PRINCIPAL FUNDS, INC.
AMENDED AND RESTATED SUB-ADVISORY AGREEMENT
X.X. XXXXXX SUB-ADVISED FUNDS
AGREEMENT executed as of the 1st day of January, 2010, by and between
PRINCIPAL MANAGEMENT CORPORATION, an Iowa corporation (hereinafter called
"the Manager"), and X.X. Xxxxxx Investment Management, Inc., a Delaware
Corporation (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, subject to the control and direction of the Manager and the
Fund's Board of Directors, for the period and on the terms hereinafter set
forth. The Sub-Advisor accepts such appointment and agrees to furnish the
services hereinafter set forth for the compensation herein provided. The
Sub-Advisor shall for all purposes herein be deemed to be an independent
contractor and shall, except as expressly provided or authorized, have no
authority to act for or represent the Fund or the Manager in any way or
otherwise be deemed an agent of the Fund or the Manager.
2. Obligations of and Services to be Provided by the Sub-Advisor
The Sub-Advisor will:
(a) Provide investment advisory services, including but not limited to
research, advice and supervision for the Series.
(b) Furnish to the Board of Directors of the Fund for approval (or any
appropriate committee of such Board), and revise from time to time as
economic conditions require, a recommended investment program for the Fund
consistent with the Series' investment objective and policies.
(c) Implement the approved investment program by placing orders for the
purchase and sale of securities without prior consultation with the Manager
and without regard to the length of time the securities have been held, the
resulting rate of portfolio turnover or any tax considerations, subject
always to the provisions of the Fund's Articles of Incorporation and Bylaws,
the requirements of the 1940 Act, as each of the same shall be from time to
time in effect.
(d) Advise and assist the officers of the Fund, as requested by the
officers, in taking such steps as are reasonably necessary or appropriate to
carry out the decisions of its Board of Directors, and any appropriate
committees of such Board, regarding the general conduct of the investment
business of the Series.
(e) Maintain, in connection with the Sub-Advisor's investment advisory
services provided to the Series, its compliance with the 1940 Act and the
regulations adopted by the Securities and Exchange Commission thereunder and
the Series' investment 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.
(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 best
efforts to obtain execution of transactions for the Series at prices which
are advantageous to the Series and at commission rates that are reasonable in
relation to the benefits received. However, the Sub-Advisor may select
brokers or dealers on the basis that they provide brokerage, research or
other services or products to the Sub-Advisor. To the extent consistent with
applicable law, the Sub-Advisor may pay a broker or dealer an amount of
commission for effecting a securities transaction in excess of the amount of
commission or dealer spread another broker or dealer would have charged for
effecting that transaction if the Sub-Advisor determines in good faith that
such amount of commission is reasonable in relation to the value of the
brokerage and research products and/or services provided by such broker or
dealer. This determination, with respect to brokerage and research products
and/or services, may be viewed in terms of either that particular transaction
or the overall responsibilities which the Sub-Advisor and its affiliates have
with respect to the Series as well as to accounts over which they exercise
investment discretion. Not all such services or products need be used by the
Sub-Advisor in managing the Series. In addition, joint repurchase or other
accounts may not be utilized by the Series except to the extent permitted
under any exemptive order obtained by the Sub-Advisor provided that all
conditions of such order are complied with.
(j) Maintain all accounts, books and records with respect to the Series
as are required of an investment advisor of a registered investment company
pursuant to the 1940 Act and Investment Advisor's Act of 1940 (the
"Investment Advisor's 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.
(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
general partners 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) Perform quarterly and annual tax compliance tests to monitor the Series'
compliance with Subchapter M of the Code and Section 817(h) of the Code,
subject to receipt of such additional information as may be required from the
Manager and provided in accordance with Section 11(d) of this Agreement. The
Sub-Advisor shall notify the Manager immediately upon having a reasonable
basis for believing that the Series has ceased to be in compliance or that it
might not be in compliance in the future. If it is determined that the
Series is not in compliance with the requirements noted above, the Sub-
Advisor, in consultation with the Manager, will take prompt action to bring
the Series back into compliance (to the extent possible) within the time
permitted under the Code.
(o) Have the responsibility and authority to vote proxies solicited by, or
with respect to, the issuers of securities held in the Series. The Manager
shall cause to be forwarded to Sub-Advisor all proxy solicitation materials
that it receives and shall assist Sub-Advisor in its efforts to conduct the
proxy voting process.
3. Prohibited Conduct
In providing the services described in this agreement, the Sub-Advisor will
not consult with any other 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 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. 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.
8. Regulation
The Sub-Advisor shall submit to all regulatory and administrative bodies
having jurisdiction over the services provided pursuant to this Agreement any
information, reports or other material which any such body may request or
require pursuant to applicable laws and regulations.
9. Duration and Termination of This Agreement
This Agreement shall become effective on the latest of (i) the date of its
execution, (ii) the date of its approval by a majority of the Board of
Directors of the Fund, including approval by the vote of a majority of the
Board of Directors of the Fund who are not interested persons of the Manager,
the Sub-Advisor, Principal Life Insurance Company or the Fund cast in person
at a meeting called for the purpose of voting on such approval or (iii) if
required by the 1940 Act, the date of its approval by a majority of the
outstanding voting securities of the Series. It shall continue in effect
thereafter from year to year provided that the continuance is specifically
approved at least annually either by the Board of Directors of the Fund or by
a vote of a majority of the outstanding voting securities of the Series and
in either event by a vote of a majority of the Board of Directors of the Fund
who are not interested persons of the Manager, Principal Life Insurance
Company, the Sub-Advisor or the Fund cast in person at a meeting called for
the purpose of voting on such approval.
If the shareholders of the Series fail to approve the Agreement or any
continuance of the Agreement in accordance with the requirements of the 1940
Act, the Sub-Advisor will continue to act as Sub-Advisor with respect to the
Series pending the required approval of the Agreement or its continuance or
of any contract with the Sub-Advisor or a different manager or sub-advisor or
other definitive action; provided, that the compensation received by the
Sub-Advisor in respect to the Fund during such period is in compliance with
Rule 15a-4 under the 1940 Act.
This Agreement may be terminated at any time without the payment of any
penalty by the Board of Directors of the Fund or by the Sub-Advisor, the
Manager or by vote of a majority of the outstanding voting securities of the
Series on sixty days 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, Xxx Xxxxxx, Xxxx 00000-0000,
and the address of the Sub-Advisor shall be 000 Xxxx Xxxxxx Xxx Xxxx, X.X.
00000. . Attention: Legal - Mutual Funds.
(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 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
By /s/ Xxxxxxx X. Beer
Xxxxxxx X. Beer, Executive Vice
President
X.X. XXXXXX INVESTMENT MANAGEMENT INC.
By /s/ Xxxxx X. Xxxxxxx
Xxxxx X. Xxxxxxx, Vice President
APPENDIX A
The Sub-Advisor shall serve as investment sub-advisor for the Fund. The
Manager will pay the Sub-Advisor, as full compensation for all services
provided under this Agreement, a fee computed at an annual rate as follows
(the "Sub-Advisor Percentage Fee"):
SmallCap Value Fund I
Sub-Advisor's Fee as a Percentage of Average Daily Net
Assets
First $300 million
0.45%
Over $300 million
0.35%
High Yield Fund I
Sub-Advisor's Fee as a Percentage of Average Daily Net
Assets
All Assets 0.30%
The Sub-Advisor Percentage Fee shall be accrued for each calendar day and
the sum of the daily fee accruals shall be paid monthly to the
Sub-Advisor. The daily fee accruals will be computed by multiplying the
fraction of one over the number of calendar days in the year by the
applicable annual rate described above and multiplying this product by the
net assets of the Fund as determined in accordance with the Fund's
prospectus and statement of additional information as of the close of
business on the previous business day on which the Fund was open for
business. With respect to the SmallCap Value Fund I, 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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