank or cashier's check). We reserve the right to refuse any payment that we feel presents a fraud or money laundering risk. Examples of the types of payments we will not accept are cash, starter checks, money orders, travelers' checks, credit card checks, and foreign checks.

Payment. Payment for shares of PFI purchased as a direct rollover IRA is made by the retirement plan trustees. Payment for other shares is generally made via personal check or cashiers check. We consider your purchase of Fund shares by check to be your authorization to make an automated clearing house (“ACH”) debit entry to your account. Shares purchased by check may be sold only after the check has cleared your bank, which may take up to 7 calendar days.

Your Financial Professional can help you buy shares of PFI by mail, through bank wire, direct deposit or Automatic Investment Plan. Contact Principal Funds at 1-800-222-5852 to obtain bank wire instructions. No wires are accepted on days when the NYSE is closed or when the Federal Reserve is closed (because the bank that would receive your wire is closed).

Direct Deposit

Your Financial Professional can help you make a Direct Deposit from your paycheck (if your employer approves) or from a government allotment. Direct Deposit allows you to deposit automatically all or part of your paycheck (or government allotment) to your Principal Funds account(s). You will receive a Direct Deposit Authorization Form to give to your employer or the governmental agency (either of which may charge a fee for this service). Shares will be purchased on the day the ACH notification is received by the transfer agent’s bank. On days when the NYSE is closed, but the bank receiving the ACH notification is open, your purchase will be priced at the next calculated share price.

Automatic Investment Plan

Your Financial Professional can help you establish an Automatic Investment Plan. You may make regular monthly investments with automatic deductions from your bank or other financial institution account. You select the day of the month the deduction is to be made. If that date is a non-trading day, we will process the deduction on the next trading day. If the next trading day falls in the next month or year, we will process the deduction on the day prior to your selected day. The minimum initial investment is waived if you set up an Automatic Investment Plan when you open your account. Minimum monthly purchase is $100 per Fund.

Note: No salesperson, broker-dealer or other person is authorized to give information or make representations about a Fund other than those contained in this Prospectus. Information or representations not contained in this prospectus may not be relied upon as having been provided or made by PFI, a Fund, PMC, any Sub-Advisor, or PFD.

Redemption of Fund Shares

You may redeem shares of the Fund upon request. Shares are redeemed at the NAV per share next computed after the request is received by the Fund in proper and complete form. There is no charge for the redemption. The Fund Board of Directors has determined that it is not necessary to impose a fee upon the redemption of fund shares, because the Fund has adopted transfer restrictions as described in “Exchange of Fund Shares.”

The Fund generally sends payment for shares sold the business day after the sell order is received. Under unusual circumstances, the Fund may suspend redemptions, or postpone payment up to seven days, as permitted by federal securities law.

Distributions in Kind

Payment for shares of the Funds tendered for redemption is ordinarily made by check. However, the Funds may determine that it would be detrimental to the remaining shareholders of a Fund to make payment of a redemption order wholly or partly in cash. Under certain circumstances, therefore, each of the Funds may pay the redemption proceeds in whole or in part by a distribution “in kind” of securities from the Fund’s portfolio in lieu of cash. If a Fund pays the redemption proceeds in kind, the redeeming shareholder might incur brokerage or other costs in selling the securities for cash. Each Fund will value securities used to pay redemptions in kind using the same method the Fund uses to value its portfolio securities as described in this prospectus.

Institutional Class Shares

Institutional Class Shares of the Funds may be redeemed upon request. There is no charge for the redemption. Shares are redeemed at the NAV per share next computed after the request is received by a Fund in proper and complete form.

The Funds generally send payment for shares sold the business day after the sell order is received. Under unusual circumstances, the Funds may suspend redemptions, or postpone payment for more than seven days, as permitted by federal securities law.

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Retirement Class Shares

Subject to any restrictions imposed by a plan, Retirement Class shares may be sold back to the Fund any day the NYSE is open. For more information about how to sell shares of the Fund, including any charges that a plan may impose, please consult the plan.

The Funds generally sends payment for shares sold the business day after the sell order is received. Under unusual circumstances, the Funds may suspend redemptions, or postpone payment for more than seven days, as permitted by federal securities law.

Distributions in Kind. Payment for shares of the Funds tendered for redemption is ordinarily made by check. However, the Funds may determine that it would be detrimental to the remaining shareholders of a Fund to make payment of a redemption order wholly or partly in cash. Under certain circumstances, therefore, each of the Funds may pay the redemption proceeds in whole or in part by a distribution “in kind” of securities from the Fund’s portfolio in lieu of cash. If a Fund pays the redemption proceeds in kind, the redeeming shareholder might incur brokerage or other costs in selling the securities for cash. Each Fund will value securities used to pay redemptions in kind using the same method the Fund uses to value its portfolio securities as described in this prospectus.

Redemption fees. The Fund Board of Directors has determined that it is not necessary to impose a fee upon the redemption of fund shares, because the Fund has adopted transfer restrictions as described in “Exchange of Fund Shares.”

Class J Shares

After you place a sell order in proper form, shares are sold using the next share price calculated. The amount you receive will be reduced by any applicable CDSC. There is no additional charge for a sale of shares; however, you will be charged a $10 wire fee if you have the sale proceeds wired to your bank. Generally, the sale proceeds are sent out on the next business day (a day when the NYSE is open for normal business) after the sell order has been placed. It may take additional business days for your financial institution to post this payment to your account at that financial institution. At your request, the check will be sent overnight (a $15 overnight fee will be deducted from your account unless other arrangements are made). A Fund can only sell shares after your check making the Fund investment has cleared your bank, which may take up to 7 calendar days. A sell order from one owner is binding on all joint owners.

Distributions from IRA, SEP, SIMPLE, and SAR-SEP accounts may be taken as:

• lump sum of the entire interest in the account,

• partial interest in the account, or

• periodic payments of either a fixed amount or an amount based on certain life expectancy calculations.

Tax penalties may apply to distributions before the participant reaches age 59 1/2.

Selling shares may create a gain or a loss for federal (and state) income tax purposes. You should maintain accurate records for use in preparing your income tax returns.

Generally, sales proceeds checks are:

• payable to all owners on the account (as shown in the account registration) and

• mailed to the address on the account (if not changed within last 15 days) or previously authorized bank account.

For other payment arrangements, please call Principal Funds. You should also call Principal Funds for special instructions that may apply to sales from accounts:

• when an owner has died;

• for certain employee benefit plans; or

• owned by corporations, partnerships, agents, or fiduciaries.

Payment for shares sold is generally sent the business day after the sell order is received. Under unusual circumstances, a Fund may suspend redemptions, or postpone payment for more than seven days, as permitted by federal securities law.

Within 60 calendar days after the sale of J shares, you may reinvest the amount of the sale proceeds into any Principal Funds Class J shares fund; shares purchased by redemption proceeds are not subject to the eighteen month CDSC. It is the responsibility of the shareholder to notify the Fund at the time of repurchase if the purchase proceeds are from a redemption of the Fund within the past 60 days.

The transaction is considered a sale for federal (and state) income tax purposes even if the proceeds are reinvested. If a loss is realized on the sale, the reinvestment may be subject to the “wash sale” rules resulting in the postponement of the recognition of the loss for tax purposes.

CDSC-Free withdrawal privilege. Sales may be subject to a CDSC. Redemption of Class J shares made through a systematic withdrawal plan in an amount of up to 1.00% per month (measured cumulatively with respect to non-monthly plans) of the value of the Fund account at the time, and beginning on the date, the systematic withdrawal plan is established) may be made without a CDSC. The free withdrawal privilege not used in a calendar year is not added to the free withdrawal privileges for any following year.

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Sell shares by mail:

• Send a distribution form (available at www.PrincipalFunds.com or by calling 1-800-222-5852) which is signed by the owner/owners of the account to:

Principal Funds

P.O. Box 55904

Boston, MA 02205

• Medallion Signature Guarantee* will be required if the:

• sell order is for more than $100,000;

• wire or ACH is being sent to a shareholder's U.S. bank account not previously authorized or the request does not include a voided check or deposit slip indicating a common owner between the bank account and mutual fund account;

• check is being sent to an address other than the account address;

• account address has been changed within 15 days of the sell order; or

• check is payable to a party other than the account shareholder(s), Principal Life or a retirement plan trustee or custodian that has agreed in writing to accept a transfer of assets from the Fund.

* If required, the signature(s) must be guaranteed by a commercial bank, trust company, credit union, savings and loan, national securities exchange member or brokerage firm. A signature guarantee by a notary public or savings bank is not acceptable.

Sell shares in amounts of $100,000 or less by telephone

• The combined amount requested from all funds to which the redemption request relates is $100,000 or less.

• The address on the account must not have been changed within the last 15 days and telephone privileges must apply to the account from which the shares are being sold.

• If our phone lines are busy, you may need to send in a written sell order.

• To sell shares the same day, the order must be received in good order before the close of normal trading on the NYSE (generally 3:00 p.m. Central Time).

• Telephone redemption privileges are NOT available for Principal Funds 403(b) plans and certain employee sponsored benefit plans.

• If previously authorized, checks can be sent to a shareholder's U.S. bank account.

Systematic withdrawal plans:

You may set up a systematic withdrawal plan on a monthly, quarterly, semiannual or annual basis to:

• sell enough shares to provide a fixed amount of money ($100 minimum amount; the required minimum is waived to the extent necessary to meet required minimum distributions as defined by the Internal Revenue Code);

• pay insurance or annuity premiums or deposits to Principal Life (call us for details); and

• provide an easy method of making monthly installment payments (if the service is available from your creditor who must supply the necessary forms).

• You can set up a systematic withdrawal plan by:

• completing the applicable section of the application; or

• sending us your written instructions; or

• calling us if you have telephone privileges on the account (telephone privileges may not be available for all types of accounts).

Your systematic withdrawal plan continues until:

• you instruct us to stop; or

• your Fund account balance is zero.

When you set up the withdrawal plan, you select which day you want the sale made (if none is selected, the sale will be made on the 15th of the month). If the selected date is not a trading day, the sale will take place on the preceding trading day (if that day falls in the month or year prior to your selected date, the transaction will take place on the next trading day after your selected date). If telephone privileges apply to the account, you may change the date or amount by telephoning us.

Sales made under your systematic withdrawal plan will reduce and may eventually exhaust your account. The Funds do not normally accept purchase payments while a systematic withdrawal plan is in effect (unless the purchase represents a substantial addition to your account).

The Fund from which the systematic withdrawal is made makes no recommendation as to either the number of shares or the fixed amount that you withdraw.

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Distributions in Kind. Payment for shares of the Funds tendered for redemption is ordinarily made by check. However, the Funds may determine that it would be detrimental to the remaining shareholders of a Fund to make payment of a redemption order wholly or partly in cash. Under certain circumstances, therefore, each of the Funds may pay the redemption proceeds in whole or in part by a distribution “in kind” of securities from the Fund’s portfolio in lieu of cash. If a Fund pays the redemption proceeds in kind, the redeeming shareholder might incur brokerage or other costs in selling the securities for cash. Each Fund will value securities used to pay redemptions in kind using the same method the Fund uses to value its portfolio securities as described in this prospectus.

Exchange of Fund Shares

Class J Shares

Your shares in the Funds may be exchanged without a CDSC for the same share class of any other Principal Funds. However, the original purchase date of the shares from which an exchange is made is used to determine if newly acquired shares are subject to a CDSC when they are sold. The Fund reserves the right to revise or terminate the exchange privilege at any time.

You may exchange shares by:

• sending a written request to:

Principal Funds

P.O. Box 55904

Boston, MA 02205

• completing an Exchange Authorization Form (available on www.principalfunds.com or by calling 1-800-222-5852).

• via the Internet at www.principalfunds.com.

• calling us, if you have telephone privileges on the account.

Automatic Exchange Election

This election authorizes an exchange from one Principal Funds to another on a monthly, quarterly, semiannual or annual basis. You can set up an automatic exchange by:

• completing an automatic Exchange Election form available on www.principalfunds.com,

• completing the Automatic Exchange Election section of the application,

• calling us if telephone privileges apply to the account from which the exchange is to be made, or

• sending us your written instructions.

Your automatic exchange continues until:

• you instruct us to stop by calling us if telephone privileges apply to the account or by sending us your written instructions; or

• your Fund account balance is zero.

You may specify the day of the exchange (if none is selected, the exchange will be made on the 15th of the month). If the selected day is not a trading day, the sale will take place on the preceding trading day (if that day falls in the month or year prior to your selected date, the transaction will take place on the next trading day after your selected date). If telephone privileges apply to the account, you may change the date or amount by telephoning us.

General

• An exchange by any joint owner is binding on all joint owners.

• If you do not have an existing account in the Fund to which the exchange is being made, a new account is established. The new account has the same owner(s), dividend and capital gain options and broker-dealer of record as the account from which the shares are being exchanged.

• All exchanges are subject to the minimum investment and eligibility requirements of the Fund being acquired.

• You may acquire shares of a Fund only if its shares are legally offered in your state of residence.

• For an exchange to be effective the day we receive your instruction, we must receive the instruction in good order at our transaction processing center in Canton, Massachusetts before the close of normal trading on the NYSE (generally 3 p.m. Central Time).

When money is exchanged or transferred from one account registration or tax identification number to another, the account holder is relinquishing his or her rights to the money. Therefore exchanges and transfers can only be accepted by telephone if the exchange (transfer) is between:

• accounts with identical ownership,

• an account with a single owner to one with joint ownership if the owner of the single owner account is also an owner of the account with joint ownership,

• a single owner to a Uniform Transfer to Minors Act ("UTMA") account if the owner of the single owner account is also the custodian on the UTMA account, or

• a single or jointly owned account to an IRA account to fund the yearly IRA contribution of the owner (or one of the owners in the case of a jointly owned account).

31

The exchange is treated as a sale of shares for federal (and state) income tax purposes and may result in a capital gain or loss. Income tax rules regarding the calculation of cost basis may make it undesirable in certain circumstances to exchange shares within 90 days of their purchase.

Fund shares used to fund an employee benefit plan may be exchanged only for shares of other Principal Funds available to employee benefit plans. Such an exchange must be made by following the procedures provided in the employee benefit plan and the written service agreement.

Frequent Purchases and Redemptions

The Funds are not designed for, and do not knowingly accommodate, frequent purchases and redemptions of fund shares by investors. If you intend to trade frequently and/or use market timing investment strategies, you should not purchase these Funds.

Frequent purchases and redemptions pose a risk to the Funds because they may:

• Disrupt the management of the Funds by:

• forcing the Funds to hold short-term (liquid) assets rather than investing for long-term growth, which results in lost investment opportunities for the Funds; and

• causing unplanned portfolio turnover;

• Hurt the portfolio performance of the Funds; and

• Increase expenses of the Funds due to:

• increased broker-dealer commissions and

• increased recordkeeping and related costs.

Certain Funds may be at greater risk of harm due to frequent purchases and redemptions. For example, those Funds that invest in foreign securities may appeal to investors attempting to take advantage of time-zone arbitrage.

The Funds have adopted procedures to “fair value” foreign securities under certain circumstances, which are intended, in part, to discourage excessive trading of shares of the Funds. The Board of Directors of the Funds have also adopted policies and procedures with respect to frequent purchases and redemptions of shares of the Funds. The Funds monitor shareholder trading activity to identify and take action against abuses. While our policies and procedures are designed to identify and protect against abusive trading practices, there can be no certainty that we will identify and prevent abusive trading in all instances. If we are not able to identify such excessive trading practices, the Funds and their shareholders may be harmed. When we do identify abusive trading, we will apply our policies and procedures in a fair and uniform manner. If we are not able to identify such abusive trading practices, the abuses described above may harm the Funds.

Institutional Class Shares

If we, or a Fund, deem abusive trading practices to be occurring, we will take action that may include, but is not limited to:

• Rejecting exchange instructions from the shareholder or other person authorized by the shareholder to direct exchanges;

• Restricting submission of exchange requests by, for example, allowing exchange requests to be submitted by 1st class U.S. mail only and disallowing requests made by facsimile, overnight courier, telephone or via the internet;

• Limiting the number of exchanges during a year;

• Requiring a holding period of a minimum of 30 days before permitting exchanges among the Funds where there is evidence of at least one round-trip exchange (exchange or redemption of shares that were purchased within 30 days of the exchange/redemption); and

• Taking such other action as directed by the Fund.

The Funds have reserved the right to accept or reject, without prior written notice, any exchange requests. In some instances, an exchange may be completed prior to a determination of abusive trading. In those instances, we will reverse the exchange. We will give you notice in writing in this instance.

Retirement Class Shares

The Funds have adopted an exchange frequency restriction, described above in “Exchange of Fund Shares” to limit excessive trading in fund shares.

Class J Shares

Currently the Funds impose an excessive trading fee on redemptions or exchanges of $30,000 or more of a Fund's Class J shares redeemed within 30 days after they are purchased. The fee does not apply to redemptions or exchanges made pursuant to an Automatic Exchange Election or Systematic Withdrawal Plan through an Automatic Exchange Election or a Systematic Withdrawal Plan; due to a shareholder's death or disability (as defined in the Internal Revenue Code); to satisfy minimum distribution rules imposed by the Internal Revenue Code; or where the application of the fee would cause a Fund to fail to be considered a “qualified default investment alternative” under the Employee Retirement Income Security Act of 1976, as amended, and the rules and regulations thereunder. The fee is equal to 1.00% of the total redemption or exchange amount. The fee is paid to the Funds and is intended to offset the trading costs, market impact, and other costs associated with short-term money movement in and out of the Funds.

32

The imposition of the excessive trading fee may be waived if an intermediary, such as a retirement plan recordkeeper, through which Fund shares are made available to shareholders is unable or unwilling to impose the fee, but is able to implement other procedures the Fund believes are reasonably designed to prevent excessive trading in Fund shares. In addition, if a Fund deems frequent trading and redemptions to be occurring, action will be taken that may include, but is not limited to:

• Increasing the excessive trading fee to 2%,

• Increasing the excessive trading fee period from 30 days to as much as 90 days,

• Applying the excessive trading fee to redemptions or exchanges of less than $30,000,

• Limiting the number of permissible exchanges available to shareholders identified as "excessive traders,"

• Limit exchange requests to be in writing and submitted through the United States Postal Service (in which case, requests for exchanges by fax, telephone or internet will not be accepted), and

• Taking such other action as directed by the Fund.

Dividends and Distributions

Dividends are based on estimates of income, expenses, and shareholder activity for the Fund. Actual income, expenses, and shareholder activity may differ from estimates; consequently, differences, if any, will be included in the calculation of subsequent dividends. The Funds pay their net investment income to shareholders of record on the business day prior to the payment date. The payment date is annually in December. For more details on the payment schedule, go to www.principalfunds.com.

Net realized capital gains, if any, are distributed annually in December. Payments are made to shareholders of record on the business day prior to the payable date. Capital gains may be taxable at different rates, depending on the length of time that the Fund holds its assets.

Dividend and capital gains distributions will be reinvested, without a sales charge, in shares of the Fund from which the distribution is paid. However, you may authorize the distribution to be:

• invested in shares of another of the PFI Funds without a sales charge (distributions of a Fund may be directed only to one receiving Fund); or

• paid in cash, if the amount is $10 or more.

Generally, for federal income tax purposes, Fund distributions are taxable as ordinary income, except that any distributions of long-term capital gains will be taxed as such regardless of how long Fund shares have been held. Special tax rules apply to Fund distributions to Individual Retirement Accounts and other retirement plans. A tax advisor should be consulted to determine the suitability of the Fund as an investment by such a plan and the tax treatment of distributions by the Fund. A tax advisor can also provide information on the potential impact of possible foreign, state, and local taxes. A Fund’s investments in foreign securities may be subject to foreign withholding taxes. In that case, the Fund’s yield on those securities would be decreased.

To the extent that distributions the Funds pay are derived from a source other than net income (such as a return of capital), a notice will be included in your quarterly statement pursuant to Section 19(a) of the Investment Company Act of 1940, as amended, and Rule 19a-1 disclosing the source of such distributions. Furthermore, such notices shall be posted monthly on our web site at www.principalfunds.com. You may request a copy of all such notices, free of charge, by telephoning 1-800-222-5852. The amounts and sources of distributions included in such notices are estimates only and you should not rely upon them for purposes of reporting income taxes. The Fund will send shareholders a Form 1099-DIV for the calendar year that will tell shareholders how to report these distributions for federal income tax purposes.

Notes:

• A Fund’s payment of income dividends and capital gains has the effect of reducing the share price by the amount of the payment.

• Distributions from a Fund, whether received in cash or reinvested in additional shares, may be subject to federal (and state) income tax.

• For these reasons, buying shares of a Fund shortly before it makes a distribution may be disadvantageous to you.

Tax Considerations

Shareholders are responsible for federal income tax (and any other taxes, including state and local income taxes, if applicable) on dividends and capital gains distributions whether such dividends or distributions are paid in cash or reinvested in additional shares. Special tax rules apply to distributions from IRAs and other retirement accounts. You should consult a tax advisor to determine the suitability of the Fund as an investment by such a plan and the tax treatment of Fund distributions.

Generally, dividends paid by the Funds from interest, dividends, or net short-term capital gains will be taxed as ordinary income. Distributions properly designated by the Fund as deriving from net gains on securities held for more than one year are taxable as such (generally at a 15% tax rate), regardless of how long you have held your shares. For taxable years beginning before January 1, 2013, distributions of investment income properly designated by the Fund as derived from “qualified dividend income” will be taxed at the rates applicable to long-term capital gains.

33

Investments by a Fund in foreign securities may be subject to foreign withholding taxes. In that case, the Fund’s yield on those securities would be decreased. Shareholders of the Funds that invest in foreign securities may be entitled to claim a credit or deduction with respect to foreign taxes. In addition, the Fund’s investments in foreign securities or foreign currencies may increase or accelerate the Fund’s recognition of ordinary income and may affect the timing or amount of the Fund’s distributions.

Early in each calendar year, each Fund will notify you of the amount and tax status of distributions paid to you for the preceding year.

A dividend or distribution made shortly after the purchase of shares of a Fund by a shareholder, although in effect a return of capital to that shareholder, would be taxable to that shareholder as described above, subject to a holding period requirement for dividends designated as qualified dividend income.

Because of tax law requirements, you must provide the Funds with an accurate and certified taxpayer identification number (for individuals, generally a Social Security number) to avoid “back-up” withholding, which is currently imposed at a rate of 28%.

Any gain resulting from the redemption or exchange of your shares will generally also be subject to tax. For shares acquired after January 1, 2012, you will need to select a cost basis method to be used to calculate your reported gains and losses prior to or at the time of any redemption or exchange. If you do not select a method, the Funds’ default method of average cost will be applied to the transactions. The cost basis method used on your account could significantly affect your taxes due and should be carefully considered. You should consult your tax advisor for more information on your own tax situation, including possible foreign, state, and local taxes.

Investments by a Fund in certain debt instruments or derivatives may cause the Fund to recognize taxable income in excess of the cash generated by such instruments. As a result, the Fund could be required at times to liquidate other investments in order to satisfy its distribution requirements under the Internal Revenue Code. The Fund’s use of derivatives will also affect the amount, timing, and character of the Fund’s distributions.

The information contained in this Proxy Statement/Prospectus is not a complete description of the federal, state, local, or foreign tax consequences of investing in the Funds. You should consult your tax advisor before investing in the Funds.

Portfolio Holdings Information

A description of PFI’s policies and procedures with respect to disclosure of the Funds’ portfolio securities is available in the Statement of Additional Information.

VOTING INFORMATION

Voting procedures. If you complete and return the enclosed proxy card(s), the persons named as proxies will vote your shares as you indicate or for approval of each matter for which there is no indication. You may revoke your proxy at any time prior to the proxy’s exercise by: (i) sending written notice to the Secretary of Principal Funds, Inc. at Principal Financial Group, Des Moines, Iowa 50309, prior to the Meeting; (ii) subsequent execution and return of another proxy prior to the Meeting; or (iii) being present and voting in person at the Meeting after giving oral notice of the revocation to the Chairman of the Meeting.

Voting rights. Only shareholders of record at the close of business on January 28, 2014 (the “Record Date”), are entitled to vote. The shareholders of each class of shares of each Acquired Fund will vote together on the proposed Reorganization and on any other matter submitted to such shareholders. You are entitled to one vote on each matter submitted to the shareholders of each Acquired Fund for each share of the Fund that you hold, and fractional votes for fractional shares held. Each Proposal requires for approval the affirmative vote of a “Majority of the Outstanding Voting Securities,” which is a term defined in the 1940 Act to mean, the affirmative vote of the lesser of (1) 67% or more of the voting securities of the Acquired Fund present at the Meeting, if the holders of more than 50% of the outstanding voting securities of the Acquired Fund are present in person or by proxy, or (2) more than 50% of the outstanding voting securities of the Acquired Fund. The approval of one Reorganization is not contingent upon approval of any other Reorganization.

The number of votes eligible to be cast at the Meeting as of the Record Date and other share ownership information are set forth below under the heading “Outstanding Shares and Share Ownership”.

Quorum requirements. A quorum must be present at the Meeting for the transaction of business. The presence in person or by proxy of one-third of the shares of an Acquired Fund outstanding at the close of business on the Record Date constitutes a quorum for a meeting of that Fund. Abstentions and broker non-votes (proxies from brokers or nominees indicating that they have not received instructions from the beneficial owners on an item for which the broker or nominee does not have discretionary power) are counted toward a quorum but do not represent votes cast for any issue. Under the 1940 Act, the affirmative vote necessary to approve a proposal may be determined with reference to a percentage of votes present at the Meeting, which would have the effect of counting abstentions as if they were votes against a proposal.

34

In the event the necessary quorum to transact business or the vote required to approve a proposal is not obtained at the Meeting, the persons named as proxies or any shareholder present at the Meeting may propose one or more adjournments of the Meeting in accordance with applicable law to permit further solicitation of proxies. Any such adjournment as to the Proposal or any other matter will require the affirmative vote of the holders of a majority of the shares of the Acquired Fund cast at the Meeting. The persons named as proxies and any shareholder present at the Meeting will vote for or against any adjournment in their discretion.

Solicitation procedures. PFI intends to solicit proxies by mail. Officers or employees of PFI, PMC or their affiliates may make additional solicitations by telephone, internet, facsimile or personal contact. They will not be specially compensated for these services. Brokerage houses, banks and other fiduciaries may be requested to forward soliciting materials to their principals and to obtain authorization for the execution of proxies. For those services, they will be reimbursed by PMC for their out-of-pocket expenses.

Expenses of the Meeting. The expenses and out-of-pocket fees incurred in connection with the Reorganization, including printing, mailing, and legal fees will be paid for by PMC.

OUTSTANDING SHARES AND SHARE OWNERSHIP

The following table shows as of January 28, 2014, the Record Date, the number of shares outstanding for each class of the Acquired and Acquiring Funds:

SmallCap Growth Fund II		SmallCap Growth Fund I
(Acquired Fund)		(Acquiring Fund)
Share Class	Shares Outstanding	Share Class	Shares Outstanding
Institutional		Institutional
J		J
R-1		R-1
R-2		R-2
R-3		R-3
R-4		R-4
R-5		R-5

As of the January 28, 2014 Record Date, the Directors and Officers of PFI together owned less than 1% of the outstanding shares of any class of shares of the Acquired or Acquiring Funds.

As of the January 28, 2014 Record Date, the following persons owned of record, or were known by PFI to own beneficially, 5% or more of the outstanding shares of any class of shares of the Acquiring Fund:

Acquiring Fund Share Class Name/Address of Shareholder Percentage of Ownership

To be filed by amendment.

As of the January 28, 2014 Record Date, the following persons owned of record, or were known by PFI to own beneficially, 5% or more of the outstanding shares of any class of shares of the Acquired Funds:

35

Acquired Fund Share Class Name/Address of Shareholder Percentage of Ownership

To be filed by amendment.

FINANCIAL HIGHLIGHTS

The financial highlights table for the Acquired Fund and the Acquiring Fund is intended to help investors understand the financial performance of each Fund for the past five fiscal years (or since inception in the case of a Fund in operation for less than five years). Certain information reflects financial results for a single share of a Fund. The total returns in the tables represent the rate that an investor would have earned (or lost) on an investment in a particular Fund (assuming reinvestment of all dividends and distributions). Information for the fiscal years ended October 31, 2009, through October 31, 2013, has been audited by Ernst & Young LLP, Independent Registered Public Accounting Firm, whose report, along with each Fund’s financial statements, is included in PFI’s Annual Report to Shareholders for the fiscal year ended October 31, 2013. Copies of this report are available on request as described above.

36

	Net Asset Value,		Net Investment			Net Realized and			Total From		Net Asset
	Beginning		Income			Unrealized Gain (Loss)			Investment		Value,		Total
	of Period		(Loss)(a)			on Investments			Operations		End of Period		Return
SMALLCAP GROWTH FUND II
Class J shares
2013	$	8.16	$	(0.12	)		$	3.69	$	3.57	$	11.73	43.75	%(c)
2012	7.27		(0.10		)		0.99		0.89		8.16		12.24	(c)
2011	6.79		(0.09		)		0.57		0.48		7.27		7.07	(c)
2010	5.29		(0.08		)		1.58		1.50		6.79		28.36	(c)
2009	4.99		(0.06		)		0.36		0.30		5.29		6.01	(c)
Institutional shares
2013	9.46		(0.07		)		4.29		4.22		13.68		44.61
2012	8.39		(0.06		)		1.13		1.07		9.46		12.75
2011	7.79		(0.06		)		0.66		0.60		8.39		7.70
2010	6.03		(0.05		)		1.81		1.76		7.79		29.19
2009	5.66		(0.04		)		0.41		0.37		6.03		6.54
R-1 shares
2013	8.80		(0.15		)		3.96		3.81		12.61		43.30
2012	7.87		(0.14		)		1.07		0.93		8.80		11.82
2011	7.38		(0.13		)		0.62		0.49		7.87		6.64
2010	5.76		(0.10		)		1.72		1.62		7.38		28.12
2009	5.45		(0.08		)		0.39		0.31		5.76		5.69
R-2 shares
2013	8.52		(0.14		)		3.85		3.71		12.23		43.54
2012	7.61		(0.12		)		1.03		0.91		8.52		11.96
2011	7.12		(0.11		)		0.60		0.49		7.61		6.88
2010	5.55		(0.09		)		1.66		1.57		7.12		28.29
2009	5.25		(0.07		)		0.37		0.30		5.55		5.71
R-3 shares
2013	8.81		(0.12		)		3.99		3.87		12.68		43.93
2012	7.86		(0.11		)		1.06		0.95		8.81		12.09
2011	7.34		(0.10		)		0.62		0.52		7.86		7.08
2010	5.71		(0.08		)		1.71		1.63		7.34		28.55
2009	5.40		(0.06		)		0.37		0.31		5.71		5.74
R-4 shares
2013	8.99		(0.11		)		4.08		3.97		12.96		44.16
2012	8.01		(0.09		)		1.07		0.98		8.99		12.23
2011	7.47		(0.09		)		0.63		0.54		8.01		7.23
2010	5.80		(0.07		)		1.74		1.67		7.47		28.79
2009	5.47		(0.05		)		0.38		0.33		5.80		6.03
R-5 shares
2013	9.16		(0.10		)		4.16		4.06		13.22		44.32
2012	8.14		(0.09		)		1.11		1.02		9.16		12.53
2011	7.59		(0.08		)		0.63		0.55		8.14		7.25
2010	5.88		(0.06		)		1.77		1.71		7.59		29.08
2009	5.54		(0.05		)		0.39		0.34		5.88		6.14

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Net Assets,		Ratio of		Ratio of Gross		Ratio of Net		Portfolio
End of Period		Expenses to		Expenses to Average		Investment Income		Turnover
(in thousands)		Average Net Assets		Net Assets (b)		to Average Net Assets		Rate
$	27,747	1.58	%	1.84	%	(1.19	)%	78.5	%
18,055		1.58		1.95		(1.26	)	88.9
16,732		1.58		1.83		(1.22	)	77.0
17,400		1.58		1.89		(1.24	)	81.0
14,907		1.59		1.98		(1.23	)	131.8
166,118		1.02	(d)	–		(0.62	)	78.5
120,222		1.01	(d)	–		(0.69	)	88.9
132,587		1.01	(d)	–		(0.62	)	77.0
215,546		1.01	(d)	–		(0.67	)	81.0
271,187		1.01	(d)	–		(0.65	)	131.8
1,157		1.88	(d)	–		(1.47	)	78.5
1,192		1.89	(d)	–		(1.57	)	88.9
1,007		1.89	(d)	–		(1.53	)	77.0
1,239		1.89	(d)	–		(1.55	)	81.0
1,212		1.89	(d)	–		(1.52	)	131.8
2,952		1.75	(d)	–		(1.34	)	78.5
2,448		1.76	(d)	–		(1.44	)	88.9
3,061		1.76	(d)	–		(1.37	)	77.0
5,723		1.76	(d)	–		(1.42	)	81.0
6,173		1.76	(d)	–		(1.39	)	131.8
3,774		1.57	(d)	–		(1.16	)	78.5
3,276		1.58	(d)	–		(1.26	)	88.9
5,675		1.58	(d)	–		(1.23	)	77.0
5,728		1.58	(d)	–		(1.24	)	81.0
6,620		1.58	(d)	–		(1.21	)	131.8
3,970		1.38	(d)	–		(0.98	)	78.5
2,833		1.39	(d)	–		(1.07	)	88.9
4,035		1.39	(d)	–		(1.04	)	77.0
4,205		1.39	(d)	–		(1.05	)	81.0
5,824		1.39	(d)	–		(1.03	)	131.8
6,207		1.26	(d)	–		(0.90	)	78.5
3,944		1.27	(d)	–		(0.96	)	88.9
8,033		1.27	(d)	–		(0.92	)	77.0
10,129		1.27	(d)	–		(0.93	)	81.0
16,391		1.27	(d)	–		(0.91	)	131.8

(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Reflects Manager's contractual expense limit.

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			Net								Distributions			Total
	Net Asset Value,		Investment			Net Realized and			Total From		from			Dividends
	Beginning		Income			Unrealized Gain (Loss)			Investment		Realized			and
	of Period		(Loss)(a)			on Investments			Operations		Gains			Distributions
SMALLCAP GROWTH FUND I
Class J shares
2013	$	9.94	$	(0.13	)		$	3.54	$	3.41	$	(0.72	)	$	(0.72	)
2012	9.56		(0.12		)		1.08		0.96		(0.58		)	(0.58		)
2011	8.50		(0.13		)		1.19		1.06		–			–
2010	6.27		(0.12		)		2.35		2.23		–			–
2009	5.52		(0.10		)		0.85		0.75		–			–
Institutional shares
2013	11.47		(0.09		)		4.14		4.05		(0.72		)	(0.72		)
2012	10.89		(0.07		)		1.23		1.16		(0.58		)	(0.58		)
2011	9.62		(0.08		)		1.35		1.27		–			–
2010	7.03		(0.06		)		2.65		2.59		–			–
2009	6.16		(0.04		)		0.91		0.87		–			–
R-1 shares
2013	10.63		(0.18		)		3.79		3.61		(0.72		)	(0.72		)
2012	10.22		(0.16		)		1.15		0.99		(0.58		)	(0.58		)
2011	9.11		(0.17		)		1.28		1.11		–			–
2010	6.72		(0.13		)		2.52		2.39		–			–
2009	5.92		(0.10		)		0.90		0.80		–			–
R-2 shares
2013	10.42		(0.16		)		3.71		3.55		(0.72		)	(0.72		)
2012	10.01		(0.14		)		1.13		0.99		(0.58		)	(0.58		)
2011	8.91		(0.15		)		1.25		1.10		–			–
2010	6.56		(0.11		)		2.46		2.35		–			–
2009	5.78		(0.08		)		0.86		0.78		–			–
R-3 shares
2013	10.68		(0.15		)		3.83		3.68		(0.72		)	(0.72		)
2012	10.24		(0.13		)		1.15		1.02		(0.58		)	(0.58		)
2011	9.09		(0.14		)		1.29		1.15		–			–
2010	6.69		(0.10		)		2.50		2.40		–			–
2009	5.88		(0.08		)		0.89		0.81		–			–
R-4 shares
2013	10.96		(0.13		)		3.93		3.80		(0.72		)	(0.72		)
2012	10.46		(0.11		)		1.19		1.08		(0.58		)	(0.58		)
2011	9.28		(0.12		)		1.30		1.18		–			–
2010	6.81		(0.09		)		2.56		2.47		–			–
2009	5.97		(0.07		)		0.91		0.84		–			–
R-5 shares
2013	11.18		(0.11		)		4.01		3.90		(0.72		)	(0.72		)
2012	10.65		(0.10		)		1.21		1.11		(0.58		)	(0.58		)
2011	9.43		(0.11		)		1.33		1.22		–			–
2010	6.91		(0.08		)		2.60		2.52		–			–
2009	6.06		(0.06		)		0.91		0.85		–			–

39

Net Asset				Net Assets,		Ratio of		Ratio of Gross		Ratio of Net		Portfolio
Value,		Total		End of Period		Expenses to		Expenses to Average		Investment Income		Turnover
End of Period		Return		(in thousands)		Average Net Assets		Net Assets (b)		to Average Net Assets		Rate
$	12.63	36.73	%(c)	$	30,644	1.56	%	1.78	%	(1.17	)%	74.7	%
9.94		11.07	(c)	22,970		1.63		1.85		(1.20	)	79.9
9.56		12.47	(c)	21,887		1.67		1.83		(1.34	)	90.3
8.50		35.57	(c)	15,935		1.98		2.07		(1.60	)	125.2
6.27		13.59	(c)	10,076		2.21		2.27		(1.80	)	159.5
14.80		37.45		1,729,462		1.07		1.09		(0.68	)	74.7
11.47		11.58		1,329,439		1.08		1.10		(0.65	)	79.9
10.89		13.20		1,185,260		1.07		1.09		(0.74	)	90.3
9.62		36.85		748,898		1.09		1.12		(0.71	)	125.2
7.03		14.12		367,233		1.11		1.12		(0.69	)	159.5
13.52		36.19		2,783		1.94	(d)	–		(1.54	)	74.7
10.63		10.63		2,531		1.95	(d)	–		(1.52	)	79.9
10.22		12.18		2,314		1.95	(d)	–		(1.61	)	90.3
9.11		35.57		1,905		1.97	(d)	–		(1.59	)	125.2
6.72		13.51		1,139		1.98	(d)	–		(1.55	)	159.5
13.25		36.36		4,061		1.81	(d)	–		(1.41	)	74.7
10.42		10.86		3,100		1.82	(d)	–		(1.39	)	79.9
10.01		12.35		2,867		1.82	(d)	–		(1.48	)	90.3
8.91		35.82		3,735		1.84	(d)	–		(1.45	)	125.2
6.56		13.49		2,280		1.85	(d)	–		(1.44	)	159.5
13.64		36.70		18,858		1.63	(d)	–		(1.25	)	74.7
10.68		10.91		11,606		1.64	(d)	–		(1.21	)	79.9
10.24		12.65		12,559		1.64	(d)	–		(1.31	)	90.3
9.09		35.87		7,952		1.66	(d)	–		(1.27	)	125.2
6.69		13.78		4,753		1.67	(d)	–		(1.26	)	159.5
14.04		36.88		16,584		1.44	(d)	–		(1.05	)	74.7
10.96		11.27		12,347		1.45	(d)	–		(1.01	)	79.9
10.46		12.72		8,266		1.45	(d)	–		(1.11	)	90.3
9.28		36.27		5,503		1.47	(d)	–		(1.08	)	125.2
6.81		14.07		3,536		1.48	(d)	–		(1.07	)	159.5
14.36		37.05		31,647		1.32	(d)	–		(0.93	)	74.7
11.18		11.36		23,202		1.33	(d)	–		(0.90	)	79.9
10.65		12.94		21,633		1.33	(d)	–		(1.00	)	90.3
9.43		36.47		13,515		1.35	(d)	–		(0.97	)	125.2
6.91		14.03		6,124		1.36	(d)	–		(0.97	)	159.5

(a)	Calculated based on average shares outstanding during the period.
(b)	Excludes expense reimbursement from Manager and/or Distributor.
(c)	Total return is calculated without the contingent deferred sales charge.
(d)	Reflects Manager's contractual expense limit.

40

FINANCIAL STATEMENTS

The financial statements of the Acquiring Funds and the Acquired Funds included in PFI’s Annual Report to Shareholders for the fiscal year ended October 31, 2013 have been incorporated by reference into the Statement of Additional Information and have been so incorporated by reference in reliance on the report of Ernst & Young LLP, Independent Registered Public Accounting Firm. Copies of these reports are available on request as described above.

LEGAL MATTERS

Certain matters concerning the issuance of shares of the Acquiring Funds will be passed upon by Michael D. Roughton, Esq., Counsel to PFI. Certain tax consequences of the Reorganization will be passed upon for the Acquiring Funds by Randy Lee Bergstrom, Esq., Assistant Tax Counsel to PFI, and for the Acquired Funds by Carolyn F. Kolks, Esq., Assistant Tax Counsel to PFI.

OTHER INFORMATION

PFI is not required to hold annual meetings of shareholders and, therefore, it cannot be determined when the next meeting of shareholders will be held. Shareholder proposals to be presented at any future meeting of shareholders of any PFI Fund must be received by PFI a reasonable time before its solicitation of proxies for that meeting in order for such proposals to be considered for inclusion in the proxy materials related to that meeting.

BY ORDER OF THE BOARD OF DIRECTORS

February ____, 2014

Des Moines, Iowa

41

APPENDIX A

Form Of

PLAN OF ACQUISITION

SmallCap Growth Fund II and

SmallCap Growth Fund I

The Board of Directors of Principal Funds, Inc., a Maryland corporation (the “Fund”), deems it advisable that the SmallCap Growth Fund I series of the Fund (“SCGI”) acquire all of the assets of the SmallCap Growth Fund II series of the Fund (“SCGII”) in exchange for the assumption by SCGI of all of the liabilities of SCGII and shares issued by SCGI which are thereafter to be distributed by SCGII pro rata to its shareholders in complete liquidation and termination of SCGII and in exchange for all of SCGII’s outstanding shares.

SCGII will transfer to SCGI, and SCGI will acquire from SCGII, all of the assets of SCGII on the Closing Date and will assume from SCGII all of the liabilities of SCGII in exchange for the issuance of the number of shares of SCGI determined as provided in the following paragraphs, which shares will be subsequently distributed pro rata to the shareholders of SCGII in complete liquidation and termination of SCGII and in exchange for all of SCGII’s outstanding shares. SCGII will not issue, sell or transfer any of its shares after the Closing Date, and only redemption requests received by SCGII in proper form prior to the Closing Date shall be fulfilled by SCGII. Redemption requests received by SCGII thereafter will be treated as requests for redemption of those shares of SCGI allocable to the shareholder in question.

SCGII will declare, and SCGI may declare, to its shareholders of record on or prior to the Closing Date a dividend or dividends which, together with all previous such dividends, shall have the effect of distributing to its shareholders all of its income (computed without regard to any deduction for dividends paid) and all of its net realized capital gains, if any, as of the Closing Date.

On the Closing Date, SCGI will issue to SCGII a number of full and fractional shares of SCGI, taken at their then net asset value, having an aggregate net asset value equal to the aggregate value of the net assets of SCGII. The aggregate value of the net assets of SCGII and SCGI shall be determined in accordance with the then current Prospectus of SCGI as of close of regularly scheduled trading on the New York Stock Exchange on the Closing Date.

The closing of the transactions contemplated in this Plan (the “Closing”) shall be held at the offices of Principal Management Corporation, 650 8th Street, Des Moines, Iowa 50309 at 3:00 p.m. Central Time on ________, 2014, or on such earlier or later date as fund management may determine. The date on which the Closing is to be held as provided in this Plan shall be known as the “Closing Date.”

In the event that on the Closing Date (a) the New York Stock Exchange is closed for other than customary weekend and holiday closings or (b) trading on said Exchange is restricted or (c) an emergency exists as a result of which it is not reasonably practicable for SCGI or SCGII to fairly determine the value of its assets, the Closing Date shall be postponed until the first business day after the day on which trading shall have been fully resumed.

As soon as practicable after the Closing, SCGII shall (a) distribute on a pro rata basis to the shareholders of record of SCGII at the close of business on the Closing Date the shares of SCGI received by SCGII at the Closing in exchange for all of SCGII’s outstanding shares, and (b) be liquidated in accordance with applicable law and the Fund’s Articles of Incorporation.

For purposes of the distribution of shares of SCGI to shareholders of SCGII, SCGI shall credit its books an appropriate number its shares to the account of each shareholder of SCGII. No certificates will be issued for shares of SCGI. After the Closing Date and until surrendered, each outstanding certificate, if any, which, prior to the Closing Date, represented shares of SCGII, shall be deemed for all purposes of the Fund’s Articles of Incorporation and Bylaws to evidence the appropriate number of shares of SCGI to be credited on the books of SCGI in respect of such shares of SCGII as provided above.

Prior to the Closing Date, SCGII shall deliver to SCGI a list setting forth the assets to be assigned, delivered and transferred to SCGI, including the securities then owned by SCGII and the respective federal income tax bases (on an identified cost basis) thereof, and the liabilities to be assumed by SCGI pursuant to this Plan.

All of SCGII’s portfolio securities shall be delivered by SCGII’s custodian on the Closing Date to SCGI or its custodian, either endorsed in proper form for transfer in such condition as to constitute good delivery thereof in accordance with the practice of brokers or, if such securities are held in a securities depository within the meaning of Rule 17f-4 under the Investment Company Act of 1940, transferred to an account in the name of SCGI or its custodian with said depository. All cash to be delivered pursuant to this Plan shall be transferred from SCGII’s account at its custodian to SCGI’s account at its custodian. If on the Closing Date SCGII is unable to make good delivery to SCGI’s custodian of any of SCGII’s portfolio securities because such securities have not yet been delivered to SCGII’s custodian by its brokers or by the transfer agent for such securities, then the delivery

A-1

requirement with respect to such securities shall be waived, and SCGII shall deliver to SCGI’s custodian on or by said Closing Date with respect to said undelivered securities executed copies of an agreement of assignment in a form satisfactory to SCGI, and a due bill or due bills in form and substance satisfactory to the custodian, together with such other documents including brokers’ confirmations, as may be reasonably required by SCGI.

This Plan may be abandoned and terminated, whether before or after action thereon by the shareholders of SCGII and notwithstanding favorable action by such shareholders, if the Board of Directors believe that the consummation of the transactions contemplated hereunder would not be in the best interests of the shareholders of either Fund. This Plan may be amended by the Board of Directors at any time, except that after approval by the shareholders of SCGII no amendment may be made with respect to the Plan which in the opinion of the Board of Directors materially adversely affects the interests of the shareholders of SCGII.

Except as expressly provided otherwise in this Plan, Principal Management Corporation will pay or cause to be paid all out-of-pocket fees and expenses incurred in connection with the transactions contemplated under this Plan, including, but not limited to, accountants’ fees, legal fees, registration fees, and printing expenses.

IN WITNESS WHEREOF, each of the parties hereto has caused this Plan to be executed by its ________ and __________ as of the _______^th day of __________, 2014.

PRINCIPAL FUNDS, INC.

     on behalf of the following Acquired Fund:

          SmallCap Growth Fund II

By: _____________________________________________

      Nora M. Everett, President

PRINCIPAL FUNDS, INC.

     on behalf of the following Acquiring Fund:

          SmallCap Growth Fund I

By: _____________________________________________

      Michael J. Beer, Executive Vice President

Acknowledged:

PRINCIPAL MANAGEMENT CORPORATION

By: _____________________________________________

A-2

PRINCIPAL FUNDS, INC. - SMALLCAP GROWTH FUND II

Des Moines, Iowa 50392-2080

PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS

April 18, 2014

This proxy is solicited on behalf of the Board of Directors of the Fund. The undersigned shareholder appoints Michael J. Beer, Michael D. Roughton, and Ernest H. Gillum, and each of them separately, Proxies, with power of substitution, and authorizes them to represent and to vote as designated on this ballot, at the meeting of shareholders of the Fund to be held on April 18, 2014 at 10:00 a.m., Central Time, and at any adjournments thereof, all the shares of the Fund that the undersigned shareholder would be entitled to vote if personally present.

Check the appropriate boxes below on this ballot, date and sign exactly as your name appears. Your signature acknowledges receipt of Notice of the Special Meeting of Shareholders and Proxy Statement dated _________________, 2014. Shares will be voted as you instruct. If no direction is made, the proxy will be voted FOR the proposals listed below. In their discretion the Proxies will also be authorized to vote upon such other matters that may properly come before the meeting.

NOTE: PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THIS BALLOT. PLEASE MARK, SIGN, DATE AND MAIL YOUR PROXY BALLOT IN THE ENCLOSED POSTAGE-PAID ENVELOPE. If shares are held jointly, either party may sign. If executed by a corporation, an authorized officer must sign. Executors, administrators and trustees should so indicate when signing.

The Board of Directors recommends that shareholders vote FOR the following proposals. Please make your choice below in blue or black ink. Example: [X]

Sign this proxy ballot and return it as soon as possible in the enclosed envelope.

Approval of a Plan of Acquisition providing for the reorganization of the SmallCap Growth Fund II (the "Acquired Fund") into the SmallCap Growth Fund I.

FOR [ ]	AGAINST [ ]	ABSTAIN [ ]
___________________________	___________________________	___________________
Signature	Signature (if held jointly)	Date

PART B

INFORMATION REQUIRED IN

A STATEMENT OF ADDITIONAL INFORMATION

PRINCIPAL FUNDS, INC.

650 8th Street

Des Moines, Iowa 50309

STATEMENT OF ADDITIONAL INFORMATION

Dated: _________________, 2014

This Statement of Additional Information is available to the shareholders of the SmallCap Growth Fund II (the "Acquired Fund"), in connection with the proposed reorganization of the Acquired Fund into the SmallCap Growth Fund I (the "Acquiring Fund") (the "Reorganization"). Each of the Acquired and Acquiring Funds is a separate series of Principal Funds, Inc. ("PFI").

This Statement of Additional Information is not a prospectus and should be read in conjunction with the Proxy Statement/Prospectus dated __________________, 2014, relating to the Special Meeting of Shareholders of the Acquired Fund to be held on April 18, 2014. The Proxy Statement/Prospectus, which describes the proposed Reorganization, may be obtained without charge by writing to Principal Management Corporation, 650 8th Street, Des Moines, Iowa 50309, or by calling toll free at 1-800-222-5852.

TABLE OF CONTENTS

(1) Statement of Additional Information of PFI dated March 1, 2013, as supplemented on March 15, 2013, April 2, 2013, April 17, 2103, May 9, 2013, June 14, 2013, September 13, 2013, September 20, 2013, November 4, 2013, November 19, 2013, November 22, 2013, December 13, 2013, and January 2, 2014

(2) Audited Financial Statements of the Acquired Fund and the Acquiring Fund included in PFI's Annual Report to Shareholders for the fiscal year ended October 31, 2013

(3)    Pro Forma Financial Statements

INFORMATION INCORPORATED BY REFERENCE

This Statement of Additional Information incorporates by reference the following documents (or designated portions thereof) that have been filed with the Securities and Exchange Commission (File Nos. 033-59474; and 811-07572).

(1) The Statement of Additional Information of Principal Funds, Inc. (“PFI”) dated March 1, 2013, (including Supplements dated March 15, 2013, April 2, 2013, April 17, 2103, May 9, 2013, June 14, 2013, September 13, 2013, September 20, 2013, November 4, 2013, November 19, 2013, November 22, 2013, December 13, 2013, and January 2, 2014 and also filed via EDGAR that date).

(2) The financial statements of the Acquired Fund and the Acquiring Fund included in PFI's Annual Report to Shareholders for the fiscal year ended October 31, 2013, which have been audited by Ernst & Young LLP, Independent Registered Public Accounting Firm, as filed on Form N-CSR on December 30, 2013.

The Annual and Semi-Annual Reports to Shareholders of PFI are available upon request and without charge by calling toll-free at 1-800-222-5852.

PRO FORMA FINANCIAL STATEMENTS

On December 10, 2013 the Board of Directors of PFI approved a Plan of Acquisition whereby, the SmallCap Growth Fund I (the "Acquiring Fund") will acquire all the assets of the SmallCap Growth Fund II (the "Acquired Fund"), subject to the liabilities of the Acquired Fund, in exchange for a number of shares equal in value to the pro rata net assets of shares of the Acquired Fund (the "Reorganization").

Shown below are unaudited pro forma financial statements for the combined Acquiring Fund, assuming the Reorganization had been consummated as of October 31, 2013. The first table presents pro forma Statements of Assets and Liabilities for the combined Acquiring Fund. The second table presents pro forma Statements of Operations for the combined Acquiring Fund. The third table presents a pro forma Schedule of Investments for the combined Acquiring Fund.

Please see the accompanying notes for additional information about the pro forma financial statements. The pro forma schedules of investments and statements of assets and liabilities and operations should be read in conjunction with the historical financial statements of the Acquired Fund and the Acquiring Fund incorporated by reference in the Statement of Additional Information.

	Statements of Assets and Liabilities
	Principal Funds, Inc.
	October 31, 2013 (unaudited)
	Amounts in thousands
	SmallCap Growth			SmallCap Growth			Pro Forma		Pro Forma
	Fund II			Fund I			Adjustments		SmallCap Growth Fund I
Investment in securities--at cost	$	153,503		$	1,378,367		$	—	$	1,531,870
Assets
Investment in securities--at value	$	211,563		$	1,840,446		$	—	$	2,052,009
Cash	156			72			—		228
Deposits with counterparty	500			4,303					4,803
Receivables:
Dividends and interest	15			57			—		72
Expense reimbursement from Manager	9			34			—		43
Expense reimbursement from Distributor	5			5			—		10
Fund shares sold	17			123			—		140
Investment securities sold	889			12,066			—		12,955
Total Assets	213,154			1,857,106			—		2,070,260
Liabilities
Accrued management and investment advisory fees	181			1,674			—		1,855
Accrued administrative service fees	1			3			—		4
Accrued distribution fees	13			19			—		32
Accrued service fees	4			16			—		20
Accrued transfer agent fees	16			33			—		49
Accrued other expenses	11			15			—		26
Payables:
Fund shares redeemed	638			9,685			—		10,323
Investment securities purchased	280			10,832			—		11,112
Variation margin on financial derivative instruments	85			790			—		875
Total Liabilities	1,229			23,067			—		24,296
Net Assets Applicable to Outstanding Shares	$	211,925		$	1,834,039		$	—	$	2,045,964
Net Assets Consist of:
Capital Shares and additional paid-in-capital	$	131,693		$	1,188,613		—		$	1,320,306
Accumulated undistributed (overdistributed) net investment income (loss)	(4		)	(28		)	—		(32		)
Accumulated undistributed (overdistributed) net realized gain (loss)	21,875			180,949			—		202,824
Net unrealized appreciation (depreciation) of investments	58,361			464,505			—		522,866
Total Net Assets	$	211,925		$	1,834,039		$	—	$	2,045,964

	Statements of Assets and Liabilities
	Principal Funds, Inc.
	October 31, 2013 (unaudited)
	Amounts in thousands
	SmallCap Growth			SmallCap Growth			Pro Forma			Pro Forma
	Fund II			Fund I			Adjustments			SmallCap Growth Fund I
Capital Stock (par value: $.01 a share):
Shares authorized	320,000			620,000			—			620,000
Net Asset Value Per Share:
Class J: Net Assets	$	27,747		$	30,644		—			$	58,391
Shares issued and outstanding	2,365			2,426			(168	)	(b)	4,623
Net asset value per share	$	11.73	(a)	$	12.63	(a)				$	12.63
Institutional: Net Assets	$	166,118		$	1,729,462		—			$	1,895,580
Shares issued and outstanding	12,140			116,857			(916	)	(b)	128,081
Net asset value per share	$	13.68		$	14.80					$	14.80
R-1: Net Assets	$	1,157		$	2,783					$	3,940
Shares issued and outstanding	92			206			(6	)	(b)	292
Net asset value per share	$	12.61		$	13.52					$	13.52
R-2: Net Assets	$	2,952		$	4,061					$	7,013
Shares issued and outstanding	241			307			(18	)	(b)	530
Net asset value per share	$	12.23		$	13.25					$	13.25
R-3: Net Assets	$	3,774		$	18,858					$	22,632
Shares issued and outstanding	298			1,383			(21	)	(b)	1,660
Net asset value per share	$	12.68		$	13.64					$	13.64
R-4: Net Assets	$	3,970		$	16,584					$	20,554
Shares issued and outstanding	306			1,181			(23	)	(b)	1,464
Net asset value per share	$	12.96		$	14.04					$	14.04
R-5: Net Assets	$	6,207		$	31,647					$	37,854
Shares issued and outstanding	470			2,204			(38	)	(b)	2,636
Net asset value per share	$	13.22		$	14.36					$	14.36
(a) Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
(b) Reflects new shares issued, net of retired shares of SmallCap Growth Fund II
See accompanying notes

STATEMENTS OF OPERATIONS
Principal Funds, Inc.
Twelve Months Ended October 31, 2013 (unaudited)
	Amounts in thousands	SmallCap Growth Fund II			SmallCap Growth Fund I			Pro Forma Adjustments				Pro Forma SmallCap Growth Fund I
Net Investment Income (Loss)
Income:
	Dividends	$	669		$	6,333		$	—			$	7,002
	Interest	7			83			—				90
	Total Income	676			6,416			—				7,092
Expenses:
	Management and investment advisory fees	1,705			17,613			109			(b)	19,427
	Distribution Fees - Class J	94			114			—				208
	Distribution Fees - R-1	4			10			—				14
	Distribution Fees - R-2	7			10			—				17
	Distribution Fees - R-3	8			36			—				44
	Distribution Fees - R-4	3			15			—				18
	Administrative service fees - R-1	3			8			—				11
	Administrative service fees - R-2	5			7			—				12
	Administrative service fees - R-3	2			10			—				12
	Administrative service fees - R-4	1			4			—				5
	Administrative service fees - R-5	1			3			—				4
	Registration fees - Class J	17			17			(14		)	(a)	20
	Registration fees - Institutional	18			24			(6		)	(a)	36
	Service Fees - R-1	2			7			—				9
	Service Fees - R-2	6			8			—				14
	Service Fees - R-3	8			36			—				44
	Service Fees - R-4	8			37			—				45
	Service Fees - R-5	15			66			—				81
	Shareholder reports - Class J	9			6			(1		)	(a)	14
	Shareholder reports - Institutional	1			8			—				9
	Transfer agent fees - Class J	49			41			(5		)	(a)	85
	Transfer agent fees - Institutional	1			79			(1		)	(a)	79
	Custodian fees	20			46			(20		)	(a)	46
	Directors' expenses	5			28			—				33
	Professional fees	17			19			(17		)	(a)	19
	Other expenses	2			14			—				16
	Total Gross Expenses	2,011			18,266			45				20,322
	Less: Reimbursement from Manager	34			360			—				394
	Less: Reimbursement from Manager - Class J	8			—			—				8
	Less: Reimbursement from Distributor - Class J	42			51			—				93
	Total Net Expenses	1,927			17,855			45				19,827
	Net Investment Income (Loss)	(1,251		)	(11,439		)	(45		)		(12,735		)
Net Realized and Unrealized Gain (Loss) on Investments and Futures
Net realized gain (loss) from:
	Investment transactions	23,577			181,070			—				204,647
	Futures contracts	2,099			22,955			—				25,054
Change in unrealized appreciation/depreciation of:
	Investments	38,064			328,222			—				366,286
	Futures contracts	480			4,813			—				5,293
	Net Realized and Unrealized Gain (Loss) on Investments and Futures	64,220			537,060			—				601,280
	Net Increase (Decrease) in Net Assets Resulting from Operations	$	62,969		$	525,621		$	(45	)		$	588,545
(a) To adjust expenses to reflect the Combined Fund's estimated fees and expenses, based on elimination of duplicate services.
(b) Management and investment advisory fees increased to reflect annual percentage rate of Acquiring Fund.
See accompanying notes

Schedule of Investments
October 31, 2013
COMMON STOCKS - 94.97%	SmallCap Growth Fund II Shares Held	SmallCap Growth Fund II Value (000's)		SmallCap Growth Fund I Shares Held	SmallCap Growth Fund I Value (000's)		Combined Portfolio Shares Held		Combined Portfolio Value (000's)
Advertising - 0.18%
Criteo SA ADR(a)	—	$	—	98,024	$	3,461		98,024	$	3,461
MDC Partners Inc *	543		17	3,367		104		3,910		121
		$	17		$	3,565			$	3,582
Aerospace & Defense - 0.69%
Astronics Corp (a),*	813		40	5,039		247		5,852		287
Astronics Corp - Class B (a),*	163		8	1,008		49		1,171		57
Cubic Corp *	88		5	543		29		631		34
GenCorp Inc (a),*	1,710		29	10,591		178		12,301		207
HEICO Corp *	2,421		130	232,828		12,475		235,249		12,605
Innovative Solutions & Support Inc *	823		6	5,102		40		5,925		46
Kaman Corp *	757		28	4,690		174		5,447		202
M/A-COM Technology Solutions Holdings Inc (a),*	639		11	3,961		68		4,600		79
Moog Inc (a),*	267		16	1,654		99		1,921		115
Teledyne Technologies Inc (a),*	487		43	3,012		268		3,499		311
		$	316		$	13,627			$	13,943
Agriculture - 0.02%
Tejon Ranch Co (a),*	807		30	5,004		185		5,811		215
Vector Group Ltd *	1,696		27	10,510		170		12,206		197
		$	57		$	355			$	412
Airlines - 0.30%
Allegiant Travel Co *	647		68	4,003		417		4,650		485
Republic Airways Holdings Inc (a),*	1,729		20	10,732		127		12,461		147
SkyWest Inc *	223		3	1,387		21		1,610		24
Spirit Airlines Inc (a)	98,067		4,232	15,922		687		113,989		4,919
US Airways Group Inc (a),*	3,269		72	20,253		445		23,522		517
		$	4,395		$	1,697			$	6,092
Apparel - 0.96%
Crocs Inc (a),*	3,189		39	19,753		241		22,942		280
Deckers Outdoor Corp (a)	—		—	23,200		1,597		23,200		1,597
G-III Apparel Group Ltd (a),*	533		30	44,604		2,530		45,137		2,560
Iconix Brand Group Inc (a),*	1,113		40	6,895		249		8,008		289
Oxford Industries Inc *	490		35	3,033		218		3,523		253
Quiksilver Inc (a)	—		—	1,563,143		13,005		1,563,143		13,005
RG Barry Corp *	45		1	277		5		322		6
Steven Madden Ltd (a),*	2,571		94	15,933		584		18,504		678
Wolverine World Wide Inc *	2,144		124	13,281		767		15,425		891
		$	363		$	19,196			$	19,559
Automobile Manufacturers - 0.00%
Wabash National Corp (a),*	352		4	2,174		25		2,526		29
Automobile Parts & Equipment - 0.14%
American Axle & Manufacturing Holdings Inc (a),*	1,703		32	10,548		196		12,251		228
Cooper Tire & Rubber Co *	481		12	2,979		77		3,460		89
Dana Holding Corp *	779		15	4,821		94		5,600		109
Dorman Products Inc *	1,048		51	6,493		316		7,541		367
Gentherm Inc (a),*	1,393		33	8,630		202		10,023		235
Standard Motor Products Inc *	914		33	5,663		205		6,577		238
Tenneco Inc (a),*	2,599		138	16,101		854		18,700		992
Titan International Inc *	2,657		39	16,453		239		19,110		278
Tower International Inc (a),*	399		8	2,476		53		2,875		61
		$	361		$	2,236			$	2,597
Banks - 2.88%
Bank of the Ozarks Inc	64,256		3,180	5,928		293		70,184		3,473
Cass Information Systems Inc *	651		37	4,037		232		4,688		269
City National Corp/CA	—		—	58,180		4,195		58,180		4,195
CoBiz Financial Inc	121,847		1,322	—		—		121,847		1,322
Customers Bancorp Inc (a)	25,913		434	—		—		25,913		434
First Financial Bankshares Inc *	996		61	6,169		380		7,165		441
Home BancShares Inc/AR *	765		26	4,739		161		5,504		187
Iberiabank Corp	—		—	151,257		8,838		151,257		8,838
PrivateBancorp Inc	—		—	62,400		1,520		62,400		1,520
Prosperity Bancshares Inc	—		—	215,651		13,467		215,651		13,467
Signature Bank/New York NY (a)	—		—	109,111		11,109		109,111		11,109
SVB Financial Group (a)	30,173		2,890	110,725		10,605		140,898		13,495
		$	7,950		$	50,800			$	58,750
Beverages - 0.03%
Boston Beer Co Inc/The (a),*	358		82	2,217		509		2,575		591
Farmer Bros Co (a),*	385		7	2,386		43		2,771		50
		$	89		$	552			$	641
Biotechnology - 4.20%
Acorda Therapeutics Inc (a),*	1,677		51	10,384		318		12,061		369
Aegerion Pharmaceuticals Inc (a)	14,436		1,196	75,385		6,244		89,821		7,440

COMMON STOCKS (continued)	SmallCap Growth Fund II Shares Held	SmallCap Growth Fund II Value (000's)		SmallCap Growth Fund I Shares Held	SmallCap Growth Fund I Value (000's)		Combined Portfolio Shares Held		Combined Portfolio Value (000's)
Biotechnology (continued)
Alnylam Pharmaceuticals Inc (a)	56,676	$	3,265	57,471	$	3,311		114,147	$	6,576
AMAG Pharmaceuticals Inc (a),*	1,382		37	8,563		231		9,945		268
Arena Pharmaceuticals Inc (a),*	7,921		35	49,071		215		56,992		250
Arqule Inc (a),*	3,581		8	22,187		50		25,768		58
BIND Therapeutics Inc (a)	68,930		902	—		—		68,930		902
Cambrex Corp (a)	133,004		2,237	6,180		104		139,184		2,341
Celldex Therapeutics Inc (a),*	16,928		387	210,672		4,826		227,600		5,213
Charles River Laboratories International Inc (a)	—		—	148,128		7,289		148,128		7,289
Chelsea Therapeutics International Ltd (a),*	4,391		12	27,205		77		31,596		89
Cubist Pharmaceuticals Inc (a)	—		—	104,670		6,490		104,670		6,490
Cytokinetics Inc (a),*	1,292		8	8,007		48		9,299		56
Dendreon Corp (a),*	10,059		26	62,314		160		72,373		186
Emergent Biosolutions Inc (a),*	344		7	2,131		42		2,475		49
Epizyme Inc (a),*	378		14	2,346		90		2,724		104
Exact Sciences Corp (a),*	2,568		28	74,410		820		76,978		848
Exelixis Inc (a),*	6,812		34	42,164		208		48,976		242
Fibrocell Science Inc (a),*	1,067		4	6,610		24		7,677		28
Halozyme Therapeutics Inc (a),*	3,233		38	20,025		233		23,258		271
ImmunoGen Inc (a),*	2,711		45	16,797		277		19,508		322
Immunomedics Inc (a),*	4,527		17	28,032		106		32,559		123
Incyte Corp Ltd (a)	—		—	233,525		9,108		233,525		9,108
Intercept Pharmaceuticals Inc (a)	22,105		1,199	58,894		3,195		80,999		4,394
InterMune Inc (a),*	3,133		44	19,402		273		22,535		317
Intrexon Corp (a)	29,184		619	3,992		85		33,176		704
KYTHERA Biopharmaceuticals Inc (a)	—		—	108,860		4,867		108,860		4,867
Ligand Pharmaceuticals Inc (a),*	730		38	4,517		234		5,247		272
MacroGenics Inc (a)	19,280		519	—		—		19,280		519
Medicines Co/The (a),*	2,615		89	16,199		550		18,814		639
MEI Pharma Inc (a),*	607		5	3,764		30		4,371		35
Merrimack Pharmaceuticals Inc (a),*	5,938		16	36,790		99		42,728		115
Momenta Pharmaceuticals Inc (a),*	2,497		41	228,030		3,738		230,527		3,779
Nanosphere Inc (a),*	2,689		5	16,656		33		19,345		38
NeoGenomics Inc (a),*	2,146		8	13,297		48		15,443		56
NPS Pharmaceuticals Inc (a)	156,999		4,519	201,980		5,813		358,979		10,332
OncoGenex Pharmaceutical Inc (a),*	963		7	5,968		42		6,931		49
Onconova Therapeutics Inc (a),*	332		5	2,059		32		2,391		37
Organovo Holdings Inc (a)	58,860		428	—		—		58,860		428
PDL BioPharma Inc *	5,795		47	35,900		290		41,695		337
Puma Biotechnology Inc (a),*	914		35	75,205		2,881		76,119		2,916
Repligen Corp (a),*	1,987		22	12,310		135		14,297		157
Sangamo Biosciences Inc (a),*	2,521		24	15,610		146		18,131		170
Seattle Genetics Inc (a)	—		—	156,228		6,035		156,228		6,035
Sequenom Inc (a),*	7,352		14	45,546		87		52,898		101
Sunesis Pharmaceuticals Inc (a),*	2,073		10	12,842		64		14,915		74
Verastem Inc (a)	91,255		912	7,021		70		98,276		982
Vical Inc (a),*	4,441		6	27,512		34		31,953		40
		$	16,963		$	69,052			$	86,015
Building Materials - 0.99%
AAON Inc *	1,209		33	7,492		202		8,701		235
Apogee Enterprises Inc	28,685		897	—		—		28,685		897
Boise Cascade Co (a),*	780		20	4,825		124		5,605		144
Comfort Systems USA Inc *	609		11	3,768		70		4,377		81
Drew Industries Inc *	951		48	5,895		296		6,846		344
Eagle Materials Inc	—		—	25,651		1,924		25,651		1,924
Headwaters Inc (a),*	4,780		42	29,602		258		34,382		300
Lennox International Inc	—		—	37,700		2,943		37,700		2,943
Louisiana-Pacific Corp (a),*	4,186		71	25,931		441		30,117		512
Martin Marietta Materials Inc	—		—	24,474		2,401		24,474		2,401
Nortek Inc (a),*	569		40	3,526		247		4,095		287
Patrick Industries Inc (a),*	426		13	2,640		83		3,066		96
PGT Inc (a),*	2,125		22	13,168		138		15,293		160
Simpson Manufacturing Co Inc *	211		8	1,311		47		1,522		55
Texas Industries Inc (a),*	739		40	4,572		246		5,311		286
Trex Co Inc (a)	65,527		4,601	3,872		272		69,399		4,873
US Concrete Inc (a),*	880		19	5,453		119		6,333		138
USG Corp (a)	70,782		1,933	93,430		2,551		164,212		4,484
		$	7,798		$	12,362			$	20,160
Chemicals - 1.45%
Aceto Corp *	406		6	2,521		40		2,927		46
American Pacific Corp (a),*	378		17	2,344		107		2,722		124
American Vanguard Corp *	1,187		31	7,353		192		8,540		223
Balchem Corp *	1,228		70	7,611		436		8,839		506
Chemtura Corp (a),*	3,588		88	22,221		544		25,809		632
Ferro Corp (a),*	3,006		39	18,618		239		21,624		278
Hawkins Inc *	595		21	3,695		133		4,290		154
HB Fuller Co *	2,124		102	13,160		630		15,284		732
Innophos Holdings Inc *	801		40	4,962		249		5,763		289

COMMON STOCKS (continued)	SmallCap Growth Fund II Shares Held	SmallCap Growth Fund II Value (000's)		SmallCap Growth Fund I Shares Held	SmallCap Growth Fund I Value (000's)		Combined Portfolio Shares Held		Combined Portfolio Value (000's)
Chemicals (continued)
Innospec Inc *	895	$	41	5,549	$	255		6,444	$	296
KMG Chemicals Inc *	437		9	2,707		54		3,144		63
Landec Corp (a),*	1,661		19	10,291		120		11,952		139
Oil-Dri Corp of America *	77		3	479		17		556		20
Olin Corp *	2,170		49	13,438		302		15,608		351
OM Group Inc (a),*	133		5	825		28		958		33
OMNOVA Solutions Inc (a),*	3,077		27	19,061		166		22,138		193
PolyOne Corp	37,103		1,124	527,049		15,970		564,152		17,094
Quaker Chemical Corp *	204		15	1,261		96		1,465		111
Rentech Inc *	14,534		25	90,035		154		104,569		179
Rockwood Holdings Inc	—		—	126,044		7,972		126,044		7,972
Stepan Co *	453		27	2,803		165		3,256		192
Zep Inc *	558		11	3,456		69		4,014		80
		$	1,769		$	27,938			$	29,707
Commercial Services - 10.90%
Acacia Research Corp *	923		14	5,717		86		6,640		100
Accretive Health Inc (a),*	3,754		31	23,257		192		27,011		223
Advisory Board Co/The (a),*	1,289		88	158,082		10,845		159,371		10,933
American Public Education Inc (a),*	1,151		46	7,132		286		8,283		332
AMN Healthcare Services Inc (a),*	3,010		37	18,643		231		21,653		268
Ascent Capital Group Inc (a),*	117		10	123,791		10,450		123,908		10,460
Barrett Business Services Inc *	454		38	2,821		235		3,275		273
Bright Horizons Family Solutions Inc (a)	—		—	301,026		11,213		301,026		11,213
Brink's Co/The *	1,423		45	8,813		277		10,236		322
Capella Education Co (a),*	708		43	162,006		9,869		162,714		9,912
Cardtronics Inc (a),*	1,958		77	12,129		476		14,087		553
Carriage Services Inc *	1,006		20	6,236		125		7,242		145
Cenveo Inc (a),*	1,732		6	10,732		34		12,464		40
Chemed Corp *	780		53	4,829		328		5,609		381
CoreLogic Inc/United States (a)	—		—	445,044		14,807		445,044		14,807
Corporate Executive Board Co *	1,224		89	145,121		10,579		146,345		10,668
Corvel Corp (a),*	722		30	4,514		188		5,236		218
CoStar Group Inc (a),*	1,245		220	196,913		34,851		198,158		35,071
Deluxe Corp *	1,384		65	8,570		404		9,954		469
Education Management Corp (a),*	1,529		23	9,473		145		11,002		168
Electro Rent Corp *	622		11	3,853		70		4,475		81
Euronet Worldwide Inc (a),*	2,144		93	64,783		2,811		66,927		2,904
EVERTEC Inc *	1,077		25	6,668		156		7,745		181
ExamWorks Group Inc (a),*	1,238		32	7,671		198		8,909		230
ExlService Holdings Inc (a),*	1,396		40	8,649		250		10,045		290
Forrester Research Inc *	822		32	5,086		197		5,908		229
Franklin Covey Co (a),*	398		8	2,460		46		2,858		54
Genpact Ltd (a)	—		—	431,236		8,551		431,236		8,551
Global Payments Inc	—		—	170,503		10,141		170,503		10,141
Grand Canyon Education Inc (a),*	1,901		90	136,795		6,466		138,696		6,556
H&E Equipment Services Inc (a)	44,304		1,109	6,655		167		50,959		1,276
Hackett Group Inc/The *	515		4	3,185		23		3,700		27
Healthcare Services Group Inc *	2,491		68	15,427		423		17,918		491
Heartland Payment Systems Inc *	1,585		64	9,823		397		11,408		461
HMS Holdings Corp (a),*	3,623		77	22,442		474		26,065		551
Huron Consulting Group Inc (a),*	198		12	38,021		2,227		38,219		2,239
Insperity Inc *	958		37	5,933		229		6,891		266
ITT Educational Services Inc (a),*	979		39	6,062		243		7,041		282
K12 Inc (a),*	1,775		33	10,997		201		12,772		234
Landauer Inc *	634		31	3,929		190		4,563		221
LifeLock Inc (a),*	2,195		35	13,597		219		15,792		254
Matthews International Corp *	776		32	4,806		195		5,582		227
MAXIMUS Inc *	2,491		121	297,347		14,406		299,838		14,527
Medifast Inc (a),*	927		22	5,751		134		6,678		156
MoneyGram International Inc (a),*	340		7	2,109		45		2,449		52
Monro Muffler Brake Inc *	1,303		60	8,074		371		9,377		431
Multi-Color Corp *	477		17	2,956		103		3,433		120
National Research Corp (a),*	247		4	1,526		27		1,773		31
On Assignment Inc (a),*	1,922		65	11,911		402		13,833		467
PAREXEL International Corp (a),*	2,327		106	208,964		9,552		211,291		9,658
Performant Financial Corp (a),*	1,431		14	8,867		88		10,298		102
Providence Service Corp/The (a),*	679		20	4,209		126		4,888		146
RPX Corp (a),*	289		5	1,787		32		2,076		37
ServiceSource International Inc (a),*	2,222		24	220,770		2,389		222,992		2,413
SFX Entertainment Inc (a)	—		—	58,100		499		58,100		499
Sotheby's *	2,847		148	17,632		915		20,479		1,063
Steiner Leisure Ltd (a),*	297		17	1,834		103		2,131		120
Stewart Enterprises Inc *	2,744		36	17,000		225		19,744		261
Strayer Education Inc *	692		27	4,291		170		4,983		197
Team Health Holdings Inc (a),*	2,812		122	272,019		11,817		274,831		11,939
Team Inc (a),*	877		33	31,284		1,167		32,161		1,200
TeleTech Holdings Inc (a),*	829		22	5,137		136		5,966		158

COMMON STOCKS (continued)	SmallCap Growth Fund II Shares Held	SmallCap Growth Fund II Value (000's)		SmallCap Growth Fund I Shares Held	SmallCap Growth Fund I Value (000's)		Combined Portfolio Shares Held		Combined Portfolio Value (000's)
Commercial Services (continued)
TrueBlue Inc (a),*	1,702	$	42	480,658	$	11,872		482,360	$	11,914
United Rentals Inc (a)	—		—	368,758		23,819		368,758		23,819
VistaPrint NV (a),*	1,411		76	8,741		472		10,152		548
WEX Inc (a),*	1,415		132	8,759		818		10,174		950
		$	3,927		$	219,183			$	223,110
Computers - 1.68%
3D Systems Corp (a)	19,735		1,228	—		—		19,735		1,228
Cadence Design Systems Inc (a)	—		—	416,914		5,407		416,914		5,407
Carbonite Inc (a),*	771		10	4,775		63		5,546		73
Datalink Corp (a),*	1,209		12	7,489		77		8,698		89
Digimarc Corp *	401		8	—		—		401		8
Electronics For Imaging Inc (a),*	1,057		36	6,551		225		7,608		261
FleetMatics Group PLC (a),*	1,068		34	216,150		6,863		217,218		6,897
Fusion-io Inc (a),*	1,938		21	12,011		129		13,949		150
iGate Corp (a),*	1,491		47	9,233		294		10,724		341
Immersion Corp (a),*	1,643		21	10,180		129		11,823		150
j2 Global Inc *	2,004		110	12,414		682		14,418		792
KEYW Holding Corp/The (a)	—		—	397,128		4,567		397,128		4,567
Luxoft Holding Inc (a),*	225		7	1,398		41		1,623		48
Manhattan Associates Inc (a),*	842		90	5,213		555		6,055		645
Maxwell Technologies Inc (a),*	1,862		14	11,538		86		13,400		100
MTS Systems Corp *	682		45	4,219		276		4,901		321
Netscout Systems Inc (a),*	1,589		45	9,842		279		11,431		324
Qualys Inc (a),*	939		20	5,816		121		6,755		141
Riverbed Technology Inc (a)	—		—	260,904		3,867		260,904		3,867
Silicon Graphics International Corp (a),*	2,159		28	13,379		171		15,538		199
Synaptics Inc (a),*	1,399		65	163,608		7,608		165,007		7,673
Syntel Inc *	667		57	4,130		354		4,797		411
Transact Technologies Inc	3,013		42	—		—		3,013		42
Uni-Pixel Inc (a)	18,876		310	—		—		18,876		310
Unisys Corp (a),*	142		4	876		23		1,018		27
Virtusa Corp (a),*	1,243		39	7,708		240		8,951		279
		$	2,293		$	32,057			$	34,350
Consumer Products - 0.08%
Costa Inc (a),*	561		11	3,480		70		4,041		81
Prestige Brands Holdings Inc (a),*	2,276		71	14,103		441		16,379		512
Spectrum Brands Holdings Inc *	934		61	5,783		381		6,717		442
Tumi Holdings Inc (a),*	1,996		43	12,361		264		14,357		307
WD-40 Co *	675		49	4,180		303		4,855		352
		$	235		$	1,459			$	1,694
Cosmetics & Personal Care - 0.02%
Elizabeth Arden Inc (a),*	948		34	5,873		212		6,821		246
Inter Parfums Inc *	726		26	4,495		158		5,221		184
Revlon Inc (a),*	243		6	1,508		36		1,751		42
		$	66		$	406			$	472
Distribution & Wholesale - 1.13%
Beacon Roofing Supply Inc (a),*	2,037		71	12,617		438		14,654		509
Core-Mark Holding Co Inc *	101		7	629		44		730		51
Houston Wire & Cable Co *	376		5	2,331		32		2,707		37
LKQ Corp (a)	—		—	359,123		11,862		359,123		11,862
MWI Veterinary Supply Inc (a)	34,215		5,429	10,438		1,656		44,653		7,085
Owens & Minor Inc *	864		32	5,351		200		6,215		232
Pool Corp *	1,990		108	12,330		671		14,320		779
Watsco Inc *	1,094		104	6,781		646		7,875		750
WESCO International Inc (a)	21,720		1,856	—		—		21,720		1,856
		$	7,612		$	15,549			$	23,161
Diversified Financial Services - 1.40%
Affiliated Managers Group Inc (a)	—		—	16,482		3,254		16,482		3,254
Aircastle Ltd *	1,783		34	11,046		208		12,829		242
BGC Partners Inc *	5,178		27	32,077		171		37,255		198
Blackhawk Network Holdings Inc (a)	27,723		634	4,563		104		32,286		738
Cohen & Steers Inc *	687		26	4,253		163		4,940		189
Consumer Portfolio Services Inc (a),*	655		4	4,056		27		4,711		31
Credit Acceptance Corp (a),*	290		34	1,794		212		2,084		246
Diamond Hill Investment Group Inc *	179		20	1,113		123		1,292		143
E*Trade Financial Corp (a)	—		—	192,700		3,259		192,700		3,259
Ellie Mae Inc (a),*	958		28	5,934		172		6,892		200
Encore Capital Group Inc (a),*	820		40	5,083		248		5,903		288
Evercore Partners Inc - Class A	34,435		1,738	8,230		415		42,665		2,153
Financial Engines Inc	13,531		756	12,727		711		26,258		1,467
FXCM Inc *	2,394		39	14,827		243		17,221		282
GAMCO Investors Inc *	381		27	2,359		169		2,740		196
Greenhill & Co Inc *	1,026		53	6,354		326		7,380		379
Higher One Holdings Inc (a),*	2,154		17	13,341		106		15,495		123
INTL. FCStone Inc (a),*	290		6	1,797		37		2,087		43
Investment Technology Group Inc (a)	—		—	73,600		1,179		73,600		1,179
MarketAxess Holdings Inc *	1,575		103	9,761		637		11,336		740

COMMON STOCKS (continued)	SmallCap Growth Fund II Shares Held	SmallCap Growth Fund II Value (000's)		SmallCap Growth Fund I Shares Held	SmallCap Growth Fund I Value (000's)		Combined Portfolio Shares Held		Combined Portfolio Value (000's)
Diversified Financial Services (continued)
Outerwall Inc (a),*	1,214	$	79	7,516	$	488		8,730	$	567
Portfolio Recovery Associates Inc (a),*	2,130		127	13,199		785		15,329		912
Pzena Investment Management Inc *	542		4	3,375		24		3,917		28
Regional Management Corp (a),*	174		6	1,077		35		1,251		41
Stifel Financial Corp (a)	—		—	218,209		8,936		218,209		8,936
Virtus Investment Partners Inc (a),*	281		57	1,741		354		2,022		411
WageWorks Inc (a),*	1,044		53	30,367		1,555		31,411		1,608
Westwood Holdings Group Inc *	442		24	2,682		143		3,124		167
WisdomTree Investments Inc (a),*	3,656		51	22,646		315		26,302		366
World Acceptance Corp (a),*	380		39	2,352		245		2,732		284
		$	4,026		$	24,644			$	28,670
Electric - 0.01%
Pike Electric Corp *	902		10	5,591		61		6,493		71
UNS Energy Corp *	164		8	1,019		50		1,183		58
		$	18		$	111			$	129
Electrical Components & Equipment - 0.85%
Acuity Brands Inc	22,878		2,300	89,281		8,974		112,159		11,274
Advanced Energy Industries Inc (a),*	1,562		33	9,677		202		11,239		235
Belden Inc *	1,682		113	10,418		701		12,100		814
Coleman Cable Inc *	577		14	3,133		77		3,710		91
EnerSys Inc *	659		44	4,079		271		4,738		315
Generac Holdings Inc *	2,196		108	13,608		672		15,804		780
Graham Corp *	638		23	3,952		146		4,590		169
Insteel Industries Inc *	1,081		18	6,702		111		7,783		129
Littelfuse Inc *	870		74	5,390		458		6,260		532
SunPower Corp (a),*	1,750		53	55,346		1,670		57,096		1,723
Universal Display Corp (a),*	1,732		55	42,333		1,350		44,065		1,405
		$	2,835		$	14,632			$	17,467
Electronics - 0.52%
American Science & Engineering Inc *	81		5	506		33		587		38
Analogic Corp *	352		32	2,176		201		2,528		233
Applied Optoelectronics Inc (a)	69,150		877	—		—		69,150		877
Badger Meter Inc *	649		34	4,024		209		4,673		243
Coherent Inc *	876		58	5,431		360		6,307		418
Control4 Corp (a)	27,510		453	—		—		27,510		453
FARO Technologies Inc (a)	27,242		1,294	6,301		299		33,543		1,593
FEI Co *	1,798		160	17,642		1,572		19,440		1,732
Gentex Corp/MI	—		—	32,200		948		32,200		948
InvenSense Inc (a),*	2,071		35	12,825		217		14,896		252
Measurement Specialties Inc (a),*	596		33	3,687		205		4,283		238
Mesa Laboratories Inc *	168		12	1,045		73		1,213		85
Methode Electronics Inc	12,762		326	8,252		211		21,014		537
NVE Corp (a),*	322		17	2,026		108		2,348		125
OSI Systems Inc (a),*	668		49	4,133		301		4,801		350
Rofin-Sinar Technologies Inc (a),*	125		3	779		20		904		23
Rogers Corp (a),*	417		25	2,580		157		2,997		182
Stoneridge Inc (a),*	1,538		20	9,533		122		11,071		142
Taser International Inc (a),*	1,862		33	73,859		1,313		75,721		1,346
Watts Water Technologies Inc *	137		8	848		49		985		57
Woodward Inc *	2,964		119	18,362		736		21,326		855
		$	3,593		$	7,134			$	10,727
Energy - Alternate Sources - 0.05%
Clean Energy Fuels Corp (a),*	2,494		28	15,454		176		17,948		204
FutureFuel Corp *	341		6	2,115		37		2,456		43
Renewable Energy Group Inc (a),*	255		3	1,585		17		1,840		20
SolarCity Corp (a)	—		—	15,200		810		15,200		810
		$	37		$	1,040			$	1,077
Engineering & Construction - 0.70%
Aegion Corp (a),*	289		6	1,789		37		2,078		43
Dycom Industries Inc (a),*	775		23	444,507		13,180		445,282		13,203
Exponent Inc *	563		42	3,482		263		4,045		305
MasTec Inc (a),*	2,494		80	15,454		494		17,948		574
Mistras Group Inc (a),*	1,018		19	6,308		116		7,326		135
National Technical Systems Inc (a),*	369		8	2,291		52		2,660		60
		$	178		$	14,142			$	14,320
Entertainment - 0.73%
Carmike Cinemas Inc (a)	25,906		593	2,530		58		28,436		651
Churchill Downs Inc *	574		49	3,560		306		4,134		355
Lions Gate Entertainment Corp (a)	—		—	61,700		2,134		61,700		2,134
Multimedia Games Holding Co Inc (a)	78,968		2,567	7,377		240		86,345		2,807
National CineMedia Inc *	1,082		19	435,369		7,627		436,451		7,646
Pinnacle Entertainment Inc (a),*	1,955		46	12,114		283		14,069		329
SHFL Entertainment Inc (a),*	2,353		55	14,866		345		17,219		400
Vail Resorts Inc *	1,307		92	8,095		570		9,402		662
		$	3,421		$	11,563			$	14,984

COMMON STOCKS (continued)	SmallCap Growth Fund II Shares Held	SmallCap Growth Fund II Value (000's)		SmallCap Growth Fund I Shares Held	SmallCap Growth Fund I Value (000's)		Combined Portfolio Shares Held		Combined Portfolio Value (000's)
Environmental Control - 0.84%
Advanced Emissions Solutions Inc (a),*	636	$	24	3,943	$	149		4,579	$	173
Calgon Carbon Corp (a),*	2,197		44	13,612		272		15,809		316
Ceco Environmental Corp *	563		10	3,491		62		4,054		72
Darling International Inc (a),*	1,422		33	8,804		205		10,226		238
Mine Safety Appliances Co *	1,184		57	7,336		353		8,520		410
Pure Cycle Corp (a),*	1,122		7	6,953		46		8,075		53
US Ecology Inc *	1,175		42	7,282		259		8,457		301
Waste Connections Inc	—		—	366,519		15,665		366,519		15,665
		$	217		$	17,011			$	17,228
Food - 1.53%
Annie's Inc (a),*	499		24	3,090		146		3,589		170
B&G Foods Inc *	1,929		65	11,945		404		13,874		469
Boulder Brands Inc (a),*	2,038		33	85,633		1,404		87,671		1,437
Calavo Growers Inc *	794		24	4,923		146		5,717		170
Cal-Maine Foods Inc *	463		24	2,866		145		3,329		169
Chefs' Warehouse Inc/The (a),*	896		21	334,724		8,020		335,620		8,041
Diamond Foods Inc (a)	—		—	60,800		1,484		60,800		1,484
Fairway Group Holdings Corp (a)	—		—	38,600		943		38,600		943
Flowers Foods Inc	—		—	122,100		3,094		122,100		3,094
Hain Celestial Group Inc (a),*	1,668		139	51,826		4,314		53,494		4,453
Harris Teeter Supermarkets Inc *	368		18	2,282		113		2,650		131
Inventure Foods Inc (a),*	920		10	5,702		64		6,622		74
J&J Snack Foods Corp *	652		56	4,036		345		4,688		401
Lancaster Colony Corp *	675		56	4,179		347		4,854		403
Lifeway Foods Inc *	289		4	1,795		26		2,084		30
Pilgrim's Pride Corp (a),*	2,719		39	16,843		239		19,562		278
Sanderson Farms Inc *	1,004		63	6,219		393		7,223		456
Sprouts Farmers Market Inc (a)	—		—	19,127		881		19,127		881
SUPERVALU Inc (a),*	6,756		48	41,853		294		48,609		342
Tootsie Roll Industries Inc *	1,160		37	7,189		230		8,349		267
TreeHouse Foods Inc (a),*	1,052		77	6,516		477		7,568		554
United Natural Foods Inc (a),*	1,795		128	59,016		4,217		60,811		4,345
Village Super Market Inc *	264		10	1,635		60		1,899		70
WhiteWave Foods Co - A shares (a)	—		—	136,168		2,725		136,168		2,725
		$	876		$	30,511			$	31,387
Forest Products & Paper - 0.10%
Clearwater Paper Corp (a),*	723		38	4,483		234		5,206		272
Deltic Timber Corp *	407		26	2,517		161		2,924		187
KapStone Paper and Packaging Corp *	1,724		90	10,681		555		12,405		645
Neenah Paper Inc *	108		5	666		27		774		32
Orchids Paper Products Co *	341		10	2,112		65		2,453		75
PH Glatfelter Co *	1,542		40	9,556		250		11,098		290
Schweitzer-Mauduit International Inc *	922		57	5,707		353		6,629		410
Xerium Technologies Inc (a),*	699		8	4,330		52		5,029		60
		$	274		$	1,697			$	1,971
Gas - 0.01%
South Jersey Industries Inc *	378		22	2,341		139		2,719		161
Hand & Machine Tools - 0.51%
Franklin Electric Co Inc *	1,625		61	10,063		381		11,688		442
Lincoln Electric Holdings Inc	—		—	143,564		9,940		143,564		9,940
		$	61		$	10,321			$	10,382
Healthcare - Products - 3.91%
Abaxis Inc *	905		32	5,621		201		6,526		233
ABIOMED Inc (a),*	1,622		39	10,047		241		11,669		280
Align Technology Inc (a),*	3,022		172	231,876		13,231		234,898		13,403
ArthroCare Corp (a),*	972		36	6,022		225		6,994		261
AtriCure Inc (a),*	1,341		19	8,308		115		9,649		134
Atrion Corp *	105		28	613		164		718		192
Biolase Inc (a),*	1,870		4	11,584		22		13,454		26
BioTelemetry Inc (a)	—		—	54,128		495		54,128		495
Cantel Medical Corp *	1,371		48	8,498		298		9,869		346
Cardiovascular Systems Inc (a),*	1,368		42	8,475		257		9,843		299
Cepheid Inc (a)	40,227		1,638	17,012		693		57,239		2,331
Cyberonics Inc (a),*	1,166		67	7,223		417		8,389		484
Cynosure Inc (a)	31,010		670	2,540		55		33,550		725
DexCom Inc (a),*	2,893		83	17,924		515		20,817		598
Endologix Inc (a),*	2,629		48	344,075		6,217		346,704		6,265
Exactech Inc (a),*	132		3	821		19		953		22
Female Health Co/The *	1,375		13	8,521		81		9,896		94
Genomic Health Inc (a),*	1,071		32	6,639		199		7,710		231
Globus Medical Inc (a),*	2,236		43	13,854		266		16,090		309
Greatbatch Inc (a)	12,198		465	—		—		12,198		465
Haemonetics Corp (a),*	2,110		86	13,070		530		15,180		616
Hanger Inc (a),*	965		35	5,982		219		6,947		254
HeartWare International Inc (a),*	676		49	106,112		7,699		106,788		7,748
Henry Schein Inc (a)	—		—	84,318		9,480		84,318		9,480

COMMON STOCKS (continued)	SmallCap Growth Fund II Shares Held	SmallCap Growth Fund II Value (000's)		SmallCap Growth Fund I Shares Held	SmallCap Growth Fund I Value (000's)		Combined Portfolio Shares Held		Combined Portfolio Value (000's)
Healthcare - Products (continued)
ICU Medical Inc (a),*	490	$	30	3,040	$	188		3,530	$	218
IDEXX Laboratories Inc (a)	—		—	63,798		6,881		63,798		6,881
Insulet Corp (a),*	2,212		86	13,704		535		15,916		621
Integra LifeSciences Holdings Corp (a),*	688		32	4,262		195		4,950		227
LDR Holding Corp (a)	3,800		79	103,862		2,151		107,662		2,230
LipoScience Inc (a)	63,310		314	—		—		63,310		314
Luminex Corp (a),*	1,547		30	9,581		187		11,128		217
MAKO Surgical Corp (a),*	1,737		52	10,761		321		12,498		373
Masimo Corp *	2,013		52	12,467		319		14,480		371
Merge Healthcare Inc (a),*	4,272		11	26,466		67		30,738		78
Meridian Bioscience Inc *	1,747		43	10,819		267		12,566		310
NanoString Technologies Inc (a)	77,733		800	—		—		77,733		800
Natus Medical Inc (a),*	1,174		23	7,285		144		8,459		167
NuVasive Inc (a),*	599		19	3,710		118		4,309		137
NxStage Medical Inc (a),*	2,500		33	15,490		206		17,990		239
PhotoMedex Inc (a),(b),*	283		4	1,748		22		2,031		26
Quidel Corp (a),*	1,198		30	7,423		183		8,621		213
Rochester Medical Corp (a),*	686		14	4,253		85		4,939		99
Sirona Dental Systems Inc (a)	—		—	113,299		8,186		113,299		8,186
Spectranetics Corp (a),*	1,689		35	10,464		219		12,153		254
STAAR Surgical Co (a),*	2,188		29	13,552		179		15,740		208
STERIS Corp *	2,413		109	14,950		676		17,363		785
SurModics Inc (a),*	929		22	5,755		136		6,684		158
TearLab Corp (a),*	1,836		19	288,504		3,009		290,340		3,028
Thoratec Corp (a)	42,897		1,852	14,540		628		57,437		2,480
Utah Medical Products Inc *	218		12	1,358		76		1,576		88
Vascular Solutions Inc (a),*	1,030		20	6,395		125		7,425		145
Volcano Corp (a),*	1,972		38	248,549		4,765		250,521		4,803
West Pharmaceutical Services Inc *	2,830		137	17,542		848		20,372		985
Zeltiq Aesthetics Inc (a),*	1,158		15	7,174		93		8,332		108
		$	7,592		$	72,448			$	80,040
Healthcare - Services - 3.76%
Acadia Healthcare Co Inc (a)	75,667		3,281	334,237		14,493		409,904		17,774
Air Methods Corp *	1,418		62	8,776		384		10,194		446
Alliance HealthCare Services Inc (a),*	123		3	764		19		887		22
Amsurg Corp (a),*	591		25	3,697		159		4,288		184
Bio-Reference Labs Inc (a),*	1,061		34	6,575		213		7,636		247
Capital Senior Living Corp (a),*	1,184		26	7,326		162		8,510		188
Centene Corp (a),*	2,249		126	13,929		782		16,178		908
Covance Inc (a)	—		—	183,171		16,350		183,171		16,350
Emeritus Corp (a),*	1,649		32	10,218		196		11,867		228
Ensign Group Inc/The *	763		33	4,725		201		5,488		234
Gentiva Health Services Inc (a),*	2,006		23	12,428		142		14,434		165
HealthSouth Corp *	2,988		105	18,510		650		21,498		755
Healthways Inc (a),*	1,443		14	8,941		86		10,384		100
ICON PLC (a)	—		—	327,190		13,232		327,190		13,232
IPC The Hospitalist Co Inc (a),*	715		39	90,235		4,944		90,950		4,983
Mednax Inc (a)	—		—	82,286		8,971		82,286		8,971
Molina Healthcare Inc (a),*	1,160		37	7,187		227		8,347		264
Premier Inc (a)	—		—	118,028		3,636		118,028		3,636
Skilled Healthcare Group Inc (a),*	1,158		5	7,183		31		8,341		36
Surgical Care Affiliates Inc (a)	10,750		282	—		—		10,750		282
US Physical Therapy Inc *	787		25	4,884		156		5,671		181
WellCare Health Plans Inc (a)	—		—	116,816		7,789		116,816		7,789
		$	4,152		$	72,823			$	76,975
Holding Companies - Diversified - 0.00%
Horizon Pharma Inc (a),*	1,733		7	10,736		45		12,469		52
Home Builders - 0.49%
Cavco Industries Inc (a),*	395		23	2,452		144		2,847		167
KB Home *	3,022		51	18,722		318		21,744		369
Meritage Homes Corp (a)	38,960		1,768	39,149		1,776		78,109		3,544
Ryland Group Inc/The *	1,928		78	110,545		4,444		112,473		4,522
Standard Pacific Corp (a)	65,916		523	—		—		65,916		523
Taylor Morrison Home Corp (a)	31,689		705	—		—		31,689		705
Winnebago Industries Inc (a),*	1,175		35	7,280		216		8,455		251
		$	3,183		$	6,898			$	10,081
Home Furnishings - 0.70%
American Woodmark Corp (a),*	636		21	3,942		134		4,578		155
Daktronics Inc *	586		7	3,635		43		4,221		50
Harman International Industries Inc	—		—	156,040		12,643		156,040		12,643
iRobot Corp (a),*	1,178		40	7,296		247		8,474		287
La-Z-Boy Inc *	862		20	5,335		123		6,197		143
Select Comfort Corp (a)	31,422		576	13,514		248		44,936		824
TiVo Inc (a),*	2,569		34	15,918		211		18,487		245
Universal Electronics Inc (a),*	92		4	572		22		664		26
		$	702		$	13,671			$	14,373

COMMON STOCKS (continued)	SmallCap Growth Fund II Shares Held	SmallCap Growth Fund II Value (000's)		SmallCap Growth Fund I Shares Held	SmallCap Growth Fund I Value (000's)		Combined Portfolio Shares Held		Combined Portfolio Value (000's)
Housewares - 0.01%
Libbey Inc (a),*	1,371	$	29	8,497	$	181		9,868	$	210
Insurance - 0.34%
American Equity Investment Life Holding Co *	317		7	1,964		41		2,281		48
Amtrust Financial Services Inc	66,634		2,556	6,332		243		72,966		2,799
Crawford & Co *	633		7	3,924		43		4,557		50
Employers Holdings Inc *	901		27	5,576		168		6,477		195
HCI Group Inc *	594		26	3,684		162		4,278		188
Health Insurance Innovations Inc (a)	25,227		306	—		—		25,227		306
Maiden Holdings Ltd *	425		5	2,633		29		3,058		34
MGIC Investment Corp (a),*	6,450		53	39,960		325		46,410		378
Radian Group Inc *	1,719		25	195,345		2,846		197,064		2,871
Third Point Reinsurance Ltd (a),*	452		7	2,799		44		3,251		51
United Fire Group Inc *	107		3	665		21		772		24
		$	3,022		$	3,922			$	6,944
Internet - 6.12%
1-800-Flowers.com Inc (a),*	1,280		7	7,929		43		9,209		50
Bankrate Inc (a)	—		—	153,600		2,587		153,600		2,587
Brightcove Inc (a)	115,530		1,764	—		—		115,530		1,764
BroadSoft Inc (a),*	1,024		33	207,200		6,779		208,224		6,812
ChannelAdvisor Corp (a)	12,480		435	—		—		12,480		435
Cogent Communications Group Inc *	1,932		68	11,965		420		13,897		488
comScore Inc (a),*	1,527		41	60,125		1,607		61,652		1,648
Constant Contact Inc (a),*	1,119		29	6,930		180		8,049		209
Dealertrack Technologies Inc (a),*	1,442		54	348,371		12,994		349,813		13,048
Dice Holdings Inc (a),*	2,591		19	16,050		118		18,641		137
eGain Corp (a),*	827		9	5,123		59		5,950		68
FireEye Inc (a)	9,877		374	80,094		3,032		89,971		3,406
Global Sources Ltd (a),*	185		1	1,149		9		1,334		10
HealthStream Inc (a),*	844		30	5,224		187		6,068		217
HomeAway Inc (a)	76,275		2,261	621,179		18,418		697,454		20,679
IAC/InterActiveCorp	—		—	49,916		2,665		49,916		2,665
Liquidity Services Inc (a),*	907		24	5,616		147		6,523		171
magicJack VocalTec Ltd (a),*	680		8	4,220		48		4,900		56
Move Inc (a),*	1,742		30	10,786		183		12,528		213
NIC Inc *	2,790		69	17,276		425		20,066		494
OpenTable Inc (a),*	975		68	6,039		420		7,014		488
Orbitz Worldwide Inc (a),*	1,554		14	9,633		89		11,187		103
Overstock.com Inc (a),*	760		18	4,714		110		5,474		128
Pandora Media Inc (a)	—		—	514,790		12,936		514,790		12,936
Perficient Inc (a),*	282		5	1,741		32		2,023		37
Reis Inc (a),*	534		10	3,307		59		3,841		69
Responsys Inc (a),*	2,223		36	13,771		225		15,994		261
RetailMeNot Inc (a),*	451		15	2,797		91		3,248		106
RingCentral Inc (a)	—		—	166,859		3,214		166,859		3,214
Saba Software Inc (a)	106,755		1,238	—		—		106,755		1,238
Sapient Corp (a),*	4,723		75	216,440		3,422		221,163		3,497
Shutterfly Inc (a),*	1,583		78	309,762		15,222		311,345		15,300
Shutterstock Inc (a),*	327		23	111,081		7,864		111,408		7,887
SPS Commerce Inc (a),*	547		37	3,394		231		3,941		268
Stamps.com Inc (a),*	834		38	5,164		235		5,998		273
support.com Inc (a),*	3,291		15	20,380		91		23,671		106
Travelzoo Inc (a),*	464		10	2,879		62		3,343		72
Trulia Inc (a),*	1,008		40	203,671		8,140		204,679		8,180
ValueClick Inc (a),*	3,278		63	20,310		390		23,588		453
VASCO Data Security International Inc (a),*	777		6	4,816		36		5,593		42
VirnetX Holding Corp (a),*	1,558		34	9,648		210		11,206		244
Web.com Group Inc (a),*	1,514		41	9,384		253		10,898		294
WebMD Health Corp (a),*	1,173		41	71,061		2,503		72,234		2,544
XO Group Inc (a),*	1,703		24	10,570		147		12,273		171
Yelp Inc (a),*	1,076		73	149,431		10,124		150,507		10,197
Zillow Inc (a),*	847		67	23,152		1,843		23,999		1,910
Zix Corp (a),*	3,972		16	24,542		100		28,514		116
		$	7,341		$	117,950			$	125,291
Investment Companies - 0.00%
Main Street Capital Corp *	168		5	1,042		32		1,210		37
Leisure Products & Services - 0.18%
Arctic Cat Inc *	550		29	3,405		179		3,955		208
Black Diamond Inc (a)	105,805		1,577	—		—		105,805		1,577
Brunswick Corp/DE *	3,656		165	22,650		1,022		26,306		1,187
Interval Leisure Group Inc *	1,692		41	10,112		245		11,804		286
Life Time Fitness Inc (a),*	820		37	5,079		231		5,899		268
Nautilus Inc (a),*	1,988		16	12,315		98		14,303		114
		$	1,865		$	1,775			$	3,640
Lodging - 0.07%
Boyd Gaming Corp (a),*	2,527		27	131,856		1,392		134,383		1,419

COMMON STOCKS (continued)	SmallCap Growth Fund II Shares Held	SmallCap Growth Fund II Value (000's)		SmallCap Growth Fund I Shares Held	SmallCap Growth Fund I Value (000's)		Combined Portfolio Shares Held		Combined Portfolio Value (000's)
Lodging (continued)
Monarch Casino & Resort Inc (a),*	300	$	5	1,859	$	32		2,159	$	37
		$	32		$	1,424			$	1,456
Machinery - Construction & Mining - 0.01%
Hyster-Yale Materials Handling Inc *	440		34	2,728		214		3,168		248
Machinery - Diversified - 2.98%
Albany International Corp *	272		10	1,685		62		1,957		72
Altra Holdings Inc *	1,152		35	7,141		217		8,293		252
Applied Industrial Technologies Inc *	1,623		77	10,049		475		11,672		552
Chart Industries Inc (a),*	5,501		591	143,743		15,448		149,244		16,039
Cognex Corp *	3,747		117	71,606		2,237		75,353		2,354
Columbus McKinnon Corp/NY (a),*	179		5	1,108		29		1,287		34
DXP Enterprises Inc (a),*	397		36	2,456		226		2,853		262
Gorman-Rupp Co/The *	688		28	4,265		174		4,953		202
IDEX Corp	—		—	318,555		22,028		318,555		22,028
Lindsay Corp *	548		42	3,394		258		3,942		300
Middleby Corp/The (a)	15,676		3,568	65,583		14,930		81,259		18,498
Tennant Co *	671		41	4,858		295		5,529		336
		$	4,550		$	56,379			$	60,929
Media - 0.23%
Belo Corp *	2,227		31	13,817		190		16,044		221
Cumulus Media Inc (a),*	3,728		22	23,095		138		26,823		160
Entravision Communications Corp *	3,533		24	21,886		148		25,419		172
Nexstar Broadcasting Group Inc *	1,227		54	7,603		337		8,830		391
Saga Communications Inc *	86		4	534		25		620		29
Sinclair Broadcast Group Inc	97,172		3,116	18,110		581		115,282		3,697
		$	3,251		$	1,419			$	4,670
Metal Fabrication & Hardware - 1.19%
CIRCOR International Inc *	84		6	520		38		604		44
Mueller Industries Inc *	1,176		71	7,286		439		8,462		510
Mueller Water Products Inc - Class A *	6,803		58	42,146		361		48,949		419
Olympic Steel Inc *	149		4	927		26		1,076		30
RBC Bearings Inc (a),*	831		57	128,791		8,860		129,622		8,917
Rexnord Corp (a),*	1,948		46	12,073		284		14,021		330
Sun Hydraulics Corp *	782		31	4,840		192		5,622		223
Valmont Industries Inc	—		—	94,058		13,215		94,058		13,215
Worthington Industries Inc *	2,232		91	13,830		561		16,062		652
		$	364		$	23,976			$	24,340
Mining - 0.04%
AMCOL International Corp *	675		22	4,187		134		4,862		156
Coeur Mining Inc (a),*	2,488		30	15,407		188		17,895		218
Materion Corp *	692		21	4,287		128		4,979		149
United States Lime & Minerals Inc (a),*	109		6	678		38		787		44
US Silica Holdings Inc *	782		27	4,842		168		5,624		195
		$	106		$	656			$	762
Miscellaneous Manufacturing - 2.93%
Actuant Corp	—		—	298,469		11,211		298,469		11,211
AO Smith Corp	—		—	75,500		3,900		75,500		3,900
AZZ Inc *	1,086		49	6,725		302		7,811		351
Carlisle Cos Inc	—		—	172,247		12,519		172,247		12,519
Chase Corp *	129		4	804		24		933		28
CLARCOR Inc *	2,118		124	13,120		767		15,238		891
Colfax Corp (a)	—		—	76,658		4,290		76,658		4,290
EnPro Industries Inc (a),*	651		39	4,038		241		4,689		280
Federal Signal Corp (a),*	2,691		37	16,671		228		19,362		265
GP Strategies Corp (a),*	898		25	5,575		156		6,473		181
Handy & Harman Ltd (a),*	313		7	1,940		45		2,253		52
Hexcel Corp (a)	—		—	525,970		22,254		525,970		22,254
Hillenbrand Inc *	1,987		56	12,303		347		14,290		403
John Bean Technologies Corp *	1,234		34	7,642		208		8,876		242
Koppers Holdings Inc *	860		38	5,327		237		6,187		275
Myers Industries Inc *	238		4	1,479		26		1,717		30
Park-Ohio Holdings Corp (a),*	545		23	3,395		141		3,940		164
Polypore International Inc (a),*	1,687		76	10,452		472		12,139		548
Proto Labs Inc (a),*	727		61	4,506		378		5,233		439
Raven Industries Inc *	1,527		51	9,456		316		10,983		367
Smith & Wesson Holding Corp (a),*	2,833		30	16,622		179		19,455		209
Standex International Corp *	158		10	976		60		1,134		70
Sturm Ruger & Co Inc *	805		53	4,988		326		5,793		379
Trimas Corp (a),*	1,886		71	11,684		442		13,570		513
		$	792		$	59,069			$	59,861
Office & Business Equipment - 0.26%
Pitney Bowes Inc	—		—	244,600		5,220		244,600		5,220
Office Furnishings - 0.59%
Herman Miller Inc *	2,453		74	15,194		461		17,647		535
HNI Corp *	1,833		71	11,354		441		13,187		512

COMMON STOCKS (continued)	SmallCap Growth Fund II Shares Held	SmallCap Growth Fund II Value (000's)		SmallCap Growth Fund I Shares Held	SmallCap Growth Fund I Value (000's)		Combined Portfolio Shares Held		Combined Portfolio Value (000's)
Office Furnishings (continued)
Interface Inc *	2,214	$	45	525,985	$	10,651		528,199	$	10,696
Knoll Inc *	2,061		34	12,763		210		14,824		244
Steelcase Inc *	682		11	4,237		69		4,919		80
		$	235		$	11,832			$	12,067
Oil & Gas - 2.50%
Apco Oil and Gas International Inc (a),*	95		1	588		9		683		10
Approach Resources Inc (a),*	1,245		35	7,711		217		8,956		252
Arabian American Development Co (a),*	1,152		10	7,133		65		8,285		75
Athlon Energy Inc (a)	—		—	16,650		548		16,650		548
Berry Petroleum Co *	683		33	4,225		202		4,908		235
Bill Barrett Corp (a),*	905		25	5,611		155		6,516		180
Bonanza Creek Energy Inc (a),*	1,191		60	7,378		373		8,569		433
Carrizo Oil & Gas Inc (a),*	1,415		62	8,763		384		10,178		446
Delek US Holdings Inc *	1,538		39	9,528		243		11,066		282
Diamondback Energy Inc (a)	54,112		2,795	71,553		3,696		125,665		6,491
Emerald Oil Inc (a)	—		—	331,554		2,885		331,554		2,885
EPL Oil & Gas Inc (a),*	620		20	3,842		123		4,462		143
Evolution Petroleum Corp *	1,086		13	6,729		81		7,815		94
Goodrich Petroleum Corp (a)	13,340		312	35,000		819		48,340		1,131
Gulfport Energy Corp (a)	45,160		2,650	—		—		45,160		2,650
Kodiak Oil & Gas Corp (a),*	10,704		139	66,301		860		77,005		999
Laredo Petroleum Holdings Inc (a)	—		—	332,156		10,552		332,156		10,552
Magnum Hunter Resources Corp (a)	370,214		2,640	—		—		370,214		2,640
Magnum Hunter Resources Corp-Warrants(a),(b),(c)	37,021		—	—		—		37,021		—
Matador Resources Co (a)	—		—	352,378		6,487		352,378		6,487
Oasis Petroleum Inc (a)	—		—	177,302		9,441		177,302		9,441
Panhandle Oil and Gas Inc *	437		15	2,723		91		3,160		106
Rex Energy Corp (a)	82,447		1,772	11,332		244		93,779		2,016
Rosetta Resources Inc (a),*	2,500		150	15,488		928		17,988		1,078
Sanchez Energy Corp (a)	21,070		601	—		—		21,070		601
Synergy Resources Corp (a),*	3,241		34	97,981		1,015		101,222		1,049
Vaalco Energy Inc (a),*	1,867		10	11,562		61		13,429		71
Western Refining Inc *	1,232		40	7,628		246		8,860		286
		$	11,456		$	39,725			$	51,181
Oil & Gas Services - 1.51%
CARBO Ceramics Inc *	347		43	2,153		270		2,500		313
Dril-Quip Inc (a)	—		—	76,145		8,941		76,145		8,941
Edgen Group Inc (a),*	1,093		13	6,775		81		7,868		94
Flotek Industries Inc (a),*	1,981		42	12,267		262		14,248		304
Forum Energy Technologies Inc (a),*	1,286		38	134,821		3,945		136,107		3,983
Geospace Technologies Corp (a),*	530		52	3,274		319		3,804		371
Helix Energy Solutions Group Inc (a)	—		—	401,158		9,491		401,158		9,491
Hornbeck Offshore Services Inc (a),*	123		7	766		42		889		49
ION Geophysical Corp (a),*	1,861		9	11,523		53		13,384		62
Matrix Service Co (a),*	334		7	2,073		43		2,407		50
Newpark Resources Inc (a),*	2,820		36	17,473		223		20,293		259
Oil States International Inc (a)	—		—	54,964		5,971		54,964		5,971
SEACOR Holdings Inc *	108		10	670		66		778		76
Targa Resources Corp *	1,341		104	8,310		645		9,651		749
TGC Industries Inc *	994		7	6,176		45		7,170		52
Thermon Group Holdings Inc (a),*	1,138		27	7,046		166		8,184		193
		$	395		$	30,563			$	30,958
Packaging & Containers - 0.05%
AEP Industries Inc (a),*	278		17	1,723		102		2,001		119
Berry Plastics Group Inc (a),*	2,231		45	13,820		278		16,051		323
Graphic Packaging Holding Co (a),*	8,864		74	54,914		461		63,778		535
		$	136		$	841			$	977
Pharmaceuticals - 4.09%
ACADIA Pharmaceuticals Inc (a),*	2,711		62	16,796		382		19,507		444
AcelRx Pharmaceuticals Inc (a),*	1,492		10	9,244		62		10,736		72
Achillion Pharmaceuticals Inc (a),*	6,315		16	39,106		98		45,421		114
Agios Pharmaceuticals Inc (a),*	382		9	2,368		55		2,750		64
Akorn Inc (a)	144,379		2,951	514,388		10,514		658,767		13,465
Anika Therapeutics Inc (a),*	461		14	2,852		85		3,313		99
Array BioPharma Inc (a),*	7,642		38	47,325		238		54,967		276
Auxilium Pharmaceuticals Inc (a),*	2,088		36	12,940		223		15,028		259
AVANIR Pharmaceuticals Inc (a),*	9,200		37	56,994		231		66,194		268
BioDelivery Sciences International Inc (a),*	1,960		10	12,137		64		14,097		74
BioScrip Inc (a),*	801		6	4,968		35		5,769		41
Cadence Pharmaceuticals Inc (a),*	4,053		20	25,108		124		29,161		144
ChemoCentryx Inc (a),*	1,551		8	9,611		48		11,162		56
Chimerix Inc (a),*	555		8	3,442		52		3,997		60
Clovis Oncology Inc (a),*	659		34	21,525		1,100		22,184		1,134
Corcept Therapeutics Inc (a),*	3,412		6	21,141		36		24,553		42
Cytori Therapeutics Inc (a),*	3,224		7	19,964		41		23,188		48
Depomed Inc (a),*	3,572		26	22,132		159		25,704		185
Dyax Corp (a),*	3,980		33	24,650		203		28,630		236

COMMON STOCKS (continued)	SmallCap Growth Fund II Shares Held	SmallCap Growth Fund II Value (000's)		SmallCap Growth Fund I Shares Held	SmallCap Growth Fund I Value (000's)		Combined Portfolio Shares Held		Combined Portfolio Value (000's)
Pharmaceuticals (continued)
Enanta Pharmaceuticals Inc (a),*	232	$	5	1,438	$	29		1,670	$	34
Endocyte Inc (a),*	1,983		21	12,281		128		14,264		149
Furiex Pharmaceuticals Inc (a),*	420		16	2,601		102		3,021		118
Hi-Tech Pharmacal Co Inc *	267		11	1,662		72		1,929		83
Hyperion Therapeutics Inc (a),*	535		11	61,484		1,231		62,019		1,242
Idenix Pharmaceuticals Inc (a),*	5,749		19	35,600		117		41,349		136
Infinity Pharmaceuticals Inc (a)	41,086		557	10,821		147		51,907		704
Insys Therapeutics Inc (a)	47,684		1,902	1,997		80		49,681		1,982
Ironwood Pharmaceuticals Inc (a),*	3,395		33	21,028		202		24,423		235
Isis Pharmaceuticals Inc (a)	49,998		1,663	224,881		7,482		274,879		9,145
Jazz Pharmaceuticals PLC (a)	8,810		799	111,190		10,089		120,000		10,888
Keryx Biopharmaceuticals Inc (a),*	3,528		36	21,860		226		25,388		262
Lannett Co Inc (a),*	1,046		25	6,480		153		7,526		178
MannKind Corp (a),*	6,146		30	38,077		186		44,223		216
Natural Grocers by Vitamin Cottage Inc (a)	—		—	17,622		703		17,622		703
Nektar Therapeutics (a),*	2,905		28	17,996		171		20,901		199
Neogen Corp (a),*	1,484		68	9,183		424		10,667		492
Neurocrine Biosciences Inc (a),*	2,793		26	17,306		163		20,099		189
Omnicare Inc	—		—	58,064		3,202		58,064		3,202
Opko Health Inc (a),*	6,883		69	42,618		427		49,501		496
Orexigen Therapeutics Inc (a),*	6,188		30	38,317		187		44,505		217
Pacira Pharmaceuticals Inc/DE (a),*	1,006		51	284,947		14,393		285,953		14,444
Pharmacyclics Inc (a)	—		—	27,240		3,232		27,240		3,232
Portola Pharmaceuticals Inc (a)	39,878		883	3,922		87		43,800		970
Progenics Pharmaceuticals Inc (a),*	3,055		11	18,925		69		21,980		80
Questcor Pharmaceuticals Inc *	2,144		132	13,278		815		15,422		947
Raptor Pharmaceutical Corp (a),*	2,171		31	13,453		193		15,624		224
Regulus Therapeutics Inc (a),*	668		5	4,139		29		4,807		34
Repros Therapeutics Inc (a)	—		—	153,400		2,767		153,400		2,767
Sagent Pharmaceuticals Inc (a),*	1,069		23	6,622		144		7,691		167
Santarus Inc (a),*	2,274		53	14,087		329		16,361		382
Sarepta Therapeutics Inc (a)	45,672		1,779	8,092		315		53,764		2,094
Sciclone Pharmaceuticals Inc (a),*	2,534		12	15,692		74		18,226		86
SIGA Technologies Inc (a),*	2,283		8	14,139		48		16,422		56
Sucampo Pharmaceuticals Inc (a),*	801		5	4,975		31		5,776		36
Synageva BioPharma Corp (a)	19,812		1,007	61,715		3,135		81,527		4,142
TESARO Inc (a)	—		—	122,121		4,701		122,121		4,701
TG Therapeutics Inc (a),*	979		3	6,065		22		7,044		25
Threshold Pharmaceuticals Inc (a),*	3,014		13	18,676		81		21,690		94
USANA Health Sciences Inc (a),*	380		26	2,351		160		2,731		186
Vanda Pharmaceuticals Inc (a),*	2,099		15	13,002		93		15,101		108
ViroPharma Inc (a),*	2,384		92	14,763		573		17,147		665
Vivus Inc (a),*	3,764		35	23,320		219		27,084		254
		$	12,864		$	70,781			$	83,645
Pipelines - 0.07%
Crosstex Energy Inc *	1,784		55	11,026		338		12,810		393
Primoris Services Corp *	1,503		39	9,314		243		10,817		282
SemGroup Corp *	1,584		96	9,813		593		11,397		689
		$	190		$	1,174			$	1,364
Private Equity - 0.09%
GSV Capital Corp (a)	120,166		1,837	—		—		120,166		1,837
Real Estate - 0.01%
HFF Inc *	1,146		28	7,101		174		8,247		202
Kennedy-Wilson Holdings Inc *	360		7	2,233		45		2,593		52
		$	35		$	219			$	254
REITS - 0.36%
Alexander's Inc *	88		28	542		174		630		202
CoreSite Realty Corp *	847		28	5,250		170		6,097		198
DuPont Fabros Technology Inc *	982		25	6,078		151		7,060		176
EastGroup Properties Inc *	1,196		76	7,407		471		8,603		547
Geo Group Inc/The *	1,280		45	7,929		280		9,209		325
Glimcher Realty Trust	73,145		749	33,445		343		106,590		1,092
Healthcare Realty Trust Inc *	1,573		38	9,748		234		11,321		272
Highwoods Properties Inc *	1,172		45	7,261		280		8,433		325
Inland Real Estate Corp *	3,017		32	18,694		200		21,711		232
Investors Real Estate Trust *	349		3	2,164		19		2,513		22
LTC Properties Inc *	1,230		49	7,624		301		8,854		350
National Health Investors Inc *	1,038		65	6,432		402		7,470		467
Potlatch Corp *	1,477		60	9,140		373		10,617		433
PS Business Parks Inc *	770		63	4,772		389		5,542		452
Ryman Hospitality Properties Inc *	1,190		44	7,374		272		8,564		316
Sabra Health Care REIT Inc *	989		27	6,130		165		7,119		192
Saul Centers Inc *	506		24	3,140		148		3,646		172
Sovran Self Storage Inc *	1,211		93	7,507		574		8,718		667
Strategic Hotels & Resorts Inc (a),*	5,548		48	34,365		299		39,913		347
Sun Communities Inc *	1,305		58	8,081		360		9,386		418

COMMON STOCKS (continued)	SmallCap Growth Fund II Shares Held	SmallCap Growth Fund II Value (000's)		SmallCap Growth Fund I Shares Held	SmallCap Growth Fund I Value (000's)		Combined Portfolio Shares Held		Combined Portfolio Value (000's)
REITS (continued)
Urstadt Biddle Properties Inc *	1,234	$	24	7,641	$	151		8,875	$	175
		$	1,624		$	5,756			$	7,380
Retail - 8.32%
Aeropostale Inc (a),*	2,857		27	17,696		164		20,553		191
AFC Enterprises Inc (a),*	1,021		46	6,321		282		7,342		328
ANN Inc (a),*	2,016		71	159,859		5,653		161,875		5,724
Asbury Automotive Group Inc (a),*	1,145		55	7,096		341		8,241		396
Big 5 Sporting Goods Corp *	1,077		20	6,671		126		7,748		146
BJ's Restaurants Inc (a),*	890		24	190,863		5,165		191,753		5,189
Bloomin' Brands Inc (a),*	2,312		58	14,324		359		16,636		417
Bravo Brio Restaurant Group Inc (a),*	1,190		18	7,373		110		8,563		128
Brown Shoe Co Inc *	1,711		38	10,602		238		12,313		276
Buckle Inc/The *	1,188		58	7,359		360		8,547		418
Buffalo Wild Wings Inc (a),*	690		98	34,943		4,983		35,633		5,081
Burlington Stores Inc (a)	—		—	36,300		972		36,300		972
Cabela's Inc (a)	—		—	136,610		8,104		136,610		8,104
Casey's General Stores Inc *	1,671		122	10,356		755		12,027		877
CEC Entertainment Inc *	779		36	4,574		212		5,353		248
Cheesecake Factory Inc/The *	2,278		108	14,112		667		16,390		775
Children's Place Retail Stores Inc/The (a),*	504		27	3,119		170		3,623		197
Christopher & Banks Corp (a)	115,940		669	—		—		115,940		669
Chuy's Holdings Inc (a)	29,059		1,093	22,715		854		51,774		1,947
Conn's Inc (a),*	812		49	275,836		16,672		276,648		16,721
Cracker Barrel Old Country Store Inc *	839		92	5,198		571		6,037		663
Denny's Corp (a),*	4,484		28	27,774		176		32,258		204
Destination Maternity Corp *	778		24	4,824		151		5,602		175
Dick's Sporting Goods Inc	—		—	140,349		7,468		140,349		7,468
DineEquity Inc *	553		45	3,425		281		3,978		326
Diversified Restaurant Holdings Inc (a)	50,864		351	—		—		50,864		351
DSW Inc	—		—	26,326		2,308		26,326		2,308
Express Inc (a),*	3,646		85	108,188		2,511		111,834		2,596
Fiesta Restaurant Group Inc (a),*	722		31	4,467		189		5,189		220
Fifth & Pacific Cos Inc (a)	78,710		2,085	—		—		78,710		2,085
Finish Line Inc/The *	1,102		28	6,825		171		7,927		199
First Cash Financial Services Inc (a),*	1,214		73	7,519		455		8,733		528
Five Below Inc (a)	34,552		1,668	309,898		14,957		344,450		16,625
Francesca's Holdings Corp (a)	31,196		561	11,421		205		42,617		766
Genesco Inc (a),*	725		49	4,486		306		5,211		355
Haverty Furniture Cos Inc *	299		8	1,856		52		2,155		60
Hibbett Sports Inc (a),*	1,110		65	174,560		10,182		175,670		10,247
HSN Inc *	1,417		74	8,776		460		10,193		534
Jack in the Box Inc (a)	35,934		1,462	9,393		382		45,327		1,844
Kirkland's Inc (a),*	632		11	3,916		70		4,548		81
Krispy Kreme Doughnuts Inc (a),*	2,737		66	121,657		2,951		124,394		3,017
Lithia Motors Inc	17,235		1,083	5,749		361		22,984		1,444
Lumber Liquidators Holdings Inc (a)	15,453		1,765	158,760		18,129		174,213		19,894
Nathan's Famous Inc (a),*	173		9	1,077		55		1,250		64
New York & Co Inc (a),*	1,114		6	6,903		35		8,017		41
Office Depot Inc (a),*	3,941		22	24,418		136		28,359		158
Papa John's International Inc *	672		51	4,156		314		4,828		365
Penske Automotive Group Inc	33,639		1,333	3,742		148		37,381		1,481
PetMed Express Inc *	1,285		19	7,960		118		9,245		137
Pier 1 Imports Inc *	4,050		85	25,090		524		29,140		609
PriceSmart Inc *	692		79	103,858		11,818		104,550		11,897
Red Robin Gourmet Burgers Inc (a)	24,393		1,858	23,087		1,759		47,480		3,617
Restoration Hardware Holdings Inc (a)	12,563		877	225,624		15,735		238,187		16,612
Rite Aid Corp (a),*	19,201		102	118,946		634		138,147		736
Ruth's Hospitality Group Inc *	2,291		28	14,219		173		16,510		201
Sears Hometown and Outlet Stores Inc (a),*	358		10	2,222		62		2,580		72
Sonic Corp (a),*	1,990		38	12,328		238		14,318		276
Stage Stores Inc	—		—	153,470		3,169		153,470		3,169
Stein Mart Inc *	939		14	5,821		86		6,760		100
Susser Holdings Corp (a),*	652		36	115,912		6,356		116,564		6,392
Texas Roadhouse Inc *	2,674		73	16,557		454		19,231		527
Tile Shop Holdings Inc (a)	61,398		1,371	—		—		61,398		1,371
Tilly's Inc (a)	45,685		665	—		—		45,685		665
Vera Bradley Inc (a),*	1,342		30	8,317		184		9,659		214
Vitamin Shoppe Inc (a),*	1,285		60	7,963		374		9,248		434
Zumiez Inc (a),*	1,347		40	8,346		247		9,693		287
		$	19,077		$	151,142			$	170,219
Savings & Loans - 0.06%
B of I Holding Inc (a),*	522		32	3,235		195		3,757		227
Northfield Bancorp Inc/NJ *	862		11	5,342		69		6,204		80
Oritani Financial Corp *	894		14	5,535		90		6,429		104
Pacific Premier Bancorp Inc (a)	47,772		665	—		—		47,772		665
Roma Financial Corp (a),*	415		8	2,573		50		2,988		58
		$	730		$	404			$	1,134

COMMON STOCKS (continued)	SmallCap Growth Fund II Shares Held	SmallCap Growth Fund II Value (000's)		SmallCap Growth Fund I Shares Held	SmallCap Growth Fund I Value (000's)		Combined Portfolio Shares Held		Combined Portfolio Value (000's)
Semiconductors - 2.56%
Ambarella Inc (a),*	1,209	$	25	7,491	$	154		8,700	$	179
Applied Micro Circuits Corp (a),*	2,660		31	585,857		6,831		588,517		6,862
Cabot Microelectronics Corp (a),*	1,003		41	6,211		254		7,214		295
Cavium Inc (a)	34,441		1,388	382,503		15,418		416,944		16,806
Cirrus Logic Inc (a),*	1,649		37	10,214		229		11,863		266
Cypress Semiconductor Corp (a),*	5,319		49	32,950		306		38,269		355
Diodes Inc (a),*	1,191		29	7,380		179		8,571		208
Entegris Inc (a),*	1,339		14	8,294		86		9,633		100
Exar Corp (a),*	2,420		28	14,995		173		17,415		201
GT Advanced Technologies Inc (a),*	3,653		27	22,632		170		26,285		197
Hittite Microwave Corp (a),*	1,359		87	8,415		538		9,774		625
Inphi Corp (a)	71,195		1,050	—		—		71,195		1,050
Lattice Semiconductor Corp (a),*	1,951		10	12,086		62		14,037		72
Microsemi Corp (a)	24,447		614	19,019		478		43,466		1,092
Monolithic Power Systems Inc *	1,338		43	8,289		264		9,627		307
OmniVision Technologies Inc (a),*	305		4	1,894		27		2,199		31
PMC - Sierra Inc (a),*	5,580		33	34,571		203		40,151		236
Power Integrations Inc *	1,055		61	162,659		9,343		163,714		9,404
Rambus Inc (a),*	4,038		35	25,017		219		29,055		254
Semtech Corp (a),*	2,861		89	17,722		551		20,583		640
Silicon Image Inc (a),*	4,966		26	30,764		162		35,730		188
SunEdison Inc (a),*	9,715		90	60,161		559		69,876		649
Teradyne Inc (a)	—		—	443,180		7,751		443,180		7,751
Ultratech Inc (a),*	1,163		28	7,206		171		8,369		199
Veeco Instruments Inc (a),*	555		16	151,619		4,428		152,174		4,444
		$	3,855		$	48,556			$	52,411
Software - 12.01%
Accelrys Inc (a)	—		—	873,849		8,170		873,849		8,170
ACI Worldwide Inc (a),*	1,450		80	8,982		495		10,432		575
Acxiom Corp (a),*	1,193		40	52,777		1,754		53,970		1,794
Advent Software Inc *	1,424		48	8,822		296		10,246		344
American Software Inc/Georgia *	1,570		14	9,733		85		11,303		99
Aspen Technology Inc (a),*	3,818		146	295,793		11,308		299,611		11,454
athenahealth Inc (a),*	1,517		203	9,400		1,255		10,917		1,458
AVG Technologies NV (a),*	1,533		31	9,501		191		11,034		222
Blackbaud Inc *	1,973		71	12,223		440		14,196		511
Bottomline Technologies de Inc (a),*	1,377		43	8,528		268		9,905		311
Broadridge Financial Solutions Inc	—		—	414,859		14,586		414,859		14,586
CommVault Systems Inc (a),*	2,028		158	161,375		12,600		163,403		12,758
Computer Programs & Systems Inc *	464		26	2,874		164		3,338		190
Concur Technologies Inc (a)	—		—	54,107		5,660		54,107		5,660
Cornerstone OnDemand Inc (a)	25,563		1,211	142,492		6,750		168,055		7,961
CSG Systems International Inc *	1,174		33	7,272		203		8,446		236
Cvent Inc (a),*	310		10	40,165		1,244		40,475		1,254
Demandware Inc (a),*	581		29	222,525		11,004		223,106		11,033
E2open Inc (a)	—		—	105,457		2,373		105,457		2,373
Ebix Inc *	1,382		16	8,561		97		9,943		113
Envestnet Inc (a),*	977		35	179,253		6,507		180,230		6,542
EPAM Systems Inc (a)	79,090		2,963	30,451		1,141		109,541		4,104
Fair Isaac Corp *	1,551		89	134,609		7,710		136,160		7,799
Guidewire Software Inc (a)	23,326		1,183	274,657		13,930		297,983		15,113
Imperva Inc (a)	44,399		1,702	5,387		206		49,786		1,908
Infoblox Inc (a)	80,582		3,582	97,960		4,354		178,542		7,936
Informatica Corp (a)	—		—	328,752		12,690		328,752		12,690
Interactive Intelligence Group Inc (a),*	669		41	347,417		21,349		348,086		21,390
Jive Software Inc (a)	100,674		1,096	—		—		100,674		1,096
MedAssets Inc (a),*	2,493		57	15,444		356		17,937		413
Medidata Solutions Inc (a),*	1,100		121	18,138		2,001		19,238		2,122
MicroStrategy Inc (a),*	331		40	2,040		249		2,371		289
Monotype Imaging Holdings Inc *	1,653		47	10,240		289		11,893		336
Omnicell Inc (a)	38,135		880	7,753		179		45,888		1,059
PDF Solutions Inc (a)	33,479		769	10,174		234		43,653		1,003
Pegasystems Inc *	757		29	322,924		12,291		323,681		12,320
Progress Software Corp (a),*	1,181		31	7,317		190		8,498		221
Proofpoint Inc (a)	60,751		1,922	86,597		2,740		147,348		4,662
PROS Holdings Inc (a),*	945		33	5,855		207		6,800		240
PTC Inc (a),*	4,354		121	464,549		12,878		468,903		12,999
QAD Inc *	420		6	2,608		39		3,028		45
Qlik Technologies Inc (a)	76,510		1,939	23,215		588		99,725		2,527
Quality Systems Inc *	1,707		39	10,578		241		12,285		280
Rally Software Development Corp (a)	46,570		1,249	—		—		46,570		1,249
RealPage Inc (a),*	1,698		42	10,518		258		12,216		300
Rosetta Stone Inc (a),*	742		11	4,598		70		5,340		81
SS&C Technologies Holdings Inc (a),*	2,506		98	319,572		12,559		322,078		12,657
Synchronoss Technologies Inc (a),*	1,063		37	6,581		228		7,644		265
Tableau Software Inc (a)	—		—	50,050		3,076		50,050		3,076
Take-Two Interactive Software Inc (a),*	2,952		53	18,289		327		21,241		380

COMMON STOCKS (continued)	SmallCap Growth Fund II Shares Held	SmallCap Growth Fund II Value (000's)		SmallCap Growth Fund I Shares Held	SmallCap Growth Fund I Value (000's)		Combined Portfolio Shares Held		Combined Portfolio Value (000's)
Software (continued)
Tangoe Inc (a),*	1,335	$	25	8,266	$	158		9,601	$	183
Tyler Technologies Inc (a),*	1,362		132	8,438		816		9,800		948
Ultimate Software Group Inc/The (a)	17,973		2,777	161,176		24,899		179,149		27,676
Veeva Systems Inc (a)	5,000		195	—		—		5,000		195
Verint Systems Inc (a),*	2,299		84	14,241		520		16,540		604
		$	23,587		$	222,223			$	245,810
Storage & Warehousing - 0.15%
Mobile Mini Inc (a)	—		—	36,900		1,333		36,900		1,333
Wesco Aircraft Holdings Inc (a)	96,033		1,759	3,608		66		99,641		1,825
		$	1,759		$	1,399			$	3,158
Telecommunications - 3.19%
8x8 Inc (a)	198,959		2,280	16,266		186		215,225		2,466
ADTRAN Inc *	1,637		38	10,144		238		11,781		276
Alliance Fiber Optic Products Inc *	736		14	4,567		85		5,303		99
Anaren Inc (a),*	122		3	758		19		880		22
Anixter International Inc (a),*	672		57	4,157		355		4,829		412
ARRIS Group Inc (a),*	4,360		78	27,008		482		31,368		560
Aruba Networks Inc (a)	63,595		1,193	25,724		483		89,319		1,676
Atlantic Tele-Network Inc *	584		32	3,631		201		4,215		233
CalAmp Corp (a)	80,438		1,893	7,910		186		88,348		2,079
Ciena Corp (a)	80,499		1,873	541,423		12,599		621,922		14,472
Cincinnati Bell Inc (a),*	4,619		13	28,654		82		33,273		95
Comverse Inc (a),*	800		25	4,964		157		5,764		182
Consolidated Communications Holdings Inc *	1,739		32	10,784		201		12,523		233
Cyan Inc (a)	75,953		358	—		—		75,953		358
DigitalGlobe Inc (a)	—		—	325,705		10,364		325,705		10,364
EXFO Inc (a),(b)	—		—	524,061		2,930		524,061		2,930
Fairpoint Communications Inc (a),*	1,160		11	7,187		67		8,347		78
General Communication Inc (a),*	2,009		19	12,442		118		14,451		137
Gigamon Inc (a)	34,648		1,067	1,134		35		35,782		1,102
HickoryTech Corp *	798		11	4,938		66		5,736		77
IDT Corp - Class B *	946		21	5,864		128		6,810		149
Infinera Corp (a),*	3,780		39	873,282		8,916		877,062		8,955
Inteliquent Inc *	821		10	5,085		65		5,906		75
InterDigital Inc/PA *	1,773		69	10,983		426		12,756		495
IPG Photonics Corp	24,237		1,606	7,395		490		31,632		2,096
Ixia (a)	117,178		1,661	15,067		214		132,245		1,875
KVH Industries Inc (a),*	845		12	5,237		72		6,082		84
LogMeIn Inc (a),*	885		29	212,303		6,857		213,188		6,886
Loral Space & Communications Inc *	473		34	2,935		210		3,408		244
Lumos Networks Corp *	911		20	5,662		125		6,573		145
Neonode Inc (a)	70,730		383	—		—		70,730		383
NTELOS Holdings Corp *	994		19	6,163		117		7,157		136
Plantronics Inc *	1,687		72	10,455		449		12,142		521
Premiere Global Services Inc (a),*	752		7	4,666		42		5,418		49
RF Micro Devices Inc (a),*	8,965		47	55,508		292		64,473		339
RigNet Inc (a),*	749		28	4,638		171		5,387		199
Ruckus Wireless Inc (a),*	1,583		23	9,809		142		11,392		165
Shenandoah Telecommunications Co *	1,387		38	8,595		238		9,982		276
Sonus Networks Inc (a)	—		—	550,094		1,650		550,094		1,650
Tessco Technologies Inc *	24		1	154		6		178		7
Ubiquiti Networks Inc *	804		31	4,983		192		5,787		223
ViaSat Inc (a),*	1,443		95	35,086		2,320		36,529		2,415
West Corp *	918		20	5,689		125		6,607		145
		$	13,262		$	52,101			$	65,363
Textiles - 0.02%
Culp Inc *	457		9	2,836		55		3,293		64
G&K Services Inc *	210		13	1,303		81		1,513		94
UniFirst Corp/MA *	338		35	2,097		216		2,435		251
		$	57		$	352			$	409
Transportation - 3.25%
Echo Global Logistics Inc (a),*	1,125		21	6,970		128		8,095		149
Forward Air Corp *	1,267		51	7,847		318		9,114		369
Genesee & Wyoming Inc (a)	—		—	123,922		12,372		123,922		12,372
Heartland Express Inc *	2,232		32	13,824		199		16,056		231
HUB Group Inc (a),*	1,577		58	9,766		359		11,343		417
Kirby Corp (a)	—		—	154,304		13,654		154,304		13,654
Knight Transportation Inc *	2,507		43	557,897		9,468		560,404		9,511
Landstar System Inc	—		—	152,999		8,459		152,999		8,459
Matson Inc *	1,785		48	11,060		300		12,845		348
PHI Inc (a),*	69		3	430		17		499		20
Roadrunner Transportation Systems Inc (a)	110,783		2,936	280,157		7,424		390,940		10,360
Saia Inc (a),*	1,015		33	6,293		205		7,308		238
Swift Transportation Co (a),*	3,597		78	22,286		486		25,883		564
Universal Truckload Services Inc *	345		9	2,140		57		2,485		66
UTI Worldwide Inc *	2,340		36	629,636		9,570		631,976		9,606
Werner Enterprises Inc *	818		19	5,066		117		5,884		136

COMMON STOCKS (continued)	SmallCap Growth Fund II Shares Held	SmallCap Growth Fund II Value (000's)		SmallCap Growth Fund I Shares Held	SmallCap Growth Fund I Value (000's)		Combined Portfolio Shares Held		Combined Portfolio Value (000's)
Transportation (continued)
YRC Worldwide Inc (a),*	140		1	867		8		1,007		9
		$	3,368		$	63,141			$	66,509
Trucking & Leasing - 0.01%
TAL International Group Inc *	577			3,571		173		4,148		201
Water - 0.01%
American States Water Co *	256		7	1,598		46		1,854		53
SJW Corp *	283		8	1,760		50		2,043		58
York Water Co *	642		14	3,979		82		4,621		96
		$	29		$	178			$	207
TOTAL COMMON STOCKS		$	201,324		$	1,741,666			$	1,942,990

REPURCHASE AGREEMENTS - 5.33%	SmallCap Growth Fund II Maturity Amount (000's)		SmallCap Growth Fund II Value (000's)		SmallCap Growth Fund I Maturity Amount (000's)		SmallCap Growth Fund I Value (000's)			Combined Portfolio Maturity Amount (000's)		Combined Portfolio Value (000's)
Banks - 5.33%
Investment in Joint Trading Account; Barclays Bank PLC Repurchase Agreement; 0.07% dated 10/31/2013 maturing 11/01/2013 (collateralized by US Government Securities;   $26,497,473; 0.25% - 2.63%; dated 06/30/15 - 08/15/20)	$	2,440	$	2,440	$	23,539	$	23,539		$	25,979	$	25,979
Investment in Joint Trading Account; Credit Suisse Repurchase Agreement; 0.08% dated 10/31/2013 maturing 11/01/2013 (collateralized by US Government Securities;   $19,873,103; 0.00%; dated 08/15/16 - 08/15/37)		1,830		1,830		17,654		17,653			19,484		19,483
Investment in Joint Trading Account; Deutsche Bank Repurchase Agreement; 0.11% dated 10/31/2013 maturing 11/01/2013 (collateralized by US Government Securities;   $44,162,454; 0.00% - 5.50%; dated 12/27/13 - 07/15/36)		4,066		4,066		39,231		39,231			43,297		43,297
Investment in Joint Trading Account; Merrill Lynch Repurchase Agreement; 0.09% dated 10/31/2013 maturing 11/01/2013 (collateralized by US Government Securities;   $20,666,174; 0.00% - 7.13%; dated 03/15/14 - 01/15/48)		1,903		1,903		18,358		18,357			20,261		20,260
			$	10,239			$	98,780				$	109,019
TOTAL REPURCHASE AGREEMENTS			$	10,239			$	98,780				$	109,019
Total Investments			$	211,563			$	1,840,446				$	2,052,009
Liabilities in Excess of Other Assets, Net -- (0.30%)			$	362				(6,407	)				(6,045	)
TOTAL NET ASSETS -- 100.00%			$	211,925			$	1,834,039				$	2,045,964

(a)	Non-Income Producing Security
*	The security or a portion of the security will be disposed of in order to meet the investment objectives and strategies of the Acquiring Fund.
(b)	Security is Illiquid
(c)	Fair value of these investments is determined in good faith by the Manager under procedures established and periodically reviewed by the Board of Directors. At the end of the period, the fair value of these securities totaled $0 or 0.00% of net assets.

Portfolio Summary  (unaudited)
Sector	SmallCap Growth Fund II		SmallCap Growth Fund I			Combined Portfolio
Consumer, Non-cyclical	22.08	%	29.30		%	28.58		%
Consumer, Cyclical	20.33	%	13.05		%	13.78		%
Technology	14.03	%	16.80		%	16.51		%
Industrial	11.45	%	15.97		%	15.51		%
Financial	13.92	%	10.05		%	10.46		%
Communications	11.26	%	9.54		%	9.72		%
Energy	5.71	%	3.96		%	4.13		%
Basic Materials	1.02	%	1.65		%	1.59		%
Utilities	0.03	%	0.03		%	0.02		%
Diversified	0.00	%	0.00		%	0.00		%
Liabilities in Excess of Other Assets, Net	0.17	%	(0.35	)	%	(0.30	)	%
TOTAL NET ASSETS	100.00	%	100.00		%	100.00		%

Combined Futures Contracts
Type	Long/Short	Contracts	Notional Value	Fair Value	Unrealized Appreciation/Depreciation
Russell 2000 Mini; December 2013	Long	1,044	$111,883	$114,610	$2,727
Total					$2,727
Amounts in thousand except contracts

Pro Forma Notes to Financial Statements

October 31, 2013

(unaudited)

1. Description of the Funds

SmallCap Growth Fund II and SmallCap Growth Fund I are series of Principal Funds, Inc. (the “Fund”). The Fund is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.

2. Basis of Combination

On December 10, 2013, the Board of Directors of Principal Funds, Inc., SmallCap Growth Fund II approved an Agreement and Plan of Reorganization (the “Reorganization”) whereby, SmallCap Growth Fund I will acquire all the assets of SmallCap Growth Fund II subject to the liabilities of such fund, in exchange for a number of shares equal to the pro rata net assets of SmallCap Growth Fund I.

The Reorganization will be accounted for as a tax-free reorganization of investment companies. The pro forma combined financial statements are presented for the information of the reader and may not necessarily be representative of what the actual combined financial statements would have been had the Reorganization occurred at October 31, 2013. The unaudited pro forma schedules of investments and statements of assets and liabilities reflect the financial position of SmallCap Growth Fund II and SmallCap Growth Fund I at October 31, 2013. The unaudited pro forma statements of operations reflect the results of operations of SmallCap Growth Fund II and SmallCap Growth Fund I for the twelve months ended October 31, 2013. The statements have been derived from the Funds’ respective books and records utilized in calculating daily net asset value at the dates indicated above for SmallCap Growth Fund II and SmallCap Growth Fund I under U.S. generally accepted accounting principles. The historical cost of investment securities will be carried forward to the surviving entity and results of operations of SmallCap Growth Fund I for pre-combination periods will not be restated.

Principal Management Corporation (the “Manager”) will pay all expenses and out-of-pocket fees incurred in connection with the Reorganization, including printing, mailing, and legal fees. These expenses and fees are expected to total $25,000. SmallCap Growth Fund II will pay any trading costs associated with disposing of any portfolio securities that would not be compatible with the investment objectives and strategies of SmallCap Growth Fund I and reinvesting the proceeds in securities that would be compatible. These trading costs are estimated to be $29,000 for SmallCap Growth Fund II. The estimated gain would be $7,597,000 ($0.48 per share) for SmallCap Growth Fund II on a U.S. GAAP basis.

The pro forma schedules of investments and statements of assets and liabilities and operations should be read in conjunction with the historical financial statements of the Funds incorporated by reference in the Statements of Additional Information.

3. Significant Accounting Policies

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following summarizes the significant accounting policies of the Funds:

Security Valuation. SmallCap Growth Fund II and SmallCap Growth Fund I (the Funds) value securities for which market quotations are readily available at market value, which is determined using the last reported sale price. If no sales are reported, as is regularly the case for some securities traded over-the-counter, securities are valued using the last reported bid price or an evaluated bid price provided by a pricing service. Pricing services use modeling techniques that incorporate security characteristics, market conditions and dealer-supplied valuations to determine an evaluated bid price. When reliable market quotations are not considered to be readily available, which may be the case, for example, with respect to restricted securities, certain debt securities, preferred stocks, and foreign securities, the investments are valued at their fair value as determined in good faith by the Manager under procedures established and periodically reviewed by the Fund’s Board of Directors.

Short-term securities purchased with less than 60 days until maturity are valued at amortized cost, which approximates fair value. Other publically traded investment funds are valued at the funds’ net asset value. Under the amortized cost method, a security is valued by applying a constant yield to maturity of the difference between the principal amount due at maturity and the cost of the security to the Funds.

Pro Forma Notes to Financial Statements

October 31, 2013

(unaudited)

3. Significant Accounting Policies (Continued)

Income and Investment Transactions. The Funds record investment transactions on a trade date basis. Trade date for senior floating rate interests purchased in the primary market is considered the date on which the loan allocations are determined. Trade date for senior floating rate interests purchased in the secondary market is the date on which the transaction is entered into. The identified cost basis has been used in determining the net realized gain or loss from investment transactions and unrealized appreciation or depreciation of investments. The Funds record dividend income on the ex-dividend date, except dividend income from foreign securities whereby the ex-dividend date has passed; such dividends are recorded as soon as the Funds are informed of the ex-dividend date. Interest income is recognized on an accrual basis. Discounts and premiums on securities are accreted/amortized over the lives of the respective securities. The Funds allocate daily all income and realized and unrealized gains or losses to each class of shares based upon the relative proportion of the value of shares outstanding of each class.

Expenses. Expenses directly attributed to a particular fund are charged to that fund. Other expenses not directly attributed to a particular fund are apportioned among the registered investment companies managed by the Manager.

Management fees are allocated daily to each class of shares based upon the relative proportion of the value of shares outstanding of each class. Expenses specifically attributable to a particular class are charged directly to such class and are included separately in the statements of operations.

Distributions to Shareholders. Dividends and distributions to shareholders of the Funds are recorded on the ex-dividend date. Dividends and distributions to shareholders from net investment income and net realized gain from investments and foreign currency transactions are determined in accordance with federal tax regulations, which may differ from U.S. generally accepted accounting principles. These differences are primarily due to differing treatments for net operating losses, foreign currency transactions, futures contracts, certain defaulted securities, sales of Passive Foreign Investment Companies, losses deferred due to wash sales, tax straddles, mortgage-backed securities, certain preferred securities, swap agreements, and limitations imposed by Sections 381-384 of the Internal Revenue Code. Permanent book and tax basis differences are reclassified within the capital accounts based on federal tax-basis treatment; temporary differences do not require reclassification. To the extent dividends and distributions exceed current and accumulated earnings and profits for federal income tax purposes, they are reported as return of capital distributions.

Federal Income Taxes. No provision for federal income taxes is considered necessary because each of the Funds intends to qualify as a “regulated investment company” under the Internal Revenue Code and intends to distribute each year substantially all of its net investment income and realized capital gains to shareholders.

The Funds evaluate tax positions taken or expected to be taken in the course of preparing the Funds’ tax returns to determine whether it is “more likely than not” that each tax position would be sustained upon examination by a taxing authority based on the technical merits of the position. Tax positions not deemed to meet the more likely than not threshold would be recorded as a tax benefit or expense in the current year. During the year ended October 31, 2013, the Funds did not record any such tax benefit or expense in the accompanying financial statements. The statute of limitations remains open for the fiscal years from 2010-2013. No examinations are in progress at this time.

4. Operating Policies

Borrowings. Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Funds and other registered investment companies managed by the Manager may participate in an interfund lending facility (“Facility”). The Facility allows the Funds to borrow money from or loan money to the other participants. Loans under the Facility are made to handle unusual and/or unanticipated short-term cash requirements. Interest paid and received on borrowings is the average of the current repurchase agreement rate and the bank loan rate (the higher of (i) the Federal Funds Rate or (ii) the One Month LIBOR rate plus 1.00%). During the year ended October 31, 2013, SmallCap Growth Fund I and SmallCap Growth Fund II each loaned to the Facility. Theinterest expense associated with these borrowings is included in other expenses on the statements of operations. The interest received is included in interest on the statements of operations.

Pro Forma Notes to Financial Statements

October 31, 2013

(unaudited)

4. Operating Policies (Continued)

In addition, the Funds participate with other registered investment companies managed by the Manager in an unsecured joint line of credit with a bank which allows the participants to borrow up to $75 million, collectively. Borrowings are made solely to facilitate the handling of unusual and/or unanticipated short-term cash requirements. Interest is charged to each participant, based on its borrowings, at a rate equal to the higher of the Federal Funds Rate or the One Month LIBOR rate plus 1.00%. Additionally, a commitment fee is charged at an annual rate of .08% on the amount of the line of credit. During the year ended October 31, 2013, SmallCap Growth Fund I and SmallCap Growth Fund II borrowed against the line of credit. The interest expense associated with these borrowings is included in other expenses on the statements of operations.

Futures Contracts. The Funds are subject to equity price risk, interest rate risk, and foreign currency exchange rate risk in the normal course of pursuing their investment objectives. The Funds may enter into futures contracts to hedge against changes in or to gain exposure to, change in the value of equities, interest rates and foreign currencies. Initial margin deposits are made by cash deposits or segregation of specific securities as may be required by the exchange on which the transaction was conducted. Pursuant to the contracts, an account agrees to receive from or pay to the broker, an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as “variation margin” and are recorded by the account as a variation margin receivable or payable on futures contracts. During the period the futures contracts are open, daily changes in the value of the contracts are recognized as unrealized gains or losses. These unrealized gains or losses are included as a component of net unrealized appreciation (depreciation) of investments on the statements of assets and liabilities. When the contracts are closed, the fund recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the fund’s cost basis in the contract. There is minimal counterparty credit risk to the Funds because futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default.

Indemnification. Under the Fund’s by-laws present and past officers, directors and employees are indemnified against certain liabilities arising out of the performance of their duties. In addition, in the normal course of business the Fund may enter into a variety of contracts that may contain representations and warranties which provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund.

Joint Trading Account. The Funds may, pursuant to an exemptive order issued by the Securities and Exchange Commission, transfer uninvested funds into a joint trading account. The order permits the participating Funds’ cash balances to be deposited into a single joint account along with the cash of other registered investment companies managed by the Manager. These balances may be invested in one or more short-term instruments or repurchase agreements that are collateralized by U.S. government securities. Earnings from the joint trading account are allocated to each of the Funds based on their pro rata participating ownership interest in the joint trading account.

Rebates. Subject to best execution, the Funds may direct certain portfolio transactions to brokerage firms that, in turn, have agreed to rebate a portion of the related brokerage commission to the Funds in cash. Commission rebates are included as a component of realized gain from investment transactions in the statements of operations.

Repurchase Agreements. The Funds may invest in repurchase agreements that are fully collateralized, typically by U.S. government or U.S. government agency securities. It is the Funds’ policy that its custodian takes possession of the underlying collateral securities. The fair value of the collateral is at all times at least equal to the total amount of the repurchase obligation. In the event of default on the obligation to repurchase, the Funds have the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. In the event the seller of a repurchase agreement defaults, the Funds could experience delays in the realization of the collateral.

Pro Forma Notes to Financial Statements

October 31, 2013

(unaudited)

4. Operating Policies (Continued)

Derivatives. The following tables provide information about where in the statements of assets and liabilities and statements of operations information about derivatives can be found (amounts shown in thousands):

	Asset Derivatives October 31, 2013				Liability Derivatives October 31, 2013
Derivatives not accounted for as hedging instruments	Statement of Assets and Liabilities Location	Fair Value			Statement of Assets and Liabilities Location	Fair Value
SmallCap Growth Fund I
Equity contracts	Receivables, Net Assets Consist of Net unrealized appreciation (depreciation) of investments	$	2,426	*	Payables, Net Assets Consist of Net unrealized appreciation (depreciation) of investments	$	—
SmallCap Growth Fund II
Equity contracts	Receivables, Net Assets Consist of Net unrealized appreciation (depreciation) of investments	$	301	*	Payables, Net Assets Consist of Net unrealized appreciation (depreciation) of investments	$	—

* Includes cumulative unrealized appreciation/depreciation of futures contracts as shown in the schedules of investments. Only the portion of the unrealized appreciation/depreciation not yet cash settled is shown in the statements of assets and liabilities as variation margin.

Derivatives not accounted for as hedging instruments	Location of Gain or (Loss) on Derivatives Recognized in Operations	Realized Gain or (Loss) on Derivatives Recognized in Operations		Change in Unrealized Appreciation/(Depreciation) of Derivatives Recognized in Operations
SmallCap Growth Fund I
Equity contracts	Net realized gain (loss) from Futures contracts/Change in unrealized appreciation/(depreciation) of Futures contracts	$	22,955	$	4,813
SmallCap Growth Fund II
Equity contracts	Net realized gain (loss) from Futures contracts/Change in unrealized appreciation/(depreciation) of Futures contracts	$	2,099	$	480

Long equity futures contracts are used to obtain market exposure for the cash balances that are maintained by the Funds and the notional values of the futures contracts will vary in accordance with changing cash balances. The level of other derivative activity disclosed in the schedules of investments is representative of the level of derivative activity used in the Funds throughout the year ended October 31, 2013.

5.Fair Valuation

Fair value is defined as the price that the Funds would receive upon selling a security in a timely transaction to an independent buyer in the principal or most advantageous market of the security at the measurement date. In determining fair value, the Funds use various valuation approaches, including market, income and/or cost approaches. A hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.

Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Funds. Unobservable inputs are inputs that reflect the Funds own estimates about the estimates market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

The three-tier hierarchy of inputs is summarized in the three broad levels listed below.

• Level 1 - Quoted prices are available in active markets for identical securities as of the reporting date. The type of securities included in Level 1 includes listed equities and listed derivatives.

• Level 2 - Other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments speeds, credit risk, etc.) Investments which are generally included in this category include corporate bonds, senior floating rate interests, and municipal bonds.

• Level 3 - Significant unobservable inputs (including the Funds’ assumptions in determining the fair value of investments.) Investments which are generally included in this category include certain corporate bonds and certain mortgage backed securities.

Pro Forma Notes to Financial Statements

October 31, 2013

(unaudited)

5.Fair Valuation (Continued)

The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the market place, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Funds in determining fair value is greatest for instruments categorized in Level 3.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

Fair value is a market based measure considered from the perspective of a market participant who holds the asset rather than an entity specific measure. Therefore, even when market assumptions are not readily available, the Fund’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Funds use prices and inputs that are current as of the measurement date.

Investments which are generally included in the Level 3 category are primarily valued using quoted prices from brokers and dealers participating in the market for these investments. These investments are classified as Level 3 investments due to the lack of market transparency and market corroboration to support these quoted prices. Valuation models may be used as the pricing source for other investments classified as Level 3. Valuation models rely on one or more significant unobservable inputs such as prepayment rates, probability of default, or loss severity in the event of default. Significant increases in any of those inputs in isolation would result in a significantly lower fair value measurement.

The fair values of these entities are dependent on economic, political and other considerations. The values of the underlying investee entities may be affected by significant changes in the economic conditions, changes in government policies, and other factors (e.g., natural disasters, accidents, conflicts, etc.)

Fair value of these investments is determined in good faith by the Manager under procedures established and periodically reviewed by the Fund’s Board of Directors. The Manager has established a Valuation Committee of senior officers and employees, with the responsibility of overseeing the pricing and valuation of all securities, including securities where market quotations are not readily available. The Valuation Committee meets monthly and reports directly to the Board of Directors. The Pricing Group who reports to the Valuation Committee relies on the established Pricing Policies to determine fair valuation. Included in the Pricing Policies is an overview of the approved valuation technique established for each asset class. The Pricing Group will consider all appropriate information available when determining fair valuation.

The Pricing Group relies on externally provided valuation inputs to determine the value of Level 3 securities. Security values are updated as new information becomes available. Valuation data and changes in valuation amounts are reviewed on a daily basis based on specified criteria for the security, asset class, and other factors. In addition, valuation data is periodically compared to actual transactions executed by the Funds (i.e., purchase/sales) and differences between transaction prices and prior period valuation data are investigated based on specified tolerances.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those instruments. For example, short-term securities held in Money Market Fund are valued using amortized cost, as permitted under Rule 2a-7 of the Investment Company Act of 1940. Generally, amortized cost approximates the current fair value of these securities, but because the value is not obtained from a quoted price in an active market, such securities are reflected as Level 2.

The beginning of the period timing recognition is being adopted for the significant transfers between levels of each Fund’s assets and liabilities. There were no significant transfers into or out of Level 3.

Pro Forma Notes to Financial Statements

October 31, 2013

(unaudited)

5.Fair Valuation (Continued)

The following is a summary of the inputs used as of October 31, 2013, in valuing the Funds’ securities carried at value (amounts shown in thousands):

Fund	Level 1 - Quoted Prices		Level 2 - Other Significant Observable Inputs		Level 3 - Significant Unobservable Inputs		Totals (Level 1,2,3)
SmallCap Growth Fund I
Common Stocks*	$	1,741,666	$	—	$	—	$	1,741,666
Repurchase Agreements	—		98,780		—		98,780
Total investments in securities	$	1,741,666	$	98,780	$	—	$	1,840,446
Assets
Equity Contracts**
Futures	$	2,426	$	—	$	—	$	2,426
SmallCap Growth Fund II
Common Stocks*	$	201,324	$	—	$	—	$	201,324
Repurchase Agreements	—		10,239		—		10,239
Total investments in securities	$	201,324	$	10,239	$	—	$	211,563
Assets
Equity Contracts**
Futures	$	301	$	—	$	—	$	301
* For additional detail regarding sector classifications, please see the Schedule of Investments.
** Futures are valued at the unrealized appreciation/(depreciation) of the investment.

6. Capital Shares

The pro forma net asset value per share assumes issuance of shares of SmallCap Growth Fund I that would have been issued at October 31, 2013, in connection with the Reorganization. The number of shares assumed to be issued is equal to the net assets of SmallCap Growth Fund II as of October 31, 2013, divided by the net asset value per share of SmallCap Growth Fund I as of October 31, 2013. The pro forma number of shares outstanding, by class, for the combined fund can be found on the statement of assets and liabilities.

7. Pro Forma Adjustments

The accompanying pro forma financial statements reflect changes in fund shares as if the Reorganization had taken place on October 31, 2013. The expenses of SmallCap Growth Fund II were adjusted assuming the fee structure of SmallCap Growth Fund I was in effect for the twelve months ended October 31, 2013.

PART C

OTHER INFORMATION

Item 15.    Indemnification

Under Section 2-418 of the Maryland General Corporation Law, with respect to any proceedings against a present or former director, officer, agent or employee (a "corporate representative") of the Registrant, the Registrant may indemnify the corporate representative against judgments, fines, penalties, and amounts paid in settlement, and against expenses, including attorneys' fees, if such expenses were actually incurred by the corporate representative in connection with the proceeding, unless it is established that:

(i)    The act or omission of the corporate representative was material to the matter giving rise to the proceeding; and

1.    Was committed in bad faith; or

2.    Was the result of active and deliberate dishonesty; or

(ii)    The corporate representative actually received an improper personal benefit in money, property, or services; or

(iii)    In the case of any criminal proceeding, the corporate representative had reasonable cause to believe that the act or omission was unlawful.

If a proceeding is brought by or on behalf of the Registrant, however, the Registrant may not indemnify a corporate representative who has been adjudged to be liable to the Registrant. Under the Registrant's Articles of Incorporation and Bylaws, directors and officers of the Registrant are entitled to indemnification by the Registrant to the fullest extent permitted under Maryland law and the Investment Company Act of 1940. Reference is made to Article VI, Section 7 of the Registrant's Articles of Incorporation, Article 12 of the Registrant's Bylaws and Section 2-418 of the Maryland General Corporation Law.

The Registrant has agreed to indemnify, defend and hold the Distributor, its officers and directors, and any person who controls the Distributor within the meaning of Section 15 of the Securities Act of 1933, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Distributor, its officers, directors or any such controlling person may incur under the Securities Act of 1933, or under common law or otherwise, arising out of or based upon any untrue statement of a material fact contained in the Registrant's registration statement or prospectus or arising out of or based upon any alleged omission to state a material fact required to be stated in either thereof or necessary to make the statements in either thereof not misleading, except insofar as such claims, demands, liabilities or expenses arise out of or are based upon any such untrue statement or omission made in conformity with information furnished in writing by the Distributor to the Registrant for use in the Registrant's registration statement or prospectus: provided, however, that this indemnity agreement, to the extent that it might require indemnity of any person who is also an officer or director of the Registrant or who controls the Registrant within the meaning of Section 15 of the Securities Act of 1933, shall not inure to the benefit of such officer, director or controlling person unless a court of competent jurisdiction shall determine, or it shall have been determined by controlling precedent that such result would not be against public policy as expressed in the Securities Act of 1933, and further provided, that in no event shall anything contained herein be so construed as to protect the Distributor against any liability to the Registrant or to its security holders to which the Distributor would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence, in the performance of its duties, or by reason of its reckless disregard of its obligations under this Agreement. The Registrant's agreement to indemnify the Distributor, its officers and directors and any such controlling person as aforesaid is expressly conditioned upon the Registrant being promptly notified of any action brought against the Distributor, its officers or directors, or any such controlling person, such notification to be given by letter or telegram addressed to the Registrant.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

Item 16.    Exhibits.

Unless otherwise stated, all filing references are to File No. 033-59474

(1)	(a)	Articles of Amendment and Restatement dated 05/15/2012 - Filed as Ex-99.(a)(1)a on 06/13/2012 (Accession No. 0001144204-12-034634)
	(b)	Articles Supplementary dated 11/26/2012 Filed as Ex-99 (a)(2) on 12/13/2012 (Accession No. 0001144204-12-067870)
	(c)	Articles Supplementary dated 02/06/2013 -- Filed as Ex-99-(a)(3) on 02/28/2013 (Accession No. 0000898745-13-000071)
	(d)	Articles of Amendment dated 03/01/2013 -- Filed as Ex-99 (a)(4) on 07/19/2013 (Accession No. 0000898745-13-000596)
	(e)	Articles Supplementary dated 05/29/2013-- Filed as Ex-99 (a)(5) on 07/19/2013 (Accession No. 0000898745-13-000596)
	(f)	Articles Supplementary dated 09/04/2013-- Filed as Ex-99 (a)(6) on 09/27/2013 (Accession No. 0000898745-13-000708)
	(g)	Articles Supplementary dated 11/18/2013-- Filed as Ex-99 (a)(1) on 12/27/2013 (Accession No. 0000898745-13-000816)
(2)	By-laws dated July 22, 2013-- Filed as Ex-99 (b)(1) on 07/30/2013 (Accession No. 0000898745-13-000609)
(3)	N/A
(4)	Form of Plan of Reorganization (filed herewith as Appendix A to the Proxy Statement/Prospectus)
(5)	Included in Exhibits 1 and 2 hereto.
(6)	(a)	Amended and Restated Management Agreement dated 11/01/2013 Filed as Ex-99 (d)(1)d on 12/27/2013 (Accession No. 0000898745-13-000816)
	(b)	(1)	AllianceBernstein Amended & Restated Sub-Advisory Agreement dated 01/01/2010 - Filed as Ex-99.(D)(5)d on 03/16/2010 (Accession No. 0000898745-10-000157)
		(2)	Brown Investment Advisory Incorporated Sub-Advisory Agreement dated 09/14/2010 Filed as Ex-99 (d)(2)g on 12/13/12 (Accession No. 0001144204-12-067870)
		(3)	Columbus Circle Investors Amended & Restated Sub-Advisory Agreement dated 01/01/2010 - Filed as Ex-99.(D)(10)e on 03/16/2010 (Accession No. 0000898745-10-000157)
		(4)	Emerald Advisors, Inc. Sub-Advisory Agreement dated 01/01/2010 - Filed as Ex-99.(D)(13)B on 03/16/2010 (Accession No. 0000898745-10-000157)
(7)	(a)	Amended & Restated Distribution Agreement for A, B, C, J, P, R-1, R-2, R-3, R-4, R-5 and Institutional Classes dated 09/27/2010 - Filed as Ex-99.(e)(1)a on 07/11/2011 (Accession No. 0000898745-11-000480)
	(b)	(1)	Selling Agreement dated 10/09/2007 for Classes A, B, C Shares - Filed as Ex-99 (e)(2)a on 05/11/2012 (Accession No. 0001144204-12-028046)
		(2)	Amendment, dated 09/22/2011, to Selling Agreement dated 10/09/07 for Classes A, B, C, J, Institutional, P, R-1, R-2, R-3, R-4 and R-5 Class Shares - Filed as Ex-99.(e)(2)b on 06/13/2012 (Accession No. 0001144204-12-034634)
(8)	N/A
(9)	Custody Agreement between The Bank of New York Mellon and Principal Funds, Inc. dated 11/11/2011 - Filed as Ex-99 (g)(1) on 07/16/2012 (Accession No. 0001144204-12-039659)
(10)	Rule 12b-1 Plan
	(a)	Class J Plan - Amended & Restated Distribution Plan and Agreement dated 12/30/2013 *
	(b)	Class R-1 Plan - Amended & Restated Distribution Plan and Agreement dated 03/01/2012 Filed as Ex-99 (m)(5)a on 05/11/2012 (Accession No. 0001144204-12-028046)
	(c)	Class R-2 Plan - Amended & Restated Distribution Plan and Agreement dated 03/01/2012 Filed as Ex-99 (m)(6)a on 05/11/2012 (Accession No. 0001144204-12-028046)
	(d)	Class R-3 Plan - Amended & Restated Distribution Plan and Agreement dated 03/01/2012 Filed as Ex-99 (m)(7)a on 05/11/2012 (Accession No. 0001144204-12-028046)
	(e)	Class R-4 Plan - Amended & Restated Distribution Plan and Agreement dated 03/01/2012 Filed as Ex-99 (m)(8)a on 05/11/2012 (Accession No. 0001144204-12-028046)
(11)	Opinion and Consent of counsel, regarding legality of issuance of shares and other matters *
(12)	Opinion and Consent of ______________________________ on tax matters **
(13)	N/A
(14)	Consent of Independent Registered Public Accountants
	(a)	Consent of Ernst & Young LLP *

(15)	N/A
(16)	Powers of Attorney *
(17)	(a)	Prospectuses dated March 1, 2013 as supplemented
		(1)	The Prospectus for Class J shares, dated March 1, 2013, included in Post-Effective Amendment No. 122 to the registration statement on Form N-1A (File No. 033-59474) filed on February 28, 2013
		(2)	The Prospectus for Institutional, R-1, R-2, R-3, R-4, and R-5 Class shares, dated March 1, 2013, included in Post-Effective Amendment No. 122 to the registration statement on Form N-1A (File No. 033-59474) filed on February 28, 2013
		(3)	Supplements to the Class J shares Prospectus dated and filed March 28, 2013, April 17, 2013, May 9, 2013, June 14, 2013, November 4, 2013, November 22, 2013, and December 13, 2013.
		(4)	Supplements to the Institutional, R-1, R-2, R-3, R-4, and R-5 Class shares Prospectus dated and filed March 28, 2013, April 2, 2013, April 17, 2013, May 9, 2013, June 14, 2013, September 13, 2013, September 20, 2013, November 4, 2013, November 19, 2013, November 22, 2013, and December 13, 2013.
	(b)	Statement of Additional Information dated March 1, 2013, included in Post-Effective Amendment No. 122 to the registration statement on Form N-1A (File No. 033-59474) filed on February 28, 2013, and supplements thereto dated and filed on March 15, 2013, April 2, 2013, April 17, 2103, May 9, 2013, June 14, 2013, September 13, 2013, September 20, 2013, November 4, 2013, November 19, 2013, November 22, 2013, December 13, 2013, and January 2, 2014.
	(c)	(1)	Semi-Annual Report of Principal Funds, Inc. for the semi-annual period ended April 30, 2013 (filed on Form N-CSRS on June 28, 2013)
		(2)	Annual Report of Principal Funds, Inc. for the fiscal year ended October 31, 2013 (filed on Form N-CSR on December 30, 2013)

* Filed herein.

** To be filed by amendment.

Item 17.    Undertakings

(1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this Registration Statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, the reoffering prospectus will contain the information called for by the applicable registration form for re-offerings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.

(2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as part of an amendment to the Registration Statement and will not be used until the amendment is effective, and that, in determining any liability under the Securities Act of 1933, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them.

(3) The undersigned Registrant agrees to file a post-effective amendment to this Registration Statement which will include an opinion of counsel regarding the tax consequences of the proposed reorganization.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, duly authorized in the City of Des Moines and State of Iowa, on the 16th of January, 2014.

	Principal Funds, Inc.    (Registrant) /s/ N. M. Everett _____________________________________ N. M. Everett Chair, President and Chief Executive Officer
Attest: /s/ Beth Wilson ______________________________________ Beth Wilson Vice President and Secretary

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
Signature	Title	Date
/s/ N. M. Everett __________________________ N. M. Everett	Chair, President and Chief Executive Officer (Principal Executive Officer)	January 16, 2014
/s/ L. A. Rasmussen __________________________ L. A. Rasmussen	Vice President, Controller and Chief Financial Officer (Principal Financial Officer and Controller)	January 16, 2014
/s/ M. J. Beer __________________________ M. J. Beer	Executive Vice President and Director	January 16, 2014
(E. Ballantine)* __________________________ E. Ballantine	Director	January 16, 2014
(L. T. Barnes)* __________________________ L. T. Barnes	Director	January 16, 2014
(C. Damos)* __________________________ C. Damos	Director	January 16, 2014
(M. A. Grimmett)* __________________________ M. A. Grimmett	Director	January 16, 2014
(F. S. Hirsch)* __________________________ F. S. Hirsch	Director	January 16, 2014
(T. Huang)* __________________________ T. Huang	Director	January 16, 2014
(W. C. Kimball)* __________________________ W. C. Kimball	Director	January 16, 2014
(D. Pavelich)* __________________________ D. Pavelich	Director	January 16, 2014
	/s/ M. J. Beer _______________________________ M. J. Beer Executive Vice President and Director * Pursuant to Powers of Attorney filed herewith

EXHIBIT INDEX

Exhibit No.	Description
4	Form of Plan of Reorganization (filed herewith as Appendix A to the Proxy Statement/Prospectus)
10(a)	Class J 12b-1 Plan - Amended & Restated Distribution Plan and Agreement
11	Opinion and Consent of counsel regarding legality of issuance of shares and other matters
12	Opinion and Consent of ________________________ - on tax matters**
14(a)	Consent of Ernst & Young LLP, Independent Registered Public Accountants
16(a)	Powers of Attorney
** to be filed by amendment

January 16, 2014

Via EDGAR

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

Re:	Principal Funds, Inc.
	Registration Statement on Form N-14

Ladies and Gentlemen:

On behalf of Principal Funds, Inc. ("PFI"), we transmit herewith for filing with the Securities and Exchange Commission pursuant to Rule 488 under the Securities Act of 1933 (the "Act") PFI's registration statement on Form N-14 under the Act (the "Registration Statement"). The Registration Statement relates to proposed Plans of Reorganization providing for the transfer of all the assets, subject to all the liabilities, of the SmallCap Growth Fund II, a series of PFI, to and in exchange for shares of SmallCap Growth Fund I, a previously created series of PFI. The proposed mailing date to shareholders is on or about February 19, 2014.

Please call me at 515-235-9328 or Jennifer A. Mills of this office at 515-235-9154 if you have any questions or comments.

Sincerely,

/s/ Adam U. Shaikh

Adam U. Shaikh

Assistant Counsel

Principal Funds, Inc.

Enclosures