PRINCIPAL FUNDS, INC.
AMENDED AND RESTATED SUB-ADVISORY AGREEMENT
SMALLCAP VALUE FUND II
AGREEMENT executed as of January 1, 2010, by and between PRINCIPAL MANAGEMENT CORPORATION
(hereinafter called "the Manager"), and Vaughan Nelson Investment Management, LP (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 the 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 investment advisory services with respect to
assets allocated by the Manager for management by the Sub-Adviser for a portion of the portfolio of SmallCap
Value Fund II (hereinafter called “Series”), and the Sub-Advisor desires to furnish such services to said portfolio(s)
and the Manager in the manner and terms hereinafter set forth; 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; and
(c)	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 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)	Subject to the supervision of the Board of Directors of the Fund (or any appropriate committee of
		such Board) or the Manager, provide and revise from time to time as conditions require, a continuous
		investment program for the Series consistent with the Series investment objective and policies.
	(c)	Implement the continuous 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 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.
(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 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 the Series.

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	(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 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.
	(n)	Provide a copy of the Sub-Advisor’s Form ADV and any amendments thereto contemporaneously
		with the filing of such documents with the Securities and Exchange Commission or other regulatory
		agency.
	(o)	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 in an electronic format to enable the Series to file Form N-PX as required by
		SEC rule.
	(p)	Respond to tender offers, rights offerings and other voluntary corporate action requests affecting
		securities held by the Series and complete and file notices of claims in connection with class action
		lawsuits concerning securities owned by 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 advisory services to any investment company sponsored
	by Principal Life Insurance Company regarding transactions for the Fund in securities or other assets.
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 the Series 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, or affiliates.
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.

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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.	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 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 8, the definitions contained in Section
	2(a) of the 1940 Act (particularly the definitions of "interested person," "assignment" and "voting security")
	shall be applied.
9.	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.
10. 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, Des Moines, Iowa 50392-0200, and the address of
		the Sub-Advisor shall be Vaughan Nelson Investment Management, LP, 600 Travis, Suite 6300,
		Houston, Texas 77002-3071.

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(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 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 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 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.
(f)	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.
(g)	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/ Michael J. Beer 

                                                                                                                         By 

                                                                                                                                 Michael J. Beer, Executive Vice President and 

                                                                                                                                 Chief Operating Officer 

                                                                                                                         VAUGHAN NELSON INVESTMENT MANAGEMENT, LP 

                                                                                                                                                         /s/ Lee A. Lahourcade 

                                                                                                                         By 

                                                                                                                                 Lee A. Lahourcade, President and CEO 

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APPENDIX A
The Manager will pay Sub-Adviser, as full compensation for all services provided under this Agreement, a fee,
computed and paid monthly, at an annual rate as shown below.
Compensation Table
Series	Sub-Adviser Fee as a Percentage of Average Daily Net Assets
SmallCap Value Fund II	First $100 Million	0.50%
	Next $200 Million	0.45%
	Over $300 Million	0.35%
In calculating the fee for the 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 Sub-
Adviser provides investment advisory services and which have the same investment mandate (e.g. SmallCap Value)
as the series for which the fee is calculated, will be combined with the assets of the series to arrive at net assets.
Cash and cash equivalents shall be included in the Series net assets calculation up to a maximum of 1.00% of
the Series net assets. If the Manager requests the Sub-Advisor to raise cash in the Series portfolio in excess of
1.00% of the Series net assets for the purpose of funding redemptions from the Series, such amount requested
shall be included in the Series net assets calculation.
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.

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