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 /s/ Xxxxxxx X. Beer
Xxxxxxx X. Beer, Executive Vice President
and Chief Operating Officer
SYMPHONY ASSET MANAGEMENT LLC
By
Please print Name and Title
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%
1