PRINCIPAL PARTNERS SMALLCAP GROWTH FUND, INC.
SUB-ADVISORY AGREEMENT
AGREEMENT executed as of the 1st day of September, 2004, by and between
PRINCIPAL MANAGEMENT CORPORATION, an Iowa Corporation (hereinafter called "the
Manager") and EMERALD ADVISORS, INC. (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 Principal Partners
SmallCap Growth 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") between the Manager
and the Fund;
(b) The Fund's registration statement as filed with the Securities and
Exchange Commission (the "Registration Statement");
(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 promises 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 Fund, 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 Fund.
(b) Furnish to the Board of Directors of the Fund (or any appropriate
committee of such Board), and revise from time to time as economic
conditions require, a recommended investment program for the
portfolio of the Fund consistent with the Fund's investment
objective and policies as set forth in the Registration Statement,
as may be amended from time to time.
c) Implement such of its recommended investment program as the Board
of Directors (or any appropriate committee of the Board) 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
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 the
Fund's Board of Directors, and any appropriate committees of such
Board, regarding the general conduct of the investment business of
the Fund.
(e) 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 the Fund are being
observed.
(f) Upon reasonable request, provide assistance and recommendations
for the determination of the fair value of certain securities when
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 Fund. Except for expenses
specifically assumed or agreed to be paid by the Sub-Advisor under
this Agreement, the Sub-Advisor shall not be liable for any
expenses of the Manager or the Fund including, without limitation,
(i) interest and taxes, (ii) brokerage commissions and other costs
in connection with the purchase or sale of securities or other
investment instruments with respect to the Fund, and (iii)
custodian fees and expenses.
(h) Open accounts with broker-dealers and future commission merchants
("broker-dealers"), select broker-dealers to effect all
transactions for the Account, 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 the Account may
be aggregated or, if appropriate, crossed with contemporaneous
purchase or sell orders of other clients of the Sub-Advisor. If
any trades are crossed, Sub-Advisor may charge the Fund for
reasonable expenses incurred in such cross-trade, excluding
brokerage commissions, fees (other than customary transfer fees)
or other remuneration paid in connection with the transaction. A
transaction fee charged by a custodial bank will be considered a
customary transfer fee for purposes of this agreement. 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 a manner consistent with the Sub-Advisor's
allocation policy and 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 Account 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 the Account at
prices which are advantageous to the Account 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 Account 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 Account. Notwithstanding the
foregoing, nothing in this Agreement shall be construed to require
the Sub-Advisor to use any broker or dealer that provides
brokerage, research or other services, nor to use any broker or
dealer that the Manager may recommend. In addition, joint
repurchase or other accounts may not be utilized by the Account
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 Fund
as are required of an investment adviser of a registered
investment company pursuant to the 1940 Act and Investment
Advisers Act of 1940, as amended, (the "Investment 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 the Fund are the property of the
Fund and it will surrender promptly to the Fund any records that
it maintains for the Fund upon request by the Fund or the Manager
provided, however, that the Sub-Advisor may retain a copy of such
records. The Sub-Advisor has no responsibility for the maintenance
of Fund records except insofar as is directly related to the
services provided to the Fund.
(j) 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. The
Sub-Advisor shall promptly forward to the Manager a copy of any
material amendments to the Sub-Advisor's Code of Ethics.
(k) From time to time as the Manager or the Fund may reasonably
request, furnish the requesting party reports on portfolio
transactions and reports on investments held by the Fund, 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 reasonable times at the
Fund's principal place of business upon reasonable notice to
review the investments of the Fund.
(l) Provide such information as 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 "Code"), the 1940 Act, the
Investment Advisers Act, the Securities Act of 1933, as amended
(the "Securities Act"), and any state securities laws, and any
rule or regulation thereunder.
(m) Maintain, in connection with the Sub-Advisor's investment
advisory services obligations provided hereunder, compliance with
the 1940 Act and the regulations adopted by the Securities and
Exchange Commission thereunder and each Fund's investment
strategies and restrictions as stated in the Fund's current
prospectus and statement of additional information.
(n) Provide to the Manager a copy of its Form ADV as filed with the
Securities and Exchange Commission, as amended from time to time,
and a list of the persons whom the Sub-Advisor wishes to have
authorized to give written and/or oral instructions to custodians
of assets of the Fund.
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 sub-advisory services to the Fund or a fund that is under
common control with the Fund regarding transactions for the Fund in the
securities or other assets allocated to the Sub-Advisor pursuant to
this Agreement, except as provided by Rule 12d-3-1 under the 1940 Act.
4. Compensation
As full compensation for all services rendered and obligations assumed
by the Sub-Advisor hereunder with respect to the Fund, the Manager
shall pay the compensation specified in Appendix A to this Agreement.
Although the Manager may from time to time waive the compensation it is
entitled to receive from the Fund, such waiver will have no effect on
the Manager's obligation to pay the Sub-Advisor the compensation
provided for herein.
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 any shareholder of the Fund
for any loss suffered by the Manager, the Fund or any shareholder of
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 Fund investments 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. The Manager shall hold harmless and indemnify
the Sub-Advisor for any loss, liability, cost, damage or expense
(including reasonable attorneys fees and costs) arising from any claim
or demand by any past or present shareholder of the Fund that is not
based upon the obligations of the Sub-Advisor with respect to the Fund
under this Agreement. The Manager acknowledges and agrees that the
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 the Sub-Advisor, whether public or
private.
6. Supplemental Arrangements
The Sub-Advisor may enter into arrangements with other persons
affiliated with the Sub-Advisor for the provision of certain personnel
and facilities to the Sub-Advisor to better enable it to fulfill its
obligations under this Agreement.
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 as of the date of execution and,
unless otherwise terminated, shall remain in force for two years from
the date of execution and 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 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 Fund fail to approve the Agreement or any
continuance of the Agreement, the Sub-Advisor will continue to act as
Sub-Advisor with respect to the Fund 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 Fund 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 Fund. This Agreement shall
automatically terminate in the event of its assignment or upon
termination of the Management Agreement. 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
This Agreement may be amended at any time by mutual consent of the
parties, provided that, if required by law, such amendment shall also
have been approved by vote of the holders of a majority of the
outstanding voting securities of the Fund and by vote of a majority of
the 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. 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 0000 Xxxxxx Xxxx, X.X. Xxx
00000, Xxxxxxxxx, XX 17605-0666..
(c) Each party will promptly notify the other in writing of the
occurrence of any of the following events:
(1) the party fails to be registered as an investment adviser
under the Investment Advisers Act or under the laws of any
jurisdiction in which the party is required to be registered
as an investment adviser in order to perform its obligations
under this Agreement.
(2) the party 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 Fund.
(d) The Manager shall provide (or cause the Account custodian to
provide) timely information to the Sub-Advisor regarding such
matters as the composition of the assets of the Account, cash
requirements and cash available for investment in the Account, 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.
(e) The Manager will provide Sub-Advisor promptly with any changes to
the Fund's Articles of Incorporation, By-laws, registration
statement, policies, procedures, instructions, and any other
document relevant to the Sub-Advisor's management of the Account.
The parties agree that the Sub-Advisor is not responsible for
compliance with any such changes until notified and provided with
a written copy of such change.
(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/Xxxxxx X. Xxxxxx
By ___________________________________________
Xxxxxx X. Xxxxxx, Vice President
EMERALD ADVISORS, INC.
/s/Xxxxxxx X. Xxxxx, XX
By ____________________________________________
APPENDIX A
The Sub-Advisor shall serve as investment sub-advisor for the Fund. With
respect to 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"):
Net Asset Value of Fund Sub-Advisor Percentage Fee
................First $10 million..............................0.75%
................Next $40 million...............................0.60%
................Next $150 million..............................0.50%
................Over $200 million..............................0.45%
In calculating the fee for the Fund, 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 Fund, will
be combined (together, the "Aggregated Assets"). The fee charged for the assets
in the Fund shall be determined by calculating a fee on the value of the
Aggregated Assets using the above fee schedule and multiplying the aggregate fee
by a fraction, the numerator of which is the amount of assets in the Fund 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 Fund as determined
in accordance with the Fund's prospectus and statement of additional information
as of the close of business on the previous business day on which the Fund was
open for business.
