PRINCIPAL FUNDS, INC.
SUB-ADVISORY AGREEMENT
BLACKROCK FINANCIAL MANAGEMENT, INC. SUB-ADVISED FUNDS
AGREEMENT executed as of the December 31, 2008, by and between PRINCIPAL
MANAGEMENT CORPORATION, an Iowa corporation (hereinafter called "the Manager"),
and BLACKROCK FINANCIAL MANAGEMENT, INC., a Delaware 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.
(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 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, understanding that the Sub-Advisor must keep a copy for
regulatory purposes.
(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. 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, as it relates to the
1940 Act, 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.
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.
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, Xxx
Xxxxxx, Xxxx 00000-0000, and the address of the Sub-Advisor shall be 00
Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx, 00000.
(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) 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
BLACKROCK FINANCIAL MANAGEMENT, INC.
By /s/ Xxxxxx Xxxxxxx
Xxxxxx Xxxxxxx, Managing Director
APPENDIX A
Blackrock Financial Management, Inc. ("Blackrock") shall serve as an investment
sub-advisor for the Series identified below. The Manager will pay Blackrock, 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' gross assets,
including assets in any securities lending collateral accounts, as the first day
of each month allocated to Blackrock's management.
In calculating the fee for a series included in the table, net assets of any
unregistered separate account of Principal Life Insurance Company and any
investment company sponsored by Principal Life Insurance Company to which
Blackrock 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 gross assets of the series to arrive at total 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.
Inflation Protection Fund
Sub-Advisor's Fee as a Percentage of Average Daily Gross
Assets
All Assets 0.10%
1
