0012-0123485
Report of Independent Auditors
The Board of Directors and Shareholders
Principal Balanced Fund, Inc.
In planning and performing our audit of the financial statements of Principal
Balanced Fund, Inc. for the year ended October 31, 2000, we considered its
internal control, including control activities for safeguarding securities, to
determine our auditing procedures for the purpose of expressing our opinion on
the financial statements and to comply with the requirements of Form N-SAR, and
not to provide assurance on internal control.
The management of Principal Balanced Fund, Inc. is responsible for establishing
and maintaining internal control. In fulfilling this responsibility, estimates
and judgments by management are required to assess the expected benefits and
related costs of internal control. Generally, internal controls that are
relevant to an audit pertain to the entity's objective of preparing financial
statements for external purposes that are fairly presented in conformity with
accounting principles generally accepted in the United States. Those internal
controls include the safeguarding of assets against unauthorized acquisition,
use or disposition.
Because of inherent limitations in internal control, misstatements due to errors
or fraud may occur and not be detected. Also, projections of any evaluation of
internal control to future periods are subject to the risk that internal control
may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Our consideration of internal control would not necessarily disclose all matters
in internal control that might be material weaknesses under standards
established by the American Institute of Certified Public Accountants. A
material weakness is a condition in which the design or operation of one or more
of the specific internal control components does not reduce to a relatively low
level the risk that errors or fraud in amounts that would be material in
relation to the financial statements being audited may occur and not be detected
within a timely period by employees in the normal course of performing their
assigned functions. However, we noted no matters involving internal control,
including control activities for safeguarding securities, and its operation that
we consider to be material weaknesses as defined above as of October 31, 2000.
This report is intended solely for the information and use of the Board of
Directors and management of Principal Balanced Fund, Inc. and the Securities and
Exchange Commission and is not intended to be and should not be used by anyone
other than these specified parties.
Des Moines, Iowa
November 22, 2000
