PRINCIPAL FUNDS, INC.
SUB-ADVISORY AGREEMENT
MACQUARIE CAPITAL INVESTMENT MANAGEMENT LLC
AGREEMENT executed as of March 27, 2015, by and between
PRINCIPAL MANAGEMENT CORPORATION, an Iowa corporation
(hereinafter called "the Manager"), and Macquarie Capital
Investment Management 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 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 Foreign Account Tax Compliance Act
("FATCA") compliant 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
applicable law or 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 Adviser's Act of 1940 (the "Investment
Adviser'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. Such
information includes, but is not limited to; the Sub-Advisor's
compliance manual and policies and procedures adopted to
comply with Rule 206(4)-7 of the Investment Advisers Act;
the Sub-advisor's most recent annual compliance report or a
detailed summary of such report; timely and complete
responses to Quarterly Compliance Questionnaires
(including the identification of any material compliance
matters and a copy of any material changes to the Sub-
advisor's Rule 206(4)-7 compliance policies and procedures
marked to show changes along with a written summary of
the purpose of such changes), Annual Proxy Voting
Questionnaires, Annual Best Execution and Soft Dollar
Questionnaire, and other ad-hoc compliance requests the
Manager deems necessary. Sub-advisor agrees to make
available for review, deficiency letters issued by the
Securities and Exchange Commission and the Sub-
advisor's response to such deficiency letters. Sub-Advisor
will advise Manager of any material changes in Sub-
Advisor's ownership 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;
provided, however, that Sub-Adviser may engage an affiliate to
perform investment advisory services for the Fund (the "Sub-
Advisory Affiliate") and this prohibition shall not apply to
consultations with the Sub-Advisory Affiliate.
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. Trade Errors
The Sub-Advisor will notify the Manager of any Trade Error(s),
regardless of materiality, promptly upon the discovery such
Trade Error(s) by the Sub-Advisor. Notwithstanding Section 5,
the Sub-Advisor will be shall be liable to the Manager, the Fund
or its shareholders for any loss suffered by the Manager or the
Fund resulting from Trade Errors due to negligence,
misfeasance, or disregard of duties of the Sub-Advisor or any of
its directors, officers, employees, agents (excluding any broker-
dealer selected by the Sub-Advisor), or affiliates. For purposes
under this Section, Trade Errors are defined as errors due to (i)
erroneous orders by the Sub-Advisor for the Series that result in
the purchase or sale of securities that were not intended to be
purchased or sold; (ii) erroneous orders by the Sub-Advisor that
result in the purchase or sale of securities for the Series in an
unintended amount or price; or (iii) purchases or sales of
financial instruments which violate the investment limitations or
restrictions disclosed in the Registration Statement and/or
imposed by applicable law or regulation (calculated at the Sub-
Advisor's portfolio level), unless otherwise agreed to in writing.
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 (i) 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; or (ii) by electronic
mail to the address of the party specified below or such
other address as either party may specify in writing. 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, Email:
xxxxxx.xxxx@xxxxxxxxx.xxx, and the address of the Sub-
Advisor shall be:
Macquarie Capital Investment
Management, LLC
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000-0000
Email:
xxxxxxxxxxxxx@xxxxxxxxx.xxx
(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 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
By /s/ Xxxxxxx X. Beer
Xxxxxxx X. Beer,
President and Chief
Executive Officer
MACQUARIE CAPITAL
INVESTMENT MANAGEMENT,
LLC
By /s/ Xxxx Xxxxxxxxx
Xxxx Xxxxxxxxx, President
By /s/ Xxxxxxxx Xxxxx
Xxxxxxxx Xxxxx, Chief
Operating Officer
APPENDIX A
Macquarie Capital Investment Management LLC ("Macquarie") shall
serve as an investment sub-advisor for the Series identified below.
The Manager will pay Macquarie as full compensation for all services
provided under this Agreement, a fee, computed daily and paid
monthly, at an annual rate as shown below of the Series' net assets
allocated to Macquarie's management.
In calculating the fee for a series included in the table, assets of any
unregistered separate account of Principal Life Insurance Company,
any investment company sponsored by Principal Life Insurance
Company, and any collective investment trust sponsored by
Delaware Charter Guarantee & Trust Company to which Macquarie
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.
Diversified Real Asset Fund
Sub-Advisor's Fee as a Percentage of Average Daily Net Assets
First $150 million 0.45%
Next $150 million 0.40%
Next $200 million 0.35%
Assets over $500 million 0.30%
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