| October 12, 2011 | |
| Via EDGAR | |
| Mr. Howie Hallock | |
| Senior Counsel | |
| Division of Investment Management | |
| Securities and Exchange Commission | |
| 100 F Street, NE | |
| Washington D.C. 20549 | |
| Re: | Principal Funds, Inc. |
| Post-Effective Amendment No. 102 to the Registration Statement on Form N-1A | |
| File Nos. 033-59474, 811-07572 | |
| Dear Mr. Hallock, | |
| This letter responds, on behalf of Principal Funds, Inc. (the “Registrant”), to the comments of the Staff of | |
| the Securities and Exchange Commission (“Commission”), which you communicated to me by telephone | |
| on September 2, 9, and 12, 2011, with respect to post-effective amendment number 102 to the | |
| Registrant’s registration statement on Form N-1A (“the Amendment”). The Amendment was filed with the | |
| Commission on July 11, 2011, pursuant to Rule 485(a) under the Securities Act of 1933 (the “1933 Act”). | |
| On September 21, 2011, the Registrant filed a delaying amendment that extended the effective date to | |
| October 14, 2011. Changes in response to Staff comments as described below will be made by the | |
| Registrant in a post-effective amendment that will be filed with the Commission pursuant to Rule 485(b) | |
| under the 1933 Act (amendment number 104). | |
| Comment 1.In the prospectus, please consider redefining the use of “the Fund” to distinguish where its | |
| use refers to the Registrant in some cases and the Series in others. | |
| Response: The Registrant will make revisions. | |
| Comment 2.Please consider revising the sentence in the “Fees and Expenses of the Fund” section that | |
| states: “You may qualify for sales charge discounts if you and your family invest, or agree to invest in the | |
| future, at least $100,000 in Principal Funds, Inc.” Clarify whether the investment is in this series or the | |
| Registrant. | |
| Response: The reference to Principal Funds, Inc. is to the Registrant, Principal Funds, Inc., not | |
| the series. The Registrant respectfully declines to revise the disclosure because the Registrant’s | |
| disclosure so closely follows the suggested language as stated in Form N-1A Item 3 (“You may | |
| qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at | |
| least $[_________] in [name of fund family] funds.”). | |
| Comment 3.Please include the disclosure related to the expense limitation in a footnote to the “Annual | |
| Fund Operating Expenses” table (rather than text below the table) and revise the language to clarify that | |
| Principal Management Corporation is the investment advisor and that the expense limitation is expected | |
| to continue through the period specified in the contract. Further, consider using something other than | |
| “Principal Funds, Inc.” as a way to identify one of the parties. | |
| Response: The language will be included in a footnote to the table and revised to state | |
| substantially as follows: “Principal Management Corporation (“Principal”), the investment advisor, | |
| has contractually agreed to limit the Fund’s expenses attributable to Class A shares and, if | |
| necessary, pay expenses normally payable by the Fund, excluding interest expense and short | |
| sale dividends and interest, through the period ending December 31, 2012. The expense limit will | |
| maintain a total level of operating expenses, not including interest expense and short sale | |
| dividends and interest, (expressed as a percent of average net assets on an annualized basis) | |
| 1 |
| not to exceed 2.00% for Class A. It is expected that the expense limit will continue through the |
| period disclosed; 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.” The Registrant respectfully |
| declines to change the reference to “Principal Funds, Inc.” in this disclosure because it is an |
| accurate description of one of the parties to the contract. The Registrant believes the disclosure |
| is responsive to the Form which states to “briefly describe who can terminate the arrangement |
| and under what circumstances.” N-1A Item 3, Instruction 3(e). |
| Comment 4.Please add disclosure to further describe Principal Management Corporation’s asset |
| allocation process for this Fund. |
| Response: The Registrant notes that the Amendment contained language on this subject in both |
| the “Principal Investment Strategies” section, as well as the “Management of the Fund – The Sub- |
| Advisors” section. Nevertheless, the Registrant will include some additional language in the |
| “Principal Investment Strategies” section that states substantially as follows: “By allocating the |
| Fund’s assets among a variety of investment strategies, which will vary from time-to-time, the |
| Fund seeks to lessen risk and reduce volatility.” |
| Comment 5.In light of N-1A Item 5(a) Instruction 2, please consider reducing the number of sub- |
| advisors disclosed. |
| Response: The Registrant respectfully declines to make this change. The Form states in |
| relevant part that “[a] Fund having three or more sub-advisors, each of which manages a portion |
| of the Fund’s portfolio, need not identify each such sub-advisor.” N-1A Item 5(a) Instruction 2. |
| The Form does not prescribe a limit, rather it describes circumstances in which it is permissible to |
| disclose less than all of the sub-advisors. |
| Comment 6.Please consider disclosing the Principal Management Corporation asset allocators as |
| Portfolio Mangers. |
| Response: The requested revision will be made. |
| Comment 7.Please add disclosure to identify which strategies the sub-advisors use. |
| Response: The Registrant will make such disclosure in the “Management of the Funds” section |
| to further its response to N-1A Item 10(a)(1)(i) (requiring disclosure about the investment |
| advisor’s “advisory services that it provides to the Fund”). |
| Comment 8.The “Principal Investment Strategies” section states: “The Fund may concentrate its |
| investments (invest more than 25% of its net assets) in securities in any industry.” The Staff would like |
| the disclosure to include the industry or industries in which the Fund will concentrate. |
| Response: The Registrant will revise the prospectus and SAI disclosure to reflect the Fund’s |
| intent not to concentrate its investments in a particular industry or group of industries. |
| Comment 9.Regarding the derivatives disclosure in the first paragraph of the “Principal Investment |
| Strategies” section, the staff would like clarification regarding the type of swaps that will be used. Further, |
| please add language describing the extent to which the fund will use derivatives and their intended |
| purpose for the fund. |
| Response: The Registrant will revise that disclosure to state substantially as follows (new |
| language is underlined): “In pursuing its strategies, the Fund invests in a broad range of |
| instruments including, but not limited to, equities, bonds, currencies, commodity indices, |
| convertible securities and derivatives such as futures, options, swaps (including, for example, |
| credit default, interest rate, and currency swaps)and forwards.The Fund intends to engage in |
| many derivative transactions to gain exposure to a variety of securities or attempt to reduce risk.” |
| 2 |
| Comment 10.The name of this series includes the word “global.” Please add disclosure to your |
| prospectus that 1) sets forth a policy that under normal market conditions, the fund will invest at least |
| 40% of its assets outside the United States (and, when market conditions are not deemed favorable, at |
| least 30%) and 2) states that the fund will invest in at least three countries outside the U.S. If you do not |
| add the prospectus disclosure, please remove “Global” from the fund’s name. |
| Response: The Registrant respectfully declines to add the specific disclosure, and the |
| Registrant intends to keep the word “Global” in the Fund’s name. Rule 35d-1 under the |
| Investment Company Act of 1940 prohibits Funds from using materially deceptive and misleading |
| names and lists types of materially deceptive and misleading names. Fund names that suggest |
| investment in certain countries or geographic regions are not to be used unless the fund adopts |
| certain policies; however, the Commission has made clear that “global” does not fall into this |
| category. See Rule 35d-1(a)(3); Rule 35d-1 Adopting Release footnote 42 (“The terms |
| ‘international’ and ‘global,’ however, connote diversification among investments in a number of |
| different countries throughout the world, and ‘international’ and ‘global’ funds will not be subject to |
| the rule. We would expect, however, that investment companies using these terms in their |
| names will invest their assets in investments that are tied economically to a number of countries |
| throughout the world.”); see also Frequently Asked Questions about Rule 35d-1 (Investment |
| Company Names) December 4, 2001, Question 10 (making clear that funds with the word |
| “global” in the name are not subject to Rule 35d-1). In keeping with the position the Commission |
| expressed in the Rule 35d-1 Adopting Release, the Global Multi-Strategy Fund intends to invest |
| in a variety of foreign securities and therefore intends to have investments that are tied |
| economically to a number of countries throughout the world. The Registrant will add language to |
| state substantially as follows: “The Fund intends to invest in securities that are tied economically |
| to a number of countries throughout the world, including the U.S.; however, the Fund has no |
| requirements as to the amount of its net assets that it invests in foreign securities.” |
| The number of countries in which the Global Multi-Strategy Fund will invest, as well as the |
| amount of the fund’s assets that are invested outside the U.S., will vary from time to time. The |
| “Principal Investment Strategies” and “Principal Risks” sections discuss exposure to foreign |
| investments in several places, including references to “a global range of investment |
| opportunities”, currencies, emerging markets, a global macro strategy, emerging market risk and |
| foreign securities risk. In the Statement of Additional Information, the list of non-fundamental |
| investment restrictions states that the Global Multi-Strategy Fund may invest up to 100% of its |
| assets in foreign securities. Depending on market conditions, the Global Multi-Strategy Fund |
| intends to invest anywhere it can to get the best returns. To implement its strategy, the Global |
| Multi-Strategy Fund will look throughout the world for its investments. Consistent with the |
| definition of “global”, using the word “global” in the name of the Fund makes clear that the Fund |
| will seek investments in many places, but does not suggest that the Fund is tied to any one |
| particular region. See Merriam-Webster’s Collegiate Dictionary, 11thed. 2005 at page 532 (“of, |
| relating to, or involving the entire world: WORLDWIDE”). |
| The Registrant respects the Commission’s concerns regarding materially deceptive and |
| misleading fund names; however, the Registrant believes such concern is misplaced here. The |
| use of the word “global” for this fund aligns with the Commission’s published view of the word |
| “global” as well as this Fund’s intended investment approach. See Rule 35d-1 Proposing |
| Release in Investment Company Act Release No. 22530 (Feb. 27, 1997) (“For example, while an |
| investment company with a name that includes the words ‘international’ or ‘global’ generally |
| suggests that the company invests in more than one country, these terms may describe a number |
| of investment companies that have significantly different investment portfolios. Among other |
| things, the number of countries in which an ‘international’ or ‘global’ investment company may |
| invest at any one time may appropriately differ from company to company.” (Footnote omitted)). |
| 3 |
| Comment 11.The following sentence appears in the “Purchase of Fund Shares” section and the Staff |
| would like to see similar information in the “Redemption of Fund Shares” section: “After you place a buy |
| order in proper form, which must be received at the transaction processing center in Canton, |
| Massachusetts, shares are bought using the next share price calculated.” |
| Response: The Registrant believes no additional language is needed for the “Redemption of |
| Fund Shares” section because the following sentence appears at the beginning of the |
| “Redemption of Fund Shares” section: “After you place a sell order in proper form, which must be |
| received at the transaction processing center in Canton, Massachusetts, shares are sold using |
| the next share price calculated.” Additionally, consistent information appears in the “Pricing of |
| Fund Shares” section: “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.” |
| Comment 12.One of the fundamental investment restrictions in the Statement of Additional Information |
| states in part that certain funds may not “[i]ssue any senior security, except as permitted under the 1940 |
| Act.” The Staff would like the Registrant to describe in the registration statement what the 1940 Act |
| permits regarding the issuance of senior securities. |
| Response: The Registrant intends to follow the Investment Company Act, no action letters, and |
| releases (for example, Release No. IC-10666) relating to the issuance of senior securities. The |
| Registrant has reviewed the senior security fundamental investment policy disclosure for other |
| mutual funds and believes its disclosure is consistent with others in the industry. Accordingly, the |
| Registrant respectfully declines to revise the disclosure in its registration statement on this point. |
| We understand that the Registrant is responsible for the accuracy and adequacy of the disclosure in the |
| filing and that staff comments or our changes to the disclosure in response to the staff comments do not |
| foreclose the Commission from taking any action with respect to the filing. In addition, the Registrant may |
| not assert staff comments as a defense in any proceeding initiated by the Commission or any person |
| under the federal securities laws of the United States. |
| Please call me at 515-235-9154 or Adam Shaikh at 515-235-9328 if you have any questions. |
| Sincerely, |
| /s/ Jennifer A. Mills |
| Jennifer A. Mills |
| Assistant Counsel, Registrant |
| 4 |
