PRINCIPAL FUNDS, INC. SUB-ADVISORY AGREEMENT JENNISON ASSOCIATES LLC
| PRINCIPAL FUNDS, INC. | ||
| SUB-ADVISORY AGREEMENT | ||
| ▇▇▇▇▇▇▇▇ ASSOCIATES LLC | ||
| AGREEMENT executed as of March 16, 2010, by and between PRINCIPAL MANAGEMENT CORPORATION, an | ||
| Iowa corporation (hereinafter called "the Manager"), and ▇▇▇▇▇▇▇▇ ASSOCIATES 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"); 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 the portion of assets of each series identified | ||
| in Appendix A (hereinafter called the “Series”) as may be designated by the Manager from time to time (such assets | ||
| hereinafter called the “▇▇▇▇▇▇▇▇ Portfolio”), 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 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 ▇▇▇▇▇▇▇▇ Portfolio, 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 | |
| ▇▇▇▇▇▇▇▇ Portfolio. | ||
| (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. | ||
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| (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 | |
| may be amended from time to time. | |
| (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 ▇▇▇▇▇▇▇▇ |
| Portfolio, 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 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. Compliance with the investment program designed for the | |
| ▇▇▇▇▇▇▇▇ Portfolio pursuant to Section 2(b) above, shall be deemed compliance with the investment | |
| strategies and restrictions of the Series 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 the ▇▇▇▇▇▇▇▇ Portfolio 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) | Open accounts with broker-dealers and futures commission merchants (“broker-dealers”), select broker- |
| dealers to effect all transactions for the ▇▇▇▇▇▇▇▇ Portfolio, 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 ▇▇▇▇▇▇▇▇ Portfolio 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 ▇▇▇▇▇▇▇▇ Portfolio. 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 ▇▇▇▇▇▇▇▇ Portfolio | |
| 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 | |
| ▇▇▇▇▇▇▇▇ Portfolio at prices which are advantageous to the ▇▇▇▇▇▇▇▇ Portfolio 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 | |
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| particular transaction or the overall responsibilities which the Sub-Advisor and its affiliates have with | |
| respect to the ▇▇▇▇▇▇▇▇ Portfolio 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 ▇▇▇▇▇▇▇▇ Portfolio. In | |
| addition, joint repurchase or other accounts may not be utilized by the ▇▇▇▇▇▇▇▇ Portfolio except to the | |
| extent permitted under any exemptive order obtained by the Sub-Advisor provided that all conditions of | |
| such order are complied with. Pursuant to the rules promulgated under Section 326 of the USA PATRIOT | |
| ACT, broker-dealers are required to obtain, verify and record information that identifies each person who | |
| opens an account with them. In accordance therewith, Manager acknowledges that broker-dealers whom | |
| the Sub-Advisor selects to execute transactions in the ▇▇▇▇▇▇▇▇ Portfolio on the Series’ behalf may seek | |
| identifying information about the Manager and/or the Series and the Manager will provide such information | |
| to such broker-dealers, if requested. | |
| (j) | Maintain all accounts, books and records with respect to the ▇▇▇▇▇▇▇▇ Portfolio as are required of an |
| investment advisor of a registered investment company pursuant to the 1940 Act and Investment Advisor’s | |
| Act of 1940 (the “Investment Advisor’s 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 ▇▇▇▇▇▇▇▇ Portfolio 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 ▇▇▇▇▇▇▇▇ Portfolio 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 ▇▇▇▇▇▇▇▇ Portfolio, 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 ▇▇▇▇▇▇▇▇ Portfolio. | |
| (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 personnel responsible for | |
| managing the ▇▇▇▇▇▇▇▇ Portfolio 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) | Perform quarterly and annual tax compliance tests to monitor the ▇▇▇▇▇▇▇▇ Portfolio’ 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 Manager and provided in accordance with Section 11(d) of this | |
| Agreement. The Sub-Advisor shall notify the Manager immediately upon having a reasonable basis for | |
| believing that the ▇▇▇▇▇▇▇▇ Portfolio has ceased to be in compliance or that it might not be in compliance in | |
| the future. If it is determined that the ▇▇▇▇▇▇▇▇ Portfolio is not in compliance with the requirements noted | |
| above, the Sub-Advisor, in consultation with the Manager, will take prompt action to bring the ▇▇▇▇▇▇▇▇ | |
| Portfolio back into compliance (to the extent possible) within the time permitted under the Code. | |
| (o) | Have the responsibility and authority to vote proxies solicited by, or with respect to, the issuers of securities |
| held in the ▇▇▇▇▇▇▇▇ Portfolio. 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. Notwithstanding the foregoing, the Sub-Advisor shall not be obligated to take any action or | |
| render advice involving legal action on Fund’s behalf with respect to assets in the ▇▇▇▇▇▇▇▇ Portfolio that | |
| become subject to any legal notices or proceedings, including securities class actions and bankruptcies. | |
| The Manager retains the right to proceed directly as a security holder against the issuer of any security in | |
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| the ▇▇▇▇▇▇▇▇ Portfolio. The Sub-Advisor will also not be authorized to take custody or possession of any of | |
| the Series’ cash or securities in the ▇▇▇▇▇▇▇▇ Portfolio. | |
| 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 or employees 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 or employees. | |
| 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 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. | |
| 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 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. | |
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| 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 9, the definitions contained in Section 2(a) of the 1940 Act | |
| (particularly the definitions of "interested person," "assignment" and "voting security") shall be applied. | |
| 10. 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 or report to be given pursuant to the Agreement shall be deemed to have been duly given or |
| made (a) as of the date delivered, and shall be effective upon receipt, if delivered personally, mailed by | |
| registered or certified mail (postage prepaid, return receipt requested) or overnight delivery or (b) as of the | |
| date sent if provided by facsimile transmission confirmed afterwards as soon as reasonably possible by | |
| telephone call, first class mail, or by any method specified in (a) above, to the following addresses | |
| specified below: | |
| To the Sub-Advisor: | |
| ▇▇▇▇▇▇▇▇ Associates LLC | |
| ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ | |
| ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ | |
| Attention: | ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice Chairman and Managing Director |
| Facsimile: | (▇▇▇) ▇▇▇-▇▇▇▇ |
| With a copy to (at the address set forth above): | |
| Attention: | Legal Department |
| Facsimile: | (▇▇▇) ▇▇▇-▇▇▇▇ |
| E-mail: ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇ | |
| To the Manager: | |
| Principal Financial Group | |
| ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, | |
| Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ | |
| Facsimile: ▇▇▇-▇▇▇-▇▇▇▇ | |
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| (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 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. | |
| (h) | This Agreement shall become effective on the date on which the Sub-Advisor commences | |
| providing services under this Agreement. | ||
| (i) | This Agreement may be executed in any number of counterparts, each of which when so executed shall be | |
| an original, but all the counterparts shall together constitute one and the same instrument | ||
| . | ||
| IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date first above written. |
| PRINCIPAL MANAGEMENT CORPORATION |
| By /s/ ▇▇▇▇ ▇▇▇▇▇▇▇ |
| ▇▇▇▇ ▇▇▇▇▇▇▇ |
| President & Chief Executive Officer |
| ▇▇▇▇▇▇▇▇ ASSOCIATES LLC |
| By /s/ ▇▇▇▇▇ ▇▇▇▇▇▇ |
| ▇▇▇▇▇ ▇▇▇▇▇▇ |
| Managing Director |
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| APPENDIX A |
| ▇▇▇▇▇▇▇▇ Associates LLC (“▇▇▇▇▇▇▇▇”) shall serve as an investment sub-advisor for a portion of the assets of the |
| Series identified below as may be designated by the Manager to ▇▇▇▇▇▇▇▇ from time to time the “▇▇▇▇▇▇▇▇ |
| Portfolio”). The Manager will pay ▇▇▇▇▇▇▇▇ as full compensation for all services provided under this Agreement, a |
| fee, computed daily and paid monthly, at an annual rate as shown below of the ▇▇▇▇▇▇▇▇ Portfolio’s net assets as |
| the first day of each month allocated to ▇▇▇▇▇▇▇▇’▇ 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 ▇▇▇▇▇▇▇▇ |
| 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 ▇▇▇▇▇▇▇▇ Portfolio 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 | |
| Sub-Advisor’s Fee as a Percentage of Average Daily Net Assets | |
| First $100 million | ...........................0.55% |
| Assets over $100 million* | ...........................0.50% |
| * During any period when the Fund’s Average Daily Net Assets equal or exceed $100 million, ▇▇▇▇▇▇▇▇’▇ fee as a | |
| percentage of average daily net assets shall be 0.50% on all assets. | |
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