PRINCIPAL FUNDS, INC.
SUB-ADVISORY CONSULTING AGREEMENT
GLOBAL MULTI-STRATEGY SUB-ADVISED FUND
AGREEMENT executed as of the 24th of October, 2011, by and between
PRINCIPAL MANAGEMENT CORPORATION, an Iowa corporation (hereinafter called
"the Manager"), and Cliffwater, LLC, a Delaware limited liability company
(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
the services described in this Agreement related to the Fund's series
identified in Appendix A ( hereinafter called the "Series"), 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, 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) Monitor the Series:
The Manager allocates and from time to time re-allocates the
assets of the Series among multiple sub-advisors that are
responsible for managing those assets. The Sub-Advisor will
monitor the Manager's allocations of the Series' assets among
the sub-advisors and report to the Manager monthly, quarterly
and annually with recommendations regarding changes to the
Manager's current allocations. The Sub-Advisor recommendations
will include its outlook for capital markets and opportunities
currently offered by the market and will reflect its internal
capital markets research and analyses performed using its
proprietary tools. The Sub-Advisor will also monitor the
performance of the Series and report to the Manager monthly,
quarterly and annually on such performance in comparison to such
peer funds and benchmarks as the Manager may from time to time
select. The Sub-Advisor's performance monitoring duties will
include portfolio performance, measurement and review, and each
quarterly performance report will reflect the results of such
performance, measurement and review and will include the Sub-
Advisor's analyses of, among other things, geographic
concentration, amount of leverage and beta exposure as well as
the Sub-Advisor's assessment of whether the risks to which the
Series is exposed through the use of the sub-advisors have been
identified and, to the extent possible, controlled. Such
monthly and quarterly reports will be in substantially the form
of Exhibit A hereto.
(b) Monitor the Sub-advisors:
The Sub-Advisor will monitor the performance of each of the
Series' sub-advisors and report to the Manager monthly,
quarterly and annually on such performance in comparison to the
performance of such advisers and benchmarks as the Manager may
from time to time select. The Sub-Advisor's monitoring duties
will include, and each monthly report regarding the performance
of each sub-advisor will reflect the results of, one or more
telephone conferences held by the Sub-Advisor with each sub-
advisor. Each monthly, quarterly, and annual report will
include, as appropriate, the Sub-Advisor's assessment of whether
any sub-advisor has, in carrying out its investment duties for
the Series, deviated materially from its investment philosophy
or process, changed its personnel responsible for management of
the assets of the Series allocated to it, suffered a financial
or other event that threatens its ability to carry out its
responsibilities to the Series, achieved an acceptable level of
performance during the period without taking an unexpected
degree of risk and adhered to the investment guidelines
established by the Manager for each sub-advisor. Prior to the
time the Sub-Advisor begins its work pursuant to this agreement,
the Manager will provide the Sub-Advisor with the investment
guidelines and subsequently the Manager will provide the Sub-
Advisor promptly with any amendments to the guidelines. In
determining whether any sub-advisor has suffered a financial or
other event that threatens its ability to carry out its
responsibilities to the Series, or has failed to adhere to the
investment guidelines the Manager establishes, the Sub-Advisor
may rely solely on information the Manager receives from each
sub-advisor in the form of responses to the Manager's periodic
questionnaire or other documentation, which documentation the
Manager will provide to the Sub-Advisor within ten business days
of the Manager's receipt of it. The Manager will also cause
each sub-advisor to cooperate with the Sub-Advisor, including
causing each sub-advisor to promptly provide to Sub-Advisor any
other information the Sub-Advisor reasonably requests and make
available the appropriate personnel to provide Sub-Advisor with
clarifications and such other information that the Sub-Advisor
may reasonably require to enable Sub-Advisor to carry out its
responsibilities pursuant to this agreement.
(c) Evaluate Sub-advisor Candidates:
The Manager may from time to time undertake to select and
recommend to the Fund's Board of Directors the engagement of one
or more new sub-advisors for the Series. At the Manager's
request and using a process satisfactory to both the Manager and
the Sub-Advisor, the Sub-Advisor will assist the Manager in
evaluating new sub-advisor candidates.
(d) Support Marketing:
(1) Training of Manager's Marketing Specialist. The Manager
will designate a marketing specialist employee for training
by the Sub-Advisor, and the Sub-Advisor will provide
training for purposes of developing in such employee an
understanding of the Sub-Advisor's approach to the design
and operation of the Series. As part of such training, the
Manager's employee shall participate in the monthly
telephone conference or conferences held by the Sub-Advisor
with each sub-advisor, as described in 2(b) above, and in
such other telephone or in-person meetings that the Sub-
Advisor may hold with each sub-advisor. The training will
occur at the Sub-Advisor's offices in New York, New York or
Marina del Rey, California, or at another location
(including via conference call) as agreed upon by both
parties.
(2) Participation in Financial Adviser Conferences. During the
first twelve months beginning on the Initial Seed Launch
Date (as defined in Appendix A below), the Manager may
organize or designate a maximum of twelve (12) conferences
for purposes of providing education to financial advisers
regarding the absolute return asset class and the Series
design and operation. The Sub-Advisor will cause one of its
senior level executives to attend and participate in
providing such education at each of these conferences. The
Manager will provide the Sub-Advisor with a forward calendar
with anticipated conference dates and times, as well as at
least 30 days advance notice of the date of each conference.
(e) 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.
(f) Maintain, in connection with the Sub-Advisor's services provided
to the Series, its compliance with the relevant provisions of
the 1940 Act and the regulations adopted by the Securities and
Exchange Commission thereunder. The Manager will be responsible
for all compliance monitoring, reporting and administration
relating to the Series, including with respect to the sub-
advisors. 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.
(g) 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.
(h) Furnish, at its own expense, (i) all necessary 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) Maintain all accounts, books and records with respect to the
Series as are required of an investment advisor of a registered
investment company pursuant to the 1940 Act and Investment
Advisers Act of 1940 (the "Investment Advisers Act"), and the
rules thereunder, and furnish the Fund and the Manager with such
periodic and special reports as the Fund or Manager may
reasonably request. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Sub-Advisor hereby agrees that all
records that it maintains for the Series are the property of the
Fund, agrees to preserve for the periods described by Rule 31a-2
under the 1940 Act any records that it maintains for the 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. Notwithstanding the foregoing, the Manager
acknowledges and agrees that the Sub-Advisor may retain copies
of such records if the Sub-Advisor determines that its retention
of such records is necessary for its compliance with federal
securities laws.
(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) 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.
3. Research
During the term of this agreement, the Sub-Advisor will provide the
Manager with access to its general research related to capital
markets and absolute return strategies.
4. 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
or series of an investment company sponsored by Principal Life
Insurance Company other than the Series regarding transactions for
the Fund in securities or other assets. For purposes of this
Section 4, the Manager shall periodically provide to the Sub-
Advisor, and the Sub-Advisor may rely exclusively upon, an updated
list of all such investment companies or series. The Sub-Advisor
shall have no liability in the event it consults with another
investment advisory firm advising an investment company or series
not on this list.
5. 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.
6. 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 or affiliates.
7. 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.
8. Supplemental Arrangements
The Sub-Advisor may delegate some or all of its duties under this
Agreement to persons affiliated with the Sub-Advisor or with
unaffiliated third parties subject to prior written notification to
and receipt of written approval from the Manager and, where required
by applicable law, the Board of Directors of the Fund.
9. 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.
10. Exclusivity
For a period of three years beginning with the date this agreement
is signed, the Sub-Advisor will not provide to any sponsor of an
investment vehicle whose interests are sold in the U.S. defined
contribution retirement plan market or the U.S. retail investment
market, services similar to those the Sub-Advisor provides to the
Manager under the terms of this agreement. Sub-Advisor agrees
that Manager shall be entitled to equitable relief, including,
without limitation, injunctive relief and specific performance, in
the event of Sub-Advisor's breach or threatened breach of this
exclusivity provision, in addition to all of the remedies
available at law or in equity and will not be required to post
bond or prove actual damages, which may in any event be difficult
to specify or establish.
11. 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 Board of Directors or 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.
12. 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.
13. 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
Cliffwater LLC,
0000 Xxxxxxxxx Xxx, 00xx Xxxxx
Xxxxxx xxx Xxx, Xxxxxxxxxx 00000
ATTN: Xxxxxxx Xxxxx and Xxxxxxxx Xxxxxxxx.
(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.
(3) any actual change in control of the Sub-Advisor.
(d) 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.
(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, provided that this Section 13(e) shall not apply to
disclosures the Sub-Advisor is required to make by law, rules,
regulations or legal or regulatory process, provided that sub-
Advisor shall give Manager notice of such disclosures. The
Manager and the Sub-Advisor agree that the Sub-Advisor is
permitted to include the name of the Manager in its clients
lists used for marketing purposes
(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
CLIFFWATER LLC
By
APPENDIX A
Cliffwater shall serve as an investment sub-advisor for the Series
identified below. The Manager will pay Cliffwater, as full compensation
for all services provided under this Agreement, the fee described below.
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
Cliffwater provides investment advisory services and which have the same
or a similar 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.
SERIES SUB-ADVISORY FEE
Global Multi-Strategy Fund For the twelve month period
beginning on the date the Series
initial registration statement
becomes effective, $650,000 paid in
arrears in equal monthly
installments.
For the second and third twelve
month periods, a fee computed and
paid monthly at an annual rate as
shown below of the Series net assets
as of the first day of each month
(but in no event a fee less than
$750,000 per year):
0.250% of the first $1 billion above
the value of the Series initial
seed capital, which shall be the value of the Fund's net assets as
of the thirtieth day after the
Fund's registration statement becomes
effective (the "Initial Seed Launch Date").
0.200% of the next $1 billion
0.150% of all remaining assets
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