PRINCIPAL FUNDS, INC. SUB-ADVISORY AGREEMENT BLACKROCK FINANCIAL MANAGEMENT, INC. SUB-ADVISED FUNDS

PRINCIPAL FUNDS, INC.
SUB-ADVISORY AGREEMENT
BLACKROCK FINANCIAL MANAGEMENT, INC. SUB-ADVISED FUNDS
AGREEMENT executed as of the December 31, 2008, by and between PRINCIPAL MANAGEMENT CORPORATION,
an Iowa corporation (hereinafter called "the Manager"), and BLACKROCK FINANCIAL MANAGEMENT, INC., a
Delaware Corporation (hereinafter called “the Sub-Advisor).
W I T N E S S E T H:
WHEREAS, the Manager is the manager and investment adviser to each Fund of the Principal Funds, Inc., (the
"Fund"), an open-end management investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Manager desires to retain the Sub-Advisor to furnish it with portfolio selection and related research and
statistical services in connection with the investment advisory services for each series identified in Appendix A (
hereinafter called the “Series”), which the Manager has agreed to provide to the Fund, and the Sub-Advisor desires to
furnish such services; and
WHEREAS, The Manager has furnished the Sub-Advisor with copies properly certified or authenticated of each of the
following and will promptly provide the Sub-Advisor with copies properly certified or authenticated of any amendment or
supplement thereto:
(a)	Management Agreement (the "Management Agreement") with the Fund;
(b)	The Fund's registration statement and financial statements as filed with the Securities and Exchange
	Commission;
(c)	The Fund's Articles of Incorporation and By-laws;
(d)	Policies, procedures or instructions adopted or approved by the Board of Directors of the Fund relating to
	obligations and services provided by the Sub-Advisor.
NOW, THEREFORE, in consideration of the premises and the terms and conditions hereinafter set forth, the parties
agree as follows:
1.	Appointment of Sub-Advisor
	In accordance with and subject to the Management Agreement, the Manager hereby appoints the Sub-Advisor
	to perform the services described in Section 2 below for investment and reinvestment of the securities and other
	assets of the Series, subject to the control and direction of the Manager and the Fund's Board of Directors, for
	the period and on the terms hereinafter set forth. The Sub-Advisor accepts such appointment and agrees to
	furnish the services hereinafter set forth for the compensation herein provided. The Sub-Advisor shall for all
	purposes herein be deemed to be an independent contractor and shall, except as expressly provided or
	authorized, have no authority to act for or represent the Fund or the Manager in any way or otherwise be
	deemed an agent of the Fund or the Manager.
2.	Obligations of and Services to be Provided by the Sub-Advisor
	The Sub-Advisor will:
	(a)	Provide investment advisory services, including but not limited to research, advice and supervision for the
		Series.
	(b)	Furnish to the Board of Directors of the Fund for approval (or any appropriate committee of such Board),
		and revise from time to time as economic conditions require, a recommended investment program for the
		Fund consistent with the Series’ investment objective and policies.
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(c)	Implement the approved investment program by placing orders for the purchase and sale of securities
	without prior consultation with the Manager and without regard to the length of time the securities have
	been held, the resulting rate of portfolio turnover or any tax considerations, subject always to the provisions
	of the Fund's Articles of Incorporation and Bylaws, the requirements of the 1940 Act, as each of the same
	shall be from time to time in effect.
(d)	Advise and assist the officers of the Fund, as requested by the officers, in taking such steps as are
	reasonably necessary or appropriate to carry out the decisions of its Board of Directors, and any
	appropriate committees of such Board, regarding the general conduct of the investment business of the
	Series.
(e)	Maintain, in connection with the Sub-Advisor’s investment advisory services provided to the Series, its
	compliance with the 1940 Act and the regulations adopted by the Securities and Exchange Commission
	thereunder and the Series’ investment strategies and restrictions as stated in the Fund’s prospectus and
	statement of additional information, subject to receipt of such additional information as may be required
	from the Manager and provided in accordance with Section 11(d) of this Agreement. The Sub-Advisor has
	no responsibility for the maintenance of Fund records except insofar as is directly related to the services it
	provides to the Series.
(f)	Report to the Board of Directors of the Fund at such times and in such detail as the Board of Directors may
	reasonably deem appropriate in order to enable it to determine that the investment policies, procedures
	and approved investment program of the Series are being observed.
(g)	Upon request, provide assistance in the determination of the fair value of certain securities when reliable
	market quotations are not readily available for purposes of calculating net asset value in accordance with
	procedures and methods established by the Fund's Board of Directors.
(h)	Furnish, at its own expense, (i) all necessary investment and management facilities, including salaries of
	clerical and other personnel required for it to execute its duties faithfully, and (ii) administrative facilities,
	including bookkeeping, clerical personnel and equipment necessary for the efficient conduct of its duties
	under this Agreement.
(i)	Open accounts with broker-dealers and futures commission merchants (“broker-dealers”), select broker-
	dealers to effect all transactions for the Series, place all necessary orders with broker-dealers or issuers
	(including affiliated broker-dealers), and negotiate commissions, if applicable. To the extent consistent with
	applicable law, purchase or sell orders for the Series may be aggregated with contemporaneous purchase
	or sell orders of other clients of the Sub-Advisor. In such event allocation of securities so sold or
	purchased, as well as the expenses incurred in the transaction, will be made by the Sub-Advisor in the
	manner the Sub-Advisor considers to be the most equitable and consistent with its fiduciary obligations to
	the Fund and to other clients. The Manager recognizes that, in some cases, this procedure may limit the
	size of the position that may be acquired or sold for the Series. The Sub-Advisor will report on such
	allocations at the request of the Manager, the Fund or the Fund’s Board of Directors providing such
	information as the number of aggregated trades to which the Series was a party, the broker-dealers to
	whom such trades were directed and the basis for the allocation for the aggregated trades. The Sub-
	Advisor shall use its best efforts to obtain execution of transactions for the Series at prices which are
	advantageous to the Series and at commission rates that are reasonable in relation to the benefits
	received. However, the Sub-Advisor may select brokers or dealers on the basis that they provide
	brokerage, research or other services or products to the Sub-Advisor. To the extent consistent with
	applicable law, the Sub-Advisor may pay a broker or dealer an amount of commission for effecting a
	securities transaction in excess of the amount of commission or dealer spread another broker or dealer
	would have charged for effecting that transaction if the Sub-Advisor determines in good faith that such
	amount of commission is reasonable in relation to the value of the brokerage and research products
	and/or services provided by such broker or dealer. This determination, with respect to brokerage and
	research products and/or services, may be viewed in terms of either that particular transaction or the
	overall responsibilities which the Sub-Advisor and its affiliates have with respect to the Series as well as to
	accounts over which they exercise investment discretion. Not all such services or products need be used
	by the Sub-Advisor in managing the Series. In addition, joint repurchase or other accounts may not be

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		utilized by the Series except to the extent permitted under any exemptive order obtained by the Sub-
		Advisor provided that all conditions of such order are complied with.
	(j)	Maintain all accounts, books and records with respect to the Series as are required of an investment
		advisor of a registered investment company pursuant to the 1940 Act and Investment Advisor’s Act of
		1940 (the “Investment Advisor’s Act”), and the rules thereunder, and furnish the Fund and the Manager
		with such periodic and special reports as the Fund or Manager may reasonably request. In compliance
		with the requirements of Rule 31a-3 under the 1940 Act, the Sub-Advisor hereby agrees that all records
		that it maintains for the Series are the property of the Fund, agrees to preserve for the periods described
		by Rule 31a-2 under the 1940 Act any records that it maintains for the Fund and that are required to be
		maintained by Rule 31a-1 under the 1940 Act, and further agrees to surrender promptly to the Fund any
		records that it maintains for the Series upon request by the Fund or the Manager, understanding that the
		Sub-Advisor must keep a copy for regulatory purposes.
	(k)	Observe and comply with Rule 17j-1 under the 1940 Act and the Sub-Advisor’s Code of Ethics adopted
		pursuant to that Rule as the same may be amended from time to time. The Manager acknowledges
		receipt of a copy of Sub-Advisor’s current Code of Ethics. Sub-Advisor shall promptly forward to the
		Manager a copy of any material amendment to the Sub-Advisor’s Code of Ethics.
	(l)	From time to time as the Manager or the Fund may request, furnish the requesting party reports on
		portfolio transactions and reports on investments held by the Series, all in such detail as the Manager or
		the Fund may reasonably request. The Sub-Advisor will make available its officers and employees to meet
		with the Fund’s Board of Directors at the Fund’s principal place of business on due notice to review the
		investments of the Series.
	(m)	Provide such information as is customarily provided by a sub-advisor and may be required for the Fund or
		the Manager to comply with their respective obligations under applicable laws, including, without limitation,
		the Internal Revenue Code of 1986, as amended (the “Code”), the 1940 Act, the Investment Advisers Act,
		the Securities Act of 1933, as amended (the “Securities Act”), and any state securities laws, and any rule
		or regulation thereunder. Manager acknowledges receipt of Sub-Advisor’s Form ADV more than 48 hours
		prior to the execution of this Agreement.
	(n)	Have the responsibility and authority to vote proxies solicited by, or with respect to, the issuers of securities
		held in the Series. The Manager shall cause to be forwarded to Sub-Advisor all proxy solicitation materials
		that it receives and shall assist Sub-Advisor in its efforts to conduct the proxy voting process.
3.	Prohibited Conduct
	In providing the services described in this agreement, as it relates to the 1940 Act, the Sub-Advisor will not
	consult with any other investment advisory firm that provides investment advisory services to any investment
	company sponsored by Principal Life Insurance Company regarding transactions for the Fund in securities or
	other assets.
4.	Compensation
	As full compensation for all services rendered and obligations assumed by the Sub-Advisor hereunder with
	respect to the Fund, the Manager shall pay the compensation specified in Appendix A to this Agreement.
5.	Liability of Sub-Advisor
	Neither the Sub-Advisor nor any of its directors, officers, employees, agents or affiliates shall be liable to the
	Manager, the Fund or its shareholders for any loss suffered by the Manager or the Fund resulting from any error
	of judgment made in the good faith exercise of the Sub-Advisor's duties under this Agreement or as a result of
	the failure by the Manager or any of its affiliates to comply with the terms of this Agreement except for losses
	resulting from willful misfeasance, bad faith or gross negligence of, or from reckless disregard of, the duties of
	the Sub-Advisor or any of its directors, officers, employees, agents (excluding any broker-dealer selected by the
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	Sub-Advisor), or affiliates.
6.	Indemnification
	The Manager agrees to indemnify and hold harmless the Sub-Advisor from and against any and all claims,
	losses, liabilities or damages (including reasonable attorneys’ fees and other related expenses), (“Losses”)
	howsoever arising, from or in connection with this Agreement or the performance by the Sub-Advisor of its
	duties hereunder, so long as the Sub-Advisor shall, after receipt of notice of any claim or commencement of any
	action, promptly notify the Manager in writing of the claim or commencement of such action. The Manager shall
	not be liable for any settlement of any claim or action effected without its written consent. Nothing contained
	herein shall require the Manager to indemnify the Sub-Advisor for Losses resulting from the Sub-Advisor’s willful
	misfeasance, bad faith or gross negligence in the performance of its duties or from its reckless disregard of its
	obligations and duties under this Agreement.
7.	Supplemental Arrangements
	The Sub-Advisor may enter into arrangements with other persons affiliated with the Sub-Advisor or with
	unaffiliated third parties to better enable the Sub-Advisor to fulfill its obligations under this Agreement for the
	provision of certain personnel and facilities to the Sub- Advisor, subject to written notification to and approval of
	the Manager and, where required by applicable law, the Board of Directors of the Fund.
8.	Regulation
	The Sub-Advisor shall submit to all regulatory and administrative bodies having jurisdiction over the services
	provided pursuant to this Agreement any information, reports or other material which any such body may
	request or require pursuant to applicable laws and regulations.
9.	Duration and Termination of This Agreement
	This Agreement shall become effective as of the date of its execution and, unless otherwise terminated, shall
	continue in effect for a period of two years and thereafter from year to year provided that the continuance is
	specifically approved at least annually either by the Board of Directors of the Fund or by a vote of a majority of
	the outstanding voting securities of the Series and in either event by a vote of a majority of the Board of
	Directors of the Fund who are not interested persons of the Manager, Principal Life Insurance Company, the
	Sub-Advisor or the Fund cast in person at a meeting called for the purpose of voting on such approval.
	If the shareholders of a Series fail to approve the Agreement or any continuance of the Agreement in
	accordance with the requirements of the 1940 Act, the Sub-Advisor will continue to act as Sub-Advisor with
	respect to the Series pending the required approval of the Agreement or its continuance or of any contract with
	the Sub-Advisor or a different manager or Sub-Advisor or other definitive action; provided, that the
	compensation received by the Sub-Advisor in respect to the Series during such period is in compliance with
	Rule 15a-4 under the 1940 Act.
	This Agreement may be terminated at any time without the payment of any penalty by the Board of Directors of
	the Fund or by the Sub-Advisor, the Manager or by vote of a majority of the outstanding voting securities of the
	Series on sixty days written notice. This Agreement shall automatically terminate in the event of its assignment.
	In interpreting the provisions of this Section 9, the definitions contained in Section 2(a) of the 1940 Act
	(particularly the definitions of "interested person," "assignment" and "voting security") shall be applied.
10. Amendment of this Agreement
	No material amendment of this Agreement shall be effective until approved, if required by the 1940 Act or the
	rules, regulations, interpretations or orders issued thereunder, by vote of the holders of a majority of the
	outstanding voting securities of the Series and by vote of a majority of the Board of Directors of the Fund who
	are not interested persons of the Manager, the Sub-Advisor, Principal Life Insurance Company or the Fund cast
	in person at a meeting called for the purpose of voting on such approval, and such amendment is signed by
	both parties.
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11. General Provisions
(a)	Each party agrees to perform such further acts and execute such further documents as are necessary to
	effectuate the purposes hereof. This Agreement shall be construed and enforced in accordance with and
	governed by the laws of the State of Iowa. The captions in this Agreement are included for convenience
	only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or
	effect.
(b)	Any notice under this Agreement shall be in writing, addressed and delivered or mailed postage pre-paid to
	the other party at such address as such other party may designate for the receipt of such notices. Until
	further notice to the other party, it is agreed that the address of the Manager for this purpose shall be
	Principal Financial Group, Xxx Xxxxxx, Xxxx 00000-0000, and the address of the Sub-Advisor shall be 00
	Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx, 00000.
(c)	The Sub-Advisor will promptly notify the Manager in writing of the occurrence of any of the following events:
	(1)	the Sub-Advisor fails to be registered as an investment adviser under the Investment Advisers Act or
		under the laws of any jurisdiction in which the Sub-Advisor is required to be registered as an investment
		advisor in order to perform its obligations under this Agreement.
	(2)	the Sub-Advisor is served or otherwise receives notice of any action, suit, proceeding, inquiry or
		investigation, at law or in equity, before or by any court, public board or body, involving the affairs of the
		Fund.
(d)	The Manager shall provide (or cause the Series custodian to provide) timely information to the Sub-Advisor
	regarding such matters as the composition of the assets of the Series, cash requirements and cash
	available for investment in the Series, and all other reasonable information as may be necessary for the
	Sub-Advisor to perform its duties and responsibilities hereunder.
(e)	This Agreement contains the entire understanding and agreement of the parties.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date first above written.
		PRINCIPAL MANAGEMENT CORPORATION
		By  /s/ Xxxxxxx X. Beer
		Xxxxxxx X. Beer, Executive Vice President and
		Chief Operating Officer
		BLACKROCK FINANCIAL MANAGEMENT, INC.
		By  /s/ Xxxxxx Xxxxxxx
		Xxxxxx Xxxxxxx, Managing Director
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APPENDIX A
Blackrock Financial Management, Inc. (“Blackrock”) shall serve as an investment sub-advisor for the Series identified
below. The Manager will pay Blackrock, as full compensation for all services provided under this Agreement, a fee,
computed and paid monthly, at an annual rate as shown below of the Series’ gross assets, including assets in any
securities lending collateral accounts, as the first day of each month allocated to Blackrock’s management.
In calculating the fee for a series included in the table, net assets of any unregistered separate account of Principal Life
Insurance Company and any investment company sponsored by Principal Life Insurance Company to which Blackrock
provides investment advisory services and which have the same investment mandate as the series for which the fee is
calculated, will be combined with the gross assets of the series to arrive at total assets.
If this Agreement becomes effective or terminates before the end of any month, the fee (if any) for the period from the
effective date to the end of such month or from the beginning of such month to the date of termination, as the case may
be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or
termination occurs.
Inflation Protection Fund
Sub-Advisor’s Fee as a Percentage of Average Daily Gross Assets
All Assets	0.10%
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