The Start of Something Big . . .
If they gave out an award for hard work, perseverance and a willingness to
listen to good advice, Jeff Golden would win for certain. As a teenager, Jeff
worked through high school bagging groceries at the local supermarket. It wasn't
big money, still Jeff had big plans. He was determined to own his own business.
During his stint as bag boy, Jeff became acquainted with many of the market's
regular customers. One of whom was a registered representative with Princor
Financial Services Corporation. The registered representative was impressed with
Jeff's enthusiasm and dedication to the job. After a time, he gave Jeff some
advice, "Start saving for the future now. It will be here before you know it."
This was twelve years ago not long after the October 17, 1987 market crash. The
crash left many investors on the sidelines, waiting to see what would happen
next. Not Jeff, his mind was made up. He contacted the representative and
informed him he was ready to begin an investment program.
In early December 1987, Jeff made his first $50 monthly investment divided
equally between two stock mutual funds--Principal MidCap Fund-A and Principal
Growth Fund-A.
Inspired by a dream of being his own boss, Jeff added $25 each month to his two
fund accounts. After high school graduation, Jeff continued to work at the
supermarket and was rewarded for his diligence with regular raises and
promotions. In two years, Jeff was named Produce Department Manager and his
mutual fund accounts had grown to $1,370.
A few months later, with the encouragement of his registered representative,
Jeff decided to make his first $2,000 IRA contribution. Jeff selected two mutual
funds which he believed could offer him good potential for long-term
growth--Principal Capital Value Fund-A and Principal International Fund-A. In
August 1989, Jeff invested $1,000 into each.
Another year passed and Jeff met with his registered representative for an
annual review. With his promotion, he felt comfortable increasing his monthly
investment amount from $50 to $100. This was December of 1990. Jeff believed
that big things lay ahead and that the fastest way to reach his goals was by
saving and investing for them.
Over the next three years, Jeff was married and he and his wife bought their
first home. He continued to contribute $2,000 each year to his IRA split equally
between the two original funds. In 1993, Jeff expanded his IRA holdings and
began dividing his annual $2000 contribution equally between Principal Capital
Value, International and Utilities Funds-A.
Jeff never wavered on his $100 monthly investments. By the end of 1995, Jeff's
nonqualified fund accounts were valued at $13,389. As Jeff's investments grew so
did his confidence. He knew it was time to make a move. With the capital in his
Principal Mutual Funds accounts to back him up, Jeff started looking for a
business venture.
In the spring of 1996, opportunity knocked. Jeff called his registered
representative and told him that he needed approximately $15,000 to buy an
interest in a new "stop and wash" business opening in town. Fortunately, Jeff
had accumulated enough in his nonqualified fund accounts to become part owner of
the business.
That was three years ago. Now Jeff is partner in another similar business in
town. He has realized his dream of becoming his own boss. Jeff still makes a
$100 monthly investment into his nonqualified fund accounts. And, until this
year, he contributed $2,000 annually to his IRA which had grown in value to over
$39,000 as of September 30, 1999.
In 1999, Jeff and his partners established a SIMPLE-IRA. Jeff, his partners and
employees can defer 100% of their salaries up to a maximum of $6,000 per year.
The business can then match their deferrals up to 3% of salary annually. The
SIMPLE-IRA benefits them all.
Who knew back in 1987 that a $50 monthly investment and a young man with a dream
would be the start of something big?
This story does not represent an actual investor, but does reflect the actual
investment results of the Principal Mutual Funds mentioned. Past results do not
guarantee future performance. Share values fluctuate so that the value at
redemption may be more or less than original cost. Redemption of fund shares in
a nonqualified account may be subject to taxation. IRA withdrawals made before
age 59 1/2 may be subject to tax penalties. SIMPLE-IRA withdrawals made before
age 59 1/2 and/or less than two years of ownership may be subject to tax
penalties.
Average Annual Total Returns through 9/30/99
Including Sales Charges
1 year 5 years 10 years
Principal MidCap Fund-A 2.41% 11.07% 12.30%
Principal MidCap Fund-B 3.00% 13.44%* --
Principal MidCap Fund-C ** -14.02% -- --
Principal Growth Fund-A 13.63% 16.80% 15.29%
Principal Growth Fund-B 14.54% 19.23%* --
Principal Growth Fund-C ** -10.87 -- --
Principal Capital Value Fund-A -1.42% 14.95% 11.27%
Principal Capital Value Fund-B -1.12% 17.0%* --
Principal Capital Value Fund-C ** -14.69% -- --
Principal International Fund-A 18.63% 9.94% 10.06%
Principal International Fund-B 19.69% 12.33%* --
Principal International Fund-C ** 0.55% -- --
Principal Utilities Fund-A 6.40% 16.31% 11.35%*
Principal Utilities Fund-B 6.84% 17.01%* --
Principal Utilities Fund-C ** -6.22% -- --
* Notes partial period from fund inception date.
** Cumulative return for period of less than 1 year.
Class A share returns assume the reinvestment of all distributions, the maximum
4.75% sales charge and a .25% annual distribution fee. Prior to 12/9/94, the
maximum sales charge was 5%.
Class B share returns assume the reinvestment of all distributions, a maximum
1% annual distribution fee and declining contingent deferred sales charge from a
maximum of 4% to zero percent over a six-year period, assuming redemption on
9/30/99.
Class C share returns assume the reinvestment of all distributions, a maximum
1% annual distribution fee and a 1% contingent deferred sales charge in the
first year of ownership, assuming redemption on 9/30/99.
Investments in Principal MidCap Fund may be subject to more abrupt or erratic
market movements and greater risks than other stock fund investments. Principal
International Fund shares are subject to volatility caused by exchange rates,
foreign economies and taxation. Principal Utilities Fund is subject to market
conditions directly related to the utilities industry.
A Message To Shareholders
Dear Shareholder
Since our last report, we celebrated a birthday. We've been in the mutual funds
business for 30 years. In October 1969, we started two mutual funds. Today we
have 18 funds with over $4 billion in assets. From the very beginning, we have
stuck to the basics. Despite industry pressure, we've kept a long-term
investment strategy and tried to avoid the lure of the latest "hot" investment
style. And, we've kept our focus on top quality customer service.
Our growth continues. In November, we introduced the first in a new series of
"Partners" funds. Principal Partners Aggressive Growth Fund is managed, or
"sub-advised," by an outside investment advisor. By recruiting outside talent,
you have access to additional investment managers with proven track records of
success. The new fund is managed by Morgan Stanley Dean Witter Investment
Management. Additional Partners funds are in the works for next year. For more
complete information about Principal Partners Aggressive Growth Fund, including
charges and expenses, call or write for a free prospectus. Read the prospectus
carefully before you invest or send money.
Principal Mutual Funds' investment results during the fiscal year varied widely.
As you can see in the performance table on the next page, international-equity
funds were strong across the board, with Principal International SmallCap Fund
being exceptional; domestic equity funds were mixed, yet with some impressive
standouts, like Principal SmallCap Fund; and some income-oriented funds held
their own as interest rates crept upward during the year. This range of results
across investment sectors makes a compelling case for diversification and asset
allocation within an investment portfolio. Your registered representative can
assist you in developing an asset allocation strategy where a mix of stock- and
bond-oriented investments work to achieve the highest potential return possible
at a risk level that matches your personal requirements.
An issue that's received a great deal of media attention is Y2K. We are pleased
to report that our recordkeeping systems are well prepared. Comprehensive plans
are in place to make sure the transition to the new millennium is as seamless as
possible. Our "Year 2000 Readiness Disclosure" can be viewed at our website
(www.principal.com) or by calling our customer service line at (800) 247-4123.
Please call us if you have concerns or questions. When the clock strikes
midnight on December 31, we'll be ready!
We are dedicated to providing you with excellent products and services which
will allow you to pursue your investment goals with confidence. We look forward
to the continued success of Principal Mutual Funds and our shareholders. Thank
you for your confidence and the opportunity to serve you.
Sincerely
/s/ Ralph C. Eucher /s/ Mike Beer
Ralph C. Eucher Michael J. Beer
President Executive Vice President & Chief Operating Officer
Principal Mutual Funds Principal Management Corporation
Principal Mutual Funds Performance
Average Annual Total Returns
As of October 31, 1999
<TABLE>
<CAPTION>
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 (0.07)% 4.85% 11.06% 12.13% 9.80% 10.33%
Blue Chip 11.50 17.00 18.81 19.96 14.01(a) 14.65(a)
Bond (6.53) (1.92) 6.83 7.86 7.22 7.74
Capital Value (1.84) 3.00 16.22 17.35 12.42 12.96
Government Securities Income (3.30) 1.47 7.16 8.19 7.13 7.65
Growth 11.94 17.46 17.89 19.03 16.38 16.94
High Yield (2.02) 2.81 5.90 6.93 6.36 6.88
International 10.72 16.18 10.21 11.27 11.04 11.57
International Emerging Markets 24.74 30.89 (5.53)(b) (3.41)(b)
International SmallCap 47.25 54.52 19.94 (b) 22.63 (b)
Limited Term Bond 0.31 1.83 4.67 (c) 5.11 (c)
MidCap 0.60 5.56 11.98 13.06 13.15 13.70
Real Estate (8.87) (4.38) (13.27)(d) (10.96)(d)
SmallCap 28.20 34.52 4.16 (d) 6.93 (d)
Tax-Exempt Bond (7.09) (2.51) 5.82 6.85 6.07 6.58
Utilities 9.35 14.74 17.29 18.42 12.02(e) 12.80(e)
<CAPTION>
1 Year 5 Years
with without with without
B Shares of: CDSC* CDSC* CDSC* CDSC*
<S> <C> <C> <C> <C>
Balanced 0.06% 4.02% 12.31%(f) 12.57%(f)
Blue Chip 12.09 16.09 20.30 (f) 20.49(f)
Bond (6.36) (2.68) 6.72 (f) 7.04(f)
Capital Value (1.57) 2.24 18.12 (f) 18.34(f)
Government Securities Income (3.17) 0.65 7.17 (f) 7.48(f)
Growth 12.75 16.75 20.29 (f) 20.49(f)
High Yield (1.76) 2.02 6.05 (f) 6.36(f)
International 11.27 15.27 12.45 (f) 12.71(f)
International Emerging Markets 25.91 29.91 (5.67)(b) (3.88)(b)
International SmallCap 49.42 53.42 20.65 (b) 22.11(b)
Limited Term Bond 0.08 1.29 4.49 (c) 4.66(c)
MidCap 1.09 5.09 14.26 (f) 14.51(f)
Real Estate (8.79) (5.10) (13.20)(d) (11.44)(d)
SmallCap 29.29 33.29 4.16 (d) 6.25(d)
Tax-Exempt Bond (6.73) (3.01) 6.48 (f) 6.80(f)
Utilities 9.85 13.85 17.88 (f) 18.09(f)
* Contingent Deferred Sales Charge
<CAPTION>
Cumulative Returns
As of October 31, 1999
1 Year(g)
with without
sales sales
C Shares of: charge charge
<S> <C> <C>
Balanced (5.67)% (4.67)%
Blue Chip (2.29) (1.29)
Bond (1.40) (0.40)
Capital Value (8.42) (7.42)
Government Securities Income 0.11 1.11
Growth (4.75) (3.75)
High Yield (1.99) (0.99)
International 2.95 3.95
International Emerging Markets (5.47) (4.47)
International SmallCap 16.81 17.81
Limited Term Bond 0.34 0.84
MidCap (9.36) (8.36)
Real Estate (11.21) (10.21)
SmallCap 0.53 1.53
Tax-Exempt Bond (3.59) (2.59)
Utilities (1.47) (0.47)
<CAPTION>
Average Annual Total Returns
As of October 31, 1999
R Shares of: 1 Year 5 Years
<S> <C> <C>
Balanced 4.21% 10.14%(c)
Blue Chip 16.31 17.46 (c)
Bond (2.45) (4.76)(c)
Capital Value 2.35 14.57 (c)
Government Securities Income 0.78 5.25 (c)
Growth 16.78 16.29 (c)
High Yield 2.01 3.88 (c)
International 15.27 12.18 (c)
International Emerging Markets 30.93 (3.46)(b)
International SmallCap 54.61 22.77 (b)
Limited Term Bond 1.13 4.48 (c)
MidCap 4.89 7.49 (c)
Real Estate (4.70) (11.07)(d)
SmallCap 33.85 6.77 (d)
Utilities 13.97 15.54 (c)
<FN>
(a) Partial period, from effective date 3/1/91
(b) Partial period, from effective date 8/29/97
(c) Partial period, from effective date 2/29/96
(d) Partial period, from effective date 12/31/97
(e) Partial period, from effective date 12/16/92
(f) Partial period, from effective date 12/9/94
(g) Partial period, from effective date 6/30/99
</FN>
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% (1.50% for the Limited Term Bond Fund) sales charge.
Average annual total returns for B shares are with and without maximum 4.0%
(1.25% for the Limited Term Bond Fund) contingent deferred sales charge. The
returns for Class C shares are cumulative returns since June 30, 1999. They are
shown with and without maximum 1.00% (0.50% for the Limited Term Bond Fund)
contingent deferred sales charge. The 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.
</TABLE>
Table of Contents
Page
Portfolio Managers' Comments......................................... 5
Growth Funds (Domestic) Financial Statements and Highlights
Statements of Assets and Liabilities.............................. 18
Statements of Operations.......................................... 20
Statements of Changes in Net Assets............................... 22
Notes to Financial Statements..................................... 24
Schedules of Investments
Balanced Fund................................................... 32
Blue Chip Fund.................................................. 36
Capital Value Fund.............................................. 37
Growth Fund..................................................... 38
MidCap Fund..................................................... 39
Real Estate Fund................................................ 41
SmallCap Fund................................................... 42
Utilities Fund.................................................. 44
Financial Highlights.............................................. 46
Growth Funds (International) Financial Statements and Highlights
Statements of Assets and Liabilities.............................. 64
Statements of Operations.......................................... 65
Statements of Changes in Net Assets............................... 66
Notes to Financial Statements..................................... 68
Schedules of Investments
International Emerging Markets Fund............................. 76
International Fund.............................................. 78
International SmallCap Fund..................................... 80
Financial Highlights.............................................. 84
Income Funds Financial Statements and Highlights
Statements of Assets and Liabilities.............................. 92
Statements of Operations.......................................... 94
Statements of Changes in Net Assets............................... 96
Notes to Financial Statements..................................... 98
Schedules of Investments
Bond Fund....................................................... 106
Government Securities Income Fund............................... 109
High Yield Fund................................................. 109
Limited Term Bond Fund.......................................... 111
Tax-Exempt Bond Fund............................................ 112
Financial Highlights.............................................. 118
Money Market Fund Financial Statements and Highlights
Statement of Assets and Liabilities............................... 130
Statement of Operations........................................... 131
Statements of Changes in Net Assets............................... 132
Notes to Financial Statements..................................... 134
Schedule of Investments
Cash Management Fund............................................ 138
Financial Highlights.............................................. 142
Report of Independent Auditors....................................... 145
Federal Income Tax Information....................................... 146
Principal Mutual Funds............................................... 151
PORTFOLIO MANAGERS' COMMENTS
Principal Management Corporation, the adviser to the Principal Mutual 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 Principal Mutual Fund should, under normal circumstances, represent only a
portion of an investor's total investments. For most investors, a portfolio
should be balanced among stocks, bonds, and cash reserves to fit their own needs
and risk tolerance. Those who maintain this balanced approach should be aware of
the short-term results, but focus on the long term. Past performance is no
guarantee of future results. Fund values will fluctuate so that the shares, upon
redemption, may be worth more or less than their original cost.
Growth-Oriented Funds
Domestic Growth Funds
Principal Balanced Fund
Marty Schafer Judi Vogel
The financial markets kept investors on the edge of their
seats during the year ended October 31, 1999. From near
Photos Here collapse of the global financial system late in 1998 to a
booming U.S. economy and improvement in growth worldwide, it
has been a roller coaster ride. The Federal Reserve moved
twice to slow the domestic economy by raising interest rates
in June and August. Fears of inflation heating up in a tight
job market sent long-term interest rates back above 6%.
Bonds struggled against the tide of rising rates, managing
to produce total returns of 1% or less for diversified
portfolios. Longer duration* bonds were soundly in negative
return territory. The equity markets were driven by growth
stocks, strength in technology and price momentum. The
difference in returns between the S&P 500's top ten stocks
and the median S&P 500 company was striking. High growth,
high PE, large capitalization stocks outperformed the
average stock by more than ten times. This was the narrowest
leadership the market has seen in ten years.
Having too little exposure to top tier growth and high-flying technology
companies throughout the year negatively impacted the Principal Balanced Fund's
performance. Prices are too exorbitantly high compared to long-term business
prospects to justify purchase of most of these stocks. The Fund's equity
portfolio currently comprises approximately 55% of total assets and is
structured to benefit from a recovery in the global economy, improved corporate
profits growth and a broadening of market participation. The fixed income
portfolio accounts for 45% of assets and remains duration neutral vs. the
benchmark. Fund managers favor higher yielding corporate and mortgage backed
securities vs. Treasuries in this strong economic environment. There is no
independent market index against which to measure returns of balanced
portfolios, however the S&P 500 Stock Index and the Lehman Brothers
Government/Corporate Bond Index are presented for your information.
Comparison of Change in Value of $10,000 Investment in the Balanced Fund Class
A, Lipper Balanced Fund Average, Lehman Brothers Government/Corporate Bond Index
and S&P 500 Stock Index.
- --------------------------------------
Total Returns
As of October 31, 1999
1 Year 5 Year 10 Year
Class A 4.85% 12.13% 10.33%
Class B 4.02% 12.57% * -
Class C -4.97%** - -
Class R 4.21% 10.14%***
- --------------------------------------
Maximum Sales Charge
4.75%
Lehman Gov't. Lipper
Year Ended Balanced Corporate Balanced S&P 500
October 31,1999 Fund Bond Average Index
9,521 10,000 10,000 10,000
1990 8,448 10,550 9,478 9,251
1991 11,327 12,172 12,177 12,351
1992 12,671 13,452 13,240 13,582
1993 14,221 15,285 15,203 15,607
1994 14,355 14,576 15,095 16,209
1995 16,392 16,932 17,717 20,490
1996 18,868 17,844 20,346 25,424
1997 21,864 19,416 24,315 33,585
1998 24,268 21,412 26,535 40,970
1999 25,446 21,271 29,539 51,449
Note: Past performance is not predictive of future performance. The performance
of Class B, Class C and Class R shares will vary from the performance of Class A
shares based on the differences in loads and fees.
* Since Inception Date 12/9/94
** Cumulative return since inception date 6/30/99
*** Since Inception Date 2/29/96
Principal Blue Chip Fund
Mark Williams
Principal Blue Chip Fund's investment strategy during the
previous year continued to concentrate on companies with
significant operating histories, well-capitalized balance
sheets, and a history of consistent earnings and dividend
Photo Here increases. The Fund's focus on consistent dividend increases
is of special importance. During the measurement period just
ended, this focus hampered performance relative to the S&P
500 Index. Technology was the best performing sector of the
index. Since many technology companies do not pay dividends,
the Fund was underweighted in this top-performing sector.
While the Fund's return is competitive relative to its peer groups, the
shortfall versus the S&P 500 needs some explanation. The peer groups, as well as
the Fund, are underweighted in technology relative to the S&P 500. The number of
dividend paying companies in this sector is limited as well as the number of
companies that are able to make a valuation screen. The Fund's technology sector
underweight, relative to the S&P 500, was responsible for almost fifty percent
of the performance shortfall. Added to this is the fact that companies that do
not pay dividends were responsible for the majority of returns in the S&P 500
tech sector. The combination of the Fund's underweight in technology and the
superior performance of non-dividend paying companies was responsible for
two-thirds of the Fund's performance shortfall.
The Utility and Basic Material sectors performed poorly. The Fund had no
exposure to these sectors, which proved beneficial since their returns were
poorer than those of the other sectors. Because there was no exposure to the
poor performing sectors, the Fund had positive relative performance.
The strategy for the coming year remains the same. Fund Managers will continue
to look for those companies with the characteristics described at the beginning
of this report. However, further research is being done in the technology area
to make sure the dividend focus is not unduly jeopardizing the ability to
generate superior returns in that sector.
Comparison of Change in Value of $10,000 investment in the Blue Chip Fund Class
A, Lipper Large-Cap Value Fund Average and S&P Stock Index.
- ------------------------------------------
Total Returns
As of October 31, 1999
1 Year 5 Year 10 Year
Class A 17.00% 19.96% 14.65%*
Class B 16.09% 20.49% -
Class C -1.57%*** - -
Class R 16.31% 17.46%****
- ------------------------------------------
Maximum Sales Charge
4.75%
Blue Lipper S&P 500
Year Ended Chip Large-Cap Value Stock
October 31,1999 Fund Fund Average Index
9,524 10,000 10,000
1991 10,181 10,544 10,911
1992 11,190 11,499 11,998
1993 11,822 13,424 13,787
1994 12,600 13,763 14,319
1995 15,455 16,510 18,100
1996 18,267 20,011 22,459
1997 22,391 25,638 29,668
1998 26,753 28,174 36,192
1999 31,300 33,135 45,450
Note: Past performance is not predictive of future performance. The performance
of Class B, Class C and Class R shares will vary from the performance of Class A
shares based on the differences in loads and fees.
* Since Inception Date 3/1/91
** Since Inception Date 12/9/94
*** Cumulative return since inception date 6/30/99
**** Since Inception Date 2/29/96
(1) Lipper has discontinued calculation of the Average previously used for this
Fund. This chart reflects information for the Average for years prior to 1999.
The newly assigned Average will be reflected for 1999 and beyond.
Principal Capital Value Fund
Catherine Zaharis
The Capital Value Fund has experienced a difficult year
relative to its benchmark and peer group. The major ongoing
factor for this is related to the technology industry. Fund
managers have a strict valuation criteria which has left the
Photo Here Fund without exposure to many areas of technology that have
great business potential, but may not be good investments on
a valuation basis. As each organization is analyzed to
determine the value of the underlying business, a specific
analysis is developed of what each business is worth. The
market has diverged and not focused on this type of
classical analysis for major sectors of the market. In
technology there are currently companies that are being
valued not on what they earn, but on how many people show up
to their websites. Many of these companies do not have
earnings, nor are they expected to have earnings in the
foreseeable future. However, these companies enjoy stock
prices that continue to climb, well beyond historical
valuation measures. Fund managers continue to value
companies such that we must determine a specific valuation
for the business. To the extent we cannot do that and
justify the current price, these companies are not included
as candidates for inclusion in the portfolio.
The areas that have performed well for the Fund in the past year include Energy,
where currently the Fund has a position larger than the S&P 500, and Health
Care, where it had lower holdings as these companies underperformed in the
spring due to concerns regarding reform of prescription prices. Besides
technology, the most difficult area for Fund managers was financials, where
rising interest rates impacted the valuations of banks. Although most banks
continue to have strong businesses, the market does not wish to pay for these
earnings at the same level as the prior year.
Fund managers are closely examining the current market as the Fed continues to
monitor the strength of the economy and their fears that inflation will creep
back into the system. At the same time as these events are occurring in the
U.S., a global improvement in the worldwide economic environment is seen. As
these events continue to unfold, Fund managers will monitor events to make
adjustments to the portfolio.
Comparison of Change in Value of $10,000 Investment in the Capital Value Fund
Class A, Lipper Large-Cap Value Fund Average and S&P 500 Stock Index.
- ---------------------------------------------
Total Returns
As of October 31, 1999
1 Year 5 Year 10 Year
Class A 3.00% 17.35% 12.96%
Class B 2.24% 18.34%* --
Class C -8.40%** -- --
Class R 2.35% 14.57%*** --
- ---------------------------------------------
Maximum Sales Charge
4.75%
Lipper S&P 500
Year Ended Capital Large-Cap Value Stock
October 31,1999 Accumulation Fund Average Index
9,523 10,000 10,000
1990 7,826 9,018 9,251
1991 11,006 12,039 12,351
1992 12,290 13,130 13,582
1993 13,570 15,328 15,607
1994 14,475 15,714 16,209
1995 17,072 18,850 20,490
1996 21,580 22,849 25,424
1997 27,053 29,274 33,585
1998 31,266 32,169 40,970
1999 32,205 37,834 51,449
Note: Past performance is not predictive of future performance. The performance
of Class B, Class C and Class R shares will vary from the performance of Class A
shares based on the differences in loads and fees.
* Since Inception Date 12/9/94
** Cumulative return since inception date 6/30/99
*** Since Inception Date 2/29/96
(1) Lipper has discontinued calculation of the Average previously used for this
Fund. This chart reflects information for the Average for years prior to 1999.
The newly assigned Average will be reflected for 1999 and beyond.
Principal Growth Fund
Returns to equity shareholders over the past several years, as well as this last
year, have been spectacular. The reason for these excellent returns is simple.
Great fundamentals yield great returns. The economy has been strong, yet
inflation has remained subdued. Competition and de-regulation have put pressure
on companies, yet corporate profits have been strong. These strong fundamentals
supported high equity returns.
Principal Growth Fund lost a little ground relative to the S&P 500, but
continues to outperform its peers. The Fund trailed the S&P 500 because of its
Healthcare business and Technology holdings. Healthcare suffered from fear of
the government becoming more involved in the business. While greater government
involvement is a real threat, the Fund managers believe the potential of this
has been more than priced into these companies. In technology, the Fund's
holdings were up an average more than 50%, yet the technology sector of the
index was up over 60%. The Fund owned many of the best performing technology
stocks, but not all of them. The Fund finished between the S&P 500 Index and the
Lipper Multi-Cap Core Fund Average performances for the year ended October 31.
The Fund focuses on buying high quality growth companies. Fund managers define
quality as those companies that are in good industries, have clear competitive
advantages, and are run by top-flight management. In addition, those companies
are purchased at a discount to their underlying worth.
Comparison of Change in Value of $1,000 Investment in the Growth Fund Class A,
Lipper Multi-Cap Core Fund Average and S&P 500 Stock Index.
- -------------------------------------
Total Returns
As of October 31, 1999
1 Year 5 Year 10 Year
Class A 17.46% 19.03% 16.94%
Class B 16.75% 20.49%* --
Class C -4.52%** -- --
Class R 16.78% 16.29%*** --
- -------------------------------------
Maximum Sales Charge
4.75%
Lipper S&P 500
Growth Multi-Cap Core Stock
Year Ended October 31,1999 Fund Fund Average Index
9,527 10,000 10,000
1990 8,650 8,835 9,251
1991 13,780 12,487 12,351
1992 15,814 13,468 13,582
1993 17,368 15,767 15,607
1994 19,075 16,010 16,209
1995 23,517 19,849 20,490
1996 26,010 23,515 25,424
1997 33,696 29,930 33,585
1998 38,803 32,809 40,970
1999 45,577 40,395 51,449
Note: Past performance is not predictive of future performance. The performance
of Class B, Class C and Class R shares will vary from the performance of Class A
shares based on the differences in loads and fees.
* Since Inception Date 12/9/94
** Cumulative return since inception date 6/30/99
*** Since Inception Date 2/29/96
(1) Lipper has discontinued calculation of the Average previously used for this
Fund. This chart reflects information for the Average for years prior to 1999.
The newly assigned Average will be reflected for 1999 and beyond.
Principal MidCap Fund
The U.S. economy has performed reasonably well over the last year with interest
rates remaining relatively low, consumer confidence still intact and earnings
growth continuing its moderate pace. No significant signs of inflation have
appeared. However, oil prices have risen and a tight labor market could force
wage inflation. As a result, the Federal Reserve has seen fit to raise rates
several times in an attempt to head off a significant rise in inflation.
Consumers appear confident that employment is secure and have been spending
discretionary income on goods and services which has helped earnings at
consumer-leveraged companies. Earnings growth and productivity gains have
continued at a moderate pace in the face of tight labor markets due to the use
of technology, corporate mergers and through company restructurings. Looking
ahead, Fund managers see a continuation of these trends.
The Principal MidCap Fund trailed both the Lipper Mid-Cap Fund Average as well
as the S&P 500 Index for the year ended October 31, 1999. The general market's
return over the last year has been driven by a narrow focus and has been fraught
with volatility. Larger companies have been favored over smaller companies over
the last year, although recently the market has broadened to include mid-sized
and small companies. In this regard, the Fund's midcap exposure was a detriment
when compared to the larger-cap S&P 500 Index. Regarding industry sectors, the
market has clearly had a preference for technology and communications companies.
The considerable rise in these stocks, in particular anything related to the
internet, has also spurred an incredible number of Initial Public Offerings,
most with little or no sales or earnings. The market, however, has been willing
to pay high prices for seemingly well positioned companies in fast growing
markets. The Fund's communications services holdings performed admirably as
companies in the portfolio benefit from deregulation of the telecom industry and
as more data is created and transported over long distances. While the Fund's
weighting in technology is on par with the Index, the stock price return from
those companies was insufficient to keep pace. In addition, the Fund's return
was dampened by its overweighting in healthcare services companies, a sector
that has fallen tremendously out of favor due to political and legal issues.
The investment approach of this Fund is to purchase businesses that possess
competitive advantages, are run by quality management teams and are selling at a
discount to their long term economic worth. Fund managers believe that this
sensible approach to investing will be successful in generating wealth over the
long term. Currently, managers are finding opportunities in the Technology,
Financial, and Communication Services industries. The use of technology to
squeeze out productivity gains in a tight labor market should continue and
certain areas within technology should benefit from a continued proliferation of
the Internet. Financial companies hold considerable value and should continue an
industry-wide consolidation due to recently enacted legislation that allows more
competition across product lines. In the Communication Services industry,
deregulation has allowed competition in the local and long distance telephone
markets. In addition, the internet has created a tremendous amount of data
sharing that is putting pressure on current infrastructure.
Comparison of Change in Value of $10,000 Investment in the MidCap Fund Class A,
Lipper Mid-Cap Core Fund Average and S&P 500 Stock Index.
- ------------------------------------------------
Total Returns
As of October 31, 1999
1 Year 5 Year 10 Year
Class A 5.56% 13.06% 13.70%
Class B 5.09% 14.51 * --
Class C -8.98%** -- --
Class R 4.89% 7.49*** --
- -----------------------------------------------
Maximum Sales Charge
4.75%
Lipper S&P 500
Year Ended Mid Cap Core Stock
October 31, 1999 MidCap Fund Average Index
9,527 10,000 10,000
1990 7,845 8,608 9,251
1991 13,094 13,763 12,351
1992 14,617 14,734 13,582
1993 17,492 18,305 15,607
1994 18,691 18,693 16,209
1995 23,628 23,275 20,490
1996 27,619 27,527 25,424
1997 36,252 33,803 33,585
1998 32,708 32,826 40,970
1999 34,528 43,180 51,449
Note: Past performance is not predictive of future performance. The performance
of Class B, Class C and Class R shares will vary from the performance of Class A
shares based on the differences in loads and fees.
* Since Inception Date 12/9/94
** Cumulative return since inception date 6/30/99
*** Since Inception Date 2/29/96
(1) Lipper has discontinued calculation of the Average previously used for this
Fund. This chart reflects information for the Average for years prior to 1999.
The newly assigned Average will be reflected for 1999 and beyond.
Principal Real Estate Fund
Kelly Rush
Principal Real Estate Fund experienced a disappointing
negative total return for the past fiscal year. Relative
Photo Here returns have been strong since the Fund's inception in
January 1998, but this has been of little comfort to
investors who have experienced two consecutive years of
negative total returns.
Performance volatility is common for sector funds as narrowly defined groups of
stocks fall in and out of favor. Real estate company stock prices soared in 1996
and 1997, as a robust real estate recovery was underway. In 1998, and in the
first nine months of 1999, this trend reversed itself. Real estate stocks fell
out of favor as it became evident the real estate recovery was complete and
earnings would slow to normalized levels.
Real estate companies are enjoying a favorable operating environment that is
expected to continue for the foreseeable future. Real estate markets are in
equilibrium as new construction is closely aligned with new space being
demanded. This environment is allowing real estate companies to achieve steady
earnings growth of 6-8 percent.
Principal Real Estate Fund should be viewed as a diversification tool for
investors. The Fund provides an easy and liquid means to gain exposure to a
diverse portfolio of commercial real estate assets. Short-term returns may
appear irrational, but over the long term, real estate stocks will deliver a
return consistent with the performance of the underlying assets of these
companies. Another strategy for the Fund would be to use it as diversification
in today's growth or momentum driven market. Investors who seek some exposure to
companies providing reliable earnings growth, above average dividend yields
selling at historically cheap prices may find the Fund attractive.
Relative investment performance for the Fund has been strong in the past twelve
months. The Principal Real Estate Fund outperformed both peer funds and its
benchmark index. Superior property type allocation and security selection
contributed to the strong relative performance. A higher than index weighting in
apartment companies and below index weighting in companies owning specialty net
leased properties positively contributed to the fund's relative performance.
Superior security selection was driven by returns in the hotel property type. On
average, hotel stocks in the Fund's benchmark index experienced a total return
of -22%. Total return for the Fund's hotel portfolio was -6%.
Comparison of Change in Value of $10,000 Investment in the Real Estate Fund,
Lipper Real Estate Fund Average and Morgan Stanley REIT Index.
- --------------------------------------------
Total Returns
As of October 31, 1999
1 Year 5 Year 10 Year
Class A -4.38% -10.96%* --
Class B -5.10% -11.44%* --
Class C -10.10%** -- --
Class R -4.70% -11.07%* --
- --------------------------------------------
(CDSL)
Maximum Sales Charge 4.75% 4.00%
After CDSL
REF REF Base CDSL REF REF
Year Ended Fund Fund on this Fund Fund
October 31,1999 Class A Class B Amount Class B Class R
9,521 10,000 10,000 10,000
1998 8,068 8,452 8,452.00 8,114 8,482
1999 7,632 7,943 7,943.00 7,625 7,996
Lipper Morgan
Year Ended Real Estate Stanley
October 31,1999 Fund Avg. REIT
10,000 10,000
1998 8,318 8,346
1999 7,976 7,824
S&P 500 DAILY REINV
Real Estate Fund
ORIGINAL
INVESTMENT CHANGE
Oct-98 10,000 0.1463 11,463.00
Note: Past performance is not predictive of future performance. The performance
of Class B, Class C and Class R shares will vary from the performance of Class A
shares based on the differences in loads and fees.
* Since Inception Date 12/31/97
** Cumulative return since inception date 6/30/99
Principal SmallCap Fund
John McClain Mark Williams
The Principal SmallCap Fund finished an excellent year at
the end of October. The Fund's strategy and execution worked
well. As a reminder, this Fund's strategy is to take the
Photos Here best small-capitalization growth stocks and combine them in
a single portfolio with the best small-cap value stocks.
Fund managers make an asset allocation decision between the
growth and value style. Since the inception of the fund,
this allocation has been 60/40 in favor of growth stocks.
The initial reasoning for this allocation was the
outperformance of the small cap value style during previous
measurement periods. Fund managers did not believe this
would continue. Additionally, managers felt the
opportunities for superior stock selection were greater in
the growth area.
For the twelve months just ended, the Fund had a return of +34.5%. This compares
favorably with the S&P 600 Stock Index return of +12.0% and the Lipper Small-Cap
Fund Average return of +22.4%. In general, small cap returns were more volatile
than the strong annual return figures indicate. In the first quarter of 1999,
small-cap returns finished in negative territory. The performance turned around
starting in the second quarter when small caps, for the first time in a long
while, outperformed large caps. Fund managers believe the compelling valuations
offered in the small-cap market, combined with a strengthening economy, gave
investors renewed confidence in the small-cap segment.
The decision to allocate more of the Fund's assets to growth companies proved
fruitful. Why? Returns for the S&P and Russell small-cap style indices show the
growth segment substantially outperformed the value segment. Having more of the
Fund's assets in the growth area materially improved performance. During the
year just ended, Technology was one of the Fund's best performing sectors with a
return of approximately +105.9%. The Fund also enjoyed excellent returns in the
Consumer Cyclical and Communication Services sectors. These three sectors
accounted for the majority of the Fund's relative returns.
The Fund has benefited from the positive affect of Initial Public Offerings or
IPOs of small companies. Fund managers do not change philosophy or process to
invest in IPOs and continue to evaluate the investment potential of a business
and estimate its value.
While small caps had excellent returns during the past year, they still
represent excellent value when compared to large caps. Fund managers still
believe they represent an opportunity.
Comparison of Change in Value of $10,000 Investment in the SmallCap Fund, Lipper
Small-Cap Core Fund Average and S&P 600 Stock Index.
- ----------------------------------------------
Total Returns
As of October 31, 1999
1 Year 5 Year 10 Year
Class A 34.52% 6.93%* --
Class B 33.29% 6.25%* --
Class C 0.27%** -- --
Class R 33.85% 6.77%* --
- ----------------------------------------------
(CDSL)
Maximum Sales Charge 4.75% 4.00%
<TABLE>
<CAPTION>
After CDSL
SCF SCF Base CDSL SCF SCF
Year Ended Fund Fund on this Fund Fund
October 31,1999 Class A Class B Amount Class B Class R
<S> <C> <C> <C> <C> <C>
9,527 10,000 10,000 10,000
1998 7,975 8,352 8,352.00 8,018 8,391
1999 10,728 11,132 10,000.00 10,732 11,142
</TABLE>
Lipper
Year Ended Small-Cap Core S&P
October 31, Fund Avg. 600
10,000 10,000
1998 8,683 8,783
1999 10,631 9,835
Note: Past performance is not predictive of future performance. The performance
of Class B, Class C and Class R shares will vary from the performance of Class A
shares based on the differences in loads and fees.
* Since Inception Date 12/31/97
** Cumulative return since inception date 6/30/99
(1) Lipper has discontinued calculation of the Average previously used for this
Fund. This chart reflects information for the Average for years prior to
1999. The newly assigned Average will be reflected for 1999 and beyond.
Principal Utilities Fund
Catherine Zaharis
The utilities industry has been widely divergent during the
last year. The industry as a whole had strong absolute
Photo Here returns in the teens once again, but it failed to keep up
with the overall, technology-laden broad market indexes. The
utilities companies that were the outstanding performers
tended to have more of a technology profile.
The Dow Jones Utilities Index once again fell behind the average utility fund,
as well as the Principal Utilities Fund, due to the heavy exposure in more
mainline utilities. However, the index was restructured during the year to
provide a more diverse representation of utility holdings. It now better
represents electric and gas utility companies.
The Fund performed similarly to most utilities mutual funds during the year. The
outstanding performers primarily fell into the category of telecommunications,
or at least much of the marginal growth from the company will be derived from
this sector. Given the growth in usage of telecommunications services versus gas
and electric services, it is not difficult to determine why this would be so.
The Fund's average holdings in this sector were approximately 40%, and managers
will continue to expose the portfolio to this higher growth sector. As
consolidation occurs in both telecommunications and electric and gas, the Fund
will have the opportunity to be exposed to major players who will provide
integrated utility solutions to customers.
Comparison of Change in Value of $10,000 Investment in the Utilities Fund Class
A, Lipper Utilities Fund Average, Dow Jones Utilities Index with Income and S&P
500 Stock Index.
- ---------------------------------------------
Total Returns
As of October 31, 1999
1 Year 5 Year 10 Year
Class A 14.74% 18.42% 12.80*
Class B 13.85% 18.09%** --
Class C -0.47%*** -- --
Class R 13.97% 15.54%**** --
- ---------------------------------------------
Maximum Sales Charge
4.75%
<TABLE>
<CAPTION>
Dow Jones
Dow Jones Utilities Lipper
Year Ended Utilities Utilities With Income Utilities Fund S&P 500
October 31, Fund With Income Index Average Index
<S> <C> <C> <C> <C> <C>
9,524 10,000 10,000 10,000
1993 11,250 11,658 11,575 10,979
1994 9,540 9,349 10,475 11,402
1995 11,864 11,810 26.32% 12,325 14,414
1996 12,829 13,216 11.91% 13,733 17,885
1997 14,658 14,879 12.58% 16,179 23,625
1998 19,364 19,027 27.88% 19,720 28,821
1999 22,217 20,070 5.48% 23,333 36,192
</TABLE>
Note: Past performance is not predictive of future performance. The performance
of Class B, Class C and Class R shares will vary from the performance of Class A
shares based on the differences in loads and fees.
* Since Inception Date 12/16/92
** Since Inception Date 12/9/94
*** Cumulative return since inception date 6/30/99
**** Since Inception Date 2/29/96
International Growth Funds
Principal International Emerging Markets Fund
Kurt Spieler
Emerging markets have had a phenomenal run over the past 12
months. Asia posted the largest gain after rebounding from
the economic crisis in mid-1998, up 92%. EMEA (Eastern
Photo Here Europe, Middle East, Africa) registered a gain of 66% and
Latin America gained almost 28% in the one-year time frame.
Relative returns lagged as we were more cautious on entering
the Asian region shortly after the stock markets capitulated
by choosing to wait for evidence of structural change within
the region before reinvesting. The fund was also underweight
countries, such as Russia, Indonesia and Malaysia, which
were perceived to be more risky in nature. Underperformance
is also attributed to the portfolio being more defensive in
nature at the beginning of the year.
Asian countries continue to show solid economic recoveries with the initial
rebound sparked by companies that were more speculative in nature. Although
current account surpluses have peaked, there still exists excess capacity in
some of the sectors including manufacturing and property. Thus, Fund managers do
not expect Asia to experience the level of investment activity that was typical
before the financial downturn. Fund managers continue to favor companies in the
technology sector as well as companies that could benefit from global
outsourcing plays.
Latin America was the laggard in the emerging markets over the past year, due to
devaluation concerns in Brazil and a recession in Argentina. Brazil continues to
weigh heavily on the region as concerns regarding the fiscal deficit and social
security remain. Factors that continue to weigh on the Latin American economy
include country specific events including concern around the Mexican elections
and excess government spending in several of the countries. On a positive note,
Latin American companies continue to reduce their cost structure in response to
the weak economies. With the prospects of economic recovery and cheap
valuations, the region looks attractive from a bottom up perspective.
EMEA faired well as Israeli technology stocks kept pace with the NASDAQ,
receiving an additional boost from favorable governmental elections. The Greek
stock market continues to remain atop a bubble as investors poured money in
anticipation of Greece joining the EU as well as local retail investors
continuing to provide a strong influx of capital. The devastating earthquake in
Turkey only marginally shook investors and was more than offset by political
change. Fund managers anticipate Turkey entering a cycle of lower interest rates
and inflation that would bode well for equity investors. Egypt, as their economy
is positioned for growth, is expected to remain cheap on a valuation level.
Comparison of Change in Value of $10,000 Investment in the International
Emerging Markets Fund, Lipper Emerging Markets Fund Average and MSCI EMF Index.
- --------------------------------------------
Total Returns
As of October 31, 1999
1 Year 5 Year 10 Year
Class A 30.89% -3.41%* --
Class B 29.91% -3.88%* --
Class C -6.36%** -- --
Class R 30.93% -3.46%* --
- --------------------------------------------
(CDSL)
Maximum Sales Charge 4.75% 4.00%
<TABLE>
<CAPTION>
After CDSL
IEM IEM Base CDSL IEM IEM
Year Ended Fund Fund on this Fund Fund
October 31,1999 Class A Class B Amount Class B Class R
<S> <C> <C> <C> <C> <C> <C>
9,524 10,000 10,000 10,000
1997 7,895 8,280 8,280.00 7,949 8,280
1998 6,228 6,520 6,520.00 6,259 6,530
1999 8,152 8,360 8,360.00 8,026 8,440
</TABLE>
Lipper Emerging MSCI
Year Ended Markets EMF ID
October 31,1999 Fund Avg. INDEX
10,000 10,000
1997 8,816 8,570
1998 6,010 5,752
1999 8,159 8,157
Note: Past performance is not predictive of future performance. The performance
of Class B, Class C and Class R shares will vary from the performance of Class A
shares based on the differences in loads and fees.
* Since Inception Date 8/29/97
** Cumulative return since inception date 6/30/99
Principal International Fund
Scott Opsal
Global equity markets experienced a strong recovery from the
lows reached in October 1998. The Asian economies stabilized
Photo Here and Russia's real economic impact on the rest of the world
was minimal. As we entered 1999, Brazil was the last major
high-risk situation yet to be resolved. However, Brazil's
debt and currency problems were not enough to keep investors
from piling back into equities as 1998 ended and 1999 began.
Fears of a deflationary spiral and a global recession caused
by a lack of credit availability receded as the world's
central banks acted quickly and lowered interest rates.
Consumer confidence began to rebound and other indicators
showed signs of a pickup in the world's economies.
The equity markets of Japan and the rest of the Far East have been the biggest
beneficiaries of the more benign economic outlook. Those markets had been among
the poorest performers over the previous two years but finally bottomed out late
in 1998. They began outperforming Europe strongly early in 1999 and continued to
outperform through the end of October as international investors rotated money
out of Europe and into Asia. Latin America was another strong performer. The
emerging markets of Asia and Latin America are the most leveraged into
recoveries in global economic growth such as happened in 1999. Valuations were
at low points compared with recent history; this provided another reason for
investors to pile into emerging market equities. Japan also benefited from a
growing global economy and lower valuations than usual, but was also aided by
the announcement of restructuring plans by many of Japan's largest companies.
Investors began pricing in an improvement in the profitability of Japanese
corporations as a result of the restructuring measures announced.
The Fund's performance during the year was held back by being overweight in
Europe and underweight in Japan and emerging markets. European holdings
performed better than the averages, but this was not enough to overcome the
underweight position in Japan. Holdings in Hong Kong, Singapore and Latin
America were few and concentrated in high quality companies. This resulted in
the Fund's holdings underperforming in these countries as the low quality,
highly leveraged, highly speculative companies performed the best as those
economies recovered. Outperformance in Europe resulted from being underweight
insurance companies and from several mergers and acquisitions involving
companies held in the Fund.
The Fund's weighting in Japan continues to be below the benchmark weighting
although management was able to find attractive investment opportunities in
Japan earlier in the year that the Fund continues to hold. The current weight in
Japan is about 50% of the benchmark weight. Currency movements were a slight
negative for performance during the year because of the strength of the Japanese
Yen and weakness of the Euro.
Management's strategy going forward will be to continue to invest in the same
high quality companies at discounts to fair value that have generated the
superior performance record over the long-term. Management is cognizant of the
changes taking place in Japan and continues its search for undervalued companies
with good business franchises there. The ability of Japanese companies to grow
profits through restructuring is important because of the still fragile nature
of the Japanese economy. The landscape in Europe is one of an accelerating
economy and stock markets that continue to offer attractively valued investment
opportunities. The Fund managers continue to find attractive opportunities in
the telecommunications equipment area. Telecommunications, Financials and IT
Services are other market segments where investors are underestimating the
ability of the companies to grow and generate free cash flow for the
shareholder. Asia and Latin America in general don't offer good investment value
at this time, but the Fund managers will continue to look for opportunities like
Korean banks and telecoms in which investments were made earlier in the year.
Comparison of Change in Value of $10,000 Investment in the International Fund
Class A, Lipper International Fund Average and MSCI EAFE Index.
- -------------------------------------------
Total Returns
As of October 31, 1999
1 Year 5 Year 10 Year
Class A 16.18% 11.27% 11.57%
Class B 15.27% 12.71%* --
Class C 2.99%** -- --
Class R 15.27% 12.18%*** --
- -------------------------------------------
Maximum Sales Charge
4.75%
Lipper MSCI
Year Ended International International EAFE
October 31 Fund Average Index
9,530 10,000 10,000
1990 9,618 9,924 8,718
1991 10,949 10,770 9,324
1992 10,772 10,242 8,092
1993 15,231 13,664 11,123
1994 16,693 15,109 12,245
1995 16,864 15,017 12,200
1996 19,961 16,628 13,477
1997 24,046 18,356 14,101
1998 24,509 19,103 15,461
1999 28,476 23,980 19,023
Note: Past performance is not predictive of future performance. The performance
of Class B, Class C and Class R shares will vary from the performance of Class A
shares based on the differences in loads and fees.
* Since Inception Date 12/9/94
** Cumulative return since inception date 6/30/99
*** Since Inception Date 2/29/96
Principal International SmallCap Fund
Darren Sleister
Japanese small capitalization companies were the outstanding
performers this past year as the Fund's average holding
Photo Here gained some 60%. The Fund went from a zero weighting in
Japan to one that more closely matches the benchmark, with
less emphasis on Europe. The Fund manger's outlook on Japan
became more favorable as companies began to place emphasis
on restructuring and focusing on improving their balance
sheets. Japanese small cap returns have resulted from the
end of a lengthy bear market and the likely turning point of
the Japanese economy.
Fund managers have increased the weightings in the resource countries,
particularly Australia, but its stocks are generally non-commodity companies. In
Australia there is an abundance of well-positioned global leaders in their
respective industries. Fund managers continue to find comparably positioned
stocks in Canada as well. The Fund is not a buyer of commodity-related stocks
but managers are able to find globally competitive companies valued more like
commodity operations than the quality firms they actually are.
Economic activity is expected to pick up next year in Europe. As small companies
tend to benefit in times of increasing economic activity, it is likely that Fund
managers will find attractively valued companies with strong earnings potential
here. Managers continue to look at non-Japan Asia as their economies return to a
more normal growth rate and find high quality companies at inexpensive
valuations.
The small cap portfolio continues to benefit from themes such as outsourcing of
electronic components, increasing advertising expenditures, market research
companies and indirect ecommerce solutions. The Fund's outperformance versus the
benchmark is attributed to stock selection in these sectors. Choosing relatively
undervalued companies that benefit from the restructuring in Japan also enhanced
stock selection significantly. At the current time, growth companies offer the
most attractive investments from a risk/return trade-off compared to the more
traditional value stocks. Fund managers continue to look for companies that are
at attractive valuations and also offer long term earnings growth potential.
Comparison of Change in Value of $10,000 Investment in the International
SmallCap Fund, Lipper International Small-Cap Fund Average and Morgan Stanley
Capital International EAFE.
- -------------------------------------------
Total Returns
As of October 31, 1999
1 Year 5 Year 10 Year
Class A 54.52% 22.63%* --
Class B 53.42% 22.11%* --
Class C 16.29%** -- --
Class R 54.61% 22.77%* --
- -------------------------------------------
Maximum Sales Charge 4.75% 4.00%
<TABLE>
<CAPTION>
After CDSL
ISF ISF ISF ISF Lipper Int'l
Year Ended Fund Fund Fund Fund SmallCap MSCI
October 31,1999 Class A Class B Class B Class R Fund Avg. EAFE
<S> <C> <C> <C> <C> <C> <C>
9,524 10,000 10,000 10,000 10,000 10,000
1997 9,486 9,960 9,562 9,960 9,736 9,748
1998 9,514 9,970 9,571 10,010 9,774 10,689
1999 14,701 15,180 14,780 15,304 14,102 13,151
</TABLE>
Note: Past performance is not predictive of future performance. The performance
of Class B, Class C and Class R shares will vary from the performance of Class A
shares based on the differences in loads and fees.
* Since Inception Date 8/29/97
** Cumulative return since inception date 6/30/99
Important Notes on the Growth-Oriented Funds:
* Duration is the dollar weighted, present value of cash flows, principal and
interest, expressed in time.
The values of these indexes will vary according to the aggregate value of the
common equity of each of the securities included. The indexes represent asset
types which are subject to risk, including possible loss of principal. You
cannot invest directly in an index. An index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower.
Principal international funds' shares are subject to volatility caused by
exchange rates, foreign economies and taxation.
Investments in Principal MidCap, Principal SmallCap and Principal International
SmallCap Funds involve more abrupt or erratic market movements and may involve
greater risk than other stock fund investments.
Principal Real Estate Fund investing involves risks inherent to the real estate
industry and REITs, such as general and local economic conditions.
Principal Utilities Fund is subject to market conditions directly related to the
utilities industry.
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.
Lehman Brothers Government/Corporate Bond Index: This index consists of publicly
issued securities from the Government Index and the Corporate Index. The
Government Index includes U.S. Treasuries and Agencies. The Corporate Index
includes U.S. Corporate and Yankee debentures and secured notes from the
Industrial, Utility, Finance, and Yankee categories.
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 447 funds.
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 179 funds.
Lipper International Small-Cap Fund 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 69 funds.
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 615 funds.
Lipper Large-Cap Value Fund Average: This average consists of funds which invest
at least 75% of their equity assets in companies with market capitalizations of
greater than 300% of the dollar-weighted median market capitalization of the S&P
Mid-Cap 400 Index. The one-year average currently contains 281 funds.
Lipper Mid-Cap Core Fund Average: This average consists of funds that invest at
least 75% of their equity assets in companies with market capitalizations of
less than 300% of the dollar weighted median market capitalization of the S&P
Mid-Cap 400 Index. The one-year average currently contains 146 funds.
Lipper Multi-Cap Core Fund Average: This average consists of funds which invest
in a variety of market capitalization ranges, without concentrating 75% of their
equity assets in any one market capitalization range of an extended period of
time. The one-year average currently contains 388 funds.
Lipper Real Estate Fund Average: This average consists of funds which invest 65%
of their equity portfolio in equity securities of domestic and foreign companies
engaged in the real estate industry. The one-year average currently contains 132
funds.
Lipper Small-Cap Core Fund Average: This average consists of funds which invest
at least 75% of their equity assets in companies with market capitalizations of
less than 250% of the dollar-weighted median market capitalization of the S&P
Small-Cap 600 Index. The one-year average currently contains 190 funds.
Lipper Utilities Fund Average: This average consists of funds which invest 65%
of their equity portfolio in utility shares. The one-year average currently
contains 102 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.
Morgan Stanley EMF (Emerging Markets Free) Index: This average is capitalization
weighted and consists of stocks from 26 countries. These countries include:
Argentina, Brazil, Chile, China Free, Columbia, Czech Republic, Greece, Hungary,
India, Indonesia Free, Israel, Jordan, Korea at 50%, Malaysia Free, Mexico Free,
Pakistan, Peru, Philippines Free, Poland, Portugal, South Africa, Sri Lanka,
Taiwan at 50%, Thailand Free, Turkey and Venezuela.
Morgan Stanley REIT Index: This is a capitalization-weighted index of the most
actively traded real estate investment trusts, and is designed to be a measure
of real estate equity performance.
Standard & Poor's 500 Stock Index: This is 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.
Standard & Poor's 600 Index: This is a market-value weighted index consisting of
600 domestic stocks chosen for market size, liquidity and industry group
representation.
Note: Mutual fund data from Lipper Analytical Services, Inc.
Income-Oriented Funds
Principal Bond Fund
Scott Bennett
The world economy and the financial markets have recovered
from the financial crisis of 1998 with investors again
Photo Here willing to invest in something other than U.S. Treasuries.
Fixed income investment returns have been flat to negative
over the past twelve months driven by higher interest rates.
The Fed has hiked rates, reversing its 1998 easings, on the
continued stellar growth of the U.S. economy, the recovery
of the global economy and a marked improvement in the
liquidity of financial markets. Corporate bonds, which make
up the bulk of Principal Bond Fund's holdings, performed
well in this environment and significantly outperformed U.S.
Treasuries.
The Principal Bond Fund's returns have lagged during the past twelve months
driven by a combination of factors including being underweighted in BBB and
BB-rated bonds in the fall of last year and through the first quarter of 1999
when these classes significantly outperformed. Fund managers repositioned the
portfolio during the year, increasing the BBB and BB-rated securities while
decreasing single-A exposures given expectations of superior returns for those
asset classes in a strong economy. Although the timing was not ideal, the Fund
is well positioned for another strong economic year in 2000.
Comparison of Change in Value of $10,000 Investment in the Bond Fund Class A,
Lipper Corporate Debt BBB Rated Fund Average and Lehman Brothers BAA Corporate
Index
- -------------------------------------------
Total Returns
As of October 31, 1999
1 Year 5 Year 10 Year
Class A -1.92% 7.86% 7.74%
Class B -2.68% 7.04%* -
Class C -0.40%** - -
Class R -2.45% -4.76%*** -
- -------------------------------------------
Maximum Sales Charge
4.75%
Lehman Lipper
Bond Baa BBB Corp.
Year Ended October 31,1999 Fund Index Average
9,523 10,000 10,000
1990 9,816 10,279 10,263
1991 11,390 12,141 12,017
1992 12,612 13,543 13,315
1993 14,531 15,695 15,327
1994 13,658 14,998 14,504
1995 16,352 17,898 16,588
1996 17,128 19,121 17,507
1997 18,867 21,064 19,182
1998 20,332 22,376 20,268
1999 19,942 22,745 20,310
Note: Past performance is not predictive of future performance. The performance
of Class B, Class C and Class R shares will vary from the performance of Class A
shares based on the differences in loads and fees.
* Since Inception Date 12/9/94
** Cumulative return since inception date 6/30/99
*** Since Inception Date 2/29/96
Principal Government Securities Income Fund
Marty Schafer
Over the last year the Federal Reserve has cut interest
rates to stabilize the global financial turmoil, only to
reverse course and start raising rates as markets stabilized
Photo Here and global growth resumed. Fund managers view the Federal
Reserve actions as the equivalent of a doctor prescribing
aspirin to treat the economic patient. These are mild
treatments, needed to keep inflation low and growth
reasonable.
On October 31, 1998, the duration* of the Fund was 3.34 years versus the index
of 2.05 years. Fund managers indicated that given the absolute level of interest
rates they planned to move the duration of the Fund closer to the Lehman GNMA
index. On October 31, 1999, the duration of the Fund was 4.68 years versus the
index of 4.18 years. This proved to be a wise move as rates rose during the
period. The performance for the year was hindered by the slightly longer
duration but helped by security selection. The outperformance of the portfolio's
securities can be attributed to prepayment return. Favorable prepayment return
was two-fold: first the U.S. economic vibrancy escalated existing home turnover
which produced prepayments on our discount portfolio. Receiving a price of 100
(par) versus the market price below par, produced "positive" returns.
Conversely, the "index" holdings of securities priced above par, was "hurt" by
the extremely fast prepayments. Net the Fund was even with its peers.
The quality and composition of the Fund is generally in line with its
benchmarks. Fund managers continue to hold more discount MBS securities than the
index (this leads to a bias of longer duration) as they believe the homeowners
propensity to refinance and the mortgage bankers technology driven inducement to
refinance loans puts great risk on securities priced above par. This is
especially true in a market when overall new mortgage volume is declining as
higher interest rates impact both new and existing home markets.
Comparison of Change in Value of $10,000 Investment in the Government Securities
Income Fund Class A, Lipper GNMA Fund Average and Lehman Brothers GNMA Index.
- ---------------------------------------------
Total Returns
As of October 31, 1999
1 Year 5 Year 10 Year
Class A 1.47% 8.19% 7.65%
Class B 0.65% 7.48%* --
Class C 1.20%** -- --
Class R 0.78% 5.25%*** --
- ---------------------------------------------
Maximum Sales Charge
4.75%
Government Lehman Lipper
Securities GNMA GNMA
Year Ended October 31,1999 Income Fund Index Average
9,522 10,000 10,000
1990 10,110 10,830 10,730
1991 11,806 12,681 12,332
1992 12,731 13,795 13,357
1993 14,233 14,841 14,441
1994 13,343 14,613 13,997
1995 15,672 16,832 15,906
1996 16,622 18,036 16,788
1997 18,156 19,697 18,197
1998 19,496 21,109 19,429
1999 19,782 21,761 19,716
Note: Past performance is not predictive of future performance. The performance
of Class B, Class C and Class R shares will vary from the performance of Class A
shares based on the differences in loads and fees.
* Since Inception Date 12/9/94
** Cumulative return since inception date 6/30/99
*** Since Inception Date 2/29/96
Principal High Yield Fund
Mark Denkinger
The high yield market was the best performing fixed income
sector for the year ended October 31, 1999. The Principal
High Yield Fund posted a total return of 2.81% for the year,
Photo Here trailing the Lipper High Current Yield Fund Average of
6.61%. The relative performance was negatively impacted by
the underperformance of several holdings during the first
quarter of 1999.
After a strong start to the year, the fundamentals in the high yield market
weakened as cash inflows from mutual funds turned negative and the new issuance
calendar disappeared. In addition, the default rate continued its spiral upward
causing many to run for better quality, high yield issues. These technical
factors have led to wider spreads and a more volatile high yield market during
the latest two quarters. The high yield market is still favoring the larger,
more liquid issues. Liquidity of the issuers has continued to be very critical
since the problems developed in Russia last fall.
The High Yield Fund has a current average quality of BB-. Fund managers have
maintained a higher quality portfolio, as they feel BBs will outperform Bs in
the near term. This is a relatively conservative risk position compared to other
funds in the high yield market and worked to the Fund's benefit during the
second half of 1999. Going forward managers will be more willing to lower the
quality of the Fund when market conditions warrant the risk. Fund managers
believe the Fund offers compelling value at this time and continue to stress the
benefits of high yield in building well diversified portfolios due to its low
correlation with both Treasury and equity markets.
Comparison of Change in Value of $10,000 Investment in the High Yield Fund Class
A, Lipper High Current Yield Fund Average and Lehman Brothers High Yield
Composite Bond Index.
- ----------------------------------------------
Total Returns
As of October 31, 1999
1 Year 5 Year 10 Year
Class A 2.81% 6.93% 6.88%
Class B 2.02% 6.36% * --
Class C -0.99%** -- --
Class R 2.01% 3.88%*** --
- ----------------------------------------------
Maximum Sales Charge
4.75%
Lehman Lipper
High High Yield High Yield
Year Ended October 31,1999 Yield Fund Index Average
9,527 10,000 10,000
1990 8,145 8,715 8,778
1991 10,229 12,957 11,968
1992 11,780 14,932 13,929
1993 13,054 17,605 16,725
1994 13,243 17,820 16,657
1995 14,796 20,614 18,855
1996 16,555 22,903 21,240
1997 18,595 26,045 24,312
1998 18,003 25,915 23,497
1999 18,509 27,039 25,050
Note: Past performance is not predictive of future performance. The performance
of Class B, Class C and Class R shares will vary from the performance of Class A
shares based on the differences in loads and fees.
* Since Inception Date 12/9/94
** Cumulative return since inception date 6/30/99
*** Since Inception Date 2/29/96
Principal Limited Term Bond Fund
Marty Schafer
The Principal Limited Term Bond Fund is targeted for those
Photo Here investors looking to improve on lower yielding money market
funds and similar investments.
Fund managers have consistently kept duration* shorter than the benchmarks and
produced returns through asset selection. For the year, this process led to
above average performance as rates rose and the Fund's investments have
outperformed. Absolute returns for fixed income sectors were poor for the year;
however, in comparison to its peers it was a good year for the Fund.
Over the last year, the Federal Reserve has cut interest rates to stabilize the
global financial turmoil, only to reverse course and start raising rates as
markets stabilized and global growth resumed. Fund managers view the Federal
Reserve actions as the equivalent of a doctor prescribing aspirin to treat the
economic patient. These are mild treatments, needed to keep inflation low and
growth reasonable.
The strategy is to stay fully invested, find the best value among various
short-term fixed income securities, maintain high credit quality standards and
manage duration within the target range.
Comparison of Change in Value of $10,000 Investment in the Limited Term Bond
Fund, Lipper Short-Intermediate Investment Grade Debt Fund Average and Lehman
Brothers Intermediate Government/Corporate Index.
- ----------------------------------------------
Total Returns
As of October 31, 1999
1 Year 5 Year 10 Year
Class A 1.83% 5.11%* --
Class B 1.29% 4.66%* --
Class C 0.94%** -- --
Class R 1.13% 4.48%* --
- ----------------------------------------------
Principal Limited Term Bond Fund, Inc.
(CDSL)
Maximum Sales Charge 1.50% 1.25%
<TABLE>
<CAPTION>
After CDSL
Limited Term Limited Term Limited Term Limited Term Lehman Brothers Lipper Intermediate
Year Ended Bond Fund Bond Fund Bond Fund Bond Fund Government Corporate Investment Grade
October 31,1999 Class A Class B Class B Class R Intermediate Index Bond Fund Avg.
<S> <C> <C> <C> <C> <C> <C>
9,851 10,000 10,000 10,000 10,000 10,000
1996 10,208 10,332 10,207 10,324 10,368 10,357
1997 10,897 10,985 10,860 10,944 11,145 11,032
1998 11,614 11,670 11,545 11,615 12,161 11,801
1999 11,827 11,784 11,659 11,697 12,282 11,971
</TABLE>
Note: Past performance is not predictive of future performance. The performance
of Class B, Class C and Class R shares will vary from the performance of Class A
shares based on the differences in loads and fees.
* Since Inception Date 2/29/96
** Cumulative return since inception date 6/30/99
Principal Tax-Exempt Bond Fund
Dan Garrett
Principal Tax-Exempt Bond Fund provides income free from
federal income tax, but not necessarily state and local tax,
Photo Here while preserving capital. The Fund may be subject to
Alternative Minimum Tax.
The past year has seen strong economic growth and concerns of rising inflation
that has resulted in interest rates rising over 1%. The Fund manager's outlook
was for slightly higher rates so the Fund's position in premium bonds was
continued which fared well in this rising rate environment. The Fund also
enjoyed extra income return versus our peers by maintaining an overweight in
sectors and specific credits that outperformed by relying on recommendations
from the manager's own staff of credit analysts. Being slightly defensive on
rates and realizing extra income from credit selection has led to strong
outperformance over the past year relative to other fund managers.
The outperformance relative to the unmanaged Lehman Municipal Bond Index was due
to three factors. The Fund manager underweighted insured bonds (3% of the Fund's
assets yet almost half the Index's assets) which was the worst sector in the
Index. The Funds' overweight in the electric utility sector was an advantage
because this was among the best performing index components. The selection of
companies within sectors resulted in the Fund's performance exceeding the index
for electric, hospital and transportation.
Fund strategy continues to focus on consistent and disciplined management of
duration* to keep price movement consistent with the market so the Fund may
continue to realize outperformance from sector and credit specific selection.
- ----------------------------------------------
Total Returns
As of October 31, 1999
1 Year 5 Year 10 Year
Class A -2.51% 6.85% 6.58%
Class B -3.01% 6.80%* --
Class C -2.59%** -- --
- ----------------------------------------------
Maximum Sales Charge
4.75%
Lehman Lipper
Year Ended Tax-Exempt Municipal General
October 31,1999 Bond Fund Bond Index Muni. Debt
9,526 10,000 10,000
1990 9,913 10,742 10,554
1991 11,210 12,049 11,852
1992 12,020 13,060 12,728
1993 13,843 14,899 14,694
1994 12,817 14,250 13,833
1995 14,871 16,364 15,729
1996 15,775 17,297 16,532
1997 17,149 18,765 17,875
1998 18,309 20,270 19,147
1999 17,850 19,912 18,347
Note: Past performance is not predictive of future performance. The performance
of Class B and Class C shares will vary from the performance of Class A shares
based on the differences in loads and fees.
* Since Inception Date 12/9/94
** Cumulative return since inception date 6/30/99
Principal Cash Management Fund
Mike Johnson Alice Robertson
On November 17, 1998, the Federal Reserve cut its targeted
Fed Funds rate** by .25 % to 4.75% completing a series of
three rate cuts that took place over a period of three
Photos Here months. Subsequently, rates remained fairly steady up until
June, 1999 when rumblings began about a potential upward
adjustment in rates due to continuing strength in the
economy along with concerns of rising inflation. The Fed
then proceeded to reverse the prior year's actions by hiking
rates in three separate 25 basis point intervals first on
June 30, next on August 24 and finally again on November 16.
The Fed did adopt a neutral bias along with the latter
increase. The industry average maturity over the course of
fiscal 1999 was in the 60-66 day area. The Principal Cash
Management Fund strives to stay aligned with the industry
average. The Fund manager actively monitors the industry
averages in order to keep both yields and average maturities
in line. The Fund continues to invest from a list of high
quality investments that is actively monitored by our fixed
income analytical staff.
Important Notes for Income-Oriented Funds:
* Duration is the dollar weighted, present value of cash flows, principal and
interest, expressed in time.
** The Fed Funds rate is the rate at which banks lend to each other on an
overnight basis.
The values of these indexes will vary according to the aggregate value of the
common equity of each of the securities included. The indexes represent asset
types which are subject to risk, including possible loss of principal. You
cannot invest directly in an index. An index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower.
While the underlying securities of Principal Government Securities Income Fund
are guaranteed by the U.S. Government as to the timely payment of principal and
interest, Fund shares are not.
Principal High Yield Fund is subject to the greater credit risks associated with
high yield bonds.
Principal Cash Management Fund shares are not guaranteed by the U.S. Government
or FDIC. While the Fund strives to maintain a $1.00 per share net sset value, it
is possible to lose money by investing in it.
Lehman Brothers Baa Corporate 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.
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.
Lehman Brothers High Yield Composite Bond 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.
Lehman Brothers Intermediate Government/Corporate 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.
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 125
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 263 funds.
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 54 funds.
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 306 funds.
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 93 funds.
Note: Mutual fund data from Lipper Analytical Services, Inc.
October 31, 1999
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
Principal Principal Principal
Balanced Blue Chip Capital Value
GROWTH FUNDS (DOMESTIC) Fund, Inc. Fund, Inc. Fund, Inc.
<S> <C> <C> <C>
Investment in securities -- at cost............ $148,522,820 $223,049,896 $555,742,898
Assets
Investment in securities -- at value (Note 4).. $159,362,937 $291,801,322 $670,269,801
Cash........................................ 14,839 10,000 10,000
Receivables:
Dividends and interest...................... 917,146 164,844 1,034,253
Investment securities sold.................. -- -- --
Capital Shares sold......................... 120,803 151,894 168,082
Variation margin on futures contracts (Note 7) -- --
- --
Other assets................................... 3,801 553 25,903
Total Assets 160,419,526 292,128,613 671,508,039
Liabilities
Accrued expenses............................... 131,515 271,290 430,059
Payables:
Investment securities purchased............. -- -- --
Capital Shares reacquired................... 174,609 149,368 351,332
Total Liabilities 306,124 420,658 781,391
Net Assets Applicable to
Outstanding Shares ............................ $160,113,402 $291,707,955 $670,726,648
Net Assets Consist of:
Capital Stock.................................. $ 106,049 $ 115,865 $ 226,950
Additional paid-in capital..................... 142,137,527 219,399,709 495,338,327
Accumulated undistributed net investment
income ..................................... 260,715 38,296 3,610,844
Accumulated undistributed net realized
gain (loss) on investment transactions...... 6,768,994 3,402,659 57,023,624
Net unrealized appreciation (depreciation)
of investments and futures contracts........ 10,840,117 68,751,426 114,526,903
Total Net Assets $160,113,402 $291,707,955 $670,726,648
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 $112,328,760 $184,216,510 $573,484,800
Shares issued and outstanding..... 7,425,110 7,296,575 19,384,529
Net asset value per share.......... $15.13 $25.25 $29.58
Maximum offering price per share(a) ... $15.88 $26.51 $31.06
Class B: Net Assets........................... $23,569,980 $56,492,810 $53,168,885
Shares issued and outstanding..... 1,564,963 2,259,798 1,807,614
Net asset value per share(b)........... $15.06 $25.00 $29.41
Class C: Net Assets........................... $242,348 $331,315 $211,364
Shares issued and outstanding..... 16,020 13,162 7,176
Net asset value per share(b)........... $15.13 $25.17 $29.45
Class R: Net Assets........................... $23,972,314 $50,667,320 $43,861,599
Shares issued and outstanding..... 1,598,788 2,016,978 1,495,673
Net asset value per share.............. $14.99 $25.12 $29.33
Principal Principal Principal
Growth MidCap Real Estate
GROWTH FUNDS (DOMESTIC) Fund, Inc. Fund, Inc. Fund, Inc.
Investment in securities -- at cost............ $384,404,658 $309,248,732 $ 14,734,393
Assets
Investment in securities -- at value (Note 4).. $637,000,794 $411,183,772 $ 13,012,293
Cash........................................ 77,856 643,307 9,991
Receivables:
Dividends and interest...................... 543,533 285,037 8,843
Investment securities sold.................. -- -- --
Capital Shares sold......................... 256,712 175,149 2,313
Variation margin on futures contracts (Note 7) -- -- 448,875
- --
Other assets................................... 8,658 2,144 --
Total Assets 637,887,553 412,738,284 13,033,440
Liabilities
Accrued expenses............................... 230,304 499,643 22,475
Payables:
Investment securities purchased............. -- 4,069,185 --
Capital Shares reacquired................... 779,119 447,479 1,657
Total Liabilities 1,009,423 5,016,307 24,132
Net Assets Applicable to
Outstanding Shares ............................ $636,878,130 $407,721,977 $ 13,009,308
Net Assets Consist of:
Capital Stock.................................. 97,232 $ 97,241 $ 16,845
Additional paid-in capital..................... 360,681,357 286,202,671 16,053,079
Accumulated undistributed net investment
income ..................................... -- -- 37,747
Accumulated undistributed net realized
gain (loss) on investment transactions...... 23,503,405 18,659,149 (1,376,263)
Net unrealized appreciation (depreciation)
of investments and futures contracts........ 252,596,136 102,762,916 (1,722,100)
Total Net Assets $636,878,130 $407,721,977 $ 13,009,308
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 $493,116,674 $313,983,502 $6,458,697
Shares issued and outstanding..... 7,520,482 7,455,007 835,570
Net asset value per share.......... $65.57 $42.12 $7.73
Maximum offering price per share(a) ... $68.84 $44.22 $8.12
Class B: Net Assets........................... $96,115,666 $68,639,409 $3,351,577
Shares issued and outstanding..... 1,471,182 1,662,356 434,779
Net asset value per share(b)........... $65.33 $41.29 $7.71
Class C: Net Assets........................... $452,597 $221,944 $98,801
Shares issued and outstanding..... 6,927 5,289 12,790
Net asset value per share(b)........... $65.34 $41.96 $7.72
Class R: Net Assets........................... $47,193,193 $24,877,122 $3,100,233
Shares issued and outstanding..... 724,589 601,443 401,350
Net asset value per share.............. $65.13 $41.36 $7.72
Principal Principal
SmallCap Utilities
GROWTH FUNDS (DOMESTIC) Fund, Inc. Fund, Inc.
Investment in securities -- at cost............ $ 63,831,484 $ 91,257,260
Assets
Investment in securities -- at value (Note 4).. $ 64,823,137 $126,175,184
Cash........................................ 370,000 42,671
Receivables:
Dividends and interest...................... 13,093 353,552
Investment securities sold.................. 2,492,177 --
Capital Shares sold......................... 48,612 47,663
Variation margin on futures contracts (Note 7) -- --
Other assets................................... -- 489
Total Assets 67,747,019 126,619,559
Liabilities
Accrued expenses............................... 94,179 130,897
Payables:
Investment securities purchased............. 1,500,687 --
Capital Shares reacquired................... 30,699 43,103
Total Liabilities 1,625,565 174,000
Net Assets Applicable to
Outstanding Shares ............................ $ 66,121,454 $126,445,559
Net Assets Consist of:
Capital Stock.................................. $58,487 $ 70,826
Additional paid-in capital..................... 57,485,217 83,202,643
Accumulated undistributed net investment
income ..................................... -- 198,077
Accumulated undistributed net realized
gain (loss) on investment transactions...... 7,586,097 8,056,089
Net unrealized appreciation (depreciation)
of investments and futures contracts........ 991,653 34,917,924
Total Net Assets $ 66,121,454 $126,445,559
Capital Stock (par value: $.01 a share):
Shares authorized.............................. 100,000,000 100,000,000
Net Asset Value Per Share:
Class A: Net Assets $41,597,575 $99,857,012
Shares issued and outstanding..... 3,669,102 5,591,326
Net asset value per share.......... $11.34 $17.86
Maximum offering price per share(a) .. $11.91 $18.75
Class B: Net Assets........................... $14,157,515 $18,281,789
Shares issued and outstanding..... 1,263,290 1,025,089
Net asset value per share(b)........... $11.21 $17.83
Class C: Net Assets.......................... $189,393 $225,383
Shares issued and outstanding..... 16,745 12,632
Net asset value per share(b)........ $11.31 $17.84
Class R: Net Assets........................... $10,176,971 $8,081,375
Shares issued and outstanding..... 899,523 453,587
Net asset value per share.............. $11.31 $17.82
<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.
See accompanying notes.
</FN>
</TABLE>
Year Ended October 31, 1999
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Principal Principal Principal
Balanced Blue Chip Capital Value
GROWTH FUNDS (DOMESTIC) Fund, Inc. Fund, Inc. Fund, Inc.
Net Investment Income
Income:
<S> <C> <C> <C>
Dividends................................... $1,707,866 $ 4,363,865 $ 16,415,138
Interest.................................... 4,503,346 346,388 754,765
Total Income 6,211,212 4,710,253 17,169,903
Expenses:
Management and investment advisory
fees (Note 3)............................ 914,378 1,142,839 2,570,792
Distribution and shareholder servicing
fees (Notes 1 and 3)..................... 643,811 1,145,769 1,767,160
Transfer and administrative services
(Notes 1 and 3)......................... 664,179 1,336,983 1,415,788
Registration fees (Note 1).................. 55,378 82,935 99,761
Custodian fees.............................. 4,951 1,787 3,217
Auditing and legal fees..................... 5,953 4,753 5,811
Directors' fees............................. 6,040 6,489 6,390
Other....................................... 7,207 11,692 30,171
Total Expenses 2,301,897 3,733,247 5,899,090
Net Investment Income (Operating Loss) 3,909,315 977,006 11,270,813
Net Realized and Unrealized Gain (Loss)
on Investments and Futures Contracts
Net realized gain (loss) from investment transactions 6,771,675 3,421,073 57,024,202
Net realized gains from investment companies... -- -- --
Change in unrealized appreciation/depreciation of:
Investments................................. (4,100,582) 31,100,972 (49,482,847)
Futures Contracts (Note 7).................. -- -- --
Net Realized and Unrealized Gain (Loss)
on Investments and Futures Contracts 2,671,093 34,522,045 7,541,355
Net Increase (Decrease) in Net Assets
Resulting from Operations $6,580,408 $35,499,051 $18,812,168
Principal Principal Principal
Growth MidCap Real Estate
GROWTH FUNDS (DOMESTIC) Fund, Inc. Fund, Inc. Fund, Inc.
Net Investment Income
Income:
Dividends................................... $ 6,287,055 $ 3,572,237 $ 733,947
Interest.................................... 989,985 1,031,195 25,195
Total Income 7,277,040 4,603,432 759,142
Expenses:
Management and investment advisory
fees (Note 3)............................ 2,283,089 2,461,880 114,693
Distribution and shareholder servicing
fees (Notes 1 and 3)..................... 2,035,710 1,497,219 62,369
Transfer and administrative services
(Notes 1 and 3)......................... 1,613,707 1,733,436 93,688
Registration fees (Note 1).................. 79,929 75,518 33,237
Custodian fees.............................. 3,920 5,420 2,248
Auditing and legal fees..................... 1,126 5,233 1,935
Directors' fees............................. 6,241 6,241 6,839
Other....................................... 23,976 38,441 1,190
Total Expenses 6,047,698 5,823,388 316,199
Net Investment Income (Operating Loss) 1,229,342 (1,219,956) 442,943
Net Realized and Unrealized Gain (Loss)
on Investments and Futures Contracts
Net realized gain (loss) from investment transactions 28,017,681 19,056,817 (784,488)
Net realized gains from investment companies... -- -- 21,332
Change in unrealized appreciation/depreciation of:
Investments................................. 57,955,516 5,356,392 (326,793)
Futures Contracts (Note 7).................. -- 827,876 --
Net Realized and Unrealized Gain (Loss)
on Investments and Futures Contracts 85,973,197 25,241,085 (1,089,949)
Net Increase (Decrease) in Net Assets
Resulting from Operations $87,202,539 $24,021,129 $ (647,006)
Principal Principal
SmallCap Utilities
GROWTH FUNDS (DOMESTIC) Fund, Inc. Fund, Inc.
Net Investment Income
Income:
Dividends................................... $ 293,208 $3,459,473
Interest.................................... 134,133 177,575
Total Income 427,341 3,637,048
Expenses:
Management and investment advisory
fees (Note 3)............................ 412,361 685,175
Distribution and shareholder servicing
fees (Notes 1 and 3)..................... 202,029 418,285
Transfer and administrative services
(Notes 1 and 3)......................... 348,721 390,699
Registration fees (Note 1).................. 56,815 34,047
Custodian fees.............................. 5,542 2,354
Auditing and legal fees..................... 4,724 5,299
Directors' fees............................. 6,914 6,489
Other....................................... 1,758 6,279
Total Expenses 1,038,864 1,548,627
Net Investment Income (Operating Loss) (611,523) 2,088,421
Net Realized and Unrealized Gain (Loss)
on Investments and Futures Contracts
Net realized gain (loss) from investment transaction 9,424,406 8,056,360
Net realized gains from investment companies... -- --
Change in unrealized appreciation/depreciation of:
Investments................................. 4,379,531 4,964,248
Futures Contracts (Note 7).................. -- --
Net Realized and Unrealized Gain (Loss)
on Investments and Futures Contracts 13,803,937 13,020,608
Net Increase (Decrease) in Net Assets
Resulting from Operations $13,192,414 $15,109,029
<FN>
See accompanying notes.
</FN>
</TABLE>
Years Ended October 31, Except as Noted
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Principal Principal Principal
Balanced Blue Chip Capital Value
GROWTH FUNDS (DOMESTIC) Fund, Inc. Fund, Inc. Fund, Inc.
1999 1998 1999 1998 1999 1998
Operations
<S> <C> <C> <C> <C> <C> <C>
Net investment income(operating loss) $ 3,909,315 $ 3,433,710 $ 977,006 $ 567,773 $ 11,270,813 $9,784,467
Net realized gain (loss) from
investment transactions 6,771,675 4,283,465 3,421,073 21,090 57,024,202 40,907,350
Change in unrealized appreciation/depreciation of
investments and futures contracts.......... (4,100,582) 4,621,248 31,100,972 23,303,399 (49,482,847) 33,306,303
Net Increase (Decrease) in Net Assets
Resulting from Operations 6,580,408 12,338,423 35,499,051 23,892,262 18,812,168 83,998,120
Dividends and Distributions to Shareholders
From net investment income:
Class A.................................... (3,153,964) (2,435,139) (874,272) (571,140) (9,877,196) (9,413,649)
Class B ................................... (454,611) (269,151) (17,657) (21,463) (458,266) (302,359)
Class C(b)................................. (959) -- -- -- -- --
Class R.................................... (501,400) (300,221) (49,100) (42,466) (391,502) (272,715)
From net realized gain on investments:
Class A ................................... (3,108,449) (5,882,074) (24,683) (8,442,806) (35,544,917) (40,827,739)
Class B ................................... (579,595) (842,073) (8,209) (1,993,541) (2,882,612) (2,381,772)
Class R.................................... (605,230) (725,965) (6,612) (1,692,630) (2,464,152) (1,697,455)
Tax return of capital distributions:
Class A ................................... -- -- -- -- -- --
Class B ................................... -- -- -- -- -- --
Class R.................................... -- -- -- -- -- --
Total Dividends and Distributions (8,404,208) (10,454,623) (980,533)(12,764,046) (51,618,645) (54,895,689)
Capital Share Transactions (Note 5)
Shares sold:
Class A.................................... 23,834,020 23,880,103 62,427,545 46,354,686 71,171,390 73,344,881
Class B ................................... 8,208,037 8,010,824 23,559,014 15,736,209 18,742,374 17,966,775
Class C(b)................................. 248,890 -- 326,943 -- 217,569 --
Class R.................................... 9,709,321 11,459,488 22,787,946 18,838,628 17,677,992 22,090,590
Shares issued in reinvestment of dividends and distributions:
Class A.................................... 6,090,364 8,093,981 862,557 8,730,513 44,385,520 49,153,586
Class B ................................... 1,015,205 1,101,436 26,997 2,000,486 3,292,087 2,633,936
Class C(b)................................. 487 -- -- -- -- --
Class R.................................... 1,105,036 1,026,031 97,845 1,734,897 2,860,407 2,028,417
Shares redeemed:
Class A ................................... (20,782,453) (14,404,904) (28,208,067)(15,983,191) (78,893,780) (78,578,133)
Class B ................................... (4,290,594) (2,320,820) (7,490,289) (3,609,645) (11,104,390) (4,560,133)
Class C(b) ................................ (500) -- (500) -- (525) --
Class R ................................... (5,978,278) (3,017,907) (11,035,085) (4,847,775) (12,307,726) (5,699,984)
Net Increase (Decrease) in Net Assets
from Capital Share Transactions 19,159,535 33,828,232 63,354,906 68,954,808 56,040,918 78,379,935
Total Increase (Decrease) 17,335,735 35,712,032 97,873,424 80,083,024 23,234,441 107,482,366
Net Assets
Beginning of period........................... 142,777,667 107,065,635 193,834,531 113,751,507 647,492,207 540,009,841
End of period (including undistributed net investment
income as set forth below)................. $160,113,402 $142,777,667 $291,707,955$193,834,531 $670,726,648 $647,492,207
Undistributed Net Investment Income........... $ 260,715 $ 500,739 $ 38,296 $ 607 $3,610,844 $ 3,066,439
Principal Principal Principal
Growth MidCap Real Estate
GROWTH FUNDS (DOMESTIC) Fund, Inc. Fund, Inc. Fund, Inc.
1999 1998 1999 1998 1999 1998(a)
Operations
Net investment income(operating loss) $ 1,229,342 $ 2,547,476 $(1,219,956)$(1,167,967) $ 442,943 $292,169
Net realized gain (loss) from
investment transactions 28,017,681 (4,470,515) 19,056,817 (397,666) (763,156) (613,107)
Change in unrealized appreciation/depreciation of
investments and futures contracts.......... 57,955,516 58,299,881 6,184,268 (47,859,461) (326,793) (1,395,307)
Net Increase (Decrease) in Net Assets
Resulting from Operations 87,202,539 56,376,842 24,021,129 (49,425,094) (647,006) (1,716,245)
Dividends and Distributions to Shareholders
From net investment income:
Class A.................................... (2,147,442) (2,281,014) -- -- (229,521) (118,861)
Class B ................................... (31,614) (84,298) -- -- (99,626) (70,429)
Class C(b)................................. -- -- -- -- (659) --
Class R.................................... -- (5,786) -- -- (111,209) (67,181)
From net realized gain on investments:
Class A ................................... -- (9,421,497) -- (8,489,268) -- --
Class B ................................... -- (1,280,548) -- (1,505,719) -- --
Class R.................................... -- (518,291) -- (456,798) -- --
Tax return of capital distributions:
Class A ................................... -- -- -- (3,831) -- --
Class B ................................... -- -- -- (351) -- --
Class R.................................... -- -- -- (114) -- --
Total Dividends and Distributions 2,179,056) (13,591,434) -- (10,456,081) (441,015) (256,471)
Capital Share Transactions (Note 5)
Shares sold:
Class A.................................... 107,477,838 80,738,775 56,319,162 84,673,707 2,032,088 6,657,527
Class B ................................... 35,315,526 23,436,918 17,773,544 26,339,797 585,157 3,740,670
Class C(b)................................. 453,795 -- 231,675 -- 109,653 --
Class R.................................... 22,266,474 16,186,162 8,646,117 14,593,610 587,916 3,419,415
Shares issued in reinvestment of dividends and distributions:
Class A.................................... 2,075,575 11,393,839 130 8,301,363 224,609 117,899
Class B ................................... 32,011 1,340,964 378 1,491,031 99,447 72,055
Class C(b)................................. -- -- -- -- 4 --
Class R.................................... -- 524,005 -- 456,912 111,264 69,699
Shares redeemed:
Class A ................................... (80,471,364) (49,829,917) (94,562,580)(60,048,924) (761,086) (394,690)
Class B ................................... (15,502,723) (6,849,158) (21,056,757) (9,249,916) (171,784) (118,103)
Class C(b) ................................ (1,820) -- -- -- -- --
Class R ................................... (11,110,814) (4,298,409) (8,490,660) (5,504,466) (257,676) (54,019)
Net Increase (Decrease) in Net Assets
from Capital Share Transactions 60,534,498 72,643,179 (41,138,991) 61,053,114 2,559,592 13,510,453
Total Increase (Decrease) 145,557,981 115,428,587 (17,117,862) 1,171,939 1,471,571 11,537,737
Net Assets
Beginning of period........................... 491,320,149 375,891,562 424,839,839 423,667,900 11,537,737 --
End of period (including undistributed net investment
income as set forth below)................. $636,878,130 $491,320,149 $407,721,977$424,839,839 $ 13,009,308 $11,537,737
Undistributed Net Investment Income........... $-- $ 982,816 $ -- $-- $ 37,747 $35,698
Principal Principal
Balanced SmallCap Utilities
GROWTH FUNDS (DOMESTIC) Fund, Inc. Fund, Inc.
1999 1998(a) 1999 1998
Operations
Net investment income(operating loss) (611,523) $ (258,265) $ 2,088,421 $2,339,457
Net realized gain (loss) from
investment transactions 9,424,406 (1,226,801) 8,056,360 1,540,023
Change in unrealized appreciation/depreciation of
investments and futures contracts.......... 4,379,531 (3,387,878) 4,964,248 19,641,699
Net Increase (Decrease) in Net Assets
Resulting from Operations 13,192,414 (4,872,944) 15,109,029 23,521,179
Dividends and Distributions to Shareholders
From net investment income:
Class A.................................... -- -- (1,891,969) (2,238,576)
Class B ................................... -- -- (191,707) (202,869)
Class C(b)................................. -- -- (465) --
Class R.................................... -- -- (80,547) (59,525)
From net realized gain on investments:
Class A ................................... -- -- (1,242,661) --
Class B ................................... -- -- (171,044) --
Class R.................................... -- -- (61,770) --
Tax return of capital distributions:
Class A ................................... -- (4,160) -- --
Class B ................................... -- (3,120) -- --
Class R.................................... -- (3,120) -- --
Total Dividends and Distributions -- (10,400) (3,640,163) (2,500,970)
Capital Share Transactions (Note 5)
Shares sold:
Class A.................................... 20,126,957 22,354,702 22,591,597 12,723,975
Class B ................................... 6,236,906 8,073,780 8,701,893 4,293,220
Class C(b)................................. 189,192 -- 224,590 --
Class R.................................... 5,317,338 5 ,958,145 5,229,592 2,547,194
Shares issued in reinvestment of dividends and distributions:
Class A.................................... -- 4,160 2,896,775 1,973,186
Class B ................................... -- 3,120 336,342 182,379
Class C(b)................................. -- -- -- --
Class R.................................... -- 3,120 142,351 59,486
Shares redeemed:
Class A ................................... (5,249,038) (967,357) (18,619,898)(13,805,582)
Class B ................................... (1,561,009) (232,397) (3,605,259) (2,155,400)
Class C(b) ................................ (2,315) -- -- --
Class R ................................... (1,905,434) (537,486) (1,850,085) (725,248)
Net Increase (Decrease) in Net Assets
from Capital Share Transactions 23,152,597 34,659,787 16,047,898 5,093,210
Total Increase (Decrease) 36,345,011 29,776,443 27,516,764 26,113,419
Net Assets
Beginning of period........................... 29,776,443 -- 98,928,795 72,815,376
End of period (including undistributed net investment
income as set forth below)................. $66,121,454 $29,776,443 $126,445,559 $98,928,795
Undistributed Net Investment Income........... $ -- $ -- $ 198,077 $ 280,319
<FN>
(a) Period from December 11, 1997 (date operations commenced) through
October 31, 1998. (b) Period from June 30, 1999 through October 31, 1999.
See accompanying notes.
</FN>
</TABLE>
October 31, 1999
NOTES TO FINANCIAL STATEMENTS
Principal Balanced Fund, Inc. Principal Growth Fund, Inc.
Principal Blue Chip Fund, Inc. Principal MidCap Fund, Inc.
Principal Capital Value Fund, Inc. Principal Real Estate Fund, Inc.
Principal SmallCap Fund, Inc. Principal Utilities Fund, Inc.
Note 1 -- Significant Accounting Policies
Principal Balanced Fund, Inc., Principal Blue Chip Fund, Inc., Principal Capital
Value Fund, Inc., Principal Growth Fund, Inc., Principal MidCap Fund, Inc.,
Principal Real Estate Fund, Inc., Principal SmallCap Fund, Inc. and Principal
Utilities Fund, Inc. (the "Domestic Growth Funds") are registered under the
Investment Company Act of 1940, as amended, as open-end diversified management
investment companies and operate in the mutual fund industry.
On June 30, 1999, the initial purchases of Class C shares of the Domestic Growth
Funds were made by Principal Life Insurance Company (See Note 3). Effective June
30, 1999, the Domestic Growth Funds began offering Class C shares to the public.
On December 11, 1997, the initial purchases of 400,000 shares of Class A Capital
Stock, 300,000 shares of Class B Capital Stock and 300,000 shares of Class R
Capital Stock of each of Principal Real Estate Fund, Inc. and Principal SmallCap
Fund, Inc. were made by Principal Life Insurance Company (formerly known as
Principal Mutual Life Insurance Company) (see Note 3). Effective December 31,
1997, Principal Real Estate Fund, Inc. and Principal SmallCap Fund, Inc. each
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") upon redemption. Class B shares are sold without an
initial sales charge, but are subject to a declining CDSC on certain redemptions
made within six years of purchase. Class C shares are sold without an initial
sales charge, but are subject to a CDSC on certain redemptions made within the
first twelve months of purchase. Class R shares are sold without an initial
sales charge and are not subject to a CDSC. Class B shares, Class C shares and
Class R shares bear higher ongoing distribution fees than Class A shares. Class
B shares automatically convert into Class A shares, based on relative net asset
value (without a sales charge) seven years after purchase. Class C shares do not
convert into Class A shares. Class R shares automatically convert into Class A
shares, based on relative net asset value (without a sales charge) four years
after purchase. 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 declares 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 periods ended October 31, 1999, which are included in the
corresponding captions of the Statements of Operations, were as follows:
<TABLE>
<CAPTION>
Distribution and Transfer and
Shareholder Servicing Fees Administrative Services
Class A Class B Class C Class R Class A Class B Class C Class R
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Balanced Fund, Inc. $ 281,544 $ 196,250 $ 553 $ 165,464 $134,774 $ 39,952 $ 100 $36,813
Principal Blue Chip Fund, Inc. 398,224 426,230 626 320,689 223,233 104,577 250 77,643
Principal Capital Value Fund, Inc. 1,045,967 415,762 454 304,977 344,752 97,338 250 72,564
Principal Growth Fund, Inc. 1,071,829 665,604 871 297,406 389,091 108,482 250 50,855
Principal MidCap Fund, Inc. 852,092 455,025 515 189,587 534,307 156,147 250 69,942
Principal Real Estate Fund, Inc. 14,308 30,150 325 17,586 7,375 2,596 100 1,203
Principal SmallCap Fund, Inc. 62,454 92,963 468 46,144 65,440 22,600 100 11,044
Principal Utilities Fund, Inc. 235,289 135,665 575 46,756 91,446 22,732 100 10,033
</TABLE>
Registration Fees
Class A Class B Class C Class R
Principal Balanced Fund, Inc. $12,833 $ 9,744 $-- $ 8,503
Principal Blue Chip Fund, Inc. 20,471 12,366 -- 8,803
Principal Capital Value Fund, Inc. 30,949 10,402 -- 13,731
Principal Growth Fund, Inc. 23,766 9,277 -- 9,933
Principal MidCap Fund, Inc. 21,955 10,163 -- 8,865
Principal Real Estate Fund, Inc. 7,228 8,490 -- 6,127
Principal SmallCap Fund, Inc. 16,347 9,620 -- 9,090
Principal Utilities Fund, Inc. 10,106 7,256 -- 6,164
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 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 account. The order permits the Domestic Growth Funds' cash balances to
be deposited into a single joint account along with the cash of other registered
investment companies managed by Principal Management Corporation (the
"Manager"). These balances may be invested in one or more short-term
instruments.
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Dividends and distributions to shareholders from net investment income and
net realized gain from investments are determined in accordance with federal tax
regulations, which may differ from generally accepted accounting principles.
Permanent book and tax basis differences are reclassified within the capital
accounts based on their federal tax basis treatment; temporary differences do
not require reclassification. Reclassifications made for Principal MidCap Fund,
Inc. and Principal SmallCap Fund, Inc. for the year ended October 31, 1999
aggregated $1,219,956 and $611,523, respectively. For the periods ended October
31, 1998 reclassifications made for Principal MidCap Fund, Inc. and Principal
SmallCap Fund, Inc. aggregated $1,172,263 and $268,657, respectively. Other
reclassifications made for the periods ended October 31, 1999 and 1998 were not
material.
Dividends and distributions which exceed net investment income and net realized
capital gains for financial reporting purposes, but not for tax purposes, are
reported as dividends in excess of net investment income or distributions in
excess of net realized capital gains. To the extent distributions exceed current
and accumulated earnings and profits for federal income tax purposes, they are
reported as tax return of capital distributions.
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 approximates that used for financial
reporting purposes.
At October 31, 1999, Principal Real Estate Fund, Inc. had net capital loss
carryforwards of approximately $613,000 which expires in 2006 and $763,000 which
expires in 2007.
Note 3 -- Management Agreement and Transactions With Affiliates
The Domestic Growth Funds have agreed to pay investment advisory and management
fees to Principal Management Corporation (wholly owned by Princor Financial
Services Corporation, a subsidiary of Principal Financial Services, Inc.)
computed at an annual percentage rate of each fund's average daily net assets.
The annual rate used in this calculation for the Domestic Growth Funds is as
follows:
<TABLE>
<CAPTION>
Net Asset Value of Funds
(in millions)
First Next Next Next Over
$100 $100 $100 $100 $400
<S> <C> <C> <C> <C> <C>
Principal Balanced Fund, Inc. 0.60% 0.55% 0.50% 0.45% 0.40%
Principal Blue Chip Fund, Inc. 0.50 0.45 0.40 0.35 0.30
Principal Capital Value Fund, Inc. 0.50 0.45 0.40 0.35 0.30
Principal Growth Fund, Inc. 0.50 0.45 0.40 0.35 0.30
Principal MidCap Fund, Inc. 0.65 0.60 0.55 0.50 0.45
Principal Real Estate Fund, Inc. 0.90 0.85 0.80 0.75 0.70
Principal SmallCap Fund, Inc. 0.85 0.80 0.75 0.70 0.65
Principal Utilities Fund, Inc. 0.60 0.55 0.50 0.45 0.40
</TABLE>
At the November 2, 1999 shareholder meeting (for all funds except the Principal
Growth Fund, Inc. and the Principal MidCap Fund, Inc.) and at the November 9,
1999 shareholder meeting of Principal Growth Fund, Inc. a modified management
fee schedule, effective January 1, 2000, was approved for the following funds:
<TABLE>
Net Asset Value of Funds
(in millions)
<CAPTION>
First Next Next Next Over
$250 $250 $250 $250 $1,000
<S> <C> <C> <C> <C> <C>
Principal Blue Chip Fund, Inc. 0.60% 0.55% 0.50% 0.45% 0.40%
Principal Capital Value Fund, Inc. 0.60 0.55 0.50 0.45 0.40
Principal Growth Fund, Inc. 0.60 0.55 0.50 0.45 0.40
</TABLE>
The Domestic Growth Funds also reimburse the Manager for transfer and
administrative services, including the cost of accounting, data processing,
supplies and other services rendered.
For the year ended October 31, 1998, the Manager voluntarily waived a portion of
its fee for the Principal Utilities Fund, Inc. The amounts waived for the
Principal Utilities Fund, Inc. Class A shares, Class B shares and Class R shares
were $60,477, $9,557 and $12,481, respectively. The Manager ceased its waiver of
expenses October 31, 1998.
Princor Financial Services Corporation, as principal underwriter, receives
proceeds of any CDSC on certain Class A, Class B and Class C share redemptions.
The charge is based on declining rates which for Class A shares begin at .75%,
Class B shares at 4.00%, and Class C shares at 1.00% 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 periods ended October 31,
1999, were as follows:
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Principal Balanced Fund, Inc. $ 614,240 $ 75,273 $5
Principal Blue Chip Fund, Inc. 1,280,139 139,081 5
Principal Capital Value Fund, Inc. 1,454,019 193,664 5
Principal Growth Fund, Inc. 2,258,031 257,797 5
Principal MidCap Fund, Inc. 1,332,435 344,606 --
Principal Real Estate Fund, Inc. 48,909 1,932 --
Principal SmallCap Fund, Inc. 427,914 25,917 --
Principal Utilities Fund, Inc. 460,110 53,392 --
</TABLE>
No brokerage commissions were paid by the Domestic Growth Funds to Princor
Financial Services Corporation during the periods ended October 31, 1999 and
1998. Brokerage commissions were paid to other affiliates by the following
funds:
<TABLE>
<CAPTION>
Year Ended Periods Ended
October 31, 1999 October 31, 1998
<S> <C> <C>
Principal Balanced Fund, Inc. $ 10,866 $ 6,080
Principal Blue Chip Fund, Inc. 30,170 2,315
Principal Capital Value Fund, Inc. 109,485 32,675
Principal Growth Fund, Inc. 46,158 18,750
Principal MidCap Fund, Inc. 53,939 7,716
Principal Real Estate Fund, Inc. 10,580 14,745
Principal SmallCap Fund, Inc. 6,230 1,050
Principal Utilities Fund, Inc. 7,435 3,235
</TABLE>
The Domestic Growth Funds bear distribution and shareholder servicing fees with
respect to each class computed at an annual rate of the average daily net assets
attributable to each class of each fund. The annual rate will not exceed the
following limits:
<TABLE>
<CAPTION>
Class A Class B Class C Class R
<S> <C> <C> <C> <C>
Distribution and Shareholder Servicing fees .25% 1.00% 1.00% .75%
</TABLE>
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 for Class A, Class B and Class
R shares, fees that are unused by the principal underwriter at the end of the
fiscal year are returned to the respective Domestic Growth Funds which generated
the excess.
At October 31, 1999, Principal Life Insurance Company, subsidiaries of Principal
Life Insurance Company and benefit plans sponsored on behalf of Principal Life
Insurance Company owned shares of the Domestic Growth Funds as follows:
<TABLE>
<CAPTION>
Class A Class B Class C Class R
<S> <C>
Principal Balanced Fund, Inc. -- -- 5,460 --
Principal Blue Chip Fund, Inc. 60,551 -- 3,922 --
Principal Capital Value Fund, Inc. 5,320,749 -- 3,144 --
Principal Growth Fund, Inc. 36,102 -- 1,473 --
Principal MidCap Fund, Inc. 44,552 -- 2,184 --
Principal Real Estate Fund, Inc. 413,364 316,367 11,547 318,409
Principal SmallCap Fund, Inc. 391,449 300,319 8,977 300,319
Principal Utilities Fund, Inc. -- -- 5,869 --
</TABLE>
Note 4 -- Investment Transactions
For the year ended October 31, 1999, 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:
<TABLE>
<CAPTION>
Purchases Sales
<S> <C> <C>
Principal Balanced Fund, Inc. $ 46,714,318 $ 32,580,318
Principal Blue Chip Fund, Inc. 104,093,360 33,127,433
Principal Capital Value Fund, Inc. 324,110,081 297,949,466
Principal Growth Fund, Inc. 287,406,312 184,957,174
Principal MidCap Fund, Inc. 248,966,021 272,623,801
Principal Real Estate Fund, Inc. 9,412,435 6,692,154
Principal SmallCap Fund, Inc. 69,189,143 46,535,331
Principal Utilities Fund, Inc. 41,928,003 26,157,059
</TABLE>
Note 4 -- Investment Transactions (Continued)
At October 31, 1999, net unrealized appreciation (depreciation) of investments
by the Domestic Growth Funds was composed of the following:
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Gross Unrealized (Depreciation)
Appreciation (Depreciation) of Investments
<S> <C> <C> <C>
Principal Balanced Fund, Inc. $ 21,365,538 $(10,525,421) $ 10,840,117
Principal Blue Chip Fund, Inc. 76,634,638 (7,883,212) 68,751,426
Principal Capital Value Fund, Inc. 137,554,328 (23,027,425) 114,526,903
Principal Growth Fund, Inc. 257,263,065 (4,666,929) 252,596,136
Principal MidCap Fund, Inc. 118,576,535 (15,813,619) 102,762,916
Principal Real Estate Fund, Inc. 109,337 (1,831,437) (1,722,100)
Principal SmallCap Fund, Inc. 8,601,480 (7,609,827) 991,653
Principal Utilities Fund, Inc. 38,154,279 (3,236,355) 34,917,924
</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 Shares by fund were as follows:
<TABLE>
<CAPTION>
Principal Principal Principal Principal
Balanced Blue Chip Capital Value Growth
Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc.
Periods Ended October 31, 1999:
Shares sold:
<S> <C> <C> <C> <C>
Class A ......................................... 1,543,354 2,598,298 2,320,532 1,698,273
Class B ......................................... 534,435 983,832 614,916 556,338
Class C ......................................... 16,020 13,182 7,194 6,956
Class R ......................................... 635,088 955,361 583,231 353,782
Shares issued in reinvestment of dividends and distributions:
Class A ........................................... 397,074 36,318 1,458,213 33,237
Class B ........................................... 66,344 1,213 108,859 536
Class C ......................................... 33 -- -- --
Class R ......................................... 72,639 4,124 94,789 --
Shares redeemed:
Class A ......................................... (1,348,209) (1,175,462) (2,583,273) (1,270,168)
Class B............................................ (279,766) (313,216) (364,952) (243,384)
Class C ......................................... (33) (20) (18) (29)
Class R ......................................... (391,795) (462,525) (405,657) (177,102)
Net Increase 1,245,184 2,641,105 1,833,834 958,439
</TABLE>
<TABLE>
<CAPTION>
Principal Principal Principal Principal
Balanced Blue Chip Capital Value Growth
Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc.
Year Ended October 31, 1998:
Shares sold:
<S> <C> <C> <C> <C>
Class A ......................................... 1,578,648 2,196,999 2,383,996 1,435,543
Class B ......................................... 531,549 749,555 582,574 414,689
Class R ......................................... 764,170 893,287 717,506 290,030
Shares issued in reinvestment of dividends and distributions:
Class A ........................................... 551,343 445,659 1,687,027 219,136
Class B ........................................... 75,490 102,886 91,259 26,054
Class R ......................................... 70,471 89,024 70,217 10,249
Shares redeemed:
Class A ......................................... (952,391) (760,092) (2,537,205) (888,842)
Class B ......................................... (153,016) (171,471) (148,042) (121,844)
Class R ......................................... (202,139) (231,149) (186,811) (76,609)
Net Increase 2,264,125 3,314,698 2,660,521 1,308,406
</TABLE>
<TABLE>
<CAPTION>
Principal Principal Principal Principal
MidCap Real Estate SmallCap Utilities
Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc.
Periods Ended October 31, 1999:
Shares sold:
<S> <C> <C> <C> <C>
Class A ......................................... 1,325,967 245,069 2,014,656 1,320,329
Class B ......................................... 424,898 71,200 631,644 507,818
Class C ......................................... 5,289 12,790 16,954 12,620
Class R ......................................... 206,999 70,415 539,084 304,565
Shares issued in reinvestment of dividends and distributions:
Class A ........................................... 3 27,713 -- 171,345
Class B ........................................... 9 12,295 -- 19,977
Class C ......................................... -- -- -- 12
Class R ......................................... -- 13,702 -- 8,437
Shares redeemed:
Class A ......................................... (2,215,756) (91,613) (531,725) (1,083,938)
Class B ......................................... (502,335) (20,911) (159,547) (210,456)
Class C ......................................... -- -- (209) --
Class R ......................................... (202,547) (31,207) (194,374) (108,625)
Net Increase(Decrease) (957,473) 309,453 2,316,483 942,084
</TABLE>
<TABLE>
<CAPTION>
Periods Ended October 31, 1998:
Shares sold:
<S> <C> <C> <C> <C>
Class A ......................................... 1,891,397 684,793 2,291,199 853,517
Class B ......................................... 593,857 377,186 817,321 286,360
Class R ......................................... 327,198 346,800 610,143 172,466
Shares issued in reinvestment of dividends and distributions:
Class A ........................................... 188,881 13,045 425 130,341
Class B ........................................... 34,300 7,946 319 12,065
Class R ......................................... 10,456 7,688 319 3,932
Shares redeemed:
Class A ......................................... (1,383,727) (43,437) (105,453) (928,474)
Class B ......................................... (215,454) (12,937) (26,447) (144,160)
Class R ......................................... (127,550) (6,048) (55,649) (48,307)
Net Increase 1,319,358 1,375,036 3,532,177 337,740
</TABLE>
Note 6 -- Line of Credit
The Domestic Growth Funds participate with other funds and portfolios managed by
Principal Management Corporation in an unsecured joint line of credit with two
banks which allow the funds to borrow up to $75,000,000 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 .09% on the average unused
portion of the line of credit. The commitment fee is allocated among the
participating funds and portfolios in proportion to their average net assets
during each quarter. At October 31, 1999, the Domestic Growth Funds had no
outstanding borrowings under the line of credit.
Note 7 -- Futures Contracts
The Domestic Growth Funds (with the exception of Principal Capital Value Fund,
Inc.) may enter into futures contracts as a hedge against changes in market
conditions. Initial margin deposits are made by cash deposits or segregation of
specific securities as may be required by the exchange on which the transaction
was conducted. Pursuant to the contracts, a fund agrees to receive from or pay
to the broker, an amount of cash equal to the daily fluctuation in the value of
the contract. Such receipts or payments are known as "variation margin" and are
recorded by the fund as a variation margin receivable or payable on futures
contracts. During the period the futures contracts are open, daily changes in
the value of the contracts are recognized as unrealized gains or losses. These
unrealized gains or losses are included in the net unrealized appreciation
(depreciation) of investments on the Statement of Assets and Liabilities. When
the contracts are closed, the fund recognizes a realized gain or loss equal to
the difference between the proceeds from, or cost of, the closing transaction
and the fund's cost basis in the contract. For the periods ended October 31,
1999 and 1998, there were no realized gains or losses related to closed futures
contracts.
October 31, 1999
SCHEDULES OF INVESTMENTS
GROWTH FUNDS (DOMESTIC)
PRINCIPAL BALANCED FUND, INC.
Shares
Held Value
Common Stocks (54.45%)
Auto & Home Supply Stores (0.71%)
Autozone, Inc. 42,900(a) $1,139,531
Bakery Products (1.12%)
Sara Lee Corp. 66,100 1,788,831
Beverages (1.10%)
PepsiCo, Inc. 50,700 1,758,656
Business Credit Institutions (0.18%)
Associates First Capital Corp., Class A 7,680 280,320
Cable & Other Pay TV Services (0.51%)
MediaOne Group, Inc. 11,550(a) 820,772
Chemicals & Allied Products (0.35%)
Dow Chemical Co. 4,700 555,775
Commercial Banks (4.37%)
Bank of America Corp. 22,000 1,416,250
Chase Manhattan Corp. 11,800 1,031,025
First Union Corp. 20,492 874,752
Fleet Boston Corp. 22,740 992,032
PNC Financial Corp. 15,900 948,038
Wells Fargo Co. 36,200 1,733,075
6,995,172
Commercial Printing (0.35%)
R.R. Donnelley & Sons Co. 23,100 560,175
Communications Equipment (1.54%)
General Instrument Corp. 19,600(a) 1,054,725
Motorola, Inc. 14,500 1,412,844
2,467,569
Computer & Data Processing
Services (2.52%)
3COM Corp. 24,100(a) 698,900
Electronic Data Systems Corp. 25,100 1,468,350
First Data Corp. 31,600 1,443,725
Sterling Commerce, Inc. 17,900(a) 419,531
4,030,506
Computer & Office Equipment (2.78%)
Cabletron Systems, Inc. 41,800(a) 692,313
Compaq Computer Corp. 57,700 1,096,300
Hewlett-Packard Co. 16,400 1,214,625
International Business Machines Corp. 14,700 1,446,112
4,449,350
Consumer Products (2.10%)
Fortune Brands, Inc. 34,300 1,215,506
Nabisco Group Holdings Corp. 31,200 399,750
Philip Morris Cos., Inc. 27,700 697,694
R.J. Reynolds Tobacco Holdings, Inc. 10,400 225,550
UST, Inc. 29,500 816,781
3,355,281
Crude Petroleum & Natural Gas (0.95%)
Texaco, Inc. 24,700 $ 1,515,962
Department Stores (1.12%)
Dillard's, Inc., Class A 35,200 664,400
J.C. Penney Co. 15,400 390,775
Wal-Mart Stores, Inc. 12,800 731,200
1,786,375
Drugs (6.03%)
Abbott Laboratories 27,600 1,114,350
American Home Products Corp. 27,300 1,426,425
Bristol-Myers Squibb Co. 18,600 1,428,713
Johnson & Johnson 18,200 1,906,450
Merck & Co., Inc. 26,200 2,084,537
Pharmacia & Upjohn, Inc. 16,500 889,969
Warner-Lambert Co. 10,000 798,125
9,648,569
Electric Lighting & Wiring
Equipment (0.11%)
Cooper Industries, Inc. 4,200 180,863
Electric Services (1.95%)
Central & Southwest Corp. 36,100 800,969
Dominion Resources, Inc. 19,900 957,688
Potomac Electric Power Co. 23,400 642,037
Reliant Energy, Inc. 26,700 727,575
3,128,269
Electrical Industrial Apparatus (1.11%)
Emerson Electric Co. 29,700 1,783,856
Electronic Distribution Equipment (1.24%)
General Electric Co. 14,600 1,979,212
Fats & Oils (0.61%)
Archer Daniels Midland Co. 79,477 978,561
Federal & Federally-Sponsored
Credit (0.60%)
Federal National Mortgage Association 13,600 962,200
Fire, Marine & Casualty Insurance (2.28%)
Berkshire Hathaway, Inc., Class A 17(a) 1,086,300
Hartford Financial Services Group, Inc. 8,600 445,587
Loews Corp. 12,800 907,200
Safeco Corp. 12,100 332,750
St. Paul Cos., Inc. 27,800 889,600
3,661,437
General Industrial Machinery (0.62%)
Pall Corp. 45,500 998,156
Grain Mill Products (0.89%)
Ralston-Ralston Purina Group 45,300 1,424,119
Groceries & Related Products (0.76%)
Sysco Corp. 31,800 1,222,312
Grocery Stores (0.55%)
Albertson's, Inc. 24,381 885,335
Hospitals (0.31%)
Tenet Healthcare Corp. 25,700(a)$ 499,544
Industrial Inorganic Chemicals (0.80%)
Eastman Chemical Co. 9,050 348,991
Praxair, Inc. 20,100 939,675
1,288,666
Jewelry, Silverware & Plated Ware (0.11%)
Jostens, Inc. 8,400 177,450
Life Insurance (0.58%)
Lincoln National Corp. 20,200 931,725
Machinery, Equipment & Supplies (0.68%)
Grainger (W.W.), Inc. 25,600 1,084,800
Management & Public Relations (0.41%)
Dun & Bradstreet Corp. 22,500 660,938
Meat Products (0.29%)
Tyson Foods, Inc. 30,450 464,363
Medical Instruments & Supplies (0.85%)
Becton, Dickinson & Co. 16,900 428,837
St. Jude Medical, Inc. 33,850(a) 926,644
1,355,481
Medical Services & Health
Insurance (1.27%)
Aon Corp. 17,100 607,050
Conseco, Inc. 42,600 1,035,712
Pacificare Health Systems, Inc. 10,100(a) 398,319
2,041,081
Miscellaneous Chemical Products (0.73%)
Du Pont (E.I.) De Nemours 18,053 1,163,290
Miscellaneous Converted Paper
Products (1.00%)
Minnesota Mining & Mfg. Co. 16,900 1,606,556
Miscellaneous Food & Kindred
Products (0.34%)
Universal Foods Corp. 28,600 546,975
Miscellaneous Furniture & Fixtures (0.59%)
Newell Rubbermaid, Inc. 27,100 938,338
Miscellaneous Shopping Goods (0.22%)
Toys `R' Us, Inc. 24,900(a) 351,713
Miscellaneous Transportation (0.32%)
FMC Corp. 12,400(a) 504,525
Motion Picture Production &
Services (0.33%)
Walt Disney Co. 20,100 530,138
Motor Vehicles & Equipment (0.50%)
Ford Motor Co. 14,654 804,138
Oil & Gas Field Services (0.81%)
Diamond Offshore Drilling 18,900 $ 600,075
Schlumberger Ltd. 11,500 696,469
1,296,544
Ordnance & Accessories, NEC (0.29%)
Lockheed Martin Corp. 23,300 466,000
Paper Mills (1.02%)
Fort James Corp. 28,162 741,013
Kimberly Clark Corp. 14,200 896,375
1,637,388
Petroleum Refining (2.50%)
Amerada Hess Corp. 17,500 1,004,063
Atlantic Richfield Co. 17,600 1,640,100
Conoco, Inc., Class B 14,003 379,831
Exxon Corp. 13,200 977,625
4,001,619
Pulp Mills (0.16%)
Boise Cascade Corp. 7,400 263,625
Rubber & Plastics Footwear (0.53%)
Nike, Inc. 14,900 840,919
Sanitary Services (0.33%)
Waste Management, Inc. 28,942 531,809
Savings Institutions (1.29%)
Citigroup, Inc. 38,050 2,059,456
Security Brokers & Dealers (0.21%)
Bear Stearns Cos., Inc. 7,875 335,672
Telephone Communication (1.53%)
AT&T Corp. 17,350 811,112
GTE Corp. 18,600 1,395,000
MCI Worldcom, Inc. 2,800(a) 240,275
2,446,387
Total Common Stocks 87,186,304
Preferred Stock (0.66%)
Telephone Communications (0.66%)
Sprint - 8.25% Conv. Pfd. 13,500 1,053,000
Principal
Amount Value
Bonds (26.72%)
Beverages (0.61%)
Seagram Co., Ltd. Notes;
6.50%; 4/1/2003 $1,000,000 $ 981,000
Blast Furnace & Basic Steel
Products (0.66%)
Carpenter Technology Corp.
Medium-Term Notes;
6.99%; 4/20/2018 $ 800,000 $ 722,401
Quanex Corp. Convertible
Subordinated Debentures;
6.88%; 6/30/2007 350,000 333,812
1,056,213
Business Credit Institutions (0.62%)
CIT Group Holdings
Senior Medium-Term Notes;
6.38%; 10/1/2002 1,000,000 987,082
Commercial Banks (2.26%)
J.P. Morgan & Co., Inc.
Subordinated Notes;
6.70%; 11/1/2007 1,300,000 1,262,799
NationsBank Corp.
Subordinated Notes;
7.80%; 9/15/2016 2,300,000 2,355,143
3,617,942
Communications Equipment (0.80%)
Motorola, Inc. Debentures;
7.50%; 5/15/2025 1,291,000 1,288,613
Computer & Office Equipment (0.46%)
Seagate Technology, Inc.
Senior Notes; 7.37%; 3/1/2007 813,000 744,200
Consumer Products (1.19%)
Philip Morris Cos., Inc. Notes;
7.25%; 9/15/2001 1,500,000 1,498,713
6.15%; 3/15/2010 400,000 399,812
1,898,525
Department Stores (1.80%)
Dillard's, Inc. Notes;
6.43%; 8/1/2004 1,500,000 1,430,379
7.38%; 6/1/2006 772,000 759,281
Fred Meyer, Inc. Senior Notes;
7.38%; 3/1/2005 700,000 700,353
2,890,013
Farm & Garden Machinery (0.74%)
Deere & Co. Senior Debentures;
8.50%; 1/9/2022 1,100,000 1,185,192
Fire, Marine & Casualty Insurance (0.71%)
St. Paul Cos., Inc.
Medium-Term Notes, Series C;
6.38%; 12/15/2008 1,200,000 1,137,533
Forest Products (0.75%)
Weyerhaeuser Co.
Debentures; 6.95%; 10/1/2027 1,300,000 1,200,905
Funeral Service & Crematories (1.14%)
Service Corp. International Notes;
6.75%; 6/1/2001 $1,961,000 $ 1,823,936
General Government , NEC (1.00%)
Province of Quebec, Canada Debentures;
7.50%; 7/15/2002 500,000 509,005
7.00%; 1/30/2007 1,100,000 1,095,347
1,604,352
General Industrial Machinery (0.93%)
Ingersoll-Rand Medium-Term Notes;
6.46%; 11/19/2003 1,000,000 980,463
Timken Co. Medium-Term Notes;
7.30%; 8/13/2002 500,000 507,376
1,487,839
Medical Service & Health
Insurance (0.24%)
AETNA Services, Inc. Notes;
6.38%; 8/15/2003 400,000 386,202
Miscellaneous Investing (1.54%)
Federal Realty Investment Trust Notes;
8.88%; 1/15/2000 1,000,000 1,004,763
Kimco Realty Corp. Senior Notes;
6.50%; 10/1/2003 1,500,000 1,450,363
2,455,126
Motor Vehicles & Equipment (1.51%)
Chrysler Corp. Debentures;
7.45%; 3/1/2027 1,400,000 1,398,032
General Motors Corp. Debentures;
7.70%; 4/15/2016 1,000,000 1,017,818
2,415,850
Paper & Paper Products (0.29%)
Boise Cascade Office Products Corp.
Notes; 7.05%; 5/15/2005 500,000 472,334
Paper Mills (0.63%)
International Paper Co. Notes;
6.88%; 7/10/2000 1,000,000 1,002,747
Personal Credit Institutions (1.40%)
Associates Corp. of North America
Senior Notes; 6.45%; 10/15/2001 1,200,000 1,198,008
Ford Motor Credit Co. Notes;
7.75%; 3/15/2005 1,000,000 1,035,778
2,233,786
Petroleum & Petroleum Products (0.92%)
Enron Corp. Notes;
6.75%; 9/1/2004 1,500,000 1,477,972
Plumbing & Heating, Except
Electric (0.61%)
Masco Corp. Notes;
6.13%; 9/15/2003 1,000,000 984,003
Railroads (1.51%)
Norfolk Southern Debentures;
9.00%; 3/1/2021 1,100,000 1,207,704
Union Pacific Corp. Notes;
7.00%; 6/15/2000 1,200,000 1,205,514
2,413,218
Security Brokers & Dealers (2.69%)
Bear Stearns Cos., Inc. Senior Notes;
6.13%; 2/1/2003 $1,150,000 $ 1,115,990
Lehman Brothers, Inc. Senior
Subordinated Notes;
6.13%; 2/1/2001 1,000,000 990,960
7.25%; 4/15/2003 1,000,000 1,002,202
Morgan Stanley Group, Inc.
Debentures; 8.88%; 10/15/2001 1,150,000 1,197,763
4,306,915
Surety Insurance (1.71%)
Allstate Corp. Debentures;
6.75%; 5/15/2018 2,000,000 1,820,790
MBIA, Inc. Debentures;
7.00%; 12/15/2025 1,000,000 912,940
2,733,730
Trucking & Courier Services,
Except Air (0.00%)
Builders Transport, Inc. Convertible
Subordinated Debentures;
6.50%; 5/1/2011 306,000(b) 765
Total Bonds 42,785,993
Description of Issue Principal
Type Rate Maturity Amount Value
Federal Home Loan Mortgage Corporation (FHLMC)
Certificates (3.63%)
FHLMC 6.00% 1/1/2029 $ 974,393 $ 909,669
FHLMC 6.50 10/1/2027-1/1/2029 3,653,446 3,506,341
FHLMC 7.00 12/1/2027 1,414,911 1,391,095
Total FHLMC Certificates 5,807,105
Government National Mortgage Association (GNMA)
Certificates (3.32%)
GNMA II 6.00 6/20/2026-7/1/2029 5,719,146 5,307,951
Asset-Backed Securities (6.91%)
Mortgage Pass-Through Securities (6.29%)
Chase Commercial Mortgage Securities
Corp., Series 1998-1, Class B;
6.56%; 5/18/2008 $2,200,000 $ 2,122,978
DLJ Commercial Mortgage Corp.,
Class A-1B, Series 1998-CF1;
6.41%; 2/18/2008 2,100,000 2,004,639
Class A-2, Series 1998-CF1;
6.59%; 2/15/2008 700,000 661,759
First Union Commercial Mortgage Trust,
Series 1999-C1, Class B;
6.22%; 12/15/2008 1,435,000 1,349,905
GMAC Commercial Mortgage Securities,
Inc., Series 1998-C2, Class C;
6.50%; 8/15/2008 2,000,000 1,853,860
J.P. Morgan Commercial Mortgage Fin.
Corp., Series 97-C5, Class A-2;
7.06%; 9/15/2029 220,000 219,650
Series 1999-C7, Class B;
6.66%; 10/15/2035 450,000 425,587
Morgan Stanley Capital I, Inc.,
Series 1999-RM1, Class B;
6.81%; 12/15/2031 1,500,000 1,429,220
10,067,598
Personal Credit Institutions (0.62%)
Chase Manhattan Credit Card Master Trust
Asset-Backed Certificates, Series 97-2,
Class A; 6.30%; 4/15/2003 1,000,000 999,160
Total Asset-Backed Securities 11,066,758
Commercial Paper (3.84%)
Personal Credit Institutions (3.84%)
Investment in Joint Trade Account,
Associates Corp.; 5.31%; 11/1/1999 6,155,826 6,155,826
Total Portfolio Investments (99.53%) 159,362,937
Cash, receivables and other assets,
net of liabilities (0.47%) 750,465
Total Net Assets (100.00%) $160,113,402
(a) Non-income producing security - No dividend paid during the period.
(b) Non-income producing - Security in default.
PRINCIPAL BLUE CHIP FUND, INC.
Shares
Held Value
Common Stocks (97.82%)
Bakery Products (3.55%)
Sara Lee Corp. 382,400 $10,348,700
Beverages (5.19%)
Anheuser-Busch Cos., Inc. 108,400 7,784,475
PepsiCo, Inc. 211,800 7,346,813
15,131,288
Books (3.03%)
McGraw-Hill Cos., Inc. 148,400 8,848,350
Commercial Banks (4.82%)
Bank One Corp. 149,919 5,631,332
J.P. Morgan & Co., Inc. 64,500 8,441,438
14,072,770
Communications Equipment (3.19%)
Motorola, Inc. 95,500 9,305,281
Computer & Office Equipment (7.40%)
Automatic Data Processing, Inc. 205,400 9,897,713
Hewlett-Packard Co. 75,400 5,584,312
Pitney Bowes, Inc. 133,900 6,100,819
21,582,844
Department Stores (3.79%)
Wal-Mart Stores, Inc. 193,500 11,053,688
Drugs (12.09%)
American Home Products Corp. 157,800 8,245,050
Johnson & Johnson 86,000 9,008,500
Merck & Co., Inc. 121,200 9,642,975
Pharmacia & Upjohn, Inc. 155,500 8,387,281
35,283,806
Eating & Drinking Places (2.71%)
McDonald's Corp. 191,500 7,899,375
Electrical Industrial Apparatus (2.70%)
Emerson Electric Co. 131,400 7,892,212
Electronic Distribution Equipment (3.52%)
General Electric Co. 75,800 10,275,638
Fire, Marine & Casualty Insurance (5.63%)
American International Group, Inc. 88,468 9,106,675
Chubb Corp. 133,500 7,325,812
16,432,487
General Industrial Machinery (2.93%)
Pall Corp. 389,300 8,540,269
Grain Mill Products (3.26%)
Kellogg Co. 239,000 9,515,188
Groceries & Related Products (3.43%)
Sysco Corp. 260,700 10,020,656
Medical Instruments & Supplies (2.56%)
Becton, Dickinson & Co. 294,200 $ 7,465,325
Miscellaneous Converted Paper
Products (2.91%)
Minnesota Mining & Mfg. Co. 89,200 8,479,575
Miscellaneous Food & Kindred
Products (3.36%)
Bestfoods 166,700 9,793,625
Petroleum Refining (7.95%)
Exxon Corp. 102,200 7,569,187
Mobil Corp. 79,400 7,662,100
Royal Dutch Petroleum Co. ADR 132,600 7,947,713
23,179,000
Preserved Fruits & Vegetables (2.89%)
Heinz (H.J.) Co. 176,400 8,423,100
Sugar & Confectionery Products (2.78%)
Wrigley (Wm.) Jr. Co. 101,400 8,105,662
Telephone Communication (5.43%)
AT&T Corp. 160,950 7,524,413
GTE Corp. 110,800 8,310,000
15,834,413
Women's Clothing Stores (2.70%)
Limited, Inc. 181,300 7,455,962
Too, Inc. 25,900(a) 414,400
7,870,362
Total Common Stocks 285,353,614
Principal
Amount Value
Commercial Paper (2.21%)
Personal Credit Institutions (2.21%)
Investment In Joint Trade Account;
Associates Corp.;
5.31%; 11/1/1999 $6,447,708 $ 6,447,708
Total Portfolio Investments (100.03%) 291,801,322
Liabilities, net of cash, receivables and
other assets (-0.03%) (93,367)
Total Net Assets (100.00%) $291,707,955
(a) Non-income producing security - No dividend paid during the period.
PRINCIPAL CAPITAL VALUE FUND, INC.
Shares
Held Value
Common Stocks (97.18%)
Bakery Products (1.16%)
Sara Lee Corp. 286,600 $ 7,756,113
Beverages (2.63%)
PepsiCo, Inc. 508,000 17,621,250
Commercial Banks (18.45%)
AmSouth Bancorp. 748,400 19,271,300
Bank of America Corp. 168,000 10,815,000
Bank One Corp. 397,964 14,948,523
Chase Manhattan Corp. 237,500 20,751,562
Comerica, Inc. 270,000 16,048,125
First Union Corp. 299,060 12,766,124
KeyCorp 592,000 16,539,000
Summit Bancorp. 364,500 12,620,812
123,760,446
Computer & Data Processing (1.49%)
Shared Medical Systems Corp. 265,000 10,003,750
Consumer Products (1.46%)
Fortune Brands, Inc. 276,400 9,794,925
Crude Petroleum & Natural Gas (2.86%)
Texaco, Inc. 312,700 19,191,963
Drugs (8.61%)
Abbott Laboratories 372,800 15,051,800
American Home Products Corp. 391,600 20,461,100
Merck & Co., Inc. 279,300 22,221,806
57,734,706
Electric Lighting & Wiring (1.68%)
Cooper Industries, Inc. 261,500 11,260,844
Electric Services (4.51%)
FPL Group, Inc. 185,100 9,312,844
Pinnacle West Capital Corp. 177,300 6,537,937
Reliant Energy, Inc. 530,000 14,442,500
30,293,281
Electrical Industrial Apparatus (2.30%)
Emerson Electric Co. 256,500 15,406,031
Forest Products (1.93%)
Weyerhaeuser Co. 217,000 12,952,188
Grain Mill Products (2.35%)
Kellogg Co. 395,100 15,729,919
Greeting Cards (2.19%)
American Greetings Corp. 568,500 14,709,937
Groceries & Related Products (2.41%)
Sysco Corp. 421,000 16,182,187
Grocery Stores (1.99%)
Albertson's, Inc. 367,200 13,333,950
Life Insurance (2.42%)
American General Corp. 218,600 $16,217,388
Machinery, Equipment & Supplies (2.61%)
Grainger (W. W.), Inc. 412,800 17,492,400
Management & Public Relations (1.19%)
Dun & Bradstreet Corp. 270,600 7,948,875
Measuring & Controlling Devices (1.05%)
Beckman Coulter, Inc. 74,400 3,422,400
Mallinckrodt, Inc. 106,500 3,614,344
7,036,744
Metal Cans & Shipping Containers (2.28%)
Ball Corp. 379,200 15,286,500
Miscellaneous Converted Paper
Products (3.72%)
Avery Dennison Corp. 294,400 18,400,000
Minnesota Mining & Mfg. Co. 69,100 6,568,819
24,968,819
Miscellaneous Furniture & Fixtures (1.33%)
Newell Rubbermaid, Inc. 258,500 8,950,563
Motor Vehicles & Equipment (1.07%)
Ford Motor Co. 131,000 7,188,625
Paper Mills (3.21%)
Kimberly Clark Corp. 341,200 21,538,250
Petroleum Refining (5.90%)
Atlantic Richfield Co. 227,300 21,181,519
Chevron Corp. 201,400 18,390,337
39,571,856
Plumbing & Heating, Except
Electric (2.92%)
Masco Corp. 643,000 19,611,500
Rental of Railroad Cars (2.38%)
GATX Corp. 480,000 15,930,000
Soap, Cleaners & Toilet Goods (1.61%)
Procter & Gamble Co. 102,700 10,770,663
Sugar & Confectionery Products (1.00%)
Hershey Foods Corp. 133,000 6,716,500
Telephone Communications (8.47%)
AT&T Corp. 382,150 17,865,512
SBC Communications, Inc. 350,280 17,842,387
U S West, Inc. 346,000 21,127,625
56,835,524
Total Common Stocks 651,795,697
Principal
Amount Value
Commercial Paper (2.75%)
Personal Credit Institutions (2.75%)
Investment in Joint Trade Account,
Associates Corp.; 5.31%; 11/1/1999 $18,474,104 $18,474,104
Total Portfolio Investments (99.93%) 670,269,801
Cash, receivables and other assets,
net of liabilities (0.07%) 456,847
Total Net Assets (100.00%) $670,726,648
PRINCIPAL GROWTH FUND, INC.
Shares
Held Value
Common Stocks (98.19%)
Accounting, Auditing & Bookkeeping (1.27%)
Paychex, Inc. 205,500 $ 8,091,563
Advertising (0.97%)
Interpublic Group of Cos., Inc. 151,800 6,166,875
Beverages (2.31%)
Coca-Cola Co. 60,000 3,540,000
PepsiCo, Inc. 322,500 11,186,719
14,726,719
Carpets & Rugs (0.24%)
Shaw Industries, Inc. 100,000 1,543,750
Commercial Banks (5.23%)
Chase Manhattan Corp. 165,500 14,460,562
Fifth Third Bancorp 95,000 7,012,188
Firstar Corp. 149,000 4,376,875
National City Corp. 91,200 2,690,400
Wells Fargo Co. 100,000 4,787,500
33,327,525
Communications Equipment (5.16%)
General Instrument Corp. 175,000(a) 9,417,187
Lucent Technologies, Inc. 148,000 9,509,000
Motorola, Inc. 62,700 6,109,331
Williams Communication Group, Inc. 245,300(a) 7,818,938
32,854,456
Computer & Data Processing
Services (5.47%)
BMC Software, Inc. 88,500(a) 5,680,594
Microsoft Corp. 241,500(a) 22,353,844
Sun Microsystems, Inc. 64,000(a) 6,772,000
34,806,438
Computer & Office Equipment (8.70%)
Automatic Data Processing, Inc. 237,900 $11,463,806
Ceridian Corp. 350,600(a) 7,691,287
Cisco Systems, Inc. 180,000(a) 13,320,000
Dell Computer Corp. 150,000(a) 6,018,750
Hewlett-Packard Co. 61,100 4,525,219
International Business Machines Corp. 103,000 10,132,625
Pitney Bowes, Inc. 49,400 2,250,787
55,402,474
Department Stores (2.19%)
Wal-Mart Stores, Inc. 244,600 13,972,775
Drug Stores & Proprietary Stores (1.88%)
CVS Corp. 275,500 11,967,031
Drugs (11.64%)
Bristol-Myers Squibb Co. 118,000 9,063,875
Forest Laboratories, Inc. 132,600(a) 6,083,025
Genzyme Corp. - General Division 100,756(a) 3,853,917
Johnson & Johnson 141,000 14,769,750
Lilly (Eli) & Co. 100,000 6,887,500
Merck & Co., Inc. 159,600 12,698,175
Pharmacia & Upjohn, Inc. 220,000 11,866,250
SmithKline Beecham PLC ADR 139,500 8,928,000
74,150,492
Electric Services (1.86%)
GPU, Inc. 91,000 3,088,313
Southern Co. 272,000 7,225,000
Teco Energy, Inc. 70,000 1,544,375
11,857,688
Electronic Components &
Accessories (6.05%)
Intel Corp. 264,000 20,443,500
Linear Technology Corp. 166,000 11,609,625
Solectron Corp. 44,000(a) 3,311,000
Texas Instruments 35,000 3,141,250
38,505,375
Electronic Distribution Equipment (2.67%)
General Electric Co. 125,300 16,985,981
Federal & Federally Sponsored
Credit (1.24%)
Federal Home Loan Mortgage 88,600 $ 6,268,450
Freddie Mac 30,000 1,621,875
7,890,325
Fire, Marine & Casualty Insurance (0.97%)
American International Group, Inc. 60,000 6,176,250
Gas Production & Distribution (0.49%)
Williams Cos., Inc. 83,000 3,112,500
General Industrial Machinery (3.24%)
Ingersoll-Rand Co. 105,000 5,486,250
Tyco International Ltd. 378,800 15,128,325
20,614,575
Grain Mill Products (1.50%)
Ralston-Ralston Purina Group 303,375 9,537,352
Groceries & Related Products (1.85%)
Sysco Corp. 306,000 11,761,875
Hotels & Motels (2.03%)
Marriott International, Inc., Class A 384,700 $12,959,581
Investment Offices (0.99%)
Amvescap PLC Sponsored ADR 140,000 6,282,500
Lumber & Other Building
Materials (2.85%)
Home Depot, Inc. 240,000 18,120,000
Medical Instruments & Supplies (2.68%)
Becton, Dickinson & Co. 153,000 3,882,375
Boston Scientific Corp. 300,000(a) 6,037,500
Guidant Corp. 61,000(a) 3,011,875
Medtronic Inc. 120,000 4,155,000
17,086,750
Medical Services & Health
Insurance (0.99%)
Aon Corp. 90,000 3,195,000
United Healthcare Corp. 60,000 3,101,250
6,296,250
Miscellaneous Chemical Products (1.02%)
Du Pont (E.I.) De Nemours 101,062 6,512,151
Miscellaneous Converted Paper
Products (0.47%)
Minnesota Mining & Mfg. Co. 31,400 2,984,962
Miscellaneous Fabricated Metal
Products (0.74%)
Parker-Hannifin Corp. 103,350 4,734,722
Miscellaneous Food & Kindred
Products (0.46%)
Bestfoods 50,000 2,937,500
Oil & Gas Field Services (0.99%)
Schlumberger Ltd. 104,000 6,298,500
Petroleum Refining (1.29%)
Atlantic Richfield Co. 40,000 $ 3,727,500
Exxon Corp. 60,600 4,488,188
8,215,688
Plumbing & Heating, Except
Electric (0.77%)
Masco Corp. 160,000 4,880,000
Publicly Traded Investment Fund (4.58%)
S&P Depositary Receipt 213,283 29,166,450
Savings Institutions (2.78%)
Citigroup, Inc. 327,675 17,735,409
Soap, Cleaners & Toilet Goods (2.93%)
Colgate-Palmolive Co. 160,000 9,680,000
Ecolab, Inc. 266,400 9,007,650
18,687,650
Special Industry Machinery (0.52%)
Applied Materials, Inc. 37,000(a) 3,323,063
Sugar & Confectionery Products (0.69%)
Wrigley (Wm.) Jr. Co. 55,000 $ 4,396,563
Telephone Communication (6.48%)
AT&T Corp. 127,895 5,979,091
GTE Corp. 89,000 6,675,000
MCI Worldcom, Inc. 214,829(a) 18,435,014
SBC Communications, Inc. 119,756 6,100,071
Sprint Corp. 55,000 4,087,187
41,276,363
Total Common Stocks 625,346,121
Principal
Amount Value
Bond (0.35%)
Electrical Industrial Apparatus (0.35%)
Liebert Co., Convertible Subordinated
Debentures; 8.00%; 11/15/2010 $ 500,000 $ 2,235,625
Commercial Paper (1.48%)
Personal Credit Institutions (1.48%)
Investment in Joint Trading Account,
Associates Corp; 5.31%; 11/1/1999 9,419,048 9,419,048
Total Portfolio Investments (100.02%) 637,000,794
Liabilities, net of cash, receivables and
other assets (-0.02%) (122,664)
Total Net Assets (100.00%) $636,878,130
(a) Non-income producing security - No dividend paid during the period.
PRINCIPAL MIDCAP FUND, INC.
Shares
Held Value
Common Stocks (92.44%)
Accounting, Auditing, &
Bookkeeping (2.45%)
Paychex, Inc. 253,814 $ 9,993,926
Carpets & Rugs (0.75%)
Shaw Industries, Inc. 198,700 3,067,431
Commercial Banks (8.53%)
Associated Banc-Corp. 167,535 6,444,862
First Federal Capital Corp. 226,696 3,570,462
FirstMerit Corp. 81,800 2,162,587
Independent Bank Corp-Michigan 109,478 1,655,859
Merchants Bancorp, Inc. 116,200 3,834,600
North Fork Bancorp, Inc. 362,187 7,492,744
Peoples Heritage Financial Group, Inc.224,800 4,271,200
Princeton National Bancorp, Inc. 150,000 1,893,750
Summit Bancorp 99,650 3,450,381
34,776,445
Computer & Data Processing
Services (13.94%)
Akamai Technologies, Inc. 6,667(a) $ 967,965
Cadence Design Systems, Inc. 195,200(a) 2,964,600
Citrix Systems, Inc. 54,600(a) 3,501,225
Data Return Corp. 227,000(a) 3,419,187
Digex, Inc. 79,000(a) 2,261,375
Gartner Group, Inc., Class B 18,696(a) 175,275
ICG Communications, Inc. 149,100(a) 2,441,513
IMS Health, Inc. 235,900 6,841,100
Splitrock Services, Inc. 485,400(a) 10,618,125
SunGard Data Systems, Inc. 240,400(a) 5,874,775
Synopsys, Inc. 181,100(a) 11,284,794
Veritas Software Corp. 60,200(a) 6,494,075
56,844,009
Computer & Office Equipment (1.10%)
Lexmark International 57,300(a) 4,472,981
Credit Reporting & Collection (1.50%)
Equifax, Inc. 226,600 6,118,200
Crude Petroleum & Natural Gas (3.02%)
Devon Energy Corp. 165,000 6,414,375
Newfield Exploration Co. 200,000(a) 5,887,500
12,301,875
Drugs (5.14%)
Genzyme Corp. - General Division 83,000(a) 3,174,750
Johnson & Johnson 89,907 9,417,758
Pharmacia & Upjohn, Inc. 101,500 5,474,657
Watson Pharmaceuticals 91,100(a) 2,892,425
20,959,590
Drugs, Proprietaries & Sundries (0.63%)
McKesson HBOC, Inc. 127,620 2,560,376
Electrical Industrial Apparatus (1.72%)
American Power Conversion 312,000(a) 7,000,500
Electronic Components &
Accessories (12.88%)
Altera Corp. 68,100(a) 3,311,363
Celestica, Inc. 93,100(a) 5,178,688
DII Group, Inc. 112,500(a) 4,050,000
Flextronics International, Ltd. 89,800(a) 6,375,800
Jabil Circuit, Inc. 151,300(a) 7,905,425
Linear Technology Corp. 84,300 5,895,731
Maxim Integrated Products, Inc. 51,800(a) 4,088,962
Novellus Systems, Inc. 49,900(a) 3,867,250
Solectron Corp. 58,900(a) 4,432,225
Vitesse Semiconductor Corp. 81,000(a) 3,715,875
Xilinx, Inc. 47,200(a) 3,711,100
52,532,419
Fabricated Rubber Product, NEC (0.43%)
Weatherford International 52,300(a) 1,771,662
Family Clothing Stores (1.05%)
Abercrombie & Fitch Co. 156,800(a) 4,272,800
General Industrial Machinery (3.60%)
Kaydon Corp. 181,600 $ 4,505,950
Pentair, Inc. 99,200 3,732,400
Roper Industries, Inc. 208,300 6,431,263
14,669,613
Hospitals (0.89%)
Universal Health Services, Inc.,
Class B 122,800(a) 3,607,250
Hotels & Motels (3.85%)
Four Seasons Hotel, Inc. 201,200 8,387,525
Marriott International, Inc., Class A 217,100 7,313,556
15,701,081
Household Appliances (1.39%)
Maytag Corp. 141,300 5,660,831
Investment Offices (1.47%)
Amvescap PLC Sponsored ADR 133,820 6,005,173
Laundry, Cleaning, & Garment
Services (0.78%)
G&K Services, Inc. 84,600 3,177,787
Measuring & Controlling Devices (2.09%)
ISCO, Inc. 1 2
Millipore Corp. 156,400 4,985,250
Teradyne, Inc. 91,800(a) 3,534,300
8,519,552
Medical Instruments & Supplies (1.82%)
Becton, Dickinson & Co. 152,100 3,859,538
Boston Scientific Corp. 177,000(a) 3,562,125
7,421,663
Medical Services & Health
Insurance (1.84%)
Torchmark Corp. 127,300 3,970,169
United Healthcare Corp. 68,600 3,545,762
7,515,931
Miscellaneous Business Services (0.53%)
Cendant Corp. 129,938(a) 2,143,977
Miscellaneous General Merchandise
Stores (0.89%)
Casey's General Stores, Inc. 282,800 3,641,050
Oil & Gas Field Services (1.05%)
Diamond Offshore Drilling 134,900 4,283,075
Operative Builders (0.85%)
D. R. Horton, Inc. 294,500 3,478,781
Paints & Allied Products (0.59%)
RPM, Inc. 200,500 2,393,469
Plumbing, Heating &
Air Conditioning (0.58%)
Apogee Enterprises, Inc. 377,400 2,382,338
Publicly Traded Investment Fund (0.92%)
S&P Mid-Cap 400 Depositary Receipts 50,000 3,765,625
Savings Institutions (4.28%)
Greenpoint Financial Corp. 90,000 $ 2,565,000
TCF Financial Corp. (B) 364,900(b) 10,764,550
WSFS Financial Corp. 290,000 4,132,500
17,462,050
Telephone Communication (9.61%)
Exodus Communications, Inc. 53,000(a) 4,558,000
Intermedia Communications, Inc. 91,200(a) 2,371,200
McLeodUSA, Inc. 363,000(a) 16,198,875
MGC Communications, Inc. 88,000(a) 2,420,000
Nextlink Communications 52,100(a) 3,116,231
RCN Corp. 136,500(a) 6,534,938
Triton PCS Holdings, Inc., Class A 14,500(a) 511,125
Winstar Communications, Inc. 88,900(a) 3,450,431
39,160,800
Variety Stores (1.04%)
Family Dollar Stores 205,500 4,238,437
Women's & Misses' Outerwear (1.23%)
Jones Apparel Group, Inc. 158,000(a) 4,996,750
Total Common Stocks 376,897,447
Principal
Amount Value
Commercial Paper (8.41%)
Business Credit Institutions (3.83%)
American Express Credit Corp.;
5.20%; 11/1/1999 $ 6,340,000 $ 6,340,000
5.23%; 11/3/1999 1,720,000 1,719,498
General Electric Capital Corp.;
5.20%; 11/2/1999 7,540,000 7,538,911
15,598,409
Personal Credit Institutions (4.58%)
Associates First Capital Corp.
5.31%; 11/1/1999 725,000 725,000
Investment in Joint Trade Account,
Associates Corp.; 5.31%; 11/1/1999 17,962,916 17,962,916
18,687,916
Total Commercial Paper 34,286,325
Total Portfolio Investments (100.85%) 411,183,772
Liabilities, net of cash, receivables and
other assets (-0.85%) (3,461,795)
Total Net Assets (100.00%) $407,721,977
Contract Opening Current Unrealized
Type Commitment Market Value Market Value Gain (Loss)
Futures Contracts
105 Contracts, Buy $20,237,749 $21,065,625 $827,876
S&P MidCap 400
December 1999
Futures
(a) Non-income producing security - No dividend paid during the period.
(b)Security or a portion of the security was pledged to cover margin
requirements for futures contracts. At the period end, the value of
securities pledged amounted to $2,950,000.
PRINCIPAL REAL ESTATE FUND, INC.
Shares
Held Value
Common Stocks (96.29%)
Apartment REITs (19.72%)
Apartment Investment & Management Co. 11,100 $ 417,637
Archstone Communities Trust 20,000 400,000
Avalonbay Communities, Inc. 9,287 300,086
Equity Residential Properties Trust 15,400 643,913
Essex Property Trust, Inc. 2,400 78,150
Gables Residential Trust 8,800 212,850
Post Properties, Inc. 4,800 185,400
Walden Residential Properties, Inc. 15,300 327,994
2,566,030
Factory Outlet REITs (1.67%)
Chelsea GCA Realty, Inc. 7,000 217,000
Hotel REITs (8.34%)
Host Marriott Corp. 26,414 237,726
Meristar Hospitality Corp. 10,800 173,475
Sunstone Hotel Investors, Inc. 70,400 673,200
1,084,401
Mall REITs (12.50%)
CBL & Associates Properties, Inc. 13,800 307,050
General Growth Properties, Inc. 6,000 173,625
Mills Corp. 10,300 185,400
Rouse Co. 8,800 194,700
Simon Property Group, Inc. 17,500 403,594
Taubman Centers, Inc. 21,000 237,562
The Macerich Co. 6,200 124,000
1,625,931
Manufactured Housing REITs (4.98%)
Manufactured Home Communities, Inc. 17,400 405,638
Sun Communities, Inc. 7,600 242,250
647,888
Mortgage, Mixed Use & Miscellaneous
REITs (2.92%)
Bradley Real Estate, Inc. 22,700 380,225
Office & Industrial REITs (36.08%)
Arden Realty Group, Inc. 13,200 $ 265,650
Boston Properties, Inc. 7,500 223,594
Cabot Industrial Trust 18,600 372,000
Carramerica Realty Corp. 4,700 104,575
Centerpoint Properties Corp. 2,100 68,513
Duke-Weeks Realty Corp. 20,400 400,350
Equity Office Properties Trust 27,600 610,650
Great Lakes REIT, Inc. 3,900 56,306
Highwoods Properties, Inc. 11,000 266,063
Kilroy Realty Corp. 10,900 209,144
Liberty Property Trust 13,800 322,575
Mack-Cali Realty Corp. 11,500 296,125
Prentiss Property Trust 4,700 100,756
Prologis Trust 28,950 559,097
Reckson Associates Realty Corp.,
Class B 13,625 274,193
SL Green Realty Corp. 2,700 49,106
Spieker Properties, Inc. 14,750 515,328
4,694,025
Self Storage REITs (2.44%)
Storage USA, Inc. 10,900 317,462
Shopping Center REITs (7.64%)
AMB Property Corp. 16,500 327,938
Developers Diversified Realty Corp. 20,200 287,850
Federal Realty Investment Trust 16,000 291,000
Pan Pacific Retail Properties, Inc. 4,800 87,600
994,388
Total Common Stocks 12,527,350
Principal
Amount Value
Commercial Paper (3.73%)
Personal Credit Institutions (3.73%)
Investment in Joint Trade Account,
Associates Corp.; 5.31%; 11/1/1999 $484,943 $ 484,943
Total Portfolio Investments (100.02%) 13,012,293
Liabilities, net of cash, receivables and
other assets (-0.02%) (2,985)
Total Net Assets (100.00%) $13,009,308
PRINCIPAL SMALLCAP FUND, INC.
Shares
Held Value
Common Stocks (94.80%)
Blast Furnace & Basic Steel
Products (1.41%)
Carpenter Technology Corp. 28,200 $ 687,375
Quanex Corp. 11,200 242,900
930,275
Commercial Banks (1.21%)
Cullen Frost Bankers 27,600 796,950
Commercial Printing (0.97%)
Mail-Well, Inc. 47,800(a) 639,325
Communications Equipment (1.85%)
Intervoice-Brite, Inc. 56,000(a) 693,000
Tekelec 42,000(a) 532,875
1,225,875
Computer & Data Processing
Services (15.06%)
Advanced Communications System, Inc. 45,950(a) 539,912
Bindview Dev. Corp. 24,000(a) 720,000
Ciber, Inc. 35,000(a) 570,937
Data Return Corp. 38,000(a) 572,375
Hypercom Corp. 94,500(a) 756,000
ICG Communications, Inc. 40,100(a) 656,637
Interactive Pictures Corp. 34,600(a) 815,262
ISS Group, Inc. 14,300(a) 545,188
Netegrity, Inc. 28,000(a) 756,000
PRI Automation, Inc. 15,000(a) 601,875
Quadramed Corp. 130,000(a) 731,250
Ravisent Technologies, Inc. 42,800(a) 687,475
Splitrock Services, Inc. 38,800(a) 848,750
SPSS, Inc. 24,400(a) 433,100
Watchguard Technologies, Inc. 43,000(a) 725,625
9,960,386
Computer & Office Equipment (2.51%)
Computer Network Tech Corp. 51,000(a) 819,187
Neomagic Corp. 25,000(a) 199,219
Smart Modular Technologies, Inc. 17,150(a) 636,694
1,655,100
Construction & Related Machinery (0.58%)
JLG Industries, Inc. 30,200 386,937
Crude Petroleum & Natural Gas (0.83%)
Nuevo Energy Co. 38,900(a) 551,893
Drugs (2.97%)
Chirex, Inc. 16,100(a) 454,825
Geltex Pharmaceuticals, Inc. 39,000(a) 480,188
Inhale Therapeutic Systems, Inc. 17,750(a) 489,234
Matritech, Inc. 260,900(a) 538,106
1,962,353
Drugs, Proprietaries & Sundries (1.16%)
Amerisource Health Corp. - Class A 15,200(a) $ 228,000
Bindley Western Industries, Inc. 42,800 537,675
765,675
Eating & Drinking Places (2.68%)
Morton's Restaurant Group, Inc. 35,000(a) 608,125
Rubio's Restaurants, Inc. 78,000(a) 565,500
Ruby Tuesday, Inc. 31,400 598,563
1,772,188
Electric Services (1.43%)
Cleco Corp. 7,600 251,750
TNP Enterprises, Inc. 17,400 693,825
945,575
Electronic Components &
Accessories (6.75%)
Corcord Communication 13,000(a) 675,187
DII Group, Inc. 37,250(a) 1,341,000
Etec Systems, Inc. 15,000(a) 572,813
Galileo Technology ADR 33,000(a) 754,875
Hadco Corp. 13,800(a) 507,150
Transwitch Corp. 13,000(a) 611,813
4,462,838
Fabricated Structural Metal
Products (1.11%)
Aavid Thermal Technologies, Inc. 25,000(a) 562,500
Circor International, Inc. 18,150(a) 172,425
734,925
Family Clothing Stores (0.89%)
Pacific Sunwear of California, Inc. 19,500(a) 588,656
Fire, Marine & Casualty Insurance (1.39%)
Horace Mann Educators 23,600 665,225
Selective Insurance Group, Inc. 13,600 254,150
919,375
Fish Hatcheries & Preserves (1.13%)
Provantage Health Services 63,900(a) 746,831
Footwear, Except Rubber (0.98%)
Wolverine World Wide, Inc. 63,000 645,750
Gas Production & Distribution (1.38%)
Peoples Energy Corp. 7,000 266,000
Piedmont Natural Gas Co. 20,200 646,400
912,400
General Industrial Machinery (2.01%)
Kaydon Corp. 25,400 630,238
Regal-Beloit Corp. 32,000 696,000
1,326,238
Grain Mill Products (1.19%)
Ralcorp Holdings, Inc. 40,300(a) 785,850
Greeting Cards (0.99%)
American Greetings Corp. 25,400 657,225
Groceries & Related Products (0.83%)
Universal Corp. 23,300 547,550
Horticultural Specialties (0.88%)
Hines Horticulture, Inc. 66,400(a) $ 581,000
Hospitals (1.08%)
Universal Health Services, Inc. 24,200(a) 710,875
Jewelry, Silverware & Plated Ware (1.07%)
Jostens, Inc. 33,500 707,688
Life Insurance (1.18%)
Mony Group, Inc. 24,800 781,200
Measuring & Controlling Devices (1.27%)
Integrated Measurement Systems, Inc. 69,100(a) 842,156
Meat Products (1.15%)
Michael Foods, Inc. 29,800 759,900
Medical Instruments & Supplies (2.60%)
ADAC Laboratories 83,400(a) 724,538
Focal, Inc. 120,000(a) 607,500
Hologic, Inc. 111,400(a) 389,900
1,721,938
Medical Service & Health
Insurance (0.82%)
Foundation Health Systems, Inc. 82,000(a) 543,250
Men's & Boys' Clothing Stores (2.02%)
Hot Topic, Inc. 35,700(a) 1,338,750
Men's & Boys' Furnishings (1.23%)
Quiksilver, Inc. 57,600(a) 813,600
Miscellaneous Apparel & Accessory
Stores (0.86%)
The Buckle, Inc. 34,600(a) 570,900
Miscellaneous Chemical Products (0.84%)
H.B. Fuller Co. 10,100 552,975
Miscellaneous Converted Paper (0.69%)
Shorewood Packaging Corp. 35,975(a) 456,433
Miscellaneous Electrical Equipment &
Supplies (0.03%)
Motorcar Parts & Accessories 12,350(a) 20,841
Miscellaneous Equipment Rental &
Leasing (0.86%)
Rent-A-Center, Inc. 31,000(a) 567,688
Miscellaneous Fabricated Metal
Products (0.75%)
Watts Industries, Inc. 36,300 496,856
Miscellaneous Manufacturers (0.88%)
Russ Berrie & Co. 30,100 579,425
Miscellaneous Shopping Goods (1.08%)
Zale Corp. 17,000(a) 711,875
Miscellaneous Textile Goods (0.76%)
Kellwood Co. 28,500 $ 504,094
Motor Vehicles & Equipment (1.78%)
Modine Manufacturing Co. 19,400 482,575
United Auto Group, Inc. 59,500(a) 695,406
1,177,981
Motor Vehicles, Parts & Supplies (0.62%)
Keystone Automotive Industries, Inc. 47,600(a) 407,575
Office Furniture (0.86%)
Kimball International, Inc. 35,400 566,400
Oil & Gas Field Services (1.38%)
Pride International, Inc. 66,300(a) 911,625
Opthalmic Goods (0.84%)
TLC The Laser Center, Inc. 32,000(a) 556,000
Personnel Supply Services (1.00%)
On Assignment, Inc. 23,000(a) 661,250
Petroleum Refining (0.86%)
Valero Energy Corp. 31,000 569,625
Retail Stores, NEC (1.79%)
Action Performance Cos., Inc. 25,000(a) 508,594
The Children's Place Retail 26,000(a) 677,625
1,186,219
Rubber & Plastics Footwear (0.72%)
Vans, Inc. 42,200(a) 474,750
Savings Institutions (4.38%)
Commercial Federal Corp. 28,300 555,387
Community First Bankshares, Inc. 35,700 679,416
MAF Bancorp, Inc. 32,900 709,406
Reliance Bancorp, Inc. 23,600 952,113
2,896,322
Search & Navigation Equipment (1.05%)
Anaren Microwave, Inc. 20,200(a) 691,850
Soap, Cleaners & Toilet Goods (2.08%)
Carter-Wallace, Inc. 40,700 735,144
Digene Corp. 49,950(a) 643,106
1,378,250
Surety Insurance (0.99%)
Enhance Financial Services Group, Inc. 35,700 651,525
Telephone Communication (1.92%)
Intermedia Communications, Inc. 25,600(a) 665,600
MGC Communications, Inc. 22,000(a) 605,000
1,270,600
Trucking & Courier Services, Except
Air (0.81%)
Werner Enterprises, Inc 33,700 537,094
Vocational Schools (1.39%)
Apollo Group, Inc. 35,000(a) $ 920,937
Women's Clothing Stores (0.97%)
AnnTaylor Stores Corp. 15,000(a) 638,437
Total Common Stocks 62,678,054
Principal
Amount Value
Commercial Paper (3.24%)
Personal Credit Institutions (3.24%)
Investment in Joint Trading Account,
Associates Corp.; 5.31%: 11/1/1999 $2,145,083 $2,145,083
Total Portfolio Investments (98.04%) 64,823,137
Cash, receivables and other assets,
net of liabilities (1.96%) 1,298,317
Total Net Assets (100.00%) $66,121,454
(a) Non-income producing security - No dividend paid during the period.
PRINCIPAL UTILITIES FUND, INC.
Shares
Held Value
Common Stocks (98.19%)
Combination Utility Services (13.32%)
Citizens Utilities 277,691(a) $3,210,802
Constellation Power, Inc. 82,500 2,531,719
Montana Power Co. 53,400 1,518,563
Nisource, Inc. 122,600 2,513,300
PacifiCorp 107,600 2,219,250
Scana Corp. 85,600 2,129,300
Utilicorp United, Inc. 126,000 2,724,750
16,847,684
Electric Services (42.59%)
AES Corp. 49,700(a) 2,804,944
Allegheny Energy 69,400 2,207,787
Avista Corp. 111,500 2,007,000
Carolina Power & Light Co. 28,300 976,350
CMS Energy Corp. 64,600 2,382,125
Dominion Resources, Inc. 26,400 1,270,500
DQE, Inc. 57,700 2,304,394
Duke Energy Corp. 42,700 2,412,550
Edison International 121,000 3,584,625
Enron Corp. 92,760 3,704,602
Firstenergy Corp. 77,500 2,019,844
FPL Group, Inc. 44,700 2,248,969
GPU, Inc. 76,500 2,596,219
Ipalco Enterprises, Inc. 40,200 821,587
MidAmerican Energy Holdings Co. 72,000 $ 2,421,000
Niagara Mohawk Holdings, Inc. 157,700(a) 2,503,488
Peco Energy Co. 48,800 1,863,550
Pinnacle West Capital Corp. 91,400 3,370,375
Potomac Electric Power 100,100 2,746,494
Reliant Energy, Inc. 89,100 2,427,975
Southern Co. 79,600 2,114,375
Teco Energy, Inc. 52,900 1,167,106
Texas Utilities Holdings 55,600 2,154,500
TNP Enterprises, Inc. 43,800 1,746,525
53,856,884
Gas Production & Distribution (1.95%)
New Jersey Resources Corp. 38,700 1,574,606
Peoples Energy Corp. 23,300 885,400
2,460,006
Telephone Communications (40.33%)
AT&T Corp. 88,950 4,158,413
Bell Atlantic Corp. 90,700 5,889,831
BellSouth Corp. 119,000 5,355,000
GTE Corp. 67,400 5,055,000
MCI Worldcom, Inc. 73,924(a) 6,343,603
RCN Corp. 74,900(a) 3,585,838
SBC Communications, Inc. 104,358 5,315,736
Sprint Corp. 88,100 6,546,931
Sprint PCS Group 26,700(a) 2,214,431
Teligent, Inc. 21,300(a) 955,837
U S West, Inc. 91,300 5,575,006
50,995,626
Total Common Stocks 124,160,200
Principal
Amount Value
Commercial Paper (1.60%)
Personal Credit Institutions (1.60%)
Investment in Joint Trade Account,
Associates Corp.; 5.31%; 11/1/1999 $2,014,984 $ 2,014,984
Total Portfolio Investments (99.79%) 126,175,184
Cash, receivables and other assets,
net of liabilities (0.21%) 270,375
Total Net Assets (100.00%) $126,445,559
(a) Non-income producing security - No dividend paid during the period.
FINANCIAL HIGHLIGHTS
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
<TABLE>
<CAPTION>
PRINCIPAL BALANCED FUND, INC.(a)
Class A shares 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $15.28 $15.11 $14.61 $13.74 $12.43
Income from Investment Operations:
Net Investment Income............................... .40 .42 .35 .38 .41
Net Realized and Unrealized Gain (Loss)
on Investments.................................... .34 1.15 1.81 1.59 1.31
Total from Investment Operations .74 1.57 2.16 1.97 1.72
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.44) (.37) (.36) (.43) (.36)
Distributions from Capital Gains.................... (.45) (1.03) (1.30) (.67) (.05)
Total Dividends and Distributions (.89) (1.40) (1.66) (1.10) (.41)
Net Asset Value, End of Period......................... $15.13 $15.28 $15.11 $14.61 $13.74
Total Return(b) ....................................... 4.85% 11.00% 15.88% 15.10% 14.18%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $112,329 $104,414 $85,436 $70,820 $57,125
Ratio of Expenses to Average Net Assets............. 1.28% 1.28% 1.33% 1.28% 1.37%
Ratio of Net Investment Income to
Average Net Assets................................ 2.67% 2.86% 2.42% 2.82% 3.21%
Portfolio Turnover Rate............................. 24.2% 57.0% 27.6% 32.6% 35.8%
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL BALANCED FUND, INC.(a)
Class B shares 1999 1998 1997 1996 1995(c)
- --------------------------------------------------------------------------------------------- ---- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $15.22 $15.05 $14.56 $13.71 $11.80
Income from Investment Operations:
Net Investment Income............................... .29 .31 .25 .29 .31
Net Realized and Unrealized Gain (Loss)
on Investments.................................... .32 1.14 1.79 1.55 1.90
Total from Investment Operations .61 1.45 2.04 1.84 2.21
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.32) (.25) (.25) (.32) (.30)
Distributions from Capital Gains.................... (.45) (1.03) (1.30) (.67) --
Total Dividends and Distributions (.77) (1.28) (1.55) (.99) (.30)
Net Asset Value, End of Period......................... $15.06 $15.22 $15.05 $14.56 $13.71
Total Return(b) ....................................... 4.02% 10.18% 14.96% 14.10% 18.72%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $23,570 $18,930 $11,885 $5,964 $1,263
Ratio of Expenses to Average Net Assets............. 2.02% 2.04% 2.14% 2.13% 1.91%(e)
Ratio of Net Investment Income to
Average Net Assets................................ 1.93% 2.08% 1.58% 1.93% 2.53%(e)
Portfolio Turnover Rate............................. 24.2% 57.0% 27.6% 32.6% 35.8%(e)
</TABLE>
PRINCIPAL BALANCED FUND, INC.(a)
Class C shares 1999(f)
- -------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $15.94
Income from Investment Operations:
Net Investment Income............................... .07
Net Realized and Unrealized Gain (Loss)
on Investments.................................... (.81)
Total from Investment Operations (.74)
Less Dividends:
Dividends from Net Investment Income................ (.07)
Total Dividends (.07)
Net Asset Value, End of Period......................... $15.13
Total Return(b) ....................................... (4.67)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $242
Ratio of Expenses to Average Net Assets............. 2.11%(e)
Ratio of Net Investment Income to
Average Net Assets................................ 1.78%(e)
Portfolio Turnover Rate............................. 24.2%(e)
<TABLE>
<CAPTION>
PRINCIPAL BALANCED FUND, INC.(a)
Class R shares 1999 1998 1997 1996(g)
- ----------------------------------------------------------------------------------------------- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $15.15 $14.98 $14.52 $13.81
Income from Investment Operations:
Net Investment Income............................... .32 .33 .29 .24
Net Realized and Unrealized Gain (Loss)
on Investments.................................... .32 1.15 1.76 .73
Total from Investment Operations .64 1.48 2.05 .97
Less Dividends and Distributions:......................
Dividends from Net Investment Income................ (.35) (.28) (.30) (.26)
- --- ---------
Distributions from Capital Gains.................... (.45) (1.03) (1.29) --
Total Dividends and Distributions (.80) (1.31) (1.59) (.26)
Net Asset Value, End of Period......................... $14.99 $15.15 $14.98 $14.52
Total Return(b) ....................................... 4.21% 10.43% 15.16% 7.52%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $23,972 $19,434 $9,745 $875
Ratio of Expenses to Average Net Assets............. 1.84% 1.88% 1.99% 1.49%(e)
Ratio of Net Investment Income to
Average Net Assets................................ 2.11% 2.22% 1.66% 2.26%(e)
Portfolio Turnover Rate............................. 24.2% 57.0% 27.6% 32.6%(e)
</TABLE>
FINANCIAL HIGHLIGHTS (Continued)
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
<TABLE>
<CAPTION>
PRINCIPAL BLUE CHIP FUND, INC.(a)
Class A shares 1999 1998 1997 1996 1995
- ------------------------------------------------------------------- ------------------------ ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $21.71 $20.22 $17.10 $15.03 $12.45
Income from Investment Operations:
Net Investment Income............................... .15 .12 .21 .23 .24
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 3.53 3.57 3.58 2.45 2.55
Total from Investment Operations 3.68 3.69 3.79 2.68 2.79
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.14) (.12) (.21) (.26) (.21)
Distributions from Capital Gains.................... -- (2.08) (.46) (.35) --
Total Dividends and Distributions (.14) (2.20) (.67) (.61) (.21)
Net Asset Value, End of Period......................... $25.25 $21.71 $20.22 $17.10 $15.03
Total Return(b) ....................................... 17.00% 19.48% 22.57% 18.20% 22.65%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $184,217 $126,740 $79,985 $44,389 $35,212
Ratio of Expenses to Average Net Assets............. 1.26% 1.31% 1.30% 1.33% 1.38%
Ratio of Net Investment Income to
Average Net Assets................................ .63% .57% 1.10% 1.41% 1.83%
Portfolio Turnover Rate............................. 16.4% .5% 55.4% 13.3% 26.1%
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL BLUE CHIP FUND, INC.(a)
Class B shares 1999 1998 1997 1996 1995(c)
- ------------------------------------------------------------------- ------------------------ ---- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $21.55 $20.14 $17.03 $14.99 $11.89
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.02) (.02) .07 .11 .15
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 3.48 3.53 3.54 2.41 3.10
Total from Investment Operations 3.46 3.51 3.61 2.52 3.25
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.01) (.02) (.04) (.13) (.15)
Distributions from Capital Gains.................... -- (2.08) (.46) (.35) --
Total Dividends and Distributions (.01) (2.10) (.50) (.48) (.15)
Net Asset Value, End of Period......................... $25.00 $21.55 $20.14 $17.03 $14.99
Total Return(b) ....................................... 16.09% 18.59% 21.59% 17.18% 26.20%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $56,493 $34,223 $18,265 $6,527 $1,732
Ratio of Expenses to Average Net Assets............. 2.04% 2.02% 2.06% 2.19% 1.90%(e)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (.15)%` (.14)% .32% .49% .97%(e)
Portfolio Turnover Rate............................. 16.4% .5% 55.4% 13.3% 26.1%(e)
</TABLE>
PRINCIPAL BLUE CHIP FUND, INC.(a)
Class C shares 1999(f)
- -------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $25.50
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.03)
Net Realized and Unrealized Gain (Loss)
on Investments.................................... (.30)
Total from Investment Operations (.33)
Net Asset Value, End of Period......................... $25.17
Total Return(b) ....................................... (1.29)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $331
Ratio of Expenses to Average Net Assets............. 2.27%(e)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................ (.72)%(e)
Portfolio Turnover Rate............................. 16.4%(e)
<TABLE>
<CAPTION>
PRINCIPAL BLUE CHIP FUND, INC.(a)
Class R shares 1999 1998 1997 1996(g)
- ------------------------------------------------------------------- -------------------------- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $21.63 $20.16 $17.08 $16.21
Income from Investment Operations:
Net Investment Income............................... .03 .02 .13 .12
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 3.49 3.57 3.53 .90
Total from Investment Operations 3.52 3.59 3.66 1.02
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.03) (.04) (.12) (.15)
Distributions from Capital Gains.................... -- (2.08) (.46) --
Total Dividends and Distributions (.03) (2.12) (.58) (.15)
Net Asset Value, End of Period......................... $25.12 $21.63 $20.16 $17.08
Total Return(b) ....................................... 16.31% 19.01% 21.82% 7.02%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $50,667 $32,871 $15,502 $1,575
Ratio of Expenses to Average Net Assets............. 1.81% 1.85% 1.89% 1.48%(e)
Ratio of Net Investment Income to
Average Net Assets................................ .08% .02% .45% .68%(e)
Portfolio Turnover Rate............................. 16.4% .5% 55.4% 13.3%(e)
</TABLE>
FINANCIAL HIGHLIGHTS (Continued)
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
<TABLE>
<CAPTION>
PRINCIPAL CAPITAL VALUE FUND, INC.(a)
Class A shares 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $31.07 $29.69 $27.72 $23.69 $20.83
Income from Investment Operations:
Net Investment Income............................... .52 .50 .50 .45 .45
Net Realized and Unrealized Gain (Loss)
on Investments.................................... .45 3.88 5.80 5.48 3.15
Total from Investment Operations .97 4.38 6.30 5.93 3.60
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.51) (.53) (.48) (.43) (.39)
Distributions from Capital Gains.................... (1.95) (2.47) (3.85) (1.47) (.35)
Total Dividends and Distributions (2.46) (3.00) (4.33) (1.90) (.74)
Net Asset Value, End of Period......................... $29.58 $31.07 $29.69 $27.72 $23.69
Total Return(b) ....................................... 3.00% 15.59% 25.36% 26.41% 17.94%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $573,485 $565,052 $494,444 $435,617 $339,656
Ratio of Expenses to Average Net Assets............. .75% .74% .70% .69% .75%
Ratio of Net Investment Income to
Average Net Assets................................ 1.73% 1.67% 1.85% 1.82% 2.08%
Portfolio Turnover Rate............................. 44.5% 23.2% 30.8% 50.2% 46.0%
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL CAPITAL VALUE FUND, INC.(a)
Class B shares 1999 1998 1997 1996 1995(c)
- --------------------------------------------------------------------------------------------- ----- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $30.90 $29.51 $27.58 $23.61 $19.12
Income from Investment Operations:
Net Investment Income............................... .29 .26 .23 .21 .33
Net Realized and Unrealized Gain (Loss)
on Investments.................................... .44 3.86 5.77 5.45 4.46
Total from Investment Operations .73 4.12 6.00 5.66 4.79
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.27) (.26) (.22) (.22) (.30)
Distributions from Capital Gains.................... (1.95) (2.47) (3.85) (1.47) --
Total Dividends and Distributions (2.22) (2.73) (4.07) (1.69) (.30)
Net Asset Value, End of Period......................... $29.41 $30.90 $29.51 $27.58 $23.61
Total Return(b) ....................................... 2.24% 14.71% 24.13% 25.19% 25.06%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $53,169 $44,765 $27,240 $9,832 $2,248
Ratio of Expenses to Average Net Assets............. 1.52% 1.52% 1.65% 1.70% 1.50%(e)
Ratio of Net Investment Income to
Average Net Assets................................ .96% .88% .84% .80% 1.07%(e)
Portfolio Turnover Rate............................. 44.5% 23.2% 30.8% 50.2% 46.0%(e)
</TABLE>
PRINCIPAL CAPITAL VALUE FUND, INC.(a)
Class C shares 1999(f)
- -------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $31.81
Income from Investment Operations:
Net Investment Income............................... .01
Net Realized and Unrealized Gain (Loss)
on Investments.................................... (2.37)
Total from Investment Operations (2.36)
Net Asset Value, End of Period......................... $29.45
Total Return(b) ....................................... (7.42)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $211
Ratio of Expenses to Average Net Assets............. 2.07%(e)
Ratio of Net Investment Income to
Average Net Assets................................ .23%(e)
Portfolio Turnover Rate............................. 44.5%(e)
<TABLE>
<CAPTION>
PRINCIPAL CAPITAL VALUE FUND, INC.(a)
Class R shares 1999 1998 1997 1996(g)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $30.80 $29.44 $27.57 $24.73
Income from Investment Operations:
Net Investment Income............................... .32 .28 .30 .19
Net Realized and Unrealized Gain (Loss)
on Investments.................................... .44 3.84 5.74 2.81
Total from Investment Operations .76 4.12 6.04 3.00
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.28) (.29) (.32) (.16)
Distributions from Capital Gains.................... (1.95) (2.47) (3.85) --
Total Dividends and Distributions (2.23) (2.76) (4.17) (.16)
Net Asset Value, End of Period......................... $29.33 $30.80 $29.44 $27.57
Total Return(b) ....................................... 2.35% 14.77% 24.36% 12.74%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $43,862 $37,675 $18,326 $1,752
Ratio of Expenses to Average Net Assets............. 1.43% 1.50% 1.50% 1.16%(e)
Ratio of Net Investment Income to
Average Net Assets................................ 1.05% .88% .93% 1.18%(e)
Portfolio Turnover Rate............................. 44.5% 23.2% 30.8% 50.2%(e)
</TABLE>
FINANCIAL HIGHLIGHTS (Continued)
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
<TABLE>
<CAPTION>
PRINCIPAL GROWTH FUND, INC.(a)
Class A shares 1999 1998 1997 1996 1995
- ------------------------------------------------------------------- ------------------------ ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $56.09 $50.43 $39.54 $37.22 $31.14
Income from Investment Operations:
Net Investment Income............................... .21 .35 .31 .35 .35
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 9.56 7.14 11.26 3.50 6.67
Total from Investment Operations 9.77 7.49 11.57 3.85 7.02
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.30) (.34) (.31) (.35) (.31)
Distributions from Capital Gains.................... -- (1.49) (.37) (1.18) (.63)
Total Dividends and Distributions (.30) (1.83) (.68) (1.53) (.94)
Net Asset Value, End of Period......................... $65.57 $56.09 $50.43 $39.54 $37.22
Total Return(b) ....................................... 17.46% 15.17% 29.55% 10.60% 23.29%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $493,117 $395,954 $317,386 $228,361 $174,328
Ratio of Expenses to Average Net Assets............. .89% .95% 1.03% 1.08% 1.16%
Ratio of Net Investment Income to
Average Net Assets................................ .33% .66% .68% .95% 1.12%
Portfolio Turnover Rate............................. 32.4% 21.9% 16.5% 1.8% 12.2%
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL GROWTH FUND, INC.(a)
Class B shares 1999 1998 1997 1996 1995(c)
- --------------------------------------------------------------------------------------------- ---- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $55.98 $50.36 $39.43 $37.10 $28.33
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.17) .06 .09 .08 .21
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 9.55 7.14 11.23 3.48 8.76
Total from Investment Operations 9.38 7.20 11.32 3.56 8.97
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.03) (.09) (.02) (.05) (.20)
Distributions from Capital Gains.................... -- (1.49) (.37) (1.18) --
Total Dividends and Distributions (.03) (1.58) (.39) (1.23) (.20)
Net Asset Value, End of Period......................... $65.33 $55.98 $50.36 $39.43 $37.10
Total Return(b) ....................................... 16.75% 14.58% 28.92% 9.80% 31.48%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $96,116 $64,809 $42,241 $24,019 $8,279
Ratio of Expenses to Average Net Assets............. 1.50% 1.46% 1.48% 1.79% 1.80%(e)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (.28)% .15% .23% .22% .31%(e)
Portfolio Turnover Rate............................. 32.4% 21.9% 16.5% 1.8% 12.2%(e)
</TABLE>
PRINCIPAL GROWTH FUND, INC.(a)
Class C shares 1999(f)
- -------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $67.89
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.07)
Net Realized and Unrealized Gain (Loss)
on Investments.................................... (2.48)
Total from Investment Operations (2.55)
Net Asset Value, End of Period......................... $65.34
Total Return(b) ....................................... (3.75)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $452
Ratio of Expenses to Average Net Assets............. 1.85%(e)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (.58)%(e)
Portfolio Turnover Rate............................. 32.4%(e)
<TABLE>
<CAPTION>
PRINCIPAL GROWTH FUND, INC.(a)
Class R shares 1999 1998 1997 1996(g)
- ----------------------------------------------------------------------------------------------- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $55.77 $50.16 $39.40 $39.27
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.13) .02 .06 .10
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 9.49 7.09 11.16 .13
Total from Investment Operations 9.36 7.11 11.22 .23
Less Dividends and Distributions:
Dividends from Net Investment Income................ -- (.01) (.09) (.10)
Distributions from Capital Gains.................... -- (1.49) (.37) --
Total Dividends and Distributions -- (1.50) (.46) (.10)
Net Asset Value, End of Period......................... $65.13 $55.77 $50.16 $39.40
Total Return(b) ....................................... 16.78% 14.46% 28.72% 1.12%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $47,193 $30,557 $16,265 $2,014
Ratio of Expenses to Average Net Assets............. 1.46% 1.59% 1.69% 1.42%(e)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (.24)% .01% .00% .14%(e)
Portfolio Turnover Rate............................. 32.4% 21.9% 16.5% 1.8%(e)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MIDCAP FUND, INC.(a)
Class A shares 1999 1998 1997 1996 1995
- ------------------------------------------------------------------- ------------------------ ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $39.90 $45.33 $35.75 $31.45 $25.08
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.06) (.07) .07 .14 .12
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 2.28 (4.26) 10.80 5.05 6.45
Total from Investment Operations 2.22 (4.33) 10.87 5.19 6.57
Less Dividends and Distributions:
Dividends from Net Investment Income -- -- (.11) (.14) (.06)
Distributions from Capital Gains.................... -- (1.10) (1.18) (.75) (.14)
Total Dividends and Distributions -- (1.10) (1.29) (.89) (.20)
Net Asset Value, End of Period......................... $42.12 $39.90 $45.33 $35.75 $31.45
Total Return(b) ....................................... 5.56% (9.78)% 31.26% 16.89% 26.89%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $313,984 $332,942 $346,666 $229,465 $150,611
Ratio of Expenses to Average Net Assets............. 1.22% 1.22% 1.26% 1.32% 1.47%
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (.17)% (.14)% .20% .46% .47%
Portfolio Turnover Rate............................. 59.9% 25.1% 9.5% 12.3% 13.5%
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MIDCAP FUND, INC.(a)
Class B shares 1999 1998 1997 1996 1995(c)
- ------------------------------------------------------------------- ------------------------ ---- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $39.29 $44.88 $35.48 $31.31 $23.15
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.28) (.23) (.05) (.04) --
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 2.28 (4.26) 10.64 4.97 8.18
Total from Investment Operations 2.00 (4.49) 10.59 4.93 8.18
------ --------- ---------
Less Dividends and Distributions:
Dividends from Net Investment Income................ -- -- (.01) (.01) (.02)
- --- ---------
Distributions from Capital Gains.................... -- (1.10) (1.18) (.75) --
Total Dividends and Distributions -- (1.10) (1.19) (.76) (.02)
Net Asset Value, End of Period......................... $41.29 $39.29 $44.88 $35.48 $31.31
Total Return(b) ....................................... 5.09% (10.24)% 30.64% 16.07% 35.65%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $68,639 $68,358 $59,554 $28,480 $8,997
Ratio of Expenses to Average Net Assets............. 1.67% 1.73% 1.69% 2.01% 2.04%(e)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (.62)% (.66)% (.24)% (.24)% (.17)%(e)
Portfolio Turnover Rate............................. 59.9% 25.1% 9.5% 12.3% 13.5%(e)
</TABLE>
PRINCIPAL MIDCAP FUND, INC.(a)
Class C shares 1999(f)
- -------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $45.79
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.11)
Net Realized and Unrealized Gain (Loss)
on Investments.................................... (3.72)
Total from Investment Operations (3.83)
Net Asset Value, End of Period......................... $41.96
Total Return(b) ....................................... (8.36)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $222
Ratio of Expenses to Average Net Assets............. 2.25%(e)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (1.14)%(e)
Portfolio Turnover Rate............................. 59.9%(e)
<TABLE>
<CAPTION>
PRINCIPAL MIDCAP FUND, INC.(a)
Class R shares 1999 1998 1997 1996(g)
- ----------------------------------------------------------------------------------------------- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $39.43 $45.10 $35.67 $33.77
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.34) (.28) (.12) .04
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 2.27 4.29) 10.74 1.88
Total from Investment Operations 1.93 (4.57) 10.62 1.92
Less Dividends and Distributions:
Dividends from Net Investment Income................ -- -- (.01) (.02)
Distributions from Capital Gains.................... -- (1.10) (1.18) --
Total Dividends and Distributions -- (1.10) (1.19) (.02)
Net Asset Value, End of Period......................... $41.36 $39.43 $45.10 $35.67
Total Return(b) ....................................... 4.89% (10.37)% 30.56% 6.20%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $24,877 $23,540 $17,448 $2,016
Ratio of Expenses to Average Net Assets............. 1.85% 1.89% 1.87% 1.53%(e)
Ratio of Net Investment Income (Operating Loss).....
to Average Net Assets............................. (.80)% (.82)% (.45)% .29%(e)
Portfolio Turnover Rate............................. 59.9% 25.1% 9.5% 12.3%(e)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL REAL ESTATE FUND, INC.
Class A shares 1999 1998(h)
- --------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period................... $8.39 $10.15
Income from Investment Operations:
Net Investment Income............................... .31 .20
Net Realized and Unrealized Gain (Loss)
on Investments.................................... (.67) (1.76)
Total from Investment Operations (.36) (1.56)
Less Dividends:
Dividends from Net Investment Income................ (.30) (.20)
- ---
Total Dividends (.30) (.20)
Net Asset Value, End of Period......................... $7.73 $8.39
Total Return(b) ....................................... (4.38)% (15.45)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $6,459 $5,490
Ratio of Expenses to Average Net Assets............. 2.19% 2.25%(e)
Ratio of Net Investment Income to
Average Net Assets................................ 3.77% 2.89%(e)
Portfolio Turnover Rate............................. 55.1% 60.4%(e)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL REAL ESTATE FUND, INC.
Class B shares 1999 1998(h)
- --------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period................... $8.38 $10.15
Net Investment Income............................... .24 .20
Net Realized and Unrealized Gain (Loss)
on Investments.................................... (.66) (1.78)
Total from Investment Operations (.42) (1.58)
Less Dividends:
Dividends from Net Investment Income................ (.25) (.19)
Total Dividends (.25) (.19)
Net Asset Value, End of Period......................... $7.71 $ 8.38
Total Return(b) ....................................... (5.10)% (15.67)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $3,351 $3,120
Ratio of Expenses to Average Net Assets............. 2.98% 2.47% (e)
Ratio of Net Investment Income to
Average Net Assets................................ 2.98% 2.67%(e)
Portfolio Turnover Rate............................. 55.1% 60.4%(e)
</TABLE>
PRINCIPAL REAL ESTATE FUND, INC.(a)
Class C shares 1999(f)
- -------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $8.66
Income from Investment Operations:
Net Investment Income............................... .06
Net Realized and Unrealized Gain (Loss)
on Investments.................................... (.94)
Total from Investment Operations (.88)
Less Dividends:
Dividends from Net Investment Income................ (.06)
Total Dividends (.06)
Net Asset Value, End of Period......................... $7.72
Total Return(b) ....................................... (10.21)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $99
Ratio of Expenses to Average Net Assets............. 3.13%(e)
Ratio of Net Investment Income to
Average Net Assets................................ 2.00%(e)
Portfolio Turnover Rate............................. 55.1%(e)
<TABLE>
<CAPTION>
PRINCIPAL REAL ESTATE FUND, INC.
Class R shares 1999 1998(h)
- --------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period................... $8.40 $10.15
Income from Investment Operations:
Net Investment Income............................... .28 .23
Net Realized and Unrealized Gain (Loss)
on Investments.................................... (.66) (1.78)
Total from Investment Operations (.38) (1.55)
Less Dividends:
Dividends from Net Investment Income................ (.30) (.20)
- --- ---------
Total Dividends (.30) (.20)
Net Asset Value, End of Period......................... $7.72 $ 8.40
Total Return(b) ....................................... (4.70)% (15.37)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $3,100 $2,928
Ratio of Expenses to Average Net Assets............. 2.53% 1.99%(e)
Ratio of Net Investment Income to
Average Net Assets................................ 3.43% 3.07%(e)
Portfolio Turnover Rate............................. 55.1% 60.4%(e)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL SMALLCAP FUND, INC.
Class A shares 1999 1998(h)
- ------------------------------------------------------------------- -----------
<S> <C> <C>
Net Asset Value, Beginning of Period................... $8.43 $9.92
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.11) (.08)
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 3.02 (1.41)
Total from Investment Operations 2.91 (1.49)
Net Asset Value, End of Period......................... $11.34 $8.43
Total Return(b) ....................................... 34.52% (15.95)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $41,598 $18,438
Ratio of Expenses to Average Net Assets............. 1.92% 2.58%(e)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (1.04)% (1.65)%(e)
Portfolio Turnover Rate............................. 100.7% 20.5%(e)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL SMALLCAP FUND, INC.
Class B shares 1999 1998(h)
- ------------------------------------------------------------------- -----------
<S> <C> <C>
Net Asset Value, Beginning of Period................... $8.41 $9.91
Net Investment Income (Operating Loss).............. (.11) (.11)
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 2.91 (1.39)
Total from Investment Operations 2.80 (1.50)
Net Asset Value, End of Period......................... $11.21 $ 8.41
Total Return(b) ....................................... 33.29% (16.15)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $14,158 $6,550
Ratio of Expenses to Average Net Assets............. 2.63% 2.80% (e)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (1.75)% (1.85)%(e)
Portfolio Turnover Rate............................. 100.7% 20.5% (e)
</TABLE>
PRINCIPAL SMALLCAP FUND, INC.(a)
Class C shares 1999(f)
- -------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $11.14
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.05)
Net Realized and Unrealized Gain (Loss)
on Investments.................................... .22
Total from Investment Operations .17
Net Asset Value, End of Period......................... $11.31
Total Return(b) ....................................... 1.53%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $189
Ratio of Expenses to Average Net Assets............. 2.60%(e)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (1.79)%(e)
Portfolio Turnover Rate............................. 100.7%(e)
<TABLE>
<CAPTION>
PRINCIPAL SMALLCAP FUND, INC.
Class R shares 1999 1998(h)
- ------------------------------------------------------------------- -----------
<S> <C> <C>
Net Asset Value, Beginning of Period................... $8.45 $9.91
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.10) (.07)
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 2.96 (1.39)
Total from Investment Operations 2.86 (1.46)
Net Asset Value, End of Period......................... $11.31 $ 8.45
Total Return(b) ....................................... 33.85% (15.75)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $10,177 $4,688
Ratio of Expenses to Average Net Assets............. 2.31% 2.07%(e)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (1.43)% (1.12)%(e)
Portfolio Turnover Rate............................. 100.7% 20.5%(e)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL UTILITIES FUND, INC.(a)
Class A shares 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------- ------------- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $16.11 $12.55 $11.40 $10.94 $9.25
Income from Investment Operations:
Net Investment Income(i) .......................... .33 .41 .48 .44 .48
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 2.00 3.59 1.12 .45 1.70
Total from Investment Operations 2.33 4.00 1.60 .89 2.18
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.34) (.44) (.45) (.43) (.49)
Distributions from Capital Gains.................... (.24) -- -- -- --
Total Dividends and Distributions (.58) (.44) (.45) (.43) (.49)
Net Asset Value, End of Period......................... $17.86 $16.11 $12.55 $11.40 $10.94
Total Return(b) ....................................... 14.74% 32.10% 14.26% 8.13% 24.36%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $99,857 $83,533 $64,366 $66,322 $65,873
Ratio of Expenses to Average Net Assets(i) ....... 1.20% 1.15% 1.15% 1.17% 1.04%
Ratio of Net Investment Income to
Average Net Assets................................ 1.94% 2.73% 3.90% 3.85% 4.95%
Portfolio Turnover Rate............................. 23.5% 11.9% 22.5% 34.2% 13.0%
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL UTILITIES FUND, INC.(a)
Class B shares 1999 1998 1997 1996 1995(c)
- ------------------------------------------------------------------- ------------------------ ---- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $16.09 $12.53 $11.38 $10.93 $9.20
Income from Investment Operations:
Net Investment Income(i) .......................... .22 .30 .38 .36 .40
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 1.98 3.59 1.13 .43 1.77
Total from Investment Operations 2.20 3.89 1.51 .79 2.17
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.22) (.33) (.36) (.34) (.44)
Distributions from Capital Gains.................... (.24) -- -- -- --
Total Dividends and Distributions (.46) (.33) (.36) (.34) (.44)
Net Asset Value, End of Period......................... $17.83 $16.09 $12.53 $11.38 $10.93
Total Return(b) ....................................... 13.85% 31.23% 13.41% 7.23% 24.18%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $18,282 $11,391 $6,937 $5,579 $3,952
Ratio of Expenses to Average Net Assets(i) ....... 1.95% 1.90% 1.90% 1.93% 1.72%(e)
Ratio of Net Investment Income to
Average Net Assets................................ 1.19% 2.04% 3.14% 3.07% 3.84%(e)
Portfolio Turnover Rate............................. 23.5% 11.9% 22.5% 34.2% 13.0%(e)
</TABLE>
PRINCIPAL UTILITIES FUND, INC.(a)
Class C shares 1999(f)
- -------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $17.97
Income from Investment Operations:
Net Investment Income............................... .05
Net Realized and Unrealized Gain (Loss)
on Investments.................................... (.14)
Total from Investment Operations (.09)
Less Dividends:
Dividends from Net Investment Income................ (.04)
- --- ---------
Total Dividends (.04)
Net Asset Value, End of Period......................... $17.84
Total Return(b) ....................................... (.47)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $226
Ratio of Expenses to Average Net Assets............. 2.05%(e)
Ratio of Net Investment Income to
Average Net Assets................................ 1.08%(e)
Portfolio Turnover Rate............................. 23.5%(e)
<TABLE>
<CAPTION>
PRINCIPAL UTILITIES FUND, INC.(a)
Class R shares 1999 1998 1997 1996(g)
- ------------------------------------------------------------------- ------------------------ -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $16.07 $12.49 $11.33 $11.75
Income from Investment Operations:
Net Investment Income(i) .......................... .21 .33 .39 .28
Net Realized and Unrealized Gain (Loss)
on Investments.................................... 2.00 3.58 1.14 (.41)
Total from Investment Operations 2.21 3.91 1.53 (.13)
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.22) (.33) (.37) (.29)
- --- ---------
Distributions from Capital Gains.................... (.24) -- -- --
Total Dividends and Distributions (.46) (.33) (.37) (.29)
Net Asset Value, End of Period......................... $17.82 $16.07 $12.49 $11.33
Total Return(b) ....................................... 13.97% 31.47% 13.72% (.31)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $8,081 $4,005 $1,512 $311
Ratio of Expenses to Average Net Assets(i) ....... 1.87% 1.65% 1.65% 1.47%(e)
Ratio of Net Investment Income to
Average Net Assets................................ 1.27% 2.21% 3.35% 3.77%(e)
Portfolio Turnover Rate............................. 23.5% 11.9% 22.5% 34.2%(e)
</TABLE>
FINANCIAL HIGHLIGHTS (Continued)
Notes to Financial Highlights
(a) Effective January 1, 1998, the following changes were made to the names of
the Domestic Growth Funds:
Former Fund Name New Fund Name
Princor Balanced Fund, Inc. Principal Balanced Fund, Inc.
Princor Blue Chip Fund, Inc. Principal Blue Chip Fund, Inc.
Princor Capital Accumulation Fund, Inc. Principal Capital Value Fund, Inc.
Princor Growth Fund, Inc. Principal Growth Fund, Inc.
Princor Emerging Growth Fund, Inc. Principal MidCap Fund, Inc.
Princor Utilities Fund, Inc. Principal Utilities Fund,Inc.
(b) Total return is calculated without the front-end sales charge or contingent
deferred sales charge.
(c) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995. The Domestic Growth Funds' Class B shares
recognized net investment income as follows for the period from the initial
purchase of Class B shares on December 5, 1994 through December 8, 1994,
none of which was distributed to the sole shareholder, Principal Management
Corporation. The Domestic Growth Funds' Class B shares incurred unrealized
losses on investments during the initial interim period as follows. This
represents Class B share activities of each fund prior to the initial
public offering of Class B shares:
Net Investment Per Share
Income Unrealized (Loss)
Principal Balanced Fund, Inc. $-- $(.19)
Principal Blue Chip Fund, Inc. -- (.15)
Principal Capital Value Fund, Inc. -- (.46)
Principal Growth Fund, Inc. -- (.86)
Principal MidCap Fund, Inc. -- (.77)
Principal Utilities Fund, Inc. .01 (.01)
(d) Total return amounts have not been annualized.
(e) Computed on an annualized basis.
(f) Period from June 30, 1999, date Class C shares first offered to the public
and the date of the initial purchase of Class C Shares by Principal Life
Insurance Company, through October 31, 1999.
(g) Period from February 29, 1996, date Class R shares first offered to
eligible purchasers, through October 31, 1996. Certain of the Domestic
Growth Funds' Class R shares recognized net investment income for the
period from the initial purchase of Class R shares on February 27, 1996
through February 28, 1996 as follows, none of which was distributed to the
sole shareholder, Principal Management Corporation. Additionally, the
Domestic Growth Funds incurred unrealized gains (losses) on investments
during the initial interim period as follows. This represents Class R share
activities of each fund prior to the initial offering of Class R shares:
Per Share Per Share
Net Investment Unrealized
Income Gain (Loss)
Principal Balanced Fund, Inc. $-- $(.03)
Principal Blue Chip Fund, Inc. .01 (.02)
Principal Capital Value Fund, Inc. .01 (.11)
Principal Growth Fund, Inc. .01 .10
Principal MidCap Fund, Inc -- .19
(h) Period from December 31, 1997, date Class A and Class B shares first
offered to the public and Class R shares first offered to eligible
purchasers, through October 31, 1998. With respect to Principal Real Estate
Fund, Inc. Class A, Class B and Class R shares, net investment income
aggregating $.03 per share for the period from the initial purchase of
shares on December 11, 1997 through December 30, 1997 was recognized, of
which $.01 per share was distributed to its sole shareholder, Principal
Life Insurance Company, during the period. With respect to Principal
SmallCap Fund, Inc. Class A, Class B and Class R shares, net investment
income aggregating $.02 per share from the initial purchase of shares on
December 11, 1997 through December 30, 1997 was recognized. Principal
SmallCap Fund, Inc. Class A, Class B and Class R did distribute $.01 per
share a taxable return of capital to the sole shareholder Principal Life
Insurance Company, during the period. Principal Real Estate Fund, Inc. and
Principal SmallCap Fund, Inc. Class A, Class B and Class R shares incurred
unrealized gains (losses) on investments during the initial interim period
as follows. This represents Class A, Class B and Class R share activities
of each fund prior to the initial public offering of each class of shares.
Per Share Unrealized
Gain (Loss)
Class Class Class
A B R
Principal Real Estate Fund, Inc. $ .13 $ .13 $ .13
Principal SmallCap Fund, Inc. (.09) (.09) (.09)
(i) Without the Manager's voluntary waiver of a portion of certain of its
expenses (see Note 3 to the financial statements) for the periods
indicated, Principal Utilities Fund, Inc. would have had per share net
investment income and the ratios of expenses to average net assets as
shown:
<TABLE>
<CAPTION>
Year Ended
October 31, Per Share Ratio of Expenses
Except Net Investment to Average Net Amount
as Noted Income Assets Waived
<S> <C> <C> <C> <C>
Class A 1998 $.39 1.23% $ 60,477
1997 .46 1.25% 65,940
1996 .43 1.25% 54,932
1995 .46 1.30% 151,145
Class B 1998 .29 2.00% 9,557
1997 .37 1.95% 3,753
1996 .34 2.06% 6,690
1995(c) .40 1.81%(e) 1,338
Class R 1998 .28 2.10% 12,481
1997 .31 2.67% 9,355
1996(g) .28 1.47%(e) --
<FN>
The Manager ceased its waiver of expenses October 31, 1998.
</FN>
</TABLE>
October 31, 1999
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
Principal Principal
International Principal International
Emerging Markets International SmallCap
GROWTH FUNDS (INTERNATIONAL) Fund, Inc. Fund, Inc. Fund, Inc.
<S> <C> <C> <C>
Investment in securities -- at cost........ $20,990,480 $364,449,500 $32,985,734
Assets
Investment in securities -- at value (Note 4) $22,088,621 $409,035,640 $40,558,661
Cash.................................... 13,783 14,005 210,806
Receivables:
Dividends and interest.................. 41,893 972,106 42,878
Investment securities sold.............. 525,554 11,910 747,692
Capital Shares sold..................... 4,293 117,540 59,504
Other assets............................... -- 1,761 --
Total Assets 22,674,144 410,152,962 41,619,541
Liabilities
Accrued expenses........................... 64,822 508,831 64,348
Payables:
Investment securities purchased......... 437,736 -- 633,521
Capital Shares reacquired............... 5,112 761,488 6,083
Net foreign currency contract (Note 5) . -- -- 48,515
Total Liabilities 507,670 1,270,319 752,467
Net Assets Applicable to Outstanding Shares $22,166,474 $408,882,643 $40,867,074
Net Assets Consist of:
Capital Stock.............................. $ 256,962 $ 407,955 $ 26,728
Additional paid-in capital................. 22,721,734 305,885,060 29,173,313
Accumulated undistributed net
investment income ...................... -- 4,476,869 --
Accumulated undistributed net realized
gain (loss) from investment and
foreign currency transactions........... (1,903,294) 53,524,668 4,142,603
Net unrealized appreciation
of investments.......................... 1,103,421 44,586,140 7,572,927
Net unrealized appreciation (depreciation) on
translation of assets and liabilities in
foreign currencies...................... (12,349) 1,951 (48,497)
Total Net Assets $22,166,474 $408,882,643 $40,867,074
Capital Stock (par value: $.01 a share):
Shares authorized.......................... 100,000,000 125,000,000 100,000,000
Net Asset Value Per Share:
Class A: Net Assets....................... $13,401,117 $338,143,659 $23,611,581
Shares issued and outstanding. 1,564,964 33,694,811 1,540,817
Net asset value per share...... $8.56 $10.04 $15.32
Maximum offering price per share(a) $8.99 $10.54 $16.08
Class B: Net Assets....................... $5,051,380 $48,319,407 $10,926,161
Shares issued and outstanding. 596,703 4,850,576 719,875
Net asset value per share(b)... $8.47 $9.96 $15.18
Class C: Net Assets....................... $107,760 $190,546 $140,886
Shares issued and outstanding. 12,613 19,065 9,219
Net asset value per share(b). $8.54 $9.99 $15.28
Class R: Net Assets....................... $3,606,217 $22,229,031 $6,188,446
Shares issued and outstanding. 421,871 2,231,052 402,872
Net asset value per share.... $8.55 $9.96 $15.36
<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>
See accompanying notes.
</TABLE>
Year Ended October 31, 1999
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Principal Principal
International Principal International
Emerging Markets International SmallCap
GROWTH FUNDS (INTERNATIONAL) Fund, Inc. Fund, Inc. Fund, Inc.
Net Investment Income
Income:
<S> <C> <C> <C>
Dividends............................. $ 409,287 $10,590,539 $ 332,017
Withholding tax on foreign dividends... (23,764) (1,068,417) (37,476)
Interest............................... 34,375 656,271 60,917
Total Income 419,898 10,178,393 355,458
Expenses:
Management and investment advisory
fees (Note 3)....................... 216,500 2,673,903 358,891
Distribution and shareholder servicing
fees (Notes 1 and 3)................ 67,976 1,217,648 120,048
Transfer and administrative services
(Notes 1 and 3)..................... 148,065 1,111,335 168,397
Registration fees (Note 1)............. 35,147 73,978 33,424
Custodian fees ........................ 31,881 198,640 22,039
Auditing and legal fees ............... 2,205 4,173 1,904
Directors' fees ....................... 6,626 6,640 7,115
Other ................................. 925 19,702 2,809
Total Expenses 509,325 5,306,019 714,627
Net Investment Income (Operating Loss) (89,427) 4,872,374 (359,169)
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign Currencies
Net realized gain (loss) from:
Investment transactions................ (462,516) 49,836,308 4,528,478
Foreign currency transactions.......... (35,875) (169,422) (26,706)
Change in unrealized appreciation/ depreciation of:
Investments............................a 4,841,996 3,263,127 8,844,011
Translation of assets and liabilities in
foreign currencies.................. 7,069 81,069 (49,409)
Net Realized and Unrealized Gain on
Investments and Foreign Currencies 4,350,674 53,011,082 13,296,374
Net Increase in Net Assets
Resulting from Operations $4,261,247 $57,883,456 $12,937,205
See accompanying notes.
</TABLE>
Years Ended October 31, Except as Noted
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Principal Principal
International Principal International
Emerging Markets International SmallCap
GROWTH FUNDS (INTERNATIONAL) Fund, Inc. Fund, Inc. Fund, Inc.
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Operations
Net investment income (operating loss).... $ (89,427) $ (62,006) $ 4,872,374 $ 4,898,628 $ (359,169) $ (174,037)
Net realized gain (loss) from investment
and foreign currency transactions..... (498,391) (1,360,310) 49,666,886 21,565,859 4,501,772 362,866
Change in unrealized appreciation/
depreciation of investments and
translation of assets and
liabilities in foreign currencies 4,849,065 (1,771,953) 3,344,196 (21,851,314) 8,794,602 (1,228,241)
Net Increase (Decrease) in Net
Assets Resulting from Operations 4,261,247 (3,194,269) 57,883,456 4,613,173 12,937,205 (1,039,412)
Dividends and Distributions to
Shareholders
From net investment income:
Class A................................ -- -- (3,969,273) (3,230,657) -- --
Class B ............................... -- -- (251,681) (135,323) -- --
Class R ............................... -- -- (86,216) (60,535) -- --
From net realized gain on investments
and foreign currency transactions:
Class A ............................... -- -- (15,033,379) (6,125,804) (93,728) --
Class B ............................... -- -- (2,095,376) (754,887) (51,691) --
Class R................................ -- -- (904,521) (272,111) (25,931) --
Total Dividends and Distributions -- -- (22,340,446) (10,579,317) (171,350) --
Capital Share Transactions (Note 6)
Shares sold:
Class A................................ 5,344,227 4,862,019 86,190,514 61,935,765 9,483,933 8,737,574
Class B ............................... 1,240,621 1,321,774 11,341,699 14,284,105 2,071,973 3,023,591
Class C(a)............................. 111,837 -- 185,888 -- 124,696 --
Class R................................ 1,141,426 609,470 6,962,176 9,941,189 1,131,774 532,826
Shares issued in reinvestment of dividends
and distributions:
Class A................................ -- -- 18,683,449 9,196,905 93,541 --
Class B ............................... -- -- 2,317,119 870,916 51,577 --
Class R................................ -- -- 994,480 332,448 26,009 --
Shares redeemed:
Class A ............................... (1,703,746) (797,000) (99,069,597) (44,920,651) (5,023,440) (2,487,754)
Class B ............................... (508,592) (339,033) (11,138,167) (6,478,598) (1,332,071) (895,810)
Class C(a)............................. -- -- -- -- (3,360) --
Class R ............................... (510,451) (338,015) (5,300,263) (3,796,800) (190,655) (192,387)
Net Increase in Net Assets from
Capital Share Transactions 5,115,322 5,319,215 11,167,298 41,365,279 6,433,977 8,718,040
Total Increase 9,376,569 2,124,946 46,710,308 35,399,135 19,199,832 7,678,628
Net Assets
Beginning of year......................... 12,789,905 10,664,959 362,172,335 326,773,200 21,667,242 13,988,614
End of year (including undistributed net
investment income as set forth below). $22,166,474 $12,789,905 $408,882,643 $362,172,335 $40,867,074 $21,667,242
Undistributed Net Investment Income....... $ -- $ -- $ 4,476,869 $ 4,262,374 $ -- $ --
<FN>
(a) Period from June 30, 1999 through October 31, 1999.
</FN>
See accompanying notes.
</TABLE>
October 31, 1999
NOTES TO FINANCIAL STATEMENTS
Principal International Emerging Markets Fund, Inc.
Principal International Fund, Inc.
Principal International SmallCap Fund, Inc.
Note 1 -- Significant Accounting Policies
Principal International Emerging Markets Fund, Inc., Principal International
Fund, Inc. and Principal International SmallCap Fund, Inc. (the "International
Growth Funds") are registered under the Investment Company Act of 1940, as
amended, as open-end diversified management investment companies and operate in
the mutual fund industry.
On June 30, 1999, the initial purchases of Class C shares of the International
Growth Funds were made by Principal Life Insurance Company (See Note 3).
Effective June 30, 1999, the International Growth Funds began offering Class C
shares to the public.
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") upon redemption. Class B shares are sold without an
initial sales charge, but are subject to a declining CDSC on certain redemptions
made within six years of purchase. Class C shares are sold without an initial
sales charge, but are subject to a CDSC on certain redemptions made within the
first twelve months of purchase. Class R shares are sold without an initial
sales charge and are not subject to a CDSC. Class B shares, Class C 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) seven years after purchase. Class C shares do not
convert into Class A shares. Class R shares automatically convert into Class A
shares, based on relative net asset value (without a sales charge) four years
after purchase. 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 declares 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, 1999, which are included in the
corresponding captions of the Statements of Operations, were as follows:
<TABLE>
<CAPTION>
Distribution and Transfer and
Shareholder Servicing Fees Administrative Services
Class A Class B Class C Class R Class A Class B Class C Class R
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal International
Emerging Markets Fund, Inc. $ 17,170 $ 38,989 $333 $ 11,484 $ 21,745 $ 6,531 $100 $1,820
Principal International Fund, Inc. 701,601 363,828 459 151,760 350,780 90,065 250 50,125
Principal International
SmallCap Fund, Inc. 35,500 76,438 408 7,702 27,902 10,559 100 1,398
</TABLE>
Registration Fees
Class A Class B Class C Class R
Principal International
Emerging Markets Fund, Inc. $ 9,848 $8,921 $-- $ --
Principal International Fund, Inc. 20,739 9,851 -- 8,557
Principal International
SmallCap Fund, Inc. 8,975 4,307 -- 5,708
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 prices provided by
market makers or estimates of market values obtained from yield data and other
factors relating to instruments or securities with similar characteristics in
accordance with procedures established in good faith by each fund's Board of
Directors. Securities with remaining maturities of 60 days or less are valued at
amortized cost, which approximates market.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of the New York Stock Exchange. The values of
such securities used in computing net asset value per share are usually
determined as of such times. Occasionally, events which affect the values of
such securities and foreign currency exchange rates may occur between the times
at which they are generally determined and the close of the New York Stock
Exchange and would therefore not be reflected in the computation of each fund's
net asset value. If events materially affecting the value of such securities
occur during such period, then these securities are valued at their fair value
as determined in good faith by Principal Management Corporation (the "Manager")
under procedures established and regularly reviewed by each fund's Board of
Directors. To the extent each fund invests in foreign securities listed on
foreign exchanges which trade on days on which the fund does not determine its
net asset value, for example Saturdays and other customary national U.S.
holidays, each fund's net asset value could be significantly affected on days
when shareholders do not have access to the International Growth Funds.
Certain securities issued by companies in emerging market countries may have
more than one quoted valuation at any given point in time, sometimes referred to
as a "local" price and a "premium" price. The premium price is often a
negotiated price which may not consistently represent a price at which a
specific transaction can be effected. It is the policy of the International
Growth Funds to value such securities at prices at which it is expected those
shares may be sold, and the Manager or any sub-advisor is authorized to make
such determinations subject to such oversight by each fund's Board of Directors
as may occasionally be necessary.
The value of foreign securities in foreign currency amounts is expressed in U.S.
dollars at the closing daily rate of exchange. The identified cost of the
portfolio holdings is translated at approximate rates prevailing when acquired.
Income and expense amounts are translated at approximate rates prevailing when
received or paid, with daily accruals of such amounts reported at approximate
rates prevailing at the date of valuation. Since the carrying amount of the
foreign securities is determined based on the exchange rate and market values at
the close of the period, it is not practicable to isolate that portion of the
results of operations arising as a result of changes in the foreign exchange
rates from the fluctuations arising from changes in the market prices of
securities during the period.
The International Growth Funds record investment transactions generally one day
after the trade date, except for short-term investment transactions, which are
recorded generally on the trade date. The identified cost basis has been used in
determining the net realized gain or loss from investment transactions and
unrealized appreciation or depreciation of investments. The International Growth
Funds record dividend income on the ex-dividend date, except dividend income
from foreign securities whereby the ex-dividend date has passed; such dividends
are recorded as soon as the funds are informed of the ex-dividend date. Interest
income is recognized on an accrual basis.
Net realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between trade and settlement dates
on security transactions, and the difference between the amount of dividends and
foreign withholding taxes recorded on the books and the U.S. dollar equivalent
of the amounts actually received or paid. Net unrealized appreciation on
translation of assets and liabilities in foreign currencies arise from changes
in the exchange rate relating to assets and liabilities, other than investments
in securities, purchased and held in non-U.S. denominated currencies.
The International Growth Funds may, pursuant to an exemptive order issued by the
Securities and Exchange Commission, transfer uninvested funds into a joint
trading account. The order permits the International Growth Funds' cash balances
to be deposited into a single joint account along with the cash of other
registered investment companies managed by Principal Management Corporation.
These balances may be invested in one or more short-term instruments.
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Dividends and distributions to shareholders from net investment income and
net realized gain from investments and foreign currency transactions are
determined in accordance with federal income tax regulations, which may differ
from generally accepted accounting principles. Permanent book and tax basis
differences are reclassified within the capital accounts based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Reclassifications made for Principal International Emerging Markets Fund, Inc.,
Principal International Fund, Inc. and Principal International SmallCap Fund,
Inc. for the year ended October 31, 1999 aggregated $161,177, $171,471 and
$412,899, respectively. For the year ended October 31, 1998 reclassifications
made for Principal International Emerging Markets Fund, Inc. and Principal
International SmallCap Fund, Inc. aggregated $75,696 and $181,352, respectively.
Reclassifications made for the Principal International Fund, Inc. for the years
ended October 31, 1999 and 1998 were not material.
Note 1 -- Significant Accounting Policies (Continued)
Dividends and distributions which exceed net investment income and net realized
capital gains for financial reporting purposes, but not for tax purposes, are
reported as dividends in excess of net investment income or distributions in
excess of net realized capital gains. To the extent distributions exceed current
and accumulated earnings and profits for federal income tax purposes they are
reported as tax return of capital distributions.
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 approximates that used for financial
reporting purposes.
At October 31, 1999, Principal International Emerging Markets Fund, Inc. had net
capital loss carryforwards of approximately $72,000 which expires in 2005,
$1,482,000 which expires in 2006 and $349,000 which expires in 2007.
Note 3 -- Management Agreement and Transactions With Affiliates
The International Growth Funds have agreed to pay investment advisory and
management fees to Principal Management Corporation (wholly owned by Princor
Financial Services Corporation, a subsidiary of Principal Financial Services,
Inc.) computed at an annual percentage rate of each fund's average daily net
assets. The annual rate used in this calculation for the International Growth
Funds is as follows:
<TABLE>
Net Asset Value of Funds
(in millions)
<CAPTION>
First Next Next Next Over
$100 $100 $100 $100 $400
<S> <C> <C> <C> <C> <C>
Principal International Emerging Markets Fund, Inc. 1.25% 1.20% 1.15% 1.10% 1.05%
Principal International Fund, Inc. 0.75 0.70 0.65 0.60 0.55
Principal International SmallCap Fund, Inc. 1.20 1.15 1.10 1.05 1.00
</TABLE>
At the November 2, 1999 shareholder meeting a modified management fee schedule,
effective January 1, 2000, was approved for the following fund:
<TABLE>
Net Asset Value of Fund
(in millions)
<CAPTION>
First Next Next Next Over
$250 $250 $250 $250 $1,000
<S> <C> <C> <C> <C> <C>
Principal International Fund, Inc. 0.85% 0.80% 0.75% 0.70% 0.65%
</TABLE>
The International Growth Funds also reimburse the Manager for transfer and
administrative services, including the cost of accounting, data processing,
supplies and other services rendered.
Princor Financial Services Corporation, as principal underwriter, receives
proceeds of any CDSC on certain Class A, Class B and Class C share redemptions.
The charge is based on declining rates which for Class A shares begin at .75%,
Class B shares at 4.00%, and Class C shares at 1.00% 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 periods ended October 31,
1999, were as follows:
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C>
Principal International Emerging Markets Fund, Inc. $101,207$ 10,743 $ --
Principal International Fund, Inc. 828,497 204,126 --
Principal International SmallCap Fund, Inc. 131,997 24,122 --
</TABLE>
No brokerage commissions were paid by the International Growth Funds to Princor
Financial Services Corporation during the periods. Brokerage commissions were
paid to other affiliates by the following funds:
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1999 October 31, 1998
<S> <C> <C>
Principal International Emerging Markets Fund, Inc. $ 13,818 $ 4,730
Principal International Fund, Inc. 232,934 138,499
Principal International SmallCap Fund, Inc. 45,132 6,610
</TABLE>
The International Growth Funds bear distribution and shareholder servicing fees
with respect to each class computed at an annual rate of the average daily net
assets attributable to each class of each fund. The annual rate will not exceed
the following limits:
<TABLE>
<CAPTION>
Class A Class B Class C Class R
<S> <C> <C> <C> <C>
Distribution and Shareholder Servicing fees .25% 1.00% 1.00% .75%
</TABLE>
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 for Class A, Class B and Class
R shares, fees that are unused by the principal underwriter at the end of the
fiscal year are returned to the respective International Growth Funds which
generated the excess.
At October 31, 1999, Principal Life Insurance Company, subsidiaries of Principal
Life Insurance Company and benefit plans sponsored on behalf of Principal Life
Insurance Company owned shares of the International Growth Funds as follows:
<TABLE>
<CAPTION>
Class A Class B Class C Class R
<S> <C> <C> <C> <C>
Principal International Emerging Markets Fund, Inc 388,814 300,000 11,186 300,000
Principal International Fund, Inc. 9,777,554 -- 10,406 --
Principal International SmallCap Fund, Inc. 395,325 302,288 7,710 302,272
</TABLE>
Note 4 -- Investment Transactions
For the year ended October 31, 1999, the cost of investment securities purchased
and proceeds from investment securities sold (not including short-term
investments and U.S. government securities) by the International Growth Funds
were as follows:
<TABLE>
<CAPTION>
Purchases Sales
<S> <C> <C>
Principal International Emerging Markets Fund, Inc. $ 21,101,759 $15,808,164
Principal International Fund, Inc. 239,692,870 225,253,553
Principal International SmallCap Fund, Inc. 63,207,683 54,294,275
</TABLE>
At October 31, 1999, net unrealized appreciation of investments by the
International Growth Funds was composed of the following:
<TABLE>
<CAPTION>
Net Unrealized
Gross Unrealized Appreciation
Appreciation (Depreciation) of Investments
<S> <C> <C> <C>
Principal International Emerging Markets Fund, Inc. $2,947,301 $ (1,843,880) $ 1,103,421
Principal International Fund, Inc. 71,464,651 (26,878,511) 44,586,140
Principal International SmallCap Fund, Inc. 9,333,441 (1,760,514) 7,572,927
</TABLE>
The International Growth Funds held the following securities which were
purchased in private placement transactions and may require registration, or an
exemption therefrom, in order to effect their sale in the ordinary course of
business.
<TABLE>
<CAPTION>
Value at Value as a
Date of October 31, Percentage of
Security Description Acquisition Cost 1999 Net Assets
<S> <C> <C> <C> <C>
Principal International Agora SA GDR 2/23/99 $ 98,474 $ 102,986 .46%
Emerging Markets Fund, Inc. 8/16/99 23,000 19,431 .09
Al-Ahram Beverages Co. ADR 8/21/97 56,100 64,515 .29
4/14/98 12,050 11,730 .05
9/28/98 19,350 17,595 .08
11/6/98 44,037 43,987 .20
12/14/98 36,400 41,055 .19
3/19/99 54,485 49,852 .23
4/1/99 57,780 52,785 .24
6/8/99 29,000 29,325 .13
8/19/99 30,250 29,325 .13
8/20/99 15,550 14,663 .07
10/25/99 20,300 20,528 .09
Ceske Radiokomunikace GDR 6/12/98 62,871 123,748 .56
6/16/99 37,125 32,142 .14
Estonian Telecom GDR 2/11/99 62,730 54,060 .24
6/16/99 36,720 28,620 .13
Hindalco Industries Ltd. GDR 5/6/99 79,205 95,400 .43
5/19/99 32,750 42,400 .19
6/3/99 52,870 72,080 .33
Indian Hotels Co. Ltd. 7/13/99 24,750 26,375 .12
8/9/99 59,400 63,300 .29
8/16/99 35,800 42,200 .19
Mol Magyar Olaj-es Gazipari Rt. ADR 9/2/98 18,113 18,128 .08
9/23/98 20,570 22,157 .10
2/25/99 27,335 22,157 .10
6/16/99 72,645 58,414 .27
7/2/99 49,055 40,285 .18
Pepsi-Gemex SA GDR 7/7/98 8,741 3,237 .01
8/25/98 11,985 5,550 .03
12/08/98 29,920 19,425 .09
Reliance Industries Ltd. GDR 7/14/98 4,350 6,459 .03
12/17/98 20,720 43,060 .19
12/22/98 29,150 57,055 .26
State Bank of India GDR 5/5/99 89,225 94,879 .43
5/6/99 83,880 82,305 .37
5/20/99 36,600 34,293 .15
8/10/99 26,290 25,149 .11
8/30/99 41,625 34,293 .15
Principal International Suez Cement Co. GDR 10/7/99 $ 58,229 $ 60,720 .27%
Emerging Markets Fund, Inc. 10/8/99 43,830 44,310 .20
(Continued)
Videsh Sanchar Nigam Ltd. GDR 8/14/97 129,440 127,600 .58
11/18/97 28,250 31,900 .14
12/2/97 14,250 15,950 .07
12/12/97 10,720 12,760 .06
1/2/98 15,235 17,545 .08
1/13/98 13,620 19,140 .09
3/5/98 10,440 12,760 .06
4/30/98 21,038 27,115 .12
6/5/98 19,800 28,710 .13
7/14/98 11,750 15,950 .07
7/30/98 10,875 15,950 .07
9/28/98 16,688 23,925 .11
2/11/99 54,575 94,105 .42
5/20/99 35,850 47,850 .22
2,241,238 10.11
Principal International Industrial & Financial Systems 9/8/99 211,386 199,133 .49
SmallCap Fund, Inc. 9/10/99 164,790 142,907 .35
10/7/99 189,206 175,705 .43
Neopost SA 2/23/99 26,430 55,327 .14
3/24/99 111,325 235,141 .58
3/31/99 67,925 145,234 .36
5/4/99 44,103 75,038 .18
6/9/99 63,895 103,739 .25
9/10/99 106,727 131,402 .32
10/22/99 148,611 148,692 .36
1,412,318 3.46
</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, 1999, Principal International SmallCap Fund, Inc. owned forward
contracts to sell Japanese Yen ("JPY") 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
the fund as an unrealized gain or loss. When the contract is closed, the fund
will record 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 1999 (Depreciation)
<S> <C> <C> <C> <C> <C> <C>
Principal International SmallCap Fund, Inc. 178,038,000 JPY $1,800,000 09/25/00 $1,804,767 $ (4,767)
341,391,110 3,434,000 10/23/00 3,477,748 (43,748)
519,429,110 5,234,000 5,282,515 (48,515)
</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, the fund could be exposed to risks
if the counterparties to the contract are unable to meet the terms of their
contract.
Note 6 -- Capital Share Transactions
Transactions in Capital Shares by fund were as follows:
<TABLE>
<CAPTION>
Principal International Principal Principal International
Emerging Markets International SmallCap
Fund, Inc. Fund, Inc. Fund, Inc.
Periods Ended October 31, 1999:
Shares sold:
<S> <C> <C> <C>
Class A ......................................... 667,274 9,027,584 767,113
Class B ......................................... 160,328 1,200,081 167,457
Class C ......................................... 12,613 19,065 9,453
Class R ......................................... 157,952 734,641 84,990
Shares issued in reinvestment of dividends and distributions:
Class A ........................................... -- 2,098,559 9,098
Class B ........................................... -- 262,628 5,060
Class C ......................................... -- -- --
Class R ......................................... -- 112,716 2,530
Shares redeemed:
Class A ......................................... (219,971) (10,325,463) (412,770)
Class B ......................................... (65,736) (1,172,425) (113,345)
Class C ......................................... -- -- (234)
Class R ......................................... (73,370) (558,617) (16,099)
Net Increase 639,090 1,398,769 503,253
</TABLE>
<TABLE>
<CAPTION>
Principal International Principal Principal International
Emerging Markets International SmallCap
Fund, Inc. Fund, Inc. Fund, Inc.
Year Ended October 31, 1998:
Shares sold:
<S> <C> <C> <C>
Class A ......................................... 620,056 6,434,705 770,054
Class B ......................................... 169,453 1,480,411 260,731
Class R ......................................... 87,602 1,035,347 47,319
Shares issued in reinvestment of dividends and distributions:
Class A ........................................... -- 1,012,117 --
Class B ........................................... -- 95,849 --
Class R ......................................... -- 36,589 --
Shares redeemed:
Class A ......................................... (110,092) (4,688,589) (216,075)
Class B ......................................... (43,618) (672,121) (79,482)
Class R ......................................... (53,356) (400,191) (17,457)
Net Increase 670,045 4,334,117 765,090
</TABLE>
Note 7 -- Line of Credit
The International Growth Funds participate with other funds and portfolios
managed by Principal Management Corporation in an unsecured joint line of credit
with two banks which allow the funds to borrow up to $75,000,000 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 .09% on the
average unused portion of the line of credit. The commitment fee is allocated
among the participating funds and portfolios in proportion to their average net
assets during each quarter. At October 31, 1999, the International Growth Funds
had no outstanding borrowings under the line of credit.
GROWTH FUNDS (INTERNATIONAL)
PRINCIPAL INTERNATIONAL EMERGING MARKETS FUND, INC.
Shares
Held Value
Common Stocks (90.14%)
Bakery Products (0.81%)
Nong Shim Co. Ltd. 3,500 $ 178,866
Beer, Wine & Distilled Beverages (3.07%)
Hite Brewery Co. 11,941(a) 418,109
South African Breweries Ltd. 29,962 262,318
680,427
Beverages (5.16%)
Al-Ahram Beverages Co. ADR 12,800(a)(b) 375,360
Embotelladora Andina SA ADR, Series A 9,800 159,250
Fomento Economico Mexicano SA ADR 11,650 382,266
PanAmerican Beverages ADR 12,300 197,569
Pepsi-Gemex SA GDR 6,100(a)(b) 28,212
1,142,657
Blast Furnace & Basic Steel Products (2.13%)
Pohang Iron & Steel ADR 8,900 297,037
Tubos De Acero De Mexico SA ADR 16,100 176,094
473,131
Cable & Other Pay TV Services (0.70%)
Ceske Radiokomunikace GDR 4,850(a)(b) 155,890
Cement, Hydraulic (0.57%)
Apasco SA 24,000 127,319
Central Reserve Depositories (0.56%)
Dao Heng Bank Group Ltd. 27,000 124,062
Coal Mining Services (0.36%)
Yanzhou Coal Mining Co. Ltd. 240,000 79,542
Commercial Banks (12.44%)
ABSA Group Ltd. 48,908 199,371
Banco Rio De La Plata SA ADR 15,300 196,987
Bank Hapoalim Ltd. 115,000 273,409
Bank Sinopac 414,199 233,590
Bank Slaski SA w Katowicach 3,000 163,507
BOE Ltd. 240,000 209,340
Grupo Financiero Banamex 46,000(a) 114,373
H&CB 10,500(a) 277,491
Malayan Banking Berhad 83,000 281,800
Overseas Union Bank Ltd. 57,442 248,571
Shinhan Bank 27,300 289,045
State Bank of India GDR 23,700(b) 270,919
2,758,403
Communications Equipment (1.48%)
ECI Telecommunications Ltd. ADR 7,200 209,700
Netas Northern Electric
Telekomunikasyon AS 3,136,000 117,412
327,112
Communications Services, NEC (1.46%)
Korea Telecom Corp. ADR 9,200(a) 324,300
Computer & Data Processing
Services (2.16%)
Check Point Software Technologies Ltd. 1,700(a) $ 196,669
Datatec Ltd. 22,700 281,855
478,524
Computer & Office Equipment (5.13%)
Asustek Computer, Inc. 28,000 293,762
Compal Electronics, Inc. 143,650 482,001
Orbotech Ltd. ADR 3,400(a) 265,625
Trigem Computer, Inc. 1,300 96,782
1,138,170
Concrete Work (0.47%)
Suez Cement Co. GDR 6,400(a)(b) 105,030
Concrete, Gypsum & Plaster Products (1.17%)
Cemex SA CPO 58,000 258,915
Construction & Related Machinery (0.95%)
Barlow Ltd. 43,058 209,858
Consumer Products (0.30%)
Tabak AS 300 66,294
Crude Petroleum & Natural Gas (0.73%)
Mol Magyar Olaj-es Gazipari Rt. ADR 8,000(b) 161,141
Department Stores (2.60%)
Keumkang Development Industries Co. 25,200(a) 300,425
Pt Matahari Putra Prima 817,000(a) 101,751
Shinsegae Department Store Co. 3,150 173,060
Shinsegae Department Store Co. Rights 550(a) 1,699
576,935
Eating & Drinking Places (1.22%)
Jollibee Foods Warrants 235,000(a) 89,259
Cafe De Coral Holdings Ltd. 429,000 180,832
270,091
Electric Services (0.95%)
Korean Electric Power ADR 13,300 209,475
Electrical Work (0.65%)
Pacific Electical Wire & Cable Co. Ltd. 298,000(a) 143,648
Electronic Components &
Accessories (4.23%)
Acer Peripherals, Inc. 71,760 191,043
Elec & Eltek International ADR 40,500 137,700
Flextech Holdings Ltd. 91,000 73,288
JIT Holdings Ltd. 40,000 65,872
Taiwan Semiconductor Manufacturing Co. 65,000(a) 288,752
Varitronix International Ltd. 84,000 181,093
937,748
Electronic Distribution Equipment (0.45%)
Techtronic Industries Co. 558,000 99,111
Family Clothing Stores (1.38%)
Giordano International Ltd. 288,000 305,811
Finance Services (0.53%)
Grupo Financiero Banorte SA 95,000(a) 117,363
Fire, Marine & Casualty Insurance (1.06%)
Aksigorta AS 7,679,000 235,591
Foreign Banks, Branches &
Agencies (1.59%)
Credicorp Ltd. ADR 14,350 $ 152,469
Yapi Ve Kredi Bankasi AS 13,768,000 200,461
352,930
Furniture & Home Furnishing
Stores (0.82%)
Grupo Elektra SA CPO 388,000 182,469
Gas Production & Distribution (0.60%)
Ultrapar Particpacoes SA ADR 12,000(a) 133,500
Gasoline Service Stations (0.92%)
President Chain Store Corp. 72,000 203,024
Gold & Silver Ores (0.57%)
Harmony Gold Mining Co. Ltd. 11,000 72,050
Harmony Gold Mining Co. Ltd. ADR 8,200 54,837
126,887
Holding Offices (2.12%)
The India Fund, Inc. ADR 38,000(a) 470,250
Hotels & Motels (2.12%)
Indian Hotels Co. Ltd. 12,500(b) 131,875
Resorts World Berhad 118,000 338,518
470,393
Measuring & Controlling Devices (1.20%)
IDT Holdings Singapore Ltd. ADR 104,500 156,750
Moulin International Holding Ltd. 1,150,000 109,531
266,281
Medical Instruments & Supplies (0.58%)
Medison Co. Ltd. 12,900 129,054
Miscellaneous Food & Kindred
Products (0.50%)
Thai Union Frozen Products
Public Co. Ltd. 34,000 110,984
Miscellaneous Investing (1.18%)
Banco Latino Americano
De Exportaciones ADR 10,900 260,919
Miscellaneous Non-Durable Goods (0.85%)
Desc SA, Series B 230,000 187,677
Miscellaneous Textile Goods (1.67%)
Esprit Holdings Ltd. 278,000 262,990
Reliance Industries Ltd. GDR 9,900(b) 106,574
369,564
Newspapers (1.60%)
Agora SA GDR 12,600(a)(b) 122,417
Dogan Sirketler Grubu Holding AS 12,041,600(a) 135,251
New Straits Times Press Berhad 44,000(a) 97,855
355,523
Oil & Gas Field Services (0.96%)
Gulf Indonesia Resources Ltd. ADR 26,900(a) 213,519
Paper & Paper Products (0.63%)
Aracruz Celulose SA ADR 6,800 139,400
Paperboard Containers & Boxes (0.17%)
Hung Hing Print Group 98,000 $ 37,525
Petroleum Refining (1.74%)
Sasol Ltd. 32,600 224,405
Ssangyong Oil Refining Co. Ltd. 7,100 161,593
385,998
Primary Non-Ferrous Metals (0.95%)
Hindalco Industries Ltd. GDR 9,900(b) 209,880
Producers, Orchestras &
Entertainers (0.89%)
Corporacion Interamericana
De Entretenimiento SA, Class B 73,000(a) 197,041
Radio & Television Broadcasting (1.50%)
Grupo Televisa SA GDR 7,800(a) 331,500
Real Estate Operators & Lessors (0.48%)
SM Prime Holdings, Inc. 600,000 106,102
Savings Institutions (0.68%)
ICICI Ltd. ADR 11,300 126,277
ICICI Ltd. ADS 2,200(a) 24,200
150,477
Security Brokers & Dealers (0.20%)
Kay Hian Holdings Ltd. 74,000 44,253
Telephone Communication (12.90%)
Amdocs Ltd. 4,500(a) 125,156
Carso Global Telecom, Class A1 31,000(a) 208,222
Compania Anonima Telefonos De
Venezuela ADR 7,000 180,688
Embratel Participacoes SA 16,000,000(a) 126,227
Embratel Participacoes SA ADR 10,000 128,750
Hellenic Telecom Organization SA ADR 16,000 170,000
Hellenic Telecommunication 16,211 343,514
Matav Tavkozlesi Rt. ADR 14,600 420,662
Partner Communications Co. Ltd. ADR 11,850(a) 186,637
Philippine Long Distance
Telephone Co. ADR 4,300 88,419
Tele Norte Leste Participacoes SA 6,000,000 66,085
Telefonica De Argentina SA ADR 5,000 128,125
Telefonos De Mexico SA ADR 2,300 196,650
Videsh Sanchar Nigam Ltd. GDR 30,800(b) 491,260
2,860,395
Total Common Stocks 19,980,959
Preferred Stocks (6.92%)
Beverages (0.67%)
Quilmes Industrial Quines SA ADR 14,100 147,169
Cement, Hydraulic (0.84%)
Titan Cement Co. SA 1,731 186,434
Commercial Banks (0.61%)
Banco Estado De Sao Paulo SA 5,200,000 134,526
Gasoline Service Stations (1.23%)
Petroleo Brasileiro SA 1,710,000 273,314
Telephone Communication (3.57%)
Estonian Telecom GDR 5,200(b) $ 82,680
Tele Celular Sul Participacoes SA ADR 5,600 98,000
Tele Centro Sul Participacoes SA ADR 4,160 248,560
Tele Norte Leste Participacoes ADR 14,948 252,248
Telesp Celular SA Preference B 2,100,000 109,731
791,219
Total Preferred Stocks 1,532,662
Principal
Amount Value
Commercial Paper (2.59%)
Personal Credit Institutions (2.59%)
Associates Corp. of North America;
5.31%; 11/01/1999 $575,000 $ 575,000
Total Portfolio Investments (99.65%) 22,088,621
Cash, receivables and other assets,
net of liabilities (0.35%) 77,853
Total Net Assets (100.00%) $22,166,474
(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
Percentage of
Country Value Total Value
Argentina $ 472,281 2.14%
Brazil 1,710,341 7.74
Chile 159,250 0.72
Czech Republic 222,184 1.01
Egypt 480,390 2.18
Estonia 82,680 0.37
Greece 699,948 3.17
Hong Kong 1,380,496 6.25
Hungary 581,803 2.63
India 1,831,236 8.29
Indonesia 315,270 1.43
Israel 1,257,196 5.69
Korea, Republic Of 2,856,936 12.94
Malaysia 718,173 3.25
Mexico 2,705,669 12.25
Panama 260,919 1.18
Peru 152,469 0.69
Philippines 283,780 1.29
Poland 285,924 1.29
Singapore 726,433 3.29
South Africa 1,514,034 6.85
Taiwan, Province Of China 1,835,821 8.31
Thailand 110,984 0.50
Turkey 688,716 3.12
United States 575,000 2.60
Venezuela 180,688 0.82
Total $22,088,621 100.00%
PRINCIPAL INTERNATIONAL FUND, INC.
Shares
Held Value
Common Stocks (98.96%)
Advertising (1.51%)
WPP Group PLC 563,000 $ 6,161,931
Central Reserve Depositories (1.12%)
Union Bank of Norway 209,660 4,596,988
Combination Utility Services (1.68%)
Alcatel Alsthom 44,000 6,867,564
Commercial Banks (12.45%)
Australia & New Zealand Banking Group 910,000 6,001,294
Bank of Ireland 985,832 7,657,217
H&CB 85,000(a) 2,246,353
Merita PLC, Class A 1,187,670 6,878,140
National Australia Bank Ltd. 326,437 5,034,082
Nordbanken Holding AB 220,000 1,281,830
Royal Bank of Canada Montreal, Quebec 147,800 6,375,627
Sanwa Bank Ltd. 581,000 8,634,831
Shinhan Bank 183,000 1,937,557
Svenska Handelsbanken, Class B 385,250 4,863,428
50,910,359
Communications Equipment (5.18%)
ECI Telecommunications Ltd. ADR 204,000 5,941,500
Siemens AG 48,000 4,305,944
Telefonaktiebolaget LM Ericsson 263,000 10,918,133
21,165,577
Communications Services, NEC (2.58%)
Koninklijke KPN NV 142,780 7,321,867
Korea Telecom Corp. ADR 92,000(a) 3,243,000
10,564,867
Computer & Data Processing
Services (2.90%)
Cap Gemini SA 40,700 6,159,997
Getronics NV 114,000 5,679,457
11,839,454
Computer & Office Equipment (6.08%)
Canon, Inc. 184,000 $ 5,201,227
Compal Electronics, Inc. 923,000 3,097,021
Fujitsu Ltd. 256,000 7,702,568
NEC Corp. 199,000 4,023,476
Orbotech Ltd. ADR 61,850(a) 4,832,031
24,856,323
Concrete, Gypsum & Plaster
Products (0.67%)
Lafarge SA 28,500 2,740,877
Consumer Products (3.65%)
Japan Tobacco, Inc. 495 5,454,676
Societe Nationale D'Exploitation
Industrielle Des Tabacs et Allumettes 59,000 3,286,635
Swedish Match Co. 1,688,000 6,167,448
14,908,759
Copper Ores (0.87%)
Trelleborg AB, Class B 390,000 3,550,523
Crude Petroleum & Natural Gas (1.60%)
Elf Acquitaine SA 44,400 6,533,330
Drugs (5.64%)
AstraZeneca Group PLC 86,224 3,888,244
Novartis AG 3,823 5,720,440
Rhodia, Inc. SA 185,000 3,568,054
Taisho Pharmaceutical Co. 104,000 4,325,029
Takeda Chemical Industries 97,000 5,567,554
23,069,321
Electronic Components &
Accessories (0.63%)
Elec & Eltek International ADR 757,400 2,575,160
Electronic Distribution Equipment (2.50%)
Koninklijke Philips Electronics 99,812 10,228,477
Farm & Garden Machinery (0.39%)
New Holland NV 103,800 1,576,462
Finance Services (1.11%)
Takefuji Corp. 35,200 4,553,469
Foreign Banks, Branches &
Agencies (2.69%)
Bank Austria AG 81,000 4,024,336
UBS AG 24,000 6,985,462
11,009,798
Gas Production & Distribution (1.03%)
OMV AG 43,600 4,207,267
Industrial Inorganic Chemicals (1.16%)
Rhone-Poulenc SA 85,000 4,752,851
Industrial Organic Chemicals (1.20%)
Clariant AG 11,200 4,902,687
Investment Offices (1.85%)
AMVESCAP PLC 850,400 7,570,169
Life Insurance (2.85%)
ING Groep NV 130,000 $ 7,662,579
QBE Insurance Group Ltd. 959,797 4,006,137
11,668,716
Meat Products (3.10%)
Danisco AS 146,000 6,069,594
Orkla ASA, Class A 111,000 1,549,410
Orkla ASA, Class B 349,600 4,857,662
Orkla ASA Rights 111,000 208,711
12,685,377
Medical Instruments & Supplies (1.28%)
Terumo Corp. 172,000 5,224,607
Miscellaneous Business Services (1.25%)
Brisa-Auto Estradas De Portugal SA 130,000 5,117,040
Miscellaneous Chemical Products (1.46%)
Celanese AG 13,200(a) 206,027
Hoechst AG 132,000 5,778,466
5,984,493
Miscellaneous Food &
Kindred Products (0.70%)
Greencore Group PLC 991,000 2,853,865
Miscellaneous Investing (1.60%)
Investor AB, Class B 510,000 6,531,142
Miscellaneous Non-Durable Goods (4.20%)
Desc SA, Series B 3,140,000 2,562,196
Diageo PLC 795,179 8,063,730
Lagardere SCA 162,000 6,555,402
17,181,328
Miscellaneous Textile Goods (1.50%)
Esprit Holdings Ltd. 6,474,000 6,124,448
Miscellaneous Transportation
Equipment (0.99%)
Autoliv, Inc. 52,000 1,653,755
Autoliv, Inc. ADR 75,000 2,395,312
4,049,067
Motor Vehicles & Equipment (2.24%)
Daimlerchrysler AG 65,700 5,116,903
Honda Motor Co. Ltd. 47,000 1,981,602
Mitsubishi Motor Corp. 397,000(a) 2,058,040
9,156,545
Newspapers (3.16%)
Publishing & Broadcasting Ltd. 607,000 3,597,301
United News & Media PLC 969,000 9,309,648
12,906,949
Paperboard Containers & Boxes (1.04%)
Buhrmann NV 246,200 4,241,218
Pens, Pencils, Office & Art Supplies (0.66%)
Societe BIC SA 55,000 2,688,062
Personnel Supply Services (1.28%)
Vedior NV 312,217 5,250,494
Pulp Mills (1.08%)
UPM-Kymmene OYJ 139,980 4,413,782
Radio & Television Broadcasting (1.52%)
Carlton Communications PLC 862,000 $ 6,205,931
Soap, Cleaners & Toilet Goods (1.54%)
Reckitt & Colman PLC 518,797 6,291,069
Special Industry Machinery (1.16%)
Cookson Group 1,521,200 4,742,666
Telephone Communication (6.24%)
Hellenic Telecom Organization SA ADR 657,000 6,980,625
Nokia Corp. ADR, Class A 54,000 6,240,375
Telecom Corp. of New Zealand Ltd. 1,644,000 6,607,416
Telecom Italia-DI 1,161,200 5,699,641
25,528,057
Trucking & Courier Services (1.62%)
Securicor PLC 677,000 6,637,571
Total Common Stocks 404,624,640
Preferred Stock (0.66%)
Commercial Banks (0.66%)
National Australia Bank ECU 96,000 2,706,000
Principal
Amount Value
Commercial Paper (0.42%)
Personal Credit Institutions (0.42%)
Associates Corp. of North America;
5.31%; 11/1/1999 $1,705,000 $ 1,705,000
Total Portfolio Investments (100.04%) 409,035,640
Liabilities, net of cash, receivables and
other assets (-0.04%) (152,997)
Total Net Assets (100.00%) $408,882,643
(a) Non-income producing security - No dividend paid during the period.
Principal International Fund, Inc.
Investments by Country
Percentage of
Country Value Total Value
Australia $ 21,344,813 5.22%
Austria 8,231,603 2.01
Canada 6,375,627 1.56
Denmark 6,069,594 1.48
Finland 17,532,297 4.29
France 43,152,773 10.55
Germany 15,407,340 3.77
Greece 6,980,625 1.71
Hong Kong 6,124,448 1.50
Israel 10,773,531 2.63
Italy 5,699,641 1.39
Japan 54,727,079 13.38
Korea, Republic of 7,426,910 1.82
Mexico 2,562,196 0.63
Netherlands 41,960,555 10.26
New Zealand 6,607,416 1.62
Norway 11,212,771 2.74
Portugal 5,117,040 1.25
Singapore 2,575,160 0.63
Sweden 41,249,815 10.08
Switzerland 17,608,588 4.29
Taiwan, Province of China 3,097,021 0.76
United Kingdom 65,493,797 16.01
United States 1,705,000 0.42
Total $ 409,035,640 100.00%
PRINCIPAL INTERNATIONAL SMALLCAP FUND, INC.
Shares
Held Value
Common Stocks (97.17%)
Advertising (1.27%)
Industrial & Financial Systems 44,200(a)(b) $ 517,745
Air Transportation, Scheduled (0.96%)
Ryanair Holdings PLC ADR 9,500(a) 391,875
Airports, Flying Fields & Services (0.70%)
Auckland International Airport Ltd. 205,500 285,018
Bakery Products (0.85%)
Kamps AG 6,290 347,083
Beer, Wine & Distilled Beverages (0.93%)
Hite Brewery Co. 10,900(a) 381,659
Beverages (0.77%)
Doosan Corp. 8,600(a) 308,295
Doosan Corp. Rights 1,680 8,404
316,699
Blast Furnace & Basic Steel Products (0.45%)
Aichi Steel Corp. 48,000 184,898
Business Credit Institutions (1.26%)
Japan Securities Finance Co. Ltd. 60,000 294,941
PhileoAllied Berhad 305,000(a) 219,147
514,088
Cable & Other Pay TV Services (0.40%)
Sogecable, S.A. 5,900(a) 162,223
Central Reserve Depositories (1.63%)
Public Bank Berhad 630,000 666,561
Commercial Banks (3.26%)
Koram Bank 49,300 $ 368,671
The Bank of Fukuoka Ltd. 39,000 300,086
The Yamaguchi Bank Ltd. 64,000 662,323
1,331,080
Commercial Printing (3.49%)
Creo Products, Inc. 39,700(a) 1,012,350
Sato Corp. 16,300 412,342
1,424,692
Communications Equipment (1.16%)
Indra Sistemas SA 23,700 248,850
Teleste OYJ 26,400(a) 223,369
472,219
Communications Services, NEC (0.56%)
A-Com AB 20,000(a) 230,632
Computer & Data Processing
Services (5.19%)
CI Technologies Group Ltd. 68,300 295,961
Computershare Ltd. 165,600 601,506
Damgaard A/S 3,000(a) 159,079
eXchange Holdings PLC 84,600(a) 240,159
GFI Informatique 4,700 419,895
Open Text Corp. 9,500(a) 112,813
Solution 6 Holdings Ltd. 66,200(a) 290,236
2,119,649
Computer & Office Equipment (1.66%)
Baltimore Technologies PLC 4,800(a) 154,460
Venture Mfg. Ltd. 59,000 524,809
679,269
Concrete, Gypsum & Plaster
Products (0.32%)
Marshalls PLC 40,000 130,616
Dairy Products (0.21%)
Roncadin SpA 28,000(a) 86,375
Department Stores (0.88%)
Keumkang Development Industries Co. 30,300(a) 361,225
Drug Stores & Proprietary Stores (1.45%)
SEIJO CORP. 8,400 198,007
Tsuruha Co. Ltd. 3,300 395,266
593,273
Drugs (4.03%)
Biovail Corp. International 9,200(a) 508,818
FH Faulding & Co. Ltd. 47,000 287,225
PT Tempo Scan Pacific Tbk 414,000 279,033
Skyepharma PLC 270,000(a) 209,338
SS Pharmaceutical Co. Ltd. 46,000 364,527
1,648,941
Eating & Drinking Places (1.46%)
DO & CO Restaurants & Catering AG 4,600 217,567
Kappa Create Co. Ltd. 12,000(a) 379,456
597,023
Electric Services (5.23%)
Energy Developments Ltd. 84,290 $ 389,958
Independent Energy Holdings ADR 35,500(a) 960,719
Vestas Wind Systems 6,000(a) 784,788
2,135,465
Electronic Components & Accessories (7.24%)
Acer Peripherals, Inc. 175,832 468,109
Celestica, Inc. 5,900(a) 328,187
C-Mac Industries, Inc. 20,900(a) 663,560
ELMOS Semiconductor AG 4,200(a) 98,883
JIT Holdings Ltd. 262,000 431,459
Perlos OYJ 33,800(a) 554,198
TOKYO DENPA CO. LTD. 12,000 415,101
2,959,497
Electronic Distribution Equipment (2.24%)
Austria Technologie & Systemtechnik AG 8,600(a) 262,132
JOT Automation Group OYJ 91,000 468,663
PMJ automec Oyj 29,400 182,624
913,419
Engineering & Architectural
Services (0.96%)
ALTEN 3,600(a) 393,135
Fire, Marine & Casualty Insurance (0.39%)
Malaysian National Reinsurance Berhad 148,000 157,368
Furniture & Home Furnishings (0.45%)
Shaddy Co. Ltd. 6,000 182,829
Highway & Street Construction (0.93%)
PT Komatsu Indonesia Tbk 1,598,000(a) 380,476
Hotels & Motels (1.64%)
Resorts World Berhad 233,000 668,430
Household Appliance Stores (1.33%)
Kojima Co. Ltd. 11,200 543,043
Household Audio & Video
Equipment (0.59%)
Nippon Broadcasting System, Inc. 3,000 242,622
Hunting, Trapping & Game
Propagation (0.69%)
Rapala Normark Corp. 44,400(a) 280,000
Life Insurance (0.54%)
Clarica Life Insurance Co. 13,700(a) 221,674
Medical & Dental Laboratories (1.73%)
Qiagen NV 13,500(a) 705,202
Medical Instruments & Supplies (1.28%)
Cochlear Ltd. 47,900 521,959
Metalworking Machinery (1.38%)
Mikron Holding AG 1,790 555,654
Mikron Holding AG Rights 1,700 9,026
564,680
Miscellaneous Amusement & Recreation
Service (2.03%)
Aristocrat Leisure Ltd. 86,600 827,779
Miscellaneous Business Service (0.76%)
GfK AG 11,000(a) $ 309,850
Miscellaneous Electrical Equipment &
Supplies (1.46%)
Kaba Holding AG, Class B 810 595,379
Miscellaneous Fabricated Metal
Products (0.42%)
Nadex Co. Ltd. 19,000 172,959
Miscellaneous Food & Kindred
Products (0.36%)
Rock Field Co. Ltd. 3,000 148,333
Miscellaneous General Merchandise
Stores (1.02%)
Japan Airport Terminal 33,000 418,034
Miscellaneous Manufacturers (0.28%)
Austria Haustechnik AG 3,900 114,775
Miscellaneous Primary Metal
Products (0.00%)
YBM Magnex International, Inc. 28,300(a) 192
Miscellaneous Services, NEC (0.34%)
Lindeteves-Jacoberg Ltd. 114,000 138,402
Motion Picture Distribution &
Services (0.79%)
Kinowelt Medien AG 5,500(a) 323,723
Motion Picture Production &
Services (0.50%)
Endemol Entertainment Holding NV 6,000 204,955
Motor Vehicles & Equipment (0.38%)
NIPPON SEIKI CO. LTD. 12,000 155,232
Motorcycles, Bicycles & Parts (0.92%)
Ducati Motor Holding SPA 133,200(a) 378,000
Pens, Pencils, Office & Art Supplies (1.39%)
The Sailor Pen Co. Ltd. 35,000(a) 566,788
Personal Credit Institutions (0.50%)
Sanyo Electric Credit Co. Ltd. 4,700 205,366
Personnel Supply Services (2.84%)
Brunel International NV 3,100 54,250
Drake Beam Morin-Japan, Inc. 1,000 289,383
N I C Corp. 12,000 592,181
Unique International NV 8,878 224,416
1,160,230
Professional & Commercial
Equipment (0.71%)
Quality Healthcare Asia Ltd. 1,502,000(a) $ 291,913
Pulp Mills (0.26%)
Rottneros AB 99,000 107,553
Radio & Television Broadcasting (2.31%)
Fuji Television Network, Inc. 40 344,960
Modern Times Group Mtg AB, Class B 18,500(a) 597,338
942,298
Radio, Television & Computer
Stores (3.42%)
Distefora Holding AG 2,400(a) 330,766
Yamada Denki 15,000 1,067,938
1,398,704
Sanitary Services (1.01%)
De Sammensluttede Vognmand AS 4,300 413,463
Security Brokers & Dealers (1.37%)
Hwang-DBS (Malaysia) Berhad 11,000 10,307
K & N Kenanga Holdings Berhad 67,000 49,551
Kempen & Co. NV 9,612 404,108
O.S.K. Holdings Berhad 96,000 94,497
558,463
Special Industry Machinery (3.97%)
Aixtron 1,200 133,063
Neopost SA 25,870(a)(b) 894,573
TOKYO SEIMITSU CO. LTD. 4,900 596,771
1,624,407
Telephone Communication (9.10%)
Aapt Ltd. 215,600(a) 696,565
Esat Telecom Group PLC ADR 14,100(a) 630,975
Helsingin Puhelin OYJ, Series E 4,600 218,293
Kingston Communication (Hull) PLC 110,200(a) 808,298
Net Insight AB, Class B 8,166(a) 262,677
PowerLan Ltd. 175,000 409,269
Tiscali SpA 2,000(a) 137,688
Versatel Telecom International NV 44,800(a) 555,627
3,719,392
Trusts (0.72%)
NHP PLC 103,040 294,197
Variety Stores (0.61%)
Don Quijote Co. Ltd. 1,000 249,138
Water Transportation Service (0.19%)
Johor Port Berhad 173,000 76,494
Total Common Stocks 39,708,661
Principal
Amount Value
Commercial Paper (2.08%)
Personal Credit Institutions (2.08%)
Associates Corp. of North America;
5.31%; 11/1/1999 $850,000 $ 850,000
Total Portfolio Investments (99.25%) 40,558,661
Cash, receivables and other assets,
net of liabilities (0.75%) 308,413
Total Net Assets (100.00%) $40,867,074
(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
Percentage of
Country Value Total Value
Australia $4,320,459 10.65%
Austria 594,474 1.47
Canada 2,847,594 7.02
Denmark 1,357,330 3.35
Finland 1,927,147 4.75
France 1,707,603 4.21
Germany 1,212,602 2.99
Hong Kong 291,913 0.72
Indonesia 659,508 1.63
Ireland 1,022,850 2.52
Italy 602,063 1.48
Japan 9,382,522 23.13
Korea, Republic of 1,428,254 3.52
Malaysia 1,942,356 4.79
Netherlands 2,148,559 5.30
New Zealand 285,018 0.70
Singapore 1,094,671 2.70
Spain 411,073 1.01
Sweden 1,715,945 4.23
Switzerland 1,490,825 3.68
Taiwan, Province of China 468,109 1.15
United Kingdom 2,797,786 6.90
United States 850,000 2.10
Total $40,558,661 100.00%
FINANCIAL HIGHLIGHTS
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
<TABLE>
<CAPTION>
PRINCIPAL INTERNATIONAL EMERGING MARKETS FUND, INC.
Class A shares 1999 1998 1997(a)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................... $6.54 $8.29 $9.51
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.03) (.02) (.01)
Net Realized and Unrealized
Gain (Loss) on Investments........................ 2.05 (1.73) (1.21)
Total from Investment Operations 2.02 (1.75) (1.22)
Net Asset Value, End of Period......................... $8.56 $6.54 $8.29
Total Return(b) ....................................... 30.89% (21.11)% (10.18)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $13,401 $7,312 $5,039
Ratio of Expenses to Average Net Assets............. 2.80% 3.31% 2.03%(d)
Ratio of Net Investment Income (Operating Loss) to
Average Net Assets................................ (.35)% (.36)% (.32)%(d)
Portfolio Turnover Rate............................. 95.8% 45.2% 21.4%(d)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTERNATIONAL EMERGING MARKETS FUND, INC.
Class B shares 1999 1998 1997(a)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................... $6.52 $8.28 $9.51
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.07) (.05) (.01)
Net Realized and Unrealized
Gain (Loss) on Investments........................ 2.02 (1.71) (1.22)
Total from Investment Operations 1.95 (1.76) (1.23)
Net Asset Value, End of Period......................... $8.47 $6.52 $8.28
Total Return(b) ....................................... 29.91% (21.26)% (10.29)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $5,051 $3,275 $3,116
Ratio of Expenses to Average Net Assets............. 3.57% 3.59% 2.16%(d)
Ratio of Net Investment Income (Operating Loss) to
Average Net Assets................................ (1.12)% (.69)% (.46)%(d)
Portfolio Turnover Rate............................. 95.8% 45.2% 21.4%(d)
</TABLE>
PRINCIPAL INTERNATIONAL EMERGING MARKETS FUND, INC.
- ---------------------------------------------------
Class C shares 1999(e)
- -------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $8.94
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.06)
Net Realized and Unrealized
Gain (Loss) on Investments........................ (.34)
Total from Investment Operations (.40)
Net Asset Value, End of Period......................... $8.54
Total Return(b) ....................................... (4.47)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $108
Ratio of Expenses to Average Net Assets............. 3.52%(d)
Ratio of Net Investment Income (Operating Loss) to
Average Net Assets................................ (2.24)%(d)
Portfolio Turnover Rate............................. 95.8%(d)
<TABLE>
<CAPTION>
PRINCIPAL INTERNATIONAL EMERGING MARKETS FUND, INC.
Class R shares 1999 1998 1997(a)
- ------------------------------------------------------------------- ------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................... $6.53 $8.28 $9.51
Income from Investment Operations:
Net Investment Income (Operating Loss).............. -- (.04) (.01)
Net Realized and Unrealized
Gain (Loss) on Investments........................ 2.02 (1.71) (1.22)
Total from Investment Operations 2.02 (1.75) (1.23)
Net Asset Value, End of Period......................... $8.55 $6.53 $8.28
Total Return(b) ....................................... 30.93% (21.14)% (10.29)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $3,606 $2,202 $2,510
Ratio of Expenses to Average Net Assets............. 2.67% 3.47% 2.20%(d)
Ratio of Net Investment Income (Operating Loss)
to Average Net Assets............................. (.22)% (.60)% (.51)%(d)
Portfolio Turnover Rate............................. 95.8% 45.2% 21.4%(d)
</TABLE>
FINANCIAL HIGHLIGHTS (Continued)
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
<TABLE>
<CAPTION>
PRINCIPAL INTERNATIONAL FUND, INC.(f)
Class A shares 1999 1998 1997 1996 1995
- ------------------------------------------------------------------- ------------------------ ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $9.20 $9.33 $8.14 $7.28 $7.44
Income from Investment Operations:
Net Investment Income............................... .13 .13 .09 .10 .08
Net Realized and Unrealized
Gain (Loss) on Investments........................ 1.28 .04 1.52 1.17 (.02)
Total from Investment Operations 1.41 .17 1.61 1.27 .06
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.11) (.10) (.11) (.08) (.03)
Distributions from Capital Gains.................... (.46) (.20) (.31) (.33) (.19)
Total Dividends and Distributions (.57) (.30) (.42) (.41) (.22)
Net Asset Value, End of Period......................... $10.04 $9.20 $9.33 $8.14 $7.28
Total Return(b) ....................................... 16.18% 1.93% 20.46% 18.36% 1.03%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $338,144 $302,757 $281,158 $172,276 $126,554
Ratio of Expenses to Average Net Assets............. 1.22% 1.25% 1.39% 1.45% 1.63%
Ratio of Net Investment Income
to Average Net Assets............................. 1.35% 1.45% 1.25% 1.43% 1.10%
Portfolio Turnover Rate............................. 58.7% 38.7% 26.6% 23.8% 35.4%
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTERNATIONAL FUND, INC.(f)
Class B shares 1999 1998 1997 1996 1995(g)
- --------------------------------------------------------------------------------------------- ---- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $9.14 $9.26 $8.07 $7.24 $6.71
Income from Investment Operations:
Net Investment Income............................... .06 .07 .03 .03 .05
Net Realized and Unrealized
Gain (Loss) on Investments........................ 1.27 .04 1.51 1.15 .51
Total from Investment Operations 1.33 .11 1.54 1.18 .56
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.05) (.03) (.04) (.02) (.03)
Distributions from Capital Gains.................... (.46) (.20) (.31) (.33) --
- -
Total Dividends and Distributions (.51) (.23) (.35) (.35) (.03)
Net Asset Value, End of Period......................... $9.96 $9.14 $9.26 $8.07 $7.24
Total Return(b) ....................................... 15.27% 1.27% 19.62% 17.16% 9.77%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $48,319 $41,676 $33,842 $15,745 $3,908
Ratio of Expenses to Average Net Assets............. 1.90% 1.91% 2.17% 2.28% 2.19%(d)
Ratio of Net Investment Income
to Average Net Assets............................. .67% .77% .42% .64% .58%(d)
Portfolio Turnover Rate............................. 58.7% 38.7% 26.6% 23.8% 35.4%(d)
</TABLE>
PRINCIPAL INTERNATIONAL FUND, INC.
Class C shares 1999(e)
- -------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $9.61
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.02)
Net Realized and Unrealized
Gain (Loss) on Investments........................ .40
Total from Investment Operations .38
Net Asset Value, End of Period......................... $9.99
Total Return(b) ....................................... 3.95%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $191
Ratio of Expenses to Average Net Assets............. 2.38%(d)
Ratio of Net Investment Income (Operating Loss) to
Average Net Assets................................ (.95)%(d)
Portfolio Turnover Rate............................. 58.7%(d)
<TABLE>
<CAPTION>
PRINCIPAL INTERNATIONAL FUND, INC.(f)
Class R shares 1999 1998 1997 1996(h)
- ------------------------------------------------------------------- ------------------------- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $9.13 $9.27 $8.12 $7.48
Income from Investment Operations:
Net Investment Income............................... .06 .06 .07 .01
Net Realized and Unrealized
Gain (Loss) on Investments........................ 1.27 .04 1.47 .63
Total from Investment Operations 1.33 .10 1.54 .64
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.04) (.04) (.08) --
Distributions from Capital Gains.................... (.46) (.20) (.31) --
Total Dividends and Distributions (.50) (.24) (.39) --
Net Asset Value, End of Period......................... $9.96 $9.13 $9.27 $8.12
Total Return(b) ....................................... 15.27% 1.13% 19.65% 9.29%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $22,229 $17,739 $11,773 $1,057
Ratio of Expenses to Average Net Assets............. 1.93% 2.01% 2.10% 1.59%(d)
Ratio of Net Investment Income
to Average Net Assets............................. .64% .67% .44% .78%(d)
Portfolio Turnover Rate............................. 58.7% 38.7% 26.6% 23.8%(d)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTERNATIONAL SMALLCAP FUND, INC.
Class A shares 1999 1998 1997(a)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................... $9.99 $9.96 $10.04
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.12) (.07) (.01)
Net Realized and Unrealized
Gain (Loss) on Investments........................ 5.53 .10 (.07)
Total from Investment Operations 5.41 .03 (.08)
Less Distributions:
Distributions from Capital Gains.................... (.08) -- --
Total Distributions (.08) -- --
Net Asset Value, End of Period......................... $15.32 $9.99 $9.96
Total Return(b) ....................................... 54.52% .30% .50%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $23.612 $11,765 $6,210
Ratio of Expenses to Average Net Assets............. 2.21% 2.66% 1.99%(d)
Ratio of Net Investment Income (Operating Loss) to .
Average Net Assets................................ (1.02)% (.81)% (.40)%(d)
Portfolio Turnover Rate............................. 191.5% 99.8% 10.4%(d)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTERNATIONAL SMALLCAP FUND, INC.
Class B shares 1999 1998 1997(a)
- ------------------------------------------------------------------- ------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................... $9.97 $9.96 $10.04
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.20) (.10) (.01)
Net Realized and Unrealized
Gain (Loss) on Investments........................ 5.49 .11 (.07)
Total from Investment Operations 5.29 .01 (.08)
Less Distributions:
Distributions from Capital Gains.................... (.08) -- --
Total Distributions (.08) -- --
Net Asset Value, End of Period......................... $15.18 $9.97 $9.96
Total Return(b) ....................................... 53.42% .10% .50%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $10,926 $6,585 $4,774
Ratio of Expenses to Average Net Assets............. 2.87% 2.90% 2.07%(d)
Ratio of Net Investment Income (Operating Loss) to
Average Net Assets................................ (1.68)% (1.05)% (.47)%(d)
Portfolio Turnover Rate............................. 191.5% 99.8% 10.4%(d)
</TABLE>
PRINCIPAL INTERNATIONAL SMALLCAP FUND, INC.
Class C shares 1999(e)
- -------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $12.97
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.11)
Net Realized and Unrealized
Gain (Loss) on Investments........................ 2.42
Total from Investment Operations 2.31
Net Asset Value, End of Period......................... $15.28
Total Return(b) ....................................... 17.81%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $141
Ratio of Expenses to Average Net Assets............. 2.96%(d)
Ratio of Net Investment Income (Operating Loss) to .
Average Net Assets................................ (2.31)%(d)
Portfolio Turnover Rate............................. 191.5%(d)
<TABLE>
<CAPTION>
PRINCIPAL INTERNATIONAL SMALLCAP FUND, INC.
Class R shares 1999 1998 1997(a)
- ------------------------------------------------------------------- ------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................... $10.01 $9.96 $10.04
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.10) (.07) (.01)
Net Realized and Unrealized
Gain (Loss) on Investments........................ 5.53 .12 (.07)
Total from Investment Operations 5.43 .05 (.08)
Less Distributions:
Distributions from Capital Gains.................... (.08) -- --
Total Distributions (.08) -- --
Net Asset Value, End of Period......................... $15.36 $10.01 $9.96
Total Return(b) ....................................... 54.61% .50% .50%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $6,188 $3,317 $3,004
Ratio of Expenses to Average Net Assets............. 2.12% 2.51% 2.15%(d)
Ratio of Net Investment Income (Operating Loss) to
Average Net Assets................................ (.93)% (.68)% (.54)%(d)
Portfolio Turnover Rate............................. 191.5% 99.8% 10.4%(d)
</TABLE>
Notes to Financial Highlights
(a) Period from August 29, 1997, date Class A and Class B shares first offered
to the public and Class R shares first offered to eligible purchasers,
through October 31, 1997. Principal International Emerging Markets Fund,
Inc. and Principal International SmallCap Fund, Inc. classes of shares
recognized net investment income as follows for the period from the initial
purchase of shares on August 14, 1997, through August 28, 1997, none of
which was distributed to the sole shareholder, Principal 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.
<TABLE>
<CAPTION>
Per Share Per Share
Net Investment Unrealized
Income Gain (Loss)
Principal International Emerging Markets Fund, Inc.:
<S> <C> <C>
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
</TABLE>
(b) Total return is calculated without the front-end sales charge or contingent
deferred sales charge.
(c) Total return amounts have not been annualized.
(d) Computed on an annualized basis.
(e) Period from June 30, 1999, date Class C shares first offered to the public
and the date of the initial purchase of Class C shares by Principal Life
Insurance Company, through October 31, 1999.
(f) Effective January 1, 1998, Princor World Fund, Inc. changed its name to
Principal International Fund, Inc.
(g) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995. Principal International Fund, Inc. Class
B shares recognized no net investment income for the period from the
initial purchase by Principal Management Corporation of Class B shares on
December 5, 1994, through December 8, 1994. Additionally, Class B shares
incurred unrealized losses on investments of $.07 per share during the
initial interim period. This represents Class B share activities of the
fund prior to the initial public offering of Class B shares.
(h) Period from February 29, 1996, date Class R shares first offered to
eligible purchasers, through October 31, 1996. Principal International
Fund, Inc. Class R shares recognized no net investment income for the
period from the initial purchase by Principal Management Corporation of
Class R shares on February 27, 1996, through February 28, 1996.
Additionally, Class R shares incurred unrealized gains on investments of
$.02 per share during the initial interim period. This represents Class R
share activities of the fund prior to the intial offering of Class R
shares.
<TABLE>
<CAPTION>
October 31, 1999
STATEMENTS OF ASSETS AND LIABILITIES
Principal Principal Government
Bond Securities Income
INCOME FUNDS Fund, Inc. Fund, Inc.
<S> <C> <C>
Investment in securities -- at cost............................... $190,537,499 $291,672,572
Assets
Investment in securities -- at value (Note 4)..................... $184,420,952 $288,017,966
Cash ............................................................ 10,000 12,215
Receivables:
Interest....................................................... 3,594,800 1,565,689
Investment securities sold..................................... -- --
Capital Shares sold............................................ 82,251 219,829
Other assets...................................................... 3,546 17,203
Total Assets 188,111,549 289,832,902
Liabilities
Accrued expenses.................................................. 180,321 232,334
Payables:
Investment securities purchased................................ -- 10,109,688
Capital Shares reacquired...................................... 138,587 57,951
Indebtedness (Note 6)............................................. -- --
Total Liabilities 318,908 10,399,973
Net Assets Applicable to Outstanding Shares .................... $187,792,641 $279,432,929
Net Assets Consist of:
Capital Stock..................................................... $ 176,201 $ 251,986
Additional paid-in capital........................................ 194,174,581 284,793,592
Accumulated undistributed (overdistributed) net
investment income.............................................. 260,694 56,118
Accumulated net realized gain (loss) on investment transactions .. (702,288) (2,014,161)
Net unrealized appreciation (depreciation) of investments......... (6,116,547) (3,654,606)
Total Net Assets $187,792,641 $279,432,929
Capital Stock (par value: $.01 a share):
Shares authorized................................................. 100,000,000 125,000,000
Net Asset Value Per Share:
Class A: Net Assets............................................... $145,974,956 $237,810,678
Shares issued and outstanding............................ 13,696,334 21,430,807
Net asset value per share................................ $10.66 $11.10
Maximum offering price per share(a) ................... $11.19 $11.65
Class B: Net Assets .............................................. $25,450,791 $29,751,489
Shares issued and outstanding............................ 2,389,734 2,691,364
Net asset value per share(b)............................. $10.65 $11.05
Class C: Net Assets............................................... $271,425 $332,141
Shares issued and outstanding............................ 25,464 29,924
Net asset value per share(b)............................. $10.66 $11.10
Class R: Net Assets............................................... $16,095,469 $11,538,621
Shares issued and outstanding............................ 1,508,577 1,046,478
Net asset value per share................................ $10.67 $11.03
<FN>
(a)Maximum offering price is equal to net asset value plus a front-end
sales charge of 4.75% (1.50% with respect to Principal Limited Term Bond
Fund, Inc.) of the offering price or 4.99% of the net asset value (1.52%
with respect to Principal Limited Term Bond Fund, Inc.)
(b)Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
</FN>
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
October 31, 1999
STATEMENTS OF ASSETS AND LIABILITIES
Principal Principal Principal
High Yield Limited Term Bond Tax-Exempt Bond
INCOME FUNDS Fund, Inc. Fund, Inc. Fund, Inc.
<S> <C> <C> <C>
Investment in securities -- at cost............................... $43,891,727 $34,362,684 $196,562,804
Assets
Investment in securities -- at value (Note 4)..................... $39,516,185 $33,265,656 $194,019,072
Cash ............................................................ 232,146 1,215 37,935
Receivables:
Interest....................................................... 1,030,206 396,940 3,668,444
Investment securities sold..................................... -- 9,483 956,200
Capital Shares sold............................................ 6,699 5,512 25,779
Other assets...................................................... 1,991 -- 7,539
Total Assets 40,787,227 33,678,806 198,714,969
Liabilities
Accrued expenses.................................................. 58,991 30,374 116,244
Payables:
Investment securities purchased................................ 273,000 -- --
Capital Shares reacquired...................................... 143,191 44,949 8,735
Indebtedness (Note 6)............................................. -- 185,000 --
Total Liabilities 475,182 260,323 124,979
Net Assets Applicable to Outstanding Shares....................... $40,312,045 $33,418,483 $198,589,990
Net Assets Consist of:
Capital Stock..................................................... $ 56,004 $ 35,022 $ 169,872
Additional paid-in capital........................................ 48,347,934 34,532,889 199,036,318
Accumulated undistributed (overdistributed) net
investment income.............................................. (103,220) 20,312 129,803
Accumulated net realized gain (loss) on investment transactions .. (3,613,131) (72,712) 1,797,729
Net unrealized appreciation (depreciation) of investments......... (4,375,542) (1,097,028) (2,543,732)
Total Net Assets $40,312,045 $33,418,483 $198,589,990
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............................................... $30,065,450 $27,095,909 $186,973,205
Shares issued and outstanding............................ 4,167,379 2,841,606 15,994,703
Net asset value per share................................ $7.21 $9.54 $11.69
Maximum offering price per share(a)...................... $7.57 $9.69 $12.27
Class B: Net Assets .............................................. $7,467,197 $2,695,873 $11,480,421
Shares issued and outstanding............................ 1,041,181 280,693 980,822
Net asset value per share(b)............................. $7.17 $9.60 $11.70
Class C: Net Assets............................................... $181,783 $350,374 $136,364
Shares issued and outstanding............................ 25,166 36,659 11,670
Net asset value per share(b)............................. $7.22 $9.56 $11.69
Class R: Net Assets............................................... $2,597,615 $3,276,327 N/A
Shares issued and outstanding............................ 366,661 343,231 N/A
Net asset value per share................................ $7.08 $9.55 N/A
<FN>
(a)Maximum offering price is equal to net asset value plus a front-end
sales charge of 4.75% (1.50% with respect to Principal Limited Term Bond
Fund, Inc.) of the offering price or 4.99% of the net asset value (1.52%
with respect to Principal Limited Term Bond Fund, Inc.)
(b)Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
</FN>
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 31, 1999
STATEMENTS OF OPERATIONS
Principal Principal Government
Bond Securities Income
INCOME FUNDS Fund, Inc. Fund, Inc.
<S> <C> <C>
Net Investment Income
Interest income.................................................... $ 13,918,960 $ 19,636,982
Expenses:
Management and investment advisory fees (Note 3)................ 909,902 1,283,959
Distribution and shareholder servicing fees (Notes 1 and 3)..... 733,325 864,678
Transfer and administrative services (Notes 1 and 3)............ 534,104 544,396
Registration fees (Note 1)...................................... 54,675 51,753
Custodian fees ................................................. 3,212 15,642
Auditing and legal fees ........................................ 3,113 4,756
Directors' fees ................................................ 6,501 6,489
Other .......................................................... 11,860 13,385
Total Gross Expenses 2,256,692 2,785,058
Less: Management and investment
advisory fees waived......................................... -- --
Total Net Expenses 2,256,692 2,785,058
Net Investment Income 11,662,268 16,851,924
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) from investment transactions.............. (702,288) (5,979)
Change in unrealized appreciation/depreciation
of investments ................................................. (15,114,798) (13,254,133)
Net Realized and Unrealized
Loss on Investments (15,817,086) (13,260,112)
Net Increase (Decrease) in Net Assets
Resulting from Operations $ (4,154,818) $ 3,591,812
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 31, 1999
STATEMENTS OF OPERATIONS
Principal Principal Principal
High Yield Limited Term Bond Tax-Exempt Bond
INCOME FUNDS Fund, Inc. Fund, Inc. Fund, Inc.
<S> <C> <C> <C>
Net Investment Income
Interest income.................................................... $ 4,133,194 $2,171,300 $11,871,915
Expenses:
Management and investment advisory fees (Note 3)................ 259,764 160,694 972,660
Distribution and shareholder servicing fees (Notes 1 and 3)..... 161,219 73,814 550,714
Transfer and administrative services (Notes 1 and 3)............ 170,349 123,038 165,845
Registration fees (Note 1)...................................... 38,141 37,363 38,857
Custodian fees ................................................. 2,371 2,664 2,959
Auditing and legal fees ........................................ 3,973 4,781 4,178
Directors' fees ................................................ 6,040 6,039 6,477
Other .......................................................... 3,838 2,252 11,799
Total Gross Expenses 645,695 410,645 1,753,489
Less: Management and investment
advisory fees waived......................................... -- 66,728 --
Total Net Expenses 645,695 343,917 1,753,489
Net Investment Income 3,487,499 1,827,383 10,118,426
Net Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss) from investment transactions.............. (2,214,342) (29,150) 1,798,045
Change in unrealized appreciation/depreciation
of investments ................................................. (65,536) (1,258,231) (17,135,691)
Net Realized and Unrealized
Loss on Investments (2,279,878) (1,287,381) (15,337,646)
Net Increase (Decrease) in Net Assets
Resulting from Operations $ 1,207,621 $ 540,002 $(5,219,220)
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
Years Ended October 31, Except as Noted
STATEMENTS OF CHANGES IN NET ASSETS
Principal Principal Government
Bond Securities Income
INCOME FUNDS Fund, Inc. Fund, Inc.
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Operations
Net investment income............................................ $ 11,662,268 $ 9,903,008 $ 16,851,924 $ 16,370,086
Net realized gain (loss) from investment transactions ........... (702,288) 598,317 (5,979) 242,270
Change in unrealized appreciation/depreciation of investments.... (15,114,798) 1,323,899 (13,254,133) 2,717,566
Net Increase (Decrease) in Net Assets
Resulting from Operations (4,154,818) 11,825,224 3,591,812 19,329,922
Dividends and Distributions to Shareholders
From net investment income:
Class A....................................................... (9,256,285) (8,430,036) (14,951,275) (15,088,625)
Class B....................................................... (1,358,259) (977,376) (1,539,850) (1,071,553)
Class C(a).................................................... (3,357) -- (3,699) --
Class R....................................................... (817,338) (530,322) (554,941) (334,428)
Excess distribution of net investment income:
Class A....................................................... -- -- -- --
Class B....................................................... -- -- -- --
Class C(a).................................................... -- -- -- --
Class R....................................................... -- -- -- --
From net realized gain on investments:
Class A....................................................... -- -- -- --
Class B....................................................... -- -- -- --
Class R....................................................... -- -- -- --
Excess distribution of net realized gain on investments:
Class A....................................................... (424,531) -- -- --
Class B....................................................... (65,282) -- -- --
Class R....................................................... (35,649) -- -- --
Total Dividends and Distributions (11,960,701) (9,937,734) (17,049,765) (16,494,606)
Capital Share Transactions (Note 5)
Shares sold:
Class A....................................................... 36,049,940 41,289,926 58,626,094 39,967,883
Class B....................................................... 9,965,885 10,554,095 13,731,533 10,634,274
Class C(a).................................................... 274,582 -- 330,725 --
Class R....................................................... 9,183,266 8,716,511 6,980,668 4,770,310
Shares issued in reinvestment of dividends and distributions:
Class A....................................................... 7,799,345 6,299,889 12,386,671 12,166,316
Class B....................................................... 1,265,823 833,944 1,326,664 882,934
Class C(a).................................................... 1,182 -- 2,056 --
Class R....................................................... 839,555 524,979 547,169 329,918
Shares redeemed:
Class A....................................................... (33,235,273) (27,535,115) (73,060,063) (53,118,031)
Class B....................................................... (6,105,138) (2,514,110) (8,292,187) (2,741,242)
Class C(a).................................................... (500) -- (801) --
Class R....................................................... (4,873,171) (3,120,947) (3,669,023) (1,161,190)
Net Increase (Decrease) in Net Assets from
Capital Share Transactions 21,165,496 35,049,172 8,909,506 11,731,172
Total Increase (Decrease) 5,049,977 36,936,662 (4,548,447) 14,566,488
Net Assets
Beginning of year................................................ 182,742,664 145,806,002 283,981,376 269,414,888
End of year [including undistributed (overdistributed) net
investment income as set forth below]......................... $187,792,641 $182,742,664 $279,432,929 $283,981,376
Undistributed (Overdistributed) Net Investment Income............ $ 260,694 $ 33,837 $ 56,118 $ 254,305
<FN>
(a)Period from June 30, 1999 through October 31, 1999.
</FN>
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
Years Ended October 31, Except as Noted
STATEMENTS OF CHANGES IN NET ASSETS
Principal Principal
High Yield Limited Term Bond
INCOME FUNDS Fund, Inc. Fund, Inc.
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Operations
Net investment income............................................ $ 3,487,499 $ 3,598,836 $ 1,827,383 $ 1,556,035
Net realized gain (loss) from investment transactions ........... (2,214,342) 148,393 (29,150) (2,668)
Change in unrealized appreciation/depreciation of investments.... (65,536) (5,300,030) (1,258,231) 172,616
Net Increase (Decrease) in Net Assets
Resulting from Operations 1,207,621 (1,552,801) 540,002 1,725,983
Dividends and Distributions to Shareholders
From net investment income:
Class A....................................................... (2,667,853) (2,856,403) (1,558,512) (1,431,290)
Class B....................................................... (614,039) (571,855) (125,037) (53,434)
Class C(a).................................................... (3,242) -- (3,686) --
Class R....................................................... (202,365) (189,231) (142,252) (78,892)
Excess distribution of net investment income:
Class A....................................................... (53,519) (50,532) -- --
Class B....................................................... (7,154) (10,117) -- --
Class C(a).................................................... (304) -- -- --
Class R....................................................... (10,362) (3,347) -- --
From net realized gain on investments:
Class A....................................................... -- -- -- --
Class B....................................................... -- -- -- --
Class R....................................................... -- -- -- --
Excess distribution of net realized gain on investments:
Class A....................................................... -- -- -- --
Class B....................................................... -- -- -- --
Class R....................................................... -- -- -- --
Total Dividends and Distributions (3,558,838) (3,681,485) (1,829,487) (1,563,616)
Capital Share Transactions (Note 5)
Shares sold:
Class A....................................................... 6,088,348 11,927,135 13,486,229 12,780,385
Class B....................................................... 2,023,608 4,358,175 1,668,358 1,373,038
Class C(a).................................................... 186,235 -- 349,050 --
Class R....................................................... 659,720 1,736,594 2,160,595 1,710,613
Shares issued in reinvestment of dividends and distributions:
Class A....................................................... 1,703,574 1,574,414 1,182,882 1,358,983
Class B....................................................... 486,899 427,433 110,918 42,187
Class C(a).................................................... 271 -- 2,209 --
Class R....................................................... 212,231 191,997 139,519 77,461
Shares redeemed:
Class A....................................................... (9,434,994) (14,350,135) (14,127,084) (7,216,941)
Class B....................................................... (3,144,289) (1,816,211) (692,401) (344,198)
Class C(a).................................................... -- -- -- --
Class R....................................................... (853,143) (839,238) (943,012) (370,918)
Net Increase (Decrease) in Net Assets from
Capital Share Transactions (2,071,540) 3,210,164 3,337,263 9,410,610
Total Increase (Decrease) (4,422,757) (2,024,122) 2,047,778 9,572,977
Net Assets
Beginning of year................................................ 44,734,802 46,758,924 31,370,705 21,797,728
End of year [including undistributed (overdistributed) net
investment income as set forth below]......................... $40,312,045 $ 44,734,802 $33,418,483 $31,370,705
Undistributed (Overdistributed) Net Investment Income............ $ (103,220) $ (48,931) $ 20,312 $ 24,590
<FN>
(a)Period from June 30, 1999 through October 31, 1999.
</FN>
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
Years Ended October 31, Except as Noted
STATEMENTS OF CHANGES IN NET ASSETS
Principal
Tax-Exempt Bond
INCOME FUNDS Fund, Inc.
1999 1998
<S> <C> <C>
Operations
Net investment income............................................ $ 10,118,426 $ 9,965,827
Net realized gain (loss) from investment transactions ........... 1,798,045 919,377
Change in unrealized appreciation/depreciation of investments.... (17,135,691) 2,567,043
Net Increase (Decrease) in Net Assets
Resulting from Operations (5,219,220) 13,452,247
Dividends and Distributions to Shareholders
From net investment income:
Class A....................................................... (9,572,216) (9,655,683)
Class B....................................................... (498,767) (408,929)
Class C(a).................................................... (1,542) --
Class R....................................................... N/A N/A
Excess distribution of net investment income:
Class A....................................................... -- --
Class B....................................................... -- --
Class C(a).................................................... -- --
Class R....................................................... N/A N/A
From net realized gain on investments:
Class A....................................................... (81,082) --
Class B....................................................... (4,523) --
Class R....................................................... N/A N/A
Excess distribution of net realized gain on investments:
Class A....................................................... -- --
Class B....................................................... -- --
Class R....................................................... N/A N/A
Total Dividends and Distributions (10,158,130) (10,064,612)
Capital Share Transactions (Note 5)
Shares sold:
Class A....................................................... 27,588,420 30,673,603
Class B....................................................... 2,296,619 4,178,912
Class C(a).................................................... 140,820 --
Class R....................................................... N/A N/A
Shares issued in reinvestment of dividends and distributions:
Class A....................................................... 6,665,020 6,533,809
Class B....................................................... 383,870 306,980
Class C(a).................................................... 292 --
Class R....................................................... N/A N/A
Shares redeemed:
Class A....................................................... (37,634,782) (28,581,284)
Class B....................................................... (1,756,824) (1,005,105)
Class C(a).................................................... -- --
Class R....................................................... N/A N/A
Net Increase (Decrease) in Net Assets from
Capital Share Transactions (2,316,565) 12,106,915
Total Increase (Decrease) (17,693,915) 15,494,550
Net Assets
Beginning of year................................................ 216,283,905 200,789,355
End of year [including undistributed (overdistributed) net
investment income as set forth below]......................... $198,589,990 $216,283,905
Undistributed (Overdistributed) Net Investment Income............ $ 129,803 $ 83,391
<FN>
(a)Period from June 30, 1999 through October 31, 1999.
</FN>
See accompanying notes.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
Principal Bond Fund, Inc.
Principal Government Securities Income Fund, Inc.
Principal High Yield Fund, Inc.
Principal Limited Term Bond Fund, Inc.
Principal Tax-Exempt Bond Fund, Inc.
Note 1 -- Significant Accounting Policies
Principal Bond Fund, Inc., Principal Government Securities Income Fund, Inc.,
Principal High Yield Fund, Inc., Principal Limited Term Bond Fund, Inc. and
Principal Tax-Exempt Bond Fund, Inc. (the "Income Funds") are registered under
the Investment Company Act of 1940, as amended, as open-end diversified
management investment companies and operate in the mutual fund industry.
On June 30, 1999, the initial purchases of Class C shares of the Income Funds
were made by Principal Life Insurance Company (See Note 3). Effective June 30,
1999, the Income Funds began offering Class C shares to the public.
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") upon redemption. Class B shares are sold without an
initial sales charge, but are subject to a declining CDSC on certain redemptions
made within six years of purchase. Class C shares are sold without an initial
sales charge, but are subject to a CDSC on certain redemptions made within the
first twelve months of purchase. Class R shares are sold without an initial
sales charge and are not subject to a CDSC. Class B shares, Class C shares and
Class R shares bear higher ongoing distribution fees than Class A shares. Class
B shares automatically convert into Class A shares, based on relative net asset
value (without a sales charge) seven years after purchase. Class C shares do not
convert into Class A shares. Class R shares automatically convert into Class A
shares, based on relative net asset value (without a sales charge) four years
after purchase. 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
declares 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
periods ended October 31, 1999, which are included in the corresponding captions
of the Statements of Operations, were as follows:
<TABLE>
<CAPTION>
Distribution and Transfer and
Shareholder Servicing Fees Administrative Services
Class A Class B Class C Class R Class A Class B Class C Class R
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Bond Fund, Inc. $393,053 $232,897 $590 $106,785 $135,412 $ 37,840 $100 $20,505
Principal Government Securities
Income Fund, Inc. 538,380 249,773 680 75,845 165,658 31,389 100 11,789
Principal High Yield Fund, Inc. 77,498 65,140 450 18,131 34,516 13,427 100 5,579
Principal Limited Term Bond Fund, Inc. 40,320 12,108 679 20,707 11,857 3,810 100 3,082
Principal Tax-Exempt Bond Fund, Inc. 469,500 80,824 390 N/A 50,667 3,583 100 N/A
</TABLE>
Registration Fees
Class A Class B Class C Class R
Principal Bond Fund, Inc. $14,350 $10,861 $-- $12,025
Principal Government Securities
Income Fund, Inc. 14,263 10,234 -- 8,047
Principal High Yield Fund, Inc. 9,633 7,904 -- 7,183
Principal Limited Term Bond Fund, Inc. 10,920 8,348 -- 7,023
Principal Tax-Exempt Bond Fund, Inc. 19,547 8,933 -- N/A
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 prices provided by market makers or estimates of
market values obtained from yield data and other factors relating to instruments
or securities with similar characteristics in accordance with procedures
established in good faith by each fund's Board of Directors. Securities with
remaining maturities of 60 days or less are valued at amortized cost, which
approximates market.
The Income Funds record investment transactions generally one day after the
trade date, except for short-term investment transactions, which are recorded
generally on the trade date. The identified cost basis has been used in
determining the net realized gain or loss from investment transactions and
unrealized appreciation or depreciation of investments. Interest income is
recognized on an accrual basis.
The Income Funds may, pursuant to an exemptive order issued by the Securities
and Exchange Commission, transfer uninvested funds into a joint trading account.
The order permits the Income Funds' cash balances to be deposited into a single
joint account along with the cash of other registered investment companies
managed by Principal Management Corporation (the "Manager"). These balances may
be invested in one or more short-term instruments.
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Dividends and distributions to shareholders from net investment income and
net realized gain from investments are determined in accordance with federal tax
regulations, which may differ from generally accepted accounting principles.
Permanent book and tax basis differences are reclassified within the capital
accounts based on their federal tax-basis treatment; temporary differences do
not require reclassification. Reclassifications made for Principal High Yield
Fund, Inc. aggregated $488,110 for the year ended October 31, 1999. Other
reclassifications made for the years ended October 31, 1999 and 1998 were not
material.
Dividends and distributions which exceed net investment income and net realized
capital gains for financial reporting purposes, but not for tax purposes, are
reported as dividends in excess of net investment income or distributions in
excess of net realized capital gains. To the extent distributions exceed current
and accumulated earnings and profits for federal income tax purposes, they are
reported as tax return of capital distributions.
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 approximates that used for financial
reporting purposes.
At October 31, 1999, the Income Funds had approximate net capital loss
carryforwards as follows:
<TABLE>
<CAPTION>
Principal Principal
Principal Government Principal Limited
Bond Securities Inc. High Yield Term Bond
Net Capital Loss Carryforwards Expire In: Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc.
<S> <C> <C> <C> <C> <C>
2000 $ -- $ -- $ 561,000 $ --
2001 -- -- 409,000 --
2002 -- 157,000 323,000 --
2003 -- 1,075,000 106,000 --
2004 -- -- -- 4,000
2005 -- 776,000 -- 31,000
2006 -- -- -- 9,000
2007 702,000 6,000 2,214,000 29,000
$702,000 $2,014,000 $3,613,000 $73,000
</TABLE>
Note 3 -- Management Agreement and Transactions With Affiliates
The Income Funds have agreed to pay investment advisory and management fees to
Principal Management Corporation (wholly owned by Princor Financial Services
Corporation, a subsidiary of Principal Financial Services, Inc.) computed at an
annual percentage rate of each fund's average daily net assets. The annual rate
used in this calculation for the Income Funds is as follows:
<TABLE>
<CAPTION>
Net Asset Value of Funds
(in millions)
First Next Next Next Over
$100 $100 $100 $100 $400
<S> <C> <C> <C> <C> <C>
Principal Bond Fund, Inc. 0.50% 0.45% 0.40% 0.35% 0.30%
Principal Government Securities Income Fund, Inc. 0.50 0.45 0.40 0.35 0.30
Principal High Yield Fund, Inc. 0.60 0.55 0.50 0.45 0.40
Principal Limited Term Bond Fund, Inc. 0.50 0.45 0.40 0.35 0.30
Principal Tax-Exempt Bond Fund, Inc. 0.50 0.45 0.40 0.35 0.30
</TABLE>
The Income Funds also reimburse the Manager for transfer and administrative
services, including the cost of accounting, data processing, supplies and other
services rendered.
The Manager voluntarily waives a portion of its fee for the Principal Limited
Term Bond Fund, Inc. The waivers are in amounts that maintain total operating
expenses 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 amount waived and the operating expense limit,
which was maintained at or below that shown, are as follows:
<TABLE>
<CAPTION>
Amount
Waived
Periods Ended Year Ended Expense
October 31, 1999 October 31, 1998 Limit
Principal Limited Term Bond Fund, Inc.
<S> <C> <C> <C>
Class A $40,285 $76,952 1.00%
Class B 14,004 11,537 1.35
Class C 488 N/A 1.35
Class R 11,951 11,781 1.60
</TABLE>
The Manager intends to continue its voluntary waiver and, if necessary, pay
expenses normally payable by Principal Limited Term Bond Fund, Inc. through
October 31, 2000.
For the year ended October 31, 1998, the Manager voluntarily waived a portion of
its fee for the Principal Bond Fund, Inc. The amounts waived for Class A shares,
Class B shares and Class R shares were $121,092, $26,130 and $25,144,
respectively. The Manager ceased its waiver of expenses October 31, 1998.
Princor Financial Services Corporation, as principal underwriter, receives
proceeds of any CDSC on certain Class A, Class B and Class C share redemptions.
The charge is based on declining rates which for Class A shares begin at .75%,
Class B shares at 4.00% and Class C shares at 1.00% (.25%, 1.25% ,.50% for
Principal Limited Term Bond Fund, Inc., respectively), of the lesser of the
current market value or the cost of shares being redeemed. Princor Financial
Services Corporation also retains sales charges on sales of Class A shares based
on declining rates which begin at 4.75% of the offering price (1.50% for
Principal Limited Term Bond Fund, Inc.). The aggregate amount of these charges
retained, by fund, for the periods ended October 31, 1999, were as follows:
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Principal Bond Fund, Inc. $711,416 $ 89,495 $5
Principal Government Securities Income Fund, Inc. 818,411 122,408 6
Principal High Yield Fund, Inc. 148,130 52,618 --
Principal Limited Term Bond Fund, Inc. 82,489 7,026 --
Principal Tax-Exempt Bond Fund, Inc. 536,346 40,496 --
</TABLE>
No brokerage commissions were paid by the Income Funds to Princor Financial
Services Corporation during the periods. Brokerage commissions were paid to
other affiliates by the Principal Limited Term Bond Fund, Inc. in the amount of
$8,385 during the year ended October 31, 1999.
The Income Funds bear distribution and shareholder servicing fees with respect
to each Class computed at an annual rate of the average daily net assets
attributable to each Class of each Fund. The annual rate will not exceed the
following limits:
<TABLE>
<CAPTION>
Class A Class B Class C Class R
<S> <C> <C> <C> <C>
Principal Bond Fund, Inc. .25% 1.00% 1.00% .75%
Principal Government Securities Income Fund, Inc. .25% 1.00% 1.00% .75%
Principal High Yield Fund, Inc. .25% 1.00% 1.00% .75%
Principal Limited Term Bond Fund, Inc. .15% .50% .50% .75%
Principal Tax-Exempt Bond Fund, Inc. .25% 1.00% 1.00% N/A
</TABLE>
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 for Class A, Class B and Class
R shares, fees that are unused by the principal underwriter at the end of the
fiscal year are returned to the respective Income Funds which generated the
excess.
At October 31, 1999, Principal Life Insurance Company, subsidiaries of Principal
Life Insurance Company and benefit plans sponsored on behalf of Principal Life
Insurance Company owned shares of the Income Funds as follows:
Class A Class C
Principal Bond Fund, Inc. 93,529 8,681
Principal Government Securities Income Fund, Inc. -- 8,598
Principal High Yield Fund, Inc. 382,965 13,369
Principal Limited Term Bond Fund, Inc. 718,634 10,373
Principal Tax-Exempt Bond Fund, Inc. -- 7,974
Note 4 -- Investment Transactions
For the year ended October 31, 1999, the cost of investment securities purchased
and proceeds from investment securities sold (not including short-term
investments and U. S. government securities) by the Income Funds were as
follows:
Purchases Sales
Principal Bond Fund, Inc. $111,672,361 $90,670,711
Principal High Yield Fund, Inc. 35,269,142 38,334,979
Principal Limited Term Bond Fund, Inc. 10,175,676 6,004,400
Principal Tax-Exempt Bond Fund, Inc. 31,947,643 41,359,247
At October 31, 1999, net unrealized depreciation of investments by the Income
Funds was composed of the following:
<TABLE>
<CAPTION>
Net Unrealized
Gross Unrealized Depreciation
Appreciation (Depreciation) of Investments
<S> <C> <C> <C>
Principal Bond Fund, Inc. $1,769,158 $(7,885,705) $(6,116,547)
Principal Government Securities Income Fund, Inc. 2,167,310 (5,821,916) (3,654,606)
Principal High Yield Fund, Inc. 297,674 (4,673,216) (4,375,542)
Principal Limited Term Bond Fund, Inc. 13,820 (1,110,848) (1,097,028)
Principal Tax-Exempt Bond Fund, Inc. 4,629,885 (7,173,617) (2,543,732)
</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, 1999, Principal Government
Securities Income Fund, Inc. had a TBA purchase commitment involving a security
with a face amount of $11,000,000, cost of $10,109,688 and market value of
$10,195,625. The fund has set aside investment securities and other assets in
excess of the commitment to serve as collateral.
Note 4 -- Investment Transactions (Continued)
At October 31, 1999, 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 their sale in the ordinary course of business.
<TABLE>
<CAPTION>
Value at Value as a
Date of October 31, Percentage of
Security Description Acquisition Cost 1999 Net Assets
<S> <C> <C> <C> <C> <C>
Principal Bond Fund, Inc. AES Ironwood LLC
Senior Secured Bonds 6/18/99 $4,000,000 $ 3,871,320 2.06%
CE Generation LLC
Senior Secured Notes 2/24/99 2,000,000 1,893,680 1.00
John Hancock Mutual Life
Insurance Co. Surplus Notes 1/8/97 2,396,100 2,381,730 1.27
Lear Corporation
Senior Notes 5/14/99 1,979,700 1,943,902 1.04
Orix Credit Alliance
Short Term Notes 2/26/99 5,000,000 4,955,145 2.64
Osprey Trust/Osprey I, Inc.
Senior Secured Notes 9/16/99 4,500,000 4,493,322 2.39
Southern Energy, Inc.
Senior Notes 7/21/99 2,998,890 2,922,666 1.56
22,461,765 11.96
Principal High Yield Fund, Inc. California Steel Industries, Inc.
Senior Notes 3/30/99 375,000 357,187 .89
Charter Communications Holdings,
LLC Senior Notes 3/12/99 1,495,995 1,417,500 3.52
Lear Corporation
Senior Notes 6/18/99 720,615 717,158 1.78
Mercury Financial Services Corp.
Senior Notes 4/30/99 672,000 658,000 1.63
7/15/99 755,000 752,000 1.86
York Power Funding Ltd.
Senior Secured Bonds 7/31/98 900,000 864,000 2.14
4,765,845 11.82
Principal Tax-Exempt Bond Fund, Inc. Eddyville, Iowa, IDR Ref. Bonds,
Cargill, Inc. Project 1/11/95 859,910 986,250 .50
</TABLE>
The Income Funds' investments are with various issuers in various industries.
The Schedules of Investments contained herein summarize concentration of credit
risk by issuer and industry.
Note 5 -- Capital Share Transactions
Transactions in Capital Shares by fund were as follows:
<TABLE>
<CAPTION>
Principal Principal Principal
Bond Government Securities High Yield
Fund, Inc. Income Fund, Inc. Fund, Inc.
<S> <C> <C> <C>
Periods Ended October 31, 1999:
Shares sold:
Class A ......................................... 3,199,473 5,139,925 797,412
Class B ......................................... 887,883 1,209,279 267,743
Class C............................................ 25,400 29,810 25,128
Class R............................................ 818,782 617,460 88,610
Shares issued in reinvestment of dividends and
distributions:
Class A ......................................... 700,226 1,093,369 225,486
Class B ......................................... 113,809 117,555 64,795
Class C............................................ 111 186 38
Class R............................................ 75,486 48,733 28,583
Shares redeemed:
Class A ......................................... (2,982,198) (6,419,532) (1,240,512)
Class B ......................................... (552,055) (735,814) (415,445)
Class C............................................ (47) (72) --
Class R............................................ (437,588) (326,089) (114,513)
Net Increase (Decrease) 1,849,282 774,810 (272,675)
Year Ended October 31, 1998:
Shares sold:
Class A ......................................... 3,558,782 3,449,728 1,429,263
Class B ......................................... 911,403 919,042 520,583
Class R............................................ 751,757 414,918 208,702
Shares issued in reinvestment of dividends and
distributions:
Class A ........................................... 544,557 1,053,198 190,004
Class B ........................................... 72,083 76,520 51,887
Class R............................................ 45,324 28,745 23,509
Shares redeemed:
Class A ......................................... (2,379,170) (4,587,595) (1,722,188)
Class B ......................................... (216,720) (237,166) (222,473)
Class R............................................ (268,084) (100,699) (101,674)
Net Increase 3,019,932 1,016,691 377,613
</TABLE>
Note 5 -- Capital Share Transactions (Continued)
<TABLE>
<CAPTION>
Principal Principal
Limited Term Bond Tax-Exempt Bond
Fund, Inc. Fund, Inc.
<S> <C> <C>
Periods Ended October 31, 1999:
Shares sold:
Class A ......................................... 1,377,645 2,233,237
Class B ......................................... 169,744 185,513
Class C............................................ 36,427 11,645
Class R............................................ 221,185 N/A
Shares issued in reinvestment of dividends and
distributions:
Class A ......................................... 121,669 542,861
Class B ......................................... 11,365 31,252
Class C ......................................... 232 25
Class R............................................ 14,381 N/A
Shares redeemed:
Class A ......................................... (1,439,398) (3,056,609)
Class B ......................................... (71,330) (142,639)
Class C ......................................... -- --
Class R............................................ (97,249) N/A
Net Increase (Decrease) 344,671 (194,715)
Year Ended October 31, 1998:
Shares sold:
Class A ......................................... 1,291,180 2,447,392
Class B ......................................... 138,167 333,971
Class R............................................ 173,119 N/A
Shares issued in reinvestment of dividends and
distributions:
Class A ......................................... 137,689 522,117
Class B ......................................... 4,256 24,507
Class R............................................ 7,859 N/A
Shares redeemed:
Class A ......................................... (729,920) (2,279,032)
Class B ......................................... (34,626) (80,155)
Class R............................................ (37,539) N/A
Net Increase 950,185 968,800
</TABLE>
Note 6 -- Line of Credit
The Income Funds participate with other funds and portfolios managed by
Principal Management Corporation in an unsecured joint line of credit with two
banks which allow the funds to borrow up to $75,000,000 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 .09% on the average unused
portion of the line of credit. The commitment fee is allocated among the
participating funds and portfolios in proportion to their average net assets
during each quarter. At October 31, 1999, the Principal Limited Term Bond Fund,
Inc. had an outstanding borrowing of $185,000 at an annual rate of 5.88%. No
other Income Funds had outstanding borrowings at October 31, 1999 under the line
of credit.
SCHEDULES OF INVESTMENTS
INCOME FUNDS
PRINCIPAL BOND FUND, INC.
Principal
Amount Value
Bonds (94.77%)
Air Transportation, Scheduled (3.38%)
Continental Airlines Pass-Through;
7.26%; 9/15/2021 $3,000,000 $ 2,923,320
Federal Express Corp. 1994
Pass-Through Cert., Series A310-A3;
8.40%; 3/23/2010 1,500,000 1,516,050
Federal Express Corp. Pass-Through
Cert.; 7.58%; 7/2/2019 1,000,000 967,810
Northwest Airlines Pass-Through Cert.,
Series 1999-1, Class 1A;
6.81%; 2/1/2020 999,155 936,028
6,343,208
Beverages (2.43%)
Canandaigua Brands, Inc. Senior Notes;
8.63%; 8/1/2006 2,500,000 2,450,000
Joseph E. Seagram & Sons
Guaranteed Debentures;
8.38%; 2/15/2007 1,000,000 1,033,082
8.88%; 9/15/2011 1,000,000 1,081,439
4,564,521
Cable & Other Pay TV Services (1.88%)
Cox Communications, Inc. Notes;
7.75%; 8/15/2006 1,500,000 1,536,621
CSC Holdings, Inc. Debentures;
8.13%; 8/15/2009 2,000,000 1,997,500
3,534,121
Cash Grains (1.33%)
Aktiebolaget SKF Senior Notes;
7.63%; 7/15/2003 2,500,000 2,491,572
Combination Utility Services (2.18%)
PG Energy, Inc. First Mortgage
Bonds; 8.38%; 12/1/2002 500,000 516,567
Puget Sound Power & Light Co.
1st Mortgage Medium-Term Notes,
Series A; 7.75%; 2/1/2007 3,500,000 3,571,778
4,088,345
Communications Equipment (1.04%)
QWest Communications International, Inc.
Senior Notes; 7.50%; 11/1/2008 2,000,000 1,960,000
Computer & Data Processing
Services (2.66%)
Comdisco, Inc.
Medium-Term Notes; 6.65%; 11/13/2001 2,000,000 1,971,312
Notes; 6.00%; 1/30/2002 3,100,000 3,013,020
4,984,332
Computer & Office Equipment (2.98%)
International Game Technology
Senior Notes; 8.38%; 5/15/2009 3,000,000 2,857,500
Seagate Technology, Inc. Senior Notes;
7.37%; 3/1/2007 3,000,000 2,746,125
5,603,625
Construction & Related
Machinery (0.61%)
Caterpillar, Inc. Global Debentures;
9.38%; 8/15/2011 $1,000,000 $ 1,154,521
Credit Reporting & Collection (2.64%)
Orix Credit Alliance Short-Term Notes;
7.00%; 3/15/2001 5,000,000(a) 4,955,145
Crude Petroleum & Natural Gas (1.26%)
Louis Dreyfus Natural Gas Corp.
Senior Notes; 6.88%; 12/1/2007 2,000,000 1,836,114
Occidental Petroleum Corp.
Medium-Term Notes;
9.73%; 6/15/2001 500,000 521,249
2,357,363
Department Stores (1.59%)
Harcourt General, Inc. Subordinated
Notes; 9.50%; 3/15/2000 400,000 403,460
Penney (J.C.) Co., Inc. Debentures;
7.13%; 11/15/2023 1,000,000 885,256
Sears Roebuck Co.
Medium-Term Notes;
9.05%; 2/6/2012 500,000 564,517
9.12%; 2/13/2012 1,000,000 1,134,721
2,987,954
Drug Stores & Proprietary
Stores (0.67%)
Rite Aid Corp. Senior Debentures;
6.88%; 8/15/2013 2,000,000 1,260,000
Eating & Drinking Places (2.57%)
Aramark Services, Inc. Notes;
6.75%; 8/1/2004 5,000,000 4,817,550
Electric Services (11.01%)
AES Ironwood LLC Senior Secured
Bonds; 8.88%; 11/30/2025 4,000,000(a) 3,871,320
Calpine Corp. Notes; 7.75%; 4/15/2009 3,000,000 2,797,500
CE Generation LLC Senior Secured
Notes; 7.42%; 12/15/2018 2,000,000(a) 1,893,680
Central Vermont Public Service Corp.
Second Mortgage Bonds;
8.13%; 8/1/2004 3,000,000 2,943,405
Commonwealth Edison Co.
Debentures; 6.95%; 7/15/2018 1,000,000 931,161
East Coast Power, LLC Senior Secured
Notes; 7.54%; 6/30/2017 3,000,000 2,722,800
Osprey Trust/Osprey I, Inc. Senior
Secured Notes; 8.31%; 1/15/2003 4,500,000(a) 4,493,322
Toledo Edison Co. Debentures;
8.70%; 9/1/2002 1,000,000 1,020,038
20,673,226
Engines & Turbines (0.49%)
Brunswick Corp. Debentures;
7.38%; 9/1/2023 1,000,000 924,177
Fabricated Rubber Products, NEC (0.85%)
M. A. Hanna Co. Senior Notes;
9.38%; 9/15/2003 1,500,000 1,598,475
Farm & Garden Machinery (1.33%)
Case Corp. Notes; 7.25%; 1/15/2016 $1,000,000 $ 950,088
Tenneco, Inc. Notes;
10.08%; 2/1/2001 500,000 518,158
8.08%; 10/1/2002 1,000,000 1,020,722
2,488,968
Funeral Service & Crematories (1.03%)
Service Corp. International Notes;
6.00%; 12/15/2005 2,500,000 1,936,582
General Government, NEC (1.08%)
Ontario Hydro Debentures;
7.45%; 3/31/2013 2,000,000 2,036,660
General Industrial Machinery (0.50%)
Timken Co. Medium-Term
Notes; 6.20%; 1/15/2008 1,000,000 943,776
Gold & Silver Ores (0.62%)
Placer Dome, Inc. Notes;
7.13%; 6/15/2007 1,250,000 1,168,462
Grain Mill Products (0.55%)
Ralston Purina Co. Debentures;
7.75%; 10/1/2015 1,000,000 1,039,139
Grocery Stores (2.47%)
American Stores Co. Bond;
8.00%; 6/1/2026 2,500,000 2,614,093
Food Lion, Inc.
Medium-Term Notes;
8.67%; 8/28/2006 1,000,000 1,060,411
Notes; 7.55%; 4/15/2007 1,000,000 958,543
4,633,047
Highway & Street Construction (1.14%)
Foster Wheeler Corp. Notes;
6.75%; 11/15/2005 2,500,000 2,133,622
Hotel & Motels (2.06%)
Marriott International, Inc. Notes;
6.63%; 11/15/2003 4,000,000 3,875,260
Industrial Inorganic Chemicals (2.10%)
Equistar Chemicals LP Senior Notes;
8.75%; 2/15/2009 4,000,000 3,936,004
Life Insurance (1.27%)
John Hancock Mutual Life
Insurance Co. Surplus Notes;
7.38%; 2/15/2024 2,500,000(a) 2,381,730
Machinery, Equipment, &
Supplies (0.13%)
AAR Corp. Notes; 7.25%; 10/15/2003 250,000 247,618
Management & Public Relations (1.56%)
Servicemaster Co. Ltd. Notes;
6.95%; 8/15/2007 1,000,000 949,953
7.88%; 8/15/2009 2,000,000 1,975,552
2,925,505
Millwork, Plywood & Structural
Members (0.36%)
Georgia-Pacific Corp.
Debentures; 9.50%; 12/1/2011 $ 600,000 $ 678,961
Miscellaneous Investing (2.39%)
BRE Properties, Inc. Notes;
7.20%; 6/15/2007 2,000,000 1,888,932
First Industrial LP Medium-Term
Notes; 7.00%; 12/1/2006 1,500,000 1,369,703
Weingarten Realty Investors
Medium-Term Notes;
7.29%; 5/23/2005 1,250,000 1,224,130
4,482,765
Miscellaneous Metal Ores (0.36%)
Cyprus Minerals Co. Notes;
10.13%; 4/1/2002 650,000 676,218
Mortgage Bankers & Brokers (0.99%)
Chase Commercial Mortgage Securities
Corp., Class C Notes; 6.60%;
12/19/2007 2,000,000 1,853,860
Motor Vehicles & Equipment (1.14%)
Ford Motor Co. Debentures;
7.50%; 8/1/2026 1,000,000 992,348
8.90%; 1/15/2032 1,000,000 1,152,710
2,145,058
Newspapers (2.82%)
News America Holdings, Inc.
Guaranteed Senior Notes;
8.50%; 2/15/2005 2,250,000 2,349,018
United News & Media PLC Notes;
7.75%; 7/1/2009 3,000,000 2,953,455
5,302,473
Oil & Gas Field Services (1.56%)
Petroleum Geo-Services ASA Notes;
7.50%; 3/31/2007 2,500,000 2,486,330
R&B Falcon Senior Notes;
6.75%; 4/15/2005 500,000 436,250
2,922,580
Operative Builders (1.21%)
Pulte Corp.
Senior Notes; 8.38%; 8/15/2004 500,000 504,933
Notes; 7.63%; 10/15/2017 2,000,000 1,769,902
2,274,835
Paper & Paper Products (1.51%)
Boise Cascade Office Products
Notes; 7.05%; 5/15/2005 3,000,000 2,834,004
Paper Mills (3.03%)
Bowater, Inc. Debentures;
9.50%; 10/15/2012 1,000,000 1,156,183
9.38%; 12/15/2021 1,500,000 1,721,370
Champion International Corp.
Notes; 9.88%; 6/1/2000 750,000 764,487
Chesapeake Corp. Notes;
9.88%; 5/1/2003 1,000,000 1,069,385
Fort James Corp. Notes;
6.70%; 11/15/2003 1,000,000 985,418
5,696,843
Paperboard Mills (0.88%)
Federal Paper Board Co., Inc.
Debentures; 8.88%; 7/1/2012 $1,500,000 $ 1,659,780
Petroleum Refining (4.91%)
Ashland Oil, Inc. Medium-Term Notes;
7.71%; 5/11/2007 500,000 499,802
7.72%; 7/15/2013 1,000,000 988,605
7.73%; 7/15/2013 750,000 742,082
Mapco, Inc. Medium-Term Notes;
8.48%; 8/5/2013 1,000,000 1,066,440
Sun Co., Inc.
Debentures; 9.00%; 11/1/2024 2,000,000 2,170,952
Notes; 7.13%; 3/15/2004 300,000 297,903
Tosco Corp. Notes; 7.25%; 1/1/2007 2,500,000 2,433,547
Ultramar Credit Corp. Guaranteed
Notes; 8.63%; 7/1/2002 1,000,000 1,030,621
9,229,952
Plumbing & Heating, Except
Electric (1.02%)
Masco Corp. Debentures;
7.13%; 8/15/2013 2,000,000 1,909,066
Public Building & Related
Furniture (1.04%)
Lear Corp. Senior Notes;
7.96%; 5/15/2005 2,000,000(a) 1,943,902
Pulp Mills (1.45%)
ITT Rayonier, Inc. Notes;
7.50%; 10/15/2002 1,875,000 1,912,549
International Paper Co.
Medium-Term Notes;
9.70%; 8/15/2000 800,000 819,825
2,732,374
Railroads (1.76%)
Union Pacific Corp.
Debentures; 7.00%; 2/1/2016 2,500,000 2,319,313
Notes; 7.25%; 11/1/2008 1,000,000 984,751
3,304,064
Real Estate Operators & Lessors (0.63%)
First Industrial, L.P. Notes;
7.60%; 5/15/2007 1,250,000 1,184,123
Rental of Railroad Cars (1.35%)
GATX Capital Corp. Medium-Term Notes;
Series B; 9.50%; 1/10/2002 1,500,000 1,570,379
Series C; 6.86%; 10/13/2005 1,000,000 963,456
2,533,835
Residential Building Construction (2.95%)
D.R. Horton, Inc. Senior Notes;
8.00%; 2/1/2009 3,000,000 2,625,000
Southern Energy, Inc. Senior Notes;
7.90%; 7/15/2009 3,000,000(a) 2,922,666
5,547,666
Sanitary Services (1.59%)
Laidlaw, Inc.
Senior Notes; 7.88%; 4/15/2005 $ 750,000 $ 727,778
Notes; 7.70%; 8/15/2002 1,000,000 992,753
WMX Technologies, Inc. Notes;
7.00%; 10/15/2006 1,500,000 1,256,253
2,976,784
Search & Navigation Equipment (0.45%)
Raytheon Co. Notes; 6.40%; 12/15/2018 1,000,000 847,784
Security Brokers & Dealers (3.15%)
Bear Stearns Cos., Inc.
Senior Notes; 7.00%; 3/1/2007 2,500,000 2,423,098
Lehman Brothers, Inc. Senior
Subordinated Notes;
7.38%; 1/15/2007 3,545,000 3,483,044
5,906,142
Telephone Communication (2.19%)
Sprint Capital Corp. Global Bonds;
6.88%; 11/15/2028 4,500,000 4,117,298
Variety Stores (0.62%)
Dayton-Hudson Corp. Debentures;
9.25%; 8/15/2011 1,000,000 1,163,850
Total Bonds 177,968,725
Asset-Backed Securities (3.06%)
Investment Offices (1.48%)
Morgan Stanley Capital I, Inc. Comml
Mtg Pass-Through Cert., Series 99-WF1
CL C; 6.54%; 10/15/2008 3,000,000 2,783,820
Security Brokers & Dealers (1.58%)
Merrill Lynch Mortgage Investors, Inc.
Collateralized Mortgage-Backed
Security, Series 95-C3, 7.37%*
Class C; 12/26/2025 3,000,000 2,971,080
Total Asset-Backed Securities 5,754,900
Commercial Paper (0.37%)
Personal Credit Institutions (0.37%)
Investment in Joint Trade Account,
Associates Corp.; 5.31%; 11/1/1999 697,327 697,327
Total Portfolio Investments (98.20%) 184,420,952
Cash, receivables and other assets,
net of liabilities (1.80%) 3,371,689
Total Net Assets (100.00%) $187,792,641
(a)Restricted security - See Note 4 to the financial statements.
* Variable rate (monthly)
PRINCIPAL GOVERNMENT SECURITIES INCOME
FUND, INC.
Description of Issue Principal
Type Rate Maturity Amount Value
Government National Mortgage Association (GNMA)
Certificates (101.50%)
GNMA I 5.50% 12/15/2013-3/15/2014 $4,250,400 $ 3,994,102
GNMA I 6.00 10/15/2023-12/20/2029 23,574,526 21,974,698
GNMA I 6.50 7/15/2008-2/15/2029 81,447,939 78,263,765
GNMA I 7.00 10/15/2022-4/15/2029 74,616,810 73,425,971
GNMA I 7.25 9/15/2025-10/15/2025 2,640,941 2,616,243
GNMA I 7.50 4/15/2017-10/15/2027 29,229,779 29,397,518
GNMA I 8.00 8/15/2016-2/15/2022 7,024,631 7,254,501
GNMA II 5.50 7/20/2014 988,137 919,448
GNMA II 6.00 1/20/2024-7/20/2029 58,773,677 54,627,265
GNMA II 6.50 3/20/2024-3/20/2027 11,635,284 11,156,152
Total GNMA Certificates 283,629,663
Principal
Amount Value
Federal Agency Short-Term Obligation (1.57%)
Investment in Joint Trade Account,
Federal Home Loan Mortgage Corp.;
5.16%; 11/1/1999 $4,386,416 $ 4,388,303
Total Portfolio Investments (103.07%) 288,017,966
Liabilities, net of cash, receivables and
other assets (-3.07%) (8,585,037)
Total Net Assets (100.00%) $279,432,929
PRINCIPAL HIGH YIELD FUND, INC.
Principal
Amount Value
Bonds (92.49%)
Advertising (3.78%)
Lamar Media Corp.
Senior Subordinated Notes;
9.63%; 12/1/2006 $1,500,000 $1,522,500
Aircraft & Parts (1.76%)
BE Aerospace Senior Subordinated
Notes; 9.50%; 11/1/2008 750,000 708,750
Beverages (1.70%)
Canandaigua Brands, Inc. Senior
Notes; 8.63%; 8/1/2006 700,000 686,000
Blast Furnace & Basic Steel
Products (0.89%)
California Steel Industries, Inc. Senior
Notes; 8.50%; 4/1/2009 $ 375,000(a) $ 357,187
Cable & Other Pay TV Services (3.96%)
Century Communications, Inc.
Senior Notes; 8.75%; 10/1/2007 900,000 864,000
Jones Intercable, Inc. Senior Notes;
9.63%; 3/15/2002 700,000 732,897
1,596,897
Cogeneration - Small Power
Producer (1.93%)
Calpine Corp. Senior Notes;
8.75%; 7/15/2007 800,000 780,000
Communications Equipment (3.38%)
FWT, Inc. Senior Subordinated
Notes; 9.88%; 11/15/2007 800,000(b) 80,000
Williams Communication Group, Inc.
Senior Notes; 10.88%; 10/1/2009 1,250,000 1,281,250
1,361,250
Communication Services, NEC (6.99%)
Charter Communications Holdings, LLC
Senior Notes; 8.25%; 4/1/2007 1,500,000(a) 1,417,500
Level 3 Communications, Inc. Senior
Notes; 9.13%; 5/1/2008 1,500,000 1,398,750
2,816,250
Computer & Data Processing
Services (0.06%)
DecisionOne Corp. Senior Subordinated
Notes; 9.75%; 8/1/2007 1,500,000(b) 22,500
Computer & Office Equipment (1.66%)
International Game Technology Senior
Notes; 7.88%; 5/15/2004 700,000 670,250
Crude Petroleum & Natural Gas (5.62%)
Chesapeake Energy Corp. Senior
Notes, Series A; 9.63%; 5/1/2005 750,000 708,750
Gulf Canada Resources Ltd. Senior
Notes; 8.35%; 8/1/2006 800,000 772,000
Louis Dreyfus Natural Gas Co. Senior
Subordinated Notes; 9.25%; 6/15/2004 750,000 786,050
2,266,800
Eating & Drinking Places (5.64%)
Cafeteria Operators LP Senior Secured
Notes; 12.00%; 12/31/2001 1,500,000 1,447,500
Foodmaker, Inc. Senior Subordinated
Notes; 8.38%; 4/15/2008 900,000 828,000
2,275,500
Electric Services (2.14%)
York Power Funding Ltd. Senior Secured
Bonds; 12.00%; 10/30/2007 900,000(a) 864,000
Electric Work (3.59%)
Integrated Electrical Services Senior
Subordinated Notes;
9.38%; 2/1/2009 1,500,000 1,447,500
Forest Products (0.70%)
Doman Industries, Ltd. Senior Notes;
8.75%; 3/15/2004 $ 350,000 $ 283,500
Grocery Stores (1.85%)
Marsh Supermarkets, Inc. Senior
Subordinated Notes;
8.88%; 8/1/2007 800,000 744,000
Heavy Construction, Except
Highway (3.46%)
Mastec, Inc. Senior Subordinated
Notes; 7.75%; 2/1/2008 1,500,000 1,395,000
Hotels & Motels (4.79%)
HMH Properties, Inc. Senior Notes;
7.88%; 8/1/2008 750,000 652,500
John Q. Hammons Hotels, LP &
Finance Corp. First Mortgage
Notes; 8.88%; 2/15/2004 700,000 633,500
Vail Resorts, Inc. Senior Subordinated
Notes; 8.75%; 5/15/2009 700,000 644,000
1,930,000
Miscellaneous Amusement, Recreation
Service (1.80%)
Station Casinos, Inc. Senior
Subordinated Notes;
8.88%; 12/1/2008 750,000 723,750
Miscellaneous Shopping Goods
Stores (2.12%)
Zale Corp. Senior Notes;
8.50%; 10/1/2007 900,000 855,000
Motor Vehicles, Parts & Supplies (3.11%)
Special Devices, Inc. Senior Subordinated
Notes; 11.38%; 12/15/2008 1,500,000 1,252,500
Oil & Gas Field Services (1.66%)
Grey Wolf, Inc. Senior Notes;
8.88%; 7/1/2007 750,000 669,375
Paper Mills (1.28%)
Indah Kiat Finance Mauritius Ltd.
Guaranteed Senior Notes;
10.00%; 7/1/2007 800,000 516,000
Personal Credit Institutions (8.09%)
Mercury Financial Services Corp.
Senior Notes; 10.00%; 3/23/2001 1,500,000(a) 1,410,000
MacSaver Financial Services, Inc.
Notes; 7.60%; 8/1/2007 800,000 500,000
Metris Companies, Inc. Notes;
10.00%; 11/1/2004 1,500,000 1,350,000
3,260,000
Petroleum Refining (1.25%)
Crown Central Petroleum Corp.
Senior Notes; 10.88%; 2/1/2005 $ 700,000 $ 504,000
Public Building & Related
Furniture (1.78%)
Lear Corp. Senior Notes;
8.11%; 5/15/2009 750,000(a) 717,158
Pulp Mills (1.67%)
Pen-Tab Industries, Inc. Senior
Subordinated Notes;
10.88%; 2/1/2007 800,000 672,000
Radio & Television Broadcasting (2.06%)
Antenna TV S.A. Senior Notes;
9.00%; 8/1/2007 900,000 829,125
Residential Building Construction (1.63%)
D.R. Horton, Inc. Senior Notes;
8.00%; 2/1/2009 750,000 656,250
Retail Stores, NEC (1.51%)
Cole National Group, Inc.
Senior Subordinated Notes;
9.88%; 12/31/2006 800,000 608,000
Telephone Communication (7.47%)
Clearnet Communications, Inc. Step-Up*
Senior Discount Notes; 12/15/2005 750,000(c) 709,688
Intermedia Communications, Inc. Senior
Notes; 8.50%; 1/15/2008 800,000 706,000
NEXTLINK Communications, Inc.
Senior Notes; 10.75%; 6/1/2009 800,000 816,000
Rogers Cantel, Inc. Senior Secured
Debentures; 9.75%; 6/1/2016 700,000 782,250
3,013,938
Water Transportation of Freight,
NEC (3.16%)
Cenargo International PLC First
Mortgage Notes; 9.75%; 6/15/2008 1,500,000 1,275,000
Total Bonds 37,279,980
Shares
Held Value
Preferred Stock (0.01%)
Fuel Dealers (0.01%)
Star Gas Partners LP 308 $ 5,120
Commercial Paper (5.53%)
Business Credit Institutions (1.03%)
American Express Credit Corp.;
5.20%; 11/1/1999 $ 415,000 $ 415,000
Personal Credit Institutions (4.50%)
Investment in Joint Trade Account,
Associates Corp; 5.31%; 11/1/1999 1,816,085 1,816,085
Total Commercial Paper 2,231,085
Total Portfolio Investments (98.03%) 39,516,185
Cash, receivables and other assets,
net of liabilities (1.97%) 795,860
Total Net Assets (100.00%) $40,312,045
(a)Restricted security - See Note 4 to the financial statements.
(b)Non-income producing security - Security in default.
(c)Non-income producing security - Zero-step coupon bond.
* Variable rate
PRINCIPAL LIMITED TERM BOND FUND, INC.
Principal
Amount Value
Bonds (62.56%)
Business Credit Institutions (2.95%)
CIT Group Holdings
Senior Medium-Term Notes;
6.38%; 10/1/2002 $1,000,000 $ 987,082
Department Stores (7.66%)
Dillards, Inc. Notes;
6.43%; 8/1/2004 490,000 467,257
J.C. Penney Co., Inc. Notes;
9.05%; 3/1/2001 1,505,000 1,543,522
Sears Roebuck Acceptance Corp.
Medium-Term Notes, Series II;
6.69%; 8/13/2001 450,000 447,493
Sears Roebuck Co. Medium-Term
Notes; 6.46%; 5/12/2000 100,000 100,013
2,558,285
Federal & Federally Sponsored
Credit (0.39%)
Federal Home Loan Mortgage
Corporation Debentures;
6.57%; 2/27/2007 130,000 129,170
Funeral Services & Crematories (4.27%)
Service Corp. International Notes;
6.38%; 10/1/2000 1,500,000 1,425,310
General Industrial Machinery (3.04%)
Timken Co. Medium-Term Notes;
7.30%; 8/13/2002 $1,000,000 $1,014,753
Medical Service & Health
Insurance (4.33%)
Aetna Services, Inc. Notes;
6.38%; 8/15/2003 1,500,000 1,448,256
Mortgage Bankers & Brokers (2.55%)
Countrywide Funding Corp.
Medium-Term Notes;
6.05%; 3/1/2001 860,000 853,291
Motor Vehicles & Equipment (1.56%)
General Motors Corp. Medium-Term
Notes; 9.20%; 7/2/2001 500,000 521,134
Paper Mills (3.00%)
International Paper Co. Notes;
7.00%; 6/1/2001 1,000,000 1,003,734
Paperboard Mills (4.61%)
Temple-Inland, Inc. Notes;
9.00%; 5/1/2001 1,500,000 1,541,991
Personal Credit Institutions (14.17%)
American General Finance Corp.
Medium-Term Notes, Series D;
7.46%; 3/28/2000 350,000 352,041
Associates Corp. of North America
Notes; 5.75%; 10/15/2003 1,500,000 1,444,920
Chrysler Financial Corp.
Medium-Term Notes;
8.45%; 1/28/2000 500,000 503,274
Ford Motor Credit Co. Notes;
7.50%; 1/15/2003 1,367,000 1,390,723
General Motors Acceptance Corp.
Notes; 6.63%; 10/1/2002 1,050,000 1,045,058
4,736,016
Plumbing & Heating, Except
Electric (3.05%)
Masco Corp. Notes; 6.13%; 9/15/2003 1,035,000 1,018,443
Security Brokers & Dealers (8.94%)
Lehman Brothers, Inc. Senior
Subordinated Notes;
7.25%; 4/15/2003 1,500,000 1,503,303
Merrill Lynch & Co., Inc. Notes;
6.55%; 8/1/2004 1,500,000 1,482,965
2,986,268
Telephone Communication (2.04%)
Nynex Capital Funding Medium-Term
Notes, Series A; 9.40%; 6/1/2000 670,000 682,339
Total Bonds 20,906,072
Description of Issue Principal
Type Rate Maturity Amount Value
Federal Home Loan Mortgage Corporation (FHLMC)
Certificates (6.15%)
FHLMC 7.00% 12/1/2022-3/1/2028 $ 991,047 $ 977,081
FHLMC 7.25 12/1/2007 349,905 352,725
FHLMC 8.00 12/1/2011-10/1/2022 383,934 393,217
FHLMC 8.25 1/1/2012 48,172 49,310
FHLMC 8.50 4/1/2000 78,929 80,210
FHLMC 9.00 9/1/2009 193,456 203,986
Total FHLMC Certificates 2,056,529
Federal National Mortgage Association (FNMA)
Certificates (4.97%)
FNMA 6.00 7/1/2028 988,200 921,616
FNMA 8.00 10/1/2006-5/1/2027 286,927 292,439
FNMA 8.50 5/1/2022 277,472 289,185
FNMA 9.00 2/1/2025 148,452 155,994
Total FNMA Certificates 1,659,234
Government National Mortgage Association (GNMA)
Certificates (7.27%)
GNMA I 6.50 6/15/2028-9/15/2028 1,867,542 1,786,084
GNMA I 9.00 7/15/2017 51,400 54,380
GNMA II 6.00 7/20/2028 472,377 437,642
GNMA II 8.00 1/20/2016 147,702 152,337
Total GNMA Certificates 2,430,443
Principal
Amount Value
Asset-Backed Securities (18.59%)
Mortgage Pass-Through Securities (18.59%)
DLJ Commercial Mortgage Corp.
Class A1A,
Series 1998-CF1; 6.14%; 10/15/2006 $ 622,001 $ 604,684
Series 1999-CG1; 6.08%; 7/10/2008 1,452,147 1,397,009
GMAC Commercial Mortgage Securities,
Inc., Series 1998-C2 CL C;
6.50%; 8/15/2008 1,000,000 926,930
J.P. Morgan Commercial Mortgage
Finance Corp., Series 97-C5,
Class A-2; 7.06%; 9/15/2029 1,445,000 1,442,702
Prudential Securities Secured Financing
Corp., Series 1998-C1,
Class A1A1; 6.11%; 11/15/2002 191,192 189,209
Lehman Large Loan, Class A1,
Series 1997-LLI; 6.79%; 6/12/2004 $1,453,895 $1,446,902
Union Acceptance Corp. 1996-B Auto
Trust, Class A; 6.45%; 7/8/2003 206,150 205,942
Total Asset-Backed Securities 6,213,378
Total Portfolio Investments (99.54%) 33,265,656
Cash, receivables and other assets,
net of liabilities (0.46%) 152,827
Total Net Assets (100.00%) $33,418,483
PRINCIPAL TAX-EXEMPT BOND FUND, INC.
Principal
Amount Value
Long-Term Tax-Exempt Bonds (94.33%)
Alabama (0.43%)
Phenix County, Alabama IDB
Environmental Improvement Rev.
Bonds, Mead Coated Board, Inc.,
Series B; 5.25%; 4/1/2028 $1,000,000 $ 861,250
Arkansas (2.42%)
City of Blytheville, Arkansas Solid Waste
Recycling & Sewer Treatment Rev.
Bonds, Series 1992, Nucor Corp.
Project; 6.90%; 12/1/2021 4,610,000 4,800,163
California (2.81%)
California Pollution Control Funding
Authority Pollution Control Rev. Ref.
Bonds for San Diego Gas & Electric,
Series A; 5.90%; 6/1/2014 1,000,000 1,035,000
California Pollution Control Funding
Authority Rev. Bonds, Atlantic
Richfield Co. Project; 5.00%; 4/1/2008 2,500,000 2,468,750
City of Upland, California San Antonio
Comm. Hospital Cert. of Participation;
5.25%; 1/1/2004 2,080,000 2,085,200
5,588,950
Colorado (2.58%)
City & County of Denver, Colorado
Airport System Rev. Bonds,
Series 1991D; 7.75%; 11/15/2013 3,185,000 3,710,525
Colorado Health Fac. Authority Rev.
Bonds for Sisters of Charity
Healthcare Systems, Series 1994;
5.25%; 5/15/2014 1,500,000 1,404,375
5,114,900
Florida (0.51%)
Nassau County, Florida Pollution
Control Ref. Bonds; ITT
Rayonier, Inc. Project;
6.10%; 6/1/2005 $1,000,000 $ 1,022,500
Georgia (2.31%)
Effingham County, Georgia Dev.
Authority Waste Disposal Rev. for
Fort James Project; 5.63%; 7/1/2018 3,000,000 2,632,500
Fulco, Georgia Hospital Authority Rev.
Anticipation Cert. for St. Joseph's
Hospital of Atlanta, Inc.;
5.50%; 10/1/2014 2,000,000 1,957,500
4,590,000
Illinois (18.51%)
Chicago, Illinois Midway Airport Rev.
Bonds, Series A, MBIA Insured;
5.50%; 1/1/2011 1,500,000 1,501,875
5.50%; 1/1/2013 500,000 491,250
Chicago, Illinois O'Hare International
Airport Special Fac. Rev. Bonds for
American Airlines, Inc. Project-A;
7.88%; 11/1/2025 6,010,000 6,258,994
Chicago, Illinois O'Hare International
Airport Special Fac. Rev. Bonds for
Lufthansa German Airlines Project;
7.13%; 5/1/2018 1,000,000 1,046,250
Chicago, Illinois O'Hare International
Airport Special Fac. Rev. Bonds for
United Airlines Project, Series A;
5.35%; 9/1/2016 5,000,000 4,368,750
City of Chicago, Illinois Adj. Rate Gas
Supply Rev. Bonds, Series 1985A,
Peoples Gas Light & Coke Project;
6.88%; 3/1/2015 2,800,000 2,971,500
Illinois Development Finance Authority
Solid Waste Disposal Waste
Management, Inc; 5.05%; 1/1/2010 3,750,000 3,421,875
Illinois Health Fac. Authority Advocate
Health Care Network, Series B;
5.25%; 8/15/2018 2,910,000 2,589,900
Illinois Health Fac. Authority Ref. Rev.
Bonds for OSF Healthcare System;
5.75%; 11/15/2007 1,000,000 1,001,250
6.00%; 11/15/2010 500,000 501,250
6.00%; 11/15/2013 500,000 486,875
Illinois Health Fac. Authority Rev. Bonds,
Northwestern Memorial Hospital,
Series 1994A;
5.60%; 8/15/2006 500,000 508,750
5.75%; 8/15/2008 615,000 624,225
5.80%; 8/15/2009 840,000 850,500
6.10%; 8/15/2014 1,000,000 998,750
Illinois Health Fac. Authority Rev.
Bonds for Sarah Bush Lincoln
Health Center;
Series 1992; 7.25%; 5/15/2002 2,950,000 3,200,750
Series 1996B; 6.00%; 2/15/2011 1,000,000 1,001,250
Series 1996B; 5.50%; 2/15/2016 1,000,000 907,500
Illinois Health Fac. Authority Rev.
Bonds for South Suburban Hospital,
Series 1992;
7.00%; 2/15/2009 $ 305,000 $ 332,069
7.00%; 2/15/2018 720,000 801,000
Illinois Health Fac. Authority Rev. Ref.
Bonds for Advocate Healthcare,
Series A; 6.75%; 4/15/2012 680,000 727,600
Regional Transportation Authority,
Illinois General Obligation Bonds,
Series 1994A; 6.25%; 6/1/2015 2,000,000 2,160,000
36,752,163
Indiana (7.82%)
City of Mount Vernon, Indiana
Pollution Control Rev. Bonds for
Southern Indiana Gas & Electric
Co. Project; 7.25%; 3/1/2014 700,000 726,929
City of Petersburg, Indiana Pollution
Control Rev. Bonds, for Indianapolis
Power & Light Co. Project,
Series 1993A; 6.10%; 1/1/2016 4,000,000 4,175,000
Indiana Health Fac. Financing Authority
Hospital Rev. Bonds, Clarian Health
Partners, Inc.; 5.50%; 2/15/2009 2,520,000 2,475,900
Indiana Health Fac. Financing
Authority Hospital Rev. Ref. Bonds,
Schneck Memorial Hospital,
Series 1998;
4.70%; 2/15/2006 500,000 470,625
5.13%; 2/15/2017 500,000 420,625
Indiana Health Fac. Financing
Authority Hospital Rev. Ref. Bonds,
Welborn Memorial Baptist Hospital,
Series 1993; 5.63%; 7/1/2023 1,860,000 1,953,000
Lawrenceburg, Indiana Pollution
Control Rev. Ref. Bonds, Indiana
Michigan Power Co. Project,
Series D; 7.00%; 4/1/2015 1,000,000 1,041,250
Series E; 5.90%; 11/1/2019 3,220,000 3,095,225
Warrick County, Indiana
Environmental Improvement Rev.
Bonds, Southern Indiana Gas &
Electric, Series 1993B;
6.00%; 5/1/2023 1,190,000 1,164,713
15,523,267
Iowa (2.94%)
City of Muscatine, Iowa Electric Rev.
Ref. Bonds, Series 1986;
6.00%; 1/1/2006 150,000 150,189
5.00%; 1/1/2007 1,575,000 1,555,312
Eddyville, Iowa IDR Ref. Bonds,
Cargill, Inc. Project; 5.63%; 12/1/2013 1,000,000(a) 986,250
Iowa Finance Authority Hospital Fac.
Ref. Rev. Bonds for Jennie
Edmundson Memorial Hospital;
7.40%; 11/1/2006 550,000 591,938
Iowa Finance Authority Hospital Fac.
Ref. Rev. Bonds, Iowa Health Systems,
Series A, MBIA Insured;
5.13%; 1/1/2028 3,000,000 2,550,000
5,833,689
Kentucky (0.93%)
City of Ashland, Kentucky Sewage
and Solid Waste Rev. Bonds for
Ashland, Inc. Project, Series 1995;
7.13%; 2/1/2022 $ 750,000 $ 796,875
City of Ashland, Kentucky Solid
Waste Rev. Bonds for Ashland
Oil, Inc. Project, Series 1991;
7.20%; 10/1/2020 1,000,000 1,045,000
1,841,875
Louisiana (1.02%)
St. Charles Parish, Louisiana Pollution
Control Rev. Bonds for Louisiana
Power & Light Co. Project;
7.50%; 6/1/2021 1,950,000 2,032,875
Michigan (2.99%)
Detroit, Michigan LOC Dev. Financing
Authority Ref. Bonds, Senior Series A
Chrysler Corp; 5.20%; 5/1/2010 1,700,000 1,655,375
Michigan State Hospital Financing
Authority Hospital Rev. Bonds for
Detroit Medical Center, Obligated-A;
5.25%; 8/15/2028 1,500,000 1,173,750
Michigan State Hospital Financing
Authority Hospital Rev. Bonds for
Detroit Medical Center, Series 1993B;
5.75%; 8/15/2013 600,000 537,750
5.50%; 8/15/2023 2,000,000 1,650,000
Michigan State Hospital Financing
Authority Rev. Ref. Bonds,
Daughters of Charity National Health
System; 5.50%; 11/1/2005 900,000 920,250
5,937,125
Minnesota (0.73%)
City of Bass Brook, Minnesota Pollution
Control Rev. Ref. Bonds for
Minnesota Power & Light Project;
6.00%; 7/1/2022 1,500,000 1,453,125
Mississippi (0.23%)
Grenada County, Mississippi Rev. Ref.
Bonds, Georgia Pacific Corp. Project;
5.45%; 9/1/2014 500,000 461,250
Missouri (1.12%)
Missouri State Health & Educational
Fac. Authority Health Fac. Rev.
Bonds, BJC Health System,
Series 1994A; 6.75%; 5/15/2012 2,000,000 2,227,500
Montana (0.97%)
Forsyth, Montana Pollution Control
Rev. Ref. Bonds, Montana Power
Co., Colstrip Project, Series 1993A;
6.13%; 5/1/2023 2,000,000 1,935,000
Nebraska (0.49%)
Dawson County, Nebraska Sanitary &
Improvement General Obligation
Ref. Bonds; 5.55%; 2/1/2017 $1,000,000 $ 963,750
New Mexico (1.13%)
City of Lordsburg, New Mexico
Pollution Control Rev. Bonds
for Phelps Dodge Corp. Project;
6.50%; 4/1/2013 2,150,000 2,246,750
North Carolina (2.29%)
Martin County, North Carolina
Industrial Fac. & Pollution Control
Finance Authority Solid Waste
Rev. Bonds, Weyerhaeuser;
5.65%; 12/1/2023 1,000,000 916,250
6.80%; 5/1/2024 2,000,000 2,097,500
Wake County, North Carolina
Industrial Fac. & Pollution Control
Finance Authority Rev. Bond,
Carolina Power & Light Co.;
6.90%; 4/1/2009 1,500,000 1,542,135
4,555,885
North Dakota (1.02%)
Mercer County, North Dakota
Pollution Control Rev. Bonds,
Ottertail Power Co. Project,
Series 1991; 6.90%; 2/1/2019 1,950,000 2,035,312
Ohio (4.58%)
Akron Bath Copley, Ohio JT TWP
Hospital District Rev. Hospital
Facilities, Summa Health
Systems, Series A;
5.38%; 11/15/2018 5,760,000 4,881,600
5.38%; 11/15/2024 1,000,000 822,500
Lorain County, Ohio Hospital Ref.
Bonds, Humility Mary Health
Care, Series A; 5.90%; 12/15/2008 3,270,000 3,384,450
9,088,550
Oklahoma (1.23%)
Tulsa Industrial Authority Rev. Bonds,
St. John Medical Center Project,
Series 1994;
6.25%; 2/15/2014 1,280,000 1,374,400
6.25%; 2/15/2017 1,000,000 1,073,750
2,448,150
Rhode Island (1.54%)
Rhode Island State Industrial Facilities
Corp. Marine Term Rev. Bonds,
Mobil Oil Refining;
6.00%; 11/1/2014 2,900,000 3,055,875
South Carolina (4.67%)
Darlington County, South Carolina
Pollution Control Rev. Bonds for
Carolina Power & Light;
6.60%; 11/1/2010 1,000,000 1,060,000
Greenville Hospital System,
South Carolina Hospital Fac.
Rev. Ref. Bonds; 6.00%; 5/1/2020 $ 230,000 $ 221,950
Series C; 5.50%; 5/1/2016 2,500,000 2,321,875
Oconee County, South Carolina
Pollution Control Rev. Ref. Bonds,
Duke Energy Corp. Project, Series
1993; 5.80%; 4/1/2014 2,000,000 2,002,500
York County, South Carolina Exempt
Fac. Industrial Rev. Bonds for
Hoechst Celanese Project,
Series 1994; 5.70%; 1/1/2024 2,000,000 1,815,000
York County, South Carolina Pollution
Control Rev. Bonds, Bowater, Inc.
Project; 7.63%; 3/1/2006 1,700,000 1,850,875
9,272,200
South Dakota (0.53%)
Pennington County, South Dakota
Pollution Control Rev. Ref. Bonds
for Black Hills Power & Light Co.
Project; 6.70%; 6/1/2010 1,000,000 1,046,250
Tennessee (1.39%)
County of Louden, Tennessee Industrial
Development Solid Waste;
6.20%; 2/1/2023 1,950,000 1,974,375
Memphis-Shelby Co. Airport Authority
Special Facility Rev. Bonds, Ref.
Series 97, Federal Express Corp.;
5.35%; 9/1/2012 825,000 783,750
2,758,125
Texas (11.12%)
Brazos River Authority, Texas Rev.
Industrial Bonds Project-A Houston
Industries, Inc.; 5.13%; 5/1/2019 2,000,000 1,767,500
Cass County, Texas Industrial
Dev. Corp. Pollution Control
Rev. Bonds for International
Paper Co., Series B;
5.35%; 4/1/2012 3,750,000 3,576,562
Guadalupe-Blanco River Authority,
Texas Industrial Dev. Corp.
Pollution Control Rev.,
EI Dupont de Nemours,
1982 Series A; 6.35%; 7/1/2022 2,500,000 2,584,375
Gulf Coast Waste Disposal Authority
Texas Waste Disposal Rev., Valero
Energy Corp. Project;
5.70%; 4/1/2032 2,000,000 1,740,000
IDC Port of Corpus Christi Rev. Ref.
Bonds, Port Fac. Rev. Bonds,
Valero Energy Corp.; 5.13%; 4/1/2009 1,000,000 943,750
IDC Port of Corpus Christi Rev. Ref.
Bonds, Valero Refining & Marketing
Co. Project; 5.40%; 4/1/2018 2,000,000 1,770,000
Matagorda County, Texas
Navigational District No. 1 Pollution
Control Rev. Bonds for Central
Power & Light Co.;
6.00%; 7/1/2028 1,000,000 948,750
Milam County, Texas Industrial Dev.
Corp. Pollution Control Rev. Ref.
Bonds, Alcoa Project;
5.65%; 12/1/2012 $2,000,000 $ 2,005,000
Red River Authority, Texas Pollution
Control Rev. Bonds, Hoechst
Celanese Corp. Project;
5.20%; 5/1/2007 2,825,000 2,722,594
San Antonio Texas Electric & Gas,
Series A; 4.50%; 2/1/2021 3,715,000 2,958,069
Tarrant County, Texas Health Fac.
Dev. Corp., Harris Methodist Health
System Rev. Bonds; 5.90%; 9/1/2006 1,000,000 1,058,750
22,075,350
Utah (0.88%)
Intermountain Power Agency, Utah
Power Supply, Rev. Ref. Bonds,
Series 1996D; 5.00%; 7/1/2021 2,000,000 1,740,000
Virginia (2.76%)
Albemarle County, Virginia IDA
Hospital Rev. Ref. Bonds, Martha
Jefferson Hospital; 5.50%; 10/1/2015 1,900,000 1,816,875
Bedford County, Virginia Industrial Dev.
Nekoosa Packing Corp., Georgia
Pacific; 5.60%; 12/1/2025 2,500,000 2,218,750
Chesapeake, Virginia IDA Rev. Ref.
Bonds for Cargill, Inc. Project;
5.88%; 3/1/2013 1,410,000 1,432,912
5,468,537
Washington (2.73%)
City of Seattle, Washington Municipal
Light and Power Rev. Bonds;
1993; 5.10%; 11/1/2005 1,950,000 1,979,250
1994; 6.63%; 7/1/2016 1,000,000 1,095,000
5.00%; 7/1/2018 1,225,000 1,071,875
1998; 4.88%; 6/1/2021 1,500,000 1,263,750
5,409,875
West Virginia (6.80%)
Braxton County, West Virginia Solid
Waste Disposal Rev. Weyerhaeuser
Co.; 5.40%; 5/1/2025 2,000,000 1,775,000
Marshall County, West Virginia
Pollution Control Rev. Bonds
for Ohio Power Co. Project;
Series C; 6.85%; 6/1/2022 1,200,000 1,252,500
Series D; 5.90%; 4/1/2022 4,500,000 4,511,250
Pleasants County, West Virgina
Pollution Control Rev. Bonds
for Potomac Edison Co.;
6.15%; 5/1/2015 2,000,000 2,045,000
Putnam County, West Virginia
Pollution Control Rev. Bonds for
Appalachian Power Co. Project,
Series C; 6.60%; 7/1/2019 3,875,000 3,928,281
13,512,031
Wisconsin (2.85%)
Kaukauna, Wisconsin Pollution
Control Rev. Ref. Bonds for
International Paper Co. Project,
Series A; 5.40%; 5/1/2004 $3,610,000 $ 3,628,050
Wisconsin Health & Educational
Fac. Authority Rev. Bonds;
Series 1995; Franciscan Skemp
Medical Center, Inc.;
5.88%; 11/15/2010 1,000,000 1,017,500
6.13%; 11/15/2015 1,000,000 1,021,250
5,666,800
Total Long-Term Tax-Exempt Bonds 187,319,072
Other (3.37%)
Municipal Fund for Temporary Investment -
Munifund Provident Institutional Funds 6,700,000 6,700,000
Total Portfolio Investments (97.70%) 194,019,072
Cash, receivables and other assets,
net of liabilities (2.30%) 4,570,918
Total Net Assets (100.00%) $198,589,990
(a)Restricted security - See Note 4 to the financial statements.
FINANCIAL HIGHLIGHTS
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
<TABLE>
<CAPTION>
PRINCIPAL BOND FUND, INC.(a)
Class A shares 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $11.59 $11.44 $11.17 $11.42 $10.27
Income from Investment Operations:
Net Investment Income(b).............................. .70 .71 .75 .76 .78
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.91) .16 .33 (.25) 1.16
Total from Investment Operations .21 .87 1.08 .51 1.94
Less Dividends and Distributions:
Dividends from Net Investment Income.................. (.69) (.72) (.81) (.76) (.78)
Distributions from Capital Gains...................... -- -- -- -- (.01)
Excess Distributions from Capital Gains............... (.03) -- -- -- --
Total Dividends and Distributions (.72) (.72) (.81) (.76) (.79)
Net Asset Value, End of Period........................... $10.66 $11.59 $11.44 $11.17 $11.42
Total Return(c) ......................................... (1.92)% 7.76% 10.15% 4.74% 19.73%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $145,975 $148,081 $126,427 $113,437 $106,962
Ratio of Expenses to Average Net Assets(b)............ 1.04% .95% .95% .95% .94%
Ratio of Net Investment Income to
Average Net Assets.................................. 6.25% 6.19% 6.70% 6.85% 7.26%
Portfolio Turnover Rate............................... 48.9% 15.2% 12.8% 3.4% 5.1%
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL BOND FUND, INC.(a)
Class B shares 1999 1998 1997 1996 1995(d)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
et Asset Value, Beginning of Period..................... $11.58 $11.42 $11.15 $11.41 $10.19
Income from Investment Operations:
Net Investment Income(b).............................. .61 .63 .67 .67 .63
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.91) .16 .31 (.25) 1.19
Total from Investment Operations (.30) .79 .98 .42 1.82
Less Dividends and Distributions:
Dividends from Net Investment Income.................. (.60) (.63) (.71) (.68) (.60)
Excess Distributions from Capital Gains............... (.03) -- -- -- --
Total Dividends and Distributions (.63) (.63) (.71) (.68) (.60)
Net Asset Value, End of Period........................... $10.65 $11.58 $11.42 $11.15 $11.41
Total Return(c) ......................................... (2.68)% 7.04% 9.20% 3.91% 17.98%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $25,451 $22,466 $13,403 $7,976 $2,708
Ratio of Expenses to Average Net Assets(b)............ 1.79% 1.67% 1.70% 1.69% 1.59%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 5.50% 5.45% 5.92% 6.14% 6.30%(f)
Portfolio Turnover Rate............................... 48.9% 15.2% 12.8% 3.4% 5.1%(f)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL BOND FUND, INC.(a)
Class C shares 1999(g)
----
<S> <C>
Net Asset Value, Beginning of Period..................... $10.90
Income from Investment Operations:
Net Investment Income(b).............................. .20
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.24)
Total from Investment Operations (.04)
Less Dividends:
Dividends from Net Investment Income................ (.20)
Total Dividends (.20)
Net Asset Value, End of Period........................... $10.66
Total Return(c) ......................................... (.40)%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $271
Ratio of Expenses to Average Net Assets(b)............ 1.84%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 5.81%(f)
Portfolio Turnover Rate............................... 48.9%(f)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL BOND FUND, INC.(a)
Class R shares 1999 1998 1997 1996(h)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $11.59 $11.43 $11.16 $11.27
Income from Investment Operations:
Net Investment Income(b) ........................... .63 .63 .71 .51
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.90) .16 .30 (.13)
Total from Investment Operations (.27) .79 1.01 .38
Less Dividends and Distributions:
Dividends from Net Investment Income.................. (.62) (.63) (.74) (.49)
Excess Distributions from Capital Gains............... (.03) -- -- --
Total Dividends and Distributions (.65) (.63) (.74) (.49)
Net Asset Value, End of Period........................... $10.67 $11.59 $11.43 $11.16
Total Return(c) ......................................... (2.45)% 7.05% 9.49% 3.75%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $16,096 $12,196 $5,976 $525
Ratio of Expenses to Average Net Assets(b)............ 1.61% 1.45% 1.45% 1.28%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 5.68% 5.66% 6.11% 6.51%(f)
Portfolio Turnover Rate............................... 48.9% 15.2% 12.8% 3.4%(f)
</TABLE>
FINANCIAL HIGHLIGHTS (Continued)
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
<TABLE>
<CAPTION>
PRINCIPAL GOVERNMENT SECURITIES INCOME FUND, INC.(a)
Class A shares 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $11.63 $11.51 $11.26 $11.31 $10.28
Income from Investment Operations:
Net Investment Income................................. .69 .70 .70 .70 .71
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.52) .12 .29 (.05) 1.02
Total from Investment Operations .17 .82 .99 .65 1.73
Less Dividends:
Dividends from Net Investment Income.................. (.70) (.70) (.74) (.70) (.70)
Total Dividends (.70) (.70) (.74) (.70) (.70)
Net Asset Value, End of Period........................... $11.10 $11.63 $11.51 $11.26 $11.31
Total Return(c) ......................................... 1.47% 7.38% 9.23% 6.06% 17.46%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $237,811 $251,455 $249,832 $259,029 $261,128
Ratio of Expenses to Average Net Assets............... .89% .86% .84% .81% .87%
Ratio of Net Investment Income to
Average Net Assets.................................. 6.04% 6.07% 6.19% 6.31% 6.57%
Portfolio Turnover Rate............................... 19.4% 17.1% 10.8% 25.9% 10.1%
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL GOVERNMENT SECURITIES INCOME FUND, INC.(a)
Class B shares 1999 1998 1997 1996 1995(d)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $11.60 $11.50 $11.23 $11.29 $10.20
Income from Investment Operations:
Net Investment Income................................. .61 .62 .64 .61 .56
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.54) .12 .29 (.05) 1.07
Total from Investment Operations .07 .74 .93 .56 1.63
Less Dividends:
Dividends from Net Investment Income.................. (.62) (.64) (.66) (.62) (.54)
Total Dividends (.62) (.64) (.66) (.62) (.54)
Net Asset Value, End of Period........................... $11.05 $11.60 $11.50 $11.23 $11.29
Total Return(c) ......................................... 0.65% 6.60% 8.65% 5.17% 16.07%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $29,751 $24,370 $15,431 $11,586 $4,699
Ratio of Expenses to Average Net Assets............... 1.63% 1.57% 1.39% 1.60% 1.53%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 5.30% 5.43% 5.63% 5.53% 5.68%(f)
Portfolio Turnover Rate............................... 19.4% 17.1% 10.8% 25.9% 10.1%(f)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL GOVERNMENT SECURITIES INCOME FUND, INC.(a)
Class C shares 1999(g)
----
<S> <C>
Net Asset Value, Beginning of Period..................... $11.17
Income from Investment Operations:
Net Investment Income................................. .19
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.07)
Total from Investment Operations .12
Less Dividends:
Dividends from Net Investment Income.................. (.19)
Total Dividends (.19)
Net Asset Value, End of Period........................... $11.10
Total Return(c) ......................................... 1.11%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $332
Ratio of Expenses to Average Net Assets.................. 1.73%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 5.29%(f)
Portfolio Turnover Rate............................... 19.4%(f)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL GOVERNMENT SECURITIES INCOME FUND, INC.(a)
Class R shares 1999 1998 1997 1996(h)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $11.55 $11.42 $11.21 $11.27
Income from Investment Operations:
Net Investment Income................................. .61 .61 .64 .47
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.52) .13 .24 (.08)
Total from Investment Operations .09 .74 .88 .39
Less Dividends:
Dividends from Net Investment Income:................. (.61) (.61) (.67) (.45)
Total Dividends (.61) (.61) (.67) (.45)
Net Asset Value, End of Period........................... $11.03 $11.55 $11.42 $11.21
Total Return(c) ......................................... .78% 6.66% 8.19% 3.76%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $11,539 $8,156 $4,152 $481
Ratio of Expenses to Average Net Assets............... 1.53% 1.64% 1.79% 1.18%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 5.40% 5.39% 5.21% 5.84%(f)
Portfolio Turnover Rate............................... 19.4% 17.1% 10.8% 25.9%(f)
</TABLE>
FINANCIAL HIGHLIGHTS (Continued)
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as oted):
<TABLE>
<CAPTION>
PRINCIPAL HIGH YIELD FUND, INC.(a)
Class A shares 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $7.63 $8.52 $8.27 $8.06 $7.83
Income from Investment Operations:
Net Investment Income................................. .63 .64 .67 .68 .68
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.41) (.88) .31 .23 .20
Total from Investment Operations .22 (.24) .98 .91 .88
Less Dividends and Distributions:
Dividends from Net Investment Income.................. (.63) (.64) (.73) (.70) (.65)
Excess Distribution of Net Investment Income(i) (.01) (.01) -- -- --
Total Dividends and Distributions (.64) (.65) (.73) (.70) (.65)
Net Asset Value, End of Period........................... $7.21 $7.63 $8.52 $8.27 $8.06
Total Return(c) ......................................... 2.81% (3.18)% 12.33% 11.88% 11.73%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $30,065 $33,474 $38,239 $28,432 $23,396
Ratio of Expenses to Average Net Assets............... 1.31% 1.40% 1.22% 1.26% 1.45%
Ratio of Net Investment Income to
Average Net Assets.................................. 8.23% 7.71% 7.99% 8.49% 8.71%
Portfolio Turnover Rate............................... 86.1% 65.9% 39.2% 18.8% 40.3%
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL HIGH YIELD FUND, INC.(a)
Class B shares 1999 1998 1997 1996 1995(d)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $7.59 $8.47 $8.22 $8.05 $7.64
Income from Investment Operations:
Net Investment Income................................. .57 .57 .62 .60 .53
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.41) (.87) .28 .20 .38
Total from Investment Operations .16 (.30) .90 .80 .91
Less Dividends and Distributions:
Dividends from Net Investment Income.................. (.57) (.57) (.65) (.63) (.50)
Excess Distribution of Net Investment Income(i) (.01) (.01) -- -- --
Total Dividends and Distributions (.58) (.58) (.65) (.63) (.50)
Net Asset Value, End of Period........................... $7.17 $7.59 $8.47 $8.22 $8.05
Total Return(c) ......................................... 2.02% (3.93)% 11.31% 10.46% 12.20%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $7,467 $8,527 $6,558 $2,113 $633
Ratio of Expenses to Average Net Assets............... 1.99% 2.34% 2.13% 2.38% 2.10%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 7.55% 6.78% 7.03% 7.39% 7.78%(f)
Portfolio Turnover Rate............................... 86.1% 65.9% 39.2% 18.8% 40.3%(f)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL HIGH YIELD FUND, INC.(a)
Class C shares 1999(g)
----
<S> <C>
Net Asset Value, Beginning of Period..................... $7.48
Income from Investment Operations:
Net Investment Income................................. .18
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.25)
Total from Investment Operations (.07)
Less Dividends and Distributions:
Dividends from Net Investment Income.................. (.18)
Excess Distributions of Net Investment Income(i)...... (.01)
Total Dividends and Distributions (.19)
Net Asset Value, End of Period........................... $7.22
Total Return(c) ......................................... (.99)%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $182
Ratio of Expenses to Average Net Assets............... 2.01%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 7.15%(f)
Portfolio Turnover Rate............................... 86.1%(f)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL HIGH YIELD FUND, INC.(a)
Class R shares 1999 1998 1997 1996(h)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $7.51 $8.40 $8.20 $8.21
Income from Investment Operations:
Net Investment Income................................. .56 .57 .62 .46
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.40) (.87) .26 (.03)
Total from Investment Operations .16 (.30) .88 .43
Less Dividends and Distributions:
Dividends from Net Investment Income.................. (.56) (.58) (.68) (.44)
Excess Distribution of Net Investment Income(i) (.03) (.01) -- --
Total Dividends and Distributions (.59) (.59) (.68) (.44)
Net Asset Value, End of Period........................... $7.08 $7.51 $8.40 $8.20
Total Return(c) ......................................... 2.01% (3.97)% 11.14% 5.60%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $2,598 $2,734 $1,961 $124
Ratio of Expenses to Average Net Assets............... 2.09% 2.28% 2.42% 1.59%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 7.43% 6.84% 6.70% 7.84%(f)
Portfolio Turnover Rate............................... 86.1% 65.9% 39.2% 18.8%(f)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL LIMITED TERM BOND FUND, INC.(a)
Class A shares 1999 1998 1997 1996(j)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $9.93 $9.88 $9.89 $9.90
Income from Investment Operations:
Net Investment Income................................. .57 .57 .61 .38
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.39) .06 .03 (.04)
Total from Investment Operations .18 .63 .64 .34
Less Dividends:
Dividends from Net Investment Income.................. (.57) (.58) (.65) (.35)
Total Dividends (.57) (.58) (.65) (.35)
Net Asset Value, End of Period........................... $9.54 $9.93 $9.88 $9.89
Total Return(c) ......................................... 1.83% 6.57% 6.75% 3.62%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $27,096 $27,632 $20,567 $17,249
Ratio of Expenses to Average Net Assets(b)............ 1.00% .82% .90% .89%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 5.76% 5.86% 6.20% 6.01%(f)
Portfolio Turnover Rate............................... 20.9% 23.8% 17.4% 16.5%(f)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL LIMITED TERM BOND FUND, INC.(a)
Class B shares 1999 1998 1997 1996(j)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $9.98 $9.90 $9.89 $9.90
Income from Investment Operations:
Net Investment Income(b) ........................... .52 .54 .56 .36
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.39) .06 .04 (.05)
Total from Investment Operations .13 .60 .60 .31
Less Dividends:
Dividends from Net Investment Income.................. (.51) (.54) (.59) (.32)
Total Dividends (.51) (.54) (.59) (.32)
Net Asset Value, End of Period........................... $9.60 $9.98 $9.90 $9.89
Total Return(c) ......................................... 1.29% 6.24% 6.31% 3.32%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $2,696 $1,705 $625 $112
Ratio of Expenses to Average Net Assets(b)............ 1.35% 1.22% 1.24% 1.15%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 5.41% 5.44% 5.84% 5.75%(f)
Portfolio Turnover Rate............................... 20.9% 23.8% 17.4% 16.5%(f)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL LIMITED TERM BOND FUND, INC.(a)
Class C shares 1999(g)
----
<S> <C>
Net Asset Value, Beginning of Period..................... $9.64
Income from Investment Operations:
Net Investment Income................................. .16
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.08)
Total from Investment Operations .08
Less Dividends:
Dividends from Net Investment Income.................. (.16)
Total Dividends (.16)
Net Asset Value, End of Period........................... $9.56
Total Return(c) ......................................... .84(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $350
Ratio of Expenses to Average Net Assets............... 1.34%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 5.52%(f)
Portfolio Turnover Rate............................... 20.9%(f)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL LIMITED TERM BOND FUND, INC.(a)
Class R shares 1999 1998 1997 1996(h)
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $9.93 $9.85 $9.88 $9.90
Income from Investment Operations:
Net Investment Income(b) ........................... .50 .52 .54 .36
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.39) .07 .03 (.06)
Total from Investment Operations .11 .59 .57 .30
Less Dividends:
Dividends from Net Investment Income.................. (.49) (.51) (.60) (.32)
Total Dividends (.49) (.51) (.60) (.32)
Net Asset Value, End of Period........................... $9.55 $9.93 $9.85 $9.88
Total Return(c) ......................................... 1.13% 6.12% 6.01% 3.24%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $3,276 $2,034 $606 $83
Ratio of Expenses to Average Net Assets(b)............ 1.41% 1.44% 1.48% 1.40%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 5.35% 5.21% 5.60% 5.64%(f)
Portfolio Turnover Rate............................... 20.9% 23.8% 17.4% 16.5%(f)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL TAX-EXEMPT BOND FUND, INC.(a)
Class A shares 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $12.59 $12.38 $12.04 $11.98 $10.93
Income from Investment Operations:
Net Investment Income................................. .60 .60 .63 .64 .65
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.90) .22 .39 .07 1.05
Total from Investment Operations .30 .82 1.02 .71 1.70
Less Dividends and Distributions:
Dividends from Net Investment Income.................. (.59) (.61) (.68) (.65) (.65)
Distributions from Capital Gains...................... (.01) -- -- -- --
Total Dividends and Distributions (.60) (.61) (.68) (.65) (.65)
Net Asset Value, End of Period........................... $11.69 $12.59 $12.38 $12.04 $11.98
Total Return(c) ......................................... (2.51)% 6.76% 8.71% 6.08% 16.03%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $186,973 $204,865 $193,007 $187,180 $179,715
Ratio of Expenses to Average Net Assets............... .80% .83% .79% .78% .83%
Ratio of Net Investment Income to
Average Net Assets.................................. 4.84% 4.83% 5.14% 5.34% 5.67%
Portfolio Turnover Rate............................... 15.6% 6.6% 8.9% 9.8% 17.6%
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL TAX-EXEMPT BOND FUND, INC.(a)
Class B shares 1999 1998 1997 1996 1995(d)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $12.59 $12.39 $12.02 $11.96 $10.56
Income from Investment Operations:
Net Investment Income................................. .53 .53 .55 .55 .50
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.89) .20 .40 .06 1.38
Total from Investment Operations (.36) .73 .95 .61 1.88
Less Dividends and Distributions:
Dividends from Net Investment Income.................. (.52) (.53) (.58) (.55) (.48)
Distributions from Capital Gains...................... (.01) -- -- -- --
Total Dividends and Distributions (.53) (.53) (.58) (.55) (.48)
Net Asset Value, End of Period........................... $11.70 $12.59 $12.39 $12.02 $11.96
Total Return(c) ......................................... (3.01)% 6.01% 8.08% 5.23% 17.97%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $11,480 $11,419 $7,783 $5,794 $3,486
Ratio of Expenses to Average Net Assets............... 1.32% 1.43% 1.45% 1.52% 1.51%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 4.32% 4.22% 4.46% 4.59% 4.78%(f)
Portfolio Turnover Rate............................... 15.6% 6.6% 8.9% 9.8% 17.6%(f)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL TAX-EXEMPT BOND FUND, INC.(a)
Class C shares 1999(g)
----
<S> <C>
Net Asset Value, Beginning of Period..................... $12.16
Income from Investment Operations:
Net Investment Income................................. .16
Net Realized and Unrealized Gain (Loss)
on Investments...................................... (.47)
Total from Investment Operations (.31)
Less Dividends:
Dividends from Net Investment Income.................. (.16)
Total Dividends (.16)
Net Asset Value, End of Period........................... $11.69
Total Return(c) ......................................... (2.59)%(e)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $136
Ratio of Expenses to Average Net Assets............... 3.96%(f)
Ratio of Net Investment Income to
Average Net Assets.................................. 1.78%(f)
Portfolio Turnover Rate............................... 15.6%(f)
</TABLE>
Notes to Financial Highlights
(a) Effective January 1, 1998, the following changes were made to the names of
the Income Funds:
<TABLE>
<CAPTION>
Former Fund Name New Fund Name
<S> <C> <C>
Princor Bond Fund, Inc. Principal Bond Fund, Inc.
Princor Government Securites Income Fund, Inc. Principal Government Securities Income Fund, Inc.
Princor High Yield Fund, Inc. Principal High Yield Fund, Inc.
Princor Limited Term Bond Fund, Inc. Principal Limited Term Bond Fund, Inc.
Princor Tax-Exempt Bond Fund, Inc. Principal Tax-Exempt Bond Fund, Inc.
</TABLE>
(b) Without the Manager's voluntary waiver of a portion of certain of its
expenses (see Note 3 to the financial statements) for the periods
indicated, the following funds would have had per share net investment
income and the ratios of expenses to average net assets as shown:
<TABLE>
<CAPTION>
Year Ended
October 31, Per Share Ratio of Expenses
Except Net Investment to Average Net Amount
as Noted Income Assets Waived
<S> <C> <C> <C> <C> <C>
Principal Bond Fund, Inc.:*
Class A 1998 $.70 1.04% $121,092
1997 .74 .98 41,256
1996 .76 .97 22,536
1995 .77 1.02 86,018
Class B 1998 .62 1.81 26,130
1997 .66 1.79 8,982
1996 .67 1.79 5,874
1995(d) .62 1.62(f) 300
Class R 1998 .61 1.72 25,144
1997 .69 1.78 10,427
1996(h) .51 1.28(f) 3
Principal Limited Term Bond Fund, Inc.:
Class A 1999 .55 1.14 40,285
1998 .55 1.13 76,952
1997 .59 1.15 46,271
1996(j) .37 1.16(f) 22,716
Class B 1999 .47 1.92 14,004
1998 .47 2.36 11,537
1997 .46 3.82 6,528
1996(j) .34 1.94(f) 259
Class C 1999(g) .15 2.05(f) 488
Class R 1999 .46 2.02 11,951
1998 .46 2.22 11,781
1997 .43 2.95 6,831
1996(h) .35 1.79(f) 60
<FN>
* The Manager ceased its waiver of expenses for Principal Bond Fund, Inc. on October 31, 1998.
</FN>
</TABLE>
(c) Total return is calculated without the front-end sales charge or contingent
deferred sales charge.
(d) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995. Certain of the Income Funds' Class B
shares recognized net investment income as follows, for the period from the
initial purchase of Class B shares on December 5, 1994 through December 8,
1994, none of which was distributed to the sole shareholder, Principal
Management Corporation. Additionally, the Income Funds' Class B shares
incurred unrealized losses on investments during the initial interim period
as follows. This represents Class B share activities of each fund prior to
the initial public offering of Class B shares:
<TABLE>
<CAPTION>
Per Share Per Share
Net Investment Unrealized
Income (Loss)
<S> <C> <C>
Principal Bond Fund, Inc. $.01 $ --
Principal Government Securities Income Fund, Inc. .01 (.02)
Principal High Yield Fund, Inc. .01 (.03)
Principal Tax-Exempt Bond Fund, Inc. -- (.05)
</TABLE>
(e) Total return amounts have not been annualized.
(f) Computed on an annualized basis.
(g) Period from June 30, 1999, date Class C shares first offered to the public
and the date of the initial purchase of Class C shares by Principal Life
Insurance Company, through October 31, 1999.
(h) Period from February 29, 1996, date Class R shares first offered to
eligible purchasers, through October 31, 1996. The Income Funds' Class R
shares recognized no net investment income for the period from the initial
purchase by Principal Management Corporation of Class R shares on February
27, 1996 through February 28, 1996. Certain of the Income Funds' Class R
shares incurred unrealized losses on investments during the initial interim
period as follows. This represents Class R share activities of each fund
prior to the initial offering of Class R shares:
Per Share
Unrealized (Loss)
Principal Bond Fund, Inc. $(.03)
Principal Government Securities Income Fund, Inc. (.03)
Principal Limited Term Bond Fund, Inc. (.02)
(i) Dividends and distributions which exceed investment income and net realized
gains for financial reporting purposes but not for tax purposes are
reported as dividends in excess of net investment income or distributions
in excess of net realized gains on investments. To the extent distributions
exceed current and accumulated earnings and profits for federal income tax
purposes, they are reported as tax return of capital distributions.
(j) 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 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.
October 31, 1999
STATEMENT OF ASSETS AND LIABILITIES
Principal Cash
Management
MONEY MARKET FUND Fund, Inc.
Assets
Investment in securities -- at value
(approximates cost) (Note 1)........... $371,801,273
Cash...................................... 1,737,786
Receivables:
Interest .............................. 822,115
Capital Shares sold.................... 1,218,500
Other assets.............................. 23,489
Total Assets 375,603,163
Liabilities
Accrued expenses.......................... 293,935
Payables:
Capital Shares reacquired.............. 601,370
Total Liabilities 895,305
Net Assets Applicable to
Outstanding Shares........................ $374,707,858
Net Assets Consist of:
Capital Stock............................. $ 3,747,079
Additional paid-in capital................ 370,960,779
Total Net Assets $374,707,858
Capital Stock (par value: $.01 a share):
Shares authorized......................... 2,000,000,000
Net Asset Value Per Share:
Class A: Net Assets....................... $352,674,787
Shares issued and outstanding.... 352,674,787
Net asset value per share........ $1.000
Class B: Net Assets....................... $6,330,129
Shares issued and outstanding.... 6,330,129
Net asset value per share(a)..... $1.000
Class C: Net Assets....................... $131,884
Shares issued and outstanding.... 131,884
Net asset value per share(a)..... $1.000
Class R: Net Assets....................... $15,571,058
Shares issued and outstanding.... 15,571,058
Net asset value per share........ $1.000
(a)Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
See accompanying notes.
Year Ended October 31, 1999
STATEMENT OF OPERATIONS
Principal Cash
Management
MONEY MARKET FUND Fund, Inc.
Net Investment Income
Interest income......................... $18,028,128
Expenses:
Management and investment
advisory fees (Note 3)............ 1,526,404
Distribution and shareholder
servicing fees (Notes 1 and 3).... 77,539
Transfer and administrative
services (Notes 1 and 3).......... 788,303
Registration fees (Note 1)........... 94,429
Custodian fees....................... 6,832
Directors' fees...................... 8,041
Other................................ 18,921
Total Expenses 2,520,469
Net Investment Income $15,507,659
See accompanying notes.
<TABLE>
<CAPTION>
Years Ended October 31, Except as Noted
STATEMENTS OF CHANGES IN NET ASSETS
Principal Cash
Management
MONEY MARKET FUND Fund, Inc.
1999 1998
<S> <C> <C>
Operations
Net investment income .................. $ 15,507,659 $ 28,360,062
Dividends to Shareholders from Net
Investment Income:
Class A.............................. (14,771,870) (28,008,033)
Class B.............................. (179,184) (70,945)
Class C(a)........................... (1,121) N/A
Class R ............................. (555,484) (281,084)
Total Dividends (15,507,659) (28,360,062)
Capital Share Transactions (Note 4)
Shares sold:
Class A.............................. 717,610,854 2,363,859,504
Class B.............................. 10,129,211 5,040,642
Class C(a)........................... 131,662 N/A
Class R ............................. 20,194,531 11,918,726
Class A shares issued in connection with the
acquisition of Principal Tax-Exempt
Cash Management Fund, Inc. (Note 6).. 19,506,825 N/A
Shares issued in reinvestment of dividends:
Class A.............................. 14,313,193 26,466,497
Class B.............................. 170,825 66,630
Class C(a)........................... 222 N/A
Class R ............................. 536,604 273,695
Shares redeemed:
Class A.............................. (693,673,532) (2,931,480,148)
Class B.............................. (7,572,270) (2,497,006)
Class C(a)........................... -- N/A
Class R ............................. (15,573,852) (6,074,611)
Net Increase (Decrease) in Net Assets
from Capital Share Transactions 65,774,273 (532,426,071)
Total Increase (Decrease) 65,774,273 (532,426,071)
Net Assets
Beginning of year....................... 308,933,585 841,359,656
End of year............................. $374,707,858 $ 308,933,585
<FN>
(a)Period from June 30, 1999 through October 31, 1999.
</FN>
See accompanying notes.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
Principal Cash Management Fund, Inc.
Note 1 -- Significant Accounting Policies
Principal Cash Management Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as an open-end diversified
management investment company and operates in the mutual fund industry.
A significant portion of the shares issued by Principal Cash Management Fund,
Inc. Class A shares has been issued through Principal Financial Securities, Inc.
("PFS"), a previously affiliated broker-dealer. PFS was sold in January, 1998.
Subsequent to the sale, assets of PFS clients of approximately $536 million were
redeemed from Principal Cash Management Fund, Inc. Class A shares.
On June 30, 1999, the initial purchase of Class C shares of the Fund was made by
Principal Life Insurance Company (See Note 3). Effective June 30, 1999, the Fund
began offering Class C shares to the public.
Shares of the Fund are sold at net asset value; no sales charge applies to
purchases of the Fund. Certain purchases of Class A shares of the Fund may be
subject to a contingent deferred sales charge ("CDSC") if redeemed within
eighteen months of purchase. Class B shares are sold without an initial sales
charge, but are subject to a declining CDSC on certain redemptions made within
six years of purchase. Class C shares are sold without an initial sales charge,
but a subject to a CDSC on certain redemptions made within twelve months of
purchase. Class R shares are sold without an initial sales charge and are not
subject to a CDSC. Class B shares, Class C shares and Class R shares bear higher
ongoing distribution fees than Class A shares. Class B shares automatically
convert into Class A shares based on relative net asset value (without a sales
charge) seven years after purchase. Class C shares do not convert into Class A
shares. Class R shares automatically convert into Class A shares based on
relative net asset value (without a sales charge) four years after purchase. All
classes of shares in the 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 the Fund's Board of Directors. In addition,
the Board of Directors declares separate dividends on each class.
The Fund allocates 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. Principal Cash Management Fund, Inc. class-specific expenses charged
to each class during the period ended October 31, 1999, 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 C Class R Class A Class B Class C Class R Class A Class B Class C Class R
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
N/A $15,843 $371 $61,325 $171,597 $3,846 $250 $6,941 $44,628 $7,100 $-- $8,762
</TABLE>
The Fund values its 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 Fund records 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 Fund 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 Fund's cash balance to be deposited into a single joint
account along with the cash of other registered investment companies managed by
Principal Management Corporation (the "Manager"). These balances may be invested
in one or more short-term instruments.
The Fund declares 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, 1999 and 1998 were not material.
Dividends and distributions which exceed net investment income and net realized
capital gains for financial reporting purposes, but not for tax purposes, are
reported as dividends in excess of net investment income or distributions in
excess of net realized capital gains. To the extent distributions exceed current
and accumulated earnings and profits for federal income tax purposes, they are
reported as tax return of capital distributions.
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 Fund's investments are with various issuers in various industries. The
Schedule of Investments contained herein summarizes concentration of credit risk
by issuer and industry.
Note 2 -- Federal Income Taxes
No provision for federal income taxes is considered necessary because the 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 approximates that used for financial
reporting purposes.
Note 3 -- Management Agreement and Transactions With Affiliates
The Fund has agreed to pay investment advisory and management fees to Principal
Management Corporation (wholly owned by Princor Financial Services Corporation,
a subsidiary of Principal Financial Services, Inc.) computed at an annual
percentage rate of the Fund's average daily net assets. The annual rate used in
this calculation for the Fund is as follows:
<TABLE>
Net Asset Value of Funds
(in millions)
<CAPTION>
First Next Next Next Over
$100 $100 $100 $100 $400
<S> <C> <C> <C> <C> <C>
0.50% 0.45% 0.40% 0.35% 0.30%
</TABLE>
The Fund also reimburses 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, Class B and Class C share redemptions.
The charge is based on declining rates which for Class A shares begin at .75%,
Class B shares at 4.00%, and Class C shares at 1.00% 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, 1999, was $19,069 and $57,689 for Class A and Class B shares
of the fund, respectively.
No brokerage commissions were paid by the Fund to affiliated broker dealers
during the year ended October 31, 1999.
Note 3 -- Management Agreement and Transactions With Affiliates (Continued)
The Fund bears distribution and shareholder servicing fees with respect to each
Class computed at an annual rate of the average daily net assets attributable to
each Class of the Fund. The annual rate will not exceed the following limits:
<TABLE>
<CAPTION>
Class A Class B Class C Class R
<S> <C> <C> <C> <C>
Distribution and Shareholder Servicing fees N/A 1.00% 1.00% .75%
</TABLE>
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 for Class B and Class R shares,
fees that are unused by the principal underwriter at the end of the fiscal year
are returned to the Fund.
At October 31, 1999, Principal Life Insurance Company, subsidiaries of Principal
Life Insurance Company, benefit plans sponsored on behalf of Principal Life
Insurance Company and several joint ventures (in each of which a subsidiary of
Principal Life Insurance Company is a participant) owned Class A and Class C
shares of the Fund of 23,029,086 and 100,114, respectively.
Note 4 -- Capital Share Transactions
Transactions in Capital Shares were as follows:
<TABLE>
<CAPTION>
Principal Cash
Management
Fund, Inc.
Periods Ended October 31, 1999:
Shares sold:
<S> <C>
Class A ................................................ 717,610,854
Class B ............................................... 10,129,211
Class C ............................................... 131,662
Class R ................................................ 20,194,531
Shares issued in connection with the acquisition of Principal Tax-Exempt Cash
Management Fund, Inc. (Note 6):
Class A ................................................. 19,506,825
Class B ................................................. N/A
Class C ............................................... N/A
Class R ................................................ N/A
Shares issued in reinvestment of dividends:
Class A ............................................... 14,313,193
Class B ............................................... 170,825
Class C ............................................... 222
Class R ................................................ 536,604
Shares redeemed:
Class A ............................................... (693,673,532)
Class B ............................................... (7,572,270)
Class C ............................................... --
Class R ................................................ (15,573,852)
Net Increase 65,774,273
</TABLE>
<TABLE>
<CAPTION>
Principal Cash
Management
Fund, Inc.
Year Ended October 31, 1998:
Shares sold:
<S> <C>
Class A ................................................. 2,363,859,504
Class B ................................................ 5,040,642
Class R ................................................. 11,918,726
Shares issued in reinvestment of dividends:
Class A .................................................. 26,466,497
Class B .................................................. 66,630
Class R ................................................. 273,695
Shares redeemed:
Class A ................................................ (2,931,480,148)
Class B ................................................ (2,497,006)
Class R ................................................. (6,074,611)
Net Decrease (532,426,071)
</TABLE>
Note 5 -- Line of Credit
The Fund participates with other funds and portfolios managed by Principal
Management Corporation in an unsecured joint line of credit with two banks which
allow the funds to borrow up to $75,000,000 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 .09% on the average unused portion of the line of
credit. The commitment fee is allocated among the participating funds and
portfolios in proportion to their average net assets during each quarter. At
October 31, 1999, the Fund had no outstanding borrowings under the line of
credit.
Note 6 -- Acquisition of Principal Tax-Exempt Cash Management Fund, Inc.
On April 8, 1999, Principal Cash Management Fund, Inc. acquired all the assets
and assumed all the liabilities of Principal Tax-Exempt Cash Management Fund,
Inc. pursuant to a plan of acquisition approved by shareholders of Principal
Tax-Exempt Cash Management Fund, Inc. on April 7, 1999. The acquisition was
accomplished by a tax-free exchange of 19,506,825 Class A shares of Principal
Cash Management Fund, Inc. (valued at $19,506,825) for the 19,506,825 shares of
Principal Tax-Exempt Cash Management Fund, Inc. outstanding on April 8, 1999.
The aggregate net assets of Principal Cash Management Fund, Inc. and Principal
Tax-Exempt Cash Management Fund, Inc. immediately before the acquisition were
approximately $355,081,000 and $19,507,000, respectively.
SCHEDULE OF INVESTMENTS
PRINCIPAL CASH MANAGEMENT FUND, INC.
Principal
Amount Value
Commercial Paper (86.35%)
Asset-Backed Securities (13.96%)
CXC, INC.;
5.36%; 11/17/1999 $2,000,000 $ 1,995,235
5.35%; 11/19/1999 1,450,000 1,446,121
5.39%; 12/8/1999 4,000,000 3,977,841
6.03%; 1/26/2000 1,500,000 1,478,392
6.00%; 2/9/2000 1,500,000 1,475,000
Ciesco L.P.;
5.32%; 12/17/1999 3,000,000 2,979,607
Corporate Asset Funding Co.;
5.35%; 11/18/1999 5,000,000 4,987,368
5.35%; 11/23/1999 1,125,000 1,121,322
5.37%; 12/2/1999 3,500,000 3,483,815
5.35%; 12/8/1999 4,000,000 3,978,006
5.82%; 1/21/2000 2,000,000 1,973,810
Corporate Receivables Corp.;
5.35%; 11/1/1999 1,000,000 1,000,000
5.37%; 11/1/1999 625,000 625,000
5.38%; 11/8/1999 3,000,000 2,996,862
5.37%; 11/16/1999 3,200,000 3,192,840
5.35%; 11/17/1999 2,300,000 2,294,531
5.38%; 12/3/1999 4,200,000 4,179,915
5.39%; 12/14/1999 2,750,000 2,732,295
5.80%; 1/14/2000 2,400,000 2,371,387
6.00%; 1/28/2000 4,084,000 4,024,102
52,313,449
Business Credit Institutions (7.64%)
American Express Credit Corp.;
5.29%; 12/15/1999 850,000 844,504
5.31%; 12/16/1999 3,500,000 3,476,769
4.80%; 12/20/1999 1,250,000 1,241,833
CIT Group Holding, Inc.;
5.30%; 12/9/1999 875,000 870,105
5.30%; 12/13/1999 2,000,000 1,987,633
Deere (John) Credit Group PLC;
5.33%; 11/1/1999 1,525,000 1,525,000
5.33%; 11/5/1999 3,000,000 2,998,224
5.32%; 11/15/1999 3,850,000 3,842,035
5.32%; 12/15/1999 3,900,000 3,874,641
General Electric Capital Corp.;
4.78%; 11/5/1999 1,350,000 1,349,283
4.88%; 11/23/1999 675,000 672,987
4.92%; 11/23/1999 600,000 598,196
4.90%; 11/29/1999 475,000 473,190
4.82%; 12/10/1999 725,000 721,214
4.90%; 1/20/2000 2,000,000 1,978,222
5.08%; 2/18/2000 450,000 443,079
5.13%; 2/22/2000 525,000 516,546
5.20%; 2/25/2000 400,000 393,298
5.36%; 3/1/2000 375,000 368,244
5.38%; 4/3/2000 475,000 464,068
28,639,071
Commercial Banks (1.45%)
J.P. Morgan & Co., Inc.;
4.82%; 12/10/1999 $3,000,000 $ 2,984,335
5.48%; 3/6/2000 1,500,000 1,471,230
5.83%; 4/4/2000 1,000,000 974,899
5,430,464
Computer & Office Equipment (0.32%)
Xerox Credit Corp.;
5.11%; 3/21/2000 1,200,000 1,199,791
Crude Petroleum & Natural Gas (1.93%)
Chevron U.K. Investment PLC;
5.80%; 1/25/2000 1,500,000 1,479,458
5.80%; 2/2/2000 2,000,000 1,970,033
5.96%; 2/18/2000 1,200,000 1,178,345
5.79%; 3/2/2000 1,500,000 1,470,568
5.86%; 3/24/2000 1,150,000 1,123,044
7,221,448
Crushed & Broken Stone (0.87%)
Vulcan Materials Co.;
5.32%; 11/2/1999 2,500,000 2,499,630
5.35%; 11/2/1999 775,000 774,885
3,274,515
Cutlery, Handtools &
Hardware (0.55%)
Stanley Works;
5.32%; 11/9/1999 2,075,000 2,072,547
Department Stores (4.82%)
Sears Roebuck Acceptance Corp.;
5.33%; 11/3/1999 4,000,000 3,998,815
5.35%; 11/8/1999 5,000,000 4,994,799
5.33%; 11/9/1999 425,000 424,497
5.33%; 11/10/1999 2,675,000 2,671,435
5.36%; 11/22/1999 1,450,000 1,445,466
5.32%; 12/9/1999 575,000 571,771
5.36%; 12/9/1999 3,000,000 2,983,027
6.12%; 1/19/2000 1,000,000 986,570
18,076,380
Electric Services (2.57%)
Alliant Energy Corp.;
5.32%; 11/4/1999 5,225,000 5,222,684
5.33%; 11/12/1999 2,450,000 2,446,010
Teco Finance, Inc.;
5.85%; 2/10/2000 2,000,000 1,967,175
9,635,869
Federally & Federally Sponsored
Credit (0.93%)
Private Export Funding Corp.;
5.30%; 12/3/1999 1,500,000 1,492,933
5.30%; 12/10/1999 2,000,000 1,988,517
3,481,450
Foreign Banks, Branches &
Agencies (1.06%)
Deutsche Bank Financial, Inc.;
5.91%; 1/6/2000 2,000,000 1,978,330
6.06%; 1/18/2000 2,000,000 1,973,740
3,952,070
Insurance Agents, Brokers &
Services (0.39%)
Marsh & McLennan Cos.;
6.05%; 1/28/2000 $1,500,000 $ 1,477,817
Investment Offices (3.89%)
Morgan Stanley Group, Inc.;
6.03%; 1/7/2000 3,250,000 3,213,527
5.77%; 1/11/2000 3,500,000 3,460,171
5.77%; 1/12/2000 4,000,000 3,953,840
6.05%; 1/13/2000 2,000,000 1,975,463
6.10%; 1/13/2000 2,000,000 1,975,261
14,578,262
Life Insurance (6.20%)
American General Corp.;
5.33%; 12/14/1999 3,000,000 2,980,901
5.31%; 12/16/1999 2,000,000 1,986,725
Safeco Credit Co. Inc.;
5.38%; 11/2/1999 2,000,000 1,999,701
5.40%; 11/10/1999 4,300,000 4,294,195
5.41%; 11/15/1999 5,000,000 4,989,481
5.40%; 11/30/1999 3,200,000 3,186,080
5.42%; 12/7/1999 3,800,000 3,779,404
23,216,487
Miscellaneous Electrical Equipment &
Supplies (4.38%)
General Electric Co.;
4.81%; 11/12/1999 575,000 574,155
5.33%; 11/29/1999 5,000,000 4,979,272
5.34%; 12/21/1999 1,000,000 992,583
5.33%; 12/22/1999 3,000,000 2,977,347
5.34%; 12/23/1999 2,500,000 2,480,717
5.34%; 12/28/1999 2,500,000 2,478,863
Peacock Funding Corp.;
4.85%; 11/12/1999 1,500,000 1,497,777
5.56%; 2/1/2000 425,000 418,961
16,399,675
Miscellaneous Food & Kindred
Products (0.40%)
Cargill, Inc.;
5.40%; 1/20/2000 1,500,000 1,482,000
Miscellaneous Investing (2.99%)
Delaware Funding Corp.;
5.35%; 11/5/1999 1,993,000 1,991,815
5.38%; 11/9/1999 2,000,000 1,997,609
6.12%; 1/10/2000 2,000,000 1,976,200
5.87%; 1/18/2000 1,500,000 1,480,922
6.00%; 1/24/2000 1,500,000 1,479,000
6.05%; 1/24/2000 600,000 591,530
5.78%; 2/11/2000 1,200,000 1,180,348
5.82%; 2/22/2000 500,000 490,866
11,188,290
Miscellaneous Manufacturers (3.49%)
Dover Corp.;
5.33%; 11/3/1999 4,000,000 3,998,815
5.32%; 11/12/1999 3,000,000 2,995,123
5.32%; 11/17/1999 3,000,000 2,992,907
5.32%; 11/19/1999 2,000,000 1,994,680
5.32%; 12/2/1999 1,100,000 1,094,961
13,076,486
Miscellaneous Plastics
Products, NEC (0.53%)
Illinois Tool Works, Inc.;
5.32%; 11/16/1999 $2,000,000 $ 1,995,567
Mortgage Bankers & Brokers (4.05%)
Countrywide Home Loan, Inc.;
5.32%; 11/2/1999 3,000,000 2,999,557
5.35%; 11/9/1999 3,500,000 3,495,839
5.33%; 11/18/1999 3,700,000 3,690,687
5.38%; 11/24/1999 5,000,000 4,982,814
15,168,897
Motor Vehicles & Equipment (1.99%)
Paccar Financial Corp.;
5.31%; 12/6/1999 3,500,000 3,481,931
5.32%; 12/20/1999 4,000,000 3,971,036
7,452,967
Personal Credit Institutions (10.47%)
Associates Corp. of North America;
5.31%; 11/1/1999 2,975,000 2,975,000
Associates First Capital Corp.;
5.32%; 11/29/1999 2,000,000 1,991,724
5.35%; 12/1/1999 675,000 671,991
5.31%; 12/3/1999 900,000 895,752
5.31%; 12/13/1999 4,000,000 3,975,220
5.46%; 1/10/2000 1,450,000 1,434,606
5.35%; 4/14/2000 1,025,000 999,866
Comoloco, Inc.;
4.80%; 11/9/1999 1,100,000 1,098,827
4.82%; 11/16/1999 1,000,000 997,992
4.83%; 11/19/1999 1,000,000 997,585
4.87%; 11/19/1999 500,000 498,783
4.91%; 11/22/1999 400,000 398,854
4.85%; 12/3/1999 750,000 746,767
5.78%; 2/14/2000 2,000,000 1,966,283
5.21%; 3/3/2000 325,000 319,215
5.25%; 3/3/2000 390,000 383,004
5.30%; 3/3/2000 200,000 196,378
5.51%; 3/16/2000 500,000 489,592
5.28%; 3/17/2000 350,000 342,967
5.34%; 3/20/2000 650,000 636,502
5.41%; 3/24/2000 500,000 489,180
5.57%; 4/28/2000 750,000 729,229
5.78%; 7/7/2000 1,200,000 1,152,026
Ford Motor Credit Co.;
5.30%; 12/6/1999 2,000,000 1,989,694
5.30%; 12/7/1999 2,000,000 1,989,400
General Motors Acceptance Corp.;
5.33%; 11/22/1999 2,000,000 1,993,782
5.33%; 11/23/1999 3,000,000 2,990,228
5.29%; 12/9/1999 3,000,000 2,983,248
5.42%; 4/18/2000 750,000 730,917
Norwest Financial, Inc.;
5.30%; 11/22/1999 1,600,000 1,595,053
5.38%; 4/14/2000 600,000 585,205
39,244,870
Petroleum Refining (6.35%)
Equilon Enterprises LLC;
5.72%; 1/18/2000 $1,000,000 $ 987,607
5.73%; 1/18/2000 1,200,000 1,185,102
5.77%; 1/18/2000 1,000,000 987,498
5.73%; 1/19/2000 1,250,000 1,234,282
5.75%; 1/19/2000 1,685,000 1,663,739
5.74%; 1/21/2000 2,000,000 1,974,170
5.75%; 1/21/2000 1,375,000 1,357,211
5.72%; 1/24/2000 1,350,000 1,331,982
5.70%; 2/1/2000 1,275,000 1,256,428
5.72%; 2/11/2000 1,200,000 1,180,552
5.71%; 2/15/2000 2,000,000 1,966,374
5.71%; 2/23/2000 1,500,000 1,472,878
Motiva Enterprises LLC;
5.78%; 1/18/2000 2,050,000 2,024,327
5.71%; 1/24/2000 1,000,000 986,677
5.77%; 1/25/2000 1,000,000 986,376
5.76%; 2/4/2000 3,250,000 3,200,600
23,795,803
Pipelines, Except Natural Gas (0.47%)
Cortez Capital Corp.;
5.29%; 11/5/1999 1,775,000 1,773,957
Security Brokers & Dealers (4.65%)
Merrill Lynch & Co., Inc.;
5.30%; 11/23/1999 2,000,000 1,993,522
5.28%; 11/30/1999 3,000,000 2,987,240
5.28%; 12/1/1999 5,000,000 4,978,000
5.29%; 12/2/1999 2,425,000 2,413,953
5.34%; 12/6/1999 2,250,000 2,238,319
4.93%; 2/4/2000 1,350,000 1,332,437
4.94%; 2/4/2000 750,000 740,223
5.05%; 2/11/2000 750,000 739,269
17,422,963
Total Commercial Paper 323,571,095
Bonds (12.69%)
Beverages (0.17%)
PepsiCo, Inc.;
6.80%; 5/15/2000 500,000 502,763
5.88%; 6/1/2000 150,000 149,925
652,688
Business Credit Institutions (1.46%)
American Express Credit Corp.
Notes; 6.13%; 6/15/2000 $ 910,000 $ 912,272
Senior Notes; 6.50%; 8/1/2000 1,500,000 1,504,537
CIT Group Holdings, Inc.
Medium-Term Notes;
5.88%; 12/9/1999 435,000 435,283
6.80%; 4/17/2000 350,000 351,166
6.70%; 5/2/2000 500,000 502,906
Senior Notes; 6.20%; 10/20/2000 1,600,000 1,598,468
General Electric Capital Corp.
Notes; 5.60%; 1/14/2000 150,000 149,954
5,454,586
Commercial Banks (0.39%)
Norwest Corp.
Senior Notes; 6.75%; 5/12/2000 1,000,000 1,004,864
Norwest Financial Inc.
Notes; 5.13%; 4/15/2000 450,000 448,632
1,453,496
Computer & Office Equipment (0.34%)
Xerox Corp.
Debentures; 9.75%; 3/15/2000 1,255,000 1,272,746
Miscellaneous Chemical Products (0.08%)
EI DuPont de Nemours Co.
Debentures; 9.15%; 4/15/2000 300,000 305,098
Miscellaneous Equipment Rental &
Leasing (1.85%)
International Lease Finance Corp.
Notes;
6.13%; 11/1/1999 1,200,000 1,200,000
5.75%; 12/15/1999 2,760,000 2,761,935
6.65%; 4/1/2000 250,000 250,916
6.20%; 5/1/2000 1,575,000 1,578,257
7.00%; 5/15/2000 500,000 503,041
6.63%; 8/15/2000 650,000 652,597
6,946,746
Personal Credit Institutions (7.85%)
American General Finance Corp.
Notes;
7.25%; 4/15/2000 776,000 782,430
5.88%; 7/1/2000 700,000 700,109
Senior Notes; 6.13%; 9/15/2000 250,000 249,876
Associates Corp. of North America
Notes;
8.25%; 12/1/1999 1,230,000 1,233,027
6.00%; 3/15/2000 2,170,000 2,175,044
5.25%; 3/30/2000 835,000 833,761
Senior Notes;
9.13%; 4/1/2000 500,000 506,957
6.00%; 6/15/2000 2,110,000 2,113,321
6.38%; 6/15/2000 300,000 301,069
6.25%; 9/15/2000 200,000 199,991
Avco Financial Services, Inc.
Senior Notes;
6.35%; 10/26/1999 $ 500,000 $ 500,000
5.50%; 4/1/2000 899,000 898,858
Commercial Credit Co.
Notes;
6.00%; 4/15/2000 1,100,000 1,101,509
6.75%; 5/15/2000 500,000 502,744
5.75%; 7/15/2000 480,000 479,093
Ford Motor Credit Co.
Debentures; 9.50%; 4/15/2000 275,000 280,097
Notes;
8.38%; 1/15/2000 739,000 743,551
6.38%; 4/15/2000 2,225,000 2,231,523
6.85%; 8/15/2000 3,415,000 3,434,947
6.38%; 10/6/2000 425,000 425,280
General Motors Acceptance Corp.
Debentures; 9.63%; 5/15/2000 1,450,000 1,479,522
Notes;
7.00%; 3/1/2000 1,940,000 1,950,559
9.38%; 4/1/2000 560,000 569,127
Household Finance Corp.
Senior Notes;
6.00%; 5/8/2000 1,800,000 1,800,428
6.38%; 6/30/2000 1,320,000 1,324,828
Norwest Corp.
Senior Notes; 7.13%; 4/1/2000 500,000 502,747
Norwest Financial, Inc.
Notes;
6.05%; 11/19/1999 1,500,000 1,500,660
7.25%; 3/15/2000 170,000 171,109
Senior Notes; 6.88%; 6/15/2000 439,000 441,646
29,433,813
Security Brokers & Dealers (0.55%)
Bear Stearns Cos., Inc.
Senior Notes; 6.75%; 8/15/2000 1,300,000 1,306,204
Merrill Lynch & Co.
Notes; 8.38%; 2/9/2000 735,000 740,844
2,047,048
Total Bonds 47,566,221
Private Export Funding Corporation (PEFCO)
Certificates (0.18%)
Private Export Funding Corp.
Secured Notes; 9.45%; 12/31/1999 660,000 663,957
Total Portfolio Investments (99.22%) 371,801,273
Cash, receivables and other assets,
net of liabilities (0.78%) 2,906,585
Total Net Assets (100.00%) $374,707,858
FINANCIAL HIGHLIGHTS
Selected data for a share of Capital Stock outstanding throughout each year
ended October 31 (except as noted):
<TABLE>
<CAPTION>
PRINCIPAL CASH MANAGEMENT FUND, INC.(a)
Class A shares 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................... $1.000 $1.000 $1.000 $1.000 $1.000
Income from Investment Operations:
Net Investment Income(b) ............................ .045 .051 .050 .049 .052
Total from Investment Operations .045 .051 .050 .049 .052
Less Dividends:
Dividends From Net Investment Income................. (.045) (.051) (.050) (.049) (.052)
Total Dividends (.045) (.051) (.050) (.049) (.052)
Net Asset Value, End of Period.......................... $1.000 $1.000 $1.000 $1.000 $1.000
Total Return(c) ........................................ 4.56% 5.10% 4.96% 5.00% 5.36%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $352,675 $294,918 $836,072 $694,962 $623,864
Ratio of Expenses to Average Net Assets(b) .......... .69% .56%(d) .63% .66% .72%
Ratio of Net Investment Income to
Average Net Assets................................. 4.45% 5.12% 4.98% 4.88% 5.24%
PRINCIPAL CASH MANAGEMENT FUND, INC.(a)
Class B shares 1999 1998 1997 1996 1995(e)
Net Asset Value, Beginning of Period.................... $1.000 $1.000 $1.000 $1.000 $1.000
Income from Investment Operations:
Net Investment Income(b) ............................ .039 .042 .041 .041 .041
Total from Investment Operations .039 .042 .041 .041 .041
Less Dividends:
Dividends from Net Investment Income................. (.039) (.042) (.041) (.041) (.041)
Total Dividends (.039) (.042) (.041) (.041) (.041)
Net Asset Value, End of Period.......................... $1.000 $1.000 $1.000 $1.000 $1.000
Total Return(c) ........................................ 4.00% 4.25% 4.05% 4.13% 4.19%(f)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $6,330 $3,602 $992 $520 $208
Ratio of Expenses to Average Net Assets(b) .......... 1.14% 1.41%(d) 1.47% 1.50% 1.42%(g)
Ratio of Net Investment Income to
Average Net Assets................................. 4.00% 4.23% 4.08% 4.08% 4.50%(g)
</TABLE>
PRINCIPAL CASH MANAGEMENT FUND, INC.(a)
Class C shares 1999(h)
Net Asset Value, Beginning of Period.................... $1.000
Income from Investment Operations:
Net Investment Income .............................. .010
Total from Investment Operations .010
Less Dividends:
Dividends from Net Investment Income................. (.010)
Total Dividends (.010)
Net Asset Value, End of Period.......................... $1.000
Total Return(c) ........................................ 1.01%(f)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $132
Ratio of Expenses to Average Net Assets ........2.26% (g)
Ratio of Net Investment Income to
Average Net Assets................................. 3.01%(g)
<TABLE>
<CAPTION>
PRINCIPAL CASH MANAGEMENT FUND, INC.(a)
Class R shares 1999 1998 1997 1996(i)
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................... $1.000 $1.000 $1.000 $1.000
Income from Investment Operations:
Net Investment Income(b) ............................ .040 .046 .044 .030
Total from Investment Operations .040 .046 .044 .030
Less Dividends:
Dividends from Net Investment Income................. (.040) (.046) (.044) (.030)
Total Dividends (.040) (.046) (.044) (.030)
Net Asset Value, End of Period.......................... $1.000 $1.000 $1.000 $1.000
Total Return(c) ........................................ 4.04% 4.56% 4.16% 2.97%(f)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............. $15,571 $10,414 $4,296 $1,639
Ratio of Expenses to Average Net Assets(b) .......... 1.15% 1.05%(d) 1.26% .99%(g)
Ratio of Net Investment Income to
Average Net Assets................................. 3.99% 4.62% 4.40% 4.41%(g)
</TABLE>
Notes to Financial Highlights
(a) Effective January 1, 1998, the following change was made to the name of the
Money Market Fund:
Former Fund Name New Fund Name
Princor Cash Management Fund, Inc. Principal Cash Management Fund, Inc.
(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 Fund would have had per share net investment income and the
ratios of expenses to average net assets as shown:
<TABLE>
<CAPTION>
Year Ended Ratio of
October 31, Per Share Expenses
Except Net Investment to Average Amount
as Noted Income Net Assets Waived
<S> <C> <C> <C> <C>
Class A 1998 $.051 .56% $ -- (d)
1997 .050 .63 --
1996 .049 .67 7,102
1995 .052 .78 296,255
Class B 1998 .041 1.49 1,343(d)
1997 .036 2.14 5,492
1996 .029 3.94 6,140
1995(e) .041 1.63(g) 104
Class R 1998 .046 1.05 -- (d)
1997 .043 1.34 2,441
1996(i) .030 .99 --
</TABLE>
The Manager ceased its waiver of expenses for Principal Cash Management
Fund, Inc. on March 1, 1998.
(c) Total return is calculated without the front-end sales charge or contingent
deferred sales charge.
(d) Management fee waivers apply to November 1, 1997 through February 28, 1998.
(e) Period from December 9, 1994, date Class B shares first offered to the
public, through October 31, 1995.
(f) Total return amounts have not been annualized.
(g) Computed on an annualized basis.
(h) Period from June 30, 1999, date Class C shares first offered to the public
and the date of the initial purchase of Class C shares by Principal Life
Insurance Company, through October 31, 1999.
(i) Period from February 29, 1996, date Class R shares first offered to eligible
purchasers, through October 31, 1996.
The Boards of Directors and Shareholders
Principal Balanced Fund, Inc.
Principal Blue Chip Fund, Inc.
Principal Capital Value Fund, Inc.
Principal Growth Fund, Inc.
Principal MidCap Fund, Inc.
Principal Real Estate Fund, Inc.
Principal SmallCap Fund, Inc.
Principal Utilities Fund, Inc.
Principal International Emerging Markets Fund, Inc.
Principal International Fund, Inc.
Principal International SmallCap Fund, Inc.
Principal Bond Fund, Inc.
Principal Government Securities Income Fund, Inc.
Principal High Yield Fund, Inc.
Principal Limited Term Bond Fund, Inc.
Principal Tax-Exempt Bond Fund, Inc.
Principal Cash Management Fund, Inc.
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of The Principal Domestic Growth Funds
(comprising, respectively, Principal Balanced Fund, Inc., Principal Blue Chip
Fund, Inc., Principal Capital Value Fund, Inc., Principal Growth Fund, Inc.,
Principal MidCap Fund, Inc., Principal Real Estate Fund, Inc., Principal
SmallCap Fund, Inc. and Principal Utilities Fund, Inc.), The Principal
International Growth Funds (comprising, respectively, Principal International
Emerging Markets Fund, Inc., Principal International Fund, Inc. and Principal
International SmallCap Fund, Inc.), The Principal Income Funds (comprising,
respectively, Principal Bond Fund, Inc., Principal Government Securities Income
Fund, Inc., Principal High Yield Fund, Inc., Principal Limited Term Bond Fund,
Inc. and Principal Tax-Exempt Bond Fund, Inc.) and The Principal Money Market
Fund (Principal Cash Management Fund, Inc.) as of October 31, 1999, and the
related statements of operations, statements of changes in net assets and
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, 1999, by correspondence with the custodians
and brokers. As to securities relating to uncompleted transactions, we performed
other audit procedures. 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 Principal Domestic Growth Funds, The
Principal International Growth Funds, The Principal Income Funds and The
Principal Money Market Fund at October 31, 1999, 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.
Des Moines, Iowa
November 24, 1999
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>
Periods Ended October 31, 1999
<CAPTION>
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
Principal Balanced Fund, Inc.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A Shares 12/22/98 $.1140 27.04% 12/04/98 $.4535
3/24/99 .1140 28.47%
6/24/99 .1050 27.92%
9/24/99 .1000 26.52%
$.4330 $.4535 $.8865
B Shares 12/22/98 $.0831 27.04% 12/04/98 $.4535
3/24/99 .0869 28.47%
6/24/99 .0765 27.92%
9/24/99 .0712 26.52%
$.3177 $.4535 $.7712
C Shares**** 9/24/99 $.0653 26.52%
$.0653 $.0653
R Shares 12/22/98 $.0896 27.04% 12/04/98 $.4535
3/24/99 .0925 28.47%
6/24/99 .0828 27.92%
9/24/99 .0778 26.52%
$.3427 $.4535 $.7962
Principal Blue Chip Fund, Inc.
A Shares 12/24/98 $.0511 89.67% 12/04/98 $.0018 $.0024
3/24/99 .0375 89.63%
6/24/99 .0375 84.10%
9/24/99 .0100 86.85%
$.1361 $.0042 $.1403
B Shares 12/24/98 $.0113 89.67% 12/04/98 $.0018 $.0024
3/24/99 -- --
6/24/99 -- --
9/24/99 -- --
$.0113 $.0042 $.0155
R Shares 12/24/98 $.0204 89.67% 12/04/98 $.0024 $.0024
3/24/99 .0063 89.63%
6/24/99 .0031 84.10%
9/24/99 -- --
$.0298 $.0042 $.0340
Principal Capital Value Fund, Inc.
A Shares 12/24/98 $.2547 91.53% 12/04/98 $1.8666 $.0847
6/24/99 .2525 96.70%
$.5072 $1.9513 $2.4585
B Shares 12/24/98 $.1384 91.53% 12/04/98 $1.8666 $.0847
6/24/99 .1356 96.70%
$.2740 $1.9513 $2.2253
R Shares 12/24/98 $.1395 91.53% 12/04/98 $1.8666 $.0847
6/24/99 .1445 96.70%
$.2840 $1.9513 $2.2353
Principal Growth Fund, Inc.
A Shares 12/24/98 $.1755 67.60%
6/24/99 .1200 89.18%
$.2955 $.2955
B Shares 12/24/98 $.0266 67.60%
6/24/99 -- --
$.0266 $.0266
Principal International Fund, Inc.
A Shares 12/24/98 $.1140 12/04/98 $.4555 --
$.1140 $.4555 $.5695
B Shares 12/24/98 $.0521 12/04/98 $.455 --
$.0521 $.4555 $.5076
R Shares 12/24/98 $.0412 12/04/98 $.4555 --
$.0412 $.4555 $.4967
Principal International SmallCap Fund, Inc.
A Shares 12/04/98 $.0777 --
$.0777 $.0777
B Shares 12/04/98 $.0777 --
$.0777 $.0777
R Shares 12/04/98 $.0777 --
$.0777 $.0777
</TABLE>
Foreign Taxes Paid
Principal International 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, 1999 totals $0.0262 per share for
Principal International Fund, Inc. 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.
<TABLE>
Periods Ended October 31, 1999
<CAPTION>
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
Principal Real Estate Fund, Inc.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A Shares 12/24/98 $.0900
3/24/99 .0725
6/24/99 .0650
9/24/99 .0750
$.3025 $.3025
B Shares 12/24/98 $.0823
3/24/99 .0572
6/24/99 .0502
9/24/99 .0622
$.2519 $.2519
C Shares**** 9/24/99 $.0567
$.0567 $.0567
R Shares 12/24/98 $.0916
3/24/99 .0674
6/24/99 .0655
9/24/99 .0715
$.2960 $.2960
Principal Utilities Fund, Inc.
A Shares 12/24/98 $.0900 97.94% 12/04/98 $.2328 $.0056
3/24/99 .0900 99.52%
6/24/99 .0850 96.38%
9/24/99 .0800 95.33%
$.3450 $.2384 $.5834
B Shares 12/24/98 $.0580 97.94% 12/04/98 $.2328 $.0056
3/24/99 .0580 99.52%
6/24/99 .0528 96.38%
9/24/99 .0494 95.33%
$.2182 $.2384 $.4566
C Shares**** 9/24/99 $.0434 95.33%
$.0434 $.0434
R Shares 12/24/98 $.0591 97.94% 12/04/98 $.2328 $.0056
3/24/99 .0591 99.52%
6/24/99 .0532 96.38%
9/24/99 .0515 95.33%
$.2229 $.2384 $.4613
<FN>
* Percent qualifying for deduction by shareholders who are corporations.
** Taxable as long-term capital gain.
*** Taxable at ordinary income rates.
**** Dividends declared for period from June 30, 1999, date Class C shares first
offered to the public and the date of the initial purchase of Class C
shares by Principal Life Insurance Company, through October 31, 1999.
</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>
Per Share Dividends/Payable Date
<CAPTION>
Fund 11/24/98 12/22/98 1/22/99 2/24/99 3/24/99 4/23/99 5/24/99 6/24/99 7/23/99 8/24/99 9/24/9910/22/99
Principal Bond Fund, Inc.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $.0575 $.0575 $.0575 $.0575 $.0562 $.0562 $.0562 $.0562 $.0575 $.0575 $.0575 $.0575
Class B .0502 .0502 .0502 .0502 .0491 .0491 .0491 .0491 .0504 .0504 .0504 .0504
Class C* -- -- -- -- -- -- -- -- .0492 .0492 .0492 .0492
Class R .0509 .0509 .0509 .0509 .0506 .0506 .0506 .0506 .0520 .0520 .0520 .0520
Principal Government
Securities Income
Fund, Inc.
Class A .0588 .0588 .0588 .0588 .0588 .0588 .0575 .0575 .0575 .0575 .0562 .0562
Class B .0535 .0535 .0535 .0535 .0535 .0535 .0507 .0507 .0507 .0507 .0496 .0496
Class C* -- -- -- -- -- -- -- -- .0491 .0491 .0469 .0469
Class R .0510 .0510 .0510 .0510 .0510 .0510 .0503 .0503 .0503 .0503 .0499 .0499
Principal High Yield
Fund, Inc.
Class A .0513 .0525 .0525 .0525 .0538 .0538 .0538 .0538 .0538 .0538 .0538 .0538
Class B .0456 .0473 .0473 .0473 .0490 .0490 .0490 .0490 .0490 .0490 .0490 .0490
Class C* -- -- -- -- -- -- -- -- .0469 .0469 .0469 .0469
Class R .0456 .0481 .0481 .0481 .0497 .0497 .0497 .0497 .0497 .0497 .0497 .0497
Principal Limited Term Bond
Fund, Inc.
Class A .0450 .0475 .0475 .0475 .0475 .0475 .0475 .0475 .0475 .0475 .0475 .0475
Class B .0401 .0424 .0424 .0424 .0424 .0424 .0424 .0424 .0424 .0424 .0424 .0424
Class C* -- -- -- -- -- -- -- -- .0399 .0399 .0399 .0399
Class R .0390 .0410 .0410 .0410 .0410 .0410 .0410 .0410 .0410 .0410 .0410 .0410
Principal Tax-Exempt Bond
Fund, Inc.**
Class A .0500 .0500 .0500 .0500 .0500 .0500 .0500 .0500 .0487 .0487 .0487 .0487
Class B .0437 .0437 .0437 .0437 .0437 .0437 .0437 .0437 .0430 .0430 .0430 .0430
Class C* -- -- -- -- -- -- -- -- .0392 .0392 .0392 .0392
</TABLE>
Capital Gain Distributions
Principal Bond Fund, Inc. Class A, B, and R shares paid long-term capital gain
distributions of $.0329, and Principal Tax-Exempt Bond Fund, Inc. Class A and B
shares paid long-term capital gain distributions of $.005 per share on December
4, 1998.
* Dividends declared for period from June 30, 1999, date Class C shares
first offered to the public and the date of the initial purchase of
Class C shares by Principal Life Insurance Company, through October
31, 1999.
** Dividends from the Principal Tax-Exempt Bond Fund, Inc. were exempt
from federal income taxation for non-corporate shareholders.
FEDERAL INCOME TAX INFORMATION (Continued)
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 Fund paid the following per share income dividends on the dates indicated:
<TABLE>
Per Share Dividends/Payable Date
<CAPTION>
Fund 11/20/98 12/18/98 1/20/99 2/19/99 3/19/99 4/20/99 5/20/99 6/18/99 7/20/99 8/20/99 9/20/9910/20/99
Principal Cash Management
Fund, Inc.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $.0040 $.0035 $.0044 $.0036 $.0033 $.0039 $.0034 $.0032 $.0036 $.0036 $.0038 $.0039
Class B .0035 .0031 .0036 .0032 .0029 .0034 .0030 .0028 .0032 .0033 .0036 .0037
Class C* -- -- -- -- -- -- -- -- .0015 .0023 .0025 .0027
Class R .0037 .0033 .0038 .0034 .0030 .0035 .0031 .0029 .0033 .0033 .0034 .0035
</TABLE>
* Dividends declared for period from June 30, 1999, date Class C shares first
offered to the public and the date of the initial purchase of Class C
shares by Principal Life Insurance Company, through October 31, 1999.
PRINCIPAL MUTUAL FUNDS
The Principal Mutual Funds provide a choice of investment objectives through
Domestic Growth Funds, International Growth Funds, Income Funds and a Money
Market Fund. More complete information about any of the Funds, including charges
and expenses, is provided in the Funds' prospectus. A free copy is available
from Princor Financial Services Corporation, The Principal Financial Group, Des
Moines, Iowa 50392-0200 (telephone 1-800-247-4123).
Please read it carefully before you invest or send money.
INVESTMENT OBJECTIVE
DOMESTIC GROWTH FUNDS
Principal Balanced Fund To seek the generation of a total
return consisting of current income and capital
appreciation while assuming reasonable risks in
furtherance of this objective.
Principal Blue Chip Fund To seek growth of capital and
growth of income by investing primarily in
common stocks of well capitalized, established
companies.
Principal Capital Value Fund To seek long-term capital
appreciation and a secondary objective of
growth of investment income.
Principal Growth Fund To seek growth of capital with
realization of current income incidental to the
objective of growth of capital.
Principal MidCap Fund To seek capital appreciation by
investing primarily in securities of emerging
and other growth-oriented companies.
Principal Real Estate Fund To seek the generation of
total return by investing primarily in equity
securities of companies principally engaged in
the real estate industry.
Principal SmallCap Fund To seek long-term growth of
capital by investing primarily in equity
securities of companies with comparatively
smaller market capitalizations.
Principal Utilities Fund To seek current income and
long-term growth of income and capital by
investing primarily in equity and fixed income
securities of companies in the public utilities
industry.
INTERNATIONAL GROWTH FUNDS
Principal International To seek long-term growth of capital by
Emerging Markets Fund investing primarily in equity securities
of issuers in emerging market
countries.
Principal International Fund To seek long-term growth of
capital by investing in a portfolio of equity
securities of companies domiciled in any of the
nations of the world.
Principal International To seek long-term growth of capital by
SmallCap Fund investing primarily in equity securities
of non-United States companies
with comparatively smaller market
capitalizations.
INCOME FUNDS
Principal Bond Fund To seek as high a level of income as
is consistent with preservation of capital and
prudent investment risk.
Principal Government To seek a high level of current income,
Securities Income Fund liquidity and safety of principal.
Principal High Yield Fund To seek high current income.
Capital growth is a secondary objective when
consistent with seeking high current income.
Principal Limited Term To seek a high level of current
Bond Fund income consistent with a relatively high level
of principal stability by investing
in a portfolio of securities with a dollar
weighted average maturity of five years or
less.
Principal Tax-Exempt To seek as high a level of current
Bond Fund income exempt from federal taxation as is
consistent with preservation of capital.
MONEY MARKET FUND
Principal Cash To seek as high a level of current income
Management Fund available from short-term securities as is
considered consistent with
preservation of principal and maintenance
of liquidity by investing in a portfolio of
money market instruments.
