00089772
Principal Funds 2012 Tax Reporting Supplement
The enclosed information is provided to assist shareholders in preparing their 2012 tax returns. The information contained herein should not be deemed
to be tax advice. Due to the many differences in state and local regulations, shareholders should consult their tax advisors regarding this information. If
you have any questions concerning the information we have furnished, please call us at 1-800-222-5852.
Government Obligations Percentage
A portion of the dividends paid by the following funds during 2012 was derived from investments in obligations of the U.S. government or its agencies.
Some of these dividends may be exempt from state and local taxes depending on the tax laws of your individual state or local taxing authority. Some
states treat income from federal agency obligations differently than income from direct federal obligations. Please consult your tax advisor to determine
which, if any, of the obligations listed below may be exempt from your state income tax.
Fund
Direct Federal Obligations
Indirect Federal Obligations
Repurchase Agreements
PFI Bond & Mortgage Securities Fund
7.90%
24.30%
0.20%
PFI Bond Market Index Fund
17.94%
40.24%
0.36%
PFI Core Plus Bond Fund I
9.31%
33.78%
0.13%
PFI Diversified International Fund
0.00%
0.00%
0.09%
PFI Diversified Real Asset Fund
18.79%
0.05%
0.16%
PFI Equity Income Fund
0.00%
0.00%
0.09%
PFI Global Diversified Income Fund
0.00%
0.00%
0.05%
PFI Global Multi-Strategy Fund
2.04%
4.10%
0.07%
PFI Government & High Quality Bond Fund
3.59%
62.99%
0.10%
PFI High Yield Fund
0.26%
0.00%
0.09%
PFI High Yield Fund I
0.00%
0.00%
0.09%
PFI Income Fund
1.37%
15.60%
0.17%
PFI Inflation Protection Fund
95.58%
0.00%
0.00%
PFI International Emerging Markets Fund
0.00%
0.00%
0.06%
PFI International Equity Index Fund
0.00%
0.00%
0.05%
PFI International Fund I
0.00%
0.00%
0.10%
PFI LargeCap Blend Fund II
0.00%
0.00%
0.18%
PFI LargeCap Growth Fund
0.00%
0.00%
0.43%
PFI LargeCap Growth Fund I
0.00%
0.00%
0.44%
PFI LargeCap Growth Fund II
0.00%
0.00%
0.28%
PFI LargeCap S&P 500 Index Fund
0.00%
0.00%
0.20%
PFI LargeCap Value Fund
0.00%
0.00%
0.10%
PFI LargeCap Value Fund I
0.00%
0.00%
0.22%
PFI LargeCap Value Fund III
0.00%
0.00%
0.15%
PFI MidCap Blend Fund
0.00%
0.00%
0.12%
PFI MidCap Growth Fund
0.00%
0.00%
0.37%
PFI MidCap Growth Fund III
0.00%
0.00%
0.44%
PFI MidCap S&P 400 Index Fund
0.00%
0.00%
0.18%
PFI MidCap Value Fund I
0.00%
0.00%
0.22%
PFI MidCap Value Fund III
0.00%
0.00%
0.32%
PFI Money Market Fund
0.00%
0.00%
5.61%
PFI Overseas Fund
0.00%
0.00%
0.11%
PFI Preferred Securities Fund
0.00%
0.00%
0.10%
PFI Principal Capital Appreciation Fund
0.00%
0.00%
0.18%
PFI Principal LifeTime 2010 Fund
5.78%
11.82%
0.15%
PFI Principal LifeTime 2015 Fund
5.33%
11.24%
0.15%
PFI Principal LifeTime 2020 Fund
4.36%
9.77%
0.14%
MM 3122-6
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Principal Funds 2012 Tax Reporting Supplement
Government Obligations Percentage, continued
Fund
Direct Federal Obligations
Indirect Federal Obligations
Repurchase Agreements
PFI Principal LifeTime 2025 Fund
3.66%
8.40%
0.15%
PFI Principal LifeTime 2030 Fund
3.00%
6.64%
0.14%
PFI Principal LifeTime 2035 Fund
2.11%
4.83%
0.14%
PFI Principal LifeTime 2040 Fund
1.42%
3.54%
0.13%
PFI Principal LifeTime 2045 Fund
1.00%
2.43%
0.13%
PFI Principal LifeTime 2050 Fund
0.56%
1.28%
0.13%
PFI Principal LifeTime 2055 Fund
0.52%
1.19%
0.13%
PFI Principal LifeTime Strategic Income Fund
7.22%
14.24%
0.14%
PFI Real Estate Securities Fund
0.00%
0.00%
0.05%
PFI SAM Balanced Portfolio
1.02%
12.54%
0.12%
PFI SAM Conservative Balanced Portfolio
1.66%
17.14%
0.13%
PFI SAM Conservative Growth Portfolio
0.67%
6.41%
0.13%
PFI SAM Flexible Income Portfolio
1.27%
17.52%
0.12%
PFI SAM Strategic Growth Portfolio
0.09%
1.54%
0.12%
PFI Short-Term Income Fund
0.01%
0.26%
0.12%
PFI SmallCap Blend Fund
0.00%
0.00%
0.24%
PFI SmallCap Growth Fund I
0.00%
0.00%
1.35%
PFI SmallCap Growth Fund II
0.00%
0.00%
1.28%
PFI SmallCap S&P 600 Index Fund
0.00%
0.00%
0.22%
PFI SmallCap Value Fund II
0.00%
0.00%
0.26%
PFI Small-MidCap Dividend Income Fund
0.00%
0.00%
0.11%
PFI = Principal Funds, Inc
Foreign Tax
Foreign source income is the income earned by a fund from investments in foreign securities. Many countries impose a tax on income earned by
investors beyond their borders. These taxes are paid by the fund. The following funds have elected to pass-through to shareholders the foreign taxes
paid. Accordingly, this permits a shareholder to either take a federal income tax credit or a deduction from gross income. The amount of foreign tax
credit that is utilized by a shareholder may be limited due to general credit limitation rules as well as a reduction in foreign source income associated with
qualified dividend income. The percentage of the foreign source income that is qualified dividend income is shown in the Qualified Dividends table of
this Tax Reporting Supplement. Refer to the IRS Form 1116 instructions for additional information regarding foreign tax credits. Please consult with
your tax advisor to determine whether it is more beneficial for you to take the credit or deduction.
The information below summarizes the portion of income that was derived from foreign sources with regard to the applicable fund.
Fund
PFI Diversified International Fund
PFI Global Real Estate Securities Fund
PFI International Emerging Markets Fund
PFI International Equity Index Fund
PFI International Fund I
PFI Overseas Fund
MM 3122-6
Foreign Source Income
91.89%
30.83%
87.56%
90.34%
94.59%
89.45%
Foreign Tax Paid
$.0208
$.0088
$.0747
$.0206
$.0171
$.0304
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Principal Funds 2012 Tax Reporting Supplement
Qualified Dividends
Qualified dividends received and distributed by a fund are eligible to be taxed at lower rates. Qualified dividends are generally distributions from
domestic corporations and certain qualified foreign corporations that meet certain holding requirements. The ordinary dividends that may qualify for the
lower tax rates are shown in Box 1b of Form 1099-DIV. Shareholders must meet the holding period requirement to qualify for the lower ordinary
dividend tax rates. To be eligible to treat all or a portion of a fund’s dividend as qualified, shareholders must have held the fund’s shares for at least 61
days during the 121-day period surrounding the ex-dividend date. For additional information, see IRS Publication 550 at www.irs.gov.
Fund
PFI Blue Chip Fund
PFI Bond & Mortgage Securities Fund
PFI Core Plus Bond Fund I
PFI Diversified International Fund
PFI Diversified Real Asset Fund
PFI Equity Income Fund
PFI Global Diversified Income Fund
PFI Global Multi-Strategy Fund
PFI Global Real Estate Securities Fund
PFI High Yield Fund
PFI High Yield Fund I
PFI International Emerging Markets Fund
PFI International Equity Index Fund
PFI International Fund I
PFI LargeCap Blend Fund II
PFI LargeCap Growth Fund
PFI LargeCap Growth Fund I
PFI LargeCap Growth Fund II
PFI LargeCap S&P 500 Index Fund
PFI LargeCap Value Fund
PFI LargeCap Value Fund I
PFI LargeCap Value Fund III
PFI MidCap Blend Fund
PFI MidCap Growth Fund III
PFI MidCap S&P 400 Index Fund
12/31/12
QDI %
12/31/12
DRD %
100%
0.06%
0.38%
100%
44.44%
100%
13.83%
63.65%
2.75%
0.78%
0.86%
92.53%
85.97%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
82.11%
100%
0.05%
0.39%
1.06%
12.73%
75.43%
8.30%
47.71%
0.12%
0.72%
0.66%
4.54%
0.00%
0.00%
100%
0.00%
100%
100%
100%
100%
100%
100%
97.44%
100%
82.56%
Fund
PFI MidCap Value Fund I
PFI MidCap Value Fund III
PFI Overseas Fund
PFI Preferred Securities Fund
PFI Principal Capital Appreciation Fund
PFI Principal LifeTime 2010 Fund
PFI Principal LifeTime 2015 Fund
PFI Principal LifeTime 2020 Fund
PFI Principal LifeTime 2025 Fund
PFI Principal LifeTime 2030 Fund
PFI Principal LifeTime 2035 Fund
PFI Principal LifeTime 2040 Fund
PFI Principal LifeTime 2045 Fund
PFI Principal LifeTime 2050 Fund
PFI Principal LifeTime 2055 Fund
PFI Principal LifeTime Strategic Income Fund
PFI Real Estate Securities Fund
PFI SAM Balanced Portfolio
PFI SAM Conservative Balanced Portfolio
PFI SAM Conservative Growth Portfolio
PFI SAM Flexible Income Portfolio
PFI SAM Strategic Growth Portfolio
PFI Small-MidCap Dividend Income Fund
PFI SmallCap Blend Fund
PFI SmallCap S&P 600 Index Fund
PFI SmallCap Value Fund II
12/31/12
QDI %
12/31/12
DRD %
100%
100%
100%
20.56%
100%
30.05%
30.49%
39.28%
39.26%
44.51%
50.09%
55.71%
59.07%
64.03%
66.87%
17.04%
0.46%
56.02%
28.15%
100%
19.01%
100%
73.76%
100%
100%
100%
100%
100%
2.00%
10.73%
100%
20.84%
22.68%
27.36%
28.58%
30.19%
33.07%
34.78%
35.24%
36.70%
36.46%
11.42%
0.00%
40.98%
23.11%
69.48%
14.33%
100%
50.24%
100%
100%
100%
PFI = Principal Funds, Inc
Special Tax Information for Real Estate Securities Fund Shareholders
A majority of Principal Funds, Inc. – Real Estate Securities Fund’s investments are in real estate investment trusts (REITs), and many REITs will
redesignate their 2012 dividends in early 2013. These redesignations may reduce ordinary income. Because of this REIT redesignation, shareholders of
the Real Estate Securities Fund should be aware that the fund may issue amended Form 1099-DIVs prior to March 15, 2013. Once the final REIT
redesignation information has been received, we will determine whether the Form 1099-DIVs will need to be amended.
Alternative Minimum Tax
The percentage of 2012 exempt interest dividends subject to the Federal Alternative Minimum Tax is summarized below. Please consult with your tax
advisor to determine if you are subject to AMT.
Fund
PFI California Municipal Fund
PFI Tax-Exempt Bond Fund
PFI Opportunistic Municipal Fund
MM 3122-6
AMT %
6.1%
12.8%
15.13%
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Principal Funds 2012 Tax Reporting Supplement
Tax-Exempt Interest Income by State
A portion of the dividends you received in 2012 may be exempt from state and local taxes, depending on the tax laws of your individual state or local
taxing authority. For this purpose, a percentage breakdown of income by state or U.S. possession for 2012 is provided below. For shareholders residing
in the state of California, payments of interest-dividends on federally tax-exempt non-California municipal bonds are being reported to the California
Franchise Tax Board (FTB) as required under Revenue & Taxation Code (R&TC) Section 18639.
State
California
Municipal
Fund
0.07%
Tax-Exempt
Bond Fund
2.50%
Opportunistic
Municipal
Fund
0.97%
California
Municipal
Fund
0.00%
Tax-Exempt
Bond Fund
1.35%
Opportunistic
Municipal
Fund
0.00%
Alaska
0.00%
2.77%
0.00%
Nevada
0.00%
Arizona
0.00%
2.93%
0.77%
0.00%
0.02%
New Hampshire
0.00%
1.25%
Arkansas
0.00%
0.03%
0.00%
0.00%
New Jersey
0.00%
1.59%
California
5.74%
97.28%
14.13%
40.24%
New Mexico
0.00%
0.63%
0.00%
Colorado
0.00%
2.23%
0.37%
New York
0.00%
6.86%
7.67%
Connecticut
0.00%
0.65%
0.00%
North Carolina
0.00%
0.41%
0.00%
Delaware
0.00%
0.21%
2.29%
North Dakota
0.00%
0.00%
0.00%
District of
Columbia
Florida
0.00%
2.50%
0.00%
0.00%
0.00%
0.00%
0.00%
2.92%
3.62%
Northern
Mariana Islands
Ohio
0.00%
3.77%
0.00%
Georgia
0.00%
0.64%
4.79%
Oklahoma
0.00%
0.03%
0.00%
Guam
0.17%
0.00%
0.00%
Oregon
0.00%
0.90%
3.96%
Hawaii
0.00%
0.00%
0.00%
Pennsylvania
0.00%
1.31%
1.36%
Idaho
0.00%
1.42%
0.00%
Puerto Rico
2.24%
1.70%
0.00%
Illinois
0.00%
9.41%
0.00%
Rhode Island
0.00%
0.00%
0.00%
Indiana
0.00%
2.75%
2.71%
South Carolina
0.00%
0.88%
0.00%
Iowa
0.00%
0.88%
0.00%
South Dakota
0.00%
0.00%
0.00%
Kansas
0.00%
0.79%
0.00%
Tennessee
0.00%
0.74%
0.00%
Kentucky
0.00%
2.05%
0.00%
Texas
0.00%
6.90%
4.45%
Louisiana
0.00%
1.61%
0.28%
Utah
0.00%
0.89%
0.00%
Maine
0.00%
0.00%
0.00%
Vermont
0.00%
0.10%
2.94%
Maryland
0.00%
1.09%
2.66%
Virginia
0.00%
2.40%
2.69%
Massachusetts
0.00%
3.80%
0.12%
Virgin Islands
0.24%
0.27%
6.13%
Michigan
0.00%
1.72%
0.00%
Washington
0.00%
3.56%
0.78%
Minnesota
0.00%
1.68%
0.00%
West Virginia
0.00%
0.70%
0.00%
Mississippi
0.00%
0.00%
0.00%
Wisconsin
0.00%
3.73%
6.07%
Missouri
0.00%
0.58%
0.11%
Wyoming
0.00%
0.00%
0.00%
Montana
0.00%
0.00%
0.00%
Alabama
State
Nebraska
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MM 3122-6
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