PRINCIPAL VARIABLE CONTRACTS FUND, INC.
AMENDED AND RESTATED SUB-ADVISORY AGREEMENT
SMALLCAP VALUE SERIES
AGREEMENT executed as of the 2nd day of July, 2003, by and between
PRINCIPAL MANAGEMENT CORPORATION, an Iowa Corporation (hereinafter called "the
Manager") and X.X. XXXXXX INVESTMENT MANAGEMENT INC., a Delaware 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 furnish it with
portfolio selection and related research and statistical services in connection
with the investment advisory services which the Manager has agreed to provide to
the Fund, and the Sub-Advisor desires to furnish such services; and
WHEREAS, The Manager has furnished the Sub-Advisor with copies properly
certified or authenticated of each of the following and will promptly provide
the Sub-Advisor with copies properly certified or authenticated of any amendment
or supplement thereto:
(a) Management Agreement (the "Management Agreement") with the Fund;
(b) The Fund's registration statement and financial statements as filed
with the Securities and Exchange Commission;
(c) The Fund's Articles of Incorporation and By-laws;
(d) Policies, procedures or instructions adopted or approved by the Board
of Directors of the Fund relating to obligations and services provided
by the Sub-Advisor.
NOW, THEREFORE, in consideration of the premises and the terms and conditions
hereinafter set forth, the parties agree as follows:
1. Appointment of Sub-Advisor
In accordance with and subject to the Management Agreement, the Manager
hereby appoints the Sub-Advisor to perform the services described in
Section 2 below for investment and reinvestment of the securities and
other assets of the SmallCap Value Series of the Fund (hereinafter
called "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 of the investments of 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
that describes the broad strategy for the Series consistent with
the Series' investment objective and policies.
(c) Implement the approved investment program by placing orders for
the purchase and sale of securities without prior consultation
with the Manager and without regard to the length of time the
securities have been held, the resulting rate of portfolio
turnover or any tax considerations, subject always to the
provisions of the Fund's 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 in the determination of the fair value of
certain securities when reliable market quotations are not readily
available for purposes of calculating net asset value in
accordance with procedures and methods established by the Fund's
Board of Directors.
(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 its
duties under this Agreement.
(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 Manager recognizes
that, in some cases, this procedure may limit the size of the
position that may be acquired or sold for the Series. 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 or employees
shall be liable to the Manager, the Fund or its shareholders for any
loss suffered by the Manager or the Fund resulting from any error of
judgment made in the good faith exercise of the Sub-Advisor's duties
under this Agreement except for losses resulting from willful
misfeasance, bad faith or gross negligence of, or from reckless
disregard of, the duties of the Sub-Advisor or any of its directors,
officers or employees under this Agreement.
6. Indemnification
The Manager agrees to indemnify and hold harmless the Sub-Adviser from
and against any and all claims, losses, liabilities or damages
(including reasonable attorneys' fees and other related expenses),
("Losses") howsoever arising, from or in connection with this Agreement
or the performance by the Sub-Adviser of its duties hereunder, so long
as the Sub-Advisor shall, after receipt of notice of any claim or
commencement of any action, promptly notify the Manager in writing of
the claim or commencement of such action. The Manager shall not be
liable for any settlement of any claim or action effected without its
written consent. Nothing contained herein shall require the Manager to
indemnify the Sub-Advisor for Losses resulting from the Sub-Advisor's
willful misfeasance, bad faith or gross negligence in the performance
of its duties or from its reckless disregard of its obligations and
duties under this Agreement.
7. Disclosure
Neither the Fund nor the Manager shall, without the prior written
consent of the Sub-Adviser, make representations regarding or reference
to the Sub-Adviser or any affiliates in any disclosure document,
advertisement, sales literature or other promotional materials.
8. 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.
9. 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.
10. 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 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 10, the definitions contained in Section
2(a) of the 1940 Act (particularly the definitions of "interested
person," "assignment" and "voting security") shall be applied.
11. 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.
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 The
Principal Financial Group, Xxx Xxxxxx, Xxxx 00000-0000, and the
address of the Sub-Advisor shall be 000 Xxxxx Xxxxxx, Xxxxxx
Xxxxx, Xxx Xxxx, Xxx Xxxx 00000.
(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
X.X. XXXXXX INVESTMENT MANAGEMENT INC.
/s/Xxxxx X. Xxxxxxx
By ___________________________________________
Xxxxx X. Xxxxxxx, Vice President
APPENDIX A
The Sub-Advisor shall serve as investment sub-advisor for the SmallCap
Value Series of 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"):
First $50,000,000 of Assets........................... 0.60%
Next $250,000,000 of Assets........................... 0.55%
Assets above $300,000,000............................. 0.50%
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.
