PRINCIPAL GROWTH FUND INC /MD/, 497K1, 1999-05-25

PRINCIPAL GROWTH FUND INC /MD/
497K1, 1999-05-25

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Principal Mutual Funds Profile
Class B Shares

This profile summarizes key information included in the Funds' prospectus. The
Funds' prospectus includes additional material information about each Fund,
including a more detailed description of the risks associated with investing in
a Fund that you may want to consider before you invest. You may obtain the
prospectus and other information about a Fund at no cost by calling (800)
247-4123.
The prospectus is also available on our website at: www.principal.com/funds.

A total of sixteen Principal Mutual Funds are available through the retirement
plan adopted by your employer. These Funds are:

DOMESTIC GROWTH-ORIENTED FUNDS

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.
Principal Utilities Fund, Inc.

INTERNATIONAL GROWTH-ORIENTED FUNDS

Principal International Emerging Markets Fund, Inc.
Principal International Fund, Inc.
Principal International SmallCap Fund, Inc.

INCOME-ORIENTED FUNDS

Principal Bond Fund, Inc.
Principal Government Securities Income Fund, Inc.
Principal High Yield Fund, Inc.
Principal Limited Term Bond Fund, Inc.

MONEY MARKET FUND

Principal Cash Management Fund, Inc.

If you have any questions about the investment options available to you, contact
your registered representative. You may also obtain information regarding your
investment options from a Princor Retirement Plan Specialist by calling (800)
247-4123 or writing to:

Princor Retirement Plan Operations
The Principal Financial Group
711 High Street
Des Moines, Iowa 50392-0200

Neither the Securities and Exchange Commission nor any State
Securities Commission has approved or disapproved of these securities
or determined if this profile is accurate or complete. Any
representation to the contrary is a criminal offense.

Table of Contents

Information About Your Retirement Plan

Investment Information................................................... 4
Investment Comparison.................................................... 5
Fees..................................................................... 6

Services................................................................. 7

Money Market Fund

Cash Management Fund..................................................... 8

Income-Oriented Funds

Limited Term Bond Fund...................................................10
Government Securities Income Fund........................................12
Bond Fund................................................................14
High Yield Fund..........................................................16

Domestic Growth-Oriented Funds

Utilities Fund...........................................................18
Real Estate Fund.........................................................20
Balanced Fund............................................................22
Blue Chip Fund...........................................................24
Capital Value Fund.......................................................26
Growth Fund..............................................................28
MidCap Fund..............................................................30
SmallCap Fund............................................................32

International Growth-Oriented Funds

International Fund.......................................................34
International SmallCap Fund..............................................36
International Emerging Markets Fund......................................38

Enrollment And Beneficiary Election Form......................................40

Information About Your Retirement Plan

Your Investment

The retirement plan sponsored by your employer permits you to select in which
funds to invest. Your employer's plan is intended to comply with Section 404(c)
of the Employee Retirement Income Security Act. This means the plan fiduciaries
are not liable for any losses resulting from a participant's exercise of
investment control. Under the terms of the plan, any voting rights attributable
to investments used to fund the plan may be exercised only by the plan trustee.

Your Investment Options

The Principal Mutual Funds have different investment objectives and strategies
as well as varying levels of investment risk. A description of each Fund's
investment objective, strategy, risks, expenses, performance, and other
information is provided in this booklet. This information is provided to help
you decide which investments work best for you. You may also obtain a prospectus
and the most recent annual or semiannual financial report for the Funds at no
cost by calling (800) 247-4123.

Money Market Fund
The Principal Cash Management Fund seeks to generate current income while
preserving principal and maintaining liquidity by investing in short-term money
market instruments.

Income-Oriented Funds
Four of the Principal Funds seek a high level of income through investments in
fixed-income securities. These Funds are collectively referred to as the
Income-Oriented Funds.

Domestic Growth-Oriented Funds
Eight of the Principal Funds emphasize investments in securities with the
primary goal of growth in the value of those investments. These Funds are
collectively referred to as the Domestic Growth-Oriented Funds.

International Growth-Oriented Funds
Three of the Principal Funds invest in stocks of companies outside of the United
States with the primary goal of growth in the value of those investments. These
Funds are collectively referred to as the International Growth-Oriented Funds.

Investment Manager

The investment professionals who manage the assets of each Fund are listed with
each Fund. Backed by their staffs of experienced securities analysts, they
provide the Funds with professional investment management.

Principal Management Corporation serves as the manager for the Principal Mutual
Funds. The Manager has signed sub-advisory contracts with Invista Capital
Management, LLC. Under those contracts, Invista provides portfolio management
for the Domestic and International Growth-Oriented Funds (except Real Estate),
the Government Securities Income Fund, and the Limited Term Bond Fund.

How to Provide Investment Instructions

You make initial investment elections by completing an Enrollment Form (included
in this booklet) when first enrolling in a plan. You can make changes to your
account by calling (800) 247-4123, option 5 between the hours of 7:00 a.m. and
7:00 p.m. Central time. There is no charge or administrative fee for changing
your investment direction or exchanging between the Funds. Each Mutual Fund
reserves the right to limit exchanges to prevent excessive short-term trading
which the Fund believes may interfere with managing the Fund's portfolio.

Investment Comparison

Diversification permits you, the plan participant, to reduce your investment
risk. An asset allocation questionnaire is available to help you determine an
allocation model based on your investment objective, willingness to assume risk,
and other factors.

This diagram compares the Funds by level of risk and return. Traditionally,
Funds which accept greater risks also experience greater potential return and
loss of principal. More conservative Funds have limited return potential but
greater principal stability. The diagram should not be interpreted as projecting
the relative performance of the Funds.

More Return
International Emerging Markets Fund /\
International SmallCap Fund
International Fund

SmallCap Fund
MidCap Fund
Growth Fund
Capital Value Fund
Blue Chip Fund
Balanced Fund
Real Estate Fund
Utilities Fund

High Yield Fund
Bond Fund
Government Securities Income Fund
Limited Term Bond Fund

Cash Management Fund
\/
Less Return

Less Risk More Risk
/______________________________________________________________________________\
\ /
Fees

Transaction Expenses

Class B shares are sold without an initial sales charge, but redemptions made
within five years following the date of purchase are subject to a contingent
deferred sales charge ("CDSC"). The CDSC (as a percentage of the lower of the
original purchase price or redemption proceeds) is 3.0% in the first two years
(.75% for the Limited Term Bond Fund), 2.0% (0.50% for the Limited Term Bond
Fund) the next two years, and 1.0% in the fifth year (.25% for the Limited Term
Bond Fund). Class B shares automatically convert to Class A shares, without
charge, approximately five years after the date purchased.

The CDSC does not apply to every distribution from the plan. Some examples where
it does not apply include:

o Death o Retirement under the plan

o Disability o Separation from service after attaining age 55

When the value of Class B shares of the Principal Funds in the plan equal or
exceed $250,000, subsequent plan contributions will be used to purchase Class A
shares of the Funds, rather than Class B shares. When purchasing Class A shares,
all plan contributions allocated to the Principal Funds (other than Class A
shares of the Cash Management Fund) are combined and added to the value of the
existing plan accounts in Class B shares and Class A shares for which a sales
charge was previously paid, to determine the sales charge that applies to the
contribution, as described in the following table:

<TABLE>
<CAPTION>
Sales Charge for All Funds Except Sales Charge for
Contributions Plus Limited Term Bond Fund Limited Term Bond Fund
Principal Fund Plan Assets (Sales Charge as % of Offering Price) (Sales Charge as % of Offering Price)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$250,000 but less than $500,000 2.50% 0.75%
$500,000 but less than $1,000,000 1.50% 0.50%
$1,000,000 or more 0 0
</TABLE>

Once the total plan assets in Class B shares and Class A shares for which a
sales charge was paid equal or exceed $1,000,000, future purchases of Class A
shares are not subject to a sales charge but may be subject to a CDSC if shares
are redeemed within 18 months after the share purchase. If the plan terminates
or plan assets are transferred to another investment provider, then a 0.75% CDSC
(0.25% for the Limited Term Bond Fund) applies to the lower of the original
purchase price or redemption proceeds.

Shares subject to the CDSC which are exchanged into another Principal Fund
continue to be subject to the CDSC until the original 18 month period expires.

Operating Expenses

Each Fund's costs are factored into the Fund's share price and are deducted from
the Fund's assets, which means they are paid indirectly. These costs are
deducted before computing the daily share price or making distributions. As a
result, they don't appear on account statements but instead reduce the total
return.

Fund Performance

Included in each Fund's description is a table and a bar chart. Together, these
provide an indication of the risks involved when you invest.

The bar chart shows changes in the Fund's performance from year to year. The
performance reflected in the chart does not include a sales charge, which would
make the returns less than those shown. A Fund's past performance is not
necessarily an indication of how the Fund will perform in the future.

Services

Principal Mutual Funds offer you a variety of ways to obtain information,
monitor your investments, and buy and sell shares.

Toll-Free Access

If you need account assistance or information, call our Customer Service
Representatives at (800) 247-4123. They are available from 7:00 a.m. to 7:00
p.m. Central time on any day the New York Stock Exchange is open for trading. A
Customer Service Representative can answer questions about your account and give
you information regarding transactions, distributions, and general service
issues.

PrinCall(R) Automated Telephone Service

When you need account information, it's as close as your telephone...24 hours a
day! PrinCall(R) is a toll-free automated account information system which you
access from a push-button phone. PrinCall(R) is simple...fast... and free! Call
(800) 421-2298.

Semi-Annual Participant Statements

You'll receive an informative statement of account activity sent to your home
twice per year.

Transfer/Exchange Services

As your financial objectives change, you can exchange your shares for shares of
a different Principal Mutual Fund within the same share class or change your
instructions for investment of new contributions. Telephone exchange privileges
are available at (800) 247-4123.

Internet Access

Beginning third quarter 1999, you may visit www.principal.com to view your
account information 24 hours a day, seven days a week! Simply select Your
Portfolio to reach all of your Principal Mutual Fund information.

Additional Information

Additional information about each Fund's investments is available in annual and
semiannual reports to shareholders. In the Funds' annual report you will find a
discussion of the market conditions and investment strategies that significantly
affected the Funds' performance during the last fiscal year. You may obtain
either or both of these reports at no cost by calling (800) 247-4123.

Principal Cash Management Fund Money Market

What is the Fund's Investment Objective?

The Principal Cash Management Fund seeks as high a level of income 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.

What is the Fund's Investment Strategy?

The Fund invests its assets in a portfolio of money market instruments. The Fund
invests to maximize current income by investing in:

o U.S. Government securities

o Bank obligations

o Commercial paper

o Short-term corporate debt

o Repurchase agreements
o Taxable municipal obligations

What are the Significant Risks?

The yield on the Fund will vary with changes in short term interest rates. An
investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of an investment at $1.00 per share, it is possible to lose
money by investing in the Fund. When shares of the Fund are sold, they may be
worth more or less than the amount paid for them.

Who Should Invest in this Fund?

Class A shares of the Fund are purchased with new contributions to the plan.
Class B shares of the Fund are only available by exchange from other Class B
shares.

The Fund is appropriate for investors who...
o seek monthly dividends to produce income without incurring much risk,
or
o have short-term needs.
It is not a good investment for retirement plan participants seeking growth.

What are the Fund's Operating Expenses?

As of October 31, 1998
B Shares A Shares
-------- --------
Management Fees 0.42% 0.38%
12b-1 Fees 0.32% None
Other Expenses 0.75% 0.18%
----- -----
Total Fund Operating Expenses 1.49% 0.56%

How has the Fund Performed?

The chart shows the Fund's past performance of the Class A and Class B shares.
It provides some indication of the risks of investing in the Fund by showing
changes in the Fund's performance from year to year. Please remember the Fund's
past performance does not represent how it will perform in the future.

Who is the Fund's Investment Manager?

Michael R. Johnson has been responsible for the day-to-day Fund management since
March 1983. Mr. Johnson has been Assistant Director - Securities Trading of
Principal Management since 1994.

Annual Total Returns A Shares
Calendar Years Ended December 31

1989 8.42%
1990 7.63%
1991 5.80%
1992 3.38%
1993 2.63%
1994 3.77%
1995 5.44%
1996 4.96%
1997 4.88%
1998 5.15%

Annual Total Returns B Shares
Calendar Years Ended December 31

1995 4.69%
1996 4.07%
1997 4.06%
1998 4.25%

Principal Limited Term Bond Fund Income-Oriented

What is the Fund's Investment Objective?

The Principal Limited Term Bond Fund seeks a high level of current 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.

What is the Fund's Investment Strategy?

The Fund invests primarily in high-grade, short-term debt securities. Under
normal circumstances, the Fund invests at least 80% of its assets in:

o securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities;
o debt securities of U.S. issuers rated in the three highest grades by
Standard & Poor's Corporation (S&P) or Moody's Investors Service,
Inc.(Moody's);
o if unrated, securities are of comparable quality in the opinion of
Invista.

The rest of the Fund's assets are invested in securities in the fourth highest
rating category ("investment grade") or their equivalent. While they are
considered to have adequate capacity to pay interest and repay principal, they
do have speculative characteristics. The Fund may invest in corporate debt
securities and mortgage-backed securities. Under unusual market or economic
conditions, for temporary or defensive purposes the Fund may invest up to 100%
of its assets in cash or cash equivalents.

What are the Significant Risks?

Bond values fluctuate based on changes in interest rates, market conditions, and
announcements of other economic, political, or financial information. Because
the value of the securities in which the Fund invests fluctuate, principal
values and investment returns will fluctuate. When shares of the Fund are sold,
they may be worth more or less than the amount paid for them.

------------------------------------
Portfolio Composition
as of December 31, 1998
------------------------------------
Corporate Bonds: 60.3%
Mortgage-backed Securities: 25.6%
Asset-backed Securities: 11.5%
Commercial Paper: 0.4%
------------------------------------
------------------------------------
Maturity Profile
as of December 31, 1998
------------------------------------
Average Bond Quality: AA3
Average Bond Maturity: 3.89 years
Average Duration: 2.86 years
------------------------------------
------------------------------------
Highest & Lowest Quarterly Total
Returns for the Last Three Years
------------------------------------
Quarter Ended Quarterly Return
------------------------------------
9/30/98 2.83%
3/31/96 (0.25)%
------------------------------------

Who Should Invest in this Fund?

The Fund may be appropriate for investors who...
o want monthly dividends for income or to reinvest for modest growth,
o are willing to accept some, although not dramatic, volatility in the
value of their investment.

What are the Fund's Operating Expenses?

As of October 31, 1998
Management Fees 0.50%
12b-1 Fees 0.50%
Other Expenses 1.36%
-----
Total Fund Operating Expenses 2.36%

*The Manager voluntarily waived certain fees and expenses during the fiscal year
ended October 31, 1998. After waiver, the Class B share management fee paid was
0% and other expenses were 0.72% (total expenses 1.22%).

How has the Fund Performed?

The chart shows the Fund's past performance of the Class B shares. It provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year. Please remember the Fund's past
performance does not represent how it will perform in the future.

Who is the Fund's Investment Manager?

Martin J. Schafer has been responsible for the day-to-day Fund management since
its inception in February 1996. Mr. Schafer has been a Portfolio Manager for
Invista since 1992 and has been with the Principal Financial Group since 1977.

Annual Total Return
Calendar Years Ended December 31

1997 6.30%
1998 6.26%

Principal Government Securities Income Fund Income-Oriented

What is the Fund's Investment Objective?

The Principal Government Securities Income Fund seeks a high level of current
income, liquidity, and safety of principal by purchasing obligations issued or
guaranteed by the United States Government or its agencies, with emphasis on
Government National Mortgage Association Certificates ("GNMA Certificates"). The
guarantee by the United States Government extends only to principal and
interest. There are certain risks unique to GNMA Certificates.

What is the Fund's Investment Strategy?

The Fund invests in U.S. Government securities, which include obligations issued
or guaranteed by the U.S. Government, its agencies, or instrumentalities. The
Fund invests in securities supported by:
o full faith and credit of the U.S. Government (GNMA certificates); or
o credit of the instrumentality (e.g. bonds issued by the Federal Home
Loan Bank).

What are the Significant Risks?

Mortgage-backed securities are subject to prepayment (unscheduled principal
payments) risk. Prepayments may result from voluntary prepayment, refinancing,
or foreclosure of the underlying mortgage. When interest rates decline,
significant unscheduled prepayments may result and must then be reinvested at
lower rates. Prepayments may also shorten the effective maturities of these
securities, especially during periods of declining interest rates. During
periods of rising interest rates, a reduction in prepayments may increase the
effective maturities of these securities, subjecting them to the risk of decline
in market value in response to rising interest and potentially increasing the
volatility of the Fund.

At times, mortgage-backed securities may have higher than market interest rates
and are purchased at a premium. Unscheduled prepayments are made at par and
cause the Fund to experience a loss of some or all of the premium.

Although some of the securities the Fund purchases are backed by the U.S.
government and its agencies, shares of the Fund are not guaranteed. When shares
of the Fund are sold, they may be worth more or less than the amount paid for
them.

------------------------------------
Portfolio Composition
as of December 31, 1998
------------------------------------
GNMA Securities: 99.9%
Commercial Paper: 2%
------------------------------------
------------------------------------
Maturity Profile
as of December 31, 1998
------------------------------------
Average Bond Quality: AAA
Average Bond Maturity: 6.99 years
Average Duration: 2.82 years
------------------------------------
------------------------------------
Highest & Lowest Quarterly Total
Returns for the Last Four Years
------------------------------------
Quarter Ended Quarterly Return
------------------------------------
6/30/95 6.21%
3/31/96 (2.09%)
------------------------------------

Who Should Invest in this Fund?

The Fund is a suitable investment for investors who want monthly dividends to
provide income or to be reinvested in additional Fund shares to produce growth.
Such investors prefer to have the repayment of principal and interest on most of
the securities in which the Fund invests to be backed by the U.S. Government or
its agencies.

What are the Fund's Operating Expenses?

As of October 31, 1998
Management Fees 0.45%
12b-1 Fees 0.81%
Other Expenses 0.31%
-----
Total Fund Operating Expenses 1.57%

How has the Fund Performed?

Who is the Fund's Investment Manager?

Martin J. Schafer has been responsible for the day-to-day Fund management since
its inception in May 1985. Mr. Schafer has been a Portfolio Manager for Invista
since 1992 and has been with the Principal Financial Group since 1977.

Annual Total Return
Calendar Years Ended December 31

1995 18.30%
1996 3.10%
1997 9.00%
1998 6.44%

Principal Bond Fund Income-Oriented

What is the Fund's Investment Objective?

The Principal Bond Fund seeks to provide as high a level of income as is
consistent with preservation of capital and prudent investment risk.

What is the Fund's Investment Strategy?

The Fund invests in fixed-income securities. Generally, the Fund invests on a
long-term basis but may make short-term investments.

Under normal circumstances, the Fund invests at least 65% of its assets in:
o debt securities and taxable municipal bonds;
o rated, at the time of purchase, in one of the top four categories
by S&P or Moody's, or
o if not rated, in the Manager's opinion are of comparable quality.
o similar Canadian, Provincial, or Federal Government securities payable
in U.S. dollars;
o securities issued or guaranteed by the U.S. Government or its agencies.

What are the Significant Risks?

Bond values fluctuate based on changes in interest rates, market conditions, and
announcements of other economic, political, or financial information. In
addition, the value of the securities held by the Fund may be affected by
factors such as credit rating of the entity that issued the bond and effective
maturities of the bond. Lower quality and longer maturity bonds will be subject
to greater credit risk and price fluctuations than higher quality and shorter
maturity bonds. During periods of falling interest rates, the price of a bond
rises, and when rates rise the price of a bond declines. Because the value of
the securities in which the Fund invests fluctuate the principal values and
investment returns will fluctuate. When shares of the Fund are sold, they may be
worth more or less than the amount paid for them.

------------------------------------
Portfolio Composition
as of December 31, 1998
------------------------------------
Corporate Bonds: 98%
Commercial Paper: 2%
------------------------------------
------------------------------------
Maturity Profile
as of December 31, 1998
------------------------------------
Average Bond Quality: Baa1
Average Bond Maturity: 9.67 years
Average Duration: 6.26 years
------------------------------------
------------------------------------
Highest & Lowest Quarterly Total
Returns for the Last Ten Years
------------------------------------
Quarter Ended Quarterly Return
------------------------------------
6/30/95 8.47%
3/31/96 (3.36)%
------------------------------------

Who Should Invest in this Fund?

The Fund is suitable for an investor seeking monthly dividends to provide income
or to be reinvested in Fund shares for growth. Investors must also be willing to
accept fluctuations in the value of the Fund's shares.

What are the Fund's Operating Expenses?

As of October 31, 1998
Management Fees* 0.48%
12b-1 Fees 0.89%
Other Expenses 0.44%
-----
Total Fund Operating Expenses 1.81%
*The Manager voluntarily waived certain fees and expenses during the fiscal year
ended October 31, 1998. After waiver, the Class B share management fee paid was
0.34% (total expenses 1.67%).

How has the Fund Performed?

Who is the Fund's Investment Manager?

Scott A. Bennett, CFA, has been responsible for the day-to-day Fund management
since November 1996. Mr. Bennett has been Assistant Director - Securities
Investment of Principal Capital Management LLC since 1996. Prior thereto, he was
Investment Manager.

Annual Total Return
Calendar Years Ended December 31

1995 22.50%
1996 12.10%
1997 10.20%
1998 6.35%

Principal High Yield Fund Income-Oriented

What is the Fund's Investment Objective?

The Principal High Yield Fund seeks high current income primarily by purchasing
high yielding lower or non-rated fixed income securities which are believed not
to involved undue risk to income or principal. Capital growth is a secondary
objective when consistent with the objective of high current income.

What is the Fund's Investment Strategy?

The Fund invest predominantly in lower rated bonds, commonly referred to as
"junk bonds" and may invest 100% of its assets in such bonds. Bonds of this type
are considered to be speculative with regard to payment of interest and return
of principal. The Fund invests its assets in securities rated Ba1 or lower by
Moody's or BB+ or lower by S&P. The Fund may also invest in unrated securities
which the Manager believes to be of comparable quality. These securities are
considered to be speculative with respect to the issuer's ability to pay
interest and repay principal. The Fund does not invest in securities rated below
Caa (Moody's) or below CCC (S&P) at the time of purchase. The yield to maturity
on these securities is generally lower than the yield to maturity on lower rated
fixed income securities.

What are the Significant Risks?

This Fund involves special risks. Compared to higher rated securities, lower
rated securities may:
o have a more volatile market value, generally reflecting specific events
affecting the issuer;
o be subject to greater risk of loss of income and principal (issuers are
generally not as financially secure);
o have a lower volume of trading, making it more difficult to value or
sell the security; and
o be more susceptible to a change in value or liquidity based on adverse
publicity and investor perception, whether or not based on factual
analysis.

The Fund tries to minimize the risks of investing in lower rated
securities by diversification, investment analysis, and attention to current
developments in interest rates and economic conditions. When shares of the Fund
are sold, they may be worth more or less than the amount paid for them.

------------------------------------
Portfolio Composition
as of December 31, 1998
------------------------------------
Corporate Bonds: 95.8%
Commercial Paper: 4.2%
------------------------------------
------------------------------------
Maturity Profile
as of December 31, 1998
------------------------------------
Average Bond Quality: Ba3
Average Bond Maturity: 7.72 years
Average Duration: 4.73 years
------------------------------------
------------------------------------
Highest & Lowest Quarterly Total
Returns for the Last Ten Years
------------------------------------
Quarter Ended Quarterly Return
------------------------------------
6/30/95 5.16%
9/30/98 (6.75%)
------------------------------------

Who Should Invest in this Fund?

The Fund is generally a suitable investment for investors seeking monthly
dividends to provide income or to be reinvested in Fund shares for growth.
Investors should carefully consider their ability to assume the risks of this
Fund before making an investment. Investors generally should not invest a large
portion of their assets in the Fund due to the speculative nature of the
securities in which the Fund invests. Investors should be prepared to maintain
their investment in the Fund during periods of adverse market conditions. This
Fund should not be relied on to meet short-term financial needs.

What are the Fund's Operating Expenses?

As of October 31, 1998
Management Fees 0.60%
12b-1 Fees 1.03%
Other Expenses 0.71%
-----
Total Fund Operating Expenses 2.34%

How has the Fund Performed?

Who is the Fund's Investment Manager?

Mark P. Denkinger, CFA, Assistant Director - Securities Investment of Principal
Capital Management LLC, has been responsible for the day-to-day Fund management
since April 1998. Mr. Denkinger has been with the Principal Financial Group
since 1990.

Annual Total Return
Calendar Years Ended December 31

1995 14.80%
1996 11.10%
1997 8.90%
1998 (2.14)%

Principal Utilities Fund Growth-Oriented

What is the Fund's Investment Objective?

The Principal Utilities Fund seeks to provide 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.

What is the Fund's Investment Strategy?

The Fund invests in securities issued by companies in the public utilities
industry. These companies include:
o companies engaged in the manufacturer production, generation, sale, or
distribution of electric or gas energy or other types of energy;
o companies engaged in telecommunications, including telephone,
telegraph, satellite, microwave, and other communications media (but
not public broadcasting or cable television).
Under normal market conditions, at least 65% (and up to 100%) of the assets of
the Fund are invested in equity securities and fixed-income securities in the
public utilities industry.

What are the Significant Risks?

Since the Fund's investments are concentrated in the utilities industry, the
value of its shares changes in response to factors affecting those industries.
Many utilities companies have been subject to risks of:
o increase in fuel and other operating costs;
o changes in interest rates on borrowings for capital improvement
programs;
o changes in applicable laws and regulations;
o changes in technology which render existing plants, equipment, or
products obsolete;
o effects of conservation; and
o increase in costs and delays associated with environmental regulations.
The share price of the Fund may fluctuate more widely than the value of shares
of a fund that invests in a broader range of industries. Generally, the prices
charged by utilities are regulated to protect the public and ensure utility
companies earn enough to grow and provide appropriate services. The prices of
utility company bonds rise when interest rates fall and fall when interest rates
rise. When shares of the Fund are sold, they may be worth more or less than the
amount paid for them.

------------------------------------
Top Holdings
as of December 31, 1998
------------------------------------
Ameritech Corp.
Bellsouth Corp.
MCI Communications Group
US West Communications Group
Sprint Corp.
Bell Atlantic Corp.
GTE Corp.
AT&T Corp.
Pinnacle West Capital Group
GPU Inc.
------------------------------------
------------------------------------
Top Industries
as of December 31, 1998
------------------------------------
Telephone Communications
Electric Services
Combination Utility Services
Gas Production & Distribution
------------------------------------
------------------------------------
Highest & Lowest Quarterly Total
Returns for the Last Four Years
------------------------------------
Quarter Ended Quarterly Return
------------------------------------
12/31/97 19.05%
3/31/99 (6.46)%
------------------------------------

Who Should Invest in this Fund?

The Fund is a suitable investment for investors seeking quarterly dividends for
income or to be reinvested for growth. Suitable investors are those who want to
invest in companies in the utilities industry and are willing to accept
fluctuations in the value of their investment.

What are the Fund's Operating Expenses?

As of October 31, 1998
Management Fees 0.60%
12b-1 Fees 0.90%
Other Expenses 0.50%
-----
Total Fund Operating Expenses 2.00%

How has the Fund Performed?

Who is the Fund's Investment Manager?

Catherine A. Zaharis, CFA, has been responsible for the day-to-day Fund
management since its inception in April 1993. Ms. Zaharis has been a Portfolio
Manager for Invista since 1987.

Annual Total Returns
Calendar Years Ended December 31

1995 33.00%
1996 3.70%
1997 28.70%
1998 21.59%

Principal Real Estate Fund Growth-Oriented

What is the Fund's Investment Objective?

The Principal Real Estate Fund seeks to generate total return by investing
primarily in equity securities of companies principally engaged in the real
estate industry.

What is the Fund's Investment Strategy?

The Fund invests primarily in equity securities of companies engaged in the real
estate industry. For purposes of the Fund's investment policies, a real estate
company has at least 50% of its assets, income, or profits derived from products
or services related to the real estate industry. Real estate companies include
real estate investment trusts (REIT) and companies with substantial real estate
holdings such as paper, lumber, hotel, and entertainment companies. Companies
whose products and services relate to the real estate industry include building
supply manufacturers, mortgage lenders, and mortgage servicing companies. The
Fund may invest up to 25% of its assets in securities of foreign real estate
companies.

What are the Significant Risks?

Securities of real estate companies are subject to securities market risks as
well as risks similar to those of direct ownership of real estate. These
include:

o declines in the value of real estate;
o risks related to general and local economic conditions;
o overbuilding; and o increases in property taxes and operating expenses.

In addition to the risks listed above, equity REITs are affected by the changes
in the value of the properties owned by the trust. Mortgage REITs are affected
by the quality of the credit extended. The values of the Fund's assets change on
a daily basis. The current share price reflects the activities of individual
companies and general market and economic conditions. In the short term, share
prices can fluctuate dramatically in response to these factors. Because of these
fluctuations, principal values and investment returns vary. When shares of the
Fund are sold, they may be worth more or less than the amount paid for them.

------------------------------------
Top Holdings
as of December 31, 1998
------------------------------------
Irvine Apartment Communities, Inc.
Cabot Industrial Trust
First Industrial Realty
Bradley Real Estate Inc.
Carramerica Realty Corp.
Gables Residential Trust
Federal Realty Investment Trust
Simon Property Group, Inc.
Meristar Hospitality Corp.
Archstone Comm. Trust
------------------------------------
------------------------------------
Top Industries
as of December 31, 1998
------------------------------------
Miscellaneous Investing
Apartment
Real Estate Operators & Lessor
Hotels & Motels
------------------------------------
------------------------------------
Highest & Lowest Quarterly Total
Returns for the Last One Year
------------------------------------
Quarter Ended Quarterly Return
------------------------------------
12/31/98 0.05%
9/30/98 (7.97)%
------------------------------------

Who Should Invest in this Fund?

TheFund is generally a suitable investment for investors seeking long-term
growth:
o who want to invest in companies engaged in the real estate industry,
and
o who are willing to accept fluctuations in the value of the investment.

What are the Fund's Operating Expenses?

As of October 31, 1998
Management Fees 0.90%
12b-1 Fees 0.60%
Other Expenses 0.97%
-----
Total Fund Operating Expenses 2.47%

How has the Fund Performed?

Who is the Fund's Investment Manager?

Kelly D. Rush, CFA, has been responsible for the day-to-day Fund management
since its inception in December 1997. Mr. Rush has been Assistant Director of
Commercial Real Estate, Principal Capital Management LLC since 1996. Prior
thereto he was Senior Administrator, Investment - Commercial Real Estate.

Annual Total Return
Calendar Year Ended December 31

1998 (14.02%)

Principal Balanced Fund Growth-Oriented

What is the Fund's Investment Objective?

The Principal Balanced Fund seeks to generate a total investment return
consisting of current income and capital appreciation while assuming reasonable
risks in furtherance of the investment objectives.

What is the Fund's Investment Strategy?

The Fund invests primarily in common stocks and corporate bonds. It may also
invest in other equity securities, government bonds and notes, and cash. Though
the percentages in each category are not fixed, common stocks generally
represent 40% to 70% of the Fund's assets. The remainder of the Fund's assets
are invested in bonds and cash.

As of October 31, 1998

(pie chart)

Cash and Cash Equivalents
1.82%

Stocks
54.08%

Bonds
44.10%

What are the Significant Risks?

The value of the stocks owned by the Fund changes on a daily basis. Stock prices
reflect the activities of individual companies and general market and economic
conditions. In the short term, stock prices can fluctuate dramatically in
response to these factors.

Bond values change daily. Their prices reflect changes in interest rates, market
conditions, and announcements of other economic, political, or financial
information. When interest rates fall, the price of a bond rises and when
interest rates rise, the price declines. When shares of the Fund are sold, they
may be worth more or less than the amount paid for them.

------------------------------------
Top Holdings
as of December 31, 1998
------------------------------------
FHLMC
Chase Comm. Mortgage
DLJ Comm. Mort. Corp.
IBM Corp.
Allstate Corp.
GMAC Commercial Mort.
Merck & Co.
Pepsico, Inc.
------------------------------------
------------------------------------
Top Industries
as of December 31, 1998
------------------------------------
Commercial Banks
Fire, Marine & Casualty Ins.
Motor Vehicles & Equip.
Business Credit Unions
Computer & Office Equipment
------------------------------------
------------------------------------
Highest & Lowest Quarterly Total
Returns for the Last Ten Years
------------------------------------
Quarter Ended Quarterly Return
------------------------------------
6/30/97 9.05%
9/30/98 (4.73)%
------------------------------------

Who Should Invest in this Fund?

The Fund is a suitable investment for investors seeking long-term growth but who
are uncomfortable accepting the risks of investing entirely in common stocks.

What are the Fund's Operating Expenses?

As of October 31, 1998
Management Fees 0.59%
12b-1 Fees 0.91%
Other Expenses 0.54%
-----
Total Fund Operating Expenses 2.04%

How has the Fund Performed?

Who is the Fund's Investment Manager?

Douglas D. Herold, CFA, has been co-manager responsible for the day-to-day Fund
management since October 1998. Mr. Herold has been a Portfolio Manager for
Invista since 1996. Prior thereto, he was Securities Analyst from 1993-1996.

Martin J. Schafer has been co-manager of the Fund since December 1997. Mr.
Schafer has been Portfolio Manager for Invista since 1992.

Judith A. Vogel, CFA, has been co-manager of the Fund since April 1993. Ms.
Vogel has been Portfolio Manager for Invista since 1987.

Annual Total Returns
Calendar Years Ended December 31

1995 22.50%
1996 12.10%
1997 16.30%
1998 10.31%

Principal Blue Chip Fund Growth-Oriented
What is the Fund's Investment Objective?

The Principal Blue Chip Fund seeks to achieve growth of capital and growth of
income by investing primarily in common stocks of well capitalized, established
companies.

What is the Fund's Investment Strategy?

Invista selects the companies it believes to have the potential for growth of
capital, earnings, and dividends. Under normal market conditions, the Fund
invests at least 65% (and may invest up to 100%) of its assets in blue chip
companies. Blue chip companies are easily identified by:

o size (market capitalization of at least $1 billion)
o established history of earnings and dividends
o easy access to credit
o good industry position
o superior management structure

In addition, the large market of publicly held shares for these companies and
their generally high trading volume results in a relatively high degree of
liquidity for these stocks.

What are the Significant Risks?

The value of the stocks owned by the Fund changes on a daily basis. The current
price reflects the activities of individual companies and general market and
economic conditions. In the short term, stock prices can fluctuate dramatically
in response to these factors. Because of these fluctuations, principal values
and investment returns vary. When shares of the Fund are sold, they may be worth
more or less than the amount paid for them.

------------------------------------
Top Holdings
as of December 31, 1998
------------------------------------
Wal-Mart Stores, Inc.
GTE Corp.
Anheuser-Busch Co., Inc.
Hewlett-Packard Co.
AT&T Corporation
McDonald's Corp.
Merck & Co., Inc.
Sysco, Corp.
General Electric Co.
Johnson & Johnson
------------------------------------
------------------------------------
Top Industries
as of December 31, 1998
------------------------------------
Drugs
Telephone Communications
Petroleum Refining
Computer & Office Equipment
Beverages
------------------------------------
------------------------------------
Highest & Lowest Quarterly Total
Returns for the Last Seven Years
------------------------------------
Quarter Ended Quarterly Return
------------------------------------
6/30/97 16.18%
9/30/98 (10.10)%
------------------------------------

Who Should Invest in this Fund?

The Fund is generally a suitable investment for investors seeking long-term
growth who are willing to accept the risks of investing in common stocks but who
prefer investing in larger, established companies. The Fund is not appropriate
for short-term investors.

What are the Fund's Operating Expenses?

As of October 31, 1998
Management Fees 0.48%
12b-1 Fees 0.91%
Other Expenses 0.63%
-----
Total Fund Operating Expenses 2.02%

How has the Fund Performed?

Who is the Fund's Investment Manager?

Mark T. Williams, CFA, has been responsible for the day-to-day Fund management
since its inception in March 1991. Mr. Williams has been a Portfolio Manager for
Invista since 1991.

Annual Total Returns
Calendar Years Ended December 31

1995 32.00%
1996 15.70%
1997 25.30%
1998 15.69%

Principal Capital Value Fund Growth-Oriented

What is the Fund's Investment Objective?

The Principal Capital Value Fund seeks to achieve primarily long-term capital
appreciation and secondarily growth of investment income through the purchase
primarily of common stocks, but the Fund may invest in other securities.

What is the Fund's Investment Strategy?

Invista invests primarily in securities that have "value" characteristics. This
process is known as "value investing." Value stocks tend to have higher yields
and lower price to earnings ratios than other stocks.

Securities chosen for investment may include those of companies which Invista
believes can be expected to share in the growth of the nation's economy over the
long term.

What are the Significant Risks?

The current price of the Fund's assets reflect the activities of the individual
companies and general market and economic conditions. In the short term, stock
prices can fluctuate dramatically in response to these factors. Because of these
fluctuations, principal values and investment returns vary. When shares of the
Fund are sold, they may be worth more or less than the amount paid for them.

------------------------------------
Top Holdings
as of December 31, 1998
------------------------------------
Pharmacia & Upjohn
First Union Corp.
US West Communications Group
SBC Communications Inc.
Anheuser-Busch Cos., Inc.
Kimberly Clark Corp.
Masco Corp.
AT&T Corp.
Comerica, Inc.
GATX Corp.
------------------------------------
------------------------------------
Top Industries
as of December 31, 1998
------------------------------------
Commercial Banks
Telephone Communication
Drugs
Petroleum Refining
Misc. Converted Paper
------------------------------------
------------------------------------
Highest & Lowest Quarterly Total
Returns for the Last Four Years
------------------------------------
Quarter Ended Quarterly Return
------------------------------------
6/30/97 13.05%
9/30/98 (10.61)%
------------------------------------

Who Should Invest in this Fund?

The Fund is generally a suitable investment for investors seeking long-term
growth. Investors should be willing to accept the risks of investing in common
stocks but also prefer investing in companies that appear to be considered
undervalued relative to similar companies. This Fund is not appropriate for
short-term investors.

What are the Fund's Operating Expenses?

As of October 31, 1998
Management Fees 0.38%
12b-1 Fees 0.79%
Other Expenses 0.35%
-----
Total Fund Operating Expenses 1.52%

How has the Fund Performed?

Who is the Fund's Investment Manager?

Catherine A. Zaharis, CFA, has been responsible for the day-to-day Fund
management since November 1996. Ms. Zaharis has been a Portfolio Manager for
Invista since 1987.

Annual Total Returns
Calendar Years Ended December 31

1995 30.80%
1996 22.20%
1997 27.50%
1998 11.29%

Principal Growth Fund Growth-Oriented

What is the Fund's Investment Objective?

The Principal Growth Fund seeks growth of capital through the purchase primarily
of common stocks, but the Fund may invest in other securities.

What is the Fund's Investment Strategy?

To achieve the Fund's objective, Invista uses an approach described as
"fundamental analysis." The basic steps involved in this analysis are:

o Research. Invista researches economic prospects over the next one to
two years rather than focusing on near term expectations. This approach
is designed to provide insight into a company's real growth potential.

o Valuation. The research findings allow Invista to identify the
prospects for the major industrial, commercial, and financial segments
of the economy. Invista looks at such factors as demand for products,
capacity to produce, operating costs, pricing structure, marketing
techniques, adequacy of raw materials and components, domestic and
foreign competition, and research productivity. It then uses this
information to judge the prospects for each industry for the near and
intermediate term.

o Stock selection. Invista then purchases securities of issuers which
appear to have high growth potential.

What are the Significant Risks?

These securities present greater opportunities for capital growth because of
high potential earnings growth but may also involve greater risk than securities
which do not have the same potential. The companies may have limited product
lines, markets or financial resources, or may depend on a limited management
group. As a result, these securities may change in value more than those of
larger, more established companies. As the value of the stocks owned by the Fund
changes, the Fund share price changes. When shares of the Fund are sold, they
may be worth more or less than the amount paid for them.

------------------------------------
Top Holdings
as of December 31, 1998
------------------------------------
MCI Worldcom Inc.
Home Depot Inc.
Tyco International Ltd.
Intel Corp.
Pharmacia & Upjohn
Pepsico, Inc.
Ceridian Corp.
American Home Prod.
Microsoft Corp.
Federal National Mortgage
------------------------------------
------------------------------------
Top Industries
as of December 31, 1998
------------------------------------
Drugs
Commercial Banks
Computer & Office Equipment
Telephone Communications
Electronic Components & Accessories
------------------------------------
------------------------------------
Highest & Lowest Quarterly Total
Returns for the Last Four Years
------------------------------------
Quarter Ended Quarterly Return
------------------------------------
12/31/98 18.93%
9/30/98 (14.75)%
------------------------------------

Who Should Invest in this Fund?

The Fund is generally a suitable investment for investors who want long-term
growth. Additionally, the investor must be willing to accept the risks of
investing in common stocks that may have greater risks than stocks of companies
with lower potential for earnings growth.

What are the Fund's Operating Expenses?

As of October 31, 1998
Management Fees 0.41%
12b-1 Fees 0.65%
Other Expenses 0.40%
-----
Total Fund Operating Expenses 1.46%

How has the Fund Performed?

Who is the Fund's Investment Manager?

Michael R. Hamilton has been responsible for the day-to-day Fund management
since its inception in August 1987. Mr. Hamilton has been a Portfolio Manager
for Invista since 1987.

Annual Total Returns
Calendar Years Ended December 31

1995 32.50%
1996 11.50%
1997 27.80%
1998 19.77%

Principal MidCap Fund Growth-Oriented

What is the Fund's Investment Objective?

The Principal MidCap Fund seeks to achieve long-term capital appreciation by
investing primarily in securities of emerging and other growth-oriented
companies.

What is the Fund's Investment Strategy?

Invista chooses stocks which are thought to be responsive to changes in the
marketplace and have the fundamental characteristics to support growth. The Fund
may invest for any period in any industry, in any kind of growth-oriented
company. Companies may range from the well-established and well-known to the new
or those with limited operating history.

Under normal market conditions, the Fund invests at least 65% of its assets in
securities of companies with market capitalizations in the $1 billion to $10
billion range. Market capitalization is defined as total current market value of
a company's outstanding common stock. The Fund may invest up to 20% of its
assets in securities of foreign companies.

What are the Significant Risks?

The value of the stocks owned by the Fund changes on a daily basis. The current
share price reflects the activities of individual companies and general market
and economic conditions. The Fund's share price may fluctuate more than that of
funds primarily invested in stocks of large companies. Mid-sized companies may
pose greater risk due to narrow product lines, limited financial resources, less
depth in management, or a limited trading market for their stocks. In the short
term, stock prices can fluctuate dramatically in response to these factors.
Because of these fluctuations, principal values and investment returns vary.
When shares of the Fund are sold, they may be worth more or less than the amount
paid for them.

------------------------------------
Top Holdings
as of December 31, 1998
------------------------------------
EMC Corp.
Synopsys, Inc.
Mercantile Bancorp., Inc.
TCF Financial Corp.
Maytag Corp.
North Fork Bancorp., Inc.
Watson Pharmaceuticals
Alternative Living
Greenpoint Financial Corp.
HBO & Co.
------------------------------------
------------------------------------
Top Industries
as of December 31, 1998
------------------------------------
Commercial Banks
Computer & Data Processing Services
Drugs
Medical Services & Health
Savings Institutions
------------------------------------
------------------------------------
Highest & Lowest Quarterly Total
Returns for the Last Four Years
------------------------------------
Quarter Ended Quarterly Return
------------------------------------
12/31/98 16.93%
9/30/98 (21.31)%
------------------------------------

Who Should Invest in this Fund?

The Fund is generally a suitable investment for investors seeking long-term
growth and who are willing to accept the potential for short-term fluctuations
in the value of their investments. It is designed for long-term investors for a
portion of their investments and not designed for investors seeking income or
conservation of capital.

What are the Fund's Operating Expenses?

As of October 31, 1998
Management Fees 0.56%
12b-1 Fees 0.70%
Other Expenses 0.47%
-----
Total Fund Operating Expenses 1.73%

How has the Fund Performed?

Who is the Fund's Investment Manager?

Michael R. Hamilton has been responsible for the day-to-day Fund management
since its inception in December 1987. Mr. Hamilton has been a Portfolio Manager
for Invista since 1987.

Annual Total Returns
Calendar Years Ended December 31

1995 18.30%
1996 3.10%
1997 22.30%
1998 (0.67)%

Principal SmallCap Fund Growth-Oriented

What is the Fund's Investment Objective?

The Principal SmallCap Fund seeks to achieve long-term growth of capital by
investing primarily in equity securities of companies with comparatively smaller
market capitalizations.

What is the Fund's Investment Strategy?

The Fund invests in equity securities of companies in the U.S. with
comparatively smaller market capitalizations. Market capitalization is defined
as total current market value of a company's outstanding common stock. Under
normal market conditions, the Fund invests at least 65% of its assets in
securities of companies with market capitalizations of $1 billion or less.

In selecting the portfolio securities Invista looks at stocks with value and/or
growth characteristics. The value orientation emphasizes buying stocks at less
than their investment value and avoiding stocks whose price has been
artificially built up. The growth orientation emphasizes buying stocks of
companies whose potential for growth of capital and earnings is expected to be
above average.

What are the Significant Risks?

Investments in companies with smaller market capitalizations may involve greater
risks and wide, rapid fluctuations in price than investments in larger, more
mature companies. Smaller companies may be developing or marketing new products
or services for which markets are not yet established and may never become
established. While small, unseasoned companies may offer greater opportunities
for capital growth than larger, more established companies, they also involve
greater risks and should be considered speculative.

The value of the stocks owned by the Fund changes on a daily basis. The current
share price reflects the activities of individual companies as well as general
market and economic conditions. In the short term, stock prices can fluctuate
dramatically in response to these factors. Because of these fluctuations,
principal values and investment returns vary. When shares of the Fund are sold,
they may be worth more or less than the amount paid for them.

------------------------------------
Top Holdings
as of December 31, 1998
------------------------------------
Liposome Company Inc.
The Buckle Inc.
DIIGroup Inc.
DSP Communications Inc.
Tommy Hilfiger Corp.
Fore Systems Inc.
Advanced Communications
Shorewood Packaging Corp.
Abercrombie & Fitch
WetSeal CL A
------------------------------------
------------------------------------
Top Industries
as of December 31, 1998
------------------------------------
Computer & Data Processing Services
Drugs
Communication Equipment
Telephone Communication
Electronic Components & Accessories
------------------------------------
------------------------------------
Highest & Lowest Quarterly Total
Returns for the Last One Year
------------------------------------
Quarter Ended Quarterly Return
------------------------------------
12/31/98 21.76%
9/30/98 (23.56)%
------------------------------------

Who Should Invest in this Fund?

The Fund is a suitable investment for investors seeking long-term growth and who
are willing to accept the potential for volatile fluctuations in the value of
their investment. It is not designed for investors seeking income or
conservation of capital.

What are the Fund's Operating Expenses?

As of October 31, 1998
Management Fees 0.85%
12b-1 Fees 0.63%
Other Expenses 1.32%
-----
Total Fund Operating Expenses 2.80%

How has the Fund Performed?

Who is the Fund's Investment Manager?

John F. McClain has been co-manager responsible for the day-to-day Fund
management since inception in April 1998. Mr. McClain has been a Portfolio
Manager for Invista since 1995. Prior thereto, he was Investment Officer from
1992-1995.

Mark T. Williams, CFA, has been co-manager of the Fund since inception in April
1998. Mr. Williams has been Portfolio Manager for Invista since 1991.

Annual Total Returns
Calendar Year Ended December 31

1998 (6.28)%

Principal International Fund Growth-Oriented

What is the Fund's Investment Objective?

The Principal International Fund seeks long-term growth of capital by investing
in a portfolio of equity securities of companies domiciled in any of the nations
of the world.

What is the Fund's Investment Strategy?

The Fund invests in common stocks of companies established outside of the U.S.
Under normal market conditions, the Fund intends to have at least 65% of its
assets invested in companies in at least three different countries. Currently
the Fund does not invest in equity securities of U.S. companies. Primary
consideration is given to securities of corporations of Western Europe, North
America, and Australasia (Australia, Japan and Far East Asia). In choosing
investments for the Fund, Invista pays particular attention to the long-term
earnings prospects of the various companies under consideration. Invista then
weighs those prospects relative to the price of the security.

What are the Significant Risks?

The Fund owns stocks whose values change on a daily basis due to the activities
of individual companies as well as general market and economic conditions. In
the short term, stock prices and currencies can fluctuate dramatically in
response to these factors. In addition, there are risks involved with any
investment in foreign securities. These include the risk that a foreign security
could lose value as a result of political, financial, and economic events in
foreign countries.

Foreign securities may be subject to securities regulators with less stringent
accounting and disclosure standards than are required of U.S. companies.
Securities of foreign issuers may be less liquid than those of comparable
domestic issuers. When shares of the Fund are sold, they may be worth more or
less than the amount paid for them.

------------------------------------
Top Countries
as of December 31, 1998
------------------------------------
United Kingdom Netherlands
Sweden Finland
Italy
------------------------------------
------------------------------------
Top Holdings
as of December 31, 1998
------------------------------------
Telecom Italia
Philips Electronics
Bank of Ireland
Imasco Ltd.
Nestle
Novartis AG
WPP Group PLC
Unilever NV
Diageo PLC
ECI Telecommunications
------------------------------------
Top Industries
as of December 31, 1998
------------------------------------
Commercial Banks
Telephone Communications
Meat Products
Chewing & Smoking Tobacco
Drugs
------------------------------------
------------------------------------
Highest & Lowest Quarterly Total
Returns for the Last Four Years
------------------------------------
Quarter Ended Quarterly Return
------------------------------------
12/31/98 15.49%
9/30/98 (17.99)%
------------------------------------

Who Should Invest in this Fund?

The Fund is suitable for investors who seek long-term growth and who want to
invest in non-U.S. companies. This Fund is not appropriate for investors who are
seeking either preservation of capital or high current income. Suitable
investors must be able to assume the increased risks of higher price volatility
and currency fluctuations associated with investments in international stocks.

What are the Fund's Operating Expenses?

As of October 31, 1998
Management Fees 0.68%
12b-1 Fees 0.74%
Other Expenses 0.49%
-----
Total Fund Operating Expenses 1.91%

How has the Fund Performed?

Who is the Fund's Investment Manager?

Scott D. Opsal, CFA, has been responsible for the day-to-day Fund management
since April 1994. Mr. Opsal has been Executive Vice President and Chief
Investment Officer of Invista since 1997. Prior thereto he was Vice President
from 1986-1997.

Annual Total Returns
Calendar Years Ended December 31

1995 10.90%
1996 22.60%
1997 11.40%
1998 7.78%

Principal International SmallCap Fund Growth-Oriented

What is the Fund's Investment Objective?

The Principal International SmallCap Fund seeks to achieve long-term growth of
capital by investing primarily in equity securities of non-United States
companies with comparatively smaller market capitalizations.

What is the Fund's Investment Strategy?

The Fund invests in stocks of non-U.S. companies with comparatively smaller
market capitalizations. Market capitalization is defined as total current market
value of a company's outstanding common stock. Under normal market conditions,
the Fund invests at least 65% of its assets in securities of companies having
market capitalizations of $1 billion or less.

The Fund diversifies its investments geographically. There is no limitation of
the percentage of assets that may be invested in one country or denominated in
any one currency. However, under normal market circumstances, the Fund intends
to have at least 65% of its assets invested in securities of companies of at
least three countries.

What are the Significant Risks?

Foreign stocks carry risks that generally found in stocks of U.S. companies.
These include the risk that a foreign security could lose value as a result of
political, financial, and economic events in foreign countries. In addition,
foreign securities may be subject to securities regulators with less stringent
account and disclosure standards than are required of U.S. companies.

Investment in companies with small market capitalizations carry their own risks.
Historically, small company securities have been more volatile in price than
larger company securities, especially over the short-term. While small companies
may offer greater opportunities for capital growth than larger, more established
companies, they also involve greater risks and should be considered speculative.
When shares of the Fund are sold, they may be worth more or less than the amount
paid for them.

------------------------------------
Top Countries
as of December 31, 1998
------------------------------------
Netherlands United Kingdom
Australia Canada
Finland
------------------------------------
------------------------------------
Top Holdings
as of March 31, 1999
------------------------------------
Metronet Comm. ADR
Equant ADR Reg Shares
Unique International NV
Auckland Intl. Airport Ltd.
Austria Tabakwerke AG
ESAT Telecom Group ADR
KABA Holdings AG
Orbotech Ltd.
Ryanair Holdings PLC ADR
Research In Motion Ltd.
------------------------------------
Top Industries
as of December 31, 1998
------------------------------------
Telephone Communications
Computer & Data Processing Services
Security Brokers & Dealers
Airports, Flying Fields
Electronic Distribution Equipment
------------------------------------
------------------------------------
Highest & Lowest Quarterly Total
Returns for the Last Two Years
------------------------------------
Quarter Ended Quarterly Return
------------------------------------
3/31/98 21.77%
9/30/98 (20.02)%
------------------------------------

Who Should Invest in this Fund?

The Fund is suitable for investors seeking long-term growth who want to invest a
portion of their assets in smaller, non-U.S. companies. This Fund is not
appropriate for investors seeking either preservation of capital or high current
income. Investors must be able to assume the increased risks of higher price
volatility and currency fluctuations associated with investments in
international stocks.

What are the Fund's Operating Expenses?

As of October 31, 1998
Management Fees 1.20%
12b-1 Fees 0.61%
Other Expenses 1.09%
-----
Total Fund Operating Expenses 2.90%

How has the Fund Performed?

Who is the Fund's Investment Manager?

Darren K. Sleister has been responsible for the day-to-day Fund management since
its inception in May 1997. Mr. Sleister has been a Portfolio Manager for Invista
since 1995. Prior thereto he was a Securities Analyst.

Annual Total Returns
Calendar Year Ended December 31

1998 14.00%

Principal International Emerging Markets Fund Growth-Oriented

What is the Fund's Investment Objective?

The Principal International Emerging Markets Fund seeks to achieve long-term
growth of capital by investing primarily in equity securities of issuers in
emerging market countries.

What is the Fund's Investment Strategy?

The Fund invests in common stocks of companies in emerging market countries. The
term "emerging market country" means any country which is considered to be an
emerging country by the international financial community. These countries
generally include every nation in the world except the United States, Canada,
Japan, Australia, New Zealand, and most nations located in Western Europe.
Investing in many emerging market countries is not feasible or may involve
unacceptable political risk. Invista focuses on those emerging market countries
it believes have strongly developing economies and markets which are becoming
more sophisticated.

What are the Significant Risks?

------------------------------------
Top Countries
as of December 31, 1998
------------------------------------
Israel Mexico
Brazil Hong Kong
India
------------------------------------
------------------------------------
Top Holdings
as of December 31, 1998
------------------------------------
Currency Contract-USD
YPF Sociedad Anonima ADR
Orbotech Ltd.
Quilmes Industrial Quins SA ADR
ECI Telecommunications Ltd. ADR
Matav RT ADR
Fomento (FEMSA)
Videsh Sanchar Nigam Ltd.
Telec De Sao Paulo SA
Titan Cement Co.
------------------------------------
------------------------------------
Top Industries
as of December 31, 1998
------------------------------------
Telephone Communications
Beverages
Commercial Banks
Electric Services
Electronic Components & Accessories
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------------------------------------
Highest & Lowest Quarterly Total
Returns for the Last Two Years
------------------------------------
Quarter Ended Quarterly Return
------------------------------------
12/31/98 13.09%
9/30/98 (19.13)%
------------------------------------

Who Should Invest in this Fund?

This Fund is a suitable investment for investors seeking long-term growth who
want to invest a portion of their assets in securities of companies in emerging
market countries. This Fund is not appropriate for investors seeking either
preservation of capital or high current income. Investors must be able to assume
the increased risks of higher price volatility and currency fluctuations
associated with investments in international stocks which trade in non-U.S.
currencies.

What are the Fund's Operating Expenses?

As of October 31, 1998
Management Fees 1.25%
12b-1 Fees 0.64%
Other Expenses 1.70%
-----
Total Fund Operating Expenses 3.59%

How has the Fund Performed?

The table and chart show the Fund's past performance of the Class B shares. It
provides some indication of the risks of investing in the Fund by showing
changes in the Fund's performance from year to year. Please remember the Fund's
past performance does not represent how it will perform in the future.

Who is the Fund's Investment Manager?

Kurtis D. Spieler has been responsible for the day-to-day Fund management since
its inception in May 1997. Mr. Spieler has been a Portfolio Manager for Invista
since 1995. Prior thereto he was a Securities Analyst.

Annual Total Returns
Calendar Year Ended December 31

1998 (17.80)%

INSTRUCTIONS FOR COMPLETING THE ENROLLMENT AND BENEFICIARY ELECTION FORM

Sections A-E of the enrollment form must be completed to enroll in your
employer's retirement plan and name your plan beneficiary. In the event your
employer makes a discretionary contribution to the plan on your behalf, the
information included on this form will be needed. You must complete this form
even if you elect not to defer. Section F must be completed if you are married
and do not designate your spouse as your sole primary beneficiary.

SECTION A: ACCOUNT REGISTRATION
Complete all the information requested in this section. Your employer can
confirm your date of employment or, if applicable, your rehire date.

SECTION B: SALARY DEFERRAL AGREEMENT
Indicate in this section the amount of your salary you want to defer. This
amount will be invested by your employer in the Principal Mutual Funds you
select in Section C.

SECTION C: INVESTMENT DIRECTION
Indicate in this section the portion of your contributions to be directed
to the Fund or Funds you choose. The total of all contributions must equal
100%.

The Fund or Funds in which you may invest are listed in the table below
with an assigned code. You must invest using the Class C shares, which your
employer has chosen for your retirement plan. Write the code of the Fund
you select in the "Fund Code" column and the name of the Fund in the "Fund
Name" column.

----------------------------------------------------------
Fund Code
-------------
Class B
GROWTH-ORIENTED FUNDS shares
----------------------------------------------------------
Domestic
--------
Balanced Fund 205
Blue Chip Fund 210
Capital Value Fund 220
Growth Fund 240
MidCap Fund 230
Real Estate Fund 248
SmallCap Fund 249
Utilities Fund 260
----------------------------------------------------------
International
-------------
International Emerging Markets Fund 243
International Fund 265
International SmallCap Fund 244
----------------------------------------------------------
INCOME-ORIENTED FUNDS
----------------------------------------------------------
Bond Fund 215
Government Securities Income Fund 235
High Yield Fund 245
Limited Term Bond Fund 247
----------------------------------------------------------
MONEY MARKET FUND
----------------------------------------------------------
Cash Management Fund 125
----------------------------------------------------------

SECTION D: BENEFICIARY INSTRUCTIONS
If this section is not completed, the plan administrator will assign your
designated beneficiary according to the priority established in the plan
documentation. If you are married and do not designate your spouse as your
sole primary beneficiary, your spouse must complete Section F of this
application.

SECTION E: SIGNATURE
The enrollment form must be signed exactly as your name appears in Section
A.

RETURN THE COMPLETED, SIGNED FORM TO YOUR EMPLOYER.

ENROLLMENT AND BENEFICIARY ELECTION FORM
(for Class B shares only)

A. Participant Information (please print)

______________________________________ _______________ _______-______-________
First Middle Initial Last Date of Birth Social Security Number

_____________________________________________
Street Address

________________________________________ _____ _____-____ ___-___-_____
City State Zip Code Daytime Phone
_____________________________________________ __________________ ______________
Employer Date of Employment Rehire Date

B. Salary Deferral Agreement

Reduce my current and future compensation each pay period by: $_______ or _____%
of pay (enter 0% here if you choose not to defer). This agreement applies to
amounts earned until changed by me in writing. I understand my Plan Sponsor may
need to reduce my deferral percentage only when required to meet certain plan
limits. Please refer to your summary Plan Description for additional
contribution limits and restrictions on changing your contribution amount.

C. Investment Direction (Indicate the percentage of each contribution to be
invested in the Principal Funds.):

Complete this section even if you elect not to defer.
Allocation
Fund Code Fund Name Percentages
--------- --------- -----------
___ ___ ___ __________________________________________________ ___ ___ ___%

___ ___ ___ __________________________________________________ ___ ___ ___%

1 0 0 %
___ ___ ___

D. Beneficiary Instructions
Note: Unless otherwise provided, if two or more beneficiaries are named, the
proceeds shall be paid to the named beneficiaries, or to the survivor or
survivors, in equal shares.

Check Box 1 and 2
1) __ I am not married and designate the person(s) named below to receive any
death benefits from the Plan.

2) __ I am married and designate the person(s) named to receive any death
benefits from the Plan. Note: If you are married and do not name your spouse
as your sole primary beneficiary, your spouse must sign the consent in
Section F and the signature must be witnessed by a Plan Representative or
Notary Public.

PRIMARY BENEFICIARY
- --------------------------------------------------------------------------------
Name Social Security # % Date of Birth Relationship Address
- --------------------------------------------------------------------------------

________________________________________________________________________________

CONTINGENT BENEFICIARY
- --------------------------------------------------------------------------------
Name Social Security # % Date of Birth Relationship Address
- --------------------------------------------------------------------------------

________________________________________________________________________________

E. Signature
For Administrator Use Only
____________________________________________________ __________________________
Participant's Signature Date
__________________________
Date Received
RETURN THE COMPLETED, SIGNED FORM TO YOUR EMPLOYER
PLAN SPONSOR - KEEP THIS FORM WITH YOUR PERMANENT PLAN RECORDS.
- --------------------------------------------------------------------------------
F. Spousal Consent

Spousal Consent: I hereby approve of, and consent to, the beneficiary
designation elected in Section D of this form by my spouse. I understand that in
approving the designation of a beneficiary other than myself, I am waiving my
right to benefits to which I would otherwise be entitled under the Plan. I
further understand that this designation will remain in effect until a
subsequent beneficiary designation with my written consent is filed.

_______________________________________________
Spouse's Name (Please Print)

____________________________________________________________
Spouse's Signature Date

The spouse named above appeared before me and signed the consent.

____________________________________________________________
Plan Representative or Notary Public Signature Date
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Spouse Not Located: I certify that my spouse cannot be located to sign this
consent. I will notify the Plan Sponsor if my spouse is located. (It must be
established to the satisfaction of the Plan Representative that your spouse
cannot be located.)

____________________________________________________________
Participant's Signature Date

I certify that the participant has established to my satisfaction that spousal
consent cannot be obtained because the spouse cannot be located.

_______________________________________________
Plan Representative's Name (Please Print)

____________________________________________________________
Plan Representative's Signature Date

- --------------------------------------------------------------------------------

Notes

________________________________________________________________________________