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Principal Funds Takes on Inflation Risk with Real Asset Fund

Fund seeks long-term total return in excess of inflation

June 10, 2010 (Des Moines, IA) - Though under control for quite some time, aggressive fiscal and monetary policies around the world have put investors on alert for high levels of inflation.

The effect of inflation – especially unexpected inflation – on investors who are on fixed incomes can be particularly severe. To help investors manage the impact of inflation on their purchasing power and further diversify traditional portfolios of stocks and bonds, Principal Funds has launched the Principal Diversified Real Asset Fund (PRDAX).

“Investors face many risks: the familiar risks of market volatility and outliving their money and the not so familiar risk of inflation,” said Mike Finnegan, Principal Funds chief investment officer and portfolio advisor of the Principal Diversified Real Asset Fund. “We look at inflation risk as an ever-present risk that all investors should take into consideration.”

According to Finnegan, real assets such as land, buildings and commodities serve two important functions in a long-term portfolio:

  • Hedge against inflation: Traditional financial asset values may not keep up with inflation. Prices of real assets tend to rise when the Consumer Price Index goes up and may help maintain purchasing power.
  • Risk management: Because real assets historically have had low correlations to traditional stock and bond investments, even in low inflationary times they help improve diversification opportunities and help manage overall portfolio risk.

The Principal Diversified Real Asset Fund, launched March 16, 2010, blends five inflation-hedging strategies managed by specialist subadvisors. Similar to the Principal Global Diversified Income Fund (PGBAX), the fund uses a multi-manager, multi-disciplined approach and rules-based rebalancing.

Asset classes, subadvisors, target allocations and ranges in the fund include[1]:

  • Treasury inflation-protected securities (TIPS), BlackRock Financial Management – 30 percent (+/- 8 percent)
  • Commodities, Credit Suisse – 25 percent (+/- 8 percent)
  • U.S. real estate investment trusts (REITs), Principal Real Estate Investors – 20 percent (+/- 5 percent)
  • Natural resource stocks, Jennison Associates – 15 percent (+/- 5 percent)
  • Master limited partnerships (MLPs), Tortoise Capital Advisors – 10 percent (+/- 5 percent)

The Principal Diversified Real Asset Fund is the second in a series of funds designed to help financial professionals build more reliable retirement-income portfolios for their clients. The first in the series is the Principal Global Diversified Income Fund, launched December 15, 2008. For more information, visit the Principal Funds Specialty Funds page at https://www.principalfunds.com/investor/funds/specialty.htm.  

About Principal Funds

Principal Funds is a leading provider of mutual funds, with $58.9 billion in assets under management.[2] 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.[3] 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 Group

The Principal Financial Group® (The Principal®)[4] is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance, and banking through its diverse family of financial services companies. A member of the Fortune 500, the Principal Financial Group has $293.4 billion in assets under management[5] and serves some 18.7 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.

Before investing, you should carefully consider a fund’s investment objectives, risks, charges, and expenses. Contact your financial professional, visit principalfunds.com, or call 800-222-5852 to obtain a prospectus containing this and other information. 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. Neither the principal of bond investment options nor their yields are guaranteed by the U.S. or any other government entity. Investments concentrated in natural resources industries can be affected significantly by events relating to those industries, such as variations in the commodities markets, weather, disease, embargoes, international, political, and economic developments, the success of exploration projects, tax and other government regulations, and other factors. 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.

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.

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.

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[1]
May not reflect current allocations or subadvisors.
[2]
As of March 31, 2010. Includes all share classes of the Principal Funds, Inc and Principal Variable Contracts Fund, Inc.
[3]
FRC Mutual Fund Lifecycle Report 1Q10.
[4]
The Principal Financial Group and The Principal are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.
[5]
As of March 31, 2010.
Questions?

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Call 515.246.4907 or see the full Media Relations contact list.

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