A Message from the President
Dear Shareholder:
Stock and bond markets began the second half of the 1997 quite strong. After
reaching record levels, U.S. equity markets experienced a market correction in
late October. This decline was in reaction to the dramatic sell off of various
international markets, particularly Hong Kong. Asia and Japan face continued
difficulties in the aftermath of a currency crisis. Extreme declines in both
these markets evidenced this problem. Europe and Latin America fared better,
enjoying strong business cycles and low inflation. At the same time, U.S. bond
markets experienced similar volatility.
Fortunately, U.S. investors rapidly reevaluated the situation and returned
domestic stock and bond prices to near predecline levels. Given a continued
strong U.S. economy and few, if any, overt signs of inflation, the long-term
outlook remains positive.
Princor shareholders weathered the market turbulence well and refused to succumb
to market jitters. Buoyed by strong investor/registered representative
relationships and a long-term investment philosophy, our shareholder base and
assets under management increased despite fluctuating markets.
After receiving shareholder approval in a proxy vote held last summer, Princor
funds will be known as the Principal Mutual Funds as of January 1, 1998. Three
of our funds will have their "descriptive" names changed, as well. Princor
Capital Accumulation, Princor Emerging Growth and Princor World funds will be
known as Principal Capital Value, Principal MidCap and Principal International
funds, respectively. These name changes are being made to provide investors with
a clearer description of the funds and their investment objectives.
Earlier this year, Princor announced the addition of two new funds--Principal
International SmallCap Fund and Principal International Emerging Markets Fund.
These funds offer investors more opportunities to participate in foreign
markets. In addition, new real estate and domestic small-cap funds will be
available in January. This will bring the total number of funds in the Principal
family to eighteen.
As the year draws to a close, we thank our shareholders for their loyalty. We
remain committed to delivering the quality financial products and services our
shareholders deserve.
Sincerely,
/S/ STEPHAN L. JONES
Stephan L. Jones
President
<TABLE>
<CAPTION>
Princor Funds Performance
Average Annual Total Returns
As of October 31, 1997
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 10.44% 15.88% 10.46% 11.53% 10.72%a 11.26%a
Blue Chip 16.81 22.57 13.78 14.88 12.78b 13.59b
Bond 4.97 10.15 7.35 8.39 9.12a 9.65a
Capital Accumulation 19.47 25.36 15.97 17.09 13.43 13.98
Emerging Growth 25.09 31.26 18.77 19.92 18.12a 18.70a
Government Securities Income 4.10 9.23 6.33 7.36 8.74 9.26
Growth 23.46 29.55 15.22 16.33 15.86 16.42
High Yield 7.05 12.33 8.67 9.73 8.23a 8.76a
International Emerging Markets (14.45)c (10.18)c
International SmallCap (4.27)c .50c
Limited Term Bond 5.14 6.75 5.27d 6.22d
Tax-Exempt Bond 3.60 8.71 6.44 7.47 8.56 9.08
Utilities 8.89 14.26 7.76e 8.83e
World 14.80 20.46 16.30 17.42 11.69 12.23
</TABLE>
1 Year 5 Years(f)
with without with without
B Shares of: CDSC* CDSC* CDSC* CDSC*
Balanced 10.96% 14.96% 15.76% 16.54%
Blue Chip 17.59 21.59 22.02 22.73
Bond 5.20 9.20 9.75 10.61
Capital Accumulation 20.13 24.13 25.14 25.82
Emerging Growth 26.64 30.64 27.66 28.31
Government Securities Income 4.65 8.65 9.38 10.25
Growth 24.92 28.92 23.26 23.95
High Yield 7.31 11.31 10.92 11.76
International Emerging Markets (13.88)c (10.29)c
International SmallCap (3.50)c .50c
Limited Term Bond 5.06 6.31 5.05d 5.77d
Tax-Exempt Bond 4.08 8.08 9.83 10.69
Utilities 9.41 13.41 14.52 15.31
World 15.62 19.62 15.26 16.05
* Contingent Deferred Sales Charge
R Shares of: 1 Year 5 Years(d)
Balanced 15.16% 13.64%
Blue Chip 21.82 17.20
Bond 9.49 7.93
Capital Accumulation 24.36 22.41
Emerging Growth 30.56 21.60
Government Securities Income 8.19 7.16
Growth 28.72 17.08
High Yield 11.14 10.05
International Emerging Markets (10.29)c
International SmallCap .50c
Limited Term Bond 6.01 5.55
Utilities 13.72 7.80
World 19.65 17.41
a Partial period, from effective date 12/18/87
b Partial period, from effective date 3/1/91
c Partial period, from effective date 8/29/97
d Partial period, from effective date 2/29/96
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.
Contents Page
Portfolio Managers Comments................1
Three Keys to More Successful Investing...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 Portfolio Investments
Balanced Fund..........................26
Blue Chip Fund.........................28
Capital Accumulation Fund..............29
Emerging Growth Fund...................30
Growth Fund, Inc.......................33
Utilities Fund, Inc....................35
Financial Highlights....................36
International Growth-Oriented Funds
Financial Statements and Highlights
Statements of Assets and Liabilities....44
Statements of Operations................45
Statements of Changes in Net Assets.....46
Notes to Financial Statements...........48
Schedules of Portfolio Investments
International Emerging Growth Fund.....54
International SmallCap Fund............56
World Fund.............................58
Financial Highlights......................62
Income-Oriented Funds
Financial Statements and Highlights
Statements of Assets and Liabilities....66
Statements of Operations................68
Statements of Changes in Net Assets.....70
Notes to Financial Statements...........72
Schedules of Portfolio Investments
Bond Fund..............................80
Government Securities Income Fund......82
High Yield Fund........................83
Limited Term Bond Fund.................85
Tax-Exempt Bond Fund...................86
Financial Highlights....................90
Money Market Funds
Financial Statements and Highlights
Statements of Assets and Liabilities....96
Statements of Operations................97
Statements of Changes in Net Assets.....98
Notes to Financial Statements..........100
Schedules of Portfolio Investments
Cash Management Fund..................104
Tax-Exempt Cash Management
Fund................................106
Financial Highlights...................110
Shareholder Meeting Results..............112
Report of Independent Auditors...........117
Federal Tax Information..................119
The Princor Family of Mutual Funds.......123
PORTFOLIO MANAGER'S COMMENTS
Princor Management Corporation, the adviser to the Princor 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 year. We believe any
Princor 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
Princor Balanced Fund
Judi Vogel
The Princor Balanced Fund participated in strong financial markets that
delivered well above average returns for the third year in a row. The economy's
consistently strong growth combined with the lowest inflation in decades kept
corporate profits up while interest rates actually declined over the year.
Investors enthusiastically embraced these near perfect conditions, pouring
record amounts of dollars into the markets. Bonds benefited from the benign
inflation environment as interest rates declined and the yield curve flattened
over the year. Bond yields ended the fiscal year at their lowest levels since
1995. In the equity market, companies that met or exceeded analysts' earnings
estimates were handsomely rewarded, while those with even slight disappointments
were dealt harsh blows. Large, blue chip stocks performed best for most of the
year, although small caps picked up steam in the last half. The Southeast Asia
currency crisis in the third quarter caused a rotation out of large
multinational companies and into domestic small cap stocks as investors
predicted slower export sales and negative currency translation effects from
foreign operations for the global powerhouses. This rotation and new emphasis on
small cap stocks negatively impacted the Fund because its equity holdings are
predominantly large cap in nature.
The Fund, with 60% in stocks and convertibles and 40% in fixed income and cash,
enjoyed above average returns in the absolute yet trailed the Lipper Balanced
Fund Average on a relative basis for the year. With a focus on high quality
bonds and undervalued stocks, the Fund is positioned to perform best when
economic growth slows and investors become more concerned with valuation and
less concerned with meeting next quarter's earnings estimates. There is no
independent market index against which to measure returns of balanced
portfolios, however the S&P 500 Stock Index and the Lehman Government/Corporate
Bond Index are included in the accompanying graph for your information.
Comparison of Change in Value of $10,000 Investment in the
Balanced Fund Class A, S&P 500, Lehman Brothers Gov't./Corporate Bond Index
and Lipper Balanced Fund Average
Lipper Lehman Gov't
Year Ended Balanced S&P 500 Balanced Corporate
October 31, Fund Index Average Bond
9,525 10,000 10,000 10,000
1988 10,714 11,627 11,233 10,845
1989 11,896 14,696 13,152 12,162
1990 10,554 13,595 12,465 12,831
1991 14,152 18,151 16,015 14,803
1992 15,830 19,959 17,413 16,359
1993 17,768 22,938 19,994 18,594
1994 17,935 23,823 19,852 17,731
1995 20,480 30,112 23,300 20,598
1996 23,573 37,355 26,758 21,707
1997 27,316 49,356 31,978 23,619
Note:Past performance is not predictive of future performance. The performance
of Class B and Class R Shares will vary from the performance of Class A Shares
based on the differences in loads and fees.
Total Returns
As of October 31, 1997
1 Year 5 Year 10 Year
10.44% 10.46% 10.72%* Class A
10.96% 15.76% ** Class B
15.16%*** Class R
* - Since Inception Date 12/18/87
** - Since Inception Date 12/9/94
*** - Since Inception Date 2/29/96
Princor Blue Chip Fund
Mark Williams
This Fund's investment strategy is to concentrate on those companies with a
significant operating history, a well-capitalized balance sheet, and a history
of consistent increases in earnings and dividends. Special importance is placed
on the consistency of dividend increases. This is true for two reasons. First,
by increasing the dividend, management sends a signal of confidence to
investors. Management generally increases the dividend when they are confident
of future business conditions. Second, companies that consistently increase the
dividend provide investors the benefit of a rising income stream. This differs
from bond investors who receive a fixed-income stream.
The year ended October 31, 1997, saw a continuation of the recent years' ideal
business conditions. Inflation remained subdued with no sign of any catalysts
for change. Consumer confidence was at an all-time high. Unemployment reached
twenty-four year lows, and Washington worked on reducing the deficit and passing
capital gains legislation. Gross Domestic Product growth remained very strong
given the extended length of this business cycle. It seems hard to believe
conditions could get much better. An increase in market volatility was the only
indication of investor nervousness during the year. Daily moves of one percent
or more have increased in frequency, especially during the latter half of the
year.
Princor Blue Chip Fund's performance trailed market averages for the year.
However, the relative performance for each half of the year was dramatically
different. During the first half of the year, the Fund's performance placed it
near the top of the Lipper Growth and Income Category. Investors were focusing
on large companies with predictable earnings and adequate trading liquidity.
This Fund's investment strategy focuses on these types of companies, and
investors were amply rewarded for it during the first half. The second half of
the year proved to be almost the exact opposite. Beginning in July, a
significant rotation to smaller companies was underway. Since many of the
managers in the Growth and Income Category focus on a broader range of
companies, including small companies, the Fund's second half relative
performance was near the bottom of the Lipper Growth and Income Category.
Underperformance during the second half of the year outweighed positive relative
performance during the first half. Going forward, Fund managers believe the
economic expansion will slow and corporate profit growth will be restrained. The
economy has shown an amazing resiliency to this point, but could be in for some
tough sledding going forward. Wage gains are accelerating and foreign economies,
especially those in Southeast Asia, remain weak. Managers continue to look for
those companies that meet the Fund's criteria and can be purchased at favorable
prices.
Comparison of Change in Value of $10,000 Investment in the Blue Chip Fund
Class A, S&P 500 and Lipper Growth & Income Fund Average
Blue S&P 500 Lipper
Chip Stock Growth & Income
Year Ended October 31, Fund Index Fund Average
9,525 10,000 10,000
1991 10,137 10,911 10,544
1992 11,142 11,998 11,499
1993 11,771 13,789 13,424
1994 12,546 14,321 13,763
1995 15,388 18,100 16,510
1996 18,188 22,455 20,011
1997 22,294 29,668 25,638
Note: Past performance is not predictive of future performance. The performance
of Class B and Class R Shares will vary from the performance of Class A Shares
based on the differences in loads and fees.
Total Returns
As of October 31, 1997
1 Year 5 Year 10 Year
16.81% 13.78% 12.78%* Class A
17.59% 22.02% ** Class B
21.82% 17.20*** Class R
* - Since Inception Date 3/1/91
** - Since Inception Date 12/9/94
*** - Since Inception Date 2/29/96
Princor Capital Accumulation Fund
David White Catherine Green
This fiscal year has been another strong year for shareholders of Princor
Capital Accumulation Fund. Absolute returns are at historically high levels, as
this fund has benefited from the best of all worlds. Companies continue to enjoy
solid earnings growth, interest rates remain low, inflation has stayed in check,
and the overall economy has reached the "Goldilocks phase"--not too hot, not too
cold--just right. From this scenario, the market has focused for most of the
year on a small subset of companies--those traditional, large growth companies
who have continued to exhibit stellar earnings growth. Given the Fund's value
orientation, it is difficult to purchase stocks and pay high premiums relative
to other stocks. Therefore, the portfolio has a lower exposure to these
companies, and it has hurt performance relative to the indexes. This began to
change during the most recent months, and it remains to be seen how the market
will react to the events in Asia during October. The volatility of the market
has certainly increased in the near-term, and is expected to continue until it
is determined the true underlying economic impact of events around the world.
However, a value criteria is maintained to provide the same, consistent
philosophy over the entire economic cycle.
The goal of the Fund is to look for companies that are priced at a discount to
their future potential and relative to where the stock has sold historically.
Fund managers continue to look for companies they feel the market has
underpriced the potential. This is a solid way to understand the values of the
companies as the market increases in its short term volatility.
Comparison of Change in Value of $10,000 Investment in the Capital Accumulation
Fund Class A, S&P 500 and Lipper Growth & Income Fund Average
S&P 500 Lipper
Capital Stock Growth & Income
Year Ended October 31, Accumulation Index Fund Average
9,525 10,000 10,000
1987 9,954 10,646 10,105
1988 11,388 12,223 11,756
1989 12,962 15,449 14,163
1990 10,652 14,292 12,772
1991 14,980 19,081 17,050
1992 16,728 20,982 18,595
1993 18,471 24,114 21,708
1994 19,702 25,044 22,255
1995 23,238 31,655 26,697
1996 29,374 39,250 32,360
1997 35,256 48,735 41,028
Note: Past performance is not predictive of future performance. The performance
of Class B and Class R Shares will vary from the performance of Class A Shares
based on the differences in loads and fees.
Total Returns
As of October 31, 1997
1 Year 5 Year 10 Year
19.47% 15.97% 13.43% Class A
20.13% 25.14%* Class B
24.36% 22.41** Class R
* - Since Inception Date 12/9/94
** - Since Inception Date 2/29/96
Princor Emerging Growth Fund
Mike Hamilton
Small cap growth stocks were rediscovered during the third quarter of 1997.
After lagging at the start of the year these companies were favored by investors
looking for opportunities with more favorable valuations outside the favored
"nifty fifty."
Princor Emerging Growth Fund was no exception, outperforming its peer group year
to dateby focusing on more stable companies such as those in the financial
sector. In a more competitive global marketplace, companies need to have a
portfolio of quality products available for sale in an economic environment that
affords little pricing power.
The Fund's focus has been and continues to be on companies that have focused on
controlling costs while at the same time improving their productivity. Also, a
focus on niche or specialized products with few competitors which better equips
companies for a competitive marketplace. The sectors currently favored by fund
managers are technology, given its productivity enhancements; healthcare, with
power demographics and new products; and financial, because of bank
consolidation and rational capital allocation.
Comparison of Change in Value of $10,000 Investment in the
Emerging Growth Fund Class A, S&P 500 and Lipper Mid Cap Fund Average
S&P 500 Lipper
Emerging Stock MID CAP
Year Ended October 31, Growth Index Fund Average
9,525 10,000 10,000
1988 11,409 11,627 11,344
1989 13,651 14,696 14,346
1990 11,357 13,595 12,349
1991 18,689 18,151 19,744
1992 20,862 19,959 21,136
1993 24,964 22,938 26,260
1994 26,676 23,823 26,816
1995 33,721 30,112 33,389
1996 39,418 37,355 39,489
1997 51,738 49,356 48,493
Note: Past performance is not predictive of future performance. The performance
of Class B and Class R Shares will vary from the performance of Class A Shares
based on the differences in loads and fees.
Total Returns
As of October 31, 1997
1 Year 5 Year 10 Year
25.09% 18.77% 18.12%* Class A
26.64% 27.66% ** Class B
30.56% 21.60*** Class R
* - Since Inception Date 12/18/87
** - Since Inception Date 12/9/94
*** - Since Inception Date 2/29/96
Princor Growth Fund
Mike Hamilton
The financial markets have continued to reward investors with double digit
returns through the third quarter of 1997. The focus has been on large
multinational companies by the markets until now. Smaller cap stocks have
recently shown some life.
Princor Growth Fund trailed the S&P 500 Index because this index is heavily
weighted in a few securities. The Fund outperformed the Lipper Growth Fund
Average by holding securities with less risk and more consistent earnings while
it had a good weighting in financial stocks.
The economy has remained stable with little or no inflation and interest rates
have pulled back in response. This is an ideal environment for equities, and
stock returns are ample witness to this proposition. Some current concerns are
the weakness in foreign economies and corresponding currency devaluations. While
foreign trade will retard growth somewhat, managers do not foresee a dramatic
impact on the U.S. economy.
The Fund continues to focus on companies with stable earnings expectations that
are not dependent on exports for growth. Many financial companies, especially
large regional banks, networking providers, consumer products and
healthcare-related products are sectors favored by this Fund.
Comparison of Change in Value of $10,000 Investment in the
Growth Fund Class A, S&P 500 and Lipper Growth Fund Average
S&P 500 Lipper
Growth Stock Growth
Year Ended October 31, Fund Index Fund Average
9,525 10,000 10,000
1987 9,782 10,646 9,957
1988 10,713 12,223 11,536
1989 12,647 15,449 14,341
1990 11,483 14,292 12,670
1991 18,293 19,081 17,906
1992 20,992 20,982 19,314
1993 23,056 24,114 22,611
1994 25,321 25,044 22,959
1995 31,218 31,655 28,465
1996 34,528 39,250 33,722
1997 43,577 48,735 43,107
Note: Past performance is not predictive of future performance. The performance
of Class B and Class R Shares will vary from the performance of Class A Shares
based on the differences in loads and fees.
Total Returns
As of October 31, 1997
1 Year 5 Year 10 Year
23.46% 15.22% 15.86% Class A
24.92% 23.26%* Class B
28.72% 17.08** Class R
* - Since Inception Date 12/9/94
** - Since Inception Date 2/29/96
Princor Utilities Fund
Catherine Green
The stock market in general has been providing investors with returns that are
quite high by historical standards. Although utility returns have been strong in
the absolute sense, they have not been as high as the rest of the stock market.
The market is currently focusing on companies that can exhibit consistent
growth, and, due to the nature of utility stocks, earnings growth has lagged
more aggressive industries. Therefore, these stocks have not kept up with the
rest of the market.
The utility industry (both in telecommunications and electrics) is experiencing
tremendous change as a move is made to a more competitive environment for both
sectors. Investors need to have a thoughtful strategy as these changes occur.
The Fund's goal is to determine the companies that will 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. 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. Fund managers analyze the efforts of each company in preparing for
the future and assess how well those strategies fit the company needs and
industry. With this Fund's focus on the higher quality end of the spectrum, many
of the stocks in this portfolio experienced lower volatility and stronger
performance in the year. The Fund outperformed the Dow Jones Utility Index with
Income as this focus on quality aided our relative performance. However, utility
stocks did underperform the market during the year, and comparable funds which
have a broader list of holdings outside of the utility universe tended to
outperform the Fund.
The recent moves within the market have focused on the telecommunications
industry. Consolidation is the current theme, and companies continue to merge
with partners for a strategic alliance they believe will benefit their future
growth. If the market felt the merger made sense, shareholders were rewarded.
Also, all companies in each sector of the utility industry are committed to
major cost cutting as they prepare to compete.
Management will continue to make quality a focus of this portfolio and monitor
the changing environment to determine factors impacting the investment results.
Comparison of Change in Value of $10,000 Investment in the Utilities
Fund Class A, S&P 500, Lipper Utilities Fund Average and the
Dow Jones Utilities Index with Income
Lipper Dow Jones
Utilities S&P 500 Utilities Fund Utilities
Year Ended October 31, Fund Index Average With Income
9,525 10,000 10,000 10,000
1993 11,047 10,980 11,575 11,658
1994 9,368 11,403 10,475 9,349
1995 11,651 14,413 12,325 11,810
1996 12,598 17,880 13,733 13,216
1997 14,394 23,625 16,179 14,879
Note: Past performance is not predictive of future performance. The performance
of Class B and Class R Shares will vary from the performance of Class A Shares
based on the differences in loads and fees.
Total Returns
As of October 31, 1997
1 Year 5 Year 10 Year
8.89% 7.76% * -- Class A
9.41% 14.52%** -- Class B
13.72% 7.80%*** -- Class R
* Since Inception Date 12/16/92
** - Since Inception Date 12/9/94
*** - Since Inception Date 2/29/96
International Growth Funds
Principal International Emerging Markets Fund
Kurt Spieler
Emerging markets experienced strong performance in the first half of 1997.
Unfortunately, the Principal International Emerging Market Fund commenced
operations in August, during the middle of an asset class correction. The Fund's
investment approach utilizes a bottom-up investment concept where managers
search the emerging universe for competitive companies with sustainable growth
rates. The goal of the manager's in-depth research is to find companies trading
cheaply on a discounted cash flow basis. Traditional measures of
price-to-earnings and price-to-cash flow ratios with emphasis on comparing
valuations within industries are also used. Qualitative factors include an
emphasis on buying high quality companies with strong balance sheets.
In looking at the emerging universe, the countries are divided into the
following regions: Asia, Latin America and EMEA (Eastern Europe, Middle East,
Africa). The Asian `contagion' effect has received widespread press with the
average market down 46% through September. Thailand, Indonesia, Philippines,
Malaysia, Taiwan and South Korea all experienced significant currency
devaluation in 1997. The expectation of global economists is for a slowdown in
economic activity within that region. As of the end of the year, the Fund had a
26% exposure in Asia, which is less than the MSCI Emerging Market `Free' Index
and the average emerging market fund. The managers believe the Fund's holdings
are well positioned based on an emphasis on export-oriented companies which
benefit from weak currencies.
The Fund's largest regional exposure is Latin America, with a year-end weighting
of 34%. This region experienced strong equity performance in 1997 based on solid
economic growth, low inflation and declining interest rates. Governments have
also responded correctly to keep the problems in Asia from spreading to Latin
America. The largest overweight position versus the MSCI Index is in EMEA where
the Fund has a 26% exposure. Based on the Fund's bottom-up approach, it has also
found undervalued companies in Israel and South Africa. Certain countries within
this region have held up well in the current volatile environment.
Fund managers believe investors in the Principal International Emerging Markets
Fund should focus on the long-term potential of this asset class. The average
emerging country is growing at around double the growth rate in developed
economies. This higher growth rate will result in high equity market returns
over the long-term. The Fund is taking advantage of the sell-off in emerging
markets to build positions in attractive companies at cheap prices.
Comparison of Change in Value of $10,000 Investment in the
International Emerging Markets Fund, MSCI EMF
and Lipper Emerging Markets Fund Average
International Emerging Lipper
Markets Fund MSCI Emerging
Period Ended --------------------------- EMF ID Markets
October 31, Class A Class B Class R Index Fund Avg.
9,525 10,000 10,000 10,000 10,000
1997 8,555 8,612 8,971 8,570 8,816
Note: Past performance is not predictive of future performance. The performance
of Class B and Class R Shares will vary from the performance of Class A Shares
based on the differences in loads and fees.
Total Returns
As of October 31, 1997
1 Year 5 Year 10 Year
-14.45%* -- -- Class A
-13.88%* -- -- Class B
-10.29%* -- -- Class R
* - Since Inception Date 8/29/97
Principal International SmallCap Fund
Darren Sleister
The Principal International SmallCap Fund began operations in the midst of the
most turbulent market conditions in recent memory. Many Asian equity markets
were already "melting down" when this Fund began in late August. From inception
to October 31, Hong Kong experienced a turbulent stock market decline of 20.8%.
For the year, the Malaysian, Thai and Indonesian equity markets each declined
over 60%, and the Japanese small cap index is off over 40%. Fortunately, the
Fund's shareholders were well served with a very low portfolio exposure in the
region. The near flat account performance clearly outperformed the double digit
losses in both the EAFE Index and the average international small cap fund.
At present the Fund remains extremely underweighted in Asian equities as Fund
managers wait for the region's economic ills to work themselves out. What
exposure the Fund has emphasizes export-oriented companies which benefit from
weak currencies. The European investment environment remains attractive with low
interest rates, steady growth and subdued inflation. Nimble companies that are
able to take advantage of the opportunities presented through deregulation as
well as those arising from large corporations restructuring in an attempt to
gain global competitiveness are favored.
The Fund invests in a borderless global manner searching for the best small
companies around the world without regard to location. With careful and diligent
research managers are able to buy companies at attractive valuations relative to
their earnings and cash flow potential. In addition to Asian exporters, the
portfolio remains positive on the oil service sector, competitive access
telecommunication providers, global outsourcing, select technology providers and
pharmaceutical companies. Managers are using recent equity market turmoil to
build positions opportunistically in attractive long-term investments for the
Fund's shareholders.
Comparison of Change in Value of $10,000 Investment in the
International SmallCap Fund, EAFE
and Lipper International SmallCap Fund Average
International Lipper
SmallCap Fund International
Period Ended --------------------------- MSCI SmallCap
October 31, Class A Class B Class R EAFE Fund Avg.
9,525 10,000 10,000 10,000 10,000
1997 9,573 9,650 10,050 9,748 9,736
Note: Past performance is not predictive of future performance. The performance
of Class B and Class R Shares will vary from the performance of Class A Shares
based on the differences in loads and fees.
Total Returns
As of October 31, 1997
1 Year 5 Year 10 Year
-4.27%* -- -- Class A
-3.50%* -- -- Class B
-0.50%* -- -- Class R
* - Since Inception Date 8/29/97
Princor World Fund
Scott Opsal
The Princor World Fund's overweighting in European markets and its underexposure
to Asia and Japan drove the Fund's outperformance in fiscal 1997. Europe was the
star performer, rising 26% based on strong economic growth, falling inflation
and interest rates, and fiscal restraint in preparation for Economic and
Monetary Union. European markets also benefited from the stronger U.S. dollar
that makes European exporters more competitive, and these export driven
economies stand to gain from an improved trade climate.
Asian markets underperformed dramatically as higher interest rates and weak
currencies produced a collapse in economic growth across the region. Asia is
suffering the effects of a massive credit bubble, and its markets are factoring
in a long and costly recovery. The Fund's Asian exposure at the start of the
crisis was less than two-thirds that of the average fund, producing a relative
outperformance in the region. While being underweighted helped, even better was
the fact that more than one-half of the Fund's Asian exposure was in Hong Kong,
the most stable and respectable economy in the region.
Japan, which underperformed European markets this year, is also underweighted in
the Fund's portfolio. Japan continues to report weak Gross Domestic Product
growth, the financial system is still shaky and the government is not able to
jump-start sustainable economic recovery. Interest rates remain near 1% yet
lending growth is nonexistent. The Japanese economy and local investors still
seem to be looking to the government for bailouts and artificial props to keep
the economy from sliding downhill again. The manager has always tried to avoid
economies and markets which are sustained by artificial and temporary means, and
still feels Japan fits this description.
Foreign exchange considerations cost the Fund approximately 1.5% in returns
relative to the EAFE Index. Although Japan was a weak market, the Yen was one of
the best currencies to own and the Fund's overweighting in weaker European
currencies was a disadvantage.
Finally, Fund performance was positively impacted by an increased weighting in
markets outside Europe and Asia. Europe's rising valuation levels caused
management to utilize new countries which offer moderate risk and valuation
advantages over the European markets which historically have been favored.
Selective smaller capitalization companies were also used as value is seen in
the lower capitalization ranges that can be used to an advantage when trading
volume proves sufficient.
Comparison of Change in Value of $10,000 Investment in the
World Fund Class A, EAFE and Lipper International Fund Average
Lipper
World EAFE International
Year Ended October 31 Fund Index Average
9,525 10,000 10,000
1988 9,529 10,594 10,854
1989 10,055 11,457 12,475
1990 10,149 9,995 12,380
1991 11,552 10,689 13,434
1992 11,371 9,276 12,776
1993 16,077 12,751 17,045
1994 17,620 14,036 18,848
1995 17,801 13,986 18,733
1996 21,071 15,441 20,743
1997 25,382 16,154 22,898
Note: Past performance is not predictive of future performance. The performance
of Class B and Class R Shares will vary from the performance of Class A Shares
based on the differences in loads and fees.
Total Returns
As of October 31, 1997
1 Year 5 Year 10 Year
14.80% 16.30% 11.69% Class A
15.62% 15.26%* Class B
19.65% 17.41%** Class R
* - Since Inception Date 12/9/94
** - Since Inception Date 2/29/96
*** Previous periods during which the fund was advised by another investment
advisor are not shown.
Important Notes on the Growth-Oriented Funds:
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.
Lipper Growth & Income Fund Average: This average consists of funds which
combine a growth of earnings orientation and an income requirement for level
and/or rising dividends. The one-year average currently contains 589 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 215 funds.
Lipper Growth Fund Average: This average consists of funds which normally invest
in companies whose long-term earnings are expected to grow significantly faster
than the earnings of the stocks represented in the major unmanaged stock
indices. The one-year average currently contains 799 funds.
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 343 funds.
Lipper Utilities Fund Average: This average consists of funds which invest 65%
of its equity portfolio in utility shares. The one-year average currently
contains 96 funds.
Dow Jones Utility Index with Income: This average is a price-weighted average of
15 utility companies that are listed on the New York Stock Exchange and are
involved in the production of electrical energy.
Lipper Emerging Markets Fund Average: This average consists of funds which
invest at least 65% of their total assets in emerging market equity securities,
where "emerging market" is defined by a country's GNP per capita or other
economic measures. The one-year average currently contains 118 funds.
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, Indomesia 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.
Lipper International Small Cap Funds Average: This average consists of funds
which invest at least 65% of their assets in equity securities of non-United
States companies with market capitalizations less than U.S. $1 billion at the
time of purchase. The one-year average currently contains 26 funds.
Morgan Stanley EAFE (Europe, Australia and Far East) Index: This average
reflects an arithmetic, market value weighted average of performance of more
than 900 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.
Lipper International Fund Average: This average consists of funds which invest
in securities primarily traded in markets outside of the United States. The
one-year average currently contains 406 funds.
Note: Mutual fund data from Lipper Analytical Services, Inc.
Income-Oriented Funds
Princor Bond Fund
Scott Bennett
The Princor Bond Fund's investment strategy is to concentrate in BBB-rated
corporate bonds and remain fully invested with a duration target of seven years.
(Average credit rating of bonds in the portfolio is BBB+.) This asset class
performed well during the year with BBB's outperforming treasuries, higher rated
corporate bonds and less than investment grade bonds during the second half of
the year. Corporate bonds performed well on the continued strength of the U.S.
economy and the absence of any signs of increased inflation. These conditions
were also instrumental in driving interest rates lower during the year leading
to relatively high absolute levels of return for fixed-income investments.
The Fund lagged the Lehman Brothers BAA Corporate Index, which does not include
expenses, but outperformed the Lipper Corporate Debt BBB-Rated Fund Average.
Outperformance was driven by the Fund's longer duration and a strategy of
remaining fully invested and not guessing interest rates.
Comparison of Change in Value of $10,000 Investment in the Bond
Fund Class A, Lehman Brothers BAA Corporate Index and Lipper
Corporate Debt BBB Rated Fund Average
Lehman Lipper
Bond Baa BBB Corp.
Year Ended October 31, Fund Index Average
9,525 10,000 10,000
1988 10,634 11,207 10,947
1989 11,862 12,598 11,980
1990 12,227 13,135 12,295
1991 14,189 15,451 14,397
1992 15,814 17,167 15,952
1993 18,220 19,771 18,362
1994 17,125 18,564 17,376
1995 20,504 22,156 19,873
1996 21,476 23,669 20,974
1997 23,656 26,074 22,981
Note: Past performance is not predictive of future performance. The performance
of Class B and Class R Shares will vary from the performance of Class A Shares
based on the differences in loads and fees.
Total Returns
As of October 31, 1997
1 Year 5 Year 10 Year
4.97% 7.35% 9.12%* Class A
5.20% 9.75%** Class B
9.49% 7.93%*** Class R
* - Since Inception Date 12/18/87
** - Since Inception Date 12/9/94
*** - Since Inception Date 2/29/96
Princor Government Securities Income Fund
Marty Schafer
Fund managers expected and benefited from the very strong housing markets and
housing turnover. Mortgage prepayments on discount securities were 10 to 20
percent higher than previous summer peaks. Management continues to expect this
to be very beneficial to the Fund.
Reasonable growth, shrinking federal deficits and non-threatening inflation
reports pushed interest rates lower, while investors maintained their conviction
that the Federal Reserve Board would not change interest rates.
With advancements in technology and improved competition among mortgage lenders,
borrowers are becoming more efficient in their ability to prepay (call) their
home loans. The manager's disciplined approach of running a portfolio priced at
or below par continues to protect shareholders from a drop in rates. Value is
also added by selecting undervalued sectors of mortgage-backed securities for a
portion of the portfolio. With this strategy, the Fund continues to outperform
the Lehman Brothers GNMA Index.
Comparison of Change in Value of $10,000 Investment in the Government Securities
Income Fund Class A, Lehman Brothers GNMA Index and the Lipper GNMA Fund Average
Government Lehman Lipper
Securities GNMA GNMA
Year Ended October 31, Income Fund Index Average
9,525 10,000 10,000
1987 9,677 10,402 10,171
1988 11,030 11,836 11,387
1989 12,230 13,187 12,499
1990 12,985 14,281 13,411
1991 15,164 16,721 15,414
1992 16,450 18,192 16,694
1993 18,391 19,569 18,050
1994 17,241 19,267 17,494
1995 20,250 22,194 19,880
1996 21,478 23,781 20,984
1997 23,105 24,966 22,362
Note: Past performance is not predictive of future performance. The performance
of Class B and Class R Shares will vary from the performance of Class A Shares
based on the differences in loads and fees.
Total Returns
As of October 31, 1997
1 Year 5 Year 10 Year
4.10% 6.33% 8.74% Class A
4.65% 9.38% * Class B
8.19% 7.16%** Class R
* - Since Inception Date 12/9/94
** - Since Inception Date 2/29/96
Princor High Yield Fund
Ken Hovey
The Princor High Yield Fund, and the high yield market in general, performed
well during the Fund's fiscal year ended October 31. Returns for the Fund and
high yield indices exceeded those of other fixed-income products, except very
long duration corporate or government bonds. Most measures of equity returns
exceeded those of high yield. Remember that high yield bonds have fixed-income
characteristics, but returns have low correlation with both other fixed-income
products and equities.
Bond markets had a down and then back up year. The low point was last April,
just prior to the midpoint for the Fund's fiscal year. Returns over the past six
months have been excellent. The low correlation of high yield bonds to other
bonds is in part demonstrated by lower sensitivity of high yield bonds to
changes in interest rates and increased sensitivity of high yield bonds to
sector, such as industry, fundamentals and outlook. During the fiscal year, long
interest rates (i.e. ten years and longer) declined approximately .50%. High
yield indexes captured most of that change, but risk premiums expanded
approximately .10%; a relatively minor change. Sector changes, both industry and
credit quality wise, had more significant impacts. For example, the competitive
local exchange (CLEC) telecommunications sector had a very good year as it
gained legitimacy in the eyes of the market. Conversely, emerging market
indebtedness, such as from Southeast Asia, has done poorly given the real or
perceived economic problems that have developed. From a credit risk perspective,
funds that took more risk were again rewarded for that strategy as default rates
remained low. The Fund did not suffer a default and did not have a forced
distressed sale during the year. Nevertheless, returns are lower than many
competing funds which take more credit risk. Additionally, in hindsight the Fund
had too much exposure to Asia and not enough in some popular sectors. These are
the main reasons for underperforming both the Lehman and Lipper averages for the
fiscal year.
At this juncture the high yield market is considered slightly undervalued. The
key variables for high yield market performance have proven to be credit
quality, market liquidity and monetary policy. With the combination of default
rates on high yield bonds remaining low, cash coming into the market and plenty
of credit availability from the banking industry, managers expect the high yield
market to continue providing good returns relative to other income-generating
assets in the foreseeable future. The main caveats to continued good returns, at
least in the near term, are the immense supply of new high yield bonds coming
into the market as more and more issuers come in, the uncertain impact on
worldwide economic growth and bond values of economic slowdown, and financial
turmoil going on in Asia.
Comparison of Change in Value of $10,000 Investment in the High
Yield Fund Class A, Lehman Brothers High Yield Index and Lipper
High Current Yield Fund Average
Lehman Lipper
High High Yield High Yield
Year Ended October 31, Yield Fund Index Average
9,525 10,000 10,000
1988 10,879 11,403 11,230
1989 11,171 11,625 11,355
1990 9,550 10,131 9,967
1991 11,998 15,050 13,589
1992 13,719 17,345 15,816
1993 15,319 20,450 18,991
1994 15,540 20,702 18,913
1995 17,363 23,958 21,409
1996 19,426 26,618 24,118
1997 21,821 30,270 27,605
Note: Past performance is not predictive of future performance. The performance
of Class B and Class R Shares will vary from the performance of Class A Shares
based on the differences in loads and fees.
Total Returns
As of October 31, 1997
1 Year 5 Year 10 Year
7.05% 8.67% 8.23%* Class A
7.31% 10.92% ** Class B
11.14% 10.05% *** Class R
* - Since Inception Date 12/18/87
** - Since Inception Date 12/9/94
*** - Since Inception Date 2/29/96
Princor Limited Term Bond Fund
Marty Schafer
The Princor Limited Term Bond Fund investment performance during 1997 compared
very favorably with the Short Intermediate Grade Universe. The favorable market
conditions of declining interest rates, low inflation, and a significant
reduction in the budget deficit proved to be a real benefit for fixed-income
investors during 1997. The Fund's above average performance during the year can
be attributed to the implementation of a very consistent and disciplined
investment strategy. Fund managers continue to maintain a well diversified and
high quality portfolio with an average overall rating of A1. The composition of
the portfolio is comprised of corporate bonds (66%), mortgage-backed securities
(27%), commercial mortgage-backed securities (4%) and asset-backed securities
(3%).
One of the main investment strategies is to pursue corporate bonds with a rating
in the Single A category while seeking a balance between high credit quality and
acceptable returns. Diversification is enhanced by selecting investments in very
specialized areas such as mortgage-backed, asset-backed and commercial
mortgage-backed securities. It is quite probable that the Fund will increase its
investing activities in these complex asset classes where the manager can
utilize internal resources and add significant value. The Fund continues to be
an investment well suited for those investors looking to improve upon lower
yielding money market funds and similar investments, but who are unwilling to
take on the investment risk of longer term bonds or stocks. The Fund's strategy
continues to be as follows: Stay fully invested and maintain a low level of
cash; diversify within and across multiple asset classes; find the best value
among various short-term fixed-income securities; maintain high credit quality
standards and manage duration within a target range.
Comparison of Change in Value of $10,000 Investment in the Limited
Term Bond Fund, Lehman Brothers Government Corporate Intermediate
Index and Lipper Short-Intermediate Investment Grade Bond Fund Average
Lehman
Brothers
Government Lipper
Limited Term Bond Fund Corporate Intermediate
Year Ended --------------------------- Intermediate Investment Grade
October 31, Class A Class B Class R Index Bond Fund Avg.
9,850 10,000 10,000 10,000 10,000
1996 10,207 10,207 10,324 10,369 10,357
1997 10,896 10,859 10,994 11,146 11,032
Note: Past performance is not predictive of future performance. The performance
of Class B and Class R Shares will vary from the performance of Class A Shares
based on the differences in loads and fees.
Total Returns
As of October 31, 1997
1 Year 5 Year 10 Year
5.14% 5.27%* -- Class A
5.06% 5.05%* -- Class B
6.01% 5.55%* -- Class R
* - Since Inception Date 2/29/96
Princor Tax-Exempt Bond Fund
Dan Garrett
The Princor Tax-Exempt Bond Fund continued to add value for investors seeking
long-term income exempt from federal income tax for the year ended October 31,
1997. Fund managers focus on revenue bonds backed by guarantees of corporations
that tend to have higher yields than the average bond on the broader Lehman
Municipal Bond Index or the Fund's Lipper peer group. The strategy has been to
focus on slightly higher quality during the past year and quality ratings of A
and AA have been added to the portfolio. Risk premiums have dropped considerably
and as a result BBB rated bonds have had prices rising faster than higher
quality holdings. However, if risk premiums rise, higher quality ratings will
likely retain more value.
The Fund continues to avoid mistakes such as unfavorable bond structures such as
certificates of participation, project lease revenue bonds, sports stadium
projects and utilities poorly positioned for deregulation. The portfolio has
been diversified across a variety of quality (average A rating), coupons and
terms with interest rate risk similar to the broader index and peers while
adding value with selective trades relative to the market. For the future, the
economy shows signs of continued low inflation with steady growth. Our position
in higher coupon revenue bonds should continue to provide positive relative
return compared to the broader municipal market and the Fund's peers.
Comparison of Change in Value of $10,000 Investment in the Tax-Exempt
Bond Fund Class A, Lehman Brothers Revenue Bond Index, Lehman Brothers
Municipal Bond Index and the Lipper General Municipal Fund Average
Lehman Lehman Lipper
Year Ended Tax-Exempt Revenue Municipal General
October 31, Bond Fund Bond Index Bond Index Muni. Debt
9,525 10,000 10,000 10,000
1987 8,924 9,923 9,915 9,641
1988 10,730 11,652 11,359 11,166
1989 11,710 12,705 12,278 12,036
1990 12,185 13,650 13,190 12,703
1991 13,780 15,431 14,795 14,265
1992 14,850 16,774 16,038 15,320
1993 17,181 19,332 18,294 17,686
1994 15,907 18,305 17,497 16,650
1995 18,457 21,221 20,095 18,931
1996 19,579 22,526 21,240 19,898
1997 22,729 24,731 23,241 22,315
Note: Past performance is not predictive of future performance. The performance
of Class B Shares will vary from the performance of Class A Shares based on the
difference in loads and fees
Total Returns
As of October 31, 1997
1 Year 5 Year 10 Year
3.60% 6.44% 8.56% Class A
4.08% 9.83%* Class B
* - Since Inception Date 12/9/94
Princor Cash Management Fund
Princor Tax-Exempt Cash Management Fund
Mike Johnson Steve Schneider
After raising the targeted Federal Funds rate* by .25% to 5.50% in March of this
year, the Federal Reserve continued to maintain this target throughout the
remainder of fiscal 1997. Despite periodic strong economic releases the Fed
chose to hold rates steady while they waited for stronger signs of increased
inflation. Chairman Greenspan continues to believe that the economy has been on
an "unsustainable track" and does not support the "new paradigm" theory which
has the economy growing at a faster pace without fueling inflation. The Fund's
average maturity target spent most of the year in the high 50 day to 60+ day
range. Downward fluctuations occurred if the market anticipated a Federal
Reserve rate adjustment. The 60+ level was maintained during the latter four
months of the fiscal year. Fund management continues to target and actively
monitor the industry averages to keep both yields and average maturities in
line. Both Funds continue to invest from a list of the highest credit quality
issues that are actively managed by the manager's analytical staff.
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.
Fund dividends are exempt from federal taxation, but may not be exempt from
state and local taxes. The alternative minimum tax applies to some investors.
Possibly, any capital gains resulting from the growth of principal are not
tax-exempt.
* The Fed Funds rate is the rate at which banks lend to each other on an
overnight basis.
Important Notes on the Income-Oriented Funds:
Lehman Brothers, Baa Index: An unmanaged index of all publicly issued,
fixed-rate, nonconvertible, dollar-denominated, SEC-registered corporate debt
rated Baa or BBB by Moody's or Standard & Poor's.
Lipper Corporate Debt BBB Rated Fund Average: This average consists of funds
which invest at least 65% of their assets in corporate and government debt
issues rated in the top four grades. The one-year average currently contains 104
funds.
Lehman Brothers, GNMA Index: An unmanaged index of 15- and 30-year fixed-rate
securities backed by mortgage pools of the Government National Mortgage
Association (GNMA) and Graduated Payment Mortgages (GPMs) with at least $100
million outstanding and one year or more to maturity.
Lipper GNMA Fund Average: This average consists of funds which invest a least
65% of their assets in Government National Mortgage Association securities. The
one-year average currently contains 53 funds.
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.
Lipper High Current Yield Fund Average: This average consists of funds which aim
at high (relative) current yield from fixed-income securities. No quality or
maturity restrictions. They tend to invest in lower grade debt issues. The
one-year average currently contains 173 funds.
Lehman Brothers, Government Corporate Intermediate Index: An unmanaged index of
U. S. Government agency and Treasury securities and investment-grade corporate
debt securities with maturities of five to ten years.
Lehman Brothers, Municipal Bond Index: An unmanaged index of investment-grade,
tax-exempt bonds which have been issued within the last five years and at least
one year or more to maturity. This index is classified into four main sectors:
General Obligation, Revenue, Insured and Prerefunded.
Lehman Brothers, Revenue Bond Index: An unmanaged index of investment-grade,
tax-exempt revenue bonds which have been issued within the last five years and
at least one year or more to maturity.
Lipper Short-Intermediate Investment Grade Debt Fund Average: This average
consists of funds which invest at least 65% of their assets in investment-grade
debt issues rated in the top four grades with dollar-weighted average maturities
of one to five years. The one-year average currently contains 80 funds.
Lipper General Municipal Debt Fund Average: This average consists of funds which
invest at least 65% of their assets in municipal debt issues in the top four
credit ratings. The one-year average currently contains 231 funds.
Note: Mutual fund data from Lipper Analytical Services, Inc.
<PAGE>
Three Keys To More Successful Investing
"Industrials Dive 554 Points" and "Stocks Plummet as Investors Seek Cover" are
just two of the headlines you may have seen on October 28, 1997, the day
following recent dramatic events on Wall Street. With a thud heard around the
world, fear rapidly spread that the mighty bull (market, that is) had fallen out
of bed! But wait! Perhaps those fears were expressed too soon. Taking a page out
of the Black Monday (October 19, 1987) text book, investors chose to wait and
watch what unfolded...rather than panic!
Witnessing this rational behavior, financial professionals breathed a collective
sigh of relief. Because you see, those lessons from 1987 were hard learned. But
over the past ten years, good registered representatives have made sure their
clients understood the three keys to more successful investing--maintain a
long-term perspective, invest regularly and consistently and diversify.
Maintaining a long-term perspective keeps you focused on the big picture.
Investors who watch the ups and downs of the market over short time periods,
often see large fluctuations. Step back and look at the securities markets over
longer time periods, and you'll see that these movements become less
sensational. By maintaining a long-term perspective and avoiding becoming overly
concerned with sudden market movements, you improve your chances for successful
investing. The following chart demonstrates how the stock market becomes less
erratic when viewed over longer time periods.
Stock Returns for Various Holding Periods
1926 - 1996
<TABLE>
<CAPTION>
Year by Year Total Returns (in percent) From 1926 to 1996
Intermediate-
Large Small Long-Term Long-Term Term U.S
Company Company Corporate Government Government Treasury
Year Stocks Stocks Bonds Bonds Bond Bills Inflation
<S> <C> <C> <C> <C> <C> <C> <C>
1926 11.62 0.28 7.37 7.77 5.38 3.27 -1.49
1927 37.49 22.10 7.44 8.93 4.52 3.12 -2 08
1928 43.61 39.69 2.84 0.10 0.92 3.56 -0.97
1929 -8.42 -51.36 3.27 3.42 6.01 4.75 0.20
1930 24.90 -38.15 7.98 4.66 6.72 2.41 -6.03
1931 -43.34 -49.75 -1.85 -5.31 -2.32 1.07 -9.52
1932 -8.19 -5.39 10.82 16.84 8.81 0.96 -10.30
1933 53.99 142.87 10.38 -0.07 1.83 0.30 0.51
1934 -1.44 24.22 13.84 10.03 9.00 0.16 2.03
1935 47.67 40.19 9.61 4.98 7.01 0.17 2.99
1936 33.92 64.80 6.74 7.52 3.06 0.18 1.21
1937 -35.03 -58.01 2.75 0.23 1.56 0.31 3.10
1938 31.12 32.80 6.13 5.53 6.23 -0.02 -2.78
1939 -0.41 0.35 3.97 5.94 4.52 0.02 -0.48
1940 -9.78 -5.16 3.39 6.09 2.96 0.00 0.96
1941 -11.59 -9.00 2.73 0.93 0.50 0.06 9.72
1942 20.34 44.51 2.60 3.22 1.94 0.27 9.29
1943 25.90 88.37 2.83 2.08 2.81 0.35 3.16
1944 19.75 53.72 4.73 2.81 1.80 0.33 2.11
1945 36.44 73.61 4.08 10.73 2.22 0.33 2.25
1946 -8.07 -11.63 1.72 -0.10 1.00 0.35 18.16
1947 5.71 0.92 -2.34 -2.62 0.91 0.50 9.01
1948 5.50 -2.11 4.14 3.40 1.85 0.81 2.71
1949 18.79 19.75 3.31 6.45 2.32 1.10 -1.80
1950 31.71 38.75 2.12 0.06 0.70 1.20 5.79
1951 24.02 7.80 -2.69 -3.93 0.36 1.49 5.87
1952 18.37 3.03 3.52 1.16 -1.63 1.66 0.88
1953 -0.99 -6.49 3.41 3.64 3.23 1.82 0.62
1954 52.62 60.58 5.39 7.19 2.68 0.86 -0.50
1955 31.56 20.44 0.48 -1.29 -0.65 1.57 0.37
1956 6.56 4.28 -6.81 -5.59 -0.42 2.46 2.86
1957 -10.78 -14.57 8.71 7.46 7.84 3.14 3.02
1958 43.36 64.89 -2.22 -6.09 -1.29 1.54 1.76
1959 11.96 16.40 -0.97 -2.26 -0.39 2.95 1.50
1960 0.47 -3.29 9.07 13.78 11.76 2.66 1.48
1961 26.89 32.09 4.82 0.97 1.85 2.13 0.67
1962 -8.73 -11.90 7.95 6.89 5.56 2.73 1.22
1963 22.80 23.57 2.19 1.21 1.64 3.12 1.65
1964 16.48 23.52 4.77 3.51 4.04 3.54 1.19
1965 12.45 41.75 -0.46 0.71 1.02 3.93 1.92
1966 -10.06 -7.01 0.20 3.65 4.69 4.76 3.35
1967 23.98 83.57 -4.95 -9.18 1.01 4.21 3.04
1968 11.06 35.97 2.57 -0.26 4.54 5.21 4.72
1969 -8.50 -25.05 -8.09 -5.07 -0.74 6.58 6.11
1970 4.01 -17.43 18.37 12.11 16.86 6.52 5.49
1971 14.31 16.50 11.01 13.23 8.72 4.39 3.36
1972 18.98 4.43 7.26 5.69 5.16 3.84 3.41
1973 -14.66 -30.90 1.14 -1.11 4.61 6.93 8.80
1974 -26.47 -19.95 -3.06 4.35 5.69 8.00 12.20
1975 37.20 52.82 14.64 9.20 7.83 5.80 7.01
1976 23.84 57.38 18.65 16.75 12.87 5.08 4.81
1977 -7.18 25.38 1.71 -0.69 1.41 5.12 6.77
1978 6.56 23.46 -0.07 -1.18 3.49 7.18 9.03
1979 18.44 43.46 -4.18 -1.23 4.09 10.38 13.31
1980 32.42 39.88 -2.76 -3.95 3.91 11.24 12.40
1981 -4.91 13.88 -1.24 1.86 9.45 14.71 8.94
1982 21.41 28.01 42.56 40.36 29.10 10.54 3.87
1983 22.51 39.67 6.26 0.65 7.41 8.80 3.80
1984 6.27 -6.67 16.86 15.48 14.02 9.85 3.95
1985 32.16 24.66 30.09 30.97 20.33 7.72 3.77
1986 18.47 6.85 19.85 24.53 15.14 6.16 1.13
1987 5.23 -9.30 -0.27 -2.71 2.90 5.47 4.41
1988 16.81 22.87 10.70 9.67 6.10 6.35 4.42
1989 31.49 10.18 16.23 18.11 13.29 8.37 4.65
1990 -3.17 -21.56 6.78 6.18 9.73 7.81 6.11
1991 30.55 44.63 19.89 19.30 15.46 5.60 3.06
1992 7.67 23.35 9.39 8.05 7.19 3.51 2.90
1993 9.99 20.98 13.19 18.24 11.24 2.90 2.75
1994 1.31 3.11 -5.76 -7.77 -5.14 3.90 2.67
1995 37.43 34.46 27.20 31.67 16.80 5.60 2.54
1996 23.07 17.62 1.40 -0.93 2.10 5.21 3.32
</TABLE>
<TABLE>
<CAPTION>
Compound Annual Returns for 5-Year Holding Periods (percent per annum) From 1926 to 1996
Large Small Long-Term Long-Term Intermediate U.S
Company Company Corporate Government Government Treasury
Year Stocks Stocks Bonds Bonds Bond Bills Inflation
<S> <C> <C> <C> <C> <C> <C> <C>
1926-1930 8.68 -12.44 5.76 4.93 4.69 3.42 -2.10
1927-1931 -5.10 -23.74 3.87 2.25 3.11 2.98 -3.75
1928-1932 12.47 -27.54 4.52 3.69 3.95 2.54 -5.42
1929-1933 -11.24 -19.06 6.0l 3.66 4.13 1.89 -5.14
1930-1934 -9.93 -2.37 8.09 4.95 4.71 0.98 -4.80
1931-1935 3.12 14.99 8.42 5.01 4.77 0.53 -3.04
1932-1936 22.47 45.63 10 26 7.71 5.90 0.35 -0.84
1933-1937 14.29 23.96 8.60 4.46 4.45 0.22 1.96
1934-1938 10.67 9.86 7.75 5.61 5.33 0.16 1.29
1935-1939 1O.9l 5.27 5.81 4.81 4.46 0.13 0.78
1936-1940 0.50 -2.64 4.59 5.03 3.65 0.10 0.38
1937-1941 -7.51 -13.55 3.79 3.71 3.13 0.08 2.02
1938-1942 4.62 10.70 3.76 4.32 3.21 0.07 3.21
1939-1943 3.77 18.71 3.10 3.63 2.54 0.14 4.44
1940-1944 7.67 29.28 3.25 3.01 2.00 0.20 4.98
1941-1945 16.96 45.90 3.39 3.90 1.85 0.27 5.25
1942-1946 17.87 45.05 3.19 3.69 1.95 0.33 6.82
1943-1947 14.86 35.00 2.17 2.49 l.75 0.37 6.77
1944-1948 10.87 18.43 2.43 2.75 1.55 0.47 6.67
1945-1949 10.69 12.66 2.15 3.46 1.66 0.62 5.84
1946-1950 9.91 7.72 1.76 1.39 1.36 0.79 6.57
1947-l951 16.70 12.09 0.87 0.60 1.23 1.02 4.25
1948-1952 19.37 12.55 2.05 1.37 1.37 1.25 2.65
1949-1953 17.86 11.53 1.91 1.41 1.64 1.45 2.23
1950-1954 23.92 18.27 2.31 1.55 1.72 1.41 2.50
1951-1955 23.89 14.97 1.98 1.28 1.44 1.48 1.43
1952-1956 20.18 14.21 1.10 0.93 1.28 1.67 0.84
1953-1957 13.58 10.01 2.10 2.15 2.49 1.97 1.27
1954-1958 22.31 23.22 0.96 0.16 1.58 1.91 1.49
1955-1959 14.96 15.54 -0.29 -1.67 0.96 2.33 1.90
1956-1960 8.92 10.58 1.36 1.16 3.37 2.55 2.12
1957-1961 12.79 15.93 3.77 2.53 3.83 2.48 1.68
1958-1962 13.31 16.65 3.63 2.42 3.39 2.40 1.33
1959-1963 9.85 10.11 4.55 3.97 4.00 2.72 1.30
1960-1964 10.73 11.43 5.73 5.17 4.91 2.83 1.24
1961-1965 13.25 20.28 3.82 2.63 2.81 3.09 1.33
1962-1966 5.72 12.13 2.88 3.17 3.38 3.61 1.86
1963-1967 12.39 29.86 0.30 -0.14 2.47 3.91 2.23
1964-1968 10.16 32.37 0.37 -0.43 3.04 4.33 2.84
1965-1969 4.96 19.78 -2.22 -2.14 2.08 4.93 3.82
1966-1970 3.34 7.51 1.23 -0.02 5.10 5.45 4.54
1967-1971 8.42 12.47 3.32 1.77 5.90 5.38 4.54
1968-1972 7.53 0.47 5.85 4.90 6.75 5.30 4.61
1969-1973 2.01 -12.25 5.55 4.72 6.77 5.65 5.41
1970-1974 -2.36 -11.09 6.68 6.72 8.11 5.93 6.60
1971-1975 3.21 0.56 6.00 6.16 6.39 5.78 6.90
1972-1976 4.87 6.80 7.42 6.82 7.19 5.92 7.20
1973-1977 -0.21 -10.77 6.29 5.50 6.41 6.18 7.89
1974-1978 4.32 24.41 6.03 5.48 6.18 6.23 7.94
1975-1979 14.76 39.80 5.78 4.33 5.86 6.69 8.15
1976-1980 13.95 37.35 2.36 1.68 5.08 7.77 9.21
1977-1981 8.08 28.75 -1.33 -1.05 4.44 9.67 10.06
1978-1982 14.05 29.28 5.57 6.03 9.60 10.78 9.46
1979-1983 17.27 32.51 6.87 6.42 10.42 11.12 8.39
1980-1984 14.76 21.59 11.20 9.80 12.45 11.01 6.53
1981-1985 14.71 18.82 17.86 16.63 15.80 10.30 4.85
1982-1986 19.87 17.32 22.51 21.62 16.98 8 60 3.30
1983-1987 16.49 9.51 14.06 13.02 11.79 7.59 3.41
1984-1988 15.38 6.74 15.00 14.98 11.52 7.1O 3.53
1985-1989 20.40 10.34 14.88 15.50 11.38 6.81 3.67
1986-1990 13.14 0.58 10.43 10.75 9.34 6.83 4.13
1987-1991 15.36 6.86 10.44 9.81 9.40 6.71 4.52
1988-1992 15.89 13.63 12.50 12.14 10.30 6.31 4.22
1989-1993 14.50 13.28 13.00 13.84 11.35 5.61 3.89
1990-1994 8.69 11.79 8.36 8.34 7.46 4.73 3.49
1991-1995 16.57 24.51 12.22 13.10 8.81 4.29 2.79
1992-1996 15.20 19.47 8.52 8.98 6.17 4.22 2.84
</TABLE>
<TABLE>
<CAPTION>
Compound Annual Returns for 10-Year Holding Periods (percent per annum) From 1926 to 1996
Large Small Long-Term Long-Term Intermediate U.S
Company Company Corporate Government Government Treasury
Year Stocks Stocks Bonds Bonds Bond Bills Inflation
<S> <C> <C> <C> <C> <C> <C> <C>
1926-1930 5.86 0.34 7.08 4.97 4.73 1.97 -2.57
1927-1936 7.81 5.45 7.02 4.95 4.50 1.66 -2.30
1928-1937 0.02 -5.22 6.54 4.08 4.20 1.37 -1.80
1929-1938 -O.89 -5.70 6.88 4.63 4.73 1.02 -1.98
1930-1939 -0.05 1.38 6.95 4.88 4.58 0.55 -2.05
1931-1940 1.80 5.81 6.49 5.02 4.21 0.32 -1.34
1932-1941 6.43 12.28 6.97 5.69 4.51 0.21 0.58
1933-1942 9.35 17.14 6.15 4.39 3.83 0.15 2.59
1934-1943 7.17 14.20 5.40 4 62 3.93 0.15 2.85
1935-1944 9.28 16.66 4.53 3.91 3.22 0.17 2.86
1936-1945 8.42 19.18 3.99 4.46 2.75 0.18 2.79
1937-1946 4.41 11.98 3.49 3.70 2.54 0.20 4.39
1938-1947 9.62 22.24 2.96 3.40 2.48 0.22 4.97
1939-1948 7.26 18.57 2.77 3.19 2.04 0.30 5.55
1940-1949 9.17 20.69 2.70 3.24 1.83 0.41 5.41
1941-1950 13.38 25.37 2.57 2.64 1.60 0.53 5.91
1942-1951 17.28 27.51 2.02 2.13 1.59 0.67 5.53
1943-1952 17.09 23.27 2.11 1.93 1.56 0.81 4.69
1944-1953 14.31 14.93 2.17 2.08 1.60 0.96 4.43
1945-1954 17.12 15.43 2.23 2.51 1.69 1.01 4.16
1946-1955 16.69 11.29 1.87 1.33 1.40 1.14 3.96
1947-1956 18.43 13.14 0.98 0.76 1.25 1.35 2.53
1948-1957 16.44 11.27 2.07 1.76 1.93 1.61 1.96
1949-1958 20.06 17.23 1.43 0.79 1.61 1.68 1.86
1950-1959 l9.35 16.90 1.00 -0.07 1.34 1.87 2.20
1951-1960 16.16 12.75 1.67 1.22 2.40 2.01 1.77
1952-1961 16.43 15.07 2.43 1.73 2.55 2.08 1.26
1953-1962 13.44 13.28 2.86 2.29 2.94 2.19 1.30
1954-1963 15.91 16.48 2.74 2.05 2.78 2.31 1.40
1955-1964 12.82 13.47 2.68 1.69 2.92 2.58 1.57
1956-1965 11.06 15.33 2.58 1.89 3.09 2.82 1.73
1957-1966 9.20 14.02 3.33 2.85 3.60 3.05 1.77
1958-1967 12.85 23.08 1.95 1.13 2.93 3.15 1.78
1959-1968 10.00 20.73 2.44 1.75 3.52 3.52 2.07
1960-1969 7.81 15.53 1.68 1.45 3.48 3.88 2.52
1961-1970 8.18 13.72 2.51 1.30 3.95 4.26 2.92
1962-1971 7.06 12.30 3.10 2.47 4.63 4.49 3.19
1963-1972 9.93 14.22 3.04 2.35 4.59 4.60 3.41
1964-1973 6.00 7.77 2.93 2.11 4.89 4.98 4.12
1965-1974 1.24 3.20 2.13 2.20 5.05 5.43 5.20
1966-1975 3.27 3.98 3.59 3.03 5.74 5.62 5.71
1967-1976 6.63 9.60 5.35 4.26 6.54 5.65 5.86
1968-1977 3.59 5.50 6.07 5.20 6.58 5.74 6.24
1969-1978 3.16 4.48 5.79 5.10 6.47 5.94 6.67
1970-1979 5.86 11.49 6.23 5.52 6.98 6.31 7.37
1971-1980 8.44 17.53 4.16 3.90 5.73 6.77 8.05
1972-1981 6.47 17.26 2.95 2.81 5.80 7.78 8.62
1973-1982 6.68 19.67 5.93 5.76 8.00 8.46 8.67
1974-1983 10.61 28.40 6.45 5.95 8.28 8.65 8.16
1975-1982 14.76 30.38 8.46 7.03 9.11 8.83 7.34
1976-1985 14.33 27.75 9.84 8.99 10.31 9.03 7.01
1977-1986 13.82 22.90 9.95 9.70 10.53 9.14 6.63
1978-1987 15.26 18.99 9.73 9.47 10.69 9.17 6.39
1979-1988 16.33 18.93 10.86 l0.62 10.97 9.09 5.93
1980-1989 17.55 15.83 13.02 12.62 11.91 8.89 5.09
1981-1990 13.93 9.32 14.09 13.75 12.52 8.55 4.49
1982-1991 17.59 11.97 16.32 15.56 13.13 7.65 3.91
1983-1992 16.19 11.55 13.28 12.58 11.04 6.95 3.81
1984-1993 14.94 9.96 14.00 14.41 11.43 6.35 3.71
1985-1994 14.40 11.06 11.57 11.86 9.40 5.76 3.58
1986-1995 14.84 11.90 11.32 11.92 9.08 5.55 3.46
1987-1996 15.28 12.98 9.48 9.39 7.77 5.46 3.68
</TABLE>
Source: Computed from data from Stocks, Bonds, Bill & Inflation 1997 Yearbook,
Ibbotson Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex
Sinquefield). Used with permission. All rights reserved.
No one has a crystal ball. Choosing exactly the right time to invest is
difficult, if not impossible. Instead, a regular and consistent investment
program helps you take advantage of swings in securities prices. Investing the
same amount regularly, regardless of market trends, is a concept known as
dollar-cost averaging. When stock prices decrease, you purchase more shares;
when prices are higher, you purchase fewer shares. Though no investment program
can assure a profit or protect against loss, a dollar-cost averaging program can
help you ride out market ups and downs. Before beginning a dollar-cost averaging
program, you should assess your ability to continue purchasing through periods
of low prices levels, since such a program involves continuous investment
regardless of fluctuating price levels.
Consider this dollar-cost averaging program.
The investor began a $200 per month dollar-cost averaging program. In the first
five months, a total of $1000 was invested and 24 shares were purchased at an
average price per share of $42.67. However, when you calculate the average cost
per share paid, you see that the investor actually paid only $41.67 per share
($1000 divided by 24 shares = $41.67 per share). By investing the same amount
every month, the investor was able to lower the average cost per share and take
advantage of fluctuation in share prices.
================================================================================
Dollar Amount Invested Price Paid Per Share Number of Shares Purchased
- --------------------------------------------------------------------------------
$200 $40.00 5
- --------------------------------------------------------------------------------
$200 $50.00 4
- --------------------------------------------------------------------------------
$200 $33.33 6
- --------------------------------------------------------------------------------
$200 $40.00 5
- --------------------------------------------------------------------------------
$200 $50.00 4
- --------------------------------------------------------------------------------
Total $1000 Average $42.67 per share Total 24 shares
================================================================================
Diversification helps distribute the risk in your investment portfolio. When you
invest in a variety of asset classes, chances are that some of them will perform
well even when others perform poorly. Investments which move in opposite
directions are said to be negatively correlated. By diversifying your portfolio,
you eliminate many of the worries associated with having all your investment
dollars in a single asset class. The following shows how investing in different
asset classes (which are negatively correlated) can help reduce portfolio
volatility.
Time
O X O X O X O X O
O X X O O X X O O X X O O X X O
Value X O X O X O X O
X O O X X O O X X O O X X O O X
X O X O X O X O X
During times of market volatility, we suggest you remember the hard-learned
lessons of 1987: maintain your long-term perspective, invest regularly and
consistently and diversify. If you keep these in mind, the chances are good that
you'll enjoy greater success as an investor.
Each example shown here is for illustrative purposes only. They are not meant to
represent the actual performance or share price of any Princor fund. Past
performance provides no assurance of future results. Investment return and
principal values will fluctuate so that, when redeemed, shares may be worth more
or less than the original cost.
<PAGE>
<TABLE>
<CAPTION>
October 31, 1997
STATEMENTS OF ASSETS AND LIABILITIES
Princor Princor Princor Capital Princor Princor Princor
Balanced Blue Chip Accumulation Emerging Growth Growth Utilities
GROWTH FUNDS (DOMESTIC) Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc.
<S> <C> <C> <C> <C> <C> <C>
Investment in securities -- at cost....... $ 96,234,653 $ 96,660,150 $402,289,056 $282,800,379 $232,575,765 $62,461,957
Assets
Investment in securities -- at value (Note 4)$106,554,104 $111,007,205 $532,992,503 $427,238,488 $368,916,504 $72,773,934
Cash.................................... 2,000 1,491 1,450 6,582 34,814 2,000
Receivables:
Dividends and interest................. 576,197 122,929 891,844 368,679 276,924 358,515
Investment securities sold.............. -- 2,330,949 6,388,110 -- 6,624,700 --
Capital Stock sold...................... 134,132 378,067 669,764 557,152 410,163 18,284
Other assets............................... 3,796 545 24,412 2,129 8,638 432
Total Assets 107,270,229 113,841,186 540,968,083 428,173,030 376,271,743 73,153,165
Liabilities
Accrued expenses........................... 137,624 86,020 351,865 357,440 324,347 92,514
Payables:
Investment securities purchased......... -- -- 484,210 4,062,365 -- 191,656
Capital Stock reacquired................ 66,970 3,659 122,167 85,325 55,834 53,619
Total Liabilities 204,594 89,679 958,242 4,505,130 380,181 337,789
Net Assets Applicable to
Outstanding Shares ....................... $107,065,635 $113,751,507 $540,009,841 $423,667,900 $375,891,562 $72,815,376
Net Assets Consist of:
Capital Stock.............................. $ 70,956 $ 56,307 $ 182,006 $ 93,622 $ 74,563 $ 58,028
Additional paid-in capital................. 89,151,738 87,123,080 360,956,197 268,648,191 227,449,485 62,064,393
Accumulated undistributed net
investment income....................... 75,127 79,494 3,270,973 36,047 813,820 445,581
Accumulated undistributed net realized
gain (loss) on investment transactions.. 7,448,363 12,145,571 44,897,218 10,451,931 11,212,955 (64,603)
Net unrealized appreciation of investments. 10,319,451 14,347,055 130,703,447 144,438,109 136,340,739 10,311,977
Total Net Assets $107,065,635 $113,751,507 $540,009,841 $423,667,900 $375,891,562 $72,815,376
Capital Stock (par value: $.01 a share):
Shares authorized.......................... 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000 1,000,000,000
Net Asset Value Per Share:
Class A: Net Assets....................... $85,436,157 $79,984,970 $494,444,176 $346,666,076 $317,386,196 $64,365,733
Shares issued and outstanding. 5,655,291 3,954,855 16,655,239 7,648,242 6,293,303 5,128,206
Net asset value per share...... $15.11 $20.22 $29.69 $45.33 $50.43 $12.55
Maximum offering price per share(a) $15.86 $21.23 $31.17 $47.59 $52.94 $13.18
Class B: Net Assets....................... $11,884,919 $18,264,614 $27,240,130 $59,553,656 $42,240,638 $6,937,262
Shares issued and outstanding. 789,927 906,999 923,000 1,327,081 838,793 553,485
Net asset value per share(b)... $15.05 $20.14 $29.51 $44.88 $50.36 $12.53
Class R: Net Assets....................... $9,744,559 $15,501,923 $18,325,535 $17,448,168 $16,264,728 $1,512,381
Shares issued and outstanding. 650,354 768,856 622,398 386,887 324,239 121,119
Net asset value per share...... $14.98 $20.16 $29.44 $45.10 $50.16 $12.49
<FN>
(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.
</FN>
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31, 1997
STATEMENTS OF OPERATIONS
Princor Princor Princor Capital Princor Princor Princor
Balanced Blue Chip Accumulation Emerging Growth Growth Utilities
GROWTH FUNDS (DOMESTIC) Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc.
Net Investment Income
Income:
<S> <C> <C> <C> <C> <C> <C>
Dividends............................. $ 1,145,579 $ 1,744,320 $ 12,408,674 $ 2,487,286 $ 3,616,275 $3,610,326
Interest............................... 2,328,983 262,357 572,572 2,495,557 1,972,348 45,428
Total Income 3,474,562 2,006,677 12,981,246 4,982,843 5,588,623 3,655,754
Expenses:
Management and investment advisory
fees (Note 3)....................... 556,009 417,958 2,031,143 2,004,305 1,443,120 436,296
Distribution and shareholder servicing
fees (Note 1 and 3)................. 328,952 329,357 824,254 1,059,596 851,065 223,460
Transfer and administrative services
(Note 1 and 3)...................... 364,442 402,003 837,825 1,308,608 1,121,832 230,151
Registration fees (Note 1)............. 49,872 45,038 61,183 88,950 73,665 42,365
Custodian fees ........................ 5,332 4,232 4,749 6,557 5,044 2,862
Auditing and legal fees ............... 6,251 5,899 8,980 8,057 8,266 6,338
Directors' fees ....................... 7,268 7,268 7,566 7,642 7,567 7,268
Other ................................. 21,850 21,023 69,333 79,342 69,999 18,011
Total Gross Expenses 1,339,976 1,232,778 3,845,033 4,563,057 3,580,558 966,751
Less: Management and investment
advisory fees waived................ -- -- -- -- -- 79,048
Total Net Expenses 1,339,976 1,232,778 3,845,033 4,563,057 3,580,558 887,703
Net Investment Income 2,134,586 773,899 9,136,213 419,786 2,008,065 2,768,051
Net Realized and Unrealized
Gain on Investments
Net realized gain from investment
transactions 7,456,891 12,146,669 44,903,311 10,456,322 11,213,338 1,274,214
Change in unrealized appreciation/
depreciation of investments............ 3,601,722 617,291 57,109,297 80,084,426 65,942,389 5,564,046
Net Realized and Unrealized
Gain (Loss) on Investments 11,058,613 12,763,960 102,012,608 90,540,748 77,155,727 6,838,260
Net Increase in Net Assets
Resulting from Operations $13,193,199 $13,537,859 $111,148,821 $90,960,534 $79,163,792 $9,606,311
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
Years Ended October 31, Except as Noted
STATEMENTS OF CHANGES IN NET ASSETS
Princor Princor
Balanced Blue Chip
GROWTH FUNDS (DOMESTIC) Fund, Inc. Fund, Inc.
1997 1996 1997 1996
Operations
<S> <C> <C> <C> <C>
Net investment income ............................ $ 2,134,586 $ 1,869,747 $ 773,899 $ 562,602
Net realized gain from investment transactions.... 7,456,891 6,825,321 12,146,669 1,456,128
Change in unrealized appreciation/
depreciation of investments................... 3,601,722 751,917 617,291 4,958,684
Net Increase in Net Assets
Resulting from Operations 13,193,199 9,446,985 13,537,859 6,977,414
Dividends and Distributions to Shareholders From
net investment income:
Class A....................................... (1,962,353) (1,977,960) (664,560) (597,121)
Class B ...................................... (152,316) (80,727) (25,978) (28,747)
Class R....................................... (102,915) (3,345)a (42,305) (3,612)a
From net realized gain on investments:
Class A ...................................... (6,130,810) (2,798,187) (1,212,100) (811,021)
Class B ...................................... (566,868) (71,791) (188,032) (46,234)
Class R....................................... (112,915) -- (55,610) --
Total Dividends and Distributions (9,028,177) (4,932,010) (2,188,585) (1,486,735)
Capital Share Transactions (Note 5)
Shares sold:
Class A....................................... 21,449,772 14,014,587 34,250,614 16,456,171
Class B ...................................... 5,741,685 4,729,247 11,442,392 4,623,404
Class R....................................... 9,101,517 894,478a 14,353,877 1,584,827a
Shares issued in reinvestment of dividends and
distributions:
Class A....................................... 7,361,276 3,967,925 1,791,093 1,107,738
Class B ...................................... 712,904 151,751 211,943 74,660
Class R....................................... 215,722 3,345a 97,891 3,610a
Shares redeemed:
Class A ...................................... (17,550,684) (8,463,657) (9,512,640) (13,383,349)
Class B ...................................... (943,794) (499,765) (1,463,536) (370,763)
Class R ...................................... (846,178) (42,847)a (1,259,802) (40,315)a
Net Increase (Decrease) in Net Assets
from Capital Share Transactions 25,242,220 14,755,064 49,911,832 10,055,983
Total Increase 29,407,242 19,270,039 61,261,106 15,546,662
Net Assets
Beginning of year................................. 77,658,393 58,388,354 52,490,401 36,943,739
End of year (including undistributed net
investment income as set forth below)......... $107,065,635 $ 77,658,393 $113,751,507$ 52,490,401
Undistributed Net Investment Income .......... $ 75,127 $ 158,125 $ 79,494 $ 38,438
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years Ended October 31, Except as Noted
STATEMENTS OF CHANGES IN NET ASSETS
GROWTH FUNDS (Domestic)
Princor Capital Princor
Accumulation Emerging Growth
Fund, Inc. Fund, Inc.
1997 1996 1997 1996
Operations
<S> <C> <C> <C> <C>
Net investment income ............................ $ 9,136,213 $ 7,096,846 $ 419,786 $ 824,482
Net realized gain from investment transactions.... 44,903,311 62,796,872 10,456,322 8,797,569
Change in unrealized appreciation/
depreciation of investments................... 57,109,297 21,196,743 80,084,426 21,625,120
Net Increase in Net Assets
Resulting from Operations 111,148,821 91,090,461 90,960,534 31,247,171
Dividends and Distributions to Shareholders From
net investment income:
Class A....................................... (8,406,934) (6,575,207) (741,359) (769,946)
Class B ...................................... (131,991) (40,153) (4,780) (5,762)
Class R....................................... (86,476) (377)a (594) (100)a
From net realized gain on investments:
Class A ...................................... (60,902,870) (20,944,284) (7,708,737) (3,664,659)
Class B ...................................... (1,471,954) (159,788) (989,543) (234,733)
Class R....................................... (338,789) -- (95,503) --
Total Dividends and Distributions (71,339,014) (27,719,809) (9,540,516) (4,675,200)
Capital Share Transactions (Note 5)
Shares sold:
Class A....................................... 57,963,775 38,526,395 76,822,359 73,310,489
Class B ...................................... 15,764,589 6,857,184 24,764,751 18,956,446
Class R....................................... 16,511,369 1,747,855a 14,520,116 2,007,738a
Shares issued in reinvestment of dividends and
distributions:
Class A....................................... 68,083,831 27,060,108 8,245,913 4,310,643
Class B ...................................... 1,583,642 199,814 981,686 236,262
Class R....................................... 425,209 377a 96,080 100a
Shares redeemed:
Class A ...................................... (103,901,296) (31,940,130) (36,719,008) (23,052,083)
Class B ...................................... (1,795,682) (468,502) (4,945,062) (1,969,387)
Class R ...................................... (1,636,526) (57,097)a (1,479,854) (19,892)a
Net Increase (Decrease) in Net Assets
from Capital Share Transactions 52,998,911 41,926,004 82,286,981 73,780,316
Total Increase 92,808,718 105,296,656 163,706,999 100,352,287
Net Assets
Beginning of year................................. 447,201,123 341,904,467 259,960,901 159,608,614
End of year (including undistributed net
investment income as set forth below)......... $ 540,009,841 $447,201,123 $423,667,900 $259,960,901
Undistributed Net Investment Income .......... $ 3,270,973 $ 2,760,161 $ 36,047 $ 373,519
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Princor Princor
Growth Utilities
GROWTH FUNDS (Domestic) Fund, Inc. Fund, Inc.
1997 1996 1997 1996
Operations
<S> <C> <C> <C> <C>
Net investment income ............................ $ 2,008,065 $ 1,998,350 $ 2,768,051 $ 2,763,362
Net realized gain from investment transactions.... 11,213,338 2,443,260 1,274,214 1,903,036
Change in unrealized appreciation/
depreciation of investments................... 65,942,389 15,785,039 5,564,046 907,722
Net Increase in Net Assets
Resulting from Operations 79,163,792 20,226,649 9,606,311 5,574,120
Dividends and Distributions to Shareholders From
net investment income:
Class A....................................... (1,853,254) (1,861,151) (2,431,314) ( 2,523,991)
Class B ...................................... (14,911) (18,683) (183,927) (158,855)
Class R....................................... (8,766) (57)a (28,627) (1,864)a
From net realized gain on investments:
Class A ...................................... (2,178,840) (5,595,988) -- --
Class B ...................................... (232,571) (291,406) -- --
Class R....................................... (27,607) -- -- --
Total Dividends and Distributions (4,315,949) (7,767,285) (2,643,868) (2,684,710)
Capital Share Transactions (Note 5)
Shares sold:
Class A....................................... 54,732,684 57,801,956 5,270,881 11,274,737
Class B ...................................... 14,638,635 16,237,487 2,196,079 3,349,548
Class R....................................... 13,558,095 2,064,878a 1,364,313 308,620a
Shares issued in reinvestment of dividends and
distributions:
Class A....................................... 3,915,241 7,227,308 2,147,554 2,196,843
Class B ...................................... 244,569 308,579 165,257 146,631
Class R....................................... 36,360 57a 28,603 1,864a
Shares redeemed:
Class A ...................................... (35,146,370) (22,732,322) (15,663,584) (15,770,532)
Class B ...................................... (4,184,396) (1,567,488) (1,595,827) (2,007,039)
Class R ...................................... (1,144,394) (13,380)a (272,901) (2,894)a
Net Increase (Decrease) in Net Assets
from Capital Share Transactions 46,650,424 59,327,075 (6,359,625) (502,222)
Total Increase 121,498,267 71,786,439 602,818 2,387,188
Net Assets
Beginning of year................................. 254,393,295 182,606,856 72,212,558 69,825,370
End of year (including undistributed net
investment income as set forth below)......... $375,891,562 $254,393,295 $ 72,815,376 $ 72,212,558
Undistributed Net Investment Income .......... $ 813,820 $ 682,686 $ 445,581 $ 325,361
<FN>
a Period from February 27, 1996 (date operations commenced) through
October 31, 1996.
</FN>
</TABLE>
See accompanying notes.
<PAGE>
October 31, 1997
NOTES TO FINANCIAL STATEMENTS
Princor Balanced Fund, Inc.
Princor Blue Chip Fund, Inc.
Princor Capital Accumulation Fund, Inc.
Princor Emerging Growth Fund, Inc.
Princor Growth Fund, Inc.
Princor Utilities Fund, Inc.
Note 1 -- Significant Accounting Policies
Princor Balanced Fund, Inc., Princor Blue Chip Fund, Inc., Princor Capital
Accumulation Fund, Inc., Princor Emerging Growth Fund, Inc., Princor Growth
Fund, Inc. and Princor 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.
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 year ended October 31, 1997, 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>
Princor Balanced Fund, Inc. $207,135 $ 82,018 $39,799 $110,153 $17,336 $ 9,330 $10,880 $ 9,485 $7,484
Princor Blue Chip Fund, Inc. 158,562 109,019 61,776 87,710 22,712 11,712 8,361 9,429 7,468
Princor Capital Accumulation Fund, Inc. 583,332 166,429 74,493 305,637 32,691 16,025 14,522 9,855 7,085
Princor Emerging Growth Fund, Inc. 717,159 272,547 69,890 435,639 76,306 18,022 25,017 12,483 7,775
Princor Growth Fund, Inc. 587,173 193,368 70,524 381,849 64,214 16,328 16,821 10,765 8,624
Princor Utilities Fund, Inc. 163,975 52,578 6,907 96,790 9,820 2,843 13,435 7,140 7,099
</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 Princor Management Corporation. 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 years ended October
31, 1997 and 1996 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.
At October 31, 1997, Princor Utilities Fund, Inc. had a net capital loss
carryforward of approximately $65,000 which expires in 2003.
Note 3 -- Management Agreement and Transactions With Affiliates
The Domestic Growth Funds have agreed to pay investment advisory and management
fees to Princor Management Corporation (wholly owned by Princor Financial
Services Corporation, a subsidiary of Principal Mutual Life Insurance
Company)(the "Manager") 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:
Net Asset Value of Funds
(in millions)
First Next Next Next Over
$100 $100 $100 $100 $400
Princor Balanced Fund, Inc. 0.60% 0.55% 0.50% 0.45% 0.40%
Princor Blue Chip Fund, Inc. 0.50% 0.45% 0.40% 0.35% 0.30%
Princor Capital Accumulation Fund, Inc. 0.50% 0.45% 0.40% 0.35% 0.30%
Princor Emerging Growth Fund, Inc. 0.65% 0.60% 0.55% 0.50% 0.45%
Princor Growth Fund, Inc. 0.50% 0.45% 0.40% 0.35% 0.30%
Princor Utilities Fund, Inc. 0.60% 0.55% 0.50% 0.45% 0.40%
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.
The Manager voluntarily waives a portion of its fee for the Princor 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 limits, which were maintained at or
below those shown, are as follows:
Amount
Waived
Year Ended Year Ended Expense
October 31, 1997 October 31, 1996 Limit
Princor Utilities Fund, Inc.:
Class A $65,940 $54,932 1.15%
Class B 3,753 6,690 1.90%
Class R 9,355 --(a) 1.65%
(a) Period from February 27, 1996, (date operations commenced) through
October 31, 1996.
The Manager intends to continue its voluntary waiver and, if necessary, pay
expenses normally payable by Princor 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 October 31, 1997 were as follows:
Class A Class B
Princor Balanced Fund, Inc. $ 497,949 $20,396
Princor Blue Chip Fund, Inc. 797,403 18,800
Princor Capital Accumulation Fund, Inc. 1,355,878 28,117
Princor Emerging Growth Fund, Inc. 2,073,917 78,747
Princor Growth Fund, Inc. 1,466,748 81,948
Princor Utilities Fund, Inc. 141,999 27,905
No brokerage commissions were paid by the Domestic Growth Funds to Princor
Financial Services Corporation during the periods ended October 31, 1997 and
1996. Brokerage commissions were paid to other affiliates by the following
funds:
Year Ended Year Ended
October 31, October 31,
1997 1996
Princor Balanced Fund, Inc. $15,194 $ 555
Princor Blue Chip Fund, Inc. 21,243 420
Princor Capital Accumulation Fund, Inc. 17,016 25,993
Princor Emerging Growth Fund, Inc. 3,750 500
Princor Growth Fund, Inc. 4,637 --
Princor Utilities Fund, Inc. 4,665 2,217
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 October 31, 1997, 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:
Class A Class B Class R
Princor Balanced Fund, Inc. 59,946 102 2,437
Princor Blue Chip Fund, Inc. 64,477 89 64
Princor Capital Accumulation Fund, Inc. 5,331,983 64 47
Princor Emerging Growth Fund, Inc. 46,739 44 31
Princor Growth Fund, Inc. 37,577 36 26
Princor Utilities Fund, Inc. 85,553 121 90
Note 4 -- Investment Transactions
For the year ended October 31, 1997, 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
Princor Balanced Fund, Inc. $ 30,297,613 $ 24,321,006
Princor Blue Chip Fund, Inc. 90,170,258 43,742,031
Princor Capital Accumulation Fund, Inc. 151,641,157 169,985,349
Princor Emerging Growth Fund, Inc. 106,456,640 28,626,054
Princor Growth Fund, Inc. 52,941,105 45,300,042
Princor Utilities Fund, Inc. 16,017,778 22,025,002
At October 31, 1997, net unrealized appreciation of investments by the Domestic
Growth Funds was composed of the following:
<TABLE>
<CAPTION>
Net Unrealized
Gross Unrealized Appreciation
Appreciation (Depreciation) of Investments
<S> <C> <C> <C>
Princor Balanced Fund, Inc. $ 12,708,281 $ (2,388,830) $ 10,319,451
Princor Blue Chip Fund, Inc. 17,303,715 (2,956,660) 14,347,055
Princor Capital Accumulation
Fund, Inc. 136,706,857 (6,003,410) 130,703,447
Princor Emerging Growth
Fund, Inc. 163,534,559 (19,096,450) 144,438,109
Princor Growth Fund, Inc. 142,676,155 (6,335,416) 136,340,739
Princor Utilities Fund, Inc. 11,430,685 (1,118,708) 10,311,977
</TABLE>
At October 31, 1997, 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 October 31, Percentage of
Security Description Acquisition Cost 1997 Net Assets
<S> <C> <C> <C> <C> <C>
Princor Emerging Ciba-Geigy Corp.; Exchangeable
Growth Fund, Inc. Subordinated Debentures 3/20/91 $350,000 $ 368,375 .09%
Sierra On Line;
Convertible Subordinated Debentures 8/15/94 458,750 1,961,875 .46
8/17/94 447,125 1,922,638 .46
4,252,888 1.01
Princor Growth Ciba-Geigy Corp.; Exchangeable
Fund, Inc. Subordinated Debentures 3/20/91 500,000 526,250 .14
</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>
Princor Princor Blue Princor Capital
Balanced Fund, Inc. Chip Fund, Inc. Accumulation Fund, Inc.
Year Ended October 31, 1997:
Shares sold:
<S> <C> <C> <C>
Class A ......................................... 1,484,901 1,757,696 2,094,307
Class B ......................................... 394,660 585,899 569,099
Class R ......................................... 632,661 734,050 600,469
Shares issued in reinvestment of dividends and
distributions:
Class A ........................................... 521,642 97,219 2,633,617
Class B ........................................... 50,747 11,785 61,682
Class R ......................................... 15,156 5,263 16,393
Shares redeemed:
Class A ......................................... (1,197,833) (495,337) (3,785,181)
Class B ......................................... (65,006) (73,924) (64,340)
Class R ......................................... (57,684) (62,702) (58,005)
Net Increase 1,779,244 2,559,949 2,068,041
Year Ended October 31, 1996, Except as Noted:
Shares sold:
Class A ......................................... 1,006,927 1,010,928 1,522,381
Class B ......................................... 342,259 285,616 271,398
Class R* ........................................ 62,977 94,417 65,641
Shares issued in reinvestment of dividends and
distributions:
Class A ........................................... 289,049 69,998 1,127,785
Class B ........................................... 11,027 4,760 8,361
Class R* ........................................ 234 214 15
Shares redeemed:
Class A ......................................... (606,332) (828,161) (1,274,731)
Class B ......................................... (35,859) (22,683) (18,454)
Class R* ........................................ (2,990) (2,386) (2,115)
Net Increase 1,067,292 612,703 1,700,281
<FN>
* Period from February 27, 1996 (date operations commenced) through
October 31, 1996.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Princor Princor Princor
Emerging Growth Growth Utilities
Fund, Inc. Fund, Inc. Fund, Inc.
Year Ended October 31, 1997:
Shares sold:
<S> <C> <C> <C>
Class A ......................................... 1,925,742 1,188,640 442,282
Class B ......................................... 622,365 315,097 182,586
Class R .......................................... 363,949 296,077 114,303
Shares issued in reinvestment of dividends and
distributions:
Class A ........................................... 223,920 89,929 179,204
Class B ........................................... 27,006 5,779 13,766
Class R............................................ 2,629 863 2,382
Shares redeemed:
Class A ......................................... (920,261) (760,739) (1,312,610)
Class B ......................................... (125,040) (91,289) (133,160)
Class R ......................................... (36,211) (23,813) (23,006)
Net Increase (Decrease) 2,084,099 1,020,544 (534,253)
Year Ended October 31, 1996, Except as Noted:
Shares sold:
Class A ......................................... 2,182,164 1,486,767 985,437
Class B ......................................... 566,438 418,002 292,572
Class R* ......................................... 57,072 51,440 27,529
Shares issued in reinvestment of dividends and distributions:
Class A ........................................... 136,102 191,988 190,416
Class B ........................................... 7,537 8,274 12,720
Class R*........................................... 3 2 167
Shares redeemed:
Class A ......................................... (688,302) (587,050) (1,377,265)
Class B ......................................... (58,563) (40,235) (176,703)
Class R * ........................................ (555) (330) (256)
Net Increase (Decrease) 2,201,896 1,528,858 (45,383)
<FN>
* Period from February 27, 1996 (date operations commenced) through
October 31, 1996.
</FN>
</TABLE>
Note 6 -- Line of Credit
The Domestic Growth Funds participate with the other funds managed by Princor
Management Corporation in an unsecured joint line of credit with a bank, which
allows the funds to borrow up to $40,000,000, collectively. Borrowings are made
solely to facilitate the handling of unusual and/or unanticipated short-term
cash requirements. Interest is charged to each fund, based on its borrowings, at
a rate equal to the Fed Funds Rate plus .50%. Additionally, a commitment fee is
charged at the annual rate of .08% on the average unused portion of the line of
credit. The commitment fee is allocated among the participating funds in
proportion to their average net assets during each quarter. At October 31, 1997,
the Domestic Growth Funds had no outstanding borrowings under the line of
credit.
<PAGE>
October 31, 1997
SCHEDULES OF INVESTMENTS
GROWTH FUNDS (DOMESTIC)
PRINCOR BALANCED FUND, INC.
Shares
Held Value
Common Stocks (55.24%)
Auto & Home Supply Stores (1.13%)
AutoZone, Inc. 41,000(a)$ 1,212,063
Bakery Products (0.56%)
Sara Lee Corp. 11,800 603,275
Beverages (1.19%)
Pepsico, Inc. 24,300 894,544
Universal Foods Corp. 9,600 378,600
1,273,144
Commercial Banks (4.53%)
BankBoston Corp. 12,600 1,021,387
CoreStates Financial Corp. 11,600 843,900
First of America Bank Corp. 5,050 281,538
Fleet Financial Group, Inc. 13,200 848,925
Nationsbank Corp. 15,500 928,062
PNC Financial Corp. 19,400 921,500
4,845,312
Commercial Printing (0.54%)
R. R. Donnelley & Sons Co. 17,700 577,463
Communications Equipment (0.66%)
Allen Telecom, Inc. 11,100(a) 210,206
DSC Communications Corp. 20,500(a) 499,688
709,894
Computer & Data Processing
Services (3.20%)
Adobe Systems, Inc. 18,400 878,600
Computer Sciences Corp. 10,500(a) 744,844
Electronic Data Systems Corp. 33,400 1,292,162
First Data Corp. 17,400 505,688
Siebel Systems, Inc. 61(a) 2,476
3,423,770
Computer & Office Equipment (1.67%)
Hewlett-Packard Co. 10,300 635,381
International Business Machines Corp. 11,700 1,147,331
1,782,712
Consumer Products (1.95%)
Fortune Brands, Inc. 31,000 1,024,938
Philip Morris Cos., Inc. 11,700 463,612
UST, Inc. 19,900 595,756
2,084,306
Crude Petroleum & Natural Gas (1.43%)
Texaco, Inc. 26,800 1,525,925
Department Stores (0.86%)
Dillard's, Inc., Class A 23,900 917,163
Drug Stores & Proprietary Stores (0.47%)
Rite Aid Corp. 8,400 498,750
Drugs (3.85%)
Abbott Labs 7,100 435,319
American Home Products Corp. 13,500 1,000,687
Johnson & Johnson 15,300 877,838
Merck & Co., Inc. 9,200 821,100
Pharmacia & Upjohn, Inc. 31,100 987,425
4,122,369
Eating & Drinking Places (0.08%)
Tricon Global Restaurants, Inc. 2,660 80,631
Electric Services (2.26%)
Central & Southwest Corp. 48,900 1,054,406
Dominion Resources, Inc. 13,900 516,906
Houston Industries, Inc. 26,700 580,725
Potomac Electric Power Co. 12,000 269,250
2,421,287
Electrical Industrial Apparatus (0.87%)
Emerson Electric Co. 17,800 933,388
Electronic Distribution Equipment (0.50%)
General Electric Co. 8,300 535,869
Fats & Oils (1.03%)
Archer Daniels Midland Co. 49,708 1,106,003
Fire, Marine & Casualty
Insurance (0.55%)
General Re Corp 3,000 591,563
General Industrial Machinery (0.63%)
Pall Corp. 32,500 672,344
Grain Mill Products (0.99%)
Ralston-Ralston Purina Group 11,800 1,059,050
Greeting Cards (0.85%)
American Greetings Corp. 26,100 905,344
Grocery Stores (3.80%)
Albertson's, Inc. 40,200 1,482,375
American Stores Co. 43,200 1,109,700
Sysco Corp. 37,000 1,480,000
4,072,075
Household Furniture (0.82%)
Masco Corp. 20,100 881,887
Industrial Inorganic Chemicals (0.85%)
Dow Chemical Co. 6,800 617,100
Eastman Chemical Co. 4,850 289,181
906,281
Jewelry, Silverware &
Plated Ware (0.18%)
Jostens, Inc. 8,400 195,825
Life Insurance (0.87%)
Lincoln National Corp. 13,600 935,000
Management & Public Relations (1.36%)
Cognizant Corp. 20,800 815,100
Dun & Bradstreet Corp. 22,500 642,656
1,457,756
Meat Products (0.82%)
Tyson Foods, Inc. 46,350 874,856
Medical Instruments & Supplies (0.96%)
St. Jude Medical, Inc. 33,850(a) 1,026,078
Medical Service & Health
Insurance (1.91%)
AON Corp. 11,400 614,888
Foundation Health Systems, Inc.,
Class A 28,550(a) 820,812
Pacificare Health Systems, Inc.,
Class B 9,500(a) 615,125
2,050,825
Metal Forgings & Stampings (0.54%)
Newell Co. 15,100 579,463
Miscellaneous Electrical Equipment &
Supplies (0.51%)
Motorola, Inc. 8,800 543,400
Miscellaneous Shopping Goods
Stores (1.59%)
Toys 'R' Us, Inc. 49,900(a) 1,699,719
Motor Vehicles, Parts &
Supplies (1.13%)
Grainger (W. W.), Inc. 13,800 1,206,637
Paper Mills (1.49%)
Kimberly Clark Corp. 30,700 1,594,481
Petroleum Refining (3.34%)
Amoco Corp. 6,700 614,306
Atlantic Richfield Co. 17,200 1,415,775
Exxon Corp. 25,200 1,548,225
3,578,306
Plastic Materials & Synthetics (0.11%)
Wellman, Inc. 5,900 119,844
Rubber & Plastics Footwear (0.65%)
Nike, Inc. 14,900 700,300
Sanitary Services (1.44%)
Browning-Ferris Industries, Inc. 16,500 536,250
Waste Management, Inc. 43,300 1,012,137
1,548,387
Security & Commodity
Exchanges (0.34%)
Nextlevel Systems 27,000(a) 364,500
Telephone Communication (1.37%)
AT&T Corp. 13,800 675,338
GTE Corp. 18,600 789,337
1,464,675
Toys & Sporting Goods (0.69%)
Hasbro, Inc. 25,400 736,600
Variety Stores (0.67%)
Wal-Mart Stores, Inc. 20,500 720,062
Total Common Stocks 59,138,582
Preferred Stocks (1.36%)
Motor Vehicles & Equipment (1.31%)
Ford Motor Co.
Series A Convertible 10,000 1,402,500
Paper Mills (0.05%)
Fort James Corp.
Exchangeable 1,000 57,500
Total Preferred Stocks 1,460,000
Principal
Amount Value
Bonds (1.74%)
Aircraft & Parts (0.24%)
Rohr Industries, Inc.
Convertible Subordinated
Debentures; 7.00%; 10/1/12 $ 260,000 $ 256,100
Blast Furnace & Basic
Steel Products (0.34%)
Quanex Corp. Convertible
Subordinated Debentures;
6.88%; 6/30/07 350,000 360,938
Engines & Turbines (0.46%)
Outboard Marine Corp. Convertible
Subordinated Debentures;
7.00%; 7/1/02 500,000 496,250
Petroleum Refining (0.55%)
Pennzoil Co. Senior Exchangeable
Debentures; 6.50%; 1/15/03 300,000 587,625
Trucking & Courier Services,
Except Air (0.15%)
Builders Transport, Inc. Convertible
Subordinated Debentures;
6.50%; 5/1/11 306,000(b) 163,710
Total Bonds 1,864,623
U.S. Government Treasury Notes & Bonds (37.74%)
Treasury Notes & Bonds (37.74%)
5.13%; 2/28/98 4,000,000 3,995,000
5.13%; 11/30/98 1,000,000 995,313
6.00%; 10/15/99 2,150,000 2,166,798
5.50%; 4/15/00 5,800,000 5,778,250
6.25%; 4/30/01 2,000,000 2,032,500
6.38%; 9/30/01 2,000,000 2,042,500
6.38%; 8/15/02 3,300,000 3,384,563
5.75%; 8/15/03 4,800,000 4,786,502
5.88%; 2/15/04 4,000,000 4,016,252
7.50%; 2/15/05 1,000,000 1,094,688
8.25%; 5/15/05 750,000 790,781
5.63%; 2/15/06 3,600,000 3,532,500
7.25%; 5/15/16 1,575,000 1,757,602
7.50%; 11/15/16 1,575,000 1,800,422
7.25%; 8/15/22 1,000,000 1,126,250
6.25%; 8/15/23 1,100,000 1,102,750
40,402,671
Commercial Paper (3.44%)
Personal Credit Institutions (3.44%)
Investment in Joint Trade Account;
Associates Corp.;
5.73%; 11/3/97 3,688,228 3,688,228
Total Portfolio Investments (99.52%) 106,554,104
Cash, receivables and other assets,
net of liabilities (0.48%) 511,531
Total Net Assets (100.00%) $107,065,635
(a) Non-income producing security - No dividend paid during the period.
(b) Non-income producing - Security in default.
PRINCOR BLUE CHIP FUND, INC.
Shares
Held Value
Common Stocks (95.88%)
Bakery Products (2.89%)
Sara Lee Corp. 64,200 $ 3,282,225
Beverages (5.74%)
Anheuser-Busch Cos., Inc. 81,900 3,270,881
Pepsico, Inc. 88,400 3,254,225
6,525,106
Commercial Banks (5.67%)
Banc One Corp. 63,345 3,301,858
J. P. Morgan & Co., Inc. 28,700 3,149,825
6,451,683
Computer & Office Equipment (5.89%)
Automatic Data Processing, Inc. 69,200 3,537,850
Hewlett-Packard Co. 51,300 3,164,569
6,702,419
Drugs (11.61%)
American Home Products Corp. 47,800 3,543,175
Johnson & Johnson 59,200 3,396,600
Merck & Co., Inc. 35,200 3,141,600
Pharmacia & Upjohn, Inc. 98,400 3,124,200
13,205,575
Eating & Drinking Places (2.81%)
McDonald's Corp. 71,300 3,195,131
Electrical Industrial Apparatus (2.79%)
Emerson Electric Co. 60,400 3,167,225
Electronic Distribution
Equipment (2.80%)
General Electric Co. 49,400 3,189,388
Fire, Marine & Casualty
Insurance (5.71%)
American International Group 31,950 3,260,897
Chubb Corp. 48,800 3,233,000
6,493,897
General Industrial Machinery (2.80%)
Pall Corp. 153,900 3,183,806
Grain Mill Products (2.95%)
Kellogg Co. 77,900 3,354,569
Grocery Stores (3.18%)
Sysco Corp. 90,500 3,620,000
Medical Instruments & Supplies (2.92%)
Becton, Dickinson & Co. 72,100 3,321,106
Metal Cans & Shipping
Containers (2.84%)
Crown Cork & Seal Co., Inc. 71,800 3,235,488
Miscellaneous Electrical Equipment &
Supplies (2.70%)
Motorola, Inc. 49,800 3,075,150
Miscellaneous Shopping Goods
Stores (3.05%)
Toys 'R' Us, Inc. 101,700(a) 3,464,156
Petroleum Refining (8.71%)
Exxon Corp. 52,700 3,237,756
Mobil Corp. 45,800 3,334,813
Royal Dutch Petroleum Co. ADR 63,300 3,331,162
9,903,731
Preserved Fruits & Vegetables (6.13%)
CPC International, Inc. 36,000 3,564,000
H. J. Heinz Co. 73,500 3,413,156
6,977,156
Sugar & Confectionary Products (2.96%)
Wrigley Wm. Jr. Co. 46,600 3,372,675
Telephone Communication (6.07%)
AT&T Corp. 77,100 3,773,081
GTE Corp. 73,700 3,127,644
6,900,725
Variety Stores (2.98%)
Wal-Mart Stores, Inc. 96,600 3,393,075
Women's Clothing Stores (2.68%)
The Limited, Inc. 129,200 3,044,275
Total Common Stocks 109,058,561
Principal
Amount Value
Commercial Paper (1.71%)
Personal Credit Institutions (1.71%)
Investment in Joint Trade Account;
Associates Corp.;
5.73%; 11/3/97 $1,948,644 $ 1,948,644
Total Portfolio Investments (97.59%) 111,007,205
Cash, receivables and other assets,
net of liabilities (2.41%) 2,744,302
Total Net Assets (100.00%) $113,751,507
(a) Non-income producing security - No dividend paid during the period.
PRINCOR CAPITAL ACCUMULATION FUND, INC.
Shares
Held Value
Common Stocks (95.47%)
Beverages (3.28%)
Anheuser Busch Cos., Inc. 285,000 $11,382,188
Pepsico, Inc. 119,700 4,406,456
Universal Foods Corp. 48,300 1,904,831
17,693,475
Combination Utility Services (0.97%)
Cinergy Corp. 158,800 5,240,400
Commercial Banks (19.49%)
Banc One Corp. 295,240 15,389,385
BankBoston Corp. 100,700 8,162,994
Comerica, Inc. 180,000 14,231,250
CoreStates Financial Corp. 248,000 18,042,000
First of America Bank Corp. 120,300 6,706,725
First Union Corp. 135,500 6,647,969
KeyCorp 229,500 14,042,531
Nationsbank Corp. 86,000 5,149,250
Summit Bancorp 385,500 16,456,031
Union Planters Corp. 8,200 486,362
105,314,497
Commercial Printing (1.18%)
R. R. Donnelley & Sons Co. 195,000 6,361,875
Communications Equipment (0.16%)
Allen Telecom, Inc. 44,700(a) 846,506
Computer & Office Equipment (2.68%)
Hewlett-Packard Co. 82,000 5,058,375
International Business
Machines Corp. 96,000 9,414,000
14,472,375
Crude Petroleum & Natural Gas (2.01%)
Texaco, Inc. 190,600 10,852,288
Drugs (6.47%)
Abbott Labs 65,000 3,985,313
American Home Products Corp. 153,000 11,341,125
Merck & Co., Inc. 85,000 7,586,250
Pharmacia & Upjohn, Inc. 378,000 12,001,500
34,914,188
Eating & Drinking Places (0.07%)
Tricon Global Restaurants, Inc. 11,970 362,841
Electric Services (4.08%)
Dominion Resources, Inc. 98,200 3,651,813
FPL Group, Inc. 85,100 4,398,606
Houston Industries, Inc. 530,000 11,527,500
Potomac Electric Power Co. 110,000 2,468,125
22,046,044
Electrical Industrial Apparatus (1.18%)
Emerson Electric Co. 121,394 6,365,598
Electronic Distribution Equipment (0.97%)
General Electric Co. 81,000 5,229,563
Farm & Garden Machinery (2.35%)
Tenneco, Inc. 282,000 12,672,375
Fats & Oils (1.82%)
Archer Daniels Midland Co. 441,000 9,812,250
General Industrial Machinery (2.05%)
Pall Corp. 534,000 11,047,125
Grain Mill Products (1.08%)
Ralston-Ralston Purina Group 65,000 5,833,750
Greeting Cards (2.37%)
American Greetings Corp. 369,100 12,803,156
Grocery Stores (3.56%)
Albertson's, Inc. 98,000 3,613,750
American Stores Co. 280,000 7,192,500
Sysco Corp. 210,500 8,420,000
19,226,250
Household Furniture (2.61%)
Masco Corp. 321,500 14,105,813
Industrial Inorganic Chemicals (1.19%)
Dow Chemical Co. 47,700 4,328,775
Eastman Chemical Co. 35,400 2,110,725
6,439,500
Jewelry, Silverware & Plated
Ware (0.38%)
Jostens, Inc. 88,200 2,056,163
Life Insurance (2.76%)
American General Corp. 292,000 14,892,000
Management & Public Relations (2.23%)
Cognizant Corp. 110,600 4,334,138
Dun & Bradstreet Corp. 270,600 7,729,012
12,063,150
Meat Products (1.15%)
Tyson Foods, Inc. 329,550 6,220,256
Medical Instruments & Supplies (0.74%)
St. Jude Medical, Inc. 131,450(a) 3,984,578
Medical Service & Health
Insurance (1.76%)
AON Corp. 111,900 6,035,606
Foundation Health Systems, Inc. 121,160(a) 3,483,350
9,518,956
Metal Forgings & Stampings (1.07%)
Newell Co. 150,000 5,756,250
Miscellaneous Electrical Equipment
& Supplies (0.88%)
Motorola, Inc. 77,300 4,773,275
Miscellaneous Shopping Goods
Stores (1.70%)
Toys 'R' Us, Inc. 270,100(a) 9,200,281
Motor Vehicles, Parts & Supplies (1.46%)
Grainger (W. W.), Inc. 90,300 7,895,606
Paper Mills (1.42%)
Kimberly Clark Corp. 147,800 7,676,363
Petroleum Refining (7.10%)
Atlantic Richfield Co. 179,600 14,783,325
Chevron Corp. 150,000 12,440,625
Exxon Corp. 180,800 11,107,900
38,331,850
Photographic Equipment &
Supplies (0.89%)
Eastman Kodak Co. 80,000 4,790,000
Rental of Railroad Cars (2.87%)
GATX Corp. 240,000 15,495,000
Sanitary Services (2.38%)
Browning-Ferris Industries, Inc. 395,000 12,837,500
Soap, Cleaners & Toilet Goods (0.97%)
Avon Products 80,000 5,240,000
Telephone Communication (5.01%)
AT&T Corp. 128,300 6,278,680
Southern New England Telecom 150,000 6,431,250
US West Communications Group 360,000 14,332,500
27,042,430
Variety Stores (1.13%)
Wal-Mart Stores, Inc. 174,000 6,111,750
Total Common Stocks 515,525,277
Principal
Amount Value
Commercial Paper (3.23%)
Personal Credit Institutions (3.23%)
Investment in Joint Trade Account;
Associates Corp.; 5.73%; 11/3/97 $17,467,226 $17,467,226
Total Portfolio Investments (98.70%) 532,992,503
Cash, receivables and other assets,
net of liabilities (1.30%) 7,017,338
Total Net Assets (100.00%) $540,009,841
(a) Non-Income producing security - No dividend paid during the period.
PRINCOR EMERGING GROWTH FUND, INC.
Shares
Held Value
Common Stocks (91.79%)
Blast Furnace & Basic Steel
Products (0.62%)
Lukens, Inc. 145,400 $ 2,617,200
Carpets & Rugs (0.57%)
Shaw Industries, Inc. 198,700 2,409,238
Chemicals & Allied Products (0.33%)
Sigma-Aldrich Corp. 40,400 1,419,050
Commercial Banks (10.85%)
Associated Banc Corp. 134,028 6,718,154
First Commerce Corp. 35,300 2,268,025
First Federal Capital Corp. 164,398 4,479,845
Independent Bank Corp. Michigan 66,200 2,134,962
Mercantile Bancorp., Inc. 195,529 9,495,377
Merchants Bancorp., Inc. 116,200 2,730,700
National City Corp. 32,300 1,929,925
Nationsbank Corp. 13,310 796,936
North Fork Bancorp., Inc. 241,458 7,107,920
Peoples Heritage Financial Group, Inc. 98,900 3,894,187
Princeton National Bancorp., Inc. 100,000 2,400,000
Summit Bancorp. 46,950 2,004,178
45,960,209
Commercial Printing (0.46%)
Merrill Corp. 87,200 1,951,100
Computer & Data Processing
Services (9.45%)
American Management Systems, Inc. 101,000(a) 2,184,125
Bitstream 198,000(a) 420,750
Cadence Design Systems, Inc. 163,600(a) 8,711,700
Cerner Corp. 238,900(a) 5,793,325
Choicepoint, Inc. 15,890(a) 591,902
HBO & Co. 138,000 6,003,000
Microsoft Corp. 50,500(a) 6,565,000
National Processing, Inc. 41,000(a) 417,687
Sunquest Information Systems, Inc. 169,300(a) 1,502,537
Synopsys, Inc. 201,900(a) 7,848,862
40,038,888
Computer & Office Equipment (5.73%)
3COM Corp. 85,000(a) 3,522,187
Ascend Communications 149,000(a) 4,023,000
Cabletron Systems, Inc. 140,000(a) 4,060,000
EMC Corp. 177,800(a) 9,956,800
Optika Imaging Systems 140,500(a) 632,250
Seagate Technology 9,410(a) 255,246
SystemSoft Corp. 232,200(a) 1,843,087
24,292,570
Construction & Related
Machinery (4.77%)
EVI, Inc. 314,800(a) 20,206,225
Crude Petroleum & Natural Gas (1.07%)
Devon Energy Corp. 101,000 4,519,750
Dairy Products (0.32%)
Dreyer's Grand Ice Cream, Inc. 32,700 1,352,963
Department Stores (1.43%)
Saks Holding 283,000(a) 6,049,125
Drugs (1.52%)
Alliance Pharmaceutical Corp. 48,600(a) 486,000
Forest Laboratories, Inc. 34,000(a) 1,572,500
Genzyme Corp. - General Division 15,130(a) 414,184
Genzyme Corp. - Tissue Repair 453(a) 3,907
Merck & Co., Inc. 16,970 1,514,572
Pharmacia & Upjohn, Inc. 75,700 2,403,475
Seragen, Inc. 60,000(a) 33,750
6,428,388
Electronic Components &
Accessories (5.98%)
Altera Corp. 100,000(a) 4,437,500
Intel Corp. 86,800 6,683,600
Linear Technology Corp. 99,900 6,281,213
Solectron Corp. 202,000(a) 7,928,500
25,330,813
Engineering & Architectural
Services (1.08%)
Paychex, Inc. 120,162 4,581,176
Fire, Marine & Casualty
Insurance (1.29%)
Berkley W. R. Corp. 132,750 5,459,344
Footwear, Except Rubber (0.91%)
Nine West Group, Inc. 109,200(a) 3,856,125
General Industrial Machinery (4.46%)
Flow International Corp. 187,200(a) 1,965,600
Kaydon Corp. 181,600 5,516,100
Pentair, Inc. 137,500 5,310,938
Roper Industries, Inc. 228,000 6,084,750
18,877,388
Grocery Stores (0.81%)
Casey's General Stores, Inc. 141,400 3,411,275
Holding Offices (0.63%)
ISB Financial Corp. 109,100 2,686,588
Hose, Belting, Gaskets & Packing (0.93%)
Mark IV Industries 162,168 3,932,574
Hospitals (1.64%)
Humana, Inc. 119,800(a) 2,515,800
Universal Health Services, Inc.,
Class B 101,000(a) 4,450,313
6,966,113
Household Appliances (1.11%)
Maytag Corp. 141,300 4,715,888
Industrial Machinery (1.31%)
Coltec Industries 276,900(a) 5,538,000
Insurance Agents, Brokers &
Services (1.47%)
Equifax, Inc. 200,000 6,212,500
Investment Offices (1.08%)
AMVESCAP PLC Sponsored ADR 69,460 4,566,995
Iron & Steel Foundries (0.54%)
Atchison Casting Corp. 111,100(a) 2,284,494
Laundry, Cleaning & Garment
Services (0.72%)
G&K Services, Inc., Class A 84,600 3,045,600
Measuring & Controlling Devices (1.20%)
ISCO, Inc. 30,935 297,745
Millipore Corp. 102,200 3,998,575
Photon Dynamics 129,300(a) 808,125
5,104,445
Meat Products (1.13%)
Michael Foods, Inc. 188,500 4,806,750
Medical Instruments & Supplies (1.99%)
Boston Scientific Corp. 68,100(a) 3,098,550
Steris Corp. 134,300(a) 5,338,425
8,436,975
Medical Service & Health
Insurance (4.67%)
Alternative Living Services 234,200(a) 5,737,900
Foundation Health Systems, Inc.,
Class A 202,340(a) 5,817,275
Orthofix International NV 156,200(a) 2,108,700
Pacificare Health Systems, Inc.,
Class A 188(a) 11,962
Pacificare Health Systems, Inc.,
Class B 30,591(a) 1,980,767
Patient Infosystems, Inc. 125,000(a) 406,250
United Healthcare Corp. 80,000 3,705,000
19,767,854
Metal Services, NEC (1.30%)
BMC Industries, Inc. 171,000 5,504,062
Miscellaneous Apparel &
Accessories (0.46%)
Designer Holdings, Ltd. 227,200(a) 1,959,600
Miscellaneous Chemical Products (1.37%)
Cytec Industries 72,600(a) 3,539,250
H. B. Fuller Co. 47,500 2,244,375
5,783,625
Mortgage Bankers & Brokers (1.01%)
Money Store, Inc. 151,400 4,295,975
Non-Store Retailers (0.97%)
U.S. Office Products Co. 131,200(a) 4,100,000
Office Furniture (0.88%)
Chromcraft Revington, Inc. 71,400(a) 2,240,175
Kimball International, Inc., Class B 36,600 1,500,600
3,740,775
Offices & Clinics of Medical
Doctors (0.89%)
Phycor, Inc. 162,800(a) 3,754,575
Oil & Gas Field Services (2.20%)
Diamond Offshore Drilling 150,000 9,337,500
Operative Builders (1.26%)
D. R. Horton, Inc. 294,500 4,417,500
Pulte Corp. 25,200 941,850
5,359,350
Paints & Allied Products (0.71%)
RPM, Inc. 160,400 3,007,500
Plastic Materials & Synthetics (0.57%)
A. Schulman, Inc. 107,800 2,425,500
Plumbing, Heating &
Air Conditioning (2.01%)
Apogee Enterprises, Inc. 343,700 8,205,838
Metalclad Corp. 228,400(a) 299,775
8,505,613
Public Building & Related
Furniture (1.00%)
BE Aerospace, Inc. 150,000(a) 4,218,750
Refrigeration & Service
Machinery (0.31%)
Tecumseh Products Co. Class A 25,200 1,307,250
Sanitary Services (0.74%)
Browning-Ferris Industries, Inc. 86,200 2,801,500
USA Waste Services, Inc. 8,846(a) 327,302
3,128,802
Savings Institutions (1.68%)
Greenpoint Financial Corp. 70,000 4,506,250
Sterling Financial Corp. 124,133(a) 2,637,826
7,144,076
Screw Machine Products,
Bolts, Etc. (0.78%)
Trimas Corp. 113,500 3,319,875
Security Brokers & Dealers (0.83%)
Jefferies Group, Inc. 53,200 3,524,500
Telephone Communication (1.63%)
Brooks Fiber Properties 10,000(a) 558,750
McLeod, Inc. 171,300(a) 6,359,513
6,918,263
Toys & Sporting Goods (0.72%)
Mattel, Inc. 78,050 3,034,194
Trucking & Courier Services,
Except Air (0.40%)
J. B. Hunt Transport Services, Inc. 109,900 1,689,713
Total Common Stocks 388,885,101
Preferred Stock (0.35%)
Medical Service & Health
Insurance (0.35%)
Pacificare Health Systems, Inc.
Series A Convertible 55,600 1,501,200
Principal
Amount Value
Bonds (1.98%)
Computer & Data Processing
Services (0.92%)
Sierra On Line Convertible
Subordinated Debentures;
6.50%; 4/1/01 $ 990,000(b) $3,884,513
Industrial Inorganic Chemicals (0.60%)
Ciba-Geigy Corp. Exchangeable
Subordinated Debentures;
6.25%; 3/15/16 350,000(b) 368,375
ICN Pharmaceuticals, Inc.
Convertible Subordinated
Debentures; 8.50%; 11/15/99 1,000,000 2,175,000
2,543,375
Management & Public Relations (0.41%)
Complete Management, Inc.
Convertible Debentures;
8.00%; 12/15/03 1,500,000 1,740,000
Sanitary Services (0.05%)
Enclean, Inc. Convertible
Subordinated Debentures;
7.50%; 8/1/01 200,000 205,073
Total Bonds 8,372,961
Commercial Paper (6.72%)
Business Credit Institutions (0.14%)
General Electric Capital Corp.;
5.70%; 11/3/97 570,000 570,000
Miscellaneous Electrical
Equipment & Supplies (0.27%)
General Electric Co.;
5.53%; 11/4/97 1,150,000 1,149,823
Personal Credit Institutions (4.95%)
Investment in Joint Trade Account;
Associates Corp.;
5.73%; 11/3/97 20,980,403 20,980,403
Security Brokers & Dealers (1.36%)
Merrill Lynch & Co., Inc.;
5.51%; 11/3/97 5,779,000 5,779,000
Total Commercial Paper 28,479,226
Total Portfolio Investments (100.84%) 427,238,488
Liabilities, net of cash, receivables
and other assets (-0.84%) (3,570,588)
Total Net Assets (100.00%) $423,667,900
(a) Non-income producing security - No dividend paid during the period.
(b) Restricted security - See Note 4 to the financial statements.
PRINCOR GROWTH FUND, INC.
Shares
Held Value
Common Stocks (84.57%)
Advertising (1.14%)
Interpublic Group of Cos., Inc. 90,000 $ 4,275,000
Beverages (1.88%)
Coca-Cola Co. 60,000 3,390,000
Pepsico, Inc. 100,000 3,681,250
7,071,250
Blast Furnace & Basic Steel
Products (0.38%)
Lukens, Inc. 80,000 1,440,000
Carpets & Rugs (0.65%)
Shaw Industries, Inc. 200,000 2,425,000
Cash Grains (2.44%)
Pioneer Hi-Bred International 100,000 9,162,500
Commercial Banks (6.26%)
Banc One Corp. 55,000 2,866,875
BankBoston Corp. 45,000 3,647,812
First of America Bank Corp. 60,000 3,345,000
Firstar Corp. 150,000 5,418,750
FirstMerit Corp. 100,000 2,550,000
Nationsbank Corp. 71,644 4,289,685
Princeton National Bancorp., Inc. 60,000 1,440,000
23,558,122
Communications Equipment (2.59%)
Commscope, Inc. 58,333(a) 641,663
Nextlevel Systems 175,000(a) 2,362,500
Northern Telecom Ltd. 75,000 6,726,563
9,730,726
Computer & Data Processing
Services (4.10%)
GTECH Holdings Corp. 139,300(a) 4,492,425
Microsoft Corp. 84,000(a) 10,920,000
15,412,425
Computer & Office Equipment (3.55%)
Ceridian Corp. 106,200(a) 4,148,437
Digital Equipment Corp. 71,500(a) 3,579,469
Hewlett-Packard Co. 60,000 3,701,250
Pitney Bowes, Inc. 24,700 1,959,019
13,388,175
Department Stores (2.10%)
Federated Department Stores 100,000(a) 4,400,000
May Department Stores 65,000 3,501,875
7,901,875
Drugs (9.04%)
Bristol-Myers Squibb Co. 50,000 4,387,500
Forest Laboratories, Inc. 66,300(a) 3,066,375
Genzyme Corp. - General Division 68,756(a) 1,882,195
Genzyme Corp. - Tissue Repair 283(a) 2,440
Johnson & Johnson 80,000 4,590,000
Lilly (Eli) & Co. 100,000 6,687,500
Merck & Co., Inc. 50,000 4,462,500
Pharmacia & Upjohn, Inc. 100,000 3,175,000
Smithkline Beecham PLC ADR. 120,000 5,715,000
33,968,510
Eating & Drinking Places (1.14%)
Marriott International, Inc. 57,000 3,975,750
Tricon Global Restaurants, Inc. 10,000 303,125
4,278,875
Electrical Goods (0.50%)
Avnet, Inc. 30,000 1,888,125
Electronic Components &
Accessories (3.32%)
General Semiconductors 43,750(a) 497,656
Intel Corp. 82,000 6,314,000
Linear Technology Corp. 90,000 5,658,750
12,470,406
Electronic Distribution Equipment (0.69%)
General Electric Co. 40,000 2,582,500
Federal & Federally Sponsored
Credit (0.83%)
Federal National Mortgage Association 64,600 3,129,062
Footwear, Except Rubber (1.33%)
Stride Rite Corp. 425,000 4,993,750
General Industrial Machinery (3.19%)
Ingersoll-Rand Co. 105,000 4,088,438
Tyco International Ltd. 209,400 7,904,850
11,993,288
Grain Mill Products (1.67%)
General Mills, Inc. 26,865 1,773,090
Ralston-Ralston Purina Group 50,000 4,487,500
6,260,590
Grocery Stores (0.14%)
Casey's General Stores, Inc. 21,052 507,880
Hose, Belting, Gaskets & Packing (0.87%)
Mark IV Industries 134,563 3,263,153
Hospitals (1.76%)
Humana, Inc. 105,000(a) 2,205,000
Universal Health Services, Inc.,
Class B 100,000(a) 4,406,250
6,611,250
Household Furniture (0.93%)
Masco Corp. 80,000 3,510,000
Investment Offices (1.05%)
AMVESCAP PLC Sponsored ADR 60,000 3,945,000
Lumber & Other Building
Materials (2.22%)
Home Depot, Inc. 150,000 8,343,750
Management & Public Relations (.01%)
Medaphis Corp. 2,000(a) 12,125
Medical Instruments & Supplies (2.67%)
Becton, Dickinson & Co. 70,000 3,224,375
Boston Scientific Corp. 150,000(a) 6,825,000
10,049,375
Medical Service & Health
Insurance (3.22%)
AON Corp. 60,000 3,236,250
Foundation Health Systems, Inc.,
Class A 147,500(a) 4,240,625
Pacificare Health Systems, Inc.,
Class B 28,540(a) 1,847,965
United Healthcare Corp. 60,000 2,778,750
12,103,590
Millwork, Plywood & Structural
Members (0.45%)
Georgia-Pacific Corp. 20,000 1,696,250
Miscellaneous Converted Paper
Products (0.34%)
Minnesota Mining & Mfg. Co. 14,000 1,281,000
Miscellaneous Electrical Equipment
& Supplies (0.99%)
Motorola, Inc. 60,000 3,705,000
Miscellaneous Fabricated Metal
Products (1.15%)
Parker-Hannifin Corp. 103,350 4,321,322
Miscellaneous Investing (1.22%)
HFS, Inc. 65,000(a) 4,582,500
Miscellaneous Shopping Goods
Stores (0.49%)
Toys 'R' Us, Inc. 54,500(a) 1,856,406
Motor Vehicles & Equipment (2.16%)
Chrysler Corp. 100,000 3,525,000
Dana Corp. 98,000 4,587,625
8,112,625
Petroleum Refining (2.02%)
Atlantic Richfield Co. 40,000 3,292,500
Exxon Corp. 70,000 4,300,625
7,593,125
Plastic Materials & Synthetics (0.48%)
A. Schulman, Inc. 80,000 1,800,000
Preserved Fruits & Vegetables (0.66%)
CPC International, Inc. 25,000 2,475,000
Radio, Television & Computer
Stores (0.18%)
Tandy Corp. 20,000 687,500
Radio & Television Broadcasting (0.97%)
Sinclair Broadcast Group 100,000(a) 3,650,000
Refrigeration & Service
Machinery (0.55%)
Tecumseh Products Co., Class A 40,000 2,075,000
Rubber & Plastics Footwear (0.49%)
Reebok International Ltd. 50,000(a) 1,843,750
Sanitary Services (1.15%)
Browning-Ferris Industries, Inc. 80,000 2,600,000
USA Waste Services, Inc. 17,695(a) 654,715
Waste Management, Inc. 45,000 1,051,875
4,306,590
Security Brokers & Dealers (1.45%)
Salomon, Inc. 70,000 5,438,125
Soap, Cleaners & Toilet Goods (2.90%)
Colgate-Palmolive Co. 80,000 5,180,000
Ecolab, Inc. 120,000 5,707,500
10,887,500
Sugar & Confectionary Products (1.06%)
Wrigley Wm. Jr. Co. 55,000 3,980,625
Telephone Communication (3.53%)
MCI Communications Corp. 110,000 3,905,000
Teleport Communication 110,000(a) 5,321,250
Worldcom, Inc. 120,000(a) 4,035,000
13,261,250
Toys & Sporting Goods (1.27%)
Mattel, Inc. 123,046 4,783,413
Women's & Children's
Undergarments (1.39%)
Warnaco Group, Class A 185,200 5,231,900
Total Common Stocks 317,845,183
Preferred Stocks (0.82%)
Medical Service & Health
Insurance (0.45%)
Pacificare Health Systems, Inc.
Series A Convertible 62,000 1,674,000
Motor Vehicles & Equipment (0.37%)
Ford Motor Co.
Series A Convertible 10,000 1,402,500
Total Preferred Stocks 3,076,500
Principal
Amount Value
Bonds (0.74%)
Electrical Industrial Apparatus (0.52%)
Liebert Co. Convertible
Subordinated Debentures;
8.00%; 11/15/10 $ 500,000 $ 1,960,625
Industrial Inorganic Chemicals (0.14%)
Ciba-Geigy Corp. Exchangeable
Subordinated Debentures;
6.25%; 3/15/16 500,000(b) 526,250
Sanitary Services (0.08%)
Enclean, Inc. Convertible
Subordinated Debentures;
7.50%; 8/1/01 300,000 307,610
Total Bonds 2,794,485
Commercial Paper (12.02%)
Business Credit Institutions (0.92%)
American Express Credit Corp.;
5.53%; 11/24/97 3,470,000 3,458,806
Personal Credit Institutions (7.62%)
Investment in Joint Trade Account;
Associates Corp;
5.73%; 11/3/97 16,108,981 16,108,981
Ford Motor Credit Co.;
5.51%; 11/10/97 12,555,000 12,541,549
28,650,530
Securities Brokers & Dealers (3.48%)
Merrill Lynch & Co.;
5.51%; 11/3/97 13,091,000 13,091,000
Total Commercial Paper 45,200,336
Total Portfolio Investments (98.15%) 368,916,504
Cash, receivables and other assets,
net of liabilities (1.85%) 6,975,058
Total Net Assets (100.00%) $375,891,562
(a) Non-income producing security - No dividend paid during the period.
(b) Restricted security - See Note 4 to the financial statements.
PRINCOR UTILITIES FUND, INC.
Shares
Held Value
Common Stocks (98.71%)
Combination Utility Services (32.06%)
Baltimore Gas & Electric Co. 82,500 $ 2,263,593
Cilcorp, Inc. 46,100 1,884,337
Cinergy Corp. 61,799 2,039,367
Citizens Utilities 100,000(a) 993,750
LG&E Energy Corp. 45,400 964,750
Montana Power Co. 72,800 1,842,750
Nipsco Industries, Inc. 46,600 2,047,488
Pacificorp 107,600 2,333,575
Scana Corp. 70,600 1,782,650
Utilicorp United, Inc. 69,000 2,177,813
Washington Water Power Co. 40,500 807,469
Western Resources, Inc. 39,700 1,478,825
Wisconsin Energy Corp. 79,300 2,007,281
WPS Resources Corp. 25,000 723,437
23,347,085
Electric Services (33.43%)
Carolina Power & Light Co. 60,300 2,155,725
Dominion Resources, Inc. 56,300 2,093,656
Duke Energy Corporation 42,700 2,060,275
Edison International 50,000 1,281,250
Enron Corp. 34,780 1,321,640
FPL Group, Inc. 47,600 2,460,325
GPU, Inc. 32,400 1,172,475
Houston Industries, Inc. 94,900 2,064,075
Mid American Energy Holdings Co. 106,800 1,909,050
Pinnacle West Capital Corp. 59,700 2,078,306
Southern Co. 100,800 2,312,100
Teco Energy, Inc. 90,500 2,160,688
Texas Utilities Holdings 35,600 1,277,150
24,346,715
Gas Production & Distribution (4.22%)
AGL Res., Inc. 54,400 986,000
New Jersey Resources Corp. 38,700 1,252,913
Peoples Energy Corp. 23,300 832,975
3,071,888
Telephone Communication (29.00%)
AT&T Corp. 46,900 2,295,168
Ameritech Corp. 41,300 2,684,500
Bell Atlantic Corp. 36,800 2,939,400
Bellsouth Corp. 59,500 2,815,094
GTE Corp. 52,900 2,244,944
MCI Communications Corp. 65,700 2,332,350
Sprint Corp. 53,400 2,776,800
US West Communications Group 76,000 3,025,750
21,114,006
Total Common Stocks 71,879,694
Principal
Amount Value
Commercial Paper (1.23%)
Personal Credit Institutions (1.23%)
Investment in Joint Trade Account;
Associates Corp.;
5.73%; 11/3/97 $894,240 $ 894,240
Total Portfolio Investments (99.94%) 72,773,934
Cash, receivables and other assets, net of
liabilities (0.06%) 41,442
Total Net Assets (100.00%) $72,815,376
(a) Non-income producing security - No dividend paid during the period.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends
Value at Invest- Gain from from Net Distributions
Beginning ment (Loss) on Investment Investment from Total
of Period Income Investments Operations Income Capital Gains Distributions
<S> <C> <C> <C> <C> <C> <C> <C>
PRINCOR BALANCED FUND, INC.(b)
Class A:
Year Ended October 31,
1997 $14.61 $.35 $1.81 $2.16 $(.36) $(1.30) $(1.66)
1996 13.74 .38 1.59 1.97 (.43) (.67) (1.10)
1995 12.43 .41 1.31 1.72 (.36) (.05) (.41)
1994 13.26 .32 (.20) .12 (.40) (.55) (.95)
1993 12.78 .35 1.14 1.49 (.37) (.64) (1.01)
Class B:
Year Ended October 31,
1997 14.56 .25 1.79 2.04 (.25) (1.30) (1.55)
1996 13.71 .29 1.55 1.84 (.32) (.67) (.99)
Period Ended October 31, 1995(c) 11.80 .31 1.90 2.21 (.30) -- (.30)
Class R:
Year Ended October 31, 1997 14.52 .29 1.76 2.05 (.30) (1.29) (1.59)
Period Ended October 31, 1996(f) 13.81 .24 .73 .97 (.26) -- (.26)
PRINCOR BLUE CHIP FUND, INC.
Class A:
Year Ended October 31,
1997 17.10 .21 3.58 3.79 (.21) (.46) (.67)
1996 15.03 .23 2.45 2.68 (.26) (.35) (.61)
1995 12.45 .24 2.55 2.79 (.21) -- (.21)
1994 11.94 .20 .57 .77 (.26) -- (.26)
1993 11.51 .21 .43 .64 (.18) (.03) (.21)
Class B:
Year Ended October 31,
1997 17.03 .07 3.54 3.61 (.04) (.46) (.50)
1996 14.99 .11 2.41 2.52 (.13) (.35) (.48)
Period Ended October 31, 1995(c) 11.89 .15 3.10 3.25 (.15) -- (.15)
Class R:
Year Ended October 31, 1997 17.08 .13 3.53 3.66 (.12) (.46) (.58)
Period Ended October 31, 1996(f) 16.21 .12 .90 1.02 (.15) -- (.15)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Net Asset Ratio of Investment
Value at Net Assets at Expenses to Income to Portfolio Average
End Total End of Period Average Average Turnover Commission
of Period Return(a) (in thousands) Net Assets Net Assets Rate Rate Paid
<S> <C> <C> <C> <C> <C> <C> <C>
PRINCOR BALANCED FUND, INC.(b)
Class A:
Year Ended October 31,
1997 $15.11 15.88% $85,436 1.33% 2.42% 27.6% $.0392
1996 14.61 15.10 70,820 1.28 2.82 32.6 .0421
1995 13.74 14.18 57,125 1.37 3.21 35.8 N/A
1994 12.43 0.94 53,366 1.51 2.70 14.4 N/A
1993 13.26 12.24 39,952 1.35 2.78 27.5 N/A
Class B:
Year Ended October 31,
1997 15.05 14.96 11,885 2.14 1.58 27.6 .0392
1996 14.56 14.10 5,964 2.13 1.93 32.6 .0421
Period Ended October 31, 1995(c) 13.71 18.72(d) 1,263 1.91(e) 2.53(e) 35.8(e) N/A
Class R:
Year Ended October 31, 1997 14.98 15.16 9,745 1.99 1.66 27.6 .0392
Period Ended October 31, 1996(f) 14.52 7.52(d) 875 1.49(e) 2.26(e) 32.6(e) .0421(e)
PRINCOR BLUE CHIP FUND, INC.
Class A:
Year Ended October 31,
1997 20.22 22.57 79,985 1.30 1.10 55.4 .0394
1996 17.10 18.20 44,389 1.33 1.41 13.3 .0456
1995 15.03 22.65 35,212 1.38 1.83 26.1 N/A
1994 12.45 6.58 27,246 1.46 1.72 5.5 N/A
1993 11.94 5.65 23,759 1.25 1.87 11.2 N/A
Class B:
Year Ended October 31,
1997 20.14 21.59 18,265 2.06 .32 55.4 .0394
1996 17.03 17.18 6,527 2.19 .49 13.3 .0456
Period Ended October 31, 1995(c) 14.99 26.20(d) 1,732 1.90(e) .97(e) 26.1(e) N/A
Class R:
Year Ended October 31, 1997 20.16 21.82 15,502 1.89 .45 55.4 .0394
Period Ended October 31, 1996(f) 17.08 7.02(d) 1,575 1.48(e) .68(e) 13.3(e) .0456(e)
See accompanying notes.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS (Cont.)
<TABLE>
<CAPTION>
Income from Investment Operations Less Distributions
Net Realized
Net and
Net Asset Invest- Unrealized Total Dividends
Value at ment Gain from from Net Distributions
Beginning Income (Loss) on Investment Investment from Total
of Period (Loss) Investments Operations Income Capital Gains Distributions
<S> <C> <C> <C> <C> <C> <C> <C>
PRINCOR CAPITAL
ACCUMULATION FUND, INC.
Class A:
Year Ended October 31,
1997 $27.72 $.50 $5.80 $6.30 $(.48) $(3.85) $(4.33)
1996 23.69 .45 5.48 5.93 (.43) (1.47) (1.90)
1995 20.83 .45 3.15 3.60 (.39) (.35) (.74)
1994 21.41 .39 .93 1.32 (.41) (1.49) (1.90)
1993 21.34 .43 1.67 2.10 (.43) (1.60) (2.03)
Class B:
Year Ended October 31,
1997 27.58 .23 5.77 6.00 (.22) (3.85) (4.07)
1996 23.61 .21 5.45 5.66 (.22) (1.47) (1.69)
Period Ended October 31, 1995(c) 19.12 .33 4.46 4.79 (.30) -- (.30)
Class R:
Year Ended October 31, 1997 27.57 .30 5.74 6.04 (.32) (3.85) (4.17)
Period Ended October 31, 1996(f) 24.73 .19 2.81 3.00 (.16) -- (.16)
PRINCOR EMERGING GROWTH
FUND, INC.
Class A:
Year Ended October 31,
1997 35.75 .07 10.80 10.87 (.11) (1.18) (1.29)
1996 31.45 .14 5.05 5.19 (.14) (.75) (.89)
1995 25.08 .12 6.45 6.57 (.06) (.14) (.20)
1994 23.56 -- 1.61 1.61 -- (.09) (.09)
1993 19.79 .06 3.82 3.88 (.11) -- (.11)
Class B:
Year Ended October,
1997 35.48 (.05) 10.64 10.59 (.01) (1.18) (1.19)
1996 31.31 (.04) 4.97 4.93 (.01) (.75) (.76)
Period Ended October 31, 1995(c) 23.15 -- 8.18 8.18 (.02) -- (.02)
Class R:
Year Ended October 31, 1997 35.67 (.12) 10.74 10.62 (.01) (1.18) (1.19)
Period Ended October 31, 1996(f) 33.77 .04 1.88 1.92 (.02) -- (.02)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Net Asset Ratio of Investment
Value at Net Assets at Expenses to Income to Portfolio Average
End Total End of Period Average Average Turnover Commission
of Period Return(a) (in thousands) Net Assets Net Assets Rate Rate Paid
<S> <C> <C> <C> <C> <C> <C> <C>
PRINCOR CAPITAL
ACCUMULATION FUND, INC.
Class A:
Year Ended October 31,
1997 $29.69 25.36% $494,444 .70% 1.85% 30.8% $.0457
1996 27.72 26.41 435,617 .69 1.82 50.2 .0421
1995 23.69 17.94 339,656 .75 2.08 46.0 N/A
1994 20.83 6.67 285,965 .83 2.02 31.7 N/A
1993 21.41 10.42 240,016 .82 2.16 24.8 N/A
Class B:
Year Ended October 31,
1997 29.51 24.13 27,240 1.65 .84 30.8 .0457
1996 27.58 25.19 9,832 1.70 .80 50.2 .0421
Period Ended October 31, 1995(c) 23.61 25.06(d) 2,248 1.50(e) 1.07(e) 46.0(e) N/A
Class R:
Year Ended October 31, 1997 29.44 24.36 18,326 1.50 .93 30.8 .0457
Period Ended October 31, 1996(f) 27.57 12.74(d) 1,752 1.16(e) 1.18(e) 50.2(e) .0421(e)
PRINCOR EMERGING GROWTH
FUND, INC.
Class A:
Year Ended October 31,
1997 45.33 31.26 346,666 1.26 .20 9.5 .0435
1996 35.75 16.89 229,465 1.32 .46 12.3 .0391
1995 31.45 26.89 150,611 1.47 .47 13.5 N/A
1994 25.08 6.86 92,965 1.74 .02 8.1 N/A
1993 23.56 19.66 48,668 1.66 .26 7.0 N/A
Class B:
Year Ended October,
1997 44.88 30.64 59,554 1.69 (.24) 9.5 .0435
1996 35.48 16.07 28,480 2.01 (.24) 12.3 .0391
Period Ended October 31, 1995(c) 31.31 35.65(d) 8,997 2.04(e) (.17)(e) 13.5(e) N/A
Class R:
Year Ended October 31, 1997 45.10 30.56 17,448 1.87 (.45) 9.5 .0435
Period Ended October 31, 1996(f) 35.67 6.20(d) 2,016 1.53(e) .29(e) 12.3(e) .0391(e)
</TABLE>
See accompanying notes.
<PAGE>
FINANCIAL HIGHLIGHTS (Cont.)
<TABLE>
<CAPTION>
Income from Investment Operations Less Distributions
and
Net Asset Net Unrealized Total Dividends
Value at Invest- Gain from from Net Distributions
Beginning ment (Loss) on Investment Investment from Total
of Period Income Investments Operations Income Capital Gains Distributions
<S> <C> <C> <C> <C> <C> <C> <C>
PRINCOR GROWTH FUND, INC.
Class A:
Year Ended October 31,
1997 $39.54 $.31 $11.26 $11.57 $(.31) $ (.37) $ (.68)
1996 37.22 .35 3.50 3.85 (.35) (1.18) (1.53)
1995 31.14 .35 6.67 7.02 (.31) (.63) (.94)
1994 30.41 .26 2.56 2.82 (.28) (1.81) (2.09)
1993 28.63 .40 2.36 2.76 (.42) (.56) (.98)
Class B:
Year Ended October 31,
1997 39.43 .09 11.23 11.32 (.02) (.37) (.39)
1996 37.10 .08 3.48 3.56 (.05) (1.18) (1.23)
Period Ended October 31, 1995(c) 28.33 .21 8.76 8.97 (.20) -- (.20)
Class R:
Year Ended October 31, 1997 39.40 .06 11.16 11.22 (.09) (.37) (.46)
Period Ended October 31, 1996(f) 39.27 .10 .13 .23 (.10) -- (.10)
PRINCOR UTILITIES FUND, INC.
Class A:
Year Ended October 31,
1997 11.40 .48(g) 1.12 1.60 (.45) -- (.45)
1996 10.94 .44(g) .45 .89 (.43) -- (.43)
1995 9.25 .48(g) 1.70 2.18 (.49) -- (.49)
1994 11.45 .46(g) (2.19) (1.73) (.45) (.02) (.47)
Period Ended October 31, 1993(h) 10.18 .35(g) 1.27 1.62 (.35) -- (.35)
Class B:
Year Ended October 31,
1997 11.38 .38(g) 1.13 1.51 (.36) -- (.36)
1996 10.93 .36(g) .43 .79 (.34) -- (.34)
Period Ended October 31, 1995(c) 9.20 .40(g) 1.77 2.17 (.44) -- (.44)
Class R:
Year Ended October 31, 1997 11.33 .39(g) 1.14 1.53 (.37) -- (.37)
Period Ended October 31, 1996(f) 11.75 .28(g) (.41) (.13) (.29) -- (.29)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Net Asset Ratio of Investment
Value at Net Assets at Expenses to Income to Portfolio Average
End Total End of Period Average Average Turnover Commission
of Period Return(a) (in thousands) Net Assets Net Assets Rate Rate Paid
<S> <C> <C> <C> <C> <C> <C> <C>
PRINCOR GROWTH FUND, INC.
Class A:
Year Ended October 31,
1997 $50.43 29.55% $317,386 1.03% .68% 16.5% $.0411
1996 39.54 10.60 228,361 1.08 .95 1.8 .0443
1995 37.22 23.29 174,328 1.16 1.12 12.2 N/A
1994 31.14 9.82 116,363 1.30 .95 13.6 N/A
1993 30.41 9.83 80,051 1.26 1.40 16.4 N/A
Class B:
Year Ended October 31,
1997 50.36 28.92 42,241 1.48 .23 16.5 .0411
1996 39.43 9.80 24,019 1.79 .22 1.8 .0443
Period Ended October 31, 1995(c) 37.10 31.48(d) 8,279 1.80(e) .31(e) 12.2(e) N/A
Class R:
Year Ended October 31, 1997 50.16 28.72 16,265 1.69 .00 16.5 .0411
Period Ended October 31, 1996(f) 39.40 1.12(d) 2,014 1.42(e) .14(e) 1.8(e) .0443(e)
PRINCOR UTILITIES FUND, INC.
Class A:
Year Ended October 31,
1997 12.55 14.26 64,366 1.15(g) 3.90 22.5 .0465
1996 11.40 8.13 66,322 1.17(g) 3.85 34.2 .0410
1995 10.94 24.36 65,873 1.04(g) 4.95 13.0 --
1994 9.25 (15.20) 56,747 1.00(g) 4.89 13.8 --
Period Ended October 31, 1993(h) 11.45 15.92(d) 50,372 1.00(e)(g) 4.48(e) 4.3(e) --
Class B:
Year Ended October 31,
1997 12.53 13.41 6,937 1.90(g) 3.14 22.5 .0465
1996 11.38 7.23 5,579 1.93(g) 3.07 34.2 .0410
Period Ended October 31, 1995(c) 10.93 24.18(d) 3,952 1.72(e)(g) 3.84(e) 13.0(e) --
Class R:
Year Ended October 31, 1997 12.49 13.72 1,512 1.65(g) 3.35 22.5 .0465
Period Ended October 31, 1996(f) 11.33 (.31)(d) 311 1.47(e)(g) 3.77(e) 34.2(e) .0410(e)
</TABLE>
See accompanying notes.
Notes to Financial Highlights
(a) Total return is calculated without the front-end sales charge or contingent
deferred sales charge.
(b) Effective December 5, 1994, the name of Princor Managed Fund, Inc. was
changed to Princor Balanced Fund, Inc.
(c) 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, Princor 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 Per Share
Net Investment Unrealized
Income (Loss)
Princor Balanced Fund, Inc. $-- $(.19)
Princor Blue Chip Fund, Inc. -- (.15)
Princor Capital Accumulation Fund, Inc. -- (.46)
Princor Emerging Growth Fund, Inc. -- (.77)
Princor Growth Fund, Inc. -- (.86)
Princor Utilities Fund, Inc. .01 (.01)
(d) Total return amounts have not been annualized.
(e) Computed on an annualized basis.
(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, Princor 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 Net Investment Income
Per Share Per Share
Net Investment Unrealized
Income Gain (Loss)
Princor Balanced Fund, Inc. $-- $(.03)
Princor Blue Chip Fund, Inc. .01 (.02)
Princor Capital Accumulation Fund, Inc. .01 (.11)
Princor Emerging Growth Fund, Inc -- .19
Princor Growth Fund, Inc. .01 .10
(g) 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, Princor 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 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%(e) 139,439
Class B 1997 .37 1.95% 3,753
1996 .34 2.06% 6,690
1995(c) .40 1.81%(e) 1,338
Class R 1997 .31 2.67% 9,355
1996(f) .28 1.47%(e) --
(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.
<PAGE>
October 31, 1997
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
Principal Principal
International International Princor
Emerging Markets SmallCap World
GROWTH FUNDS (INTERNATIONAL) Fund, Inc. Fund, Inc. Fund, Inc.
<S> <C> <C> <C>
Investment in securities -- at cost........ $12,923,940 $14,180,800 $265,209,155
Assets
Investment in securities -- at value (Note 4) $10,935,937 $14,138,846 $328,281,796
Cash....................................... 18,940 19,133 20,112
Receivables:
Dividends and interest.................. 6,231 7,872 315,907
Investment securities sold.............. -- 18,972 --
Capital Stock sold...................... 119,565 264,737 689,936
Net receivable for foreign currency
contract (Note 5)....................... 2,037 -- 20,369
Other assets............................... -- -- 1,617
Total Assets 11,082,710 14,449,560 329,329,737
Liabilities
Accrued expenses........................... 19,336 22,399 441,320
Payables:
Investment securities purchased......... 398,415 434,802 2,001,810
Capital Stock reacquired................ -- 3,745 113,407
Total Liabilities 417,751 460,946 2,556,537
Net Assets Applicable to
Outstanding Shares ....................... $10,664,959 $13,988,614 $326,773,200
Net Assets Consist of:
Capital Stock.............................. $ 12,870 $ 14,044 $ 350,626
Additional paid-in capital................. 12,724,020 14,172,912 253,407,763
Accumulated undistributed net
investment income (operating loss)...... (861) (1,911) 2,790,261
Accumulated undistributed net realized
gain (loss) from:
Investment transactions................. (86,672) (157,671) 7,221,024
Foreign currency transactions........... 1,642 3,171 (91,683)
Net unrealized appreciation (depreciation)
of investments.......................... (1,988,003) (41,954) 63,072,641
Net unrealized appreciation on translation
of assets and liabilities in foreign
currencies 1,963 23 22,568
Total Net Assets $10,664,959 $13,988,614 $326,773,200
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....................... $5,038,551 $6,210,049 $281,158,284
Shares issued and outstanding. 607,697 623,397 30,135,898
Net asset value per share...... $8.29 $9.96 $9.33
Maximum offering price per share(a) $8.70 $10.46 $9.80
Class B: Net Assets....................... $3,116,421 $4,774,476 $33,842,184
Shares issued and outstanding. 376,276 479,454 3,656,153
Net asset value per share(b)... $8.28 $9.96 $9.26
Class R: Net Assets....................... $2,509,987 $3,004,089 $11,772,732
Shares issued and outstanding. 303,043 301,589 1,270,567
Net asset value per share............... $8.28 $9.96 $9.27
<FN>
(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.
</FN>
</TABLE>
See accompanying notes.
<PAGE>
Year Ended October 31, 1997, Except as Noted
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
Principal Principal
International International Princor
Emerging Markets SmallCap World
GROWTH FUNDS (INTERNATIONAL) Fund, Inc.(a) Fund, Inc.(a) Fund, Inc.
Net Investment Income
Income:
<S> <C> <C> <C>
Dividends............................. $ 27,818 $ 29,915 $ 6,706,446
Withholding tax on foreign dividends... (3,394) (3,052) (815,523)
Interest............................... 24,983 25,174 1,165,273
Total Income 49,407 52,037 7,056,196
Expenses:
Management and investment advisory
fees (Note 3)....................... 28,487 30,283 1,882,664
Distribution and shareholder servicing
fees (Note 1 and 3)................. 3,390 3,810 769,909
Transfer and administrative services
(Note 1 and 3)...................... 4,116 4,283 906,359
Registration fees (Note 1)............. -- -- 66,555
Custodian fees ........................ 7,353 7,433 270,872
Auditing and legal fees ............... 5,666 6,667 9,200
Directors' fees ....................... 1,177 1,385 7,493
Other ................................. 79 87 53,070
Total Net Expenses 50,268 53,948 3,966,122
Net Investment Income (Operating Loss) (861) (1,911) 3,090,074
Net Realized and Unrealized Gain (Loss) on Investments and Foreign
Currencies Net realized gain (loss) from:
Investment transactions................ (86,672) (157,671) 7,163,553
Foreign currency transactions.......... 1,642 3,171 (91,683)
Change in unrealized appreciation/ depreciation of:
Investments............................ (1,988,003) (41,954) 32,577,442
Translation of assets and liabilities in
foreign currencies.................. 1,963 23 21,665
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign Currencies (2,071,070) (196,431) 39,670,977
Net Increase (Decrease) in Net
Assets Resulting from Operations $(2,071,931) $(198,342) $42,761,051
<FN>
(a) Period from August 14, 1997 (date operations commenced) through October 31, 1997.
</FN>
</TABLE>
See accompanying notes.
<PAGE>
Years Ended October 31, Except as Noted
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
Principal Principal
International International Princor
Emerging Markets SmallCap World
GROWTH FUNDS (INTERNATIONAL) Fund, Inc.(a) Fund, Inc.(a) Fund, Inc.
1997 1997 1997 1996
Operations
<S> <C> <C> <C> <C>
Net investment income (operating loss).... $ (861) $ (1,911) $ 3,090,074 $ 2,201,363
Net realized gain (loss) from:
Investment transactions................ (86,672) (157,671) 7,163,553 7,946,241
Foreign currency transactions.......... 1,642 3,171 (91,683) (20,659)
Change in unrealized appreciation/
depreciation of investments and translation
of assets and liabilities in foreign
currencies (1,986,040) (41,931) 32,599,107 15,857,412
Net Increase (Decrease) in Net
Assets Resulting from Operations (2,071,931) (198,342) 42,761,051 25,984,357
Dividends and Distributions to Shareholders
From net investment income:
Class A................................ -- -- (2,378,873) (1,382,783)
Class B ............................... -- -- (79,037) (15,481)
Class R ............................... -- -- (19,984) --
From net realized gain on investments and
foreign currency transactions:
Class A ............................... -- -- (6,657,874) (5,735,484)
Class B ............................... -- -- (635,525) (196,110)
Class R................................ -- -- (55,824) --
Total Dividends and Distributions -- -- (9,827,117) (7,329,858)
Capital Share Transactions (Note 6)
Shares sold:
Class A................................ 5,966,460 6,307,287 96,500,904 38,822,208
Class B ............................... 3,867,018 4,967,080 20,265,356 11,226,931
Class R................................ 3,028,924 3,022,777 11,220,828 1,038,560(b)
Shares issued in reinvestment of dividends
and distributions:
Class A................................ -- -- 8,872,973 7,075,336
Class B ............................... -- -- 696,974 209,953
Class R................................ -- -- 75,789 --
Shares redeemed:
Class A ............................... (7,197) (7,102) (26,121,521) (17,658,243)
Class B ............................... (118,315) (97,291) (5,667,020) (746,863)
Class R ............................... -- (5,795) (1,083,455) (6,119)(b)
Net Increase in Net Assets from
Capital Share Transactions 12,736,890 14,186,956 104,760,828 39,961,763
Total Increase 10,664,959 13,988,614 137,694,762 58,616,262
Net Assets
Beginning of period....................... -- -- 189,078,438 130,462,176
End of period [including undistributed net
investment income (operating loss)
as set forth below].................... $10,664,959 $13,988,614 $326,773,200 $189,078,438
Undistributed Net Investment Income
(operating loss)....................... $ (861) $ (1,911) $ 2,790,261 $ 1,601,065
<FN>
(a) Period from August 14, 1997 (date operations commenced) through October 31,
1997.
(b) Period from February 27, 1996 (date operations commenced) through October
31, 1996.
</FN>
</TABLE>
See accompanying notes.
<PAGE>
October 31, 1997
NOTES TO FINANCIAL STATEMENTS
Principal International Emerging Markets Fund, Inc.
Principal International SmallCap Fund, Inc.
Princor World Fund, Inc.
Note 1 -- Significant Accounting Policies
Principal International Emerging Markets Fund, Inc., Principal International
SmallCap Fund, Inc. and Princor World 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 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 periods ended October 31, 1997, which are included in the
corresponding captions of the Statement of Operations, were as follows:
Distribution and
Shareholder Servicing Fees
Class A Class B Class R
Principal International Emerging
Markets Fund, Inc. $ 921 $ 1,392$ 1,077
Principal International SmallCap Fund, Inc. 1,016 1,635 1,159
Princor World Fund, Inc. 495,097 228,145 46,667
Transfer and
Administrative Services
Class A Class B Class R
Principal International Emerging
Markets Fund, Inc. $ 122 $ 17 $ 35
Principal International SmallCap Fund, Inc. 144 21 42
Princor World Fund, Inc. 303,407 45,206 12,657
Registration Fees
Class A Class B Class R
Principal International Emerging
Markets Fund, Inc. $ -- $ -- $ --
Principal International SmallCap Fund, Inc. -- -- --
Princor World Fund, Inc. 18,518 12,887 6,239
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.
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 curencies, 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 Princor Management Corporation. 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 Princor World Fund, Inc. for the year ended October
31, 1997 aggregated $577,016. Other reclassifications made for the periods ended
October 31, 1997 and 1996 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.
At October 31, 1997, Principal International Emerging Markets Fund, Inc. had net
capital loss carryforward of approximately $70,000 which expires in 2005;
Principal International SmallCap Fund, Inc. had net capital loss carryforward of
approximately $158,000 which expires in 2005.
Note 3 -- Management Agreement and Transactions With Affiliates
The International Growth Funds have agreed to pay investment advisory and
management fees to Princor Management Corporation (wholly owned by Princor
Financial Services Corporation, a subsidiary of Principal Mutual Life Insurance
Company)(the "Manager") 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:
Net Asset Value of Funds
(in millions)
First Next Next Next Over
$100 $100 $100 $100 $400
Principal International
Emerging Markets Fund, Inc. 1.25% 1.20% 1.15% 1.10% 1.05%
Principal International
SmallCap Fund, Inc. 1.20% 1.15% 1.10% 1.05% 1.00%
Princor World Fund, Inc. 0.75% 0.70% 0.65% 0.60% 0.55%
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 period ended October 31, 1997 were as follows:
Class A Class B
Principal International Emerging Markets Fund, Inc. $ 33,588 $ --
Principal International SmallCap Fund, Inc. 37,421 1,000
Princor World Fund, Inc. 1,440,300 84,440
No brokerage commissions were paid by the International Growth Funds to Princor
Financial Services Corporation during the periods ended October 31, 1997 and
1996. Brokerage commissions were paid to other affiliates by the following
funds:
Period Ended Year Ended
October 31, October 31,
1997 1996
Principal International Emerging Markets Fund, Inc. $ 1,586 --
Principal International SmallCap Fund, Inc. 1,502 --
Princor World Fund, Inc. 20,595 $4,038
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 October 31, 1997, 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:
Class A Class B Class R
Principal International Emerging
Markets Fund, Inc. 400,000 300,000 300,000
Principal International SmallCap Fund, Inc. 400,000 300,000 300,000
Princor World Fund, Inc. 8,056,476 162 140
Note 4 -- Investment Transactions
For the periods ended October 31, 1997, 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:
Purchases Sales
Principal International Emerging Markets Fund, Inc. $ 12,047,565 $ 421,952
Principal International SmallCap Fund, Inc. 12,847,913 239,442
Princor World Fund, Inc. 167,589,404 65,525,692
At October 31, 1997, net unrealized appreciation (depreciation) of investments
by the International Growth Funds was composed of the following:
Net Unrealized
Appreciation
Gross Unrealized (Depreciation)
Appreciation (Depreciation) of Investments
Principal International Emerging
Markets Fund, Inc. 111,344 $ (2,099,347) $ (1,988,003)
Principal International SmallCap
Fund, Inc. 925,902 (967,856) (41,954)
Princor World Fund, Inc. 74,786,093 (11,713,452) 63,072,641
At October 31, 1997, 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 October 31, Percentage of
Security Description Acquisition Cost 1997 Net Assets
<S> <C> <C> <C> <C> <C>
Principal International Al Ahram Beverages Co. 8/21/97 $ 76,500 $ 82,500 .77%
Emerging Markets Fund, Inc. Bank Handlowy GDR 8/14/97 50,200 54,800 .51
Banque Libanaise le Commerce
SAL ADR 8/14/97 115,250 110,500 1.04
Banque Marocaine du Commerce
Exterieur 8/15/97 91,250 94,250 .88
Compania Anonima Telefonos
de Venezuela ADR 8/14/97 102,114 105,000 .98
8/19/97 12,053 13,125 .12
8/20/97 12,165 13,125 .12
10/21/97 14,059 13,125 .12
10/30/97 11,265 13,125 .12
Hyundai Motor Co., Ltd. GDR 8/14/97 95,666 37,500 .35
Paints & Chemical Industries Co. GDR 9/26/97 176,250 150,000 1.41
10/20/97 11,700 10,000 .09
10/30/97 19,750 20,000 .19
Industrial Credit & Investment Corp.
of India 8/14/97 181,250 142,500 1.33
10/7/97 31,400 28,500 .27
10/20/97 33,400 28,500 .27
Reliance Industries GDR 8/14/97 72,000 61,687 .58
10/24/97 22,125 20,563 .19
Videsh Sanchar Nigam Ltd. GDR 8/14/97 132,800 110,400 1.04
1,109,200 10.38
Principal International Bure Investment Aktiebolaget AB 8/14/97 71,568 75,799 .54
SmallCap Fund, Inc. 8/18/97 46,092 48,903 .35
8/22/97 8,101 8,558 .06
10/7/97 105,213 97,806 .70
Industrial & Financial Systems 8/14/97 43,796 63,801 .46
8/18/97 10,528 15,312 .11
9/8/97 51,954 67,629 .48
10/9/97 101,152 95,701 .68
10/30/97 53,442 51,041 .36
Newsquest PLC 10/16/97 227,052 219,272 1.57
743,822 5.31
Princor World Alfa SA Convertible
Fund, Inc. Subordinated Debentures 9/25/95 $1,293,500 $ 2,015,000 .61%
11/20/96 779,234 1,100,500 .34
Fokus Bank 10/9/95 557,692 1,054,196 .32
12/17/96 797,392 1,054,196 .32
Hyundai Motor Co. Ltd. GDR 8/23/96 318,750 93,750 .03
8/28/96 312,500 93,750 .03
9/3/96 159,998 48,750 .01
Kemira OY 12/13/96 610,584 508,005 .16
12/20/96 1,478,458 1,188,732 .36
2/26/97 1,162,586 1,026,170 .31
4/8/97 615,051 609,606 .19
4/9/97 41,573 40,640 .01
Voest-Alpine Stahl 10/27/95 913,965 1,300,153 .40
1/11/96 414,525 563,400 .17
6/26/96 585,672 745,421 .23
6/27/96 298,647 381,378 .12
11,823,647 3.61
</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.
Note 5 -- Foreign Currency Contracts
At October 31, 1997, Principal International Emerging Markets Fund, Inc. and
Princor World Fund, Inc. owned forward contracts to sell Hong Kong Dollars at
specified future dates at fixed exchange rates. Forward foreign currency
contracts are valued at the forward rate, and are marked-to-market daily. The
change in market value is recorded by each fund as an unrealized gain or loss.
When the contract is closed, each fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
<TABLE>
<CAPTION>
Value at
Contracts In Exchange Settlement October 31, Net Unrealized
to Deliver For Date 1997 Appreciation
<S> <C> <C> <C> <C> <C>
Principal International
Emerging Markets Fund, Inc. Hong Kong Dollars 2,385,000 $ 300,000 4/30/98 $ 297,963 $ 2,037
Princor World Fund, Inc. Hong Kong Dollars 23,850,000 3,000,000 4/30/98 2,979,631 20,369
</TABLE>
The use of forward foreign currency contracts does not eliminate fluctuations in
underlying prices of each fund's portfolio securities, but it does establish a
rate of exchange that can be achieved in the future. Although forward foreign
currency contracts limit the risk of loss due to a decline in the value of the
hedged currency, they also limit any potential gain that might result should the
value of the currency increase. In addition, each fund could be exposed to risks
if the counterparties to the contracts are unable to meet the terms of their
contracts.
Note 6 -- Capital Share Transactions
Transactions in Capital Stock by fund were as follows:
<TABLE>
<CAPTION>
Principal International Principal International Princor
Emerging Markets Fund, Inc.* SmallCap Fund, Inc.* World Fund, Inc.
Year Ended October 31, 1997, Except as Noted:
Shares sold:
<S> <C> <C> <C>
Class A ......................................... 608,541 624,104 10,828,384
Class B ......................................... 389,744 489,175 2,259,005
Class R ......................................... 303,043 302,174 1,249,248
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) (707) (2,929,702)
Class B ......................................... (13,468) (9,721) (638,189)
Class R ......................................... -- (585) (118,068)
Net Increase 1,287,016 1,404,440 11,820,283
Year Ended October 31, 1996, Except as Noted:
Shares sold:
Class A ......................................... -- -- 5,112,891
Class B ......................................... -- -- 1,476,354
Class R** ....................................... -- -- 130,933
Shares issued in reinvestment of dividends and distributions:
Class A ........................................... -- -- 1,013,112
Class B ........................................... -- -- 30,387
Shares redeemed:
Class A ......................................... -- -- (2,342,950)
Class B ......................................... -- -- (96,808)
Class R** ....................................... -- -- (754)
Net Increase -- -- 5,323,165
<FN>
* Period from August 14, 1997 (date operations commenced) through October
31, 1997. ** Period from February 27, 1996 (date operations commenced)
through October 31, 1996.
</FN>
</TABLE>
Note 7 -- Line of Credit
The International Growth Funds participate with the other funds managed by
Princor 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 in proportion to their average net assets during each
quarter. At October 31, 1997, the International Growth Funds had no outstanding
borrowings under the line of credit.
<PAGE>
SCHEDULE OF INVESTMENTS
GROWTH FUNDS (INTERNATIONAL)
PRINCIPAL INTERNATIONAL EMERGING MARKETS FUND, INC.
Shares
Held Value
Common Stocks (88.37%)
Beverages (8.27%)
Al Ahram Beverages Co. 3,000(a)(b) $ 82,500
Companhia Cervehavia Brahama ADR 6,000 77,250
Embotelladora Andina ADR (Series A) 7,700 184,800
Fomento Economico Mexicano, SA
Class B 23,400 164,245
PanAmerican Beverages ADR 5,500 170,500
Quilmes Industrial Quins SA ADR 16,400 202,950
882,245
Blast Furnace & Basic Steel
Products (2.74%)
Hylsamex SA Class B 25,000 160,926
Tubos De Acero De Mexico ADR 6,500(a) 131,219
292,145
Cable & Other Pay TV Services (0.58%)
Multicanal Participacoes - ADR 10,000(a) 61,875
Central Reserve Depositories (2.50%)
Arab Malaysian Finance Berhad 70,000 36,567
Banco Ganadero SA Sponsored ADR 5,000 120,000
Banco Santiago SA ADR 5,000 109,375
265,942
Chemicals & Allied Products (1.14%)
Sarantis SA 10,000 121,684
Commercial Banks (4.59%)
Bank Handlowy GDR 4,000(a)(b) 54,800
Bank Inicjatyw Gospodarczych 120,000(a) 120,516
Bank Rio De La Plata SA ADR 10,000(a) 105,000
Banque Libanaise Le Commerce
SAL ADR 5,000(a)(b) 110,500
Banque Marocaine du Commerce
Exterieur 5,000(b) 94,250
PT Bank Bira 33,000 4,577
489,643
Communications Equipment (2.83%)
ECI Telecommunications Ltd. ADR 7,100 196,138
Ericsson Telecommunicacoes 3,600,000(a) 106,127
302,265
Computer & Office Equipment (1.52%)
Orbotech Ltd. ADR 3,800(a) 162,450
Construction & Related
Machinery (1.18%)
Barlow Ltd. 12,500 125,974
Consumer Products (1.43%)
Rothmans Industries Ltd. 38,000 152,191
Deep Sea Foreign Transportation
of Freight (0.28%)
Noble Group Ltd. 100,000(a) 30,000
Department Stores (0.26%)
PT Matahari Putra Prima 108,000 20,971
PT Matahari Putra Prima Rights 216,000 6,990
27,961
Drugs (1.75%)
Teva Pharmaceutical ADR 4,000 187,000
Electric Services (4.87%)
Centrais Electricas de Santa Catarina 115,000 125,176
Companhia Paranaense de
Enersis-Copel ADR 9,000(a) 107,438
Electricidade De Portugal SA 8,400 147,695
Enersis SA 4,200 138,600
518,909
Electrical Goods (1.45%)
Empresa Nacional De Electric
Sponsored ADR 7,700 154,963
Electrical Industrial Apparatus (0.44%)
Guangdong Kelon Electric Holding 40,000 47,324
Electronic Components &
Accessories (2.68%)
Elec & Eltek International 15,000 108,000
Varitronix 66,000 109,296
Wong Circuits Hldgs Ltd. 48,000(a) 68,640
285,936
Electronic Distribution
Equipment (6.34%)
KR Precision Public Co. Ltd. 10,000 72,151
Tadiran Ltd. ADR 5,300 200,075
Techtronic Industries Co. 1,190,000 218,617
Vtech Holding Ltd. 95,000 185,588
676,431
Engines & Turbines (1.20%)
LG Cable & Machinery 12,300 127,487
Federal & Federally Sponsored
Credit (1.87%)
Industrial Credit & Invest Corp.
of India 14,000(a)(b) 199,500
Fire, Marine, & Casualty
Insurance (1.05%)
Alfa A 15,300 111,752
Foreign Banks, Branches &
Agencies (2.20%)
Credicorp Ltd. ADR 7,800 139,913
Housing & Commercial Bank 11,000 94,875
234,788
Furniture & Home Furnishings
Stores (1.27%)
Grupo Elektra SA-CPO 100,000 135,392
Gas Production & Distribution (0.51%)
Transportadora de Gas del SUR SA 28,500 54,182
Grocery Stores (1.29%)
Blue Square Chain Investments &
Property Ltd. 15,000(a) 137,434
Holding Offices (1.66%)
The India Fund, Inc. ADR 21,500 177,375
Local & Suburban
Transportation (0.13%)
PT Steady Safe 50,000 13,523
Meat Products (2.19%)
Davomas Abadi 210,000 91,748
PT Daya Guna Samudera 110,000 141,886
233,634
Metal Cans & Shipping
Containers (0.83%)
Colep 6,100(a) 88,442
Miscellaneous Electrical Equipment &
Supplies (1.73%)
G.P. Batteries International 63,200 184,816
Miscellaneous Investing (1.08%)
Banco Latino Americano de
Exportacione 2,900 115,275
Miscellaneous Non-Durable
Goods (1.62%)
Desc SA ADR 5,100 172,763
Miscellaneous Textile Goods (1.83%)
Esprit Holdings Ltd. 316,000 112,426
Reliance Industries GDR 4,000(b) 82,250
194,676
Motor Vehicles & Equipment (1.95%)
Hyundai Motor Co. Ltd. GDR 10,000(a)(b) 37,500
Qingling Motors Co. 80,000 48,772
Tata Engineering & Locomotive
Ltd. Co. 12,000 121,500
207,772
Non-Classifiable Establishments (0.58%)
QPL International Holdings Ltd. 100,000 62,100
Paints & Allied Products (1.69%)
Paints & Chemical Industries Co. GDR 18,000(a)(b) 180,000
Petroleum Refining (3.95%)
Sasol Ltd. 18,000 216,934
YPF Sociedad Anonima ADR 6,400 204,800
421,734
Photographic Equipment &
Supplies (0.23%)
PT Bunas Finance 100,000 24,965
Search & Navigation Equipment (1.92%)
Elbit Systems Ltd. 17,400 204,450
Security & Commodity
Exchanges (1.03%)
OTK Holdings Ltd. 126,000 109,963
Security Brokers & Dealers (0.48%)
Peregrine Investment Holdings 52,000 51,129
Telephone Communication (10.13%)
Compania Anonima Telefonos De
Venezuela ADR 3,600(b) 157,500
Hellenic Telecommunication 7,000 146,426
Investec-Consattadoria Internacional SA 2,000(a) 66,120
Telec De Sao Paulo SA 540,000 144,006
Telec De Sao Paulo SA Rights Issue 16,718(a) 8
Telecommunicacoes Brasileiras SA ADR 2,300 233,450
Telefonica de Argentina ADR 4,300 120,938
Teletypos/Mega Channel 18,000 101,575
Videsh Sanchar Nigam Ltd. GDR 8,000(b) 110,400
1,080,423
Water Supply (1.10%)
Companhia de Saneamento Basico de
Estado de Sao Paulo - SABESP 660,000(a) 116,740
Total Common Stocks 9,425,253
Preferred Stock (1.18%)
Cement, Hydraulic (1.18%)
Titan Cement Co. 3,300 125,684
Principal
Amount Value
Commercial Paper (12.99%)
Federal & Federally Sponsored
Credit (12.99%)
FHLMC Commerical Paper;
5.65%; 11/3/97 $1,385,000 $ 1,385,000
Total Portfolio Investments (102.54%) 10,935,937
Liabilities, net of cash, receivables and
other assets (-2.54%) (270,978)
Total Net Assets (100.00%) $10,664,959
(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 $ 687,870 6.29%
Brazil 972,070 8.89
Chile 587,737 5.38
China 96,096 0.88
Columbia 120,000 1.10
Egypt 262,500 2.40
Greece 495,370 4.53
Hong Kong 739,155 6.76
Indonesia 304,660 2.79
India 691,025 6.32
Israel 1,087,547 9.94
Korea 259,863 2.38
Lebanon 110,500 1.01
Malaysia 36,567 0.33
Mexico 1,046,796 9.58
Morocco 94,250 0.86
Panama 115,274 1.05
Peru 139,912 1.28
Poland 175,316 1.60
Portugal 302,258 2.76
Singapore 543,648 4.97
South Africa 452,872 4.14
Thailand 72,151 0.66
United States 1,385,000 12.66
Venezuela 157,500 1.44
Total $10,935,937 100.00%
PRINCIPAL INTERNATIONAL SMALLCAP FUND, INC.
Shares
Held Value
Common Stock (88.70%)
Advertising (3.92%)
Industrial & Financial Systems 46,000(a)(b) $ 293,484
United Construction Group Ltd. 131,000 253,932
547,416
Air Transportation, Scheduled (1.66%)
Ryanair Holdings PLC ADR 9,300(a) 232,500
Airports, Flying Fields &
Services (1.49%)
Aeroporti Di Roma 23,000(a) 208,955
Automotive Rentals, No Drivers (1.30%)
Avis Europe PLC 73,000 182,397
Central Reserve Depositories (1.39%)
Union Bank of Norway 5,600 193,983
Chemicals & Allied Products (1.63%)
Sarantis SA 18,700 227,550
Communications Equipment (0.64%)
ASM Pacific 120,000 90,045
Computer & Data Processing
Services (4.86%)
Justsystem Corp. 5,800(a) 113,328
Merkantildata ASA 5,500 183,841
Prosolvia AB 11,100(a) 382,645
679,814
Computer & Office Equipment (1.28%)
Orbotech Ltd. ADR 4,200(a) 179,550
Consumer Products (0.89%)
Rothmans Industries Ltd. 31,000 124,156
Crude Petroleum & Natural Gas (1.47%)
Elf Gabon 500 95,726
Hardy Oil & Gas 21,300 110,369
206,095
Deep Sea Foreign Transportation
of Freight (3.94%)
Saevik Supply ASA 16,300(a) 372,540
Van Ommeren NV 5,000 179,057
551,597
Dimension Stone (0.80%)
Ausdrill Ltd. 114,000 112,498
Drugs (2.79%)
Bio Technology General Corp. 17,400(a) 213,150
Teva Pharmaceutical ADR 3,800 177,650
390,800
Eating & Drinking Places (1.28%)
Restaurant Brands New Zealand Ltd. 138,300(a) 179,432
Electrical Industrial Apparatus (1.68%)
Doncasters PLC ADR 8,700(a) 234,356
Electrical Work (0.66%)
Internatio-Muller NV 2,900 92,198
Electronic Components &
Accessories (0.93%)
Elec & Eltek International 18,000 129,600
Electronic Distribution (3.27%)
ASM Lithography Holding NV 1,400(a) 102,550
KR Precision Public Co. Ltd. 14,500 104,619
Techtronic Industries Co. 1,361,000 250,032
457,201
Engineering & Architects (2.40%)
CIE Generale De Geophysique 12,000(a) 336,000
Engines & Turbines (1.67%)
Radex-Heraklith
Industriebeteiligungs AG 6,000 233,285
Functions Closely Related
to Banking (0.54%)
Irish Permanent PLC 7,900 76,173
General Industrial Machinery (0.62%)
BE Semiconductor Industries NV 5,800(a) 86,669
Glass & Glassware, Pressed
or Blown (0.53%)
Vidrala SA 1,700 73,679
Hose & Belting & Gaskets
& Packing (1.88%)
Phoenix AG 14,600 262,963
Iron Ores (0.64%)
Repadre Capital Corp. 18,100(a) 89,924
Life Insurance (1.30%)
Scor SA 3,900 181,515
Meat Products (2.50%)
Davomas Abadi 390,000 170,388
Perkins Food PLC 111,200 179,013
349,401
Metal Services, NEC (2.00%)
Philip Services Corp. ADR 16,000(a) 280,000
Miscellaneous Food &
Kindred Products (1.98%)
Greencore Group PLC 59,100 277,494
Miscellaneous Manufacturers (2.04%)
Docdata NV 15,700(a) 285,569
Miscellaneous Primary Metal
Products (2.30%)
YBM Magnex International, Inc. 26,700(a) 322,151
Miscellaneous Textile Goods (0.64%)
Esprit Holdings Ltd. 250,000 88,945
Motor Vehicles & Equipment (3.35%)
E.C.I.A. Equipment & Composants 900 149,321
Mayflower Corp. PLC 95,000 318,611
467,932
Newspapers (1.57%)
Newsquest PLC 56,000(a)(b) 219,272
Nonclassifiable Establishments (1.65%)
Bure Investment Aktiebolaget AB 18,900(b) 231,066
Nonresidential Building
Construction (1.46%)
Algeco 5,500 204,672
Oil & Gas Field Services (2.91%)
Det Sondenfjelds-Norske
Dampskibsselskab 7,300(a) 163,715
Farstad Shipping 38,000 243,722
407,437
Personnel Supply Services (1.74%)
Unique International NV 9,800 243,899
Petroleum Refining (0.89%)
Ocean Rig ASA 100,000(a) 124,275
Ocean Rig ASA Rights 250,000(a) 357
124,632
Pulp Mills (2.41%)
Lassila & Tikanoja Ltd. OY 3,700 336,541
Radio & Television
Broadcasting (0.40%)
P4 Radio Hele Norge ASA 6,000 55,709
Real Estate Operators &
Lessors (0.64%)
Castellum AB 9,500(a) 88,853
Residential Building
Construction (0.70%)
Volker Wessels Stevin NV 3,200 97,283
Sanitary Services (2.08%)
De Sammensluttede Vognmand AS 400 290,763
Search & Navigation
Equipment (1.55%)
Elbit Systems Ltd. 18,500 217,375
Security Brokers & Dealers (2.09%)
Van Der Moolen Holdings 3,400 292,571
Soil Preparation (0.96%)
I.A.M.A. Ltd. 73,500 134,702
Telephone Communications (2.73%)
Colt Telecom Group PLC 44,500(a) 381,692
Timber Tracks (0.71%)
Evergreen Forest 273,000(a) 98,765
Trusts (1.43%)
Kiwi Income Property Trust 130,000 93,251
Nursing Home Properties PLC 51,700 107,069
200,320
Watches, Clocks, Watchcases &
Parts (0.68%)
Tag Heuer International SA ADR 8,300(a) 95,450
Women's & Children's
Undergarments (1.83%)
CSP International SPA 23,200(a) 256,001
Total Common Stocks 12,408,846
Principal
Amount Value
Commercial Paper (12.37%)
Federal & Federally Sponsored
Credit (12.37%)
FHLMC Commercial Paper;
5.65%; 11/3/97 $1,730,000 $ 1,730,000
Total Portfolio Investments (101.07%) 14,138,846
Liabilities, net of cash, receivables and
other assets (-1.07%) (150,232)
Total Net Assets (100.00%) $13,988,614
(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 $ 501,132 3.54%
Austria 233,285 1.65
Canada 692,075 4.89
Denmark 290,763 2.06
Finland 336,541 2.38
France 967,235 6.84
Germany 262,963 1.86
Greece 227,550 1.61
Hong Kong 429,021 3.03
Indonesia 170,388 1.21
Ireland 232,500 1.64
Israel 787,725 5.57
Italy 464,956 3.29
Japan 113,328 0.80
Netherlands 1,379,796 9.76
New Zealand 371,448 2.63
Norway 1,338,143 9.46
Singapore 253,756 1.79
Spain 73,679 0.52
Sweden 996,048 7.04
Switzerland 95,450 0.68
Thailand 104,619 0.74
United Kingdom 2,086,445 14.77
United States 1,730,000 12.24
Total $14,138,846 100.00%
PRINCOR WORLD FUND, INC.
Shares
Held Value
Common Stocks (94.45%)
Advertising (1.94%)
WPP Group PLC 1,382,000 $ 6,326,714
Beverages (1.39%)
Lion Nathan 596,000 1,442,419
PanAmerican Beverages ADR 99,800 3,093,800
4,536,219
Blast Furnace & Basic Steel
Products (0.92%)
Voest-Alpine Stahl 69,000(b) 2,990,352
Central Reserve Depositories (3.66%)
Banco Totta & Acores 145,000 2,805,280
National Westminster Bank 447,931 6,474,793
Union Bank of Norway 36,700 1,271,285
Wing Hang Bank 549,600 1,414,973
11,966,331
Combination Utility Services (0.90%)
ABB AG 2,240 2,927,557
Commercial Banks (11.62%)
ABN-AMRO Holdings NV 290,748 5,857,738
Bank of Ireland 537,239 6,779,248
Barclays PLC 190,594 4,813,287
Fokus Bank 240,000(b) 2,108,392
Istituto Mobiliare Italiano 413,000 3,699,565
National Australia Bank Ltd. 294,437 4,036,689
Royal Bank of Canada Montreal Quebec 103,000 5,508,322
Svenska Handelsbanken AB Free 172,750 5,147,259
37,950,500
Communications Equipment (0.87%)
ECI Telecommunications Ltd. ADR 103,000 2,845,375
Communications Services, NEC (0.93%)
KPN Royal PTT Nederland 79,780 3,050,243
Computer & Office Equipment (0.26%)
Canon, Inc. 35,000 849,755
Construction & Related
Machinery (0.65%)
Powerscreen International PLC 182,000 2,128,742
Consumer Products (3.08%)
Imasco Ltd. 170,217 5,412,275
Imperial Tobacco Group PLC 758,500 4,661,622
10,073,897
Crude Petroleum & Natural Gas (0.82%)
Hardy Oil & Gas 520,000 2,694,445
Deep Sea Foreign Transportation of
Freight (0.71%)
Van Ommeren NV 64,841 2,322,047
Department Stores (0.61%)
Vendex International 36,751 2,007,296
Drugs (6.66%)
Elan Corp. PLC ADR 103,000(a) 5,137,125
Galencia Holdings AG 2,890 1,448,740
Novartis AG 4,423 6,946,245
Pharmacia & Upjohn, Inc. 135,000 4,286,250
Teva Pharmaceutical ADR 84,400 3,945,700
21,764,060
Electric Light & Wiring
Equipment (0.12%)
Clipsal Industries Holdings 149,000 385,910
Electric Services (1.05%)
Enersis SA ADR 87,000 2,871,000
Korea Electric Power Corp. 39,500 560,893
3,431,893
Electronic Components &
Accessories (1.45%)
Amtek Engineering 675,000 532,097
Elec & Eltek International 454,000 3,268,800
Murata Mfg. 9,000 365,178
Varitronix 340,000 563,038
4,729,113
Electronic Distribution
Equipment (1.66%)
Phillips Electronics 69,100 5,412,004
Engines & Turbines (2.15%)
Mabuchi Motor 4,000 222,832
Radex-Heraklith
Industriebeteiligungs AG 89,000 3,460,388
Scapa Group PLC 838,000 3,344,479
7,027,699
Farm & Garden Machinery (1.35%)
New Holland NV 155,000 4,407,813
Finance Services (0.08%)
MBF Capital Berhad 419,000 245,147
Functions Closely Related to
Banking (0.46%)
Liechtenstein Global Trust AG 3,000 1,503,882
Gas Production & Distribution (1.33%)
OMV AG 30,600 4,357,370
General Industrial Machinery (0.76%)
SKF AB 'B' Free 106,700 2,480,657
Holding Offices (0.72%)
First Pacific Co., Ltd. 3,727,303 2,350,812
Hose, Belting, Gaskets &
Packing (0.52%)
Phoenix AG 94,000 1,693,052
Industrial Inorganic Chemicals (2.03%)
Bayer AG 90,550 3,261,827
Kemira OY 332,000(b) 3,373,153
6,634,980
Investment Offices (1.31%)
AMVESCAP PLC 651,400 4,287,409
Life Insurance (1.36%)
QBE Insurance Group Ltd. 946,390 4,436,133
Meat Products (5.25%)
Danisco AS 120,000 6,796,016
Orkla B Ordinary Shares 70,400 5,802,477
Unilever NV 86,000 4,573,141
17,171,634
Metal Services, NEC (1.05%)
Philip Services Corp. ADR 196,000(a) 3,430,000
Miscellaneous Chemical Products (1.19%)
Hoechst AG 101,000 3,887,658
Miscellaneous Converted Paper
Products (1.64%)
Bunzl PLC 1,285,000 5,343,949
Miscellaneous Food &
Kindred Products (1.42%)
Greencore Group PLC 991,000 4,653,066
Miscellaneous Manufacturers (0.16%)
Carter Holt Harvey Ltd. 297,300 519,238
Miscellaneous Non-Durable
Goods (1.77%)
Grand Metropolitan PLC 643,726 5,791,330
Miscellaneous Textile Goods (0.62%)
Esprit Holdings Ltd. 5,666,000 2,015,848
Miscellaneous Transportation
Equipment (1.04%)
Autoliv, Inc. 86,000 3,391,625
Miscellaneous Wood Products (0.41%)
Enso Oy 142,000 1,332,812
Motor Vehicles & Equipment (1.70%)
E.C.I.A. Equipment & Composants 17,597 2,919,567
Hyundai Motor Co., Ltd. GDR 63,000(b) 236,250
Swedish Match Co. 785,000 2,412,407
5,568,224
Newspapers (1.26%)
Publishing & Broadcasting Ltd. 710,000 4,128,812
Oil & Gas Field Services (1.18%)
Eni SPA 684,000 3,852,723
Petroleum Refining (4.48%)
Repsol Petroleo SA 114,400 4,800,770
Sasol Ltd. 372,000 4,483,315
YPF Sociedad Anonima ADR 167,000 5,344,000
14,628,085
Plastic Materials & Synthetics (1.06%)
Astra AB 222,466 3,448,059
Pulp Mills (2.48%)
Lassila & Tikanoja Ltd. Oy 41,000 3,729,241
UPM-Kymmene Oy 196,980 4,387,692
8,116,933
Radio & Television Broadcasting (1.53%)
Carlton Communications PLC 600,000 5,000,520
Security & Commodity Services (1.22%)
Corporacion Bancaria de Espania SA 72,000 4,002,201
Security Brokers & Dealers (0.69%)
Peregrine Investment Holdings 2,289,000 2,250,650
Peregrine Investment - Warrants 127,000(a) 4,108
2,254,758
Soap, Cleaners & Toilet Goods (1.40%)
Reckitt & Colman PLC 298,797 4,567,099
Special Industry Machinery (2.33%)
Cookson Group 1,540,000 6,172,003
IHC Caland NV 23,300 1,433,497
7,605,500
Sugar & Confectionery Products (2.03%)
Nestle 4,704 6,646,437
Telephone Communication (6.36%)
Nokia Corp. Class A ADR 71,000 6,265,750
Tele Danmark B 34,800 2,045,216
Telecom Corp of New Zealand Ltd. 842,000 4,086,063
Telecom Italia-DI 837,200 3,388,130
Telefonica de Espana SA 183,400 5,008,929
20,794,088
Watches, Clocks, Watchcases &
Parts (0.81%)
Tag Heuer International SA 23,200(a) 2,658,291
Total Common Stocks 308,626,296
Preferred Stock (0.82%)
Commercial Banks (0.82%)
National Australia Bank ECU 96,000 2,670,000
Principal
Amount Value
Bond (0.95%)
Fire, Marine & Casualty
Insurance (0.95%)
Alfa SA Convertible Subordinated
Debentures; 8.00%; 9/15/00 $2,010,000(b) $ 3,115,500
Commercial Paper (4.24%)
Personal Credit Institutions (2.82%)
Associates Corp.;
5.68%; 11/3/97 9,215,000 9,215,000
Securities Brokers & Dealers (1.42%)
Merrill Lynch & Co.;
5.55%; 11/3/97 4,655,000 4,655,000
Total Commercial Paper 13,870,000
Total Portfolio Investments (100.46%) 328,281,796
Liabilities, net of cash, receivables and
other assets (-0.46%) (1,508,596)
Total Net Assets (100.00%) $326,773,200
(a) Non-Income producing security - No dividend paid during the period.
(b) Restricted security - See Note 4 to the financial statements.
Princor World Fund, Inc.
Investments by Country
Total Percentage of
Country Value Total Value
Argentina $ 5,344,000 1.63%
Australia 15,271,634 4.66
Austria 10,808,109 3.29
Canada 14,350,597 4.37
Chile 2,871,000 0.88
Denmark 8,841,232 2.69
Finland 19,088,647 5.82
France 2,919,567 0.89
Germany 8,842,537 2.69
Hong Kong 8,599,429 2.62
Israel 6,791,075 2.07
Italy 10,940,417 3.33
Japan 1,437,765 0.44
Korea, Republic of 797,143 0.24
Malaysia 245,147 0.07
Mexico 6,209,300 1.89
Netherlands 29,063,777 8.85
New Zealand 6,047,722 1.84
Norway 9,182,154 2.80
Portugal 2,805,280 0.85
Singapore 4,186,807 1.28
South Africa 4,483,314 1.37
Spain 13,811,901 4.21
Sweden 16,880,008 5.14
Switzerland 22,131,152 6.74
United Kingdom 78,175,832 23.81
United States 18,156,250 5.53
Total $328,281,796 100.00%
See accompanying note.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Net Realized
Invest- and
Net Asset ment Unrealized Total Dividends Distri-
Value at Income Gain from from Net butions Total
Beginning (Operating (Loss) on Investment Investment from Distri-
of Period Loss) Investments Operations Income Capital Gains butions
<S> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL INTERNATIONAL
EMERGING GROWTH FUND, INC.
Class A:
Period Ended October 31, 1997(b) $ 9.51 $(.01) $(1.21) $(1.22) $ -- $ -- $ --
Class B:
Period Ended October 31, 1997(b) 9.51 (.01) (1.22) (1.23) -- -- --
Class R:
Period Ended October 31, 1997(b) 9.51 (.01) (1.22) (1.23) -- -- --
PRINCIPAL INTERNATIONAL
SMALLCAP FUND, INC.
Class A:
Period Ended October 31, 1997(b) 10.04 (.01) (.07) (.08) -- -- --
Class B:
Period Ended October 31, 1997(b) 10.04 (.01) (.07) (.08) -- -- --
Class R:
Period Ended October 31, 1997(b) 10.04 (.01) (.07) (.08) -- -- --
PRINCOR WORLD FUND, INC.
Class A:
Year Ended October 31,
1997 8.14 .09 1.52 1.61 (.11) (.31) (.42)
1996 7.28 .10 1.17 1.27 (.08) (.33) (.41)
1995 7.44 .08 (.02) .06 (.03) (.19) (.22)
1994 6.85 .01 .64 .65 (.02) (.04) (.06)
1993 5.02 .03 1.98 2.01 (.05) (.13) (.18)
Class B:
Year Ended October 31,
1997 8.07 .03 1.51 1.54 (.04) (.31) (.35)
1996 7.24 .03 1.15 1.18 (.02) (.33) (.35)
Period Ended October 31, 1995(f) 6.71 .05 .51 .56 (.03) -- (.03)
Class R:
Year Ended October 31, 1997 8.12 .07 1.47 1.54 (.08) (.31) (.39)
Period Ended October 31, 1996(g) 7.48 .01 .63 .64 -- -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Investment
Net Asset Ratio of Income (Oper-
Value at Net Assets at Expenses to ating Loss) Portfolio Average
End Total End of Period Average to Average Turnover Commission
of Period Return(a) (in thousands) Net Assets Net Assets Rate Rate Paid(e)
<S> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL INTERNATIONAL
EMERGING GROWTH FUND, INC.
Class A:
Period Ended October 31, 1997(b) $8.29 (10.18)%(c) $ 5,039 2.03%(d) (.32)%(d) 21.4%(d) $.005
Class B:
Period Ended October 31, 1997(b) 8.28 (10.29)(c) 3,116 2.16(d) (.46)(d) 21.4(d) .005
Class R:
Period Ended October 31, 1997(b) 8.28 (10.29)(c) 2,510 2.20(d) (.51)(d) 21.4(d) .005
PRINCIPAL INTERNATIONAL
SMALLCAP FUND, INC.
Class A:
Period Ended October 31, 1997(b) 9.96 .50(c) 6,210 1.99(d) (.40)(d) 10.4(d) .0104
Class B:
Period Ended October 31, 1997(b) 9.96 .50(c) 4,774 2.07(d) (.47)(d) 10.4(d) .0104
Class R:
Period Ended October 31, 1997(b) 9.96 .50(c) 3,004 2.15(d) (.54)(d) 10.4(d) .0104
PRINCOR WORLD FUND, INC.
Class A:
Year Ended October 31,
1997 9.33 20.46 281,158 1.39 1.25 26.6 .0174
1996 8.14 18.36 172,276 1.45 1.43 23.8 .0147
1995 7.28 1.03 126,554 1.63 1.10 35.4 N/A
1994 7.44 9.60 115,812 1.74 .10 13.2 N/A
1993 6.85 41.39 63,718 1.61 .59 19.5 N/A
Class B:
Year Ended October 31,
1997 9.26 19.62 33,842 2.17 .42 26.6 .0174
1996 8.07 17.16 15,745 2.28 .64 23.8 .0197
Period Ended October 31, 1995(f) 7.24 9.77(c) 3,908 2.19(d) .58(d) 35.4(d) N/A
Class R:
Year Ended October 31, 1997 9.27 19.65 11,773 2.10 .44 26.6 .0174
Period Ended October 31, 1996(g) 8.12 9.29(c) 1,057 1.59(d) .78(d) 23.8(d) .0197
</TABLE>
See accompanying notes.
Notes to Financial Highlights
(a) Total return is calculated without the front-end sales charge or contingent
deferred sales charge.
(b) 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
(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) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995. Princor World Fund, Inc. Class B shares
recognized no net investment income for the period from the initial
purchase by Princor 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.
(g) Period from February 29, 1996, date Class R shares first offered to
eligible purchasers, through October 31, 1996. Princor World Fund, Inc.
Class R shares recognized no net investment income for the period from the
initial purchase by Princor 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>
October 31, 1997
STATEMENTS OF ASSETS AND LIABILITIES
Princor Princor Government Princor
Bond Securities Income High Yield
INCOME FUNDS Fund, Inc. Fund, Inc. Fund, Inc.
<S> <C> <C> <C>
Investment in securities -- at cost.............................. $135,200,913 $264,922,931 $44,647,368
Assets
Investment in securities -- at value (Note 4).................... $142,875,265 $271,804,892 $45,637,392
Cash ............................................................ 1,789 3,230 2,001
Receivables:
Interest...................................................... 2,795,985 1,595,978 1,037,276
Investment securities sold.................................... -- -- --
Capital Stock sold............................................ 284,868 288,370 163,982
Other assets..................................................... 3,437 16,781 1,990
Total Assets 145,961,344 273,709,251 46,842,641
Liabilities
Accrued expenses................................................. 113,646 189,919 42,785
Payables:
Investment securities purchased............................... -- 4,004,688 --
Capital Stock reacquired...................................... 41,696 99,756 40,932
Indebtedness (Note 6)............................................ -- -- --
Total Liabilities 155,342 4,294,363 83,717
Net Assets Applicable to Outstanding Shares ................... $145,806,002 $269,414,888 $46,758,924
Net Assets Consist of:
Capital Stock................................................... $ 127,509 $ 234,071 $ 54,954
Additional paid-in capital....................................... 138,008,605 264,101,882 47,656,566
Accumulated undistributed net investment income.................. 68,563 447,772 33,718
Accumulated net realized (loss) on investment transactions ...... (73,027) (2,250,798) (1,976,338)
Net unrealized appreciation (depreciation) of investments........ 7,674,352 6,881,961 990,024
Total Net Assets $145,806,002 $269,414,888 $46,758,924
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.............................................. $126,427,349 $249,832,217 $38,239,255
Shares issued and outstanding........................... 11,054,664 21,701,714 4,487,914
Net asset value per share............................... $11.44 $11.51 $8.52
Maximum offering price per share(a) .................. $12.01 $12.08 $8.94
Class B: Net Assets ............................................. $13,402,627 $15,430,876 $6,558,337
Shares issued and outstanding........................... 1,173,331 1,341,948 774,091
Net asset value per share(b)............................ $11.42 $11.50 $8.47
Class R: Net Assets.............................................. $5,976,026 $4,151,795 $1,961,332
Shares issued and outstanding........................... 522,900 363,410 233,444
Net asset value per share............................... $11.43 $11.42 $8.40
<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 Princor 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 Princor 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>
October 31, 1997
STATEMENTS OF ASSETS AND LIABILITIES
Princor Princor
Limited Term Bond Tax-Exempt Bond
INCOME FUNDS Fund, Inc. Fund, Inc.
<S> <C> <C>
Investment in securities -- at cost.............................. $21,443,423 $184,918,482
Assets
Investment in securities -- at value (Note 4).................... $21,432,010 $196,943,398
Cash ............................................................ 1,999 1,455,936
Receivables:
Interest...................................................... 332,448 2,542,622
Investment securities sold.................................... 18,062 --
Capital Stock sold............................................ 48,353 112,276
Other assets..................................................... -- 7,333
Total Assets 21,832,872 201,061,565
Liabilities
Accrued expenses................................................. 21,055 117,130
Payables:
Investment securities purchased............................... -- --
Capital Stock reacquired...................................... 14,089 30,080
Indebtedness (Note 6)............................................ -- 125,000
Total Liabilities 35,144 272,210
Net Assets Applicable to Outstanding Shares ................... $21,797,728 $200,789,355
Net Assets Consist of:
Capital Stock................................................... $ 22,073 $ 162,131
Additional paid-in capital....................................... 21,795,791 189,244,795
Accumulated undistributed net investment income.................. 25,655 191,601
Accumulated net realized (loss) on investment transactions ...... (34,378) (834,088)
Net unrealized appreciation (depreciation) of investments........ (11,413) 12,024,916
Total Net Assets $21,797,728 $200,789,355
Capital Stock (par value: $.01 a share):
Shares authorized................................................ 100,000,000 100,000,000
Net Asset Value Per Share:
Class A: Net Assets.............................................. $20,567,328 $193,006,582
Shares issued and outstanding........................... 2,082,741 15,584,737
Net asset value per share............................... $9.88 $12.38
Maximum offering price per share(a) .................. $10.03 $13.00
Class B: Net Assets ............................................. $624,613 $7,782,773
Shares issued and outstanding........................... 63,117 628,373
Net asset value per share(b)............................ $9.90 $12.39
Class R: Net Assets.............................................. $605,787 N/A
Shares issued and outstanding........................... 61,475 N/A
Net asset value per share............................... $9.85 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 Princor 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 Princor 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>
Year Ended October 31, 1997
STATEMENTS OF OPERATIONS
Princor Princor Government Princor
Bond Securities Income High Yield
INCOME FUNDS Fund, Inc. Fund, Inc. Fund, Inc.
Net Investment Income
<S> <C> <C> <C>
Interest income.................................................... $ 9,956,799 $18,921,110 $3,545,599
Expenses:
Management and investment advisory fees (Note 3) ............. 636,217 1,227,604 230,667
Distribution and shareholder servicing fees (Note 1 and 3)...... 385,643 577,692 130,061
Transfer and administrative services (Note 1 and 3)............. 278,385 407,146 135,553
Registration fees (Note 1)...................................... 47,998 66,578 45,922
Custodian fees ................................................. 3,846 17,188 3,424
Auditing and legal fees ........................................ 6,893 9,125 8,124
Directors' fees ................................................ 7,293 7,268 7,268
Other .......................................................... 21,953 42,448 6,245
Total Gross Expenses 1,388,228 2,355,049 520,314
Less: Management and investment
advisory fees waived......................................... 60,665 -- --
Total Net Expenses 1,327,563 2,355,049 520,314
Net Investment Income 8,629,236 16,566,061 3,025,285
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) from investment transactions.............. 921,121 (776,007) 1,000,035
Change in unrealized appreciation/depreciation
of investments ................................................. 3,176,634 7,674,729 221,232
Net Realized and Unrealized
Gain (Loss) of Investments 4,097,755 6,898,722 1,221,267
Net Increase in Net Assets
Resulting from Operations $12,726,991 $23,464,783 $4,246,552
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31, 1997
STATEMENTS OF OPERATIONS
Princor Princor
Limited Term Bond Tax-Exempt Bond
INCOME FUNDS Fund, Inc. Fund, Inc.
Net Investment Income
<S> <C> <C>
Interest income................................................... $1,378,412 $11,777,082
Expenses:
Management and investment advisory fees (Note 3) ............ 97,039 941,387
Distribution and shareholder servicing fees (Note 1 and 3)..... 36,355 441,115
Transfer and administrative services (Note 1 and 3)............ 98,481 44,634
Registration fees (Note 1)..................................... 37,485 38,048
Custodian fees ................................................ 4,222 2,174
Auditing and legal fees ....................................... 5,885 6,326
Directors' fees ............................................... 7,326 7,268
Other ......................................................... 6,094 22,409
Total Gross Expenses 237,996 1,605,202
Less: Management and investment
advisory fees waived........................................ 59,630 --
Total Net Expenses 178,366 1,605,202
Net Investment Income 1,200,046 10,171,880
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) from investment transactions............. (30,744) 818,662
Change in unrealized appreciation/depreciation
of investments ................................................ 99,272 5,658,545
Net Realized and Unrealized
Gain (Loss) of Investments 68,528 6,477,207
Net Increase in Net Assets
Resulting from Operations $1,268,574 $16,649,087
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years Ended October 31, Except as Noted
STATEMENTS OF CHANGES IN NET ASSETS
Princor Princor Government
Bond Securities Income
INCOME FUNDS Fund, Inc. Fund, Inc.
1997 1996 1997 1996
Operations
<S> <C> <C> <C> <C>
Net investment income............................................ $ 8,629,236 $ 7,759,173 $ 16,566,061 $ 16,881,312
Net realized gain (loss) from investment transactions............ 921,121 (608,660) (776,007) 434,186
Change in unrealized appreciation/depreciation
of investments................................................ 3,176,634 (1,814,840) 7,674,729 (1,721,443)
Net Increase in Net Assets
Resulting from Operations 12,726,991 5,335,673 23,464,783 15,594,055
Dividends and Distributions to Shareholders
from Net Investment Income:
Class A....................................................... (8,447,557) (7,395,304) (16,727,976) (16,420,667)
Class B....................................................... (648,042) (336,861) (797,919) (470,574)
Class R....................................................... (193,972) (3,457)(b) (127,873) (2,908)(b)
Total Dividends and Distributions (9,289,571) (7,735,622) (17,653,768) (16,894,149)
Capital Share Transactions (Note 5)
Shares sold:
Class A....................................................... 27,360,904 21,969,069 31,378,780 37,110,671
Class B....................................................... 6,449,151 5,830,264 6,564,032 8,060,500
Class R....................................................... 6,016,081 517,933(b) 3,952,066 469,159(b)
Shares issued in reinvestment of dividends and distributions:
Class A....................................................... 5,936,473 4,977,027 13,338,406 12,945,447
Class B....................................................... 523,092 270,581 644,830 375,343
Class R....................................................... 193,561 3,457(b) 127,615 2,905(b)
Shares redeemed:
Class A....................................................... (23,209,507) (18,116,844) (59,260,515) (50,822,999)
Class B....................................................... (1,891,456) (773,259) (3,726,468) (1,570,936)
Class R....................................................... (948,686) (8,814)(b) (510,669) (1,707)(b)
Net Increase (Decrease) in Net Assets from
Capital Share Transactions 20,429,613 14,669,414 (7,491,923) 6,568,383
Total Increase (Decrease) 23,867,033 12,269,465 (1,680,908) 5,268,289
Net Assets
Beginning of period.............................................. 121,938,969 109,669,504 271,095,796 265,827,507
End of period (including undistributed net investment
income as set forth below).................................... $145,806,002 $121,938,969 $269,414,888 $271,095,796
Undistributed Net Investment Income ............................ $ 68,563 $ 728,898 $ 447,772 $ 1,535,479
<FN>
(a) Period from February 13, 1996 (date operations commenced) through October
31, 1996.
(b) Period from February 27, 1996 (date operations commenced) through October
31, 1996.
</FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years Ended October 31, Except as Noted
STATEMENTS OF CHANGES IN NET ASSETS
Princor Princor
High Yield Limited Term Bond
INCOME FUNDS Fund, Inc. Fund, Inc.
1997 1996 1997 1996(a)
Operations
<S> <C> <C> <C> <C>
Net investment income............................................ $ 3,025,285 $ 2,246,839 $ 1,200,046 $ 535,922
Net realized gain (loss) from investment transactions............ 1,000,035 26,628 (30,744) (3,634)
Change in unrealized appreciation/depreciation
of investments................................................ 221,232 765,331 99,272 (110,685)
Net Increase in Net Assets
Resulting from Operations 4,246,552 3,038,798 1,268,574 421,603
Dividends and Distributions to Shareholders
from Net Investment Income:
Class A....................................................... (2,851,339) (2,164,495) (1,227,443) (434,063)
Class B....................................................... (305,236) (100,795) (14,695) (1,401)(b)
Class R....................................................... (76,561) (1,126)(b) (27,342) (522)(b)
Total Dividends and Distributions (3,233,136) (2,266,416) (1,269,480) (435,986)
Capital Share Transactions (Note 5)
Shares sold:
Class A....................................................... 12,193,322 6,203,975 6,544,078 17,452,369
Class B....................................................... 4,993,786 1,663,572 580,621 108,544(b)
Class R....................................................... 1,904,286 120,413(b) 847,672 81,911(b)
Shares issued in reinvestment of dividends and distributions:
Class A....................................................... 1,195,770 975,918 1,161,005 419,436
Class B....................................................... 195,332 56,034 8,758 1,352(b)
Class R....................................................... 76,523 1,126(b) 27,342 522(b)
Shares redeemed:
Class A....................................................... (4,508,255) (2,864,299) (4,380,863) (605,448)
Class B....................................................... (825,099) (288,473) (78,682) (139)(b)
Class R....................................................... (149,618) -- (355,461) --
Net Increase (Decrease) in Net Assets from
Capital Share Transactions 15,076,047 5,868,266 4,354,470 17,458,547
Total Increase (Decrease) 16,089,463 6,640,648 4,353,564 17,444,164
Net Assets
Beginning of period.............................................. 30,669,461 24,028,813 17,444,164 --
End of period (including undistributed net investment
income as set forth below).................................... $46,758,924 $30,669,461 $21,797,728 $17,444,164
Undistributed Net Investment Income ............................ $ 33,718 $ 246,818 $ 25,655 $ 99,936
<FN>
(a) Period from February 13, 1996 (date operations commenced) through October
31, 1996.
(b) Period from February 27, 1996 (date operations commenced) through October
31, 1996.
</FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years Ended October 31, Except as Noted
STATEMENTS OF CHANGES IN NET ASSETS
Princor
Tax-Exempt Bond
INCOME FUNDS Fund, Inc.
1997 1996
Operations
<S> <C> <C>
Net investment income............................................ $ 10,171,880 $ 9,923,693
Net realized gain (loss) from investment transactions............ 818,662 674,906
Change in unrealized appreciation/depreciation
of investments................................................ 5,658,545 362,726
Net Increase in Net Assets
Resulting from Operations 16,649,087 10,961,325
Dividends and Distributions to Shareholders
from Net Investment Income:
Class A....................................................... (10,615,003) (9,811,318)
Class B....................................................... (312,381) (209,899)
Class R....................................................... N/A N/A
Total Dividends and Distributions (10,927,384) (10,021,217)
Capital Share Transactions (Note 5)
Shares sold:
Class A....................................................... 24,107,825 23,815,010
Class B....................................................... 2,704,384 2,684,628
Class R....................................................... N/A N/A
Shares issued in reinvestment of dividends and distributions:
Class A....................................................... 7,156,854 6,720,668
Class B....................................................... 214,928 155,939
Class R....................................................... N/A N/A
Shares redeemed:
Class A....................................................... (30,946,309) (23,971,299)
Class B....................................................... (1,143,685) (572,822)
Class R....................................................... N/A N/A
Net Increase (Decrease) in Net Assets from
Capital Share Transactions 2,093,997 8,832,124
Total Increase (Decrease) 7,815,700 9,772,232
Net Assets
Beginning of period.............................................. 192,973,655 183,201,423
End of period (including undistributed net investment
income as set forth below).................................... $200,789,355 $192,973,655
Undistributed Net Investment Income ............................ $191,601 $ 947,865
<FN>
(a) Period from February 13, 1996 (date operations commenced) through October
31, 1996.
(b) Period from February 27, 1996 (date operations commenced) through October
31, 1996.
</FN>
See accompanying notes.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Princor Bond Fund, Inc.
Princor High Yield Fund, Inc.
Princor Government Securities Income Fund, Inc.
Princor Tax-Exempt Bond Fund, Inc.
Princor Limited Term Bond Fund, Inc.
Note 1 -- Significant Accounting Policies
Princor Bond Fund, Inc., Princor Government Securities Income Fund, Inc.,
Princor High Yield Fund, Inc., Princor Limited Term Bond Fund, Inc. and Princor
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.
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
year ended October 31, 1997, 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>
Princor Bond Fund, Inc. $268,328 $93,892 $23,423 $101,921 $14,667 $4,517 $12,318 $ 7,806 $7,229
Princor Government Securities Income Fund, Inc. 475,309 85,084 17,299 202,816 15,873 3,032 13,530 12,352 8,084
Princor High Yield Fund, Inc. 83,413 39,158 7,490 22,497 4,443 1,514 8,729 7,546 6,434
Princor Limited Term Bond Fund, Inc. 32,412 1,287 2,656 3,645 380 669 9,552 5,733 6,244
Princor Tax-Exempt Bond Fund, Inc. 390,614 50,501 N/A 64,170 2,962 N/A 19,928 7,741 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 Princor Management Corporation. 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 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 periods ended October 31, 1997
and 1996 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.
At October 31, 1997, the Income Funds had approximate net capital loss
carryforwards as follows:
<TABLE>
<CAPTION>
Princor
Princor Government Princor Princor Princor
Bond Securities Income High Yield Limited Term Bond Tax-Exempt Bond
Net Capital Loss Carryforwards Expire In: Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc.
<S> <C> <C> <C> <C> <C> <C>
1999 $ -- $ -- $ 577,000 $ -- $ --
2000 -- -- 561,000 -- --
2001 -- -- 409,000 -- --
2002 -- 400,000 323,000 -- --
2003 -- 1,075,000 106,000 -- 834,000
2004 73,000 -- -- 4,000 --
2005 -- 776,000 -- 31,000 --
$73,000 $2,251,000 $1,976,000 $35,000 $834,000
</TABLE>
Note 3 -- Management Agreement and Transactions With Affiliates
The Income Funds have agreed to pay investment advisory and management fees to
Princor Management Corporation (wholly owned by Princor Financial Services
Corporation, a subsidiary of Principal Mutual Life Insurance Company) (the
"Manager") 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>
Princor Bond Fund, Inc. 0.50% 0.45% 0.40% 0.35% 0.30%
Princor Government Securities
Income Fund, Inc. 0.50% 0.45% 0.40% 0.35% 0.30%
Princor High Yield Fund, Inc. 0.60% 0.55% 0.50% 0.45% 0.40%
Princor Limited Term Bond Fund, Inc. 0.50% 0.45% 0.40% 0.35% 0.30%
Princor Tax-Exempt Bond Fund, Inc. 0.50% 0.45% 0.40% 0.35% 0.30%
</TABLE>
Note 3 -- Management Agreement and Transactions With Affiliates (Cont.)
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:
Amount
Waived
Year Ended Year Ended Expense
October 31, 1997 October 31, 1996 Limit
Princor Bond
Fund, Inc.
Class A $41,256 $22,536 0.95%
Class B 8,982 5,874 1.70
Class R 10,427 3(b) 1.45
Princor Limited
Term Bond
Fund, Inc.
Class A 46,271 25,651(a) 0.90
Class B 6,528 259(a) 1.25
Class R 6,831 60(b) 1.50
(a)Period from February 13, 1996 (date operations commenced) through
October 31, 1996.
(b)Period from February 27, 1996 (date operations commenced)
through October 31, 1996.
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 Princor 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 Princor Limited Term Bond Fund, Inc.). The
aggregate amount of these charges retained, by fund, for the year ended October
31, 1997 were as follows:
Class A Class B
Princor Bond Fund, Inc. $542,346 $40,557
Princor Government Securities Income Fund, Inc. 681,401 55,828
Princor High Yield Fund, Inc. 304,387 16,664
Princor Limited Term Bond Fund, Inc. 50,591 182
Princor Tax-Exempt Bond Fund, Inc. 538,158 20,539
No brokerage commissions were paid by the Income Funds to affiliated broker
dealers during the periods ended October 31, 1997 and 1996.
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 Princor
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 Princor Limited Term Bond Fund, Inc.). Each of the Income Funds, with the
exception of Princor 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 October 31, 1997, Principal Mutual Life Insurance Company and subsidiaries of
Principal Mutual Life Insurance Company owned shares of the Income Funds as
follows:
Class A Class B Class R
Princor Bond Fund, Inc. 178,252 118 99
Princor Government Securities Income Fund, Inc. 94,035 115 98
Princor High Yield Fund, Inc. 1,116,210 162 4,704
Princor Limited Term Bond Fund, Inc. 1,107,238 111 4,494
Princor Tax-Exempt Bond Fund, Inc. 92,517 109 N/A
Note 4 -- Investment Transactions
For the year ended October 31, 1997, 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
Princor Bond Fund, Inc. $35,535,653 $16,091,925
Princor High Yield Fund, Inc. 29,404,850 14,166,740
Princor Limited Term Bond Fund, Inc. 5,388,580 2,327,955
Princor Tax-Exempt Bond Fund, Inc. 21,102,304 17,150,358
At October 31, 1997, 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>
Princor Bond Fund, Inc. $ 8,032,325 $(357,973) $ 7,674,352
Princor Government Securities Income Fund, Inc. 7,521,916 (639,955) 6,881,961
Princor High Yield Fund, Inc. 1,392,012 (401,988) 990,024
Princor Limited Term Bond Fund, Inc. 177,764 (189,177) (11,413)
Princor Tax-Exempt Bond Fund, Inc. 12,029,259 (4,343) 12,024,916
</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 October 31, 1997, Princor Government
Securities Income Fund, Inc. had TBA purchase commitments involving securities
with a face amount of $4,000,000, cost of $4,004,688 and market value of
$4,063,880. The fund has set aside investment securities and other assets in
excess of the commitments to serve as collateral.
Note 4 -- Investment Transactions (Cont.)
At October 31, 1997, 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 October 31, Percentage of
Security Description Acquisition Cost 1997 Net Assets
<S> <C> <C> <C> <C> <C>
Princor Bond Fund, Inc. John Hancock Mutual Life;
Insurance Co. Surplus Notes 1/8/97 $2,396,100 $2,547,915 1.75%
Princor High Yield Fund, Inc. Antenna TV S.A. Senior Notes 8/7/97 387,269 388,000 .83
8/22/97 490,000 485,000 1.04
Calpine Corp. Senior Notes 7/2/97 797,082 812,000 1.74
Flextronics International Ltd. 10/9/97 400,000 396,000 .85
Senor Subordinated Notes 10/14/97 402,500 396,000 .85
Indah Kiat Finance Mauritius Ltd.
Guaranteed Senior Notes 6/26/97 794,776 720,000 1.54
Integrated Health Services, Inc.
Senior Subordinated Notes 9/8/97 800,000 816,000 1.75
Paperboard Industries
International, Inc. Senior Notes 9/18/97 225,000 222,750 .48
Riviera Holdings Corp.
First Mortgage Notes 8/8/97 395,080 402,000 .86
The DII Group 9/16/97 452,250 443,813 .95
Senior Subordinated Notes 9/16/97 450,000 443,812 .95
Zale Corp. Senior Notes 9/23/97 895,770 879,750 1.88
6,405,125 13.72
Princor Limited Term Bond Fund, Inc. B.A.T. Capital Corp.
Medium-Term Notes 7/24/96 583,584 595,613 2.73
Orix Credit Alliance, Inc.
Medium-Term Notes 11/8/96 850,000 853,144 3.91
1,448,757 6.64
Princor Tax-Exempt Bond Fund, Inc. Eddyville, Iowa, IDR Ref. Bonds,
Cargill Inc. Project 1/11/95 859,910 1,027,500 .51
</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>
Princor Princor Princor
Bond Government Securities High Yield
Fund, Inc. Income Fund, Inc. Fund, Inc.
Year Ended October 31, 1997:
Shares sold:
<S> <C> <C> <C>
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
Year Ended October 31, 1996, Except as Noted:
Shares sold:
Class A ......................................... 1,970,454 3,321,877 768,505
Class B ......................................... 523,960 722,764 207,062
Class R(a)......................................... 47,584 42,812 14,977
Shares issued in reinvestment of dividends and distributions:
Class A ........................................... 448,289 1,164,488 121,239
Class B ........................................... 24,582 33,968 6,991
Class R(a)......................................... 318 266 140
Shares redeemed:
Class A ......................................... (1,629,399) (4,575,851) (354,640)
Class B ......................................... (70,602) (141,657) (35,769)
Class R(a)......................................... (808) (156) --
Net Increase 1,314,378 568,511 728,505
<FN>
(a) Period from February 27, 1996 (date operations commenced) through
October 31, 1996.
</FN>
</TABLE>
Note 5 -- Capital Share Transactions (Cont)
<TABLE>
<CAPTION>
Princor Princor
Limited Term Bond Tax-Exempt Bond
Fund, Inc.(b) Fund, Inc.
Year Ended October 31, 1997:
<S> <C> <C>
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
Year Ended October 31, 1996, Except as Noted:
Shares sold:
Shares sold:
Class A ......................................... 1,762,547 1,994,928
Class B ......................................... 11,158 225,823
Class R(c)......................................... 8,387 N/A
Shares issued in reinvestment of dividends and
distributions:
Class A ......................................... 43,053 563,980
Class B ......................................... 139 13,120
Class R(c)......................................... 54 N/A
Shares redeemed:
Class A ......................................... (62,056) (2,011,737)
Class B ......................................... (15) (48,315)
Net Increase 1,763,267 737,799
<FN>
(b) Year ended October 31, 1997 and Period from February 13, 1996 (date
operations commenced) through October 31, 1996. (c) Period from
February 27, 1996 (date operations commenced) through October 31, 1996.
</FN>
</TABLE>
Note 6 -- Line of Credit
The Income Funds participate with the other funds managed by Princor 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 in
proportion to their average net assets during each quarter. At October 31, 1997,
Princor Tax-Exempt Bond Fund, Inc. had an outstanding borrowing of $125,000 at
an annual rate of 6.08%. No other Income Fund had outstanding borrowings at
October 31, 1997 under the line of credit.
<PAGE>
SCHEDULES OF INVESTMENTS
INCOME FUNDS
PRINCOR BOND FUND, INC.
Principal
Amount Value
Bonds (96.53%)
Air Transportation, Scheduled (1.87%)
Federal Express Corp. 1994 Pass
Through Cert., Series A310-A3;
8.40%; 3/23/10 $1,500,000 $ 1,694,265
Federal Express Corp. Pass Through
Cert.; 7.58%; 7/2/19 1,000,000 1,035,800
2,730,065
Aircraft & Parts (0.75%)
Textron, Inc. Medium-Term
Notes, Series C;
9.80%; 1/11/00 500,000 537,472
9.55%; 3/19/01 500,000 549,939
1,087,411
Auto & Home Supply Stores (1.05%)
Pep Boys-Manny, Moe & Jack Notes;
7.00%; 6/1/05 1,500,000 1,528,605
Beverages (1.59%)
Joseph E. Seagram & Sons
Guaranteed Debentures;
8.38%; 2/15/07 1,000,000 1,123,535
8.88%; 9/15/11 1,000,000 1,198,643
2,322,178
Cable & Other Pay TV Services (1.76%)
Tele-Communications, Inc. Notes;
7.25%; 8/1/05 2,000,000 2,033,996
Tele-Communications, Inc. Senior
Debentures; 7.88%; 8/1/13 500,000 530,198
2,564,194
Cash Grains (1.77%)
Aktiebolaget SKF Senior Notes;
7.63%; 7/15/03 2,500,000 2,589,720
Combination Utility Services (1.33%)
PG Energy, Inc. First Mortgage
Bonds; 8.38%; 12/1/02 500,000 535,255
Public Service Electric & Gas
Medium-Term Notes;
8.16%; 5/26/09 1,250,000 1,405,595
1,940,850
Computer & Office Equipment (1.79%)
Seagate Technology, Inc. Senior Notes;
7.37%; 3/1/07 2,500,000 2,612,550
Construction & Related
Machinery (0.86%)
Caterpillar, Inc. Global Debentures;
9.38%; 8/15/11 1,000,000 1,258,386
Consumer Products (1.07%)
Philip Morris Cos. Notes;
6.80%; 12/1/03 500,000 503,234
RJR Nabisco Capital Corp. Senior
Notes; 8.75%; 4/15/04 1,000,000 1,061,250
1,564,484
Copper Ores (2.34%)
Asarco, Inc. Debentures;
7.88%; 4/15/13 2,000,000 2,161,288
Asarco, Inc. Notes; 7.38%; 2/1/03 1,200,000 1,251,431
3,412,719
Crude Petroleum & Natural Gas (0.38%)
Occidental Petroleum Corp.
Medium-Term Notes;
9.73%; 6/15/01 500,000 555,362
Department Stores (2.25%)
Harcourt General, Inc. Subordinated
Notes; 9.50%; 3/15/00 400,000 426,874
J.C. Penney Co., Inc. Debentures;
7.13%; 11/15/23 1,000,000 1,008,209
Sears Roebuck Co.
Medium-Term Notes;
9.05%; 2/6/12 500,000 612,590
9.12%; 2/13/12 1,000,000 1,231,712
3,279,385
Drug Stores & Proprietary Stores (1.36%)
Rite Aid Corp. Senior Debentures;
6.88%; 8/15/13 2,000,000 1,976,942
Eating & Drinking Places (1.63%)
Marriott International, Inc. Notes;
6.75%; 12/15/03 1,300,000 1,306,878
Marriott International, Inc. Senior
Notes; 7.88%; 4/15/05 1,000,000 1,066,739
2,373,617
Electric Services (2.86%)
Ohio Edison Co. First Mortgage
Bonds; 8.25%; 4/1/02 2,000,000 2,120,706
Southern California Edison Co. Notes;
6.38%; 1/15/06 1,000,000 994,250
Toledo Edison Co. Debentures;
8.70%; 9/1/02 1,000,000 1,050,100
4,165,056
Engines & Turbines (0.70%)
Brunswick Corp. Debentures;
7.38%; 9/1/23 1,000,000 1,016,307
Fabricated Rubber Products,
NEC (1.17%)
M. A. Hanna Co. Senior Notes;
9.38%; 9/15/03 1,500,000 1,705,060
Farm & Garden Machinery (1.82%)
Case Corp. Notes; 7.25%; 1/15/16 1,000,000 1,024,879
Tenneco, Inc. Notes;
10.08%; 2/1/01 500,000 554,783
8.08%; 10/1/02 1,000,000 1,069,508
2,649,170
General Government, NEC (3.04%)
Ontario Hydro Debentures;
7.45%; 3/31/13 2,000,000 2,168,720
Province of Saskatchewan, Canada
Global Notes; 8.00%; 2/1/13 2,000,000 2,262,060
4,430,780
Gold & Silver Ores (0.87%)
Placer Dome, Inc. Notes;
7.13%; 6/15/07 1,250,000 1,278,196
Grain Mill Products (0.73%)
Ralston Purina Co. Debentures;
7.75%; 10/1/15 1,000,000 1,069,502
Grocery Stores (3.40%)
American Stores Co. Bond;
8.00%; 6/1/26 2,500,000 2,765,978
Food Lion, Inc. Medium-Term
Notes; 8.67%; 8/28/06 1,000,000 1,145,021
Food Lion, Inc. Notes;
7.55%; 4/15/07 1,000,000 1,044,604
4,955,603
Highway & Street Construction (1.72%)
Foster Wheeler Corp. Notes;
6.75%; 11/15/05 2,500,000 2,510,148
Household Furniture (1.42%)
Masco Corp. Debentures;
7.13%; 8/15/13 2,000,000 2,079,886
Industrial Inorganic Chemicals (3.80%)
Dow Chemical Co. Debentures;
7.38%; 3/1/23 1,000,000 1,036,891
Dow Chemical Co. Medium-Term
Notes; 7.75%; 9/15/20 1,000,000 1,074,745
FMC Corp. Senior Notes;
6.38%; 9/1/03 750,000 747,812
Grace, (W.R.) & Co. Guaranteed
Notes; 8.00%; 8/15/04 2,500,000 2,691,060
5,550,508
Life Insurance (1.75%)
John Hancock Mutual Life Insurance
Co. Surplus Notes; 7.38%; 2/15/24 2,500,000(a) 2,547,915
Machinery, Equipment,
& Supplies (0.17%)
AAR Corp. Notes; 7.25%; 10/15/03 250,000 250,746
Millwork, Plywood & Structural
Members (1.24%)
Georgia-Pacific Corp. Debentures;
9.50%; 12/1/11 600,000 747,599
Georgia-Pacific Corp. Senior
Debentures; 7.70%; 6/15/15 1,000,000 1,053,328
1,800,927
Miscellaneous Amusement,
Recreation Service (1.33%)
Circus Circus Enterprises Senior
Notes; 6.45%; 2/1/06 2,000,000 1,933,446
Miscellaneous Chemical
Products (2.31%)
Cabot Corp. Notes;
10.25%; 12/15/97 400,000 401,854
Ferro Corp. Senior Debentures;
7.63%; 5/1/13 1,100,000 1,169,155
Smith International, Inc. Senior
Notes; 7.00%; 9/15/07 1,750,000 1,790,880
3,361,889
Miscellaneous Investing (2.32%)
BRE Properties, Inc. Notes;
7.20%; 6/15/07 2,000,000 2,067,620
Weingarten Realty Investors
Medium-Term Notes;
7.29%; 5/23/05 1,250,000 1,312,087
3,379,707
Miscellaneous Metal Ores (1.30%)
Cyprus Amax Minerals Notes;
7.38%; 5/15/07 1,100,000 1,151,847
Cyprus Minerals Co. Notes;
10.13%; 4/1/02 650,000 740,158
1,892,005
Motion Picture Production
& Services (0.28%)
Columbia Pictures Entertainment, Inc.
Senior Subordinated Notes;
9.88%; 2/1/98 400,000 403,678
Motor Vehicles & Equipment (2.33%)
Ford Motor Co. Debentures;
8.88%; 1/15/22 1,000,000 1,224,431
7.50%; 8/1/26 1,000,000 1,060,010
General Motors Corp. Global
Medium-Term Notes;
8.88%; 5/15/03 1,000,000 1,118,119
3,402,560
Newspapers (1.69%)
News America Holdings, Inc.
Guaranteed Senior Notes;
8.50%; 2/15/05 2,250,000 2,468,995
Oil & Gas Field Services (1.80%)
Petroleum Geo-Services Notes;
7.50%; 3/31/07 2,500,000 2,625,185
Operative Builders (1.74%)
Pulte Corp. Senior Notes;
8.38%; 8/15/04 500,000 539,330
7.63%; 10/15/17 2,000,000 1,994,628
2,533,958
Paper Mills (4.19%)
Bowater, Inc. Debentures;
9.50%; 10/15/12 1,000,000 1,269,199
9.38%; 12/15/21 1,500,000 1,868,712
Champion International Corp.
Notes; 9.88%; 6/1/00 750,000 814,118
Chesapeake Corp. Notes;
9.88%; 5/1/03 1,000,000 1,154,532
James River Corp. Notes;
6.70%; 11/15/03 1,000,000 1,007,927
6,114,488
Paperboard Mills (1.25%)
Federal Paper Board Co., Inc.
Debentures; 8.88%; 7/1/12 1,500,000 1,820,104
Personal Credit Institutions (1.88%)
General Motors Acceptance Corp.
Global Notes; 8.50%; 1/1/03 2,000,000 2,192,166
Household Finance Corp. Senior
Subordinated Notes;
9.63%; 7/15/00 500,000 543,083
2,735,249
Petroleum Refining (8.28%)
Ashland, Inc. Medium-Term Notes;
7.71%; 5/11/07 500,000 540,243
7.72%; 7/15/13 1,000,000 1,079,762
7.73%; 7/15/13 750,000 810,548
Mapco, Inc. Medium-Term Notes;
8.48%; 8/5/13 1,000,000 1,132,777
Pennzoil Co. Debentures;
10.13%; 11/15/09 1,675,000 2,123,133
Sun Co., Inc. Debentures;
9.00%; 11/1/24 2,000,000 2,389,794
Sun Co., Inc. Notes; 7.13%; 3/15/04 300,000 308,938
Tosco Corp. Note; 7.25%; 1/1/07 2,500,000 2,595,022
Ultramar Credit Corp. Guaranteed
Notes; 8.63%; 7/1/02 1,000,000 1,089,944
12,070,161
Plastic Materials & Synthetics (0.34%)
Geon Co. Notes; 6.88%; 12/15/05 500,000 500,639
Primary Nonferrous Metals (2.17%)
Reynolds Metals Co.
Medium-Term Notes;
8.22%; 5/30/07 2,000,000 2,220,922
7.65%; 2/4/08 875,000 938,884
3,159,806
Pulp Mills (1.95%)
ITT Rayonier, Inc. Notes;
7.50%; 10/15/02 1,875,000 1,964,316
International Paper Co.
Medium-Term Notes;
9.70%; 8/15/00 800,000 872,637
2,836,953
Real Estate Operators & Lessor (0.90%)
First Industrial, L.P. Notes;
7.60%; 5/15/07 1,250,000 1,316,642
Refrigeration & Service
Machinery (1.81%)
Westinghouse Electric Corp.
Debentures; 8.63%; 8/1/12 1,000,000 1,056,667
Global Notes; 8.88%; 6/1/01 1,500,000 1,588,978
2,645,645
Rental of Railroad Cars (2.12%)
Gatx Capital Corp. Medium-Term Notes;
Series B; 9.50%; 1/10/02 1,500,000 1,671,753
Series C; 6.86%; 10/13/05 1,000,000 1,014,922
General American Transportation
Corp. Medium-Term Notes;
10.65%; 11/14/97 400,000 400,448
3,087,123
Rubber & Plastics Footwear (1.70%)
Reebok International Ltd.;
6.75%; 9/15/05 2,500,000 2,479,308
Sanitary Services (1.27%)
Laidlaw, Inc. Notes;
7.70%; 8/15/02 1,000,000 1,054,744
Laidlaw, Inc. Senior Notes;
7.88%; 4/15/05 750,000 803,217
1,857,961
Security Brokers & Dealers (1.79%)
Lehman Brothers, Inc. Senior
Subordinated Notes;
7.38%; 1/15/07 2,500,000 2,604,320
Telephone Communication (4.45%)
Korea Telecom Notes; 7.63%; 4/15/07 2,500,000 2,333,655
Sprint Corp. Notes; 8.13%; 7/15/02 1,500,000 1,609,670
U.S. West Capital Funding, Inc. Notes;
7.30%; 1/15/07 1,500,000 1,541,451
6.80%; 11/23/07 1,000,000 1,009,439
6,494,215
Variety Stores (0.84%)
Dayton-Hudson Corp. Debentures;
9.25%; 8/15/11 1,000,000 1,219,778
Total Bonds 140,750,087
Commercial Paper (1.46%)
Personal Credit Institutions (1.46%)
Investment In Joint Trade Account;
Associates Corp.; 5.73%; 11/3/97 2,125,178 2,125,178
Total Portfolio Investments (97.99%) 142,875,265
Cash, receivables and other assets, net of
liabilities (2.01%) 2,930,737
Total Net Assets (100.00%) $145,806,002
(a) Restricted security - See Note 4 to the financial statements.
PRINCOR GOVERNMENT SECURITIES INCOME
FUND, INC.
Description of Issue Principal
Type Rate Maturity Amount Value
Government National Mortgage Association (GNMA)
Certificates (99.94%)
GNMA I 6.00% 10/15/23-3/15/26 $21,917,248 $ 21,200,563
GNMA I 6.50 9/15/23-5/15/26 47,911,508 47,512,855
GNMA I 7.00 10/15/22-11/15/27 63,479,660 64,047,130
GNMA I 7.25 9/15/25-10/15/25 5,470,009 5,550,309
GNMA I 7.50 4/15/17-11/1/27 52,385,119 53,787,178
GNMA I 8.00 8/15/16-2/15/22 12,250,277 12,865,141
GNMA II 6.00 1/20/24-3/20/27 51,537,081 49,498,039
GNMA II 6.50 3/20/24-3/20/27 14,987,485 14,800,853
Total GNMA Certificates 269,262,068
Principal
Amount Value
Federal Agency Short-Term Obligation (0.94%)
Investment in Joint Trade Account;
Federal Home Loan Mortgage
Corporation; 5.65%; 11/3/97 $2,542,824 $ 2,542,824
Total Portfolio Investments (100.88%) 271,804,892
Liabilities, net of cash, receivables and other
assets (-0.88%) (2,390,004)
Total Net Assets (100.00%) $269,414,888
PRINCOR HIGH YIELD FUND, INC.
Principal
Amount Value
Bonds (96.12%)
Advertising (3.56%)
Lamar Advertising Company
Senior Subordinated Notes;
9.63%; 12/1/06 $ 800,000 $ 846,000
Outdoor Systems
Senior Subordinated Notes;
8.88%; 6/15/07 800,000 818,000
1,664,000
Aircraft & Parts (1.53%)
Rohr Industries, Inc. Subordinated
Debentures; 9.25%; 3/1/17 700,000 717,500
Blast Furnace & Basic Steel
Products (2.45%)
Titan Wheel International Senior
Subordinated Notes;
8.75%; 4/1/07 700,000 724,500
Weirton Steel Corp. Senior Notes;
10.75%; 6/1/05 400,000 421,000
1,145,500
Broadwoven Fabric Mills, Cotton (1.54%)
J.P. Stevens & Co., Inc. Sinking
Fund Debentures; 9.00%; 3/1/17 700,000 721,000
Cable & Other Pay TV Services (3.51%)
Century Communications Senior Notes;
8.75%; 10/1/07 900,000 900,000
Jones Intercable, Inc. Senior Notes;
9.63%; 3/15/02 700,000 738,500
1,638,500
Cogeneration - Small Power
Producer (3.40%)
AES Corporation Senior Subordinated
Notes; 8.38%; 8/15/07 800,000 780,000
Calpine Corp. Senior Notes;
8.75%; 7/15/07 800,000(a) 812,000
1,592,000
Computer & Data Processing
Services (1.98%)
Decisionone Corporation Senior
Subordinated Notes; 9.75%; 8/1/07 900,000 927,000
Crude Petroleum & Natural Gas (6.50%)
Chesapeake Energy Corp. Senior
Notes; 8.50%; 3/15/12 800,000 784,000
Nuevo Energy Co. Senior Subordinated
Notes; 9.50%; 4/15/06 600,000 637,500
Ocean Energy, Inc. Senior Subordinated
Notes; 8.88%; 7/15/07 800,000 820,000
Snyder Oil Company Senior
Subordinated Notes; 8.75%; 6/15/07 800,000 796,000
3,037,500
Dairy Farms (1.45%)
Fage Dairy Industry S.A. Senior Notes;
9.00%; 2/1/07 700,000 679,000
Electrical Industrial Appratus (1.80%)
Motors and Gears, Inc. Senior Notes,
Series A; 10.75%; 11/15/06 800,000 840,000
Electric Components
& Accessories (5.00%)
Advanced Micro Devices, Inc.
Senior Secured Notes;
11.00%; 8/1/03 700,000 756,000
Fairchild Semiconductor Corp.
Senior Subordinated Notes;
10.13%; 3/15/07 750,000 791,250
Flextronics International Ltd.
Senior Subordinated Notes;
8.75%; 10/15/07 800,000(a) 792,000
2,339,250
Engines & Turbines (1.48%)
Outboard Marine Corp. Debentures;
9.13%; 4/15/17 700,000 693,000
Family Clothing Stores (1.96%)
Specialty Retailers, Inc. Senior Notes;
8.50%; 7/15/05 900,000 918,000
Finance Services (1.75%)
DVI, Inc. Senior Notes;
9.88%; 2/1/04 800,000 816,000
Footwear, Except Rubber (1.75%)
Brown Group, Inc. Senior Notes;
9.50%; 10/15/06 800,000 818,000
Forest Products (1.46%)
Doman Industries Ltd. Senior Notes;
8.75%; 3/15/04 700,000 684,250
Fuel Dealers (1.49%)
Petroleum Heat & Power Co., Inc.
Subordinated Notes;
10.13%; 4/1/03 700,000 695,625
Groceries & Related Products (1.54%)
Rykoff-Sexton, Inc. Senior
Subordinated Notes;
8.88%; 11/1/03 700,000 719,250
Grocery Stores (1.72%)
Quality Food Centers Senior
Subordinated Notes;
8.70%; 3/15/07 800,000 804,000
Hotels & Motels (4.12%)
HMH Properties, Inc. Senior Notes;
8.88%; 7/15/07 800,000 816,000
John Q. Hammons Hotels, L.P. &
Finance Corp. First Mortgage
Notes; 8.88%; 2/15/04 700,000 707,000
Riviera Holdings Corp. First
Mortgage Notes;
10.00%; 8/15/04 400,000(a) 402,000
1,925,000
Industrial Inorganic Chemicals (1.57%)
PT. Tri Polyta Indonesia TBK
Guaranteed Secured Notes;
11.38%; 12/1/03 800,000 736,000
Knitting Mills (1.61%)
Tultex Corp. Senior Notes;
10.63%; 3/15/05 700,000 750,750
Miscellaneous Amusement, Recreation
Service (3.26%)
Rio Hotel & Casino, Inc. Senior
Subordinated Notes;
9.50%; 4/15/07 700,000 728,000
Station Casinos, Inc. Senior
Subordinated Notes, Series B;
9.63%; 6/1/03 800,000 795,000
1,523,000
Miscellaneous Electrical Equipment
& Supplies (1.90%)
The DII Group Senior Subordinated
Notes; 8.50%; 9/15/07 900,000(a) 887,625
Miscellaneous Plastics Products,
NEC (1.50%)
Congoleum Corp. Senior Notes;
9.00%; 2/1/01 700,000 700,000
Miscellaneous Shopping Goods
Stores (1.88%)
Zale Corporation Senior Notes;
8.50%; 10/1/07 900,000(a) 879,750
Newspapers (1.75%)
Hollinger International Publishing, Inc.
Senior Notes; 8.63%; 3/15/05 800,000 816,000
Nursing & Personal Care Facilities (3.29%)
Integrated Health Services, Inc. Senior
Subordinated Notes; 9.25%; 1/15/08 800,000(a) 816,000
Mariner Health Group, Inc. Senior
Subordinated Notes; 9.50%; 4/1/06 700,000 724,500
1,540,500
Oil & Gas Field Services (3.11%)
Dawson Production Services
Senior Notes; 9.38%; 2/1/07 700,000 735,000
Polysindo International Finance Co.
B.V. Guaranteed Secured Notes;
9.38%; 7/30/07 800,000 720,000
1,455,000
Paper Mills (1.54%)
Indah Kiat Finance Mauritius Limited
Guaranteed Senior Notes;
10.00%; 7/1/07 800,000(a) 720,000
Paperboard Containers & Boxes (0.48%)
Paperboard Industries International, Inc.
Senior Notes; 8.38%; 9/15/07 225,000(a) 222,750
Petroleum Refining (1.56%)
Crown Central Petroleum Corp.
Senior Notes; 10.88%; 2/1/05 700,000 728,000
Pulp Mills (1.69%)
Pen-Tab Industries, Inc. Senior
Subordinated Notes; 10.88%; 2/1/07 800,000 788,000
Radio, Television, & Computer
Stores (1.53%)
CompUSA, Inc. Senior Subordinated
Notes; 9.50%; 6/15/00 700,000 715,750
Radio & Television Broadcasting (3.45%)
American Radio Systems Senior
Subordinated Notes; 9.00%; 2/1/06 700,000 742,000
Antenna TV S.A. Senior Notes;
9.00%; 8/1/07 900,000(a) 873,000
1,615,000
Retail Stores, NEC (1.82%)
Cole National Group, Inc.
Senior Subordinated Notes;
9.88%; 12/31/06 800,000 852,000
Search & Navigation Equipment (1.56%)
AMRESCO, Inc. Senior Subordinated
Notes; 10.00%; 3/15/04 700,000 731,500
Soap, Cleaners, & Toilet Goods (1.59%)
Coty, Inc. Senior Subordinated
Notes; 10.25%; 5/1/05 700,000 745,500
Telephone Communication (7.95%)
Lenfest Communications Senior Notes;
8.38%; 11/1/05 800,000 796,000
Paging Network, Inc. Senior Debentures;
8.88%; 2/1/06 700,000 670,250
Rogers Cablesystems Ltd. Senior
Secured Second Priority Notes;
9.63%; 8/1/02 750,000 785,625
Rogers Cantel, Inc. Senior Secured
Debentures; 9.75%; 6/1/16 700,000 749,000
Vanguard Cellular Systems, Inc. Senior
Debentures; 9.38%; 4/15/06 700,000 717,500
3,718,375
Textile Finishing, Except Wool (1.54%)
Dominion Textile (USA), Inc. Guaranteed
Senior Notes; 9.25%; 4/1/06 700,000 719,250
Water Supply (1.55%)
California Energy Casecnan Water &
Energy Co., Inc. Senior Secured,
Series B; 11.95%; 11/15/10 700,000 724,500
Total Bonds 44,943,625
Commercial Paper (1.48%)
Personal Credit Institutions (1.48%)
Investment in Joint Trade Account;
Associates Corp.;
5.73%; 11/3/97 693,767 693,767
Total Portfolio Investments (97.60%) 45,637,392
Cash, receivables and other assets, net of
liabilities (2.40%) 1,121,532
Total Net Assets (100.00%) $46,758,924
(a) Restricted security - See Note 4 to the financial statements.
PRINCOR LIMITED TERM BOND FUND, INC.
Principal
Amount Value
Bonds (65.33%)
Business Credit Institutions (6.81%)
Ford Motor Credit Co. Notes;
7.50%; 1/15/03 $ 600,000 $ 631,322
Orix Credit Alliance, Inc.
Medium-Term Notes;
6.46%; 5/17/99 850,000(a) 853,144
1,484,466
Combination Utility Services (5.03%)
Consolidated Edison Co. Debentures,
Series 93-B; 6.50%; 2/1/01 824,000 833,634
Pacificorp First Mortgage Medium-Term
Notes; 9.50%; 5/20/99 250,000 262,834
1,096,468
Consumer Products (6.98%)
B.A.T. Capital Corp. Medium-Term
Notes; 5.32%; 10/28/98 600,000(a) 595,613
Philip Morris Cos. Notes;
7.13%; 12/1/99 910,000 925,354
1,520,967
Department Stores (7.96%)
J. C. Penney Co., Inc. Notes;
9.05%; 3/1/01 850,000 921,580
Sears Roebuck Acceptance Corp.
Medium-Term Notes, Series II;
6.69%; 8/13/01 450,000 456,775
Sears Roebuck Co. Medium-Term
Notes; 6.46%; 5/12/00 100,000 100,915
Sears Roebuck Co. Notes;
8.20%; 4/15/99 250,000 256,453
1,735,723
Miscellaneous Investing (1.38%)
United Dominion Realty Trust Notes;
7.25%; 4/1/99 300,000 300,894
Mortgage Bankers & Brokers (3.92%)
Countrywide Funding Corp.
Medium-Term Notes;
6.05%; 3/1/01 860,000 854,490
Motor Vehicles & Equipment (2.52%)
General Motors Corp. Medium-Term
Notes; 9.20%; 7/2/01 500,000 548,606
Paper Mills (4.22%)
International Paper Co. Notes;
7.00%; 6/1/01 900,000 919,816
Paperboard Mills (3.74%)
Temple-Inland, Inc. Notes;
9.00%; 5/1/01 750,000 816,176
Personal Credit Institutions (11.07%)
American General Finance Corp.
Medium-Term Notes, Series D;
7.46%; 3/28/00 350,000 360,855
American General Finance Corp. Notes;
7.25%; 4/15/00 500,000 512,626
Chrysler Financial Corp.
Medium-Term Notes;
8.45%; 1/28/00 500,000 525,822
General Motors Acceptance Corp.
Notes; 6/63%; 10/1/02 1,000,000 1,014,652
2,413,955
Security Brokers & Dealers (4.25%)
Lehman Brothers, Inc. Senior
Subordinated Notes;
5.75%; 11/15/98 930,000 927,255
Telephone Communication (7.45%)
Nynex Capital Funding Medium-Term
Notes, Series A; 9.40%; 6/1/00 670,000 722,817
U.S. West Capital Funding, Inc.
Medium-Term Notes;
6.13%; 11/30/99 900,000 899,870
1,622,687
Total Bonds 14,241,503
Description of Issue Principal
Type Rate Maturity Amount Value
Federal Home Loan Mortgage Corporation (FHLMC)
Certificates (13.76%)
FHLMC 7.25% 12/1/07 $ 686,180 $ 700,157
FHLMC 8.00 12/1/11 341,147 351,900
FHLMC 8.00 10/1/22 251,559 263,400
FHLMC 8.25 1/1/12 120,178 123,517
FHLMC Gold 8.50 1/1/00 480,505 492,600
FHLMC Gold 8.50 3/1/00 313,343 321,230
FHLMC Gold 8.50 4/1/00 210,762 216,066
FHLMC Gold 9.00 9/1/09 500,443 530,395
Total FHLMC Certificates 2,999,265
Federal National Mortgage Association (FNMA)
Certificates (9.22%)
FNMA 8.00 10/1/06 149,049 152,918
FNMA 8.00 5/1/27 477,700 495,189
FNMA 8.50 5/1/22 576,848 603,821
FNMA 9.00 2/1/25 709,603 757,622
Total FNMA Certificates 2,009,550
Government National Mortgage Association (GNMA)
Certificates (2.66%)
GNMA 8.00 1/20/16 395,428 415,781
GNMA 9.00 7/15/17 151,566 164,504
Total GNMA Certificates 580,285
Principal
Amount Value
Asset-Backed Securities (7.18%)
Personal Credit Institutions (2.68%)
Union Acceptance Corp. 1996-B Auto
Trust Pass-Through Certificates,
Class A; 6.45%; 7/8/03 $ 579,168 $ 583,367
Mortgage Pass Thru Securities (4.50%)
J.P. Morgan Commercial Mortgage
Finance Corp. Mortgage
Pass-Through Series 97-C5,
Class A-2; 7.06%; 9/15/29 950,000 981,170
Total Asset-Backed Securities 1,564,537
Commercial Paper (0.17%)
Personal Credit Institutions (0.17%)
Investment in Joint Trade Account;
Associates Corp.; 5.73%; 11/3/97 36,870 36,870
Total Portfolio Investments (98.32%) 21,432,010
Cash, receivables and other assets, net of
liabilities (1.68%) 365,718
Total Net Assets (100.00%) $21,797,728
(a) Restricted security - See Note 4 to the financial statements.
PRINCOR TAX-EXEMPT BOND FUND, INC.
Principal
Amount Value
Long-Term Tax-Exempt Bonds (98.08%)
Alabama (2.11%)
Courtland, Alabama IDB IDR Series A
Bonds for Champion International;
7.20%; 12/1/13 $3,815,000 $ 4,239,419
Arizona (2.10%)
Navajo County, Arizona Pollution
Control Corp. Rev. Ref. Bonds,
Arizona Public Service Co.,
Series 1993A; 5.88%; 8/15/28 4,100,000 4,223,000
Arkansas (2.49%)
City of Blytheville, Arkansas Solid Waste
Recycling & Sewer Treatment Rev.
Bonds, Series 1992, Nucor Corp.
Project; 6.90%; 12/1/21 4,610,000 4,990,325
California (4.72%)
ABAG Finance Authority for Nonprofit
Corp., Cert. of Participation,
Stanford University Hospital;
5.00%; 11/1/04 750,000 763,125
5.50%; 11/1/13 1,250,000 1,262,500
5.25%; 11/1/20 1,750,000 1,686,563
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 1,080,000
California Pollution Control Funding
Authority Rev. Bonds, Atlantic
Richfield Co. Project; 5.00%; 4/1/08 2,500,000 2,546,875
City of Upland, California San Antonio
Comm. Hospital Cert. of Participation;
5.25%; 1/1/04 2,080,000 2,134,600
9,473,663
Colorado (2.72%)
City & County of Denver, Colorado,
Airport System Rev. Bonds,
Series 1991D; 7.75%; 11/15/13 3,185,000 3,961,344
Colorado Health Fac. Authority Rev.
Bonds for Sisters of Charity
Healthcare Systems, Series 1994;
5.25%; 5/15/14 1,500,000 1,503,750
5,465,094
Florida (1.19%)
Nassau County, Florida Pollution
Control Rev. Ref. Bonds; ITT
Rayonier, Inc. Project;
6.10%; 6/1/05 1,000,000 1,058,750
7.65%; 6/1/06 1,265,000 1,334,575
2,393,325
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 2,012,500
Municipal Electric Authority of Georgia
Power Rev. Bonds, Series R;
7.30%; 1/1/09 1,505,000 1,578,369
3,590,869
Illinois (14.88%)
Chicago, Illinois Midway Airport Rev.
Bonds, Series A, MBIA Insured;
5.50%; 1/1/11 1,500,000 1,546,875
5.50%; 1/1/13 500,000 511,250
Chicago, Illinois O'Hare International
Airport Special Fac. Rev. Bonds for
American Airlines, Inc. Project-A;
7.88%; 11/1/25 6,010,000 6,626,025
Chicago, Illinois O'Hare International
Airport Special Fac. Rev. Bonds for
Lufthansa German Airlines Project;
7.13%; 5/1/18 1,000,000 1,082,500
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 3,076,500
Illinois Health Fac. Authority Ref. Rev.
Bonds for OSF Healthcare System;
5.75%; 11/15/07 1,000,000 1,030,000
6.00%; 11/15/10 500,000 516,250
6.00%; 11/15/13 500,000 521,250
Illinois Health Fac. Authority Rev.
Bonds for Sarah Bush Lincoln
Health Center;
Series 1992; 7.25%; 5/15/02 2,950,000 3,351,937
Series 1996B; 6.00%; 2/15/11 1,000,000 1,033,750
Series 1996B; 5.50%; 2/15/16 1,000,000 973,750
Illinois Health Fac. Authority Rev.
Bonds for South Suburban Hospital,
Series 1992;
7.00%; 2/15/02 725,000 811,094
7.00%; 2/15/09 305,000 360,662
7.00%; 2/15/18 720,000 873,900
Illinois Health Fac. Authority Rev. Bonds,
Northwestern Memorial Hospital,
Series 1994A;
5.60%; 8/15/06 500,000 525,000
5.75%; 8/15/08 615,000 643,444
5.80%; 8/15/09 840,000 873,600
6.10%; 8/15/14 1,000,000 1,056,250
Illinois Health Fac. Authority Rev. Ref.
Bonds for Advocate Healthcare,
Series A; 6.75%; 4/15/12 2,000,000 2,309,150
Regional Transportation Authority,
Illinois General Obligation Bonds,
Series 1994A; 6.25%; 6/1/15 2,000,000 2,157,500
29,880,687
Indiana (7.46%)
City of Mount Vernon, Indiana,
Pollution Control Rev. Bonds for
Southern Indiana Gas & Electric
Co. Project; 7.25%; 3/1/14 700,000 761,250
City of Petersburg, Indiana, Pollution
Control Rev. Bonds, for Indianapolis
Power & Light Co. Project,
Series 1993A; 6.10%; 1/1/16 4,000,000 4,220,000
Indiana Health Fac. Financial Authority
Hospital Rev. Bonds, Clarian Health
Partners, Inc.; 5.50%; 2/15/09 2,520,000 2,560,950
Indiana Health Fac. Financing
Authority Hospital Rev. Ref. Bonds,
Welborn Memorial Baptist Hospital,
Series 1993; 5.63%; 7/1/23 1,860,000 1,827,450
Lawrenceburg, Indiana Pollution
Control Rev. Ref. Bonds, Indiana
Michigan Power Co. Project,
Series D; 7.00%; 4/1/15 1,000,000 1,078,750
Series E; 5.90%; 11/1/19 3,220,000 3,280,375
Warrick County, Indiana
Environmental Improvement Rev.
Bonds, Southern Indiana Gas &
Electric, Series 1993B;
6.00%; 5/1/23 1,190,000 1,246,525
14,975,300
Iowa (4.29%)
City of Muscatine, Iowa, Electric Rev.
Ref. Bonds, Series 1986;
6.00%; 1/1/06 150,000 150,171
5.00%; 1/1/07 1,575,000 1,533,656
Eddyville, Iowa, IDR Ref. Bonds,
Cargill, Inc. Project; 5.63%; 12/1/13 1,000,000(a) 1,027,500
Iowa Finance Authority Hospital Fac.
Ref. Rev. Bonds for Jennie
Edmundson Memorial Hospital;
7.40%; 11/1/06 550,000 589,875
7.65%; 11/1/16 4,900,000 5,316,500
8,617,702
Kentucky (0.95%)
City of Ashland, Kentucky, Sewage
and Solid Waste Rev. Bonds for
Ashland, Inc. Project, Series 1995;
7.13%; 2/1/22 750,000 834,375
City of Ashland, Kentucky, Solid
Waste Rev. Bonds for Ashland
Oil, Inc. Project, Series 1991;
7.20%; 10/1/20 1,000,000 1,082,500
1,916,875
Louisiana (1.06%)
St. Charles Parish, Louisiana Pollution
Control Rev. Bonds for Louisiana
Power & Light Co. Project;
7.50%; 6/1/21 1,950,000 2,123,063
Maine (1.04%)
Skowhegan, Maine, Pollution Control
Rev. Ref. Bonds for Scott Paper
Co. Project, Series 1993;
5.90%; 11/1/13 2,000,000 2,082,500
Michigan (2.31%)
Michigan State Hospital Financing
Authority Hospital Rev. Bonds for
Detroit Medical Center, Series 1993B;
5.75%; 8/15/13 600,000 615,750
5.50%; 8/15/23 2,000,000 1,980,000
Michigan State Hospital Financing
Authority Rev. Ref. Bonds,
Daughters of Charity Hospital;
5.25%; 11/1/15 1,000,000 991,250
Michigan State Hospital Financing
Authority Rev. Ref. Bonds,
Daughters of Charity Natl. Health
System; 5.50%; 11/1/05 1,000,000 1,056,250
4,643,250
Minnesota (1.54%)
City of Bass Brook, Minnesota Pollution
Control Rev. Ref. Bonds for
Minnesota Power & Light Project;
6.00%; 7/1/22 3,000,000 3,090,000
Missouri (1.17%)
Missouri State Health & Educational
Fac. Authority Health Fac. Rev.
Bonds, BJC Health System,
Series 1994A; 6.75%; 5/15/12 2,000,000 2,352,500
Montana (1.03%)
Forsyth, Montana Pollution Control
Rev. Ref. Bonds, Montana Power
Co., Colstrip Project, Series 1993A;
6.13%; 5/1/23 2,000,000 2,070,000
Nebraska (2.32%)
Dawson County Nebraska Sanitary &
Improvement General Obligation
Ref. Bonds; 5.55%; 2/1/17 1,000,000 1,013,750
Nebraska Public Power Dist. Power
Supply System Rev. Bonds;
5.30%; 1/1/02 1,000,000 1,033,750
5.40%; 1/1/03 1,500,000 1,561,875
5.50%; 1/1/04 1,000,000 1,046,250
4,655,625
Nevada (1.98%)
Clark County, Nevada, IDR Ref.
Bonds, Nevada Power Co. Project,
Series 1992C; 7.20%; 10/1/22 3,600,000 3,969,000
New Mexico (1.07%)
City of Lordsburg, New Mexico
Pollution Control Rev. Bonds
for Phelps Dodge Corp. Project;
6.50%; 4/1/13 2,000,000 2,155,000
North Carolina (3.55%)
Martin County, North Carolina
Industrial Fac. & Pollution Control
Finance Authority Solid Waste
Rev. Bonds, Weyerhaeuser;
5.65%; 12/1/23 1,500,000 1,505,625
6.80%; 5/1/24 2,000,000 2,212,500
North Carolina Medical Care Hospital
Rev. Bonds for Rex Hospital Project;
6.13%; 6/1/10 1,700,000 1,802,000
Wake County, North Carolina,
Industrial Fac. & Pollution Control
Finance Authority Rev. Bonds,
Carolina Power & Light Co.;
6.90%; 4/1/09 1,500,000 1,606,875
7,127,000
North Dakota (1.05%)
Mercer County, North Dakota,
Pollution Control Rev. Bonds,
Ottertail Power Co. Project,
Series 1991; 6.90%; 2/1/19 1,950,000 2,101,125
Ohio (5.08%)
Cuyahoga County, Ohio, Hospital
Rev. Bonds for Meridia Health
Systems, Series 1991;
7.25%; 8/15/19 1,445,000 1,560,600
Lorain County, Ohio Hospital Ref.
Bonds, Humility Mary Health
Care, Series A; 5.90%; 12/15/08 3,270,000 3,523,425
Ohio Air Quality Dev. Rev. Bonds,
Columbus Southern Power Co.
Project, Series 1985B;
6.25%; 12/1/20 4,900,000 5,120,500
10,204,525
Oklahoma (1.21%)
Tulsa Industrial Authority Rev. Bonds,
St. John Medical Center Project,
Series 1994;
6.25%; 2/15/14 1,280,000 1,366,400
6.25%; 2/15/17 1,000,000 1,065,000
2,431,400
Rhode Island (1.53%)
Rhode Island State Industrial Facilities
Corp. Marine Term Rev. Bonds,
Mobile Oil Refining;
6.00%; 11/1/14 2,900,000 3,063,125
South Carolina (4.83%)
Darlington County, South Carolina
Pollution Control Rev. Bonds for
Carolina Power & Light;
6.60%; 11/1/10 1,000,000 1,093,750
Greenville Hospital System, South
Carolina Hospital Fac. Rev. Ref.
Bonds, Series C; 5.50%; 5/1/16 2,500,000 2,521,875
Oconee County, South Carolina
Pollution Control Rev. Ref. Bonds,
Duke Energy Corp. Project, Series
1993; 5.80%; 4/1/14 2,000,000 2,095,000
York County, South Carolina Exempt
Fac. Industrial Rev. Bonds for
Hoechst Celanese Project,
Series 1994; 5.70%; 1/1/24 2,000,000 2,025,000
York County, South Carolina Pollution
Control Rev. Bonds, Bowater, Inc.
Project; 7.63%; 3/1/06 1,700,000 1,969,875
9,705,500
South Dakota (0.54%)
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 (7.20%)
Brazos River Authority, Texas,
Pollution Control Rev. Bonds for
Houston Lighting & Power;
8.25%; 5/1/15 820,000 851,759
7.75%; 10/1/15 855,000 897,716
8.25%; 5/1/19 500,000 519,365
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 2,703,125
Matagorda County, Texas,
Navigational District No. 1 Pollution
Control Rev. Bonds for Central
Power & Light Co.;
7.50%; 12/15/14 2,585,000 2,817,650
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 2,087,500
Red River Authority, Texas Pollution
Control Rev. Ref. Bonds, Hoechst
Celanese Corp. Project;
5.20%; 5/1/07 2,425,000 2,452,281
Tarrant County, Texas, Health Fac.
Dev. Corp., Harris Methodist Health
System Rev. Bonds; 5.90%; 9/1/06 1,000,000 1,093,750
14,464,396
Utah (1.68%)
Intermountain Power Agency, Utah
Power Supply, Rev. Ref. Bonds,
Series 1993A; 5.50%; 7/1/20 1,500,000 1,485,000
Series 1996D; 5.00%; 7/1/21 2,000,000 1,885,000
3,370,000
Virginia (1.70%)
Albemarle County, Virginia IDA
Hospital Rev. Ref. Bonds, Martha
Jefferson Hospital; 5.50%; 10/1/15 1,900,000 1,921,375
Chesapeake, Virginia IDA Rev. Ref.
Bond for Cargill, Inc. Project;
5.88%; 3/1/13 1,410,000 1,487,550
3,408,925
Washington (2.48%)
City of Seattle, Washington Municipal
Light and Power Rev. Bonds;
1993; 5.10%; 11/1/05 1,950,000 2,008,500
1994; 6.63%; 7/1/16 1,000,000 1,092,500
Washington Health Care Fac.
Authority Rev. Bonds; Series 1989,
Sisters of Providence;
7.88%; 10/1/99 1,735,000 1,880,306
4,981,306
West Virginia (6.10%)
Marshall County, West Virginia,
Pollution Control Rev. Bonds
for Ohio Power Co. Project;
Series C; 6.85%; 6/1/22 1,200,000 1,308,000
Series D; 5.90%; 4/1/22 4,500,000 4,663,125
Pleasants County, West Virgina
Pollution Control Rev. Bonds
for Potomac Edison Co.;
6.15%; 5/1/15 2,000,000 2,130,000
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
12,257,062
Wisconsin (2.91%)
Kaukauna, Wisconsin Pollution
Control Rev. Ref. Bonds for Intl.
Paper Co. Project, Series A;
5.40%; 5/1/04 3,610,000 3,731,837
Wisconsin Health & Educational
Fac. Authority Rev. Bonds;
Series 1995; Franciscan Skemp
Medical Center, Inc.;
5.88%; 11/15/10 1,000,000 1,046,250
6.13%; 11/15/15 1,000,000 1,061,250
5,839,337
Total Portfolio Investments (98.08%) 196,943,398
Cash, receivables and other assets, net of
liabilities (1.92%) 3,845,957
Total Net Assets (100.00%) $200,789,355
(a) Restricted security - See Note 4 to the financial statements.
See accompanying notes.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends
Value at Invest- Gain from from Net Distributions Total
Beginning ment (Loss) on Investment Investment from Distri-
of Period Income Investments Operations Income Capital Gains butions
<S> <C> <C> <C> <C> <C> <C> <C>
PRINCOR BOND FUND, INC.
Class A:
Year Ended October 31,
1997 $11.17 $.75(b) $ .33 $1.08 $(.81) $ -- $(.81)
1996 11.42 .76(b) (.25) .51 (.76) -- (.76)
1995 10.27 .78(b) 1.16 1.94 (.78) (.01) (.79)
1994 11.75 .78(b) (1.47) (.69) (.78) (.01) (.79)
1993 10.97 .81(b) .79 1.60 (.81) (.01) (.82)
Class B:
Year Ended October 31,
1997 11.15 .67(b) .31 .98 (.71) -- (.71)
1996 11.41 .67(b) (.25) .42 (.68) -- (.68)
Period Ended October 31, 1995(c) 10.19 .63(b) 1.19 1.82 (.60) -- (.60)
Class R:
Year Ended October 31, 1997 11.16 .71(b) .30 1.01 (.74) -- (.74)
Period Ended October 31, 1996(f) 11.27 .51(b) (.13) .38 (.49) -- (.49)
PRINCOR GOVERNMENT
SECURITIES INCOME FUND, INC.
Class A:
Year Ended October 31,
1997 11.26 .70 .29 .99 (.74) -- (.74)
1996 11.31 .70 (.05) .65 (.70) -- (.70)
1995 10.28 .71 1.02 1.73 (.70) -- (.70)
1994 11.79 .69 (1.40) (.71) (.68) (.12) (.80)
1993 11.44 .74 .55 1.29 (.74) (.20) (.94)
Class B:
Year Ended October 31,
1997 11.23 .64 .29 .93 (.66) -- (.66)
1996 11.29 .61 (.05) .56 (.62) -- (.62)
Period Ended October 31, 1995(c) 10.20 .56 1.07 1.63 (.54) -- (.54)
Class R:
Year Ended October 31, 1997 11.21 .64 .24 .88 (.67) -- (.67)
Period Ended October 31, 1996(f) 11.27 .47 (.08) .39 (.45) -- (.45)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Net Asset Ratio of Investment
Value at Net Assets at Expenses to Income to Portfolio
End Total End of Period Average Average Turnover
of Period Return(a) (in thousands) Net Assets Net Assets Rate
<S> <C> <C> <C> <C> <C> <C>
PRINCOR BOND FUND, INC.
Class A:
Year Ended October 31,
1997 $11.44 10.15% $126,427 .95%(b) 6.70% 12.8%
1996 11.17 4.74 113,437 .95(b) 6.85 3.4
1995 11.42 19.73 106,962 .94(b) 7.26 5.1
1994 10.27 (6.01) 88,801 .95(b) 7.27 8.9
1993 11.75 15.22 85,015 .92(b) 7.19 9.3
Class B:
Year Ended October 31,
1997 11.42 9.20 13,403 1.70(b) 5.92 12.8
1996 11.15 3.91 7,976 1.69(b) 6.14 3.4
Period Ended October 31, 1995(c) 11.41 17.98(d) 2,708 1.59(b)(e) 6.30(e) 5.1(e)
Class R:
Year Ended October 31, 1997 11.43 9.49 5,976 1.45(b) 6.11 12.8
Period Ended October 31, 1996(f) 11.16 3.75(d) 525 1.28(b)(e) 6.51(e) 3.4(e)
PRINCOR GOVERNMENT
SECURITIES INCOME FUND, INC.
Class A:
Year Ended October 31,
1997 11.51 9.23 249,832 .84 6.19 10.8
1996 11.26 6.06 259,029 .81 6.31 25.9
1995 11.31 17.46 261,128 .87 6.57 10.1
1994 10.28 (6.26) 249,438 .95 6.35 24.8
1993 11.79 11.80 236,718 .93 6.38 52.6
Class B:
Year Ended October 31,
1997 11.50 8.65 15,431 1.39 5.63 10.8
1996 11.23 5.17 11,586 1.60 5.53 25.9
Period Ended October 31, 1995(c) 11.29 16.07(d) 4,699 1.53(e) 5.68(e) 10.1(e)
Class R:
Year Ended October 31, 1997 11.42 8.19 4,152 1.79 5.21 10.8
Period Ended October 31, 1996(f) 11.21 3.76(d) 481 1.18(e) 5.84(e) 25.9(e)
</TABLE>
See accompanying notes.
<PAGE>
FINANCIAL HIGHLIGHTS (Cont.)
<TABLE>
<CAPTION>
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends
Value at Invest- Gain from from Net Distributions Total
Beginning ment (Loss) on Investment Investment from Distr-
of Period Income Investments Operations Income Capital Gains butions
<S> <C> <C> <C> <C> <C> <C> <C>
PRINCOR HIGH YIELD FUND, INC.
Class A:
Year Ended October 31,
1997 $ 8.27 $.67 $ .31 $ .98 $(.73) $-- $(.73)
1996 8.06 .68 .23 .91 (.70) -- (.70)
1995 7.83 .68 .20 .88 (.65) -- (.65)
1994 8.36 .63 (.51) .12 (.65) -- (.65)
1993 8.15 .71 .21 .92 (.71) -- (.71)
Class B:
Year Ended October 31,
1997 8.22 .62 .28 .90 (.65) -- (.65)
1996 8.05 .60 .20 .80 (.63) -- (.63)
Period Ended October 31, 1995(c) 7.64 .53 .38 .91 (.50) -- (.50)
Class R:
Year Ended October 31, 1997 8.20 .62 .26 .88 (.68) -- (.68)
Period Ended October 31, 1996(f) 8.21 .46 (.03) .43 (.44) -- (.44)
PRINCOR LIMITED TERM BOND FUND, INC.
Class A:
Year Ended October 31, 1997 9.89 .61(b) .03 .64 (.65) -- (.65)
Period Ended October 31, 1996(g) 9.90 .38(b) (.04) .34 (.35) -- (.35)
Class B:
Year Ended October 31, 1997 9.89 .56(b) .04 .60 (.59) -- (.59)
Period Ended October 31, 1996(g) 9.90 .36(b) (.05) .31 (.32) -- (.32)
Class R:
Year Ended October 31, 1997 9.88 .54(b) .03 .57 (.60) -- (.60)
Period Ended October 31, 1996(f) 9.90 .36(b) (.06) .30 (.32) -- (.32)
PRINCOR TAX-EXEMPT BOND FUND, INC.
Class A:
Year Ended October 31,
1997 12.04 .63 .39 1.02 (.68) -- (.68)
1996 11.98 .64 .07 .71 (.65) -- (.65)
1995 10.93 .65 1.05 1.70 (.65) -- (.65)
1994 12.62 .64 (1.54) (.90) (.63) (.16) (.79)
1993 11.62 .66 1.11 1.77 (.66) (.11) (.77)
Class B:
Year Ended October 31,
1997 12.02 .55 .40 .95 (.58) -- (.58)
1996 11.96 .55 .06 .61 (.55) -- (.55)
Period Ended October 31, 1995(c) 10.56 .50 1.38 1.88 (.48) -- (.48)
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Net Asset Ratio of Investment
Value at Net Assets at Expenses to Income to Portfolio
End Total End of Period Average Average Turnover
of Period Return(a) (in thousands) Net Assets Net Assets Rate
<S> <C> <C> <C> <C> <C> <C>
PRINCOR HIGH YIELD FUND, INC.
Class A:
Year Ended October 31,
1997 $ 8.52 12.33% $ 38,239 1.22% 7.99% 39.2%
1996 8.27 11.88 28,432 1.26 8.49 18.8
1995 8.06 11.73 23,396 1.45 8.71 40.3
1994 7.83 1.45 19,802 1.46 7.82 27.2
1993 8.36 11.66 19,154 1.35 8.57 23.4
Class B:
Year Ended October 31,
1997 8.47 11.31 6,558 2.13 7.03 39.2
1996 8.22 10.46 2,113 2.38 7.39 18.8
Period Ended October 31, 1995(c) 8.05 12.20(d) 633 2.10(e) 7.78(e) 40.3(e)
Class R:
Year Ended October 31, 1997 8.40 11.14 1,961 2.42 6.70 39.2
Period Ended October 31, 1996(f) 8.20 5.60(d) 124 1.59(e) 7.84(e) 18.8(e)
PRINCOR LIMITED TERM BOND FUND, INC.
Class A:
Year Ended October 31, 1997 9.88 6.75 20,567 .90(b) 6.20 17.4
Period Ended October 31, 1996(g) 9.89 3.62(d) 17,249 .89(b)(e) 6.01(e) 16.5(e)
Class B:
Year Ended October 31, 1997 9.90 6.31 625 1.24(b) 5.84 17.4
Period Ended October 31, 1996(g) 9.89 3.32(d) 112 1.15(b)(e) 5.75(e) 16.5(e)
Class R:
Year Ended October 31, 1997 9.85 6.01 606 1.48(b) 5.60 17.4
Period Ended October 31, 1996(f) 9.88 3.24(d) 83 1.40(b)(e) 5.64(e) 16.5(e)
PRINCOR TAX-EXEMPT BOND FUND, INC.
Class A:
Year Ended October 31,
1997 12.38 8.71 193,007 .79 5.14 8.9
1996 12.04 6.08 187,180 .78 5.34 9.8
1995 11.98 16.03 179,715 .83 5.67 17.6
1994 10.93 (7.41) 171,425 .91 5.49 20.6
1993 12.62 15.70 177,480 .89 5.45 20.3
Class B:
Year Ended October 31,
1997 12.39 8.08 7,783 1.45 4.46 8.9
1996 12.02 5.23 5,794 1.52 4.59 9.8
Period Ended October 31, 1995(c) 11.96 17.97(d) 3,486 1.51(e) 4.78(e) 17.6(e)
</TABLE>
See accompanying notes.
Notes to Financial Highlights
(a) Total return is calculated without the front-end sales charge or contingent
deferred sales charge.
(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:
Year Ended Per Share Ratio of
October 31, Net Expenses
Except Investment to Average Amount
as Noted Income Net Assets Waived
Princor Bond Fund, Inc.:
Class A 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 1997 .66 1.79 8,982
1996 .67 1.79 5,874
1995(c) .62 1.62(e) 300
Class R 1997 .69 1.78 10,427
1996(f) .51 1.28(e) 3
Princor Limited Term
Bond Fund, Inc.:
Class A 1997 .59 1.15 46,271
1996(g) .37 1.16(e) 22,716
Class B 1997 .46 3.82 6,528
1996(g) .34 1.94(e) 259
Class R 1997 .43 2.95 6,831
1996(f) .35 1.79(e) 60
(c) 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, Princor
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:
Per Share Per Share
Net Investment Unrealized
Income (Loss)
Princor Bond Fund, Inc. $.01 $ --
Princor Government Securities
Income Fund, Inc. .01 (.02)
Princor High Yield Fund, Inc. .01 (.03)
Princor Tax-Exempt Bond Fund, Inc. -- (.05)
(d) Total return amounts have not been annualized.
(e) Computed on an annualized basis.
(f) 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 Princor 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 public offering of Class R shares:
Per Share
Unrealized (Loss)
Princor Bond Fund, Inc. $(.03)
Princor Government Securities
Income Fund, Inc. (.03)
Princor Limited Term Bond Fund, Inc. (.02)
(g) 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>
October 31, 1997
STATEMENTS OF ASSETS AND LIABILITIES
Princor Cash Princor Tax-Exempt
Management Cash Management
MONEY MARKET FUNDS Fund, Inc. Fund, Inc.
Assets
Investment in securities -- at value
(approximates cost) (Note 1)........... $837,819,239 $93,112,479
Cash...................................... 549,465 140,022
Receivables:
Interest .............................. 2,337,432 593,447
Capital Stock sold..................... 3,086,045 18,920
Investment securities sold............. -- 5,365,000
Other assets.............................. 19,873 3,025
Total Assets 843,812,054 99,232,893
Liabilities
Accrued expenses.......................... 781,037 83,292
Capital Stock reacquired.................. 1,671,361 182,827
Total Liabilities 2,452,398 266,119
Net Assets Applicable to
Outstanding Shares ..................... $841,359,656 $98,966,774
Net Assets Consist of:
Capital Stock............................. $ 8,413,597 $ 989,668
Additional paid-in capital................ 832,946,059 97,977,106
Total Net Assets $841,359,656 $98,966,774
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....................... $836,071,594 $98,939,110
Shares issued and outstanding.... 836,071,594 98,939,110
Net asset value per share........ $1.000 $1.000
Class B: Net Assets....................... $992,098 $27,664
Shares issued and outstanding.... 992,098 27,664
Net asset value per share(a)..... $1.000 $1.000
Class R: Net Assets....................... $4,295,964 N/A
Shares issued and outstanding.... 4,295,964 N/A
Net asset value per share........ $1.000 N/A
(a) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See accompanying notes.
<PAGE>
Year Ended October 31, 1997
STATEMENTS OF OPERATIONS
Princor Cash Princor Tax-Exempt
Management Cash Management
MONEY MARKET FUNDS Fund, Inc. Fund, Inc.
Net Investment Income
Interest income......................... $44,213,534 $3,668,491
Expenses:
Management and investment
advisory fees (Note 3)............ 2,864,916 499,606
Distribution and shareholder
servicing fees (Notes 1 and 3).... 11,951 --
Transfer and administrative
services (Notes 1 and 3).......... 1,833,423 176,572
Registration fees (Note 1)........... 93,717 30,957
Custodian fees....................... 16,598 5,413
Auditing and legal fees.............. 8,559 6,880
Directors' fees...................... 7,268 7,268
Other................................ 138,728 13,164
Total Gross Expenses 4,975,160 739,860
Less: Management and investment
advisory fees waived.............. 7,933 33,785
Total Net Expenses 4,967,227 706,075
Net Investment Income $39,246,307 $2,962,416
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
Years Ended Ended October 31, Except as Noted
STATEMENTS OF CHANGES IN NET ASSETS
Princor Cash Princor Tax-Exempt
Management Cash Management
MONEY MARKET FUNDS Fund, Inc. Fund, Inc.
1997 1996 1997 1996
Operations
<S> <C> <C> <C> <C>
Net investment income .................. $ 39,246,307 $ 33,617,063 $ 2,962,416 $ 3,083,273
Dividends to Shareholders from Net
Investment Income:
Class A.............................. (39,078,437) (33,599,980) (2,961,821) (3,082,691)
Class B.............................. (33,816) (10,263) (595) (582)
Class R ............................. (134,054) (6,820)(a) N/A N/A
Total Dividends (39,246,307) (33,617,063) (2,962,416) (3,083,273)
Capital Share Transactions (Note 4)
Shares sold:
Class A.............................. 3,393,711,785 3,094,164,602 372,738,780 396,446,652
Class B.............................. 3,168,600 913,414 -- 41,568
Class R ............................. 6,448,386 1,820,278(a) N/A N/A
Shares issued in reinvestment of dividends:
Class A.............................. 38,790,163 33,369,259 2,914,790 3,032,398
Class B.............................. 29,671 9,815 595 564
Class R ............................. 129,398 6,800(a) N/A N/A
Shares redeemed:
Class A.............................. (3,291,392,367) (3,056,436,126) (375,196,233) (400,884,456)
Class B.............................. (2,725,899) (611,240) -- (41,568)
Class R ............................. (3,921,162) (187,736)(a) N/A N/A
Net Increase (Decrease) in Net Assets
from Capital Share Transactions 144,238,575 73,049,066 457,932 (1,404,842)
Total Increase (Decrease) 144,238,575 73,049,066 457,932 (1,404,842)
Net Assets
Beginning of year....................... 697,121,081 624,072,015 98,508,842 99,913,684
End of year ............................ $ 841,359,656 $ 697,121,081 $ 98,966,774 $ 98,508,842
<FN>
(a) Period from February 27, 1996 (date operations commenced) through October
31, 1996.
</FN>
See accompanying notes.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Princor Cash Management Fund, Inc.
Princor Tax-Exempt Cash Management Fund, Inc.
Note 1 -- Significant Accounting Policies
Princor Cash Management Fund, Inc. and Princor 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.
Shares of the Money Market Funds are sold to the public at net asset value; no
sales charge applies to purchases of the money market funds. Class B shares are
sold without an initial sales charge, but bear a higher ongoing distribution fee
and are subject to a declining contingent deferred sales charge ("CDSC") of up
to 4.00% on certain redemptions redeemed within six years of purchase. Class B
shares automatically convert into Class A shares, based on relative net asset
value (without a sales charge) after seven 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 Money Market Funds' respective Boards of Directors. In
addition, the Board of Directors of each fund declare separate dividends on each
class of shares.
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 year ended October 31, 1997, 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>
Princor Cash Management Fund, Inc. N/A $2,579 $9,372 $261,803 $967 $2,659 $15,580 $9,914 $13,368
Princor Tax-Exempt Cash Management Fund, Inc. N/A -- N/A 51,938 23 N/A 12,951 6,006 N/A
</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 Princor Management Corporation. 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 years ended October 31, 1997 and 1996 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 Princor Management Corporation (wholly owned by Princor Financial
Services Corporation, a subsidiary of Principal Mutual Life Insurance Company)
(the "Manager") 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 is as follows:
<TABLE>
<CAPTION>
Net Asset Value of Funds
(in millions)
First Next Next Next Over
$100,000 $100,000 $100,000 $100,000 $400,000
<S> <C> <C> <C> <C> <C>
Princor Cash Management Fund, Inc. 0.50% 0.45% 0.40% 0.35% 0.30%
Princor 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.
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
Year Ended Year Ended Expense
October 31, 1997 October 31, 1996 Limit
Princor Cash Management Fund, Inc.
<S> <C> <C> <C>
Class A $ -- $ 7,102 0.75%
Class B 5,492 6,140 1.50%
Class R 2,441 --(b) 1.25%(a)
Princor Tax-Exempt Cash Management Fund, Inc.
Class A $27,978 $69,107 0.75%
Class B 5,807 7,160 1.50%
<FN>
(a) For the period March 1, 1996 through March 2, 1997, the expense limit was
1.50%.
(b) Period from February 27, 1996 (date operations commenced) through October
31, 1996.
</FN>
</TABLE>
The manager intends to continue its voluntary waiver and, if necessary, pay
expenses normally payable by the Money Market Funds through February 28, 1998
for Princor Cash Management Fund, Inc. and through October 31, 1998 for Princor
Tax-Exempt Cash Management Fund, Inc.
Note 3 -- Management Agreement and Transactions With Affiliates (Cont)
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 year ended October 31, 1997, was
$3,182 and $10,941 for Princor Cash Management Fund, Inc. for Class A and Class
B shares, respectively. There were no charges retained by Princor Financial
Services Corporation for Princor Tax-Exempt Cash Management Fund, Inc.
No brokerage commissions were paid by the Money Market Funds to affiliated
broker dealers during the years ended October 31, 1997 and 1996.
Each of the Money Market 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. Princor Cash Management 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 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 the Money Market
Funds. There are no distribution or shareholder servicing fees with respect to
Class A shares.
At October 31, 1997, 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:
Class A Class B Class R
Princor Cash Management Fund, Inc. 20,112,903 29,214 26,869
Princor Tax-Exempt Cash Management Fund, Inc. 1,000,056 27,642 N/A
Note 4 -- Capital Share Transactions
Transactions in Capital Stock by fund were as follows:
<TABLE>
<CAPTION>
Princor Tax-Exempt
Princor Cash Cash Management
Management Fund, Inc. Fund, Inc.
Year Ended October 31, 1997:
Shares sold:
<S> <C> <C>
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) --
Class R .......................................... (3,921,162) N/A
Net Increase 144,238,575 457,932
Year Ended October 31, 1996, Except as Noted:
Shares sold:
Class A ......................................... 3,094,164,602 396,446,652
Class B ........................................ 913,414 41,568
Class R* ......................................... 1,820,278 N/A
Shares issued in reinvestment of dividends:
Class A ........................................... 33,369,259 3,032,398
Class B ........................................... 9,815 564
Class R* ........................................ 6,800 N/A
Shares redeemed:
Class A ......................................... (3,056,436,126) (400,884,456)
Class B ......................................... (611,240) ( 41,568)
Class R* ........................................ (187,736) N/A
Net Increase (Decrease) 73,049,066 (1,404,842)
<FN>
* Period from February 27, 1996 (date operations commenced) through October
31, 1996.
</FN>
</TABLE>
Note 5 -- Line of Credit
The Money Market Funds participate with the other funds managed by Princor
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 in
proportion to their average net assets during each quarter. At October 31, 1997,
the Money Market Funds had no outstanding borrowings under the line of credit.
<PAGE>
SCHEDULES OF INVESTMENTS
PRINCOR CASH MANAGEMENT FUND, INC.
Principal
Amount Value
Commercial Paper (80.99%)
Asset-Backed Securities (10.31%)
Ciesco L.P.;
5.53%; 11/7/97 $10,175,000 $ 10,168,748
5.52%; 12/4/97 9,000,000 8,957,220
5.50%; 12/10/97 7,500,000 7,457,604
Retailer Funding Corp.;
5.53%; 11/6/97 4,150,000 4,148,088
5.54%; 11/13/97 6,000,000 5,990,767
5.55%; 11/21/97 7,000,000 6,980,575
5.55%; 12/5/97 3,154,000 3,138,440
Sheffield Receivables Corp.;
5.52%; 11/4/97 3,000,000 2,999,540
5.58%; 11/6/97 10,000,000 9,995,350
5.51%; 11/6/97 4,994,000 4,991,707
5.54%; 11/21/97 7,000,000 6,980,610
5.55%; 12/4/97 7,025,000 6,991,426
5.55%; 12/5/97 8,000,000 7,960,533
86,760,608
Business Credit Institutions (2.70%)
American Express Credit Corp.;
5.51%; 11/26/97 10,000,000 9,964,797
5.51%; 12/2/97 6,000,000 5,973,368
General Electric Capital Corp.;
5.53%; 11/5/97 1,825,000 1,824,439
5.85%; 1/23/98 5,000,000 4,934,188
22,696,792
Combination Utility
Services (0.47%)
Citizens Utilities Co.
5.56%; 12/5/97 4,000,000 3,980,231
Commercial Banks (0.47%)
J. P. Morgan & Co., Inc.
5.55%; 12/8/97 2,500,000 2,486,510
5.55%; 12/23/97 1,500,000 1,488,438
3,974,948
Cutlery, Handtools &
Hardware (0.69%)
Stanley Works; 5.52%; 11/21/97 5,825,000 5,808,923
Department Stores (4.94%)
Sears Roebuck Acceptance Corp.;
5.54%; 11/24/97 10,000,000 9,967,683
5.54%; 11/26/97 8,125,000 8,096,242
5.53%; 12/2/97 5,675,000 5,649,720
5.52%; 12/3/97 6,025,000 5,997,285
5.59%; 1/21/98 6,000,000 5,926,398
5.59%; 1/22/98 6,000,000 5,925,467
41,562,795
Electric Services (5.38%)
AES Shady Point, Inc.; LOC Bank of
Tokyo-Mitsubishi, Ltd.;
5.65%; 1/20/98 $ 9,025,000 $ 8,914,519
CommEd Fuel Co., Inc.;
LOC Canadian Imperial Bank of
Commerce; 5.52%; 11/20/97 8,000,000 7,979,147
CommEd Fuel Co., Inc.;
LOC Credit Suisse;
5.52%; 11/3/97 10,000,000 10,000,000
5.55%; 11/14/97 6,000,000 5,989,825
CommEd Fuel Co., Inc.;
LOC First National Bank of
Chicago; 5.52%; 11/7/97 4,175,000 4,172,439
Florida Power Corp.;
5.49%; 11/3/97 5,200,000 5,200,000
Wisconsin Power & Light Co.;
5.51%; 12/2/97 3,000,000 2,986,684
45,242,614
Finance Services (3.54%)
Mitsubishi International Corp.;
5.50%; 11/7/97 7,500,000 7,495,417
5.50%; 11/12/97 7,700,000 7,689,413
5.51%; 11/18/97 7,000,000 6,983,929
PHH Corp.;
5.49%; 11/25/97 7,650,000 7,624,334
29,793,093
Foreign Banks, Branches &
Agencies (4.12%)
Barclays U.S. Funding Corp.;
5.50%; 11/13/97 4,250,000 4,243,513
5.50%; 11/14/97 10,000,000 9,983,210
5.51%; 11/14/97 10,000,000 9,983,179
5.51%; 11/20/97 5,500,000 5,485,702
5.51%; 11/25/97 5,000,000 4,983,179
34,678,783
Gas Production &
Distribution (0.41%)
Washington Gas Light Co.;
5.52%; 12/9/97 3,500,000 3,480,680
Investment Offices (0.89%)
Morgan Stanley Group, Inc.;
5.51%; 11/12/97 7,500,000 7,489,669
Life Insurance (1.90%)
American General Corp.;
5.49%; 11/12/97 7,000,000 6,990,392
5.50%; 11/19/97 9,000,000 8,978,000
15,968,392
Measuring & Controlling
Devices (0.27%)
Johnson Controls, Inc.;
5.52%; 11/10/97 2,225,000 2,222,612
Miscellaneous Electrical Equipment &
Supplies (1.60%)
General Electric Co.;
5.50%; 11/18/97 1,625,000 1,621,276
5.50%; 11/21/97 7,925,000 7,903,206
5.52%; 12/31/97 4,000,000 3,964,427
13,488,909
Miscellaneous Investing (4.55%)
Delaware Funding Corp.;
5.51%; 11/14/97 $ 3,325,000 $ 3,319,402
5.50%; 11/17/97 10,000,000 9,978,611
5.51%; 11/18/97 3,000,000 2,993,112
5.52%; 11/19/97 10,000,000 9,975,467
5.53%; 11/24/97 5,000,000 4,983,871
MLTC Funding, Inc.; LOC
Citibank, N.A.; 5.53%; 11/25/97 7,040,000 7,016,209
38,266,672
Miscellaneous Manufacturers (3.14%)
Dover Corp.;
5.51%; 11/3/97 4,500,000 4,500,000
5.52%; 11/6/97 7,500,000 7,496,550
5.50%; 11/20/97 10,000,000 9,974,028
5.52%; 12/5/97 4,500,000 4,477,920
26,448,498
Mortgage Bankers & Brokers (4.92%)
Countrywide Home Loan, Inc.;
5.52%; 11/5/97 4,000,000 3,998,773
5.57%; 11/10/97 9,000,000 8,990,253
5.53%; 11/13/97 10,500,000 10,483,871
5.53%; 11/17/97 9,000,000 8,980,645
5.53%; 11/18/97 9,000,000 8,979,262
41,432,804
Personal Credit Institutions (12.75%)
Associates First Capital Corp.;
5.54%; 12/8/97 10,000,000 9,946,139
5.57%; 1/16/98 6,900,000 6,820,999
Beneficial Corp.;
5.53%; 11/5/97 2,000,000 1,999,386
Comoloco, Inc.;
5.43%; 11/24/97 5,300,000 5,283,212
5.47%; 12/5/97 2,000,000 1,990,276
5.72%; 12/12/97 4,000,000 3,975,213
5.74%; 2/17/98 4,000,000 3,932,396
5.76%; 2/24/98 3,000,000 2,945,760
5.63%; 3/17/98 500,000 489,522
5.59%; 4/13/98 1,000,000 975,000
5.54%; 4/20/98 8,300,000 8,085,417
5.54%; 4/24/98 1,600,000 1,557,650
5.64%; 5/8/98 1,100,000 1,067,946
5.60%; 5/8/98 400,000 388,427
5.54%; 5/15/98 2,000,000 1,940,599
Ford Motor Credit Co.;
5.27%; 11/18/97 5,000,000 4,989,021
General Motors Acceptance Corp.;
5.77%; 12/3/97 5,600,000 5,573,073
5.80%; 1/27/98 4,700,000 4,635,636
5.56%; 4/3/98 6,000,000 5,860,073
5.59%; 5/26/98 7,000,000 6,778,263
Norwest Financial, Inc.;
5.50%; 11/18/97 4,125,000 4,115,547
5.50%; 11/20/97 4,500,000 4,488,312
Transamerica Finance Corp.;
5.50%; 11/10/97 7,750,000 7,741,712
5.52%; 11/21/97 1,800,000 1,795,032
5.52%; 12/2/97 3,500,000 3,484,437
5.54%; 12/4/97 6,450,000 6,419,230
107,278,278
Real Estate Operators &
Lessors (1.99%)
Towson Town Center, Inc.; LOC
Bank of Tokyo-Mitsubishi, Ltd.;
5.57%; 11/6/97 $ 3,956,000 $ 3,954,164
5.57%; 11/7/97 6,270,000 6,266,119
5.57%; 11/19/97 6,500,000 6,483,909
16,704,192
Security Brokers & Dealers (11.95%)
Bear Stearns Cos., Inc.;
5.52%; 11/5/97 9,000,000 8,997,240
5.51%; 12/1/97 9,825,000 9,782,894
5.60%; 1/16/98 5,000,000 4,942,444
Goldman Sachs Group L.P.;
5.53%; 11/10/97 5,000,000 4,994,624
5.53%; 11/12/97 8,000,000 7,988,940
5.53%; 11/13/97 5,000,000 4,992,319
5.53%; 11/14/97 5,500,000 5,490,707
5.53%; 11/24/97 10,000,000 9,967,742
5.88%; 1/20/98 4,000,000 3,949,083
5.80%; 1/23/98 3,150,000 3,108,892
Merrill Lynch & Co., Inc.;
5.51%; 11/4/97 3,450,000 3,449,472
5.55%; 11/7/97 5,000,000 4,996,917
5.29%; 11/18/97 2,500,000 2,494,490
5.53%; 12/1/97 7,500,000 7,467,742
5.57%; 4/6/98 2,000,000 1,952,346
5.57%; 4/13/98 5,500,000 5,362,993
5.57%; 5/8/98 2,150,000 2,088,127
5.60%; 5/29/98 1,300,000 1,258,140
5.51%; 7/2/98 7,500,000 7,223,352
100,508,464
Subdividers & Developers (1.49%)
Hartz 667 Commercial Paper Corp.;
LOC Bank of Tokyo-Mitsubishi,
Ltd.; 5.57%; 11/5/97 12,560,000 12,556,113
Telephone Communication (2.51%)
Bell Atlantic Financial Services;
5.56%; 11/3/97 3,000,000 3,000,000
5.54%; 11/12/97 1,805,000 1,802,500
5.49%; 11/25/97 5,000,000 4,983,225
5.52%; 12/3/97 9,370,000 9,326,898
5.52%; 12/10/97 2,000,000 1,988,653
21,101,276
Total Commercial Paper 681,445,346
Bank Notes (3.21%)
Commercial Banks (3.21%)
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 4,999,792
Morgan Guaranty Trust Company;
Certificate of Deposit;
5.84%; 7/28/98 10,000,000 9,997,199
Total Bank Notes 26,996,991
Bonds (15.38%)
Beverages (0.53%)
Pepsico, Inc. Notes;
6.13%; 1/15/98 $ 4,500,000 $ 4,501,747
Business Credit Institutions (4.58%)
CIT Group Holdings, Inc.
Debentures; 8.75%; 4/15/98 13,425,000 13,583,258
CIT Group Holdings, Inc.
Medium-Term Notes;
6.20%; 4/15/98 5,000,000 4,999,371
6.13%; 9/1/98 7,000,000 7,012,723
CIT Group Holdings, Inc. Senior Notes;
5.85%; 3/16/98 7,500,000 7,505,167
International Lease Finance Corp.
Notes; 5.63%; 3/1/98 3,000,000 2,997,387
5.75%; 3/15/98 2,410,000 2,408,407
38,506,313
Electric Services (0.06%)
Southern California Edison Co. Notes;
5.88%; 2/1/98 500,000 500,024
Finance Services (0.65%)
PHH Corporation
Medium-Term Bonds;
6.00%; 10/27/98 5,500,000 5,497,842
Investment Offices (0.98%)
Morgan Stanley Group, Inc. Notes;
9.25%; 3/1/98 8,140,000 8,221,973
Newspapers (0.24%)
Gannett Co. Notes;
5.25%; 3/1/98 2,000,000 1,995,581
Personal Credit Institutions (8.22%)
American General Finance Corp.
Notes; 7.70%; 11/15/97 8,500,000 8,505,274
Associates Corp. of North America
Senior Notes;
7.75%; 11/1/97 2,400,000 2,400,000
8.13%; 1/15/98 1,000,000 1,004,436
8.38%; 1/15/98 6,000,000 6,029,310
7.30%; 3/15/98 4,000,000 4,018,749
6.63%; 5/15/98 3,500,000 3,511,656
6.38%; 8/15/98 8,400,000 8,426,205
5.25%; 9/1/98 4,300,000 4,275,433
6.50%; 9/9/98 1,800,000 1,808,866
Avco Financial Services, Inc.
Senior Notes;
5.50%; 5/1/98 5,750,000 5,739,460
Beneficial Corp. Debentures;
9.13%; 2/15/98 $ 1,595,000 $ 1,607,710
Ford Motor Credit Co. Notes;
9.25%; 6/15/98 1,000,000 1,019,876
General Motors Acceptance Corp.
Medium-Term Notes;
7.50%; 11/4/97 10,700,000 10,700,477
7.85%; 11/17/97 1,250,000 1,250,991
Norwest Financial, Inc. Senior Notes;
6.50%; 11/15/97 2,000,000 2,000,470
8.50%; 8/15/98 2,000,000 2,037,942
Transamerica Financial Corp.
Medium-Term Notes;
9.25%; 2/16/98 4,760,000 4,803,220
69,140,075
Security Brokers & Dealers (0.12%)
Bear Stearns Cos., Inc. Senior Notes;
9.13%; 4/15/98 1,000,000 1,013,347
Total Bonds 129,376,902
Total Portfolio Investments (99.58%) 837,819,239
Cash, receivables and other assets, net of
liabilities (0.42%) 3,540,417
Total Net Assets (100.00%) $841,359,656
PRINCOR TAX-EXEMPT CASH MANAGEMENT
FUND, INC.
Principal
Amount Value
Short-Term Tax-Exempt Bonds (94.08%)
Alabama (1.01%)
City of Stevenson, Alabama
IDB, Improvement Rev. Bonds,
The Mead Corp., Series 1986;
LOC Credit Suisse;
4.05%; 11/3/97*; 11/1/16 $1,000,000 $ 1,000,000
Alaska (4.36%)
Alaska Industrial Dev. & Export
Authority, IDB Current Ref. Bonds,
Series 1988A; LOC Security Pacific
Bank Washington;
Lot #5; 3.75%; 11/9/97*; 7/1/98 1,415,000 1,415,000
Lot #6; 3.75%; 11/9/97*; 7/1/01 1,395,000 1,395,000
Lot #7; 3.75%; 11/9/97*; 7/1/01 125,000 125,000
Lot #8; 3.75%; 11/9/97*; 7/1/05 160,000 160,000
Lot #9; 3.75%; 11/9/97*; 7/1/05 220,000 220,000
Lot #12; 3.75%; 11/9/97*; 7/1/12 1,000,000 1,000,000
4,315,000
Arizona (1.31%)
Chandler County, Arizona, IDA, F/R
Monthly IDR, Parsons Municipal
Services, Series 1983; LOC
National Westminster;
3.70%; 11/15/97*; 12/15/09 $1,300,000 $ 1,300,000
California (2.03%)
County of Los Angeles, California,
1996-1997 Tax & Rev. Anticipation
Notes; 4.50%; 6/30/98 2,000,000 2,008,168
Colorado (6.21%)
Adams County, Colorado, IDR Bonds,
City View Park Project, Series 1985;
LOC Barclays Bank;
3.65%; 11/9/97*; 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;
3.65%; 11/15/97*; 12/15/99 100,000 100,000
South Denver Metropolis District,
City & County of Denver, Colorado,
General Obligation Bonds, Series
1985; LOC Barclays Bank;
3.80%; 11/30/97**; 12/1/05 4,050,000 4,050,000
6,150,000
Florida (1.62%)
Florida Housing Finance Agency,
F/R Monthly MF Rev's., Water
Apt. Project, Series 1984A;
LOC Wells Fargo;
3.95%; 11/9/97*; 4/1/07 1,600,000 1,600,000
Georgia (4.34%)
Burke County, Georgia, Dev. Authority,
Pollution Control Note, Ogelthorpe
Vogtle Project, LOC AMBAC
Insurance Policy;
Series 1997A; 3.60%; 12/1/97 500,000 500,000
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.; 4.00%; 11/3/97*; 11/1/15 2,300,000 2,300,000
4,300,000
Idaho (1.02%)
State of Idaho Tax Anticipation
Notes, Series 1997;
4.63%; 6/30/98; 1,000,000 1,004,697
Illinois (8.29%)
Chicago, Illinois, Cook County CSX
Beckett Aviation, Inc., F/R Monthly
Airport Rev. Bonds; LOC Barclays
Bank; 3.72%; 11/15/97*; 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;
3.65%; 11/15/97*; 9/15/24 2,100,000 2,100,000
City of Galesburg, Illinois, Knox College
Project, Series 1996; LOC LaSalle
National Bank;
3.65%; 11/9/97*; 3/1/31 $3,700,000 $ 3,700,000
City of Naperville, Illinois, Economic
Dev. Rev. Bonds, Service Merchandise
Co., Inc.; LOC CIBC;
3.65%; 11/15/97*; 11/30/24 1,400,000 1,400,000
8,200,000
Indiana (9.15%)
Allen County, Indiana Econ. Dev. Rev.
Golden Years Homestead, Series
1996; LOC Norwest Bank Minnesota,
N.A.; 3.65%; 11/9/97*; 8/1/21 1,500,000 1,500,000
Indiana Health Authority Fac., Ref. Rev.
Bonds, Pathfinders Series 19967;
LOC Norwest Bank Minnesota, N.A.;
3.65%; 11/9/97*; 11/1/19 2,560,000 2,560,000
Tippecanoe School Corp., Temporary
Loan Warrants of 1997;
3.78%; 12/30/97 5,000,000 5,000,221
9,060,221
Iowa (5.53%)
City of Storm Lake, Iowa, Private
College Rev. Bonds, Buena Vista
College, Series 1993; LOC Norwest
Bank Minnesota, N. A.;
3.75%; 11/9/97*; 12/1/03 400,000 400,000
Iowa Higher Education Loan Authority
Fac., Rev. Bonds, Series 1995;
LOC Norwest Bank Minnesota, N.A.;
3.75%; 11/9/97*; 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.; 3.75%; 11/9/97* 2/1/07 875,000 875,000
Woodbury County, Iowa, Education Fac.
Rev. Bonds, Siouxland, Series 1996;
LOC Firstar Bank Milwaukee, N.A.;
3.80%; 11/9/97*; 11/1/16 3,000,000 3,000,000
5,475,000
Louisiana (4.75%)
Jefferson Parish, Louisiana, Hospital
Rev. Bonds, Jefferson Parish Hospital
Service, District #2, Customized
Purchase Program, Series 1985;
Insured by FGIC;
3.65%; 11/9/97*; 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; 3.70%; 11/9/97*; 12/1/04 1,400,000 1,400,000
4,700,000
Maryland (0.23%)
Montgomery County, Maryland, F/R
Monthly IDA, Information Systems
& Networks; LOC PNC Bank;
3.80%; 11/9/97*; 4/1/14 230,000 230,000
Massachusetts (0.20%)
Commonwealth of Massachusetts,
Dedicated Income Tax Bonds, Series
B; LOC National Westminster;
4.00%; 11/3/97*; 12/1/97 $ 100,000 $ 100,000
Commonwealth of Massachusetts,
Dedicated Income Tax Bonds, Series
E; LOC ABN-AMRO Bank;
4.00%; 11/3/97*; 12/1/97 100,000 100,000
200,000
Michigan (1.92%)
Township of Cornell, Michigan,
The Economic Dev. Corp.,
Environmental Improvement
Rev. Ref. Bonds, Series 1986,
Mead Escanaba Paper Co. Project;
LOC Suisse Bank;
4.00%; 11/3/97*; 11/1/16 1,900,000 1,900,000
Minnesota (6.92%)
City of Coon Rapids, Minnesota
Rev. Bonds for Health Central
System, Series 1985; LOC Norwest
Bank Minnesota, N.A.;
3.70%; 11/9/97*; 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;
3.60%; 11/10/97**; 11/15/21 500,000 500,000
3.65%; 11/17/97**; 11/15/21 400,000 400,000
3.50%; 11/19/97**; 11/15/21 350,000 350,000
3.50%; 12/2/97**; 11/15/21 500,000 500,000
3.50%; 12/3/97**; 11/15/21 500,000 500,000
3.60%; 12/4/97**; 11/15/21 500,000 500,000
3.65%; 12/9/97**; 11/15/21 500,000 500,000
3.75%; 1/20/98**; 11/15/21 400,000 400,000
3.65%; 2/2/98**; 11/15/21 500,000 500,000
3.70%; 2/5/98**; 11/15/21 700,000 700,000
6,850,000
Mississippi (0.51%)
Jackson County, Mississippi,
Pollution Control Ref. Rev. Bonds,
Series 1993; Guaranteed by
Chevron Corp.;
4.00%; 11/3/97*; 6/1/23 500,000 500,000
Missouri (3.07%)
Health & Education Fac. Authority of
Missouri School Dist. Program
Notes, Series 1996A;
4.50%; 9/14/98 3,020,000 3,034,977
Montana (4.95%)
City of Forsyth, Montana, Portland
General Electric Co., LOC Swiss
Bank Corp.;
Series B; 3.55%; 11/9/97*;
6/1/13 $2,400,000 $ 2,400,000
Series D; 3.60%; 11/9/97*;
6/1/13 1,500,000 1,500,000
Series 1984; 3.60%; 11/9/97*;
8/1/14 1,000,000 1,000,000
4,900,000
Nebraska (1.52%)
Lincoln Electric System
Commercial Paper Notes;
3.50%; 11/4/97 500,000 500,000
3.70%; 11/9/97 1,000,000 1,000,000
1,500,000
New Hampshire (1.82%)
New Hampshire IDA, F/R Monthly
1983 Hudson, Oerlikon-Buhrle
USA/Balzers; LOC Union Bank of
Switzerland;
3.85%; 11/9/97*; 7/1/13 1,800,000 1,800,000
New York (5.05%)
New York State Energy Research &
Dev. Authority for New York State
Electric & Gas Corp.; Series 1985-D;
LOC Union Bank of Switzerland;
3.60%; 12/1/97**; 12/1/15 1,000,000 1,000,000
New York State Energy Research &
Dev. Authority Pollution Control
Rev. Bonds, Long Island Lighting
Co.; Series 1985B; LOC Deutsche
Bank; 3.60%; 3/1/98**; 3/1/16 4,000,000 4,000,000
5,000,000
North Carolina (4.04%)
North Carolina Eastern Municipal Power
Agency, Series 1988B; LOC Morgan
Guaranty Trust Co.; LOC Union
Bank of Switzerland;
3.60%; 11/3/97**; 1/1/26 500,000 500,000
3.60%; 12/11/97**; 1/1/26 500,000 500,000
3.80%; 1/22/98**; 1/1/26 500,000 500,000
University of North Carolina
Foundation, Inc., Series 1989;
LOC Credit Suisse;
3.60%; 11/9/97*; 10/1/09 2,500,000 2,500,000
4,000,000
Ohio (1.72%)
Toledo-Lucas County, Ohio, Port
Fac. Ref. Rev. Bonds, CSX
Transport Project, Series 1992;
LOC Bank of Nova Scotia;
3.70%; 1/14/98**; 12/15/21 500,000 500,000
Village of Evendale, Ohio, SHV Real
Estate Income Project;
LOC ABN-AMRO;
3.60%; 11/9/97*; 9/1/15 1,200,000 1,200,000
1,700,000
Pennsylvania (2.43%)
Bucks County, Pennsylvania, IDA SHV
Real Estate, Inc. Project, Series 1985;
LOC ABN-AMRO Bank;
3.70%; 11/9/97*; 7/1/15 2,300,000 2,300,000
Delaware County, Pennsylvania, Fac.
Rev. Tax & Rev. Anticipation Notes,
Series 1985; Guaranteed by United
Parcel Service;
4.00%; 11/3/97*; 12/1/15 $ 100,000 $ 100,000
2,400,000
Tennessee (3.74%)
County of Sullivan, Tennessee, IDB
PCR Ref. Bonds, Series 1986, Mead
Project; LOC Union Bank of
Switzerland;
4.05%; 11/3/97*; 10/1/16 3,200,000 3,200,000
Knox, Tennessee, IDB F/R Monthly
IDR 1983, Service Merchandise Co.,
Inc.; LOC CIBC;
3.65%; 11/15/97*; 12/15/08 500,000 500,000
3,700,000
Texas (3.27%)
Coppell, Texas, Industrial Dev. Corp.,
IDA 1984, Minyard Properties
Project; LOC Citibank;
3.80%; 11/9/97*; 12/1/01 1,070,000 1,070,000
Montgomery County, Texas, Industrial
Dev. Corp. Ref. Bonds,
Series 1986A; Dal-Tile Corp.
Project; LOC Credit Suisse;
3.70%; 11/9/97*; 12/1/03 150,000 150,000
State of Texas Tax & Revenue
Anticipation Notes, Series 1997A;
4.75%; 8/31/98 1,000,000 1,007,305
4.75%; 8/31/98 1,000,000 1,007,111
3,234,416
West Virginia (1.81%)
Putnam County, West Virginia,
F/R Monthly IDR 1981, FMC Corp.
Project; LOC UBS;
3.85%; 11/9/97*; 10/1/11 1,800,000 1,800,000
Wyoming (1.26%)
Lincoln County, Wyoming, Pollution
Control Ref. Bonds, Pacificorp
Project, Series 1991; LOC
Union Bank of Switzerland;
3.60%; 11/5/97**; 1/1/16 750,000 750,000
3.60%; 11/6/97**; 1/1/16 500,000 500,000
1,250,000
Total Portfolio Investments (94.08%) 93,112,479
Cash, receivables and other assets,
net of liabilities (5.92%) 5,884,295
Total Net Assets (100.00%) $98,966,774
* Demand Date
** Put Date
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from Investment Operations Less Distributions
Net Realized
and
Net Asset Net Unrealized Total Dividends Net Asset
Value at Invest- Gain from from Net Distributions Total Value at
Beginning ment (Loss) on Investment Investment from Distri- End of
of Period Income(a) Investments Operations Income Capital Gains butions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCOR CASH MANAGEMENT FUND, INC.
Class A:
Year Ended October 31,
1997 $1.000 $.050 -- $.050 $(.050) -- $(.050) $1.000
1996 1.000 .049 -- .049 (.049) -- (.049) 1.000
1995 1.000 .052 -- .052 (.052) -- (.052) 1.000
1994 1.000 .033 -- .033 (.033) -- (.033) 1.000
1993 1.000 .026 -- .026 (.026) -- (.026) 1.000
Class B:
Year Ended October 31,
1997 1.000 .041 -- .041 (.041) -- (.041) 1.000
1996 1.000 .041 -- .041 (.041) -- (.041) 1.000
Period Ended October 31, 1995(c) 1.000 .041 -- .041 (.041) -- (.041) 1.000
Class R:
Year Ended October 31, 1997 1.000 .044 -- .044 (.044) -- (.044) 1.000
Period Ended October 31, 1996(f) 1.000 .030 -- .030 (.030) -- (.030) 1.000
PRINCOR TAX-EXEMPT CASH MANAGEMENT
FUND, INC.
Class A:
Year Ended October 31,
1997 1.000 .029 -- .029 (.029) -- (.029) 1.000
1996 1.000 .029 -- .029 (.029) -- (.029) 1.000
1995 1.000 .032 -- .032 (.032) -- (.032) 1.000
1994 1.000 .021 -- .021 (.021) -- (.021) 1.000
1993 1.000 .020 -- .020 (.020) -- (.020) 1.000
Class B:
Year Ended October 31,
1997 1.000 .022 -- .022 (.022) -- (.022) 1.000
1996 1.000 .021 -- .021 (.021) -- (.021) 1.000
Period Ended October 31, 1995(c) 1.000 .021 -- .021 (.021) -- (.021) 1.000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
Ratio of Net
Ratio of Investment
Net Assets at Expenses to Income to
Total End of Period Average Average
Return(b) (in thousands)Net Assets(a) Net Assets
<S> <C> <C> <C> <C>
PRINCOR CASH MANAGEMENT FUND, INC.
Class A:
Year Ended October 31,
1997 4.96% $836,072 .63% 4.98%
1996 5.00 694,962 .66 4.88
1995 5.36 623,864 .72 5.24
1994 3.40 332,346 .70 3.27
1993 2.67 284,739 .67 2.63
Class B:
Year Ended October 31,
1997 4.05 992 1.47 4.08
1996 4.13 520 1.50 4.08
Period Ended October 31, 1995(c) 4.19(d) 208 1.42(e) 4.50(e)
Class R:
Year Ended October 31, 1997 4.16 4,296 1.26 4.40
Period Ended October 31, 1996(f) 2.97(d) 1,639 .99(e) 4.41(e)
PRINCOR TAX-EXEMPT CASH MANAGEMENT
FUND, INC.
Class A:
Year Ended October 31, 2.89 98,939 .70 2.93
1997 2.92 98,482 .71 2.87
1996 3.24 99,887 .69 3.19
1995 2.11 79,736 .67 2.08
1994 1.99 79,223 .66 1.96
1993
Class B:
Year Ended October 31, 2.18 28 1.47 2.16
1997 2.13 27 1.47 2.11
1996 2.19(d) 27 1.42(e) 2.40(e)
Period Ended October 31, 1995(c)
</TABLE>
See accompanying notes.
Notes to Financial Highlights
(a) 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:
Per Share
Net
Year EndedInvestment Ratio of
October 31, Income Expenses
Except (Operating to Average Amount
Fund as Noted Loss) Net Assets Waived
Princor Cash Management
Fund, Inc.:
Class A 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 1997 .036 2.14 5,492
1996 .029 3.94 6,140
1995(c) .041 1.63(e) 104
Class R 1997 .043 1.34 2,441
Princor Tax-Exempt Cash
Management Fund, Inc.:
Class A 1997 .029 .73 27,978
1996 .028 .77 69,107
1995 .031 .84 138,574
1994 .019 .85 150,515
1993 .018 .83 131,442
Class B 1997 (.188) 22.58 5,807
1996 (.243) 27.43 7,160
1995(c) .018 1.89(e) 99
(b) Total return is calculated without the front-end sales charge or contingent
deferred sales charge.
(c) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995.
(d) Total return amounts have not been annualized.
(e) Computed on an annualized basis.
(f) Period from February 29, 1996, date Class R shares first offered to eligible
purchasers, through October 31, 1996.
<PAGE>
SHAREHOLDER MEETING RESULTS
SPECIAL MEETING OF SHAREHOLDERS PRINCOR BALANCED FUND, INC.
HELD SEPTEMBER 16, 1997
1.Election of the Board of Directors.
For Withheld
Davis 3,544,389 72,718
Ehrle 3,540,847 76,260
Ferguson 3,536,209 80,898
Gilbert 3,544,204 72,903
Griswell 3,539,331 77,776
Jones 3,547,615 69,492
Keller 3,544,982 72,125
Lukavsky 3,538,481 78,626
Peebler 3,532,660 84,447
2.Ratification of selection of Ernst & Young LLP as independent public auditors.
In Favor Opposed Abstain
3,511,213 18,730 87,163
3.Approval of name change to Principal Balanced Fund, Inc..
In Favor Opposed Abstain
3,400,738 112,727 103,642
4.Approval of modification of management agreement.
In Favor Opposed Abstain
3,199,599 201,536 215,972
SPECIAL MEETING OF SHAREHOLDERS PRINCOR BLUE CHIP FUND, INC.
HELD SEPTEMBER 16, 1997
1.Election of the Board of Directors.
For Withheld
Davis 2,451,532 31,847
Ehrle 2,450,555 32,824
Ferguson 2,449,693 33,685
Gilbert 2,451,742 31,637
Griswell 2,449,390 33,989
Jones 2,452,073 31,306
Keller 2,453,060 30,319
Lukavsky 2,448,619 34,760
Peebler 2,445,708 37,671
2.Ratification of selection of Ernst & Young LLP as independent public auditors.
In Favor Opposed Abstain
2,416,753 15,960 50,666
3.Approval of name change Principal Blue Chip Fund, Inc..
In Favor Opposed Abstain
2,342,896 81,672 58,810
4.Approval of modification of management agreement.
In Favor Opposed Abstain
2,269,547 127,540 86,292
SPECIAL MEETING OF SHAREHOLDERS PRINCOR BOND FUND, INC. HELD SEPTEMBER 16, 1997
1.Election of the Board of Directors.
For Withheld
Davis 6,961,310 125,016
Ehrle 6,958,707 127,619
Ferguson 6,954,467 131,859
Gilbert 6,965,661 120,665
Griswell 6,962,143 124,183
Jones 6,963,809 122,517
Keller 6,956,414 129,912
Lukavsky 6,959,271 127,055
Peebler 6,956,062 130,265
2.Ratification of selection of Ernst & Young LLP as independent public auditors.
In Favor Opposed Abstain
6,881,664 40,443 164,220
3.Approval of name change to Principal Bond Fund, Inc.
In Favor Opposed Abstain
6,638,729 215,543 232,054
4.Approval of modification of management agreement
In Favor Opposed Abstain
6,520,272 294,590 271,464
SPECIAL MEETING OF SHAREHOLDERS PRINCOR CAPITAL ACCUMULATION FUND, INC.
HELD SEPTEMBER 16, 1997
1.Election of the Board of Directors.
For Withheld
Davis 11,285,657 132,900
Ehrle 11,278,202 140,354
Ferguson 11,280,496 138,061
Gilbert 11,287,795 130,761
Griswell 11,271,302 147,255
Jones 11,286,352 132,205
Keller 11,285,159 133,397
Lukavsky 11,275,129 143,428
Peebler 11,273,997 144,560
2.Ratification of selection of Ernst & Young LLP as independent public auditors.
In Favor Opposed Abstain
11,245,210 38,783 134,564
3.Approval of name change to Principal Capital Value Fund, Inc.
In Favor Opposed Abstain
11,027,240 234,408 156,909
4.Approval of modification of management agreement.
In Favor Opposed Abstain
10,839,806 316,349 262,402
5.Approval to eliminate the fundamental investment restriction regarding the
purchase of shares of other investment companies.
In Favor Opposed Abstain Broker Non-Votes
10,847,398 146,393 238,156 186,609
SPECIAL MEETING OF SHAREHOLDERS PRINCOR CASH MANAGEMENT FUND, INC.
HELD SEPTEMBER 16, 1997
1.Election of the Board of Directors.
For Withheld
Davis 474,868,466 18,710,706
Ehrle 474,584,207 18,994,965
Ferguson 475,010,196 18,568,975
Gilbert 474,942,281 18,636,891
Griswell 474,821,905 18,757,267
Jones 475,021,635 18,557,536
Keller 474,689,162 18,890,009
Lukavsky 474,746,037 18,833,133
Peebler 474,099,254 19,479,917
2.Ratification of selection of Ernst & Young LLP as independent public auditors.
In Favor Opposed Abstain
472,256,851 13,023,679 8,298,641
3.Approval of name change to Principal Cash Management Fund, Inc.
In Favor Opposed Abstain
465,803,211 14,092,571 13,683,389
4.Approval of modification of management agreement.
In Favor Opposed Abstain
445,346,374 35,584,301 12,648,496
5.Defeat of proposal to eliminate the fundamental investment restriction
regarding the purchase of shares of other investment companies.
In Favor Opposed Abstain Broker Non-Votes
242,055,220 20,637,250 17,322,711 213,563,990
6.Defeat of proposed change to the fundamental investment restriction with
respect to diversification requirements.
In Favor Opposed Abstain Broker Non-Votes
239,753,774 22,517,642 17,743,764 213,563,990
SPECIAL MEETING OF SHAREHOLDERS PRINCOR EMERGING GROWTH FUND, INC.
HELD SEPTEMBER 16, 1997
1.Election of the Board of Directors.
For Withheld
Davis 4,357,654 127,073
Ehrle 4,355,968 128,760
Ferguson 4,360,306 124,422
Gilbert 4,354,684 130,043
Griswell 4,347,852 136,875
Jones 4,354,487 130,241
Keller 4,356,725 128,003
Lukavsky 4,354,913 129,814
Peebler 4,344,537 140,190
2.Ratification of selection of Ernst & Young LLP as independent public
auditors.
In Favor Opposed Abstain
4,323,493 47,792 113,443
3.Approval of name change Principal MidCap Fund, Inc.
In Favor Opposed Abstain
4,157,790 197,103 129,835
4.Approval of modification of management agreement.
In Favor Opposed Abstain
3,983,217 309,019 192,492
SPECIAL MEETING OF SHAREHOLDERS PRINCOR GOVERNMENT SECURITIES INCOME FUND, INC.
HELD SEPTEMBER 16, 1997
1.Election of the Board of Directors.
For Withheld
Davis 13,320,803 264,616
Ehrle 13,291,809 293,610
Ferguson 13,321,908 263,512
Gilbert 13,326,110 259,309
Griswell 13,293,926 291,493
Jones 13,300,094 285,326
Keller 13,303,919 281,501
Lukavsky 13,313,069 272,350
Peebler 13,288,992 296,428
2.Ratification of selection of Ernst & Young LLP as independent public auditors.
In Favor Opposed Abstain
13,147,713 115,460 322,246
3.Approval of name change Principal Government Securities Income Fund, Inc.
In Favor Opposed Abstain
12,593,127 602,448 389,843
4.Approval of modification of management agreement.
In Favor Opposed Abstain
12,357,748 692,513 535,157
5.Approval to eliminate the fundamental investment restriction regarding the
purchase of shares of other investment companies.
In Favor Opposed Abstain Broker Non-Votes
12,124,155 381,237 510,024 570,003
SPECIAL MEETING OF SHAREHOLDERS PRINCOR GROWTH FUND, INC.
HELD SEPTEMBER 16, 1997
1.Election of the Board of Directors.
For Withheld
Davis 3,701,772 76,828
Ehrle 3,700,176 78,424
Ferguson 3,703,462 75,138
Gilbert 3,702,760 75,840
Griswell 3,693,088 85,512
Jones 3,701,245 77,355
Keller 3,699,325 79,275
Lukavsky 3,698,811 79,789
Peebler 3,693,840 84,760
2.Ratification of selection of Ernst & Young LLP as independent public
auditors.
In Favor Opposed Abstain
3,655,638 27,049 95,914
3.Approval of name change to Principal Growth Fund, Inc.
In Favor Opposed Abstain
3,540,950 136,289 101,361
4.Approval of modification of management agreement.
In Favor Opposed Abstain
3,357,347 274,372 146,881
5.Approval to eliminate the fundamental investment restriction regarding the
purchase of shares of other investment companies.
In Favor Opposed Abstain Broker Non-Votes
3,421,585 99,129 132,866 125,019
SPECIAL MEETING OF SHAREHOLDERS PRINCOR HIGH YIELD FUND, INC.
HELD SEPTEMBER 16, 1997
1.Election of the Board of Directors.
For Withheld
Davis 3,252,836 28,034
Ehrle 3,251,629 29,241
Ferguson 3,253,098 27,771
Gilbert 3,247,268 33,601
Griswell 3,253,146 27,724
Jones 3,253,184 27,686
Keller 3,252,061 28,809
Lukavsky 3,248,678 32,192
Peebler 3,240,116 40,754
2.Ratification of selection of Ernst & Young LLP as independent public auditors.
In Favor Opposed Abstain
3,251,638 4,997 24,235
3.Approval of name change to Principal High Yield Fund, Inc.
In Favor Opposed Abstain
3,192,377 52,120 36,373
4.Approval of modification of management agreement.
In Favor Opposed Abstain
3,101,832 126,026 53,011
SPECIAL MEETING OF SHAREHOLDERS PRINCOR LIMITED TERM BOND FUND, INC.
HELD SEPTEMBER 16, 1997
1.Election of the Board of Directors.
For Withheld
Davis 1,589,936 22,272
Ehrle 1,590,105 22,103
Ferguson 1,590,105 22,103
Gilbert 1,590,105 22,103
Griswell 1,590,105 22,103
Jones 1,590,105 22,103
Keller 1,590,105 22,103
Lukavsky 1,589,838 22,370
Peebler 1,590,105 22,103
2.Ratification of selection of Ernst & Young LLP as independent public auditors.
In Favor Opposed Abstain
1,594,318 248 17,642
3.Approval of name change to Principal Limited Term Bond Fund, Inc.
In Favor Opposed Abstain
1,575,696 17,346 19,166
4.Approval of modification of management agreement.
In Favor Opposed Abstain
1,576,541 16,234 19,433
SPECIAL MEETING OF SHAREHOLDERS PRINCOR TAX-EXEMPT BOND FUND, INC.
HELD SEPTEMBER 16, 1997
1.Election of the Board of Directors.
For Withheld
Davis 10,250,402 159,467
Ehrle 10,255,818 154,051
Ferguson 10,256,316 153,552
Gilbert 10,244,841 165,028
Griswell 10,246,748 163,121
Jones 10,256,836 153,032
Keller 10,230,697 179,172
Lukavsky 10,193,986 215,883
Peebler 10,206,188 203,680
2.Ratification of selection of Ernst & Young LLP as independent public auditors.
In Favor Opposed Abstain
10,088,348 26,665 294,856
3.Approval of name change to Principal Tax-Exempt Bond Fund, Inc.
In Favor Opposed Abstain
9,815,496 342,276 252,096
4.Approval of modification of management agreement.
In Favor Opposed Abstain
9,528,058 518,484 362,326
SPECIAL MEETING OF SHAREHOLDERS PRINCOR TAX-EXEMPT CASH MANAGEMENT FUND, INC.
HELD SEPTEMBER 16, 1997
1.Election of the Board of Directors.
For Withheld
Davis 71,109,314 1,750,764
Ehrle 71,075,406 1,784,671
Ferguson 71,188,198 1,671,880
Gilbert 71,188,198 1,671,880
Griswell 70,862,581 1,997,496
Jones 71,150,550 1,709,528
Keller 71,126,436 1,733,641
Lukavsky 70,960,187 1,899,890
Peebler 71,104,126 1,755,951
2.Ratification of selection of Ernst & Young LLP as independent public auditors.
In Favor Opposed Abstain
71,819,882 425,323 614,873
3.Approval of name change to Principal Tax-Exempt Cash Management Fund, Inc.
In Favor Opposed Abstain
3,540,950 136,289 101,361
71,202,432 780,482 877,163
4.Approval of modification of management agreement.
In Favor Opposed Abstain
68,139,890 3,298,216 1,421,972
5.Defeat of proposed change to the fundamental investment restriction with
respect to diversification requirements.
In Favor Opposed Abstain Broker Non-Votes
29,963,800 2,494,905 1,410,739 38,990,633
SPECIAL MEETING OF SHAREHOLDERS PRINCOR UTILITIES FUND, INC.
HELD SEPTEMBER 16, 1997
1.Election of the Board of Directors.
For Withheld
Davis 3,056,213 52,862
Ehrle 3,047,260 61,814
Ferguson 3,055,302 53,772
Gilbert 3,049,932 59,143
Griswell 3,050,401 58,673
Jones 3,056,129 52,946
Keller 3,051,450 57,625
Lukavsky 3,054,898 54,176
Peebler 3,051,707 57,368
2.Ratification of selection of Ernst & Young LLP as independent public
auditors.
In Favor Opposed Abstain
3,021,115 28,058 59,901
3.Approval of name change to Principal Utilities Fund, Inc.
In Favor Opposed Abstain
2,930,187 87,321 91,566
4.Approval of modification of management agreement.
In Favor Opposed Abstain
2,821,723 146,107 141,245
SPECIAL MEETING OF SHAREHOLDERS PRINCOR WORLD FUND, INC.
HELD SEPTEMBER 16, 1997
1.Election of the Board of Directors.
For Withheld
Davis 19,340,274 281,606
Ehrle 19,338,923 282,957
Ferguson 19,347,163 274,717
Gilbert 19,345,556 276,324
Griswell 19,303,259 318,622
Jones 19,339,920 281,960
Keller 19,337,876 284,004
Lukavsky 19,331,887 289,993
Peebler 19,315,053 306,828
2.Ratification of selection of Ernst & Young LLP as independent public auditors.
In Favor Opposed Abstain
19,282,350 77,378 262,152
3.Approval of name change to Principal International Fund, Inc.
In Favor Opposed Abstain
18,903,073 404,722 314,085
4.Approval of modification of management agreement.
In Favor Opposed Abstain
18,212,966 830,315 578,600
<PAGE>
The Boards of Directors and Shareholders
Princor Balanced Fund, Inc.
Princor Blue Chip Fund, Inc.
Princor Capital Accumulation Fund, Inc.
Princor Emerging Growth Fund, Inc.
Princor Growth Fund, Inc.
Princor Utilities Fund, Inc.
Principal International Emerging Markets Fund, Inc.
Principal International SmallCap Fund, Inc.
Princor World Fund, Inc.
Princor Bond Fund, Inc.
Princor Government Securities Income Fund, Inc.
Princor High Yield Fund, Inc.
Princor Limited Term Bond Fund, Inc.
Princor Tax-Exempt Bond Fund, Inc.
Princor Cash Management Fund, Inc.
Princor Tax-Exempt Cash Management Fund, Inc.
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of The Princor Domestic Growth Funds (comprising,
respectively, Princor Balanced Fund, Inc., Princor Blue Chip Fund, Inc., Princor
Capital Accumulation Fund, Inc., Princor Emerging Growth Fund, Inc., Princor
Growth Fund, Inc. and Princor Utilities Fund, Inc.), The Princor International
Growth Funds (comprising, respectively, Principal International Emerging Markets
Fund, Inc., Principal International SmallCap Fund, Inc. and Princor World Fund,
Inc.), The Princor Income Funds (comprising, respectively, Princor Bond Fund,
Inc., Princor Government Securities Income Fund, Inc., Princor High Yield Fund,
Inc., Princor Limited Term Bond Fund, Inc. and Princor Tax-Exempt Bond Fund,
Inc.) and The Princor Money Market Funds (comprising, respectively, Princor Cash
Management Fund, Inc. and Princor Tax-Exempt Cash Management Fund, Inc.) as of
October 31, 1997, and the related statements of operations, statements of
changes in net assets and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1997, by correspondence with the custodians
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting The Princor Domestic Growth Funds, The
Princor International Growth Funds, The Princor Income Funds and The Princor
Money Market Funds at October 31, 1997, and the results of their operations ,
the changes in their net assets and the financial highlights for each of the
periods indicated therein, in conformity with generally accepted accounting
principles.
/S/ ERNST & YOUNG LLP
Des Moines, Iowa
November 26, 1997
<PAGE>
FEDERAL INCOME TAX INFORMATION
Information for federal income tax purposes is presented as an aid to
shareholders in reporting the dividend distributions shown below. Shareholders
should consult a tax adviser on how to report these distributions for state and
local purposes.
<TABLE>
<CAPTION>
Period Ended October 31, 1997
Per Share Per Share
Income Dividend Distributions Capital Gain Distributions
Total
Total Dividends
Payable Per Total Deductible Payable Long- Short- Capital Gain and
Date Share Dividends Percentage* Date Term** Term*** Distributions Distributions
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Princor Balanced
Fund, Inc.
A Shares 12/31/96 $.0950 32.63% 12/02/96 $1.081 $.2149
3/24/97 .0950 29.84%
6/24/97 .0900 29.91%
9/24/97 .0850 37.03%
$.3650 $1.2959 $1.6609
B Shares 12/31/96 $.0649 32.63% 12/02/96 $1.081 $.2149
3/24/97 .0700 29.84%
6/24/97 .0613 29.91%
9/24/97 .0548 37.03%
$.2510 $1.2959 $1.5469
R Shares 12/31/96 $.0876 32.63% 12/02/96 $1.081 $.2149
3/24/97 .0790 29.84%
6/24/97 .0701 29.91%
9/24/97 .0610 37.03%
$.2977 $1.2959 $1.5936
Princor Blue Chip
Fund, Inc.
A Shares 12/31/96 $.0525 84.54% 12/02/96 $ .4593
3/24/97 .0525 84.00%
6/24/97 .0525 81.64%
9/24/97 .0475 71.31%
$.2050 $0.4593 $ .6643
B Shares 12/31/96 $.0112 84.54% 12/02/96 $ .4593
3/24/97 .0126 84.00%
6/24/97 .0126 81.64%
9/24/97 .0066 71.31%
$.0430 $0.4593 $ .5023
R Shares 12/31/96 $.0417 84.54% 12/02/96 $ .4593
3/24/97 .0309 84.00%
6/24/97 .0274 81.64%
9/24/97 .0173 71.31%
$.1173 $0.4593 $ .5766
Princor Capital
Accumulation Fund,
Inc.
A Shares 12/31/96 $.2395 81.00% 12/02/96 $3.3064 $.5486
6/24/97 .2395 90.70%
$.4790 $3.8550 $4.3340
B Shares 12/31/96 $.1063 81.00% 12/02/96 $3.3064 $.5486
6/24/97 .1087 90.70%
$.2150 $3.8550 $4.0700
R Shares 12/31/96 $.1729 81.00% 12/02/96 $3.3064 $.5486
6/24/97 .1414 90.70%
$.3143 $3.8550 $4.1693
</TABLE>
<TABLE>
<CAPTION>
Period Ended October 31, 1997
Per Share Per Share
Income Dividend Distributions Capital Gain Distributions
Total
Total Dividends
Payable Per Total Deductible Payable Long- Short- Capital Gain and
Date Share Dividends Percentage* Date Term** Term*** Distributions Distributions
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Princor Emerging
Growth Fund, Inc.
A Shares 12/31/96 $.0525 52.14% 12/02/96 $1.0733 $.1130
6/24/97 .0525 46.10%
$.1050 $1.1863 $1.2913
B Shares 12/31/96 $.0053 52.14% 12/02/96 $1.0733 $.1130
$.0053 $1.1863 $1.1916
R Shares 12/31/96 $.0055 52.14% 12/02/96 $1.0733 $.1130
$.0055 $1.1863 $1.1918
Princor Growth
Fund, Inc.
A Shares 12/31/96 $.1650 72.89% 12/02/96 $.3744
6/24/97 .1425 65.37%
$.3075 $ .3744 $ .6819
B Shares 12/31/96 $.0231 72.89% 12/02/96 $.3744
$.0231 $ .3744 $ .3975
R Shares 12/31/96 $.0924 72.89% 12/02/96 $.3744
$.0924 $ .3744 $ .4668
Princor Utilities
Fund, Inc.
A Shares 12/31/96 $.1129 97.93%
3/24/97 .1050 86.61%
6/24/97 .1050 99.11%
9/24/97 .1250 98.24%
$.4479 $ .4479
B Shares 12/31/96 $.0875 97.93%
3/24/97 .0823 86.61%
6/24/97 .0823 99.11%
9/24/97 .1041 98.24%
$.3562 $ .3562
R Shares 12/31/96 $.1041 97.93%
3/24/97 .0828 86.61%
6/24/97 .0828 99.11%
9/24/97 .1020 98.24%
$.3717 $ .3717
Princor World
Fund, Inc.
A Shares 12/31/96 $.1057 00.00% 12/02/96 $.2477 $.0634
$.1057 $ .3111 $ .4168
B Shares 12/31/96 $.0345 00.00% 12/02/96 $.2477 $.0634
$.0345 $ .3111 $ .3456
R Shares 12/31/96 $.0810 00.00% 12/02/96 $.2477 $.0634
$.0810 $ .3111 $ .3921
<FN>
*Percent qualifying for deduction by shareholders who are corporations.
**Taxable as long-term capital gain.
***Taxable at ordinary income rates.
</FN>
</TABLE>
Foreign Taxes Paid
Princor World Fund, Inc. makes an election under the Internal Revenue Code
Section 853 to pass through foreign taxes paid by the fund to its
shareholders. The total amount of foreign taxes passed through to
shareholders for the year ended October 31, 1997 totals $.0233 per share.
This information is given to meet certain requirements of the Internal
Revenue Code and should not be used by shareholders for preparing their
income tax returns. For tax return preparation purposes, please refer to the
information supplied with the 1099 form you receive from the fund's transfer
agent.
FEDERAL INCOME TAX INFORMATION (Cont)
Information for federal income tax purposes is presented as an aid to
shareholders in reporting the dividend distributions shown below. Shareholders
should consult a tax adviser on how to report these distributions for state and
local purposes.
Ordinary Income Dividends
The Funds paid the following per share income dividends on the dates indicated:
<TABLE>
<CAPTION>
Per Share Dividends/Payable Date
Fund 11/1/96 12/2/96 12/31/96 1/24/97 2/24/97 3/24/97 4/24/97 5/23/97 6/24/97 7/24/97 8/22/97 9/24/97 10/24/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Princor Bond
Fund, Inc.
Class A $.0625 $.0625 $.0625 $.0625 $.0625 $.0625 $.0625 $.0625 $.0625 $.0625 $.0625 $.0613 $.0613
Class B $.0556 $.0556 $.0548 $.0548 $.0548 $.0548 $.0548 $.0548 $.0548 $.0548 $.0548 $.0537 $.0537
Class R $.0609 $.0590 $.0590 $.0574 $.0574 $.0574 $.0564 $.0564 $.0564 $.0564 $.0564 $.0542 $.0542
Princor Government
Securities Income
Fund, Inc.
Class A $.0588 $.0588 $.0588 $.0588 $.0588 $.0563 $.0563 $.0563 $.0563 $.0563 $.0563 $.0563 $.0575
Class B $.0515 $.0515 $.0515 $.0515 $.0549 $.0512 $.0512 $.0512 $.0497 $.0497 $.0497 $.0497 $.0507
Class R $.0572 $.0572 $.0533 $.0533 $.0533 $.0503 $.0503 $.0494 $.0494 $.0494 $.0494 $.0494 $.0500
Princor High Yield
Fund, Inc.
Class A $.0563 $.0563 $.0563 $.0563 $.0563 $.0563 $.0563 $.0563 $.0563 $.0563 $.0563 $.0563 $.0563
Class B $.0500 $.0500 $.0500 $.0500 $.0500 $.0500 $.0500 $.0500 $.0500 $.0500 $.0500 $.0500 $.0500
Class R $.0551 $.0551 $.0551 $.0517 $.0517 $.0517 $.0517 $.0517 $.0517 $.0517 $.0517 $.0517 $.0517
Princor Limited Term
Bond Fund, Inc.
Class A $.0425 $.0500 $.0588 $.0500 $.0500 $.0500 $.0500 $.0500 $.0500 $.0500 $.0500 $.0500 $.0500
Class B $.0377 $.0451 $.0547 $.0460 $.0460 $.0460 $.0452 $.0452 $.0452 $.0452 $.0452 $.0452 $.0452
Class R $.0375 $.0447 $.0536 $.0478 $.0478 $.0478 $.0462 $.0462 $.0462 $.0462 $.0462 $.0462 $.0462
Princor Tax-Exempt
Bond Fund, Inc.*
Class A $.0538 $.0538 $.0538 $.0538 $.0513 $.0513 $.0513 $.0513 $.0513 $.0513 $.0513 $.0513 $.0513
Class B $.0442 $.0442 $.0465 $.0465 $.0428 $0428 $.0428 $.0428 $.0446 $.0446 $.0446 $.0446 $.0446
<FN>
*Dividends from the Tax-Exempt Bond Fund, Inc. were exempt from federal income taxation for non-corporate shareholders.
</FN>
</TABLE>
Information for federal income tax purposes is presented as an aid to
shareholders in reporting the dividend distributions shown below. Shareholders
should consult a tax adviser on how to report these distributions for state and
local purposes.
Ordinary Income Dividends
The Funds paid the following per share income dividends on the dates indicated:
<TABLE>
<CAPTION>
Per Share Dividends/Payable Date
Fund 11/20/96 12/20/96 1/20/97 2/20/97 3/20/97 4/18/97 5/20/97 6/20/97 7/18/97 8/20/97 9/19/97 10/20/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Princor Cash Management
Fund, Inc.
Class A $.0041 $.0043 $.0039 $.0041 $.0038 $.0042 $.0041 $.0046 $.0039 $.0043 $.0044 $.0040
Class B $.0034 $.0035 $.0032 $.0034 $.0031 $.0035 $.0035 $.0038 $.0032 $.0035 $.0036 $.0033
Class R $.0037 $.0037 $.0034 $.0035 $.0032 $.0037 $.0036 $.0040 $.0034 $.0038 $.0039 $.0035
Princor Tax-Exempt Cash
Management Fund, Inc.*
Class A $.0025 $.0025 $.0023 $.0023 $.0020 $.0024 $.0026 $.0028 $.0023 $.0025 $.0026 $.0025
Class B $.0018 $.0018 $.0017 $.0017 $.0014 $.0018 $.0020 $.0021 $.0017 $.0018 $.0019 $.0018
<FN>
*Dividends from the Tax-Exempt Cash Management Fund, Inc. were exempt from federal income taxation for non-corporate shareholders.
</FN>
</TABLE>
<PAGE>
THE PRINCOR 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 Princor 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.
<TABLE>
<CAPTION>
DOMESTIC GROWTH FUNDS INVESTMENT OBJECTIVE
<S> <C>
Princor 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.
Princor Blue Chip Fund To seek growth of capital and growth of income by investing primarily in common stocks of
well capitalized, established companies.
Princor Capital To seek long-term capital appreciation and a secondary objective of growth of investment
Accumulation Fund income.
Princor Emerging To seek capital appreciation by investing primarily in securities of emerging and other
Growth Fund growth-oriented companies.
Princor Growth Fund To seek growth of capital with realization of current income incidental to the objective of
growth of capital.
Princor 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 investing primarily in equity securities of issuers
Emerging Markets Fund, Inc. in emerging market countries.
Principal International To seek long-term growth of capital by investing primarily in equity securities of
SmallCap Fund, Inc. non-United States companies with comparatively smaller market capitalizations.
Princor World 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.
INCOME FUNDS
Princor Bond Fund To seek as high a level of income as is consistent with preservation of capital and prudent
investment risk.
Princor Government Securities To seek a high level of current income, liquidity and safety of principal.
Income Fund
Princor High Yield Fund To seek high current income. Capital growth is a secondary objective when consistent with
seeking high current income.
Princor Limited Term Bond Fund To seek 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.
Princor Tax-Exempt Bond Fund To seek as high a level of current income exempt from federal taxation as is consistent with
preservation of capital.
MONEY MARKET FUNDS
Princor Cash Management Fund To seek as high a level of current 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.
Princor Tax-Exempt Cash To seek, through investment in a professionally-managed portfolio of high quality short-term
Management Fund 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.
</TABLE>
