Registration No. 033-59474
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 277
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 277
PRINCIPAL FUNDS, INC.
(Exact name of Registrant as specified in Charter)
711 High Street
Des Moines, IA 50392
(Address of principal executive offices)
Telephone Number (515) 247-6651
John L. Sullivan
The Principal Financial Group
Des Moines, Iowa 50392
(Name and address of agent for service)
Approximate Date of Proposed Public Offering: as soon as practicable after the effective date of this Registration Statement.
It is proposed that this filing will become effective (check appropriate box) 
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immediately upon filing pursuant to paragraph (b)
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on pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)
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on (date) pursuant to paragraph (a)
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75 days after filing pursuant to paragraph (a)(2)
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on September 16, 2022 pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box: 
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This post-effective amendment designates a new effective date for a previously filed post-effective
amendment.
Title of Securities Being Registered: Institutional Class Shares
EXPLANATORY NOTE
Principal Funds, Inc. (the “Registrant”) is filing this amendment to add a new series (Global Sustainable Listed Infrastructure). The Amendment includes the following: (1) facing page; (2) Part A (prospectus for Institutional Class Shares for Global Sustainable Listed Infrastructure); (3) Part B (a statement of additional information that includes each series with an August 31 fiscal year end); (4) Part C; and (5) signature pages. The Amendment is not being filed to update or amend the prospectuses or statements of additional information for Registrant’s other series or share classes with an August 31 fiscal year end or for Registrant’s series or share classes with an October 31 fiscal year end.

PRINCIPAL FUNDS, INC.
(“PFI” or the “Registrant”)

Institutional Class Shares
The date of this Prospectus is _______, 2022. 
 
Ticker Symbols by Share Class
Fund
Inst.
Global Sustainable Listed Infrastructure
Pending
The Securities and Exchange Commission and the Commodity Futures Trading Commission have not approved or disapproved these securities or passed upon the adequacy of this Prospectus. Any representation to the contrary is a criminal offense.
Table of Contents 
 
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Global Sustainable Listed Infrastructure Fund
Objective
The Fund seeks total return by investing in listed infrastructure companies that are expected to deliver positive social, environmental, and/or governance outcomes.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the tables and examples below.
If you purchase Institutional Class shares through certain programs offered by certain financial intermediaries, you may be required to pay a commission and/or other forms of compensation to the broker, or to your Financial Professional or other financial intermediary. 
Shareholder Fees (fees paid directly from your investment):
 None
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Inst.
Management Fees
0.75%
Other Expenses
0.55%
Total Annual Fund Operating Expenses
1.30%
Expense Reimbursement(1)
(0.42)%
Total Annual Fund Operating Expenses after Expense Reimbursement
0.88%
(1)
Principal Global Investors, LLC (“PGI”), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and tax reclaim recovery expenses and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.88% for Institutional Class shares. It is expected that the expense limit will continue through the period ending December 30, 2023; however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period.
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. The calculation of costs takes into account any applicable contractual fee waivers and/or expense reimbursements for the period noted in the table above. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
Institutional Class
$90
$371
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. This is a new fund and does not yet have a portfolio turnover rate to disclose.
Principal Investment Strategies
The Fund seeks to achieve its objective by investing, under normal circumstances, at least 80% of its net assets, plus any borrowings for investment purposes, in securities issued by listed infrastructure companies that are subject to the sub-advisor’s sustainable investing strategy (as explained in more detail below). A “listed infrastructure company” is a publicly traded company engaged in the development, operation, and management of infrastructure assets. Infrastructure includes but is not limited to utilities (electric, gas, water), transportation infrastructure (airports, highways, railways, marine ports), energy infrastructure (renewable energy generation, oil and gas pipeline operators), and communications infrastructure (cell phone tower operators, data centers, other providers of telecommunication services).
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The Fund invests primarily in equity securities regardless of market capitalization (small, medium, or large) and invests in both value and growth securities. The Fund also invests in real estate investment trusts (“REITs”) but only those REITs that are engaged in the development, operation, or management of infrastructure assets. In addition, under normal circumstances, the Fund invests at least 40% of its net assets, measured at the time of purchase, in securities of issuers organized or located outside the United States or doing a substantial amount of business outside the United States, including those located in emerging markets, such as China.
The Fund is considered non-diversified, which means it can invest a higher percentage of assets in securities of individual issuers than a diversified fund. The Fund also concentrates its investments (invests more than 25% of its net assets) in securities in the utilities industry.
Under the sub-advisor’s sustainable investing strategy, environmental, social, and governance (“ESG”) factors are a significant consideration in selecting investments for the Fund’s portfolio. The sub-advisor’s investment process is multi-layered. As described in more detail below, the sub-advisor initially identifies listed infrastructure companies and assesses them against the following three metrics: overall quality, valuation, and market perception. As described in more detail below, the overall quality metric includes, among other things, an assessment of a company’s ESG practices using the sub-advisor’s proprietary ESG-ratings framework. After it has assessed a potential investment against these three metrics, as described below, the sub-advisor assesses the remaining companies for their alignment with the United Nations Sustainable Development Goals (“SDGs”). The sub-advisor’s assessments of a company’s overall quality (which includes an assessment of a company’s ESG practices) and SDG alignment contain minimum sustainability thresholds that a company must meet before it is considered for portfolio inclusion. Through this multi-layered analysis, the sub-advisor selects companies for the Fund’s portfolio.
The sub-advisor’s assessment of a company’s overall quality metric consists of assessments of several key measurements, which include, among others, a company’s ESG practices; financial condition; profitability and projected growth; management quality and governance structure; business strategy; market outlook; and infrastructure business quality, which covers the strength of a company’s regulatory relationships, the nature of its contractual and regulatory right to operate its assets, and the predictability and longevity of its cash flows.
The sub-advisor measures a company’s ESG practices and potential for those practices to improve by, among other things, maintaining a proprietary ESG ratings-framework, supplemented by insights from third-party research providers (e.g., sell-side research firms and ESG rating firms), and regular engagement with company management teams, in which ESG factors are a significant consideration and which includes correspondence with company management specifically focused on ESG issues. The proprietary ratings framework seeks to benchmark companies against what the sub-advisor believes to be the ESG practices of leading listed infrastructure companies. It is composed of a set of metrics (identified below) that the sub-advisor deems to be material in evaluating the ESG and sustainability credentials of a listed infrastructure company. This framework sets out areas of materiality by sector and sub-sector and helps to focus analyst research on areas that are most likely to lead to controversies and opportunities for a given listed infrastructure company. The ESG metrics include, but are not limited to, carbon emissions; resource and water management; resiliency to climate-related impacts; environmental business opportunities; human capital development; health and safety; diversity and inclusion; community relations; access and affordability; customer privacy and data security; ownership structure; board composition; compensation and alignment; business ethics; accounting; reporting and transparency; and controversies. These metrics are subject to change as the sub-advisor periodically re-assesses which ESG considerations are most material for listed infrastructure companies.
The sub-advisor’s valuation assessment involves the construction of discounted cash flow-based valuation models for potential investments. The sub-advisor’s market perception analysis seeks to identify companies whose sustainability credentials, in the sub-advisor’s opinion, are over- or underappreciated by other market participants.
Before selecting a company’s security for Fund investment, the sub-advisor also evaluates the company’s alignment with the SDGs generally but with a special emphasis on the following goals: clean water and sanitation; affordable and clean energy; decent work and economic growth; industry, innovation, and infrastructure; sustainable cities and infrastructure; and climate action. This SDG-alignment examination seeks to ensure that the company’s contributions to social and environmental progress are in line with the sub-advisor’s expectations for a listed infrastructure company operating in the relevant sub-sector and country. The sub-advisor identifies individual targets and indicators that are most applicable to each company and that may vary depending on sub-sector and/or country of operation.
The sub-advisor’s assessments of a company’s overall quality (which includes an assessment of a company’s ESG practices) and SDG alignment contain minimum sustainability thresholds that a company must meet before it is considered for portfolio inclusion. Subject to these minimum standards, the sub-advisor may from time to time select for investment a company which the sub-advisor has identified as having certain areas of deficiency in its ESG practices or in its SDG alignment relative to its global peers. Before making such an investment, however, the sub-advisor would identify, in its reasonable
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belief, positive forward-looking trends in the company’s ESG practices or SDG alignment through direct engagement with a company’s management. The sub-advisor typically makes this determination after it has examined a potential investment against the metrics outlined above (overall quality (which contains ESG quality), valuation, market perception, and SDG alignment).
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Emerging Markets Risk. Investments in emerging markets may have more risk than those in developed markets because the emerging markets are less developed and more illiquid. Emerging markets can also be subject to increased social, economic, regulatory, and political uncertainties and can be extremely volatile. The U.S. Securities and Exchange Commission, the U.S. Department of Justice, and other U.S. authorities may be limited in their ability to pursue bad actors in emerging markets, including with respect to fraud.
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China Investment Risk. The Fund invests a significant portion of its assets in securities of issuers located or operating in China. Investing in China involves certain heightened risks and considerations, including, among others: frequent trading suspensions and government interventions (including by nationalizing assets); currency exchange rate fluctuations or blockages; limits on using brokers and on foreign ownership; different financial reporting standards; higher dependence on exports and international trade; political and social instability; infectious disease outbreaks; regional and global conflicts; increased trade tariffs, embargoes and other trade limitations; custody and other risks associated with programs used to access Chinese securities; and uncertainties in tax rules that could result in unexpected tax liabilities for the Fund. Significant portions of the Chinese securities markets may become rapidly illiquid, as Chinese issuers have the ability to suspend the trading of their equity securities. Moreover, actions by the U.S. government, such as delisting of certain Chinese companies from U.S. securities exchanges or otherwise restricting their operations in the U.S., may negatively impact the value of such securities held by the funds.
Energy Sector Risk. The market value of securities in the energy sector may decline for many reasons, including, among others, changes in energy prices, energy supply and demand, government regulations and energy conservation efforts. Energy companies can be significantly affected by the supply of, and demand for, specific products (e.g., oil and natural gas) and services, exploration and production spending, government subsidization and tax incentives, world events and general economic conditions. In addition, renewable energy companies may be more volatile than companies operating in more established industries. Seasonal weather conditions, extreme weather, or other natural disasters could have a disproportionate effect on renewable energy companies versus other types of energy companies. These factors could impact the ability of renewable energy companies to pay dividends comparable to those paid by other types of energy companies.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by the fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. The fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
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Growth Style Risk. Growth investing entails the risk that if growth companies do not increase their earnings at a rate expected by investors, the market price of their stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.
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Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
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Value Style Risk. Value investing entails the risk that value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by a fund, or the events that would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock that appears to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.
ESG Investing Risk. The Fund incorporates ESG investment insights into its investment strategy and will forego certain investment opportunities because of this ESG investment strategy. The Fund’s incorporation of ESG investment insights will affect the Fund’s exposure to certain companies or industries. The Fund’s results may be lower than other funds that
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do not consider ESG characteristics or apply an ESG investment strategy, or that use different ESG criteria or a different methodology to identify and/or incorporate ESG characteristics. Further, investors may differ in their views of what constitutes positive or negative ESG characteristics of a security. As a result, the Fund may invest in securities that do not reflect the beliefs of a particular investor. In addition, the Fund may not be successful in its objectives related to ESG. There is no guarantee that these objectives will be achieved, and ESG-related assessments are at the sub-advisor’s discretion. The sub-advisor is dependent upon certain information and data from issuers and from third party providers of ESG research, which may be incomplete, inaccurate, or unavailable. As a result, there is a risk that the sub-advisor may incorrectly assess a security or issuer. There is also a risk that the sub-advisor may not apply the relevant ESG criteria correctly or that the Fund could have indirect exposure to issuers that do not meet the relevant ESG criteria used by the Fund. Neither the Fund nor the adviser or sub-advisor make any representation or warranty, express or implied, with respect to the fairness, correctness, accuracy, reasonableness, or completeness of such ESG assessment. There may be limitations with respect to availability of ESG data in certain sectors, as well as limited availability of investments with positive ESG assessments in certain sectors. The adviser and/or sub-advisor’s evaluation of ESG criteria is subjective and may change over time.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
Industry Concentration Risk. A fund that concentrates investments in a particular industry or group of industries (in this case, the utilities sector) has greater exposure than other funds to market, economic and other factors affecting that industry or group of industries. These factors and risks are explained more fully below in Utilities Sector Risk.
Non-Diversification Risk. A non-diversified fund may invest a high percentage of its assets in the securities of a small number of issuers and is more likely than diversified funds to be significantly affected by a specific security’s poor performance.
Real Estate Investment Trusts (“REITs”) Risk. In addition to risks associated with investing in real estate securities, REITs are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, risks of default by borrowers, and self-liquidation. Investment in REITs also involves risks similar to risks of investing in small market capitalization companies, such as limited financial resources, less frequent and limited volume trading, and may be subject to more abrupt or erratic price movements than larger company securities. A REIT could fail to qualify for tax-free pass-through of income under the Internal Revenue Code. Fund shareholders will indirectly bear their proportionate share of the expenses of REITs in which the fund invests.
Real Estate Securities Risk. Investing in real estate securities subjects the fund to the risks associated with the real estate market (which are similar to the risks associated with direct ownership in real estate), including declines in real estate values, loss due to casualty or condemnation, property taxes, interest rate changes, increased expenses, cash flow of underlying real estate assets, regulatory changes (including zoning, land use and rents), and environmental problems, as well as to the risks related to the management skill and creditworthiness of the issuer.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of the fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Telecommunications Risk. The telecommunications industry is subject to governmental regulation and a greater price volatility than the overall market, and the products and services of telecommunications companies may be subject to rapid obsolescence resulting from changing consumer tastes, intense competition, and strong market reactions to technological developments throughout the industry. Companies in the telecommunications sector may encounter distressed cash flows due to the need to commit substantial capital to meet increasing competition, particularly in formulating new products and services using new technology.
Transportation Risk. Companies in the transportation industry may be adversely affected by economic changes, increases in fuel and operating costs, labor relations, and insurance costs. Transportation companies may also be subject to significant government regulation and oversight, which may adversely affect their businesses.
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Utilities Sector Risk. When interest rates go up, the value of securities issued by utilities companies historically has gone down. In most countries and localities, the utilities industry is regulated by governmental entities, which can increase costs and delays for new projects and make it difficult to pass increased costs on to consumers. In certain areas, deregulation of utilities has resulted in increased competition and reduced profitability for certain companies and increased the risk that a particular company will become bankrupt or fail completely. Reduced profitability, as well as new uses for or additional need of funds (such as for expansion, operations, or stock buybacks), could result in reduced dividend payout rates for utilities companies. In addition, utilities companies face the risk of increases in the cost and reduced availability of fuel (such as oil, coal, natural gas, or nuclear energy) and potentially high interest costs for borrowing to finance new projects.
Performance
No performance information is shown below because the Fund has not yet had a calendar year of performance. The Fund’s performance is benchmarked against the FTSE Global Core Infrastructure 50/50 Index. Performance information provides an indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
Investment Advisor
Principal Global Investors, LLC
Sub-Advisor and Portfolio Manager
Principal Real Estate Investors, LLC
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Emily Foshag (since 2022), Portfolio Manager
Purchase and Sale of Fund Shares
For Institutional Class shares, there are no minimum initial or subsequent investment requirements for eligible purchasers.
You may purchase or redeem shares on any business day (normally any day when the New York Stock Exchange is open for regular trading) through your plan, intermediary, or Financial Professional; by sending a written request to Principal Funds at P.O. Box 219971, Kansas City, MO 64121-9971 (regular mail) or 430 W. 7th Street, Ste. 219971, Kansas City, MO 64105-1407 (overnight mail); calling us at 1-800-222-5852; or accessing our website (www.principalfunds.com).
Tax Information
The Fund’s distributions you receive are generally subject to federal income tax as ordinary income or capital gain and may also be subject to state and local taxes, unless you are tax-exempt or your account is tax-deferred in which case your distributions would be taxed when withdrawn from the tax-deferred account.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, or to recommend one share class of the Fund over another share class. Ask your salesperson or visit your financial intermediary’s website for more information.
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ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
The Fund’s investment objective is described in the summary section for the Fund. The summary section also describes the Fund’s principal investment strategies, including the types of securities in which the Fund invests, and the principal risks of investing in the Fund. The principal investment strategies are not the only investment strategies available to the Fund, but they are the ones the Fund primarily uses to achieve its investment objective.
Except for Fundamental Restrictions described in the Registrant’s Statement of Additional Information (“SAI”), the Registrant’s Board (the “Board”) may change any Fund’s objective or investment strategies without a shareholder vote if it determines such a change is in the best interests of the Fund. If there is a material change to the Fund’s investment objective or investment strategies, you should consider whether the Fund remains an appropriate investment for you. There is no guarantee that the Fund will meet its objective.
The Fund is designed to be a portion of an investor’s portfolio. No Fund is intended to be a complete investment program. Investors should consider the risks of the Fund before making an investment; it is possible to lose money by investing in the Fund.
Active Management
The performance of a fund that is actively managed (including hybrid funds or passively-managed funds that use a sampling approach that includes some actively-managed components) will reflect in part the ability of those managing the investments of the fund to make investment decisions that are suited to achieving the fund’s investment objective. Actively-managed funds may invest differently from the benchmark against which the Fund’s performance is compared. When making decisions about whether to buy or sell equity securities, considerations may include, among other things, a company’s strength in fundamentals, its potential for earnings growth over time, its ability to navigate certain macroeconomic environments, the current price of its securities relative to their perceived worth and relative to others in its industry, and analysis from computer models. When making decisions about whether to buy or sell fixed-income investments, considerations may include, among other things, the strength of certain sectors of the fixed-income market relative to others, interest rates, a range of economic, political and financial factors, the balance between supply and demand for certain asset classes, the credit quality of individual issuers, the fundamental strengths of corporate and municipal issuers, and other general market conditions.
Models, which may assist portfolio managers and analysts in formulating their securities trading and allocation decisions by providing investment and risk management insights, may also expose a fund to risks. Models may be predictive in nature, which models depend heavily on the accuracy and reliability of historical data that is supplied by others and may be incorrect or incorrectly input. The fund bears the risk that the quantitative models used will not be successful in identifying trends or in determining the size and direction of investment positions that will enable the fund to achieve its investment objective. In addition, “model prices” will often differ substantially from market prices, especially for instruments with complex characteristics, such as derivative instruments.
An active fund’s investment performance depends upon the successful allocation of the fund’s assets among asset classes, geographical regions, industry sectors, and specific issuers and investments. There is no guarantee that these allocation techniques and decisions will produce the desired results. It is possible to lose money on an investment in a fund as a result of these allocation decisions. If a fund’s investment strategies do not perform as expected, the fund could underperform other funds with similar investment objectives or lose money. Moreover, buying and selling securities to adjust the fund’s asset allocation may increase portfolio turnover and generate transaction costs.
Investment advisors with large assets under management in the Fund, or in other funds that have the same strategy as the Fund, may have difficulty fully investing such Fund’s assets according to its investment objective due to potential liquidity constraints and high transaction costs. Typically, small-cap, mid-cap and emerging market equity funds are more susceptible to such a risk. The Fund may add additional investment advisors or close the Fund to new investors to address such risks.
Cash Management
The Fund may have uninvested cash balances pending investment in other securities, pending payment of redemptions, or in other circumstances where liquidity is necessary or desirable. The Fund may hold uninvested cash; invest it in cash equivalents such as money market funds, including the Principal Funds, Inc. Government Money Market Fund; lend it to other Funds pursuant to the Fund's interfund lending facility; and/or invest in other instruments that those managing the Fund’s assets deem appropriate for cash management purposes. Generally, these types of investments offer less potential for gains than other types of securities. For example, to attempt to provide returns similar to its benchmark, the Fund (regardless of how it designates usage of derivatives and investment companies in the table below) may invest uninvested cash in derivatives, such as stock index futures contracts, or exchange-traded funds (“ETFs”), including Principal Exchange-Traded Funds ETFs. In selecting such investments, the Advisor may have conflicts of interest due to economic or other incentives to make or retain an investment in certain affiliated funds instead of in other investments that may be appropriate for the Fund.
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Liquidity
The Fund has established a liquidity risk management program as required by the U.S. Securities and Exchange Commission (the “SEC”)’s Liquidity Rule. Under the program, PGI assesses, manages, and periodically reviews the Fund’s liquidity risk, which is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund. As part of the program, PGI classifies each investment as a “highly liquid investment,” “moderately liquid investment,” “less liquid investment” or “illiquid investment.” The liquidity of the Fund’s portfolio investments is determined based on relevant market, trading and investment-specific considerations under the program. To the extent that an investment is deemed to be an illiquid investment or a less liquid investment, the Fund can expect to be exposed to greater liquidity risk.
Certain fund holdings may be deemed to be less liquid or illiquid because they cannot be readily sold without significantly impacting the value of the holdings. A fund is exposed to liquidity risk when trading volume, lack of a market maker, or legal restrictions impair its ability to sell particular securities or close derivative positions at an advantageous price. Funds with principal investment strategies that involve securities of companies with smaller market capitalizations, foreign securities, derivatives, high yield bonds and bank loans or securities with substantial market and/or credit risk tend to have the greatest exposure to liquidity risk.
Liquidity risk also refers to the risk of unusually high redemption requests, redemption requests by certain large shareholders such as institutional investors or asset allocators, or other unusual market conditions that may make it difficult for a fund to sell investments within the allowable time period to meet redemptions. Meeting such redemption requests could require a fund to sell securities at reduced prices or under unfavorable conditions, which would reduce the value of the fund.
Market Volatility and Securities Issuers
The value of a fund’s portfolio securities may decrease in response to overall stock or bond market movements. Markets tend to move in cycles, with periods of rising prices and periods of falling prices. Stocks tend to go up and down in value more than bonds. The value of a security may decline for reasons directly related to the issuer, such as management performance, financial leverage, and reduced demand for the issuer’s goods or services. As a result, the value of an individual security or particular type of security can be more volatile than the market as a whole and can perform differently from the value of the market as a whole.
Additionally, US and world economies, as well as markets (or certain market sectors), may experience greater volatility in response to the occurrence of natural or man-made disasters and geopolitical events, such as war, acts of terrorism, pandemics, military actions, trade disputes, or political instability. Moreover, if a fund’s investments are concentrated in certain sectors, its performance could be worse than the overall market.
Recent events are impacting the securities markets. Russia's invasion of Ukraine in 2022 has resulted in sanctions being levied by the United States, European Union and other countries against Russia. Russia's military actions and the resulting sanctions could adversely affect global energy and financial markets and, thus, could affect the value of the fund's investments, even beyond any direct exposure the fund may have to Russian issuers or the adjoining geographic regions. The extent and duration of the military action, sanctions and resulting market disruptions could be substantial.
Other recent market disruption events include the pandemic spread of the novel coronavirus designated as COVID-19. The transmission of COVID-19 and efforts to contain its spread resulted in border closings and other travel restrictions and disruptions, disruptions to business operations, supply chains and customer activity, event cancellations and restrictions, service cancellations and reductions, significant challenges in the healthcare industry, and quarantines. As experienced with the COVID-19 pandemic, health crises may exacerbate other pre-existing political, social, economic, market and financial risks and negatively affect the global economy, as well as the economies of individual countries, the financial performance of individual companies and sectors, and the markets in general in significant ways.
Market disruption events could also impair the information technology and other operational systems upon which a fund’s investment advisor or sub-advisor rely, and could otherwise disrupt the ability of the fund’s service providers to perform essential tasks. In certain cases, an exchange or market may close or issue trading halts on either specific securities or even the entire market, which may result in a fund being, among other things, unable to buy or sell certain securities or financial instruments or accurately price its investments.
Governmental and quasi-governmental authorities and regulators throughout the world, such as the Federal Reserve, have in the past responded to major economic disruptions with a variety of significant fiscal and monetary policy changes, including but not limited to, direct capital infusions into companies, new monetary programs, and dramatically lower interest rates. Certain of those policy changes were implemented or considered in response to the COVID-19 outbreak. Such policy changes may adversely affect the value, volatility and liquidity of dividend and interest paying securities.
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The impact of current and future market disruption events may last for an extended period of time and could result in a substantial economic downturn or recession. Such events could have significant adverse direct or indirect effects on the funds and their investments, and may result in a fund’s inability to achieve its investment objectives, cause funds to experience significant redemptions, cause the postponement of reconstitution/rebalance dates of passive funds’ underlying indices, adversely affect the prices and liquidity of the securities and other instruments in which a fund invests, negatively impact the fund’s performance, and cause losses on your investment in the fund. You should also review this Prospectus and the Statement of Additional Information to understand each fund’s discretion to implement temporary defensive measures, as well as the circumstances in which a fund may satisfy redemption requests in-kind.
Securities Lending
To generate additional income, the Fund may lend its portfolio securities to broker-dealers and other institutional borrowers to the extent permitted under the Investment Company Act of 1940, as amended (the “1940 Act”) or the rules, regulations or interpretations thereunder. The Fund that lends its securities will continue to receive amounts equal to the interest or dividend payments generated by the loaned securities. In addition to receiving these amounts, the Fund generates income on the loaned securities by receiving a fee from the borrower, and by earning interest on the collateral received from the borrower. A negotiated portion of the income is paid to a securities lending agent (e.g., a bank or trust company) who arranged the loan. During the term of the loan, the Fund’s investment performance will reflect changes in the value of the loaned securities.
A borrower’s obligations under a securities loan is secured continuously by collateral posted by the borrower and held by the custodian in an amount at least equal to the market value of the loaned securities. Generally, cash collateral that the Fund receives from securities lending activities will be invested in the Principal Funds, Inc. Government Money Market Fund, which is managed by PGI and for which PGI receives a management fee. The collateral may also be invested in unaffiliated money market funds.
Securities lending involves exposure to certain risks, including the risk of losses resulting from problems in the settlement and accounting process, the risk of a mismatch between the return on cash collateral reinvestments and the fees each Fund has agreed to pay a borrower, and credit, legal, counterparty and market risk. The Fund’s participation in a securities lending transaction may affect the amount, timing, and character of distributions derived from such transaction to shareholders. Qualified dividend income does not include “payments in lieu of dividends,” which the Fund anticipates it will receive in securities lending transactions.
Temporary Defensive Measures
From time to time, as part of its investment strategy, the Fund may invest without limit in cash and cash equivalents for temporary defensive purposes in response to adverse market, economic, or political conditions. For this purpose, cash equivalents include: bank notes, bank certificates of deposit, bankers’ acceptances, repurchase agreements, commercial paper, and commercial paper master notes, which are floating rate debt instruments without a fixed maturity. In addition, the Fund may purchase U.S. government securities, preferred stocks, and debt securities, whether or not convertible into or carrying rights for common stock. There is no limit on the extent to which the Fund may take temporary defensive measures. In taking such measures, the Fund may lose the benefit of upswings and may limit its ability to meet, or fail to achieve, its investment objective.
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Strategy and Risk Table
The following table lists additional Fund strategies and risks (listed in alphabetical order) and notes whether they are principal or non-principal (meaning they are relevant to the Fund but to a lesser degree than those designated as principal).
The SAI contains additional information about investment strategies and their related risks. 
INVESTMENT STRATEGIES AND RISKS
GLOBAL
SUSTAINABLE
LISTED
INFRASTRUCTURE
Counterparty Risk
Non-Principal
Derivatives
Non-Principal
Emerging Markets
Principal
Energy Sector
Principal
Equity Securities
Principal
•Growth Style
Principal
•Smaller Companies
Principal
•Value Style
Principal
ESG Investing
Principal
Fixed-Income Securities
Not Applicable
Foreign Currency
Principal
Foreign Securities
Principal
Hedging
Non-Principal
High Portfolio Turnover
Non-Principal
Industry Concentration
Principal
Investment Company Securities
Non-Principal
Master Limited Partnerships (“MLPs”)
Non-Principal
Real Estate Investment Trusts (“REITs”)
Principal
Real Estate Securities
Principal
Redemption and Large Transaction Risk
Principal
Telecommunications
Principal
Transportation
Principal
U.S. Government and U.S. Government-Sponsored Securities
Not Applicable
Utilities Sector
Principal
Counterparty Risk
Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations. If a counterparty fails to meet its contractual obligations, goes bankrupt, or otherwise experiences a business interruption, a fund could miss investment opportunities or otherwise hold investments it would prefer to sell, resulting in losses for the fund. In addition, a fund may suffer losses if a counterparty fails to comply with applicable laws or other requirements. Counterparty risk is pronounced during unusually adverse market conditions and is particularly acute in environments in which financial services firms are exposed to systemic risks.
Derivatives
Generally, a derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. A fund may invest in certain derivative strategies to earn income, manage or adjust the risk profile of the fund, replace more direct investments, or obtain exposure to certain markets. A fund may enter into forward commitment agreements, which call for the fund to purchase or sell a security on a future date at a fixed price. A fund may also enter into contracts to sell its investments either on demand or at a specific interval.
The risks associated with derivative investments include:
•
increased volatility of a fund and/or the failure of the investment to mitigate volatility as intended;
•
the inability of those managing investments of the fund to correctly predict the direction of securities prices, interest rates, currency exchange rates, asset values, and other economic factors;
•
losses caused by unanticipated market movements, which may be substantially greater than a fund’s initial investment and are potentially unlimited;
•
the possibility that there may be no liquid secondary market, which may make it difficult or impossible to close out a position when desired;
•
the possibility that the counterparty may fail to perform its obligations; and
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•
the inability to close out certain hedged positions to avoid adverse tax consequences.
There are many different types of derivatives and many different ways to use them. The specific derivatives that are principal strategies of the Fund are listed in its Fund Summary.
•
Commodity Index-Linked Notes are derivative debt instruments issued by U.S. and foreign banks, brokerage firms, insurance companies and other corporations with principal and/or coupon payments linked to the performance of commodity indices. These notes expose a fund to movements in commodity prices. They are also subject to credit, counterparty, and interest rate risk. Commodity index-linked notes are often leveraged, increasing the volatility of each note’s market value relative to changes in the underlying commodity index. At the maturity of the note, a fund may receive more or less principal than it originally invested. A fund may also receive interest payments on the note that are less than the stated coupon interest payments.
•
Credit Default Swap Agreements may be entered into by a fund as a “buyer” or “seller” of credit protection. Credit default swap agreements involve special risks because they may be difficult to value, are highly susceptible to liquidity and credit risk, and generally pay a return to the party that has paid the premium only in the event of an actual default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial difficulty). Credit default swaps can increase credit risk because a fund has exposure to both the issuer of the referenced obligation and the counterparty to the credit default swap.
•
Foreign Currency Contracts (such as foreign currency options and foreign currency forward and swap agreements) may be used by funds to increase exposure to a foreign currency or to shift exposure to foreign currency fluctuations from one country to another. A forward currency contract involves a privately negotiated obligation to purchase or sell a specific currency at a future date at a price set in the contract. For currency contracts, there is also a risk of government action through exchange controls that would restrict the ability of a fund to deliver or receive currency.
•
Forwards, futures contracts and options thereon (including commodities futures); options (including put or call options); and swap agreements and over-the-counter swap agreements (e.g., interest rate swaps, total return swaps and credit default swaps) may be used by funds for hedging purposes in order to try to mitigate or protect against potential losses due to changing interest rates, securities prices, asset values, currency exchange rates, and other market conditions; non-hedging purposes to seek to increase the fund’s income or otherwise enhance return; and as a low-cost method of gaining exposure to a particular market without investing directly in those securities or assets.
These derivative investments are subject to special risk considerations, particularly the imperfect correlation between the change in market value of the instruments held by a fund and the price of the derivative instrument. If a fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements, even when it may be disadvantageous to do so. Options and Swap Agreements also involve counterparty risk. With respect to options, there may be difference in trading hours for the options markets and the markets for the underlying securities (rate movements can take place in the underlying markets that cannot be reflected in the options markets) and an insufficient liquid secondary market for particular options.
•
Index/structured securities. Certain derivative securities are described more accurately as index/structured securities, which are derivative securities whose value or performance is linked to other equity securities (such as depositary receipts), currencies, interest rates, indices, or other financial indicators (reference indices).
Emerging Markets
The Fund considers a security to be tied economically to an emerging market (an “emerging market security”) if the issuer of the security has its principal place of business or principal office in an emerging market, has its principal securities trading market in an emerging market, or derives a majority of its revenue from emerging markets.
Usually, the term “emerging market” (also called a “developing market”) means any market that is considered to be an emerging market by the international financial community (such as markets tied to securities included in the MSCI Emerging Markets Index or Bloomberg Emerging Markets USD Aggregate Bond Index). Emerging markets generally exclude the U.S., Canada, Japan, Hong Kong, Singapore, Australia, New Zealand, and most nations located in Western Europe.
Investments in companies in emerging markets are subject to higher risks than investments in companies in more developed markets. These risks include:
•
increased social, political, and economic instability;
•
a smaller market for these securities and low or nonexistent trading volume that results in a lack of liquidity and greater price volatility;
•
lack of publicly available information, including reports of payments of dividends or interest on outstanding securities;
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•
foreign government policies that may restrict opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests;
•
relatively new capital market structure or market-oriented economy;
•
the possibility that recent favorable economic developments may be slowed or reversed by unanticipated political or social events in these countries;
•
restrictions that may make it difficult or impossible for a fund to vote proxies, exercise shareholder rights, pursue legal remedies, and obtain judgments in foreign courts; and
•
possible losses through the holding of securities in domestic and foreign custodial banks and depositories.
In addition, many developing markets have experienced substantial and, in some periods, extremely high rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may continue to have negative effects on the economies, currencies, interest rates, and securities markets of those markets.
Repatriation of investment income, capital, and proceeds of sales by foreign investors may require governmental registration and/or approval in some developing markets. A fund could be adversely affected by delays in or a refusal to grant any required governmental registration or approval for repatriation.
Further, the economies of developing markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade.
The SEC, the U.S. Department of Justice, and other U.S. authorities may be limited in their ability to pursue bad actors, including instances of fraud in emerging markets. For example, in certain emerging markets, there are significant legal obstacles to obtaining information needed for investigations or litigation. Similar limitations apply to the pursuit of actions against individuals, including officers, who may have engaged in fraud or wrongdoing. In addition, local authorities often are constrained in their ability to assist U.S. authorities and overseas investors more generally. There are also legal or other obstacles to seeking access to funds in a foreign country.
Energy Sector
The performance of energy-related commodities is generally cyclical and highly dependent on energy prices. Energy prices may fluctuate significantly due to, among other things, national and international political changes, Organization of Petroleum Exporting Countries (“OPEC”) and non-OPEC energy exporters, such as the Russian Federation, policies and relationships, and the economies of key energy-consuming countries. The market value of energy-related commodities may decline for many reasons, including, among other things: changes in the levels and volatility of global energy prices, energy supply and demand, and capital expenditures on exploration and production of energy sources; exchange rates, interest rates, economic conditions, and tax treatment; terrorism, natural disasters, and other catastrophes; and energy conservation efforts, increased competition, and technological advances. The energy sector may also be subject to substantial government regulation and contractual fixed pricing. In addition, renewable energy companies may be more volatile than companies operating in more established industries. Seasonal weather conditions, extreme weather, or other natural disasters could have a disproportionate effect on renewable energy companies versus other types of energy companies. These factors could impact the ability of renewable energy companies to pay dividends comparable to those paid by other types of energy companies.
Equity Securities
Equity securities include common stocks, convertible securities, depositary receipts, rights (an offering of common stock to investors who currently own shares which entitle them to buy subsequent issues at a discount from the offering price), and warrants (the right to purchase securities from the issuer at a specified price, normally higher than the current market price). Common stocks, the most familiar type, represent an equity (ownership) interest in a corporation. The value of a company’s stock may fall as a result of factors directly relating to that company, such as decisions made by its management or lower demand for the company’s products or services. A stock’s value may also fall because of factors affecting not just the company, but also companies in the same industry or in a number of different industries, such as increases in production costs. The value of a company’s stock may also be affected by changes in financial markets that are relatively unrelated to the company or its industry, such as changes in interest rates or currency exchange rates. In addition, a company’s stock generally pays dividends only after the company invests in its own business and makes required payments to holders of its bonds and other debt. For this reason, the value of a company’s stock will usually react more strongly than its bonds and other debt to actual or perceived changes in the company’s financial condition or prospects.
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Some funds focus their investments on certain market capitalization ranges. Market capitalization is defined as total current market value of a company’s outstanding equity securities. The market capitalization of companies in a fund’s portfolios and their related indexes will change over time, and, except to the extent consistent with its principal investment strategies (for example, for an index fund that uses a replication strategy), a fund will not automatically sell a security just because it falls outside of the market capitalization range of its index(es).
Growth Style
The prices of growth stocks may be based largely on expectations of future earnings, and their prices can decline rapidly and significantly in reaction to negative news about such factors as earnings, revenues, the economy, political developments, or other news. Growth stocks may underperform value stocks and stocks in other broad style categories (and the stock market as a whole) over any period of time and may shift in and out of favor with investors generally, sometimes rapidly, depending on changes in market, economic, and other factors. As a result, a fund that holds substantial investments in growth stocks may underperform other funds that invest more broadly or favor different investment styles. Because growth companies typically reinvest their earnings, growth stocks typically do not pay dividends at levels associated with other types of stocks, if at all.
Smaller Companies
Investments in companies with smaller market capitalizations may involve greater risks and price volatility (wide, rapid fluctuations) than investments in larger, more mature companies. Small company stocks may decline in price as large company stocks rise, or rise in price while larger company stocks decline. The net asset value of a fund that invests a substantial portion of its assets in small company stocks may therefore be more volatile than the shares of a fund that invests solely in larger company stocks. Small companies may be less significant within their industries and may be at a competitive disadvantage relative to their larger competitors. Smaller companies may be less mature than larger companies. At this earlier stage of development, the companies may have limited product lines, reduced market liquidity for their shares, limited financial resources, or less depth in management than larger or more established companies. While smaller companies may be subject to these additional risks, they may also realize more substantial growth than larger or more established companies.
Unseasoned issuers are companies with a record of less than three years continuous operation, including the operation of predecessors and parents. Many unseasoned issuers also may be small companies and involve the risks and price volatility associated with smaller companies. Unseasoned issuers by their nature have only a limited operating history that can be used for evaluating the company’s growth prospects. As a result, these securities may place a greater emphasis on current or planned product lines and the reputation and experience of the company’s management and less emphasis on fundamental valuation factors than would be the case for more mature growth companies.
Value Style
Value stocks present the risk that they may decline in price or never reach their expected full market value because the market fails to recognize the stock’s intrinsic worth. Value stocks may underperform growth stocks and stocks in other broad style categories (and the stock market as a whole) over any period of time and may shift in and out of favor with investors generally, sometimes rapidly, depending on changes in market, economic, and other factors. As a result, a fund that holds substantial investments in value stocks may underperform other funds that invest more broadly or favor different investment styles.
ESG Investing
The Fund incorporates ESG investment insights into its investment strategy and will forego certain investment opportunities because of this ESG investment strategy. The Fund’s incorporation of ESG investment insights will affect the Fund’s exposure to certain companies or industries. The Fund’s results may be lower than other funds that do not consider ESG characteristics or apply an ESG investment strategy, or that use different ESG criteria or a different methodology to identify and/or incorporate ESG characteristics. Further, investors may differ in their views of what constitutes positive or negative ESG characteristics of a security. As a result, the Fund may invest in securities that do not reflect the beliefs of a particular investor. In addition, the Fund may not be successful in its objectives related to ESG. There is no guarantee that these objectives will be achieved, and ESG-related assessments are at the sub-advisor’s discretion. The sub-advisor is dependent upon certain information and data from issuers and from third party providers of ESG research, which may be incomplete, inaccurate, or unavailable. As a result, there is a risk that the sub-advisor may incorrectly assess a security or issuer. There is also a risk that the sub-advisor may not apply the relevant ESG criteria correctly or that the Fund could have indirect exposure to issuers that do not meet the relevant ESG criteria used by the Fund. Neither the Fund nor the adviser or sub-advisor make any representation or warranty, express or implied, with respect to the fairness, correctness, accuracy, reasonableness, or completeness of such ESG assessment. There may be limitations with respect to availability of ESG data in certain sectors, as well as limited availability of investments with positive ESG assessments in certain sectors. The adviser and/or sub-advisor’s evaluation of ESG criteria is subjective and may change over time.
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Fixed-Income Securities
Fixed-income securities include bonds and other debt instruments that are used by issuers to borrow money from investors (examples include corporate bonds, convertible securities, asset- and mortgage-backed securities, and municipal, agency, and U.S. government securities). The issuer of a fixed-income security generally pays the investor a fixed, variable, or floating rate of interest. The amount borrowed must be repaid at maturity. Some debt securities, such as zero coupon bonds, do not pay current interest, but are sold at a discount from their face values.
Fixed-income securities are sensitive to changes in interest rates. In general, fixed-income security prices rise when interest rates fall and fall when interest rates rise. An increase in interest rates from a low interest rate environment may lead to heightened volatility and redemptions alongside reduced liquidity and dealer market-making capacity in fixed income markets. If interest rates fall, issuers of callable bonds may call (repay) securities with high interest rates before their maturity dates; this is known as call risk. In this case, a fund would likely reinvest the proceeds from these securities at lower interest rates, resulting in a decline in the fund’s income. Very low interest rates, including rates that fall below zero (where banks charge for depositing money), may detract from the Fund’s performance and its ability to maintain positive returns to the extent the Fund is exposed to such interest rates. To the extent the Fund holds an investment with a negative interest rate to maturity, the Fund would generate a negative return on that investment. Floating rate securities generally are less sensitive to interest rate changes but may decline in value if their interest rates do not rise as much, or as quickly, as interest rates in general. Conversely, floating rate securities will not generally increase in value if interest rates decline.
The United Kingdom’s Financial Conduct Authority, which regulates the London Inter-bank Offered Rate (“LIBOR”), will no longer publish non-U.S. dollar LIBOR, 1-week U.S. dollar LIBOR, or 2-month U.S. dollar LIBOR rates after December 31, 2021. The remaining, most widely used U.S. dollar LIBOR rates will no longer be published after June 30, 2023. There remains uncertainty regarding the future utilization of LIBOR and the nature of a replacement rate and, as a result, the potential effect of a transition away from LIBOR on a fund or certain of its investments cannot be determined. LIBOR’s discontinuation and replacement could lead to short-term and long-term uncertainty, market instability, and adverse impacts to newly issued and existing financial instruments that reference LIBOR. While some instruments may contemplate the discontinuation of LIBOR by providing for an alternative rate-setting methodology, not all instruments may have such provisions and there is uncertainty regarding the effectiveness of any alternative methodology. In addition, LIBOR’s discontinuation or replacement may affect the value, liquidity, or return on certain Fund investments and may result in costs in connection with closing out positions and entering into new trades. These risks are likely to persist until new reference rates and fallbacks for both legacy and new instruments and contracts are commercially accepted and market practices become settled.
The U.S. Federal Reserve, along with a steering committee comprised of large U.S. financial institutions known as the Alternative Reference Rates Committee, intends to replace U.S. dollar LIBOR with the Secured Overnight Financing Rate (“SOFR”), a new index calculated by short-term repurchase agreements, backed by Treasury securities. Bank working groups and regulators in other countries have suggested other alternatives for their markets.
Fixed-income securities are also affected by the credit quality of the issuer. Investment-grade debt securities are medium and high quality securities. Some bonds, such as lower grade or “junk” bonds, may have speculative characteristics and may be particularly sensitive to economic conditions and the financial condition of the issuers. Credit risk refers to the possibility that the issuer of the security will not be able to make principal and interest payments when due.
Additionally, the Fund’s investments in companies with smaller market capitalizations may involve greater risks, price volatility (wide, rapid fluctuations), and less liquidity than investments in larger, more mature companies.
Foreign Currency
Certain of the fund’s investments will be denominated in foreign currencies or traded in securities markets in which settlements are made in foreign currencies. Any income on such investments is generally paid to a fund in foreign currencies. In addition, funds may engage in foreign currency transactions for both hedging and investment purposes, as well as to increase exposure to a foreign currency or to shift exposure to foreign currency fluctuations from one country to another.
The value of foreign currencies relative to the U.S. dollar varies continually, causing changes in the dollar value of a fund’s portfolio investments (even if the local market price of the investments is unchanged) and changes in the dollar value of a fund’s income available for distribution to its shareholders. The effect of changes in the dollar value of a foreign currency on the dollar value of a fund’s assets and on the net investment income available for distribution may be favorable or unfavorable. Transactions in non-U.S. currencies are also subject to many of the risks of investing in foreign (non-U.S.) securities; for example, changes in foreign economies and political climates are more likely to affect a fund that has foreign currency exposure than a fund that invests exclusively in U.S. companies and currency. There also may be less government supervision of foreign markets, resulting in non-uniform accounting practices and less publicly available information.
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Transactions in foreign currencies, foreign currency denominated debt and certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned.
A fund may incur costs in connection with conversions between various currencies. In addition, a fund may be required to liquidate portfolio assets, or may incur increased currency conversion costs, to compensate for a decline in the dollar value of a foreign currency occurring between the time when a fund declares and pays a dividend, or between the time when a fund accrues and pays an operating expense in U.S. dollars. To protect against a change in the foreign currency exchange rate between the date on which a fund contracts to purchase or sell a security and the settlement date for the purchase or sale, to gain exposure to one or more foreign currencies or to “lock in” the equivalent of a dividend or interest payment in another currency, a fund might purchase or sell a foreign currency on a spot (i.e., cash) basis at the prevailing spot rate.
Currency hedging involves some of the same general risks and considerations as other transactions with similar instruments (i.e., derivative instruments) and hedging. Currency transactions are also subject to additional risks. Because currency control is of great importance to the issuing governments and influences economic planning and policy, purchases and sales of currency and related instruments can be adversely affected by government exchange controls, limitations or restrictions on repatriation of currency, and manipulations or exchange restrictions imposed by governments. These forms of governmental actions can result in losses to a fund if it is unable to deliver or receive currency or monies in settlement of obligations. They could also cause hedges the fund has entered into to be rendered useless, resulting in full currency exposure as well as incurring transaction costs. Settlement of a currency forward contract for the purchase of most currencies must occur at a bank based in the issuing nation. The ability to establish and close out positions on trading options on currency futures contracts is subject to the maintenance of a liquid market that may not always be available.
Foreign Securities
The Fund considers a security to be tied economically to countries outside the U.S. (a “foreign security”) if the issuer of the security has its principal place of business or principal office outside the U.S., has its principal securities trading market outside the U.S., or derives a majority of its revenue from outside the U.S.
There may be less publicly available information about foreign companies than U.S. companies, and information about foreign securities in which the Fund invests may be less reliable or complete. Foreign companies, including those listed on U.S. securities exchanges, may not be subject to the same uniform accounting, auditing, and financial reporting practices as are required of U.S. companies with respect to such matters as insider trading rules, tender offer regulation, accounting standards or auditor oversight, stockholder proxy requirements and the requirements mandating timely and accurate disclosure of information. For example, the Chinese government has taken positions that prevent the Public Company Accounting Oversight Board from inspecting the audit work and practices of accounting firms in mainland China and Hong Kong for compliance with U.S. law and professional standards. In addition, securities of many foreign companies are less liquid and more volatile than securities of comparable U.S. companies. Commissions on foreign securities exchanges may be generally higher than those on U.S. exchanges.
Foreign markets also have different clearance and settlement procedures than those in U.S. markets. In certain markets, there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct these transactions. Delays in settlement could result in temporary periods when a portion of fund assets is not invested and earning no return. If a fund is unable to make intended security purchases due to settlement problems, the fund may miss attractive investment opportunities. In addition, a fund may incur a loss as a result of a decline in the value of its portfolio if it is unable to sell a security.
With respect to certain foreign countries, there is the possibility of nationalization, expropriation or confiscatory taxation, political or social instability, or diplomatic developments that could affect a fund’s investments in those countries. In addition, a fund may also suffer losses due to differing accounting practices and treatments. Investments in foreign securities are subject to laws of the foreign country that may limit the amount and types of foreign investments. Changes of governments or of economic or monetary policies, in the U.S. or abroad, changes in dealings between nations, currency convertibility or exchange rates could result in investment losses for a fund.
Foreign securities are often traded with less frequency and volume, and therefore may have greater price volatility than is the case with many U.S. securities. Brokerage commissions, custodial services, and other costs relating to investment in foreign countries are generally more expensive than in the U.S. Though the fund intends to acquire the securities of foreign issuers where there are public trading markets, economic or political turmoil in a country in which a fund has a significant portion of its assets or deterioration of the relationship between the U.S. and a foreign country may reduce the liquidity of a fund’s portfolio. The fund may have difficulty meeting a large number of redemption requests. Furthermore, there may be difficulties in obtaining or enforcing judgments against foreign issuers.
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A fund may invest in a foreign company by purchasing depositary receipts. Depositary receipts are certificates of ownership of shares in a foreign-based issuer held by a bank or other financial institution. They are alternatives to purchasing the underlying security but are subject to the foreign securities risks to which they relate.
A fund may file claims to recover foreign withholding taxes on dividend and interest income (if any) received from issuers in certain countries and capital gains on the disposition of stocks or securities where such withholding tax reclaim is possible. Whether or when a fund will receive a withholding tax refund is within the control of the tax authorities in such countries. Where a fund expects to recover withholding taxes, the net asset value of a fund generally includes accruals for such tax refunds. If the likelihood of recovery materially decreases, accruals in the fund’s net asset value for such refunds may be written down partially or in full, which will adversely affect the fund’s net asset value. Shareholders in the fund at the time an accrual is written down will bear the impact of the resulting reduction in net asset value regardless of whether they were shareholders during the accrual period. Conversely, if a fund receives a tax refund that has not been previously accrued, shareholders in the fund at the time of the successful recovery will benefit from the resulting increase in the fund’s net asset value. Shareholders who sold their shares prior to such time will not benefit from such increase in the fund’s net asset value.
If a fund’s portfolio invests significantly in a certain geographic region, any negative development affecting that region will have a greater impact on the fund than a fund that is not as heavily invested in that region. For example, with respect to funds that invest significantly in China or the EU:
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Investing in China involves certain heightened risks and considerations, including, among others: frequent trading suspensions and government interventions (including by nationalizing assets); currency exchange rate fluctuations or blockages; limits on using brokers and on foreign ownership; different financial reporting standards, as described above; higher dependence on exports and international trade; political and social instability; infectious disease outbreaks; regional and global conflicts; increased trade tariffs, embargoes and other trade limitations; custody and other risks associated with programs used to access Chinese securities; and uncertainties in tax rules that could result in unexpected tax liabilities for the Fund. Significant portions of the Chinese securities markets may become rapidly illiquid, as Chinese issuers have the ability to suspend the trading of their equity securities. Moreover, actions by the U.S. government, such as delisting of certain Chinese companies from U.S. securities exchanges or otherwise restricting their operations in the U.S., may negatively impact the value of such securities held by the funds.
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Funds that invest in the United Kingdom (the “UK”) face risks related to the UK's departure from the European Union (the “EU”), commonly known as “Brexit.” Brexit has resulted in significant uncertainties and instability in the financial markets, and considerable uncertainty remains related to the potential consequences associated with the exit, how the negotiations for the withdrawal and new trade agreements will be conducted, and whether the UK's exit will increase the likelihood of other countries also departing the EU. Brexit may have significant political and financial consequences in the UK, as well as in European markets and the broader global economy, which may result in increased volatility and illiquidity, and potentially lower economic growth in markets in the UK, Europe and globally.
Hedging
Hedging is a strategy that can be used to attempt to mitigate or protect against potential losses due to changing interest rates, securities prices, asset values, currency exchange rates, and other market conditions. The success of a fund’s hedging strategy will be subject to the ability of those managing the fund’s investments to correctly assess the degree of correlation between the performance of the instruments used in the hedging strategy and the performance of the investments in the portfolio being hedged. Since the characteristics of many securities change as markets change or time passes, the success of a fund’s hedging strategy will also be subject to the ability of those managing the fund’s investments to continually recalculate, readjust, and execute hedges in an efficient and timely manner. For a variety of reasons, those managing the fund’s investments may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Such imperfect correlation may prevent a fund from achieving the intended hedge or expose a fund to risk of loss. In addition, it is not possible to hedge fully or perfectly against any risk, and hedging entails its own costs.
High Portfolio Turnover
“Portfolio Turnover” is the term used in the industry for measuring the amount of trading that occurs in a fund’s portfolio during the year. For example, a 100% turnover rate means that on average every security in the portfolio has been replaced once during the year. Funds with high turnover rates (more than 100%) often have higher transaction costs (which are paid by the fund), may result in higher taxes when fund shares are held in a taxable account, and may lower the fund’s performance. High portfolio turnover can result in a lower capital gain distribution due to higher transaction costs added to the basis of the assets or can result in lower ordinary income distributions to shareholders when the transaction costs cannot be added to the basis of assets. Both events reduce fund performance.
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Please consider all the factors when you compare the turnover rates of different funds. You should also be aware that the “total return” line in the Financial Highlights section reflects portfolio turnover costs.
Industry Concentration
A fund that concentrates its investments (invests more than 25% of its net assets) in a particular industry (or group of industries) is more exposed to the overall condition of the particular industry than a fund that invests in a wider variety of industries. A particular industry could be affected by economic, business, supply-and-demand, political, or regulatory factors. Companies within the same industry could react similarly to such factors. As a result, a fund’s concentration in a particular industry would increase the possibility that the fund’s performance will be affected by such factors.
Investment Company Securities
Securities of other investment companies, including shares of closed-end investment companies, unit investment trusts, various exchange-traded funds (“ETFs”), and other open-end investment companies, represent interests in professionally managed portfolios that may invest in a variety of instruments. Certain types of investment companies, such as closed-end investment companies, issue a fixed number of shares that trade on a stock exchange or over-the-counter at a premium or a discount to their net asset value. Others are continuously offered at net asset value, but may also be traded in the secondary market. ETFs are often structured to perform in a similar fashion to a broad-based securities index. Investing in ETFs involves generally the same risks as investing directly in the underlying instruments. Investing in ETFs involves the risk that they will not perform in exactly the same fashion, or in response to the same factors, as the index or underlying instruments. Shares of ETFs may trade at prices other than NAV.
A fund that invests in another investment company is subject to the risks associated with direct ownership of the securities in which such investment company invests. Fund shareholders indirectly bear their proportionate share of the expenses of each such investment company, including its advisory and administrative fees. The Fund would also continue to pay its own advisory fees and other expenses. Consequently, the Fund and its shareholders would, in effect, absorb two levels of fees with respect to investments in other investment companies.
A fund may invest in affiliated underlying funds, and those who manage such fund’s investments and their affiliates may earn different fees from different underlying funds and may have an incentive to allocate more fund assets to underlying funds from which they receive higher fees.
Master Limited Partnerships (“MLPs”)
An MLP that invests in a particular industry (e.g., oil and gas) will be harmed by detrimental economic events within that industry. For example, the business of certain MLPs is affected by supply and demand for energy commodities because such MLPs derive revenue and income based upon the volume of the underlying commodity produced, transported, processed, distributed, and/or marketed. Many MLPs are also subject to various federal, state and local environmental laws and health and safety laws as well as laws and regulations specific to their particular activities.
MLPs tend to pay relatively higher distributions than other types of companies. The amount of cash that an MLP can distribute to its partners will depend on the amount of cash it generates from operations, which will vary from quarter to quarter depending on factors affecting the market generally and on factors affecting the particular business lines of the MLP. Available cash will also depend on the MLPs’ level of operating costs (including incentive distributions to the general partner), level of capital expenditures, debt service requirements, acquisition costs (if any), fluctuations in working capital needs and other factors.
Certain benefits derived from investment in MLPs depend largely on the MLPs being treated as partnerships for federal income tax purposes. As a partnership, an MLP has no federal income tax liability at the entity level. MLPs taxed as partnerships file a partnership tax return for U.S. federal, state and local income tax purposes and communicate the Fund’s allocable share of the MLP’s income, gains, losses, deductions and expenses via a “Schedule K-1.” Each year, the Fund will send you an annual tax statement (Form 1099) to assist you in completing your tax returns. In some circumstances the Fund may need to send you a corrected Form 1099, which could require you to amend your tax returns. For example, if the Fund keeps MLP investments until the basis (generally the price paid for the units, as adjusted downwards with each distribution and allocation of deductions and losses, and upwards with each allocation of taxable income and gain) is zero, subsequent distributions will be taxable to the Fund at ordinary income rates and shareholders may receive a corrected Form 1099.
If, as a result of a change in current law or a change in an MLP’s business, an MLP was treated as a corporation for federal income tax purposes, the MLP would be obligated to pay federal income tax on its income at the corporate tax rate. If an MLP was classified as a corporation for federal income tax purposes, the amount of cash available for distribution would be reduced and the distributions received might be taxed entirely as dividend income.
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To the extent a distribution received by a fund from an MLP is treated as a return of capital, the fund's adjusted tax basis in the interests of the MLP will be reduced, which may increase the fund's tax liability upon the sale of the interests in the MLP or upon subsequent distributions in respect of such interests.
Real Estate Investment Trusts (“REITs”)
REITs involve certain unique risks in addition to the risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack of availability of mortgage funds, or extended vacancies of property). REITs are characterized as: equity REITs, which primarily own property and generate revenue from rental income; mortgage REITs, which invest in real estate mortgages; and hybrid REITs, which combine the characteristics of both equity and mortgage REITs. Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, risks of default by borrowers, and self-liquidation. A fund that invests in a REIT is subject to the REIT’s expenses, including management fees, and will remain subject to the fund’s advisory fees with respect to the assets so invested. REITs are also subject to the possibilities of failing to qualify for the special tax treatment accorded REITs under the Code, and failing to maintain their exemptions from registration under the 1940 Act.
Regular REIT dividends received by the Fund from a REIT will not qualify for the corporate dividends-received deduction and generally will not constitute qualified dividend income for U.S. income tax purposes. Any distribution of income attributable to regular REIT dividends from the Fund’s investment in a REIT will not qualify for the deduction that would be available to a non-corporate shareholder were the shareholder to own such REIT directly.
Investment in REITs also involves risks similar to those associated with investing in small market capitalization companies. REITs may have limited financial resources, may trade less frequently and in a limited volume, and may be subject to more abrupt or erratic price movements than larger company securities.
Real Estate Securities
Investing in securities of companies in the real estate industry subjects a fund to the special risks associated with the real estate market and the real estate industry in general. Generally, companies in the real estate industry are considered to be those that have principal activity involving the development, ownership, construction, management or sale of real estate; have significant real estate holdings, such as hospitality companies, healthcare facilities, supermarkets, mining, lumber and/or paper companies; and/or provide products or services related to the real estate industry, such as financial institutions that make and/or service mortgage loans and manufacturers or distributors of building supplies. Securities of companies in the real estate industry are sensitive to factors such as loss to casualty or condemnation, changes in real estate values, property taxes, interest rates, cash flow of underlying real estate assets, occupancy rates, government regulations affecting zoning, land use and rents, and the management skill and creditworthiness of the issuer. Companies in the real estate industry may also be subject to liabilities under environmental and hazardous waste laws.
Redemption and Large Transaction Risk
Ownership of a fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause a fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Principal Funds, Inc. (“PFI”) and Principal Variable Contracts Funds, Inc. (“PVC”) funds of funds may own shares of the Fund as an underlying fund. Principal Global Investors, LLC (“PGI”) is the advisor to the PFI and PVC funds of funds and is committed to minimizing the potential impact of redemption and large transaction risk on underlying funds to the extent consistent with pursuing the investment objectives of the funds of funds that it manages. However, PGI and its affiliates may face conflicts of interest in fulfilling responsibilities to all such funds.
Telecommunications
The telecommunications industry is subject to governmental regulation and a greater price volatility than the overall market, and the products and services of telecommunications companies may be subject to rapid obsolescence resulting from changing consumer tastes, intense competition, and strong market reactions to technological developments throughout the industry. Companies in the telecommunications sector may encounter distressed cash flows due to the need to commit substantial capital to meet increasing competition, particularly in formulating new products and services using new technology.
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Transportation
Companies in the transportation industry may be adversely affected by economic changes, increases in fuel and operating costs, labor relations, and insurance costs. Transportation companies may also be subject to significant government regulation and oversight, which may adversely affect their businesses.
U.S. Government and U.S. Government-Sponsored Securities
U.S. Government securities, such as Treasury bills, notes and bonds and mortgage-backed securities guaranteed by the Government National Mortgage Association (Ginnie Mae), are supported by the full faith and credit of the United States; others are supported by the right of the issuer to borrow from the U.S. Treasury; others are supported by the discretionary authority of the U.S. Government to purchase the agency’s obligations; and still others are supported only by the credit of the issuing agency, instrumentality, or enterprise.
Although U.S. Government-sponsored enterprises such as the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae) may be chartered or sponsored by Congress, they are not funded by Congressional appropriations, and their securities are not issued by the U.S. Treasury nor supported by the full faith and credit of the U.S. Government.
There is no assurance that the U.S. Government would provide financial support to its agencies and instrumentalities if not required to do so. In addition, certain governmental entities have been subject to regulatory scrutiny regarding their accounting policies and practices and other concerns that may result in legislation, changes in regulatory oversight and/or other consequences that could adversely affect the credit quality, availability, or investment character of securities issued by these entities. The value and liquidity of U.S. Government securities may be affected adversely by changes in the ratings of those securities.
Utilities Sector
When interest rates go up, the value of securities issued by utilities companies historically has gone down. In most countries and localities, the utilities industry is regulated by governmental entities, which can increase costs and delays for new projects and make it difficult to pass increased costs on to consumers. In certain areas, deregulation of utilities has resulted in increased competition and reduced profitability for certain companies and increased the risk that a particular company will become bankrupt or fail completely. Reduced profitability, as well as new uses for or additional need of funds (such as for expansion, operations, or stock buybacks), could result in reduced dividend payout rates for utilities companies. In addition, utilities companies face the risk of increases in the cost and reduced availability of fuel (such as oil, coal, natural gas, or nuclear energy) and potentially high interest costs for borrowing to finance new projects.
PORTFOLIO HOLDINGS INFORMATION
A description of the Fund's policies and procedures with respect to disclosure of the Fund's portfolio securities is available in the Fund's Statement of Additional Information.
MANAGEMENT OF THE FUND
The Manager and Advisor
Principal Global Investors, LLC (“PGI”), an indirect subsidiary of Principal Financial Group, Inc. (“Principal®”), serves as the manager and advisor for the Fund. Through the Management Agreement with the Registrant, PGI provides investment advisory services and certain corporate administrative services for the Fund. 
Advisor:
Principal Global Investors, LLC (“PGI”), 711 High Street, Des Moines, IA 50392, is part of a diversified
global asset management organization which utilizes a multi-boutique strategy of specialized investment
groups and affiliates to provide institutional investors and individuals with diverse investment capabilities,
including fixed income, equities, real estate, currency, asset allocation and stable value. In addition to its asset
management offices in the U.S., PGI has asset management offices of affiliate advisors located in Europe,
Asia, Latin America and Australia. PGI has been an investment advisor since 1998.
The Sub-Advisor
PGI has signed a contract with the sub-advisor. Under the sub-advisory agreement, the sub-advisor agrees to assume the obligations of PGI to provide investment advisory services to the portion of the assets of the Fund allocated to it by PGI. For these services, PGI pays the sub-advisor a fee.
PGI or the sub-advisor provides the Board with a recommended investment program. The program must be consistent with the Fund’s investment objective and policies. Within the scope of the approved investment program, the sub-advisor advises the Fund on its investment policy and determines which securities are bought or sold, and in what amounts.
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The Fund summary identified the sub-advisor and portfolio manager. Additional information follows. 
Sub-Advisor:
Principal Real Estate Investors, LLC (“Principal - REI”), 711 High Street, Des Moines, IA 50392, was
founded in 2000 and manages commercial real estate across the spectrum of public and private equity
and debt investments, primarily for institutional investors.
Fund(s):
Global Sustainable Listed Infrastructure
Emily Foshag has been with Principal - REI since 2019. Prior to that, Ms. Foshag was a Portfolio Manager and Research Analyst at Franklin Templeton since 2012. She earned a bachelor’s degree in Accounting from New York University and an M.S. degree with distinction from New York University with a concentration in global energy and environmental policy. Ms. Foshag has earned the right to use the Chartered Financial Analyst designation.
The SAI provides additional information about the portfolio manager’s compensation, other accounts managed by the portfolio manager, and the portfolio manager’s ownership of securities in the Fund.
Participating Affiliate Agreement
In rendering investment advisory services to the Fund, the advisor and sub-advisor may use the resources of one or more of its respective foreign (non-U.S.) affiliates that are not registered under the Investment Advisers Act of 1940, as amended, to provide portfolio management, research, and trading services to the Fund. Under a Participating Affiliate Agreement, and pursuant to applicable guidance from the staff of the SEC, U.S. registered advisors are allowed to use investment advisory and trading resources of such unregistered advisory affiliates subject to the regulatory supervision of the registered advisor. For example, some Principal Fund Complex assets are managed by employees of Principal Global Investors (Europe) Limited pursuant to such an arrangement. Each such affiliate and any of their respective employees who provide services to the Fund are considered under the Participating Affiliate Agreement to be “supervised persons” of the advisor or sub-advisor (as applicable) as that term is defined in the Investment Advisers Act of 1940.
Fees Paid to PGI
The Fund pays PGI a fee for its services, which includes the fee PGI pays to the Sub-Advisor.
The management fee schedule for the Fund, which has not completed a full fiscal year, is as follows: 
Fund
First
$500 million
Next
$500 million
Next
$500 million
Over
$1.5 billion
Global Sustainable Listed Infrastructure
0.75%
0.73%
0.71%
0.70%
Availability of the discussions regarding the basis for the Board’s approval of various management and sub-advisory agreements will be available for the Fund in the Annual Report to Shareholders for the period ending August 31, 2022.
Manager of Managers
The Registrant operates as a Manager of Managers. Under an order received from the SEC (the “order”), the Registrant and PGI may enter into and materially amend agreements with unaffiliated and wholly-owned affiliated sub-advisors (affiliated sub-advisors that are at least 95% owned, directly or indirectly, by PGI or an affiliated person of PGI) without obtaining shareholder approval, including to:
•
hire one or more sub-advisors;
•
change sub-advisors; and
•
reallocate management fees between PGI and sub-advisors.
Although there is no present intent to do so, the Fund may, in the future, rely on current SEC Staff guidance that expands relief under the order to allow PGI to enter into and materially amend agreements with majority-owned affiliated sub-advisors (affiliated sub-advisors that are at least 50% owned, directly or indirectly, by PGI or an affiliated person of PGI), and, further, to all sub-advisors regardless of the degree of affiliation with PGI.
In order to rely on the varying degrees of relief granted by the order and/or the SEC Staff guidance, the Fund must receive approval from its shareholders (or, in the case of a new Fund, the Fund’s sole initial shareholder before the Fund is available to the other purchasers).
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The shareholders of the Fund have approved such Fund’s reliance on the order, as supplemented by the SEC Staff guidance, as follows: 
Fund
Unaffiliated
Sub-Advisors
Wholly-Owned
Affiliated Sub-Advisors
Majority-Owned
Affiliated Sub-Advisors
Any other Sub-Advisors
Regardless of Degree
of Affiliation
Global Sustainable Listed
Infrastructure
X
X
X
X
PGI has ultimate responsibility for the investment performance of the Fund that utilizes a sub-advisor due to its responsibility to oversee sub-advisors and recommend their hiring, termination, and replacement.
In accordance with a separate exemptive order that the Registrant and PGI have obtained from the SEC, the Board may approve a new sub-advisory agreement or a material amendment to an existing sub-advisory agreement at a meeting that is not in person, provided that the Board Members are able to participate in the meeting using a means of communication that allows them to hear each other simultaneously during the meeting and the other conditions in the exemptive order are met.
PRICING OF FUND SHARES
The Fund’s shares are bought and sold at the current share price. The share price of each class of the Fund is calculated each day the New York Stock Exchange (“NYSE”) is open (share prices are not calculated on the days on which the NYSE is closed for trading, generally New Year’s Day, Martin Luther King, Jr. Day, Washington’s Birthday/ Presidents’ Day, Good Friday, Memorial Day, Juneteenth, Independence Day, Labor Day, Thanksgiving Day, and Christmas). The share price is determined as of the close of business of the NYSE (normally 3:00 p.m. Central Time). When an order to buy or sell shares is received, the share price used to fill the order is the next price we calculate after we receive the order (in proper form) at our transaction processing center in Kansas City, Missouri. To process your transaction (purchase, redemption, or exchange) on the day we receive it, we must receive the order (with complete information):
•
on a day that the NYSE is open and
•
before the close of trading on the NYSE (normally 3:00 p.m. Central Time).
Orders received after the close of the NYSE or on days that the NYSE is not open will be processed on the next day that the NYSE is open for normal trading. The Fund will not treat an intraday unscheduled disruption in NYSE trading as a closure of the NYSE and will price shares as of 3:00 p.m. Central Time, if the particular disruption directly affects only the NYSE.
If we receive an application or purchase request for a new mutual fund account or subsequent purchase into an existing account that is accompanied by a check and the application or purchase request does not contain complete information, we may hold the application (and check) for up to two business days while we attempt to obtain the necessary information. If we receive the necessary information within two business days, we will process the order using the next share price calculated. If we do not receive the information within two business days, we will return the application and check to you.
The Fund's share price is calculated by:
•
taking the current market value of the total assets of the Fund
•
subtracting liabilities of the Fund
•
dividing the remainder proportionately into the classes of the Fund
•
subtracting the liability of each class
•
dividing the remainder by the total number of shares outstanding for that class.
With respect to any portion of the Fund’s assets invested in other registered investment companies, that portion of the Fund’s NAV is calculated based on the price (NAV or market, as applicable) of such other registered investment companies.
Notes:
•
If market quotations are not readily available for a security owned by the Fund, its fair value is determined using a policy adopted by the Board. Fair valuation pricing is subjective and creates the possibility that the fair value determined for a security may differ materially from the value that could be realized upon the sale of the security.
•
The Fund’s securities may be traded on foreign securities markets that generally complete trading at various times during the day before the close of the NYSE. Foreign securities and currencies are converted to U.S. dollars using the exchange rate in effect at the close of the NYSE. Securities traded outside of the Western Hemisphere are valued using a fair value policy adopted by the Fund. These fair valuation procedures are intended to discourage shareholders from investing in the Fund for the purpose of engaging in market timing or arbitrage transactions.
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•
The trading of foreign securities generally or in a particular country or countries may not take place on all days the NYSE is open or may trade on days the NYSE is closed. Thus, the value of the foreign securities held by the Fund may change on days when shareholders are unable to purchase or redeem shares.
•
Certain securities issued by companies in emerging markets may have more than one quoted valuation at any point in time. These may be referred to as local price and premium price. The premium price is often a negotiated price that may not consistently represent a price at which a specific transaction can be effected. The Fund has a policy to value such securities at a price at which the Manager expects the securities may be sold.
CONTACT PRINCIPAL FUNDS, INC.
Contact information for Principal Funds, Inc. (“Principal Funds”) is as follows: 
Mailing Addresses:
 
Regular Mail
Overnight Mail
Principal Funds
P.O. Box 219971
Kansas City, MO 64121-9971
Principal Funds
430 W. 7th Street, Ste. 219971
Kansas City, MO 64105-1407
You may speak with a Client Relations Specialist by calling 1-800-222-5852, between 7:00 a.m. and 7:00 p.m. Central Time on any day that the NYSE is open.
To obtain Automated Clearing House (“ACH”) or wire instructions, please contact a Client Relations Specialist.
For additional information about Principal Funds, Inc., go to www.principalfunds.com.
PURCHASE OF FUND SHARES
The Fund offers Institutional Class shares.
The Fund reserves the right to refuse or cancel any purchase orders, including those by exchange, for any reason. For example, the Fund does not intend to permit market timing because short-term or other excessive trading into and out of the Fund may harm performance by disrupting portfolio management strategies and by increasing expenses. Accordingly, the Fund may reject any purchase orders from market timers or investors that, in PGI’s opinion, may be disruptive to the Fund. For these purposes, PGI may consider an investor’s trading history in the Fund or other funds sponsored by Principal Life and accounts under common ownership or control.
PGI may recommend to the Board, and the Board may elect, to close certain Funds or share classes to new investors or to close certain Funds or share classes to new and existing investors.
Principal Funds will not issue certificates for shares.
No salesperson, broker-dealer or other person is authorized to give information or make representations about the Fund other than those contained in this Prospectus. Information or representations not contained in this Prospectus may not be relied upon as having been provided or made by Principal Funds, the Fund, PGI, any sub-advisor, or Principal Funds Distributor, Inc.
Procedures for Opening an Account
Institutional Class Shares
Shares of the Fund are generally purchased through Financial Professionals. There are no sales charges on Institutional Class shares of the Fund.
Shareholder accounts in this share class are generally maintained under an open account system. Under this system, an account is opened and maintained for each investor (generally within an omnibus account, plan level account, or institutional investor). Each investment is confirmed by sending the investor a statement of account showing the current purchase or sale and the total number of shares owned. The statement of account is treated by the Fund as evidence of ownership of Fund shares. Contact your Financial Professional for additional information on how to buy shares.
Verification of Identity
To help the government fight the funding of terrorism and money laundering activities, Federal law requires financial institutions to obtain, verify, and record information that identifies each person who opens an account. When you open an account, we (or your Financial Professional) may ask for your name, address, date of birth, and other information that will allow us (or your Financial Professional) to verify your identity. We (or your Financial Professional) may also ask to see your driver’s license or other identifying documents.
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If concerns arise with verification of your identity, no transactions, other than redemptions, will be permitted while we attempt to reconcile the concerns. If we are unable to verify your identity on a timely basis, we may close your account or take such other action as we deem appropriate.
Principal Funds will not establish accounts with foreign addresses. If an existing shareholder with a U.S. address moves to a foreign location and updates the address on the shareholder’s account, we are unable to process any purchases or exchanges on that account. Principal Funds will not establish accounts that are for the benefit of a business/organization that is illegal under Federal and/or state law (such as a marijuana clinic) or a person who owns or receives income from such an entity or whose source of funds is illegal.
Eligible Purchasers
You must be an eligible purchaser for a particular share class to buy shares of the Fund available in that share class. At the sole discretion of the Distributor, the Fund may broaden or limit the designation of eligible purchasers, permit certain types of investors to open new accounts, impose further restrictions on purchases, or reject any purchase orders, all without prior notice. The Fund's shares may not be offered in every state. Please check with your Financial Professional or our home office for state availability.
Institutional Class Shares
Some eligible purchasers (as listed below) purchase shares through plans or other intermediaries; such plans or intermediaries may impose fees in addition to those charged by the Fund. The services or share classes available to you may vary depending upon how you wish to purchase shares of the Fund. Each investor’s financial considerations are different. You should speak with your Financial Professional to help you decide which share class is best for you. 
Eligible purchasers currently include, but are not limited to:
retirement and pension plans to which Principal Life Insurance Company (“Principal Life”) provides recordkeeping services
separate accounts of Principal Life
Principal Life or any of its subsidiaries or affiliates
any fund distributed by PFD if the fund seeks to achieve its investment objective by investing primarily in shares of mutual funds
clients of Principal Global Investors, LLC
certain employer sponsored retirement plans with plan level omnibus accounts
certain pension plans and employee benefit plans
certain retirement account investment vehicles administered by foreign or domestic pension plans
an investor who buys shares through an omnibus account with certain intermediaries, such as a broker-dealer, bank, or other financial institution,
pursuant to a written agreement between the intermediary and PFD or its affiliate
certain retirement plan clients that have an organization, approved by Principal Life, for purposes of providing plan recordkeeping services
investors investing at least $1,000,000 per fund
sponsors, recordkeepers, or administrators of wrap account, mutual fund asset allocation, or fee-based programs or participants in those
programs
certain institutional investors that provide recordkeeping for retirement plans or other employee benefit plans
institutional clients that Principal Life has approved for purposes of providing plan recordkeeping
institutional investors investing for their own account, including banks, trust companies, financial intermediaries, corporations, endowments and
foundations
collective trust funds, fund of funds or other pooled investment vehicles, and entities acting for the account of a public entity
certain clients of a private banking division pursuant to a written agreement between the bank and PFD or its affiliate
the portfolio manager of any advisor to the fund
certain institutional investors with special arrangements (for example, insurance companies, employee benefit plans, retirement plans, and Section
529 Plans, among others)
retirement plans and IRAs investing through a retirement marketplace enabled by state legislation
Minimum Investments
Institutional Class Shares
There are no minimum initial or subsequent investment requirements for an investor who otherwise qualifies as an eligible purchaser.
Payment
Institutional Class Shares
Payments are generally to be made through your plan or intermediary. We reserve the right to refuse any payment that we feel presents a fraud or money laundering risk. Examples of the types of payments we will not accept are cash, starter checks, money orders, travelers’ checks, credit card checks, and foreign checks.
For Institutional Class shareholders investing through a retirement marketplace enabled by state legislation, please contact Principal Funds by calling 1-800-222-5852, between 7:00 a.m. and 7:00 p.m. Central Time on any day that the NYSE is open.
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Redemption of Fund Shares
Under normal circumstances, you may redeem shares of any class of the Funds at any time. There is no fee for any redemption. The Board has determined that it is not necessary to impose a fee upon the redemption of Fund shares, because the Fund has adopted transfer restrictions as described in EXCHANGE OF FUND SHARES.
The shares you redeem will have the NAV per share that is next computed after the Fund receives and accepts your redemption order in proper and complete form. The amount you receive will be reduced by any applicable CDSC except as noted below; see CHOOSING A SHARE CLASS AND THE COSTS OF INVESTING—One-Time Fee—Contingent Deferred Sales Charge (“CDSC”)—CDSC Waiver. Your redemption proceeds will generally be sent on the next business day (a day when the NYSE is open for normal business) following the date on which your request is received and accepted in proper and complete form. Although you can redeem your shares at any time, if you purchased shares by check or ACH and subsequently request a redemption of those shares, your redemption proceeds will generally be delayed for seven calendar days after the purchase to allow a sufficient period of time to ensure your recent payment has been cleared by the relevant bank. To redeem shares purchased by check or ACH within the previous seven days, the Fund requires redemption requests with respect to those shares to be submitted in writing or by telephone, unless you contact the Fund and make an alternate arrangement.
Under unusual circumstances, Principal Funds may suspend redemptions, or postpone payments for more than seven days, as permitted by federal securities law.
Under normal circumstances, the Fund expects to meet redemption requests through holdings of cash, the sale of investments held in cash equivalents, and/or by selling liquid index futures or other instruments used for cash management purposes. In situations in which such holdings are not sufficient to meet redemption requests, the Fund will typically borrow money through the Fund’s interfund lending facility or through a bank line-of-credit. No Fund can borrow under the bank line-of-credit while also a lender under the interfund lending facility. Fund may also choose to sell portfolio assets for the purpose of meeting such requests. The Fund further reserves the right to distribute “in kind” securities from the Fund’s portfolio in lieu (in whole or in part) of cash under certain circumstances, including under stressed market conditions.
The agreement for the above-mentioned line of credit is with The Bank of New York Mellon.
Institutional Shares - Systematic Withdrawal Plans
You may set up a systematic withdrawal plan on a monthly, quarterly, semiannual, or annual basis to sell enough shares to provide a fixed amount of money ($100 minimum amount; the required minimum is waived to the extent necessary to meet the required minimum distribution as defined by the Internal Revenue Code).
You can set up a systematic withdrawal plan by:
•
completing the applicable section of the application,
•
sending us your written instructions,
•
completing a Systematic Withdrawal Plan Request form, or
•
calling us if you have telephone privileges on the account (telephone privileges may not be available for all types of accounts).
Your systematic withdrawal plan continues until:
•
you instruct us to stop or
•
your Fund account balance is zero.
When you set up the withdrawal plan, you select which day you want the sale made (if none is selected, the sale will be made on the 15th of the month). If the selected date is not a trading day, the sale will take place on the preceding trading day (if that day falls in the month or year before your selected date, the transaction will take place on the next trading day after your selected date). If telephone privileges apply to the account, you may change the date or amount by telephoning us. Sales made under your systematic withdrawal plan will reduce and may eventually exhaust your account. The Fund from which the systematic withdrawal is made makes no recommendation as to either the number of shares or the fixed amount that you withdraw.
Institutional Class Shares
You may redeem shares of the Fund in any of the following ways:
Through an Employer Sponsored Retirement Plan Administrator or Record-Keeper
If you own Fund shares in an eligible retirement or employee benefit plan, you must sell your shares through the plan’s administrator or record-keeper.
Through your Financial Professional
If your Fund shares are held for you in nominee form, you must sell those shares through your intermediary or dealer.
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By Mail
To sell shares by mail, you must:
•
Send a letter or our distribution form which is signed by an owner of the account,
•
Specify the account number, and
•
Specify the number of shares or the dollar amount to be sold.
If you send a letter rather than our distribution form, the letter must be in a form acceptable to the Fund.
By Telephone
To sell shares by telephone:
•
Telephone privileges must apply to the account from which the shares are sold.
•
A shareholder or the shareholder’s Financial Professional may request to sell shares by telephone.
•
A maximum amount (listed below) of redemption requests will be permitted per day per account, as the combined amount from all funds, provided the proceeds are to be sent to a previously authorized U.S. bank account that must not have been added or changed within the last 15 days:
•
$10,000,000 for Institutional Class.
•
A maximum of $500,000 of redemption requests will be permitted per day, as the combined amount from all funds, provided the proceeds are to be sent by check through the mail to the address on the account and such address must not have changed within the last 15 days.
•
If our telephone lines are busy, you may need to send in a written sell order.
Distributions in Kind
Payment for shares of the Fund tendered for redemption is ordinarily made by check. However, the Fund may determine that it would be detrimental to the remaining shareholders of the Fund to make payment of a redemption order wholly or partly in cash. Under certain circumstances, therefore, the Fund may pay the redemption proceeds in whole or in part by a distribution of “in kind” of securities from the Fund’s portfolio in lieu of cash. If the Fund pays the redemption proceeds in kind, the redeeming shareholder might incur brokerage or other costs in selling the securities for cash. In addition, the securities received will be subject to market risk until sold. Typically, such in kind redemptions would be distributed pro rata. The Fund will value securities used to pay redemptions in kind using the same method the Registrant uses to value its portfolio securities as described in this Prospectus.
EXCHANGE OF FUND SHARES
An exchange between Funds is a redemption of shares of one Fund and a concurrent purchase of shares in another Fund with the redemption proceeds. All exchanges completed on the same day are considered a single exchange for purposes of the exchange limitations described below. To prevent excessive exchanges, and under other circumstances where the Board or PGI believes it is in the best interests of the Fund, the Fund reserves the right to revise or terminate this exchange privilege, limit the amount or further limit the number of exchanges, reject any exchange or close an account.
Institutional Class Shares
A shareholder, which may include a beneficial owner of shares held in nominee name or a participant in a participant-directed employee benefit plan, may exchange Fund shares under certain circumstances. In addition to any restrictions an intermediary (which may include, without limitation, an employee retirement plan or other employee benefit plan, plan administrator, plan record keeper, or managed account provider) imposes, Fund shares may be exchanged, without charge, for shares of the same share class of any other Fund of the Principal Funds, provided that:
•
the shareholder has not exchanged shares of the Fund within 30 days preceding the exchange, unless the shareholder is exchanging into the Money Market Fund,
•
the share class of such other Fund is available through the intermediary,
•
the share class of such other Fund is available in the shareholder’s state of residence, and
•
with respect to shares purchased through an intermediary that is willing and able to impose the 30-day exchange or repurchase restriction described below, the shareholder has not exchanged shares of the Fund within 30 days preceding the exchange, unless the shareholder is exchanging into the Money Market Fund.
With respect to shares purchased through an intermediary that is willing and able to impose a 30-day exchange or repurchase restriction, an order to purchase shares of any Fund, except shares of the Money Market Fund, will be rejected if the shareholder redeemed shares from that Fund within the preceding 30-day period. The 30-day exchange or purchase restriction does not apply to exchanges or purchases made on a scheduled basis such as scheduled periodic portfolio rebalancing transactions or to transactions by managers of funds of funds in shares of the underlying Funds.
26
If Fund shares are purchased through an intermediary that is unable or unwilling to impose the 30-day exchange or repurchase restriction described above, Fund management may waive this restriction based on:
•
exchange and repurchase limitations that the intermediary is able to impose if, in management’s judgment, such limitations are reasonably likely to prevent excessive trading in Fund shares; or
•
the implementation of other transaction monitoring management believes is reasonably likely to identify and prevent excessive trading in Fund shares.
The Fund's transfer agent employs transaction monitoring that management believes is reasonably likely to identify and prevent excessive trading in Fund shares. The 30-day exchange or repurchase restriction described above is not imposed with respect to shares held directly with the Fund's transfer agent. However, such shares may be purchased through an intermediary that imposes such an exchange or repurchase restriction.
DIVIDENDS AND DISTRIBUTIONS
Dividends are based on estimates of income, expenses, and shareholder activity for the Fund. Actual income, expenses, and shareholder activity may differ from estimates; consequently, differences, if any, will be included in the calculation of subsequent dividends. Each Fund pays its net investment income to record date shareholders; this record date is the business day before the payment date. The Fund pays its net investment income annually in December.
For more details on the payment schedule, go to: www.principalfunds.com/taxcenter.
Net realized capital gains, if any, are distributed annually in December. Payments are made to shareholders of record on the business day before the payable date. Capital gains may be taxable at different rates, depending on the length of time that the Fund holds its assets.
Dividend and capital gains distributions will be reinvested, without a sales charge, in shares of the Fund from which the distribution is paid; however, you may authorize (on your application or at a later time) the distribution to be:
•
invested in shares of another of the Principal Funds without a sales charge (distributions of the Fund may be directed only to one receiving Fund); or
•
paid in cash, if the amount is $10 or more.
Generally, for federal income tax purposes, Fund distributions are taxable as ordinary income, except that any distributions of long-term capital gains will be taxed as such, regardless of how long Fund shares have been held. Special tax rules apply to Fund distributions to Individual Retirement Accounts and other retirement plans. A tax advisor should be consulted to determine the suitability of the Fund as an investment by such a plan and the tax treatment of distributions by the Fund. A tax advisor can also provide information on the potential impact of possible foreign, state, and local taxes. The Fund’s investments in foreign securities may be subject to foreign withholding taxes. In that case, the Fund’s yield on those securities would be decreased.
To the extent that distributions the Fund pays are derived from a source other than net income (such as a return of capital), you will receive a notice disclosing the source of such distributions. Furthermore, such notice will be posted monthly on our website at www.principalfunds.com/sources-of-distribution. You may request a copy of all such notices, free of charge, by telephoning 1-800-222-5852. The amounts and sources of distributions included in such notices are estimates only and you should not rely upon them for purposes of reporting income taxes. The Fund will send shareholders a Form 1099-DIV for the calendar year that will tell shareholders how to report these distributions for federal income tax purposes.
The Fund’s payment of income dividends and capital gains has the effect of reducing the share price by the amount of the payment. Distributions from the Fund, whether received in cash or reinvested in additional shares, may be subject to federal (and state) income tax. For these reasons, buying shares of the Fund shortly before it makes a distribution may be disadvantageous to you.
27
FREQUENT PURCHASES AND REDEMPTIONS
The Fund is not designed for, and do not knowingly accommodate, frequent purchases and redemptions of Fund shares. If you intend to trade frequently and/or use market timing investment strategies, you should not purchase the Fund.
Frequent purchases and redemptions pose a risk to the Fund because they may:
•
Disrupt the management of the Fund by:
•
forcing the Fund to hold short-term (liquid) assets rather than investing for long-term growth, which results in lost investment opportunities for the Fund; and
•
causing unplanned portfolio turnover;
•
Hurt the portfolio performance of the Fund; and
•
Increase expenses of the Fund due to:
•
increased broker-dealer commissions and
•
increased recordkeeping and related costs.
Certain funds may be at greater risk of harm due to frequent purchases and redemptions. For example, those funds that invest in foreign securities may appeal to investors attempting to take advantage of time-zone arbitrage. The Fund has adopted procedures to “fair value” foreign securities owned by the Fund each day to discourage these market timing transactions in shares of the Fund.
The Board has also adopted policies and procedures with respect to frequent purchases and redemptions of shares of the Fund. The Fund monitors shareholder trading activity to identify and take action against abuses. When we do identify abusive trading, we will apply our policies and procedures in a fair and uniform manner. While our policies and procedures are designed to identify and protect against abusive trading practices, there can be no certainty that we will identify and prevent abusive trading in all instances. If we are not able to identify such excessive trading practices, the Fund and its shareholders may be harmed. The harm of undetected excessive trading in shares of the underlying funds in which the funds of funds invest could flow through to the funds of funds as they would for any fund shareholder. If we, or the Fund, deem abusive trading practices to be occurring, we will take action that may include, but is not limited to:
•
Rejecting exchange instructions from the shareholder or other person authorized by the shareholder to direct exchanges;
•
Restricting submission of exchange requests by, for example, allowing exchange requests to be submitted by 1st class U.S. mail only and disallowing requests made by facsimile, overnight courier, telephone or via the internet;
•
Limiting the number of exchanges during a year; and
•
Taking such other action as directed by the Fund.
The Fund has reserved the right to accept or reject, without prior written notice, any exchange requests. In some instances, an exchange may be completed before a determination of abusive trading. In those instances, we will reverse the exchange and return the account holdings to the positions held before the exchange. We will give the shareholder written notice in this instance.
Institutional Class Shares
In addition to taking any of the foregoing actions, if we, or the Fund, deem abusive trading practices to be occurring, we may require a holding period of a minimum of 30 days before permitting exchanges among the Fund where there is evidence of at least one round-trip exchange (exchange or redemption of shares that were purchased within 30 days of the exchange/redemption).
The Fund has adopted an exchange frequency restriction for these classes, described above in “Exchange of Fund Shares” to limit excessive trading in fund shares.
TAX CONSIDERATIONS
It is a policy of the Fund to make distributions of substantially all of its respective investment income and any net realized capital gains. Shareholders are responsible for federal income tax (and any other taxes, including state and local income taxes, if applicable) on dividends and capital gains distributions whether such dividends or distributions are paid in cash or are reinvested in additional shares. Special tax rules apply to distributions from IRAs and other retirement accounts. You should consult a tax advisor to determine the suitability of the Fund as an investment by such a plan and the tax treatment of Fund distributions.
Generally, dividends paid by the Fund from interest, dividends, or net short-term capital gains will be taxed as ordinary income. Distributions properly designated by the Fund as deriving from net gains on securities held for more than one year are taxable as such (generally at a 15% tax rate for individuals and taxable trusts, some individuals and taxable trusts will
28
be subject to a 20% tax rate), regardless of how long you have held your shares. Distributions of investment income properly designated by the Fund as derived from “qualified dividend income” will be taxed at the rates applicable to long-term capital gains. Some high-income individuals and taxable trusts will be subject to a Medicare 3.8% tax on unearned net investment income.
A return of capital is a non-dividend distribution that is not paid out of the earnings and profits of the Fund. A return of capital distribution is generally not taxed until your investment in the Fund has been recovered. A return of capital reduces your cost basis in the Fund which may increase your tax liability upon the sale of your Fund shares or upon subsequent distributions in respect of your investment in the Fund.
Because of tax law requirements, you must provide the Fund with an accurate and certified taxpayer identification number (for individuals, generally a Social Security number) to avoid “back-up” withholding, which is imposed at a rate of 24%. The Fund is required in certain cases to withhold and remit to the U.S. Treasury 24% of ordinary income dividends and capital gain dividends, and the proceeds of redemption of shares, paid to any shareholder who has provided either an incorrect tax identification number or no number at all, who is subject to backup withholding by the Internal Revenue Service for failure to report the receipt of interest or dividend income properly, or who has failed to certify to the Fund that it is not subject to backup withholding or that it is a corporation or other “exempt recipient.”
A shareholder recognizes gain or loss on the sale or redemption of shares of the Fund in an amount equal to the difference between the proceeds of the sales or redemption and the shareholder’s adjusted tax basis in the shares. All or a portion of any loss so recognized may be disallowed if the shareholder purchases other shares of the Fund within 30 days before or after the sale or redemption. In general, any gain or loss arising from (or treated as arising from) the sale or redemption of shares of the Fund is considered capital gain or loss (long-term capital gain or loss if the shares were held for longer than one year). However, any capital loss arising from the sales or redemption of shares held for six months or less is disallowed to the extent of the amount of exempt-interest dividends received on such shares and (to the extent not disallowed) is treated as a long-term capital loss to the extent of the amount of capital gain dividends received on such shares. Capital losses in any year are deductible only to the extent of capital gains plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income under current rules.
If a shareholder incurs a sales charge in acquiring shares of the Fund, disposes of such shares less than 91 days after they are acquired, and subsequently acquires shares of the Fund or another fund at a reduced sales charge pursuant to a right to reinvest at such reduced sales charge acquired in connection with the acquisition of the shares disposed of, then the sales charge on the shares disposed of (to the extent of the reduction in the sales charge on the shares subsequently acquired) shall not be taken into account in determining gain or loss on the shares disposed of but shall be treated as incurred on the acquisition of the shares subsequently acquired.
Any gain resulting from the redemption or exchange of your shares will generally also be subject to tax. For shares acquired after January 1, 2012, you will need to select a cost basis method to be used to calculate your reported gains and losses prior to or at the time of any redemption or exchange. If you do not select a method, the Fund's default method of average cost will be applied to the transactions. The cost basis method used on your account could significantly affect your taxes due and should be carefully considered. You should consult your tax advisor for more information on your own tax situation, including possible foreign, state, and local taxes.
Investments by the Fund in certain debt instruments or derivatives may cause the Fund to recognize taxable income in excess of the cash generated by such instruments. As a result, the Fund could be required at times to liquidate other investments to satisfy its distribution requirements under the Internal Revenue Code. The Fund’s use of derivatives will also affect the amount, timing, and character of the Fund’s distributions.
Under U.S. Treasury Regulations non-corporate Fund shareholders meeting certain holding period requirements may be able to deduct up to 20 percent of qualified REIT dividends passed through and reported to them by the Fund. The 20 percent deduction applies to qualified REIT dividends distributed during 2018-2025 tax years.
Early in each calendar year, the Fund will notify you of the amount and tax status of distributions paid to you for the preceding year.
A dividend or distribution made shortly after the purchase of shares of the Fund by a shareholder, although in effect a return of capital to that shareholder, would be taxable to that shareholder as described above, subject to a holding period requirement for dividends designated as qualified dividend income.
The information contained in this Prospectus is not a complete description of the federal, state, local, or foreign tax consequences of investing in the Fund. You should consult your tax advisor before investing in the Fund.
29
Statements
You will receive quarterly statements for the Fund you own, or if you purchase through a third-party intermediary, on a periodic basis established by such intermediary. Such statements provide the number and value of shares you own, transactions during the period, dividends declared or paid, and other information. The year-end statement includes information for all transactions that took place during the year. Please review your statement as soon as you receive it. Keep your statements, as you may need them for tax reporting purposes.
Generally, each time you buy, sell, or exchange shares in Principal Funds, you will receive a confirmation shortly thereafter. It summarizes all the key information - what you bought or sold, the amount of the transaction, and other important information.
Certain purchases and sales are only included on your quarterly statement. These include accounts:
•
when the only activity during the quarter are:
•
purchases of shares from reinvested dividends and/or capital gains,
•
purchases under an Automatic Investment Plan,
•
sales under a Systematic Withdrawal Plan,
•
purchases or sales under an Automatic Exchange Election, or
•
conversion of Class C shares into Class A shares
•
used to fund certain individual retirement or individual pension plans, or
•
established under a payroll deduction plan.
If you need information about your account(s) at other times, you may call us or access your account on the internet.
Choosing a Share Class and the Costs of Investing
Before you invest, you should understand the characteristics of each share class so you can be sure to choose the class that is right for you. Fund and share class selections must be made at the time of purchase.
Classes differ regarding the costs associated with buying, redeeming, and holding shares. Which class is best for you depends upon:
•
the dollar amount you are investing,
•
the amount of time you plan to hold the investment,
•
any plans to make additional investments in the Principal Funds, and
•
eligibility to purchase the class.
The following sections describe the fees and expenses you may pay if you invest in the Fund. You may pay both one-time fees and ongoing fees. Fees and expenses are important because they lower your earnings. Before investing, you should be sure you understand the nature of different costs. Your Financial Professional can help you with this process and can help you choose the share class and Fund or Funds that are appropriate for you based upon your investment objective, risk tolerance and other factors. Financial Professionals may receive different compensation depending upon which class of shares you purchase.
Fees and Expenses of the Fund
Institutional Class Shares
Fund shares are sold without a front-end sales charge and do not have a contingent deferred sales charge. There is no sales charge on Fund shares purchased with reinvested dividends or other distributions.
However, if you purchase Institutional Class shares through certain programs offered by certain financial intermediaries, you may be required to pay a commission and/or other forms of compensation to the broker, or to your Financial Professional or other financial intermediary. Shares of the Fund are usually available in other share classes that have different fees and expenses.
Ongoing Fees
The ongoing fees are the operating expenses of the Fund, which are described in the “Annual Fund Operating Expenses” table included in the Summary for the Fund. These expenses reduce the value of each share you own. Because they are ongoing, they increase the cost of investing in the Fund.
30
The Fund pays ongoing fees to PGI and others who provide services to the Fund. These fees include:
•
Management Fee — Through the Management Agreement with the Registrant, PGI has agreed to provide investment advisory services and corporate administrative services to the Funds.
•
Other Expenses — A portion of expenses that are allocated to all classes of the Funds. Other expenses include interest expense, expenses related to fund investments, and index licensing fees. Additional examples of other expenses include:
•
Transfer Agent Fee — Principal Shareholder Services, Inc. (“PSS”) has entered into a Transfer Agency Agreement with the Fund under which PSS provides transfer agent services. For Institutional Class shares, these services are currently provided at cost.
•
Certain Operating Expenses — Expenses of registering and qualifying shares for sale, the cost of producing and distributing reports and prospectuses to shareholders of these classes, the cost of shareholder meetings held solely for shareholders of these classes, and other operating expenses of the Fund.
•
Acquired Fund Fees and Expenses — Fees and expenses charged by other investment companies in which a Fund invests a portion of its assets.
DISTRIBUTION PLANS AND INTERMEDIARY COMPENSATION
Distribution Fees
Principal Funds Distributor, Inc. (“PFD” or the “Distributor”) is the distributor for the shares of Principal Funds, Inc. PFD is an affiliate of Principal Life Insurance Company, a subsidiary of Principal Financial Group, Inc., and a member of Principal®.
Commissions, Finder’s Fees, and Ongoing Payments
See “Choosing a Share Class and The Costs of Investing” for more details.
Additional Payments to Intermediaries
Shares of the Fund are sold primarily through intermediaries, such as brokers, dealers, investment advisors, banks, trust companies, pension plan consultants, retirement plan administrators, and insurance companies.
Institutional Class Shares
In addition to payments pursuant to applicable 12b-1 plans, PGI or its affiliates enter into agreements with some intermediaries pursuant to which the intermediaries receive payments for providing services relating to Fund shares. Examples of such services are administrative, networking, recordkeeping, sub-transfer agency and/or shareholder services. For shares, such compensation is generally paid out of the Service Fees and Administrative Service Fees that are disclosed in this prospectus as Other Expenses. For Institutional Class shares, in some situations the Fund will reimburse PGI or its affiliates for making such payments; in others, the Fund may make such payments directly to the intermediaries.
PGI or its affiliates also pay, without reimbursement from the Fund, compensation from their own resources to certain intermediaries that support the distribution of shares of the Fund or provide services to Fund shareholders.
For Institutional Class shares, such payments vary, but generally do not exceed: (a) 0.10% of the current year’s sales of Fund shares by that intermediary or (b) 0.10% of the average net asset value of Fund shares held by clients of such intermediary.
Principal Life Insurance Company is one such intermediary that provides services relating to Fund shares held in employee benefit plans, and it is typically paid all of the Service Fees and Administrative Service Fees pertaining to such plans, and it also is paid other compensation described in this section as payable to intermediaries.
Institutional Class Shares
The intermediary may pay to its Financial Professionals some or all of the amounts the Distributor and its affiliates pay to the intermediary. The amounts paid to intermediaries vary by share class and by Fund.
In some cases, the Distributor and its affiliates will provide payments or reimbursements in connection with the costs of conferences, educational seminars, training and marketing efforts related to the Fund. Such activities may be sponsored by intermediaries or the Distributor. The costs associated with such activities may include travel, lodging, entertainment, and meals. In some cases, the Distributor will also provide payment or reimbursement for expenses associated with transactions (“ticket”) charges and general marketing expenses.
For more information, see the Statement of Additional Information (SAI).
31
The payments described in this prospectus may create a conflict of interest by influencing your Financial Professional or your intermediary to recommend the Fund over another investment, or to recommend one share class of the Fund over another share class. Ask your Financial Professional or visit your intermediary’s website for more information about the total amounts paid to them by PGI and its affiliates, and by sponsors of other investment companies your Financial Professional may recommend to you.
Your intermediary may charge you additional fees other than those disclosed in this prospectus. Ask your Financial Professional about any fees and commissions they charge.
FUND ACCOUNT INFORMATION
Orders Placed by Intermediaries
Principal Funds may have an agreement with your intermediary, such as a broker-dealer, third party administrator, or trust company, that permits the intermediary to receive orders on behalf of the Fund until 3 p.m. Central Time. The agreement may include authorization for your intermediary to designate other intermediaries (“sub-designees”) to receive orders on behalf of the Fund on the same terms that apply to the intermediary. In such cases, if your intermediary or a sub-designee receives your order in correct form by 3 p.m. Central Time, transmits it to the Fund, and pays for it in accordance with the agreement, the Fund will price the order at the next net asset value per share it computes after your intermediary or sub-designee received your order.
The time at which the Fund prices orders and the time until which the Fund or your intermediary or sub-designee will accept orders may change in the case of an emergency or if the NYSE closes at a time other than 3 p.m. Central Time.
Transactions through Financial Institutions/Professionals
Financial institutions and dealers may charge their customers a processing or service fee in connection with the purchase or redemption of Fund shares. The amount and applicability of such a fee is determined and disclosed to its customers by each individual financial institution or dealer. Processing or service fees typically are fixed, nominal dollar amounts and are in addition to the sales and other charges described in this prospectus and the SAI.
Your financial institution or dealer will provide you with specific information about any processing or service fees you will be charged.
Telephone and Internet Instructions
The Fund reserves the right to refuse telephone and/or internet instructions. You are liable for a loss resulting from a fraudulent telephone or internet instruction that we reasonably believe is genuine. We use reasonable procedures to assure instructions are genuine. If the procedures are not followed, we may be liable for loss due to unauthorized or fraudulent transactions. The procedures include: recording all telephone instructions, requiring the use of a password (Personal Identification Number) for internet instructions, requesting personal identification information, and sending written confirmation to the shareholder’s address of record.
If you elect telephone privileges, instructions regarding your account(s) may be given to us via the telephone or internet. Your instructions:
•
may be given by calling us;
•
may be given via our website for certain transactions (for security purposes you need a user name and password to use any of the internet services, including viewing your account information online. If you don’t have a user name or password, you may obtain one at our website); or
•
may be given to your Financial Professional (a person employed by or affiliated with broker/dealer firms) who will in turn contact us with your instructions.
Instructions received from one owner are binding on all owners. In the case of an account owned by a corporation or trust, instructions received from an authorized person are binding on the corporation/trust unless we have a written notification requiring that more than one authorized person execute written instructions.
32
Signature Guarantees
Certain transactions require that your signature be guaranteed. A signature guarantee may help protect your account against fraud. If required, the signature(s) must be guaranteed by a commercial bank, trust company, credit union, savings and loan, national securities exchange member, or brokerage firm that participates in a Medallion program recognized by the Securities Transfer Association. A signature guaranteed by a notary public or savings bank is not acceptable. We reserve the right to require a signature guarantee on any transaction. 
Signature guarantees are required in any of the following circumstances:
if you sell more than $500,000 (in the aggregate) from the Funds
if you sell more than $10,000,000 if you have the proceeds sent electronically to a previously authorized U.S. bank account
if a sales proceeds check is payable to a party other than the account shareholder(s)
to change ownership of an account
to add telephone transaction services and/or wire or ACH redemption privileges to an existing account if there is not a common owner between the
bank account and mutual fund account
to change bank account information designated under an existing telephone withdrawal plan if there is not a common owner between the bank
account and mutual fund account
to wire or ACH to a shareholder’s U.S. bank account not previously authorized or when the request does not include a voided check or deposit slip
indicating a common owner between the bank account and mutual fund account
to exchange or transfer among accounts with different ownership
to have a sales proceeds check mailed to an address other than the address on the account or to the address on the account if it has been
changed within the preceding 15 days
Reservation of Rights
Principal Funds reserves the right to amend or terminate the special plans described in this prospectus. Shareholders will be notified of any such action to the extent required by law.
Such plans include, for example, automatic investment, systematic withdrawal, waiver of Fund minimums for certain accounts and waiver or reduction of the sales charge or contingent deferred sales charge for certain purchasers.
Householding
To avoid sending duplicate copies of materials to households, mailings for accounts held by members of your household may be combined so that only one copy of each prospectus, annual and semiannual reports will be mailed. In addition, your account information may be included with other householded accounts on the same quarterly and annual statements. The consolidation of these mailings, called householding, benefits Principal Funds and our shareholders through reduced printing and mailing expenses. If you prefer to receive multiple copies of these materials, you may write or call Principal Funds. Householding will be stopped within thirty (30) days after we receive your request.
Multiple Translations
This prospectus may be translated into other languages. In the event of any inconsistencies or ambiguity as to the meaning of any word or phrase in a translation, the English text will prevail.
Financial Statements
Shareholders will receive annual financial statements for the Fund, audited by the Fund's independent registered public accounting firm. Shareholders will also receive a semi-annual financial statement that is unaudited.
33
APPENDIX A—DESCRIPTION OF BOND RATINGS
Moody’s Investors Service, Inc. Rating Definitions:
Long-Term Obligation Ratings
Ratings assigned on Moody’s global long-term obligation rating scales are forward-looking opinions of the relative credit risk of financial obligations issued by non-financial corporates, financial institutions, structured finance vehicles, project finance vehicles, and public sector entities. Long-term ratings are assigned to issuers or obligations with an original maturity of one year or more and reflect both on the likelihood of a default or impairment on contractual financial obligations and the expected financial loss suffered in the event of default or impairment.1
1
For certain structured finance, preferred stock and hybrid securities in which payment default events are either not defined or do not match investor’s expectations for timely payment, the ratings reflect the likelihood of impairment and the expected financial loss in the event of impairment. 
Aaa:
Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
Aa:
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
A:
Obligations rated A are considered upper-medium grade and are subject to low credit risk.
Baa:
Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may
possess certain speculative characteristics.
Ba:
Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
B:
Obligations rated B are considered speculative and are subject to high credit risk.
Caa:
Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.
Ca:
Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of
recovery of principal and interest.
C:
Obligations rated C are the lowest rated class of bonds and are typically in default, with little prospect for
recovery of principal or interest.
NOTE:
Moody’s appends numerical modifiers, 1, 2, and 3 to each generic rating classification from Aa through Caa.
The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category, the modifier 2
indicates a mid-range ranking, and the modifier 3 indicates a ranking in the lower end of that generic rating
category. Additionally, a “(hyb)” indicator is appended to all ratings of hybrid securities issued by banks, issuers,
financial companies, and securities firms.*
*
By their terms, hybrid securities allow for the omission of scheduled dividends, interest, or principal payments, which can potentially result in impairment if such an omission occurs. Hybrid securities may also be subject to contractually allowable write-downs of principal that could result in impairment. Together the hybrid indicator, the long-term obligation rating assigned to a hybrid security is an expression of the relative credit risk associated with that security.
SHORT-TERM NOTES: Short-term ratings are assigned to obligations with an original maturity of thirteen months or less and reflect both on the likelihood of a default or impairment on contractual financial obligations and the expected financial loss suffered in the event of default. Moody’s employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a superior ability to repay short-term debt obligations.
Issuers rated Prime-2 (or related supporting institutions) have a strong ability to repay short-term debt obligations.
Issuers rated Prime-3 (or related supporting institutions) have an acceptable ability to repay short-term obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
US MUNICIPAL SHORT-TERM DEBT: The Municipal Investment Grade (MIG) scale is used to rate US municipal bonds of up to five years maturity. MIG ratings are divided into three levels - MIG 1 through MIG 3 - while speculative grade short-term obligations are designated SG.
MIG 1 denotes superior credit quality, afforded excellent protection from highly reliable liquidity support, or demonstrated broad-based access to the market for refinancing.
MIG 2 denotes strong credit quality with ample margins of protection, although not as large as in the preceding group.
A-1
MIG 3 notes are of acceptable credit quality. Liquidity and cash-flow protection may be narrow and market access for refinancing is likely to be less well-established.
SG denotes speculative-grade credit quality and may lack sufficient margins of protection.
Description of S&P Global Ratings’ Credit Rating Definitions:
S&P Global’s credit rating, both long-term and short-term, is a forward-looking opinion of the creditworthiness of an obligor with respect to a specific obligation. This assessment takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation.
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment as to market price or suitability for a particular investor.
The ratings are statements of opinion as of the date they are expressed furnished by the issuer or obtained by S&P Global Ratings from other sources S&P Global Ratings considers reliable. S&P Global Ratings does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
•
Likelihood of payment - capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation;
•
Nature of and provisions of the financial obligation;
•
Protection afforded by, and relative position of, the financial obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditor’s rights.
LONG-TERM CREDIT RATINGS: 
AAA:
Obligations rated ‘AAA’ have the highest rating assigned by S&P Global Ratings. The obligor’s capacity to
meet its financial commitment on the obligation is extremely strong.
AA:
Obligations rated ‘AA’ differ from the highest-rated issues only in small degree. The obligor’s capacity to
meet its financial commitment on the obligation is very strong.
A:
Obligations rated ‘A’ have a strong capacity to meet financial commitment on the obligation although they
are somewhat more susceptible to the adverse effects of changes in circumstances and economic
conditions than obligations in higher-rated categories.
BBB:
Obligations rated ‘BBB’ exhibit adequate protection parameters; however, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to meet financial commitment on
the obligation.
BB, B, CCC,
CC and C:
Obligations rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded, on balance, as having significant speculative
characteristics. ‘BB’ indicates the lowest degree of speculation and ‘C’ the highest degree of speculation.
While such obligations will likely have some quality and protective characteristics, these may be
outweighed by large uncertainties or major risk exposures to adverse conditions.
BB:
Obligations rated ‘BB’ are less vulnerable to nonpayment than other speculative issues. However it faces
major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which
could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.
B:
Obligations rated ‘B’ are more vulnerable to nonpayment than ‘BB’ but the obligor currently has the
capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair this capacity.
CCC:
Obligations rated ‘CCC’ are currently vulnerable to nonpayment and is dependent upon favorable
business, financial, and economic conditions for the obligor to meet its financial commitment on the
obligation. If adverse business, financial, or economic conditions occur, the obligor is not likely to have the
capacity to meet its financial commitment on the obligation.
CC:
Obligations rated ‘CC’ are currently highly vulnerable to nonpayment. The ‘CC’ rating is used when a
default has not yet occurred but S&P Global Ratings expects default to be a virtual certainty, regardless of
anticipated time to default.
C:
The rating ‘C’ is highly vulnerable to nonpayment, the obligation is expected to have lower relative seniority
or lower ultimate recovery compared to higher rated obligations.
A-2
D:
Obligations rated ‘D’ are in default, or in breach of an imputed promise. For non-hybrid capital instruments,
the ‘D’ rating category is used when payments on an obligation are not made on the date due, unless S&P
Global Ratings believes that such payments will be made within five business days in the absence of a
stated grace period or within the earlier of the stated grace period or 30 calendar days. The rating will also
be used upon filing for bankruptcy petition or the taking of similar action and where default is a virtual
certainty. If an obligation is subject to a distressed exchange offer the rating is lowered to ‘D’.
Plus (+) or Minus (-): The ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. 
NR:
Indicates that no rating has been requested, that there is insufficient information on which to base a rating or
that S&P Global Ratings does not rate a particular type of obligation as a matter of policy.
SHORT-TERM CREDIT RATINGS: Ratings are graded into four categories, ranging from ‘A-1’ for the highest quality obligations to ‘D’ for the lowest. 
A-1:
This is the highest category. The obligor’s capacity to meet its financial commitment on the obligation is strong.
Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor’s
capacity to meet its financial commitment on these obligations is extremely strong.
A-2:
Issues carrying this designation are somewhat more susceptible to the adverse effects of the changes in
circumstances and economic conditions than obligations in higher rating categories. However, the obligor’s
capacity to meet its financial commitment on the obligation is satisfactory.
A-3:
Issues carrying this designation exhibit adequate capacity to meet their financial obligations. However, adverse
economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to
meet it financial commitment on the obligation.
B:
Issues rated ‘B’ are regarded as vulnerable and have significant speculative characteristics. The obligor has
capacity to meet financial commitments; however, it faces major ongoing uncertainties which could lead to
obligor’s inadequate capacity to meet its financial obligations.
C:
This rating is assigned to short-term debt obligations that are currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions to meet its financial commitment on the
obligation.
D:
This rating indicates that the issue is either in default or in breach of an imputed promise. For non-hybrid capital
instruments, the ‘D’ rating category is used when payments on an obligation are not made on the date due,
unless S&P Global Ratings believes that such payments will be made within five business days in the absence
of a stated grace period or within the earlier of the stated grace period or 30 calendar days. The rating will also
be used upon filing for bankruptcy petition or the taking of similar action and where default is a virtual certainty.
If an obligation is subject to a distressed exchange offer the rating is lowered to ‘D’.
MUNICIPAL SHORT-TERM NOTE RATINGS: S&P Global Ratings rates U.S. municipal notes with a maturity of less than three years as follows: 
SP-1:
A strong capacity to pay principal and interest. Issues that possess a very strong capacity to pay debt service is
given a “+” designation.
SP-2:
A satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic
changes over the terms of the notes.
SP-3:
A speculative capacity to pay principal and interest.
A-3
ADDITIONAL INFORMATION
Additional information about the Fund is available in the Statement of Additional Information dated ____________, 2022, which is incorporated by reference into this Prospectus. The Statement of Additional Information can be obtained free of charge by writing Principal Funds, P.O. Box 219971, Kansas City, MO 64121-9971. In addition, the Fund makes its Statement of Additional Information available, free of charge, on our website www.principalfunds.com/prospectuses. To request this and other information about the Fund and to make shareholder inquiries, telephone 1-800-222-5852.
Reports and other information about the Registrant are available on the EDGAR Database on the Commission’s internet site at www.sec.gov. Copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov.
The Registrant has entered into a management agreement with Principal Global Investors, LLC (“PGI”). The Registrant and/or PGI, on behalf of the Fund, enter into contractual arrangements with various parties, including, among others, the Fund's sub-advisors, distributor, transfer agent and custodian, who provide services to the Fund. These arrangements are between the Registrant and/or PGI and the applicable service provider. Shareholders are not parties to, or intended to be third-party beneficiaries of, any of these arrangements. Such arrangements are not intended to create in any individual shareholder or group of shareholders any right, including the right to enforce such arrangements against the service providers or to seek any remedy thereunder against PGI or any other service provider, either directly or on behalf of the Registrant or any individual series (or fund).
This Prospectus provides information that you should consider in determining whether to purchase shares of the Fund. This Prospectus, the Statement of Additional Information, or the contracts that are exhibits to the Registrant’s registration statement are not intended to give rise to any agreement or contract between the Registrant and/or any Fund and any investor, or give rise to any contract or other rights in any individual shareholder, group of shareholders or other person other than any rights conferred explicitly by federal or state securities laws that may not be waived.
The U.S. government does not insure or guarantee an investment in the Fund.
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed by, Principal Bank or any other financial institution, nor are shares of the Fund federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other agency.
Principal Funds, Inc. SEC File 811-07572
E

PRINCIPAL FUNDS, INC.
(“PFI” or the “Registrant”)
Statement of Additional Information
Dated December 31, 2021, as amended and restated ______
This Statement of Additional Information (“SAI”) is not a prospectus. It contains information in addition to the information in the Registrant’s Prospectus. The Prospectus, which may be amended from time to time, contains the basic information you should know before investing in a Fund. You should read this SAI together with the Registrant’s Prospectus dated December 31, 2021 for the A, C, J, Institutional, R-1, R-3, R-4, R-5, R-6 and S share classes and the prospectus dated ________ for Principal Global Sustainable Listed Infrastructure Fund.
Incorporation by Reference: To be filed by amendment.
For a free copy of the current Prospectus, Semi-Annual or Annual Report, call 1-800-222-5852 or write:
Principal Funds
P.O. Box 219971
Kansas City, MO 64121-9971
The Prospectus may be viewed at www.principalfunds.com/prospectuses.
On June 14, 2022, the Fund’s Board of Directors approved the conversion of the Class R-5 shares of the Diversified Real Asset Fund into Class R-6 shares. Following the close of business on or about January 13, 2023, delete references to Class R-5 shares from the Statement of Additional Information for the Diversified Real Asset Fund. 
 
Ticker Symbols by Share Class
Fund
A
C
J
Inst.
R-1
R-3
R-4
R-5
R-6
S
Blue Chip
PBLAX
PBLCX
PBCJX
PBCKX
 
PGBEX
PGBFX
PGBGX
PGBHX
 
Bond Market Index
 
 
PBIJX
PNIIX
PBIMX
PBOIX
PBIPX
PBIQX
 
 
Capital Securities
 
 
 
 
 
 
 
 
 
PCSFX
Diversified Real Asset
PRDAX
 
 
PDRDX
 
PGDRX
 
PGDTX
PDARX
 
Edge MidCap
PEMCX
 
 
PEDGX
 
 
 
 
PEDMX
 
Global Multi-Strategy
PMSAX
 
 
PSMIX
 
 
 
 
PGLSX
 
Global Sustainable Listed Infrastructure
 
 
 
Pending
 
 
 
 
 
 
International Equity Index
 
 
 
PIDIX
PILIX
PIIOX
PIIPX
PIIQX
PFIEX
 
International Small Company
 
 
 
PISMX
 
 
 
 
PFISX
 
Opportunistic Municipal
PMOAX
 
 
POMFX
 
 
 
 
 
 
Origin Emerging Markets
POEYX
 
 
POEIX
 
 
 
 
POEFX
 
Small-MidCap Dividend Income
PMDAX
PMDDX
 
PMDIX
 
 
 
 
PMDHX
 
Small-MidCap Growth
 
 
 
PSMHX
 
 
 
 
 
 
Spectrum Preferred and Capital Securities
Income
PPSAX
PRFCX
PPSJX
PPSIX
PUSAX
PNARX
PQARX
PPARX
PPREX
 
Table of Contents 
3
4
8
40
47
54
57
61
63
64
65
68
68
68
68
85
99
102
103
2
HISTORY OF THE FUNDS
Principal Funds, Inc. (“PFI” or the “Registrant”) was organized as Principal Special Markets Fund, Inc. on January 28, 1993, as a Maryland corporation. PFI changed its name to Principal Investors Fund, Inc. effective September 14, 2000. PFI changed its name to Principal Funds, Inc. effective June 13, 2008.
On January 12, 2007, PFI acquired WM Trust I, WM Trust II, and WM Strategic Asset Management Portfolios, LLC.
Classes offered by each series of PFI (each, a “Fund” and, together, the “Funds”) are shown in the following table. 
 
Share Class
Fund
A
C
J
Inst.
R-1
R-3
R-4
R-5
R-6
S
Blue Chip
X
X
X
X
 
X
X
X
X
 
Bond Market Index
 
 
X
X
X
X
X
X
 
 
Capital Securities
 
 
 
 
 
 
 
 
 
X
Diversified Real Asset
X
 
 
X
 
X
 
X
X
 
Edge MidCap
X
 
 
X
 
 
 
 
X
 
Global Multi-Strategy
X
 
 
X
 
 
 
 
X
 
Global Sustainable Listed Infrastructure
 
 
 
X
 
 
 
 
 
 
International Equity Index
 
 
 
X
X
X
X
X
X
 
International Small Company
 
 
 
X
 
 
 
 
X
 
Opportunistic Municipal
X
 
 
X
 
 
 
 
 
 
Origin Emerging Markets
X
 
 
X
 
 
 
 
X
 
Small-MidCap Dividend Income
X
X
 
X
 
 
 
 
X
 
Small-MidCap Growth
 
 
 
X
 
 
 
 
 
 
Spectrum Preferred and Capital Securities Income
X
X
X
X
X
X
X
X
X
 
Each class has different expenses. Because of these different expenses, the investment performance of the classes will vary. For more information, including your eligibility to purchase certain classes of shares, call Principal Funds at 1-800-222-5852.
Principal Global Investors, LLC (“PGI” or the “Manager”) may recommend to the Board of Directors (the “Board”), and the Board may elect, to close certain Funds to new investors or close certain Funds to new and existing investors. PGI may make such a recommendation when a Fund approaches a size where additional investments in the Fund have the potential to adversely impact Fund performance and make it increasingly difficult to keep the Fund fully invested in a manner consistent with its investment objective. PGI may also recommend to the Board, and the Board may elect, to close certain share classes to new or new and existing investors.
3
MULTIPLE CLASS STRUCTURE
The Board has adopted a multiple class plan (the Multiple Class Plan) pursuant to SEC Rule 18f-3. The share classes that are offered by each Fund are identified in the chart included under the heading “History of the Funds.” The share classes offered under the plan include: Classes A, C, J, Institutional, R-1, R-3, R-4, R-5, R-6, and S.
Class A shares are generally sold with a sales charge that is a variable percentage based on the amount of the purchase, as described in the Prospectus. Certain redemptions of Class A shares within 12 months of purchase may be subject to a contingent deferred sales charge (“CDSC”), as described in the Prospectus.
Class C shares are not subject to a sales charge at the time of purchase but are subject to a 1% CDSC on shares redeemed within 12 months of purchase, as described in the Prospectus.
Class J shares are sold without any front-end sales charge. A CDSC of 1% is imposed if Class J shares are redeemed within 18 months of purchase, as described in the Prospectus.
Sales charge waivers and reductions may be available depending on whether shares are purchased directly from the Fund or through a financial intermediary, as described in the Prospectus and Appendix B to the Prospectus, titled “Intermediary-Specific Sales Charge Waivers and Reductions.”
For Classes A, C, and J shares purchased from the Fund or through an intermediary not identified on Appendix B to the Prospectus, the CDSC is waived on shares:
•
redeemed within 90 days after an account is re-registered due to a shareholder’s death;
•
redeemed to pay surrender fees;
•
redeemed to pay retirement plan fees;
•
redeemed involuntarily from accounts with small balances;
•
redeemed due to the shareholder’s disability (as defined by the Internal Revenue Code) provided the shares were purchased prior to the disability;
•
redeemed from retirement plans to satisfy minimum distribution rules under the Internal Revenue Code;
•
redeemed from a retirement plan to assure the plan complies with the Internal Revenue Code;
•
redeemed from retirement plans qualified under Section 401(a) of the Internal Revenue Code due to the plan participant’s death, disability, retirement, or separation from service after attaining age 55;
•
redeemed from retirement plans to satisfy excess contribution rules under the Internal Revenue Code; or
•
redeemed using a systematic withdrawal plan (up to 1% per month (measured cumulatively with respect to non-monthly plans) of the value of the fund account at the time, and beginning on the date, the systematic withdrawal plan begins). (The free withdrawal privilege not used in a calendar year is not added to the free withdrawal privileges for any following year.)
For Class J shares purchased from the Fund or through an intermediary not identified on Appendix B to the Prospectus, the CDSC also is waived on shares:
•
redeemed that were purchased pursuant to the Small Amount Force Out program (SAFO); or
•
of the Money Market Fund redeemed within 30 days of the initial purchase if the redemption proceeds are transferred to another Principal IRA, defined as either a fixed or variable annuity issued by Principal Life Insurance Company to fund an IRA, a Principal Bank IRA product, or a WRAP account IRA sponsored by Principal Securities, Inc. (PSI).
Institutional Class and Classes R-1, R-3, R-4, R-5, and R-6 shares are available without any front-end sales charge or contingent deferred sales charge. Classes R-1, R-3, R-4, and R-5 shares are available through employer-sponsored retirement plans. Such plans may impose fees in addition to those charged by the Funds. Classes R-1, R-3, R-4, and R-5 shares are subject to asset-based charges (described below). Class R-6 shares are generally available through the defined contribution investment only channel.
PGI receives a fee for providing investment advisory and certain corporate administrative services under the terms of the Management Agreement. In addition to the management fee, the Funds’ Classes R-1, R-3, R-4, and R-5 shares pay PGI a service fee and an administrative services fee under the terms of a Service Agreement and an Administrative Services Agreement.
4
Service Agreement (Classes R-1, R-3, R-4, and R-5 Shares)
The Service Agreement provides for PGI to provide certain personal services to shareholders (plan sponsors) and beneficial owners (plan members) of those classes. These personal services include:
•
responding to plan sponsor and plan member inquiries;
•
providing information regarding plan sponsor and plan member investments; and
•
providing other similar personal services or services related to the maintenance of shareholder accounts as contemplated by National Association of Securities Dealers (NASD) Rule 2830 (or any successor thereto).
As compensation for these services, Principal Funds will pay PGI service fees equal to 0.25% of the average daily net assets attributable to each of the R-1, R-3, R-4, and R-5 Classes. The service fees are calculated and accrued daily and paid monthly to PGI (or at such other intervals as Principal Funds and PGI may agree).
Administrative Service Agreement (Classes R-1, R-3, R-4, and R-5 Shares)
The Administrative Service Agreement provides for PGI to provide services to beneficial owners of Fund shares. Such services include:
•
receiving, aggregating, and processing purchase, exchange, and redemption requests from plan shareholders;
•
providing plan shareholders with a service that invests the assets of their accounts in shares pursuant to pre-authorized instructions submitted by plan members;
•
processing dividend payments from the Funds on behalf of plan shareholders and changing shareholder account designations;
•
acting as shareholder of record and nominee for plans;
•
maintaining account records for shareholders and/or other beneficial owners;
•
providing notification to plan shareholders of transactions affecting their accounts;
•
forwarding prospectuses, financial reports, tax information and other communications from the Fund to beneficial owners;
•
distributing, receiving, tabulating and transmitting proxy ballots of plan shareholders; and
•
other similar administrative services.
As compensation for these services, Principal Funds will pay PGI service fees equal to 0.28% of the average daily net assets attributable to the R-1 Class, 0.07% of the average daily net assets of the R-3 Class, 0.03% of the average daily net assets of the R-4 Class and 0.01% of the average daily net assets of the R-5 Class. The service fees are calculated and accrued daily and paid monthly to PGI (or at such other intervals as Principal Funds and PGI may agree).
PGI will generally, at its discretion, appoint (and may at any time remove) other parties, including companies affiliated with PGI, as its agent to carry out the provisions of the Service Agreement and/or the Administrative Service Agreement. However, the appointment of an agent shall not relieve PGI of any of its responsibilities or liabilities under those agreements. Any fees paid to agents under these agreements shall be the sole responsibility of PGI.
Class S: Class S shares are available without any front-end sales charge or contingent deferred sales charge. Eligibility to invest in the Capital Securities Fund is limited to certain wrap-fee program accounts. Only wrap-fee program accounts as to which Spectrum and/or PGI have an agreement with the wrap-fee program’s sponsor (“Sponsor”) or the wrap account owner to provide investment advisory or sub-advisory services (either directly or by providing a model investment portfolio created and maintained by Spectrum and/or PGI to the Sponsor or one or more Sponsor-designated investment managers) (Eligible Wrap Accounts) are eligible to purchase shares of the Fund. References to Wrap Fee Advisor shall mean Spectrum and/or PGI in their role providing such services to Eligible Wrap Accounts.
A client agreement with the Sponsor to open an account in the Sponsor’s wrap-fee program typically may be obtained by contacting the Sponsor or your financial advisor. Purchase and sale decisions regarding Fund shares for your wrap account ordinarily will be made by the Wrap Fee Advisor, the Sponsor or a Sponsor-designated investment manager, depending on the particular wrap-fee program in which your wrap account participates. If your wrap-fee account’s use of the Wrap Fee Advisor’s investment style is terminated by you, the Sponsor or the Wrap Fee Advisor, your wrap account will cease to be an Eligible Wrap Account and you will be required to redeem all your shares of the Capital Securities Fund. Each Eligible Wrap Account, by purchasing shares, agrees to any such redemption.
Rule 12b-1 Fees / Distribution Plans and Agreements
The Distributor for the Funds is Principal Funds Distributor, Inc. (“PFD”). The address for PFD is as follows: 620 Coolidge Drive, Suite 300, Folsom, CA 95630.
In addition to the management and service fees, certain of the Funds’ share classes are subject to a Rule 12b-1 Distribution Plan and Agreement (each, a “Plan” and together, the “Plans”). The Board and initial shareholders of Classes A, C, J, R-1, R-3, and R-4 shares have approved and entered into a Plan. In adopting the Plans, the Board (including a majority of board members who are not interested persons of the Fund (as defined in the 1940 Act)) determined that there was a reasonable
5
likelihood that the Plans would benefit the Funds and the shareholders of the affected classes. Among the possible benefits of the Plans include the potential for building and retaining Fund assets, as well as the ability to offer an incentive for registered representatives to provide ongoing servicing to shareholders.
The Plans provide that each Fund makes payments to the Fund’s Distributor from assets of each share class that has a Plan to compensate the Distributor and other selling dealers, various banks, broker-dealers and other financial intermediaries, for providing certain services to the Fund. Such services may include, but are not limited to:
•
formulation and implementation of marketing and promotional activities;
•
preparation, printing, and distribution of sales literature;
•
preparation, printing, and distribution of prospectuses and the Fund reports to other than existing shareholders;
•
obtaining such information with respect to marketing and promotional activities as the Distributor deems advisable;
•
making payments to dealers and others engaged in the sale of shares or who engage in shareholder support services; and
•
providing training, marketing, and support with respect to the sale of shares.
Each Fund pays the Distributor a fee after the end of each month at an annual rate as a percentage of the daily net asset value of the assets attributable to each share class as follows: 
Share Class
Maximum Annualized
12b-1 Fee
A(1)
0.25%
C(1)
1.00%
J(1)
0.15%
R-1
0.35%
R-3
0.25%
R-4
0.10%
(1)
The Distributor also receives the proceeds of any CDSC imposed.
Effective January 1, 2021, the Distributor has voluntarily agreed to limit the distribution fees attributable to Class J, reducing the Funds’ Distribution Fees for Class J Shares by 0.020%.* This voluntary waiver may be revised or terminated at any time without notice to shareholders.
*
For the period from December 31, 2016 to December 31, 2020, the voluntary waiver was 0.030%.
The Distributor may remit on a continuous basis all of these sums to its investment representatives and other financial intermediaries as a trail fee in recognition of their services and assistance.
Currently, the Distributor makes payments to dealers on accounts for which such dealer is designated dealer of record. Payments are based on the average net asset value of the accounts invested in Classes A, C, J, R-1, R-3, or R-4 shares.
Under the Plans, the Funds have no legal obligation to pay any amount that exceeds the compensation limit. The Funds do not pay, directly or indirectly, interest, carrying charges, or other financing costs in association with these Plans. All fees paid under a Fund’s Rule 12b-1 Plan are paid to the Distributor, which is entitled to retain such fees paid by the Fund without regard to the expenses which it incurs.
For the fiscal year ended August 31, 2021, each Fund made the following 12b-1 payments to PFD, and PFD, from these 12b-1 payments, made the following payments to financial intermediaries that distribute and/or service the Fund’s shares. The “Retained by PFD” column reflects the difference between the amount paid by the Fund to PFD and the amount of that 12b-1 fee paid by PFD to financial intermediaries. That difference/remainder is then used by PFD to pay for other 12b-1 eligible expenses. For the fiscal year ended August 31, 2021, the 12b-1 eligible expenses for each Fund were greater than the amount of the Fund’s 12b-1 payments to PFD. 
Fund
Paid by Fund to PFD
(amounts in thousands)
Paid by PFD to
Financial Intermediaries
(amounts in thousands)
Retained by PFD
(amounts in thousands)
Blue Chip
$5,763
$4,461
$1,302
Bond Market Index
115
106
9
Capital Securities
—
—
—
Diversified Real Asset
205
202
3
Edge MidCap
43
38
5
Global Multi-Strategy
160
160
—
International Equity Index
53
48
5
6
Fund
Paid by Fund to PFD
(amounts in thousands)
Paid by PFD to
Financial Intermediaries
(amounts in thousands)
Retained by PFD
(amounts in thousands)
International Small Company
5
5
—
Opportunistic Municipal
134
126
8
Origin Emerging Markets
18
16
2
Small-MidCap Dividend
Income
1,050
994
56
Small-MidCap Growth
—
—
—
Spectrum Preferred and
Capital Securities Income
5,515
5,008
507
Principal Underwriter
PFD acts as the principal underwriter in the continuous public offering of the Funds’ shares. The table below shows the aggregate dollar amount of underwriting commissions for the last three fiscal years ended August 31: 
Underwriting Fees for Periods Ended August 31
(amounts in thousands)
Fund
2021
2020
2019
Blue Chip
$978
$990
$584
Bond Market Index
6
1
N/A
Capital Securities
—
—
—
Diversified Real Asset
11
7
12
Edge MidCap
32
35
23
Global Multi-Strategy
2
2
8
International Equity Index
—
—
—
International Small Company
3
5
6
Opportunistic Municipal
7
13
15
Origin Emerging Markets
17
6
4
Small-MidCap Dividend Income
45
46
51
Small-MidCap Growth
—
—
—(1)
Spectrum Preferred and Capital Securities Income
268
284
189(2)
(1)
Period from June 12, 2019, date operations commenced, through August 31, 2019
(2)
Effective July 1, 2019, Preferred Securities changed its name to Spectrum Preferred and Capital Securities Income
Transfer Agency Agreement (Classes A, C, J, Institutional, R-1, R-3, R-4, R-5, R-6, and S)
The Transfer Agency Agreement provides for Principal Shareholder Services, Inc. (“PSS”) (620 Coolidge Drive, Suite 300, Folsom, CA 95630), an affiliate of PGI, to act as transfer and shareholder servicing agent for the Classes A, C, J, Institutional, R-1, R-3, R-4, R-5, R-6, and S.
•
For Classes A and C, and Institutional Class shares, the Registrant pays PSS a fee for the services provided pursuant to the Transfer Agency Agreement in an amount equal to the costs incurred by PSS for providing such services.
•
For Class J shares, the Registrant pays PSS a fee for the services provided pursuant to the Transfer Agency Agreement in an amount that includes profit.
The Registrant pays PSS for the following services for Classes A, C and J, and Institutional Class shares:
•
issuance, transfer, conversion, cancellation, and registry of ownership of Fund shares, and maintenance of open account system;
•
preparation and distribution of dividend and capital gain payments to shareholders;
•
delivery, redemption and repurchase of shares, and remittances to shareholders;
•
the tabulation of proxy ballots and the preparation and distribution to shareholders of notices, proxy statements and proxies, reports, confirmation of transactions, prospectuses and tax information;
•
communication with shareholders concerning the above items; and
•
use of its best efforts to qualify the Capital Stock of the Funds for sale in states and jurisdictions as directed by the Funds.
The Registrant does not pay for these services for Classes R-1, R-3, R-4, R-5, and R-6 shares. PSS will pay operating expenses attributable to Classes R-1, R-3, R-4, and R-5 shares related to (a) the cost of meetings of shareholders and (b) the costs of initial and ongoing qualification of the capital stock of the Funds for sale in states and jurisdictions.
7
DESCRIPTION OF THE FUNDS’ INVESTMENTS AND RISKS
The Registrant is a registered, open-end management investment company, commonly called a mutual fund. The Registrant consists of multiple investment portfolios, which are referred to as “Funds.” Each portfolio operates for many purposes as if it were an independent mutual fund. Each portfolio has its own investment objective, strategy, and management team. As described below, each Fund has adopted a fundamental policy regarding diversification, as that term is used in the Investment Company Act of 1940, as amended (the “1940 Act”), and as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time.
Fund Policies
The investment objective, principal investment strategies and principal risks of each Fund are described in the Prospectus. This Statement of Additional Information contains supplemental information about those strategies and risks and the types of securities that those managing the investments of each Fund can select. Additional information is also provided about other strategies that each Fund may use to try to achieve its objective.
The composition of each Fund and the techniques and strategies that those managing the Fund’s investments may use in selecting securities will vary over time. A Fund is not required to use all of the investment techniques and strategies available to it in seeking its goals.
Unless otherwise indicated, with the exception of the percentage limitations on borrowing, the restrictions apply at the time transactions are entered into. Accordingly, any later increase or decrease beyond the specified limitation, resulting from market fluctuations or in a rating by a rating service, does not require elimination of any security from a Fund’s portfolio.
The investment objective of each Fund and, except as described below as “fundamental restrictions,” the investment strategies described in this Statement of Additional Information and the Prospectus are not fundamental and may be changed by the Board without shareholder approval.
With the exception of the diversification test required by the Internal Revenue Code, the Funds will not consider collateral held in connection with securities lending activities when applying any of the following fundamental restrictions or any other investment restriction set forth in each Fund’s Prospectus or Statement of Additional Information.
Fundamental Restrictions
Except as specifically noted, each Fund has adopted the following fundamental restrictions. Each fundamental restriction is a matter of fundamental policy and may not be changed without a vote of a majority of the outstanding voting securities of the affected Fund. The 1940 Act provides that “a vote of a majority of the outstanding voting securities” of a Fund means the affirmative vote of the lesser of (1) more than 50% of the outstanding Fund shares or (2) 67% or more of the Fund shares present at a meeting if more than 50% of the outstanding Fund shares are represented at the meeting in person or by proxy. Each share has one vote, with fractional shares voting proportionately. Shares of all classes of a Fund will vote together as a single class except when otherwise required by law or as determined by the Board.
Each Fund:
1)
may not issue senior securities, except as permitted under the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time.
2)
has adopted a commodities policy, as follows:
(a)
The Opportunistic Municipal Fund may not purchase or sell commodities, except as permitted under the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time.
(b)
The remaining Funds may not purchase or sell commodities, except as permitted by applicable law, regulation or regulatory authority having jurisdiction.
3)
may not purchase or sell real estate, which term does not include securities of companies which deal in real estate or mortgages or investments secured by real estate or interests therein, except that each Fund reserves freedom of action to hold and to sell real estate acquired as a result of the Fund’s ownership of securities.
4)
may not borrow money, except as permitted under the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time.
5)
may not make loans except as permitted under the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time.
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6)
has adopted a policy regarding diversification, as follows:
(a)
The Global Sustainable Listed Infrastructure Fund has elected to be non-diversified.
(b)
All other Funds have elected to be treated as a “diversified” investment company, as that term is used in the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time.
7)
has adopted a concentration policy, as follows:
(a)
The Capital Securities, Diversified Real Asset, Global Sustainable Listed Infrastructure, and Spectrum Preferred and Capital Securities Income Funds will concentrate their investments in a particular industry or group of industries as described in the prospectus.
(b)
The Bond Market Index and International Equity Index Funds will not concentrate their investments in a particular industry except to the extent that their related Index is also so concentrated.
(c)
The Opportunistic Municipal Fund may not concentrate, as that term is used in the 1940 Act, its investments in a particular industry, except as permitted under the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time.
(d)
The remaining Funds may not concentrate, as that term is used in the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time, its investments in a particular industry or group of industries.
8)
may not act as an underwriter of securities, except to the extent that the Fund may be deemed to be an underwriter in connection with the sale of securities held in its portfolio.
Non-Fundamental Restrictions
Except as specifically noted, each Fund has also adopted the following non-fundamental restrictions. Non-fundamental restrictions are not fundamental policies and may be changed without shareholder approval. It is contrary to each Fund’s present policy to:
1)
Invest more than 15% of its net assets in illiquid securities and in repurchase agreements maturing in more than seven days except to the extent permitted by applicable law or regulatory authority having jurisdiction, from time to time.
2)
Pledge, mortgage, or hypothecate its assets, except to secure permitted borrowings. The deposit of underlying securities and other assets in escrow and other collateral arrangements in connection with transactions that involve any future payment obligation, as permitted under the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by any regulatory authority having jurisdiction, from time to time, are not deemed to be pledges, mortgages, hypothecations, or other encumbrances.
3)
Invest in companies for the purpose of exercising control or management.
4)
Invest more than 25% of its assets in foreign securities; however:
(a)
the Spectrum Preferred and Capital Securities Income Fund may not invest more than 60% of its assets in foreign securities;
(b)
the Capital Securities, Diversified Real Asset, Global Multi-Strategy, Global Sustainable Listed Infrastructure, International Equity Index, International Small Company, and Origin Emerging Markets Funds may each invest up to 100% of its assets in foreign securities;
(c)
the Bond Market Index Fund may invest in foreign securities to the extent that the relevant index is so invested; and
(d)
the Opportunistic Municipal Fund may not invest in foreign securities.
5)
Invest more than 5% of its total assets in real estate limited partnership interests.
The Diversified Real Asset and Global Multi-Strategy Funds have not adopted this non-fundamental restriction.
6)
Acquire securities of other investment companies in reliance on Section 12(d)(1)(F) or (G) of the 1940 Act, invest more than 10% of its total assets in securities of other investment companies, invest more than 5% of its total assets in the securities of any one investment company, or acquire more than 3% of the outstanding voting securities of any one investment company except in connection with a merger, consolidation, or plan of reorganization and except as permitted
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by the 1940 Act, SEC rules adopted under the 1940 Act or exemptions granted by the SEC. The Fund may purchase securities of closed-end investment companies in the open market where no underwriter or dealer’s commission or profit, other than a customary broker’s commission, is involved.
Non-Fundamental Policy - Rule 35d-1 under the 1940 Act - Investment Company Names
Except as specifically noted, each Fund has also adopted the non-fundamental policy pursuant to SEC Rule 35d-1, which requires it, under normal circumstances, to invest at least 80% of its net assets, plus any borrowings for investment purposes, in the type of investments, industry or geographic region (as described in the Prospectus) as suggested by the name of the Fund. This policy applies at the time of purchase. The Fund will provide 60 days’ notice to shareholders prior to implementing a change in this policy for the Fund. For purposes of this non-fundamental restriction, the Fund tests market capitalization ranges monthly.
For purposes of testing this requirement with respect to:
•
foreign currency investments, each Fund will count forward foreign currency contracts and other investments that have economic characteristics similar to foreign currency; the value of such contracts and investments will include the Fund’s investments in cash and/or cash equivalents to the extent such instruments are used to cover the Fund’s exposure under its forward foreign currency contracts and similar investments.
•
derivatives instruments, each Fund will typically count the mark-to-market value of such derivatives. However, the Fund may use a derivative contract’s notional value when it determines that notional value is an appropriate measure of the Fund’s exposure to investments. For example, with respect to single name equity swaps which are “fully paid” (equity swaps in which cash and/or cash equivalents are specifically segregated on the Fund’s books for the purpose of covering the full notional value of the swap), each Fund will count the value of such cash and/or cash equivalents.
•
investments in underlying funds (including ETFs), each Fund will count all investments in an underlying fund toward the requirement as long as 80% of the value of such underlying fund’s holdings focus on the particular type of investment suggested by the Fund name.
The Opportunistic Municipal Fund has adopted this policy as a fundamental policy.
The Global Multi-Strategy Fund has not adopted this non-fundamental policy.
Investment Strategies and Risks Related to Borrowing and Senior Securities, Commodity-Related Investments, Industry Concentration and Loans
Borrowing and Senior Securities
Under the 1940 Act, a fund that borrows money is required to maintain continuous asset coverage (that is, total assets including borrowings, less liabilities exclusive of borrowings) of 300% of the amount borrowed, with an exception for borrowings not in excess of 5% of the fund’s total assets made for temporary or emergency purposes. If a Fund invests the proceeds of borrowing, borrowing will tend to exaggerate the effect on net asset value of any increase or decrease in the market value of a fund’s portfolio. If a Fund invests the proceeds of borrowing, money borrowed will be subject to interest costs that may or may not be recovered by earnings on the securities purchased. A fund also may be required to maintain minimum average balances in connection with a borrowing or to pay a commitment or other fee to maintain a line of credit; either of these requirements would increase the cost of borrowing over the stated interest rate.
Pursuant to SEC staff interpretations of the 1940 Act, a fund that purchases securities or makes other investments that have a leveraging effect on the fund (for example, reverse repurchase agreements) must segregate assets to render them not available for sale or other disposition in an amount equal to the amount the fund owes pursuant to the terms of the security or other investment.
Commodity-Related Investments
All Funds Except the Diversified Real Asset Fund and the Global Multi-Strategy Fund
Under the 1940 Act, a fund’s registration statement must recite the fund’s policy with regard to investing in commodities. Each fund may invest in commodities to the extent permitted by applicable law and under its fundamental and non-fundamental policies and restrictions. Pursuant to a claim for exclusion filed with the Commodity Futures Trading Commission (“CFTC”) on behalf of each of the Funds under Rule 4.5, the Funds are not deemed to be a “commodity pool” or “commodity pool operator” under the Commodity Exchange Act (“CEA”), and they are therefore not subject to registration or regulation under the CEA. The CFTC amended Rule 4.5 Exclusion for certain otherwise regulated persons from the definition of the term “commodity pool operator.” Rule 4.5 provides that an investment company does not meet the definition of “commodity pool operator” if its use of futures contracts, options on futures contracts and swaps is sufficiently limited that the fund can fall within one of two exclusions set out in Rule 4.5. Each Fund intends to limit its use of futures contracts, options on futures contracts and swaps to the degree necessary to fall within one of the two exclusions. If a Fund is unable to do so, it may incur expenses that are necessary to comply with the CEA and rules the CFTC has adopted under it.
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Diversified Real Asset Fund and Global Multi-Strategy Fund
The Diversified Real Asset Fund and the Global Multi-Strategy Fund are each deemed to be a “commodity pool” under the CEA, and PGI is considered a “commodity pool operator” with respect to each such Fund. PGI is therefore subject to dual regulation by the SEC and the CFTC. The CFTC or the SEC could alter the regulatory requirements governing the use of commodity futures (which include futures on broad-based securities indexes and interest rate futures and currency futures) or options on commodity futures or swaps transactions by investment companies, including these Funds.
To gain exposure to the commodity markets within the limitations of the federal tax law requirements applicable to regulated investment companies (“RICs”) under the Internal Revenue Code (the “Code”), the Diversified Real Asset Fund and the Global Multi-Strategy Fund may each invest up to 25% of its total assets in its respective wholly-owned subsidiary organized under the laws of the Cayman Islands (a “Cayman Subsidiary”). The Diversified Real Asset Fund and the Global Multi-Strategy Fund may test for compliance with certain investment restrictions on a consolidated basis with its Cayman Subsidiary. With respect to investments that involve leverage each Cayman Subsidiary will comply with applicable asset segregation requirements to the same extent as required by the parent fund.
Industry Concentration
“Concentration” means a fund invests more than 25% of its net assets in a particular industry or group of industries. To monitor compliance with the policy regarding industry concentration, the Funds may use the industry classifications provided by Bloomberg, L.P., the Morgan Stanley Capital International (MSCI)/Standard & Poor’s Global Industry Classification Standard (GICS), the Directory of Companies Filing Annual Reports with the Securities and Exchange Commission or any other reasonable industry classification system. With respect to monitoring industry concentration, a Fund concentrating in the “financial services industry” concentrates its investments in one or more industries classified within the broader financial services sector.
•
Each Fund interprets its policy with respect to concentration in a particular industry to apply only to direct investments in the securities of issuers in a particular industry.
•
For purposes of this restriction, government securities such as treasury securities or mortgage-backed securities that are issued or guaranteed by the U.S. government, its agencies or instrumentalities are not subject to the Funds’ industry concentration restrictions.
•
Each Fund views its investments in tax-exempt municipal securities as not representing interests in any particular industry or group of industries. For information about municipal securities, see the Municipal Obligations section.
Loans
A Fund may not make loans to other persons except as permitted by (i) the 1940 Act and the rules and regulations thereunder, or other successor law governing the regulation of registered investment companies, or interpretations or modifications thereof by the U.S. Securities and Exchange Commission (“SEC”), SEC staff or other authority of competent jurisdiction, or (ii) pursuant to exemptive or other relief or permission from the SEC, SEC staff or other authority of competent jurisdiction. Generally, this means the Funds are typically permitted to make loans, but must take into account potential issues such as liquidity, valuation, and avoidance of impermissible transactions. Examples of permissible loans include (a) the lending of its portfolio securities, (b) the purchase of debt securities, loan participations and/or engaging in direct corporate loans in accordance with its investment objectives and policies, (c) the entry into a repurchase agreement (to the extent such entry is deemed to be a loan), and (d) loans to affiliated investment companies to the extent permitted by the 1940 Act or any exemptions therefrom that may be granted by the SEC.
Other Investment Strategies and Risks
Commodity Index-Linked Notes
A commodity index-linked note is a type of structured note that is a derivative instrument. Over the long term, the returns on a fund’s investments in commodity index-linked notes are expected to exhibit low or negative correlation with stocks and bonds, which means the prices of commodity-linked notes may move in a different direction than investments in traditional equity and debt securities. As an example, during periods of rising inflation, debt securities have historically tended to decrease in value and the prices of certain commodities, such as oil and metals, have historically tended to increase. The reverse may be true during “bull markets,” when the value of traditional securities such as stocks and bonds is increasing. Under such economic conditions, a fund’s investments in commodity index-linked notes may be expected not to perform as well as investments in traditional securities. There can be no assurance, however, that derivative instruments will perform in that manner in the future and, at certain times in the past, the price movements of commodity-linked investments have been parallel to debt and equity securities. If commodities prices move in tandem with the prices of financial assets, they may not provide overall portfolio diversification benefits.
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Convertible Securities
A convertible security is a bond, debenture, note, preferred stock, or other security that entitles the holder to acquire common stock or other equity securities of the same or a different issuer. A convertible security generally entitles the holder to receive interest paid or accrued until the convertible security matures or is redeemed, converted or exchanged. Before conversion, convertible securities have characteristics similar to non-convertible debt or preferred securities, as applicable. Convertible securities rank senior to common stock in a corporation’s capital structure and, therefore, generally entail less risk than the corporation’s common stock, although the extent to which such risk is reduced depends in large measure upon the degree to which the convertible security sells above its value as a fixed income security. Convertible securities are subordinate in rank to any senior debt obligations of the issuer, and, therefore, an issuer’s convertible securities entail more risk than its debt obligations. Convertible securities generally offer lower interest or dividend yields than non-convertible debt securities of similar credit quality because of the potential for capital appreciation. In addition, convertible securities are often lower-rated securities.
Because of the conversion feature, the price of the convertible security will normally fluctuate in some proportion to changes in the price of the underlying asset, and as such is subject to risks relating to the activities of the issuer and/or general market and economic conditions. The income component of a convertible security may tend to cushion the security against declines in the price of the underlying asset. However, the income component of convertible securities causes fluctuations based upon changes in interest rates and the credit quality of the issuer.
If the conversion value of a convertible security increases to a point that approximates or exceeds its investment value, the value of the security will be principally influenced by its conversion value. A convertible security will sell at a premium over its conversion value to the extent investors place value on the right to acquire the underlying common stock while holding an income-producing security.
A convertible security may be subject to redemption at the option of the issuer at a predetermined price. If a convertible security held by a fund is called for redemption, the fund would be required to permit the issuer to redeem the security and convert it to underlying common stock, or would sell the convertible security to a third party, which may have an adverse effect on the fund’s ability to achieve its investment objective.
Synthetic Convertibles
A “synthetic” convertible security may be created by combining separate securities that possess the two principal characteristics of a traditional convertible security, i.e., an income-producing security (“income-producing component”) and the right to acquire an equity security (“convertible component”). The income-producing component is achieved by investing in non-convertible, income-producing securities such as bonds, preferred stocks and money market instruments, which may be represented by derivative instruments. The convertible component is achieved by investing in securities or instruments such as warrants or options to buy common stock at a certain exercise price, or options on a stock index. Unlike a traditional convertible security, which is a single security having a single market value, a synthetic convertible comprises two or more separate securities, each with its own market value. Therefore, the “market value” of a synthetic convertible security is the sum of the values of its income-producing component and its convertible component. For this reason, the values of a synthetic convertible security and a traditional convertible security may respond differently to market fluctuations.
More flexibility is possible in the assembly of a synthetic convertible security than in the purchase of a convertible security. Although synthetic convertible securities may be selected where the two components are issued by a single issuer, thus making the synthetic convertible security similar to the traditional convertible security, the character of a synthetic convertible security allows the combination of components representing distinct issuers, when such a combination may better achieve a fund’s investment objective. A synthetic convertible security also is a more flexible investment in that its two components may be purchased separately. For example, a fund may purchase a warrant for inclusion in a synthetic convertible security but temporarily hold short-term investments while postponing the purchase of a corresponding bond pending development of more favorable market conditions.
A holder of a synthetic convertible security faces the risk of a decline in the price of the security or the level of the index involved in the convertible component, causing a decline in the value of the security or instrument, such as a call option or warrant, purchased to create the synthetic convertible security. Should the price of the stock fall below the exercise price and remain there throughout the exercise period, the entire amount paid for the call option or warrant would be lost. Because a synthetic convertible security includes the income-producing component as well, the holder of a synthetic convertible security also faces the risk that interest rates will rise, causing a decline in the value of the income-producing instrument.
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A fund also may purchase synthetic convertible securities created by other parties, including convertible structured notes. Convertible structured notes are income-producing debentures linked to equity and are typically issued by investment banks. Convertible structured notes have the attributes of a convertible security; however, the investment bank that issues the convertible note, rather than the issuer of the underlying common stock into which the note is convertible, assumes credit risk associated with the underlying investment, and the fund in turn assumes credit risk associated with the convertible note.
Corporate Reorganizations
Funds may invest in securities for which a tender or exchange offer has been made or announced and in securities of companies for which a merger, consolidation, liquidation or reorganization proposal has been announced if, in the judgment of those managing the fund’s investments, there is a reasonable prospect of capital appreciation significantly greater than the brokerage and other transaction expenses involved. The primary risk of such investments is that if the contemplated transaction is abandoned, revised, delayed or becomes subject to unanticipated uncertainties, the market price of the securities may decline below the purchase price paid by a fund.
In general, securities which are the subject of such an offer or proposal sell at a premium to their historic market price immediately prior to the announcement of the offer or proposal. However, the increased market price of such securities may discount what the stated or appraised value of the security would be if the contemplated transaction were approved or consummated. Such investments may be advantageous when the discount: significantly overstates the risk of the contingencies involved; significantly undervalues the securities, assets or cash to be received by shareholders of the prospective company as a result of the contemplated transaction; or fails adequately to recognize the possibility that the offer or proposal may be replaced or superseded by an offer or proposal of greater value. The evaluation of such contingencies requires unusually broad knowledge and experience on the part of those managing the fund’s investments, which must appraise not only the value of the issuer and its component businesses, but also the financial resources and business motivation of the offer or proposal as well as the dynamics of the business climate when the offer or proposal is in process.
Cyber Security Issues
Each Fund and its service providers may be subject to cyber security risks. Those risks include, among others, theft, misuse or corruption of data maintained online or digitally; denial of service attacks on websites; the loss or unauthorized release of confidential and proprietary information; operational disruption; or various other forms of cyber security breaches. Cyber-attacks against or security breakdowns of a Fund or its service providers may harm the Fund and its shareholders, potentially resulting in, among other things, financial losses, the inability of Fund shareholders to transact business, inability to calculate a fund’s NAV, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance and remediation costs. Cyber security risks may also affect issuers of securities in which a fund invests, potentially causing the fund’s investment in such issuers to lose value. Despite risk management processes, there can be no guarantee that a fund will avoid losses relating to cyber security risks or other information security breaches.
Derivatives
Options on Securities and Securities Indices
Funds may write (sell) and purchase call and put options on securities and on securities indices. Funds may engage in these transactions to hedge against a decline in the value of securities owned or an increase in the price of securities that the Fund plans to purchase, or to generate additional revenue.
•
Exchange-Traded Options. An exchange-traded option may be closed out only on an exchange that generally provides a liquid secondary market for an option of the same series. If a liquid secondary market for an exchange-traded option does not exist, it might not be possible to effect a closing transaction with respect to a particular option, with the result that a Fund would have to exercise the option in order to consummate the transaction.
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Over the Counter (“OTC”) Options. OTC options differ from exchange-traded options in that they are two-party contracts, with price and other terms negotiated between buyer and seller, and generally do not have as much market liquidity as exchange-traded options. An OTC option (an option not traded on an established exchange) may be closed out only by agreement with the other party to the original option transaction. With OTC options, a Fund is at risk that the other party to the transaction will default on its obligations or will not permit the Fund to terminate the transaction before its scheduled maturity. While a Fund will seek to enter into OTC options only with dealers who agree to or are expected to be capable of entering into closing transactions with a Fund, there can be no assurance that a Fund will be able to liquidate an OTC option at a favorable price at any time prior to its expiration. OTC options are not subject to the protections afforded purchasers of listed options by the Options Clearing Corporation or other clearing organizations.
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•
FLexible EXchange Options (“FLEX Options”). FLEX Options are customized options contracts available through national securities exchanges that are guaranteed for settlement by the Options Clearing Corporation (“OCC”), a market clearinghouse. FLEX Options provide investors with the ability to customize terms of an option, including exercise prices, exercise styles (European-style options, which are exercisable only at the expiration date, versus American-style options, which are exercisable any time prior to the expiration date), and expiration dates, while achieving price discovery in competitive, transparent auction markets and avoiding the counterparty exposure of the OTC option positions.
There is no assurance that a liquid secondary market on an options exchange will exist for any particular option, or at any particular time, and for some options no secondary market on an exchange or elsewhere may exist. If a Fund is unable to close out a call option on securities that it has written before the option is exercised, the Fund may be required to purchase the optioned securities in order to satisfy its obligation under the option to deliver such securities. If the Fund is unable to effect a closing sale transaction with respect to options on securities that it has purchased, it would have to exercise the option in order to realize any profit and would incur transaction costs upon the purchase and sale of the underlying securities. The writing and purchasing of options is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. Imperfect correlation between the options and securities markets may detract from the effectiveness of attempted hedging. Options transactions may result in significantly higher transaction costs and portfolio turnover for a Fund.
Writing Call and Put Options. When a Fund writes a call option, it gives the purchaser of the option the right to buy a specific security at a specified price at any time before the option expires. When a Fund writes a put option, it gives the purchaser of the option the right to sell to the Fund a specific security at a specified price at any time before the option expires. In both situations, the Fund receives a premium from the purchaser of the option.
The premium received by a Fund reflects, among other factors, the current market price of the underlying security, the relationship of the exercise price to the market price, the time period until the expiration of the option and interest rates. The premium generates additional income for the Fund if the option expires unexercised or is closed out at a profit. By writing a call, a Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option, but it retains the risk of loss if the price of the security should decline. By writing a put, a Fund assumes the risk that it may have to purchase the underlying security at a price that may be higher than its market value at time of exercise.
A Fund usually owns the underlying security covered by any outstanding call option. With respect to an outstanding put option, a Fund deposits and maintains with its custodian or segregates on the Fund’s records, cash, or other liquid assets with a value at least equal to the market value of the option that was written.
Once a Fund has written an option, it may terminate its obligation before the option is exercised. The Fund executes a closing transaction by purchasing an option of the same series as the option previously written. The Fund has a gain or loss depending on whether the premium received when the option was written exceeds the closing purchase price plus related transaction costs.
Purchasing Call and Put Options. When a Fund purchases a call option, it receives, in return for the premium it pays, the right to buy from the writer of the option the underlying security at a specified price at any time before the option expires. A Fund purchases call options in anticipation of an increase in the market value of securities that it intends ultimately to buy. During the life of the call option, the Fund is able to buy the underlying security at the exercise price regardless of any increase in the market price of the underlying security. For a call option to result in a gain, the market price of the underlying security must exceed the sum of the exercise price, the premium paid, and transaction costs.
When a Fund purchases a put option, it receives, in return for the premium it pays, the right to sell to the writer of the option the underlying security at a specified price at any time before the option expires. A Fund purchases put options in anticipation of a decline in the market value of the underlying security. During the life of the put option, the Fund is able to sell the underlying security at the exercise price regardless of any decline in the market price of the underlying security. In order for a put option to result in a gain, the market price of the underlying security must decline, during the option period, below the exercise price enough to cover the premium and transaction costs.
Once a Fund purchases an option, it may close out its position by selling an option of the same series as the option previously purchased. The Fund has a gain or loss depending on whether the closing sale price exceeds the initial purchase price plus related transaction costs.
Options on Securities Indices. Each Fund may purchase and sell put and call options on any securities index based on securities in which the Fund may invest. Securities index options are designed to reflect price fluctuations in a group of securities or segment of the securities market rather than price fluctuations in a single security. Options on securities indices are similar to options on securities, except that the exercise of securities index options requires cash payments and does not involve the actual purchase or sale of securities. Each Fund engages in transactions in put and call options on securities
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indices for the same purposes as they engage in transactions in options on securities. When a Fund writes call options on securities indices, it holds in its portfolio underlying securities which, in the judgment of those managing the fund’s investments, correlate closely with the securities index and which have a value at least equal to the aggregate amount of the securities index options.
Index Warrants. A Fund may purchase put warrants and call warrants whose values vary depending on the change in the value of one or more specified securities indices (“index warrants”). Index warrants are generally issued by banks or other financial institutions and give the holder the right, at any time during the term of the warrant, to receive upon exercise of the warrant a cash payment from the issuer based on the value of the underlying index at the time of exercise. In general, if the value of the underlying index rises above the exercise price of the index warrant, the holder of a call warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the value of the index and the exercise price of the warrant; if the value of the underlying index falls, the holder of a put warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the exercise price of the warrant and the value of the index. The holder of a warrant would not be entitled to any payments from the issuer at a time when, in the case of a call warrant, the exercise price is more than the value of the underlying index, or in the case of a put warrant, the exercise price is less than the value of the underlying index. If a Fund were not to exercise an index warrant prior to its expiration, then a Fund would lose the amount of the purchase price paid by it for the warrant. A Fund will normally use index warrants in a manner similar to its use of options on securities indices.
Risks Associated with Option Transactions. An option position may be closed out only on an exchange that provides a secondary market for an option of the same series. A Fund generally purchases or writes only those options for which there appears to be an active secondary market. However, there is no assurance that a liquid secondary market on an exchange exists for any particular option, or at any particular time. If a Fund is unable to effect closing sale transactions in options it has purchased, it has to exercise its options in order to realize any profit and may incur transaction costs upon the purchase or sale of underlying securities. If the Fund is unable to effect a closing purchase transaction for a covered option that it has written, it is not able to sell the underlying securities, or dispose of the assets held in a segregated account, until the option expires or is exercised. A Fund’s ability to terminate option positions established in the over-the-counter market may be more limited than for exchange-traded options and may also involve the risk that broker-dealers participating in such transactions might fail to meet their obligations.
Futures Contracts and Options on Futures Contracts
Funds may purchase and sell futures contracts of many types, including for example, futures contracts covering indexes, financial instruments, and foreign currencies. Funds may purchase and sell financial futures contracts and options on those contracts. Financial futures contracts are commodities contracts based on financial instruments such as U.S. Treasury bonds or bills or on securities indices such as the S&P 500 Index. The Commodity Futures Trading Commission regulates futures contracts, options on futures contracts, and the commodity exchanges on which they are traded. Through the purchase and sale of futures contracts and related options, a Fund may seek to hedge against a decline in the value of securities owned by the Fund or an increase in the price of securities that the Fund plans to purchase. Funds may also purchase and sell futures contracts and related options to maintain cash reserves while simulating full investment in securities and to keep substantially all of its assets exposed to the market. Funds may enter into futures contracts and related options transactions both for hedging and non-hedging purposes.
Futures Contracts. Funds may purchase or sell a futures contract to gain exposure to a particular market asset without directly purchasing that asset. When a Fund sells a futures contract based on a financial instrument, the Fund is obligated to deliver that kind of instrument at a specified future time for a specified price. When a Fund purchases that kind of contract, it is obligated to take delivery of the instrument at a specified time and to pay the specified price. In most instances, these contracts are closed out by entering into an offsetting transaction before the settlement date. The Fund realizes a gain or loss depending on whether the price of an offsetting purchase plus transaction costs are less or more than the price of the initial sale or on whether the price of an offsetting sale is more or less than the price of the initial purchase plus transaction costs. Although the Fund usually liquidates futures contracts on financial instruments, by entering into an offsetting transaction before the settlement date, they may make or take delivery of the underlying securities when it appears economically advantageous to do so.
A futures contract based on a securities index provides for the purchase or sale of a group of securities at a specified future time for a specified price. These contracts do not require actual delivery of securities but result in a cash settlement. The amount of the settlement is based on the difference in value of the index between the time the contract was entered into and the time it is liquidated (at its expiration or earlier if it is closed out by entering into an offsetting transaction).
When a Fund purchases or sells a futures contract, it pays a commission to the futures commission merchant through which the Fund executes the transaction. When entering into a futures transaction, the Fund does not pay the execution price, as it does when it purchases a security, or a premium, as it does when it purchases an option. Instead, the Fund
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deposits an amount of cash or other liquid assets (generally about 5% of the futures contract amount) with its futures commission merchant. This amount is known as “initial margin.” In contrast to the use of margin account to purchase securities, the Fund’s deposit of initial margin does not constitute the borrowing of money to finance the transaction in the futures contract. The initial margin represents a good faith deposit that helps assure the Fund’s performance of the transaction. The futures commission merchant returns the initial margin to the Fund upon termination of the futures contract if the Fund has satisfied all its contractual obligations.
Subsequent payments to and from the futures commission merchant, known as “variation margin,” are required to be made on a daily basis as the price of the futures contract fluctuates, a process known as “marking to market.” The fluctuations make the long or short positions in the futures contract more or less valuable. If the position is closed out by taking an opposite position prior to the settlement date of the futures contract, a final determination of variation margin is made. Any additional cash is required to be paid to or released by the broker and the Fund realizes a loss or gain.
In using futures contracts, a Fund may seek to establish with more certainty than would otherwise be possible the effective price of or rate of return on portfolio securities or securities that the Fund proposes to acquire. A Fund, for example, sells futures contracts in anticipation of a rise in interest rates that would cause a decline in the value of its debt investments. When this kind of hedging is successful, the futures contract increases in value when the Fund’s debt securities decline in value and thereby keeps the Fund’s net asset value from declining as much as it otherwise would. A Fund may also sell futures contracts on securities indices in anticipation of or during a stock market decline in an endeavor to offset a decrease in the market value of its equity investments. When a Fund is not fully invested and anticipates an increase in the cost of securities it intends to purchase, it may purchase financial futures contracts.
When increases in the prices of equities are expected, a Fund may purchase futures contracts on securities indices in order to gain rapid market exposure that may partially or entirely offset increases in the cost of the equity securities it intends to purchase.
With respect to futures contracts that settle in cash, a Fund will cover (and mark-to-market on a daily basis) liquid assets that, when added to the amounts deposited with a futures commission merchant as margin, are equal to the market value of the futures contract. When entering into futures contracts that do not settle in cash (physically-settled futures contracts), a Fund will maintain with its custodian (and mark-to-market on a daily basis) liquid assets that, when added to the amounts deposited with a futures commission merchant as margin, are equal to the full notional value of the contract. Physically-settled derivatives contracts (and written options on such contracts) will be treated like cash-settled contracts when a Fund has entered into a contractual arrangement with a third party futures commission merchant or other counterparty to offset the Fund’s exposure under the contract and, failing that, to assign its delivery obligation under the contract to the counterparty.
Options on Futures Contracts. Funds may also purchase and write call and put options on futures contracts. A call option on a futures contract gives the purchaser the right, in return for the premium paid, to purchase a futures contract (assume a long position) at a specified exercise price at any time before the option expires. A put option gives the purchaser the right, in return for the premium paid, to sell a futures contract (assume a short position), for a specified exercise price, at any time before the option expires.
Upon the exercise of a call, the writer of the option is obligated to sell the futures contract (to deliver a long position to the option holder) at the option exercise price, which will presumably be lower than the current market price of the contract in the futures market. Upon exercise of a put, the writer of the option is obligated to purchase the futures contract (deliver a short position to the option holder) at the option exercise price, which will presumably be higher than the current market price of the contract in the futures market. However, as with the trading of futures, most options are closed out prior to their expiration by the purchase or sale of an offsetting option at a market price that reflects an increase or a decrease from the premium originally paid. Options on futures can be used to hedge substantially the same risks addressed by the direct purchase or sale of the underlying futures contracts. For example, if a Fund anticipates a rise in interest rates and a decline in the market value of the debt securities in its portfolio, it might purchase put options or write call options on futures contracts instead of selling futures contracts.
If a Fund purchases an option on a futures contract, it may obtain benefits similar to those that would result if it held the futures position itself. But in contrast to a futures transaction, the purchase of an option involves the payment of a premium in addition to transaction costs. In the event of an adverse market movement, however, the Fund is not subject to a risk of loss on the option transaction beyond the price of the premium it paid plus its transaction costs.
When a Fund writes an option on a futures contract, the premium paid by the purchaser is deposited with the Fund’s custodian. The Fund must maintain with its futures commission merchant all or a portion of the initial margin requirement on the underlying futures contract. It assumes a risk of adverse movement in the price of the underlying futures contract comparable to that involved in holding a futures position. Subsequent payments to and from the futures commission merchant,
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similar to variation margin payments, are made as the premium and the initial margin requirements are marked to market daily. The premium may partially offset an unfavorable change in the value of portfolio securities, if the option is not exercised, or it may reduce the amount of any loss incurred by the Fund if the option is exercised.
Risks Associated with Futures Transactions. There are many risks associated with transactions in futures contracts and related options. The value of the assets that are the subject of the futures contract may not move in the anticipated direction. A Fund’s successful use of futures contracts is subject to the ability of those managing the fund’s investments to predict correctly the factors affecting the market values of the Fund’s portfolio securities. For example, if a Fund is hedged against the possibility of an increase in interest rates which would adversely affect debt securities held by the Fund and the prices of those debt securities instead increases, the Fund loses part or all of the benefit of the increased value of its securities it hedged because it has offsetting losses in its futures positions. Other risks include imperfect correlation between price movements in the financial instrument or securities index underlying the futures contract, on the one hand, and the price movements of either the futures contract itself or the securities held by the Fund, on the other hand. If the prices do not move in the same direction or to the same extent, the transaction may result in trading losses.
Prior to exercise or expiration, a position in futures may be terminated only by entering into a closing purchase or sale transaction. This requires a secondary market on the relevant contract market. A Fund enters into a futures contract or related option only if there appears to be a liquid secondary market. There can be no assurance, however, that such a liquid secondary market exists for any particular futures contract or related option at any specific time. Thus, it may not be possible to close out a futures position once it has been established. Under such circumstances, the Fund continues to be required to make daily cash payments of variation margin in the event of adverse price movements. In such situations, if the Fund has insufficient cash, it may be required to sell portfolio securities to meet daily variation margin requirements at a time when it may be disadvantageous to do so. In addition, the Fund may be required to perform under the terms of the futures contracts it holds. The inability to close out futures positions also could have an adverse impact on the Fund’s ability effectively to hedge its portfolio.
Most United States futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. This daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day’s settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of contract, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and subjecting some futures traders to substantial losses.
Debt-Linked and Equity-Linked Securities
Each Fund may invest in debt-linked and equity-linked securities. The investment results of such instruments are intended to correspond generally to the performance of one or more specified equity or debt securities, or of a specific index or analogous “basket” of equity or debt securities. Therefore, investing in these instruments involves risks similar to the risks of investing in the underlying stocks or bonds directly. In addition, a Fund bears the risk that the issuer of an equity- or debt-linked security may default on its obligations under the instrument. Equity- and debt-linked securities are often used for many of the same purposes as, and share many of the same risks with, other derivative instruments as well as structured notes. Like many derivatives and structured notes, equity- and debt-linked securities may be considered illiquid, potentially limiting a Fund’s ability to dispose of them.
Hybrid Instruments
A hybrid instrument is a type of derivative that combines a traditional stock or bond with an option or forward contract. Generally, the principal amount, amount payable upon maturity or redemption, or interest rate of a hybrid is tied (positively or negatively) to the price of some currency or securities index or another interest rate or some other economic factor (each a “benchmark”). The interest rate or (unlike most fixed income securities) the principal amount payable at maturity of a hybrid security may be increased or decreased, depending on changes in the value of the benchmark. An example of a hybrid could be a bond issued by an oil company that pays a small base level of interest with additional interest that accrues in correlation to the extent to which oil prices exceed a certain predetermined level. Such a hybrid instrument would be economically similar to a combination of a bond and a call option on oil.
Hybrids can be used as an efficient means of pursuing a variety of investment goals, including currency hedging, duration management and increased total return. Hybrids may not bear interest or pay dividends. The value of a hybrid or its interest rate may be a multiple of a benchmark and, as a result, may be leveraged and move (up or down) more steeply and rapidly than the benchmark. These benchmarks may be sensitive to economic and political events, such as currency devaluations, which cannot be readily foreseen by the purchaser of a hybrid. Under certain conditions, the redemption value of a hybrid could be zero. Thus, an investment in a hybrid may entail significant market risks that are not associated with a similar
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investment in a traditional, U.S. dollar-denominated bond that has a fixed principal amount and pays a fixed rate or floating rate of interest. The purchase of hybrids also exposes the Fund to the credit risk of the issuer of the hybrids. These risks may cause significant fluctuations in the NAV of a Fund.
Certain hybrid instruments may provide exposure to the commodities markets. These are derivative securities with one or more commodity-linked components that have payment features similar to commodity futures contracts, commodity options or similar instruments. Commodity-linked hybrid instruments may be either equity or debt securities, leveraged or unleveraged, and are considered hybrid instruments because they have both security and commodity-like characteristics. A portion of the value of these instruments may be derived from the value of a commodity, futures contract, index or other economic variable and therefore are subject to many of the same risks as investments in those underlying securities, instruments or commodities.
Certain issuers of structured products such as hybrid instruments may be deemed to be investment companies as defined in the 1940 Act. As a result, a Fund’s investments in these products may be subject to limits applicable to investments in investment companies and may be subject to restrictions contained in the 1940 Act.
Spread Transactions
Funds may engage in spread trades, which typically represent a simultaneous purchase and sale of two different contracts designed to capture the change in the relationship in price between the two contracts. Spread transactions are typically accompanied by lower margin requirements and lower volatility than an outright purchase. Funds may purchase spread options. The purchase of a covered spread option gives the Fund the right to put, or sell, a security that it owns at a fixed dollar spread or fixed yield spread in relationship to another security that the Fund does not own, but which is used as a benchmark. The risk to the Fund in purchasing covered spread options is the cost of the premium paid for the spread option and any transaction costs. In addition, there is no assurance that closing transactions will be available. The security covering the spread option is maintained in segregated accounts either with the Fund’s custodian or on the Fund’s records. The Funds do not consider a security covered by a spread option to be “pledged” as that term is used in the Fund’s policy limiting the pledging or mortgaging of assets. The purchase of spread options can be used to protect Funds against adverse changes in prevailing credit quality spreads, i.e., the yield spread between high quality and lower quality securities.
Swap Agreements and Options on Swap Agreements
Funds may engage in swap transactions, including, but not limited to, swap agreements on interest rates, security or commodity indexes, specific securities and commodities, and credit and event-linked swaps, to the extent permitted by its investment restrictions. To the extent a Fund may invest in foreign currency-denominated securities, it may also invest in currency swap agreements and currency exchange rate swap agreements. Funds may also enter into options on swap agreements (“swap options”).
Funds may enter into swap transactions for any legal purpose consistent with its investment objectives and policies, such as for the purpose of attempting to obtain or preserve a particular return or spread at a lower cost than obtaining a return or spread through purchases and/or sales of instruments in other markets; to protect against currency fluctuations; as a duration management technique; to protect against any increase in the price of securities a Fund anticipates purchasing at a later date; to gain exposure to one or more securities, currencies, or interest rates; to take advantage of perceived mispricing in the securities markets; or to gain exposure to certain markets in the most economical way possible.
Swap agreements are two party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments, which may be adjusted for an interest factor. The gross returns to be exchanged or “swapped” between the parties are generally calculated with respect to a “notional amount,” i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency, or in a “basket” of securities or commodities representing a particular index.
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Interest Rate Swaps. Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest (for example, an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal). Forms of swap agreements also include interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or “cap”; interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified rate, or “floor”; and interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels.
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Currency Swaps. A currency swap is an agreement to exchange cash flows on a notional amount based on changes in the relative values of the specified currencies.
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Index Swaps. An index swap is an agreement to make or receive payments based on the different returns that would be achieved if a notional amount were invested in a specified basket of securities (such as the S&P 500 Index) or in some other investment (such as U.S. Treasury Securities).
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Total Return Swaps. A total return swap is an agreement to make payments of the total return from a specified asset or instrument (or a basket of such instruments) during the specified period, in return for payments equal to a fixed or floating rate of interest or the total return from another specified asset or instrument. Alternatively, a total return swap can be structured so that one party will make payments to the other party if the value of the relevant asset or instrument increases, but receive payments from the other party if the value of that asset or instrument decreases.
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Commodity Swap Agreements. Consistent with a Fund’s investment objectives and general investment policies, certain of the Funds may invest in commodity swap agreements. For example, an investment in a commodity swap agreement may involve the exchange of floating-rate interest payments for the total return on a commodity index. In a total return commodity swap, a Fund will receive the price appreciation of a commodity index, a portion of the index, or a single commodity in exchange for paying an agreed-upon fee. If the commodity swap is for one period, a Fund may pay a fixed fee, established at the outset of the swap. However, if the term of the commodity swap is for more than one period, with interim swap payments, a Fund may pay an adjustable or floating fee. With a “floating” rate, the fee may be pegged to a base rate, such as the London Interbank Offered Rate, and is adjusted each period. Therefore, if interest rates increase over the term of the swap contract, a Fund may be required to pay a higher fee at each swap reset date.
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Credit Default Swap Agreements. The “buyer” in a credit default contract is obligated to pay the “seller” a periodic stream of payments over the term of the contract provided that no event of default on an underlying reference obligation has occurred. If an event of default occurs, the seller must pay the buyer the full notional value, or “par value,” of the reference obligation in exchange for the reference obligation. A Fund may be either the buyer or seller in a credit default swap transaction. If a Fund is a buyer and no event of default occurs, the Fund will lose its investment and recover nothing. However, if an event of default occurs, the Fund (if the buyer) will receive the full notional value of the reference obligation that may have little or no value. As a seller, a Fund receives a fixed rate of income throughout the term of the contract, which typically is between six months and five years, provided that there is no default event. If an event of default occurs, the seller must pay the buyer the full notional value of the reference obligation. In addition, collateral posting requirements are individually negotiated and there is no regulatory requirement that a counterparty post collateral to secure its obligations or a specified amount of cash, depending upon the terms of the swap, under a credit default swap. Furthermore, there is no requirement that a party be informed in advance when a credit default swap agreement is sold. Accordingly, a Fund may have difficulty identifying the party responsible for payment of its claims. The notional value of credit default swaps with respect to a particular investment is often larger than the total par value of such investment outstanding and, in event of a default, there may be difficulties in making the required deliveries of the reference investments, possibly delaying payments.
Funds may invest in derivative instruments that provide exposure to one or more credit default swaps. For example, a Fund may invest in a derivative instrument known as the Loan-Only Credit Default Swap Index (“LCDX”), a tradable index with 100 equally-weighted underlying single-name loan-only credit default swaps (“LCDS”). Each underlying LCDS references an issuer whose loans trade in the secondary leveraged loan market. A Fund can either buy the index (take on credit exposure) or sell the index (pass credit exposure to a counterparty). While investing in these types of derivatives will increase the universe of debt securities to which a Fund is exposed, such investments entail additional risks that are not typically associated with investments in other debt securities. Credit default swaps and other derivative instruments related to loans are subject to the risks associated with loans generally, as well as the risks of derivative transactions.
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Investment Pools. Funds may invest in publicly or privately issued interests in investment pools whose underlying assets are credit default, credit-linked, interest rate, currency exchange, equity-linked or other types of swap contracts and related underlying securities or securities loan agreements. The pools’ investment results may be designed to correspond generally to the performance of a specified securities index or “basket” of securities, or sometimes a single security. These types of pools are often used to gain exposure to multiple securities with a smaller investment than would be required to invest directly in the individual securities. They also may be used to gain exposure to foreign securities markets without investing in the foreign securities themselves and/or the relevant foreign market. To the extent that a Fund invests in pools of swaps and related underlying securities or securities loan agreements whose return corresponds to the performance of a foreign securities index or one or more foreign securities, investing in such pools will involve risks similar to the risks of investing in foreign securities. In addition to the risks associated with investing in swaps generally, a Fund bears the risks and costs generally associated with investing in pooled investment vehicles, such as paying the fees and expenses of the pool and the risk that the pool or the operator of the pool may default on its obligations to the holder of interests in the pool, such as a Fund. Interests in privately offered investment pools of swaps may be considered illiquid.
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Contracts for Differences. “Contracts for differences” are swap arrangements in which a Fund may agree with a counterparty that its return (or loss) will be based on the relative performance of two different groups or “baskets” of securities. For example, as to one of the baskets, a Fund’s return is based on theoretical long futures positions in the securities comprising that basket, and as to the other basket, a Fund’s return is based on theoretical short futures positions in the securities comprising that other basket. The notional sizes of the baskets will not necessarily be the same, which can give rise to investment leverage. Funds may also use actual long and short futures positions to achieve the market exposure(s) as contracts for differences. Funds may enter into swaps and contracts for differences for investment return, hedging, risk management and for investment leverage.
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Swaptions. A swap option (also known as “swaptions”) is a contract that gives a counterparty the right (but not the obligation) in return for payment of a premium, to enter into a new swap agreement or to shorten, extend, cancel, or otherwise modify an existing swap agreement, at some designated future time on specified terms. The buyer and seller of the swap option agree on the strike price, length of the option period, the term of the swap, notional amount, amortization and frequency of settlement. Funds may engage in swap options for hedging purposes or in an attempt to manage and mitigate credit and interest rate risk. Funds may write (sell) and purchase put and call swap options. The use of swap options involves risks, including, among others, imperfect correlation between movements of the price of the swap options and the price of the securities, indices or other assets serving as reference instruments for the swap option, reducing the effectiveness of the instrument for hedging or investment purposes.
Obligations under Swap Agreements. The swap agreements a Fund enters into settle in cash and, therefore, provide for calculation of the obligations of the parties to the agreement on a “net basis.” Consequently, a Fund’s current obligations (or rights) under such a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the “net amount”). A Fund’s current obligations under such a swap agreement will be accrued daily (offset against any amounts owed to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by the segregation of assets determined to be liquid by those managing the fund’s investments in accordance with procedures established by the Board, to avoid any potential leveraging of the Fund’s portfolio. In cases where a Fund is a seller of a credit default swap contract, the Fund will segregate liquid assets equal to the notional amount of the contract. Obligations under swap agreements for which a Fund segregates assets will not be construed to be “senior securities” for purposes of a Fund’s investment restriction concerning senior securities.
Risks Associated with Swap Agreements. Swaps can be highly volatile and may have a considerable impact on a Fund’s performance, as the potential gain or loss on any swap transaction is not subject to any fixed limit. Whether a Fund’s use of swap agreements or swap options will be successful in furthering its investment objective of total return will depend on the ability of those managing the fund’s investments to predict correctly whether certain types of investments are likely to produce greater returns than other investments. Because they are two party contracts and because they may have terms of greater than seven days, swap agreements may be considered to be illiquid. Moreover, a Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. The Funds will enter into swap agreements only with counterparties that present minimal credit risks, as determined by those managing the fund’s investments. Certain restrictions imposed on each Fund by the Internal Revenue Code may limit a Fund’s ability to use swap agreements.
Depending on the terms of the particular option agreement, a Fund will generally incur a greater degree of risk when it writes a swap option than it will incur when it purchases a swap option. When a Fund purchases a swap option, it risks losing only the amount of the premium it has paid should it decide to let the option expire unexercised. However, when a Fund writes a swap option, upon exercise of the option the Fund will become obligated according to the terms of the underlying agreement.
Liquidity of Swap Agreements. Some swap markets have grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, these swap markets have become relatively liquid. The liquidity of swap agreements will be determined by those managing the fund’s investments based on various factors, including:
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the frequency of trades and quotations,
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the number of dealers and prospective purchasers in the marketplace,
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dealer undertakings to make a market,
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the nature of the security (including any demand or tender features), and
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the nature of the marketplace for trades (including the ability to assign or offset a portfolio’s rights and obligations relating to the investment).
Such determination will govern whether a swap will be deemed to be within each Fund’s restriction on investments in illiquid securities.
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Valuing Swap Agreements. For purposes of applying a fund’s investment policies and restrictions (as stated in the Prospectuses and this Statement of Additional Information) swap agreements are generally valued by the funds at market value. In the case of a credit default swap, however, in applying certain of the funds’ investment policies and restrictions the fund will value the credit default swap at its notional value or its full exposure value (i.e., the sum of the notional amount for the contract plus the market value), but may value the credit default swap at market value for purposes of applying certain of the funds’ other investment policies and restrictions. For example, a fund may value credit default swaps at full exposure value for purposes of the fund’s credit quality guidelines because such value reflects the fund’s actual economic exposure during the term of the credit default swap agreement. In this context, both the notional amount and the market value may be positive or negative depending on whether the fund is selling or buying protection through the credit default swap. The manner in which certain securities or other instruments are valued by a fund for purposes of applying investment policies and restrictions may differ from the manner in which those investments are valued by other types of investors.
Permissible Uses of Futures and Options on Futures Contracts
Each Fund may enter into futures contracts and related options transactions, for hedging purposes and for other appropriate risk management purposes, and to modify the Fund’s exposure to various currency, commodity, equity, or fixed-income markets. Each Fund may engage in futures trading in an effort to generate returns. When using futures contracts and options on futures contracts for hedging or risk management purposes, each Fund determines that the price fluctuations in the contracts and options are substantially related to price fluctuations in securities held by the Fund or which it expects to purchase. In pursuing traditional hedging activities, each Fund may sell futures contracts or acquire puts to protect against a decline in the price of securities that the Fund owns. Each Fund may purchase futures contracts or calls on futures contracts to protect the Fund against an increase in the price of securities the Fund intends to purchase before it is in a position to do so. When a Fund purchases a futures contract, or writes a call option on a futures contract, it segregates liquid assets that, when added to the value of assets deposited with the futures commission merchant as margin, are equal to the market value of the contract.
Limitations on the Use of Futures, Options on Futures Contracts, and Swaps
All Funds except the Diversified Real Asset Fund and the Global Multi-Strategy Fund. Pursuant to a claim for exclusion filed with the Commodity Futures Trading Commission (“CFTC”) on behalf of the Funds under Rule 4.5, the Funds are not deemed to be “commodity pools” or “commodity pool operators” under the Commodity Exchange Act (“CEA”). The Funds are therefore not subject to registration under the CEA. Rule 4.5 provides that an investment company does not meet the definition of “commodity pool” or “commodity pool operator” if its use of futures contracts, options on futures contracts and swaps is sufficiently limited that the fund can fall within one of two exclusions set out in Rule 4.5. The Funds intend to limit their use of futures contracts, options on futures contracts and swaps to the degree necessary to fall within one of the two exclusions.
Diversified Real Asset Fund and Global Multi-Strategy Fund. The Diversified Real Asset Fund and the Global Multi-Strategy Fund are each deemed to be regulated “commodity pools” under the CEA and as a result may invest in futures contracts, options on futures contracts and swaps in excess of the limitations imposed by the CFTC under Rule 4.5.
Risk of Potential Government Regulation of Derivatives
It is possible that additional government regulation of various types of derivative instruments, including futures, options and swap agreements, may limit or prevent a fund from using such instruments as a part of its investment strategy, and could ultimately prevent a fund from being able to achieve its investment objective. It is difficult to predict the effects future legislation and regulation in this area, but the effects could be substantial and adverse. It is possible that legislative and regulatory activity could limit or restrict the ability of a fund to use certain instruments as a part of its investment strategy. For instance, in December 2015, the SEC proposed new regulations applicable to a mutual fund’s use of derivatives and related instruments.
If adopted as proposed, these regulations could significantly limit or impact a fund’s ability to invest in derivatives and related instruments, limit a fund’s ability to employ certain strategies that use derivatives and/or adversely affect the fund’s performance, efficiency in implementing strategies, and ability to pursue their investment objectives. Limits or restrictions applicable to the counterparties with which the funds engage in derivative transactions could also prevent the funds from using certain instruments.
Fixed-Income Securities
ETNs
Certain funds may invest in, or sell short, exchange-traded notes (“ETNs”). ETNs are typically senior, unsecured, unsubordinated debt securities whose returns are linked to the performance of a particular market index less applicable fees and expenses. ETNs are listed on an exchange and traded in the secondary market. The fund may hold the ETN until maturity, at which time the issuer is obligated to pay a return linked to the performance of the relevant market index. ETNs do not make periodic interest payments and principal is not protected.
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ETNs are subject to credit risk and the value of the ETN may drop due to a downgrade in the issuer’s credit rating, despite the underlying market benchmark or strategy remaining unchanged. The value of an ETN may also be influenced by time to maturity, level of supply and demand for the ETN, volatility and lack of liquidity in underlying assets, changes in the applicable interest rates, changes in the issuer’s credit rating, and economic, legal, political, or geographic events that affect the referenced underlying asset. When a Fund invests in ETNs, it will bear their proportionate share of any fees and expenses borne by the ETN. The Fund’s decision to sell its ETN holdings may be limited by the availability of a secondary market. ETNs are also subject to tax risk. The Internal Revenue Service (“IRS”) and Congress are considering proposals that would change the timing and character of income and gains from ETNs. There may also be times when an ETN share trades at a premium or discount to its market benchmark or strategy.
Funding Agreements
Some Funds may invest in Guaranteed Investment Contracts (“GICs”) and similar funding agreements. In connection with these investments, a Fund makes cash contributions to a deposit fund of an insurance company’s general account. The insurance company then credits to a Fund on a monthly basis guaranteed interest, which is based on an index (such as LIBOR, SOFR, or a similar reference rate). The funding agreements provide that this guaranteed interest will not be less than a certain minimum rate. The purchase price paid for a funding agreement becomes part of the general assets of the insurance company. GICs are considered illiquid securities and will be subject to any limitations on such investments, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available. Generally, funding agreements are not assignable or transferable without the permission of the issuing company, and an active secondary market in some funding agreements does not currently exist. Investments in GICs are subject to the risks associated with fixed-income instruments generally, and are specifically subject to the credit risk associated with an investment in the issuing insurance company.
Inflation-Indexed Bonds
Some Funds may invest in inflation-indexed bonds or inflation protected debt securities, which are fixed income securities whose value is periodically adjusted according to the rate of inflation. Two structures are common. The U.S. Treasury and some other issuers utilize a structure that accrues inflation into the principal value of the bond. Most other issuers pay out the Consumer Price Index accruals as part of a semi-annual coupon. Inflation-indexed securities issued by the U.S. Treasury (Treasury Inflation Protected Securities or TIPS) have maturities of approximately five, ten or thirty years, although it is possible that securities with other maturities will be issued in the future. The U.S. Treasury securities pay interest on a semi-annual basis equal to a fixed percentage of the inflation-adjusted principal amount. If the periodic adjustment rate measuring inflation falls, the principal value of inflation-indexed bonds will be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a smaller principal amount) will be reduced. The value of inflation-indexed bonds is expected to change in response to changes in real interest rates. Real interest rates in turn are tied to the relationship between nominal interest rates and the rate of inflation. Therefore, if the rate of inflation rises at a faster rate than nominal interest rates, real interest rates might decline, leading to an increase in value of inflation-indexed bonds. In contrast, if nominal interest rates increase at a faster rate than inflation, real interest rates might rise, leading to a decrease in value of inflation-indexed bonds. While these securities are expected to be protected from long-term inflationary trends, short-term increases in inflation may lead to a decline in value. If interest rates rise due to reasons other than inflation (for example, due to changes in currency exchange rates), investors in these securities may not be protected to the extent that the increase is not reflected in the bond’s inflation measure.
The periodic adjustment of U.S. inflation-indexed bonds is tied to the Consumer Price Index for Urban Consumers (CPI-U), which is calculated monthly by the U.S. Bureau of Labor Statistics. The CPI-U is a measurement of changes in the cost of living, made up of components such as housing, food, transportation and energy. Inflation-indexed bonds issued by a foreign government are generally adjusted to reflect a comparable inflation index calculated by that government. Any increase in the principal amount of an inflation-indexed bond will be considered taxable ordinary income, even though investors do not receive their principal until maturity.
Step-Coupon Securities
Each Fund may invest in step-coupon securities. Step-coupon securities trade at a discount from their face value and pay coupon interest. The coupon rate is low for an initial period and then increases to a higher coupon rate thereafter. Market values of these types of securities generally fluctuate in response to changes in interest rates to a greater degree than conventional interest-paying securities of comparable term and quality. Under many market conditions, investments in such securities may be illiquid, making it difficult for a Fund to dispose of them or determine their current value.
“Stripped” Securities
Each Fund may invest in stripped securities, which are usually structured with two or more classes that receive different proportions of the interest and principal distribution on a pool of U.S. government or foreign government securities or mortgage assets. In some cases, one class will receive all of the interest (the interest-only or “IO” class), while the other class will receive all of the principal (the principal-only or “PO” class). Stripped securities commonly have greater market
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volatility than other types of fixed-income securities. In the case of stripped mortgage securities, if the underlying mortgage assets experience greater than anticipated payments of principal, a Fund may fail to recoup fully its investments in IOs. Stripped securities may be illiquid. Stripped securities may be considered derivative securities.
Structured Notes
Some Funds may invest in a broad category of instruments known as “structured notes.” These instruments are debt obligations issued by industrial corporations, financial institutions or governmental or international agencies. Traditional debt obligations typically obligate the issuer to repay the principal plus a specified rate of interest. Structured notes, by contrast, obligate the issuer to pay amounts of principal or interest that are determined by reference to changes in some external factor or factors, or the principal and interest rate may vary from the stated rate because of changes in these factors. For example, the issuer’s obligations could be determined by reference to changes in the value of a foreign currency, an index of securities (such as the S&P 500 Index) or an interest rate (such as the U.S. Treasury bill rate). In some cases, the issuer’s obligations are determined by reference to changes over time in the difference (or “spread”) between two or more external factors (such as the U.S. prime lending rate and the total return of the stock market in a particular country, as measured by a stock index). In some cases, the issuer’s obligations may fluctuate inversely with changes in an external factor or factors (for example, if the U.S. prime lending rate goes up, the issuer’s interest payment obligations are reduced). In some cases, the issuer’s obligations may be determined by some multiple of the change in an external factor or factors (for example, three times the change in the U.S. Treasury bill rate). In some cases, the issuer’s obligations remain fixed (as with a traditional debt instrument) so long as an external factor or factors do not change by more than the specified amount (for example, if the value of a stock index does not exceed some specified maximum), but if the external factor or factors change by more than the specified amount, the issuer’s obligations may be sharply reduced.
Structured notes can serve many different purposes in the management of a fund. For example, they can be used to increase a fund’s exposure to changes in the value of assets that a fund would not ordinarily purchase directly (such as stocks traded in a market that is not open to U.S. investors). They also can be used to hedge the risks associated with other investments a fund holds. For example, if a structured note has an interest rate that fluctuates inversely with general changes in a country’s stock market index, the value of the structured note would generally move in the opposite direction to the value of holdings of stocks in that market, thus moderating the effect of stock market movements on the value of a fund’s portfolio as a whole. The cash flow on the underlying instruments may be apportioned among the newly issued structured notes to create securities with different investment characteristics such as varying maturities, payment priorities or interest rate provisions; the extent of the payments made with respect to structured notes is dependent on the extent of the cash flow on the underlying instruments.
Structured notes involve special risks. As with any debt obligation, structured notes involve the risk that the issuer will become insolvent or otherwise default on its payment obligations. This risk is in addition to the risk that the issuer’s obligations (and thus the value of a fund’s investment) will be reduced because of adverse changes in the external factor or factors to which the obligations are linked. The value of structured notes will in many cases be more volatile (that is, will change more rapidly or severely) than the value of traditional debt instruments. Volatility will be especially high if the issuer’s obligations are determined by reference to some multiple of the change in the external factor or factors. Structured notes also may be more difficult to accurately price than less complex securities and instruments or more traditional debt securities. Many structured notes have limited or no liquidity, so that a fund would be unable to dispose of the investment prior to maturity. As with all investments, successful use of structured notes depends in significant part on the accuracy of the analysis of those managing the fund’s investments of the issuer’s creditworthiness and financial prospects, and of their forecast as to changes in relevant economic and financial market conditions and factors. In instances where the issuer of a structured note is a foreign entity, the usual risks associated with investments in foreign securities apply. Structured notes may be considered derivative securities.
Zero-Coupon Securities
Each Fund may invest in zero-coupon securities. Zero-coupon securities have no stated interest rate and pay only the principal portion at a stated date in the future. They usually trade at a substantial discount from their face (par) value. Zero-coupon securities are subject to greater market value fluctuations in response to changing interest rates than debt obligations of comparable maturities that make distributions of interest in cash.
Foreign Currency Transactions
Options on Foreign Currencies
A Fund may buy and write options on foreign currencies in a manner similar to that in which futures or forward contracts on foreign currencies will be utilized. Each Fund may use options on foreign currencies to hedge against adverse changes in foreign currency conversion rates. For example, a decline in the U.S. dollar value of a foreign currency in which portfolio securities are denominated will reduce the U.S. dollar value of such securities, even if their value in the foreign currency remains constant. In order to protect against such diminutions in the value of the portfolio securities, a Fund may buy put options on the foreign currency. If the value of the currency declines, a Fund will have the right to sell such currency for
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a fixed amount in U.S. dollars, thereby offsetting, in whole or in part, the adverse effect on its portfolio. Conversely, when a rise in the U.S. dollar value of a currency in which securities to be acquired are denominated is projected, thereby increasing the cost of such securities, a Fund may buy call options on the foreign currency. The purchase of such options could offset, at least partially, the effects of the adverse movements in exchange rates. As in the case of other types of options, however, the benefit to a Fund from purchases of foreign currency options will be reduced by the amount of the premium and related transaction costs. In addition, if currency exchange rates do not move in the direction or to the extent desired, a Fund could sustain losses or lesser gains on transactions in foreign currency options that would require a Fund to forgo a portion or all of the benefits of advantageous changes in those rates.
Each Fund also may write options on foreign currencies. For example, to hedge against a potential decline in the U.S. dollar due to adverse fluctuations in exchange rates, a Fund could, instead of purchasing a put option, write a call option on the relevant currency. If the decline expected by a Fund occurs, the option will most likely not be exercised and the diminution in value of portfolio securities will be offset at least in part by the amount of the premium received. Similarly, instead of purchasing a call option to hedge against a potential increase in the U.S. dollar cost of securities to be acquired, a Fund could write a put option on the relevant currency which, if rates move in the manner projected by a Fund, will expire unexercised and allow a Fund to hedge the increased cost up to the amount of the premium. If exchange rates do not move in the expected direction, the option may be exercised and a Fund would be required to buy or sell the underlying currency at a loss, which may not be fully offset by the amount of the premium. Through the writing of options on foreign currencies, a Fund also may lose all or a portion of the benefits that might otherwise have been obtained from favorable movements in exchange rates.
Futures on Currency
A foreign currency future provides for the future sale by one party and purchase by another party of a specified quantity of foreign currency at a specified price and time. A public market exists in futures contracts covering a number of foreign currencies. Currency futures contracts are exchange-traded and change in value to reflect movements of a currency or a basket of currencies. Settlement must be made in a designated currency.
Forward Foreign Currency Exchange Contracts
Each Fund may, but is not obligated to, enter into forward foreign currency exchange contracts. Currency transactions include forward currency contracts and exchange listed or over-the-counter options on currencies. A forward currency contract involves a privately negotiated obligation to purchase or sell a specific currency at a specified future date at a price set at the time of the contract.
The typical use of a forward contract is to “lock in” the price of a security in U.S. dollars or some other foreign currency which a Fund is holding in its portfolio. By entering into a forward contract for the purchase or sale, for a fixed amount of dollars or other currency, of the amount of foreign currency involved in the underlying security transactions, a Fund may be able to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar or other currency which is being used for the security purchase and the foreign currency in which the security is denominated in or exposed to during the period between the date on which the security is purchased or sold and the date on which payment is made or received.
Those managing the fund’s investments also may from time to time utilize forward contracts for other purposes. For example, they may be used to hedge a foreign security held in the portfolio or a security which pays out principal tied to an exchange rate between the U.S. dollar and a foreign currency, against a decline in value of the applicable foreign currency. They also may be used to lock in the current exchange rate of the currency in which those securities anticipated to be purchased are denominated in or exposed to. At times, each Fund may enter into “cross-currency” hedging transactions involving currencies other than those in which securities are held or proposed to be purchased are denominated.
Each Fund segregates liquid assets in an amount equal to (1) at least its daily marked-to-market (net) obligation (i.e., its daily net liability, if any) with respect to forward currency contracts that are cash settled and (2) the net notional value with respect to forward currency contracts that are not cash settled. It should be noted that the use of forward foreign currency exchange contracts does not eliminate fluctuations in the underlying prices of the securities. It simply establishes a rate of exchange between the currencies that can be achieved at some future point in time. Additionally, although such contracts tend to minimize the risk of loss due to a decline in the value of the hedged currency, they also tend to limit any potential gain that might result if the value of the currency increases.
Foreign Securities
Investing in foreign securities carries political and economic risks distinct from those associated with investing in the United States. Investments in foreign securities also involve the risk of possible adverse changes in investment or exchange control regulations, expropriation or confiscatory taxation, limitation on or delays in the removal of funds or other assets of a fund, political or financial instability or diplomatic and other developments that could affect such investments. Foreign investments may be affected by actions of foreign governments adverse to the interests of U.S. investors, including the possibility of
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expropriation or nationalization of assets, confiscatory taxation, restrictions on U.S. investment or on the ability to repatriate assets or to convert currency into U.S. Dollars. There may be a greater possibility of default by foreign governments or foreign-government sponsored enterprises. Investments in foreign countries also involve a risk of local political, economic or social instability, military action or unrest or adverse diplomatic developments.
Asia-Pacific Countries
In addition to the risks of foreign investing and the risks of investing in emerging markets, the developing market Asia-Pacific countries in which a Fund may invest are subject to certain additional or specific risks. In the Asia-Pacific markets, there is a high concentration of market capitalization and trading volume in a small number of issuers representing a limited number of industries, as well as a high concentration of investors and financial intermediaries. Many of these markets also may be affected by developments with respect to more established markets in the region, such as Japan and Hong Kong. Brokers in developing market Asia-Pacific countries typically are fewer in number and less well capitalized than brokers in the United States.
Many of the developing market Asia-Pacific countries may be subject to a greater degree of economic, political and social instability than is the case in the United States and Western European countries. Such instability may result from, among other things: (i) authoritarian governments or military involvement in political and economic decision- making, including changes in government through extra-constitutional means; (ii) popular unrest associated with demands for improved political, economic and social conditions; (iii) internal insurgencies; (iv) hostile relations with neighboring countries; and/or (v) ethnic, religious and racial disaffection. In addition, the governments of many of such countries, such as Indonesia, have a heavy role in regulating and supervising the economy.
An additional risk common to most such countries is that the economy is heavily export-oriented and, accordingly, is dependent upon international trade. The existence of overburdened infrastructure and obsolete financial systems also present risks in certain countries, as do environmental problems. Certain economies also depend to a significant degree upon exports of primary commodities and, therefore, are vulnerable to changes in commodity prices that, in turn, may be affected by a variety of factors. The legal systems in certain developing market Asia-Pacific countries also may have an adverse impact on a Fund. The rights of investors in developing market Asia-Pacific companies may be more limited than those of shareholders of U.S. corporations. It may be difficult or impossible to obtain and/or enforce a judgment in a developing market Asia-Pacific country.
China
Investing in China involves special considerations, including: the risk of nationalization or expropriation of assets or confiscatory taxation; greater governmental involvement in and control over the economy, interest rates and currency exchange rates; controls on foreign investment and limitations on repatriation of invested capital; greater social, economic and political uncertainty; dependency on exports and the corresponding importance of international trade; and currency exchange rate fluctuations. The government of China maintains strict currency controls in support of economic, trade and political objectives and regularly intervenes in the currency market. The government’s actions in this respect may not be transparent or predictable. Furthermore, it is difficult for foreign investors to directly access money market securities in China because of investment and trading restrictions. These and other factors may decrease the value and liquidity of a fund’s investments.
A fund may obtain exposure to companies based or operated in China by investing through legal structures known as variable interest entities (“VIEs”). VIEs are not formally recognized under Chinese law and are subject to risks, such as the risk that China could cease to allow VIEs, could impose new restrictions on VIEs, or could deem the contractual arrangements of VIEs unenforceable. These risks could limit or eliminate the remedies and rights available to VIEs and their investors, such as a fund. If these risks materialize, the value of a fund’s investments in VIEs could be adversely affected, and a fund could incur significant losses with no available recourse.
Investments in Stock Connect and Bond Connect
Funds may invest in China A shares, which are shares of certain Chinese companies listed and traded through the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect programs (“Stock Connect”). Stock Connect is a securities trading and clearing program established by Hong Kong Exchanges and Clearing Limited, the Shanghai Stock Exchange (“SSE”), the Shenzhen Stock Exchange (“SZSE”) and China Securities Depository and Clearing Corporation Limited, which seeks to provide mutual stock market access between Mainland China and Hong Kong. Trading through Stock Connect is subject to numerous restrictions and risks that could impair the Fund’s ability to invest in or sell China A shares and adversely affect the Fund’s performance, such as the following:
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China A shares generally may not be sold, purchased or otherwise transferred other than through Stock Connect in accordance with applicable rules, regulations, and restrictions. Such securities may lose their eligibility, in which case they presumably could be sold but could no longer be purchased through Stock Connect. Market volatility and settlement difficulties in the China A share markets may result in significant fluctuations in the prices and liquidity of the securities
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traded on such markets. Further regulations or restrictions, such as limitations on redemptions or suspension of trading, may adversely impact the Fund.
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Stock Connect is generally only available on business days when both the China and Hong Kong markets are open and when banking services are available in both markets on the corresponding settlement days. As a result, a Fund may not be able trade when it would be otherwise attractive to do so, and the Fund may not be able to dispose of its China A shares in a timely manner.
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Investing in China A shares is subject to Stock Connect’s clearance and settlement procedures, which could pose risks to the Fund. Certain requirements must be completed before the market opening, or a Fund cannot sell the shares on that trading day. Stock Connect also imposes quotas that limit aggregate net purchases on an exchange on a particular day, and an investor cannot purchase and sell the same security through Stock Connect on the same trading day. Once the daily quota is reached, orders to purchase additional China A shares through Stock Connect will be rejected. Such restrictions could limit a Fund’s ability to sell its China A shares in a timely manner, or to sell them at all.
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If a Fund holds 5% or more of a China A share issuer’s total shares through Stock Connect investments, the Fund must return any profits obtained from the purchase and sale of those shares if both transactions occur within a six-month period. All accounts managed by the Funds’ Advisor and/or its affiliates will be aggregated for purposes of this 5% limitation, which makes it more likely that a Fund’s profits may be subject to these limitations.
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Stock Connect uses an omnibus clearing structure, and the Fund’s shares will be registered in its custodian’s name on the Central Clearing and Settlement System. This may limit the ability of the Fund’s advisor to effectively manage a Fund, and may expose the Fund to the credit risk of its custodian or to greater risk of expropriation. Investment in China A shares through Stock Connect may be available only through a single broker that is an affiliate of the Fund’s custodian, which may affect the quality of execution provided by such broker.
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China A shares purchased through Stock Connect will be held via a book entry omnibus account in the name of Hong Kong Securities Clearing Company Limited (“HKSCC”), Hong Kong’s clearing entity, and not the Fund’s name as the beneficial owner. Therefore, a Fund’s ability to exercise its rights as a shareholder and to pursue claims against the issuer of China A shares may be limited. While Chinese regulations and the Hong Kong Stock Exchange have issued clarifications and guidance supporting the concept of beneficial ownership through Stock Connect, the interpretation of beneficial ownership in China by regulators and courts may continue to evolve.
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The Fund’s investments in China A shares through Stock Connect are generally subject to Chinese securities regulations and listing rules, among other restrictions. The Fund will not benefit from access to Hong Kong investor compensation funds, which are set up to protect against defaults of trades, when investing through Stock Connect. Investments in China A shares may not be covered by the securities investor protection programs of the exchanges and, without the protection of such programs, will be subject to the risk of default by the broker. If the depository of the SSE and the SZSE defaulted, a Fund may not be able to recover fully its losses from the depository or may be delayed in receiving proceeds as part of any recovery process.
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Fees, costs and taxes imposed on foreign investors (such as the Fund) may be higher than comparable fees, costs and taxes imposed on owners of other securities that provide similar investment exposure. Trades using Stock Connect may also be subject to various fees, taxes and market charges imposed by Chinese market participants and regulatory authorities. Uncertainties in China’s tax rules related to the taxation of income and gains from investments in China A shares could result in unexpected tax liabilities for the Fund, and the withholding tax treatment of dividends and capital gains payable to overseas investors currently is unsettled.
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Because trades of eligible China A shares on Stock Connect must be settled in Renminbi (RMB), the Chinese currency, Funds investing through Stock Connect will be exposed to RMB currency risks. The ability to hedge RMB currency risks may be limited. The RMB is subject to exchange control restrictions, and the Fund could be adversely affected by delays in converting currencies into RMB and vice versa.
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Because Stock Connect is in its early stages, the effect on the market for trading China A shares with the introduction of numerous foreign investors is currently unknown. Stock Connect is relatively new and may be subject to further interpretation and guidance. There can be no assurance as to Stock Connect’s continued existence or whether future developments regarding the program may restrict or adversely affect the Fund’s investments or returns.
Funds may also invest in China Interbank bonds traded on the China Interbank Bond Market (“CIBM”) through the China - Hong Kong Bond Connect program (“Bond Connect”). In China, the Hong Kong Monetary Authority Central Money Markets Unit holds Bond Connect securities on behalf of investors (such as the Fund) in accounts maintained with maintained with a China-based custodian (either the China Central Depository & Clearing Co. or the Shanghai Clearing House). Investments using Bond Connect are subject to risks similar to those described above with respect to Stock Connect.
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Europe
The economies and markets of European countries are often closely connected and interdependent, and events in one European country can have an adverse impact on other European countries. Certain funds may invest in securities of issuers that are domiciled in, or have significant operations in, member countries of the Economic and Monetary Union of the European Union (the “EU”), which requires member countries to comply with restrictions on inflation rates, deficits, interest rates, debt levels and fiscal and monetary controls. Decreasing imports or exports, changes in governmental or EU regulations on trade, changes in the exchange rate of the euro (the common currency of certain EU countries), the default or threat of default by an EU member country on its sovereign debt, and/or an economic recession in an EU member country may have a significant adverse effect on the economies of EU member countries and their trading partners, including some or all of the emerging markets countries. Although certain European countries do not use the euro, many of these countries are obliged to meet the criteria for joining the euro zone. Consequently, these countries must comply with many of the restrictions noted above. The European financial markets have experienced volatility and adverse trends in recent years due to concerns about economic downturns, rising government debt levels and the possible default of government debt in several European countries. Further defaults or restructurings by governments and other entities of their debt could have additional adverse effects on economies, financial markets and asset valuations around the world. In addition, one or more countries may abandon the euro and/or withdraw from the EU, including, with respect to the latter, the United Kingdom (the “UK”), which is a significant market in the global economy. The impact of these actions, especially if they occur in a disorderly fashion, is not clear but could be significant and far-reaching and could adversely impact the value of investments in the region.
The UK’s departure from the EU (referred to as “Brexit”) continues to cause significant uncertainty and may adversely impact the financial results and operations of various European companies and economies. The effects of Brexit will largely depend on any agreements the UK makes to retain access to EU markets. Brexit may result in legal and tax uncertainty and divergent national laws and regulations as the UK determines which EU laws to replace or replicate. The UK may be less stable than it has been in recent years and investments in the UK may be more volatile. Additionally, Brexit could lead to global economic uncertainty and result in significant volatility in the global stock markets and currency exchange rate fluctuations. Any of these effects of Brexit, and other consequences that are difficult to predict at this time, could adversely affect the value of a fund’s investments.
Japan
Japanese investments may be significantly affected by events influencing Japan’s economy and the exchange rate between the Japanese yen and the U.S. Dollar. Japan’s economy fell into a long recession in the 1990s. After a few years of mild recovery in the mid-2000s, Japan’s economy fell into another recession as a result of the recent global economic crisis. Japan is heavily dependent on exports and foreign oil. Japan is located in a seismically active area, and in 2011 experienced an earthquake of a sizable magnitude and a tsunami that significantly affected important elements of its infrastructure and resulted in a nuclear crisis. Since these events, Japan’s financial markets have fluctuated dramatically. The full extent of the impact of these events on Japan’s economy and on foreign investment in Japan is difficult to estimate. Japan’s economic prospects may be affected by the political and military situations of its near neighbors, notably North and South Korea, China, and Russia.
Latin America
Most Latin American countries have experienced, at one time or another, severe and persistent levels of inflation, including, in some cases, hyperinflation. This has, in turn, led to high interest rates, extreme measures by governments to keep inflation in check, and a generally debilitating effect on economic growth. Although inflation in many countries has lessened, there is no guarantee it will remain at lower levels. In addition, the political history of certain Latin American countries has been characterized by political uncertainty, intervention by the military in civilian and economic spheres, and political corruption. Such developments, if they were to reoccur, could reverse favorable trends toward market and economic reform, privatization, and removal of trade barriers, and result in significant disruption in securities markets. Certain Latin American countries may also have managed currencies which are maintained at artificial levels to the U.S. Dollar rather than at levels determined by the market. This type of system can lead to sudden and large adjustments in the currency which, in turn, can have a disruptive and negative effect on foreign investors. There is no significant foreign exchange market for many currencies and it would, as a result, be difficult for the Fund to engage in foreign currency transactions designed to protect the value of the Fund’s interests in securities denominated in such currencies. Finally, a number of Latin American countries are among the largest debtors of developing markets. There have been moratoria on, and reschedulings of, repayment with respect to these debts. Such events can restrict the flexibility of these debtor nations in the international markets and result in the imposition of onerous conditions on their economies.
High Yield Securities
Each Fund may invest a portion of its assets in bonds that are rated below investment grade (sometimes called “high yield bonds” or “junk bonds”) which are rated at the time of purchase Ba1 or lower by Moody’s and BB+ or lower by S&P Global (if the bond has been rated by only one of those agencies, that rating will determine whether the bond is below investment
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grade; if the bond has not been rated by either of those agencies, those managing the fund’s investments will determine whether the bond is of a quality comparable to those rated below investment grade). Lower rated bonds involve a higher degree of credit risk, which is the risk that the issuer will not make interest or principal payments when due. In the event of an unanticipated default, a fund would experience a reduction in its income and could expect a decline in the market value of the bonds so affected. Issuers of high yield securities may be involved in restructurings or bankruptcy proceedings that may not be successful. If an issuer defaults, it may not be able to pay all or a portion of interest and principal owed to the fund, it may exchange the high yield securities owned by the fund for other securities, including equities, and/or the fund may incur additional expenses while seeking recovery of its investment. Some funds may also invest in unrated bonds of foreign and domestic issuers. Unrated bonds, while not necessarily of lower quality than rated bonds, may not have as broad a market. Because of the size and perceived demand of the issue, among other factors, certain municipalities may not incur the expense of obtaining a rating. Those managing the fund’s investments will analyze the creditworthiness of the issuer, as well as any financial institution or other party responsible for payments on the bond, in determining whether to purchase unrated bonds. Unrated bonds will be included in the limitation each fund has with regard to high yield bonds unless those managing the fund’s investments deem such securities to be the equivalent of investment grade bonds. Some of the high yield securities consist of Rule 144A securities. High yield securities may contain any type of interest rate payment or reset terms, including fixed rate, adjustable rate, zero coupon, contingent, deferred, payment-in-kind and those with auction rate features.
Initial Public Offerings (“IPOs”)
An IPO is a company’s first offering of stock to the public. IPO risk is that the market value of IPO shares will fluctuate considerably due to factors such as the absence of a prior public market, unseasoned trading, the small number of shares available for trading, and limited information about the issuer. The purchase of IPO shares may involve high transaction costs. IPO shares are subject to market risk and liquidity risk. In addition, the market for IPO shares can be speculative and/or inactive for extended periods. The limited number of shares available for trading in some IPOs may make it more difficult for a fund to buy or sell significant amounts of shares without an unfavorable impact on prevailing prices. Investors in IPO shares can be affected by substantial dilution in the value of their shares by sales of additional shares and by concentration of control in existing management and principal shareholders.
When a fund’s asset base is small, a significant portion of the fund’s performance could be attributable to investments in IPOs because such investments would have a magnified impact on the fund. As the fund’s assets grow, the effect of the fund’s investments in IPOs on the fund’s performance probably will decline, which could reduce the fund’s performance. Because of the price volatility of IPO shares, a fund may choose to hold IPO shares for a very short period. This may increase the turnover of the fund’s portfolio and lead to increased expenses to the fund, such as commissions and transaction costs. By selling IPO shares, the fund may realize taxable gains it will subsequently distribute to shareholders.
Interfund Lending and Borrowing
The SEC has granted an exemption permitting Principal Funds to borrow money from and lend money to each other for temporary or emergency purposes. The loans are subject to a number of conditions designed to ensure fair and equitable treatment of all participating funds, including the following: (1) no fund may borrow money through the program unless it receives a more favorable interest rate than a rate approximating the lowest interest rate at which bank loans would be available to any of the participating funds under a loan agreement; and (2) no fund may lend money through the program unless it receives a more favorable return than that available from an investment in overnight repurchase agreements. In addition, a fund may participate in the program only if and to the extent that such participation is consistent with a fund’s investment objectives and policies. Interfund loans and borrowings have a maximum duration of seven days. Loans may be called on one day’s notice. A fund may have to borrow from a bank at a higher interest rate if an interfund loan is called or not renewed. Any delay in repayment to a lending fund could result in a lost investment opportunity or additional costs. The Board is responsible for overseeing and periodically reviewing the interfund lending program.
Inverse Floating Rate and Other Variable and Floating Rate Instruments
Each Fund may purchase variable and floating rate instruments. These instruments may include variable amount master demand notes that permit the indebtedness thereunder to vary in addition to providing for periodic adjustments in the interest rate. These instruments may also include leveraged inverse floating rate debt instruments, or “inverse floaters”. The interest rate of an inverse floater resets in the opposite direction from the market rate of interest on a security or interest to which it is related. An inverse floater may be considered to be leveraged to the extent that its interest rate varies by a magnitude that exceeds the magnitude of the change in the index rate of interest and is subject to many of the same risks as derivatives. The higher degree of leverage inherent in inverse floaters is associated with greater volatility in their market values. Certain of these investments may be illiquid. The absence of an active secondary market with respect to these investments could make it difficult for a Fund to dispose of a variable or floating rate note if the issuer defaulted on its payment obligation or during periods that a Fund is not entitled to exercise its demand rights, and a Fund could, for these or other reasons, suffer a loss with respect to such instruments.
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Master Limited Partnerships (“MLPs”)
An MLP is an entity that is generally taxed as a partnership for federal income tax purposes and that derives each year at least 90% of its gross income from “Qualifying Income”. Qualifying Income includes interest, dividends, real estate rents, gain from the sale or disposition of real property, income and gain from commodities or commodity futures, and income and gain from mineral or natural resources activities that generate Qualifying Income. MLP interests (known as units) are traded on securities exchanges or over-the-counter. An MLP’s organization as a partnership and compliance with the Qualifying Income rules generally eliminates federal tax at the entity level.
An MLP has one or more general partners (who may be individuals, corporations, or other partnerships) which manage the partnership, and limited partners, which provide capital to the partnership but have no role in its management. Typically, the general partner is owned by company management or another publicly traded sponsoring corporation. When an investor buys units in an MLP, the investor becomes a limited partner. Holders of MLP units have limited control and voting rights on matters affecting the partnership and are exposed to a remote possibility of liability for all of the obligations of that MLP in the event that a court determines that the rights of the holders of MLP units to vote to remove or replace the general partner of that MLP, to approve amendments to that MLP’s partnership agreement, or to take other action under the partnership agreement of that MLP would constitute “control” of the business of that MLP, or a court or governmental agency determines that the MLP is conducting business in a state without complying with the partnership statute of that state. Holders of MLP units are also exposed to the risk that they will be required to repay amounts to the MLP that are wrongfully distributed to them.
The business of certain MLPs is affected by supply and demand for energy commodities because such MLPs derive revenue and income based upon the volume of the underlying commodity produced, transported, processed, distributed, and/ or marketed. Pipeline MLPs have indirect commodity exposure to oil and gas price volatility because, although they do not own the underlying energy commodity, the general level of commodity prices may affect the volume of the commodity the MLP delivers to its customers and the cost of providing services such as distributing natural gas liquids. The costs of natural gas pipeline MLPs to perform services may exceed the negotiated rates under “negotiated rate” contracts. Processing MLPs may be directly affected by energy commodity prices. Propane MLPs own the underlying energy commodity, and therefore have direct exposure to energy commodity prices. The MLP industry in general could be hurt by market perception that MLP’s performance and valuation are directly tied to commodity prices.
Pipeline MLPs are common carrier transporters of natural gas, natural gas liquids (primarily propane, ethane, butane and natural gasoline), crude oil or refined petroleum products (gasoline, diesel fuel and jet fuel). Pipeline MLPs also may operate ancillary businesses such as storage and marketing of such products. Pipeline MLPs derive revenue from capacity and transportation fees. Historically, pipeline output has been less exposed to cyclical economic forces due to its low cost structure and government-regulated nature. In addition, most pipeline MLPs have limited direct commodity price exposure because they do not own the product being shipped.
Processing MLPs are gatherers and processors of natural gas as well as providers of transportation, fractionation and storage of natural gas liquids (“NGLs”). Processing MLPs derive revenue from providing services to natural gas producers, which require treatment or processing before their natural gas commodity can be marketed to utilities and other end user markets. Revenue for the processor is fee based, although it is not uncommon to have some participation in the prices of the natural gas and NGL commodities for a portion of revenue.
Propane MLPs are distributors of propane to homeowners for space and water heating. Propane MLPs derive revenue from the resale of the commodity on a margin over wholesale cost. The ability to maintain margin is a key to profitability. Propane serves approximately 3% of the household energy needs in the United States, largely for homes beyond the geographic reach of natural gas distribution pipelines. Approximately 70% of annual cash flow is earned during the winter heating season (October through March). Accordingly, volumes are weather dependent, but have utility type functions similar to electricity and natural gas.
MLPs operating interstate pipelines and storage facilities are subject to substantial regulation by the Federal Energy Regulatory Commission (“FERC”), which regulates interstate transportation rates, services and other matters regarding natural gas pipelines including: the establishment of rates for service; regulation of pipeline storage and liquified natural gas facility construction; issuing certificates of need for companies intending to provide energy services or constructing and operating interstate pipeline and storage facilities; and certain other matters. FERC also regulates the interstate transportation of crude oil, including: regulation of rates and practices of oil pipeline companies; establishing equal service conditions to provide shippers with equal access to pipeline transportation; and establishment of reasonable rates for transporting petroleum and petroleum products by pipeline. Certain MLPs regulated by the FERC have the right, but are not obligated, to redeem common units held by an investor who is not subject to U.S. federal income taxation. The financial condition and results of operations of an MLP that redeems its common units could be adversely impacted.
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MLPs are subject to various federal, state and local environmental laws and health and safety laws as well as laws and regulations specific to their particular activities. These laws and regulations address: health and safety standards for the operation of facilities, transportation systems and the handling of materials; air and water pollution requirements and standards; solid waste disposal requirements; land reclamation requirements; and requirements relating to the handling and disposition of hazardous materials. MLPs are subject to the costs of compliance with such laws applicable to them, and changes in such laws and regulations may adversely affect their results of operations.
MLPs may be subject to liability relating to the release of substances into the environment, including liability under federal “Superfund” and similar state laws for investigation and remediation of releases and threatened releases of hazardous materials, as well as liability for injury and property damage for accidental events, such as explosions or discharges of materials causing personal injury and damage to property. Such potential liabilities could have a material adverse effect upon the financial condition and results of operations of MLPs.
MLPs are subject to numerous business related risks, including: deterioration of business fundamentals reducing profitability due to development of alternative energy sources, consumer sentiment with respect to global warming, changing demographics in the markets served, unexpectedly prolonged and precipitous changes in commodity prices and increased competition that reduces the MLP’s market share; the lack of growth of markets requiring growth through acquisitions; disruptions in transportation systems; the dependence of certain MLPs upon the energy exploration and development activities of unrelated third parties; availability of capital for expansion and construction of needed facilities; a significant decrease in natural gas production due to depressed commodity prices or otherwise; the inability of MLPs to successfully integrate recent or future acquisitions; and the general level of the economy.
Municipal Obligations and AMT-Subject Bonds
Municipal Obligations are obligations issued by or on behalf of states, territories, and possessions of the United States and the District of Columbia and their political subdivisions, agencies and instrumentalities, including municipal utilities, or multi-state agencies or authorities. The interest on Municipal Obligations is exempt from federal income tax in the opinion of bond counsel to the issuer. Three major classifications of Municipal Obligations are: Municipal Bonds, that generally have a maturity at the time of issue of one year or more; Municipal Notes, that generally have a maturity at the time of issue of six months to three years; and Municipal Commercial Paper, that generally has a maturity at the time of issue of 30 to 270 days.
The term “Municipal Obligations” includes debt obligations issued to obtain funds for various public purposes, including the construction of a wide range of public facilities such as airports, bridges, highways, housing, hospitals, mass transportation, schools, streets, water and sewer works, and electric utilities. Other public purposes for which Municipal Obligations are issued include refunding outstanding obligations, obtaining funds for general operating expenses, and lending such funds to other public institutions and facilities. To the extent that a fund invests a significant portion of its assets in municipal obligations issued in connection with a single project, the fund likely will be affected by the economic, business or political environment of the project.
AMT-Subject Bonds are industrial development bonds issued by or on behalf of public authorities to obtain funds to provide for the construction, equipment, repair or improvement of privately operated housing facilities, sports facilities, convention or trade show facilities, airport, mass transit, industrial, port or parking facilities, air or water pollution control facilities, and certain local facilities for water supply, gas, electricity, or sewage or solid waste disposal. They are considered to be Municipal Obligations if the interest paid thereon qualifies as exempt from federal income tax in the opinion of bond counsel to the issuer, even though the interest may be subject to the federal individual alternative minimum tax.
Municipal Bonds
Municipal Bonds may be either “general obligation” or “revenue” issues. General obligation bonds are secured by the issuer’s pledge of its faith, credit, and taxing power for the payment of principal and interest. Revenue bonds are payable from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue source (e.g., the user of the facilities being financed), but not from the general taxing power. Industrial development bonds and pollution control bonds in most cases are revenue bonds and generally do not carry the pledge of the credit of the issuing municipality. The payment of the principal and interest on industrial revenue bonds depends solely on the ability of the user of the facilities financed by the bonds to meet its financial obligations and the pledge, if any, of real and personal property so financed as security for such payment. Funds may also invest in “moral obligation” bonds that are normally issued by special purpose public authorities. If an issuer of moral obligation bonds is unable to meet its obligations, the repayment of the bonds becomes a moral commitment but not a legal obligation of the state or municipality in question.
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Municipal Commercial Paper
Municipal Commercial Paper refers to short-term obligations of municipalities that may be issued at a discount and may be referred to as Short-Term Discount Notes. Municipal Commercial Paper is likely to be used to meet seasonal working capital needs of a municipality or interim construction financing. Generally they are repaid from general revenues of the municipality or refinanced with long-term debt. In most cases Municipal Commercial Paper is backed by letters of credit, lending agreements, note repurchase agreements or other credit facility agreements offered by banks or other institutions.
Municipal Notes
Municipal Notes usually are general obligations of the issuer and are sold in anticipation of a bond sale, collection of taxes, or receipt of other revenues. Payment of these notes is primarily dependent upon the issuer’s receipt of the anticipated revenues. Other notes include “Construction Loan Notes” issued to provide construction financing for specific projects, and “Bank Notes” issued by local governmental bodies and agencies to commercial banks as evidence of borrowings. Some notes (“Project Notes”) are issued by local agencies under a program administered by the U.S. Department of Housing and Urban Development. Project Notes are secured by the full faith and credit of the United States.
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Bank Notes are notes issued by local governmental bodies and agencies such as those described above to commercial banks as evidence of borrowings. The purposes for which the notes are issued are varied but they are frequently issued to meet short-term working-capital or capital-project needs. These notes may have risks similar to the risks associated with TANs and RANs.
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Bond Anticipation Notes (“BANs”) are usually general obligations of state and local governmental issuers which are sold to obtain interim financing for projects that will eventually be funded through the sale of long-term debt obligations or bonds. The ability of an issuer to meet its obligations on its BANs is primarily dependent on the issuer’s access to the long-term municipal bond market and the likelihood that the proceeds of such bond sales will be used to pay the principal and interest on the BANs.
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Construction Loan Notes are issued to provide construction financing for specific projects. Permanent financing, the proceeds of which are applied to the payment of construction loan notes, is sometimes provided by a commitment by the Government National Mortgage Association (“GNMA”) to purchase the loan, accompanied by a commitment by the Federal Housing Administration to insure mortgage advances thereunder. In other instances, permanent financing is provided by commitments of banks to purchase the loan. The Opportunistic Municipal Fund will only purchase construction loan notes that are subject to GNMA or bank purchase commitments.
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Revenue Anticipation Notes (“RANs”) are issued by governments or governmental bodies with the expectation that future revenues from a designated source will be used to repay the notes. In general they also constitute general obligations of the issuer. A decline in the receipt of projected revenues, such as anticipated revenues from another level of government, could adversely affect an issuer’s ability to meet its obligations on outstanding RANs. In addition, the possibility that the revenues would, when received, be used to meet other obligations could affect the ability of the issuer to pay the principal and interest on RANs.
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Tax Anticipation Notes (“TANs”) are issued by state and local governments to finance the current operations of such governments. Repayment is generally to be derived from specific future tax revenues. TANs are usually general obligations of the issuer. A weakness in an issuer’s capacity to raise taxes due to, among other things, a decline in its tax base or a rise in delinquencies, could adversely affect the issuer’s ability to meet its obligations on outstanding TANs.
Other Municipal Obligations
Other kinds of Municipal Obligations are occasionally available in the marketplace, and the fund may invest in such other kinds of obligations to the extent consistent with its investment objective and limitations. Such obligations may be issued for different purposes and with different security than those mentioned.
Stand-By Commitments
Funds may acquire stand-by commitments with respect to municipal obligations held in their respective portfolios. Under a stand-by commitment, a broker-dealer, dealer, or bank would agree to purchase, at the relevant funds’ option, a specified municipal security at a specified price. Thus, a stand-by commitment may be viewed as the equivalent of a put option acquired by a fund with respect to a particular municipal security held in the fund’s portfolio.
The amount payable to a fund upon its exercise of a stand-by commitment normally would be 1) the acquisition cost of the municipal security (excluding any accrued interest that the fund paid on the acquisition), less any amortized market premium or plus any amortized market or original issue discount during the period the fund owned the security, plus, 2) all interest accrued on the security since the last interest payment date during the period the security was owned by the
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fund. Absent unusual circumstances, the fund would value the underlying municipal security at amortized cost. As a result, the amount payable by the broker-dealer, dealer or bank during the time a stand-by commitment is exercisable would be substantially the same as the value of the underlying municipal obligation.
A fund’s right to exercise a stand-by commitment would be unconditional and unqualified. Although a fund could not transfer a stand-by commitment, it could sell the underlying municipal security to a third party at any time. It is expected that stand-by commitments generally will be available to the funds without the payment of any direct or indirect consideration. The funds may, however, pay for stand-by commitments if such action is deemed necessary. In any event, the total amount paid for outstanding stand-by commitments held in a fund’s portfolio would not exceed 0.50% of the value of a fund’s total assets calculated immediately after each stand-by commitment is acquired.
The funds intend to enter into stand-by commitments only with broker-dealers, dealers, or banks that those managing the fund’s investments believe present minimum credit risks. A fund’s ability to exercise a stand-by commitment will depend upon the ability of the issuing institution to pay for the underlying securities at the time the stand-by commitment is exercised. The credit of each institution issuing a stand-by commitment to a fund will be evaluated on an ongoing basis by those managing the fund’s investments.
A fund intends to acquire stand-by commitments solely to facilitate portfolio liquidity and does not intend to exercise its right thereunder for trading purposes. The acquisition of a stand-by commitment would not affect the valuation of the underlying municipal security. Each stand-by commitment will be valued at zero in determining net asset value. Should a fund pay directly or indirectly for a stand-by commitment, its costs will be reflected in realized gain or loss when the commitment is exercised or expires. The maturity of a municipal security purchased by a fund will not be considered shortened by any stand-by commitment to which the obligation is subject. Thus, stand-by commitments will not affect the dollar-weighted average maturity of a fund’s portfolio.
Variable and Floating Rate Obligations
Certain Municipal Obligations, obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities, and debt instruments issued by domestic banks or corporations may carry variable or floating rates of interest. Such instruments bear interest at rates which are not fixed, but which vary with changes in specified market rates or indices, such as a bank prime rate or tax-exempt money market index. Variable rate notes are adjusted to current interest rate levels at certain specified times, such as every 30 days. A floating rate note adjusts automatically whenever there is a change in its base interest rate adjustor, e.g., a change in the prime lending rate or specified interest rate indices. Typically such instruments carry demand features permitting the fund to redeem at par.
The fund’s right to obtain payment at par on a demand instrument upon demand could be affected by events occurring between the date the fund elects to redeem the instrument and the date redemption proceeds are due which affects the ability of the issuer to pay the instrument at par value. Those managing the fund’s investments monitor on an ongoing basis the pricing, quality, and liquidity of such instruments and similarly monitor the ability of an issuer of a demand instrument, including those supported by bank letters of credit or guarantees, to pay principal and interest on demand. Although the ultimate maturity of such variable rate obligations may exceed one year, the fund treats the maturity of each variable rate demand obligation as the longer of a) the notice period required before the fund is entitled to payment of the principal amount through demand or b) the period remaining until the next interest rate adjustment. Floating rate instruments with demand features are deemed to have a maturity equal to the period remaining until the principal amount can be recovered through demand.
Funds may purchase participation interests in variable rate Municipal Obligations (such as industrial development bonds). A participation interest gives the purchaser an undivided interest in the Municipal Obligation in the proportion that its participation interest bears to the total principal amount of the Municipal Obligation. A fund has the right to demand payment on seven days’ notice, for all or any part of the fund’s participation interest in the Municipal Obligation, plus accrued interest. Each participation interest is backed by an irrevocable letter of credit or guarantee of a bank. Banks will retain a service and letter of credit fee and a fee for issuing repurchase commitments in an amount equal to the excess of the interest paid on the Municipal Obligations over the negotiated yield at which the instruments were purchased by the fund.
Risks of Municipal Obligations
The yields on Municipal Obligations are dependent on a variety of factors, including general economic and monetary conditions, money market factors, conditions in the Municipal Obligations market, size of a particular offering, maturity of the obligation, and rating of the issue. The fund’s ability to achieve its investment objective also depends on the continuing ability of the issuers of the Municipal Obligations in which it invests to meet their obligation for the payment of interest and principal when due.
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Municipal Obligations are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Act. They are also subject to federal or state laws, if any, which extend the time for payment of principal or interest, or both, or impose other constraints upon enforcement of such obligations or upon municipalities to levy taxes. The power or ability of issuers to pay, when due, principal of and interest on Municipal Obligations may also be materially affected by the results of litigation or other conditions.
From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on Municipal Obligations. It may be expected that similar proposals will be introduced in the future. If such a proposal was enacted, the ability of the fund to pay “exempt interest” dividends may be adversely affected. The fund would reevaluate its investment objective and policies and consider changes in its structure.
Special Considerations Relating to California Municipal Obligations
The Opportunistic Municipal Fund invests in California municipal obligations, and therefore may be significantly impacted by political, economic, or regulatory developments that affect issuers in California and their ability to pay principal and interest on their obligations. The ability of issuers to pay interest on, and repay principal of, California municipal obligations may be affected by 1) amendments to the California Constitution and related statutes that limit the taxing and spending authority of California government entities, 2) voter initiatives, 3) a wide variety of California laws and regulations, including laws related to the operation of health care institutions and laws related to secured interests in real property, and 4) the general financial condition of the State of California and the California economy.
Taxable Investments of the Municipal Funds
The Opportunistic Municipal Fund may invest a portion of its assets, as described in the prospectus, in taxable short-term investments consisting of: Obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities, domestic bank certificates of deposit and bankers’ acceptances, short-term corporate debt securities such as commercial paper, and repurchase agreements (“Taxable Investments”). These investments must have a stated maturity of one year or less at the time of purchase and must meet the following standards: banks must have assets of at least $1 billion; commercial paper must be rated at least “A” by S&P Global or “Prime” by Moody’s or, if not rated, must be issued by companies having an outstanding debt issue rated at least “A” by S&P Global or Moody’s; corporate bonds and debentures must be rated at least “A” by S&P Global or Moody’s. Interest earned from Taxable Investments is taxable to investors. When, in the opinion of the Fund’s Manager, it is advisable to maintain a temporary “defensive” posture, the Opportunistic Municipal Fund may invest without limitation in Taxable Investments. At other times, the following investments will not exceed 20% of the Fund’s total assets: Taxable Investments; Municipal Obligations that do not meet quality standards required for the 80% portion of the portfolio; and Municipal Obligations, the interest on which is treated as a tax preference item for purposes of the federal individual alternative minimum tax.
Insurance
The insured municipal obligations in which the Opportunistic Municipal Fund may invest are insured under insurance policies that relate to the specific municipal obligation in question. This insurance is generally non-cancelable and will continue in force so long as the municipal obligations are outstanding, and the insurer remains in business.
The insured municipal obligations are generally insured as to the scheduled payment of all installments of principal and interest as they fall due. The insurance covers only credit risk and therefore does not guarantee the market value of the obligations in a Fund’s investment portfolio or a Fund’s NAV. The Fund’s NAV will continue to fluctuate in response to fluctuations in interest rates. A Fund’s investment policy requiring investment in insured municipal obligations will not affect the Fund’s ability to hold its assets in cash or to invest in escrow-secured and defeased bonds or in certain short-term tax-exempt obligations, or affect its ability to invest in uninsured taxable obligations for temporary or liquidity purposes or on a defensive basis.
Pay-in-Kind Securities
Each Fund may invest in pay-in-kind securities. Pay-in-kind securities pay dividends or interest in the form of additional securities of the issuer, rather than in cash. These securities are usually issued and traded at a discount from their face amounts. The amount of the discount varies depending on various factors, such as the time remaining until maturity of the securities, prevailing interest rates, the liquidity of the security and the perceived credit quality of the issuer. The market prices of pay-in-kind securities generally are more volatile than the market prices of securities that pay interest periodically and are likely to respond to changes in interest rates to a greater degree than are other types of securities having similar maturities and credit quality.
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Portfolio Turnover (Active Trading)
Portfolio turnover is a measure of how frequently a portfolio’s securities are bought and sold. The portfolio turnover rate is generally calculated as the dollar value of the lesser of a portfolio’s purchases or sales of shares of securities during a given year, divided by the monthly average value of the portfolio securities during that year (excluding securities whose maturity or expiration at the time of acquisition were less than one year). For example, a portfolio reporting a 100% portfolio turnover rate would have purchased and sold securities worth as much as the monthly average value of its portfolio securities during the year.
It is not possible to predict future turnover rates with accuracy. Many variable factors are outside the control of a portfolio manager. The investment outlook for the securities in which a portfolio may invest may change as a result of unexpected developments in securities markets, economic or monetary policies, or political relationships. High market volatility may result in a portfolio manager using a more active trading strategy than might otherwise be employed. Each portfolio manager considers the economic effects of portfolio turnover but generally does not treat the portfolio turnover rate as a limiting factor in making investment decisions.
Sale of shares by investors may require the liquidation of portfolio securities to meet cash flow needs. In addition, changes in a particular portfolio’s holdings may be made whenever the portfolio manager considers that a security is no longer appropriate for the portfolio or that another security represents a relatively greater opportunity. Such changes may be made without regard to the length of time that a security has been held.
Higher portfolio turnover rates generally increase transaction costs that are expenses of the Fund. Active trading may generate short-term gains (losses) for taxable shareholders.
The following Funds had significant variation in portfolio turnover rates over the two most recently completed fiscal years: 
Fund
2021
Turnover
2020
Turnover
Comments
Small-MidCap Dividend Income
74.6%
28.9%
Turnover increased primarily due to a large shareholder redemption.
Preferred Securities
Preferred securities can include: traditional preferred securities, hybrid-preferred securities, $25 par hybrid preferred securities, baby bonds, U.S. dividend received deduction (“DRD”) preferred stock, fixed rate and floating rate adjustable preferred securities, step-up preferred securities, public and 144A $1000 par capital securities including U.S. agency subordinated debt issues, trust originated preferred securities, monthly income preferred securities, quarterly income bond securities, quarterly income debt securities, quarterly income preferred securities, corporate trust securities, public income notes, and other trust preferred securities.
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Traditional Preferred Securities. Traditional preferred securities may be issued by an entity taxable as a corporation and pay fixed or floating rate dividends. However, these claims are subordinated to more senior creditors, including senior debt holders. “Preference” means that a company must pay dividends on its preferred securities before paying any dividends on its common stock, and the claims of preferred securities holders are ahead of common stockholders’ claims on assets in a corporate liquidation. Holders of preferred securities usually have no right to vote for corporate directors or on other matters. Preferred securities share many investment characteristics with both common stock and bonds.
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Hybrid or Trust Preferred Securities. Hybrid-preferred securities are debt instruments that have characteristics similar to those of traditional preferred securities (characteristics of both subordinated debt and preferred stock). Hybrid preferred securities may be issued by corporations, generally in the form of interest-bearing instruments with preferred securities characteristics, or by an affiliated trust or partnership of the corporation, generally in the form of preferred interests in subordinated business trusts or similarly structured securities. The hybrid-preferred securities market consists of both fixed and adjustable coupon rate securities that are either perpetual in nature or have stated maturity dates. Hybrid preferred holders generally have claims to assets in a corporate liquidation that are senior to those of traditional preferred securities but subordinate to those of senior debt holders. Certain subordinated debt and senior debt issues that have preferred characteristics are also considered to be part of the broader preferred securities market.
Preferred securities may be issued by trusts (likely one that is wholly-owned by a financial institution or other corporate entity, typically a bank holding company) or other special purpose entities established by operating companies, and are therefore not direct obligations of operating companies. The financial institution creates the trust and owns the trust’s common securities. The trust uses the sale proceeds of its preferred securities to purchase, for example, subordinated debt issued by the financial institution. The financial institution uses the proceeds from the subordinated debt sale to increase its capital while the trust receives periodic interest payments from the financial institution for
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holding the subordinated debt. The trust uses the funds received to make dividend payments to the holders of the trust preferred securities. The primary advantage of this structure may be that the trust preferred securities are treated by the financial institution as debt securities for tax purposes and as equity for the calculation of capital requirements.
Trust preferred securities typically bear a market rate coupon comparable to interest rates available on debt of a similarly rated issuer. Typical characteristics include long-term maturities, early redemption by the issuer, periodic fixed or variable interest payments, and maturities at face value. Holders of trust preferred securities have limited voting rights to control the activities of the trust and no voting rights with respect to the financial institution. The market value of trust preferred securities may be more volatile than those of conventional debt securities. Trust preferred securities may be issued in reliance on Rule 144A under the 1933 Act and subject to restrictions on resale. There can be no assurance as to the liquidity of trust preferred securities and the ability of holders, such as a fund, to sell their holdings. The condition of the financial institution can be looked to identify the risks of trust preferred securities as the trust typically has no business operations other than to issue the trust preferred securities. If the financial institution defaults on interest payments to the trust, the trust will not be able to make dividend payments to holders of its securities, such as a fund.
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Floating rate preferred securities. Floating rate preferred securities provide for a periodic adjustment in the interest rate paid on the securities. The terms of such securities provide that interest rates are adjusted periodically based upon an interest rate adjustment index. The adjustment intervals may be regular, and range from daily up to annually, or may be event-based, such as a change in the short-term interest rate. Because of the interest rate reset feature, floating rate securities provide the Fund with a certain degree of protection against rising interest rates, although the interest rates of floating rate securities will participate in any declines in interest rates as well.
If a portion of a fund’s income consists of dividends paid by U.S. corporations, a portion of the dividends paid by the fund may be eligible for the corporate dividends-received deduction for corporate shareholders. In addition, distributions reported by a fund as derived from qualified dividend income (“QDI”) will be taxed in the hands of individuals at the reduced rates applicable to net capital gains, provided certain holding period and other requirements are met by both the shareholder and the fund. Dividend income that a fund receives from REITs, if any, will generally not be treated as QDI and will not qualify for the corporate dividends-received deduction. It is unclear the extent to which distributions a fund receives from investments in certain preferred securities will be eligible for treatment as QDI or for the corporate dividends-received deduction. A fund cannot predict at this time what portion, if any, of its dividends will qualify for the corporate dividends-received deduction or be eligible for the reduced rates of taxation applicable to QDI.
Real Estate Investment Trusts (“REITs”)
REITs are pooled investment vehicles that invest in income producing real estate, real estate related loans, or other types of real estate interests. U.S. REITs are allowed to eliminate corporate level federal tax so long as they meet certain requirements of the Internal Revenue Code. Foreign REITs (“REIT-like”) entities may have similar tax treatment in their respective countries. Equity real estate investment trusts own real estate properties, while mortgage real estate investment trusts make and/or invests in construction, development, and long-term mortgage loans. Their value may be affected by changes in the underlying property of the trusts, the creditworthiness of the issuer, property taxes, interest rates, and tax and regulatory requirements, such as those relating to the environment. Both types of trusts are not diversified, are dependent upon management skill, are subject to heavy cash flow dependency, defaults by borrowers, self-liquidation, and the possibility of failing to qualify for tax-free status of income under the Internal Revenue Code and failing to maintain exemption from the 1940 Act. In addition, foreign REIT-like entities will be subject to foreign securities risks. (See “Foreign Securities”).
Repurchase and Reverse Repurchase Agreements, Mortgage Dollar Rolls and Sale-Buybacks
Each Fund may invest in repurchase and reverse repurchase agreements. Repurchase agreements typically involve the purchase of debt securities from a financial institution such as a bank, savings and loan association, or broker-dealer. A repurchase agreement provides that the fund sells back to the seller and that the seller repurchases the underlying securities at a specified price on a specific date. Repurchase agreements may be viewed as loans by a fund collateralized by the underlying securities. This arrangement results in a fixed rate of return that is not subject to market fluctuation while the fund holds the security. In the event of a default or bankruptcy by a selling financial institution, the affected fund bears a risk of loss. To minimize such risks, the fund enters into repurchase agreements only with parties those managing the fund’s investments deem creditworthy (those that are large, well-capitalized, and well-established financial institutions). In addition, the value of the securities collateralizing the repurchase agreement is, and during the entire term of the repurchase agreement remains, at least equal to the acquisition price the Funds pay to the seller of the securities.
In a repurchase agreement, a Fund purchases a security and simultaneously commits to resell that security to the seller at an agreed upon price on an agreed upon date within a number of days (usually not more than seven) from the date of purchase. The resale price consists of the purchase price plus an amount that is unrelated to the coupon rate or maturity of the purchased security. A repurchase agreement involves the obligation of the seller to pay the agreed upon price, which obligation is in effect secured by the value (at least equal to the amount of the agreed upon resale price and marked-to-market daily) of the underlying security or “collateral.” A risk associated with repurchase agreements is the failure of the seller to
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repurchase the securities as agreed, which may cause a Fund to suffer a loss if the market value of such securities declines before they can be liquidated on the open market. In the event of bankruptcy or insolvency of the seller, a Fund may encounter delays and incur costs in liquidating the underlying security. Repurchase agreements that mature in more than seven days are subject to each Fund’s limit on illiquid investments. While it is not possible to eliminate all risks from these transactions, it is the policy of the Fund to limit repurchase agreements to those parties whose creditworthiness has been reviewed and found satisfactory by those managing the fund’s investments.
Each Fund may use reverse repurchase agreements, mortgage dollar rolls, and economically similar transactions to obtain cash to satisfy unusually heavy redemption requests or for other temporary or emergency purposes without the necessity of selling portfolio securities, or to earn additional income on portfolio securities, such as Treasury bills or notes. In a reverse repurchase agreement, a Fund sells a portfolio security to another party, such as a bank or broker-dealer, in return for cash and agrees to repurchase the instrument at a particular price and time. While a reverse repurchase agreement is outstanding, a Fund will maintain cash or appropriate liquid assets to cover its obligation under the agreement. The Fund will enter into reverse repurchase agreements only with parties that those managing the fund’s investments deem creditworthy. Using reverse repurchase agreements to earn additional income involves the risk that the interest earned on the invested proceeds is less than the expense of the reverse repurchase agreement transaction. This technique may also have a leveraging effect on the Fund, although the Fund’s intent to segregate assets in the amount of the reverse repurchase obligation minimizes this effect.
A “mortgage dollar roll” is similar to a reverse repurchase agreement in certain respects. In a “dollar roll” transaction a Fund sells a mortgage-related security, such as a security issued by the Government National Mortgage Association, to a dealer and simultaneously agrees to repurchase a similar security (but not the same security) in the future at a pre-determined price. A dollar roll can be viewed, like a reverse repurchase agreement, as a collateralized borrowing in which a Fund pledges a mortgage-related security to a dealer to obtain cash. Unlike in the case of reverse repurchase agreements, the dealer with which a Fund enters into a dollar roll transaction is not obligated to return the same securities as those originally sold by the Fund, but only securities which are “substantially identical.” To be considered “substantially identical,” the securities returned to a Fund generally must: 1) be collateralized by the same types of underlying mortgages; 2) be issued by the same agency and be part of the same program; 3) have a similar original stated maturity; 4) have identical net coupon rates; 5) have similar market yields (and therefore price); and 6) satisfy “good delivery” requirements, meaning that the aggregate principal amounts of the securities delivered and received back must be within 0.01% of the initial amount delivered.
A Fund’s obligations under a dollar roll agreement must be covered by segregated liquid assets equal in value to the securities subject to repurchase by the Fund.
Each Fund also may effect simultaneous purchase and sale transactions that are known as “sale-buybacks.” A sale-buyback is similar to a reverse repurchase agreement, except that in a sale-buyback, the counterparty who purchases the security is entitled to receive any principal or interest payments made on the underlying security pending settlement of the Fund’s repurchase of the underlying security. A Fund’s obligations under a sale-buyback typically would be segregated by liquid assets equal in value to the amount of the Fund’s forward commitment to repurchase the subject security.
Restricted and Illiquid Securities
A Fund may experience difficulty in valuing and selling illiquid securities and, in some cases, may be unable to value or sell certain illiquid securities for an indefinite period of time. Illiquid securities may include a wide variety of investments, such as (1) repurchase agreements maturing in more than seven days (unless the agreements have demand/redemption features), (2) OTC options contracts and certain other derivatives (including certain swap agreements), (3) fixed time deposits that are not subject to prepayment or do not provide for withdrawal penalties upon prepayment (other than overnight deposits), (4) loan interests and other direct debt instruments, (5) certain municipal lease obligations, (6) commercial paper issued pursuant to Section 4(2) of the 1933 Act, (7) thinly-traded securities, and (8) securities whose resale is restricted under the federal securities laws or contractual provisions (including restricted, privately placed securities that, under the federal securities laws, generally may be resold only to qualified institutional buyers). Generally, restricted securities may be sold only in a public offering for which a registration statement has been filed and declared effective or in a transaction that is exempt from the registration requirements of the Securities Act of 1933. When registration is required, a Fund that owns restricted securities may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a restricted security. If adverse market conditions were to develop during such a period, the Fund might obtain a less favorable price than existed when it decided to sell.
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Illiquid and restricted securities are priced at fair value as determined in good faith by or under the direction of the Board. As described above, some of the Funds have adopted investment restrictions that limit investments in illiquid securities. The Board has adopted procedures to determine the liquidity of Rule 4(2) short-term paper and of restricted securities that may be resold under Rule 144A. Securities determined to be liquid under these procedures are excluded from the preceding investment restriction.
Royalty Trusts
A royalty trust generally acquires an interest in natural resource or chemical companies and distributes the income it receives to its investors. A sustained decline in demand for natural resource and related products could adversely affect royalty trust revenues and cash flows. Such a decline could result from a recession or other adverse economic conditions, an increase in the market price of the underlying commodity, higher taxes or other regulatory actions that increase costs, or a shift in consumer demand. Rising interest rates could harm the performance and limit the capital appreciation of royalty trusts because of the increased availability of alternative investments at more competitive yields. Fund shareholders will indirectly bear their proportionate share of the royalty trusts’ expenses.
Securitized Products - Mortgage- and Asset-Backed Securities
The yield characteristics of the mortgage- and asset-backed securities in which a Fund may invest differ from those of traditional debt securities. Among the major differences are that the interest and principal payments are made more frequently on mortgage- and asset-backed securities (usually monthly) and that principal may be prepaid at any time because the underlying mortgage loans or other assets generally may be prepaid at any time. As a result, if a Fund purchases those securities at a premium, a prepayment rate that is faster than expected will reduce their yield, while a prepayment rate that is slower than expected will have the opposite effect of increasing yield. If the Fund purchases these securities at a discount, faster than expected prepayments will increase their yield, while slower than expected prepayments will reduce their yield. Amounts available for reinvestment by a Fund are likely to be greater during a period of declining interest rates and, as a result, are likely to be reinvested at lower interest rates than during a period of rising interest rates.
In general, the prepayment rate for mortgage-backed securities decreases as interest rates rise and increases as interest rates fall. However, rising interest rates will tend to decrease the value of these securities. In addition, an increase in interest rates may affect the volatility of these securities by effectively changing a security that was considered a short-term security at the time of purchase into a long-term security. Long-term securities generally fluctuate more widely in response to changes in interest rates than short- or medium-term securities.
The market for privately issued mortgage- and asset-backed securities is smaller and less liquid than the market for U.S. government mortgage-backed securities. A collateralized mortgage obligation (“CMO”) may be structured in a manner that provides a wide variety of investment characteristics (yield, effective maturity, and interest rate sensitivity). As market conditions change, and especially during periods of rapid market interest rate changes, the ability of a CMO to provide the anticipated investment characteristics may be greatly diminished. Increased market volatility and/or reduced liquidity may result.
Each Fund may invest in each of collateralized bond obligations (“CBOs”), collateralized loan obligations (“CLOs”), other collateralized debt obligations (“CDOs”) and other similarly structured securities. CBOs, CLOs and other CDOs are types of asset-backed securities. A CBO is a trust which is often backed by a diversified pool of high risk, below investment grade fixed income securities. The collateral can be from many different types of fixed income securities such as high yield debt, residential privately issued mortgage-related securities, commercial privately issued mortgage-related securities, trust preferred securities and emerging market debt. A CLO is a trust typically collateralized by a pool of loans, which may include, among others, domestic and foreign senior secured loans, senior unsecured loans, and subordinate corporate loans, including loans that may be rated below investment grade or equivalent unrated loans. Other CDOs are trusts backed by other types of assets representing obligations of various parties. CBOs, CLOs and other CDOs may charge management fees and administrative expenses.
Short Sales
A short sale involves the sale by a fund of a security that it does not own with the expectation of covering settlement by purchasing the same security at a later date at a lower price. A fund may also enter into a short position by using a derivative instrument, such as a future, forward, or swap agreement. If the price of the security or derivative increases prior to the time the fund is required to replace the borrowed security, then the fund will incur a loss equal to the increase in price from the time that the short sale was entered into plus any premiums and interest paid to the broker. Therefore, short sales involve the risk that losses may be exaggerated, potentially losing more money than the value of the investment.
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A “short sale against the box” is a technique that involves selling either a security owned by a fund, or a security equivalent in kind and amount to the security sold short that the fund has the right to obtain, at no additional cost, for delivery at a specified date in the future. Each fund may enter into a short sale against the box to hedge against anticipated declines in the market price of portfolio securities. If the value of the securities sold short against the box increases prior to the scheduled delivery date, a fund will lose money.
Special Purpose Acquisition Companies (“SPACs”)
Each Fund may invest in securities of special purpose acquisition companies (“SPACs”) or similar special purpose entities that pool funds to seek potential acquisition opportunities. Unless and until an acquisition is completed, a SPAC or similar entity generally maintains assets (less a portion retained to cover expenses) in a trust account comprised of U.S. Government securities, money market securities, and cash, and similar investments whose returns or yields may be significantly lower than those of the Fund’s other investments. Because SPACs and similar entities are in essence blank-check companies without an operating history or ongoing business other than seeking acquisitions, the value of their securities is particularly dependent on the ability of the entity’s management to identify and complete a profitable acquisition, which may not occur. For example, even if an acquisition or merger target is identified, the Fund may elect not to participate in, or vote to approve, the proposed transaction. Moreover, an acquisition or merger once effected may prove unsuccessful and an investment in the SPAC may lose value.
SPACs are also subject to the following additional risks:
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The risk that, in the case of SPACs used as an opportunity for startups to go public without going through the traditional IPO process, such startups may become publicly traded with potentially less due diligence than what is typical in a traditional IPO through an underwriter and may not be experienced in facing the challenges, expenses and risks of being a public company, including the increased regulatory and financial scrutiny and the need to comply with applicable governance and accounting requirements.
•
SPAC sponsors may have a potential conflict of interest to complete a deal that may be unfavorable for other investors in the SPAC. For example, SPAC sponsors often own warrants to acquire additional shares of the company at a fixed price, and the exercise by the SPAC sponsor of its warrants may dilute the value of the equity interests of other investors in the SPAC.
•
Some SPACs may pursue acquisitions only within certain industries or regions, which may increase the volatility of their prices.
•
Only a thinly traded market for shares of or interests in a SPAC may develop, or there may be no market at all, leaving the Fund unable to sell its interest in a SPAC or to sell its interest only at a lower price. Investments in SPACs may include private placements, including PIPEs, and, accordingly, may be considered illiquid and/or be subject to restrictions on resale.
•
Values of investments in SPACs may be highly volatile and may depreciate significantly over time.
Supranational Entities
Each Fund may invest in obligations of supranational entities. A supranational entity is an entity designated or supported by national governments to promote economic reconstruction, development or trade amongst nations. Examples of supranational entities include the International Bank for Reconstruction and Development (also known as the World Bank) and the European Investment Bank. Obligations of supranational entities are subject to the risk that the governments on whose support the entity depends for its financial backing or repayment may be unable or unwilling to provide that support. Obligations of a supranational entity that are denominated in foreign currencies will also be subject to the risks associated with investments in foreign currencies.
Synthetic Securities
Incidental to other transactions in fixed income securities and/or for investment purposes, a Fund also may combine options on securities with cash, cash equivalent investments or other fixed income securities in order to create “synthetic” securities which approximate desired risk and return profiles. This may be done where a “non-synthetic” security having the desired risk/return profile either is unavailable (e.g., short-term securities of certain non-U.S. governments) or possesses undesirable characteristics (e.g., interest payments on the security would be subject to non-U.S. withholding taxes). A Fund also may purchase forward non-U.S. exchange contracts in conjunction with U.S. dollar-denominated securities in order to create a synthetic non-U.S. currency denominated security which approximates desired risk and return characteristics where the non-synthetic securities either are not available in non-U.S. markets or possess undesirable characteristics. The use of synthetic bonds and other synthetic securities may involve risks different from, or potentially greater than, risks associated with direct investments in securities and other assets. Synthetic securities may increase other Fund risks, including market risk, liquidity risk, and credit risk, and their value may or may not correlate with the value of the relevant underlying asset.
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Temporary Defensive Measures/Money Market Instruments
Each Fund may make money market investments (cash equivalents), without limit, pending other investment or settlement, for liquidity, or in adverse market conditions. Following are descriptions of the types of money market instruments that each Fund may purchase:
•
U.S. Government Securities - Securities issued or guaranteed by the U.S. government, including treasury bills, notes, and bonds.
•
U.S. Government Agency Securities - Obligations issued or guaranteed by agencies or instrumentalities of the U.S. government.
•
U.S. agency obligations include, but are not limited to, the Bank for Cooperatives, Federal Home Loan Banks, and Federal Intermediate Credit Banks.
•
U.S. instrumentality obligations include, but are not limited to, the Export-Import Bank, Federal Home Loan Mortgage Corporation, and Federal National Mortgage Association.
Some obligations issued or guaranteed by U.S. government agencies and instrumentalities are supported by the full faith and credit of the U.S. Treasury. Others, such as those issued by the Federal National Mortgage Association, are supported by discretionary authority of the U.S. government to purchase certain obligations of the agency or instrumentality. Still others, such as those issued by the Student Loan Marketing Association, are supported only by the credit of the agency or instrumentality.
•
Bank Obligations - Certificates of deposit, time deposits and bankers’ acceptances of U.S. commercial banks having total assets of at least one billion dollars and overseas branches of U.S. commercial banks and foreign banks, which in the opinion of those managing the fund’s investments, are of comparable quality. A Fund may acquire obligations of U.S. banks that are not members of the Federal Reserve System or of the Federal Deposit Insurance Corporation.
Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. Bankers’ acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are “accepted” by a bank, meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument on maturity. Fixed time deposits are bank obligations payable at a stated maturity date and bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand by the investor, but may be subject to early withdrawal penalties which vary depending upon market conditions and the remaining maturity of the obligation. There are no contractual restrictions on the right to transfer a beneficial interest in a fixed time deposit to a third party, although there is no market for such deposits.
Obligations of foreign banks and obligations of overseas branches of U.S. banks are subject to somewhat different regulations and risks than those of U.S. domestic banks. For example, an issuing bank may be able to maintain that the liability for an investment is solely that of the overseas branch which could expose a Fund to a greater risk of loss. In addition, obligations of foreign banks or of overseas branches of U.S. banks may be affected by governmental action in the country of domicile of the branch or parent bank. Examples of adverse foreign governmental actions include the imposition of currency controls, the imposition of withholding taxes on interest income payable on such obligations, interest limitations, seizure or nationalization of assets, or the declaration of a moratorium. Deposits in foreign banks or foreign branches of U.S. banks are not covered by the Federal Deposit Insurance Corporation and that the selection of those obligations may be more difficult because there may be less publicly available information concerning foreign banks or the accounting, auditing and financial reporting standards, practices and requirements applicable to foreign banks may differ from those applicable to United States banks. Foreign banks are not generally subject to examination by any United States Government agency or instrumentality. A Fund only buys short-term instruments where the risks of adverse governmental action are believed by those managing the fund’s investments to be minimal. A Fund considers these factors, along with other appropriate factors, in making an investment decision to acquire such obligations. It only acquires those which, in the opinion of management, are of an investment quality comparable to other debt securities bought by the Fund.
A certificate of deposit is issued against funds deposited in a bank or savings and loan association for a definite period of time, at a specified rate of return. Normally they are negotiable. However, a Fund occasionally may invest in certificates of deposit which are not negotiable. Such certificates may provide for interest penalties in the event of withdrawal prior to their maturity. A bankers’ acceptance is a short-term credit instrument issued by corporations to finance the import, export, transfer, or storage of goods. They are termed “accepted” when a bank guarantees their payment at maturity and reflect the obligation of both the bank and drawer to pay the face amount of the instrument at maturity.
•
Commercial Paper - Short-term promissory notes issued by U.S. or foreign corporations.
•
Short-term Corporate Debt - Corporate notes, bonds, and debentures that at the time of purchase have 397 days or less remaining to maturity, with certain exceptions permitted by applicable regulations.
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•
Repurchase Agreements - Instruments under which securities are purchased from a bank or securities dealer with an agreement by the seller to repurchase the securities at the same price plus interest at a specified rate.
•
Taxable Municipal Obligations - Short-term obligations issued or guaranteed by state and municipal issuers which generate taxable income.
Warrants and Rights
The Funds may invest in warrants and rights. A warrant is an instrument that gives the holder a right to purchase a given number of shares of a particular security at a specified price until a stated expiration date. Buying a warrant generally can provide a greater potential for profit or loss than an investment of equivalent amounts in the underlying common stock. The market value of a warrant does not necessarily move with the value of the underlying securities. If a holder does not sell the warrant, it risks the loss of its entire investment if the market price of the underlying security does not, before the expiration date, exceed the exercise price of the warrant. Investment in warrants is a speculative activity. Warrants pay no dividends and confer no rights (other than the right to purchase the underlying securities) with respect to the assets of the issuer. A right is a privilege granted to existing shareholders of a corporation to subscribe for shares of a new issue of common stock before it is issued. Rights normally have a short life, usually two to four weeks, are freely transferable and entitle the holder to buy the new common stock at a lower price than the public offering price.
When-Issued, Delayed Delivery, and Forward Commitment Transactions
Each of the Funds may purchase or sell securities on a when-issued, delayed delivery, or forward commitment basis. When such purchases are outstanding, the Fund will segregate until the settlement date assets determined to be liquid by those managing the fund’s investments in accordance with procedures established by the Board, in an amount sufficient to meet the purchase price. Typically, no income accrues on securities a Fund has committed to purchase prior to the time delivery of the securities is made, although a Fund may earn income on securities it has segregated.
When purchasing a security on a when-issued, delayed delivery, or forward commitment basis, the Fund assumes the rights and risks of ownership of the security, including the risk of price and yield fluctuations, and takes such fluctuations into account when determining its net asset value. Because the Fund is not required to pay for the security until the delivery date, these risks are in addition to the risks associated with the Fund’s other investments. If the Fund remains substantially fully invested at a time when when-issued, delayed delivery, or forward commitment purchases are outstanding, the purchases may result in a form of leverage.
When the Fund has sold a security on a when-issued, delayed delivery, or forward commitment basis, the Fund does not participate in future gains or losses with respect to the security. If the other party to a transaction fails to deliver or pay for the securities, the Fund could miss a favorable price or yield opportunity or could suffer a loss. A Fund may dispose of or renegotiate a transaction after it is entered into, and may sell when-issued, delayed delivery, or forward commitment securities before they are delivered, which may result in a capital gain or loss. There is no percentage limitation on the extent to which the Funds may purchase or sell securities on a when-issued, delayed delivery, or forward commitment basis.
LEADERSHIP STRUCTURE AND BOARD
PFI's Board has overall responsibility for overseeing PFI's operations in accordance with the 1940 Act, other applicable laws, and PFI's charter. Each Board Member serves on the Boards of the following investment companies sponsored by Principal Life Insurance Company: Principal Funds, Inc. (“PFI”), Principal Variable Contracts Funds, Inc. (“PVC”), Principal Exchange-Traded Funds (“PETF”), and Principal Diversified Select Real Asset Fund (“PDSRA”), which are collectively referred to in this SAI as the “Fund Complex.” Board Members who are affiliated persons of any investment advisor, the principal distributor, or the principal underwriter of the Fund Complex are considered “interested persons” of the Fund (as defined in the 1940 Act) and are referred to in this SAI as “Interested Board Members.” Board Members who are not Interested Board Members are referred to as “Independent Board Members.”
Each Board Member generally serves until the next annual meeting of shareholders or until such Board Member’s earlier death, resignation, or removal. Independent Board Members have a 72-year age limit and, for Independent Board Members elected on or after September 14, 2021, a 72-year age limit or a 15-year term limit, whichever occurs first. The Board may waive the age or term limits in the Board’s discretion. The Board elects officers to supervise the day-to-day operations of the Fund Complex. Officers serve at the pleasure of the Board, and each officer has the same position with each investment company in the Fund Complex.
The Board meets in regularly scheduled meetings eight times throughout the year. Board meetings may occur in-person, by telephone, or virtually. In addition, the Board holds special meetings or informal conference calls to discuss specific matters that may arise or require action between regular meetings. Independent Board Members also meet annually to consider renewal of advisory contracts.
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The Chairman of the Board is an interested person of the Fund Complex. The Independent Board Members have appointed a lead Independent Board Member whose role is to review and approve, with the Chairman, each Board meeting’s agenda and to facilitate communication between and among the Independent Board Members, management, and the full Board. The Board’s leadership structure is appropriate for the Fund Complex given its characteristics and circumstances, including the number of portfolios, variety of asset classes, net assets, and distribution arrangements. The appropriateness of this structure is enhanced by the establishment and allocation of responsibilities among the following Committees, which report their activities to the Board on a regular basis. 
Committee and
Independent Board
Members
Primary Purpose and Responsibilities
Meetings Held
During the Last
Fiscal Year
15(c) Committee
Fritz S. Hirsch, Chair
Padel L. Lattimer
Karrie McMillan
Meg VanDeWeghe
The Committee’s primary purpose is to assist the Board in performing the annual review of the
Funds’ advisory and sub-advisory agreements pursuant to Section 15(c) of the 1940 Act. The
Committee is responsible for requesting and reviewing related materials.
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Audit Committee
Victor Hymes, Chair
Leroy T. Barnes, Jr.
Elizabeth A. Nickels
Meg VanDeWeghe
The Committee’s primary purpose is to assist the Board by serving as an independent and
objective party to monitor the Fund Complex’s accounting policies, financial reporting and
internal control system, as well as the work of the independent registered public accountants.
The Audit Committee assists Board oversight of 1) the integrity of the Fund Complex’s financial
statements; 2) the Fund Complex’s compliance with certain legal and regulatory requirements;
3) the independent registered public accountants’ qualifications and independence; and 4) the
performance of the Fund Complex’s independent registered public accountants. The Audit
Committee also provides an open avenue of communication among the independent registered
public accountants, PGI’s internal auditors, Fund Complex management, and the Board.
9
Executive Committee
Timothy M. Dunbar, Chair
Craig Damos
Patrick G. Halter
The Committee’s primary purpose is to exercise certain powers of the Board when the Board is
not in session. When the Board is not in session, the Committee may exercise all powers of the
Board in the management of the Fund Complex’s business except the power to 1) issue stock,
except as permitted by law; 2) recommend to the shareholders any action that requires
shareholder approval; 3) amend the bylaws; or 4) approve any merger or share exchange that
does not require shareholder approval.
None
Nominating and
Governance Committee
Elizabeth A. Nickels, Chair
Craig Damos
Fritz S. Hirsch
Victor Hymes
The Committee’s primary purpose is to oversee the structure and efficiency of the Board and the
committees. The Committee is responsible for evaluating Board membership and functions,
committee membership and functions, insurance coverage, and legal matters. The Committee’s
nominating functions include selecting and nominating Independent Board Member candidates
for election to the Board. Generally, the Committee requests nominee suggestions from Board
Members and management. In addition, the Committee considers candidates recommended by
shareholders of the Fund Complex. Recommendations should be submitted in writing to the
Principal Funds Complex Secretary, in care of the Principal Funds Complex, 711 High Street,
Des Moines, IA 50392. Such recommendations must include all information specified in the
Committee’s charter and must conform with the procedures set forth in Appendix A thereto,
which can be found at https://www.principalglobal.com/documentdownload/160950. Examples of
such information include the nominee’s biographical information; relevant educational and
professional background of the nominee; the number of shares of each Fund owned of record
and beneficially by the nominee and by the recommending shareholder; any other information
regarding the nominee that would be required to be disclosed in a proxy statement or other filing
required to be made in connection with the solicitation of proxies for the election of board
members; whether the nominee is an “interested person” of the Fund as defined in the 1940 Act;
and the written consent of the nominee to be named as a nominee and serve as a board member
if elected.
When evaluating a potential nominee for Independent Board Member, the Committee may
consider, among other factors: educational background; relevant business and industry
experience; whether the person is an “interested person” of the Fund as defined in the 1940 Act;
and whether the person is willing to serve, and willing and able to commit the time necessary to
attend meetings and perform the duties of an Independent Board Member. In addition, the
Committee may consider whether a candidate’s background, experience, skills and views would
complement the background, experience, skills and views of other Board Members and would
contribute to the diversity of the Board. The Committee meets with nominees and conducts a
reference check. The final decision is based on a combination of factors, including the strengths
and the experience an individual may bring to the Board. The Board does not regularly use the
services of professional search firms to identify or evaluate potential candidates or nominees.
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Operations Committee
Karrie McMillan, Chair
Craig Damos
Padel L. Lattimer
The Committee’s primary purpose is to review and oversee the provision of administrative and
distribution services to the Fund Complex, communications with the Fund Complex’s
shareholders, and the Fund Complex’s operations.
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Risk oversight forms part of the Board’s general oversight of the Fund Complex. The Board has appointed a Chief Compliance Officer who oversees the implementation and testing of the Funds' compliance program and reports to the Board regarding compliance matters for the Funds and principal service providers. As part of its regular risk oversight functions, the Board, directly or through a Committee, interacts with and reviews reports from, among others: Fund Complex management, sub-advisors, the Chief Compliance Officer, independent registered public accounting firm, and internal auditors for PGI or its affiliates, as appropriate. The Board, with the assistance of Fund management and PGI, reviews investment policies and risks in connection with its review of Fund Complex performance. In addition, as part of the Board’s periodic review of advisory, sub-advisory and other service provider agreements, the Board may consider risk management aspects of their operations and the functions for which they are responsible. With respect to valuation, the Board oversees a PGI valuation committee and has approved and periodically reviews valuation policies applicable to valuing Fund shares.
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Each Board Member has significant prior senior management and/or board experience. Board Members are selected and retained based upon their skills, experience, judgment, analytical ability, diligence and ability to work effectively with other Board Members, a commitment to the interests of shareholders and, for each Independent Board Member, a demonstrated willingness to take an independent and questioning view of management. In addition to these general qualifications, the Board seeks members who build upon the Board’s diversity. Below is a brief discussion of the specific education, experience, qualifications, or skills that led to the conclusion that each person identified below should serve as a Board Member. As required by rules adopted under the 1940 Act, the Independent Board Members select and nominate all candidates for Independent Board Member positions.
Independent Board Members
Leroy T. Barnes, Jr. Mr. Barnes has served as an Independent Board Member of the Fund Complex since 2012. From 2001-2005, Mr. Barnes served as Vice President and Treasurer of PG&E Corporation. From 1997-2001, Mr. Barnes served as Vice President and Treasurer of Gap, Inc. Through his education, employment experience, and experience as a board member, Mr. Barnes is experienced with financial, accounting, regulatory and investment matters.
Craig Damos. Mr. Damos has served as an Independent Board Member of the Fund Complex since 2008. Since 2011, Mr. Damos has served as the President of The Damos Company (consulting services). Mr. Damos served as President and Chief Executive Officer of Weitz Company from 2006-2010; Vertical Growth Officer of Weitz Company from 2004-2006; and Chief Financial Officer of Weitz Company from 2000-2004. From 2005-2008, Mr. Damos served as a director of West Bank. Through his education, employment experience, and experience as a board member, Mr. Damos is experienced with financial, accounting, regulatory and investment matters.
Fritz S. Hirsch. Mr. Hirsch has served as an Independent Board Member of the Fund Complex since 2005. From 2011-2015, Mr. Hirsch served as CEO of MAM USA. He served as President and Chief Executive Officer of Sassy, Inc. from 1986-2009, and Chief Financial Officer of Sassy, Inc. from 1983-1985. Through his education, employment experience, and experience as a board member, Mr. Hirsch is experienced with financial, accounting, regulatory and investment matters.
Victor Hymes. Mr. Hymes has served as an Independent Board Member of the Fund Complex since 2020. He currently serves as Founder and Managing Member of Legato Capital Management, LLC, an investment management company. Over the past thirty years, Mr. Hymes has served in the roles of CEO, CIO, portfolio manager and other senior management positions with investment management firms. At Zurich Scudder Investments, Inc., Mr. Hymes was responsible for leading the firm’s $80 billion institutional business. Prior to this, he held positions with Goldman, Sachs & Co. and Kidder, Peabody & Co. Mr. Hymes has served on numerous boards and has chaired four investment committees over the past two decades. Through his education, employment experience and experience as a board member, Mr. Hymes is experienced with financial, regulatory and investment matters.
Padelford (“Padel”) L. Lattimer. Mr. Lattimer has served as an Independent Board Member of the Fund Complex since 2020. He currently serves as Managing Partner for TBA Management Consulting LLC, a financial services-focused management consulting and staffing company. For more than twenty years, Mr. Lattimer served in various capacities at financial services companies, including as a senior managing director for TIAA Cref Asset Management (2004-2010), First Vice President at Mellon Financial Corporation (2002-2004), and in product management roles at Citibank (2000-2002). Through his education, employment experience and experience as a board member, Mr. Lattimer is experienced with financial, regulatory and investment matters.
Karen (“Karrie”) McMillan. Ms. McMillan has served as an Independent Board Member of the Fund Complex since 2014. From 2007-2014, Ms. McMillan served as general counsel to the Investment Company Institute. Prior to that (from 1999-2007), she worked as an attorney in private practice, specializing in the mutual fund industry. From 1991-1999, she served in various roles as counsel at the Securities and Exchange Commission, Division of Investment Management, including as Assistant Chief Counsel. Through her professional education, experience as an attorney, and experience as a board member, Ms. McMillan is experienced in financial, investment and regulatory matters.
Elizabeth A. Nickels. Ms. Nickels has served as an Independent Board Member of the Fund Complex since 2015. Ms. Nickels currently serves as a director of SpartanNash. From 2008 to 2017, she served as a director of the not-for-profit Spectrum Health System; from 2014 to 2016, she served as a director of Charlotte Russe; from 2014 to 2015, she served as a director of Follet Corporation; and from 2013 to 2015, she served as a director of PetSmart. Ms. Nickels was formerly employed by Herman Miller, Inc. in several capacities: from 2012 to 2014, as the Executive Director of the Herman Miller Foundation; from 2007 to 2012, as President of Herman Miller Healthcare; and from 2000 to 2007, as Chief Financial Officer. Through her education, employment experience, and experience as a board member, Ms. Nickels is experienced with financial, accounting and regulatory matters.
42
Mary M. (“Meg”) VanDeWeghe. Ms. VanDeWeghe has served as an Independent Board Member of the Fund Complex since 2018. She is CEO and President of Forte Consulting, Inc., a management and financial consulting firm, and was previously employed as a Finance Professor at Georgetown University from 2009-2016, Senior Vice President - Finance at Lockheed Martin Corporation from 2006-2009, a Finance Professor at the University of Maryland from 1996-2006, and in various positions at J.P. Morgan from 1983-1996. Ms. VanDeWeghe currently serves as a director of Helmerich & Payne (2019-present), and previously served as a director of Denbury Resources from 2019-2020, Brown Advisory from 2003-2018, B/E Aerospace from 2014-2017, WP Carey from 2014-2017, and Nalco (and its successor Ecolab) from 2009-2014. Through her education, employment experience, and experience as a board member, Ms. VanDeWeghe is experienced with financial, investment and regulatory matters.
Interested Board Members
Timothy M. Dunbar. Mr. Dunbar has served as Chair of the Fund Complex since 2019. From 2018 through November 2020, Mr. Dunbar served as President of Global Asset Management for Principal®, overseeing all of Principal’s asset management capabilities, including with respect to PGI, PLIC, and PFSI, among others. He also has served on numerous boards of directors of Principal® affiliates, including PGI and Post, and in various other positions since joining Principal® in 1986 through his retirement in January 2021. Through his education and employment experience, Mr. Dunbar is experienced with financial, accounting, regulatory and investment matters.
Patrick G. Halter. Mr. Halter has served as a Board Member of the Fund Complex since 2017. Mr. Halter also serves as President for Global Asset Management for Principal® and as Chief Executive Officer, President and Chair of PGI, and Chief Executive Officer, President and Chair of Principal Real Estate Investors (“Principal - REI”). He serves on numerous boards of directors of Principal® affiliates and has served in various other positions since joining Principal® in 1984. Through his education and employment experience, Mr. Halter is experienced with financial, accounting, regulatory and investment matters.
Additional Information Regarding Board Members and Officers
The following tables present additional information regarding the Board Members and Fund Complex officers, including their principal occupations, which, unless specific dates are shown, are of more than five years duration. For each Board Member, the tables also include information concerning other directorships held in reporting companies under the Securities Exchange Act of 1934 or registered investment companies under the 1940 Act. 
INDEPENDENT BOARD MEMBERS
Name, Address,
and Year of Birth
Board Positions Held
with Fund Complex
Principal Occupation(s)
During Past 5 Years
Number of
Portfolios
Overseen
in Fund
Complex
Other
Directorships
Held During
Past 5 Years
Leroy T. Barnes, Jr.
711 High Street
Des Moines, IA 50392
1951
Director, PFI and PVC (since 2012)
Retired
127
McClatchy Newspapers,
Inc.; Frontier Communi-
cations, Inc.; formerly,
Herbalife Ltd.
Trustee, PETF (since 2014)
Trustee, PDSRA (since 2019)
Craig Damos
711 High Street
Des Moines, IA 50392
1954
Lead Independent Board Member
(since 2020)
President, C.P. Damos
Consulting LLC
127
None
Director, PFI and PVC (since 2008)
Trustee, PETF (since 2014)
Trustee, PDSRA (since 2019)
Fritz S. Hirsch
711 High Street
Des Moines, IA 50392
1951
Director, PFI and PVC (since 2005)
February 2020 to October
2020, Interim CEO, MAM
USA (manufacturer of infant
and juvenile products)
127
MAM USA
Trustee, PETF (since 2014)
Trustee, PDSRA (since 2019)
Victor Hymes
711 High Street
Des Moines, IA 50392
1957
Director, PFI and PVC (since 2020)
Founder and Managing
Member of Legato Capital
Management, LLC
127
Formerly Montgomery
Street Income Securities
Inc.
Trustee, PETF (since 2020)
Trustee, PDSRA (since 2020)
Padelford (“Padel”) L.
Lattimer
711 High Street
Des Moines, IA 50392
1961
Director, PFI and PVC (since 2020)
TBA Management
Consulting LLC
127
None
Trustee, PETF (since 2020)
Trustee, PDSRA (since 2020)
Karen (“Karrie”) McMillan
711 High Street
Des Moines, IA 50392
1961
Director, PFI and PVC (since 2014)
Founder/Owner, Tyche
Consulting LLC
Formerly, Managing
Director, Patomak Global
Partners, LLC
(financial services
consulting)
127
None
Trustee, PETF (since 2014)
Trustee, PDSRA (since 2019)
43
INDEPENDENT BOARD MEMBERS
Name, Address,
and Year of Birth
Board Positions Held
with Fund Complex
Principal Occupation(s)
During Past 5 Years
Number of
Portfolios
Overseen
in Fund
Complex
Other
Directorships
Held During
Past 5 Years
Elizabeth A. Nickels
711 High Street
Des Moines, IA 50392
1962
Director, PFI and PVC (since 2015)
Retired
127
SpartanNash; Formerly:
Charlotte Russe; Follet
Corporation; PetSmart;
Spectrum Health System
Trustee, PETF (since 2015)
Trustee, PDSRA (since 2019)
Mary M. (“Meg”)
VanDeWeghe
711 High Street
Des Moines, IA 50392
1959
Director, PFI and PVC (since 2018)
CEO and President, Forte
Consulting, Inc. (financial
and management
consulting)
127
Helmerich & Payne;
Formerly: B/E
Aerospace; Brown
Advisory; Denbury
Resources Inc.; Nalco
(and its successor
Ecolab); and WP Carey
Trustee, PETF (since 2018)
Trustee, PDSRA (since 2019)
 
INTERESTED BOARD MEMBERS
Name, Address,
and Year of Birth
Board Positions Held
with Fund Complex
Positions with PGI
and its affiliates;
Principal Occupation(s)
During Past 5 Years**
(unless noted otherwise)
Number of
Portfolios
Overseen
in Fund
Complex
Other
Directorships
Held During
Past 5 Years
Timothy M. Dunbar
711 High Street
Des Moines, IA 50392
1957
Chair (since 2019)
President-PGAM, PGI
(2018-2021)
Director, PGI (2018-2020)
Division President, PFSI
and PLIC (2020-2021)
Executive Vice President
and Chief Investment
Officer, PFSI and PLIC
(2014-2018)
President-PGAM, PFSI and
PLIC (2018-2020)
Director, Post (2018-2020)
Chair and Executive Vice
President, RobustWealth,
Inc. (2018-2020)
127
None
Director, PFI and PVC (since 2019)
Trustee, PETF (since 2019)
Trustee, PDSRA (since 2019)
Patrick G. Halter
711 High Street
Des Moines, IA 50392
1959
Director, PFI and PVC (since 2017)
Chair, PGI (since 2018)
Chief Executive Officer and
President, PGI and
Principal-REI (since 2018)
Chief Operating Officer,
PGI (2017-2018)
Director, PGI (2003-2018)
Director, Origin (2018-2019)
President–PGAM, PFSI and
PLIC (since 2020)
Chief Executive Officer and
President, PLIC
(2018-2020)
Chair, Post (2017-2020)
Director, Post (since 2017)
Chair, Principal–REI (since
2004)
Chief Executive Officer,
Principal–REI (2005-2018)
Chair, Spectrum (since
2017)
127
None
Trustee, PETF (since 2017)
Trustee, PDSRA (since 2019)
 
FUND COMPLEX OFFICERS
Name, Address
and Year of Birth
Position(s) Held
with Fund Complex
Positions with PGI and its Affiliates;
Principal Occupations During Past 5 Years**
Kamal Bhatia
711 High Street
Des Moines, IA 50392
1972
President and Chief Executive Officer
(since 2019)
Director, PGI (since 2019)
President-Principal Funds, PGI (since 2019)
Principal Executive Officer, OPC Private Capital (2017-2019)
Senior Vice President, Oppenheimer Funds (2011-2019)
Director, PFD (since 2019)
Senior Executive Director and Chief Operating Officer,
PGI, PFSI and PLIC (since 2020)
President-Principal Funds, PFSI and PLIC (2019-2020)
Director, Post (since 2020)
Director, Principal–REI (since 2020)
Chair and Executive Vice President, PSS (since 2019)
Director, Spectrum (since 2021)
44
FUND COMPLEX OFFICERS
Name, Address
and Year of Birth
Position(s) Held
with Fund Complex
Positions with PGI and its Affiliates;
Principal Occupations During Past 5 Years**
Randy D. Bolin
711 High Street
Des Moines, IA 50392
1961
Assistant Tax Counsel (since 2020)
Vice President/Associate General Counsel, PGI (since 2016)
Vice President/Associate General Counsel, PFSI (since 2013)
Vice President/Associate General Counsel, PLIC (since 2013)
Beth Graff
711 High Street
Des Moines, IA 50392
1968
Vice President and Assistant Controller
(since 2021)
Director – Fund Accounting, PLIC (since 2016)
Gina L. Graham
711 High Street
Des Moines, IA 50392
1965
Treasurer (since 2016)
Vice President and Treasurer, PGI (since 2016)
Vice President and Treasurer, PFD (since 2016)
Vice President and Treasurer, PFSI (since 2016)
Vice President and Treasurer, PLIC (since 2016)
Vice President and Treasurer, Principal - REI (since 2017)
Vice President and Treasurer, PSI (since 2016)
Vice President and Treasurer, PSS (since 2016)
Vice President and Treasurer, RobustWealth, Inc. (since 2018)
Megan Hoffmann
711 High Street
Des Moines, IA 50392
1979
Vice President and Controller (since
2021)
Director – Accounting, PLIC (since 2020)
Assistant Director – Accounting, PLIC (2017-2020)
Laura B. Latham
711 High Street
Des Moines, IA 50392
1986
Assistant Counsel and Assistant
Secretary (since 2018)
Counsel, PGI (since 2018)
Counsel, PLIC (since 2018)
Diane K. Nelson
711 High Street
Des Moines, IA 50392
1965
AML Officer (since 2016)
Chief Compliance Officer/AML Officer, PSS (since 2015)
Tara Parks
711 High Street
Des Moines, IA 50392
1983
Vice President and Assistant Controller
(since 2021)
Director – Accounting, PLIC (since 2019)
Tax Manager – ALPS Fund Services (2011-2019)
Deanna Y. Pellack
711 High Street
Des Moines, IA 50392
1987
Assistant Counsel and Assistant
Secretary
(since 2022)
Counsel, PLIC (since 2022)
Vice President, The Northern Trust Company (2019-2022)
Second Vice President, The Northern Trust Company (2014-2019)
Secretary, Advisers Investment Trust (2021-2022)
Assistant Secretary, Advisers Investment Trust (2018-2021)
Sara L. Reece
711 High Street
Des Moines, IA 50392
1975
Vice President and Chief Operating
Officer (since 2021)
Vice President and Controller
(2016-2021)
Managing Director – Global Fund Ops, PLIC (since 2021)
Managing Director – Financial Analysis/ Planning, PLIC (2021)
Director – Accounting, PLIC (2015-2021)
Teri R. Root
711 High Street
Des Moines, IA 50392
1979
Chief Compliance Officer (since 2018)
Interim Chief Compliance Officer
(2018)
Deputy Chief Compliance Officer
(2015-2018)
Chief Compliance Officer - Funds, PGI (since 2018)
Deputy Chief Compliance Officer, PGI (2017-2018)
Vice President, PSS (since 2015)
Michael Scholten
711 High Street
Des Moines, IA 50392
1979
Chief Financial Officer (since 2021)
Chief Financial Officer, PFD (since 2016)
Assistant Vice President and Actuary, PLIC (since 2021)
Chief Financial Officer – Funds/Platforms, PLIC (since 2015)
Chief Financial Officer, PSS (since 2015)
Adam U. Shaikh
711 High Street
Des Moines, IA 50392
1972
Assistant Secretary (since 2022)
Assistant Counsel (since 2006)
Assistant General Counsel, PGI (since 2018)
Counsel, PGI (2017-2018)
Counsel, PLIC (since 2006)
John L. Sullivan
711 High Street
Des Moines, IA 50392
1970
Assistant Counsel and Assistant
Secretary
(since 2019)
Counsel, PGI (since 2020)
Counsel, PLIC (since 2019)
Prior thereto, Attorney in Private Practice
Dan L. Westholm
711 High Street
Des Moines, IA 50392
1966
Assistant Treasurer (since 2006)
Assistant Vice President-Treasury, PGI (since 2013)
Assistant Vice President-Treasury, PFD (since 2013)
Assistant Vice President-Treasury, PLIC (since 2014)
Assistant Vice President-Treasury, PSI (since 2013)
Assistant Vice President-Treasury, PSS (since 2013)
Beth C. Wilson
711 High Street
Des Moines, IA 50392
1956
Vice President and Secretary (since
2007)
Director and Secretary-Funds, PLIC (since 2007)
45
FUND COMPLEX OFFICERS
Name, Address
and Year of Birth
Position(s) Held
with Fund Complex
Positions with PGI and its Affiliates;
Principal Occupations During Past 5 Years**
Clint L. Woods
711 High Street
Des Moines, IA 50392
1961
Counsel, Vice President, and Assistant
Secretary (since 2018)
Of Counsel (2015-2018)
Vice President (2016-2017)
Counsel (2015-2017)
Vice President, Associate General Counsel and
Assistant Secretary PGI (since 2021)
Vice President, Associate General Counsel and Secretary
 PGI (2020-2021)
 PSI (since 2021)
 PSS (since 2021)
Vice President, Associate General Counsel, Governance Officer and
Secretary
 Principal-REI (since 2020)
Vice President, Associate General Counsel, Governance Officer and
Assistant Corporate Secretary,
 PGI (2018-2020)
 PFSI (since 2015)
 PLIC (since 2015)
 Principal-REI (2020)
Vice President, Associate General Counsel and Assistant Corporate
Secretary,
 PFD (since 2019)
 PSI (2019-2021)
 PSS (2019-2021)
 RobustWealth, Inc. (since 2019)
Secretary,
 Post (2020-2021)
 Spectrum (2020-2021)
Assistant Secretary,
 Post (since 2021)
 Spectrum (since 2021)
Jared A. Yepsen
711 High Street
Des Moines, IA 50392
1981
Assistant Tax Counsel (since 2017)
Counsel, PGI (2017-2019)
Counsel, PLIC (since 2015)
**Abbreviations used:
Origin Asset Management LLP (Origin)
Post Advisory Group, LLC (Post)
Principal Financial Services, Inc. (PFSI)
Principal Funds Distributor, Inc. (PFD)
Principal Global Asset Management (PGAM)
Principal Global Investors, LLC (PGI)
Principal Life Insurance Company (PLIC)
Principal Real Estate Investors, LLC (Principal - REI)
Principal Securities, Inc. (PSI)
Principal Shareholder Services, Inc. (PSS)
Spectrum Asset Management, Inc. (Spectrum)
Board Member Ownership of Securities
The following tables set forth the dollar range of the equity securities of Funds included in this SAI, and aggregate dollar range of the equity securities of the funds in the Fund Complex, that were beneficially owned by the Board Members as of December 31, 2020. As of that date, Board Members did not own shares of Funds included in this SAI that are not listed.
For the purpose of these tables, beneficial ownership means a direct or indirect pecuniary interest. Only Interested Board Members are eligible to participate in an employee benefit program that invests in the Fund Complex. Board Members who beneficially owned shares of the series of PVC did so through variable life insurance and variable annuity contracts. Please note that exact dollar amounts of securities held are not listed. Rather, ownership is listed based on the following dollar ranges: 
A
$0
B
$1 up to and including $10,000
C
$10,001 up to and including $50,000
D
$50,001 up to and including $100,000
E
$100,001 or more
 
 
Independent Board Members
Fund
Barnes
Damos
Hirsch
Hymes(1)
Lattimer(1)
McMillan
Nickels
VanDeWeghe
 
Blue Chip
A
E
A
A
A
E
E
E
 
Diversified Real Asset
A
A
C
A
A
A
A
A
 
Spectrum Preferred and Capital Securities Income
A
E
A
A
A
A
A
A
 
Total Fund Complex
E
E
E
C
A
E
E
E
 
(1)
Director’s appointment effective December 15, 2020 
46
Interested Board Members
 
Dunbar
Halter
Funds in this SAI
A
A
Total Fund Complex
E
E
Board Member and Officer Compensation
The Fund Complex does not pay any remuneration to its officers or to any Board Members listed above as Interested Board Members. The Board annually considers a proposal to reimburse PGI for certain expenses, including a portion of the Chief Compliance Officer’s compensation. If the proposal is adopted, these amounts are allocated across all Funds based on relative net assets of each portfolio.
Each Independent Board Member received compensation for service as a member of the Boards of all investment companies in the Fund Complex based on a schedule that takes into account an annual retainer amount, the number of meetings attended, and expenses incurred. Board Member compensation and related expenses are allocated to each of the Funds based on the net assets of each relative to combined net assets of the Fund Complex.
The following table provides information regarding the compensation received by the Independent Board Members from the Funds included in this SAI and from the Fund Complex during the fiscal year ended August 31, 2021. On that date, there were 4 investment companies in the Fund Complex. The Fund does not provide retirement benefits or pensions to any of the Board Members. 
Board Member
Funds in this SAI(1)
Fund Complex
Leroy T. Barnes, Jr.
$42,706
$306,250
Craig Damos
$48,110
$345,000
Fritz S. Hirsch
$44,718
$320,750
Victor Hymes(2)
$32,305
$232,667
Padelford (“Padel”) L. Lattimer(2)
$33,175
$239,000
Karen (“Karrie”) McMillan
$43,006
$308,400
Elizabeth A. Nickels
$44,478
$319,000
Mary M. (“Meg”) VanDeWeghe
$42,252
$303,000
(1)
The Global Sustainable Listed Infrastructure Fund is new since August 31, 2021.
(2)
Appointment effective December 15, 2020.
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Advisors
Principal Global Investors, LLC (“PGI”), an indirect subsidiary of Principal Financial Group, Inc. (“Principal®”), serves as the manager for the Funds. Principal Management Corporation, previously an affiliate of PGI, served as manager to the Funds prior to its merger with and into PGI on May 1, 2017.
PGI directly makes decisions to purchase or sell securities for each Fund, except for those Funds or portions of Funds for which PGI has retained a sub-advisor to provide such services, as described below.
PGI has executed agreements with various sub-advisors. Under those sub-advisory agreements, the sub-advisor agrees to assume the obligations of PGI to provide investment advisory services for a specific Fund. For these services, PGI pays each sub-advisor a fee (except on the Capital Securities Fund). 
Sub-Advisor:
BlackRock Financial Management, Inc. (“BlackRock”) is an indirect wholly-owned subsidiary of
BlackRock, Inc. BlackRock and its affiliates manage investment company and other portfolio assets.
 
Sub-Sub-Advisor: BlackRock International Limited is an indirect wholly-owned subsidiary of
BlackRock, Inc.
Fund(s):
a portion of the assets of Diversified Real Asset
Sub-Advisor:
ClearBridge Investments (North America) Pty Limited (“ClearBridge”), is an indirect wholly owned
subsidiary of Franklin Resources, Inc.
Fund(s):
a portion of the assets of Diversified Real Asset
47
Sub-Advisor:
CoreCommodity Management, LLC (“CoreCommodity”) is a wholly-owned subsidiary of
CoreCommodity Capital, LLC. CoreCommodity is controlled by its senior management, which owns
100% of the voting interest and 50% of the economic interest through various subsidiaries. The other
50% economic interest in CoreCommodity is held by a subsidiary of Jeffries Financial Group Inc.
(NYSE: JEF).
Fund(s):
a portion of the assets of Diversified Real Asset (commodities sleeve and, indirectly through a Cayman
subsidiary, commodity derivatives)
Sub-Advisor:
Delaware Investments Fund Advisers (“DIFA”) is an indirect wholly-owned subsidiary of Macquarie
Group Limited and operates as part of Macquarie Asset Management, the asset management division
of Macquarie Group Limited.
Fund(s):
a portion of the assets of Diversified Real Asset
Sub-Advisor:
Gotham Asset Management, LLC (“Gotham”) is wholly-owned by Gotham Asset Management
Holdings, LP (“GAMH”). Joel Greenblatt and Robert Goldstein control the Sub-Advisor through their
control of GAMH and as Managing Principals of Gotham.
Fund(s):
a portion of the assets of Global Multi-Strategy
Sub-Advisor:
Graham Capital Management, L.P. (“Graham”) is majority-owned by KGT Investment Partners, L.P.,
which is principally owned by Graham’s founder, Kenneth Tropin, and members of Mr. Tropin’s family.
Fund(s):
a portion of the assets of Global Multi-Strategy
Sub-Advisor:
Impax Asset Management Limited (“Impax”) is a wholly owned subsidiary of Impax Asset
Management Group plc, which is publicly traded on the Alternative Investment Market of the London
Stock Exchange under the ticker symbol “IPX.”
Fund(s):
a portion of the assets of Diversified Real Asset
Sub-Advisor:
Loomis, Sayles & Company, L.P. (“Loomis Sayles”) is a subsidiary of Natixis Investment Managers,
LLC, which is part of Natixis Investment Managers, an international asset management group based in
Paris, France.
Fund(s):
a portion of the assets of Global Multi-Strategy
Sub-Advisor:
Los Angeles Capital Management LLC (“Los Angeles Capital”) is a California limited liability
company. It is owned by key employees through its parent holding companies, LACM Holdings, Inc. and
LACM Equity LLC (collectively, the “Parent Company”). Thomas D. Stevens, Chairman, and Hal W.
Reynolds, Chief Investment Officer, hold a controlling equity interest in the Parent Company.
Fund(s):
a portion of the assets of Global Multi-Strategy
Sub-Advisor:
Newton Investment Management North America LLC (“NIMNA, LLC”) is an indirect subsidiary of
The Bank of New York Mellon Corporation (BNY Mellon), a banking and financial services company.
NIMNA LLC is part of ‘The Newton Investment Management Group’ which is used to collectively
describe a group of affiliated companies that provide investment advisory services under the brand
name ‘Newton’ or ‘Newton Investment Management’. Investment advisory services are provided in
United States by NIMNA LLC and in the United Kingdom by Newton Investment Management Limited
(NIM). Both firms are indirect subsidiaries of BNY Mellon.
Fund(s):
a portion of the assets of Diversified Real Asset
Sub-Advisor:
Nuveen Asset Management, LLC (“Nuveen Asset Management”), is an investment adviser
registered with the SEC, whose sole managing member is Nuveen Funds Advisors, LLC. Nuveen Asset
Management is an indirect subsidiary of Teachers Insurance and Annuity Association of America, which
constitutes the ultimate principal owner of Nuveen Asset Management.
Fund(s):
a portion of the assets of Diversified Real Asset
48
Sub-Advisor:
Origin Asset Management LLP (“Origin”) is an indirect majority-owned subsidiary of Principal
Financial Services, Inc., an affiliate of PGI, and a member of Principal®.
Fund(s):
Origin Emerging Markets
Sub-Advisor:
Pictet Asset Management SA (“Pictet”) is the asset management arm of the Pictet Group which is
owned by eight managing partners.
Fund(s):
a portion of the assets of Diversified Real Asset
Sub-Advisor:
Principal Real Estate Investors, LLC (“Principal - REI”) is an indirect subsidiary of Principal Financial
Group, Inc.
Fund(s):
Global Sustainable Listed Infrastructure and a portion of the assets of Diversified Real Asset
Sub-Advisor:
Sound Point Capital Management, LP (“Sound Point”), Stephen Ketchum, five principals of Stone
Point Capital LLC and Dyal Capital Partners II (A), LP, a third party permanent capital fund managed by
the Dyal Capital division of Blue Owl Capital Inc., together own 100% of the equity of the General
Partner and the Sub-Advisor with Dyal and the Stone Point principals owning minority stakes.
Fund(s):
a portion of the assets of Global Multi-Strategy
Sub-Advisor:
Spectrum Asset Management, Inc. (“Spectrum”) is an indirect subsidiary of Principal Financial
Group, Inc.
Fund(s):
Capital Securities and Spectrum Preferred and Capital Securities Income
Sub-Advisor:
Wellington Management Company LLP (“Wellington”) is owned by the partners of Wellington
Management Group LLP, a Massachusetts limited liability partnership.
Fund(s):
a portion of the assets of Diversified Real Asset and a portion of the assets of Global Multi-Strategy
Sub-Advisor:
Westchester Capital Management, LLC (“Westchester”) is 100% owned by its sole member, Virtus
Partners, Inc. (“VPI”). VPI is 100% owned by Virtus Investment Partners, Inc. (NASDAQ: VRTS) (“VIP”).
Fund(s):
a portion of the assets of Global Multi-Strategy
Affiliated Persons of the Registrant Who are Affiliated Persons of the Advisor
For information about affiliated persons of the Registrant who are also affiliated persons of PGI or affiliated advisors, see the Interested Board Members and Fund Complex Officers tables in the “Leadership Structure and Board” section.
Codes of Ethics
The Registrant, PGI, PFD, and each of the sub-advisors have adopted Codes of Ethics (“Codes”) under Rule 17j-1 of the 1940 Act. PGI and the sub-advisors have each also adopted such a Code under Rule 204A-1 of the Investment Advisers Act of 1940. These Codes are designed to prevent, among other things, persons with access to information regarding the portfolio trading activity of the Funds from using that information for their personal benefit. Except in limited circumstances, the Code for PGI and the Registrant prohibits portfolio managers from personally trading securities that are held or traded in the actively managed portfolios for which they are responsible. Certain sub-advisors have adopted Codes that do not permit personnel subject to such Code to invest in securities that may be purchased or held by the Fund. However, other sub-advisors’ Codes do permit, subject to conditions, personnel subject to the Code to invest in securities that may be purchased or held by the Fund. The Registrant’s Board reviews reports at least annually regarding the operation of the Code of Ethics of the Registrant, PGI, PFD, and each sub-advisor. A copy of the Registrant’s Code will be provided upon request, which may be made by contacting the Registrant.
49
Management Agreement
Under the terms of the Management Agreement for the Registrant, PGI, the investment advisor, is entitled to receive a fee computed and accrued daily and payable monthly, at the following annual rates, for providing investment advisory services and specified other services. The management fee schedule for each Fund is as follows (expressed as a percentage of average net assets): 
Fund
All Assets
Bond Market Index
0.14%
Capital Securities
0.00(1)
International Equity Index
0.25
(1)
The table reflects that PGI is absorbing all expenses of the Fund. You should be aware, however, that the Fund is an integral part of “wrap-fee” programs, including those sponsored by registered investment advisors and broker-dealers unaffiliated with the Fund. Participants in these programs pay a “wrap” fee to the wrap-free program’s sponsor (“Sponsor”). You should read carefully the wrap-fee brochure provided to you by your Sponsor or your registered investment advisor. The brochure is required to include information about the fees charged to you by the Sponsor and the fees the Sponsor paid to your registered investment advisor. 
Fund
First
$500 Million
Next
$500 Million
Next
$500 Million
Over
$1.5 Billion
Edge MidCap
0.70%
0.68%
0.66%
0.65%
Global Sustainable Listed Infrastructure
0.75
0.73
0.71
0.70
International Small Company
1.05
1.03
1.01
1.00
Opportunistic Municipal
0.50
0.48
0.46
0.45
Small-MidCap Growth
0.70
0.68
0.66
0.65
 
Fund
First
$500 Million
Next
$500 Million
Next
$500 Million
Next
$500 Million
Next
$1 Billion
Over
$3 Billion
Diversified Real Asset
0.85%
0.83%
0.81%
0.80%
0.79%
0.78%
Global Multi-Strategy
1.60
1.58
1.56
1.55
1.54
1.53
Origin Emerging Markets
1.05
1.03
1.01
1.00
0.99
0.98
Small-MidCap Dividend Income
0.79
0.77
0.75
0.74
0.73
0.72
 
Fund
First
$500 Million
Next
$500 Million
Next
$500 Million
Next
$500 Million
Next
$1 Billion
Next
$7 Billion
Over
$10 Billion
Blue Chip
0.65%
0.63%
0.61%
0.60%
0.59%
0.58%
0.57%
 
Fund
First
$500 Million
Next
$500 Million
Next
$500 Million
Next
$500 Million
Next
$1 Billion
Next
$2 Billion
Next
$2 Billion
Next
$3 Billion
Over
$10 Billion
Spectrum Preferred and Capital
Securities Income
0.75%
0.73%
0.71%
0.70%
0.69%
0.68%
0.67%
0.66%
0.65%
Fund Operating Expenses
Each Fund pays all of its operating expenses. Under the terms of the Management Agreement, PGI is responsible for paying the expenses associated with the organization of each Fund, including the expenses incurred in the initial registration of the Funds with the SEC; compensation of personnel, officers and Board Members who are affiliated with PGI; and expenses and compensation associated with furnishing office space and all necessary office facilities and equipment and personnel necessary to perform the general corporate functions of the Funds. Accounting services customarily required by investment companies are provided to each Fund by PGI, under the terms of the Management Agreement. Principal Shareholder Services, Inc., an affiliate of PGI, provides transfer agent services for Classes A, C, J, Institutional, R-1, R-3, R-4, R-5, R-6, and S shares, including qualifying shares of the Funds for sale in states and other jurisdictions. PGI is also responsible for providing certain shareholder and administrative services to Classes R-1, R-3, R-4 and R-5 shares pursuant to a Service Agreement and an Administrative Services Agreement.
Contractual Limits on Total Annual Fund Operating Expenses
PGI has contractually agreed to limit the Fund’s expenses (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and tax reclaim recovery expenses and other extraordinary expenses) on certain share classes of certain of the Funds. The reductions and reimbursements are in amounts that maintain total operating expenses at or below certain limits. The limits are expressed as a percentage of average daily net assets attributable to each respective class on an annualized basis. Subject to applicable expense limits, the Funds may reimburse PGI for expenses incurred during the current fiscal year.
50
The operating expense limits and the agreement terms are as follows: 
Contractual Limits on Total Annual Fund Operating Expenses
Fund
A
C
J
Inst.
Expiration
Blue Chip
N/A
N/A
N/A
0.66%
12/30/2022
Bond Market Index
N/A
N/A
0.54%
N/A
12/30/2022
Diversified Real Asset
1.20%
N/A
N/A
0.83%
12/30/2022
Edge MidCap
1.10%
N/A
N/A
0.77%
12/30/2022
Global Multi-Strategy
N/A
N/A
N/A
1.63%
12/30/2022
Global Sustainable Listed Infrastructure
N/A
N/A
N/A
0.88%
12/30/2023
International Equity Index
N/A
N/A
N/A
0.31%
12/30/2022
International Small Company
N/A
N/A
N/A
1.15%
12/30/2022
Opportunistic Municipal
0.84%
N/A
N/A
0.56%
12/30/2022
Origin Emerging Markets
1.55%
N/A
N/A
1.20%
12/30/2022
Small-MidCap Dividend Income
1.12%
1.87%
N/A
0.85%
12/30/2022
Small-MidCap Growth
N/A
N/A
N/A
0.83%
12/30/2022
Spectrum Preferred and Capital Securities Income
N/A
N/A
N/A
0.81%
12/30/2022
For Capital Securities Fund, PGI has agreed contractually to limit the Fund’s expenses attributable to Class S shares by paying expenses normally payable by the Fund (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and tax reclaim recovery expenses and other extraordinary expenses), to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.00%. It is expected that the expense limit will continue permanently (and in any event, at least through December 30, 2022); however, Principal Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit.
Contractual Limits on Other Expenses
PGI has contractually agreed to limit the expenses identified as “Other Expenses” related to certain share classes of certain of the Funds by paying, if necessary, expenses normally payable by the Fund (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and tax reclaim recovery expenses and other extraordinary expenses) to maintain “Other Expenses” (expressed as a percent of average net assets on an annualized basis) at or below certain limits.
The other expenses limits and the agreement terms are as follows: 
Contractual Limits on Other Expenses
Fund
Class R-6
Expiration
Diversified Real Asset
0.02%
12/30/2022
Global Multi-Strategy
0.02%
12/30/2022
International Equity Index
0.04%
12/30/2022
International Small Company
0.04%
12/30/2022
Small-MidCap Dividend Income
0.02%
12/30/2022
Contractual Management Fee Waivers
PGI has contractually agreed to limit certain of the Funds’ management fees. The expense limit will reduce the Fund’s management fees by the amounts listed below: 
Contractual Fee Waivers
Fund
Waiver
Expiration
Blue Chip
0.030%
12/30/2022
Bond Market Index
0.015%
12/30/2022
Diversified Real Asset
0.050%
12/30/2022
Edge MidCap
0.050%
12/30/2022
Global Multi-Strategy
0.040%
12/30/2022
Opportunistic Municipal
0.060%
12/30/2022
Limits on Distribution Fees and/or Service (12b-1) Fees
Effective January 1, 2021, Principal Funds Distributor, Inc. (“the Distributor”) has voluntarily agreed to limit the Distribution Fees attributable to Class J, reducing the Fund’s Distribution Fees for Class J Shares by 0.020%.* This voluntary waiver may be revised or terminated at any time without notice to shareholders.
* For the period from December 31, 2016 to December 31, 2020, the voluntary waiver was 0.030%.
51
Management Fees Paid
Fees paid for investment management services (before any waivers/reimbursements from PGI) during the periods indicated were as follows: 
Management Fees for Periods Ended August 31 (amounts in thousands)
Fund
2021
2020
2019
Blue Chip
$53,203
$33,554
$23,519
Bond Market Index
1,489
3,401
4,353
Capital Securities
—
—
—
Diversified Real Asset
29,866(1)
28,838
31,859
Edge MidCap
5,639
5,017
4,800
Global Multi-Strategy
10,276(1)
14,279
32,261
International Equity Index
2,941
2,710
2,663
International Small Company
11,220
9,399
9,147
Opportunistic Municipal
735
681
575
Origin Emerging Markets
31,024
14,183
8,229
Small-MidCap Dividend Income
10,676
14,816
18,048
Small-MidCap Growth
73
38
8(2)
Spectrum Preferred and Capital Securities Income
55,300
44,021
37,238(3)
(1)
Consolidated financial statement; see “Basis for Consolidation” in Notes to Financial Statements
(2)
Period from June 12, 2019, date operations commenced, through August 31, 2019
(3)
Effective July 1, 2019, Preferred Securities changed its name to Spectrum Preferred and Capital Securities Income
Management Fees Waived
For the following Funds, PGI waived a portion of the management fee during the periods indicated as follows: 
Management Fees Waived for Periods Ended August 31 (amounts in thousands)
Fund
2021
2020
2019
Blue Chip
$3,864
$3,492
$3,036
Bond Market Index
160
247
1,540
Diversified Real Asset
1,854
1,337
1,189
Edge MidCap
407
473
334
Global Multi-Strategy
258
359
821
Opportunistic Municipal
88
82
47
Origin Emerging Markets
—
569
764
Expenses Reimbursed
For the following Funds, PGI reimbursed certain expenses during the periods indicated as follows: 
Expenses Reimbursed for Periods Ended August 31 (amounts in thousands)
Fund
2021
2020
2019
Blue Chip
$—
$30
$63
Bond Market Index
—
—
23
Capital Securities
524
394
303
Diversified Real Asset
901
1,149
1,871
Edge MidCap
40
57
52
Global Multi-Strategy
642
825
597
International Equity Index
288
303
473
International Small Company
13
31
95
Opportunistic Municipal
38
46
79
Origin Emerging Markets
21
44
93
Small-MidCap Dividend Income
708
979
923
Small-MidCap Growth
38
46
51(1)
Spectrum Preferred and Capital Securities Income
—
—
165(2)
(1)
Period from June 12, 2019, date operations commenced, through August 31, 2019
(2)
Effective July 1, 2019, Preferred Securities changed its name to Spectrum Preferred and Capital Securities Income
52
Sub-Advisory Agreements for the Funds
PGI (and not the Funds) pays the sub-advisors fees determined pursuant to a sub-advisory agreement with each sub-advisor, including those sub-advisors that are at least 95% owned, directly or indirectly, by PGI or its affiliates (“Wholly-Owned Sub-Advisors”) and the sub-advisors for the Funds listed in the tables below. Fees paid to sub-advisors are individually negotiated between PGI and each sub-advisor and may vary. 
Aggregate Fees Paid to Sub-Advisors
(other than Wholly-Owned Sub-Advisors and Origin)
for Fiscal Years Ended August 31 (dollar amounts in thousands)
Fund
2021
2020
2019
 
Dollar
Amount
Percent of
Average Daily
Net Assets
Dollar
Amount
Percent of
Average Daily
Net Assets
Dollar
Amount
Percent of
Average Daily
Net Assets
Diversified Real Asset
$7,587
0.27%
$7,893
0.29%
$9,431
0.31%
Global Multi-Strategy
4,211
0.78
6,444
0.86
15,620
0.88
 
Fees Paid to Origin for Fiscal Years Ended August 31
(dollar amounts in thousands)
Fund
2021
2020
2019
 
Dollar
Amount
Percent of
Average Daily
Net Assets
Dollar
Amount
Percent of
Average Daily
Net Assets
Dollar
Amount
Percent of
Average Daily
Net Assets
Origin Emerging Markets
$11,288
0.37%
$5,140
0.39%
$2,913
0.42%
Custodian
The custodian of the portfolio securities and cash assets of the Funds and the Cayman Subsidiaries is The Bank of New York Mellon, One Wall Street, New York, NY 10286. The custodian performs no managerial or policy-making functions for the Funds.
Securities Lending Agent
The Bank of New York Mellon serves as the securities lending agent for the Funds. Information regarding securities lending during the Funds’ most recently ended fiscal year is as follows: 
Fund
Gross
income
(including
from cash
collateral
reinvestment)
Fees paid
to securities
lending
agent
from a
revenue split
Fees paid
for any
cash
collateral
management
service that
are not
included in
revenue split
Administrative
fees not
included in
revenue split
Indemnification
fees not
included in
revenue split
Net
rebate
paid to
borrower
Other
fees not
included in
revenue split
Aggregate
fees/
compensation
Net
income
from
securities
lending
Blue Chip
$111
$372
$—
$—
$—
$(3,609)
$—
$(3,237)
$3,348
Bond Market
Index
783
2,840
—
—
—
(27,633)
—
(24,793)
25,576
Capital
Securities
1,097
6,269
—
—
—
(61,626)
—
(55,358)
56,454
Diversified
Real Asset
35,871
42,117
—
—
—
(385,335)
—
(343,218)
379,088
Edge
MidCap
—
—
—
—
—
—
—
—
—
International
Equity Index
1,886
15,738
—
—
—
(155,524)
—
(139,786)
141,672
International
Small
Company
4,775
36,805
—
—
—
(363,298)
—
(326,492)
331,267
Origin
Emerging
Markets
844
41,825
—
—
—
(417,406)
—
(375,581)
376,426
53
Fund
Gross
income
(including
from cash
collateral
reinvestment)
Fees paid
to securities
lending
agent
from a
revenue split
Fees paid
for any
cash
collateral
management
service that
are not
included in
revenue split
Administrative
fees not
included in
revenue split
Indemnification
fees not
included in
revenue split
Net
rebate
paid to
borrower
Other
fees not
included in
revenue split
Aggregate
fees/
compensation
Net
income
from
securities
lending
Small-MidCap
Dividend
Income
28
127
—
—
—
(1,238)
—
(1,111)
1,139
Small-MidCap
Growth
3
251
—
—
—
(2,503)
—
(2,252)
2,255
Spectrum
Preferred
and Capital
Securities
Income
3,979
49,294
—
—
—
(489,152)
—
(439,858)
443,837
The services provided by The Bank of New York Mellon, as securities lending agent for the Funds, include: coordinating, with the Funds, the selection of securities to be loaned; negotiating loan terms; monitoring the value of securities loaned and corresponding collateral, marking to market daily; coordinating collateral movements; monitoring dividends; and transferring, recalling, and arranging the return of loaned securities to the Funds upon loan termination.
INTERMEDIARY COMPENSATION
Additional Payments to Intermediaries.
Shares of the Funds are sold primarily through intermediaries, such as brokers, dealers, investment advisors, banks, trust companies, pension plan consultants, retirement plan administrators and insurance companies.
In addition to payments pursuant to 12b-1 plans, PGI or its affiliates enter into agreements with some intermediaries pursuant to which the intermediaries receive payments for providing services relating to Fund shares. Examples of such services are administrative, networking, recordkeeping, sub-transfer agency and/or shareholder services. In some situations, the Funds will reimburse PGI or its affiliates for making such payments; in others, the Funds make such payments directly to intermediaries.
For Classes R-1, R-3, R-4 and R-5 shares, such compensation is generally paid out of the Service Fees and Administrative Service Fees that are disclosed in the Prospectus as Other Expenses. Such compensation is generally based on the average asset value of Fund shares for the relevant share class held by clients of the intermediary.
In addition, PGI or its affiliates pay, without reimbursement from the Funds, compensation from their own resources, to certain intermediaries that support the distribution of shares of the Fund or provide services to Fund shareholders. In addition, PGI or its affiliates pay, without reimbursement from the Funds, compensation from their own resources to certain large plan sponsors to help cover the cost of providing educational materials to plan participants.
The amounts paid to intermediaries vary by share class and by Fund.
Principal Life Insurance Company is one such intermediary that provides services relating to Fund shares held in employee benefit plans, and it is typically paid all of the Service Fees and Administrative Service Fees pertaining to such plans.
Plan recordkeepers, who may have affiliated financial intermediaries that sell shares of the Funds, may be paid additional amounts. In addition, some financial intermediaries or their affiliates receive compensation from PGI or its affiliates for maintaining retirement plan platforms that facilitate trading by affiliated and non-affiliated financial intermediaries and recordkeeping for retirement plans.
A number of factors may be considered in determining the amount of these additional payments, including each financial intermediary’s Fund sales and assets, as well as the willingness and ability of the financial intermediary to give the Distributor access to its Financial Professionals for educational and marketing purposes. In some cases, intermediaries will include the Funds on a preferred list. The Distributor’s goals include making the Financial Professionals who interact with current and prospective investors and shareholders more knowledgeable about the Funds so that they can provide suitable information and advice about the Funds and related investor services. The amounts paid to intermediaries vary by Fund and by share class.
Additionally, in some cases, the Distributor and its affiliates will provide payments or reimbursements in connection with the costs of conferences, educational seminars, training and marketing efforts related to the Funds. Such activities may be sponsored by intermediaries or the Distributor. The costs associated with such activities may include travel, lodging,
54
entertainment, and meals. In some cases, the Distributor will also provide payment or reimbursement for expenses associated with transactions (“ticket”) charges and general marketing expenses. Other compensation may be paid to the extent not prohibited by applicable laws, regulations or the rules of any self-regulatory agency, such as FINRA.
The payments described in this SAI may create a conflict of interest by influencing your Financial Professional or your intermediary to recommend a Fund over another investment, or to recommend one share class of a Fund over another share class. Ask your Financial Professional or visit your intermediary’s website for more information about the total amounts paid to them by PGI and its affiliates, and by sponsors of other investment companies your Financial Professional may recommend to you.
Your intermediary may charge you additional fees other than those disclosed in the Prospectus. Ask your Financial Professional about any fees and commissions they charge.
Although a Fund may use brokers who sell shares of the Funds to effect portfolio transactions, the sale of shares is not considered as a factor by the Fund’s sub-advisors when selecting brokers to effect portfolio transactions.
55
As of December 1, 2021, the Distributor anticipates that the firms that will receive additional payments as described in the Additional Payments to Intermediaries section above (other than sales charges, Rule 12b-1 fees and expense reimbursement) include, but are not necessarily limited to, the following:
Advisor Group
Alight Financial Solutions LLC
American Century Investments
American Enterprise Investment Services Inc.
American General Life Insurance Co.
American United Life Insurance Co.
Ameriprise Financial Services
Ameritas Investments Corp
Ascensus
Ascensus College Savings Record Keeping Services, LLC
AXA Advisors, LLC
AXA Equitable Life Insurance Co.
Baird
Benefit Plan Administrators
Benefit Solutions
Benefit Trust Company
BNY Mellon NA
Broadridge Business Process Outsourcing, LLC
Cambridge Investment Research Inc.
Canterbury Consulting Incorporated
Capstone Wealth Advisors LLC
Cetera Advisor Networks LLC
Charles Schwab Trust Company
Chris Hays Wealth Management LLC
Citigroup Global Markets Inc.
Columbia Management Investment Advisers, LLC
Commonwealth Financial Network
Concentrum Wealth Management, LLC
Coordinated Capital Securities, Inc.
CPI Qualified Consultants
Digital Retirement Solutions
ePlan Services, Inc.
Equitable Financial Life Insurance Company
Equitable Financial Life Insurance Company of America
ETRADE Savings Bank
Fidelity Investment Institutional Operations Co.
Financial Data Services LLC
First Republic Securities Co., LLC
Four Peaks Planning and Investments LLC
FSC Securities Corporation
G.A. Repple & Company
Global Retirement Partners LLC
Goldman Sachs & Co.
Gradient Investments LLC
Gradient Securities, LLC
Great West Life & Annuity
GWFS Equities, Inc.
ICMA-Retirement Corp.
Investacorp Inc.
J.P. Morgan Securities, Inc.
Janney Montgomery Scott
John Hancock Trust Co.
Jones & Associates Premier Financial Solutions
Kestra Investment Services, LLC
KMS Financial Services, Inc.
Lincoln Investment Planning, Inc.
Lincoln Retirement Services Co.
LPL Financial Corporation
Massachusetts Mutual Life Insurance Company
Mercer HR Services
Merrill Lynch
MidAtlantic Capital Corporation
Midland National Life Insurance Company
Minnesota Life Insurance Company
MML Investors Services Inc.
Morgan Stanley Smith Barney LLC
National Financial Services LLC
Nationwide Investment Services Corp
Newport Group Retirement Plan Services
Northwestern Mutual Investment Services
NYLIFE Securities, LLC
Oppenheimer & Co.
Pershing LLC
Plan Administrators, Inc.
Principal Life Insurance Company
Principal Securities, Inc.
Private Client Services, LLC
Prudential Retirement Services
Putnam Investors Services
Raymond James & Associates, Inc.
Raymond James Financial Services, Inc.
RBC Capital Markets Corp.
RBC Correspondent Services
Reliance Trust Company
Retirement Clearinghouse
Robert W. Baird & Co.
Royal Alliance Associates, Inc.
SA Stone Wealth Management Inc
SagePoint Financial, Inc.
Sammons Institutional Group
Securities America, Inc.
Securities Service Network, Inc.
Spectrum Investment Advisors, Inc
Standard Insurance Company
Stifel Nicolaus & Company, Inc.
T. Rowe Price Retirement Plan Services
TD Ameritrade Inc.
TD Ameritrade Trust Company
Thrivent Financial for Lutherans
TIAA-CREF
Total Administrative Services Corporation
Towerpoint Wealth LLC
Triad Advisors, Inc.
Triad Hybrid Solutions, LLC
UBS Financial Services, Inc.
US Bancorp Investments
VALIC Retirement Services Company
Vanguard Brokerage Services
Vanguard Group, The
Voya Financial Advisors, Inc.
Voya Institutional Plan Services, LLC
Voya Institutional Trust Co.
Wells Fargo Advisors FINET, LLC
Wells Fargo Advisors, LLC
Wells Fargo Advisors LLC Bank
Wells Fargo Bank, N.A.
Wells Fargo Clearing Services LLC
Wilmington Trust Retirement & Ins Services
Woodbury Financial Services
The preceding list is subject to change at any time without notice. Any additions, modifications, or deletions to the financial intermediaries identified in this list that have occurred since the date noted above are not reflected. To obtain a current list, call 1-800-222-5852.
56
BROKERAGE ALLOCATION AND OTHER PRACTICES
Brokerage on Purchases and Sales of Securities
All orders for the purchase or sale of portfolio securities are placed on behalf of a Fund by PGI, or by the Fund’s sub-advisor pursuant to the terms of the applicable sub-advisory agreement. In distributing brokerage business arising out of the placement of orders for the purchase and sale of securities for any Fund, the objective of PGI and of each Fund’s sub-advisor is to obtain the best overall terms. In pursuing this objective, PGI or the sub-advisor considers all matters it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and executing capability of the broker or dealer, confidentiality, including trade anonymity, and the reasonableness of the commission, if any (for the specific transaction and on a continuing basis). This may mean in some instances that PGI or a sub-advisor will pay a broker commissions that are in excess of the amount of commissions another broker might have charged for executing the same transaction when PGI or the sub-advisor believes that such commissions are reasonable in light of a) the size and difficulty of the transaction, b) the quality of the execution provided, and c) the level of commissions paid relative to commissions paid by other institutional investors. Such factors are viewed both in terms of that particular transaction and in terms of all transactions that broker executes for accounts over which PGI or the sub-advisor exercises investment discretion. The Board has also adopted a policy and procedure designed to prevent each of the Funds from compensating a broker/dealer for promoting or selling Fund shares by directing brokerage transactions to that broker/dealer for the purpose of compensating the broker/dealer for promoting or selling Fund shares. Therefore, PGI or a sub-advisor may not compensate a broker/dealer for promoting or selling Fund shares by directing brokerage transactions to that broker/dealer for the purpose of compensating the broker/dealer for promoting or selling Fund shares. PGI or a sub-advisor may purchase securities in the over-the-counter market, utilizing the services of principal market makers unless better terms can be obtained by purchases through brokers or dealers, and may purchase securities listed on the NYSE from non-Exchange members in transactions off the Exchange.
PGI or a sub-advisor may give consideration in the allocation of business to services performed by a broker (e.g., the furnishing of statistical data and research generally consisting of, but not limited to, information of the following types: analyses and reports concerning issuers, industries, economic factors and trends, portfolio strategy, performance of client accounts, and access to research analysts, corporate management personnel, and industry experts). If any such allocation is made, the primary criteria used will be to obtain the best overall terms for such transactions or terms that are reasonable in relation to the research or brokerage services provided by the broker or dealer when viewed in terms of either a particular transaction or a sub-advisor’s overall responsibilities to the accounts under its management. PGI or a sub-advisor generally pays additional commission amounts for such research services. Statistical data and research information received from brokers or dealers as described above may be useful in varying degrees and PGI or a sub-advisor may use it in servicing some or all of the accounts it manages.
PGI and the sub-advisors allocated portfolio transactions for the Funds indicated in the following table to certain brokers for the year ended August 31, 2021 due to research services provided by such brokers. The table also indicates the commissions paid to such brokers as a result of these portfolio transactions. 
Fund
Amount of Transactions
because of Research
Services Provided
Related Commissions
Paid
Blue Chip
$2,747,289,059
$387,004
Diversified Real Asset
948,377,691
745,613
Edge MidCap
173,520,872
79,280
Global Multi Strategy
395,306,925
124,836
International Equity Index
121,446,643
50,197
International Small Company
593,122,677
388,999
Origin Emerging Markets
1,875,940
397,984
Small-MidCap Dividend Income
1,003,911,976
528,909
Small-MidCap Growth
14,989,235
9,595
Subject to the rules promulgated by the SEC, as well as other regulatory requirements, the Board has approved procedures whereby a Fund may purchase securities that are offered in underwritings in which an affiliate of a sub‑advisor, or PGI, participates. These procedures prohibit a Fund from directly or indirectly benefiting a sub‑advisor affiliate or PGI affiliate in connection with such underwritings. In addition, for underwritings where a sub-advisor affiliate or PGI participates as a principal underwriter, certain restrictions may apply that could, among other things, limit the amount of securities that a Fund could purchase in the underwritings. The sub-advisor shall determine the amounts and proportions of orders allocated to the sub-advisor or affiliate. The Board receives quarterly reports on these transactions.
57
The Board has approved procedures that permit a Fund to effect a purchase or sale transaction between the Fund and any other affiliated investment company or between a Fund and affiliated persons of the Fund under limited circumstances prescribed by SEC rules. Any such transaction must be effected without any payment other than a cash payment for the securities, for which a market quotation is readily available, at the current market price; must be consistent with the investment objective, investment strategy, and risk profile of the Fund; and no brokerage commission or fee (except for customary transfer fees), or other remuneration may be paid in connection with the transaction. The Board receives quarterly reports of all such transactions.
The Board has also approved procedures that permit a Fund’s sub-advisor(s) to place portfolio trades with an affiliated broker under circumstances prescribed by SEC Rules 17e-1 and 17a-10. The procedures require that total commissions, fees, or other remuneration received or to be received by an affiliated broker must be reasonable and fair compared to the commissions, fees or other remuneration received by other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable time period. The Board receives quarterly reports of all transactions completed pursuant to each Fund’s procedures.
Purchases and sales of debt securities and money market instruments usually are principal transactions; portfolio securities are normally purchased directly from the issuer or from an underwriter or marketmakers for the securities. Such transactions are usually conducted on a net basis with a Fund paying no brokerage commissions. Purchases from underwriters include a commission or concession paid by the issuer to the underwriter, and the purchases from dealers serving as marketmakers include the spread between the bid and asked prices.
The following table shows the brokerage commissions paid during the periods indicated. 
Total Brokerage Commissions Paid for Periods Ended August 31
Fund
2021
2020
2019
Blue Chip
$753,316
$1,090,620
$950,877
Bond Market Index
1,113
24,738
742
Capital Securities
—
—
—
Diversified Real Asset
2,070,760
2,176,632
2,002,474(1)
Edge MidCap
233,178
225,263
126,287
Global Multi-Strategy
265,244
511,496
1,237,216(1)
International Equity Index
168,042
172,815
212,381
International Small Company
1,015,533
646,503
660,510
Opportunistic Municipal
860
369
157
Origin Emerging Markets
1,875,966
680,425
404,036
Small-MidCap Dividend Income
1,035,762
1,823,807
1,023,218
Small-MidCap Growth
17,659
11,648
5,023(2)
Spectrum Preferred and Capital Securities Income
175,793
585,434
1,215,714(1)(3)
(1)
Previous amounts have been restated using the methodology used for reporting similar data in Form N-CEN, which results in higher amounts than previously stated.
(2)
Period from June 12, 2019, date operations commenced, through August 31, 2019.
(3)
Effective July 1, 2019, Preferred Securities changed its name to Spectrum Preferred and Capital Securities Income.
Primary reasons for changes in several Funds’ brokerage commissions for the three years were changes in commission rates; changes in Fund size; changes in market conditions; changes in money managers of certain Funds; and implementation of investment strategies. In some cases, such events required substantial portfolio restructurings, resulting in increased securities transactions and brokerage commissions.
In particular, primary reasons for changes in brokerage commissions for those Funds with relatively greater variations for the three years were, in part: for the International Small Company Fund, increased trading volumes and increased portfolio turnover in countries with higher commission rates; and for the Origin Emerging Markets Fund, changes in Fund size.
Brokerage commissions from the portfolio transactions effected for the Funds were paid to brokers affiliated with PGI or such Fund’s Sub-Advisors for the fiscal years ended August 31 as follows: 
Fund
Sub-Advisor Employed by
the Fund Complex
Affiliated Broker
2021
Fund’s Total
Commissions
Paid
% of
Fund’s Total
Commissions
% of Dollar
Amount of
Fund’s
Commissionable
Transactions
Spectrum Preferred and Capital Securities Income
 
Spectrum Asset Management
SAMI Brokerage LLC
$74,814
42.56%
89.50%
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Fund
Sub-Advisor Employed by
the Fund Complex
Affiliated Broker
2021
Fund’s Total
Commissions
Paid
% of
Fund’s Total
Commissions
% of Dollar
Amount of
Fund’s
Commissionable
Transactions
 
 
Total
$74,814
42.56%
89.50%
 
Fund
Sub-Advisor Employed by
the Fund Complex
Affiliated Broker
2020
Fund’s Total
Commissions
Paid
% of
Fund’s Total
Commissions
% of Dollar
Amount of
Fund’s
Commissionable
Transactions
Spectrum Preferred and Capital Securities Income
 
Spectrum Asset Management
SAMI Brokerage LLC
$155,836
26.62%
71.94%
 
 
Total
$155,836
26.62%
71.94%
 
Fund
Sub-Advisor Employed by
the Fund Complex
Affiliated Broker
2019
Fund’s Total
Commissions
Paid
% of
Fund’s Total
Commissions
% of Dollar
Amount of
Fund’s
Commissionable
Transactions
Spectrum Preferred and Capital Securities Income(1)(2)
 
Spectrum Asset Management
SAMI Brokerage LLC(3)
$72,434
5.96%
45.41%
 
 
Total
$72,434
5.96%
45.41%
(1)
Previous amounts have been restated using the methodology used for reporting similar data in Form N-CEN, which results in higher amounts than previously stated.
(2)
Effective July 1, 2019, Preferred Securities changed its name to Spectrum Preferred and Capital Securities Income.
(3)
As of January 2, 2019, Spectrum Asset Management executed transactions for the Fund through a new wholly owned broker/dealer called SAMI Brokerage LLC.
Material differences, if any, between the percentage of a Fund’s brokerage commissions paid to a broker and the percentage of transactions effected through that broker reflect the commission rates the sub-advisor has negotiated with the broker. Commission rates a sub-advisor pays to brokers may vary and reflect such factors as the trading volume placed with a broker, the type of security, the market in which a security is traded and the trading volume of that security, the types of services provided by the broker (i.e. execution services only or additional research services) and the quality of a broker’s execution.
The following table indicates the value of each Fund’s aggregate holdings, in thousands, of the securities of its regular brokers or dealers for the fiscal year ended August 31, 2021. 
Holdings of Securities of Principal Funds, Inc. Regular Brokers and Dealers
Fund
Broker or Dealer
Holdings
(in thousands)
Bond Market Index
Barclays PLC
$ 1,607
Citigroup Inc
3,127
Credit Suisse AG
751
Goldman Sachs Group Inc/The
3,931
JPMorgan Chase & Co
5,567
Morgan Stanley
3,645
Nomura Holdings Inc
644
Wells Fargo & Co
2,804
Capital Securities
Barclays PLC
35,714
Citigroup Inc
19,699
Credit Suisse AG
23,822
Goldman Sachs Group Inc/The
8,336
JPMorgan Chase & Co
35,007
UBS Group AG
27,658
Wells Fargo & Co
9,149
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Holdings of Securities of Principal Funds, Inc. Regular Brokers and Dealers
Fund
Broker or Dealer
Holdings
(in thousands)
Global Multi-Strategy
Barclays PLC
$ 851
Citigroup Inc
130
Goldman Sachs Group Inc/The
577
JPMorgan Chase & Co
579
Morgan Stanley
41
UBS Group AG
179
Wells Fargo & Co
839
International Equity Index
Barclays PLC
2,995
Credit Suisse AG
1,878
Nomura Holdings Inc
1,031
UBS Group AG
4,251
Spectrum Preferred and Capital Securities Income
Barclays PLC
181,231
Citigroup Inc
209,642
Credit Suisse AG
205,241
Goldman Sachs Group Inc/The
83,628
JPMorgan Chase & Co
371,576
Morgan Stanley
19,586
UBS Group AG
112,755
Wells Fargo & Co
250,655
Allocation of Trades
By the Manager (“PGI”). PGI has its own trading platform and personnel that perform trade-related functions. Where applicable, PGI trades on behalf of its own clients. Such transactions are executed in accordance with PGI’s trading policies and procedures, including, but not limited to, trade allocations and order aggregation, purchase of new issues, and directed brokerage. PGI acts as discretionary investment advisor for a variety of individual accounts, ERISA accounts, registered investment companies, insurance company separate accounts, and public employee retirement plans and places orders to trade portfolio securities for each of these accounts. Managing multiple accounts may give rise to potential conflicts of interest including, for example, conflicts among investment strategies and conflicts in the allocation of investment opportunities. PGI has adopted and implemented policies and procedures that it believes address the potential conflicts associated with managing accounts for multiple clients and are designed to ensure that all clients are treated fairly and equitably. These procedures include allocation policies and procedures and internal review processes.
If, in carrying out the investment objectives of its respective clients, occasions arise in which PGI deems it advisable to purchase or sell the same equity securities for two or more client accounts at the same or approximately the same time, PGI may submit the orders to purchase or sell to a broker/dealer for execution on an aggregate or “bunched” basis. PGI will not aggregate orders unless it believes that aggregation is consistent with (1) its duty to seek best execution and (2) the terms of its investment advisory agreements. In distributing the securities purchased or the proceeds of sale to the client accounts participating in a bunched trade, no advisory account will be favored over any other account and each account that participates in an aggregated order will participate at the average share price for all transactions of PGI relating to that aggregated order on a given business day, with all transaction costs relating to that aggregated order shared on a pro rata basis.
Because of PGI’s role as investment advisor to each of the Funds and discretionary advisor to funds of funds and some underlying funds, conflicts may arise in connection with the services PGI provides to funds of funds with respect to asset class and target weights for each asset class and investments made in underlying funds. PGI also provides advisory services to funds that have multiple investment advisors (“Multi-Managed Funds”). These services include determining the portion of a Multi-Managed Fund’s portfolio to be allocated to an advisor. Conflicts may arise in connection with the services PGI provides to the funds of funds that it manages, in connection with the services PGI provides to other funds of funds and Multi-Managed Funds, for the following reasons:
•
PGI serves as the investment advisor to the underlying funds in which the funds of funds invest, sometimes as the discretionary advisor, and an affiliated investment advisor may serve as sub-advisor to the funds in which a fund of funds may invest. This raises a potential conflict because PGI’s or an affiliated company’s profit margin may vary depending upon the underlying fund in which the funds of funds invest.
•
PGI or an affiliated person may serve as investment advisor to a portion of a Multi-Managed Fund. In addition, PGI might recommend that an affiliated person serve as sub-advisor to a portion of a Multi-Managed Fund. This raises a
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potential conflict because PGI’s or an affiliated investment advisor’s profit margin may vary depending on the extent to which a Multi-Managed Fund’s assets are managed by PGI or allocated to an affiliated advisor.
•
A sub-advisor may determine that the asset class PFI has hired it to manage (for example, small capitalization growth stocks) can be managed effectively only by limiting the amount of money devoted to the purchase of securities in the asset class. In such a case, a sub-advisor may impose a limit on the amount of money PFI may place with the sub-advisor for management. When a sub-advisor for two or more PFI Funds imposes such a limit, PGI and/or the sub-advisor may need to determine which Fund will be required to limit its investment in the asset class and the degree to which the Fund will be so limited. PGI and the sub-advisor may face a conflict of interest in making its determination.
PGI implements the following in an effort to limit the appearance of conflicts of interest and the opportunity for events that could trigger an actual conflict of interest:
•
PGI implements a process for selecting underlying funds that emphasizes the selection of funds within the Principal Funds complex that are determined to be consistent with the fund of fund’s objective and principal investment strategies. However, PGI will select an unaffiliated underlying fund managed by an unaffiliated sub-advisor when deemed necessary or appropriate based upon a consideration of the Fund’s objective and investment strategies and available expertise and resources within the Principal organization.
•
PGI uses a process to select investment advisors that emphasizes the selection of PGI or Principal-affiliated sub-advisors that are determined to be qualified under the Manager’s due diligence process. However, PGI will select an unaffiliated sub-advisor to manage all or a portion of a Fund’s portfolio when deemed necessary or appropriate based upon a consideration of the Fund’s objective and investment strategies and available expertise and resources within the Principal organization.
•
PGI provides ongoing oversight of the Funds’ investments to monitor adherence to their investment program.
By the Sub-Advisors. The portfolio managers of each sub-advisor manage a number of accounts other than the Fund’s portfolios, including in some instances proprietary or personal accounts. Managing multiple accounts may give rise to potential conflicts of interest including, for example, conflicts among investment strategies, allocating time and attention to account management, allocation of investment opportunities, knowledge of and timing of fund trades, selection of brokers and dealers, and compensation for the account. Each has adopted and implemented policies and procedures that it believes address the potential conflicts associated with managing accounts for multiple clients and personal accounts and are designed to ensure that all clients and client accounts are treated fairly and equitably. These procedures include allocation policies and procedures, personal trading policies and procedures, internal review processes and, in some cases, review by independent third parties.
Investments the sub-advisor deems appropriate for the Fund’s portfolio may also be deemed appropriate by it for other accounts. Therefore, the same security may be purchased or sold at or about the same time for both the Fund’s portfolio and other accounts. In such circumstances, the sub-advisor may determine that orders for the purchase or sale of the same security for the Fund’s portfolio and one or more other accounts should be combined. In this event, the transactions will be priced and allocated in a manner deemed by the sub-advisor to be equitable and in the best interests of the Fund’s portfolio and such other accounts. While in some instances combined orders could adversely affect the price or volume of a security, the Fund believes that its participation in such transactions on balance will produce better overall results for the Fund.
Purchase and Redemption Of Shares
Purchase of Shares
Participating insurance companies and certain other designated organizations are authorized to receive purchase orders on the Funds’ behalf and those organizations are authorized to designate their agents and affiliates as intermediaries to receive purchase orders. Purchase orders are deemed received by a Fund when authorized organizations, their agents or affiliates receive the order. The Funds are not responsible for the failure of any designated organization or its agents or affiliates to carry out its obligations to its customers. Class A shares of the Funds are purchased at their public offering price and other share classes of the Funds are purchased at the net asset value (“NAV”) per share, as determined at the close of the regular trading session of the NYSE next occurring after a purchase order is received and accepted by an authorized agent of a Fund. In order to receive a day’s price, an order must be received in good order by the close of the regular trading session of the NYSE as described below in “Pricing of Fund Shares.”
All income dividend and capital gains distributions, if any, on a Fund's Class S shares are paid out in cash. All income dividends and capital gains distributions, if any, on a Fund’s Institutional Class and Classes R-1, R-3, R-4, R-5, and R-6 shares are reinvested automatically in additional shares of the same class of the same Fund. Dividends and capital gains
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distributions, if any, on a Fund’s Classes A, C, and J shares are reinvested automatically in additional shares of the same Class of shares of the same Fund unless the shareholder elects to take dividends in cash. The reinvestment will be made at the NAV determined on the first business day following the record date.
The Fund, at its discretion, may permit the purchase of shares using securities as consideration (a purchase in-kind).
For information related to Class S shares, see the section in this SAI entitled “Multiple Class Structure.”
Class R-1 Shares
For retirement plan investors, effective as of the close of the New York Stock Exchange on January 31, 2017, Class R-1 shares are no longer available for purchase from new retirement plans except in limited circumstances. However, if a retirement plan currently offers Class R-1, such plans will be allowed to continue to invest in that share class through Funds they currently offer in their plans or Funds they add to their plans.
Abandoned or Orphaned Accounts
In order to invest in shares of Principal Funds, a shareholder’s account must have a registered broker-dealer on file with us when the account is established. If an active account does not have a registered broker-dealer on file, we consider the account to be an “abandoned or orphaned account”. If we determine in our discretion that an account is abandoned or orphaned, we will take the following actions:
•
Notify the shareholder in writing as to the account’s status and request that the account(s) be moved to another registered broker-dealer;
•
Remove the broker/dealer from the account. If the shareholder does not request another registered broker/dealer to be added to the account, Principal Shareholder Services, Inc. (“PSS”), the Funds’ Transfer Agent, will hold the accounts until another registered broker/dealer is added to the account. PSS is not a broker-dealer and does not offer investment advice; and
•
No initial sales charge will apply to purchases of Fund shares while PSS is holding the account.
Sales of Shares
Payment for shares tendered for redemption is ordinarily made in cash. The Fund may determine, however, that it would be detrimental to the remaining shareholders to make payment of a redemption order wholly or partly in cash. The Fund may, therefore, pay the redemption proceeds in whole or in part by a distribution “in kind” of securities from the Fund’s portfolio in lieu of cash. If the Fund pays the redemption proceeds in kind, the redeeming shareholder might incur brokerage or other costs in selling the securities for cash. The Fund will value securities used to pay redemptions in kind using the same method the Fund uses to value its portfolio securities as described below in “Pricing of Fund Shares.”
The right to require the Funds to redeem their shares may be suspended, or the date of payment may be postponed, whenever: 1) trading on the NYSE is restricted, as determined by the SEC, or the NYSE is closed except for holidays and weekends; 2) the SEC permits such suspension and so orders; or 3) an emergency exists as determined by the SEC so that disposal of securities or determination of NAV is not reasonably practicable.
Certain designated organizations are authorized to receive sell orders on the Fund’s behalf and those organizations are authorized to designate their agents and affiliates as intermediaries to receive redemption orders. Redemption orders are deemed received by the Fund when authorized organizations, their agents or affiliates receive the order. The Fund is not responsible for the failure of any designated organization or its agents or affiliates to carry out its obligations to its customers.
For information related to Class S shares, see the section in this SAI entitled “Multiple Class Structure.”
Exchanges Between Classes of Shares
Class S shares of the Capital Securities Fund are not subject to exchange.
Through your financial intermediary, in certain limited circumstances, you may become eligible to exchange shares of a Fund you own for shares of a different class of the same Fund, if you become eligible to purchase shares of such different class of the same Fund through your account with your financial intermediary. The following shows the permitted exchanges, subject to the conditions described herein: 
Exchange From Class
Exchange To Class
A
Institutional
C
A, Institutional
Institutional
A, C, R-6
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Such same Fund exchanges between share classes are permitted subject to conditions including, but not limited to, the following:
•
You or your retirement plan sponsor must be eligible to purchase shares of the class into which the exchange is to occur;
•
Your financial intermediary or the retirement plan sponsor’s financial intermediary must have an agreement with the underwriter or transfer agent of Principal Funds allowing the purchase of such share class for you;
•
The Fund must offer shares of such class of such Fund in your state or the state of the retirement plan sponsor;
•
In order to exchange into Class A shares, you must be eligible to: (i) purchase Class A shares with no initial sales charge; or (ii) exchange into Class A shares through your financial intermediary with no initial sales charge;
•
Depending on the circumstances, for exchanges from Classes A and C shares there may be a contingent deferred sales charge in connection with the exchange; and
•
Any such exchange must be requested by your financial intermediary or retirement plan sponsor (with approval by the Distributor) and, except as otherwise approved by the Distributor, must result from either (i) the financial intermediary seeking to have shares of the Funds on their platform held in a particular share class, (ii) the share class becoming available to your financial intermediary or financial professional through a new relationship, or (iii) your retirement plan sponsor electing to have shares of the Funds offered as part of the plan investment options held in a particular share class.
If after purchasing Institutional Class shares you become ineligible to invest in Institutional Class shares, you may be permitted to exchange from Institutional Class shares into other share classes issued by the same Fund if your financial intermediary determines you qualify for such an exchange.
You should check with your financial intermediary to see if the exchange you wish to complete will satisfy the conditions. Your ability to exchange between share classes of the same Fund may be limited by the operational limitations of your financial intermediary. Please consult your financial professional for more information.
While such an exchange may not be considered a taxable event for income tax purposes, you should consult with your tax advisor regarding possible federal, state, local and foreign tax consequences.
Pricing Of Fund Shares
Each Fund’s shares are bought and sold at the current net asset value (“NAV”) per share. Each Fund’s NAV for each class is calculated each day the New York Stock Exchange (“NYSE”) is open, as of the close of business of the Exchange (normally 3:00 p.m. Central Time). The NAV of Fund shares is not determined on days the NYSE is closed (generally, New Year’s Day; Martin Luther King, Jr. Day; Washington’s Birthday/Presidents’ Day; Good Friday; Memorial Day; Juneteenth, Independence Day; Labor Day; Thanksgiving Day; and Christmas). When an order to buy or sell shares is received, the share price used to fill the order is the next price calculated after the order is received in proper form.
The Funds will not treat an intraday unscheduled disruption in NYSE trading as a closure of the NYSE and will price shares as of 3:00 p.m. Central Time, if the particular disruption directly affects only the NYSE.
For all Funds the share price is calculated by:
•
taking the current market value of the total assets of the Fund
•
subtracting liabilities of the Fund
•
dividing the remainder proportionately into the classes of the Fund
•
subtracting the liability of each class
•
dividing the remainder by the total number of shares owned in that class.
In determining NAV, securities listed on an Exchange, the Nasdaq National Market and any foreign markets within the Western Hemisphere are valued at the closing prices on such markets, or if such price is lacking for the trading period immediately preceding the time of determination, such securities are valued at their current bid price.
Municipal securities held by the Funds are traded primarily in the over-the-counter market. Valuations of such securities are furnished by one or more pricing services employed by the Funds and are based upon appraisals obtained by a pricing service, in reliance upon information concerning market transactions and quotations from recognized municipal securities dealers.
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Other securities that are traded on the over-the-counter market are valued at their closing bid prices. Each Fund will determine the market value of individual securities held by it, by using prices provided by one or more professional pricing services which may provide market prices to other funds, or, as needed, by obtaining market quotations from independent broker-dealers. Debt securities with remaining maturities of sixty days or less for which market quotations and information furnished by a third-party pricing service are not readily available will be valued at amortized cost, which approximates current value. Securities for which quotations are not readily available, and other assets, are valued at fair value determined in good faith under procedures established by and under the supervision of the Board.
A Fund’s securities may be traded on foreign securities markets that close each day prior to the time the NYSE closes. In addition, foreign securities trading generally or in a particular country or countries may not take place on all business days in New York. The Fund has adopted policies and procedures to “fair value” some or all securities held by a Fund. These fair valuation procedures are intended to discourage shareholders from investing in the Fund for the purpose of engaging in market timing or arbitrage transactions. The values of foreign securities used in computing share price are determined at the time the foreign market closes. Foreign securities and currencies are converted to U.S. dollars using the exchange rate in effect at the close of the NYSE. Occasionally, events affecting the value of foreign securities occur when the foreign market is closed and the NYSE is open. The NAV of a Fund investing in foreign securities may change on days when shareholders are unable to purchase or redeem shares. If the Manager believes that the market value is materially affected, the share price will be calculated using the policy adopted by the Fund.
Certain securities issued by companies in emerging markets may have more than one quoted valuation at any point in time, sometimes referred to as a “local” price and a “premium” price. The premium price is often a negotiated price which may not consistently represent a price at which a specific transaction can be effected. It is the policy of the Funds to value such securities at prices at which it is expected those shares may be sold, and the Manager is authorized to make such determinations subject to the oversight of the Board as may from time to time be necessary.
Appendix B provides a specimen price-make-up sheet showing how the Fund calculates the total offering price per share.
Tax Considerations
Qualification as a Regulated Investment Company
The Funds intend to qualify annually to be treated as regulated investment companies (“RICs”) under the Internal Revenue Code of 1986, as amended (the “IRC”), by satisfying certain requirements prescribed by Subchapter M of the IRC. To qualify as RICs, the Funds must invest in assets that produce types of income specified in the IRC (“Qualifying Income”). Whether the income from derivatives, swaps, commodity-linked derivatives and other commodity/natural resource-related securities is Qualifying Income is unclear under current law. Accordingly, the Funds’ ability to invest in certain derivatives, swaps, commodity-linked derivatives and other commodity/natural resource-related securities may be restricted. Further, if the Funds invest in these types of securities and the income is not determined to be Qualifying Income, it may cause such Fund to fail to qualify as a RIC under the IRC for a given year. If a Fund fails to qualify as a RIC for a particular year, it will be liable for taxes, significantly reducing its distributions to shareholders and eliminating shareholders’ ability to treat distributions (as long or short-term capital gains or qualifying dividends) of the Fund in the manner they were received by the Fund.
Futures Contracts and Options
As previously discussed, some of the Funds invest in futures contracts or options thereon, index options, or options traded on qualified exchanges. For federal income tax purposes, capital gains and losses on futures contracts or options thereon, index options or options traded on qualified exchanges are generally treated as 60% long-term and 40% short-term. In addition, the Funds must recognize any unrealized gains and losses on such positions held at the end of the fiscal year. A Fund may elect out of such tax treatment, however, for a futures or options position that is part of an “identified mixed straddle” such as a put option purchased with respect to a portfolio security. Gains and losses on futures and options included in an identified mixed straddle are considered 100% short-term and unrealized gains or losses on such positions are not realized at year-end. The straddle provisions of the IRC may require the deferral of realized losses to the extent that a Fund has unrealized gains in certain offsetting positions at the end of the fiscal year. The IRC may also require recharacterization of all or a part of losses on certain offsetting positions from short-term to long-term, as well as adjustment of the holding periods of straddle positions.
International Funds
Some foreign securities purchased by the Funds may be subject to foreign withholding taxes that could reduce the yield on such securities. The amount of such foreign taxes is expected to be insignificant. Shareholders of the Funds that invest in foreign securities may be entitled to claim a credit or deduction with respect to foreign taxes. The Funds may from year to year make an election to pass through such taxes to shareholders. If such election is not made, any foreign taxes paid or accrued will represent an expense to each affected Fund that will reduce its investment company taxable income. Certain Funds may purchase securities of certain foreign corporations considered to be passive foreign investment companies
64
by the IRS. In order to avoid taxes and interest that must be paid by the Funds if these instruments appreciate in value, the Funds may make various elections permitted by the tax laws. However, these elections could require that the Funds recognize additional taxable income, which in turn must be distributed. In addition, the Fund’s investments in foreign securities or foreign currencies may increase or accelerate the Fund’s recognition of ordinary income and may affect the timing or amount of the Fund’s distributions.
Under the Foreign Account Tax Compliance Act (“FATCA”), a Fund may be required to withhold a 30% tax on (a) dividends paid by the Fund, and (b) certain capital gain distributions and/or the proceeds arising from the sale of Fund shares paid by the Fund after December 31, 2018, to certain foreign entities, referred to as foreign financial institutions or non-financial foreign entities, that fail to comply (or be deemed compliant) with extensive new reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned foreign investment accounts. The IRS recently issued proposed regulations indicating its intent to eliminate the 30% withholding tax on gross proceeds. A Fund may disclose the information that it receives from its shareholders to the IRS, non-U.S. taxing authorities or other parties as necessary to comply with FATCA. Withholding also may be required if a foreign entity that is a shareholder of a Fund fails to provide the Fund with appropriate certifications or other documentation concerning its status under FATCA.
Special Tax Considerations for the Opportunistic Municipal Fund (the “Municipal Fund”)
The Municipal Fund also intends to qualify to pay “exempt-interest dividends” to its shareholders. An exempt-interest dividend is that part of dividend distributions made by the Fund which consist of interest received by that Fund on tax-exempt municipal obligations. Shareholders incur no federal income taxes on exempt-interest dividends. However, these exempt-interest dividends may be taxable under state or local law. Exempt-interest dividends that derive from certain private activity bonds must be included by individuals as a preference item in determining whether they are subject to the alternative minimum tax. The Fund may also pay ordinary income dividends and distribute capital gains from time to time. Ordinary income dividends and distributions of capital gains, if any, are taxable for federal purposes.
If a shareholder receives an exempt-interest dividend with respect to shares of the Fund held for six months or less, then any loss on the sale or exchange of such shares, to the extent of the amount of such dividend, is disallowed. If a shareholder receives a capital gain dividend with respect to shares held for six months or less, then any loss on the sale or exchange of such shares is treated as a long term capital loss to the extent the loss exceeds any exempt-interest dividend received with respect to such shares, and is disallowed to the extent of such exempt-interest dividend.
Interest on indebtedness incurred or continued by a shareholder to purchase or carry shares of this Fund is not deductible. Furthermore, entities or persons who are “substantial users” (or related persons) under Section 147(a) of the Internal Revenue Code of facilities financed by private activity bonds should consult their tax advisors before purchasing shares of the Fund.
From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on municipal obligations. If legislation is enacted that eliminates or significantly reduces the availability of municipal obligations, it could adversely affect the ability of the Fund to continue to pursue its investment objectives and policies. In such event, the Fund would reevaluate its investment objectives and policies.
Portfolio Holdings Disclosure
The Funds may publish month-end portfolio holdings information for each Fund’s portfolio on the www.principal.com website and on the www.principalfunds.com website on the thirteenth business day of the following month. The Funds may also occasionally publish information on the websites relating to specific events, such as the impact of a natural disaster, corporate debt default or similar events on portfolio holdings. The Funds may also occasionally publish information on the websites concerning the removal, addition or change in weightings of underlying funds in which the funds of funds invest. It is the Funds’ policy to disclose only public information regarding portfolio holdings (i.e. information published on the websites or filed with the SEC), except as described below.
Non-Specific Information. Under the Portfolio Holdings Disclosure Policy, the Funds may distribute non-specific information about the Funds and/or summary information about the Funds as requested. Such information will not identify any specific portfolio holding, but may reflect, among other things, the quality, character, or sector distribution of a Fund’s holdings. This information may be made available at any time (or without delay).
65
Policy. The Funds and PGI have adopted a policy of disclosing non-public portfolio holdings information to third parties only to the extent required by federal law, and to the following third parties, so long as such third party has agreed, or is legally obligated, to maintain the confidentiality of the information and to refrain from using such information to engage in securities transactions:
1)
Daily to the Funds’ portfolio pricing services, Bloomberg LP, ICE Data Services, J.P. Morgan PricingDirect, Inc., and IHS Markit Partners, to obtain prices for portfolio securities;
2)
Upon proper request to government regulatory agencies or to self-regulatory organizations;
3)
As needed to Ernst & Young LLP, the independent registered public accounting firm, in connection with the performance of the services provided by Ernst & Young LLP to the Funds;
4)
To the sub-advisors’ proxy service providers (Broadridge Financial Solutions, LLC, Glass Lewis & Co., and Institutional Shareholder Services (ISS)) to facilitate voting of proxies;
5)
To the Funds’ custodian, The Bank of New York Mellon, in connection with the custodial services it provides to the Funds; and
6)
Kessler, Topaz, Meltzer & Check, LLP, in connection with legal services it provides to the Funds.
66
The Funds are also permitted to enter into arrangements to disclose portfolio holdings to other third parties in connection with the performance of a legitimate business purpose if such third party agrees in writing to maintain the confidentiality of the information prior to the information being disclosed. Any such written agreement must be approved by an officer of the Funds, PGI or the Fund’s sub-advisor. Approval must be based on a reasonable belief that disclosure to such other third party is in the best interests of the Fund’s shareholders. If a conflict of interest is identified in connection with disclosure to any such third party, the Fund’s or PGI’s Chief Compliance Officer (“CCO”) must approve such disclosure, in writing, before it occurs. The Funds currently have disclosure agreements with the following:
Abacus Group LLC
Abel Noser
Accenture
Adobe
Advent APX
Advent Geneva
Algorithmics
Allview Systems Holdings
Ascendant Compliance Manager
Ashland Partners
Axioma
Barclays
Barra
Black Mountain Systems
BlackRock Aladdin
Bloomberg AIM
Bloomberg BVAL
Bloomberg LP
Bloomberg Port
Bloomberg Professional Services
BNY Mellon
Broadridge
Broadridge Business Process Outsourcing Solutions, LLC
Broadridge Financial Solutions Inc. / Proxy Edge
Broadridge Systems
Brown Brothers Harriman
BST
Capital Confirmation, Inc.
Cassini Systems, Inc.
Charles River
Charles River Development
Charles River Trading System
Clearpar (Markit)
Confluence Technologies
Deutsche Bank
DG3
Donnelley Financial Solutions
DST Systems
DTCC Derivatives Repository Ltd.
DTCC OASYS
Eagle
Eagle Investment Systems Corp.
Electra Information Systems
Electra-Reconciliation
ESG Manager (MSCI)
eVestment Alliance
Eze Software LLC
FactSet
FactSet Research Systems Inc.
Financial Recovery Technologies (FRT)
Financial Tracking Technologies LLC
FIS Global Asset Management
FIS PTA
FTSE Fixed Income LLC
FX Transparency
Global Trading Analytics
IHS Markit LTD
INDATA
Indus Valley Partners (IVP)
Intercontinental Exchange, Inc.
InvestCloud Inc
Investment Company Institute (ICI)
Investor Tools, Inc.
Iron Mountain
JPMorgan Chase
KPMG
Lend Amend
LexisNexis
Linedata
Lionbridge
LiquidNet
London Stock Exchange Group
LS Operating Services LLC
Markit WSO Services
MBI Solutions, LLC
Merrill Corporation
Moody’s Analytics
Morgan Stanley
Morningstar, Inc.
MSCI Liquidity Metrics
MSCI - Risk Metrics
Nomura International
Northern Trust
Omgeo LLC
Portware, LLC
PricewaterhouseCoopers, LLP
Refinitiv
RR Donnelley and Sons
Russell Investments Implementation Services, LLC
SDL
SEI Global Services, Inc.
SEI Investments Co
Serena
SmartStream Technologies
Solvency Analytics AG
SS&C Advent
SS&C (Evare)
SS&C Hedge Fund Services, North America, Inc.
SS&C Technologies
SS&C Technologies Holdings
SS&C Vision FI
State Street Bank & Trust
State Street Corporation
Style Research
SWIFT
Sybase Inc.
Toppan Merrill
TriOptima
TSI (Virtus)
Veritas
Veritext Global
Virtu Americas LLC
WCI Consulting
Any agreement by which any Fund or any party acting on behalf of the Fund agrees to provide Fund portfolio information to a third party, other than a third party identified in the policy described above, must be approved prior to information being provided to the third party, unless the third party is a regulator or has a duty to maintain the confidentiality of such information and to refrain from using such information to engage in securities transactions. A written record of approval will be made by the person granting approval.
The Funds’ non-public portfolio holdings information policy applies without variation to individual investors, institutional investors, intermediaries that distribute the Funds’ shares, third-party service providers, rating and ranking organizations, and affiliated persons of the Funds. Neither the Funds nor PGI nor any other party receives compensation in connection
67
with the disclosure of Fund portfolio information. The Funds’ CCO will periodically, but no less frequently than annually, review the Funds’ portfolio holdings disclosure policy and recommend changes the CCO believes are appropriate, if any, to the Board. In addition, the Board must approve any change in the Funds’ portfolio holdings disclosure policy that would expand the distribution of such information.
Proxy Voting Policies and Procedures
The Board has delegated responsibility for decisions regarding proxy voting for securities held by each Fund to PGI or to the Fund’s sub-advisor, as appropriate. PGI and each sub-advisor will vote such proxies in accordance with its proxy policies and procedures, which have been reviewed by the Board, and which are found in Appendix C. Any material changes to the proxy policies and procedures will be submitted to the Board for approval.
For Funds that participate in a securities lending program, the voting rights for securities that are loaned are transferred to the borrower. Therefore, the lender (i.e., the Fund) is not entitled to vote the loaned securities, unless it recalls those securities. Those managing the Fund’s investments may recall securities for voting purposes when they reasonably believe the ability to vote such securities outweighs the additional revenue received if such securities were not recalled.
Information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, 2022, is available, without charge, upon request, by calling 1-800-222-5852 or by accessing the Fund’s most recently filed Form N-PX on the SEC website at www.sec.gov.
Financial Statements
To be filed by amendment.
Independent Registered Public Accounting Firm
Ernst & Young LLP (700 Nicollet Mall, Suite 500, Minneapolis, MN 55402) is the independent registered public accounting firm for the Fund Complex.
Control Persons and Principal Holders Of Securities
The following list identifies shareholders who own more than 25% of the voting securities of a Fund as of December 6, 2021. It is presumed that a person who owns more than 25% of the voting securities of a Fund controls the Fund. A control person could control the outcome of proposals presented to shareholders for approval. The information is listed in alphabetical order by Fund. 
Fund
Percent
of
Ownership
Shareholder Name and Address
Jurisdiction
Under Which
Control Person
is Organized
(when control
person is a
company)
Parent of Control
Person (when control
person is a company)
CAPITAL SECURITIES
32.39%
MORGAN STANLEY SMITH BARNEY LLC
FOR THE EXCLUSIVE BENE OF ITS
CUSTOMERS
1 NEW YORK PLZ FL 12
NEW YORK NY 10004-1901
DELAWARE
MORGAN STANLEY
CAPITAL SECURITIES
30.07%
MLPF&S FOR THE SOLE
BENEFIT OF ITS CUSTOMERS
ATTN FUND ADMINISTRATION
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
NEW YORK
BANK OF AMERICA
CORPORATION
INTERNATIONAL
EQUITY INDEX
35.60%
PRINCIPAL LIFE INSURANCE CO CUST
FBO PRINCIPAL FINANCIAL GROUP
OMNIBUS WRAPPED AND CUSTOM
ATTN PLIC PROXY COORDINATOR
FUNDS
711 HIGH ST
DES MOINES IA 50392-0001
IOWA
PRINCIPAL
FINANCIAL
SERVICES, INC.(1)
INTERNATIONAL
EQUITY INDEX
32.43%
DIVERSIFIED GROWTH ACCOUNT
ATTN MUTUAL FUND ACCOUNTING
H221
711 HIGH ST
DES MOINES IA 50392-0001
MARYLAND
PRINCIPAL FUNDS,
INC.
68
Fund
Percent
of
Ownership
Shareholder Name and Address
Jurisdiction
Under Which
Control Person
is Organized
(when control
person is a
company)
Parent of Control
Person (when control
person is a company)
OPPORTUNISTIC
MUNICIPAL
30.73%
NATIONAL FINANCIAL SERVICES LLC
FOR THE EXCL BENEFIT OF OUR
CUSTOMERS
499 WASHINGTON BLVD
ATTN MUTUAL FUNDS DEPT 4TH FL
JERSEY CITY NJ 07310-1995
DELAWARE
FIDELITY GLOBAL
BROKERAGE GROUP,
INC. a wholly owned
subsidiary of FMR,
LLC
ORIGIN EMERGING
MARKETS
32.32%
PRINCIPAL GLOBAL INVESTORS TRUST
CO
PRINCIPAL LIFETIME HYBRID
COLLECTIVE INVESTMENT FUNDS
1300 SW 5TH AVE STE 3300
PORTLAND OR 97201-5640
DELAWARE
PRINCIPAL HOLDING
COMPANY, LLC(1)
SMALL-MIDCAP
GROWTH
89.67%
PRINCIPAL FINANCIAL SERVICES INC
PUBLIC SEED ACCOUNT
ATTN GAM INVACCT ACA TEAM
G-016-S40
711 HIGH ST
DES MOINES IA 50392-9992
IOWA
PRINCIPAL
FINANCIAL GROUP,
INC.
(1)
Principal Financial Group, Inc. is the parent of Principal Financial Services, Inc.; Principal Financial Services, Inc. is the parent both of Principal Life Insurance Company and of Principal Global Holding Company (US), LLC; Principal Life Insurance Company is the parent of Principal Holding Company, LLC.; Principal Global Holding Company (US), LLC is the parent of Principal Global Investors, LLC.
The Board Members and officers of the Funds, member companies of the Principal Financial Group, and certain other persons may purchase shares of the Funds without the payment of any sales charge. The sales charge is waived on these transactions because there are either no distribution costs or only minimal distribution costs associated with the transactions. For a description of the persons entitled to a waiver of sales charge in connection with their purchase of shares of the Funds, see the discussion of the waiver of sales charges under the caption “Choosing a Share Class and the Costs of Investing” in the Prospectus.
Funds that operate as funds of funds and Principal Life Insurance Company will vote in the same proportion as shares of the Funds owned by other shareholders. Therefore, neither the funds of funds nor Principal Life Insurance Company exercise voting discretion.
The Bylaws of PFI set the quorum requirement (a quorum must be present at a meeting of shareholders for business to be transacted). The Bylaws of PFI state that a quorum is the presence in person or by proxy of the holders of one-third of the shares of capital stock of PFI or, when the meeting relates to a certain Fund, that Fund, issued and outstanding and entitled to vote on the record date.
Certain proposals presented to shareholders for approval require the vote of a “majority of the outstanding voting securities,” which is a term defined in the 1940 Act to mean, with respect to a Fund, the affirmative vote of the lesser of 1) 67% or more of the voting securities of the Fund present at the meeting of that Fund, if the holders of more than 50% of the outstanding voting securities of the Fund are present in person or by proxy, or 2) more than 50% of the outstanding voting securities of the Fund (a “Majority of the Outstanding Voting Securities”).
Principal Holders of Securities
The Registrant is unaware of any persons who own beneficially (but are not shareholders of record) 5% or more of any class of the Funds’ outstanding shares. The following list identifies the shareholders of record who own 5% or more of any class of the Funds’ outstanding shares as of December 6, 2021. The list is presented in alphabetical order by Fund. 
Fund/Class
Percentage
of Ownership
Name and Address of Owner
BLUE CHIP (A)
45.54%
NATIONAL FINANCIAL SERVICES LLC
FOR THE EXCL BENE OF OUR CUSTOMERS
499 WASHINGTON BLVD
ATTN MUTUAL FUNDS DEPT 4TH FL
JERSEY CITY NJ 07310-1995
BLUE CHIP (A)
5.49%
WELLS FARGO CLEARING SERVICES LLC
SPECIAL CUSTODY ACCT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMER
2801 MARKET ST
SAINT LOUIS MO 63103-2523
69
Fund/Class
Percentage
of Ownership
Name and Address of Owner
BLUE CHIP (A)
5.12%
CHARLES SCHWAB & CO INC
SPECIAL CUSTODY A/C FBO CUSTOMERS
ATTN MUTUAL FUNDS
211 MAIN STREET
SAN FRANCISCO CA 94105-1905
BLUE CHIP (C)
17.17%
NATIONAL FINANCIAL SERVICES LLC
FOR THE EXCL BENE OF OUR CUSTOMERS
499 WASHINGTON BLVD
ATTN MUTUAL FUNDS DEPT 4TH FL
JERSEY CITY NJ 07310-1995
BLUE CHIP (C)
14.26%
WELLS FARGO CLEARING SERVICES LLC
SPECIAL CUSTODY ACCT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMER
2801 MARKET ST
SAINT LOUIS MO 63103-2523
BLUE CHIP (C)
10.22%
MORGAN STANLEY SMITH BARNEY LLC
FOR THE EXCLUSIVE BENE OF ITS CUST
1 NEW YORK PLZ FL 12
NEW YORK NY 10004-1932
BLUE CHIP (C)
9.38%
RAYMOND JAMES
OMNIBUS FOR MUTUAL FUNDS
HOUSE ACCT FIRM 92500015
ATTN: COURTNEY WALLER
880 CARILLON PKWY
ST PETERSBURG FL 33716-1102
BLUE CHIP (C)
8.46%
STIFEL NICOLAUS & CO INC
EXCLUSIVE BENEFIT OF CUSTOMERS
501 N BROADWAY
SAINT LOUIS MO 63102-2188
BLUE CHIP (C)
7.04%
CHARLES SCHWAB & CO INC
SPECIAL CUSTODY A/C FBO CUSTOMERS
ATTN MUTUAL FUNDS
211 MAIN STREET
SAN FRANCISCO CA 94105-1905
BLUE CHIP (C)
5.28%
AMERICAN ENTERPRISE INVESTMENT SVC
FBO #41999970
707 2ND AVE S
MINNEAPOLIS MN 55402-2405
BLUE CHIP (I)
16.35%
NATIONAL FINANCIAL SERVICES LLC
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
499 WASHINGTON BLVD
ATTN MUTUAL FUNDS DEPT 4TH FL
JERSEY CITY NJ 07310-1995
BLUE CHIP (I)
15.11%
AMERICAN ENTERPRISE INVESTMENT SVC
FBO #41999970
707 2ND AVE S
MINNEAPOLIS MN 55402-2405
BLUE CHIP (I)
11.27%
LPL FINANCIAL
OMNIBUS CUSTOMER ACCOUNT
ATTN MUTUAL FUND TRADING
4707 EXECUTIVE DR
SAN DIEGO CA 92121-3091
BLUE CHIP (I)
10.71%
MORGAN STANLEY SMITH BARNEY LLC
FOR THE EXCLUSIVE BENE OF ITS CUST
1 NEW YORK PLZ FL 12
NEW YORK NY 10004-1932
BLUE CHIP (I)
8.88%
PERSHING LLC
1 PERSHING PLZ
JERSEY CITY NJ 07399-0001
BLUE CHIP (I)
7.90%
WELLS FARGO CLEARING SERVICES LLC
SPECIAL CUSTODY ACCT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMER
2801 MARKET ST
SAINT LOUIS MO 63103-2523
70
Fund/Class
Percentage
of Ownership
Name and Address of Owner
BLUE CHIP (I)
6.47%
RAYMOND JAMES
OMNIBUS FOR MUTUAL FUNDS
HOUSE ACCT FIRM 92500015
ATTN: COURTNEY WALLER
880 CARILLON PKWY
ST PETERSBURG FL 33716-1102
BLUE CHIP (R3)
38.58%
DCGT AS TTEE AND/OR CUST
FBO PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN NPIO TRADE DESK
711 HIGH ST
DES MOINES IA 50392-0001
BLUE CHIP (R3)
16.83%
SAMMONS RETIREMENT SOLUTIONS
4546 CORPORATE DR STE 100
WDM IA 50266-5911
BLUE CHIP (R3)
10.82%
STATE STREET BANK CUST
FBO ADP ACCESS PRODUCT 401(K) PLAN
1 LINCOLN ST
BOSTON MA 02111-2900
BLUE CHIP (R3)
7.04%
PRINCIPAL TRUST COMPANY
FBO SSP AMERICAN DEF COMP PLAN
ATTN SUSAN SAGGIONE
1013 CENTRE RD
WILMINGTON DE 19805-1265
BLUE CHIP (R4)
61.35%
STATE STREET BANK AND TRUST COMPANY
TRUSTEE AND/OR CUSTODIAN
FBO ADP ACCESS PRODUCT
1 LINCOLN ST
BOSTON MA 02111-2901
BLUE CHIP (R4)
32.15%
DCGT AS TTEE AND/OR CUST
FBO PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN NPIO TRADE DESK
711 HIGH ST
DES MOINES IA 50392-0001
BLUE CHIP (R5)
93.74%
DCGT AS TTEE AND/OR CUST
FBO PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN NPIO TRADE DESK
711 HIGH ST
DES MOINES IA 50392-0001
BLUE CHIP (R6)
24.17%
PRINCIPAL LIFE INS COMPANY CUST
FBO PFG OMNIBUS WRAPPED AND CUSTOM
ATTN PLIC PROXY COORDINATOR
FUNDS
711 HIGH STREET
DES MOINES IA 50392-0001
BLUE CHIP (R6)
9.29%
SAM BALANCED PORTFOLIO PIF
ATTN MUTUAL FUND ACCOUNTING -H221
711 HIGH ST
DES MOINES IA 50392-0001
BLUE CHIP (R6)
8.53%
SAM CONS GROWTH PORTFOLIO PIF
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001
BLUE CHIP (R6)
7.63%
LIFETIME 2030 FUND
ATTN MUTUAL FUND ACCOUNTING- H221
711 HIGH ST
DES MOINES IA 50392-0001
BLUE CHIP (R6)
7.19%
LIFETIME 2040 FUND
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001
71
Fund/Class
Percentage
of Ownership
Name and Address of Owner
BLUE CHIP (R6)
5.81%
SAM STRATEGIC GROWTH PORTFOLIO PIF
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001
BLUE CHIP (R6)
5.26%
LIFETIME 2050 FUND
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001
BOND MARKET INDEX (I)
18.73%
LIFETIME HYBRID 2030 FUND
ATTN MUTUAL FUND ACCOUNTING H221
711 HIGH ST
DES MOINES IA 50392-0001
BOND MARKET INDEX (I)
16.76%
LIFETIME HYBRID 2020 FUND
ATTN MUTUAL FUND ACCOUNTING H221
711 HIGH ST
DES MOINES IA 50392-0001
BOND MARKET INDEX (I)
15.96%
LIFETIME HYBRID 2025 FUND
ATTN MUTUAL FUND ACCOUNTING H221
711 HIGH ST
DES MOINES IA 50392-0001
BOND MARKET INDEX (I)
9.82%
LIFETIME HYBRID 2035 FUND
ATTN MUTUAL FUND ACCOUNTING H221
711 HIGH ST
DES MOINES IA 50392-0001
BOND MARKET INDEX (I)
5.46%
THE PRINCIPAL TRST FOR PST-RTRMENT
FOR MEDICAL BENEFITS FOR EMPLOYEES
61021
ATTN STEPHANIE WATTS 711-4D79
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001
BOND MARKET INDEX (I)
5.34%
LIFETIME HYBRID 2040 FUND
ATTN MUTUAL FUND ACCOUNTING H221
711 HIGH ST
DES MOINES IA 50392-0001
BOND MARKET INDEX (I)
5.10%
LIFETIME HYBRID 2015 FUND
ATTN MUTUAL FUND ACCOUNTING H221
711 HIGH ST
DES MOINES IA 50392-0001
BOND MARKET INDEX (R1)
62.30%
DCGT AS TTEE AND/OR CUST
FBO PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN NPIO TRADE DESK
711 HIGH ST
DES MOINES IA 50392-0001
BOND MARKET INDEX (R1)
13.53%
FIIOC
FBO
AVAILABLE PLASTICS INC 401K PLAN
100 MAGELLAN WAY (KW1C)
COVINGTON KY 41015-1987
BOND MARKET INDEX (R1)
7.48%
FIDELITY INVESTMENTS INST OPER CO
INC FBO
STRAUS MASONRY INC 401K PLAN
100 MAGELLAN WAY (KW1C)
COVINGTON KY 41015-1999
BOND MARKET INDEX (R1)
7.38%
RELIANCE TRUST CO TTEE
FBO ADP ACCESS LARGE MARKET
401(K) PLAN
201 17TH ST NW STE 1000
ATLANTA GA 30363-1195
BOND MARKET INDEX (R3)
61.90%
DCGT AS TTEE AND/OR CUST
FBO PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN NPIO TRADE DESK
711 HIGH ST
DES MOINES IA 50392-0001
72
Fund/Class
Percentage
of Ownership
Name and Address of Owner
BOND MARKET INDEX (R3)
16.50%
PRINCIPAL TRUST COMPANY
FBO EXEC NQ EXCESS OF MAGNECOMP
CORP
ATTN SUSAN SAGGIONE
1013 CENTRE RD
WILMINGTON DE 19805-1265
BOND MARKET INDEX (R3)
6.32%
STATE STREET BANK AND TRUST COMPANY
TRUSTEE AND/OR CUSTODIAN
FBO ADP ACCESS PRODUCT
1 LINCOLN ST
BOSTON MA 02111-2901
BOND MARKET INDEX (R4)
79.63%
DCGT AS TTEE AND/OR CUST
FBO PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN NPIO TRADE DESK
711 HIGH ST
DES MOINES IA 50392-0001
BOND MARKET INDEX (R5)
48.73%
DCGT AS TTEE AND/OR CUST
FBO PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN NPIO TRADE DESK
711 HIGH ST
DES MOINES IA 50392-0001
BOND MARKET INDEX (R5)
18.54%
FEDERAL REALTY INVESTMENT TRUST
FBO FEDERAL REALTY INVESTMENT TRUST
ATTN VICKIE RALLS
1626 E JEFFERSON ST
ROCKVILLE MD 20852-4041
BOND MARKET INDEX (R5)
7.19%
NORTHWEST ADMINISTRATORS
FBO NQ EXCESS OF NW ADMINISTRATORS
ATTN GAYLE BUSHNELL
2323 EASTLAKE AVE E
SEATTLE WA 98102-3963
CAPITAL SECURITIES (S)
32.39%
MORGAN STANLEY SMITH BARNEY LLC
FOR THE EXCLUSIVE BENE OF ITS CUST
1 NEW YORK PLZ FL 12
NEW YORK NY 10004-1932
CAPITAL SECURITIES (S)
30.07%
MLPF&S FOR THE SOLE
BENEFIT OF ITS CUSTOMERS
ATTN FUND ADMINISTRATION
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
CAPITAL SECURITIES (S)
16.28%
WELLS FARGO CLEARING SERVICES LLC
SPECIAL CUSTODY ACCT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMER
2801 MARKET ST
SAINT LOUIS MO 63103-2523
DIVERSIFIED REAL ASSET (A)
36.57%
CHARLES SCHWAB & CO INC
SPECIAL CUSTODY A/C FBO CUSTOMERS
ATTN MUTUAL FUNDS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
DIVERSIFIED REAL ASSET (A)
13.34%
NATIONAL FINANCIAL SERVICES LLC
FOR THE EXCL BENE OF OUR CUSTOMERS
499 WASHINGTON BLVD
ATTN MUTUAL FUNDS DEPT 4TH FL
JERSEY CITY NJ 07310-1995
DIVERSIFIED REAL ASSET (A)
8.44%
TD AMERITRADE INC FOR THE
EXCLUSIVE BENEFIT OF OUR CLIENTS
PO BOX 2226
OMAHA NE 68103-2226
DIVERSIFIED REAL ASSET (A)
6.62%
MLPF&S FOR THE SOLE
BENEFIT OF ITS CUSTOMERS
ATTN FUND ADMINISTRATION
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
73
Fund/Class
Percentage
of Ownership
Name and Address of Owner
DIVERSIFIED REAL ASSET (I)
21.66%
NATIONAL FINANCIAL SERVICES LLC
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
499 WASHINGTON BLVD
ATTN MUTUAL FUNDS DEPT 4TH FL
JERSEY CITY NJ 07310-1995
DIVERSIFIED REAL ASSET (I)
19.45%
CHARLES SCHWAB & CO INC
SPECIAL CUSTODY A/C FOR THE
BENIFIT OF CUSTOMERS
ATTN MUTUAL FUNDS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
DIVERSIFIED REAL ASSET (I)
12.87%
CAPINCO C/O US BANK NA
1555 N RIVERCENTER DR STE 302
MILWAUKEE WI 53212-3958
DIVERSIFIED REAL ASSET (I)
5.27%
ATTN MUTUAL FUND OPERATIONS
MAC & CO A/C 795127
500 GRANT STREET ROOM 151-1010
PITTSBURGH PA 15219-2502
DIVERSIFIED REAL ASSET (R3)
98.17%
PRINCIPAL TRUST COMPANY
FBO BLUE ROCK REFINISHING SOLUTIONS
LLC CASH BALANCE PLAN
2974 CLEVELAND AVE N
SAINT PAUL MN 55113-1101
DIVERSIFIED REAL ASSET (R4)
100.00%
PRINCIPAL GLOBAL INVESTORS LLC
ATTN SEAN CLINES 801-9A08
801 GRAND AVE
DES MOINES IA 50309-8000
DIVERSIFIED REAL ASSET (R5)
75.60%
DCGT AS TTEE AND/OR CUST
FBO PLIC VARIOUS RETIREMENT PLANS
ATTN NPIO TRADE DESK
OMNIBUS
711 HIGH STREET
DES MOINES IA 50392-0001
DIVERSIFIED REAL ASSET (R5)
24.39%
PRINCIPAL GLOBAL INVESTORS LLC
ATTN SEAN CLINES 801-9A08
801 GRAND AVE
DES MOINES IA 50309-8000
DIVERSIFIED REAL ASSET (R6)
12.33%
SAM BALANCED PORTFOLIO PIF
ATTN MUTUAL FUND ACCOUNTING -H221
711 HIGH ST
DES MOINES IA 50392-0001
DIVERSIFIED REAL ASSET (R6)
9.97%
SAM FLEXIBLE INCOME PORTFOLIO PIF
ATTN MUTUAL FUND ACCOUNTING H221
711 HIGH ST
DES MOINES IA 50392-0001
DIVERSIFIED REAL ASSET (R6)
8.38%
SAM CONS GROWTH PORTFOLIO PIF
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001
DIVERSIFIED REAL ASSET (R6)
7.29%
MAC & CO A/C 193733
ATTN MUTUAL FUND OPS
500 GRANT STREET
ROOM 151-1010
PITTSBURGH PA 15219-2502
DIVERSIFIED REAL ASSET (R6)
5.67%
SAM STRATEGIC GROWTH PORTFOLIO PIF
ATTN MUTUAL FUND ACCOUNTING H221
711 HIGH ST
DES MOINES IA 50392-0001
EDGE MIDCAP (A)
25.06%
NATIONAL FINANCIAL SERVICES LLC
FOR THE EXCL BENE OF OUR CUSTOMERS
499 WASHINGTON BLVD
ATTN MUTUAL FUNDS DEPT 4TH FL
JERSEY CITY NJ 07310-1995
74
Fund/Class
Percentage
of Ownership
Name and Address of Owner
EDGE MIDCAP (A)
19.41%
AMERICAN ENTERPRISE INVESTMENT SVC
FBO #41999970
707 2ND AVE S
MINNEAPOLIS MN 55402-2405
EDGE MIDCAP (A)
13.80%
MINNESOTA LIFE INSURANCE COMPANY
400 ROBERT ST N STE A
SAINT PAUL MN 55101-2099
EDGE MIDCAP (I)
35.91%
NATIONAL FINANCIAL SERVICES LLC
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
499 WASHINGTON BLVD
ATTN MUTUAL FUNDS DEPT 4TH FL
JERSEY CITY NJ 07310-1995
EDGE MIDCAP (I)
19.85%
AMERICAN ENTERPRISE INVESTMENT SVC
FBO #41999970
707 2ND AVE S
MINNEAPOLIS MN 55402-2405
EDGE MIDCAP (I)
15.84%
CHARLES SCHWAB & CO INC
SPECIAL CUSTODY A/C FBO CUSTOMERS
ATTN MUTUAL FUNDS
211 MAIN STREET
SAN FRANCISCO CA 94105-1905
EDGE MIDCAP (I)
12.38%
MAILCODE BD1N ATTN MF
C/O RELIANCE TRUST COMPANY WI
MITRA & CO FBO 98
4900 W BROWN DEER RD
MILWAUKEE WI 53223-2422
EDGE MIDCAP (R6)
26.71%
SAM BALANCED PORTFOLIO PIF
ATTN MUTUAL FUND ACCOUNTING -H221
711 HIGH ST
DES MOINES IA 50392-0001
EDGE MIDCAP (R6)
25.92%
SAM CONS GROWTH PORTFOLIO PIF
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001
EDGE MIDCAP (R6)
17.18%
SAM STRATEGIC GROWTH PORTFOLIO PIF
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001
EDGE MIDCAP (R6)
7.34%
SAM CONS BALANCED PORTFOLIO PIF
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001
GLOBAL MULTI-STRATEGY (A)
19.08%
WELLS FARGO CLEARING SERVICES LLC
SPECIAL CUSTODY ACCT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMER
2801 MARKET ST
SAINT LOUIS MO 63103-2523
GLOBAL MULTI-STRATEGY (A)
15.51%
MLPF&S FOR THE SOLE
BENEFIT OF ITS CUSTOMERS
ATTN FUND ADMINISTRATION
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
GLOBAL MULTI-STRATEGY (A)
14.57%
NATIONAL FINANCIAL SERVICES LLC
FOR THE EXCL BENE OF OUR CUSTOMERS
499 WASHINGTON BLVD
ATTN MUTUAL FUNDS DEPT 4TH FL
JERSEY CITY NJ 07310-1995
GLOBAL MULTI-STRATEGY (A)
7.61%
MORGAN STANLEY SMITH BARNEY LLC
FOR THE EXCLUSIVE BENE OF ITS CUST
1 NEW YORK PLZ FL 12
NEW YORK NY 10004-1932
75
Fund/Class
Percentage
of Ownership
Name and Address of Owner
GLOBAL MULTI-STRATEGY (I)
28.00%
NATIONAL FINANCIAL SERVICES LLC
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
499 WASHINGTON BLVD
ATTN MUTUAL FUNDS DEPT 4TH FL
JERSEY CITY NJ 07310-1995
GLOBAL MULTI-STRATEGY (I)
16.72%
WELLS FARGO CLEARING SERVICES LLC
SPECIAL CUSTODY ACCT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMER
2801 MARKET ST
SAINT LOUIS MO 63103-2523
GLOBAL MULTI-STRATEGY (I)
16.10%
MLPF&S FOR THE SOLE
BENEFIT OF ITS CUSTOMERS
ATTN FUND ADMINISTRATION
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
GLOBAL MULTI-STRATEGY (I)
7.28%
STIFEL NICOLAUS & CO INC
EXCLUSIVE BENEFIT OF CUSTOMERS
501 N BROADWAY
SAINT LOUIS MO 63102-2188
GLOBAL MULTI-STRATEGY (I)
5.17%
UBS WM USA
0O0 11011 6100
OMNI ACCOUNT M/F
SPEC CDY A/C EBOC UBSFSI
1000 HARBOR BLVD
WEEHAWKEN NJ 07086-6761
GLOBAL MULTI-STRATEGY (R6)
56.02%
MORI & CO
922 WALNUT ST
MAILSTOP TBTS 2
KANSAS CITY MO 64106-1802
GLOBAL MULTI-STRATEGY (R6)
33.26%
WELLS FARGO BANK NA
PO BOX 1533
MINNEAPOLIS MN 55480-1533
GLOBAL MULTI-STRATEGY (R6)
7.91%
PRINCIPAL LIFE INS COMPANY CUST
FBO PFG OMNIBUS WRAPPED AND CUSTOM
ATTN PLIC PROXY COORDINATOR
FUNDS
711 HIGH STREET
DES MOINES IA 50392-0001
INTERNATIONAL EQUITY INDEX (I)
27.83%
DCGT AS TTEE AND/OR CUST
FBO PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN NPIO TRADE DESK
711 HIGH ST
DES MOINES IA 50392-0001
INTERNATIONAL EQUITY INDEX (I)
24.36%
LPL FINANCIAL
OMNIBUS CUSTOMER ACCOUNT
ATTN MUTUAL FUND TRADING
4707 EXECUTIVE DR
SAN DIEGO CA 92121-3091
INTERNATIONAL EQUITY INDEX (I)
13.72%
PIMS/PRUDENTIAL RETIREMENT
AS NOMINEE FOR THE TTEE/CUST PL 008
EMPIRE TODAY, LLC 401(K)
333 NORTHWEST AVE
NORTHLAKE IL 60164-1604
INTERNATIONAL EQUITY INDEX (I)
12.14%
CHARLES SCHWAB & CO INC
FBO SPECIAL CUSTODY ACCOUNTS
ATTN MUTUAL FUNDS
211 MAIN ST
SAN FRANCISCO CA 94105-1905
INTERNATIONAL EQUITY INDEX (I)
7.00%
PIMS/PRUDENTIAL RETIREMENT
AS NOMINEE FOR THE TTEE/CUST PL 720
AMN HEALTHCARE
12400 HIGH BLUFF DRIVE
SAN DIEGO CA 92130-3077
76
Fund/Class
Percentage
of Ownership
Name and Address of Owner
INTERNATIONAL EQUITY INDEX (R1)
57.85%
DCGT AS TTEE AND/OR CUST
FBO PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN NPIO TRADE DESK
711 HIGH ST
DES MOINES IA 50392-0001
INTERNATIONAL EQUITY INDEX (R1)
14.35%
MATRIX TRUST COMPANY TRUSTEE
WELLS GASTROENTEROLOGY, PLLC
717 17TH STREET
SUITE 1300
DENVER CO 80202-3304
INTERNATIONAL EQUITY INDEX (R1)
11.44%
FIIOC FBO
CENTRAL PARK INSURANCE AGENCY INC
EMPLOYEES PROFIT SHARING PLAN
100 MAGELLAN WAY
COVINGTON KY 41015-1987
INTERNATIONAL EQUITY INDEX (R1)
7.36%
FIIOC
FBO
KEITH PORTER INSULATION & FIREPLACE
401K PLAN
100 MAGELLAN WAY (KW1C)
COVINGTON KY 41015-1987
INTERNATIONAL EQUITY INDEX (R1)
7.23%
MID ATLANTIC TRUST COMPANY FBO
BORIK HOSPITALIST GROUP, INC 401(K
1251 WATERFRONT PLACE SUITE 525
PITTSBURGH PA 15222-4228
INTERNATIONAL EQUITY INDEX (R3)
59.64%
DCGT AS TTEE AND/OR CUST
FBO PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN NPIO TRADE DESK
711 HIGH ST
DES MOINES IA 50392-0001
INTERNATIONAL EQUITY INDEX (R3)
11.74%
STATE STREET BANK AND TRUST COMPANY
TRUSTEE AND/OR CUSTODIAN
FBO ADP ACCESS PRODUCT
1 LINCOLN ST
BOSTON MA 02111-2901
INTERNATIONAL EQUITY INDEX (R4)
55.60%
DCGT AS TTEE AND/OR CUST
FBO PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN NPIO TRADE DESK
711 HIGH ST
DES MOINES IA 50392-0001
INTERNATIONAL EQUITY INDEX (R4)
13.26%
STATE STREET BANK AND TRUST COMPANY
TRUSTEE AND/OR CUSTODIAN
FBO ADP ACCESS PRODUCT
1 LINCOLN ST
BOSTON MA 02111-2901
INTERNATIONAL EQUITY INDEX (R4)
5.19%
PRINCIPAL TRUST COMPANY
FBO LESLIE GABER ASSOC INC
CASH BALANCE PLAN
24 HILLCREST DR
COLTS NECK NJ 07722-2227
INTERNATIONAL EQUITY INDEX (R5)
61.68%
DCGT AS TTEE AND/OR CUST
FBO PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN NPIO TRADE DESK
711 HIGH ST
DES MOINES IA 50392-0001
INTERNATIONAL EQUITY INDEX (R5)
16.75%
WACHOVIA BANK NATIONAL ASSOCIATION
FBO DEF COMP PLAN OF CED INC (PS
ATTN SHELLEY ANDERSON
DEF
ONE WEST FOURTH STREET
WINSTON-SALEM NC 27101-3818
77
Fund/Class
Percentage
of Ownership
Name and Address of Owner
INTERNATIONAL EQUITY INDEX (R6)
38.60%
PRINCIPAL LIFE INS COMPANY CUST
FBO PFG OMNIBUS WRAPPED AND CUSTOM
ATTN PLIC PROXY COORDINATOR
FUNDS
711 HIGH STREET
DES MOINES IA 50392-0001
INTERNATIONAL EQUITY INDEX (R6)
35.16%
DIVERSIFIED GROWTH ACCOUNT
ATTN MUTUAL FUND ACCOUNTING H221
711 HIGH ST
DES MOINES IA 50392-0001
INTERNATIONAL EQUITY INDEX (R6)
11.13%
DIVERSIFIED GROWTH VOLATILITY
CONTROL ACCOUNT
ATTN MUTUAL FUND ACCOUNTING H221
711 HIGH ST
DES MOINES IA 50392-0001
INTERNATIONAL EQUITY INDEX (R6)
6.23%
DIVERSIFIED BALANCED ACCOUNT
ATTN MUTUAL FUND ACCOUNTING H221
711 HIGH ST
DES MOINES IA 50392-0001
INTERNATIONAL SMALL COMPANY (I)
59.90%
PERSHING LLC
1 PERSHING PLZ
JERSEY CITY NJ 07399-0001
INTERNATIONAL SMALL COMPANY (I)
29.00%
NATIONAL FINANCIAL SERVICES LLC
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
499 WASHINGTON BLVD
ATTN MUTUAL FUNDS DEPT 4TH FL
JERSEY CITY NJ 07310-1995
INTERNATIONAL SMALL COMPANY (I)
5.49%
THE GRABLE FOUNDATION
701 MARKET ST STE 1100
SAINT LOUIS MO 63101-1867
INTERNATIONAL SMALL COMPANY (R6)
13.14%
LIFETIME 2030 FUND
ATTN MUTUAL FUND ACCOUNTING- H221
711 HIGH ST
DES MOINES IA 50392-0001
INTERNATIONAL SMALL COMPANY (R6)
13.08%
LIFETIME 2040 FUND
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001
INTERNATIONAL SMALL COMPANY (R6)
9.33%
LIFETIME 2050 FUND
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001
INTERNATIONAL SMALL COMPANY (R6)
7.45%
SAM BALANCED PORTFOLIO PIF
ATTN MUTUAL FUND ACCOUNTING -H221
711 HIGH ST
DES MOINES IA 50392-0001
INTERNATIONAL SMALL COMPANY (R6)
6.22%
SAM CONS GROWTH PORTFOLIO PIF
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001
INTERNATIONAL SMALL COMPANY (R6)
5.79%
LIFETIME 2020 FUND
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001
OPPORTUNISTIC MUNICIPAL (A)
22.89%
NATIONAL FINANCIAL SERVICES LLC
FOR THE EXCL BENE OF OUR CUSTOMERS
499 WASHINGTON BLVD
ATTN MUTUAL FUNDS DEPT 4TH FL
JERSEY CITY NJ 07310-1995
OPPORTUNISTIC MUNICIPAL (A)
21.85%
MORGAN STANLEY SMITH BARNEY LLC
FOR THE EXCLUSIVE BENE OF ITS CUST
1 NEW YORK PLZ FL 12
NEW YORK NY 10004-1932
78
Fund/Class
Percentage
of Ownership
Name and Address of Owner
OPPORTUNISTIC MUNICIPAL (A)
13.60%
RAYMOND JAMES
OMNIBUS FOR MUTUAL FUNDS
HOUSE ACCT FIRM 92500015
ATTN: COURTNEY WALLER
880 CARILLON PKWY
ST PETERSBURG FL 33716-1102
OPPORTUNISTIC MUNICIPAL (A)
7.89%
STIFEL NICOLAUS & CO INC
EXCLUSIVE BENEFIT OF CUSTOMERS
501 N BROADWAY
SAINT LOUIS MO 63102-2188
OPPORTUNISTIC MUNICIPAL (A)
5.84%
UBS WM USA
0O0 11011 6100
OMNI ACCOUNT M/F
SPEC CDY A/C EBOC UBSFSI
1000 HARBOR BLVD
WEEHAWKEN NJ 07086-6761
OPPORTUNISTIC MUNICIPAL (I)
34.54%
NATIONAL FINANCIAL SERVICES LLC
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
499 WASHINGTON BLVD
ATTN MUTUAL FUNDS DEPT 4TH FL
JERSEY CITY NJ 07310-1995
OPPORTUNISTIC MUNICIPAL (I)
13.42%
MORGAN STANLEY SMITH BARNEY LLC
FOR THE EXCLUSIVE BENE OF ITS CUST
1 NEW YORK PLZ FL 12
NEW YORK NY 10004-1932
OPPORTUNISTIC MUNICIPAL (I)
11.18%
UBS WM USA
0O0 11011 6100
OMNI ACCOUNT M/F
SPEC CDY A/C EBOC UBSFSI
1000 HARBOR BLVD
WEEHAWKEN NJ 07086-6761
OPPORTUNISTIC MUNICIPAL (I)
9.68%
LPL FINANCIAL
OMNIBUS CUSTOMER ACCOUNT
ATTN MUTUAL FUND TRADING
4707 EXECUTIVE DR
SAN DIEGO CA 92121-3091
OPPORTUNISTIC MUNICIPAL (I)
8.82%
PERSHING LLC
1 PERSHING PLZ
JERSEY CITY NJ 07399-0001
OPPORTUNISTIC MUNICIPAL (I)
8.15%
RAYMOND JAMES
OMNIBUS FOR MUTUAL FUNDS
HOUSE ACCT FIRM 92500015
ATTN: COURTNEY WALLER
880 CARILLON PKWY
ST PETERSBURG FL 33716-1102
OPPORTUNISTIC MUNICIPAL (I)
5.15%
TD AMERITRADE INC FOR THE
EXCLUSIVE BENEFIT OF OUR CLIENTS
PO BOX 2226
OMAHA NE 68103-2226
ORIGIN EMERGING MARKETS (A)
48.58%
NATIONAL FINANCIAL SERVICES LLC
FOR THE EXCL BENE OF OUR CUSTOMERS
499 WASHINGTON BLVD
ATTN MUTUAL FUNDS DEPT 4TH FL
JERSEY CITY NJ 07310-1995
ORIGIN EMERGING MARKETS (I)
40.72%
NATIONAL FINANCIAL SERVICES LLC
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
499 WASHINGTON BLVD
ATTN MUTUAL FUNDS DEPT 4TH FL
JERSEY CITY NJ 07310-1995
ORIGIN EMERGING MARKETS (I)
22.06%
TD AMERITRADE INC FOR THE
EXCLUSIVE BENEFIT OF OUR CLIENTS
PO BOX 2226
OMAHA NE 68103-2226
79
Fund/Class
Percentage
of Ownership
Name and Address of Owner
ORIGIN EMERGING MARKETS (I)
16.81%
CAPINCO C/O US BANK NA
1555 N RIVERCENTER DR STE 302
MILWAUKEE WI 53212-3958
ORIGIN EMERGING MARKETS (I)
6.79%
CHARLES SCHWAB & CO INC
SPECIAL CUSTODY A/C FBO CUSTOMERS
ATTN MUTUAL FUNDS
211 MAIN ST
SAN FRANCISCO CA 94105-1905
ORIGIN EMERGING MARKETS (I)
5.05%
BANKERS TRUST COMPANY
FBO PRIN SELECT SVNG EXCESS PLAN
ATTN PLAN TRUSTEE
FOR EES
453 7TH ST
DES MOINES IA 50309-4110
ORIGIN EMERGING MARKETS (R6)
33.46%
PRINCIPAL GLOBAL INVESTORS TRUST CO
PRINCIPAL LIFETIME HYBRID
COLLECTIVE INVESTMENT FUNDS
1300 SW 5TH AVE STE 3300
PORTLAND OR 97201-5640
ORIGIN EMERGING MARKETS (R6)
11.52%
PRINCIPAL LIFE INS COMPANY CUST
FBO PFG OMNIBUS WRAPPED AND CUSTOM
ATTN PLIC PROXY COORDINATOR
FUNDS
711 HIGH STREET
DES MOINES IA 50392-0001
ORIGIN EMERGING MARKETS (R6)
9.40%
SAM BALANCED PORTFOLIO PIF
ATTN MUTUAL FUND ACCOUNTING -H221
711 HIGH ST
DES MOINES IA 50392-0001
ORIGIN EMERGING MARKETS (R6)
8.46%
SAM CONS GROWTH PORTFOLIO PIF
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001
SMALL-MIDCAP DIVIDEND INCOME (A)
19.56%
NATIONAL FINANCIAL SERVICES LLC
FOR THE EXCL BENE OF OUR CUSTOMERS
499 WASHINGTON BLVD
ATTN MUTUAL FUNDS DEPT 4TH FL
JERSEY CITY NJ 07310-1995
SMALL-MIDCAP DIVIDEND INCOME (A)
11.54%
WELLS FARGO CLEARING SERVICES LLC
SPECIAL CUSTODY ACCT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMER
2801 MARKET ST
SAINT LOUIS MO 63103-2523
SMALL-MIDCAP DIVIDEND INCOME (A)
9.10%
MLPF&S FOR THE SOLE
BENEFIT OF ITS CUSTOMERS
ATTN FUND ADMINISTRATION
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
SMALL-MIDCAP DIVIDEND INCOME (A)
7.01%
UBS WM USA
0O0 11011 6100
OMNI ACCOUNT M/F
SPEC CDY A/C EBOC UBSFSI
1000 HARBOR BLVD
WEEHAWKEN NJ 07086-6761
SMALL-MIDCAP DIVIDEND INCOME (A)
6.29%
MORGAN STANLEY SMITH BARNEY LLC
FOR THE EXCLUSIVE BENE OF ITS CUST
1 NEW YORK PLZ FL 12
NEW YORK NY 10004-1932
SMALL-MIDCAP DIVIDEND INCOME (C)
26.74%
WELLS FARGO CLEARING SERVICES LLC
SPECIAL CUSTODY ACCT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMER
2801 MARKET ST
SAINT LOUIS MO 63103-2523
80
Fund/Class
Percentage
of Ownership
Name and Address of Owner
SMALL-MIDCAP DIVIDEND INCOME (C)
14.49%
RAYMOND JAMES
OMNIBUS FOR MUTUAL FUNDS
HOUSE ACCT FIRM 92500015
ATTN: COURTNEY WALLER
880 CARILLON PKWY
ST PETERSBURG FL 33716-1102
SMALL-MIDCAP DIVIDEND INCOME (C)
11.76%
NATIONAL FINANCIAL SERVICES LLC
FOR THE EXCL BENE OF OUR CUSTOMERS
499 WASHINGTON BLVD
ATTN MUTUAL FUNDS DEPT 4TH FL
JERSEY CITY NJ 07310-1995
SMALL-MIDCAP DIVIDEND INCOME (C)
11.12%
UBS WM USA
0O0 11011 6100
OMNI ACCOUNT M/F
SPEC CDY A/C EBOC UBSFSI
1000 HARBOR BLVD
WEEHAWKEN NJ 07086-6761
SMALL-MIDCAP DIVIDEND INCOME (C)
5.05%
LPL FINANCIAL
OMNIBUS CUSTOMER ACCOUNT
ATTN MUTUAL FUND TRADING
4707 EXECUTIVE DR
SAN DIEGO CA 92121-3091
SMALL-MIDCAP DIVIDEND INCOME (I)
22.81%
UBS WM USA
0O0 11011 6100
OMNI ACCOUNT M/F
SPEC CDY A/C EBOC UBSFSI
1000 HARBOR BLVD
WEEHAWKEN NJ 07086-6761
SMALL-MIDCAP DIVIDEND INCOME (I)
16.26%
RAYMOND JAMES
OMNIBUS FOR MUTUAL FUNDS
HOUSE ACCT FIRM 92500015
ATTN: COURTNEY WALLER
880 CARILLON PKWY
ST PETERSBURG FL 33716-1102
SMALL-MIDCAP DIVIDEND INCOME (I)
13.06%
WELLS FARGO CLEARING SERVICES LLC
SPECIAL CUSTODY ACCT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMER
2801 MARKET ST
SAINT LOUIS MO 63103-2523
SMALL-MIDCAP DIVIDEND INCOME (I)
12.23%
MORGAN STANLEY SMITH BARNEY LLC
FOR THE EXCLUSIVE BENE OF ITS CUST
1 NEW YORK PLZ FL 12
NEW YORK NY 10004-1932
SMALL-MIDCAP DIVIDEND INCOME (I)
6.50%
MLPF&S FOR THE SOLE
BENEFIT OF ITS CUSTOMERS
ATTN FUND ADMINISTRATION
4800 DEER LAKE DR E FL 2
JACKSONVILLE FL 32246-6484
SMALL-MIDCAP DIVIDEND INCOME (I)
5.75%
AMERICAN ENTERPRISE INVESTMENT SVC
FBO #41999970
707 2ND AVE S
MINNEAPOLIS MN 55402-2405
SMALL-MIDCAP DIVIDEND INCOME (R6)
45.33%
SAM FLEXIBLE INCOME PORTFOLIO PIF
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001
SMALL-MIDCAP DIVIDEND INCOME (R6)
30.24%
KENTUCKY PUBLIC EMPLOYEES DEFERRED
COMPENSATION AUTHORITY
C/O NATIONWIDE
PO BOX 182029
COLUMBUS OH 43218-2029
81
Fund/Class
Percentage
of Ownership
Name and Address of Owner
SMALL-MIDCAP DIVIDEND INCOME (R6)
15.71%
PRINCIPAL LIFE INS COMPANY CUST
FBO PFG OMNIBUS WRAPPED AND CUSTOM
ATTN PLIC PROXY COORDINATOR
FUNDS
711 HIGH STREET
DES MOINES IA 50392-0001
SMALL-MIDCAP GROWTH (I)
89.67%
PRINCIPAL FINANCIAL SERVICES INC
PUBLIC SEED ACCOUNT
ATTN GAM INVACCT ACA TEAM G-016-S40
711 HIGH ST
DES MOINES IA 50392-9992
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (A)
18.49%
MLPF&S FOR THE SOLE
BENEFIT OF ITS CUSTOMERS
ATTN FUND ADMINISTRATION
4800 DEER LAKE DR EAST 3RD FL
JACKSONVILLE FL 32246-6484
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (A)
13.87%
WELLS FARGO CLEARING SERVICES LLC
SPECIAL CUSTODY ACCT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMER
2801 MARKET ST
SAINT LOUIS MO 63103-2523
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME(A)
13.13%
MORGAN STANLEY SMITH BARNEY LLC
FOR THE EXCLUSIVE BENE OF ITS CUST
1 NEW YORK PLZ FL 12
NEW YORK NY 10004-1932
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (A)
8.62%
NATIONAL FINANCIAL SERVICES LLC
FOR THE EXCL BENE OF OUR CUSTOMERS
499 WASHINGTON BLVD
ATTN MUTUAL FUNDS DEPT 4TH FL
JERSEY CITY NJ 07310-1995
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (A)
6.86%
CHARLES SCHWAB & CO INC
FBO SPECIAL CUSTODY ACCOUNTS
ATTN MUTUAL FUNDS
211 MAIN ST
SAN FRANCISCO CA 94105-1905
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (A)
6.52%
UBS WM USA
0O0 11011 6100
OMNI ACCOUNT M/F
SPEC CDY A/C EBOC UBSFSI
1000 HARBOR BLVD
WEEHAWKEN NJ 07086-6761
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (A)
5.36%
RAYMOND JAMES
OMNIBUS FOR MUTUAL FUNDS
HOUSE ACCT FIRM 92500015
ATTN: COURTNEY WALLER
880 CARILLON PKWY
ST PETERSBURG FL 33716-1102
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (C)
20.81%
WELLS FARGO CLEARING SERVICES LLC
SPECIAL CUSTODY ACCT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMER
2801 MARKET ST
SAINT LOUIS MO 63103-2523
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (C)
16.24%
MORGAN STANLEY SMITH BARNEY LLC
FOR THE EXCLUSIVE BENE OF ITS CUST
1 NEW YORK PLZ FL 12
NEW YORK NY 10004-1932
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (C)
12.23%
MLPF&S FOR THE SOLE
BENEFIT OF ITS CUSTOMERS
ATTN FUND ADMINISTRATION
4800 DEER LAKE DR EAST 3RD FL
JACKSONVILLE FL 32246-6484
82
Fund/Class
Percentage
of Ownership
Name and Address of Owner
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (C)
8.92%
RAYMOND JAMES
OMNIBUS FOR MUTUAL FUNDS
HOUSE ACCT FIRM 92500015
ATTN: COURTNEY WALLER
880 CARILLON PKWY
ST PETERSBURG FL 33716-1102
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (C)
7.30%
PERSHING LLC
1 PERSHING PLZ
JERSEY CITY NJ 07399-0001
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (C)
5.52%
LPL FINANCIAL
OMNIBUS CUSTOMER ACCOUNT
ATTN MUTUAL FUND TRADING
4707 EXECUTIVE DR
SAN DIEGO CA 92121-3091
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (I)
18.39%
MLPF&S FOR THE SOLE
BENEFIT OF ITS CUSTOMERS
ATTN FUND ADMINISTRATION
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (I)
12.21%
WELLS FARGO CLEARING SERVICES LLC
SPECIAL CUSTODY ACCT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMER
2801 MARKET ST
SAINT LOUIS MO 63103-2523
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (I)
11.42%
MORGAN STANLEY SMITH BARNEY LLC
FOR THE EXCLUSIVE BENE OF ITS CUST
1 NEW YORK PLZ FL 12
NEW YORK NY 10004-1932
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (I)
9.78%
NATIONAL FINANCIAL SERVICES LLC
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
499 WASHINGTON BLVD
ATTN MUTUAL FUNDS DEPT 4TH FL
JERSEY CITY NJ 07310-1995
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (I)
8.04%
RAYMOND JAMES
OMNIBUS FOR MUTUAL FUNDS
HOUSE ACCT FIRM 92500015
ATTN: COURTNEY WALLER
880 CARILLON PKWY
ST PETERSBURG FL 33716-1102
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (R1)
47.71%
DCGT AS TTEE AND/OR CUST
FBO PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN NPIO TRADE DESK
711 HIGH ST
DES MOINES IA 50392-0001
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (R1)
33.11%
PRINCIPAL TRUST COMPANY
FBO CONCORP CONCRETE INC DEFINED
BENEFIT PENSION PLAN
2485 ASHCROFT AVE
CLOVIS CA 93611-6001
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (R1)
8.53%
FIIOC FBO
SUTTON ORTHOPAEDICS & SPORTS
MEDICINE PC 401K PROFIT SHARING
100 MAGELLAN WAY
COVINGTON KY 41015-1987
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (R1)
6.94%
MATRIX TRUST COMPANY CUST. FBO
DUNSTAN DENTAL CENTER, LLC
717 17TH STREET
SUITE 1300
DENVER CO 80202-3304
83
Fund/Class
Percentage
of Ownership
Name and Address of Owner
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (R3)
25.98%
DCGT AS TTEE AND/OR CUST
FBO PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN NPIO TRADE DESK
711 HIGH ST
DES MOINES IA 50392-0001
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (R3)
12.49%
PRINCIPAL TRUST COMPANY
FBO BLUE ROCK REFINISHING SOLUTIONS
LLC CASH BALANCE PLAN
2974 CLEVELAND AVE N
SAINT PAUL MN 55113-1101
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (R3)
10.70%
PIMS/PRUDENTIAL RETIREMENT
AS NOMINEE FOR THE TTEE/CUST PL 765
ACME MONACO CORPORATION 401(K)
75 WINCHELL RD
NEW BRITAIN CT 06052-1017
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (R3)
9.07%
MLPF&S FOR THE SOLE
BENEFIT OF ITS CUSTOMERS
ATTN FUND ADMINISTRATION
4800 DEER LAKE DR E FL 2
JACKSONVILLE FL 32246-6484
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (R3)
8.30%
UBS WM USA
0O0 11011 6100
OMNI ACCOUNT M/F
SPEC CDY A/C EBOC UBSFSI
1000 HARBOR BLVD
WEEHAWKEN NJ 07086-6761
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (R3)
6.64%
GREAT-WEST TRUST COMPANY LLC TTEE F
EMPLOYEE BENEFITS CLIENTS 401K - FG
8515 E ORCHARD RD 2T2
GREENWOOD VILLAGE CO 80111-5002
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (R3)
6.45%
FIIOC
FBO FLETCHER TILTON PC PROFIT
SHARING PLAN AND TRUST
100 MAGELLAN WAY
COVINGTON KY 41015-1987
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (R3)
5.86%
SAMMONS RETIREMENT SOLUTIONS
4546 CORPORATE DR STE 100
WDM IA 50266-5911
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (R4)
86.88%
DCGT AS TTEE AND/OR CUST
FBO PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN NPIO TRADE DESK
711 HIGH ST
DES MOINES IA 50392-0001
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (R4)
9.55%
PRINCIPAL TRUST COMPANY
FBO BRAILSFORD & DUNLAVEY CASH
BALANCE PLAN
1140 CONNECTICUT AVE NW STE 400
WASHINGTON DC 20036-4014
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (R5)
41.18%
DCGT AS TTEE AND/OR CUST
FBO PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
ATTN NPIO TRADE DESK
711 HIGH ST
DES MOINES IA 50392-0001
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (R5)
40.86%
VANGUARD FIDUCIARY TRUST CO
FBO 401K CLIENTS
ATTN INVESTMENT SERVICES
PO BOX 2600
VALLEY FORGE PA 19482-2600
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (R5)
8.60%
JOHN HANCOCK TRUST COMPANY LLC
690 CANTON ST STE 100
WESTWOOD MA 02090-2324
84
Fund/Class
Percentage
of Ownership
Name and Address of Owner
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (R5)
6.02%
PRINCIPAL TRUST COMPANY
FBO NQ DB OF AAA ARIZONA
ATTN SUSAN SAGGIONE
1013 CENTRE RD
WILMINGTON DE 19805-1265
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (R6)
42.10%
WELLS FARGO BANK NA FBO
OMNIBUS CASH CASH
XXXX0
PO BOX 1533
MINNEAPOLIS MN 55480-1533
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (R6)
15.49%
SAM FLEXIBLE INCOME PORTFOLIO PIF
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (R6)
13.07%
SAM BALANCED PORTFOLIO PIF
ATTN MUTUAL FUND ACCOUNTING -H221
711 HIGH ST
DES MOINES IA 50392-0001
SPECTRUM PREFERRED AND CAPITAL
SECURITIES INCOME (R6)
9.08%
SAM CONS BALANCED PORTFOLIO PIF
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001
Management Ownership
As of December 6, 2021, the Board Members and officers of the Funds, as a group, owned less than 1% of the outstanding shares of any class of any of the Funds.
Portfolio Manager Disclosure
(as provided by the Investment Advisors)
This section contains information about portfolio managers and the other accounts they manage, their compensation, and their ownership of securities. The “Ownership of Securities” tables reflect the portfolio managers’ beneficial ownership, which means a direct or indirect pecuniary interest. For some portfolio managers, this includes beneficial ownership of fund shares through participation in an employee benefit program which invests in Principal Funds, Inc. For information about potential material conflicts of interest, see Brokerage Allocation and Other Practices - Allocation of Trades.
This section lists information about PGI’s portfolio managers first. Next, the section includes information about the sub-advisors’ portfolio managers alphabetically by sub-advisor.
Information in this section is as of August 31, 2021, unless otherwise noted.
Advisor: Principal Global Investors, LLC (Columbus Circle Portfolio Managers) 
 
Other Accounts Managed
 
Total
Number
of Accounts
Total Assets
in the
Accounts
Number of
Accounts
that base
the Advisory
Fee on
Performance
Total Assets
of the
Accounts
that base the
Advisory
Fee on
Performance
Christopher T. Corbett: Small-MidCap Growth Fund
Registered investment companies
3
$755.7 million
0
$0
Other pooled investment vehicles
1
$631.5 million
0
$0
Other accounts
18
$618.3 billion
0
$0
Marc R. Shapiro: Small-MidCap Growth Fund
Registered investment companies
3
$755.7 million
0
$0
Other pooled investment vehicles
1
$631.5 million
0
$0
Other accounts
18
$618.3 billion
0
$0
85
Compensation
Principal Global Investors, LLC offers investment professionals a competitive compensation structure that is evaluated annually relative to other global asset management firms to ensure its continued competitiveness and alignment with industry best practices. The objective of the structure is to offer market competitive compensation that aligns individual and team contributions with firm and client performance objectives in a manner that is consistent with industry standards and business results.
Compensation for investment professionals at all levels is comprised of base salary and variable incentive components. As team members advance in their careers, the variable component increases in its proportion commensurate with responsibility levels. The variable component is designed to reinforce delivery of investment performance, firm performance, team collaboration, regulatory compliance, operational excellence, client retention and client satisfaction. Investment performance is measured on a pre-tax basis against relative client benchmarks and peer groups over one year, three-year and five-year periods, calculated quarterly, reinforcing a longer-term orientation.
Payments under the variable incentive plan may be in the form of cash or a combination of cash and deferred compensation. The amount of variable compensation delivered in the form of deferred compensation depends on the size of an individual’s incentive award as it relates to a tiered deferral scale. Deferred compensation is required to be invested into Principal Financial Group (“PFG”) restricted stock units and funds managed by the team via a co-investment program. Both payment vehicles are subject to a three-year vesting schedule. The overall measurement framework and the deferred component are well aligned with our desired focus on clients’ objectives (e.g. coinvestment), alignment with Principal stakeholders, and talent retention.
In addition to deferred compensation obtained through their compensation programming, team members have investments acquired through their participation in the PFG’s employee stock purchase plan, retirement plans and direct personal investments. It should be noted that the Company’s retirement plans and deferred compensation plans generally utilize its non-registered group separate accounts or commingled vehicles rather than the traditional mutual funds. However, in each instance these vehicles are managed in lockstep alignment with the mutual funds (i.e. “clones”)
Ownership of Securities 
Portfolio Manager
PFI Funds Managed
by Portfolio Manager
Dollar Range of
Securities Owned by
the Portfolio Manager
Christopher T. Corbett
Small-MidCap Growth
$100,001 - $500,000
Marc R. Shapiro
Small-MidCap Growth
$100,001 - $500,000
86
Advisor: Principal Global Investors, LLC (Edge Asset Management Portfolio Managers) 
 
Other Accounts Managed
 
Total
Number
of Accounts
Total Assets
in the
Accounts
Number of
Accounts
that base
the Advisory
Fee on
Performance
Total Assets
of the
Accounts
that base the
Advisory
Fee on
Performance
Lauren Choi: Edge MidCap Fund
Registered investment companies
1
$4.8 million
0
$0
Other pooled investment vehicles
0
$0
0
$0
Other accounts
9
$582.1 million
0
$0
Daniel R. Coleman: Edge MidCap and Small-MidCap Dividend Income Funds
Registered investment companies
10
$14.3 billion
0
$0
Other pooled investment vehicles
2
$201.8 million
0
$0
Other accounts
40
$3.6 billion
0
$0
Theodore Jayne: Edge MidCap Fund
Registered investment companies
4
$2.6 billion
0
$0
Other pooled investment vehicles
0
$0
0
$0
Other accounts
9
$582.1 million
0
$0
Sarah E. Radecki: Small-MidCap Dividend Income Fund
Registered investment companies
5
$11.7 billion
0
$0
Other pooled investment vehicles
2
$201.8 million
0
$0
Other accounts
30
$3.0 billion
0
$0
Compensation
Principal Global Investors, LLC offers investment professionals a competitive compensation structure that is evaluated annually relative to other global asset management firms to ensure its continued competitiveness and alignment with industry best practices. The objective of the structure is to offer market competitive compensation that aligns individual and team contributions with firm and client performance objectives in a manner that is consistent with industry standards and business results.
Compensation for investment professionals at all levels is comprised of base salary and variable incentive components. As team members advance in their careers, the variable component increases in its proportion commensurate with responsibility levels. The variable component is designed to reinforce delivery of investment performance, firm performance, team collaboration, regulatory compliance, operational excellence, client retention and client satisfaction. Investment performance is measured on a pre-tax basis against relative client benchmarks and peer groups over one year, three-year and five-year periods, calculated quarterly, reinforcing a longer-term orientation.
Payments under the variable incentive plan are delivered in the form of cash or a combination of cash and deferred compensation. The amount of incentive delivered in the form of deferred compensation depends on the size of an individual’s incentive award as it relates to a tiered deferral scale. Deferred compensation is required to be invested into Principal Financial Group (“PFG”) restricted stock units and funds managed by the team via a co-investment program. Both payment vehicles are subject to a three-year vesting schedule. The overall measurement framework and the deferred component are well aligned with our desired focus on clients’ objectives (e.g. co-investment), alignment with Principal stakeholders, and talent retention.
In addition to deferred compensation obtained through their compensation programming, team members have investments acquired through their participation in the PFG’s employee stock purchase plan, retirement plans and direct personal investments. It should be noted that the Company’s retirement plans and deferred compensation plans generally utilize its non-registered group separate accounts or commingled vehicles rather than the traditional mutual funds. However, in each instance these vehicles are managed in lockstep alignment with the mutual funds (i.e. “clones”).
87
Ownership of Securities 
Portfolio Manager
PFI Funds Managed
by Portfolio Manager
Dollar Range of
Securities Owned by
the Portfolio Manager
Lauren Choi
Edge MidCap
$100,001 - $500,000
Daniel R. Coleman
Edge MidCap
Over $1,000,000
Daniel R. Coleman
Small-MidCap Dividend Income
$500,001 - $1,000,000
Theodore Jayne
Edge MidCap
$500,001 - $1,000,000
Sarah E. Radecki
Small-MidCap Dividend Income
Over $1,000,000
88
Advisor: Principal Global Investors, LLC (Equity Portfolio Managers) 
 
Other Accounts Managed
 
Total
Number
of Accounts
Total Assets
in the
Accounts
Number of
Accounts
that base
the Advisory
Fee on
Performance
Total Assets
of the
Accounts
that base the
Advisory
Fee on
Performance
Tiffany N. Lavastida: International Small Company Fund
Registered investment companies
7
$464.8 million
0
$0
Other pooled investment vehicles
2
$2.5 billion
0
$0
Other accounts
21
$3.2 billion
1
$217.2 million
K. William Nolin: Blue Chip Fund
Registered Investment Companies
5
$26.1 billion
0
$0
Other pooled investment vehicles
4
$3.4 billion
0
$0
Other accounts
59
$11.7 billion
0
$0
Brian W. Pattinson: International Small Company Fund
Registered investment companies
9
$2.1 billion
0
$0
Other pooled investment vehicles
3
$3.4 billion
0
$0
Other accounts
37
$4.9 billion
3
$818.8 million
Tom Rozycki: Blue Chip Fund
Registered Investment Companies
5
$26.1 billion
0
$0
Other pooled investment vehicles
4
$3.4 billion
0
$0
Other accounts
59
$11.7 billion
0
$0
Jeffrey A. Schwarte: International Equity Index Fund
Registered investment companies
32
$23.4 billion
0
$0
Other pooled investment vehicles
7
$47.8 billion
0
$0
Other accounts
6
$1.5 billion
0
$0
Aaron J. Siebel: International Equity Index Fund
Registered investment companies
30
$22.4 billion
0
$0
Other pooled investment vehicles
5
$47.8 billion
0
$0
Other accounts
3
$1.5 billion
0
$0
Compensation
Principal Global Investors, LLC offers investment professionals a competitive compensation structure that is evaluated annually relative to other global asset management firms to ensure its continued competitiveness and alignment with industry best practices. The objective of the structure is to offer market competitive compensation that aligns individual and team contributions with firm and client performance objectives in a manner that is consistent with industry standards and business results.
Compensation for investment professionals at all levels is comprised of base salary and variable incentive components. As team members advance in their careers, the variable component increases in its proportion commensurate with responsibility levels. The variable component is designed to reinforce delivery of investment performance, firm performance, team collaboration, regulatory compliance, operational excellence, client retention and client satisfaction. Investment performance is measured on a pretax basis against relative client benchmarks and peer groups over one year, three-year and five-year periods, calculated quarterly, reinforcing a longer-term orientation.
Payments under the variable incentive plan are delivered in the form of cash or a combination of cash and deferred compensation. The amount of incentive delivered in the form of deferred compensation depends on the size of an individual’s incentive award as it relates to a tiered deferral scale. Deferred compensation is required to be invested into Principal Financial Group (“PFG”) restricted stock units and funds managed by the team via a co-investment program. Both payment vehicles are subject to a three-year vesting schedule. The overall measurement framework and the deferred component are well aligned with our desired focus on clients’ objectives (e.g. co-investment), alignment with Principal stakeholders, and talent retention.
89
In addition to deferred compensation obtained through their compensation programming, team members have investments acquired through their participation in the PFG’s employee stock purchase plan, retirement plans and direct personal investments. It should be noted that the Company’s retirement plans and deferred compensation plans generally utilize its non-registered group separate accounts or commingled vehicles rather than the traditional mutual funds. However, in each instance these vehicles are managed in lockstep alignment with the mutual funds (i.e. “clones”).
Ownership of Securities 
Portfolio Manager
PFI Funds Managed
by Portfolio Manager
Dollar Range of
Securities Owned by
the Portfolio Manager
Tiffany N. Lavastida
International Small Company
$500,001 - $1,000,000
K. William Nolin
Blue Chip
Over $1,000,000
Brian W. Pattinson
International Small Company
Over $1,000,000
Tom Rozycki
Blue Chip
Over $1,000,000
Jeffrey A. Schwarte
International Equity Index
None
Aaron J. Siebel
International Equity Index
None
90
Advisor: Principal Global Investors, LLC (Fixed Income Portfolio Managers) 
 
Other Accounts Managed
 
Total
Number
of Accounts
Total Assets
in the
Accounts
Number of
Accounts
that base
the Advisory
Fee on
Performance
Total Assets
of the
Accounts
that base the
Advisory
Fee on
Performance
Jeff Callahan: Bond Market Index Fund
Registered Investment Companies
4
$3.4 billion
0
$0
Other pooled investment vehicles
3
$11.7 billion
0
$0
Other accounts
0
$0
0
$0
James Noble: Opportunistic Municipal Fund
Registered Investment Companies
3
$1.5 billion
0
$0
Other pooled investment vehicles
4
$130.2 million
0
$0
Other accounts
9
$848.5 million
0
$0
Darryl Trunnel: Bond Market Index Fund
Registered investment companies
8
$3.5 billion
0
$0
Other pooled investment vehicles
10
$12.2 billion
0
$0
Other accounts
14
$892.1 million
3
$217.1 million
James Welch: Opportunistic Municipal Fund
Registered Investment Companies
3
$1.5 billion
0
$0
Other pooled investment vehicles
4
$130.2 million
0
$0
Other accounts
9
$848.5 million
0
$0
Compensation
Principal Global Investors offers investment professionals a competitive compensation structure that is evaluated annually relative to other global asset management firms to ensure its continued competitiveness and alignment with industry best practices. The objective of the structure is to offer market competitive compensation that aligns individual and team contributions with firm and client performance objectives in a manner that is consistent with industry standards and business results.
Compensation for fixed income investment professionals at all levels is comprised of base salary and variable incentive components. As team members advance in their careers, the variable component increases in its proportion commensurate with responsibility levels. The variable component is designed to reinforce delivery of investment performance, firm performance, team collaboration, regulatory compliance, operational excellence, client retention and client satisfaction. Investment performance is measured on a pre-tax basis against relative client benchmarks and peer groups over one year, three-year and five-year periods, calculated quarterly, reinforcing a longer-term orientation.
Payments under the variable incentive plan are delivered in the form of cash or a combination of cash and deferred compensation. The amount of incentive delivered in the form of deferred compensation depends on the size of an individual’s incentive award as it relates to a tiered deferral scale. Deferred compensation is required to be invested into Principal Financial Group (“PFG”) restricted stock units and funds managed by the team via a co-investment program. Both payment vehicles are subject to a three-year vesting schedule. The overall measurement framework and the deferred component are well aligned with our desired focus on clients’ objectives (e.g. co-investment), alignment with Principal stakeholders, and talent retention.
In addition to deferred compensation obtained through their compensation programming, team members have investments acquired through their participation in the PFG employee stock purchase plan, retirement plans and direct personal investments. It should be noted that the Company’s retirement plans and deferred compensation plans generally utilize its non-registered group separate accounts or commingled vehicles rather than the traditional mutual funds. However, in each instance these vehicles are managed in lockstep alignment with the mutual funds (i.e. “clones”).
91
Ownership of Securities 
Portfolio Manager
PFI Funds Managed
by Portfolio Manager
Dollar Range of
Securities Owned by
the Portfolio Manager
Jeff Callahan
Bond Market Index
$1 - $10,000
James Noble
Opportunistic Municipal
$100,001 - $500,000
Darryl Trunnel
Bond Market Index
$1 - $10,000
James Welch
Opportunistic Municipal
$100,001 - $500,000
92
Remove all references to Marcus W. Dummer and Kelly A. Grossman on or about September 30, 2022 
Advisor: Principal Global Investors, LLC (Principal® Global Asset Allocation Portfolio Managers) 
 
Other Accounts Managed
 
Total
Number
of Accounts
Total Assets
in the
Accounts
Number of
Accounts
that base the
Advisory
Fee on
Performance
Total Assets
of the
Accounts
that base the
Advisory
Fee on
Performance
Jessica S. Bush: Diversified Real Asset and Global Multi-Strategy Funds
Registered investment companies
2
$9.5 billion
0
$0
Other pooled investment vehicles
2
$3.4 billion
0
$0
Other accounts
0
$0
0
$0
Marcus W. Dummer: Diversified Real Asset and Global Multi-Strategy Funds
Registered investment companies
2
$9.5 billion
0
$0
Other pooled investment vehicles
2
$3.4 billion
0
$0
Other accounts
0
$0
0
$0
Kelly A. Grossman: Diversified Real Asset and Global Multi-Strategy Funds
Registered investment companies
1
$9.2 billion
0
$0
Other pooled investment vehicles
1
$3.4 billion
0
$0
Other accounts
0
$0
0
$0
Benjamin E. Rotenberg: Diversified Real Asset and Global Multi-Strategy Funds
Registered investment companies
2
$9.5 billion
0
$0
Other pooled investment vehicles
2
$3.4 billion
0
$0
Other accounts
0
$0
0
$0
May Tong: Diversified Real Asset and Global Multi-Strategy Funds
Registered investment companies
2
$9.5 billion
0
$0
Other pooled investment vehicles
2
$3.4 billion
0
$0
Other accounts
0
$0
0
$0
Compensation
Principal Global Investors, LLC (“PGI”) offers investment professionals a competitive compensation structure that is evaluated annually relative to other global asset management firms to ensure its continued competitiveness and alignment with industry best practices. The objective of the structure is to offer market competitive compensation that aligns individual and team contributions with firm and client performance objectives in a manner that is consistent with industry standards and business results.
Compensation for investment professionals at all levels is comprised of base salary and variable incentive components. As team members advance in their careers, the variable component increases in its proportion commensurate with responsibility levels. The variable component is designed to reinforce investment performance, firm performance, team collaboration, regulatory compliance, operational excellence, client retention and client satisfaction. Investment performance is measured on a pre-tax basis against relative client benchmarks and peer groups over one-year, three-year and five-year periods, calculated quarterly, reinforcing a longer-term orientation.
Payments under the variable incentive plan are delivered in the form of cash or a combination of cash and deferred compensation. The amount of incentive delivered in the form of deferred compensation depends on the size of an individual’s incentive award as it relates to a tiered deferral scale. Deferred compensation is required to be invested into Principal Financial Group (“PFG”) restricted stock units and funds managed by the team via a co-investment program. Both payment vehicles are subject to a three-year vesting schedule. The overall measurement framework and the deferred component are well aligned with our desired focus on clients’ objectives (e.g. co-investment), alignment with Principal stakeholders, and talent retention.
In addition to deferred compensation obtained through their compensation programming, team members have investments acquired through their participation in the PFG’s employee stock purchase plan, retirement plans, and direct personal investments. It should be noted that the Company’s retirement plans and deferred compensation plans generally utilize its non-registered group separate accounts or commingled vehicles rather than the traditional mutual funds. However, in each instance these vehicles are managed in lockstep alignment with the mutual funds (i.e. “clones”).
93
Ownership of Securities 
Portfolio Manager
PFI Funds Managed
by Portfolio Manager
Dollar Range of
Securities Owned by
the Portfolio Manager
Jessica S. Bush
Diversified Real Asset
$100,001 - $500,000
Jessica S. Bush
Global Multi-Strategy
$10,001 - $50,000
Marcus W. Dummer
Diversified Real Asset
$100,001 - $500,000
Marcus W. Dummer
Global Multi-Strategy
$100,001 - $500,000
Kelly A. Grossman
Diversified Real Asset
$10,001 - $50,000
Kelly A. Grossman
Global Multi-Strategy
$1 - $10,000
Benjamin E. Rotenberg
Diversified Real Asset
$50,001 - $100,000
Benjamin E. Rotenberg
Global Multi-Strategy
$100,001 - $500,000
May Tong
Diversified Real Asset
$100,001 - $500,000
May Tong
Global Multi-Strategy
$1 - $10,000
94
Sub-Advisor: Origin Asset Management LLP 
 
Other Accounts Managed
 
Total
Number
of Accounts
Total Assets
in the
Accounts
Number of
Accounts
that base
the Advisory
Fee on
Performance
Total Assets
of the
Accounts
that base the
Advisory
Fee on
Performance
Chris Carter: Origin Emerging Markets Fund
Registered investment companies
1
$351.0 million
0
$0
Other pooled investment vehicles
3
$166.0 million
0
$0
Other accounts
8
$2.1 billion
1
$167.0 million
Nigel Dutson: Origin Emerging Markets Fund
Registered investment companies
1
$351.0 million
0
$0
Other pooled investment vehicles
3
$166.0 million
0
$0
Other accounts
8
$2.1 billion
1
$167.0 million
Tarlock Randhawa: Origin Emerging Markets Fund
Registered investment companies
1
$351.0 million
0
$0
Other pooled investment vehicles
3
$166.0 million
0
$0
Other accounts
8
$2.1 billion
1
$167.0 million
Nerys Weir: Origin Emerging Markets Fund
Registered investment companies
1
$351.0 million
0
$0
Other pooled investment vehicles
3
$166.0 million
0
$0
Other accounts
8
$2.1 billion
1
$167.0 million
Compensation
Origin Asset Management LLP offers investment professionals a competitive compensation structure that is evaluated relative to other asset management firms to ensure its continued competitiveness and alignment with industry best practices. The objective of the structure is to align team contributions in a manner that is consistent with industry standards and business results. Compensation of Origin’s portfolio managers is formed of a competitive fixed salary and a share of a bonus pool which is a function of the annual profitability of the firm. Select members of the investment team further share in the firm’s profits based on their overall partner ownership.
Ownership of Securities 
Portfolio Manager
PFI Funds Managed
by Portfolio Manager
Dollar Range of
Securities Owned by
the Portfolio Manager
Chris Carter
Origin Emerging Markets
None
Nigel Dutson
Origin Emerging Markets
None
Tarlock Randhawa
Origin Emerging Markets
None
Nerys Weir
Origin Emerging Markets
None
Sub-Advisor: Principal Real Estate Investors, LLC 
 
Other Accounts Managed
 
Total
Number
of Accounts
Total Assets
in the
Accounts
Number of
Accounts
that base
the Advisory
Fee on
Performance
Total Assets
of the
Accounts
that base the
Advisory
Fee on
Performance
Emily Foshag(1): Global Sustainable Listed Infrastructure Fund
Registered investment companies
 
 
 
 
Other pooled investment vehicles
 
 
 
 
Other accounts
 
 
 
 
95
(1)
Information as of __________, 2022. The Global Sustainable Listed Infrastructure Fund is new as of _____, 2022.
Compensation
Principal Real Estate Investors, LLC offers investment professionals a competitive compensation structure that is evaluated annually relative to other global asset management firms to ensure its continued competitiveness and alignment with industry best practices. The objective of the structure is to offer market competitive compensation that aligns individual and team contributions with firm and client performance objectives in a manner that is consistent with industry standards and business results.
Compensation for investment professionals at all levels is comprised of base salary and variable incentive components. As team members advance in their careers, the variable component increases in its proportion commensurate with responsibility levels.
Variable compensation takes the form of a profit share plan with funding based on a percentage of pre-tax, pre-bonus operating earnings of the boutique (e.g. REIT, CMBS). The plan is designed to provide line-of-sight to investment professionals, enabling them to share in current and future business growth while reinforcing delivery of investment performance, collaboration, regulatory compliance, operational excellence, client retention and client satisfaction. The variable component is well aligned with client goals and objectives, with the largest determinant being investment performance relative to appropriate client benchmarks and peer groups. Relative performance metrics are measured over rolling one-year and three-year periods, calculated quarterly, reinforcing a longer term orientation. In addition to investment performance, other discretionary factors such as team and individual results also contribute to the quantum of incentive compensation. Discretionary compensation metrics are specifically aligned with the results of the Real Estate group. The structure is uniformly applied among all investment professionals, including portfolio managers, research analysts, traders and team leaders.
Payments under the variable incentive plan may be in the form of cash or a combination of cash and deferred compensation. The amount of variable compensation delivered in the form of deferred compensation depends on the size of an individual’s incentive award as it relates to a tiered deferral scale. Deferred compensation is required to be invested in Principal Financial Group (“PFG”) restricted stock units and funds managed by the team, via a co-investment program. Both payment vehicles are subject to a three year vesting schedule.
In addition to deferred compensation obtained through their compensation programming, all senior team members have substantial investments in funds managed by the group, including deferred compensation, retirement plans and direct personal investments. It should be noted that the Company’s retirement plans and deferred compensation plans generally utilize its non-registered group separate accounts or commingled vehicles rather than the traditional mutual funds. However, in each instance these vehicles are managed in lockstep alignment with the mutual funds (i.e. “clones”).
Ownership of Securities 
Portfolio Manager
PFI Funds Managed
by Portfolio Manager
Dollar Range of
Securities Owned by
the Portfolio Manager
Emily Foshag(1)
Global Sustainable Listed Infrastructure
 
(1)
Information as of __________, 2022. The Global Sustainable Listed Infrastructure Fund is new as of _____, 2022.
96
Sub-Advisor: Spectrum Asset Management, Inc. 
 
Other Accounts Managed
 
Total
Number
of Accounts
Total Assets
in the
Accounts
Number of
Accounts
that base
the Advisory
Fee on
Performance
Total Assets
of the
Accounts
that base the
Advisory
Fee on
Performance
Fernando (“Fred”) Diaz: Capital Securities and Spectrum Preferred and Capital Securities Income Funds
Registered investment companies
7
$4.4 billion
0
$0
Other pooled investment vehicles
8
$6.0 billion
1
$11.0 million
Other accounts
58
$10.0 billion
0
$0
Roberto Giangregorio: Capital Securities and Spectrum Preferred and Capital Securities Income Funds
Registered investment companies
7
$4.4 billion
0
$0
Other pooled investment vehicles
8
$6.0 billion
1
$11.0 million
Other accounts
58
$10.0 billion
0
$0
L. Phillip Jacoby, IV: Capital Securities and Spectrum Preferred and Capital Securities Income Funds
Registered investment companies
7
$4.4 billion
0
$0
Other pooled investment vehicles
8
$6.0 billion
1
$11.0 million
Other accounts
58
$10.0 billion
0
$0
Manu Krishnan: Capital Securities and Spectrum Preferred and Capital Securities Income Funds
Registered investment companies
7
$4.4 billion
0
$0
Other pooled investment vehicles
8
$6.0 billion
1
$11.0 million
Other accounts
58
$10.0 billion
0
$0
Mark A. Lieb: Capital Securities and Spectrum Preferred and Capital Securities Income Funds
Registered investment companies
7
$4.4 billion
0
$0
Other pooled investment vehicles
8
$6.0 billion
1
$11.0 million
Other accounts
58
$10.0 billion
0
$0
Kevin Nugent: Spectrum Preferred and Capital Securities Income Fund
Registered investment companies
7
$4.4 billion
0
$0
Other pooled investment vehicles
8
$6.0 billion
1
$11.0 million
Other accounts
58
$10.0 billion
0
$0
Satomi Yarnell: Capital Securities and Spectrum Preferred and Capital Securities Income Fund
Registered investment companies
7
$4.4 billion
0
$0
Other pooled investment vehicles
8
$6.0 billion
1
$11.0 million
Other accounts
58
$10.0 billion
0
$0
Compensation
Spectrum Asset Management offers investment professionals a competitive compensation structure that is evaluated relative to other asset management firms to ensure its continued competitiveness and alignment with industry best practices. The objective of the structure is to align individual and team contributions with client performance objectives in a manner that is consistent with industry standards and business results.
Compensation for investment professionals at all levels is comprised of base salary and variable incentive components. As team members advance in their careers, the variable component increases in its proportion commensurate with responsibility levels. The incentive component is aligned with performance and goals of the firm. Salaries are established based on a benchmark of salary levels of relevant asset management firms, taking into account each portfolio manager’s position and responsibilities, experience, contribution to client servicing, compliance with firm and/or regulatory policies and procedures, work ethic, seniority and length of service, and contribution to the overall functioning of the organization. Spectrum attempts to award all compensation in a manner that promotes sound risk management principles. Base salaries are fixed, but are subject to periodic adjustments, usually on an annual basis.
97
The variable incentive is in the form of a discretionary bonus and may represent a significant proportion of an individual’s total annual compensation. Discretionary bonuses are determined quarterly and are based on a methodology used by senior management that takes into consideration several factors, including but not necessarily limited to those listed below:
•
Changes in overall firm assets under management, including those assets in the Fund. (Portfolio managers are not directly incentivized to increase assets (“AUM”), although they are indirectly compensated as a result of an increase in AUM)
•
Portfolio performance (on a pre-tax basis) relative to benchmarks measured annually.
•
Contribution to client servicing
•
Compliance with firm and/or regulatory policies and procedures
•
Work ethic
•
Seniority and length of service
•
Contribution to overall functioning of organization
Ownership of Securities 
Portfolio Manager
PFI Funds Managed
by Portfolio Manager
Dollar Range of
Securities Owned by
the Portfolio Manager
Fernando (“Fred”) Diaz
Capital Securities
None
Fernando (“Fred”) Diaz
Spectrum Preferred and Capital Securities Income
None
Roberto Giangregorio
Capital Securities
None
Roberto Giangregorio
Spectrum Preferred and Capital Securities Income
None
L. Phillip Jacoby, IV
Capital Securities
None
L. Phillip Jacoby, IV
Spectrum Preferred and Capital Securities Income
$100,001 - $500,000
Manu Krishnan
Capital Securities
None
Manu Krishnan
Spectrum Preferred and Capital Securities Income
None
Mark A. Lieb
Capital Securities
None
Mark A. Lieb
Spectrum Preferred and Capital Securities Income
$500,001 - $1,000,000
Kevin Nugent
Spectrum Preferred and Capital Securities Income
None
Satomi Yarnell
Capital Securities
None
Satomi Yarnell
Spectrum Preferred and Capital Securities Income
None
98
APPENDIX A—DESCRIPTION OF BOND RATINGS
Moody’s Investors Service, Inc. Rating Definitions:
Long-Term Obligation Ratings
Ratings assigned on Moody’s global long-term obligation rating scales are forward-looking opinions of the relative credit risk of financial obligations issued by non-financial corporates, financial institutions, structured finance vehicles, project finance vehicles, and public sector entities. Long-term ratings are assigned to issuers or obligations with an original maturity of one year or more and reflect both on the likelihood of a default or impairment on contractual financial obligations and the expected financial loss suffered in the event of default or impairment.1
1
For certain structured finance, preferred stock and hybrid securities in which payment default events are either not defined or do not match investor’s expectations for timely payment, the ratings reflect the likelihood of impairment and the expected financial loss in the event of impairment. 
Aaa:
Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
Aa:
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
A:
Obligations rated A are considered upper-medium grade and are subject to low credit risk.
Baa:
Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may
possess certain speculative characteristics.
Ba:
Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
B:
Obligations rated B are considered speculative and are subject to high credit risk.
Caa:
Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.
Ca:
Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of
recovery of principal and interest.
C:
Obligations rated C are the lowest rated class of bonds and are typically in default, with little prospect for
recovery of principal or interest.
NOTE:
Moody’s appends numerical modifiers, 1, 2, and 3 to each generic rating classification from Aa through Caa.
The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category, the modifier 2
indicates a mid-range ranking, and the modifier 3 indicates a ranking in the lower end of that generic rating
category. Additionally, a “(hyb)” indicator is appended to all ratings of hybrid securities issued by banks, issuers,
financial companies, and securities firms.*
*
By their terms, hybrid securities allow for the omission of scheduled dividends, interest, or principal payments, which can potentially result in impairment if such an omission occurs. Hybrid securities may also be subject to contractually allowable write-downs of principal that could result in impairment. Together the hybrid indicator, the long-term obligation rating assigned to a hybrid security is an expression of the relative credit risk associated with that security.
SHORT-TERM NOTES: Short-term ratings are assigned to obligations with an original maturity of thirteen months or less and reflect both on the likelihood of a default or impairment on contractual financial obligations and the expected financial loss suffered in the event of default. Moody’s employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a superior ability to repay short-term debt obligations.
Issuers rated Prime-2 (or related supporting institutions) have a strong ability to repay short-term debt obligations.
Issuers rated Prime-3 (or related supporting institutions) have an acceptable ability to repay short-term obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
US MUNICIPAL SHORT-TERM DEBT: The Municipal Investment Grade (MIG) scale is used to rate US municipal bonds of up to five years maturity. MIG ratings are divided into three levels - MIG 1 through MIG 3 - while speculative grade short-term obligations are designated SG.
MIG 1 denotes superior credit quality, afforded excellent protection from highly reliable liquidity support, or demonstrated broad-based access to the market for refinancing.
MIG 2 denotes strong credit quality with ample margins of protection, although not as large as in the preceding group.
MIG 3 notes are of acceptable credit quality. Liquidity and cash-flow protection may be narrow and market access for refinancing is likely to be less well-established.
99
SG denotes speculative-grade credit quality and may lack sufficient margins of protection.
Description of S&P Global Ratings’ Credit Rating Definitions:
S&P Global’s credit rating, both long-term and short-term, is a forward-looking opinion of the creditworthiness of an obligor with respect to a specific obligation. This assessment takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation.
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment as to market price or suitability for a particular investor.
The ratings are statements of opinion as of the date they are expressed furnished by the issuer or obtained by S&P Global Ratings from other sources S&P Global Ratings considers reliable. S&P Global Ratings does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
•
Likelihood of payment - capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation;
•
Nature of and provisions of the financial obligation;
•
Protection afforded by, and relative position of, the financial obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditor’s rights.
LONG-TERM CREDIT RATINGS: 
AAA:
Obligations rated ‘AAA’ have the highest rating assigned by S&P Global Ratings. The obligor’s capacity to
meet its financial commitment on the obligation is extremely strong.
AA:
Obligations rated ‘AA’ differ from the highest-rated issues only in small degree. The obligor’s capacity to
meet its financial commitment on the obligation is very strong.
A:
Obligations rated ‘A’ have a strong capacity to meet financial commitment on the obligation although they
are somewhat more susceptible to the adverse effects of changes in circumstances and economic
conditions than obligations in higher-rated categories.
BBB:
Obligations rated ‘BBB’ exhibit adequate protection parameters; however, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to meet financial commitment on
the obligation.
BB, B, CCC,
CC and C:
Obligations rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded, on balance, as having significant speculative
characteristics. ‘BB’ indicates the lowest degree of speculation and ‘C’ the highest degree of speculation.
While such obligations will likely have some quality and protective characteristics, these may be
outweighed by large uncertainties or major risk exposures to adverse conditions.
BB:
Obligations rated ‘BB’ are less vulnerable to nonpayment than other speculative issues. However it faces
major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which
could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.
B:
Obligations rated ‘B’ are more vulnerable to nonpayment than ‘BB’ but the obligor currently has the
capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair this capacity.
CCC:
Obligations rated ‘CCC’ are currently vulnerable to nonpayment and is dependent upon favorable
business, financial, and economic conditions for the obligor to meet its financial commitment on the
obligation. If adverse business, financial, or economic conditions occur, the obligor is not likely to have the
capacity to meet its financial commitment on the obligation.
CC:
Obligations rated ‘CC’ are currently highly vulnerable to nonpayment. The ‘CC’ rating is used when a
default has not yet occurred but S&P Global Ratings expects default to be a virtual certainty, regardless of
anticipated time to default.
C:
The rating ‘C’ is highly vulnerable to nonpayment, the obligation is expected to have lower relative seniority
or lower ultimate recovery compared to higher rated obligations.
100
D:
Obligations rated ‘D’ are in default, or in breach of an imputed promise. For non-hybrid capital instruments,
the ‘D’ rating category is used when payments on an obligation are not made on the date due, unless S&P
Global Ratings believes that such payments will be made within five business days in the absence of a
stated grace period or within the earlier of the stated grace period or 30 calendar days. The rating will also
be used upon filing for bankruptcy petition or the taking of similar action and where default is a virtual
certainty. If an obligation is subject to a distressed exchange offer the rating is lowered to ‘D’.
Plus (+) or Minus (-): The ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. 
NR:
Indicates that no rating has been requested, that there is insufficient information on which to base a rating or
that S&P Global Ratings does not rate a particular type of obligation as a matter of policy.
SHORT-TERM CREDIT RATINGS: Ratings are graded into four categories, ranging from ‘A-1’ for the highest quality obligations to ‘D’ for the lowest. 
A-1:
This is the highest category. The obligor’s capacity to meet its financial commitment on the obligation is strong.
Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor’s
capacity to meet its financial commitment on these obligations is extremely strong.
A-2:
Issues carrying this designation are somewhat more susceptible to the adverse effects of the changes in
circumstances and economic conditions than obligations in higher rating categories. However, the obligor’s
capacity to meet its financial commitment on the obligation is satisfactory.
A-3:
Issues carrying this designation exhibit adequate capacity to meet their financial obligations. However, adverse
economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to
meet it financial commitment on the obligation.
B:
Issues rated ‘B’ are regarded as vulnerable and have significant speculative characteristics. The obligor has
capacity to meet financial commitments; however, it faces major ongoing uncertainties which could lead to
obligor’s inadequate capacity to meet its financial obligations.
C:
This rating is assigned to short-term debt obligations that are currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions to meet its financial commitment on the
obligation.
D:
This rating indicates that the issue is either in default or in breach of an imputed promise. For non-hybrid capital
instruments, the ‘D’ rating category is used when payments on an obligation are not made on the date due,
unless S&P Global Ratings believes that such payments will be made within five business days in the absence
of a stated grace period or within the earlier of the stated grace period or 30 calendar days. The rating will also
be used upon filing for bankruptcy petition or the taking of similar action and where default is a virtual certainty.
If an obligation is subject to a distressed exchange offer the rating is lowered to ‘D’.
MUNICIPAL SHORT-TERM NOTE RATINGS: S&P Global Ratings rates U.S. municipal notes with a maturity of less than three years as follows: 
SP-1:
A strong capacity to pay principal and interest. Issues that possess a very strong capacity to pay debt service is
given a “+” designation.
SP-2:
A satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic
changes over the terms of the notes.
SP-3:
A speculative capacity to pay principal and interest.
101
Appendix B—Price Make Up Sheet 
Class A
Maximum Offering Price Calculation
 
NAV
=
Maximum Offering Price
(1-Sales Charge Percentage)
 
Fund
Blue Chip
$42.59
=
$45.07
(1-.0550)
Diversified Real Asset
$13.53
=
$14.06
(1-.0375)
Edge MidCap
$18.61
=
$19.69
(1-.0550)
Global Multi-Strategy
$11.77
=
$12.23
(1-.0375)
Opportunistic Municipal
$11.71
=
$12.17
(1-.0375)
Origin Emerging Markets
$14.16
=
$14.98
(1-.0550)
Small-MidCap Dividend Income
$17.01
=
$18.00
(1-.0550)
Spectrum Preferred and Capital Securities
Income
$10.64
=
$11.05
(1-.0375)
102
Appendix C—Proxy Voting Policies
The proxy voting policies applicable to each Fund appear in the following order:
The Fund’s proxy voting policy is first, followed by PGI’s proxy voting policy, and followed by the sub-advisors, alphabetically.
103
Proxy Voting Policies and Procedures for Principal Funds, Inc.
Principal Variable Contracts Funds, Inc.
Principal Exchange-Traded Funds
Principal Diversified Select Real Asset Fund (and other Principal interval funds)
(each a “Fund” and together “the Funds”)
(March 9, 2015)
Revised June 11, 2019
It is each Fund’s policy to delegate authority to its advisor or sub-advisor, as appropriate, to vote proxy ballots relating to the Fund’s portfolio securities in accordance with the adviser’s or sub-adviser’s voting policies and procedures.
The adviser or sub-adviser must provide, on a quarterly basis:
1.
Written affirmation that all proxies voted during the preceding calendar quarter, other than those specifically identified by the adviser or sub-adviser, were voted in a manner consistent with the adviser’s or sub-adviser’s voting policies and procedures. In order to monitor the potential effect of conflicts of interest of an adviser or sub-adviser, the adviser or sub-adviser will identify any proxies the adviser or sub-adviser voted in a manner inconsistent with its policies and procedures. The adviser or sub-adviser shall list each vote, explain why the adviser or sub-adviser voted in a manner contrary to its policies and procedures, state whether the adviser or sub-adviser’s vote was consistent with the recommendation to the adviser or sub-adviser of a third-party and, if so, identify the third-party; and
2.
Written notification of any material changes to the adviser’s or sub-adviser’s proxy voting policies and procedures made during the preceding calendar quarter.
The adviser or sub-adviser must provide, no later than July 31 of each year, the following information regarding each proxy vote cast during the 12-month period ended June 30 for each Fund portfolio or portion of Fund portfolio for which it serves as investment adviser, in a format acceptable to Fund management:
•
Identification of the issuer of the security;
•
Exchange ticker symbol of the security;
•
CUSIP number of the security;
•
The date of the shareholder meeting;
•
A brief description of the subject of the vote;
•
Whether the proposal was put forward by the issuer or a shareholder;
•
Whether and how the vote was cast; and
•
Whether the vote was cast for or against management of the issuer.
104
Principal Global Investors, LLC
Principal Real Estate Investors, LLC
Proxy Voting and Class Action Monitoring
Effective December 1, 2021
Introduction
Principal Global Investors1 (“PGI”) is an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”) pursuant to the Investment Advisers Act of 1940 (the “Advisers Act”). As a registered investment adviser, PGI has a fiduciary duty to act in the best interests of its clients. PGI recognizes that this duty requires it to vote client securities, for which it has voting power on the applicable record date, in a timely manner and make voting decisions that are in the best interests of its clients. This document, Principal Global Investors’ Proxy Voting Policies and Procedures (the “Policy”) is intended to comply with the requirements of the Investment Advisers Act of 1940, the Investment Company Act of 1940 and the Employee Retirement Income Security Act of 1974 applicable to the voting of the proxies of both US and non-US issuers on behalf of PGI’s clients who have delegated such authority and discretion.
Effective January 1, 2021 Finisterre investment teams adopted the policies and procedures in the Adviser’s compliance manual except for the following proxy policies and procedures. Finisterre investment teams will continue to follow previously adopted proxy policies and procedures until amended. Please see attached Appendix to this manual for Finisterre specific proxy policies and procedures.
Relationship between Investment Strategy, ESG and Proxy Voting
PGI has a fiduciary duty to make investment decisions that are in its clients’ best interests by maximizing the value of their shares. Proxy voting is an important part of this process through which PGI can support strong corporate governance structures, shareholder rights and transparency. PGI also believes a company’s positive environmental, social and governance (“ESG”) practices may influence the value of the company, leading to long-term shareholder value. PGI may take these factors into considerations when voting proxies in its effort to seek the best outcome for its clients. PGI believes that the integration of consideration of ESG practices in PGI’s investment process helps identify sources of risk that could erode the long-term investment results it seeks on behalf of its clients. From time to time, PGI may work with various ESG-related organizations to engage issuers or advocate for greater levels of disclosure.
Roles and Responsibilities
Role of the Proxy Voting Committee
PGI’s Proxy Voting Committee (the “Proxy Voting Committee”) shall (i) oversee the voting of proxies and the Proxy Advisory Firm, (ii) where necessary, make determinations as to how to instruct the vote on certain specific proxies, (iii) verify ongoing compliance with the Policy, (iv) review the business practices of the Proxy Advisory Firm and (v) evaluate, maintain, and review the Policy on an annual basis. The Proxy Voting Committee is comprised of representatives of each investment team and a representative from PGI Risk, Legal, Operations, and Compliance will be available to advise the Proxy Voting Committee but are non-voting members. The Proxy Voting Committee may designate one or more of its members to oversee specific, ongoing compliance with respect to the Policy and may designate personnel to instruct the vote on proxies on behalf the PGI’s clients (collectively, “Authorized Persons”).
The Proxy Voting Committee shall meet at least four times per year, and as necessary to address special situations.
Role of Portfolio Management
While the Proxy Voting Committee establishes the Guidelines and Procedures, the Proxy Voting Committee does not direct votes for any client except in certain cases where a conflict of interest exists. Each investment team is responsible for determining how to vote proxies for those securities held in the portfolios their team manages. While investment teams generally vote consistently with the Guidelines, there may be instances where their vote deviates from the Guidelines. In those circumstances, the investment team will work within the Exception Process. In some instances, the same security may be held by more than one investment team. In these cases, PGI may vote differently on the same matter for different accounts as determined by each investment team.
Proxy Voting Guidelines
The Proxy Voting Committee, on an annual basis, or more frequently as needed, will direct each investment team to review draft proxy voting guidelines recommended by the Proxy Advisory Firm (“Draft Guidelines”). The Proxy Voting Committee will collect the reviews of the Draft Guidelines to determine whether any investment teams have positions on issues that deviate from the Draft Guidelines. Based on this review, PGI will adopt proxy voting guidelines. Where an investment team has a position which deviates from the Draft Guidelines, an alternative set of guidelines for that investment team may be
105
created. Collectively, these guidelines will constitute PGI’s current Proxy Voting Guidelines and may change from time to time (the “Guidelines”). The Proxy Voting Committee has the obligation to determine that, in general, voting proxies pursuant to the Guidelines is in the best interests of clients. Exhibit A to the Policy sets forth the current Guidelines.
There may be instances where proxy votes will not be in accordance with the Guidelines. Clients may instruct PGI to utilize a different set of guidelines, request specific deviations, or directly assume responsibility for the voting of proxies. In addition, PGI may deviate from the Guidelines on an exception basis if the investment team or PGI has determined that it is the best interest of clients in a particular strategy to do so, or where the Guidelines do not direct a particular response and instead list relevant factors. Any such a deviation will comply with the Exception Process which shall include a written record setting out the rationale for the deviation.
The subject of the proxy vote may not be covered in the Guidelines. In situations where the Guidelines do not provide a position, PGI will consider the relevant facts and circumstances of a particular vote and then vote in a manner PGI believes to be in the clients’ bests interests. In such circumstance, the analysis will be documented in writing and periodically presented to the Proxy Voting Committee. To the extent that the Guidelines do not cover potential voting issues, PGI may consider the spirit of the Guidelines and instruct the vote on such issues in a manner that PGI believes would be in the best interests of the client.
Use of Proxy Advisory Firms
PGI has retained one or more third-party proxy service provider(s) (the “Proxy Advisory Firm”) to provide recommendations for proxy voting guidelines, information on shareholder meeting dates and proxy materials, translate proxy materials printed in a foreign language, provide research on proxy proposals, operationally process votes in accordance with the Guidelines on behalf of the clients for whom PGI has proxy voting responsibility, and provide reports concerning the proxies voted (“Proxy Voting Services”). Although PGI has retained the Proxy Advisory Firm for Proxy Voting Services, PGI remains responsible for proxy voting decisions. PGI has designed the Policy to oversee and evaluate the Proxy Advisory Firm, including with respect to the matters described below, to support the PGI’s voting in accordance with this Policy.
Oversight of Proxy Advisory Firms
Prior to the selection of any new Proxy Advisory Firm and annually thereafter or more frequently if deemed necessary by PGI, the Proxy Voting Committee will consider whether the Proxy Advisory Firm: (a) has the capacity and competency to adequately analyze proxy issues and provide the Proxy Voting Services the Proxy Advisory Firm has been engaged to provide and (b) can make its recommendations in an impartial manner, in consideration of the best interests of PGI’s clients, and consistent with the PGI’s voting policies. Such considerations may include, depending on the Proxy Voting Services provided, the following: (i) periodic sampling of votes pre-populated by the Proxy Advisory Firm’s systems as well as votes cast by the Proxy Advisory Firm to review that the Guidelines adopted by PGI are being followed; (ii) onsite visits to the Proxy Advisory Firm office and/or discussions with the Proxy Advisory Firm to determine whether the Proxy Advisory Firm continues to have the capacity and competency to carry out its proxy obligations to PGI; (iii) a review of those aspects of the Proxy Advisory Firm’s policies, procedures, and methodologies for formulating voting recommendations that PGI consider material to Proxy Voting Services provided to PGI, including factors considered, with a particular focus on those relating to identifying, addressing and disclosing potential conflicts of interest (including potential conflicts related to the provision of Proxy Voting Services, activities other than Proxy Voting Services, and those presented by affiliation such as a controlling shareholder of the Proxy Advisory Firm) and monitoring that materially current, accurate, and complete information is used in creating recommendations and research; (iv) requiring the Proxy Advisory Firm to notify PGI if there is a substantive change in the Proxy Advisory Firm’s policies and procedures or otherwise to business practices, including with respect to conflicts, information gathering and creating voting recommendations and research, and reviewing any such change(s); (v) a review of how and when the Proxy Advisory Firm engages with, and receives and incorporates input from, issuers, the Proxy Advisory Firm’s clients and other third-party information sources; (vi) assessing how the Proxy Advisory Firm considers factors unique to a specific issuer or proposal when evaluating a matter subject to a shareholder vote; (vii) in case of an error made by the Proxy Advisory Firm, discussing the error with the Proxy Advisory Firm and determining whether appropriate corrective and preventive action is being taken; and (viii) assessing whether the Proxy Advisory Firm appropriately updates its methodologies, guidelines, and voting recommendations on an ongoing basis and incorporates input from issuers and Proxy Advisory Firm clients in the update process. In evaluating the Proxy Advisory Firm, PGI may also consider the adequacy and quality of the Proxy Advisory Firm’s staffing, personnel, and/or technology.
Procedures for Voting Proxies
To increase the efficiency of the voting process, PGI utilizes the Proxy Advisory Firm to act as its voting agent for its clients’ holdings. Issuers initially send proxy information to the clients’ custodians. PGI instructs these custodians to direct proxy related materials to the Proxy Advisory Firm. The Proxy Advisory Firm provides PGI with research related to each resolution.
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PGI analyzes relevant proxy materials on behalf of their clients and seek to instruct the vote (or refrain from voting) proxies in accordance with the Guidelines. A client may direct PGI to vote for such client’s account differently than what would occur in applying the Policy and the Guidelines. PGI may also agree to follow a client’s individualized proxy voting guidelines or otherwise agree with a client on particular voting considerations.
PGI seeks to vote (or refrain from voting) proxies for its clients in a manner that PGI determines is in the best interests of its clients, which may include both considering both the effect on the value of the client’s investments and ESG factors. In some cases, PGI may determine that it is in the best interests of clients to refrain from exercising the clients’ proxy voting rights. PGI may determine that voting is not in the best interests of a client and refrain from voting if the costs, including the opportunity costs, of voting would, in the view of PGI, exceed the expected benefits of voting to the client.
Procedures for Proxy Issues within the Guidelines
Where the Guidelines address the proxy matter being voted on, the Proxy Advisor Firm will generally process all proxy votes in accordance with the Guidelines. The applicable investment team may provide instructions to vote contrary to the Guidelines in their discretion and with sufficient rationale documented in writing to seek to maximize the value of the client’s investments or is otherwise in the client’s best interest. This rationale will be submitted to PGI Compliance to approve and once approved administered by PGI Operations. This process will follow the Exception Process. The Proxy Voting Committee will receive and review a quarterly report summarizing all proxy votes for securities for which PGI exercises voting authority. In certain cases, a client may have elected to have PGI administer a custom policy which is unique to the Client. If PGI is also responsible for the administration of such a policy, in general, except for the specific policy differences, the procedures documented here will also be applicable, excluding reporting and disclosure procedures.
Procedures for Proxy Issues Outside the Guidelines
To the extent that the Guidelines do not cover potential voting issues, the Proxy Advisory Firm will seek direction from PGI. PGI may consider the spirit of the Guidelines and instruct the vote on such issues in a manner that PGI believes would be in the best interests of the client. Although this not an exception to the Guidelines, this process will also follow the Exception Process. The Proxy Voting Committee will receive and review a quarterly report summarizing all proxy votes for securities for which PGI exercises voting discretion, which shall include instances where issues fall outside the Guidelines.
Securities Lending
Some clients may have entered into securities lending arrangements with agent lenders to generate additional revenue. If a client participates in such lending, the client will need to inform PGI as part of their contract with PGI if they require PGI to take actions in regard to voting securities that have been lent. If not commemorated in such agreement, PGI will not recall securities and as such, they will not have an obligation to direct the proxy voting of lent securities.
In the case of lending, PGI maintains one share for each company security out on loan by the client. PGI will vote the remaining share in these circumstances.
In cases where PGI does not receive a solicitation or enough information within a sufficient time (as reasonably determined by PGI) prior to the proxy-voting deadline, PGI or the Proxy Advisory Firm may be unable to vote.
Regional Variances in Proxy Voting
PGI utilizes the Policy and Guidelines for both US and non-US clients, and there are some significant differences between voting U.S. company proxies and voting non-U.S. company proxies. For U.S. companies, it is usually relatively easy to vote proxies, as the proxies are typically received automatically and may be voted by mail or electronically. In most cases, the officers of a U.S. company soliciting a proxy act as proxies for the company’s shareholders.
With respect to non-U.S. companies, we make reasonable efforts to vote most proxies and follow a similar process to those in the U.S. However, in some cases it may be both difficult and costly to vote proxies due to local regulations, customs or other requirements or restrictions, and such circumstances and expected costs may outweigh any anticipated economic benefit of voting. The major difficulties and costs may include: (i) appointing a proxy; (ii) obtaining reliable information about the time and location of a meeting; (iii) obtaining relevant information about voting procedures for foreign shareholders; (iv) restrictions on trading securities that are subject to proxy votes (share-blocking periods); (v) arranging for a proxy to vote locally in person; (vi) fees charged by custody banks for providing certain services with regard to voting proxies; and (vii) foregone income from securities lending programs. In certain instances, it may be determined by PGI that the anticipated economic benefit outweighs the expected cost of voting. PGI intends to make their determination on whether to vote proxies of non-U.S. companies on a case-by-case basis. In doing so, PGI shall evaluate market requirements and impediments, including the difficulties set forth above, for voting proxies of companies in each country. PGI periodically reviews voting logistics, including costs and other voting difficulties, on a client by client and country by country basis, in order to determine if there have been any material changes that would affect PGI’s determinations and procedures.
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Conflicts of Interest
PGI recognizes that, from time to time, potential conflicts of interest may exist. In order to avoid any perceived or actual conflict of interest, the procedures set forth below have been established for use when PGI encounters a potential conflict to ensure that PGI’s voting decisions are based on maximizing shareholder value and are not the product of a conflict.
Addressing Conflicts of Interest – Exception Process
Prior to voting contrary to the Guidelines, the relevant investment team must complete and submit a report to PGI Compliance setting out the name of the security, the issue up for vote, a summary of the Guidelines’ recommendation, the vote changes requested and the rational for voting against the Guidelines’ recommendation. The member of the investment team requesting the exception must attest to compliance with Principal’s Code of Conduct and the has an affirmative obligation to disclose any known personal or business relationship that could affect the voting of the applicable proxy. PGI Compliance will approve or deny the exception in consultation, if deemed necessary, with the Legal.
If PGI Compliance determines that there is no potential material conflict exists, the Guidelines may be overridden. If PGI Compliance determines that there exists or may exist a material conflict, it will refer the issue to the Proxy Voting Committee. The Proxy Voting Committee will consider the facts and circumstances of the pending proxy vote and the potential or actual material conflict and decide by a majority vote as to how to vote the proxy – i.e., whether to permit or deny the exception.
In considering the proxy vote and potential material conflict of interest, the Proxy Voting Committee may review the following factors:
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The percentage of outstanding securities of the issuer held on behalf of clients by PGI;
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The nature of the relationship of the issuer with the PGI, its affiliates or its executive officers;
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Whether there has been any attempt to directly or indirectly influence the investment team’s decision;
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Whether the direction of the proposed vote would appear to benefit PGI or a related party; and/or
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Whether an objective decision to vote in a certain way will still create a strong appearance of a conflict.
In the event that the Proxy Advisor Firm itself has a conflict and thus is unable to provide a recommendation, the investment team may vote in accordance with the recommendation of another independent service provider, if available. If a recommendation from an independent service provider other than the Proxy Advisor Firm is not available, the investment team will follow the Exception Process. PGI Compliance will review the form and if it determines that there is no potential material conflict mandating a voting recommendation from the Proxy Voting Committee, the investment team may instruct the Proxy Advisory Firm to vote the proxy issue as it determines is in the best interest of clients. If PGI Compliance determines that there exists or may exist a material conflict, it will refer the issue to the Proxy Voting Committee for consideration as outlined above.
Availability of Proxy Voting Information and Recordkeeping
Disclosure
On a quarterly basis, PGI publicly discloses on our website https://www.principalglobal.com/eu/about-us/responsible-investing a voting report setting forth the manner in which votes were cast, including details related to (i) votes against management, and (ii) abstentions. For more information, Clients may contact PGI for more information related to how PGI has voted with respect to securities held in the Client’s account. On request, PGI will provide clients with a summary of PGI’s proxy voting guidelines, process and policies and will inform the clients how they can obtain a copy of the complete Proxy Voting Policies and Procedures upon request. PGI will also include such information described in the preceding two sentences in Part 2A of its Form ADV.
Recordkeeping
PGI will keep records of the following items: (i) the Guidelines, (ii) the Proxy Voting Policies and Procedures; (iii) proxy statements received regarding client securities (unless such statements are available on the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system); (iv) records of votes they cast on behalf of clients, which may be maintained by a Proxy Advisory Firm if it undertakes to provide copies of those records promptly upon request; (v) records of written client requests for proxy voting information and PGI’s responses (whether a client’s request was oral or in writing); (vi) any documents prepared by PGI that were material to making a decision how to vote, or that memorialized the basis for the decision; (vii) a record of any testing conducted on any Proxy Advisory Firm’s votes; (viii) materials collected and reviewed by PGI as part of its due diligence of the Proxy Advisory Firm; (ix) a copy of each version of the Proxy Advisory Firm’s policies and procedures provided to PGI; and (x) the minutes of the Proxy Voting Committee meetings. All of the records referenced above will be kept in an easily accessible place for at least the length of time required by local regulation and custom, and, if such local regulation requires that records are kept for less than six years from the end of the fiscal year during which the last entry was made on such record, we will follow the US rule of six years. If the local regulation requires that records are kept for more than six years, we will comply with the local regulation. We maintain the vast majority of these records electronically.
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Appendix: Finisterre Proxy Voting Policy and Procedures
Statement of Policy
Proxy voting is an important right of investors and reasonable care and diligence must be undertaken to ensure that such rights are properly and timely exercised. The Firm generally retains proxy-voting authority with respect to securities purchased for its clients. Under such circumstances, the Firm votes proxies in the best interest of its clients and in accordance with these policies and procedures.
Use of Third-Party Proxy Voting Service
The Firm has entered into an agreement with Broadridge Investor Communication Solutions, Inc. (referred to as “Broadridge” and the “Proxy Voting Service”) acting with Glass Lewis & Co, to enable it to fulfill its proxy voting obligations.
Broadridge executes, monitors and records the proxies according to the instructions of the Firm. The Firm relies on the recommendations of Glass Lewis & Co, LLC to provide recommendations as to how any proxy should be voted in the best interests of the Clients. These recommendations are integrated into the voting platform set up by the Proxy Voting Service, and the Firm has instructed the Proxy Voting Service to execute all proxies in accordance with such recommendation unless instructed otherwise by the Firm.
The SEC has expressed its view that although the voting of proxies remains the duty of a registered adviser, an adviser may contract with service providers to perform certain functions with respect to proxy voting so long as the adviser is comfortable that the proxy voting service is independent from the issuer companies on which it completes its proxy research. In assessing whether a proxy voting service is independent (as defined by the SEC), the SEC counsels investment advisers that they should not follow the recommendations of an independent proxy voting service without first determining, among other things, that the proxy voting service (a) has the capacity and competence to analyze proxy issues and (b) is in fact independent and can make recommendations in an impartial manner in the best interests of the adviser's clients.
At a minimum annually, or more frequently as deemed necessary, Compliance will ensure that a review of the independence and impartiality of the Proxy Voting Service is carried out, including obtaining certification or other information from the Proxy Voting Service to enable the Firm to make such an assessment. Compliance will also monitor any new SEC interpretations regarding the voting of proxies and the uses of third-party proxy voting services and revise the Firm’s policies and procedures as necessary.
Proxies relating to securities held in client accounts will be sent directly to the Proxy Voting Service. If a proxy is received by anyone in the Firm, they must immediately inform the Compliance and work with Compliance to ensure that it is promptly forwarded to the Proxy Voting Service. In the event that the Proxy Voting Service is unable to complete/provide its research regarding a security on a timely basis or the Firm has made a determination that it is in the best interests of the Firm’s clients for the Firm to vote the proxy, the Firm’s general proxy-voting procedures are required to be followed, as follows.
Compliance will require that:
1.
the recipient of the proxy will forward a copy to Compliance, who will keep a copy of each proxy received;
2.
if the recipient is not the Portfolio Manager responsible for voting the proxy on behalf of the Firm, s/he will forward a copy to such Portfolio manager;
3.
the Portfolio Manager will determine how to vote the proxy promptly in order to allow enough time for the completed proxy to be returned to the issuer prior to the vote taking place; and provide evidence of such to Compliance;
4.
Absent material conflicts (see Section V), the Portfolio Manager will determine whether the Firm will follow the Proxy Voting Service’s recommendation or vote the proxy directly. The Portfolio Manager will send his/her decision on how the Firm should vote a proxy to the Proxy Voting Service, in a timely and appropriate manner. It is desirable to have the Proxy Voting Service complete the actual voting so there exists one central source for the documentation of the Firm’s proxy voting records.
Voting Guidelines
To the extent that the Firm is voting a proxy itself and not utilizing the Proxy Voting Service, the Firm will consider the proxy on a case by case basis and require that the relevant investment professional vote the proxy in a manner consistent with the Firm’s duty. Investment professionals of the Firm each have the duty to vote proxies in a way that, in their best judgment, is in the best interest of the Firm’s clients.
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Disclosure
A.
The Firm will disclose in its Form ADV Part 2 that clients may contact the Chief Compliance Officer via e-mail or telephone in order to obtain information on how the Firm voted such client’s proxies, and to request a copy of these policies and procedures. If a client requests this information, the Chief Compliance Officer will prepare a written response to the client that lists, with respect to each voted proxy that the client has inquired about, (1) the name of the issuer; (2) the proposal voted upon and (3) how the Firm voted the client’s proxy.
B.
A concise summary of these Proxy Voting Policies and Procedures will be included in the Firm’s Form ADV Part 2 and will be updated whenever these policies and procedures are updated. Compliance will arrange for a copy of this summary to be sent to all existing clients.
Potential Conflicts of Interest
In the event that the Firm is directly voting a proxy, Compliance will examine conflicts that exist between the interests of the Firm and its clients. This examination will include a review of the relationship of the Firm, its personnel and its affiliates with the issuer of each security and any of the issuer’s affiliates to determine if the issuer is a client of the Firm or an affiliate of the Firm or has some other relationship with the Firm, its personnel or a client of the Firm.
If, as a result of Compliance’s examination, a determination is made that a material conflict of interest exists, the Firm will determine whether voting in accordance with the voting guidelines and factors described above is in the best interests of the client. If the proxy involves a matter covered by the voting guidelines and factors described above, the Firm will generally vote the proxy as specified above. Alternatively, the Firm may vote the proxy in accordance with the recommendation of the Proxy Voting Service.
The Firm may disclose the conflict to the affected clients and, except in the case of clients that are subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), give the clients the opportunity to vote their proxies themselves In the case of ERISA clients, if the Investment Management Agreement reserves to the ERISA client the authority to vote proxies when the Firm determines it has a material conflict that affects its best judgment as an ERISA fiduciary, the Firm will give the ERISA client the opportunity to vote the proxies themselves.
Absent the client reserving voting rights, the Firm will either vote the proxies in accordance with the policies outlined in Section III “Voting Guidelines” above or vote the proxies in accordance with the recommendation of the Proxy Voting Service.
Proxy Recordkeeping
Compliance will maintain files relating to the Firm’s proxy voting procedures in an easily accessible place. (Under the services contract between the Firm and its Proxy Voting Service, the Proxy Voting Service will maintain the Firm’s proxy-voting records). Records will be maintained and preserved for five years from the end of the fiscal year during which the last entry was made on a record, with records for the most recent two years kept in the offices of the Firm. Records of the following will be included in the files:
1.
Copies of these proxy voting policies and procedures, and any amendments thereto;
2.
A copy of each proxy statement that the Firm receives regarding client securities (the Firm may rely on third parties or EDGAR);
3.
A record of each vote that the Firm casts;
4.
A copy of any document the Firm created that was material to making a decision how to vote proxies, or that memorializes that decision. (For votes that are inconsistent with the Firm’s general proxy voting polices, the reason/rationale for such an inconsistent vote is required to be briefly documented and maintained); and
5.
A copy of each written client request for information on how the Firm voted such client’s proxies, and a copy of any written response to any (written or oral) client request for information on how the Firm voted its proxies.
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These policies and procedures apply to Principal Global Investors, LLC, Principal Real Estate Investors, LLC, Principal Global Investors (Hong Kong) Limited and any affiliates which have entered into participating affiliate agreements with the aforementioned managers.
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BlackRock Investment Stewardship
Global Principles
Effective as of January 2021
Introduction to BlackRock
BlackRock’s purpose is to help more and more people experience financial well-being. We manage assets on behalf of institutional and individual clients, across a full spectrum of investment strategies, asset classes, and regions. Our client base includes pension plans, endowments, foundations, charities, official institutions, insurers, and other financial institutions, as well as individuals around the world. As part of our fiduciary duty to our clients, we have determined that it is generally in the best long-term interest of our clients to promote sound corporate governance through voting as an informed, engaged shareholder. This is the responsibility of the Investment Stewardship Team.
Philosophy on investment stewardship
Companies are responsible for ensuring they have appropriate governance structures to serve the interests of shareholders and other key stakeholders. We believe that there are certain fundamental rights attached to shareholding. Companies and their boards should be accountable to shareholders and structured with appropriate checks and balances to ensure that they operate in shareholders’ best interests to create sustainable value. Shareholders should have the right to vote to elect, remove, and nominate directors, approve the appointment of the auditor, and amend the corporate charter or by-laws. Shareholders should be able to vote on matters that are material to the protection of their investment, including but not limited to, changes to the purpose of the business, dilution levels and pre-emptive rights, and the distribution of income and capital structure. In order to make informed decisions, we believe that shareholders have the right to sufficient and timely information. In addition, shareholder voting rights should be proportionate to their economic ownership—
the principle of “one share, one vote” helps achieve this balance.
Consistent with these shareholder rights, we believe BlackRock has a responsibility to monitor and provide feedback to companies, in our role as stewards of our clients’ investments. BlackRock Investment Stewardship (“BIS”) does this through engagement with management teams and/or board members on material business issues including environmental, social, and governance (“ESG”) matters and, for those clients who have given us authority, through voting proxies in the best long- term economic interests of our clients. We also participate in the public debate to shape global norms and industry standards with the goal of a policy framework consistent with our clients’ interests as long-term shareholders.
BlackRock looks to companies to provide timely, accurate, and comprehensive reporting on all material governance and business matters, including ESG issues. This allows shareholders to appropriately understand and assess how relevant risks and opportunities are being effectively identified and managed. Where company reporting and disclosure is inadequate or the approach taken is inconsistent with our view of what supports sustainable long-term value creation, we will engage with a company and/or use our vote to encourage a change in practice.
BlackRock views engagement as an important activity; engagement provides us with the opportunity to improve our understanding of the business and ESG risks and opportunities that are material to the companies in which our clients invest. As long-term investors on behalf of clients, we seek to have regular and continuing dialogue with executives and board directors to advance sound governance and sustainable business practices, as well as to understand the effectiveness of the company’s management and oversight of material issues. Engagement is an important mechanism for providing feedback on company practices and disclosures, particularly where we believe they could be enhanced. We primarily engage through direct dialogue but may use other tools such as written correspondence to share our perspectives. Engagement also informs our voting decisions.
We vote in support of management and boards where and to the extent they demonstrate an approach consistent with creating sustainable long-term value. If we have concerns about a company’s approach, we may choose to engage to explain our expectations. Where we consider that a company has failed to address one or more material issues within an appropriate timeframe, we may hold directors accountable or take other voting actions to signal our concerns. We apply our voting guidelines to achieve the outcome we believe is most aligned with our clients’ long-term economic interests.
Key themes
We recognize that accepted standards and norms of corporate governance differ between markets; however, there are sufficient common threads globally to identify this overarching set of principles (the “Principles”) which are anchored in transparency and accountability. At a minimum, we expect companies to observe the accepted corporate governance standards in their domestic market or to explain why not doing so supports sustainable long-term value creation.
Our regional and market-specific voting guidelines explain how these Principles inform our voting decisions in relation to specific ballot items for shareholder meetings.
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These Principles cover seven key themes:
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Boards and directors
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Auditors and audit-related issues
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Capital structure, mergers, asset sales, and other special transactions
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Compensation and benefits
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Environmental and social issues
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General corporate governance matters and shareholder protections
•
Shareholder proposals
Boards and directors
The performance of the board is critical to the economic success of the company and the protection of shareholders’ interests. As part of their responsibilities, board members owe fiduciary duties to shareholders in overseeing the strategic direction and operation of the company. For this reason, BlackRock focuses on directors in many of our engagements and sees the election of directors as one of our most important responsibilities in the proxy voting context.
We support boards whose approach is consistent with creating sustainable long-term value. This includes the effective management of strategic, operational, and material ESG factors and the consideration of key stakeholder interests. Our primary focus is on the performance of the board of directors. The board should establish and maintain a framework of robust and effective governance mechanisms to support its oversight of the company’s strategic aims. We look to the board to articulate the effectiveness of these mechanisms in overseeing the management of business risks and opportunities and the fulfillment of the company’s purpose. Disclosure of material issues that affect the company’s long- term strategy and value creation, including material ESG factors, is essential for shareholders to be able to appropriately understand and assess how the board is effectively identifying, managing, and mitigating risks.
Where a company has not adequately disclosed and demonstrated these responsibilities, we will consider withholding our support for the re-election of directors whom we hold accountable. We assess director performance on a case-by-case basis and in light of each company’s particular circumstances, taking into consideration our assessment of their governance, sustainable business practices, and performance. In serving the interests of shareholders, the responsibility of the board of directors includes, but is not limited to, the following:
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Establishing an appropriate corporate governance structure
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Supporting and overseeing management in setting long-term strategic goals, applicable measures of value-creation and milestones that will demonstrate progress, and steps taken if any obstacles are anticipated or incurred
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Providing oversight on the identification and management of material, business operational and sustainability-related risks
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Overseeing the financial resilience of the company, the integrity of financial statements, and the robustness of a company’s Enterprise Risk Management1 frameworks
•
Making decisions on matters that require independent evaluation which may include mergers, acquisitions and disposals, activist situations or other similar cases
•
Establishing appropriate executive compensation structures
•
Addressing business issues, including environmental and social issues, when they have the potential to materially impact the company’s long-term value
There should be clear definitions of the role of the board, the committees of the board and senior management. We set out below ways in which boards and directors can demonstrate a commitment to acting in the best interests of long-term shareholders. We will seek to engage with the appropriate directors where we have concerns about the performance of the company, board, or individual directors. As noted above, we believe that when a company is not effectively addressing a material issue, its directors should be held accountable.
1 Enterprise risk management is a process, effected by the entity’s board of directors, management, and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within the risk appetite, to provide reasonable assurance regarding the achievement of objectives. (Committee of Sponsoring Organizations of the Treadway Commission (COSO), Enterprise Risk Management —
Integrated Framework, September 2004, New York, NY).
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Regular accountability
BlackRock believes that directors should stand for re-election on a regular basis, ideally annually. In our experience, annual re-elections allow shareholders to reaffirm their support for board members or hold them accountable for their decisions in a timely manner. When board members are not re-elected annually, we believe it is good practice for boards to have a rotation policy to ensure that, through a board cycle, all directors have had their appointment re-confirmed, with a proportion of directors being put forward for re-election at each annual general meeting.
Effective board composition
Regular director elections also give boards the opportunity to adjust their composition in an orderly way to reflect the evolution of the company’s strategy and the market environment. BlackRock believes it is beneficial for new directors to be brought onto the board periodically to refresh the group’s thinking and in a manner that supports both continuity and appropriate succession planning. We expect companies to keep under regular review the effectiveness of its board (including its size), and assess directors nominated for election or re-election in the context of the composition of the board as a whole. This assessment should consider a number of factors, including the potential need to address gaps in skills or experience, the diversity of the board, and the balance of independent and non-independent directors. We also consider the average tenure of the overall board, where we are seeking a balance between the knowledge and experience of longer-serving members and the fresh perspectives of newer members.
When nominating new directors to the board, there should be detailed information on the individual candidates in order for shareholders to assess the suitability of an individual nominee and the overall board composition. These disclosures should give a clear sense of how the collective experience and expertise of the board aligns with the company’s long-term strategy and business model. We also expect disclosures to demonstrate how diversity is accounted for within the proposed board composition, including demographic factors such as gender, ethnicity, and age; as well as professional characteristics, such as a director’s industry experience, specialist areas of expertise, and geographic location.
We expect there to be a sufficient number of independent directors, free from conflicts of interest or undue influence from connected parties, to ensure objectivity in the decision-making of the board and its ability to oversee management.
Common impediments to independence may include but are not limited to:
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Current or recent employment at the company or a subsidiary
•
Being, or representing, a shareholder with a substantial shareholding in the company
•
Interlocking directorships
•
Having any other interest, business, or other relationship which could, or could reasonably be perceived to, materially interfere with a director’s ability to act in the best interests of the company
BlackRock believes that the board is able to fulfill its fiduciary duty when there is a clearly independent, senior non- executive director to chair it or, where the chairman is also the CEO (or is otherwise not independent), a lead independent director. The role of this director is to enhance the effectiveness of the independent members of the board through shaping the agenda, ensuring adequate information is provided to the board and encouraging independent participation in board deliberations. The lead independent director or another appropriate director should be available to shareholders in those situations where an independent director is best placed to explain and justify a company’s approach.
There are matters for which the board has responsibility that may involve a conflict of interest for executives or for affiliated directors. BlackRock believes that objective oversight of such matters is best achieved when the board forms committees comprised entirely of independent directors. In many markets, these committees of the board specialize in audit, director nominations and compensation matters. An ad hoc committee might also be formed to decide on a special transaction, particularly one involving a related party, or to investigate a significant adverse event.
Sufficient capacity
As the role of a director is demanding, directors must be able to commit an appropriate amount of time to board and committee matters. It is important that every director has the capacity to meet all of his/her responsibilities – including when there are unforeseen events – and therefore, he/she should not take on an excessive number of roles that would impair his/her ability to fulfill his/her duties.
Auditors and audit-related issues
BlackRock recognizes the critical importance of financial statements, which should provide a true and fair picture of a company’s financial condition. Accordingly, the assumptions made by management and reviewed by the auditor in preparing the financial statements should be reasonable and justified.
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The accuracy of financial statements, inclusive of financial and non-financial information, is clearly of paramount importance to BlackRock. Investors’ views on financial materiality are developing to encompass a broader range of risks. Over time, we expect increased scrutiny of the assumptions underlying financial reports.
In this context, audit committees, or equivalent, play a vital role in a company’s financial reporting system by providing independent oversight of the accounts, material financial and non-financial information, internal control frameworks, and Enterprise Risk Management systems. BlackRock believes that effective audit and risk committee oversight strengthens the quality and reliability of a company’s financial statements and provides an important level of reassurance to shareholders.
We hold the members of the audit committee or equivalent responsible for overseeing the management of the audit function. Audit committees or equivalent should have clearly articulated charters that set out the committee’s responsibilities and have a rotation plan in place that allows for a periodic refreshment of the committee memberships.
We take particular note of critical accounting matters, cases involving significant financial restatements or ad hoc notifications of material financial weakness. In this respect, audit committees should provide timely disclosure on the remediation of Key and Critical Audit Matters identified either by the external auditor or Internal Audit function.
The integrity of financial statements depends on the auditor being free of any impediments to being an effective check on management. To that end, we believe it is important that auditors are, and are seen to be, independent. Where the audit firm provides services to the company in addition to the audit, the fees earned should be disclosed and explained. Audit committees should have in place a procedure for assessing annually the independence of the auditor and the quality of the external audit process.
Comprehensive disclosure provides investors with a sense of the company’s long-term operational risk management practices and, more broadly, the quality of the board’s oversight. The audit committee or equivalent should periodically review the company’s risk assessment and risk management policies and significant risks and exposures identified by management, the internal auditors or the independent accountants, and management’s steps to address them. In the absence of robust disclosures, we may reasonably conclude that companies are not adequately managing risk.
Capital structure, mergers, asset sales, and other special transactions
The capital structure of a company is critical to shareholders as it impacts the value of their investment and the priority of their interest in the company relative to that of other equity or debt investors. Pre-emptive rights are a key protection for shareholders against the dilution of their interests.
Effective voting rights are basic rights of share ownership and we believe strongly in one vote for one share as a guiding principle that supports effective corporate governance. Shareholders, as the residual claimants, have the strongest interest in protecting company value, and voting power should match economic exposure.
In principle, we disagree with the creation of a share class with equivalent economic exposure and preferential, differentiated voting rights as it violates the fundamental corporate governance principle of proportionality, and results in a concentration of power in the hands of a few shareholders, thus disenfranchising other shareholders and amplifying any potential conflicts of interest. However, we recognize that in certain markets, at least for a period of time, companies may have a valid argument for dual-class listings. We believe that such companies should review these share class structures on a regular basis or as company circumstances change. Additionally, they should receive shareholder approval of their capital structure on a periodic basis via a management proposal at the company’s shareholder meeting. The proposal should give unaffiliated shareholders the opportunity to affirm the current structure or establish mechanisms to end or phase out controlling structures at the appropriate time, while minimizing costs to shareholders.
In assessing mergers, asset sales, or other special transactions, BlackRock’s primary consideration is the long-term economic interests of our clients as shareholders. Boards proposing a transaction need to clearly explain the economic and strategic rationale behind it. We will review a proposed transaction to determine the degree to which it enhances long- term shareholder value. We would prefer that proposed transactions have the unanimous support of the board and have been negotiated at arm’s length. We may seek reassurance from the board that executives’ and/or board members’ financial interests in a given transaction have not adversely affected their ability to place shareholders’ interests before their own. Where the transaction involves related parties, we would expect the recommendation to support it to come from the independent directors, and ideally, the terms have been assessed through an independent appraisal process. In addition, it is good practice that it be approved by a separate vote of the non-conflicted shareholders.
BlackRock believes that shareholders have a right to dispose of company shares in the open market without unnecessary restriction. In our view, corporate mechanisms designed to limit shareholders’ ability to sell their shares are contrary to basic property rights. Such mechanisms can serve to protect and entrench interests other than those of the shareholders.
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We believe that shareholders are broadly capable of making decisions in their own best interests. We expect any so-called ‘shareholder rights plans’ proposed by a board to be subject to shareholder approval upon introduction and periodically thereafter for continuation.
Compensation and benefits
BlackRock expects a company’s board of directors to put in place a compensation structure that incentivizes and rewards executives appropriately and is linked with performance that aligns with shareholder interests, particularly the generation of sustainable long-term value. We would expect the compensation committee to carefully consider the specific circumstances of the company and the key individuals the board is trying to incentivize. We encourage companies to ensure that their compensation plans incorporate appropriate and rigorous performance metrics consistent with corporate strategy and market practice. We use third party research, in addition to our own analysis, to evaluate existing and proposed compensation structures. We hold members of the compensation committee or equivalent board members accountable for poor compensation practices or structures.
BlackRock believes that there should be a clear link between variable pay and company performance that drives value creation. We are not supportive of one-off or special bonuses unrelated to company or individual performance. Where discretion has been used by the compensation committee, we expect disclosure relating to how and why the discretion was used, and further, how the adjusted outcome is aligned with the interests of shareholders. We acknowledge that the use of peer group evaluation by compensation committees can help ensure competitive pay; however, we are concerned when the rationale for increases in total compensation at a company is solely based on peer benchmarking rather than a rigorous measure of outperformance.
We support incentive plans that foster the sustainable achievement of results consistent with the company’s long-term strategic initiatives. The vesting timeframes associated with incentive plans should facilitate a focus on long-term value creation. We believe consideration should be given to building claw back provisions into incentive plans such that executives would be required to forgo rewards when they are not justified by actual performance and/or when compensation was based on faulty financial reporting or deceptive business practices. We also favor recoupment from any senior executive whose behavior caused material financial harm to shareholders, material reputational risk to the company, or resulted in a criminal investigation, even if such actions did not ultimately result in a material restatement of past results. Compensation committees should guard against contractual arrangements that would entitle executives to material compensation for early termination of their contract. Finally, pension contributions and other deferred compensation arrangements should be reasonable in light of market practice.
Non-executive directors should be compensated in a manner that is commensurate with the time and effort expended in fulfilling their professional responsibilities. Additionally, these compensation arrangements should not risk compromising their independence or aligning their interests too closely with those of the management, whom they are charged with overseeing.
Environmental and social issues
We believe that well-managed companies will deal effectively with material ESG factors relevant to their businesses. As stated throughout this document, governance is the core structure by which boards can oversee the creation of sustainable long-term value —appropriate risk oversight of environmental and social (“E&S”) considerations stems from this construct.
Robust disclosure is essential for investors to effectively gauge companies’ business practices and strategic planning related to E&S risks and opportunities. When a company’s reporting is inadequate, investors, including BlackRock, will increasingly conclude that companies are not adequately managing risk. Given the increased understanding of material sustainability risks and opportunities, and the need for better information to assess them, BlackRock will advocate for continued improvement in companies’ reporting and will hold management and/or directors accountable where disclosures or the business practices underlying them are inadequate.
BlackRock views the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the standards put forward by the Sustainability Accounting Standards Board (SASB) as appropriate and complementary frameworks for companies to adopt for the disclosure of financially material sustainability information. While the TCFD framework was crafted with the aim of climate-related risk disclosure, the four pillars of the TCFD Governance, Strategy, Risk Management, and Metrics and Targets are a useful way for companies to disclose how they identify, assess, manage, and oversee a variety of sustainability-related risks and opportunities. SASB’s industry-specific guidance (as identified in its materiality map) is beneficial in helping companies identify key performance indicators (KPIs) across various dimensions of sustainability that are considered to be financially material and decision-useful within their industry,
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Accordingly, we ask companies to:
•
Disclose the identification, assessment, management, and oversight of sustainability-related risks in accordance with the four pillars of TCFD; and
•
Publish SASB-aligned reporting with industry-specific, material metrics and rigorous targets2.
Companies may also adopt or refer to guidance on sustainable and responsible business conduct issued by supranational organizations such as the United Nations or the Organization for Economic Cooperation and Development. Further, industry specific initiatives on managing specific operational risks may be useful. Companies should disclose any global standards adopted, the industry initiatives in which they participate, any peer group benchmarking undertaken, and any assurance processes to help investors understand their approach to sustainable and responsible business practices.
Climate risk
BlackRock believes that climate change has become a defining factor in companies’ long-term prospects. We expect every company to help their investors understand how the company may be impacted by climate-related risk and opportunities, and how they are considered within strategy. Specifically, we expect companies to articulate how they are aligned to a scenario in which global warming is limited to well below 2°C and is consistent with a global aspiration to reach net zero GHG emissions by 20503.
The public and private sectors have roles to play in aligning greenhouse gas reduction efforts with targets based on science, where available, to curb the worst effects of climate change and reach the global goal of carbon neutrality by the mid-century. Companies have an opportunity to utilize and contribute to the development of current and future low-carbon transition technologies, which are an important consideration for the rate at which emissions can be reduced. We expect companies to disclose how they are considering these challenges, alongside opportunities for innovation, within their strategy and emissions reduction efforts.
2 See our commentary on our approach to engagement on TCFD and SASB aligned reporting for greater detail of our expectations.
3 The global aspiration is reflective of aggregated efforts; companies in developed and emerging markets are not equally equipped to transition their business and reduce emissions at the same rate—those in developed markets with the largest market capitalization are better positioned to adapt their business models at an accelerated pace. Government policy and regional targets may be reflective of these realities
Key stakeholder interests
Given our expectation that companies operate in long-term shareholders’ interests to create sustainable value and fulfill their purpose, BlackRock believes that companies should take due account of their key stakeholders' interests. It is for each company to determine its key stakeholders based on what is material to its business, but they are likely to include employees, business partners (such as suppliers and distributors), clients and consumers, government and regulators, and the communities in which they operate, as well as investors.
Having regard to the interests of key stakeholders recognizes the collective nature of long-term value creation, and the extent to which each company’s prospects for growth are tied to its ability to foster strong sustainable relationships with those stakeholders. Companies should articulate how they address adverse impacts that could arise from their business practices and affect critical business relationships with their stakeholders. We expect companies to implement, to the extent appropriate, monitoring processes (often referred to as due diligence) to identify and mitigate potential adverse impacts, and grievance mechanisms to remediate any actual adverse impacts. The maintenance of trust within these relationships is often equated with a company’s social license to operate.
To ensure transparency and accountability, companies should report on how they have identified their key stakeholders and considered their interests in business decision-making, demonstrating the applicable governance, strategy, risk management, and metrics and targets. This approach should be overseen by the board, whose job it is to ensure that the approach taken is informed by and aligns with the company’s purpose.
General corporate governance matters and shareholder protections
BlackRock believes that shareholders have a right to material and timely information on the financial performance and viability of the companies in which they invest. In addition, companies should also publish information on the governance structures in place and the rights of shareholders to influence these structures. The reporting and disclosure provided by companies help shareholders assess whether their economic interests have been protected and the quality of the board’s oversight of management. We believe shareholders should have the right to vote on key corporate governance matters, including changes to governance mechanisms, to submit proposals to the shareholders’ meeting, and to call special meetings of shareholders.
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Shareholder proposals
In most markets in which BlackRock invests on behalf of clients, shareholders have the right to submit proposals to be voted on by shareholders at a company’s annual or extraordinary meeting, as long as eligibility and procedural requirements are met. The matters that we see put forward by shareholders address a wide range of topics, including governance reforms, capital management, and improvements in the management or disclosure of environmental and social risks.
When assessing shareholder proposals, we evaluate each proposal on its merit, with a singular focus on its implications for long-term value creation. We consider the business and economic relevance of the issue raised, as well as its materiality and the urgency with which we believe it should be addressed. We take into consideration the legal effect of the proposal, as shareholder proposals may be advisory or legally binding depending on the jurisdiction. We would not support proposals that we believe would result in over-reaching into the basic business decisions of the issuer.
Where a proposal is focused on an issue that we agree needs to be addressed and the intended outcome is consistent with long-term value creation, we will look to the board and management to demonstrate that the company has met the intent of the request made in the shareholder proposal. Where our analysis and / or engagement indicate a need for improvement in the company’s approach to the issue, we will support shareholder proposals that are reasonable and not unduly constraining on management. Alternatively, or in addition, we may vote against the re-election of one of more directors if, in our assessment, the board has not responded sufficiently or with an appropriate sense of urgency.
BlackRock’s oversight of its investment stewardship activities
Oversight
We hold ourselves to a very high standard in our investment stewardship activities, including proxy voting. To meet this standard, BIS is comprised of BlackRock employees who do not have other responsibilities other than their roles in BIS. BIS is considered an investment function.
BlackRock maintains three regional advisory committees (“Stewardship Advisory Committees”) for (a) the Americas; (b) Europe, the Middle East and Africa (“EMEA”); and (c) Asia-Pacific, generally consisting of senior BlackRock investment professionals and/or senior employees with practical boardroom experience. The regional Stewardship Advisory Committees review and advise on amendments to BIS proxy voting guidelines covering markets within each respective region (“Guidelines”).
In addition to the regional Stewardship Advisory Committees, the Investment Stewardship Global Oversight Committee (“Global Committee”) is a risk-focused committee, comprised of senior representatives from various BlackRock investment teams, a senior legal representative, the Global Head of Investment Stewardship (“Global Head”), and other senior executives with relevant experience and team oversight.
The Global Head has primary oversight of the activities of BIS, including voting in accordance with the Guidelines, which require the application of professional judgment and consideration of each company’s unique circumstances. The Global Committee reviews and approves amendments to these Principles. The Global Committee also reviews and approves amendments to the regional Guidelines, as proposed by the regional Stewardship Advisory Committees.
In addition, the Global Committee receives and reviews periodic reports regarding the votes cast by BIS, as well as updates on material process issues, procedural changes, and other risk oversight considerations. The Global Committee reviews these reports in an oversight capacity as informed by the BIS corporate governance engagement program and the Guidelines.
BIS carries out engagement with companies, monitors and executes proxy votes, and conducts vote operations (including maintaining records of votes cast) in a manner consistent with the relevant Guidelines. BIS also conducts research on corporate governance issues and participates in industry discussions to contribute to and keep abreast of important developments in the corporate governance field. BIS may utilize third parties for certain of the foregoing activities and performs oversight of those third parties. BIS may raise complicated or particularly controversial matters for internal discussion with the relevant investment teams and/or refer such matters to the appropriate regional Stewardship Advisory Committees for review, discussion and guidance prior to making a voting decision.
Vote execution
We carefully consider proxies submitted to funds and other fiduciary account(s) (“Fund” or “Funds”) for which we have voting authority. BlackRock votes (or refrains from voting) proxies for each Fund for which we have voting authority based on our evaluation of the best long-term economic interests of our clients as shareholders, in the exercise of our independent business judgment, and without regard to the relationship of the issuer of the proxy (or any shareholder proponent or dissident shareholder) to the Fund, the Fund’s affiliates (if any), BlackRock or BlackRock’s affiliates, or BlackRock employees (see “Conflicts management policies and procedures”, below).
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When exercising voting rights, BlackRock will normally vote on specific proxy issues in accordance with the Guidelines for the relevant market. The Guidelines are reviewed regularly and are amended consistent with changes in the local market practice, as developments in corporate governance occur, or as otherwise deemed advisable by the applicable Stewardship Advisory Committees. BIS analysts may, in the exercise of their professional judgment, conclude that the Guidelines do not cover the specific matter upon which a proxy vote is required or that an exception to the Guidelines would be in the best long-term economic interests of BlackRock’s clients.
In the uncommon circumstance of there being a vote with respect to fixed income securities or the securities of privately held issuers, the decision generally will be made by a Fund's portfolio managers and/or BIS based on their assessment of the particular transactions or other matters at issue.
In certain markets, proxy voting involves logistical issues which can affect BlackRock’s ability to vote such proxies, as well as the desirability of voting such proxies. These issues include, but are not limited to: (i) untimely notice of shareholder meetings; (ii) restrictions on a foreigner’s ability to exercise votes; (iii) requirements to vote proxies in person; (iv) “share- blocking” (requirements that investors who exercise their voting rights surrender the right to dispose of their holdings for some specified period in proximity to the shareholder meeting); (v) potential difficulties in translating the proxy; (vi) regulatory constraints; and (vii) requirements to provide local agents with unrestricted powers of attorney to facilitate voting instructions. We are not supportive of impediments to the exercise of voting rights such as share-blocking or overly burdensome administrative requirements.
As a consequence, BlackRock votes proxies on a “best-efforts” basis. In addition, BIS may determine that it is generally in the best interests of BlackRock’s clients not to vote proxies if the costs (including but not limited to opportunity costs associated with share-blocking constraints) associated with exercising a vote are expected to outweigh the benefit the client would derive by voting on the proposal.
Portfolio managers have full discretion to vote the shares in the Funds they manage based on their analysis of the economic impact of a particular ballot item. Portfolio managers may from time to time reach differing views on how best to maximize economic value with respect to a particular investment. Therefore, portfolio managers may, and sometimes do, vote shares in the Funds under their management differently from one another. However, because BlackRock’s clients are mostly long-term investors with long-term economic goals, ballots are frequently cast in a uniform manner.
Conflicts management policies and procedures
BIS maintains policies and procedures that seek to prevent undue influence on BlackRock’s proxy voting activity. Such influence might stem from any relationship between the investee company (or any shareholder proponent or dissident shareholder) and BlackRock, BlackRock’s affiliates, a Fund or a Fund’s affiliates, or BlackRock employees. The following are examples of sources of perceived or potential conflicts of interest:
•
BlackRock clients who may be issuers of securities or proponents of shareholder resolutions
•
BlackRock business partners or third parties who may be issuers of securities or proponents of shareholder resolutions
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BlackRock employees who may sit on the boards of public companies held in Funds managed by BlackRock
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Significant BlackRock, Inc. investors who may be issuers of securities held in Funds managed by BlackRock
•
Securities of BlackRock, Inc. or BlackRock investment funds held in Funds managed by BlackRock
•
BlackRock, Inc. board members who serve as senior executives of public companies held in Funds managed by BlackRock
BlackRock has taken certain steps to mitigate perceived or potential conflicts including, but not limited to, the following:
•
Adopted the Guidelines which are designed to advance our clients’ interests in the companies in which BlackRock invests on behalf of clients.
•
Established a reporting structure that separates BIS from employees with sales, vendor management, or business partnership roles. In addition, BlackRock seeks to ensure that all engagements with corporate issuers, dissident shareholders or shareholder proponents are managed consistently and without regard to BlackRock’s relationship with such parties. Clients or business partners are not given special treatment or differentiated access to BIS. BIS prioritizes engagements based on factors including, but not limited to, our need for additional information to make a voting decision or our view on the likelihood that an engagement could lead to positive outcome(s) over time for the economic value of the company. Within the normal course of business, BIS may engage directly with BlackRock clients, business partners and/or third parties, and/or with employees with sales, vendor management, or business partnership roles, in discussions regarding our approach to stewardship, general corporate governance matters, client reporting needs, and/or to otherwise ensure that proxy-related client service levels are met.
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•
Determined to engage, in certain instances, an independent fiduciary to vote proxies as a further safeguard to avoid potential conflicts of interest, to satisfy regulatory compliance requirements, or as may be otherwise required by applicable law. In such circumstances, the independent fiduciary provides BlackRock’s proxy voting agent with instructions, in accordance with the Guidelines, as to how to vote such proxies, and BlackRock’s proxy voting agent votes the proxy in accordance with the independent fiduciary’s determination. BlackRock uses an independent fiduciary to vote proxies of BlackRock, Inc. and companies affiliated with BlackRock, Inc. BlackRock may also use an independent fiduciary to vote proxies of:
i.
public companies that include BlackRock employees on their boards of directors,
ii.
public companies of which a BlackRock, Inc. board member serves as a senior executive,
iii.
public companies that are the subject of certain transactions involving BlackRock Funds,
iv.
public companies that are joint venture partners with BlackRock, and
v.
public companies when legal or regulatory requirements compel BlackRock to use an independent fiduciary.
In selecting an independent fiduciary, we assess several characteristics, including but not limited to: independence, an ability to analyze proxy issues and vote in the best economic interest of our clients, reputation for reliability and integrity, and operational capacity to accurately deliver the assigned votes in a timely manner. We may engage more than one independent fiduciary, in part in order to mitigate potential or perceived conflicts of interest at an independent fiduciary. The Global Committee appoints and reviews the performance of the independent fiduciaries, generally on an annual basis.
When so authorized, BlackRock acts as a securities lending agent on behalf of Funds. With regard to the relationship between securities lending and proxy voting, BlackRock’s approach is driven by our clients’ economic interests. The decision whether to recall securities on loan to vote is based on a formal analysis of the revenue producing value to clients of loans, against the assessed economic value of casting votes. Generally, we expect that the likely economic value to clients of casting votes would be less than the securities lending income, either because, in our assessment, the resolutions being voted on will not have significant economic consequences or because the outcome would not be affected by BlackRock voting the loaned securities that were recalled in order to vote. BlackRock also may, in our discretion, determine that the value of voting outweighs the cost of recalling shares, and thus recall shares to vote in that instance.
Periodically, BlackRock reviews our process for determining whether to recall securities on loan in order to vote and may modify it as necessary.
Voting guidelines
The issue-specific Guidelines published for each region/country in which we vote are intended to summarize BlackRock’s general philosophy and approach to issues that may commonly arise in the proxy voting context in each market where we invest. The Guidelines are not intended to be exhaustive. BIS applies the Guidelines on a case-by-case basis, in the context of the individual circumstances of each company and the specific issue under review. As such, the Guidelines do not indicate how BIS will vote in every instance. Rather, they reflect our view about corporate governance issues generally, and provide insight into how we typically approach issues that commonly arise on corporate ballots.
Reporting and vote transparency
Investment stewardship is how we use our voice as an investor to promote sound corporate governance and business practices to help maximize long-term shareholder value for our clients, the vast majority of whom are investing for long- term goals such as retirement. We are committed to transparency in the stewardship work we do on behalf of clients. We inform clients about our engagement and voting policies and activities through direct communication and through disclosure on our website. Each year we publish an annual report as well as quarterly stewardship reports which provide a global overview of our investment stewardship engagement and voting activities during the quarter, including market developments, speaking engagements, and engagement, and voting statistics. Additionally, we make public our market- specific voting guidelines for the benefit of clients and companies with whom we engage. We also publish commentaries to share our perspective on market developments and emerging key themes.
At a more granular level, we publish quarterly our vote record for each company that held a shareholder meeting during the period, showing how we voted on each proposal and explaining any votes against management proposals or on shareholder proposals. For shareholder meetings where a vote might be high profile or of significant interest to clients, we publish a voting bulletin shortly after the meeting, disclosing and explaining our vote on key proposals. We also publish a quarterly list of all companies we engaged and the key topics addressed in the engagement meeting.
In this way, we help inform our clients about the work we do on their behalf in promoting the governance and business practices that support long-term sustainable value creation.
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This document is provided for information purposes only and is subject to change. Reliance upon this information is at the sole discretion of the reader. Prepared by BlackRock, Inc.
©2020 BlackRock, Inc. All rights reserved.
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ClearBridge Investments
Proxy Voting Policy
July 2021
RARE Corporate Governance and Proxy Voting Policy
December 2017
RARE Infrastructure Limited (CIL)
ClearBridge RARE Infrastructure International Pty Limited (CBI RIIPL)
ClearBridge Investments (North America) Pty Limited (CINA)
(the above entities are referred to as “ClearBridge” for the purposes of this policy.
ClearBridge and ClearBridge Investments, LLC are collectively referred to as
“ClearBridge Investments”.)
Document owner: Head of Legal, Risk & Compliance
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CLEARBRIDGE INVESTMENTS
PROXY VOTING POLICIES AND PROCEDURES
AMENDED AS OF MARCH 2021
I.
Types of Accounts for Which ClearBridge Votes Proxies
II.
General Guidelines
III.
How ClearBridge Votes
IV.
Conflicts of Interest
A.
Procedures for Identifying Conflicts of Interest
B.
Procedures for Assessing Materiality of Conflicts of Interest and for Addressing Material Conflicts of Interest
C.
Third Party Proxy Voting Firm - Conflicts of Interest
V.
Voting Policy
A.
Election of Directors
B.
Proxy Contests
C.
Auditors
D.
Proxy Contest Defenses
E.
Tender Offer Defenses
F.
Miscellaneous Governance Provisions
G.
Capital Structure
H.
Executive and Director Compensation
I.
State/Country of Incorporation
J.
Mergers and Corporate Restructuring
K.
Social and Environmental Issues
L.
Miscellaneous
VI.
Other Considerations
A.
Share Blocking
B.
Securities on Loan
VII.
Disclosure of Proxy Voting
VIII.
Recordkeeping and Oversight
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CLEARBRIDGE INVESTMENTS
Proxy Voting Policies and Procedures
I.
TYPES OF ACCOUNTS FOR WHICH CLEARBRIDGE VOTES PROXIES
ClearBridge votes proxies for each client for which it has investment discretion unless the investment management agreement provides that the client or other authorized party (e.g., a trustee or named fiduciary of a plan) is responsible for voting proxies.
II.
GENERAL GUIDELINES
In voting proxies, we are guided by general fiduciary principles. Our goal is to act prudently, solely in the best interest of the beneficial owners of the accounts we manage. We attempt to provide for the consideration of all factors that could affect the value of the investment and will vote proxies in the manner that we believe will be consistent with efforts to maximize shareholder values.
III.
HOW CLEARBRIDGE VOTES
Section V of these policies and procedures sets forth certain stated positions. In the case of a proxy issue for which there is a stated position, we generally vote in accordance with the stated position. In the case of a proxy issue for which there is a list of factors set forth in Section V that we consider in voting on such issue, we consider those factors and vote on a case-by-case basis in accordance with the general principles set forth above. In the case of a proxy issue for which there is no stated position or list of factors that we consider in voting on such issue, we vote on a case-by-case basis in accordance with the general principles set forth above. We may utilize an external service provider to provide us with information and/or a recommendation with regard to proxy votes but we are not required to follow any such recommendations. The use of an external service provider does not relieve us of our responsibility for the proxy vote.
For routine matters, we usually vote according to our policy or the external service provider’s recommendation, although we are not obligated to do so and each individual portfolio management team may vote contrary to our policy or the recommendation of the external service provider. If a matter is non-routine, e.g., management’s recommendation is different than that of the external service provider and ClearBridge is a significant holder or it is a significant holding for ClearBridge, the issues will be highlighted to the appropriate investment teams. Different investment teams may vote differently on the same issue, depending upon their assessment of clients’ best interests.
ClearBridge’s policies are reviewed annually and its proxy voting process is overseen and coordinated by its Proxy Committee.
IV.
CONFLICTS OF INTEREST
In furtherance of ClearBridge’s goal to vote proxies in the best interests of clients, ClearBridge follows procedures designed to identify and address material conflicts that may arise between ClearBridge’s interests and those of its clients before voting proxies on behalf of such clients.
A.
Procedures for Identifying Conflicts of Interest
ClearBridge relies on the following to seek to identify conflicts of interest with respect to proxy voting:
1.
ClearBridge’s employees are periodically reminded of their obligation (i) to be aware of the potential for conflicts of interest on the part of ClearBridge with respect to voting proxies on behalf of client accounts both as a result of their personal relationships or personal or business relationships relating to another Franklin Resources, Inc. (“Franklin”) business unit, and (ii) to bring conflicts of interest of which they become aware to the attention of ClearBridge’s General Counsel/Chief Compliance Officer.
2.
ClearBridge’s finance area maintains and provides to ClearBridge Compliance and proxy voting personnel an up- to-date list of all client relationships that have historically accounted for or are projected to account for greater than 1% of ClearBridge’s net revenues.
3.
As a general matter, ClearBridge takes the position that relationships between a non-ClearBridge Franklin unit and an issuer (e.g., investment management relationship between an issuer and a non-ClearBridge Franklin affiliate) do not present a conflict of interest for ClearBridge in voting proxies with respect to such issuer because ClearBridge operates as an independent business unit from other Franklin business units and because of the existence of informational barriers between ClearBridge and certain other Franklin business units. As noted above, ClearBridge employees are under an obligation to bring such conflicts of interest, including conflicts of interest which may arise because of an attempt by another Franklin business unit or non-ClearBridge Franklin officer or employee to influence proxy voting by ClearBridge to the attention of ClearBridge Compliance.
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4.
A list of issuers with respect to which ClearBridge has a potential conflict of interest in voting proxies on behalf of client accounts will be maintained by ClearBridge proxy voting personnel. ClearBridge will not vote proxies relating to such issuers until it has been determined that the conflict of interest is not material or a method for resolving the conflict of interest has been agreed upon and implemented, as described in Section IV below.
B.
Procedures for Assessing Materiality of Conflicts of Interest and for Addressing Material Conflicts of Interest
1.
ClearBridge maintains a Proxy Committee which, among other things, reviews and addresses conflicts of interest brought to its attention. The Proxy Committee is comprised of such ClearBridge personnel (and others, at ClearBridge’s request), as are designated from time to time. The current members of the Proxy Committee are set forth in the Proxy Committee’s Terms of Reference.
2.
All conflicts of interest identified pursuant to the procedures outlined in Section IV. A. must be brought to the attention of the Proxy Committee for resolution. A proxy issue that will be voted in accordance with a stated ClearBridge position on such issue or in accordance with the recommendation of an independent third party generally is not brought to the attention of the Proxy Committee for a conflict of interest review because ClearBridge’s position is that any conflict of interest issues are resolved by voting in accordance with a pre-determined policy or in accordance with the recommendation of an independent third party.
3.
The Proxy Committee will determine whether a conflict of interest is material. A conflict of interest will be considered material to the extent that it is determined that such conflict is likely to influence, or appear to influence, ClearBridge’s decision-making in voting the proxy. All materiality determinations will be based on an assessment of the particular facts and circumstances. A written record of all materiality determinations made by the Proxy Committee will be maintained.
4.
If it is determined by the Proxy Committee that a conflict of interest is not material, ClearBridge may vote proxies notwithstanding the existence of the conflict.
5.
If it is determined by the Proxy Committee that a conflict of interest is material, the Proxy Committee will determine an appropriate method to resolve such conflict of interest before the proxy affected by the conflict of interest is voted. Such determination shall be based on the particular facts and circumstances, including the importance of the proxy issue, the nature of the conflict of interest, etc. Such methods may include:
•
disclosing the conflict to clients and obtaining their consent before voting;
•
suggesting to clients that they engage another party to vote the proxy on their behalf;
•
in the case of a conflict of interest resulting from a particular employee’s personal relationships, removing such employee from the decision-making process with respect to such proxy vote; or
•
such other method as is deemed appropriate given the particular facts and circumstances, including the importance of the proxy issue, the nature of the conflict of interest, etc.*
A written record of the method used to resolve a material conflict of interest shall be maintained.
C.
Third Party Proxy Voting Firm - Conflicts of Interest
With respect to a third-party proxy voting firm described herein, the Proxy Committee will periodically review and assess such firm’s policies, procedures and practices with respect to the disclosure and handling of conflicts of interest.
V.
VOTING POLICY
These are policy guidelines that can always be superseded, subject to the duty to act solely in the best interest of the beneficial owners of accounts, by the investment management professionals responsible for the account holding the shares being voted. There may be occasions when different investment teams vote differently on the same issue. In addition, in the case of Taft-Hartley clients, ClearBridge will comply with a client direction to vote proxies in accordance with Institutional Shareholder Services’ (ISS) PVS Proxy Voting Guidelines, which ISS represents to be fully consistent with AFL-CIO guidelines.
A.
Election of Directors
1.
Voting on Director Nominees in Uncontested Elections.
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a.
We withhold our vote from a director nominee who:
•
attended less than 75 percent of the company’s board and committee meetings without a valid excuse (illness, service to the nation/local government, work on behalf of the company);
•
received more than 50 percent withheld votes of the shares cast at the previous board election, and the company has failed to address the issue as to why;
•
is a member of the company’s audit committee, when excessive non-audit fees were paid to the auditor, or there are chronic control issues and an absence of established effective control mechanisms;
•
is a member of the company’s compensation committee if the compensation committee ignore a say on pay proposal that a majority of shareholders opposed;
•
is a member of the company’s nominating committee and there are no women on the board (or currently proposed for election to the board.)
b.
We vote for all other director nominees.
2.
Chairman and CEO is the Same Person.
We vote on a case-by-case basis on shareholder proposals that would require the positions of the Chairman and CEO to be held by different persons. We would generally vote FOR such a proposal unless there are compelling reasons to vote against the proposal, including:
•
Designation of a lead director
•
Majority of independent directors (supermajority)
•
All independent key committees
•
Size of the company (based on market capitalization)
•
Established governance guidelines
•
Company performance
3.
Majority of Independent Directors
a.
We vote for shareholder proposals that request that the board be comprised of a majority of independent directors. Generally that would require that the director have no connection to the company other than the board seat. In determining whether an independent director is truly independent (e.g. when voting on a slate of director candidates), we consider certain factors including, but not necessarily limited to, the following: whether the director or his/her company provided professional services to the company or its affiliates either currently or in the past year; whether the director has any transactional relationship with the company; whether the director is a significant customer or supplier of the company; whether the director is employed by a foundation or university that received significant grants or endowments from the company or its affiliates; and whether there are interlocking directorships.
b.
We vote for shareholder proposals that request that the board audit, compensation and/or nominating committees include independent directors exclusively.
4.
Stock Ownership Requirements
We vote against shareholder proposals requiring directors to own a minimum amount of company stock in order to qualify as a director, or to remain on the board.
5.
Term of Office
We vote against shareholder proposals to limit the tenure of independent directors.
6.
Director and Officer Indemnification and Liability Protection
a.
Subject to subparagraphs 2, 3, and 4 below, we vote for proposals concerning director and officer indemnification and liability protection.
b.
We vote for proposals to limit and against proposals to eliminate entirely director and officer liability for monetary damages for violating the duty of care.
c.
We vote against indemnification proposals that would expand coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligations than mere carelessness.
d.
We vote for only those proposals that provide such expanded coverage noted in subparagraph 3 above in cases when a director's or officer's legal defense was unsuccessful if: (1) the director was found to have acted in good faith and in a manner that he reasonably believed was in the best interests of the company, and (2) if only the director's legal expenses would be covered.
7.
Director Qualifications
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a.
We vote case-by-case on proposals that establish or amend director qualifications. Considerations include how reasonable the criteria are and to what degree they may preclude dissident nominees from joining the board.
b.
We vote against shareholder proposals requiring two candidates per board seat.
B.
Proxy Contests
1.
Voting for Director Nominees in Contested Elections
We vote on a case-by-case basis in contested elections of directors. Considerations include: chronology of events leading up to the proxy contest; qualifications of director nominees (incumbents and dissidents); for incumbents, whether the board is comprised of a majority of outside directors; whether key committees (i.e.: nominating, audit, compensation) comprise solely of independent outsiders; discussion with the respective portfolio manager(s).
2.
Reimburse Proxy Solicitation Expenses
We vote on a case-by-case basis on proposals to provide full reimbursement for dissidents waging a proxy contest. Considerations include: identity of persons who will pay solicitation expenses; cost of solicitation; percentage that will be paid to proxy solicitation firms.
C.
Auditors
1.
Ratifying Auditors
We vote for proposals to ratify auditors, unless an auditor has a financial interest in or association with the company, and is therefore not independent; or there is reason to believe that the independent auditor has rendered an opinion that is neither accurate nor indicative of the company's financial position or there is reason to believe the independent auditor has not followed the highest level of ethical conduct. Specifically, we will vote to ratify auditors if the auditors only provide the company audit services and such other audit-related and non-audit services the provision of which will not cause such auditors to lose their independence under applicable laws, rules and regulations.
2.
Financial Statements and Director and Auditor Reports
We generally vote for management proposals seeking approval of financial accounts and reports and the discharge of management and supervisory board members, unless there is concern about the past actions of the company’s auditors or directors.
3.
Remuneration of Auditors
We vote for proposals to authorize the board or an audit committee of the board to determine the remuneration of auditors, unless there is evidence of excessive compensation relative to the size and nature of the company.
4.
Indemnification of Auditors
We vote against proposals to indemnify auditors.
D.
Proxy Contest Defenses
1.
Board Structure: Staggered vs. Annual Elections
a.
We vote against proposals to classify the board.
b.
We vote for proposals to repeal classified boards and to elect all directors annually.
2.
Shareholder Ability to Remove Directors
a.
We vote against proposals that provide that directors may be removed only for cause.
b.
We vote for proposals to restore shareholder ability to remove directors with or without cause.
c.
We vote against proposals that provide that only continuing directors may elect replacements to fill board vacancies.
d.
We vote for proposals that permit shareholders to elect directors to fill board vacancies.
3.
Cumulative Voting
a.
If plurality voting is in place for uncontested director elections, we vote for proposals to permit or restore cumulative voting.
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b.
If majority voting is in place for uncontested director elections, we vote against cumulative voting.
c.
If plurality voting is in place for uncontested director elections, and proposals to adopt both cumulative voting and majority voting are on the same slate, we vote for majority voting and against cumulative voting.
4.
Majority Voting
We vote for non-binding and/or binding resolutions requesting that the board amend a company’s by-laws to stipulate that directors need to be elected with an affirmative majority of the votes cast, provided that it does not conflict with the state law where the company is incorporated. In addition, all resolutions need to provide for a carve-out for a plurality vote standard when there are more nominees than board seats (i.e. contested election). In addition, ClearBridge strongly encourages companies to adopt a post-election director resignation policy setting guidelines for the company to follow to promptly address situations involving holdover directors.
5.
Shareholder Ability to Call Special Meetings
a.
We vote against proposals to restrict or prohibit shareholder ability to call special meetings.
b.
We vote for proposals that provide shareholders with the ability to call special meetings, taking into account a minimum ownership threshold of 10 percent (and investor ownership structure, depending on bylaws).
6.
Shareholder Ability to Act by Written Consent
a.
We vote against proposals to restrict or prohibit shareholder ability to take action by written consent.
b.
We vote for proposals to allow or make easier shareholder action by written consent.
7.
Shareholder Ability to Alter the Size of the Board
a.
We vote for proposals that seek to fix the size of the board.
b.
We vote against proposals that give management the ability to alter the size of the board without shareholder approval.
8.
Advance Notice Proposals
We vote on advance notice proposals on a case-by-case basis, giving support to those proposals which allow shareholders to submit proposals as close to the meeting date as reasonably possible and within the broadest window possible.
9.
Amendment of By-Laws
a.
We vote against proposals giving the board exclusive authority to amend the by-laws.
b.
We vote for proposals giving the board the ability to amend the by-laws in addition to shareholders.
10.
Article Amendments (not otherwise covered by ClearBridge Proxy Voting Policies and Procedures).
We review on a case-by-case basis all proposals seeking amendments to the articles of association.
We vote for article amendments if:
•
shareholder rights are protected;
•
there is negligible or positive impact on shareholder value;
•
management provides adequate reasons for the amendments; and
•
the company is required to do so by law (if applicable).
E.
Tender Offer Defenses
1.
Poison Pills
a.
We vote for shareholder proposals that ask a company to submit its poison pill for shareholder ratification.
b.
We vote on a case-by-case basis on shareholder proposals to redeem a company's poison pill. Considerations include: when the plan was originally adopted; financial condition of the company; terms of the poison pill.
c.
We vote on a case-by-case basis on management proposals to ratify a poison pill. Considerations include: sunset provision - poison pill is submitted to shareholders for ratification or rejection every 2 to 3 years; shareholder redemption feature -10% of the shares may call a special meeting or seek a written consent to vote on rescinding the rights plan.
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2.
Fair Price Provisions
a.
We vote for fair price proposals, as long as the shareholder vote requirement embedded in the provision is no more than a majority of disinterested shares.
b.
We vote for shareholder proposals to lower the shareholder vote requirement in existing fair price provisions.
3.
Greenmail
a.
We vote for proposals to adopt anti-greenmail charter or bylaw amendments or otherwise restrict a company's ability to make greenmail payments.
b.
We vote on a case-by-case basis on anti-greenmail proposals when they are bundled with other charter or bylaw amendments.
4.
Unequal Voting Rights
a.
We vote against dual class exchange offers.
b.
We vote against dual class re-capitalization.
5.
Supermajority Shareholder Vote Requirement to Amend the Charter or Bylaws
a.
We vote against management proposals to require a supermajority shareholder vote to approve charter and bylaw amendments.
b.
We vote for shareholder proposals to lower supermajority shareholder vote requirements for charter and bylaw amendments.
6.
Supermajority Shareholder Vote Requirement to Approve Mergers
a.
We vote against management proposals to require a supermajority shareholder vote to approve mergers and other significant business combinations.
b.
We vote for shareholder proposals to lower supermajority shareholder vote requirements for mergers and other significant business combinations.
7.
White Knight/Squire Placements
We vote for shareholder proposals to require approval of blank check preferred stock issues.
F.
Miscellaneous Governance Provisions
1.
Confidential Voting
a.
We vote for shareholder proposals that request corporations to adopt confidential voting, use independent tabulators and use independent inspectors of election as long as the proposals include clauses for proxy contests as follows: in the case of a contested election, management is permitted to request that the dissident group honor its confidential voting policy. If the dissidents agree, the policy remains in place. If the dissidents do not agree, the confidential voting policy is waived.
b.
We vote for management proposals to adopt confidential voting subject to the proviso for contested elections set forth in sub-paragraph A.1. above.
2.
Equal Access
We vote for shareholder proposals that would allow significant company shareholders equal access to management's proxy material in order to evaluate and propose voting recommendations on proxy proposals and director nominees, and in order to nominate their own candidates to the board.
3.
Bundled Proposals
We vote on a case-by-case basis on bundled or “conditioned” proxy proposals. In the case of items that are conditioned upon each other, we examine the benefits and costs of the packaged items. In instances when the joint effect of the conditioned items is not in shareholders' best interests and therefore not in the best interests of the beneficial owners of accounts, we vote against the proposals. If the combined effect is positive, we support such proposals.
4.
Shareholder Advisory Committees
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We vote on a case-by-case basis on proposals to establish a shareholder advisory committee. Considerations include: rationale and cost to the firm to form such a committee. We generally vote against such proposals if the board and key nominating committees are comprised solely of independent/outside directors.
5.
Other Business
We vote for proposals that seek to bring forth other business matters.
6.
Adjourn Meeting
We vote on a case-by-case basis on proposals that seek to adjourn a shareholder meeting in order to solicit additional votes.
7.
Lack of Information
We vote against proposals if a company fails to provide shareholders with adequate information upon which to base their voting decision.
G.
Capital Structure
1.
Common Stock Authorization
a.
We vote on a case-by-case basis on proposals to increase the number of shares of common stock authorized for issue, except as described in paragraph 2 below.
b.
Subject to paragraph 3, below we vote for the approval requesting increases in authorized shares if the company meets certain criteria:
•
Company has already issued a certain percentage (i.e. greater than 50%) of the company's allotment.
•
The proposed increase is reasonable (i.e. less than 150% of current inventory) based on an analysis of the company's historical stock management or future growth outlook of the company.
c.
We vote on a case-by-case basis, based on the input of affected portfolio managers, if holding is greater than 1% of an account.
2.
Stock Distributions: Splits and Dividends
We vote on a case-by-case basis on management proposals to increase common share authorization for a stock split, provided that the split does not result in an increase of authorized but unissued shares of more than 100% after giving effect to the shares needed for the split.
3.
Reverse Stock Splits
We vote for management proposals to implement a reverse stock split, provided that the reverse split does not result in an increase of authorized but unissued shares of more than 100% after giving effect to the shares needed for the reverse split.
4.
Blank Check Preferred Stock
a.
We vote against proposals to create, authorize or increase the number of shares with regard to blank check preferred stock with unspecified voting, conversion, dividend distribution and other rights.
b.
We vote for proposals to create “declawed” blank check preferred stock (stock that cannot be used as a takeover defense).
c.
We vote for proposals to authorize preferred stock in cases where the company specifies the voting, dividend, conversion, and other rights of such stock and the terms of the preferred stock appear reasonable.
d.
We vote for proposals requiring a shareholder vote for blank check preferred stock issues.
5.
Adjust Par Value of Common Stock
We vote for management proposals to reduce the par value of common stock.
6.
Preemptive Rights
a.
We vote on a case-by-case basis for shareholder proposals seeking to establish them and consider the following factors:
•
Size of the Company.
•
Characteristics of the size of the holding (holder owning more than 1% of the outstanding shares).
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•
Percentage of the rights offering (rule of thumb less than 5%).
b.
We vote on a case-by-case basis for shareholder proposals seeking the elimination of pre-emptive rights
7.
Debt Restructuring
We vote on a case-by-case basis for proposals to increase common and/or preferred shares and to issue shares as part of a debt-restructuring plan. Generally, we approve proposals that facilitate debt restructuring.
8.
Share Repurchase Programs
We vote for management proposals to institute open-market share repurchase plans in which all shareholders may participate on equal terms.
9.
Dual-Class Stock
We vote for proposals to create a new class of nonvoting or sub voting common stock if:
•
It is intended for financing purposes with minimal or no dilution to current shareholders
•
It is not designed to preserve the voting power of an insider or significant shareholder
10.
Issue Stock for Use with Rights Plan
We vote against proposals that increase authorized common stock for the explicit purpose of implementing a shareholder rights plan (poison pill).
11.
Debt Issuance Requests
When evaluating a debt issuance request, the issuing company’s present financial situation is examined. The main factor for analysis is the company’s current debt-to-equity ratio, or gearing level. A high gearing level may incline markets and financial analysts to downgrade the company’s bond rating, increasing its investment risk factor in the process. A gearing level up to 100 percent is considered acceptable.
We vote for debt issuances for companies when the gearing level is between zero and 100 percent.
We view on a case-by-case basis proposals where the issuance of debt will result in the gearing level being greater than 100 percent. Any proposed debt issuance is compared to industry and market standards.
12.
Financing Plans
We generally vote for the adopting of financing plans if we believe they are in the best economic interests of shareholders.
H.
Executive and Director Compensation
In general, we vote for executive and director compensation plans, with the view that viable compensation programs reward the creation of stockholder wealth by having high payout sensitivity to increases in shareholder value. Certain factors, however, such as repricing underwater stock options without shareholder approval, would cause us to vote against a plan. Additionally, in some cases we would vote against a plan deemed unnecessary.
1.
OBRA-Related Compensation Proposals
a.
Amendments that Place a Cap on Annual Grant or Amend Administrative Features
We vote for plans that simply amend shareholder-approved plans to include administrative features or place a cap on the annual grants any one participant may receive to comply with the provisions of Section 162(m) of the Internal Revenue Code.
b.
Amendments to Added Performance-Based Goals
We vote for amendments to add performance goals to existing compensation plans to comply with the provisions of Section 162(m) of the Internal Revenue Code.
c.
Amendments to Increase Shares and Retain Tax Deductions Under OBRA
We vote for amendments to existing plans to increase shares reserved and to qualify the plan for favorable tax treatment under the provisions of Section 162(m) the Internal Revenue Code.
d.
Approval of Cash or Cash-and-Stock Bonus Plans
We vote for cash or cash-and-stock bonus plans to exempt the compensation from taxes under the provisions of Section 162(m) of the Internal Revenue Code.
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2.
Expensing of Options
We vote for proposals to expense stock options on financial statements.
3.
Shareholder Proposals to Limit Executive and Director Pay
a.
We vote on a case-by-case basis on all shareholder proposals that seek additional disclosure of executive and director pay information. Considerations include: cost and form of disclosure. We vote for such proposals if additional disclosure is relevant to shareholder’s needs and would not put the company at a competitive disadvantage relative to its industry.
b.
We vote on a case-by-case basis on all other shareholder proposals that seek to limit executive and director pay.
4.
Reports to Assess the Feasibility of Including Sustainability as a Performance Metric
We vote in favor of non-binding proposals for reports on the feasibility of including sustainability as a performance metric for senior executive compensation.
We have a policy of voting to reasonably limit the level of options and other equity-based compensation arrangements available to management to reasonably limit shareholder dilution and management compensation. For options and equity-based compensation arrangements, we vote FOR proposals or amendments that would result in the available awards being less than 10% of fully diluted outstanding shares (i.e. if the combined total of shares, common share equivalents and options available to be awarded under all current and proposed compensation plans is less than 10% of fully diluted shares). In the event the available awards exceed the 10% threshold, we would also consider the % relative to the common practice of its specific industry (e.g. technology firms). Other considerations would include, without limitation, the following:
•
Compensation committee comprised of independent outside directors
•
Maximum award limits
•
Repricing without shareholder approval prohibited
•
3-year average burn rate for company
•
Plan administrator has authority to accelerate the vesting of awards
•
Shares under the plan subject to performance criteria
5.
Golden Parachutes
a.
We vote for shareholder proposals to have golden parachutes submitted for shareholder ratification.
b.
We vote on a case-by-case basis on all proposals to ratify or cancel golden parachutes. Considerations include: the amount should not exceed 3 times average base salary plus guaranteed benefits; golden parachute should be less attractive than an ongoing employment opportunity with the firm.
6.
Golden Coffins
a.
We vote for shareholder proposals that request a company not to make any death benefit payments to senior executives’ estates or beneficiaries, or pay premiums in respect to any life insurance policy covering a senior executive’s life (“golden coffin”). We carve out benefits provided under a plan, policy or arrangement applicable to a broader group of employees, such as offering group universal life insurance.
b.
We vote for shareholder proposals that request shareholder approval of survivor benefits for future agreements that, following the death of a senior executive, would obligate the company to make payments or awards not earned.
7.
Anti-Tax Gross-up Policy
a.
We vote for proposals that ask a company to adopt a policy whereby it will not make, or promise to make, any tax gross-up payment to its senior executives, except for tax gross-ups provided pursuant to a plan, policy, or arrangement applicable to management employees of the company generally, such as relocation or expatriate tax equalization policy; we also vote for proposals that ask management to put gross-up payments to a shareholder vote.
b.
We vote against proposals where a company will make, or promise to make, any tax gross-up payment to its senior executives without a shareholder vote, except for tax gross-ups provided pursuant to a plan, policy, or arrangement applicable to management employees of the company generally, such as relocation or expatriate tax equalization policy.
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8.
Employee Stock Ownership Plans (ESOPs)
We vote for proposals that request shareholder approval in order to implement an ESOP or to increase authorized shares for existing ESOPs, except in cases when the number of shares allocated to the ESOP is “excessive” (i.e., generally greater than five percent of outstanding shares).
9.
Employee Stock Purchase Plans
a.
We vote for qualified plans where all of the following apply:
•
The purchase price is at least 85 percent of fair market value
•
The offering period is 27 months or less
•
The number of shares allocated to the plan is five percent or less of outstanding shares
If the above do not apply, we vote on a case-by-case basis.
b.
We vote for non-qualified plans where all of the following apply:
•
All employees of the company are eligible to participate (excluding 5 percent or more beneficial owners)
•
There are limits on employee contribution (ex: fixed dollar amount)
•
There is a company matching contribution with a maximum of 25 percent of an employee’s contribution
•
There is no discount on the stock price on purchase date (since there is a company match)
If the above do not apply, we vote against the non-qualified employee stock purchase plan.
10.
401(k) Employee Benefit Plans
We vote for proposals to implement a 401(k) savings plan for employees.
11.
Stock Compensation Plans
a.
We vote for stock compensation plans which provide a dollar-for-dollar cash for stock exchange.
b.
We vote on a case-by-case basis for stock compensation plans which do not provide a dollar-for-dollar cash for stock exchange using a quantitative model.
12.
Directors Retirement Plans
a.
We vote against retirement plans for non-employee directors.
b.
We vote for shareholder proposals to eliminate retirement plans for non-employee directors.
13.
Management Proposals to Reprice Options
We vote against management proposals seeking approval to reprice options.
14.
Shareholder Proposals Regarding Executive and Director Pay
a.
We vote against shareholder proposals seeking to set absolute levels on compensation or otherwise dictate the amount or form of compensation.
b.
We vote against shareholder proposals requiring director fees be paid in stock only.
c.
We vote against shareholder proposals to eliminate vesting of options and restricted stock on change of control.
d.
We vote for shareholder proposals to put option repricing to a shareholder vote.
e.
We vote for shareholder proposals that call for a non-binding advisory vote on executive pay (“say-on-pay”). Company boards would adopt a policy giving shareholders the opportunity at each annual meeting to vote on an advisory resolution to ratify the compensation of the named executive officers set forth in the proxy statement’s summary compensation table.
f.
We vote “annual” for the frequency of say-on-pay proposals rather than once every two or three years.
g.
We vote on a case-by-case basis for all other shareholder proposals regarding executive and director pay, taking into account company performance, pay level versus peers, pay level versus industry, and long term corporate outlook.
15.
Management Proposals on Executive Compensation
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For non-binding advisory votes on executive officer compensation, when management and the external service provider agree, we vote for the proposal. When management and the external service provider disagree, the proposal becomes a refer item. In the case of a Refer item, the factors under consideration will include the following:
•
Company performance over the last 1, 3, and 5-year periods on a total shareholder return basis
•
Performance metrics for short- and long-term incentive programs
•
CEO pay relative to company performance (is there a misalignment)
•
Tax gross-ups to senior executives
•
Change-in-control arrangements
•
Presence of a clawback provision, ownership guidelines, or stock holding requirements for senior executives
16.
Stock Retention / Holding Period of Equity Awards
We vote on a case-by-case basis on shareholder proposals asking companies to adopt policies requiring senior executives to retain all or a significant (˃50 percent) portion of their shares acquired through equity compensation plans, either:
•
While employed and/or for one to two years following the termination of their employment; or
•
For a substantial period following the lapse of all other vesting requirements for the award, with ratable release of a portion of the shares annually during the lock-up period
The following factors will be taken into consideration:
•
Whether the company has any holding period, retention ratio, or named executive officer ownership requirements currently in place
•
Actual stock ownership of the company’s named executive officers
•
Policies aimed at mitigating risk taking by senior executives
•
Pay practices at the company that we deem problematic
I.
State/Country of Incorporation
1.
Voting on State Takeover Statutes
a.
We vote for proposals to opt out of state freeze-out provisions.
b.
We vote for proposals to opt out of state disgorgement provisions.
2.
Voting on Re-incorporation Proposals
We vote on a case-by-case basis on proposals to change a company's state or country of incorporation. Considerations include: reasons for re-incorporation (i.e. financial, restructuring, etc); advantages/benefits for change (i.e. lower taxes); compare the differences in state/country laws governing the corporation.
3.
Control Share Acquisition Provisions
a.
We vote against proposals to amend the charter to include control share acquisition provisions.
b.
We vote for proposals to opt out of control share acquisition statutes unless doing so would enable the completion of a takeover that would be detrimental to shareholders.
c.
We vote for proposals to restore voting rights to the control shares.
d.
We vote for proposals to opt out of control share cashout statutes.
J.
Mergers and Corporate Restructuring
1
Mergers and Acquisitions
a.
We vote on a case-by-case basis on mergers and acquisitions. Considerations include: benefits/advantages of the combined companies (i.e. economies of scale, operating synergies, increase in market power/share, etc.); offer price (premium or discount); change in the capital structure; impact on shareholder rights.
2
Corporate Restructuring
a.
We vote on a case-by-case basis on corporate restructuring proposals involving minority squeeze outs and leveraged buyouts. Considerations include: offer price, other alternatives/offers considered and review of fairness opinions.
3
Spin-offs
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a.
We vote on a case-by-case basis on spin-offs. Considerations include the tax and regulatory advantages, planned use of sale proceeds, market focus, and managerial incentives.
4
Asset Sales
a.
We vote on a case-by-case basis on asset sales. Considerations include the impact on the balance sheet/working capital, value received for the asset, and potential elimination of diseconomies.
5
Liquidations
a.
We vote on a case-by-case basis on liquidations after reviewing management's efforts to pursue other alternatives, appraisal value of assets, and the compensation plan for executives managing the liquidation.
6
Appraisal Rights
a.
We vote for proposals to restore, or provide shareholders with, rights of appraisal.
7
Changing Corporate Name
a.
We vote for proposals to change the “corporate name”, unless the proposed name change bears a negative connotation.
8
Conversion of Securities
a.
We vote on a case-by-case basis on proposals regarding conversion of securities. Considerations include the dilution to existing shareholders, the conversion price relative to market value, financial issues, control issues, termination penalties, and conflicts of interest.
9
Stakeholder Provisions
a.
We vote against proposals that ask the board to consider non-shareholder constituencies or other non-financial effects when evaluating a merger or business combination.
K.
Social and Environmental Issues
When considering environmental and social (E&S) proposals, we have an obligation to vote proxies in the best interest of our clients, considering both shareholder value as well as societal impact.
1.
Sustainability Reporting
a.
We vote for proposals seeking greater disclosure on the company’s environmental, social & governance policies and practices;
b.
We vote for proposals that would require companies whose annual revenues are at least $5 billion to prepare a sustainability report. All others will be decided on a case-by-case basis.
2.
Diversity & Equality
a.
We vote for proposals supporting nomination of most qualified candidates, inclusive of a diverse pool of women and people of color, to the Board of Directors and senior management levels;
b.
We vote for proposals requesting comprehensive disclosure on board diversity;
c.
We vote for proposals requesting comprehensive disclosure on employee diversity
d.
We vote for proposals requesting comprehensive reports on gender pay disparity;
e.
We vote for proposals seeking to amend a company’s EEO statement or diversity policies to prohibit discrimination based on sexual orientation and/or gender identity.
3.
Climate Risk Disclosure
a.
We vote for climate proposals seeking more disclosure on financial, physical or regulatory risks related to climate change and/or how the company measures and manages such risks;
b.
We vote for climate proposals requesting a report/disclosure of goals on GHG emissions from company operations and/or products;
4.
Case-by-case E&S proposals (examples)
a.
Climate proposals seeking company disclosure on GHG reduction targets and/or goals
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b.
Animal welfare policies;
c.
Human rights and company policies;
d.
Operations in high-risk or sensitive areas;
e.
Product integrity and marketing.
L.
Miscellaneous
1.
Charitable Contributions
We vote against proposals to eliminate, direct or otherwise restrict charitable contributions.
2.
Political Contributions
We will vote in favor of non-binding proposals for reports on corporate lobbying and political contributions.
In general, we vote on a case-by-case basis on other shareholder proposals pertaining to political contributions. In determining our vote on political contribution proposals we consider, among other things, the following:
•
Does the company have a political contributions policy publicly available
•
How extensive is the disclosure on these documents
•
What oversight mechanisms the company has in place for approving/reviewing political contributions and expenditures
•
Does the company provide information on its trade association expenditures
•
Total amount of political expenditure by the company in recent history
3.
Operational Items
a.
We vote against proposals to provide management with the authority to adjourn an annual or special meeting absent compelling reasons to support the proposal.
b.
We vote against proposals to reduce quorum requirements for shareholder meetings below a majority of the shares outstanding unless there are compelling reasons to support the proposal.
c.
We vote for by-law or charter changes that are of a housekeeping nature (updates or corrections).
d.
We vote for management proposals to change the date/time/location of the annual meeting unless the proposed change is unreasonable.
e.
We vote against shareholder proposals to change the date/time/location of the annual meeting unless the current scheduling or location is unreasonable.
f.
We vote against proposals to approve other business when it appears as voting item.
4.
Routine Agenda Items
In some markets, shareholders are routinely asked to approve:
•
the opening of the shareholder meeting
•
that the meeting has been convened under local regulatory requirements
•
the presence of a quorum
•
the agenda for the shareholder meeting
•
the election of the chair of the meeting
•
regulatory filings
•
the allowance of questions
•
the publication of minutes
•
the closing of the shareholder meeting
We generally vote for these and similar routine management proposals.
5.
Allocation of Income and Dividends
We generally vote for management proposals concerning allocation of income and the distribution of dividends, unless the amount of the distribution is consistently and unusually small or large.
6.
Stock (Scrip) Dividend Alternatives
a.
We vote for most stock (scrip) dividend proposals.
b.
We vote against proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value.
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ClearBridge has determined that registered investment companies, particularly closed end investment companies, raise special policy issues making specific voting guidelines frequently inapplicable. To the extent that ClearBridge has proxy voting authority with respect to shares of registered investment companies, ClearBridge shall vote such shares in the best interest of client accounts and subject to the general fiduciary principles set forth herein without regard to the specific voting guidelines set forth in Section V. A. through L.
The voting policy guidelines set forth herein will be reviewed annually and may be changed by ClearBridge in its sole discretion.
VI.
OTHER CONSIDERATIONS
In certain situations, ClearBridge may determine not to vote proxies on behalf of a client because ClearBridge believes that the expected benefit to the client of voting shares is outweighed by countervailing considerations. Examples of situations in which ClearBridge may determine not to vote proxies on behalf of a client include:
A.
Share Blocking
Proxy voting in certain countries requires “share blocking.” This means that shareholders wishing to vote their proxies must deposit their shares shortly before the date of the meeting (e.g. one week) with a designated depositary. During the blocking period, shares that will be voted at the meeting cannot be sold until the meeting has taken place and the shares have been returned to client accounts by the designated depositary. In deciding whether to vote shares subject to share blocking, ClearBridge will consider and weigh, based on the particular facts and circumstances, the expected benefit to clients of voting in relation to the detriment to clients of not being able to sell such shares during the applicable period.
B
Securities on Loan
Certain clients of ClearBridge, such as an institutional client or a mutual fund for which ClearBridge acts as a sub-adviser, may engage in securities lending with respect to the securities in their accounts. ClearBridge typically does not direct or oversee such securities lending activities. To the extent feasible and practical under the circumstances, ClearBridge will request that the client recall shares that are on loan so that such shares can be voted if ClearBridge believes that the expected benefit to the client of voting such shares outweighs the detriment to the client of recalling such shares (e.g., foregone income). The ability to timely recall shares for proxy voting purposes typically is not entirely within the control of ClearBridge and requires the cooperation of the client and its other service providers. Under certain circumstances, the recall of shares in time for such shares to be voted may not be possible due to applicable proxy voting record dates and administrative considerations.
VII.
DISCLOSURE OF PROXY VOTING
ClearBridge employees may not disclose to others outside of ClearBridge (including employees of other Franklin business units) how ClearBridge intends to vote a proxy absent prior approval from ClearBridge’s General Counsel/Chief Compliance Officer, except that a ClearBridge investment professional may disclose to a third party (other than an employee of another Franklin business unit) how s/he intends to vote without obtaining prior approval from ClearBridge’s General Counsel/Chief Compliance Officer if (1) the disclosure is intended to facilitate a discussion of publicly available information by ClearBridge personnel with a representative of a company whose securities are the subject of the proxy, (2) the company’s market capitalization exceeds $1 billion and (3) ClearBridge has voting power with respect to less than 5% of the outstanding common stock of the company.
If a ClearBridge employee receives a request to disclose ClearBridge’s proxy voting intentions to, or is otherwise contacted by, another person outside of ClearBridge (including an employee of another Franklin business unit) in connection with an upcoming proxy voting matter, he/she should immediately notify ClearBridge’s General Counsel/Chief Compliance Officer.
If a portfolio manager wants to take a public stance with regards to a proxy, s/he must consult with ClearBridge’s General Counsel/Chief Compliance Officer before making or issuing a public statement.
VIII.
RECORDKEEPING AND OVERSIGHT
ClearBridge shall maintain the following records relating to proxy voting:
•
a copy of these policies and procedures;
•
a copy of each proxy form (as voted);
•
a copy of each proxy solicitation (including proxy statements) and related materials with regard to each vote;
•
documentation relating to the identification and resolution of conflicts of interest;
•
any documents created by ClearBridge that were material to a proxy voting decision or that memorialized the basis for that decision; and
•
a copy of each written client request for information on how ClearBridge voted proxies on behalf of the client, and a copy of any written response by ClearBridge to any (written or oral) client request for information on how ClearBridge voted proxies on behalf of the requesting client.
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Such records shall be maintained and preserved in an easily accessible place for a period of not less than six years from the end of the fiscal year during which the last entry was made on such record, the first two years in an appropriate office of the ClearBridge adviser.
To the extent that ClearBridge is authorized to vote proxies for a United States Registered Investment Company, ClearBridge shall maintain such records as are necessary to allow such fund to comply with its recordkeeping, reporting and disclosure obligations under applicable laws, rules and regulations.
In lieu of keeping copies of proxy statements, ClearBridge may rely on proxy statements filed on the EDGAR system as well as on third party records of proxy statements and votes cast if the third party provides an undertaking to provide the documents promptly upon request.
CoreCommodity Management LLC
Proxy Voting Policies and Procedures
October 2021
Issued July 2011
Revised May 2013
November 2014
October 2015
October 2016
October 2017
April 2018
October 2019
October 2021
Supersedes all previous Compliance Policies regarding this subject matter
CoreCommodity Management, LLC (“CoreCommodity”) may be responsible for voting on shareholder proxies and may do so only in accordance with the following Proxy Voting Procedures, in the best interest of a client and as agreed to by the advisory client.
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General Guidelines
CoreCommodity relies on Institutional Shareholder Services (“ISS”), a privately-held company, which is owned by ISS HoldCo. Inc. (”HoldCo”), to research, vote and record all proxy ballots for Accounts over which CoreCommodity has proxy voting authority. On February 25, 2021 Deutsche Borse acquired an approximate 80% stake in HoldCo with the remainder owned by a combination of limited partnerships controlled by Genstar Capital LLC, a private equity firm based in San Francisco, CA and ISS management., CoreCommodity has adopted the ISS U Sustainability U.S. Proxy Voting Guidelines. In voting proxies, CoreCommodity is guided by general fiduciary principles. CoreCommodity 's goal is to act prudently, solely in the best interest of the beneficial owners of the accounts it manages. CoreCommodity does not necessarily have an obligation to vote every proxy; for example CoreCommodity may forego voting proxies if the Account no longer holds the position at the time of the vote, or the cost of voting (such as in the case of a vote regarding a foreign issuer that requires being physically present to vote) outweighs the anticipated benefit to the Account. Similarly, in jurisdictions which permit “share blocking” or require additional documentation to vote proxies (such as a power of attorney), or require additional disclosure of ownership, CoreCommodity may choose to refrain from voting. CoreCommodity only votes the proxies delivered to it from custodians and generally does not vote proxies for shares that are out on loan to third parties, and generally will not seek to recall such shares in order to vote them.
How CoreCommodity Votes
CoreCommodity votes proxies in accordance with the ISS recommendations, and has informed ISS to vote in accordance with these recommendations unless otherwise specified by CoreCommodity. A portfolio manager may request that shares under his management be voted differently from the ISS recommendations, if he believes that such a vote would be in the best interest of the client(s). Such vote requests will be subject to the conflict of interest review described below.
Conflicts of Interest
In furtherance of CoreCommodity’s goal to vote proxies in the best interests of clients, CoreCommodity follows procedures designed to identify and address material conflicts that may arise between CoreCommodity’s interests and those of its clients before voting proxies on behalf of such clients. Only votes which are not in accordance with the ISS recommendations are subject to these conflicts of interest procedures.
Procedures for Identifying conflicts of Interest
CoreCommodity relies on the following to seek to identify conflicts of interest:
•
CoreCommodity Associated Persons are under an obligation (i) to be aware of the potential for conflicts of interest on the part of CoreCommodity with respect to voting proxies on behalf of client accounts both as a result of a CoreCommodity Associated Person’s personal relationships and due to special circumstances that may arise during the conduct of CoreCommodity’s business, and (ii) to bring conflicts of interest of which they become aware to the attention of CoreCommodity’s Compliance Officer.
•
CoreCommodity is deemed to have a material conflict of interest in voting proxies relating to issuers that are clients of CoreCommodity and that have historically accounted for or are projected to account for a material percentage of CoreCommodity’s annual revenues.
•
CoreCommodity shall not vote proxies relating to issuers on such list on behalf of client accounts until it has been determined that the conflict of interest is not material or a method for resolving such conflict of interest has been agreed upon and implemented, as described below.
Procedures for Assessing Conflicts of Interest and for Addressing Material Conflicts of Interest
All conflicts of interest identified pursuant to the procedures outlined above must be brought to the attention of the Compliance Officer for resolution. The Compliance Officer will work with appropriate CoreCommodity personnel to determine whether a conflict of interest is material. A conflict of interest will be considered material to the extent that it is determined that such conflict has the potential to influence CoreCommodity’s decision-making in voting the proxy. A conflict of interest shall be deemed material in the event that the issuer that is the subject of the proxy has a client relationship with CoreCommodity of the type described above. All other materiality determinations will be based on an assessment of the particular facts and circumstances. The Compliance Officer shall maintain a written record of all materiality determinations.
If it is determined that a conflict of interest is not material, CoreCommodity may vote proxies notwithstanding the existence of the conflict.
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If it is determined that a conflict of interest is material, the Compliance Officer will work with appropriate CoreCommodity personnel to agree upon a method to resolve such conflict of interest before voting proxies affected by the conflict of interest. Such methods may include:
•
disclosing the conflict to clients and obtaining their consent before voting;
•
suggesting to clients that they engage another party to vote the proxy on their behalf; or
•
such other method as is deemed appropriate under the circumstances given the nature of the conflict.
Record Keeping and Oversight
CoreCommodity shall maintain the following records relating to proxy voting:
•
a copy of these policies and procedures;
•
a copy of each proxy form (as voted);
•
a copy of each proxy solicitation (including proxy statements) and related materials with regard to each vote;
•
documentation relating to the identification and resolution of conflicts of interest;
•
any documents created by CoreCommodity that were material to a proxy voting decision or that memorialized the basis for that decision; and
•
a copy of each written client request for information on how CoreCommodity voted proxies on behalf of the client, and a copy of any written response by CoreCommodity to any (written or oral) client request for information on how CoreCommodity voted proxies on behalf of the requesting client.
Such records shall be maintained and preserved in an easily accessible place for a period of not less than five years from the end of the fiscal year during which the last entry was made on such record, the first two years in CoreCommodity’s office.
In lieu of keeping copies of proxy statements, CoreCommodity may rely on proxy statements filed on the EDGAR system as well as on third party records of proxy statements and votes cast if the third party provides an undertaking to provide the documents promptly upon request.
Monitoring
These Proxy Voting Policies and Procedures will be reviewed on a periodic basis. As part of the review, CoreCommodity will (i) review the capacity and competency of ISS, including the ability of ISS to make recommendations based upon materially accurate information, and (ii) consider any changes at ISS that may create new conflicts of interest, in each case as deemed necessary by CoreCommodity to ensure that CoreCommodity, acting through ISS, continues to vote proxies in the best interests of clients. Part of such review may include the periodic sampling of proxy votes made by ISS on behalf of CoreCommodity, generally or with respect to particular types of proposals, as deemed necessary by CoreCommodity. CoreCommodity may arrange with ISS that ISS will update CoreCommodity of business changes that CoreCommodity considers relevant (i.e., with respect to ISS’ capacity and competency to provide proxy voting advice) and conflicts policies and procedures.
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Macquarie Investment Management
Global Proxy Voting Policies and Procedures
January 2021
Introduction
Macquarie Investment Management (“MIM”) is a global active manager within the asset management division of the Macquarie Group. These Proxy Voting Policies and Procedures (the “Procedures”) are utilized by the following companies1 within MIM:
•
Macquarie Investment Management Business Trust (“MIMBT”): MIMBT is a registered investment adviser with the U.S. Securities and Exchange Commission (“SEC”) pursuant to the Investment Advisers Act of 1940, as amended, (the “Advisers Act”). MIMBT is headquartered in Philadelphia, PA, USA and consists of the following series of entities: Delaware Management Company, Macquarie Investment Management Advisers, Delaware Capital Management, Macquarie Asset Advisers, Macquarie Alternative Strategies, and Delaware Investments Fund Advisers (each, an “Adviser” and, together with MIMBT, the “Advisers”).
•
Macquarie Investment Management Global Limited (“MIMGL”): MIMGL holds an Australian financial services licence and is also a registered investment adviser with the SEC pursuant to the Advisers Act. MIMGL is headquartered in Sydney, Australia.
•
Macquarie Investment Management Europe S.A. (“MIME S.A.”): MIME S.A. is authorized and regulated by the Commission de Surveillance du Secteur Financier (“CSSF”) in the Grand Duchy of Luxembourg. MIME S.A. has an application pending to become a registered investment adviser with the SEC pursuant to the Advisers Act. MIME S.A. is headquartered in Luxembourg.
•
Macquarie Funds Management Hong Kong Limited (“MFMHK”): MFMHK is licensed by the Securities and Futures Commission of Hong Kong and is also a registered investment adviser with the SEC pursuant to the Advisers Act. MFMHK is headquartered in Hong Kong.
•
Macquarie Investment Management Austria Kapitalanlage AG (“MIMAK”): MIMAK is authorized and regulated by the Financial Markets Authority (“FMA”) in Austria and is also a registered investment adviser with the SEC pursuant to the Advisers Act. MIMAK is headquartered in Vienna, Austria.
•
Macquarie Investment Management Europe Limited (“MIMEL”): MIMEL is authorized and regulated by the Financial Conduct Authority (“FCA”) in the United Kingdom. MIMEL is also a registered investment adviser with the SEC pursuant to the Advisers Act. MIMEL is headquartered in London, England.
•
MIMBT and its series, MIMGL, MIME S.A., MFMHK, MIMAK, and MIMEL are referred to herein as MIM.
MIM provides investment advisory and portfolio management services to various types of clients such as registered and unregistered commingled funds, defined benefit plans, defined contribution plans, private and public pension funds, foundations, endowment funds and other types of institutional investors. Pursuant to the terms of an investment management agreement between MIM and its client or as a result of some other type of specific delegation by the client, MIM is often given the authority and discretion to exercise the securityholder’s right to vote on company and shareholder resolutions (referred to herein as “proxy” or “proxies”) relating to the underlying securities held in such client portfolios managed by MIM. Also, clients sometimes ask MIM to give voting advice on certain proxies without delegating full responsibility to MIM to vote proxies on behalf of the client. Clients also have the option to retain the responsibility to vote proxies for their portfolio securities and occasionally clients will ask MIM to vote proxies pursuant to a client’s proxy voting policy. In cases where MIM has been delegated the responsibility to vote or provide advice on proxies, MIM has developed the following Procedures in order to ensure that MIM votes proxies or gives proxy voting advice that MIM believe is in the best interests of its clients. Typically, the investment management agreement between MIM and a client will fully and fairly disclose the terms of MIM’s role in proxy voting and such agreement will demonstrate the client’s informed consent on such proxy voting authority.
1
The list of companies noted within these Procedures does not include every asset management entity within the MIM organization. For inquiries regarding the proxy voting policies of MIM companies not included above, please contact such MIM entity or your MIM representative for more details.
Procedures for Voting Proxies
MIM has established a Proxy Voting Committee (the “Committee”) that is responsible for overseeing MIM’s proxy voting process. The Committee consists of the following persons in MIM: (i) at least five portfolio management representatives; (ii) one representative from Fund Administration; (iii) one representative from the Client Group; (iv) one representative from Compliance; and (v) one representative from the Legal Department. The person(s) representing each department on the
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Committee may change from time to time, but at least one member of the Committee will also be a member of MIM’s ESG Oversight Committee. The Committee will meet as necessary to help MIM fulfill its duties to vote proxies for clients, but in any event, will meet at least quarterly to discuss various proxy voting issues. The Committee may meet in person, by video conference, and/or telephonically and may also conduct business via email or by other electronic communication.
One of the main responsibilities of the Committee is to review and approve the Procedures on a yearly basis or as otherwise necessary. When reviewing the Procedures, the Committee looks to see if the Procedures are designed to allow MIM to vote proxies in a manner consistent with the goals of voting in the best interests of clients and maximizing the value of the underlying shares being voted on by MIM. The Committee will also review the Procedures to make sure that they comply with any new rules promulgated by the SEC, the Australian Securities & Investments Commission (“ASIC”), the CSSF, the FMA, the FCA, the European Securities and Markets Authority (“ESMA”), or other relevant regulatory bodies. After the Procedures are approved by the Committee, MIM will vote proxies or give advice on voting proxies generally in accordance with such Procedures and MIM’s Proxy Voting Guidelines (the “Guidelines”).
In order to facilitate the actual process of voting proxies, MIM retains the following proxy advisory firms (as of the date of these Procedures) for various services: Institutional Shareholder Services (“ISS”); Glass Lewis & Co., including its Australian subsidiary CGI Glass Lewis (together, “Glass Lewis”); and Ownership Matters (“OM”). ISS, Glass Lewis, OM, and any other proxy advisory firms utilized by MIM are collectively referred to as “Proxy Advisor” within these Procedures. Also, certain clients may request that MIM utilize the client’s preferred proxy advisory firm from time to time and as agreed to by the parties.
The Proxy Advisor and/or the client’s custodian monitor corporate events in connection with MIM’s client accounts. After receiving the proxy statements, Proxy Advisor will review the proxy issues and recommend a vote in accordance with MIM’s Guidelines. When the Guidelines state that a proxy issue will be decided on a case-by-case basis, Proxy Advisor’s custom research team will look at the relevant facts and circumstances and research the issue to provide MIM with a recommendation as to how the proxy should be voted in accordance with the parameters described in the Guidelines. If the Guidelines do not address a particular proxy issue, Proxy Advisor will similarly look at the relevant facts and circumstances and research the issue to provide a recommendation as to how the proxy should be voted. In limited cases where Proxy Advisor is unable to provide research and a proxy vote recommendation for a portfolio company, MIM will be solely responsible for researching the proxy and voting the proxy.
Proxy Advisor’s proxy voting research recommendations are made available to the applicable portfolio management teams within MIM to review and evaluate prior to the corresponding shareholder meeting. As described further below in the “Proxy Voting Guidelines” section, there will be times when a MIM portfolio management team believes that the best interests of the client will be better served if MIM votes a proxy counter to Proxy Advisor’s research recommendation under the Guidelines. In these cases, the portfolio management team will document the rationale for their votes and provide such rationale to the Committee or the Committee’s delegates for its records. The Committee and its delegates are responsible for reviewing the rationale for these votes to assure that it provides a reasonable basis for any vote.
After a proxy has been voted, Proxy Advisor will create a record of the vote in order to help MIM comply with its duties listed under “Availability of Proxy Voting Information and Recordkeeping” below. If a client provides MIM with its own instruction on a given proxy vote for their portfolio, MIM will forward the client’s instruction to Proxy Advisor who will vote the client’s proxy pursuant to the client’s instruction.
MIM will attempt to vote every proxy which they or their agents receive when a client has given MIM the authority and direction to vote such proxies. However, there are situations in which MIM may not be able to process a proxy or the cost of processing such proxies would be high and/or exceed the expected benefits to the client. Examples of such situations include, but are not limited to: MIM may not have sufficient time to process a vote because MIM or its agents received a proxy statement in an untimely manner; MIM generally retains voting rights in respect of securities lent or pledged as collateral but may in certain situations be unable to vote a proxy, for example in relation to a security that is on loan pursuant to a securities lending program; or casting a vote on a security could involve additional costs such as hiring a translator or hiring an agent or traveling to the site of the shareholder meeting to vote the proxy in person. Use of a Proxy Advisor and relationships with multiple custodians can help to mitigate a situation where MIM is unable to vote a proxy.
Company Management Recommendations
When determining whether to invest in a particular company, one of the factors MIM may consider is the quality and depth of the company’s management. As a result, MIM believes that recommendations of management on any issue (particularly routine issues) should be given a fair amount of weight in determining how proxy issues should be voted. Thus, on many issues, MIM’s votes are cast in accordance with the recommendations of the company’s management. However, MIM may vote against management’s position when it runs counter to the Guidelines, and MIM will also vote against management’s recommendation when MIM believes such position is not in the best interests of MIM’s clients.
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MIM portfolio management teams retain the ability to discuss upcoming proxy votes with company management. In those instances where MIM votes against management’s recommendation and the proxy result is contrary to MIM’s vote, the portfolio management team that manages the security may escalate the matter. Each portfolio management team is responsible for determining whether there is a need to escalate based on the facts and circumstances of the proxy vote. Options available to the portfolio management team include: directly contacting the company’s senior management; utilizing MIM’s Head of ESG Oversight to engage with the company on the team’s behalf; and/or reducing the team’s holdings in the company or divesting from the position in its entirety.
Conflicts of Interest
As a matter of policy, the Committee and any other officers, directors, employees and affiliated persons of MIM may not be influenced by outside sources who have interests which conflict with the interests of MIM’s clients when voting proxies for such clients. However, in order to ensure that MIM votes proxies in the best interests of the client, MIM has established various systems described below to properly deal with a material conflict of interest.
Most of the proxies which MIM receives on behalf of its clients are voted in accordance with the Guidelines. As stated above, these Procedures (including the Guidelines) are reviewed and approved by the Committee annually and at other necessary times. The custom Guidelines are then utilized by Proxy Advisor going forward to provide recommendations on how to vote client proxies. The Committee approves the Guidelines only after it has determined that the Guidelines are designed to help MIM vote proxies in a manner consistent with the goal of voting in the best interests of its clients. Since the Guidelines are pre-determined by the Committee, application of the Guidelines by MIM’s portfolio management teams when voting proxies after reviewing the proxy and research provided by Proxy Advisor should in most instances adequately address any potential conflicts of interest.
If MIM becomes aware of a conflict of interest in an upcoming proxy vote, the proxy vote will generally be referred to the Committee or the Committee’s delegates for review. If the portfolio management team for such proxy intends to vote in accordance with Proxy Advisor’s recommendation pursuant to our Guidelines, then no further action is needed to be taken by the Committee. If the MIM portfolio management team is considering voting a proxy contrary to Proxy Advisor’s research recommendation under the Guidelines, the Committee or its delegates will assess the proposed vote to determine if it is reasonable. The Committee or its delegates will also assess whether any business or other material relationships between MIM and a portfolio company (unrelated to the ownership of the portfolio company’s securities) could have influenced an inconsistent vote on that company’s proxy. If the Committee or its delegates determines that the proposed proxy vote is unreasonable or unduly influenced by a conflict, the portfolio management team will be required to vote the proxy in accordance with Proxy Advisor’s research recommendation or abstain from voting. Except as permitted by law, MIM will not vote in relation to related party securities on proposals in which MIM has an interest other than as an investor. Generally, MIM will abstain from voting on proposals related to Macquarie Group Limited (“MGL”) or on entities controlled by MGL.
Oversight of Proxy Advisory Firm
The Committee and appropriate MIM personnel are responsible for overseeing Proxy Advisor’s proxy voting activities for MIM’s clients. MIM will conduct periodic due diligence of Proxy Advisor that will include: (i) Proxy Advisor’s conflict of interest procedures and any other pertinent procedures or representations from Proxy Advisor in an attempt to ensure that Proxy Advisor will make research recommendations for voting proxies in an impartial manner and in the best interests of MIM’s clients; (ii) the adequacy and quality of Proxy Advisor’s staffing, personnel, and technology; (iii) the methodologies, guidelines, sources and factors underlying Proxy Advisor’s voting recommendations; (iv) whether Proxy Advisor has an effective engagement process for seeking timely input from issuers, its clients and other third parties and how that input is incorporated into Proxy Advisor’s methodologies, guidelines and proxy voting recommendations; (v) how Proxy Advisor ensures that it has complete, accurate and up-to-date information about each proxy voting matter and updates its research accordingly; (vi) reviewing whether Proxy Advisor has undergone any recent, material organizational or business changes; and (vii) a review of Proxy Advisor’s general compliance with the terms of its agreement with MIM.
Availability of Proxy Voting Information and Record Keeping
Clients of MIM will be directed to their client service representative to obtain information from MIM on how their securities were voted. At the beginning of a new relationship with a client, MIM will typically provide clients with a concise summary of MIM’s proxy voting process and will inform clients that they can obtain a copy of the complete Procedures upon request. Existing clients will also be provided with the above information as agreed with the client.
Where required by applicable law, MIM will also retain records regarding proxy voting on behalf of clients. MIM will typically keep records of the following items: (i) the Procedures; (ii) proxy statements received regarding client securities (via hard copies held by Proxy Advisor or electronic filings from the company’s respective regulatory filing system); (iii) records of votes cast on behalf of MIM’s clients (via Proxy Advisor); (iv) records of a client’s written request for information on how MIM voted proxies for the client, and any MIM written response to an oral or written client request for information on how MIM voted proxies for the client; and (v) any documents prepared by MIM that were material to making a decision as to how to vote or that memorialized the basis for that decision.
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Proxy Voting Guidelines
The Proxy Voting Guidelines summarize MIM’s positions on various issues and give a general indication as to how MIM will vote proxies on each issue. The Proxy Voting Committee has reviewed the Guidelines and determined that voting proxies pursuant to the Guidelines should be in the best interests of the client and should align with the goal of maximizing the value of the client’s investments.
For certain clients, MIM may also need to take into account additional factors outside of the Guidelines that will influence how MIM analyzes and votes proxies. For example, proxy votes made by MIM for a client with specialized investment objectives and strategies may take into account additional research and factors that may lead a portfolio management team to vote a proxy in a different manner. In these situations, MIM may also develop one-off proxy voting guidelines for such client. In addition, the location of a portfolio company may also necessitate MIM having to review additional research and factors in order to account for local laws and standards when voting proxies.
Moreover, the list of Guidelines may not include all potential voting issues. To the extent that the Guidelines do not cover potential voting issues, MIM will vote on such issues in a manner that is consistent with the spirit of the Guidelines and that MIM believes promotes the best interests of the client.
Although MIM will usually vote proxies in accordance with these Guidelines, each MIM portfolio management team reserves the right to vote certain issues counter to the Guidelines if, after a thorough review of the matter, the team believes that a client’s best interests would be served by such a vote. In all cases, the MIM portfolio management team responsible for voting proxies on behalf of a client will have the final decision on how to vote proxies, subject to these Procedures.
To the extent that management of a portfolio company or another company shareholder would like to engage with MIM on a particular proxy statement, the company or shareholder should reach out to the MIM portfolio management team who holds the applicable company security on behalf of its clients. MIM will consider any additional information provided by the company or shareholder regarding an upcoming proxy and analyze such information along with prior research provided by Proxy Advisor before coming to a decision on how to vote an applicable proxy.
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Gotham Asset Management, LLC
Proxy Voting and Class Actions
A. Purpose
In order to comply with Rule 206(4)-6 of the Investment Advisers Act, Gotham has adopted written policies and procedures that are reasonably designed to ensure that Gotham’s voting determinations with respect to Client securities are made in the best interest of the Client (considering its investment strategy) and do not place Gotham’s own interests ahead of the interests of its Client. The Investment Advisers Act also requires disclosure to Clients with respect to obtaining information on how their securities were voted and Gotham’s guidelines for voting Client securities.
B. Proxy Policies and Procedures
Gotham employs a value-based investment program for its Clients that is generally passive and agnostic on corporate control and other management issues that are presented to shareholders for approval (“proxies”). Nevertheless, at present, Gotham generally votes proxies for its Clients in accordance with the procedures below. These procedures may be modified with respect to certain Clients, provided that such Client agrees to such arrangement. For example, certain SMA Clients vote their own proxies pursuant to their investment management agreement. Gotham votes Client securities using Proxy Exchange, an electronic voting platform provided by ISS. Proxy Exchange retains a record of proxy votes for each Client.
When Gotham votes proxies, it seeks to do so in the best interests of its Clients considering their investment strategy and must not place its own interests ahead of the interests of its Clients. Accordingly, Gotham generally votes Client securities in conformity with the recommendations of Institutional Shareholder Services Inc. (“ISS”). ISS is a neutral third party that issues recommendations based on its own internal guidelines and research. ISS retains a record of all of its recommendations. Gotham believes that the retention of ISS to provide advice with respect to proxy voting is an efficient and effective means to assist Gotham in complying with its fiduciary duties to its Clients, and also provides a means to avoid any impact on voting decisions that might arise from any conflicts of interests between Gotham and its Clients.
When it votes proxies, Gotham may, however, vote Client securities in a manner that is inconsistent with ISS’ recommendations when Gotham believes it is in the best interest of its Clients and such a vote does not create an impermissible conflict of interest between Gotham and its Clients. In such a case, Gotham will keep a record of why ISS’ recommendation was not in the Client’s best interest and information supporting Gotham’s decision.
Gotham also may determine not to vote a particular proxy if it determines that abstaining or not voting is in the best interests of its Client. In making such a determination, Gotham will consider various factors including, but not limited to, whether:
(i)
the resolution of the proxy is not relevant to the Client’s investment;
(ii)
Gotham believes the cost of voting the proxy outweighs the potential benefit to the Client derived from voting;
(iii)
a proxy is received with respect to securities that are no longer held in a Client account;
(iv)
the terms of a securities lending agreement prevent Gotham from voting a loaned security;
(v)
Gotham (or Proxy Exchange) receives proxy materials without sufficient time to reach an informed voting decision and vote the proxies;
(vi)
ISS does not have a recommendation; or
(vii)
the terms of the security or any related agreement or applicable law preclude Gotham from voting.
The Firm will generally vote in the same manner for all Clients holding a particular security, subject to the investment objectives and best interests of each Client.
In accordance with SEC guidance issued in August 2019, and in order to verify that proxy votes are cast in accordance with Clients’ best interests and our proxy voting procedures, the GC/CCO, the Director of Compliance or their designee will periodically (but no less often than annually) sample proxy votes to review whether they complied with the Firm’s proxy voting policy and procedures.
The Firm will also periodically review ISS’ capacity and competency to adequately analyze proxy issues. In this regard, Gotham may consider relevant factors, including whether ISS, among other things:
•
Has sufficient resources, such as ISS’ staffing, personnel and/or technology;
•
Has an effective process for seeking input from issuers;
•
Has adequate disclosures as to it methodologies;
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•
Has adequate policies and procedures to address conflicts of interest; and
•
Has adequate processes to identify potential factual errors, incompleteness or methodological weakness.
Finally, the Firm will review and document, no less than annually, the adequacy of Gotham’s policies and procedures to ensure they have been formulated reasonably and implemented effectively, including whether they continue to be reasonably designed to ensure that Gotham casts votes on behalf of its Clients in the best interest of such Clients.
C. Conflicts of Interest
Supervised Persons must inform the GC/CCO if they become aware of any material conflict of interest between the Firm and a Client or between Clients with respect to a proxy vote. Conflicts may also exist due to positions held by Supervised Persons in their personal trading accounts. Since the Firm generally votes in accordance with ISS’ recommendations, Gotham believes that generally no conflicts of interest will impact Gotham’s vote. When voting Client securities in a manner that is inconsistent with ISS’ recommendations, Gotham will review any conflicts of interest that are identified.
The GC/CCO, or his designee, will attempt to resolve the conflict of interest before the Firm votes. In the event that the material conflict of interest cannot be reasonably resolved prior to voting, the Firm will take steps designed to ensure that a decision to vote the proxy was based on the Firm’s determination of the Client’s best interest and was not the product of the conflict. The Firm will disclose and obtain consent of the Client to the extent required under applicable law.
D. Reporting and Disclosure Procedures
Gotham generally does not disclose proxy votes on behalf of a Client to any other Client. To the extent that Gotham serves as a sub-adviser to another adviser, Gotham may provide proxy voting records to such adviser, if requested. Proxy votes on behalf of Mutual Funds are disclosed annually on Form N-PX.
The Firm will include in its Brochure a summary of this proxy voting policy. Each Client may request a copy of this proxy voting policy, ISS’ proxy voting guidelines, and records of how such Client’s securities were voted by making a written request to:
Gotham Asset Management, LLC
535 Madison Avenue, 30th Floor
New York, NY 10022
Attention: Legal & Compliance
E. Recordkeeping
The Firm maintains records of: (a) this proxy voting policy; (b) all proxy statements and materials the Firm receives on behalf of Clients unless such materials are readily available from the SEC via EDGAR; (c) all proxy votes that are made on behalf of the Clients; (d) all written requests from Clients regarding voting history; and (e) all responses (written and oral) to Clients’ requests. Such records are available to the impacted Client upon request. To fulfill some of these recordkeeping requirements, the Firm may rely on information stored on Proxy Exchange (or the predecessor system used by the Firm), Firm e-mail or other third party service providers.+
F. Class Action Settlement Procedures; Opt-Outs
The Firm has retained a third-party service provider to monitor and file claims in class action settlements on behalf of certain Clients, including the Private Funds, the Mutual Fund and certain SMAs. The GC/CCO and Chief Financial Officer oversee this process. Any compensation received from such settlements shall be distributed pro rata to the Clients based on the percentage of the relevant holding owned by each Client.
In certain cases, the Firm may elect to “opt-out” of securities class action cases and pursue litigation against an issuer directly. This will generally be done in situations where a Client or the Firm feels the potential benefit to a Client or the Firm outweighs the costs and burdens of litigation.
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Graham Capital Management, L.P.
Proxy Voting and Class Actions
February 2021
A.
General
Graham has adopted policies and procedures (the “Proxy Voting Policies and Procedures”) which have been designed to ensure that Graham complies with the requirements of Rule 206(4)-6 and Rule 204-2(c)(2) under the Advisers Act, and reflect Graham’s commitment to vote all Client securities for which it exercises voting authority in a manner consistent with the best interest of the Client. Employees who have the authority to vote Client securities must familiarize themselves with and strictly adhere to Graham’s Proxy Voting Policies and Procedures.
Although the Advisers Act does not obligate advisers to adopt policies and procedures in respect of participating in class actions, in its capacity as a fiduciary to its Clients Graham has nonetheless adopted such policies and procedures.
B.
Proxy Voting Policies and Procedures
Graham has selected and retained ISS Governance Services to assist in the proxy voting process. The CCO manages Graham’s relationship with ISS. The CCO ensures that ISS votes all proxies according to Graham’s general guidance, and retains all required documentation associated with proxy voting.
Graham has approved a list of proxy voting guidelines that ISS generally follows when recommending how to vote on particular proxies. The following guidelines reflect ISS’ general approach on certain key proxy proposals; however, these guidelines represent only a small number of proposals and the guidelines are much broader in scope and more detailed.
•
Auditor Ratification. ISS generally recommends to vote FOR proposals to ratify auditors except where (i) the auditor has a financial interest or association with the company, (ii) there is reason to believe the auditor has rendered an opinion that is neither accurate nor indicative of the company’s financial position, (iii) poor accounting practices have been identified that rise to a serious level of concern or (iv) fees for non-audit services are excessive;
•
Board of Directors. ISS generally recommends to vote FOR director nominees except where (i) the board lacks accountability coupled with sustained poor performance relative to peers, (ii) the board demonstrates a lack of responsiveness (e.g., in responding to shareholder proposals, takeover offers, issues that resulted in one or more directors receiving more than 50% withhold/against votes, etc.), (iii) there are defects in the composition of the board (e.g., unacceptable attendance at board and committee meetings, directors serve on excessive number of boards of other companies, etc.), and (iv) the board lacks sufficient controls or features to ensure its independence;
•
Capital Structure Changes. ISS generally recommends to vote (i) FOR proposals to increase the number of shares where the primary purpose is to issue shares in connection with a transaction on the same ballot, (ii) AGAINST proposals to increase the number of shares of a class with superior voting rights, (iii) AGAINST proposals to increase the number of shares if a vote for a reverse stock split is on the same ballot, and (iv) AGAINST proposals to create a new class of common stock, except under certain conditions;
•
Executive Compensation. ISS Generally recommends to vote (i) AGAINST advisory votes on executive compensation if there is a significant misalignment between CEO pay and company performance, the company maintains problematic pay practices or the board exhibits a significant level of poor communications and responsiveness to shareholders, (ii) AGAINST/WITHHOLD from the members of the compensation committee or full board as applicable where there is no management-say-on pay item on the ballot, and in other instances, and (iii) AGAINST an equity plan if there is a performance misalignment and the CEO’s pay is skewed towards non-performance based equity awards.
Portfolio Managers that wish to deviate from ISS’s proxy recommendations must provide the CCO with a written explanation of the reason for the deviation, as well as a representation that the employee and Graham are not conflicted in making the chosen voting decision.
Because Graham generally will vote proxies based upon the recommendations of ISS, there is little to no risk of a conflict of interest arising. However, in instances that might involve a conflict of interest between Graham and its Clients, such as where a portfolio manager wishes to deviate from ISS’s recommendation or such other instances as Graham may determine, the CCO, in conjunction with the compliance committee as appropriate, will review the relevant facts and determine whether or not a material conflict of interest may arise due to business, personal or family relationships of Graham, its owners, its employees or its affiliates, with persons having an interest in the outcome of the vote. If a material conflict exists, Graham will take steps to ensure that its voting decision is based on the best interests of the Client and is not a product of the conflict. Graham shall keep appropriate records demonstrating how such conflicts were resolved.
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ISS will retain, on Graham’s behalf, the following information in connection with each proxy vote:
•
The Issuer’s name;
•
The security ticker symbol or CUSIP, as applicable;
•
The shareholder meeting date;
•
The number of shares that Graham voted;
•
A brief identification of the matter voted on;
•
Whether the matter was proposed by the Issuer or a security holder;
•
Whether Graham cast a vote;
•
How Graham cast its vote (for the proposal, against the proposal, or abstain); and
•
Whether Graham cast its vote with or against management.
With respect to each registered investment company for which Graham provides discretionary sub-advisory services, Graham will provide each fund with a copy of Graham’s proxy voting policy. In addition, when requested, Graham will provide such funds with information concerning Graham’s proxy voting policy and voting results as required to enable such funds to file periodic proxy voting reports.
C.
Class Actions
As a fiduciary, Graham always seeks to act in the best interest of its Clients, with good faith, loyalty, and due care. Accordingly, with respect to class actions involving any Graham Funds, Graham will determine whether the fund will (a) participate in a recovery achieved through a class action, (b) opt out of the class action and separately pursue its own remedy, or (c) opt out of the class action and not pursue its own remedy. Graham’s legal department oversees the completion of Proof of Claim forms and any associated documentation the submission of such documents to the claim administrator, and the receipt of any recovered monies. Graham will maintain documentation associated with participation in class actions by any Graham Funds. Consistent with its procedures for selecting and monitoring service providers and its fiduciary obligation to Clients, Graham may utilize third-party service providers to facilitate the processing and administration of class action claims.
Graham, for itself or on behalf of its funds, generally does not serve as the lead plaintiff in class actions because the costs of such participation typically exceed any extra benefits that accrue to lead plaintiffs.
D.
Disclosures to Investors
Graham includes a description of its policies and procedures regarding proxy voting and class actions in Part 2 of the Form ADV, along with a statement that investors can contact Graham to obtain a copy of these policies and procedures and information about how Graham voted proxies.
Any request for information about proxy voting or class actions should be promptly forwarded to the CCO, who will respond to any such requests.
As a matter of policy, Graham does not disclose how it expects to vote on upcoming proxies. Additionally, Graham does not disclose the way it voted proxies to unaffiliated third parties without a legitimate need to know such information.
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Impax Asset Management
Proxy Voting Policy
March 2021
This Proxy Voting Policy (the “Policy”) is applicable to all regulated entities of the Impax Group, namely:
•
Impax Asset Management Limited (“Ltd”)
•
Impax Asset Management (AIFM) Ltd (“AIFM”)
•
Impax Asset Management Ireland Ltd
•
Impax Asset Management LLC
•
Pax World Funds Series Trust I and
•
Pax World Funds Series Trust III (the “Pax World Funds”); all collectively defined as “Impax” or the “Firm”
1. Principles:
Proxy voting is the exercise of voting rights obtained by the firm in the course of its day-to-day investment activities in listed equities, deemed to meet Impax’s investment criteria. It is a key component in the ongoing dialogue with the companies in which the Firm invests. As such, proxy voting forms an important aspect of Impax’s overall investment process.
The Firm is committed to ensuring the consistent exercise of voting rights associated with shares held in investment mandates, where proxy voting has been delegated to Impax. Through the implementation of this Policy, Impax aims to enhance the long-term value of its shareholdings, foster clear corporate governance best practices and promote greater accountability and transparency in the companies Impax has invested in. The Firm also aims to exercise voting rights on all shares held by Impax, where it is in the best interest of its clients and where excessive costs or administrative burdens are not present. It is the Firm’s policy to vote in all shareholder meetings and on behalf of all investors who have granted the Firm voting rights.
Impax invests in companies in a variety of countries and markets around the globe each year. Each market has unique rules, reporting requirements, and ESG practices and standards. The Firm aims to stay abreast of new and emerging issues in these markets, and how they relate to global best practices for ESG issues.
The Firm supports the UK Stewardship Code and complies with its guidelines regarding proxy voting. The Pax World Funds comply with the U.S. Securities and Exchange Commission’s proxy voting disclosure requirements for mutual funds. In addition, as part of Impax’s on-going proprietary company and issuer-level ESG analysis, the Firm identifies company-specific matters and risks. As part of monitoring and managing risks, Impax exercises active ownership and actively votes on and engages with companies and issuers regarding these matters.
Main Corporate Governance Principles That We Expect From Our Investee Companies:
•
Creating sustainable, long-term value for stakeholders
•
Protecting shareholder rights
•
Maintaining high integrity in corporate behaviour at all times
•
Ensuring an independent and efficient board structure
•
Aligning corporate incentive structures and remuneration with long-term interests of shareholders
•
Disclosing accurate, timely and transparent financial and corporate governance information
•
Ensuring strong environmental and social performance and disclosures.
2. Environmental, Social and Governance considerations
Impax believes that well-governed companies are attentive to the environmental, social and governance (ESG) concerns that affect shareholders and stakeholders. These companies actively engage with their stakeholders and consider the long-term implications of their actions with a focus on creating durable, sustainable value.
Our ESG criteria helps us identify well-managed companies; while stewardship helps us improve the environmental, social and corporate governance performance of the companies we invest in. Proxy voting is one of the ways of engagement with investee companies. Impax seeks to vote proxies consistently with our ESG criteria, which we apply to all companies.
3. Processes:
Impax’s proxy voting is predominantly related to governance issues such as the election of directors, board structures and management remuneration. The Firm also maintains dialogue with investee companies throughout the year and frequently engages on proposed governance structures ahead of voting at an AGM or soon after.
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•
Impax uses a third-party voting platform to facilitate the Firm’s vote execution, reporting and record keeping. Impax also use third-party service providers, including proxy advisor service providers, to help inform its analysis of relevant proxy issues and proxy votes.
•
Impax’s proxy voting principles and guidelines are informed by individual country governance codes and best practices, and by advisory governance and internal research.
•
The Firm applies its voting principles and guidelines with full consideration to a company’s circumstances, following internal analysis.
•
Votes are cast on shares, where there are no legal, financial or technical constraints.
•
Where Impax’s proxy voting principles and guidelines or general corporate governance best practice principles are not met, the Firm votes against a resolution and, when practical, attempt to engage with the investee firm before or after the meeting.
•
Impax carefully assesses shareholder resolutions and tend to vote for resolutions that are reasonable and would strengthen governance structures, shareholder rights or sustainability processes and disclosures.
4. Proxy Voting Conflicts of Interest
The Firm reviews each proxy vote to assess the extent, if any, to which there may be a material conflict between the interests of our clients and the Firm’s own interests (including those of our affiliates, managers, officers, employees and other connected persons) (referred to hereafter as a “Potential Proxy Conflict of Interest”). Impax performs this assessment on a resolution basis.
The Firm conducts proxy voting in accordance with its own Proxy Voting Guidelines. If it is determined that a Potential Proxy Conflict of Interest exists, the potential conflict will be promptly reported to the Firm’s Chief Compliance Officer (the “CCO”). The CCO will then determine whether a Potential Proxy Conflict of Interest exists and is authorized to resolve any such conflict in a manner that is in the collective best interests of all affected clients. The CCO may decide to resolve a Potential Proxy Conflict of Interest in any of the following manners:
•
Impax may disclose any potential conflict to affected clients and obtain the consent of the majority of those clients, before voting in the manner approved by the majority of those clients;
•
Impax may elect to engage an independent third-party to help determine how the proxy should be voted on; or
•
Impax may elect to establish an internal information barrier between the relevant person(s) that are involved in the potential conflict and the person(s) involved in making the proxy voting decision, in order to insulate the potential conflict from the proxy vote decision maker.
5. Disclosures:
•
Proxy voting records:
•
On a quarterly basis Impax publicly discloses on its website a summary of the company’s proxy voting activity.
•
On an annual basis Impax publicly discloses on its website all “significant votes”1 cast.
•
Voting decisions for both past and upcoming meetings for each of the Pax World Funds are disclosed on the Pax World Funds’ website.
•
Pax World Funds files a Form N-PX (annual report of proxy voting record) with the U.S. Securities and Exchange Commission annually.
•
Impax Proxy Voting Guidelines; periodically updated.
•
ESG policy: Impax’s ESG policy is publicly disclosed on the Impax website.
•
UK Stewardship Code Statement: This statement can be found on the Impax website.
•
Client Communications: The Firm regularly discusses and reports its stewardship policies and/or activities with its clients. The Manager Reports published include a reference to where further information on the Firm’s stewardship policies and activities can be found.
All the publicly disclosed policies and documents can be found here:
https://impaxam.com/investment-philosophy/environmental-social-and-governance-risk-management/
https://impaxam.com/pax-world-funds/proxy-voting/
1
Impax defines “significant votes” as those votes that not just purely procedural, but that are material in describing a company’s financial position, corporate governance profile or other corporate structures or processes (whether votes are cast FOR or AGAINST management). This disclosure applies to funds managed by Impax Asset Management Limited, Impax Asset Management Ireland Ltd, Impax Asset Management (AIFM) Ltd.
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LOOMIS, SAYLES & COMPANY
Proxy Voting Policies and Procedures
March 26, 2021
1. General
A. Introduction.
Loomis, Sayles & Company, L.P. (“Loomis Sayles”) will vote proxies of the securities held in its clients’ portfolios on behalf of each client that has delegated proxy voting authority to Loomis Sayles as investment adviser. Loomis Sayles has adopted and implemented these policies and procedures (“Proxy Voting Procedures”) to ensure that, where it has voting authority, proxy matters are handled in the best interests of clients, in accordance with Loomis Sayles’ fiduciary duty, and all applicable law and regulations. The Proxy Voting Procedures, as implemented by the Loomis Sayles Proxy Committee (as described below), are intended to support good corporate governance, including those corporate practices that address environmental and social issues (“ESG Matters”), in all cases with the objective of protecting shareholder interests and maximizing shareholder value.
Loomis Sayles uses the services of third parties (each a “Proxy Voting Service” and collectively the “Proxy Voting Services”), to provide research, analysis and voting recommendations and to administer the process of voting proxies for those clients for which Loomis Sayles has voting authority. Any reference in these Proxy Voting Procedures to a “Proxy Voting Service” is a reference either to the Proxy Voting Service that provides research, analysis and voting recommendations to Loomis Sayles or to the Proxy Voting Service that administers the process of voting proxies for Loomis Sayles or to both, as the context may require. Loomis Sayles will generally follow its express policy with input from the Proxy Voting Service that provides research, analysis and voting recommendations to Loomis Sayles unless the Proxy Committee determines that the client’s best interests are served by voting otherwise.
B. General Guidelines.
The following guidelines will apply when voting proxies on behalf of accounts for which Loomis Sayles has voting authority.
1.
Client’s Best Interests. The Proxy Voting Procedures are designed and implemented in a way that is reasonably expected to ensure that proxy matters are conducted in the best interests of clients. When considering the best interests of clients, Loomis Sayles has determined that this means the best investment interest of its clients as shareholders of the issuer. To protect its clients’ best interests, Loomis Sayles has integrated the consideration of ESG Matters into its investment process. The Proxy Voting Procedures are intended to reflect the impact of these factors in cases where they are material to the growth and sustainability of an issuer. Loomis Sayles has established its Proxy Voting Procedures to assist it in making its proxy voting decisions with a view toward enhancing the value of its clients’ interests in an issuer over the period during which it expects its clients to hold their investments. Loomis Sayles will vote against proposals that it believes could adversely impact the current or future market value of the issuer’s securities during the expected holding period. Loomis Sayles also believes that protecting the best interests of clients requires the consideration of potential material impacts of proxy proposals associated with ESG Matters.
For the avoidance of doubt, and notwithstanding any other provisions of these Proxy Voting Procedures, in all instances in which Loomis Sayles votes proxies on behalf of clients that are employee benefit plans subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), Loomis Sayles (a) will act solely in accordance with the economic interest of the plan and its participants and beneficiaries, and (b) will not subordinate the interests of the participants and beneficiaries in their retirement income or financial benefits under the plan to any non-pecuniary objective, or promote non-pecuniary benefits or goals unrelated to those financial interests of the plan’s participants and beneficiaries.
2.
Client Proxy Voting Policies. Rather than delegating proxy voting authority to Loomis Sayles, a client may (a) retain the authority to vote proxies on securities in its account; (b) delegate voting authority to another party; or (c) instruct Loomis Sayles to vote proxies according to a policy that differs from the Proxy Voting Procedures. Loomis Sayles will honor any of these instructions if the instruction is agreed to in writing by Loomis Sayles in its investment management agreement with the client. If Loomis Sayles incurs additional costs or expenses in following any such instruction, it may request payment for such additional costs or expenses from the client.
3.
Stated Policies. In the interest of consistency in voting proxies on behalf of its clients where appropriate, Loomis Sayles has adopted policies that identify issues where Loomis Sayles will (a) generally vote in favor of a proposal; (b) generally vote against a proposal; (c) generally vote as recommended by the Proxy Voting Service; and (d)
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specifically consider its vote for or against a proposal. However, these policies are guidelines and each vote may be cast differently than the stated policy, taking into consideration all relevant facts and circumstances at the time of the vote. In certain cases where the recommendation of the Proxy Voting Service and the recommendation of the issuer’s management are the same, the vote will generally be cast as recommended and will not be reviewed on a case-by-case basis by the Proxy Committee. In cases where the portfolio manager of an account that holds voting securities of an issuer or the analyst covering the issuer or its securities recommends a vote, the proposal(s) will be voted according to these recommendations after a review for any potential conflicts of interest is conducted and will not be reviewed on a case-by-case basis by the Proxy Committee. There may be situations where Loomis Sayles casts split votes despite the stated policies. For example, Loomis Sayles may cast a split vote when different clients may be invested in strategies with different investment objectives, or when different clients may have different economic interests in the outcome of a particular proposal. Loomis Sayles also may cast a split vote on a particular proposal when its investment teams have differing views regarding the impact of the proposal on their clients’ investment interests.
4.
Abstentions and Other Exceptions. Loomis Sayles’ general policy is to vote rather than abstain from voting on issues presented, unless the Proxy Committee determines, pursuant to its best judgment, that the client’s best interests require abstention. However, in the following circumstances Loomis Sayles may not vote a client’s proxy:
•
The Proxy Committee has concluded that voting would have no meaningful, identifiable economic benefit to the client as a shareholder, such as when the security is no longer held in the client’s portfolio or when the value of the portfolio holding is insignificant.
•
The Proxy Committee has concluded that the costs of or disadvantages resulting from voting outweigh the economic benefits of voting. For example, in some non-US jurisdictions, the sale of securities voted may be legally or practically prohibited or subject to some restrictions for some period of time, usually between the record and meeting dates (“share blocking”). Loomis Sayles believes that the loss of investment flexibility resulting from share blocking generally outweighs the benefit to be gained by voting. Information about share blocking is often incomplete or contradictory. Loomis Sayles relies on the client’s custodian and on its Proxy Voting Service to identify share blocking jurisdictions. To the extent such information is wrong, Loomis Sayles could fail to vote shares that could have been voted without loss of investment flexibility, or could vote shares and then be prevented from engaging in a potentially beneficial portfolio transaction.
•
Administrative requirements for voting proxies in certain foreign jurisdictions (which may be imposed a single time or may be periodic), such as providing a power of attorney to the client’s local sub-custodian, cannot be fulfilled due to timing of the requirement, or the costs required to fulfill the administrative requirements appear to outweigh the benefits to the client of voting the proxy.
•
The client, as of the record date, has loaned the securities to which the proxy relates and Loomis Sayles has concluded that it is not in the best interest of the client to recall the loan or is unable to recall the loan in order to vote the securities .
•
The client so directs Loomis Sayles.
The Proxy Committee will generally vote against, rather than abstain from voting on, ballot issues where the issuer does not provide sufficient information to make an informed decision. In addition, there may be instances where Loomis Sayles is not able to vote proxies on a client's behalf, such as when ballot delivery instructions have not been processed by a client's custodian, when the Proxy Voting Service has not received a ballot for a client's account (e.g., in cases where the client’s shares have been loaned to a third party), when proxy materials are not available in English, and under other circumstances beyond Loomis Sayles’ control.
5.
Oversight. All issues presented for shareholder vote are subject to the oversight of the Proxy Committee, either directly or by application of this policy. All non-routine issues will generally be considered directly by the Proxy Committee and, when necessary, the investment professionals responsible for an account holding the security, and will be voted in the best investment interests of the client. All routine “for” and “against” issues will be voted according to this policy unless special factors require that they be considered by the Proxy Committee and, when necessary, the investment professionals responsible for an account holding the security.
6.
Availability of Procedures. Loomis Sayles publishes these Proxy Voting Procedures, as updated from time to time, on its public website, www.loomissayles.com, and includes a description of its Proxy Voting Procedures in Part 2A of its Form ADV. Upon request, Loomis Sayles also provides clients with a copy of its Proxy Voting Procedures.
7.
Disclosure of Vote. Loomis Sayles makes certain disclosures regarding its voting of proxies in the aggregate (not specific as to clients) on its website, www.loomissayles.com. For mutual funds that it manages, Loomis Sayles is required by law to make certain disclosures regarding its voting of proxies annually. This information is also
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available on the Loomis Sayles website. Additionally, Loomis Sayles will, upon request by a client, provide information about how each proxy was voted with respect to the securities in that client’s account. Loomis Sayles’ policy is not to disclose a client’s proxy voting records to third parties except as required by applicable law and regulations.
C. Proxy Committee.
1.
Proxy Committee. Loomis Sayles has established a Proxy Committee. The Proxy Committee is composed of the Director of ESG, representatives of the Equity Research Department and the Legal and Compliance Department, and other employees of Loomis Sayles as needed. In the event that any member is unable to participate in a meeting of the Proxy Committee, he or she may designate another individual to act on his or her behalf. A vacancy in the Proxy Committee is filled by the prior member’s successor in position at Loomis Sayles or a person of equivalent experience. Each portfolio manager of an account that holds voting securities of an issuer or the analyst covering the issuer or its securities may be an ad hoc member of the Proxy Committee in connection with voting proxies of that issuer. Voting determinations made by the Proxy Committee generally will be memorialized electronically (e.g., by email).
2.
Duties. The Proxy Committee’s specific responsibilities include the following:
a.
developing, authorizing, implementing and updating the Proxy Voting Procedures, including:
(i)
annually reviewing the Proxy Voting Procedures to ensure consistency with internal policies and regulatory agency policies, including determining the continuing adequacy of the Proxy Voting Procedures to confirm that they have been formulated reasonably and implemented effectively, including whether they continue to be reasonably designed to ensure that proxy votes are cast in clients’ best interest,
(ii)
annually reviewing existing voting guidelines and developing of additional voting guidelines to assist in the review of proxy proposals, and
(iii)
annually reviewing the proxy voting process and addressing any general issues that relate to proxy voting;
b.
overseeing the proxy voting process, including:
(i)
overseeing the vote on proposals according to the predetermined policies in the voting guidelines,
(ii)
directing the vote on proposals where there is reason not to vote according to the predetermined policies in the voting guidelines or where proposals require special consideration,
(iii)
consulting with the portfolio managers and analysts for the accounts holding the security when necessary or appropriate, and
(iv)
periodically sampling or engaging an outside party to sample proxy votes to ensure they comply with the Proxy Voting Procedures and are cast in accordance with the clients’ best interests;
c.
engaging and overseeing third-party vendors that materially assist Loomis Sayles with respect to proxy voting, such as the Proxy Voting Services, including:
(i)
determining and periodically reassessing whether, as relevant, the Proxy Voting Service has the capacity and competency to adequately analyze proxy issues by considering:
(a)
the adequacy and quality of the Proxy Voting Service’s staffing, personnel and technology,
(b)
whether the Proxy Voting Service has adequately disclosed its methodologies in formulating voting recommendations, such that Loomis Sayles can understand the factors underlying the Proxy Voting Service’s voting recommendations,
(c)
the robustness of the Proxy Voting Service’s policies and procedures regarding its ability to ensure that its recommendations are based on current, materially complete and accurate information, and
(d)
the Proxy Voting Service’s policies and procedures regarding how it identifies and addresses conflicts of interest, including whether the Proxy Voting Service’s policies and procedures provide for adequate disclosure of its actual and potential conflicts of interest with respect to the services it provides to Loomis Sayles.
(ii)
providing ongoing oversight of the Proxy Voting Services to ensure that proxies continue to be voted in the best interests of clients and in accordance with these Proxy Voting Procedures and the determinations and directions of the Proxy Committee,
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(iii)
receiving and reviewing updates from the Proxy Voting Services regarding relevant business changes or changes to the Proxy Voting Services’ conflict policies and procedures, and
(iv)
in the event that the Proxy Committee becomes aware that a recommendation of the Proxy Voting Service was based on a material factual error (including materially inaccurate or incomplete information): investigating the error, considering the nature of the error and the related recommendation, and determining whether the Proxy Voting Service has taken reasonable steps to reduce the likelihood of similar errors in the future; and
d.
further developing and/or modifying these Proxy Voting Procedures as otherwise appropriate or necessary.
3. Standards.
a.
When determining the vote of any proposal for which it has responsibility, the Proxy Committee shall vote in the client’s best interests as described in section 1(B)(1) above. In the event a client believes that its other interests require a different vote, Loomis Sayles shall vote as the client instructs if the instructions are provided as required in section 1(B)(2) above.
b.
When determining the vote on any proposal, the Proxy Committee shall not consider any benefit to Loomis Sayles, any of its affiliates, any of its or their clients or service providers, other than benefits to the owner of the securities to be voted.
c.
If Loomis Sayles becomes aware of additional information relevant to the voting of a shareholder meeting after a vote has been entered but before the applicable voting deadline has passed, it will consider whether or not such information impacts the vote determination entered, and if necessary, use reasonable efforts to change the vote instruction.
D. Conflicts of Interest.
Loomis Sayles has established policies and procedures to ensure that proxy votes are voted in its clients’ best interests and are not affected by any possible conflicts of interest. First, except in certain limited instances, Loomis Sayles votes in accordance with its pre-determined policies set forth in these Proxy Voting Procedures. Second, where these Proxy Voting Procedures allow for discretion, Loomis Sayles will generally consider the recommendations of the Proxy Voting Service in making its voting decisions. However, if the Proxy Committee determines that the Proxy Voting Service’s recommendation is not in the best interests of the firm’s clients, then the Proxy Committee may use its discretion to vote against the Proxy Voting Service’s recommendation, but only after taking the following steps: (1) conducting a review for any material conflict of interest Loomis Sayles may have, and (2) if any material conflict is found to exist, excluding anyone at Loomis Sayles who is subject to that conflict of interest from participating in the voting decision in any way. However, if deemed necessary or appropriate by the Proxy Committee after full disclosure of any conflict, that person may provide information, opinions or recommendations on any proposal to the Proxy Committee. In such event, prior to directing any vote, the Proxy Committee will make reasonable efforts to obtain and consider information, opinions and recommendations from or about the opposing position.
E. Recordkeeping and Disclosure.
Loomis Sayles or the Proxy Voting Service will maintain records of proxies voted pursuant to Rule 204-2 under the Advisers Act. The records include: (1) a copy of its Proxy Voting Procedures; (2) proxy statements received regarding client securities; (3) a record of each vote cast; (4) a copy of any document created by Loomis Sayles that is material to making a decision how to vote proxies on behalf of a client or that memorializes the basis for that decision; and (5) each written client request for proxy voting records and Loomis Sayles’ written response to any (written or oral) client request for such records.
Proxy voting books and records are maintained in an easily accessible place for a period of five years, the first two in an appropriate office of Loomis Sayles.
2. Proxy Voting
A.
Introduction
Loomis Sayles has established certain specific guidelines intended to achieve the objective of the Proxy Voting Procedures: to support good corporate governance, including ESG Matters, in all cases with the objective of protecting shareholder interests and maximizing shareholder value.
B.
Board of Directors
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Loomis Sayles believes that an issuer’s independent, qualified board of directors is the foundation of good corporate governance. Loomis Sayles supports proxy proposals that reflect the prudent exercise of the board’s obligation to provide leadership and guidance to management in fulfilling its obligations to its shareholders. As an example, it may be prudent not to disqualify a director from serving on a board if they participated in affiliated transactions if all measures of independence and good corporate governance were met.
Annual Election of Directors: Vote for proposals to repeal classified boards and to elect all directors annually.
Chairman and CEO are Separate Positions: Vote for proposals that require the positions of chairman and CEO to be held by different persons.
Director and Officer Indemnification and Liability Protection:
A.
Vote against proposals concerning director and officer indemnification and liability protection that limit or eliminate entirely director and officer liability for monetary damages for violating the duty of care, or that would expand coverage beyond legal expenses to acts such as gross negligence that are more serious violations of fiduciary obligations than mere carelessness.
B.
Vote for only those proposals that provide such expanded coverage in cases when a director's or officer's legal defense was unsuccessful if (i) the director or officer was found to have acted in good faith and in a manner that the director or officer reasonably believed was in the best interests of the company, and (ii) if the director's or officer’s legal expenses only would be covered.
Director Nominees in Contested Elections: Votes in a contested election of directors or a “vote no” campaign must be evaluated on a case-by-case basis, considering the following factors: (1) long-term financial performance of the issuer relative to its industry; management's track record; (2) background to the proxy contest; qualifications of director nominees (both slates); (3) evaluation of what each side is offering shareholders as well as the likelihood that the proposed objectives and goals can be met; and (4) stock ownership positions.
Director Nominees in Uncontested Elections:
A.
Vote for proposals involving routine matters such as election of directors, provided that at least two-thirds of the directors would be independent, as determined by the Proxy Voting Service, and affiliated or inside nominees do not serve on any key board committee, defined as the Audit, Compensation, Nominating and/or Governance Committees.
B.
Vote against nominees that are CFOs of the subject company. Generally, vote against nominees that the Proxy Voting Service has identified as not acting in the best interests of shareholders (e.g., due to over-boarding, risk management failures, a lack of diversity, etc.). Vote against nominees that have attended less than 75% of board and committee meetings, unless a reasonable cause (e.g., health or family emergency) for the absence is noted and accepted by the Proxy Voting Service and the board. Vote against affiliated or inside nominees who serve on a key board committee (as defined above). Vote against affiliated and inside nominees if less than two-thirds of the board would be independent. Vote against Governance or Nominating Committee members if both the following are true: a) there is no independent lead or presiding director; and b) the position of CEO and chairman are not held by separate individuals. Generally, vote against Audit Committee members if auditor ratification is not proposed, except in cases involving: (i) investment company board members, who are not required to submit auditor ratification for shareholder approval pursuant to Investment Company Act of 1940 rules; or (ii) any other issuer that is not required by law or regulation to submit a proposal ratifying the auditor selection. Vote against Compensation Committee members when Loomis Sayles or the Proxy Voting Service recommends a vote against the issuer's “say on pay” advisory vote.
C.
Generally, vote against all members of a board committee and not just the chairman or a representative thereof in situations where the Proxy Voting Service finds that the board committee has not acted in the best interests of shareholders.
D.
Vote as recommended by the Proxy Voting Service when directors are being elected as a slate and not individually.
E.
When electing directors for foreign-domiciled issuers, a recommendation of the Proxy Voting Service will generally be followed in lieu of the above stipulations.
Independent Audit, Compensation and Nominating and/or Governance Committees: Vote for proposals requesting that the board Audit, Compensation and/or Nominating and/or Governance Committees include independent directors exclusively.
Independent Board Chairman:
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A.
Vote for shareholder proposals that generally request the board to adopt a policy requiring its chairman to be “independent” (based on some reasonable definition of that term) with respect to any issuer whose enterprise value is, according to the Proxy Voting Service, greater than or equal to $10 billion.
B.
Vote such proposals on a case-by-case basis when, according to the Proxy Voting Service, the issuer's enterprise value is less than $10 billion.
Multiple Directorships: Generally vote against a director nominee who serves as an executive officer of any public company while serving on more than two total public company boards and any other director nominee who serves on more than five total public company boards, unless a convincing argument to vote for that nominee is made by the Proxy Voting Service, in which case, the recommendation of the Proxy Voting Service will generally be followed.
Staggered Director Elections: Vote against proposals to classify or stagger the board.
Stock Ownership Requirements: Generally vote against shareholder proposals requiring directors to own a minimum amount of company stock in order to qualify as a director, or to remain on the board.
Term of Office: Vote against shareholder proposals to limit the tenure of outside directors.
C.
Ratification of Auditor
Loomis Sayles generally supports proposals for the selection or ratification of independent auditors, subject to consideration of various factors such as independence and reasonableness of fees.
A.
Generally vote for proposals to ratify auditors.
B.
Vote against ratification of auditors where an auditor has a financial interest in or association with the company, and is therefore not independent; or there is reason to believe that the independent auditor has rendered an opinion which is neither accurate nor indicative of the company's financial position.
C.
In general, if non-audit fees amount to 35% or more of total fees paid to a company's auditor we will vote against ratification and against the members of the Audit Committee unless the Proxy Voting Service states that the fees were disclosed and determined to be reasonable. In such instances, the recommendation of the Proxy Voting service will generally be followed.
D.
Vote against ratification of auditors and vote against members of the Audit Committee where it is known that an auditor has negotiated an alternative dispute resolution procedure.
E.
Vote against ratification of auditors if the Proxy Voting Service indicates that a vote for the ratification of auditors it is not in the best long term interest of shareholders.
D. Remuneration and Benefits
Loomis Sayles believes that an issuer’s compensation and benefit plans must be designed to ensure the alignment of executives’ and employees’ interests with those of its shareholders.
401(k) Employee Benefit Plans: Vote for proposals to implement a 401(k) savings plan for employees.
Compensation Plans: Proposals with respect to compensation plans generally will be voted as recommended by the Proxy Voting Service.
Compensation in the Event of a Change in Control: Votes on proposals regarding executive compensation in the event of a change in control of the issuer will be considered on a case-by-case basis.
Director Related Compensation: Vote for proposals that are required by and comply with applicable laws (domestic or foreign) or listing requirements governing the issuer. All other proposals relating to director compensation will be reviewed on a case-by-case basis.
Employee Stock Ownership Plans (“ESOPs”): Vote for proposals that request shareholder approval in order to implement an ESOP or to increase authorized shares for existing ESOPs, except in cases when the number of shares allocated to the ESOP is “excessive” (i.e., generally greater than five percent of outstanding shares), in which case the recommendation of the Proxy Voting Service will generally be followed.
Golden Coffins: Review on a case-by-case basis all proposals relating to the obligation of an issuer to provide remuneration or awards to survivors of executives payable upon such executive's death.
Golden and Tin Parachutes:
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A.
Vote for shareholder proposals to have golden (top management) and tin (all employees) parachutes submitted for shareholder ratification.
B.
Review on a case-by-case basis all proposals to ratify or cancel golden or tin parachutes.
OBRA (Omnibus Budget Reconciliation Act)-Related Compensation Proposals:
A.
Vote for proposals to amend shareholder-approved plans to include administrative features or place a cap on the annual grants any one participant may receive to comply with the provisions of Section 162(m) of OBRA.
B.
Vote for amendments to add performance goals to existing compensation plans to comply with the provisions of Section 162(m) of OBRA.
C.
Vote for cash or cash-and-stock bonus plans to exempt the compensation from taxes under the provisions of Section 162(m) of OBRA.
D.
Votes on amendments to existing plans to increase shares reserved and to qualify the plan for favorable tax treatment under the provisions of Section 162(m) should be evaluated on a case-by-case basis.
Shareholder Proposals to Limit Executive and Director Pay Including Executive Compensation Advisory Resolutions (“Say on Pay”):
A.
Generally, vote for shareholder proposals that seek additional disclosure of executive and director pay information.
B.
Review on a case-by-case basis (1) all shareholder proposals that seek to limit executive and director pay and (2) all advisory resolutions on executive pay other than shareholder resolutions to permit such advisory resolutions.
C.
Vote against proposals to link all executive or director variable compensation to performance goals.
D.
Vote for an annual review of executive compensation.
E. Non-binding advisory votes on executive compensation will be voted as recommended by the Proxy Voting Service.
F. For foreign domiciled issuers where a non-binding advisory vote on executive compensation is proposed concurrently with a binding vote on executive compensation, and the recommendation of the Proxy Voting Service is the same for each proposal, a vote will be entered as recommended by the Proxy Voting Service.
Share Retention by Executives: Generally vote against shareholder proposals requiring executives to retain shares of the issuer for fixed periods unless the board and the Proxy Voting Service recommend voting in favor of the proposal.
Stock Option Plans: A recommendation of the Proxy Voting Service will generally be followed using the following as a guide:
A.
Vote against stock option plans which expressly permit repricing of underwater options.
B.
Vote against proposals to make all stock options performance based.
C.
Vote against stock option plans that could result in an earnings dilution above the company specific cap considered by the Proxy Voting Service.
D.
Vote for proposals that request expensing of stock options.
E. Capital Structure Management Issues
Adjustments to Par Value of Common Stock: Vote for management proposals to reduce the par value of common stock.
Authority to Issue Shares: Vote for proposals by boards to authorize the issuance of shares (with or without preemptive rights) to the extent the size of the proposed issuance in proportion to the issuer’s issued ordinary share capital is consistent with industry standards and the recommendations of the issuer’s board and the Proxy Voting Service are in agreement. Proposals that do not meet the above criteria will be reviewed on a case-by-case basis.
Blank Check Preferred Authorization:
A.
Vote for proposals to create blank check preferred stock in cases when the company expressly states that the stock will not be used as a takeover defense or carry superior voting rights, and expressly states conversion, dividend, distribution and other rights.
B.
Vote for shareholder proposals to have blank check preferred stock placements, other than those shares issued for the purpose of raising capital or making acquisitions in the normal course of business, submitted for shareholder ratification.
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C.
Review proposals to increase the number of authorized blank check preferred shares on a case-by-case basis.
Common Stock Authorization: Vote against proposed common stock authorizations that increase the existing authorization by more than 100% unless a clear need for the excess shares is presented by the company. A recommendation of the Proxy Voting Service will generally be followed.
Greenshoe Options (French issuers only): Vote for proposals by boards of French issuers in favor of greenshoe options that grant the issuer the flexibility to increase an over-subscribed securities issuance by up to 15% so long as such increase takes place on the same terms and within thirty days of the initial issuance, provided that the recommendation of the issuer’s board and the Proxy Voting Service are in agreement. Proposals that do not meet the above criteria will be reviewed on a case-by-case basis.
Reverse Stock Splits: Vote for management proposals to reduce the number of outstanding shares available through a reverse stock split.
Share Cancellation Programs: Vote for management proposals to reduce share capital by means of cancelling outstanding shares held in the issuer's treasury
Share Repurchase Programs: Vote for management proposals to institute open-market share repurchase plans in which all shareholders may participate on equal terms.
Stock Distributions, Splits and Dividends: Generally vote for management proposals to increase common share authorization, provided that the increase in authorized shares following the split or dividend is not greater than 100 percent of existing authorized shares.
F. Mergers, Asset Sales and Other Special Transactions
Proposals for transactions that have the potential to affect the ownership interests and/or voting rights of the issuer’s shareholders, such as mergers, asset sales and corporate or debt restructuring, will be considered on a case-by-case basis, based on (1) whether the best economic result is being created for shareholders, (2) what changes in corporate governance will occur, (3) what impact they will have on shareholder rights, (4) whether the proposed transaction has strategic merit for the issuer, and (5) other factors as noted in each section below, if any.
Asset Sales: Votes on asset sales will be determined on a case-by-case basis after considering the impact on the balance sheet/working capital, value received for the asset, and potential elimination of inefficiencies.
Conversion of Debt Instruments: Votes on the conversion of debt instruments will be considered on a case-by-case basis after the recommendation of the relevant Loomis Sayles equity or fixed income analyst is obtained.
Corporate Restructuring: Votes on corporate restructuring proposals, including minority squeeze-outs, leveraged buyouts, spin-offs, liquidations, and asset sales will be considered on a case-by-case basis.
Debt Restructurings: Review on a case-by-case basis proposals to increase common and/or preferred shares and to issue shares as part of a debt-restructuring plan. Consider the following issues:
A.
Dilution - How much will ownership interest of existing shareholders be reduced, and how extreme will dilution to any future earnings be?
B.
Change in Control - Will the transaction result in a change in control of the company?
C.
Bankruptcy – Loomis Sayles’ Corporate Actions Department is responsible for consents related to bankruptcies and debt holder consents related to restructurings.
D. Potential Conflicts of Interest – For example, clients may own securities at different levels of the capital structure; in such cases, Loomis Sayles will exercise voting or consent rights for each such client based on that client’s best interests, which may differ from the interests of other clients.
Delisting a Security: Proposals to delist a security from an exchange will be evaluated on a case-by-case basis.
Fair Price Provisions:
A. Vote for fair price proposals, as long as the shareholder vote requirement embedded in the provision is no more than a majority of disinterested shares.
B. Vote for shareholder proposals to lower the shareholder vote requirement in existing fair price provisions.
Greenmail:
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A.
Vote for proposals to adopt anti-greenmail charter or bylaw amendments or otherwise restrict a company’s ability to make greenmail payments.
B.
Review anti-greenmail proposals on a case-by-case basis when they are bundled with other charter or bylaw amendments.
C.
Vote for proposals to eliminate an anti-greenmail bylaw if the recommendations of management and the Proxy Voting Service are in agreement. If they are not in agreement, review and vote such proposals on a case-by-case basis.
Liquidations: Proposals on liquidations will be voted on a case-by-case basis after reviewing relevant factors including but not necessarily limited to management's efforts to pursue other alternatives, the appraisal value of assets, and the compensation plan for executives managing the liquidation.
Mergers and Acquisitions: Votes on mergers and acquisitions should be considered on a case-by-case basis, generally taking into account relevant factors including but not necessarily limited to: anticipated financial and operating benefits; offer price (cost vs. premium); prospects of the combined companies; how the deal was negotiated; golden parachutes; financial benefits to current management; and changes in corporate governance and their impact on shareholder rights.
Poison Pills:
A.
Vote for shareholder proposals that ask a company to submit its poison pill for shareholder ratification.
B.
Review on a case-by-case basis shareholder proposals to redeem a company's poison pill.
C.
Review on a case-by-case basis management proposals to ratify a poison pill.
Reincorporation Provisions: Proposals to change a company's domicile will be evaluated on a case-by-case basis.
Right to Adjourn: Vote for the right to adjourn in conjunction with a vote for a merger or acquisition or other proposal, and vote against the right to adjourn in conjunction with a vote against a merger or acquisition or other proposal.
Spin-offs: Votes on spin-offs will be considered on a case-by-case basis depending on relevant factors including but not necessarily limited to the tax and regulatory advantages, planned use of sale proceeds, market focus, and managerial incentives.
Tender Offer Defenses: Proposals concerning tender offer defenses will be evaluated on a case-by-case basis.
G. Shareholder Rights
Loomis Sayles believes that issuers have a fundamental obligation to protect the rights of their shareholders. Pursuant to its fiduciary duty to vote shares in the best interests of its clients, Loomis Sayles considers proposals relating to shareholder rights based on whether and how they affect and protect those rights.
Appraisal Rights: Vote for proposals to restore, or provide shareholders with, rights of appraisal.
Bundled Proposals: Review on a case-by-case basis bundled or “conditioned” proxy proposals. In the case of items that are conditioned upon each other, examine the benefits and costs of the packaged items. In instances when the joint effect of the conditioned items is not in shareholders' best interests, vote against the proposals. If the combined effect is positive, support such proposals.
Confidential Voting: Vote for shareholder proposals that request corporations to adopt confidential voting, use independent tabulators and use independent inspectors of election as long as the proposals include clauses for proxy contests as follows: in the case of a contested election, management should be permitted to request that the dissident group honor its confidential voting policy. If the dissidents agree, the policy remains in place. If the dissidents do not agree, the confidential voting policy is waived. Vote for management proposals to adopt confidential voting.
Counting Abstentions: Votes on proposals regarding counting abstentions when calculating vote proposal outcomes will be considered on a case-by-case basis.
Cumulative Voting: Vote for proposals to permit cumulative voting, except where the issuer already has in place a policy of majority voting.
Equal Access: Vote for shareholder proposals that would allow significant company shareholders equal access to management's proxy material in order to evaluate and propose voting recommendations on proxy proposals and director nominees, and in order to nominate their own candidates to the board.
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Exclusive Forum Provisions: Vote against proposals mandating an exclusive forum for any shareholder lawsuits. Vote against the members of the issuer’s Governance Committee in the event of a proposal mandating an exclusive forum without shareholder approval.
Independent Proxy: Vote for proposals to elect an independent proxy to serve as a voting proxy at shareholder meetings.
Majority Voting: Vote for proposals to permit majority rather than plurality or cumulative voting for the election of directors/trustees.
Preemptive Rights: Votes with respect to preemptive rights generally will be voted as recommended by the Proxy Voting Service subject to the Common Stock Authorization requirements above.
Proxy Access: A recommendation of the Proxy Voting Service will generally be followed with regard to proposals intended to grant shareholders the right to place nominees for director on the issuer’s proxy ballot (“Proxy Access”). Vote for such proposals when they require the nominating shareholder(s) to hold, in aggregate, at least 3% of the voting shares of the issuer for at least three years, and be allowed to nominate up to 25% of the nominees. All other proposals relating to Proxy Access will be reviewed on a case-by-case basis.
Shareholder Ability to Alter the Size of the Board:
A.
Vote for proposals that seek to fix the size of the board.
B.
Vote against proposals that give management the ability to alter the size of the board without shareholder approval.
Shareholder Ability to Remove Directors:
A.
Vote against proposals that provide that directors may be removed only for cause.
B.
Vote against proposals that provide that only continuing directors may elect replacements to fill board vacancies.
C. Vote for proposals to restore shareholder ability to remove directors with or without cause and proposals that permit shareholders to elect directors to fill board vacancies.
Shareholder Advisory Committees: Proposals to establish a shareholder advisory committee will be reviewed on a case-by-case basis.
Shareholder Rights Regarding Special Meetings:
A.
Vote for proposals that set a threshold of 10% of the outstanding voting stock as a minimum percentage allowable to call a special meeting of shareholders. Vote against proposals that increase or decrease the threshold from 10%.
B.
Vote against proposals to restrict or prohibit shareholder ability to call special meetings.
Supermajority Shareholder Voting Requirements: Vote for all proposals to replace supermajority shareholder voting requirements with simple majority shareholder voting requirements, subject to applicable laws and regulations. Vote against management proposals to require a supermajority shareholder vote to approve charter and bylaw amendments.
Unequal Voting Rights:
A.
Vote against dual class exchange offers and dual class recapitalizations.
B.
Vote on a case-by-case basis on proposals to eliminate an existing dual class voting structure.
Written Consent: Vote for proposals regarding the right to act by written consent when the Proxy Voting Service recommends a vote for the proposal. Proposals regarding the right to act by written consent where the Proxy Voting Service recommends a vote against will be sent to the Proxy Committee for determination. Generally vote against proposals to restrict or prohibit shareholder ability to take action by written consent.
H. Environmental and Social Matters
Loomis Sayles has a fiduciary duty to act in the best interests of its clients.
Loomis Sayles believes good corporate governance, including those practices that address ESG Matters, is essential to the effective management of a company’s financial, litigation and reputation risk, the maximization of its long-term economic performance and sustainability, and the protection of its shareholders’ best interests, including the maximization of shareholder value.
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Proposals on environmental and social matters cover a wide range of issues, including environmental and energy practices and their impacts, labor matters, diversity and human rights. These proposals may be voted as recommended by the Proxy Voting Service or may, in the determination of the Proxy Committee, be reviewed on a case-by-case basis if the Proxy Committee believes that a particular proposal (i) could have a material impact on an industry or the growth and sustainability of an issuer; (ii) is appropriate for the issuer and the cost to implement would not be excessive; (iii) is appropriate for the issuer in light of various factors such as reputational damage or litigation risk; or (iv) is otherwise appropriate for the issuer.
Loomis Sayles will consider whether such proposals are likely to enhance the value of the client’s investments after taking into account the costs involved, pursuant to its fiduciary duty to its clients.
I. General Corporate Governance
Looms Sayles has a fiduciary duty to its clients with regard to proxy voting matters, including routine proposals that do not present controversial issues. The impact of proxy proposals on its clients’ rights as shareholders must be evaluated along with their potential economic benefits.
Changing Corporate Name: Vote for management proposals to change the corporate name.
Charitable and Political Contributions and Lobbying Expenditures: Votes on proposals regarding charitable contributions, political contributions, and lobbying expenditures, should be considered on a case-by-case basis. Proposals of UK issuers concerning political contributions will be voted for if the issuer states that (a) it does not intend to make any political donations or incur any expenditures in respect to any political party in the EU; and (b) the proposal is submitted to ensure that the issuer does not inadvertently breach the Political Parties, Elections and Referendums Act 2000 and sections 366 and 367 of the Companies Act 2006.
Delivery of Electronic Proxy Materials: Vote for proposals to allow electronic delivery of proxy materials to shareholders.
Disclosure of Prior Government Service: Review on a case-by-case basis all proposals to disclose a list of employees previously employed in a governmental capacity.
Non-Material Miscellaneous Bookkeeping Proposals: A recommendation of the Proxy Voting Service will generally be followed regarding miscellaneous bookkeeping proposals of a non-material nature.
Reimbursement of Proxy Contest Defenses: Generally, proposals concerning all proxy contest defense cost reimbursements should be evaluated on a case-by-case basis.
Reimbursement of Proxy Solicitation Expenses: Proposals to provide reimbursement for dissidents waging a proxy contest should be evaluated on a case-by-case basis.
State Takeover Statutes: Review on a case-by-case basis proposals to opt in or out of state takeover statutes (including control share acquisition statutes, control share cash-out statutes, freeze out provisions, fair price provisions, stakeholder laws, poison pill endorsements, severance pay and labor contract provisions, anti-greenmail provisions, and disgorgement provisions).
Technical Amendments to By-Laws: A recommendation of the Proxy Voting Service will generally be followed regarding technical or housekeeping amendments to by-laws or articles designed to bring the by-laws or articles into line with current regulations and/or laws.
Transaction of Other Business: Vote against proposals asking for authority to transact open-ended other business without any information provided by the issuer at the time of voting.
Transition Manager Ballots: Any ballot received by Loomis Sayles for a security that was held for a client by a Transition Manager prior to Loomis Sayles’ management of the client’s holdings will be considered on a case-by case basis by the Proxy Committee (without the input of any Loomis Sayles analyst or portfolio manager) if such security is no longer held in the client’s account with Loomis Sayles.
J. Investment Company Matters
Election of Investment Company Trustees: Vote for nominees who oversee fewer than 60 investment company portfolios. Vote against nominees who oversee 60 or more investment company portfolios that invest in substantially different asset classes (e.g., if the applicable portfolios include both fixed income funds and equity funds). Vote on a case-by-case basis for or against nominees who oversee 60 or more investment company portfolios that invest in substantially similar asset classes (e.g., if the applicable portfolios include only fixed income funds or only equity funds). These policies will be followed with respect to funds advised by Loomis Sayles and its affiliates, as well as funds for which Loomis Sayles acts as subadviser and other third parties.
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Mutual Fund Distribution Agreements: Votes on mutual fund distribution agreements should be evaluated on a case-by-case basis.
Investment Company Fundamental Investment Restrictions: Votes on amendments to an investment company’s fundamental investment restrictions should be evaluated on a case-by-case basis.
Investment Company Investment Advisory Agreements: Votes on investment company investment advisory agreements should be evaluated on a case-by-case basis
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Los Angeles Capital
Proxy Policy
Rev. January 4, 2021
Los Angeles Capital Management and Equity Research, Inc.
I. Introduction
Los Angeles Capital Management LLC (“Los Angeles Capital” or the “Firm”) has adopted and implemented policies and procedures that are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with U.S. Securities and Exchange Commission (“SEC”) Rule 206(4) - 6 under the Investment Advisers Act of 1940 (the “Advisers Act”) and its obligations under the Employee Retirement Income Security Act of 1974 (“ERISA”). Los Angeles Capital provides investment advisory or sub-advisory services to various types of institutional clients. These clients frequently give Los Angeles Capital the authority to vote proxies of issuers held in their client accounts. Such authority is designated in the advisory contract or other governing agreement.
II. Proxy Policy Statement
Los Angeles Capital has retained Glass Lewis & Co., LLC (“Glass Lewis”) an unaffiliated third-party, to act as an independent proxy voting agent. Glass Lewis provides objective proxy analysis, voting recommendations, recordkeeping, and manages other operational matters of the proxy voting process. If at any time a material conflict arises it would be resolved in the best interest of the client.
When Los Angeles Capital is given proxy voting authority together with a client’s voting policy, the Firm oversees compliance with such policy. When the client elects to use the Firm’s standard proxy guidelines, the Firm will vote in accordance with the guidelines approved by the Firm’s Proxy Committee (“Committee”). The Committee has approved the use of Glass Lewis’ U.S. and International guidelines, as may be modified from time to time (the “Firm’s Guidelines”).
A. Proxy Voting Guidelines
On an annual basis, the Committee reviews the Firm’s Guidelines. The Committee also selectively reviews a sampling of the voting recommendations and the related proxy materials in determining whether to continue or modify the approved Firm Guidelines.
Although the Firm has adopted set guidelines, the Firm retains the right to ultimately cast each vote on a case‐by‐case basis, taking into consideration the contractual obligations under the advisory or sub-advisory agreement and all other relevant facts and circumstances at the time of the vote. In doing so, the Firm may incorporate information gathered from other sources beyond Glass Lewis.
Los Angeles Capital recognizes that a client may issue specific directives regarding how particular proxy issues are to be voted for the client’s portfolio holdings. The Firm requires that the advisory or sub‐advisory contract specify such instructions, including instructions as to how those votes will be managed, particularly where they differ from the Firm’s Guidelines.
It is unlikely that serious conflicts of interest will arise in the context of the Firm’s proxy voting because the Firm does not engage in other financial businesses such as brokerage, managing or advising public companies, underwriting, or investment banking. Further, as a matter of policy, the Firm and its employees are required to put the interests of the Firm ahead of their own.
B. Limitations
In limited circumstances, the Firm may elect to abstain from voting or may be unable to vote a client’s proxy. These circumstances include:
•
Where the Firm concludes that the effect on shareholder’s economic interests or the value of the portfolio holding is indeterminable or insignificant.
•
Where the securities related to the vote participate in a securities lending program and are out on loan. In many cases, where a client directs the securities lending, Los Angeles Capital may not be aware when the security is out on loan and thus may not be able to recall the security before the record date. Where Los Angeles Capital deems a holding materially significant or is directing the securities lending, the Firm may recall securities, if operationally feasible, so that they can be voted where the Firm determines it has a fiduciary obligation to do so.
•
Where the related securities are issued in a country that participates in share blocking because it is disruptive to the management of the portfolio.
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•
Where multiple global custodian accounts roll up into one omnibus sub-custodian account. In the specific markets where this may occur, the account managed by Los Angeles Capital is not registered individually. Therefore, if ballots are voted differently for the underlying accounts, the omnibus vote is considered split and is rejected.
•
Where in the Firm’s judgement the unjustifiable costs1 or disadvantages of voting the proxy would exceed the anticipated benefit of voting (e.g., certain non‐U.S. securities).
•
Where a required Power of Attorney is not on file.
C. Special Considerations
Certain accounts may warrant specialized treatment in voting proxies. Contractual stipulations and individual client direction will dictate how voting will be done in these cases.
Mutual Funds
Where the Firm votes proxies for a mutual fund that it sub-advises, the proxies will be voted in accordance with the requirements of securities laws. Proxies of portfolio companies voted may be subject to investment restrictions of the fund and voted in accordance with any resolutions or other instructions approved by authorized persons of the fund.
ERISA Accounts
Responsibilities for voting ERISA accounts include: the duty of loyalty, prudence, compliance with the plan, as well as a duty to avoid prohibited transactions.
Issuer Supplemental Information
Management of issuers, as well as other interested parties, will sometimes release information (after the proxy statement) that relates to a pending proxy vote. Glass Lewis and the Firm will not always be able to consider that additional information depending on when it is released. Although the Firm will use reasonable efforts to check for additional proxy-related communications with respect to voting its largest holdings, it will not check for those additional items for all holdings and may also not be able to consider those items depending on timing.
III. Responsibility and Oversight
The Committee was established to provide oversight to the proxy voting process and is responsible for developing, implementing, and updating the Firm’s proxy policy, reviewing approving, and/or formulating the Firm’s Guidelines, selecting and overseeing the third‐party proxy vendor, identifying any conflicts of interest, determining the votes for issues it elects to vote independently from, or that cannot be voted by, Glass Lewis, monitoring legislative and corporate governance developments surrounding proxy issues, and meeting to discuss any material issues regarding the proxy voting process. The Committee meets annually and as necessary to fulfill its obligations.
As part of the Committee’s ongoing oversight of its third-party proxy vendor, the Committee considers (i) the adequacy and quality of the proxy vendor’s staffing and personnel; (ii) the presence of conflicts and processes to address those conflicts; (iii) the robustness of the proxy vendor’s policies and procedures for ensuring that its recommendations are based on current and accurate information; and (iv) any other appropriate considerations as to the nature and quality of the proxy vendor’s services. In addition, Compliance conducts periodic reviews of ballots voted by the proxy vendor to ensure they are in line with proxy voting procedures.
The DOL has indicated that such costs include, but are not limited to, expenditures related to developing proxy resolutions, proxy voting services and the analysis of the likely net effect of a particular issue on the economic value of the plan’s investment. Fiduciaries must take into consideration whether the exercise of its rights to vote a proxy is expected to have an effect on the economic value of the plan’s investment that will outweigh the costs of exercising such rights. With respect to proxies for shares of foreign corporations, a fiduciary, in deciding whether to purchase shares of a foreign corporation, should consider whether any additional difficulty and expense in voting such shares is reflected in their market price.
The Committee may be called on to vote a proxy that its third‐party provider cannot. In this circumstance, the Committee may conduct research internally and/or use the resources of an independent research consultant, or use information from any of the following sources: legislative materials, studies of corporate governance and other proxy voting issues, reports by issuers’ management on pending proxy votes, and/or published analyses of shareholder and management proposals. In all voting circumstances, two votes from voting members of the Committee or one voting member of the Committee and an internal legal counsel are required.
Los Angeles Capital’s Operations Department handles the day to day administration of the proxy voting process.
IV. Proxy Procedures
Glass Lewis provides for the timely execution of specified proxy votes on the Firm’s behalf, which includes complete account set‐up, vote execution, reporting, recordkeeping, and compliance with ERISA.
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Los Angeles Capital’s responsibility for voting proxies is generally determined by the obligations set forth under each client’s Investment Management Agreement, Limited Partnership Agreement, Prospectus, or other legal documentation governing the account. Voting ERISA client proxies is a fiduciary act of plan asset management that must be performed by the adviser, unless the voting right is retained by a named fiduciary of the plan. If an advisory or sub‐advisory contract or similar document states that Los Angeles Capital does not have the authority to vote client proxies, then voting is the responsibility of some other named fiduciary.
While Los Angeles Capital will accept direction from clients on specific proxy issues for their account, the Firm reserves the right to maintain its standard position on all other client accounts.
A. Materiality
The Committee has designated certain materiality thresholds for situations in which the Committee may vote independently from Glass Lewis or may take separate actions in regards to securities lending limitations. Materiality thresholds are monitored daily and are escalated to the Committee for review.
B. Conflicts of Interest
Los Angeles Capital attempts to minimize the risks of conflicts and reviews the Conflict of Interest Statement prepared by Glass Lewis on an annual basis.
If Glass Lewis identifies a potential conflict of interest between it and a publicly‐held company, it will disclose the relationship on the relevant research report. If an unforeseen conflict requires specialized treatment, alternate measures may be taken, up to and including having Glass Lewis refrain from writing a Proxy Paper report on the company. In this scenario the Committee may be required to research and vote the proxy.
If, during this process, the Committee identifies a potential material conflict of interest between Los Angeles Capital or an affiliated person of the Firm and that of one of its clients or prospects, the client will be notified. If no directive is issued by the client, the Committee will vote in such a way that, in the Committee’s opinion, fairly addresses the conflict in the best interest of the client.
C. Disclosure
Los Angeles Capital will provide all clients with a copy of the Firm’s current policies and procedures upon request. In addition, clients may request, at any time, a copy of the Firm’s voting records for their respective account(s) by making a formal request to Los Angeles Capital. Los Angeles Capital will make this information available to a client upon its request within a reasonable time. For further information, please contact a member of Operations at Los Angeles Capital at 310‐479‐9998 or operations@lacapm.com.
Los Angeles Capital generally will not disclose how it intends to vote on behalf of a client account except as required by applicable law, but may disclose such information to a client who itself may decide or may be required to make public such information. Los Angeles Capital will not disclose past votes or share amounts voted except to the respective client or as required by law.
D. Recordkeeping
All proxy records pursuant to Section 204‐2 of the Advisers Act are retained by either Glass Lewis or Los Angeles Capital. Glass Lewis retains (1) records of proxy statements received regarding client securities and (2) records of each vote cast. Los Angeles Capital retains (1) copies of its proxy policies, procedures, and Firm Guidelines; (2) copies of any document created by Los Angeles Capital that was material to making a decision how to vote proxies on behalf of a client or that memorializes the basis for that decision; (3) each written client request for information on how the adviser voted proxies on behalf of the client; and (4) a copy of any written response by Los Angeles Capital to any (written or oral) client request for information on how the adviser voted proxies on behalf of the requesting client.
ERISA Accounts
Los Angeles Capital maintains proxy voting records (both procedures and actions taken in individual situations) to enable the named fiduciary to determine whether Los Angeles Capital is fulfilling its obligations. Such records may be maintained via Glass Lewis’ electronic system. Retention may include: (1) issuer name and meeting; (2) issues voted on and record of the vote; (3) number of shares eligible to be voted on the record date; (4) number of shares voted; and (5) where appropriate, cost‐benefit analyses.
Duration
Proxy voting books and records will be maintained in an easily accessible place for at least five years from the end of the fiscal year during which the last entry was made on such records. For the first two years, the records will be maintained in Los Angeles Capital’s office.
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Newton Investment Management
Proxy Voting Policy
Effective Date: 01/09/2021
Related Regulations
Rule 206(4)-6 and 204-2 under The Investment Advisers Act of 1940
ERISA Rule 404a-1
Related Corporate Policies
BNY Mellon Proxy Voting Policy
Policy Statement
It is the policy of Newton Investment Management North America LLC (Newton) to fully meet its fiduciary obligations in exercising the power, discretion and responsibility to vote proxies where clients have delegated such authority.
Registered Investment Advisers have a number of responsibilities regarding voting of proxies for client securities that are under its management and that are governed by the Advisers Act. Rule 206(4)-6 requires investments advisers to (a) adopt and implement written policies and procedures that are reasonably designed to ensure that the adviser votes client securities in the best interests of clients, which procedures must include how material conflicts that may arise between an adviser's interests and those of its clients are addressed; (b) disclose to clients how they may obtain information from the adviser with respect to the voting of proxies for their securities; and (c) describe to clients its proxy voting policies and procedures and, upon request, furnish a copy to its clients. Rule 204-2 further requires an investment adviser to retain certain records relating to the exercise of its proxy voting authority.
As a registered Investment Advisor, Newton is often entrusted with the fiduciary responsibility to vote proxies for shares of corporate stock held on behalf of our clients. Proxy voting is an integral part of the management of the investment in those shares. In voting proxies, Newton takes into account long term economic value as we evaluate issues relating to corporate governance, including structures and practices, the nature of long-term business plans, including sustainability policies and practices to address environmental and social factors that are likely to have an impact on shareholder value, and other financial and non-financial measures of corporate performance.
Newton has established a Proxy Voting Committee to implement and maintain Newton’s Proxy Voting Policy and related proxy voting guidelines (the “Voting Guidelines”). This Committee oversees Newton’s proxy voting activities and ensures that the Voting Guidelines are generally applied consistently and impartially for securities held in accounts for which Newton has proxy voting authority. Newton will make every reasonable effort to ensure that proxies are received and voted in accordance with this policy and the Voting Guidelines. To assist us in that process, Newton retains Institutional Shareholder Services (“ISS”) to provide various services related to proxy voting, such as research, analysis, voting services, proxy vote tracking, recordkeeping, and reporting. In addition, Newton retains Glass Lewis for research services only.
Newton has appointed the BNY Mellon Proxy Voting Conflicts Committee to address certain conflicts associated with actual or potential material conflicts of interest involving The Bank of New York Mellon (“Parent Company”). These conflicts typically arise due to a relationship between a proxy issuer and the Parent Company, the Parent Company’s Chief Executive Officer, or a member of the Parent Company’s Board of Directors.
Newton will furnish a copy of its Proxy Voting Policy and its Voting Guidelines upon request to each advisory client that has delegated voting authority.
Voting BNH Mellon Stock
It is the policy of Newton not to vote or make recommendations on how to vote shares of BNY Mellon stock, even where Newton has the legal power to do so under the relevant governing instrument. In order to avoid any appearance of conflict relating to voting BNY Mellon stock, Newton has contracted with an independent fiduciary (ISS) to direct all voting of BNY Mellon Stock held by any Mellon accounts on any matter in which shareholders of BNY Mellon Stock are required or permitted to vote.
Proxy ballots related to certain Stable Value investments, although infrequent, may be received from time to time. When a ballot is received for such investments the recommendation of the portfolio manager will be obtained and presented to the Newton Proxy Voting Committee for consideration. Voting for these ballots is typically manually entered and records of the Committee’s decision and the corresponding vote will be retained in accordance with record keeping standards.
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Voting Non-US Company Proxies
Newton seeks to effect vote decisions through the application of the Voting Guidelines. However, corporate governance practices, disclosure requirements and voting operations vary significantly among the various non-U.S. markets in which clients may invest. In these markets, Newton may face regulatory, compliance, legal or logistical limits with respect to voting securities held in client accounts which can affect the firm’s ability to vote such proxies, as well as the desirability of voting such proxies. Non-U.S. regulatory restrictions or company-specific ownership limits, as well as legal matters related to consolidated groups, may restrict the total percentage of an issuer’s voting securities that Mellon can hold for clients and the nature of our voting in such securities. Newton’s ability to vote proxies may also be affected by, among other things: (1) late receipt of meeting notices; (2) requirements to vote proxies in person: (3) restrictions on a foreigner’s ability to exercise votes; (4) potential difficulties in translating the proxy; (5) requirements to provide local agents with unrestricted powers of attorney to facilitate voting instructions; and (6) requirements that investors who exercise their voting rights surrender the right to dispose of their holdings for some specified period in proximity to the shareholder meeting. Absent an issue that is likely to impact clients’ economic interest in a company, Newton generally will not subject clients to the costs (which may include a loss of liquidity) that could be imposed by these requirements. In these markets, Newton will weigh the associative costs against the benefit of voting and may refrain from voting certain non-U.S. securities in instances where the items presented are not likely to have a material impact on shareholder value (where the expense and administrative inconvenience or other burdens outweigh the benefits to clients of voting the securities).
Securities Lending
Generally, Newton expects that the projected long-term economic benefit to clients in voting proxies would be exceeded by securities lending income on shares on loan. In our assessment, the resolutions being voted on are typically routine and will not have significant economic consequences and/or because the outcome would not be affected by voting all or a portion of loaned securities.
While most resolutions are routine, from time to time, the Proxy Voting Committee in conjunction with the investment management team may determine that the expected economic benefit of voting clients’ entire holding is greater than the projected lending revenue. Shares on loan are not recalled to vote unless the case can be made that the optimal voting outcome would be economically beneficial for clients and voting all eligible shares in client portfolios would increase the likelihood of achieving that outcome.
Stable Value Proxy Matters
Proxy ballots related to certain Stable Value investments, although infrequent, may be received from time to time. When a ballot is received for such investments the recommendation of the portfolio manager will be obtained and presented to the Newton Proxy Voting Committee for consideration. Voting for these ballots is typically manually entered and records of the Committee’s decision and the corresponding vote will be retained in accordance with record keeping standards.
Index/Passive Fixed Income Mandates
Newton has elected to forgo proxy voting for certain index and passively managed Fixed Income accounts. The operational burden and costs of maintaining such accounts on vendor platforms was considered in making this decision. Recognizing that proxy voting is a rare event in the realm of fixed income investing, Newton has made a determination that the items presented for vote are not likely to have a material impact on shareholder value.
Proxy Voting Disclosure
Clients who have delegated proxy voting authority to Newton may obtain the proxy voting records for their account upon written or verbal request.
Oversight Activities – Operational
Newton performs periodic oversight of the operational and voting processes implemented on behalf of clients to ensure that proxy ballots are voted in accordance with established guidelines. These activities may include, but are not limited to, monthly account reconciliation between the voting agent and Newton records and forensic testing of the application of vote instruction in relation to policy vote recommendations at the ballot level. These efforts are monitored as component of our Rule 206(4) -7 compliance program.
Oversight Activities – Proxy Advisors
Newton, with the assistance of the BNY Mellon Proxy Research & Governance team, as well as certain BNY Mellon vendor review groups, provides oversight of the Proxy Advisors through various activities. Depending on the particular set of services a Proxy Advisor is engaged to provide, these activities may include, but are not limited to:
•
Annual request and review of information related to compliance policies and procedures.
•
Annual compliance due diligence questionnaires, certifications and/or document requests.
•
Annual and ad hoc due diligence meetings, as well as periodic on-site due diligence meetings.
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•
Periodic meetings, correspondence and telephonic communications, as needed.
•
Periodic review of the proxy advisor’s systems to assess whether the Voting Guidelines are reflected accurately.
•
Periodic review and testing of proxy votes, with respect to routine proposals, as well as those proposals which require more analysis.
•
Periodic review of SSAE 18 and/or other external reports or summaries thereof, where applicable.
•
Periodic review of BNY Mellon’s (internal and/or external) vendor review groups reports, where applicable.
Maintenance of Required Records
Newton, with the assistance of engaged service providers, shall maintain such records as required under Rule 204-2.
Appropriate disciplinary action will be taken for failure to comply with the requirements of this policy, which could include termination of employment.
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Nuveen Asset Management, LLC
Proxy Voting Policies and Procedures
Effective Date: January 1, 2011, as last amended March 05, 2020
I. General Principles
A.
Nuveen Asset Management, LLC (“NAM”) is an investment sub-adviser for certain of the Nuveen Funds (the “Funds”) and investment adviser for institutional and other separately managed accounts (collectively, with the Funds, “Accounts”). As such, Accounts may confer upon NAM complete discretion to vote proxies.1
B.
When NAM has proxy voting authority, it is NAM’s duty to vote proxies in the best interests of its clients (which may involve affirmatively deciding that voting the proxies may not be in the best interests of certain clients on certain matters). In voting proxies, NAM also seeks to enhance total investment return for its clients.
C.
If NAM contracts with another investment adviser to act as a sub-adviser for an Account, NAM may delegate proxy voting responsibility to the sub-adviser. Where NAM has delegated proxy voting responsibility, the sub-adviser will be responsible for developing and adhering to its own proxy voting policies, subject to oversight by NAM.
D.
NAM’s Proxy Voting Committee (“PVC”) provides oversight of NAM’s proxy voting policies and procedures, including (1) providing an administrative framework to facilitate and monitor the exercise of such proxy voting and to fulfill the obligations of reporting and recordkeeping under the federal securities laws; and (2) approving the proxy voting policies and procedures.
II. Policies
The PVC after reviewing and concluding that such policies are reasonably designed to vote proxies in the best interests of clients, has approved and adopted the proxy voting policies (“Policies”) of Institutional Shareholder Services, Inc. (“ISS”), a leading national provider of proxy voting administrative and research services.i As a result, such Policies set forth NAM’s positions on recurring proxy issues and criteria for addressing non-recurring issues. These Policies are reviewed periodically by ISS, and therefore are subject to change. Even though it has adopted the Policies as drafted by ISS, NAM maintains the fiduciary responsibility for all proxy voting decisions.
III. Procedures
A.
Supervision of Proxy Voting. Day-to-day administration of proxy voting may be provided internally or by a third-party service provider, depending on client type, subject to the ultimate oversight of the PVC. The PVC shall supervise the relationships with NAM’s proxy voting services, ISS. ISS apprises Nuveen Global Operations (“NGO”) of shareholder meeting dates, and casts the actual proxy votes. ISS also provides research on proxy proposals and voting recommendations. ISS serves as NAM’s proxy voting record keepers and generate reports on how proxies were voted. NGO periodically reviews communications from ISS to determine whether ISS voted the correct amount of proxies, whether the votes were cast in a timely manner, and whether the vote was in accordance with the Policies or NAM’s specific instructions
B.
General Avoidance of Conflicts of Interest.
1.
NAM believe that most conflicts of interest faced by NAM in voting proxies can be avoided by voting in accordance with the Policies. Examples of such conflicts of interest are as follows:2
a.
The issuer or proxy proponent (e.g., a special interest group) is TIAA-CREF, the ultimate principal owner of NAM, or any of its affiliates.
b.
The issuer is an entity in which an executive officer of NAM or a spouse or domestic partner of any such executive officer is or was (within the past three years of the proxy vote) an executive officer or director.
c.
The issuer is a registered or unregistered fund or other client for which NAM or another affiliated adviser has a material relationship as investment adviser or sub-adviser (e.g., Nuveen Funds and TIAA Funds) or an institutional separate account.
d.
Any other circumstances that NAM is aware of where NAM’s duty to serve its clients’ interests, typically referred to as its “duty of loyalty,” could be materially compromised.
2.
To further minimize this risk, Compliance will review ISS’ conflict avoidance policy at least annually to ensure that it adequately addresses both the actual and perceived conflicts of interest ISS may face.
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3.
In the event that ISS faces a material conflict of interest with respect to a specific vote, the PVC shall direct ISS how to vote. The PVC shall receive voting direction from appropriate investment personnel. Before doing so, the PVC will consult with Legal to confirm that NAM faces no material conflicts of its own with respect to the specific proxy vote.
4.
Where ISS is determined to have a conflict of interest, or NAM determines to override the Policies and is determined to have a conflict, the PVC will recommend to NAM’s Compliance Committee or designee a course of action designed to address the conflict. Such actions could include, but are not limited to:
a.
Obtaining instructions from the affected client(s) on how to vote the proxy;
b.
Disclosing the conflict to the affected client(s) and seeking their consent to permit NAM to vote the proxy;
c.
Voting in proportion to the other shareholders;
d.
Recusing the individual with the actual or potential conflict of interest from all discussion or consideration of the matter, if the material conflict is due to such person’s actual or potential conflict of interest; or
e.
Following the recommendation of a different independent third party.
5.
In addition to all of the above-mentioned and other conflicts, the Head of Equity Research, NGO and any member of the PVC must notify NAM’s Chief Compliance Officer (“CCO”) of any direct, indirect or perceived improper influence exerted by any employee, officer or director of TIAA or its subsidiaries with regard to how NAM should vote proxies. NAM Compliance will investigate any such allegations and will report the findings to the PVC and, if deemed appropriate, to NAM’s Compliance Committee. If it is determined that improper influence was attempted, appropriate action shall be taken. Such appropriate action may include disciplinary action, notification of the appropriate senior managers, or notification of the appropriate regulatory authorities. In all cases, NAM will not consider any improper influence in determining how to vote proxies, and will vote in the best interests of clients.
C.
Proxy Vote Override. From time to time, a portfolio manager of an account (a “Portfolio Manager”) may initiate action to override the Policies’ recommendation for a particular vote. Any such override by a NAM Portfolio Manager (but not a sub-adviser Portfolio Manager) shall be reviewed by NAM’s Legal Department for material conflicts. If the Legal Department determines that no material conflicts exist, the approval of one member of the PVC shall authorize the override. If a material conflict exists, the conflict and, ultimately, the override recommendation will be rejected and will revert to the original Policies recommendation or will be addressed pursuant to the procedures described above under “Conflicts of Interest.”
In addition, the PVC may determine from time to time that a particular recommendation in the Policies should be overridden based on a determination that the recommendation is inappropriate and not in the best interests of shareholders. Any such determination shall be reflected in the minutes of a meeting of the PVC at which such decision is made.
D.
Securities Lending.
1.
In order to generate incremental revenue, some clients may participate in a securities lending program. If a client has elected to participate in the lending program then it will not have the right to vote the proxies of any securities that are on loan as of the shareholder meeting record date. A client, or a Portfolio Manager, may place restrictions on loaning securities and/or recall a security on loan at any time. Such actions must be affected prior to the record date for a meeting if the purpose for the restriction or recall is to secure the vote.
2.
Portfolio Managers and/or analysts who become aware of upcoming proxy issues relating to any securities in portfolios they manage, or issuers they follow, will consider the desirability of recalling the affected securities that are on loan or restricting the affected securities prior to the record date for the matter. If the proxy issue is determined to be material, and the determination is made prior to the shareholder meeting record date the Portfolio Manager(s) will contact the Securities Lending Agent to recall securities on loan or restrict the loaning of any security held in any portfolio they manage, if they determine that it is in the best interest of shareholders to do so.
E.
Proxy Voting Records. As required by Rule 204-2 of the Investment Advisers Act of 1940, NAM shall make and retain five types of records relating to proxy voting; (1) NAM’s Policies; (2) proxy statements received for securities in client accounts; (3) records of proxy votes cast by NAM on behalf of clients accounts; (4) records of written requests from clients about how NAM voted their proxies, and written responses from NAM to either a written or oral request by clients; and (5) any documents prepared by the adviser that were material to making a proxy voting decision or that memorialized the basis for the decision. NAM relies on ISS to make and retain on NAM’s behalf certain records pertaining to Rule 204-2.
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F.
Fund of Funds Provision. In instances where NAM provides investment advice to a fund of funds that acquires shares of affiliated funds or three percent or more of the outstanding voting securities of an unaffiliated fund, the acquiring fund shall vote the shares in the same proportion as the vote of all other shareholders of the acquired fund. If compliance with this procedure results in a vote of any shares in a manner different than the Policies’ recommendation, such vote will not require compliance with the Proxy Vote Override procedures set forth above.
G.
Legacy Securities. To the extent that NAM receives proxies for securities that are transferred into an account’s portfolio that were not recommended or selected by it and are sold or expected to be sold promptly in an orderly manner (“legacy securities”), NAM will generally refrain from voting such proxies. In such circumstances, since legacy securities are expected to be sold promptly, voting proxies on such securities would not further NAM’s interest in maximizing the value of client investments. NAM may agree to an account’s special request to vote a legacy security proxy, and would vote such proxy in accordance with the Policies.
H.
Terminated Accounts. Proxies received after the termination date of an account generally will not be voted. An exception will be made if the record date is for a period in which an account was under NAM’s discretionary management or if a separately managed account (“SMA”) custodian failed to remove the account’s holdings from its aggregated voting list.
I.
Non-votes. NGO shall be responsible for obtaining reasonable assurance from ISS that it voted proxies on NAM’s behalf, and that any special instructions from NAM about a given proxy or proxies are submitted to ISS in a timely manner. It should not be considered a breach of this responsibility if NGO or NAM does not receive a proxy from ISS or a custodian with adequate time to analyze and direct to vote or vote a proxy by the required voting deadline.
NAM may determine not to vote proxies associated with the securities of any issuer if as a result of voting such proxies, subsequent purchases or sales of such securities would be blocked. However, NAM may decide, on an individual security basis that it is in the best interests of its clients to vote the proxy associated with such a security, taking into account the loss of liquidity. In addition, NAM may determine not to vote proxies where the voting would in NAM’s judgment result in some other financial, legal, regulatory disability or burden to the client (such as imputing control with respect to the issuer) or to NAM or its affiliates.
NAM may determine not to vote securities held by SMAs where voting would require the transfer of the security to another custodian designated by the issuer. Such transfer is generally outside the scope of NAM’s authority and may result in significant operational limitations on NAM’s ability to conduct transactions relating to the securities during the period of transfer. From time to time, situations may arise (operational or otherwise) that prevent NAM from voting proxies after reasonable attempts have been made.
J.
Review and Reports.
1.
The PVC shall maintain a review schedule. The schedule shall include reviews of the Policies and the policies of any Sub-adviser engaged by NAM, the proxy voting record, account maintenance, and other reviews as deemed appropriate by the PVC. The PVC shall review the schedule at least annually.
2.
The PVC will report to NAM’s Compliance Committee with respect to all identified conflicts and how they were addressed. These reports will include all accounts, including those that are sub-advised. NAM also shall provide the Funds that it sub-advises with information necessary for preparing Form N-PX.
K.
Vote Disclosure to Clients. NAM’s institutional and SMA clients can contact their relationship manager for more information on NAM’s Policies and the proxy voting record for their account. The information available includes name of issuer, ticker/CUSIP, shareholder meeting date, description of item and NAM’s vote.
IV. Responsible Parties
PVC
NGO
NAM Compliance
Legal Department
1
NAM does not vote proxies where a client withholds proxy voting authority, and in certain non-discretionary and model programs NAM votes proxies in accordance with its Policies in effect from time to time. Clients may opt to vote proxies themselves, or to have proxies voted by an independent third party or other named fiduciary or agent, at the client’s cost. i ISS has separate polices for Taft Hartley plans and it is NAM’s policy to apply the Taft Hartley polices to accounts that are Taft Hartley plans and have requested the application of such policies.
2
A conflict of interest shall not be considered material for the purposes of these Policies and Procedures with respect to a specific vote or circumstance if the matter to be voted on relates to a restructuring of the terms of existing securities or the issuance of new securities or a similar matter arising out of the holding of securities, other than common equity, in the context of a bankruptcy or threatened bankruptcy of the issuer.
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Origin Asset Management LLP
(“Origin” or the “Firm”)
Proxy Voting Policy – May 2021
This document draws on the Advisers Act of 1940, a United States federal law, and subsequent Securities and Exchange Commission guidance IA-5325; IC-33605, 17 CFR Parts 271 and 276 (effective date 10th September 2019) and provides an outline of the policies in place to ensure Origin LLP (‘the Firm’) meets its obligation to vote on proxies in the best interest of its clients.
Origin reviews and documents the adequacy of its proxy voting policies at least annually.
The Firm has engaged a third party international corporate governance research and proxy voting service provider (‘third party proxy voting service provider’) to provide voting recommendations and research relating to upcoming proxy votes. Origin sets its voting policy annually, and once set, uses the Broadridge proxy voting platform service to execute that policy. The Firm has chosen to actively vote proxies for all clients according to its voting policy, unless a client does not wish or require us to do so. Any proxy voting arrangements shall be approved by the Investment Team and the Compliance Officer. Origin has elected to follow the Glass Lewis standard Proxy Voting Guidelines (the ‘Guidelines’), which embody the positions and factors that the Firm’s investment team general consider important in casting proxy votes.
The Firm must;
(a)
Adopt and implement written policies and procedures that are reasonably designed to ensure that the Firm votes client securities in the best interest of clients.
(b)
Disclose to clients how they may obtain information from the Firm about votes with respect to securities; and
(c)
Describe to clients the proxy voting policies and procedures and, upon request, provide the clients with a copy of these policies and procedures.
(d)
Take steps to demonstrate that it is making voting determinations in a client’s best interests.
(e)
Consider factors such as the third party proxy voting service provider’s capacity and competency when deciding whether to use a proxy advisory firm.
(f)
Take steps to ensure that its voting determinations are not based on materially inaccurate or incomplete information. This can take the form of scrutinising the third party proxy service provider firm’s procedures.
The duty of care requires the Firm to monitor corporate actions and vote client proxies. This does not necessarily mean that a failure to vote every proxy would necessarily violate fiduciary obligations. Due to the nature of some of the holdings, how they are registered, and our strategies, there will be many times when refraining from voting a proxy will be in the client’s best interest. This will mainly be when it is determined that the cost of voting a proxy exceeds the expected benefit to a client. It is not mandatory to vote proxies on behalf of a client where this has been covered by a prior agreement with the client.
Origin’s use of Third Party Proxy Voting Advisory Providers
Origin engages with their clients to assess particular themes of interest around governance and corporate behaviour. The Origin Proxy Voting Policy will be set to reflect both our clients’ wishes and industry best practice. The Origin team will work together with the team at Glass Lewis to ensure that the GL voting recommendations are tailored to meet the objectives of the Origin Proxy Voting Policy as far as is possible.
The Firm believes that the third-party proxy voting provider has the necessary resources, in-depth knowledge and expertise to provide recommendations that are in the best interests of our clients. As mentioned above, Origin sets a voting policy annually, and once set, uses the Broadridge proxy voting service to execute that policy. At present, Origin has elected to follow the Glass Lewis standard Proxy Voting Guidelines (the ‘Guidelines’). The Firm may deviate from these guidelines on the basis of a client request or where it believes it do be in the client’s best interest to do so. A Proxy Voting Committee has been established to evaluate and review the services provided by the third-party proxy voting provider and voting platform. This committee shall also develop and maintain the Firm’s Proxy Voting Policy and consider any requests to override the chosen voting guidelines.
Voting Procedure Summary
The Firm shall obtain from the third party proxy voting service provider a notification of all pending proxy vote opportunities. The Custodian will provide a list of all proxy voting requests relevant to the Firm’s holdings to the third party proxy voting service provider. The third party proxy voting service provider shall then issue the recommendations corresponding to this
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list. These are then returned to the Custodian for instruction and votes are cast via a voting platform in accordance with the voting policy. Prior to the votes being returned to the Custodian to be cast, the Firm’s operations team access the voting platform and confirm the voting decisions. This will usually be in line with the recommendations provided by the third party proxy voting service provider but the Firm does have the option to override these recommendations at this stage, should the client request this or should the Firm deem it to be in the client’s best interest
The rationale for disagreeing with a guideline proxy voting recommendation as per the Origin Proxy Voting Policy must be discussed, recorded and agreed with Compliance before the override is enacted. A record of all voting decisions is maintained by the Firm and the Custodian.
Conflicts of Interests in respect of voting Proxies
When the Firm has, or may have, a conflict of interest between it and its clients, or between one client and another, it must pay due regard to the interests of each customer and manage the conflict of interest fairly.
Where a conflict arises, or may arise, the Firm must not knowingly advise or deal in the exercise of discretion, in relation to that transaction unless it takes reasonable steps to ensure fair treatment for the client. The Firm’s client agreements make a formal disclosure that such conflicts could arise (i.e. non-exclusivity), and by doing so puts the customer on notice of the possibility. This keeps the Firm within the strict letter of the rules and principles, but it is an overriding policy of the Firm that all such conflicts should be brought to the attention of the Compliance Officer in order that they may be sure that the firm’s procedures are adequate.
If an investment decision is made for any client that departs from previous advice or recorded strategy for that client or which may result in an increased risk profile for the client’s portfolio, the Firm must record the reasons behind the decision. If the reasons are the same for a number of clients or transactions, only one record needs to be made. These records must be made in writing and be kept in the relevant client files.
The Firm will notify clients of how they may obtain a copy of how the Firm voted free of charge and will provide a contact for that purpose.
Compliance Monitoring and Policy Review
An investment adviser that retains a third party proxy advisory service provider to provide voting recommendations or voting execution services also should consider additional steps to evaluate whether the investment adviser’s voting determinations are consistent with its voting policies and procedures and in the client’s best interest before the votes are cast. The operations and investment teams view all “pre-populated” vote recommendation by the third party proxy advisory firm before they are cast via the electronic voting platform.
The Firm’s ongoing compliance monitoring program will include;
1)
An annual review of the Firm’s internal compliance monitoring procedures and policies with respect to proxy voting.
2)
An annual review of the adequacy of service provided by the third party proxy voting service provider and its compliance with the SEC guidelines and federal law with respect to proxy voting.
3)
A quarterly review of the ongoing communication of voting intentions to the investment team to ensure that these are visible to the investment team.
4)
A quarterly sample test of pre-populated voting intentions focused on votes that are likely to impact the client, such as those for corporate events or contested elections of directors, to ensure the voting rationales and relevant background information supplied by the third party proxy voting service provider is available and of adequate quality.
5)
Ad-hoc reviews of company-specific voting intentions where the Firm considers this appropriate based on the above sample testing.
The Firm is in compliance with the Financial Reporting Council’s UK Stewardship Code and Shareholders Rights Directive II regarding corporate governance and engagement. A copy of Origin’s latest disclosure response to the UK Stewardship Code and Shareholders Rights Directive II is available for download on the origin website at https://www.originam.com/library.
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Proxy Voting Policy
Pictet Asset Management
2020
INTRODUCTION
For decades, sustainability has been central to our way of thinking. Since the Pictet Group was founded in 1805, we have aimed to ensure the prosperity of our clients over the long term. In doing so, we have in-stinctively considered the interests of future generations.
Pictet Asset Management believes in responsible capitalism and takes an enlarged view of the economy and its interactions with civil society and the natural environment. As such, we expect issuers to respect both planetary boundaries and international standards on governance, human rights and ethical business prac¬tices.
Consistent with our fiduciary duty to act in the best interests of our clients and our adherence to the UN Principles for Responsible Investment (UN PRI), we are committed to integrating material Environmental, Social and Governance (ESG) criteria in our investment processes and ownership practices with a view to enhance returns and/or mitigate risks over the medium to long term. We also aim to include ESG aspects in our risk management and reporting tools in order to maintain high standards of transparency and account-ability.
As an active manager, we believe that leveraging the power of investors to trigger positive change across issuers enables us to make better long-term investment decisions for our clients. Indeed, through our active ownership programme, we aim to fulfil our responsibilities as investors and to help shape a more sustaina¬ble, prosperous, healthy and equitable society.
This document describes how Pictet Asset Management performs its Active Ownership responsibilities on behalf of its clients.
PROXY VOTING
1.1 Scope
The following principles are used to define the securities eligible for proxy voting4:
›
For actively managed funds, we aim to vote on 100% of equity holdings.
›
For passively managed funds, we aim to vote on companies representing 80% of underlying bench-marks by weight5. This target may be revised upwards or downwards for specific strategies de-pending on factors such as portfolio size, geography or market capitalization.
›
For segregated accounts, including mandates and third-party (i.e. sub-advisory) mutual funds man-aged by Pictet Asset Management, clients who delegate the exercise of voting rights to us have the choice between Pictet Asset Management’s voting guidelines or their own voting guidelines.
1.2 Purpose
The overarching purpose of our voting is to protect and promote the rights and long-term interests of our clients as shareholders. We consider it our responsibility to engage with and challenge companies’ manage-ment to ensure that the issuers we invest in on our clients’ behalf are well-run, adhere to their strategy and deliver shareholder value. We aim to support a strong culture of corporate governance, effective manage¬ment of environmental and social issues and comprehensive reporting according to credible standards.
1.3 Voting Guidelines
Our proxy voting guidelines are based on generally accepted standards of best practice in corporate gov-ernance including board compensation, executive remuneration, risk management and shareholder rights. Given that the long-term interests of shareholders are the paramount objective, we do not always support the management of companies and may vote against management from time to time. We also reserve the right to deviate from our voting guidelines to take into account company-specific circumstances.
The complete version of these guidelines can be found under the following links:
https ://www.issgovernance.com/file/policy/active/specialty/Sustainability-International-Voting-Guide-lines.pdf
https://www.issgovernance.com/file/policy/active/specialty/Sustainability-US-Voting-Guidelines.pdf
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Pictet Asset Management’s voting guidelines are reviewed every year and adapted as appropriate to reflect the specificities of certain regions and/or ownership structures.
1.4 Research & Decision Making
To assist us in performing our proxy voting responsibilities, Pictet Asset Management uses the services of third party specialists to provide research and to facilitate the execution of voting decisions at all relevant company meetings worldwide.
Third party specialists are tasked with collecting meeting notices for all holdings and researching the impli-cations of every resolution according to voting guidelines defined by Pictet Asset Management. All recom-mendations are communicated to relevant investment teams and the Environmental Social Governance (ESG) team.
Pictet Asset Management retains full discretion over all voting decisions and always reserves the right to deviate from third party voting recommendations, on a case by case basis, in order to act in the best inter¬ests of our clients. Such divergences may be initiated by investment teams or by the ESG team and must be supported by written rationale.
In instances when consensus cannot be reached between the investments teams and ESG team, the decision is escalated to relevant Chief Investment Officers (CIOs) and, if necessary, the Head of Investments.
1.5 Security Lending
Security lending can impair our ability to execute our voting rights. As a result, investment teams wishing
to exercise full voting rights have two options:
›
Recalling shares on loan on a case-by-case basis
›
Removing a portfolio from the securities lending pool
1.6 Shareholder Resolutions
Shareholder resolutions at Annual General Meetings (AGMs)/Extraordinary General Meetings (EGMs) are evaluated in accordance with Pictet Asset Management’s voting guidelines. Evaluations are based on their own merits and are supported when they would improve the company’s corporate governance or business profile at a reasonable cost.
Pictet Asset Management does not usually assume the role of an activist investor and does not initiate shareholder resolutions or shareholder groups. However, Pictet Asset Management may consider support¬ing the submission of shareholder resolutions initiated by third-parties, or joining shareholder groups, based on the following criteria:
›
How would the proposal enhance or protect shareholder value in the short-term and long-term?
›
Liquidity and other technical issues that may impact specific portfolios, such as a share blocking period between the submission and the general assembly.
›
Legal and compliance issues (such as concert party action or transparency requirements relating to ownership size).
Supporting the submission of a shareholder resolution, including the number of shares and corresponding accounts earmarked to support the submission, is subject to agreement by relevant investment teams and the ESG team. In cases where no consensus is reached, the decision is escalated to the relevant Chief Invest¬ment Officer and, if necessary, the Head of Investments.
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Sound Point Capital Management, LP
Policy Regarding Proxy Voting
Purpose and Scope
The purpose of this policy and its related procedures regarding voting proxies for securities held in Client accounts and for which Sound Point has been delegated proxy voting authority (“Client Proxies”) is to establish guidelines regarding Client Proxies that are reasonably designed to conform with the requirements of applicable law (this “Policy”).
General Policy
Rule 206(4)-6 of the Advisers Act requires a registered investment adviser that exercises proxy voting authority over client securities to: (i) adopt and implement written policies and procedures that are reasonably designed to ensure that the investment adviser votes proxies related to client securities in the best interest of its Clients; (ii) ensure that the written policies and procedures address material conflicts that may arise between the interests of the investment adviser and those of its Clients; (iii) describe its proxy voting procedures to clients, and provide copies of such procedures upon request by such clients; and (iv) disclose to clients how they may obtain information from the investment adviser about how the adviser voted with respect to their securities. Sound Point is committed to implementing policies and procedures that conform to the requirements of the Advisers Act. To that end, it has implemented this Policy to facilitate Sound Point’s compliance with Rule 206(4)-6 and to ensure that proxies related to Client Securities are voted (or not voted) in a manner consistent with the best interest of its Clients.
Proxy Voting Policy
Rule 206(4)-6 of the Advisers Act requires a registered investment adviser that exercises its authority to vote Client Proxies to: (i) adopt and implement written policies and procedures that are reasonably designed to ensure that the investment adviser votes Client Proxies in the best interest of its Clients; (ii) ensure that the written policies and procedures address material conflicts that may arise between the interests of the investment adviser and those of its Clients; (iii) describe its proxy voting procedures to clients, and provide copies of such procedures upon request by such clients; and (iv) disclose to clients how they may obtain information from the investment adviser about how the adviser voted their proxies.
Sound Point generally has proxy voting authority over securities held in Client accounts for which it has discretionary investment management responsibility. Proxy voting, however, is not an integral component of Sound Point’s investment strategy, which focuses primarily on investments and trading in fixed income, credit and credit-linked securities (collectively referred to herein as “credit positions”). These types of securities do not typically convey voting rights to the holder. To the extent Clients holds equity securities, it will generally be for the purpose of hedging credit positions or for short-term trading strategies. In the absence of a specific duty, if Sound Point does not believe the exercise of a proxy vote right will have a material economic impact on the client account, Sound Point may not exercise its voting authority with respect to a proxy. In addition, Sound Point may elect to not vote a proxy if the cost of voting, or time commitment required to vote a proxy outweighs the expected benefits of voting the proxy.
These policies and procedures do not mandate that Sound Point vote every Client Proxy that it receives. There may be circumstances when refraining from voting a proxy is in a Client’s best interest, such as when and if Sound Point determines that the cost of voting the proxy exceeds the expected benefit to the Client. Further, Sound Point will not vote proxies for which a Client has not delegated voting authority to Sound Point. Sound Point shall vote all proxies related to Client Accounts where such account has mandated such practice (e.g. 40 Act Clients, Client accounts that specifically instructed Sound Point to vote proxies). With respect to ERISA clients, Sound Point will act prudently and solely in the interest of the participants and beneficiaries of such ERISA client.
Proxy Voting Procedures
Procedures
The CCO or his or her designee is responsible for determining whether a particular proxy vote may have a material economic impact on an underlying Client position or trading strategy and, if so, instructing the custodian to act in the manner which the CCO believes will increase the value of the underlying credit position or short-term trading strategy. In make any such determination, the CCO shall consider any potential conflicts of interest which may exist and shall at all times act in the manner in which he believes will further the economic interests of the clients. The CCO shall document the rationale for any decision to vote or not to vote a proxy.
Sound Point has retained BroadRidge/ProxyEdge to assist it in coordinating and voting Client Proxies. The CCO or his or her designee will monitor the third-party to assure that all proxies are being properly voted and appropriate records are being retained.
Any employee, officer or director of Sound Point receiving an inquiry directly from a company holding a proxy contest must promptly notify the CCO.
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Conflicts of Interest
Sound Point will not put its own interests ahead of a Client’s interest at any time, and will resolve any potential conflicts between its interests and those of its Clients in favor of its Clients. The CCO will be primarily responsible for determining whether a conflict of interest exists in connection with any Client Proxy vote. The CCO will presume a conflict of interest to exist whenever Sound Point or any partner, member, affiliate, subsidiary or employee of Sound Point has a personal or business interest in the outcome of a particular matter before shareholders. The following conflicts of interest are monitored and the results are presented to the Conflicts Committee as they arise or on a quarterly basis if there are no conflicts identified; director candidates related to Sound Point, shareholder proposals from Sound Point, its affiliates or clients; votes by portfolio managers where securities are also held in their personal accounts; and votes in securities where Sound Point has a material position.
Limitations on Proxy Voting
Sound Point will not be obliged to vote a Client Proxy if Sound Point reasonably determines that the cost of voting such Securities would exceed the expected benefit to the Client.
Disclosure to Clients
Form ADV Disclosure
Sound Point will disclose in Part 2A of its Form ADV that Clients may contact the CCO during regular business hours, via email or telephone, to obtain information on how Sound Point voted such Client’s proxies for the past 5 years. The summary of this Policy included in Sound Point’s Part 2A of its Form ADV will be updated whenever this Policy is revised. Clients may also receive a copy of this Policy upon their request.
Note that updating the Form ADV with a change to the proxy voting policy outside of the annual update is voluntary. However, Sound Point will need to communicate to the Client any changes to this Policy affecting its fiduciary duty.
Client Requests for Information
Clients and Private Fund Investors may request a copy of this Policy and/or information about how Sound Point has voted securities in their behalf (or, with respect to a Private Fund) account by contacting Sound Point. Sound Point will not disclose proxy votes made on behalf of a Client to other Clients or third parties unless specifically requested, in writing, by the Client. However, to the extent that Sound Point may serve as sub-adviser to another adviser to a client, Sound Point will be deemed to be authorized to provide proxy voting records on such Accounts to such other adviser.
Recordkeeping
In accordance with the recordkeeping requirements of Rule 204-2 of the Advisers Act, Sound Point will, for a period of at least 5 years from the end of the fiscal year during which the record was finalized, maintain or have ready access to the following documents, the first 2 years in an appropriate office of Sound Point:
(i)
a copy of this Policy;
(ii)
a copy of each proxy statement received by Sound Point regarding Securities held on behalf of its Clients;
(iii)
a record of each vote cast by Sound Point on behalf of its Clients;
(iv)
a copy of any documents prepared by Sound Point that were material to making a decision how to vote, or that memorialized the basis for such decision; and
(v)
a copy of each written request received from a Client as to how Sound Point voted proxies on its behalf, and a copy of any written response from Sound Point to any (written or oral) Client request for information on how Sound Point voted proxies on its behalf.
To fulfill some of these recordkeeping requirements, Sound Point may rely on proxy statements filed on EDGAR and proxy statements and records of proxy votes cast that are maintained with a proxy voting service or other third-party, provided that Sound Point has obtained an undertaking from such third-party to provide a copy of the documents promptly upon request.
Additionally, Sound Point shall collect proxy information necessary for the preparation and filing of any required forms, such as Form N-PX.
Sound Point will retain each of the records listed above in accordance with Sound Point’s Policy Regarding Recordkeeping.
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Policy on Proxy Voting
Spectrum Asset Management, Inc.
For Investment Advisory Clients:
General Policy
Spectrum, an investment adviser registered with the Securities and Exchange Commission, acts as investment advisor for various types of client accounts (e.g. employee benefit plans, governmental plans, mutual funds, insurance company separate accounts, corporate pension plans, endowments and foundations). While Spectrum receives few proxies for the preferred shares it manages, Spectrum nonetheless will, when delegated the authority by a client, vote these shares per the following policy voting standards and processes:
Standards:
Spectrum’s standards aim to ensure the following in keeping with the best interests of its clients:
•
That Spectrum act solely in the interest of its clients in providing for ultimate long-term stockholder value.
•
That Spectrum act without undue influence from individuals or groups who may have an economic interest in the outcome of a proxy vote.
•
That the custodian bank is aware of our fiduciary duty to vote proxies on behalf of others - Spectrum relies on the best efforts of the custodian bank to deliver all proxies we are entitled to vote.
•
That Spectrum will exercise its right to vote all proxies on behalf of its clients (or permit clients to vote their interest, as the case(s) may be).
•
That Spectrum will implement a reasonable and sound basis to vote proxies.
Processes:
A. Following ISS’ Recommendations
Spectrum has selected Institutional Shareholder Services (ISS) to assist it with its proxy voting responsibilities. Spectrum follows ISS Standard Proxy Voting guidelines (the “Guidelines”). The Guidelines embody the positions and factors Spectrum generally considers important in casting proxy votes. They address a wide variety of individual topics, including, among other matters, shareholder voting rights, anti-takeover defenses, board structures, the election of directors, executive and director compensation, reorganizations, mergers, and various shareholder proposals. Recognizing the complexity and fact-specific nature of many corporate governance issues, the Guidelines often do not direct a particular voting outcome, but instead identify factors ISS considers in determining how the vote should be cast.
In connection with each proxy vote, ISS prepares a written analysis and recommendation (an “ISS Recommendation”) that reflects ISS’s application of Guidelines to the particular proxy issues. Where the Guidelines do not direct a particular response and instead list relevant factors, the TSS Recommendation will reflect ISS’s own evaluation of the factors. Spectrum may on any particular proxy vote decide to diverge from the Guidelines or an ISS Recommendation. In such cases, our procedures require: (i) the requesting Portfolio Manager to set forth the reasons for their decision; (ii) the approval of the Chief Investment Officer; (iii) notification to the Compliance Department and other appropriate Principal Global Investors personnel; (iv) a determination that the decision is not influenced by any conflict of interest; and (v) the creation of a written record reflecting the process.
Spectrum generally votes proxies in accordance with ISS’ recommendations. When Spectrum follows ISS’ recommendations, it need not follow the conflict of interest procedures in Section B, below.
From time to time ISS may have a business relationship or affiliation with one or more issuers held in Spectrum client accounts, while also providing voting recommendations on these issuers’ securities. Because this practice may present a conflict of interest for ISS, Spectrum’s Chief Compliance Officer will require from ISS at least annually additional information, or a certification that ISS has adopted policies and procedures to detect and mitigate such conflicts of interest in issuing voting recommendations. Spectrum may obtain voting recommendations from two proxy voting services as an additional check on the independence of the ISS’ voting recommendations.
B. Disregarding ISS’ Recommendations
Should Spectrum determine not to follow ISS’ recommendation for a particular proxy, Spectrum will use the following procedures for identifying and resolving a material conflict of interest, and will use the Proxy Voting Guidelines (below) in determining how to vote. The Report for Proxy Vote(s) against ISS Recommendation(s), Exhibit A hereto, shall be completed in each such instance.
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Spectrum will classify proxy vote issues into three broad categories: Routine Administrative Items, Special Interest Issues, and Issues Having the Potential for Significant Economic Impact. Once the Senior Portfolio Manager has analyzed and identified each issue as belonging in a particular category, and disclosed the conflict of interests to affected clients and obtained their consents prior to voting, Spectrum will cast the client’s vote(s) in accordance with the philosophy and decision guidelines developed for that category. New and unfamiliar issues are constantly appearing in the proxy voting process. As new issues arise, we will make every effort to classify them among the three categories below. If we believe it would be informative to do so, we may revise this document to reflect how we evaluate such issues.
Due to timing delays, logistical hurdles and high costs associated with procuring and voting international proxies, Spectrum has elected to approach international proxy voting on the basis of achieving “best efforts at a reasonable cost.”
As a fiduciary, Spectrum owes its clients an undivided duty of loyalty. We strive to avoid even the appearance of a conflict that may compromise the trust our clients have placed in it. This is true with respect to proxy voting and thus Spectrum has adopted the following procedures for addressing potential or actual conflicts of interest.
Identifying a Conflict of Interest. There may be a material conflict of interest when Spectrum votes a proxy solicited by an issuer whose retirement plan or fund we manage or with whom Spectrum, an affiliate, or an officer or director of Spectrum or of an affiliate has any other material business or personal relationship that may affect how we vote the issuer’s proxy. To avoid any perceived material conflict of interest, the following procedures have been established for use when Spectrum encounters a potential material conflict to ensure that voting decisions are based on a clients’ best interest and are not the product of a material conflict.
Monitoring for Conflicts of Interest. All employees of Spectrum are responsible for monitoring for conflicts of interest and referring any that may be material to the CCO for resolution. At least annually, the CCO will take reasonable steps to evaluate the nature of Spectrum’s material business relationships (and those of its affiliates) with any company whose preferred securities are held in client accounts (a “portfolio company”) to assess which, if any, could give rise to a conflict of interest. CCO’s review will focus on the following three categories:
•
Business Relationships - The CCO will consider whether Spectrum (or an affiliate) has a substantial business relationship with a portfolio company or a proponent of a proxy proposal relating to the portfolio company (e.g., an employee group), such that failure to vote in favor of management (or the proponent) could harm the adviser’s relationship with the company (or proponent). For example, if Spectrum manages money for the portfolio company or an employee group, manages pension assets, leases office space from the company, or provides other material services to the portfolio company, the CCO will review whether such relationships may give rise to a conflict of interest.
•
Personal Relationships - The CCO will consider whether any senior executives or portfolio managers (or similar persons at Spectrum’s affiliates) have a personal relationship with other proponents of proxy proposals, participants in proxy contests, corporate directors, or candidates for directorships that might give rise to a conflict of interest.
•
Familial Relationships - The CCO will consider whether any senior executives or portfolio managers (or similar persons at Spectrum’s affiliates) have a familial relationship relating to a portfolio company (e.g., a spouse or other relative who serves as a director of a portfolio company, is a candidate for such a position, or is employed by a portfolio company in a senior position).
In monitoring for conflicts of interest, the CCO will consider all information reasonably available to it about any material business, personal, or familial relationship involving Spectrum (and its affiliates) and a portfolio company, including the following:
•
A list of clients that are also public companies, which is prepared and updated by the Operations Department and retained in the Compliance Department.
•
Publicly available information.
•
Information generally known within Spectrum.
•
Information actually known by senior executives or portfolio managers. When considering a proxy proposal, investment professionals involved in the decision-making process must disclose any potential material conflict that they are aware of to the CCO prior to any substantive discussion of a proxy matter.
•
Information obtained periodically from those persons whom the CCO reasonably believes could be affected by a conflict arising from a personal or familial relationship (e.g., portfolio managers, senior management).
The CCO may, at his discretion, assign day-to-day responsibility for monitoring for conflicts to a designated person. With respect to monitoring of affiliates, the CCO in conjunction with PGI’s CCO may rely on information barriers between Spectrum and its affiliates in determining the scope of its monitoring of conflicts involving affiliates.
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Determining Whether a Conflict of Interest is “Material” - On a regular basis, CCO will monitor conflicts of interest to determine whether any may be “material” and therefore should be referred to PGI for resolution. The SEC has not provided any specific guidance as to what types of conflicts may be “material” for purposes of proxy voting, so therefore it would be appropriate to look to the traditional materiality analysis under the federal securities laws, i.e., that a “material” matter is one that is reasonably likely to be viewed as important by the average shareholder.
Whether a conflict may be material in any case will, of course, depend on the facts and circumstances. However, in considering the materiality of a conflict, Spectrum will use the following two-step approach:
1.
Financial Materiality - The most likely indicator of materiality in most cases will be the dollar amount involved with the relationship in question. For purposes of proxy voting, it will be presumed that a conflict is not material unless it involves at least 5% of Spectrum’s annual revenues or a minimum dollar amount of $1,000,000. Different percentages or dollar amounts may be used depending on the nature and degree of the conflict (e.g., a higher number if the conflict arises through an affiliate rather than directly with Spectrum).
2.
Non-Financial Materiality - A non-financial conflict of interest might be material (e.g., conflicts involving personal or familial relationships) and should be evaluated based on the facts and circumstances of each case.
If the CCO has any question as to whether a particular conflict is material, it should presume the conflict to be material and refer it to the PGI’s CCO for resolution. As in the case of monitoring conflicts, the CCO may appoint a designated person or subgroup of Spectrum’s investment team to determine whether potential conflicts of interest may be material.
Resolving a Material Conflict of Interest - When an employee of Spectrum refers a potential material conflict of interest to the CCO, the CCO will determine whether a material conflict of interest exists based on the facts and circumstances of each particular situation. If the CCO determines that no material conflict of interest exists, no further action is necessary and the CCO will notify management accordingly. If the CCO determines that a material conflict exists, CCO must disclose the conflict to affected clients and obtain consent from each as to the manner in which Spectrum proposes to vote.
Clients may obtain information about how we voted proxies on their behalf by contacting Spectrum’s Compliance Department.
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Proxy Voting Guidelines
CATEGORY I: Routine Administrative Items
Philosophy: Spectrum is willing to defer to management on matters of a routine administrative nature. We feel management is best suited to make those decisions which are essential to the ongoing operation of the company and which do not have a major economic impact on the corporation and its shareholders. Examples of issues on which we will normally defer to management’s recommendation include:
1.
selection of auditors
2.
increasing the authorized number of common shares
3.
election of unopposed directors
CATEGORY II: Special Interest Issues
Philosophy: While there are many social, political, environmental and other special interest issues that are worthy of public attention, we do not believe the corporate proxy process is the appropriate arena in which to achieve gains in these areas. Our primary responsibility in voting proxies is to provide for the greatest long-term value for Spectrum’s clients. We are opposed to proposals which involve an economic cost to the corporation, or which restrict the freedom of management to operate in the best interest of the corporation and its shareholders. However, in general we will abstain from voting on shareholder social, political and environmental proposals because their long-term impact on share value cannot be calculated with any reasonable degree of confidence.
CATEGORY III: Issues Having the Potential for Significant Economic Impact
Philosophy: Spectrum is not willing to defer to management on proposals which have the potential for major economic impact on the corporation and the value of its shares. We believe such issues should be carefully analyzed and decided by the owners of the corporation. Presented below are examples of issues which we believe have the potential for significant economic impact on shareholder value.
1.
Classification of Board of Directors. Rather than electing all directors annually, these provisions stagger a board, generally into three annual classes, and call for only one-third to be elected each year. Staggered boards may help to ensure leadership continuity, but they also serve as defensive mechanisms. Classifying the board makes it more difficult to change control of a company through a proxy contest involving election of directors. In general, we vote on a case by case basis on proposals for staggered boards, but generally favor annual elections of all directors.
2.
Cumulative Voting of Directors. Most corporations provide that shareholders are entitled to cast one vote for each director for each share owned - the one share, one vote standard. The process of cumulative voting, on the other hand, permits shareholders to distribute the total number of votes they have in any manner they wish when electing directors. Shareholders may possibly elect a minority representative to a corporate board by this process, ensuring representation for all sizes of shareholders. Outside shareholder involvement can encourage management to maximize share value. We generally support cumulative voting of directors.
3.
Prevention of Greenmail. These proposals seek to prevent the practice of “greenmail”, or targeted share repurchases by management of company stock from individuals or groups seeking control of the company. Since only the hostile party receives payment, usually at a substantial premium over the market value of its shares, the practice discriminates against all other shareholders. By making greenmail payments, management transfers significant sums of corporate cash to one entity, most often for the primary purpose of saving their jobs. Shareholders are left with an asset-depleted and often less competitive company. We think that if a corporation offers to buy back its stock, the offer should be made to all shareholders, not just to a select group or individual. We are opposed to greenmail and will support greenmail prevention proposals.
4.
Supermajority Provisions. These corporate charter amendments generally require that a very high percentage of share votes (70-81%) be cast affirmatively to approve a merger, unless the board of directors has approved it in advance. These provisions have the potential to give management veto power over merging with another company, even though a majority of shareholders favor the merger. In most cases we believe requiring supermajority approval of mergers places too much veto power in the hands of management and other minority shareholders, at the expense of the majority shareholders, and we oppose such provisions.
5.
Defensive Strategies. These proposals will be analyzed on a case by case basis to determine the effect on shareholder value. Our decision will be based on whether the proposal enhances long-term economic value.
6.
Business Combinations or Restructuring. These proposals will be analyzed on a case by case basis to determine the effect on shareholder value. Our decision will be based on whether the proposal enhances long-term economic value.
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7.
Executive and Director Compensation. These proposals will be analyzed on a case by case basis to determine the effect on shareholder value. Our decision will be based on whether the proposal enhances long-term economic value.
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Exhibit A to Proxy Policy
Report for Proxy Vote(s) Against ISS Recommendation(s)
This form should be completed in instances in which Spectrum Portfolio Manager(s) decide to vote against ISS recommendations. 
1. Security Name I Symbol:
 
2. Issue up for vote:
 
 
3. Summary of ISS recommendation (see attached full ISS recommendation):
 
 
4. Reasons for voting against ISS recommendation (supporting documentation may be attached):
 
 
5. Determination of potential conflicts (if any):
 
 
6. Contacted Compliance Department: Yes / No
Name of individual contacted:
 
Date:
 
7. Contacted other Spectrum portfolio managers who have position in same security:
Yes / No
 
Name of individual contacted:
 
Date:
 
8. Portfolio Manager Signature:
Date:
 
Portfolio Manager Name:
 
Portfolio Manager Signature*:
 
Date:
 
Portfolio Manager Name:
 
*Note: All Portfolio Managers who manage portfolios that hold relevant security must sign.
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Wellington Management
Global Proxy Policy And Procedures
INTRODUCTION
Wellington Management has adopted and implemented policies and procedures that it believes are reasonably designed to ensure that proxies are voted in the best economic interests of clients for whom it exercises proxy-voting discretion.
Wellington Management’s Proxy Voting Guidelines (the “Guidelines”) set forth broad guidelines and positions on common proxy issues that Wellington Management uses in voting on proxies. In addition, Wellington Management also considers each proposal in the context of the issuer, industry and country or countries in which the issuer’s business is conducted. The Guidelines are not rigid rules and the merits of a particular proposal may cause Wellington Management to enter a vote that differs from the Guidelines. Wellington Management seeks to vote all proxies with the goal of increasing long term client value and, while client investment strategies may differ, applying this common set of guidelines is consistent with the investment objective of achieving positive long-term investment performance for each client.
Statement of policy
Wellington Management:
1)
Votes client proxies for which clients have affirmatively delegated proxy-voting authority, in writing, unless it has arranged in advance with the client to limit the circumstances in which it would exercise voting authority or determines that it is in the best interest of one or more clients to refrain from voting a given proxy.
2)
Votes all proxies in the best interests of the client for whom it is voting.
3)
Identifies and resolves all material proxy-related conflicts of interest between the firm and its clients in the best interests of the client.
Responsibility and oversight
The Investment Research Group (“Investment Research”) monitors regulatory requirements with respect to proxy voting and works with the firm’s Legal and Compliance Group and the Investment Stewardship Committee to develop practices that implement those requirements. Investment Research also acts as a resource for portfolio managers and research analysts on proxy matters as needed. Day-to-day administration of the proxy voting process is the responsibility of Investment Research. The Investment Stewardship Committee is responsible for oversight of the implementation of the Global Proxy Policy and Procedures, review and approval of the Guidelines identification and resolution of conflicts of interest, and for providing advice and guidance on specific proxy votes for individual issuers.
The Investment Stewardship Committee reviews the Global Proxy Policy and Procedures annually.
Procedures
Use of Third-Party Voting Agent
Wellington Management uses the services of a third-party voting agent for research, voting recommendations, and to manage the administrative aspects of proxy voting. The voting agent processes proxies for client accounts, casts votes based on the Guidelines and maintains records of proxies voted. Wellington Management complements the research received by its primary voting agent with the research from another voting agent.
Receipt of Proxy
If a client requests that Wellington Management votes proxies on its behalf the client must instruct its custodian bank to deliver all relevant voting material to Wellington Management or its voting agent.
Reconciliation
Each public security proxy received by electronic means is matched to the securities eligible to be voted and a reminder is sent to any custodian or trustee that has not forwarded the proxies as due. This reconciliation is performed at the ballot level. Although proxies received for private securities, as well as those received in nonelectronic format, are voted as received, Wellington Management is not able to reconcile these ballots, nor does it notify custodians of non-receipt.
Research
In addition to proprietary investment research undertaken by Wellington Management investment professionals, Investment Research conducts proxy research internally, and uses the resources of a number of external sources including third party voting agents to keep abreast of developments in corporate governance and of current practices of specific companies.
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Proxy Voting
Following the reconciliation process, each proxy is compared against the Guidelines, and handled as follows:
•
Generally, issues for which explicit proxy voting guidance is provided in the Guidelines (i.e., “For”, “Against”, “Abstain”) are voted in accordance with the Guidelines.
•
Issues identified as “case-by-case” in the Guidelines are further reviewed by Investment Research. In certain circumstances, further input is needed, so the issues are forwarded to the relevant research analyst and/or portfolio manager(s) for their input.
•
Absent a material conflict of interest, the portfolio manager has the authority to decide the final vote. Different portfolio managers holding the same securities may arrive at different voting conclusions for their clients’ proxies.
Wellington Management reviews a subset of the voting record to ensure that proxies are voted in accordance with these Global Proxy Policy and Procedures and the Guidelines; and ensures that documentation and reports, for clients and for internal purposes, relating to the voting of proxies are promptly and properly prepared and disseminated.
Material Conflict of Interest Identification and Resolution Processes
Wellington Management’s broadly diversified client base and functional lines of responsibility serve to minimize the number of, but not prevent, material conflicts of interest it faces in voting proxies. Annually, the Investment Stewardship Committee sets standards for identifying material conflicts based on client, vendor, and lender relationships, and publishes those standards to individuals involved in the proxy voting process. In addition, the Investment Stewardship Committee encourages all personnel to contact Investment Research about apparent conflicts of interest, even if the apparent conflict does not meet the published materiality criteria. Apparent conflicts are reviewed by designated members of the Investment Stewardship Committee to determine if there is a conflict and if so whether the conflict is material.
If a proxy is identified as presenting a material conflict of interest, the matter must be reviewed by designated members of the Investment Stewardship Committee, who will resolve the conflict and direct the vote. In certain circumstances, the designated members may determine that the full Investment Stewardship Committee should convene.
Other Considerations
In certain instances, Wellington Management may be unable to vote or may determine not to vote a proxy on behalf of one or more clients. While not exhaustive, the following are potential instances in which a proxy vote might not be entered.
Securities Lending
In general, Wellington Management does not know when securities have been lent out pursuant to a client’s securities lending program and are therefore unavailable to be voted. Efforts to recall loaned securities are not always effective, but, in rare circumstances, Wellington Management may determine voting would outweigh the benefit to the client resulting from use of securities for lending and recommend that a client attempt to have its custodian recall the security to permit voting of related proxies.
Share Blocking and Re-registration
Certain countries impose trading restrictions or requirements regarding re-registration of securities held in omnibus accounts in order for shareholders to vote a proxy. The potential impact of such requirements is evaluated when determining whether to vote such proxies.
Lack of Adequate Information, Untimely Receipt of Proxy Materials, or Excessive Costs
Wellington Management may abstain from voting a proxy when the proxy statement or other available information is inadequate to allow for an informed vote, when the proxy materials are not delivered in a timely fashion or when, in Wellington Management’s judgment, the costs exceed the expected benefits to clients (such as when powers of attorney or consularization are required).
Additional Information
Wellington Management maintains records related to proxies pursuant to Rule 204-2 of the Investment Advisers Act of 1940 (the “Advisers Act”), the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and other applicable laws. In addition, Wellington Management discloses annually how it has exercised its voting rights for significant votes, as required by the EU Shareholder Rights Directive II (“SRD-II”).
Wellington Management provides clients with a copy of its Global Proxy Policy and Procedures, including the Guidelines, upon written request. In addition, Wellington Management will provide specific client information relating to proxy voting to a client upon written request.Dated 1 September 2020
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Westchester Capital Management, LLC
The Merger Fund
The Merger Fund Vl
Westchester Capital Funds
Proxy and Corporate Action Voting
Policies and Procedures
I. POLICY & DELEGATION OF AUTHORITY
Westchester Capital Management, LLC (“Adviser”) acts as discretionary investment adviser for the Trusts named above, including any series thereof (each, an “Advisor Sponsored Fund” and collectively, the “Adviser Sponsored Funds”) and may act as sub-investment adviser for one or more funds from time-to-time (each a “Sub-Advised Fund” and collectively with the Adviser Sponsored Funds, the “Funds”). The Boards of Trustees of each Adviser Sponsored Fund (the “Board”) has delegated its authority to vote proxies related to the Adviser Sponsored Funds’ portfolio holdings to the Adviser in accordance with these Proxy and Corporate Action Voting Policies and Procedures (the “Policy”), which have been adopted by the Board. The Adviser has full authority to vote proxies and to act with respect to other shareholder or corporate actions on behalf of each Fund. Corporate actions may include, for example and without limitation, tender offers or exchanges, bankruptcy proceedings and class actions.
The Adviser shall consider each proxy proposal separately from all others. In that regard, the Adviser will seek to vote all proxies and act on all other actions in a timely manner as part of its full discretionary authority in accordance with this Policy. When voting proxies or acting with respect to corporate actions for the Funds, the Adviser’s utmost concern is that all decisions be made solely in the best interest of each Fund. The Adviser manages Funds that pursue event-driven and/or merger-arbitrage strategies, which are generally designed to profit upon the completion of a merger, reorganization or other corporate event. When the Adviser determines that a proposal affects its investment thesis or a Fund’s investment objectives or strategies, the Adviser will vote proxies in a manner consistent with its investment thesis and to seek to maximize the economic value of the investment for the Fund.
II. PURPOSE
The purpose of this Policy is to memorialize the procedures and policies adopted (i) by the Funds to enable them to comply with rules promulgated under the Investment Company Act of 1940, as amended (the “1940 Act”), and their obligations under the various forms required to be filed and (ii) by the Adviser to enable it to comply with its fiduciary responsibilities to clients and the requirements of Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended (“Advisers Act”).
III. PROCEDURES
The Adviser’s Chief Compliance Officer or his designee is ultimately responsible for ensuring that all proxies received by the Adviser are voted in accordance with this Policy and in a manner consistent with the Adviser’s determination of each Fund’s best interests. Although many proxy proposals can be voted in accordance with a Fund’s established Guidelines (see Section V. below, “Guidelines”), the Adviser recognizes that some proposals require special consideration, which may dictate that the Adviser make an exception to the Guidelines.
The Chief Compliance Officer or his designee is also responsible for ensuring that all corporate action notices or requests which require shareholder action received by the Adviser are addressed in a timely manner and consistent action is taken for each Fund’s account as appropriate.
A.
Conflicts of Interest1
Where a proxy proposal raises a material conflict between the Adviser’s interests and an interest of a Fund, the Adviser will resolve such a conflict in the manner described below:
1.
Vote in Accordance with the Guidelines. The Adviser shall vote in accordance with the Guidelines; or
2.
Obtain Consent. The Adviser will disclose the conflict to each affected Fund’s Board of Directors/Trustees (or the Board’s delegate) or, in the case of a Sub-Advised Fund, the Fund’s investment adviser, and recommend a proposed vote on the proposal. The disclosure shall include information regarding the matter to be voted on, the nature of the Adviser’s conflict such that the recipient of the information would be able to make an informed decision regarding the vote, and the basis of the Adviser’s recommendation. If a Board (or its delegate) or the Sub- Advised Fund’s investment adviser, as applicable, does not respond to such a conflict-disclosure request with a timely instruction, the Adviser may vote in accordance with the Adviser’s recommendation or, in its discretion, abstain from voting the securities held by that Fund’s account.
The Adviser’s Chief Compliance Officer or his designee will review proxy proposals for conflicts of interest as part of the overall vote review process.
185
B. Resources
The Adviser may retain third-party services to provide research, summary information and/or recommendations with respect to proposals on which the Adviser must vote on behalf of its Fund clients. The Adviser may also retain third-party service providers to assist with the ministerial act of voting proxies and reporting the Adviser’s or a Fund’s proxy voting record. The Adviser may reasonably rely on information or recommendations provided by such third parties.
C.
Limitations
In certain circumstances, in accordance with a Fund’s investment advisory agreement, sub-investment advisory agreement (or other written directive) or where the Adviser has determined that it is in the Fund’s best interest, the Adviser will not vote proxies received. The following are certain circumstances where the Adviser may limit its role in voting proxies:
1.
Fund Maintains Proxy Voting Authority: Where a Fund specifies in writing that it will maintain the authority to vote proxies itself or that it has delegated the right to vote proxies to a third party, the Adviser will not vote the securities and will direct the relevant custodian to send the proxy material directly to the Fund. If any proxy material is received by the Adviser, it will promptly be forwarded to the Fund or specified third party. This limitation does not apply to any Adviser-Sponsored Funds currently.
2.
Terminated Account: If the Adviser’s investment advisory relationship with a Fund is terminated, the Adviser will cease voting proxies on behalf of that Fund as soon as reasonably practicable.
3.
Limited Value or Effect: If the Adviser determines that the value of a Fund’s economic interest or the value of the portfolio holding is indeterminable or insignificant, the Adviser may abstain from voting a Fund’s proxies. The Adviser also will not generally vote proxies received for securities which are no longer held by the Fund’s account.
4.
Securities Lending Programs: When securities are out on loan, they are transferred into the borrower’s name and are voted by the borrower, in its discretion. However, if the Adviser has knowledge that an event will occur having a material effect on the Fund’s investment in a loaned security, the Adviser will seek to call the loan in time to vote the securities or the Adviser will seek to enter into an arrangement which ensures that the proxies for such material events may be voted as the Adviser believes is in the Fund’s best interests. There can be no assurance the Adviser will be able to call any loan in a manner that will allow the Adviser to vote on the related proposal in a timely manner.
5.
Unjustifiable Costs: In certain circumstances, after doing a cost-benefit analysis, the Adviser may abstain from voting where the cost of voting a Fund’s proxy would exceed any anticipated benefits to the Fund of the proxy proposal. For example, the Adviser may determine not to vote proxies regarding a non-material proposal that are provided only in a foreign language if voting the proxy would require the Fund to incur significant translation costs.
D.
Proxies Issued by Underlying Investment Companies
To the extent a Fund invests in other investment companies that are not affiliated with the Fund in reliance on Section 12(d)(1)(E) or (F) of the 1940 Act (“Underlying Funds”), the Fund is required by the 1940 Act to handle proxies received from Underlying Funds in a certain manner. It is the policy of the Adviser to vote all proxies received from Underlying Funds in the same proportion that all other shares of the Underlying Funds are voted, or in accordance with instructions received from other shareholders of the Underlying Fund, pursuant to Section 12(d)(1)(E) or (F) of the 1940 Act.
E.
Periodic Reviews and Board Reports
1.
Annual Compliance Review: On an annual basis, the Adviser shall complete a review of the proxies voted during the prior year to determine if proxies were voted in a manner consistent with this Policy (the “Compliance Review”). The Compliance Review shall be completed by personnel of the Adviser that have no authority for voting decisions as part of the Adviser’s process for voting proxies. The Compliance Review may be conducted using a random sampling of proxies voted by the Adviser during the period. Any exceptions noted during the compliance review with respect to the Adviser-Sponsored Funds will be reported to the Board in the Annual Report (described below).
2.
Annual Review of Policy: Each year, the Adviser’s Chief Compliance Officer (or his designee) shall conduct a review of this Policy and shall report to the Board any recommended changes to the Policy that arise out of the review, including any recommended updates to the established Guidelines (see Section V. below, “Guidelines”). As part of the Annual Review, the Chief Compliance Officer (or his designee) shall consider industry developments regarding proxy voting through such methods as it determines appropriate, including,
186
for example, publications from the International Corporate Governance Network’s Global Corporate Governance Principles and the Council of Institutional Investors’ Corporate Governance Policies regarding common shareholder proposals.
3.
Annual Board Report: The Adviser will provide an annual report to the Board regarding the results of the Annual Compliance Review and the Annual Review of Policy (each described above). The annual report will also include a summary of any known voting exceptions taken from the established Guidelines (see Section V. below, “Guidelines”). In addition, the annual report shall discuss any conflicts of interest identified between the Adviser and an Adviser-Sponsored Fund with respect to a particular proxy proposal and explain how the conflict was resolved (see Section III.A above, “Procedures – Conflicts of Interest”).
IV. RECORD KEEPING
In accordance with Rule 204-2 under the Advisers Act, the Adviser will maintain for the time periods set forth in the Rule (i) these proxy voting procedures and policies, and all amendments thereto; (ii) all proxy statements received regarding securities held by the Fund (provided however, that the Adviser may rely on the proxy statement filed on EDGAR as its records); (iii) a record of all votes cast on behalf of each Fund; (iv) records of all client requests for proxy voting information; (v) any documents prepared by the Adviser that were material to making a decision how to vote or that memorialized the basis for the decision; and (vi) all records relating to requests made to the Funds regarding conflicts of interest in voting the proxy.
The Adviser will describe in its Part II of Form ADV (or other brochure fulfilling the requirement of Rule 204-3) its proxy voting policies and procedures and will inform each Fund as to how they may obtain information on how the Adviser voted proxies with respect to securities held by each Fund. Clients may obtain information on how their securities were voted or a copy of the Adviser’s Policies and Procedures by written request addressed to the Adviser. The Adviser will coordinate with each Fund to assist in the provision of all information required to be filed on Form N-PX.
V. PROXY VOTING GUIDELINES
The following proxy voting guidelines (the “Guidelines”) apply to each proposal on which the Adviser is authorized to act unless the Adviser determines that a different voting result is in the best interest of the Fund holding the securities to which the proposal relates.
These Guidelines are not intended to address every potential proposal that an Adviser may need to consider and are not in every instance intended to be construed as rigid voting rules. In respect of proposals that the Adviser determines are reasonably likely to have a material economic effect on a Fund’s investment and that are not addressed below, the Adviser will generally vote in accordance with management’s recommendations.
The following Guidelines are grouped according to broad classifications for each type of proposal.
A.
Board of Directors
1.
The Adviser will generally vote in favor of incumbent and board- nominated directors, unless any such director appears to have demonstrably failed to exercise reasonable business judgment or care or the Adviser determines that the director has failed to take action that is in the best interest of the issuer for which he or she serves as a Director.
2.
The Adviser will generally vote in favor of charter or bylaw amendments or other proposals that seek to expand the indemnification available to directors or otherwise limit their liability, but the Adviser may oppose such proposals if they would provide indemnity or limit liability for breaches of the duty of loyalty or care, intentional misconduct, or interested-director transactions.
3.
The Adviser will generally vote in favor of proposals that call for directors to be elected by an affirmative majority of votes cast. The Adviser may vote against a proposal that requires majority voting in contested elections.
4.
The Adviser will generally vote against the imposition of supermajority voting requirements and will vote for proposals seeking the removal of supermajority voting requirements.
5.
The Adviser will generally oppose proposals that seek to establish cumulative voting rights for shareholders.
6.
The Adviser will generally vote against shareholder proposals to impose age or term limits or to establish a mandatory retirement age for directors on a board or committee, to change the size of a board or committee, or to limit the pool of directors that can be chosen for a board or committee.
187
7.
The Adviser will generally vote for the declassification of an existing “classified board” (i.e., one on which directors are divided into classes, each of which is elected on a staggered schedule). Similarly, the Adviser will generally vote against any proposal to implement a classified board.
8.
In contested director elections, the Adviser will vote proxies on a case- by-case basis evaluating factors including, but not limited to, qualifications of the nominees, reasons a dissident shareholder is pursuing a contested election, the nature of the dissident shareholder’s concerns, and whether a change in the board would be likely to address the dissident shareholder’s concerns.
9.
The Adviser will vote proxy access proposals (those that seek to provide shareholders with greater access to the ability to nominate directors) on a case-by-case basis with consideration given to, among other things, the economic and long-term interests of the Funds which holds the securities to which proposal relates.
B.
Auditors and Audit-Related Issues
1.
The Adviser will typically vote in favor of the approval or ratification of a company’s auditors, except it may withhold its vote in cases where management is seeking to replace the current auditors and there has been a dispute over audit policies or practices or disagreement regarding the company’s recent financial statements.
C.
Proposals Regarding Changes to a Company’s Capital Structure
1.
The Adviser will typically oppose proposals to issue “blank check” preferred stock (preferred stock with unspecified voting, conversion and/or other features), except in cases where the company has publicly stated that the blank check preferred shares will not be used for anti- takeover purposes or has identifiable legitimate financing objectives for the issuance of such blank check preferred shares.
2.
The Adviser will generally vote against proposals that seek to establish a class of common stock with separate or superior voting rights to existing common stock.
3.
The Adviser will generally vote against proposals that would allow for the use of a poison pill and vote for proposals that would eliminate a company’s ability to use a poison pill or restrict the conditions under which a poison pill may be used (e.g., by requiring shareholder approval).
4.
The Adviser will evaluate proposals to eliminate dual-class voting structures on a case-by-case basis and shall consider the costs associated with a restructuring of the current voting structure and the expected benefits to shareholders.
5.
The Adviser will oppose proposals requesting increases in authorized common or preferred stock where management provides no acceptable explanation for the expected use of or need for these additional shares or in cases where the Adviser determines that the additional stock is intended to be used to establish an anti-takeover mechanism for the company.
6.
The Adviser will generally vote in favor of stock splits or reverse stock splits if the proposal would not substantively impact the economic value or voting rights of the stock that would be impacted by the split.
D.
Compensation of Directors and Employees
1.
The Adviser will generally vote in favor of stock incentive plans submitted for shareholder approval in order to qualify for favorable tax treatment under Section 162(m) of the Internal Revenue Code, unless the Adviser determines that the performance criteria is inappropriate or poorly defined under the plan or that the maximum incentive payments are not excessive.
2.
The Adviser will generally vote in favor of employee stock purchase plans that permit an issuer’s employees to purchase stock of the issuer at a discount to market value.
3.
The Adviser will consider proposals regarding severance agreements that provide for compensation to management (golden parachutes) on a case- by-case basis taking into account the following considerations:
a.
The Adviser will generally vote in favor of proposals requesting that implementation of such arrangements be subject to shareholder approval;
b.
The Adviser will generally vote in favor of proposals requiring shareholder approval of plans in which the severance payment would exceed 300% of the executive’s current salary and bonus (including equity compensation); and
c.
For proposals regarding approval of proposed severance plans, the Adviser will evaluate such proposals on a case-by-case basis taking into consideration whether it considers the proposed plan to be in the best
188
interests of shareholders, whether the compensation payable thereunder is comparable to similar plans of peer companies, whether such compensation is excessive, whether compensation is payable irrespective of the recipient’s continued employment with the employer, and whether such plan may have the effect of rewarding management that has failed to effectively manage the company.
4.
The Adviser will generally vote in favor of claw back proposals (those designed to seek recoupment of bonuses paid to company executives) regarding fraudulent or deceptive business practices.
E.
Political, Environmental or Social Issues
1.
Proposals in this category typically request that the issuer disclose or amend certain business practices. The Adviser generally believes that these are “ordinary business matters” that are primarily the responsibility of the issuer’s management and should be evaluated and approved primarily by the issuer’s board of directors. Often, these proposals may address concerns with which the Adviser’s personnel philosophically agree, but absent a compelling economic effect on shareholder value, the Adviser will typically abstain from voting on these proposals. This reflects the belief that regardless of the Adviser’s (or its employees’) perspective on an issue, these decisions should be the province of the issuer’s management unless they have a significant, tangible effect on the value of an investment in the issuer and management has not been responsive to the matter.
F.
Proposals Regarding Voting Procedures & Miscellaneous
1.
The Adviser will generally vote for proposals that seek to establish or enhance the confidentiality of the shareholder voting process.
2.
The Adviser will generally vote in favor of proposals seeking to eliminate preemptive rights for shareholders. Although the Adviser generally supports elimination of preemptive rights, it may oppose the elimination of limited preemptive rights (for example, preemptive rights that are invoked on proposed secondary issuances in situations where the secondary issuance would result in more than an acceptable level of dilution of existing shareholder’s rights).
3.
The Adviser will generally vote for proposals seeking to provide shareholders with the right to call a special meeting.
4.
The Adviser will generally vote against proposals that seek to establish “fair price” provisions in the event of a corporate takeover.
5.
The Adviser will generally vote against proposals that seek to permit “greenmail” (proposals that would allow a company to repurchase shares at a premium from a large shareholder who is seeking to take over a company through a proxy contest or other means).
6.
The Adviser will generally vote for proposals that seek to establish the date and location of a company’s annual meeting.
1
Due to the nature of the Adviser’s business, its focus on a limited number of investment strategies, and its absence of affiliated entities engaged in other lines of business, it is not anticipated that material conflicts of interest will arise with any frequency.
189

Part C. Other Information
Item 28. Exhibits.
Unless otherwise noted, documents containing Accession Numbers below have previously been filed with the Securities and Exchange Commission and are incorporated herein by reference. 
(a)
(1)
a.
 
 
b.
(b)
(c)
These have been filed either previously or herein as noted in response to Items 28(a) and 28(b).
(d)
(1)
 
(2)
a.
 
 
b.
 
 
c.
(1)
 
 
 
(2)
 
 
d.
 
 
e.
 
 
f.
 
 
g.
 
 
h.
 
 
i.
 
 
j.
 
 
k.
(1)
 
 
 
(2)
 
 
l.
 
 
m.
 
 
n.
 
 
o.
 
 
p.
1
 
 
q.
 
 
r.
(1)
 
 
 
(2)
 
 
s.
 
 
t.
 
 
u.
 
 
v.
 
 
w.
 
 
x.
 
 
y.
 
 
z.
 
 
aa.
 
 
bb.
(1)
 
 
 
(2)
 
 
cc.
 
 
dd.
 
 
ee.
 
 
ff.
 
 
gg.
(1)
 
 
 
(2)
 
 
hh.
 
 
ii.
(e)
(1)
 
(2)
a.
2
 
 
b.
(f)
N/A
(g)
(1)
a.
 
 
b.
 
 
c.
 
 
d.
 
 
e.
 
 
f.
 
 
g.
 
 
h.
(h)
(1)
 
(2)
 
(3)
 
(4)
 
(5)
 
(6)
 
(7)
 
(8)
 
(9)
a.
 
 
b.
 
(10)
(i)
Legal Opinion **
(j)
(1)
Consent of Auditors **
 
(2)
Rule 485(b) Opinion **
 
(3)
3
(k)
N/A
(l)
(1)
Initial Capital Agreement dated 04/26/1993 – Filed as Ex-99(b)(13) on 04/12/1996 (Accession No.
0000898745-96-000012) This exhibit was originally filed in paper format. Accordingly, a hyperlink has not
been provided.
 
(2)
 
(3)
 
(4)
 
(5)
 
(6)
 
(7)
 
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4
 
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5
 
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(54)
 
(55)
 
(56)
 
(57)
 
(58)
 
(59)
 
(60)
Initial Capital Agreement dated _______ (Institutional Class shares for Global Sustainable Listed
Infrastructure Fund) **
(m)
Rule 12b-1 Plan
 
(1)
 
(2)
 
(3)
 
(4)
 
(5)
 
(6)
(n)
(o)
Reserved.
6
(p)
Code of Ethics
 
(1)
 
(2)
 
(3)
 
(4)
 
(5)
 
(6)
 
(7)
 
(8)
 
(9)
 
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7
 
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101
INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the inline XBRL document **
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SCH
XBRL Taxonomy Extension Schema Document **
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CAL
XBRL Taxonomy Extension Calculations Linkbase Document **
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DEF
XBRL Taxonomy Extension Definition Linkbase Document **
101
LAB
XBRL Taxonomy Labels Linkbase Document **
101
PRE
XBRL Taxonomy Extension Presentation Linkbase Document **
*
Filed herein.
**
To be filed by Amendment.
Item 29. Persons Controlled by or Under Common Control with the Fund
The Registrant does not control and is not under common control with any person.
Item 30. Indemnification
Under Section 2-418 of the Maryland General Corporation Law, with respect to any proceedings against a present or former director, officer, agent or employee (a “corporate representative”) of the Registrant, the Registrant may indemnify the corporate representative against judgments, fines, penalties, and amounts paid in settlement, and against expenses, including attorneys’ fees, if such expenses were actually incurred by the corporate representative in connection with the proceeding, unless it is established that:
(i)
The act or omission of the corporate representative was material to the matter giving rise to the proceeding; and
1.
Was committed in bad faith; or
2.
Was the result of active and deliberate dishonesty; or
(ii)
The corporate representative actually received an improper personal benefit in money, property, or services; or
(iii)
In the case of any criminal proceeding, the corporate representative had reasonable cause to believe that the act or omission was unlawful.
If a proceeding is brought by or on behalf of the Registrant, however, the Registrant may not indemnify a corporate representative who has been adjudged to be liable to the Registrant. Under the Registrant’s Articles of Incorporation and Bylaws, directors and officers of Registrant are entitled to indemnification by the Registrant to the fullest extent permitted under Maryland law and the Investment Company Act of 1940. Reference is made to Article VI, Section 7 of the Registrant’s Articles of Incorporation, Article 9 of Registrant’s Bylaws and Section 2-418 of the Maryland General Corporation Law.
8
The Registrant has agreed to indemnify, defend and hold the Distributors, their officers and directors, and any person who controls the Distributors within the meaning of Section 15 of the Securities Act of 1933, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Distributors, their officers, directors or any such controlling person may incur under the Securities Act of 1933, or under common law or otherwise, arising out of or based upon any untrue statement of a material fact contained in the Registrant’s registration statement or prospectus or arising out of or based upon any alleged omission to state a material fact required to be stated in either thereof or necessary to make the statements in either thereof not misleading, except insofar as such claims, demands, liabilities or expenses arise out of or are based upon any such untrue statement or omission made in conformity with information furnished in writing by the Distributors to the Registrant for use in the Registrant’s registration statement or prospectus: provided, however, that this indemnity agreement, to the extent that it might require indemnity of any person who is also an officer or director of the Registrant or who controls the Registrant within the meaning of Section 15 of the Securities Act of 1933, shall not inure to the benefit of such officer, director or controlling person unless a court of competent jurisdiction shall determine, or it shall have been determined by controlling precedent that such result would not be against public policy as expressed in the Securities Act of 1933, and further provided, that in no event shall anything contained herein be so construed as to protect the Distributors against any liability to the Registrant or to its security holders to which the Distributors would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence, in the performance of their duties, or by reason of their reckless disregard of their obligations under this Agreement. The Registrant’s agreement to indemnify the Distributors, their officers and directors and any such controlling person as aforesaid is expressly conditioned upon the Registrant being promptly notified of any action brought against the Distributors, their officers or directors, or any such controlling person, such notification to be given by letter or telegram addressed to the Registrant.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
Each director has entered into an indemnification agreement with the Fund. In addition, the interested directors each have available indemnifications from Principal Financial Group, Inc., the parent company of his/her employer, the Fund’s sponsor.
Item 31. Business or Other Connections of Investment Advisor
Principal Global Investors, LLC (“PGI”) serves as investment advisor and administrator for Principal Funds, Inc. (“PFI”), Principal Variable Contracts Funds, Inc. (“PVC”), and Principal Diversified Select Real Asset Fund (“PDSRA”). PGI also serves as investment advisor for Principal Exchange-Traded Funds (“PETF”). PGI is part of a diversified global asset management organization which utilizes a multi-boutique strategy of specialized investment groups and affiliates to provide institutional investors and individuals with diverse investment capabilities, including fixed income, equities, real estate, currency, asset allocation and stable value. A complete list of the officers and directors of the investment advisor, PGI, are set out below.
PGI is an indirect wholly-owned subsidiary of Principal Financial Group, Inc. (together with its affiliates, “Principal”), the headquarters of which is located at 711 High Street, Des Moines, Iowa. Many of the individuals listed below support Principal in various capacities, in some cases as directors or officers, in addition to their role with PGI. The below list includes individuals (designated by an *), who serve as officers and directors of the Registrant. For these individuals, the information as set out in the Statement of Additional Information (See Part B) under the caption “Additional Information Regarding Board Members and Officers” is incorporated by reference. 
 
Name
Office with Investment Advisor (PGI)
 
Robert F. Best
Managing Director and Chief Operating Officer - PGI
*
Kamal Bhatia
Director and President Principal Funds
 
David M. Blake
Director and Senior Executive Director - Fixed Income
 
Jill M. Blosser
Assistant Vice President and Chief Accounting Officer
 
Randy D. Bolin
Vice President and Associate General Counsel
 
Wei-erh Chen
Counsel
 
Daniel R. Coleman
Chief Investment Officer - Edge Asset Management
9
 
Name
Office with Investment Advisor (PGI)
 
Sudipto De
Derivatives Risk Manager - Registered Funds
 
Andrew Dion
Managing Director and Chief Operating Officer - Global Fixed Income
 
Andrew Donohue
Chief Compliance Officer - PGI
 
Debra Svoboda Epp
Assistant General Counsel
 
Todd E. Everett
Chief Executive Officer - Principal Real Estate Investors
 
Karl Goodman
Counsel
*
Gina L. Graham
Vice President and Treasurer
*
Patrick G. Halter
Chair, Chief Executive Officer and President - Principal Global Investors
 
Melinda L. Hanrahan
Managing Director - Global Equities
 
Corrine Hatala
Counsel
 
Monica L. Haun
Managing Director - Boutique Operations
 
Timothy A. Hill
Executive Director - U.S. Client Group
 
Jill M. Hittner
Director and Executive Director - Chief Financial Officer PGI
 
Daniel J. Houston
Director
 
Todd A. Jablonski
Chief Investment Officer - Principal® Global Asset Allocation
 
Jaime M. Kiehn
Managing Director - Product Specialist
 
Justin T. Lange
Assistant General Counsel and Secretary
*
Laura B. Latham
Counsel
 
Mitchell Maahs
Counsel
 
Farnaz Maters
Executive Director and Chief Marketing Officer - PGAM
 
Kenneth A. McCullum
Director
 
Adrienne L. McFarland
Assistant General Counsel
 
Barbara A. McKenzie
Director and Senior Executive Director - Investments
 
Amy M. McNally
Global Head Risk Management - PGI
 
Everett S. Miles
Vice President - Capital Markets
 
Alex P. Montz
Counsel and Assistant Secretary
 
Brian S. Ness
Executive Director and Chief Information Officer, PGAM and PI
 
Colin D. Pennycooke
Counsel
 
Christopher J. Reddy
Executive Director - Investment and Client Solutions
*
Teri Root
Chief Compliance Officer - Funds
 
Kelly D. Rush
Chief Investment Officer - Global RE Securities
 
Mustafa Sagun
Chief Investment Officer - PGI Equities
 
Charles M. Schneider
Counsel
*
Adam U. Shaikh
Assistant General Counsel
 
Ellen W. Shumway
Director and Senior Executive Director - Strategy and Investments
 
Deanna D. Strable-Soethout
Director
*
John L. Sullivan
Counsel
 
Barbara Wenig
Executive Director - Head of Global Operations and Platforms
 
Kenneth Kirk West
Executive Director - International Business and Clients
*
Dan L. Westholm
Assistant Vice President - Treasury
*
Clint L. Woods
Vice President, Associate General Counsel and Assistant Secretary
Item 32. Principal Underwriters
(a)
Principal Funds Distributor, Inc. (“PFD”) acts as principal underwriter for PFI, PVC and PDSRA. PFD also serves as the principal underwriter for certain variable contracts issued by American General Life Insurance Company and The United States Life Insurance Company in the City of New York, through their respective separate accounts.
(b) 
(1)
(2)
(3)
Name and Principal
Business Address
Positions and Offices with
Principal Underwriter (PFD)
Positions and Offices
with the Fund
Kamal Bhatia
Principal Funds Distributor, Inc.(1)
Director
President and Chief Executive
Officer
10
(1)
(2)
(3)
Name and Principal
Business Address
Positions and Offices with
Principal Underwriter (PFD)
Positions and Offices
with the Fund
Jill R. Brown
Principal Funds Distributor, Inc.(2)
President and Chairman of the
Board
None
Sean Clines
Principal Funds Distributor, Inc.(3)
Chief Financial Officer
None
Amy C. Friedrich
Principal Funds Distributor, Inc.(3)
Director
None
Gina L. Graham
Principal Funds Distributor, Inc.(3)
Vice President and Treasurer
Treasurer
Timothy A. Hill
Principal Funds Distributor, Inc.(3)
Director, Senior Vice President -
Distribution, and National Sales
Manager
None
Farnaz Maters
Principal Funds Distributor, Inc.(3)
Senior Vice President and Chief
Marketing Officer
None
Alex P. Montz
Principal Funds Distributor, Inc.(3)
Assistant Secretary
None
Brian S. Ness
Principal Funds Distributor, Inc.(3)
Senior Vice President and Chief
Information Officer
None
Michael Scholten
Principal Funds Distributor, Inc.(3)
Chief Operations Officer
None
Michelle Stockman
Principal Funds Distributor, Inc.(3)
Chief Compliance Officer
None
Dina Sullivan
Principal Funds Distributor, Inc.(2)
Assistant Vice President
None
Jeff Trier
Principal Funds Distributor, Inc.(3)
AML Compliance Officer
None
Dan L. Westholm
Principal Funds Distributor, Inc.(3)
Assistant Vice President - Treasury
Assistant Treasurer
Clint L. Woods
Principal Funds Distributor, Inc.(3)
Vice President, Associate General
Counsel, and Assistant Corporate
Secretary
Counsel, Vice President, and
Assistant Secretary
(1)
888 7th Avenue, 25th Floor, New York, NY 10019
(2)
620 Coolidge Drive, Suite 300, Folsom, CA 95630
(3)
Des Moines, IA 50392
(c)
N/A.
Item 33. Location of Accounts and Records
All accounts, books, and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940, as amended, and the rules promulgated thereunder are maintained at the offices of the Registrant and its Investment Adviser: 801 Grand Avenue, Des Moines, Iowa 50392.
Item 34. Management Services
Not applicable.
Item 35. Undertakings
Not applicable.
11
Signatures
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Fund has duly caused this registration statement to be signed on its behalf by the undersigned, duly authorized, in the city of Des Moines and State of Iowa, on the 1st day of July, 2022. 
Principal Funds, Inc.
(Registrant)
/s/ K. Bhatia
K. Bhatia
President and Chief Executive Officer
 
Attest:
/s/ B. C. Wilson
B. C. Wilson
Vice President and Secretary
12
Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. 
Signature
Title
Date
/s/ K. Bhatia
K. Bhatia
President and Chief Executive Officer
(Principal Executive Officer)
July 1, 2022
/s/ M. Scholten
M. Scholten
Chief Financial Officer
(Principal Financial Officer)
July 1, 2022
/s/ M. Hoffmann
M. Hoffmann
Vice President and Controller
(Controller)
July 1, 2022
(L. T. Barnes)*
L. T. Barnes
Director
July 1, 2022
(C. Damos)*
C. Damos
Director
July 1, 2022
(T. M. Dunbar)*
T. M. Dunbar
Director
July 1, 2022
(P. G. Halter)*
P. G. Halter
Director
July 1, 2022
(F. S. Hirsch)*
F. S. Hirsch
Director
July 1, 2022
(V. Hymes)*
V. Hymes
Director
July 1, 2022
(P. L. Lattimer)*
P. L. Lattimer
Director
July 1, 2022
(K. McMillan)*
K. McMillan
Director
July 1, 2022
(E. A. Nickels)*
E. A. Nickels
Director
July 1, 2022
(M. M. VanDeWeghe)*
M. M. VanDeWeghe
Director
July 1, 2022
 
/s/ K. Bhatia
K. Bhatia
President and Chief Executive Officer
July 1, 2022
*
Pursuant to Powers of Attorney for Barnes, Damos, Dunbar, Halter, Hirsch, McMillan, Nickels, and VanDeWeghe dated 03/18/2020; and Power of Attorney dated 12/15/2020 for V. Hymes and P. Lattimer - Filed as Ex-99(j)(3) on 12/28/2020 (Accession No. 0000898745-20-000745)
13

Amended and Restated Management Agreement effective 07/01/2022

PRINCIPAL FUNDS, INC.

AMENDED AND RESTATED MANAGEMENT AGREEMENT

This AMENDED AND RESTATED MANAGEMENT AGREEMENT (the "Agreement"), to be effective July 1, 2022, is by and between PRINCIPAL FUNDS, INC., a Maryland corporation (the "Fund"), on behalf of each series identified on Schedule 1 attached hereto, as may be amended from time to time (each, a "Series"), and PRINCIPAL GLOBAL INVESTORS, LLC, a Delaware limited liability company (the "Manager").

W I T N E S S E T H:

WHEREAS, The Fund has furnished the Manager with copies properly certified or authenticated of each of the following:

(a)Articles of Incorporation of the Fund;

(b)Bylaws of the Fund as adopted by the Board of Directors; and

(c)Resolutions of the Board of Directors of the Fund selecting the Manager as investment adviser for each Series and approving the form of this Agreement with respect to each such Series; and

WHEREAS, The Fund desires to retain the Manager to provide investment management services to each Series on the terms set forth in this Agreement, and the Manager is willing to provide such investment management services to each Series on the terms set forth in this Agreement;

NOW, THEREFORE, in consideration of the premises and mutual agreements herein contained, the Fund hereby appoints the Manager to act as investment adviser and manager of each Series, and the Manager agrees to act, perform or assume the responsibility therefore in the manner and subject to the conditions hereinafter set forth. The Fund will furnish the Manager from time to time with copies, properly certified or authenticated, of all amendments of or supplements to the foregoing, if any.

1.INVESTMENT ADVISORY SERVICES

The Manager will regularly perform the following services for each Series:

(a)Provide investment research, advice and supervision;

(b)Provide investment advisory, research and statistical facilities and all clerical services relating to research, statistical and investment work;

(c)Furnish to the Board of Directors of the Fund (or any appropriate committee of such Board), and provide ongoing review, evaluation and revision from time to time as conditions require of, a recommended investment program for the portfolio of each Series of the Fund consistent with each Series' investment objective and policies, including any recommendation for any combination or liquidation of Series;

(d)Where applicable, based upon research, analysis and due diligence, recommend to the Board of Directors of the Fund one or more sub-advisers for a Series of the Fund; regularly monitor and evaluate each sub-adviser's performance and recommend changes to the sub-advisers in situations in which appropriate;

(e)Implement such of its recommended investment program for each Series as the Fund shall approve, by placing orders for the purchase and sale of securities, subject always to the provisions of the Fund's Articles of Incorporation and Bylaws and the requirements of the Investment Company Act of 1940, as amended (the "1940 Act"), and the Fund's Registration Statement, current Prospectus and Statement of Additional Information, as each of the same shall be from time to time in effect;

(f)Advise and assist the officers of the Fund 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; and

(g)Report to the Board of Directors of the Fund at such times and in such detail as the Board may deem appropriate in order to enable it to determine that the investment policies of each Series are being observed.

2.ACCOUNTING SERVICES

The Manager will provide all accounting services customarily required by investment companies, in accordance with the requirements of applicable laws, rules and regulations and with the policies and practices of each Series as communicated to the Manager from time to time, including, but not limited to, the following:

(a)Maintain fund general ledger and journal;

(b)Prepare and record disbursements for direct expenses of each Series;

(c)Prepare daily money transfer;

(d)Reconcile all bank and custodian accounts of each Series;

(e)Assist Fund independent auditors as appropriate;

(f)Prepare daily projection of available cash balances;

(g)Record trading activity for purposes of determining net asset values and daily dividend;

(h)Prepare daily portfolio valuation report to value portfolio securities and determine daily accrued income;

(i)Determine the net asset value per share of each Series daily or at such other intervals as the Fund may reasonably request or as may be required by law;

(j)Prepare monthly, quarterly, semi-annual and annual financial statements;

(k)Provide financial information for reports to the Securities and Exchange Commission (the "SEC") in compliance with the provisions of the 1940 Act and the Securities Act of 1933, as amended (the "Securities Act"), the Internal Revenue Service and any other regulatory or governmental agencies as required;

(l)Provide financial, yield, net asset value, and similar information to National Association of Securities Dealers, Inc., and other survey and statistical agencies as instructed from time to time by the Fund;

(m)Investigate, assist in the selection of and conduct relations with custodians, depositories, accountants, legal counsel, insurers, banks and persons in any other capacity deemed to be necessary or desirable for the operations of each Series; and

Page 2 of 11

(n)Obtain and keep in effect fidelity bonds and directors and officers/errors and omissions insurance policies for the Fund in accordance with the requirements of the 1940 Act and the rules thereunder, as such bonds and policies are approved by the Fund's Board of Directors.

3.CORPORATE ADMINISTRATIVE SERVICES

The Manager will provide the following corporate administrative services for the Fund:

(a)furnish the services of such of the Manager's officers and employees as may be elected officers or directors of the Fund, subject to their individual consent to serve and to any limitations imposed by law;

(b)furnish office space, and all necessary office facilities and equipment, for the general corporate functions of the Fund (i.e., functions other than (i) underwriting and distribution of the shares of each Series; (ii) custody of the assets of each Series, (iii) transfer and paying agency services; and (iv) corporate and portfolio accounting services);

(c)furnish the services of executive and clerical personnel necessary to perform the general corporate functions of the Fund;

(d)design, develop, implement and regularly monitor appropriate compliance processes; and

(e)prepare, or provide oversight and review of the preparation of, registration statements, shareholder reports and other disclosure materials and regulatory filings for each Series.

4.RESERVED RIGHT TO DELEGATE DUTIES AND SERVICES TO OTHERS

In each case, to the extent required by applicable law (i) subject to the prior approval of a majority of the Board of Directors of the Fund, including a majority of the Directors who are not interested persons (as defined in the 1940 Act) of the Manager, Principal Life Insurance Company, or the Fund and, (ii) by vote of a majority of the outstanding voting securities (as defined in the 1940 Act) of the applicable Series, the Manager, in assuming responsibility for the various services as set forth in this Agreement, may (a) enter into agreements with others for the performance of certain duties and services or (b) delegate the performance of some or all of such duties and services to Principal Life Insurance Company, or one or more affiliates thereof; provided, however, that (x) the entry into any such agreements shall not relieve the Manager of its duty to review and monitor the performance of such persons to the extent provided in the agreements with such persons or as determined from time to time by the Board of Directors and (y) the entry into any such agreements in clause (a) or any such delegation in clause (b) shall not relieve the Manager of any of its obligations under this Agreement.

5.EXPENSES BORNE BY THE MANAGER The Manager will pay:

(a)the organizational expenses of the Fund and its Series and share classes, including the Fund's registration under the 1940 Act, and the initial registration of its Capital Stock for sale under the Securities Act with the SEC;

(b)Compensation of personnel, officers and directors who are also affiliated with the Manager; and

Page 3 of 11

(c)Expenses and compensation associated with furnishing office space, and all necessary office facilities and equipment, and personnel necessary to perform the general corporate functions of the Fund.

6.COMPENSATION OF THE MANAGER BY FUND

For all services to be rendered and payments made as provided in Sections 1, 2 and 3 hereof, the Fund will accrue daily and pay the Manager monthly, or at such other intervals as the Fund and Manager may agree, a fee based on the average of the values placed on the net assets of each Series of the Fund as of the time of determination of the net asset value on each trading day throughout the month in accordance with Schedule 1 attached hereto.

Net asset value shall be determined pursuant to applicable provisions of the Articles of Incorporation of the Fund. If pursuant to such provisions the determination of net asset value is suspended, then for the purposes of this Section 6 the value of the net assets of each Series as last determined shall be deemed to be the value of the net assets for each day the suspension continues.

The Manager may, at its option, waive all or part of its compensation for such period of time as it deems necessary or appropriate.

7.EXPENSES BORNE BY FUND

The Fund will pay, without reimbursement by the Manager, all expenses attributable to the operation of the Fund or the services described in this Agreement and not specifically identified in this Agreement as being paid by the Manager.

8.AVOIDANCE OF INCONSISTENT POSITION

In connection with purchases or sales of portfolio securities for the account of each Series, neither the Manager nor any of the Manager's directors, officers or employees will act as a principal or agent or receive any commission.

9.LIMITATION OF LIABILITY OF THE MANAGER

The Manager shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the Manager's part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement.

10.COPIES OF CORPORATE DOCUMENTS

The Fund will furnish the Manager promptly with properly certified or authenticated copies of amendments or supplements to its Articles of Incorporation or Bylaws. Also, the Fund will furnish the Manager financial and other corporate information as needed, and otherwise cooperate fully with the Manager in its efforts to carry out its duties and responsibilities under this Agreement.

Page 4 of 11

11.DURATION AND TERMINATION OF THIS AGREEMENT

This Agreement shall become effective with respect to a Series as of the corresponding date set forth on Schedule 2 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 Schedule 2 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 vote of a majority of the directors of the Fund who are not interested persons of the Manager, Principal Life Insurance Company, or the Fund cast in accordance with the requirements of the 1940 Act after taking into effect any exemptive order, no-action assurances or other relief, rule or regulation upon which the Fund may rely. This Agreement may, on sixty days written notice, be terminated with respect to a Series at any time without the payment of any penalty, by the Board of Directors of the Fund, by vote of a majority of the outstanding voting securities of the Series, or by the Manager. This Agreement shall automatically terminate in the event of its assignment. In interpreting the provisions of this Section 11, 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.

12.AMENDMENT OF THIS AGREEMENT

No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and 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 to which such amendment relates and by the vote of a majority of the directors who are not interested persons of the Manager, Principal Life Insurance Company or the Fund cast in accordance with the requirements of the 1940 Act after taking into effect any exemptive order, no-action assurances or other relief, rule or regulation upon which the Fund may rely.

13.ADDITIONAL SERIES

In the event the Fund establishes one or more Series after the effective date of this Agreement, such Series will become Series under this Agreement upon approval of this Agreement for such Series in the manner required by the 1940 Act and the amendment of Schedules 1 and 2 hereto.

14.ADDRESS FOR PURPOSE OF NOTICE

Any notice under this Agreement shall be in writing, addressed and delivered or mailed, postage prepaid, 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 Fund and that of the Manager for this purpose shall be the Principal Financial Group, Des Moines, Iowa 50392-0200.

15.REPRESENTATIONS

The Fund represents and warrants that the Fund and each Series is and will remain a

"qualified eligible person" as defined in U.S. Commodity Futures Trading Commission

(CFTC) Regulation 4.7 (17 Code of Federal Regulations Section 4.7) and the Fund consents to Manager treating it and each Series as an exempt account under CFTC Regulation 4.7.

Page 5 of 11

The Fund represents and warrants that each Series is a member of the National Futures Association (NFA) and is registered under the U.S. Commodity Exchange Act (CEA) or that it is not required to be a member of the NFA because (i) it is exempt from registration under the CEA, or (ii) it does not engage in activities that require such registration.

16.MISCELLANEOUS

The captions in this Agreement are included for convenience of reference only, and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Each party agrees that electronic signatures of the parties included in this Agreement are intended to authenticate this writing and to have the same force and effect as manual signatures. Electronic signature means any electronic sound, symbol, or process attached to or logically associated with a record and executed and adopted by a party with the intent to sign such record, including facsimile or email electronic signatures.

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 hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized.

PRINCIPAL FUNDS, INC.

By: /s/ Clint L. Woods

Clint L. Woods, Vice President, Counsel, and

Assistant Secretary

By: /s/ Adam U. Shaikh

Adam U. Shaikh, Assistant Counsel

PRINCIPAL GLOBAL INVESTORS, LLC

By: /s/ Clint L. Woods

Clint L. Woods, Vice President,

Associate General Counsel, and Assistant

Secretary

By: /s/ Adam U. Shaikh

Adam U. Shaikh, Assistant General Counsel

Page 6 of 11

SCHEDULE 1

 

 

Management Fee as a Percentage

 

 

 

of Average Daily Net Assets

 

Series

First $3B

Next $4B

Next $4B

Next $4B

Over $15B

SAM Balanced Portfolio*

0.35%

0.30%

0.25%

0.20%

0.18%

SAM Conservative Balanced Portfolio*

0.35%

0.30%

0.25%

0.20%

0.18%

SAM Conservative Growth Portfolio*

0.35%

0.30%

0.25%

0.20%

0.18%

SAM Flexible Income Portfolio*

0.35%

0.30%

0.25%

0.20%

0.18%

SAM Strategic Growth Portfolio*

0.35%

0.30%

0.25%

0.20%

0.18%

*Breakpoints based on aggregate SAM Portfolio net assets.

 

 

 

 

 

Management Fee as a Percentage

 

 

 

 

 

 

 

 

of Average Daily Net Assets

 

 

 

 

 

 

 

 

 

First

 

Next

 

 

Next

 

 

 

Over

 

Series

 

 

 

 

$500M

 

$500M

 

 

$500M

 

 

 

$1.5B

 

California Municipal Fund

 

 

 

0.40%

 

0.38%

 

 

0.36%

 

 

 

0.35%

 

 

Edge MidCap Fund

 

 

 

0.70%

 

0.68%

 

 

0.66%

 

 

 

0.65%

 

 

Finisterre Emerging Markets Total Return Bond Fund

0.75%

 

0.74%

 

 

0.73%

 

 

 

0.72%

 

 

Government & High Quality Bond Fund

 

 

 

0.49%

 

0.47%

 

 

0.45%

 

 

 

0.44%

 

 

International Small Company Fund

 

 

 

1.05%

 

1.03%

 

 

1.01%

 

 

 

1.00%

 

 

MidCap Growth Fund

 

 

 

0.65%

 

0.63%

 

 

0.61%

 

 

 

0.60%

 

 

MidCap Growth Fund III

 

 

 

0.87%

 

0.85%

 

 

0.83%

 

 

 

0.82%

 

 

Opportunistic Municipal Fund

 

 

 

0.50%

 

0.48%

 

 

0.46%

 

 

 

0.45%

 

 

SmallCap Fund

 

 

 

0.75%

 

0.73%

 

 

0.71%

 

 

 

0.70%

 

 

Small-MidCap Growth Fund

 

 

 

0.70%

 

0.68%

 

 

0.66%

 

 

 

0.65%

 

 

Tax-Exempt Bond Fund

 

 

 

0.40%

 

0.38%

 

 

0.36%

 

 

 

0.35%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management Fee as a Percentage

 

 

 

 

 

 

 

 

 

 

 

of Average Daily Net Assets

 

 

 

 

 

 

 

 

First

 

Next

 

Next

 

 

Next

 

Next

 

Over

 

Series

 

$500M

 

$500M

 

$500M

 

$500M

 

$1B

 

$3B

 

Core Plus Bond Fund

 

0.55%

 

0.53%

0.51%

 

0.50%

 

0.48%

 

0.45%

 

 

Diversified Income Fund

 

0.73%

 

0.71%

0.69%

 

0.68%

 

0.67%

 

0.66%

 

 

Diversified Real Asset Fund

 

0.85%

 

0.83%

0.81%

 

0.80%

 

0.79%

 

0.78%

 

 

Global Emerging Markets Fund

 

1.05%

 

1.03%

1.01%

 

1.00%

 

0.99%

 

0.98%

 

 

Global Multi-Strategy Fund

 

1.60%

 

1.58%

1.56%

 

1.55%

 

1.54%

 

1.53%

 

 

Global Real Estate Securities Fund

 

0.90%

 

0.88%

0.86%

 

0.85%

 

0.84%

 

0.83%

 

 

High Income Fund

 

0.65%

 

0.63%

0.61%

 

0.60%

 

0.59%

 

0.58%

 

 

Inflation Protection Fund

 

0.40%

 

0.38%

0.36%

 

0.35%

 

0.34%

 

0.33%

 

 

International Fund I

 

0.65%

 

0.63%

0.61%

 

0.60%

 

0.59%

 

0.58%

 

 

LargeCap Value Fund III

 

0.80%

 

0.78%

0.76%

 

0.75%

 

0.73%

 

0.70%

 

 

MidCap Value Fund I

 

0.68%

 

0.66%

0.64%

 

0.63%

 

0.62%

 

0.61%

 

 

Money Market Fund

 

0.40%

 

0.39%

0.38%

 

0.37%

 

0.36%

 

0.35%

 

 

Origin Emerging Markets Fund

 

1.05%

 

1.03%

1.01%

 

1.00%

 

0.99%

 

0.98%

 

 

Overseas Fund

 

0.97%

 

0.95%

0.93%

 

0.92%

 

0.91%

 

0.90%

 

 

SmallCap Growth Fund I

 

0.88%

 

0.86%

0.84%

 

0.83%

 

0.82%

 

0.81%

 

 

Small-MidCap Dividend Income Fund

 

0.79%

 

0.77%

0.75%

 

0.74%

 

0.73%

 

0.72%

 

 

SmallCap Value Fund II

 

0.95%

 

0.93%

0.91%

 

0.90%

 

0.89%

 

0.88%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management Fee as a Percentage

 

 

 

 

 

 

 

 

 

 

 

 

 

of Average Daily Net Assets

 

 

 

 

 

 

 

 

Series

First $250M

 

Next $250M

 

Next $6.5B

 

 

Next $3B

 

Over $10B

 

 

Equity Income Fund

0.60%

 

0.55%

0.50%

 

 

0.49%

 

 

 

 

0.48%

 

 

Page 7 of 11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management Fee as a Percentage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of Average Daily Net Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series

 

 

 

 

 

 

 

 

 

 

 

 

First $500M

 

 

 

Next $500M

 

Over $1B

 

 

 

 

 

 

 

 

 

 

 

 

Principal Capital Appreciation Fund

 

 

 

 

 

0.625%

 

 

 

 

 

0.500%

 

 

 

0.375%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management Fee as a Percentage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of Average Daily Net Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Series

 

 

 

 

 

 

 

First $1B

 

 

 

Next $3B

 

 

 

 

Next $3B

 

 

Next $3B

 

 

 

Over $10B

 

 

 

 

Core Fixed Income Fund

 

 

0.39%

 

 

 

0.38%

 

 

 

 

0.37%

 

0.36%

 

 

 

 

0.34%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management Fee as a Percentage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of Average Daily Net Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First $250M

 

 

 

 

 

Over $250M

 

 

 

 

 

 

 

 

 

 

 

 

 

High Yield Fund

 

 

 

 

 

 

 

 

 

 

 

 

0.625%

 

 

 

 

 

 

 

 

 

 

 

 

0.500%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management Fee as a Percentage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of Average Daily Net Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First $3B

 

 

 

 

 

 

Next $3B

 

 

 

 

Over $6B

 

 

 

 

 

 

 

 

 

 

 

 

LargeCap S&P 500 Index Fund

 

 

 

 

 

0.15%

 

 

 

 

 

 

 

 

 

0.14%

 

 

 

0.13%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management Fee as a Percentage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of Average Daily Net Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First $1B

 

 

 

 

 

 

Next $4B

 

 

 

 

Over $5B

 

 

 

 

 

 

 

 

 

 

 

 

Short-Term Income Fund

 

 

 

 

 

 

 

 

 

 

0.40%

 

 

 

 

 

 

 

 

 

0.38%

 

 

 

0.35%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management Fee as a Percentage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of Average Daily Net Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First

 

Next

 

 

Next

 

 

Next

 

 

Next

 

 

 

Next

 

 

Next

 

 

 

Next

 

 

 

Next

 

 

Next

 

 

Over

 

 

 

Series

$500M

 

$500M

 

$500M

 

 

$500M

 

 

$1B

 

 

$9.5B

 

$2.5B

 

 

$3B

 

 

 

$4B

 

 

$3B

 

 

$25B

 

 

 

MidCap

0.65%

 

0.63%

 

0.61%

 

 

0.60%

 

0.59%

 

0.58%

 

0.57%

 

0.56%

 

 

0.55%

 

 

0.53%

 

 

0.51%

 

 

 

Fund

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management Fee as a Percentage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of Average Daily Net Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First

 

 

 

Next

 

 

 

 

 

Next

 

 

Next

 

 

Next

 

 

 

Next

 

 

Over

 

 

 

Series

 

 

 

 

 

 

 

 

 

$500M

 

$500M

 

 

 

 

$500M

 

$500M

 

 

 

$1B

 

 

 

$7B

 

 

$10B

 

 

 

Blue Chip Fund

 

 

 

 

 

 

 

0.65%

 

0.63%

 

 

 

 

0.61%

 

0.60%

 

 

 

0.59%

 

 

0.58%

 

0.57%

 

 

 

Diversified International Fund

 

 

 

 

 

0.80%

 

0.78%

 

 

 

 

0.76%

 

0.75%

 

 

 

0.73%

 

 

0.70%

 

0.69%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management Fee as a Percentage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of Average Daily Net Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First

 

 

 

Next

 

 

 

 

 

Next

 

 

Next

 

 

Next

 

 

 

Next

 

 

Over

 

 

 

Series

 

 

 

 

 

 

 

 

 

$500M

 

$500M

 

 

 

 

$500M

 

$500M

 

 

 

$1B

 

 

 

$2B

 

 

$5B

 

 

 

Real Estate Securities Fund

 

 

 

 

 

0.85%

 

0.83%

 

 

 

 

0.81%

 

0.80%

 

 

 

0.79%

 

 

0.78%

 

0.77%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management Fee as a Percentage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of Average Daily Net Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First

 

Next

 

 

Next

 

 

Next

 

 

 

 

Next

 

 

 

 

Next

 

 

 

Next

 

 

Next

 

 

Over

 

Series

 

 

$500M

 

$500M

 

 

$500M

 

 

$500M

 

 

$1B

 

 

 

 

$2B

 

 

 

$2B

 

 

$3B

 

 

$10B

 

Spectrum

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred and

0.75%

 

0.73%

 

0.71%

 

 

 

0.70%

 

 

0.69%

 

 

0.68%

 

 

0.67%

 

0.66%

 

0.65%

 

Capital Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Fund

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management Fee as a Percentage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of Average Daily Net Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First

 

 

 

Next

 

 

 

 

 

Next

 

 

Next

 

 

Next

 

 

 

Next

 

 

Over

 

 

 

Series

 

 

 

 

 

 

 

 

 

$500M

 

$500M

 

 

 

 

$500M

 

$500M

 

 

 

$1B

 

 

 

$9B

 

 

$12B

 

 

LargeCap Growth Fund I

 

 

 

 

 

0.66%

 

0.64%

 

 

 

 

0.62%

 

0.61%

 

 

 

0.60%

 

 

0.59%

 

0.58%

 

 

 

Page 8 of 11

 

Management Fee as a Percentage

Series

of Average Daily Net Assets

Bond Market Index Fund

0.14%

Capital Securities Fund

0.00%

Government Money Market Fund

0.15%

International Equity Index Fund

0.25%

MidCap S&P 400 Index Fund

0.15%

Principal LifeTime 2010 Fund

0.00%

Principal LifeTime 2015 Fund

0.00%

Principal LifeTime 2020 Fund

0.00%

Principal LifeTime 2025 Fund

0.00%

Principal LifeTime 2030 Fund

0.00%

Principal LifeTime 2035 Fund

0.00%

Principal LifeTime 2040 Fund

0.00%

Principal LifeTime 2045 Fund

0.00%

Principal LifeTime 2050 Fund

0.00%

Principal LifeTime 2055 Fund

0.00%

Principal LifeTime 2060 Fund

0.00%

Principal LifeTime 2065 Fund

0.00%

Principal LifeTime Strategic Income Fund

0.00%

Principal LifeTime Hybrid Income Fund

0.00%

Principal LifeTime Hybrid 2015 Fund

0.00%

Principal LifeTime Hybrid 2020 Fund

0.00%

Principal LifeTime Hybrid 2025 Fund

0.00%

Principal LifeTime Hybrid 2030 Fund

0.00%

Principal LifeTime Hybrid 2035 Fund

0.00%

Principal LifeTime Hybrid 2040 Fund

0.00%

Principal LifeTime Hybrid 2045 Fund

0.00%

Principal LifeTime Hybrid 2050 Fund

0.00%

Principal LifeTime Hybrid 2055 Fund

0.00%

Principal LifeTime Hybrid 2060 Fund

0.00%

Principal LifeTime Hybrid 2065 Fund

0.00%

SmallCap S&P 600 Index Fund

0.15%

Page 9 of 11

SCHEDULE 2

Effective Date and Initial Term of Management Agreement for each Series

Series

Effective Date

Initial Term

Blue Chip Fund

06/14/2012

One Year

Bond Market Index Fund

12/30/2009

One Year

California Municipal Fund

01/12/2007

One Year

Capital Securities Fund

03/14/2014

One Year

Core Fixed Income Fund

01/12/2007

One Year

Core Plus Bond Fund

12/06/2000

One Year

Diversified Income Fund

12/15/2008

One Year

Diversified International Fund

12/06/2000

One Year

Diversified Real Asset Fund

03/16/2010

One Year

Edge MidCap Fund

09/30/2015

One Year

Equity Income Fund

01/12/2007

One Year

Finisterre Emerging Markets Total Return Bond Fund

07/11/2016

One Year

Global Emerging Markets Fund

12/06/2000

One Year

Global Multi-Strategy Fund

10/24/2011

One Year

Global Real Estate Securities Fund

10/01/2007

One Year

Global Sustainable Listed Infrastructure Fund

 

Two Years

Government & High Quality Bond Fund

01/12/2007

One Year

Government Money Market Fund

12/20/2017

One Year

High Income Fund

12/29/2004

One Year

High Yield Fund

01/12/2007

One Year

Inflation Protection Fund

12/29/2004

One Year

International Equity Index Fund

12/30/2009

One Year

International Fund I

12/29/2003

One Year

International Small Company Fund

06/11/2014

One Year

LargeCap Growth Fund I

12/06/2000

One Year

LargeCap S&P 500 Index Fund

12/06/2000

One Year

LargeCap Value Fund III

12/06/2000

One Year

MidCap Fund

12/06/2000

One Year

MidCap Growth Fund

12/06/2000

One Year

MidCap Growth Fund III

12/06/2000

One Year

MidCap S&P 400 Index Fund

12/06/2000

One Year

MidCap Value Fund I

12/29/2003

One Year

Money Market Fund

12/06/2000

One Year

Opportunistic Municipal Fund

06/14/2012

One Year

Origin Emerging Markets Fund

01/23/2015

One Year

Overseas Fund

09/30/2008

One Year

Principal Capital Appreciation Fund

01/12/2007

One Year

Principal LifeTime 2010 Fund

02/27/2001

One Year

Principal LifeTime 2015 Fund

02/29/2008

One Year

Principal LifeTime 2020 Fund

02/27/2001

One Year

Principal LifeTime 2025 Fund

02/29/2008

One Year

Principal LifeTime 2030 Fund

02/27/2001

One Year

Principal LifeTime 2035 Fund

02/29/2008

One Year

Principal LifeTime 2040 Fund

02/27/2001

One Year

Principal LifeTime 2045 Fund

02/29/2008

One Year

Principal LifeTime 2050 Fund

02/27/2001

One Year

Principal LifeTime 2055 Fund

02/29/2008

One Year

Principal LifeTime 2060 Fund

03/01/2013

One Year

Principal LifeTime 2065 Fund

09/06/2017

One Year

Page 10 of 11

Series

Effective Date

Initial Term

Principal LifeTime Strategic Income Fund

02/27/2001

One Year

Principal LifeTime Hybrid 2015 Fund

09/30/2014

One Year

Principal LifeTime Hybrid 2020 Fund

09/30/2014

One Year

Principal LifeTime Hybrid 2025 Fund

09/30/2014

One Year

Principal LifeTime Hybrid 2030 Fund

09/30/2014

One Year

Principal LifeTime Hybrid 2035 Fund

09/30/2014

One Year

Principal LifeTime Hybrid 2040 Fund

09/30/2014

One Year

Principal LifeTime Hybrid 2045 Fund

09/30/2014

One Year

Principal LifeTime Hybrid 2050 Fund

09/30/2014

One Year

Principal LifeTime Hybrid 2055 Fund

09/30/2014

One Year

Principal LifeTime Hybrid 2060 Fund

09/30/2014

One Year

Principal LifeTime Hybrid 2065 Fund

09/06/2017

One Year

Principal LifeTime Hybrid Income Fund

09/30/2014

One Year

Real Estate Securities Fund

12/06/2000

One Year

SAM* Balanced Portfolio

01/12/2007

One Year

SAM* Conservative Balance Portfolio

01/12/2007

One Year

SAM* Conservative Growth Portfolio

01/12/2007

One Year

SAM* Flexible Income Portfolio

01/12/2007

One Year

SAM* Strategic Growth Portfolio

01/12/2007

One Year

Short-Term Income Fund

01/12/2007

One Year

SmallCap Fund

12/06/2000

One Year

SmallCap Growth Fund I

12/06/2000

One Year

SmallCap S&P 600 Index Fund

12/06/2000

One Year

SmallCap Value Fund II

06/01/2004

One Year

Small-MidCap Dividend Income Fund

06/06/2011

One Year

Small-MidCap Growth Fund

06/12/2019

One Year

Spectrum Preferred and Capital Securities Income Fund

05/01/2002

One Year

Tax-Exempt Bond Fund

01/12/2007

One Year

*Strategic Asset Management

 

 

Page 11 of 11


Barrow Amended & Restated Sub-Advisory Agreement dated 04/01/2022

PRINCIPAL FUNDS, INC.

AMENDED AND RESTATED SUB-ADVISORY AGREEMENT

BARROW, HANLEY, MEWHINNEY & STRAUSS, LLC

SUB-ADVISED FUNDS

AMENDED AND RESTATED SUB-ADVISORY AGREEMENT (the "Agreement") to be effective as of April 1, 2022, by and between PRINCIPAL GLOBAL INVESTORS, LLC, a Delaware limited liability company (the "Manager"), and BARROW, HANLEY, MEWHINNEY & STRAUSS, LLC , a Delaware limited liability company (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 (the "Series"), which the Manager has agreed to provide to the Fund, and the Sub-Advisor desires to furnish such services; and

WHEREAS, the Manager and the Sub-Advisor agree to amend and restate the Sub-Advisory Agreement between the Manager and the Sub-Advisor dated November 17, 2020 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;

(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

1

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, financial counterparties including swap counterparties 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

2

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, accurate and complete responses to all 15(c) questionnaires; timely, accurate 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). For the avoidance of doubt , the Sub-Advisor is not responsible for the filing of claims in class action litigation involving securities held in the Fund or formerly held in the Fund but will provide investment related advice relating to such litigation when requested by the Manager in writing.

(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. 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 Financial Group Inc. 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.

3

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, a "Trade Error" occurs when a transaction results in an unintended, including an impermissible, result. Examples include, but are not limited to, the following:

•orders by the Sub-Advisor that result in the purchase or sale of securities or other assets that were not intended to be purchased or sold;

•orders by the Sub-Advisor that result in the purchase or sale of securities or other assets in an unintended amount, which includes price or commission rate; or

•purchases or sales of securities or other assets that violate the investment limitations or restrictions disclosed in the Fund's registration statement and/or imposed by applicable law, regulation, contract or understanding (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 accordance with the requirements of the 1940 Act after taking into effect any exemptive order, no-action assurances or other relief, rule or regulation at which the Fund may rely.

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)

4

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 accordance with the requirements of the 1940 Act after taking into effect any exemptive order, no-action assurances or other relief, rule or regulation at which the Fund may rely.

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, and the address of the Sub-Advisor shall

be Barrow, Hanley, Mewhinney

& Strauss, LLC, 2200 Ross Avenue, 31st Floor, Dallas, Texas 75201.

(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 action, suit, proceeding, inquiry or investigation that is reasonably likely to result in a conviction, order, judgment or decree issued with respect to it 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 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 Manager represents, and the Sub-Advisor acknowledges, that with respect to the Series, the Manager is relying on the exclusion from the definition of "commodity pool operator" under Section 4.5 of the General

5

Regulations under the CEA ("Rule 4.5"). The Sub-Advisor will not exceed the de minimis trading limits set forth in Rule 4.5(c)(2)(iii)(B) unless otherwise agreed to in writing.

(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.

(i)This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Each party agrees that electronic signatures of the parties included in this Agreement are intended to authenticate this writing and to have the same force and effect as manual signatures. Electronic signature means any electronic sound, symbol, or process attached to or logically associated with a record and executed and adopted by a party with the intent to sign such record, including facsimile or email electronic signatures.

IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date first above written.

PRINCIPAL GLOBAL INVESTORS, LLC

By

/s/ Clint L. Woods

 

Name: Clint L. Woods

 

Title:

Vice President, Associate General Counsel,

 

 

and Secretary

By

/s/ Adam U. Shaikh

 

Name: Adam U. Shaikh

 

Title:

Assistant General Counsel

BARROW, HANLEY, MEWHINNEY & STRAUSS, LLC

By

/s/ Cory Martin

 

Name: Cory Martin

 

Title: Executive Director and CEO

6

APPENDIX A

INTENTIONALLY OMITTED

7

 

APPENDIX

B

 

 

 

Effective Date and Initial Term of Sub-Advisory Agreement for each Series

 

 

 

Series

Effective Date

Initial Term

LargeCap Value Fund Ill

11/17/2020

2 Years

 

 

 

Overseas Fund

11/17/2020

2 Years

8


CoreCommodity Management, LLC Sub-Advisory Agreement dated 05/01/2022

PRINCIPAL FUNDS, INC.

SUB-ADVISORY AGREEMENT

CORECOMMODITY MANAGEMENT, LLC SUB-ADVISED FUND

SUB-ADVISORY AGREEMENT (the "Agreement") to be effective as of May 1, 2022 by and between PRINCIPAL GLOBAL INVESTORS, LLC, a Delaware limited liability company (the "Manager"), and CORECOMMODITY MANAGEMENT, LLC, a Delaware limited liability company (the "Sub-Advisor").

W I T N E S S E T H:

WHEREAS, the Manager is the manager and investment advisor 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 (the "Series"), which the Manager has agreed to provide to the Fund, and the Sub-Advisor desires to furnish such services; and

WHEREAS, the Manager has furnished the Sub-Advisor with 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, financial counterparties including swap counterparties 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").

2

(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, accurate and complete responses to all 15(c) questionnaires; timely, accurate 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. 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 within the time permitted under the Code.

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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 Financial Group, Inc. 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 of 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, a "Trade Error" occurs when a transaction results in an unintended, including an impermissible, result. Examples include, but are not limited to, the following:

•orders by the Sub-Advisor that result in the purchase or sale of securities or other assets that were not intended to be purchased or sold;

•orders by the Sub-Advisor that result in the purchase or sale of securities or other assets in an unintended amount, which includes price or commission rate; or

•purchases or sales of securities or other assets that violate the investment limitations or restrictions disclosed in the Fund's registration statement and/or imposed by applicable law, regulation, contract or understanding (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.

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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 accordance with the requirements of the 1940 Act after taking into effect any exemptive order, no-action assurances or other relief, rule or regulation upon which the Fund may rely.

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 accordance with the requirements of the 1940 Act after taking into effect any exemptive order, no-action assurances or other relief, rule or regulation upon which the Fund may rely.

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.

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(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:

CoreCommodity Management, LLC

680 Washington Blvd., 11th Floor

Stamford, Connecticut 06901

Attn: Client Relationship Manager

Email (Operations):

coreclient@CoreCommodityllc.com

Email (Other):

coretrade@CoreCommodityllc.com

With a copy for legal notices to:

CoreCommodity Management, LLC 680 Washington Blvd., 11th Floor Stamford, Connecticut 06901 Attn: General Counsel

Email: legal@CoreCommodityllc.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 advisor 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 advisor 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, as amended (the "CEA").

The Sub-Advisor represents that it (i) is a commodity trading advisor duly registered with the Commodity Futures Trading Commission (the "CFTC") and is a member in good standing of the National Futures Association (the "NFA") or (ii) is relying on an exemption from registration as a commodity trading advisor or (iii) is not trading commodity instruments that would subject the Sub- Advisor to register as a commodity trading advisor with the CFTC. As applicable, the Sub-Advisor shall either (i) maintain such registration and membership in good standing or (ii) continue to qualify for an exemption from registration as a commodity trading advisor or (iii) not trade commodity instruments that would subject the Sub-Advisor to so register during the term of this Agreement.

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Further, the Sub-Advisor agrees to notify the Manager, if applicable, within a commercially reasonable time upon (i) a statutory disqualification of the Sub-Advisor 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 self-regulatory 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.

The Manager represents that it is registered as an investment adviser under the Advisers Act and is registered or licensed as an investment adviser under the laws of all jurisdictions in which its activities require it to be so registered or licensed. The Manager represents that it is not required to be registered with the CFTC or to be a member of the NFA, or, if so required, is duly registered with the CFTC and is a member in good standing with the NFA. The Manager also represents that each of the Manager and the Fund is a "qualified eligible person" within the meaning of CFTC Rule

4.7 as amended. The Manager will promptly notify the Sub-Adviser if any of the foregoing representations ceases to be true.

(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.

(i)This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Each party agrees that electronic signatures of the parties included in this Agreement are intended to authenticate this writing and to have the same force and effect as manual signatures. Electronic signature means any electronic sound, symbol, or process attached to or logically associated with a record and executed and adopted by a party with the intent to sign such record, including facsimile or email electronic signatures.

PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING COMMISSION IN CONNECTION WITH ACCOUNTS OF QUALIFIED ELIGIBLE PERSONS, THIS AGREEMENT 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 ANY TRADING PROGRAM OR UPON THE ADEQUACY OR ACCURACY OF COMMODITY TRADING ADVISOR DISCLOSURE. CONSEQUENTLY, THE COMMODITY FUTURES TRADING COMMISSION HAS NOT REVIEWED OR APPROVED ANY TRADING PROGRAM OF THE ADVISOR OR THIS AGREEMENT.

Remainder of Page Intentionally Blank

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IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date first above written.

PRINCIPAL GLOBAL INVESTORS, LLC

By

/s/ Clint L. Woods

 

Name: Clint L. Woods

 

Title:

Vice President, Associate General Counsel,

 

 

and Secretary

By

/s/ Adam U. Shaikh

 

Name: Adam U. Shaikh

 

Title:

Assistant General Counsel

CORECOMMODITY MANAGEMENT, LLC

By

/s/ Andrew Kaplan

 

Name: Andrew Kaplan

 

Title:

Chief Operating Officer

By

/s/ Patti Rube

 

Name: Patti Rube

 

Title:

General Counsel

8

APPENDIX A

INTENTIONALLY OMITTED

9

APPENDIX B

Effective Date and Initial Term of Sub-Advisory Agreement for each Series

Series

Effective Date

Initial Term

Diversified Real Asset

May 1, 2022

2 Years

 

 

 

10


Insight North America LLC A&R Sub-Advisory Agreement dated 04/01/2022

PRINCIPAL FUNDS, INC.

AMENDED AND RESTATED SUB-ADVISORY AGREEMENT

INSIGHT NORTH AMERICA LLC SUB-ADVISED FUNDS

AMENDED AND RESTATED SUB-ADVISORY AGREEMENT (the "Agreement") to be effective as of April 1, 2022, by and between PRINCIPAL GLOBAL INVESTORS, LLC, a Delaware limited liability company (the "Manager"), and INSIGHT NORTH AMERICA LLC, a Delaware limited liability company (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 (the "Series"), which the Manager has agreed to provide to the Fund, and the Sub-Advisor desires to furnish such services; and

WHEREAS, the Manager and the Sub-Advisor agree to amend and restate the Sub-Advisory Agreement between the Manager and the Sub-Advisor dated August 31, 2021 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;

(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, financial counterparties including swap counterparties 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.

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(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, accurate and complete responses to all 15(c) questionnaires; timely, accurate 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 during on-site or virtual compliance due diligence meetings conducted by the Manager. For the avoidance of doubt, the Sub-Advisor may redact portions of deficiency letters that may contain material non-public information or personally identifiable information before providing access to the Manager. 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.

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(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. 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 Financial Group, Inc. 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, a "Trade Error" occurs when a transaction results in an unintended, including an impermissible, result. Examples include, but are not limited to, the following:

•orders by the Sub-Advisor that result in the purchase or sale of securities or other assets that were not intended to be purchased or sold;

•orders by the Sub-Advisor that result in the purchase or sale of securities or other assets in an unintended amount, which includes price or commission rate; or

•purchases or sales of securities or other assets that violate the investment limitations or restrictions disclosed in the Fund's registration statement and/or imposed by applicable law, regulation, contract or understanding (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.

4

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 accordance with the requirements of the 1940 Act after taking into effect any exemptive order, no-action assurances or other relief, rule or regulation at which the Fund may rely.

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 accordance with the requirements of the 1940 Act after taking into effect any exemptive order, no-action assurances or other relief, rule or regulation at which the Fund may rely.

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

5

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 200 Park Avenue, 7th Floor, New York, NY 10166.

(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 action, suit, proceeding, inquiry or investigation that is reasonably likely to result in a conviction, order, judgment or decree issued with respect to it 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 Manager represents and warrants that the High Income Fund (f/k/a/ High Yield Fund I) series is a "qualified eligible person" as defined in Section 4.7 of Commodity Exchange Act, as amended ("Rule 4.7"). The Manager consents to High Income Fund series being treated as an exempt account under Rule 4.7(c).

(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 Manager represents, and the Sub-Advisor acknowledges, that with respect to the High Income Fund (f/k/a High Yield Fund I) series, the Manager is relying on the exclusion from the definition of "commodity pool operator" under Section 4.5 of the General Regulations under the Commodity Exchange Act, as amended ("Rule 4.5"). The Sub-Advisor will not exceed the de minimis trading limits set forth in Rule 4.5(c)(2)(iii)(B) unless otherwise agreed to in writing.

(h)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

(i)This Agreement contains the entire understanding and agreement of the parties.

(j)This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Each party agrees that electronic signatures of the parties included in this Agreement are intended to authenticate this writing and to have the same force and effect as manual signatures. Electronic signature means any electronic sound, symbol, or process

6

attached to or logically associated with a record and executed and adopted by a party with the intent to sign such record, including facsimile or email electronic signatures.

IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date first above

written.

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.

PRINCIPAL GLOBAL INVESTORS, LLC

By

/s/ Clint L. Woods

 

 

Name: Clint L. Woods

 

Title:

Vice President, Associate General

 

 

Counsel, and Secretary

By

/s/ Adam U. Shaikh

 

 

Name: Adam U. Shaikh

 

Title:

Assistant General Counsel

INSIGHT NORTH AMERICA LLC

By

/s/ Jenna Maguire

 

 

Name: Jenna Maguire

 

Title: Head of Client Service - North America

7

APPENDIX A

INTENTIONALLY OMITTED

8

APPENDIX B

Effective Date and Initial Term of Sub-Advisory Agreement for each Series

Series

Effective Date

Initial Term

 

 

 

High Income Fund (f/k/a High Yield Fund I)

August 31, 2021

2 Years

9


Macquarie/DIFA A&R Sub-Advisory Agreement dated 04/01/2022

PRINCIPAL FUNDS, INC.

AMENDED AND RESTATED SUB-ADVISORY AGREEMENT

DELAWARE INVESTMENTS FUND ADVISERS

SUB-ADVISED FUND

AMENDED AND RESTATED SUB-ADVISORY AGREEMENT (the "Agreement") to be effective as of April 1, 2022, by and between PRINCIPAL GLOBAL INVESTORS, LLC, a Delaware limited liability company (the "Manager"), and Delaware Investments Fund Advisers (the "Sub-Advisor"), a series of Macquarie Investment Management Business Trust .

W I T N E S S E T H:

WHEREAS, the Manager is the manager and investment advisor 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 (the "Series"), which the Manager has agreed to provide to the Fund, and the Sub-Advisor desires to furnish such services; and

WHEREAS, the Manager and the Sub-Advisor agree to amend and restate the Amended and Restated Sub-Advisory Agreement between the Manager and the Sub-Advisor dated December 15, 2017, as amended on April 1, 2019, 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;

(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.

949180-2

(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, financial counterparties including swap counterparties 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.

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949180-2

(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, accurate and complete responses to all 15(c) questionnaires; timely, accurate 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. If it is determined by the Manager

3

949180-2

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 within 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 Financial Group, Inc. 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 of 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, a "Trade Error" occurs when a transaction results in an unintended, including an impermissible, result. Examples include, but are not limited to, the following:

•orders by the Sub-Advisor that result in the purchase or sale of securities or other assets that were not intended to be purchased or sold;

•orders by the Sub-Advisor that result in the purchase or sale of securities or other assets in an unintended amount, which includes price or commission rate; or

•purchases or sales of securities or other assets that violate the investment limitations or restrictions disclosed in the Fund's registration statement and/or imposed by applicable law, regulation, contract or understanding (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.

4

949180-2

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 accordance with the requirements of the 1940 Act after taking into effect any exemptive order, no-action assurances or other relief, rule or regulation upon which the Fund may rely.

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 accordance with the requirements of the 1940 Act after taking into effect any exemptive order, no-action assurances or other relief, rule or regulation upon which the Fund may rely.

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; or (ii) by electronic mail to the address of the party specified below or such other address as either party may specify in writing. 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, Email: shaikh.adam@principal.com, and the address of the Sub-Advisor for this purpose shall be:

5

949180-2

Delaware Investments Fund Advisers, a series of

Macquarie Investment Management Business Trust

Attention: Brad Frishberg

Telephone: (212) 231-1157

E-mail: brad.frishberg@macquarie.com

Fax: (212) 231-1878

With a copy to:

David Connor, General Counsel

E-Mail: David.Connor@macquarie.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 advisor 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 advisor 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, as amended (the "CEA").

The Sub-Advisor represents that it (i) is a commodity trading advisor duly registered with the Commodity Futures Trading Commission (the "CFTC") and is a member in good standing of the National Futures Association (the "NFA") or (ii) is relying on an exemption from registration as a commodity trading advisor or (iii) is not trading commodity instruments that would subject the Sub- Advisor to register as a commodity trading advisor with the CFTC. As applicable, the Sub-Advisor shall either (i) maintain such registration and membership in good standing or (ii) continue to qualify for an exemption from registration as a commodity trading advisor or (iii) not trade commodity instruments that would subject the Sub-Advisor to so register during the term of this Agreement. Further, the Sub-Advisor agrees to notify the Manager, if applicable, within a commercially reasonable time upon (i) a statutory disqualification of the Sub-Advisor 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 self-regulatory 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

6

949180-2

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.

(i)This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Each party agrees that electronic signatures of the parties included in this Agreement are intended to authenticate this writing and to have the same force and effect as manual signatures. Electronic signature means any electronic sound, symbol, or process attached to or logically associated with a record and executed and adopted by a party with the intent to sign such record, including facsimile or email electronic signatures.

PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING COMMISSION IN CONNECTION WITH ACCOUNTS OF QUALIFIED ELIGIBLE PERSONS, THIS AGREEMENT 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 ANY TRADING PROGRAM OR UPON THE ADEQUACY OR ACCURACY OF COMMODITY TRADING ADVISOR DISCLOSURE. CONSEQUENTLY, THE COMMODITY FUTURES TRADING COMMISSION HAS NOT REVIEWED OR APPROVED ANY TRADING PROGRAM OF THE ADVISOR OR THIS AGREEMENT.

Remainder of Page Intentionally Blank

7

949180-2

IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date first above written.

PRINCIPAL GLOBAL INVESTORS, LLC

By

/s/ Clint L. Woods

 

Name: Clint L. Woods

 

Title:

Vice President, Associate General Counsel,

 

 

and Secretary

By

/s/ Adam U. Shaikh

 

Name: Adam U. Shaikh

 

Title:

Assistant General Counsel

DELAWARE INVESTMENTS FUND ADVISERS,

a series of Macquarie Investment Management Business Trust

By

/s/ Susan Natalini

 

Name: Susan Natalini

 

 

 

 

Title: Managing Director, Senior Vice President

 

 

 

8

949180-2

APPENDIX A

INTENTIONALLY OMITTED

9

949180-2

APPENDIX B

Effective Date and Initial Term of Sub-Advisory Agreement for each Series

Series

Effective Date

Initial Term

Diversified Real Asset Fund

March 27, 2015

2 Years

 

 

 

10

949180-2


Origin A&R Sub-Advisory Agreement effective 07/01/2022

PRINCIPAL FUNDS, INC.

AMENDED AND RESTATED SUB-ADVISORY AGREEMENT

AMENDED AND RESTATED SUB-ADVISORY AGREEMENT (the "Agreement") to be effective as of July 1, 2022 by and between PRINCIPAL GLOBAL INVESTORS, LLC, a Delaware limited liability company (the "Manager"), and ORIGIN ASSET MANAGEMENT LLP, a limited liability partnership organized under the laws of the United Kingdom (the "Sub-Advisor").

W I T N E S S E T H:

WHEREAS, the Manager is the manager and investment advisor 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 (the "Series"), which the Manager has agreed to provide to the Fund, and the Sub-Advisor desires to furnish such services; and

WHEREAS, the Manager and the Sub-Advisor agree to amend and restate the Amended and Restated Sub-Advisory Agreement between the Manager and the Sub-Advisor dated January 1, 2019 with this Agreement; and

WHEREAS, the Manager has furnished the Sub-Advisor with copies properly certified or authenticated of each of the following:

(a)The Amended and Restated Management Agreement between the Fund and the Manager (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 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 reasonably requested by the officers, in taking such steps as are reasonably necessary or appropriate to carry out the decisions of its Board of Directors, and any appropriate committees of such Board, regarding the general conduct of the investment business of 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, subject to receipt of such additional information as may be required from the Manager and provided in accordance with Section 12(d) of this Agreement.

(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 reasonable 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, financial counterparties including swap counterparties 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.

2

(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 reasonable prior 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, accurate and complete responses to all 15(c) questionnaires; timely, accurate 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).

3

(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. 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 within 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 Financial Group, Inc. 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 partners, members, 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 partners, members, 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 of 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 partners, members, directors, officers, employees, agents (excluding any broker- dealer selected by the Sub-Advisor), or affiliates. For purposes under this Section 6, a "Trade Error" occurs when a transaction results in an unintended, including an impermissible, result. Examples include, but are not limited to, the following:

•orders by the Sub-Advisor that result in the purchase or sale of securities or other assets that were not intended to be purchased or sold;

•orders by the Sub-Advisor that result in the purchase or sale of securities or other assets in an unintended amount, which includes price or commission rate; or

•purchases or sales of securities or other assets that violate the investment limitations or restrictions disclosed in the Fund's registration statement and/or imposed by applicable law, regulation, contract or understanding (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.

4

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 accordance with the requirements of the 1940 Act after taking into effect any exemptive order, no-action assurances or other relief, rule or regulation upon which the Fund may rely.

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 accordance with the requirements of the 1940 Act after taking into effect any exemptive order, no-action assurances or other relief, rule or regulation upon which the Fund may rely.

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, and the address of the Sub-Advisor shall be Origin Asset Management LLP, One Carey Lane, London, EC2V 8AE, United Kingdom.

5

(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 advisor 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 advisor 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 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 Manager represents, and the Sub-Advisor acknowledges, that with respect to the Series, the Manager is relying on the exclusion from the definition of "commodity pool operator" under Section

4.5 of the General Regulations under the Commodity Exchange Act ("Rule 4.5"). The Sub-Advisor will not exceed the de minimis trading limits set forth in Rule 4.5(c)(2)(iii)(B) unless otherwise agreed to in writing.

(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; provided, however, that the Manager consents to the Sub-Advisor's use of the Manager's name and the Fund name in the Sub-Advisor's representative client list that may be distributed to potential and existing clients so long as this Agreement is in effect.

(h)Each party represents, warrants and covenants to the other party that (i) it has all requisite power and authority to enter into and perform its obligations under the Agreement, (ii) it has taken all necessary corporate action to authorize its execution, delivery and performance of this Agreement, (iii) it has duly executed and delivered the Agreement, and (iv) this Agreement constitutes its legal, valid and binding agreement, enforceable against it in accordance with its terms.

(i)This Agreement contains the entire understanding and agreement of the parties.

(j)This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Each party agrees that electronic signatures of the parties included in this Agreement are intended to authenticate this writing and to have the same force and effect as manual signatures. Electronic signature means any electronic sound, symbol, or process attached to or logically associated with

6

a record and executed and adopted by a party with the intent to sign such record, including facsimile or email electronic signatures.

IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date first above written.

PRINCIPAL GLOBAL INVESTORS, LLC

By

/s/ Clint L. Woods

 

Name: Clint L. Woods

 

Title:

Vice President, Associate General Counsel,

 

 

and Assistant Secretary

By

/s/ Adam U. Shaikh

 

Name: Adam U. Shaikh

 

Title:

Assistant General Counsel

ORIGIN ASSET MANAGEMENT LLP

By

/s/ Tarlock Randhawa

 

Name: Tarlock

Randhawa

 

 

 

 

 

Title: Partner

 

 

 

 

 

By

/s/ Nishil Patel

 

Name: Nishil Patel

 

 

 

 

Title: Partner

 

 

 

7

APPENDIX A

The Sub-Advisor shall serve as an investment sub-advisor for the Series identified below. The Manager will pay the Sub-Advisor as full compensation for all services provided under this Agreement, a fee, computed and paid monthly, at an annual rate as shown below of the Series' net assets as of the last business day of the preceding calendar month allocated to Sub-Advisor's management, provided that for the first month the Sub-Advisor is retained, the fee will be computed by using the Series' net assets as of the last business day of the month in which assets are first allocated to the Sub-Advisor's management. .

In calculating the fee for a Series included in the table below, assets of any unregistered separate account of Principal Life Insurance Company as well as assets of registered investment companies, collective investment trusts, and Undertakings for Collective Investment in Transferable Securities (UCITS) funds sponsored by Principal Financial Group, Inc. or any affiliate and to which Sub-Advisor provides investment advisory services with the same investment mandate as the Series for which the fee is calculated, will be combined with the assets of the Series to arrive at net assets.

If this Agreement becomes effective or terminates before the end of any month, the fee (if any) for the period from the effective date to the end of such month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination occurs.

 

International Fund I

All Assets

0.30%

 

Origin Emerging Markets Fund

First $500 million

0.44%

Next $500 million

0.40%

Over $1 billion

0.36%

8

APPENDIX B

Effective Date and Initial Term of Sub-Advisory Agreement for each Series

Series

Effective Date

Initial Term

International Fund I

06/03/2014

2 Years

 

 

 

Origin Emerging Markets Fund

12/30/2015

2 Years

9


PineBridge Investments LLC Sub-Advisory Agreement dated 04/07/2022

PRINCIPAL FUNDS, INC.

SUB-ADVISORY AGREEMENT

PINEBRIDGE INVESTMENTS LLC SUB-ADVISED FUND

SUB-ADVISORY AGREEMENT (the "Agreement") to be effective as of April 7, 2022 by and between PRINCIPAL GLOBAL INVESTORS, LLC, a Delaware limited liability company (the "Manager"), and PINEBRIDGE INVESTMENTS LLC, a Delaware limited liability company (the "Sub-Advisor").

W I T N E S S E T H:

WHEREAS, the Manager is the manager and investment advisor 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 (the "Series"), which the Manager has agreed to provide to the Fund, and the Sub-Advisor desires to furnish such services; and

WHEREAS, the Manager has furnished the Sub-Advisor with 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)The Management Agreement (the "Management Agreement") between the Manager and the Fund;

(b)The Fund's registration statement, relevant Series summary prospectus(es), 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, financial counterparties including swap counterparties 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").

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(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, reasonable 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, accurate and complete responses to all 15(c) questionnaires; timely, accurate 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. 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 within the time permitted under the Code.

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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 Financial Group, Inc. 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 of 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, a "Trade Error" occurs when a transaction results in an unintended, including an impermissible, result. Examples include, but are not limited to, the following:

•orders by the Sub-Advisor that result in the purchase or sale of securities or other assets that were not intended to be purchased or sold;

•orders by the Sub-Advisor that result in the purchase or sale of securities or other assets in an unintended amount, which includes price or commission rate; or

•purchases or sales of securities or other assets that violate, at the time of the purchase or sale, the investment limitations or restrictions disclosed in the Fund's registration statement and/or imposed by applicable law, regulation, contract or understanding (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.

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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 accordance with the requirements of the 1940 Act after taking into effect any exemptive order, no-action assurances or other relief, rule or regulation upon which the Fund may rely.

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 accordance with the requirements of the 1940 Act after taking into effect any exemptive order, no-action assurances or other relief, rule or regulation upon which the Fund may rely.

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 PineBridge Investments, Attn: Legal Department, Park Avenue Tower, 65 East 55th Street, 6th Floor, New York, NY 10022.

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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 advisor 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 advisor 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 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 Manager represents, and the Sub-Advisor acknowledges, that with respect to the Series, the Manager is relying on the exclusion from the definition of "commodity pool operator" under Section

4.5 of the General Regulations under the CEA ("Rule 4.5"). The Sub-Advisor will not exceed the de minimis trading limits set forth in Rule 4.5(c)(2)(iii)(B) with respect to the Series unless otherwise agreed to in writing.

(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.

(i)This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Each party agrees that electronic signatures of the parties included in this Agreement are intended to authenticate this writing and to have the same force and effect as manual signatures. Electronic signature means any electronic sound, symbol, or process attached to or logically associated with a record and executed and adopted by a party with the intent to sign such record, including facsimile or email electronic signatures.

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IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date first above written.

PRINCIPAL GLOBAL INVESTORS, LLC

By

/s/ Clint L. Woods

 

Name: Clint L. Woods

 

Title:

Vice President, Associate General Counsel,

 

 

and Secretary

By

/s/ Adam U. Shaikh

 

Name: Adam U. Shaikh

 

Title:

Assistant General Counsel

PINEBRIDGE INVESTMENTS LLC

By

/s/ Steven Oh

 

Name: Steven Oh

 

Title:

Managing Director, Global Head of Credit

 

 

and Fixed Income

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APPENDIX A

INTENTIONALLY OMITTED

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APPENDIX B

Effective Date and Initial Term of Sub-Advisory Agreement for each Series

Series

Effective Date

Initial Term

Diversified Income

April 7, 2022

2 Years

 

 

 

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Principal Real Estate Investors, LLC A&R Sub-Advisory Agreement 01/01/2022

PRINCIPAL FUNDS, INC.

AMENDED AND RESTATED SUB-ADVISORY AGREEMENT

PRINCIPAL REAL ESTATE INVESTORS, LLC SUB-ADVISED SERIES

AMENDED AND RESTATED SUB-ADVISORY AGREEMENT (the "Agreement") to be effective as of January 1, 2022 by and between PRINCIPAL GLOBAL INVESTORS, LLC (the "Manager"), and PRINCIPAL REAL ESTATE INVESTORS, LLC (the "Sub-Advisor").

W I T N E S S E T H:

WHEREAS, the Manager is the manager and investment advisor 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 (the "Series"), which the Manager has agreed to provide to the Fund, and the Sub-Advisor desires to furnish such services; and

WHEREAS, the Manager and the Sub-Advisor agree to amend and restate the Amended and Restated Sub-Advisory Agreement between the Manager and the Sub-Advisor dated June 21, 2019, 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;

(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.

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(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 the 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 Securities and Exchange Commission 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, financial counterparties including swap counterparties, 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 each 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

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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 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 Sub-Advisor's current Code of Ethics. Sub-Advisor shall promptly forward to the Manager a copy of any material amendment to the Sub-Advisor's Code of Ethics along with certification that the Sub-Advisor has implemented procedures for administering the Sub-Advisor's Code of Ethics.

(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 Commodity Exchange Act, as amended, 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, accurate and complete responses to all 15(c) questionnaires; timely, accurate 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 Securities and Exchange Commission 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 Securities and Exchange Commission rule.

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(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. The Sub-Advisor shall notify the Manager immediately upon having a reasonable basis for believing that a Series has ceased to be in compliance or that it might not be in compliance in the future. If it is determined by the Manager or its tax advisors that a 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 within the time permitted under the Code.

(r)Provide a copy of the Sub-Advisor's Form ADV and any amendments thereto contemporaneously with the filing of such documents with the Securities and Exchange Commission or other regulatory agency.

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, a "Trade Error" occurs when a transaction results in an unintended, including an impermissible, result. Examples include, but are not limited to, the following:

∙orders by the Sub-Advisor that result in the purchase or sale of securities or other assets that were not intended to be purchased or sold;

∙orders by the Sub-Advisor that result in the purchase or sale of securities or other assets in an unintended amount, which includes price or commission rate; or

∙purchases or sales of securities or other assets that violate the investment limitations or restrictions disclosed in the Fund's registration statement and/or imposed by applicable law, regulation, contract or understanding (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

4

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 accordance with the requirements of the 1940 Act after taking into effect any exemptive order, no- action assurances or other relief, rule or regulation upon which the Fund may rely.

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 (as defined in the 1940 Act) of the Series 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 accordance with the requirements of the 1940 Act after taking into effect any exemptive order, no-action assurances or other relief, rule or regulation upon which the Fund may rely.

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.

5

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 and Sub-Advisor for this purpose shall be Principal Financial Group, Des Moines, Iowa 50392- 0200.

(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 advisor 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 advisor 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 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 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, as amended (the "CEA").

The Sub-Advisor represents that it is a commodity trading advisor duly registered with the Commodity Futures Trading Commission (the "CFTC") 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

6

notify the Manager within a commercially reasonable time upon (i) a statutory disqualification of the Sub-Advisor 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 self-regulatory 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.

(g)This Agreement contains the entire understanding and agreement of the parties.

(h)This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Each party agrees that electronic signatures of the parties included in this Agreement are intended to authenticate this writing and to have the same force and effect as manual signatures. Electronic signature means any electronic sound, symbol, or process attached to or logically associated with a record and executed and adopted by a party with the intent to sign such record, including facsimile or email electronic signatures.

IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date first above written.

PRINCIPAL GLOBAL INVESTORS, LLC

By /s/ Clint L. Woods

Name: Clint L. Woods

Title: Vice President, Associate General Counsel,

And Secretary

By /s/ Adam U. Shaikh

Name: Adam U. Shaikh

Title: Assistant General Counsel

PRINCIPAL REAL ESTATE INVESTORS, LLC

By /s/ Anne Cook

Name: Anne Cook

Title: Assistant General Counsel

By /s/ Clint L. Woods

Name: Clint L. Woods

Title: Vice President, Associate General Counsel,

Governance Officer, and Secretary

7

APPENDIX A

INTENTIONALLY OMITTED

8

APPENDIX B

Effective Date and Initial Term of Sub-Advisory Agreement for each Series

Series

Effective Date

Initial Term

Diversified Real Asset Fund

 

2 Years

(Global REIT Portfolio)

03/16/2010

2 Years

(CMBS SASB Portfolio)

06/21/2019

2 Years

Global Diversified Income Fund

 

 

(Global REIT Portfolio)

 

 

(CMBS Portfolio)

12/15/2008

2 Years

Global Real Estate Securities Fund

10/01/2007

2 Years

Real Estate Securities Fund

12/06/2000

2 Years

9


Custody Agreement Supp A&R Appendix A dated 05/12/2020

APPE NDIX A

This Appendix A, amended and restated as of May 12, 2020, is the Appendix A to the Supplement To The Global Custody Agreement Hong Kong - China - Connect Serv ice between Principal Funds, Inc. and The Bank of New York Mellon dated April 16, 2018.

China Connect Listed Stock for:

394385

Principal Funds, Inc. Diversified International Fund

394387

Principal Funds, Inc. International Emerging Markets Fund

394895

Principal Funds, Inc. Overseas Fund

397857

Principal Funds, Inc. Global Multi-Strategy Fund

399859

Principal Funds, Inc. Origin Emerging Market Fund

394896

Principal Funds, Inc. Overseas Fund

 

Causeway

 

499283

Principal Funds, Inc. SystematEx International Fund

China Connect Bond for:

380130

Principal Funds, Inc. Global Div ersified Income Fund

399744

Principal Funds, Inc. Global Multi-Strategy Fund

397856

Principal Funds, Inc. Global Multi-Strategy Fund (Loomis)

499074

Principal Funds, Inc. Finisterre Unconstrained Emerging Markets Bond Fund

499275

Principal Funds, Inc. Global Div ersified Income Fund (MetLife)

IN WITNESS WHEREOF, the parties hereto have caused this Appendix A to be executed by their officers designated below effectiv e as of the date and year first abov e written.

PRINCIPAL FUNDS, INC.

By:

 

 

By:

 

Name:

Gina Graham

 

Name: Dan L. Westholm

 

 

 

 

 

Title:

Treasurer

 

Title: Assistant Treasurer

 

 

 

 

 

THE BANK OF NEW YORK MELLON

 

 

By:

_______________________

 

 

 

Name:

Sandra Ricardo

 

 

Title:

Vice President

 

 

C:\Users\USERTO~1\AppData\Local\Temp\BCL Technologies\easyPDF 8\@BCL@88038DDF\@BCL@88038DDF.docx


Custody Agreement Supp A&R Appendix A dated 09/23/2021

Sandra Ricardo

Vice President


PFI Interfund Lending Agrmt dated 06/29/2022

PRINCIPAL FUNDS, INC.

PRINCIPAL VARIABLE CONTRACTS FUNDS, INC.

INTERFUND LENDING AGREEMENT

This Interfund Lending Agreement (as amended, restated, supplemented or otherwise modified from time to time, the "Agreement"), dated effective as of June 29, 2022 (the "Effective Date"), is by and among the series listed for Principal Funds, Inc. and Principal Variable Contracts Funds, Inc. on Schedule A or Schedule B hereto (collectively, the "Funds," and each portfolio series of a Fund shall be referred to herein as a "Fund" and collectively as the "Funds") and Principal Global Investors, LLC (the "Adviser").

WHEREAS, the Funds and the Adviser have received an exemptive order (the "Order") dated October 25, 2011 from the U.S. Securities and Exchange Commission permitting the Funds to participate in a joint lending and borrowing facility (the "Lending Facility");

WHEREAS, the Funds listed on Schedule A hereto (as amended from time to time) are permitted to borrow cash in accordance with the terms and conditions of the Order to satisfy redemption requests, to cover unanticipated cash shortfalls such as a Sales Fail (defined below), or for other temporary purposes (each such borrowing Fund is hereinafter referred to as a "Borrower");

WHEREAS, the Funds listed on Schedule B hereto (as amended from time to time) are permitted to lend cash to one or more Borrowers from time to time on the terms set forth below and in accordance with the terms and conditions of the Order (each such lending Fund is hereinafter referred to as a "Lender");

NOW THEREFORE, the parties hereto agree as follows:

1.Definitions. As used herein, the following terms shall have meanings assigned to them below:

∙"1940 Act" means the Investment Company Act of 1940, as amended.

∙"Bank Loan Rate" for any day means the rate calculated by the Credit Facility Team according to a formula established by the Board of Directors of each Fund intended to approximate the lowest interest rate at which bank short-term loans would be available to a Borrower.

∙"Borrowing Instructions" has the meaning specified in Section 3.1.1 hereof.

∙"Business Day" means a day on which the New York Stock Exchange is open for the purpose of transacting business.

∙"Credit Arrangements" means the credit arrangements that a Fund may have for borrowing for temporary or emergency purposes, including borrowings from banks and other institutional lenders.

∙"Credit Facility Team" means one or more investment, administrative, and fund accounting personnel from the Advisor, a Money Market fund portfolio manager from Principal Global Investors, LLC, and a representative of corporate treasury of Principal Life Insurance Company who are responsible for administering the Interfund Lending Facility.

∙"Interest Rate" means, for each date on which interest accrues hereunder, the average of

(i) the Repo Rate and (ii) the Bank Loan Rate.

Classification: Internal Use

Page 1 of 19

∙"Joint Trade Account" means, the account administered by the Adviser (pursuant to an exemptive order issued by the SEC) by which the Adviser administers an account in which Funds may deposit uninvested cash balances for the purpose of investing such balances in short-term instruments to the extent consistent with each participating Fund's investment objectives, policies and restrictions.

∙"Lending Instructions" has the meaning specified in Section 3.1.1 hereof.

∙"Loan" has the meaning specified in Section 2 hereof.

∙"Loan Account" has the meaning specified in Section 3.5 hereof.

∙"Maximum Amount" has the meaning specified in Section 2 hereof.

∙"Obligations" means all of the obligations (whether direct or indirect, absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising) of a Borrower to a Lender hereunder.

∙"Outstanding Secured Borrowing" means any loan made to a Fund either under this Agreement or under any other agreement that is secured by assets of the Fund.

∙"Prospectus" means with respect to each Borrower the prospectus required to be delivered by the Borrower to offerees of its securities pursuant to the Securities Act of 1933, as amended.

∙"Repo Rate" on any day means the highest rate available to a Lender, directly or through the Funds' Joint Trade Account, from investment in overnight repurchase agreements.

∙"Sales Fail" in connection with the attempted sale of a security means the cash shortfall resulting from circumstances beyond the seller's control, such as the delay in the delivery of cash to the seller's custodian or improper delivery instructions by the broker effecting the transaction.

∙"SEC" means the United States Securities and Exchange Commission.

∙"Secured Loan" has the meaning specified in Section 2(e) hereof.

∙"Security Agreement" has the meaning specified in Section 3.11(d) hereof.

∙"Statement of Additional Information" means with respect to each Borrower the Statement of Additional Information which must be provided by the Borrower to recipients of its Prospectus upon request pursuant to rules and regulations adopted by the SEC.

∙"Unsecured Loan" means any Loan other than a Secured Loan.

2.Lending Facility. Subject to the terms and conditions of this Agreement, each Lender may from time to time in its discretion loan its available cash to any Borrower (a "Loan"). Each Loan shall be made for a term no longer than the least of (a) the maximum term on any outstanding loan or advance to the Borrower under its Credit Arrangements; (b) the number of days required for the Borrower to receive payment for securities sold at or prior to the time the Loan is made in an amount sufficient to repay the Loan; or (c) seven (7) days. The maximum principal amount of all Loans outstanding with respect to any Borrower at any time shall not exceed the Maximum Amount the Borrower is permitted to borrow at such time under:

(a) applicable laws and regulations;

(b) the provisions of Section 5.2 hereof;

Classification: Internal Use

Page 2 of 19

(c)agreements with federal, state, local or foreign governmental authorities or regulators applicable to the Borrower or limitations specified in the Order applicable to the Borrower's borrowing and pledging activities, all as amended and in effect from time to time;

(d)limitations on borrowing adopted by the Borrower in its Prospectus, Statement of Additional Information or elsewhere, as amended and in effect from time to time; and

(e)in the case of Loans for which the Borrower is required to provide collateral pursuant to Section 3.11 hereof ("Secured Loans"), any limitations specified in the Security Agreement (as defined below) and any limitations on the pledging of assets adopted by the Borrower in its Prospectus, Statement of Additional Information or elsewhere.

As used herein, the term "Maximum Amount" means the maximum amount that the Borrower is permitted to borrow in accordance with the provisions of the preceding sentence.

3.Loan Requirements.

3.1Procedural Requirements. All loans shall be requested and funded in accordance with the procedures set forth herein and such other procedures as may be approved and adopted from time to time by the Board of Directors of the applicable Fund (the "Interfund Lending Procedures"), including a majority of the directors who are not "interested persons" as that term is used in Section 2(a)(19) of the 1940 Act.

3.1.1Borrowing and Lending Instructions. The portfolio managers for each participating Fund shall provide the Credit Facility Team with standing instructions as to their desire to have the Fund act as a Lender when such Fund has uninvested cash balances ("Lending Instructions"). The portfolio managers for each participating Fund shall provide the Credit Facility Team with standing instructions as their desire to participate as a Borrower should the borrowing need arise ("Borrowing Instructions"). The respective portfolio managers may revoke or change Lending Instructions and Borrowing Instructions with respect to a Fund by notifying the Credit Facility Team.

3.1.2Allocation Procedures. On each Business Day, the Credit Facility Team shall seek to collect data on the uninvested cash of Funds listed on Schedule B. The Credit Facility Team will seek to match the amount and term of the Fund's borrowing needs with the cash available from the Funds that have provided Lending Instructions in accordance with allocation and administrative procedures established by the Board of Directors. The Credit Facility Team shall allocate the borrowing demand and lending needs among the Funds on what the Credit Facility Team deems to be an equitable basis and in accordance with the Interfund Lending Procedures. The Credit Facility Team shall not solicit cash for Loans from any Funds or publish or disseminate the amount of any current borrowing demand to the Funds' portfolio managers.

No Loan may be made unless the Interest Rate is more favorable for the Lender than the Repo Rate and more favorable for the Borrower than the Bank Loan Rate.

3.1.3Funding the Loans. If a Loan has been allocated to a Lender and Borrower pursuant to Section 3.1.2 hereof, and the Loan is otherwise in compliance with the requirements set forth in the Order, the Lender shall make such Loan to the Borrower. The proceeds of each Loan made by the Lender to the Borrower shall be wired (or transferred if Borrower and Lender have the same custodian) at the Borrower's expense in accordance with the wiring instructions for each Fund, as in effect from time to time, to an account maintained on the Borrower's behalf by its custodian.

3.1.4Obligations Arising from Loan. Each Loan made by the Lender to Borrower shall:

(a)obligate the Borrower to borrow the principal amount of the Loan at the Interest Rate applicable thereto for the term thereof solely for use by the Borrower;

Classification: Internal Use

Page 3 of 19

(b)constitute a representation and warranty by the Borrower to the Lender that

(i)the Loan requested thereby

(A)is permitted under the Borrower's most recent Prospectus and Statement of Additional Information,

(B)is in accordance with the requirements of the Order applicable to the Borrower,

(C)will not, when made, cause the aggregate indebtedness of the Borrower to exceed the Maximum Amount then in effect, and

(D)will be used by the Borrower only in accordance with Section 3.7 hereof; and

(ii)all of the representations and warranties of the Borrower contained in Section 4 hereof are true and correct as of the date of such Loan as though made on and as of such date; and

(iii)all material facts about the Borrower's intended participation in the Lending Facility are fully disclosed in the Borrower's Prospectus or Statement of Additional Information; and

(c)constitute a representation and warranty by the Lender to the Borrower that the Loan thereby

(i)is permitted under the Lender's most recent Prospectus and Statement of Additional Information;

(ii)is in accordance with the requirements of the Order applicable to the Lender; and

(iii)all materials facts about the Lender's intended participation in the Lending Facility are fully disclosed in the Lender's Prospectus or Statement of Additional Information.

3.2Repayment of Loans. The principal amount of each Loan shall be repaid by the Borrower from the assets of the Borrower on the earlier of one (1) Business Day after demand by the Lender or the expiration of the term of the Loan.

3.3Interest. The outstanding principal amount of each Loan shall bear interest until maturity at the Interest Rate. If a Borrowing Fund has other outstanding bank borrowings, the Interest Rate will be at an interest rate equal to or lower than the interest rate of any outstanding bank loans. Interest accrued on each Loan shall be paid by the Borrower upon the earlier of (a) mutually agreed times, or (b) the maturity of such Loan. Amounts overdue hereunder (including, without limitation, overdue principal, and, to the extent permitted by law, overdue interest, fees, charges and expenses) shall bear interest until paid at an annual rate equal to the sum of (i) the Interest Rate applicable to such Loan prior to its maturity and (ii) one and a half percent (1.5%).

3.4Prepayments. Loans may be prepaid in whole or in part prior to the date on which such Loan is due and payable without premium or penalty. The Borrower will not make or permit any payment or prepayment of any Loans owing by Borrower unless Borrower concurrently makes a pro-rata payment or prepayment of all loans owing by Borrower through the Lending Facility.

Classification: Internal Use

Page 4 of 19

3.5Loan Records Accounts. Promptly after a Loan has been made, the Credit Facility Team shall note on its records for the Borrower and Lender, confirming (a) the principal amount of such Loan, (b) the Interest Rate applicable thereto and (c) the maturity thereof. The Credit Facility Team will maintain a separate account on its books for each Lender and Borrower (a "Loan Account") on which will be recorded, in accordance with the Adviser's customary accounting practice, (a) all Loans made by a Lender to a Borrower, (b) all payments of such Loans made to a Lender, and (c) all other charges and expenses properly chargeable to the Borrower. The debit balance of each Fund's Loan Account shall reflect the amount of the Borrower's indebtedness from time to time to the Lenders hereunder. Any written statement maintained by the Credit Facility Team regarding the Loan shall, in the absence of manifest error, constitute conclusive evidence of the indebtedness of the Borrower to the Lender as of the date of such statement, provided, however, that the failure of the Credit Facility Team to make such statement shall not impair the validity or binding nature of the Borrower's Obligations with respect to such Loan.

3.6Computations. All computations hereunder shall be computed on the basis of the actual number of days elapsed and a 360-day year.

3.7Use of Proceeds. The proceeds of each Loan made hereunder with respect to any Fund shall be used only by such Fund in accordance with its Prospectus and Statement of Additional Information for temporary purposes to satisfy redemption requests, to cover unanticipated cash shortfalls such as a Sales Fail, or for other temporary purposes as permitted by the Interfund Lending Procedures.

3.8Discretionary Facility. It is acknowledged and agreed by each Borrower that each Lender has no obligation to make any Loan hereunder unless it has issued Lending Instructions, and that the decision whether or not to issue Lending Instructions under this Agreement is within the sole and exclusive discretion of each Lender. It is acknowledged and agreed by each Lender that no Borrower is obligated to borrow money hereunder unless it has issued Borrowing Instructions.

3.9Termination of Participation in the Lending Facility. Each Lender and each Borrower may terminate its participation in this Agreement at any time by written notice to the Credit Facility Team; provided that on or before the date of any termination the relevant Lender or Borrower has no Loans outstanding. The Adviser may at any time by delivery of a revised Schedule A or Schedule B, as applicable, to the Credit Facility Team add additional Funds that are eligible to rely on the Order as parties to this Agreement, whereupon those additional Funds shall be treated for all purposes as a Borrower and as a Lender, as applicable.

3.10Recourse to Assets. Loans made to any Borrower shall be repaid solely from the assets of such Borrower, and a Lender shall have no right of recourse or offset against the assets of any other Fund with respect to such Loans or any default in respect thereto. Each Lender's liability under this Agreement with respect to a Loan shall be solely limited to the Lender's assets and each Borrower hereby waives any and all rights it may have against any other Funds with respect to such Loan or any default by Lender with respect thereto.

Classification: Internal Use

Page 5 of 19

3.11Collateral Security for Loans.

(a)As a condition precedent to making any Loan to any Borrower or continuing any Loan made to any Borrower, the Borrower covenants and agrees that in the event that (i) the Borrower's outstanding borrowings from all sources immediately after the Loan would exceed 10% of its total assets, (ii) the Borrower's outstanding borrowings from all sources exceed 10% of the Borrower's total assets for any reason (such as a decline in net asset value or because of shareholder redemptions), or (iii) the Borrower has Outstanding Secured Borrowings, within one (1) Business Day (except as required by Section 3.11(b) below), the Borrower will

(i)repay all its outstanding Loans;

(ii)reduce its outstanding indebtedness to 10% or less of its total assets; or

(iii)secure each outstanding Loan by the pledge of segregated collateral for such Loan and by transfer of such collateral into a segregated account in the name of the Lender or the entering into, by the Borrower, the Lender and the Borrower's custodian, of a control agreement satisfactory to the Lender. The minimum market value of the stock and other portfolio securities of the Borrower required to be pledged as collateral to the Lender hereunder with respect to any Secured Loan shall be determined by the Lender in its discretion but, in all cases, will have a market value at least equal to 102% of the outstanding principal value of the loan.

Until each Loan that is outstanding at any time that a Borrower's outstanding borrowings exceed 10% of its assets is repaid or the Borrower's outstanding borrowings cease to exceed 10% of its total assets, the Borrower shall mark the value of the collateral to market each day and will pledge and transfer to a segregated account in the name of the Lender such additional collateral as is necessary to maintain the market value of the collateral that secures each outstanding Loan at least equal to 102% of the outstanding principal value of the Loan. Subject to Sections 3.11(b) and

(c) hereof, once a Borrower's outstanding borrowings cease to exceed 10% of its total assets, segregated collateral will no longer be required.

(b)Any Loan to a Borrower with Outstanding Secured Borrowings (i) will be at an interest rate equal to or lower than that of any outstanding bank loan, (ii) will be secured at least on an equal priority basis with at least an equivalent percentage of collateral to loan value as any outstanding bank loan that requires collateral, and (iii) will have a maturity no longer than any outstanding bank loan (and in any event not more than seven (7) days).

(c)Notwithstanding Sections 3.11(a) and (b), if any other lender to a Borrower imposes conditions with respect to the quality of or access to collateral securing a borrowing, the Borrower's collateral for any Loan will be subject to the same conditions (if the other lender is another Fund) or the same or better conditions (in any other circumstance).

(d)Each pledge of collateral required pursuant to this Section 3.11 shall be made in accordance with and subject to the terms and conditions set forth in the collateral security agreement dated as of the Effective Date and signed by each Fund, substantially in the form set forth in Schedule C hereto (the "Security Agreement").

Classification: Internal Use

Page 6 of 19

(e)If requested by the Lender, the Borrower agrees to enter into, and use reasonable efforts to cause its custodian to enter into, a control agreement with the Lender on terms satisfactory to the Lender.

3.12Records and Reports. Each Fund will maintain and preserve for a period of not less than six years from the end of the fiscal year in which any transaction under this Agreement has occurred, the first two years in an easily accessible place, written records of all Loans to which it was a party setting forth: (i) a description of the terms of the transaction, including the amount, the maturity, and the rate of interest on the Loan, (ii) the rate of interest available at the time on short-term repurchase agreements and commercial bank borrowings, and (iii) a quarterly report of the Credit Facility Team to the applicable Board of Directors and the other information presented to the applicable Board of Directors related to their review of the Lending Facility. On a quarterly basis, the Credit Facility Team will prepare a report for the applicable Board of Directors (i) concerning the participation of the Funds in the Lending Facility and the terms and other conditions of any extensions of credit under the Lending Facility and (ii) reporting on the operations of the Lending Facility.

4.Representations and Warranties.

Each Borrower represents and warrants to each Lender and each Lender represents and warrants to each Borrower that:

(a) it is a series of the applicable Corporation that is duly organized and validly existing under the laws of its jurisdiction of organization;

(b) the applicable Corporation is registered as an open-end management investment company under the 1940 Act;

(c) the execution, delivery and performance by the applicable Corporation of this Agreement

(i)are within its power,

(ii)have been duly authorized by all necessary action, and

(iii)will not

(A) contribute to or result in a breach of or default under or conflict with any existing law, order, regulation or ruling of any governmental or regulatory agency or authority, any order, writ, injunction or ruling of any court or other tribunal, or any indenture, lease agreement, instrument or other undertaking to which the Fund is a party or by which it is or its property or assets may be bound or affected, or

(B) result in the imposition of any liens or encumbrances on any property or assets of the Fund (except as contemplated hereby), or

(C) require any additional approval or consent of, or filing with, shareholders of such Fund or any governmental or regulatory agency or authority bearing on the validity of any borrowing pursuant to this Agreement, or

(D) violate any provision of the Fund's Articles of Incorporation or any amendment thereof, any of its investment policies and limitations, or any provision of its most recent Prospectus or Statement of Additional Information;

(d)this Agreement is a legally valid and binding obligation of the applicable Fund, enforceable against the Fund in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws or equitable principles relating to or limiting the rights of creditors generally; and

Classification: Internal Use

Page 7 of 19

(e)it is not in material violation of any material term of its most recent Prospectus or Statement of Additional Information, or of its organizational documents, or of any investment, borrowing or other similar type of policy or restriction to which it is subject, or of any material term of any material agreement or instrument to which it is a party, or, to the best of its knowledge, of any judgment, decree, order, statute, rule or governmental regulation applicable to it.

5.Covenants

5.1Covenants in Effect Until Termination of Agreement. Until all of the obligations have been performed in full and its participation in the Lending Facility has been terminated as provided herein, each Borrower covenants that it will:

(a)maintain its legal existence and business; provided, however, that nothing contained in this Section 5.1(a) shall prohibit the merger or consolidation of any Borrower with or into another person upon written notice thereof to the Lenders under any Loans then outstanding, subject to the requirement that the surviving entity (if not previously a Borrower) be admitted as such in accordance with this Agreement, and subject to the further requirement that the surviving entity assumes all of the obligations of such Borrower under this Agreement, including, without limitation, the obligations of such Borrower with respect to any Loans outstanding to such Borrower at the time of such merger or consolidation;

(b)at any time and from time to time, at its own expense, promptly execute and deliver or file all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Lender may request, in order to perfect, protect, validate or preserve any security interest granted or pledged to the Lender pursuant to Section 3.11 hereof or to enable the Lender to exercise and enforce its rights and remedies thereunder with respect thereto;

(c)file all federal and other tax returns, reports and declarations required by all relevant jurisdictions on or before the due dates for such returns, reports and declarations and will pay all taxes and other governmental assessments and charges as and when they become due;

(d)comply in all material respects with all of its investment policies and restrictions and all applicable statutes, rules, regulations and orders of, and all applicable restrictions

(a)imposed by, all governmental authorities in respect of the conduct of its business and the ownership of its properties; provided that such Borrower shall not be required by reason of this section to comply therewith at any time while such Borrower shall be contesting its obligations to do so in good faith by appropriate proceedings promptly initiated and diligently conducted;

(e)promptly notify the Lender of any material change in its agreements with governmental authorities or regulators or its investment policies or restrictions or of any Credit Arrangements or modifications thereof; and

(f)upon request from the Lender from time to time, furnish to the Lender at reasonable times and intervals any information with respect to its financial standing and history or its property or business or prospects.

Classification: Internal Use

Page 8 of 19

5.2Covenants in Effect While Loans Are Outstanding.

The Borrower covenants that, so long as any principal of or interest on any Loan made to it is outstanding, it will:

(a)not, as long as any Unsecured Loan is outstanding hereunder, create or permit to exist any encumbrance in favor of any person or entity other than the Lender upon any of the assets of the Borrower other than (a) encumbrances created in connection with portfolio investments of the Borrower and (b) to secure the Borrower's obligations under any Credit Arrangement by any assets not then pledged as collateral hereunder, in each case to the extent permitted by the provisions of its Prospectus and Statement of Additional Information;

(b)not take out any Loan that

(i)immediately after such Loan would cause the total of such loans to exceed 33 1/3% of the Borrower's total assets, or

(ii)would cause such Borrower's total loans to exceed 10% of such Borrower's total assets unless any Loan hereunder is secured in accordance with Section 3.11 hereof;

(c)not, as long as any Loan made with respect to the Borrower is outstanding, allow the total amount of such Borrower's Loans, as measured on the day when the most recent Loan was made, to exceed the greater of 125% of such Borrower's total net cash redemptions for the preceding seven (7) calendar days or 102% of Sales Fails for the preceding seven (7) calendar days;

(d)notify the Lender if it draws on its Credit Arrangements, borrows from other Lenders under the Agreement, or borrows from other parties; and

(e)notify the Lender promptly of

(i)any material changes in its method of business, Prospectus, Statement of Additional Information, and

(ii)the occurrence of any event which would make any of the representations and warranties contained herein, or in any document, instrument or certificate delivered in connection herewith, untrue or inaccurate in any material respect.

The Lender covenants that:

(a)its Loans to a single Borrower will not exceed 5% of the Lender's net assets; and

(b)its aggregate Loans to all Borrowers constitute 15% or less of the Lender's net assets at the time of any Loan.

6.Documents to be Delivered Prior to Initial Loan. The Borrower shall deliver to the Lender prior to the first Loan between the parties any documents as the Lender shall have requested in order to comply with applicable rules and regulations promulgated by governmental and regulatory authorities.

Classification: Internal Use

Page 9 of 19

7.Default

7.1Events of Default. The occurrence of any one or more of the following events ("Events of Default") shall constitute an immediate Event of Default with respect to the Borrower:

(a)The Borrower shall fail to pay principal of, or interest on, any Loan as and when due, or the Borrower shall fail to perform any of its other Obligations; or

(b)There shall be a default by the Borrower under any Credit Arrangement, whether such Credit Arrangement now exists or shall hereafter be created, which default extends beyond any period of grace provided with respect thereto and which default relates to

(i)the obligations to pay the principal of or interest on any such indebtedness under the Credit Arrangement, or

(ii)an obligation other than the obligation to pay the principal of or interest on any such indebtedness and the effect of such default is to cause, or to permit the lender under the Credit Arrangement to cause, with the giving of notice if required, such indebtedness to become due prior to its stated maturity; or

(c)Any representation or warranty made by the Borrower in Section 4 of this Agreement, or in connection with any Loan made to or pledge of pledged collateral made by the Borrower, shall prove to have been incorrect in any material respect when made; or

(d)The Borrower shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any governmental or public authority shall take over possession or control of a substantial part of the Borrower's business; or any of the Borrower's property shall become subject to attachment or other involuntary lien or levy; or any action or proceeding shall be commenced by the Borrower seeking to adjudicate it as bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief or debtors, seeking the entry of an order for relief of the appointment of a receiver, trustee, or similar official for it or for any substantial part of its property, or any such proceeding is commenced against it which results in the entry of an order for such relief or such proceeding is not dismissed or stayed for a period of sixty (60) days following such commencement; or

(e)An event of default occurs under any agreement evidencing an outstanding bank loan to the Borrower; provided that, in such circumstance, that event of default will automatically (without need for action or notice by the Lender) constitute an immediate event of default entitling the Lender to call the Loan (and exercise all rights with respect to any collateral) and that such a call will be deemed made if the lending bank exercises its right to call its loan under its agreement with the Borrower.

Classification: Internal Use

Page 10 of 19

7.2Remedies

7.2.1Arbitration. In the event an Event of Default under Section 7.1(a) has occurred and not been cured within two Business Days from the Loan's maturity or from the time the Lender makes a demand for payment (and none of the Events of Default specified in Section 7.1(d) has occurred), the Lender and the Borrower agree that such matter shall be submitted for binding arbitration to an independent arbitrator selected by the Board of Directors of the Lender and Borrower. If the dispute involves a Lender and Borrower with different Boards of Directors, the respective Boards of Directors of the Lender and Borrower will select an independent arbitrator that is satisfactory to each party. Such independent arbitrator's decision shall be binding and conclusive between the Lender and the Borrower. Such Arbitrator shall submit at least annually a written report of any dispute to the Boards of Directors of the Funds describing the nature of any dispute and the actions taken by the Lender and Borrower to resolve the dispute.

7.2.2Other Rights and Remedies. If an Event of Default has occurred and has not been resolved pursuant to Section 7.2.1, or any other Event of Default has occurred, then the Lender shall be entitled to exercise any and all rights and remedies available to it at law or in equity, including without limitation any rights and remedies that may be available to it under the Security Agreement referred to in Section 3.11 to the Agreement and, with respect to an Event of Default specified in Section 7.1(e), any rights and remedies available to it under Section 7.1(e), and the Borrower shall pay to the Lender all reasonable expenses and disbursements incurred by the Lender in connection with the enforcement of its rights and remedies under this Agreement including the reasonable fees and out-of-pocket expenses of counsel for the Lender with respect thereto.

7.2.3Multiple Lenders. If an Event of Default occurs with regards to a Borrower with multiple Lenders, the Borrower will not make or permit any payment or prepayment of any Loans owing by Borrower unless Borrower concurrently makes a pro-rata payment or prepayment of all loans owing by Borrower.

8.Notice. Except as otherwise expressly provided herein, all notices hereunder to any party shall be in writing and shall be delivered in hand, mailed by United States registered or certified first-class mail, postage prepaid or sent by fax, addressed to such party to the attention of the person specified in the following sentence at the address set forth for such party below, or to such other person or address as such party may designate to the other party hereto by notice delivered in accordance with this Section 8. All notices to the Borrower shall be addressed to the Treasurer of the Borrower and all notices from the Borrower to the Lender shall be addressed to the Treasurer of the Lender. Written notice to the Credit Facility Team shall be sent to the following address: Principal Global Investors, LLC, 650 8th Street, Des Moines, Iowa 50392. The address for all Funds listed in this Agreement is: 650 8th Street, Des Moines, Iowa 50392.

9.Amendments. Neither this Agreement nor any provision hereof may be amended in any respect except by a statement in writing executed by the parties hereto.

10.Assignment. All of the terms of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns; provided, that the Borrower shall not assign or transfer any of its rights or obligations hereunder without the prior written consent of the Lender.

Classification: Internal Use

Page 11 of 19

11.Survival of Covenants, Representations and Warranties. All covenants, agreements, representations and warranties made herein or in any documents or other papers delivered by or on behalf of the Borrowers, or any of them, pursuant hereto shall be deemed to have been relied upon by the Lenders, regardless of any investigation made by or on behalf of the Lenders and shall survive the execution and delivery of this Agreement and the making by the Lenders of the Loans as herein contemplated and shall continue in full force and effect so long as any Loan, Obligation or any other amount due under this Agreement remains outstanding and unpaid or unsatisfied.

12.Section Headings. The descriptive section headings in this Agreement have been inserted for convenience of reference only and shall not be deemed to limit or otherwise affect the construction of any provision thereof or hereof.

13.Counterparts. This Agreement and the documents contemplated hereby may be executed simultaneously in any number of counterparts each of which when so executed and delivered shall be an original, but all of which shall together constitute but one and the same document.

14.Severability. If any of the provisions of this Agreement or any instrument delivered hereunder or the application thereof to any party hereto or to any person or circumstances is held invalid, the remainder of this Agreement or such instrument and the application thereof to any party hereto or to any other person or circumstances shall not be affected thereby.

15.Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of Iowa, without giving effect to principles of conflicts of law.

16.Entire Agreement. This Agreement and the other documents contemplated hereby and executed in connection herewith express the entire understanding of the parties with respect to the transactions contemplated hereby.

17.Limitation of Liability of the Board of Directors. A copy of the Articles of Incorporation of each Fund is on file with the Maryland Department of Assessments & Taxation, and notice is hereby given that this instrument is executed on behalf of the Board of Directors of each Fund as Directors of such Fund and not individually and that the obligations of or arising out of this instrument are not binding upon any of the directors, officers or shareholders individually but are binding only upon the assets and property of the applicable Fund.

18.Electronic Signatures. Each party agrees that electronic signatures of the parties, if any, included in this Agreement are intended to authenticate this writing and to have the same force and effect as manual signatures. Electronic signature means any electronic sound, symbol, or process attached to or logically associated with a record and executed and adopted by a party with the intent to sign such record, including facsimile or email electronic signatures.

Classification: Internal Use

Page 12 of 19

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed as an instrument under seal by its duly authorized officer as of the date first written above.

Classification: Internal Use

PRINCIPAL FUNDS, INC. ON BEHALF OF EACH OF ITS FUNDS LISTED IN SCHEDULES A AND B

By: /s/ Adam U. Shaikh

Adam U. Shaikh

Assistant Counsel

PRINCIPAL VARIABLE CONTRACTS FUNDS, INC. ON BEHALF OF EACH OF ITS FUNDS LISTED IN SCHEDULES A AND B

By: /s/ Adam U. Shaikh

Adam U. Shaikh

Assistant Counsel

PRINCIPAL GLOBAL INVESTORS, LLC

By: /s/ Adam U. Shaikh

Adam U. Shaikh

Counsel

Page 13 of 19

SCHEDULE A

BORROWING FUNDS

Except as otherwise indicated below, for each Fund, the Agreement was effective as of the Effective Date.

PFI:

 

 

Blue Chip Fund

 

LargeCap Growth Fund I

Bond Market Index Fund

 

LargeCap S&P 500 Index Fund

California Municipal Fund

 

LargeCap Value Fund III

Capital Securities Fund

 

MidCap Fund

Core Fixed Income Fund

 

MidCap Growth Fund

Core Plus Bond Fund

 

MidCap Growth Fund III

Diversified Income Fund

 

MidCap S&P 400 Index Fund

Diversified International Fund

 

MidCap Value Fund I

Diversified Real Asset Fund

 

Opportunistic Municipal Fund

EDGE MidCap Fund

 

Origin Emerging Markets Fund

Equity Income Fund

 

Overseas Fund

Finisterre Emerging Markets Total Return Bond Fund

Principal Capital Appreciation Fund

Global Emerging Markets Fund

 

Real Estate Securities Fund

Global Multi-Strategy Fund

 

Short-Term Income Fund

Global Real Estate Securities Fund

 

Small-MidCap Dividend Income Fund

Government & High Quality Bond Fund

 

Small-MidCap Growth Fund

High Income Fund

 

SmallCap Fund

High Yield Fund

 

SmallCap Growth Fund I

Inflation Protection Fund

 

SmallCap Value Fund II

International Equity Index Fund

 

SmallCap S&P 600 Index Fund

International Fund I

 

Spectrum Preferred and Capital Securities

International Small Company Fund

 

Income Fund

 

 

PVC:

 

 

Blue Chip Account

LargeCap Growth Account I

Bond Market Index Account

LargeCap S&P 500 Index Account

Core Plus Bond Account

LargeCap S&P 500 Managed Volatility Index Account

Diversified Balanced Volatility Control Account

MidCap Account

Diversified Growth Volatility Control Account

Principal Capital Appreciation Account

Diversified International Account

Real Estate Securities Account

Equity Income Account

Short-Term Income Account

Global Emerging Markets Account

SmallCap Account

Government & High Quality Bond Account

U.S. Large Cap Buffer July Account

Classification: Internal Use

Page 14 of 19

SCHEDULE B

LENDING FUNDS

Except as otherwise indicated below, for each Fund, the Agreement was effective as of the Effective Date.

PFI:

 

 

Blue Chip Fund

 

LargeCap Growth Fund I

Bond Market Index Fund

 

LargeCap S&P 500 Index Fund

California Municipal Fund

 

LargeCap Value Fund III

Capital Securities Fund

 

MidCap Fund

Core Fixed Income Fund

 

MidCap Growth Fund

Core Plus Bond Fund

 

MidCap Growth Fund III

Diversified Income Fund

 

MidCap S&P 400 Index Fund

Diversified International Fund

 

MidCap Value Fund I

Diversified Real Asset Fund

 

Opportunistic Municipal Fund

EDGE MidCap Fund

 

Origin Emerging Markets Fund

Equity Income Fund

 

Overseas Fund

Finisterre Emerging Markets Total Return Bond Fund

Principal Capital Appreciation Fund

Global Emerging Markets Fund

 

Real Estate Securities Fund

Global Multi-Strategy Fund

 

Short-Term Income Fund

Global Real Estate Securities Fund

 

Small-MidCap Dividend Income Fund

Government & High Quality Bond Fund

 

Small-MidCap Growth Fund

High Income Fund

 

SmallCap Fund

High Yield Fund

 

SmallCap Growth Fund I

Inflation Protection Fund

 

SmallCap Value Fund II

International Equity Index Fund

 

SmallCap S&P 600 Index Fund

International Fund I

 

Spectrum Preferred and Capital Securities

International Small Company Fund

 

Income Fund

 

 

PVC:

 

 

Blue Chip Account

LargeCap Growth Account I

Bond Market Index Account

LargeCap S&P 500 Index Account

Core Plus Bond Account

LargeCap S&P 500 Managed Volatility Index Account

Diversified Balanced Volatility Control Account

MidCap Account

Diversified Growth Volatility Control Account

Principal Capital Appreciation Account

Diversified International Account

Real Estate Securities Account

Equity Income Account

Short-Term Income Account

Global Emerging Markets Account

SmallCap Account

Government & High Quality Bond Account

 

 

Classification: Internal Use

Page 15 of 19

SCHEDULE C

COLLATERAL SECURITY AGREEMENT

This Collateral Security Agreement (this "Collateral Agreement") is made this _________ day of

_______, 2012, by and among each investment company listed on the signature pages hereto (each, a "Fund" and collectively, the "Funds"), on behalf of each Borrower and Lender (as such terms are defined in the Agreement (defined below)).

WHEREAS, each Fund, on behalf of each Borrower and Lender, have entered into a Interfund Lending Agreement dated as of __________by and among each Fund and Principal Global Investors, LLC (the "Agreement") in accordance with the terms of (i) the exemptive order from the U.S. Securities and Exchange Commission dated October 25, 2011 exempting such Borrowers and Lenders and Principal Global Investors, LLC from certain provisions of the Investment Company Act of 1940, as amended; and (ii) the Interfund Lending Procedures, as in effect from time to time, for Loans by and among the Funds;

NOW, THEREFORE, each Borrower, in consideration of Loans heretofore, now or from time to time hereafter made, given or extended to the Borrower by a Lender, hereby agrees with the Lenders as follows:

1.Capitalized terms used herein which are not otherwise defined herein shall have the respective meanings ascribed thereto in the Agreement.

2.Effective upon the transfer of collateral, pursuant to Section 3.11 of the Agreement, or as provided herein, to an account owned or controlled by a Lender, as security for the payment of any and all loans heretofore, now or from time to time hereafter made, given or extended to a Borrower by the Lender under and pursuant to the Agreement (which loans shall hereinafter be referred to collectively as the "Secured Liabilities" and each individually as a "Secured Liability"), the Lender shall have, and the Borrower hereby grants to the Lender, a security interest in (i) any and all securities and other instruments owned by the Borrower which have been or at any time shall be delivered to the Lender or its custodian by or on behalf of the Borrower or have or at any time shall otherwise come into the possession, custody or control of the Lender or its custodian, including securities and other instruments held in depository trust companies and other institutions and clearing agencies in segregated accounts in the name of the Lender; (ii) all right, title, interest and power (including the power of hypothecation and disposition) of the Borrower in, or in respect of any and all securities and other instruments owned by the Borrower which have or at any time shall come into the possession, custody or control of the Lender or its custodian in any way for any purpose whatsoever, whether or not the Lender shall have accepted said property for the purpose or purposes for which said property was delivered to or otherwise caused to come into the possession, custody or control of the Lender or its custodian; and (iii) all proceeds of any of the foregoing. All property shall be deemed to be in the possession, custody or control of the Lender as soon as it is transferred to the Lender or its custodian or if the Lender and the Borrower enter into a control agreement satisfactory to the Lender with the Borrower's custodian. If the Lender shall at any time deem itself insecure in respect of any Secured Liability, the Borrower will deliver to the Lender or its custodian upon demand additional collateral owned by the Borrower satisfactory to the Lender. The term "collateral" as hereinafter used shall mean and include the securities and other instruments, together with proceeds of the securities and other instruments, and any and all property, rights, titles, powers, sums, receivables or claims which by virtue of the provisions of this Collateral Agreement are or shall be at the time in question subject to a security interest in favor of the Lender.

3.Upon the occurrence and during the continuance of an Event of Default (as defined in the Agreement), or any time or times thereafter, (i) the Lender may exercise any and all rights and remedies (a) granted to the Lender by the Uniform Commercial Code as in effect in the State of Maryland or otherwise allowed at law, and/or (b) otherwise provided by this Collateral Agreement or the Agreement, and (ii) any and all Secured Liabilities of the Borrower shall, at

Classification: Internal Use

Page 16 of 19

the option of the Lender, become due and payable without notice or demand, notwithstanding any credit or time allowed to the Borrower by any instrument or other document evidencing the same or otherwise.

4.Upon the occurrence and during the continuance of an Event of Default, the Lender shall have full power and authority to sell any or all of the collateral of the Borrower. Except as required by law, such sale or other disposition may be made without advertisement or any notice to the Borrower or to any other person. Where reasonable notification of the time or place of such sale or other disposition is so required, such requirement shall be met if such notice is given in the manner prescribed in Paragraph 10 hereof at least five days before the time of such sale or other disposition to each person entitled to such notice, addressed, if to the Borrower, in the manner specified in said Paragraph 10, or, if to any person, to such person at such person's last address known to the Lender. After deducting all costs and expenses of collection, storage, custody, sale or other disposition and delivery (including legal costs and reasonable attorneys' fees) and all other charges against the collateral, the residue of the proceeds of any such sale or other disposition shall be applied to the payment of any and all of the Secured Liabilities, due or to become due, in such order of preference as the Lender may determine, proper allowance for interest on liabilities not then due being made, and, unless otherwise provided by law, any surplus shall be returned to the Borrower.

5.The Borrower will pay when due all taxes, assessments, liens, premiums or other charges against the collateral and, if the Borrower and the Lender agree it is appropriate, the Borrower will fully insure the same in favor and to the satisfaction of the Lender against loss by any risk to which the collateral or any part thereof may be subject and will on demand deposit with the Lender the policies covering any such insurance. Although under no obligation to do so, the Lender may at any time and from time to time pay any taxes, assessments, liens, premiums or other charges against the collateral, and may insure the same or otherwise protect the value thereof and the property represented thereby, and in such event all expenditures so incurred shall be chargeable to the Borrower and secured by the collateral of the Borrower. The Lender shall be under no obligation to take any steps necessary to preserve rights in any collateral against prior parties but may do so at its option. Upon the occurrence and during the continuance of an Event of Default, the Lender may at any time and from time to time transfer into its own name or that of its nominee any securities constituting part of the collateral of the Borrower and receive the income thereon and hold the same as additional collateral or apply it to the payment of any or all of the Secured Liabilities and may at any time notify the obligor(s) on any collateral to make payment of the Lender of any amounts due or to become due thereon.

6.Upon the occurrence and during the continuance of an Event of Default, the Lender may, at any time and from time to time, transfer or assign the whole or any part of any Secured Liability and may transfer therewith, or assign to and set apart for the account of the transferee or assignee thereof, in either event as security therefor, the whole or any part of the collateral of the Borrower. If the Lender does so transfer or assign and set apart the whole or any part of the collateral, the transferee or assignee thereof, without notice to the Borrower, shall thereupon become vested with, and may thereafter exercise, every right and power hereby given to the Lender in respect thereof, and the Lender shall thereafter be forever relieved and fully discharged from any liability or responsibility in respect thereof, except that the Lender shall continue to use reasonable care in the custody and preservation of any collateral so assigned and set apart while such collateral remains in the possession of the Lender. Such transferee or assignee shall have no right or power in respect of any part of the collateral not so transferred or assigned and set apart, in respect whereof the Lender shall retain all rights and powers hereby given in respect thereof.

7.Except as provided in Paragraphs 4, 5 and 6 hereof, the Lender shall at no time transfer or assign the whole or any part of any Secured Liability or assign, transfer or set aside the whole or any part of the collateral held in security therefor except to an assignee of the Loans secured thereby.

Classification: Internal Use

Page 17 of 19

8.Upon the request of the Borrower following the payment in full of all loans and Secured Liabilities and termination of the Agreement, the Lender shall (i) return or cause to be returned to the Borrower all collateral which shall remain in the possession, custody or control of the Lender or its custodian at such time, and (ii) shall deliver to the Borrower such instruments, UCC termination statements and other documents, and provide for delivery of such instructions to the custodian, in each case as the Borrower may reasonably request for the purpose of releasing (in fact and as a matter of record) the security interest created by this Collateral Agreement.

9.Except as is otherwise expressly provided herein or by law, the Borrower waives all demands and notices in connection with this Collateral Agreement or the enforcement of the Lender's rights hereunder and also waives presentment, demand, notice, protest and all other demands and notices in connection with any Secured Liability or the enforcement of the Lender's rights with respect thereto and hereby consents that the time of payment of any Secured Liability may be extended from time to time and that no such extension or other indulgence granted to any other party primarily or secondarily liable on any Secured Liability, no discharge or release of any such party and no substitution, release or surrender of collateral of the Borrower shall discharge or otherwise affect the liability of the Borrower on or in respect of any Secured Liability. No delay or omission on the part of the Lender in exercising any right hereunder shall operate as a waiver of such right on any one occasion and shall not be construed as a bar to or waiver of any such right on any future occasion.

10.Any demand upon or notice to the Borrower permitted or required hereunder shall be sufficient if, and effective when, deposited in the mails, postage prepaid, addressed to the Borrower at

_______________ or at such other address of the Borrower appearing on the first page of this Collateral Agreement or at such other address as the Borrower may furnish to the Lender as the address to which such demands, notices or other communications addressed to the Borrower shall be mailed or forwarded.

11.This Collateral Agreement may be terminated by the Borrower giving written notice of such termination to the Lender, provided, however, that such termination shall not be effective unless and until all loans and Secured Liabilities (including those contingent or not yet due) existing as of the time of receipt of such notice by the Lender have been paid in full.

12.The Borrower will pay on demand all costs and expenses (including legal costs and reasonable attorneys' fees) incurred or paid by the Lender in collecting any loan or Secured Liability upon any default in respect thereof, and all costs and expenses so incurred shall be secured by the collateral.

13.This Collateral Agreement shall inure to the benefit of the Lender, its successors and assigns, and shall be binding upon the Borrower, its successors and assigns.

14.This Collateral Agreement shall be governed by, and construed in accordance with, the laws of the State of Iowa.

15.A copy of the Articles of Incorporation each Fund is on file with the Maryland Department of Assessments & Taxation, and notice is hereby given that this instrument is executed on behalf of the Board of Directors of each Fund as Directors of such Fund and not individually and that the obligations of or arising out of this instrument are not binding upon any of the directors, officers or shareholders individually but are binding only upon the assets and property of the applicable Fund.

16.Each party agrees that electronic signatures of the parties, if any, included in this Collateral Agreement are intended to authenticate this writing and to have the same force and effect as manual signatures. Electronic signature means any electronic sound, symbol, or process attached to or logically associated with a record and executed and adopted by a party with the intent to sign such record, including facsimile or email electronic signatures.

Classification: Internal Use

Page 18 of 19

IN WITNESS WHEREOF, the parties have executed this Collateral Agreement as of the day and year first written above.

By:

By:

ALL FUNDS LISTED ON SCHEDULE A OR SCHEDULE B TO THE AGREEMENT, AS SUCH SCHEDULES ARE AMENDED FROM TIME TO TIME

Classification: Internal Use

Page 19 of 19


PFI Contractual Fee Waiver Agreement effective 07/01/2022

PRINCIPAL FUNDS, INC.

CONTRACTUAL FEE WAIVER AGREEMENT

AGREEMENT to be effective July 1, 2022 by and between Principal Funds, Inc. (the "Fund") and Principal Global Investors, LLC (the "Advisor") (together, the "Parties").

The Advisor has contractually agreed to limit the Fund's expenses (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) on certain share classes of certain of the Funds. For avoidance of doubt, the expenses associated with collecting tax reclaims in foreign countries, such as countries in the European Union, for taxes withheld in prior years are extraordinary expenses and, as such, are excluded from the expense limits. The reductions and reimbursements are in amounts that maintain total operating expenses at or below certain limits. The limits are expressed as a percentage of average daily net assets attributable to each respective class on an annualized basis. The expenses borne by the Advisor are subject to reimbursement by the Funds through the fiscal year end, provided no reimbursement will be made if it would result in the Funds' exceeding the total operating expense limits. The operating expense limits are attached on Schedule A to this Agreement.

Further, the Advisor has contractually agreed to waive a portion of the management fee it receives from certain Funds. The waiver is expressed as a percentage of average daily net assets. The management fee waivers are attached as Schedule B to this Agreement.

The Agreement embodies the entire agreement of the Parties relating to the subject matter hereof. This Agreement supersedes all prior agreement and understandings, and all rights and obligations thereunder are hereby canceled and terminated. No amendment or modification of this Agreement will be valid or binding unless it is in writing by the Parties.

This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Each Party agrees that electronic signatures of the Parties included in this Agreement are intended to authenticate this writing and to have the same force and effect as manual signatures. Electronic signature means any electronic sound, symbol, or process attached to or logically associated with a record and executed and adopted by a party with the intent to sign such record, including facsimile or email electronic signatures.

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed effective as of the day and year first written above.

PRINCIPAL FUNDS, INC.

PRINCIPAL GLOBAL INVESTORS, LLC

By:

/s/ Clint L. Woods

By:

/s/ Clint L. Woods

 

 

 

 

Name:

Clint L. Woods

Name:

Clint L. Woods

Title:

Vice President, Counsel, and Assistant Secretary

Title:

Vice President, Associate General Counsel, and

 

 

 

Assistant Secretary

By:

/s/ Beth C. Wilson

By:

/s/ Adam U. Shaikh

 

 

 

 

Name:

Beth C. Wilson

Name:

Adam U. Shaikh

Title:

Vice President and Secretary

Title:

Assistant General Counsel

1

 

 

 

 

Institutional

 

Series

Class A

Class C

Class J

Class

Expiration

California Municipal Fund

N/A

N/A

N/A

0.46%

02/28/2023

Core Fixed Income Fund

N/A

N/A

N/A

0.46%

02/28/2023

Core Plus Bond Fund

0.84%

N/A

N/A

0.56%

02/28/2023

Diversified Income Fund

N/A

N/A

N/A

0.68%

02/28/2023

Diversified International Fund

N/A

1.98%

N/A

0.85%

02/28/2023

Equity Income Fund

N/A

N/A

N/A

0.52%

02/28/2023

Finisterre Emerging Markets Total Return Bond Fund

N/A

N/A

N/A

0.85%

02/28/2023

Global Emerging Markets Fund

1.55%

2.35%

1.37%

1.20%

02/28/2023

Global Real Estate Securities Fund

N/A

N/A

N/A

0.94%

02/28/2023

Government & High Quality Bond Fund

N/A

1.63%

N/A

0.53%

02/28/2023

Government Money Market Fund

N/A

N/A

N/A

0.15%

02/28/2023

High Yield Fund

N/A

N/A

N/A

0.61%

02/28/2023

Inflation Protection Fund

N/A

N/A

0.85%

N/A

02/28/2023

International Fund I

N/A

N/A

N/A

0.79%

02/29/2024

LargeCap S&P 500 Index Fund

N/A

1.30%

N/A

N/A

02/28/2023

MidCap Growth Fund

N/A

N/A

N/A

0.75%

02/28/2023

MidCap Value Fund I

1.15%

N/A

N/A

0.69%

02/28/2023

Money Market Fund

0.50%

N/A

N/A

N/A

02/28/2023

Principal LifeTime 2010 Fund

0.38%

N/A

N/A

N/A

02/28/2023

 

Principal LifeTime 2030 Fund

0.38%

N/A

N/A

N/A

02/28/2023

 

Principal LifeTime 2040 Fund

0.38%

N/A

N/A

N/A

02/28/2023

 

Principal LifeTime 2050 Fund

0.38%

N/A

N/A

N/A

02/28/2023

 

Principal LifeTime 2060 Fund

N/A

N/A

0.38%

N/A

02/28/2023

 

Principal LifeTime 2065 Fund

N/A

N/A

N/A

0.08%

02/28/2023

 

Principal LifeTime Hybrid 2015 Fund

N/A

N/A

0.30%

0.05%

02/28/2023

 

Principal LifeTime Hybrid 2020 Fund

N/A

N/A

N/A

0.05%

02/28/2023

 

Principal LifeTime Hybrid 2025 Fund

N/A

N/A

N/A

0.05%

02/28/2023

 

Principal LifeTime Hybrid 2030 Fund

N/A

N/A

N/A

0.05%

02/28/2023

 

Principal LifeTime Hybrid 2035 Fund

N/A

N/A

N/A

0.05%

02/28/2023

 

Principal LifeTime Hybrid 2040 Fund

N/A

N/A

N/A

0.05%

02/28/2023

 

Principal LifeTime Hybrid 2045 Fund

N/A

N/A

0.30%

0.05%

02/28/2023

 

Principal LifeTime Hybrid 2050 Fund

N/A

N/A

0.30%

0.05%

02/28/2023

 

Principal LifeTime Hybrid 2055 Fund

N/A

N/A

0.30%

0.05%

02/28/2023

 

Principal LifeTime Hybrid 2060 Fund

N/A

N/A

0.30%

0.05%

02/28/2023

 

Principal LifeTime Hybrid 2065 Fund

N/A

N/A

0.30%

0.05%

02/28/2023

 

Principal LifeTime Hybrid Income Fund

N/A

N/A

0.30%

0.05%

02/28/2023

 

Principal LifeTime Strategic Income Fund

0.38%

N/A

N/A

N/A

02/28/2023

Real Estate Securities Fund

N/A

N/A

N/A

0.86%

02/28/2023

Short-Term Income Fund

N/A

N/A

N/A

0.43%

02/28/2023

 

SmallCap Fund

N/A

N/A

N/A

0.85%

02/28/2023

SmallCap S&P 600 Index Fund

N/A

N/A

N/A

0.21%

02/28/2023

 

SmallCap Value Fund II

N/A

N/A

1.30%

0.96%

02/28/2023

 

Tax-Exempt Bond Fund

N/A

1.60%

N/A

0.45%

02/28/2023

 

2

Series

R-1

R-3

R-4

R-5

Expiration

Government & High Quality Bond Fund

1.29%

0.98%

0.79%

0.67%

02/28/2023

Principal LifeTime 2065 Fund

0.93%

0.62%

0.43%

0.31%

02/28/2023

Short-Term Income Fund

N/A

N/A

0.79%

N/A

02/28/2023

In addition, the Advisor has contractually agreed to limit the expenses identified as "Other Expenses" related to certain share classes of certain of the Funds by paying, if necessary, expenses normally payable by the Fund (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) at or below certain limits. For avoidance of doubt, the expenses associated with collecting tax reclaims in foreign countries, such as countries in the European Union, for taxes withheld in prior years are extraordinary expenses and, as such, are excluded from the expense limits. The limits are expressed as a percent of average net assets on an annualized basis. The Other Expenses limits and the agreement terms are as follows:

Series

Class R-6

Expiration

Diversified Income Fund

0.02%

02/28/2023

Diversified International Fund

0.04%

02/28/2023

Global Emerging Markets Fund

0.04%

02/28/2023

International Fund I

0.04%

02/28/2023

MidCap Fund

0.02%

02/28/2023

Principal LifeTime Hybrid 2015 Fund

0.02%

02/28/2023

Principal LifeTime Hybrid 2020 Fund

0.02%

02/28/2023

Principal LifeTime Hybrid 2025 Fund

0.02%

02/28/2023

Principal LifeTime Hybrid 2030 Fund

0.02%

02/28/2023

Principal LifeTime Hybrid 2035 Fund

0.02%

02/28/2023

Principal LifeTime Hybrid 2040 Fund

0.02%

02/28/2023

Principal LifeTime Hybrid 2045 Fund

0.02%

02/28/2023

Principal LifeTime Hybrid 2050 Fund

0.02%

02/28/2023

Principal LifeTime Hybrid 2055 Fund

0.02%

02/28/2023

Principal LifeTime Hybrid 2060 Fund

0.02%

02/28/2023

Principal LifeTime Hybrid 2065 Fund

0.02%

02/28/2023

Principal LifeTime Hybrid Income Fund

0.02%

02/28/2023

SmallCap Fund

0.02%

02/28/2023

SmallCap Growth Fund I

0.01%

02/28/2023

SmallCap Value Fund II

0.02%

02/28/2023

3

Series

Class A

Class C

Institutional

Class J

Expiration

 

 

 

Class

 

 

Blue Chip Fund

N/A

N/A

0.66%

N/A

12/30/2022

Bond Market Index Fund

N/A

N/A

N/A

0.54%

12/30/2022

Diversified Real Asset Fund

1.20%

N/A

0.83%

N/A

12/30/2022

Edge MidCap Fund

1.10%

N/A

0.77%

N/A

12/30/2022

Global Multi-Strategy Fund

N/A

N/A

1.63%

N/A

12/30/2022

International Equity Index Fund

N/A

N/A

0.31%

N/A

12/30/2022

International Small Company Fund

N/A

N/A

1.15%

N/A

12/30/2022

Opportunistic Municipal Fund

0.84%

N/A

0.56%

N/A

12/30/2022

Origin Emerging Markets Fund

1.55%

N/A

1.20%

N/A

12/30/2022

Small-MidCap Dividend Income Fund

1.12%

1.87%

0.85%

N/A

12/30/2022

Small-MidCap Growth Fund

N/A

N/A

0.83%

N/A

12/30/2022

Spectrum Preferred and Capital Securities

N/A

N/A

0.81%

N/A

12/30/2022

Income Fund

 

 

 

 

 

For Capital Securities Fund, the Advisor has agreed contractually to limit the Fund's expenses attributable to Class S shares by paying expenses normally payable by the Fund (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.00%. For avoidance of doubt, the expenses associated with collecting tax reclaims in foreign countries, such as countries in the European Union, for taxes withheld in prior years are extraordinary expenses and, as such, are excluded from the expense limit. It is expected that the expense limit will continue permanently (and in any event, at least through December 30, 2022); however, Principal Funds, Inc. and the Advisor, the parties to the agreement, may mutually agree to terminate the expense limit.

In addition, the Advisor has contractually agreed to limit the expenses identified as "Other Expenses" related to certain share classes of certain of the Funds by paying, if necessary, expenses normally payable by the Fund (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) at or below certain limits. For avoidance of doubt, the expenses associated with collecting tax reclaims in foreign countries, such as countries in the European Union, for taxes withheld in prior years are extraordinary expenses and, as such, are excluded from the expense limits. The limits are expressed as a percent of average net assets on an annualized basis. The Other Expenses limits and the agreement terms are as follows:

Series

Class R-6

Expiration

 

 

 

Diversified Real Asset Fund

0.02%

12/30/2022

Global Multi-Strategy Fund

0.02%

12/30/2022

International Equity Index Fund

0.04%

12/30/2022

International Small Company Fund

0.04%

12/30/2022

Small-MidCap Dividend Income Fund

0.02%

12/30/2022

4

SCHEDULE B

Series

Waiver

Expiration

 

 

 

Blue Chip Fund

0.03%

12/30/2022

Bond Market Index Fund

0.015%

12/30/2022

Core Plus Bond Fund

0.06%

02/28/2023

Diversified Income Fund

0.04%

02/28/2023

Diversified Real Asset Fund

0.05%

12/30/2022

Edge MidCap Fund

0.05%

12/30/2022

Global Multi-Strategy Fund

0.04%

12/30/2022

High Income Fund

0.015%

02/28/2023

LargeCap Growth Fund I

0.016%

02/28/2023

LargeCap Value Fund III

0.065%

02/28/2023

MidCap Growth Fund III

0.02%

02/28/2023

MidCap Value Fund I

0.02%

02/28/2023

Opportunistic Municipal Fund

0.06%

12/30/2022

Overseas Fund

0.035%

02/28/2023

SmallCap Growth Fund I

0.02%

02/28/2023

SmallCap Value Fund II

0.02%

02/28/2023

5


PFI Form of Contractual Fee Waiver Agreement effective 09/23/2022

PRINCIPAL FUNDS, INC.

CONTRACTUAL FEE WAIVER AGREEMENT

AGREEMENT to be effective September 23, 2022 by and between Principal Funds, Inc. (the "Fund") and Principal Global Investors, LLC (the "Advisor") (together, the "Parties").

The Advisor has contractually agreed to limit the Fund's expenses (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) on certain share classes of certain of the Funds. For avoidance of doubt, the expenses associated with collecting tax reclaims in foreign countries, such as countries in the European Union, for taxes withheld in prior years are extraordinary expenses and, as such, are excluded from the expense limits. The reductions and reimbursements are in amounts that maintain total operating expenses at or below certain limits. The limits are expressed as a percentage of average daily net assets attributable to each respective class on an annualized basis. The expenses borne by the Advisor are subject to reimbursement by the Funds through the fiscal year end, provided no reimbursement will be made if it would result in the Funds' exceeding the total operating expense limits. The operating expense limits are attached on Schedule A to this Agreement.

Further, the Advisor has contractually agreed to waive a portion of the management fee it receives from certain Funds. The waiver is expressed as a percentage of average daily net assets. The management fee waivers are attached as Schedule B to this Agreement.

The Agreement embodies the entire agreement of the Parties relating to the subject matter hereof. This Agreement supersedes all prior agreement and understandings, and all rights and obligations thereunder are hereby canceled and terminated. No amendment or modification of this Agreement will be valid or binding unless it is in writing by the Parties.

This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Each Party agrees that electronic signatures of the Parties included in this Agreement are intended to authenticate this writing and to have the same force and effect as manual signatures. Electronic signature means any electronic sound, symbol, or process attached to or logically associated with a record and executed and adopted by a party with the intent to sign such record, including facsimile or email electronic signatures.

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed effective as of the day and year first written above.

PRINCIPAL FUNDS, INC.

PRINCIPAL GLOBAL INVESTORS, LLC

By:

 

By:

 

Name: Clint L. Woods

Name:

Clint L. Woods

Title:

Vice President, Counsel, and Assistant Secretary

Title:

Vice President, Associate General Counsel, and

 

 

 

Secretary

By:

 

By:

 

Name: Beth C. Wilson

Name:

Adam U. Shaikh

Title:

Vice President and Secretary

Title:

Assistant General Counsel

1

 

 

 

 

Institutional

 

Series

Class A

Class C

Class J

Class

Expiration

California Municipal Fund

N/A

N/A

N/A

0.46%

02/28/2023

Core Fixed Income Fund

N/A

N/A

N/A

0.46%

02/28/2023

Core Plus Bond Fund

0.84%

N/A

N/A

0.56%

02/28/2023

Diversified Income Fund

N/A

N/A

N/A

0.68%

02/28/2023

Diversified International Fund

N/A

1.98%

N/A

0.85%

02/28/2023

Equity Income Fund

N/A

N/A

N/A

0.52%

02/28/2023

Finisterre Emerging Markets Total Return Bond Fund

N/A

N/A

N/A

0.85%

02/28/2023

Global Emerging Markets Fund

1.55%

2.35%

1.37%

1.20%

02/28/2023

Global Real Estate Securities Fund

N/A

N/A

N/A

0.94%

02/28/2023

Government & High Quality Bond Fund

N/A

1.63%

N/A

0.53%

02/28/2023

Government Money Market Fund

N/A

N/A

N/A

0.15%

02/28/2023

High Yield Fund

N/A

N/A

N/A

0.61%

02/28/2023

Inflation Protection Fund

N/A

N/A

0.85%

N/A

02/28/2023

International Fund I

N/A

N/A

N/A

0.79%

02/29/2024

LargeCap S&P 500 Index Fund

N/A

1.30%

N/A

N/A

02/28/2023

MidCap Growth Fund

N/A

N/A

N/A

0.75%

02/28/2023

MidCap Value Fund I

1.15%

N/A

N/A

0.69%

02/28/2023

Money Market Fund

0.50%

N/A

N/A

N/A

02/28/2023

Principal LifeTime 2010 Fund

0.38%

N/A

N/A

N/A

02/28/2023

02/28/2023

Principal LifeTime 2030 Fund

0.38%

N/A

N/A

N/A

02/28/2023

Principal LifeTime 2040 Fund

0.38%

N/A

N/A

N/A

02/28/2023

Principal LifeTime 2050 Fund

0.38%

N/A

N/A

N/A

02/28/2023

Principal LifeTime 2060 Fund

N/A

N/A

0.38%

N/A

02/28/2023

Principal LifeTime 2065 Fund

N/A

N/A

N/A

0.08%

02/28/2023

Principal LifeTime Hybrid 2015 Fund

N/A

N/A

0.30%

0.05%

02/28/2023

Principal LifeTime Hybrid 2020 Fund

N/A

N/A

N/A

0.05%

02/28/2023

Principal LifeTime Hybrid 2025 Fund

N/A

N/A

N/A

0.05%

02/28/2023

Principal LifeTime Hybrid 2030 Fund

N/A

N/A

N/A

0.05%

02/28/2023

Principal LifeTime Hybrid 2035 Fund

N/A

N/A

N/A

0.05%

02/28/2023

Principal LifeTime Hybrid 2040 Fund

N/A

N/A

N/A

0.05%

02/28/2023

Principal LifeTime Hybrid 2045 Fund

N/A

N/A

0.30%

0.05%

02/28/2023

Principal LifeTime Hybrid 2050 Fund

N/A

N/A

0.30%

0.05%

02/28/2023

Principal LifeTime Hybrid 2055 Fund

N/A

N/A

0.30%

0.05%

02/28/2023

Principal LifeTime Hybrid 2060 Fund

N/A

N/A

0.30%

0.05%

02/28/2023

Principal LifeTime Hybrid 2065 Fund

N/A

N/A

0.30%

0.05%

02/28/2023

Principal LifeTime Hybrid Income Fund

N/A

N/A

0.30%

0.05%

02/28/2023

Principal LifeTime Strategic Income Fund

0.38%

N/A

N/A

N/A

Real Estate Securities Fund

N/A

N/A

N/A

0.86%

02/28/2023

Short-Term Income Fund

N/A

N/A

N/A

0.43%

02/28/2023

02/28/2023

SmallCap Fund

N/A

N/A

N/A

0.85%

SmallCap S&P 600 Index Fund

N/A

N/A

N/A

0.21%

02/28/2023

02/28/2023

SmallCap Value Fund II

N/A

N/A

1.30%

0.96%

02/28/2023

Tax-Exempt Bond Fund

N/A

1.60%

N/A

0.45%

 

2

Series

R-1

R-3

R-4

R-5

Expiration

Government & High Quality Bond Fund

1.29%

0.98%

0.79%

0.67%

02/28/2023

Principal LifeTime 2065 Fund

0.93%

0.62%

0.43%

0.31%

02/28/2023

Short-Term Income Fund

N/A

N/A

0.79%

N/A

02/28/2023

In addition, the Advisor has contractually agreed to limit the expenses identified as "Other Expenses" related to certain share classes of certain of the Funds by paying, if necessary, expenses normally payable by the Fund (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) at or below certain limits. For avoidance of doubt, the expenses associated with collecting tax reclaims in foreign countries, such as countries in the European Union, for taxes withheld in prior years are extraordinary expenses and, as such, are excluded from the expense limits. The limits are expressed as a percent of average net assets on an annualized basis. The Other Expenses limits and the agreement terms are as follows:

Series

Class R-6

Expiration

Diversified Income Fund

0.02%

02/28/2023

Diversified International Fund

0.04%

02/28/2023

Global Emerging Markets Fund

0.04%

02/28/2023

International Fund I

0.04%

02/28/2023

MidCap Fund

0.02%

02/28/2023

Principal LifeTime Hybrid 2015 Fund

0.02%

02/28/2023

Principal LifeTime Hybrid 2020 Fund

0.02%

02/28/2023

Principal LifeTime Hybrid 2025 Fund

0.02%

02/28/2023

Principal LifeTime Hybrid 2030 Fund

0.02%

02/28/2023

Principal LifeTime Hybrid 2035 Fund

0.02%

02/28/2023

Principal LifeTime Hybrid 2040 Fund

0.02%

02/28/2023

Principal LifeTime Hybrid 2045 Fund

0.02%

02/28/2023

Principal LifeTime Hybrid 2050 Fund

0.02%

02/28/2023

Principal LifeTime Hybrid 2055 Fund

0.02%

02/28/2023

Principal LifeTime Hybrid 2060 Fund

0.02%

02/28/2023

Principal LifeTime Hybrid 2065 Fund

0.02%

02/28/2023

Principal LifeTime Hybrid Income Fund

0.02%

02/28/2023

SmallCap Fund

0.02%

02/28/2023

SmallCap Growth Fund I

0.01%

02/28/2023

SmallCap Value Fund II

0.02%

02/28/2023

3

Series

Class A

Class C

Institutional

Class J

Expiration

 

 

 

Class

 

 

Blue Chip Fund

N/A

N/A

0.66%

N/A

12/30/2022

Bond Market Index Fund

N/A

N/A

N/A

0.54%

12/30/2022

Diversified Real Asset Fund

1.20%

N/A

0.83%

N/A

12/30/2022

Edge MidCap Fund

1.10%

N/A

0.77%

N/A

12/30/2022

Global Multi-Strategy Fund

N/A

N/A

1.63%

N/A

12/30/2022

Global Sustainable Listed Infrastructure

N/A

N/A

0.88%

N/A

12/30/2023

International Equity Index Fund

N/A

N/A

0.31%

N/A

12/30/2022

International Small Company Fund

N/A

N/A

1.15%

N/A

12/30/2022

Opportunistic Municipal Fund

0.84%

N/A

0.56%

N/A

12/30/2022

Origin Emerging Markets Fund

1.55%

N/A

1.20%

N/A

12/30/2022

Small-MidCap Dividend Income Fund

1.12%

1.87%

0.85%

N/A

12/30/2022

Small-MidCap Growth Fund

N/A

N/A

0.83%

N/A

12/30/2022

Spectrum Preferred and Capital Securities

N/A

N/A

0.81%

N/A

12/30/2022

Income Fund

 

 

 

 

 

For Capital Securities Fund, the Advisor has agreed contractually to limit the Fund's expenses attributable to Class S shares by paying expenses normally payable by the Fund (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.00%. For avoidance of doubt, the expenses associated with collecting tax reclaims in foreign countries, such as countries in the European Union, for taxes withheld in prior years are extraordinary expenses and, as such, are excluded from the expense limit. It is expected that the expense limit will continue permanently (and in any event, at least through December 30, 2022); however, Principal Funds, Inc. and the Advisor, the parties to the agreement, may mutually agree to terminate the expense limit.

In addition, the Advisor has contractually agreed to limit the expenses identified as "Other Expenses" related to certain share classes of certain of the Funds by paying, if necessary, expenses normally payable by the Fund (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and other extraordinary expenses) to maintain "Other Expenses" (expressed as a percent of average net assets on an annualized basis) at or below certain limits. For avoidance of doubt, the expenses associated with collecting tax reclaims in foreign countries, such as countries in the European Union, for taxes withheld in prior years are extraordinary expenses and, as such, are excluded from the expense limits. The limits are expressed as a percent of average net assets on an annualized basis. The Other Expenses limits and the agreement terms are as follows:

Series

Class R-6

Expiration

Diversified Real Asset Fund

0.02%

12/30/2022

Global Multi-Strategy Fund

0.02%

12/30/2022

International Equity Index Fund

0.04%

12/30/2022

International Small Company Fund

0.04%

12/30/2022

Small-MidCap Dividend Income Fund

0.02%

12/30/2022

4

SCHEDULE B

Series

Waiver

Expiration

Blue Chip Fund

0.03%

12/30/2022

Bond Market Index Fund

0.015%

12/30/2022

Core Plus Bond Fund

0.06%

02/28/2023

Diversified Income Fund

0.04%

02/28/2023

Diversified Real Asset Fund

0.05%

12/30/2022

Edge MidCap Fund

0.05%

12/30/2022

Global Multi-Strategy Fund

0.04%

12/30/2022

High Income Fund

0.015%

02/28/2023

LargeCap Growth Fund I

0.016%

02/28/2023

LargeCap Value Fund III

0.065%

02/28/2023

MidCap Growth Fund III

0.02%

02/28/2023

MidCap Value Fund I

0.02%

02/28/2023

Opportunistic Municipal Fund

0.06%

12/30/2022

Overseas Fund

0.035%

02/28/2023

SmallCap Growth Fund I

0.02%

02/28/2023

SmallCap Value Fund II

0.02%

02/28/2023

5


CoreCommodity Management, LLC Code of Ethics dated 10/2021

Code of Ethics

CoreCommodity Management, LLC

Code of Ethics

October 2021

Issued January 2006

Revised June 2010

July 2011

June 2012

September 2012

November 2013

October 2014

October 2015

October 2016

October 2017

October 2018

October 2019

October 2020

Supersedes all previous Compliance Policies regarding this subject matter

Code of Ethics

Rule 204A-1 under the Investment Advisers Act of 1940 (the "Advisers Act") requires that investment advisers adopt a code of ethics which sets forth standards of business conduct, which reflect CoreCommodity Management, LLC's ("CoreCommodity" or the "Adviser") fiduciary obligations as well as the fiduciary obligations of Associated Persons who are supervised persons as that term is defined below. Rule 17j-1 under the Investment Company Act of 1940 (the "1940 Act") prohibits any affiliated person of the Adviser, in connection with the purchase or sale, directly or indirectly, by the person of a Security Held or to be Acquired by a Reportable Fund (defined below): (1) to employ any device, scheme or artifice to defraud the Reportable Fund; (2) to make any untrue statement of a material fact to the Reportable Fund or omit to state a material fact necessary in order to make the statements made to the Reportable Fund, in light of the circumstances under which they are made, not misleading; (3) to engage in any act, practice or course of business that operates or would operate as a fraud or deceit on the Reportable Fund; or (4) to engage in any manipulative practice with respect to the Reportable Fund.

Among other things, Rule 204A-1 under the Advisers Act and Rule 17j-1 under the 1940 Act require Access Persons to report their personal securities transactions, including transactions in any fund managed by the Adviser. Each Associated Person is required to provide a written certification annually that he or she has received, read, understands, and will comply with, this Code of Ethics. Capitalized terms used herein and not otherwise defined shall have the same meaning as in the Compliance Policies and Procedures Manual.

CORECOMMODITY CODE OF ETHICS

This Code of Ethics (the "Code") is distributed to all "Supervised Persons" (as defined below) of the Adviser and applies to all such persons. In addition, CoreCommodity may supplement this Code (but not contradict it) with other policies and procedures applicable to Associated Persons.

The Adviser requires its Supervised Persons to observe high ethical standards and to comply with all applicable federal securities laws. Supervised Persons and the Adviser are fiduciaries to CoreCommodity's advisory clients. As fiduciaries, CoreCommodity and its Supervised Persons owe their clients the duties of care and loyalty.

Supervised Persons who have questions or concerns about their responsibilities are encouraged to discuss these issues with their supervisor or the Compliance Officer. All references in this Code to the Compliance Officer include his or her designee.

Two key definitions in this Code are "Supervised Person" and "Access Person." All Associated Persons, as well as certain consultants, are "Supervised Persons." A Supervised Person who is also an Access Person, because of his or her advisory activities, will have to provide initial and annual reports of his or her securities holdings to the Adviser.

SUMMARY OF CODE PROVISIONS

a. Supervised Persons must report any violations of this Code promptly to the Compliance Officer.

Code of Ethics

b.Supervised Persons are required on an annual basis to review this Code and complete and sign an acknowledgment of receipt and understanding of and compliance with the Code, and any amendments thereto, in the format provided by the Adviser.

c.Access Persons must provide a report of securities holdings to the Compliance Officer upon first becoming an Access Person, and annually thereafter.

DEFINITIONS

"Access Person" means any director, officer, employee or representative of CoreCommodity who:

a.has access to non-public information regarding any advisory clients' purchase or sale of securities, or non-public information regarding the portfolio holdings of any Reportable Fund (as defined below);

b.in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding, the purchase or sale of Reportable Securities (as defined below) by a Reportable Fund (which includes the writing of an option to purchase or sell a Reportable Security), or whose functions relate to the making of any recommendations with respect to such purchases or sales; or

c.is involved in making securities recommendations to advisory clients, or who has access to recommendations that are non-public.

All directors and officers of CoreCommodity and all CoreCommodity employees who are directors or officers of a Reportable Fund are presumed to be Access Persons.

"Beneficial Ownership" of a security is to be interpreted in the same manner as it is for purposes of Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 16a-1(a)(2) adopted thereunder. This means that a person will generally be considered to have "beneficial ownership" of any security in which he or she has direct or indirect pecuniary (monetary) interest. In addition, a person will be deemed to have "beneficial ownership" of securities held by his or her immediate family1 sharing the same household, or other persons by reason of any contract, arrangement, understanding or relationship that provides him or her with sole or shared investment power.

"Initial Public Offering" means an offering of securities registered under the Securities Act of 1933 (the "Securities Act"), the issuer or which, immediately before the registration, was not subject to the reporting requirement of section 13 or 15(d) of the Exchange Act.

"Limited Offering" means an offering that is exempt from registration under the Securities Act pursuant to section 4(2) or section 4(6) or pursuant to Rule 504, Rule 505, or Rule 506 of this chapter.

"Reportable Fund" means any investment company registered under the 1940 Act for which CoreCommodity or an affiliate (any entity controlling, controlled by, or under common control with CoreCommodity) serves as investment adviser (as defined in Section 2(a)(20) of the 1940 Act) or as principal underwriter.

_____________________________________

1"Immediate Family" means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in law, brother-in-law, or sister-in-law, and includes adoptive relationships.

Code of Ethics

"Reportable Security" has the same meaning as that set forth in Section 202(a)(18) of the Advisers Act, and includes any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guaranty of, or warrant or right to subscribe to or purchase any of the foregoing However, in the case of an interest in a limited partnership that invests in securities, the Reportable Security will be the interest in the limited partnership and not the underlying securities in which the partnership invests, provided that the partnership receives investment advice based on its investment objectives rather than on the individual investment objectives of its limited partners.

Reportable Security does not include:

a.direct obligations of the Government of the United States;

b.bankers' acceptances, bank CDs, commercial paper and high quality short-term debt instruments, including repurchase agreements;

c.shares issued by money market funds

d.shares issued by registered open-end investment companies other than Reportable Funds;

e.shares issued by unit investment trusts that are invested exclusively in one or more open-end funds, none of which are Reportable Funds; and

f.any instrument that is not a security as defined in Section 202(a)(18) of the Advisers Act or Section 2(a)(36) of the 1940 Act. These instruments include, but are not limited to:

i.futures contracts;

ii.options on futures contracts;

iii.general partnership interests, provided generally that the general partnership interest entitles the owner to exercise management control over the partnership; and

iv.direct interests in real estate.

"Supervised Person" means any partner, officer, director (or other person occupying a similar status or performing similar functions), or employee, and also means other persons who provide investment advice on behalf of the Adviser and are subject to the supervision and control of the Adviser. This definition covers any consultants or representatives that are subject to the supervision and control of the Adviser.

"Security Held or to be Acquired by a Reportable Fund" means: (i) any Reportable Security which, within

the most recent 15 days: (a) is or has been held by the Reportable Fund; or (b) is being or has been

Code of Ethics

considered by the Reportable Fund or CoreCommodity for purchase by the Reportable Fund; and (ii) any option to purchase or sell, and any security convertible into or exchangeable for, a Reportable Security.

REPORTING OBLIGATIONS FOR ACCESS PERSONS

INITIAL HOLDINGS REPORT

Each Access Person must submit to the Compliance Officer a list of all Reportable Securities for which he or she had any direct or indirect Beneficial Ownership, as well as a list of all brokerage or bank accounts in which any securities are held for his or her direct or indirect benefit, as of the date he or she first becomes subject to this Code's reporting requirements. The Initial Holdings Report must be submitted to the Compliance Officer within 10 days of the date the Access Person becomes subject to this Code's reporting requirements. The information in the Initial Holding Report must be current as of a date not more than 45 days prior to the date the person becomes an Access Person.

ANNUAL HOLDINGS REPORT

On an annual basis, each Access Person must submit to the Compliance Officer a list of all Reportable Securities for which he or she has any direct or indirect Beneficial Ownership, as well as a list of any brokerage or bank account in which any securities are held for his or her direct or indirect benefit. The information in the Annual Holdings Report must be current as of a date no more than 45 days before the Report is submitted.

QUARTERLY TRANSACTION REPORTS

On a quarterly basis, no later than 30 days after the end of each calendar quarter, each Access Person must submit to the Compliance Officer a list containing, at a minimum, the following information about each Reportable Securities transaction during the quarter in which the Access Person had, or as a result of the transaction acquired, any direct or indirect beneficial ownership:

a.The date of the transaction, the title, and as applicable the exchange ticker symbol or CUSIP number, interest rate and maturity date, number of shares, and principal amount of each reportable security involved;

b.The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition);

c.The price of the security at which the transaction was effected;

d.The name of the broker, dealer or bank with or through which the transaction was effected; and

e.The date the Access Person submits the report.

The Access Person may fulfill the Quarterly Transaction Reporting requirement by having duplicate statements of such Access Person's brokerage account statements (if these are produced quarterly) sent to the Compliance Officer so long as all Reportable Securities transactions are contained on such brokerage statements and such brokerage statements are received by the Compliance Officer no later than 30 days after the end of each calendar quarter. Any Reportable Securities transaction not contained on a brokerage statement will need to be reported to the Compliance Officer in a separate Quarterly Transaction Report.

Code of Ethics

NOTICE OF ACCESS PERSONS STATUS

The Compliance Officer will notify each person who becomes an Access Person of the Adviser of the reporting requirements applicable to Access Persons.

REVIEW AND ENFORCEMENT

In connection with Access Persons, the Compliance Officer or his or her designee will, on a quarterly basis, compare reported personal securities transactions with completed transactions of the Adviser's advisory clients during the period to determine whether a violation of this Code may have occurred.

•In determining whether a violation occurred, the Compliance Officer will consult with appropriate Adviser personnel and they will consider the facts and circumstances surrounding the occurrence along with any explanation and discussion by interested and/or involved parties and their supervisors.

•If a violation is found to have occurred, the Compliance Officer and appropriate Adviser personnel will impose corrective action as they deem appropriate under the circumstances.

•The Adviser will impose sanctions that range from oral warnings for the first violation, to written warnings, consideration of Code violations in determining bonuses, suspension, and termination.

PRE-APPROVAL OF CERTAIN INVESTMENTS

Access Persons must obtain pre-approval from the Compliance Officer, or his or her designee, to directly or indirectly acquire beneficial ownership in any security in an Initial Public Offering or in a Limited Offering.

RECORDS

The Compliance Officer, or his or her designee, will maintain the following records, which will be available for examination by the Securities and Exchange Commission.

a.A copy of this Code and any other code of ethics adopted by the Adviser that is, or at any time within the past five years has been, in effect (maintained in an easily accessible place).

b.A record of any violation of this Code and of any action taken or sanction imposed as a result of any violation (maintained in an easily accessible place for at least five years following the end of the fiscal year in which the violation occurs).

c.A copy of each report submitted under this Code, including any information provided in lieu of any reports made under the Code (maintained for at least five years from the end of the fiscal year in which the report is made, the first two years in an easily accessible place).

d.A record of all persons, currently or within the past five years, who are or were required to submit reports under this Code, and those persons who are or were responsible for reviewing the reports (maintained in an easily accessible place).

e.A copy of all written acknowledgments of this Code for each person who is currently, or within the past five years was, a Supervised Person.

Code of Ethics

f.A record of any decision to preapprove securities transactions for Access Persons, if any (maintained for at least five years after the end of the fiscal year in which the approval is granted).

MISCELLANEOUS

CONFIDENTIALITY

All reports of securities transactions and any other information filed with the Adviser pursuant to this Code will be treated as confidential. The Adviser or its affiliates may disclose copies of reports and information to the Securities and Exchange Commission or as otherwise required by applicable law, rule or regulation, or as directed or requested by an applicable regulatory or self-regulatory authority.

INTERPRETATION OF PROVISIONS

The Adviser may from time to time adopt interpretations of this Code as it deems appropriate.

DISTRIBUTION OF CODE, ACKNOWLEDGMENT OF RECEIPT AND ANNUAL CERTIFICATION OF COMPLIANCE

All Supervised Persons will receive a copy of this and any amendments. All Supervised Persons will be required to sign an acknowledgement of understanding of and compliance with the Code in the format provided by the Adviser for any initial or amended copy of this Code, and each year thereafter.

REPORTING VIOLATIONS

Supervised Persons must promptly report any violation of this Code to the Compliance Officer.


PineBridge Investments LLC Code of Ethics dated 10/2021

PineBridge Code of Ethics

The information contained herein is the property of PineBridge Investments and may not be copied, used or disclosed in whole or in part, stored in a retrieval system or transmitted in any form or by any means (electronic, mechanical, reprographic, recording or otherwise) without the prior written permission of PineBridge Investments.

Effective: August 2021

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

Page 1

PineBridge Code of Ethics

Definitions and Abbreviations ....................................................................................................................................................................

3

I. Introduction...............................................................................................................................................................................................

6

II. Fiduciary Duties ......................................................................................................................................................................................

9

III. Code of Conduct..................................................................................................................................................................................

11

IV. Insider Trading.....................................................................................................................................................................................

16

V. Personal Securities Transactions.......................................................................................................................................................

21

VI. Outside Business Activities................................................................................................................................................................

31

VII. Gifts & Entertainment ........................................................................................................................................................................

34

VIII. Political & Charitable Contributions ................................................................................................................................................

39

Appendix A: Exempt Transactions..........................................................................................................................................................

41

Appendix B: Acknowledgement & Waiver Letter...................................................................................................................................

43

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

Page 2

PineBridge Code of Ethics

Definitions and Abbreviations

Access Person: For the purpose of this Code, all employees and Non-Executive Directors of PineBridge are considered Access Persons. Access Persons may also include consultants, temporary workers, and interns, (each a "Contingent Worker") who have direct or indirect access to sensitive information. Sensitive information includes, but is not limited to, client or trade (PineBridge or personal) information, non-public information per the Insider Trading Policy set out within this Code, litigation-related and any information that the Contingent Worker's direct supervisor reasonably believes should be determined to be sensitive. It is the responsibility of the employee with direct supervision of a Contingent Worker to (1) determine whether the Contingent Worker has direct or indirect access to sensitive information; and (2) notify the Compliance Department and Human Resources upon the hire and termination of a Contingent Worker.

Note: For purposes of this Code, a prohibition or requirement applicable to any Access Person applies also to transactions in Securities or Related Securities for any account for which the Access Person or a Household Member has control and/or Beneficial Ownership.

Beneficial Ownership: A direct or indirect Pecuniary Interest in the securities or shares that an Access Person has. An Access Person is presumed to have a Beneficial Ownership interest in any Security held, individually or jointly, by the Access Person and/or a Household Member.

Note: Access Persons should consult the Compliance Department if in doubt as to whether he/she has Beneficial Ownership of Securities.

Client: An entity that has signed an agreement with PineBridge for the provision of discretionary or non- discretionary investment management services.

Closed-End Fund: Type of fund that has a fixed number of shares usually listed on a major stock exchange. Unlike open-ended mutual funds, closed-end funds do not issue and redeem shares on a continuous basis.

Consultant: An individual or organization providing professional services to PineBridge Investments for a fee.

Cryptocurrency: A digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. Examples include Bitcoin, Ethereum, Ripple, NEO and Litecoin.

De Minimis Amount: Either Gifts or Entertainment from any single individual that in aggregate do not exceed $50 in value in a calendar month.

Disinterested Director/Non-Employee Investment Committee Personnel: A director of any Fund managed by PineBridge who is not in the position to influence the operations of a Client. Disinterested Directors are not subject to the requirements of this Code.

Entertainment: An event where a business contact, counterparty or vendor is present with the employee and where business matters can be discussed.

Exchange Traded Funds (ETF): A fund that typically tracks an index, but can be traded like a stock. An ETF holds assets such as stocks, commodities or bonds, and trades close to its net asset value over the course of a trading day. Because ETFs are traded on stock exchanges, they can be bought and sold at any time during the day (unlike most mutual funds).

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

Page 3

PineBridge Code of Ethics

Fund: Registered open-end and closed-end investment companies or commingled vehicles advised or sub- advised by PineBridge.

Gift: Anything of value that is received and/or offered from/to a business contact, vendor, counterparty or regulatory body.

Household Member: A member of an Access Person's family and/or legal dependent that shares the same residence as the Access Person.

Investment Personnel: Any employee entrusted with the direct responsibility and authority, either alone or as part of a co-manager team or group, to make investment decisions affecting a Client's investment plans and interests, as well as other personnel, such as research analysts, trading personnel, individuals who provide information or advice to portfolio managers and those individuals who execute portfolio manager decisions.

Manager: Any employee who has one or more other employees who report to him or her.

Non-Executive Director: Any person appointed as a Non-Executive Director of PineBridge Investments, L.P.

Pecuniary Interest: The opportunity to profit directly or indirectly or share in any profit derived from a transaction in a security.

PineBridge or the "Firm": Member company of PineBridge Investments, L.P.

Private Placement: The sale of a bond or other security directly to a limited number of investors in a private offering (e.g. hedge fund and private equity fund).

Related Security: Any instrument related in value to that Security, including, but not limited to, any option or warrant to purchase or sell that Security, and any Security convertible into or exchangeable for the Security.

Robo-Adviser: A type of managed account or financial adviser that provides financial advice or investment management, primarily online, with moderate to minimal human intervention. Robo-Advisors generally use algorithms to provide an automated portfolio management service based on a client's risk tolerance and time horizon. The account holder at a qualifying Robo-Adviser does not have the ability to direct the purchase or sale of any individual investments within the account. Typically, investment options will be limited to ETFs, mutual funds or other Exempt Securities. Examples include Betterment, Wealthfront, Acorns, MarketRiders, Creditease's Toumi RA, and Algebra.

Securities: Any REIT, note, stock (including ADRs), treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, pre- organization certificate or subscription, transferable share, investment contract, voting-trust certificate, futures contracts and options traded on a commodities exchange, including: currency futures; fractional undivided interest in oil, gas, or other mineral rights; any put, call, straddle, option or privilege on any security or on any group or index of securities (including any interest therein or based on the value thereof); or any put, call, straddle, option or privilege entered into on a national securities exchange relating to foreign currency or; in general, any interest or instrument commonly known as a security or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any security.

For the purposes of the Code, please note the following:

-Commodities are not considered Securities.

-Futures and options on any group or index of Securities are considered Securities.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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PineBridge Code of Ethics

StarCompliance: A web based application used by Access Persons to submit all necessary forms/reports under the requirements of this Code. Access Persons must, whenever possible, use StarCompliance to comply with the reporting requirements of this Code. However, in cases where an Access Person does not have access to the system, the Access Person must receive approval from the Compliance Department prior to submitting any required forms/reports manually.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

Page 5

PineBridge Code of Ethics

I. Introduction

A. Purpose

PineBridge believes that individual investment activities by its officers and employees should not be prohibited or discouraged. Nonetheless, the nature of the Firm's fiduciary obligations necessarily requires some restrictions on the investment activities of Access Persons and their Household Members.

Access Persons are agents of PineBridge. In managing assets for the Firm's Clients, Access Persons have a fiduciary responsibility to treat the Firm's Clients fairly. This duty requires a course of conduct, consistent with other statutory obligations, that seeks to be prudent and in the Client's best interest.

This Code of Ethics (the "Code") is intended to address three fundamental principles that must guide the personal investment activities of Access Persons in light of his or her fiduciary duties:

1.Place the interests of the Firm's Clients first. As fiduciaries, Access Persons must avoid serving personal interests ahead of the interests of the Firm's Clients.

2.Avoid taking inappropriate advantage of one's position as an Access Person.

3.Conduct personal investing activities in such a way as to avoid even the appearance of a conflict of interest with investment activities undertaken for the Firm's Clients.

This Code, along with other PineBridge policies and procedures, is designed to be consistent with the ethical and professional principals of conduct as identified in the CFA Institute's Asset Manager Code of Professional Conduct for which the Firm has claimed compliance.

This Code has been adopted pursuant to applicable regulations, which require that every registered investment company and registered investment adviser adopt a code of ethics regarding personal investment activities of persons having access to information about portfolio transactions of the Firm's Clients. In addition, investment advisers must keep certain records regarding personal investment activities of Access Persons and make them available for regulatory inspection.

B. Compliance with this Code

Compliance with this Code and the applicable securities laws is a condition of employment or contract for services. A violation of this Code may be cause for disciplinary action by PineBridge, including termination of employment or service contract. Other disciplinary actions may include warnings and periods of "probation" during which all personal investment activities (except for specifically approved liquidation of current positions) are prohibited.

Meeting our responsibilities enables our business to succeed and grow, today and in the future. Each of us is expected to:

1.Understand and act according to this Code and the Firm's policies, applicable laws and regulations.

2.Seek guidance from management, compliance personnel or the Firm's legal counsel when you have questions.

3.Promptly report concerns about possible violations of this Code or applicable laws and regulations to management.

4.Participate in training to keep up-to-date on current standards and expectations. All Access Persons, with the exception of Non-Executive Directors, will receive an electronic mail requiring completion of Code of Ethics training.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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PineBridge Code of Ethics

No reason, including the desire to meet business goals, can ever be an excuse for violating laws or regulations.

Manager/Supervisor Responsibility: It is the responsibility of the employee with direct supervision of a

Contingent Worker to: (1) determine whether the Contingent Worker has direct or indirect access to sensitive information; and (2) to notify the Compliance Department and Human Resources upon the hire and termination of a Contingent Worker.

Each Manager is expected to fulfill the following additional responsibilities:

1.Serve as a role model for the highest ethical standards and create and sustain a culture of trust, honesty, integrity and respect.

2.Be a resource for Access Persons. Ensure that they are aware of, understand, and know how to apply this Code and the Firm's policies, applicable laws and regulations in their daily work.

3.Seek assistance from other Managers or the Firm's legal counsel, compliance officers or human resource professionals when unsure of the best response to any given situation.

4.Be proactive. Take reasonable actions to prevent and identify misconduct. Report situations that might impact the ability of Access Persons to act ethically on behalf of PineBridge.

Any transactions that appear to indicate a pattern of abuse of an Access Person's fiduciary duties to the Firm's Clients will be subject to scrutiny regardless of technical compliance with the Code.

This Code shall be superseded by local regulatory practices as applicable. Each regional compliance officer shall communicate such exceptions to all Access Persons in their respective region.

Access Persons are required to report any violations of this Code to the Chief Compliance Officer (or his or her designee). Most concerns can be resolved by talking to and working with management, Human Resources and/or Compliance. If further review and inquiry are required, the Chief Compliance Officer and/or other applicable parties will promptly investigate any reported items. Access Persons will not face retaliation if he/she reports violations of this Code. Retaliation itself constitutes a violation of this Code.

In addition, Access Persons may ask questions, raise concerns or report instances of non-compliance with this Code, PineBridge policies or applicable laws and regulations by contacting their regional compliance officer.

Note: To the extent that Access Persons are away from work on extended leave and will be accessing the Firm's email or computer systems, the Access Person is required to comply with the requirements outlined in the Code. Special arrangements regarding submission of pre-clearance requests should be cleared with the Compliance Department prior to the commencement of leave.

1.Certificate of Compliance

Access Persons will receive a copy of this Code and any amendments as they are made. New hires are required to certify that they have received a copy of the Code and that they understand its contents. All Access Persons are required to certify their receipt and understanding of amendments to the Code. In

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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PineBridge Code of Ethics

addition, all Access Persons other than Non-Executive Directors, must make annual certifications within 30 days of the calendar year-end using StarCompliance.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

Page 8

PineBridge Code of Ethics

2. Code Violations

For the purpose of this policy, violations may include, but are not limited to, the failure to: (a) pre-clear a trade, (b) file a certification within established timeframes, (c) disclose a brokerage account, (d) complete any required training in the specified time period and (e) report a gift, entertainment, political contribution, or outside business activity in accordance with the Code. Violators of the Code may be reported to senior management and the Board of PineBridge Investments, L.P. and/or its subsidiaries. The Global Chief Compliance Officer and regional compliance officers have the ability to consider the application of the Code on a case-by-case basis including the ability to grant waivers, exceptions, or warnings as deemed appropriate, on the assumption that there is sufficient reason and any instances are appropriately documented.

∙First Violation – Following assessment of all relevant facts, the Compliance Department may issue a violation memo to the Access Person, with a copy sent to his or her direct supervisor and/or the senior manager of his or her business group. If deemed sufficiently serious, Human Resources may be consulted.

∙Second Violation – The Access Person shall receive a disciplinary memo from the Compliance Department, with a copy sent to his or her direct supervisor, the senior manager of his or her business group, and the Global Chief Compliance Officer. Using their discretion, Compliance may choose to include the Regional Head of Human Resources and the Regional Chief Executive Officer ("CEO"). The Access Person will be required to meet with the Firm's Global Chief Compliance Officer to discuss the importance of complying with this policy and may be required to complete additional training. An offending Access Person may be excluded from the bonus pool for a second violation at the discretion of PineBridge senior management.

∙Third Violation – In addition to the disciplinary actions applicable to second violations, the Access Person shall be subject to disciplinary and/or monetary sanctions including but not limited to the following: suspension of trading privileges, disgorgement of trading profits and/or termination of employment or service contract. The sanction shall be at the discretion of the senior manager of the Access Person's business group, the Global Chief Compliance Officer and the Firm's CEO.

Please note that any violation of the Insider Trading Policy included in this Code may lead to immediate termination.

Compliance will retire a Code of Ethics violation from an Access Person's record following two (2) years of activity without incurring any new violations.

Certain countries may have procedures for handling violations that differ from those discussed above. In those countries, PineBridge will follow the local procedures, which may be more stringent than those included in this Code.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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PineBridge Code of Ethics

II.Fiduciary Duties

A. Fraudulent Practices

If an Access Person purchases or sells, directly or indirectly, a Security or commodity, which is held or is to be acquired by a Client, the Access Person may not:

(1)employ any device, scheme or artifice to defraud a Client;

(2)make any untrue statement of a material fact or omit to state to a Client a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading;

(3)engage in any act, practice or course of business which would operate as a fraud or deceit upon a Client; or

(4)engage in any manipulative practice with respect to such Client.

B. Conflicts of Interest

Your position at PineBridge cannot be used for inappropriate personal gain or advantage to you or a member of your family. Any situation that creates, or even appears to create, a conflict of interest between personal interests and the interests of PineBridge and/or a Client must be avoided. Potential conflicts of interest should be reported to management, who will work with the compliance officer assigned to your business to determine how best to handle the situation.

Corporate Opportunities

Access Persons are prohibited from taking for themselves or directing to a third party a business opportunity that is discovered through the use of PineBridge corporate property, information or position, unless PineBridge has already been offered and declined the opportunity. Access Persons are prohibited from using corporate property, information or position for personal gain to the exclusion of PineBridge and from competing with PineBridge.

Personal Relationships

Immediate family members, members of your household and individuals with whom you have a close personal relationship should never improperly influence business decisions.

C. Dispensing Information

Access Persons must obtain prior written approval from the Compliance Department before dispensing any reports, recommendations or other information concerning securities holdings or securities transactions for Clients to anyone, other than the Clients themselves. No approval is needed if such persons have a business need for this information as a part of their normal duties and activities. Access Persons may disclose this information if:

(1)there is a public report containing the same information;

(2)the information is dispensed in accordance with compliance procedures established to prevent conflicts of interest between PineBridge and a Client; or

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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(3)the information is reported to directors or trustees of a Client or to an administrator or other fiduciary of a Client and if these persons receive the information in the course of carrying out their fiduciary duties.

Note: The above does not apply to certain information that is required to be dispensed by registered investment companies.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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III. Code of Conduct

This section of the Code discusses general standards of conduct that must be followed. Any Access Person who has knowledge of, or in good faith suspects, a violation of any of these laws, regulations or policies must report them promptly to the compliance officer assigned to your business.

A. Access Person Privacy

PineBridge respects the personal information and property of Access Persons. Access to personal information or Access Persons property is only authorized for appropriate personnel with a legitimate reason to access such information or property. Nonetheless, from time to time, PineBridge may access and monitor Access Person internet usage and communications. Subject to local laws, Access Persons shall have no expectation of privacy with regard to workplace communication or use of PineBridge information technology resources.

B. Customer Privacy and Data Security

PineBridge Clients expect us to carefully handle and safeguard the business and personal information they share with us. Access Persons must never compromise a PineBridge Client's trust by disclosing private information other than to those with a legitimate business need to know.

The classification of information as personal information or business data may differ by country. Access Persons who handle customer information are responsible for knowing and complying with applicable information privacy and information security laws. In all cases Access Persons must maintain appropriate physical, administrative and technical safeguards for personal information and business data.

Access Persons must be especially vigilant in following laws, regulations and policies when transferring personal information and business data across country borders. Access persons should raise any questions about information privacy and/or data security they have to their manager, Legal, or Compliance.

C. Relations with Business Partners

The Firm's business partners1 serve as extensions of PineBridge. When working on behalf of PineBridge, business partners are expected to adhere to the spirit of the Code, and to any applicable contractual provisions. Access Persons must ensure that business partners do not exploit their relationship with PineBridge or use the Firm's name in connection with any fraudulent, unethical or dishonest transaction.

D. Fair Dealing

PineBridge seeks competitive advantages only through legal and ethical business practices. Access Persons must conduct business in a fair manner with customers, service providers, suppliers and competitors. Access Persons must not disparage competitors or their products and services. Improperly taking advantage of anyone through manipulation, concealment, abuse of privileged information, intentional misrepresentation of facts or any other unfair practice is not tolerated. (Please also refer to the Firm's Global Anti-Corruption Policy for additional information.)

1Parties such as agents and consultants, who represent PineBridge to the public.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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E. Antitrust and Fair Competition

PineBridge competes vigorously and fairly around the world. PineBridge seeks to maintain and grow its business through superior products and services, not through improper or anti-competitive practices. PineBridge strives to understand and comply with global competition and anti-trust laws. These laws are complex. Access Persons who are unsure of appropriate practices should consult with the compliance officer assigned to their business for additional information and clarification.

The following guidelines will help ensure fair business conduct and appropriate competition.

Do:

∙Obtain information about the Firm's competitors only from lawful and appropriate sources.

∙Comment on competitors or their products or services based only on factual information.

Do not:

∙Agree formally or informally with a competitor to fix prices or other terms of sale, rig bids, set production or sales levels, or allocate customers, markets, or territories.

∙Discuss any of the following with a competitor: prices, bids, customer sales, commissions, terms of sale, profits, margins, costs, production, inventories, supplies, marketing plans or other competitively sensitive information.

∙Attend meetings with competitors at which competitively sensitive information, including the subjects mentioned in the above two bullets, is discussed.

∙Agree with others outside of PineBridge as to which suppliers or customers to do business with.

∙Make unsubstantiated or untruthful comparisons to competitors or their products or services.

F. Safeguarding PineBridge Resources

To best serve our customers and shareholders, it is vital that Access Persons demonstrate proper care and use of our resources.

1. Physical Property

The Firm's property, including real estate, equipment and supplies, must be protected from misuse, damage, theft or other improper handling.

Generally, the Firm's property is meant solely for the Firm's business, though incidental personal use, such as local telephone calls, appropriately limited personal use of email, minor photocopying or computer use is permitted.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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2. Intellectual Property

The Firm's intellectual property consists of any business ideas or information that PineBridge owns, such as unique products and methodologies. PineBridge protects its intellectual property through

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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patents, trademarks and copyrights. Access Persons are required to safeguard the confidential information and trade secrets belonging to PineBridge and its business partners.

3. Funds

The Firm's funds are to be used responsibly and solely for the Firm's business. Corporate credit cards issued to employees for payment of business expenses may not be used for personal expenses. Access Persons have a responsibility to safeguard PineBridge funds from misuse or theft and ensure that PineBridge receives good value when spending the Firm's funds. You should only seek reimbursement for actual, reasonable and authorized business expenses.

4. Information Technology Systems

The Firm's information technology systems include computers, networking resources, email systems, telephone, voice systems and other computer-processed information. Each of us has a responsibility to protect these systems and the data resident on these systems, from improper access, damage or theft.

Subject to applicable local laws, PineBridge may have the right to review all electronic mail and other electronic information to determine compliance with this Code, laws, regulations or the Firm's policy. All electronic information, including without limitation emails, instant messages, and voicemails sent or received from the Firm's computer, Blackberry or other handheld electronic device, or work station may be subject to review.

The electronic mail system is the Firm's property and is intended for business purposes. Occasional, incidental, appropriate personal use of the email system may be permitted if the use does not interfere with any employee's work performance, have undue impact on the operation of the email system, or violate any other PineBridge policy, guideline, or standard.

Email messages and any other communications sent or received using the Firm's information technology systems are not to be used to create, store, or transmit information that is hostile, malicious, unlawful, sexually explicit, discriminatory, harassing, profane, abusive or derogatory. These systems also are not to be used to intentionally access web sites, which contain illegal, sexually explicit or discriminatory content.

G. Money Laundering Prevention

PineBridge is committed to meeting its responsibilities to help prevent money laundering and terrorist financing. These responsibilities generally include identifying clients, monitoring client activity and reporting suspicious or unusual activity consistent with applicable laws. Access Persons are required to abide by anti-money laundering programs established by PineBridge and its business units. Suspicious activity reporting requirements are time sensitive. Access Persons should contact their manager or the compliance officer responsible for money laundering prevention as soon as they have a concern that an activity may be unusual or suspicious. (Please also refer to the Firm's anti-money laundering policies for additional information.)

H. Economic Sanctions

In compliance with U.S. and other applicable economic sanctions programs, Access Persons are prohibited from conducting business with or benefiting designated governments, individuals and entities (such as suspected

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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terrorists and narcotics traffickers), as well as individuals and entities that are located in, have certain dealings with or are nationals or agents of particular countries. To determine if a government, individual or entity is subject to these prohibitions, consult with a member of the Compliance Department. (Please also refer to the Firm's Global Economic Sanctions Policy for additional information.)

I. Communicating with Regulators and Other Government Officials

Inquiries from regulators, outside the normal course of the Firm's regulatory relationships, must be reported immediately to the regional compliance officer before a response is made. Financial reporting related inquiries may be responded to by authorized members of the Finance Department. Responses to regulators must contain complete, factual and accurate information. During a regulatory inspection or examination, documents must never be concealed, destroyed or altered, nor should lies or misleading statements be made to regulators. Requests from auditors are subject to the same standards.

J. Government Business

Doing business with governments may present different risks than business in the commercial marketplace. Laws relating to contracts with international, federal, state and local agencies generally are more stringent and complex. Certain conduct and practices that might be acceptable in the commercial setting are prohibited in the public sector. You should therefore consult with management, or the compliance officer assigned to your business before you make any decision about doing business with government entities.

K. Former Government Officials

PineBridge is committed to compliance with all laws and regulations applicable to any Access Person who has previously worked in government. Many jurisdictions have laws and regulations in place that are designed to prohibit former government officials from taking improper advantage of his or her previous position. Any Access Person who has served as a government official, in any capacity, must be aware of and comply with all laws and regulations applicable to former government officials.

L. Anti-corruption and Bribery

PineBridge is committed to compliance with all applicable laws and regulations designed to prevent violations of the Foreign Corrupt Practices Act ("FCPA") and other U.S. and international anti-bribery laws.

Access Persons must never use improper means to influence another's business judgment. No PineBridge employee, agent, or independent contractor may provide bribes or other improper benefits, financial or otherwise, to another person in order to obtain or retain business, bring about the improper performance of a relevant function or activity, or an unfair advantage in any business interaction that involves PineBridge, our customers, or employees. Applicable laws, regulations and government agencies define improper benefits very broadly and continue to expand the definition (e.g. the hiring of children of foreign government officials). Payments or promises to pay something of value to obtain or retain business or otherwise secure an improper advantage must never be made to a government official or employee, or other public officials who hold legislative, administrative or judicial positions. Government officials may include senior management of enterprises that are controlled or owned in whole or in part by a government.

Anti-corruption laws also prohibit the creation of inaccurate or false books and records and they require companies to develop and maintain adequate controls regarding corporate assets and accounting. All PineBridge employees

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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and officers are required to comply with all applicable PineBridge policies and procedures. (Please also refer to the Firm's Global Anti-Corruption Policy for additional information.)

M. Whistleblower Protection Policy

PineBridge must adhere to all applicable laws and regulations. The support of all Access Persons is needed to assist PineBridge in achieving compliance with applicable laws and regulations. If any Access Person reasonably believes that a policy, practice, or activity of PineBridge, or of another individual or entity with which PineBridge has a business relationship is in violation of an applicable law or regulation, a report must be filed by that Access Person with the Compliance Department. PineBridge will seek to protect the identity of the individuals making the report and Access Persons may remain anonymous. Access Persons may submit such reports via the PineBridge Speak Up Program, which offers both phone and web reporting methods. The PineBridge Speak Up Program is available on the PineBridge Intranet homepage here (Source > Employee > PineBridge Speak Up Program).

PineBridge will not retaliate against an Access Person who, in good faith and with reasonable belief, has made a report with the Compliance Department or lawfully provided information to or assisted the Securities Exchange Commission ("SEC") or any other relevant regulator concerning some practice of PineBridge, or of another individual or entity with whom PineBridge has a business relationship, on the basis of a reasonable belief that the practice is in violation of an applicable law or regulatory requirement. Although internal reporting is encouraged, no one may take any action to impede an individual from communicating with the SEC or other regulatory body about a possible securities law violation. In addition, certain individuals reporting such practices (subject to restrictions and requirements) may be eligible for a reward. For further information, please contact the Compliance Department.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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IV. Insider Trading

Insider trading refers to the buying and selling of a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, non-public information about the security.

Insider trading laws generally prohibit:

(1)Trading by an insider, while in possession of material, non-public information;

(2)Trading by a non-insider, while in possession of material, non-public information, where the information was disclosed to the non-insider in violation of an insider's duty to keep it confidential; or

(3)Communicating material, non-public information to others in breach of a fiduciary duty.

A. Material Information

Material information generally is information that an investor would consider important in making his or her investment decision or information that is reasonably certain to have a substantial effect on the price of a company's securities. Material information does not have to relate directly to a company's business.

Information is considered material if it relates to matters such as:

(1)dividend or earnings expectations;

(2)write-downs or write-offs of assets;

(3)proposals or agreements involving a joint venture, merger, acquisition, divestiture or leveraged buy- out;

(4)criminal indictments, civil litigation or government investigations;

(5)substantial changes in accounting methods;

(6)major litigation developments;

(7)bankruptcy or insolvency; or

(8)public offerings or private sales of debt or equity securities.

Note: The above list of examples is non-exhaustive. Please contact the Legal or Compliance Department with any questions regarding the materiality of information.

Information provided by a company can be material because of its expected effect on a particular class of the company's securities, all of the company's securities, the securities of another company or the securities of several companies. This policy applies to all types of securities, as well as any option related to that security.

B. Non-public Information

PineBridge Code of Ethics

Non-public information is information that has not generally been made available to investors. Information received in circumstances indicating that it is not yet in general circulation or where the recipient knows or should know that the information could only have been provided by an insider is also considered non-public information.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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For non-public information to become public, it must be disseminated through recognized channels of distribution designed to reach the securities marketplace. Once the information has been distributed, it is no longer considered non-public. Disclosure in a national business and financial wire service (e.g., Dow Jones, Bloomberg or Reuters), a national news service (AP), a national newspaper (e.g., The Wall Street Journal or The New York Times), or a publicly disseminated disclosure document (a proxy statement or prospectus) constitutes public information.

Note: Generally, information is considered non-public until 24 hours after public disclosure.

1. Information Provided in Confidence

Occasionally, one or more Access Persons may become temporary insiders because of a fiduciary (a person or entity to whom property is entrusted for the benefit of another) or commercial relationship.

As an insider, PineBridge has a fiduciary responsibility not to breach the trust of the party that has communicated the material, non-public information by misusing that information. The fiduciary duty arises because PineBridge has entered or has been invited to enter into a commercial relationship with the client or prospective client and has been given access to confidential information solely for the corporate purposes of that client. The obligation remains regardless of whether PineBridge ultimately participates in the transaction.

2. Information Disclosed in Breach of Duty

Even where there is no expectation of confidentiality, a person may become an insider upon receiving material, non-public information in circumstances where (i) a person knows, or should know, that a corporate insider or tipper is disclosing information in breach of the fiduciary duty he/she owes the corporation and its shareholders and (ii) the corporate insider or tipper is receiving a personal benefit, directly or indirectly, from the disclosure of the information. A prohibited personal benefit could include a present or future monetary gain, a benefit to one's reputation, an expectation of quid pro quo from the recipient or the recipient's employer by a gift of the inside information. The definition of a prohibited personal benefit continues to be litigated in the courts and the regulators seek to expand the definition.

A person may, depending on the circumstances, also become an insider when he/she obtains material, non-public information by happenstance. This includes information derived from social institutions, business gatherings, overheard conversations, misplaced documents and tips from insiders or other third parties.

C. Guidance on Insider Trading

Any Access Person who is uncertain as to whether the information he/she possesses is material, non-public information should take the following steps immediately:

(1)Report the matter to the Compliance Department;

(2)Refrain from purchasing or selling the securities on behalf of oneself or others, including Clients managed by the Access Person; and

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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(3)Refrain from communicating the information inside or outside of PineBridge, other than to the Compliance Department.

The Compliance Department will instruct the Access Person on how to proceed.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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D. Penalties for Insider Trading

The penalties for insider trading are severe, both for individuals involved in such unlawful conduct and their employers. A person can be subject to civil and/or criminal penalties even if he/she does not benefit personally from the violation.

E.Procedures to Implement the Policy against Insider Trading

1.Trading Restrictions and Reporting Requirements

a)No Access Person who possesses material, non-public information relating to PineBridge or any of its affiliates or subsidiaries, may buy or sell any securities of PineBridge or engage in any other action to take advantage of, or pass on to others, such information.

b)No Access Person who obtains material, non-public information which relates to any other company or entity in circumstances in which such person is deemed to be an insider or is otherwise subject to restrictions under the securities laws, may buy or sell securities of that company or otherwise take advantage of, or pass on to others, such information.

c)Access Persons shall submit reports concerning each Securities transaction and should verify their personal ownership of such Securities.

d)Access Persons should not discuss any potentially material, non-public information concerning PineBridge or other companies except as specifically required in the performance of their duties.

2.Information Barrier Policy

Information barriers are designed to restrict the flow of inside information and to prevent Access Persons on the public side (e.g., trading desks) from gaining access to material, non-public information, which came from the private side.

Please refer to the PineBridge Compliance Manual for a more detailed description of the Information Barrier Policy.

a. Cross-Barrier Procedures

A "cross-barrier communication" is a communication between an Access Person on the public side and Access Person on the private side. The communication can be in the form of a conversation, an email, a memo, a research report or any other communication of an Access Person's opinion about the value of a security.

Access Persons are permitted to have cross-barrier communications regarding (a) investments generally, which communications do not relate to any specific issuer (e.g. industry related investment communications) and (b) communications which are issuer specific, but which involve only public information (Legal or Compliance should be consulted prior to these conversations to

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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determine if such communication should be monitored by the Legal or Compliance Department).

Access Persons on the private side of the information barrier are prohibited from communicating non-public information (including impressions or information derived from non-public information) regarding an issuer of public securities to any Access Person on the public side of the information

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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barrier unless the communication is notified in advance and monitored by the Compliance Department and the public side has agreed to receive the information prior to the information being communicated.

The Access Person who was brought across the barrier must maintain the confidentiality of the information received at all times and may use it only for the business purposes for which it was disclosed.

b. The Watch List

The Watch List is a highly confidential list of companies about which PineBridge may have received or may expect to receive material, non-public information. The contents of the Watch List and any related restrictions imposed by the Compliance Department are extremely confidential therefore access to the Watch List is very limited.

i.Placement of Securities On/Off the Watch List

A company normally will be placed on the Watch List when PineBridge has received or expects to receive material, non-public information concerning that company. This usually occurs when PineBridge is involved in an assignment or transaction that has not been publicly announced or when PineBridge otherwise determines that there is a need to monitor the trading activity in such company.

A company will be removed from the Watch List at the request of the person who initiated placement on the list, usually when the company's involvement in the transaction relating to the company has ended. Companies also may be removed from the Watch List when they are moved to the Restricted List.

ii.Implementation and Monitoring

The person who initially places a company on the Watch List is responsible for notifying the Compliance Department when it should be removed. The Compliance Department maintains the Watch List. In addition, the Compliance Department monitors trading activity in any company on the Watch List.

c. The Restricted List

The Restricted List is a confidential list of companies that are subject to restrictions in trading. Restrictions apply to trading for Advisory Clients, proprietary accounts, and trading for Access Person and related accounts.2 Companies on the Restricted List are to be kept confidential and are not to be disclosed to anyone outside of PineBridge.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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2Certain issuers on the Restricted List that have been added by the Leveraged Finance team may not restrict the trading of leveraged loans for the issuer in question. The issuers for whom this is true will be designated as such on the Restricted List.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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i.Placement of Securities On/Off the Restricted List

The placement of a company on the Restricted List generally restricts all trading in the securities of that company. Since a company may be placed on the Restricted List for a number of reasons, no inferences should be drawn concerning a company or its securities due to its inclusion on such list.

A company will be removed from the Restricted List at the request of the person who initiated placement on the list, usually when the company's involvement in the transaction relating to the company has ended.

For public companies in which an Access Person (other than a Non-Executive Director) sits on the Board of Directors or acts in a similar capacity, the relevant issuer will be placed on the Restricted List upon notification to Compliance. Access Persons (other than Non-Executive Directors) are required to report their "outside business activities" or "related board level activities" in StarCompliance (see "Outside Business Activities" within this Code).

ii.Implementation and Monitoring

The Compliance Department is responsible for placing or removing a Security from the Restricted List and has the ultimate responsibility for maintaining the Restricted List.

3. Confidentiality

In carrying out business activities, Access Persons often learn confidential or proprietary information about PineBridge, its customers, suppliers and/or third parties. Access Persons must maintain the confidentiality of all information entrusted to them, except where disclosure is authorized or legally required.

F. Anti-Fraud and Anti-Manipulation

In connection with the purchase or sale of any Securities, Access Persons shall not, directly or indirectly, (i) employ any device, scheme or artifice to defraud, (ii) make any untrue statement of a material fact or omit to state a material fact, (iii) engage in any act, practice or course of business which would operate as a fraud or deceit, (iv) engage in any manipulative practice, or (v) trade ahead of or in conflict with an investment recommendation.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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V. Personal Securities Transactions

The key purpose of this policy is to ensure that conflicts of interest between Access Persons and Clients arising from the personal securities transactions of Access Persons are limited. The main driver for the potential conflict of interest is the differential of information available to employees and Clients.

A. Trading in General

Access Persons may not knowingly engage in the purchase or sale of a Security or Related Security (other than an Exempt Security, as explained below) of which they have Beneficial Ownership (other than an Exempt Transaction, as explained in Appendix A) and which, within seven (7) calendar days before and after the transaction (also known as the "Blackout Period"):

(1)is being considered for purchase or sale by a Client, or

(2)is being purchased or sold by a Client.

The Blackout Period restriction applies on an issuer-level basis, such that an employee is prohibited from placing an equity trade where the Firm is placing a fixed-income trade in the same issuer3. In certain circumstances, the Compliance Department may provide an exception to an Access Person that permits the Access Person to trade within seven (7) calendar days of a Client transaction. If an Access Person has been unable to receive approval for a pre-clearance request for 30 calendar days due to Advisory Client transactions, the Access Person may contact the Compliance Department and the Compliance Department will undertake an analysis (which may include factors such as prior exceptions granted, the Access Person's group and its relation to the Security in question, and the Firm's current and prior trading of the Security), and may attempt to designate a day on which the Access Person may transact. Such an exception may only be given when closing a position (either in part or in full) and will typically be in instances where PineBridge has not transacted on the prior business day.

S&P 500 Exemption to the Blackout Period:

The Blackout Period does not apply to Securities4 in the S&P 500 Index where the quantity of Securities requested for pre-clearance is 500 shares or fewer for the period described above as the Blackout Period.

1. Exempt Securities

Exempt Securities are Securities that do not have to be pre-cleared or reported to the Compliance Department and are not subject to the short-term trading limitation requirement of this Code.

3When the ultimate parent company for an issuer is a government entity, trading in one state-owned entity does not prohibit trading in all other state-owned entities controlled by that government.

4Per the definition of Securities in the "Definitions" section of this Code, options contracts are considered Securities. In order to request pre-clearance approval in StarCompliance for options transactions, the quantity entered should be the number of shares for which the desired quantity of options contracts represents (in the event the options are exercised). For example, a pre-clearance request for 5 contracts must be entered into the "Quantity" field of the StarCompliance pre-clearance form as a quantity of 500 (not 5). Exercising options does not require pre-clearance.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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The following are Exempt Securities:

i.Securities that are direct obligations of the U.S. and foreign governments (e.g., U.S. Treasury and agency obligations);

ii.Bankers' acceptances, bank certificates of deposit, commercial paper, money market funds and certain high quality debt instruments (e.g., structured notes / deposits including currency linked notes, interest rate linked notes and index-linked notes), including repurchase agreements. ADRs do not fall into this category;

Note: High quality debt instruments are interpreted to mean any instrument that is rated in one of the two highest rating categories by a Nationally Recognized Statistical Rating Organization.

iii.Shares of unaffiliated registered open-end investment companies (e.g. open-end non- affiliated mutual funds), annuities, or other commingled vehicles.

Note 1: Exchange Traded Funds ("ETFs") and closed-end funds do not require pre-clearance in StarCompliance, but accounts holding these instruments are not exempt from reporting under the Code and must be disclosed in StarCompliance.

Note 2: Accounts that only have the ability to invest in Exempt Securities (such as unaffiliated mutual funds, certain 529 Plans investing in only Exempt Securities, as well as 401(k) plans investing in only Exempt Securities, such as the PineBridge 401(k) plan) are not required to be reported in StarCompliance.

iv.Any transactions and/or holdings in Securities in a blind trust over which an Access Person has no direct or indirect influence, control or knowledge. An Access Person must notify the Compliance Department of the establishment of such blind trust as part of their initial certifications on StarCompliance or of any opening of such blind trust thereafter. Documentation must be provided to the Compliance Department as evidence that the Access Person has no direct or indirect influence, control or knowledge of the transactions.

v.Investment linked insurance policies.

vi.Compulsory savings plans for the retirement of residents (e.g. mandatory provident fund/occupational retirement schemes in Hong Kong, central provident fund in Singapore, or equivalent in other jurisdictions).

Note 1: In addition to the above, there are certain transactions designated by the Compliance Department as Exempt ("Exempt Transactions"), which are not required to be pre-cleared, but are required to be reported to Compliance. These transactions are discussed in Appendix A.

2. Circumstances Requiring Pre-clearance

All Access Persons must obtain pre-clearance via StarCompliance and/or from the Compliance Department prior to purchasing or selling a Security that is neither an Exempt Security nor can be bought or sold in an Exempt Transaction.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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a.Pre-clearance Approval: Once received, pre-clearance approval is valid for the same day and the next trading day through the market close in which the security is being traded (the "Approval Period"). For example, if a Hong Kong based employee receives trading approval for a security traded on the Hong Kong exchange on Friday, that approval is valid for Friday and Monday, up until the Hong Kong market close on Monday. If an approval is received after trading hours, the approval remains valid only for the next trading day. For example, if a Hong Kong based employee receives trading approval for a security traded on the Hong Kong exchange after the Hong Kong market close on a Friday, the approval is still only valid for Friday and through Monday's market close.

When determining the length of the approval period for securities traded on a foreign market, employees must look to the local market time in which the security is being traded and then apply the pre-approval rules. For the avoidance of doubt, an approval received by an Access Person in Asia relating to any transactions in US Securities is dependent on the US market in which the security is being traded. For example, if a Hong Kong employee receives trading approval for a security traded on a US exchange on Monday 10:00am (CHST), then the approval expires on Monday 4:30pm (EST), which is Tuesday 4:30am (CHST). Looking to the US Market, the trade was approved on Sunday at 10:00pm (EST) (the day the approval is granted) and is valid through Monday's market close local time.

To avoid confusion, the trade request approval generated from the system will contain a "Local Expiry Date/Time", indicating the end of the Approval Period. An order that is not executed within the Approval Period must be re-submitted for pre-clearance approval. Approval for a private placement purchase or initial public offerings ("IPOs") is valid until the closing of the private placement transaction or IPO period.

Access Persons wishing to enter a limit order for a Security that is neither an Exempt Security nor can be bought or sold in an Exempt Transaction are only permitted to enter limit orders that are good for the day they are entered ("Day Order"). Access Persons may not enter limit orders with durations exceeding a day (e.g., good-til-cancelled, stop loss) for transactions other than Exempt Securities or Securities that can be bought or sold in an Exempt Transaction.

b.Procedures for Approval: Access Persons must request pre-clearance electronically, using StarCompliance. Pre-clearance approval is granted if the purchase or sale complies with this Code and the foregoing restrictions.

Non-Executive Directors are not subject to the pre-clearance requirement referred to above unless at the time of the transaction, knew or, in the ordinary course of fulfilling the Non-Executive Director's official duties as a director of PineBridge, should have known that: (a) PineBridge engaged in a transaction in the same security within the last seven (7) calendar days or is engaging or going to engage in a transaction in the same security within the next seven (7) calendar days; or (b) PineBridge has within the last seven (7) calendar days considered a transaction in the same security or is considering a transaction in the same security within the next seven (7) calendar days. In addition, the following requirements of this Policy, Sections V.A.3,

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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PineBridge Code of Ethics

4, 5 and 7 do not apply to Non-Executive Directors.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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PineBridge Code of Ethics

3. Initial Public Offerings5

The purchase of equity Securities in IPOs by Access Persons can create an appearance that such personnel have taken inappropriate advantage of their positions for personal benefit. Accordingly, Access Persons who are Investment Personnel are prohibited from purchasing an IPO. All other Access Persons must obtain pre-clearance from the Compliance Department prior to participating in an IPO.

4. Private Placements

Access Persons must obtain prior approval through StarCompliance from the Compliance Department before acquiring Beneficial Ownership of any Securities offered in a Private Placement (other than a Private Placement sponsored by PineBridge). Access persons may be requested to supply to Compliance copies of any private placement memorandum, subscription documents, offer sheets, term sheets or other written documentation pertaining to the deal. Approval will be given only if it is determined that the investment opportunity should not be reserved for Advisory Clients and that the opportunity to invest has not been offered to the Access Person by virtue of his or her position.

Access Persons must disclose investments in a Private Placement if an investment in the issuer of the Private Placement is being considered for a Client and the Access Person is involved in the decision making process. A decision to make such an investment must be independently reviewed by the Access Person's manager or a Managing Director who does not have Beneficial Ownership of any Securities of the issuer.

The Private Placement must be reported in StarCompliance and confirmation of the purchase must be provided to the Compliance Department once complete. Investments by Access Persons in Private Placements sponsored by PineBridge are required to be reported in StarCompliance.

5. Short-Term Trading

Access Persons are prohibited from:

∙Realizing profits from selling a Security fewer than 30 calendar days after the purchase of the position (i.e. trade date + 30 days).

∙Realizing profits from closing a short position within 30 calendar days of opening the position (i.e. trade date + 30 days).

∙Realizing a profit on a put or call option (whether through expiration or through automatic execution) fewer than 30 calendar days after the purchase or sale of the underlying position (i.e. trade date + 30 days).

∙To clarify with an example, if a trade is executed on January 1st, it cannot be sold at a profit until February 1st. If that position is sold on January 31th or earlier, it will be considered a violation.

5Exemptions to the Firm's policy on IPOs may be granted provided that PineBridge follows local regulatory requirements and the Compliance Department provides prior approval.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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PineBridge Code of Ethics

A last-in, first-out ("LIFO") methodology will be applied to a series of Securities purchases for determining compliance with this holding rule. (Note: gains are calculated differently under this rule than they would be for tax purposes.)

There are a few exceptions to this prohibition: (1) Exempt Securities; (2) ETFs that track an index;

(3)futures and options on ETFs; (4) redemption of funds with a cooling off period; (5) non-volitional margin calls (employees receiving margin calls that result in hardship should contact their local Compliance Department); (6) hardship exemptions, which may be approved by the Compliance Department in extreme circumstances; and (7) any other special exemption approved by Compliance prior to the profit being realized. Hardship exemptions and special exemptions must be approved in advance of trading. Please contact the Compliance Department with any questions.

The Compliance Department will monitor short-term trading and address any abuses of short-term trading profits on a case-by-case basis. If an abuse is discovered, Access Persons may be required to disgorge any profits realized on personal trades executed within 30 days. Day trading by Access Persons is strictly prohibited.

Personal trading in unusually high frequency is discouraged. The Compliance Department may contact any Access Person and/or his or her supervisor deemed to be trading with excessive frequency. This principal applies to Exempt Securities as well.

6. Market Timing

Market Timing is the short-term trading in and out of predominantly US registered investment companies, generally those that are focused on non-US investments using information that is publicly known, but not yet reflected in the share price. Furthermore, more sophisticated market timers have taken advantage of disparities between the last quoted price of a Fund's underlying portfolio securities and potentially inaccurate fair valuation of those securities. Market timing by Access Persons is strictly prohibited whether or not the market timing relates to products advised or sub-advised by PineBridge.

7. Gifting of Securities / Inheritance

The gifting of Securities or receiving of securities from an inheritance is permitted without pre- clearance. Nonetheless, these Securities must be disclosed in StarCompliance and reported.

8. Cryptocurrency

Cryptocurrency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. Also referred to as digital currencies, alternative currencies and virtual currencies, cryptocurrencies generally utilize blockchain technologies, which is a distributed ledger system. There are more than 1500 cryptocurrencies and popular examples include Bitcoin, Ethereum, Ripple, Litecoin, and NEO. PineBridge does not currently trade in cryptocurrencies for its Clients. Because there is no potential conflict with Client trading, Access Persons are permitted to trade in cryptocurrency without preapproval to Compliance and without disclosing their trading accounts subject to the compliance of local laws and regulations. However, trading in cryptocurrencies is highly speculative and includes a high risk of loss. Additionally, the regulatory landscape concerning cryptocurrencies is still in its infancy and some nations and financial regulators may limit or restrict trading and actions that are perceived as criminal in nature (including money laundering). Any Access Person choosing to trade in

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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PineBridge Code of Ethics

cryptocurrencies should proceed with caution, especially to meet fit and proper criteria which includes financial soundness. Also they should ensure they are complying with any local laws and regulations adhering to all other sections of the Code, including high frequency or day-trading.

Note 1: Although Cryptocurrencies do not generally trade on regulated exchanges, Access Persons still need to obtain pre-approval prior to trading derivative products (e.g. futures) where the underlying instrument is a cryptocurrency. For example, the Chicago Mercantile Exchange ("CME") currently offers trading on Bitcoin futures. If an Access Person wanted to trade in the Bitcoin future on the CME, they would need to obtain pre-approval and comply with the Code.

B.Reporting

1.Disclosure of Holdings and Accounts

Access Persons must disclose via the "Initial Holdings Report" or through direct registration in StarCompliance to the Compliance Department, whether they have a direct or indirect Beneficial Ownership and/or control of any Securities or affiliated fund accounts within 10 calendar days of commencement of employment (such information must be current as of a date no more than 45 days prior to employment).

If an Access Person subsequently opens a new account of which he/she has Beneficial Ownership and/or control (whether or not this account holds reportable Securities), the Access Person must notify the Compliance Department via StarCompliance within 10 calendar days following the opening of such account. Securities held in certificate form that are not held in street name must also be reported to the Compliance Department via StarCompliance. Accounts that only have the ability to invest in Exempt Securities (such as unaffiliated mutual funds, 529 Plans investing in only Exempt Securities, and 401(k) Plans investing in only Exempt Securities) as defined in the Exempt Securities section above are not required to be reported. All reports submitted to the Compliance Department will be treated as confidential. Accounts at qualifying Robo-Advisers are not required to be disclosed in StarCompliance if the Robo-Advisers investment options are pre-selected by the Robo-Adviser and the Access Person is not able to pick individual stocks and/or funds to invest in. Examples of qualifying Robo-Advisers include, but are not limited to, Betterment, Wealthfront, Acorns, MarketRiders, Creditease's Toumi RA, and Algebra. If there is a question regarding whether a Robo-Adviser qualifies under the Code, please consult Compliance.

Any Access Person who fails to report his or her holdings or the opening of a new brokerage account in accordance with this Code shall be deemed to be in violation of this Code.

Note 1: An account with no holdings, and where the Access Person has no intent to use the account going forward, must still be reported to the Compliance Department and is still subject to this Code. By reporting the account to Compliance, any subsequent activity in such accounts will be reported.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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PineBridge Code of Ethics

Annual Holdings Report

Access Persons must provide and certify on an annual basis, a report of their accounts and beneficial holdings within 30 days after the calendar year end. The information must be current as of a date no more than 45 days prior to the submission of the report.

2. Transactions for Access Persons

Access Persons must arrange for the Compliance Department to be provided, on a timely basis, duplicate copies of confirmations for all transactions in an account that is Beneficially Owned and/or controlled by such Access Person. Duplicate copies of periodic statements for the account also must be provided. In order for the Access Person to arrange the delivery of duplicate confirmations and statements, the Access Person must notify the Compliance Department of the broker-dealer(s) from which the Compliance Department will request these documents. If possible, Access Persons should arrange for the Compliance Department to receive electronic statements directly from the broker- dealer.

Note 1: Electronic Broker Feeds

Access Persons employed by PineBridge entities in the Americas, and Household Members of those Access Persons, should maintain personal securities accounts in which they have a beneficial interest at brokerage firms that provide transaction data electronically to PineBridge. If an Americas Access Person maintains an account(s) prior to joining PineBridge with brokerage firms that do not provide data electronically to PineBridge, he/she may be asked to move the account(s) to a brokerage firm that does within 60 days of employment. The Approved Brokers list is available on StarCompliance and SOURCE. Access Persons outside of the Americas should also endeavor to provide transaction data through electronic delivery where possible. If an Access Person outside of the Americas maintains an account at a broker where electronic feeds are available, the Access Person must enable the electronic feed to be delivered to StarCompliance. For certain brokers, this may require additional action by the Access Person. This requirement applies to all accounts, even if an account has no holdings or trading activity. Where electronic brokerage feeds are not available, Access Persons must coordinate the Compliance Department's receipt of all transaction and statement information.

Note 2: Non-Discretionary / Managed Accounts, in which an Access Person does NOT have trading discretion and the account is managed by a third party and who executes trades and manages an account on behalf of the Access Person, are required to be reported. Transactions in such accounts do not require pre-clearance and are not subject to the Blackout Period or Short-Term Trading rules, however reporting is still required. Therefore, for such discretionary / managed accounts, Access Persons must ensure they provide duplicate confirmations and statements to the Compliance Department, or for Access Persons located in the Americas, brokerage firms that provide transaction data electronically to PineBridge must be used (per Note 1 above). Accounts at Robo-Advisers are not subject to reporting, subject to the compliance of local laws and regulations.

Quarterly Transactions Certification – For Access Persons Located Outside of the Americas

Access Persons who are located outside of the Americas are required, within 30 days after the calendar quarter, to complete a report of all transactions in Securities of which the Access Person had Beneficial Ownership and/or control (except for those Securities classified as Exempt Securities).

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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PineBridge Code of Ethics

Access Persons who are located outside of the Americas must complete the report even if no reportable transactions occurred during the quarter.

Exceptions to Reporting Requirements

A Non-Executive Director is not subject to the reporting requirements of B.1 or B.2 above; however, a quarterly report under B.2 is required if the Non-Executive Director, at the time of the transaction, knew or, in the ordinary course of fulfilling the Non-Executive Director's official duties as a director of PineBridge, should have known that: (a) PineBridge engaged in a transaction in the same security within the last seven (7) calendar days or is engaging or going to engage in a transaction in the same security within the next seven (7) calendar days; or (b) PineBridge has within the last seven (7) calendar days considered a transaction in the same security or is considering a transaction in the same security within the next seven (7) calendar days.

C. Exceptions

Compliance may grant exceptions to the above rules at their discretion. Any such exceptions will be approved by the Chief Compliance Officer and communicated to the relevant employee.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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PineBridge Code of Ethics

Transactions & Securities Matrix

Type / Description

Pre-clearance

Reporting

Additional Information

 

Required?

Required

 

 

 

 

 

 

 

 

 

Transaction in Non-

        

        

 

 

Exempt Security

 

 

 

 

 

 

(e.g. common stock)

 

 

 

 

 

 

 

 

 

Transaction in an Exempt

X

X

 

 

Security

 

 

(e.g. mutual fund)

 

 

 

 

 

 

 

 

 

Exempt Transaction

X

        

 

 

(e.g. ETF)

 

 

 

 

 

 

 

Transactions in

X

        

 

 

PineBridge Sponsored

 

 

Funds

 

 

 

 

 

 

 

 

 

Transactions in IPOs

        

        

Investment Personnel are

 

 

prohibited from purchasing an IPO.

 

 

 

 

 

 

 

 

 

 

Private Placements

        

        

 

 

 

Pre-clearance: Submit request

 

 

 

 

 

 

 

 

through StarCompliance Module

 

 

 

 

Reporting: Signed

 

 

 

 

subscription/deal documents must

 

 

 

 

be provided through the

 

 

 

 

StarCompliance system or via

 

 

 

 

email to

 

 

 

 

StarCompliance@pinebridge.com.

 

 

 

 

 

 

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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PineBridge Code of Ethics

Brokerage Accounts Matrix

 

 

E-feed

Paper Broker

 

 

Reporting

Statements sent

 

Type / Description

Connection

to Local

Additional Information

Required

 

Available?

Compliance

 

 

 

 

 

 

 

Department?

 

 

 

 

 

 

Active Brokerage

        

        

X

Active Brokerage Account at

Account for

Non-E-Feed Broker that Cannot

 

 

 

Access Person

 

 

 

be Transferred: Certain

located in the

 

 

 

accounts may not be able to

 

 

 

switch brokers (e.g. a

Americas

 

 

 

 

 

 

compensation plan); if this is the

 

 

 

 

case, reporting is required by way

 

 

 

 

of arranging for copies (paper or

 

 

 

 

pdf) of broker statements to be

 

 

 

 

sent to StarCompliance with the

 

 

 

 

coordination of local Compliance

 

 

 

 

Department, which may utilize the

 

 

 

 

MetaSource manual data entry

 

 

 

 

service.

Active Brokerage

        

        

        

Possible e-feed connection: If

Account for

 

 

 

the Non-U.S. Employee has an

Access Person

 

 

 

account at an e-feed broker, the

located outside the

 

 

 

Employee must authorize the e-

Americas

 

 

 

feed connection. If not, duplicate

 

 

 

 

copies (paper or pdf) of

 

 

 

 

statements must be sent to your

 

 

 

 

local Compliance department.

 

 

 

 

 

Active Brokerage

X

X

X

Requirements: An account

Accounts that only

holding only Exempt Securities,

invest in Exempt

 

 

 

and where the Access Person

Securities

 

 

 

has no ability to invest in non-

(e.g. several 529

 

 

 

Exempt securities, does not have

plans, several 401K

 

 

 

to be reported. Accounts at Robo-

plans, qualifying

 

 

 

Advisers are not subject to

Robo-Advisers)

 

 

 

reporting, subject to the

 

 

 

 

compliance of local laws and

 

 

 

 

regulations.

Inactive Brokerage

        

        

        

Requirements: An account with

Account

 

no holdings, and where the

 

 

 

 

 

 

 

Access Person has no intent to

 

 

 

 

use the account going forward,

 

 

 

 

must still to be reported.

 

 

 

 

 

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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PineBridge Code of Ethics

VI. Outside Business Activities

"Outside business activities" include service as an employee, consultant, board member, partner, officer, director, owner or trustee of an organization that is not an affiliate of PineBridge.

Given the nature of the Firm's business, the Firm's duties to its clients and equity owners, and the role of investment and financial advisory professionals generally, Access Persons who engage in outside business activities may face numerous and significant potential conflicts of interest. Prior to pursuing any such outside business activities, Access Persons (other than Non-Executive Directors) must:

∙receive written approval from the Access Person's supervising Managing Director or department head if the outside business activity includes service on a board or similar body;

∙promptly complete a declaration under the Outside Activity section found on StarCompliance, which will be reviewed and approved or disapproved (as appropriate) by the Compliance Department and the Access Person's supervisor;

∙if the outside business activity includes service on a board of directors or similar body, obtain the Acknowledgment and Waiver Letter described below if required; and

∙receive written approval from your Supervising Managing Director for a presentation, talk, or service on a panel in which you are offered an honorarium.

Hiring managers must obtain information regarding Outside Business Activities from potential new hires prior to extending an offer to proactively identify any potential conflicts of interest. An initial disclosure of outside business activities must be made to the Compliance Department at the commencement of employment.

Service on the board of directors or as a director (or other similar roles) of a company in which PineBridge or one of its managed portfolios or funds has invested, and which is part of the employee's job responsibilities, is considered as an outside business activity under this Policy. Such activity is not required to be pre-cleared, but must be reported to the Compliance Department via StarCompliance within 30 days of being appointed to the position.

Note: If the Board position is for a public company (i.e., the company is listed on an exchange), Compliance must be notified prior to such appointment. Public companies that have an Access Person as a Board member will be added to the Restricted List until the Access Person no longer serves in a capacity in which MNPI could be obtained.

General Guidelines

When engaged in an approved outside business activity, Access Persons must:

∙when a potential conflict of interest may arise, always make decisions in the best interest of PineBridge and our customers – not to advance personal interest;

∙remain aware of how personal activities can lead to potential conflicts, such as taking a second job with or making an investment in a PineBridge customer, vendor or competitor;

∙discuss with your manager any situation that could be perceived as a potential conflict of interest; and

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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PineBridge Code of Ethics

∙proactively address situations that may put your interests or those of a family member or friend in potential conflict with PineBridge.

Service on Outside Boards

The Compliance Department will determine procedures to prevent the misuse of material, non-public information, which may be acquired through service on the board of a company, as well as other procedures or investment restrictions, which may be required to prevent actual or potential conflicts of interest.

In certain circumstances, the corporation or other entity in which the board governs must provide the Access Person with written assurances (an "Acknowledgment and Waiver Letter") regarding potential conflicts that may arise from time to time. The Acknowledgement and Waiver Letter should include an acknowledgement by the company that potential conflicts may exist, that the Access Person will resolve those conflicts in favor of PineBridge, and that the Firm has waived any such conflicts. The Compliance Department may determine, based on the nature of the activity of serving on the Board, the position the Access Person holds on the board, the job function of the Access Person at PineBridge, among other things, whether the Acknowledgement and Waiver Letter is required. Depending on the facts and circumstances, the Compliance Department will notify the Access Person if the Acknowledgement and Waiver Letter is required. A form of Acknowledgement and Waiver Letter is attached to this Code of Ethics as Appendix B.

In addition to complying with the policies and procedures set forth in this Code, Access Persons must be vigilant in identifying and managing the potential conflicts of interest that may arise by virtue of their service on a board. Depending on the circumstances, these conflicts may require the Access Person to recuse him- or herself from deliberations of the board. In some cases, it may be necessary to resign from the board entirely. Access Persons should seek guidance from the Legal or Compliance Department as to how these potential conflicts may be best addressed.

Insolvent companies

Access Persons should also be aware that corporations that are insolvent or operating in the so-called "zone of insolvency" may present particular legal challenges for officials and directors, including expansion of fiduciary duties to include the corporation's creditors, as well as its shareholders. The case law relating to duties of directors of insolvent corporations is unsettled, and may vary considerably from jurisdiction to jurisdiction. Access Persons serving on a board that becomes insolvent or enters the vicinity of insolvency should seek legal guidance promptly from the board's legal counsel.

Service as a Public Official6

Before serving as a public official or running for elected office, an Access Person must obtain prior written approval from the Firm's General Counsel or his or her designee. It is important that personal political activities or interests do not conflict with responsibilities at PineBridge or imply the support of PineBridge.

6"Public Official" includes other related positions in a government capacity that may cause or appear to cause a conflict of interest with PineBridge.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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PineBridge Code of Ethics

Specifically:

∙The Firm's name should never be used by employees running for a political office, other than to identify PineBridge as their employer;

∙holding or campaigning for political office by a PineBridge employee must not create, or appear to create, a conflict of interest with the Firm's duties;

∙PineBridge funds or other PineBridge assets are never to be used for political purposes, including political advocacy ("lobbying") without first consulting the Legal or Compliance Department;

∙only authorized representatives can make corporate contributions to political candidates for public office on behalf of PineBridge; and

∙because laws and regulations governing corporate political activities and contributions are complex, the Legal or Compliance Department must be consulted regarding contributions to ensure such contributions and activities are permitted and consistent with the Firm's business strategy for the region.

To avoid even the appearance of any conflict with the Firm's interests, employees who participate in community support efforts outside of PineBridge sponsored programs should never imply the Firm's endorsement of the effort.

Exceptions

The term "outside business activities" generally is not intended to include service to any organization that is (i) a personal holding company or (ii) an entity identified in Section 501(c)(3) of the US Internal Revenue Code (provided that it is an unpaid position). A "personal holding company" is an entity that:

∙is wholly-owned by the Access Person and/or members of the Access Person's immediate family;

∙is used solely for the Access Person's personal investments;

∙is not actively managed;

∙does not have any dealings with PineBridge or its Clients; and

∙does not compete with PineBridge.

The approvals required for outside business activities are not required for activities relating to those exempted organizations. However, these activities must be reported in StarCompliance.

Activities such as ownership or directorship of a company whose sole purpose is to hold a property that generates passive rental income, membership on the board of a residence and other similar activities will not be considered outside business activities and are exempt from the approval and reporting requirements. If you have any questions on activities not specifically mentioned, please contact the Compliance Department.

In addition, Consultants or Contingent Workers deemed Access Persons are not required to disclose their primary employer as an Outside Business Activity. For example, if PineBridge hires a Consultant from ABC Consulting Firm and the Consultant is determined to be an Access Person, the Consultant is not required to disclose ABC Consulting Firm as an Outside Business Activity.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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PineBridge Code of Ethics

VII. Gifts & Entertainment

This section should be read in conjunction with the "Gifts and Entertainment Matrix" on page 36.

Modest Gifts and appropriate Entertainment can help strengthen business relationships, but these business courtesies, whether given or received by PineBridge employees, must never improperly influence business decisions or bring about the improper performance of a Relevant Function or Activity7. Accordingly, it is best practice to monitor the offer and receipt of Gifts and/or Entertainment. In all matters related to Gifts or Entertainment, it is the responsibility of the Access Person to exercise good judgment.

The below requirements related to Gifts and Entertainment apply in most regions; however local thresholds and reporting procedures may exist in certain jurisdictions. Additionally, certain clients or counterparties (e.g. government entities and/or plans) may have stricter rules and prohibitions regarding giving or receiving gifts and entertainment. Please consult your regional policies and procedures or discuss with your regional compliance officer. Please note that amounts are stated in US dollars.

1.General Guidelines:

Offering and/or accepting Gifts and Entertainment is appropriate provided there is a business purpose, the expense incurred is ordinary and necessary, and the Gift or Entertainment falls within this Code and all relevant laws and regulations. Special care must be taken when providing Gifts and Entertainment to officials or employees of governments or government owned or controlled enterprises or other officials who hold legislative, administrative or judicial positions. When providing Gifts or Entertainment to government officials or employees of government owned or controlled enterprises, you are required to abide by local law and the Firm's anti-corruption policies. Access Persons should:

(1)never allow business Gifts and Entertainment, whether given or received, to improperly influence business decisions or bring about the improper performance of a relevant function or activity;

(2)remember if the donor is not present8, then the Entertainment is subject to Gift policies;

(3)respect local and cultural sensitivities when exchanging business Gifts and Entertainment;

(4)never provide or accept extravagant Gifts or lavish Entertainment;

(5)never offer or receive anything that could be considered a bribe or other improper payment or Gift;

(6)never solicit Gifts, favors or Entertainment;

(7)ensure that Gifts and Entertainment are reasonable, ordinary, in good taste, customary and lawful in the country or region where they are exchanged; and

7Relevant Function or Activity: Any function either of a public nature, connected with a business, performed in the course of a person's employment or performed on behalf of a company or another body of persons.

8In the case of PineBridge offering hotel lodging to prospective or existing clients, this is permitted for only the night(s) related to the event (no extra nights) and should be reported as "Entertainment Given" in StarCompliance. Hotel lodging requires Managing Director approval. See "Entertainment Given" on the next page for details.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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PineBridge Code of Ethics

(8)never offer or accept cash or cash equivalent (i.e., gift cards) in any amount.

Access persons are expected to consult with the Compliance Department if they have any questions regarding Gifts or Entertainment.

2.Giving Gifts:

Access Persons (other than Non-Executive Directors) giving Gifts to prospective or existing clients or counterparties must submit a Gifts and Entertainment Disclosure on StarCompliance for all Gifts within 30 business days of giving the Gift.9 Access Persons may not provide Gifts to a prospective or existing client exceeding $100 in aggregate in any calendar year. Any exception to the $100 limit must be approved in writing by the Access Person's supervising Managing Director in advance of giving the Gift. Access Persons are generally prohibited from providing Gifts valued at more than $150, however, exceptions may be granted in certain instances provided that prior approval is received from the regional head of compliance and line of business supervisor.

3.Receiving Gifts:

All Gifts received10 by Access Persons (other than Non-Executive Directors) exceeding the De Minimis Amount must be reported via the Gifts and Entertainment Disclosure on StarCompliance within 30 business days of the date of receipt of such Gift. In addition, Gifts valued at more than $100 must be approved by the Access Person's supervisor within five (5) business days. While PineBridge has adopted a prohibition on Gifts valued at more than $150, certain Gifts in excess of $150 received by Access Persons may be accepted, provided that they be shared among the department receiving the Gift. The manager of the department receiving the gift is responsible for seeing that the gift is reported via StarCompliance. Where such a Gift cannot be reasonably shared amongst employees (as in the case of an item of clothing), the Gift may be accepted and subsequently donated to charity. This includes, among other things, gratuities and Gifts received by Access Persons for speaking engagements.

If you are offered a Gift that does not meet the above criteria, politely decline the Gift. If declining a Gift would be offensive or hurt a business relationship, accept the Gift on behalf of PineBridge and submit a written Gift report to your supervisor, and work with your supervisor and the Compliance Department to determine the appropriate disposition of the Gift.

4.Entertainment Given:

Entertainment given that costs less than $150 does not have to be reported. Any entertainment given by an Access Person (other than a Non-Executive Director) that costs in excess of $150 (per person, per event) must be approved by a supervisor and reported through StarCompliance within 30 business days of providing such Entertainment. If there are multiple Access Persons giving the Entertainment, then only one

9Reporting requirements do not apply to gifts of minimal value (e.g., pens, notepads or modest desk ornaments) or to promotional items valued at less than $20 that display the PineBridge logo (e.g. umbrellas, tote bags or shirts).

10Employees that are Registered Representatives of PineBridge Securities LLC may not offer or receive gifts in excess of $100 and must report all gifts given or received, regardless of the amount.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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Access Person needs to report the Entertainment in StarCompliance so long as all Access Persons are named within the report.

5.Entertainment Received:

Access Persons (other than Non-Executive Directors) must obtain prior written approval from a supervisor before accepting entertainment in excess of $150 (per person, per event), and must report through the StarCompliance system all Entertainment received exceeding the De Minimis Amount within 30 business days of the receipt of such Entertainment.

Entertainment includes but is not limited to: meals, cocktails, outings (e.g. golf, theater tickets, concerts, sporting events) and holiday parties when the third party provider is in attendance.

In the event that Entertainment is not pre-planned, or occurs at the time of client or other meetings, reporting into StarCompliance and disclosure to your manager should occur as soon as possible and should only be accepted if you reasonably believe your accepting the Entertainment will not create the appearance that the Entertainment is intended to influence or reward the receipt of business, or otherwise affect an employee's decision-making.

Entertainment received from a Contact11 equal to or less than $150 may be accepted without approval as long as it is not frequent in nature, (more than once a month per Contact). All entertainment received exceeding the De Minimis Amount must be reported in the StarCompliance system.

In addition to this policy, Access Persons must also comply with travel and entertainment policies developed by PineBridge.

11"Contact" is defined as an individual or group of individuals representing a single firm.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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Gifts and Entertainment Matrix

 

 

STARCOMPLIANCE

Supervisor Approval

 

 

Reporting Required

Required

 

 

 

 

Gifts Given

Less than or equal to $100 per person per year

Yes

No

 

 

 

 

 

 

Greater than $100 per person per year12

Yes

Yes

 

 

 

 

 

Greater than $150 per person per year

Not permitted13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gifts Received

 

No more than $50 in cumulative from the person during

 

No

 

No

 

 

 

the calendar year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than or equal to $100, but more than $50 from an

 

Yes

 

No

 

 

 

 

individual in any given calendar year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Greater than $100, but less than $150 per person per

 

Yes

 

Yes

 

 

 

 

year11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Greater than $150 per person per year

 

Not permitted13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Entertainment Given

 

Less than or equal to $150 (per person, per event)

 

No

 

No

 

 

 

 

 

 

 

 

 

 

 

 

Greater than $150 (per person, per event)

 

Yes

 

Yes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Entertainment

 

No more than $50 in cumulative from the person during

 

No

 

No

 

Received

 

the calendar month

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Greater than $50 in cumulative per person per month and

 

Yes

 

No

 

 

 

less than or equal to $150 per person, per event

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Greater than $150 (per person, per event)

 

Yes

 

Yes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12Employees that are Registered Representatives of PineBridge Securities LLC may not offer or receive gifts in excess of $100 and must report all gifts given or received, regardless of the amount.

13Access Persons are generally prohibited from providing Gifts valued at more than $150, however, exceptions may be granted in certain instances provided that prior approval is received from the regional head of compliance and line of business supervisor.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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PineBridge Code of Ethics

VIII. Political & Charitable Contributions

A. Political Contributions

PineBridge is committed to complying with all applicable regulations related to political contributions. Certain of these regulations may disqualify PineBridge from seeking business from a potential client on the basis of a contribution made by an employee. Employees are required to abide by policies and procedures covering political contributions established by PineBridge and regional compliance departments. Contact your manager or your local compliance officer if you have any questions on the policies that are applicable to you. For the purposes of this policy, a "Covered Associate" is defined as an employee of PineBridge Investments LLC or PineBridge Galaxy LLC (both US SEC registered investment advisers).

In order to avoid current or potential future conflicts of interest, Covered Associates, together with their spouse and dependent Household Members14, must obtain prior approval from Compliance through the

StarCompliance system before making any political contributions to any state or local US government

official or candidate. Covered Associates, together with their spouse and dependent Household Members, are prohibited from making political contributions to any state or local US government official, entity or political party (including incumbents, candidates or successful candidates for elected office, including any election committees) that in aggregate are in excess of the following limits:

A.Up to $150 per candidate, per election to candidates for whom the Covered Associate is not entitled to vote;

B.Up to $350 per candidate, per election to candidates for whom the Covered Associate is entitled to vote15; and

C.Up to $350 per Political Party, Political Action Committee ("PAC") or similar organization established in support of a Political Party or particular candidate per election, as long as the contribution to the Political Party, PAC or similar organization is not used to indirectly exceed the limits in A. and B. above.

Please note that these limits apply to all states and political subdivisions of states (e.g. cities, counties, municipalities, etc.), including pools of assets sponsored or established by a state or local government (e.g. pension plans for government employees).

However, these limits and the requirement to obtain prior approval from Compliance do not apply to candidates for Federal office (US Senate, House of Representatives, or presidency) who do not currently hold any state or local government office. In addition, although this Policy is limited to also include dependent Household Members, it should be very clear that no Covered Associate may indirectly seek to circumnavigate the intent of this rule through other individuals or means, such as through privately owned corporations.

Covered Associates are prohibited from compensating (or coordinating or soliciting) any third party (such as a placement agent or PAC) to solicit advisory business from a US government official, entity or political party (as

14Dependent Household Members for purposes of this policy include individuals who are either family members or with whom you share a residence whom you also claim as a dependent for tax purposes.

15A person is "entitled to vote" for an official if the person's primary residence is in the locality in which the official seeks election.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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PineBridge Code of Ethics

described in further detail above), unless the third party is registered as either a US broker-dealer or investment adviser and has certain similar restrictions in place. Americas Compliance must be consulted prior to: (1) hiring/using any such service; and (2) any change in the third party's activities, where the third party may solicit business in the US.

The policy also includes providing "in-kind" non-cash contributions to a political campaign. For example, the use of the Covered Associates' or Firm's time or resources to benefit any state or local US government official, entity or political party would be subject to the above limits.

Note for all Covered Associates: The SEC's adopting release (Release No. IA-3043) to the rule regarding "Political Contributions by Certain Investment Advisers" provides further guidance such that PineBridge Investments LLC and Covered Associates must never "funnel payments through third parties, including, for example, consultants, attorneys, family members, friends or companies affiliated with the adviser as a means to circumvent the rule."

Non-compliance with this section may result in disciplinary action, up to, and including termination of employment. Covered Associates may be required to certify their compliance with the above requirements on a periodic basis.

Any request for exceptions must be made to Americas Compliance prior to any contribution being made.

B. Charitable Contributions to Government Related or Government Sponsored Charities

PineBridge may, from time to time, provide sponsorship and/or assistance to bona fide charities, educational establishments, community groups and other organizations, whether in the form of funds, assets, services, or other types of support (collectively "Charitable Contributions").

All contributions must be for a bona fide charitable purpose, and must not conflict with the terms of the Code of Ethics, or any other PineBridge policy. Access Persons (other than Non-Executive Directors) must receive pre- approval for a Charitable Contribution through the StarCompliance system under "Outside Activity" for:

A.Any Charitable Contribution, either personally or on behalf of PineBridge, requested by a government official (or by a government official through the use of a third party).

B.Any Charitable Contribution on behalf of PineBridge to a non-US entity (whether located in the US or abroad).

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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PineBridge Code of Ethics

Appendix A: Exempt Transactions

Introduction

The Firm's Code provides that no Access Person may knowingly engage in the purchase or sale of a Security (other than an Exempt Security) or Related Security of which he/she has Beneficial Ownership and/or control (other than an Exempt Transaction), and which, within seven (7) calendar days before and after the transaction:

1.is being considered for purchase or sale by a Client, or

2.is being purchased or sold by a Client.

The Code provides further that classes of transactions may be designated as Exempt Transactions by the Compliance Department.

Designation of Exempt Transactions

In accordance with the Code, the Compliance Department has designated the following classes of transactions as Exempt Transactions, based upon a determination that the transactions do not involve any realistic possibility of a violation of applicable regulations. Unless otherwise noted, the following transactions do not require pre- clearance, but are subject to the reporting requirements of the Code (i.e., reported in StarCompliance via an electronic broker feed or by way of the Compliance Department receiving paper or pdf confirms and statements from the broker). Exempt Transactions are subject to the 30 day short-term trading limitation, unless otherwise noted:

1.Transactions in affiliated Funds

2.Purchases or sales of Securities that are not eligible for purchase or sale by Advisory Clients, for example, shares in closely held or family held companies. (Note: Not subject to the 30 day short term trading limitation.)

3.Purchases of Securities under automatic or dividend reinvestment plans. (Note: Not subject to the 30 day short term trading limitation.)

4.Purchases of Securities by exercise of rights issued to the holders of a class of Securities pro-rata, to the extent they are issued with respect to Securities of which an Access Person has Beneficial Ownership. (Note: Not subject to the 30 day short term trading limitation.)

5.Purchases of Securities by exercise of rights granted to employees under employee stock ownership plan.

6.Acquisitions or dispositions of Securities as a result of a stock dividend, stock split, reverse stock split, merger, consolidation, spin-off or other similar corporate distribution or reorganization applicable to all holders of a class of Securities of which an Access Person has Beneficial Ownership. (Note: Not subject to the 30 day short term trading limitation.)

7.Acquisitions of Securities by the exercise of rights which are granted to borrowers/policyholders of financial institutions which apply for a public listing of their shares and offer "Free" shares to existing borrowers/policyholders.

8.Transactions in ETFs and Exchange Traded Notes. (Note: The 30 day short-term trading limitation does NOT apply to ETFs.)

9.Transactions in closed-end funds.

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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PineBridge Code of Ethics

10.Foreign Currency transactions. (Note: The 30 day short-term limitation does not apply. There is no requirement to report or pre-clear any normal foreign exchange transactions (e.g. converting Euros for US Dollars) or report holdings in foreign currency.)

11.Futures, options trading and spread betting on broad based indices, such as the S&P 500. (Note: The 30 day short-term limitation does not apply. All other spread betting must be pre-cleared.)

12.Acquisition of securities due to involvement in an approved Outside Business Activity (as defined in this Code).

13.The gifting of Securities or receiving securities from an inheritance (as mentioned in Section V on page 25 of this Code).

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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PineBridge Code of Ethics

Appendix B: Acknowledgement & Waiver Letter

BY FIRST CLASS MAIL

[Date]

[Address]

Acknowledgement and Waiver

Dear [Board Member]:

This letter will confirm the understanding between [

] (the "Company") and you regarding certain

matters relating to your service on the Board of Directors of the Company (the "Board").

The Company has been informed by you that you are employed by a member company of PineBridge Investments, which provides investment advisory, financial and other related services to a range of clients. In that regard, you may owe certain fiduciary and other duties to such clients and to PineBridge Investments (collectively, the "PineBridge Parties"). From time to time, these duties may conflict with your duties to the Company, its shareholders or the Board (the "Company Parties") that may arise as a member of the Board.

To the extent permitted under applicable law, the Company hereby waives any conflicts arising from your duties to the PineBridge Parties. Without in any way limiting the foregoing, the Company acknowledges and agrees that (i) you will resolve any such conflict in all respects in favor of the relevant PineBridge Parties; (ii) such conflicts from time to time may cause you to recuse yourself from deliberations of the Board or any of its committees, or to withdraw from the Board; and (iii) you will be under no obligation or duty to the Company Parties (or any of them) with respect to business opportunities that you become aware of other than in connection with your service on the Board, including, without limitation, any such opportunities that you become aware of in connection with your employment by PineBridge Investments.

The Company acknowledges that you are serving on the Board strictly in your individual capacity and not as an agent or designee of any PineBridge Party.

To the extent practicable, the Company and the Board will undertake to inform you of any conflicts that exist or that may arise from time to time between the Company Parties, on one hand, and the PineBridge Parties, on the other hand.

Nothing in this letter is intended, nor shall it be deemed, in any way to limit any indemnity, release, exculpation or similar rights and protections to which you are entitled under applicable law, the Company's organizational documents or any other agreement or instrument.

Very truly yours,

[Name of the Company]

By: [Authorized Officer of the Company – Name / Title]

By: [Chairman of the Board of Directors – Name / Title]

Important note: Please always refer to the PineBridge Investments intranet site for the most up-to-date version of this Code of Ethics.

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