ALLIANCEBERNSTEIN
SUB-ADVISORY AGREEMENT 10/1/08
PRINCIPAL FUNDS, INC.
AMENDED AND RESTATED SUB-ADVISORY AGREEMENT
ALLIANCEBERNSTEIN L.P. SUB-ADVISED FUNDS
AGREEMENT executed as of the 1st day of October, 2008, by and between PRINCIPAL
MANAGEMENT CORPORATION, an Iowa corporation (hereinafter called "the Manager"),
and ALLIANCEBERNSTEIN L.P., a Delaware limited partnership (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 Series of
Principal Funds,
Inc., (the "Fund"), an open-end management investment company registered under
the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Manager desires to retain the Sub-Advisor to furnish it with
portfolio selection and
related research and statistical services in connection with the investment
advisory services for each
Series of the Fund 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
(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 Series 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
Certificate 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) 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.
(f) 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.
(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.
(h) Open accounts with broker-dealers and future 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.
(i) 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 Account 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. 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.
Sub-Advisor shall promptly forward to the Manager a copy of any material
amendment
to the Sub-Advisor's Code of Ethics.
(k) 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.
(l) 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.
(m) Perform quarterly and annual tax compliance tests to monitor the Series'
compliance
with Subchapter M of the Code. 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.
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. Brokerage services provided by SCB
LLC to the Series are
not within the scope of the duties of the Sub-Advisor under this Agreement.
Subject to the requirements of applicable law and any procedures adopted by the
Fund's board of
directors, SCB LLC may receive brokerage commissions, fees or other remuneration
from
the Series for these services in addition to the Sub-Advisor's fees for services
under the
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 and/or any insurance laws and rules, except for losses resulting
from willful misfeasance, bad faith or gross negligence of, or from reckless
disregard of, the duties of
the Sub-Advisor or any of its directors, officers, employees, agents, or
affiliates.
6. Supplemental Arrangements
The Sub-Advisor may enter into arrangements with other persons affiliated with
the
Sub-Advisor or with unaffiliated third parties to better enable the Sub-Advisor
to fulfill its
obligations under this Agreement for the provision of certain personnel and
facilities to the Sub-Advisor, subject to written notification to and approval
of the Manager and,
where required by applicable law, the Board of Directors of the Fund.
7. Regulation
The Sub-Advisor shall submit to all regulatory and administrative bodies having
jurisdiction
over the services provided pursuant to this Agreement any information, reports
or other
material which any such body may request or require pursuant to applicable laws
and
regulations.
8. 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 Fund 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, Xxx Xxxxxx,
Xxxx 00000-0000, and the address of the Sub-Advisor shall be 0000 Xxxxxx
xx xxx
Xxxxxxxx, Xxx Xxxx, XX 00000, Attention: Xxxxxxx Xxxx.
(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,
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) 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
and Chief Operating Officer
ALLIANCE CAPITAL MANAGEMENT L.P.
By: Alliance Capital
Management Corporation, its
General Partner
By_/s/Xxxxx X.
Mangan______________________
Xxxxx X. Xxxxxx, Assistant
Secretary
APPENDIX A
The Sub-Advisor shall serve as investment sub-advisor for each series of the
Fund identified
below and 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"):
SERIES SUB-ADVISORY FEE
LargeCap Value Fund III 0.23% for the first $300 million of average daily
net assets
0.20% of the average daily net assets thereafter
In calculating the fee for the LargeCap Value Fund III of Principal Funds,
Inc. on or after July 1,
2004, 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
LargeCap Value Fund III, will be combined (together, the "Aggregated Assets").
The fee charged for
the assets in the LargeCap Value Fund III 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 LargeCap Value Fund III and the denominator of
which is the amount of the Aggregated Assets.
SERIES SUB-ADVISORY FEE
SmallCap Growth Fund I 0.650% of the first $25 million of average daily net
assets
0.600% of the next $75 million of average daily net assets
0.550% of average daily net assets thereafter
In calculating the fee for the SmallCap Growth Fund I of Principal Funds,
Inc. on or after July 1, 2004, 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
SmallCap Growth Fund I, will be combined (together, the "Aggregated Assets").
The fee charged for
the assets in the SmallCap Growth Fund I 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 SmallCap Growth Fund I 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 Series' 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.
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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