PRINCIPAL FUNDS, INC.
AMENDED AND RESTATED SUB-ADVISORY AGREEMENT
SMALLCAP VALUE FUND II, MIDCAP VALUE FUND I AND GLOBAL MULTI-STRATEGY
FUND
AGREEMENT executed as of 24th of October, 2011, by and between
PRINCIPAL MANAGEMENT CORPORATION (hereinafter called "the Manager"), and
LOS ANGELES CAPITAL MANAGEMENT AND EQUITY RESEARCH, INC. ("LA Capital")
(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 investment advisory services with respect to assets allocated by
the Manager for management by the Sub-Adviser for a portion of the
portfolios of the SmallCap Value Fund II, MidCap Value Fund I, and the
Global Multi-Strategy Fund (each 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 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 act as the Manager's
agent and attorney-in-fact with respect to the investment and
reinvestment of assets in the Series with full power and authority
to direct any custodian of the assets of the Series to purchase,
sell or exchange any stocks, bonds, or other securities or such
other assets which are acceptable to the Sub-Advisor
(individually, "security" and collectively, "securities") and to
issue directly to a broker or dealer such orders for the purchase,
sale or exchange of securities or other property, as the Sub-
Advisor may deem appropriate and without prior consultation with
the Manager, 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 conditions require, a recommended investment
program for the Series consistent with each 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, 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, 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. 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.
(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 a 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 a 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 a 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 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.
(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 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
provided 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.
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 and/or 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. The Sub-Advisor shall not have any
responsibilities with respect to any assets of the Fund other than
the Series. The Manager shall not be responsible for any loss
incurred by reason of any act or omission of any dealer or broker,
or the Manager, or any custodian.
The Sub-Advisor shall be responsible only for managing the Series
in good faith and in accordance with the investment objectives,
fundamental policies and restrictions, and shall have no
responsibility whatsoever for, and shall incur no liability on
account of (i) selection or establishment of such investment
objectives, fundamental policies and restrictions (ii) advice on,
or management of, any other assets for Manager or the Fund, (iii)
filing of any tax or information returns or forms, withholding or
paying any taxes, or seeking any exemption or refund for the
Manager or the Fund, (iv) registration of the Fund or Series with
any government or agency, or (v) administration of the plans and
trusts investing through the Fund, (vi) overall Fund compliance
with the requirements of the 1940 Act, which requirements are
outside of the Sub-Advisor's control, and any requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended,
which are outside of the Sub-Advisor's control and shall be
indemnified and held harmless by Manager for any loss in carrying
out the terms and provisions of this Agreement, including
reasonable attorney's fees, indemnification to the Fund, or any
shareholder thereof and, brokers and commission merchants, fines,
taxes, penalties and interest. Sub-Advisor, however, shall be
liable for any liability, damages, or expenses of Manager or the
Fund arising out of the negligence, malfeasance or violation of
applicable law by any of its employees in providing investment
management services under this Agreement; and, in such cases, the
indemnification by Manager, referred to above, shall be
inapplicable, and the Sub-Advisor shall indemnify and hold
harmless the Fund and Manager for any loss arising therefrom.
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. 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 its
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 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 a 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
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
judgement is rendered for the Manager.
11. 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.
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
00000 Xxxxx Xxxxxx Xxxx, Xxx 000, Xxx Xxxxxxx, XX 00000.
(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 a 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 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.
(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/ Xxxx
Beer___________________________
Xxxx Xxxx, Executive Vice
President and Chief Operating
Officer
LOS ANGELES CAPITAL MANAGEMENT
AND
EQUITY RESEARCH, INC.
By /s/ Xxxxxx X.
Stevens_______________
Xxxxxx X. Xxxxxxx, CFA
Chairman
APPENDIX A
The Sub-Advisor shall serve as investment sub-advisor for each Series
of the Fund identified below. 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 shown below (the "Sub-Advisor Fee"):
Series Sub-Advisor Fee (as a Percentage of
Daily Net Assets)
SmallCap Value Fund II First $100,000,000 of assets 0.50%
Next $200,000,000 of assets 0.45%
Assets over $300,000,000 0.35%
MidCap Value Fund I All Assets.......................................0.30%
Global Multi-Strategy Fund First $250,000,000 of assets..............1.00%
Assets over $250,000,000.................0.90%
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. With respect to the SmallCap Value Fund II and MidCap
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.
LAC - 1
