PRINCIPAL FUNDS, INC.
AMENDED AND RESTATED SUB-ADVISORY AGREEMENT
SPECTRUM SUB-ADVISED SERIES
AGREEMENT executed as of March 14, 2014, by and between
PRINCIPAL MANAGEMENT CORPORATION (hereinafter called
"the Manager"), and SPECTRUM ASSET MANAGEMENT, INC.
(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 furnish
it with portfolio selection and related research and statistical services
in connection with the investment advisory services for each Series
of the Fund identified in Appendix A hereto (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;
(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 the securities and other
assets of each Series, subject to the control and direction of
the Manager and the Fund's Board of Directors, for the
period and on the terms hereinafter set forth. The
Sub-Advisor accepts such appointment and agrees to furnish
the services hereinafter set forth for the compensation herein
provided. The Sub-Advisor shall for all purposes herein be
deemed to be an independent contractor and shall, except as
expressly provided or authorized, have no authority to act for
or represent the Fund or the Manager in any way or
otherwise be deemed an agent of the Fund or the Manager.
2. Obligations of and Services to be Provided by the Sub-Advisor
The Sub-Advisor will:
(a) Provide investment advisory services, including but not
limited to research, advice and supervision for 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 investment objective and
policies.
(c) Implement the approved investment program by placing
orders for the purchase and sale of securities without
prior consultation with the Manager and without regard
to the length of time the securities have been held, the
resulting rate of portfolio turnover or any tax
considerations, subject always to the provisions of the
Fund's 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 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 obligations, 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.
(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 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 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 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
each 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 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.
(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 along
with certification that the Sub-Advisor has implemented
procedures for administering 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 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.
(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.
(n) Vote proxies received on behalf of the Series in a manner
consistent with 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.
(o) Respond to tender offers, rights offerings and other voluntary
corporate action requests affecting securities held by the Fund
and complete and file notices of claims in connection with
class action lawsuits concerning securities owned by the
Fund.
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 each
Series, 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 and/or insurance laws and rules 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. 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.
7. 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.
8. Duration and Termination of This Agreement
This Agreement shall become effective on the latest of (i) the
date of its execution, (ii) the date of its approval by a majority
of the Board of Directors of the Fund, including approval by
the 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 or (iii) if required by the 1940 Act, the date of
its approval by a majority of the outstanding voting securities
of the Series. It shall continue in effect thereafter from year to
year provided that the continuance is specifically approved at
least annually either by the Board of Directors of the Fund or
by a vote of a majority of the outstanding voting securities of
the Series and in either event by a vote of a majority of the
Board of Directors of the Fund who are not interested
persons of the Manager, Principal Life Insurance Company,
the Sub-Advisor or the Fund cast in person at a meeting
called for the purpose of voting on such approval.
If the shareholders of a Series fail to approve the Agreement
or any continuance of the Agreement in accordance with the
requirements of the 1940 Act, the Sub-Advisor will continue
to act as Sub-Advisor with respect to the Series pending the
required approval of the Agreement or its continuance or of
any contract with the Sub-Advisor or a different manager or
sub-advisor or other definitive action; provided, that the
compensation received by the Sub-Advisor in respect to the
Series during such period is in compliance with Rule 15a-4
under the 1940 Act.
This Agreement may be terminated at any time without the
payment of any penalty by the Board of Directors of the Fund
or by the Sub-Advisor, the Manager or by vote of a majority
of the outstanding voting securities of the Series on sixty
days written notice. This Agreement shall automatically
terminate in the event of its assignment. In interpreting the
provisions of this Section 8, the definitions contained in
Section 2(a) of the 1940 Act (particularly the definitions of
"interested person," "assignment" and "voting security") shall
be applied.
9. 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.
10. 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 and the Sub-Advisor for this purpose shall
be Principal Financial Group, Xxx Xxxxxx, Xxxx
00000-0000.
(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 a
Series.
(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) 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
SPECTRUM
ASSET MANAGEMENT, INC.
By
APPENDIX A
The Sub-Advisor shall serve as investment sub-advisor for the
Series of the Fund identified below. The Manager will pay the
Sub-Advisor, as full compensation for all services provided under this
Agreement, a fee computed at an annual rate as shown below (the
"Sub-Advisor Percentage Fee"):
Series
Sub-Advisor Percentage Fee
Preferred Securities Fund
First $100,000,000 of assets 0.3427%
Next $150,000,000 of assets 0.2937
Assets over $250,000,000 0.1958
Series
Sub-Advisor Percentage Fee
Global Diversified Income Fund
First $100,000,000 of assets 0.3427%
(Preferred Securities Portfolio)
Next $150,000,000 of assets 0.2937
Assets over $250,000,000 0.1958
Series
Sub-Advisor Percentage Fee
Capital Securities Fund
All assets .............................0.00%
The Sub-Advisor Percentage Fee shall be accrued for each
calendar day and the sum of the daily fee accruals shall be paid
monthly to the Sub-Advisor. The daily fee accruals will be computed
by multiplying the fraction of one over the number of calendar days in
the year by the applicable annual rate described above and
multiplying this product by the net assets of the Series, as
determined in accordance with the Series' Prospectus and
Statement of Additional Information as of the close of business on
the previous business day on which the Series was open for
business.
In calculating the fee for a series included in the table (with the
exception of the Capital Securities Fund), assets of any unregistered
separate account of Principal Life Insurance Company and any
investment company sponsored by Principal Life Insurance
Company to which Spectrum Asset Management, Inc. 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.
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