PRINCIPAL VARIABLE CONTRACTS FUND, INC.
SUB-ADVISORY AGREEMENT
MICROCAP SERIES
AGREEMENT executed as of the 1st day of March, 1998, by and between PRINCIPAL
MANAGEMENT CORPORATION, an Iowa Corporation (hereinafter called "the Manager")
and XXXXXXX XXXXX ASSET MANAGEMENT, a separate operating division of Xxxxxxx
Sachs & Co., a New York limited partnership (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 MicroCap 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 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 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 (including affiliated broker-dealers), 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. 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.
(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. 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.
4. Liability of Sub-Advisor
Neither the Sub-Advisor nor any of its managing 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 the Series or as a result of the failure by
the Manager or any of its affiliates to comply with the terms of this
Agreement and/or any insurance laws and rules, 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.
5. 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.
6. 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.
7. 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 7, the definitions contained in Section
2(a) of the 1940 Act (particularly the definitions of "interested
person," "assignment" and "voting security") shall be applied.
8. 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.
9. 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 Xxx Xxx Xxxx Xxxxx, 00xx
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, any
applicable investment restrictions imposed by state insurance
laws and regulations, reports covering the classification of
securities for purposes of Subchapter M of the Internal Revenue
Code and Treasury Regulations Section 1.817, and all other
reasonable information as may be necessary for the Sub-Advisor to
perform its duties and responsibilities hereunder.
(e) Neither the Manager, Principal Mutual Life Insurance Company, nor
the Fund will publish or distribute any information, including
but not limited to registration statements, advertising or
promotional material, regarding the provision of investment
advisory services by the Sub-Adviser pursuant to this Agreement,
or use in advertising, publicity or otherwise the name of the
Sub-Adviser or any of its affiliates, or any trade name,
trademark, trade device, service xxxx, symbol or any
abbreviation, contraction or simulation thereof of the
Sub-Adviser or its affiliates without the prior written consent
of the Sub-Adviser. Notwithstanding the foregoing, the Manager
may distribute information regarding the provision of investment
advisory services by the Sub-Adviser to the Fund's board of
Directors ("Board Materials") without the prior written consent
of the Sub- Adviser.
(f) The Manager shall perform quarterly and annual tax compliance
tests to ensure that the Series is in compliance with Subchapter
M of the Internal Revenue Code ("IRC") and Section 817(h) of the
IRC. In connection with such compliance tests, the Manager shall
prepare and provide reports to the Sub-Advisor within 10 business
days of a calendar quarter end relating to the diversification of
the Series under Subchapter M and Section 817(h). The Sub-Advisor
shall review such reports for purposes of determining compliance
with such diversification requirements. If it is determined that
the Series is not in compliance with the requirements noted
above, the Sub-Advisor, in consultation with the Manager, will
take prompt action to bring the Series back into compliance
within the time permitted under the IRC.
(g) 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
By /S/ A.S. FILEAN
A.S. Filean, Vice President
XXXXXXX XXXXX ASSET
MANAGEMENT, a separate
operating division of
Xxxxxxx Sachs & Co.
By /S/ XXXXX X XXXX
APPENDIX A
The Sub-Advisor shall serve as investment sub-advisor for the MicroCap
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.......................... 0.50%
Next $150,000,000 of Assets.......................... 0.45%
Assets above $200,000,000............................ 0.40%
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.
