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Press release from Business Wire

Principal Funds Adds New Strategies to Global Diversified Income Fund

<p class='bwalignc'> <b>Fund also recently recognized by Five-Star Overall Morningstar Rating</b> </p>

Thursday, January 26, 2012

Principal Funds Adds New Strategies to Global Diversified Income Fund13:06 EST Thursday, January 26, 2012 DES MOINES, Iowa (Business Wire) -- In order to further increase income-generating potential and provide additional diversification benefits, Principal Funds recently made a series of changes to the Principal Global Diversified Income Fund (PGBAX). Changes to the fund include: Adding a global public infrastructure allocation, offering exposure to assets that have historically provided predictable and steady cash flows with strong yield potential (sub-advised by W.H. Reaves & Co., Inc.) Adding call option overwriting strategy to reduce the volatility of the underlying equity strategies and enhance the return potential (sub-advised by Guggenheim Partners Asset Management, LLC) Redefining the role of commercial mortgage-backed securities (CMBS) in the fund, moving it from an opportunistic strategy within the Global Real Estate allocation to a separate, more strategic allocation (sub-advised by Principal Real Estate Investors) “We continuously monitor new asset classes and managers and seek to identify ways to improve the fund's risk profile,” said Mike Finnegan, portfolio advisor and Principal Funds chief investment officer. “We believe the recent additions serve this exact purpose.” The Principal Global Diversified Income Fund seeks to provide consistent cash income through a diversified, yield-focused investment approach. Multiple specialist managers use tailored investment strategies that seek different alternative sources of income within a single fund. Past changes to the fund include the adding master limited partnerships (MLPs) in 2009. Five-Star Overall Morningstar Rating Additionally, Morningstar has recognized the Principal Global Diversified Income Fund (Class A-World Allocation Funds) with an Overall Morningstar RatingTM of five stars* as of Dec. 31, 20111. “We view the five-star rating as a testament to the successful execution of our yield-oriented strategy with specialist management teams and ongoing monitoring,” said Dave Reichart, portfolio advisor. With total assets nearing $3 billion2 in just three years, the Principal Global Diversified Income Fund was Principal Funds' highest-selling fund of 2011. “We believe the asset growth of the fund demonstrates the appeal of our outcome-based style of investing, which seeks to manage many of the risks investors face. The approach is resonating with financial professionals and their clients,” Reichart said. A video commentary on the fund and its structure is available here. Launched December 15, 2008, the Principal Global Diversified Income Fund is the first in a series of funds designed to provide outcome-oriented solutions for financial professionals and their clients. The Principal Diversified Real Asset Fund (PRDAX), launched March 16, 2010, seeks to help manage the impact of inflation on purchasing power. And launched October 24, 2011, the Principal Global Multi-Strategy Fund (PMSAX) seeks to reduce portfolio volatility. For more information on these funds, visit the Principal Funds Specialty Funds page. Asset allocation/diversification does not guarantee a profit or protect against a loss.*Past performance is no guarantee of future results. Morningstar proprietary ratings reflect historical risk-adjusted performance for funds with at least a 3-year performance history and are subject to change each month. Morningstar Ratings™ are calculated from a fund's three-, five-, and ten-year average annual returns in excess of the 90-day U.S. Treasury bill returns, with appropriate fee adjustments, and a risk factor that reflects performance below the 90-day Treasury bill return. Within each asset class the top 10% of funds receive 5 stars (Highest); the next 22.5% receive 4 stars (Above Average); the middle 35% earn 3 stars (Average); the next 22.5% receive 2 stars (Below Average); and the bottom 10% receive 1 star (Lowest). The Overall Morningstar Rating for a fund is derived from a weighted average of the performance figures associated with its three-, five-, and ten-year (if applicable) Morningstar Rating metrics. Copyright 2012 Morningstar, Inc. All rights reserved.3 yr: out of 232, 5 yr: NA, 10 yr: NA: The Fund shown may have recent negative performance. Please see principalfunds.com, or call 800-222-5852, for current performance information.About Principal FundsPrincipal Funds is a leading provider of mutual funds, with $62.9 billion in assets under management.3 Principal Funds brings expertise in global investment management, asset allocation and retirement leadership to financial professionals and investors. Including its target-risk and target-date offerings, Principal Funds is the fifth largest manager of lifecycle funds in the industry.4 The companies that make up Principal Funds are members of the Principal Financial Group®. For more information, visit www.principalfunds.com. About the Principal Financial GroupThe Principal Financial Group® (The Principal ®)5 is a global investment management leader including retirement services, insurance solutions and asset management. The Principal offers businesses, individuals and institutional clients a wide range of financial products and services, including retirement, asset management and insurance through its diverse family of financial services companies. Founded in 1879 and a member of the FORTUNE 500®, the Principal Financial Group has $320.8 billion in assets under management6 and serves some 17.8 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com. Investors should carefully consider a fund's investment objectives, risks, charges, and expenses prior to investing. A prospectus, or summary prospectus if available, containing this and other information can be obtained by contacting a financial professional, visiting principalfunds.com, or calling 800-222-5852. Read the prospectus carefully before investing.A mutual fund's share price and investment return will vary with market conditions, and the principal value of an investment when you sell your shares may be more or less than the original cost.Fixed-income investment options are subject to interest rate risk, and their value will decline as interest rates rise. Lower-rated securities are subject to additional credit and default risks. Risks associated with preferred securities differ from risks inherent with other investments. In particular, in the event of bankruptcy, a company's preferred securities are senior to common stock but subordinated to all other types of corporate debt. International investing involves increased risks due to currency fluctuations, political or social instability, and differences in accounting standards. These risks are magnified in emerging markets. REIT securities are subject to risk factors associated with the real estate industry and tax factors of REIT registration.An MLP that invests in a particular industry (e.g., oil and gas) may be harmed by detrimental economic events within that industry. As partnerships, MLPs may be subject to less regulation (and less protection for investors) under state laws than corporations. In addition, MLPs may be subject to state taxation in certain jurisdictions, which may reduce the amount of income paid by an MLP to its investors. Investing in derivatives entails specific risks relating to liquidity, leverage, and credit that may reduce returns and/or increase volatility. REIT securities are subject to risk factors associated with the real estate industry and tax factors of REIT registration.The call writing option was implemented in an attempt to dampen volatility by writing covered calls on index strategies that closely reflect certain equities held in the portfolio. The strategy may dampen volatility, however it may also limit upside potential due to the nature of the strategies utilized. Fixed-income investment options that invest in mortgage securities are subject to increased risk due to real estate exposure.Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc., member of the Principal Financial Group®. Principal Funds Distributor, Principal Shareholder Services, Principal Management Corporation and its affiliates and Principal Funds, Inc. are collectively referred to as Principal Funds.1 Rating based on Maximum Offering Price. 2 Total assets under management of $2,830,579,200.95 as of Dec. 31, 2011. 3 As of Sept. 30, 2011. Includes all share classes of the Principal Funds, Inc. and Principal Variable Contracts Funds, Inc. 4 FRC Mutual Fund Lifecycle Report Q311. 5 “The Principal Financial Group” and “The Principal” are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group. 6 As of Sept. 30, 2011. Principal Financial GroupJaime Naig, 515-247-0798naig.jaime@principal.com