PRINCIPAL SMALLCAP FUND, INC.
DISTRIBUTION AND SHAREHOLDER SERVICING
PLAN AND AGREEMENT
CLASS A SHARES
PLAN AND AGREEMENT made as of the day of , 1997, 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 R shares of the
Fund and the rendering of services to Class R shareholders and that such payment
should be separate from the investment advisory and management fee paid to
Princor 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 R shareholders;
NOW, THEREFORE, the following shall constitute the written Plan pursuant
to which the Fund shall participate in financing the distribution of its Class R
shares.
Section 1. The Fund is hereby authorized to make payments to the
Underwriter from that portion of its assets attributable to its Class R shares
for the purpose of reimbursing the Underwriter for expenses it incurs in
connection with sales of the Class R shares and to compensate the Underwriter
and other selling Dealers for (i) providing shareholder services to existing
Class R 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 R
shares to the public.
In consideration of the activities described above, the Fund shall pay the
Underwriter a fee after the end of each month at the annual rate of 0.75% of the
daily net asset value of the Fund's Class R shares. The Underwriter shall (A)
retain such amounts as are appropriate to (i) reimburse the Underwriter for
expenses it incurs in connection with sales of Class R shares, and (ii)
compensate the Underwriter for providing services and rendering assistance in
the distribution and promotion of the sale of Class R shares to the public, and
(B) remit such amounts as are appropriate to other Dealers in recognition of
their services and assistance as described above in the first paragraph of this
Section 1; provided however, the Underwriter shall not retain for itself or
remit to selling Dealers in recognition of the services provided to shareholders
an amount in excess of 0.25% annually of the daily net asset value of the Fund's
Class R shares. If the aggregate payments received by the Underwriter under this
Plan in any fiscal year exceed the expenditures made by the Underwriter in such
fiscal year for these purposes, the Underwriter shall promptly reimburse the
Fund for the amount of such excess.
Section 2. This Plan shall not take effect until it has been approved (1)
by a vote of at least a majority (as defined in the Act) of the outstanding
Class R shares of the Fund and (2) 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(2).
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 R 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 R shares on not more than sixty 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 distribution expenses provided for in Section 1 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(2) 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: _________________________________________
A. S. Filean, Vice President
PRINCOR FINANCIAL SERVICES
CORPORATION
By: _________________________________________
X. X. Xxxxx, President
