A Message from the President
Dear Shareholder
A strong U.S. economy continues to provide a favorable environment for mutual
fund investors. Interest rates remain low and strong corporate earnings persist.
During the first quarter of 1998, the Dow Jones Industrial Average returned
11.75% while the Standard & Poor's 500 Composite Index increased 13.95%. Through
this same period, Principal Mutual Funds shareholders also enjoyed attractive
rates of return. However, as always, we caution investors that past performance
does not guarantee future results.
During 1997, industry assets grew at a remarkable rate. Total mutual fund assets
rose 27% to $4.5 trillion.* This increase was due in part to rising domestic
stock prices, but is also attributable to positive cash flow from individual
investors. Principal Mutual Funds experienced similar growth. Our assets under
management (public and private funds) grew to more than $5 billion at the end of
1997, an increase of 32% from the preceding year.
We maintain our practice of bringing new products and services to the public on
a regular basis. In early January, Principal Mutual Funds added two more names
to the family--Principal Real Estate Fund and Principal SmallCap Fund. These
additions bring our total number of mutual funds offerings to eighteen. In
April, Principal Mutual Funds introduced a self-styled diversification
program--Principal Trailblazer. Trailblazer acts as a compliment to our asset
allocation program--Principal Path. To learn more about the expanding menu of
Principal Mutual Funds products and services, we encourage you to contact your
registered representative.
Principal Mutual Funds has more exciting projects in the works, some of which
you will be hearing about soon. We thank you for helping us enjoy another
successful year and look forward to serving all your future investment needs.
Sincerely,
/s/ STEPHAN L. JONES
Stephan L. Jones
President
*Source: Investment Company Institute
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Table of Contents
Page
Manager's Comments......................................................... 4
Which Individual Retirement Account is Right for You?...................... 12
Domestic Growth-Oriented Funds Financial Statements and Highlights
Statements of Assets and Liabilities..................................... 14
Statements of Operations................................................. 16
Statements of Changes in Net Assets...................................... 18
Notes to Financial Statements............................................ 20
Schedules of Investments
Balanced Fund........................................................... 26
Blue Chip Fund.......................................................... 29
Capital Value Fund...................................................... 30
Growth Fund............................................................. 31
MidCap Fund............................................................. 34
Real Estate Fund........................................................ 36
SmallCap Fund........................................................... 37
Utilities Fund.......................................................... 39
Financial Highlights..................................................... 40
International Growth-Oriented Funds Financial Statements and Highlights
Statements of Assets and Liabilities..................................... 50
Statements of Operations................................................. 51
Statements of Changes in Net Assets...................................... 52
Notes to Financial Statements............................................ 54
Schedules of Investments
International Emerging Markets Fund..................................... 62
International Fund...................................................... 64
International SmallCap Fund............................................. 66
Financial Highlights....................................................... 70
Income-Oriented Funds Financial Statements and Highlights
Statements of Assets and Liabilities..................................... 74
Statements of Operations................................................. 76
Statements of Changes in Net Assets...................................... 78
Notes to Financial Statements............................................ 80
Schedules of Investments
Bond Fund.............................................................. 86
Government Securities Income Fund....................................... 89
High Yield Fund......................................................... 89
Limited Term Bond Fund.................................................. 91
Tax-Exempt Bond Fund.................................................... 92
Financial Highlights..................................................... 98
Money Market Funds Financial Statements and Highlights
Statements of Assets and Liabilities..................................... 106
Statements of Operations................................................. 107
Statements of Changes in Net Assets...................................... 108
Notes to Financial Statements............................................ 110
Schedules of Investments
Cash Management Fund.................................................... 114
Tax-Exempt Cash Management Fund......................................... 116
Financial Highlights..................................................... 120
Principal Family of Mutual Funds........................................... 124
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<TABLE>
<CAPTION>
Principal Funds Performance
Average Annual Total Returns
As of March 31, 1998
1 Year 5 Years 10 Years
with without with without with without
sales sales sales sales sales sales
A Shares of: charge charge charge charge charge charge
<S> <C> <C> <C> <C> <C> <C>
Balanced 18.59% 24.43% 11.05% 12.13% 10.84% 11.37%
Blue Chip 32.02 38.53 17.17 18.30 15.11(a) 15.89(a)
Bond 8.58 13.94 6.58 7.61 8.71 9.23
Capital Value 35.08 41.74 18.41 19.56 14.38 14.93
Government Securities Income 7.19 12.48 5.52 6.54 8.29 8.82
Growth 37.68 44.47 19.22 20.37 16.96 17.53
High Yield 6.38 11.62 7.95 8.99 7.68 8.20
International 18.88 24.74 16.57 17.70 11.87 12.41
International Emerging Markets (8.88)(b) (4.33)(b)
International SmallCap 14.09(b) 19.78(b)
Limited Term Bond 6.31 7.93 5.32(c) 6.08(c)
MidCap 32.86 39.41 18.64 19.79 17.41 17.97
Real Estate 5.06(d) (0.33)(d)
SmallCap 7.31(d) 12.66(d)
Tax-Exempt Bond 5.13 10.31 5.34 6.36 7.80 8.32
Utilities 35.01 41.67 10.46 11.53 12.14(e) 13.16(e)
</TABLE>
1 Year 5 Years(f)
with without with without
B Shares of: CDSC* CDSC* CDSC* CDSC*
Balanced 19.39% 23.39% 17.26% 17.88%
Blue Chip 33.56 37.56 26.23 26.76
Bond 9.14 13.14 9.45 10.18
Capital Value 36.55 40.55 28.65 29.15
Government Securities Income 7.80 11.80 8.90 9.64
Growth 39.82 43.82 27.47 27.99
High Yield 6.55 10.55 10.60 11.31
International 19.89 23.89 17.94 18.55
International Emerging Markets (8.16)(b) (4.33)(b)
International SmallCap 15.68(b) 19.68(b)
Limited Term Bond 6.25 7.50 5.08(c) 5.65(c)
MidCap 34.77 38.77 27.60 28.11
Real Estate (4.33)(d) (0.36)(d)
SmallCap 8.66(d) 12.66(d)
Tax-Exempt Bond 5.65 9.65 9.47 10.20
Utilities 36.72 40.72 21.19 21.77
* Contingent Deferred Sales Charge
R Shares of: 1 Year 5 Years(c)
Balanced 23.65% 16.38%
Blue Chip 37.79 24.57
Bond 13.33 7.78
Capital Value 40.71 28.32
Government Securities Income 11.50 6.87
Growth 43.52 24.60
High Yield 10.35 9.68
International 23.84 21.15
International Emerging Markets (4.33)(b)
International SmallCap 19.78(b)
Limited Term Bond 7.34 5.45
MidCap 38.61 22.62
Real Estate (0.35)(d)
SmallCap 12.66(d)
Utilities 41.01 19.10
(a) Partial period, from effective date 3/1/91
(b) Partial period, from effective date 8/29/97
(c) Partial period, from effective date 2/29/96
(d) Partial period, from effective date 12/31/97
(e) Partial period, from effective date 12/16/92
(f) Partial period, from effective date 12/9/94
Total return represents the overall performance of an investment for a
specific period of time, assuming the reinvestment of dividends and capital
gains and after applicable expenses. Average annual total returns for A
shares are with and without maximum 4.75% sales charge. Average annual total
returns for B shares are with and without maximum 4.0% contingent deferred
sales charge. Total returns reflect past performance. Past performance does
not predict future performance. The investment return and principal value of
an investment will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
<PAGE>
MANAGER'S COMMENTS
Principal Management Corporation, the adviser to the Principal funds, is staffed
with investment professionals who manage each individual fund. Comments by these
individuals in the following paragraphs summarize in capsule form the general
strategy and recent results of each fund over the past six months. We believe
any Principal fund should, under normal circumstances, represent only a portion
of an investor's total investments. For most investors a portfolio should be
balanced among stocks, bonds, and cash reserves to fit their own needs and risk
tolerance. Those who maintain this balanced approach should be aware of the
short-term results, but focus on the long term. Past performance is no guarantee
of future results. Fund values will fluctuate so that the shares, upon
redemption, may be worth more or less than their original cost.
Growth-Oriented Funds
DOMESTIC GROWTH FUNDS
Principal Balanced Fund
Marty Schafer Judi Vogel
Principal Balanced Fund is exactly what its name implies: a balanced portfolio
of stocks and bonds managed to produce total returns at a relatively low risk
level. The Fund's approach is one of adding value through security selection
while maintaining a balanced asset allocation of approximately 60% equities and
40% fixed income. The Fund participates in both the bond and stock markets which
in the last six months have produced mediocre and phenomenal results,
respectively. Interest rates have been stable to slightly lower over the period,
limiting fixed income returns to little more than coupon income. Meanwhile,
economic growth, employment, consumer spending and corporate profits have been
very strong. This rare combination of "perfect" conditions contributed to the
equity market's surge. Tremendous capital flows into equity mutual funds played
a part as well. With three consecutive years of equity returns over 20%,
investor confidence is extremely high. Principal Balanced Fund produced a return
for the first early 1998 which was attractive in the absolute, but trailed the
Lipper Balanced Fund Average. The Fund's consistent approach of identifying
companies that represent good long term values was not well rewarded in a market
focused on earnings momentum and liquidity. The Fund's outlook calls for a
deceleration in corporate profit growth, a contraction in equity valuations, and
slightly lower interest rates. Under this scenario the Fund's focus on quality
and value should produce attractive results for conservative investors.
Principal Blue Chip Fund
Mark Williams
The Dow Jones Industrial Average turned in strong performance over the past six
months. First quarter 1998 performance stood out as the Dow rose 11.3%, the best
showing for that period since 1987. This performance was all the more remarkable
given the mix of economic news. During the period, the inflation-adjusted price
of oil hit its lowest levels since before the energy crisis of the 1970s.
According to government sources, consumer confidence in the economy shot up to a
near record high in early 1998, and continues near that level. At the same time,
trouble continued to mount in Asia. U.S. profit growth projections for 1998 were
put at just 1-2%, which if they prove to be true, will amount to the slowest
growth for the U.S. economy since the 1990-91 recession.
Fund strategy continues to be to invest in high quality companies with a rising
dividend focus. While this overall strategy does not change, the actual
investment portfolio undergoes continual scrutiny and adjustment. During the
past six months, the Fund has become more defensive in order to limit downside
exposure should a market correction occur.
Principal Capital Value Fund
Catherine Zaharis
The strategy for Principal Capital Value Fund is to look for companies which are
priced at a discount relative to their historical levels. The focus is then on
the future and how companies are valued relative to their worth as ongoing
business operations. This strategy gives the portfolio a foundation based on the
underlying value of the business.
The markets have dealt with an unusual period during the past six months.
Earlier in this period, turmoil ruled the day as Asian woes impacted the
domestic stock market. Businesses with large overseas sales which could be
impacted by weakening worldwide economies were hurt. Later in the period, the
situation reversed itself. Many technology stocks have rebounded dramatically
from last fall. The market has now forgiven stocks with earnings problems from
Asian issues.
Fund management still believes the jury is out on the earnings impact on U.S.
companies which must deal with changes in the world economy. The portfolio is
focused on holdings of companies selling at a discount to their business value,
as well as companies where the impact of a continuing Asian crisis will not be
as great.
Principal Growth Fund
Mike Hamilton
During the past six months investors preferred large company stocks. Their more
stable and visible earnings offset investor fears about problems in Asia and the
impact of cheaper imports on small companies. The Fund was up 22.53% for the
period, just ahead of the S&P 500 at 22.49%. Healthcare and technology were
strong performing sectors. While energy was the weakest sector, lower fuel
prices did aid continued growth in the domestic economy.
The manager continues to focus on technology companies which enhance
productivity, financial stocks with good businesses amid consolidation, and
healthcare stocks which appear to benefit from strong demographics.
Principal MidCap Fund
Mike Hamilton
Continued economic growth and lack of inflation worries lifted the domestic
markets ever higher over the past six months. The Fund performed favorably, up
14.33%, as compared to a 14.29% gain for the Lipper MidCap Index. At the same
time, large cap stocks generally out performed all others as the S&P 500
finished up 22.49%.
During the period, the manager monitored the economy for early signs of a
resurgence of inflation and high interest rates and favored reasonably priced
companies with good products. The portfolio is overweighted in sectors with
positive long term tends such as healthcare, technology, and growth cyclicals.
This high quality bias is intended to insulate the Fund from business risks
should inflation and high interest rates surface in the economy.
Principal Real Estate Fund
Kelly Rush
There has been a disconnect this year between real estate stock performance and
U.S. commercial real estate conditions. While real estate markets are robust and
company earnings announcements have been favorable, real estate stocks have been
under pressure since the inception of the Fund in January 1998. Relative
performance of the Fund has been below the Lipper Real Estate Fund Average of
real estate funds during this relatively short period.
So far this year, investor fears of real estate market deterioration has led to
the negative returns. Stories of soaring costs being paid by companies for real
estate and signs of new construction are feeding investor fears of the cyclical
nature of this industry. Fund managers feel the market has prematurely
anticipated a deterioration in the real estate conditions and continued
robustness will be experienced through 1999, assuming a stable macro-economic
environment.
Market strength, both good and bad, tends to be exaggerated for companies which
own office and hotel properties. In this year's negative environment these
companies have been the worst performers. Fund managers' bullish outlook for
real estate conditions has led to an overweighting in each of these property
types which has primarily driven its relative underperformance. Given a
continued bullish outlook, Fund managers are evaluating whether this year's
decline has presented buying opportunities within this group.
A comparison of real estate stock prices to other equities provides a favorable
outlook for real estate stocks. Real estate stocks, which are valued on a
price/cash flow multiple basis, historically trade at a discount to the
price/earnings multiple of the S&P 500. The combined effect of a soaring S&P 500
and declining real estate stocks has caused this discount to reach the lowest
level observed in the past four years.
Principal Real Estate Fund investing involves risk inherent to the industry,
including interest rates, mortgage values and REITs.
Principal SmallCap Fund
John McClain Mark Williams
Principal SmallCap Fund just completed its first quarter of operation. The
strategy of the Fund is to take the best of the investment manager's small cap
growth and small cap value research efforts and build a single portfolio. By
doing so, Fund managers hope to provide superior results when compared to other
small cap funds.
At the end of April approximately 60% of the Fund's assets were invested in
growth stocks with the balance in value stocks. This allocation was chosen for
two reasons. First, the small cap value sector has outperformed the small cap
growth sector for several measurement periods. Fund managers believe this
performance balance going forward has a good chance of being reversed, or at
least not expanded further. Second, the opportunities for superior stock
selection are greater in the growth area at this time.
Principal Utilities Fund
Catherine Zaharis
The utility industry has been experiencing major changes as we move from a
regulated environment to open competition. Natural gas is the sector having the
most experience with these changes, but the electric and telephone companies are
also experiencing a new business environment. With these changes, stock prices
have experienced greater volatility. As the market continues to determine how to
invest in a changing industry, the focus will continue to shift moving forward.
The manager's strategy is to determine the companies which are likely to be
successful in preparing themselves for the move to a more competitive
environment. Companies are taking different paths to move to competition, and
there may be more than one way to be successful. With electrics, being a low
cost provider can be an advantage. Diversifying overseas is another way some
companies are trying to grow. Adding additional energy service products is yet
another way a company can add to its revenue base. In the telecommunications
area, companies are expanding product capabilities including cable, data
services and high speed internet connections.
Consolidation is now a major factor in telecommunications. Two of the Fund's
holdings have announced mergers with other firms within the industry. Also,
strategic alliances are being formed with business partners that will assist
these companies and their ability to compete. Electric utility performance was
impacted by regulatory changes which have been happening state by state. As
issues are settled, many stocks have rebounded nicely. Also, companies which
have announced coherent strategies to move forward have positively impacted
stock returns. Stocks without regulatory changes or new business strategies have
not performed well in these markets.
Quality continues to be a focus of this portfolio and the manager continues to
monitor this changing environment to determine factors which will help these
companies succeed.
Principal Utilities Fund is subject to market conditions directly related to the
utilities industry.
INTERNATIONAL GROWTH FUNDS
Principal International Emerging Markets
Kurt Spieler
The weak relative performance of emerging markets, which began in the second
half of 1997, continued in the first quarter of 1998. After the dramatic
capitulations in 1997, emerging markets experienced a significant rebound in
February and March, led by the Asian region. Relative returns were positive over
the last six months with the Fund returning 6.6% vs. 3.6% for the MSCI EMF
Index. Even with the strength of the Asian currencies, currency devaluation
negatively impacted the Fund's results by -2.1% over the last six months vs.
- -2.0% for the MSCI EMF Index.
The Fund's portfolio is diversified by region with Latin America making up 42%,
EMEA (Eastern Europe, Middle East, Africa) 33% and Asia 25%. At the beginning of
1998 fund managers believed currencies in Asia had devalued past their fair
value and searched the universe for ideas. As we looked at Asia, we discovered a
divergence of recent stock performance within the countries. High quality, blue
chip companies (either exporters or strong balance sheet, defensive, local
companies) had held up extremely well and were still at high valuations. The
massive negative performance in Asian prices last year resulted from the banking
and property sector as well as the high number of companies in financial
difficulty. Both the stock markets and currencies rebounded strongly in the
first quarter of 1998, in part from the low liquidity in these markets. It seems
the Asian bounce has run its course as valuations have now reached the
pre-devaluation level in a majority of the stock markets. Fund managers continue
to focus on financial strength as evidenced by balance sheet numbers.
Valuation levels and growth potential make Latin America of current interest. At
the present time the focus is primarily on companies in Latin America, Eastern
Europe and the Middle East. The Fund did see several leveraged companies in
Latin American and remains focused on cash generating businesses.
Principal International Fund
Scott Opsal
The world investment markets experienced two dramatically different periods of
performance over the course of the first half of the fiscal year. The first two
months saw continued weakness in global markets because of the lingering effect
of the Asian crisis. As the situation in Asia stabilized and European companies
reported stellar earnings, markets around the world bounced back, especially in
Europe. Another factor contributing to strong markets across Europe was the
recommendation by the European Commission to include all eleven hopefuls in the
first round of monetary union. Most markets remain at or near their recent
highs. The one important exception was Japan. After suffering due to the Asian
crisis along with the rest of the world, and bouncing back during the January to
March time period, the Japanese market has severely underperformed since the
government withdrew its artificial support of the market after the end of
Japan's fiscal year on March 31.
The Principal International Fund outperformed the MSCI EAFE Index during the
turbulent first half of the fiscal year. The continued heavy exposure in Europe
and minimal weightings in Japan allowed the Fund to perform well. Positions in
defensive stocks as well as stocks that offer above average long-term business
growth performed very well. Very little exposure in Asia hurt relative
performance as Asian markets rebounded, but began to pay off again as those
markets faltered in recent months. Fund managers continue to look for
opportunities in Japan and the rest of Asia. However, valuations of high quality
companies are still very high and the forward looking returns of the lower
quality companies are not high enough to compensate for their higher risk. With
equity valuations globally at record levels, the focus continues to be on
finding attractively priced defensive companies. Europe is still offering the
largest number of interesting investment opportunities.
Principal International SmallCap
Darren Sleister
The ongoing stance of overweighting Europe and a low exposure to Asia continues
to serve shareholders of the Fund well. Europe experienced stock market
jubilation as the process of unification moved forward. Asian markets remained
volatile by bouncing back in the first six weeks of 1998 after the significant
declines experienced in 1997. These market gains were returned in the second
half of the quarter. General exposure to deregulating telecommunications and
airlines, financial sector growth and consolidation, and technology all added
significantly to the Fund's performance of 25.5% over the past six months versus
the Salomon Brothers Less Than $1 Billion Index return of 4.5%.
The past six months served as a reminder that international markets present both
stock and currency risks to U.S. based investors, and that these risks are not
predictable on a near-term basis. It was not surprising to see several markets
rise dramatically in such a short period given their dramatic sell-off last
year. Fund managers now believe valuation levels are at or above pre-crisis
levels in most Asian markets. Given that stability has not arrived, the managers
remain cautious about Asia but are aware of the attractive valuations vis a vis
the rest of the world.
At this time Fund managers continue to favor European stocks even in the face of
their increasing valuations. Exposure to technology, telecom and airline
deregulation, financial industry consolidation and growth, deep sea oil
exploitation enablers and outsourcing businesses continue to be positive factors
impacting future fund performance. Muted economic growth globally is expected;
therefore the Fund is avoiding retailers, cyclical stocks and hard
commodity-based businesses. Fund managers continue searching for value in Japan
and are finding some interesting opportunities but have yet to start buying
there. Managers anticipate re-entering the Asian region either later this year
or early next year, but prefer to see a more stable economic outlook. Until
valuations come more in line with economic reality, the Fund will refrain from
buying Asian companies to any large degree.
Important Notes for Growth-Oriented Funds
The values of these indexes will vary according to the aggregate value of the
common equity of each of the securities included. The indexes represent asset
types which are subject to risk, including possible loss of principal. These are
unmanaged indexes into which direct investment is not possible.
Investments in Principal MidCap, Principal SmallCap and Principal International
SmallCap Funds involve more abrupt or erratic market movements and greater risk
than other larger company stock fund investments.
The International Growth Funds are subject to volatility caused by exchange
rates, foreign economies and foreign taxes.
Dow Jones Industrial Index: This average is a price-weighted average of 30
actively traded blue chip stocks.
Lipper Balanced Fund Average: This average consists of funds whose primary
objective is to conserve principal by maintaining at all times a balanced
portfolio of both stocks and bonds. Typically, the stock/bond ratio ranges
around 60%/40%. The one-year average currently contains 367 funds.
Lipper Mid Cap Fund Average: This average consists of funds which, by prospectus
or portfolio practice, limit their investments to companies with average market
capitalizations and/or revenues between $800 million and the average market
capitalization of the Wilshire 4500 Index (as captured by the Vanguard Index
Extended Market Fund). The one-year average currently contains 274 funds.
Lipper Real Estate Fund Average: This average consists of funds which invest 65%
of their portfolio in equity securities of domestic and foreign companies
engaged in the real estate industry. The one-year average currently contains 71
funds.
Morgan Stanley Capital International EAFE (Europe, Australia and Far East)
Index: This average reflects an arithmetic, market value weighted average of
performance of 1,920 listed securities which are listed on the stock exchanges
of the following countries: Australia, Austria, Belgium, Denmark, Netherlands,
New Zealand, Norway, Singapore/Malaysia, Spain, Sweden, Switzerland, and the
United Kingdom.
Morgan Stanley EMF (Emerging Markets Free) Index: This average is capitalization
weighted and consists of stocks from 26 countries. These countries include:
Argentina, Brazil, Chile, China Free, Columbia, Czech Republic, Greece, Hungary,
India, Indonesia Free, Israel, Jordan, Korea at 50%, Malaysia Free, Mexico Free,
Pakistan, Peru, Philippines Free, Poland, Portugal, South Africa, Sri Lanka,
Taiwan at 50%, Thailand Free, Turkey and Venezuela.
Solomon Brothers Less Than $1 Billion Index: All international companies falling
under a $1 billion U.S. market cap.
Standard & Poor's 500 Stock Index: An unmanaged index of 500 widely held common
stocks representing industrial, financial, utility and transportation companies
listed on the New York Stock Exchange, American Stock Exchange and the
Over-the-Counter market.
Income-Oriented Funds
Principal Bond Fund
Scott Bennett
Economic conditions in the U.S. continue to be extremely favorable with strong
economic growth, very little inflation and a growing government surplus. The
financial problems in Asia continue to linger and negatively impact companies or
industries with significant Asian ties. However, Asian problems have also helped
cool a possibly overheated U.S. economy through reduced exports and limited
pricing leverage due to the availability of cheap Asian imports. These
conditions have been positive for fixed income investors as the premium demanded
for corporate bonds has decreased from the initial Asian problems and interest
rates have remained within a fairly small trading range.
Principal Bond Fund, which invests primarily in BBB-rated securities, is well
positioned for such an environment. BBB-rated corporate bonds, while still
considered investment grade, contain somewhat more risk than higher-rated
securities but compensate investors with greater returns which in stable
economic times seem more than adequate for the additional risk assumed.
Principal Bond Fund is also well diversified by industry and the number of
companies in the Fund, which helps limit the impact of any problems.
Principal Government Securities Income Fund
Marty Schafer
Falling interest rates have led to a strong performance from Principal
Government Securities Income Fund, due mainly to the duration* of the portfolio.
Fund results were increased by identifying and selecting certain undervalued
GNMA securities for a portion of the portfolio. These securities have now become
very popular with both Wall Street and other investors, resulting in an increase
in value.
Fund management believes the current portfolio to be well positioned for the
period ahead. A number of securities in the portfolio are "seasoned" (e.g.,
original 30-year loans which have been outstanding for three years or more) and,
therefore, are valued more highly in the marketplace. The majority of securities
in the Fund are priced below par, so prepayment risk is negligible. Fund
managers are shortening maturity slowly with new cash flows. The current
strategy of staying fully invested in generic GNMA pass-throughs with a mix of
coupons has served the Fund well and should continue to do so going forward.
While the underlying securities of Principal Government Securities Income Fund
are guaranteed by the U.S. Government as to the timely payment of principal and
interest, Fund shares are not.
Principal High Yield Fund
Mark Denkinger
The high yield bond market continued to perform well for the six months ended
April 30. A modest decline in interest rates and a strong equity market helped
drive returns. Principal High Yield Fund underperformed the Lehman Brothers High
Yield Index during this time due to an overexposure to Indonesia and the
maintenance of a higher quality portfolio. With default rates remaining
relatively low, lower quality bonds (to which the manager limits the Fund's
exposure) continue to be rewarded in this market.
The high yield bond market continues to be very robust, as more participants are
involved in the market both as purchasers and issuers. Newly issued bonds and
net cash inflows into mutual funds are once again on record pace. New issue
volume combined with historically low default rates, low inflation and a strong
economy has continued to make the high yield bond market very attractive.
The Fund maintains a B+ average quality, comprised of BB and B bonds. This is a
relatively conservative risk position compared to other funds in the high yield
bond market. Going forward the managers will look to increase exposure to lower
quality bonds, but only at the margin. At the end of April the Fund was well
diversified among 60 bonds of various sectors. Over time the number of holdings
will be reduced to around 40. Fund managers continue with a bottom-up approach
to security selection in both the new issue and secondary market. Principal High
Yield Fund continues to demonstrate that it is a valuable asset class which can
enhance overall portfolio diversification and investment returns.
Principal Limited Term Bond Fund
Marty Schafer
Principal Limited Term Bond Fund continues to be an investment well suited for
those investors looking to improve on lower yielding money market funds and
similar investments, but unwilling to take on the investment risk of longer term
bonds or stocks.
The absolute levels of nominal and real interest rates are an important factor
in determining economic growth. Market fear of a slowing U.S. economy, given low
domestic growth in and a flood of exports from Asia, pushed rates in the U.S.
significantly lower than expected in the fourth quarter of 1997. These lower
interest rates, in turn, spurred the interest rate sensitive sectors of the U.S.
economy, especially housing, during the first quarter of 1998. In February,
housing starts, permits and sales of existing and new homes set cyclical or all
time record highs. First quarter real gross domestic product is expected to
increase by +4.0%, which is very impressive for an economy in its seventh year
of expansion. This demonstrates the tremendously diversified U.S. economy where
despite recessionary conditions in Asia (which means reduced growth in export
orders for many U.S. companies and high dollar growth in imports from Asia), is
keeping goods and commodity prices low. The adverse impact to the U.S.
manufacturing sector is being effectively counterbalanced by high levels of
consumer demand and residential housing activity. Given the continuing tension
between strength in U.S. domestic demand and the drain of foreign trade
deficits, interest rates have remained in a relatively narrow range. At this
time, insufficient evidence has accumulated on either side of the economic
strength/weakness equation to drive rates higher or lower on a trend basis.
While U.S. investors efficiently traded bonds during the first quarter of 1998
based on daily news, their timing was not always effective. Under Chairman
Greenspan, Federal Reserve monetary policy remains among the most enlightened in
U.S. economic history based on sustained economic growth with low inflation.
Utilizing "preemptive" strikes on the Fed Funds rate**, (the last in March,
1997), the FOMC (Federal Open Market Committee) has been able to utilize the
bond market to do the day-to-day work of regulating interest rate direction and
controlling economic growth.
The U.S. seems to be in a period of financial asset inflation. Watching the cash
flows into financial markets, the largest flow was into equity markets where
investor demand drove equity performance to near record levels. While bond
markets received marginally better cash flows during the first three months of
1998, new bond issuance also surged as issuers found nominal rates even more
attractive than investors did real rates. The supply/demand equation may tip
more to the favor of investors as U.S. government demand for new funds is
reduced by a possible $50 billion (or higher) surplus for fiscal year 1998.
Fund managers continue to invest new cash, search for diversification
opportunities and manage duration* within the risk tolerance of the Fund. New
cash continues to be invested into existing holdings to increase each bond up to
$1 million of the face value. Managers are searching for more stable, A-rated
investments to add as well as other asset classes to expand portfolio
diversification. The Fund has had from its inception a focus on domestic
investments. This focus is expected to continue.
Fund strategy continues to be to stay fully invested, find the best value among
various short-term, fixed-income securities, maintain high credit quality
standards and manage duration within the target range.
Principal Tax-Exempt Bond Fund
Dan Garrett
Principal Tax-Exempt Bond Fund continued to provide good results for
shareholders over the last six months. The strategy of a long-term, disciplined
focus on value-priced investments within the industrial and utility revenue bond
sectors, with managed exposure to interest rate and prepayment risk, continues
to deliver consistent results.
Interest rates have been in a fairly narrow range for the past six months.
Upward rate pressure due to strong domestic growth has been balanced with low
inflation from productivity gains and lower import prices. The past several
years of prosperity and lower rates have prompted several bond issuers to refund
the Fund's higher coupon bonds prior to the call date with welcome results for
shareholders. By eliminating the credit and call risk of these bonds, Fund
shareholders were rewarded with large price increases in these securities. To
hold these bonds would mean a lower yield going forward. Low income producing
bonds are being eliminated from the portfolio and are being replaced with
current market value bonds.
Important Notes for Income-Oriented Funds
Greater credit risks are inherent in a fund which invests primarily in high
yield bonds.
* Duration is the dollar weighted, present value of cash flows, principal and
interest, expressed in time.
** The Fed Funds rate is the rate at which banks lend to each other on an
overnight basis.
Lehman Brothers, High Yield Index: An unmanaged index of all publicly issued
fixed, dollar-denominated, SEC-registered corporate debt rated Ba1 or lower with
at least $100 million outstanding and one year or more to maturity.
Money Market Funds
Principal Cash Management Fund
Principal Tax-Exempt Cash Management Fund
Mike Johnson Steve Schneider
The Federal Reserve Board continued to maintain the targeted Fed Funds rate* at
the 5.50% level set over a year ago at the March 1997 Federal Open Market
Committee (FOMC) meeting. Despite periodic strong economic releases the Fed
chose to remain neutral and hold rates steady since they were not seeing
evidence of increased inflation or any significant negative impact coming from
the Asian crisis. In late 1997, the average portfolio maturity of each Fund was
typically in the 60+ day range, which was close to the industry average.
However, average days declined significantly versus the industry average in
recent weeks in anticipation of planned early May redemptions resulting from the
transition of certain "sweep accounts" (short-term balances of customers of
securities dealers) to another fund organization. Once the liquidation is
complete Fund managers will work to bring each fund generally back in line with
the industry average maturity. Barring unusual circumstances, Fund management
actively monitors the industry averages to keep both yields and average
maturities in line. Both portfolios continue to invest from a list of high
credit quality investments.
Investment in the money market funds is neither insured nor guaranteed by the
U.S. Government. While the Funds strive to maintain a $1.00 per share net asset
value, there can be no guarantee they will do so.
In regard to the tax-exempt fund, income dividends are exempt from federal
taxation but may not be exempt from state and local taxes. The alternative
minimum tax applies to some investors.
* The Fed Funds rate is the rate at which banks lend to each other on an
overnight basis.
<PAGE>
Which Individual Retirement Account is Right for You?
SIMPLE, SEP, Roth or traditional...deciding which Individual Retirement Account
(IRA) is best suited for your particular situation can be a real challenge. The
first step in tackling this challenge is to learn the basics about the different
types of IRAs available.
IRAs for Small Businesses
IRAs are not just for individuals. Small-business owners make good candidates
for IRAs as well. Simplified Employee Pension Plans (SEP-IRA) and Simplified
Match PLan for Employees (SIMPLE-IRA) both offer excellent options for employers
seeking to improve their and their employees' prospects for a more secure
retirement. SEP-IRAs and SIMPLE-IRAs provide the business owner with many
benefits, including:
o Reduced business taxes
o Recruitment and retention of quality employees
o Flexibile contributions
o Inexpensive and easy-to-administer
SEP-IRA SEP-IRAs are entirely employer funded and most appropriate for smaller
businesses, such as sole proprietors, partnerships and small corporations.
Contributions to a SEP-IRA are flexible from year to year and may be skipped
altogether. In general, employers may contribute up to 15% of compensation or
$24,000* (whichever is less) for each participating employee. If more than one
employee is eligible to participate in the plan, the employer must contribute
the same percentage of total income for each participant, or the contribution
may be integrated with Social Security benefits. The plan must cover all
employees who are 21 or older, have worked at the business in three of the past
five years, and have earned at least $400.* Employees who are collectively
bargained need not be included. Contribution percentages can be changed from
year to year at the employer's discretion.
SIMPLE-IRA
A SIMPLE-IRA is designed for businesses with 100 or fewer employees. The plan
requires employer contributions and permits employees to contribute voluntarily
through salary deferrals. Employees can contribute $6,000 or 100% of
compensation, whichever is less. In general, employers must match 100% of the
participating employee's salary deferrals up to 3% of the employee's
compensation. Employers may reduce the maximum matching contribution percentage
to as low as 1% as long as the matching contribution does not fall below 3% in
three years of any five-year period.
As an alternative, employers may make a 2% nonelective contribution to all
eligible employees regardless of whether they are deferring into the plan. With
SIMPLE-IRA, business owners enjoy greater flexibility in their personal
deferrals. They can defer up to $6,000 or 100% of salary* (the lesser of the
two) and also receive employer contributions.
IRAs for Individuals
IRAs continue to offer taxpayers an effective method of saving for retirement.
Even those individuals participating in an employer-sponsored retirement plan
can benefit from establishing and contributing to an IRA. The Taxpayer Relief
Act of 1997 opened new opportunities for investors through the creation of Roth
IRA and the relaxing of certain restrictions on traditional IRAs.
Roth IRA
New in 1998, Roth IRA is generally preferred by those who want to pay their
taxes now rather than at retirement or who are over 70 1/2. Taxpayers of any age
can contribute up to $2,000 per year into a Roth IRA. Roth contributions are
made with after-tax dollars and are nondeductible. However, unlike traditional
IRAs, earnings withdrawn from Roth IRAs can be made federally tax-free if
certain conditions are met (i.e. over age 59 1/2 and the account is at least
five years old). Contribution eligibility for Roth IRA is phased out between
$95,000 and $110,000* of AGI (single filers) and $150,000 and $160,000* of AGI
(married, filing jointly).
Owners of traditional IRAs can convert their accounts to a Roth IRA, if their
AGI does not exceed $100,000 (single or married, filing jointly only). If the
conversion is completed during 1998, the IRA owner can spread the tax
consequences over the next four years (1998 tax year and the suceeding three
years). Though monies converted to a Roth IRA are subject to income taxes, they
are not subject to the 10% IRS-penalty imposed on distributions made prior to
age 59 1/2.
Traditional IRA
Employed individuals may contribute as much as $2,000 per year into a
traditional IRA. In addition, if their spouses do not work outside the home,
they may also contribute up to $2,000 on behalf of their spouses. If an
individual is covered by another retirement plan, his/her IRA contribution may
or may not be deductible, depending on income. Taxpayers who are employed, but
not covered by another retirement plan, can make a fully deductible IRA
contribution regardless of income.
Recent legislation restored deductible IRA contributions to individuals at
higher income levels. Beginning in the 1998 tax year, the income levels for a
fully deductible IRA now begin phase out at $30,000* of AGI (single filers) or
$50,000* of AGI (married, filing jointly). Additionally, now employed
individuals may make fully deductible contributions even if their spouses are
covered by a retirement plan, unless the couple's AGI exceeds $150,000.
Traditional IRA investors must begin taking distributions from the account by
age 70 1/2 and distributions taken prior to age 59 1/2 may be subject to early
withdrawal penalties.
Whether you are a small-business owner looking for an inexpensive,
easy-to-administer retirement plan or an individual seeking to supplement your
retirement savings, Princor has a variety of IRAs to help you achieve your
financial goals. Contact your registered representative today for help in
deciding which Individual Retirement Account is right for you.
*For 1998 tax year.
<PAGE>
April 30, 1998
STATEMENTS OF ASSETS AND LIABILITIES
(unaudited)
<TABLE>
<CAPTION>
Principal Principal Principal
Balanced Blue Chip Capital Value
GROWTH FUNDS (Domestic) Fund, Inc. Fund, Inc. Fund, Inc.
<S> <C> <C> <C>
Investment in securities -- at cost............ $114,368,965 $127,997,311 $431,109,949
Assets
Investment in securities -- at value (Note 4).. $132,438,977 $166,970,417 $655,308,868
Cash........................................... 2,001 179,437 2,001
Receivables:
Dividends and interest...................... 792,892 116,388 763,911
Investment securities sold.................. -- -- --
Capital Stock sold.......................... 533,668 369,372 471,342
Other assets................................... 4,685 35,937 29,438
Total Assets 133,772,223 167,671,551 656,575,560
Liabilities
Accrued expenses............................... 58,288 -- 184,590
Payables:
Investment securities purchased............. -- -- --
Capital Stock reacquired.................... 49,539 44,317 373,237
Total Liabilities 107,827 44,317 557,827
Net Assets Applicable to
Outstanding Shares ............................ $133,664,396 $167,627,234 $656,017,733
Net Assets Consist of:
Capital Stock.................................. $ 86,540 $ 76,704 $ 201,554
Additional paid-in capital..................... 112,323,519 128,782,070 417,233,838
Accumulated undistributed net investment
income (operating loss)..................... 458,109 (192,073) 2,939,292
Accumulated undistributed net realized
gain (loss) on investment transactions...... 2,726,216 (12,573) 11,444,130
Net unrealized appreciation (depreciation)
of investments.............................. 18,070,012 38,973,106 224,198,919
Total Net Assets $133,664,396 $167,627,234 $656,017,733
Capital Stock (par value: $.01 a share):
Shares authorized.............................. 100,000,000 100,000,000 100,000,000
Net Asset Value Per Share:
Class A: Net Assets............................. $100,943,945 $111,810,245 $583,371,309
Shares issued and outstanding.......... 6,525,419 5,109,262 17,909,329
Net asset value per share.............. $15.47 $21.88 $32.57
Maximum offering price per share(a) ... $16.24 $22.97 $34.19
Class B: Net Assets............................. $15,939,464 $28,997,121 $40,019,013
Shares issued and outstanding.......... 1,034,628 1,331,542 1,235,933
Net asset value per share(b)........... $15.41 $21.78 $32.38
Class R: Net Assets............................. $16,780,987 $26,819,868 $32,627,411
Shares issued and outstanding.......... 1,093,941 1,229,564 1,010,138
Net asset value per share.............. $15.34 $21.81 $32.30
</TABLE>
<TABLE>
<CAPTION>
Principal Principal Principal
Growth MidCap Real Estate
GROWTH FUNDS (Domestic) Fund, Inc. Fund, Inc. Fund, Inc.
<S> <C> <C> <C>
Investment in securities -- at cost............ $266,818,869 $327,338,869 $ 11,764,816
Assets
Investment in securities -- at value (Note 4).. $486,702,807 $528,297,149 $ 11,278,996
Cash........................................... 48,132 1,999 2,098
Receivables:
Dividends and interest...................... 379,648 276,158 15,850
Investment securities sold.................. 1,739,942 -- --
Capital Stock sold.......................... 758,483 528,960 20,945
Other assets................................... 11,857 5,547 1,110
Total Assets 489,640,869 529,109,813 11,318,999
Liabilities
Accrued expenses............................... 257,947 228,986 --
Payables:
Investment securities purchased............. -- 3,625,610 105,106
Capital Stock reacquired.................... 383,843 359,361 2,000
Total Liabilities 641,790 4,213,957 107,106
Net Assets Applicable to
Outstanding Shares ............................ $488,999,079 $524,895,856 $11,211,893
Net Assets Consist of:
Capital Stock.................................. $81,745 $104,096 $11,633
Additional paid-in capital..................... 266,111,284 315,979,727 11,613,613
Accumulated undistributed net investment
income (operating loss)..................... 711,795 (259,744) 78,920
Accumulated undistributed net realized
gain (loss) on investment transactions...... 2,210,317 8,113,497 (6,453)
Net unrealized appreciation (depreciation)
of investments.............................. 219,883,938 200,958,280 (485,820)
Total Net Assets $488,999,079 $524,895,856 $ 11,211,893
Capital Stock (par value: $.01 a share):
Shares authorized.............................. 100,000,000 100,000,000 100,000,000
Net Asset Value Per Share:
Class A: Net Assets............................. $402,192,055 $418,417,381 $4,924,786
Shares issued and outstanding.......... 6,720,056 8,277,963 510,883
Net asset value per share.............. $59.85 $50.55 $9.64
Maximum offering price per share(a) ... $62.83 $53.07 $10.12
Class B: Net Assets............................. $59,733,528 $79,726,695 $3,276,327
Shares issued and outstanding.......... 999,821 1,598,130 340,013
Net asset value per share(b)........... $59.74 $49.89 $9.64
Class R: Net Assets............................. $27,073,496 $26,751,780 $3,010,780
Shares issued and outstanding.......... 454,613 533,469 312,419
Net asset value per share.............. $59.55 $50.15 $9.64
</TABLE>
<TABLE>
<CAPTION>
Principal Principal
SmallCap Utilities
GROWTH FUNDS (Domestic) Fund, Inc. Fund, Inc.
<S> <C> <C>
Investment in securities -- at cost............ $ 19,445,808 $66,871,348
Assets
Investment in securities -- at value (Note 4).. $21,135,000 $91,710,399
Cash........................................... 2,463 2,001
Receivables:
Dividends and interest...................... 860 370,410
Investment securities sold.................. -- --
Capital Stock sold.......................... 275,637 45,994
Other assets................................... 14,689 1,089
Total Assets 1,428,649 92,129,893
Liabilities
Accrued expenses............................... -- 46,128
Payables:
Investment securities purchased............. -- --
Capital Stock reacquired.................... 175 54,122
Total Liabilities 175 100,250
Net Assets Applicable to
Outstanding Shares ............................ $21,428,474 $92,029,643
Net Assets Consist of:
Capital Stock.................................. $10 $60,828
Additional paid-in capital..................... 19,276,532 66,206,380
Accumulated undistributed net investment
income (operating loss)..................... (31,572) 245,414
Accumulated undistributed net realized
gain (loss) on investment transactions...... 475,801 677,970
Net unrealized appreciation (depreciation)
of investments.............................. 1,689,192 24,839,051
Total Net Assets $ 21,428,474 $92,029,643
Capital Stock (par value: $.01 a share):
Shares authorized.............................. 100,000,000 100,000,000
Net Asset Value Per Share:
Class A: Net Assets............................. $12,113,127 $79,759,502
Shares issued and outstanding.......... 1,047,017 5,270,526
Net asset value per share.............. $11.57 $15.13
Maximum offering price per share(a) ... $12.15 $15.88
Class B: Net Assets............................. $5,441,151 $9,553,288
Shares issued and outstanding.......... 470,304 632,059
Net asset value per share(b)........... $11.57 $15.11
Class R: Net Assets............................. $3,874,196 $2,716,853
Shares issued and outstanding.......... 334,813 180,233
Net asset value per share.............. $11.57 $15.07
</TABLE>
(a) Maximum offering price is equal to net asset value plus a front-end sales
charge of 4.75% of the offering price or 4.99% of the net asset value.
(b) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See accompanying notes.
Six Months Ended April 30, 1998, Except as Noted
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Principal Principal Principal
Balanced Blue Chip Capital Value
GROWTH FUNDS (Domestic) Fund, Inc. Fund, Inc. Fund, Inc.
<S> <C> <C> <C>
Net Investment Income
Income:
Dividends................................... $ 651,050 $ 1,154,427 $ 6,708,492
Interest.................................... 1,885,829 99,066 284,240
Total Income 2,536,879 1,253,493 6,992,732
Expenses:
Management and investment advisory
fees (Note 3)............................ 348,266 336,334 1,132,944
Distribution and shareholder servicing
fees (Notes 1 and 3)..................... 223,124 302,755 600,858
Transfer and administrative services
(Notes 1 and 3)......................... 221,640 318,409 486,224
Registration fees (Note 1).................. 27,804 33,523 48,170
Custodian fees.............................. 2,353 2,020 1,649
Auditing and legal fees..................... 2,912 3,123 3,392
Directors' fees............................. 3,582 3,599 3,645
Other....................................... 3,921 4,122 19,061
Total Gross Expenses 833,602 1,003,885 2,295,943
Less: Management and investment
advisory fees waived................. -- -- --
Total Net Expenses 833,602 1,003,885 2,295,943
Net Investment Income (Operating Loss) 1,703,277 249,608 4,696,789
Net Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) from investment
transactions 2,727,919 186 11,446,552
Change in unrealized appreciation/
depreciation of investments................. 7,750,561 24,626,051 93,495,472
Net Realized and Unrealized
Gain (Loss) on Investments 10,478,480 24,626,237 104,942,024
Net Increase (Decrease) in Net Assets
Resulting from Operations $12,181,757 $24,875,845 $109,638,813
</TABLE>
<TABLE>
<CAPTION>
Principal Principal Principal
Growth MidCap Real Estate
GROWTH FUNDS (Domestic) Fund, Inc. Fund, Inc. Fund, Inc.(a)
<S> <C> <C> <C>
Net Investment Income
Income:
Dividends................................... $ 2,074,739 $ 1,420,347 $ 175,430
Interest.................................... 1,295,067 1,168,241 43,270
Total Income 3,369,806 2,588,588 218,700
Expenses:
Management and investment advisory
fees (Note 3)............................ 876,447 1,255,621 36,729
Distribution and shareholder servicing
fees (Notes 1 and 3)..................... 654,709 777,419 5,032
Transfer and administrative services
(Notes 1 and 3)......................... 628,127 774,825 22,106
Registration fees (Note 1).................. 40,706 53,030 878
Custodian fees.............................. 2,212 2,517 1,607
Auditing and legal fees..................... 4,297 3,806 2,060
Directors' fees............................. 3,670 3,638 1,457
Other....................................... 12,183 12,224 1,248
Total Gross Expenses 2,222,351 2,883,080 71,117
Less: Management and investment
advisory fees waived................. -- -- --
Total Net Expenses 2,222,351 2,883,080 71,117
Net Investment Income (Operating Loss) 1,147,455 (294,492) 147,583
Net Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) from investment
transactions 2,215,319 8,115,815 (6,453)
Change in unrealized appreciation/
depreciation of investments................. 83,543,199 56,520,171 (485,820)
Net Realized and Unrealized
Gain (Loss) on Investments 85,758,518 64,635,986 (492,273)
Net Increase (Decrease) in Net Assets
Resulting from Operations $86,905,973 $64,341,494 $(344,690)
</TABLE>
<TABLE>
<CAPTION>
Principal Principal
SmallCap Utilities
GROWTH FUNDS (Domestic) Fund, Inc.(a) Fund, Inc.
<S> <C> <C>
Net Investment Income
Income:
Dividends................................... $ 15,357 $ 1,683,334
Interest.................................... 48,251 44,487
Total Income 63,608 1,727,821
Expenses:
Management and investment advisory
fees (Note 3)............................ 45,401 253,455
Distribution and shareholder servicing
fees (Notes 1 and 3)..................... 6,387 139,447
Transfer and administrative services
(Notes 1 and 3)......................... 26,005 129,492
Registration fees (Note 1).................. 1,517 21,552
Custodian fees.............................. 1,014 1,191
Auditing and legal fees..................... 2,155 1,650
Directors' fees............................. 1,748 3,599
Other....................................... 553 3,251
Total Gross Expenses 84,780 553,637
Less: Management and investment
advisory fees waived................. -- 31,675
Total Net Expenses 84,780 521,962
Net Investment Income (Operating Loss) (21,172) 1,205,859
Net Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) from investment
transactions 475,801 742,573
Change in unrealized appreciation/
depreciation of investments................. 1,689,192 14,527,074
Net Realized and Unrealized
Gain (Loss) on Investments 2,164,993 15,269,647
Net Increase (Decrease) in Net Assets
Resulting from Operations $2,143,821 $16,475,506
</TABLE>
(a) Period from December 11, 1997 (date operations commenced) through April 30,
1998.
See accompanying notes.
STATEMENTS OF CHANGES IN NET ASSETS
(unaudited)
<TABLE>
<CAPTION>
Principal Principal Principal
Balanced Blue Chip Capital Value
GROWTH FUNDS (Domestic) Fund, Inc. Fund, Inc. Fund, Inc.
Six Months Year Six Months Year Six Months Year
Ended Ended Ended Ended Ended Ended
April 30, October 31, April 30, October 31, April 30, October 31,
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Operations
Net investment income (operating loss)........ $1,703,277 $2,134,586 $ 249,608 $ 773,899 $ 4,696,789 $ 9,136,213
Net realized gain (loss) from
investment transactions.................... 2,727,919 7,456,891 186 12,146,669 11,446,552 44,903,311
Change in unrealized appreciation/
depreciation of investments................ 7,750,561 3,601,722 24,626,051 617,291 93,495,472 57,109,297
Net Increase (Decrease) in Net Assets
Resulting from Operations 12,181,757 13,193,199 24,875,845 13,537,859 109,638,813 111,148,821
Dividends and Distributions to Shareholders
From net investment income:
Class A.................................... (1,098,973) (1,962,353) (456,343) (664,560) (4,757,398) (8,406,934)
Class B ................................... (107,134) (152,316) (21,461) (25,978) (148,850) (131,991)
Class R.................................... (114,188) (102,915) (43,371) (42,305) (122,222) (86,476)
From net realized gain on investments:
Class A ................................... (5,882,043) (6,130,810) (8,442,704) (1,212,100) (40,821,200) (60,902,870)
Class B ................................... (842,058) (566,868) (1,993,370) (188,032) (2,381,772) (1,471,954)
Class R.................................... (725,965) (112,915) (1,722,256) (55,610) (1,696,668) (338,789)
Total Dividends and Distributions (8,770,361) (9,028,177) (12,679,505) (2,188,585) (49,928,110) (71,339,014)
Capital Share Transactions (Note 5)
Shares sold:
Class A.................................... 12,759,862 21,449,772 22,595,404 34,250,614 36,503,008 57,963,775
Class B ................................... 3,509,693 5,741,685 8,094,490 11,442,392 8,555,467 15,764,589
Class R.................................... 6,752,242 9,101,517 9,362,526 14,353,877 11,694,016 16,511,369
Shares issued in reinvestment of dividends
and distributions:
Class A.................................... 6,813,652 7,361,276 8,632,421 1,791,093 44,628,737 68,083,831
Class B ................................... 941,724 712,904 2,000,314 211,943 2,484,250 1,583,642
Class R.................................... 840,099 215,722 1,765,429 97,891 1,816,348 425,209
Shares redeemed:
Class A ................................... (6,641,568) (17,550,684) (7,663,888) (9,512,640) (45,918,511) (103,901,296)
Class B ................................... (809,134) (943,794) (1,421,766) (1,463,536) (1,639,335) (1,795,682)
Class R ................................... (979,205) (846,178) (1,685,543) (1,259,802) (1,826,791) (1,636,526)
Net Increase (Decrease) in Net Assets
from Capital Share Transactions 23,187,365 25,242,220 41,679,387 49,911,832 56,297,189 52,998,911
Total Increase 26,598,761 29,407,242 53,875,727 61,261,106 116,007,892 92,808,718
Net Assets
Beginning of period........................... 107,065,635 77,658,393 113,751,507 52,490,401 540,009,841 447,201,123
End of period [including undistributed net
investment income (operating loss) as
set forth below] $133,664,396 $107,065,635 $167,627,234 $113,751,507 $656,017,733 $540,009,841
Undistributed Net Investment
Income (Operating Loss).................... $ 458,353 $ 75,127 $ (192,073) $ 79,494 $ 2,939,292 $3,270,973
</TABLE>
<TABLE>
<CAPTION>
Principal Principal Principal
Growth MidCap Real Estate
GROWTH FUNDS (Domestic) Fund, Inc. Fund, Inc. Fund, Inc.
Six Months Year Six Months Year Period
Ended Ended Ended Ended Ended
April 30, October 31, April 30, October 31, April 30,
1998 1997 1998 1997 1998(a)
<S> <C> <C> <C> <C> <C>
Operations
Net investment income (operating loss)........ $1,147,455 $ 2,008,065 $ (294,492) $ 419,786 $ 147,583
Net realized gain (loss) from
investment transactions.................... 2,215,319 11,213,338 8,115,815 10,456,322 (6,453)
Change in unrealized appreciation/
depreciation of investments................ 83,543,199 65,942,389 56,520,171 80,084,426 (485,820)
Net Increase (Decrease) in Net Assets
Resulting from Operations 86,905,973 79,163,792 64,341,494 90,960,534 (344,690)
Dividends and Distributions to Shareholders
From net investment income:
Class A.................................... (1,190,663) (1,853,254) (1,299) (741,359) (29,690)
Class B ................................... (53,033) (14,911) -- (4,780) (19,700)
Class R.................................... (5,784) (8,766) -- (594) (19,273)
From net realized gain on investments:
Class A ................................... (9,419,621) (2,178,840) (8,490,994) (7,708,737) --
Class B ................................... (1,280,280) (232,571) (1,506,372) (989,543) --
Class R.................................... (518,056) (27,607) (456,883) (95,503) --
Total Dividends and Distributions (12,467,437) (4,315,949) (10,455,548) (9,540,516) (68,663)
Capital Share Transactions (Note 5)
Shares sold:
Class A.................................... 33,545,804 54,732,684 44,741,192 76,822,359 5,235,714
Class B ................................... 10,061,541 14,638,635 14,359,628 24,764,751 3,436,589
Class R.................................... 8,033,811 13,558,095 8,051,817 14,520,116 3,116,844
Shares issued in reinvestment of dividends
and distributions:
Class A.................................... 10,339,980 3,915,241 8,300,810 8,245,913 29,605
Class B ................................... 1,309,938 244,569 1,491,261 981,686 19,700
Class R.................................... 523,768 36,360 456,869 96,080 19,274
Shares redeemed:
Class A ................................... (21,016,579) (35,146,370) (24,631,672) (36,719,008) (160,219)
Class B ................................... (2,595,714) (4,184,396) (3,556,152) (4,945,062) (59,340)
Class R ................................... (1,533,568) (1,144,394) (1,871,743) (1,479,854) (12,921)
Net Increase (Decrease) in Net Assets
from Capital Share Transactions 38,668,981 46,650,424 47,342,010 82,286,981 11,625,246
Total Increase 113,107,517 121,498,267 101,227,956 163,706,999 11,211,893
Net Assets
Beginning of period........................... 375,891,562 254,393,295 423,667,900 259,960,901 --
End of period [including undistributed net
investment income (operating loss) as
set forth below] $488,999,079 $375,891,562 $524,895,856 $423,667,900 $11,211,893
Undistributed Net Investment
Income (Operating Loss).................... $ 711,795 $ 813,820 $ (259,744) $ 36,047 $ 78,920
</TABLE>
<TABLE>
Principal Principal
SmallCap Utilities
GROWTH FUNDS (Domestic) Fund, Inc. Fund, Inc.
Period Six Months Year
Ended Ended Ended
April 30, April 30, October 31,
1998(a) 1998 1997
<CAPTION>
<S> <C> <C> <C>
Operations
Net investment income (operating loss)........ $ (21,172) $1,205,859 $ 2,768,051
Net realized gain (loss) from
investment transactions.................... 475,801 742,573 1,274,214
Change in unrealized appreciation/
depreciation of investments................ 1,689,192 14,527,074 5,564,046
Net Increase (Decrease) in Net Assets
Resulting from Operations 2,143,821 16,475,506 9,606,311
Dividends and Distributions to Shareholders
From net investment income:
Class A.................................... (4,160) (1,262,952) (2,431,314)
Class B ................................... (3,120) (112,238) (183,927)
Class R.................................... (3,120) (30,836) (28,627)
From net realized gain on investments:
Class A ................................... -- -- --
Class B ................................... -- -- --
Class R.................................... -- -- --
Total Dividends and Distributions (10,400) (1,406,026) (2,643,868)
Capital Share Transactions (Note 5)
Shares sold:
Class A.................................... 11,254,598 6,905,082 5,270,881
Class B ................................... 4,897,548 2,097,354 2,196,079
Class R.................................... 3,591,709 1,151,688 1,364,313
Shares issued in reinvestment of dividends
and distributions:
Class A.................................... 4,160 1,113,084 2,147,554
Class B ................................... 3,120 101,062 165,257
Class R.................................... 3,120 30,814 28,603
Shares redeemed:
Class A ................................... (235,849) (5,868,640) (15,663,584)
Class B ................................... (9,615) (1,031,821) (1,595,827)
Class R ................................... (213,738) (353,836) (272,901)
Net Increase (Decrease) in Net Assets
from Capital Share Transactions 19,295,053 4,144,787 (6,359,625)
Total Increase 21,428,474 19,214,267 602,818
Net Assets
Beginning of period........................... -- 72,815,376 72,212,558
End of period [including undistributed net
investment income (operating loss) as
set forth below] $21,428,474 $92,029,643 $72,815,376
Undistributed Net Investment
Income (Operating Loss).................... $(31,572) $ 245,414 $ 445,581
</TABLE>
(a) Period from December 11, 1997 (date operations commenced) through April 30,
1998.
See accompanying notes.
April 30, 1998
NOTES TO FINANCIAL STATEMENTS
(unaudited)
Principal Balanced Fund, Inc. Principal MidCap Fund, Inc.
Principal Blue Chip Fund, Inc. Principal Real Estate Fund, Inc.
Principal Capital Value Fund, Inc. Principal SmallCap Fund, Inc.
Principal Growth Fund, Inc. Principal Utilities Fund, Inc.
Note 1 -- Significant Accounting Policies
Principal Balanced Fund, Inc., Principal Blue Chip Fund, Inc., Principal Capital
Value Fund, Inc., Principal Growth Fund, Inc., Principal MidCap Fund, Inc.,
Principal Real Estate Fund, Inc., Principal SmallCap Fund, Inc. and Principal
Utilities Fund, Inc. (the "Domestic Growth Funds") are registered under the
Investment Company Act of 1940, as amended, as open-end diversified management
investment companies and operate in the mutual fund industry.
Effective January 1, 1998, the following changes were made to the names of the
Domestic Growth Funds:
Former Fund Name New Fund Name
Princor Balanced Fund, Inc. Principal Balanced Fund, Inc.
Princor Blue Chip Fund, Inc. Principal Blue Chip Fund, Inc.
Princor Capital Accumulation Fund, Inc. Principal Capital Value Fund,Inc.
Princor Growth Fund, Inc. Principal Growth Fund, Inc.
Princor Emerging Growth Fund, Inc. Principal MidCap Fund, Inc.
Princor Utilities Fund, Inc. Principal Utilities Fund, Inc.
On December 11, 1997, the initial purchases of 400,000 shares of Class A Capital
Stock, 300,000 shares of Class B Capital Stock and 300,000 shares of Class R
Capital Stock of Principal Real Estate Fund, Inc. and Principal SmallCap Fund,
Inc. were made by Principal Mutual Life Insurance Company (see Note 3).
Effective December 31, 1997, Principal Real Estate Fund, Inc. and Principal
SmallCap Fund, Inc. began offering Class A and Class B shares to the public and
Class R shares to eligible purchasers.
Class A shares generally are sold with an initial sales charge based on
declining rates and certain purchases may be subject to a contingent deferred
sales charge ("CDSC"). Class B shares are sold without an initial sales charge,
but are subject to a declining CDSC on certain redemptions redeemed within six
years of purchase. Class R shares are sold without an initial sales charge and
are not subject to a CDSC. Class B shares and Class R shares bear a higher
ongoing distribution fee than Class A shares. Class B shares automatically
convert into Class A shares, based on relative net asset value (without a sales
charge) after seven years. Class R shares automatically convert into Class A
shares, based on relative net asset value (without a sales charge) after four
years. All classes of shares for each fund represent interests in the same
portfolio of investments, and will vote together as a single class except where
otherwise required by law or as determined by each of the Domestic Growth Funds'
respective Board of Directors. In addition, the Board of Directors of each fund
declare separate dividends on each class of shares.
The Domestic Growth Funds allocate daily all income, expenses (other than
class-specific expenses), and realized and unrealized gains or losses to each
class of shares based upon the relative proportion of the value of shares
outstanding of each class. Expenses specifically attributable to a particular
class are charged directly to such class. Class-specific expenses charged to
each class during the period ended April 30, 1998, which are included in the
corresponding captions of the Statement of Operations, were as follows:
<TABLE>
<CAPTION>
Distribution and Transfer and
Shareholder Servicing Fees Administrative Services Registration Fees
Class A Class B Class R Class A Class B Class R Class A Class B Class R
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Balanced Fund, Inc. $114,297 $ 61,111 $47,716 $ 52,019 $ 9,473 $ 7,264 $ 7,238 $4,994 $4,467
Principal Blue Chip Fund, Inc. 118,122 106,464 78,169 52,905 16,131 11,773 12,143 4,511 4,470
Principal Capital Value Fund, Inc. 367,776 139,058 94,024 143,098 19,615 13,741 15,505 6,836 4,896
Principal Growth Fund, Inc. 395,568 179,796 79,345 178,510 32,513 13,019 9,932 5,518 5,214
Principal MidCap Fund, Inc. 433,334 264,989 79,096 212,429 41,459 15,622 13,688 7,313 4,888
Principal Real Estate Fund, Inc. 1,091 2,425 1,516 342 303 302 186 165 165
Principal SmallCap Fund, Inc. 1,892 2,838 1,657 535 385 384 284 218 218
Principal Utilities Fund, Inc. 92,389 38,523 8,535 40,709 4,997 1,953 7,119 4,837 3,745
</TABLE>
The Domestic Growth Funds value securities for which market quotations are
readily available at market value, which is determined using the last reported
sale price or, if no sales are reported, as is regularly the case for some
securities traded over-the-counter, the last reported bid price. When reliable
market quotations are not considered to be readily available, which may be the
case, for example, with respect to certain debt securities and preferred stocks,
the investments are valued by using market quotations, prices provided by market
makers or estimates of market values obtained from yield data and other factors
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by each fund's Board of Directors.
Securities with remaining maturities of 60 days or less are valued at amortized
cost, which approximates market.
The Domestic Growth Funds record investment transactions generally one day after
the trade date, except for short-term investment transactions which are recorded
generally on the trade date. The identified cost basis has been used in
determining the net realized gain or loss from investment transactions and
unrealized appreciation or depreciation of investments. The Domestic Growth
Funds record dividend income on the ex-dividend date. Interest income is
recognized on an accrual basis.
The Domestic Growth Funds may, pursuant to an exemptive order issued by the
Securities and Exchange Commission, transfer uninvested funds into a joint
trading acount. The order permits the Domestic Growth Funds' cash balances to be
deposited into a single joint account along with the cash of other registered
investment companies managed by Principal Management Corporation (formerly known
as Princor Management Corporation) (the "Manager"). These balances may be
invested in one or more short-term instruments.
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Dividends and distributions to shareholders from net investment income and
net realized gain from investments are determined in accordance with federal tax
regulations, which may differ from generally accepted accounting principles.
Permanent book and tax basis differences are reclassified within the capital
accounts based on their federal tax basis treatment; temporary differences do
not require reclassification. Reclassifications made for the year ended October
31, 1997 were not material.
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2 -- Federal Income Taxes
No provision for federal income taxes is considered necessary because each fund
is qualified as a "regulated investment company" under the Internal Revenue Code
and intends to distribute each year substantially all of its net investment
income and realized capital gains to shareholders. The cost of investments for
federal income tax reporting purposes is approximately the same as that for
financial reporting purposes.
Note 3 -- Management Agreement and Transactions With Affiliates
The Domestic Growth Funds have agreed to pay investment advisory and management
fees to Principal Management Corporation (wholly owned by Princor Financial
Services Corporation, a subsidiary of Principal Mutual Life Insurance Company)
computed at an annual percentage rate of each fund's average daily net assets.
The annual rate used in this calculation for the Domestic Growth Funds is as
follows:
<TABLE>
<CAPTION>
Net Asset Value of Funds
(in millions)
First Next Next Next Over
$100 $100 $100 $100 $400
<S> <C> <C> <C> <C> <C>
Principal Balanced Fund, Inc. 0.60% 0.55% 0.50% 0.45% 0.40%
Principal Blue Chip Fund, Inc. 0.50% 0.45% 0.40% 0.35% 0.30%
Principal Capital Value Fund, Inc. 0.50% 0.45% 0.40% 0.35% 0.30%
Principal Growth Fund, Inc. 0.50% 0.45% 0.40% 0.35% 0.30%
Principal MidCap Fund, Inc. 0.65% 0.60% 0.55% 0.50% 0.45%
Principal Real Estate Fund, Inc. 0.90% 0.85% 0.80% 0.75% 0.70%
Principal SmallCap Fund, Inc. 0.85% 0.80% 0.75% 0.70% 0.65%
Principal Utilities Fund, Inc. 0.60% 0.55% 0.50% 0.45% 0.40%
</TABLE>
The Domestic Growth Funds also reimburse the Manager for transfer and
administrative services, including the cost of accounting, data processing,
supplies and other services rendered.
Note 3 -- Management Agreement and Transactions With Affiliates (Continued)
The Manager voluntarily waives a portion of its fee for the Principal Utilities
Fund, Inc. The waivers are in amounts that maintain total operating expenses
within certain limits. The limits are expressed as a percentage of average net
assets attributable to each class on an annualized basis during the reporting
period. The amount waived and the operating expense limits, which were
maintained at or below those shown, are as follows:
<TABLE>
<CAPTION>
Amount Waived
Six Months Ended Year Ended Expense
April 30, 1998 October 31, 1997 Limit
Principal Utilities Fund, Inc.
<S> <C> <C> <C>
Class A $21,593 $65,940 1.15%
Class B 5,173 3,753 1.95%
Class R 4,909 9,355 1.65%
</TABLE>
The Manager intends to continue its voluntary waiver and, if necessary, pay
expenses normally payable by Principal Utilities Fund, Inc. through October 31,
1998.
Princor Financial Services Corporation, as principal underwriter, receives
proceeds of any CDSC on certain Class A and Class B share redemptions. The
charge is based on declining rates which for Class A shares begin at .75%, and
for Class B shares at 4.00%, of the lesser of the current market value or the
cost of shares being redeemed. Princor Financial Services Corporation also
retains sales charges on sales of Class A shares based on declining rates which
begin at 4.75% of the offering price. The aggregate amount of these charges
retained, by fund, for the period ended April 30, 1998 were as follows:
Class A Class B
Principal Balanced Fund, Inc. $ 353,656 $ 9,275
Principal Blue Chip Fund, Inc. 592,667 18,922
Principal Capital Value Fund, Inc. 852,230 24,239
Principal Growth Fund, Inc. 912,807 34,881
Principal MidCap Fund, Inc. 1,261,113 67,513
Principal Real Estate Fund, Inc. 24,518 33
Principal SmallCap Fund, Inc. 148,000 12
Principal Utilities Fund, Inc. 133,866 16,851
No brokerage commissions were paid by the Domestic Growth Funds to Princor
Financial Services Corporation during the periods. Brokerage commissions were
paid to other affiliates by the following funds:
Period Ended Year Ended
April 30, 1998 October 31, 1997
Principal Balanced Fund, Inc. $ -- $15,194
Principal Blue Chip Fund, Inc. -- 21,243
Principal Capital Value Fund, Inc. 13,885 17,016
Principal Growth Fund, Inc. 500 4,637
Principal MidCap Fund, Inc. -- 3,750
Principal Real Estate Fund, Inc. 5,925 --
Principal SmallCap Fund, Inc. 375 --
Principal Utilities Fund, Inc. -- 4,665
The Domestic Growth Funds bear distribution and shareholder servicing fees with
respect to Class A shares computed at an annual rate of up to 0.25% of the
average daily net assets attributable to Class A shares of each fund. Each of
the Domestic Growth Funds adopted a distribution plan with respect to Class B
shares that provides for distribution and shareholder servicing fees computed at
an annual rate of up to 1.00% of the average daily net assets attributable to
Class B shares of each fund. Each of the Domestic Growth Funds adopted a
distribution plan with respect to Class R shares that provides for distribution
and shareholder servicing fees computed at an annual rate of up to .75% of the
average daily net assets attributable to Class R shares of each fund.
Distribution and shareholder servicing fees are paid to Princor Financial
Services Corporation; a portion of the fees are subsequently remitted to retail
dealers. Pursuant to the distribution agreements, fees unused by the principal
underwriter at the end of the fiscal year are returned to the Domestic Growth
Funds.
At April 30, 1998, Principal Mutual Life Insurance Company, subsidiaries of
Principal Mutual Life Insurance Company and benefit plans sponsored on behalf of
Principal Mutual Life Insurance Company owned shares of the Domestic Growth
Funds as follows:
<TABLE>
<CAPTION>
Class A Class B Class R
<S> <C> <C> <C>
Principal Balanced Fund, Inc. 63,075 110 2,634
Principal Blue Chip Fund, Inc. 64,478 99 71
Principal Capital Value Fund, Inc. 5,025,598 70 52
Principal Growth Fund, Inc. 37,577 37 27
Principal MidCap Fund, Inc. 46,739 45 52
Principal Real Estate Fund, Inc. 402,660 301,881 301,933
Principal SmallCap Fund, Inc. 400,425 300,319 300,319
Principal Utilities Fund, Inc. 85,553 122 91
</TABLE>
Note 4 -- Investment Transactions
For the six months ended April 30, 1998, except as noted, the cost of investment
securities purchased and proceeds from investment securities sold (not including
short-term investments and U.S. government securities) by the Domestic Growth
Funds were as follows:
Purchases Sales
Principal Balanced Fund, Inc. $60,029,800 $ 5,627,969
Principal Blue Chip Fund, Inc. 25,883,603 29
Principal Capital Value Fund, Inc. 54,112,427 29,039,201
Principal Growth Fund, Inc. 37,917,319 14,003,328
Principal MidCap Fund, Inc. 47,486,374 22,208,235
Principal Real Estate Fund, Inc.* 11,899,481 675,594
Principal SmallCap Fund, Inc.* 17,888,265 1,509,470
Principal Utilities Fund, Inc. 8,675,272 5,892,361
* Period from December 11, 1997 (date operations commenced) through April
30, 1998.
At April 30, 1998, net unrealized appreciation (depreciation) of investments by
the Domestic Growth Funds was composed of the following:
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Gross Unrealized (Depreciation)
Appreciation (Depreciation) of Investments
<S> <C> <C> <C>
Principal Balanced Fund, Inc. $ 20,107,974 $ (2,037,962) $ 18,070,012
Principal Blue Chip Fund, Inc. 40,744,933 (1,771,827) 38,973,106
Principal Capital Value Fund, Inc. 227,988,682 (3,789,763) 224,198,919
Principal Growth Fund, Inc. 220,977,806 (1,093,868) 219,883,938
Principal MidCap Fund, Inc. 217,042,667 (16,084,387) 200,958,280
Principal Real Estate Fund, Inc. 90,263 (576,083) (485,820)
Principal SmallCap Fund, Inc. 2,354,936 (665,744) 1,689,192
Principal Utilities Fund, Inc. 25,087,335 (248,284) 24,839,051
</TABLE>
Note 4 -- Investment Transactions (Continued)
At April 30, 1998, the Domestic Growth Funds held the following securities which
may require registration under the Securities Act of 1933, or an exemption
therefrom, in order to effect a sale in the ordinary course of business.
<TABLE>
<CAPTION>
Value at Value as a
Date of April 30, Percentage of
Security Description Acquisition Cost 1998 Net Assets
<S> <C> <C> <C> <C> <C>
Principal MidCap Sierra On Line
Fund, Inc. Convertible Subordinated Debentures 8/15/94 $458,750 $1,741,875 .33%
8/17/94 447,125 1,707,038 .33
3,448,913 .66
</TABLE>
The Domestic Growth Funds' investments are with various issuers in various
industries. The Schedules of Investments contained herein summarize
concentrations of credit risk by issuer and industry.
Note 5 -- Capital Share Transactions
Transactions in Capital Stock by fund were as follows:
<TABLE>
<CAPTION>
Principal Principal Principal Principal
Balanced Blue Chip Capital Value Growth
Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc.
<S> <C> <C> <C> <C>
Six Months Ended April 30, 1998:
Shares sold:
Class A ......................................... 844,279 1,081,611 1,189,217 608,164
Class B ......................................... 233,333 389,874 279,642 182,467
Class R ......................................... 450,764 450,931 383,594 147,779
Shares issued in reinvestment of dividends and distributions:
Class A ........................................... 466,293 440,479 1,545,308 201,356
Class B ........................................... 64,830 102,883 86,567 25,531
Class R ......................................... 58,011 90,590 63,471 10,245
Shares redeemed:
Class A ......................................... (440,444) (367,683) (1,480,435) (382,767)
Class B ......................................... (53,462) (68,214) (53,276) (46,970)
Class R ......................................... (65,188) (80,813) (59,325) (27,650)
Net Increase 1,558,416 2,039,658 1,954,763 718,155
Year Ended October 31, 1997:
Shares sold:
Class A ......................................... 1,484,901 1,757,696 2,094,307 1,188,640
Class B ......................................... 394,660 585,899 569,099 315,097
Class R ......................................... 632,661 734,050 600,469 296,077
Shares issued in reinvestment of dividends and distributions:
Class A ........................................... 521,642 97,219 2,633,617 89,929
Class B ........................................... 50,747 11,785 61,682 5,779
Class R ......................................... 15,156 5,263 16,393 863
Shares redeemed:
Class A ......................................... (1,197,833) (495,337) (3,785,181) (760,739)
Class B ......................................... (65,006) (73,924) (64,340) (91,289)
Class R ......................................... (57,684) (62,702) (58,005) (23,813)
Net Increase 1,779,244 2,559,949 2,068,041 1,020,544
</TABLE>
<TABLE>
<CAPTION>
Principal Principal Principal Principal
MidCap Real Estate SmallCap Utilities
Fund, Inc. Fund, Inc.* Fund, Inc.* Fund, Inc.
<S> <C> <C> <C> <C>
Six Months Ended April 30, 1998, Except as Noted:
Shares sold:
Class A ......................................... 972,758 524,250 1,067,582 472,686
Class B ......................................... 314,555 344,110 470,857 142,871
Class R ......................................... 176,894 311,779 353,931 80,756
Shares issued in reinvestment of dividends and distributions:
Class A ........................................... 188,868 3,038 426 74,067
Class B ........................................... 34,306 2,020 319 6,741
Class R ......................................... 10,455 1,976 319 2,053
Shares redeemed:
Class A ......................................... (531,905) (16,405) (20,991) (404,433)
Class B ......................................... (77,812) (6,117) (872) (71,038)
Class R ......................................... (40,767) (1,336) (19,437) (23,695)
Net Increase 1,047,352 1,163,315 1,852,134 280,008
Year Ended October 31, 1997:
Shares sold:
Class A ......................................... 1,925,742 N/A N/A 442,282
Class B ......................................... 622,365 N/A N/A 182,586
Class R ......................................... 363,949 N/A N/A 114,303
Shares issued in reinvestment of dividends and distributions:
Class A ........................................... 223,920 N/A N/A 179,204
Class B ........................................... 27,006 N/A N/A 13,766
Class R ......................................... 2,629 N/A N/A 2,382
Shares redeemed:
Class A ......................................... (920,261) N/A N/A (1,312,610)
Class B ......................................... (125,040) N/A N/A (133,160)
Class R ......................................... (36,211) N/A N/A (23,006)
Net Increase (Decrease) 2,084,099 (534,253)
</TABLE>
*Period from December 11, 1997 (date operations commenced) through April 30,
1998.
Note 6 -- Line of Credit
The Domestic Growth Funds (with the exceptions Principal Real Estate Fund, Inc.
and Principal SmallCap Fund, Inc.) participate with other funds and portfolios
managed by Principal Management Corporation in an unsecured joint line of credit
with a bank, which allows the funds to borrow up to $40,000,000, collectively.
Borrowings are made solely to facilitate the handling of unusual and/or
unanticipated short-term cash requirements. Interest is charged to each fund,
based on its borrowings, at a rate equal to the Fed Funds Rate plus .50%.
Additionally, a commitment fee is charged at the annual rate of .08% on the
average unused portion of the line of credit. The commitment fee is allocated
among the participating funds and portfolios in proportion to their average net
assets during each quarter. At April 30, 1998, the Domestic Growth Funds had no
outstanding borrowings under the line of credit.
Note 7 -- Year 2000 Problem
Like other mutual funds, financial and business organizations and individuals
around the world, the Domestic Growth Funds could be adversely affected if the
computer systems used by the Manager and other service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem." The Manager is
taking steps it believes are reasonably designed to address the Year 2000
Problem with respect to computer systems it uses and to obtain reasonable
assurances that comparable steps are being taken by each fund's other major
service providers. At this time, however there can be no assurance that these
steps will be sufficient to avoid any adverse impact to the funds.
<PAGE>
April 30, 1998
SCHEDULES OF INVESTMENTS
GROWTH FUNDS (DOMESTIC)
PRINCIPAL BALANCED FUND, INC.
Shares
Held Value
Common Stocks (56.55%)
Auto & Home Supply Stores (0.81%)
Autozone, Inc. 36,000(a)$ 1,086,750
Bakery Products (0.40%)
Sara Lee Corp. 8,900 530,106
Beverages (1.08%)
Pepsico, Inc. 24,300 964,406
Universal Foods Corp. 9,600 485,400
1,449,806
Commercial Banks (5.00%)
BankBoston Corp. 12,600 1,360,012
First Union Corp. 21,292 1,285,504
Fleet Financial Group, Inc. 14,700 1,269,713
National City Corp. 6,060 419,655
NationsBank Corp. 15,500 1,174,125
Pnc Financial Corp. 19,400 1,172,487
6,681,496
Commercial Printing (0.76%)
R. R. Donnelley & Sons Co. 23,100 1,017,843
Communications Equipment (1.07%)
Allen Telecom, Inc. 11,100(a) 178,294
DSC Communications Corp. 20,500(a) 369,000
General Instrument Corp. 39,400(a) 884,038
1,431,332
Computer & Data Processing
Services (3.52%)
Adobe Systems, Inc. 23,700 1,186,481
Computer Sciences Corp. 21,000(a) 1,107,750
Electronic Data Systems Corp. 29,600 1,272,800
First Data Corp. 33,700 1,141,587
4,708,618
Computer & Office Equipment (2.14%)
3COM Corp. 7,100(a) 243,175
Cabletron Systems, Inc. 22,200(a) 294,150
Hewlett-Packard Co. 10,300 775,719
International Business Machines Corp. 13,400 1,552,725
2,865,769
Consumer Products (2.05%)
Fortune Brands, Inc. 34,300 1,264,812
Philip Morris Cos., Inc. 16,700 623,119
RJR Nabisco Holdings Corp. 11,000 305,938
UST, Inc. 19,900 548,494
2,742,363
Crude Petroleum & Natural Gas (1.50%)
Texaco, Inc. 32,500 1,998,750
Department Stores (0.69%)
Dillard's, Inc. Class A 25,100 919,288
Drug Stores & Proprietary Stores (0.40%)
Rite Aid Corp. 16,800 539,700
Drugs (4.04%)
Abbott Labs 7,100 519,187
American Home Products Corp. 10,100 940,563
Johnson & Johnson 18,200 1,299,025
Merck & Co., Inc. 12,500 1,506,250
Pharmacia & Upjohn, Inc. 26,900 1,131,481
5,396,506
Electric Services (2.25%)
Central & Southwest Corp. 48,900 1,274,456
Dominion Resources, Inc. 16,800 664,650
Houston Industries, Inc. 26,700 775,969
Potomac Electric Power Co. 12,000 294,000
3,009,075
Electrical Industrial Apparatus (0.85%)
Emerson Electric Co. 17,800 1,132,525
Electronic Distribution Equipment (0.53%)
General Electric Co. 8,300 706,538
Fats & Oils (0.80%)
Archer Daniels Midland Co. 49,708 1,068,722
Federal & Federally Sponsored
Credit (0.55%)
Federal National Mortgage Association 12,200 730,475
Fire, Marine, & Casualty Insurance (1.12%)
General Re Corp. 5,100 1,140,169
Safeco Corp. 7,100 354,556
1,494,725
General Industrial Machinery (0.58%)
Pall Corp. 39,400 773,225
Grain Mill Products (0.97%)
Agribrands International, Inc. 1,180 44,914
Ralston-Ralston Purina Group 11,800 1,250,800
1,295,714
Greeting Cards (0.80%)
American Greetings Corp. 23,100 1,068,375
Grocery Stores (3.06%)
Albertson's, Inc. 26,200 1,310,000
American Stores Co. 56,800 1,363,200
Sysco Corp. 59,400 1,414,463
4,087,663
Household Furniture (0.74%)
Masco Corp. 17,100 991,800
Industrial Inorganic Chemicals (0.74%)
Dow Chemical Co. 6,800 657,475
Eastman Chemical Co. 4,850 333,437
990,912
Jewlery, Silverware & Plated Ware (0.15%)
Jostens, Inc. 8,400 198,975
Life Insurance (0.95%)
Lincoln National Corp. 14,300 1,270,019
Management & Public Relations (1.40%)
Cognizant Corp. 20,800 1,069,900
Dun & Bradstreet Corp. 22,500 798,750
1,868,650
Meat Products (0.67%)
Tyson Foods, Inc. 46,350 895,134
Medical Instruments & Supplies (0.90%)
St. Jude Medical, Inc. 33,850(a) 1,199,559
Medical Services & Health
Insurance (1.89%)
Aon Corp. 11,400 735,300
Foundation Health Systems, Inc.,
Class A 38,550(a) 1,115,541
Pacificare Health Systems, Inc.,
Class B9,500(a) 680,437 2,531,278
Metal Forgings & Stampings (0.55%)
Newell Co. 15,100 729,519
Miscellaneous Shopping Goods
Stores (1.13%)
Toys `R' Us, Inc. 54,900(a) 1,513,181
Motor Vehicles & Equipment (0.50%)
Ford Motor Co. 14,654 671,336
Motor Vehicles, Parts & Supplies (1.04%)
Grainger (W. W.), Inc. 12,800 1,394,400
Paper Mills (1.33%)
Fort James Corp. 9,462 469,552
Kimberly Clark Corp. 25,800 1,309,350
1,778,902
Personal Credit Institutions (0.21%)
Associates First Capital 3,841 287,084
Petroleum Refining (3.70%)
Amoco Corp. 30,000 1,327,500
Atlantic Richfield Co. 19,700 1,536,600
Exxon Corp. 28,400 2,071,425
4,935,525
Plastic Materials & Synthetics (0.10%)
Wellman, Inc. 5,900 133,488
Rubber & Plastics Footwear (0.53%)
Nike, Inc. 14,900 711,475
Sanitary Services (1.45%)
Browning-Ferris Industries, Inc. 8,500 290,063
Waste Management, Inc. 49,300 1,651,550
1,941,613
Security Brokers & Dealers (0.32%)
Bear Stearns Cos. 7,500 427,969
Telephone Communication (1.80%)
AT&T Corp. 13,800 828,863
GTE Corp. 18,600 1,086,937
Motorola, Inc. 8,800 489,500
2,405,300
Toys & Sporting Goods (0.70%)
Hasbro, Inc. 25,400 935,038
Variety Stores (0.78%)
Wal-Mart Stores, Inc. 20,500 1,036,531
Total Common Stocks 75,583,052
Principal
Amount Value
Bonds (35.18%)
Beverages (0.75%)
Seagram Co., Ltd.
Notes; 6.50%; 4/1/03 $1,000,000 $ 1,006,302
Blast Furnace & Basic
Steel Products (0.87%)
Carpenter Technology Corp.
Medium-Term Notes;
6.99%; 4/20/18 800,000 790,098
Quanex Corp. Convertible
Subordinated Debentures;
6.88%; 6/30/07 350,000 367,500
1,157,598
Business Credit Institutions (2.31%)
CIT Group Holdings
Senior Medium-Term Notes;
6.38%; 10/1/02 1,000,000 1,005,772
Ford Motor Credit Co. Notes;
7.75%; 3/15/05 1,000,000 1,075,138
Heller Financial, Inc. Notes;
6.44%; 10/6/02 1,000,000 999,790
3,080,700
Commercial Banks (1.84%)
J.P. Morgan & Co., Inc.
Subordinated Notes;
6.70%; 11/1/07 1,000,000 1,018,583
NationsBank Corp.
Subordinated Notes;
7.80%; 9/15/16 1,300,000 1,446,890
2,465,473
Communications Equipment (1.07%)
Motorola, Inc.
Debentures Note;
7.50%; 5/15/25 1,291,000 1,428,335
Computer & Office Equipment (1.54%)
IBM Corp. Debentures;
7.00%; 10/30/25 1,300,000 1,355,929
Seagate Technology, Inc.
Senior Notes;
7.37%; 3/1/07 750,000 711,039
2,066,968
Consumer Products (1.07%)
Philip Morris Cos., Inc. Notes;
6.15%; 3/15/00 400,000 399,416
7.25%; 9/15/01 1,000,000 1,028,208
1,427,624
Department Stores (1.62%)
Dillards Department Stores, Inc.
Notes; 7.38%; 6/1/06 600,000 641,526
Fred Meyer, Inc. Senior Notes;
7.38%; 3/1/05 500,000 501,600
Sears Roebuck & Co.
Medium-Term Notes;
8.00%; 2/15/99 1,000,000 1,015,583
2,158,709
Electric Services (1.91%)
Louisiana Power & Light
First Mortgage Bonds;
6.00%; 3/1/00 500,000 498,727
Texas Utilities Electric Co.
Medium-Term Notes,
Series D, First Mortgage Bond;
6.25%; 1/31/00 1,000,000 1,003,357
Virginia Electric & Power Co.
First Mortgage Bond;
7.38%; 7/1/02 1,000,000 1,044,688
2,546,772
Farm & Garden Machinery (0.88%)
Deere & Co.
Senior Debentures;
8.50%; 1/9/22 1,000,000 1,178,615
Forest Products (0.75%)
Weyerhaeuser Co.
Debentures Notes;
6.95%; 10/1/27 1,000,000 999,813
General Government (1.17%)
Province of Quebec, Canada
Debentures;
7.50%; 7/15/02 500,000 524,295
7.00%; 1/30/07 1,000,000 1,043,620
1,567,915
General Industrial Machinery (1.15%)
Ingersoll-Rand
Medium-Term Notes;
6.46%; 11/19/03 1,000,000 1,010,038
Timken Co.
Medium-Term Notes;
7.30%; 8/13/02 500,000 520,551
1,530,589
Miscellaneous Investing (1.90%)
Federal Realty Investment Trust Notes;
8.88%; 1/15/00 1,000,000 1,039,963
Kimco Realty Corp. Senior Notes;
6.50%; 10/1/03 1,500,000 1,494,477
2,534,440
Mortgage Bankers & Brokers (0.75%)
Countrywide Funding Corp.
Medium-Term Notes;
6.54%; 4/14/00 1,000,000 1,007,009
Motion Picture Production &
Services (0.39%)
Viacom, Inc.
Guaranteed Senior Notes;
7.75%; 6/1/05 500,000 526,986
Motor Vehicles & Equipment (2.15%)
Chrysler Corp. Debentures;
7.45%; 3/1/27 1,400,000 1,505,462
General Motors Corp. Debentures;
7.70%; 4/15/16 1,250,000 1,371,346
2,876,808
Paper Mills (0.76%)
International Paper Co. Notes;
6.88%; 7/10/00 1,000,000 1,015,221
Personal Credit Institutions (3.02%)
American General Finance Corp. Notes;
5.88%; 7/1/00 1,000,000 995,484
Associates Corp. of North America
Senior Notes; 6.45%; 10/15/01 1,000,000 1,011,288
General Electric Capital Corp.
Notes; 6.50%; 11/1/26 1,000,000 1,019,530
General Motors Acceptance Corp.
Notes; 7.00%; 3/1/00 1,000,000 1,015,119
4,041,421
Petroleum & Petroleum Products (0.76%)
Enron Corp. Notes;
6.75%; 9/1/04 1,000,000 1,017,110
Petroleum Refining (0.44%)
Pennzoil Co. Senior Exchangeable
Debentures; 6.50%; 1/15/03 300,000 593,625
Plumbing & Heating, Except
Electricity (0.74%)
Masco Corp. Notes;
6.13%; 9/15/03 1,000,000 994,839
Primary Nonferrous Metals (0.82%)
Reynolds Metals Co.
Medium-Term Notes; 9.31%; 1/3/02 1,000,000 1,099,919
Railroads (1.70%)
Norfolk Southern Debentures;
9.00%; 3/1/21 1,000,000 1,258,607
Union Pacific Corp. Notes;
7.00%; 6/15/00 1,000,000 1,015,435
2,274,042
Security Brokers & Dealers (2.33%)
Lehman Brothers, Inc.
Senior Subordinated Notes;
6.13%; 2/1/01 1,000,000 996,825
Merrill Lynch & Co.
Notes; 7.00%; 1/15/07 1,000,000 1,038,057
Morgan Stanley Group, Inc.
Debentures; 8.88%; 10/15/01 1,000,000 1,081,268
3,116,150
Surety Insurance (0.78%)
MBIA, Inc.
Debentures; 7.00%; 12/15/25 1,000,000 1,038,542
Telephone Communication (0.82%)
AT&T Corp.
Senior Notes; 7.75%; 3/1/07 1,000,000 1,090,812
Trucking & Courier Services,
Except Air (0.04%)
Builders Transport, Inc. Convertible
Subordinated Debentures;
6.50%; 5/1/11 306,000(b) 59,670
Trusts (0.85%)
Salomon Smith Barney Holdings, Inc.
Notes; 7.98%; 3/1/00 1,100,000 1,134,577
Total Bonds 47,036,584
Description of Issue Principal
Type Rate Maturity Amount Value
Federal Home Loan Mortgage Corporation (FHLMC)
Certificates (2.95%)
FHLMC 6.50% 10/1/27 $1,991,232 $ 1,974,724
FHLMC 7.00 12/1/27 1,939,942 1,964,580
Total FHLMC Certificates 3,939,304
Government National Mortgage Association (GNMA)
Certificates (1.53%)
GNMA II 6.00 6/20/26-12/20/27 2,133,435 2,050,562
Principal
Amount Value
Asset-Backed Securities (0.76%)
Personal Credit Institutions (0.76%)
Chase Manhattan Credit Card Master Trust
Asset-Backed Certificates, Series 97-2,
Class A; 6.30%; 4/15/03 $1,000,000 $ 1,009,440
Commercial Paper (2.11%)
Personal Credit Institutions (2.11%)
Investment in Joint Trade Account;
Associates Corp.;
5.53%; 5/1/98 2,820,035 2,820,035
Total Portfolio Investments (99.08%) 132,438,977
Cash, receivables and other assets,
net of liabilities (0.92%) 1,225,419
Total Net Assets (100.00%) $133,664,396
(a) Non-income producing security - No dividend paid during the period.
(b) Non-income producing - Security in default.
PRINCIPAL BLUE CHIP FUND, INC.
Shares
Held Value
Common Stocks (95.19%)
Bakery Products (2.57%)
Sara Lee Corp. 72,200 $ 4,300,412
Beverages (5.60%)
Anheuser-Busch Cos., Inc. 101,200 4,636,225
Pepsico, Inc. 119,600 4,746,625
9,382,850
Commercial Banks (5.56%)
Banc One Corp. 78,719 4,629,661
J.P. Morgan & Co., Inc. 35,700 4,685,625
9,315,286
Computer & Office Equipment (6.17%)
Automatic Data Processing, Inc. 71,400 4,779,337
Hewlett-Packard Co. 73,900 5,565,594
10,344,931
Drugs (11.21%)
American Home Products Corp. 52,400 4,879,750
Johnson & Johnson 65,000 4,639,375
Merck & Co., Inc. 38,200 4,603,100
Pharmacia & Upjohn, Inc. 111,000 4,668,937
18,791,162
Eating & Drinking Places (3.19%)
McDonald's Corp. 86,400 5,346,000
Electrical Industrial Apparatus (2.79%)
Emerson Electric Co. 73,500 4,676,437
Electronic Distribution Equipment (2.93%)
General Electric Co. 57,700 4,911,712
Fire, Marine, and Casualty (5.64%)
American International Group 38,250 5,032,266
Chubb Corp. 56,000 4,420,500
9,452,766
General Industrial Machinery (1.97%)
Pall Corp. 168,500 3,306,812
Grain Mill Products (2.30%)
Kellogg Co. 93,400 3,852,750
Grocery Stores (2.61%)
Sysco Corp. 183,600 4,371,975
Medical Instruments & Supplies (3.02%)
Becton, Dickinson & Co. 72,600 5,054,775
Metal Cans & Shipping Containers (2.73%)
Crown Cork & Seal Co., Inc. 88,000 4,581,500
Miscellaneous Food & Kindred
Products (2.76%)
Bestfoods 84,200 4,620,475
Miscellaneous Shopping Goods (2.50%)
Toys `R' Us, Inc. 152,200 4,195,013
Petroleum Refining (8.74%)
Exxon Corp. 70,100 5,112,919
Mobil Corp. 62,000 4,898,000
Royal Dutch Petroleum Co. ADR 82,400 4,660,750
14,671,669
Preserved Fruits & Vegetables (2.85%)
Corn Products International, Inc. 9,000(a) 320,625
H.J. Heinz Co. 81,800 4,458,100
4,778,725
Sanitary Services (2.46%)
Browning-Ferris Industries, Inc. 120,700 4,118,888
Sugar & Confectionery Products (3.11%)
Wrigley Wm. Jr. Co. 58,600 5,215,400
Telephone Communication (8.21%)
AT&T Corp. 77,100 4,630,819
GTE Corp. 80,900 4,727,594
Motorola, Inc. 79,400 4,416,625
13,775,038
Variety Stores (3.04%)
Wal-Mart Stores, Inc. 100,800 5,096,700
Women's Clothing Stores (3.23%)
The Limited, Inc. 161,100 5,406,919
Total Common Stocks 159,568,195
Principal
Amount Value
Commercial Paper (4.42%)
Personal Credit Institutions (4.42%)
Investment in Joint Trade Account;
Associates Corp.;
5.53%; 5/1/98 $7,402,222 $ 7,402,222
Total Portfolio Investments (99.61%) 166,970,417
Cash, receivables and other assets,
net of liabilities (0.39%) 656,817
Total Net Assets (100.00%) $167,627,234
(a) Non-income producing security - No dividend paid during the period.
PRINCIPAL CAPITAL VALUE FUND, INC.
Shares
Held Value
Common Stocks (98.40%)
Beverages (3.09%)
Anheuser-Busch Cos., Inc. 285,000 $13,056,562
Pepsico, Inc. 119,700 4,750,594
Universal Foods Corp. 48,300 2,442,169
20,249,325
Chemicals & Allied Products (0.70%)
Dow Chemical Co. 47,700 4,611,994
Commercial Banks (21.48%)
Banc One Corp. 324,764 19,100,183
BankBoston Corp. 100,700 10,869,306
Chase Manhattan 75,000 10,392,187
Comerica, Inc. 270,000 18,073,125
First Union Corp. 520,760 31,440,885
KeyCorp 459,000 18,216,563
National City Corp. 96,000 6,648,000
NationsBank Corp. 86,000 6,514,500
Summit Bancorp 300,000 15,037,500
Union Planters Corp. 75,000 4,612,500
140,904,749
Commercial Printing (1.04%)
R. R. Donnelley & Sons Co. 155,000 6,829,688
Communications Equipment (1.73%)
Allen Telecom, Inc. 44,700(a) 717,994
Harris Corp. 220,000 10,642,500
11,360,494
Computer & Office Equipment (2.46%)
Hewlett-Packard Co. 82,000 6,175,625
International Business Machines Corp. 86,000 9,965,250
16,140,875
Crude Petroleum and Natural Gas (1.79%)
Texaco, Inc. 190,600 11,721,900
Drugs (7.59%)
Abbott Labs 65,000 4,753,125
American Home Products Corp. 203,000 18,904,375
Merck & Co., Inc. 85,000 10,242,500
Pharmacia & Upjohn, Inc. 378,000 15,899,625
49,799,625
Electric Services (4.16%)
Dominion Resources, Inc. 98,200 3,885,037
FPL Group, Inc. 85,100 5,281,519
Houston Industries, Inc. 530,000 15,403,125
Potomac Electric Power Co. 110,000 2,695,000
27,264,681
Electrical Industrial Apparatus (1.18%)
Emerson Electric Co. 121,394 7,723,693
Electronic Distribution Equipment (1.05%)
General Electric Co. 81,000 6,895,125
Farm & Garden Machinery (1.85%)
Tenneco, Inc. 282,000 12,143,625
Fats & Oils (1.28%)
Archer Daniels Midland Co. 391,000 8,406,500
General Industrial Machinery (1.60%)
Pall Corp. 534,000 10,479,750
Grain Mill Products (1.05%)
Ralston-Ralston Purina Group 65,000 6,890,000
Greeting Cards (2.60%)
American Greetings Corp. 369,100 17,070,875
Groceries & Related Products (1.53%)
Sysco Corp. 421,000 10,025,063
Grocery Stores (1.77%)
Albertson's, Inc. 98,000 4,900,000
American Stores Co. 280,000 6,720,000
11,620,000
Household Furniture (2.84%)
Masco Corp. 321,500 18,647,000
Industrial Inorganic Chemicals (0.37%)
Eastman Chemical Co. 35,400 2,433,750
Life Insurance (2.97%)
American General Corp. 292,000 19,454,500
Management & Public Relations (2.33%)
Cognizant Corp. 110,600 5,688,988
Dun & Bradstreet Corp. 270,600 9,606,300
15,295,288
Meat Products (0.97%)
Tyson Foods, Inc. 329,550 6,364,434
Medical Instruments & Supplies (0.71%)
St. Jude Medical, Inc. 131,450(a) 4,658,259
Medical Services & Health
Insurance (1.64%)
Aon Corp. 111,900 7,217,550
Foundation Health Systems, Inc., 121,160(a) 3,506,068
10,723,618
Metal Cans & Shipping Containers (1.59%)
Crown Cork & Seal Co., Inc. 200,000 10,412,500
Metal Forgings & Stampings (1.11%)
Newell Co. 150,000 7,246,875
Miscellaneous Converted Paper
Products (0.80%)
Avery Dennison Corp. 100,000 5,237,500
Miscellaneous Shopping Goods
Stores (1.13%)
Toys `R' Us, Inc. 270,100(a) 7,444,631
Motor Vehicles, Parts & Supplies (1.50%)
Grainger (W. W.), Inc. 90,300 9,837,056
Paper Mills (1.41%)
Kimberly Clark Corp. 182,800 9,277,100
Petroleum Refining (7.31%)
Amoco Corp. 70,000 $ 3,097,500
Atlantic Richfield Co. 204,600 15,958,800
Chevron Corp. 190,000 15,710,625
Exxon Corp. 180,800 13,187,100
47,954,025
Photographic Equipment &
Supplies (0.88%)
Eastman Kodak Co. 80,000 5,775,000
Rental of Railroad Cars (3.03%)
Gatx Corp. 240,000 19,890,000
Sanitary Services (2.18%)
Browning-Ferris Industries, Inc. 420,000 14,332,500
Soap, Cleaners & Toilet Goods (0.50%)
Avon Products 40,000 3,287,500
Telephone Communications (5.84%)
AT&T Corp. 128,300 7,706,019
Motorola, Inc. 77,300 4,299,812
Southern New England Telecom 150,000 10,500,000
US West Communications Group 300,000 15,825,000
38,330,831
Variety Stores (1.34%)
Wal-Mart Stores, Inc. 174,000 8,797,875
Total Common Stocks 645,538,204
Principal
Amount Value
Commercial Paper (1.49%)
Personal Credit Institutions (1.49%)
Investment in Joint Trade Account;
Associates Corp.;
5.53%; 5/1/98 $9,770,664 $ 9,770,664
Total Portfolio Investments (99.89%) 655,308,868
Cash, receivables and other assets,
net of liabilities (0.11%) 708,865
Total Net Assets (100.00%) $656,017,733
(a) Non-Income producing security - No dividend paid during the period.
PRINCIPAL GROWTH FUND, INC.
Shares
Held Value
Common Stocks (89.16%)
Advertising (1.31%)
Interpublic Group of Cos., Inc. 100,000 $ 6,387,500
Beverages (1.82%)
Coca-Cola Co. 60,000 4,552,500
Pepsico, Inc. 110,000 4,365,625
8,918,125
Blast Furnace & Basic Steel
Products (0.57%)
Lukens, Inc. 80,000 2,775,000
Carpets & Rugs (0.66%)
Shaw Industries, Inc. 200,000 3,237,500
Cash Grains (2.32%)
Pioneer Hi-bred International, Inc. 300,000 11,325,000
Commercial Banks (8.74%)
Banc One Corp. 77,000 4,528,563
BankAmerica Corp. 75,000 6,375,000
BankBoston Corp. 45,000 4,857,187
Chase Manhattan 30,000 4,156,875
Firstar Corp. 150,000 5,596,875
FirstMerit Corp. 100,000 2,837,500
National City Corp. 72,000 4,986,000
NationsBank Corp. 71,644 5,427,033
Norwest Corp. 100,000 3,968,750
42,733,783
Communications Equipment (4.27%)
Commscope, Inc. 58,333(a) 947,911
General Instrument Corp. 175,000(a) 3,926,563
Lucent Technologies 90,000 6,851,250
Northern Telecom Ltd. 150,000 9,131,250
20,856,974
Computer & Data Processing
Services (4.12%)
Gtech Holdings Corp. 139,300(a) 4,997,387
Microsoft Corp. 168,000(a) 15,141,000
20,138,387
Computer & Office Equipment (3.64%)
Ceridian Corp. 116,000(a) 6,561,250
Digital Equipment Corp. 71,500(a) 3,977,188
Hewlett-Packard Co. 65,000 4,895,312
Pitney Bowes, Inc. 49,400 2,371,200
17,804,950
Department Stores (1.83%)
Federated Department Stores 100,000(a) 4,918,750
May Department Stores 65,000 4,009,687
8,928,437
Drugs (10.18%)
American Home Products Corp. 25,000 2,328,125
Bristol-Myers Squibb Co. 50,000 5,293,750
Forest Laboratories, Inc. 132,600(a) 4,798,462
Genzyme Corp. -General Division 100,756(a) 3,117,139
Genzyme Corp.-Tissue Repair 283(a) 2,158
Johnson & Johnson 80,000 5,710,000
Lilly (Eli) & Co. 100,000 6,956,250
Merck & Co., Inc. 50,000 6,025,000
Pharmacia & Upjohn, Inc. 200,000 8,412,500
Smithkline Beecham PLC ADR 120,000 7,147,500
49,790,884
Eating & Drinking Places (0.07%)
Tricon Global Restaurants, Inc. 10,000 317,500
Electrical Goods (0.38%)
Avnet, Inc. 30,000 1,850,625
Electronic Components &
Accessories (2.96%)
General Semiconductors 43,750(a) 598,828
Intel Corp. 82,000 6,626,625
Linear Technology Corp. 90,000 7,245,000
14,470,453
Electronic Distribution
Equipment (0.70%)
General Electric Co. 40,000 3,405,000
Federal & Federally Sponsored
Credit (0.99%)
Federal National Mortgage Association 81,000 4,849,875
Fire, Marine, & Casualty
Insurance (1.48%)
Travelers, Inc. 118,650 7,259,897
Footwear, Except Rubber (1.09%)
Stride Rite Corp. 425,000 5,339,063
Forest Products (0.10%)
Georgia Timber Group 20,000 512,500
General Industrial Machinery (3.32%)
Ingersoll-Rand Co. 105,000 4,836,562
Tyco International Ltd. 209,400 11,412,300
16,248,862
Grain Mill Products (1.81%)
Agribrands International, Inc. 5,000 190,313
General Mills, Inc. 50,000 3,378,125
Ralston-Ralston Purina Group 50,000 5,300,000
8,868,438
Grocery Stores (0.14%)
Casey's General Stores, Inc. 42,104 689,453
Hose, Belting, Gaskets & Packing (0.58%)
Mark IV Industries 134,563 2,834,233
Hospitals (1.76%)
Humana, Inc. 105,000(a) 2,835,000
Universal Health Services, Inc.,
Class B 100,000(a) 5,756,250
8,591,250
Hotels and Motels (1.46%)
Marriott International, Inc. 100,000 3,300,000
Marriott International, Inc.,
Class A 100,000 3,200,000
Sodexho Marriott Services 25,000 637,500
7,137,500
Household Furniture (0.95%)
Masco Corp. 80,000 4,640,000
Investment Offices (1.39%)
AMVESCAP PLC Sponsored ADR 120,000 6,780,000
Lumber & Other Building
Materials (2.14%)
Home Depot, Inc. 150,000 10,443,750
Medical Instruments & Supplies (3.21%)
Becton, Dickinson & Co. 70,000 4,873,750
Boston Scientific Corp. 150,000(a) 10,846,875
15,720,625
Medical Services and Health
Insurance (2.94%)
Aon Corp. 60,000 3,870,000
Foundation Health Systems, Inc.,
Class A 147,500(a) 4,268,281
Pacificare Health Systems, Inc.,
Class B 28,540(a) 2,044,178
United Healthcare Corp. 60,000 4,215,000
14,397,459
Millwork, Plywood & Structural
Members (0.32%)
Georgia-Pacific Corp. 20,000 1,543,750
Miscellaneous Converted Paper
Products (0.27%)
Minnesota Mining & Mfg. Co. 14,000 1,321,250
Miscellaneous Fabricated Metal
Products (0.94%)
Parker-Hannifin Corp. 103,350 4,611,994
Miscellaneous Food & Kindred
Products (0.56%)
Bestfoods 50,000 2,743,750
Miscellaneous Investing (2.62%)
Cendant Corp. 512,201(a) 12,805,025
Miscellaneous Shopping Goods
Stores (0.33%)
Toys `R' Us, Inc. 59,000(a) 1,626,188
Motor Vehicles & Equipment (2.31%)
Chrysler Corp. 100,000 4,018,750
Dana Corp. 98,000 5,794,250
Ford Motor Co. 32,654 1,495,961
11,308,961
Personal Credit Institutions (0.13%)
Associates First Capital 'A' 8,558 639,720
Petroleum Refining (1.68%)
Atlantic Richfield Co. 40,000 3,120,000
Exxon Corp. 70,000 5,105,625
8,225,625
Plastic Materials & Synthetics (0.37%)
A. Schulman, Inc. 80,000 1,790,000
Preserved Fruits and Vegetables (0.05%)
Corn Products International, Inc. 6,250(a) 222,656
Radio, Television, & Computer
Services (0.20%)
Tandy Corp. 20,000 995,000
Refrigeration & Service Machinery (0.41%)
Tecumseh Products Co., 40,000 2,015,000
Rubber and Plastics Footwear (0.30%)
Reebok International Ltd. 50,000(a) 1,468,750
Sanitary Services (1.08%)
Browning-Ferris Industries, Inc. 80,000 2,730,000
USA Waste Services, Inc. 17,695(a) 868,161
Waste Management, Inc. 50,000 1,675,000
5,273,161
Soap, Cleaners, and Toilet Goods (3.02%)
Colgate-Palmolive Co. 80,000 7,175,000
Ecolab, Inc. 240,000 7,605,000
14,780,000
Sugar and Confectionery Products (1.00%)
Wrigley Wm. Jr. Co. 55,000 4,895,000
Telephone Communications (4.08%)
MCI Communications Corp. 110,000 5,534,375
Motorola, Inc. 60,000 3,337,500
Teleport Communication 110,000(a) 5,926,250
Worldcom, Inc. 120,000(a) 5,133,750
19,931,875
Toys and Sporting Goods (0.96%)
Mattel, Inc. 123,046 4,714,200
Women's and Children's
Undergarments (1.60%)
Warnaco Group, 185,200 7,824,700
Total Common Stocks 435,989,628
Preferred Stocks (0.33%)
Medical Services and Health
Insurance (0.33%)
Pacificare Health Systems, Inc.,
Series A Convertible 62,000 1,627,500
Principal
Amount Value
Bonds (0.49%)
Electrical Industrial Apparatus (0.49%)
Liebert Co. Convertible
Subordinated Debentures;
8.00%; 11/15/10 $ 500,000 $ 2,396,250
Commercial Paper (9.55%)
Business Credit Institutions (2.04%)
American Express Credit Corp.;
5.50%; 5/11/98 9,390,000 9,375,654
General Electric Capital Corp.;
5.52%; 5/4/98 575,000 574,736
9,950,390
Personal Credit Institutions (7.51%)
Associates First Capital Corp;
5.52%; 5/4/98 6,850,000 6,846,849
5.52%; 5/18/98 5,035,000 5,021,875
Ford Motor Credit Co.;
5.48%; 5/4/98 595,000 594,728
5.49%; 5/4/98 1,340,000 1,339,387
Investments in Joint Trade Account;
Associates Corp.; 5.53%; 51/1/98 22,936,200 22,936,200
36,739,039
Total Commercial Paper 46,689,429
Total Portfolio Investments (99.53%) 486,702,807
Cash, receivables and other assets,
net of liabilities (0.47%) 2,296,272
Total Net Assets (100.00%) $488,999,079
(a) Non-income producing security - No dividend paid during the period.
PRINCIPAL MIDCAP FUND, INC.
Shares
Held Value
Common Stocks (91.92%)
Blast Furnace & Basic Steel (2.62%)
Carpenter Technology 150,000 $ 8,709,375
Lukens, Inc. 145,400 5,043,563
13,752,938
Carpets & Rugs (0.61%)
Shaw Industries, Inc. 198,700 3,216,456
Chemicals & Allied Products (0.31%)
Sigma-Aldrich Corp. 40,400 1,610,950
Commercial Banks (10.56%)
Associated Banc Corp. 134,028 7,036,470
First Commerce Corp. 35,300 2,872,537
First Federal Capital Corp. 164,398 5,836,129
Independent Bank Corp., Michigan 66,200 2,606,625
Mercantile Bancorp., Inc. 195,529 10,827,418
Merchants Bancorp., Inc. 116,200 4,023,425
National City Corp. 32,300 2,236,775
NationsBank Corp. 13,310 1,008,233
North Fork Bancorp., Inc. 241,458 8,964,128
Peoples Heritage Financial Group, Inc. 98,900 4,771,925
Princeton National Bancorp., Inc. 100,000 2,912,500
Summit Bancorp. 46,950 2,353,369
55,449,534
Commercial Printing (0.34%)
Merrill Corp. 87,200 1,809,400
Computer & Data Processing
Services (7.46%)
American Management Systems, Inc. 101,000(a) 2,922,687
Cerner Corp. 238,900(a) 7,122,206
Choicepoint, Inc. 15,890(a) 869,978
HBO & Co. 138,000 8,254,125
Microsoft Corp. 101,000(a) 9,102,625
National Processing, Inc. 41,000(a) 515,062
Sunquest Information Systems, Inc. 169,300(a) 1,714,163
Synopsys, Inc. 201,900(a) 8,681,700
39,182,546
Computer & Office Equipment (5.95%)
3COM Corp. 150,000(a) 5,137,500
Ascend Communications 200,000(a) 8,712,500
Cabletron Systems, Inc. 200,000(a) 2,650,000
EMC Corp. 300,000(a) 13,837,500
SystemSoft Corp. 232,200(a) 870,750
31,208,250
Construction & Related Machinery (3.19%)
EVI, Inc. 314,800(a) 16,763,100
Crude Petroleum & Natural Gas (0.77%)
Devon Energy Corp. 101,000 4,027,375
Dairy Products (0.31%)
Dreyer's Grand Ice Cream, Inc. 65,400 1,651,350
Department Stores (1.20%)
Saks Holding 283,000(a) 6,314,437
Drugs (2.75%)
Alliance Pharmaceutical Corp. 48,600(a) 388,800
Centocor, Inc. 125,000(a) 5,273,438
Forest Laboratories, Inc. 68,000(a) 2,460,750
Genzyme Corp. - General Division 35,000(a) 1,082,812
Genzyme Corp. - Tissue Repair 453(a) 3,454
Merck & Co., Inc. 16,970 2,044,885
Pharmacia & Upjohn, Inc. 75,700 3,184,131
Seragen, Inc. 60,000(a) 22,800
14,461,070
Electronic Components &
Accessories (5.54%)
Altera Corp. 125,000(a) 5,062,500
Intel Corp. 86,800 7,014,525
Linear Technology Corp. 99,900 8,041,950
Solectron Corp. 202,000(a) 8,951,125
29,070,100
Engineering & Architectural
Services (0.68%)
Paychex, Inc. 65,362 3,549,974
Fire, Marine, & Casualty
Insurance (1.18%)
Berkley W. R. Corp. 132,750 6,189,469
Footwear, Except Rubber (0.58%)
Nine West Group, Inc. 109,200(a) 3,037,125
General Industrial Machinery (4.38%)
Flow International Corp. 187,200(a) 2,000,700
Kaydon Corp. 181,600 7,956,350
Pentair, Inc. 137,500 5,946,875
Roper Industries, Inc. 228,000 7,068,000
22,971,925
Grocery Stores (0.88%)
Casey's General Stores, Inc. 282,800 4,630,850
Holding Offices (0.59%)
ISB Financial Corp. 109,100 3,109,350
Hose & Belting & Gaskets &
Packing (0.65%)
Mark IV Industries 162,168 3,415,664
Hospitals (2.19%)
Humana, Inc. 210,000(a) 5,670,000
Universal Health Services, Inc.,
Class B 101,000(a) 5,813,813
11,483,813
Hotels & Motels (0.95%)
Four Seasons Hotel, Inc, 147,100 5,010,594
Household Appliances (1.39%)
Maytag Corp. 141,300 7,276,950
Industrial Inorganic Chemicals (0.64%)
ICN Pharmaceuticals, Inc. 67,821 3,340,184
Industrial Machinery, Nec (1.91%)
Coltec Industries 401,000(a) 10,025,000
Insurance Agents, Brokers &
Services (1.47%)
Equifax, Inc. 200,000 7,737,500
Investment Offices (1.50%)
AMVESCAP PLC Sponsored ADR 138,920 7,848,980
Iron and Steel Foundries (0.40%)
Atchison Casting Corp. 111,100(a) 2,103,956
Knitting Mills (1.03%)
Russell Corp. 200,000 5,400,000
Laundry, Cleaning & Garment
Services (0.65%)
G&K Services, Inc. 84,600 3,405,150
Measuring & Controlling Devices (0.96%)
ISCO, Inc. 21,447 184,976
Millipore Corp. 140,000 4,830,000
5,014,976
Meat Products (1.05%)
Michael Foods, Inc. 188,500 5,513,625
Medical Instruments & Supplies (2.44%)
Boston Scientific Corp. 68,100(a) 4,924,481
Steris Corp. 134,300(a) 7,898,519
12,823,000
Medical Services & Health
Insurance (4.72%)
Alternative Living Services 234,200(a) 8,197,000
Foundation Health Systems, Inc.,
Class A 202,340(a) 5,855,214
Orthofix International NV 156,200(a) 2,030,600
Pacificare Health Systems, Inc.,
Class A 30,591(a) 2,191,080
Pacificare Health Systems, Inc.,
Class B 188(a) 13,207
Patient Infosystems, Inc. 125,000(a) 500,000
United Healthcare Corp. 85,000 5,971,250
24,758,351
Metal Services, Nec (0.59%)
BMC Industries, Inc. 171,000 3,120,750
Miscellaneous Chemical Products (1.33%)
Cytec Industries 72,600(a) 3,974,850
H. B. Fuller Co. 47,500 2,980,625
6,955,475
Mortgage Bankers & Brokers (0.95%)
Money Store, Inc. 151,400 4,977,275
Non-Store Retailers (0.66%)
U.S. Office Products Co. 196,800(a) 3,480,900
Office Furniture (0.86%)
Chromcraft Revington, Inc. 71,400(a) 2,766,750
Kimball International, Inc., Class B 73,200 1,724,775
4,491,525
Offices & Clinics of Medical
Doctors (0.71%)
Phycor, Inc. 162,800(a) 3,703,700
Oil and Gas Field Services (1.45%)
Diamond Offshore Drilling 150,000 7,593,750
Operative Builders (1.29%)
D. R. Horton, Inc. 294,500 5,466,656
Pulte Corp. 25,200 1,289,925
6,756,581
Paints & Allied Products (0.66%)
RPM, Inc. 200,500 3,458,625
Personal Credit Institutions (1.11%)
Firstplus Financial Group 120,000(a) 5,820,000
Plastic Materials & Synthetics (0.46%)
A. Schulman, Inc. 107,800 2,412,025
Plumbing, Heating & Air
Conditioning (0.99%)
Apogee Enterprises, Inc. 343,700 4,983,650
Metalclad Corp. 228,400(a) 228,400
5,212,050
Public Building & Related
Furniture (0.89%)
BE Aerospace, Inc. 150,000(a) 4,678,125
Refrigeration & Service Machinery (0.24%)
Tecumseh Products Co., Class A 25,200 1,269,450
Sanitary Services (0.64%)
Browning-Ferris Industries, Inc. 86,200 2,941,575
USA Waste Services, Inc. 8,846(a) 434,007
3,375,582
Savings Institutions (2.76%)
Greenpoint Financial Corp. 140,000 5,556,250
Sterling Financial Corp. 124,133(a) 3,258,491
WSFS Financial Corp. 265,000(a) 5,664,375
14,479,116
Security Brokers & Dealers (1.00%)
Jefferies Group, Inc. 106,400 5,260,150
Telephone Communications (1.65%)
McLeodUSA, Inc. 171,300(a) 7,879,800
WorldCom, Inc. 18,500(a) 791,453
8,671,253
Toys and Sporting Goods (0.57%)
Mattel, Inc. 78,050 2,990,291
Trucking & Courier Services, Except
Air (0.67%)
J. B. Hunt Transport Services, Inc. 109,900 3,516,800
Women's & Children's
Undergarments (0.59%)
Warnaco Group, Class A 73,612 3,110,107
Total Common Stocks 482,497,472
Preferred Stock (0.28%)
Medical Services & Health
Insurance (0.28%)
Pacificare Health Systems, Inc.,
Series A Convertible 55,600 1,459,500
Principal
Amount Value
Bonds (0.90%)
Computer & Data Processing
Services (0.66%)
Sierra On Line Convertible
Subordinated Debentures;
6.50%; 4/1/01 $ 990,000(b)$ 3,448,913
Management & Public Relations (0.24%)
Complete Management, Inc.
Convertible Debentures;
8.00%; 12/15/03 1,500,000 1,267,500
Total Bonds 4,716,413
Commercial Paper (7.55%)
Business Credit Institutions (1.18%)
American Express Credit Corp.;
5.50%; 5/4/98 4,800,000 4,797,800
5.49%; 5/11/98 580,000 579,115
General Electric Capital Corp.;
5.52%; 5/4/98 825,000 824,621
6,201,536
Personal Credit Institutions (6.37%)
Associates First Capital Corp.;
5.52%; 5/18/98 9,975,000 9,948,999
Ford Motor Credit Co.;
5.50%; 5/11/98 3,205,000 3,200,103
Investment in Joint Trade Account;
Associates Corp.;
5.53%; 5/1/98 20,273,126 20,273,126
33,422,228
Total Commercial Paper 39,623,764
Total Portfolio Investments (100.65%) 528,297,149
Liabilities, net of cash, receivables
and other assets (-0.65%) (3,401,293)
Total Net Assets (100.00%) $524,895,856
(a) Non-income producing security - No dividend paid during the period.
(b) Restricted security - See Note 4 to the financial statements.
PRINCIPAL REAL ESTATE FUND, INC.
Shares
Held Value
Common Stocks (95.72%)
Apartment REITs (16.34%)
Avalon Properties, Inc. 13,000 $ 365,625
Equity Residential Properties Trust 8,000 393,000
Irvine Apartment Communities, Inc. 13,000 397,312
Security Capital Pacific Trust 12,800 286,400
Walden Residential Properties, Inc. 16,000 390,000
1,832,337
Factory Outlet REITs (1.70%)
Chelsea GCA Realty 5,000 190,938
Hotel REITs (16.68%)
American General Hospitality Corp. 15,000 375,938
Felcor Suite Hotels 11,000 385,000
Patriot American Hospitality, Inc. 14,300 361,075
Starwood Hotels & Resorts 7,500 376,406
Sunstone Hotel Investors, Inc. 24,000 372,000
1,870,419
Mall REITs (8.30%)
General Growth Properties 14,000 502,250
Simon Property Group, Inc. 13,000 428,188
930,438
Manufactured Housing REITs (1.56%)
Sun Communities 5,000 175,000
Mortgage, Mixed Use & Miscellaneous
REITs (1.11%)
Bradley Real Estate, Inc. 6,000 124,875
Office & Industrial REITs (38.30%)
Arden Realty Group, Inc. 14,000 392,875
Cabot Industrial Trust 24,600 556,575
Crescent Real Estate Equities Co. 11,000 375,375
Equity Office Properties Trust 17,700 503,344
First Industrial Realty Trust, Inc. 11,000 357,500
Highwoods Properties, Inc. 11,000 374,000
Kilroy Realty Corp. 14,000 371,000
Mack-Cali Realty Corp. 12,500 469,531
Reckson Associates Realty Corp. 16,500 404,250
Security Capital Industrial Trust 20,000 488,750
4,293,200
Self Storage REITs (1.69%)
Storage USA 5,000 189,375
Shopping Center REITs (10.04%)
Burnham Pacific Properties, Inc. 28,000 395,500
Federal Realty Investment Trust 16,000 389,000
Vornado Realty Trust 8,500 340,531
1,125,031
Total Common Stocks 10,731,613
Principal
Amount Value
Commercial Paper (4.88%)
Federal & Federally Sponsored
Credit (4.88%)
Investment in Joint Trade Account;
FHLMC;
5.45%; 5/1/98 $547,383 $ 547,383
Total Portfolio Investments (100.60%) 11,278,996
Liabilities, net of cash, receivables
and other assets (-0.60%) (67,103)
Total Net Assets (100.00%) $11,211,893
PRINCIPAL SMALLCAP FUND, INC.
Shares
Held Value
Common Stocks (86.54%)
Blast Furnace & Basic Steel
Products (2.17%)
Carpenter Technology 4,200 $ 243,862
NS Group, Inc. 16,500(a) 221,719
465,581
Commercial Banks (2.40%)
Associated Banc Corp. 4,600 241,500
First Federal Capital Corp. 7,700 273,350
514,850
Commercial Printing (0.96%)
World Color Press, Inc. 6,450(a) 206,400
Communications Equipment (5.65%)
Allen Telecom, Inc. 12,800(a) 205,600
DSP Communications, Inc. 18,700(a) 312,056
Larscom, Inc. 27,000(a) 253,125
Sawtek, Inc. 6,500(a) 197,437
Spectrian Corp. 14,100(a) 241,463
1,209,681
Computer & Data Processing
Services (5.80%)
Gtech Holdings Corp. 5,400(a) 193,725
Hypercom Corp. 18,850(a) 245,050
ICG Communications, Inc. 8,800(a) 308,000
SPSS, Inc. 9,200(a) 230,000
Synopsys, Inc. 6,200(a) 266,600
1,243,375
Computer & Office Equipment (1.10%)
Smart Modular Technologies, Inc. 9,500(a) 234,531
Construction & Related Machinery (0.95%)
JLG Industries, Inc. 12,500 203,906
Crude Petroleum & Natural Gas (1.91%)
Forcenergy, Inc. 7,250(a) 167,203
Nuevo Energy Co. 6,800(a) 242,250
409,453
Deep Sea Foreign Transportation of
Freight (0.93%)
Trico Marine Services, Inc. 8,800(a) 199,100
Drugs (2.96%)
Chirex, Inc. 11,450(a) 201,091
Inhale Therapeutic Systems 8,900(a) 249,200
Matritech, Inc. 41,000(a) 184,500
634,791
Eating & Drinking Places (1.11%)
Ruby Tuesday, Inc. 7,100 237,850
Electric Services (0.98%)
TNP Enterprises, Inc. 6,500 209,625
Electronic Components &
Accessories (7.50%)
DII Group, Inc. 21,050(a) 489,412
Flextronics International 3,850(a) 182,875
Hadco Corp. 5,900(a) 225,675
Jabil Circuit, Inc. 5,400(a) 189,675
Microchip Technology, Inc. 9,100(a) 258,213
Sanmina Corp. 2,900(a) 261,000
1,606,850
Family Clothing Stores (0.86%)
Gadzooks, Inc. 7,000(a) 183,750
Fire, Marine & Casualty Insurance (2.67%)
Berkley W. R. Corp. 5,300 247,113
HCC Insurance Holdings, Inc. 14,900 324,075
571,188
Furniture & Home Furnishings
Stores (0.92%)
Cost Plus, Inc. 6,100(a) 197,487
General Industrial Machinery (2.52%)
General Scanning, Inc. 14,650(a) 334,203
Regal Beloit 6,700 206,025
540,228
Grain Mill Products (1.17%)
Ralcorp Holdings, Inc. 12,600(a) 250,425
Hotels & Motels (0.98%)
Servico, Inc. 10,800(a) 210,600
Industrial Machinery, NEC (0.96%)
Industrial Distribution Group 10,850(a) 205,472
Industrial Organic Chemicals (1.08%)
CFC International 21,450(a) 230,588
Lumber & Other Building
Materials (1.03%)
Eagle Hardware 12,100(a) 220,825
Measuring & Controlling Devices (3.35%)
Cytyc Corp. 17,750(a) 257,375
Integrated Measurement Systems 20,200(a) 202,000
Quickturn Design Systems, Inc. 24,500(a) 257,250
716,625
Medical & Dental Laboratories (1.01%)
Urocor, Inc. 27,400(a) 215,775
Medical Instruments & Supplies (2.98%)
Adac Laboratories 11,800(a) 256,650
Focal, Inc. 11,900(a) 202,300
Hologic, Inc. 7,600(a) 178,600
637,550
Medical Services & Health
Insurance (0.93%)
FPA Medical Management 15,900(a) 198,750
Men's & Boy's Clothing Stores (0.84%)
Hot Topic, Inc. 6,250(a) 180,469
Men's & Boy's Furnishings (1.20%)
Nautica Enterprises, Inc. 10,350(a) 257,456
Metal Services, NEC (1.23%)
BMC Industries, Inc. 14,500 264,625
Miscellaneous Chemical Products (1.26%)
Fuller (H.B.) Co. 4,300 269,825
Miscellaneous Converted Paper
Products (1.04%)
Shorewood Packaging Corp. 8,550(a) 221,766
Miscellaneous Electrical Equipment &
Supplies (1.00%)
Motorcar Parts & Accessories 11,700(a) 214,987
Miscellaneous Fabricated Metal
Products (0.96%)
Watts Industries, Inc. 8,000 205,000
Miscellaneous Manufacturers (1.00%)
Russ Berrie & Co. 7,500 214,687
Miscellaneous Nonmetallic Mineral
Products (0.74%)
Hexcel Corp. 5,700(a) 159,244
Miscellaneous Shopping Goods
Stores (0.76%)
Zale Corp. 5,400(a) 162,675
Mortgage Bankers & Brokers (1.07%)
Money Store, Inc. 7,000 230,125
Motor Vehicles & Equipment (1.95%)
United Auto Group 23,000(a) 416,875
Nonferrous Rolling & Drawing (1.04%)
Titanium Metals Corp. 8,400(a) 223,650
Non-Store Retailers (1.08%)
USA Floral Products, Inc. 11,200(a) 232,400
Office Furniture (2.61%)
Chromcraft Revington, Inc. 6,000(a) 232,500
Kimball International, Inc., Class B 13,900 327,519
560,019
Oil & Gas Field Services (0.92%)
Marine Drilling Co., Inc. 8,150(a) 198,147
Personal Credit Institutions (1.18%)
Firstplus Financial Group 5,200(a) 252,200
Photographic Equipment &
Supplies (0.86%)
Imax Corp. 6,750(a) 183,937
Plumbing, Heating &
Air Conditioning (1.36%)
Apogee Enterprises, Inc. 20,100 291,450
Public Building & Related
Furniture (0.68%)
BE Aerospace, Inc. 4,700(a) 146,581
Rubber and Plastics Footwear (1.22%)
Vans, Inc. 22,200(a) 262,237
Sanitary Services (1.12%)
Newpark Resources, Inc. 10,000(a) 240,625
Savings Institutions (1.39%)
Community First Bankshare 5,900 297,213
Security Brokers & Dealers (1.61%)
Jefferies Group, Inc. 7,000 346,063
Soap, Cleaners & Toilet Goods (2.15%)
Carter Wallace, Inc. 13,800 249,263
Digene Corp. 19,600(a) 211,925
461,188
Surety Insurance (1.38%)
Enhance Financial Services Group 4,300 295,088
Total Common Stocks 18,543,788
Principal
Amount Value
Commercial Paper (12.09%)
Federal & Federally Sponsored Credit (12.09%)
Investment in Joint Trade Account;
FHLMC; 5.45%; 5/1/98 $2,591,212 $ 2,591,212
Total Portfolio Investments (98.63%) 21,135,000
Cash, receivables and other assets,
net of liabilities (1.37%) 293,474
Total Net Assets (100.00%) $21,428,474
(a) Non-income producing security - No dividend paid during the period.
PRINCIPAL UTILITIES FUND, INC.
Shares
Held Value
Common Stocks (97.72%)
Combination Utility Services (27.30%)
Baltimore Gas & Electric Co. 82,500 $ 2,598,750
Cilcorp, Inc. 23,100 1,104,469
Cinergy Corp. 61,799 2,155,240
Citizens Utilities 293,283(a) 2,969,490
L G & E Energy Corp. 45,400 1,203,100
Montana Power Co. 47,800 1,777,562
Nipsco Industries, Inc. 93,200 2,498,925
Pacificorp 107,600 2,501,700
Scana Corp. 85,600 2,557,300
Utilicorp United, Inc. 69,000 2,596,125
Washington Water Power Co. 40,500 931,500
Western Resources, Inc. 14,700 574,219
Wisconsin Energy Corp. 54,300 1,656,150
25,124,530
Electric Services (34.86%)
Allegheny Energy 70,000 2,143,750
Carolina Power & Light Co. 60,300 2,596,669
Dominion Resources, Inc. 56,300 2,227,369
Duke Energy Corp. 42,700 2,471,263
Edison International 60,000 1,788,750
Enron Corp. 34,780 1,710,741
FPL Group, Inc. 37,600 2,333,550
GPU, Inc. 62,400 2,472,600
Houston Industries, Inc. 94,900 2,758,031
Ipalco Enterprises, Inc. 10,000 435,625
Mid American Energy Holdings Co. 56,800 1,199,900
Pinnacle West Capital Corp. 59,700 2,641,725
Southern Co. 100,800 2,671,200
Teco Energy, Inc. 90,500 2,409,562
Texas Utilities Holdings 55,600 2,224,000
32,084,735
Gas Production & Distribution (3.74%)
Agl Res., Inc. 54,400 1,132,200
New Jersey Resources Corp. 38,700 1,460,925
Peoples Energy Corp. 23,300 844,625
3,437,750
Telephone Communication (31.82%)
Ameritech Corp. 96,600 4,111,538
AT&T Corp. 46,900 2,816,931
Bell Atlantic Corp. 36,800 3,443,100
Bellsouth Corp. 59,500 3,819,156
GTE Corp. 52,900 3,091,344
MCI Communications Corp. 65,700 3,305,531
RCN Corp. 46,000(a) 1,040,750
Sprint Corp. 53,400 3,647,888
US West Communications Group 76,000 4,009,000
29,285,238
Total Common Stocks 89,932,253
Principal
Amount Value
Commercial Paper (1.93%)
Personal Credit Institutions (1.93%)
Investment in Joint Trade Account;
Associates Corp.;
5.53%; 5/1/98 $1,778,146 $ 1,778,146
Total Portfolio Investments (99.65%) 91,710,399
Cash, receivables and other assets, net of
liabilities (0.35%) 319,244
Total Net Assets (100.00%) $92,029,643
(a) Non-income producing security - No dividend paid during the period.
<PAGE>
FINANCIAL HIGHLIGHTS
(unaudited)
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
<TABLE>
<CAPTION>
PRINCIPAL BALANCED FUND, INC.(a)
Class A shares 1998* 1997 1996 1995 1994 1993
- ------------------------------------------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $15.11 $14.61 $13.74 $12.43 $13.26 $12.78
Income from Investment Operations:
Net Investment Income............................... .22 .35 .38 .41 .32 .35
Net Realized and Unrealized Gain (Loss) on Investments 1.34 1.81 1.59 1.31 (.20) 1.14
Total from Investment Operations 1.56 2.16 1.97 1.72 .12 1.49
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.17) (.36) (.43) (.36) (.40) (.37)
Distributions from Capital Gains.................... (1.03) (1.30) (.67) (.05) (.55) (.64)
Total Dividends and Distributions (1.20) (1.66) (1.10) (.41) (.95) (1.01)
Net Asset Value, End of Period......................... $15.47 $15.11 $14.61 $13.74 $12.43 $13.26
Total Return(b)........................................ 10.90%(c) 15.88% 15.10% 14.18% .94% 12.24%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $100,944 $85,436 $70,820 $57,125 $53,366 $39,952
Ratio of Expenses to Average Net Assets............. 1.27%(d) 1.33% 1.28% 1.37% 1.51% 1.35%
Ratio of Net Investment Income to Average Net Assets 3.05%(d) 2.42% 2.82% 3.21% 2.70% 2.78%
Portfolio Turnover Rate............................. 78.9%(d) 27.6% 32.6% 35.8% 14.4% 27.5%
Average Commission Rate............................. $.0430 $.0392 $.0421 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL BALANCED FUND, INC.(a)
Class B shares 1998* 1997 1996 1995(e)
- ------------------------------------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $15.05 $14.56 $13.71 $11.80
Income from Investment Operations:
Net Investment Income............................... .17 .25 .29 .31
Net Realized and Unrealized Gain (Loss) on Investments 1.33 1.79 1.55 1.90
Total from Investment Operations 1.50 2.04 1.84 2.21
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.11) (.25) (.32) (.30)
Distributions from Capital Gains.................... (1.03) (1.30) (.67) -
Total Dividends and Distributions (1.14) (1.55) (.99) (.30)
Net Asset Value, End of Period......................... $15.41 $15.05 $14.56 $13.71
Total Return(b)........................................ 10.51%(c) 14.96% 14.10% 18.72%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $15,939 $11,885 $5,964 $1,263
Ratio of Expenses to Average Net Assets............. 2.00%(d) 2.14% 2.13% 1.91%(d)
Ratio of Net Investment Income to Average Net Assets 2.29%(d) 1.58% 1.93% 2.53%(d)
Portfolio Turnover Rate............................. 78.9%(d) 27.6% 32.6% 35.8%(d)
Average Commission Rate............................. $.0430 $.0392 $.0421 N/A
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL BALANCED FUND, INC.(a)
Class R shares 1998* 1997 1996(f)
- ------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................... $14.98 $14.52 $13.81
Income from Investment Operations:
Net Investment Income............................... .18 .29 .24
Net Realized and Unrealized Gain (Loss) on Investments 1.34 1.76 .73
Total from Investment Operations 1.52 2.05 .97
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.13) (.30) (.26)
Distributions from Capital Gains.................... (1.03) (1.29) -
Total Dividends and Distributions (1.16) (1.59) (.26)
Net Asset Value, End of Period......................... $15.34 $14.98 $14.52
Total Return(b)........................................ 10.66%(c) 15.16% 7.52%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $16,781 $9,745 $875
Ratio of Expenses to Average Net Assets............. 1.83%(d) 1.99% 1.49%(d)
Ratio of Net Investment Income to Average Net Assets 2.42%(d) 1.66% 2.26%(d)
Portfolio Turnover Rate............................. 78.9%(d) 27.6% 32.6%(d)
Average Commission Rate............................. $.0430 $.0392 $.0421
* Six Months Ended April 30, 1998.
See accompanying notes.
</TABLE>
<PAGE>
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
<TABLE>
<CAPTION>
PRINCIPAL BLUE CHIP FUND, INC.(a)
Class A shares 1998* 1997 1996 1995 1994 1993
- ------------------------------------------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $20.22 $17.10 $15.03 $12.45 $11.94 $11.51
Income from Investment Operations:
Net Investment Income............................... .06 .21 .23 .24 .20 .21
Net Realized and Unrealized Gain (Loss) on Investments 3.78 3.58 2.45 2.55 .57 .43
Total from Investment Operations 3.84 3.79 2.68 2.79 .77 .64
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.10) (.21) (.26) (.21) (.26) (.18)
Distributions from Capital Gains.................... (2.08) (.46) (.35) - - (.03)
Total Dividends and Distributions (2.18) (.67) (.61) (.21) (.26) (.21)
Net Asset Value, End of Period......................... $21.88 $20.22 $17.10 $15.03 $12.45 $11.94
Total Return(b)........................................ 20.30%(c) 22.57% 18.20% 22.65% 6.58% 5.65%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $111,810 $79,985 $44,389 $35,212 $27,246 $23,759
Ratio of Expenses to Average Net Assets............. 1.25%(d) 1.30% 1.33% 1.38% 1.46% 1.25%
Ratio of Net Investment Income to Average Net Assets .56%(d) 1.10% 1.41% 1.83% 1.72% 1.87%
Portfolio Turnover Rate............................. 0.0% 55.4% 13.3% 26.1% 5.5% 11.2%
Average Commission Rate............................. $.0216 $.0394 $.0456 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL BLUE CHIP FUND, INC.(a)
Class B shares 1998* 1997 1996 1995(e)
- ------------------------------------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $20.14 $17.03 $14.99 $11.89
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.01) .07 .11 .15
Net Realized and Unrealized Gain (Loss) on Investments 3.75 3.54 2.41 3.10
Total from Investment Operations 3.74 3.61 2.52 3.25
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.02) (.04) (.13) (.15)
Distributions from Capital Gains.................... (2.08) (.46) (.35) -
Total Dividends and Distributions (2.10) (.50) (.48) (.15)
Net Asset Value, End of Period......................... $21.78 $20.14 $17.03 $14.99
Total Return(b)........................................ 19.85%(c) 21.59% 17.18% 26.20%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $28,997 $18,265 $6,527 $1,732
Ratio of Expenses to Average Net Assets............. 1.96%(d) 2.06% 2.19% 1.90%(d)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (.16)%(d) .32% .49% .97%(d)
Portfolio Turnover Rate............................. 0.0% 55.4% 13.3% 26.1%(d)
Average Commission Rate............................. $.0216 $.0394 $.0456 N/A
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL BLUE CHIP FUND, INC.(a)
Class R shares 1998* 1997 1996(f)
- ------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................... $20.16 $17.08 $16.21
Income from Investment Operations:
Net Investment Income............................... .01 .13 .12
Net Realized and Unrealized Gain (Loss) on Investments 3.76 3.53 .90
Total from Investment Operations 3.77 3.66 1.02
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.04) (.12) (.15)
Distributions from Capital Gains.................... (2.08) (.46) -
Total Dividends and Distributions (2.12) (.58) (.15)
Net Asset Value, End of Period......................... $21.81 $20.16 $17.08
Total Return(b)........................................ 19.99%(c) 21.82% 7.02%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $26,820 $15,502 $1,575
Ratio of Expenses to Average Net Assets............. 1.77%(d) 1.89% 1.48%(d)
Ratio of Net Investment Income to Average Net Assets .02%(e)(d) .45% .68%(d)
Portfolio Turnover Rate............................. 0.0% 55.4% 13.3%(d)
Average Commission Rate............................. $.0216 $.0394 $.0456
* Six Months Ended April 30, 1998.
See accompanying notes.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
(unaudited)
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
<TABLE>
<CAPTION>
PRINCIPAL CAPITAL VALUE FUND, INC.(a)
Class A shares 1998* 1997 1996 1995 1994 1993
- ------------------------------------------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $29.69 $27.72 $23.69 $20.83 $21.41 $21.34
Income from Investment Operations:
Net Investment Income............................... .24 .50 .45 .45 .39 .43
Net Realized and Unrealized Gain (Loss) on Investments 5.38 5.80 5.48 3.15 .93 1.67
Total from Investment Operations 5.62 6.30 5.93 3.60 1.32 2.10
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.27) (.48) (.43) (.39) (.41) (.43)
Distributions from Capital Gains.................... (2.47) (3.85) (1.47) (.35) (1.49) (1.60)
Total Dividends and Distributions (2.74) (4.33) (1.90) (.74) (1.90) (2.03)
Net Asset Value, End of Period......................... $32.57 $29.69 $27.72 $23.69 $20.83 $21.41
Total Return(b)........................................ 20.19%(c) 25.36% 26.41% 17.94% 6.67% 10.42%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $583,371 $494,444 $435,617 $339,656 $285,965 $240,016
Ratio of Expenses to Average Net Assets............. .70%(d) .70% .69% .75% .83% .82%
Ratio of Net Investment Income to Average Net Assets 1.66%(d) 1.85% 1.82% 2.08% 2.02% 2.16%
Portfolio Turnover Rate............................. 9.8%(d) 30.8% 50.2% 46.0% 31.7% 24.8%
Average Commission Rate............................. $.0491 $.0457 $.0421 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL CAPITAL VALUE FUND, INC.(a)
Class B shares 1998* 1997 1996 1995(e)
- ------------------------------------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $29.51 $27.58 $23.61 $19.12
Income from Investment Operations:
Net Investment Income............................... .12 .23 .21 .33
Net Realized and Unrealized Gain (Loss) on Investments 5.36 5.77 5.45 4.46
Total from Investment Operations 5.48 6.00 5.66 4.79
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.14) (.22) (.22) (.30)
Distributions from Capital Gains.................... (2.47) (3.85) (1.47) -
Total Dividends and Distributions (2.61) (4.07) (1.69) (.30)
Net Asset Value, End of Period......................... $32.38 $29.51 $27.58 $23.61
Total Return(b)........................................ 19.75%(c) 24.13% 25.19% 25.06%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $40,019 $27,240 $9,832 $2,248
Ratio of Expenses to Average Net Assets............. 1.50%(d) 1.65% 1.70% 1.50%(d)
Ratio of Net Investment Income to Average Net Assets .83%(d) .84% .80% 1.07%(d)
Portfolio Turnover Rate............................. 9.8%(d) 30.8% 50.2% 46.0%(d)
Average Commission Rate............................. $.0491 $.0457 $.0421 N/A
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL CAPITAL VALUE FUND, INC.(a)
Class R shares 1998* 1997 1996(f)
- ------------------------------------------------------- ----- ---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................... $29.44 $27.57 $24.73
Income from Investment Operations:
Net Investment Income............................... .14 .30 .19
Net Realized and Unrealized Gain (Loss) on Investments 5.35 5.74 2.81
Total from Investment Operations 5.49 6.04 3.00
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.16) (.32) (.16)
Distributions from Capital Gains.................... (2.47) (3.85) -
Total Dividends and Distributions (2.63) (4.17) (.16)
Net Asset Value, End of Period......................... $32.30 $29.44 $27.57
Total Return(b)........................................ 19.84%(c) 24.36% 12.74%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $32,628 $18,326 $1,752
Ratio of Expenses to Average Net Assets............. .14%(d) 1.50% 1.16%(d)
Ratio of Net Investment Income to Average Net Assets .91%(d) .93% 1.18%(d)
Portfolio Turnover Rate............................. 9.8%(d) 30.8% 50.2%(d)
Average Commission Rate............................. $.0491 $.0457 $.0421
* Six Months Ended April 30, 1998.
See accompanying notes.
</TABLE>
<PAGE>
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
<TABLE>
<CAPTION>
PRINCIPAL GROWTH FUND, INC.(a)
Class A shares 1998* 1997 1996 1995 1994 1993
- -------------------------------------------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $50.43 $39.54 $37.22 $31.14 $30.41 $28.63
Income from Investment Operations:
Net Investment Income............................... .16 .31 .35 .35 .26 .40
Net Realized and Unrealized Gain (Loss) on Investments 10.93 11.26 3.50 6.67 2.56 2.36
Total from Investment Operations 11.09 11.57 3.85 7.02 2.82 2.76
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.18) (.31) (.35) (.31) (.28) (.42)
Distributions from Capital Gains.................... (1.49) (.37) (1.18) (.63) (1.81) (.56)
Total Dividends and Distributions (1.67) (.68) (1.53) (.94) (2.09) (.98)
Net Asset Value, End of Period......................... $59.85 $50.43 $39.54 $37.22 $31.14 $30.41
Total Return(b)........................................ 22.55%(c) 29.55% 10.60% 23.29% 9.82% 9.83%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $402,192 $317,386 $228,361 $174,328 $116,363 $80,051
Ratio of Expenses to Average Net Assets............. .96%(d) 1.03% 1.08% 1.16% 1.30% 1.26%
Ratio of Net Investment Income to Average Net Assets .64%(d) .68% .95% 1.12% .95% 1.40%
Portfolio Turnover Rate............................. 4.9%(d) 16.5% 1.8% 12.2% 13.6% 16.4%
Average Commission Rate............................. $.0476 $.0411 $.0443 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL GROWTH FUND, INC.(a)
Class B shares 1998* 1997 1996 1995(e)
- ------------------------------------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $50.36 $39.43 $37.10 $28.33
Income from Investment Operations:
Net Investment Income............................... .01 .09 .08 .21
Net Realized and Unrealized Gain (Loss) on Investments 10.92 11.23 3.48 8.76
Total from Investment Operations 10.93 11.32 3.56 8.97
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.06) (.02) (.05) (.20)
Distributions from Capital Gains.................... (1.49) (.37) (1.18) -
Total Dividends and Distributions (1.55) (.39) (1.23) (.20)
Net Asset Value, End of Period......................... $59.74 $50.36 $39.43 $37.10
Total Return(b)........................................ 22.21%(c) 28.92% 9.80% 31.48%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $59,734 $42,241 $24,019 $8,279
Ratio of Expenses to Average Net Assets............. 1.51%(d) 1.48% 1.79% 1.80%(d)
Ratio of Net Investment Income to Average Net Assets .09%(d) .23% .22% .31%(d)
Portfolio Turnover Rate............................. 4.9%(d) 16.5% 1.8% 12.2%(d)
Average Commission Rate............................. $.0476 $.0411 $.0443 N/A
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL GROWTH FUND, INC.(a)
Class R shares 1998* 1997 1996(f)
- ------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................... $50.16 $39.40 $39.27
Income from Investment Operations:
Net Investment Income............................... .02 .06 .10
Net Realized and Unrealized Gain (Loss) on Investments 10.87 11.16 .13
Total from Investment Operations 10.89 11.22 .23
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.01) (.09) (.10)
Distributions from Capital Gains.................... (1.49) (.37) -
Total Dividends and Distributions (1.50) (.46) (.10)
Net Asset Value, End of Period......................... $59.55 $50.16 $39.40
Total Return(b)........................................ 22.21%(c) 28.72% 1.12%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $27,073 $16,265 $2,014
Ratio of Expenses to Average Net Assets............. 1.55%(d) 1.69% 1.42%(d)
Ratio of Net Investment Income to Average Net Assets .04%(d) .00% .14%(d)
Portfolio Turnover Rate............................. 4.9%(d) 16.5% 1.8%(d)
Average Commission Rate............................. $.0476 $.0411 $.0443
* Six Months Ended April 30, 1998.
See accompanying notes.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
(unaudited)
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
<TABLE>
<CAPTION>
PRINCIPAL MIDCAP FUND, INC.(a)
Class A shares 1998* 1997 1996 1995 1994 1993
- ------------------------------------------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $45.33 $35.75 $31.45 $25.08 $23.56 $19.79
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.01) .07 .14 .12 - .06
Net Realized and Unrealized Gain (Loss) on Investments 6.33 10.80 5.05 6.45 1.61 3.82
Total from Investment Operations 6.32 10.87 5.19 6.57 1.61 3.88
Less Dividends and Distributions:
Dividends from Net Investment Income................ - (.11) (.14) (.06) - (.11)
Distributions from Capital Gains.................... (1.10) (1.18) (.75) (.14) (.09) -
Total Dividends and Distributions (1.10) (1.29) (.89) (.20) (.09) (.11)
Net Asset Value, End of Period......................... $50.55 $45.33 $35.75 $31.45 $25.08 $23.56
Total Return(b)........................................ 14.30%(c) 31.26% 16.89% 26.89% 6.86% 19.66%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $418,417 $346,666 $229,465 $150,611 $92,965 $48,668
Ratio of Expenses to Average Net Assets............. 1.17%(d) 1.26% 1.32% 1.47% 1.74% 1.66%
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (.02)%(d) .20% .46% .47% .02% .26%
Portfolio Turnover Rate............................. 10.5%(d) 9.5% 12.3% 13.5% 8.1% 7.0%
Average Commission Rate............................. $.0435 $.0435 $.0391 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MIDCAP FUND, INC.(a)
Class B shares 1998* 1997 1996 1995(e)
- ------------------------------------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $ 44.88 $ 35.48 $ 31.31 $23.15
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.10) (.05) (.04) -
Net Realized and Unrealized Gain (Loss) on Investments 6.21 10.64 4.97 8.18
Total from Investment Operations 6.11 10.59 4.93 8.18
Less Dividends and Distributions:
Dividends from Net Investment Income................ - (.01) (.01) (.02)
Distributions from Capital Gains.................... (1.10) (1.18) (.75) -
Total Dividends and Distributions (1.10) (1.19) (.76) (.02)
Net Asset Value, End of Period......................... $49.89 $44.88 $35.48 $31.31
Total Return(b)........................................ 13.97%(c) 30.64% 16.07% 35.65%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $79,727 $59,554 $28,480 $8,997
Ratio of Expenses to Average Net Assets............. 1.76%(d) 1.69% 2.01% 2.04%(d)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (.61)%(d) (.24)% (.24)% (.17)%(d)
Portfolio Turnover Rate............................. 10.5%(d) 9.5% 12.3% 13.5%(d)
Average Commission Rate............................. $.0435 $.0435 $.0391 N/A
</TABLE>
<TABLE>
PRINCIPAL MIDCAP FUND, INC.(a)
Class R shares 1998* 1997 1996(f)
- ------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................... $ 45.10 $ 35.67 $33.77
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.09) (.12) .04
Net Realized and Unrealized Gain (Loss) on Investments 6.24 10.74 1.88
Total from Investment Operations 6.15 10.62 1.92
Less Dividends and Distributions:
Dividends from Net Investment Income................ - (.01) (.02)
Distributions from Capital Gains.................... (1.10) (1.18) -
Total Dividends and Distributions (1.10) (1.19) (.02)
Net Asset Value, End of Period......................... $50.15 $45.10 $35.67
Total Return(b)........................................ 14.00%(c) 30.56% 6.20%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $26,752 $17,448 $2,016
Ratio of Expenses to Average Net Assets............. 1.75%(d) 1.87% 1.53%(d)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (.59)%(d) (.45)% .29%(d)
Portfolio Turnover Rate............................. 10.5%(d) 9.5% 12.3%(d)
Average Commission Rate............................. $.0435 $.0435 $.0391
* Six Months Ended April 30, 1998.
See accompanying notes.
</TABLE>
<PAGE>
Selected data for a share of Capital Stock outstanding throughout the period
ended April 30, 1998:
PRINCIPAL REAL ESTATE FUND, INC.
Class A shares 1998(g)
- ----------------------------------------------------------------
Net Asset Value, Beginning of Period................... $10.15
Income from Investment Operations:
Net Investment Income............................... .10
Net Realized and Unrealized Gain (Loss) on Investments .55)
Total from Investment Operations (.45)
Less Dividends:
Dividends from Net Investment Income................ (.06)
Total Dividends (.06)
Net Asset Value, End of Period......................... $ 9.64
Total Return(b)........................................ (4.49)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $4,925
Ratio of Expenses to Average Net Assets............. 1.68%(d)
Ratio of Net Investment Income to Average Net Assets 3.45%(d)
Portfolio Turnover Rate............................. 20.3%(d)
Average Commission Rate............................. $.0500
PRINCIPAL REAL ESTATE FUND, INC.
Class B shares 1998(g)
- ----------------------------------------------------------------
Net Asset Value, Beginning of Period................... $10.15
Income from Investment Operations:
Net Investment Income............................... .10
Net Realized and Unrealized Gain (Loss) on Investments (.56)
Total from Investment Operations (.46)
Less Dividends:
Dividends from Net Investment Income................ (.05)
Total Dividends (.05)
Net Asset Value, End of Period......................... $ 9.64
Total Return(b)........................................ (4.52)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $3,276
Ratio of Expenses to Average Net Assets............. 1.82%(d)
Ratio of Net Investment Income to Average Net Assets 3.28%(d)
Portfolio Turnover Rate............................. 20.3%(d)
Average Commission Rate............................. $.0500
PRINCIPAL REAL ESTATE FUND, INC.
Class R shares 1998(g)
- ----------------------------------------------------------------
Net Asset Value, Beginning of Period................... $10.15
Income from Investment Operations:
Net Investment Income............................... .11
Net Realized and Unrealized Gain (Loss) on Investments (.56)
Total from Investment Operations (.46)
Less Dividends:
Dividends from Net Investment Income................ (.05)
Total Dividends (.05)
Net Asset Value, End of Period......................... $ 9.64
Total Return(b)........................................ (4.51)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $3,011
Ratio of Expenses to Average Net Assets............. 1.75%(d)
Ratio of Net Investment Income to Average Net Assets 3.33%(d)
Portfolio Turnover Rate............................. 20.3%(d)
Average Commission Rate............................. $.0500
See accompanying notes.
<PAGE>
PRINCIPAL SMALLCAP FUND, INC.
Class A shares 1998(g)
- ----------------------------------------------------------------
Net Asset Value, Beginning of Period................... $ 9.92
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.02)
Net Realized and Unrealized Gain (Loss) on Investments 1.67
Total from Investment Operations 1.65
Less Dividends:
Dividends from Net Investment Income................ -
Total Dividends -
Net Asset Value, End of Period......................... $11.57
Total Return(b)........................................ 15.35%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $12,113
Ratio of Expenses to Average Net Assets............. 1.52%(d)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (.63)%(d)
Portfolio Turnover Rate............................. 33.3%(d)
Average Commission Rate............................. $.0391
PRINCIPAL SMALLCAP FUND, INC.
Class B shares 1998(g)
- ----------------------------------------------------------------
Net Asset Value, Beginning of Period................... $ 9.91
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.02)
Net Realized and Unrealized Gain (Loss) on Investments 1.68
Total from Investment Operations 1.66
Less Dividends:
Dividends from Net Investment Income................ -
Total Dividends -
Net Asset Value, End of Period......................... $11.57
Total Return(b)........................................ 15.35%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $5,441
Ratio of Expenses to Average Net Assets............. 1.65%(d)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (.74)%(d)
Portfolio Turnover Rate............................. 33.3%(d)
Average Commission Rate............................. $.0391
PRINCIPAL SMALLCAP FUND, INC.
Class R shares 1998(g)
- ----------------------------------------------------------------
Net Asset Value, Beginning of Period................... $ 9.91
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.02)
Net Realized and Unrealized Gain (Loss) on Investments 1.68
Total from Investment Operations 1.66
Less Dividends:
Dividends from Net Investment Income................ -
Total Dividends -
Net Asset Value, End of Period......................... $11.57
Total Return(b)........................................ 15.35%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $3,874
Ratio of Expenses to Average Net Assets............. 1.58%(d)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (.65)%(d)
Portfolio Turnover Rate............................. 33.3%(d)
Average Commission Rate............................. $.0391
See accompanying notes.
<PAGE>
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
<TABLE>
<CAPTION>
PRINCIPAL UTILITIES FUND, INC.(a)
Class A shares 1998* 1997 1996 1995 1994 1993(h)
- ------------------------------------------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $12.55 $11.40 $10.94 $9.25 $11.45 $10.18
Income from Investment Operations:
Net Investment Income(i)............................ .21 .48 .44 .48 .46 .35
Net Realized and Unrealized Gain (Loss) on Investments 2.62 1.12 .45 1.70 (2.19) 1.27
Total from Investment Operations 2.83 1.60 .89 2.18 (1.73) 1.62
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.25) (.45) (.43) (.49) (.45) (.35)
Distributions from Capital Gains.................... - - - - (.02) -
Total Dividends and Distributions (.25) (.45) (.43) (.49) (.47) (.35)
Net Asset Value, End of Period......................... $15.13 $12.55 $11.40 $10.94 $9.25 $11.45
Total Return(b)........................................ 22.53%(c) 14.26% 8.13% 24.36% (15.20)% 15.92%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $79,760 $64,366 $66,322 $65,873 $56,747 $50,372
Ratio of Expenses to Average Net Assets(i).......... 1.15%(d) 1.15% 1.17% 1.04% 1.00% 1.00%(d)
Ratio of Net Investment Income to Average Net Assets 2.94%(d) 3.90% 3.85% 4.95% 4.89% 4.48%(d)
Portfolio Turnover Rate............................. 14.0%(d) 22.5% 34.2% 13.0% 13.8% 4.3%(d)
Average Commission Rate............................. $.0490 $.0465 $.0410 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL UTILITIES FUND, INC.(a)
Class B shares 1998* 1997 1996 1995(e)
- ------------------------------------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $12.53 $11.38 $10.93 $9.20
Income from Investment Operations:
Net Investment Income(i)............................ .16 .38 .36 .40
Net Realized and Unrealized Gain (Loss) on Investments 2.61 1.13 .43 1.77
Total from Investment Operations 2.77 1.51 .79 2.17
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.19) (.36) (.34) (.44)
Distributions from Capital Gains.................... - - - -
Total Dividends and Distributions (.19) (.36) (.34) (.44)
Net Asset Value, End of Period......................... $15.11 $12.53 $11.38 $10.93
Total Return(b)........................................ 22.15%(c) 13.41% 7.23% 24.18%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $9,553 $6,937 $5,579 $3,952
Ratio of Expenses to Average Net Assets(i).......... 1.87%(d) 1.90% 1.93% 1.72%(d)
Ratio of Net Investment Income to Average Net Assets 2.22%(d) 3.14% 3.07% 3.84%(d)
Portfolio Turnover Rate............................. 14.0%(d) 22.5% 34.2% 13.0%(d)
Average Commission Rate............................. $.0490 $.0465 $.0410 N/A
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL UTILITIES FUND, INC.(a)
Class R shares 1998* 1997 1996(f)
- ------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................... $12.49 $11.33 $11.75
Income from Investment Operations:
Net Investment Income(i)............................ .17 .39 .28
Net Realized and Unrealized Gain (Loss) on Investments 2.60 1.14 (.41)
Total from Investment Operations 2.77 1.53 (.13)
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.19) (.37) (.29)
Distributions from Capital Gains.................... - - -
Total Dividends and Distributions (.19) (.37) (.29)
Net Asset Value, End of Period......................... $15.07 $12.49 $11.33
Total Return(b)........................................ 22.21%(c) 13.72% (.31)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $2,717 $1,512 $311
Ratio of Expenses to Average Net Assets(i).......... 1.65%(d) 1.65% 1.47%(d)
Ratio of Net Investment Income to Average Net Assets 2.41%(d) 3.35% .3.77%(d)
Portfolio Turnover Rate............................. 14.0%(d) 22.5% 34.2%(d)
Average Commission Rate............................. $.0490 $.0465 $.0410
* Six Months Ended April 30, 1998.
See accompanying notes.
</TABLE>
<PAGE>
Notes to Financial Highlights
(a) Effective January 1, 1998, the following changes were made to the names of
the Domestic Growth Funds:
Former Fund Name New Fund Name
Princor Balanced Fund, Inc. Principal Balanced Fund, Inc.
Princor Blue Chip Fund, Inc. Principal Blue Chip Fund, Inc.
Princor Capital Accumulation Fund, Inc. Principal Capital Value Fund, Inc.
Princor Emerging Growth Fund, Inc. Principal MidCap Fund, Inc.
Princor Growth Fund, Inc. Principal Growth Fund, Inc.
Princor Utilities Fund, Inc. Principal Utilities Fund, Inc.
(b) Total return is calculated without the front-end sales charge or contingent
deferred sales charge.
(c) Total return amounts have not been annualized.
(d) Computed on an annualized basis.
(e) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995. The Domestic Growth Funds' Class B shares
recognized net investment income as follows for the period from the initial
purchase of Class B shares on December 5, 1994 through December 8, 1994,
none of which was distributed to the sole shareholder, Principal Management
Corporation. The Domestic Growth Funds' Class B shares incurred unrealized
losses on investments during the initial interim period as follows. This
represents Class B share activities of each fund prior to the initial
public offering of Class B shares:
Per Share
Net Investment Per Share
Income Unrealized (Loss)
Principal Balanced Fund, Inc. $-- $(.19)
Principal Blue Chip Fund, Inc. -- (.15)
Principal Capital Value Fund, Inc. -- (.46)
Principal Growth Fund, Inc. -- (.86)
Principal MidCap Fund, Inc. -- (.77)
Principal Utilities Fund, Inc. .01 (.01)
(f) Period from February 29, 1996, date Class R shares first offered to
eligible purchasers, through October 31, 1996. Certain of the Domestic
Growth Funds' Class R shares recognized net investment income for the
period from the initial purchase of Class R shares on February 27, 1996
through February 28, 1996 as follows, none of which was distributed to the
sole shareholder, Principal Management Corporation. Additionally, the
Domestic Growth Funds incurred unrealized gains (losses) on investments
during the initial interim period as follows. This represents Class R share
activities of each fund prior to the initial offering of Class R shares:
Per Share Per Share
Net Investment Unrealized
Income Gain (Loss)
Principal Balanced Fund, Inc. $-- $(.03)
Principal Blue Chip Fund, Inc. .01 (.02)
Principal Capital Value Fund, Inc. .01 (.11)
Principal Growth Fund, Inc. .01 .10
Principal MidCap Fund, Inc -- .19
(g) Period from December 31, 1997, date Class A and Class B shares first
offered to the public and Class R shares first offered to eligible
purchasers, through April 30, 1998. With respect to Principal Real Estate
Fund, Inc. Class A, Class B and Class R shares, net investment income
aggregating $.02 per share for the period from the initial purchase of
shares on December 11, 1997 through December 30, 1997 was recognized, of
which $.01 per share was distributed to its sole shareholder, Principal
Mutual Life Insurance Company, during the period. With respect to Principal
SmallCap Fund, Inc. Class A, Class B and Class R shares, net investment
income aggregating $.01 per share for the period from the initial purchase
of shares on December 11, 1997 through December 30, 1997 was recognized, of
which $.01 per share was distributed to its sole shareholder, Principal
Mutual Life Insurance Company, during the period. Principal Real Estate
Fund, Inc. and Principal SmallCap Fund, Inc. Class A, Class B and Class R
shares incurred unrealized gains (losses) on investments during the initial
interim period as follows. This represents Class A, Class B and Class R
share activities of each fund prior to the initial public offering of each
class of shares.
Per Share Unrealized Gain (Loss)
Class Class Class
A B R
Principal Real Estate Fund, Inc. $ .13 $ .13 $ .13
Principal SmallCap Fund, Inc. (.08) (.09) (.09)
(h) Period from December 16, 1992, date shares first offered to public, through
October 31, 1993. Net investment income, aggregating $.05 per share for the
period from the initial purchase of shares on November 16, 1992 through
December 15, 1992, was recognized, none of which was distributed to its
sole stockholder, Principal Mutual Life Insurance Company, during the
period. Additionally, the fund incurred unrealized gains on investments of
$.13 per share during the initial interim period. This represents
activities of the fund prior to the initial public offering of fund shares.
(i) Without the Manager's voluntary waiver of a portion of certain of its
expenses (see Note 3 to the financial statements) for the periods
indicated, Principal Utilities Fund, Inc. would have had per share net
investment income and the ratios of expenses to average net assets as
shown:
Year Ended
October 31, Per Share Ratio of Expenses
Except Net Investment to Average Net Amount
as Noted Income Assets Waived
Class A 1998* $.20 1.21%(d) $ 21,593
1997 .46 1.25% 65,940
1996 .43 1.25% 54,932
1995 .46 1.30% 151,145
1994 .41 1.50% 284,836
1993(h) .32 1.54%(d) 139,439
Class B 1998* .15 1.99%(d) 5,173
1997 .37 1.95% 3,753
1996 .34 2.06% 6,690
1995(e) .40 1.81%(d) 1,338
Class R 1998* .14 2.08%(d) 4,909
1997 .31 2.67% 9,355
1996(f) .28 1.47%(d) --
* Six Months Ended April 30, 1998.
<PAGE>
April 30, 1998
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
(unaudited)
Principal Principal
International Principal International
Emerging Markets International SmallCap
GROWTH FUNDS (INTERNATIONAL) Fund, Inc. Fund, Inc. Fund, Inc.
<S> <C> <C> <C>
Investment in securities -- at cost........ $15,249,612 $296,871,379 $18,935,117
Assets
Investment in securities -- at value (Note 4) $14,804,111 $406,930,283 $23,606,130
Cash.................................... 86,141 15,366 9,851
Receivables:
Dividends and interest.................. 53,732 1,531,884 50,916
Investment securities sold.............. 61,075 590,670 177,924
Capital Stock sold...................... 13,589 360,807 17,356
Other assets............................... -- 4,252 --
Total Assets 15,018,648 409,433,262 23,862,177
Liabilities
Accrued expenses........................... 169 381,778 10,724
Payables:
Investment securities purchased......... 228,089 -- 840,659
Capital Stock reacquired................ 51 388,615 30,347
Total Liabilities 228,309 770,393 881,730
Net Assets Applicable to
Outstanding Shares ....................... $14,790,339 $408,662,869 $22,980,447
Net Assets Consist of:
Capital Stock.............................. $ 16,731 $ 382,870 $ 18,382
Additional paid-in capital................. 15,922,489 283,455,137 18,830,944
Accumulated undistributed net
investment income (operating loss)...... (21,907) 1,954,766 (42,456)
Accumulated undistributed net realized
gain (loss) from:
Investment transactions................. (675,182) 12,969,293 (498,350)
Foreign currency transactions........... (5,496) (158,272) 1,147
Net unrealized appreciation (depreciation)
of investments.......................... (445,501) 110,058,904 4,671,013
Net unrealized appreciation (depreciation) on
translation of assets and liabilities in
foreign currencies...................... (795) 171 (233)
Total Net Assets $14,790,339 $408,662,869 $22,980,447
Capital Stock (par value: $.01 a share):
Shares authorized.......................... 100,000,000 100,000,000 100,000,000
Net Asset Value Per Share:
Class A: Net Assets....................... $8,050,953 $345,800,135 $11,953,997
Shares issued and outstanding. 910,315 32,378,735 956,014
Net asset value per share...... $8.84 $10.68 $12.50
Maximum offering price per share(a) $9.28 $11.21 $13.12
Class B: Net Assets....................... $3,927,792 $44,889,999 $7,030,667
Shares issued and outstanding. 444,550 4,219,876 562,833
Net asset value per share(b)... $8.84 $10.64 $12.49
Class R: Net Assets....................... $2,811,594 $17,972,735 $3,995,783
Shares issued and outstanding. 318,220 1,688,424 319,328
Net asset value per share............... $8.84 $10.64 $12.51
</TABLE>
(a) Maximum offering price is equal to net asset value plus a front-end sales
charge of 4.75% of the offering price or 4.99% of the net asset value.
(b) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See accompanying notes.
<PAGE>
Six Months Ended April 30, 1998
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
(unaudited)
Principal Principal
International Principal International
Emerging Markets International SmallCap
GROWTH FUNDS (INTERNATIONAL) Fund, Inc. Fund, Inc. Fund, Inc.
Net Investment Income
Income:
<S> <C> <C> <C>
Dividends............................. $ 135,888 $ 4,846,064 $ 159,155
Withholding tax on foreign dividends... (7,770) (559,469) (19,366)
Interest............................... 27,898 718,303 27,655
Total Income 156,016 5,004,898 167,444
Expenses:
Management and investment advisory
fees (Note 3)....................... 76,051 1,195,620 101,103
Distribution and shareholder servicing
fees (Notes 1 and 3)................ 14,815 522,798 19,039
Transfer and administrative services
(Notes 1 and 3)..................... 44,542 543,889 47,759
Registration fees (Note 1)............. 16,697 42,684 16,642
Custodian fees ........................ 16,662 90,140 15,703
Auditing and legal fees ............... 4,694 4,718 3,853
Directors' fees ....................... 3,208 3,643 3,180
Other ................................. 393 10,512 710
Total Net Expenses 177,062 2,414,004 207,989
Net Investment Income (Operating Loss) (21,046) 2,590,894 (40,545)
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign
Currencies Net realized gain (loss) from:
Investment transactions................ (588,510) 12,992,385 (340,679)
Foreign currency transactions.......... (7,138) (158,272) (2,024)
Change in unrealized appreciation/ depreciation of:
Investments............................ 1,542,502 46,986,263 4,712,967
Translation of assets and liabilities in
foreign currencies.................. (2,758) (22,397) (256)
Net Realized and Unrealized Gain
on Investments and Foreign Currencies 944,096 59,797,979 4,370,008
Net Increase in Net Assets
Resulting from Operations $ 923,050 $62,388,873 $4,329,463
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
(unaudited)
Principal Principal
International Principal International
Emerging Markets International SmallCap
GROWTH FUNDS (INTERNATIONAL) Fund, Inc. Fund, Inc. Fund, Inc.
Six Months Period Six Months Year Six Months Period
Ended Ended Ended Ended Ended Ended
April 30, October 31, April 30, October 31, April 30, October 31,
1998 1997(a) 1998 1997 1998 1997(a)
Operations
<S> <C> <C> <C> <C> <C> <C>
Net investment income (operating loss).... $ (21,046) $ (861) $ 2,590,894 $ 3,090,074 $ (40,545) $ (1,911)
Net realized gain (loss) from:
Investment transactions................ (588,510) (86,672) 12,992,385 7,163,553 (340,679) (157,671)
Foreign currency transactions.......... (7,138) 1,642 (158,272) (91,683) (2,024) 3,171
Change in unrealized appreciation/
depreciation of investments and
translation of assets and liabilities
in foreign currencies.................. 1,539,744 (1,986,040) 46,963,866 32,599,107 4,712,711 (41,931)
Net Increase (Decrease) in Net
Assets Resulting from Operations 923,050 (2,071,931) 62,388,873 42,761,051 4,329,463 (198,342)
Dividends and Distributions to Shareholders
From net investment income:
Class A................................ -- -- (3,230,566) (2,378,873) -- --
Class B ............................... -- -- (135,319) (79,037) -- --
Class R ............................... -- -- (60,504) (19,984) -- --
From net realized gain on investments and
foreign currency transactions:
Class A ............................... -- -- (6,125,600) (6,657,874) -- --
Class B ............................... -- -- (754,865) (635,525) -- --
Class R................................ -- -- (271,968) (55,824) -- --
Total Dividends and Distributions -- -- (10,578,822) (9,827,117) -- --
Capital Share Transactions (Note 5)
Shares sold:
Class A................................ 2,790,113 5,966,460 32,717,443 96,500,904 3,810,821 6,307,287
Class B ............................... 771,285 3,867,018 7,440,533 20,265,356 1,180,683 4,967,080
Class R................................ 127,201 3,028,924 5,141,879 11,220,828 284,780 3,022,777
Shares issued in reinvestment of dividends
and distributions:
Class A................................ -- -- 9,196,552 8,872,973 -- --
Class B ............................... -- -- 870,891 696,974 -- --
Class R................................ -- -- 332,273 75,789 -- --
Shares redeemed:
Class A ............................... (283,901) (7,197) (21,057,808) (26,121,521) (259,028) (7,102)
Class B ............................... (199,669) (118,315) (3,013,980) (5,667,020) (255,816) (97,291)
Class R ............................... (2,699) -- (1,548,165) (1,083,455) (99,070) (5,795)
Net Increase in Net Assets from
Capital Share Transactions 3,202,330 12,736,890 30,079,618 104,760,828 4,662,370 14,186,956
Total Increase 4,125,380 10,664,959 81,889,669 137,694,762 8,991,833 13,988,614
Net Assets
Beginning of period....................... 10,664,959 -- 326,773,200 189,078,438 13,988,614 --
End of period [including undistributed net
investment income (operating loss)
as set forth below].................... $14,790,339 $10,664,959 $408,662,869 $326,773,200 $22,980,447 $13,988,614
Undistributed Net Investment Income
(Operating Loss)....................... $ (21,907) $ (861) $ 1,954,766 $ 2,790,261 $ (42,456) $ (1,911)
(a) Period from August 14, 1997 (date operations commenced) through October 31,
1997.
See accompanying notes.
</TABLE>
<PAGE>
April 30, 1998
NOTES TO FINANCIAL STATEMENTS
(unaudited)
Principal International Emerging Markets Fund, Inc.
Principal International Fund, Inc.
Principal International SmallCap Fund, Inc.
Note 1 -- Significant Accounting Policies
Principal International Emerging Markets Fund, Inc., Principal International
Fund, Inc. and Principal International SmallCap Fund, Inc. (the "International
Growth Funds") are registered under the Investment Company Act of 1940, as
amended, as open-end diversified management investment companies and operate in
the mutual fund industry.
On January 1, 1998, Princor World Fund, Inc. changed its name to Principal
International Fund, Inc.
On August 14, 1997, the initial purchases of 400,000 shares of Class A Capital
Stock, 300,000 shares of Class B Capital Stock and 300,000 shares of Class R
Capital Stock of Principal International Emerging Markets Fund, Inc. and
Principal International SmallCap Fund, Inc. were made by Principal Mutual Life
Insurance Company (see Note 3). Effective August 29, 1997, Principal
International Emerging Markets Fund, Inc. and Principal International SmallCap
Fund, Inc. began offering Class A and Class B shares to the public and Class R
shares to eligible purchasers.
Class A shares generally are sold with an initial sales charge based on
declining rates and certain purchases may be subject to a contingent deferred
sales charge ("CDSC"). Class B shares are sold without an initial sales charge,
but are subject to a declining CDSC on certain redemptions redeemed within six
years of purchase. Class R shares are sold without an initial sales charge and
are not subject to a CDSC. Class B shares and Class R shares bear a higher
ongoing distribution fee than Class A shares. Class B shares automatically
convert into Class A shares, based on relative net asset value (without a sales
charge) after seven years. Class R shares automatically convert into Class A
shares, based on relative net asset value (without a sales charge) after four
years. All classes of shares for each fund represent interests in the same
portfolio of investments, and will vote together as a single class except where
otherwise required by law or as determined by each of the International Growth
Funds' respective Board of Directors. In addition, the Board of Directors of
each fund declare separate dividends on each class of shares.
The International Growth Funds allocate daily all income, expenses (other than
class-specific expenses), and realized and unrealized gains or losses to each
class of shares based upon the relative proportion of the value of shares
outstanding of each class. Expenses specifically attributable to a particular
class are charged directly to such class. Class-specific expenses charged to
each class during the six months ended April 30, 1998, which are included in the
corresponding captions of the Statement of Operations, were as follows:
<TABLE>
<CAPTION>
Distribution and Transfer and
Shareholder Servicing Fees Administrative Services Registration Fees
Class A Class B Class R Class A Class B Class R Class A Class B Class R
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Principal International Emerging Markets Fund, Inc. $6,421 $5,214 $3,180 $ 1,854 $675 $ 357 $4,242 $3,012 $3,555
Principal International Fund, Inc. 307,130 162,204 53,464 139,088 24,335 10,312 9,577 6,920 4,258
Principal International SmallCap Fund, Inc. 8,090 7,049 3,900 1,984 908 340 3,865 2,974 3,145
</TABLE>
The International Growth Funds value securities for which market quotations are
readily available at market value, which is determined using the last reported
sale price or, if no sales are reported, as is regularly the case for some
securities traded over-the-counter, the last reported bid price. When reliable
market quotations are not considered to be readily available, which may be the
case, for example, with respect to certain debt securities, preferred stocks and
foreign securities, the investments are valued by using market quotations,
prices provided by market makers or estimates of market values obtained from
yield data and other factors relating to instruments or securities with similar
characteristics in accordance with procedures established in good faith by each
fund's Board of Directors. Securities with remaining maturities of 60 days or
less are valued at amortized cost, which approximates market.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of the New York Stock Exchange. The values of
such securities used in computing net asset value per share are usually
determined as of such times. Occasionally, events which affect the values of
such securities and foreign currency exchange rates may occur between the times
at which they are generally determined and the close of the New York Stock
Exchange and would therefore not be reflected in the computation of each fund's
net asset value. If events materially affecting the value of such securities
occur during such period, then these securities are valued at their fair value
as determined in good faith by the Manager under procedures established and
regularly reviewed by each fund's Board of Directors. To the extent each fund
invests in foreign securities listed on foreign exchanges which trade on days on
which the fund does not determine its net asset value, for example Saturdays and
other customary national U.S. holidays, each fund's net asset value could be
significantly affected on days when shareholders do not have access to the
International Growth Funds.
Certain securities issued by companies in emerging market countries may have
more than one quoted valuation at any given point in time, sometimes referred to
as a "local" price and a "premium" price. The premium price is often a
negotiated price which may not consistently represent a price at which a
specific transaction can be effected. It is the policy of the International
Growth Funds to value such securities at prices at which it is expected those
shares may be sold, and the Manager or any sub-adviser is authorized to make
such determinations subject to such oversight by each fund's Board of Directors
as may from time to time be necessary.
The value of foreign securities in foreign currency amounts is expressed in U.S.
dollars at the closing daily rate of exchange. The identified cost of the
portfolio holdings is translated at approximate rates prevailing when acquired.
Income and expense amounts are translated at approximate rates prevailing when
received or paid, with daily accruals of such amounts reported at approximate
rates prevailing at the date of valuation. Since the carrying amount of the
foreign securities is determined based on the exchange rate and market values at
the close of the period, it is not practicable to isolate that portion of the
results of operations arising as a result of changes in the foreign exchange
rates from the fluctuations arising from changes in the market prices of
securities during the period.
The International Growth Funds record investment transactions generally one day
after the trade date, except for short-term investment transactions which are
recorded generally on the trade date. The identified cost basis has been used in
determining the net realized gain or loss from investment transactions and
unrealized appreciation or depreciation of investments. The International Growth
Funds record dividend income on the ex-dividend date, except dividend income
from foreign securities whereby the ex-dividend date has passed; such dividends
are recorded as soon as the International Growth Funds are informed of the
ex-dividend date. Interest income is recognized on an accrual basis.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between trade and
settlement dates on security transactions, and the difference between the amount
of dividends and foreign withholding taxes recorded on the books and the U.S.
dollar equivalent of the amounts actually received or paid. Net unrealized
appreciation on translation of assets and liabilities in foreign currencies
arise from changes in the exchange rate relating to assets and liabilities,
other than investments in securities, purchased and held in non-U.S. denominated
currencies.
The International Growth Funds may, pursuant to an exemptive order issued by the
Securities and Exchange Commission, transfer uninvested funds into a joint
trading acount. The order permits the International Growth Funds' cash balances
to be deposited into a single joint account along with the cash of other
registered investment companies managed by Principal Management Corporation
(formerly known as Princor Management Corporation) (the "Manager"). These
balances may be invested in one or more short-term instruments.
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Dividends and distributions to shareholders from net investment income and
net realized gain from investments and foreign currency transactions are
determined in accordance with federal income tax regulations, which may differ
from generally accepted accounting principles. Permanent book and tax basis
differences are reclassified within the capital accounts based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Reclassifications made for Principal International Fund, Inc. for the year ended
October 31, 1997 aggregated $577,016. Other reclassifications made for the
period ended October 31, 1997 were not material.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2 -- Federal Income Taxes
No provision for federal income taxes is considered necessary because each fund
is qualified as a "regulated investment company" under the Internal Revenue Code
and intends to distribute each year substantially all of its net investment
income and realized capital gains to shareholders. The cost of investments for
federal income tax reporting purposes is approximately the same as that for
financial reporting purposes.
<PAGE>
Note 3 -- Management Agreement and Transactions With Affiliates
The International Growth Funds have agreed to pay investment advisory and
management fees to Principal Management Corporation (wholly owned by Princor
Financial Services Corporation, a subsidiary of Principal Mutual Life Insurance
Company) computed at an annual percentage rate of each fund's average daily net
assets. The annual rate used in this calculation for the International Growth
Funds is as follows:
<TABLE>
<CAPTION>
Net Asset Value of Funds
(in millions)
First Next Next Next Over
$100 $100 $100 $100 $400
<S> <C> <C> <C> <C> <C>
Principal International Emerging Markets Fund, Inc. 1.25% 1.20% 1.15% 1.10% 1.05%
Principal International Fund, Inc. 0.75% 0.70% 0.65% 0.60% 0.55%
Principal International SmallCap Fund, Inc. 1.20% 1.15% 1.10% 1.05% 1.00%
</TABLE>
The International Growth Funds also reimburse the Manager for transfer and
administrative services, including the cost of accounting, data processing,
supplies and other services rendered.
Princor Financial Services Corporation, as principal underwriter, receives
proceeds of any CDSC on certain Class A and Class B share redemptions. The
charge is based on declining rates which for Class A shares begin at .75%, and
for Class B shares at 4.00%, of the lesser of the current market value or the
cost of shares being redeemed. Princor Financial Services Corporation also
retains sales charges on sales of Class A shares based on declining rates which
begin at 4.75% of the offering price. The aggregate amount of these charges
retained, by fund, for the six months ended April 30, 1998 were as follows:
<TABLE>
<CAPTION>
Class A Class B
<S> <C> <C>
Principal International Emerging Markets Fund, Inc. $ 70,501 $1,025
Principal International Fund, Inc. 650,003 39,564
Principal International SmallCap Fund, Inc. 85,424 1,890
</TABLE>
No brokerage commissions were paid by the International Growth Funds to Princor
Financial Services Corporation during the periods. Brokerage commissions were
paid to other affiliates by the following funds:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 1998 October 31, 1997
<S> <C> <C>
Principal International Emerging Markets Fund, Inc. $ 1,707 $ 1,586
Principal International Fund, Inc. 44,470 20,595
Principal International SmallCap Fund, Inc. 1,755 1,502
</TABLE>
The International Growth Funds bear distribution and shareholder servicing fees
with respect to Class A shares computed at an annual rate of up to 0.25% of the
average daily net assets attributable to Class A shares of each fund. Each of
the International Growth Funds adopted a distribution plan with respect to Class
B shares that provides for distribution and shareholder servicing fees computed
at an annual rate of up to 1.00% of the average daily net assets attributable to
Class B shares of each fund. Each of the International Growth Funds adopted a
distribution plan with respect to Class R shares that provides for distribution
and shareholder servicing fees computed at an annual rate of up to .75% of the
average daily net assets attributable to Class R shares of each fund.
Distribution and shareholder servicing fees are paid to Princor Financial
Services Corporation; a portion of the fees are subsequently remitted to retail
dealers. Pursuant to the distribution agreements, fees unused by the principal
underwriter at the end of the fiscal year are returned to the International
Growth Funds.
At April 30, 1998, Principal Mutual Life Insurance Company, subsidiaries of
Principal Mutual Life Insurance Company and benefit plans sponsored on behalf of
Principal Mutual Life Insurance Company owned shares of the International Growth
Funds as follows:
<TABLE>
<CAPTION>
Class A Class B Class R
<S> <C> <C> <C>
Principal International Emerging Markets Fund, Inc. 400,000 300,000 300,000
Principal International Fund, Inc. 8,894,436 167 144
Principal International SmallCap Fund, Inc. 400,000 300,000 300,000
</TABLE>
<PAGE>
Note 4 -- Investment Transactions
For the six months ended April 30, 1998, the cost of investment securities
purchased and proceeds from investment securities sold (not including short-term
investments and U.S. government securities) by the International Growth Funds
were as follows:
<TABLE>
<CAPTION>
Purchases Sales
<S> <C> <C>
Principal International Emerging Markets Fund, Inc. $6,482,834 $2,821,360
Principal International Fund, Inc. 55,267,874 44,381,876
Principal International SmallCap Fund, Inc. 14,310,008 8,435,013
</TABLE>
At April 30, 1998, net unrealized appreciation (depreciation) of investments by
the International Growth Funds was composed of the following:
<TABLE>
<CAPTION>
Net Unrealized
Gross Unrealized Appreciation (Depreciation)
Appreciation (Depreciation) of Investments
<S> <C> <C> <C>
Principal International Emerging Markets Fund, Inc. $ 1,239,605 $ (1,685,106) $ (445,501)
Principal International Fund, Inc. 122,807,507 (12,748,603) 110,058,904
Principal International SmallCap Fund, Inc. 5,094,392 (423,379) 4,671,013
</TABLE>
At April 30, 1998, the International Growth Funds held the following securities
which were purchased in a private placement transaction and may require
registration in order to effect a sale in the ordinary course of business.
<TABLE>
<CAPTION>
Value at Value as a
Date of April 30, Percentage of
Security Description Acquisition Cost 1998 Net Assets
<S> <C> <C> <C> <C> <C>
Principal International Al Ahram Beverages Co. ADR 8/21/97 $ 56,100 $ 69,960 .47%
Emerging Markets Fund, Inc. 4/14/98 12,050 12,720 .09
Bank Handlowy GDR 8/14/97 50,200 76,400 .52
2/23/98 31,100 38,200 .26
4/2/98 16,625 19,100 .13
4/14/98 16,850 19,100 .13
4/21/98 16,100 19,100 .13
Banque Libanaise le Commerce
SAL ADR 8/14/97 115,250 88,000 .59
2/19/98 7,440 7,040 .05
Banque Marocaine du Commerce
Exterieur 8/15/97 87,600 114,960 .78
Eesti Uhispank GDR 3/24/98 79,750 68,166 .46
4/2/98 15,250 13,633 .09
Industrial Credit & Investment Corp.
of India ADR 8/14/97 137,750 123,500 .83
10/7/97 31,400 32,500 .22
10/20/97 33,400 32,500 .22
11/10/97 15,000 16,250 .11
12/4/97 10,750 16,250 .11
12/17/97 18,675 29,250 .20
1/13/98 13,975 21,125 .14
Mol Magyar Olaj-Es Gazipari ADR 3/20/98 150,000 151,928 1.03
4/14/98 16,250 15,193 .10
Paints & Chemical Industries
Co. GDR 9/26/97 149,225 145,733 .98%
9/26/97 5,745 6,885 .05
10/20/97 11,700 11,475 .08
10/30/97 19,750 22,950 .16
12/4/97 12,155 14,917 .10
1/23/98 3,450 4,590 .03
4/14/98 14,788 14,918 .10
Reliance Industries GDR 8/14/97 72,000 54,750 .37
10/24/97 22,125 18,250 .12
12/12/97 21,750 27,375 .19
1/2/98 17,535 19,163 .13
1/13/98 12,750 15,513 .10
4/6/98 13,800 13,687 .09
Tata Engineering & Locomotive
Ltd. Co. GDR 8/14/97 71,250 43,650 .30
10/1/97 19,000 14,550 .10
10/20/97 18,900 14,550 .10
12/30/97 7,650 6,548 .04
Videsh Sanchar Nigam Ltd. GDR 8/14/97 132,800 99,000 .67
11/18/97 28,250 24,750 .17
12/2/97 14,250 12,375 .08
12/12/97 10,720 9,900 .07
1/2/98 15,235 13,613 .09
1/13/98 13,620 14,850 .10
3/5/98 10,440 9,900 .07
1,618,767 10.95
Principal International Alfa SA Convertible
Fund, Inc. Subordinated Debentures 9/25/95 1,293,500 1,547,000 .38
11/20/96 779,234 844,900 .21
Fokus Bank 10/9/95 557,692 1,013,666 .25
12/17/96 797,392 1,013,667 .25
Hyundai Motor Co. Ltd. GDR 8/23/96 318,750 81,875 .02
8/28/96 312,500 81,875 .02
9/3/96 159,998 42,575 .01
Kemira OY 12/13/96 610,584 541,475 .13
12/20/96 1,478,458 1,267,050 .31
2/26/97 1,162,586 1,093,779 .27
4/8/97 615,051 649,769 .16
4/9/97 41,573 43,318 .01
Voest-Alpine Stahl 10/27/95 913,965 1,230,594 .30
1/11/96 414,525 533,257 .13
6/26/96 585,672 705,541 .17
6/27/96 298,647 360,974 .09
11,051,315 2.71
Principal International Bure Investment Aktiebolaget AB 8/14/97 $ 46,173 $ 62,800 .27%
SmallCap Fund, Inc. 8/18/97 46,092 62,800 .27
8/22/97 8,100 10,991 .05
Industrial & Financial Systems 8/14/97 43,796 105,313 .46
8/18/97 10,528 25,275 .11
9/8/97 51,954 111,632 .49
10/9/97 101,152 157,970 .69
10/30/97 53,442 84,251 .37
11/12/97 91,033 147,439 .64
Newsquest PLC 10/16/97 227,052 282,769 1.23
11/13/97 35,653 43,930 .19
1,095,170 4.77
</TABLE>
The International Growth Funds' investments are with various issuers in various
industries. The Schedules of Investments contained herein summarize
concentrations of credit risk by issuer and industry.
<PAGE>
Note 5 -- Capital Share Transactions
Transactions in Capital Stock by fund were as follows:
<TABLE>
<CAPTION>
Principal International Principal Principal International
Emerging Markets International SmallCap
Fund, Inc. Fund, Inc. Fund, Inc.
<S> <C> <C> <C>
Six Months Ended April 30, 1998:
Shares sold:
Class A ......................................... 336,852 3,408,521 356,054
Class B ......................................... 92,002 779,033 106,246
Class R ......................................... 15,485 543,418 26,597
Shares issued in reinvestment of dividends and distributions:
Class A ........................................... -- 1,012,079 --
Class B ........................................... -- 95,847 --
Class R ......................................... -- 36,570 --
Shares redeemed:
Class A ......................................... (34,234) (2,177,763) (23,437)
Class B ......................................... (23,728) (311,157) (22,867)
Class R ......................................... (308) (162,131) (8,858)
Net Increase 386,069 3,224,417 433,735
Year Ended October 31, 1997, Except as Noted:
Shares sold:
Class A ......................................... 608,541 * 10,828,384 624,104 *
Class B ......................................... 389,744 * 2,259,005 489,175 *
Class R ......................................... 303,043 * 1,249,248 302,174 *
Shares issued in reinvestment of dividends and distributions:
Class A ........................................... -- * 1,075,120 -- *
Class B ........................................... -- * 85,277 -- *
Class R ......................................... -- * 9,208 -- *
Shares redeemed:
Class A ......................................... (844)* (2,929,702) (707)*
Class B ......................................... (13,468)* (638,189) (9,721)*
Class R ......................................... -- * (118,068) (585)*
Net Increase 1,287,016 * 11,820,283 1,404,440 *
</TABLE>
*Period from August 14, 1997 (date operations commenced) through October 31,
1997.
<PAGE>
Note 6 -- Line of Credit
The International Growth Funds participate with other funds and portfolios
managed by Principal Management Corporation in an unsecured joint line of credit
with a bank, which allows the funds to borrow up to $40,000,000, collectively.
Borrowings are made solely to facilitate the handling of unusual and/or
unanticipated short-term cash requirements. Interest is charged to each fund,
based on its borrowings, at a rate equal to the Fed Funds Rate plus .50%.
Additionally, a commitment fee is charged at the annual rate of .08% on the
average unused portion of the line of credit. The commitment fee is allocated
among the participating funds and portfolios in proportion to their average net
assets during each quarter. At April 30, 1998, the International Growth Funds
had no outstanding borrowings under the line of credit.
Note 7 -- Year 2000 Problem
Like other mutual funds, financial and business organizations and individuals
around the world, the International Growth Funds could be adversely affected if
the computer systems used by the Manager and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Manager
is taking steps it believes are reasonably designed to address the Year 2000
Problem with respect to computer systems it uses and to obtain reasonable
assurances that comparable steps are being taken by each fund's other major
service providers. At this time, however there can be no assurance that these
steps will be sufficient to avoid any adverse impact to the funds.
<PAGE>
April 30, 1998
SCHEDULES OF INVESTMENTS
GROWTH FUNDS (INTERNATIONAL)
PRINCIPAL INTERNATIONAL EMERGING MARKETS FUND, INC.
Shares
Held Value
Common Stocks (87.24%)
Air Transportation, Scheduled (0.47%)
Cintra SA De Cv Ser'anpv 73,000 $ 69,134
Bakery Products (0.41%)
Nong Shim Co. Ltd. 1,400 60,965
Beer, Wine & Distilled Beverages (1.92%)
Guangdong Brewery 342,000(a) 48,567
South African Breweries Ltd. ADR 7,000 234,786
283,353
Beverages (7.64%)
Al Ahram Beverages Co. ADR 2,600(b) 82,680
Embotelladora Andina ADR,Series A 9,300 209,831
Fomento Economico Mexicano,
Class B (FEMSA) 36,500 281,181
Panamerican Beverages ADR 7,500 299,063
Quilmes Industrial Quines SA ADR 23,200 256,650
1,129,405
Blast Furnace & Basic Steel
Products (2.51%)
Hylsamex SA, Class B 32,100 148,220
Tubos De Acero De Mexico ADR 12,100(a) 222,338
370,558
Central Reserve Depositories (2.40%)
Banco Ganadero SA ADR Preference 7,700 146,736
Banco Santiago SA ADR 7,300 151,931
Ergo Bank 600 56,480
355,147
Chemicals & Allied Products (0.65%)
Sarantis SA 6,200 96,417
Commercial Banks (5.34%)
Banco Rio De La Plata ADR 13,600(a) 187,000
Bank Handlowy GDR 9,000(a)(b) 171,900
Banque Libanaise Le Commerce SAL ADR 5,400(a)(b) 95,040
Banque Marocaine du Commerce Exterieur 4,800(b) 114,960
Big Bank Gdanski SA 12,000 18,372
Big Bank Gdanski SA GDR 5,333 120,533
Eesti Uhispank GDR 6,000(a)(b) 81,799
789,604
Communications Equipment (1.63%)
ECI Telecommunications Ltd. ADR 7,900 240,950
Computer & Data Processing
Services (1.08%)
Tecnomatix Technologies Ltd. ADR 6,300(a) 159,862
Computer & Office Equipment (2.46%)
Orbotech Ltd. ADR 8,400(a) 303,450
Sindo Ricoh Co. 1,700 59,783
363,233
Construction & Related Machinery (1.43%)
Barlow Ltd. ADR 21,858 211,166
Consumer Products (1.56%)
Rothmans Industries Ltd. 36,000 179,603
Souza Cruz SA 6,300 51,490
231,093
Crude Petroleum & Natural Gas (1.13%)
Mol Magyar Olaj-Es Gazipari ADR 5,500(b) 167,121
Deep Sea Foreign Transportation of
Freight (0.14%)
Noble Group Ltd. ADR 100,000(a) 21,000
Drugs (1.50%)
Teva Pharmaceutical ADR 5,200 222,300
Electric Services (4.24%)
Companhia Paranaense De
Enersis-Copel ADR 16,200 230,850
Electricidade De Portugal SA 8,400 219,190
Enersis SA ADR 6,000 176,625
626,665
Electrical Goods (1.16%)
Empresa Nacional De Electric
Sponsored ADR 9,800 170,887
Electrical Industrial Apparatus (0.24%)
Guangdong Kelon Electric Holdings 34,000 34,895
Electronic Components &
Accessories (2.59%)
Elec & Eltek International ADR 22,500 130,500
Varitronix 85,000 171,184
Wong Circuits Holdings Ltd. ADR 80,000(a) 80,800
382,484
Electronic Distribution Equipment (5.39%)
KCE Electronics Public Co. Ltd. 5,000 34,648
KR Precision Public Co. Ltd. 5,000 13,187
Solid Group, Inc. 1,000,000 49,813
Tadiran Ltd. ADR 5,100 195,713
Techtronic Industries Co. 1,084,000 321,867
Vtech Holdings Ltd. 52,000 182,596
797,824
Engines & Turbines (0.61%)
First Tractor Co. Ltd. 162,000 90,452
Federal & Federally Sponsored
Credit (1.83%)
Industrial Credit & Investment
Corp. of India ADR 16,700(b) 271,375
Fire, Marine & Casualty Insurance (0.83%)
Alfa, Series A 22,700 123,266
Foreign Banks, Branches &
Agencies (1.25%)
Credicorp Ltd. ADR 11,050 185,087
Furniture & Home Furnishing
Stores (1.21%)
Grupo Elektra SA CPO 126,000 178,695
Grocery Stores (1.04%)
Blue Square Chain Investments &
Property Ltd. 14,000(a) 153,460
Holding Offices (1.58%)
The India Fund, Inc. ADR 28,400(a) 234,300
Life Insurance (0.48%)
National Mutual Asia Ltd. 88,000 70,436
Measuring & Controlling Devices (1.00%)
IDT Holdings Singapore Ltd. ADR 120,000 147,600
Meat Products (0.43%)
Davomas Abadi 284,000 21,102
Pt Daya Guna Samudera 47,000 42,635
63,737
Medical Instruments & Supplies (1.50%)
Medison Co. 27,120 221,181
Metal Cans & Shipping Containers (0.86%)
Colep 9,100(a) 127,385
Miscellaneous Electrical Equipment &
Supplies (1.32%)
G.P. Batteries International 70,500 195,006
Miscellaneous Food & Kindred
Products (0.26%)
Thai Union Frozen Products 10,000 38,785
Miscellaneous Investing (0.99%)
Banco Latino Americano De Exportacione 4,100 146,575
Miscellaneous Non-Durable Goods (1.87%)
Desc SA ADR 9,600 276,600
Miscellaneous Textile Goods (2.00%)
Esprit Holdings Ltd. 372,000 147,675
Reliance Industries GDR 16,300(b) 148,738
296,413
Motor Vehicles & Equipment (0.83%)
Qingling Motors Co. 101,000 43,680
Tata Engineering & Locomotive Ltd.
Co. GDR 10,900(b) 79,298
122,978
Newspapers (0.56%)
Investec-Consultadoria
Internacional SA 2,000(a) 82,631
Non-Classifiable Establishments (0.35%)
QPL International Holdings Ltd. 120,000 51,897
Oil and Gas Field Services (0.23%)
Gulf Indonesia Resources Ltd. ADR 2,200(a) 33,825
Paints & Allied Products (1.50%)
Paints & Chemical Industries Co. GDR 19,300(b) 221,468
Paperboard Containers & Boxes (0.47%)
Hung Hing Print Group 180,000 69,713
Petroleum Refining (4.04%)
Sasol Ltd. ADR 28,500 287,451
YPF Sociedad Anonima ADR 8,900 310,387
597,838
Radio & Television Broadcasting (0.69%)
Television Broadcasts Ltd. 40,000 102,246
Search & Navigation Equipment (1.54%)
Elbit Systems Ltd. ADR 17,800 228,063
Security & Commodity Exchanges (0.90%)
OTK Holdings Ltd. ADR 146,000 133,685
Security Brokers & Dealers (0.00%)
Peregrine Investment Holdings 62,000 80
Services, NEC (0.73%)
IDT International 1,200,000 108,442
Telephone Communications (9.18%)
Compania Anonima Telefonos De
Venezuela ADR 5,100 170,850
Global Telesystems Group, Inc. ADR 4,000(a) 188,000
Hellenic Telecommunication 4,600 131,660
Matav RT ADR 7,100(a) 209,450
Telecomunicacoes Brasileiras SA ADR 2,300 280,169
Telecomunicacoes Brasileiras SA 400,000 39,440
Telefonica De Argentina ADR 4,000 154,250
Videsh Sanchar Nigam Ltd. GDR 14,900(a)(b) 184,388
1,358,207
Water Supply (1.27%)
Companhia De Saneamento Basico
De Estado De Sao Paula - SABESP 840,000 187,969
Total Common Stocks 12,903,458
Preferred Stocks (8.52%)
Cement, Hydraulic (1.72%)
Titan Cement Co. 3,600 255,307
Communications Equipment (0.93%)
Ericsson Telecomunicacoes 4,800,000 137,200
Electric Services (2.43%)
Centrais Electricas De Santa Catarina 193,000 222,689
Telecomunicacoes De Minus Gerais 900,000 136,256
358,945
Industrial Inorganic Chemicals (0.34%)
Fosfertil Fertiliz NPV 11,300,000 50,869
Telephone Communications (3.10%)
Telec De Sao Paulo SA 820,000 277,391
Telec Do Rio De Janiero SA 1,200,000 180,941
458,332
Total Preferred Stocks 1,260,653
Principal
Amount Value
Commercial Paper (4.33%)
Business Credit Institutions (4.33%)
General Electric Capital Corp.;
5.53%; 5/1/98 $640,000 $ 640,000
Total Portfolio Investments (100.09%) 14,804,111
Liabilities, net of cash, receivables and
other assets (-0.09%) (13,772)
Total Net Assets (100.00%) $14,790,339
(a) Non-income producing security - No dividend paid during the period.
(b) Restricted security - See Note 4 to the financial statements.
Principal International Emerging Markets Fund, Inc. Investments by Country
Total Percentage of
Country Value Total Value
Argentina $ 908,287 6.13%
Brazil 1,795,263 12.13
Chile 709,275 4.79
China 217,595 1.47
Colombia 146,736 0.99
Czech Republic 188,000 1.27
Egypt 304,147 2.05
Estonia 81,799 0.55
Greece 539,865 3.65
Hong Kong 1,226,137 8.28
Hungary 376,571 2.54
India 918,097 6.20
Indonesia 63,737 0.43
Israel 1,503,798 10.16
Lebanon 95,040 0.64
Mexico 1,598,498 10.80
Morocco 114,960 0.78
Panama 146,575 0.99
Peru 185,088 1.25
Philippines 49,813 0.34
Poland 310,805 2.10
Portugal 429,206 2.90
Singapore 754,509 5.10
South Africa 867,087 5.86
South Korea 341,929 2.31
Thailand 86,619 0.59
United States 673,825 4.55
Venezuela 170,850 1.15
Total $14,804,111 100.00%
PRINCIPAL INTERNATIONAL FUND, INC.
Shares
Held Value
Common Stocks (92.89%)
Advertising (2.43%)
WPP Group PLC 1,568,000 $ 9,949,338
Beverages (1.53%)
Panamerican Beverages ADR 156,300 6,232,462
Blast Furnace & Basic Steel
Products (0.69%)
Voest-Alpine Stahl 69,000(b) 2,830,366
Central Reserve Depositories (3.28%)
Banco Totta & Acores 145,000 5,517,014
National Westminster Bank 329,931 6,603,188
Union Bank of Norway 36,700 1,269,577
13,389,778
Commercial Banks (13.00%)
ABN-AMRO Holdings NV 290,748 7,079,783
Australia & New Zealand Banking Group 559,000 3,900,777
Bank of Ireland 415,239 8,449,385
Barclays PLC 146,594 4,208,457
Fokus Bank 240,000(b) 2,027,333
Istituto Mobiliare Italiano 413,000 6,759,219
National Australia Bank Ltd. 326,437 4,639,703
Nordbanken Holding 343,000 2,526,356
Royal Bank of Canada Montreal Quebec 103,000 6,149,546
Svenska Handelsbanken AB Free 172,750 7,388,760
53,129,319
Communications Equipment (0.77%)
ECI Telecommunications Ltd. ADR 103,000 3,141,500
Communications Services, NEC (1.01%)
KPN Royal PTT Nederland 79,780 4,122,234
Computer & Office Equipment (0.63%)
Canon, Inc. 35,000 829,108
Orbotech Ltd. ADR 48,400(a) 1,748,450
2,577,558
Consumer Products (3.85%)
Imasco Ltd. 170,217 6,408,208
Imperial Tobacco Group PLC 758,500 5,485,018
Swedish Match Co. 1,106,000 3,830,147
15,723,373
Crude Petroleum & Natural Gas (0.50%)
Hardy Oil & Gas 520,000 2,060,573
Deep Sea Foreign Transportation of
Freight (0.68%)
Van Ommeren NV 64,841 2,791,947
Department Stores (0.58%)
Vendex International 36,751 2,357,286
Drugs (5.20%)
Elan Corp. PLC ADR 75,000(a) 4,659,375
Novartis AG 4,423 7,312,986
Pharmacia & Upjohn, Inc. 135,000 5,678,437
Teva Pharmaceutical ADR 84,400 3,608,100
21,258,898
Electric Services (1.25%)
Enersis SA ADR 173,000 5,092,688
Electronic Components &
Accessories (0.96%)
Amtek Engineering 675,000 362,332
Elec & Eltek International ADR 499,400 2,896,520
Varitronix 340,000 684,736
3,943,588
Electronic Distribution Equipment (2.03%)
Phillips Electronics 94,100 8,289,871
Engines & Turbines (1.75%)
RHI AG 89,000 4,496,498
Scapa Group PLC 838,000 2,655,153
7,151,651
Farm & Garden Machinery (1.38%)
New Holland NV 231,000 5,659,500
Finance Services (0.44%)
Takefuji Corporation 34,000 1,788,390
Gas Production & Distribution (1.11%)
OMV AG 30,600 4,541,034
General Industrial Machinery (0.88%)
SKF AB `B' Free 177,700 3,582,099
Holding Offices (0.33%)
First Pacific Co., Ltd. 2,827,303 1,359,622
Hose, Belting, Gaskets & Packing (0.47%)
Phoenix AG 94,000 1,901,480
Industrial Inorganic Chemicals (0.88%)
Kemira OY 332,000(b) 3,595,391
Investment Offices (1.47%)
AMVESCAP PLC 527,400 5,991,919
Life Insurance (1.06%)
QBE Insurance Group Ltd. 946,390 4,343,868
Meat Products (5.13%)
Danisco AS 120,000 7,540,353
Orkla B Ordinary Shares 87,400 9,351,637
Unilever NV 57,000 4,056,690
20,948,680
Miscellaneous Chemical Products (1.00%)
Hoechst AG 101,000 4,069,274
Miscellaneous Converted Paper
Products (1.54%)
Bunzl PLC 1,285,000 6,305,908
Miscellaneous Food & Kindred
Products (2.57%)
Bols Wessanen (Kon) CVA 278,000 4,389,081
Greencore Group PLC 991,000 6,130,724
10,519,805
Miscellaneous Non Durable Goods (2.98%)
Desc S.A. Series B 628,000 4,312,652
Diageo PLC 658,179 7,862,897
12,175,549
Miscellaneous Textile Goods (0.69%)
Esprit Holdings Ltd. 7,082,000 2,811,387
Miscellaneous Transportation
Equipment (0.62%)
Autoliv, Inc. 86,000 2,553,125
Motor Vehicles and Equipment (1.59%)
E.C.I.A. Equipment & Composants 20,000 6,288,051
Hyundai Motor Co. Ltd. GDR 63,000(b) 206,325
6,494,376
Newspapers (0.83%)
Publishing & Broadcasting Ltd. 710,000 3,393,096
Oil and Gas Field Services (1.53%)
Eni Spa 931,000 6,249,749
Paperboard Containers & Boxes (0.94%)
Koninklijke KNP BT NV 140,000 3,845,556
Petroleum Refining (5.23%)
Repsol Petroleo SA 155,400 8,513,532
Sasol Ltd. ADR 372,000 3,751,988
YPF Sociedad Anonima ADR 261,000 9,102,375
21,367,895
Plastic Materials & Synthetics (1.08%)
Astra AB 222,466 4,427,004
Pulp Mills (2.70%)
Lassila & Tikanoja Ltd. OY 164,000 5,117,394
Upm-Kymmene OY 196,980 5,911,476
11,028,870
Radio & Television Broadcasting (1.27%)
Carlton Communications PLC 600,000 5,171,497
Security Brokers & Dealers (0.00%)
Peregrine Investment Holdings 2,289,000 2,955
Peregrine Investment - Warrants 127,000(a) 164
3,119
Soap, Cleaners, & Toilet Goods (2.92%)
Benckiser NV Class B 98,650(a) 5,756,374
Reckitt & Colman PLC 307,797 6,196,226
11,952,600
Special Industry Machinery (2.18%)
Cookson Group 1,981,200 8,894,243
Sugar & Confectionery Products (2.23%)
Nestle 4,704 9,126,125
Telephone Communications (7.10%)
Nokia Corp. Class A ADR 142,000 9,496,250
Telecom Corp of New Zealand Ltd. 1,395,000 6,627,354
Telecom Italia-DI 724,200 3,817,279
Telefonica De Espana SA 213,400 8,904,792
Telefonica De Espana - Rights 213,400 165,215
29,010,890
Watches, Clocks, Watchcases &
Parts (0.60%)
Tag Heuer International SA 23,200(a) 2,443,831
Total Common Stocks 379,598,312
Preferred Stock (0.69%)
Commercial Banks (0.69%)
National Australia Bank ECU
Convertible 96,000 2,826,000
Principal
Amount Value
Bond (0.59%)
Fire, Marine & Casualty
Insurance (0.59%)
Alfa SA Convertible Subordinated
Debentures; 8.00%; 9/15/00 $ 2,010,000(b)$ 2,391,900
Commercial Paper (5.41%)
Business Credit Institutions (1.93%)
General Electric Capital Corp.;
5.53%; 5/1/98 7,895,000 7,895,000
Personal Credit Institutions (3.48%)
Beneficial Corp.;
5.53%; 5/6/98 14,230,000 14,219,071
Total Commercial Paper 22,114,071
Total Portfolio Investments (99.58%) 406,930,283
Cash, receivables and other assets,
net of liabilities (0.42%) 1,732,586
Total Net Assets (100.00%) $408,662,869
(a) Non-Income producing security - No dividend paid during the period.
(b) Restricted security - See Note 4 to the financial statements.
Principal International Fund, Inc.
Investments by Country
Total Percentage of
Country Value Total Value
Argentina $ 9,102,375 2.24%
Australia 19,103,444 4.69
Austria 11,867,897 2.92
Canada 12,557,754 3.09
Chile 5,092,688 1.25
Denmark 7,540,353 1.85
Finland 24,120,511 5.93
France 6,288,051 1.55
Germany 5,970,754 1.47
Hong Kong 4,858,864 1.19
Israel 8,498,050 2.09
Italy 16,826,247 4.13
Japan 2,617,498 0.64
Korea, Republic of 206,325 0.05
Mexico 12,937,014 3.18
Netherlands 48,348,323 11.88
New Zealand 6,627,355 1.63
Norway 12,648,547 3.11
Portugal 5,517,014 1.36
Singapore 3,258,852 0.80
South Africa 3,751,988 0.92
Spain 17,583,538 4.32
Sweden 24,307,491 5.97
Switzerland 18,882,942 4.64
United Kingdom 90,623,900 22.27
United States 27,792,508 6.83
Total $406,930,283 100.00%
PRINCIPAL INTERNATIONAL SMALLCAP FUND, INC.
Shares
Held Value
Common Stocks (98.43%)
Advertising (4.30%)
Industrial & Financial Systems 60,000(a)(b)$631,880
United Group Ltd. 150,000 355,981
987,861
Air Transportation, Scheduled (1.79%)
Ryanair Holdings PLC ADR 10,700(a) 410,613
Airports, Flying Fields & Services (2.50%)
Aeroporti Di Roma 14,700(a) 205,739
Virgin Express Holdings ADR 16,400(a) 369,000
574,739
Automotive Rentals, No Drivers (0.89%)
Avis Europe PLC 53,000 204,703
Cable & Other Pay TV Services (1.53%)
Tri-Vision International Ltd. 200,000(a) 310,406
Tri-Vision International Ltd.
Warrants 167,000(a) 42,031
352,437
Central Reserve Depositories (1.04%)
Union Bank of Norway 6,900 238,694
Commercial Banks (1.39%)
Banco Pastor SA 2,800 318,735
Communications Equipment (0.99%)
ASM Pacific 94,000 72,811
Research in Motion Ltd. 28,000(a) 155,623
228,434
Computer & Data Processing
Services (5.24%)
Computershare Ltd. 59,000 198,104
Contextvision AB 6,300(a) 118,261
Intentia International AB 7,200(a) 242,363
Merkantildata ASA 24,000 302,491
Prosolvia AB 10,400(a) 240,554
Tecnomatix Technologies Ltd. ADR 4,000(a) 101,500
1,203,273
Computer & Office Equipment (1.78%)
Orbotech Ltd. ADR 11,300(a) 408,213
Consumer Products (0.46%)
Rothmans Industries Ltd. 21,000 104,768
Crude Petroleum & Natural Gas (1.74%)
Hardy Oil & Gas 11,300 44,778
Vermilion Resources 58,100(a) 355,412
400,190
Deep Sea Foreign Transportation
Of Freight (0.19%)
Van Ommeren NV 1,000 43,058
Drugs (2.15%)
Fabrica Espanola De Productos 3,900 227,733
Fabrica Espanola De Productos Rights 3,900(a) 22,645
Transgene SA ADR 13,500(a) 243,000
493,378
Electric Services (1.09%)
Vestas Wind Systems 5,800(a) 250,030
Electrical Industrial Apparatus (1.46%)
Doncasters PLC ADR 10,900(a) 335,175
Electrical Work (0.77%)
Internatio-Muller NV 5,100 176,688
Electronic Components &
Accessories (1.70%)
Elec & Eltek International ADR 37,700 218,660
Galileo Technology ADR 5,300(a) 170,925
389,585
Electronic Distribution (4.01%)
Asm Lithography Holding NV 2,500(a) 229,063
Techtronic Industries Co. 1,447,000 429,651
Vtech Holdings Ltd. 75,000 263,360
922,074
Engines & Turbines (1.69%)
RHI AG 7,700 389,023
Functions Closely Related to Banking (0.98%)
Irish Permanent PLC 16,800 225,419
Hose & Belting & Gaskets &
Packing (1.54%)
Phoenix AG 17,500 353,999
Hotels & Motels (2.71%)
Choice Hotels Scandinavia 110,000(a) 353,979
Melia Inversiones Americanas NV 5,400(a) 269,265
623,244
Investment Offices (0.76%)
Tyndall Australia Ltd. 99,000 171,047
Tyndall Australia Ltd. Rights 9,900(a) 4,002
175,049
Life Insurance (1.90%)
Scor SA 7,100 437,485
Meat Products (0.68%)
Perkins Foods PLC 71,360 156,898
Medical Instruments & Supplies (0.77%)
Cochlear Ltd. 40,000 176,034
Metalworking Machinery (0.87%)
Mikron Holding AG 800(a) 200,008
Miscellaneous Business Services (3.28%)
Cipe France SA 7,300 256,565
Enator AB 17,300 496,278
752,843
Miscellaneous Food & Kindred
Products (1.94%)
Greencore Group PLC 72,100 446,040
Miscellaneous Manufacturers (1.49%)
Docdata NV 11,300(a) 342,269
Miscellaneous Nondurable Goods (1.01%)
Austria Tabakwerke AG 3,700(a) 231,762
Miscellaneous Primary Metal
Products (1.58%)
YBM Magnex International, Inc. 28,300(a) 364,043
Miscellaneous Textile Goods (0.18%)
Esprit Holdings Ltd. 105,000 41,683
Miscellaneous Transportation (1.51%)
ASG AB Class B 12,800 347,340
Motor Vehicles & Equipment (3.36%)
E.C.I.A. Equipment & Composants 1,100 345,843
Mayflower Corp. PLC 106,000 425,357
771,200
Newspapers (1.42%)
Newsquest PLC 64,700(a)(b) 326,699
Nonclassifiable Establishments (0.59%)
Bure Investment Aktiebolaget AB 8,700(b) 136,591
Nonresidential Building
Construction (1.84%)
Algeco 4,100 422,416
Oil & Gas Field Services (5.46%)
Cie Generale De Geophysique ADR 12,000(a) 345,000
Cie Generale De Geophysique 800(a) 116,189
Det Sondenfjelds-Norske Dampskibsselskab9,700(a) 240,612
Hydralift Asa 19,000(a) 244,567
Petrolia Drilling ASA 68,300(a) 309,536
1,255,904
Personnel Supply Services (2.67%)
Dis Deutshcer Industries Service AG 3,100 184,843
Unique International NV 13,500 429,618
614,461
Petroleum Refining (0.45%)
Ocean Rig ASA 106,000(a) 103,042
Pulp Mills (3.37%)
Lassila & Tikanoja Ltd. OY 14,800 461,813
Miquel Y Costas 6,000 312,174
773,987
Radio & Television Broadcasting (0.30%)
P4 Radio Hele Norge ASA 6,000(a) 69,991
Real Estate Agents & Managers (1.12%)
Tornet Fastighet 17,000 258,114
Sanitary Services (1.40%)
De Sammensluttede Vognmand AS 3,400 321,334
Search & Navigation Equipment (0.47%)
Elbit Systems Ltd. ADR 8,400 107,625
Security & Commodity Services (0.94%)
Dundee Bancorp, Inc. Class A 10,800(a) 215,565
Security Brokers & Dealers (4.24%)
Kempen & Co. NV 6,500 461,640
Van Der Moolen Holdings 7,100 514,092
975,732
Services to Buildings (0.75%)
Spotless Group Ltd. 71,000 171,275
Special Industry Machinery (0.59%)
Aixtron 350(a) 135,553
Telephone Communication (8.99%)
Aapt Ltd. 63,765(a) 137,192
Colt Telecom Group PLC 17,500(a) 377,454
Energis PLC 27,700(a) 305,675
Esprit Telecom Group PLC ADR 14,300(a) 227,012
Global Telesystems Group, Inc. ADR 6,300(a) 296,100
Metronet Communications Class B ADR 28,900(a) 722,500
2,065,933
Trusts (1.00%)
Nursing Home Properties PLC 93,060 229,505
Women's & Children's
Undergarments (1.56%)
CSP International SPA 26,400(a) 359,062
Total Common Stocks 22,619,776
Preferred Stock (0.16%)
Meat Products (0.16%)
Perkins Foods Class B 22,300 36,354
Commercial Paper (4.13%)
Business Credit Institutions (4.13%)
General Electric Capital Corp.;
5.53%; 5/1/98 950,000 950,000
Total Portfolio Investments (102.72%) 23,606,130
Liabilities, Net of Cash, Receivables and
Other Assets (-2.72%) (625,683)
Total Net Assets (100.00%) 22,980,447
(a) Non-income producing security - No dividend paid during the period.
(b) Restricted security - See Note 4 to the financial statements.
Principal International SmallCap Fund, Inc.
Investments by Country
Total Percentage of
Country Value Total Value
Australia $1,213,635 5.14%
Austria 620,785 2.63
Belgium 369,000 1.56
Canada 2,165,580 9.17
Czech Republic 296,100 1.25
Denmark 571,364 2.42
Finland 461,814 1.96
France 2,166,498 9.18
Germany 674,395 2.86
Hong Kong 807,505 3.42
Ireland 410,613 1.74
Israel 788,263 3.34
Italy 564,801 2.39
Netherlands 2,196,428 9.30
Norway 1,981,174 8.39
Singapore 323,428 1.37
Spain 1,150,553 4.87
Sweden 2,353,119 9.98
Switzerland 200,008 0.85
United Kingdom 3,341,067 14.16
United States 950,000 4.02
Total $23,606,130 100.00%
<PAGE>
FINANCIAL HIGHLIGHTS
(unaudited)
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
PRINCIPAL INTERNATIONAL EMERGING GROWTH FUND, INC.
Class A shares 1998* 1997(a)
- ------------------------------------------------------- ---- ----
Net Asset Value, Beginning of Period................... $8.29 $9.51
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.01) (.01)
Net Realized and Unrealized Gain (Loss) on Investments .56 (1.21)
Total from Investment Operations .55 (1.22)
Less Dividends and Distributions:
Dividends from Net Investment Income................ - -
Distributions from Capital Gains.................... - -
Total Dividends and Distributions - -
Net Asset Value, End of Period......................... $8.84 $8.29
Total Return(b)........................................ 6.63%(c) (10.18)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $8,051 $5,039
Ratio of Expenses to Average Net Assets............. 2.83%(d) 2.03%(d)
Ratio of Net Investment Income (Operating Loss) to
Average Net Assets................................ (.36)%(d) (.32)%(d)
Portfolio Turnover Rate............................. 48.9%(d) 21.4%(d)
Average Commission Rate(e).......................... $.0013 $.0050
PRINCIPAL INTERNATIONAL EMERGING GROWTH FUND, INC.
Class B shares 1998* 1997(a)
- ------------------------------------------------------- ---- ----
Net Asset Value, Beginning of Period................... $8.28 $9.51
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.02) (.01)
Net Realized and Unrealized Gain (Loss) on Investments .58 (1.22)
Total from Investment Operations .56 (1.23)
Less Dividends and Distributions:
Dividends from Net Investment Income................ - -
Distributions from Capital Gains.................... - -
Total Dividends and Distributions - -
Net Asset Value, End of Period......................... $8.84 $8.28
Total Return(b)........................................ 6.76%(c) 10.29)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $3,928 $3,116
Ratio of Expenses to Average Net Assets............. 2.97%(d) 2.16%(d)
Ratio of Net Investment Income (Operating Loss) to
Average Net Assets................................ (.55)%(d) (.46)%(d)
Portfolio Turnover Rate............................. 48.9%(d) 21.4%(d)
Average Commission Rate(e).......................... $.0013 $.0050
PRINCIPAL INTERNATIONAL EMERGING GROWTH FUND, INC.
Class R shares 1998* 1997(a)
- ------------------------------------------------------- ---- ----
Net Asset Value, Beginning of Period................... $8.28 $9.51
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.02) (.01)
Net Realized and Unrealized Gain (Loss) on Investments .58 (1.22)
Total from Investment Operations .56 (1.23)
Less Dividends and Distributions:
Dividends from Net Investment Income................ - -
Distributions from Capital Gains.................... - -
Total Dividends and Distributions - -
Net Asset Value, End of Period......................... $8.84 $8.28
Total Return(b)........................................ 6.76%(c) (10.29)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $2,811 $2,510
Ratio of Expenses to Average Net Assets............. 3.01%(d) 2.20%(d)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (.60)%(d) (.51)%(d)
Portfolio Turnover Rate............................. 48.9%(d) 21.4%(d)
Average Commission Rate(e).......................... $.0013 $.0050
* Six Months Ended April 30, 1998.
See accompanying notes.
<PAGE>
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
<TABLE>
<CAPTION>
PRINCIPAL INTERNATIONAL FUND, INC.(f)
Class A shares 1998* 1997 1996 1995 1994 1993
- ------------------------------------------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $ 9.33 $8.14 $7.28 $7.44 $6.85 $5.02
Income from Investment Operations:
Net Investment Income............................... .06 .09 .10 .08 .01 .03
Net Realized and Unrealized Gain (Loss) on Investments 1.59 1.52 1.17 (.02) .64 1.98
Total from Investment Operations 1.65 1.61 1.27 .06 .65 2.01
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.10) (.11) (.08) (.03) (.02) (.05)
Distributions from Capital Gains.................... (.20) (.31) (.33) (.19) (.04) (.13)
Total Dividends and Distributions (.30) (.42) (.41) (.22) (.06) (.18)
Net Asset Value, End of Period......................... $10.68 $9.33 $8.14 $7.28 $7.44 $6.85
Total Return(b)........................................ 18.32%(c) 20.46% 18.36% 1.03% 9.60% 41.39%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $345,800 $281,158 $172,276 $126,554 $115,812 $63,718
Ratio of Expenses to Average Net Assets............. 1.28%(d) 1.39% 1.45% 1.63% 1.74% 1.61%
Ratio of Net Investment Income to Average Net Assets 1.49%(d) 1.25% 1.43% 1.10% .10% .59%
Portfolio Turnover Rate............................. 26.9%(d) 26.6% 23.8% 35.4% 13.2% 19.5%
Average Commission Rate(e).......................... $.0249 $.0174 $.0147 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTERNATIONAL FUND, INC.(f)
Class B shares 1998* 1997 1996 1995(g)
- ------------------------------------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $ 9.26 $8.07 $7.24 $6.71
Income from Investment Operations:
Net Investment Income............................... .03 .03 .03 .05
Net Realized and Unrealized Gain (Loss) on Investments 1.58 1.51 1.15 .51
Total from Investment Operations 1.61 1.54 1.18 .56
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.03) (.04) (.02) (.03)
Distributions from Capital Gains.................... (.20) (.31) (.33) -
Total Dividends and Distributions (.23) (.35) (.35) (.03)
Net Asset Value, End of Period......................... $10.64 $9.26 $8.07 $7.24
Total Return(b)........................................ 17.89%(c) 19.62% 17.16% 9.77%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $44,890 $33,842 $15,745 $3,908
Ratio of Expenses to Average Net Assets............. 2.00%(d) 2.17% 2.28% 2.19%(d)
Ratio of Net Investment Income to Average Net Assets .77%(d) .42% .64% .58%(d)
Portfolio Turnover Rate............................. 26.9%(d) 26.6% 23.8% 35.4%(d)
Average Commission Rate(e).......................... $.0249 $.0174 $.0197 N/A
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTERNATIONAL FUND, INC.(f)
Class R shares 1998* 1997 1996(h)
- ------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................... $ 9.27 $ 8.12 $ 7.48
Income from Investment Operations:
Net Investment Income............................... .04 .07 .01
Net Realized and Unrealized Gain (Loss) on Investments 1.57 1.47 .63
Total from Investment Operations 1.61 1.54 .64
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.04) (.08) -
Distributions from Capital Gains.................... (.20) (.31) -
Total Dividends and Distributions (.24) (.39) -
Net Asset Value, End of Period......................... $10.64 $9.27 $8.12
Total Return(b)........................................ 17.86%(c) 19.65% 9.29%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $17,973 $11,773 $1,057
Ratio of Expenses to Average Net Assets............. 1.92%(d) 2.10% 1.59%(d)
Ratio of Net Investment Income to Average Net Assets .87%(d) .44% .78%(d)
Portfolio Turnover Rate............................. 26.9%(d) 26.6% 23.8%(d)
Average Commission Rate(e).......................... $.0249 $.0174 $.0197
</TABLE>
* Six Months Ended April 30, 1998.
See accompanying notes.
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
(unaudited)
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
PRINCIPAL INTERNATIONAL SMALLCAP FUND, INC.
Class A shares 1998* 1997(a)
- ------------------------------------------------------- ---- ----
Net Asset Value, Beginning of Period................... $ 9.96 $10.04
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.02) (.01)
Net Realized and Unrealized Gain (Loss) on Investments 2.56 (.07)
Total from Investment Operations 2.54 (.08)
Less Dividends and Distributions:
Dividends from Net Investment Income................ - -
Distributions from Capital Gains.................... - -
Total Dividends and Distributions - -
Net Asset Value, End of Period......................... $12.50 $9.96
Total Return(b)........................................ 25.50%(c) (.50)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $11,954 $6,210
Ratio of Expenses to Average Net Assets............. 2.41%(d) 1.99%(d)
Ratio of Net Investment Income (Operating Loss) to
Average Net Assets................................ (.42)%(d) (.40)%(d)
Portfolio Turnover Rate............................. 103.0%(d) 10.4%(d)
Average Commission Rate(e).......................... $.0166 $.0104
PRINCIPAL INTERNATIONAL SMALLCAP FUND, INC.
Class B shares 1998* 1997(a)
- ------------------------------------------------------- ---- ----
Net Asset Value, Beginning of Period................... $ 9.96 $10.04
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.03) (.01)
Net Realized and Unrealized Gain (Loss) on Investments 2.56 (.07)
Total from Investment Operations 2.53 (.08)
Less Dividends and Distributions:
Dividends from Net Investment Income................ - -
Distributions from Capital Gains.................... - -
Total Dividends and Distributions - -
Net Asset Value, End of Period......................... $12.49 $9.96
Total Return(b)........................................ 25.40%(c) (.50)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $7,030 $4,774
Ratio of Expenses to Average Net Assets............. 2.62%(d) 2.07%(d)
Ratio of Net Investment Income (Operating Loss) to
Average Net Assets................................ (.68)%(d) (.47)%(d)
Portfolio Turnover Rate............................. 103.0%(d) 10.4%(d)
Average Commission Rate(e).......................... $.0166 $.0104
PRINCIPAL INTERNATIONAL SMALLCAP FUND, INC.
Class R shares 1998* 1997(a)
- ------------------------------------------------------- ---- ----
Net Asset Value, Beginning of Period................... $ 9.96 $10.04
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.02) (.01)
Net Realized and Unrealized Gain (Loss) on Investments 2.57 (.07)
Total from Investment Operations 2.55 (.08)
Less Dividends and Distributions:
Dividends from Net Investment Income................ - -
Distributions from Capital Gains.................... - -
Total Dividends and Distributions - -
Net Asset Value, End of Period......................... $12.51 $9.96
Total Return(b)........................................ 25.60%(c) (.50)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $3,996 $3,004
Ratio of Expenses to Average Net Assets............. 2.34%(d) 2.15%(d)
Ratio of Net Investment Income (Operating Loss) to
Average Net Assets................................ (.44)%(d) (.54)%(d)
Portfolio Turnover Rate............................. 103.0%(d) 10.4%(d)
Average Commission Rate(e).......................... $.0166 $.0104
* Six Months Ended April 30, 1998.
See accompanying notes.
<PAGE>
Notes to Financial Highlights
(a) Period from August 29, 1997, date Class A and Class B shares first offered
to the public and Class R shares first offered to eligible purchasers,
through October 31, 1997. Principal International Emerging Markets Fund,
Inc. and Principal International SmallCap Fund, Inc. classes of shares
recognized net investment income as follows for the period from the initial
purchase of shares on August 14, 1997, through August 28, 1997, none of
which was distributed to the sole shareholder, Principal Mutual Life
Insurance Company. Principal International Emerging Markets Fund, Inc. and
Principal International SmallCap Fund, Inc. incurred unrealized gains
(losses) on investments during the initial interim period as follows. This
represents Class A, Class B and Class R share activities prior to the
initial public offering of all classes of shares of each fund.
Per Share Per Share
Net Investment Unrealized
Income Gain(Loss)
Principal International Emerging Markets Fund, Inc.:
Class A $.01 $(.50)
Class B .01 (.50)
Class R .01 (.50)
Principal International SmallCap Fund, Inc.:
Class A .01 .03
Class B .01 .03
Class R .01 .03
(b) Total return is calculated without the front-end sales charge or contingent
deferred sales charge.
(c) Total return amounts have not been annualized.
(d) Computed on an annualized basis.
(e) The International Growth Funds identified the cost of commissions paid on
purchases and sales of portfolio securities charged to each fund in the
local currency of the respective country involved. The value of the
commissions is translated into U.S. dollars at approximate rates when
acquired or sold. This translation can give the appearance that the
International Growth Funds average commission rates are substantially
different from the Domestic Growth Funds.
(f) Effective January 1, 1998, Princor World Fund, Inc. changed its name to
Principal International Fund, Inc.
(g) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995. Principal International Fund, Inc. Class
B shares recognized no net investment income for the period from the
initial purchase by Principal Management Corporation of Class B shares on
December 5, 1994, through December 8, 1994. Additionally, Class B shares
incurred unrealized losses on investments of $.07 per share during the
initial interim period. This represents Class B share activities of the
fund prior to the initial public offering of Class B shares.
(h) Period from February 29, 1996, date Class R shares first offered to
eligible purchasers, through October 31, 1996. Principal International
Fund, Inc. Class R shares recognized no net investment income for the
period from the initial purchase by Principal Management Corporation of
Class R shares on February 27, 1996, through February 28, 1996.
Additionally, Class R shares incurred unrealized gains on investments of
$.02 per share during the initial interim period. This represents Class R
share activities of the fund prior to the intial offering of Class R
shares.
<PAGE>
<TABLE>
<CAPTION>
April 30, 1998
STATEMENTS OF ASSETS AND LIABILITIES
(unaudited)
Principal Principal Government
Bond Securities Income
INCOME FUNDS Fund, Inc. Fund, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment in securities -- at cost.............................. $150,597,737 $270,784,262
============ ============
Assets
Investment in securities -- at value (Note 4).................... $158,223,182 $277,808,690
Cash ............................................................ 2,000 2,286
Receivables
Interest...................................................... 2,860,666 1,523,079
Investment securities sold.................................... -- --
Capital Stock sold............................................ 592,581 532,902
Other assets..................................................... 4,648 19,278
------------ ------------
Total Assets 161,683,077 279,886,235
Liabilities
Accrued expenses................................................. 29,575 118,285
Payables:
Investment securities purchased............................... -- 6,057,656
Capital Stock reacquired...................................... 58,228 361,509
------------ ------------
Total Liabilities 87,803 6,537,450
------------ ------------
Net Assets Applicable to Outstanding Shares...................... $161,595,274 $273,348,785
============ ============
Net Assets Consist of:
Capital Stock.................................................... $ 140,636 $ 237,303
Additional paid-in capital....................................... 153,142,663 267,757,367
Accumulated undistributed net investment
income (operating loss)....................................... 74,403 346,965
Accumulated net realized gain (loss) on investment transactions . 612,127 (2,017,278)
Net unrealized appreciation (depreciation) of investments........ 7,625,445 7,024,428
------------ ------------
Total Net Assets $161,595,274 $273,348,785
============ ============
Capital Stock (par value: $.01 a share):
Shares authorized................................................ 100,000,000 100,000,000
Net Asset Value Per Share:
Class A: Net Assets.............................................. $134,475,782 $247,721,889
Shares issued and outstanding........................... 11,702,965 21,499,087
Net asset value per share............................... $11.49 $11.52
Maximum offering price per share(a) .................. $12.06 $12.09
====== ======
Class B: Net Assets ............................................. $17,694,328 $19,259,139
Shares issued and outstanding........................... 1,540,981 1,674,603
Net asset value per share(b)............................ $11.48 $11.50
====== ======
Class R: Net Assets.............................................. $9,425,164 $6,367,757
Shares issued and outstanding........................... 819,684 556,605
Net asset value per share............................... $11.50 $11.44
====== ======
<FN>
(a)Maximum offering price is equal to net asset value plus a front-end
sales charge of 4.75% (1.50% with respect to Principal Limited Term Bond
Fund, Inc.) of the offering price or 4.99% of the net asset value (1.52%
of net asset value with respect to Principal Limited Term Bond Fund,
Inc.)
(b)Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
</FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
April 30, 1998
STATEMENTS OF ASSETS AND LIABILITIES
(unaudited)
Principal Principal Principal
High Yield Limited Term Bond Tax-Exempt Bond
INCOME FUNDS Fund, Inc. Fund, Inc. Fund, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment in securities -- at cost.............................. $47,744,730 $26,454,330 $190,513,703
=========== =========== ============
Assets
Investment in securities -- at value (Note 4).................... $47,961,002 $26,377,050 $202,660,642
Cash ............................................................ 2,015 2,001 249,592
Receivables
Interest...................................................... 1,080,606 354,357 3,792,332
Investment securities sold.................................... -- 17,726 --
Capital Stock sold............................................ 165,118 23,393 371,177
Other assets..................................................... 24,620 27,704 9,205
----------- ----------- ------------
Total Assets 49,233,361 26,802,231 207,082,948
Liabilities
Accrued expenses................................................. -- -- 59,681
Payables:
Investment securities purchased............................... -- -- --
Capital Stock reacquired...................................... 28,683 5,500 182,376
----------- ----------- ------------
Total Liabilities 28,683 5,500 242,057
----------- ----------- ------------
Net Assets Applicable to Outstanding Shares...................... $49,204,678 $26,796,731 $206,840,891
=========== =========== ============
Net Assets Consist of:
Capital Stock.................................................... $57,955 $ 27,232 $ 166,410
Additional paid-in capital....................................... 50,183,282 26,896,743 194,564,656
Accumulated undistributed net investment
income (operating loss)....................................... 363 (8,873) 112,365
Accumulated net realized gain (loss) on investment transactions . (1,253,194) (41,092) (149,479)
Net unrealized appreciation (depreciation) of investments........ 216,272 (77,279) 12,146,939
----------- ----------- ------------
Total Net Assets $49,204,678 $26,796,731 $206,840,891
Capital Stock (par value: $.01 a share):
Shares authorized................................................ 100,000,000 100,000,000 100,000,000
Net Asset Value Per Share:
Class A: Net Assets.............................................. $37,588,811 $24,125,187 $196,934,050
Shares issued and outstanding........................... 4,419,192 2,451,798 15,844,330
Net asset value per share............................... $8.51 $9.84 $12.43
Maximum offering price per share(a) .................. $8.93 $9.99 $13.05
===== ====== ======
Class B: Net Assets ............................................. $ 8,697,040 $928,262 $9,906,841
Shares issued and outstanding........................... 1,027,881 94,017 796,614
Net asset value per share(b)............................ $8.46 $9.87 $12.44
===== ====== ======
Class R: Net Assets.............................................. $ 2,918,827 $1,743,282 N/A
Shares issued and outstanding........................... 348,377 177,406 N/A
Net asset value per share............................... $8.38 $9.83 N/A
===== ====== ======
<FN>
(a)Maximum offering price is equal to net asset value plus a front-end
sales charge of 4.75% (1.50% with respect to Principal Limited Term Bond
Fund, Inc.) of the offering price or 4.99% of the net asset value (1.52%
of net asset value with respect to Principal Limited Term Bond Fund,
Inc.)
(b)Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
</FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended April 30, 1998
STATEMENTS OF OPERATIONS
(unaudited)
Principal Principal Government
Bond Securities Income
INCOME FUNDS Fund, Inc. Fund, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Investment Income
Interest income.................................................... $5,530,806 $9,292,568
Expenses:
Management and investment advisory fees (Note 3)................ 366,980 605,517
Distribution and shareholder servicing fees (Notes 1 and 3)..... 242,790 344,302
Transfer and administrative services (Notes 1 and 3)............ 187,588 228,586
Registration fees (Note 1)...................................... 26,853 22,965
Custodian fees ................................................. 1,544 6,560
Auditing and legal fees ........................................ 3,607 2,940
Directors' fees ................................................ 3,594 3,589
Other .......................................................... 5,969 11,129
---------- ----------
Total Gross Expenses 838,925 1,225,588
Less: Management and in
advisory fees waived......................................... 50,288 --
---------- ----------
Total Net Expenses 788,637 1,225,588
---------- ----------
Net Investment Income 4,742,169 8,066,980
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) from investment transactions.............. 685,154 233,520
Change in unrealized appreciation/depreciation
of investments ................................................. (48,907) 142,467
---------- ----------
Net Realized and Unrealized
Gain (Loss) on Investments 636,247 375,987
---------- ----------
Net Increase in Net Assets
Resulting from Operations $5,378,416 $8,442,967
========== ==========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended April 30, 1998
STATEMENTS OF OPERATIONS
(unaudited)
Principal Principal Principal
High Yield Limited Term Bond Tax-Exempt Bond
INCOME FUNDS Fund, Inc. Fund, Inc. Fund, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Investment Income
Interest income.................................................... $2,170,647 $824,350 $5,797,148
Expenses:
Management and investment advisory fees (Note 3)................ 142,513 60,671 474,612
Distribution and shareholder servicing fees (Notes 1 and 3)..... 91,953 22,644 252,993
Transfer and administrative services (Notes 1 and 3)............ 73,623 37,537 85,255
Registration fees (Note 1)...................................... 23,556 19,049 23,659
Custodian fees ................................................. 1,567 945 1,448
Auditing and legal fees ........................................ 2,783 2,409 4,019
Directors' fees ................................................ 3,589 3,600 3,590
Other .......................................................... 2,257 3,458 9,432
---------- -------- ----------
Total Gross Expenses 341,841 150,313 855,008
Less: Management and investment
advisory fees waived......................................... -- 36,101 --
---------- -------- ----------
Total Net Expenses 341,841 114,212 855,008
---------- -------- ----------
Net Investment Income 1,828,806 710,138 4,942,140
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) from investment transactions.............. 723,144 (6,714) 684,609
Change in unrealized appreciation/depreciation
of investments ................................................. (773,752) (65,866) 122,023
---------- -------- ----------
Net Realized and Unrealized
Gain (Loss) on Investments (50,608) (72,580) 806,632
---------- -------- ----------
Net Increase in Net Assets
Resulting from Operations $1,778,198 $637,558 $5,748,772
========== ======== ==========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
(unaudited)
Principal Principal Government
Bond Securities Income
INCOME FUNDS Fund, Inc. Fund, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Year Six Months Year
Ended Ended Ended Ended
April 30, October 31, April 30, October 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Operations
Net investment income............................................ $ 4,742,169 $ 8,629,236 $ 8,066,980 $ 16,566,061
Net realized gain (loss) from investment transactions............ 685,154 921,121 233,520 (776,007)
Change in unrealized appreciation/depreciation
of investments................................................ (48,907) 3,176,634 142,467 7,674,729
------------ ------------ ------------ ------------
Net Increase in Net Assets
Resulting from Operations 5,378,416 12,726,991 8,442,967 23,464,783
Dividends and Distributions to Shareholders
from Net Investment Income:
Class A....................................................... (4,094,888) (8,447,557) (7,553,796) (16,727,976)
Class B....................................................... (428,273) (648,042) (472,536) (797,919)
Class R....................................................... (213,168) (193,972) (141,455) (127,873)
------------ ------------ ------------ ------------
Total Dividends and Distributions (4,736,329) (9,289,571) (8,167,787) (17,653,768)
Capital Share Transactions (Note 5)
Shares sold:
Class A....................................................... 18,773,942 27,360,904 17,657,565 31,378,780
Class B....................................................... 4,901,453 6,449,151 4,629,443 6,564,032
Class R....................................................... 4,358,041 6,016,081 2,521,987 3,952,066
Shares issued in reinvestment of dividends and distributions:
Class A....................................................... 3,009,793 5,936,473 6,070,302 13,338,406
Class B....................................................... 356,194 523,092 386,755 644,830
Class R....................................................... 212,502 193,561 140,835 127,615
Shares redeemed:
Class A....................................................... (14,292,882) (23,209,507) (26,115,368) (59,260,515)
Class B....................................................... (1,021,180) (1,891,456) (1,182,977) (3,726,468)
Class R....................................................... (1,150,678) (948,686) (449,825) (510,669)
------------ ------------ ------------ ------------
Net Increase (Decrease) in Net Assets from
Capital Share Transactions 15,147,185 20,429,613 3,658,717 (7,491,923)
------------ ------------ ------------ ------------
Total Increase (Decrease) 15,789,272 23,867,033 3,933,897 (1,680,908)
Net Assets
Beginning of period.............................................. 145,806,002 121,938,969 269,414,888 271,095,796
------------ ------------ ------------ ------------
End of period [including undistributed net investment
income (operating loss) as set forth below]................... $161,595,274 $145,806,002 $273,348,785 $269,414,888
============ ============ ============ ============
Undistributed Net Investment Income (Operating Loss)............. $ 74,403 $ 68,563 $ 346,965 $ 447,772
============ ============ ============ ============
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
(unaudited)
Principal Principal
High Yield Limited Term Bond
INCOME FUNDS Fund, Inc. Fund, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Year Six Months Year
Ended Ended Ended Ended
April 30, October 31, April 30, October 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Operations
Net investment income............................................ $ 1,828,806 $ 3,025,285 $ 710,138 $ 1,200,046
Net realized gain (loss) from investment transactions............ 723,144 1,000,035 (6,714) (30,744)
Change in unrealized appreciation/depreciation
of investments................................................ (773,752) 221,232 (65,866) 99,272
----------- ----------- ----------- -----------
Net Increase in Net Assets
Resulting from Operations 1,778,198 4,246,552 637,558 1,268,574
Dividends and Distributions to Shareholders
from Net Investment Income:
Class A....................................................... (1,494,049) (2,851,339) (690,478) (1,227,443)
Class B....................................................... (274,169) (305,236) (20,884) (14,695)
Class R....................................................... (93,943) (76,561) (33,304) (27,342)
----------- ----------- ----------- -----------
Total Dividends and Distributions (1,862,161) (3,233,136) (744,666) (1,269,480)
Capital Share Transactions (Note 5)
Shares sold:
Class A....................................................... 6,272,524 12,193,322 6,090,291 6,544,078
Class B....................................................... 2,740,079 4,993,786 483,402 580,621
Class R....................................................... 1,237,687 1,904,286 1,221,625 847,672
Shares issued in reinvestment of dividends and distributions:
Class A....................................................... 757,821 1,195,770 655,262 1,161,005
Class B....................................................... 201,688 195,332 15,407 8,758
Class R....................................................... 93,720 76,523 33,302 27,342
Shares redeemed:
Class A....................................................... (7,626,431) (4,508,255) (3,090,355) (4,380,863)
Class B....................................................... (784,778) (825,099) (192,736) (78,682)
Class R....................................................... (362,593) (149,618) (110,087) (355,461)
----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets from
Capital Share Transactions 2,529,717 15,076,047 5,106,111 4,354,470
----------- ----------- ----------- -----------
Total Increase (Decrease) 2,445,754 16,089,463 4,999,003 4,353,564
Net Assets
Beginning of period.............................................. 46,758,924 30,669,461 21,797,728 17,444,164
----------- ----------- ----------- -----------
End of period [including undistributed net investment
income (operating loss) as set forth below]................... $49,204,678 $46,758,924 $26,796,731 $21,797,728
=========== =========== =========== ===========
Undistributed Net Investment Income (Operating Loss)............. $ 363 $ 33,718 $ (8,873) $ 25,655
=========== =========== =========== ===========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
(unaudited)
Principal
Tax-Exempt Bond
INCOME FUNDS Fund, Inc.
- ---------------------------------------------------------------------------------------------------------
Six Months Year
Ended Ended
April 30, October 31,
1998 1997
<S> <C> <C>
Operations
Net investment income............................................ $ 4,942,140 $ 10,171,880
Net realized gain (loss) from investment transactions............ 684,609 818,662
Change in unrealized appreciation/depreciation
of investments................................................ 122,023 5,658,545
------------ ------------
Net Increase in Net Assets
Resulting from Operations 5,748,772 16,649,087
Dividends and Distributions to Shareholders
from Net Investment Income:
Class A....................................................... (4,838,895) (10,615,003)
Class B....................................................... (182,481) (312,381)
Class R....................................................... N/A N/A
------------ ------------
Total Dividends and Distributions (5,021,376) (10,927,384)
Capital Share Transactions (Note 5)
Shares sold:
Class A....................................................... 13,744,065 24,107,825
Class B....................................................... 2,453,240 2,704,384
Class R....................................................... N/A N/A
Shares issued in reinvestment of dividends and distributions:
Class A....................................................... 3,264,714 7,156,854
Class B....................................................... 136,733 214,928
Class R....................................................... N/A N/A
Shares redeemed:
Class A....................................................... (13,785,909) (30,946,309)
Class B....................................................... (488,703) (1,143,685)
Class R....................................................... N/A N/A
------------ ------------
Net Increase (Decrease) in Net Assets from
Capital Share Transactions 5,324,140 2,093,997
Total Increase (Decrease) 6,051,536 7,815,700
Net Assets
Beginning of period.............................................. 200,789,355 192,973,655
------------ ------------
End of period [including undistributed net investment
income (operating loss) as set forth below]................... $206,840,891 $200,789,355
============ ============
Undistributed Net Investment Income (Operating Loss)............. $ 112,365 $ 191,601
============ ============
See accompanying notes.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited)
Principal Bond Fund, Inc. Principal Limited Term Bond Fund, Inc.
Principal Government Securities Principal Tax-Exempt Bond Fund, Inc.
Income Fund, Inc.
Principal High Yield Fund, Inc.
Note 1 -- Significant Accounting Policies
Principal Bond Fund, Inc., Principal Government Securities Income Fund, Inc.,
Principal High Yield Fund, Inc., Principal Limited Term Bond Fund, Inc. and
Principal Tax-Exempt Bond Fund, Inc. (the "Income Funds") are registered under
the Investment Company Act of 1940, as amended, as open-end diversified
management investment companies and operate in the mutual fund industry.
Effective January 1, 1998, the following changes were made to the names of the
Income Funds:
<TABLE>
<CAPTION>
Former Fund Name New Fund Name
---------------- -------------
<S> <C>
Princor Bond Fund, Inc. Principal Bond Fund, Inc.
Princor Government Securites Income Fund, Inc. Principal Government Securities Income Fund, Inc.
Princor High Yield Fund, Inc. Principal High Yield Fund, Inc.
Princor Limited Term Bond Fund, Inc. Principal Limited Term Bond Fund, Inc.
Princor Tax-Exempt Bond Fund, Inc. Principal Tax-Exempt Bond Fund, Inc.
</TABLE>
Class A shares generally are sold with an initial sales charge based on
declining rates and certain purchases may be subject to a contingent deferred
sales charge ("CDSC"). Class B shares are sold without an initial sales charge,
but are subject to a declining CDSC on certain redemptions redeemed within six
years of purchase. Class R shares are sold without an initial sales charge and
are not subject to a CDSC. Class B shares and Class R shares bear a higher
ongoing distribution fee than Class A shares. Class B shares automatically
convert into Class A shares, based on relative net asset value (without a sales
charge) after seven years. Class R shares automatically convert into Class A
shares, based on relative net asset value (without a sales charge) after four
years. All classes of shares for each fund represent interests in the same
portfolio of investments, and will vote together as a single class except where
otherwise required by law or as determined by each of the Income Funds'
respective Board of Directors. In addition, the Board of Directors of each fund
declare separate dividends on each class of shares.
The Income Funds allocate daily all income, expenses (other than class-specific
expenses) and realized and unrealized gains or losses to each class of shares
based upon the relative proportion of the value of shares outstanding of each
class. Expenses specifically attributable to a particular class are charged
directly to such class. Class-specific expenses charged to each class during the
six months ended April 30, 1998, which are included in the corresponding
captions of the Statement of Operations, were as follows:
<TABLE>
<CAPTION>
Distribution and Transfer and
Shareholder Servicing Fees Administrative Services Registration Fees
-------------------------- ------------------------- -------------------------
Class A Class B Class R Class A Class B Class R Class A Class B Class R
-------- -------- ------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Bond Fund, Inc. $148,641 $65,551 $28,598 $46,492 $ 8,146 $3,733 $ 6,449 $4,236 $4,222
Principal Government Securities Income Fund, Inc. 251,583 73,412 19,307 77,981 6,968 2,053 5,239 4,802 4,024
Principal High Yield Fund, Inc. 46,720 35,906 9,327 11,877 3,065 1,458 5,412 4,528 3,730
Principal Limited Term Bond Fund, Inc. 16,752 1,868 4,024 2,065 338 552 4,483 3,010 3,385
Principal Tax-Exempt Bond Fund, Inc. 223,888 29,105 N/A 26,758 1,404 N/A 10,266 4,940 N/A
</TABLE>
The Income Funds value securities for which market quotations are readily
available at market value, which is determined using the last reported sale
price or, if no sales are reported, as is regularly the case for some securities
traded over-the-counter, the last reported bid price. When reliable market
quotations are not considered to be readily available, which may be the case,
for example, with respect to certain debt securities and preferred stocks, the
investments are valued by using market quotations, prices provided by market
makers or estimates of market values obtained from yield data and other factors
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by each fund's Board of Directors.
Securities with remaining maturities of 60 days or less are valued at amortized
cost, which approximates market.
The Income Funds record investment transactions generally one day after the
trade date, except for short-term investment transactions which are recorded
generally on the trade date. The identified cost basis has been used in
determining the net realized gain or loss from investment transactions and
unrealized appreciation or depreciation of investments. Interest income is
recognized on an accrual basis.
The Income Funds may, pursuant to an exemptive order issued by the Securities
and Exchange Commission, transfer uninvested funds into a joint trading account.
The order permits the Income Funds' cash balances to be deposited into a single
joint account along with the cash of other registered investment companies
managed by Principal Management Corporation (formerly known as Princor
Management Corporation) (the "Manager"). These balances may be invested in one
or more short-term instruments.
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Dividends and distributions to shareholders from net investment income and
net realized gain from investments are determined in accordance with federal tax
regulations, which may differ from generally accepted accounting principles.
Permanent book and tax basis differences are reclassified within the capital
accounts based on their federal tax-basis treatment; temporary differences do
not require reclassification. Reclassifications made for the year ended October
31, 1997 were not material.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2 -- Federal Income Taxes
No provision for federal income taxes is considered necessary because each fund
is qualified as a "regulated investment company" under the Internal Revenue Code
and intends to distribute each year substantially all of its net investment
income and realized capital gains to shareholders. The cost of investments for
federal income tax reporting purposes is approximately the same as that for
financial reporting purposes.
Note 3 -- Management Agreement and Transactions With Affiliates
The Income Funds have agreed to pay investment advisory and management fees to
Principal Management Corporation (wholly owned by Princor Financial Services
Corporation, a subsidiary of Principal Mutual Life Insurance Company) computed
at an annual percentage rate of each fund's average daily net assets. The annual
rate used in this calculation for the Income Funds is as follows:
<TABLE>
<CAPTION>
Net Asset Value of Funds
(in millions)
----------------------------------------------------------------------------
First Next Next Next Over
$100 $100 $100 $100 $400
----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Principal Bond Fund, Inc. 0.50% 0.45% 0.40% 0.35% 0.30%
Principal Government Securities Income Fund, Inc. 0.50 0.45 0.40 0.35 0.30
Principal High Yield Fund, Inc. 0.60 0.55 0.50 0.45 0.40
Principal Limited Term Bond Fund, Inc. 0.50 0.45 0.40 0.35 0.30
Principal Tax-Exempt Bond Fund, Inc. 0.50 0.45 0.40 0.35 0.30
</TABLE>
The Income Funds also reimburse the Manager for transfer and administrative
services, including the cost of accounting, data processing, supplies and other
services rendered.
The Manager voluntarily waives a portion of its fee for some of the Income
Funds. The waivers are in amounts that maintain total operating expenses for
each fund within certain limits. The limits are expressed as a percentage of
average daily net assets attributable to each class on an annualized basis
during the reporting period. The amounts waived and the operating expense
limits, which were maintained at or below those shown, are as follows:
Note 3 -- Management Agreement and Transactions With Affiliates (Continued)
<TABLE>
<CAPTION>
Amount
Waived
-----------------------------------------------
Six Months Ended Year Ended Expense
April 30, 1998 October 31, 1997 Limit
---------------- ---------------- -------
<S> <C> <C> <C>
Principal Bond Fund, Inc.
Class A $37,310 $41,526 0.95%
Class B 5,634 8,982 1.70
Class R 7,344 10,427 1.45
Principal Limited Term Bond Fund, Inc.
Class A 27,369 46,271 0.90
Class B 4,050 6,528 1.25
Class R 4,862 6,831 1.50
</TABLE>
The Manager intends to continue its voluntary waiver and, if necessary, pay
expenses normally payable by each of the Funds through October 31, 1998.
Princor Financial Services Corporation, as principal underwriter, receives
proceeds of any CDSC on certain Class A and Class B share redemptions. The
charge is based on declining rates which for Class A shares begin at .75%, and
for Class B shares at 4.00% (.25% and 1.25% for Principal Limited Term Bond
Fund, Inc., respectively), of the lesser of the current market value or the cost
of shares being redeemed. Princor Financial Services Corporation also retains
sales charges on sales of Class A shares based on declining rates which begin at
4.75% of the offering price (1.50% for Principal Limited Term Bond Fund, Inc.).
The aggregate amount of these charges retained, by fund, for the six months
ended April 30, 1998 were as follows:
Class A Class B
-------- --------
Principal Bond Fund, Inc. $410,029 $15,054
Principal Government Securities Income Fund, Inc. 371,558 19,493
Principal High Yield Fund, Inc. 171,654 12,100
Principal Limited Term Bond Fund, Inc. 40,957 1,028
Principal Tax-Exempt Bond Fund, Inc. 322,626 8,564
No brokerage commissions were paid by the Income Funds to affiliated broker
dealers during the periods.
The Income Funds bear distribution and shareholder servicing fees with respect
to Class A shares computed at an annual rate of up to .25% (.15% for the
Principal Limited Term Bond Fund, Inc.) of the average daily net assets
attributable to Class A shares of each fund. Each of the Income Funds adopted a
distribution plan with respect to Class B shares that provides for distribution
and shareholder servicing fees computed at an annual rate of up to 1.00% of the
average daily net assets attributable to Class B shares of each fund (.50% for
the Principal Limited Term Bond Fund, Inc.). Each of the Income Funds, with the
exception of Principal Tax-Exempt Bond Fund, Inc., adopted a distribution plan
with respect to Class R shares that provides for distribution and shareholder
servicing fees computed at an annual rate of up to .75% of the average daily net
assets attributable to Class R shares of each fund. Distribution and shareholder
servicing fees are paid to Princor Financial Services Corporation; a portion of
the fees are subsequently remitted to retail dealers. Pursuant to the
distribution agreements, fees unused by the principal underwriter at the end of
the fiscal year are returned to the Income Funds.
At April 30, 1998, Principal Mutual Life Insurance Company, subsidiaries of
Principal Mutual Life Insurance Company and benefit plans sponsored on behalf of
Principal Mutual Life Insurance Company owned shares of the Income Funds as
follows:
Class A Class B Class R
--------- ------- -------
Principal Bond Fund, Inc. 178,252 121 102
Principal Government Securities Income Fund, Inc. 94,035 119 101
Principal High Yield Fund, Inc. 589,893 168 4,877
Principal Limited Term Bond Fund, Inc. 1,090,055 114 4,616
Principal Tax-Exempt Bond Fund, Inc. 92,517 110 N/A
Note 4 -- Investment Transactions
For the six months ended April 30, 1998, the cost of investment securities
purchased and proceeds from investment securities sold (not including short-term
investments and U. S. government securities) by the Income Funds were as
follows:
Purchases Sales
----------- -----------
Principal Bond Fund, Inc. $28,807,395 $ 2,087,318
Principal High Yield Fund, Inc. 16,071,310 13,011,842
Principal Limited Term Bond Fund, Inc. 6,386,987 1,183,958
Principal Tax-Exempt Bond Fund, Inc. 12,724,932 9,945,376
At April 30, 1998, net unrealized appreciation (depreciation) of investments by
the Income Funds was composed of the following:
<TABLE>
<CAPTION>
Net Unrealized
Gross Unrealized Appreciation (Depreciation)
------------------------------------
Appreciation (Depreciation) of Investments
------------ -------------- ---------------------------
<S> <C> <C> <C>
Principal Bond Fund, Inc. $ 8,404,752 $ (779,307) $ 7,625,445
Principal Government Securities Income Fund, Inc. 7,438,608 (414,180) 7,024,428
Principal High Yield Fund, Inc. 1,341,921 (1,125,649) 216,272
Principal Limited Term Bond Fund, Inc. 163,315 (240,594) (77,279)
Principal Tax-Exempt Bond Fund, Inc. 12,298,583 (151,644) 12,146,939
</TABLE>
The Income Funds may trade portfolio securities on a "to-be-announced" (TBA)
basis. In a TBA transaction, the fund commits to purchase or sell securities for
which all specific information is not known at the time of the trade. Securities
purchased on a TBA basis are not settled until they are delivered to the fund,
normally 15 to 30 days later. These transactions are subject to market
fluctuations and their current value is determined in the same manner as for
other portfolio securities. As of April 30, 1998, Principal Government
Securities Income Fund, Inc. had TBA purchase commitments involving securities
with a face amount of $6,000,000, cost of $6,057,656 and market value of
$6,069,378. The fund has set aside investment securities and other assets in
excess of the commitments to serve as collateral.
At April 30, 1998, the Income Funds held the following securities which may
require registration under the Securities Act of 1933, or an exemption
therefrom, in order to effect a sale in the ordinary course of business.
<TABLE>
<CAPTION>
Value at Value as a
Date of April 30, Percentage of
Security Description Acquisition Cost 1998 Net Assets
------------------------------- ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Principal Bond Fund, Inc. John Hancock Mutual Life
Insurance Co. Surplus Notes 1/8/97 $2,396,100 $2,626,218 1.63%
R&B Falcon Senior Notes 4/8/98 496,980 493,821 .31
3,120,039 1.94
Principal High Yield Fund, Inc. Ameristeel Corp. Senior Notes 3/31/98 300,000 301,875 .60
Chesapeake Energy Corp. Senior 4/17/98 350,000 352,188 .72
Notes, Series A 4/20/98 1,168,688 1,157,187 2.35
Foodmaker, Inc. Senior
Subordinated Notes 4/8/98 898,488 893,250 1.82
Glencore Nickel Priority Ltd. 2/18/98 792,000 786,000 1.60
Senior Secured Notes 4/21/98 693,000 687,750 1.40
Level 3 Communications, Inc. 4/23/98 903,375 886,500 1.80
Senior Notes 4/23/98 398,316 394,000 .80
Mastec, Inc. Senior
Subordinated Notes 1/30/98 798,896 784,000 1.59
Trico Marine Services Senior
Notes, Series E 12/18/97 802,000 800,000 1.63
---------- ------
7,042,750 14.31
</TABLE>
<TABLE>
<CAPTION>
Note 4 -- Investment Transactions (Continued)
Value at Value as a
Date of April 30, Percentage of
Security Description Acquisition Cost 1998 Net Assets
------------------------------- ----------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Principal Limited Term Bond Fund, Inc. B.A.T. Capital Corp.
Medium-Term Notes 7/24/96 $583,584 $ 598,267 2.23%
Orix Credit Alliance, Inc.
Medium-Term Notes 11/8/96 850,000 852,791 3.18
---------- -----
1,451,058 5.41
Principal Tax-Exempt Bond Fund, Inc. Eddyville, Iowa, IDR Ref. Bonds,
Cargill Inc. Project 1/11/95 859,910 1,035,000 .50
</TABLE>
The Income Funds' investments are with various issuers in various industries.
The Schedules of Investments contained herein summarize concentration of credit
risk by issuer and industry.
Note 5 -- Capital Share Transactions
Transactions in Capital Stock by fund were as follows:
<TABLE>
<CAPTION>
Principal Principal Principal
Bond Government Securities High Yield
Fund, Inc. Income Fund, Inc. Fund, Inc.
----------- --------------------- ----------
Six Months Ended April 30, 1998:
Shares sold:
<S> <C> <C> <C>
Class A ......................................... 1,626,747 1,532,768 734,364
Class B ......................................... 425,221 401,631 322,386
Class R............................................ 378,034 220,122 146,816
Shares issued in reinvestment of dividends and
distributions:
Class A ........................................... 261,239 526,934 88,875
Class B ........................................... 30,926 33,609 23,773
Class R........................................... 18,433 12,309 11,152
Shares redeemed:
Class A ......................................... (1,239,685) (2,262,329) (891,961)
Class B ......................................... (88,497) (102,585) (92,369)
Class R............................................ (99,683) (39,236) (43,035)
--------- --------- -------
Net Increase 1,312,735 323,223 300,001
========= ========= =======
Year Ended October 31, 1997:
Shares sold:
Class A ......................................... 2,460,201 2,799,875 1,440,198
Class B ......................................... 581,347 585,099 591,875
Class R............................................ 542,993 354,800 227,035
Shares issued in reinvestment of dividends and
distributions:
Class A ........................................... 534,855 1,189,680 141,482
Class B ........................................... 47,159 57,621 23,153
Class R............................................ 17,417 11,432 9,113
Shares redeemed:
Class A ......................................... (2,091,860) (5,287,652) (532,170)
Class B ......................................... (170,486) (332,061) (97,891)
Class R............................................ (84,604) (45,744) (17,821)
--------- --------- ---------
Net Increase (Decrease) 1,837,022 (666,950) 1,784,974
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Principal Principal
Limited Term Bond Tax-Exempt Bond
Fund, Inc. Fund, Inc.
----------------- ---------------
Six Months Ended April 30, 1998
Shares sold:
<S> <C> <C>
Class A ......................................... 615,210 1,099,394
Class B ......................................... 48,776 196,402
Class R............................................ 123,693 N/A
Shares issued in reinvestment of dividends and
distributions:
Class A ......................................... 66,443 261,218
Class B ......................................... 1,558 10,933
Class R............................................ 3,384 N/A
Shares redeemed:
Class A ......................................... (312,596) (1,101,019)
Class B ......................................... (19,434) (39,094)
Class R............................................ (11,146) N/A
------- ---------
Net Increase 515,888 427,834
======= =========
Year Ended October 31, 1997:
Shares sold:
Class A ......................................... 666,459 1,983,441
Class B ......................................... 58,936 222,542
Class R............................................ 86,576 N/A
Shares issued in reinvestment of dividends and
distributions:
Class A ......................................... 118,478 589,808
Class B ......................................... 892 17,694
Class R............................................ 2,797 N/A
Shares redeemed:
Class A ......................................... (445,740) (2,541,274)
Class B ......................................... (7,993) (93,935)
Class R............................................ (36,339) N/A
------- ---------
Net Increase 444,066 178,276
======= =========
</TABLE>
Note 6 -- Line of Credit
The Income Funds participate with other funds and portfolios managed by
Principal Management Corporation in an unsecured joint line of credit with a
bank, which allows the funds to borrow up to $40,000,000, collectively.
Borrowings are made solely to facilitate the handling of unusual and/or
unanticipated short-term cash requirements. Interest is charged to each fund,
based on its borrowings, at a rate equal to the Fed Funds Rate plus .50%.
Additionally, a commitment fee is charged at the annual rate of .08% on the
average unused portion of the line of credit. The commitment fee is allocated
among the participating funds and portfolios in proportion to their average net
assets during each quarter. At April 30, 1998, the Income Funds had no
outstanding borrowings under the line of credit.
Note 7 -- Year 2000 Problem
Like other mutual funds, financial and business organizations and individuals
around the world, the Income Funds could be adversely affected if the computer
systems used by the Manager and other service providers do not properly process
and calculate date-related information and data from and after January 1, 2000.
This is commonly known as the "Year 2000 Problem." The Manager is taking steps
it believes are reasonably designed to address the Year 2000 Problem with
respect to computer systems it uses and to obtain reasonable assurances that
comparable steps are being taken by each fund's other major service providers.
At this time, however there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the funds.
<PAGE>
SCHEDULES OF INVESTMENTS
INCOME FUNDS
PRINCIPAL BOND FUND, INC.
- --------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------
Bonds (94.90%)
Air Transportation, Scheduled (1.71%)
Federal Express Corp. 1994 Pass
Through Cert., Series A310-A3;
8.40%; 3/23/10 $1,500,000 $ 1,711,125
Federal Express Corp. Pass Through
Cert.; 7.58%; 7/2/19 1,000,000 1,058,700
------------
2,769,825
Aircraft & Parts (0.67%)
Textron, Inc. Medium-Term
Notes, Series C;
9.80%; 1/11/00 500,000 530,218
9.55%; 3/19/01 500,000 545,062
------------
1,075,280
Auto & Home Supply Stores (0.95%)
Pep Boys-Manny, Moe & Jack Notes;
7.00%; 6/1/05 1,500,000 1,533,654
Beverages (1.43%)
Joseph E. Seagram & Sons
Guaranteed Debentures;
8.38%; 2/15/07 1,000,000 1,121,151
8.88%; 9/15/11 1,000,000 1,203,704
------------
2,324,855
Cable & Other Pay TV Services (1.63%)
Tele-Communications, Inc.
Notes; 7.25%; 8/1/05 2,000,000 2,071,744
Senior Debentures; 7.88%; 8/1/13 500,000 555,899
------------
2,627,643
Cash Grains (1.62%)
Aktiebolaget SKF Senior Notes;
7.63%; 7/15/03 2,500,000 2,617,488
Combination Utility Services (1.21%)
PG Energy, Inc. First Mortgage
Bonds; 8.38%; 12/1/02 500,000 534,225
Public Service Electric & Gas
Medium-Term Notes;
8.16%; 5/26/09 1,250,000 1,418,939
------------
1,953,164
Commercial Banks (1.23%)
NationsBank Corp. Subordinated
Notes; 6.38%; 2/15/08 2,000,000 1,988,864
Computer & Office Equipment (1.76%)
Seagate Technology, Inc. Senior Notes;
7.37%; 3/1/07 3,000,000 2,844,156
Construction & Related
Machinery (0.78%)
Caterpillar, Inc. Global Debentures;
9.38%; 8/15/11 1,000,000 1,267,548
Consumer Products (0.96%)
Philip Morris Cos. Notes;
6.80%; 12/1/03 $ 500,000 $ 507,016
RJR Nabisco Capital Corp. Senior
Notes; 8.75%; 4/15/04 1,000,000 1,040,000
------------
1,547,016
Copper Ores (2.08%)
Asarco, Inc.
Debentures; 7.88%; 4/15/13 2,000,000 2,135,758
Notes; 7.38%; 2/1/03 1,200,000 1,217,668
------------
3,353,426
Crude Petroleum & Natural Gas (0.34%)
Occidental Petroleum Corp.
Medium-Term Notes;
9.73%; 6/15/01 500,000 549,101
Department Stores (2.04%)
Harcourt General, Inc. Subordinated
Notes; 9.50%; 3/15/00 400,000 422,277
J.C. Penney Co., Inc. Debentures;
7.13%; 11/15/23 1,000,000 1,010,808
Sears Roebuck Co.
Medium-Term Notes;
9.05%; 2/6/12 500,000 617,858
9.12%; 2/13/12 1,000,000 1,242,218
------------
3,293,161
Drug Stores & Proprietary
Stores (1.26%)
Rite Aid Corp. Senior Debentures;
6.88%; 8/15/13 2,000,000 2,039,568
Electric Services (2.59%)
Ohio Edison Co. First Mortgage
Bonds; 8.25%; 4/1/02 2,000,000 2,114,846
Southern California Edison Co. Notes;
6.38%; 1/15/06 1,000,000 1,001,742
Toledo Edison Co. Debentures;
8.70%; 9/1/02 1,000,000 1,061,538
------------
4,178,126
Engines & Turbines (0.65%)
Brunswick Corp. Debentures;
7.38%; 9/1/23 1,000,000 1,043,266
Fabricated Rubber Products,
NEC (1.05%)
M. A. Hanna Co. Senior Notes;
9.38%; 9/15/03 1,500,000 1,703,847
Farm & Garden Machinery (1.65%)
Case Corp. Notes; 7.25%; 1/15/16 1,000,000 1,044,884
Tenneco, Inc. Notes;
10.08%; 2/1/01 500,000 547,596
8.08%; 10/1/02 1,000,000 1,065,843
------------
2,658,323
General Government, NEC (2.78%)
Ontario Hydro Debentures;
7.45%; 3/31/13 2,000,000 2,201,640
Province of Saskatchewan, Canada
Global Notes; 8.00%; 2/1/13 2,000,000 2,297,960
------------
4,499,600
General Industrial Machinery (0.62%)
Timken Company Medium-Term
Notes; 6.20%; 1/15/08 $1,000,000 $ 994,578
Gold & Silver Ores (0.78%)
Placer Dome, Inc. Notes;
7.13%; 6/15/07 1,250,000 1,262,775
Grain Mill Products (0.67%)
Ralston Purina Co. Debentures;
7.75%; 10/1/15 1,000,000 1,084,920
Grocery Stores (3.12%)
American Stores Co. Bond;
8.00%; 6/1/26 2,500,000 2,833,233
Food Lion, Inc.
Medium-Term Notes;
8.67%; 8/28/06 1,000,000 1,142,625
Notes; 7.55%; 4/15/07 1,000,000 1,071,391
------------
5,047,249
Highway & Street Construction (1.54%)
Foster Wheeler Corp. Notes;
6.75%; 11/15/05 2,500,000 2,495,360
Household Furniture (1.34%)
Masco Corp. Debentures;
7.13%; 8/15/13 2,000,000 2,159,666
Industrial Inorganic Chemicals (1.80%)
Dow Chemical Co. Debentures;
7.38%; 3/1/23 1,000,000 1,055,135
Dow Chemical Co. Medium-Term
Notes; 7.75%; 9/15/20 1,000,000 1,102,463
FMC Corp. Senior Notes;
6.38%; 9/1/03 750,000 747,563
------------
2,905,161
Life Insurance (1.63%)
John Hancock Mutual Life Insurance
Co. Surplus Notes; 7.38%; 2/15/24 2,500,000(a) 2,626,218
Machinery, Equipment,
& Supplies (0.16%)
AAR Corp. Notes; 7.25%; 10/15/03 250,000 252,838
Management & Public
Relations (0.63%)
Servicemaster Co. Ltd. Notes;
6.95%; 8/15/07 1,000,000 1,019,043
Millwork, Plywood & Structural
Members (1.10%)
Georgia-Pacific Corp.
Debentures; 9.50%; 12/1/11 600,000 735,883
Senior Debentures; 7.70%; 6/15/15 1,000,000 1,044,175
------------
1,780,058
Miscellaneous Amusement,
Recreation Service (1.16%)
Circus Circus Enterprises Senior
Notes; 6.45%; 2/1/06 2,000,000 1,877,216
Miscellaneous Chemical
Products (2.04%)
Ferro Corp. Senior Debentures;
7.63%; 5/1/13 $1,100,000 $ 1,210,513
Smith International, Inc. Senior
Notes; 7.00%; 9/15/07 2,025,000 2,087,429
------------
3,297,942
Miscellaneous Investing (3.04%)
BRE Properties, Inc. Notes;
7.20%; 6/15/07 2,000,000 2,081,754
First Industrial LP Medium-Term
Notes; 7.00%; 12/1/06 1,500,000 1,504,723
Weingarten Realty Investors
Medium-Term Notes;
7.29%; 5/23/05 1,250,000 1,324,743
------------
4,911,220
Miscellaneous Metal Ores (1.16%)
Cyprus Amax Minerals Notes;
7.38%; 5/15/07 1,100,000 1,149,551
Cyprus Minerals Co. Notes;
10.13%; 4/1/02 650,000 724,437
------------
1,873,988
Motor Vehicles & Equipment (2.11%)
Ford Motor Co. Debentures;
8.88%; 1/15/22 1,000,000 1,222,592
7.50%; 8/1/26 1,000,000 1,080,496
General Motors Corp. Global
Medium-Term Notes;
8.88%; 5/15/03 1,000,000 1,110,454
------------
3,413,542
Newspapers (1.54%)
News America Holdings, Inc.
Guaranteed Senior Notes;
8.50%; 2/15/05 2,250,000 2,484,113
Oil & Gas Field Services (1.96%)
Petroleum Geo-Services ASA Notes;
7.50%; 3/31/07 2,500,000 2,675,472
R&B Falcon Senior Notes;
6.75%; 4/15/05 500,000(a) 493,821
------------
3,169,293
Operative Builders (1.63%)
Pulte Corp.
Senior Notes; 8.38%; 8/15/04 500,000 543,045
Notes; 7.63%; 10/15/17 2,000,000 2,086,884
------------
2,629,929
Paper Mills (3.80%)
Bowater, Inc. Debentures;
9.50%; 10/15/12 1,000,000 1,277,640
9.38%; 12/15/21 1,500,000 1,907,152
Champion International Corp.
Notes; 9.88%; 6/1/00 750,000 803,843
Chesapeake Corp. Notes;
9.88%; 5/1/03 1,000,000 1,145,126
James River Corp. Notes;
6.70%; 11/15/03 1,000,000 1,009,203
------------
6,142,964
Paperboard Mills (1.13%)
Federal Paper Board Co., Inc.
Debentures; 8.88%; 7/1/12 1,500,000 1,833,219
Personal Credit Institutions (2.94%)
Commercial Credit Co. Notes;
6.75%; 7/1/07 $2,000,000 $ 2,045,294
General Motors Acceptance Corp.
Global Notes; 8.50%; 1/1/03 2,000,000 2,178,798
Household Finance Corp. Senior
Subordinated Notes;
9.63%; 7/15/00 500,000 534,257
------------
4,758,349
Petroleum & Petroleum
Products (2.41%)
Enron Corp. Notes; 9.13%; 4/1/03 3,500,000 3,899,021
Petroleum Refining (6.26%)
Ashland, Inc. Medium-Term Notes;
7.71%; 5/11/07 500,000 545,245
7.72%; 7/15/13 1,000,000 1,113,444
Ashland Oil, Inc. Medium-Term Notes;
7.73%; 7/15/13 750,000 835,805
Mapco, Inc. Medium-Term Notes;
8.48%; 8/5/13 1,000,000 1,165,495
Sun Co., Inc.
Debentures; 9.00%; 11/1/24 2,000,000 2,462,894
Notes; 7.13%; 3/15/04 300,000 311,139
Tosco Corp. Note; 7.25%; 1/1/07 2,500,000 2,602,345
Ultramar Credit Corp. Guaranteed
Notes; 8.63%; 7/1/02 1,000,000 1,085,859
------------
10,122,226
Plastic Materials & Synthetics (0.31%)
Geon Co. Notes; 6.88%; 12/15/05 500,000 504,913
Primary Nonferrous Metals (1.97%)
Reynolds Metals Co.
Medium-Term Notes;
8.22%; 5/30/07 2,000,000 2,237,070
7.65%; 2/4/08 875,000 947,615
------------
3,184,685
Pulp Mills (1.75%)
ITT Rayonier, Inc. Notes;
7.50%; 10/15/02 1,875,000 1,965,210
International Paper Co.
Medium-Term Notes;
9.70%; 8/15/00 800,000 862,193
------------
2,827,403
Railroads (2.17%)
Union Pacific Corp.
Debentures; 7.00%; 2/1/16 2,500,000 2,466,800
Notes; 7.25%; 11/1/08 1,000,000 1,032,426
------------
3,499,226
Real Estate Operators & Lessor (0.82%)
First Industrial, L.P. Notes;
7.60%; 5/15/07 1,250,000 1,323,897
Refrigeration & Service
Machinery (1.64%)
Westinghouse Electric Corp.
Debentures; 8.63%; 8/1/12 $1,000,000 $ 1,068,508
Global Notes; 8.88%; 6/1/01 1,500,000 1,584,292
------------
2,652,800
Rental of Railroad Cars (1.66%)
Gatx Capital Corp. Medium-Term Notes;
Series B; 9.50%; 1/10/02 1,500,000 1,659,952
Series C; 6.86%; 10/13/05 1,000,000 1,027,681
------------
2,687,633
Rubber & Plastics Footwear (1.56%)
Reebok International Ltd. Debentures;
6.75%; 9/15/05 2,500,000 2,514,615
Sanitary Services (2.10%)
Laidlaw, Inc.
Notes; 7.70%; 8/15/02 1,000,000 1,051,643
Senior Notes; 7.88%; 4/15/05 750,000 811,202
WMX Technologies, Inc.;
7.00%; 10/15/06 1,500,000 1,528,077
------------
3,390,922
Security Brokers & Dealers (3.25%)
Bear Stearns Companies, Inc.
Senior Notes; 7.00%; 3/1/07 2,500,000 2,578,425
Lehman Brothers, Inc. Senior
Subordinated Notes;
7.38%; 1/15/07 2,545,000 2,674,464
------------
5,252,889
Telephone Communication (3.94%)
Korea Telecom Notes; 7.63%; 4/15/07 2,500,000 2,168,678
Sprint Corp. Notes; 8.13%; 7/15/02 1,500,000 1,605,460
U.S. West Capital Funding, Inc. Notes;
7.30%; 1/15/07 1,500,000 1,574,728
6.80%; 11/23/07 1,000,000 1,015,847
------------
6,364,713
Variety Stores (0.77%)
Dayton-Hudson Corp. Debentures;
9.25%; 8/15/11 1,000,000 1,237,987
------------
Total Bonds 153,350,482
Asset-Backed Securities (1.93%)
Security Brokers & Dealers (1.93%)
Merrill Lynch Mortgage Investors, Inc.
Collateralized Mortgage-Backed
Security, Series 95-C3, 7.37%*
Class C; 12/26/25 3,000,000 3,124,140
Commercial Paper (1.08%)
Personal Credit Institutions (1.08%)
Investment In Joint Trade Account;
Associates Corp.; 5.53%; 5/1/98 1,748,560 1,748,560
------------
Total Portfolio Investments (97.91%) 158,223,182
Cash, receivables and other assets, net of
liabilities (2.09%) 3,372,092
------------
Total Net Assets (100.00%) $161,595,274
============
(a) Restricted security - See Note 4 to the financial statements.
* Variable rate (monthly)
<PAGE>
PRINCIPAL GOVERNMENT SECURITIES INCOME
FUND, INC.
- --------------------------------------------------------------------------
Description of Issue Principal
- -----------------------------------
Type Rate Maturity Amount Value
- ----------------------------------------------- -------------------------
Government National Mortgage Association (GNMA)
Certificates (101.05%)
GNMA I 6.00% 10/15/23-1/20/28 $15,320,743 $ 14,868,103
GNMA I 6.50 9/15/23-2/15/28 48,970,251 48,684,508
GNMA I 7.00 10/15/22-5/2/28 83,165,796 84,336,230
GNMA I 7.25 9/15/25-10/15/25 5,131,909 5,207,451
GNMA I 7.50 4/15/17-10/15/27 47,936,751 49,354,537
GNMA I 8.00 8/15/16-2/15/22 10,758,852 11,306,399
GNMA II 6.00 1/20/24-3/20/27 50,090,488 48,153,063
GNMA II 6.50 3/20/24-3/20/27 14,454,919 14,299,024
------------
Total GNMA Certificates 276,209,315
- --------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------
Federal Agency Short-Term Obligation (0.58%)
Investment in Joint Trade Account;
Federal Home Loan Mortgage Corp.;
5.45%; 5/1/98 $ 1,599,375 $ 1,599,375
------------
Total Portfolio Investments (101.63%) 277,808,690
Liabilities, net of cash, receivables and
other assets (-1.63%) (4,459,905)
------------
Total Net Assets (100.00%) $273,348,785
============
<PAGE>
PRINCIPAL HIGH YIELD FUND, INC.
- --------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------
Bonds (97.46%)
Advertising (3.42%)
Lamar Advertising Co.
Senior Subordinated Notes;
9.63%; 12/1/06 $ 800,000 $ 852,000
Outdoor Systems
Senior Subordinated Notes;
8.88%; 6/15/07 800,000 828,000
-----------
1,680,000
Blast Furnace & Basic Steel
Products (2.94%)
Ameristeel Corp. Senior Notes;
8.75%; 4/15/08 300,000(a) 301,875
Titan Wheel International Senior
Subordinated Notes;
8.75%; 4/1/07 700,000 722,750
Weirton Steel Corp. Senior Notes;
10.75%; 6/1/05 400,000 423,000
-----------
1,447,625
Broadwoven Fabric Mills, Cotton (1.40%)
J.P. Stevens & Co., Inc. Sinking
Fund Debentures; 9.00%; 3/1/17 $ 660,000 $ 687,225
Cable & Other Pay TV Services (3.40%)
Century Communications Senior Notes;
8.75%; 10/1/07 900,000 931,500
Jones Intercable, Inc. Senior Notes;
9.63%; 3/15/02 700,000 743,750
-----------
1,675,250
Cogeneration - Small Power
Producer (3.32%)
AES Corp. Senior Subordinated
Notes; 8.38%; 8/15/07 800,000 812,000
Calpine Corp. Senior Notes;
8.75%; 7/15/07 800,000 822,000
-----------
1,634,000
Communications Equipment (1.54%)
FWT, Inc. Senior Subordinated
Notes; 9.88%; 11/15/07 800,000 760,000
Communication Services, NEC (2.60%)
Level 3 Communications, Inc.
Senior Notes; 9.13%; 5/1/08 1,300,000(a) 1,280,500
Computer & Data Processing
Services (1.73%)
DecisionOne Corp. Senior Subordinated
Notes; 9.75%; 8/1/07 900,000 850,500
Crude Petroleum & Natural Gas (7.74%)
Chesapeake Energy Corp. Senior
Notes, Series A; 9.63%; 5/1/05 1,500,000(a) 1,509,375
Nuevo Energy Co. Senior Subordinated
Notes; 9.50%; 4/15/06 600,000 633,000
Ocean Energy, Inc. Senior Subordinated
Notes; 8.88%; 7/15/07 800,000 848,000
Snyder Oil Co. Senior Subordinated
Notes; 8.75%; 6/15/07 800,000 819,000
-----------
3,809,375
Dairy Farms (1.37%)
Fage Dairy Industry S.A. Senior Notes;
9.00%; 2/1/07 700,000 675,500
Deep Sea Foreign Transportation
of Freight (1.63%)
Trico Marine Services Senior Notes,
Series E; 8.50%; 8/1/05 800,000(a) 800,000
Eating & Drinking Places (1.82%)
Foodmaker, Inc. Senior Subordinated
Notes; 8.38%; 4/15/08 900,000(a) 893,250
Electric Components
& Accessories (4.65%)
Fairchild Semiconductor Corp.
Senior Subordinated Notes;
10.13%; 3/15/07 750,000 776,250
Flextronics International Ltd.
Senior Subordinated Notes;
8.75%; 10/15/07 1,500,000 1,513,125
-----------
2,289,375
Family Clothing Stores (1.87%)
Specialty Retailers, Inc. Senior Notes;
8.50%; 7/15/05 $ 900,000 $ 920,250
Finance Services (1.71%)
DVI, Inc. Senior Notes;
9.88%; 2/1/04 800,000 841,000
Forest Products (1.40%)
Doman Industries Ltd. Senior Notes;
8.75%; 3/15/04 700,000 689,500
Fuel Dealers (1.28%)
Petroleum Heat & Power Co., Inc.
Subordinated Notes;
10.13%; 4/1/03 700,000 630,000
Grocery Stores (1.67%)
Marsh Supermarket Senior
Subordinated Notes;
8.88%; 8/1/07 800,000 824,000
Heavy Construction,
Except Highway (1.59%)
Mastec, Inc. Senior Subordinated
Notes; 7.75%; 2/1/08 800,000(a) 784,000
Hotels & Motels (3.26%)
HMH Properties, Inc. Senior Notes;
8.88%; 7/15/07 800,000 887,000
John Q. Hammons Hotels, L.P. &
Finance Corp. First Mortgage
Notes; 8.88%; 2/15/04 700,000 719,250
-----------
1,606,250
Industrial Inorganic Chemicals (1.09%)
PT. Tri Polyta Indonesia TBK
Guaranteed Secured Notes;
11.38%; 12/1/03 800,000 536,000
Knitting Mills (1.46%)
Tultex Corp. Senior Notes;
10.63%; 3/15/05 700,000 717,500
Men's & Boy's Clothing Stores (0.76%)
Edison Brothers Stores, Inc. Senior
Notes; 11.00%; 9/26/07 400,000 372,000
Miscellaneous Amusement, Recreation
Service (3.19%)
Rio Hotel & Casino, Inc. Senior
Subordinated Notes;
9.50%; 4/15/07 700,000 747,250
Station Casinos, Inc. Senior
Subordinated Notes, Series B;
9.63%; 6/1/03 800,000 824,000
-----------
1,571,250
Miscellaneous Metal Ores (3.00%)
Glencore Nickel Priority Ltd.
Senior Secured Notes;
9.00%; 12/1/14 $1,500,000(a)$ 1,473,750
Miscellaneous Plastics Products,
NEC (1.46%)
Congoleum Corp. Senior Notes;
9.00%; 2/1/01 700,000 717,500
Miscellaneous Shopping Goods
Stores (1.86%)
Zale Corp. Senior Notes;
8.50%; 10/1/07 900,000 913,500
Motion Picture Production
& Services (1.71%)
Viacom, Inc. Guaranteed Senior
Notes; 7.75%; 6/1/05 800,000 843,177
Newspapers (1.69%)
Hollinger International Publishing, Inc.
Senior Subordinated Notes;
9.25%; 3/15/07 800,000 834,000
Nursing & Personal Care Facilities (3.18%)
Integrated Health Services, Inc. Senior
Subordinated Notes; 9.25%; 1/15/08 800,000 822,000
Mariner Health Group, Inc. Senior
Subordinated Notes; 9.50%; 4/1/06 700,000 740,250
1,562,250
Oil & Gas Field Services (2.34%)
Dawson Production Services
Senior Notes; 9.38%; 2/1/07 700,000 710,500
Polysindo International Finance Co.
B.V. Guaranteed Secured Notes;
9.38%; 7/30/07 800,000 440,000
-----------
1,150,500
Paper Mills (1.36%)
Indah Kiat Finance Mauritius Limited
Guaranteed Senior Notes;
10.00%; 7/1/07 800,000 668,000
Personal Credit Institutions (1.50%)
MacSaver Financial Services, Inc.;
7.60%; 8/1/07 800,000 738,598
Petroleum Refining (1.51%)
Crown Central Petroleum Corp.
Senior Notes; 10.88%; 2/1/05 700,000 742,000
Pulp Mills (1.61%)
Pen-Tab Industries, Inc. Senior
Subordinated Notes; 10.88%; 2/1/07 800,000 794,000
Radio & Television Broadcasting (1.83%)
Antenna TV S.A. Senior Notes;
9.00%; 8/1/07 900,000 900,000
Retail Stores, NEC (1.76%)
Cole National Group, Inc.
Senior Subordinated Notes;
9.88%; 12/31/06 800,000 864,000
Search & Navigation Equipment (3.25%)
AMRESCO, Inc. Senior Subordinated
Notes; 10.00%; 3/15/04 $ 700,000 $ 725,375
Tracor, Inc. Senior Subordinated Notes;
8.50%; 3/1/07 800,000 872,000
-----------
1,597,375
Telephone Communication (12.56%)
Comcast Cellular Holdings Senior Notes;
9.50%; 5/1/07 1,500,000 1,561,875
Lenfest Communications Senior Notes;
8.38%; 11/1/05 800,000 828,000
NEXTLINK Communications, Inc.
Senior Notes; 9.00%; 3/15/08 800,000 816,000
Paging Network, Inc. Senior Debentures;
8.88%; 2/1/06 700,000 696,500
Rogers Cablesystems Ltd. Senior
Secured Second Priority Notes;
9.63%; 8/1/02 750,000 795,000
Rogers Cantel, Inc. Senior Secured
Debentures; 9.75%; 6/1/16 700,000 749,000
Vanguard Cellular Systems, Inc. Senior
Debentures; 9.38%; 4/15/06 700,000 735,000
-----------
6,181,375
-----------
Total Bonds 47,954,375
Commercial Paper (0.01%)
Personal Credit Institutions (0.01%)
Investment in Joint Trade Account;
Associates Corp.;
5.53%; 5/1/98 6,627 6,627
-----------
Total Portfolio Investments (97.47%) 47,961,002
Cash, receivables and other assets, net of
liabilities (2.53%) 1,243,676
-----------
Total Net Assets (100.00%) $49,204,678
===========
(a) Restricted security - See Note 4 to the financial statements.
<PAGE>
PRINCIPAL LIMITED TERM BOND FUND, INC.
- --------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------
Bonds (72.18%)
Apartment REITs (1.12%)
United Dominion Realty Trust
Notes; 7.25%; 4/1/99 $ 300,000 $ 300,588
Business Credit Institutions (10.86%)
CIT Group Holdings
Senior Medium-Term Notes;
6.38%; 10/1/02 1,000,000 1,005,772
Ford Motor Credit Co. Notes;
7.50%; 1/15/03 1,000,000 1,050,989
Orix Credit Alliance, Inc.
Medium-Term Notes;
6.46%; 5/17/99 $ 850,000(a)$ 852,791
-----------
2,909,552
Combination Utility Services (4.08%)
Consolidated Edison Co. Debentures,
Series 93-B; 6.50%; 2/1/01 824,000 834,112
Pacificorp First Mortgage Medium-Term
Notes; 9.50%; 5/20/99 250,000 259,328
-----------
1,093,440
Consumer Products (6.02%)
B.A.T. Capital Corp. Medium-Term
Notes; 5.32%; 10/28/98 600,000(a) 598,267
Philip Morris Cos. Notes;
7.13%; 12/1/99 1,000,000 1,014,119
-----------
1,612,386
Department Stores (6.07%)
J. C. Penney Co., Inc. Notes;
9.05%; 3/1/01 1,000,000 1,071,071
Sears Roebuck Acceptance Corp.
Medium-Term Notes, Series II;
6.69%; 8/13/01 450,000 455,689
Sears Roebuck Co. Medium-Term
Notes; 6.46%; 5/12/00 100,000 100,765
-----------
1,627,525
Finance Services (3.86%)
Lehman Brothers, Inc. Senior
Subordinated Notes;
7.25%; 4/15/03 1,000,000 1,034,117
General Industrial Machinery (3.89%)
Timken Co. Medium-Term Notes;
7.30%; 8/13/02 1,000,000 1,041,102
Mortgage Bankers & Brokers (3.20%)
Countrywide Funding Corp.
Medium-Term Notes;
6.05%; 3/1/01 860,000 856,398
Motor Vehicles & Equipment (2.02%)
General Motors Corp. Medium-Term
Notes; 9.20%; 7/2/01 500,000 542,530
Paper Mills (3.81%)
International Paper Co. Notes;
7.00%; 6/1/01 1,000,000 1,021,871
Paperboard Mills (3.02%)
Temple-Inland, Inc. Notes;
9.00%; 5/1/01 750,000 810,422
Personal Credit Institutions (11.71%)
American General Finance Corp.
Medium-Term Notes, Series D;
7.46%; 3/28/00 350,000 358,199
Notes; 7.25%; 4/15/00 701,000 716,278
Associates Corp. of North America
Notes; 5.75%; 10/15/03 540,000 528,076
Chrysler Financial Corp.
Medium-Term Notes;
8.45%; 1/28/00 500,000 519,452
General Motors Acceptance Corp.
Notes; 6.63%; 10/1/02 1,000,000 1,014,806
-----------
3,136,811
Plumbing & Heating,
Except Electric (3.84%)
Masco Corp. Notes; 6.13%; 9/15/03 $1,035,000 $ 1,029,658
Security Brokers & Dealers (2.65%)
Merrill Lynch & Co., Inc. Notes;
6.55%; 8/1/04 700,000 710,981
Telephone Communication (6.03%)
Nynex Capital Funding Medium-Term
Notes, Series A; 9.40%; 6/1/00 670,000 714,297
U.S. West Capital Funding, Inc.
Medium-Term Notes;
6.13%; 11/30/99 900,000 901,244
-----------
1,615,541
-----------
Total Bonds 19,342,922
- --------------------------------------------------------------------------
Description of Issue Principal
- -----------------------------------
Type Rate Maturity Amount Value
- --------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation (FHLMC)
Certificates (13.02%)
FHLMC 7.00% 3/1/28 $ 999,126 $ 1,012,064
FHLMC 7.25 12/1/07 581,873 589,775
FHLMC 8.00 12/1/11 297,608 309,298
FHLMC 8.25 1/1/12 95,439 97,753
FHLMC Gold 8.00 10/1/22 243,635 253,680
FHLMC Gold 8.50 1/1/00 478,505 488,290
FHLMC Gold 8.50 3/1/00 140,529 143,403
FHLMC Gold 8.50 4/1/00 146,812 149,814
FHLMC Gold 9.00 9/1/09 420,141 444,925
-----------
Total FHLMC Certificates 3,489,002
Federal National Mortgage Association (FNMA)
Certificates (6.00%)
FNMA 8.00 10/1/06 132,446 135,767
FNMA 8.00 5/1/27 420,609 435,705
FNMA 8.50 5/1/22 478,441 507,171
FNMA 9.00 2/1/25 494,925 529,579
-----------
Total FNMA Certificates 1,608,222
Government National Mortgage Association (GNMA)
Certificates (1.35%)
GNMA II 8.00 1/20/16 266,652 279,124
GNMA I 9.00 7/15/17 77,042 83,429
-----------
Total GNMA Certificates 362,553
Asset-Backed Securities (5.59%)
Personal Credit Institutions (1.75%)
Union Acceptance Corp. 1996-B Auto
Trust Pass-Through Certificates,
Class A; 6.45%; 7/8/03 $ 465,823 $ 467,989
Mortgage Pass Thru Securities (3.84%)
J.P. Morgan Commercial Mortgage
Finance Corp. Mortgage
Pass-Through Series 97-C5,
Class A-2; 7.06%; 9/15/29 1,000,000 1,028,940
-----------
Total Asset-Backed Securities 1,496,929
Commercial Paper (0.29%)
Personal Credit Institutions (0.29%)
Investment in Joint Trade Account;
Associates Corp.; 5.53%; 5/1/98 77,422 77,422
-----------
Total Portfolio Investments (98.43%) 26,377,051
Cash, receivables and other assets, net of
liabilities (1.57%) 419,680
-----------
Total Net Assets (100.00%) $26,796,731
===========
(a) Restricted security - See Note 4 to the financial statements.
<PAGE>
PRINCIPAL TAX-EXEMPT BOND FUND, INC.
- --------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------
Long-Term Tax-Exempt Bonds (96.91%)
Alabama (2.04%)
Courtland, Alabama IDB IDR Series A
Bonds for Champion International;
7.20%; 12/1/13 $3,815,000 $ 4,225,112
Arizona (2.05%)
Navajo County, Arizona Pollution
Control Corp. Rev. Ref. Bonds,
Arizona Public Service Co.,
Series 1993A; 5.88%; 8/15/28 4,100,000 4,248,625
Arkansas (2.41%)
City of Blytheville, Arkansas Solid Waste
Recycling & Sewer Treatment Rev.
Bonds, Series 1992, Nucor Corp.
Project; 6.90%; 12/1/21 4,610,000 4,978,800
California (4.62%)
ABAG Finance Authority for Nonprofit
Corp., Cert. of Participation,
Stanford University Hospital;
5.00%; 11/1/04 750,000 767,812
5.50%; 11/1/13 1,250,000 1,273,438
5.25%; 11/1/20 1,750,000 1,719,375
California Pollution Control Funding
Authority Pollution Control Rev. Ref.
Bonds for San Diego Gas & Electric,
Series A; 5.90%; 6/1/14 $1,000,000 $ 1,083,750
California Pollution Control Funding
Authority Rev. Bonds, Atlantic
Richfield Co. Project; 5.00%; 4/1/08 2,500,000 2,575,000
City of Upland, California San Antonio
Comm. Hospital Cert. of Participation;
5.25%; 1/1/04 2,080,000 2,145,000
------------
9,564,375
Colorado (2.65%)
City & County of Denver, Colorado,
Airport System Rev. Bonds,
Series 1991D; 7.75%; 11/15/13 3,185,000 3,977,269
Colorado Health Fac. Authority Rev.
Bonds for Sisters of Charity
Healthcare Systems, Series 1994;
5.25%; 5/15/14 1,500,000 1,511,250
------------
5,488,519
Florida (1.15%)
Nassau County, Florida Pollution
Control Rev. Ref. Bonds; ITT
Rayonier, Inc. Project;
6.10%; 6/1/05 1,000,000 1,061,250
7.65%; 6/1/06 1,265,000 1,321,558
------------
2,382,808
Georgia (1.79%)
Fulco, Georgia, Hospital Authority Rev.
Anticipation Cert. for St. Joseph's
Hospital of Atlanta, Inc.;
5.50%; 10/1/14 2,000,000 2,137,500
Municipal Electric Authority of Georgia
Power Rev. Bonds, Series R;
7.30%; 1/1/09 1,505,000 1,560,128
------------
3,697,628
Illinois (14.41%)
Chicago, Illinois Midway Airport Rev.
Bonds, Series A, MBIA Insured;
5.50%; 1/1/11 1,500,000 1,556,250
5.50%; 1/1/13 500,000 517,500
Chicago, Illinois O'Hare International
Airport Special Fac. Rev. Bonds for
American Airlines, Inc. Project-A;
7.88%; 11/1/25 6,010,000 6,520,850
Chicago, Illinois O'Hare International
Airport Special Fac. Rev. Bonds for
Lufthansa German Airlines Project;
7.13%; 5/1/18 1,000,000 1,080,000
City of Chicago, Illinois Adj. Rate Gas
Supply Rev. Bonds, Series 1985A,
Peoples Gas Light & Coke Project;
6.88%; 3/1/15 2,800,000 3,062,500
Illinois Health Fac. Authority Ref. Rev.
Bonds for OSF Healthcare System;
5.75%; 11/15/07 1,000,000 1,048,750
6.00%; 11/15/10 500,000 532,500
6.00%; 11/15/13 500,000 531,250
Illinois Health Fac. Authority Rev.
Bonds for Sarah Bush Lincoln
Health Center;
Series 1992; 7.25%; 5/15/02 $2,950,000 $ 3,307,687
Series 1996B; 6.00%; 2/15/11 1,000,000 1,065,000
Series 1996B; 5.50%; 2/15/16 1,000,000 1,000,000
Illinois Health Fac. Authority Rev.
Bonds for South Suburban Hospital,
Series 1992;
7.00%; 2/15/02 725,000 801,125
7.00%; 2/15/09 305,000 352,275
7.00%; 2/15/18 720,000 861,300
Illinois Health Fac. Authority Rev. Bonds,
Northwestern Memorial Hospital,
Series 1994A;
5.60%; 8/15/06 500,000 531,250
5.75%; 8/15/08 615,000 655,744
5.80%; 8/15/09 840,000 892,500
6.10%; 8/15/14 1,000,000 1,057,500
Illinois Health Fac. Authority Rev. Ref.
Bonds for Advocate Healthcare,
Series A; 6.75%; 4/15/12 2,000,000 2,268,450
Regional Transportation Authority,
Illinois General Obligation Bonds,
Series 1994A; 6.25%; 6/1/15 2,000,000 2,175,000
------------
29,817,431
Indiana (7.76%)
City of Mount Vernon, Indiana,
Pollution Control Rev. Bonds for
Southern Indiana Gas & Electric
Co. Project; 7.25%; 3/1/14 700,000 754,250
City of Petersburg, Indiana, Pollution
Control Rev. Bonds, for Indianapolis
Power & Light Co. Project,
Series 1993A; 6.10%; 1/1/16 4,000,000 4,240,000
Indiana Health Fac. Financing Authority
Hospital Rev. Bonds, Clarian Health
Partners, Inc.; 5.50%; 2/15/09 2,520,000 2,586,150
Indiana Health Fac. Financing
Authority Hospital Rev. Ref. Bonds,
Schneck Memorial Hospital,
Series 1998;
4.70%; 2/15/06 500,000 492,500
5.13%; 2/15/l7 500,000 477,500
Indiana Health Fac. Financing
Authority Hospital Rev. Ref. Bonds,
Welborn Memorial Baptist Hospital,
Series 1993; 5.63%; 7/1/23 1,860,000 1,860,000
Lawrenceburg, Indiana Pollution
Control Rev. Ref. Bonds, Indiana
Michigan Power Co. Project,
Series D; 7.00%; 4/1/15 1,000,000 1,077,500
Series E; 5.90%; 11/1/19 3,220,000 3,304,525
Warrick County, Indiana
Environmental Improvement Rev.
Bonds, Southern Indiana Gas &
Electric, Series 1993B;
6.00%; 5/1/23 1,190,000 1,253,963
------------
16,046,388
Iowa (1.62%)
City of Muscatine, Iowa, Electric Rev.
Ref. Bonds, Series 1986;
6.00%; 1/1/06 $ 150,000 $ 150,192
5.00%; 1/1/07 1,575,000 1,543,500
Eddyville, Iowa, IDR Ref. Bonds,
Cargill, Inc. Project; 5.63%; 12/1/13 1,000,000(a) 1,035,000
Iowa Finance Authority Hospital Fac.
Ref. Rev. Bonds for Jennie
Edmundson Memorial Hospital;
7.40%; 11/1/06 550,000 615,313
------------
3,344,005
Kentucky (1.91%)
City of Ashland, Kentucky, Sewage
and Solid Waste Rev. Bonds for
Ashland, Inc. Project, Series 1995;
7.13%; 2/1/22 750,000 836,250
City of Ashland, Kentucky, Solid
Waste Rev. Bonds for Ashland
Oil, Inc. Project, Series 1991;
7.20%; 10/1/20 1,000,000 1,080,000
County of Louden, Tennessee, Industrial
Development Solid Waste;
6.20%; 2/1/23 1,950,000 2,049,938
------------
3,966,188
Louisiana (1.02%)
St. Charles Parish, Louisiana Pollution
Control Rev. Bonds for Louisiana
Power & Light Co. Project;
7.50%; 6/1/21 1,950,000 2,113,313
Maine (1.01%)
Skowhegan, Maine, Pollution Control
Rev. Ref. Bonds for Scott Paper
Co. Project, Series 1993;
5.90%; 11/1/13 2,000,000 2,095,000
Michigan (3.10%)
Detroit Michigan LOC Dev. Financing
Authority Ref. Bonds, Senior Series A
Chrysler Corp; 5.20%; 5/1/10 1,700,000 1,725,500
Michigan State Hospital Financing
Authority Hospital Rev. Bonds for
Detroit Medical Center, Series 1993B;
5.75%; 8/15/13 600,000 621,000
5.50%; 8/15/23 2,000,000 2,007,500
Michigan State Hospital Financing
Authority Rev. Ref. Bonds,
Daughters of Charity Hospital;
5.25%; 11/1/15 1,000,000 1,001,250
Michigan State Hospital Financing
Authority Rev. Ref. Bonds,
Daughters of Charity Natl. Health
System; 5.50%; 11/1/05 1,000,000 1,057,500
------------
6,412,750
Minnesota (0.75%)
City of Bass Brook, Minnesota Pollution
Control Rev. Ref. Bonds for
Minnesota Power & Light Project;
6.00%; 7/1/22 $1,500,000 $ 1,552,500
Mississippi (0.24%)
Grenada County, Mississippi Rev. Ref.
Bonds, Georgia Pacific Corp. Project;
5.45%; 9/1/14 500,000 498,750
Missouri (1.13%)
Missouri State Health & Educational
Fac. Authority Health Fac. Rev.
Bonds, BJC Health System,
Series 1994A; 6.75%; 5/15/12 2,000,000 2,345,000
Montana (1.01%)
Forsyth, Montana Pollution Control
Rev. Ref. Bonds, Montana Power
Co., Colstrip Project, Series 1993A;
6.13%; 5/1/23 2,000,000 2,082,500
Nebraska (2.26%)
Dawson County Nebraska Sanitary &
Improvement General Obligation
Ref. Bonds; 5.55%; 2/1/17 1,000,000 1,015,000
Nebraska Public Power Dist. Power
Supply System Rev. Bonds;
5.30%; 1/1/02 1,000,000 1,032,500
5.40%; 1/1/03 1,500,000 1,561,875
5.50%; 1/1/04 1,000,000 1,050,000
------------
4,659,375
Nevada (1.92%)
Clark County, Nevada, IDR Ref.
Bonds, Nevada Power Co. Project,
Series 1992C; 7.20%; 10/1/22 3,600,000 3,964,500
New Mexico (1.13%)
City of Lordsburg, New Mexico
Pollution Control Rev. Bonds
for Phelps Dodge Corp. Project;
6.50%; 4/1/13 2,150,000 2,332,750
North Carolina (4.48%)
Martin County, North Carolina
Industrial Fac. & Pollution Control
Finance Authority Solid Waste
Rev. Bonds, Weyerhaeuser;
5.65%; 12/1/23 1,500,000 1,516,875
6.80%; 5/1/24 2,000,000 2,217,500
North Carolina Medical Care Hospital
Rev. Bonds for Rex Hospital Project;
6.13%; 6/1/10 1,700,000 1,855,125
5.00%; 6/1/23 2,170,000 2,080,488
Wake County, North Carolina,
Industrial Fac. & Pollution Control
Finance Authority Rev. Bonds,
Carolina Power & Light Co.;
6.90%; 4/1/09 1,500,000 1,595,625
------------
9,265,613
North Dakota (1.01%)
Mercer County, North Dakota,
Pollution Control Rev. Bonds,
Ottertail Power Co. Project,
Series 1991; 6.90%; 2/1/19 $1,950,000 $ 2,093,812
Ohio (4.96%)
Cuyahoga County, Ohio, Hospital
Rev. Bonds for Meridia Health
Systems, Series 1991;
7.25%; 8/15/19 1,445,000 1,567,825
Lorain County, Ohio Hospital Ref.
Bonds, Humility Mary Health
Care, Series A; 5.90%; 12/15/08 3,270,000 3,507,075
Ohio Air Quality Dev. Rev. Bonds,
Columbus Southern Power Co.
Project, Series 1985B;
6.25%; 12/1/20 4,900,000 5,163,375
------------
10,238,275
Oklahoma (1.18%)
Tulsa Industrial Authority Rev. Bonds,
St. John Medical Center Project,
Series 1994;
6.25%; 2/15/14 1,280,000 1,372,800
6.25%; 2/15/17 1,000,000 1,070,000
------------
2,442,800
Rhode Island (1.49%)
Rhode Island State Industrial Facilities
Corp. Marine Term Rev. Bonds,
Mobile Oil Refining;
6.00%; 11/1/14 2,900,000 3,074,000
South Carolina (4.84%)
Darlington County, South Carolina
Pollution Control Rev. Bonds for
Carolina Power & Light;
6.60%; 11/1/10 1,000,000 1,095,000
Greenville Hospital System, South
Carolina Hospital Fac. Rev. Ref. Bonds;
6.00%; 5/1/20 230,000 251,275
Series C; 5.50%; 5/1/16 2,500,000 2,543,750
Oconee County, South Carolina
Pollution Control Rev. Ref. Bonds,
Duke Energy Corp. Project, Series
1993; 5.80%; 4/1/14 2,000,000 2,107,500
York County, South Carolina Exempt
Fac. Industrial Rev. Bonds for
Hoechst Celanese Project,
Series 1994; 5.70%; 1/1/24 2,000,000 2,035,000
York County, South Carolina Pollution
Control Rev. Bonds, Bowater, Inc.
Project; 7.63%; 3/1/06 1,700,000 1,978,375
------------
10,010,900
South Dakota (0.52%)
Pennington County, South Dakota
Pollution Control Rev. Ref. Bonds
for Black Hills Power & Light Co.
Project; 6.70%; 6/1/10 1,000,000 1,082,500
Texas (8.18%)
Brazos River Authority, Texas,
Pollution Control Rev. Bonds for
Houston Lighting & Power;
7.75%; 10/1/15 $ 855,000 $ 884,164
Cass County Texas Industrial Development
Corp. Pollution Control Rev. Bonds
for International Paper Co. - Series B
5.35%; 4/1/12 3,750,000 3,843,750
Guadalupe-Blanco River Authority,
Texas, Industrial Dev. Corp.
Pollution Control Rev. E I Du Pont
1982 Series A; 6.35%; 7/1/22 2,500,000 2,709,375
IDC Port of Corpus Christi Rev. Ref.
Bonds, Port Fac. Rev. Bonds,
Valero Energy Corp.; 5.13%; 4/1/09 1,000,000 988,750
Matagorda County, Texas,
Navigational District No. 1 Pollution
Control Rev. Bonds for Central
Power & Light Co.;
7.50%; 12/15/14 2,585,000 2,778,875
6.00%; 7/1/28 1,000,000 1,041,250
Milam County, Texas Industrial Dev.
Corp. Pollution Control Rev. Ref.
Bonds, Alcoa Project;
5.65%; 12/1/12 2,000,000 2,107,500
Red River Authority, Texas Pollution
Control Rev. Bonds, Hoechst
Celanese Corp. Project;
5.20%; 5/1/07 2,425,000 2,479,563
Tarrant County, Texas, Health Fac.
Dev. Corp., Harris Methodist Health
System Rev. Bonds; 5.90%; 9/1/06 1,000,000 1,085,000
------------
17,918,227
Utah (0.92%)
Intermountain Power Agency, Utah
Power Supply, Rev. Ref. Bonds,
Series 1996D; 5.00%; 7/1/21 2,000,000 1,897,500
Virginia (1.65%)
Albemarle County, Virginia IDA
Hospital Rev. Ref. Bonds, Martha
Jefferson Hospital; 5.50%; 10/1/15 1,900,000 1,933,250
Chesapeake, Virginia IDA Rev. Ref.
Bonds for Cargill, Inc. Project;
5.88%; 3/1/13 1,410,000 1,496,362
------------
3,429,612
Washington (2.90%)
City of Seattle, Washington Municipal
Light and Power Rev. Bonds;
1993; 5.10%; 11/1/05 1,950,000 2,032,875
1994; 6.63%; 7/1/16 1,000,000 1,125,000
Washington Health Care Fac.
Authority Rev. Bonds; Series 1989,
Sisters of Providence;
7.88%; 10/1/99 1,735,000 1,852,112
------------
5,009,987
West Virginia (5.95%)
Marshall County, West Virginia,
Pollution Control Rev. Bonds
for Ohio Power Co. Project;
Series C; 6.85%; 6/1/22 $1,200,000 $ 1,305,000
Series D; 5.90%; 4/1/22 4,500,000 4,691,250
Pleasants County, West Virgina
Pollution Control Rev. Bonds
for Potomac Edison Co.;
6.15%; 5/1/15 2,000,000 2,145,000
Putnam County, West Virginia,
Pollution Control Rev. Bonds for
Appalachian Power Co. Project,
Series C; 6.60%; 7/1/19 3,875,000 4,155,937
------------
12,297,187
Wisconsin (2.85%)
Kaukauna, Wisconsin Pollution
Control Rev. Ref. Bonds for Intl.
Paper Co. Project, Series A;
5.40%; 5/1/04 3,610,000 3,758,912
Wisconsin Health & Educational
Fac. Authority Rev. Bonds;
Series 1995; Franciscan Skemp
Medical Center, Inc.;
5.88%; 11/15/10 1,000,000 1,053,750
6.13%; 11/15/15 1,000,000 1,071,250
------------
5,883,912
------------
Total Long-Term Municipal Bonds 200,460,642
Short-Term Tax-Exempt Bonds (1.07%)
Pennsylvania (0.10%)
Delaware County, Pennsylvania, Fac. Rev.,
Tax and Rev. Anticipation Notes,
Guaranteed by United Parcel Service
Series 1985; 4.15%; 5/1/98*; 12/1/15 $ 200,000 $ 200,000
Texas (0.97%)
Grapevine, Texas, Industrial Dev. Corp.
American Airlines, LOC Morgan
Guaranty, Series 1984 B1;
4.25%; 5/1/98*; 12/1/24 2,000,000 2,000,000
------------
Total Short-Term Tax-Exempt Bonds 2,200,000
------------
Total Portfolio Investments (97.98%) 202,660,642
Cash, receivables and other assets, net of
liabilities (2.02%) 4,180,249
------------
Total Net Assets (100.00%) $206,840,891
============
(a) Restricted security - See Note 4 to the financial statements.
* Demand Date
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(unaudited)
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
PRINCIPAL BOND FUND, INC.(a)
Class A shares 1998* 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $11.44 $11.17 $11.42 $10.27 $11.75 $10.97
Income from Investment Operations:
Net Investment Income(b)............................ .36 .75 .76 .78 .78 .81
Net Realized and Unrealized Gain (Loss) on Investments .05 .33 (.25) 1.16 (1.47) .79
------ ------ ------ ------ ------ ------
Total from Investment Operations .41 1.08 .51 1.94 (.69) 1.60
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.36) (.81) (.76) (.78) (.78) (.81)
Distributions from Capital Gains.................... - - - (.01) (.01) (.01)
------ ------ ------ ------ ------ ------
Total Dividends and Distributions (.36) (.81) (.76) (.79) (.79) (.82)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period......................... $11.49 $11.44 $11.17 $11.42 $10.27 $11.75
====== ====== ====== ====== ====== ======
Total Return(c)........................................ 3.60%(d) 10.15% 4.74% 19.73% (6.01)% 15.22%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $134,476 $126,427 $113,437 $106,962 $88,801 $85,015
Ratio of Expenses to Average Net Assets(b).......... .94%(e) .95% .95% .94% .95% .92%
Ratio of Net Investment Income to Average Net Assets 6.32%(e) 6.70% 6.85% 7.26% 7.27% 7.19%
Portfolio Turnover Rate............................. 11.3%(e) 12.8% 3.4% 5.1% 8.9% 9.3%
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL BOND FUND, INC.(a)
Class B shares 1998* 1997 1996 1995(f)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $11.42 $11.15 $11.41 $10.19
Income from Investment Operations:
Net Investment Income(b)............................ .32 .67 .67 .63
Net Realized and Unrealized Gain (Loss) on Investments .05 .31 (.25) 1.19
------ ------ ------ ------
Total from Investment Operations .37 .98 .42 1.82
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.31) (.71) (.68) (.60)
Distributions from Capital Gains.................... - - - -
------ ------ ------ ------
Total Dividends and Distributions (.31) (.71) (.68) (.60)
------ ------ ------ ------
Net Asset Value, End of Period......................... $11.48 $11.42 $11.15 $11.41
====== ====== ====== ======
Total Return(c)........................................ 3.29%(d) 9.20% 3.91% 17.98%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $17,694 $13,403 $7,976 $2,708
Ratio of Expenses to Average Net Assets(b).......... 1.63%(e) 1.70% 1.69% 1.59%(e)
Ratio of Net Investment Income to Average Net Assets 5.63%(e) 5.92% 6.14% 6.30%(e)
Portfolio Turnover Rate............................. 11.3%(e) 12.8% 3.4% 5.1%(e)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL BOND FUND, INC.(a)
Class R shares 1998* 1997 1996(g)
---- ---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................... $11.43 $11.16 $11.27
Income from Investment Operations:
Net Investment Income(b)............................ .32 .71 .51
Net Realized and Unrealized Gain (Loss) on Investments .06 .30 (.13)
------ ------ ------
Total from Investment Operations .38 1.01 .38
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.31) (.74) (.49)
Distributions from Capital Gains.................... - - -
------ ------ ------
Total Dividends and Distributions (.31) (.74) (.49)
------ ------ ------
Net Asset Value, End of Period......................... $11.50 $11.43 $11.16
====== ====== ======
Total Return(c)........................................ 3.38%(d) 9.49% 3.75%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $9,425 $5,976 $525
Ratio of Expenses to Average Net Assets(b).......... 1.45%(e) 1.45% 1.28%(e)
Ratio of Net Investment Income to Average Net Assets 5.81%(e) 6.11% 6.51%(e)
Portfolio Turnover Rate............................. 11.3%(e) 12.8% 3.4%(e)
<FN>
* Six Months Ended April 30, 1998.
</FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
PRINCIPAL GOVERNMENT SECURITIES INCOME FUND, INC.(a)
Class A shares 1998* 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $11.51 $11.26 $11.31 $10.28 $11.79 $11.44
Income from Investment Operations:
Net Investment Income............................... .35 .70 .70 .71 .69 .74
Net Realized and Unrealized Gain (Loss) on Investments .01 .29 (.05) 1.02 (1.40) .55
------ ------ ------ ------ ------ ------
Total from Investment Operations .36 .99 .65 1.73 (.71) 1.29
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.35) (.74) (.70) (.70) (.68) (.74)
Distributions from Capital Gains.................... - - - - (.12) (.20)
------ ------ ------ ------ ------ ------
Total Dividends and Distributions (.35) (.74) (.70) (.70) (.80) (.94)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period......................... $11.52 $11.51 $11.26 $11.31 $10.28 $11.79
====== ====== ====== ====== ====== ======
Total Return(c)........................................ 3.18%(d) 9.23% 6.06% 17.46% (6.26)% 11.80%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $247,722 $249,832 $259,029 $261,128 $249,438 $236,718
Ratio of Expenses to Average Net Assets............. .86%(e) .84% .81% .87% .95% .93%
Ratio of Net Investment Income to Average Net Assets 6.13%(e) 6.19% 6.31% 6.57% 6.35% 6.38%
Portfolio Turnover Rate............................. 16.3%(e) 10.8% 25.9% 10.1% 24.8% 52.6%
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL GOVERNMENT SECURITIES INCOME FUND, INC.(a)
Class B shares 1998* 1997 1996 1995(f)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $11.50 $11.23 $11.29 $10.20
Income from Investment Operations:
Net Investment Income............................... .31 .64 .61 .56
Net Realized and Unrealized Gain (Loss) on Investments .01 .29 (.05) 1.07
------ ------ ------ ------
Total from Investment Operations .32 .93 .56 1.63
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.32) (.66) (.62) (.54)
Distributions from Capital Gains.................... - - - -
------ ------ ------ ------
Total Dividends and Distributions (.32) (.66) (.62) (.54)
------ ------ ------ ------
Net Asset Value, End of Period......................... $11.50 $11.50 $11.23 $11.29
====== ====== ====== ======
Total Return(c)........................................ 2.80%(d) 8.65% 5.17% 16.07%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $19,259 $15,431 $11,586 $4,699
Ratio of Expenses to Average Net Assets............. 1.61%(e) 1.39% 1.60% 1.53%(e)
Ratio of Net Investment Income to Average Net Assets 5.38%(e) 5.63% 5.53% 5.68%(e)
Portfolio Turnover Rate............................. 16.3%(e) 10.8% 25.9% 10.1%(e)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL GOVERNMENT SECURITIES INCOME FUND, INC.(a)
Class R shares 1998* 1997 1996(g)
---- ---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................... $11.42 $11.21 $11.27
Income from Investment Operations:
Net Investment Income............................... .31 .64 .47
Net Realized and Unrealized Gain (Loss) on Investments .02 .24 (.08)
------ ------ ------
Total from Investment Operations .33 .88 .39
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.31) (.67) (.45)
Distributions from Capital Gains.................... - - -
------ ------ ------
Total Dividends and Distributions (.31) (.67) (.45)
------ ------ ------
Net Asset Value, End of Period......................... $11.44 $11.42 $11.21
====== ====== ======
Total Return(c)........................................ 2.88%(d) 8.19% 3.76%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $6,368 $4,152 $481
Ratio of Expenses to Average Net Assets............. 1.58%(e) 1.79% 1.18%(e)
Ratio of Net Investment Income to Average Net Assets 5.42%(e) 5.21% 5.84%(e)
Portfolio Turnover Rate............................. 16.3%(e) 10.8% 25.9%(e)
<FN>
* Six Months Ended April 30, 1998.
</FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (Continued)
(unaudited)
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
PRINCIPAL HIGH YIELD FUND, INC.(a)
Class A shares 1998* 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $8.52 $8.27 $8.06 $7.83 $8.36 $8.15
Income from Investment Operations:
Net Investment Income............................... .33 .67 .68 .68 .63 .71
Net Realized and Unrealized Gain (Loss) on Investments - .31 .23 .20 (.51) .21
----- ----- ----- ----- ----- -----
Total from Investment Operations .33 .98 .91 .88 .12 .92
Less Dividends from Net Investment Income.............. (.34) (.73) (.70) (.65) (.65) (.71)
----- ----- ----- ----- ----- -----
Net Asset Value, End of Period......................... $8.51 $8.52 $8.27 $8.06 $7.83 $8.36
===== ===== ===== ===== ===== =====
Total Return(c)........................................ 3.87%(d) 12.33% 11.88% 11.73% 1.45% 11.66%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $37,589 $38,239 $28,432 $23,396 $19,802 $19,154
Ratio of Expenses to Average Net Assets............. 1.26%(e) 1.22% 1.26% 1.45% 1.46% 1.35%
Ratio of Net Investment Income to Average Net Assets 7.87%(e) 7.99% 8.49% 8.71% 7.82% 8.57%
Portfolio Turnover Rate............................. 56.3%(e) 39.2% 18.8% 40.3% 27.2% 23.4%
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL HIGH YIELD FUND, INC.(a)
Class B shares 1998* 1997 1996 1995(f)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $8.47 $8.22 $8.05 $7.64
Income from Investment Operations:
Net Investment Income............................... .30 .62 .60 .53
Net Realized and Unrealized Gain (Loss) on Investments (.01) .28 .20 .38
----- ----- ----- -----
Total from Investment Operations .29 .90 .80 .91
Less Dividends from Net Investment Income.............. (.30) (.65) (.63) (.50)
----- ----- ----- -----
Net Asset Value, End of Period......................... $8.46 $8.47 $8.22 $8.05
===== ===== ===== =====
Total Return(c)........................................ 3.43%(d) 11.31% 10.46% 12.20%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $8,697 $6,558 $2,113 $633
Ratio of Expenses to Average Net Assets............. 2.07%(e) 2.13% 2.38% 2.10%(e)
Ratio of Net Investment Income to Average Net Assets 7.07%(e) 7.03% 7.39% 7.78%(e)
Portfolio Turnover Rate............................. 56.3%(e) 39.2% 18.8% 40.3%(e)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL HIGH YIELD FUND, INC.(a)
Class R shares 1998* 1997 1996(g)
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................... $8.40 $8.20 $8.21
Income from Investment Operations:
Net Investment Income............................... .30 .62 .46
Net Realized and Unrealized Gain (Loss) on Investments (.01) .26 (.03)
----- ----- -----
Total from Investment Operations .29 .88 .43
Less Dividends from Net Investment Income.............. (.31) (.68) (.44)
----- ----- -----
Net Asset Value, End of Period......................... $8.38 $8.40 $8.20
===== ===== =====
Total Return(c)........................................ 3.43%(d) 11.14% 5.60%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $2,919 $1,961 $124
Ratio of Expenses to Average Net Assets............. 2.10%(e) 2.42% 1.59%(e)
Ratio of Net Investment Income to Average Net Assets 7.04%(e) 6.70% 7.84%(e)
Portfolio Turnover Rate............................. 56.3%(e) 39.2% 18.8%(e)
<FN>
* Six Months Ended April 30, 1998.
</FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
PRINCIPAL LIMITED TERM BOND FUND, INC.(a)
Class R shares 1998* 1997 1996(h)
---- ---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................... $9.88 $9.89 $9.90
Income from Investment Operations:
Net Investment Income(b)............................ .28 .61 .38
Net Realized and Unrealized Gain (Loss) on Investments (.02) .03 (.04)
----- ----- -----
Total from Investment Operations .26 .64 .34
Less Dividends from Net Investment Income.............. (.30) (.65) (.35)
----- ----- -----
Net Asset Value, End of Period......................... $9.84 $9.88 $9.89
===== ===== =====
Total Return(c)........................................ 2.64%(d) 6.75% 3.62%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $24,125 $20,567 $17,249
Ratio of Expenses to Average Net Assets(b).......... .90%(e) .90% .89%(e)
Ratio of Net Investment Income to Average Net Assets 5.89%(e) 6.20% 6.01%(e)
Portfolio Turnover Rate............................. 19.6%(e) 17.4% 16.5%(e)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL LIMITED TERM BOND FUND, INC.(a)
Class R shares 1998* 1997 1996(h)
---- ---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................... $9.90 $9.89 $9.90
Income from Investment Operations:
Net Investment Income(b)............................ .26 .56 .36
Net Realized and Unrealized Gain (Loss) on Investments (.02) .04 (.05)
----- ----- -----
Total from Investment Operations .24 .60 .31
Less Dividends from Net Investment Income.............. (.27) (.59) (.32)
----- ----- -----
Net Asset Value, End of Period......................... $9.87 $9.90 $9.89
===== ===== =====
Total Return(c)........................................ 2.43%(d) 6.31% 3.32%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $928 $625 $112
Ratio of Expenses to Average Net Assets(b).......... 1.25%(e) 1.24% 1.15%(e)
Ratio of Net Investment Income to Average Net Assets 5.53%(e) 5.84% 5.75%(e)
Portfolio Turnover Rate............................. 19.6%(e) 17.4% 16.5%(e)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL LIMITED TERM BOND FUND, INC.(a)
Class R shares 1998* 1997 1996(g)
---- ---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................... $9.85 $9.88 $9.90
Income from Investment Operations:
Net Investment Income(b)............................ .26 .54 .36
Net Realized and Unrealized Gain (Loss) on Investments (.02) .03 (.06)
----- ----- -----
Total from Investment Operations .24 .57 .30
Less Dividends from Net Investment Income.............. .26 (.60) (.32)
----- ----- -----
Net Asset Value, End of Period......................... $9.83 $9.85 $9.88
===== ===== =====
Total Return(c)........................................ 2.49%(d) 6.01% 3.24%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $1,744 $606 $83
Ratio of Expenses to Average Net Assets(b).......... 1.50%(e) 1.48% 1.40%(e)
Ratio of Net Investment Income to Average Net Assets 5.25%(e) 5.60% 5.64%(e)
Portfolio Turnover Rate............................. 19.6%(e) 17.4% 16.5%(e)
<FN>
* Six Months Ended April 30, 1998.
</FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (Continued)
(unaudited)
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
PRINCIPAL TAX-EXEMPT BOND FUND, INC.(a)
Class A shares 1998* 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $12.38 $12.04 $11.98 $10.93 $12.62 $11.62
Income from Investment Operations:
Net Investment Income............................... .30 .63 .64 .65 .64 .66
Net Realized and Unrealized Gain (Loss) on Investments .06 .39 .07 1.05 (1.54) 1.11
------ ------ ------ ------ ------ ------
Total from Investment Operations .36 1.02 .71 1.70 (.90) 1.77
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.31) (.68) (.65) (.65) (.63) (.66)
Distributions from Capital Gains.................... - - - - (.16) (.11)
------ ------ ------ ------ ------ ------
Total Dividends and Distributions (.31) (.68) (.65) (.65) (.79) (.77)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period......................... $12.43 $12.38 $12.04 $11.98 $10.93 $12.62
====== ====== ====== ====== ====== ======
Total Return(c)........................................ 2.90%(d) 8.71% 6.08% 16.03% (7.41)% 15.70%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $196,934 $193,007 $187,180 $179,715 $171,425 $177,480
Ratio of Expenses to Average Net Assets............. .82%(e) .79% .78% .83% .91% .89%
Ratio of Net Investment Income to Average Net Assets 4.93%(e) 5.14% 5.34% 5.67% 5.49% 5.45%
Portfolio Turnover Rate............................. 9.9%(e) 8.9% 9.8% 17.6% 20.6% 20.3%
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL TAX-EXEMPT BOND FUND, INC.(a)
Class B shares 1998* 1997 1996 1995(f)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $12.39 $12.02 $11.96 $10.56
Income from Investment Operations:
Net Investment Income............................... .27 .55 .55 .50
Net Realized and Unrealized Gain (Loss) on Investments .05 .40 .06 1.38
------ ------ ------ ------
Total from Investment Operations .32 .95 .61 1.88
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.27) (.58) (.55) (.48)
Distributions from Capital Gains.................... - - - -
------ ------ ------ ------
Total Dividends and Distributions (.27) (.58) (.55) (.48)
------ ------ ------ ------
Net Asset Value, End of Period......................... $12.44 $12.39 $12.02 $11.96
====== ====== ====== ======
Total Return(c)........................................ 2.57%(d) 8.08% 5.23% 17.97%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $9,907 $7,783 $5,794 $3,486
Ratio of Expenses to Average Net Assets............. 1.41%(e) 1.45% 1.52% 1.51%(e)
Ratio of Net Investment Income to Average Net Assets 4.35%(e) 4.46% 4.59% 4.78%(e)
Portfolio Turnover Rate............................. 9.9%(e) 8.9% 9.8% 17.6%(e)
<FN>
* Six Months Ended April 30, 1998.
</FN>
See accompanying notes.
</TABLE>
<PAGE>
Notes to Financial Highlights
(a) Effective January 1, 1998, the following changes were made to the names of
the Income Funds:
<TABLE>
<CAPTION>
Former Fund Name New Fund Name
---------------- -------------
<S> <C> <C>
Princor Bond Fund, Inc. Principal Bond Fund, Inc.
Princor Government Securites Income Fund, Inc. Principal Government Securities Income Fund, Inc.
Princor High Yield Fund, Inc. Principal High Yield Fund, Inc.
Princor Limited Term Bond Fund, Inc. Principal Limited Term Bond Fund, Inc.
Princor Tax-Exempt Bond Fund, Inc. Principal Tax-Exempt Bond Fund, Inc.
</TABLE>
(b) Without the Manager's voluntary waiver of a portion of certain of its
expenses (see Note 3 to the financial statements) for the periods
indicated, the following funds would have had per share net investment
income and the ratios of expenses to average net assets as shown:
<TABLE>
<CAPTION>
Year Ended
October 31, Per Share Ratio of Expenses
Except Net Investment to Average Net Amount
as Noted Income Assets Waived
------------ -------------- ----------------- ------
<S> <C> <C> <C> <C>
Principal Bond Fund, Inc.:
Class A 1998* $.35 1.00%(e) $ 37,310
1997 .74 .98 41,256
1996 .76 .97 22,536
1995 .77 1.02 86,018
1994 .77 1.09 120,999
1993 .79 1.07 111,162
Class B 1998* .32 1.71(e) 5,634
1997 .66 1.79 8,982
1996 .67 1.79 5,874
1995(c) .62 1.62(e) 300
Class R 1998* .32 1.64(e) 7,344
1997 .69 1.78 10,427
1996(f) .51 1.28(e) 3
Principal Limited Term Bond Fund, Inc.:
Class A 1998* .27 1.14(e) 27,369
1997 .59 1.15 46,271
1996(g) .37 1.16(e) 22,716
Class B 1998* .22 2.33(e) 4,050
1997 .46 3.82 6,528
1996(g) .34 1.94(e) 259
Class R 1998* .24 2.29(e) 4,682
1997 .43 2.95 6,831
1996(f) .35 1.79(e) 60
<FN>
* Six Months ended April 30, 1998.
</FN>
</TABLE>
(c) Total return is calculated without the front-end sales charge or contingent
deferred sales charge.
(d) Total return amounts have not been annualized.
(e) Computed on an annualized basis.
FINANCIAL HIGHLIGHTS (Continued)
Notes to Financial Highlights (Continued)
(f) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995. Certain of the Income Funds' Class B
shares recognized net investment income as follows, for the period from the
initial purchase of Class B shares on December 5, 1994 through December 8,
1994, none of which was distributed to the sole shareholder, Principal
Management Corporation. Additionally, the Income Funds' Class B shares
incurred unrealized losses on investments during the initial interim period
as follows. This represents Class B share activities of each fund prior to
the initial public offering of Class B shares:
<TABLE>
<CAPTION>
Per Share Per Share
Net Investment Unrealized
Income (Loss)
-------------- ----------
<S> <C> <C>
Principal Bond Fund, Inc. $.01 $ --
Principal Government Securities Income Fund, Inc. .01 (.02)
Principal High Yield Fund, Inc. .01 (.03)
Principal Tax-Exempt Bond Fund, Inc. -- (.05)
</TABLE>
(g) Period from February 29, 1996, date Class R shares first offered to
eligible purchasers, through October 31, 1996. The Income Funds' Class R
shares recognized no net investment income for the period from the initial
purchase by Principal Management Corporation of Class R shares on February
27, 1996 through February 28, 1996. Certain of the Income Funds' Class R
shares incurred unrealized losses on investments during the initial interim
period as follows. This represents Class R share activities of each fund
prior to the initial offering of Class R shares:
<TABLE>
<CAPTION>
Per Share
Unrealized (Loss)
-----------------
<S> <C>
Principal Bond Fund, Inc. $(.03)
Principal Government Securities Income Fund, Inc. (.03)
Principal Limited Term Bond Fund, Inc. (.02)
</TABLE>
(h) Period from February 29, 1996, date shares first offered to the public,
through October 31, 1996. With respect to Class A shares, net investment
income, aggregating $.02 per share for the period from the initial purchase
of shares on February 13, 1996 through February 28, 1996, was recognized,
none of which was distributed to its sole shareholder, Principal Mutual
Life Insurance Company during the period. Additionally, Class A shares
incurred unrealized losses on investments of $.12 per share during the
initial interim period. With respect to Class B shares, no net investment
income was recognized for the period from initial purchase of shares on
February 27, 1996 through February 28, 1996. Additionally, Class B shares
incurred unrealized losses on investments of $.02 per share during the
initial interim period. This represents Class A share and Class B share
activities of the fund prior to the initial public offering of both classes
of shares.
<PAGE>
<TABLE>
<CAPTION>
April 30, 1998
STATEMENTS OF ASSETS AND LIABILITIES
(unaudited)
Principal Cash Principal Tax-Exempt
Management Cash Management
MONEY MARKET FUNDS Fund, Inc. Fund, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investment in securities -- at value
(approximates cost) (Note 1)........... $759,141,903 $76,165,541
Cash...................................... 592,046 133,692
Receivables:
Interest .............................. 1,770,255 575,749
Capital Stock sold..................... 2,631,939 90,304
Other assets.............................. 27,261 3,853
------------ -----------
Total Assets 764,163,404 76,969,139
Liabilities
Accrued expenses.......................... 725,742 58,621
Capital Stock reacquired.................. 325,655 --
------------ -----------
Total Liabilities 1,051,397 58,621
------------ -----------
Net Assets Applicable to
Outstanding Shares........................ $763,112,007 $76,910,518
============ ===========
Net Assets Consist of:
Capital Stock............................. $ 7,631,120 $ 769,105
Additional paid-in capital................ 755,480,887 76,141,413
------------ -----------
Total Net Assets $763,112,007 $76,910,518
============ ===========
Capital Stock (par value: $.01 a share):
Shares authorized......................... 2,000,000,000 1,000,000,000
Net Asset Value Per Share:
Class A: Net Assets....................... $756,244,482 $76,910,518
Shares issued and outstanding.... 756,244,482 76,910,518
Net asset value per share........ $1.000 $1.000
====== ======
Class B: Net Assets....................... $1,417,978 N/A
Shares issued and outstanding.... 1,417,978 N/A
Net asset value per share(a)..... $1.000 N/A
====== ======
Class R: Net Assets....................... $5,449,547 N/A
Shares issued and outstanding.... 5,449,547 N/A
Net asset value per share........ $1.000 N/A
====== ======
<FN>
(a) Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
</FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended April 30, 1998
STATEMENTS OF OPERATIONS
(unaudited)
Principal Cash Principal Tax-Exempt
Management Cash Management
MONEY MARKET FUNDS Fund, Inc. Fund, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Investment Income
Interest income......................... $23,224,719 $1,772,811
Expenses:
Management and investment
advisory fees (Note 3)............ 1,465,658 238,376
Distribution and shareholder
servicing fees (Notes 1 and 3).... 8,818 --
Transfer and administrative
services (Notes 1 and 3).......... 731,402 86,202
Registration fees (Note 1)........... 49,339 9,765
Custodian fees....................... 7,133 3,072
Auditing and legal fees.............. 2,316 3,545
Directors' fees...................... 3,576 3,576
Other................................ 28,931 3,683
----------- ----------
Total Gross Expenses 2,297,173 348,219
Less: Management and investment
advisory fees waived.............. 1,343 4,098
----------- ----------
Total Net Expenses 2,295,830 344,121
----------- ----------
Net Investment Income $20,928,889 $1,378,690
=========== ==========
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
(unaudited)
Principal Cash Principal Tax-Exempt
Management Cash Management
MONEY MARKET FUNDS Fund, Inc. Fund, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Six Months
Six Months Year Ended Year
Ended Ended April 30, Ended
April 30, October 31, 1998, October 31,
1998 1997 Except as Noted 1997
<S> <C> <C> <C> <C>
Operations
Net investment income .................. $ 20,928,889 $ 39,246,307 $ 1,378,690 $ 2,962,416
Dividends to Shareholders from Net
Investment Income:
Class A.............................. (20,800,239) (39,078,437) (1,378,590) (2,961,821)
Class B.............................. (21,097) (33,816) (100)(a) (595)
Class R ............................. (107,553) (134,054) N/A N/A
-------------- -------------- ------------ ------------
Total Dividends (20,928,889) (39,246,307) (1,378,690) (2,962,416)
Capital Share Transactions (Note 4)
Shares sold:
Class A.............................. 1,672,811,480 3,393,711,785 159,831,568 372,738,780
Class B.............................. 1,325,133 3,168,600 -- --
Class R ............................. 3,346,289 6,448,386 N/A N/A
Shares issued in reinvestment of dividends:
Class A.............................. 20,610,794 38,790,163 1,355,178 2,914,790
Class B.............................. 20,333 29,671 85(a) 595
Class R ............................. 104,838 129,398 N/A N/A
Shares redeemed:
Class A.............................. (1,773,249,386) (3,291,392,367) (183,215,338) (375,196,233)
Class B.............................. (919,586) (2,725,899) (27,749)(a) --
Class R ............................. (2,297,544) (3,921,162) N/A N/A
-------------- -------------- ------------ ------------
Net Increase (Decrease) in Net Assets
from Capital Share Transactions (78,247,649) 144,238,575 (22,056,256) 457,932
-------------- -------------- ------------ ------------
Total Increase (Decrease) (78,247,649) 144,238,575 (22,056,256) 457,932
Net Assets
Beginning of period..................... 841,359,656 697,121,081 98,966,774 98,508,842
-------------- -------------- ------------ ------------
End of period .......................... $ 763,112,007 $ 841,359,656 $ 76,910,518 $ 98,966,774
============== ============== ============ ============
<FN>
(a) For the period November 1, 1997 through December 29, 1997 (date Class B
operations ceased).
</FN>
See accompanying notes.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(unaudited)
Principal Cash Management Fund, Inc.
Principal Tax-Exempt Cash Management Fund, Inc.
Note 1 -- Significant Accounting Policies
Principal Cash Management Fund, Inc. and Principal Tax-Exempt Cash Management
Fund, Inc. (the "Money Market Funds") are registered under the Investment
Company Act of 1940, as amended, as open-end diversified management investment
companies and operate in the mutual fund industry.
On December 29, 1997, Principal Tax-Exempt Cash Management Fund, Inc. ceased
offering Class B shares. All outstanding Class B shares were redeemed at that
date.
Effective January 1, 1998, the following changes were made to the names of the
Money Market Funds:
Former Fund Name New Fund Name
---------------- -------------
Princor Cash Management Fund, Inc. Principal Cash Management Fund, Inc.
Princor Tax-Exempt Cash Principal Tax-Exempt Cash
Management Fund, Inc. Management Fund, Inc.
A significant portion of the assets in Principal Cash Management Fund, Inc. and
Principal Tax-Exempt Cash Management Fund, Inc. Class A shares has been invested
via Principal Financial Securities, Inc. ("PFS"), an affiliated broker-dealer.
PFS was sold in January, 1998. A portion of the assets of PFS clients was
redeemed in March, 1998. In May, 1998, additional redemptions of approximately
$496 million and $56 million were made from Principal Cash Management Fund, Inc.
and Principal Tax-Exempt Cash Management Fund, Inc. Class A shares,
respectively.
Shares of the Money Market Funds are sold at net asset value; no sales charge
applies to purchases of the Money Market Funds. Principal Cash Management Fund,
Inc. Class B shares are sold without an initial sales charge, but are subject to
a declining deferred sales charge ("CDSC") of up to 4.00% on certain redemptions
redeemed within six years of purchase. Principal Cash Management Fund, Inc.
Class R shares are sold without an initial sales charge and are not subject to a
CDSC. Class B and Class R shares bear a higher ongoing distribution fee than
Class A shares. Class B shares automatically convert into Class A shares based
on relative net asset value (without a sales charge) after seven years. Class R
shares automatically convert into Class A shares based on relative net asset
value (without a sales charge) after four years. All classes of the Principal
Cash Management Fund, Inc. represent interests in the same portfolio of
investments and will vote together as a single class except where otherwise
required by law or as determined by the Fund's Board of Directors. In addition,
the Money Market Funds Boards of Directors declare separate dividends on each
class.
The Money Market Funds allocate daily all income, expenses (other than
class-specific expenses), and realized gains or losses to each class of shares
based upon the relative proportion of the number of settled shares outstanding
of each class. Expenses specifically attributable to a particular class are
charged directly to such class. Class-specific expenses charged to each class
during the six months ended April 30, 1998, except as noted, which are included
in the corresponding captions of the Statement of Operations, were as follows:
<TABLE>
<CAPTION>
Distribution and Transfer and
Shareholder Servicing Fees Administrative Services Registration Fees
-------------------------- ------------------------- -------------------------
Class A Class B Class R Class A Class B Class R Class A Class B Class R
-------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Cash Management Fund, Inc. N/A $1,601 $7,217 $297,300 $403 $1,345 $7,179 $5,040 $6,718
Principal Tax-Exempt Cash Management Fund, Inc. N/A --* N/A 17,657 6* N/A 5,246 933* N/A
<FN>
* For the period November 1, 1997 through December 29, 1997 (date Class B operations ceased).
</FN>
</TABLE>
The Money Market Funds value their securities at amortized cost, which
approximates market. Under the amortized cost method, a security is valued by
applying a constant yield to maturity of the difference between the principal
amount due at maturity and the cost of the security to the fund.
The Money Market Funds record investment transactions generally on the trade
date. The identified cost basis has been used in determining the net realized
gain or loss from investment transactions. Interest income is recognized on an
accrual basis.
The Money Market Funds may, pursuant to an exemptive order issued by the
Securities and Exchange Commission, transfer uninvested funds into a joint
trading acount. The order permits the Money Market Funds' cash balances to be
deposited into a single joint account along with the cash of other registered
investment companies managed by Principal Management Corporation (formerly known
as Princor Management Corporation) (the "Manager"). These balances may be
invested in one or more short-term instruments.
The Money Market Funds declare all net investment income and any realized gains
and losses from investment transactions as dividends daily to shareholders of
record as of that day. Dividends and distributions to shareholders from net
investment income and net realized gain from investments are determined in
accordance with federal income tax regulations, which may differ from generally
accepted accounting principles. Permanent book and tax basis differences are
reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification.
Reclassifications made for the year ended October 31, 1997 were not material.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Money Market Funds' investments are with various issuers in various
industries. The Schedules of Investments contained herein summarize
concentration of credit risk by issuer and industry.
Note 2 -- Federal Income Taxes
No provision for federal income taxes is considered necessary because each fund
is qualified as a "regulated investment company" under the Internal Revenue Code
and intends to distribute each year substantially all of its net investment
income and realized capital gains to shareholders. The cost of investments for
federal income tax reporting purposes is approximately the same as that for
financial reporting purposes.
Note 3 -- Management Agreement and Transactions With Affiliates
The Money Market Funds have agreed to pay investment advisory and management
fees to Principal Management Corporation (wholly owned by Princor Financial
Services Corporation, a subsidiary of Principal Mutual Life Insurance Company)
computed at an annual percentage rate of each fund's average daily net assets.
The annual rate used in this calculation for the Money Market Funds are as
follows:
<TABLE>
<CAPTION>
Net Asset Value of Funds
(in millions)
----------------------------------------------------------------------
First Next Next Next Over
$100 $100 $100 $100 $400
------ ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
Principal Cash Management Fund, Inc. 0.50% 0.45% 0.40% 0.35% 0.30%
Principal Tax-Exempt Cash Management Fund, Inc. 0.50% 0.45% 0.40% 0.35% 0.30%
</TABLE>
The Money Market Funds also reimburse the Manager for transfer and
administrative services, including the cost of accounting, data processing,
supplies and other services rendered.
Note 3 -- Management Agreement and Transactions With Affiliates (Continued)
The Manager voluntarily waives a portion of its fee for the Money Market Funds.
The waivers are in amounts that maintain total operating expenses for each fund
within certain limits. The limits are expressed as a percentage of average net
assets attributable to each class on an annualized basis during the reporting
period. The amounts waived and the operating expense limits which were
maintained at or below those shown, are as follows:
<TABLE>
<CAPTION>
Amount
Waived
------------------------------------------
Six Months
Ended
April 30, 1998, Year Ended Expense
Except as Noted October 31, 1997 Limit
--------------- ---------------- --------
<S> <C> <C> <C>
Principal Cash Management Fund, Inc.(a)
Class A $ -- $ -- 0.75%
Class B 1,343 5,492 1.50
Class R -- 2,441 1.25(b)
Principal Tax-Exempt Cash Management Fund, Inc.
Class A 3,194 27,978 0.75
Class B 904(c) 5,807 1.50(c)
<FN>
(a) For the period November 1, 1997 through February 28, 1998 (date waivers
ceased).
(b) For the period March 1, 1996 through March 2, 1997, the expense limit was 1.50%.
(c) For the period November 1, 1997 through December 29, 1997 (date Class B operations ceased).
</FN>
</TABLE>
The manager intends to continue its voluntary waiver and, if necessary, pay
expenses normally payable by Principal Tax-Exempt Cash Management Fund, Inc.
through October 31, 1998. The manager ceased its waiver of expenses for
Principal Cash Management Fund, Inc. on March 1, 1998.
Princor Financial Services Corporation, as principal underwriter, receives
proceeds of any CDSC on certain Class A and Class B share redemptions. The
charge is based on declining rates, which for Class A shares begin at .75%, and
for Class B shares at 4.00%, of the lesser of the current market value or the
cost of shares being redeemed. The aggregate amount of these charges retained by
Princor Financial Services Corporation for the six months ended April 30, 1998,
was $1,407 and $10,830 for Principal Cash Management Fund, Inc. for Class A and
Class B shares, respectively. There were no charges retained by Princor
Financial Services Corporation for Principal Tax-Exempt Cash Management Fund,
Inc.
No brokerage commissions were paid by the Money Market Funds to affiliated
broker dealers during the periods.
Principal Cash Management Fund, Inc. adopted a distribution plan with respect to
Class B shares that provides for distribution and shareholder servicing fees
computed at an annual rate of up to 1.00% of the average daily net assets
attributable to Class B shares of the fund. The Fund also adopted a distribution
plan with respect to Class R shares that provides for distribution and
shareholder servicing fees computed at an annual rate of up to .75% of the
average daily net assets attributable to Class R shares of the fund.
Distribution and shareholder servicing fees are paid to Princor Financial
Services Corporation; a portion of the fees are subsequently remitted to retail
dealers. Pursuant to the distribution agreements, fees unused by the principal
underwriter at the end of the fiscal year are returned to Principal Cash
Management Fund, Inc. There are no distribution or shareholder servicing fees
with respect to Class A shares.
At April 30, 1998, Principal Mutual Life Insurance Company, subsidiaries of
Principal Mutual Life Insurance Company, benefit plans sponsored on behalf of
Principal Mutual Life Insurance Company and several joint ventures (in each of
which a subsidiary of Principal Mutual Life Insurance Company is a participant)
owned shares of the Money Market Funds as follows:
<TABLE>
<CAPTION>
Class A Class B Class R
---------- ------- -------
<S> <C> <C> <C>
Principal Cash Management Fund, Inc. 17,706,279 29,825 27,489
Principal Tax-Exempt Cash Management Fund, Inc. 1,028,054 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
Note 4 -- Capital Share Transactions
Transactions in Capital Stock by fund were as follows:
Principal Cash Principal Tax-Exempt
Management Cash Management
Fund, Inc. Fund, Inc.
-------------- --------------------
<S> <C> <C>
Six Months Ended, except as Noted April 30, 1998:
Shares sold:
Class A ........................................... 1,672,811,480 159,831,568
Class B ........................................... 1,325,133 --*
Class R ........................................... 3,346,289 N/A
Shares issued in reinvestment of dividends:
Class A ........................................... 20,610,794 1,355,178
Class B ........................................... 20,333 85*
Class R .......................................... 104,838 N/A
Shares redeemed:
Class A ........................................... (1,773,249,386) (183,215,338)
Class B ........................................... (919,586) (27,749)*
Class R ........................................... (2,297,544) N/A
------------- -----------
Net Decrease (78,247,649) (22,056,256)
============= ===========
Year Ended October 31, 1997:
Shares sold:
Class A ........................................... 3,393,711,785 372,738,780
Class B ........................................... 3,168,600 --
Class R ........................................... 6,448,386 N/A
Shares issued in reinvestment of dividends:
Class A ........................................... 38,790,163 2,914,790
Class B ........................................... 29,671 595
Class R .......................................... 129,398 N/A
Shares redeemed:
Class A ........................................... (3,291,392,367) (375,196,233)
Class B ........................................... (2,725,899) (41,568)
Class R ........................................... (3,921,162) N/A
------------- -----------
Net Increase 144,238,575 457,932
============= ===========
<FN>
* For the period November 1, 1997 through December 29, 1997 (date Class B
operation ceased).
</FN>
</TABLE>
Note 5 -- Line of Credit
The Money Market Funds participate with other funds and portfolios managed by
Principal Management Corporation in an unsecured joint line of credit with a
bank, which allows the funds to borrow up to $40,000,000, collectively.
Borrowings are made solely to facilitate the handling of unusual and/or
unanticipated short-term cash requirements. Interest is charged to each fund,
based on its borrowings, at a rate equal to the Fed Funds Rate plus .50%.
Additionally, a commitment fee is charged at the annual rate of .08% on the
average unused portion of the line of credit. The commitment fee is allocated
among the participating funds and portfolios in proportion to their average net
assets during each quarter. At April 30, 1998, the Money Market Funds had no
outstanding borrowings under the line of credit.
Note 6 -- Year 2000 Problem
Like other mutual funds, financial and business organizations and individuals
around the world, the Money Market Funds could be adversely affected if the
computer systems used by the Manager and other service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem." The Manager is
taking steps it believes are reasonably designed to address the Year 2000
Problem with respect to computer systems it uses and to obtain reasonable
assurances that comparable steps are being taken by each fund's other major
service providers. At this time, however there can be no assurance that these
steps will be sufficient to avoid any adverse impact to the funds.
<PAGE>
SCHEDULES OF INVESTMENTS
PRINCIPAL CASH MANAGEMENT FUND, INC.
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Commercial Paper (91.15%)
Asset-Backed Securities (8.31%)
CXC, Inc.;
5.51%; 5/7/98 $ 6,000,000 $ 5,994,490
5.52%; 5/8/98 4,375,000 4,370,304
5.53%; 5/18/98 5,000,000 4,986,943
5.53%; 6/11/98 3,000,000 2,981,106
5.51%; 6/19/98 5,500,000 5,458,752
Ciesco L.P.;
5.50%; 5/12/98 5,000,000 4,991,597
Corporate Asset Funding Co.;
5.53%; 5/7/98 8,250,000 8,242,396
5.51%; 5/28/98 2,725,000 2,713,739
5.52%; 6/4/98 1,600,000 1,591,659
Corporate Receivables Corp.;
5.53%; 5/7/98 12,000,000 11,988,940
Sheffield Receivables Corp.;
5.50%; 6/3/98 3,500,000 3,482,354
5.50%; 6/18/98 4,000,000 3,970,667
5.54%; 6/29/98 2,650,000 2,625,939
------------
63,398,886
Business Credit Institutions (7.92%)
American Express Credit Corp.;
5.49%; 5/7/98 15,000,000 14,986,275
5.51%; 5/7/98 1,800,000 1,798,347
AON Corp.;
5.53%; 5/7/98 14,000,000 13,987,097
5.54%; 6/5/98 3,250,000 3,232,495
CIT Group Holdings, Inc.;
5.51%; 5/7/98 25,000,000 24,977,042
General Electric Capital Corp.;
5.44%; 1/15/99 1,500,000 1,441,293
------------
60,422,549
Commercial Banks (2.83%)
Norwest Corp.;
5.50%; 5/7/98 21,625,000 21,605,177
Crude Petroleum & Natural Gas (5.04%)
Chevron Oil Finance Co.;
5.48%; 5/7/98 10,000,000 9,990,867
5.51%; 5/7/98 14,000,000 13,987,143
5.52%; 5/7/98 14,500,000 14,486,660
------------
38,464,670
Cutlery, Handtools & Hardware (0.13%)
Stanley Works;
5.53%; 5/14/98 1,000,000 998,003
Department Stores (5.07%)
Sears Roebuck Acceptance Corp.;
5.54%; 5/4/98 9,500,000 9,495,614
5.50%; 5/7/98 5,175,000 5,170,256
5.52%; 5/7/98 5,000,000 4,995,400
5.53%; 5/7/98 19,000,000 18,982,489
------------
38,643,759
Electric Services (2.01%)
CommEd Fuel Co., Inc.;
LOC Canadian Imperial Bank of
Commerce; 5.50%; 6/18/98 $ 1,991,000 $ 1,976,399
CommEd Fuel Co., Inc.;
LOC First National Bank of Chicago;
5.52%; 5/27/98 2,000,000 1,992,027
5.51%; 6/4/98 3,500,000 3,481,786
5.50%; 6/16/98 4,000,000 3,971,889
5.50%; 8/7/98 4,000,000 3,940,111
------------
15,362,212
Farm & Garden Machinery (5.14%)
Deere & Co.;
5.49%; 5/7/98 8,000,000 7,992,680
5.50%; 5/7/98 19,250,000 19,232,354
5.51%; 5/7/98 9,000,000 8,991,735
5.50%; 5/22/98 3,000,000 2,990,375
------------
39,207,144
Finance Services (6.16%)
Mitsubishi International Corp.;
5.56%; 5/4/98 6,500,000 6,496,988
5.58%; 5/4/98 15,000,000 14,993,025
5.55%; 5/6/98 10,000,000 9,992,292
5.56%; 5/21/98 2,650,000 2,641,815
5.50%; 7/8/98 3,000,000 2,968,833
5.53%; 7/21/98 1,500,000 1,481,336
PHH Corp.;
5.51%; 5/7/98 6,300,000 6,294,215
5.51%; 6/30/98 2,175,000 2,155,026
------------
47,023,530
Foreign Banks, Branches &
Agencies (1.96%)
Barclays U.S. Funding Corp.;
5.50%; 5/7/98 15,000,000 14,986,250
Investment Offices (0.32%)
Morgan Stanley Group, Inc.;
5.49%; 7/22/98 2,500,000 2,468,738
Life Insurance (5.10%)
American General Corp.;
5.53%; 5/5/98 5,000,000 4,996,928
5.50%; 5/7/98 11,175,000 11,164,756
5.51%; 5/7/98 14,750,000 14,736,455
5.54%; 5/7/98 5,000,000 4,995,383
5.52%; 5/19/98 3,000,000 2,991,720
------------
38,885,242
Measuring & Controlling Devices (0.79%)
Johnson Controls, Inc.;
5.50%; 5/27/98 3,025,000 3,012,984
5.50%; 5/28/98 3,000,000 2,987,625
------------
6,000,609
Miscellaneous Amusement, Recreation
Service (1.33%)
Walt Disney Co.;
5.52%; 5/7/98 10,173,000 10,163,641
Miscellaneous Electrical Equipment &
Supplies (4.25%)
General Electric Co.;
5.54%; 5/6/98 $10,000,000 $ 9,992,306
5.51%; 5/7/98 20,000,000 19,981,633
5.50%; 6/1/98 2,500,000 2,488,160
------------
32,462,099
Miscellaneous Food & Kindred
Products (1.57%)
Nestle Capital Corp.;
5.50%; 5/7/98 12,000,000 11,989,000
Miscellaneous Investing (0.72%)
Delaware Funding Corp.;
5.53%; 5/14/98 3,000,000 2,994,009
5.50%; 5/22/98 2,500,000 2,491,979
------------
5,485,988
Miscellaneous Manufacturers (0.43%)
Dover Corp.;
5.50%; 6/10/98 3,300,000 3,279,833
Mortgage Bankers & Brokers (1.88%)
Countrywide Home Loan, Inc.;
5.52%; 5/13/98 3,000,000 2,994,480
5.55%; 5/13/98 2,900,000 2,894,635
5.54%; 5/20/98 3,000,000 2,991,228
5.55%; 5/21/98 3,000,000 2,990,750
5.56%; 5/29/98 2,500,000 2,489,189
------------
14,360,282
Paint, Glass & Wallpaper Stores (0.22%)
Sherwin-Williams Co.;
5.51%; 6/29/98 1,675,000 1,659,874
Personal Credit Institutions (15.69%)
Associates First Capital Corp.;
5.53%; 5/4/98 4,000,000 3,998,157
5.51%; 5/7/98 8,000,000 7,992,653
5.52%; 5/7/98 20,600,000 20,581,048
Beneficial Corp.;
5.53%; 5/1/98 9,975,000 9,975,000
5.53%; 5/7/98 2,050,000 2,048,111
Comoloco, Inc.;
5.60%; 5/8/98 400,000 399,564
5.64%; 5/8/98 1,100,000 1,098,794
5.54%; 5/15/98 2,000,000 1,995,691
5.70%; 5/29/98 1,350,000 1,344,015
5.66%; 6/12/98 1,050,000 1,043,067
5.62%; 9/8/98 4,350,000 4,261,719
5.46%; 12/18/98 1,500,000 1,447,447
5.47%; 12/18/98 1,000,000 964,901
5.44%; 1/15/99 1,000,000 960,862
5.51%; 1/25/99 1,000,000 958,828
General Motors Acceptance Corp.;
5.52%; 5/7/98 8,700,000 8,691,996
5.59%; 5/26/98 7,000,000 6,972,826
5.68%; 7/9/98 7,500,000 7,418,350
Transamerica Finance Corp.;
5.54%; 5/4/98 $10,000,000 $ 9,995,383
5.52%; 5/5/98 11,000,000 10,993,254
5.51%; 5/7/98 5,000,000 4,995,408
5.56%; 5/7/98 7,000,000 6,993,514
5.50%; 6/2/98 4,625,000 4,602,389
------------
119,732,977
Security Brokers & Dealers (14.28%)
Bear Stearns Cos., Inc.;
5.52%; 5/7/98 15,000,000 14,986,200
5.53%; 5/7/98 8,500,000 8,492,166
5.55%; 5/7/98 12,000,000 11,988,900
5.51%; 7/17/98 3,000,000 2,964,644
Goldman Sachs Group L.P.;
5.51%; 5/7/98 20,000,000 19,981,633
5.53%; 5/7/98 12,000,000 11,988,940
Merrill Lynch & Co., Inc.;
5.52%; 5/7/98 8,000,000 7,992,640
5.57%; 5/8/98 2,150,000 2,147,671
5.60%; 5/29/98 1,300,000 1,294,338
5.65%; 6/12/98 8,000,000 7,947,267
5.49%; 6/17/98 3,000,000 2,978,498
5.51%; 7/2/98 7,500,000 7,428,829
5.63%; 9/1/98 7,500,000 7,355,731
5.43%; 10/16/98 1,500,000 1,461,990
------------
109,009,447
------------
Total Commercial Paper 695,609,910
Bank Notes (3.54%)
Commercial Banks (3.54%)
BankBoston, N.A.;
5.97%; 10/23/98 5,000,000 5,000,000
LaSalle National Bank;
5.88%; 6/25/98 7,000,000 7,000,000
Morgan Guaranty Trust Company;
5.93%; 8/31/98 5,000,000 4,999,915
Morgan Guaranty Trust Company;
Certificate of Deposit;
5.84%; 7/28/98 10,000,000 9,999,077
------------
Total Bank Notes 26,998,992
Bonds (4.79%)
Business Credit Institutions (1.02%)
CIT Group Holdings, Inc.
Medium-Term Notes;
6.13%; 9/1/98 7,000,000 7,005,182
5.88%; 11/9/98 750,000 750,332
------------
7,755,514
Personal Credit Institutions (3.77%)
Associates Corp. of North America
Senior Notes;
6.63%; 5/15/98 3,500,000 3,500,846
6.38%; 8/15/98 8,400,000 8,409,746
5.25%; 9/1/98 4,300,000 4,289,994
6.50%; 9/9/98 1,800,000 1,803,747
6.25%; 3/15/99 1,250,000 1,255,049
Avco Financial Services, Inc.
Senior Notes;
5.50%; 5/1/98 6,500,000 6,500,000
Ford Motor Credit Co. Notes;
9.25%; 6/15/98 1,000,000 1,003,993
Norwest Financial, Inc. Senior Notes;
8.50%; 8/15/98 2,000,000 2,014,112
------------
28,777,487
------------
Total Bonds 36,533,001
------------
Total Portfolio Investments (99.48%) 759,141,903
Cash, receivables and other assets, net of
liabilities (0.52%) 3,970,104
------------
Total Net Assets (100.00%) $763,112,007
============
PRINCIPAL TAX-EXEMPT CASH MANAGEMENT
FUND, INC.
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Short-Term Tax-Exempt Bonds (99.03%)
Alabama (2.73%)
City of Stevenson, Alabama,
IDB, Improvement Rev. Bonds,
The Mead Corp., Series 1986;
LOC Credit Suisse;
4.25%; 5/1/98*; 11/1/16 $2,100,000 $ 2,100,000
Alaska (5.61%)
Alaska Industrial Dev. & Export
Authority, IDB Current Ref. Bonds,
Series 1988A; LOC Security Pacific
Bank Washington;
Lot #5; 4.10%; 5/7/98*; 7/1/98 1,415,000 1,415,000
Lot #6; 4.10%; 5/7/98*; 7/1/01 1,395,000 1,395,000
Lot #7; 4.10%; 5/7/98*; 7/1/01 125,000 125,000
Lot #8; 4.10%; 5/7/98*; 7/1/05 160,000 160,000
Lot #9; 4.10%; 5/7/98*; 7/1/05 220,000 220,000
Lot #12; 4.10%; 5/7/98*; 7/1/12 1,000,000 1,000,000
-----------
4,315,000
Arizona (1.69%)
Chandler County, Arizona, IDA, F/R
Monthly IDR, Parsons Municipal
Services, Series 1983; LOC
Bank of America;
3.85%; 5/15/98*; 12/15/09 1,300,000 1,300,000
California (2.60%)
County of Los Angeles, California,
1996-1997 Tax & Rev. Anticipation
Notes; 4.50%; 6/30/98 $2,000,000 $ 2,002,052
Colorado (8.00%)
Adams County, Colorado, IDR Bonds,
City View Park Project, Series 1985;
LOC Barclays Bank;
4.10%; 5/7/98*; 12/1/15 2,000,000 2,000,000
City of Thornton, Colorado, F/R
Monthly IDR, Service Merchandise
Co., Inc., Series 1984; LOC CIBC;
3.80%; 5/15/98*; 12/15/99 100,000 100,000
South Denver Metropolis District,
City & County of Denver, Colorado,
General Obligation Bonds, Series
1985; LOC Barclays Bank;
3.70%; 5/31/98**; 12/1/05 4,050,000 4,050,000
-----------
6,150,000
Georgia (2.21%)
Burke County, Georgia, Dev. Authority,
Pollution Control Note, Ogelthorpe
Vogtle Project, LOC AMBAC
Insurance Policy; Series 1997B;
3.80%; 5/28/98 1,500,000 1,500,000
Hapeville, Georgia, Dev. Authority,
Adj. Tender IDR Bonds, Hapeville
Hotel Ltd., Partnership Project,
Series 1985; LOC Deutch Bank
Corp.; 4.25%; 5/1/98*; 11/1/15 200,000 200,000
-----------
1,700,000
Idaho (1.30%)
State of Idaho Tax Anticipation
Notes, Series 1997;
4.63%; 6/30/98; 1,000,000 1,001,179
Illinois (10.66%)
Chicago, Illinois, Cook County CSX
Beckett Aviation, Inc., F/R Monthly
Airport Rev. Bonds; LOC Barclays
Bank; 3.36%; 5/15/98*; 12/15/14 1,000,000 1,000,000
City of Burbank, Illinois, F/R Monthly
IDR, Service Merchandise Co., Inc.,
Series 1984; LOC CIBC;
3.80%; 5/15/98*; 9/15/24 2,100,000 2,100,000
City of Galesburg, Illinois, Knox College
Project, Series 1996; LOC LaSalle
National Bank;
4.10%; 5/7/98*; 3/1/31 3,700,000 3,700,000
City of Naperville, Illinois, Economic
Dev. Rev. Bonds, Service Merchandise
Co., Inc.; LOC CIBC;
3.80%; 5/15/98*; 11/30/24 1,400,000 1,400,000
-----------
8,200,000
Indiana (5.96%)
Allen County, Indiana Econ. Dev. Rev.
Golden Years Homestead, Series
1996; LOC Norwest Bank Minnesota,
N.A.; 4.00%; 5/7/98*; 8/1/21 2,100,000 2,100,000
Indiana Health Authority Fac., Ref. Rev.
Bonds, Pathfinders Series 1967;
LOC Norwest Bank Minnesota, N.A.;
4.00%; 5/7/98*; 11/1/19 $2,485,000 $ 2,485,000
-----------
4,585,000
Iowa (9.66%)
City of Storm Lake, Iowa, Private
College Rev. Bonds, Buena Vista
College, Series 1993; LOC Norwest
Bank Minnesota, N.A.;
4.35%; 5/7/98*; 12/1/03 700,000 700,000
Iowa Finance Authority Housing H/Care,
Rev. Bonds, Wesley Project, Series
1997; LOC Norwest Bank Minnesota,
N.A.; 4.10%; 5/7/98* 4/1/05 955,000 955,000
Iowa Higher Education Loan Authority
Fac., Rev. Bonds, Series 1995;
LOC Norwest Bank Minnesota, N.A.;
4.35%; 5/7/98*; 2/1/05 1,200,000 1,200,000
Iowa Higher Education Loan Authority
Fac., Rev. Bonds, St. Ambrose, Series
1997; LOC Norwest Bank Minnesota,
N.A.; 4.10%; 5/7/98* 2/1/07 1,575,000 1,575,000
Woodbury County, Iowa, Education Fac.,
Rev. Bonds, Siouxland, Series 1996;
LOC Firstar Bank Milwaukee, N.A.;
4.10%; 5/7/98*; 11/1/16 3,000,000 3,000,000
-----------
7,430,000
Louisiana (6.11%)
Jefferson Parish, Louisiana, Hospital
Rev. Bonds, Jefferson Parish Hospital
Service, District #2, Customized
Purchase Program, Series 1985;
Insured by FGIC;
4.05%; 5/7/98*; 12/1/15 3,300,000 3,300,000
Jefferson Parish, Louisiana, IDB Rev.
Ref. Bonds, George J. Achel, Sr.
Project, Series 1986; LOC Barclays
Bank; 4.10%; 5/7/98*; 12/1/04 1,400,000 1,400,000
-----------
4,700,000
Maryland (0.17%)
Montgomery County, Maryland, F/R
Monthly IDA, Information Systems
& Networks; LOC PNC Bank;
3.85%; 5/7/98*; 4/1/14 130,000 130,000
Michigan (0.52%)
Township of Cornell, Michigan,
The Economic Dev. Corp.,
Environmental Improvement
Rev. Ref. Bonds, Series 1986,
Mead Escanaba Paper Co. Project;
LOC Bank of America;
4.15%; 5/1/98*; 11/1/16 400,000 400,000
Minnesota (7.35%)
City of Coon Rapids, Minnesota
Rev. Bonds for Health Central
System, Series 1985; LOC Norwest
Bank Minnesota, N.A.;
4.10%; 5/7/98*; 8/1/15 2,000,000 2,000,000
City of Rochester, Minnesota, Health Care
Fac. Rev. Bonds, Mayo Foundation/
Mayo Medical Center, Adj. Tender,
Series 1992C;
3.35%; 5/4/98**; 11/15/21 $ 500,000 $ 500,000
3.40%; 5/4/98**; 11/15/21 350,000 350,000
3.25%; 5/6/98**; 11/15/21 400,000 400,000
3.35%; 5/7/98**; 11/15/21 500,000 500,000
3.65%; 5/7/98**; 11/15/21 500,000 500,000
3.20%; 5/8/98**; 11/15/21 1,000,000 1,000,000
3.20%; 5/8/98**; 11/15/21 400,000 400,000
-----------
5,650,000
Mississippi (0.65%)
Jackson County, Mississippi, Pollution
Control Ref. Rev. Bonds, Series 1993;
Guaranteed by Chevron Corp.;
4.10%; 5/1/98*; 6/1/23 500,000 500,000
Missouri (3.94%)
Health & Education Fac. Authority of
Missouri School Dist. Program
Notes, Series 1996A;
4.50%; 9/14/98 3,020,000 3,026,466
Montana (6.37%)
City of Forsyth, Montana, Portland
General Electric Co.; LOC Swiss
Bank Corp.;
Series B; 4.10%; 5/7/98*; 6/1/13 2,400,000 2,400,000
Series D; 4.10%; 5/7/98*; 6/1/13 1,500,000 1,500,000
Series 1984; 4.10%; 5/7/98*; 8/1/14 1,000,000 1,000,000
-----------
4,900,000
New Hampshire (2.34%)
New Hampshire IDA, F/R Monthly
1983 Hudson, Oerlikon-Buhrle
USA/Balzers; LOC Union Bank of
Switzerland;
3.75%; 5/7/98*; 7/1/13 1,800,000 1,800,000
New York (2.28%)
New York State Energy Research &
Dev. Authority, For New York State
Electric & Gas Corp., Series 1985-D;
LOC Union Bank of Switzerland;
3.80%; 12/1/98**; 12/1/15 750,000 750,000
New York State Energy Research &
Dev. Authority, Pollution Control
Rev. Bonds, Long Island Lighting
Co.; Series 1985B; LOC Deutsche
Bank; 3.58%; 3/1/99**; 3/1/16 1,000,000 1,000,000
-----------
1,750,000
North Carolina (5.20%)
North Carolina Eastern Municipal Power
Agency, Series 1988B; LOC Morgan
Guaranty Trust Co.; LOC Union
Bank of Switzerland;
3.25%; 5/5/98**; 1/1/26 500,000 500,000
3.30%; 5/5/98**; 1/1/26 500,000 500,000
3.50%; 5/7/98**; 1/1/10 500,000 500,000
North Carolina (Continued)
University of North Carolina
Foundation, Inc., Series 1989;
LOC Credit Suisse;
4.10%; 5/7/98*; 10/1/09 $2,500,000 $ 2,500,000
-----------
4,000,000
Ohio (2.21%)
Toledo-Lucas County, Ohio, Port
Fac. Ref. Rev. Bonds, CSX
Transport Project, Series 1992;
LOC Bank of Nova Scotia;
3.20%; 5/8/98**; 12/15/21 500,000 500,000
Village of Evendale, Ohio, SHV Real
Estate Income Project;
LOC ABN-AMRO;
4.10%; 5/7/98*; 9/1/15 1,200,000 1,200,000
-----------
1,700,000
Pennsylvania (2.99%)
Bucks County, Pennsylvania, IDA SHV
Real Estate, Inc. Project, Series 1985;
LOC ABN-AMRO Bank;
4.10%; 5/7/98*; 7/1/15 2,300,000 2,300,000
Tennessee (0.65%)
Knox, Tennessee, IDB F/R Monthly
IDR 1983, Service Merchandise Co.,
Inc.; LOC CIBC;
3.80%; 5/15/98*; 12/15/08 500,000 500,000
Texas (5.49%)
Coppell, Texas, Industrial Dev. Corp.,
IDA 1984, Minyard Properties
Project; LOC Citibank;
3.60%; 5/7/98*; 12/1/01 870,000 870,000
Grapevine, Texas, Industrial Dev. Corp.,
American Airlines;
LOC Morgan Guaranty;
Series 1984 A4; 4.25%; 5/1/98*; 12/1/24 300,000 300,000
Series 1984 B4; 4.25%; 5/1/98*; 12/1/24 600,000 600,000
Lone Star Airport Imp. Auth.,
American Airlines;
LOC Royal Bank of Canada;
Series 1984 A5; 4.25%; 5/1/98*; 12/1/14 100,000 100,000
Series 1984 B1; 4.25%; 5/1/98*; 12/1/14 100,000 100,000
Series 1984 B5; 4.25%; 5/1/98*; 12/1/14 100,000 100,000
Montgomery County, Texas, Industrial
Dev. Corp. Ref. Bonds,
Series 1986A; Dal-Tile Corp.
Project; LOC Credit Suisse;
4.10%; 5/7/98*; 12/1/03 150,000 150,000
State of Texas Tax & Revenue
Anticipation Notes, Series 1997A;
4.75%; 8/31/98 1,000,000 1,002,961
4.75%; 8/31/98 1,000,000 1,002,883
-----------
4,225,844
West Virginia (2.34%)
Putnam County, West Virginia, F/R Monthly
IDR 1981, FMC Corp.
Project; LOC UBS;
3.65%; 5/7/98*; 10/1/11 $1,800,000 $ 1,800,000
-----------
Total Portfolio Investments (99.03%) 76,165,541
Cash, receivables and other assets,
net of liabilities (0.97%) 744,977
-----------
Total Net Assets (100.00%) $76,910,518
===========
* Demand Date
** Put Date
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(unaudited)
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
PRINCIPAL CASH MANAGEMENT FUND, INC.(a)
Class A shares 1998* 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
Income from Investment Operations:
Net Investment Income(b)............................. .025 .050 .049 .052 .033 .026
Net Realized and Unrealized Gain (Loss) on Investments - - - - - -
Total from Investment Operations .025 .050 .049 .052 .033 .026
Less Dividends From Net Investment Income............... (.025) (.050) (.049) (.052) (.033) (.026)
Net Asset Value, End of Period.......................... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
Total Return(c)......................................... 2.46%(d) 4.96% 5.00% 5.36% 3.40% 2.67%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $756,244 $836,072 $694,962 $623,864 $332,346 $284,739
Ratio of Expenses to Average Net Assets(b)(e)........ .56%(f) .63% .66% .72% .70% .67%
Ratio of Net Investment Income to Average Net Assets. 5.15%(f) 4.98% 4.88% 5.24% 3.27% 2.63%
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL CASH MANAGEMENT FUND, INC.(a)
Class B shares 1998* 1997 1996 1995(g)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................... $1.000 $1.000 $1.000 $1.000
Income from Investment Operations:
Net Investment Income(b)............................. .020 .041 .041 .041
Net Realized and Unrealized Gain (Loss) on Investments - - - -
Total from Investment Operations .020 .041 .041 .041
Less Dividends from Net Investment Income............... (.020) (.041) (.041) (.041)
Net Asset Value, End of Period.......................... $1.000 $1.000 $1.000 $1.000
Total Return(c)......................................... 2.04%(d) 4.05% 4.13% 4.19%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $1,418 $992 $520 $208
Ratio of Expenses to Average Net Assets(b)(e)........ 1.58%(f) 1.47% 1.50% 1.42%(f)
Ratio of Net Investment Income to Average Net Assets. 4.06%(f) 4.08% 4.08% 4.50%(f)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL CASH MANAGEMENT FUND, INC.(a)
Class R shares 1998* 1997 1996(h)
---- ---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.................... $1.000 $1.000 $1.000
Income from Investment Operations:
Net Investment Income(b)............................. .022 .044 .030
Net Realized and Unrealized Gain (Loss) on Investments - - -
Total from Investment Operations .022 .044 .030
Less Dividends from Net Investment Income............... (.022) (.044) (.030)
Net Asset Value, End of Period.......................... $1.000 $1.000 $1.000
Total Return(c)......................................... 2.17%(d) 4.16% 2.97%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $5,450 $4,296 $1,639
Ratio of Expenses to Average Net Assets(b)(e)........ 1.14%(f) 1.26% .99%(f)
Ratio of Net Investment Income to Average Net Assets. 4.58%(f) 4.40% 4.41%(f)
<FN>
* Six Months Ended April 30, 1998.
</FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
PRINCIPAL TAX-EXEMPT CASH MANAGEMENT FUND, INC.(a)
Class A shares 1998* 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
Net Investment Income from Operations:(b)............... .014 .029 .029 .032 .021 .020
Less Dividends from Net Investment Income............... (.014) (.029) (.029) (.032) (.021) (.020)
Net Asset Value, End of Period.......................... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
Total Return(c)......................................... 1.31%(d) 2.89% 2.92% 3.24% 2.11% 1.99%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $76,911 $98,939 $98,482 $99,887 $79,736 $79,223
Ratio of Expenses to Average Net Assets(b)........... .71%(f) .70% .71% .69% .67% .66%
Ratio of Net Investment Income to Average Net Assets. 2.85%(f) 2.93% 2.87% 3.19% 2.08% 1.96%
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL TAX-EXEMPT CASH MANAGEMENT FUND, INC.(a)
Class B shares 1998** 1997 1996 1995(g)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................... $1.000 $1.000 $1.000 $1.000
Net Investment Income from Operations:(b)............... .004 .022 .021 .021
Less Dividends from Net Investment Income............... (.004) (.022) (.021) (.021)
Net Asset Value, End of Period.......................... $1.000 $1.000 $1.000 $1.000
Total Return(c)......................................... .42%(d) 2.18% 2.13% 2.19%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $0 $28 $27 $27
Ratio of Expenses to Average Net Assets(b)........... 1.47%(f) 1.47% 1.47% 1.42%(f)
Ratio of Net Investment Income to Average Net Assets. 2.31%(f) 2.16% 2.11% 2.40%(f)
<FN>
* Six Months Ended April 29, 1998.
** For the Period November 1, 1997 through December 29, 1997.
</FN>
See accompanying notes.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS (Continued)
Notes to Financial Highlights
(a) Effective January 1, 1998, the following changes were made to the names of
the Money Market Funds:
<TABLE>
<CAPTION>
Former Fund Name New Fund Name
---------------- -------------
<S> <C>
Princor Cash Management Fund, Inc. Principal Cash Management Fund, Inc.
Princor Tax-Exempt Cash Management Fund, Inc. Principal Tax-Exempt Cash Management Fund, Inc.
</TABLE>
(b) Without the Manager's voluntary waiver of a portion of certain of its
expenses (see Note 3 to the financial statements) for the periods
indicated, the Money Market Funds would have had per share net investment
income (operating loss) and the ratios of expenses to average net assets as
shown:
<TABLE>
<CAPTION>
Per Share
Year Ended Net Investment Ratio of
October 31, Income Expenses
Except (Operating to Average Amount
as Noted Loss) Net Assets Waived
----------- -------------- ---------- -----------
Principal Cash Management Fund, Inc.:
<S> <C> <C> <C> <C>
Class A 1998* $ .025(f) .56% $ -- (e)
1997 .050 63 --
1996 .049 .67 7,102
1995 .052 .78 296,255
1994 .031 .90 595,343
1993 .025 .84 468,387
Class B 1998* .019(f) 1.84 1,343(e)
1997 .036 2.14 5,492
1996 .029 3.94 6,140
1995(f) .041 1.63(d) 104
Class R 1998 .022 1.14 -- (e)
1997 .043 1.34 2,441
Principal Tax-Exempt Cash Management Fund, Inc.:
Class A 1998* .014(f) .72 3,194
1997 .049 .67 7,102
1996 .028 .77 69,107
1995 .031 .84 138,574
1994 .019 .85 150,515
1993 .018 .83 131,442
Class B 1998** .004(f) 22.35 904**
1997 (.188) 22.58 5,807
1996 (.243) 27.43 7,160
1995(g) .018 1.89(f) 99
<FN>
* Six Months Ended April 30, 1998
** For the Period November 1, 1997 through December 29, 1997 (date Class B operations ceased).
</FN>
</TABLE>
(c) Total return is calculated without the front-end sales charge or contingent
deferred sales charge.
(d) Total return amounts have not been annualized.
(e) Management fee waivers apply to November 1, 1997 through February 28, 1998.
(f) Computed on an annualized basis.
(g) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995.
(h) Period from February 29, 1996, date Class R shares first offered to
eligible purchasers, through October 31, 1996.
<PAGE>
PRINCIPAL FAMILY OF MUTUAL FUNDS
Principal Mutual Life Insurance Company has sponsored the development of a
number of mutual funds. The funds which make up the Principal family of mutual
funds and a brief description of their respective investment objectives are
provided below. For more complete information about any of the funds, including
charges and expenses, obtain a prospectus from Princor Financial Services
Corporation, The Principal Financial Group, Des Moines, Iowa 50392-0200
(telephone 1-800-247-4123). Please read it carefully before you invest or send
money.
INVESTMENT OBJECTIVE
DOMESTIC GROWTH FUNDS
Principal Balanced Fund To seek the generation of a total return
consisting of current income and capital
appreciation while assuming reasonable risks in
furtherance of this objective.
Principal Blue Chip Fund To seek growth of capital and
growth of income by investing primarily in
common stocks of well capitalized, established
companies.
Principal Capital Value Fund To seek long-term capital appreciation and a
secondary objective of growth of investment
income.
Principal Growth Fund To seek growth of capital with
realization of current income incidental to the
objective of growth of capital.
Principal MidCap Fund To seek capital appreciation by
investing primarily in securities of emerging
and other growth-oriented companies.
Principal Real Estate Fund To seek the generation of
total return by investing primarily in equity
securities of companies principally engaged in
the real estate industry.
Principal SmallCap Fund To seek long-term growth of
capital by investing primarily in equity
securities of companies with comparatively
smaller market capitalizations.
Principal Utilities Fund To seek current income and
long-term growth of income and capital by
investing primarily in equity and fixed income
securities of companies in the public utilities
industry.
INTERNATIONAL GROWTH FUNDS
Principal International To seek long-term growth of capital by
Emerging Markets Fund investing primarily in equity securities of
issuers in emerging market countries.
Principal International Fund To seek long-term growth of
capital by investing in a portfolio of equity
securities of companies domiciled in any of the
nations of the world.
Principal International To seek long-term growth of capital by
SmallCap Fund investing primarily in equity securities of
non-United States companies with comparatively
smaller market capitalizations.
INCOME FUNDS
Principal Bond Fund To seek as high a level of income as is
consistent with preservation of capital
and prudent investment risk.
Principal Government To seek a high level of current income,
Securities Income Fund liquidity and safety of principal.
Principal High Yield Fund To seek high current income. Capital growth is
a secondary objective when consistent with
seeking high current income.
Principal Limited Term To seek a high level of current
Bond Fund income consistent with a relatively high level
of principal stability by investing in a
portfolio of securities with a dollar weighted
average maturity of five years or less.
Principal Tax-Exempt To seek as high a level of current income
Bond Fund exempt from federal taxation as is consistent
with preservation of capital.
MONEY MARKET FUNDS
Principal Cash To seek as high a level of current income
Management Fund available from short-term securities as is
considered consistent with preservation of
principal and maintenance of liquidity by
investing in a portfolio of money market
instruments.
Principal Tax-Exempt Cash To seek, through investment in a
Management Fund professionally-managed portfolio of high
quality short-term Municipal Obligations, as
high a level of current interest income exempt
from federal income tax as is consistent with
stability of principal and maintenance of
liquidity.
