PRINCIPAL VARIABLE CONTRACTS FUND, INC.
AMENDED AND RESTATED SUB-ADVISORY AGREEMENT
MELLON EQUITY ASSOCIATES, LLC SUB-ADVISED SERIES
AGREEMENT executed as of the 8th day of August, 2005, by and between PRINCIPAL
MANAGEMENT CORPORATION, an Iowa Corporation (hereinafter called "the Manager")
and MELLON EQUITY ASSOCIATES, LLP, a Pennsylvania Corporation (hereinafter
called "the Sub-Advisor").
W I T N E S S E T H:
WHEREAS, the Manager is the manager and investment adviser to each Series of
Principal Variable Contracts Fund, 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 with respect to assets allocated by the Manager for
management by the Sub-Advisor for a portion of the portfolio for the Fund's
SmallCap Value Series and for the Fund's MidCap Growth Series (hereinafter
called the "Series"), and the Sub-Advisor desires to furnish such services; and
WHEREAS, The Manager has furnished the Sub-Advisor with copies properly
certified or authenticated of each of the following and will promptly provide
the Sub-Advisor with copies properly certified or authenticated of any amendment
or supplement thereto:
(a) Management Agreement (the "Management Agreement") with the Fund;
(b) The Fund's registration statement and financial statements as filed
with the Securities and Exchange Commission;
(c) The Fund's Articles of Incorporation and By-laws;
(d) Policies, procedures or instructions adopted or approved by the Board
of Directors of the Fund relating to obligations and services provided
by the Sub-Advisor.
NOW, THEREFORE, in consideration of the premises and the terms and conditions
hereinafter set forth, the parties agree as follows:
1. Appointment of Sub-Advisor
In accordance with and subject to the Management Agreement, the Manager
hereby appoints the Sub-Advisor to perform the services described in
Section 2 below for investment and reinvestment of the securities and
other assets of the Series, subject to the control and direction of 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
(a) Provide investment advisory services, including but not limited to
research, advice and supervision for the 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 economic conditions require, a recommended investment program
for the Series consistent with the Series' investment objective
and policies.
(c) Implement the approved investment program by opening accounts and
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 Certificate 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 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) Report to the Board of Directors of the Fund at such times and in
such detail as the Board of Directors may reasonably deem
appropriate in order to enable it to determine that the investment
policies, procedures and approved investment program of the Series
are being observed.
(f) 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.
(g) 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 the Series.
(h) Select brokers and dealers to effect all transactions for the
Series, place all necessary orders with brokers, dealers, or
issuers, and negotiate brokerage commissions if applicable. To the
extent consistent with applicable law, purchase or sell orders for
the Series may be aggregated with contemporaneous purchase or sell
orders of other clients of the Sub-Advisor. The Sub-Advisor shall
use its best efforts to obtain execution of transactions for the
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 Series and/or other accounts serviced
by 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 services or
products, 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 the Series or to accounts
over which they exercise investment discretion. Not all such
services or products need be used by the Sub-Advisor in managing
the Series.
(i) Maintain all accounts, books and records with respect to the
Series as are required of an investment advisor of a registered
investment company pursuant to the 1940 Act and Investment
Advisers Act of 1940 (the "Investment Advisors Act") and the rules
thereunder.
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 Series, the Manager
shall pay the compensation specified in Appendix A to this Agreement.
5. Liability of Sub-Advisor
Neither the Sub-Advisor nor any of its directors, officers, employees
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 the Sub-Advisor's provision of services under 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 or affiliates.
6. Supplemental Arrangements
The Sub-Advisor may enter into arrangements with other persons
affiliated with the Sub-Advisor or with unaffiliated third parties to
better enable the Sub-Advisor to fulfill its obligations under this
Agreement for the provision of certain personnel and facilities to the
Sub- Advisor, subject to written notification to and approval of the
Manager and the Board of Directors of the Fund.
7. Regulation
The Sub-Advisor shall submit to all regulatory and administrative
bodies having jurisdiction over the services provided pursuant to this
Agreement any information, reports or other material which any such
body may reasonably request or require pursuant to applicable laws and
regulations.
8. Duration and Termination of This Agreement
This Agreement shall become effective on the latest of (i) the date of
its execution, (ii) the date of its approval by a majority of the Board
of Directors of the Fund, including approval by the vote of a majority
of the Board of Directors of the Fund who are not interested persons of
the Manager, Principal Mutual Life Insurance Company or the Fund cast
in person at a meeting called for the purpose of voting on such
approval or (iii) if required by the 1940 Act, the date of its approval
by a majority of the outstanding voting securities of the Series. It
shall continue in effect thereafter from year to year provided that the
continuance is specifically approved at least annually either by the
Board of Directors of the Fund or by a vote of a majority of the
outstanding voting securities of the Fund 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 Mutual Life Insurance
Company, the Sub-Advisor or the Fund cast in person at a meeting called
for the purpose of voting on such approval.
If the shareholders of the Series fail to approve the Agreement or any
continuance of the Agreement in accordance with the requirements of the
1940 Act, the Sub-Advisor will continue to act as Sub-Advisor with
respect to the Series pending the required approval of the Agreement or
its continuance or of any contract with the Sub-Advisor or a different
manager or sub-advisor or other definitive action; provided, that the
compensation received by the Sub-Advisor in respect to the Series
during such period is in compliance with Rule 15a-4 under the 1940 Act.
This Agreement may, on sixty days written notice, be terminated at any
time without the payment of any penalty, by the Board of Directors of
the Fund, the Sub-Advisor or the Manager or by vote of a majority of
the outstanding voting securities of the Series. This Agreement shall
automatically terminate in the event of its assignment. In interpreting
the provisions of this Section 8, the definitions contained in Section
2(a) of the 1940 Act (particularly the definitions of "interested
person," "assignment" and "voting security") shall be applied.
9. Amendment of this Agreement
No material amendment of this Agreement shall be effective until
approved, if required by the 1940 Act or the rules, regulations,
interpretations or orders issued thereunder, by vote of the holders of
a majority of the outstanding voting securities of the Series and by
vote of a majority of the Board of Directors of the Fund who are not
interested persons of the Manager, the Sub-Advisor, Principal Mutual
Life Insurance Company or the Fund cast in person at a meeting called
for the purpose of voting on such approval.
10. General Provisions
(a) Each party agrees to perform such further acts and execute such
further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Iowa. The
captions in this Agreement are included for convenience only and
in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
(b) Any notice under this Agreement shall be in writing, addressed and
delivered or mailed postage pre-paid to the other party at such
address as such other party may designate for the receipt of such
notices. Until further notice to the other party, it is agreed
that the address of the Manager for this purpose shall be The
Principal Financial Group, Xxx Xxxxxx, Xxxx 00000-0000, and the
address of the Sub-Advisor shall be 000 Xxxxx Xxxxxx, Xxxxx 0000,
Xxxxxxxxxx, XX 00000-0000.
(c) The Sub-Advisor will promptly notify the Manager in writing of the
occurrence of any of the following events:
(1) the Sub-Advisor fails to be registered as an investment
adviser under the Investment Advisers Act or under the laws of
any jurisdiction in which the Sub-Advisor is required to be
registered as an investment advisor in order to perform its
obligations under this Agreement.
(2) the Sub-Advisor is served or otherwise receives notice of any
action, suit, proceeding, inquiry or investigation, at law or
in equity, before or by any court, public board or body,
involving the affairs of the Series.
(d) The Manager shall provide (or cause the Series' custodian to
provide) timely information to the Sub-Advisor regarding such
matters as the composition of the assets of the Series, cash
requirements and cash available for investment in the Series, and
all other reasonable information as may be necessary for the
Sub-Advisor to perform its duties and responsibilities hereunder.
(e) This Agreement contains the entire understanding and agreement of
the parties.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
date first above written.
PRINCIPAL MANAGEMENT CORPORATION
/s/Xxxxxx X. Xxxxxx
By ___________________________________________
Xxxxxx X. Xxxxxx, Vice President
MELLON EQUITY ASSOCIATES, LLP
/s/Xxxxxxx X. Xxxxxx
By ___________________________________________
Xxxxxxx X. Xxxxxx, President and CEO
APPENDIX A
The Sub-Advisor shall serve as investment sub-advisor for the Fund. The
Manager will pay the Sub-Advisor, as full compensation for all services provided
under this Agreement, a fee computed at an annual rate as follows (the
"Sub-Advisor Percentage Fee"):
Partners MidCap Growth Series
Fee as a Percentage of Average
Average Daily Net Assets Daily Net Assets
First $50 million 0.40%
Assets over $50 million 0.35%
In calculating the fee for the MidCap Growth Series of the Fund on or after
July 1, 2004, assets of any unregistered separate account of Principal Life
Insurance Company and any investment company sponsored by Principal Life
Insurance Company to which the Sub-Advisor provides investment advisory services
and which have the same investment mandate as the MidCap Growth Series, will be
combined (together, the "Aggregated Assets"). The fee charged for the assets in
the MidCap Growth Series shall be determined by calculating a fee on the value
of the Aggregated Assets and multiplying the aggregate fee by a fraction, the
numerator of which is the amount of assets in the MidCap Growth Series and the
denominator of which is the amount of the Aggregated Assets.
Partners SmallCap Value Series
Fee as a Percentage of Average
Average Daily Net Assets Daily Net Assets
First $100 million 0.50%
Next $200 million 0.45%
Over $300 million 0.35%
In calculating the fee for the Partners SmallCap Value Series on or after
July 1, 2005, assets of any unregistered separate account of Principal Life
Insurance Company and any investment company sponsored by Principal Life
Insurance Company to which the Sub-Advisor provides investment advisory services
and which have the same investment mandate as the Partners SmallCap Value
Series, will be combined (together, the "Aggregated Assets"). The fee charged
for the assets in the Partners SmallCap Value Series shall be determined by
calculating a fee on the value of the Aggregated Assets and multiplying the
aggregate fee by a fraction, the numerator of which is the amount of assets in
the Partners SmallCap Value Series and the denominator of which is the amount of
the Aggregated Assets.
The Sub-Advisor Percentage Fee shall be accrued for each calendar day and
the sum of the daily fee accruals shall be paid monthly to the Sub-Advisor. The
daily fee accruals will be computed by multiplying the fraction of one over the
number of calendar days in the year by the applicable annual rate described
above and multiplying this product by the net assets of the Series as determined
in accordance with the Series' prospectus and statement of additional
information as of the close of business on the previous business day on which
the Series was open for business.
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.
