PRINCIPAL PARTNERS SMALLCAP GROWTH FUND, INC.
SUB-ADVISORY AGREEMENT
AGREEMENT executed as of the 19th day of December, 2000, by and between
PRINCIPAL MANAGEMENT CORPORATION, an Iowa Corporation (hereinafter called "the
Manager") and BERGER LLC, a Nevada Limited Liability Company (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 agreement wherein the Manager agreed to act as investment adviser
to the Fund provides that the Manager may delegate any or all of its portfolio
management responsibilities to one or more sub-advisors; and
WHEREAS, the Manager desires to retain the Sub-Advisor to furnish it with
portfolio selection 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.
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 Fund, as permitted by the Fund's investment
policies, limitations, procedures and guidelines that were delivered
pursuant to Section 9 (f) and 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
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(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 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 Fund consistent with the Fund's 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 investment policies, limitations, procedures
and guidelines that were delivered pursuant to Section 9(f), 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
Fund.
(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 Fund 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; provided, however,
that the Manager hereby acknowledges that Sub-Advisor is not
responsible for pricing portfolio Securities.
(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.
(h) Select brokers and dealers to effect all transactions for the
Fund, 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 Fund may be aggregated with contemporaneous
purchase or sell orders of other clients of the Sub-Advisor. In
such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be made by
Sub-Advisor in the manner Sub-Advisor considers to be the most
equitable and consistent with its and its affiliates' fiduciary
obligations to the Fund and to such other clients. Manager hereby
acknowledges that such aggregation of orders may not result in a
more favorable price or lower brokerage commissions in all
instances. The Sub-Advisor shall use its best efforts to obtain
execution of transactions for the Fund at prices which are
advantageous to the Fund 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
Fund 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 Fund 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 Fund.
(i) Maintain all accounts, books and records with respect to the Fund
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 Fund, 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 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
investment discretion in connection with selecting investments for the
Fund 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 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 Fund. It shall
continue in effect for two years from its effective date 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 Fund 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 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. 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 Fund 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. This Agreement may not be
amended except by a written agreement executed by the party to be
charged with the amendment.
9. Representations and Warranties of the Manager
The Manager hereby represents and warrants the following:
(a) That it is and shall remain registered as an Investment Adviser
under the Investment Advisers Act of 1940;
(b) That it has the authority of the Fund to seek from Sub-Advisor
those services contemplated hereunder;
(c) That the Fund is and shall remain registered as an open-end
management investment company under the 1940 Act;
(d) That the securities offered by the Fund are at all times properly
registered with the SEC and in the various states in which they
are being offered or sold;
(e) It maintains insurance of the type and in amounts carried by like
investment advisers engaged in the same type of business and
sufficient to cover any loss due to errors or omissions that
might arise as a result of entering into or performing under this
Agreement.
(f) It 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:
(i) Management Agreement (the "Management Agreement") with the
Fund;
(ii)The Fund's registration statement and financial statements as
filed with the Securities and Exchange Commission;
(iii) The Fund's Articles of Incorporation and By-laws;
(iv) Certain documents requested by Sub-Advisor related to
Investment policies, limitations, procedures and guidelines
relating to obligations and services provided by the
Sub-Advisor.
(v) A complete list of all "affiliated persons" of the Fund as
that term is defined by the 1940 Act.
10. General Provisions
(a) Each party agrees to perform such further reasonable acts and
execute such further reasonable 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 (i) 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, or (ii) sent by telecopier (with written
confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (iii) when received
by the addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the
appropriate addresses and telecopier numbers set forth below.
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, Des Moines, Iowa 50392-0200, and the address of
the Sub-Advisor shall be 210 University Blvd., Suite 900, Denver,
Colorado 80206, ATTN: Russell L. Biles, Associate Counsel.
(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 Fund.
(d) The Manager shall provide (or cause the Fund custodian to
provide) timely information to the Sub-Advisor regarding such
matters as the composition of the assets of the Fund, cash
requirements and cash available for investment in the Fund, 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
By _/s/A. S. Filean __________________
A. S. Filean, Vice President
BERGER LLC
By_David G. Mertens_______________________
David G. Mertens, Senior Vice President
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APPENDIX A
The Sub-Advisor shall serve as investment sub-advisor for the Principal
Partners Smallcap Growth Fund, Inc.. 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....................... 0.50%
Next $200,000,000 of Assets........................ 0.45%
Assets above $300,000,000.......................... 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 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.
