PRINCIPAL FUNDS, INC.
SUB-ADVISORY AGREEMENT
AGREEMENT executed as of February 3, 2012, by and between PRINCIPAL
MANAGEMENT CORPORATION, an Iowa corporation (hereinafter called "the
Manager"), and SYMPHONY ASSET MANAGEMENT LLC, a California 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 investment advisory services for a certain designated portion of the
assets in 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 with respect to such assets;
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 Manager grants
the Sub-Advisor full discretion to perform such services. 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 relating to the assets
allocated to it.
(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
discretionary 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 as such statement may be
amended from time to time, 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) Select broker-dealers, banks, loan traders and futures
commission merchants ("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 in accordance
with its duty of best execution 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.
(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 that the Manager may retain one
copy of all such records..
(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 reasonably requested by the Fund or the
Manager 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.
(n) Have the responsibility and authority to vote proxies solicited
and corporate actions by or with respect to, the issuers of
securities held in the Series, but for clarification, not the
processing of class action claims or settlements. The Manager
shall cause to be forwarded to Sub-Advisor all proxy
solicitation and corporate action materials that it receives and
shall assist Sub-Advisor in its efforts to conduct the proxy
voting and corporate action 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.
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, non-
investment, operational or compliance processes, and facilities to
the Sub- Advisor. Any arrangements to provide investment advisory
services in connection with the Fund's securities will be subject to
written notification to and approval of the Manager and, where
required by applicable law the Board of Directors of the Fund.
8. Services to Others
The Sub-Advisor may act as a portfolio manager or sub-advisor to
other funds and discretionary accounts in addition to the Series. If
the availability of any particular investment security is limited
and that asset is consistent with the Series investment objectives
and policies and also the investment objectives, investment
strategies and investment restrictions of one or more of the Sub-
Advisor's other accounts, such asset will be allocated on a fair and
equitable basis over time having regard to whether the assets are
currently held in any of the relevant investment portfolios, the
relevant size and of the Series and other accounts managed or sub-
advised by the Sub-Advisor and any other factors which the Sub-
Advisor considers reasonable. The Sub-Advisor shall not be obligated
to present any particular investment opportunity to the Series even
if such opportunity is of a character which, if presented to the
Series, could be taken by the Series. The Sub-Advisor may also enter
into transactions for the Series which are different than
transactions for its other accounts.
9. Regulation
The Sub-Advisor shall submit to all regulatory and administrative
bodies having jurisdiction over the Sub-Advisor in connection with
the services provided by the Sub-Advisor 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. 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 10, the
definitions contained in Section 2(a) of the 1940 Act (particularly
the definitions of "interested person," "assignment" and "voting
security") shall be applied. In either case, any open trades which
have not settled on the effective date of termination will settle
for the account of the Fund. .
11. 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.
12. 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. E-mailed 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 555
CaliforniaStreet,Suite2975,SanFrancisco,California, 94104 ATTN:
Xxxxxx McKillen_.
(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 Manager represents and warrants to the Sub-Advisor that:
(1) it has the full capacity and authority to execute and
deliver this Agreement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of the
Fund and is a valid and binding agreement of the Manager and
enforceable in accordance with its terms;
(2) the Fund and the Manager are in compliance with all
applicable laws, rules and regulations to which they are
subject and have all of the licenses, registrations and
approvals that are required to operate their respective
businesses and will notify the Sub-Manager if it fails to be
registered as an Investment Manager under the Investment
Advisors Act or any jurisdiction in which it is required to be
registered;
(3) it is responsible for all of the information contained in the
Fund's registration statement, as amended, including the
Prospectus, Prospectus Supplement and Statement of Additional
Information (collectively the "Fund Documents") and as of the
date hereof, the Fund Documents do not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statement made therein not misleading and are presented in
accordance with applicable law; provided that no
representation is made as to information with respect to the
Sub-Advisor provided in writing to Manager by the Sub-Advisor
specifically for inclusion in the Fund Documents.
(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 will not 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, except to the extent required by applicable law or
legal process, and provided that the Manager and the Sub-
Advisor agree that the Sub-Advisor is permitted to include the
name of the Fund, the Series, or the Manager in its client
lists used for marketing purposes
(h) 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
______________________________
SYMPHONY ASSET MANAGEMENT LLC
By
APPENDIX A
Symphony Asset Management LLC ("Symphony") shall serve as an investment
sub-advisor for the Series identified below. The Manager will pay
Symphony, 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' average daily net assets for that month allocated to
Symphony'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
Symphony 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 - Floating Rate Sleeve
Sub-Advisor's Fee as a Percentage of Average Daily Net
Assets
First $300 million 0.40%
Over $300 million 0.30%
Symphony Asset Management Draft of January 24, 2012
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