AMENDED AND RESTATED DISTRIBUTION PLAN AND AGREEMENT CLASS R-3

PRINCIPAL FUNDS, INC.

AMENDED AND RESTATED

DISTRIBUTION PLAN AND AGREEMENT 

CLASS R-3

         DISTRIBUTION PLAN AND AGREEMENT made as of June 24, 2008, by and between 

PRINCIPAL FUNDS, INC., a Maryland corporation (the "Fund"), and PRINCOR FINANCIAL 

SERVICES CORPORATION, an Iowa corporation and PRINCIPAL FUNDS DISTRIBUTOR, INC., a 

Washington corporation (the "Underwriters"). 

1.	This Distribution and Service Plan (the “Plan”), when effective in accordance with its terms, shall
	be the written plan contemplated by Securities and Exchange Commission Rule 12b-1 under
	the Investment Company Act of 1940, as amended (the “Act”) for the Class R-3 shares of each
	Series identified in Appendix A, attached hereto (the “Series”), a class of shares of Principal
	Funds, Inc. (the “Fund”).
2.	The Fund has entered into a Distribution Agreement on behalf of the Fund with Princor
	Financial Services Corporation and Principal Funds Distributor, Inc. (each individually a
	“Distributor” and collectively the “Distributors”), under which each Distributor will use all
	reasonable efforts, consistent with their other business, to secure purchasers of shares of each
	Series of the Fund (the “Shares”). Such efforts may include, but neither are required to include
	nor are limited to, the following: (1) formulation and implementation of marketing and
	promotional activities, such as mail promotions and television, radio, newspaper, magazine and
	other mass media advertising; (2) preparation, printing and distribution of sales literature
	provided to the Fund’s shareholders and prospective shareholders; (3) preparation, printing and
	distribution of prospectuses and statements of additional information of the Fund and reports to
	recipients other than existing shareholders of the Fund; (4) obtaining such information,
	analyses and reports with respect to marketing and promotional activities as a Distributor may,
	from time to time, deem advisable; (5) making payment of sales commission, ongoing
	commissions and other payments to brokers, dealers, financial institutions or others who sell
	Shares pursuant to Selling Agreements; (6) paying compensation to registered representatives
	or other employees of the Distributor who engage in or support distribution of the Fund’s
	Shares; (7) paying compensation to, and expenses (including overhead and telephone
	expenses) of, the Distributor; (8) providing training, marketing and support to dealers and
	others with respect to the sale of Shares; (9) receiving and answering correspondence from
	prospective shareholders including distributing prospectuses, statements of additional
	information, and shareholder reports; (10) providing of facilities to answer questions from
	prospective investors about Shares; (11) complying with federal and state securities laws
	pertaining to the sale of Shares; (12) assisting investors in completing application forms and
	selecting dividend and other account options; (13) providing of other reasonable assistance in
	connection with the distribution of the Fund’s shares; (14) organizing and conducting of sales
	seminars and making payments in the form of transactional compensation or promotional
	incentives; and (15) such other distribution and services activities as the Fund determines may
	be paid for by the Fund pursuant to the terms of this Plan and in accordance with Rule 12b-1 of
	the Act.
3.	The Distribution Agreement also authorizes each Distributor to enter into Service Agreements
	with other selling dealers and with banks or other financial institutions to provide shareholder
	services to existing Class R-3 shareholders, including without limitation, services such as
	furnishing information as to the status of shareholder accounts, responding to telephone and
	written inquiries of shareholders, and assisting shareholders with tax information.

4.	In consideration for the services provided and the expenses incurred by the Distributors
	pursuant to the Distribution Agreement and Paragraphs 2 and 3 hereof, all with respect to Class
	R-3 shares of a Series of the Fund, Class R-3 of each Series shall pay to the Distributors a fee
	at the annual rate of 0.25% (or such lesser amount as the Fund Directors may, from time to time,
	determine) of the average daily net assets of Class R-3 shares of such Series. This fee shall be
	accrued daily and paid monthly or at such other intervals as the Fund Directors shall determine.
	The determination of daily net assets shall be made at the close of business each day
	throughout the month and computed in the manner specified in the Fund’s then current
	Prospectus for the determination of the net asset value of the Fund’s Class R-3 shares. A
	Distributor may use all or any portion of the fee received pursuant to this Plan to compensate
	securities dealers or other persons who have engaged in the sale of Class R-3 shares or to pay
	any of the expenses associated with other activities authorized under Paragraphs 2 and 3
	hereof.
5.	The Fund presently pays, and will continue to pay, a management fee to Principal Management
	Corporation (the “Manager”) pursuant to a Management Agreement between the Fund and the
	Manager (the “Management Agreement”). It is recognized that the Manager may use its
	management fee revenue, as well as its past profits or its resources from any other source, to
	make payment to a Distributor with respect to any expenses incurred in connection with the
	distribution of Class R-3 shares, including the activities referred to in Paragraph 2 hereof. To
	the extent that the payment of management fees by the Fund to the Manager should be
	deemed to be indirect financing of any activity primarily intended to result in the sale of Class R-
	3 shares within the meaning of Rule 12b-1, then such payment shall be deemed to be
	authorized by this Plan.
6.	This Plan shall not take effect until it has been approved (a) by a vote of at least a majority (as
	defined in the Act) of the outstanding Class R-3 shares of the Series of the Fund and (b) by
	votes of the majority of both (i) the Board of Directors of the Fund, and (ii) those Directors of the
	Fund who are not "interested persons" (as defined in the Act) of the Fund and who have no
	direct or indirect financial interest in the operation of this Plan or any agreements related to this
	Plan (the "Disinterested Directors"), cast in person at a meeting called for the purpose of voting
	on this Plan or such agreements.
7.	Unless sooner terminated pursuant to Paragraph 6, this Plan shall continue in effect for a period
	of twelve months from the date it takes effect and thereafter shall continue in effect so long as
	such continuance is specifically approved at least annually in the manner provided for approval
	of this Plan in Paragraph 6(b).
8.	A representative of each Underwriter shall provide to the Board and the Board shall review at
	least quarterly a written report of the amounts so expended and the purposes for which such
	expenditures were made.
9.	This Plan may be terminated at any time by vote of a majority of the Disinterested Directors, or
	by vote of a majority (as defined in the Act) of the outstanding Class R-3 shares of the Series of
	the Fund.
10. Any agreement of the Fund related to this Plan shall be in writing and shall provide:
	A.	That such agreement may be terminated at any time, without payment of any penalty, by
		vote of a majority of the Disinterested Directors or by a vote of a majority (as defined in the
		Act) of the outstanding Class R-3 shares of the Series of the Fund on not more than sixty
		(60) days' written notice to any other party to the agreement); and
	B.	That such agreement shall terminate automatically in the event of its assignment.

11.       While the Plan is in effect, the Fund’s board of directors shall satisfy the fund governance 

           standards as defined in Securities and Exchange Commission Rule 0-1(a)(7). 

12.      This Plan does not require the Manager or either Distributor to perform any specific type or level 

           of distribution activities or to incur any specific level of expenses for activities primarily intended 

           to result in the sale of Class R-3 shares. 

13.      The Fund shall preserve copies of this Plan and any related agreements and all reports made 

           pursuant to Paragraph 8, for a period of not less than six years from the date of the Plan, or the 

           agreements or such report, as the case may be, the first two years in an easily accessible 

           place. 

14.      This Plan may not be amended to increase materially the amount of Fees provided for in 

           Paragraph 4 hereof unless such amendment is approved in the manner provided for initial 

           approval in Paragraph 6 hereof and no other material amendment to this Plan shall be made 

           unless approved in the manner provided for initial approval in Paragraph 6(b) hereof. 

         IN WITNESS WHEREOF, the parties hereto have executed and delivered this Plan as of the 

first date written above. 

Principal Funds, Inc. 

By:  /s/ Xxxx Xxxxxxx

           Xxxx Xxxxxxx, President 

Princor Financial Services Corporation 

By:  /s/ Xxxx X. Xxxxxx 

           Xxxx X. Xxxxxx, Vice President 

Principal Funds Distributor, Inc. 

By:  /s/ Xxxxxxx X. Beer 

           Xxxxxxx X. Beer, Executive Vice President 

PRINCIPAL FUNDS, INC. 

APPENDIX A

SERIES

Bond and Mortgage Securities Fund	LargeCap Blend Fund II
Core Plus Bond I Fund	LargeCap Growth Fund I
Disciplined LargeCap Blend Fund	LargeCap Growth Fund II
Diversified International Fund	LargeCap Value Fund I
Government & High Quality Bond Fund	LargeCap Value Fund II
High Quality Intermediate-Term Bond Fund	LargeCap Value Fund III
Inflation Protection Fund	MidCap Growth Fund I
International Emerging Markets Fund	MidCap Growth Fund II
International Growth Fund	MidCap Growth Fund III
LargeCap Growth Fund	MidCap Value Fund I
LargeCap S&P 500 Index Fund	MidCap Value Fund II
LargeCap Value Fund	SmallCap Blend Fund I
LifeTime 2010 Fund	SmallCap Growth Fund I
LifeTime 2015 Fund	SmallCap Growth Fund II
LifeTime 2020 Fund	SmallCap Growth Fund III
LifeTime 2025 Fund	SmallCap Value Fund I
LifeTime 2030 Fund	SmallCap Value Fund II
LifeTime 2035 Fund	SmallCap Value Fund III
LifeTime 2040 Fund	Preferred Securities Fund
LifeTime 2045 Fund	Real Estate Securities Fund
LifeTime 2050 Fund	XXX Balanced Portfolio
LifeTime 2055 Fund	XXX Conservative Balanced Portfolio
LifeTime Strategic Income Fund	XXX Conservative Growth Portfolio
MidCap Blend Fund	XXX Flexible Income Portfolio
MidCap Growth Fund	XXX Strategic Growth Portfolio
MidCap S&P 400 Index Fund	Short-Term Bond Fund
MidCap Value Fund III	SmallCap Blend Fund
Money Market Fund	SmallCap Growth Fund
Global Equity Fund I	SmallCap S&P 600 Index Fund
International Fund I	SmallCap Value Fund
LargeCap Blend Fund I	Ultra Short Bond Fund