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SIGNATURE A S FILEAN
TITLE VICE PRES/SECRETARY
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 119061278
<INVESTMENTS-AT-VALUE> 132685999
<RECEIVABLES> 1213889
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</TABLE>
Report of Independent Auditors on Internal Control
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 December 31, 1997, we considered its
internal control, including control activities for safeguarding securities, in
order to determine our auditing procedures for the purpose of expressing our
opinion on the financial statements and to comply with the requirements of Form
N-SAR, not to provide assurance on internal control.
The management of Principal 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. Generally, controls that are relevant to an audit pertain to the
entity's objective of preparing financial statements for external purposes that
are fairly presented in conformity with generally accepted accounting
principles. These controls include the safeguarding of assets against
unauthorized acquisition, use or disposition.
Because of inherent limitations in internal control, errors or irregularities
may occur and not be detected. Also, projection of any evaluation of internal
control to future periods is subject to the risk that it may become inadequate
because of changes in conditions or that the effectiveness of the design and
operation may deteriorate.
Our consideration of internal control would not necessarily disclose all matters
in internal control that might be material weaknesses under standards
established by the American Institute of Certified Public Accountants. A
material weakness is a condition in which the design or operation of specific
internal control components does not reduce to a relatively low level the risk
that errors or irregularities in amounts that would be material in relation to
the financial statements being audited may occur and not be detected within a
timely period by employees in the normal course of performing their assigned
functions. However, we noted no matters involving internal control, including
control activities for safeguarding securities, that we consider to be material
weaknesses as defined above as of December 31, 1997.
This report is intended solely for the information and use of management and the
Board of Directors of Principal Balanced Fund, Inc. and the Securities and
Exchange Commission.
/S/ ERNST & YOUNG LLP
Des Moines, Iowa
January 16, 1998
SPECIAL MEETING OF SHAREHOLDERS PRINCIPAL BALANCED FUND, INC.
HELD SEPTEMBER 16, 1997
1. Election of the Board of Directors.
For Withheld
Davis 7,031,051 180,927
Ehrle 7,019,402 192,575
Ferguson 7,041,259 170,718
Gilbert 7,044,287 167,691
Griswell 7,042,899 169,079
Jones 7,042,104 169,874
Keller 7,023,408 188,570
Lukavsky 7,037,630 174,348
Peebler 7,031,391 180,587
2. Ratification of selection of Ernst & Young LLP as independent public
auditors.
In Favor Opposed Abstain
7,005,644 48,697 157,637
3. Approval of change of fund structure. Name changed to Principal Variable
Contract Fund, Inc. Balanced Account effective 1/1/98.
In Favor Opposed Abstain
6,760,251 123,654 328,072
