PRINCIPAL FUNDS, INC, AMENDED AND RESTATED SUB-ADVISORY AGREEMENT MELLON CAPITAL MANAGEMENT CORPORATION SUB-ADVISED SERIES

PRINCIPAL FUNDS, INC,
AMENDED AND RESTATED SUB-ADVISORY AGREEMENT
MELLON CAPITAL MANAGEMENT CORPORATION SUB-ADVISED SERIES
AGREEMENT executed as of the 17th day of February, 2009 and effective as of the 24thday of
November, 2008, by and between PRINCIPAL MANAGEMENT CORPORATION, an Iowa corporation
(hereinafter called '1he Manager'), and MELLON CAPITAL MANAGEMENT CORPORATION, a Delaware
Corporation,(hereinafter called "the Sub-Advisor).
WIT N E SSE 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 render discretionary investment advisory
services with respect to assets allocated by the Manager for management by the Sub-Advisor for a portion
of the portfolio for the SmallCap Value Fund I and MidCap Growth Fund III of the Fund (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 property 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.
(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 policies and restrictions as
	stated in the Fund's prospectus and statement of additional infonnation, subject to receipt of
	such additional infonnation as may be required from the Manager and provided in accordance
	with Section 10(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.
(1)	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 detennine that the
	investment policies, procedures and approved investment program of the Series are being
	observed.
(g)	Upon request, provide assistance in the detennination of the fair value of certain securities
	when relia~e 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-Advlsor will report on
	such allocations at the request of the Manager, the Fund or the Fund's Board of Directors
	providing such infonnation 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 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 Acn, 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.
(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
	acknow1edges 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 Ethk::s.
(I)	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 infonnation 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 Acn, and any state securities laws, and any rule or regulation thereunder. Sub-
	Advisor will advise Manager of any changes in Sub-Advisor's general partners within a
	reasonable time after any such change. Manager acknowfedges receipt of Sub-Advisor's
	Form ADV more than 48 hours prior to the execution of this Agreement.
(n)	Perform quarterty and annual tax compliance tests to monitor the Series' compliance with
	Subchapter M of the Code and Section 817(h) of the Code, subject to receipt of such
	additional information as may be required from the Manager and provided in accordance with
	Section 10(d) of this Agreement. The Sub-Advisor shall notify the Manager immediately upon
	having a reasonable basis for believing that the Series has ceased to be in compliance or that
	it might not be in compliance in the future. tf it is determined that the Series is not in
	compliance with the requirements noted above, the Sub-Advisor, in consultation with the
	Manager, will take prompt action to bring the Series back into compliance (to the extent
	possible) within the time pennitted under the Code.
(o)	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, the Sub-Advisor will not consult with any
	other invesbnent advisory firm that provides investment advisory services to any investment
	company sponsored by Principal Ufe Insurance Company regarding transactions for the Fund in
	securities or other assets.
4.	Compensation
	As fuJI 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
	Nerther 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 Xxxx suffered by the Manager or the
	Fund resulting from any error of judgment made in the good faith exercise of the Sub-Adviso(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 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), (-Losses1 howsoever arising, from or in connection wfth 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. promptty 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 proviston 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 on the latest of (i) the date of its execution, (ii) the date of 

its approval by a majority of the Board of Directors of the Fund, including approval by the 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 or (iii) if required by the 1940 Act, the date of its approval 

by a majority of the outstanding voting securities of the Series. It shall continue in effect 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 the 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 

Fund 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 wnUen 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 (particularty the definitions of Minterested 

person," "assignmenf 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. 

11. General ProvisiQns 

(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 gQvemed 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 Qf 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 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxxxxxxxxx, XX 

00000-0000. 

(c) The Sub--Advisor will promptly notify the Manager in writing of the occurrence of any of the 

following events: 

(1) the Sub-AdvisQr fails to be registered as an investment adviser under the Investment 

Advisers Act or under the laws of any jurisdiction in which the Sub-AdvisQr 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 aU 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 WlTNESS WHEREOF, the parties have duly executed this Agreement on the date first above
written.

•

APPENDIX A 

The Sub--Advisor shall serve as investment sub-advisor for the Fund. The Manager will pay the Sub- 

Advisor, as full compensation for all services provided under this Agreement, a fee computed at an annual 

rale as follows (the "Sub-Advisor Percentage Fee''): 

MidCap Growth Fund III
	Fee as a Percentage of
Average Daily Net Assets	Average Daily Net Assets
First $50 million	0.40%
Assets over $50 million	0.35%

In calculating the fee for the MidCap Growth Fund III of Principal Funds. Inc. on or after July 1, 2004, 

assets of any unregistered separate account of Principal Life Insurance Company and any investment 

company sponsored by Principal Life Insurance Company to which the Sub-Advisor provides investment 

advisory services and which have the same investment mandate as the MidCap Growth Fund III, will be 

combined (together, the "Aggregated Assets"). The fee charged for the assets in the MidCap Growth Fund 

III shall be determined by calculating a fee on the value of the Aggregated Assets and multiplying the 

aggregate fee by a fraction, the numerator of which is the amount of assets in the MidCap Growth Fund III 

and the denominator of which is the amount of the Aggregated Assets. 

SmallCap Value Fund I
	Fee as a Percentage of
Average Daily Net Assets	Average Daily Net Assets
First $100 million	0.45%
Next $200 million	0.40%
Over $300 million	0.35%

In calculating the fee for the SmallCap Value Fund I of Principal Funds, Inc. on or after July 1, 2005, 

assets of any unregistered separate account of Principal Life Insurance Company and any investment 

company sponsored by Principal Life Insurance Company to which the Sub-Advisor provides investment 

advisory services and which have the same investment mandate as the SmallCap Value Fund I, will be 

combined {together, the -Aggregated Assets1. The fee charged for the assets in the SmallCap Value 

Fund I shall be detennined by calculating a fee on the value of the Aggregated Assets and multiplying the 

aggregate fee by a fraction, the numerator of which is the amount of assets in the SmaUCap Value Fund I 

and the denominator of which is the amount of the Aggregated Assets. 

The Sub-Advisor Percentage Fee shall be accrued for each calendar day and the sum of the daily fee 

accruals shall be paid monthly to the Sub-Advisor. The daily fee accruals will be computed by multiplying 

the fraction of one over the number of calendar days in the year by the applicable annual rate described 

above and multiplying this product by the net assets of the Fund as determined in accordance with the 

Fund's prospectus and statement of additional information as of the close of business on the previous 

business day on which the Fund was open for business. 

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 fun month in which such effectiveness or termination occurs.