PRINCIPAL FUNDS, INC.
SUB-ADVISORY AGREEMENT
TORTOISE CAPITAL ADVISORS, LLC SUB-ADVISED FUNDS
SUB-ADVISORY AGREEMENT (the "Agreement") executed as of the 31st
day of January, 2018 by and between PRINCIPAL GLOBAL INVESTORS,
LLC, a Delaware limited liability company (hereinafter called the
"Manager"), and TORTOISE CAPITAL ADVISORS, 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 Series of 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
render discretionary investment advisory services for all or a portion of the
assets of each Series of the Fund identified in Appendix A hereto, as may
be amended from time to time (hereinafter called "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 (the
"SEC");
(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 to be 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
such portion of the assets of each Series as may be allocated to
the Sub-Advisor by the Manager, from time to time (the "Allocated
Assets"), 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 Allocated Assets of
each 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 conditions require, a recommended
investment program for each Series consistent with each
Series' respective investment objective(s) and policies and
any specific criteria applicable to the Allocated Assets.
(c) Implement the approved investment program for the Allocated
Assets 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
registration statement, 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 each Series.
(e) Maintain, in connection with the Sub-Advisor's investment
advisory services provided to the Allocated Assets, compliance
with the 1940 Act and the regulations adopted by the SEC
thereunder and the Series' investment strategies and
restrictions as stated in the Fund's prospectus and statement of
additional information and any specific criteria applicable to the
Allocated Assets as provided to Sub-Advisor in accordance
with Section 12(b) of this Agreement.
(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 each Series (and any specific criteria applicable to
the Allocated Assets) are being observed.
(g) Upon request, provide assistance and recommendations for
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
the investment advisory affairs of each Series.
(i) Open accounts with Foreign Account Tax Compliance Act
compliant broker-dealers and futures commission merchants
("broker-dealers"), select broker-dealers to effect all
transactions for each 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 each
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 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 each 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 each 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
each 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 Allocated Assets.
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) Section 871(m) Transactions: Sub-Advisor shall not on behalf
of the Fund enter into certain U.S. dividend equivalent payment
transactions described in Section 871(m) of the U.S. Internal
Revenue Code and the regulations thereunder ("871(m)
Transaction") with a foreign counterparty unless: (i), Sub-
Advisor adheres to the ISDA 2015 Section 871(m) Protocol on
behalf of the Fund, and (ii), The foreign counterparty to the
871(m) Transaction provides Sub-Advisor with a properly
completed Form W-8IMY certifying to its status as a qualified
derivatives dealer ("QDD").
(k) Maintain all accounts, books and records with respect to the
Allocated Assets as are required of an investment advisor of a
registered investment company pursuant to the 1940 Act and
Investment Advisers Act of 1940, as amended (the "Advisers
Act"), and the rules thereunder, and furnish the Fund and the
Manager with such periodic and special reports as the Fund or
the 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 each
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 Series 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 a Series upon request by the Fund or the
Manager. The Sub-Advisor has no responsibility for the
maintenance of Fund records except insofar as is directly
related to the services the Sub-Advisor provides to a Series.
(l) 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 the Sub-
Advisor's current Code of Ethics. The Sub-Advisor shall
promptly forward to the Manager a copy of any material
amendment to the Sub-Advisor's Code of Ethics along with
certification that the Sub-Advisor has implemented
procedures for administering the Sub-Advisor's Code of
Ethics.
(m) 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 a 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 a
Series.
(n) Provide such information as is customarily provided by a sub-
advisor, or as may be required or reasonably requested by the
Manager, 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 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 Advisers Act; the Sub-
Advisor's most recent annual compliance report or a detailed
summary of such report; timely and complete responses to all
Quarterly Compliance Questionnaires (including the
identification of any material compliance maters and a copy of
any material changes to the Sub-Advisor's Rule 206(4)-7
compliance policies and procedures, marked to show
changes); Annual Proxy Voting Questionnaires; Annual Best
Execution and Soft Dollar Questionnaires, and responses to all
other reasonable requests from the Manager. The Sub-Advisor
agrees to make available, at the Sub-Advisor's office, for the
Manager's review all deficiency letters issued by the SEC
together with all responses given by Sub-Advisor to such
letters. The Sub-Advisor will advise the Manager of any
material changes in the Sub-Advisor's ownership within a
reasonable time after any such change.
(o) Vote proxies received on behalf of each Series (with respect to
the portion thereof allocated to the Sub-Advisor) in a manner
consistent with the Sub-Advisor's proxy voting policies and
procedures and provide a record of votes cast containing all of
the voting information required by Form N-PX in an electronic
format to enable the Series to file Form N-PX as required by
SEC rule. The Fund's custodian shall forward to Sub-Advisor
copies of proxy solicitation materials it receives (with respect to
the portion of each Series allocated to the Sub-Advisor) in
accordance with Section 12(b) herein.
(p) Respond to tender offers, rights offerings and other voluntary
corporate action requests affecting securities held by each
Series (with respect to the portion thereof allocated to the Sub-
Advisor).
(q) Cooperate with the Manager in its performance of quarterly
and annual tax compliance tests to monitor the Series'
compliance with Subchapter M of the Code and Section 817(h)
of the Code, subject to receipt of such additional information as
may be required from the Manger and provided in accordance
with Section 12(b) of this Agreement. If it is determined by the
Manager or its tax advisors that the Series is not in compliance
with the requirements imposed by the Code, upon notification,
the Sub-Advisor, in consultation with the Manager and its tax
advisors, will take prompt action to bring the Series back into
compliance with the time permitted under the Code.
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
Allocated Assets, 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 investment discretion in
connection with selecting investments for a Series 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, 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 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 6, "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 Fund's 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; provided, however, that entry into any such
arrangements shall not relieve the Sub-Advisor of any of its
obligations under this Agreement.
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 with respect to a Series as
of the corresponding date set forth on Appendix B to this
Agreement, as may be amended from time to time, and, unless
otherwise terminated with respect to such Series, shall continue in
effect thereafter for the initial term set forth on Appendix B to this
Agreement, and thereafter from year to year, provided that in each
case the continuance is specifically approved within the period
required by the 1940 Act 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 Allocated Assets of such 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 Allocated Assets of such
Series during such period is in compliance with Rule 15a-4 under
the 1940 Act.
This Agreement may be terminated with respect to a Series 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,"
"voting security" and "majority of the outstanding voting securities")
shall be applied.
10. Amendment of this Agreement
No amendment of this Agreement shall be effective unless in
writing and signed by both parties. 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 (as defined in the 0000 Xxx) and by
vote of a majority of the Board of Directors of the Fund who are not
interested persons (as defined in the 0000 Xxx) 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.
11. Additional Series
In the event the Manager wishes to appoint the Sub-Advisor to
perform the services described in this Agreement with respect to
one or more additional Series of the Fund after the effective date of
this Agreement, such Series will become a Series under this
Agreement upon approval of this Agreement in the manner required
by the 1940 Act and the amendment of Appendices A and B hereto.
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 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.
The address of the Sub-Advisor for this purpose shall be
Tortoise Capital Advisors, L.L.C., 00000 Xxx Xxxxxx, Xxxxx 000,
Xxxxxxx, Xxxxxx 00000.
(c) The Sub-Advisor, in compliance with any applicable fair
disclosure regulations, 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 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 a Series.
3. the Sub-Advisor becomes aware of any pending or
threatened action, suit, proceeding, inquiry or investigation
that is reasonably likely to result in a conviction, order,
judgment or decree issued with respect to it or any affiliate
that could reasonably be expected to result in the Sub-
Advisor becoming ineligible to serve as an investment
adviser of a registered investment company under the
0000 Xxx.
4. the Sub-Advisor becomes aware of a transaction or series
of transactions that is reasonably likely to result in a
change in the management or control of the Sub-Advisor
or a controlling person thereof or otherwise in the
assignment (as defined in the 0000 Xxx) of this Agreement
by the Sub-Advisor.
(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 a Series, cash
requirements and cash available for investment in a 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.
The 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's 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 GLOBAL INVESTORS, LLC
By
/s/ Xxxxxxx X. Beer
Name: Xxxxxxx X. Beer
Title: Executive Director - Principal Funds
By
/s/ Xxxx X. Xxxxxx
Name: Xxxx X. Xxxxxx
Title: Counsel
TORTOISE CAPITAL ADVISORS, L.L.C.
By
/s/ Xxxx Xxxxxxx
Name: Xxxx Xxxxxxx
Title: Managing Director
APPENDIX A
[Intentionally Omitted]
APPENDIX B
Effective Date and Initial Term of Sub-Advisory Agreement for each Series
Series
Effective Date
Initial Term
Diversified Real Asset Fund
January 31, 2018
2 Years
