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<PAGE> PAGE 2
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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> 76521903
<INVESTMENTS-AT-VALUE> 80200282
<RECEIVABLES> 1737760
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 20000
<TOTAL-ASSETS> 81958042
<PAYABLE-FOR-SECURITIES> 0
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<OVERDISTRIBUTION-NII> 0
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<OVERDISTRIBUTION-GAINS> 0
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<EQUALIZATION> 0
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<NUMBER-OF-SHARES-REDEEMED> (839651)
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<ACCUMULATED-GAINS-PRIOR> (271553)
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<PER-SHARE-DIVIDEND> (.75)
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</TABLE>
Report of Independent Auditors on Internal Control
The Board of Directors and Shareholders
Principal Bond Fund, Inc.
In planning and performing our audit of the financial statements of Principal
Bond 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 Bond 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 Bond Fund, Inc. and the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
Des Moines, Iowa
January 16, 1998
SPECIAL MEETING OF SHAREHOLDERS PRINCIPAL BOND FUND, INC.
HELD SEPTEMBER 16, 1997
1. Election of the Board of Directors.
For Withheld
Davis 6,130,456 95,320
Ehrle 6,115,736 110,040
Ferguson 6,130,841 94,934
Gilbert 6,114,483 111,293
Griswell 6,130,841 94,934
Jones 6,123,621 102,154
Keller 6,124,863 100,912
Lukavsky 6,124,980 100,795
Peebler 6,125,793 99,983
2. Ratification of selection of Ernst & Young LLP as independent public
auditors.
In Favor Opposed Abstain
6,115,835 34,790 75,151
3. Approval of change of fund structure. Name changed to Principal Variable
Contract Fund, Inc. Bond Account effective 1/1/98.
In Favor Opposed Abstain
5,857,779 208,982 159,015
