PRINCIPAL INVESTORS FUND, INC.
SUB-ADVISORY AGREEMENT
PARTNERS SMALLCAP GROWTH FUND II
AGREEMENT executed as of the 1st day of September, 2004, by and between
PRINCIPAL MANAGEMENT CORPORATION, an Iowa Corporation (hereinafter called "the
Manager") and EMERALD ADVISORS, INC. ("Emerald") (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 Principal
Investors Fund, 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 the Partners SmallCap Growth Fund II
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 properly certified or authenticated of any amendment
or supplement thereto:
(a) Management Agreement (the "Management Agreement") between the Manager
and the Fund;
(b) The Fund's registration statement as filed with the Securities and
Exchange Commission (the "Registration Statement");
(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 promises 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
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
(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 (or any appropriate
committee of such Board), and revise from time to time as
conditions require, a recommended investment program for the
portfolio of the Series consistent with the Series' investment
objective and policies as set forth in the Registration
Statement, as may be amended from time to time.
c) Implement such of its recommended investment program as the Board
of Directors (or any appropriate committee of the Board) shall
approve, by placing orders for the purchase and sale of
securities, 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 reasonably
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) Report to the Board of Directors of the Fund at such times and in
such detail as the Board of Directors may deem appropriate in
order to enable it to determine that the investment policies,
procedures and approved investment program of the Series are
being observed.
(f) Upon reasonable request, provide assistance and recommendations
for the determination of the fair value of certain securities
when 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.
(g) 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.
(h) Open accounts with broker-dealers and future commission merchants
("broker-dealers"), select brokers and dealers to effect all
transactions for the Series (which may include brokers or dealers
affiliated with the Sub-Advisor, provided such transactions
comply with applicable requirements under the 1940 Act), place
all necessary orders with brokers, dealers, or issuers, and
negotiate brokerage 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 a manner the Sub-Advisor considers to be equitable
and consistent with its fiduciary obligations to the Series and
to other clients. The Sub-Advisor shall use its best efforts to
obtain execution of transactions for the Fund at prices that are
advantageous to the Fund and at commission rates that are
reasonable in relation to the benefits received. In doing so, the
Sub-Advisor may select brokers or dealers on the basis that they
also 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 and provided that all
conditions of such order are complied with.
(i) Maintain all accounts, books and records with respect to the
Series as are required of an investment adviser of a registered
investment company pursuant to the 1940 Act and Investment
Advisers Act of 1940, as amended, (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 and it will 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. The Sub-Advisor
has no responsibility for the maintenance of Fund records except
insofar as is directly related to the services provided to the
Series.
(j) 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. The
Sub-Advisor shall promptly forward to the Manager a copy of any
material amendments to the Sub-Advisor's Code of Ethics.
(k) From time to time as the Manager or the Fund may reasonably
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 reasonable times at
the Fund's principal place of business upon reasonable notice to
review the investments of the Series.
(l) Provide such information as 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.
(m) Maintain, in connection with the Sub-Advisor's investment
advisory services obligations provided hereunder, compliance with
the 1940 Act and the regulations adopted by the Securities and
Exchange Commission thereunder and each Series' investment
strategies and restrictions as stated in the Series' current
prospectus and statement of additional information.
(n) Provide to the Manager a copy of its Form ADV as filed with the
Securities and Exchange Commission, as amended from time to time,
and a list of the persons whom the Sub-Advisor wishes to have
authorized to give written and/or oral instructions to custodians
of assets of 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 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 permitted 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.
Although the Manager may from time to time waive the compensation it is
entitled to receive from the Series, such waiver will have no effect on
the Manager's obligation to pay the Sub-Advisor the compensation
provided for herein.
5. Liability of Sub-Advisor
Neither the Sub-Advisor nor any of its directors, officers or employees
shall be liable to the Manager, the Fund, the Series or any shareholder
of the Fund for any loss suffered by the Manager, the Fund, the Series
or any shareholder of 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
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 or employees. The Manager
shall hold harmless and indemnify the Sub-Advisor for any loss,
liability, cost, damage or expense (including reasonable attorneys fees
and costs) arising from any claim or demand by any past or present
shareholder of the Series or the Fund that is not based upon the
obligations of the Sub-Advisor with respect to the Series under this
Agreement. The Manager acknowledges and agrees that the Sub-Advisor
makes no representation or warranty, express or implied, that any level
of performance or investment results will be achieved by the Series or
that the Series will perform comparably with any standard or index,
including other clients of the Sub-Advisor, whether public or private.
6. Supplemental Arrangements
The Sub-Advisor may enter into arrangements with other persons
affiliated with the Sub-Advisor for the provision of certain personnel
and facilities to the Sub-Advisor to better enable it to fulfill its
obligations under this Agreement.
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
The Manager represents and warrants that (i) it is registered as an
investment adviser under the Investment Advisers 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 Advisers
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, and (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.
9. Duration and Termination of This Agreement
This Agreement shall become effective as of the date of execution and,
unless otherwise terminated, 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 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 Account 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 Account 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
Account during such period is in compliance with Rule 15a-4 under the
1940 Act.
This Agreement may, on sixty days written notice, be terminated at any
time without the payment of any penalty, by the Board of Directors of
the Fund, the Sub-Advisor or the Manager or by vote of a majority of
the outstanding voting securities of the Series. This Agreement shall
automatically terminate in the event of its assignment or upon
termination of the Management Agreement. 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 Advisers 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 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 Advisers 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
This Agreement may be amended at any time by mutual consent of the
parties, provided that, if required by law, such amendment shall also
have been approved by vote of the holders of a majority of the
outstanding voting securities of the Series and by vote of a majority
of the 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. 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 the
Principal Financial Group, Xxx Xxxxxx, Xxxx 00000-0000, and the
address of the Sub-Advisor shall be 0000 Xxxxxx Xxxx, X.X. Xxx
00000, Xxxxxxxxx, XX 00000-0000.
(c) Each party will promptly notify the other in writing of the
occurrence of any of the following events:
(1) the party fails to be registered as an investment adviser
under the Investment Advisers Act or under the laws of any
jurisdiction in which the party is required to be registered
as an investment adviser in order to perform its obligations
under this Agreement.
(2) the party 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 Account custodian to
provide) timely information to the Sub-Advisor regarding such
matters as the composition of the assets of the Account, cash
requirements and cash available for investment in the Account, any
applicable investment restrictions imposed by state insurance laws
and regulations, and all other reasonable information as may be
necessary for the Sub-Advisor to perform its duties and
responsibilities hereunder.
(e) The Manager will provide Sub-Advisor promptly with any changes to
the Fund's Articles of Incorporation, By-laws, registration
statement, policies, procedures, instructions, and any other
document relevant to the Sub-Advisor's management of the Account.
The parties agree that the Sub-Advisor is not responsible for
compliance with any such changes until notified and provided with
a written copy of such change.
(f) 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/Xxxxxx X. Xxxxxx
By _________________________________________
Xxxxxx X. Xxxxxx, Vice President
EMERALD ADVISORS, INC.
/s/Xxxxxxx X. Xxxxx
By _________________________________________
Xxxxxxx X. Xxxxx XX, President
APPENDIX A
The Sub-Advisor shall serve as investment sub-advisor for the Series. With
respect to the Series, the Manager will pay the Sub-Advisor, as full
compensation for all services provided under this Agreement, a fee computed at
an annual rate as follows (the "Sub-Advisor Percentage Fee"):
Net Asset Value of Fund Sub-Advisor Percentage Fee
...........First $10 million..............................0.75%
...........Next $40 million...............................0.60%
...........Next $150 million..............................0.50%
...........Over $200 million..............................0.45%
In calculating the fee for the Series, 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 Series, will
be combined (together, the "Aggregated Assets"). The fee charged for the assets
in the Series 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 Series 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 Series 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 Series was
open for business.
