PRINCIPAL FUNDS, INC.
SUB-ADVISORY AGREEMENT
AGREEMENT executed as of the 11th of January, 2013, by and between
PRINCIPAL MANAGEMENT CORPORATION, an Iowa corporation
(hereinafter called "the Manager"), and POST ADVISORY GROUP, 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, pursuant to the Management
Agreement(the "Management Agreement"); and
WHEREAS, the Manager, acting pursuant to the Management Agreement,
desires to retain the Sub-Advisor, and the Fund's shareholders and Board
of Directors have approved the retention of the Sub-Advisor, to furnish
certain 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 true and
complete copies properly certified or authenticated of each of the following
documents, and will promptly provide the Sub-Advisor with copies properly
certified or authenticated of any amendment or supplement thereto:
(a) 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, investment 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 (as provided to the Sub-
Advisor in writing).
(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 reasonably
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 in writing 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. The Sub-Advisor does not
assume and shall not be responsible for the payment of any
expenses of the Manager or the Fund not specifically set forth
in this Agreement, including, without limitation, all expenses
relating to the acquisition, disposition or ownership of financial
instruments held in the Fund, including without limitation,
brokerage commissions, dividends payable with respect to
securities sold short, custodial fees, bank service fees,
interest on Fund-related loans and debit balances, transfer
taxes, fees for independent valuation services, legal fees
incurred on behalf of the Fund or the Manager in connection
with the acquisition, disposition, settlement or ownership of
financial instruments held in the Fund, and the Sub-Advisor
shall be entitled to reimbursement from the Fund and/or the
Manager for such expenses, if any, paid by the Sub-Advisor,
provided, however, that the payment of or reimbursement to
the Sub-Advisor for any such expenses would require pre-
approval by the Manager.
(i) Open accounts with broker-dealers and futures commission
merchants ("broker-dealers"), select broker-dealers to effect
all transactions for the Series, place all necessary orders with
broker-dealers or issuers (including affiliated broker-dealers),
and negotiate commissions, if applicable. To the extent
consistent with applicable law, purchase or sell orders for the
Series may be aggregated with contemporaneous purchase
or sell orders of other clients of the Sub-Advisor. In such event
allocation of securities so sold or purchased, as well as the
expenses incurred in the transaction, will be made by the
Sub-Advisor in the manner the Sub-Advisor considers to be
the most equitable and consistent with its fiduciary obligations
to the Fund and to other clients. The Manager recognizes
that, in some cases, this procedure may limit the size of the
position that may be acquired or sold for the Series. The Sub-
Advisor will report on such allocations at the written 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, subject to Section 28(e) of the
Securities Exchange Act of 1934, as amended, the Sub-
Advisor may select brokers or dealers on the basis that they
provide brokerage, research or other services or products to
the Sub-Advisor. To the extent consistent with applicable
law, the Sub-Advisor may pay a broker or dealer an amount of
commission for effecting a securities transaction in excess of
the amount of commission or dealer spread another broker or
dealer would have charged for effecting that transaction if the
Sub-Advisor determines in good faith that such amount of
commission is reasonable in relation to the value of the
brokerage and research products and/or services provided by
such broker or dealer. This determination, with respect to
brokerage and research products and/or services, may be
viewed in terms of either that particular transaction or the
overall responsibilities which the Sub-Advisor and its affiliates
have with respect to the Series as well as to accounts over
which they exercise investment discretion. Not all such
services or products need be used by the Sub-Advisor in
managing the Series. In addition, joint repurchase or other
accounts may not be utilized by the Series except to the
extent permitted under any exemptive order obtained by the
Sub-Advisor provided that all conditions of such order are
complied with.
(j) Maintain all accounts, books and records with respect to the
portion of the Series managed by the Sub-advisor, as required
by 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.
(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. 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
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.
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 Sub-Advisor the compensation specified
in Appendix A to this Agreement.
5. Manager Representations and Warranties
The Manager represents and warrants to the Sub-Advisor that (i)
the retention of the Sub-Advisor by the Manager as contemplated
by this Agreement is authorized by the governing documents of the
Manager; (ii) the execution, delivery and performance of each of
this Agreement and the Management Agreement does not violate
any obligation by which the Manager or its property is bound,
whether arising by contract, operation of law or otherwise; (iii) the
Manager has met and will seek to continue to meet for so long as
this Agreement remains in effect, all applicable federal and state
requirements, or the applicable requirements of any regulatory or
industry self-regulatory agency necessary to be met in order to
perform the services contemplated by the Management Agreement;
(iv) the Manager will promptly notify the Sub-Advisor of the
occurrence of any event that would disqualify the Manager from
serving as an investment adviser of an investment company; and
(v) each of this Agreement and Management Agreement has been
duly authorized by appropriate action of the Manager and when
executed and delivered by the Manager will be the legal, valid and
binding obligation of the Manager, enforceable against the
Manager in accordance with its terms hereof.
6. Sub-Advisor Representations and Warranties
The Sub-Advisor represents and warrants to the Manager that (i)
the Sub-Advisor is registered as an investment adviser under the
Investment Advisers Act and will continue to be so registered for so
long as this Agreement remains in effect; (ii) the Sub-Advisor is not
prohibited by the 1940 Act, the Investment Advisers Act or other
law, regulation or order from performing the services contemplated
by this Agreement; (iii) the Sub-Advisor has met and will seek to
continue to meet for so long as this Agreement remains in effect, all
applicable federal and state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency
necessary to be met in order to perform the services contemplated
by this Agreement; (iv) the Sub-Advisor has the authority to enter
into and perform the services contemplated by this Agreement; (v)
the Sub-Advisor will promptly notify the Adviser of the occurrence
of any event that would disqualify the Sub-Advisor from serving as
an investment adviser; (vi) this Agreement has been duly
authorized by appropriate action of the Sub-Advisor and when
executed and delivered by the Sub-Advisor will be the legal, valid
and binding obligation of the Sub-Advisor, enforceable against the
Sub-Advisor in accordance with its terms hereof.
7. 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, the
Fund or its shareholders, 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.
8. Indemnification
The Manager agrees to indemnify and hold harmless the Sub-
Advisor, its directors, officers, employees, agents and affiliates from
and against any and all claims, losses, liabilities or damages
(including reasonable attorneys' fees and other related expenses),
(collectively, "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.
9. 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.
10. Services Not Exclusive
The services of the Sub-Advisor to the Manager and the Fund are
not to be deemed exclusive and the Sub-Advisor shall be free to
render similar services to others. It is specifically understood that
directors, officers and employees of the Sub-Advisor and of its
subsidiaries and affiliates may continue to engage in providing
portfolio management services and advice to other investment
advisory clients. The Manager agrees that the Sub-Advisor may
give advice and take action in the performance of its duties with
respect to any of its other clients which may differ from advice
given or the timing or nature of action taken with respect to the
Fund. Nothing in this Agreement shall be deemed to require the
Sub-Advisor, its principals, affiliates, agents or employees to
purchase or sell for the Fund any security which it or they may
purchase or sell for its or their own account or for the account of
any other client.
11. 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.
12. 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 12, the
definitions contained in Section 2(a) of the 1940 Act (particularly
the definitions of "interested person," "assignment" and "voting
security") shall be applied.
13. Amendment of this Agreement
No material amendment of this Agreement shall be effective until
approved, if required by the 1940 Act or the rules, regulations,
interpretations or orders issued thereunder, by vote of the holders
of a majority of the outstanding voting securities of the Series and
by vote of a majority of the Board of Directors of the Fund who are
not interested persons of the Manager, the Sub-Advisor, Principal
Life Insurance Company or the Fund cast in person at a meeting
called for the purpose of voting on such approval, and such
amendment is signed by both parties.
11. General Provisions
(a) Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the
purposes hereof. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the
State of Iowa. The captions in this Agreement are included for
convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or
effect.
(b) Any notice under this Agreement shall be in writing,
addressed and delivered or mailed postage pre-paid to the
other party at such address as such other party may
designate for the receipt of such notices. Until further notice to
the other party, it is agreed that the address of the Manager
for this purpose shall be Principal Financial Group, Xxx
Xxxxxx, Xxxx 00000-0000, and the address of the
Sub-Advisor shall be Post Advisory Group, LLC, 0000 00xx
Xxxxxx, Xxxxx 0000X, Xxxxx Xxxxxx, XX 00000 ATTN: Legal
Department.
(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, except to the extent required
by applicable law, 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.
(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
POST ADVISORY GROUP, LLC
By
APPENDIX A
The Manager will pay the Sub-Advisor, as full compensation for all services
provided under this Agreement, a sub-advisory management fee computed
and paid monthly (as soon as practicable after the last day of each calendar
month), at an annual rate as shown below of the Series' average daily net
assets for that month allocated to Post's management. Average daily net
assets will be calculated as the average net asset value of each Business
Day in the month.
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 the Sub-Advisor 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 determine the
fee rate.
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.
Series of the Principal Funds,
Inc.
Annual Sub-Advisory Fee Rate
as a Percentage of Average Daily
Net Assets
Global Diversified Income Fund
0.30%
10
