Report of Independent Registered Public Accounting Firm
The Shareholders and Board of Directors
Principal Funds, Inc.
In planning and performing our audits of the financial statements of Blue Chip Fund, Bond Market Index Fund, Capital Securities Fund, Diversified Real Asset Fund (consolidated), Dynamic Floating Rate High Income Fund, EDGE MidCap Fund, Global Multi-Strategy Fund (consolidated), Global Opportunities Fund, International Equity Index Fund, International Small Company Fund, Multi-Manager Equity Long/Short Fund, Opportunistic Municipal Fund, Origin Emerging Markets Fund, Preferred Securities Fund, Real Estate Debt Income Fund, Small-MidCap Dividend Income Fund, SystematEx International Fund and SystematEx Large Value Fund (18 of the portfolios constituting the Principal Funds, Inc. (collectively the “Funds”)) as of and for the year ended August 31, 2018, in accordance with the standards of the Public Company Accounting Oversight Board (United States), we considered the Funds’ internal control over financial reporting, including controls over safeguarding securities, as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements and to comply with the requirements of Form N-CEN, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.
The management of the Funds is responsible for establishing and maintaining effective internal control over financial reporting. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of controls. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of a company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Our consideration of the Funds’ internal control over financial reporting was for the limited purpose described in the first paragraph and would not necessarily disclose all deficiencies in internal control that might be material weaknesses under standards established by the Public Company Accounting Oversight Board (United States).
However, we noted no deficiencies in the Funds’ internal control over financial reporting and its operation, including controls over safeguarding securities, that we consider to be a material weakness as defined above as of August 31, 2018.
This report is intended solely for the information and use of management and the Board of Directors of the Funds and the Securities and Exchange Commission and is not intended to be and should not be used by anyone other than these specified parties.
Minneapolis, Minnesota
October 23, 2018
PRINCIPAL FUNDS’ CCO ANNUAL INTERFUND LENDING PROGRAM REPORT
For the year ended December 31, 2017
This report provides my annual evaluation of Principal Funds’ compliance with the terms and conditions of the application for exemptive relief filed with the SEC to enable the Funds to participate in an interfund lending program. The report also includes an assessment of the Funds’ procedures established to achieve such compliance.
The application for the order includes eighteen conditions. The Funds have adopted procedures to ensure compliance with each of the conditions of the SEC exemptive order. The Funds’ Compliance Oversight and Risk Committee reviewed quarterly reports providing details of the operation of the program for each quarter during 2017. The information provided in the reports demonstrated compliance with each of the conditions throughout the 2017 calendar year. A quarterly report regarding the operation of the program, including an affirmation of compliance with the SEC exemptive order conditions and supporting documentation, was also provided by management to the Operations Committee of the Funds’ Board of Directors during 2017.
It is my opinion that the Funds have complied with each of the conditions of the SEC exemptive order and that the Funds’ procedures established to achieve such compliance are reasonably designed and effectively implemented.
Teri R. Root
Interim Chief Compliance Officer – Principal Funds