PRINCIPAL VARIABLE CONTRACTS FUND, INC.
SUB-ADVISORY AGREEMENT
LARGECAP GROWTH SERIES
AGREEMENT executed as of the 1st day of April, 1999, by and between PRINCIPAL
MANAGEMENT CORPORATION, an Iowa corporation (hereinafter called "the Manager")
and JANUS CAPITAL CORPORATION, a Colorado 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 LargeCap Growth Series of the Fund (hereinafter
called Athe Series@), 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
(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
as provided by the Manager 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. 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 the
Series was a party, the broker(s) 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 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
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 the 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 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.
(j) Observe and comply with Rule 17j-1 under the 1940 Act and the
Sub-Advisors 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
amendment to the Sub-Advisor=s Code of Ethics.
(k) 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 the 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 the Series.
(l) Provide such non-proprietary information as is customarily
provided by a sub-advisor and may be required 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 ACode@), the 1940 Act, the
Investment Advisers Act, the Securities Act of 1933, as amended
(the ASecurities Act@) and any state securities laws, and any
rule or regulation thereunder, provided that the Sub-Advisor
shall not be responsible for portfolio accounting, nor shall it
be required to generate information derived from portfolio
accounting data.
(m) Perform quarterly and annual tax compliance tests to ensure that
the Series is in compliance with Subchapter M of the Code and
Section 817(h) of the Code, subject to receipt of such additional
information as may be required from the Manager and provided in
accordance with Section 9(d) of this Agreement. The Sub-Advisor
shall notify the Manager immediately upon having a reasonable
basis for believing that the Series has ceased to be in
compliance or that it might not be in compliance in the future.
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 Code.
(n) Be responsible for the preparation and filing of Schedule 13G and
Form 13F with the respect to investments of the Series. The
Sub-Advisor shall not be responsible for the preparation or
filing of any reports required by the Series by any governmental
or regulatory agency, except as expressly agreed to in writing.
Subject to approval by the Manager of the proxy voting guidelines
of the Sub-Advisor, the Sub-Advisor shall vote proxies received
in connection with securities held by the Series.
(o) Oversee the maintenance of all books and records required to be
maintained pursuant to the 1940 Act and the rules and regulations
promulgated thereunder with respect to actions by the Sub-Advisor
on behalf of the Series. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, Sub-Advisor hereby agrees that all
records which it maintains for the Series are the property of the
Fund, agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act any records which it maintains for the Fund
and which are required to be maintained by Rule 31a-1 under the
1940 Act and further agrees to surrender promptly to the Fund any
records which it maintains for the Fund upon request by the Fund.
3. Compensation and Expenses
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.
The Manager and the Fund shall assume and pay their respective
organizational, operational and business expenses not specifically
assumed or agreed to be paid by the Sub-Advisor pursuant to this
Agreement. The Sub-Advisor shall pay its own organizational,
operational and business expenses and shall not be obligated to pay any
expenses of the Manager or the Fund, including without limitation: (a)
interest and taxes; (b) brokerage commissions and other costs in
connection with the purchase or sale of securities or other investment
instruments for the Series; and (c) custodian fees and expenses. Any
reimbursement of management fees required by any expense limitation
provision and any liability with respect to the management fee arising
out a violation of Section 36(b) of the 1940 Act shall be the sole
responsibility of the Manager.
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. Indemnification
Manager shall hold harmless and indemnify Sub-Advisor for any loss,
liability, cost, damage, or expense (including reasonable attorneys'
fees and costs) relating to the Fund arising from any claim or demand
by any past or present shareholder of the Fund that is not based upon
the services provided by the Sub-Advisor pursuant to this Agreement.
Manager acknowledges and agrees that Sub-Advisor makes no
representation or warranty, express or implied, that any level of
performance or investment results will be achieved by the Fund or that
the Fund will perform comparably with any standard or index, including
other clients of Sub-Advisor, whether public or private.
Manager and the Sub-Advisor each agree to indemnify the other against
any claim against, loss or liability to such other party (including
reasonable attorneys' fees) arising out of any act on the part of the
indemnifying party which constitutes willful misfeasance, bad faith,
gross negligence or reckless disregard of duty.
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 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, the Sub-Advisor, Principal Life Insurance Company or the
Fund cast in person at a meeting called for the purpose of voting on
such approval 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 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
Manager takes reasonably prompt action to obtain such approvals and,
provided further, 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 be terminated 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 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.
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 Life
Insurance Company or the Fund cast in person at a meeting called for
the purpose of voting on such approval.
10. Representations and Warranties
The Manager represents and warrants the following:
(i) The Manager has been duly incorporated and is validly existing
in good standing as a corporation under the laws of the State of
Iowa.
(ii) The Manager has all requisite corporate power and authority
under the laws of Iowa and federal securities laws to execute,
deliver and to perform this Agreement.
(iii) All necessary corporate proceedings of the Manager have been
duly taken to authorize the execution, deliver and performance
of this Agreement by the Manager.
(iv) The Manager is a registered investment advisor under the
Investment Advisers Act of 1940 and is compliance with all other
required registrations.
(v) The Manager has complied in all material respects with all
registrations required by, and will comply in all material
respects with all applicable rules and regulations of, the
Securities and Exchange Commission.
(vi) The Manager has authority under the Management Agreement to
execute, deliver and perform this Agreement.
(vii) The Manager has received a copy of Part II of the Sub-Advisor's
Form ADV.
The Sub-Advisor represents and warrants the following:
(i) The Sub-Advisor has been duly incorporated and is validly
existing in good standing as a corporation under the laws of the
state of Colorado.
(ii) The Sub-Advisor has all requisite corporate power and authority
under the laws of Colorado and federal securities laws to
execute, deliver and to perform this Agreement.
(iii) All necessary corporate proceedings of the Sub-Advisor have been
duly taken to authorize the execution, delivery and performance
of this Agreement by the Sub-Advisor.
(iv) The Sub-Advisor is a registered investment advisor under the
Investment Advisers Act of 1940 and is in compliance with all
other required registrations.
(v) The Sub-Advisor has complied in all material respects with all
registrations required by, and will comply in all material
respects with all applicable rules and regulations of, the
Securities and Exchange Commission.
(vi) The Sub-Advisor has authority to execute, deliver and perform
this Agreement.
11. Confidentiality and Proprietary Rights
The Manager will not, directly or indirectly, and will not permit it
affiliates, employees, officers, directors, agents, contractors or the
Fund or the Series to, in any form or by any means, use, disclose, or
furnish, to any person or entity, records or information concerning the
business of the Sub-Advisor, except as necessary for the performance of
its duties under this Agreement or the Management Agreement, or as
required by law upon, to the extent practicable, prior written notice
to the Sub-Advisor. The Sub-Advisor is the sole owner of the name and
xxxx "Xxxxx". The Manager shall not, and shall not permit the Fund or
the Series to, without prior written consent of the Sub-Advisor, use
the name or xxxx "Janus" or make representations regarding the
sub-advisor or its affiliates. Upon termination of this Agreement for
any reason, the Manager shall immediately cease, and the Manager shall
cause the Fund or Series to immediately cease, all use of the Janus
name or any Xxxxx xxxx.
12. Non-Exclusivity
The Sub-Advisor, its affiliates, or any of their directors, officers,
employees or agents may buy, sell, or trade any securities or other
investment instruments for their own account or for the account of
others for whom it or they may be acting, provided that such activities
will not adversely effect or otherwise impair the performance by the
Sub-Advisor of its responsibilities under this Agreement. The
Sub-Advisor and its affiliates may act as investment manager to or
provide other services with respect to various investment companies and
other managed accounts, which advice or services, including the nature
of such services, may differ from or be identical to advice given or
action taken with respect to the Series. In the event of such
activities, the transactions and associated costs will be allocated
among such clients (including the Series) in a manner that the
Sub-Advisor believes to be equitable to the accounts involved and
consistent with such account's objectives, policies and limitations.
13. 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, Xxx Xxxxxx, Xxxx 00000-0000, and the
address of the Sub-Advisor shall be 000 Xxxxxxxx, Xxxxx 000,
Xxxxxx, Xxxxxxxx 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, any
applicable investment restrictions imposed by state insurance
laws and regulations, and all other reasonable information as may
be necessary for the Sub-Advisor to perform its duties and
responsibilities hereunder. Throughout the term of this
Agreement, the Manager shall continue to provide current
Prospectuses and Statements of Additional Information for the
Fund, procedures and other relevant information and documents to
the Sub-Advisor, including any amendments, updates or supplements
to such information or documents, before or at the time of the
amendments, updates or supplements become effective. The Manager
shall cooperate with the Sub-Advisor in setting up and
maintaining brokerage accounts and other accounts the Sub-Advisor
deems advisable to allow for the purchase or sale of various
securities pursuant to this Agreement.
(e) Assets of the Series shall be maintained in the custody of the
Series' custodian which shall be identified to the Sub-Advisor.
Assets added to the portfolio of the Series shall be delivered
directly to such custodian. The Sub-Advisor shall have no
liability for the acts or omissions of any custodian of the
Series' assets. The Sub-Advisor shall have no responsibility for
the segregation requirements of the 1940 Act or other applicable
law.
(f) 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/ A. S. Filean
By ____________________________________________
A.S. Filean, Vice President
JANUS CAPITAL CORPORATION
/s/ Xxxxxx Xxxx
By ____________________________________________
Xxxxxx X. Xxxx
Assistant Vice President
APPENDIX A
The Sub-Advisor shall serve as investment sub-advisor for the LargeCap
Growth 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 $100,000,000 of Assets................ 0.55%
Next $400,000,000 of Assets................. 0.50%
Assets above $500,000,000................... 0.45%
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.
