PRINCIPAL FUNDS, INC. DISTRIBUTION PLAN AND AGREEMENT CLASS C SHARES DISTRIBUTION PLAN AND AGREEMENT made as of December 22, 2008, by and between PRINCIPAL FUNDS, INC., a Maryland corporation (the "Fund"), and PRINCIPAL FUNDS DISTRIBUTOR, INC., a...

PRINCIPAL FUNDS, INC.
DISTRIBUTION PLAN AND AGREEMENT
CLASS C SHARES
	DISTRIBUTION PLAN AND AGREEMENT made as of December 22, 2008, by and between
PRINCIPAL FUNDS, INC., a Maryland corporation (the "Fund"), and PRINCIPAL FUNDS
DISTRIBUTOR, INC., a Washington corporation (the "Distributor").
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 C 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 the Distributor, under
	which the Distributor uses all reasonable efforts, consistent with its 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 the 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 the Distributor to enter into Service Agreements with
	other selling dealers and with banks or other financial institutions to provide shareholder services to
	existing Class C 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 Distributor pursuant to
	the Distribution Agreement and Paragraphs 2 and 3 hereof, all with respect to Class C shares of a
	Series of the Fund, Class C shares of each Series shall pay to the Distributor a fee at the annual
	rate of 1.00%, (or such lesser amount as the Fund Directors may, from time to time, determine) of
	the average daily net assets of Class C shares of such Series, of which 0.75% shall be a distribution
	fee and 0.25% shall be a service fee. 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

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	Fund’s Class C shares. The 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
	C 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 the Distributor with respect to any expenses incurred in connection with the distribution of
	Class C 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 C 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 C 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 the 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 C 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 C 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 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 C 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.

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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 

                                                                                                                     PRINCIPAL FUNDS DISTRIBUTOR, INC. 

                                                                                                                     BY:                  /s/ Xxxxxxx X. Beer

                                                                                                                                 XXXXXXX X. BEER, EXECUTIVE VICE PRESIDENT 

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PRINCIPAL FUNDS, INC. 

APPENDIX A 

Series 

Bond and Mortgage Securities Fund 

California Municipal Fund 

Disciplined LargeCap Blend Fund 

Diversified International Fund 

Equity Income Fund 

Global Diversified Income Fund 

Global Real Estate Securities Fund 

Government Securities & High Quality Bond 

High Yield Fund 

Income Fund 

Inflation Protection Fund 

International Emerging Markets Fund 

International Growth Fund 

LargeCap Blend Fund I 

LargeCap Blend Fund II 

LargeCap Growth Fund 

LargeCap Growth Fund I 

LargeCap Growth Fund II 

LargeCap S&P 500 Index Fund 

LargeCap Value Fund 

LargeCap Value Fund II 

MidCap Blend Fund 

MidCap Growth Fund I 

MidCap Growth Fund III 

MidCap Stock Fund 

MidCap Value Fund I 

MidCap Value Fund II 

Money Market Fund 

Mortgage Securities 

Preferred Securities Fund 

Principal Lifetime 2010 Fund 

Principal Lifetime 2020 Fund 

Principal Lifetime 2030 Fund 

Principal Lifetime 2040 Fund 

Principal Lifetime 2050 Fund 

Principal LifeTime Strategic Income Fund 

Real Estate Securities Fund 

XXX – Balanced Portfolio 

XXX – Conservative Balanced Portfolio 

XXX – Conservative Growth Portfolio 

XXX – Flexible Income Portfolio 

XXX – Strategic Growth Portfolio 

Short-Term Bond Fund 

Short-Term Income Fund 

SmallCap Blend Fund 

SmallCap Growth Fund 

SmallCap Growth Fund II 

SmallCap Value Fund 

Tax-Exempt Bond Fund 

West Coast Equity 

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