PRINCIPAL FUNDS, INC.
AMENDED AND RESTATED SUB-ADVISORY AGREEMENT
ALLIANCEBERNSTEIN L.P. SUB-ADVISED FUNDS
AGREEMENT executed as of the 1st day of January, 2010, by and between
PRINCIPAL MANAGEMENT CORPORATION, an Iowa corporation (hereinafter called
"the Manager"), and ALLIANCEBERNSTEIN L.P., a Delaware limited partnership
(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 each
Series of the Fund 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
(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 Series consistent with
the Series'
investment objective and policies.
(c) Implement the approved investment program by placing orders for
the purchase and
sale of securities without prior consultation with the Manager
and without regard to the
length of time the securities have been held, the resulting rate
of portfolio turnover or
any tax considerations, subject always to the provisions of the
Fund's Certificate 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) 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.
(f) 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.
(g) 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.
(h) Open accounts with broker-dealers and future 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.
(i) 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 Account 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.
(j) 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.
(k) 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.
(l) 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.
(m) Perform quarterly and annual tax compliance tests to monitor the
Series' compliance
with Subchapter M of the Code. 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.
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 Series, the Manager shall pay the
compensation specified in Appendix A to this Agreement. Brokerage
services provided by SCB LLC to the Series are
not within the scope of the duties of the Sub-Advisor under this
Agreement. Subject to the requirements of applicable law and any
procedures adopted by the Fund's board of
directors, SCB LLC may receive brokerage commissions, fees or other
remuneration from
the Series for these services in addition to the Sub-Advisor's fees
for services under the
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 and/or any 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.
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 Fund
and in either event by a
vote of a majority of the Board of Directors of the Fund who are not
interested persons of the Manager, Principal Life Insurance Company,
the Sub-Advisor or the Fund cast in person at a
meeting called for the purpose of voting on such approval.
If the shareholders of the Series fail to approve the Agreement or
any continuance of the
Agreement in accordance with the requirements of the 1940 Act, the
Sub-Advisor will
continue to act as Sub-Advisor with respect to the Series pending
the required approval of
the Agreement or its continuance or of any contract with the
Sub-Advisor or a different
manager or sub-advisor or other definitive action; provided, that
the compensation received
by the Sub-Advisor in respect to the Series during such period is in
compliance with Rule
15a-4 under the 1940 Act.
This Agreement may be terminated at any time without the payment of
any penalty by the
Board of Directors of the Fund or by the Sub-Advisor, the Manager or
by vote of a majority of
the outstanding voting securities of the Series on sixty days
written notice. This Agreement
shall automatically terminate in the event of its assignment. In
interpreting the provisions of
this Section 8, the definitions contained in Section 2(a) of the
1940 Act (particularly the
definitions of "interested person," "assignment" and "voting
security") shall be applied.
9. Amendment of this Agreement
No material amendment of this Agreement shall be effective until
approved, if required by
the 1940 Act or the rules, regulations, interpretations or orders
issued thereunder, by vote of
the holders of a majority of the outstanding voting securities of
the Series and by vote of a
majority of the Board of Directors of the Fund who are not
interested persons of the
Manager, the Sub-Advisor, Principal Life Insurance Company or the
Fund cast in person at a
meeting called for the purpose of voting on such approval.
10. General Provisions
(a) Each party agrees to perform such further acts and execute
such further documents as
are necessary to effectuate the purposes hereof. This Agreement
shall be construed and
enforced in accordance with and governed by the laws of the State
of Iowa. The
captions in this Agreement are included for convenience only and
in no way define or
delimit any of the provisions hereof or otherwise affect their
construction or effect.
(b) Any notice under this Agreement shall be in writing, addressed
and delivered or mailed
postage pre-paid to the other party at such address as such other
party may designate
for the receipt of such notices. Until further notice to the
other party, it is agreed that the
address of the Manager for this purpose shall be Principal
Financial Group, Xxx Xxxxxx,
Xxxx 00000-0000, and the address of the Sub-Advisor shall be 0000
Xxxxxx xx xxx
Xxxxxxxx, Xxx Xxxx, XX 00000, Attention: Xxxxxxx Xxxx.
(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 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 the
Series, cash requirements and cash available for investment in
the Series, any
applicable investment restrictions imposed by state insurance
laws and regulations, and
all other reasonable information as may be necessary for the Sub-
Advisor to perform its
duties and responsibilities hereunder.
(e) 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.
(f) 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/ Xxxxxxx X. Beer
_______________
Xxxxxxx X. Beer, Executive
Vice President
and Chief Operating Officer
ALLIANCE CAPITAL MANAGEMENT L.P.
By: Alliance Capital Management
Corporation, its
General Partner
By_/s/ Xxxxx X. Xxxxxx
_______________________________________
Xxxxx X. Xxxxxx, Assistant
Secretary
APPENDIX A
The Sub-Advisor shall serve as investment sub-advisor for each series of
the Fund identified
below and 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"):
SERIES SUB-ADVISORY FEE
LargeCap Value Fund III 0.23% for the first $300 million of average
daily net assets
0.20% of the average daily net assets
thereafter
In calculating the fee for the LargeCap Value Fund III of Principal
Funds, Inc. on or after July 1,
2004, 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 III, will be combined (together, the "Aggregated Assets").
The fee charged for
the assets in the LargeCap Value Fund III 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 LargeCap Value Fund III and the denominator of which
is the amount of the Aggregated Assets. 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.
SERIES SUB-ADVISORY FEE
SmallCap Growth Fund I 0.650% of the first $25 million of average
daily net assets
0.600% of the next $75 million of average
daily net assets
0.550% of average daily net assets
thereafter
In calculating the fee for the SmallCap Growth Fund I of Principal Funds,
Inc. on or after July 1, 2004, 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 I, will be combined (together, the "Aggregated Assets").
The fee charged for
the assets in the SmallCap Growth Fund I 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 SmallCap Growth Fund I and
the denominator of which is the amount of the Aggregated Assets. 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.
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.
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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