PRINCIPAL FUNDS, INC.
AMENDED AND RESTATED SUB-ADVISORY AGREEMENT
AMENDED AND RESTATED SUB-ADVISORY AGREEMENT (the
"Agreement") executed as of January 1, 2018, by and between
PRINCIPAL GLOBAL INVESTORS, LLC, a Delaware limited liability
company (hereinafter called the "Manager"), and FINISTERRE
CAPITAL LLP, a Limited Liability Partnership formed under the laws
of the United Kingdom (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 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 and the Sub-Advisor agree to
amend and restate the Amended and Restated Sub-Advisory
Agreement between the Manager (having assumed the rights and
obligation of Principal Management Corporation) and the Sub-
Advisor dated July 11, 2016 with this Agreement; 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; and
(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.
(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
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.
(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
its duties under this Agreement.
(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 along with a written
summary of the purpose of each such change);
Annual Proxy Voting Questionnaires; and Annual
Best Execution and Soft Dollar Questionnaires. The
Sub-Advisor agrees to make available 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.
(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) and
complete and file notices of claims in connection with
class action lawsuits concerning securities owned by
the Fund (with respect to the portion of each Series
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. 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, 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, affiliates or any agent appointed by 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 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,
affiliates, or any agent appointed by the Sub-Advisor.
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; provided, however, that entry into any such
arrangements shall not relieve the Sub-Advisor of any of its
obligations under this Agreement.
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
No amendment of this Agreement shall be effective unless in
writing and signed by both parties. 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.
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 (as defined in the ▇▇▇▇ ▇▇▇) and by
vote of a majority of the Board of Directors of the Fund who
are not interested persons (as defined in the ▇▇▇▇ ▇▇▇) 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. 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.
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, ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇-▇▇▇▇. The address of the Sub-Advisor for this
purpose shall be Queensberry House, ▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇ ATTN: ▇▇▇▇▇▇
▇▇▇▇▇▇.
(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 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 ▇▇▇▇ ▇▇▇.
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 ▇▇▇▇ ▇▇▇) 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) The Sub-Advisor acknowledges Manager's
representation that the Global Multi-Strategy Fund
and Finisterre Unconstrained Emerging Markets
Bond Fund Series do not rely on the exclusion from
the definition of "commodity pool operator" under
Section 4.5 of the General Regulations under the
Commodity Exchange Act (the CEA).
The Sub-Advisor represents that it is a commodity
trading advisor duly registered with the Commodity
Futures Trading Commission and is a member in
good standing of the National Futures Association
(the NFA) or is relying on an exemption from
registration as a commodity trading advisor. As
applicable, the Sub-Advisor shall maintain such
registration and membership in good standing or
continue to qualify for an exemption from registration
as a commodity trading advisor during the term of this
Agreement. Further, the Sub-Advisor agrees to notify
the Manager within a commercially reasonable time
upon (i) a statutory disqualification of the Sub-Advisor
under the CEA, (ii) a suspension, revocation or
limitation of the Sub-Advisor's commodity trading
advisor registration or NFA membership, or (iii) the
institution of an action or proceeding that could lead
to a statutory disqualification under the CEA.
(h) The Manager hereby certifies that, with respect to the
Global Multi Strategy Fund and Finisterre
Unconstrained Emerging Markets Bond Fund series,
it is a commodity pool operator duly registered with
the Commodity Futures Trading Commission and is a
member in good standing of the National Futures
Association (the NFA) or is relying on an exemption
from registration as a commodity pool operator. As
applicable, the Manager shall maintain such
registration and membership in good standing or
continue to qualify for an exemption from registration
as a commodity pool operator during the term of this
Agreement. Further, the Manager agrees to notify the
Sub-Advisor within a commercially reasonable time
upon (i) a statutory disqualification of the Manager
under the CEA, (ii) a suspension, revocation or
limitation of the Sub-Advisor's commodity trading
advisor registration or NFA membership, or (iii) the
institution of an action or proceeding that could lead
to a statutory disqualification under the CEA.
The Manager also represents that the Finisterre
Unconstrained Emerging Markets Bond Fund and
Global Multi-Strategy Fund is a "qualified eligible
person (as such term is defined in CFTC Reg. ?
4.7(a)) and consents to Finisterre treating its account
as an exempt account.
(i) This Agreement contains the entire understanding
and agreement of the parties.
PURSUANT TO AN EXEMPTION FROM THE COMMODITY
FUTURES TRADING COMMISSION IN CONNECTION WITH
ACCOUNTS OF QUALIFIED ELIGIBLE PERSONS, THIS
BROCHURE OR ACCOUNT DOCUMENT IS NOT REQUIRED TO
BE, AND HAS NOT BEEN, FILED WITH THE COMMISSION. THE
COMMODITY FUTURES TRADING COMMISSION DOES NOT
PASS UPON THE MERITS OF PARTICIPATING IN A TRADING
PROGRAM OR UPON THE ADEQUACY OR ACCURACY OF
COMMODITY TRADING ADVISOR DISCLOSURE.
CONSEQUENTLY, THE COMMODITY FUTURES TRADING
COMMISSION HAS NOT REVIEWED OR APPROVED THIS
TRADING PROGRAM OR THIS BROCHURE OR ACCOUNT
DOCUMENT.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement on the date first above written.
PRINCIPAL GLOBAL INVESTORS, LLC
By
/s/ ▇▇▇▇▇▇▇ ▇. Beer
▇▇▇▇▇▇▇ ▇. Beer
Executive Director - Principal Funds
By
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇
Counsel
FINISTERRE CAPITAL, LLP
By
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Partner
APPENDIX A
[Intentionally Omitted]
APPENDIX B
Effective Date and Initial Term of Sub-Advisory Agreement for each Series
Series
Effective Date
Initial Term
Finisterre Unconstrained Emerging Market
Bond Fund
July 11, 2016
2 Years
Global Multi-Strategy Fund
May 6, 2013
2 Years