UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14C
INFORMATION STATEMENT PURSUANT TO SECTION 14(c)
OF THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d) (2))
[X] Definitive Information Statement
PRINCIPAL FUNDS, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box) :
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
Title of each class of securities to which transaction applies:
1) | Aggregate number of securities to which transaction applies: |
2) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set for the amount on which the filing fee is calculated and state how it was determined) : |
3) | Proposed maximum aggregate value of transaction: |
4) | Total fee paid: |
[ ] Fee paid previously with preliminary materials.
[ ] | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a) (2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
1) | Amount Previously Paid: ______________________________________ |
2) | Form, Schedule or Registration Statement No.: _____________________ |
3) | Filing Party: ________________________________________________ |
PRINCIPAL FUNDS, INC. - DIVERSIFIED REAL ASSET FUND
IMPORTANT NOTICE REGARDING THE
INTERNET AVAILABILITY OF INFORMATION STATEMENT
June 7, 2018
As a shareholder of the Diversified Real Asset Fund (the "Fund"), a series of Principal Funds, Inc., you are receiving this notice regarding the internet availability of an information statement (the "Information Statement") relating to the appointment of a sub-advisor to manage a portion of the Fund's assets. This notice presents an overview of the Information Statement that is available to you on the internet or, upon request, by mail. We encourage you to access and review all of the information contained in the Information Statement. As described below, the Information Statement is for informational purposes only and, as a shareholder of the Fund, you do not need to take any action in connection with the changes.
The Information Statement details the execution of a new sub-advisor agreement. At a meeting of the Board of Directors (the "Board") held on March 13, 2018, the Board unanimously approved a new sub-advisory agreement with RARE Infrastructure (North America) Pty Limited ("RARE") with respect to the Fund. On April 3, 2018, RARE signed a new agreement to manage, along with current sub-advisors, BlackRock Financial Management, Inc. and sub-sub advisor BlackRock International Limited, BNP PARIBAS ASSET MANAGEMENT USA, Inc., BNY Mellon Asset Management North America Corporation, Credit Suisse Asset Management, LLC, Macquarie Capital Investment Management LLC, Pictet Asset Management SA, Principal Real Estate Investors, LLC, Symphony Asset Management LLC, and Tortoise Capital Advisors, L.L.C., a portion of the Fund's assets.
The Fund has received an exemptive order (the "Manager of Managers Order") from the U.S. Securities and Exchange Commission that permits the Advisor, subject to certain conditions such as approval by the Board, to enter into a new sub-advisory agreement with a sub-advisor or to change the term of an existing sub-advisory agreement with a sub-advisor. Approval by the Fund's shareholders is not required, but the Manager of Managers Order requires that the Information Statement be made available to the Fund's shareholders.
By sending you this notice, the Fund is notifying you that it is making the Information Statement available to you via the internet in lieu of mailing you a paper copy. You may print and view the Information Statement on the Fund's website at https://www.principalglobal.com/documentdownload/87549. The Information Statement will be available on the website until at least December 31, 2018. You may request a paper copy of the Information Statement, free of charge, by contacting the Fund in writing at Principal Funds, P.O. Box 8024, Boston, MA 02266-8024, by calling 1 (800) 222-5852, or by visiting www.principalfunds.com.
Only one copy of this notice will be delivered to shareholders of the Fund who reside at the same address, unless the Fund has received instructions to the contrary. If you would like to receive an additional copy, please write to the Principal Funds, P.O. Box 8024, Boston, MA 02266-8024 or call 1 (800) 222-5852. Shareholders wishing to receive separate copies of the Fund's notices in the future, and shareholders sharing an address who wish to receive a single copy if they currently are receiving multiple copies, should also contact the Fund.
If you want to receive a paper copy of the Information Statement, you must request one.
There is no charge to obtain a copy.
PRINCIPAL FUNDS, INC. – DIVERSIFIED REAL ASSET FUND
INFORMATION STATEMENT
June 7, 2018
This Information Statement is provided in connection with the addition of a new sub-advisor to the Principal Funds, Inc. (“PFI”) Diversified Real Asset Fund (“the “Fund”). RARE Infrastructure (North America) Pty Limited ("RARE" or the "Sub-Advisor") entered into a Sub-Advisory Agreement with Principal Global Investors, LLC (the “Advisor”), the investment advisor to PFI, on April 3, 2018.
Under an order from the Securities and Exchange Commission (“SEC”), PFI and the Advisor may enter into and materially amend agreements with sub-advisors without obtaining shareholder approval. The order permits PFI and the Advisor to hire one or more sub-advisors, change sub-advisors and reallocate management fees between the Advisor and the sub-advisors, without obtaining shareholder approval.
The address of the Fund’s Advisor and transfer agent (Principal Shareholder Services, Inc.) is Des Moines, Iowa 50392. The address of the Fund’s principal underwriter (Principal Funds Distributor, Inc.) is 620 Coolidge Drive, Suite 300, Folsom, CA 95630.
The Fund will furnish, without charge, a copy of the annual report and the most recent semiannual report succeeding the annual report, if any, upon request. To request a report, call 1 (800) 222-5852 or write Principal Funds, P.O. Box 8024, Boston, MA 02266-8024.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY
BACKGROUND
On March 13, 2018, the Board of Directors of PFI (the "Board") unanimously approved the addition of RARE as a sub-advisor to the Fund along with the current sub-advisors, BlackRock Financial Management, Inc. ("BlackRock") and sub-sub advisor BlackRock International Limited ("BIL"), BNP PARIBAS ASSET MANAGEMENT, Inc. ("BNP"), BNY Mellon Asset Management North America Corporation ("BNY Mellon AMNA"), Credit Suisse Asset Management, LLC ("Credit Suisse"), Macquarie Capital Investment Management LLC ("Macquarie"), Pictet Asset Management SA ("Pictet"), Principal Real Estate Investors, LLC ("PREI"), Symphony Asset Management LLC ("Symphony"), and Tortoise Capital Advisors, L.L.C. ("Tortoise"). On April 3, 2018, RARE signed an agreement to manage the global infrastructure investment sleeve of the Fund.
NEW SUB-ADVISORY AGREEMENT
The terms of the sub-advisory agreement with RARE (the "Sub-Advisory Agreement") are the same in all material respects as the current sub-advisory agreements with BlackRock, BIL, BNP, BNY Mellon AMNA, Credit Suisse, Macquarie, Pictet, PREI, Symphony, and Tortoise, other than the fees are to be paid by RARE. The following is a brief summary of the material terms of the Sub-Advisory Agreement. This summary is qualified in its entirety by reference to the text of the Sub-Advisory Agreement attached.
Like the current sub-advisory agreement with BlackRock, BIL, BNP, BNY Mellon AMNA, Credit Suisse, Macquarie, Pictet, PREI, Symphony, and Tortoise, the new Sub-Advisory Agreement provides that RARE will, among other things,
(1) | provide investment advisory services to the Fund including providing investment advice and recommendations with respect to the Fund’s investments consistent with the Fund’s investment objectives, investment policies and restrictions; |
(2) | arrange for the purchase and sale of the Fund’s portfolio securities; |
(3) | provide, at its expense, all necessary investment and management facilities, including expenses for clerical and bookkeeping services; |
(4) | advise and assist the officers of PFI in taking such steps as are necessary or appropriate to carry out the decisions of PFI’s Board of Directors regarding the general conduct of the investment business of the Fund; and |
(5) | provide periodic reports regarding the investment service provided to the Fund. |
Under the Sub-Advisory Agreement, the Advisor pays RARE a fee at an annual rate that is accrued daily and payable monthly based on the net asset value of the portion of the Fund’s assets it manages.
1
NEW SUB-ADVISOR
RARE Infrastructure (North America) Pty Limited ("RARE")
RARE Infrastructure (North America) Pty Limited ("RARE") is a limited liability company organized under the laws of the State of Victoria, Australia, and a registered adviser with its place of business at Level 13, 35 Clarence Street, Sydney, Australia 2000.
Ownership of RARE: RARE is an indirect majority-owned subsidiary of Legg Mason, Inc.
Name of Parent Entity | Address | Percent Control |
RARE Infrastructure Limited | Level 13, 35 Clarence St Sydney NSW 2000 | 100% ownership of RARE Infrastructure (North America) Pty Limited |
Legg Mason Australia Holdings Pty Limited | Level 13, 35 Clarence St Sydney NSW 2000 | 62.26% ownership of RARE Infrastructure Limited |
Treasury RARE Holdings Pty Limited | Level 13, 35 Clarence St Sydney NSW 2000 | 37.74% ownership of RARE Infrastructure Limited |
Legg Mason International Holding L.P. | Walker House Mary Street, George Town Grand Cayman, Cayman Islands | 75% ownership of Legg Mason Australia Holdings Pty Limited |
Legg Mason Global Holdings Limited | 190 Elgin Avenue George Town, KY1-9005 Cayman Islands | 95.8% ownership of Legg Mason International Holding L.P. |
Legg Mason Inc. | 100 International Drive Baltimore, MD 21202-1099 | 91% ownership of Legg Mason Global Holdings Limited |
Management of RARE: Set forth below are the names, principal occupations, and addresses of the principal executive officers of RARE.
Name | Address | Management Responsibility |
Richard Elmslie | 5 McHatton St, WAVERTON NSW 2060 | Director Co-Chief Executive Officer Co- Chief Investment Officer |
Nicholas Langley | 19-21 Wentworth St, Point Piper NSW 2027 | Director Co-Chief Executive Officer Co- Chief Investment Officer |
Ursula Schliessler | 5 Latimer Way, Knotty Green, Beaconsfield, UK HP9 2UD | Director |
Lennie Lim | 9 Balmoral Park, #06-01 Singapore 259844. | Director |
John Kenney | 3190 Sussex Road, Orono, Minnesota USA 55356 | Director |
Similar Investment Companies Advised by RARE. RARE has stated that it does not currently act as an investment advisor to a registered investment company with similar investment objectives and policies as those of the Fund.
Payments to Affiliates. For the fiscal year ended August 31, 2017, the Fund paid PGI management fees of approximately $32,611,000 and Distributor Rule 12b-1 distribution fees of approximately $657,000. For the fiscal year ended August 31, 2017, a total of $466,145 in brokerage commissions paid by the Fund (representing 21.42% of total Fund commissions) were paid to brokers affiliated with PGI or sub-advisors of PFI.
2
BOARD EVALUATION OF NEW SUB-ADVISORY AGREEMENT
At its March 13, 2018 meeting, the Board considered whether to approve the Sub-Advisory Agreement between the Advisor and RARE with respect to a portion of the Fund.
The Board considered the nature, quality and extent of the services expected to be provided under the Sub-Advisory Agreement. The Board considered the reputation, qualifications and background of the Sub-Advisor, the investment approach of the Sub-Advisor, the experience and skills of the Sub-Advisor’s investment personnel who would be responsible for the day-to-day management of the Fund, and the resources made available to such personnel. In addition, the Board considered the Advisor’s program for recommending, monitoring and replacing sub-advisors and that the Advisor recommended the Sub-Advisor based upon that program.
The Board reviewed the historical one-year, three-year, five-year and since inception (February 29, 2012) performance returns as of December 31, 2017, gross and net of proposed fees, of the Sub-Advisor in a composite managed in accordance with the proposed investment strategy for the Sub-Advisor’s portion of the global infrastructure investment sleeve of the Fund, as compared to the historical performance returns of a current subadvisor to the Fund’s global infrastructure investment sleeve and a relevant benchmark index. In addition, the Board reviewed the percentile rankings of the historical performance of the Sub-Advisor’s composite, net of proposed fees, in a relevant Morningstar category for each of the periods referenced above. The Board concluded, based upon the information provided, that the Sub-Advisor is qualified.
The Board considered the proposed subadvisory fee, noting that the Advisor compensates subadvisors from its own management fee so that shareholders pay only the management fee. The Board considered whether there are economies of scale with respect to the subadvisory services to be provided to the Fund under the Sub-Advisory Agreement.
The Board noted that the proposed subadvisory fee schedule includes breakpoints and concluded that the subadvisory fee schedule reflects an appropriate recognition of economies of scale at currently anticipated asset levels. The Board found the proposed subadvisory fee schedule to be competitive. On the basis of the information provided, the Board concluded that the proposed subadvisory fee was reasonable.
The Board also considered the character and amount of other fall-out benefits to be received by the Sub-Advisor. The Board noted that the Sub-Advisor intends to use Fund commissions to buy Section 28(e) eligible products and services. The Board also noted the Advisor’s statement that, with the exception of such soft dollar benefits, there would be no known fall-out benefits to the Sub-Advisor in connection with its management of the global infrastructure investment sleeve of the Fund. The Board concluded that, on the basis of the information provided, the proposed subadvisory fee was reasonable.
Based upon all of the information considered and the conclusions reached, the Board determined that the terms of the Sub-Advisory Agreement are fair and reasonable and that approval of the Sub-Advisory Agreement is in the best interests of the Fund.
3
FUND OWNERSHIP
As of the close of business June 6, 2018, the officers and directors of the Fund as a group beneficially owned less than one percent of the outstanding shares of the Fund. The following table sets forth information regarding the beneficial ownership of shares of the Fund as of June 6, 2018 by all shareholders known to the Fund to be beneficial owners of more than 5% of the outstanding shares.
Name and Address | Share Class | Percentage of Ownership |
CHARLES SCHWAB & CO INC | A | 48.92% |
SPECIAL CUSTODY A/C FBO CUSTOMERS | ||
ATTN MUTUAL FUNDS | ||
101 MONTGOMERY ST | ||
SAN FRANCISCO CA 94104-4151 | ||
NATIONAL FINANCIAL SERVICES LLC | A | 12.55% |
FOR THE EXCL BENE OF OUR CUSTOMERS | ||
499 WASHINGTON BLVD | ||
ATTN MUTUAL FUNDS DEPT 4TH FL | ||
JERSEY CITY NJ 07310-1995 | ||
MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | A | 6.20% |
ATTN FUND ADMINISTRATION | ||
4800 DEER LAKE DR E FL 3 | ||
JACKSONVILLE FL 32246-6484 | ||
RAYMOND JAMES | C | 14.73% |
OMNIBUS FOR MUTUAL FUNDS | ||
HOUSE ACCT FIRM 92500015 | ||
ATTN: COURTNEY WALLER | ||
880 CARILLON PKWY | ||
ST PETERSBURG FL 33716-1102 | ||
WELLS FARGO CLEARING SERVICES LLC | C | 13.58% |
SPECIAL CUSTODY ACCT FOR THE | ||
EXCLUSIVE BENEFIT OF CUSTOMER | ||
2801 MARKET ST | ||
SAINT LOUIS MO 63103-2523 | ||
MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | C | 11.25% |
ATTN FUND ADMINISTRATION | ||
4800 DEER LAKE DR EAST 3RD FL | ||
JACKSONVILLE FL 32246-6484 | ||
NATIONAL FINANCIAL SERVICES LLC | C | 10.61% |
FOR THE EXCL BENE OF OUR CUSTOMERS | ||
499 WASHINGTON BLVD | ||
ATTN MUTUAL FUNDS DEPT 4TH FL | ||
JERSEY CITY NJ 07310-1995 | ||
MORGAN STANLEY SMITH BARNEY | C | 7.07% |
HARBOR FINANCIAL CENTER | ||
PLAZA 2 3RD FLOOR | ||
JERSEY CITY NJ 07311 | ||
4
Name and Address | Share Class | Percentage of Ownership |
UBS WM USA | C | 5.58% |
0O0 11011 6100 OMNI ACCOUNT M/F | ||
SPEC CDY A/C EBOC UBSFSI | ||
1000 HARBOR BLVD | ||
WEEHAWKEN NJ 07086-6761 | ||
PERSHING LLC | C | 5.19% |
1 PERSHING PLZ | ||
JERSEY CITY NJ 07399-0001 | ||
NATIONAL FINANCIAL SERVICES LLC | Institutional | 29.88% |
FOR EXCLUSIVE BENEFIT OF OUR CUSTOMERS | ||
499 WASHINGTON BLVD | ||
ATTN MUTUAL FUNDS DEPT 4TH FL | ||
JERSEY CITY NJ 07310-1995 | ||
CHARLES SCHWAB & CO INC | Institutional | 25.21% |
SPECIAL CUSTODY A/C FOR THE BENEFIT OF CUSTOMERS | ||
ATTN MUTUAL FUNDS | ||
101 MONTGOMERY ST | ||
SAN FRANCISCO CA 94104-4151 | ||
PERSHING LLC | Institutional | 11.74% |
1 PERSHING PLZ | ||
JERSEY CITY NJ 07399-0001 | ||
PRINCIPAL TRUST COMPANY | R-3 | 83.86% |
FBO BLUE ROCK REFINISHING SOLUTIONS LLC | ||
CASH BALANCE PLAN | ||
2974 CLEVELAND AVE N | ||
SAINT PAUL MN 55113-1101 | ||
PRINCIPAL GLOBAL INVESTORS LLC | R-3 | 14.37% |
ATTN SEAN CLINES 801-9A08 | ||
801 GRAND AVE | ||
DES MOINES IA 50309-8000 | ||
PRINCIPAL GLOBAL INVESTORS LLC | R-4 | 77.40% |
ATTN SEAN CLINES 801-9A08 | ||
801 GRAND AVE | ||
DES MOINES IA 50309-8000 | ||
DCGT AS TTEE AND/OR CUST | R-4 | 22.59% |
FBO PLIC VARIOUS RETIREMENT PLANS OMNIBUS | ||
ATTN NPIO TRADE DESK | ||
711 HIGH ST | ||
DES MOINES IA 50392-0001 | ||
PRINCIPAL GLOBAL INVESTORS LLC | R-5 | 52.18% |
ATTN SEAN CLINES 801-9A08 | ||
801 GRAND AVE | ||
DES MOINES IA 50309-8000 | ||
5
Name and Address | Share Class | Percentage of Ownership |
DCGT AS TTEE AND/OR CUST | R-5 | 47.81% |
FBO PLIC VARIOUS RETIREMENT PLANS | ||
ATTN NPIO TRADE DESK | ||
OMNIBUS | ||
711 HIGH STREET | ||
DES MOINES IA 50392-0001 | ||
PRINCIPAL LIFE INS. COMPANY CUST. | R-6 | 18.44% |
FBO PRINCIPAL FINANCIAL GROUP | ||
OMNIBUS WRAPPED | ||
ATTN PLIC PROXY COORDINATOR | ||
711 HIGH ST | ||
DES MOINES IA 50392-0001 | ||
SAM BALANCED PORTFOLIO PIF | R-6 | 11.23% |
ATTN MUTUAL FUND ACCOUNTING-H221 | ||
711 HIGH ST | ||
DES MOINES IA 50392-0001 | ||
SAM CONS GROWTH PORTFOLIO PIF | R-6 | 8.47% |
ATTN MUTUAL FUND ACCOUNTING-H221 | ||
711 HIGH ST | ||
DES MOINES IA 50392-0001 | ||
LIFETIME 2030 FUND | R-6 | 8.22% |
ATTN MUTUAL FUND ACCOUNTING-H221 | ||
711 HIGH ST | ||
DES MOINES IA 50392-0001 | ||
LIFETIME 2020 FUND | R-6 | 6.59% |
ATTN MUTUAL FUND ACCOUNTING-H221 | ||
711 HIGH ST | ||
DES MOINES IA 50392-0001 | ||
MAC & CO A/C 193733 | R-6 | 5.01% |
ATTN MUTUAL FUND OPS | ||
500 GRANT STREET | ||
ROOM 151-1010 | ||
PITTSBURGH PA 15219-2502 |
6
PRINCIPAL FUNDS, INC.
SUB‑ADVISORY AGREEMENT
THE RARE INFRASTRUCTURE (NORTH AMERICA) PTY LIMITED
SUB-ADVISED FUND
SUB-ADVISORY AGREEMENT (the “Agreement”) executed as of the 3rd day of April, 2018 by and between PRINCIPAL GLOBAL INVESTORS, LLC, a Delaware limited liability company (hereinafter called the “Manager”), and RARE INFRASTRUCTURE (NORTH AMERICA) PTY LIMITED, a limited liability company registered in the State of Victoria, Australia (hereinafter called the “Sub‑Advisor”).
W I T N E S S E T H:
WHEREAS, the Manager is the manager and investment adviser to each Series of Principal Funds, Inc. (the “Fund”), an open‑end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”); and
WHEREAS, the Manager desires to retain the Sub‑Advisor to render discretionary investment advisory services for all or a portion of the assets of each Series of the Fund identified in Appendix A hereto, as may be amended from time to time (hereinafter called “Series”), which the Manager has agreed to provide to the Fund, and the Sub‑Advisor desires to furnish such services; and
WHEREAS, The Manager has furnished the Sub‑Advisor with copies properly certified or authenticated of each of the following and will promptly provide the Sub‑Advisor with copies properly certified or authenticated of any amendment or supplement thereto:
(a) | Management Agreement (the “Management Agreement”) with the Fund; |
(b) | The Fund’s registration statement and financial statements as filed with the Securities and Exchange Commission (the “SEC”); |
(c) | The Fund’s Articles of Incorporation and By‑laws; |
(d) | Policies, procedures or instructions adopted or approved by the Board of Directors of the Fund relating to obligations and services to be provided by the Sub-Advisor. |
NOW, THEREFORE, in consideration of the premises and the terms and conditions hereinafter set forth, the parties agree as follows:
1. Appointment of Sub-Advisor
In accordance with and subject to the Management Agreement, the Manager hereby appoints the Sub‑Advisor to perform the services described in Section 2 below for investment and reinvestment of such portion of the assets of each Series as may be allocated to the Sub‑Advisor by the Manager, from time to time (the “Allocated Assets”), subject to the control and direction of the Manager and the Fund’s Board of Directors, for the period and on the terms hereinafter set forth. The Sub‑Advisor accepts such appointment and agrees to furnish the services hereinafter set forth for the compensation herein provided. The Sub‑Advisor shall for all purposes herein be deemed to be an independent contractor and shall, except as expressly provided or authorized, have no authority to act for or represent the Fund or the Manager in any way or otherwise be deemed an agent of the Fund or the Manager.
2. Obligations of and Services to be Provided by the Sub-Advisor
The Sub-Advisor will:
(a) | Provide investment advisory services, including but not limited to research, advice and supervision for the Allocated Assets of each Series. |
(b) | Furnish to the Board of Directors of the Fund for approval (or any appropriate committee of such Board), and revise from time to time as conditions require, a recommended investment program for each Series consistent with each Series’ respective investment objective(s) and policies and any specific criteria applicable to the Allocated Assets. |
(c) | Implement the approved investment program for the Allocated Assets by placing orders for the purchase and sale of securities without prior consultation with the Manager and without regard to the length of time the securities have been held, the resulting rate of portfolio turnover or any tax considerations, subject always to the provisions of the Fund’s registration statement, Articles of Incorporation and Bylaws and the requirements of the 1940 Act, as each of the same shall be from time to time in effect. |
(d) | Advise and assist the officers of the Fund, as requested by the officers, in taking such steps as are necessary or appropriate to carry out the decisions of its Board of Directors, and any appropriate committees of such Board, regarding the general conduct of the investment business of each Series. |
(e) | Maintain, in connection with the Sub-Advisor’s investment advisory services provided to the Allocated Assets, compliance with the 1940 Act and the regulations adopted by the SEC thereunder and the Series’ investment strategies and restrictions as stated in the Fund’s prospectus and statement of additional information and any specific criteria applicable to the Allocated Assets. |
(f) | Report to the Board of Directors of the Fund at such times and in such detail as the Board of Directors may reasonably deem appropriate in order to enable it to determine that the investment policies, procedures and approved investment program of each Series (and any specific criteria applicable to the Allocated Assets) are being observed. |
(g) | Upon request, provide assistance and recommendations for the determination of the fair value of certain securities when reliable market quotations are not readily available for purposes of calculating net asset value in accordance with procedures and methods established by the Fund’s Board of Directors. |
(h) | Furnish, at its own expense, (i) all necessary investment and management facilities, including salaries of clerical and other personnel required for it to execute its duties faithfully, and (ii) administrative facilities, including bookkeeping, clerical personnel and equipment necessary for the efficient conduct of the investment advisory affairs of each Series. |
(i) | Open accounts with Foreign Account Tax Compliance Act compliant broker-dealers and futures commission merchants (“broker-dealers”), select broker-dealers to effect all transactions for each Series, place all necessary orders with broker‑dealers or issuers (including affiliated broker-dealers), and negotiate commissions, if applicable. To the extent consistent with applicable law, purchase or sell orders for each Series may be aggregated with contemporaneous purchase or sell orders of other clients of the Sub-Advisor. In such event allocation of securities so sold or purchased, as well as the expenses incurred in the transaction, will be made by the Sub‑Advisor in the manner the Sub-Advisor considers to be the most equitable and consistent with its fiduciary obligations to the Fund and to other clients. The Sub-Advisor will report on such allocations at the request of the Manager, the Fund or the Fund’s Board of Directors providing such information as the number of aggregated trades to which each Series was a party, the broker-dealers to whom such trades were directed and the basis for the allocation for the aggregated trades. The Sub-Advisor shall use its best efforts to obtain execution of transactions for each Series at prices which are advantageous to the Series and at commission rates that are reasonable in relation to the benefits received. However, the Sub-Advisor may select brokers or dealers on the basis that they provide brokerage, research or other services or products to the Sub-Advisor. To the extent consistent with applicable law, the Sub-Advisor may pay a broker or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission or dealer spread another broker or dealer would have charged for effecting that transaction if the Sub-Advisor determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research products and/or services provided by such broker or dealer. This determination, with respect to brokerage and research products and/or services, may be viewed in terms of either that particular transaction or the overall responsibilities which the Sub-Advisor and its affiliates have with respect to each Series as well as to accounts over which they exercise investment discretion. Not all such services or products need be used by the Sub-Advisor in managing the Allocated Assets. In addition, joint repurchase or other accounts may not be utilized by the Series except to the extent permitted under any exemptive order obtained by the Sub-Advisor provided that all conditions of such order are complied with. |
(j) | Section 871(m) Transactions: Sub-Advisor shall not on behalf of the Fund enter into certain U.S. dividend equivalent payment transactions described in Section 871(m) of the U.S. Internal Revenue Code and the regulations thereunder (“871(m) Transaction”) with a foreign counterparty unless: (i), Sub-Advisor adheres to the ISDA 2015 Section 871(m) Protocol on behalf of the Fund, and (ii), The foreign counterparty to the 871(m) Transaction provides Sub-Advisor with a properly completed Form W-8IMY certifying to its status as a qualified derivatives dealer (“QDD”). |
(k) | Maintain all accounts, books and records with respect to the Allocated Assets as are required of an investment advisor of a registered investment company pursuant to the 1940 Act and Investment Advisers Act of 1940, as amended (the “Advisers Act”), and the rules thereunder, and furnish the Fund and the Manager with such periodic and special reports as the Fund or the Manager may reasonably request. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Sub-Advisor hereby agrees that all records that it maintains for each Series are the property of the Fund, agrees to preserve for the periods described by Rule 31a-2 under the 1940 Act any records that it maintains for the Series and that are required to be maintained by Rule 31a-1 under the 1940 Act, and further agrees to surrender promptly to the Fund any records that it maintains for a Series upon request by the Fund or the Manager. The Sub-Advisor has no responsibility for the maintenance of Fund records except insofar as is directly related to the services the Sub-Advisor provides to a Series. |
(l) | Observe and comply with Rule 17j-1 under the 1940 Act and the Sub-Advisor’s Code of Ethics adopted pursuant to that Rule as the same may be amended from time to time. The Manager acknowledges receipt of a copy of the Sub-Advisor’s current Code of Ethics. The Sub-Advisor shall promptly forward to the Manager a copy of any material amendment to the Sub-Advisor’s Code of Ethics along with certification that the Sub-Advisor has implemented procedures for administering the Sub-Advisor’s Code of Ethics. |
(m) | From time to time as the Manager or the Fund may request, furnish the requesting party reports on portfolio transactions and reports on investments held by a Series, all in such detail as the Manager or the Fund may reasonably request. The Sub-Advisor will make available its officers and employees to meet with the Fund’s Board of Directors at the Fund’s principal place of business on due notice to review the investments of a Series. |
(n) | Provide such information as is customarily provided by a sub-advisor, or as may be required or reasonably requested by the Manager, for the Fund or the Manager to comply with their respective obligations under applicable laws, including, without limitation, the Internal Revenue Code of 1986, as amended (the “Code”), the 1940 Act, the Advisers Act, the Securities Act of 1933, as amended (the “Securities Act”), and any state securities laws, and any rule or regulation thereunder. Such information includes, but is not limited to: the Sub-Advisor’s compliance manual and policies and procedures adopted to comply with Rule 206(4)-7 of the Advisers Act; the Sub-Advisor’s most recent annual compliance report or a detailed summary of such report; timely and complete responses to all Quarterly Compliance Questionnaires (including the identification of any material compliance matters 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; Annual Best Execution and Soft Dollar Questionnaires, and responses to all other requests from the Manager. 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). |
(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, agents or affiliates shall be liable to the Manager, the Fund or its shareholders for any loss suffered by the Manager or the Fund resulting from any error of judgment made in the good faith exercise of the Sub‑Advisor’s investment discretion in connection with selecting investments for a Series or as a result of the failure by the Manager or any of its affiliates to comply with the terms of this Agreement, except for losses resulting from willful misfeasance, bad faith or gross negligence of, or from reckless disregard of, the duties of the Sub‑Advisor or any of its directors, officers, employees, agents, or affiliates.
6. Trade Errors
The Sub-Advisor will notify the Manager of any Trade Error(s), regardless of materiality, promptly upon the discovery such Trade Error(s) by the Sub-Advisor. Notwithstanding Section 5, the Sub-Advisor shall be liable to the Manager, the Fund or its shareholders for any loss suffered by the Manager or the Fund resulting from Trade Errors due to negligence, misfeasance, or disregard of duties of the Sub Advisor or any of its directors, officers, employees, agents (excluding any broker-dealer selected by the Sub-Advisor), or affiliates. For purposes under this Section 6, “Trade Errors” are defined as errors due to (i) erroneous orders by the Sub-Advisor for the Series that result in the purchase or sale of securities that were not intended to be purchased or sold; (ii) erroneous orders by the Sub-Advisor that result in the purchase or sale of securities for the Series in an unintended amount or price; or (iii) purchases or sales of financial instruments which violate the investment limitations or restrictions disclosed in the Fund’s registration statement and/or imposed by applicable law or regulation (calculated at the Sub-Advisor’s portfolio level), unless otherwise agreed to in writing.
7. Supplemental Arrangements
The Sub‑Advisor may enter into arrangements with other persons affiliated with the Sub‑Advisor or with unaffiliated third parties to better enable the Sub-Advisor to fulfill its obligations under this Agreement for the provision of certain personnel and facilities to the Sub‑Advisor, subject to written notification to and approval of the Manager and, where required by applicable law, the Board of Directors of the Fund; provided, however, that entry into any such arrangements shall not relieve the Sub-Advisor of any of its obligations under this Agreement.
8. Regulation
The Sub‑Advisor shall submit to all regulatory and administrative bodies having jurisdiction over the services provided pursuant to this Agreement any information, reports or other material which any such body may request or require pursuant to applicable laws and regulations.
9. Duration and Termination of This Agreement
This Agreement shall become effective with respect to a Series as of the corresponding date set forth on Appendix B to this Agreement, as may be amended from time to time, and, unless otherwise terminated with respect to such Series, shall continue in effect thereafter for the initial term set forth on Appendix B to this Agreement, and thereafter from year to year, provided that in each case the continuance is specifically approved within the period required by the 1940 Act either by the Board of Directors of the Fund or by a vote of a majority of the outstanding voting securities of the Series and in either event by a vote of a majority of the Board of Directors of the Fund who are not interested persons of the Manager, Principal Life Insurance Company, the Sub-Advisor or the Fund cast in person at a meeting called for the purpose of voting on such approval.
If the shareholders of a Series fail to approve the Agreement or any continuance of the Agreement in accordance with the requirements of the 1940 Act, the Sub‑Advisor will continue to act as Sub‑Advisor with respect to the Allocated Assets of such Series pending the required approval of the Agreement or its continuance or of any contract with the Sub‑Advisor or a different manager or sub‑advisor or other definitive action; provided, that the compensation received by the Sub‑Advisor in respect to the Allocated Assets of such Series during such period is in compliance with Rule 15a‑4 under the 1940 Act.
This Agreement may be terminated with respect to a Series at any time without the payment of any penalty by the Board of Directors of the Fund or by the Sub‑Advisor, the Manager or by vote of a majority of the outstanding voting securities of the Series on sixty days’ written notice. This Agreement shall automatically terminate in the event of its assignment. In interpreting the provisions of this Section 9, the definitions contained in Section 2(a) of the 1940 Act (particularly the definitions of “interested person,” “assignment,” “voting security” and “majority of the outstanding voting securities”) shall be applied.
10. Amendment of this Agreement
No amendment of this Agreement shall be effective unless in writing and signed by both parties. No material amendment of this Agreement shall be effective until approved, if required by the 1940 Act or the rules, regulations, interpretations or orders issued thereunder, by vote of the holders of a majority of the outstanding voting securities of the Series (as defined in the 1940 Act) and by vote of a majority of the Board of Directors of the Fund who are not interested persons (as defined in the 1940 Act) of the Manager, the Sub‑Advisor, Principal Life Insurance Company or the Fund cast in person at a meeting called for the purpose of voting on such approval.
11. Additional Series
In the event the Manager wishes to appoint the Sub-Advisor to perform the services described in this Agreement with respect to one or more additional Series of the Fund after the effective date of this Agreement, such Series will become a Series under this Agreement upon approval of this Agreement in the manner required by the 1940 Act and the amendment of Appendices A and B hereto.
12. General Provisions
(a) | Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Iowa. The captions in this Agreement are included for convenience only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. |
(b) | Any notice under this Agreement shall be in writing, addressed and delivered or mailed postage pre‑paid to the other party at such address as such other party may designate for the receipt of such notices. Until further notice to the other party, it is agreed that the address of the Manager for this purpose shall be Principal Financial Group, Des Moines, Iowa 50392‑0200. The address of the Sub-Advisor for this purpose shall be RARE Infrastructure (North America Pty Limited, Chief Operating Officer, Telephone: +61 2 93977363, Email: Operations@RAREinfrastructure. com |
(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 1940 Act. |
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 1940 Act) 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 acknowledges Manager's representation that the Diversified Real Asset Fund series does 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 SubAdvisor under Sections 8a(2) or 8a(3) of 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 would reasonably be expected to lead to a statutory disqualification under the CEA or an investigation by any governmental agency or selfregulatory organization relating to Sub-Advisor's registration as a commodity trading advisor, in each case, subject to applicable law, attorney-client privilege and confidentiality restrictions.
(f) | 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. |
(g) | 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. |
(h) | This Agreement contains the entire understanding and agreement of the parties. |
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date first above written.
PRINCIPAL GLOBAL INVESTORS, LLC
By /s/ Michael J. Beer
Name: Michael J. Beer
Title: Executive Director - Principal Funds
By /s/ Adam U. Shaikh
Name: Adam U. Shaikh
Title: Counsel
RARE Infrastructure (North America) Pty Limited
By /s/ Richard Elmslie
Name: Richard Elmslie
Title: Director
By /s/ Julie Schelfhaut
Name: Julie Schelfhaut
Title: Company Secretary
APPENDIX A
[Intentionally Omitted]
APPENDIX B
Effective Date and Initial Term of Sub-Advisory Agreement for each Series | ||
Series | Effective Date | Initial Term |
Diversified Real Asset Fund - Global Infrastructure | 2 Years |