<PAGE> PAGE 1
000 B000000 12/31/97
000 C000000 0000915758
000 D000000 N
000 E000000 NF
000 F000000 Y
000 G000000 N
000 H000000 N
000 I000000 3.0.a
000 J000000 U
001 A000000 PRINCIPAL ASSET ALLOCATION FUND, INC.
001 B000000 811-08178
001 C000000 5152475476
002 A000000 THE PRINCIPAL FINANCIAL GROUP
002 B000000 DES MOINES
002 C000000 IA
002 D010000 50392
002 D020000 0200
003 000000 N
004 000000 N
005 000000 N
006 000000 N
007 A000000 N
007 B000000 0
018 000000 Y
019 A000000 Y
019 B000000 33
019 C000000 PRINCORGRP
020 A000001 LEHMAN BROTHERS
020 B000001 13-2501865
020 C000001 14
020 A000002 BEAR STEARNS AND CO.
020 B000002 13-3299429
020 C000002 10
020 A000003 GOLDMAN SACHS CO.
020 B000003 13-5108880
020 C000003 8
020 A000004 MONTGOMERY SECURITIES
020 B000004 94-1701676
020 C000004 8
020 A000005 MERRILL LYNCH
020 B000005 13-5674085
020 C000005 8
020 A000006 FIRST BOSTON
020 B000006 13-5659485
020 C000006 7
020 A000007 ALEX BROWN & SONS
020 B000007 52-0256630
020 C000007 7
020 A000008 MORGAN, J.P. SECURITIES
020 B000008 13-3224016
020 C000008 6
<PAGE> PAGE 2
020 A000009 BERNSTEIN, SANFORD C.
020 B000009 13-2625074
020 C000009 5
020 A000010 DONALDSON, LUFKIN & JENRETTE
020 B000010 13-2741729
020 C000010 5
021 000000 165
022 A000001 DEUTSCHE BANK CAPITAL
022 B000001 13-6124068
022 C000001 7341
022 D000001 4241
022 A000002 BARCLAYS, DE ZOETE WEDD
022 B000002 13-3297824
022 C000002 6887
022 D000002 2019
022 A000003 MERRILL LYNCH
022 B000003 13-5674085
022 C000003 2718
022 D000003 4019
022 A000004 LEHMAN BROTHERS
022 B000004 13-2501865
022 C000004 2833
022 D000004 2306
022 A000005 SALOMON BROTHERS
022 B000005 13-3082694
022 C000005 1864
022 D000005 2815
022 A000006 GOLDMAN SACHS CO.
022 B000006 13-5108880
022 C000006 2210
022 D000006 2123
022 A000007 DONALDSON LUFKIN
022 B000007 13-2741729
022 C000007 684
022 D000007 2176
022 A000008 BEAR STEARNS
022 B000008 13-3299429
022 C000008 884
022 D000008 1360
022 A000009 MORGAN J.P.
022 B000009 13-3224016
022 C000009 1505
022 D000009 695
022 A000010 PRUDENTIAL SECURITIES
022 B000010 22-2347336
022 C000010 1776
022 D000010 27
023 C000000 36367
023 D000000 27304
027 000000 Y
028 A010000 1056
<PAGE> PAGE 3
028 A020000 0
028 A030000 0
028 A040000 668
028 B010000 1388
028 B020000 0
028 B030000 0
028 B040000 641
028 C010000 1396
028 C020000 0
028 C030000 0
028 C040000 663
028 D010000 1654
028 D020000 0
028 D030000 0
028 D040000 683
028 E010000 1125
028 E020000 0
028 E030000 0
028 E040000 700
028 F010000 1140
028 F020000 4961
028 F030000 0
028 F040000 618
028 G010000 7759
028 G020000 4961
028 G030000 0
028 G040000 3973
028 H000000 0
055 A000000 N
055 B000000 N
062 A000000 N
062 B000000 0.0
062 C000000 0.0
062 D000000 0.0
062 E000000 0.0
062 F000000 0.0
062 G000000 0.0
062 H000000 0.0
062 I000000 0.0
062 J000000 0.0
062 K000000 0.0
062 L000000 0.0
062 M000000 0.0
062 N000000 0.0
062 O000000 0.0
062 P000000 0.0
062 Q000000 0.0
062 R000000 0.0
066 A000000 Y
066 B000000 N
066 C000000 N
<PAGE> PAGE 4
066 D000000 N
066 E000000 N
066 F000000 N
066 G000000 Y
067 000000 N
068 A000000 N
068 B000000 N
069 000000 N
071 A000000 88598
071 B000000 85565
071 C000000 64641
071 D000000 132
072 A000000 12
072 B000000 1408
072 C000000 1032
072 D000000 0
072 E000000 0
072 F000000 567
072 G000000 0
072 H000000 0
072 I000000 0
072 J000000 54
072 K000000 0
072 L000000 0
072 M000000 8
072 N000000 0
072 O000000 0
072 P000000 0
072 Q000000 0
072 R000000 0
072 S000000 0
072 T000000 0
072 U000000 0
072 V000000 0
072 W000000 4
072 X000000 633
072 Y000000 0
072 Z000000 1807
072AA000000 7277
072BB000000 0
072CC010000 2461
072CC020000 0
072DD010000 1780
072DD020000 0
072EE000000 7457
073 A010000 0.2975
073 A020000 0.0000
073 B000000 1.2652
073 C000000 0.0000
074 A000000 3763
074 B000000 0
<PAGE> PAGE 5
074 C000000 0
074 D000000 20878
074 E000000 129
074 F000000 50990
074 G000000 0
074 H000000 0
074 I000000 0
074 J000000 1281
074 K000000 0
074 L000000 443
074 M000000 0
074 N000000 77484
074 O000000 619
074 P000000 0
074 Q000000 0
074 R010000 0
074 R020000 0
074 R030000 0
074 R040000 61
074 S000000 0
074 T000000 76804
074 U010000 6434
074 U020000 0
074 V010000 11.94
074 V020000 0.00
074 W000000 0.0000
074 X000000 3
074 Y000000 0
075 A000000 0
075 B000000 70603
076 000000 0.00
077 A000000 Y
077 B000000 Y
077 C000000 Y
077 D000000 N
077 E000000 N
077 F000000 N
077 G000000 N
077 H000000 N
077 I000000 N
077 J000000 N
077 K000000 N
077 L000000 N
077 M000000 N
077 N000000 N
077 O000000 Y
077 P000000 N
077 Q010000 N
077 Q020000 N
077 Q030000 N
080 A000000 ICI MUTUAL INSURANCE COMPANY
<PAGE> PAGE 6
080 C000000 16000
081 A000000 Y
081 B000000 32
082 A000000 N
082 B000000 0
083 A000000 N
083 B000000 0
084 A000000 N
084 B000000 0
085 A000000 Y
085 B000000 N
SIGNATURE A. S. FILEAN
TITLE V.P. & SECRETARY
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 65945023
<INVESTMENTS-AT-VALUE> 71997444
<RECEIVABLES> 1723907
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3762667
<TOTAL-ASSETS> 77484018
<PAYABLE-FOR-SECURITIES> 618837
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 60737
<TOTAL-LIABILITIES> 679574
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69780037
<SHARES-COMMON-STOCK> 6434402
<SHARES-COMMON-PRIOR> 5369370
<ACCUMULATED-NII-CURRENT> 26450
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 945536
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6052421
<NET-ASSETS> 76804444
<DIVIDEND-INCOME> 1031755
<INTEREST-INCOME> 1407596
<OTHER-INCOME> 0
<EXPENSES-NET> (632422)
<NET-INVESTMENT-INCOME> 1806929
<REALIZED-GAINS-CURRENT> 7276506
<APPREC-INCREASE-CURRENT> 2460767
<NET-CHANGE-FROM-OPS> 11544202
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1780479)
<DISTRIBUTIONS-OF-GAINS> (7456569)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1086950
<NUMBER-OF-SHARES-REDEEMED> (495530)
<SHARES-REINVESTED> 473612
<NET-CHANGE-IN-ASSETS> 15173306
<ACCUMULATED-NII-PRIOR> 18594
<ACCUMULATED-GAINS-PRIOR> 1126026
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 566727
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 632422
<AVERAGE-NET-ASSETS> 70883894
<PER-SHARE-NAV-BEGIN> 11.48
<PER-SHARE-NII> .30
<PER-SHARE-GAIN-APPREC> 1.72
<PER-SHARE-DIVIDEND> (.30)
<PER-SHARE-DISTRIBUTIONS> (1.26)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.94
<EXPENSE-RATIO> .89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Report of Independent Auditors on Internal Control
The Board of Directors and Shareholders
Principal Asset Allocation Fund, Inc.
In planning and performing our audit of the financial statements of Principal
Asset Allocation Fund, Inc. for the year ended December 31, 1997, we considered
its internal control, including control activities for safeguarding securities,
in order to determine our auditing procedures for the purpose of expressing our
opinion on the financial statements and to comply with the requirements of Form
N-SAR, not to provide assurance on internal control.
The management of Principal Asset Allocation Fund, Inc. is responsible for
establishing and maintaining internal control. In fulfilling this
responsibility, estimates and judgments by management are required to assess the
expected benefits and related costs. Generally, controls that are relevant to an
audit pertain to the entity's objective of preparing financial statements for
external purposes that are fairly presented in conformity with generally
accepted accounting principles. These controls include the safeguarding of
assets against unauthorized acquisition, use or disposition.
Because of inherent limitations in internal control, errors or irregularities
may occur and not be detected. Also, projection of any evaluation of internal
control to future periods is subject to the risk that it may become inadequate
because of changes in conditions or that the effectiveness of the design and
operation may deteriorate.
Our consideration of internal control would not necessarily disclose all matters
in internal control that might be material weaknesses under standards
established by the American Institute of Certified Public Accountants. A
material weakness is a condition in which the design or operation of specific
internal control components does not reduce to a relatively low level the risk
that errors or irregularities in amounts that would be material in relation to
the financial statements being audited may occur and not be detected within a
timely period by employees in the normal course of performing their assigned
functions. However, we noted no matters involving internal control, including
control activities for safeguarding securities, that we consider to be material
weaknesses as defined above as of December 31, 1997.
This report is intended solely for the information and use of management and the
Board of Directors of Principal Asset Allocation Fund, Inc. and the Securities
and Exchange Commission.
/s/ Ernst & Young LLP
Des Moines, Iowa
January 16, 1998
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
