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                          TRANSFER AGENCY AGREEMENT AND
                         SHAREHOLDER SERVICES AGREEMENT

     AGREEMENT to be  effective  December  12,  2000,  by and between  PRINCIPAL
PARTNERS SMALLCAP GROWTH FUND, INC., a Maryland corporation  (hereinafter called
the  "Fund")  and  PRINCIPAL   MANAGEMENT   CORPORATION,   an  Iowa  corporation
(hereinafter called "the Manager").

                              W I T N E S S E T H:

     WHEREAS,  The Fund has furnished the Manager with copies properly certified
or authenticated of each of the following:

     (a) Certificate of Incorporation of the Fund;

     (b) Bylaws of the Fund as adopted by the Board of Directors;

     (c) Resolutions of the Board of Directors of the Fund selecting the Manager
         as transfer and  shareholder  servicing agent and approving the form of
         this Agreement.

     WHEREAS, the Manager is registered as a transfer agent under Section 17A of
the Securities Exchange Act of 1934, as amended (the "1934 Act");

     NOW,  THEREFORE,  in  consideration  of the premises and mutual  agreements
herein  contained,  the Fund hereby  appoints the Manager to act as transfer and
shareholder  servicing agent of the Fund, and the Manager agrees to act, perform
or  assume  the  responsibility  therefor  in  the  manner  and  subject  to the
conditions hereinafter set forth. The Fund will furnish the Manager from time to
time with copies,  properly certified or authenticated,  of all amendments of or
supplements to the foregoing, if any.

1.   SERVICES FURNISHED BY THE MANAGER

     The Manager will act as, and provide all services customarily performed by,
the transfer and paying agent of the Fund  including,  without  limitation,  the
following:

     (a)  preparation  and   distribution   to  shareholders  of  reports,   tax
          information, notices, proxy statements and proxies;

     (b)  preparation and  distribution of dividend and capital gain payments to
          shareholders;

     (c)  issuance,  transfer and registry of shares,  and  maintenance  of open
          account system;

     (d)  delivery,  redemption  and  repurchase of shares,  and  remittances to
          shareholders; and

     (e)  communication with shareholders concerning items (a), (b), (c) and (d)
          above.

     In the carrying out of this function,  the Manager may contract with others
     for data systems,  processing services and other  administrative  services.
     The Manager may at any time or times in its discretion  appoint (and may at
     any time remove) other parties as its agent to carry out such provisions of
     the  Agreement  as the  Manager  may from  time to time  direct;  provided,
     however,  that the  appointment  of any such agent  shall not  relieve  the
     Manager of any of its responsibilities or liabilities hereunder.

     The Manager will maintain  records in  reasonable  detail that will support
the amount it charges the Fund for performance of the services set forth in this
Section 1. At the end of each  calendar  month the Fund will pay the Manager for
its performance of these services.

2.   LIMITATION OF LIABILITY OF THE MANAGER

     The Manager shall not be liable for any error of judgment or mistake of law
or for any loss  suffered  by the Fund in  connection  with the matters to which
this Agreement relates,  except a loss resulting from willful  misfeasance,  bad
faith or gross negligence on the Manager's part in the performance of its duties
or from  reckless  disregard  by it of its  obligations  and  duties  under this
Agreement.

3.   DURATION AND TERMINATION OF THIS AGREEMENT

     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,  by
vote of a majority of the outstanding  voting  securities of the Fund, or by the
Manager.

4.   AMENDMENT OF THIS AGREEMENT

     No  provision  of this  Agreement  may be changed,  waived,  discharged  or
terminated  orally,  but only by an  instrument  in writing  signed by the party
against which  enforcement  of the change,  waiver,  discharge or termination is
sought.

5.   ADDRESS FOR PURPOSE OF NOTICE

     Any  notice  under  this  Agreement  shall  be in  writing,  addressed  and
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate for the receipt of such notices.  Until further notice
to the other  party,  it is agreed  that the address of the Fund and that of the
Manager for this purpose shall be the  Principal  Financial  Group,  Des Moines,
Iowa 50392.

6.   MISCELLANEOUS

     The captions in this  Agreement are included for  convenience  of reference
only,  and in no way define or limit any of the  provisions  hereof or otherwise
affect  their   construction   or  effect.   This   Agreement  may  be  executed
simultaneously  in two or more  counterparts,  each of which  shall be deemed an
original,  but  all  of  which  together  shall  constitute  one  and  the  same
instrument.

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
executed by their respective officers thereunto duly authorized.

              Principal Partners SmallCap Growth Fund, Inc.


              By      /s/Arthur S. Filean
                     --------------------------------------------------------
                     Arthur S. Filean, Senior Vice President


              Principal Management Corporation


              By     /s/Ralph C. Eucher
                     --------------------------------------------------------
                     Ralph C. Eucher, President