PRINCIPAL INVESTORS FUND, INC.
SUB-ADVISORY AGREEMENT
PARTNERS SMALLCAP GROWTH FUND II
AGREEMENT executed as of June 30, 2006, by and between PRINCIPAL MANAGEMENT
CORPORATION (hereinafter called "the Manager"), and ESSEX INVESTMENT MANAGEMENT
COMPANY, LLC. (hereinafter called "the Sub-Adviser").
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-Adviser 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 portfolio of the Partners
SmallCap Growth Fund II series (hereinafter called the "Series"), which the
Manager has agreed to provide to the Fund, and the Sub-Adviser desires to
furnish such services; and
WHEREAS, The Manager has furnished the Sub-Adviser with copies properly
certified or authenticated of each of the following and will promptly provide
the Sub-Adviser 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-Adviser.
NOW, THEREFORE, in consideration of the premises and the terms and
conditions hereinafter set forth, the parties agree as follows:
1. Appointment of Sub-Adviser
In accordance with and subject to the Management Agreement, the Manager
hereby appoints the Sub-Adviser 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-Adviser (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-Adviser 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-Adviser accepts such
appointment and agrees to furnish the services hereinafter set forth
for the compensation herein provided. The Sub-Adviser 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-Adviser
The Sub-Adviser 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-Adviser'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-Adviser under this Agreement, the Sub-Adviser 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-Adviser. 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-Adviser in the manner the Sub-Adviser considers to be the
most equitable and consistent with its fiduciary obligations to
the Fund and to other clients. The Sub-Adviser 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-Adviser
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-Adviser may select brokers or
dealers on the basis that they provide brokerage, research or
other services or products to the Sub-Adviser. To the extent
consistent with applicable law, the Sub-Adviser 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-Adviser 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-Adviser 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-Adviser 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-Adviser 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-Adviser 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-Adviser has no responsibility for
the maintenance of Fund records except insofar as is directly
related to the services the Sub-Adviser provides to a Series.
(k) Observe and comply with Rule 17j-1 under the 1940 Act and the
Sub-Adviser'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-Adviser's current Code of Ethics.
Sub-Adviser shall promptly forward to the Manager a copy of any
material amendment to the Sub-Adviser's Code of Ethics along with
certification that the Sub-Adviser has implemented procedures for
administering the Sub-Adviser'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-Adviser
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-Adviser 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-Adviser'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-Adviser
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-Adviser 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-Adviser hereunder with respect to the Series, the Manager
shall pay the compensation specified in Appendix A to this Agreement.
5. Liability of Sub-Adviser
Neither the Sub-Adviser 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-Adviser'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-Adviser or any of its directors,
officers, employees, agents, or affiliates. The Sub-Adviser 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-Adviser 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-Adviser's control, and any requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended, which
are outside of the Sub-Adviser'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-Adviser, 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-Adviser shall indemnify and hold harmless the
Fund and Manager for any loss arising therefrom.
6. Supplemental Arrangements
The Sub-Adviser may enter into arrangements with other persons
affiliated with the Sub-Adviser or with unaffiliated third parties to
better enable the Sub-Adviser to fulfill its obligations under this
Agreement for the provision of certain personnel and facilities to the
Sub-Adviser, 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-Adviser 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-Adviser 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-Adviser 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-Adviser will continue to act as Sub-Adviser with
respect to the Series pending the required approval of the Agreement or
its continuance or of any contract with the Sub-Adviser or a different
manager or Sub-Adviser or other definitive action; provided, that the
compensation received by the Sub-Adviser 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-Adviser,
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-Adviser 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-Adviser's responsibilities
hereunder (1) to the extent of and as a result of the willful
misconduct, bad faith, or gross negligence by the Sub-Adviser,
any of the Sub-Adviser's employees or representatives or any
affiliate of or any person acting on behalf of the Sub-Adviser;
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-Adviser to the
Manager specifically for use therein; provided, however, that in
no case is the Sub-Adviser'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-Adviser, any affiliated person and any controlling person of
the Sub-Adviser, if any, against any and all Losses to which the
Sub-Adviser or such affiliated person or controlling person of
the Sub-Adviser 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-Adviser or
any affiliated person or controlling person of the Sub-Adviser
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-Adviser as a result of any litigation
brought by the Manager alleging the Sub-Adviser'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-Adviser, 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
placeStateIowa. 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, CityDes Moines, StateIowa
PostalCode50392-0200, and the address of the Sub-Adviser shall be
addressStreet125 High Street, 29th Floor, placeCityBoston, MA.,
02110.
(c) The Sub-Adviser will promptly notify the Manager in writing of the
occurrence of any of the following events:
(1) the Sub-Adviser fails to be registered as an investment
adviser under the Investment Advisers Act or under the laws of
any jurisdiction in which the Sub-Adviser is required to be
registered as an investment advisor in order to perform its
obligations under this Agreement.
(2) the Sub-Adviser 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-Adviser 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-Adviser 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
/s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
By ____________________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice President
ESSEX INVESTMENT MANAGEMENT COMPANY, LLC.
/s/▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
By ____________________________________________
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Co-Chief Executive Officer
APPENDIX A
The Sub-Adviser shall serve as investment Sub-Adviser for each Series of
the Fund identified below. The Manager will pay the Sub-Adviser, as full
compensation for all services provided under this Agreement, a fee computed at
an annual rate as shown below (the "Sub-Adviser Fee"):
Sub-Adviser Fee
(as a percentage of
Daily Net Assets
Managed)Annualized
Series Assets Under Management Fee
Partners SmallCap Growth Fund II First $50 Million 0.70%
Next $50 Million 0.60%
Next $50 Million 0.55%
Over $150 Million 0.50%
In calculating the fee for the Partners SmallCap Growth Fund II 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 Partners
SmallCap Growth Fund II, will be combined (together, the "Aggregated Assets").
The fee charged for the assets in the Partners SmallCap Growth Fund II 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 Partners SmallCap Growth Fund II and the denominator of
which is the amount of the Aggregated Assets.
The Sub-Adviser Percentage Fee shall be accrued for each calendar day and
the sum of the daily fee accruals shall be paid monthly to the Sub-Adviser. 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, allocated to the Sub-Adviser for management 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.