International I Portfolio
As part of the ongoing Principal Due Diligence Programsm, the Investment Services Department of Principal Life
Insurance Company has created this Manager Profile. With this profile, we hope to provide you with an in-depth
review of the qualitative factors that led to the selection and inclusion of this investment option in our line-up.
Fidelity (Pyramis Global Adv) and Schroder Investment Management North America Inc. (Schroders) employ unique
investment philosophies which we believe are complementary to one another. Historically, these sub-advisors have
exhibited strong performance in different market environments. We believe the consistency of the overall portfolio will
improve through the combination of these investment managers.
Beginning in June 2009, the Principal Financial Group® implemented a core-satellite structure on this investment
option. This change was a result of our ongoing efforts to enhance the performance of the investment options on our
platform, and offers the potential to improve consistency of returns while reducing risk relative to their benchmarks.
Principal Management Corporation, as part of its advisory duties to Principal Funds, Inc., maintains responsibility for
managing the core portion of the portfolio.*
In our core-satellite structure, each investment option is comprised of a “core” portfolio plus two or more “satellite”
portfolios. A key focus for the core portfolio is to help mitigate volatility within the investment option. It does so by
maintaining a composition that tilts the investment option away from stocks having certain return-generating
characteristics that may bring greater volatility to the portfolio. The core portfolio is actively managed within narrow
risk constraints. Generally, the core portfolio is expected to comprise 10-40 percent of the International I investment
option at any given point in time.
On the other hand, the key goal for the satellite portfolios — which are also actively managed — is to deliver excess
return relative to their benchmarks. Due to their mandate to strive for higher returns than the core portfolio, the
satellite portfolios have correspondingly wider risk constraints. Fidelity (Pyramis Global Adv) and Schroders manage
the satellite portfolios for this investment option, which generally are expected to comprise 60-90 percent of the
International I investment option at any given point in time.
Besides offering the potential for improved performance consistency while attempting to reduce risks relative to their
benchmarks, the core-satellite strategy can:
• help mitigate risks that may arise should adverse sub-advisor events occur
• enable us to use a broader range of sub-advisors for the satellite portfolios
• help maintain availability of certain investment options that may otherwise face capacity constraints and no
longer be available for new contributions
Read further to obtain additional information relating to each sub-advisor’s organization, investment philosophy and
process, and resources that define the investment strategy management for the Principal International I Portfolio, co-
sub-advised by Fidelity (Pyramis Global Adv) and Schroders.
*Principal Management Corporation is the advisor to Principal Funds, Inc.
Fidelity (Pyramis Global Adv) is one of the world's largest providers of financial services, with custodied assets of
$3.2 trillion, including managed assets of $1.5 trillion, as of December 31, 2009. Fidelity offers investment
management, retirement planning, brokerage and human resources and benefits outsourcing services to more than
20 million individuals and institutions, as well as through 5,000 financial intermediary firms.
Philosophy and process
Fidelity follows a bottom-up, company-by-company approach to investing. Each portfolio is built one investment at a
time based on extensive fundamental analysis, a rigorous process of security selection and disciplined, active
portfolio management. Their analysts and managers pursue only what they believe to be the most solid securities for
a Fidelity portfolio.
The investment process begins by screening a universe of over 3,500 stocks covered by Fidelity's research analysts.
Each stock is assigned an investment rating based on its potential to deliver future growth. Also considered is the
portfolio allocation that these individual stocks are given in Fidelity's analyst-run industry funds. Using this
combination of ratings and weightings, the portfolio manager determines the regional, country and sector exposures
of the portfolio. Risk controls are put in place to limit the portfolio's divergence in positioning relative to the
benchmark. The result is an actively selected, risk-controlled portfolio of approximately 300 stocks.
Unlike other investment firms, Fidelity is not dependent upon Wall Street research. With 409 equity analysts around
the world, including 179 dedicated to non-US equities1, Fidelity employs a research resource that few, if any, of their
competitors can match. The application of this resource enables them to research more companies in greater depth
than other investment management firms. In addition, Fidelity carries out local research to develop an in-depth
understanding of the companies they follow. Extensive applications of technologies ensure timely communication
between analysts and portfolio managers. A common research structure also aids in communication.
Schroders is a premier asset management firm with approximately $239.6 billion under management as of December
31, 2009. The firm is among the top 50 asset managers worldwide, with a diverse global range of strategies including
equities, fixed income, multi-asset and alternatives.1 Schroders maintains a high level of commitment to research and
Founded in 1804, Schroders has more than 200 years of experience in world financial markets. Listed on the London
stock exchange yet majority-owned by the Schroders family (47.7%) and employees (9%) as of June 30, 2009,
Schroders benefits from the stability and support of quasi-private ownership as well as from the transparency and
accountability of public listing.
Philosophy and process
Schroders’ philosophy rests on the belief that quality growth stocks with sustainable competitive advantage, selling at
attractive valuations are likely to outperform over time. The investment decision process is team-based, with ultimate
stock selection, portfolio construction and performance responsibility resting with the head of the team. In addition, as
is consistent with Schroders’ investment philosophy, decision-making relies on bottom-up fundamental stock
selection, driven by proprietary fundamental and macro-economic research. The strategy operates within a coherent
macro-economic framework and thematic road map. The thematic road map unravels over long periods of time and
is underpinned by important structural trends shaping the investment world.
Initial local research draws on the extensive knowledge and recommendations of 70+ regional equity analysts located
in 11 countries. The strongest ideas of these local analysts are then overlaid with the global perspective of an
international team consisting of 10 global sector specialists (GSS) and regionally-focused fund managers. Schroders
believes that this knowledge “matrix” (global sector/regional expertise) provides an optimal framework for identifying
strong investment candidates and building high-quality portfolios across multiple regions and sectors. The GSS and
portfolio managers meet regularly to formally review research and portfolio construction.
Additional input is provided by a central team of two economists in London. This team supplies fund managers with
independent macro-economic research, interpreting current economic information to provide background knowledge
and a consistent economic view for use by all of the fund managers.
The Global and International Equity Team members regularly travel and meet with the local researchers based in
other parts of the world. In 2008 alone, Schroders Global equity research conducted over 12,000 company contacts
across the globe. Finally, Schroders’ proprietary research system, GRID, allows real-time distribution of research on a
global basis, with research notes and analysts’ models being presented in a consistent and comparable format,
facilitating the sharing of research materials across borders.
About Principal Management Corporation
Principal Management Corporation, which has responsibility for portfolio management of the core portfolio for all of
the core-satellite investment options, utilizes a team approach overseen by a portfolio manager. Principal
Management Corporation has served as advisor to the Principal Funds since 1969. The Principal Funds have
$55.6 billion in assets under management as of December 31, 2009. As advisor to the funds, Principal
Management Corporation oversees the Principal Due Diligence Program, our proprietary process for identifying,
selecting and monitoring investment managers. The Principal Funds offer a full range of investment options
covering all core style boxes and several niche options. The Funds are sub-advised by a variety of investment
managers representing some of the nation’s leading asset managers and investment boutiques.
FOR MORE INFORMATION
For more information, please visit our web site www.principal.com
or call your Corporate Center Contact.
Before investing in mutual funds, investors should carefully consider the investment objectives,
risks, charges and expenses of the funds. This and other information is contained in the free
prospectus, which can be obtained from your local representative, by visiting www.principal.com or
by contacting us at 1-800-547-7754, or visiting www.principalfunds.com or by contacting us at 1-
800-222-5852. Please read the prospectus carefully before investing.
Investment options are subject to investment risk. Shares or unit values will fluctuate and
investments, when redeemed, may be worth more or less than their original cost.
This investment option is available through a Separate Account or Principal Funds, Inc. mutual fund.
Separate Accounts are made available through a group annuity contract with the Principal Life
Insurance Company, Des Moines, IA 50392.
International and global investment options are subject to additional risk due to fluctuating exchange
rates, foreign accounting and financial policies, and other economic and political environments.
1. Pensions and Investments as of December 2008.
Principal Financial Group, Des Moines, Iowa 50392-0001, www.principal.com
Insurance products and plan administrative services are provided by Principal Life Insurance Company.
Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc. Securities are offered through Princor
Financial Services Corporation, 800-547-7754, member SIPC and/or independent broker/dealers. Securities sold
by a Princor® Registered Representative are offered through Princor. Principal Funds Distributor, Princor, and
Principal Life are members of the Principal Financial Group®, Des Moines, IA 50392. Certain investment options
may not be available in all states or U.S. commonwealths.
PJ 622-1 | 12/09