PRINCIPAL FUNDS, INC. AMENDED AND RESTATED SUB-ADVISORY AGREEMENT WESTWOOD MANAGEMENT CORPORATION SUB-ADVISED FUNDS
| PRINCIPAL FUNDS, INC. | ||
| AMENDED AND RESTATED SUB-ADVISORY AGREEMENT | ||
| WESTWOOD MANAGEMENT CORPORATION SUB-ADVISED FUNDS | ||
| AGREEMENT executed as of the January 1, 2010, by and between PRINCIPAL MANAGEMENT CORPORATION, an | ||
| Iowa corporation (hereinafter called "the Manager"), and WESTWOOD MANAGEMENT CORPORATION, an Illinois | ||
| Corporation (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 Fund of the Principal Funds, Inc., (the | ||
| "Fund"), an open-end management investment company registered under the Investment Company Act of 1940, as | ||
| amended (the "1940 Act"); and | ||
| WHEREAS, the Manager desires to retain the Sub-Advisor to furnish it with portfolio selection and related research and | ||
| statistical services in connection with the investment advisory services for each series identified in Appendix A ( | ||
| hereinafter called the “Series”), which the Manager has agreed to provide to the Fund, and the Sub-Advisor desires to | ||
| furnish such services; and | ||
| WHEREAS, The Manager has furnished the Sub-Advisor with copies properly certified or authenticated of each of the | ||
| following and will promptly provide the Sub-Advisor with copies properly certified or authenticated of any amendment or | ||
| supplement thereto: | ||
| (a) | Management Agreement (the "Management Agreement") with the Fund; | |
| (b) | The Fund's registration statement and financial statements as filed with the Securities and Exchange | |
| Commission; | ||
| (c) | The Fund's Articles of Incorporation and By-laws; | |
| (d) | Policies, procedures or instructions adopted or approved by the Board of Directors of the Fund relating to | |
| obligations and services provided by the Sub-Advisor. | ||
| NOW, THEREFORE, in consideration of the premises and the terms and conditions hereinafter set forth, the parties | ||
| agree as follows: | ||
| 1. | Appointment of Sub-Advisor | |
| In accordance with and subject to the Management Agreement, the Manager hereby appoints the Sub-Advisor | ||
| to perform the services described in Section 2 below for investment and reinvestment of the securities and other | ||
| assets of the Series, subject to the control and direction of the Manager and the Fund's Board of Directors, for | ||
| the period and on the terms hereinafter set forth. The Sub-Advisor accepts such appointment and agrees to | ||
| furnish the services hereinafter set forth for the compensation herein provided. The Sub-Advisor shall for all | ||
| purposes herein be deemed to be an independent contractor and shall, except as expressly provided or | ||
| authorized, have no authority to act for or represent the Fund or the Manager in any way or otherwise be | ||
| deemed an agent of the Fund or the Manager. | ||
| 2. | Obligations of and Services to be Provided by the Sub-Advisor | |
| 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. | ||
1
| (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 provided to the Series, its |
| 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 11(d) of this Agreement. The Sub-Advisor has | |
| no responsibility for the maintenance of Fund records except insofar as is directly related to the services it | |
| provides to the Series. | |
| (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 in 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 its duties | |
| under this Agreement. | |
| (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 Manager recognizes that, in some cases, this procedure may limit the | |
| size of the position that may be acquired or sold for the Series. 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 | |
2
| 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. | ||
| (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 Senior | ||
| Management (i.e. Chief Investment Officer and Chief Executive Officer) 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) | 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 duties under this Agreement 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 (excluding any broker-dealer selected by the | ||
| Sub-Advisor), or affiliates. | ||
3
| 6. | Indemnification |
| The Manager agrees to indemnify and hold harmless the Sub-Advisor from and against any and all claims, | |
| losses, liabilities or damages (including reasonable attorneys’ fees and other related expenses), (“Losses”) | |
| howsoever arising, from or in connection with this Agreement or the performance by the Sub-Advisor of its | |
| duties hereunder, so long as the Sub-Advisor shall, after receipt of notice of any claim or commencement of any | |
| action, promptly notify the Manager in writing of the claim or commencement of such action. The Manager shall | |
| not be liable for any settlement of any claim or action effected without its written consent. Nothing contained | |
| herein shall require the Manager to indemnify the Sub-Advisor for Losses resulting from the Sub-Advisor’s willful | |
| misfeasance, bad faith or gross negligence in the performance of its duties or from its reckless disregard of its | |
| obligations and duties under this Agreement. | |
| 7. | 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. | |
| 8. | 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. | |
| 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 for a period of two years and 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. 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. | |
4
| 11. 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 be | ||
| Westwood Management Corp., ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ATTN: General | ||
| Counsel. | ||
| (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) | 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 |
| /s/ ▇. ▇. Beer |
| By |
| ▇▇▇▇▇▇▇ ▇. Beer, Executive Vice President and |
| Chief Operating Officer |
| WESTWOOD MANAGEMENT CORPORATION |
| /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇ |
| By |
| ▇▇▇▇▇ ▇. ▇▇▇▇▇, President and Chief Executive Officer |
5
| APPENDIX A | |
| Westwood Management Corporation (“Westwood”) shall serve as an investment sub-advisor for the Series identified | |
| below. The Manager will pay Westwood, as full compensation for all services provided under this Agreement, a fee, | |
| computed and paid monthly, at an annual rate as shown below of the Series’ net assets as the first day of each month | |
| allocated to Westwood’s management. 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. | |
| In calculating the fee for a series included in the table, assets of any unregistered separate account of Principal Life | |
| Insurance Company and any investment company sponsored by Principal Life Insurance Company to which Westwood | |
| provides investment advisory services and which have the same investment mandate as the series for which the fee is | |
| calculated, will be combined with the assets of the series to arrive at net assets. | |
| 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. | |
| LargeCap Value Fund III | |
| Sub-Advisor’s Fee as a Percentage of Average Daily Net Assets | |
| First $200 million | 0.30% |
| Next $800 million | 0.20% |
| Over $1 billion | 0.18% |
6