PRINCIPAL FAMILY OF MUTUAL FUNDS
MULTIPLE CLASS DISTRIBUTION PLAN
Princor Financial Services Corporation ("The Distributor"), Principal Management
Corporation ("Adviser") and each of the funds listed on Exhibit 1 (the "Fund or
Funds") seek to allow each of the Funds to issue multiple separate classes of
shares under this Multiple Class Distribution Plan (the "Plan") in reliance upon
Rule 18f-3 of the Investment Company Act of 1940.
This Plan enables each Fund to offer certain investors the option of purchasing
shares subject to: (i) a conventional front-end sales charge ("Class A shares")
or (ii) a contingent deferred sales charge ("Class B shares"/"Class C Shares").
The Plan also permits each Fund, except Principal Tax-Exempt Bond Fund, Inc., to
offer distributees of retirement plans administered by Principal Life Insurance
Company, and other classes of customers identified from time-to-time by the
Funds' management, a class of shares that is not subject to either a front-end
or contingent deferred sales charge ("Class R shares"). Each Class represents an
interest in the same portfolio of investments of a Fund.
SALES CHARGES
Class A shares
Class A shares of the Money Market Fund are sold to the public at net
asset value; no sales charge applies to purchases of the Money Market Fund.
Class A shares of the Growth- Oriented and Income-Oriented Funds, except the
LargeCap Stock Index and Limited Term Bond Funds, are sold to the public at the
net asset value plus a sales charge which ranges from a high 4.75% to a low of
0% of the offering price (equivalent to a range of 4.99% to 0% of the net amount
invested) according to the schedule below. Class A shares of the LargeCap Stock
Index and Limited Term Bond Funds are sold to the public at the net asset value
plus a sales charge which ranges from a high of 1.50% to a low of 0% of the
offering price according to the schedule below. An investor who purchases $1
million or more of Class A shares does not pay a sales charge at the time of
purchase. However, a redemption of such shares occurring within 18 months from
the date of purchase will be subject to a contingent deferred sales charge
("CDSC") at the rate of .75% (.25% for the LargeCap Stock Index and Limited Term
Bond Funds) of the lesser of the value of the shares redeemed (exclusive of
reinvested dividend and capital gain distributions) or the total cost of such
shares. Shares subject to the CDSC which are exchanged into another Principal
Fund will continue to be subject to the CDSC until the original 18 month period
expires. However, no CDSC is payable with respect to the redemptions of Class A
shares to fund a Princor 401(a) or Princor 401(k) retirement plan, except
redemptions resulting from the termination of the plan or transfer of plan
assets. Certain purchases of Class A shares qualify for reduced sales charges as
set forth in the Fund's registration statement as from time to time in effect.
<TABLE>
<CAPTION>
Sales Charge for
All Funds Except Sales Charge for Dealer Allowance as
LargeCap Stock Index and LargeCap Stock Index and % of Offering Price
-- -------------------
Limited Term Bond Funds Limited Term Bond Funds All Funds LargeCap
----------------------- -----------------------
Sales Charge as % of: Sales Charge as % of: Except LargeCap Stock Index
Stock Index and
Offering Amount Offering Amount and Limited Limited Term
Amount of Purchase Price Invested Price Invested Term Bond Funds Bond Funds
------------------ ----- -------- ----- -------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Less than $50,000 4.75% 4.99% 1.50% 1.52% 4.00% 1.25%
$50,000 but less than $100,000 4.25% 4.44% 1.25% 1.27% 3.75% 1.00%
$100,000 but less than $250,000 3.75% 3.90% 1.00% 1.01% 3.25% 0.75%
$250,000 but less than $500,000 2.50% 2.56% 0.75% 0.76% 2.00% 0.50%
$500,000 but less than $1,000,000 1.50% 1.52% 0.50% 0.50% 1.25% 0.25%
$1,000,000 or more No Sales Charge 0.00% No Sales Charge 0.00% 0.75% 0.25%
</TABLE>
Class B shares
Class B shares are sold without an initial sales charge, although a
CDSC will be imposed on shares redeemed within six years of purchase. The
following types of shares may be redeemed without charge at any time: (i) shares
acquired by reinvestment of distributions and (ii) shares otherwise exempt from
the CDSC, as described below. Subject to the foregoing exclusions, the amount of
the charge is determined as a percentage of the lesser of the current market
value or the cost of the shares being redeemed. Therefore, when a share is
redeemed, any increase in its value above the initial purchase price is not
subject to any CDSC. The amount of the CDSC will depend on the number of years
shares have been owned and the dollar amount being redeemed, according to the
following table:
<TABLE>
====================================================================================================================================
Contingent Deferred Sales Charge
as a Percentage of
Dollar Amount Subject to Charge
====================================================================================================================================
<CAPTION>
---------------------------------------------
For Certain Sponsored Plans
Commenced After 2/1/1998
---------------------------------------------
-------------------- ------------------------
All Funds
All Funds LargeCap Stock Index Except LargeCap Stock
Except LargeCap Stock and Index LargeCap Stock Index
Years Since Purchase Index Limited Term Limited Term and Limited and Limited Term Bond
Payments Made Bond Funds Bond Funds Term Bond Funds Funds
----- -------------- ---------- --- ----------- --------------- -----
<S> <C> <C> <C> <C>
2 years or less 4.0% 1.25% 3.00% 0.75%
more than 2 years, up to 4 years 3.0% 0.75% 2.00% 0.50%
more than 4 years, up to 5 years 2.0% 0.50% 1.00% 0.25%
more than 5 years, up to 6 years 1.0% 0.25% None None
more than 6 years None None None None
===================================== ======================== ======================= ===================== ======================
</TABLE>
Certain purchases of Class B shares qualify for a reduced CDSC as set
forth in the Fund's registration statement as from time to time in effect.
In determining whether a CDSC is payable on any redemption, the Fund
will first redeem shares not subject to any charge, and then shares held longest
during the six-year period. The CDSC will be waived on redemptions of Class B
shares in connection with the following types of transactions:
a. Shares redeemed due to a shareholder's death;
b. Shares redeemed due to the shareholder's disability, as defined in the
Internal Revenue Code of 1986 (the "Code"), as amended;
c. Shares redeemed from retirement plans to satisfy minimum distribution
rules under the Code;
d. Shares redeemed to pay surrender charges;
e. Shares redeemed to pay retirement plan fees;
f. Shares redeemed involuntarily from small balance accounts (values of
less than $300);
g. Shares redeemed through a systematic withdrawal plan that permits up
to 10% of the value of a shareholder's Class B shares of a particular
Fund on the last business day of December of each year to be withdrawn
automatically in equal monthly installments throughout the year;
h. Shares redeemed from a retirement plan to assure the plan complies
with Sections 401(k), 401(m), 408(k) and 415 of the Code; or
i. Shares redeemed from retirement plans qualified under Section 401(a)
of the Code due to the plan participant's death, disability,
retirement or separation from service after attaining age 55.
Class C shares
Class C shares do not have a sales charge at time of purchase. However, a CDSC
is imposed at a rate of 1% for redemptions within 1st year (0.50% for LargeCap
Stock Index and Limited Term Bond). No CDSC is imposed on redemptions after the
first year.
Class R shares
Class R shares are purchased without an initial sales charge or a
contingent deferred sales charge.
EXPENSE ALLOCATION
The Fund will pay to the distributor a distribution fee pursuant to the Fund's
Rule 12b-1 distribution plan at an annual rate of (i) up to .25% (.15% for
LargeCap Stock Index and Limited Term Bond Funds) of the average daily net asset
value of the Class A shares; (ii) up to 1.00% (.50% for LargeCap Stock Index and
Limited Term Bond Funds) of the average daily net asset value of the Class B
shares; (iii) up to 1.00 % of daily net asset value (0.50% for LargeCap Stock
Index and Limited Term Bond Funds) Class C shares; and (iv) up to .75% of the
average daily net asset value of Class R shares (0.25% for LargeCap Stock Index
Fund and 0.35% for Limited Term Bond Fund.). For accounting purposes, the
classes of a Fund are identical except that the net asset value and expenses
each class will reflect the Distribution Plan expenses (if any) and any Class
Expenses, as defined below, attributable to the class. "Class Expenses" are
limited to: (i) transfer agency fees, as identified by the Funds' transfer agent
as being attributable to a specific class; (ii) blue sky registration fees
incurred with respect to a class of shares; (iii) state registration fees
incurred with respect to a class of shares; (iv) the expenses of administrative
personnel and services as required to provide services to the shareholders of a
specific class (depending on the type of service provided administrative
expenses are allocated to specific classes based on the relative percentage of
shareholder transactions and net asset values compared to the total of both
share classes); (v) litigation or other legal expenses or audit or other
accounting expenses relating solely to one class of shares; (vi) Directors' fees
incurred as a result of issues relating to one class of shares; and (vii)
printing and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current shareholders of
a given class.
Any additional incremental expenses not specifically identified above that are
subsequently identified and determined to be properly allocated to one class of
shares will not be so allocated unless and until approved by the Funds'
directors. Certain expenses may be allocated differently if their method of
imposition changes; thus, if a Class Expense of a Fund can no longer be
attributed to a class it will be allocated to the Fund as a whole.
The net asset value of all outstanding shares of each class is determined by
dividing the ending total net assets applicable to a specific class by the
number of shares outstanding relating to the class. Expenses are attributable to
each class of shares depending on the nature of the expenditure and are accrued
on a daily basis. These fall into two categories: (1) fund level expenses that
are attributable to each class that are allocated based on net assets at the
beginning of the day (i.e., legal, audit, etc.) and (2) certain class level
expenses that may have a different cost for one class versus the other (i.e.,
12b-1 fees). Because of the additional expenses that will be borne by the Class
B shares, Class C shares and Class R shares, the net income attributable to and
the dividends payable on Class B shares, Class C shares and Class R shares will
be lower than the net income attributable to and the dividends payable on Class
A shares.
CONVERSION FEATURES
Class A shares. Class A shares do not convert into any other class of shares at
any time.
Class B shares. Class B shares will automatically convert to Class A shares,
based on relative net asset value on the second Friday after the first Sunday of
the 85th month (61st month for certain sponsored plans) after the purchase date.
Class B shares acquired by exchange from Class B shares of another Principal
fund will convert into Class A shares based on the time of the initial purchase.
At the same time, a pro rata portion of all shares purchased through
reinvestment of dividends and distributions would convert into Class A shares,
with that portion determined by the ratio that the shareholder's Class B shares
converting into Class A shares bears to the shareholder's total Class B shares
that were not acquired through dividends and distributions. The conversion of
Class B to Class A shares is subject to the continuing availability of a ruling
from the Internal Revenue Service or an opinion of counsel that such conversions
will not constitute taxable events for Federal tax purposes. There can be no
assurance that such ruling or opinion will be available, and the conversion of
Class B shares to Class A shares will not occur if such ruling or opinion is not
available. In such event, Class B shares would continue to be subject to higher
expenses than Class A shares for an indefinite period.
Class C shares. Class C shares do not automatically convert nor will they be
manually converted to any other class shares.
Class R shares. Class R shares will automatically convert to Class A shares,
based on relative net asset value, on the second Friday after the first Sunday
of the 49th month after the purchase date. Class R shares acquired by exchange
from Class R shares of another Principal fund will convert into Class A shares
based on the time of the initial purchase. At the same time, a pro rata portion
of all shares purchased through reinvestment of dividends and distributions
would convert into Class A shares, with that portion determined by the ratio
that the shareholder's Class R shares converting into Class A shares bears to
the shareholder's total Class R shares that were not acquired through dividends
and distributions. The conversion of Class R shares to Class A shares is subject
to the continuing availability of a ruling from the Internal Revenue Service or
an opinion of counsel that such conversions will not constitute taxable events
for Federal tax purposes. There can be no assurance that such ruling or opinion
is not available. In such event, Class R shares would continue to be subject to
higher expenses than Class A shares for an indefinite period.
EXCHANGE FEATURES
Class A shares. Class A shares of any Fund (except the Money Market Fund,
LargeCap Stock Index Fund and the Limited Term Bond Fund) may be exchanged at
the net asset value for Class A shares of any other Principal Fund at any time.
Class A shares of the LargeCap Stock Index and Limited Term Bond Funds may be
exchanged at net asset value for Class A shares of any Fund at any time three
months after the purchase of such shares.
The CDSC that might apply to certain Class A shares upon redemption will not
apply if these shares are exchanged for shares of another Fund. However, for
purposes of computing the CDSC on the shares acquired through this exchange, the
length of time the acquired shares have been owned by a shareholder will be
measured from the date the exchanged shares were purchased. The amount of the
CDSC will be determined by reference to the CDSC table to which the exchanged
shares were subject.
Class A shares of the Money Market Fund acquired by direct purchase may not be
exchanged for other Class A shares without payment of a sales charge. However,
Class A shares of this Fund acquired by exchange of any other Principal Fund
shares, or by conversion of Class B or Class R shares, and additional shares
which have been purchased by reinvesting dividends earned on such shares, may be
exchanged for other Class A shares without a sales charge. In addition, Class A
shares of the Money Market Fund acquired by direct purchase or reinvestment of
dividends on such shares may be exchanged for Class B shares of any
Growth-Oriented or Income-Oriented Fund.
Class B shares. Class B shares for all Funds may be exchanged at net asset value
at any time for Class B shares of any Fund.
The CDSC that might apply to Class B shares upon redemption will not apply if
these shares are exchanged for shares of another Fund. However, for purposes of
computing the CDSC on the shares acquired through this exchange, the length of
time the acquired shares have been owned by a shareholder will be measured from
the date the exchanged shares were purchased. The amount of the CDSC will be
determined by reference to the CDSC table to which the exchanged shares were
subject.
Class C shares. Class C shares for all Funds may be exchanged at net asset value
at any time for Class C shares of any Fund.
The CDSC that might apply to Class C shares upon redemption will not apply if
these shares are exchanged for shares of another Fund. However, for purposes of
computing the CDSC on the shares acquired through this exchange, the length of
time the acquired shares have been owned by a shareholder will be measured from
the date the exchanged shares were purchased. The amount of the CDSC will be
determined by reference to the CDSC table to which the exchanged shares were
subject.
Class R shares. Class R shares for all Funds may be exchanged at net asset value
at any time for Class R shares of any Fund. For purposes of computing the length
of time Class R shares acquired by the exchange are held prior to conversion to
Class A shares, the length of time the acquired shares have been owned by a
shareholder will be measured from the date the exchanged shares were purchased.
<PAGE>
Exhibit 1
Principal Balanced Fund, Inc.
Principal Blue Chip Fund, Inc.
Principal Bond Fund, Inc.
Principal Capital Value Fund, Inc.
Principal Cash Management Fund, Inc.
Principal European Equity Fund, Inc.
Principal Government Securities Income Fund, Inc.
Principal Growth Fund, Inc.
Principal High Yield Fund, Inc.
Principal International Fund, Inc.
Principal International Emerging Markets Fund, Inc.
Principal International SmallCap Fund, Inc.
Principal LargeCap Stock Index Fund, Inc.
Principal Limited Term Bond Fund, Inc.
Principal MidCap Fund, Inc.
Principal Pacific Basin Fund, Inc.
Principal Partners Aggressive Growth Fund, Inc.
Principal Partners LargeCap Blend Fund, Inc.
Principal Partners LargeCap Growth Fund, Inc.
Principal Partners LargeCap Value Fund, Inc.
Principal Partners MidCap Growth Fund, Inc.
Principal Partners SmallCap Growth Fund, Inc.
Principal Real Estate Fund, Inc.
Principal SmallCap Fund, Inc.
Principal Tax-Exempt Bond Fund, Inc.
Principal Utilities Fund, Inc.
