A MESSAGE FROM THE PRESIDENT
To Principal Mutual Life Insurance Company Customers
Stock and bond markets began the second half of the 1997 quite strong. After
reaching record levels, U.S. and foreign equity markets experienced a dramatic
market correction in late October. Fortunately, investors rapidly reevaluated
the situation and returned most markets to near predecline levels.
Though domestic and international markets continue to experience volatility,
given a continued strong U.S. economy, low interest rates and few inflationary
signs, the long-term outlook for investors remains positive.
The Principal Mutual Funds have been reorganized into a series fund, known as
Principal Variable Contracts Fund, Inc., after receiving shareholder approval in
a proxy vote held last summer. Each fund is now identified as an "account" of
the Variable Contracts Fund.
In addition, three of the accounts had their "descriptive" names changed, as
well. Principal Capital Accumulation, Principal Emerging Growth and Principal
World funds are now referred to as Capital Value Account, MidCap Account and
International Account, respectively. These name changes were made to provide a
clearer description of the accounts and their investment objectives.
As we begin 1998, we want to thank our contract owners for their loyalty.
Principal Mutual Life Insurance Company remains committed to delivering the
quality financial products and services they deserve.
Sincerely,
/S/STEPHAN L JONES
Stephan L. Jones
President
CONTENTS
Page
Financial Statements and Financial Highlights
Statements of Assets and Liabilities................................. 2
Statements of Operations ............................................ 4
Statements of Changes in Net Assets.................................. 6
Notes to Financial Statements........................................ 10
Schedules of Investments
Principal Aggressive Growth Fund, Inc............................ 18
Principal Asset Allocation Fund, Inc............................. 19
Principal Balanced Fund, Inc..................................... 25
Principal Bond Fund, Inc......................................... 29
Principal Capital Accumulation Fund, Inc......................... 31
Principal Emerging Growth Fund, Inc.............................. 33
Principal Government Securities Fund, Inc........................ 35
Principal Growth Fund, Inc....................................... 36
Principal High Yield Fund, Inc................................... 38
Principal Money Market Fund, Inc................................. 41
Principal World Fund, Inc........................................ 42
Financial Highlights................................................. 46
Report of Independent Auditors....................................... 51
Shareholder Meeting Results............................................... 52
<PAGE>
December 31, 1997
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
Principal Principal
Aggressive Asset Principal Principal
Growth Allocation Balanced Bond
Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc.
<S> <C> <C> <C> <C>
Investment in securities -- at cost..................... $124,172,552 $65,945,023 $119,061,278 $76,521,903
Assets
Investment in securities -- at value (Note 4)........... $143,304,561 $71,997,444 $132,685,999 $80,200,282
Cash ................................................... 5,050,523 3,762,667 20,001 20,000
Receivables:
Dividends and interest............................. 135,909 374,331 953,484 1,646,557
Investment securities sold......................... 2,408,712 1,280,981 -- --
Capital Stock sold................................. 428,642 68,595 260,405 91,203
Net receivable for foreign currency contract (Note 5)... -- -- -- --
Total Assets 151,328,347 77,484,018 133,919,889 81,958,042
Liabilities
Accrued expenses........................................ 110,513 60,737 70,569 37,374
Payables:
Investment securities purchased.................... 2,035,831 618,837 -- --
Capital Stock reacquired........................... -- -- 22,213 --
Total Liabilities 2,146,344 679,574 92,782 37,374
Net Assets Applicable to Outstanding Shares............. $149,182,003 $76,804,444 $133,827,107 $81,920,668
Net Assets Consist of:
Capital Stock........................................... $ 91,532 $ 64,344 $ 86,287 $ 69,560
Additional paid-in capital.............................. 127,241,260 69,715,693 118,221,875 78,328,162
Accumulated undistributed net investment income......... 10,859 26,450 95,943 52,223
Accumulated undistributed net realized
gain (loss) from:
Investment transactions ........................... 2,706,343 945,536 1,798,281 (207,656)
Foreign currency transactions...................... -- -- -- --
Net unrealized appreciation of investments.............. 19,132,009 6,052,421 13,624,721 3,678,379
Net unrealized (depreciation) on translation of
assets and liabilities in foreign currencies....... -- -- -- --
Total Net Assets $149,182,003 $76,804,444 $133,827,107 $81,920,668
Capital Stock (par value: $.01 a share):
Shares authorized....................................... 100,000,000 100,000,000 100,000,000 100,000,000
Shares issued and outstanding........................... 9,153,229 6,434,402 8,628,659 6,955,978
Net Asset Value Per Share............................... $16.30 $11.94 $15.51 $11.78
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
Principal Principal Principal
Capital Emerging Government Principal
Accumulation Growth Securities Growth
Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc.
<S> <C> <C> <C> <C>
Investment in securities -- at cost..................... $209,649,466 $166,346,096 $92,635,914 $126,951,745
Assets
Investment in securities -- at value (Note 4)........... $284,582,052 $224,204,235 $96,354,192 $167,787,447
Cash ................................................... 23,955 25,912 21,823 32,496
Receivables:
Dividends and interest............................. 399,666 106,732 846,518 124,080
Investment securities sold......................... -- -- -- --
Capital Stock sold................................. 370,617 416,069 93,232 288,936
Net receivable for foreign currency contract (Note 5)... -- -- -- --
Total Assets 285,376,290 224,752,948 97,315,765 168,232,959
Liabilities
Accrued expenses........................................ 113,521 123,304 44,319 72,557
Payables:
Investment securities purchased.................... -- -- 2,945,000 --
Capital Stock reacquired........................... 31,560 5 3,986 9
Total Liabilities 145,081 123,309 2,993,305 72,566
Net Assets Applicable to Outstanding Shares............. $285,231,209 $224,629,639 $94,322,460 $168,160,393
Net Assets Consist of:
Capital Stock........................................... $ 82,422 $ 63,332 $ 88,005 $ 97,693
Additional paid-in capital.............................. 209,228,930 166,644,654 90,833,882 127,276,961
Accumulated undistributed net investment income......... 76,658 26,884 53,935 3,164
Accumulated undistributed net realized
gain (loss) from:
Investment transactions ........................... 910,613 36,630 (371,640) (53,127)
Foreign currency transactions...................... -- -- -- --
Net unrealized appreciation of investments.............. 74,932,586 57,858,139 3,718,278 40,835,702
Net unrealized (depreciation) on translation of
assets and liabilities in foreign currencies....... -- -- -- --
Total Net Assets $285,231,209 $224,629,639 $94,322,460 $168,160,393
Capital Stock (par value: $.01 a share):
Shares authorized....................................... 100,000,000 100,000,000 100,000,000 100,000,000
Shares issued and outstanding........................... 8,242,195 6,333,224 8,800,476 9,769,331
Net Asset Value Per Share............................... $34.61 $35.47 $10.72 $17.21
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
Principal Principal
High Money Principal
Yield Market World
Fund, Inc. Fund, Inc. Fund, Inc.
<S> <C> <C> <C>
Investment in securities -- at cost..................... $15,018,545 $47,444,285 $110,109,640
Assets
Investment in securities -- at value (Note 4)........... $15,452,959 $47,444,285 $124,912,216
Cash ................................................... 29,910 8,630 24,695
Receivables:
Dividends and interest............................. 357,306 228,497 251,280
Investment securities sold......................... -- -- 126,699
Capital Stock sold................................. 5,778 58,757 224,978
Net receivable for foreign currency contract (Note 5)... -- -- 31,656
Total Assets 15,845,953 47,740,169 125,571,524
Liabilities
Accrued expenses........................................ 9,170 25,500 119,244
Payables:
Investment securities purchased.................... -- 126,885 160,842
Capital Stock reacquired........................... -- 272,866 2,664
Total Liabilities 9,170 425,251 282,750
Net Assets Applicable to Outstanding Shares............. $15,836,783 $47,314,918 $125,288,774
Net Assets Consist of:
Capital Stock........................................... $ 17,796 $ 473,149 $ 90,166
Additional paid-in capital.............................. 16,101,145 46,841,769 110,091,448
Accumulated undistributed net investment income......... 13,326 -- 61,967
Accumulated undistributed net realized
gain (loss) from:
Investment transactions ........................... (729,898) -- 290,242
Foreign currency transactions...................... -- -- (46,872)
Net unrealized appreciation of investments.............. 434,414 -- 14,802,576
Net unrealized (depreciation) on translation of
assets and liabilities in foreign currencies....... -- -- (753)
Total Net Assets $15,836,783 $47,314,918 $125,288,774
Capital Stock (par value: $.01 a share):
Shares authorized....................................... 100,000,000 500,000,000 100,000,000
Shares issued and outstanding........................... 1,779,603 47,314,918 9,016,636
Net Asset Value Per Share............................... $8.90 $1.000 $13.90
See accompanying notes.
</TABLE>
<PAGE>
Year Ended December 31, 1997
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
Principal Principal
Aggressive Asset Principal Principal
Growth Allocation Balanced Bond
Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc.
Net Investment Income
Income:
<S> <C> <C> <C> <C>
Dividends.......................................... $ 1,089,953 $ 1,031,755 $ 1,352,216 $ --
Withholding tax on foreign dividends............... -- -- -- --
Interest........................................... 186,886 1,407,596 2,985,729 5,296,081
Total Income 1,276,839 2,439,351 4,337,945 5,296,081
Expenses:
Management and investment advisory
fees (Note 3).................................. 907,800 566,727 665,902 335,818
Custodian fees..................................... 14,072 54,388 3,398 2,843
Directors' fees.................................... 7,852 7,805 7,781 7,852
Other.............................................. 12,800 3,502 7,916 5,118
Total Net Expenses 942,524 632,422 684,997 374,631
Net Investment Income 334,315 1,806,929 3,652,948 4,921,450
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currencies
Net realized gain (loss) from:
Investment transactions............................ 18,939,200 7,276,506 9,950,708 63,897
Foreign currency transactions...................... -- -- -- --
Change in unrealized appreciation/depreciation of:
Investments ....................................... 11,334,210 2,460,767 4,838,411 2,497,226
Translation of assets and liabilities in
foreign currencies............................ -- -- -- --
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currencies 30,273,410 9,737,273 14,789,119 2,561,123
Net Increase in Net Assets
Resulting from Operations $30,607,725 $11,544,202 $18,442,067 $7,482,573
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
Principal Principal Principal
Capital Emerging Government Principal
Accumulation Growth Securities Growth
Fund, Inc. Fund, Inc. Fund, Inc. Fund, Inc.
Net Investment Income
Income:
<S> <C> <C> <C> <C>
Dividends.......................................... $ 5,969,682 $ 1,193,912 $ -- $ 1,389,293
Withholding tax on foreign dividends............... -- -- -- --
Interest........................................... 376,777 1,428,479 5,884,916 1,071,395
Total Income 6,346,459 2,622,391 5,884,916 2,460,688
Expenses:
Management and investment advisory
fees (Note 3).................................. 1,124,855 1,145,372 426,977 650,659
Custodian fees..................................... 3,253 5,647 4,624 5,403
Directors' fees.................................... 7,852 7,852 7,873 7,831
Other.............................................. 15,442 12,501 7,530 9,206
Total Net Expenses 1,151,402 1,171,372 447,004 673,099
Net Investment Income 5,195,057 1,451,019 5,437,912 1,787,589
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currencies
Net realized gain (loss) from:
Investment transactions............................ 13,829,214 4,081,051 245,732 952,935
Foreign currency transactions...................... -- -- -- --
Change in unrealized appreciation/depreciation of:
Investments ....................................... 42,661,757 30,028,222 2,856,039 28,003,238
Translation of assets and liabilities in
foreign currencies............................ -- -- -- --
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currencies 56,490,971 34,109,273 3,101,771 28,956,173
Net Increase in Net Assets
Resulting from Operations $61,686,028 $35,560,292 $8,539,683 $30,743,762
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
Principal Principal
High Money Principal
Yield Market World
Fund, Inc. Fund, Inc. Fund, Inc.
Net Investment Income
Income:
<S> <C> <C> <C>
Dividends.......................................... $ -- $ -- $2,672,045
Withholding tax on foreign dividends............... -- -- (293,400)
Interest........................................... 1,344,159 2,544,059 507,025
Total Income 1,344,159 2,544,059 2,885,670
Expenses:
Management and investment advisory
fees (Note 3).................................. 87,845 224,424 768,332
Custodian fees..................................... 2,794 8,790 111,651
Directors' fees.................................... 7,830 7,365 7,811
Other.............................................. 967 4,375 7,269
Total Net Expenses 99,436 244,954 895,063
Net Investment Income 1,244,723 2,299,105 1,990,607
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currencies
Net realized gain (loss) from:
Investment transactions............................ 265,486 -- 3,794,896
Foreign currency transactions...................... -- -- (46,872)
Change in unrealized appreciation/depreciation of:
Investments ....................................... (25,873) -- 3,040,783
Translation of assets and liabilities in
foreign currencies............................ -- -- (1,727)
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currencies 239,613 -- 6,787,080
Net Increase in Net Assets
Resulting from Operations $1,484,336 $2,299,105 $8,777,687
See accompanying notes.
</TABLE>
<PAGE>
Years Ended December 31
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
Principal Principal
Aggressive Growth Asset Allocation
Fund, Inc. Fund, Inc.
1997 1996 1997 1996
Operations
<S> <C> <C> <C> <C>
Net investment income................................................... $ 334,315 $ 647,024 $ 1,806,929 $ 1,836,334
Net realized gain from investment transactions.......................... 18,939,200 10,016,661 7,276,506 4,149,766
Change in unrealized appreciation/depreciation
of investments ..................................................... 11,334,210 5,099,753 2,460,767 715,006
Net Increase in Net Assets
Resulting from Operations 30,607,725 15,763,438 11,544,202 6,701,106
Dividends and Distributions to Shareholders
From net investment income.............................................. (323,456) (642,821) (1,780,479) (1,837,566)
From net realized gain on investments .................................. (19,132,644) (8,672,973) (7,456,569) (3,447,188)
(19,456,100) (9,315,794) (9,237,048) (5,284,754)
Capital Share Transactions (Note 6)
Shares sold............................................................. 52,190,051 54,678,368 13,556,305 20,370,526
Shares issued in reinvestment of dividends
and distributions................................................... 18,759,779 7,733,190 5,515,569 2,730,827
Shares redeemed......................................................... (23,025,001) (12,396,594) (6,205,722) (3,960,605)
Net Increase in Net Assets from
Capital Share Transactions 47,924,829 50,014,964 12,866,152 19,140,748
Total Increase 59,076,454 56,462,608 15,173,306 20,557,100
Net Assets
Beginning of year....................................................... 90,105,549 33,642,941 61,631,138 41,074,038
End of year (including undistributed net
investment income as set forth below)............................... $149,182,003 $90,105,549 $76,804,444 $61,631,138
Undistributed Net Investment Income..................................... $ 10,859 $ 4,793 $ 26,450 $ 18,594
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
Principal Principal
Balanced Bond
Fund, Inc. Fund, Inc.
1997 1996 1997 1996
Operations
<S> <C> <C> <C> <C>
Net investment income................................................... $ 3,652,948 $ 2,416,667 $ 4,921,450 $ 3,648,701
Net realized gain from investment transactions.......................... 9,950,708 4,291,386 63,897 24,994
Change in unrealized appreciation/depreciation
of investments ..................................................... 4,838,411 3,030,866 2,497,226 (1,454,206)
Net Increase in Net Assets
Resulting from Operations 18,442,067 9,738,919 7,482,573 2,219,489
Dividends and Distributions to Shareholders
From net investment income.............................................. (3,557,005) (2,404,163) (4,869,227) (3,612,230)
From net realized gain on investments .................................. (8,195,329) (5,078,241) -- --
(11,752,334) (7,482,404) (4,869,227) (3,612,230)
Capital Share Transactions (Note 6)
Shares sold............................................................. 43,172,395 51,227,505 21,482,406 38,212,107
Shares issued in reinvestment of dividends
and distributions................................................... 11,645,810 6,103,434 4,476,033 2,979,214
Shares redeemed......................................................... (20,838,500) (11,833,111) (10,037,678) (12,289,678)
Net Increase in Net Assets from
Capital Share Transactions 33,979,705 45,497,828 15,920,761 28,901,643
Total Increase 40,669,438 47,754,343 18,534,107 27,508,902
Net Assets
Beginning of year....................................................... 93,157,669 45,403,326 63,386,561 35,877,659
End of year (including undistributed net
investment income as set forth below)............................... $133,827,107 $93,157,669 $81,920,668 $63,386,561
Undistributed Net Investment Income..................................... $ 95,943 $ 23,644 $ 52,223 $ 36,471
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
Principal
Capital Accumulation
Fund, Inc.
1997 1996
Operations
<S> <C> <C>
Net investment income................................................... $ 5,195,057 $ 3,517,895
Net realized gain from investment transactions.......................... 13,829,214 26,628,772
Change in unrealized appreciation/depreciation
of investments ..................................................... 42,661,757 6,846,493
Net Increase in Net Assets
Resulting from Operations 61,686,028 36,993,160
Dividends and Distributions to Shareholders
From net investment income.............................................. (5,118,399) (3,541,996)
From net realized gain on investments .................................. (20,307,620) (22,300,640)
(25,426,019) (25,842,636)
Capital Share Transactions (Note 6)
Shares sold............................................................. 72,054,366 81,833,141
Shares issued in reinvestment of dividends
and distributions................................................... 25,282,153 25,659,931
Shares redeemed......................................................... (53,383,847) (49,264,748)
Net Increase in Net Assets from
Capital Share Transactions 43,952,672 58,228,324
Total Increase 80,212,681 69,378,848
Net Assets
Beginning of year....................................................... 205,018,528 135,639,680
End of year (including undistributed net
investment income as set forth below)............................... $285,231,209 $205,018,528
Undistributed Net Investment Income..................................... $ 76,658 $ 35,319
See accompanying notes.
</TABLE>
<PAGE>
Years Ended December 31
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
Principal Principal Principal
Emerging Growth Government Securities Growth
Fund, Inc. Fund, Inc. Fund, Inc.
1997 1996 1997 1996 1997 1996
Operations
<S> <C> <C> <C> <C> <C> <C>
Net investment income.......................... $ 1,451,019 $ 1,008,977 $ 5,437,912 $ 4,677,723 $ 1,787,589 $ 1,156,675
Net realized gain (loss) from:
Investment transactions.................... 4,081,051 1,954,051 245,732 98,466 952,935 242,899
Foreign currency transactions.............. -- -- -- -- -- --
Change in unrealized appreciation/depreciation
of investments and translation of assets
and liabilities in foreign currencies...... 30,028,222 15,461,368 2,856,039 (1,337,219) 28,003,238 7,550,339
Net Increase in Net Assets
Resulting from Operations 35,560,292 18,424,396 8,539,683 3,438,970 30,743,762 8,949,913
Dividends and Distributions to
Shareholders
From net investment income..................... (1,424,135) (1,000,544) (5,429,722) (4,644,240) (1,784,426) (1,148,740)
Tax return of capital distribution............. -- -- -- -- -- --
From net realized gain on investments
and foreign currency transactions.......... (4,499,721) (2,245,806) -- -- (955,318) (240,516)
Excess distribution of net realized gain
on investments............................. -- -- -- -- (50,744) --
(5,923,856) (3,246,350) (5,429,722) (4,644,240) (2,790,488) (1,389,256)
Capital Share Transactions (Note 6)
Shares sold.................................... 59,474,006 78,710,392 14,071,280 47,002,706 40,230,411 55,634,083
Shares issued in reinvestment of dividends
and distributions.......................... 5,886,597 3,177,572 5,369,352 4,589,974 2,766,751 1,373,493
Shares redeemed................................ (7,528,281) (18,425,569) (13,327,991) (15,367,021) (2,401,953) (7,663,844)
Net Increase in Net Assets from
Capital Shares Transactions 57,832,322 63,462,395 6,112,641 36,225,659 40,595,209 49,343,732
Total Increase 87,468,758 78,640,441 9,222,602 35,020,389 68,548,483 56,904,389
Net Assets
Beginning of year.............................. 137,160,881 58,520,440 85,099,858 50,079,469 99,611,910 42,707,521
End of year (including undistributed
net investment income as set forth below) $224,629,639 $137,160,881 $94,322,460 $85,099,858 $168,160,393 $99,611,910
Undistributed Net Investment Income........... $ 26,884 $ 13,018 $ 53,935 $ 45,745 $ 3,164 $ 7,936
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
Principal Principal Principal
High Yield Money Market World
Fund, Inc. Fund, Inc. Fund, Inc.
1997 1996 1997 1996 1997 1996
Operations
<S> <C> <C> <C> <C> <C> <C>
Net investment income.......................... $ 1,244,723 $ 1,153,201 $ 2,299,105 $ 2,089,089 $ 1,990,607 $ 1,145,766
Net realized gain (loss) from:
Investment transactions.................... 265,486 210,672 -- -- 3,794,896 875,641
Foreign currency transactions.............. -- -- -- -- (46,872) (9,568)
Change in unrealized appreciation/depreciation
of investments and translation of assets
and liabilities in foreign currencies...... (25,873) 218,620 -- -- 3,039,056 9,715,294
Net Increase in Net Assets
Resulting from Operations 1,484,336 1,582,493 2,299,105 2,089,089 8,777,687 11,727,133
Dividends and Distributions to
Shareholders
From net investment income..................... (1,242,776) (1,116,648) (2,299,105) (2,089,089) (1,943,735) (1,149,902)
Tax return of capital distribution............. -- -- -- -- (146,989) --
From net realized gain on investments
and foreign currency transactions.......... -- -- -- -- (3,741,391) (750,235)
Excess distribution of net realized gain
on investments............................. -- -- -- -- -- --
(1,242,776) (1,116,648) (2,299,105) (2,089,089) (5,832,115) (1,900,137)
Capital Share Transactions (Note 6)
Shares sold.................................... 986,023 437,560 70,744,074 119,544,896 47,871,924 38,889,383
Shares issued in reinvestment of dividends
and distributions.......................... 1,242,776 1,116,648 2,250,232 1,914,643 5,772,912 1,849,921
Shares redeemed................................ (373,919) (109,643) (71,923,637) (107,885,209) (2,983,649) (9,449,905)
Net Increase in Net Assets from
Capital Shares Transactions 1,854,880 1,444,565 1,070,669 13,574,330 50,661,187 31,289,399
Total Increase 2,096,440 1,910,410 1,070,669 13,574,330 53,606,759 41,116,395
Net Assets
Beginning of year.............................. 13,740,343 11,829,933 46,244,249 32,669,919 71,682,015 30,565,620
End of year (including undistributed
net investment income as set forth below) $15,836,783 $13,740,343 $47,314,918 $ 46,244,249 $125,288,774 $71,682,015
Undistributed Net Investment Income........... $ 13,326 $ 11,449 $ -- $ -- $ 61,967 $ 24,004
See accompanying notes.
</TABLE>
<PAGE>
December 31, 1997
NOTES TO FINANCIAL STATEMENTS
Principal Aggressive Growth Fund, Inc.
Principal Asset Allocation Fund, Inc.
Principal Balanced Fund, Inc.
Principal Bond Fund, Inc.
Principal Capital Accumulation Fund, Inc.
Principal Emerging Growth Fund, Inc.
Principal Government Securities Fund, Inc.
Principal Growth Fund, Inc.
Principal High Yield Fund, Inc.
Principal Money Market Fund, Inc.
Principal World Fund, Inc.
Note 1 -- Significant Accounting Policies
Principal Aggressive Growth Fund, Inc., Principal Asset Allocation Fund, Inc.,
Principal Balanced Fund, Inc., Principal Bond Fund, Inc., Principal Capital
Accumulation Fund, Inc., Principal Emerging Growth Fund, Inc., Principal
Government Securities Fund, Inc., Principal Growth Fund, Inc., Principal High
Yield Fund, Inc., Principal Money Market Fund, Inc. and Principal World Fund,
Inc. (the "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.
The Funds (with the exception of Principal Money Market Fund, Inc.) 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 market quotations, 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 the 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 the Manager under procedures established and
regularly reviewed by the Board of Directors. To the extent the 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, the Fund's net asset value could be
significantly affected on days when shareholders have no access to the Fund.
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 Principal World
Fund to value such securities at prices at which it is expected those shares may
be sold, and the Manager or any sub-adviser is authorized to make such
determinations subject to such oversight by the Fund's Board of Directors as may
from time to time be necessary.
Principal Money Market Fund, Inc. values its securities at amortized cost, which
approximates market. Under the amortized cost method, a security is valued by
applying a constant amortization to maturity of the difference between the
principal amount due at maturity and the cost of the security to the fund.
With respect to Principal World Fund, Inc., 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 Funds record investment transactions generally one day after the trade date,
except for short-term investment transactions which are generally recorded 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 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.
With respect to Principal World Fund, Inc., reported net realized foreign
exchange gains or losses arise from sales of foreign currencies, currency gains
or losses realized between the trade and settlement dates on security
transactions, and the difference between the amount of dividends and foreign
withholding taxes recorded on the fund's 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 Funds (with the exception of Principal Capital Accumulation Fund, Inc.,
Principal Government Securities Fund, Inc. and Principal Money Market Fund,
Inc.) 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 participating Funds' cash balances to be deposited into a single
joint account along with the cash of other registered investment companies
managed by Princor Management Corporation. These balances may be invested in one
or more short-term instruments.
With respect to Principal Money Market Fund, Inc., all net investment income and
any realized gains and losses from investment transactions are declared as
dividends daily to shareholders of record as of that day. Dividends and
distributions to shareholders of the other funds 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 World Fund, Inc. for the year ended
December 31, 1997 aggregated $137,926. Other reclassifications made for the
years ended December 31, 1997 and 1996 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 distributions of paid-in-capital.
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 is
approximately the same for both federal income tax and financial reporting
purposes.
At December 31, 1997, the following funds had approximate net capital loss
carryforwards which expire as follows:
<TABLE>
<CAPTION>
Principal Bond Principal Government Principal High Yield
Year Ending December 31 Fund, Inc. Securities Fund, Inc. Fund, Inc.
- ----------------------- -------------- --------------------- --------------------
<S> <C> <C> <C> <C>
1998 $ -- $ -- $184,000
1999 -- -- 123,000
2000 -- -- 14,000
2001 -- -- 246,000
2002 -- 331,000 114,000
2003 -- 41,000 49,000
2004 128,000 -- --
$128,000 $372,000 $730,000
</TABLE>
Note 3 -- Management Agreement and Transactions With Affiliates
The Funds have agreed to pay investment advisory and management fees to Princor
Management Corporation (wholly owned by Princor Financial Services Corporation,
a subsidiary of Principal Mutual Life Insurance Company) (the "Manager"),
computed at an annual percentage rate of each fund's average daily net assets.
The annual rate used in this calculation for the Funds is as follows:
<TABLE>
<CAPTION>
Net Assets Value of Funds
(in millions)
--------------------------------------------------------------------------
First Next Next Next Over
$100 $100 $100 $100 $400
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Principal Aggressive Growth Fund, Inc. .80% .75% .70% .65% .60%
Principal Asset Allocation Fund, Inc. .80 .75 .70 .65 .60
Principal Balanced Fund, Inc. .60 .55 .50 .45 .40
Principal Bond Fund, Inc. .50 .45 .40 .35 .30
Principal Capital Accumulation Fund, Inc. .50 .45 .40 .35 .30
Principal Emerging Growth Fund, Inc. .65 .60 .55 .50 .45
Principal Government Securities Fund, Inc. .50 .45 .40 .35 .30
Principal Growth Fund, Inc. .50 .45 .40 .35 .30
Principal High Yield Fund, Inc. .60 .55 .50 .45 .40
Principal Money Market Fund, Inc. .50 .45 .40 .35 .30
Principal World Fund, Inc. .75 .70 .65 .60 .55
</TABLE>
No brokerage commissions were paid by the Funds to Princor Financial Services
Corporation during the years ended December 31, 1997 and 1996. Brokerage
commissions were paid to other affiliates by the following funds:
Year Ended Year Ended
December 31, December 31,
1997 1996
------------ ------------
Principal Asset Allocation Fund, Inc. $ 2,974 $ --
Principal Balanced Fund, Inc. 18,197 1,300
Principal Capital Accumulation Fund, Inc. 9,465 10,262
Principal Emerging Growth Fund, Inc. 2,250 --
Principal Growth Fund, Inc. 5,997 438
Principal World Fund, Inc. 10,411 3,176
All of the shares of the Funds are owned by Principal Mutual Life Insurance
Company and/or one or more Separate Accounts sponsored by Principal Mutual Life
Insurance Company.
Note 4 -- Investment Transactions
For the year ended December 31, 1997, the cost of investment securities
purchased and proceeds from investment securities sold (not including short-term
investments and U.S. government securities) by the Funds were as follows:
Purchases Sales
------------- ------------
Principal Aggressive Growth Fund, Inc. $216,787,226 $189,993,786
Principal Asset Allocation Fund, Inc. 73,407,871 77,857,783
Principal Balanced Fund, Inc. 85,446,683 28,414,679
Principal Bond Fund, Inc. 20,577,780 4,238,825
Principal Capital Accumulation Fund, Inc. 75,212,875 55,085,306
Principal Emerging Growth Fund, Inc. 59,970,761 12,273,018
Principal Government Securities Fund, Inc. 9,303,782 3,934,759
Principal Growth Fund, Inc. 39,063,715 17,612,561
Principal High Yield Fund, Inc. 6,592,468 4,402,637
Principal World Fund, Inc. 59,718,924 21,472,974
At December 31, 1997, net unrealized appreciation of investments by the Funds
was composed of the following:
<TABLE>
<CAPTION>
Gross Unrealized Net Unrealized
------------------------------ Appreciation
Appreciation (Depreciation) of Investments
------------ -------------- --------------
<S> <C> <C> <C>
Principal Aggressive Growth Fund, Inc. $ 20,949,322 $ (1,817,313) $19,132,009
Principal Asset Allocation Fund, Inc. 9,018,224 (2,965,803) 6,052,421
Principal Balanced Fund, Inc. 16,337,268 (2,712,547) 13,624,721
Principal Bond Fund, Inc. 4,207,940 (529,561) 3,678,379
Principal Capital Accumulation Fund, Inc. 78,521,075 (3,588,489) 74,932,586
Principal Emerging Growth Fund, Inc. 71,697,059 (13,838,920) 57,858,139
Principal Government Securities Fund, Inc. 3,782,378 (64,100) 3,718,278
Principal Growth Fund, Inc. 43,292,099 (2,456,397) 40,835,702
Principal High Yield Fund, Inc. 641,825 (207,411) 434,414
Principal World Fund, Inc. 23,453,502 (8,650,926) 14,802,576
</TABLE>
Principal Government Securities Fund, Inc. 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 December 31, 1997, TBA
purchase commitments involved securities with a face amount of $3,000,000, cost
of $2,945,000 and market value of $2,963,730. Principal Government Securities
Fund, Inc. has set aside investment securities and other assets in excess of the
commitments to serve as collateral.
At December 31, 1997, the Funds held the following securities which were
purchased in a private placement transaction and may require registration in
order to effect a sale in the ordinary course of business.
<TABLE>
<CAPTION>
Value at Value as a
Date of Dec. 31, Percentage of
Security Description Acquisition Cost 1997 Net Assets
--------------------------------------- ----------- -------- --------- -------------
<S> <C> <C> <C> <C> <C>
Principal Asset BankAmerica Institute Series B Notes 8/27/97 $242,318 $ 257,982 .34%
Allocation Fund, Inc.
Fomento Economico Mexicano 5/31/96 12,620 33,271 .04
2/19/97 29,700 63,266 .08
2/21/97 24,025 49,527 .06
3/13/97 24,766 46,332 .06
Grupo Financiero Bancomer SA ADR 4/25/97 3,482 6,694 .01
4/29/97 16,576 30,783 .04
Israel Electric Corp. Senior Notes 12/11/96 249,525 258,783 .34
Lojas Arapua SA GDR 2/7/97 11,125 1,792 .00
2/14/97 16,087 2,365 .00
2/26/97 73,954 10,896 .02
Rossi Residencial SA GDR 7/16/97 47,110 18,091 .02
9/15/97 9,600 5,161 .01
Wellsford Real Properties, Inc. 6/2/97 161,471 244,953 .32
6/18/97 1,115 1,563 .00
1,031,459 1.34
Principal Bond John Hancock Mutual Life Insurance Co.
Fund, Inc. Surplus Notes 1/8/97 958,440 1,034,783 1.26
Principal Emerging Ciba-Geigy Corp. Exchangeable Subordinated
Growth Fund, Inc. Debentures 3/20/91 150,000 164,250 .07
Sierra On Line Convertible Subordinated
Debentures 8/17/94 100,375 489,913 .22
654,163 .29
</TABLE>
<TABLE>
<CAPTION>
Value at Value as a
Date of Dec. 31, Percentage of
Security Description Acquisition Cost 1997 Net Assets
--------------------------------------- ----------- -------- --------- -------------
<S> <C> <C> <C> <C> <C>
Principal High Yield Calpine Corp. Senior Notes 7/2/97 $199,271 $ 204,000 1.29%
Fund, Inc.
Flextronics International Ltd. 10/9/97 100,000 99,250 .63
Senior Subordinated Notes 10/14/97 100,625 99,250 .63
FWT, Inc. Senior Subordinated Notes 11/12/97 200,000 205,000 1.29
Indah Kiat Finance Mauritius Ltd.
Guaranteed Senior Notes 6/26/97 198,694 168,000 1.06
Integrated Health Services, Inc.
Senior Subordinated Notes 9/8/97 200,000 203,500 1.28
Paperboard Industries International, Inc.
Senior Notes 9/18/97 25,000 24,750 .16
Riviera Holdings Corp. First Mortgage Notes 8/8/97 98,770 99,250 .63
The DII Group Senior Subordinated Notes 9/16/97 50,250 49,000 .31
9/16/97 50,000 49,000 .31
Trico Marine Services Senior Notes, Series E 12/18/97 200,500 202,750 1.28
Zale Corp. Senior Notes 9/23/97 99,530 100,000 .63
1,503,750 9.50
Principal World Alfa SA Convertible Subordinated 9/25/95 398,000 572,000 .46
Fund, Inc. Debentures 11/20/96 329,254 429,000 .34
Fokus Bank 6/25/96 347,410 594,667 .47
Hyundai Motor Co. Ltd. GDR 9/3/96 307,688 41,875 .03
Kemira OY 12/9/96 314,077 245,892 .20
12/10/96 131,955 100,247 .08
12/11/96 241,385 183,473 .15
2/26/97 322,301 264,807 .21
4/10/97 294,742 264,807 .21
Voest-Alpine Stahl 10/30/95 280,007 354,158 .28
3/27/96 146,558 173,230 .14
6/25/96 256,094 296,415 .24
6/26/96 145,930 165,530 .13
3,686,102 2.94
</TABLE>
The Fund's 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 December 31, 1997, Principal World Fund, Inc. owned a forward contract to
sell Hong Kong Dollars ("HKD") at a specified future date at a fixed exchange
rate. The forward foreign currency contract is valued at the forward rate, and
is 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 December 31, Net Unrealized
to Deliver For Date 1997 Appreciation
---------- ----------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Principal World Fund, Inc. 7,950,000 HKD $1,000,000 4/30/98 $968,344 $31,656
</TABLE>
The use of forward foreign currency contracts does not eliminate fluctuations in
underlying prices of the fund's portfolio securities, but it does establish a
rate of exchange that can be achieved in the future. Although a forward foreign
currency contract limits the risk of loss due to a decline in the value of the
hedged currency, it also limits 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 Stock by fund were as follows:
<TABLE>
<CAPTION>
Principal Aggressive Principal Asset Principal Balanced
Growth Fund, Inc. Allocation Fund, Inc. Fund, Inc.
-------------------- --------------------- ------------------
<S> <C> <C> <C>
Year Ended December 31, 1997:
Shares sold................................... 3,229,319 1,086,950 2,742,809
Shares issued in reinvestment of
dividends and distributions.................. 1,197,848 473,612 758,805
Shares redeemed............................... (1,478,619) (495,530) (1,325,111)
Net Increase 2,948,548 1,065,032 2,176,503
Year Ended December 31, 1996:
Shares sold................................... 3,918,263 1,770,239 3,602,550
Shares issued in reinvestment of
dividends and distributions.................. 547,658 239,060 424,022
Shares redeemed............................... (860,656) (337,801) (825,489)
Net Increase 3,605,265 1,671,498 3,201,083
</TABLE>
<TABLE>
<CAPTION>
Principal Principal Capital Principal Emerging
Bond Fund, Inc. Accumulation Fund, Inc. Growth Fund, Inc.
--------------- ----------------------- -------------------
Year Ended December 31, 1997:
<S> <C> <C> <C>
Shares sold................................... 1,818,413 2,210,809 1,770,659
Shares issued in reinvestment of
dividends and distributions.................. 380,615 777,056 172,918
Shares redeemed............................... (839,651) (1,615,306) (222,142)
Net Increase 1,359,377 1,372,559 1,721,435
Year Ended December 31, 1996:
Shares sold................................... 3,340,011 2,763,121 2,884,710
Shares issued in reinvestment of
dividends and distributions.................. 262,934 868,606 110,728
Shares redeemed............................... (1,065,373) (1,641,040) (693,851)
Net Increase 2,537,572 1,990,687 2,301,587
</TABLE>
<TABLE>
<CAPTION>
Principal Government Principal Growth Principal High
Securities Fund, Inc. Fund, Inc. Yield Fund, Inc.
--------------------- ---------------- ----------------
Year Ended December 31, 1997:
<S> <C> <C> <C>
Shares sold................................... 1,306,805 2,535,060 105,429
Shares issued in reinvestment of
dividends and distributions.................. 501,475 163,713 139,336
Shares redeemed............................... (1,263,266) (151,784) (40,585)
Net Increase 545,014 2,546,989 204,180
Year Ended December 31, 1996:
Shares sold................................... 4,520,032 4,289,963 50,390
Shares issued in reinvestment of
dividends and distributions.................. 445,172 99,697 128,056
Shares redeemed............................... (1,457,956) (604,413) (12,523)
Net Increase 3,507,248 3,785,247 165,923
</TABLE>
<TABLE>
<CAPTION>
Principal Money Principal World
Market Fund, Inc. Fund, Inc.
----------------- ---------------
Year Ended December 31, 1997:
<S> <C> <C>
Shares sold................................... 70,744,074 3,295,232
Shares issued in reinvestment of
dividends and distributions.................. 2,250,232 422,856
Shares redeemed............................... (71,923,637) (205,446)
Net Increase 1,070,669 3,512,642
Year Ended December 31, 1996:
Shares sold................................... 119,544,896 3,308,501
Shares issued in reinvestment of
dividends and distributions.................. 1,914,643 144,196
Shares redeemed............................... (107,885,209) (800,955)
Net Increase 13,574,330 2,651,742
</TABLE>
Note 7 -- Line of Credit
The Funds participate with other funds and portfolios managed by Princor
Management Corporation in an unsecured joint line of credit with a bank, which
allows them to borrow up to $40,000,000 collectively. Borrowings are made solely
to facilitate the handling of unusual and/or unanticipated short-term cash
requirements. Interest is charged to each participant, 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 .08% 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
December 31, 1997, the Funds had no outstanding borrowings under the line of
credit.
Note 8 -- Year 2000 Problem (unaudited)
Like other mutual funds, financial and business organizations and individuals
around the world, the Funds could be adversely affected if the computer system
used by the Manager and other service providers do not properly process and
calculate date-related information and data from and after January 1, 2000. This
is commonly known as the "Year 2000 Problem." The Manager is taking steps that
it believes are reasonably designed to address the Year 2000 Problem with
respect to computer systems that it uses and to obtain reasonable assurances
that comparable steps are being taken by each Fund's other major service
providers. At this time, however there can be no assurance that these steps will
be sufficient to avoid any adverse impact to the funds.
<PAGE>
December 31, 1997
SCHEDULES OF INVESTMENTS
PRINCIPAL AGGRESSIVE GROWTH FUND, INC.
Shares
Held Value
Common Stocks (96.06%)
Aerospace Industries (0.72%)
Thiokol Corp. 13,200 $ 1,072,500
Air Transportation, Scheduled (2.07%)
AMR Corp. 10,500(a) 1,349,250
US Air Group, Inc. 27,900(a) 1,743,750
3,093,000
Aircraft & Parts (19.83%)
Avteam, Inc. 24,700(a) 219,212
Gulfstream Aerospace Corp. 91,300(a) 2,670,525
Lockheed Martin Corp. 108,500 10,687,250
Northrop Gruman Corp. 1,500 172,500
Textron, Inc. 26,900 1,681,250
United Technologies Corp. 194,300 14,147,469
29,578,206
Auto & Home Supply Stores (0.25%)
O'Reilly Automotive, Inc. 14,300(a) 375,375
Beverages (1.14%)
Coca-Cola Enterprises 47,700 1,696,331
Cigars (0.51%)
Consolidated Cigar Holdings, Inc. 27,500(a) 757,969
Cogeneration - Small Power
Producer (0.53%)
AES Corp. 16,900(a) 787,963
Commercial Banks (3.40%)
Bankamerica Corp. 9,800 715,400
Chase Manhattan Corp. 11,512 1,260,564
Citicorp 10,700 1,352,881
MBNA Corp. 16,400 447,925
Wells Fargo & Co. 3,833 1,301,064
5,077,834
Communications Equipment (1.14%)
ADC Telecommunications, Inc. 9,700(a) 404,975
Associated Group, Inc., Class B 11,400(a) 332,025
Lucent Technologies 4,600 367,425
Tellabs, Inc. 11,400(a) 602,775
1,707,200
Computer & Data Processing
Services (3.16%)
America Online, Inc. 8,300(a) 740,256
Compuware Corp. 6,800(a) 217,600
GTECH Holdings Corp. 37,900(a) 1,210,431
Microsoft Corp. 17,500(a) 2,261,875
Oracle Systems Corp. 12,700(a) 283,369
4,713,531
Computer & Office Equipment (3.97%)
Cisco Systems 32,250(a) 1,797,938
Compaq Computer Corp. 7,500 423,281
Dell Computer Corp. 8,200(a) 688,800
Hewlett-Packard Co. 2,600 162,500
International Business
Machines Corp. 14,700 1,537,069
International Game Technology 52,200 1,318,050
5,927,638
Consumer Products (3.70%)
Philip Morris Cos., Inc. 101,700 $ 4,608,281
RJR Nabisco Holdings Corp. 24,300 911,250
5,519,531
Drugs (2.10%)
American Home Products Corp. 5,700 436,050
Lilly (Eli) & Co. 11,700 814,612
Merck & Co., Inc. 12,600 1,338,750
Pfizer, Inc. 7,200 536,850
3,126,262
Eating & Drinking Places (2.34%)
Brinker International, Inc. 60,400 966,400
Cracker Barrel Old Country Store, Inc.75,700 2,526,488
3,492,888
Electronic Components &
Accessories (1.95%)
Intel Corp. 12,000 843,000
Linear Technology Corp. 18,600 1,071,825
Maxim Integrated Products, Inc. 28,600(a) 986,700
2,901,525
Engines & Turbines (1.41%)
CBS Corp. 71,600 2,107,725
Federal & Federally Sponsored
Credit (2.57%)
Federal Home Loan Mortgage 7,300 306,144
SLM Holding Corp. 25,400 3,533,775
3,839,919
Finance Services (0.23%)
Cincinnati Financial Corp. 2,400 337,800
Fire, Marine, & Casualty
Insurance (9.61%)
American Bankers Insurance Group 47,500 2,182,031
Berkshire Hathaway, Inc. 77(a) 3,542,000
CNA Financial Corp. 9,400(a) 1,200,850
Loews Corp. 44,300 4,701,338
NAC RE Corp. 9,000 439,313
Progressive Corp. 6,100 731,237
Travelers, Inc. 28,500 1,535,437
14,332,206
Grain Mill Products (1.45%)
Kellogg Co. 16,000 794,000
Ralston-Ralston Purina Group 14,800 1,375,475
2,169,475
Household Audio & Video
Equipment (0.53%)
Time Warner, Inc. 12,700 787,400
Iron & Steel Foundries (0.42%)
Howmet International, Inc. 41,800(a) 624,388
Life Insurance (0.87%)
Hartford Life, Inc. 12,300 557,344
Nationwide Financial Services 20,400 736,950
1,294,294
Lumber & Other Building
Materials (1.21%)
Home Depot, Inc. 30,650 1,804,519
Miscellaneous Equipment Rental &
Leasing (0.87%)
Avis Rent A Car, Inc. 40,700(a) 1,299,856
Miscellaneous Investing (7.70%)
Cendant Corp. 334,205(a) $ 11,488,281
Motion Picture Production &
Services (0.63%)
Viacom, Inc. 22,800(a) 944,775
Motor Vehicles & Equipment (3.64%)
Borg Warner Automotive, Inc. 28,000 1,456,000
General Motors Corp. 24,200 1,467,125
ITT Industries, Inc. 79,800 2,503,725
5,426,850
Newspapers (0.52%)
Gannett Co. 12,500 772,656
Oil & Gas Field Services (1.36%)
Diamond Offshore Drilling 26,600 1,280,125
Schlumberger Ltd. 9,300 748,650
2,028,775
Periodicals (1.67%)
Primedia, Inc. 197,300(a) 2,490,912
Personal Credit Institutions (1.45%)
American Express Co. 24,300 2,168,775
Photographic Equipment &
Supplies (1.07%)
Xerox Corp. 21,700 1,601,731
Plastic Materials & Synthetics (0.43%)
DuPont (E.I.) De Nemour 10,700 642,669
Professional & Commercial
Equipment (0.58%)
Ingram Micro, Inc. 29,800(a) 867,925
Radio & Television Broadcasting (3.62%)
Clear Channel Communications 68,000(a) 5,401,750
Search & Navigation Equipment (1.65%)
Litton Industries, Inc. 42,700(a) 2,455,250
Raytheon Co. 1 15
2,455,265
Security Brokers & Dealers (1.26%)
Freidman Billings Ramsey Group, Inc. 32,700(a) 586,556
Merrill Lynch & Co., Inc. 17,700 1,290,994
1,877,550
Surety Insurance (3.21%)
Ace Ltd. 22,600 2,180,900
CMAC Investment Corp. 17,700 1,068,637
ESG RE Ltd. 3,600(a) 84,600
MGIC Investment Corp. 21,800 1,449,700
4,783,837
Telephone Communications (1.29%)
Associated Group, Inc., Class A 13,400(a) 396,975
AT&T Corp. 11,900 728,875
Worldcom, Inc. 26,500(a) 801,625
1,927,475
Total Portfolio Investments (96.06%) 143,304,561
Cash and receivables, net of liabilities (3.94%) $ 5,877,442
Total Net Assets (100.00%) $149,182,003
(a) Non-income producing security - No dividend paid during the past twelve
months.
<PAGE>
PRINCIPAL ASSET ALLOCATION FUND, INC.
Shares
Held Value
Common Stocks (66.39%)
Adverstising (0.03%)
Lamar Advertising Co. 600(a) $ 23,850
Aerospace Industries (0.19%)
Thiokol Corp. 1,800 146,250
Air Transportation, Scheduled (1.01%)
AMR Corp. 700(a) 89,950
British Airways PLC ADR 1,400 131,163
Cathay Pacific Airways ADR 8,500 34,556
Continental Airlines, Inc. 1,900(a) 91,437
KLM Royal Dutch Airlines 7,471 282,030
US Air Group, Inc. 2,400(a) 150,000
779,136
Aircraft & Parts (7.47%)
Avteam, Inc. 4,000(a) 35,500
Gulfstream Aerospace Corp. 15,600(a) 456,300
Lockheed Martin Corp. 20,700 2,038,950
United Technologies Corp. 44,200 3,218,312
5,749,062
Auto & Home Supply Stores (0.01%)
O'Reilly Automotive, Inc. 300(a) 7,875
Automotive Rentals, No Drivers (0.12%)
Ryder Systems, Inc. 2,900 94,975
Beverages (1.02%)
Bass PLC ADR 5,000 155,000
CIA Cervecerias Unidas ADR 3,010 88,419
Coca-Cola Enterprises 4,700 167,144
Fomento Economico Mexicano 24,085(b) 192,396
Kirin Brewery 2,300 168,762
Panamerican Beverages ADR 416 13,572
785,293
Blast Furnace & Basic Steel
Products (0.14%)
Australian National Industries 8,960 32,926
British Steel PLC ADR 3,500 75,031
107,957
Business Credit Institutions (0.01%)
Finova Group, Inc. 200 9,938
Cement, Hydraulic (0.26%)
Brasileiros SA GDR 6,175(a) 198,758
Chemicals & Allied Products (0.82%)
Asahi Chemical Industry Co. ADR 4,100 $ 139,377
Bayer AG Sponsored ADR 10,735 401,209
Mitsubishi Chemical Corp. ADR 6,100 87,731
628,317
Combination Utility Services (0.34%)
CIA Energetica de Minas Cemig ADR 2,615 113,619
NIPSCO Industries, Inc. 3,050 150,784
264,403
Commercial Banks (4.77%)
ABN-AMRO Holdings NV ADR 30,429 593,365
Allied Irish Banks ADR 2,900 168,200
Banc One Corp. 1,600 86,900
Banco Central ADR 6,500 156,000
Banco Galicia Y Buenos ADR 1,250 32,186
Banco Rio de la Plata ADR 3,140(a) 43,960
Banco Wiese Ltd. ADR 3,545 17,725
BankAmerica Corp. 1,800 131,400
BankBoston Corp. 1,300 122,119
Banker's Trust 1,450 163,034
Barclays PLC ADR 5,571 608,284
Brierly Investments Ltd. ADR 5,550 79,276
Chase Manhattan 1,240 135,780
Commerzbank AG ADR 3,600 141,754
Compass Bancshares, Inc. 100 4,375
First of America Bank Corp. 2,500 192,813
Fleet Financial Group, Inc. 900 67,444
HSBC Holdings ADR 600 147,904
Mellon Bank Corp. 2,400 145,500
Mercantile Bancorp, Inc. 200 12,300
National Westminster ADR 1,900 190,000
PNC Financial Corp. 2,400 136,950
Wells Fargo & Co. 400 135,775
Westpac Banking ADR 4,900 155,575
3,668,619
Commercial Printing (0.27%)
DAI Nippon Printing Co. 1,100 207,274
Communications Equipment (0.83%)
ADC Telecommunications, Inc. 1,200(a) 50,100
Advanced Fibre Communication 800(a) 23,300
Alcatel Alsthom ADR 4,700 118,969
Associated Group, Inc., Class B 1,300(a) 37,862
Ciena Corp. 600(a) 36,675
Excel Switching Corp. 200(a) 3,575
Harris Corp. 3,100 142,212
Inter-Tel, Inc. 200 3,875
Matsushita Electrical ADR 800 121,600
Premisys Communication, Inc. 400(a) 10,450
Tekelec, Inc. 200(a) 6,100
Tellabs, Inc. 1,500(a) 79,313
634,031
Communications Services (0.05%)
China Telecommunications ADR 200(a) 6,713
Globalstar Telecommunication Ltd. 600(a) 29,475
36,188
Computer & Data Processing
Services (1.06%)
America Online, Inc. 400(a) $ 35,675
Autodesk, Inc. 200 7,400
Bisys Group, Inc. 400(a) 13,300
Broderbund software, Inc. 400(a) 10,250
Cadence Design Systems, Inc. 400(a) 9,800
Citrix Systems, Inc. 300(a) 22,800
Compuware Corp. 1,000(a) 32,000
Ecsoft Group PLC ADR 300(a) 5,400
Electronic Arts 400(a) 15,125
FlexiInternational Software 900(a) 13,950
GTECH Holdings Corp. 700 22,356
ICG Communications, Inc. 200(a) 5,450
International Network Services 400(a) 9,250
Intersolv, Inc. 100(a) 2,025
Learnings Co., Inc. 200(a) 3,212
Medquist, Inc. 400(a) 13,900
Metacreations Corp. 300(a) 3,338
Microsoft Corp. 3,100(a) 400,675
Peoplesoft, Inc. 1,700(a) 66,300
Progress Software Corp. 500(a) 10,813
PSW Technologies, Inc. 200(a) 2,900
Quadramed Corp. 500(a) 13,750
Sungard Data Systems, Inc. 1,400(a) 43,400
Sybase, Inc. 700(a) 9,319
Symantec Corp. 300(a) 6,581
USCS International, Inc. 1,500(a) 25,500
Yahoo, Inc. 100(a) 6,925
811,394
Computer & Office Equipment (1.00%)
Ascend Communications 1,200(a) 29,400
Fore Systems, Inc. 1,600(a) 24,400
Hitachi Ltd. ADR 2,900 200,644
International Business Machines Corp. 3,200 334,600
International Game Technology 6,100 154,025
Proxim, Inc. 800(a) 9,050
Syquest Technology, Inc. 1,300(a) 4,347
Videoserver, Inc. 500(a) 7,937
764,403
Concrete, Gypsum & Plaster
Products (0.24%)
Cementos de Mexico ADR 6,800(a) 61,658
Cemex SA ADR B 2,711(a) 28,635
Italcementi Fabriche SPA ADR 13,000 90,661
180,954
Concrete Work (0.09%)
Pioneer International Ltd. ADR 25,000 68,250
Construction & Related
Machinery (0.30%)
Camco International 250 15,922
Cooper Cameron Corp. 150(a) 9,150
EVI, Inc. 400(a) 20,700
Kajima Corp. ADR 2,900 73,380
Komatsu Ltd. ADR 5,500 110,828
229,980
Consumer Products (1.43%)
Consolidated Cigar Holdings, Inc. 3,500(a) 96,469
General Cigar Holdings, Inc. 200(a) 4,263
Philip Morris Cos., Inc. 13,550 613,984
RJR Nabisco Holdings Corp. 10,200 382,500
1,097,216
Crude Petroleum & Natural Gas (0.55%)
Barrett Resources Corp. 200(a) $ 6,050
Broken Hill Proprietary Ltd. ADR 2,200 40,700
Chesapeake Energy Corp. 1,500 11,344
Dril-Quip, Inc. 200(a) 7,025
Forcenergy Inc. 200(a) 5,238
Newfield Exploration Co. 500(a) 11,656
Ocean Energy, Inc. 100(a) 4,931
Petrofina SA ADR 2,900 108,025
Societe Generale ADR 3,600 98,140
Unit Corp. 1,400(a) 13,475
USX-Marathon Group, Inc. 3,200 108,000
Vintage Petroleum, Inc. 400 7,600
422,184
Department Stores (0.34%)
Marui Corp. ADR 2,800 87,432
Penney (J.C.) Co. 2,900 174,906
262,338
Drugs (1.36%)
Dura Pharmaceuticals, Inc. 300(a) 13,763
Elan Corp. PLC ADR 400(a) 20,475
Genzyme Corp. - General Division 200(a) 5,550
Human Genome Sciences, Inc. 200(a) 7,950
Inhale Therapeutic Systems 500(a) 13,000
Jones Medical Industries, Inc. 400 15,300
Medicis Pharmaceutical Corp. 400(a) 20,450
Medimmune, Inc. 200(a) 8,575
Mirvant Medical Technology 200(a) 8,000
Novartis AG Sponsored ADR 2,879 233,904
Novo Nordisk ADR 3,200 231,600
Nycomed Amersham PLC ADR 8,569 313,839
Ortec International, Inc. 300(a) 3,919
Sangstat Medical Corp. 700(a) 28,350
Smithkline Beecham PLC ADR 2,200 113,162
Transkaryotic Therapies, Inc. 100(a) 3,513
1,041,350
Drugs, Proprietaries & Sundries (0.08%)
Amway Japan Ltd. ADR 6,833 63,205
Eating & Drinking Places (0.97%)
Brinker International, Inc. 6,700(a) 107,200
Cracker Barrel Old Country Store, Inc. 8,200 273,675
Host Marriott Corp. 18,200(a) 357,175
Papa John's International, Inc. 300(a) 10,463
748,513
Electric Services (1.12%)
Chilectra SA 2,857 72,975
Companhia Paranaense de Enersis ADR 1,615 22,105
Enersis SA ADR 5,600 101,850
EVN Energie-Vansorgung Nied ADR 3,600 94,476
GPU, Inc. 2,100 88,463
National Power ADR 3,300 130,763
Pinnacle West Capital Corp. 4,100 173,737
Shandong Huaneng Power
Development Ltd. ADR 8,000 55,000
Texas Utilities Holdings 2,900 120,531
859,900
Electrical Goods (0.35%)
CBS Corp. 9,100 267,881
Electronic Components &
Accessories (0.89%)
Altera Corp. 800(a) 26,500
Flextronics International 200(a) 6,900
Kyocera Corp. ADR 1,500 $ 135,750
Lattice Semiconductor Corp. 400(a) 18,950
Level One Communications 450(a) 12,713
Linear Technology Corp. 3,400 195,925
Maxim Integrated Products, Inc. 2,400(a) 82,800
Molex, Inc. 750 21,562
PMC Sierra, Inc. 600(a) 18,600
Rambus, Inc. 100(a) 4,575
Semtech Corp. 100(a) 3,913
Texas Instruments 2,248 101,160
Transwitch Corp. 700(a) 5,250
Triumph Group, Inc. 200(a) 6,650
Vitesse Semiconductor Corp. 300(a) 11,325
Xilinx, Inc. 900(a) 31,556
684,129
Electronic Distribution
Equipment (0.65%)
Phillips NV ADR 8,269 500,275
Elementary & Secondary
Schools (0.04%)
Computer Learning Centers, Inc. 200(a) 12,250
Devry, Inc. 500(a) 15,938
28,188
Engineering & Architectural
Services (0.07%)
Paychex, Inc. 1,000 50,625
Fabricated Structural Metal
Products (0.01%)
Aavid Thermal Technologies 300(a) 7,200
Farm & Garden Machinery (0.23%)
Case Corp. 1,100 66,481
Deere & Co. 1,900 110,794
177,275
Federal & Federally Sponsored
Credit (0.95%)
Federal Agricultural Mortgage Corp. 100(a) 6,100
SLM Holding Corp. 5,200 723,450
729,550
Finance Services (0.45%)
Cincinnati Financial Corp. 300 42,225
Grupo Financiero Bancomer SA ADR 2,883(a)(b) 37,477
Nomura Securities Co. Ltd. ADR 2,000 267,649
347,351
Fire Marine & Casualty
Insurance (2.81%)
American Bankers Insurance Group 5,200 238,875
Berkshire Hathaway, Inc. 13(a) 598,000
Loews Corp. 6,700 711,037
St. Paul Cos., Inc. 1,700 139,506
Tokio Marine & Fire Insurance ADR 4,600 265,650
Travelers, Inc. 3,750 202,031
2,155,099
Footwear, Except Rubber (0.20%)
Olivetti Ing. Co. & Cos. 253,968 153,549
Furniture & Home Furnishings (0.03%)
Bed Bath & Beyond, Inc. 600(a) 23,100
General Industrial Machinery (0.49%)
AmerGroup Ltd. ADR 5,500 $ 52,773
SKF AB ADR 15,370 322,770
375,543
Grain Mill Products (0.18%)
Ralston-Ralston Purina Group 1,500 139,406
Groceries & Related Products (0.04%)
Fleming Cos., Inc. 2,550 34,266
Grocery Stores (0.44%)
Cifra Unsponsored ADR 65,240 160,231
Koninklijke Bijenkorf
Beheer NV ADR 2,400 75,176
Santa Isabella SA ADR 4,777 83,598
Whole Foods Market, Inc. 300(a) 15,337
334,342
Health & Allied Services, NEC (0.03%)
Healthsouth Corp. 300(a) 8,325
Total Renal Care Holdings, Inc. 566(a) 15,565
23,890
Heavy Construction, Except
Highway (0.02%)
J Ray McDermott 300(a) 12,900
Holding Offices (0.22%)
Jardine Strategic Holdings Ltd. ADR 10,000 52,800
Trizec Hahn Corp. 4,934 114,407
167,207
Hospitals (0.02%)
American Healthcorp, Inc. 400(a) 2,800
Health Management Association, Inc. 500(a) 12,625
15,425
Hotels & Motels (0.52%)
Extended Stay of America 8,900(a) 110,694
John Q. Hammons Hotels, Inc. 9,300(a) 83,700
Ladbroke Group ADR 37,000 160,721
Suburban Lodges of America 1,800(a) 23,962
Vail Resorts, Inc. 900(a) 23,344
402,421
Household Audio & Video
Equipment (0.30%)
Amazoncom, Inc. 100(a) 6,025
Sony Corp. ADR 2,500 226,875
232,900
Industrial Inorganic Chemicals (0.57%)
AKZO ADR 4,283 372,085
Nova Corp. ADR 6,700 64,069
436,154
Iron & Steel Foundries (0.23%)
Kawasaki Steel Corp. ADR 7,900 108,151
Kubota Corp. ADR 850 45,900
Siderar S.A.I.C. Sponsored ADR 605 20,574
174,625
Iron Ores (0.18%)
Cia Vale Do Rio Doce 6,945 139,706
Life Insurance (0.55%)
American General Corp. 2,400 $ 129,750
Lincoln National Corp. 2,400 187,500
Nationwide Financial Services 2,900 104,763
422,013
Management & Public Relations (0.22%)
Corrections Corp. of America 200(a) 7,413
Ogden Corp. 3,900 109,931
Whitman-Hart, Inc. 1,500(a) 51,375
168,719
Measuring & Controlling Devices (0.03%)
Chromatics Color Sciences, Inc. 800(a) 12,000
Uniphase Corp. 200(a) 8,275
20,275
Meat Products (0.50%)
Groupe Danone 10,764 384,813
Medical Instruments & Supplies (0.03%)
Arterial Vascular Engingeering 300(a) 19,500
Mentor Corp. 200 7,300
26,800
Men's & Boy's Clothing Stores (0.03%)
Abercrombie & Fitch Company 800 25,000
Metal Mining Services (0.01%)
Metals USA, Inc. 400(a) 6,100
Metalworking Machinery (0.19%)
JLK Direct Distribution 700(a) 19,600
Makita Corp. ADR 13,000 123,500
143,100
Millwork, Plywood & Structural
Members (0.06%)
Georgia-Pacific Corp. 800 48,600
Miscellaneous Amusement,
Recreation Service (0.01%)
American Coin Merchandising 300(a) 5,288
Miscellaneous Apparel &
Accessory Stores (0.02%)
Pier 1 Imports, Inc. 800 18,100
Miscellaneous Business Services (0.01%)
Teletech Holdings, Inc. 600(a) 6,825
Miscellaneous Converted Paper
Products (0.31%)
Kimberly Clark Mexico ADR 9,870 233,839
P. T. Inti Indorayon Utama ADR 10,000(a) 3,002
236,841
Miscellaneous Electrical Equipment &
Supplies (0.27%)
TDK Corp. ADR 2,800 205,800
Miscellaneous Equipment Rental &
Leasing (0.45%)
Avis Rent A Car, Inc. 10,700(a) 341,731
Xtra, Corp. 100 5,863
347,594
Miscellaneous Fabricated Metal
Products (0.10%)
Parker-Hannifin Corp. 1,600 73,400
Miscellaneous Food & Kindred
Products (0.20%)
Nestle Reg. ADR 2,000 $ 150,080
Miscellaneous Investing (10.64%)
American General Hospitality Corp. 2,300 61,525
AMLI Residential Property Trust 700 15,575
Avalon Properties, Inc. 7,400 228,937
Bay Apartments Communities, Inc. 9,300 362,700
Bedford Property Investors 10,200 223,125
Brandywine Realty Trust 12,900 324,112
Brookfield Properties I/R 6,200(a) 73,654
Burnham Pacific Properties, Inc. 10,100 154,656
Capstar Hotel Co. 7,800(a) 267,637
Carramerica Realty Corp. 9,200 291,525
CBL & Associates Properties, Inc. 8,200 202,437
Cendant Corp. 59,501(a) 2,045,346
Chateau Properties 10,953 345,020
Crescent Real Estate Equities Co. 400 15,750
Equity Office Properties Trust 4,641 146,475
Essex Property Trust, Inc. 9,600 336,000
Federal Realty Investments Trust 11,600 298,700
First Union Real Estate 5,200 84,500
Great Lakes REIT, Inc. 8,500 165,219
Irvine Apartement Communities, Inc. 1,400 44,538
Manufactured Home Communities, Inc. 7,400 199,800
Oasis Residential, Inc. 8,500 189,656
Omega Healthcare Investors 4,000 154,500
Pan Pacific Retail Properties, Inc. 4,600 98,325
Pennsylvania Real Estate 2,400 58,950
Prime Group Realty Trust, Inc. 8,400 170,100
Public Storage, Inc. 2,000 58,750
Ramco-Gershenson Properties 100 1,969
Reckson Associates Realty Corp. 1,500 38,063
Republic Industries, Inc. 400(a) 9,325
Security Capital Atlantic, Inc. 10,752 227,136
Shurgard Storage Center 7,900 229,100
Taubman Centers, Inc. 37,500 487,500
Urban Shopping Centers 3,000 104,625
Walden Residential Properties, Inc. 6,600 168,300
Wellsford Real Properties, Inc. 15,777(a)(b) 246,516
Western Investment Real Estate Trust 3,500 48,125
8,178,171
Miscellaneous Non-Durable
Goods (0.23%)
Mitsubishi Corp. ADR 11,000 174,279
Miscellaneous Shopping Goods
Stores (0.03%)
Dollar Tree Stores, Inc. 500(a) 20,688
Miscellaneous Special Trade
Contractors (0.09%)
Hang Lung Development Co. ADR 9,400 66,118
Miscellaneous Textile Goods (0.01%)
Gymboree, Corp. 400(a) 10,950
Motion Picture Production &
Services (0.13%)
Viacom, Inc. 2,500(a) 103,594
Motor Vehicles & Equipment (2.21%)
Borg Warner Automotive, Inc. 4,600 $ 239,200
Fiat SPA ADR 5,170 76,258
General Motors Corp. 4,700 284,937
ITT Industries, Inc. 9,600 301,200
Meritor Automotive, Inc. 6,266 131,978
Siderurgica Venezuelana Saica ADR 2,140 8,954
Toyota Motor Corp. ADR 8,600 493,425
Volkswagen AG ADR 1,400 157,593
1,693,545
Non-Classifiable Establishments (0.04%)
Keppel Corp. Ltd. ADR 5,375 30,879
Non-Store Retailers (0.04%)
Henry Schein, Inc. 300(a) 10,500
U.S. Office Products Co. 300(a) 5,888
Viking Office Products, Inc. 500(a) 10,906
27,294
Offices & Clinics of Medical
Doctors (0.10%)
American Oncology Resources 1,500(a) 24,000
Amsurg Corp., Class A 36(a) 270
Amsurg Corp., Class B 237(a) 1,837
Concentra Managed Care, Inc. 835 28,181
Horizon Health Corp. 500(a) 11,625
Phycor, Inc. 500(a) 13,500
79,413
Oil & Gas Field Services (0.59%)
Bayard Drilling Technologies, Inc. 500(a) 8,125
Diamond Offshore Drilling 3,300 158,812
Ensco International, Inc. 400 13,400
Falcon Drilling Company, Inc. 400(a) 14,025
Grey Wolf, Inc. 2,200(a) 11,825
Noble Drilling Corp. 300(a) 9,188
Patterson Energy, Inc. 500(a) 19,344
Petroleo Brasileiro SA 5,340 124,884
Precision Drilling Corp. 600(a) 14,625
Schlumberger Ltd. 1,000 80,500
454,728
Ophthalmic Goods (0.19%)
Bausch & Lomb 3,250 128,781
Cooper Cos., Inc. 400(a) 16,350
145,131
Periodicals (0.37%)
Primedia, Inc. 22,500(a) 284,063
Personal Credit Institutions (0.39%)
American Express Co. 3,300 294,525
Firstplus Financial Group 200(a) 7,675
302,200
Personal Services (0.02%)
G & K Services, Inc. 300 12,600
Personnel Supply Services (0.18%)
Data Processing Resources 600(a) 15,300
Robert Half International, Inc. 1,100(a) 44,000
Romac International, Inc. 2,000(a) 48,875
Volt Information Sciences 600(a) 32,325
140,500
Petroleum Refining (0.97%)
Ashland, Inc. 4,600 $ 246,962
Atlantic Richfield Co. 1,600 128,200
Mobil Corp. 1,900 137,156
Total SA IE Francaise ADR 2,800 155,400
YPF Sociedad Anonima ADR 2,345 80,170
747,888
Photographic Equipment &
Supplies (0.63%)
Fuji Photo Film 8,800 336,050
OCE NV 1,400 151,550
487,600
Pipelines, Exept Natural Gas (0.00%)
Transcoastal Marine Services 200(a) 2,850
Plastic Materials & Synthetics (0.22%)
Du Pont (E.I.) De Nemour 2,100 126,131
Shanghai Petrochemical Co. Ltd. ADR 2,600 40,463
166,594
Primary Nonferrous Metals (0.14%)
Phelps Dodge Corp. 1,750 108,938
Professional & Commercial
Equipment (0.02%)
Tech Data Corp. 400(a) 15,550
Radio, Television & Computer
Stores (0.05%)
Compusa, Inc. 700(a) 21,700
Lojas Arapua SA GDR 4,200(b) 15,053
36,753
Radio & Television Broadcasting (1.41%)
American Radio System, Inc. 1,600(a) 85,300
Clear Channel Communications 8,600(a) 683,163
Grupo Televisa SA GDR 4,092(a) 158,309
HSN, Inc. 200(a) 10,300
TV Azteca SA DE CV ADR 6,381(a) 143,971
1,081,043
Railroads (0.13%)
Nagoya Railroad Co. Ltd. 2,900 99,922
Real Estate Agents & Managers (0.09%)
Atlantic Gulf Communities Co. 15,900(a) 71,550
Real Estate Operators & Lessors (1.98%)
Arden Realty Group, Inc. 13,000 399,750
Brookfield Properties Corp. 12,300 204,996
Catellus Dev. Corp. 1,900(a) 38,000
Nationwide Health Properties 15,800 402,900
Pacific Gulf Properties 13,700 325,375
Sekisui House Ltd. ADR 2,300 148,414
1,519,435
Research & Testing Services (0.01%)
Parexel International Corp. 200(a) 7,400
Residential Building
Construction (0.03%)
Rossi Residencial SA GDR 4,325(a)(b) 23,252
Sanitary Services (0.01%)
Allied Waste Industries, Inc. 400(a) 9,325
Savings Institutions (0.09%)
Astoria Financial Corp. 200 $ 11,150
Charter One Financial, Inc. 100 6,313
Dime Bancorp, Inc. 300 9,075
Firstfed Financial Corp. 300(a) 11,625
Golden State Bancorp, Inc. 200(a) 7,475
Ocwen Financial Corp. 400(a) 10,175
TCF Financial Corp. 300 10,181
65,994
Sawmills & Planning Mills (0.15%)
Louisiana Pacific Corp. 5,900 112,100
Search & Navigation Equipment (0.61%)
Litton Industries, Inc. 7,900(a) 454,250
Orbital Sciences Corp. 200(a) 5,950
Raytheon Co. 95 4,685
464,885
Security & Commodity Services (0.01%)
Price (T. Rowe) Associates 100 6,288
Security Brokers & Dealers (0.11%)
Edwards (A.G.), Inc. 150 5,963
Freidman Billings Ramsey Group, Inc. 3,900(a) 69,956
Legg Mason 100 5,594
81,513
Soap, Cleaners & Toilet Goods (0.61%)
KAO Corp. ADR 2,200 318,102
Shiseido Co. Ltd. ADR 11,000 150,590
468,692
Special Industry Machinery (0.01%)
Integrated Process Equipment 400(a) 6,300
Subdividers & Developers (0.03%)
Singapore Land ADR 11,600 25,472
Sugar & Confectionary Products (0.05%)
Perlis Plantations ADR 25,000 35,325
Surety Insurance (0.04%)
CMAC Investment Corp. 400 24,150
Triad Guaranty, Inc. 200(a) 5,800
29,950
Telephone Communications (4.08%)
Associated Group, Inc., Class A 1,500(a) 44,438
AT&T Corp. 3,300 202,125
BCE, Inc. 17,180 572,308
Compania Anonima Telefonos
de Venezuela 990 41,209
Intermedia Communications, Inc. 100(a) 6,075
Mobile Telecommunications
Technologies 1,800(a) 39,600
Motorola, Inc. 900 51,356
Sprint Corp. 2,000 117,250
Telecom Argentina Stet 1,195 42,721
Telecommunicacoes Brasileiras SA ADR 9,848 1,146,675
Telefonica de Argentina ADR 3,360 125,160
Telefonica de Espana SA ADR 2,500 227,656
Telefonica Del Peru ADR 2,693 62,781
Telefonos de Mexico SA ADR 5,090 285,358
Teleport Communication 500(a) 27,438
Teligent, Inc. 200(a) 4,925
U.S. West Communications Group 2,700 121,838
Winstar Communications, Inc. 500(a) 12,469
3,131,382
Tires & Inner Tubes (0.31%)
Bridgestone ADR 1,100 $ 239,423
Variety Stores (0.34%)
Wal-Mart Stores, Inc. 2,500 98,594
Woolworth Corp. 7,850(a) 159,944
258,538
Vocational Schools (0.02%)
Apollo Group, Inc. 400(a) 18,900
Water Transportation of Freight,
NEC (0.17%)
Penninsular & Oriental
Steamships ADR 5,720 130,728
Women's Accessory &
Specialty Stores (0.01%)
Intimate Brands, Inc. 300 7,219
Women's Clothing Stores (0.01%)
Dress Barn, Inc. 400(a) 11,350
Total Common Stocks 50,990,280
Preferred Stock (0.17%)
Miscellaneous Investing (0.10%)
First Washington Realty Trust; Series A2,300 77,050
Periodicals (0.01%)
Time Warner; Series M 3 3,453
Real Estate Agents & Managers (0.06%)
Atlantic Gulf Communities 4,809(a) 48,099
Total Preferred Stocks 128,602
Principal
Amount Value
Bonds (3.23%)
Business Credit Institutions (0.43%)
AT&T Capital Corp. Medium-Term
Notes; 5.85%; 1/5/99 $ 330,000 $ 329,502
Commercial Banks (0.78%)
NationsBank Corp. Senior Notes;
5.70%; 2/9/01 250,000 247,003
First Union - Lehman Brothers
Commercial, Class 2 A1;
Collateralized Mortgage Obligations;
6.48%; 3/18/04 347,047 349,108
596,111
Electronic Distribution
Equipment (0.34%)
Israel Electric Corp. Senior Notes;
7.25%; 12/15/06 250,000(b) 258,783
Finance Services (0.67%)
BankAmerica Institute Series B Notes;
7.70%; 12/31/26 $ 250,000(b) $ 257,982
Team Fleet Finance Corp. Notes;
7.35%; 5/15/03 250,000 259,870
517,852
Mortgage Bankers & Brokers (0.20%)
First Plus Home Loan Trust Notes;
7.60%; 4/10/30 150,000 153,632
Personal Credit Institutions (0.32%)
GMAC Medium-Term Notes;
6.10%; 12/06/00 250,000 249,212
Trusts (0.49%)
Mid-State Trust Series 4 Class A
Pass Through; 8.33%; 4/1/30 345,742 374,347
Total Bonds 2,479,439
U.S. Government Treasury Notes (23.31%)
7.25%; 8/15/04 3,350,000 3,621,142
6.25%; 5/31/00 2,000,000 2,025,000
6.50%; 8/15/05 1,000,000 1,043,438
6.25%; 4/30/01 1,750,000 1,777,344
6.38%; 5/15/99 1,500,000 1,513,595
6.25%; 2/15/07 1,250,000 1,290,235
6.63%; 4/30/02 2,000,000 2,066,876
6.38%; 5/15/00 4,500,000 4,567,500
Total U.S. Government Treasury Notes 17,905,130
Principal
Type Rate Maturity Amount Value
Federal National Mortgage Association (FNMA)
Certificates (0.64%)
FNMA 8.00% 2/1/12 $ 478,017 $ 493,993
Total Portfolio Investments (93.74%) 71,997,444
Cash and receivables, net of liabilities (6.26%) 4,807,000
Total Net Assets (100.00%) $76,804,444
(a) Non-income producing security - No dividend paid during the past twelve
months.
(b) Restricted security - See Note 4 to the financial statements.
<PAGE>
PRINCIPAL BALANCED FUND, INC.
Shares
Held Value
Common Stocks (57.83%)
Auto & Home Supply Stores (0.91%)
Autozone, Inc. 42,000(a) $ 1,218,000
Bakery Products (0.58%)
Sara Lee Corp. 13,800 $ 777,113
Beverages (1.12%)
Pepsico, Inc. 28,400 1,034,825
Universal Foods Corp. 11,000 464,750
1,499,575
Commercial Banks (4.74%)
BankBoston Corp. 14,500 1,362,094
CoreStates Financial Corp. 13,400 1,072,838
First of America Bank Corp. 5,900 455,037
Fleet Financial Group, Inc. 16,000 1,199,000
NationsBank Corp. 16,500 1,003,406
PNC Financial Corp. 22,000 1,255,375
6,347,750
Commercial Printing (0.58%)
R. R. Donnelley & Sons Co. 20,700 771,075
Communications Equipment (1.27%)
Allen Telecom, Inc. 13,000(a) 239,688
DSC Communications Corp. 24,000(a) 576,000
Nextlevel Systems 49,800(a) 890,175
1,705,863
Computer & Data Processing
Services (3.26%)
Adobe Systems, Inc. 21,500 886,875
Computer Sciences Corp. 12,300(a) 1,027,050
Electronic Data Systems Corp. 39,100 1,717,956
First Data Corp. 24,800 725,400
Siebel Systems, Inc. 71(a) 2,969
4,360,250
Computer & Office Equipment (2.01%)
Cabletron Systems, Inc. 12,400(a) 186,000
Hewlett-Packard Co. 12,400 775,000
International Business
Machines Corp. 13,700 1,432,506
3Com Corp. 8,300(a) 289,981
2,683,487
Consumer Products (1.96%)
Fortune Brands, Inc. 36,600 1,356,487
Philip Morris Cos., Inc. 9,000 407,813
UST, Inc. 23,300 860,644
2,624,944
Crude Petroleum & Natural Gas (1.24%)
Texaco, Inc. 30,600 1,663,875
Department Stores (0.71%)
Dillard, Inc., Class A 26,900 948,225
Drug Stores & Proprietary
Stores (0.42%)
Rite Aid Corp. 9,600 563,400
Drugs (4.61%)
Abbott Labs 8,300 544,169
American Home Products Corp. 15,900 1,216,350
Johnson & Johnson 21,500 1,416,313
Merck & Co., Inc. 16,000 1,700,000
Pharmacia & Upjohn, Inc. 35,300 1,292,862
6,169,694
Eating & Drinking Places (0.06%)
Tricon Global Restaurants, Inc. 2,800 $ 81,375
Electric Services (2.64%)
Central & Southwest 57,200 1,547,975
Dominion Resources, Inc. 16,200 689,512
Houston Industries, Inc. 32,200 859,338
Potomac Electric Power Co. 16,400 423,325
3,520,150
Electrical Industrial Apparatus (0.88%)
Emerson Electric Co. 20,900 1,179,544
Electronic Distribution
Equipment (0.52%)
General Electric Co. 9,500 697,062
Fats & Oils (0.92%)
Archer Daniels Midland Co. 56,824 1,232,371
Federal & Federally Sponsored
Credit (0.61%)
Federal National Mortgage Association 14,400 821,700
Fire, Marine & Casualty
Insurance (0.55%)
General Re Corp. 3,500 742,000
General Industrial Machinery (0.61%)
Pall Corp. 39,500 817,156
Grain Mill Products (0.97%)
Ralston-Ralston Purina Group 13,900 1,291,831
Greeting Cards (0.87%)
American Greetings Corp. 29,800 1,165,925
Grocery Stores (3.93%)
Albertson's, Inc. 47,500 2,250,313
American Stores Co. 50,700 1,042,519
Sysco Corp. 43,300 1,972,856
5,265,688
Household Furniture (0.89%)
Masco Corp. 23,500 1,195,562
Industrial Inorganic Chemicals (0.84%)
Dow Chemical Co. 7,900 801,850
Eastman Chemical Co. 5,450 324,616
1,126,466
Jewelry, Silverware & Plated
Ware (0.17%)
Jostens, Inc. 9,700 223,706
Life Insurance (0.91%)
Lincoln National Corp. 15,600 1,218,750
Management & Public
Relations (1.43%)
Cognizant Corp. 24,400 1,087,325
Dun & Bradstreet Corp. 26,600 822,937
1,910,262
Meat Products (0.83%)
Tyson Foods, Inc. 54,300 1,113,150
Medical Instruments & Supplies (0.90%)
St. Jude Medical, Inc. 39,550(a) 1,206,275
Medical Service & Health
Insurance (1.62%)
AON Corp. 13,125 $ 769,453
Foundation Health Systems, Inc.,
Class A 32,340(a) 723,608
Pacificare Health Systems, Inc.,
Class B 12,900(a) 675,637
2,168,698
Metal Forgings & Stampings (0.56%)
Newell Co. 17,600 748,000
Miscellaneous Shopping Goods
Stores (1.37%)
Toys 'R' Us, Inc. 58,500(a) 1,839,094
Motor Vehicles, Parts & Supplies (1.18%)
Grainger (W. W.), Inc. 16,200 1,574,437
Motor Vehicles and Equipment (1.19%)
Ford Motor Co. 32,654 1,589,842
Paper Mills (1.18%)
Kimberly Clark Corp. 32,100 1,582,931
Petroleum Refining (3.02%)
Amoco Corp. 7,700 655,462
Atlantic Richfield Co. 19,700 1,578,463
Exxon Corp. 29,600 1,811,150
4,045,075
Plastic Materials & Synthetics (0.11%)
Wellman, Inc. 7,400 144,300
Rubber & Plastics Footwear (0.51%)
Nike, Inc. 17,400 682,950
Sanitary Services (1.41%)
Browning-Ferris Industries, Inc. 14,300 529,100
Waste Management, Inc. 49,100 1,350,250
1,879,350
Security Brokers & Dealers (0.32%)
Bear Stearns Cos. 8,900 422,750
Telephone Communications (2.03%)
AT&T Corp. 16,100 986,125
GTE Corp. 21,800 1,139,050
Motorola, Inc. 10,300 587,744
2,712,919
Toys & Sporting Goods (0.68%)
Hasbro, Inc. 29,100 916,650
Variety Stores (0.71%)
Wal-Mart Stores, Inc. 24,000 946,500
Total Common Stocks 77,395,720
Principal
Amount Value
Bonds (33.22%)
Asset Backed Securities (1.51%)
Chase Manhattan Credit Card Master
Trust Asset-Backed Certificates,
Series 97-2 CL A;
6.30%; 4/15/03 $2,000,000 $ 2,015,320
Beverages (0.75%)
Seagram Co., Ltd. Notes;
6.50%; 4/1/03 $1,000,000 $ 1,003,498
Blast Furnace & Basic Steel
Products (0.16%)
Quanex Corp. Convertible
Subordinated Debentures;
6.88%; 6/30/07 200,000 208,000
Business Credit Institutions (3.04%)
CIT Group Holdings Senior
Medium-Term Notes;
6.38%; 10/1/02 1,500,000 1,506,500
Ford Motor Credit Co. Notes;
7.75%; 3/15/05 1,000,000 1,073,538
Heller Financial, Inc. Notes;
6.44%; 10/6/02 1,500,000 1,484,644
4,064,682
Commercial Banks (1.24%)
NationsBank Corp. Subordinated
Notes; 7.80%; 9/15/16 1,500,000 1,656,616
Communications Equipment (0.84%)
Motorola, Inc. Debentures;
7.50%; 5/15/25 1,000,000 1,119,076
Computer & Office
Equipment (1.55%)
IBM Corp. Debentures;
7.00%; 10/30/25 1,500,000 1,551,825
Seagate Technology, Inc. Senior Notes;
7.37%; 3/1/07 500,000 521,822
2,073,647
Consumer Products (0.77%)
Philip Morris Cos. Notes;
7.25%; 9/15/01 1,000,000 1,029,152
Department Stores (1.24%)
Dillards Department Stores, Inc.
Notes; 7.38%; 6/01/06 600,000 640,941
Sears Roebuck & Co. Medium-Term
Notes; 8.00%; 2/15/99 1,000,000 1,020,378
1,661,319
Electric Services (1.90%)
Louisiana Power & Light 1st
Mortgage Bonds;
6.00%; 3/1/00 500,000 497,834
Texas Utilities Electric Co.
Medium-Term Notes,
Series D 1st Mortgage Bond;
6.25%; 1/31/00 1,000,000 1,001,748
Virginia Electric & Power Co.
1st Mortgage Bond;
7.38%; 7/1/02 1,000,000 1,046,019
2,545,601
Forest Products (1.12%)
Weyerhaeuser Co. Debentures;
6.95%; 10/1/27 1,500,000 1,505,362
Functions Closely Related
to Banking (0.76%)
J.P. Morgan & Co. Subordinated
Notes; 6.70%; 11/1/07 1,000,000 1,013,381
General Government, NEC (0.78%)
Province of Quebec, Canada
Debentures; 7.00%; 1/30/07 $1,000,000 $ 1,038,920
Miscellaneous Investing (0.74%)
Kimco Realty Corp. Senior Notes;
6.50%; 10/1/03 1,000,000 991,407
Mortgage Bankers & Brokers (1.28%)
Countrywide Funding Corp.
Medium-Term Notes;
6.54%; 4/14/00 1,700,000 1,714,644
Motion Picture Production &
Services (0.76%)
Viacom, Inc. Guaranteed Senior Notes;
7.75%; 6/1/05 500,000 510,092
Walt Disney Co. Global Notes;
6.38%; 3/30/01 500,000 504,401
1,014,493
Motor Vehicles & Equipment (1.83%)
Chrysler Corp. Debentures;
7.45%; 3/1/27 1,000,000 1,064,908
General Motors Corp. Debentures;
7.70%; 4/15/16 1,250,000 1,377,496
2,442,404
Paper Mills (0.76%)
International Paper Co. Notes;
6.88%; 7/10/00 1,000,000 1,016,716
Personal Credit Institutions (3.39%)
American General Finance Corp.
Notes; 5.88%; 7/1/00 1,000,000 993,737
Associates Corp. of North America
Senior Notes; 6.45%; 10/15/01 1,500,000 1,510,676
General Electric Capital Corp. Notes;
6.50%; 11/1/26 1,000,000 1,014,160
General Motors Acceptance Corp.
Notes; 7.00%; 3/1/00 1,000,000 1,018,060
4,536,633
Petroleum & Petroleum
Products (1.13%)
Enron Corp. Notes;
6.75%; 9/1/04 1,500,000 1,515,333
Petroleum Refining (0.28%)
Pennzoil Co. Senior Exchangeable
Debentures; 6.50%; 1/15/03 200,000 374,500
Primary Nonferrous Metals (0.82%)
Reynolds Metals Co. Medium-Term
Notes; 9.31%; 1/3/02 1,000,000 1,103,653
Railroads (2.15%)
Norfolk Southern Debentures;
9.00%; 3/1/21 1,500,000 1,866,861
Union Pacific Corp. Notes;
7.00%; 6/15/00 1,000,000 1,016,060
2,882,921
Security Brokers & Dealers (2.33%)
Lehman Brothers, Inc. Senior
Subordinated Notes;
6.13%; 2/1/01 1,000,000 993,852
Merrill Lynch & Co. Notes;
7.00%; 1/15/07 $1,000,000 $ 1,036,471
Morgan Stanley Group, Inc.
Debentures; 8.88%; 10/15/01 1,000,000 1,086,113
3,116,436
Surety Insurance (0.77%)
MBIA, Inc. Debentures;
7.00%; 12/15/25 1,000,000 1,029,448
Telephone Communication (1.22%)
AT&T Corp. Senior Notes;
7.75%; 3/1/07 1,500,000 1,638,874
Trucking & Courier Services,
Except Air (0.10%)
Builders Transport, Inc. Convertible
Subordinated Debentures;
6.50%; 5/1/11 306,000(b) 148,410
Total Bonds 44,460,446
Principal
Type Rate Maturity Amount Value
Federal Home Loan Mortgage Corporation (FHLMC)
Certificates (3.73%)
FHLMC 6.50% 9/1/27 $3,000,000 $ 2,965,740
FHLMC 7.00 12/1/27 2,000,000 2,017,940
Total FHLMC Certificates 4,983,680
Government National Mortgage Association (GNMA)
Certificates (1.56%)
GNMA II 6.00 9/20/26-12/20/27 2,172,242 2,089,730
Principal
Amount Value
Commercial Paper (2.81%)
Personal Credit Institutions (2.81%)
Investment in Joint Trade Account;
Associates Corp.;
6.75%; 1/2/98 $3,756,423 $ 3,756,423
Total Portfolio Investments (99.15%) 132,685,999
Cash and receivables, net of liabilities (0.85%) 1,141,108
Total Net Assets (100.00%) $133,827,107
(a) Non-income producing security - No dividend paid during the past twelve
months.
(b) Non-income producing security - Security in default.
<PAGE>
PRINCIPAL BOND FUND, INC.
Principal
Amount Value
Bonds (96.30%)
Air Transportation, Scheduled (1.03%)
Federal Express Corp.,
Pass-Through Cert.;
7.96%; 3/28/17 $ 282,311 $ 312,086
7.58%; 7/2/19 500,000 529,670
841,756
Aircraft & Parts (0.40%)
Textron, Inc. Medium-Term Notes,
Series C; 9.55%; 3/19/01 300,000 328,946
Auto & Home Supply Stores (0.75%)
Pep Boys-Manny, Moe & Jack Notes;
7.00%; 6/1/05 600,000 615,416
Bakery Products (1.19%)
Nabisco, Inc. Notes;
7.05%; 7/15/07 950,000 976,515
Beverages (2.21%)
Joseph E. Seagram & Sons
Guaranteed Debentures;
8.88%; 9/15/11 1,500,000 1,809,275
Broadwoven Fabric Mills,
Cotton (1.86%)
Burlington Industries, Inc. Notes;
7.25%; 9/15/05 1,500,000 1,527,807
Cable & Other Pay TV
Services (1.31%)
TCI Communications, Inc. Senior
Notes; 8.00%; 8/1/05 1,000,000 1,070,021
Combination Utility Services (0.35%)
Public Service Electric & Gas
Medium-Term Notes;
8.16%; 5/26/09 250,000 282,839
Computer & Office Equipment (2.55%)
Seagate Technology, Inc.
Senior Notes;
7.37%; 3/1/07 2,000,000 2,087,288
Consumer Products (1.01%)
Philip Morris Cos. Notes;
6.80%; 12/1/03 500,000 506,082
RJR Nabisco Capital Corp. Senior
Notes; 8.75%; 4/15/04 300,000 318,750
824,832
Copper Ores (0.38%)
Asarco, Inc. Notes; 7.38%; 2/1/03 300,000 313,589
Crude Petroleum & Natural Gas (1.00%)
Occidental Petroleum Corp.
Medium-Term Notes;
9.73%; 6/15/01 250,000 276,031
Union Oil of California
Medium-Term Notes;
7.77%; 4/19/05 500,000 539,750
815,781
Department Stores (3.03%)
Harcourt General, Inc. Subordinated
Notes; 9.50%; 3/15/00 $ 350,000 $ 371,917
J. C. Penney Co., Inc. Medium-
Term Notes, Series A;
6.88%; 10/15/15 1,500,000 1,496,232
Sears Roebuck Co. Medium-Term
Notes; 9.05%; 2/6/12 500,000 615,411
2,483,560
Drug Stores & Proprietary
Stores (1.84%)
Rite Aid Corp. Senior Debentures;
6.88%; 8/15/13 1,500,000 1,510,494
Eating & Drinking Places (1.96%)
Marriott International, Inc.
Notes; 6.75%; 12/15/03 200,000 202,725
Senior Notes; 7.88%; 4/15/05 1,300,000 1,401,777
1,604,502
Electric Services (1.71%)
Cleveland Electric Illuminating Co.
First Mortgage Bonds;
8.75%; 11/15/05 400,000 403,215
Southern California Edison Co.
Notes; 6.38%; 1/15/06 1,000,000 996,590
1,399,805
Engines & Turbines (1.28%)
Brunswick Corp. Debentures;
7.38%; 9/1/23 1,000,000 1,045,654
Fabricated Rubber Products,
NEC (0.35%)
M. A. Hanna Co. Senior Notes;
9.38%; 9/15/03 250,000 284,364
Farm & Garden Machinery (1.91%)
Case Corp. Notes; 7.25%; 1/15/16 1,500,000 1,566,128
Gas Production & Distribution (0.95%)
Enron Corp. Notes;
7.13%; 5/15/07 750,000 776,144
General Government, NEC (1.37%)
Ontario Hydro Debentures;
7.45%; 3/31/13 500,000 549,405
Province of Saskatchewan, Canada
Global Notes; 8.00%; 2/1/13 500,000 573,325
1,122,730
Gold & Silver Ores (0.95%)
Placer Dome, Inc. Notes;
7.13%; 6/15/07 750,000 778,365
Grain Mill Products (1.33%)
Ralston Purina Co. Debentures;
7.75%; 10/1/15 1,000,000 1,091,924
Groceries & Related Products (1.83%)
Supervalu, Inc. Medium-Term Notes,
Series B; 6.49%; 12/12/05 1,500,000 1,497,494
Grocery Stores (2.65%)
American Stores Co. Bond;
8.00%; 6/1/26 $1,000,000 $ 1,132,109
Food Lion, Inc. Notes;
7.55%; 4/15/07 1,000,000 1,043,841
2,175,950
Highway & Street Construction (2.33%)
Foster Wheeler Corp. Notes;
6.75%; 11/15/05 1,900,000 1,906,815
Hospitals (0.68%)
Columbia/HCA Healthcare Corp.
Medium-Term Notes;
8.70%; 2/10/10 500,000 554,567
Hotels & Motels (1.90%)
Hilton Hotels Corp. Notes;
7.70%; 7/15/02 1,500,000 1,557,506
Household Appliances (0.70%)
Maytag Corp. Medium-Term Notes;
8.62%; 11/15/07 500,000 576,740
Household Furniture (0.65%)
Masco Corp. Debentures;
7.13%; 8/15/13 500,000 532,010
Industrial Inorganic Chemicals (2.89%)
FMC Corp.
Debentures; 7.75%; 7/1/11 1,500,000 1,631,541
Senior Notes; 6.38%; 9/1/03 200,000 199,261
Grace (W.R.) & Co. Guaranteed
Notes; 8.00%; 8/15/04 500,000 540,141
2,370,943
Life Insurance (1.26%)
John Hancock Mutual Life Insurance
Co. Surplus Notes;
7.38%; 2/15/24 1,000,000(a) 1,034,783
Lumber & Construction
Materials (2.06%)
Crane Co. Notes; 8.50%; 3/15/04 1,524,000 1,684,848
Machinery, Equipment &
Supplies (0.92%)
AAR Corp. Notes; 7.25%; 10/15/03 750,000 754,946
Millwork, Plywood & Structural
Members (1.45%)
Georgia-Pacific Corp.
Debentures; 9.50%; 12/1/11 100,000 124,112
Senior Debentures;
7.70%; 6/15/15 1,000,000 1,062,876
1,186,988
Miscellaneous Amusement, Recreation
Services (1.79%)
Circus Circus Enterprises Senior
Notes; 6.45%; 2/1/06 1,500,000 1,469,967
Miscellaneous Chemical
Products (2.41%)
Ferro Corp. Senior Debentures;
7.63%; 5/1/13 $ 400,000 $ 433,438
Smith International, Inc. Senior Notes;
7.00%; 9/15/07 1,500,000 1,543,968
1,977,406
Miscellaneous Investing (4.67%)
First Industrial LP Medium-Term
Notes; 7.00%; 12/1/06 2,000,000 2,000,876
Washington Real Estate Investment
Trust Senior Notes;
7.25%; 8/13/06 1,000,000 1,034,047
Weingarten Realty Investors
Medium-Term Notes;
7.29%; 5/23/05 750,000 791,653
3,826,576
Miscellaneous Metal Ores (1.32%)
Cyprus Amax Minerals Notes;
7.38%; 5/15/07 650,000 679,755
Cyprus Minerals Co. Notes;
10.13%; 4/1/02 350,000 397,519
1,077,274
Motion Picture Production &
Services (0.43%)
Columbia Pictures Entertainment, Inc.
Senior Subordinated Notes;
9.88%; 2/1/98 350,000 350,898
Motor Vehicles & Equipment (1.08%)
TRW, Inc. Medium-Term Notes;
9.25%; 12/30/11 700,000 881,158
Newpapers (2.01%)
News America Holdings, Inc.
Guaranteed Senior Notes;
8.50%; 2/15/05 1,500,000 1,643,822
Oil & Gas Field Services (2.60%)
Petroleum Geo-Services ASA
Notes; 7.50%; 3/31/07 2,000,000 2,129,794
Operative Builders (2.59%)
Pulte Corp. Senior Notes;
8.38%; 8/15/04 1,000,000 1,086,875
7.63%; 10/15/17 1,000,000 1,036,991
2,123,866
Paper Mills (2.50%)
Bowater, Inc. Debentures;
9.38%; 12/15/21 200,000 254,200
Champion International Corp. Notes;
9.88%; 6/1/00 250,000 270,361
7.10%; 9/1/05 875,000 906,348
Potlatch Corp. Medium-Term Notes;
8.75%; 1/14/22 500,000 611,899
2,042,808
Personal Credit Institutions (1.28%)
General Motors Acceptance Corp.
Medium-Term Notes;
8.25%; 2/24/04 500,000 546,668
Notes; 6.63%; 10/15/05 500,000 505,452
1,052,120
Petroleum Refining (5.54%)
Ashland, Inc. Medium-Term Notes;
7.71%; 5/11/07 $ 500,000 $ 543,309
Ashland Oil, Inc. Medium-Term Notes;
7.73%; 7/15/13 250,000 275,407
Series F; 8.54%; 1/13/05 250,000 280,423
Pennzoil Co. Debentures;
10.13%; 11/15/09 325,000 413,908
Phillips Petroleum Co. Notes;
9.38%; 2/15/11 500,000 628,621
Sun Co., Inc.
Debentures; 9.00%; 11/1/24 500,000 615,200
Notes; 7.13%; 3/15/04 200,000 206,661
Tosco Corp. Notes; 7.25%; 1/1/07 1,500,000 1,575,711
4,539,240
Plastic Materials &
Synthetics (2.46%)
Geon Co. Notes;
6.88%; 12/15/05 2,000,000 2,017,264
Primary Nonferrous Metals (0.85%)
Reynolds Metals Co.
Medium-Term Notes;
8.34%; 5/22/07 500,000 561,998
7.65%; 2/4/08 125,000 134,881
696,879
Pulp Mills (0.27%)
International Paper Co. Medium-Term
Notes; 9.70%; 8/15/00 200,000 217,229
Railroads (2.43%)
Union Pacific Corp.
Debentures; 7.00%; 2/1/16 1,000,000 1,006,786
Notes; 6.40%; 2/1/06 1,000,000 982,984
1,989,770
Refrigeration & Service
Machinery (0.45%)
Westinghouse Electric Corp.
Debentures; 8.63%; 8/1/12 350,000 370,080
Rental of Railroad Cars (1.33%)
Gatx Capital Corp. Medium-Term
Notes, Series C; 6.86%; 10/13/05 1,000,000 1,021,640
Signal Capital Corp. Equipment Trust
Cert.; 9.95%; 2/1/06 64,000 66,207
1,087,847
Sanitary Services (2.00%)
Laidlaw, Inc. Senior Notes;
7.88%; 4/15/05 1,045,000 1,127,717
WMX Technologies, Inc. Notes;
7.00%; 10/15/06 500,000 507,832
1,635,549
Sawmills & Planning Mills (0.99%)
MacMillan Bloedel Delaware
Guaranteed Notes; 8.50%; 1/15/04 750,000 814,612
Security Brokers & Dealers (2.53%)
Lehman Brothers, Inc.
Senior Subordinated Notes;
7.38%; 1/15/07 2,000,000 2,074,684
Telephone Communications (4.51%)
Korea Telecom Notes;
7.63%; 4/15/07 1,500,000 1,103,911
Sprint Corp. Notes; 8.13%; 7/15/02 500,000 536,493
U.S. West Capital Funding, Inc.
Medium-Term Notes;
6.83%; 11/15/07 $1,000,000 $ 1,018,089
Notes; 7.30%; 1/15/07 1,000,000 1,037,118
3,695,611
Variety Stores (0.22%)
Dayton-Hudson Corp. Debentures;
9.63%; 2/1/08 150,000 182,637
Total Bonds 78,888,416
Commercial Paper (1.60%)
Personal Credit Institutions (1.60%)
Investment in Joint Trade Account;
Associates Corp.;
6.75%; 1/2/98 1,311,866 1,311,866
Total Portfolio Investments (97.90%) 80,200,282
Cash and receivables, net of liabilities (2.10%) 1,720,386
Total Net Assets (100.00%) $81,920,668
(a) Restricted security - See Note 4 to the financial statements.
<PAGE>
PRINCIPAL CAPITAL ACCUMULATION FUND, INC.
Shares
Held Value
Common Stocks (97.87%)
Beverages (2.96%)
Anheuser Busch Cos., Inc. 135,000 $ 5,940,000
Pepsico, Inc. 49,000 1,785,438
Universal Foods Corp. 17,200 726,700
8,452,138
Combination Utility Services (1.62%)
Cinergy Corp. 58,200 2,229,788
Montana Power Co. 75,000 2,385,938
4,615,726
Commercial Banks (21.70%)
Banc One Corp. 123,940 6,731,491
BankBoston Corp. 38,300 3,597,806
Chase Manhattan 40,000 4,380,000
Comerica, Inc. 95,000 8,573,750
CoreStates Financial Corp. 91,000 7,285,688
First of America Bank Corp. 43,050 3,320,231
First Union Corp. 105,000 5,381,250
KeyCorp 103,000 7,293,688
NationsBank Corp. 36,800 2,237,900
Summit Bancorp. 150,000 7,987,500
Union Planters Corp. 75,000 5,095,312
61,884,616
Commercial Printing (1.13%)
R. R. Donnelley & Sons Co. 87,000 3,240,750
Communications Equipment (0.10%)
Allen Telecom, Inc. 16,000(a) 295,000
Computer & Office Equipment (2.27%)
Hewlett-Packard Co. 33,400 $ 2,087,500
International Business
Machines Corp. 42,000 4,391,625
6,479,125
Crude Petroleum & Natural Gas (1.50%)
Texaco, Inc. 78,800 4,284,750
Drug Stores & Proprietary
Stores (0.74%)
Rite Aid Corp. 36,000 2,112,750
Drugs (6.96%)
Abbott Labs 32,000 2,098,000
American Home Products Corp. 95,000 7,267,500
Merck & Co., Inc. 37,000 3,931,250
Pharmacia & Upjohn, Inc. 179,000 6,555,875
19,852,625
Electric Services (4.03%)
Dominion Resources, Inc. 44,400 1,889,775
FPL Group, Inc. 38,500 2,278,719
Houston Industries, Inc. 231,000 6,164,813
Potomac Electric Power Co. 45,000 1,161,562
11,494,869
Electrical Industrial Apparatus (1.07%)
Emerson Electric Co. 54,180 3,057,784
Electronic Distribution
Equipment (0.64%)
General Electric Co. 25,000 1,834,375
Farm & Garden Machinery (1.96%)
Tenneco, Inc. 141,600 5,593,200
Fats & Oils (1.48%)
Archer Daniels Midland Co. 194,260 4,213,014
General Industrial Machinery (2.03%)
Pall Corp. 280,100 5,794,569
Grain Mill Products (0.93%)
Ralston-Ralston Purina Group 28,600 2,658,013
Greeting Cards (2.45%)
American Greetings Corp. 179,000 7,003,375
Grocery Stores (2.87%)
Albertson's, Inc. 40,600 1,923,425
American Stores Co. 120,000 2,467,500
Sysco Corp. 83,400 3,799,912
8,190,837
Household Furniture (2.64%)
Masco Corp. 148,200 7,539,675
Industrial Inorganic
Chemicals (1.09%)
Dow Chemical Co. 22,000 2,233,000
Eastman Chemical Co. 14,900 887,481
3,120,481
Jewelry, Silverware & Plated
Ware (0.26%)
Jostens, Inc. 31,700 $ 731,081
Life Insurance (2.43%)
American General Corp. 128,000 6,920,000
Management & Public
Relations (2.98%)
Cognizant Corp. 44,900 2,000,856
Dun & Bradstreet Corp. 209,900 6,493,781
8,494,637
Meat Products (0.95%)
Tyson Foods, Inc. 132,000 2,706,000
Medical Instruments &
Supplies (0.57%)
St. Jude Medical, Inc. 53,100(a) 1,619,550
Medical Service & Health
Insurance (1.34%)
AON Corp. 46,575 2,730,459
Foundation Health Systems, Inc.,
Class A 48,620(a) 1,087,873
3,818,332
Metal Cans & Shipping
Containters (0.79%)
Crown Cork & Seal Co., Inc. 45,000 2,255,625
Metal Forgings & Stampings (0.95%)
Newell Co. 64,000 2,720,000
Miscellaneous Converted
Paper Products (1.29%)
Avery Dennison Corp. 82,000 3,669,500
Miscellaneous Shopping Goods
Stores (1.20%)
Toys 'R' Us, Inc. 108,700(a) 3,417,256
Motor Vehicles, Parts &
Supplies (1.24%)
Grainger (W. W.), Inc. 36,400 3,537,625
Paper Mills (1.09%)
Kimberly Clark Corp. 62,800 3,096,825
Petroleum Refining (6.39%)
Atlantic Richfield Co. 94,000 7,531,750
Chevron Corp. 80,000 6,160,000
Exxon Corp. 74,000 4,527,875
18,219,625
Photographic Equipment &
Supplies (2.24%)
Eastman Kodak Co. 105,000 6,385,312
Rental of Railroad Cars (2.80%)
GATX Corp. 110,000 7,981,875
Sanitary Services (2.58%)
Browning-Ferris Industries, Inc. 198,900 7,359,300
Soap, Cleaners, & Toilet Goods (0.79%)
Avon Products 36,600 2,246,325
Telephone Communications (6.66%)
AT&T Corp. 52,000 $ 3,185,000
Motorola, Inc. 31,400 1,791,762
Southern New England Telecom 125,000 6,289,063
US West Communications Group 171,000 7,716,375
18,982,200
Variety Stores (1.15%)
Wal-Mart Stores, Inc. 83,000 3,273,312
Total Common Stocks 279,152,052
Principal
Amount Value
Commercial Paper (1.90%)
Personal Credit Institutions (1.90%)
Associates Corp. of North America
Notes; 6.60%; 1/2/98 $5,430,000 $ 5,430,000
Total Portfolio Investments (99.77%) 284,582,052
Cash and receivables, net of liabilities (0.23%) 649,157
Total Net Assets (100.00%) $285,231,209
(a) Non-income producing security - No dividend paid during the past twelve
months.
<PAGE>
PRINCIPAL EMERGING GROWTH FUND, INC.
Shares
Held Value
Common Stocks (88.98%)
Blast Furnace & Basic Steel
Products (0.91%)
Lukens, Inc. 71,500 $ 2,042,219
Carpets & Rugs (0.54%)
Shaw Industries, Inc. 105,500 1,226,438
Chemicals & Allied Products (0.38%)
Sigma-Aldrich Corp. 21,300 846,675
Commercial Banks (10.58%)
Associated Banc Corp. 69,347 3,822,753
First Commerce Corp. 18,700 1,257,575
First Federal Capital Corp. 64,797 2,194,998
Independent Bank Corp. Michigan 44,299 1,794,110
Mercantile Bancorp., Inc. 33,390 2,053,485
Merchants Bancorp., Inc. 45,800 1,299,575
National City Corp. 21,400 1,407,050
NationsBank Corp. 7,960 484,068
North Fork Bancorp., Inc. 125,480 4,211,423
Peoples Heritage Financial
Group, Inc. 51,000 2,346,000
Princeton National Bancorp., Inc. 36,000 954,000
Summit Bancorp. 36,450 1,940,962
23,765,999
Commercial Printing (0.49%)
Merrill Corp. 47,400 1,102,050
Computer & Data Processing
Services (9.34%)
American Management Systems, Inc. 53,100(a) $ 1,035,450
Bitstream 102,000(a) 191,250
Cadence Design Systems, Inc. 170,000(a) 4,165,000
Cerner Corp. 123,500(a) 2,608,938
Choicepoint, Inc. 6,310(a) 301,302
HBO & Co. 71,000 3,408,000
Microsoft Corp. 31,500(a) 4,071,375
National Processing, Inc. 21,300(a) 210,338
Sunquest Information Systems, Inc. 103,400(a) 1,008,150
Synopsys, Inc. 111,600(a) 3,989,700
20,989,503
Computer & Office Equipment (4.57%)
3COM Corp. 43,000(a) 1,502,313
Ascend Communications 76,400(a) 1,871,800
Cabletron Systems, Inc. 70,000(a) 1,050,000
EMC Corp. 173,600(a) 4,763,150
Optika Imaging Systems 75,000(a) 257,812
Seagate Technology 4,000(a) 77,000
SystemSoft Corp. 116,900(a) 745,237
10,267,312
Construction & Related
Machinery (2.81%)
EVI, Inc. 122,000(a) 6,313,500
Crude Petroleum & Natural
Gas (1.09%)
Devon Energy Corp. 63,800 2,456,300
Dairy Products (0.41%)
Dreyer's Grand Ice Cream, Inc. 38,600 931,225
Department Stores (1.31%)
Saks Holding 142,000(a) 2,937,625
Drugs (1.63%)
Alliance Pharmaceutical Corp. 30,000(a) 217,500
Forest Laboratories, Inc. 18,500(a) 912,281
Genzyme Corp. - General Division 7,182(a) 199,301
Genzyme Corp. - Tissue Repair 215(a) 1,478
Merck & Co., Inc. 10,000 1,062,500
Pharmacia & Upjohn, Inc. 34,400 1,259,900
Seragen, Inc. 20,000(a) 6,000
3,658,960
Electronic Components &
Accessories (5.52%)
Altera Corp. 50,000(a) 1,656,250
Intel Corp. 45,300 3,182,325
Linear Technology Corp. 49,700 2,863,962
Solectron Corp. 112,800(a) 4,688,250
12,390,787
Engineering & Architectural
Services (1.09%)
Paychex, Inc. 48,500 2,455,313
Fire, Marine, & Casualty
Insurance (1.51%)
Berkley W.R. Corp. 77,400 3,395,925
Footwear, Except Rubber (0.64%)
Nine West Group, Inc. 55,700(a) 1,444,719
General Industrial Machinery (4.22%)
Flow International Corp. 101,500(a) $ 951,562
Kaydon Corp. 97,000 3,164,625
Pentair, Inc. 58,000 2,084,375
Roper Industries, Inc. 115,800 3,271,350
9,471,912
Grocery Stores (0.73%)
Casey's General Stores, Inc. 64,500 1,636,688
Holding Offices (0.74%)
ISB Financial Corp. 55,700 1,664,037
Hose, Belting, Gaskets &
Packing (0.86%)
Mark IV Industries 88,218 1,929,769
Hospitals (1.80%)
Humana, Inc. 66,200(a) 1,373,650
Universal Health Services, Inc.,
Class B 53,100(a) 2,674,913
4,048,563
Household Appliances (1.24%)
Maytag Corp. 74,400 2,776,050
Industrial Inorganic
Chemicals (0.29%)
ICN Pharmaceuticals, Inc. 13,564 662,093
Industrial Machinery, NEC (1.56%)
Coltec Industries 151,300(a) 3,508,269
Insurance Agents, Brokers &
Services (1.62%)
Equifax, Inc. 103,000 3,650,062
Investment Offices (1.53%)
AMVESCAP PLC Sponsored ADR 39,960 3,446,550
Iron & Steel Foundries (0.23%)
Atchison Casting Corp. 31,900(a) 518,375
Knitting Mills (1.18%)
Russell Corp. 100,000 2,656,250
Laundry, Cleaning & Garment
Services (0.74%)
G & K Services, Inc. 39,525 1,660,050
Measuring & Controlling
Devices (0.99%)
ISCO, Inc. 22,513 199,798
Millipore Corp. 52,200 1,771,538
Photon Dynamics 73,600(a) 248,400
2,219,736
Meat Products (1.10%)
Michael Foods, Inc. 101,200 2,466,750
Medical Instruments &
Supplies (1.99%)
Boston Scientific Corp. 35,200(a) 1,614,800
Steris Corp. 59,200(a) 2,856,400
4,471,200
Medical Service & Health
Insurance (4.27%)
Alternative Living Services 99,600(a) $ 2,944,425
Foundation Health Systems, Inc.,
Class A 111,450(a) 2,493,694
Orthofix International NV 77,600(a) 911,800
Pacificare Health Systems, Inc.,
Class A 20,598(a) 1,078,820
Pacificare Health Systems, Inc.,
Class B 190(a) 9,547
Patient InfoSystems, Inc. 59,000(a) 154,875
United Healthcare Corp. 40,000 1,987,500
9,580,661
Metal Services, NEC (0.63%)
BMC Industries, Inc. 87,100 1,404,488
Miscellaneous Chemical
Products (1.61%)
Cytec Industries 51,200(a) 2,403,200
H. B. Fuller Co. 24,400 1,207,800
3,611,000
Mortgage Bankers & Brokers (0.75%)
Money Store, Inc. 79,700 1,673,700
Non-Store Retailers (0.98%)
U.S. Office Products Co. 111,600(a) 2,190,150
Office Furniture (0.87%)
Chromcraft Revington, Inc. 38,500(a) 1,232,000
Kimball International, Inc., Class B 38,600 711,687
1,943,687
Office & Clinics of Medical
Doctors (1.01%)
Phycor, Inc. 83,700(a) 2,259,900
Oil & Gas Field Services (1.67%)
Diamond Offshore Drilling 78,000 3,753,750
Operative Builders (1.48%)
D. R. Horton, Inc. 159,500 2,771,312
Pulte Corp. 13,421 561,166
3,332,478
Paints & Allied Products (0.65%)
RPM, Inc. 95,250 1,452,562
Plastic Materials & Synthetics (0.61%)
A. Schulman, Inc. 54,200 1,361,775
Plumbing, Heating,
Air-Conditioning (0.66%)
Apogee Enterprises, Inc. 121,200 1,439,250
Metalclad Corp. 45,600(a) 49,875
1,489,125
Public Building & Related
Furniture (0.89%)
BE Aerospace, Inc. 75,000(a) 2,006,250
Refrigeration & Service
Machinery (0.33%)
Tecumseh Products Co., Class A 15,300 745,875
Sanitary Services (0.92%)
Browning-Ferris Industries, Inc. 49,500 1,831,500
USA Waste Services, Inc. 5,847(a) 229,495
2,060,995
Savings Institutions (1.73%)
Greenpoint Financial Corp. 35,000 $ 2,539,687
Sterling Financial Corp. 62,000(a) 1,348,500
3,888,187
Screw Machine Products, Bolts,
Etc. (0.94%)
TriMas Corp. 61,100 2,100,312
Security Brokers & Dealers (0.96%)
Jefferies Group, Inc. 52,800 2,161,500
Telephone Communications (2.46%)
Brooks Fiber Properties 50,100(a) 2,755,500
McLeod USA, Inc. 86,600(a) 2,771,200
5,526,700
Toys & Sporting Goods (0.91%)
Mattel, Inc. 55,000 2,048,750
Trucking & Courier Services,
Except Air (0.47%)
J. B. Hunt Transport Services, Inc. 56,900 1,066,875
Women's & Children's
Undergarments (0.54%)
Warnaco Group 38,556 1,209,695
Total Common Stocks 199,879,319
Preferred Stock (0.09%)
Medical Service & Health
Insurance (0.09%)
Pacificare Health Systems, Inc.
Series A Convertible 10,000 212,500
Principal
Amount Value
Bonds (0.74%)
Computer & Data Processing
Services (0.22%)
Sierra On Line Convertible
Subordinated Debentures;
6.50%; 4/1/01 $ 110,000(b) $ 489,913
Industrial Inorganic
Chemicals (0.07%)
Ciba-Geigy Corp. Exchangeable
Subordinated Debentures;
6.25%; 3/15/16 150,000(b) 164,250
Management & Public
Relations (0.45%)
Complete Management, Inc.
Convertible Debentures;
8.00%; 12/15/03 1,000,000 1,005,000
Total Bonds 1,659,163
Commercial Paper (10.00%)
Business Credit Institutions (1.56%)
American Express Credit Corp.;
6.00%; 1/7/98 $ 755,000 $ 754,355
CIT Group Holdings, Inc. Notes;
6.05%; 1/12/98 2,750,000 2,745,378
3,499,733
Personal Credit Institutions (8.44%)
Ford Motor Credit Co.;
5.86%; 1/5/98 1,085,000 1,084,470
6.05%; 1/5/98 6,480,000 6,476,733
5.54%; 1/7/98 240,000 239,802
Investment in Joint Trade Account;
Associates Corp.;
6.75%; 1/2/98 11,152,515 11,152,515
18,953,520
Total Commercial Paper 22,453,253
Total Portfolio Investments (99.81%) 224,204,235
Cash and receivables, net of liabilities (0.19%) 425,404
Total Net Assets (100.00%) $224,629,639
(a) Non-income producing security - No dividend paid during the past twelve
months.
(b) Restricted security - See Note 4 to the financial statements.
<PAGE>
PRINCIPAL GOVERNMENT SECURITIES FUND, INC.
Principal
Type Rate Maturity Amount Value
Government National Mortgage Association (GNMA)
Certificates (31.14%)
GNMA I 6.00% 3/20/27 $ 633,645 $ 609,643
GNMA I 6.50 5/15/26 970,298 960,828
GNMA I 7.00 1/15/24-2/15/27 1,759,069 1,776,247
GNMA I 7.50 1/15/27-2/15/27 1,959,122 2,012,234
GNMA I 8.00 10/15/16-6/15/17 1,291,381 1,357,839
GNMA II 6.00 4/20/24-1/1/28 20,617,566 19,868,761
GNMA II 6.00 12/20/25-2/20/26 2,822,530 2,787,079
Total GNMA Certificates 29,372,631
Federal National Mortgage Association (FNMA)
Certificates (19.42%)
FNMA 5.50 5/1/24 1,155,416 1,073,093
FNMA 6.00 11/1/23-3/1/26 3,805,617 3,677,700
FNMA 6.50 11/1/23-6/1/26 6,081,911 6,025,479
FNMA 7.00 8/1/23-11/1/27 4,672,680 4,715,146
FNMA 7.50 4/1/22-7/1/27 1,889,026 1,939,998
FNMA GL 6.50 8/1/25 894,586 886,892
Total FNMA Certificates 18,318,308
Federal Home Loan Mortgage Corporation (FHLMC)
Certificates (17.72%)
FHLMC 5.50% 2/1/24 $ 953,147 $ 898,637
FHLMC 6.00 12/1/23-1/1/26 2,699,337 2,609,241
FHLMC 6.50 4/1/24-12/9/27 4,134,880 4,098,640
FHLMC 7.00 1/1/24-2/1/28 1,749,888 1,771,041
FHLMC 7.50 8/1/27-12/1/27 1,944,827 1,992,936
FHLMC GOLD 5.50 3/1/24 423,349 407,448
FHLMC GOLD 6.50 10/1/25-5/1/26 1,812,608 1,796,951
FHLMC GOLD 7.00 9/1/23-12/1/23 1,639,003 1,661,900
FHLMC GOLD 7.50 2/1/22-6/1/24 1,252,501 1,288,350
FHLMC G/L 7.50 3/1/23 179,017 184,259
Total FHLMC Certificates 16,709,403
Principal
Amount Value
Student Loan Marketing Association (SLMA)
Certificates (15.51%)
Student Loan Marketing Association
Debentures;
7.30%; 8/1/12 $10,000,000 $11,068,610
8.47%; 12/1/08 1,000,000 1,186,532
9.15%; 12/1/04 1,200,000 1,408,746
Notes; 6.13%; 12/1/05 560,000 561,324
Notes; 9.25%; 6/1/04 350,000 409,213
Total SLMA Certificates 14,634,425
Private Export Funding Corporation (PEFCO)
Certificates (15.64%)
Private Export Funding Corp.
Secured Notes;
6.62%; 10/1/05 2,000,000 2,069,000
9.45%; 12/31/99 4,500,000 4,810,140
Series SS, Senior Secured Notes;
5.50%; 3/15/01 3,325,000 3,287,228
5.80%; 2/1/04 2,200,000 2,190,144
7.03%; 10/31/03 2,275,000 2,392,913
Total PEFCO Certificates 14,749,425
Federal Agency Short-Term Obligations (2.72%)
Federal & Federally Sponsored
Credit (2.72%)
Federal Home Loan Mortgage Corp.;
4.75%; 1/2/98 2,570,000 2,570,000
Total Portfolio Investments (102.15%) 96,354,192
Liabilities, net of cash and receivables (-2.15%) $(2,031,732)
Total Net Assets (100.00%) $94,322,460
<PAGE>
PRINCIPAL GROWTH FUND, INC.
Shares
Held Value
Common Stocks (84.59%)
Advertising (1.22%)
Interpublic Group of Cos., Inc. 41,350 $ 2,059,747
Beverages (1.68%)
Coca-Cola Co. 9,600 639,600
Pepsico, Inc. 59,900 2,182,606
2,822,206
Blast Furnace & Basic Steel
Products (0.57%)
Lukens, Inc. 33,600 959,700
Carpets & Rugs (0.38%)
Shaw Industries, Inc. 54,800 637,050
Cash Grains (1.91%)
Pioneer Hi-Bred International, Inc. 29,900 3,206,775
Commercial Banks (8.45%)
Banc One Corp. 31,000 1,683,688
BankBoston Corp. 22,000 2,066,625
Barnett Banks Inc. 10,900 783,437
Chase Manhattan 15,000 1,642,500
First of America Bank Corp. 19,150 1,476,944
Firstar Corp. 32,700 1,387,706
FirstMerit Corp. 31,800 902,325
NationsBank Corp. 26,602 1,617,734
Norwest Corp. 50,000 1,931,250
Princeton National Bancorp., Inc. 27,300 723,450
14,215,659
Communications Equipment (3.13%)
Commscope, Inc. 27,566(a) 370,418
Lucent Technologies 20,000 1,597,500
Nextlevel Systems 82,700(a) 1,478,263
Northern Telecom Ltd. 20,400 1,815,600
5,261,781
Computer & Data Processing
Services (2.36%)
GTECH Holdings Corp. 52,100(a) 1,663,944
Microsoft Corp. 17,800(a) 2,300,650
3,964,594
Computer & Office Equipment (4.28%)
Automatic Data Processing, Inc. 21,800 1,337,975
Ceridian Corp. 40,800(a) 1,869,150
Digital Equipment Corp. 33,600(a) 1,243,200
Hewlett-Packard Co. 30,000 1,875,000
Pitney Bowes, Inc. 9,600 863,400
7,188,725
Department Stores (1.96%)
Federated Department Stores 40,000(a) $ 1,722,500
May Department Stores 30,000 1,580,625
3,303,125
Drugs (8.35%)
Bristol-Myers Squibb Co. 21,800 2,062,825
Forest Laboratories, Inc. 35,600(a) 1,755,525
Genzyme Corp. - General Division 26,300(a) 729,825
Genzyme Corp. - Tissue Repair 285(a) 1,959
Johnson & Johnson 21,800 1,436,075
Lilly (Eli) & Co. 43,600 3,035,650
Merck & Co., Inc. 15,900 1,689,375
Pharmacia & Upjohn, Inc. 30,000 1,098,750
Smithkline Beecham PLC ADR 43,600 2,242,675
14,052,659
Eating & Drinking Places (1.42%)
Marriott International, Inc. 27,300 1,890,525
McDonald's Corp. 7,600 362,900
Tricon Global Restaurants, Inc. 4,590 133,397
2,386,822
Electrical Goods (0.53%)
Avnet, Inc. 13,600 897,600
Electronic Components &
Accessories (2.96%)
General Semiconductors 20,675(a) 239,055
Intel Corp. 33,800 2,374,450
Linear Technology Corp. 41,200 2,374,150
4,987,655
Electronic Distribution
Equipment (0.48%)
General Electric Co. 10,900 799,788
Federal & Federally Sponsored
Credit (1.02%)
Federal National Mortgage Association 30,000 1,711,875
Fire, Marine, & Casualty
Insurance (1.21%)
Travelers, Inc. 37,798 2,036,367
Footwear, Except Rubber (1.32%)
Stride Rite Corp. 184,700 2,216,400
Forest Products (0.21%)
Georgia Timber Group 15,300 347,119
General Industrial Machinery (2.83%)
Ingersoll-Rand Co. 33,450 1,354,725
Tyco International Ltd. 75,200 3,388,700
4,743,425
Grain Mill Products (1.73%)
General Mills, Inc. 20,000 1,432,500
Ralston-Ralston Purina Group 15,900 1,477,706
2,910,206
Grocery Stores (0.32%)
Casey's General Stores, Inc. 21,200 537,950
Hose, Belting, Gaskets &
Packing (0.87%)
Mark IV Industries 67,025 1,466,172
Hospitals (1.59%)
Humana, Inc. 49,600(a) $ 1,029,200
Universal Health Services, Inc.,
Class B 32,700(a) 1,647,263
2,676,463
Household Furniture (1.15%)
Masco Corp. 38,100 1,938,337
Investment Offices (1.41%)
AMVESCAP PLC Sponsored ADR 27,500 2,371,875
Lumber & Other Building
Materials (1.57%)
Home Depot, Inc. 44,800 2,637,600
Medical Instruments &
Supplies (1.77%)
Becton, Dickinson & Co. 21,800 1,090,000
Boston Scientific Corp. 41,100(a) 1,885,463
2,975,463
Medical Service & Health
Insurance (3.10%)
AON Corp. 19,150 1,122,669
Foundation Health Systems, Inc.,
Class A 90,000(a) 2,013,750
Pacificare Health Systems, Inc.,
Class B 11,011(a) 576,701
United Healthcare Corp. 30,000 1,490,625
5,203,745
Millwork, Plywood & Structural
Members (0.55%)
Georgia-Pacific Corp. 15,300 929,475
Miscellaneous Converted Paper
Products (0.35%)
Minnesota Mining & Mfg. Co. 7,100 582,644
Miscellaneous Fabricated Metal
Products (1.08%)
Parker-Hannifin Corp. 39,750 1,823,531
Miscellaneous Investing (1.72%)
Cendant Corp. 84,108(a) 2,891,213
Miscellaneous Plastics Products,
NEC (0.16%)
Rubbermaid, Inc. 10,900 272,500
Miscellaneous Shopping Goods
Stores (0.40%)
Toys 'R' Us, Inc. 21,500(a) 675,906
Motor Vehicles & Equipment (2.65%)
Chrysler Corp. 65,700 2,311,819
Dana Corp. 45,100 2,142,250
4,454,069
Paints & Allied Products (0.31%)
RPM, Inc. 34,125 520,406
Petroleum Refining (1.79%)
Atlantic Richfield Co. 12,700 1,017,588
Exxon Corp. 32,300 1,976,356
2,993,944
Plastic Materials & Synthetics (0.50%)
A. Schulman, Inc. 33,600 $ 844,200
Preserved Fruits & Vegetables (0.78%)
CPC International, Inc. 12,100 1,303,775
Radio, Television & Computer
Stores (0.23%)
Tandy Corp. 10,000 385,625
Radio & Television
Broadcasting (1.06%)
Sinclair Broadcast Group 38,200(a) 1,781,075
Refrigeration & Service
Machinery (0.49%)
Tecumseh Products Co., Class A 16,800 819,000
Rubber & Plastics Footwear (0.51%)
Nike, Inc. 21,800 855,650
Sanitary Services (0.97%)
Browning-Ferris Industries, Inc. 32,000 1,184,000
Waste Management, Inc. 16,400 451,000
1,635,000
Soap, Cleaners & Toilet Goods (2.78%)
Colgate-Palmolive Co. 25,500 1,874,250
Ecolab, Inc. 50,600 2,805,138
4,679,388
Sugar & Confectionary
Products (1.18%)
Wrigley Wm. Jr. Co. 25,000 1,989,062
Telephone Communications (4.63%)
MCI Communications Corp. 50,000 2,140,625
Motorola, Inc. 29,800 1,700,462
Teleport Communication 45,000(a) 2,469,375
WorldCom, Inc. 49,100(a) 1,485,275
7,795,737
Toys & Sporting Goods (0.87%)
Mattel, Inc. 39,250 1,462,062
Variety Stores (0.38%)
Wal-Mart Stores, Inc. 16,400 646,775
Women's & Children's
Undergarments (1.42%)
Warnaco Group, Class A 76,100 2,387,637
Total Common Stocks 142,245,557
Preferred Stock (0.08%)
Medical Service & Health
Insurance (0.08%)
Pacificare Health Systems, Inc.,
Series A Convertible 6,091 129,434
Principal
Amount Value
Commercial Paper (15.11%)
Business Credit Institutions (4.66%)
American Express Credit Corp.;
6.00%; 1/7/98 $ 600,000 $ 599,500
CIT Group Holdings, Inc. Notes;
6.05%; 1/12/98 7,250,000 7,237,816
7,837,316
Personal Credit Institutions (10.45%)
American General Finance Corp.;
5.85%; 1/5/98 500,000 499,756
Associates First Capital Corp.;
6.17%; 1/7/98 570,000 569,511
Ford Motor Credit Co.;
6.05%; 1/5/98 7,165,000 7,161,388
5.95%; 1/7/98 270,000 269,777
Household Finance Corp.;
6.08%; 1/5/98 695,000 694,648
Investment in Joint Trade Account;
Associates Corp.;
6.75%; 1/2/98 8,380,060 8,380,060
17,575,140
Total Commercial Paper 25,412,456
Total Portfolio Investments (99.78%) 167,787,447
Cash and receivables, net of liabilities (0.22%) 372,946
Total Net Assets (100.00%) $168,160,393
(a) Non-income producing security - No dividend paid during the past twelve
months.
<PAGE>
PRINCIPAL HIGH YIELD FUND, INC.
Principal
Amount Value
Bonds (93.91%)
Advertising (2.67%)
Lamar Advertising Co.
Senior Subordinated Notes;
9.63%; 12/1/06 $200,000 $ 215,250
Outdoor Systems
Senior Subordinated Notes;
8.88%; 6/15/07 200,000 208,000
423,250
Aircraft & Parts (1.94%)
Rohr Industries, Inc. Subordinated
Debentures; 9.25%; 3/1/17 300,000 307,500
Blast Furnace & Basic Steel
Products (3.92%)
Titan Wheel International Senior
Subordinated Notes; 8.75%; 4/1/07 300,000 314,250
Weirton Steel Corp. Senior Notes;
10.75%; 6/1/05 300,000 306,750
621,000
Broadwoven Fabric Mills,
Cotton (1.95%)
J.P. Stevens & Co., Inc. Sinking Fund
Debentures; 9.00%; 3/1/17 $300,000 $ 309,750
Cable & Other Pay TV
Services (2.68%)
Century Communications Senior
Notes; 8.75%; 10/1/07 100,000 102,250
Jones Intercable, Inc. Senior Notes;
9.63%; 3/15/02 300,000 322,500
424,750
Cogeneration - Small Power
Producer (2.55%)
AES Corp. Senior Subordinated
Notes; 8.38%; 8/15/07 200,000 199,500
Calpine Corp. Senior Notes;
8.75%; 7/15/07 200,000(a) 204,000
403,500
Communication Equipment (1.29%)
FWT, Inc. Senior Subordinated Notes;
9.88%; 11/15/07 200,000(a) 205,000
Computer & Data Processing
Services (0.65%)
Decisionone Corp. Senior
Subordinated Notes;
9.75%; 8/1/07 100,000 102,750
Crude Petroleum &
Natural Gas (6.56%)
Chesapeake Energy Corp. Senior Notes;
8.50%; 3/15/12 200,000 198,500
Nuevo Energy Co. Senior Subordinated
Notes; 9.50%; 4/15/06 400,000 426,000
Ocean Energy, Inc. Senior Subordianted
Notes; 8.88%; 7/15/07 200,000 212,000
Snyder Oil Co. Senior Subordinated
Notes; 8.75%; 6/15/07 200,000 203,000
1,039,500
Dairy Farms (1.84%)
Fage Dairy Industry S.A. Senior Notes;
9.00%; 2/1/07 300,000 291,750
Deep Sea Foreign Transportation
of Freight (1.28%)
Trico Marine Services
Senior Notes, Series E;
8.50%; 8/1/05 200,000(a) 202,750
Electrical Industrial Apparatus (1.34%)
Motors & Gears, Inc., Series B Senior
Notes; 10.75%; 11/15/06 200,000 212,500
Electronic Components &
Accessories (4.12%)
Advanced Micro Devices, Inc.;
Senior Secured Notes;
11.00%; 8/1/03 300,000 321,000
Fairchild Semiconductor Corp.
Senior Subordinated Notes;
10.13%; 3/15/07 125,000 132,188
Flextronics International Ltd.
Senior Subordinated Notes;
8.75%; 10/15/07 $200,000(a) $ 198,500
651,688
Engines & Turbines (1.80%)
Outboard Marine Corp. Debentures;
9.13%; 4/15/17 300,000 285,000
Family Clothing Stores (0.64%)
Specialty Retailers, Inc.
Senior Notes;
8.50%; 7/15/05 100,000 102,000
Finance Services (1.32%)
DVI, Inc. Senior Notes;
9.88%; 2/1/04 200,000 208,500
Footwear, Except Rubber (1.32%)
Brown Group, Inc. Senior Notes;
9.50%; 10/15/06 200,000 209,000
Forest Products (1.86%)
Doman Industries, Ltd. Senior Notes;
8.75%; 3/15/04 300,000 294,000
Fuel Dealers (1.88%)
Petroleum Heat & Power Co., Inc.
Subordinated Notes; 10.13%; 4/1/03 300,000 297,000
Groceries & Related Products (1.96%)
Rykoff-Sexton, Inc. Senior
Subordinated Notes; 8.88%; 11/1/03 300,000 309,750
Grocery Stores (1.36%)
Quality Food Centers Senior
Subordinated Notes; 8.70%; 3/15/07 200,000 216,000
Hotels & Motels (3.89%)
HMH Properties, Inc. Senior Notes;
8.88%; 7/15/07 200,000 210,500
John Q. Hammons Hotels, L.P. &
Finance Corp. First Mortgage
Notes; 8.88%; 2/15/04 300,000 306,000
Riviera Holdings Corp. First Mortgage
Notes; 10.00%; 8/15/04 100,000(a) 99,250
615,750
Industrial Inorganic
Chemicals (0.69%)
PT Tri Polyta Indonesia TBK
Guaranteed Secured Notes;
11.38%; 12/1/03 200,000 110,000
Knitting Mills (1.96%)
Tultex Corp. Senior Notes;
10.63%; 3/15/05 300,000 310,500
Miscellaneous Amusement,
Recreation Service (3.30%)
Rio Hotel & Casino, Inc. Senior
Subordinated Notes;
9.50%; 4/15/07 300,000 317,250
Station Casinos, Inc. Senior
Subordinated Notes, Series B
9.63%; 6/1/03 200,000 206,000
523,250
Miscellaneous Electrical Equipment &
Supplies (0.62%)
The DII Group Senior Subordinated
Notes; 8.50%; 9/15/07 $100,000(a) $ 98,000
Miscellaneous Plastics Products,
NEC (1.92%)
Congoleum Corp. Senior Notes;
9.00%; 2/1/01 300,000 303,750
Miscellaneous Shopping Goods
Stores (0.63%)
Zale Corp. Senior Notes;
8.50%; 10/1/07 100,000(a) 100,000
Motion Picture Production &
Services (1.29%)
Viacom, Inc. Guaranteed Senior
Notes; 7.75%; 6/1/05 200,000 204,036
Newspapers (1.31%)
Hollinger International Publishing, Inc.
Senior Notes; 8.63%; 3/15/05 200,000 207,000
Nursing & Personal Care
Facilities (3.25%)
Integrated Health Services, Inc.
Senior Subordinated Notes;
9.25%; 1/15/08 200,000(a) 203,500
Mariner Health Group, Inc. Senior
Subordinated Notes; 9.50%; 4/1/06 300,000 310,500
514,000
Oil & Gas Field Services (2.91%)
Dawson Production Services Senior
Notes; 9.38%; 2/1/07 300,000 316,125
Polysindo International Finance Co.
B.V. Guaranteed Secured Notes;
9.38%; 7/30/07 200,000 144,000
460,125
Paper Mills (1.06%)
Indah Kiat Finance Mauritius Ltd.
Guaranteed Senior Notes;
10.00%; 7/1/07 200,000(a) 168,000
Paperboard Containers &
Boxes (0.16%)
Paperboard Industries International, Inc.
Senior Notes; 8.38%; 9/15/07 25,000(a) 24,750
Petroleum Refining (2.01%)
Crown Central Petroleum Corp.
Senior Notes; 10.88%; 2/1/05 300,000 318,000
Pulp Mills (1.21%)
Pen-Tab Industries, Inc. Senior
Subordinated Debentures;
10.88%; 2/1/07 200,000 192,000
Radio, Television & Computer
Stores (1.93%)
CompUSA, Inc. Senior Subordinated
Notes; 9.50%; 6/15/00 $300,000 $ 306,000
Radio & Television
Broadcasting (2.66%)
American Radio Systems Senior
Subordinated Notes; 9.00%; 2/1/06 300,000 321,000
Antenna TV S.A. Senior Notes;
9.00%; 8/1/07 100,000 100,000
421,000
Retail Stores, NEC (1.35%)
Cole National Group, Inc. Senior
Subordinated Notes;
9.88%; 12/31/06 200,000 214,000
Search & Navigation
Equipment (1.97%)
AMRESCO, Inc. Senior Subordinated
Notes; 10.00%; 3/15/04 300,000 311,250
Soap, Cleaners & Toilet Goods (2.01%)
Coty, Inc. Senior Subordinated Notes;
10.25%; 5/1/05 300,000 318,750
Telephone Communication (8.81%)
Lenfest Communications Senior Notes;
8.38%; 11/1/05 200,000 206,250
Paging Network, Inc. Senior
Debentures; 8.88%; 2/1/06 300,000 294,000
Rogers Cablesystems, Ltd. Senior
Secured Second Priority Notes;
9.63%; 8/1/02 250,000 266,250
Rogers Cantel, Inc. Senior Secured
Debentures; 9.75%; 6/1/16 300,000 320,250
Vanguard Cellular Systems, Inc.
Senior Debentures; 9.38%; 4/15/06 300,000 309,000
1,395,750
Textile Finishing, Except Wool (2.12%)
Dominion Textile (USA), Inc.
Guaranteed Senior Notes;
9.25%; 4/1/06 300,000 335,250
Water Supply (1.92%)
California Energy Casecnan Water &
Energy Co., Inc. Senior Secured
Bonds, Series B; 11.95%; 11/15/10 300,000 304,500
Total Bonds 14,872,599
Commercial Paper (3.67%)
Personal Credit Institutions (3.67%)
Investment in Joint Trade Account;
Associates Corp.; 6.75%; 1/2/98 580,360 580,360
Total Portfolio Investments (97.58%) 15,452,959
Cash and receivables, net of liabilities (2.42%) 383,824
Total Net Assets (100.00%) $15,836,783
(a) Restricted security - See Note 4 to the financial statements.
<PAGE>
PRINCIPAL MONEY MARKET FUND, INC.
Principal
Amount Value
Commercial Paper (79.30%)
Asset Backed Securities (6.43%)
Retailer Funding Corp.;
5.74%; 1/6/98 $ 400,000 $ 399,745
6.05%; 1/7/98 250,000 249,790
Sheffield Receivables Corp.;
5.90%; 1/13/98 550,000 549,009
5.75%; 1/14/98 400,000 399,233
5.90%; 1/23/98 450,000 448,451
5.80%; 2/6/98 1,000,000 994,361
3,040,589
Business Credit Institutions (1.05%)
General Electric Capital Corp.;
5.85%; 1/23/98 500,000 498,294
Commercial Banks (4.89%)
Norwest Corporation;
5.78%; 1/27/98 1,100,000 1,095,585
5.76%; 1/30/98 1,225,000 1,219,512
2,315,097
Computer & Office
Equipment (3.24%)
Xerox Corp.;
5.75%; 2/13/98 1,544,000 1,533,642
Department Stores (4.90%)
Sears Roebuck Acceptance Corp.;
5.81%; 1/16/98 525,000 523,814
5.59%; 1/21/98 900,000 897,345
5.59%; 1/22/98 900,000 897,205
2,318,364
Electric Services (8.34%)
AES Shady Point, Inc.;
LOC Bank of
Tokyo-Mitsubishi, Ltd.;
5.65%; 1/20/98 475,000 473,658
Florida Power Corp.;
6.75%; 1/2/98 1,725,000 1,725,000
5.85%; 1/5/98 500,000 499,756
Wisconsin Power & Light Co.;
5.84%; 1/9/98 1,250,000 1,248,581
3,946,995
Finance Services (4.90%)
Mitsubishi International Corp.;
5.77%; 1/12/98 750,000 748,798
5.73%; 1/13/98 550,000 549,037
5.81%; 1/16/98 525,000 523,814
5.75%; 1/22/98 500,000 498,403
2,320,052
Foreign Banks, Branches &
Agencies (5.11%)
Barclays U.S. Funding Corp.;
5.81%; 1/2/98 350,000 350,000
5.70%; 1/21/98 575,000 573,270
5.70%; 1/26/98 1,500,000 1,494,300
2,417,570
Gas Production & Distribution (3.25%)
Chevron USA, Inc.;
5.65%; 1/28/98 1,275,000 1,269,797
Washington Gas Light Co.;
5.70%; 2/2/98 $ 270,000 $ 268,675
1,538,472
Investment Offices (4.80%)
Morgan Stanley Group, Inc.;
5.72%; 1/12/98 1,250,000 1,248,014
5.72%; 1/13/98 275,000 274,519
5.80%; 1/20/98 750,000 747,825
2,270,358
Mortgage Bankers & Brokers (3.27%)
Countrywide Home Loan, Inc.;
5.87%; 1/6/98 550,000 549,641
5.70%; 1/13/98 500,000 499,129
5.80%; 1/21/98 500,000 498,470
1,547,240
Personal Credit Institutions (16.44%)
Associates First Capital Corp.;
6.17%; 1/2/98 750,000 750,000
5.57%; 1/16/98 275,000 274,404
5.70%; 1/16/98 200,000 199,557
5.76%; 1/28/98 525,000 522,816
Beneficial Corp.;
5.88%; 1/22/98 375,000 373,775
Comoloco, Inc.;
5.70%; 5/29/98 250,000 244,181
5.66%; 6/12/98 500,000 487,344
5.62%; 9/8/98 375,000 360,423
5.62%; 9/15/98 350,000 336,012
Ford Motor Credit Co.;
5.71%; 1/6/98 500,000 499,683
5.95%; 1/7/98 150,000 149,879
5.71%; 1/12/98 225,000 224,643
General Motors Acceptance Corp.;
5.80%; 1/8/98 1,175,000 1,173,864
5.82%; 1/30/98 275,000 273,755
5.56%; 4/3/98 500,000 492,973
5.59%; 5/26/98 400,000 391,056
Transamerica Finance Corp.
5.70%; 1/5/98 1,025,000 1,024,513
7,778,878
Security Brokers & Dealers (9.52%)
Bear Stearns Cos., Inc.;
5.72%; 1/9/98 1,000,000 998,888
Goldman Sachs Group, L.P.;
5.80%; 1/7/98 1,000,000 999,194
5.80%; 1/14/98 700,000 698,646
5.73%; 1/23/98 500,000 498,329
Merrill Lynch & Co., Inc.;
5.70%; 1/14/98 450,000 449,145
5.80%; 2/2/98 500,000 497,503
5.63%; 9/1/98 375,000 360,808
4,502,513
Sugar & Confectionary
Products (2.11%)
Hershey Foods Corp.;
5.80%; 1/29/98 1,000,000 995,650
Telephone Communications (1.05%)
Bell Atlantic Financial Services, Inc.;
5.90%; 1/30/98 500,000 497,705
Total Commercial Paper 37,521,419
Bank Notes (3.27%)
Commercial Banks (3.27%)
Bankboston, N.A.;
5.97%; 10/23/98 $ 250,000 $ 250,000
Morgan Guaranty Trust Co.;
5.93%; 8/31/98 300,000 299,990
Morgan Guaranty Trust Co.
Certificate of Deposit;
5.84%; 7/28/98 1,000,000 999,783
Total Bank Notes 1,549,773
Bonds (17.70%)
Beverages (1.78%)
Coca-Cola Co. Notes;
7.88%; 9/15/98 340,000 344,534
Pepsico, Inc. Notes;
6.13%; 1/15/98 500,000 500,034
844,568
Business Credit Institutions (5.04%)
Associates Corp., N.A. Senior Notes;
8.80%; 8/1/98 125,000 126,885
CIT Group Holdings, Inc.
Debentures; 8.75%; 4/15/98 750,000 755,600
Medium-Term Notes;
5.63%; 4/1/98 500,000 499,580
6.20%; 4/15/98 500,000 500,095
Senior Notes; 5.85%; 3/16/98 500,000 500,189
2,382,349
Consumer Products (1.27%)
Philip Morris Cos. Notes;
6.38%; 1/15/98 600,000 600,069
Electric Services (0.42%)
Southern California Edison Co.
Notes; 5.88%; 2/1/98 200,000 200,008
Finance Services (1.06%)
PHH Corp. Medium-Term
Bonds; 6.00%; 10/27/98 500,000 499,837
Personal Credit Instituons (8.13%)
American General Finance Corp.
Senior Notes; 8.25%; 1/15/98 500,000 500,375
Associates Corp. of North America
Senior Notes;
8.38%; 1/15/98 455,000 455,357
6.38%; 8/15/98 300,000 300,732
5.25%; 9/1/98 350,000 348,355
6.50%; 9/9/98 200,000 200,794
Commercial Credit Co. Notes;
8.50%; 2/15/98 800,000 802,394
5.50%; 5/15/98 600,000 598,690
General Electric Capital Corp. Notes;
8.00%; 1/15/98 200,000 200,123
Norwest Financial, Inc. Senior Notes;
8.50%; 8/15/98 433,000 439,442
3,846,262
Total Bonds 8,373,093
Total Portfolio Investments (100.27%) $47,444,285
Liabilities, net of cash and receivables (-0.27%) (129,367)
Total Net Assets (100.00%) $47,314,918
<PAGE>
PRINCIPAL WORLD FUND, INC.
Shares
Held Value
Common Stocks (88.85%)
Advertising (1.73%)
WPP Group PLC 488,100 $ 2,164,411
Beverages (2.01%)
Lion Nathan 205,000 459,472
Panamerican Beverages ADR 63,100 2,058,637
2,518,109
Blast Furnace & Basic Steel
Products (0.79%)
Voest-Alpine Stahl 25,700(b) 989,333
Central Reserve Depositories (3.88%)
Banco Totta & Acores 39,000 766,659
Dao Heng Bank Group Ltd. 28,500 71,174
National Westminster Bank 156,421 2,598,206
Union Bank of Norway 12,800 456,635
Wing Hang Bank 343,200 970,034
4,862,708
Combination Utility Services (0.81%)
ABB AG 805 1,012,769
Commercial Banks (11.06%)
ABN-AMRO Holdings NV 102,522 1,997,615
Bank of Ireland 186,833 2,868,188
Barclays PLC 64,748 1,720,565
Fokus Bank 64,000(b) 594,667
Instituto Mobiliare Italiano 141,000 1,674,777
National Australia Bank Ltd. 91,986 1,284,405
Royal Bank of Canada Montreal, Quebec 36,000 1,901,862
Svenska Handelsbanken AB Free 56,500 1,819,397
13,861,476
Communications Equipment (0.71%)
ECI Telecommunications Ltd. ADR 35,000 892,500
Communications Services, NEC (0.88%)
KPN Royal PTT Nederland 26,450 1,103,808
Computer & Office Equipment (0.07%)
Canon, Inc. 4,000 93,523
Construction & Related
Machinery (0.46%)
Powerscreen International PLC 58,100 580,757
Consumer Products (2.81%)
Imasco Ltd. 56,101 1,979,778
Imperial Tobacco Group PLC 243,500 1,538,517
3,518,295
Crude Petroleum & Natural
Gas (0.32%)
Hardy Oil & Gas 86,200 $ 405,644
Deap Sea Foreign Transportation
of Freight (0.60%)
Van Ommeren NV 22,288 747,614
Department Stores (0.56%)
Vendex International 12,658 698,703
Drugs (6.08%)
Elan Corp. PLC ADR 34,400(a) 1,760,850
Novartis AG 1,668 2,710,334
Pharmacia & Upjohn, Inc. 46,500 1,703,062
Teva Pharmaceutical ADR 30,600 1,447,763
7,622,009
Electric Light & Wiring
Equipment (0.03%)
Clipsal Industries Holdings 25,000 32,000
Electric Services (0.74%)
Enersis SA ADR 32,000 928,000
Electronic Components &
Accessories (1.29%)
Amtek Engineering 221,250 133,937
Elec & Eltek International 294,800 1,350,184
Murata Mfg. 1,000 25,227
Varitronix 63,000 108,140
1,617,488
Electronic Distribution
Equipment (1.72%)
Phillips Electronics 25,000 1,499,585
Techtronic Industries Co. 2,800,000 650,468
2,150,053
Engines & Turbines (1.79%)
Mabuchi Motor 1,400 71,388
PT United Tractors 285,000 33,714
RHI AG 31,000 1,065,937
Scapa Group PLC 281,000 1,068,047
2,239,086
Farm & Garden Machinery (1.81%)
New Holland NV 86,000 2,273,625
Finance Services (0.04%)
MBF Capital Berhad 195,000 45,339
Functions Closely Related to
Banking (0.61%)
Liechtenstein Global Trust AG 1,225 760,087
Gas Production & Distribution (1.56%)
OMV AG 14,150 1,957,379
General Industrial Machinery (0.60%)
SKF AB 'B' Free 35,300 751,882
Holding Offices (0.38%)
First Pacific Co., Ltd. 978,382 473,517
Hose, Belting, Gaskets &
Packing (0.49%)
Phoenix AG 34,500 $ 614,001
Industrial Inorganic Chemicals (1.74%)
Bayer AG 30,100 1,117,423
Kemira OY 112,000(b) 1,059,226
2,176,649
Investment Offices (1.55%)
AMVESCAP PLC 226,800 1,946,120
Life Insurance (1.20%)
QBE Insurance Group Ltd. 332,685 1,497,205
Meat Products (4.92%)
AFFCO Holdings 1,147,266 253,143
Danisco AS 44,700 2,480,718
Davomas ABADI 780,000 141,951
Orkla B 21,300 1,658,422
Unilever NV 26,520 1,635,239
6,169,473
Metal Services, NEC (0.79%)
Philip Services Corp. ADR 69,000(a) 991,875
Miscellaneous Chemical
Products (1.16%)
Hoechst AG 41,800 1,448,319
Miscellaneous Converted Paper
Products (1.47%)
Bunzl PLC 472,000 1,840,613
Miscellaneous Food & Kindred
Products (1.26%)
Greencore Group PLC 328,000(a) 1,575,901
Miscellaneous Manufacturers (0.22%)
Carter Holt Harvey Ltd. 181,000 279,562
Miscellaneous Non-Durable
Goods (1.58%)
Diageo PLC 215,516 1,980,500
Miscellaneous Textile Goods (0.60%)
Espirit Holdings Ltd. 2,298,000 748,871
Miscellaneous Transportation
Equipment (0.75%)
Autoliv AB 28,700 939,925
Miscellaneous Wood Products (0.14%)
Enso OY 22,300 172,815
Motor Vehicles & Equipment (3.74%)
E.C.I.A. Equipment and Composants 8,300 1,669,420
Hyndai Motor Co. Ltd. GDR 25,000(b) 41,875
Mayflower Corp. PLC 617,000 1,878,145
Swedish Match Co. 284,000 948,532
UMW Holdings Berhad 196,000 148,547
4,686,519
Newspapers (1.05%)
Investec-Consultadoria
Internacional SA 8,600 $ 254,944
Publishing & Broadcasting Ltd. 240,000 1,063,356
1,318,300
Oil & Gas Field Services (1.10%)
ENI SPA 243,000 1,378,561
Petroleum Refining (4.34%)
Repsol Petroleo SA 39,860 1,699,894
Sasol Ltd. 135,000 1,412,043
YPF Sociedad Anonima ADR 68,000 2,324,750
5,436,687
Plastic Materials & Synthetics (1.13%)
Astra AB 84,000 1,413,346
Pulp Mills (2.38%)
Lassila & Tikanoja Ltd. OY 73,200 1,700,455
UPM-Kymmene OY 64,140 1,283,864
2,984,319
Radio & Television
Broadcasting (1.35%)
Carlton Communications PLC 220,000 1,694,106
Security Brokers & Dealers (0.39%)
Peregrine Investment Holdings 685,000(c) 486,238
Peregrine Investment - Warrants 38,800(a)(c) 50
486,288
Soap, Cleaners, & Toilet Goods (2.80%)
Benckiser NV, B Shares 36,150(a) 1,496,125
Reckitt & Colman PLC 127,945 2,011,528
3,507,653
Special Industry Machinery (1.77%)
Cookson Group 565,000 1,817,471
IHC Caland NV 7,700 399,580
2,217,051
Sugar & Confectionary Products (1.85%)
Nestle 1,545 2,318,743
Telephone Communications (5.18%)
Nokia Corp., Class A ADR 23,800 1,666,000
Telecom Corp. of New Zealand Ltd. 289,000 1,401,206
Telecom Italia-DI 260,575 1,149,598
Telefonica de Espana SA 79,700 2,274,672
6,491,476
Trusts (0.03%)
Fairfax Trust 240,000(a) 40,658
Watches, Clocks, Watchcases &
Parts (0.53%)
Tag Heur International SA 7,600(a) 661,753
Total Common Stocks 111,317,404
Preferred Stock (0.92%)
Commercial Banks (0.92%)
National Australia Bank ECU 40,500 1,151,719
Bonds (0.80%)
Fire, Marine & Casualty
Insurance (0.80%)
Alfa SA Convertible Subordinated
Debentures; 8.00%; 9/15/00 $ 700,000(b) $ 1,001,000
Commercial Paper (9.13%)
Asset Backed Securities (2.59%)
CXC Incorporated;
5.97%; 1/5/98 3,250,000 3,248,383
Business Credit Institutions (3.59%)
General Electric Capital Co.;
6.50%; 1/2/98 4,500,000 4,500,000
Personal Credit Institutions (2.95%)
Associates Corp.;
6.12%; 1/12/98 3,700,000 3,693,710
Total Commercial Paper 11,442,093
Total Portfolio Investments (99.70%) 124,912,216
Cash and receivables, net of liabilities (0.30%) 376,558
Total Net Assets (100.00%) $125,288,774
(a) Non-income producing security - No dividend paid during the period.
(b) Restricted security - See Note 4 to the financial statements.
(c) On January 12, 1998 Peregrine Investment Holdings filed a plan of
liquidation.
<PAGE>
Principal World Fund, Inc. Investments by Country
Total Percentage of Total
Country Value Value
Argentina $ 2,324,750 1.86%
Australia 5,037,343 4.03
Austria 4,012,649 3.21
Canada 4,873,515 3.90
Chile 928,000 0.74
Denmark 2,480,718 1.99
Finland 5,882,360 4.71
France 1,669,420 1.34
Germany 3,179,743 2.55
Hong Kong 3,508,491 2.81
Indonesia 175,665 0.14
Israel 2,340,263 1.87
Italy 4,202,936 3.36
Japan 190,138 0.15
Malaysia 193,886 0.16
Mexico 3,059,638 2.45
Netherlands 11,851,895 9.49
New Zealand 2,393,382 1.92
Norway 2,709,724 2.17
Portugal 1,021,603 0.82
Singapore 1,516,121 1.21
South Africa 1,412,043 1.13
South Korea 41,875 0.03
Spain 3,974,566 3.18
Sweden 5,873,081 4.70
Switzerland 7,463,685 5.98
United Kingdom 29,449,570 23.58
United States 13,145,156 10.52
Total $124,912,216 100.00%
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Selected data for a share of Capital Stock outstanding throughout each period:
Income from
Investment Operations Less Distributions
Net Realized
and Excess
Net Asset Net Unrealized Total Dividends Distributions
Value at Invest- Gain from from Net Distributions from
Beginning ment (Loss) on Investment Investment from Capital
of Period Income Investments Operations Income Capital Gains Gains(a)
PRINCIPAL AGGRESSIVE GROWTH FUND INC.
Year Ended December 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 $14.52 $.04 $4.26 $4.30 $(.04) $(2.48) $ --
1996 12.94 .11 3.38 3.49 (.11) (1.80) --
1995 10.11 .13 4.31 4.44 (.13) (1.48) --
Period Ended December 31, 1994(d) 9.92 .05 .24 .29 (.05) (.05) --
PRINCIPAL ASSET ALLOCATION FUND, INC.
Year Ended December 31,
1997 11.48 .30 1.72 2.02 (.30) (1.26) --
1996 11.11 .36 1.06 1.42 (.36) (.69) --
1995 9.79 .40 1.62 2.02 (.40) (.30) --
Period Ended December 31, 1994(d) 9.98 .23 (.18) .05 (.23) -- (.01)
PRINCIPAL BALANCED FUND, INC.
Year Ended December 31,
1997 14.44 .46 2.11 2.57 (.45) (1.05) --
1996 13.97 .40 1.41 1.81 (.40) (.94) --
1995 11.95 .45 2.44 2.89 (.45) (.42) --
1994 12.77 .37 (.64) (.27) (.37) (.18) --
1993 12.58 .42 .95 1.37 (.42) (.76) --
PRINCIPAL BOND FUND, INC.
Year Ended December 31,
1997 11.33 .76 .44 1.20 (.75) -- --
1996 11.73 .68 (.40) .28 (.68) -- --
1995 10.12 .62 1.62 2.24 (.63) -- --
1994 11.16 .72 (1.04) (.32) (.72) -- --
1993 10.77 .88 .38 1.26 (.87) -- --
PRINCIPAL CAPITAL ACCUMULATION FUND, INC.
Year Ended December 31,
1997 29.84 .68 7.52 8.20 (.67) (2.76) --
1996 27.80 .57 5.82 6.39 (.58) (3.77) --
1995 23.44 .60 6.69 7.29 (.60) (2.33) --
1994 24.61 .62 (.49) .13 (.61) (.69) --
1993 25.19 .61 1.32 1.93 (.60) (1.91) --
PRINCIPAL EMERGING GROWTH FUND, INC.
Year Ended December 31,
1997 29.74 .24 6.48 6.72 (.23) (.76) --
1996 25.33 .22 5.07 5.29 (.22) (.66) --
1995 19.97 .22 5.57 5.79 (.22) (.21) --
1994 20.79 .14 .03 .17 (.14) (.85) --
1993 18.91 .17 3.47 3.64 (.17) (1.59) --
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Selected data for a share of Capital Stock outstanding throughout each period:
Less Distributions Ratios/Supplemental Data
Ratio of Net
Net Asset Ratio of Investment
Value at Net Assets at Expenses to Income to Portfolio
Total End of Total End of Period Average Average Turnover
Distributions Period Return (in thousands) Net Assets Net Assets Rate
PRINCIPAL AGGRESSIVE GROWTH FUND INC.
Year Ended December 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 $(2.52) $16.30 30.86% $149,182 .82% .29% 172.6%
1996 (1.91) 14.52 28.05 90,106 .85 1.05 166.9
1995 (1.61) 12.94 44.19 33,643 .90 1.34 172.9
Period Ended December 31, 1994(d) (.10) 10.11 2.59(b) 13,770 1.03(c) 1.06(c) 105.6(c)
PRINCIPAL ASSET ALLOCATION FUND, INC.
Year Ended December 31,
1997 (1.56) 11.94 18.19 76,804 .89 2.55 131.6
1996 (1.05) 11.48 12.92 61,631 .87 3.45 108.2
1995 (.70) 11.11 20.66 41,074 .89 4.07 47.1
Period Ended December 31, 1994(d) (.24) 9.79 .52(b) 28,041 .95(c) 4.27(c) 60.7(c)
PRINCIPAL BALANCED FUND, INC.
Year Ended December 31,
1997 (1.50) 15.51 17.93 133,827 .61 3.26 69.7
1996 (1.34) 14.44 13.13 93,158 .63 3.45 22.6
1995 (.87) 13.97 24.58 45,403 .66 4.12 25.7
1994 (.55) 11.95 (2.09) 25,043 .69 3.42 31.5
1993 (1.18) 12.77 11.06 21,399 .69 3.30 15.8
PRINCIPAL BOND FUND, INC.
Year Ended December 31,
1997 (.75) 11.78 10.60 81,921 .52 6.85 7.3
1996 (.68) 11.33 2.36 63,387 .53 7.00 1.7
1995 (.63) 11.73 22.17 35,878 .56 7.28 5.9
1994 (.72) 10.12 (2.90) 17,108 .58 7.86 18.2
1993 (.87) 11.16 11.67 14,387 .59 7.57 14.0
PRINCIPAL CAPITAL ACCUMULATION FUND, INC.
Year Ended December 31,
1997 (3.43) 34.61 28.53 285,231 .47 2.13 23.4
1996 (4.35) 29.84 23.50 205,019 .49 2.06 48.5
1995 (2.93) 27.80 31.91 135,640 .51 2.25 49.2
1994 (1.30) 23.44 .49 120,572 .51 2.36 44.5
1993 (2.51) 24.61 7.79 128,515 .51 2.49 25.8
PRINCIPAL EMERGING GROWTH FUND, INC.
Year Ended December 31,
1997 (.99) 35.47 22.75 224,630 .64 .79 7.8
1996 (.88) 29.74 21.11 137,161 .66 1.07 8.8
1995 (.43) 25.33 29.01 58,520 .70 1.23 13.1
1994 (.99) 19.97 .78 23,912 .74 1.15 12.0
1993 (1.76) 20.79 19.28 12,188 .78 .89 22.4
See accompanying notes.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of Capital Stock outstanding throughout each period:
Ratios/Supplemental Data
Average
Commission
Rate
PRINCIPAL AGGRESSIVE GROWTH FUND INC.
Year Ended December 31,
1997 $.0571
1996 .0541
1995 N/A
Period Ended December 31, 1994(d) N/A
PRINCIPAL ASSET ALLOCATION FUND, INC.
Year Ended December 31,
1997 .0569
1996 .0497
1995 N/A
Period Ended December 31, 1994(d) N/A
PRINCIPAL BALANCED FUND, INC.
Year Ended December 31,
1997 .0394
1996 .0417
1995 N/A
1994 N/A
1993 N/A
PRINCIPAL BOND FUND, INC.
Year Ended December 31,
1997 N/A
1996 N/A
1995 N/A
1994 N/A
1993 N/A
PRINCIPAL CAPITAL ACCUMULATION FUND, INC.
Year Ended December 31,
1997 .0451
1996 .0426
1995 N/A
1994 N/A
1993 N/A
PRINCIPAL EMERGING GROWTH FUND, INC.
Year Ended December 31,
1997 .0371
1996 .0379
1995 N/A
1994 N/A
1993 N/A
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (Continued)
Income from
Investment Operations Less Distributions
Net Realized
and Excess
Net Asset Net Unrealized Total Dividends Total Distributions
Value at Invest- Gain from from Net Return from Net
Beginning ment (Loss) on Investment Investment of Capital Investment
of Period Income Investments Operations Income Dividends(a) Income(a)
PRINCIPAL GOVERNMENT SECURITIES FUND, INC.
Year Ended December 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 $10.31 $.66 $ .41 $1.07 $(.66) $ -- $ --
1996 10.55 .59 (.24) .35 (.59) -- --
1995 9.38 .60 1.18 1.78 (.61) -- --
1994 10.61 .76 (1.24) (.48) (.75) -- --
1993 10.28 .71 .33 1.04 (.71) -- --
PRINCIPAL GROWTH FUND, INC.
Year Ended December 31,
1997 13.79 .18 3.53 3.71 (.18) -- --
1996 12.43 .16 1.39 1.55 (.16) -- --
1995 10.10 .17 2.42 2.59 (.17) -- --
Period Ended December 31, 1994(f) 9.60 .07 .51 .58 (.08) -- --
PRINCIPAL HIGH YIELD FUND, INC.
Year Ended December 31,
1997 8.72 .76 .18 .94 (.76) -- --
1996 8.39 .80 .30 1.10 (.77) -- --
1995 7.91 .76 .51 1.27 (.77) -- (.02)
1994 8.62 .77 (.72) .05 (.76) -- --
1993 8.38 .80 .23 1.03 (.79) -- --
PRINCIPAL MONEY MARKET FUND, INC.
Year Ended December 31,
1997 1.000 .051 -- .051 (.051) -- --
1996 1.000 .049 -- .049 (.049) -- --
1995 1.000 .054 -- .054 (.054) -- --
1994 1.000 .037 -- .037 (.037) -- --
1993 1.000 .027 -- .027 (.027) -- --
PRINCIPAL WORLD FUND, INC.
Year Ended December 31,
1997 13.02 .23 1.35 1.58 (.23) (.02) --
1996 10.72 .22 2.46 2.68 (.22) -- --
1995 9.56 .19 1.16 1.35 (.18) -- --
Period Ended December 31, 1994(f) 9.94 .03 (.33) (.30) (.05) -- (.02)
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (Continued)
Less Distributions Ratios/Supplemental Data
Excess Net Asset Ratio of
Distributions Distribution Value at Net Assets at Expenses to
from from Capital Total End of Total End of Period Average
Capital Gains Gains(a) Distributions Period Return (in thousands) Net Assets
PRINCIPAL GOVERNMENT SECURITIES FUND, INC.
Year Ended December 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 $-- $ -- $ (.66) $10.72 10.39% $94,322 .52%
1996 -- -- (.59) 10.31 3.35 85,100 .52
1995 -- -- (.61) 10.55 19.07 50,079 .55
1994 -- -- (.75) 9.38 (4.53) 36,121 .56
1993 -- -- (.71) 10.61 10.07 36,659 .55
PRINCIPAL GROWTH FUND, INC.
Year Ended December 31,
1997 (.10) (.01) (.29) 17.21 26.96 168,160 .50
1996 (.03) -- (.19) 13.79 12.51 99,612 .52
1995 (.09) -- (.26) 12.43 25.62 42,708 .58
Period Ended December 31, 1994(f) -- -- (.08) 10.10 5.42(b) 13,086 .75(c)
PRINCIPAL HIGH YIELD FUND, INC.
Year Ended December 31,
1997 -- -- (.76) 8.90 10.75 15,837 .68
1996 -- -- (.77) 8.72 13.13 13,740 .70
1995 -- -- (.79) 8.39 16.08 11,830 .73
1994 -- -- (.76) 7.91 .62 9,697 .73
1993 -- -- (.79) 8.62 12.31 9,576 .74
PRINCIPAL MONEY MARKET FUND, INC.
Year Ended December 31,
1997 -- -- (.051) 1.000 5.04 47,315 .55
1996 -- -- (.049) 1.000 5.07 46,244 .56
1995 -- -- (.054) 1.000 5.59 32,670 .58
1994 -- -- (.037) 1.000 3.76 29,372 .60
1993 -- -- (.027) 1.000 2.69 22,753 .60
PRINCIPAL WORLD FUND, INC.
Year Ended December 31,
1997 (.45) -- (.70) 13.90 12.24 125,289 .87
1996 (.16) -- (.38) 13.02 25.09 71,682 .90
1995 (.01) -- (.19) 10.72 14.17 30,566 .95
Period Ended December 31, 1994(f) (.01) -- (.08) 9.56 (3.37)(b) 13,746 1.24(c)
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
Ratios/Supplement Data
Ratio of Net
Investment
Income to Portfolio Average
Average Turnover Commission
Net Assets Rate Rate(e)
PRINCIPAL GOVERNMENT SECURITIES FUND, INC.
Year Ended December 31,
1997 6.37% 9.0% N/A
1996 6.46 8.4 N/A
1995 6.73 9.8 N/A
1994 7.05 23.2 N/A
1993 7.07 20.4 N/A
PRINCIPAL GROWTH FUND, INC.
Year Ended December 31,
1997 1.34 15.4 $.0366
1996 1.61 2.0 .0401
1995 2.08 6.9 N/A
Period Ended December 31, 1994(f) 2.39(c) 0.9%c) N/A
PRINCIPAL HIGH YIELD FUND, INC.
Year Ended December 31,
1997 8.50 32.0 N/A
1996 9.21 32.0 N/A
1995 9.09 35.1 N/A
1994 9.02 30.6 N/A
1993 8.80 28.7 N/A
PRINCIPAL MONEY MARKET FUND, INC.
Year Ended December 31,
1997 5.12 N/A N/A
1996 5.00 N/A N/A
1995 5.32 N/A N/A
1994 3.81 N/A N/A
1993 2.64 N/A N/A
PRINCIPAL WORLD FUND, INC.
Year Ended December 31,
1997 1.92 22.7 .0199
1996 2.28 12.5 .0120
1995 2.26 15.6 N/A
Period Ended December 31, 1994(f) 1.31(c) 14.4(c) N/A
See accompanying notes.
Notes to Financial Highlights
(a) Dividends and distributions which exceed net 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 distributions of
paid-in-capital.
(b) Total return amounts have not been annualized.
(c) Computed on an annualized basis.
(d) Period from June 1, 1994, date shares first offered to public, through
December 31, 1994. Net investment income, aggregating $.01 per share for
Principal Aggressive Growth Fund, Inc. and $.01 per share for Principal
Asset Allocation Fund, Inc. for the period from the initial purchase of
shares on May 23, 1994 through May 31, 1994, was recognized, none of which
was distributed to the sole stockholder, Principal Mutual Life Insurance
Company, during the period. Additionally, Principal Aggressive Growth Fund,
Inc. and Principal Asset Allocation Fund, Inc. incurred unrealized losses
on investments of $.09 and $.03 per share, respectively, during the initial
interim period. This represented activities of each fund prior to the
initial public offering of fund shares.
(e) The Principal World Fund, Inc. identified the cost of commissions paid on
purchases and sales of portfolio securities charged in the local currency
of the respective country involved. The value of the commissions are
translated into U.S. dollars at approximate rates when acquired or sold.
This translation can give the appearance that the Principal World Fund,
Inc. average commissions rate is substantially different from the other
funds.
(f) Period from May 1, 1994, date shares first offered to public, through
December 31, 1994. Net investment income, aggregating $.01 per share for
Principal Growth Fund, Inc. and $.04 per share for Principal World Fund,
Inc. for the period from the initial purchase of shares on March 23, 1994
through April 30, 1994, was recognized, none of which was distributed to
the sole stockholder, Principal Mutual Life Insurance Company, during the
period. Additionally, Principal Growth Fund, Inc. and Principal World Fund,
Inc. incurred unrealized losses on investments of $.41 and $.10 per share,
respectively, during the initial interim period. This represented
activities of each fund prior to the initial public offering of fund
shares.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Boards of Directors and Shareholders
Principal Aggressive Growth Fund, Inc.
Principal Asset Allocation Fund, Inc.
Principal Balanced Fund, Inc.
Principal Bond Fund, Inc.
Principal Capital Accumulation Fund, Inc.
Principal Emerging Growth Fund, Inc.
Principal Government Securities Fund, Inc.
Principal Growth Fund, Inc.
Principal High Yield Fund, Inc.
Principal Money Market Fund, Inc.
Principal World Fund, Inc.
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of Principal Aggressive Growth Fund, Inc.,
Principal Asset Allocation Fund, Inc., Principal Balanced Fund, Inc., Principal
Bond Fund, Inc., Principal Capital Accumulation Fund, Inc., Principal Emerging
Growth Fund, Inc., Principal Government Securities Fund, Inc., Principal Growth
Fund, Inc., Principal High Yield Fund, Inc., Principal Money Market Fund, Inc.,
and Principal World Fund, Inc., as of December 31, 1997, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended and the 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 December 31, 1997, by correspondence with the custodians
and brokers. 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
Principal Aggressive Growth Fund, Inc., Principal Asset Allocation Fund, Inc.,
Principal Balanced Fund, Inc., Principal Bond Fund, Inc., Principal Capital
Accumulation Fund, Inc., Principal Emerging Growth Fund, Inc., Principal
Government Securities Fund, Inc., Principal Growth Fund, Inc., Principal High
Yield Fund, Inc., Principal Money Market Fund, Inc., and Principal World Fund,
Inc. at December 31, 1997, and the results of their operations for the year then
ended, the changes in their net assets for each of the two years in the period
then ended and the financial highlights for each of the periods indicated
therein, in conformity with generally accepted accounting principles.
/S/ERNST & YOUNG LLP
Des Moines, Iowa
January 16, 1998
<PAGE>
SPECIAL MEETING OF SHAREHOLDERS PRINCIPAL AGGRESSIVE GROWTH FUND, INC.
HELD SEPTEMBER 16, 1997
1. Election of the Board of Directors.
For Withheld
Davis 6,772,393 152,665
Ehrle 6,761,712 163,347
Ferguson 6,774,012 151,046
Gilbert 6,773,378 151,680
Griswell 6,771,258 153,801
Jones 6,777,464 147,594
Keller 6,769,398 155,660
Lukavsky 6,765,761 159,297
Peebler 6,772,299 152,760
2. Ratification of selection of Ernst & Young LLP as independent public
auditors.
In Favor Opposed Abstain
6,647,271 27,026 250,761
3. Approval of change of fund structure. Name changed to Principal Variable
Contract Fund, Inc. Aggressive Growth Account effective 1/1/98.
In Favor Opposed Abstain
6,449,578 103,126 322,355
SPECIAL MEETING OF SHAREHOLDERS PRINCIPAL ASSET ALLOCATION FUND, INC.
HELD SEPTEMBER 16, 1997
1. Election of the Board of Directors.
For Withheld
Davis 5,695,591 30,121
Ehrle 5,682,709 43,003
Ferguson 5,695,591 30,121
Gilbert 5,682,489 43,223
Griswell 5,686,518 39,194
Jones 5,695,591 30,121
Keller 5,691,600 34,113
Lukavsky 5,686,391 39,321
Peebler 5,680,994 44,719
2. Ratification of selection of Ernst & Young LLP as independent public
auditors.
In Favor Opposed Abstain
5,656,348 6,155 63,209
3. Approval of change of fund structure. Name changed to Principal Variable
Contract Fund, Inc. Asset Allocation Account effective 1/1/98.
In Favor Opposed Abstain
5,534,208 90,568 100,936
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
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
SPECIAL MEETING OF SHAREHOLDERS PRINCIPAL CAPITAL ACCUMULATION FUND, INC.
HELD SEPTEMBER 16, 1997
1. Election of the Board of Directors.
For Withheld
Davis 7,339,623 129,278
Ehrle 7,313,601 155,299
Ferguson 7,340,841 128,060
Gilbert 7,340,640 128,261
Griswell 7,347,206 121,695
Jones 7,344,301 124,600
Keller 7,344,960 123,941
Lukavsky 7,327,340 141,560
Peebler 7,335,895 133,006
2. Ratification of selection of Ernst & Young LLP as independent public
auditors.
In Favor Opposed Abstain
7,287,315 50,753 130,833
3. Approval of change of fund structure. Name changed to Principal Variable
Contract Fund, Inc. Capital Value Account effective 1/1/98.
In Favor Opposed Abstain
7,045,780 180,804 242,316
4. Approval of elimination of the fundamental investment restriction regarding
the purchase of shares of other investment companies.
In Favor Opposed Abstain
7,052,550 194,550 221,801
5. Approval of elimination of the fundamental investment restriction
prohibiting joint participation in any securities trading account.
In Favor Opposed Abstain
7,033,564 189,251 246,086
6. Approval of change to investment restrictions regarding purchase of
illiquid securities and investment in repurchase agreements, and
reclassification of these restrictions from fundamental to non-fundamental.
In Favor Opposed Abstain
6,745,602 455,544 267,754
SPECIAL MEETING OF SHAREHOLDERS PRINCIPAL EMERGING GROWTH FUND, INC.
HELD SEPTEMBER 16, 1997
1. Election of the Board of Directors.
For Withheld
Davis 5,412,764 87,079
Ehrle 5,405,141 94,699
Ferguson 5,415,939 83,901
Gilbert 5,417,426 82,414
Griswell 5,417,863 81,977
Jones 5,420,913 78,927
Keller 5,417,884 81,956
Lukavsky 5,409,215 90,625
Peebler 5,412,828 87,012
2. Ratification of selection of Ernst & Young LLP as independent public
auditors.
In Favor Opposed Abstain
5,339,041 38,545 122,254
3. Approval of change of fund structure. Name changed to Principal Variable
Contract Fund, Inc. MidCap Account effective 1/1/98.
In Favor Opposed Abstain
5,183,548 122,191 194,101
SPECIAL MEETING OF SHAREHOLDERS PRINCIPAL GOVERNMENT SECURITIES FUND, INC.
HELD SEPTEMBER 16, 1997
1. Election of the Board of Directors.
For Withheld
Davis 7,822,261 109,034
Ehrle 7,809,752 121,542
Ferguson 7,821,375 109,919
Gilbert 7,666,246 265,048
Griswell 7,824,132 107,162
Jones 7,680,346 250,949
Keller 7,680,346 250,949
Lukavsky 7,804,434 126,861
Peebler 7,814,432 116,863
2. Ratification of selection of Ernst & Young LLP as independent public
auditors.
In Favor Opposed Abstain
7,805,147 60,006 66,141
3. Approval of change of fund structure. Name changed to Principal Variable
Contract Fund, Inc. Government Securities Account effective 1/1/98.
In Favor Opposed Abstain
7,562,506 218,677 150,111
4. Approval of elimination of the fundamental investment restriction regarding
the purchase of shares of other investment companies.
In Favor Opposed Abstain
7,429,480 360,691 141,124
5. Approval of elimination of the fundamental investment restriction
prohibiting joint participation in any securities trading account.
In Favor Opposed Abstain
7,436,533 353,433 141,328
6. Approval of change to the fundamental investment restriction with respect
to purchase of securities other than government securities.
In Favor Opposed Abstain
7,504,155 331,893 95,246
SPECIAL MEETING OF SHAREHOLDERS PRINCIPAL GROWTH FUND, INC.
HELD SEPTEMBER 16, 1997
1. Election of the Board of Directors.
For Withheld
Davis 8,394,071 142,382
Ehrle 8,364,573 171,880
Ferguson 8,391,825 144,628
Gilbert 8,396,290 140,163
Griswell 8,397,219 139,234
Jones 8,394,289 142,164
Keller 8,390,043 146,410
Lukavsky 8,376,195 160,258
Peebler 8,380,317 156,137
2. Ratification of selection of Ernst & Young LLP as independent public
auditors.
In Favor Opposed Abstain
8,339,898 49,400 147,155
3. Approval of change of fund structure. Name changed to Principal Variable
Contract Fund, Inc. Growth Account effective 1/1/98.
In Favor Opposed Abstain
8,024,781 232,565 279,107
SPECIAL MEETING OF SHAREHOLDERS PRINCIPAL HIGH YIELD FUND, INC.
HELD SEPTEMBER 16, 1997
1. Election of the Board of Directors.
For Withheld
Davis 1,536,058 45,880
Ehrle 1,536,058 45,880
Ferguson 1,561,979 19,959
Gilbert 1,561,979 19,959
Griswell 1,561,979 19,959
Jones 1,561,979 19,959
Keller 1,561,979 19,959
Lukavsky 1,561,979 19,959
Peebler 1,561,979 19,959
2. Ratification of selection of Ernst & Young LLP as independent public
auditors.
In Favor Opposed Abstain
1,545,224 0 36,714
3. Approval of change of fund structure. Name changed to Principal Variable
Contract Fund, Inc. High Yield Account effective 1/1/98.
In Favor Opposed Abstain
1,485,001 87,699 9,238
SPECIAL MEETING OF SHAREHOLDERS PRINCIPAL MONEY MARKET FUND, INC.
HELD SEPTEMBER 16, 1997
1. Election of the Board of Directors.
For Withheld
Davis 42,302,140 386,652
Ehrle 42,132,552 556,240
Ferguson 42,395,818 292,974
Gilbert 42,242,211 446,581
Griswell 42,398,065 290,727
Jones 42,242,211 446,581
Keller 42,241,105 447,686
Lukavsky 42,370,943 317,849
Peebler 42,273,229 415,562
2. Ratification of selection of Ernst & Young LLP as independent public
auditors.
In Favor Opposed Abstain
41,920,881 345,708 422,204
3. Approval of change of fund structure. Name changed to Principal Variable
Contract Fund, Inc. Money Market Account effective 1/1/98.
In Favor Opposed Abstain
40,961,885 1,144,958 581,948
4. Approval of elimination of the fundamental investment restriction regarding
the purchase of shares of other investment companies.
In Favor Opposed Abstain
40,903,699 1,312,169 472,924
5. Approval of elimination of the fundamental investment restriction
prohibiting joint participation in any securities trading account.
In Favor Opposed Abstain
40,633,345 1,111,963 943,484
6. Approval of change to the fundamental investment restriction with respect
to diversification requirements.
In Favor Opposed Abstain
40,453,876 1,724,711 510,205
7. Approval of change to the fundamental investment restriction with respect
to purchase of securities of a single issuer.
In Favor Opposed Abstain
40,423,874 1,703,641 534,278
8. Approval of change to the fundamental investment restriction prohibiting
the purchase of restricted securities.
In Favor Opposed Abstain
40,329,737 1,806,422 552,633
SPECIAL MEETING OF SHAREHOLDERS PRINCIPAL WORLD FUND, INC.
HELD SEPTEMBER 16, 1997
1. Election of the Board of Directors.
For Withheld
Davis 7,146,215 138,622
Ehrle 7,127,024 157,814
Ferguson 7,133,164 151,673
Gilbert 7,132,327 152,511
Griswell 7,143,716 141,122
Jones 7,137,003 147,835
Keller 7,137,003 147,835
Lukavsky 7,134,739 150,099
Peebler 7,127,675 157,163
2. Ratification of selection of Ernst & Young LLP as independent public
auditors.
In Favor Opposed Abstain
6,982,470 35,609 266,758
3. Approval of change of fund structure. Name changed to Principal Variable
Contract Fund, Inc. International Account effective 1/1/98.
In Favor Opposed Abstain
6,766,206 166,459 352,172
