PRINCIPAL FUNDS, INC. SUB-ADVISORY AGREEMENT NEUBERGER BERMAN SUB-ADVISED FUND


PRINCIPAL FUNDS, INC.
SUB-ADVISORY AGREEMENT
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ SUB-ADVISED FUND

AGREEMENT executed as of May 4, 2009, by and between PRINCIPAL MANAGEMENT CORPORATION
(hereinafter called "the Manager"), and ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ IINCOME LLC (hereinafter called "the Sub-
Advisor").

W I T N E S S E T H:

WHEREAS, the Manager is the manager and investment advisor to each Series of 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 investment advisory services
with respect to 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 to be 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 act as the Manager’s agent and attorney-in-fact with respect to the investment and
	reinvestment of assets in the Series with full power and authority to direct any custodian of the assets of
	the Series to purchase, sell or exchange any stocks, bonds, or other securities or such other assets
	which are acceptable to the Sub-Advisor (individually, "security" and collectively, "securities") and to
	issue directly to a broker or dealer such orders for the purchase, sale or exchange of securities or other
	property, as the Sub-Advisor may deem appropriate and without prior consultation with the Manager,
	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.

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(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 conditions require, a recommended investment program for
	the Series consistent with each 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 registration statement, Articles of Incorporation and Bylaws
	and 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
	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 obligations,
	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.

(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 and recommendations for 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 the investment advisory affairs of the Series. Except for expenses specifically
	assumed or agreed to be paid by the Sub-Advisor under this Agreement, the Sub-Advisor shall not
	be liable for any expenses of the Manager, the Fund or the Series including, without limitation, (i)
	interest and taxes, (ii) brokerage commissions and other costs in connection with the purchase or
	sale of securities or other investment instruments with respect to the Series, and (iii) custodian fees
	and expenses.

(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 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

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	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
	Advisers Act of 1940 (the “Investment Advisers 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 Series 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 a Series
	upon request by the Fund or the Manager. The Sub-Advisor has no responsibility for the
	maintenance of Fund records except insofar as is directly related to the services the Sub-Advisor
	provides to a Series.

(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 along with certification that the Sub-Advisor has implemented procedures for administering
	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 a 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 a 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 Advisors Act, the Securities Act of 1933, as amended (the “Securities Act”), and any
	state securities laws, and any rule or regulation thereunder.

(n)	Vote proxies received on behalf of the Series in a manner consistent with Sub-Advisor's proxy
	voting policies and procedures and provide a record of votes cast containing all of the voting
	information required by Form N-PX to enable the Series to file Form N-PX as required by SEC rule.

(o)	Respond to tender offers, rights offerings and other voluntary corporate action requests affecting
	securities held by the Fund. Notwithstanding the foregoing, the Sub-Advisor shall not be obligated
	to take any action or render advice involving legal action on the Fund’s behalf with respect to assets
	in the Series that become subject to any legal notices or proceedings, including securities class
	actions and bankruptcies. The Fund retains the right to proceed directly as a securityholder against
	the issuer of any security in the Series.


3.	Prohibited Conduct

	In providing the services described in this agreement, the Sub-Advisor will not consult with any other
	investment advisory firm that provides investment sub-advisory services to the Fund or a fund that is

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	under common control with the Fund regarding transactions for the Fund in the securities or other assets
	allocated to the Sub-Advisor pursuant to this Agreement, except as provided by Rule 12d-3-1 under the
	1940 Act.

4.	Compensation

	As full compensation for all services rendered and obligations assumed by the Sub-Advisor hereunder
	with respect to the Series, 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 investment discretion in
	connection with selecting investments for a Series or as a result of the failure by the Manager or any of
	its affiliates to comply with the terms of this Agreement and/or insurance laws and rules 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, or affiliates. The Sub-
	Advisor shall not have any responsibilities with respect to any assets of the Fund other than the Series.
	The Sub-Advisor shall not be responsible for any loss incurred by reason of any act or omission of any
	dealer or broker, or the Manager, or any custodian, or any other third-party service provider to the Fund
	or Series.

	The Sub-Advisor shall be responsible only for managing the Series in good faith and in accordance with
	the investment objectives, fundamental policies and restrictions, and shall have no responsibility
	whatsoever for, and shall incur no liability on account of (i) selection or establishment of such investment
	objectives, fundamental policies and restrictions (ii) advice on, or management of, any other assets for
	Manager or the Fund, (iii) filing of any tax or information returns or forms, withholding or paying any
	taxes, or seeking any exemption or refund for the Manager or the Fund, (iv) registration of the Fund or
	Series with any government or agency, or (v) administration of the plans and trusts investing through the
	Fund, (vi) overall Fund compliance with the requirements of the 1940 Act, which requirements are
	outside of the Sub-Advisor’s control, and any requirements of Subchapter M of the Internal Revenue
	Code of 1986, as amended, which are outside of the Sub-Advisor’s control and shall be indemnified and
	held harmless by Manager for any loss in carrying out the terms and provisions of this Agreement,
	including reasonable attorney’s fees, indemnification to the Fund, or any shareholder thereof and,
	brokers and commission merchants, fines, taxes, penalties and interest. Sub-Advisor, however, shall be
	liable for any liability, damages, or expenses of Manager or the Fund arising out of the 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 or employees.

6.	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.

7.	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.

8.	Manager’s Representations

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	The Manager represents and warrants that (i) it is registered as an investment advisor under the
	Investment Advisors Act and will continue to be so registered for so long as this Agreement remains in
	effect; (ii) it is not prohibited by the 1940 Act or the Investment Advisors Act from performing the services
	contemplated by this Agreement; (iii) it has met, and will continue to meet for so long as this Agreement
	remains in effect, any applicable federal or state requirements, or the applicable requirements of any
	regulatory or industry self-regulatory agency, necessary to be met in order to perform the services
	contemplated by this Agreement; (iv) it has the authority to enter into and perform the services
	contemplated by this Agreement, (v) it will immediately notify the Sub-Advisor of the occurrence of any
	event that would disqualify the Manager from serving as an investment advisor of an investment
	company pursuant to Section 9(a) of the 1940 Act or otherwise; and (vi) it has received Sub-Advisor’s
	written disclosure statement (Form ADV Part II) required by Rule 204-3 under the Investment Advisers
	Act at least 48 hours prior to entering into this Agreement.

	The Manager further represents and warrants that on the date of this Agreement the Series is a
	“qualified institutional buyer” as that term is defined in Rule 144A of the Securities Act of 1933, as
	amended, and to inform Sub-Adviser promptly if the Series loses its status as a qualified institutional
	buyer

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. Indemnification

	(a) The Sub-Advisor agrees to indemnify and hold harmless the Manager, any affiliated person within
	the meaning of Section 2(a)(3) of the 1940 Act (“affiliated person”) of the Manager and each
	person, if any who, within the meaning of Section 15 of the Securities Act controls (“controlling
	persons”) the Manager, against any and all losses, claims, damages, liabilities or litigation,
	including reasonable legal expenses (collectively “Losses”) to which the Manager or such affiliated
	person or controlling person of the Manager may become subject under the Securities Act, the
	1940 Act, the Investment Advisors Act, under any other statute, law, rule or regulation at common
	law or otherwise, arising out of the Sub-Advisor’s responsibilities hereunder (1) to the extent of and
	as a result of the willful misconduct, bad faith, or gross negligence by the Sub-Advisor, any of the
	Sub-Advisor’s employees or representatives or any affiliate of or any person acting on behalf of the
	Sub-Advisor; or (2) as a result of any untrue statement of a material fact contained in the
	Registration Statement, including any amendment thereof or any supplement thereto, or the
	omission to state therein a material fact required to be stated therein or necessary to make the

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statement therein not misleading, if such a statement or omission was made in reliance upon and in

conformity with written information furnished by the Sub-Advisor to the Manager specifically for use

therein; provided, however, that in no case is the Sub-Advisor’s indemnity in favor of the Manager

or any affiliated person or controlling person of the Manager deemed to protect such person against

any liability to which any such person would otherwise be subject by reason of willful misconduct,

bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard

of its obligations and duties under this Agreement.

(b) The Manager agrees to indemnify and hold harmless the Sub-Advisor, any affiliated person and

any controlling person of the Sub-Advisor, if any, against any and all Losses to which the Sub-

Advisor or such affiliated person or controlling person of the Sub-Advisor may become subject

under the Securities Act, the 1940 Act, the Investment Advisors Act, under any other statute, law,

rule or regulation, at common law or otherwise, arising out of the Manager’s responsibilities as

investment manager of the Fund (1) to the extent of and as a result of the willful misconduct, bad

faith, or gross negligence by the Manager, any of the Manager’s employees or representatives or

any affiliate of or any person acting on behalf of the Manager, or (2) as a result of any untrue

statement of a material fact contained in the Registration Statement, including any amendment

thereof or any supplement thereto, or the omission to state therein a material fact required to be

stated therein or necessary to make the statement therein not misleading; provided, however, that

in no case is the Manager’s indemnity in favor of the Sub-Advisor or any affiliated person or

controlling person of the Sub-Advisor deemed to protect such person against any liability to which

any such person would otherwise be subject by reason of willful misconduct, bad faith or gross

negligence in the performance of its duties or by reason of its reckless disregard of its obligations

and duties under this Agreement. It is agreed that the Manager’s indemnification obligations under

this Section will extend to expenses and costs (including reasonable attorneys fees) incurred by the

Sub-Advisor as a result of any litigation brought by the Manager alleging the Sub-Advisor’s failure to

perform its obligations and duties in the manner required under this Agreement unless judgment is

rendered for the Manager.

11. 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.

12. CFTC Disclosure Relief


PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING
COMMISSION IN CONNECTION WITH ACCOUNTS OF QUALIFIED ELIGIBLE
PERSONS, THIS AGREEMENT IS NOT REQUIRED TO BE, AND HAS NOT BEEN,
FILED WITH THE COMMISSION. THE COMMODITY FUTURES TRADING
COMMISSION DOES NOT PASS UPON THE MERITS OF PARTICIPATING IN A
TRADING PROGRAM OR UPON THE ADEQUACY OR ACCURACY OF COMMODITY
TRADING ADVISOR DISCLOSURE. CONSEQUENTLY, THE COMMODITY FUTURES
TRADING COMMISSION HAS NOT REVIEWED OR APPROVED THIS TRADING
PROGRAM OR THIS AGREEMENT.


13. 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 Maryland. The captions in this Agreement

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	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 the Principal Financial Group, ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, and the address of
	the Sub-Advisor shall be ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Fixed Income LLC, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
	▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇.

(c)	The Sub-Advisor will promptly notify the Manager in writing of the occurrence of any of the following
	events unless otherwise prohibited by law or regulation or regulatory request or that the provision of
	such notice would be a violation of securities laws by the Sub-Advisor or its affiliates:

	(1)	the Sub-Advisor fails to be registered as an investment advisor under the Investment Advisors
		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 a Series.

(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 a Series, cash requirements and
	cash available for investment in a 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

/s/ ▇▇▇▇▇▇▇ ▇. Beer

By:____________________________________________

▇▇▇▇▇▇▇ ▇. Beer, Executive Vice President and Chief

Operating Officer

▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ FIXED INCOME LLC

/s/ ▇▇▇▇ ▇. ▇▇▇▇▇

By:________________________________

▇▇▇▇ ▇. ▇▇▇▇▇, Senior Vice President

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APPENDIX A

▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Group, LLC shall serve as investment sub-advisor for each Series identified below. The

Manager will pay ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Fixed Income LLC, 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’ net assets as the

first day of each month allocated to ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Fixed Income LLC’s management.

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.


	Sub Advisor Fee (as percentage
Series	of Daily Net Assets Managed)
	Annualized Fee

	All Assets Under Management
High Yield Fund I	0.30%

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PRINCIPAL FUNDS, INC. SUB-ADVISORY AGREEMENT NEUBERGER BERMAN SUB-ADVISED FUND

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