FIRST AMENDMENT TO THE PRINCIPAL SPECIAL MARKETS FUND, INC.

                             FIRST AMENDMENT TO THE

                      PRINCIPAL SPECIAL MARKETS FUND, INC.

                             DISTRIBUTION AGREEMENT


The Distribution  Agreement  executed and entered into by and between  Principal
Special  Markets Fund,  Inc.,  an Maryland  corporation,  and Princor  Financial
Services  Corporation,  an Iowa corporation,  on the 22nd day of April, 1993, is
hereby amended to including the following:


                      PRINCIPAL SPECIAL MARKETS FUNDS, INC.
                       DISTRIBUTION AGREEMENT - APPENDIX A


                                    Portfolio

               1.   International Emerging Markets Portfolio

               2.   International Securities Portfolio

               3.   International SmallCap Portfolio

               4.   Mortgage-Backed Securities Portfolio


Executed this 1st day of November, 1997

                                     Principal Special Markets Fund, Inc.


                                             /s/ A. S. Filean
                                     by:_________________________________


                                     Princor Financial Services Corporation


                                            /s/ X. X. Xxxxx
                                     by:_________________________________