PRINCIPAL SMALLCAP FUND, INC.
DISTRIBUTION AND SHAREHOLDER SERVICING
PLAN AND AGREEMENT
CLASS C SHARES
PLAN AND AGREEMENT made as of the 9th of March, 1999, by and between
PRINCIPAL SMALLCAP FUND, INC., a Maryland corporation (the "Fund"), and PRINCOR
FINANCIAL SERVICES CORPORATION, an Iowa corporation (the "Underwriter").
WHEREAS, Rule 12b-1 under the Investment Company Act of 1940 (the "Act"),
provides that a registered open-end management investment company may
participate in financing the distribution of securities of which it is the
issuer; and
WHEREAS, any payments made by the Fund in accordance with Rule 12b-1 must
be made pursuant to a written plan describing all material aspects of the
proposed financing of distribution; and
WHEREAS, the Underwriter acts as the underwriter for the Fund; and various
broker-dealers (the "Dealers"), including the Underwriter, sell shares of the
Fund and provide services to existing shareholders; and
WHEREAS, the Board of Directors of the Fund has determined that the Fund
should make direct payments to the Underwriter for transmission to Dealers
(including the Underwriter) in connection with selling Class C shares of the
Fund and the rendering of services to Class C shareholders and that such payment
should be separate from the investment advisory and management fee paid to
Principal Management Corporation; and
WHEREAS, the Board of Directors of the Fund has determined that there is a
reasonable likelihood that the adoption of the Plan will benefit the Fund and
its Class C shareholders;
NOW, THEREFORE, the following shall constitute the written Plan pursuant
to which the Fund shall participate in financing the distribution of its Class C
shares.
Section 1. The Fund is hereby authorized to make payments to the
Underwriter from that portion of its assets attributable to its Class C shares
for the purpose of paying the Underwriter for its activities in connection with
sales of the Class C shares and to compensate the Underwriter and other selling
Dealers for (i) providing shareholder services to existing Class C shareholders,
including without limitation, furnishing information as to the status of
shareholder accounts, requests, responding to telephone and written inquiries,
and assisting shareholders with tax information and (ii) rendering assistance in
the distribution and promotion of the sale of Class C shares to the public.
(a) Service Fee. The Fund will pay a service fee (the "Service Fee") as
defined in Section 26 of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (or any successor provision
thereto) as in effect from time to time (the "NASD Rule") at an annual
rate not to exceed 0.25% of the fund's average daily net assets
attributable to the Class C shares. The Service Fee shall be accrued
daily and paid monthly or at such other intervals as the directors
shall determine. The Underwriter may pay all or any portion of the
Service Fee to securities dealers or other organizations (including,
but not limited to, any affiliate of the Underwriters) as service fees
pursuant to agreements with such organizations for providing personal
services to investors in Class C shares of the Fund and/or the
maintenance of shareholder accounts, and may retain all or any portion
of the Service Fee as compensation for providing personal services to
investors in Class C shares of the Fund and/or the maintenance of
shareholder accounts. All payments under this Section 1(a) are
intended to qualify as "service fees" as defined in the NASD Rule.
(b) Distribution Fees. In addition to the Service Fee, the Fund will pay
to the Underwriter a fee (the "Distribution Fee") at an annual rate of
0.75% (unless reduced as contemplated by and permitted pursuant to the
next sentence hereof) of the Fund's average daily net assets
attributable to the Class C shares in consideration of the services
rendered in connection with the sale of such shares by the
Underwriter. The Fund will not terminate the Distribution Fee in
respect of Fund assets attributable to Class C shares, or pay such fee
at an annual rate of less than 0.75% of the Fund's average daily net
assets attributable to the Class C shares, unless it has ceased, and
not resumed, paying the Service Fee to the Underwriter. The
Distribution Fee shall be accrued daily and paid monthly or at such
other intervals as the Directors shall determine.
The obligation of the Fund to pay the Distribution Fee shall terminate
upon the termination of this Plan or the relevant distribution
agreement between the Distributor and the Fund in accordance with the
terms hereof or thereof, but until any such termination shall not be
subject to any dispute, offset, counterclaim or defense whatsoever (it
being understood that nothing in this sentence shall be deemed a
waiver by the Fund of its right separately to pursue any claims it may
have against the Distributor and enforce such claims against any
assets of the Distributor (other than its right to be paid the
Distribution Fee and to be paid contingent deferred sales charges)).
The Underwriter may pay all or any portion of the Distribution Fee to
securities dealers or other organizations (including, but not limited
to, any affiliate of the Underwriter as commissions, asset-based sales
charges or other compensation with respect to the sale of Class C
shares of the Fund may retain all or any portion of the Distribution
Fee as compensation for the Underwriter's services as principal
underwriter of the Class C shares of the Fund. All payments under this
Section 1(b) are intended to qualify as "asset-based sales charges" as
defined in the NASD Rule.
Section 2. This Plan shall not take effect until it has been approved (a)
by a vote of at least a majority (as defined in the Act) of the outstanding
Class C shares of the Fund and (b) by votes of the majority of both (i) the
Board of Directors of the Fund, and (ii) those Directors of the Fund who, except
for their positions as Directors of the Fund, are not "interested persons" (as
defined in the Act) of the Fund and who have no direct or indirect financial
interest in the operation of this Plan or any agreements related to this Plan
(the "Disinterested Directors"), cast in person at a meeting called for the
purpose of voting on this Plan or such agreements.
Section 3. Unless sooner terminated pursuant to Section 5, this Plan shall
continue in effect for a period of twelve months from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 2(b).
Section 4. A representative of the Underwriter shall provide to the Board
and the Board shall review at least quarterly a written report of the amounts so
expended and the purposes for which such expenditures were made.
Section 5. This Plan may be terminated at any time by vote of a majority
of the Disinterested Directors, or by vote of a majority (as defined in the Act)
of the Fund's outstanding Class C shares.
Section 6. Any agreement of the Fund related to this Plan shall be in
writing and shall provide:
A. That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the members of the Board of
Directors of the Fund who are not interested persons of the Fund and
have no direct or indirect financial interest in the operation of the
Plan or in any agreements related to the Plan or by a vote of a
majority (as defined in the Investment Company Act of 1940) of the
Fund's outstanding Class C shares on not more than ninety (90) days'
written notice to any other party to the agreement); and
B. That such agreement shall terminate automatically in the event of its
assignment.
Section 7. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Fund
shall be committed to the discretion of the Directors who are not interested
persons.
Section 8. The Fund shall preserve copies of this Plan and any related
agreements and all reports made pursuant to Paragraph 4, for a period of not
less than six years from the date of the Plan, or the agreements or such report,
as the case may be, the first two years in an easily accessible place.
Section 9. This Plan may not be amended to increase materially the amount
of Service Fees or Distribution Fees provided for in Section 1(a) and (b) hereof
unless such amendment is approved in the manner provided for initial approval in
Section 2 hereof and no other material amendment to this Plan shall be made
unless approved in the manner provided for initial approval in Section 2(b)
hereof.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Plan as of the first date written above.
Principal SmallCap Fund, Inc.
By: /s/A. S. Filean
A. S. Filean, Vice President and Secretary
PRINCOR FINANCIAL SERVICES CORPORATION
By: /s/X. X. Beer
X. X. Beer, Executive Vice President
