PRINCIPAL FUNDS, INC.
 SUB-ADVISORY AGREEMENT


AGREEMENT executed as of the 9th of October, 2012, by and between PRINCIPAL
MANAGEMENT CORPORATION, an Iowa corporation (hereinafter called "the
Manager"), and DDJ CAPITAL MANAGEMENT, LLC, a Massachusetts limited
liability company (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, as well as exercise all
other ancillary rights or duties in connection with the management
of such securities or other assets necessary to implement any of the
powers contained herein, 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 and other investment
instruments 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, 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 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.  Notwithstanding the foregoing,
the cost of the securities or other investment instruments
purchased or sold or held by the Fund (including taxes,
brokerage commissions and other applicable transaction costs, if
any, shall be solely borne by the Fund.

(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 reasonable 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. Such services or products
do not need to be used by the Sub-Advisor in managing the
Series. In addition, joint repurchase  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.

	The Manager acknowledges that the Sub-Advisor may have
investment responsibilities or render investment advice to, or
perform other investment advisory services for, other
individuals or entities ("Affiliated Accounts").  The Manager
agrees that the Sub-Advisor may give advice or exercise
investment responsibility and take such other action with
respect to its Affiliated Accounts that may differ from advice
given or the timing or nature of action taken with respect to
the Fund, provided that the Sub-Advisor acts in good faith, and
provided, further, that it the Sub-Advisor's policy to allocate,
within its reasonable discretion, investment opportunities to
the Fund over a period of time on a fair and equitable basis
relative to the Affiliated Accounts, taking into account the
investment objectives and policies of the Fund and any specific
investment restrictions applicable thereto.

(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 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; provided, however, that the Sub-Advisor may
retain a copy of such records in order to comply with applicable
requirements under the Investment Advisers Act.

(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.  Sub-Advisor will advise Manager of
any changes in Sub-Advisor's senior management (i.e. Chief
Investment Officer and President) within a reasonable time after
any such change.  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.  In addition, the Sub-Advisor shall have the power,
discretion and responsibility to exercise and act with respect
to any conversion privilege, subscription right, or other
corporate action notification with respect to any of the assets
of the Series, as well as participate, join in or dissent from,
and vote in any in-court or out-of-court corporate restructuring
or reorganization or liquidation.

(o)	The Sub-Advisor shall have the power to make, execute,
acknowledge and deliver on behalf of the Fund any and all
documents of transfer and conveyance and any and all other
documents or instruments that may be necessary or appropriate to
carry out the powers granted to it under this Agreement.  In
connection with the execution of any such documents or
instruments, the signature block of the Fund shall be as
follows:

[Principal Funds, Inc. -- Global Diversified Income Fund]

By: DDJ Capital Management, LLC, in its capacity as Sub-Advisor

By:
Name:
Title:	Authorized Signatory


    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 advisory services to any investment company
sponsored by Principal Life Insurance Company regarding transactions
for the Fund in securities or other assets.  The Manager agrees to
provide a list of such other investment advisory firms to the Sub-
Advisor, such list to be promptly updated by the Manager upon any
changes thereto.

    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 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
(provided, however, that any delay in notifying the Manager shall
not limit Manager's liability hereunder unless such delay materially
prejudices the Manager in the defense 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 (provided, however, that the foregoing
notification and approval provision shall not apply with respect to
the retention by the Sub-Advisor of legal counsel on behalf of the
Fund in connection with (a) the purchase and/or sale of securities
or other investment instruments by the Fund, and (b) the
restructuring or reorganization of an existing holding 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 Board of Directors or 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.

    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, 711 High Street, Des Moines, Iowa
50392-0200, and the address of the Sub-Advisor shall be 130
Turner Street, Building #3, Suite 600, Waltham, MA 02453 ATTN:
Legal Department.

(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)	The Fund is (a) a "qualified institutional buyer" as defined
in paragraph (a) of Rule 144A under the Securities Act of 1933
("Securities Act") by reason of the fact that it an investment
company registered under the 1940 Act, and (b) an "accredited
investor" as defined in Regulation D under the Securities Act.

(f)  The Sub-Advisor represents that it will not enter into any
agreement, oral or written, or other understanding under which
the Fund directs or is expected to direct portfolio securities
transactions, or any remuneration, to a broker or dealer in
consideration for the promotion or sale of Fund shares or shares
issued by any other registered investment company. Sub-Advisor
further represents that it is contrary to the Sub-Advisor's
policies to permit those who select brokers or dealers for
execution of fund portfolio securities transactions to take into
account the broker or dealer's promotion or sale of Fund shares
or shares issued by any other registered investment company.

(g)  The Sub-Advisor agrees that neither it nor any of its
affiliates will in any way refer directly or indirectly to its
relationship with the Fund, the Series, or the Manager or any of
their respective affiliates in offering, marketing or other
promotional materials without the express written consent of the
Manager; provided, however, that the Manager consents to the Sub-
Advisor's use of the Manager's name and the Fund name in the Sub-
Advisor's representative client list that may be distributed to
potential and existing clients so long as this Agreement is in
effect.

(h)	This Agreement contains the entire understanding and
agreement of the parties.

    [Remainder of Page Intentionally Left Blank]


IN WITNESS WHEREOF, the parties have duly executed this
Agreement on the
date first above written.

PRINCIPAL MANAGEMENT CORPORATION

By


DDJ CAPITAL MANAGEMENT, LLC

By
Name:
Title:


APPENDIX A


DDJ Capital Management, LLC ("DDJ") shall serve as an investment sub-
advisor for the Series identified below. The Manager will pay DDJ, as full
compensation for all services provided under this Agreement, a fee,
computed and paid monthly, a fee, computed and paid monthly, at an annual
rate as shown below of the Series' average daily net assets for that month
allocated to DDJ's management.



In calculating the fee for a series included in the table, assets of any
unregistered separate account of Principal Life Insurance Company and any
investment company sponsored by Principal Life Insurance Company to which
DDJ 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 assets of the series to arrive at net 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.


Global Diversified Income Fund
Sub-Advisor's Fee as a Percentage of Average Daily Net
Assets

       First $750 million......................................0.40%*
       Assets greater than $750 million..................0.35%

       *If assets assigned to DDJ fall below $500 million during any
period
after June 30, 2013, the fee schedule will be 0.45% on all assets.

10