A MESSAGE TO SHAREHOLDERS
In March 1999, Stephan Jones retired as President. Named as new President of
Principal Management Corporation and Principal Special Markets Fund, Inc. was
Ralph Eucher. At the same time, Mike Beer was named Executive Vice President of
Principal Management Corporation.
Ralph joins the Principal Special Markets Fund after spending five years with
the Investment operations of the Principal Financial Group. Ralph has a broad
range of prior investment and business leadership experience. Mike has been with
the company since 1990, and continues in his role of Chief Operating Officer.
Under the able leadership of Ralph and Mike, the top notch customer service and
quality investment products you currently enjoy will carry on uninterrupted. We
look forward to the continued success of the Principal Special Markets Fund,
Inc.
Here are comments from the portfolio managers of the Principal Special Markets
Fund, Inc.:
Kurt Spieler, International Emerging Markets Portfolio
Last fall, the Fund's portfolio was overweight in Eastern Europe and underweight
in Asia. As stocks approached full valuation, the Fund was transitioned out of
the overweight position in Eastern Europe. In late Spring, Fund managers moved
back into Asia. The end result being that, at this time, the portfolio is
neutral in both. The Fund's portfolio was also underweight in Latin American as
investors expected a deterioration of macroeconomic fundamentals.
Scott Opsal, International Securities Portfolio
We are encouraged by the pickup in global growth and continued monetary easing.
We expect European markets to be stronger during the remainder of 1999 and into
2000. We have been successful in finding Japanese holdings to add to the
portfolio and will continue to increase our weighting if we find other
attractive opportunities. The portfolio is currently maintaining a neutral
position in the cyclical/defensive spectrum.
Darren Sleister, International SmallCap Portfolio
The Fund remains heavily exposed to European markets but by definition is
decreasing exposure there. The Fund managers favor cheap growth stocks with high
returns on capital as well as globally attractive business models. High global
valuation levels and liquidity flows lend themselves to volatile conditions in
the future. However, the Fund managers are still convinced that choosing the
best businesses with the highest forward-looking returns will reward investors
in this asset class over the long run.
Marty Schafer, Mortgage-Backed Securities Portfolio
The Fund managers' concern in early 1999 was that the U.S. economy would
continue its growth position or even strengthen, which would be favorable for
many of the Fund's portfolio securities but would produce low absolute returns
relative to money market funds. The Fund managers anticipate interest rates
being channeled into a fairly narrow range for the foreseeable future, with a
slight bias upwards for U.S. interest rates. For U.S. investors, the strong U.S.
economic climate will act as an offset for what can be described as global
economic weakness elsewhere in the world.
CONTENTS
Page
Financial Statements and Highlights
Statements of Assets and Liabilities........................ 2
Statements of Operations ................................... 4
Statements of Changes in Net Assets......................... 6
Notes to Financial Statements............................... 8
Schedules of Investments
International Emerging Markets Portfolio................ 14
International Securities Portfolio...................... 16
International SmallCap Portfolio........................ 19
Mortgage-Backed Securities Portfolio.................... 21
Financial Highlights........................................ 22
June 30, 1999
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
(unaudited)
PRINCIPAL SPECIAL MARKETS FUND, INC.
<CAPTION>
International International
Emerging Markets Securities
Portfolio Portfolio
<S> <C> <C>
Investment in securities -- at cost.............................. $ 90,845,054 $44,898,815
Assets
Investment in securities -- at value (Note 4).................... $101,664,018 $49,432,095
Cash............................................................. 108,380 20,833
Receivables:
Dividends and interest........................................ 543,577 211,368
Investment securities sold.................................... 520,760 447,346
Other assets..................................................... -- 109
Total Assets 102,836,735 50,111,751
Liabilities
Accrued expenses................................................. 92,023 36,448
Payables:
Investment securities purchased............................... 749,542 815,288
Indebtedness (Note 6) ........................................ -- --
Total Liabilities 841,565 851,736
Net Assets Applicable to Outstanding Shares ................... $101,995,170 $49,260,015
Net Assets Consist of:
Capital Stock.................................................... $ 96,856 $31,976
Additional paid-in capital....................................... 98,345,646 40,594,735
Accumulated undistributed net investment income.................. 649,436 651,169
Accumulated undistributed net realized gain (loss) from
investment and foreign currency transactions.................. (7,872,795) 3,453,100
Net unrealized appreciation (depreciation) of investments........ 10,818,964 4,533,280
Net unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies.................. (42,937) (4,245)
Total Net Assets $101,995,170 $49,260,015
Capital Stock (par value: $.01 a share):
Shares authorized................................................ 100,000,000 100,000,000
Shares issued and outstanding.................................... 9,685,555 3,197,634
Net Asset Value Per Share ...................................... $10.53 $15.41
See accompanying notes.
International Mortgage-Backed
SmallCap Securities
Portfolio Portfolio
Investment in securities -- at cost.............................. $87,497,766 $4,961,542
Assets
Investment in securities -- at value (Note 4).................... $99,479,464 $4,957,280
Cash............................................................. 509,218 10,018
Receivables:
Dividends and interest........................................ 173,537 26,816
Investment securities sold.................................... 1,589,498 --
Other assets..................................................... -- 127
Total Assets 101,751,717 4,994,241
Liabilities
Accrued expenses................................................. 76,948 4,116
Payables:
Investment securities purchased............................... 1,526,968 --
Indebtedness (Note 6) ........................................ 1,940,000 --
Total Liabilities 3,543,916 4,116
Net Assets Applicable to Outstanding Shares ................... $98,207,801 $4,990,125
Net Assets Consist of:
Capital Stock.................................................... $ 76,841 $ 4,991
Additional paid-in capital....................................... 84,333,125 6,196,526
Accumulated undistributed net investment income.................. 231,472 --
Accumulated undistributed net realized gain (loss) from
investment and foreign currency transactions.................. 1,588,288 (1,207,130)
Net unrealized appreciation (depreciation) of investments........ 11,981,698 (4,262)
Net unrealized appreciation (depreciation) on translation of
assets and liabilities in foreign currencies.................. (3,623) --
Total Net Assets $98,207,801 $4,990,125
Capital Stock (par value: $.01 a share):
Shares authorized................................................ 100,000,000 100,000,000
Shares issued and outstanding.................................... 7,684,131 499,116
Net Asset Value Per Share ...................................... $12.78 $10.00
See accompanying notes.
</TABLE>
Six Months Ended June 30, 1999
<TABLE>
STATEMENTS OF OPERATIONS
(unaudited)
PRINCIPAL SPECIAL MARKETS FUND, INC.
<CAPTION>
International International
Emerging Markets Securities
Portfolio Portfolio
<S> <C> <C>
Net Investment Income
Income:
Dividends....................................................... $ 1,355,135 $ 963,572
Withholding tax on foreign dividends............................ (55,359) (95,926)
Interest........................................................ 45,910 41,073
Total Income 1,345,686 908,719
Expenses:
Management and investment advisory fees (Note 3) .......... 489,163 218,815
Net Investment Income 856,523 689,904
Net Realized and Unrealized Gain (Loss) on Investments and Foreign
Currencies Net realized gain (loss) from:
Investment transactions......................................... (1,985,784) 3,091,723
Foreign currency transactions................................... (202,698) (38,864)
Change in unrealized appreciation/depreciation of:
Investments..................................................... 23,769,948 (1,381,704)
Translation of assets and liabilities in foreign currencies..... 79,856 26,301
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign Currencies 21,661,322 1,697,456
Net Increase (Decrease) in Net Assets
Resulting from Operations $22,517,845 $2,387,360
International Mortgage-Backed
SmallCap Securities
Portfolio Portfolio
Net Investment Income
Income:
Dividends....................................................... $ 754,222 $ --
Withholding tax on foreign dividends............................ (83,861) --
Interest........................................................ 39,153 468,916
Total Income 709,514 468,916
Expenses:
Management and investment advisory fees (Note 3) ........ 444,814 31,747
Net Investment Income 264,700 437,169
Net Realized and Unrealized Gain (Loss) on Investments and Foreign
Currencies Net realized gain (loss) from:
Investment transactions......................................... 1,588,649 (131,115)
Foreign currency transactions................................... (33,372) --
Change in unrealized appreciation/depreciation of:
Investments..................................................... 13,064,471 (476,473)
Translation of assets and liabilities in foreign currencies..... (6,504) --
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign Currencies 14,613,244 (607,588)
Net Increase (Decrease) in Net Assets
Resulting from Operations $14,877,944 $(170,419)
See accompanying notes.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(unaudited)
PRINCIPAL SPECIAL MARKETS FUND, INC.
<CAPTION>
International International
Emerging Markets Securities
Portfolio Portfolio
Six Months Year Six Months Year
Ended Ended Ended Ended
June 30, December 31, June 30, December 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Operations
Net investment income ........................................... $ 856,523 $ 1,573,479 $ 689,904 $ 736,875
Net realized gain (loss) from investment and foreign
currency transactions......................................... (2,188,482) (5,911,305) 3,052,859 2,888,566
Change in unrealized appreciation/depreciation of investments
and translation of assets and liabilities in foreign currencies 23,849,804 (13,427,192) (1,355,403) (55,341)
Net Increase (Decrease) in Net Assets
Resulting from Operations 22,517,845 (17,765,018) 2,387,360 3,570,100
Dividends and Distributions to Shareholders
From net investment income....................................... (20,335) (1,546,178) (14,166) (703,066)
From net realized gain on investments and foreign
currency transactions......................................... -- (62,172) (754,009) (2,066,333)
Total Dividends and Distributions (20,335) (1,608,350) (768,175) (2,769,399)
Capital Share Transactions (Note 5)
Shares sold...................................................... -- 65,000,000 385,046 8,238,836
Shares issued in reinvestment of dividends
and distributions............................................. 17,150 1,365,832 530,225 1,857,180
Shares redeemed.................................................. -- -- (1,186,600) (668,569)
Net Increase (Decrease) in Net Assets
from Capital Share Transactions 17,150 66,365,832 (271,329) 9,427,447
Total Increase (Decrease) 22,514,660 46,992,464 1,347,856 10,228,148
Net Assets
Beginning of period.............................................. 79,480,510 32,488,046 47,912,159 37,684,011
End of period (including undistributed net investment
income as set forth below).................................... $101,995,170 $79,480,510 $49,260,015 $47,912,159
Undistributed Net Investment Income .......................... $ 649,436 $ 44,284 $ 651,169 $ 33,810
</TABLE>
<TABLE>
<CAPTION>
International Mortgage-Backed
SmallCap Securities
Portfolio Portfolio
Six Months Year Six Months Year
Ended Ended Ended Ended
June 30, December 31, June 30, December 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Operations
Net investment income ........................................... $ 264,700 $ 568,309 $ 437,169 $ 895,844
Net realized gain (loss) from investment and foreign
currency transactions......................................... 1,555,277 1,705,268 (131,115) 2,046
Change in unrealized appreciation/depreciation of investments
and translation of assets and liabilities in foreign currencies 13,057,967 (935,478) (476,473) 167,122
Net Increase (Decrease) in Net Assets
Resulting from Operations 14,877,944 1,338,099 (170,419) 1,065,012
Dividends and Distributions to Shareholders
From net investment income....................................... (6,027) (548,766) (437,169) (895,844)
From net realized gain on investments and foreign
currency transactions......................................... (1,719,963) (60,583) -- --
Total Dividends and Distributions (1,725,990) (609,349) (437,169) (895,844)
Capital Share Transactions (Note 5)
Shares sold...................................................... -- 50,024,097 -- --
Shares issued in reinvestment of dividends
and distributions............................................. 1,725,990 609,349 437,171 895,844
Shares redeemed.................................................. -- -- (9,700,000) --
Net Increase (Decrease) in Net Assets
from Capital Share Transactions 1,725,990 50,633,446 (9,262,829) 895,844
Total Increase (Decrease) 14,877,944 51,362,196 (9,870,417) 1,065,012
Net Assets
Beginning of period.............................................. 83,329,857 31,967,661 14,860,542 13,795,530
End of period (including undistributed net investment
income as set forth below).................................... $98,207,801 $83,329,857 $4,990,125 $14,860,542
Undistributed Net Investment Income .......................... $ 231,472 $ 24,067 $ -- $ --
See accompanying notes.
</TABLE>
(unaudited)
PRINCIPAL SPECIAL MARKETS FUND, INC.
Note 1 -- Significant Accounting Policies
Principal Special Markets Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as an open-end diversified
management investment company and operates in the mutual fund industry. The Fund
currently consists of four portfolios (International Emerging Markets Portfolio,
International Securities Portfolio, International SmallCap Portfolio and
Mortgage-Backed Securities Portfolio) (known as the "Portfolios").
The Portfolios value securities for which market quotations are readily
available at market value, which is determined using the last reported sale
price or, if no sales are reported, as is regularly the case for some securities
traded over-the-counter, the last reported bid price. When reliable market
quotations are not considered to be readily available, which may be the case,
for example, with respect to certain debt securities, preferred stocks and
foreign securities, the investments are valued by using prices provided by
market makers or estimates of market values obtained from yield data and other
factors relating to instruments or securities with similar characteristics in
accordance with procedures established in good faith by the Fund's Board of
Directors. Securities with remaining maturities of 60 days or less are valued at
amortized cost, which approximates market.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of the New York Stock Exchange. The values of
such securities used in computing net asset value per share are usually
determined as of such times. Occasionally, events which affect the values of
such securities and foreign currency exchange rates may occur between the times
at which they are generally determined and the close of the New York Stock
Exchange and would therefore not be reflected in the computation of each
portfolio's net asset value. If events materially affecting the value of such
securities occur during such period, then these securities are valued at their
fair value as determined in good faith by Principal Management Corporation (the
"Manager") under procedures established and regularly reviewed by the Fund's
Board of Directors. To the extent each portfolio invests in foreign securities
listed on foreign exchanges which trade on days on which a portfolio does not
determine its net asset value, for example Saturdays and other customary
national U.S. holidays, each portfolio's net asset value could be significantly
affected on days when shareholders do not have access to the portfolio.
Certain securities issued by companies in emerging market countries may have
more than one quoted valuation at any given point in time, sometimes referred to
as a "local" price and a "premium" price. The premium price is often a
negotiated price which may not consistently represent a price at which a
specific transaction can be effected. It is the policy of the International
Emerging Markets, International Securities and International SmallCap Portfolios
to value such securities at prices at which it is expected those shares may be
sold, and the Manager or any sub-advisor is authorized to make such
determinations subject to such oversight by the Fund's Board of Directors as may
occasionally be necessary.
The value of foreign securities in foreign currency amounts is expressed in U.S.
dollars at the closing daily rate of exchange. The identified cost of the
portfolio holdings is translated at approximate rates prevailing when acquired.
Income and expense amounts are translated at approximate rates prevailing when
received or paid, with daily accruals of such amounts reported at approximate
rates prevailing at the date of valuation. Since the carrying amount of the
foreign securities is determined based on the exchange rate and market values at
the close of the period, it is not practicable to isolate that portion of the
results of operations arising as a result of changes in the foreign exchange
rates from the fluctuations arising from changes in the market prices of
securities during the period.
The Portfolios record investment transactions generally one day after the trade
date, except for short-term investment transactions which are recorded generally
on the trade date. The identified cost basis has been used in determining the
net realized gain or loss from investment transactions and unrealized
appreciation or depreciation of investments. The Portfolios 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 Portfolios are informed of the ex-dividend date. Interest income is
recognized on an accrual basis.
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 books and the U.S.
dollar equivalent of the amounts actually received or paid. Net unrealized
appreciation or depreciation 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 Portfolios 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 Portfolios' cash balances to be deposited into a single joint
account along with the cash of other registered investment companies managed by
Principal Management Corporation. These balances may be invested in one or more
short-term instruments.
With respect to the Mortgage-Backed Securities Portfolio, all net investment
income is declared as a dividend daily to shareholders of record as of that day,
and all distributions of realized gains from investment transactions are
recorded on the ex-dividend date. Dividends and distributions to shareholders of
the other portfolios 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 tax regulations, which may differ from generally
accepted accounting principles. Permanent book and tax basis differences are
reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification.
Reclassifications made for the period ended December 31,1998 were not material.
Dividends and distributions which exceed net investment income and net realized
capital gains for financial reporting purposes, but not for tax purposes, are
reported as dividends in excess of net investment income or distributions in
excess of net realized capital gains. To the extent distributions exceed current
and accumulated earnings and profits for federal income tax purposes, they are
reported as tax return of capital distributions.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2 -- Federal Income Taxes
No provision for federal income taxes is considered necessary because each
portfolio is qualified as a "regulated investment company" under the Internal
Revenue Code and intends to distribute each year substantially all of its net
investment income and realized capital gains to shareholders. The cost of
investments for federal income tax reporting purposes approximates that used for
financial reporting purposes.
Note 3 -- Management Agreement and Transactions With Affiliates
The Fund has agreed to pay investment advisory and management fees, computed at
an annual percentage rate of each portfolio's average daily net assets, to
Principal Management Corporation and to Invista Capital Management, LLC
("Invista"). Principal Management Corporation is wholly owned by Princor
Financial Services Corporation, a subsidiary of Principal Financial Services,
Inc. Invista is an indirect wholly owned subsidiary of Principal Life Insurance
Company. Pursuant to a sub-advisory agreement, Invista has agreed to assume the
obligations of the Manager to provide investment advisory services for the Fund
in return for the advisory fee paid by the Fund to reimburse the Manager for the
other costs it incurs under the management agreement. The annual rate used in
this calculation for the Portfolios is as follows:
<TABLE>
Net Asset Value of Portfolio
(in millions)
<CAPTION>
First Next Over
$250 $250 $500
<S> <C> <C> <C>
International Emerging Markets Portfolio 1.15% 1.05% .95%
International Securities Portfolio .90 .90 .90
International SmallCap Portfolio 1.00 .90 .80
Mortgage-Backed Securities Portfolio .45 .45 .45
</TABLE>
No brokerage commissions were paid by the Fund to Princor Financial Services
Corporation during the periods. Brokerage commissions were paid to other
affiliates by the following portfolios:
Period Year
Ended Ended
June 30, December 31,
1999 1998
International Emerging Markets Portfolio $44,163 $54,096
International Securities Portfolio 15,889 15,932
International SmallCap Portfolio 77,364 35,554
At June 30, 1999, Principal Life Insurance Company owned shares of the Fund's
portfolios as follows:
International Emerging Markets Portfolio 8,068,007
International SmallCap Portfolio 7,580,918
International Securities Portfolio 1,420,779
Mortgage-Backed Securities Portfolio 499,116
Note 4 -- Investment Transactions
For the period ended June 30, 1999, the cost of investment securities purchased
and proceeds from investment securities sold (not including short-term
investments and U.S. government securities) by the Portfolios were as follows:
Purchases Sales
International Emerging Markets Portfolio $48,300,665 $47,488,041
International Securities Portfolio 15,594,239 17,740,970
International SmallCap Portfolio 89,269,328 87,003,295
Mortgage-Backed Securities Portfolio 985,363 9,452,860
At June 30, 1999, net unrealized appreciation (depreciation) of investments by
the Portfolios was composed of the following:
<TABLE>
<CAPTION>
Net Unrealized
Gross Unrealized Appreciation (Depreciation)
Appreciation (Depreciation) of Investments
<S> <C> <C> <C>
International Emerging Markets Portfolio $18,296,065 $(7,477,101) $10,818,964
International Securities Portfolio 8,333,510 (3,800,230) 4,533,280
International SmallCap Portfolio 18,682,292 (6,700,594) 11,981,698
Mortgage-Backed Securities Portfolio 58,431 (62,693) (4,262)
</TABLE>
The Mortgage-Backed Securities Portfolio may trade portfolio securities on a
"to-be-announced" (TBA) basis. In a TBA transaction, the portfolio 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 portfolio, 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 June 30,
1999, Mortgage-Backed Securities Portfolio had no TBA purchase or sell
commitments outstanding.
At June 30, 1999, the Portfolios held the following securities which were
purchased in private placement transactions and may require registration, or an
exemption therefrom, in order to effect a sale in the ordinary course of
business.
<TABLE>
<CAPTION>
Value at Value as a
Date of June 30, Percentage of
Security Description Acquisition Cost 1999 Net Assets
<S> <C> <C> <C> <C>
International Emerging Markets Portfolio
Agora SA GDR 2/23/99 $523,956 $ 662,706 0.65%
Al-Ahram Beverages Co. ADR 2/4/98 194,250 198,975 0.20
2/13/98 58,500 56,850 0.06
2/23/98 26,400 22,740 0.02
3/5/98 90,000 85,275 0.08
3/20/98 90,750 85,275 0.08
9/28/98 116,100 102,330 0.10
11/06/98 249,546 241,613 0.24
11/25/98 29,750 28,425 0.03
12/14/98 158,600 173,391 0.17
3/19/99 240,375 213,188 0.21
4/1/99 301,740 267,196 0.26
Bank Handlowy w Warszawie GDR 2/17/98 220,500 208,368 0.20
2/23/98 223,250 208,368 0.20
3/5/98 147,500 138,912 0.14
4/2/98 66,500 55,565 0.06
4/21/98 96,600 83,347 0.08
3/29/99 228,000 263,933 0.26
Ceske Radiokomunikace GDR 6/12/98 346,196 739,670 0.73
Estonian Telecom GDR 2/11/99 350,550 373,825 0.37
Hindalco Industries Ltd. GDR 5/6/99 454,106 505,035 0.50
5/19/99 180,125 215,325 0.21
6/3/99 230,140 289,710 0.28
Industrial Credit & Investment Corp. of India ADR 11/20/97 177,125 133,900 0.13
12/17/97 46,688 46,350 0.05
1/13/98 38,700 37,080 0.04
2/13/98 277,500 206,000 0.20
2/23/98 236,300 175,100 0.17
3/5/98 155,000 103,000 0.10
3/20/98 137,500 103,000 0.10
5/8/98 63,800 41,200 0.04
8/28/98 65,700 74,160 0.07
Mol Magyar Olaj-es Gazipari Rt. ADR 3/20/98 840,000 674,901 0.66
5/20/98 124,200 108,466 0.11
9/2/98 60,375 72,311 0.07
9/23/98 115,940 149,442 0.15
6/16/99 375,750 361,554 0.35
Paints & Chemical Industries Co. SAE GDR 11/11/97 $148,125 $ 97,959 0.10%
11/18/97 146,250 97,959 0.10
11/24/97 70,000 45,714 0.04
1/26/98 17,250 13,061 0.01
5/8/98 99,900 58,775 0.06
6/5/98 78,800 52,245 0.05
7/20/98 101,370 71,184 0.07
Pepsi-Gemex SA DE CV GDR 7/7/98 308,976 224,475 0.22
7/13/98 186,375 136,875 0.13
12/8/98 163,850 209,875 0.21
Pick Szeged Rt. GDR 7/7/98 169,905 79,164 0.08
7/8/98 63,240 28,634 0.03
9/2/98 81,600 67,374 0.06
9/23/98 96,600 112,290 0.11
10/22/98 95,140 75,234 0.07
10/27/98 113,040 80,849 0.08
Reliance Industries Ltd. GDR 12/12/97 72,500 81,504 0.08
1/13/98 23,250 25,266 0.03
2/13/98 131,400 146,707 0.14
2/23/98 140,600 154,858 0.15
3/5/98 52,290 51,348 0.05
7/14/98 102,950 115,736 0.11
12/22/98 183,150 271,408 0.27
State Bank of India GDR 5/5/99 473,000 480,691 0.47
5/6/99 448,525 420,605 0.41
5/20/99 170,800 152,947 0.15
Videsh Sanchar Nigam Ltd. GDR 11/17/97 294,210 269,062 0.26
11/24/97 104,000 102,500 0.10
12/12/97 30,820 29,468 0.03
1/2/98 55,400 51,250 0.05
1/13/98 24,970 28,188 0.03
2/13/98 236,250 230,625 0.23
2/23/98 161,925 162,719 0.16
3/5/98 261,000 256,250 0.25
3/20/98 83,650 89,688 0.09
4/30/98 123,750 128,125 0.12
5/8/98 225,900 230,625 0.23
7/30/98 65,250 76,875 0.07
2/11/99 210,900 292,125 0.29
5/20/99 95,600 102,500 0.10
International SmallCap Portfolio
Neopost SA 2/23/99 $446,792 $ 631,140 0.65%
3/31/99 226,415 324,851 0.32
5/4/99 144,301 164,746 0.17
5/11/99 117,322 134,581 0.14
1,255,318 1.28
</TABLE>
The Mortgage-Backed Securities Portfolio's investments are with various issuers;
the other portfolios' investments are with various issuers in various
industries. The Schedules of Investments contained herein summarize
concentrations of credit risk for Mortgage-Backed Securities Portfolio by
issuers and the other portfolios by industry and issuer.
Note 5 -- Capital Share Transactions
Transactions in Capital Shares by portfolio were as follows:
<TABLE>
<CAPTION>
International International International Mortgage-Backed
Emerging Securities SmallCap Securities
Markets Portfolio Portfolio Portfolio Portfolio
Period Ended June 30, 1999:
<S> <C> <C> <C> <C>
Shares sold ................................. -- 25,711 -- --
Shares issued in reinvestment of ..............
dividends and distributions .................. 2,104 35,021 150,348 42,773
Shares redeemed ............................. -- (78,297) -- (973,483)
Net Increase (Decrease) 2,104 (17,565) 150,348 (930,710)
Year Ended December 31, 1998:
Shares sold ................................. 6,311,934 521,541 4,270,347 --
Shares issued in reinvestment of
dividends and distributions .................. 166,787 126,754 57,958 86,540
Shares redeemed ............................. -- (41,219) -- --
Net Increase 6,478,721 607,076 4,328,305 86,540
</TABLE>
Note 6 -- Line of Credit
The Portfolios participate with other funds and accounts managed by Principal
Management Corporation in an unsecured joint line of credit with a bank, which
allows them to borrow up to $60,000,000, 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, accounts and portfolios in proportion to their average net
assets during each quarter. At June 30, 1999, the International SmallCap
Portfolio had an outstanding borrowing of $1,940,000 at an annual rate of 5.62%.
No other Portfolio had outstanding borrowings at June 30, 1999 under the line of
credit.
June 30, 1999
SCHEDULES OF INVESTMENTS
PRINCIPAL SPECIAL MARKETS FUND, INC.
International Emerging Markets Portfolio
Shares
Held Value
Common Stocks (86.82%)
Agricultural Chemicals (0.40%)
Sociedad Quimica Minera
De Chile SA ADR, Class A 636 $ 22,260
Sociedad Quimica Minera
De Chile SA ADR, Class B 11,000 389,125
411,385
Bakery Products (0.94%)
Nong Shim Co. Ltd. 14,900 956,462
Beer, Wine & Distilled Beverages (2.29%)
Hite Brewery Co. Ltd. 34,892(a) 1,211,838
South African Breweries Ltd. 129,282 1,122,642
2,334,480
Beverages (5.90%)
Al-Ahram Beverages Co. ADR 51,900(a)(b) 1,475,258
Embotelladora Andina SA ADR, Series A 47,300 946,000
Fomento Economico Mexicano SA ADR 54,450 2,171,194
PanAmerican Beverages ADR 35,700 850,106
Pepsi-Gemex SA DE CV GDR 62,600(b) 571,225
6,013,783
Blast Furnace & Basic Steel
Products (2.86%)
Pohang Iron & Steel ADR 55,100 1,852,738
Tubos De Acero De Mexico SA ADR 98,000 1,065,750
2,918,488
Cable & Other Pay TV Services (0.73%)
Ceske Radiokomunikace GDR 21,200(a)(b) 739,670
Cement, Hydraulic (0.84%)
Apasco SA 130,000 853,118
Central Reserve Depositories (0.87%)
Dao Heng Bank Group Ltd. 198,500 890,307
Chemicals & Allied Products (0.00%)
Sarantis SA 1(a) 10
Commercial Banks (10.77%)
ABSA Group Ltd. 283,000 1,601,580
Banco Rio De La Plata SA ADR 78,300 743,850
Bank Handlowy w
Warszawie GDR 69,000(b) 958,493
Bank Sinopac 2,072,000 1,443,389
BOE Limited 960,000 954,540
Housing & Commercial Bank Korea 32,800(a) 1,034,331
Overseas Union Bank Ltd. 336,200 1,619,321
Shinhan Bank 140,000 1,572,404
State Bank of India GDR 96,500(b) 1,054,243
10,982,151
Communications Equipment (1.52%)
ECI Telecommunications Ltd. ADR 46,600 1,546,537
Communications Services, NEC (1.79%)
Korea Telecom Corp. ADR 45,600(a) 1,824,000
Computer & Data Processing (0.71%)
Datatec Ltd. 50,000 $ 722,534
Computer & Office Equipment (3.84%)
Compal Electronics, Inc. 418,500 1,645,547
Orbotech Ltd. ADR 26,400(a) 1,376,100
Sindo Ricoh Co. 16,728 896,042
3,917,689
Concrete, Gypsum & Plaster
Products (1.28%)
Cemex SA, B Shares 264,000 1,304,953
Construction & Related Materials (1.30%)
Barlow Ltd. 230,093 1,326,949
Consumer Products (1.19%)
Rothmans Industries Ltd. 89,000 747,562
Souza Cruz SA 65,800 462,061
1,209,623
Crude Petroleum & Natural Gas (1.34%)
Mol Magyar Olaj-es Gazipari Rt. ADR 56,700(b) 1,366,674
Department Stores (2.41%)
Pt Matahari Putra Prima 4,134,000(a) 540,409
Shinsegae Department Store Co. 27,000(a) 1,922,134
2,462,543
Eating & Drinking Places (1.55%)
Cafe De Coral Holdings Ltd. 2,745,000 1,202,877
Jollibee Foods Warrants 728,100(a) 373,150
1,576,027
Electric Services (1.29%)
Korean Electric Power ADR 64,000 1,312,000
Electrical Industrial Apparatus (0.45%)
Guangdong Kelon Electric
Holdings Co. Ltd. 391,000 456,063
Electronic Components &
Accessories (2.32%)
Elec & Eltek International ADR 201,100 784,290
Flextech Holdings Ltd. 454,000 640,013
Varitronix International Ltd. 454,000 944,992
2,369,295
Electronic Distribution
Equipment (0.88%)
Techtronic Industries Co. 4,518,000 902,564
Engines & Turbines (0.62%)
First Tractor Co. Ltd. 2,148,000 636,740
Family Clothing Stores (0.32%)
Giordano International Ltd. 466,000 330,330
Federal & Federally Sponsored
Credit (0.90%)
Industrial Credit & Investment Corp.
of India ADR 89,300(b) 919,790
Finance Services (0.52%)
Grupo Financiero Banorte SA 374,000(a) 534,416
Fire, Marine & Casualty
Insurance (1.14%)
Aksigorta AS 41,796,000 $ 1,163,733
Foreign Banks, Branches &
Agencies (2.09%)
Bank Leumi Le-Israel 342,000 646,334
Credicorp Ltd. ADR 54,940 604,340
Yapi Ve Kredi Bankasi AS 61,264,800 885,568
2,136,242
Furniture & Home Furnishing
Stores (0.90%)
Grupo Elektra SA CPO 1,544,000 915,186
Glass & Glassware, Pressed Or
Blown (0.56%)
Vitro SA ADR 111,000 568,875
Grocery Stores (0.45%)
Blue Square Chain Investments &
Property Ltd. 28,275(a) 463,066
Holding Offices (1.80%)
The India Fund, Inc. ADR 184,700(a) 1,835,456
Hotels & Motels (0.75%)
Resorts World Berhad 324,000 763,206
Household Appliances (0.41%)
Halla Climate Control Co. 9,700 419,020
Measuring & Controlling Devices (2.02%)
IDT Holdings Singapore Ltd. ADR 553,000 1,150,240
Moulin International Holding Ltd. 8,500,000 909,278
2,059,518
Meat Products (0.43%)
Pick Szeged Rt. GDR 79,000(b) 443,545
Medical Instruments & Supplies (1.11%)
Medison Co. Ltd. 71,500 1,136,623
Miscellaneous Food & Kindred
Products (0.50%)
Thai Union Frozen Products
Public Co. Ltd. 143,500 505,914
Miscellaneous Investing (1.09%)
Banco Latino Americano
De Exportaciones ADR 41,540 1,111,195
Miscellaneous Non-Durable
Goods (1.27%)
Desc SA, Series B 1,175,000 1,293,437
Miscellaneous Textile Goods (1.96%)
Esprit Holdings Ltd. 1,710,000 1,157,058
Reliance Industries Ltd. GDR 103,900(b) 846,827
2,003,885
Newspapers (0.65%)
Agora SA GDR 56,400(a)(b) 662,706
Oil & Gas Field Services (0.86%)
Gulf Indonesia Resources Ltd. ADR 76,100(a) 875,150
Paints & Allied Products (0.43%)
Paints & Chemical Industries
Co. SAE GDR 66,900(b) $ 436,897
Paper & Paper Products (0.94%)
Aracruz Celulose SA ADR 43,500 957,000
Paperboard Containers & Boxes (0.55%)
Hung Hing Print Group 1,364,000 562,554
Petroleum Refining (1.43%)
Sasol Ltd. 204,000 1,455,375
Primary Non-Ferrous Metals (0.99%)
Hindalco Industries Ltd GDR 51,600(b) 1,010,070
Radio & Television Broadcasting (1.32%)
Grupo Televisa SA GDR 30,000(a) 1,344,375
Search & Navigation Equipment (0.56%)
Elbit Systems Ltd. ADR 32,800 574,000
Security & Commodity
Exchanges (0.54%)
OTK Holdings Ltd. ADR 835,000 546,582
Security Brokers & Dealers (1.80%)
G.K. Goh Holdings Ltd. 485,000 549,820
Kay Hian Holdings Ltd. 910,000 860,575
Peregrine Investment Holdings Ltd. 160,000(a)(c) 0
Vickers Ballas Holdings Ltd. 435,000 421,594
1,831,989
Telephone Communication (10.44%)
Carso Global Telecom, Class A1 140,000(a) 884,661
Compania Anonima Telefonos De
Venezuela ADR 45,500 1,239,875
Embratel Participacoes SA. 51,000,000(a) 378,268
Hellenic Telecom Organization SA ADR 95,700 1,058,681
Hellenic Telecommunication 39,089 837,858
Investec-Consultadoria
Internacional SA 11,400 340,939
Matav Tavkozlesi Rt. ADR 57,200 1,573,000
Philippine Long Distance
Telephone Co. ADR 23,200 698,900
Tele Norte Leste Participacoes SA 22,000,000 199,780
Telecomunicacoes Brasileiras SA 17,190,000 485
Telefonica De Argentina SA ADR 27,600 865,950
Telefonos De Mexico SA ADR 6,500 525,281
Videsh Sanchar Nigam Ltd. GDR 160,000(b) 2,050,000
10,653,678
Total Common Stocks 88,547,858
Preferred Stocks (9.53%)
Beverages (1.38%)
Quilmes Industrial Quines SA ADR 113,900 1,409,512
Blast Furnace & Basic Steel
Products (0.54%)
Cia Siderurgica Tubarao Preference 25,000,000 267,915
Gerdau SA 17,000,000 278,068
545,983
Cement, Hydraulic (1.09%)
Titan Cement Co. SA 13,400 $1,106,773
Central Reserve Depositories (0.29%)
Banco Ganadero SA ADR Preference 38,800 298,275
Commercial Banks (0.89%)
Banco Estado De Sao Paulo SA 21,200,000 902,790
Electric Services (0.23%)
Centrais Electricas De
Santa Catarina SA 634,000(a) 239,590
Gasoline Service Stations (0.78%)
Petroleo Brasileiro SA 5,200,000 800,700
Telephone Communication (4.33%)
Estonian Telecom GDR 19,000(b) 373,825
Tele Celular Sul Participacoes SA ADR 24,800 537,850
Tele Centro Sul Participacoes SA ADR 17,700 982,350
Tele Norte Leste Participacoes ADR 54,000 1,002,375
Telec De Sao Paulo SA 9,230,000 1,095,866
Telesp Celular SA Preference B 8,100,000 420,271
4,412,537
Total Preferred Stocks 9,716,160
Principal
Amount Value
Commercial Paper (3.33%)
Personal Credit Institutions (3.33%)
Associates Corp. of North America;
5.75%; 7/1/1999 $3,400,000 $ 3,400,000
Total Portfolio Investments 101,664,018
Cash, receivables and other assets,
net of liabilities (0.32%) 331,152
Total Net Assets (100.00%) $101,995,170
(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.
International Emerging Markets Portfolio
Investments by Country
Total Percentage of
Country Value Total Value
Argentina $3,019,312 2.97%
Brazil 8,525,368 8.39
Chile 1,357,385 1.34
China 1,092,803 1.07
Colombia 298,275 0.29
Czech Republic 739,670 0.73
Egypt 1,912,155 1.88
Estonia 373,825 0.37
Greece 3,003,323 2.95
Hong Kong 6,899,960 6.79
Hungary 3,383,220 3.33
India 7,716,386 7.59
Indonesia 1,415,559 1.39
Israel 4,606,037 4.53
Korea, Republic Of 14,137,592 13.91
Malaysia 763,206 0.75
Mexico 12,882,578 12.67
Panama 1,111,195 1.09
Peru 604,340 0.59
Philippines 1,072,051 1.05
Poland 1,621,198 1.60
Portugal 340,939 0.34
Singapore 6,773,414 6.66
South Africa 7,730,202 7.60
Taiwan, Province Of China 3,088,936 3.04
Thailand 505,914 0.50
Turkey 2,049,300 2.02
United States 3,400,000 3.34
Venezuela 1,239,875 1.22
Total $101,664,018 100.00%
International Securities Portfolio
Shares
Held Value
Common Stocks (94.70%)
Advertising (1.20%)
WPP Group PLC 69,700 $ 589,442
Blast Furnace & Basic Steel
Products (0.37%)
Tubos De Acero De Mexico SA ADR 17,000 184,875
Central Reserve Depositories (1.00%)
Union Bank of Norway 26,480 494,467
Commercial Banks (13.16%)
Australia & New Zealand Banking G 129,000 $ 948,574
Bank of Ireland 53,283 895,333
Housing & Commercial Bank Korea 11,000(a) 346,879
Merita PLC, Class A 149,950 852,063
National Australia Bank Ltd. 45,734 756,808
Nordbanken Holding AB 25,000 146,147
Royal Bank of Canada Montreal, Quebec 18,300 803,690
San Paolo-IMI SPA 55,530 755,919
Shinhan Bank 23,000 258,324
Svenska Handelsbanken, Class A 12,900 154,768
Svenska Handelsbanken, Class B 51,150 565,543
6,484,048
Communications Equipment (4.13%)
ECI Telecommunications Ltd. ADR 25,600 849,600
Telefonaktiebolaget Lm Ericsson 37,000 1,185,933
2,035,533
Communications Services, NEC (2.80%)
Koninklijke KPN NV 17,514 821,808
Korea Telecom Corp. ADR 14,000(a) 560,000
1,381,808
Computer & Office Equipment (2.41%)
Canon, Inc. 23,000 661,290
Orbotech Ltd. ADR 10,100(a) 526,463
1,187,753
Concrete, Gypsum & Plaster
Products (1.49%)
Lafarge SA 7,700 732,142
Consumer Products (3.93%)
Imasco Ltd. 19,741 529,519
Societe Nationale D'Exploitation
Industrielle Des Tabacs et
Allumettes 11,000 635,264
Swedish Match Co. 217,000 773,383
1,938,166
Copper Ores (0.86%)
Boliden Ltd. SDR 1 1
Trelleborg AB, Class B 48,000 423,443
423,444
Crude Petroleum & Natural Gas (2.00%)
Elf Acquitaine SA 6,700 983,226
Drugs (4.62%)
AstraZeneca Group PLC 22,447 873,933
Novartis AG 578 843,992
Takeda Chemical Industries 12,000 556,197
2,274,122
Electric Services (0.17%)
Enersis SA ADR 3,620 82,808
Electrical Goods (0.92%)
Smiths Industries PLC 34,000 452,067
Electronic Components &
Accessories (1.30%)
Elec & Eltek International ADR 105,600 411,840
Varitronix International Ltd. 111,000 231,044
642,884
Electronic Distribution Equipment (2.98%)
Koninklijke Philips Electronics 14,904 1,470,150
Engines & Turbines (0.49%)
RHI AG 8,900 $ 240,931
Farm & Garden Machinery (0.46%)
New Holland NV 13,250 226,906
Finance Services (1.64%)
Takefuji Corp. 7,800 806,189
Foreign Banks, Branches &
Agencies (2.89%)
Bank Austria AG 10,000 525,949
UBS AG 3,000 895,414
1,421,363
Gas Production & Distribution (0.99%)
OMV AG 5,450 486,112
Industrial Inorganic Chemicals (0.93%)
Rhone-Poulenc SA 10,000 456,957
Investment Offices (1.67%)
AMVESCAP PLC 92,400 821,467
Life Insurance (0.73%)
QBE Insurance Group Ltd. 94,911 361,237
Meat Products (4.62%)
Danisco AS 18,000 813,429
Orkla ASA, Class A 15,000 233,415
Orkla ASA, Class B 41,600 565,431
Unilever NV 9,821 661,902
2,274,177
Medical Instruments & Supplies (0.50%)
Terumo Corp. 11,000 244,927
Miscellaneous Business Services (1.29%)
Brista-Auto Estradas De Portugal SA 15,434 636,667
Miscellaneous Chemical
Products (1.51%)
Hoechst AG 16,500 743,600
Miscellaneous Food & Kindred
Products (2.92%)
Greencore Group PLC 78,000 256,354
Koninklijke Wessanen NV 28,000 355,170
Tomkins PLC 190,180 825,896
1,437,420
Miscellaneous Non-Durable
Goods (4.04%)
Desc SA, Series B 392,000 431,513
Diageo PLC 78,515 818,075
Lagardere SCA 19,900 740,856
1,990,444
Miscellaneous Primary Metal
Products (0.72%)
Charter PLC 61,000 354,809
Miscellaneous Textile Goods (0.58%)
Esprit Holdings Ltd. 422,000 285,543
Miscellaneous Transportation
Equipment (0.89%)
Autoliv, Inc. 5,200 $ 158,415
Autoliv, Inc. ADR 9,200 278,300
436,715
Motor Vehicles & Equipment (1.95%)
DaimlerChrysler AG 8,100 707,526
Honda Motor Co. Ltd. 6,000 254,304
961,830
Newspapers (3.29%)
Publishing & Broadcasting Ltd. 86,000 567,545
United News & Media PLC 109,000 1,051,518
1,619,063
Paperboard Containers & Boxes (1.00%)
Buhrmann NV 30,600 493,867
Pens, Pencils, Office & Art
Supplies (1.03%)
Societe BIC SA 9,600 506,396
Personnel Supply Services (1.33%)
Vedior NV 38,617 657,107
Petroleum Refining (0.77%)
Sasol Ltd. 53,000 378,112
Pulp Mills (1.09%)
UPM-Kymmene Oyj 17,300 535,231
Radio & Television Broadcasting (1.44%)
Carlton Communications PLC 85,697 709,867
Radio, Television & Computer
Stores (0.92%)
Yamada Denki 8,300 454,649
Security Brokers & Dealers (0.00%)
Peregrine Investment Holdings Ltd. 227,000(a)(b) 0
Soap, Cleaners & Toilet Goods (1.55%)
Reckitt & Colman PLC 73,292 762,499
Special Industry Machinery (2.30%)
Cookson Group 336,000 1,133,423
Telephone Communication (6.82%)
Hellenic Telecom Organization SA ADR 73,000 807,563
Nokia Corp. ADR, Class A 6,500 595,156
Telecom Corp. of New Zealand Ltd. 187,000 802,670
Telecom Italia-DI 213,000 1,155,418
3,360,807
Trucking & Courier Services,
Except Air (1.00%)
Securicor PLC 56,000 491,680
Total Common Stocks 46,646,930
Shares
Held Value
Preferred Stock (0.42%)
Commercial Banks (0.42%)
National Australia Bank ECU 6,800 $ 206,550
Principal
Amount Value
Commercial Paper (5.23%)
Business Credit Institutions (2.03%)
American Express Credit Corp.;
4.95%; 7/1/99 $1,000,000 $1,000,000
Personal Credit Institutions (3.20%)
Ford Motor Credit Co.;
5.26%; 7/7/99 1,580,000 1,578,615
Total Commercial Paper 2,578,615
Total Portfolio Investments (100.35%) 49,432,095
Liabilities, net of cash, receivables and
other assets (-0.35%) (172,080)
Total Net Assets (100.00%) $49,260,015
(a) Non-income producing security - No dividend paid during the period.
(b) Peregrine Investment Holdings Ltd. has filed a plan of liquidation.
International Securities Portfolio
Investments by Country
Total Percentage of
Country Value Total Value
Australia $2,840,713 5.75%
Austria 1,252,993 2.53
Canada 1,333,210 2.70
Chile 82,808 0.17
Denmark 813,429 1.65
Finland 1,982,450 4.01
France 4,054,843 8.20
Germany 1,451,125 2.94
Greece 807,563 1.63
Hong Kong 516,587 1.04
Israel 1,376,063 2.78
Italy 1,911,337 3.87
Japan 2,977,556 6.02
Korea, Republic of 1,165,203 2.36
Mexico 616,388 1.25
Netherlands 4,686,911 9.48
New Zealand 802,670 1.62
Norway 1,293,313 2.62
Portugal 636,667 1.29
Singapore 411,840 0.83
South Africa 378,112 0.76
Sweden 4,559,864 9.22
Switzerland 1,739,405 3.52
United Kingdom 9,162,430 18.54
United States 2,578,615 5.22
Total $49,432,095 100.00%
International SmallCap Portfolio
Shares
Held Value
Common Stocks (101.29%)
Advertising (0.35%)
United Group Ltd. 222,152 $ 345,561
Air Transportation, Scheduled (1.59%)
Ryanair Holdings PLC ADR 29,500(a) 1,563,500
Airports, Flying Fields & Services (2.59%)
Auckland International Airport Ltd. 829,000 1,273,981
Virgin Express Holdings ADR 139,100(a) 1,269,287
2,543,268
Bakery Products (1.79%)
Kamps AG 43,640 1,755,186
Beer, Wine, & Distilled Beverages (1.58%)
Hite Brewery Co., Ltd. 44,600(a) $1,549,008
Beverages (0.96%)
Doosan Corp. 23,000(a) 936,920
Commercial Banks (4.32%)
Banco Pastor SA 20,200 1,030,129
Koram Bank 101,400 1,270,278
The Ashikaga Bank Ltd. 130,000 253,478
The Bank of Fukuoka Ltd. 57,000 239,705
The Bank of Iwate Ltd. 11,000 446,230
The Fukui Bank Ltd. 109,000 243,150
The Hokkaido Bank Ltd. 158,000(a) 258,468
The Hokuriku Bank Ltd. 127,000(a) 251,826
The Joyo Bank Ltd. 64,000 249,050
4,242,314
Commercial Printing (0.98%)
Sato Corp. 45,000 957,359
Communications Equipment (1.28%)
Indra Sistemas SA 45,400 489,267
Teleste OYJ 84,900 770,485
1,259,752
Communications Services, NEC (1.85%)
AT&T Canada, Inc. 28,400(a) 1,819,375
Computer & Data Processing
Services (5.31%)
CI Technologies Group Ltd. 221,800 829,500
Computacenter PLC 198,400 1,524,597
Computershare Ltd. 150,000 1,770,210
Ecsoft Group PLC ADR 49,100(a) 770,256
Telinfo NV 2,800 316,477
5,211,040
Computer & Office Equipment (1.14%)
Venture Manufacturing Ltd. 145,000 1,115,734
Drug Stores & Proprietary
Stores (1.89%)
Tsuruha Co. Ltd. 25,000 1,858,949
Drugs (2.72%)
Biovail Corp. International 24,000(a) $1,208,069
Faulding (F.H.) & Co. 158,000 962,169
Skyepharma PLC 644,000(a) 502,493
2,672,731
Eating & Drinking Places (1.20%)
Do & Co Restaurants & Catering AG 15,500(a) 855,183
Kappa Create Co., Ltd. 26,000(a) 322,218
1,177,401
Electric Services (4.67%)
Energy Developments Ltd. 229,000 704,847
Independent Energy Holdings ADR 132,700(a) 1,808,038
Vestas Wind Systems 23,500(a) 2,074,939
4,587,824
Electrical Work (0.99%)
Telesystem International Wireless, Inc. 53,600(a) 968,752
Electronic Components &
Accessories (4.76%)
Celestica, Inc. 35,400(a) 1,533,263
JIT Holdings Ltd. 482,000 877,667
OA System Plaza Co., Ltd. 25,000 287,104
Perlos OYJ 134,700(a) 1,972,557
4,670,591
Electronic Distribution
Equipment (2.93%)
JOT Automation Group OYJ 53,800 2,180,463
Techtronic Industries Co. 3,490,000 697,199
2,877,662
Engines & Turbines (1.60%)
NEG Micon 44,400 1,574,298
Family Clothing Stores (2.74%)
Fast Retailing Co. Ltd. 25,000 2,685,148
Grocery Stores (1.12%)
Superdiplo SA 49,500(a) 1,097,533
Holding Offices (1.80%)
Lang Corp. Ltd. 306,000(a) 1,031,982
Bure Investment Aktiebolaget AB 139,600 738,907
1,770,889
Hotels & Motels (1.10%)
Resorts World Berhad 460,000 1,083,564
Household Appliance Stores (1.39%)
Kojima Co. Ltd. 41,000 1,365,129
Household Audio & Video
Equipment (0.51%)
Nippon Broadcasting System, Inc. 10,000 495,720
Hunting, Trapping & Game
Propagation (1.10%)
Rapala Normark Corp. 152,500(a) 1,077,294
Industrial Inorganic Chemicals (1.27%)
Kemira OY 206,400 1,247,329
Industrial Organic Chemicals (0.39%)
Croda International PLC 85,800 380,719
Medical & Dental Laboratories (1.07%)
QIAGEN NV 15,600(a) $1,053,755
Medical Instruments & Supplies (1.10%)
Cochlear Ltd. 136,000 1,079,896
Metalworking Machinery (1.66%)
Mikron Holding AG 7,200 1,630,270
Miscellaneous Amusement,
Recreation Services (2.10%)
Aristocrat Leisure Ltd. 272,000 2,061,489
Miscellaneous Durable Goods (0.65%)
Edel Music AG 8,500(a) 639,905
Miscellaneous Electrical Equipment &
Supplies (1.61%)
Kaba Holding AG, Class B 3,000 1,584,342
Miscellaneous Food & Kindred
Products (0.41%)
Rock Field Co. Ltd. 11,000 397,154
Miscellaneous General Merchandise
Stores (1.42%)
Japan Airport Terminal 141,000 1,397,929
Miscellaneous Manufacturers (0.62%)
Austria Haustechnik AG 17,278 609,387
Miscellaneous Non-Durable
Goods (1.64%)
Austria Tabakwerke AG 27,700 1,613,994
Miscellaneous Plastics Products (1.30%)
Airspray NV 52,700(a) 1,277,181
Miscellaneous Primary Metal
Products (0.00%)
YBM Magnex International, Inc. 107,000(a) 723
Mortgage Bankers & Brokers (1.28%)
Goldcrest Co. Ltd. 7,000 1,254,997
Motion Picture Distribution (0.64%)
Kinowelt Medien AG 8,400(a) 628,045
Motorcycles, Bicycles & Parts (0.77%)
Ducati Motor Holding SPA 286,700(a) 750,992
New & Used Car Dealers (0.39%)
Athlon Groep NV 16,000 387,759
Nonresidential Building
Construction (0.75%)
Algeco 9,400 739,165
Oil & Gas Field Services (1.48%)
Petroleum Geo-Services ASA 96,800(a) $1,457,122
Pens, Pencils, Office & Art
Supplies (0.63%)
Sailor Pen Co. Ltd. 85,000(a) 617,997
Personnel Supply Services (1.81%)
NIC Corp. 32,000 1,083,974
Unique International NV 28,503 695,177
1,779,151
Professional & Commercial
Equipment (0.92%)
Quality Healthcare Asia Ltd. 4,666,000(a) 908,075
Pulp Mills (0.69%)
Miquel Y Costas 26,700 679,288
Radio & Television Broadcasting (2.88%)
Fuji Television Network, Inc. 170 918,568
Modern Times Group Mtg AB, Class B 87,900(a) 1,907,556
2,826,124
Radio, Television & Computer
Stores (4.50%)
Distefora Holding AG 9,400(a) 967,458
Yamada Denki 63,000 3,450,952
4,418,410
Real Estate Agents & Managers (1.64%)
First Capital Corp. Ltd. 1,035,400 1,611,667
Sanitary Services (1.22%)
De Sammensluttede Vognmand AS 13,300 1,202,067
Security Brokers & Dealers (2.05%)
E*TRADE Australia Ltd. 110,000(a) 437,159
Kempen & Co. NV 31,520 1,576,528
2,013,687
Services, NEC (0.51%)
Lindeteves-Jacoberg Ltd. 355,000 504,621
Special Industry Machinery (2.41%)
Aixtron 13,500 1,112,383
Neopost SA 54,100(a)(b) 1,255,318
2,367,701
Subdividers & Developers (1.56%)
MCL Land Ltd. 1,213,600 1,532,623
Telephone Communications (4.67%)
AAPT Ltd. 489,400(a) 1,522,539
Esat Telecom Group PLC ADR 58,700(a) 2,575,463
Helsingin Puhelin OYJ, Series E 10,300 488,617
4,586,619
Trusts (0.99%)
NHP PLC 366,666 976,779
Total Portfolio Investments (101.29%) 99,479,464
Liabilities, net of cash and receivables (-1.29%) (1,271,663)
Total Net Assets (100.00%) $98,207,801
(a) Non-income producing security - No dividend paid during the period.
(b) Restricted security - See Note 4 to the financial statements.
International SmallCap Portfolio
Investments by Country
Total Percentage of
Country Value Total Value
Australia $10,745,351 10.81%
Austria 3,078,565 3.09
Canada 5,530,182 5.56
Belgium 1,585,765 1.59
Denmark 4,851,304 4.88
Finland 7,736,745 7.79
France 1,994,483 2.00
Germany 4,135,520 4.16
Hong Kong 1,605,274 1.61
Ireland 4,138,963 4.16
Italy 750,992 0.75
Japan 19,035,104 19.14
Korea, Republic of 3,756,205 3.78
Malaysia 1,083,564 1.09
Netherlands 4,990,400 5.02
New Zealand 1,273,981 1.28
Norway 1,457,122 1.46
Singapore 5,642,312 5.67
Spain 3,296,217 3.31
Sweden 2,646,463 2.66
Switzerland 4,182,070 4.20
United Kingdom 5,962,882 5.99
Total $99,479,464 100.00%
Mortgage-Backed Securities Portfolio
Description of Issue Principal
Type Rate Maturity Amount Value
Federal Home Loan Mortgage Corporation
(FHLMC) Certificates (16.00%)
FHLMC 5.50% 2/1/2024-3/1/2024 514,139 $ 474,629
FHLMC 6.00 4/1/2024 100,835 95,663
FHLMC 6.50 12/1/2013 232,159 228,361
Total FHLMC Certificates 798,653
Federal National Mortgage Association (FNMA)
Certificates (21.13%)
FNMA 6.25 4/1/2026 256,523 247,129
FNMA 7.00 8/1/2023 813,784 807,240
Total FNMA Certificates 1,054,369
Government National Mortgage Association (GNMA)
Certificates (60.11%)
GNMA I 6.50 1/15/2024 1,123,363 1,090,352
GNMA I 7.50 6/15/2023-9/15/2023 378,113 383,144
GNMA II 5.50 3/20/2026 177,037 161,120
GNMA II 6.00 9/20/2023-5/20/2026 1,144,845 1,074,321
GNMA II 6.50 10/20/2025 301,110 290,487
Total GNMA Certificates 2,999,424
Federal Agency Short-Term Obligations (2.10%)
Investment in Joint Trade Account;
Federal Home Loan Bank System;
4.60%; 7/1/99 104,834 104,834
Total Portfolio Investments (99.34%) 4,957,280
Cash, receivables and other assets,
net of liabilities (0.66%) 32,845
Total Net Assets (100.00%) $4,990,125
FINANCIAL HIGHLIGHTS
(unaudited)
Selected data for a share of Capital Stock outstanding throughout each year
ended December 31 (except as noted):
PRINCIPAL SPECIAL MARKETS FUND, INC.
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING
MARKETS PORTFOLIO 1999* 1998 1997(a)
-------------------------------------------------- ------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................... $8.21 $10.14 $9.94
Income from Investment Operations:
Net Investment Income............................... .09 .17 .01
Net Realized and Unrealized Gain (Loss) on Investments 2.23 (1.91) .21
Total from Investment Operations 2.32 (1.74) .22
Less Dividends and Distributions:
Dividends from Net Investment Income................ -- (.17) (.02)
Distributions from Capital Gains.................... -- (.02) --
Total Dividends and Distributions -- (.19) (.02)
Net Asset Value, End of Period......................... $10.53 $8.21 $10.14
Total Return........................................... 28.29%(b) (17.21)% 1.40%(b)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $101,995 $79,481 $32,488
Ratio of Expenses to Average Net Assets............. 1.15%(c) 1.15% 1.15%(c)
Ratio of Net Investment Income to Average Net Assets 2.01%(c) 2.11% .91%(c)
Portfolio Turnover Rate............................. 114.0%(c) 36.5% 12.3%(c)
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL SECURITIES PORTFOLIO 1999* 1998 1997 1996 1995 1994
--------------------------------- ------------------------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $14.90 $14.45 $13.67 $11.70 $11.29 $12.87
Income from Investment Operations:
Net Investment Income............................... .22 .24 .24 .31 .19 .13
Net Realized and Unrealized Gain (Loss) on Investments .53 1.12 1.46 2.46 1.11 (.95)
Total from Investment Operations .75 1.36 1.70 2.77 1.30 (.82)
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.01) (.23) (.24) (.16) (.10) (.12)
Excess Distributions from Net Investment Income..... -- -- -- (.07) (.07) (.13)
Distributions from Capital Gains.................... (.23) (.68) (.68) (.57) (.72) (.51)
Total Dividends and Distributions (.24) (.91) (.92) (.80) (.89) (.76)
Net Asset Value, End of Period......................... $15.41 $14.90 $14.45 $13.67 $11.70 $11.29
Total Return........................................... 4.92%(b) 9.55% 12.55% 24.12% 12.02% (6.45)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $49,260 $47,912 $37,684 $28,161 $17,251 $15,542
Ratio of Expenses to Average Net Assets............. .90%(c) .90% .90% .90% .90% .90%
Ratio of Net Investment Income to Average Net Assets 2.84%(c) 1.60% 1.73% 1.90% 1.79% .94%
Portfolio Turnover Rate............................. 66.5%(c) 36.7% 30.8% 25.5% 46.0% 37.0%
<FN>
* Six Months Ended June 30, 1999.
</FN>
</TABLE>
Selected data for a share of Capital Stock outstanding throughout each year
ended December 31 (except as noted):
<TABLE>
<CAPTION>
INTERNATIONAL SMALLCAP PORTFOLIO 1999* 1998 1997(a)
----------------------------------- ------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................... $11.06 $9.97 $9.86
Income from Investment Operations:
Net Investment Income............................... .04 .07 .01
Net Realized and Unrealized Gain on Investments..... 1.91 1.11 .12
Total from Investment Operations 1.95 1.18 .13
Less Dividends and Distributions:
Dividends from Net Investment Income................ -- (.07) (.02)
Distributions from Capital Gains.................... (.23) (.02) --
Total Dividends and Distributions (.23) (.09) (.02)
Net Asset Value, End of Period......................... $12.78 $11.06 $9.97
Total Return........................................... 17.86%(b) 11.92% 1.59%(b)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $98,208 $83,330 $31,968
Ratio of Expenses to Average Net Assets............. 1.00%(c) 1.00% 1.00%(c)
Ratio of Net Investment Income to Average Net Assets .59%(c) .78% .91%(c)
Portfolio Turnover Rate............................. 197%(c) 88.5% 30.3%(c)
</TABLE>
<TABLE>
<CAPTION>
MORTGAGE-BACKED SECURITIES PORTFOLIO 1999* 1998 1997 1996 1995 1994
--------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.39 $10.27 $9.93 $10.17 $9.11 $10.10
Income from Investment Operations:
Net Investment Income............................... .31 .65 .64 .64 .65 .63
Net Realized and Unrealized Gain (Loss) on Investments (.39) .12 .34 (.24) 1.06
(.99)..................................................
Total from Investment Operations (.08) .77 .98 .40 1.71 (.36)
Less Dividends from Net Investment Income.............. (.31) (.65) (.64) (.64) (.65) (.63)
Net Asset Value, End of Period......................... $10.00 $10.39 $10.27 $9.93 $10.17 $9.11
Total Return........................................... (.79)%(b) 7.74% 10.18% 4.20% 19.26% (3.60)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $4,990 $14,861 $13,796 $14,968 $14,253 $14,714
Ratio of Expenses to Average Net Assets............. .45%(c) .45% .45% .45% .45% .45%
Ratio of Net Investment Income to Average Net Assets 6.22%(c) 6.28% 6.37% 6.51% 6.66% 6.56%
Portfolio Turnover Rate................................ 15.0%(c) 13.8% 15.5% 28.7% 41.8% 41.8%
<FN>
* Six Months Ended June 30, 1999.
</FN>
</TABLE>
Notes to Financial Highlights
(a) Period from November 26, 1997, date shares first offered to the public,
through December 31, 1997. Net investment income, aggregating $.02 per
share for the International Emerging Markets Portfolio and $.01 per share
for the International SmallCap Portfolio for the period from the initial
purchase of shares on November 17, 1997 through November 25, 1997, was
recognized, none of which was distributed to the sole shareholder,
Principal Life Insurance Company. Additionally, the portfolios incurred
unrealized losses on investments of $.08 per share and $.15 per share
respectively, during the interim period. This represents activities of each
portfolio prior to the initial offering.
(b) Total return amounts have not been annualized.
(c) Computed on an annualized basis.
