PRINCIPAL INVESTORS FUND, INC.
SUB-ADVISORY AGREEMENT
BARROW, HANLEY, XXXXXXXXX & XXXXXXX, INC. SUB-ADVISED SERIES
AGREEMENT executed as of July 12, 2005, by and between PRINCIPAL
MANAGEMENT CORPORATION (hereinafter called "the Manager"), and BARROW, HANLEY,
XXXXXXXXX & XXXXXXX, INC. (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 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 render discretionary
investment advisory services with respect to assets allocated by the Manager for
management by the Sub-Advisor (the "Managed Assets") for a portion of the
portfolio for the MidCap Value series of the Fund (hereinafter called "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 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 Managed Assets
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 Managed Assets.
(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 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 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 provided to the Series, 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 approved investment program
of the Series are being observed.
(g) Upon request from the Manager, provide consultation 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.
(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 provide such
information regarding such allocations as may be reasonably
requested by the Manager, the Fund or the Fund's Board of
Directors. 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.
(j) Maintain all accounts, books and records with respect to the
Managed Assets 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 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 the Sub-Advisor provides to the Series.
(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 at reasonable times 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) Vote proxies received on behalf of the Account 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 Account to file Form N-PX as required by SEC
rule.
(o) Respond to tender offers, rights offerings and other voluntary
corporate action requests affecting securities held by the Fund
and complete and file notices of claims in connection with class
action lawsuits concerning securities owned by the Fund.
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 the Fund or an investment company
registered under the 1940 Act that is under common control with the
Fund regarding transactions for the Fund in securities or other assets
allocated to the Sub-Advisor pursuant to this Agreement.
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 a 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.
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, Xxx Xxxxxx, Xxxx 00000-0000, and the
address of the Sub-Advisor shall be Barrow, Hanley, Xxxxxxxxx &
Xxxxxxx, Inc., One XxXxxxxx Plaza, 0000 XxXxxxxx Xxxxxx, 00xx
Xxxxx, Xxxxxx, Xxxxx 00000.
(c) Custody, Delivery and Receipt of Securities. The Manager shall
designate one or more custodians to hold the Managed Assets. The
custodians, as so designated, will be responsible for the custody,
receipt and delivery of securities and other assets of the Series
including the Managed Assets, and the Sub-Advisor shall have no
authority, responsibility or obligation with respect to the
custody, receipt or delivery of securities or other assets of the
Series including the Managed Assets. In the event that any cash or
securities of a Fund are delivered to the Sub-Advisor, it will
promptly deliver the same over to the custodian for the benefit of
and in the name of the Series.
Unless otherwise required by local custom, all securities
transactions for the Managed Assets will be consummated by payment
to or delivery by a Fund of cash or securities due to or from the
Managed Assets.
Repurchase agreements, including tri-party repurchase agreements
and other trading agreements, may be entered into by a Fund acting
through designated officers or agents; custodians under tri-party
repurchase agreements will act as sub-custodians of the Fund.
(d) 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 a Series.
(e) 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 a Series, cash
requirements and cash available for investment in a Series, and
all other reasonable information as may be necessary for the
Sub-Advisor to perform its duties and responsibilities hereunder.
(f) The Manager shall perform quarterly and annual tax compliance
tests to ensure that the Series is in compliance with Subchapter M
of the Internal Revenue Code ("IRC") and Section 817(h) of the
IRC. In connection with such compliance tests, the Manager shall
prepare and provide reports to the Sub-Advisor within 10 business
days of a calendar quarter end relating to the diversification of
the Series under Subchapter M and Section 817(h). The Sub-Advisor
shall review such reports for purposes of determining compliance
with such diversification requirements. 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 within the
time permitted under the IRC, provided that any such
non-compliance was caused by Sub-Advisor in respect of the Managed
Assets.
(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/Xxxxxx X. Xxxxxx
By ____________________________________________
Xxxxxx X. Xxxxxx, Vice President and
Chief Compliance Officer
BARROW, HANLEY, XXXXXXXXX & XXXXXXX, INC.
/s/Xxxxx X. Xxxxxx
By ____________________________________________
Xxxxx X. Xxxxxx
President, Secretary & Treasurer
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"):
MidCap Value Fund
Fee as a Percentage of Average
Average Daily Net Assets Daily Net Assets
First $10 million 0.80%
Next $15 million 0.60%
Next $25 million 0.50%
Next $50 million 0.40%
Over $100 million 0.35%
In calculating the fee for the MidCap Value Fund of Principal Investors
Fund, Inc., 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 MidCap Value Fund, will be
combined (together, the "Aggregated Assets"). The fee charged for the assets in
the MidCap Value Fund 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 MidCap Value Fund 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 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.
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.
