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001 A000000 PRINCIPAL GOVERNMENT SECURITIES FUND, INC.
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SIGNATURE A. S. FILEAN
TITLE V.P. & SECRETARY
<TABLE> <S> <C>
<ARTICLE> 6
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 92635914
<INVESTMENTS-AT-VALUE> 96354192
<RECEIVABLES> 939750
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 21823
<TOTAL-ASSETS> 97315765
<PAYABLE-FOR-SECURITIES> 2945000
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<TOTAL-LIABILITIES> 2993305
<SENIOR-EQUITY> 0
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<SHARES-COMMON-PRIOR> 8255462
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</TABLE>
Report of Independent Auditors on Internal Control
The Board of Directors and Shareholders
Principal Government Securities Fund, Inc.
In planning and performing our audit of the financial statements of Principal
Government Securities Fund, Inc. for the year ended December 31, 1997, we
considered its internal control, including control activities for safeguarding
securities, in order to determine our auditing procedures for the purpose of
expressing our opinion on the financial statements and to comply with the
requirements of Form N-SAR, not to provide assurance on internal control.
The management of Principal Government Securities Fund, Inc. is responsible for
establishing and maintaining internal control. In fulfilling this
responsibility, estimates and judgments by management are required to assess the
expected benefits and related costs. Generally, controls that are relevant to an
audit pertain to the entity's objective of preparing financial statements for
external purposes that are fairly presented in conformity with generally
accepted accounting principles. These controls include the safeguarding of
assets against unauthorized acquisition, use or disposition.
Because of inherent limitations in internal control, errors or irregularities
may occur and not be detected. Also, projection of any evaluation of internal
control to future periods is subject to the risk that it may become inadequate
because of changes in conditions or that the effectiveness of the design and
operation may deteriorate.
Our consideration of internal control would not necessarily disclose all matters
in internal control that might be material weaknesses under standards
established by the American Institute of Certified Public Accountants. A
material weakness is a condition in which the design or operation of specific
internal control components does not reduce to a relatively low level the risk
that errors or irregularities in amounts that would be material in relation to
the financial statements being audited may occur and not be detected within a
timely period by employees in the normal course of performing their assigned
functions. However, we noted no matters involving internal control, including
control activities for safeguarding securities, that we consider to be material
weaknesses as defined above as of December 31, 1997.
This report is intended solely for the information and use of management and the
Board of Directors of Principal Government Securities Fund, Inc. and the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Des Moines, Iowa
January 16, 1998
SPECIAL MEETING OF SHAREHOLDERS PRINCIPAL GOVERNMENT SECURITIES FUND, INC.
HELD SEPTEMBER 16, 1997
1. Election of the Board of Directors.
For Withheld
Davis 7,822,261 109,034
Ehrle 7,809,752 121,542
Ferguson 7,821,375 109,919
Gilbert 7,666,246 265,048
Griswell 7,824,132 107,162
Jones 7,680,346 250,949
Keller 7,680,346 250,949
Lukavsky 7,804,434 126,861
Peebler 7,814,432 116,863
2. Ratification of selection of Ernst & Young LLP as independent public
auditors.
In Favor Opposed Abstain
7,805,147 60,006 66,141
3. Approval of change of fund structure. Name changed to Principal Variable
Contract Fund, Inc. Government Securities Account effective 1/1/98.
In Favor Opposed Abstain
7,562,506 218,677 150,111
4. Approval of elimination of the fundamental investment restriction regarding
the purchase of shares of other investment companies.
In Favor Opposed Abstain
7,429,480 360,691 141,124
5. Approval of elimination of the fundamental investment restriction
prohibiting joint participation in any securities trading account.
In Favor Opposed Abstain
7,436,533 353,433 141,328
6. Approval of change to the fundamental investment restriction with respect
to purchase of securities other than government securities.
In Favor Opposed Abstain
7,504,155 331,893 95,246
