PRINCIPAL FUNDS, INC.
SUB-ADVISORY AGREEMENT
AGREEMENT executed as of the 9th of October, 2012, by and between
PRINCIPAL MANAGEMENT CORPORATION, an Iowa corporation
(hereinafter called "the Manager"), and DDJ CAPITAL MANAGEMENT,
LLC, a Massachusetts 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
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, as well as exercise all
other ancillary rights or duties in connection with the management
of such securities or other assets necessary to implement any of
the powers contained herein, subject to the control and direction of
the Manager and the Fund's Board of Directors, for the period and
on the terms hereinafter set forth. The Sub-Advisor accepts such
appointment and agrees to furnish the services hereinafter set forth
for the compensation herein provided. The Sub-Advisor shall for all
purposes herein be deemed to be an independent contractor and
shall, except as expressly provided or authorized, have no authority
to act for or represent the Fund or the Manager in any way or
otherwise be deemed an agent of the Fund or the Manager.
2. Obligations of and Services to be Provided by the Sub-Advisor
The Sub-Advisor will:
(a) Provide investment advisory services, including but not limited
to research, advice and supervision for the Series.
(b) Furnish to the Board of Directors of the Fund for approval (or
any appropriate committee of such Board), and revise from
time to time as economic conditions require, a recommended
investment program for the Fund consistent with the Series'
investment objective and policies.
(c) Implement the approved investment program by placing
orders for the purchase and sale of securities and other
investment instruments 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,
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 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. Notwithstanding the
foregoing, the cost of the securities or other investment
instruments purchased or sold or held by the Fund (including
taxes, brokerage commissions and other applicable
transaction costs, if any, shall be solely borne by the Fund.
(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 reasonable
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. Such services or products do not need
to be used by the Sub-Advisor in managing the Series. In
addition, joint repurchase 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.
The Manager acknowledges that the Sub-Advisor may have
investment responsibilities or render investment advice to, or
perform other investment advisory services for, other
individuals or entities ("Affiliated Accounts"). The Manager
agrees that the Sub-Advisor may give advice or exercise
investment responsibility and take such other action with
respect to its Affiliated Accounts that may differ from advice
given or the timing or nature of action taken with respect to
the Fund, provided that the Sub-Advisor acts in good faith,
and provided, further, that it the Sub-Advisor's policy to
allocate, within its reasonable discretion, investment
opportunities to the Fund over a period of time on a fair and
equitable basis relative to the Affiliated Accounts, taking into
account the investment objectives and policies of the Fund
and any specific investment restrictions applicable thereto.
(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-
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; provided, however, that the Sub-Advisor may retain
a copy of such records in order to comply with applicable
requirements under the Investment Advisers Act.
(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 President) 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. In addition, the Sub-Advisor shall have the
power, discretion and responsibility to exercise and act with
respect to any conversion privilege, subscription right, or other
corporate action notification with respect to any of the assets
of the Series, as well as participate, join in or dissent from,
and vote in any in-court or out-of-court corporate restructuring
or reorganization or liquidation.
(o) The Sub-Advisor shall have the power to make, execute,
acknowledge and deliver on behalf of the Fund any and all
documents of transfer and conveyance and any and all other
documents or instruments that may be necessary or
appropriate to carry out the powers granted to it under this
Agreement. In connection with the execution of any such
documents or instruments, the signature block of the Fund
shall be as follows:
[Principal Funds, Inc. -- Global Diversified Income Fund]
By: DDJ Capital Management, LLC, in its capacity as Sub-
Advisor
By:
Name:
Title: Authorized Signatory
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. The
Manager agrees to provide a list of such other investment advisory
firms to the Sub-Advisor, such list to be promptly updated by the
Manager upon any changes thereto.
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.
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 (provided, however, that any delay in notifying the Manager
shall not limit Manager's liability hereunder unless such delay
materially prejudices the Manager in the defense 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 (provided, however, that the foregoing
notification and approval provision shall not apply with respect to
the retention by the Sub-Advisor of legal counsel on behalf of the
Fund in connection with (a) the purchase and/or sale of securities
or other investment instruments by the Fund, and (b) the
restructuring or reorganization of an existing holding 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 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.
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.
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, 000 Xxxx Xxxxxx, Xxx
Xxxxxx, Xxxx 00000-0000, and the address of the
Sub-Advisor shall be 000 Xxxxxx Xxxxxx, Xxxxxxxx #0, Xxxxx
000, Xxxxxxx, XX 00000 ATTN: Legal Department.
(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 Fund is (a) a "qualified institutional buyer" as defined in
paragraph (a) of Rule 144A under the Securities Act of 1933
("Securities Act") by reason of the fact that it an investment
company registered under the 1940 Act, and (b) an "accredited
investor" as defined in Regulation D under the Securities Act.
(f) 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.
(g) 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,
however, that the Manager consents to the Sub-Advisor's use
of the Manager's name and the Fund name in the Sub-
Advisor's representative client list that may be distributed to
potential and existing clients so long as this Agreement is in
effect.
(h) This Agreement contains the entire understanding and
agreement of the parties.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties have duly executed this Agreement
on the date first above written.
PRINCIPAL MANAGEMENT CORPORATION
By
DDJ CAPITAL MANAGEMENT, LLC
By
Name:
Title:
APPENDIX A
DDJ Capital Management, LLC ("DDJ") shall serve as an investment sub-
advisor for the Series identified below. The Manager will pay DDJ, as full
compensation for all services provided under this Agreement, a fee,
computed and paid monthly, a fee, computed and paid monthly, at an
annual rate as shown below of the Series' average daily net assets for that
month allocated to DDJ's management.
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 DDJ 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.
Global Diversified Income Fund
Sub-Advisor's Fee as a Percentage of Average Daily Net
Assets
First $750
million......................................0.40%*
Assets greater than $750
million..................0.35%
*If assets assigned to DDJ fall below $500 million during any period
after June 30, 2013, the fee schedule will be 0.45% on all assets.
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