PRINCIPAL FUNDS, INC.
AMENDED AND RESTATED SUB-ADVISORY AGREEMENT
UBS SUB-ADVISED FUNDS
AGREEMENT executed as of the 1st day of July, 2009, by and between
PRINCIPAL MANAGEMENT CORPORATION, an Iowa corporation (hereinafter called
"the Manager"), and UBS Global Asset Management (Americas) 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 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 the SmallCap Growth
Fund II and the LargeCap Value Fund I of the Fund (referred collectively
to hereinafter as "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 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,
subject to receipt of such additional information as may be required from
the Manager and provided in accordance with Section 10(d) of this
Agreement.
(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 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 (excluding brokerage expenses and pricing and bookkeeping
services).
(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 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. 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.
(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 10(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 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 except
for losses resulting from willful misfeasance, bad faith or 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. 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 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 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, and such amendment is signed by both parties.
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, ▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, and the address of the Sub-Advisor shall be51 ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇.
(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) 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/ ▇▇▇▇▇▇▇ ▇. Beer
▇▇▇▇▇▇▇ ▇. Beer, Executive Vice President and Chief Operating Officer
UBS GLOBAL ASSET MANAGEMENT (AMERICAS) INC.
By
By
APPENDIX A
The Sub-Advisor shall serve as investment sub-advisor for the Series. The
Manager will pay the Sub-Advisor, as full compensation for all services
provided under this Agreement, a fee computed at an annual rate as follows
(the "Sub-Advisor Percentage Fee"):
SmallCap Growth Fund II Fee
Net Assets Sub-Advisor's Fee as a Percentage of Average Daily
Net Assets
First $50 million 0.60%
Next $250 million 0.55%
Over $300 million 0.45%
In calculating the fee for the SmallCap Growth Fund II of Principal
Funds, 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
SmallCap Growth Fund II, will be combined with the assets of the
SmallCap Growth Fund II series of the Fund to arrive at net assets.
LargeCap Value Fund I Fee
Net Assets Sub-Advisor's Fee as a Percentage of Average Daily
Net Assets
First $200 million 0.25%
Next $300 million 0.20%
Over $500 million 0.18%
In calculating the fee for the LargeCap Value Fund I of Principal
Funds, 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
LargeCap Value Fund I, will be combined with the assets of the LargeCap
Value Fund I series of the Fund to arrive at net 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.
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