UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 02-33227
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Principal Capital Value Fund, Inc.
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(Exact name of registrant as specified in charter)
711 High Street Des Moines, IA 50392-2080
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(Address of principal executive offices) (Zip code)
Princor Financial Services Corporation Des Moines, IA 50392-2080
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(Name and address of agent for service)
Registrant's telephone number, including area code: 515 247-5476
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Date of fiscal year end: October 31, 2003
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Date of reporting period: October 31, 2003
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Item 1. Report to Shareholders.
TABLE OF CONTENTS
PAGE
Managers' Comments......................................................2
Domestic Growth Funds Financial Statements and Highlights
Statements of Assets and Liabilities...................................2
Statements of Operations...............................................9
Statements of Changes in Net Assets....................................16
Notes to Financial Statements..........................................23
Schedules of Investments
Balanced Fund.........................................................34
Capital Value Fund....................................................48
Growth Fund...........................................................51
LargeCap Stock Index Fund.............................................53
MidCap Fund...........................................................62
Partners Blue Chip Fund...............................................66
Partners Equity Growth Fund...........................................71
Partners LargeCap Blend Fund..........................................74
Partners LargeCap Value Fund..........................................77
Partners MidCap Growth Fund...........................................80
Partners SmallCap Growth Fund.........................................83
Real Estate Fund......................................................85
SmallCap Fund.........................................................86
Utilities Fund........................................................90
Financial Highlights...................................................91
International Growth Funds Financial Statements and Highlights
Statements of Assets and Liabilities...................................105
Statements of Operations...............................................107
Statements of Changes in Net Assets....................................109
Notes to Financial Statements..........................................111
Schedules of Investments
International Emerging Markets Fund...................................117
International Fund....................................................120
International SmallCap Fund...........................................123
Financial Highlights...................................................127
Income Funds Financial Statements and Highlights
Statements of Assets and Liabilities...................................130
Statements of Operations...............................................132
Statements of Changes in Net Assets....................................134
Notes to Financial Statements..........................................136
Schedules of Investments
Bond Fund.............................................................142
Government Securities Income Fund.....................................151
Limited Term Bond Fund................................................152
Tax-Exempt Bond Fund..................................................159
Financial Highlights...................................................162
Money Market Fund Financial Statements and Highlights
Statement of Assets and Liabilities....................................166
Statement of Operations................................................167
Statements of Changes in Net Assets....................................168
Notes to Financial Statements..........................................169
Schedule of Investments
Cash Management Fund..................................................172
Financial Highlights....................................................175
Report of Independent Auditors..........................................196
Fund Directors..........................................................197
Federal Income Tax Information..........................................200
MANAGERS' COMMENTS
Principal Management Corporation and its Sub-Advisors are staffed with
investment professionals who manage each individual Fund. Comments by these
individuals in the following paragraphs summarize in capsule form the general
strategy and results of each Fund for 2002. The accompanying graphs display
results for the past 10 years or the life of the Fund, whichever is shorter.
Average annual total return figures provided for each Fund in the graphs reflect
all expenses of the Fund, the maximum sales charge (Class A Shares) or
contingent deferred sales charge (Class B Shares) and assume all distributions
are reinvested at net asset value. Past performance is not predictive of future
performance. Returns and net asset values fluctuate. Shares are redeemable at
current net asset value, which may be more or less than original cost.
The various indices included in the following graphs are unmanaged and do not
reflect any commissions or fees which would be incurred by an investor
purchasing the securities included in the index. Investors cannot invest
directly into these or any indices.
Fund shares are neither deposits nor obligations of, nor endorsed, nor
guaranteed by any bank or other insured depository institution, nor are they
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other government agency. Investment in the Funds involves risks,
including possible loss of the principal amount invested.
GROWTH-ORIENTED FUNDS
DOMESTIC GROWTH FUNDS
PRINCIPAL BALANCED FUND, INC.
WILLIAM C. ARMSTRONG, DIRK LASCHANZKY AND
DOUGLAS R. RAMSEY
GROWTH OF $10,000
Average Annual Total Returns
as of October 31, 2003
Class 1 Year 5 Year 10 Year Life of Fund
A 6.98% -2.28% 4.28%
B 8.63% -2.19% - 5.30%*
60% S&P
500 Stock
Index and
40% Lehman Lehman Morningstar
Brothers Standard & Brothers Moderate
Aggregate Poor's 500 Aggregate Allocation Balanced Fund
Bond Index 3 Stock Index 3 Bond Index 3 Average 2 Class A 1
10 10 10 10 9.521
"1994" 10.084 10.387 9.633 9.967 9.514
"1995" 12.311 13.133 11.141 11.777 10.864
"1996" 14.35 16.297 11.793 13.572 12.504
"1997" 17.593 21.53 12.841 16.309 14.49
"1998" 20.663 26.264 14.039 17.739 16.084
"1999" 23.798 33.006 14.113 19.893 16.864
"2000" 25.473 35.016 15.143 21.669 17.269
"2001" 22.763 26.297 17.348 19.428 15.04
"2002" 21.242 22.324 18.37 21.017 13.395
"2003" 24.322 26.967 19.272 24.352 15.206
Note:Past performance is not predictive of future performance. The performance
of Class B shares will vary from the performance of Class A shares based on
the differences in loads and fees. The returns shown do not reflect taxes,
if any, that a shareholder would pay on Fund distributions or on the
redemption of Fund shares.
* Since inception date 12/9/94
1 Reflects maximum sales charge of 5.75% on the initial $10,000 investment.
2 Calculated by Morningstar. The average does not reflect sales charges but
does reflect commissions and fees.
3 The index is unmanaged and does not reflect sales charges, commissions or
fees.
LOGO
The Principal Balanced Fund underperformed the 60% S&P500 / 40% Lehman Aggregate
Index for the year primarily due to the fund's early overweighting in equities.
For the one-year period ended October 31, 2003, the fund returned 13.52%
compared to 14.50% for the index. Individual security selection was mixed
throughout the period, but the overweighting in equities throughout the year was
negative early in the year, but added value later. The fund's overweighted
position in value companies had a negative impact on the portfolio since lower
quality growth companies outperformed. International exposure for the fund was
positive for overall performance. The fixed income portion of the fund added
value due to security specific outperformance.
The equity markets moved down during the early part of the year, but rebounded
in the most recent period. Continued progress on corporate earnings and improved
profits have supported higher equity prices. The improved economy has been
positive for both companies and consumers. The rising equity markets have
improved investor confidence and strengthened corporate spending.
The fixed income markets benefited from lower yields as the Federal Reserve
(Fed) maintained a stimulative policy to reduce the rate on short-term
investments. The difference in corporate bond yields relative to Treasuries
tended to narrow during the year, as business fundamentals improved. Yields have
begun to rebound from the very low rates of the early summer, but are still at
low overall levels.
The completion of major hostilities in Iraq and a more favorable economic
environment with low inflation expectations have been supportive of improved
financial markets. Consumer and investor confidence is improving as their
financial assets show positive growth. Corporations have improved productivity
and are operating more efficiently with improved financial results and stronger
balancesheets. The low interest rate environment continues to put pressures on
corporate pension liabilities, but improved financial markets are boosting the
assets in these accounts.
The fund continues to maintain a diversified position with investments in
domestic equities, foreign equities and domestic fixed income securities. The
fund is maintaining an overweighted position in stocks vs. bonds, as improved
fundamentals support the higher equity prices.
PRINCIPAL CAPITAL VALUE FUND, INC.
JOHN PIHLBLAD
GROWTH OF $10,000
Average Annual Total Returns
as of October 31, 2003
Class 1 Year 5 Year 10 Year Life of Fund
A 12.36% -3.16% 6.97%
B 14.09% -3.11% - 7.88%*
Morningstar
Russell 1000 Large Value Capital Value
Value Index 3 Category 2 Fund Class A 1
10 10 9.523
"1994" 10.076 10.276 10.054
"1995" 12.566 12.396 11.858
"1996" 15.549 15.134 14.99
"1997" 20.71 19.373 18.791
"1998" 23.781 21.21 21.721
"1999" 27.71 23.836 22.373
"2000" 29.24 25.648 20.986
"2001" 25.772 22.56 18.193
"2002" 23.19 21.971 16.461
"2003" 28.496 26.646 19.626
Note:Past performance is not predictive of future performance. The performance
of Class B shares will vary from the performance of Class A shares based on
the differences in loads and fees. The returns shown do not reflect taxes,
if any, that a shareholder would pay on Fund distributions or on the
redemption of Fund shares.
* Since inception date 12/9/94
1 Reflects maximum sales charge of 5.75% on the initial $10,000 investment.
2 Calculated by Morningstar. The average does not reflect sales charges but
does reflect commissions and fees.
3 The index is unmanaged and does not reflect sales charges, commissions or
fees.
LOGO
During the fiscal year ended October 31, 2003, the market rose as an economic
recovery gathered momentum. Production, consumer spending and disposable
personal income all rose nicely toward the end of the period, and employment
stabilized with leading indicators painting a better picture for the future.
Companies that benefit the most from a strong economy led the advance, e.g.,
those in the technology, industrials and basic materials sectors. Interest rates
rose, reflecting the better economic news. After three years of disappointment,
investor skepticism understandably still abounds. With layoffs down, hiring
picking up and capital spending rising, the U.S. economic future looks brighter.
The Principal Capital Value Fund underperformed the Russell 1000 Value Index,
posting a 19.23% total return compared to 22.88% for the index. With the success
of the war in Iraq in addition to the improving economy, many companies that
still exhibited poor fundamentals rose sharply in the hope that their results
would rise in the new post-recession and war scenario. Our process focuses on
companies where the fundamentals already exhibit improvement, so our holdings
did not always rise in such a dramatic fashion as those firms with poor current
business fundamentals.
We maintain our outlook for an improving economy over the next several quarters.
Rising interest rates have the potential to mute this impact.
In managing equity portfolios, our investment philosophy is based on the belief
that superior stock selection is the key to consistent and repeatable
outperformance. Further, we believe that the key to superior stock selection
lies in the identification of companies with the following attributes: 1)
improving business fundamentals, 2) sustainability of the improvement, 3) rising
investor expectations, and 4) attractive relative valuation.
Our equity portfolio construction process reflects an active, bottom-up style of
management where security selection is the key driver of excess returns relative
to the designated index. This process is maintained while neutralizing
unintended risks.
PRINCIPAL GROWTH FUND, INC.
MARY SUNDERLAND
GROWTH OF $10,000
Average Annual Total Returns
as of October 31, 2003
Class 1 Year 5 Year 10 Year Life of Fund
A 8.49% -7.38% 4.29%
B 10.17% -7.15% - 4.74%*
Russell Morningstar
Midcap Growth Large Growth Growth Fund
Index 3 Category 2 Class A 1
10 10 9.527
"1994" 10.254 10.234 10.351
"1995" 12.74 12.762 12.762
"1996" 15.027 15.103 14.115
"1997" 18.725 19.086 18.286
"1998" 19.18 22.018 21.06
"1999" 26.403 30.301 24.737
"2000" 36.616 35.382 27.864
"2001" 20.952 21.611 16.197
"2002" 17.262 20.937 13.228
"2003" 24.048 25.279 15.227
Note:Past performance is not predictive of future performance. The performance
of Class B shares will vary from the performance of Class A shares based on
the differences in loads and fees. The returns shown do not reflect taxes,
if any, that a shareholder would pay on Fund distributions or on the
redemption of Fund shares.
* Since inception date 12/9/94
1 Reflects maximum sales charge of 5.75% on the initial $10,000 investment.
2 Calculated by Morningstar. The average does not reflect sales charges but
does reflect commissions and fees.
3 The index is unmanaged and does not reflect sales charges, commissions or
fees.
LOGO
Over the past year, the Principal Growth Fund rose 15.11%, underperforming the
Russell 1000 Growth Index, which rose 21.82%. Performance was hurt by a surge in
low quality stocks over the past six months. Low quality stocks are exemplified
by low price, lack of earnings, volatility, and extremely high valuations. In
the early part of a market recovery these types of stocks often have significant
moves as the threat of insolvency fades. We believe this is a short-term
phenomenon and stocks with better fundamentals will reemerge. The Principal
Growth Fund holds what we consider to be very high quality growth companies. We
expect these types of stocks to gain ground soon.
The fund benefited from its holdings in technology, over the year, as the
prospect for an improving economy augured well for capital spending.
Disappointing results in health care offset these positives. The low quality
effect was particularly noticeable in the health care sector where low quality
stocks rose over 30% in the past year, while higher quality health care stocks
increased 2%.
Over the past year, growth stock returns have slightly lagged those of value
stocks. With growth stocks underperforming value stocks for a third consecutive
year, we expect that as investors gain confidence in the economy, growth stocks
will be poised for solid returns. The fund continues to maintain positions in
companies we believe have very high quality long-term growth potential. We think
the low quality rally is unsustainable and expect investors will return to
higher quality stocks over the next six to twelve months.
PRINCIPAL LARGECAP STOCK INDEX FUND, INC.
DIRK LASCHANZKY
GROWTH OF $10,000
Average Annual Total Returns
as of October 31, 2003
Class 1 Year Life of Fund
A 17.83% -6.70%*
B 17.95% -6.82%*
Standard and Morningstar
Poor's 500 Large Blend LargeCap Stock
Stock Index 3 Category 2 Index Fund Class A 1
10 10 9.85
"2000" 10.439 9.646 10.339
"2001" 7.84 7.199 7.707
"2002" 6.655 7.374 6.48
"2003" 8.039 8.805 7.751
Note:Past performance is not predictive of future performance. The performance
of Class B shares will vary from the performance of Class A shares based on
the differences in loads and fees. The returns shown do not reflect taxes,
if any, that a shareholder would pay on Fund distributions or on the
redemption of Fund shares.
* Since inception date 3/1/2000
1 Reflects maximum sales charge of 1.50% on the initial $10,000 investment.
2 Calculated by Morningstar. The average does not reflect sales charges but
does reflect commissions and fees.
3 The index is unmanaged and does not reflect sales charges, commissions or
fees.
LOGO
The Principal LargeCap Stock Index Fund underperformed the S&P 500 Index for the
year, primarily due to the fund's fees. For the one-year period ended October
31, 2003, the fund returned 19.62% compared to 20.80% for the index. The fund
seeks investment performance that corresponds to the results for the S&P 500
Index. Within the fund, the percentage exposure to the companies is closely
aligned to the stocks within the index.
The equity markets moved down during the early part of the year, but rebounded
in the more recent period. Continued progress on corporate earnings and improved
profits has supported higher equity prices. The improved economy has been a
positive for both companies and consumers. The rising equity markets have
improved investor confidence and strengthened corporate spending.
The unemployment rate still remains high for this stage of a typical economic
recovery, but signs point to improvements as companies expand and add to their
payroll. Strong advances in gross domestic product (GDP) support the view that
the economy is well along the way to recovery, with improved corporate
fundamentals and better earning potential.
The completion of major hostilities in Iraq and a more favorable economic
environment with low inflation expectations has been supportive of improved
financial markets. Consumer and investor confidence is improving as their
financial assets show positive growth. Corporations have improved productivity
and are operating more efficiently, with improved financial results and stronger
balance sheets. The low interest rate environment continues to put pressures on
corporate pension liabilities, but improved financial markets are benefiting the
assets in these accounts.
The fund continues to maintain exposures near the index with a goal to replicate
index performance. The fund maintains positions in the underlying securities and
uses other replicating securities for short-term investments and liquidity.
PRINCIPAL MIDCAP FUND, INC.
K. WILLIAM NOLIN
GROWTH OF $10,000
Average Annual Total Returns
as of October 31, 2003
Class 1 Year 5 Year 10 Year Life of Fund
A 19.53% 7.44% 10.35%
B 22.23% 7.90% - 12.11%*
Morningstar
Russell Mid-Cap Blend
Midcap Index 3 Category 2 MidCap Fund Class A 1
10 10 9.527
"1994" 10.235 10.287 10.072
"1995" 12.621 12.264 12.732
"1996" 15.101 14.619 14.882
"1997" 19.446 19.085 19.534
"1998" 20.313 18.839 17.624
"1999" 23.791 22.174 18.604
"2000" 29.437 26.36 24.038
"2001" 24.13 22.116 21.841
"2002" 22.195 21.247 21.107
"2003" 30.161 27.859 26.766
Note:Past performance is not predictive of future performance. The performance
of Class B shares will vary from the performance of Class A shares based on
the differences in loads and fees. The returns shown do not reflect taxes,
if any, that a shareholder would pay on Fund distributions or on the
redemption of Fund shares.
* Since inception date 12/9/94
1 Reflects maximum sales charge of 5.75% on the initial $10,000 investment.
2 Calculated by Morningstar. The average does not reflect sales charges but
does reflect commissions and fees.
3 The index is unmanaged and does not reflect sales charges, commissions or
fees.
LOGO
The Principal MidCap Fund underperformed the Russell MidCap Index for the
one-year period ended October 31, 2003, returning 26.81%, compared to the index
return of 35.89%.
The fund lagged the index primarily in the technology sector where many
technology companies in the index were up more than 70%. While the fund's
technology holdings provided positive returns, they did not have the bounce that
many in the index had. The attributes that led to the best tech stock
performance were high valuations, few competitive advantages, and high leverage.
Those attributes rarely make successful long-term investments. The fund does not
own companies with these poor attributes. We believe that in the future
fundamentals will play a larger role in stock returns, which should benefit the
fund.
We continue to focus on high quality companies, with sustainable competitive
advantages that can be purchased at reasonable prices. High quality companies
are currently priced at half the price/earnings (P/E) multiple of low quality
companies. The portfolio continues to hold companies with higher return on
equities (ROEs), return on assets (ROAs) and profit margins than the index. We
are optimistic about the fund's prospects.
PRINCIPAL PARTNERS BLUE CHIP FUND, INC.
MELISSA R. BROWN, ROBERT C. JONES & VICTOR H. PINTER
GROWTH OF $10,000
Average Annual Total Returns
as of October 31, 2003
Class 1 Year 5 Year 10 Years Life of Fund
A 12.07% -6.16% 5.11%
B 14.00% -6.09% - 5.55%*
Standard & Morningstar Partners
Poor's 500 Large Blend Blue Chip
Stock Index 3 Average 2 Fund Class A 1
10 10 9.524
"1994" 10.387 10.214 10.045
"1995" 13.133 12.438 12.32
"1996" 16.297 15.076 14.562
"1997" 21.53 19.269 17.849
"1998" 26.264 21.957 21.326
"1999" 33.006 26.93 24.951
"2000" 35.016 29.294 24.302
"2001" 26.297 21.862 17.344
"2002" 22.324 22.393 13.842
"2003" 26.967 26.737 16.46
Note:Past performance is not predictive of future performance. The performance
of Class B shares will vary from the performance of Class A shares based on
the differences in loads and fees. The returns shown do not reflect taxes,
if any, that a shareholder would pay on Fund distributions or on the
redemption of Fund shares.
* Since inception date 12/9/94
1 Reflects maximum sales charge of 5.75% on the initial $10,000 investment.
2 Calculated by Morningstar. The average does not reflect sales charges but
does reflect commissions and fees.
3 The index is unmanaged and does not reflect sales charges, commissions or
fees.
LOGO
From December 16, 2002, all 13 sectors in the Index contributed positively, led
by Technology (36.89%). Consumer Cyclicals (28.29%) and Industrials (25.55%)
also posted strong gains. The Technology sector also contributed most (weight
times performance) to positive Index returns, followed closely by top-weighted
Financials (24.33%).
In managing our segment of the fund, we do not take size or sector bets. We hope
to add value versus the fund's index by individual stock selection. Our
quantitative process seeks out stocks with good momentum that also appear to be
good values. We prefer stocks about which fundamental research analysts are
becoming more positive, and companies that have strong profit margins and
sustainable earnings and that use their capital to enhance shareholder value.
Over the long term, these factors have generally led to excess returns. In
addition, they are not highly correlated, which diversifies the fund's sources
of returns.
Owning inexpensive companies with good profit margins and operating efficiency
added the most value for the period through our Profitability and Valuation
themes. Earnings Quality, Management Impact and Fundamental Research also
boosted relative returns, albeit less significantly. On the downside, Momentum
detracted slightly for the period.
Stock selection was mixed across sectors for the period. The fund's holdings in
the Health Care sector outperformed their peers in the benchmark the most.
Meanwhile, the fund's holdings in the Consumer Services sector underperformed
relative to the benchmark.
Looking ahead, we continue to believe that cheaper stocks should outpace more
expensive ones and good momentum stocks should do better than poor momentum
stocks. We also prefer names about which fundamental research analysts are
becoming more positive and companies that are profitable, have sustainable
earnings and use their capital to enhance shareholder value. We anticipate
remaining fully invested and expect that the value we add over time will be due
to stock selection, as opposed to sector or size allocations.
NOTE:
Goldman Sachs Asset Management, L.P. subadviser of the Funds, is not a bank and
Fund shares are neither deposits nor obligations of, nor endorsed, nor
guaranteed by any bank or other insured depository institution, nor are they
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other government agency. Investment in the Funds involves risks,
including possible loss of the principal amount invested.
The information presented herein is based on attribution of gross excess returns
as provided by PACE.
CORESM is a service mark of Goldman, Sachs & Co.
MATTHEW E. MEGARGEL
US equity markets rallied during the past ten months, with the S&P 500
Index rising 21.2%, the Dow Jones Industrial Average gaining 17.5% and the
Nasdaq Composite advancing 44.7%. This surge in the broad market has been fueled
by increasing optimism that the economy is in the early stages of an economic
rebound as signaled by increases in consumer confidence and manufacturing
output, resilience in consumer spending and productivity gains, and support from
low interest rates and reduced tax rates.
During the period beginning December 16, 2002, our segment of the Fund
experienced weak stock selection in the Health Care and Information Technology
sectors. Favorable stock selection within Industrials and Consumer Discretionary
was additive to relative performance and served to partially offset these
results.
Within Health Care, Schering Plough, Baxter International, and HCA were
disappointments during the period. Schering Plough announced a dividend cut and
saw reduced earnings as a result of challenges with its Clarinex-Claritin
transition, while HCA was weak due to a sluggish economy and higher insurance
co-payments, which contributed to a slowing in the company's admissions trends.
Both positions were eliminated from the portfolio during the year.
Within Technology, the portfolio was negatively affected by the outperformance
of some smaller, more volatile names in the sector that we did not hold. Stocks
such as Broadcom and Avaya each gained in excess of 100% and other similar
stocks had outsized gains as their prospects for survival increased in a rising
market. In essence, the markets' focus on small-cap, risky assets hurt our
performance, as we focus on large-cap, high-quality companies.
Within Consumer Discretionary, Comcast was a strong performer as the company
continued to make significant progress integrating AT&T's broadband systems. The
portfolio also benefited from holding Home Depot, which continued to improve its
sales despite a weak consumer spending environment.
Within Industrials, Caterpillar benefited from consensus-beating second quarter
earnings and also raised full-year guidance. The company has also been expanding
its product lines in its traditional machinery business, growing its financial
services business, and embarking on an aggressive cost reduction effort.
Investors began to appreciate the underlying earnings power, resulting in
Caterpillar being a strong performer for the portfolio.
Since the end of the war with Iraq, we have recently been increasing the
cyclical posture of the Portfolio. Most notably, we increased the fund's
overweight to the Industrials sector by adding to our positions in General
Electric and 3M, and by initiating a new position in CSX Corp. We expect many of
the fund's holdings in this Industrials sector to exhibit sizeable improvements
in earnings with only a modest pick-up in revenues.
As we approach the end of 2003, investor optimism surrounding the economy and
the equity markets has started to consolidate. Tax cuts, a weaker U.S. dollar,
sustained productivity and healthier corporate balance sheets all bode well for
corporate profits. As the economy continues to stabilize, we will look for
improved corporate spending and employment trends as key gauges to determine the
sustainability of the domestic recovery. At this juncture, we believe a
sustainable up-trend will in fact unfold and support growth in 2004.
PRINCIPAL PARTNERS EQUITY GROWTH FUND, INC.
JEFF ALVINO, WILLIAM S. AUSLANDER AND PETER DANNENBAUM
GROWTH OF $10,000
Average Annual Total Returns
as of October 31, 2003
Class 1 Year Life of Fund
A 7.86% -9.87%*
B 9.36% -9.91%*
Standard & Morningstar Partners Equity
Poor's 500 Large Growth Growth Fund
Stock Index 3 Average 2 Class A 1
10 10 9.525
"2000" 10.609 11.677 9.67
"2001" 7.967 7.132 6.487
"2002" 6.763 6.909 5.21
"2003" 8.17 8.342 5.895
Note:Past performance is not predictive of future performance. The performance
of Class B shares will vary from the performance of Class A shares based on
the differences in loads and fees. The returns shown do not reflect taxes,
if any, that a shareholder would pay on Fund distributions or on the
redemption of Fund shares.
* Since inception date 11/1/99
1 Reflects maximum sales charge of 5.75% on the initial $10,000 investment.
2 Calculated by Morningstar. The average does not reflect sales charges but
does reflect commissions and fees.
3 The index is unmanaged and does not reflect sales charges, commissions or
fees.
LOGO
Early in the 12-month period ended October 31, 2003, the long-anticipated
economic recovery appeared reluctant to surface. Despite interest rates at
historically low levels, corporate earnings failed to rebound as quickly as had
been expected. Uncertainty over the likelihood and timing of the potential war
with Iraq only worsened investor sentiment in the first months of 2003. Investor
confidence subsequently improved based on expectations of a swift U.S. victory
in Iraq, encouraging economic data and reports of corporate earnings that
exceeded expectations. These factors triggered a strong market rally, with
defensive sectors and securities that had led during the bear market falling
behind cyclical sectors, as investors' expectations for the economy improved.
The Fund underperformed its benchmark for the twelve months ended October 31st
due to stock selection. Sector allocations made a modest positive impact on
performance. During the period the three largest sectors in the portfolio were
technology, healthcare and consumer discretionary. We were disappointed in the
short-term performance of several consumer discretionary names. The portfolio
suffered from lagging performance in the areas of retail and media. In retail
concerns about the health of the consumer affected Kohl's and Dollar General in
retail. Costco shares fell in August when the company announced third quarter
earnings could fall short of Wall Street expectations. Costco cited increasing
healthcare costs and price competition with Wal-Mart. In the area of media,
Viacom had the greatest negative impact. The company suffered from a generally
weak local advertising market despite a record up front television selling
season.
An overweight to the health care sector detracted from relative results, as did
stock selection to a lesser extent. HCA and Johnson & Johnson lagged. HCA fell
in mid-April when the company reported declines in hospital admissions. The
position was eliminated from the portfolio. The third largest pharma company,
Johnson & Johnson, lost momentum when the company indicated that they may be
unable to keep up with demand for their innovative drug-coated stent. In
addition, Amgen reported higher sales of two drugs that compete with Johnson &
Johnson's widely used Procrit anemia treatment. Johnson & Johnson rebounded in
October after reporting a strong third quarter, primarily due to sales of its
Cypher stent. Earnings beat analyst expectations and the company raised its
full-year guidance.
Stock selection in financial services also detracted from performance. Among the
portfolio's largest financial holdings during the period were American
International Group and Freddie Mac, which lagged the index sector return. Early
in 2003, we reduced the portfolio's investment in Freddie Mac due to a change in
auditors and concerns regarding the treatment of interest rate hedges in
financial statements. In early June the position was eliminated from the
portfolio. In our view, Freddie Mac's issues are a more than one quarter event.
There are regulatory concerns and potential legal issues. We also had
uncertainty with senior management in light of the Board's decision to terminate
three members of senior management.
An overweight in information technology had a strong contribution to relative
results. Strong performance from a number of the fund's semiconductor holdings,
most notably Applied Materials and Intel, added to relative return. Providers of
semiconductor production equipment such as Applied Materials advanced on news
that one of the group's largest customers planned to substantially increase
capital spending next year. Intel had a strong year, with earnings and margin
improvement They have benefited from a pickup in PC sales, notably notebooks,
and the introduction of Centrino Chipsets. Cisco Systems made a modest
contribution to relative return. The company announced a collaboration with IBM
that should support Cisco's expansion into the storage networking market. Cisco
has benefited from strong government and small/mid market spending, although
they remain cautious on guidance. The primary individual detractor in the
technology sector was Microsoft, which declined for the period. We remain
optimistic about the prospects for Microsoft given the company's strong balance
sheet, market dominance, and the pickup in PC shipments, which has begun to
exceed consensus expectations. We remained overweight in the name for the
period. Other positive impacts on performance were stock selection in energy and
telecomm services.
Recoveries do not occur in a straight upward trajectory, and this one is no
exception. We are hopeful that the positive signs we see in the economy and in
individual companies bode well for a sustainable economic recovery. While the
top performing stocks thus far this year have tended to be lower quality and
smaller in size, it is our belief that in time the market will rotate towards
the higher quality, fundamentally sound business models we favor
PRINCIPAL PARTNERS LARGECAP BLEND FUND, INC.
LINDA A. DUESSEL AND DAVID P. GILMORE
GROWTH OF $10,000
Average Annual Total Returns
as of October 31, 2003
Class 1 Year Life of Fund
A 8.04% -5.09%*
B 9.72% -4.83%*
Standard & Morningstar Partners
Poor's 500 Large Blend LargeCap Blend
Stock Index 3 Category 2 Fund Class A 1
10 10 10
"2001" 8.204 7.978 8.172
"2002" 6.964 8.172 7.237
"2003" 8.413 9.757 8.299
Note:Past performance is not predictive of future performance. The performance
of Class B shares will vary from the performance of Class A shares based on
the differences in loads and fees. The returns shown do not reflect taxes,
if any, that a shareholder would pay on Fund distributions or on the
redemption of Fund shares.
* Since inception date 12/22/2000
1 Reflects maximum sales charge of 5.75% on the initial $10,000 investment.
2 Calculated by Morningstar. The average does not reflect sales charges but
does reflect commissions and fees.
3 The index is unmanaged and does not reflect sales charges, commissions or
fees.
LOGO
The market moved steadily higher throughout the fiscal year, after hitting a
three year low on October 9, 2002. Leadership in this new bull market was
predominately provided by those sectors and stocks which are more cyclically
oriented and leveraged to an economic rebound. Strong monetary and fiscal
stimulus, including one of the largest tax cuts in U.S. history, provided
liquidity and additional discretionary income, increasing consumption and demand
for equities. These catalysts simultaneously lifted both the economy and stock
market from their doldrums.
Optimism and rising expectations for an accelerating economy were supported by a
preponderance of positive and improving macroeconomic data. The service sector
has been in recovery for several months, and even manufacturing - in decline for
35 consecutive months through June - began to expand again in July. On the
consumer side, retail sales have been consistently strong. The economic data has
been reinforced by few negative earnings preannouncements or surprises by
companies which have right-sized their cost structures to a more normal demand
environment. As economists steadily increased their calendar 2003 growth
estimates throughout the year, resolution of the official war with Iraq,
combined with an increased corporate and consumer confidence, encouraged
investors to be more accepting of risk.
As would be expected in a cyclical bull market, the preponderance of equities,
across all levels of capitalization rose, with both growth and value styles
benefiting from the year-long rebound. Value stocks outperformed growth stocks,
returning 24.8% and 17.1%, respectively. Leadership was provided by those names
generally of smaller size, with higher financial and operating leverage, lower
quality and higher beta.
During the twelve month period ended October 31, 2003, the Principal Partners
Large Cap Blend Fund returned 14.68%, trailing the S&P500 Index which gained
20.80%. After two strong years of performance, we are disappointed that we did
not fully participate. In a market driven predominately by a single factor (i.e
momentum) our fundamental, valuation driven approach was disadvantaged. Our
incremental approach based upon screens and fundamentals, employing a balanced
risk/reward methodology, did not fare well in a market where returns were
asymmetrically skewed toward higher risk.
Stock selection, generally less cyclical, was the primary factor for
underperformance versus the benchmark. Specifically, while stock selection was
strong to neutral within Consumer Staples, Healthcare and Materials, it was
offset by lackluster performance within Information Technology, Financials and
Industrials. In this rising market, performance was held back by having any
cash, in addition to being underweight Financials and overweight Energy.
Alternatively, being overweight Utilities and Industrials benefited the
portfolio. Although we were correct in calling for a better, more positive year
in 2003, we did not fully appreciate the benefit of the extreme monetary and
fiscal stimulus. We were correctly positioned to benefit from an improving
corporate and industrial economy, yet underestimated the benefit of an improving
consumer-driven economy.
We started making moves within the portfolio toward riskier names in the third
quarter of 2002. We reduced exposure in Healthcare, Utilities and Energy,
putting proceeds into opportunities within Financials, Information Technology
and Telecommunication Services. These moves, which continued consistently
throughout the year, proved to be correct. Our process driven, incremental
approach, prevented us from participating fully in the rally. However, our
approach is disciplined and deliberate with a focus on risk/reward, and we
believe this has served us well over time. Since inception, the portfolio has
returned -3.09% versus -5.06% for the benchmark.
We continue to be positive toward the overall market, though more cautious than
last year at this time. We remain positive because even though expectations have
risen over the past year, they still remain reasonable. More importantly, our
analysts' discounted cash flow models, in aggregate, indicate the majority of
stocks are trading at or near fair value, allowing for some room for the market
to trade higher provided companies continue to meet or beat expectations, as we
expect. While many risks remain, there are two additional factors which could
help lift the economy for a second year in a row. First, an increasing supply of
oil that ultimately will come from Iraq and non-OPEC members could potentially
lower the price of energy. Second, we have yet to see businesses increase their
historically low inventory levels in response to the strengthening economy. We
do not believe the potential for increased production, coupled with a recovery
in the labor markets is factored into stocks.
We continue to be market overweight Information Technology and Industrials with
a bias toward corporate cyclicals. In addition, our overweight within Energy and
Telecommunication Services are deep value, contrarian plays. At the end of the
fiscal year, the portfolio held 52% of assets in Value stocks, with the
remaining 48% in Growth stocks.
PRINCIPAL PARTNERS LARGECAP VALUE FUND, INC.
MARILYN G. FEDAK AND JOHN PHILLIPS
GROWTH OF $10,000
Average Annual Total Returns
as of October 31, 2003
Class 1 Year Life of Fund
A 16.43% 1.62%*
B 18.64% 1.97%*
Morningstar Partners
Russell 1000 Large Value LargeCap Value
Value Index 3 Category 2 Fund Class A 1
10 10 9.525
"2001" 8.978 8.751 9.097
"2002" 8.078 8.523 8.197
"2003" 9.926 10.337 10.124
Note:Past performance is not predictive of future performance. The performance
of Class B shares will vary from the performance of Class A shares based on
the differences in loads and fees. The returns shown do not reflect taxes,
if any, that a shareholder would pay on Fund distributions or on the
redemption of Fund shares.
* Since inception date 12/22/2000
1 Reflects maximum sales charge of 5.75% on the initial $10,000 investment.
2 Calculated by Morningstar. The average does not reflect sales charges but
does reflect commissions and fees.
3 The index is unmanaged and does not reflect sales charges, commissions or
fees.
LOGO
Equity markets rallied strongly in the 12 months ending October 31, 2003, as the
S&P 500 rose 20.8%. Investors began to regain confidence in the outlook for
economy and corporate profits in March, ending a three-year old bear market.
While all sectors rose for the period, there was a wide disparity in returns.
Economically-sensitive stocks performed the best in this environment, and
technology stocks were among the markets top performers, up over 50%. Defensive
sectors lagged; utilities, consumer growth and consumer staples underperformed.
Value outperformed growth during the period, with the Russell 1000 Value Index
up 22.9% versus 20.8% for its growth counterpart.
Your portfolio outperformed both its value benchmark and the broad market for
the period. In response to continued signs of a recovery, technology stocks were
the top performers, as such, stock selection in the technology sector was the
top contributor to returns. Our overweight positions in Nortel Networks, Avaya,
Corning, Avnet and Solectron contributed to performance during the period.
Nortel Networks rose on a succession of positive news, as it was recently
awarded several contracts, including a billion-dollar deal with Orange, a French
telecom company. Solectron remains attractively valued due to uncertainty about
its ability to restructure and return to profitability. We have confidence that
its new management team will execute well, cut costs and, in the recovery,
return to operating margins in line with its history. At 10.2 times our estimate
of its normalized earnings, we continue to find it very attractive.
Strength also came from the consumer cyclicals, industrial resources, capital
equipment and non-financial sectors. Our retailers, including Sears and
Federated Department Stores, performed well. With regard to Sears, the company
announced in mid-July that it was selling its credit card division to Citibank
on even more favorable terms than anticipated. Not surprisingly, the stock
rallied sharply on news of the deal and of Sears' plan to return some of the
cash to shareholders through share repurchases. Buoyed by growing confidence in
the economy and hopes for asbestos litigation reform, our paper companies
outperformed, including Georgia Pacific. Auto-parts manufacturers Magna, Dana,
Lear and Autoliv also did well, showing continued investor confidence in the
economy.
Detracting from returns was our position in Freddie Mac, which declined after
disclosing accounting issues that resulted in the overstatement of past years'
earnings. We continue to view Freddie Mac as attractive. Our underweight in
several stocks which outperformed, also hurt relative returns. These included
Merrill Lynch, JP Morgan Chase and Caterpillar.
Finally, while our holding in Comcast detracted from performance by not rising
as much as the market, we remain confident in the attractive value opportunity
Comcast represents as a dominant cable provider. Comcast is the nation's
dominant cable company with additional revenue opportunities as video,
high-speed, and eventually, telephone services are provided to its customers.
We are taking less sector risk versus the benchmark today because there is no
theme that offers enough opportunity to justify a large commitment, as the
unusual diversification of the top quintiles of our dividend discount model
shows. With no particular macroeconomic or industrial perils facing particular
industries, the value opportunity has become quite diverse and stock specific.
As we followed our value disciplines in picking stocks, our overweight of
industrial resources has become a small underweight as these stocks outperformed
and we trimmed or sold our positions. Similarly, our underweight of technology
has become a slight overweight as we had the opportunity to purchase once very
expensive stocks at bargain prices after the collapse of the bubble. Almost all
of our other active sector positions have contracted as well. Our largest
overweight (consumer cyclicals) and our largest underweight (consumer growth)
are both 3%. With the portfolio's sector risk declining in line with the value
opportunity, the portfolio's ex-post tracking error has decreased. This is in
keeping with one of our key investment principles: Risk-taking should be
calibrated to the potential opportunity, so that we do not take risks not
justified by the likely return. We take more risk versus the benchmark when the
potential value opportunity is large-and less risk versus the benchmark when the
potential is small.
With the compression of valuation spreads, many of the largest companies in
America are now trading at attractive valuations. This has given us a rare
opportunity to invest in these stocks. Like some of the technology, media and
telecom companies we have purchased in the last two years, they are seldom value
opportunities. In pharmaceuticals, for example, we have added GlaxoSmithKline
and Merck to our overweight position in Pfizer this year, while selling
Schering-Plough as its earnings outlook fell.
Late in the quarter, we also began purchasing Citigroup, at its benchmark weight
of over 5%. Its valuations are down sharply on lower expectations for growth
rates and profitability. It is now cheaper than the market on our forecast of
normalized earnings, but has higher growth rates and return characteristics over
the long run that make it modestly undervalued, in our view. We would buy more
if its benchmark weight were not so large.
U.S. markets continued to regain strength in October, reflecting investor
confidence in an improving the economy. In an environment characterized by a
compression of valuations and a below average value opportunity, we remain
steadfast in our belief that research-based stock selection is the key to
outperformance, and we continue to identify attractive value opportunities
diversified across sectors.
PRINCIPAL PARTNERS MIDCAP GROWTH FUND, INC.
CHRISTOPHER K. MCHUGH, WILLIAM C. MCVAIL AND ROBERT E. TURNER
GROWTH OF $10,000
Average Annual Total Returns
as of October 31, 2003
Class 1 Year Life of Fund
A 32.38% -19.13%*
B 36.40% -18.93%*
Morningstar Partners
Russell Midcap Mid-Cap Growth MidCap Growth
Growth Index 3 Category 2 Fund Class A 1
10 10 9.525
"2000" 8.843 9.13 8.23
"2001" 5.06 5.637 4.12
"2002" 4.169 5.235 3.269
"2003" 5.808 6.851 4.591
Note:Past performance is not predictive of future performance. The performance
of Class B shares will vary from the performance of Class A shares based on
the differences in loads and fees. The returns shown do not reflect taxes,
if any, that a shareholder would pay on Fund distributions or on the
redemption of Fund shares.
* Since inception date 3/1/2000
1 Reflects maximum sales charge of 5.75% on the initial $10,000 investment.
2 Calculated by Morningstar. The average does not reflect sales charges but
does reflect commissions and fees.
3 The index is unmanaged and does not reflect sales charges, commissions or
fees.
LOGO
A stock market that turned dramatically from bearish to bullish and good stock
selection helped drive the performance of the Principal Partners MidCap Growth
Fund in the 12-month period ended October 31, 2003. The fund gained 40.42%,
outperforming the Russell Midcap Growth Index's 39.30% gain by 1.13%.
The fund capitalized on a stock market that suddenly went on a winning streak,
that produced gains in eight of the twelve months of the period (including seven
of the last eight months). Helping to accentuate the market's newly bullish mood
was good news on a number of fronts -- e.g., the Federal Reserve kept interest
rates unchanged, thereby bolstering investors' hopes that the economy would
continue to improve, and Wall Street analysts expected corporate earnings to
increase by double-digit rates. Also, as many investors saw it, with bond yields
at the lowest levels in six decades and the economy gradually improving, stocks
offered relatively attractive return potential.
The key to any further gains, observers say, is a sign that corporate profits
will pick up going forward. Wall Street analysts believe they will in fact pick
up: Thomson First Call, for instance, reported that analysts' consensus
expectations are for the earnings of the S&P 500 Index companies to rise 21% in
the fourth quarter.
Historically, the growth-stock investments such as the Principal Partners MidCap
Growth Fund that Turner Investment Partners manages have tended to outperform in
a flat or rising stock market. That is precisely what the fund did in the past
twelve months. Also, the fund was helped by growth stocks' strong relative
performance versus value stocks (the Russell Midcap Growth Index outperformed
its value counterpart by 5.82%).
Also enhancing the fund's performance was our adherence to our growth-investment
process, which is based on the principle that earnings expectations drive stock
prices over time. Since last November, companies with good earnings prospects
have been rewarded with higher stock prices. In contrast, earnings prospects
didn't matter much previously, in the bear market that persisted from March 2000
to September 2002; valuations were all-important then.
Because we adhered to our investment process, our stock selection was generally
good, particularly in the major market sectors. Seven of our ten sector
positions outperformed their corresponding Russell Midcap Growth Index sectors.
Contributing the most to results were double-digit returns in the
producer-durables, technology, and health-care sectors, which constituted 47% of
the fund's holdings. The fund is managed in a "sector-neutral," way, i.e., its
sector weightings closely resemble those of the Russell Midcap Growth Index. So
it's extremely difficult for the fund to outperform if its holdings in major
sectors such as technology and health care don't do well, since those sectors
have a huge bearing on the total return of the market as a whole.
Our producer-durables and technology holdings made especially notable
contributions to the fund's outperformance; our producer-durables positions
gained 71%, versus a 35% return for the Russell Midcap Growth Index's
producer-durables sector, and our tech holdings rose 89%, compared with a 77%
return for the index's tech sector. Winners here included
semiconductor-capital-equipment, semiconductor, software, and
telecommunications-equipment stocks.
A 2% weighting in autos/transportation stocks detracted most from results,
gaining 5%, versus an 38% gain for the index sector. Our holdings in railroad
and trucking stocks performed relatively poorly. But in light of the relatively
small weighting, the autos/ transportation position's influence on performance
was modest. For example, our producer-durables position's positive impact on
performance was 2.3 times greater than the negative impact of our
autos/transportation position.
As always, the fund is sector-neutral and emphasizing stocks with the strongest
earnings prospects in all sectors of the market. The consensus of Wall Street
analysts is the companies owned by the fund are expected to increase their
earnings per share by 20.9% over the next twelve months, as reported by I/B/E/S
International, a financial-data company. The fund is positioned especially
strongly in semiconductor, software, media, Internet-services, pharmaceutical,
financial-transaction-processing, data-networking, and cyclical stocks.
PRINCIPAL PARTNERS SMALLCAP GROWTH FUND, INC.
PAUL A. GRAHAM, JR. AND DAVID N. WABNIK
GROWTH OF $10,000
Average Annual Total Returns
as of October 31, 2003
Class 1 Year Life of Fund
A 28.37% -20.90%*
B 31.11% -20.72%*
Morningstar Partners
Russell 2000 Small Growth SmallCap Growth
Growth Index 3 Category 2 Fund Class A 1
10 10 9.525
"2001" 8.273 7.933 5.633
"2002" 6.489 8.418 3.602
"2003" 9.51 11.826 4.902
Note:Past performance is not predictive of future performance. The performance
of Class B shares will vary from the performance of Class A shares based on
the differences in loads and fees. The returns shown do not reflect taxes,
if any, that a shareholder would pay on Fund distributions or on the
redemption of Fund shares.
* Since inception date 12/22/2000
1 Reflects maximum sales charge of 5.75% on the initial $10,000 investment.
2 Calculated by Morningstar. The average does not reflect sales charges but
does reflect commissions and fees.
3 The index is unmanaged and does not reflect sales charges, commissions or
fees.
LOGO
The U.S equity markets remained volatile over the 12-month period ended October
31, 2003, alternately rising and falling and then rising again over the four
quarters that made up the Fund's reporting period. As the fiscal year began, a
weak economy, anemic corporate profits, accounting issues and unrest in the
Middle East led investors to shun stocks in favor of the perceived security of
the bond market. However, after falling to a five-year low in early October
2002, stocks staged a surprising fall rally, with investors being drawn to
certain downtrodden sectors that were viewed as having compelling valuations.
Geopolitical issues came to the fore as the year 2003 began, as anticipation of
the war in Iraq, saber rattling in North Korea and renewed concerns about
terrorism preoccupied the country. Investor aversion to risk resurfaced, and the
majority of the sectors covered in the Index fell during the first quarter.
Nonetheless, the 12-month period ended on a strongly positive note, as the end
to major fighting in Iraq eliminated one of the issues weighing most heavily on
the market. Investors grew increasingly optimistic about the potential for an
economic revival and subsequent upturn in corporate profits. At the same time,
their appetite for risk increased as the yields available from many fixed income
securities shrank. As a result, equity investors drove stocks to steep gains
during the final half of the fiscal year. The gains were broad-based, and many
of the best-performing sectors were the prior years' weakest-performing areas:
the Information Technology, Telecommunication, and Health Care sectors.
In the fiscal year ended October 31, 2003, the Principal Partners Small Cap
Growth Fund underperformed its benchmark, with a 37.9% gain vs. a 46.6% surge
for the Russell 2000 Growth Index. For the fiscal year, the Fund's biggest
detractors were poor stock selection in the Information Technology and Health
Care areas, combined with the drag of small cash balances in a sharply rising
market environment. On the positive side, stock selection was solid in the
Industrials and Consumer sectors. Although our more conservative investment
approach generally fares well over the course of a market cycle, it tends to lag
somewhat during short upward spurts that favor more speculative stocks,
especially low-priced equities that are losing money. This was exactly the
market environment that existed throughout a good part of the past fiscal year.
At the end of October, the Fund was slightly overweighted in the Consumer
Staples, Energy, Healthcare, and Financial sectors, while it was modestly
underweighted in Industrials, Materials, and Telecommunications stocks. Although
we will over- and under-weight sectors, we remain committed to a diversified
investment approach that identifies attractive growth opportunities in every
sector.
Over the course of a market cycle, we believe stock price movements tend to be
governed by earnings growth and relative valuations. On both of these measures,
we believe small-cap stocks continue to stack up well relative to their larger
counterparts. In terms of profits, small-caps have been growing earnings faster
than large-caps for most of the last three years. While small-cap relative
valuations are no longer at their record lows of the late 1990s, we believe they
are still very reasonably priced relative to their long-term historical
averages. Assuming the economy continues to pick up steam, we believe that
small-cap stocks will retain a favorable environment in which to maintain an
outperformance cycle that dates back to the spring of 1999. We continue to
remain focused on identifying high-quality small cap growth companies that have
strong competitive positions and a demonstrated ability to generate
above-average sustained earnings growth. Over time, we believe this strategy
should reward patient investors.
Portfolios are actively managed and their compositions differ over time. The
views expressed are those of UBS Global Asset Management (its asset management
firms and individual portfolio managers) as of October 31, 2003. The views are
subject to change based on market conditions; they are not intended to predict
or guarantee the future performance of the markets, any individual security or
market segment or any UBS advisory account or mutual fund. For complete
information about a mutual fund, including risks, charges, and expenses,
investors should read the prospectus carefully before investing.
PRINCIPAL REAL ESTATE FUND, INC.
KELLY D. RUSH.
GROWTH OF $10,000
Average Annual Total Returns
as of October 31, 2003
Class 1 Year Life of Fund
A 26.32% 6.86%*
B 28.95% 7.12%*
Morningstar
Morgan Stanley Specialty-Real Real Estate
REIT Index 3 Estate Category 2 Fund Class A 1
10 10 9.521
"1998" 8.329 8.61 7.969
"1999" 7.808 8.255 7.62
"2000" 9.229 9.899 9.286
"2001" 10.452 10.785 10.074
"2002" 11.151 8.782 10.994
"2003" 14.936 11.776 14.732
Note:Past performance is not predictive of future performance. The performance
of Class B shares will vary from the performance of Class A shares based on
the differences in loads and fees. The returns shown do not reflect taxes,
if any, that a shareholder would pay on Fund distributions or on the
redemption of Fund shares.
* Since inception date 12/31/97
1 Reflects maximum sales charge of 5.75% on the initial $10,000 investment.
2 Calculated by Morningstar. The average does not reflect sales charges but
does reflect commissions and fees.
3 The index is unmanaged and does not reflect sales charges, commissions or
fees.
LOGO
Real estate stocks provided extraordinary returns for the 12-month period ending
October31, 2003. The fund performed in-line with the Morgan Stanley REIT Index,
which gained an impressive 33.9%. These gains outstripped the broader market as
the S&P 500 Index and the Wilshire 5000 Index registered returns of 20.8% and
24.5%, respectively.
The strong stock performance of companies that owned commercial real estate was
ironic given the weak U.S. real estate conditions that persisted over the past
12 months. Commercial real estate fundamentals eroded in a weak economy where
leases were expiring and there was not enough new demand from tenants to fill
all of the vacated space.
Three factors worked in favor of real estate stocks. First, stocks offering a
meaningful level of income were popular as investors showed a strong demand for
income. Despite the weak real estate conditions, dividend safety, as a general
rule, was not a concern either. Secondly, small-cap stocks, which include real
estate stocks, rallied in expectation of economic recovery. By way of
comparison, the Russell 2000 Small-Cap Index provided a gain of 43.4% over the
same time period. Finally, investors took note of the fact that the valuation
levels of real estate owners at the start of the most recently completed fiscal
year were inexpensive by historic standards.
Segregating real estate stocks by the type of property owned reveals strong
absolute performance across all property sectors. Hotel owners provided the
lowest return relative to other property types, but the group still gained on
average an impressive 20.0%. Retail property owners delivered the best returns
among the property types with an average total return of 45.0%.
Relative fund performance benefited most from an overweighting in retail
property owners. Continued growth in consumer spending buoyed retailer demand
for space, causing retail to be one of the few sectors to enjoy strong
fundamental conditions. These favorable conditions, combined with the attractive
valuation levels of retail property owner stocks, attracted us to the group. The
best performing stocks owned by the fund were retail stocks. These included
regional mall owners General Growth, CBL & Associates and Mills Corporation
along with factory outlet owner Chelsea Property Group.
Index relative performance was hindered by poor decisions relating to the owners
of health care facilities and industrial warehouse properties. The stock prices
of health care property owners were weak in the first six months of the year
only to recover in the second half. As we shifted the fund's exposure level to
health care owners throughout the year, our timing in making these shifts was
disappointing. Industrial represented another type of problem, as the fund was
consistently overweighted in this property type throughout the year. We were
attracted by the prospect of improved warehouse conditions as we anticipated
companies would need to replenish inventories. This judgment proved wrong as an
industrial warehouse recovery failed to materialize and industrial warehouse
stocks underperformed.
A year ago at this time most experts had modest expectations in estimating the
returns of real estate stocks. Looking back now we can understand why these
modest expectations proved wrong. Predicting future returns is always a murky
job and the next 12 months will be no different. This uncertainty and the
extraordinary recent returns of real estate stocks only serves to remind us why
investment strategies based on diversification typically produce superior
results compared to ones based on timing.
PRINCIPAL SMALLCAP FUND, INC.
MICHAEL L. JOHNSON
GROWTH OF $10,000
Average Annual Total Returns
as of October 31, 2003
Class 1 Year Life of Fund
A 25.26% 0.49%*
B 27.89% 0.66%*
Morningstar
Russell 2000 Small Blend SmallCap Fund
Index 3 Category 2 Class A 1
10 10 9.527
"1998" 8.72 8.736 7.922
"1999" 10.017 9.997 10.657
"2000" 11.761 12.56 11.711
"2001" 10.267 12.235 9.443
"2002" 9.08 11.145 7.74
"2003" 13.016 15.362 10.287
Note:Past performance is not predictive of future performance. The performance
of Class B shares will vary from the performance of Class A shares based on
the differences in loads and fees. The returns shown do not reflect taxes,
if any, that a shareholder would pay on Fund distributions or on the
redemption of Fund shares.
* Since inception date 12/31/97
1 Reflects maximum sales charge of 5.75% on the initial $10,000 investment.
2 Calculated by Morningstar. The average does not reflect sales charges but
does reflect commissions and fees.
3 The index is unmanaged and does not reflect sales charges, commissions or
fees.
LOGO
Economic data points turned more positive throughout the year, a fact that was
not lost on the market. Small-cap stocks performed admirably, turning in
positive performance in three out of four quarters. Continued political turmoil
in the Middle East and other parts of the world had a lesser impact on investor
confidence this year as compared to last, as investors focused their attention
on improving economic fundamentals. In a repeat performance from a year ago, the
consumer continued to provide a boost to the economy as the Federal Reserve
(Fed) kept interest rates low. This allowed the housing market to continue its
strong pace throughout the year. Unlike last year however, additional signs of
an economy on the mend were evident including improving gross domestic product
(GDP), lower jobless claims and an increase in business capital expenditures.
Lack of business spending had been a cause for skepticism and a major impediment
to a stronger economic recovery. A continuation of this expenditure trend by
business will be an important ingredient to a sustained economic recovery.
The Principal SmallCap Fund returned 32.91% vs. 43.35% for the Russell 2000
Index, the fund's primary benchmark. The best returns in the small-cap market
were found in the smallest, most volatile companies. Outperformance by these
companies made keeping pace with the benchmark very difficult as liquidity, the
ability to purchase a significant number of shares in a reasonable time period
at a reasonable price, is very limited in this group of companies. In addition,
lower quality companies outperformed as investors anticipated an economic
recovery and bid up the price of companies with the highest degree of leverage
to an improvement in the business environment. As a result, the best performing
economic sectors in the small-cap marketplace were telecommunications,
information technology and health care. While the fund maintains exposure to
these sectors of the market, the inability to buy the smallest of small caps and
a focus on higher quality companies led to underperformance relative to the
benchmark.
The investment process is focused on systematically identifying companies with
positive or improving business fundamentals, confirming the sustainability of
those fundamentals through fundamental research and purchasing companies at
reasonable valuations. Over time, this philosophy will provide superior returns
and reduce portfolio risk.
PRINCIPAL UTILITIES FUND, INC.
JOSEPH J. URCIUOLI AND FERNANDO "FRED" DIAZ
GROWTH OF $10,000
Average Annual Total Returns
as of October 31, 2003
Class 1 Year 5 Year 10 Year Life of Fund
A 7.35% -3.25% 3.85%
B 8.85% -3.17% - 6.41%*
Standard & Dow Jones Morningstar
Poor's 500 Utilities Index Specialty-Utilities Utilities Fund
Stock Index 3 with Income 3 Category 2 Class A 1
10 10 10 9.524
"1994" 10.387 8.029 9.177 7.992
"1995" 13.133 10.134 10.684 9.939
"1996" 16.297 11.34 12.056 10.747
"1997" 21.53 12.752 14.288 12.28
"1998" 26.264 16.472 17.497 16.222
"1999" 33.006 17.391 20.937 18.613
"2000" 35.016 23.217 23.906 20.863
"2001" 26.297 17.947 18.446 15.493
"2002" 22.324 12.622 16.365 12.813
"2003" 26.967 16.831 19.517 14.589
Note:Past performance is not predictive of future performance. The performance
of Class B shares will vary from the performance of Class A shares based on
the differences in loads and fees. The returns shown do not reflect taxes,
if any, that a shareholder would pay on Fund distributions or on the
redemption of Fund shares.
* Since inception date 12/9/94
1 Reflects maximum sales charge of 5.75% on the initial $10,000 investment.
2 Calculated by Morningstar. The average does not reflect sales charges but
does reflect commissions and fees.
3 The index is unmanaged and does not reflect sales charges, commissions or
fees.
LOGO
The utilities industry significantly rebounded from the negative returns posted
in 2002. For the one-year period ending October 31, 2003, the fund returned
13.86%, compared with 26.25% for the S&P Utilities Index and 33.35% for the Dow
Jones Utilities w/Income Index. The broader market, as measured by the S&P 500
Index, returned 20.80%, better than the fund but lower than the utilities
indexes. While the fund reversed the negative returns suffered during 2002, its
relatively weaker performance was primarily due to a focus on stable public
utilities as well as a more balanced asset approach comprising a combination of
common equity and high yielding hybrid preferreds. This combination is less
volatile than the 100% common stock orientation of the indexes. The better
performance of the indexes was also bolstered by the higher equity valuations of
risky merchant energy concerns and financially impaired utilities which bounced
back meaningfully off the lows of 2002. The fund's strategy has been to avoid
such risk.
Utility fundamentals continued to be weak although improved in the 2003 fiscal
year. At the 38th Annual Edison Electric Institute Conference in Orlando, Fla.,
in late October, many utilities reiterated last year's industry theme of "back
to the basics." While probably not long term in nature, the "basics" goal should
have the short-term positive effect of shoring up liquidity, reducing debt and
shedding non-core assets on the industry's balance sheet. Notwithstanding
one-time events in the year like the August 14 blackout in the northeast and
Canada, and Hurricane Isabel on September18, there was not any real industry
overhang reminiscent of the Enron scandal in late 2001. Overall improvement in
the 2003 fiscal year was underscored by lower financial risk, a drop in capital
spending which helped to create more positive free cash flow, and diminished
investor concern relative to earlier Enron-like events. Indeed, while no upward
ratings trend for the industry is expected any time soon. Also positive is the
industry's ample access to the capital markets as evidenced by a brisk debt
refinancing and equity pace during the fiscal year.
The telecom industry continued to reduce overall financial risk through non-core
asset sales and reduced leverage. Free cash flow also improved, compared with
bloated debt levels several years back, by a drop in capital spending. Industry
capital expenditures declined nearly 30% to $44 billion in 2002 from $61 billion
a year earlier. The pace of spending should slow in the 2004 fiscal year as
well. Overall weak demand, revenue pressures, an uncertain regulatory
environment, and stiff competition in long distance, wireless and voice/data
services should be the backdrop going into next year.
The recently enacted Job and Growth Tax Relief Reconciliation Act of 2003, which
effectively lowered the dividend tax rate to 15% from a maximum 38.6%, could
help prompt stronger demand for common and preferred securities paying
attractive dividends. In the fiscal 2003 period the primary catalysts for the
lower risk premium relationships among preferred securities continued to be
strong corporate credit conditions, a somewhat limited new issue calendar and
heavy redemption activity. There has also been continued focus on high-income
investments from both individuals who are seeking alternatives to the low yields
available on money market instruments, and from institutions such as insurance
companies and closed-end funds.
PRINCIPAL INTERNATIONAL EMERGING MARKETS FUND, INC.
MICHAEL A. MARUSIAK AND MICHAEL L. REYNAL.
GROWTH OF $10,000
Average Annual Total Returns
as of October 31, 2003
Class 1 Year 5 Year Life of Fund
A 41.50% 8.11% 0.75%*
B 44.78% 8.28% 1.03%*
Morgan Stanley
Capital Morningstar
International EMF Diversified International
(Emerging Markets) Emerging Market Emerging Markets
Index 3 Category 2 Fund Class A 1
10 10 9.524
"1997" 8.591 8.75 8.466
"1998" 5.929 5.976 6.679
"1999" 8.575 8.191 8.742
"2000" 7.82 7.925 8.948
"2001" 5.978 6.084 6.635
"2002" 6.483 4.932 6.975
"2003" 9.643 7.243 10.467
Note:Past performance is not predictive of future performance. The performance
of Class B shares will vary from the performance of Class A shares based on
the differences in loads and fees. The returns shown do not reflect taxes,
if any, that a shareholder would pay on Fund distributions or on the
redemption of Fund shares.
* Since inception date 8/29/97
1 Reflects maximum sales charge of 5.75% on the initial $10,000 investment.
2 Calculated by Morningstar. The average does not reflect sales charges but
does reflect commissions and fees.
3 The index is unmanaged and does not reflect sales charges, commissions or
fees.
LOGO
The Principal International Emerging Markets Fund outperformed its benchmark,
the Morgan Stanley Capital International Emerging Markets Free (MSCI EMF) Index,
by 1.33%. For the one-year period ending October 31, 2003, the fund returned
50.07%, compared to 48.74% for the index. This outperformance was primarily due
to superior stock selection in China and Mexico. Poor stock selection in
Industrials was due to poor performance in airline stocks. Stock selection in
the consumer discretionary and telecommunication services provided
outperformance relative to the benchmark.
The MSCI EMF Index rose by 48.74% for the year, outpacing the gains of most
developed markets. The strong rally was marked by increased investor optimism
toward the global economic recovery. Cyclical markets and companies generally
performed the best. In Asia, South Korea lagged the markets. The main driver for
the poor performance was the worsening in the financing situation of the local
consumer and ensuing problems with non-performing loans in the banking system.
The stock market performed extremely well notwithstanding the economic slow
down. Three themes dominated a strong year in Taiwan: First, the strong
performance of the NASDAQ, driven by increased optimism in the tech sector,
moved the technology-heavy Taiwan market higher. Second, the surge of the
mainland Chinese economy boosted the Taiwanese companies that look set to
benefit from the increasing ties between the two economies. Third, the Taiwanese
government is widely expected to remove the qualified foreign institutional
investor (QFII) system, making it easier for foreign investors to gain access to
the local stock market. Despite Severe Acute Respiratory Syndrome (SARS), the
Chinese market performed well in the last year. The Chinese economy continued
its torrid pace, with only a small slowdown during the SARS epidemic, and the
market rose strongly for the year. Among the smaller markets, Thailand performed
exceptionally well. In India, a strong monsoon season, continued liberalization
and financial sector reform drove the market. The Latin American equity markets,
which are dominated by Mexico and Brazil, gained over 57%. The main themes were
decreasing sovereign risk premiums, stable currencies, declining inflation and
lower interest rates leading to strong domestic consumption and moderate
economic growth. The Eastern Europe, Middle East and Africa (EEMEA) region was
up over 50% even with the war in Iraq. On the macro side, high oil and gold
prices helped the commodity rich Russian and South African markets.
It was an eventful year with the Bali Bombing, war in Iraq, SARS virus, a shift
in focus from inflation to deflation, U.S. dollar weakness, and a heightened
awareness of exchange rate regimes and their effect on global imbalances. During
the past twelve months, it became increasingly apparent that China would be one
of the main engines of growth for the world economy in years ahead. From an
economic perspective, China's impressive performance was closely followed by
Thailand, Indonesia and India. In Brazil, newly elected President Lula has so
far impressed financial markets with his disciplined fiscal policies and ability
to deliver on economic reform. Inflation and interest rates have fallen, and
investor demand has returned to the country with gusto. In Mexico the political
landscape is somewhat less rosy. The economy itself is also struggling, still
waiting to reap the benefits of a full-blown U.S. recovery. The main focus in
Eastern Europe was progress on the path toward European Union ascension. The
South African economy has become a story of two parts - robust domestic demand
driven by improving inflation and falling interest rates on the one hand, and
the export sector which is slowly being strangled by the strength of the rand on
the other. Oil prices have remained at higher than average levels during the
past twelve months. This has helped push Russian gross domestic product (GDP)
growth expectations ever higher.
PRINCIPAL INTERNATIONAL FUND, INC.
KURTIS D. SPIELER
GROWTH OF $10,000
Average Annual Total Returns
as of October 31, 2003
Class 1 Year 5 Year 10 Year Life of Fund
A 15.71% -2.73% 3.43%
B 17.49% -2.63% - 3.93%*
Morgan Stanley
Capital
International
EAFE (Europe, Morningstar
Australia and Foreign Large International
Far East) Index 3 Blend Category 2 Fund Class A 1
10 10 9.53
"1994" 11.009 11.008 10.33
"1995" 10.968 11.059 10.436
"1996" 12.116 12.382 12.352
"1997" 12.677 13.742 14.879
"1998" 13.9 14.358 15.166
"1999" 17.101 17.988 17.62
"2000" 16.605 18.402 18.156
"2001" 12.439 13.544 12.956
"2002" 10.796 11.755 11.409
"2003" 13.714 14.399 14.011
Note:Past performance is not predictive of future performance. The performance
of Class B shares will vary from the performance of Class A shares based on
the differences in loads and fees. The returns shown do not reflect taxes,
if any, that a shareholder would pay on Fund distributions or on the
redemption of Fund shares.
* Since inception date 12/9/94
1 Reflects maximum sales charge of 5.75% on the initial $10,000 investment.
2 Calculated by Morningstar. The average does not reflect sales charges but
does reflect commissions and fees.
3 The index is unmanaged and does not reflect sales charges, commissions or
fees.
LOGO
International equity markets rebounded sharply in the last year, benefiting from
high liquidity and the improved outlook for global economic growth. The Morgan
Stanley Capital International Europe, Australasia, Far East Index (MSCI EAFE)
rose by 27.03% for the fiscal year ending October 31, 2003. The Principal
International Fund rose by 22.81%, underperforming the index.
In developed markets, small companies continued to outperform large companies,
both in Japan and Europe. Returns were also strong on a relative basis in
emerging markets, led by Latin America and Asia. The best performing sectors in
the last year were information technology, industrials and basic materials. In
general, economically sensitive sectors outperformed during the recent year. The
laggards in the market rebound were consumer staples, health care and energy.
Weakness in the U.S. dollar benefited international investors. The MSCI EAFE
Index increased 12.18% in local returns, indicating a positive impact from
currencies of 14.85%.
The primary reason for the negative relative performance was weak stock
selection and sector allocation. Companies with low levels of profitability and
poor earnings revisions tended to outperform, especially in the second half of
the fiscal year. The last six months marked the longest period of
underperformance since 1989 for stocks with good earnings revisions. The fund
invests in quality companies exhibiting positive fundamentals and will tend to
underperform in this type of market. Looking to the future, we believe we are at
the point where the earnings outlook of companies will influence share prices
again.
Stock selection was weak within financials, basic materials and health care. In
particular, our exposure in capital market banks, construction materials,
chemicals and pharmaceuticals detracted from performance. Our low exposure to
Japanese banks cost the fund performance. The best performing sectors were
telecommunication services, energy and consumer staples. Country allocation was
positive in the last year due to our overweighted positions in Canada and
emerging markets. Currency allocation was negative as our low exposure to
Australia and Switzerland cost performance. The fund is unhedged which means the
weakening of the U.S. dollar positively impacted returns.
As of the date of this report, we are currently finding opportunities in
information technology and telecommunication services. We view the health care
and consumer staples sectors less favorably. Our investment positioning is a
result of implementing our bottom-up, borderless philosophy in international
investing. We remain focused on identifying attractively valued companies that
are exhibiting positive fundamental improvements.
PRINCIPAL INTERNATIONAL SMALLCAP FUND, INC.
BRIAN W. PATTINSON
GROWTH OF $10,000
Average Annual Total Returns
as of October 31, 2003
Class 1 Year 5 Year Life of Fund
A 33.13% 8.10% 6.66%*
B 35.98% 8.23% 6.95%*
Morgan Stanley
Capital
International
EAFE (Europe, Citigroup
Australia and Extended Market Morningstar
Far East) Index EMI) Foreign Small/Mid International
SmallCap Index 3 ex US Market 3 Blend Category 2 Fund Class A 1
10 10 9.524
"1997" 9.678 9.793 9.573
"1998" 10 9.592 10.512 9.602
"1999" 11.784 11.359 15.574 14.837
"2000" 11.048 11.235 19.298 17.984
"2001" 9.562 9.106 12.54 12.046
"2002" 8.843 8.592 11.143 10.65
"2003" 13.635 12.518 16.39 14.879
Note:Past performance is not predictive of future performance. The performance
of Class B shares will vary from the performance of Class A shares based on
the differences in loads and fees. The returns shown do not reflect taxes,
if any, that a shareholder would pay on Fund distributions or on the
redemption of Fund shares.
* Since inception date 8/29/97
1 Reflects maximum sales charge of 5.75% on the initial $10,000 investment.
2 Calculated by Morningstar. The average does not reflect sales charges but
does reflect commissions and fees.
3 The index is unmanaged and does not reflect sales charges, commissions or
fees.
LOGO
The Principal International SmallCap Fund underperformed the Citigroup Extended
Market Index (EMI) World excluding United States Index by 4.47% over the last 12
months. For the one-year period ended October 31, 2003, the fund returned 41.22%
compared to the index return of 45.69%. The biggest contributor to
underperformance was poor stock selection in the information technology and
consumer discretionary sectors. Strong stock selection in the financials,
materials, industrials and health care sectors were bright points for the year.
Regionally, the United Kingdom and Australia/New Zealand were the biggest
contributors to the fund's underperformance due to poor stock selection. Europe
excluding the United Kingdom was the best contributor to performance for the
fund due to strong stock selection. Asia and Japan were also positive
contributors to performance based both on strong stock selection and
overweighted positions in these outperforming markets.
Improving global economic growth has supported the stock market rally of the
last year. Corporate profit levels are now increasing on the back of higher
economic growth, as evidenced by upwardly moving earnings revisions. During this
strong market rally our approach has not been completely rewarded, as companies
with low levels of positive business fundamentals have tended to outperform.
But, we are confident that our approach will prevail over the long term. We
remain focused on identifying attractively valued companies that are exhibiting
positive fundamental business improvements.
Please note that beginning September 30, 2003, we are using the Citigroup
Extended Market Index (EMI) World excluding United States Index as our primary
benchmark. We made this change to better align our investment process with the
reported benchmark, since we use this index to establish our starting universe
as well as for risk controls.
INCOME-ORIENTED FUNDS
PRINCIPAL BOND FUND, INC.
WILLIAM C. ARMSTRONG AND TIMOTHY R. WARRICK
GROWTH OF $10,000
Average Annual Total Returns
as of October 31, 2003
Class 1 Year 5 Year 10 Year Life of Fund
A -0.32% 3.80% 5.36%
B -0.14% 3.72% - 6.63%*
Lehman Brothers Morningstar
Aggregate Bond Intermediate-Term
Index 3 Bond Category 2 Bond Fund Class A 1
10 10 9.523
"1994" 9.633 9.551 8.953
"1995" 11.141 10.923 10.719
"1996" 11.793 11.499 11.227
"1997" 12.841 12.459 12.365
"1998" 14.039 13.418 13.325
"1999" 14.113 13.422 13.069
"2000" 15.143 14.191 13.491
"2001" 17.348 16.044 15.509
"2002" 18.37 16.926 16.103
"2003" 19.272 17.957 16.857
Note:Past performance is not predictive of future performance. The performance
of Class B shares will vary from the performance of Class A shares based on
the differences in loads and fees. The returns shown do not reflect taxes,
if any, that a shareholder would pay on Fund distributions or on the
redemption of Fund shares.
* Since inception date 12/9/94
1 Reflects maximum sales charge of 4.75% on the initial $10,000 investment.
2 Calculated by Morningstar. The average does not reflect sales charges but
does reflect commissions and fees.
3 The index is unmanaged and does not reflect sales charges, commissions or
fees.
LOGO
The Principal Bond Fund underperformed the Lehman Aggregate Index for the
one-year period ended October 31, 2003, returning 4.68% compared to 4.91% for
the index. Fund returns are after expenses, which don't apply to the index.
Risk premiums decreased throughout the period as investors became more confident
about economic growth and improving financial conditions for U.S. corporations.
Corporate bonds benefited the most from reduced risk premiums, and thus provided
the best return across fixed income sectors. Early in the period, the fund's
allocation to investment grade corporate bonds was moved to an overweighted
position from a neutral position. The overweighted position enhanced performance
vs. the index. In addition, lower quality corporate bonds provided the best
performance within the corporate bond sector. The allocation to these corporate
bonds offering higher risk premiums was increased through the period. However,
the fund had a higher quality orientation early in the period and this
negatively impacted performance.
Performance was enhanced by overweighted positions in commercial mortgage-backed
securities (CMBS) and asset-backed securities (ABS), as well as underweighted
positions to U.S. Treasuries and U.S. agencies. (Agencies are securities issued
by U.S. government agencies.) Additionally, the fund's allocation to below
investment grade corporate bonds (a sector which is not part of the index) was
increased throughout the period to the current level of 8.2% of the portfolio.
This allocation positively impacted the performance of the fund, as below
investment grade corporate bonds significantly outperformed other fixed income
sectors during the period.
The lackluster growth of the U.S. economy flowed from the end of 2002 into the
first half of 2003. The uncertainty surrounding the war in Iraq, coupled with
the lingering concerns that had been created by corporate governance scandals,
stalled business investment in the first quarter of 2003. Fortunately, a vibrant
housing market lifted construction activity and refinancing provided extra
support to consumer spending.
With the end of the official war in Iraq and the related uncertainties, and a
more optimistic outlook for economic growth, interest rates rose significantly
in June and July, as did stock prices. Economic activity perked up and then
accelerated further this summer as tax cuts boosted disposable income of
households. Real gross domestic product (GDP), the broadest measure of U.S.
output, grew at 7.20% in the third quarter, the fastest quarterly rate of growth
in nearly 20 years. This pace of growth is unsustainable, but sets the stage for
reasonable growth in 2004. Economic growth above long term potential will depend
on an increase in corporate spending and the strength of the U.S. labor market,
which is just starting to improve.
PRINCIPAL GOVERNMENT SECURITIES INCOME FUND, INC.
MARK KARSTROM AND MARTIN J. SCHAFER
GROWTH OF $10,000
Average Annual Total Returns
as of October 31, 2003
Class 1 Year 5 Year 10 Year Life of Fund
A -3.27% 4.35% 5.42%
B -2.98% 4.25% - 6.79%*
Morningstar Government
Lehman Brothers Intermediate Securities
Lehman Brothers Government/Mortgage Government Income Fund
GNMA Index 3 Index 3 Category 2 Class A 1
10 10 10 9.522
"1994" 9.846 9.657 9.545 8.929
"1995" 11.342 11.116 10.85 10.488
"1996" 12.153 11.756 11.37 11.124
"1997" 13.272 12.794 12.261 12.15
"1998" 14.224 14.038 13.273 13.047
"1999" 14.664 14.108 13.228 13.239
"2000" 15.818 15.214 14.085 14.178
"2001" 17.806 17.353 15.916 15.828
"2002" 18.93 18.451 16.124 16.684
"2003" 19.432 18.973 16.514 16.949
Note:Past performance is not predictive of future performance. The performance
of Class B shares will vary from the performance of Class A shares based on
the differences in loads and fees. The returns shown do not reflect taxes,
if any, that a shareholder would pay on Fund distributions or on the
redemption of Fund shares.
* Since inception date 12/9/94
1 Reflects maximum sales charge of 4.75% on the initial $10,000 investment.
2 Calculated by Morningstar. The average does not reflect sales charges but
does reflect commissions and fees.
3 The index is unmanaged and does not reflect sales charges, commissions or
fees.
LOGO
The Principal Government Securities Income Fund underperformed the Lehman
Government/Mortgage Index for the one-year period ending October 31, 2003. The
fund returned 1.59% vs. 2.83% for the index. Fund returns are after expenses,
which don't apply to the index. Additional underperformance was due to the
returns on mortgage securities lagging as interest rates fell to 40-year lows.
This caused a wave of refinancing, and cash flows had to be reinvested at the
low prevailing interest rates.
To enhance performance, we used strategies to avoid the detrimental effects of
refinancing, and to lower the price volatility of the fund. The strategy was to
lessen the price declines as interest rates increase from their June lows. The
fund weathered one of the worst periods for mortgage securities and is poised to
perform well with higher yield and lower volatility for next year.
The economy entered the year posting lackluster performance, untypical of past
rebounds. While consumers continued to spend, business confidence was low and
pricing weak, enough to prompt the Federal Reserve (Fed) to cut interest rates
one last time in an effort to avoid a deflationary spiral. Business spending was
put on hold until the results of the war in Iraq was known, further depressing
economic activity in the first quarter.
All monetary stimulants were put in place in the second quarter as tax cuts,
child care rebate checks, cash out refinancing, and no-interest auto loans gave
the consumer the cash to overcome a sluggish labor market. Low mortgage rates
have maintained a strong housing market, and a lower valued dollar has improved
the earnings of multinational companies. As a result, third quarter gross
domestic product (GDP) and productivity both grew in excess of 7%, resembling a
more normal post recession economic rebound.
We would expect the pace of economic growth to moderate in 2004 as high
productivity wanes with increased employment and a more broad based recovery. We
would expect the fund's performance to improve as higher yields and lower price
volatility of agency mortgage securities outperform other government securities.
The Fund may invest in debt and mortgage-backed securities issued by
government-sponsored enterprises such as the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association and the Federal Home Loan
Banks. Although the issuing agency, instrumentality or corporation maybe
chartered or sponsored by the United States government, their securities are
niether issued nor guaranteed by the United States Treasury.
PRINCIPAL LIMITED TERM BOND FUND, INC.
MARTIN J. SCHAFER
GROWTH OF $10,000
Average Annual Total Returns
as of October 31, 2003
Class 1 Year 5 Year Life of Fund
A 1.49% 4.81% 5.34%*
B 1.30% 4.59% 5.15%*
Lehman Brothers
Mutual Fund 1-5 Morningstar
Government/Credit Short-Term Limited Term
Index 3 Bond Category 2 Bond Fund Class A 1
10 10 9.851
"1996" 10.371 10.343 10.207
"1997" 11.086 11.013 10.895
"1998" 12.012 11.726 11.611
"1999" 12.283 12.018 11.823
"2000" 13.052 12.733 12.525
"2001" 14.719 14.118 13.948
"2002" 15.558 10.649 14.464
"2003" 16.19 10.954 14.904
Note:Past performance is not predictive of future performance. The performance
of Class B shares will vary from the performance of Class A shares based on
the differences in loads and fees. The returns shown do not reflect taxes,
if any, that a shareholder would pay on Fund distributions or on the
redemption of Fund shares.
* Since inception date 2/29/96
1 Reflects maximum sales charge of 1.50% on the initial $10,000 investment.
2 Calculated by Morningstar. The average does not reflect sales charges but
does reflect commissions and fees.
3 The index is unmanaged and does not reflect sales charges, commissions or
fees.
LOGO
The Principal Limited Term Bond Fund underperformed the Lehman Mutual Fund 1-5
year Government/Credit Index for the one-year period ended October 31, 2003. The
fund returned 3.04% compared to 4.06% for the index. Fund returns are after
expenses, which don't apply to the index. The fund's mortgage-backed securities
(MBS) holdings experienced the most volatile period since the refinancing/
prepayment wave of 1993 and 1994. Performance was enhanced by broad corporate
diversification and overweighted sector allocation to asset-backed securities
(ABS), commercial mortgage-backed securities (CMBS) and securities issued by
U.S. government agencies.
Two key factors caused the U.S. economy to be lackluster late last year and
early this year. First, the uncertainties surrounding the possible war in Iraq
began to affect business decisions. This, coupled with the lingering concerns
that had been created by corporate governance scandals, stalled business
investment in the first quarter of 2003. Fortunately, a vibrant housing market
lifted construction activity and refinancing provided extra support to consumer
spending.
With the end of the official war in Iraq and the related uncertainties, both
interest rates and stock prices began to rise by June. Economic activity picked
up and then accelerated further this summer as tax cuts boosted households'
disposable income. Investors, as well as businesses, started to take more risk.
The third quarter produced an increase of 7.20% in real gross domestic product
(GDP), the broadest measure of U.S. output. This was the fastest quarterly rate
of growth in nearly 20 years. This pace of growth is unsustainable, but sets the
stage for reasonable growth in 2004. The strength of the economy next year will
depend on the strength of the U.S. labor market, which is just starting to grow.
By employing a disciplined investment process and by focusing on sector and
security selection, we expect to reward our clients with favorable results over
a reasonable period of time. We have ample opportunity to enhance fund returns,
and to provide a well-diversified portfolio by exploiting expertise in a variety
of market sectors.
PRINCIPAL TAX-EXEMPT BOND FUND, INC.
THOMAS V. CATUS
GROWTH OF $10,000
Average Annual Total Returns
as of October 31, 2003
Class 1 Year 5 Year 10 Year Life of Fund
A -0.68% 3.41% 4.57%
B -0.32% 3.54% - 6.42%*
Lehman Brothers Morningstar
Municipal Bond Muni National Tax-Exempt
Index 3 Long Category 2 Bond Fund Class A 1
10 10 9.526
"1994" 9.564 9.403 8.819
"1995" 10.984 10.708 10.233
"1996" 11.61 11.266 10.855
"1997" 12.596 12.203 11.799
"1998" 13.606 13.082 12.597
"1999" 13.365 12.523 12.281
"2000" 14.502 13.373 12.995
"2001" 16.026 14.626 14.201
"2002" 16.967 15.193 15.002
"2003" 17.834 15.903 15.64
Note:Past performance is not predictive of future performance. The performance
of Class B shares will vary from the performance of Class A shares based on
the differences in loads and fees. The returns shown do not reflect taxes,
if any, that a shareholder would pay on Fund distributions or on the
redemption of Fund shares.
* Since inception date 12/9/94
1 Reflects maximum sales charge of 4.75% on the initial $10,000 investment.
2 Calculated by Morningstar. The average does not reflect sales charges but
does reflect commissions and fees.
3 The index is unmanaged and does not reflect sales charges, commissions or
fees.
LOGO
The Principal Tax-Exempt Bond Fund returned 4.25% for the one-year period ending
October 31, 2003, lagging the 5.11% return of the Lehman Municipal Bond Index.
Fund returns are after expenses, which don't apply to the index. Additional
underperformance is attributable to the maturity distribution and premium coupon
bond structure. The fund is overweighted in holdings in the 10-year maturity
range, which had lower returns relative to all but the shortest maturities. Most
of this underperformance in the 10-year range occurred over the past month.
Another hindrance to performance came from the fund's overweighting to premium
coupon bonds. These bonds should outperform in a rising interest rate
environment, but lagged current and discount coupon structures by approximately
0.50% over the past 12 months.
As an asset class, municipals had strong performance for the period. The Lehman
Municipal Bond Index earned 5.11% over the past year. This compares favorably to
most fixed income asset classes including U.S Treasuries, which returned 2.82%
(Lehman U.S. Treasury Index). The performance came in spite of a record volume
of new issuance coupled with budget imbalances and credit concerns in many
states.
Many state and local municipalities continue to struggle with structural
imbalances in their budgets. California has received plenty of press for its
budget deficit, currently estimated to be in the $8 billion to $20 billion range
for the next fiscal year. New York is currently projecting a $14 billion deficit
for the next two years. While some credits face potential downgrades by credit
rating agencies, in general, municipal bonds remain at the higher end of the
credit spectrum.
Our strategy remains unchanged. Our strategy is based on our outlook for a
slowly improving economy and a slightly higher interest rate environment over
time. Security selection will play a critical role in performance as state and
local municipalities work to cure challenging budget issues. We continue to
favor premium coupon structures and maintain an overweighting to the 10-to-20
year maturity range. We believe this offers the best value on a risk-adjusted
basis. We continue to monitor the credit situations in California and New York
and look for opportunities to add exposure in these states.
PRINCIPAL CASH MANAGEMENT FUND, INC.
MICHAEL R. JOHNSON AND ALICE ROBERTSON
The money fund industry average maturity over the course of fiscal year 2003 was
in the 53-58 day range. The Principal Cash Management Fund strives to stay in
line with the money fund industry average in both yield and maturity. The fund
managers continue to choose from a list of high quality investments that is
actively monitored by our fixed-income analytical staff. During fiscal 2003, we
took additional steps to further diversify the portfolio. The fund has increased
its exposure to government agency discount notes since yield premiums between
commercial paper and government agency discount notes has narrowed.
The Federal Reserve (Fed) started fiscal year 2003 with a 0.50% rate cut on
November 6, 2002, setting the fed funds target rate at 1.25%. (The fed funds
rate is the overnight lending rate between banks.) The Fed made one further rate
cut of 0.25% on June 25, 2003, lowering the fed funds target rate to 1.00%. The
bias was also changed several times throughout the fiscal year. The Fed even
suspended it in March due to the uncertainty of the war in Iraq. At year-end,
the Fed had a dual bias in place stating that risks toward sustainable growth
are balanced and the risk of falling inflation exceeds that of any rise in
inflation. However, the Fed has become less of a factor in the market as it has
made it clear short rates will be kept low for a "considerable period." As of
the end of September, outstanding commercial paper had declined 5% and stood at
the lowest level in four years.
Investment in money market funds is neither insured nor guaranteed by the U.S.
Government. While the fund strives to maintain a $1.00 per share net asset
value, it is possible to lose money by investing in it.
IMPORTANT NOTES
DOW JONES UTILITIES INDEX WITH INCOME is a price-weighted average of 15 utility
companies that are listed on the New York Stock Exchange and are involved in the
production of electrical energy.
LEHMAN BROTHERS AGGREGATE BOND INDEX represents securities that are U.S.
domestic, taxable, and dollar denominated. The index covers the U.S. investment
grade fixed rate bond market, with index components for government and corporate
securities, mortgage pass-through securities, and asset-backed securities. These
major sectors are subdivided into more specific indices that are calculated and
reported on a regular basis.
LEHMAN BROTHERS GNMA INDEX is an unmanaged index of 15- and 30-year fixed-rate
securities backed by mortgage pools of the Government National Mortgage
Association (GNMA) and Graduated Payment Mortgages (GPMs) with at least $100
million outstanding and one year or more to maturity.
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CREDIT INDEX: . An unmanaged index of
U.S. Government agency and Treasury securities and investment-grade corporate
debt securities with maturities of five to ten years
LEHMAN BROTHERS MUNICIPAL BOND INDEX is an unmanaged index of investment-grade,
tax-exempt bonds which have been issued within the last five years and at least
one year or more to maturity. This index is classified into four main sectors:
General Obligation, Revenue, Insured and Prerefunded.
LEHMAN BROTHERS MUTUAL FUND 1-5 GOVERNMENT/CREDIT INDEX is composed of treasury
notes, agencies, and credits rated BBB or better, and with maturities of 1 year
or greater and 5 years or less. It is a rolling mix of issues, as new issues are
added and issues becoming less than 1 year to maturity are deleted.
MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE (EUROPE, AUSTRALIA AND FAR
EAST) INDEX is a stock index designed to measure the investment returns of
developed economies outside of North America.
MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE (EUROPE, AUSTRALIA AND FAR
EAST) SMALLCAP INDEX is a stock index designed to measure the investment returns
small cap companies of developed economies outside of North America.
MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EMF (EMERGING MARKETS FREE) INDEX is
capitalization weighted and consists of stocks from 26 countries. These
countries include: Argentina, Brazil, Chile, China Free, Columbia, Czech
Republic, Greece, Hungary, India, Indonesia Free, Israel, Jordan, Korea at 50%,
Malaysia Free, Mexico Free, Pakistan, Peru, Philippines Free, Poland, Portugal,
South Africa, Sri Lanka, Taiwan at 50%, Thailand Free, Turkey and Venezuela.
MORGAN STANLEY REIT INDEX is a total-return index comprised of the most actively
traded real estate investment trusts, and is designed to be a measure of real
estate equity performance.
MORNINGSTAR DIVERSIFIED EMERGING MARKETS CATEGORY consists of diversified
emerging-markets funds which invest in developing nations. Most funds divide
their assets among 20 or more nations, although they tend to focus on the
emerging markets of Asia and Latin America rather than on those of the Middle
East, Africa, or Europe.
MORNINGSTAR MODERATE ALLOCATION CATEGORY consists of domestic funds with 50-70%
invested in equities and the remainder invested in fixed income and cash.
MORNINGSTAR FOREIGN LARGE BLEND CATEGORY consists of funds that seek capital
appreciation by investing in a variety of large international stocks. Large-cap
foreign stocks have market capitalizations greater than $5 billion. The blend
style is assigned to funds where neither growth nor value characteristics
predominate.
MORNINGSTAR INTERMEDIATE-TERM BOND CATEGORY consists of intermediate-term bond
funds that have average durations that are greater than 3.5 years and less than
six years. Most of the funds rotate among a variety of sectors in the bond
market, based upon which appear to offer better values.
MORNINGSTAR INTERMEDIATE GOVERNMENT CATEGORY consists of intermediate-term
government funds that devote at least 90% of their bond holdings to government
issues. These funds have, on average, durations between 3.5 and six years.
MORNINGSTAR LARGE BLEND CATEGORY consists of large-cap blend funds that focus on
big companies that are fairly representative of the overall stock market in both
size and price. They tend to invest across the spectrum of U.S. industries and
owing to their broad exposure, the funds' returns are often similar to the S&P
500 Index.
MORNINGSTAR LARGE GROWTH CATEGORY consists of large-cap growth funds that invest
in big companies that are projected to grow faster than the overall stock
market. Most of these funds focus on either companies in rapidly expanding
industries with a high percentage of sales coming from foreign markets.
MORNINGSTAR LARGE VALUE CATEGORY consists of large-cap value funds that focus on
big companies that are less expensive than the market as a whole. They often
come from the utilities, energy, financial, and cyclical sectors, and many pay
dividends. They also generally have more-stable stock prices.
MORNINGSTAR MID-CAP BLEND CATEGORY consists of mid-cap blend funds that
typically invest in stocks of various sizes and mixed characteristics, giving it
a middle-of-the road profile. Most shy away from high-priced growth stocks, but
aren't so price-conscious that they land in value territory.
MORNINGSTAR MID-CAP GROWTH CATEGORY consists of mid-cap growth funds that
typically focus directly on mid-size companies though some invest in stocks of
all sizes. Mid-cap growth funds target firms that are projected to grow faster
than the overall market, therefore commanding relatively higher prices. Many of
these stocks are found in the volatile technology, health-care, and services
sectors.
MORNINGSTAR MUNI NATIONAL LONG CATEGORY consists of Muni National Long-Term Bond
funds that invest municipal bonds. Such bonds are issued by various state and
local governments to fund public projects and are free from federal taxes. To
lower risk, these funds spread their assets across many states and sectors. They
focus on bonds with maturities of 10 years or more.
MORNINGSTAR SHORT-TERM BOND CATEGORY consists of short-term bond funds that have
durations that stay between one and 3.5 years. These funds invest in a variety
of bonds, from the most creditworthy, such as Treasury bonds, to mortgages and
corporates, and on rare occasions, even more speculative high-yield and emerging
markets debt.
MORNINGSTAR SMALL BLEND CATEGORY consists of small-cap blend funds that favor
firms at the smaller end of the market-capitalization range, and are flexible in
the types of small caps they buy. They own everything from fairly cheap,
out-of-favor stocks to somewhat expensive growth stocks. They thus provide
exposure both to traditional value sectors, such as financials and cyclicals,
and to growth sectors like technology and health care.
MORNINGSTAR SMALL GROWTH CATEGORY consists of small-cap growth funds that focus
on stocks at the lower end of the market-capitalization range. These funds tend
to favor companies in up-and-coming industries or young firms in their early
growth stages and tend to be volatile.
MORNINGSTAR SPECIALTY - REAL ESTATE CATEGORY consists of specialty real-estate
funds that invest primarily in real-estate investment trusts (REITs) of various
types. The performance of these funds is less connected to the overall market
than most other types of stock funds.
MORNINGSTAR SPECIALTY - UTILITIES CATEGORY consists of specialty-utilities funds
that invest in phone, power, gas, and water companies. These types of companies
have historically been conservative investments that pay sturdy
dividends. These funds tend to provide relatively little capital appreciation,
and more in the way of yield. These funds are sensitive to interest rates and
industry changes.
RUSSELL 1000 GROWTH INDEX is an index that measures the performance of those
Russell 1000 companies with higher price-to-book ratios and higher forecasted
growth values.
RUSSELL 1000 VALUE INDEX is an index that measures the performance of those
Russell 1000 companies with lower price to book ratios and lower forecasted
growth values.
RUSSELL 2000 GROWTH INDEX measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth values.
RUSSELL 2000 INDEX measures the performance of the 2,000 smallest companies in
the Russell 3000 Index.
RUSSELL MIDCAP INDEX is an index that measures the performance of the 800
smallest companies in the Russell 1000 Index.
RUSSELL MIDCAP GROWTH INDEX is an unmanaged market-capitalization-weighted index
that measures the performance of those companies in the Russell MidCap Index
with higher price-to-book ratios and higher forecasted growth values.
S&P 500 INDEX is a market capitalization-weighted index of 500 widely held
stocks often used as a proxy for the stock market. It measures the movement of
the largest issues. Standard & Poor's chooses the member companies for the 500
based on market size, liquidity and industry group representation. Included are
the stocks of industrial, financial, utility and transportation companies.
S&P/BARRA 500 VALUE INDEX is a market capitalization-weighted index of the
stocks in the S&P 500 Index having the highest book to price ratios. The index
consists of approximately half of the S&P 500 on a market capitalization basis.
S&P MIDCAP 400 INDEX includes approximately 10% of the capitalization of U.S.
equity securities. These are comprised of stocks in the middle capitalization
range. Any mid-sized stocks already included in the S&P 500 are excluded from
this index.
S&P SMALLCAP 600 INDEX consists of 600 domestic stocks chosen for market size,
liquidity and industry group representation. It is a market weighted index
(stock price x shares outstanding), with each stock affecting the index in
proportion to its market value.
STATEMENTS OF ASSETS AND LIABILITIES
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
BALANCED CAPITAL VALUE
FUND, INC. FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INVESTMENT IN SECURITIES--AT COST ..... $100,690,133 $324,283,798
============ ============
ASSETS
Investment in securities--at value..... $101,620,395/(c)/ $357,055,981/(c)/
Cash................................... 114,035 10,000
Receivables:
Capital Shares sold................... 7,410 5,468
Dividends and interest................ 429,127 463,037
Investment securities sold............ 196,631 4,332,412
Variation margin on futures contracts. -- 7,125
Other assets........................... 5,073 29,641
Prepaid expenses....................... 18 --
------------ ------------
Total Assets 102,372,689 361,903,664
LIABILITIES
Accrued management and investment
advisory fees......................... 11,160 39,556
Accrued distribution fees.............. 6,116 10,199
Accrued directors' expenses............ -- 214
Accrued transfer and administrative
fees.................................. 71,637 176,005
Accrued other expenses................. 36,133 27,492
Payables:
Capital Shares reacquired............. 25,523 73,177
Investment securities purchased....... 4,141,286 1,323,782
Collateral obligation on securities
loaned, at value...................... 477,550 4,752,000
------------ ------------
Total Liabilities 4,769,405 6,402,425
------------ ------------
NET ASSETS APPLICABLE TO OUTSTANDING
SHARES ............................... $ 97,603,284 $355,501,239
============ ============
NET ASSETS CONSIST OF:
Capital Shares and additional
paid-in-capital....................... $112,899,497 $367,035,620
Accumulated undistributed
(overdistributed) net investment
income (operating loss)............... 88,660 2,681,825
Accumulated undistributed
(overdistributed) net realized gain
(loss)................................ (16,315,135) (47,058,139)
Net unrealized appreciation
(depreciation) of investments......... 930,262 32,841,933
------------ ------------
Total Net Assets $ 97,603,284 $355,501,239
============ ============
CAPITAL STOCK (PAR VALUE: $.01 A
SHARE):
Shares authorized...................... 100,000,000 100,000,000
NET ASSET VALUE PER SHARE:
Class A: Net Assets.................... $ 82,198,510 $326,089,053
Shares issued and outstanding........ 6,911,130 14,976,583
Net asset value per share............ $ 11.89 $ 21.77
Maximum offering price per share
/(a)/ ................................ $ 12.62 $ 23.10
============ ============
Class B: Net Assets.................... $ 15,404,774 $ 29,412,186
Shares issued and outstanding........ 1,301,255 1,367,529
Net asset value per share /(b)/ ..... $ 11.84 $ 21.51
============ ============
/(a) //Maximum offering price equals net asset value plus a front-end sales
charge of 5.75% of the offering price or 6.10% of the net asset value./
/(b) //Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge./
/(c) //Includes fair market value of securities loaned, see "Securities Lending"
in Notes to Financial Statements./
See accompanying notes.
27
STATEMENTS OF ASSETS AND LIABILITIES
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
GROWTH LARGECAP STOCK
FUND, INC. INDEX FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INVESTMENT IN AFFILIATED SECURITIES--AT
COST ................................... $ -- $ 44,522
============= ============
INVESTMENT IN SECURITIES--AT COST ....... $ 349,248,807 $ 59,945,991
============= ============
ASSETS
Investment in affiliated securities--at
value................................... $ -- $ 49,658
Investment in securities--at value....... 313,736,141/(c)/ 51,772,353/(c)/
Cash..................................... 10,001 10,168
Receivables:
Capital Shares sold..................... 5,448 33,247
Dividends and interest.................. 382,764 63,981
Fees waived............................. -- 5,389
Variation margin on futures contracts... -- 1,750
Other assets............................. 13,097 396
------------- ------------
Total Assets 314,147,451 51,936,942
LIABILITIES
Accrued management and investment
advisory fees........................... 34,691 3,389
Accrued distribution fees................ 15,996 2,006
Accrued directors' expenses.............. 363 19
Accrued transfer and administrative fees. 284,438 37,834
Accrued other expenses................... 36,840 14,595
Payables:
Capital Shares reacquired............... 106,047 --
Investment securities purchased......... -- 197,614
Collateral obligation on securities
loaned, at value........................ 3,387,000 294,000
------------- ------------
Total Liabilities 3,865,375 549,457
------------- ------------
NET ASSETS APPLICABLE TO OUTSTANDING
SHARES ................................. $ 310,282,076 $ 51,387,485
============= ============
NET ASSETS CONSIST OF:
Capital Shares and additional
paid-in-capital......................... $ 500,629,401 $ 61,950,614
Accumulated undistributed
(overdistributed) net investment income
(operating loss)........................ -- 291,966
Accumulated undistributed
(overdistributed) net realized gain
(loss).................................. (154,834,659) (2,724,169)
Net unrealized appreciation
(depreciation) of investments........... (35,512,666) (8,130,926)
------------- ------------
Total Net Assets $ 310,282,076 $ 51,387,485
============= ============
CAPITAL STOCK (PAR VALUE: $.01 A SHARE):
Shares authorized........................ 200,000,000 100,000,000
NET ASSET VALUE PER SHARE:
Class A: Net Assets...................... $ 263,119,196 $ 41,913,064
Shares issued and outstanding.......... 10,342,142 5,372,837
Net asset value per share.............. $ 25.44 $ 7.80
Maximum offering price per share /(a)/ $ 26.99 $ 7.92
============= ============
Class B: Net Assets...................... $ 47,162,880 $ 9,474,421
Shares issued and outstanding.......... 1,925,766 1,215,246
Net asset value per share /(b)/ ....... $ 24.49 $ 7.80
============= ============
/(a) //Maximum offering price equals net asset value plus a front-end sales
charge of 5.75% of the offering price or 6.10% of the net asset value for
Principal / /Growth Fund, Inc. and 1.50% of the offering price or 1.52% of the
net asset value for Principal LargeCap Stock Index Fund, Inc./
/(b) //Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge./
/(c) //Includes fair market value of securities loaned, see "Securities Lending"
in Notes to Financial Statements./
See accompanying notes.
28
STATEMENTS OF ASSETS AND LIABILITIES
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
MIDCAP PARTNERS BLUE
FUND, INC. CHIP FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INVESTMENT IN SECURITIES--AT COST ..... $399,894,306 $143,787,139
============ ============
ASSETS
Investment in securities--at value..... $482,070,628/(c)/ $148,047,162/(c)/
Cash................................... 23,775 994,790
Receivables:
Capital Shares sold................... 203,167 40,122
Dividends and interest................ 167,528 158,324
Investment securities sold............ 1,815,609 --
Variation margin on futures contracts. -- 550
Other assets........................... 6,738 3,030
------------ ------------
Total Assets 484,287,445 149,243,978
LIABILITIES
Accrued management and investment
advisory fees......................... 49,091 16,710
Accrued distribution fees.............. 23,081 9,439
Accrued directors' expenses............ 126 40
Accrued transfer and administrative
fees.................................. 266,446 112,559
Accrued other expenses................. 41,245 23,054
Payables:
Capital Shares reacquired............. 206,082 3,045
Investment securities purchased....... 2,258,038 250,580
Collateral obligation on securities
loaned, at value...................... 14,618,000 1,665,000
------------ ------------
Total Liabilities 17,462,109 2,080,427
------------ ------------
NET ASSETS APPLICABLE TO OUTSTANDING
SHARES ............................... $466,825,336 $147,163,551
============ ============
NET ASSETS CONSIST OF:
Capital Shares and additional
paid-in-capital....................... $362,328,942 $181,461,230
Accumulated undistributed
(overdistributed) net investment
income (operating loss)............... 154,204 --
Accumulated undistributed
(overdistributed) net realized gain
(loss)................................ 22,165,868 (38,564,974)
Net unrealized appreciation
(depreciation) of investments......... 82,176,322 4,267,295
------------ ------------
Total Net Assets $466,825,336 $147,163,551
============ ============
CAPITAL STOCK (PAR VALUE: $.01 A
SHARE):
Shares authorized...................... 100,000,000 100,000,000
NET ASSET VALUE PER SHARE:
Class A: Net Assets.................... $396,239,044 $117,930,861
Shares issued and outstanding........ 10,109,147 7,296,678
Net asset value per share............ $ 39.20 $ 16.16
Maximum offering price per share
/(a)/ ................................ $ 41.59 $ 17.15
============ ============
Class B: Net Assets.................... $ 70,586,292 $ 29,232,690
Shares issued and outstanding........ 1,889,790 1,873,877
Net asset value per share /(b)/ ..... $ 37.35 $ 15.60
============ ============
/(a) //Maximum offering price equals net asset value plus a front-end sales
charge of 5.75% of the offering price or 6.10% of the net asset value./
/(b) //Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge./
/(c) //Includes fair market value of securities loaned, see "Securities Lending"
in Notes to Financial Statements./
See accompanying notes.
29
STATEMENTS OF ASSETS AND LIABILITIES
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
PARTNERS EQUITY PARTNERS LARGECAP
GROWTH FUND, INC. BLEND FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INVESTMENT IN SECURITIES--AT COST ..... $ 59,221,500 $ 42,977,428
============ ============
ASSETS
Investment in securities--at value..... $56,057,441/(c)/ $ 46,035,466
Cash................................... 2,754,181 1,626,324
Receivables:
Capital Shares sold................... 15,040 145,552
Dividends and interest................ 55,665 85,923
Fees waived........................... -- 1,304
Investment securities sold............ 378,733 917,731
Other assets........................... 510 127
Prepaid expenses....................... -- 51
------------ ------------
Total Assets 59,261,570 48,812,478
LIABILITIES
Accrued management and investment
advisory fees......................... 8,204 6,766
Accrued distribution fees.............. 4,529 4,142
Accrued directors' expenses............ 30 --
Accrued transfer and administrative
fees.................................. 73,020 32,466
Accrued other expenses................. 27,933 17,190
Payables:
Capital Shares reacquired............. 3,283 5,249
Investment securities purchased....... 557,358 889,980
Collateral obligation on securities
loaned, at value...................... 677,000 --
------------ ------------
Total Liabilities 1,351,357 955,793
------------ ------------
NET ASSETS APPLICABLE TO OUTSTANDING
SHARES ............................... $ 57,910,213 $ 47,856,685
============ ============
NET ASSETS CONSIST OF:
Capital Shares and additional
paid-in-capital....................... $ 89,634,243 $ 46,946,226
Accumulated undistributed
(overdistributed) net realized gain
(loss)................................ (28,559,971) (2,147,579)
Net unrealized appreciation
(depreciation) of investments......... (3,164,059) 3,058,038
------------ ------------
Total Net Assets $ 57,910,213 $ 47,856,685
============ ============
CAPITAL STOCK (PAR VALUE: $.01 A
SHARE):
Shares authorized...................... 100,000,000 100,000,000
NET ASSET VALUE PER SHARE:
Class A: Net Assets.................... $ 43,060,769 $ 33,155,218
Shares issued and outstanding........ 6,151,436 3,628,049
Net asset value per share............ $ 7.00 $ 9.14
Maximum offering price per share
/(a)/ ................................ $ 7.43 $ 9.70
============ ============
Class B: Net Assets.................... $ 14,849,444 $ 14,701,467
Shares issued and outstanding........ 2,185,912 1,642,690
Net asset value per share /(b)/ ..... $ 6.79 $ 8.95
============ ============
/(a) //Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge./
/(b) //Maximum offering price equals net asset value plus a front-end sales
charge of 5.75% of the offering price or 6.10% of the net asset value./
/(c) //Includes fair market value of securities loaned, see "Securities Lending"
in Notes to Financial Statements./
See accompanying notes.
30
STATEMENTS OF ASSETS AND LIABILITIES
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
PARTNERS LARGECAP PARTNERS MIDCAP
VALUE FUND, INC. GROWTH FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INVESTMENT IN SECURITIES--AT COST ..... $ 41,282,274 $ 23,924,672
============ ============
ASSETS
Investment in securities--at value..... $ 45,307,015 $ 29,726,469
Cash................................... 2,645,449 1,263,617
Receivables:
Capital Shares sold................... 4,639 49,366
Dividends and interest................ 71,544 3,008
Fees waived........................... -- 1,216
Investment securities sold............ 25,046 93,030
Other assets........................... 137 183
Prepaid expenses....................... 35 82
------------ ------------
Total Assets 48,053,865 31,136,971
LIABILITIES
Accrued management and investment
advisory fees......................... 6,726 5,142
Accrued distribution fees.............. 3,934 2,428
Accrued transfer and administrative
fees.................................. 33,151 32,087
Accrued other expenses................. 16,150 17,816
Payables:
Capital Shares reacquired............. 12,769 10,121
Investment securities purchased....... 486,643 335,088
------------ ------------
Total Liabilities 559,373 402,682
------------ ------------
NET ASSETS APPLICABLE TO OUTSTANDING
SHARES ............................... $ 47,494,492 $ 30,734,289
============ ============
NET ASSETS CONSIST OF:
Capital Shares and additional
paid-in-capital....................... $ 44,337,523 $ 39,871,891
Accumulated undistributed
(overdistributed) net investment
income (operating loss)............... 165,933 --
Accumulated undistributed
(overdistributed) net realized gain
(loss)................................ (1,033,705) (14,939,399)
Net unrealized appreciation
(depreciation) of investments......... 4,024,741 5,801,797
------------ ------------
Total Net Assets $ 47,494,492 $ 30,734,289
============ ============
CAPITAL STOCK (PAR VALUE: $.01 A
SHARE):
Shares authorized...................... 100,000,000 100,000,000
NET ASSET VALUE PER SHARE:
Class A: Net Assets.................... $ 34,298,245 $ 22,206,059
Shares issued and outstanding........ 3,134,976 4,377,466
Net asset value per share............ $ 10.94 $ 5.07
Maximum offering price per share
/(a)/ ................................ $ 11.61 $ 5.38
============ ============
Class B: Net Assets.................... $ 13,196,247 $ 8,528,230
Shares issued and outstanding........ 1,224,272 1,715,010
Net asset value per share /(b)/ ..... $ 10.78 $ 4.97
============ ============
/(a) //Maximum offering price equals net asset value plus a front-end sales
charge of 5.75% of the offering price or 6.10% of the net asset value./
/(b) //Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge./
See accompanying notes.
31
STATEMENTS OF ASSETS AND LIABILITIES
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
PARTNERS SMALLCAP REAL ESTATE
GROWTH FUND, INC. FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INVESTMENT IN SECURITIES--AT COST .......... $ 10,643,874 $ 49,511,732
============ ============
ASSETS
Investment in securities--at value.......... $ 13,950,941 $ 61,544,992
Cash........................................ 587,925 10,001
Receivables:
Capital Shares sold........................ 48,062 95,896
Dividends and interest..................... 3,744 190,707
Fees waived................................ 3,713 --
Investment securities sold................. 100,868 455,694
Other assets................................ 64 290
Prepaid expenses............................ -- 76
------------ ------------
Total Assets 14,695,317 62,297,656
LIABILITIES
Accrued management and investment advisory
fees....................................... 2,424 10,467
Accrued distribution fees................... 1,194 4,848
Accrued directors' expenses................. 4 --
Accrued transfer and administrative fees.... 16,834 33,021
Accrued other expenses...................... 13,361 10,484
Payables:
Capital Shares reacquired.................. 5,242 16,688
Investment securities purchased............ 146,358 858,305
------------ ------------
Total Liabilities 185,417 933,813
------------ ------------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 14,509,900 $ 61,363,843
============ ============
NET ASSETS CONSIST OF:
Capital Shares and additional
paid-in-capital............................ $ 17,015,295 $ 48,053,063
Accumulated undistributed (overdistributed)
net investment income (operating loss)..... -- 194,132
Accumulated undistributed (overdistributed)
net realized gain (loss)................... (5,812,462) 1,083,388
Net unrealized appreciation (depreciation)
of investments............................. 3,307,067 12,033,260
------------ ------------
Total Net Assets $ 14,509,900 $ 61,363,843
============ ============
CAPITAL STOCK (PAR VALUE: $.01 A SHARE):
Shares authorized........................... 100,000,000 100,000,000
NET ASSET VALUE PER SHARE:
Class A: Net Assets......................... $ 10,108,386 $ 46,131,421
Shares issued and outstanding............. 1,863,060 3,532,546
Net asset value per share................. $ 5.43 $ 13.06
Maximum offering price per share /(a)/ ... $ 5.76 $ 13.86
============ ============
Class B: Net Assets......................... $ 4,401,514 $ 15,232,422
Shares issued and outstanding............. 828,710 1,173,103
Net asset value per share /(b)/ .......... $ 5.31 $ 12.98
============ ============
/(a) //Maximum offering price equals net asset value plus a front-end sales
charge of 5.75% of the offering price or 6.10% of the net asset value./
/(b) //Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge./
See accompanying notes.
32
STATEMENTS OF ASSETS AND LIABILITIES
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
SMALLCAP UTILITIES
FUND, INC. FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INVESTMENT IN SECURITIES--AT COST ......... $ 86,640,682 $ 66,463,401
============ ============
ASSETS
Investment in securities--at value......... $100,831,352/(c)/ $ 68,158,382
Cash....................................... 10,000 1,976,098
Receivables:
Capital Shares sold....................... 31,282 15,856
Dividends and interest.................... 32,100 414,855
Investment securities sold................ 1,445,703 --
Other assets............................... 783 1,633
------------ ------------
Total Assets 102,351,220 70,566,824
LIABILITIES
Accrued management and investment advisory
fees...................................... 15,310 8,073
Accrued distribution fees.................. 7,231 4,538
Accrued directors' expenses................ 354 215
Accrued transfer and administrative fees... 98,500 64,755
Accrued other expenses..................... 28,012 9,408
Payables:
Capital Shares reacquired................. 52,873 1,903
Investment securities purchased........... 1,532,815 --
Collateral obligation on securities loaned,
at value.................................. 4,909,000 --
------------ ------------
Total Liabilities 6,644,095 88,892
------------ ------------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 95,707,125 $ 70,477,932
============ ============
NET ASSETS CONSIST OF:
Capital Shares and additional
paid-in-capital........................... $117,792,428 $ 97,261,598
Accumulated undistributed (overdistributed)
net investment income (operating loss).... -- 282,523
Accumulated undistributed (overdistributed)
net realized gain (loss).................. (36,275,973) (28,761,170)
Net unrealized appreciation (depreciation)
of investments............................ 14,190,670 1,694,981
------------ ------------
Total Net Assets $ 95,707,125 $ 70,477,932
============ ============
CAPITAL STOCK (PAR VALUE: $.01 A SHARE):
Shares authorized.......................... 100,000,000 100,000,000
NET ASSET VALUE PER SHARE:
Class A: Net Assets........................ $ 73,670,634 $ 60,702,490
Shares issued and outstanding............ 8,894,113 6,472,559
Net asset value per share................ $ 8.28 $ 9.38
Maximum offering price per share /(a)/ .. $ 8.79 $ 9.95
============ ============
Class B: Net Assets........................ $ 22,036,491 $ 9,775,442
Shares issued and outstanding............ 2,789,973 1,046,341
Net asset value per share /(b)/ ......... $ 7.90 $ 9.34
============ ============
/(a) /Maximum offering price equals net asset value plus a front-end sales
charge of 5.75% of the offering price or 6.10% of the net asset value.
/(b) //Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge./
/(c) //Includes fair market value of securities loaned, see "Securities Lending"
in Notes to Financial Statements./
See accompanying notes.
33
STATEMENTS OF OPERATIONS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
YEAR ENDED OCTOBER 31, 2003
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
BALANCED CAPITAL VALUE
FUND, INC. FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME (OPERATING LOSS)
Income:
Dividends....................................... $ 956,332 $ 7,299,680
Interest........................................ 1,692,101 71,411
Securities lending.............................. 1,643 27,402
----------- -----------
Total Income 2,650,076 7,398,493
Expenses:
Management and investment advisory fees......... 550,716 2,100,086
Distribution fees - Class A..................... 178,283 442,259
Distribution fees - Class B..................... 131,853 249,644
Registration fees - Class A..................... 10,029 10,525
Registration fees - Class B..................... 6,826 8,055
Shareholder reports - Class A................... 9,614 18,579
Shareholder reports - Class B................... 2,240 3,476
Transfer and administrative fees - Class A...... 140,709 308,792
Transfer and administrative fees - Class B...... 34,542 68,847
Auditing and legal fees......................... 9,660 12,779
Custodian fees.................................. 59,841 15,899
Directors' expenses............................. 3,739 14,979
Registration fees............................... 13,046 17,843
Transfer and administrative fees................ 301,948 588,920
Other expenses.................................. 5,849 26,052
----------- -----------
Total Gross Expenses 1,458,895 3,886,735
Less: Fees paid indirectly...................... 1,964 10,808
----------- -----------
Total Net Expenses 1,456,931 3,875,927
----------- -----------
Net Investment Income (Operating Loss) 1,193,145 3,522,566
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) from:
Investment transactions......................... 652,592 4,243,048
Futures contracts............................... -- 446,077
Change in unrealized appreciation/depreciation
of:
Investments..................................... 9,710,349 54,749,046
Futures contracts............................... -- 69,750
----------- -----------
Net Realized and Unrealized Gain (Loss) on
Investments 10,362,941 59,507,921
----------- -----------
Net Increase (Decrease) in Net Assets Resulting
from Operations $11,556,086 $63,030,487
=========== ===========
See accompanying notes.
34
STATEMENTS OF OPERATIONS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
YEAR ENDED OCTOBER 31, 2003
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
GROWTH LARGECAP STOCK
FUND, INC. INDEX FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME (OPERATING LOSS)
Income:
Dividends................................... $ 2,649,285 $ 753,514
Dividends from affiliates................... -- 397
Interest.................................... 47,056 15,572
Securities lending.......................... 5,378 1,710
----------- ----------
Total Income 2,701,719 771,193
Expenses:
Management and investment advisory fees..... 1,686,714 150,947
Distribution fees - Class A................. 458,954 54,143
Distribution fees - Class B................. 408,653 31,681
Registration fees - Class A................. 10,171 12,554
Registration fees - Class B................. 8,384 9,000
Shareholder reports - Class A............... 36,906 4,881
Shareholder reports - Class B............... 9,180 1,010
Transfer and administrative fees - Class A.. 492,302 65,257
Transfer and administrative fees - Class B.. 141,541 16,650
Auditing and legal fees..................... 10,365 6,527
Custodian fees.............................. 6,460 25,370
Directors' expenses......................... 11,723 1,649
Registration fees........................... 30,009 16,182
Transfer and administrative fees............ 942,788 173,700
Other expenses.............................. 18,562 3,051
----------- ----------
Total Gross Expenses 4,272,712 572,602
Less: Fees paid indirectly.................. 2,279 --
Less: Fees waived - Class A................. -- 127,137
Less: Fees waived - Class B................. -- 32,499
----------- ----------
Total Net Expenses 4,270,433 412,966
----------- ----------
Net Investment Income (Operating Loss) (1,568,714) 358,227
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) from:
Investment transactions..................... (2,284,675) 22,190
Investment transactions in affiliates....... -- 425
Futures contracts........................... -- 166,533
Change in unrealized
appreciation/depreciation of:
Investments................................. 44,204,950 7,509,118
Investments in affiliates................... -- 4,854
Futures contracts........................... -- 56,275
----------- ----------
Net Realized and Unrealized Gain (Loss) on
Investments 41,920,275 7,759,395
----------- ----------
Net Increase (Decrease) in Net Assets
Resulting from Operations $40,351,561 $8,117,622
=========== ==========
See accompanying notes.
35
STATEMENTS OF OPERATIONS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
YEAR ENDED OCTOBER 31, 2003
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
MIDCAP PARTNERS BLUE
FUND, INC. CHIP FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME (OPERATING LOSS)
Income:
Dividends..................................... $ 5,716,710 $ 2,236,740
Interest...................................... 165,515 6,279
Securities lending............................ 90,752 3,093
----------- ------------
Total Income 5,972,977 2,246,112
Expenses:
Management and investment advisory fees....... 2,319,894 803,017
Distribution fees - Class A................... 688,473 235,821
Distribution fees - Class B................... 369,002 247,707
Registration fees - Class A................... 15,000 6,226
Registration fees - Class B................... 11,798 10,884
Shareholder reports - Class A................. 32,440 12,861
Shareholder reports - Class B................. 7,352 3,776
Transfer and administrative fees - Class A.... 483,387 257,768
Transfer and administrative fees - Class B.... 129,236 82,190
Auditing and legal fees....................... 12,883 11,062
Custodian fees................................ 14,981 20,107
Directors' expenses........................... 16,051 5,417
Registration fees............................. 24,715 12,048
Shareholder meeting expense................... -- 210,713
Transfer and administrative fees.............. 971,349 542,322
Other expenses................................ 25,913 8,278
----------- ------------
Total Gross Expenses 5,122,474 2,470,197
Less: Fees paid indirectly.................... 3,112 10,389
----------- ------------
Total Net Expenses 5,119,362 2,459,808
----------- ------------
Net Investment Income (Operating Loss) 853,615 (213,696)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) from:
Investment transactions....................... 24,260,132 (16,068,172)
Futures contracts............................. -- 254,102
Change in unrealized appreciation/depreciation
of:
Investments................................... 73,829,988 39,384,164
Futures contracts............................. -- (56,802)
----------- ------------
Net Realized and Unrealized Gain (Loss) on
Investments 98,090,120 23,513,292
----------- ------------
Net Increase (Decrease) in Net Assets Resulting
from Operations $98,943,735 $ 23,299,596
=========== ============
See accompanying notes.
36
STATEMENTS OF OPERATIONS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
YEAR ENDED OCTOBER 31, 2003
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
PARTNERS EQUITY PARTNERS LARGECAP
GROWTH FUND, INC. BLEND FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME (OPERATING LOSS)
Income:
Dividends............................. $ 588,692 $ 637,826
Interest.............................. 2,234 1,960
Securities lending.................... 2,109 --
---------- ----------
Total Income 593,035 639,786
Expenses:
Management and investment advisory
fees................................. 384,526 260,151
Distribution fees - Class A........... 95,586 61,641
Distribution fees - Class B........... 119,217 90,915
Registration fees - Class A........... 7,636 12,000
Registration fees - Class B........... 8,683 11,002
Shareholder reports - Class A......... 7,920 3,068
Shareholder reports - Class B......... 2,714 1,355
Transfer and administrative fees -
Class A.............................. 120,310 41,076
Transfer and administrative fees -
Class B.............................. 43,220 17,482
Auditing and legal fees............... 7,887 6,774
Custodian fees........................ 17,581 14,199
Directors' expenses................... 2,058 1,264
Registration fees..................... 22,500 16,921
Transfer and administrative fees...... 271,654 165,388
Other expenses........................ 3,346 1,822
---------- ----------
Total Gross Expenses 1,114,838 705,058
Less: Fees paid indirectly............ -- 2,998
Less: Fees waived - Class A........... 37,218/(a)/ 6,875
Less: Fees waived - Class B........... 8,244/(a)/ 6,116
---------- ----------
Total Net Expenses 1,069,376 689,069
---------- ----------
Net Investment Income (Operating Loss) (476,341) (49,283)
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) from:
Investment transactions............... 906,171 (264,532)
Change in unrealized
appreciation/depreciation of:
Investments........................... 6,558,801 5,582,408
---------- ----------
Net Realized and Unrealized Gain (Loss)
on Investments 7,464,972 5,317,876
---------- ----------
Net Increase (Decrease) in Net Assets
Resulting from Operations $6,988,631 $5,268,593
========== ==========
/(a) //Period from March 1, 2003, through October 31, 2003./
See accompanying notes.
37
STATEMENTS OF OPERATIONS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
YEAR ENDED OCTOBER 31, 2003
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
PARTNERS LARGECAP PARTNERS MIDCAP
VALUE FUND, INC. GROWTH FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME (OPERATING LOSS)
Income:
Dividends............................. $ 924,407 $ 46,411
Interest.............................. 2,707 663
---------- ----------
Total Income 927,114 47,074
Expenses:
Management and investment advisory
fees................................. 274,067 188,481
Distribution fees - Class A........... 66,777 38,716
Distribution fees - Class B........... 89,615 48,629
Registration fees - Class A........... 12,091 9,785
Registration fees - Class B........... 10,052 10,330
Shareholder reports - Class A......... 3,082 3,252
Shareholder reports - Class B......... 1,340 1,130
Transfer and administrative fees -
Class A.............................. 45,292 45,663
Transfer and administrative fees -
Class B.............................. 19,328 16,791
Auditing and legal fees............... 6,774 6,284
Custodian fees........................ 6,675 20,127
Directors' expenses................... 1,374 679
Registration fees..................... 16,392 17,880
Transfer and administrative fees...... 159,843 133,183
Other expenses........................ 2,011 1,198
---------- ----------
Total Gross Expenses 714,713 542,128
Less: Fees paid indirectly............ 10,322 19,756
Less: Fees waived - Class A........... -- 53,103
Less: Fees waived - Class B........... -- 20,539
---------- ----------
Total Net Expenses 704,391 448,730
---------- ----------
Net Investment Income (Operating Loss) 222,723 (401,656)
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) from:
Investment transactions............... (405,669) 2,857,706
Change in unrealized
appreciation/depreciation of:
Investments........................... 8,233,852 5,293,473
---------- ----------
Net Realized and Unrealized Gain (Loss)
on Investments 7,828,183 8,151,179
---------- ----------
Net Increase (Decrease) in Net Assets
Resulting from Operations $8,050,906 $7,749,523
========== ==========
See accompanying notes.
38
STATEMENTS OF OPERATIONS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
YEAR ENDED OCTOBER 31, 2003
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
PARTNERS SMALLCAP REAL ESTATE
GROWTH FUND, INC. FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME (OPERATING LOSS)
Income:
Dividends................................... $ 31,553 $ 2,242,898
Interest.................................... 588 8,458
---------- -----------
Total Income 32,141 2,251,356
Expenses:
Management and investment advisory fees..... 79,846 417,290
Distribution fees - Class A................. 15,899 87,089
Distribution fees - Class B................. 22,123 102,376
Registration fees - Class A................. 8,369 10,213
Registration fees - Class B................. 9,024 7,982
Shareholder reports - Class A............... 1,443 3,595
Shareholder reports - Class B............... 637 1,309
Transfer and administrative fees - Class A.. 15,335 49,900
Transfer and administrative fees - Class B.. 6,542 18,039
Auditing and legal fees..................... 6,810 8,250
Custodian fees.............................. 12,418 7,730
Directors' expenses......................... 307 1,795
Registration fees........................... 11,369 12,951
Transfer and administrative fees............ 86,340 189,610
Other expenses.............................. 794 3,193
---------- -----------
Total Gross Expenses 277,256 921,322
Less: Fees paid indirectly.................. 3,563 --
Less: Fees waived - Class A................. 56,313 --
Less: Fees waived - Class B................. 25,639 --
---------- -----------
Total Net Expenses 191,741 921,322
---------- -----------
Net Investment Income (Operating Loss) (159,600) 1,330,034
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) from:
Investment transactions..................... 436,622 1,637,948
Change in unrealized
appreciation/depreciation of:
Investments................................. 2,936,872 10,563,724
---------- -----------
Net Realized and Unrealized Gain (Loss) on
Investments 3,373,494 12,201,672
---------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Operations $3,213,894 $13,531,706
========== ===========
See accompanying notes.
39
STATEMENTS OF OPERATIONS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
YEAR ENDED OCTOBER 31, 2003
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
SMALLCAP UTILITIES
FUND, INC. FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME (OPERATING LOSS)
Income:
Dividends....................................... $ 821,173 $ 2,907,932
Interest........................................ 27,192 858,808
Securities lending.............................. 29,584 --
----------- -----------
Total Income 877,949 3,766,740
Expenses:
Management and investment advisory fees......... 663,613 412,976
Distribution fees - Class A..................... 151,462 148,044
Distribution fees - Class B..................... 159,285 88,109
Registration fees - Class A..................... 10,847 6,900
Registration fees - Class B..................... 11,058 6,960
Shareholder reports - Class A................... 11,965 6,465
Shareholder reports - Class B................... 3,980 1,718
Transfer and administrative fees - Class A...... 178,948 106,858
Transfer and administrative fees - Class B...... 55,066 31,640
Auditing and legal fees......................... 7,464 7,925
Custodian fees.................................. 26,000 1,666
Directors' expenses............................. 3,220 2,896
Registration fees............................... 19,000 8,946
Transfer and administrative fees................ 363,056 250,846
Other expenses.................................. 5,166 4,667
----------- -----------
Total Gross Expenses 1,670,130 1,086,616
Less: Fees paid indirectly...................... 1,118 --
----------- -----------
Total Net Expenses 1,669,012 1,086,616
----------- -----------
Net Investment Income (Operating Loss) (791,063) 2,680,124
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) from:
Investment transactions......................... 870,377 (3,744,053)
Change in unrealized appreciation/depreciation
of:
Investments..................................... 23,010,883 9,889,758
----------- -----------
Net Realized and Unrealized Gain (Loss) on
Investments 23,881,260 6,145,705
----------- -----------
Net Increase (Decrease) in Net Assets Resulting
from Operations $23,090,197 $ 8,825,829
=========== ===========
See accompanying notes.
40
STATEMENTS OF CHANGES IN NET ASSETS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
BALANCED CAPITAL VALUE
FUND, INC. FUND, INC.
- ------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2003 2002 2003 2002
------------- ---------------- ------------- ------------------
- ------------------------------------------------------------------------------------------
OPERATIONS
Net investment income
(operating loss)..... $ 1,193,145 $ 1,717,950 $ 3,522,566 $ 4,049,622
Net realized gain
(loss) from
investment
transactions......... 652,592 (16,279,670) 4,689,125 (36,542,711)
Change in unrealized
appreciation/depreciation
of investments........ 9,710,349 2,509,843 54,818,796 (5,784,560)
------------ ------------ ------------ ------------
Net Increase (Decrease)
in Net Assets
Resulting from
Operations 11,556,086 (12,051,877) 63,030,487 (38,277,649)
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment
income:
Class A............... (1,149,081) (1,695,340) (4,002,940) (3,633,650)
Class B............... (105,537) (212,594) (126,542) (31,087)
Class R............... N/A (77,861)/(a)/ N/A (71,112)/(a)/
------------ ------------ ------------ ------------
Total Dividends and
Distributions (1,254,618) (1,985,795) (4,129,482) (3,735,849)
CAPITAL SHARE
TRANSACTIONS
Shares sold:
Class A............... 8,501,912 26,932,230 22,718,257 43,352,837
Class B............... 3,828,443 3,501,800 5,080,509 5,005,243
Class C............... N/A 48,851/(b)/ N/A 70,324/(b)/
Class R............... N/A 137,045/(a)/ N/A 190,851/(a)/
Shares issued in
reinvestment of
dividends and
distributions:
Class A............... 1,123,399 1,652,402 3,908,306 3,534,011
Class B............... 103,902 209,671 124,744 30,615
Class R............... N/A 77,689/(a)/ N/A 71,050/(a)/
Shares redeemed:
Class A............... (13,624,827) (19,239,659) (88,040,608) (60,364,436)
Class B............... (4,771,696) (4,693,606) (7,451,162) (7,606,147)
Class C............... N/A (454,349)/(b)/ N/A (738,555)/(b)/
Class R............... N/A (17,988,548)/(a)/ N/A (24,091,902)/(a)/
------------ ------------ ------------ ------------
Net Increase (Decrease)
in Net Assets from
Capital Share
Transactions (4,838,867) (9,816,474) (63,659,954) (40,546,109)
------------ ------------ ------------ ------------
Redemption fees - Class
A..................... -- -- 9,452 --
------------ ------------ ------------ ------------
Total Increase
(Decrease) 5,462,601 (23,854,146) (4,749,497) (82,559,607)
NET ASSETS
Beginning of period.... 92,140,683 115,994,829 360,250,736 442,810,343
------------ ------------ ------------ ------------
End of period
(including
undistributed net
investment income as
set forth below)...... $ 97,603,284 $ 92,140,683 $355,501,239 $360,250,736
============ ============ ============ ============
Undistributed
(Overdistributed) Net
Investment Income
(Operating Loss)...... $ 88,660 $ 96,836 $ 2,681,825 $ 3,299,549
============ ============ ============ ============
/(a) //Period from November 1, 2001 through December 28, 2001 (discontinuation
of class)./
/(b) //Period from November 1, 2001 through January 31, 2002 (discontinuation of
class)./
See accompanying notes.
41
STATEMENTS OF CHANGES IN NET ASSETS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
GROWTH LARGECAP STOCK
FUND, INC. INDEX FUND, INC.
- ------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2003 2002 2003 2002
------------- ---------------- ------------- ------------------
- ------------------------------------------------------------------------------------------
OPERATIONS
Net investment income
(operating loss)..... $ (1,568,714) $ (2,804,294) $ 358,227 $ 240,468
Net realized gain
(loss) from
investment
transactions......... (2,284,675) (95,093,850) 189,148 (1,343,350)
Change in unrealized
appreciation/depreciation
of investments........ 44,204,950 30,258,927 7,570,247 (6,426,145)
------------ ------------ ------------ ------------
Net Increase (Decrease)
in Net Assets
Resulting from
Operations 40,351,561 (67,639,217) 8,117,622 (7,529,027)
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment
income:
Class A............... -- -- (255,049) (80,513)
Class B............... -- -- (24,147) (917)
Class R............... N/A -- N/A (20,160)/(b)/
------------ ------------ ------------ ------------
Total Dividends and
Distributions -- -- (279,196) (101,590)
CAPITAL SHARE
TRANSACTIONS
Shares sold:
Class A............... 32,639,355 72,434,189 14,093,984 34,434,181
Class B............... 7,772,555 10,375,854 4,054,312 4,273,283
Class C............... N/A 278,052/(a)/ N/A 123,923/(a)/
Class R............... N/A 495,170/(b)/ N/A 291,969/(b)/
Shares issued in
acquisition:
Class A............... -- 7,153,814 -- --
Class B............... -- 2,308,042 -- --
Shares issued in
reinvestment of
dividends and
distributions:
Class A............... -- -- 243,056 79,598
Class B............... -- -- 23,508 895
Class R............... N/A -- N/A 19,174/(b)/
Shares redeemed:
Class A............... (47,606,271) (68,093,257) (12,503,465) (8,526,814)
Class B............... (14,601,648) (16,896,819) (1,584,001) (2,311,444)
Class C............... N/A (1,760,583)/(a)/ N/A (1,608,108)/(a)/
Class R............... N/A (32,963,123)/(b)/ N/A (19,200,366)/(b)/
------------ ------------ ------------ ------------
Net Increase (Decrease)
in Net Assets from
Capital Share
Transactions (21,796,009) (26,668,661) 4,327,394 7,576,291
------------ ------------ ------------ ------------
Redemption fees - Class
A..................... 8,850 -- -- --
------------ ------------ ------------ ------------
Total Increase
(Decrease) 18,564,402 (94,307,878) 12,165,820 (54,326)
NET ASSETS
Beginning of period.... 291,717,674 386,025,552 39,221,665 39,275,991
------------ ------------ ------------ ------------
End of period
(including
undistributed net
investment income as
set forth below)...... $310,282,076 $291,717,674 $ 51,387,485 $ 39,221,665
============ ============ ============ ============
Undistributed
(Overdistributed) Net
Investment Income
(Operating Loss)...... $ -- $ -- $ 291,966 $ 212,935
============ ============ ============ ============
/(a) //Period from November 1, 2001 through January 31, 2002 (discontinuation of
class)./
/(b) //Period from November 1, 2001 through December 28, 2001 (discontinuation
of class)./
See accompanying notes.
42
STATEMENTS OF CHANGES IN NET ASSETS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
MIDCAP PARTNERS BLUE
FUND, INC. CHIP FUND, INC.
- ------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2003 2002 2003 2002
------------- ---------------- ------------- ------------------
- ------------------------------------------------------------------------------------------
OPERATIONS
Net investment income
(operating loss)..... $ 853,615 $ 641,778 $ (213,696) $ (368,654)
Net realized gain
(loss) from
investment
transactions......... 24,260,132 (2,104,112) (15,814,070) (17,761,893)
Change in unrealized
appreciation/depreciation
of investments........ 73,829,988 (12,746,563) 39,327,362 (17,920,608)
------------ ------------ ------------ ------------
Net Increase (Decrease)
in Net Assets
Resulting from
Operations 98,943,735 (14,208,897) 23,299,596 (36,051,155)
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment
income:
Class A............... (1,022,374) (706,130) -- --
From net realized gain
on investments:
Class A............... -- (9,521,601) -- --
Class B............... -- (2,227,460) -- --
Class C............... N/A (35,151)/(a)/ N/A --
Class R............... N/A (749,281)/(b)/ N/A --
Tax return of capital
distributions:
Class A............... -- -- -- (83,661)
------------ ------------ ------------ ------------
Total Dividends and
Distributions (1,022,374) (13,239,623) -- (83,661)
CAPITAL SHARE
TRANSACTIONS
Shares sold:
Class A............... 48,796,196 76,945,011 15,831,060 48,404,259
Class B............... 12,892,737 14,523,881 4,752,689 6,383,199
Class C............... N/A 191,088/(a)/ N/A 147,468/(a)/
Class R............... N/A 272,008/(b)/ N/A 226,814/(b)/
Shares issued in
reinvestment of
dividends and
distributions:
Class A............... 1,003,190 10,064,406 -- 81,359
Class B............... -- 2,198,297 -- --
Class C............... N/A 29,548/(a)/ N/A --
Class R............... N/A 748,773/(b)/ N/A --
Shares redeemed:
Class A............... (55,820,235) (62,966,964) (21,193,952) (33,498,639)
Class B............... (21,920,600) (18,554,471) (7,715,065) (9,541,360)
Class C............... N/A (1,261,936)/(a)/ N/A (1,175,243)/(a)/
Class R............... N/A (27,572,400)/(b)/ N/A (31,654,064)/(b)/
------------ ------------ ------------ ------------
Net Increase (Decrease)
in Net Assets from
Capital Share
Transactions (15,048,712) (5,382,759) (8,325,268) (20,626,207)
------------ ------------ ------------ ------------
Redemption fees - Class
A..................... 4,532 -- 4,539 --
------------ ------------ ------------ ------------
Total Increase
(Decrease) 82,877,181 (32,831,279) 14,978,867 (56,761,023)
NET ASSETS
Beginning of period.... 383,948,155 416,779,434 132,184,684 188,945,707
------------ ------------ ------------ ------------
End of period
(including
undistributed net
investment income as
set forth below)...... $466,825,336 $383,948,155 $147,163,551 $132,184,684
============ ============ ============ ============
Undistributed
(Overdistributed) Net
Investment Income
(Operating Loss)...... $ 154,204 $ 326,075 $ -- $ --
============ ============ ============ ============
/(a) //Period from November 1, 2001 through January 31, 2002 (discontinuation of
class)./
/(b) //Period from November 1, 2001 through December 28, 2001 (discontinuation
of class)./
See accompanying notes.
43
STATEMENTS OF CHANGES IN NET ASSETS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
PARTNERS EQUITY PARTNERS LARGECAP
GROWTH FUND, INC. BLEND FUND, INC.
- ----------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2003 2002 2003 2002
------------ ---------------- ------------ ------------------
- ----------------------------------------------------------------------------------------
OPERATIONS
Net investment income
(operating loss)..... $ (476,341) $ (781,411) $ (49,283) $ (41,646)
Net realized gain
(loss) from
investment
transactions......... 906,171 (7,270,997) (264,532) (1,603,921)
Change in unrealized
appreciation/depreciation
of investments........ 6,558,801 (4,949,407) 5,582,408 (1,790,442)
----------- ------------ ----------- -----------
Net Increase (Decrease)
in Net Assets
Resulting from
Operations 6,988,631 (13,001,815) 5,268,593 (3,436,009)
CAPITAL SHARE
TRANSACTIONS
Shares sold:
Class A............... 9,342,497 22,616,940 15,306,533 16,061,243
Class B............... 3,338,402 5,262,936 8,064,555 5,672,266
Class C............... N/A 217,409/(a)/ N/A 71,591/(a)/
Class R............... N/A 151,919/(b)/ N/A N/A
Shares redeemed:
Class A............... (9,026,478) (12,975,115) (4,677,448) (2,366,682)
Class B............... (3,125,420) (4,446,713) (1,438,749) (890,467)
Class C............... N/A (2,390,618)/(a)/ N/A (1,214,597)/(a)/
Class R............... N/A (7,960,152)/(b)/ N/A N/A
----------- ------------ ----------- -----------
Net Increase (Decrease)
in Net Assets from
Capital Share
Transactions 529,001 476,606 17,254,891 17,333,354
----------- ------------ ----------- -----------
Redemption fees - Class
A..................... 2,306 -- -- --
----------- ------------ ----------- -----------
Total Increase
(Decrease) 7,519,938 (12,525,209) 22,523,484 13,897,345
NET ASSETS
Beginning of period.... 50,390,275 62,915,484 25,333,201 11,435,856
----------- ------------ ----------- -----------
End of period
(including
undistributed net
investment income as
set forth below)...... $57,910,213 $ 50,390,275 $47,856,685 $25,333,201
=========== ============ =========== ===========
Undistributed
(Overdistributed) Net
Investment Income
(Operating Loss)...... $ -- $ -- $ -- $ --
=========== ============ =========== ===========
/(a) //Period from November 1, 2001 through January 31, 2002 (discontinuation of
class)./
/(b) //Period from November 1, 2001 through December 28, 2001 (discontinuation
of class)./
See accompanying notes.
44
STATEMENTS OF CHANGES IN NET ASSETS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
PARTNERS LARGECAP PARTNERS MIDCAP
VALUE FUND, INC. GROWTH FUND, INC.
- ---------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCOTBER 31, OCTOBER 31,
2003 2002 2003 2002
------------ ---------------- ------------ -----------------
- ---------------------------------------------------------------------------------------
OPERATIONS
Net investment income
(operating loss)..... $ 222,723 $ 57,214 $ (401,656) $ (378,654)
Net realized gain
(loss) from
investment
transactions......... (405,669) (639,319) 2,857,706 (2,009,685)
Change in unrealized
appreciation/depreciation
of investments........ 8,233,852 (3,716,939) 5,293,473 (2,362,032)
----------- ----------- ----------- -----------
Net Increase (Decrease)
in Net Assets
Resulting from
Operations 8,050,906 (4,299,044) 7,749,523 (4,750,371)
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment
income:
Class A............... (83,042) (30,757) -- --
From net realized gain
on investments:
Class A............... -- (81,207) -- --
Class B............... -- (28,320) -- --
Class C............... N/A (12,296)/(a)/ N/A --
----------- ----------- ----------- -----------
Total Dividends and
Distributions (83,042) (152,580) -- --
CAPITAL SHARE
TRANSACTIONS
Shares sold:
Class A............... 12,197,395 19,851,387 7,891,542 9,641,378
Class B............... 5,230,108 6,813,507 3,310,997 2,379,939
Class C............... N/A 77,035/(a)/ N/A 40,937/(a)/
Class R............... N/A N/A N/A 83,067/(b)/
Shares issued in
reinvestment of
dividends and
distributions:
Class A............... 68,328 110,946 -- --
Class B............... -- 26,440 -- --
Class C............... N/A 12,285/(a)/ N/A --
Shares redeemed:
Class A............... (5,507,993) (3,020,706) (4,149,097) (4,111,555)
Class B............... (1,577,506) (1,056,185) (973,526) (965,009)
Class C............... N/A (1,469,123)/(a)/ N/A (906,040)/(a)/
Class R............... N/A N/A N/A (2,460,226)/(b)/
----------- ----------- ----------- -----------
Net Increase (Decrease)
in Net Assets from
Capital Share
Transactions 10,410,332 21,345,586 6,079,916 3,702,491
----------- ----------- ----------- -----------
Total Increase
(Decrease) 18,378,196 16,893,962 13,829,439 (1,047,880)
NET ASSETS
Beginning of period.... 29,116,296 12,222,334 16,904,850 17,952,730
----------- ----------- ----------- -----------
End of period
(including
undistributed net
investment income as
set forth below)...... $47,494,492 $29,116,296 $30,734,289 $16,904,850
=========== =========== =========== ===========
Undistributed
(Overdistributed) Net
Investment Income
(Operating Loss)...... $ 165,933 $ 37,098 $ -- $ --
=========== =========== =========== ===========
/(a) //Period from November 1, 2001 through January 31, 2002 (discontinuation of
class)./
/(b) //Period from November 1, 2001 through December 28, 2001 (discontinuation
of class)./
See accompanying notes.
45
STATEMENTS OF CHANGES IN NET ASSETS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
SMALLCAP UTILITIES
FUND, INC. FUND, INC.
- ------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2003 2002 2003 2002
------------- ---------------- ------------- ------------------
- ------------------------------------------------------------------------------------------
OPERATIONS
Net investment income
(operating loss)..... $ (791,063) $ (1,043,723) $ 2,680,124 $ 2,438,959
Net realized gain
(loss) from
investment
transactions......... 870,377 (25,722,351) (3,744,053) (18,781,719)
Change in unrealized
appreciation/depreciation
of investments........ 23,010,883 9,892,815 9,889,758 599,212
------------ ------------ ------------ ------------
Net Increase (Decrease)
in Net Assets
Resulting from
Operations 23,090,197 (16,873,259) 8,825,829 (15,743,548)
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment
income:
Class A............... -- -- (2,352,553) (2,053,979)
Class B............... -- -- (291,326) (262,625)
Class R............... N/A -- N/A (23,458)/(b)/
------------ ------------ ------------ ------------
Total Dividends and
Distributions -- -- (2,643,879) (2,340,062)
CAPITAL SHARE
TRANSACTIONS
Shares sold:
Class A............... 11,795,433 36,332,770 7,064,406 16,103,337
Class B............... 5,079,888 6,292,276 2,224,165 2,787,298
Class C............... N/A 127,969/(a)/ N/A 61,427/(a)/
Class R............... N/A 263,737/(b)/ N/A 79,350/(b)/
Shares issued in
reinvestment of
dividends and
distributions:
Class A............... -- -- 2,207,321 1,915,035
Class B............... -- -- 281,835 251,867
Class R............... N/A -- N/A 23,428/(b)/
Shares redeemed:
Class A............... (12,423,923) (17,873,701) (11,783,359) (17,528,185)
Class B............... (3,792,526) (4,189,922) (3,561,430) (5,426,859)
Class C............... N/A (1,305,418)/(a)/ N/A (705,129)/(a)/
Class R............... N/A (18,637,462)/(b)/ N/A (7,745,051)/(b)/
------------ ------------ ------------ ------------
Net Increase (Decrease)
in Net Assets from
Capital Share
Transactions 658,872 1,010,249 (3,567,062) (10,183,482)
------------ ------------ ------------ ------------
Total Increase
(Decrease) 23,749,069 (15,863,010) 2,614,888 (28,267,092)
NET ASSETS
Beginning of period.... 71,958,056 87,821,066 67,863,044 96,130,136
------------ ------------ ------------ ------------
End of period
(including
undistributed net
investment income as
set forth below)...... $ 95,707,125 $ 71,958,056 $ 70,477,932 $ 67,863,044
============ ============ ============ ============
Undistributed
(Overdistributed) Net
Investment Income
(Operating Loss)...... $ -- $ -- $ 282,523 $ 246,278
============ ============ ============ ============
/(a) /Period from November 1, 2001 through January 31, 2002 (discontinuation of
class).
/(b) //Period from November 1, 2001 through December 28, 2001 (discontinuation
of class)./
See accompanying notes.
46
STATEMENTS OF CHANGES IN NET ASSETS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
PARTNERS SMALLCAP REAL ESTATE
GROWTH FUND, INC. FUND, INC.
- --------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2003 2002 2003 2002
------------ --------------- ------------ -----------------
- --------------------------------------------------------------------------------------
OPERATIONS
Net investment income
(operating loss)..... $ (159,600) $ (136,369) $ 1,330,034 $ 921,297
Net realized gain
(loss) from
investment
transactions......... 436,622 (3,818,569) 1,637,948 817,036
Change in unrealized
appreciation/depreciation
of investments........ 2,936,872 477,053 10,563,724 67,830
----------- ----------- ----------- -----------
Net Increase (Decrease)
in Net Assets
Resulting from
Operations 3,213,894 (3,477,885) 13,531,706 1,806,163
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment
income:
Class A............... -- -- (959,267) (641,172)
Class B............... -- -- (238,737) (175,093)
Class R............... N/A N/A N/A (52,490)/(b)/
----------- ----------- ----------- -----------
Total Dividends and
Distributions -- -- (1,198,004) (868,755)
CAPITAL SHARE
TRANSACTIONS
Shares sold:
Class A............... 4,374,822 4,666,245 16,970,298 21,806,632
Class B............... 2,146,428 1,311,160 4,635,331 4,827,780
Class C............... N/A 6,956/(a)/ N/A 106,277/(a)/
Class R............... N/A N/A N/A 56,574/(b)/
Shares issued in
reinvestment of
dividends and
distributions:
Class A............... -- -- 699,548 529,828
Class B............... -- -- 167,784 139,170
Class R............... N/A N/A N/A 52,475/(b)/
Shares redeemed:
Class A............... (1,453,119) (1,127,984) (9,988,865) (6,099,959)
Class B............... (250,166) (173,172) (1,639,056) (1,865,424)
Class C............... N/A (724,360)/(a)/ N/A (472,205)/(a)/
Class R............... N/A N/A N/A (7,378,695)/(b)/
----------- ----------- ----------- -----------
Net Increase (Decrease)
in Net Assets from
Capital Share
Transactions 4,817,965 3,958,845 10,845,040 11,702,453
----------- ----------- ----------- -----------
Redemption fees - Class
A..................... -- -- 4,973 --
----------- ----------- ----------- -----------
Total Increase
(Decrease) 8,031,859 480,960 23,183,715 12,639,861
NET ASSETS
Beginning of period.... 6,478,041 5,997,081 38,180,128 25,540,267
----------- ----------- ----------- -----------
End of period
(including
undistributed net
investment income as
set forth below)...... $14,509,900 $ 6,478,041 $61,363,843 $38,180,128
=========== =========== =========== ===========
Undistributed
(Overdistributed) Net
Investment Income
(Operating Loss)...... $ -- $ -- $ 194,132 $ 85,876
=========== =========== =========== ===========
/(a) //Period from November 1, 2001 through January 31, 2002 (discontinuation of
class)./
/(b) //Period from November 1, 2001 through December 28, 2001 (discontinuation
of class)./
See accompanying notes.
47
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
1. ORGANIZATION
Principal Balanced Fund, Inc., Principal Capital Value Fund, Inc., Principal
Growth Fund, Inc., Principal LargeCap Stock Index Fund, Inc., Principal MidCap
Fund, Inc., Principal Partners Blue Chip Fund, Inc., Principal Partners Equity
Growth Fund, Inc., Principal Partners LargeCap Blend Fund, Inc., Principal
Partners LargeCap Value Fund, Inc., Principal Partners MidCap Growth Fund, Inc.,
Principal Partners SmallCap Growth Fund, Inc., Principal Real Estate Fund, Inc.,
Principal SmallCap Fund, Inc., and Principal Utilities Fund, Inc. (the "Domestic
Growth 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.
Each fund offers both Class A shares and Class B shares to the public. Class A
shares generally are sold with an initial sales charge based on declining rates
and certain purchases may be subject to a contingent deferred sales charge
("CDSC") upon redemption. Class B shares are sold without an initial sales
charge, but bear higher ongoing distribution fees and are subject to a declining
CDSC on certain redemptions made within six years of purchase. Class B shares
automatically convert into Class A shares, based on relative net asset value
(without a sales charge), seven years after purchase. Both classes of shares for
each fund represent interests in the same portfolio of investments, and will
vote together as a single class except where otherwise required by law or as
determined by each of the Domestic Growth Funds' respective Board of Directors.
In addition, the Board of Directors of each fund declares separate dividends on
each class of shares.
Effective October 31, 2002, Principal Growth Fund, Inc. acquired all the assets
and assumed all the liabilities of Principal Partners LargeCap Growth Fund, Inc.
pursuant to a plan of acquisition approved by shareholders of Principal Partners
LargeCap Growth Fund, Inc. on October 16, 2002. The acquisition was accomplished
by a tax-free exchange of shares of Principal Partners LargeCap Growth Fund,
Inc. for shares of Principal Growth Fund, Inc. The aggregate net assets of
Principal Growth Fund, Inc. and Principal Partners LargeCap Growth Fund, Inc.
immediately before the acquisiton were approximately $282,490,000 and
$9,462,000, respectively.
Principal Management Corporation is currently in the process of reviewing
policies and trading records to determine whether the Domestic Growth Funds have
been used as vehicles for late trading or market timing. While the review is not
yet complete, Principal Management Corporation has no reason to believe at this
time that any Domestic Growth Fund will experience any material gain or loss as
a result of the review.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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. The
following summarizes the significant accounting policies of the Domestic Growth
Funds:
SECURITY VALUATION . The Domestic Growth Funds value securities for which market
quotations are readily available at market value, which is determined using the
last reported sale price. If no sales are reported, as is regularly the case for
some securities traded over-the-counter, securities are valued using the last
reported bid price or an evaluated bid price based on information provided by a
pricing service. Pricing services use electronic modeling techniques that
incorporate security characteristics, market conditions and dealer-supplied
valuations. When reliable market quotations are not considered to be readily
available, which may be the case, for example, with respect to certain debt
securities and preferred stocks, the investments are valued at their fair value
as determined in good faith by Principal Management Corporation (the "Manager")
under procedures established and periodically reviewed by each fund's Board of
Directors. Short-term securities are valued at amortized cost, which
approximates market.
INCOME AND INVESTMENT TRANSACTIONS. . The Domestic Growth Funds record
investment transactions on a trade date basis. 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
Domestic Growth Funds record dividend income on the ex-dividend date. Interest
income is recognized on an accrual basis. Discounts and premiums on securities
are accreted/amortized over the lives of the respective securities. The Domestic
Growth Funds allocate daily all income and realized and unrealized gains or
losses to each class of shares based upon the relative proportion of the value
of shares outstanding of each class.
48
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EXPENSES. . The Domestic Growth Funds allocate daily all expenses (other than
class-specific expenses) to each class of shares based upon the relative
proportion of the value of shares outstanding of each class. Class-specific
expenses charged to each class during the year ended October 31, 2003 are
included separately in the statements of operations.
DISTRIBUTIONS TO SHAREHOLDERS . Dividends and distributions are recorded on the
ex-dividend date. Dividends and distributions to shareholders from net
investment income and net realized gain from investments are determined in
accordance with federal tax regulations, which may differ from accounting
principles generally accepted in the United States. These differences are
primarily due to differing treatments for mortgage-backed securities, net
operating losses, amortization of premiums and discounts, losses deferred due to
wash sales, commission recapture, futures contracts, and limitations imposed by
Sections 381-384 of the Internal Revenue Code. 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.
Distributions which exceed current and accumulated earnings and profits for
federal income tax purposes are reported as tax return of capital distributions.
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.
REDEMPTION FEES . The Domestic Growth Funds will impose a redemption fee on
redemptions of $30,000 or more of Class A shares redeemed within 30 days after
they are purchased. The fee is equal to 1.00% of the total redemption amount.
The fee is paid to the fund and is intended to offset the trading costs, market
impact, and other costs associated with short-term money movement in and out of
the Domestic Growth Funds. These amounts are reflected in the statements of
changes in net assets.
3. OPERATING POLICIES
FEES PAID INDIRECTLY. . The Domestic Growth Funds direct certain portfolio
transactions to brokerage firms that, in turn, pay a portion of the Fund's
operating expenses. These amounts are reflected in the statements of operations.
FUTURES CONTRACTS . The Domestic Growth Funds may enter into futures contracts
as a hedge against changes in market conditions and, to a limited extent, for
non-hedging purposes. Initial margin deposits are made by cash deposits or
segregation of specific securities as may be required by the exchange on which
the transaction was conducted. Pursuant to the contracts, a fund agrees to
receive from or pay to the broker, an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments are known as
"variation margin" and are recorded by the fund as a variation margin receivable
or payable on futures contracts. During the period the futures contracts are
open, daily changes in the value of the contracts are recognized as unrealized
gains or losses. These unrealized gains or losses are included as a component of
net unrealized appreciation (depreciation) of investments on the statements of
assets and liabilities. When the contracts are closed, the fund recognizes a
realized gain or loss equal to the difference between the proceeds from, or cost
of, the closing transaction and the fund's cost basis in the contract.
JOINT TRADING ACCOUNT . The Domestic Growth Funds 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 Domestic Growth Funds'
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.
LINE OF CREDIT . The Domestic Growth Funds participate with other funds managed
by Principal Management Corporation in an unsecured joint line of credit with
two banks which allow the participants to borrow up to $75 million,
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 .09% on
the amount of the line of credit. The commitment fee is allocated among the
participating funds in proportion to their average net assets during each
calendar quarter. At October 31, 2003, the Domestic Growth Funds had no
outstanding borrowings under the line of credit.
49
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
3. OPERATING POLICIES (CONTINUED)
REPURCHASE AGREEMENTS . The Domestic Growth Funds may invest in repurchase
agreements that are fully collateralized, typically by U.S. government or U.S.
government agency securities. The value of the collateral is maintained, at a
minimum, in an amount equal to the principal amount plus accrued interest of
each repurchase agreement. In the event the seller of a repurchase agreement
defaults, the fund could experience delays in the realization of the collateral.
SECURITIES LENDING. . The Domestic Growth Funds may lend portfolio securities to
approved brokerage firms to earn additional income. Each applicable fund
receives collateral (in the form of U.S. government securities, U.S. government
agency securities, letters of credit, and/or cash) against the loaned securities
and maintains collateral in an amount not less than 100% of the market value of
the loaned securities during the period of the loan. Cash collateral received is
usually invested in short-term securities. The market value of loaned securities
is determined at the close of business of the funds and any additional required
collateral is delivered to the funds on the next business day. Although risk is
mitigated by the collateral, the fund could experience a delay in recovering its
securities and possible loss of income or value if the borrower fails to return
them. As of October 31, 2003, the Domestic Growth Funds had securities on loan
as follows:
VALUE OF VALUE OF
SECURITIES LOANED COLLATERAL
----------------- ----------
Principal Balanced Fund, Inc. $ 464,405 $ 477,550
Principal Capital Value Fund, Inc. 4,640,373 4,752,000
Principal Growth Fund, Inc. 3,317,833 3,387,000
Principal LargeCap Stock Index Fund, Inc. 284,447 294,000
Principal MidCap Fund, Inc. 14,351,530 14,618,000
Principal Partners Blue Chip Fund, Inc. 1,572,841 1,665,000
Principal Partners Equity Growth Fund, Inc. 647,488 677,000
Principal SmallCap Fund, Inc. 4,675,754 4,909,000
50
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
4. MANAGEMENT AGREEMENT AND TRANSACTIONS WITH AFFILIATES
MANAGEMENT SERVICES . The Domestic Growth Funds have agreed to pay investment
advisory and management fees to Principal Management Corporation (wholly owned
by Princor Financial Services Corporation, a subsidiary of Principal Financial
Services, Inc.) computed at an annual percentage rate of each fund's average
daily net assets. The annual rates used in this calculation for the Domestic
Growth Funds are as follows:
NET ASSETS OF FUNDS (IN MILLIONS)
----------------------------------------
FIRST NEXT NEXT NEXT OVER
$100 $100 $100 $100 $400
----- ---- ---- ---- ----
Principal Balanced Fund, Inc. .60% .55% .50% .45% .40%
Principal MidCap Fund, Inc. .65 .60 .55 .50 .45
Principal Real Estate Fund, Inc. .90 .85 .80 .75 .70
Principal SmallCap Fund, Inc. .85 .80 .75 .70 .65
Principal Utilities Fund, Inc. .60 .55 .50 .45 .40
NET ASSETS OF FUNDS (IN MILLIONS)
----------------------------------------
FIRST NEXT NEXT NEXT OVER
$250 $250 $250 $250 $1,000
----- ---- ---- ---- ------
Principal Capital Value Fund, .60% .55% .50% .45% .40%
Inc.
Principal Growth Fund, Inc. .60 .55 .50 .45 .40
Principal Partners Blue Chip .60 .55 .50 .45 .40
Fund, Inc.
Principal Partners Equity .75 .70 .65 .60 .55
Growth Fund, Inc.
Principal Partners LargeCap .75 .70 .65 .60 .55
Blend Fund, Inc.
Principal Partners LargeCap .75 .70 .65 .60 .55
Value Fund, Inc.
Principal Partners SmallCap .90 .85 .80 .75 .70
Growth Fund, Inc.
OVERALL FEE
-------------
Principal LargeCap Stock Index Fund, Inc. .35%
Principal Partners MidCap Growth Fund, Inc. .90
The Domestic Growth Funds also reimburse the Manager for transfer and
administrative services, including the cost of accounting, data processing,
supplies and other services rendered.
The Manager has voluntarily agreed to limit the funds' expenses for certain of
the Domestic Growth Funds. The limits are expressed as a percentage of average
daily net assets attributable to each class on an annualized basis during the
reporting period. The limits may be changed at anytime. The operating expense
limits as of October 31, 2003, are as follows:
EXPENSE LIMIT
CLASS A CLASS B
------- -------
Principal Capital Value Fund, Inc. 1.03% N/A
Principal LargeCap Stock Index Fund, Inc. .90 1.25%
Principal Partners Equity Growth Fund, Inc. 1.75 2.50
Principal Partners LargeCap Blend Fund, Inc. 1.75 2.50
Principal Partners LargeCap Value Fund, Inc. 1.75 2.50
Principal Partners MidCap Growth Fund, Inc. 1.95 2.70
Principal Partners SmallCap Growth Fund, Inc. 1.95 2.70
Effective March 1, 2003, the operating expense limits for Principal Partners
LargeCap Blend Fund, Inc. and Principal Partners LargeCap Value Fund, Inc.
decreased from 1.95% to 1.75% for Class A shares and from 2.70% to 2.50% for
Class B shares. Also effective March 1, 2003, expense limits began for Class A
shares of Principal Capital Value Fund, Inc. and Principal Partners Equity
Growth Fund, Inc. Class A and Class B shares.
51
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
4. MANAGEMENT AGREEMENT AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
DISTRIBUTION FEES . The Domestic Growth Funds bear distribution fees with
respect to each class computed at an annual rate of the average daily net assets
attributable to each class of each fund. The annual rate will not exceed the
following limits:
CLASS A CLASS B
------- -------
All Domestic Growth Funds
(except Principal LargeCap Stock Index Fund, Inc.) .25% 1.00%
Principal LargeCap Stock Index Fund, Inc. .15 .50
Distribution fees are paid to Princor Financial Services Corporation, the
principal underwriter. A portion of the fees is subsequently remitted to retail
dealers. Pursuant to the distribution agreements for Class A and Class B shares,
fees that are unused by the principal underwriter at the end of the fiscal year
are returned to the respective Domestic Growth Funds which generated the excess.
SALES CHARGES . Princor Financial Services Corporation, as principal
underwriter, receives proceeds of any CDSC on certain Class A and Class B share
redemptions. The charge is based on declining rates which for Class A shares
begin at .75% and Class B shares at 4.00% (0.25% and 1.25% for Principal
LargeCap Stock Index Fund, Inc. share classes, respectively) of the lesser of
current market value or the cost of shares being redeemed. Princor Financial
Services Corporation also retains sales charges on sales of Class A shares based
on declining rates. As of March 1, 2003, the maximum rate increased from 4.75%
to 5.75% of the offering price (1.50% for Principal LargeCap Stock Index Fund,
Inc.). The aggregate amounts of these charges retained by Princor Financial
Services Corporation for the year ended October 31, 2003, were as follows:
CLASS A CLASS B
------- -------
Principal Balanced Fund, Inc. $174,394 $ 34,456
Principal Capital Value Fund, Inc. 434,886 58,166
Principal Growth Fund, Inc. 634,634 88,603
Principal LargeCap Stock Index Fund, Inc. 66,497 11,217
Principal MidCap Fund, Inc. 873,886 115,375
Principal Partners Blue Chip Fund, Inc. 290,827 71,190
Principal Partners Equity Growth Fund, Inc. 225,984 42,263
Principal Partners LargeCap Blend Fund, Inc. 328,326 18,816
Principal Partners LargeCap Value Fund, Inc. 270,226 20,428
Principal Partners MidCap Growth Fund, Inc. 136,068 12,773
Principal Partners SmallCap Growth Fund, Inc. 89,340 3,586
Principal Real Estate Fund, Inc. 230,137 15,660
Principal SmallCap Fund, Inc. 261,601 37,212
Principal Utilities Fund, Inc. 142,335 24,070
AFFILIATED OWNERSHIP . At October 31, 2003, Principal Life Insurance Company (an
affiliate of the Manager), affiliates of Principal Life Insurance Company and
benefit plans sponsored on behalf of Principal Life Insurance Company owned
shares of the Domestic Growth Funds as follows:
CLASS A CLASS B
------- -------
Principal Capital Value Fund, Inc. 3,601,385 --
Principal Partners LargeCap Blend Fund, Inc. 399,168 100,000
Principal Partners LargeCap Value Fund, Inc. 403,699 100,869
Principal Partners MidCap Growth Fund, Inc. 297,903 100,000
Principal Partners SmallCap Growth Fund, Inc. 399,265 100,000
Principal Real Estate Fund, Inc. 709,908 268,126
52
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
4. MANAGEMENT AGREEMENT AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
For the year ended October 31, 2003, the cost of affiliated securities purchased
and proceeds from affiliated securities sold by the Domestic Growth Funds were
as follows:
PURCHASES SALES
-------- -----
SHARES COST SHARES PROCEEDS
------ ---- ------ --------
Principal LargeCap Stock Index Fund, Inc.
Principal Financial Group 217 $6,632 221 $6,371
(parent company of Principal
Financial Services, Inc.)
AFFILIATED BROKERAGE COMMISSIONS . With respect to Principal Utilites Fund,
Inc., $29,623 of brokerage commissions were paid to Spectrum Asset Management,
Inc., a member of the Principal Financial Group. The other Domestic Growth Funds
did not pay brokerage commissions to any member of the Principal Financial
Group. Brokerage commissions were paid to affiliates of sub-advisors by
Principal Partners Equity Growth Fund, Inc., Principal Partners LargeCap Value
Fund, Inc. and Principal Partners SmallCap Growth Fund, Inc., in the amounts of
$238, $29,729 and $45, respectively.
5. INVESTMENT TRANSACTIONS
For the year ended October 31, 2003, the cost of investment securities purchased
and proceeds from investment securities sold (not including short-term
investments and U.S. government securities) by the Domestic Growth Funds were as
follows:
PURCHASES SALES
------------------------ --------------
Principal Balanced Fund, Inc. $104,083,395 $106,821,383
Principal Capital Value Fund, Inc. 463,891,768 534,565,194
Principal Growth Fund, Inc. 138,194,008 160,628,578
Principal LargeCap Stock Index Fund, Inc. 12,898,273 8,376,006
Principal MidCap Fund, Inc. 216,388,254 197,996,880
Principal Partners Blue Chip Fund, Inc. 115,822,349 121,195,590
Principal Partners Equity Growth Fund, Inc. 61,789,994 62,221,447
Principal Partners LargeCap Blend Fund, Inc. 27,979,041 11,014,924
Principal Partners LargeCap Value Fund, Inc. 16,349,424 6,430,950
Principal Partners MidCap Growth Fund, Inc. 40,911,996 36,208,732
Principal Partners SmallCap Growth Fund, Inc. 10,826,925 6,215,139
Principal Real Estate Fund, Inc. 37,534,486 26,310,108
Principal SmallCap Fund, Inc. 125,839,552 128,138,490
Principal Utilities Fund, Inc. 12,747,180 16,537,673
53
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
5. INVESTMENT TRANSACTIONS (CONTINUED)
Principal Balanced 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 October 31, 2003, Principal
Balanced Fund, Inc. had TBA purchase commitments involving securities with face
amounts of $3,850,000, cost of $3,904,328, and market values of $3,890,421.
At October 31, 2003, net federal income tax unrealized appreciation
(depreciation) of investments held by the Domestic Growth Funds was composed of
the following:
TAX COST OF NET UNREALIZED
INVESTMENTS GROSS UNREALIZED APPRECIATION
----------------------------------- (DEPRECIATION)
IN SECURITIES APPRECIATION (DEPRECIATION) OF INVESTMENTS
------------- ------------ -------------- ----------------
Principal Balanced Fund, Inc. $101,012,131 $ 6,782,550 $ (6,174,286) $ 608,264
Principal Capital Value Fund, 325,533,560 41,090,179 (9,567,758) 31,522,421
Inc.
Principal Growth Fund, Inc. 349,647,260 30,962,549 (66,873,668) (35,911,119)
Principal LargeCap Stock Index 60,005,690 5,506,058 (13,689,737) (8,183,679)
Fund, Inc.
Principal MidCap Fund, Inc. 400,158,270 90,285,806 (8,373,448) 81,912,358
Principal Partners Blue Chip 145,645,229 18,459,172 (16,057,239) 2,401,933
Fund, Inc.
Principal Partners Equity 61,398,240 3,404,194 (8,744,993) (5,340,799)
Growth Fund, Inc.
Principal Partners LargeCap 43,176,977 5,137,233 (2,278,744) 2,858,489
Blend Fund, Inc.
Principal Partners LargeCap 41,302,862 6,505,476 (2,501,323) 4,004,153
Value Fund, Inc.
Principal Partners MidCap 23,942,473 6,061,681 (277,685) 5,783,996
Growth Fund, Inc.
Principal Partners SmallCap 10,644,630 3,573,173 (266,862) 3,306,311
Growth Fund, Inc.
Principal Real Estate Fund, 49,512,916 12,415,730 (383,654) 12,032,076
Inc.
Principal SmallCap Fund, Inc. 86,755,812 15,005,618 (930,078) 14,075,540
Principal Utilities Fund, Inc. 66,463,401 7,572,954 (5,877,973) 1,694,981
The Domestic Growth Funds' investments are with various issuers in various
industries, although Principal Real Estate Fund and Principal Utilities Fund
invest primarily in the real estate and utilities industries, respectively. The
schedules of investments contained herein summarize concentrations of credit
risk by issuer and industry.
54
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
6. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares were as follows:
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
BALANCED CAPITAL VALUE GROWTH LARGECAP STOCK
FUND, INC. FUND, INC. FUND, INC. INDEX FUND, INC.
----------- ------------- ----------- ------------------
YEAR ENDED OCTOBER 31, 2003:
Shares sold:
Class A....................................... 771,547 1,165,770 1,456,180 2,031,041
Class B....................................... 348,303 262,471 359,162 575,460
Shares issued in reinvestment of dividends and
distributions:
Class A....................................... 101,896 211,716 -- 37,278
Class B....................................... 9,516 6,783 -- 3,600
Shares redeemed:
Class A....................................... (1,249,483) (4,419,653) (2,133,503) (1,800,547)
Class B....................................... (440,377) (389,637) (680,888) (229,489)
---------- ---------- ---------- ----------
Net Increase (Decrease) (458,598) (3,162,550) (999,049) 617,343
========== ======== ========== ==========
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
BALANCED CAPITAL VALUE GROWTH LARGECAP STOCK
FUND, INC. FUND, INC. FUND, INC. INDEX FUND, INC.
----------- ------------- ----------- ------------------
YEAR ENDED OCTOBER 31, 2002:
Shares sold:
Class A................... 2,184,054 2,026,603 2,620,956 4,216,015
Class B................... 296,548 242,962 402,856 555,764
Class C*.................. 3,932 3,375 9,405 14,757
Class R**................. 10,852 9,047 16,562 34,031
Shares issued in acquisition:
Class A................... -- -- 323,702 --
Class B................... -- -- 107,601 --
Shares issued in reinvestment of dividends and
distributions:
Class A................... 139,868 164,068 -- 9,376
Class B................... 17,730 1,427 -- 105
Class C*.................. -- -- -- --
Class R**................. 6,265 3,325 -- 2,261
Shares redeemed:
Class A................... (1,657,027) (2,940,497) (2,698,311) (1,142,748)
Class B................... (407,487) (374,272) (688,719) (293,698)
Class C*.................. (37,333) (34,888) (61,566) (192,328)
Class R**................. (1,438,117) (1,111,217) (1,114,179) (2,243,833)
---------- ---------- ---------- ----------
Net Increase (Decrease) (880,715) (2,010,067) (1,081,693) 959,702
========== ========== ========== ==========
6. CAPITAL SHARE TRANSACTIONS (CONTINUED)
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
MIDCAP PARTNERS BLUE CHIP PARTNERS EQUITY PARTNERS LARGECAP
FUND, INC. FUND, INC. GROWTH FUND, INC. BLEND FUND, INC.
----------- ------------------ ----------------- -------------------
YEAR ENDED OCTOBER 31, 2003:
Shares sold:
Class A....................................... 1,447,240 1,115,604 1,487,270 1,835,325
Class B....................................... 401,921 344,136 543,423 988,291
Shares issued in reinvestment of dividends and
distributions:
Class A....................................... 32,082 -- -- --
Class B....................................... -- -- -- --
Shares redeemed:
Class A....................................... (1,671,653) (1,505,480) (1,453,500) (563,060)
Class B....................................... (693,193) (565,071) (518,258) (178,432)
---------- ---------- ---------- ---------
Net Increase (Decrease) (483,603) (610,811) 58,935 2,082,124
========== ========== ========== =========
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
MIDCAP PARTNERS BLUE CHIP PARTNERS EQUITY PARTNERS LARGECAP
FUND, INC. FUND, INC. GROWTH FUND, INC. BLEND FUND, INC.
------------ ------------------ ----------------- -------------------
YEAR ENDED OCTOBER 31, 2002:
Shares sold:
Class A...................... 2,230,858 2,765,940 2,927,505 1,778,650
Class B...................... 446,289 406,269 739,678 640,523
Class C*..................... 5,781 8,237 26,156 7,597
Class R**.................... 7,881 12,690 18,706 N/A
Shares issued in reinvestment of dividends and
distributions:
Class A...................... 293,362 4,478 -- --
Class B...................... 66,919 -- -- --
Class C*..................... 910 -- -- --
Class R**.................... 22,745 -- -- N/A
Shares redeemed:
Class A...................... (1,882,068 ) (2,137,577) (1,834,435) (277,885)
Class B...................... (578,451 ) (625,365) (629,729) (106,284)
Class C*..................... (38,354) (68,445) (301,760) (127,478)
Class R**.................... (814,599 ) (1,750,820) (961,620) N/A
---------- ---------- ---------- ---------
Net Increase (Decrease) (238,727 ) (1,384,593) (15,499) 1,915,123
========== ========== ========== =========
6. CAPITAL SHARE TRANSACTIONS (CONTINUED)
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
PARTNERS LARGECAP PARTNERS MIDCAP PARTNERS SMALLCAP REAL ESTATE
VALUE FUND, INC. GROWTH FUND, INC. GROWTH FUND, INC. FUND, INC.
----------------- ----------------- ------------------ -------------
YEAR ENDED OCTOBER 31, 2003:
Shares sold:
Class A....................................... 1,264,511 1,877,374 968,585 1,462,514
Class B....................................... 546,600 794,624 487,389 403,256
Shares issued in reinvestment of dividends and
distributions:
Class A....................................... 7,492 -- -- 62,980
Class B....................................... -- -- -- 15,243
Shares redeemed:
Class A....................................... (576,138) (1,028,151) (334,805) (904,246)
Class B....................................... (168,247) (254,458) (60,456) (145,666)
--------- ---------- --------- ---------
Net Increase (Decrease) 1,074,218 1,389,389 1,060,713 894,081
========= ========== ========= =========
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
PARTNERS LARGECAP PARTNERS MIDCAP PARTNERS SMALLCAP REAL ESTATE
VALUE FUND, INC. GROWTH FUND, INC. GROWTH FUND, INC. FUND, INC.
----------------- ----------------- ------------------ -------------
YEAR ENDED OCTOBER 31, 2002:
Shares sold:
Class A...................... 1,923,352 2,021,655 787,967 2,097,231
Class B...................... 674,924 528,499 237,347 461,940
Class C*..................... 7,521 7,778 924 10,973
Class R**.................... N/A 15,089 N/A 5,727
Shares issued in reinvestment of dividends and
distributions:
Class A...................... 10,534 -- -- 49,988
Class B...................... 2,530 -- -- 13,270
Class C*..................... 1,177 -- -- --
Class R**.................... N/A -- N/A 5,300
Shares redeemed:
Class A...................... (311,324) (955,315) (216,542) (579,422)
Class B...................... (112,524) (236,529) (33,897) (176,406)
Class C*..................... (138,794) (177,675) (107,329) (47,206)
Class R**.................... N/A (461,558) N/A (735,972)
--------- --------- -------- ---------
Net Increase (Decrease) 2,057,396 741,944 668,470 1,105,423
========= ========= ======== =========
6. CAPITAL SHARE TRANSACTIONS (CONTINUED)
PRINCIPAL PRINCIPAL
SMALLCAP UTILITIES
FUND, INC. FUND, INC.
----------- -------------
YEAR ENDED OCTOBER 31, 2003:
Shares sold:
Class A.......................................... 1,714,982 785,692
Class B.......................................... 771,014 247,479
Shares issued in reinvestment of dividends and
distributions:
Class A.......................................... -- 244,200
Class B.......................................... -- 31,333
Shares redeemed:
Class A.......................................... (1,858,919) (1,313,470)
Class B.......................................... (589,493) (402,819)
----------- ------------
Net Increase (Decrease) 37,584 (407,585)
========== ============
PRINCIPAL PRINCIPAL
SMALLCAP UTILITIES
FUND, INC. FUND, INC.
----------- -------------
YEAR ENDED OCTOBER 31, 2002:
Shares sold:
Class A.......................................... 4,286,033 1,587,989
Class B.......................................... 827,680 285,878
Class C*......................................... 15,403 5,863
Class R**........................................ 31,530 7,475
Shares issued in reinvestment of dividends and
distributions:
Class A.......................................... -- 202,603
Class B.......................................... -- 26,925
Class C*......................................... -- --
Class R**........................................ -- 2,264
Shares redeemed:
Class A.......................................... (2,324,948) (1,826,045)
Class B.......................................... (575,531) (566,311)
Class C*......................................... (156,529) (71,610)
Class R**........................................ (2,116,991) (732,913)
---------- ----------
Net Increase (Decrease) (13,353) (1,077,882)
========== ==========
* Period from November 1, 2001, through January 31, 2002 (discontinuation of
Class C shares).
**Period from November 1, 2001, through December 28, 2001 (discontinuation of
Class R shares).
58
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
6. CAPITAL SHARE TRANSACTIONS (CONTINUED)
Effective January 31, 2002 and December 28, 2001, respectively, Class C shares
and Class R shares were discontinued and exchanged into Class A shares as
follows:
CLASS C CLASS R
--------------------- ----------------------
SHARES DOLLARS SHARES DOLLARS
EXCHANGED EXCHANGED EXCHANGED EXCHANGED
--------- ---------- --------- -------------
Principal Balanced Fund, Inc. 32,927 $ 411,588 1,365,622 $17,234,146
Principal Capital Value Fund, Inc. 31,679 691,243 1,035,368 22,664,211
Principal Growth Fund, Inc. 58,198 1,731,397 1,044,339 31,695,678
Principal LargeCap Stock Index Fund, Inc. 176,204 1,471,304 2,164,804 18,552,368
Principal MidCap Fund, Inc. 35,586 1,237,322 741,644 26,150,354
Principal Partners Blue Chip Fund, Inc. 64,534 1,138,375 1,648,780 30,222,134
Principal Partners Equity Growth Fund, Inc. 279,489 2,252,682 913,104 7,642,679
Principal Partners LargeCap Blend Fund, Inc. 126,217 1,212,946 N/A N/A
Principal Partners LargeCap Value Fund, Inc. 137,459 1,463,939 N/A N/A
Principal Partners MidCap Growth Fund, Inc. 170,137 879,610 441,049 2,372,843
Principal Partners SmallCap Growth Fund, Inc. 106,457 723,907 N/A N/A
Principal Real Estate Fund, Inc. 30,150 303,614 726,511 7,308,697
Principal SmallCap Fund, Inc. 146,825 1,265,635 2,023,972 18,074,070
Principal Utilities Fund, Inc. 51,740 511,193 699,252 7,412,070
7. FEDERAL TAX INFORMATION
DISTRIBUTIONS TO SHAREHOLDERS . The federal income tax character of
distributions paid for years ended October 31, 2003 and 2002 were as follows:
ORDINARY INCOME LONG-TERM CAPITAL GAIN RETURN OF CAPITAL
------------ --------- ---------
2003 2002 2003 2002 2003 2002
---- ---- ---- ---- ---- ----
Principal Balanced $1,254,618 $1,985,795 $ -- $ -- $ -- $ --
Fund, Inc.
Principal Capital 4,129,482 3,735,849 -- -- -- --
Value Fund, Inc.
Principal Growth Fund, -- -- -- -- -- --
Inc.
Principal LargeCap 279,196 101,590 -- -- -- --
Stock Index Fund, Inc.
Principal MidCap Fund, 1,022,374 706,130 -- 12,533,493 -- --
Inc.
Principal Partners -- -- -- -- -- 83,661
Blue Chip Fund, Inc.
Principal Partners -- -- -- -- -- --
Equity Growth Fund,
Inc.
Principal Partners -- -- -- -- -- --
LargeCap Blend Fund,
Inc.
Principal Partners 83,042 152,580 -- -- -- --
LargeCap Value Fund,
Inc.
Principal Partners -- -- -- -- -- --
MidCap Growth Fund,
Inc.
Principal Partners -- -- -- -- -- --
SmallCap Growth Fund,
Inc.
Principal Real Estate 1,198,004 868,755 -- -- -- --
Fund, Inc.
Principal SmallCap -- -- -- -- -- --
Fund, Inc.
Principal Utilities 2,643,879 2,340,062 -- -- -- --
Fund, Inc.
For federal income tax purposes, short-term capital gain distributions are
considered ordinary income distributions.
59
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
7. FEDERAL TAX INFORMATION (CONTINUED)
DISTRIBUTABLE EARNINGS. .
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY INCOME LONG-TERM CAPITAL GAINS
---------------- -----------------------
Principal Balanced Fund, Inc. $ 140,322 $ --
Principal Capital Value Fund,
Inc. 2,681,825 --
Principal Growth Fund, Inc. -- --
Principal LargeCap Stock Index
Fund, Inc. 291,966 --
Principal MidCap Fund, Inc. 3,129,433 19,454,603
Principal Partners Blue Chip
Fund, Inc. -- --
Principal Partners Equity Growth
Fund, Inc. -- --
Principal Partners LargeCap Blend
Fund, Inc. -- --
Principal Partners LargeCap Value
Fund, Inc. 165,933 --
Principal Partners MidCap Growth
Fund, Inc. -- --
Principal Partners SmallCap
Growth Fund, Inc. -- --
Principal Real Estate Fund, Inc. 194,132 1,084,571
Principal SmallCap Fund, Inc. -- --
Principal Utilities Fund, Inc. 282,523 --
As of October 31, 2003, the components of distributable earnings on a federal
tax basis were as follows:
CAPITAL LOSS CARRYFORWARDS . Capital loss carryforwards are losses that can be
used to offset future capital gains of the fund. At October 31, 2003, the
Domestic Growth Funds had approximate net capital loss carryforwards as follows:
NET CAPITAL LOSS CARRYFORWARDS EXPIRING IN:
2008 2009 2010 2011
---------- ----------- ----------- ------------
Principal Balanced Fund, $ -- $ -- $16,045,000 $ --
Inc.
Principal Capital Value -- 11,361,000 34,377,000 --
Fund, Inc.
Principal Growth Fund, -- 54,099,000 98,172,000 2,166,000
Inc.
Principal LargeCap Stock -- 917,000 1,755,000 --
Index Fund, Inc.
Principal Partners Blue -- 1,979,000 15,878,000 18,843,000
Chip Fund, Inc.
Principal Partners Equity 3,181,000 15,271,000 7,931,000 --
Growth Fund, Inc.
Principal Partners -- 283,000 1,378,000 287,000
LargeCap Blend Fund, Inc.
Principal Partners -- -- 616,000 397,000
LargeCap Value Fund, Inc.
Principal Partners MidCap -- 9,877,000 5,044,000 --
Growth Fund, Inc.
Principal Partners -- 1,869,000 3,942,000 --
SmallCap Growth Fund,
Inc.
Principal SmallCap Fund, -- 5,050,000 31,111,000 --
Inc.
Principal Utilities Fund, -- 6,235,000 18,782,000 3,744,000
Inc.
60
SCHEDULE OF INVESTMENTS
PRINCIPAL BALANCED FUND, INC.
OCTOBER 31, 2003
Shares
Held Value
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (62.25%)
ADVERTISING SERVICES (0.06%)
$
WPP Group 1,233 59,159
AEROSPACE & DEFENSE (0.08%)
Northrop Grumman 860 76,884
AEROSPACE & DEFENSE EQUIPMENT (0.53%)
Alliant Techsystems /1/ 250 12,940
Lockheed Martin 6,066 281,219
Moog /1/ 307 13,017
United Technologies 2,520 213,419
520,595
AGRICULTURAL OPERATIONS (0.27%)
Monsanto 10,500 263,025
AIRLINES (0.15%)
AirTran Holdings /1/ 2,490 40,363
ExpressJet Holdings /1/ 2,230 34,119
Southwest Airlines 3,730 72,362
146,844
APPAREL MANUFACTURERS (0.27%)
Coach /1/ 5,440 192,957
VF 1,660 70,467
263,424
APPLIANCES (0.05%)
Electrolux 1,110 45,865
APPLICATIONS SOFTWARE (1.64%)
Citrix Systems /1/ 6,580 166,342
Microsoft 51,230 1,339,664
Siebel Systems /1/ 4,000 50,360
SS&C Technologies 970 21,340
TradeStation Group /1/ 2,460 20,935
1,598,641
ATHLETIC FOOTWEAR (0.05%)
Reebok International 1,160 45,182
AUDIO & VIDEO PRODUCTS (0.23%)
Matsushita Electric Industrial 6,000 78,720
Pioneer 1,400 35,350
Polycom /1/ 5,610 112,368
226,438
AUTO-CARS & LIGHT TRUCKS (0.26%)
Honda Motor 3,471 69,594
Nissan Motor 8,250 186,532
256,126
AUTO-MEDIUM & HEAVY DUTY TRUCKS (0.27%)
Paccar 3,380 266,885
AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL (0.09%)
American Axle & Manufacturing Holdings /1/ 514 17,785
Lear /1/ 1,270 73,774
91,559
BATTERIES & BATTERY SYSTEMS (0.03%)
Energizer Holdings /1/ 810 29,808
Shares
Held Value
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
BEVERAGES-NON-ALCOHOLIC (0.92%)
$
Coca-Cola 5,480 254,272
Coca-Cola Enterprises 12,600 254,016
Pepsico 8,140 389,255
897,543
BEVERAGES-WINE & SPIRITS (0.07%)
Allied Domecq 2,640 71,834
BREWERY (0.21%)
Anheuser-Busch 4,190 206,399
BROADCASTING SERVICES & PROGRAMMING (0.21%)
4 Kids Entertainment /1/ 790 19,315
Liberty Media /1/ 11,910 120,172
UnitedGlobalCom /1/ 8,600 60,888
200,375
BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS (0.15%)
Masco 3,050 83,875
Simpson Manufacturing /1/ 290 12,978
USG /1/ 2,680 44,890
141,743
BUILDING PRODUCTS-LIGHT FIXTURES (0.02%)
Genlyte Group /1/ 350 16,506
BUILDING PRODUCTS-WOOD (0.01%)
Universal Forest Products 417 12,343
BUILDING-HEAVY CONSTRUCTION (0.02%)
Washington Group International 840 23,285
BUILDING-MAINTENANCE & SERVICE (0.20%)
Ecolab 6,300 169,407
Rollins 1,060 21,539
190,946
BUILDING-MOBILE HOME & MANUFACTURED HOUSING (0.00%)
Cavco Industries /1/ 14 338
BUILDING-RESIDENTIAL & COMMERCIAL (0.80%)
Centex 2,666 259,935
Hovnanian Enterprises /1/ 550 44,704
KB Home 1,520 104,105
Lennar 1,630 149,715
M/I Schottenstein Homes 760 31,639
Meritage /1/ 340 20,094
Pulte 1,940 167,829
778,021
CABLE TV (0.38%)
Comcast /1/ 6,200 210,304
Comcast /1/ 5,000 163,100
373,404
CASINO SERVICES (0.29%)
International Game Technology 7,670 251,193
Scientific Games /1/ 2,210 29,393
280,586
CELLULAR TELECOMMUNICATIONS (0.70%)
America Movil 1,900 45,220
AT&T Wireless Services /1/ 36,158 262,145
Shares
Held Value
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
CELLULAR TELECOMMUNICATIONS (CONTINUED)
$
Boston Communications Group /1/ 1,380 13,000
Nextel Communications /1/ 4,870 117,854
NTT DoCoMo 2,100 46,032
Vodafone Group 9,213 194,855
679,106
CHEMICALS-DIVERSIFIED (0.05%)
E. I. Du Pont de Nemours 1,090 44,036
Octel 330 6,141
50,177
CHEMICALS-SPECIALTY (0.09%)
Cytec Industries /1/ 410 14,313
Sigma-Aldrich 1,349 70,755
85,068
CIRCUIT BOARDS (0.05%)
Benchmark Electronics /1/ 995 48,476
COMMERCIAL BANKS (1.23%)
Banco Santander Central Hispano 7,450 70,998
BancorpSouth 1,110 26,096
Bank of Ireland 990 49,332
Bank of Nova Scotia 1,670 82,982
Central Pacific Financial 590 15,429
Chemical Financial 480 16,680
City National 610 36,728
Commerce Bancorp. 890 43,023
Community First Bankshares 500 13,575
Cullen/Frost Bankers 300 11,628
First Bancorp. 550 18,315
First Midwest Bancorp 530 16,377
First Tennessee National 4,460 202,306
Hibernia 1,600 36,144
Hudson United Bancorp 1,180 42,822
Kookmin Bank 1,377 50,605
Pacific Capital Bancorp. 1,045 35,593
Popular 1,789 80,505
R&G Financial 900 29,610
South Financial Group 1,771 46,276
UnionBanCal 1,920 104,006
Zions Bancorp 2,860 175,289
1,204,319
COMMERCIAL SERVICE-FINANCE (0.32%)
H&R Block 565 26,606
Moody's 1,577 91,198
Paychex 5,060 196,935
314,739
COMMERCIAL SERVICES (0.06%)
Corporate Executive Board /1/ 430 21,934
Pre-Paid Legal Services /1/ 1,200 32,592
54,526
COMMUNICATIONS SOFTWARE (0.02%)
Inter-Tel 686 17,280
COMPUTER SERVICES (0.30%)
Anteon International /1/ 470 16,046
CACI International /1/ 904 44,775
Shares
Held Value
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
COMPUTER SERVICES (CONTINUED)
$
Cognizant Technology Solutions /1/ 570 25,872
Computer Sciences /1/ 4,091 162,085
FactSet Research Systems 1,070 46,695
295,473
COMPUTERS (0.64%)
Hewlett-Packard 7,659 170,872
International Business Machines 5,040 450,979
621,851
COMPUTERS-INTEGRATED SYSTEMS (0.46%)
Dell /1/ 11,875 428,925
RadiSys /1/ 860 16,813
445,738
COMPUTERS-MEMORY DEVICES (0.75%)
Advanced Digital Information /1/ 1,729 28,096
EMC /1/ 13,620 188,501
Maxtor /1/ 3,260 44,564
SanDisk /1/ 450 36,270
Storage Technology /1/ 780 18,798
TDK 790 51,792
Veritas Software /1/ 9,950 359,693
727,714
COMPUTERS-PERIPHERAL EQUIPMENT (0.02%)
Electronics for Imaging /1/ 773 20,948
CONSULTING SERVICES (0.02%)
Advisory Board /1/ 620 22,562
CONSUMER PRODUCTS-MISCELLANEOUS (0.09%)
Central Garden & Pet /1/ 450 12,447
Dial 660 15,840
Fortune Brands 960 62,544
90,831
CONTAINERS-METAL & GLASS (0.20%)
Ball 2,900 162,980
Silgan Holdings /1/ 946 30,253
193,233
CONTAINERS-PAPER & PLASTIC (0.04%)
Pactiv /1/ 1,900 41,895
COSMETICS & TOILETRIES (1.11%)
Alberto-Culver 1,130 71,642
Alberto-Culver 140 8,875
Colgate-Palmolive 1,500 79,785
Gillette 970 30,943
Procter & Gamble 9,029 887,460
1,078,705
DATA PROCESSING & MANAGEMENT (0.51%)
Fair, Isaac 1,730 110,339
First Data 5,390 192,423
Fiserv /1/ 2,330 82,296
Global Payments 2,712 112,955
498,013
DENTAL SUPPLIES & EQUIPMENT (0.03%)
Sybron Dental Specialties /1/ 1,070 24,610
Shares
Held Value
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
DIAGNOSTIC KITS (0.07%)
$
IDEXX Laboratories /1/ 1,530 72,369
DIALYSIS CENTERS (0.02%)
DaVita /1/ 690 24,219
DISPOSABLE MEDICAL PRODUCTS (0.08%)
C.R. Bard 940 75,247
DISTRIBUTION-WHOLESALE (0.05%)
Fastenal 1,150 51,141
DIVERSIFIED FINANCIAL SERVICES (1.47%)
Citigroup 30,330 1,437,642
DIVERSIFIED MANUFACTURING OPERATIONS (2.35%)
3M 5,840 460,601
A.O. Smith 370 11,711
Carlisle 650 37,278
Danaher 1,490 123,446
Eaton 1,560 156,374
General Electric 41,300 1,198,113
Griffon /1/ 1,246 24,110
Illinois Tool Works 1,660 122,093
Siemens 1,570 105,677
Tyco International 2,680 55,958
2,295,361
DIVERSIFIED MINERALS (0.19%)
Anglo American 2,590 52,940
BHP Billiton 4,750 78,280
Cia Vale do Rio Doce 1,170 53,527
184,747
DIVERSIFIED OPERATIONS (0.06%)
Tomkins 2,930 55,670
DIVERSIFIED OPERATORS-COMMERCIAL SERVICES (0.39%)
Cendant /1/ 16,090 328,719
Rentokil Initial 2,510 47,545
376,264
E-COMMERCE-SERVICES (0.06%)
eBay /1/ 800 44,752
WebMD /1/ 1,270 9,893
54,645
E-MARKETING-INFORMATION (0.05%)
Digitas /1/ 4,170 36,279
E.piphany /1/ 2,230 15,476
51,755
E-SERVICES-CONSULTING (0.04%)
Digital Insight /1/ 1,700 35,666
ELECTRIC PRODUCTS-MISCELLANEOUS (0.09%)
Molex 2,910 91,345
ELECTRIC-INTEGRATED (1.80%)
Cleco 2,284 38,257
E.ON 3,370 169,781
Edison International /1/ 13,060 257,413
Endesa 3,850 60,945
Entergy 5,650 304,535
Shares
Held Value
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
ELECTRIC-INTEGRATED (CONTINUED)
$
Exelon 5,524 350,498
Great Plains Energy 3,830 122,100
Korea Electric Power 4,700 50,995
MDU Resources Group 2,355 53,294
NiSource 6,140 127,159
PPL 3,540 141,317
Puget Energy 1,340 30,458
Westar Energy 2,550 50,949
1,757,701
ELECTRICAL COMPONENTS & EQUIPMENT (0.05%)
Power-One /1/ 5,020 45,481
ELECTRONIC COMPONENTS-MISCELLANEOUS (0.12%)
DSP Group /1/ 650 15,522
Koninklijke Philips Electronics 2,376 63,772
Methode Electronics 1,700 20,247
Planar Systems /1/ 580 13,421
112,962
ELECTRONIC COMPONENTS-SEMICONDUCTOR (1.78%)
Applied Micro Circuits /1/ 1,880 10,942
Broadcom /1/ 2,530 80,833
Infineon Technologies /1/ 6,290 92,463
Intel 29,738 982,841
LSI Logic /1/ 5,160 47,678
Microsemi /1/ 1,410 29,187
National Semiconductor /1/ 1,690 68,665
PMC - Sierra /1/ 1,290 23,439
QLogic /1/ 2,100 117,705
Silicon Laboratories /1/ 540 29,149
Texas Instruments 8,764 253,455
1,736,357
ELECTRONIC CONNECTORS (0.03%)
Amphenol /1/ 540 31,725
ELECTRONIC MEASUREMENT INSTRUMENTS (0.31%)
Agilent Technologies /1/ 6,030 150,267
Analogic 250 10,910
Tektronix 5,640 144,779
305,956
ELECTRONICS-MILITARY (0.04%)
Engineered Support Systems 620 41,918
ENGINES-INTERNAL COMBUSTION (0.05%)
Briggs & Stratton 772 50,188
ENTERPRISE SOFTWARE & SERVICE (0.40%)
BEA Systems /1/ 5,430 75,477
Computer Associates International 7,070 166,286
Hyperion Solutions /1/ 500 16,745
ManTech International /1/ 460 11,252
Oracle /1/ 10,240 122,470
392,230
ENTERTAINMENT SOFTWARE (0.13%)
Electronic Arts /1/ 1,300 128,752
Shares
Held Value
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
FILTRATION & SEPARATION PRODUCTS (0.08%)
$
Pall 3,360 78,624
FINANCE-CONSUMER LOANS (0.05%)
First Marblehead 1,148 25,428
Portfolio Recovery Associates 810 20,939
46,367
FINANCE-CREDIT CARD (0.34%)
American Express 2,090 98,084
Capital One Financial 1,280 77,824
MBNA 6,450 159,637
335,545
FINANCE-INVESTMENT BANKER & BROKER (1.79%)
Bear Stearns 2,840 216,550
Goldman Sachs Group 3,550 333,345
LaBranche 1,270 13,449
Legg Mason 1,360 113,220
Lehman Brothers Holdings 4,226 304,272
Merrill Lynch 8,030 475,376
Morgan Stanley 4,105 225,242
Nomura Holdings 4,000 68,600
1,750,054
FINANCE-MORTGAGE LOAN/BANKER (0.96%)
American Home Mortgage Holdings 1,570 33,127
Countrywide Credit Industries 3,110 326,923
Doral Financial 920 46,460
Federal Home Loan Mortgage 1,180 66,233
Federal National Mortgage Association 5,950 426,556
New Century Financial 1,130 41,900
941,199
FINANCE-OTHER SERVICES (0.08%)
Chicago Mercantile Exchange 400 27,180
Grupo Financiero BBVA Bancomer /1/ 3,100 52,624
79,804
FINANCIAL GUARANTEE INSURANCE (0.22%)
Ambac Financial Group 3,080 217,879
FOOD-CONFECTIONERY (0.44%)
Hershey Foods 1,950 150,345
J.M. Smucker 1,333 58,345
Wm. Wrigley Jr. 3,880 218,832
427,522
FOOD-MISCELLANEOUS/DIVERSIFIED (0.54%)
John B. Sanfilippo & Son /1/ 1,090 37,441
Kellogg 3,510 116,286
McCormick 3,000 88,920
Nestle 725 39,905
Sara Lee 5,810 115,793
Unilever 2,164 126,919
525,264
FOOD-RETAIL (0.04%)
Whole Foods Market /1/ 640 37,914
FOOD-WHOLESALE & DISTRIBUTION (0.33%)
Sysco 9,560 321,790
Shares
Held Value
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
GARDEN PRODUCTS (0.03%)
$
Toro 500 24,850
GAS-DISTRIBUTION (0.13%)
AGL Resources 850 23,927
Energen 1,160 42,769
ONEOK 2,230 44,355
UGI 580 17,864
128,915
HEALTH CARE COST CONTAINMENT (0.06%)
McKesson 1,960 59,329
HOTELS & MOTELS (0.08%)
Marriott International 1,910 82,512
HUMAN RESOURCES (0.10%)
Adecco 5,077 74,886
CDI 811 26,560
101,446
IMPORT & EXPORT (0.13%)
Mitsubishi 6,230 129,320
INDUSTRIAL AUTOMATION & ROBOTS (0.08%)
Rockwell International 2,610 81,041
INDUSTRIAL GASES (0.02%)
Airgas 900 17,235
INSTRUMENTS-CONTROLS (0.14%)
Johnson Controls 720 77,422
Thermo Electron /1/ 2,840 62,423
139,845
INSURANCE BROKERS (0.10%)
Aon 4,430 97,017
INTERNET APPLICATION SOFTWARE (0.04%)
Netegrity /1/ 2,050 24,313
Vignette /1/ 5,580 14,006
38,319
INTERNET BROKERS (0.02%)
E*trade Group /1/ 2,110 21,733
INTERNET INCUBATORS (0.02%)
Safeguard Scientifics /1/ 4,390 16,726
INTERNET INFRASTRUCTURE EQUIPMENT (0.01%)
Centillium Communications /1/ 1,560 8,362
INTERNET SECURITY (0.36%)
RSA Security /1/ 2,630 34,111
Symantec /1/ 4,730 315,255
349,366
INTIMATE APPAREL (0.01%)
Warnaco Group /1/ 630 10,994
LEISURE & RECREATION PRODUCTS (0.06%)
Brunswick 1,940 57,560
LIFE & HEALTH INSURANCE (0.29%)
Lincoln National 4,900 195,657
Stancorp Financial Group 230 14,501
Shares
Held Value
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
LIFE & HEALTH INSURANCE (CONTINUED)
$
Torchmark 1,660 72,841
282,999
LOTTERY SERVICES (0.03%)
GTECH Holdings 700 31,276
MACHINERY-CONSTRUCTION & MINING (0.14%)
Caterpillar 1,900 139,232
MACHINERY-FARM (0.16%)
Deere 2,510 152,156
MACHINERY-GENERAL INDUSTRY (0.22%)
Dover 1,550 60,481
Ingersoll-Rand 2,510 151,604
212,085
MACHINERY-PUMPS (0.03%)
Graco 890 33,909
MEDICAL INSTRUMENTS (0.79%)
Boston Scientific /1/ 1,720 116,478
Guidant 3,280 167,313
Medtronic 7,540 343,598
St. Jude Medical /1/ 2,476 144,004
771,393
MEDICAL LASER SYSTEMS (0.02%)
Candela /1/ 1,330 22,810
MEDICAL PRODUCTS (1.25%)
Becton Dickinson 5,980 218,629
Hanger Orthopedic Group /1/ 1,540 26,257
Henry Schein /1/ 520 32,266
INAMED /1/ 219 18,915
Johnson & Johnson 14,560 732,805
Varian Medical Systems /1/ 1,560 99,746
Zimmer Holdings /1/ 1,510 96,353
1,224,971
MEDICAL STERILIZATION PRODUCT (0.02%)
Steris /1/ 924 19,238
MEDICAL-BIOMEDICAL/GENE (0.79%)
Amgen /1/ 8,430 520,637
Celera Genomics Group /1/ 3,260 43,586
Chiron /1/ 1,150 62,824
Genzyme /1/ 2,030 93,177
Human Genome Sciences /1/ 2,020 28,098
Myogen 480 7,680
Savient Pharmaceuticals /1/ 2,550 15,428
771,430
MEDICAL-DRUGS (2.99%)
Abbott Laboratories 2,870 122,319
AstraZeneca 1,340 63,891
Bradley Pharmaceuticals /1/ 1,210 32,513
Bristol-Myers Squibb 8,810 223,510
Eli Lilly 2,650 176,543
Endo Pharmaceuticals Holdings /1/ 2,190 35,828
Forest Laboratories /1/ 2,790 139,528
GlaxoSmithKline 2,628 113,766
Shares
Held Value
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MEDICAL-DRUGS (CONTINUED)
$
Hi-Tech Pharmacal /1/ 1,080 21,384
ICN Pharmaceuticals 1,060 20,469
Merck 6,145 271,916
Novartis 2,834 108,740
Pfizer 37,902 1,197,703
Roche Holding 450 37,237
Sepracor /1/ 520 13,848
Teva Pharmaceutical Industries 940 53,477
Wyeth 6,490 286,469
2,919,141
MEDICAL-GENERIC DRUGS (0.08%)
Watson Pharmaceutical /1/ 1,980 77,755
MEDICAL-HMO (0.99%)
Aetna 4,637 266,210
Anthem /1/ 830 56,797
Coventry Health Care /1/ 460 25,185
Humana /1/ 2,610 52,957
Sierra Health Services /1/ 1,050 24,454
UnitedHealth Group 8,650 440,112
Wellpoint Health Networks /1/ 1,090 96,901
962,616
MEDICAL-OUTPATIENT & HOME MEDICAL CARE (0.03%)
Apria Healthcare Group /1/ 910 26,390
MEDICAL-WHOLESALE DRUG DISTRIBUTION (0.18%)
Cardinal Health 2,910 172,679
METAL PROCESSORS & FABRICATION (0.03%)
Quanex 783 31,359
METAL-ALUMINUM (0.12%)
Alcoa 3,690 116,493
METAL-DIVERSIFIED (0.09%)
Freeport-McMoran Copper & Gold 2,190 84,863
MISCELLANEOUS INVESTING (0.75%)
Anworth Mortgage Asset 970 13,619
Capital Automotive 1,323 41,159
CBL & Associates Properties 956 50,955
Chelsea Property Group 830 40,836
Entertainment Properties Trust 917 29,509
Federal Realty Investment Trust 830 31,498
General Growth Properties 1,720 131,580
Health Care 720 23,868
Kimco Realty 2,040 84,986
Macerich 4,030 162,006
Newcastle Investment 1,463 34,234
Redwood Trust 790 39,184
SL Green Realty 400 14,460
Thornburg Mortgage 1,130 30,793
728,687
MISCELLANEOUS MANUFACTURERS (0.02%)
Applied Films /1/ 714 22,384
MONEY CENTER BANKS (1.92%)
ABN AMRO Holding 4,990 104,640
Shares
Held Value
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MONEY CENTER BANKS (CONTINUED)
$
Bank of America 8,832 668,848
Barclays 5,122 176,709
BNP Paribas 5,500 144,503
Credit Suisse Group 4,210 148,529
HSBC Holdings 1,776 133,324
JP Morgan Chase 10,820 388,438
Mitsubishi Tokyo Financial Group 5,600 41,104
UBS 1,150 70,541
1,876,636
MOTORCYCLE & MOTOR SCOOTER (0.33%)
Harley-Davidson 6,710 318,121
MULTI-LINE INSURANCE (1.74%)
Allstate 8,613 340,214
American International Group 10,180 619,249
Hartford Financial Services 1,930 105,957
ING Groep 2,883 60,082
MetLife 1,160 36,424
Old Republic International 3,287 118,135
Prudential Financial 9,213 355,990
Zurich Financial Services /1/ 4,900 62,720
1,698,771
MULTIMEDIA (1.25%)
Media General 363 23,976
Meredith 1,710 82,969
News 5,122 182,599
Time Warner 23,419 358,077
Viacom 4,120 164,264
Vivendi Universal /1/ 5,910 124,287
Walt Disney 12,610 285,491
1,221,663
NETWORKING PRODUCTS (0.92%)
Cisco Systems /1/ 41,350 867,523
Emulex /1/ 1,130 32,002
899,525
OFFICE AUTOMATION & EQUIPMENT (0.36%)
Canon 3,193 156,297
Imagistics International /1/ 790 25,399
Xerox /1/ 16,194 170,037
351,733
OFFICE SUPPLIES & FORMS (0.03%)
John H. Harland 950 25,869
OIL COMPANY-EXPLORATION & PRODUCTION (0.59%)
Apache 1,260 87,847
Cabot Oil & Gas 1,010 25,806
Canadian Natural Resources 1,220 51,862
Denbury Resources /1/ 1,630 20,571
Devon Energy 1,380 66,930
EOG Resources 1,790 75,431
KCS Energy /1/ 2,890 23,033
Noble Energy 1,130 44,884
Nuevo Energy /1/ 1,065 20,959
Patina Oil & Gas 440 18,559
Pogo Producing 1,320 55,189
Talisman Energy 1,050 51,240
Shares
Held Value
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
OIL COMPANY-EXPLORATION & PRODUCTION (CONTINUED)
$
Vintage Petroleum 2,540 29,337
571,648
OIL COMPANY-INTEGRATED (2.90%)
BP Amoco 700 29,666
ChevronTexaco 6,286 467,050
ConocoPhillips 2,560 146,304
ENI 1,385 110,107
Exxon Mobil 40,128 1,467,882
Marathon Oil 3,820 112,957
Occidental Petroleum 8,716 307,326
Repsol YPF 4,150 72,086
TotalFinaElf 1,555 121,399
2,834,777
OIL REFINING & MARKETING (0.06%)
Statoil 6,200 58,280
OPTICAL SUPPLIES (0.09%)
Advanced Medical Optics /1/ 1,780 35,902
Bausch & Lomb 1,180 56,829
92,731
PAPER & RELATED PRODUCTS (0.52%)
Boise Cascade 2,720 76,296
Georgia-Pacific 3,270 85,936
Louisiana-Pacific /1/ 9,470 180,119
UPM-Kymmene Oyj 2,396 45,021
Weyerhaeuser 1,950 117,448
504,820
PHYSICIAN PRACTICE MANAGEMENT (0.02%)
US Oncology /1/ 1,610 17,613
PIPELINES (0.18%)
Kinder Morgan 2,410 129,056
Questar 1,340 42,545
171,601
POWER CONVERTER & SUPPLY EQUIPMENT (0.04%)
American Power Conversion 2,050 41,472
PRINTING-COMMERCIAL (0.01%)
Consolidated Graphics /1/ 500 13,825
PROPERTY & CASUALTY INSURANCE (0.27%)
Fidelity National Financial 810 25,045
First American 2,030 58,159
LandAmerica Financial Group 250 12,503
Navigators Group /1/ 528 16,748
Progressive 1,000 73,800
Stewart Information Services /1/ 650 20,248
W.R. Berkley 1,530 52,464
258,967
PUBLICLY TRADED INVESTMENT FUND (0.26%)
iShares MSCI Emerging Markets Index Fund /1/ 710 105,371
iShares MSCI Japan Index Fund /1/ 16,400 151,536
256,907
Shares
Held Value
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
PUBLISHING-NEWSPAPERS (0.10%)
$
Tribune 1,990 97,610
RACETRACKS (0.02%)
Speedway Motorsports 570 16,473
REGIONAL BANKS (1.84%)
Bank One 2,080 88,296
Fifth Third Bancorp 840 48,686
FleetBoston Financial 5,080 205,181
National City 4,720 154,155
U.S. Bancorp 18,125 493,363
Wachovia 10,710 491,268
Wells Fargo 5,528 311,337
1,792,286
REINSURANCE (0.06%)
Converium Holding /1/ 2,350 58,069
RENTAL-AUTO & EQUIPMENT (0.03%)
Rent-A-Center /1/ 910 28,447
RESPIRATORY PRODUCTS (0.01%)
Respironics /1/ 272 11,340
RETAIL-APPAREL & SHOE (0.36%)
Aeropostale /1/ 910 28,074
Brown Shoe 500 17,300
Burlington Coat Factory Warehouse 650 13,943
Claire's Stores 1,470 56,889
Gap 7,900 150,732
Jos. A. Bank Clothiers /1/ 520 22,552
Kenneth Cole Productions /1/ 890 26,344
Mothers Work /1/ 350 9,835
Stage Stores /1/ 820 23,591
349,260
RETAIL-ARTS & CRAFTS (0.13%)
Michaels Stores 2,620 124,371
RETAIL-AUTO PARTS (0.10%)
Autozone /1/ 1,020 98,022
RETAIL-BEDDING (0.20%)
Bed Bath & Beyond /1/ 4,640 195,994
RETAIL-BOOKSTORE (0.06%)
Borders Group /1/ 2,540 57,531
RETAIL-BUILDING PRODUCTS (0.47%)
Home Depot 9,870 365,881
Lowe's 1,610 94,877
460,758
RETAIL-COMPUTER EQUIPMENT (0.03%)
GameStop /1/ 1,950 32,799
RETAIL-CONSUMER ELECTRONICS (0.41%)
Best Buy /1/ 5,040 293,883
RadioShack 3,460 103,765
397,648
RETAIL-DISCOUNT (1.17%)
Target 1,420 56,431
Shares
Held Value
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
RETAIL-DISCOUNT (CONTINUED)
$
Wal-Mart Stores 18,460 1,088,217
1,144,648
RETAIL-DRUG STORE (0.33%)
CVS 7,570 266,313
Rite Aid /1/ 9,300 53,289
319,602
RETAIL-HAIR SALONS (0.05%)
Regis 1,349 51,289
RETAIL-JEWELRY (0.10%)
Tiffany 2,100 99,645
RETAIL-OFFICE SUPPLIES (0.32%)
Staples /1/ 11,660 312,721
RETAIL-REGIONAL DEPARTMENT STORE (0.35%)
Federated Department Stores 5,250 249,638
Kohl's /1/ 972 54,500
Neiman Marcus Group /1/ 720 34,236
338,374
RETAIL-RESTAURANTS (0.25%)
CBRL Group 1,250 48,437
McDonald's 5,410 135,304
Yum! Brands /1/ 1,840 62,818
246,559
RETAIL-SPORTING GOODS (0.04%)
Sports Authority /1/ 1,035 38,502
RETAIL-VIDEO RENTAL (0.08%)
Blockbuster 2,170 41,816
Hollywood Entertainment /1/ 680 10,336
Movie Gallery /1/ 1,160 23,989
76,141
RUBBER-TIRES (0.02%)
Bandag 440 16,104
SAVINGS & LOANS-THRIFTS (0.44%)
Citizens First Bancorp. 280 6,600
FirstFed Financial /1/ 543 24,435
Golden West Financial 1,770 177,761
PFF Bancorp 630 23,499
Washington Mutual 4,460 195,125
427,420
SCHOOLS (0.10%)
Apollo Group /1/ 1,520 96,566
SEMICONDUCTOR COMPONENT-INTEGRATED CIRCUITS (0.74%)
GlobespanVirata /1/ 2,182 13,441
Integrated Device Technology /1/ 3,580 56,206
Linear Technology 6,845 291,666
Maxim Integrated Products 2,555 127,009
Micrel /1/ 980 16,170
Taiwan Semiconductor Manufacturing /1/ 8,322 92,041
United Microelectronics /1/ 17,230 90,458
Vitesse Semiconductor /1/ 5,510 38,790
725,781
Shares
Held Value
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
SEMICONDUCTOR EQUIPMENT (0.17%)
$
Applied Materials /1/ 7,120 166,394
STEEL PRODUCERS (0.11%)
POSCO 3,790 109,834
STEEL-SPECIALTY (0.01%)
Gibraltar Steel 424 10,184
TELECOMMUNICATION EQUIPMENT (0.58%)
Adtran 470 31,974
Andrew /1/ 9,360 122,429
Comverse Technology /1/ 4,480 80,819
Ditech Communications /1/ 2,154 22,725
Nokia 2,174 36,936
Plantronics /1/ 2,200 61,182
Qualcomm 1,060 50,350
Scientific-Atlanta 2,060 60,976
Telefonaktiebolaget LM Ericsson /1/ 5,630 96,160
563,551
TELECOMMUNICATION EQUIPMENT-FIBER OPTICS (0.18%)
C-COR.net /1/ 2,850 28,728
Corning /1/ 8,900 97,722
JDS Uniphase /1/ 12,420 44,091
Sycamore Networks /1/ 1,900 9,500
180,041
TELECOMMUNICATION SERVICES (0.28%)
Allstream 1,600 80,400
Amdocs /1/ 1,650 35,409
Avaya /1/ 4,410 57,065
Cable & Wireless 15,126 103,311
276,185
TELEPHONE-INTEGRATED (1.41%)
ALLTEL 610 28,835
AT&T 4,020 74,732
BellSouth 14,730 387,546
CenturyTel 1,350 48,262
Cincinnati Bell /1/ 9,480 48,443
Deutsche Telekom /1/ 6,560 102,402
KT 1,711 33,724
Nippon Telegraph & Telephone 1,630 36,642
Royal KPN /1/ 4,550 34,307
SBC Communications 9,911 237,666
Verizon Communications 10,275 345,240
1,377,799
TELEVISION (0.03%)
Pegasus Communications /1/ 910 16,616
Young Broadcasting /1/ 620 12,456
29,072
THERAPEUTICS (0.23%)
Connetics /1/ 630 11,283
CV Therapeutics /1/ 750 13,223
Gilead Sciences /1/ 1,190 64,950
Neurocrine Biosciences /1/ 2,520 118,012
NPS Pharmaceuticals /1/ 800 21,064
228,532
Shares
Held Value
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TOBACCO (0.38%)
$
Altria Group 5,586 259,749
British American Tobacco 2,940 70,766
Universal 905 39,440
369,955
TOOLS-HAND HELD (0.06%)
Black & Decker 1,150 54,982
TOYS (0.13%)
Hasbro 5,690 124,042
TRANSPORT-SERVICES (0.30%)
FedEx 2,020 153,035
United Parcel Service 1,880 136,338
289,373
TRANSPORT-TRUCK (0.06%)
J.B. Hunt Transport Services /1/ 580 14,720
Overnite 412 9,130
SCS Transportation 676 10,147
Yellow /1/ 702 23,061
57,058
TRUCKING & LEASING (0.06%)
Ryder System 1,960 58,800
VITAMINS & NUTRITION PRODUCTS (0.03%)
USANA Health Sciences /1/ 760 25,361
WEB PORTALS (0.03%)
United Online /1/ 930 26,775
WIRELESS EQUIPMENT (0.04%)
InterDigital Communications /1/ 1,410 23,956
SBA Communications /1/ 3,950 16,076
40,032
TOTAL COMMON STOCKS 60,755,650
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------
BONDS (19.99%)
AEROSPACE & DEFENSE (0.02%)
Boeing $ $
6.13%; 02/15/33 15,000 14,610
AEROSPACE & DEFENSE EQUIPMENT (0.04%)
Lockheed Martin
7.65%; 05/01/16 35,000 42,140
AGRICULTURAL OPERATIONS (0.03%)
Bunge Limited Finance
5.88%; 05/15/13 25,000 25,169
AIRLINES (0.26%)
Northwest Airlines
7.58%; 09/01/20 57,374 59,188
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
AIRLINES (CONTINUED)
Southwest Airlines $ $
5.10%; 05/01/06 182,426 191,865
251,053
ASSET BACKED SECURITIES (0.09%)
Chase Funding Mortgage Loan
3.07%; 08/25/17 90,000 90,549
AUTO-CARS & LIGHT TRUCKS (0.17%)
DaimlerChrysler Holding
4.05%; 06/04/08 25,000 24,167
4.75%; 01/15/08 15,000 14,988
7.30%; 01/15/12 30,000 32,431
Ford Motor
7.45%; 07/16/31 55,000 49,406
General Motors
8.25%; 07/15/23 40,000 42,078
163,070
AUTO-MEDIUM & HEAVY DUTY TRUCKS (0.06%)
Navistar International
9.38%; 06/01/06 50,000 54,750
AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL (0.09%)
Delphi
6.50%; 05/01/09 15,000 15,855
6.50%; 08/15/13 25,000 25,392
Lear
7.96%; 05/15/05 45,000 48,375
89,622
AUTOMOBILE SEQUENTIAL (0.21%)
Ford Credit Auto Owner Trust
4.72%; 12/15/05 200,000 205,220
BEVERAGES-NON-ALCOHOLIC (0.08%)
Coca-Cola Enterprises
4.38%; 09/15/09 20,000 20,325
5.25%; 05/15/07 25,000 26,881
PepsiAmericas
3.88%; 09/12/07 35,000 35,359
82,565
BREWERY (0.13%)
Cia Brasileira de Bebidas
10.50%; 12/15/11 40,000 45,300
Coors Brewing
6.38%; 05/15/12 50,000 54,363
SABMiller /2/
6.63%; 08/15/33 30,000 31,425
131,088
BROADCASTING SERVICES & PROGRAMMING (0.08%)
Grupo Televisa
8.50%; 03/11/32 20,000 21,000
Liberty Media
3.50%; 09/25/06 60,000 59,255
80,255
BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS (0.21%)
CRH America
6.40%; 10/15/33 25,000 25,502
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS (CONTINUED)
CRH America (continued)
$ $
6.95%; 03/15/12 35,000 39,487
Masco
5.88%; 07/15/12 35,000 37,207
6.00%; 05/03/04 100,000 102,071
204,267
BUILDING PRODUCTS-AIR & HEATING (0.08%)
York International
6.63%; 08/15/06 75,000 81,181
BUILDING PRODUCTS-WOOD (0.02%)
Celulosa Arauco y Constitucion /2/
5.13%; 07/09/13 15,000 14,592
BUILDING-RESIDENTIAL & COMMERCIAL (0.11%)
DR Horton
8.50%; 04/15/12 50,000 56,250
KB Home
7.75%; 02/01/10 45,000 47,475
103,725
CABLE & OTHER PAY TV SERVICES (0.08%)
AT&T Broadband
8.38%; 03/15/13 63,000 76,154
CABLE TV (0.51%)
British Sky Broadcasting
8.20%; 07/15/09 35,000 40,777
Comcast
5.30%; 01/15/14 5,000 4,914
5.50%; 03/15/11 90,000 92,899
5.85%; 01/15/10 5,000 5,312
7.05%; 03/15/33 35,000 37,289
Comcast Cable Communications
6.75%; 01/30/11 25,000 27,673
Cox Communications
4.63%; 06/01/13 15,000 14,269
5.50%; 10/01/15 20,000 19,843
6.75%; 03/15/11 125,000 139,382
EchoStar DBS
5.75%; 10/01/08 /2/ 30,000 29,888
10.38%; 10/01/07 40,000 44,150
Rogers Cable
6.25%; 06/15/13 40,000 40,000
496,396
CASINO HOTELS (0.20%)
Boyd Gaming
9.25%; 08/01/09 50,000 56,187
Mandalay Resort Group
6.45%; 02/01/06 25,000 25,937
6.50%; 07/31/09 15,000 15,469
MGM Mirage
6.00%; 10/01/09 20,000 20,250
7.25%; 10/15/06 5,000 5,338
8.50%; 09/15/10 25,000 28,344
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
CASINO HOTELS (CONTINUED)
Park Place Entertainment
$ $
8.50%; 11/15/06 40,000 44,100
195,625
CASINO SERVICES (0.04%)
International Game Technology
8.38%; 05/15/09 35,000 41,768
CELLULAR TELECOMMUNICATIONS (0.23%)
AT&T Wireless Services
7.88%; 03/01/11 65,000 74,274
Telus
7.50%; 06/01/07 40,000 44,423
8.00%; 06/01/11 10,000 11,497
Verizon Wireless Capital
5.38%; 12/15/06 65,000 69,419
Vodafone Group
5.00%; 12/16/13 30,000 29,552
229,165
CHEMICALS-DIVERSIFIED (0.06%)
Chevron Phillips Chemical
7.00%; 03/15/11 50,000 55,249
CIRCUIT BOARDS (0.04%)
Jabil Circuit
5.88%; 07/15/10 40,000 41,324
COAL (0.04%)
Peabody Energy
6.88%; 03/15/13 40,000 42,100
COATINGS & PAINT (0.03%)
Valspar
6.00%; 05/01/07 25,000 26,824
COMMERCIAL BANKS (0.05%)
Union Planters Bank
5.13%; 06/15/07 50,000 52,915
COMMERCIAL SERVICE-FINANCE (0.02%)
Deluxe
5.00%; 12/15/12 15,000 14,945
COMPUTER SERVICES (0.04%)
Unisys
8.13%; 06/01/06 35,000 38,325
COMPUTERS-INTEGRATED SYSTEMS (0.02%)
NCR
7.13%; 06/15/09 15,000 16,442
CONSUMER PRODUCTS-MISCELLANEOUS (0.13%)
American Greetings
6.10%; 08/01/28 50,000 50,812
Fortune Brands /2/
7.13%; 11/01/04 75,000 78,958
129,770
CONTAINERS-PAPER & PLASTIC (0.04%)
Norampac /2/
6.75%; 06/01/13 40,000 41,600
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
CREDIT CARD ASSET BACKED SECURITIES (1.68%)
American Express Credit Account Master Trust
$ $
5.53%; 10/15/08 500,000 536,490
Discover Card Master Trust I
5.60%; 05/16/06 1,000,000 1,001,648
MBNA Credit Card Master Note Trust
3.90%; 11/15/07 100,000 103,134
1,641,272
CRUISE LINES (0.02%)
Royal Caribbean Cruises
8.00%; 05/15/10 15,000 16,125
DATA PROCESSING & MANAGEMENT (0.02%)
Certegy /2/
4.75%; 09/15/08 15,000 15,316
DIVERSIFIED FINANCIAL SERVICES (0.42%)
Citigroup
3.50%; 02/01/08 25,000 24,981
5.88%; 02/22/33 20,000 19,628
6.00%; 02/21/12 25,000 27,196
6.63%; 06/15/32 50,000 54,100
General Electric Capital
6.75%; 03/15/32 125,000 138,608
John Deere Capital
3.13%; 12/15/05 40,000 40,859
7.00%; 03/15/12 30,000 34,355
NiSource Finance
3.20%; 11/01/06 40,000 40,045
5.40%; 07/15/14 30,000 29,996
409,768
DIVERSIFIED MANUFACTURING OPERATIONS (0.13%)
General Electric
5.00%; 02/01/13 5,000 5,032
Pacifica Papers
10.00%; 03/15/09 35,000 37,100
SPX
6.25%; 06/15/11 40,000 40,100
Tyco International
6.38%; 02/15/06 40,000 42,350
124,582
DIVERSIFIED MINERALS (0.05%)
Corp. Nacional del Cobre de Chile /2/
5.50%; 10/15/13 20,000 20,090
Vale Overseas /2/
9.00%; 08/15/13 25,000 26,500
46,590
DIVERSIFIED OPERATIONS (0.05%)
Hutchison Whampoa International /2/
6.50%; 02/13/13 50,000 52,077
ELECTRIC-INTEGRATED (1.44%)
Alabama Power
5.60%; 03/15/33 15,000 14,314
5.70%; 02/15/33 10,000 9,681
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
ELECTRIC-INTEGRATED (CONTINUED)
Appalachian Power
$ $
5.95%; 05/15/33 15,000 14,024
Arizona Public Service
6.50%; 03/01/12 20,000 21,883
Carolina Power & Light
6.65%; 04/01/08 40,000 44,360
CenterPoint Energy Houston Electric /2/
5.70%; 03/15/13 20,000 20,868
5.88%; 06/01/08 25,000 25,729
CenterPoint Energy Resources /2/
7.88%; 04/01/13 40,000 45,451
Cincinnati Gas & Electric
5.40%; 06/15/33 15,000 13,314
Consolidated Edison
3.63%; 08/01/08 25,000 24,800
Consumers Energy
4.25%; 04/15/08 /2/ 10,000 10,064
6.00%; 03/15/05 35,000 36,778
Dayton Power & Light /2/
5.13%; 10/01/13 30,000 30,102
Dominion Resources
4.13%; 02/15/08 50,000 50,837
DTE Energy
7.05%; 06/01/11 25,000 28,229
Duke Energy
4.50%; 04/01/10 30,000 30,232
Entergy Gulf States /2/
3.60%; 06/01/08 25,000 23,933
Exelon
6.75%; 05/01/11 30,000 33,244
FPL Group Capital
3.25%; 04/11/06 25,000 25,293
GPU
7.70%; 12/01/05 100,000 108,071
Indianapolis Power & Light
7.38%; 08/01/07 35,000 38,714
MidAmerican Energy Holdings
6.75%; 12/30/31 50,000 53,635
Niagara Mohawk Power
5.38%; 10/01/04 50,000 51,605
Northeast Utilities
3.30%; 06/01/08 20,000 19,260
Ohio Power
4.85%; 01/15/14 20,000 19,300
Oncor Electric Delivery
6.38%; 05/01/12 45,000 49,303
PacifiCorp
5.45%; 09/15/13 25,000 25,711
Pepco Holdings
3.75%; 02/15/06 80,000 81,409
4.00%; 05/15/10 10,000 9,675
Power Contract Financing /2/
5.20%; 02/01/06 25,000 24,945
Progress Energy
6.55%; 03/01/04 225,000 228,639
PSI Energy
5.00%; 09/15/13 30,000 29,555
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
ELECTRIC-INTEGRATED (CONTINUED)
Puget Energy
$ $
3.36%; 06/01/08 25,000 24,152
Southern California Edison
8.00%; 02/15/07 40,000 44,900
Southwestern Electric Power
4.50%; 07/01/05 50,000 51,789
TXU Energy /2/
6.13%; 03/15/08 20,000 21,430
Wisconsin Electric Power
5.63%; 05/15/33 25,000 23,888
1,409,117
ELECTRONIC CONNECTORS (0.04%)
Thomas & Betts
8.25%; 01/15/04 40,000 40,200
FEDERAL & FEDERALLY SPONSORED CREDIT (0.06%)
Housing Urban Development
2.99%; 08/01/05 60,000 61,037
FINANCE-AUTO LOANS (0.45%)
Ford Motor Credit
6.50%; 01/25/07 20,000 20,636
6.88%; 02/01/06 125,000 130,824
General Motors Acceptance
5.13%; 05/09/08 30,000 30,470
6.88%; 09/15/11 155,000 159,899
7.00%; 02/01/12 15,000 15,503
8.00%; 11/01/31 45,000 46,278
Toyota Motor Credit
2.80%; 01/18/06 35,000 35,543
439,153
FINANCE-CONSUMER LOANS (0.35%)
American General Finance
5.38%; 09/01/09 35,000 37,084
5.88%; 07/14/06 20,000 21,598
Household Finance
4.75%; 07/15/13 20,000 19,342
5.75%; 01/30/07 210,000 226,730
7.63%; 05/17/32 30,000 35,641
340,395
FINANCE-INVESTMENT BANKER & BROKER (0.60%)
Banque Paribas
6.88%; 03/01/09 40,000 45,365
Bear Stearns
3.00%; 03/30/06 40,000 40,510
4.00%; 01/31/08 45,000 45,720
Goldman Sachs Group
4.13%; 01/15/08 35,000 35,734
6.60%; 01/15/12 170,000 188,556
Lehman Brothers Holdings
6.63%; 01/18/12 65,000 72,735
Merrill Lynch
4.50%; 11/04/10 35,000 34,979
Morgan Stanley
4.25%; 05/15/10 20,000 19,703
5.30%; 03/01/13 25,000 25,371
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
FINANCE-INVESTMENT BANKER & BROKER (CONTINUED)
Morgan Stanley (continued)
$ $
6.75%; 04/15/11 70,000 78,660
587,333
FINANCE-LEASING COMPANY (0.03%)
Boeing Capital
4.75%; 08/25/08 25,000 25,738
FINANCE-MORTGAGE LOAN/BANKER (1.83%)
Countrywide Home Loan
4.25%; 12/19/07 25,000 25,503
5.25%; 06/15/04 100,000 102,259
Federal Home Loan Mortgage
3.25%; 02/25/08 225,000 222,340
4.75%; 10/11/12 80,000 78,514
4.75%; 05/06/13 75,000 72,765
6.75%; 03/15/31 256,000 293,396
Federal National Mortgage Association
2.38%; 03/17/06 75,000 74,773
2.88%; 05/19/08 50,000 48,452
3.70%; 11/01/07 230,000 232,530
3.75%; 07/29/05 175,000 178,248
4.00%; 09/02/08 60,000 60,312
4.32%; 07/26/07 90,000 93,603
4.75%; 02/21/13 75,000 73,470
5.25%; 08/01/12 145,000 147,116
7.25%; 05/15/30 70,000 84,697
1,787,978
FINANCE-OTHER SERVICES (0.15%)
Verizon Global Funding
7.25%; 12/01/10 25,000 28,551
7.75%; 12/01/30 100,000 115,749
144,300
FOOD-DAIRY PRODUCTS (0.05%)
Dean Foods
6.63%; 05/15/09 40,000 42,000
8.15%; 08/01/07 5,000 5,525
47,525
FOOD-MISCELLANEOUS/DIVERSIFIED (0.36%)
Cadbury Schweppes US Finance /2/
3.88%; 10/01/08 40,000 39,690
ConAgra Foods
7.50%; 09/15/05 75,000 82,051
Corn Products International
8.45%; 08/15/09 40,000 44,900
General Mills
6.00%; 02/15/12 30,000 32,073
Kellogg
6.60%; 04/01/11 25,000 27,932
Kraft Foods
4.63%; 11/01/06 85,000 88,595
6.25%; 06/01/12 35,000 37,715
352,956
FOOD-RETAIL (0.17%)
Delhaize America
7.38%; 04/15/06 45,000 48,038
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
FOOD-RETAIL (CONTINUED)
Kroger
$ $
6.20%; 06/15/12 25,000 26,716
7.50%; 04/01/31 20,000 22,881
Safeway
5.80%; 08/15/12 70,000 72,545
170,180
FORESTRY (0.02%)
Tembec Industries
8.63%; 06/30/09 15,000 14,625
GAS-DISTRIBUTION (0.02%)
KeySpan
7.63%; 11/15/10 20,000 23,793
GOLD MINING (0.01%)
Placer Dome
6.38%; 03/01/33 4,000 3,999
6.45%; 10/15/35 10,000 10,074
14,073
HOME DECORATION PRODUCTS (0.03%)
Newell Rubbermaid
4.00%; 05/01/10 10,000 9,444
4.63%; 12/15/09 15,000 14,990
24,434
HOME EQUITY-SEQUENTIAL (0.14%)
Long Beach Mortgage Loan Trust
4.92%; 05/25/32 56,561 56,971
Residential Asset Securities
4.59%; 10/25/26 80,000 82,180
139,151
INDUSTRIAL GASES (0.07%)
Praxair
4.75%; 07/15/07 50,000 52,506
6.50%; 03/01/08 10,000 11,139
63,645
INSTRUMENTS-CONTROLS (0.02%)
Parker Hannifin
4.88%; 02/15/13 20,000 19,777
INSTRUMENTS-SCIENTIFIC (0.04%)
PerkinElmer
8.88%; 01/15/13 35,000 38,325
INVESTMENT MANAGEMENT & ADVISORY SERVICES (0.03%)
AMVESCAP
5.38%; 02/27/13 10,000 9,674
5.90%; 01/15/07 20,000 21,548
31,222
LIFE & HEALTH INSURANCE (0.08%)
Lincoln National
5.25%; 06/15/07 25,000 26,495
Nationwide Financial Services
5.63%; 02/13/15 10,000 10,108
Protective Life
4.30%; 06/01/13 40,000 37,608
74,211
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
LOTTERY SERVICES (0.05%)
GTECH Holdings /2/
$ $
4.75%; 10/15/10 50,000 50,238
MACHINERY-CONSTRUCTION & MINING (0.05%)
Case
6.25%; 12/01/03 50,000 50,000
MEDICAL-DRUGS (0.10%)
Eli Lilly
5.50%; 07/15/06 60,000 64,502
Wyeth
5.25%; 03/15/13 30,000 30,441
94,943
MEDICAL-HMO (0.21%)
Anthem
4.88%; 08/01/05 200,000 208,034
MEDICAL-HOSPITALS (0.10%)
HCA
6.95%; 05/01/12 50,000 51,779
7.13%; 06/01/06 10,000 10,711
Tenet Healthcare
6.50%; 06/01/12 40,000 37,100
99,590
METAL PROCESSORS & FABRICATION (0.04%)
Timken
5.75%; 02/15/10 40,000 39,032
METAL-DIVERSIFIED (0.14%)
Falconbridge
5.38%; 06/01/15 10,000 9,603
7.35%; 06/05/12 15,000 16,887
Noranda
7.25%; 07/15/12 50,000 55,864
Rio Tinto Finance
5.75%; 07/03/06 50,000 53,918
136,272
MISCELLANEOUS INVESTING (0.12%)
Centerpoint Properties Trust
4.75%; 08/01/10 30,000 30,023
Duke Realty
4.63%; 05/15/13 40,000 38,159
Prologis
5.50%; 03/01/13 20,000 20,432
United Dominion Realty Trust
6.50%; 06/15/09 30,000 33,006
121,620
MONEY CENTER BANKS (0.22%)
Bank of America
4.88%; 09/15/12 125,000 124,714
7.40%; 01/15/11 35,000 40,852
HBOS /2/
6.00%; 11/01/33 30,000 29,569
United Overseas Bank /2/
4.50%; 07/02/13 20,000 19,019
214,154
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
MORTGAGE BACKED SECURITIES (1.35%)
DLJ Commercial Mortgage
$ $
6.59%; 02/15/08 700,000 776,688
JP Morgan Chase Commercial Mortgage Securities
6.04%; 11/15/35 150,000 162,857
LB-UBS Commercial Mortgage Trust
0.63%; 03/15/34 /2/ /3/ 708,201 19,979
5.97%; 03/15/26 325,000 353,599
1,313,123
MULTI-LINE INSURANCE (0.14%)
Allstate
5.35%; 06/01/33 20,000 18,241
Hartford Financial Services Group
2.38%; 06/01/06 35,000 34,623
4.63%; 07/15/13 20,000 19,068
MetLife
5.38%; 12/15/12 35,000 35,952
Safeco
4.88%; 02/01/10 25,000 25,594
133,478
MULTIMEDIA (0.45%)
AOL Time Warner
5.63%; 05/01/05 20,000 20,989
6.15%; 05/01/07 70,000 76,098
7.63%; 04/15/31 110,000 122,916
Gannett
4.95%; 04/01/05 75,000 78,172
News America
4.75%; 03/15/10 15,000 15,255
6.55%; 03/15/33 30,000 30,644
6.63%; 01/09/08 35,000 38,861
Viacom
6.63%; 05/15/11 15,000 16,803
Walt Disney
6.38%; 03/01/12 40,000 43,656
443,394
NON-HAZARDOUS WASTE DISPOSAL (0.04%)
Allied Waste
8.50%; 12/01/08 35,000 38,587
NON-HOTEL GAMBLING (0.04%)
Mohegan Tribal Gaming Authority /2/
6.38%; 07/15/09 40,000 40,950
OIL & GAS DRILLING (0.17%)
Nabors Holdings
4.88%; 08/15/09 45,000 46,917
Nabors Industries
6.80%; 04/15/04 50,000 51,198
Pride International
9.38%; 05/01/07 35,000 36,138
Transocean
6.63%; 04/15/11 25,000 27,673
161,926
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
OIL COMPANY-EXPLORATION & PRODUCTION (0.73%)
Anadarko Petroleum
$ $
5.38%; 03/01/07 120,000 128,552
Canadian Natural Resources
7.20%; 01/15/32 25,000 28,510
Chesapeake Energy
8.38%; 11/01/08 40,000 43,800
Devon Energy
7.95%; 04/15/32 40,000 47,831
Devon Financing
6.88%; 09/30/11 5,000 5,642
EnCana
4.75%; 10/15/13 20,000 19,640
Forest Oil
8.00%; 06/15/08 40,000 42,800
Kerr-McGee
5.88%; 09/15/06 100,000 107,240
Nexen
7.88%; 03/15/32 25,000 29,442
Pemex Project Funding Master Trust
7.88%; 02/01/09 185,000 207,200
XTO Energy
7.50%; 04/15/12 45,000 50,400
711,057
OIL COMPANY-INTEGRATED (0.17%)
Amerada Hess
6.65%; 08/15/11 5,000 5,312
7.88%; 10/01/29 20,000 21,279
Occidental Petroleum
4.00%; 11/30/07 25,000 25,246
PanCanadian Energy
7.20%; 11/01/31 35,000 39,904
Petro-Canada
5.35%; 07/15/33 20,000 17,666
Petrobras International Finance
9.13%; 07/02/13 30,000 31,200
Petronas Capital /2/
7.88%; 05/22/22 20,000 22,681
163,288
OIL FIELD MACHINERY & EQUIPMENT (0.04%)
Grant Prideco
9.00%; 12/15/09 40,000 43,200
OIL REFINING & MARKETING (0.12%)
Enterprise Products Partners
6.38%; 02/01/13 15,000 16,244
Tesoro Petroleum
8.00%; 04/15/08 40,000 42,400
Valero Energy
6.88%; 04/15/12 55,000 60,412
119,056
OPTICAL SUPPLIES (0.02%)
Bausch & Lomb
6.75%; 12/15/04 20,000 20,700
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
PAPER & RELATED PRODUCTS (0.33%)
Abitibi-Consolidated
$ $
6.95%; 12/15/06 50,000 51,545
Cascades
7.25%; 02/15/13 50,000 52,250
International Paper
6.75%; 09/01/11 25,000 27,612
Norske Skog /2/
7.63%; 10/15/11 50,000 55,906
Sappi Papier Holding /2/
6.75%; 06/15/12 20,000 21,552
Smurfit Capital Funding
6.75%; 11/20/05 40,000 41,000
Weyerhaeuser
6.13%; 03/15/07 60,000 64,885
6.75%; 03/15/12 10,000 10,825
325,575
PHARMACY SERVICES (0.09%)
Express Scripts
9.63%; 06/15/09 45,000 48,487
Omnicare
8.13%; 03/15/11 40,000 43,800
92,287
PIPELINES (0.28%)
Buckeye Partners
4.63%; 07/15/13 35,000 33,531
Duke Energy Field Services
7.88%; 08/16/10 20,000 23,369
Enbridge Energy Partners
4.75%; 06/01/13 30,000 28,727
Equitable Resources
5.15%; 11/15/12 25,000 25,633
Kinder Morgan Energy Partners
6.75%; 03/15/11 35,000 39,396
National Fuel Gas
5.25%; 03/01/13 25,000 24,720
TEPPCO Partners
6.13%; 02/01/13 45,000 47,378
Texas Eastern Transmission
5.25%; 07/15/07 50,000 52,904
275,658
POULTRY (0.18%)
Tyson Foods
6.63%; 10/01/04 125,000 129,686
7.25%; 10/01/06 40,000 44,176
173,862
PROPERTY & CASUALTY INSURANCE (0.10%)
ACE INA Holdings
8.20%; 08/15/04 30,000 31,448
Travelers Property Casualty
6.38%; 03/15/33 15,000 15,580
XL Capital
6.50%; 01/15/12 45,000 49,077
96,105
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
PUBLISHING-BOOKS (0.06%)
Reed Elsevier Capital
$ $
6.13%; 08/01/06 55,000 59,975
REAL ESTATE OPERATOR & DEVELOPER (0.06%)
EOP Operating
7.00%; 07/15/11 50,000 56,288
REGIONAL AUTHORITY (0.12%)
Financement Quebec
5.00%; 10/25/12 115,000 117,154
REGIONAL BANKS (0.71%)
Bank One
7.63%; 08/01/05 80,000 87,539
KeyCorp
4.63%; 05/16/05 100,000 104,165
8.00%; 07/01/04 30,000 31,236
Korea Development Bank
7.13%; 04/22/04 75,000 76,875
PNC Funding
5.75%; 08/01/06 100,000 107,543
SunTrust Banks
5.05%; 07/01/07 35,000 37,520
Wachovia
5.63%; 12/15/08 100,000 107,949
Wells Fargo
3.12%; 08/15/08 30,000 29,405
5.13%; 02/15/07 100,000 106,621
688,853
REINSURANCE (0.06%)
Berkshire Hathaway /2/
4.63%; 10/15/13 55,000 53,952
RESEARCH & DEVELOPMENT (0.03%)
Science Applications International
5.50%; 07/01/33 /2/ 5,000 4,435
7.13%; 07/01/32 25,000 27,387
31,822
RETAIL-MAJOR DEPARTMENT STORE (0.04%)
JC Penney
9.75%; 06/15/21 40,000 41,600
RETAIL-REGIONAL DEPARTMENT STORE (0.01%)
Kohl's
6.00%; 01/15/33 10,000 9,999
RETAIL-RESTAURANTS (0.06%)
Yum! Brands
7.70%; 07/01/12 50,000 56,375
SAVINGS & LOANS-THRIFTS (0.09%)
Washington Mutual
3.97%; 03/25/33 72,000 71,833
5.50%; 01/15/13 15,000 15,355
87,188
SOVEREIGN (0.33%)
Chile Government
5.50%; 01/15/13 10,000 10,233
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
SOVEREIGN (CONTINUED)
Mexico Government
$ $
8.00%; 09/24/22 20,000 21,750
8.30%; 08/15/31 35,000 38,885
8.38%; 01/14/11 190,000 222,965
Poland Government
6.25%; 07/03/12 30,000 32,325
326,158
SPECIAL PURPOSE ENTITY (0.05%)
Fondo Latinoamericano de Reservas /2/
3.00%; 08/01/06 45,000 44,697
SUPRANATIONAL BANK (0.09%)
Corp Andina de Fomento
6.75%; 03/15/05 65,000 68,492
6.88%; 03/15/12 20,000 22,005
90,497
TELECOMMUNICATION SERVICES (0.08%)
Citizens Communications
7.63%; 08/15/08 30,000 34,436
MasTec
7.75%; 02/01/08 45,000 45,000
79,436
TELEPHONE-INTEGRATED (1.06%)
ALLTEL
7.00%; 07/01/12 40,000 45,501
7.88%; 07/01/32 5,000 6,053
AT&T
6.00%; 03/15/09 20,000 21,300
BellSouth
6.88%; 10/15/31 20,000 21,880
British Telecommunications
7.88%; 12/15/05 230,000 254,666
Deutsche Telekom International Finance
5.25%; 07/22/13 130,000 129,199
France Telecom
9.00%; 03/01/11 70,000 84,449
SBC Communications
5.88%; 08/15/12 30,000 31,733
Sprint Capital
6.00%; 01/15/07 40,000 42,389
6.13%; 11/15/08 35,000 36,862
6.88%; 11/15/28 40,000 37,643
6.90%; 05/01/19 30,000 29,733
Telecom Italia Capital /2/
4.00%; 11/15/08 35,000 34,957
5.25%; 11/15/13 35,000 34,728
6.38%; 11/15/33 20,000 19,815
Telefonica Europe
7.75%; 09/15/10 75,000 88,508
Telefonos de Mexico
8.25%; 01/26/06 100,000 110,625
1,030,041
TEXTILE-HOME FURNISHINGS (0.03%)
Mohawk Industries
6.50%; 04/15/07 30,000 33,041
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
TOOLS-HAND HELD (0.02%)
Stanley Works
$ $
4.90%; 11/01/12 20,000 20,029
TRANSPORT-RAIL (0.20%)
Burlington Northern Santa Fe
7.95%; 08/15/30 15,000 18,293
Canadian Pacific Railway
5.75%; 03/15/33 15,000 14,295
CSX
6.25%; 10/15/08 65,000 71,348
Union Pacific
4.70%; 01/02/24 15,000 14,658
5.75%; 10/15/07 70,000 75,124
193,718
VENTURE CAPITAL (0.04%)
Arch Western Finance /2/
6.75%; 07/01/13 35,000 36,225
TOTAL BONDS 19,510,533
Principal
Type Rate Maturity Amount Value
- --------------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) CERTIFICATES (5.73%)
$ $
FHLMC /4/ 5.00% 12/01/17 - 08/01/33 1,932,684 1,947,374
FHLMC /4/ 5.50% 03/01/33 - 11/01/33 2,066,919 2,084,401
FHLMC 6.00% 01/01/29 216,034 222,245
FHLMC 6.50% 12/01/20 - 07/01/31 473,783 493,082
FHLMC 7.00% 12/01/27 - 09/01/31 266,022 280,240
FHLMC 7.50% 10/01/30 - 01/01/31 216,170 230,843
FHLMC 8.00% 12/01/30 - 02/01/31 308,088 331,644
TOTAL FHLMC CERTIFICATES 5,589,829
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) CERTIFICATES (5.63%)
FNMA 4.50% 05/01/10 - 07/01/33 588,707 581,468
FNMA 5.00% 03/01/18 117,301 119,235
FNMA /4/ 5.50% 01/01/33 - 11/01/33 3,157,934 3,187,435
FNMA 6.00% 06/01/06 - 03/01/32 742,535 776,433
FNMA 6.50% 01/01/04 - 10/01/31 604,003 630,530
FNMA 7.00% 02/01/32 190,307 200,368
TOTAL FNMA CERTIFICATES 5,495,469
Principal
Type Rate Maturity Amount Value
- --------------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) CERTIFICATES (1.61%)
$ $
GNMA I 6.00% 06/15/32 127,507 131,776
GNMA I 6.50% 05/15/32 424,700 444,695
GNMA I 7.00% 10/15/29 - 02/15/32 512,638 543,329
GNMA II 6.00% 06/20/26 - 06/20/27 434,475 448,741
TOTAL GNMA CERTIFICATES 1,568,541
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------
TREASURY BONDS (3.14%)
U.S. Treasury
$ $
4.25%; 08/15/13 575,000 572,664
4.88%; 02/15/12 55,000 58,021
5.00%; 08/15/11 150,000 160,060
5.38%; 02/15/31 275,000 284,184
6.25%; 05/15/30 225,000 257,265
7.13%; 02/15/23 240,000 296,953
7.25%; 05/15/16 50,000 61,963
7.50%; 11/15/16 265,000 335,153
8.00%; 11/15/21 285,000 381,956
U.S. Treasury Inflation-Indexed Obligations
3.38%; 01/15/07 174,750 190,566
U.S. Treasury Strip /1/
0.00%; 02/15/15 800,000 463,819
TOTAL TREASURY BONDS 3,062,604
Principal
Amount Value
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (5.28%)
DIVERSIFIED FINANCIAL SERVICES (2.90%)
Investment in Joint Trading Account; General Electric Capital
1.04%; 11/03/03 2,830,354 2,830,354
FINANCE-OTHER SERVICES (2.38%)
Delaware Funding
1.04%; 11/03/03 2,330,000 2,329,865
TOTAL COMMERCIAL PAPER 5,160,219
SCHEDULE OF INVESTMENTS
PRINCIPAL BALANCED FUND, INC.
OCTOBER 31, 2003
Principal Amount
Value
- ----------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (0.49%)
Lehman Brothers; 1.04%, 11/03/03
(collateralized by FHLBC; $487,101;
02/06/09) /5/ $477,550 $477,550
TOTAL REPURCHASE AGREEMENTS 477,550
--------
TOTAL PORTFOLIO INVESTMENTS (104.12%) 101,620,395
LIABILITIES, NET OF CASH, RECEIVABLES, AND OTHER
ASSETS (-4.12%) (4,017,111)
TOTAL NET ASSETS (100.00%) $97,603,284
-------------
/1 //Non-income producing security./
/2 //Restricted Security - The fund held securities which may require /
/registration under the Securities Act of 1933, or an exemption / /therefrom,
in order to effect their sale in the ordinary course of / /business. At the
end of the period, restricted securities totaled / /$1,041,361 or 1.07% of net
assets./
/3 //Variable rate./
/4 //Security or a portion of the security was purchased in a "to-be-/
/announced" ("TBA") transaction. See Notes to Financial Statements./
/5 //Security was purchased with the cash proceeds from securities loans./
See accompanying notes.
77
SCHEDULE OF INVESTMENTS
PRINCIPAL CAPITAL VALUE FUND, INC.
OCTOBER 31, 2003
Shares
Held Value
- -----------------------------------------------------------------------------------------------
COMMON STOCKS (96.69%)
AEROSPACE & DEFENSE EQUIPMENT (1.18%)
Lockheed Martin 90,285 $ 4,185,613
AGRICULTURAL OPERATIONS (1.30%)
Monsanto 184,530 4,622,476
APPLICATIONS SOFTWARE (0.87%)
Citrix Systems /1/ 122,600 3,099,328
AUDIO & VIDEO PRODUCTS (0.73%)
Polycom /1/ 129,400 2,591,882
AUTO-MEDIUM & HEAVY DUTY TRUCKS (1.42%)
Paccar 63,781 5,036,148
AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL (0.45%)
Lear /1/ 27,480 1,596,313
BEVERAGES-NON-ALCOHOLIC (1.64%)
Coca-Cola Enterprises 172,880 3,485,261
Pepsico 49,200 2,352,744
5,838,005
BROADCASTING SERVICES & PROGRAMMING (1.68%)
Liberty Media /1/ 386,122 3,895,971
UnitedGlobalCom /1/ 291,500 2,063,820
5,959,791
BUILDING-MAINTENANCE & SERVICE (0.72%)
Ecolab 94,600 2,543,794
BUILDING-MOBILE HOME & MANUFACTURED HOUSING (0.00%)
Cavco Industries 706 17,050
BUILDING-RESIDENTIAL & COMMERCIAL (3.79%)
Centex 52,927 5,160,382
Lennar 54,835 5,036,595
Pulte 37,700 3,261,427
13,458,404
CABLE TV (0.33%)
Comcast /1/ 35,090 1,190,253
CELLULAR TELECOMMUNICATIONS (1.14%)
AT&T Wireless Services /1/ 558,415 4,048,509
CHEMICALS-SPECIALTY (0.66%)
Sigma-Aldrich 44,760 2,347,662
COMMERCIAL BANKS (3.97%)
City National 21,020 1,265,614
First Tennessee National 84,890 3,850,611
Popular 60,178 2,708,010
UnionBanCal 62,170 3,367,749
Zions Bancorp 47,960 2,939,468
14,131,452
COMPUTER SERVICES (0.86%)
Computer Sciences /1/ 77,090 3,054,306
COMPUTERS (0.80%)
Hewlett-Packard 55,930 1,247,798
International Business Machines 17,831 1,595,518
2,843,316
Shares
Held Value
- -----------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
COMPUTERS-MEMORY DEVICES (0.50%)
Veritas Software /1/ 49,550 $ 1,791,232
CONTAINERS-METAL & GLASS (1.00%)
Ball 63,400 3,563,080
COSMETICS & TOILETRIES (1.83%)
Procter & Gamble 66,133 6,500,213
DATA PROCESSING & MANAGEMENT (0.75%)
Global Payments 64,363 2,680,719
DIVERSIFIED FINANCIAL SERVICES (4.96%)
Citigroup /2/ 372,030 17,634,222
DIVERSIFIED MANUFACTURING OPERATIONS (1.49%)
Eaton 52,900 5,302,696
DIVERSIFIED OPERATORS-COMMERCIAL SERVICES (1.46%)
Cendant /1/ 254,660 5,202,704
ELECTRIC PRODUCTS-MISCELLANEOUS (0.84%)
Molex 95,240 2,989,584
ELECTRIC-INTEGRATED (5.90%)
Edison International /1/ 239,780 4,726,064
Entergy 92,675 4,995,183
Exelon 85,550 5,428,147
Great Plains Energy 115,400 3,678,952
PPL 53,844 2,149,452
20,977,798
ELECTRONIC MEASUREMENT INSTRUMENTS (1.34%)
Agilent Technologies /1/ 95,700 2,384,844
Tektronix 92,650 2,378,325
4,763,169
ENTERPRISE SOFTWARE & SERVICE (0.83%)
Computer Associates International 124,970 2,939,294
FINANCE-INVESTMENT BANKER & BROKER (6.03%)
Bear Stearns 52,090 3,971,862
Goldman Sachs Group 47,210 4,433,019
Lehman Brothers Holdings 74,037 5,330,664
Merrill Lynch 130,030 7,697,776
21,433,321
FINANCE-MORTGAGE LOAN/BANKER (1.64%)
Countrywide Credit Industries 55,640 5,848,877
FINANCIAL GUARANTEE INSURANCE (0.79%)
Ambac Financial Group 39,645 2,804,487
FOOD-CONFECTIONERY (0.55%)
J.M. Smucker 44,551 1,949,997
HEALTH CARE COST CONTAINMENT (0.57%)
McKesson 66,500 2,012,955
LIFE & HEALTH INSURANCE (0.68%)
Lincoln National 60,500 2,415,765
MACHINERY-FARM (0.30%)
Deere 17,330 1,050,545
Shares
Held Value
- -----------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MEDICAL-DRUGS (0.29%)
Merck 22,960 $ 1,015,980
MEDICAL-HMO (1.29%)
Aetna 79,751 4,578,505
MISCELLANEOUS INVESTING (3.13%)
General Growth Properties 57,600 4,406,400
Kimco Realty 68,400 2,849,544
Macerich 96,700 3,887,340
11,143,284
MONEY CENTER BANKS (3.72%)
Bank of America /2/ 140,686 10,654,151
JP Morgan Chase 72,120 2,589,108
13,243,259
MULTI-LINE INSURANCE (5.54%)
Allstate 133,920 5,289,840
American International Group 23,170 1,409,431
Hartford Financial Services 65,950 3,620,655
Old Republic International 106,684 3,834,223
Prudential Financial 143,168 5,532,012
19,686,161
MULTIMEDIA (1.03%)
Time Warner 167,869 2,566,717
Walt Disney 48,600 1,100,304
3,667,021
OFFICE AUTOMATION & EQUIPMENT (0.43%)
Xerox /1/ 146,309 1,536,245
OIL COMPANY-EXPLORATION & PRODUCTION (0.25%)
Pogo Producing 21,590 902,678
OIL COMPANY-INTEGRATED (8.14%)
ChevronTexaco 63,460 4,715,078
ConocoPhillips 50,040 2,859,786
Exxon Mobil /2/ 457,463 16,733,996
Occidental Petroleum 130,949 4,617,262
28,926,122
PAPER & RELATED PRODUCTS (1.11%)
Weyerhaeuser 65,400 3,939,042
PIPELINES (0.40%)
Questar 44,555 1,414,621
PROPERTY & CASUALTY INSURANCE (0.33%)
First American 41,140 1,178,661
REGIONAL BANKS (5.34%)
FleetBoston Financial 32,900 1,328,831
U.S. Bancorp 274,571 7,473,823
Wachovia 162,300 7,444,701
Wells Fargo 48,780 2,747,289
18,994,644
RETAIL-DRUG STORE (1.54%)
CVS 104,460 3,674,903
Rite Aid /1/ 313,100 1,794,063
5,468,966
Shares
Held Value
- -----------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
RETAIL-REGIONAL DEPARTMENT STORE (1.83%)
Federated Department Stores 113,800 $ 5,411,190
Neiman Marcus Group /1/ 23,240 1,105,062
6,516,252
SAVINGS & LOANS-THRIFTS (0.93%)
Golden West Financial 33,010 3,315,194
SEMICONDUCTOR COMPONENT-INTEGRATED CIRCUITS (0.53%)
Integrated Device Technology /1/ 118,950 1,867,515
TELEPHONE-INTEGRATED (4.82%)
ALLTEL 21,660 1,023,868
AT&T 142,140 2,642,383
BellSouth 256,093 6,737,807
CenturyTel 45,660 1,632,345
SBC Communications 63,356 1,519,277
Verizon Communications 106,562 3,580,483
17,136,163
THERAPEUTICS (1.11%)
Neurocrine Biosciences /1/ 83,900 3,929,037
TOBACCO (0.39%)
Altria Group 29,650 1,378,725
TRANSPORT-SERVICES (1.45%)
FedEx 67,970 5,149,407
TRANSPORT-TRUCK (0.09%)
Overnite 14,375 318,550
TOTAL COMMON STOCKS 343,730,992
Principal
Amount Value
- -----------------------------------------------------------------------------------------------
COMMERCIAL PAPER (2.41%)
DIVERSIFIED FINANCIAL SERVICES (2.41%)
Investment in Joint Trading Account; General
Electric Capital
1.04%; 11/03/03 $ 8,572,989 $ 8,572,989
TOTAL COMMERCIAL PAPER 8,572,989
78
See accompanying notes.
SCHEDULE OF INVESTMENTS
PRINCIPAL CAPITAL VALUE FUND, INC.
OCTOBER 31, 2003
Shares
Held Value
- ----------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (1.34%)
Citigroup Global Markets Holdings;
0.99%, 11/03/03 (collateralized by
U.S. Treasury Note; $3,911,280;
02/15/11) /3/ $3,871,000 $ 3,871,000
Merrill Lynch; 1.08%, 11/03/03
(collateralized by U.S.Treasury
Strips; $898,622; 11/15/08 - 08/15/28)
/3/ 881,000 881,000
TOTAL REPURCHASE AGREEMENTS 4,752,000
------------
TOTAL PORTFOLIO INVESTMENTS (100.44%) 357,055,981
LIABILITIES, NET OF CASH, RECEIVABLES AND OTHER
ASSETS (-0.44%) (1,554,742)
TOTAL NET ASSETS (100.00%) $355,501,239
--------------
Unrealized
Contract Opening Current Gain (Loss)
Type Commitment Market Value Market Value
- ---------------------------------------------------------------------
FUTURES CONTRACTS
15 Russell 1000 Buy $4,144,875 $4,214,625 $69,750
December, 2003
Futures
/1 //Non-income producing security./
/2 //Security or a portion of the security was pledged to cover margin /
/requirements for futures contracts./
/3 //Security was purchased with the cash proceeds from securities loans./
80
See accompanying notes.
SCHEDULE OF INVESTMENTS
PRINCIPAL GROWTH FUND, INC.
OCTOBER 31, 2003
Shares
Held Value
- -----------------------------------------------------------------------------------------------
COMMON STOCKS (99.13%)
APPAREL MANUFACTURERS (1.91%)
$
Coach /1/ 167,200 5,930,584
APPLICATIONS SOFTWARE (4.83%)
Microsoft 514,100 13,443,715
Siebel Systems /1/ 122,130 1,537,617
14,981,332
BREWERY (1.25%)
Anheuser-Busch 78,680 3,875,777
CABLE TV (1.66%)
Comcast /1/ 157,730 5,145,153
CASINO SERVICES (1.14%)
International Game Technology 108,500 3,553,375
COMMERCIAL SERVICE-FINANCE (3.12%)
H&R Block 17,546 826,241
Moody's 48,477 2,803,425
Paychex 155,700 6,059,844
9,689,510
COMPUTER SERVICES (0.46%)
FactSet Research Systems 32,400 1,413,936
COMPUTERS-INTEGRATED SYSTEMS (1.96%)
Dell /1/ 168,528 6,087,231
COMPUTERS-MEMORY DEVICES (1.55%)
Veritas Software /1/ 133,040 4,809,396
COSMETICS & TOILETRIES (3.84%)
Alberto-Culver 33,800 2,142,920
Alberto-Culver 3,850 244,052
Colgate-Palmolive 45,950 2,444,080
Procter & Gamble 72,190 7,095,555
11,926,607
DATA PROCESSING & MANAGEMENT (1.05%)
Fair, Isaac 34,600 2,206,788
First Data 29,800 1,063,860
3,270,648
DIAGNOSTIC KITS (0.47%)
IDEXX Laboratories /1/ 31,000 1,466,300
DISTRIBUTION-WHOLESALE (0.50%)
Fastenal 34,850 1,549,779
DIVERSIFIED FINANCIAL SERVICES (1.69%)
Citigroup 110,683 5,246,374
DIVERSIFIED MANUFACTURING OPERATIONS (7.81%)
3M 93,986 7,412,676
Danaher 19,700 1,632,145
General Electric 394,740 11,451,407
Illinois Tool Works 50,730 3,731,192
24,227,420
ELECTRONIC COMPONENTS-SEMICONDUCTOR (4.88%)
Intel 284,932 9,417,003
Texas Instruments 197,713 5,717,860
15,134,863
Shares
Held Value
- -----------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
ENTERPRISE SOFTWARE & SERVICE (0.74%)
$
BEA Systems /1/ 165,760 2,304,064
FINANCE-INVESTMENT BANKER & BROKER (2.33%)
Legg Mason 41,400 3,446,550
Morgan Stanley 69,173 3,795,523
7,242,073
FINANCE-MORTGAGE LOAN/BANKER (1.30%)
Federal National Mortgage Association 56,410 4,044,033
Ocean West Holding 100 15
4,044,048
FOOD-CONFECTIONERY (0.93%)
Wm. Wrigley Jr. 51,140 2,884,296
FOOD-MISCELLANEOUS/DIVERSIFIED (0.87%)
McCormick 90,600 2,685,384
FOOD-RETAIL (0.37%)
Whole Foods Market /1/ 19,340 1,145,702
FOOD-WHOLESALE & DISTRIBUTION (2.03%)
Sysco 186,810 6,288,025
INTERNET SECURITY (2.09%)
Symantec /1/ 97,380 6,490,377
MACHINERY-PUMPS (0.33%)
Graco 26,900 1,024,890
MEDICAL INSTRUMENTS (3.85%)
Medtronic 164,990 7,518,594
St. Jude Medical /1/ 76,281 4,436,503
11,955,097
MEDICAL PRODUCTS (5.61%)
Becton Dickinson 102,380 3,743,013
Johnson & Johnson 210,510 10,594,968
Varian Medical Systems /1/ 48,000 3,069,120
17,407,101
MEDICAL-BIOMEDICAL/GENE (2.16%)
Amgen /1/ 108,580 6,705,901
MEDICAL-DRUGS (6.35%)
Forest Laboratories /1/ 85,540 4,277,855
Pfizer 488,025 15,421,590
19,699,445
MEDICAL-HMO (2.39%)
UnitedHealth Group 145,940 7,425,427
MEDICAL-WHOLESALE DRUG DISTRIBUTION (1.71%)
Cardinal Health 89,360 5,302,622
MOTORCYCLE & MOTOR SCOOTER (1.72%)
Harley-Davidson 112,900 5,352,589
MULTI-LINE INSURANCE (1.85%)
American International Group 94,130 5,725,928
NETWORKING PRODUCTS (4.85%)
Cisco Systems /1/ 717,940 15,062,381
Shares
Held Value
- -----------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
OIL COMPANY-INTEGRATED (1.36%)
$
Exxon Mobil 115,150 4,212,187
REGIONAL BANKS (0.48%)
Fifth Third Bancorp 25,610 1,484,356
RETAIL-ARTS & CRAFTS (1.23%)
Michaels Stores 80,150 3,804,720
RETAIL-BEDDING (1.93%)
Bed Bath & Beyond /1/ 141,700 5,985,408
RETAIL-CONSUMER ELECTRONICS (1.84%)
Best Buy /1/ 97,700 5,696,887
RETAIL-DISCOUNT (3.34%)
Wal-Mart Stores 175,620 10,352,799
RETAIL-JEWELRY (0.99%)
Tiffany 64,590 3,064,795
RETAIL-OFFICE SUPPLIES (1.30%)
Staples /1/ 150,100 4,025,682
RETAIL-REGIONAL DEPARTMENT STORE (0.54%)
Kohls /1/ 29,941 1,678,792
SCHOOLS (0.95%)
Apollo Group /1/ 46,430 2,949,698
SEMICONDUCTOR COMPONENT-INTEGRATED CIRCUITS (3.29%)
Linear Technology 147,849 6,299,846
Maxim Integrated Products 78,621 3,908,250
10,208,096
SEMICONDUCTOR EQUIPMENT (1.64%)
Applied Materials /1/ 217,830 5,090,687
THERAPEUTICS (0.64%)
Gilead Sciences /1/ 36,200 1,975,796
TOTAL COMMON STOCKS 307,583,538
Principal
Amount Value
- -----------------------------------------------------------------------------------------------
COMMERCIAL PAPER (0.89%)
DIVERSIFIED FINANCIAL SERVICES (0.89%)
Investment in Joint Trading Account; General
Electric Capital 10,000,000
$ $
1.04%; 11/03/03 2,765,603 2,765,603
TOTAL COMMERCIAL PAPER 2,765,603
Principal
Amount Value
- -----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (1.09%)
Citigroup Global Markets Holdings; 0.99%,
11/03/03 (collateralized by U.S. Treasury
Note; $3,422,243; $ $
02/15/11) /2/ 3,387,000 3,387,000
TOTAL REPURCHASE AGREEMENTS 3,387,000
------------
TOTAL PORTFOLIO INVESTMENTS (101.11%) 313,736,141
LIABILITIES, NET OF CASH, RECEIVABLES AND OTHER ASSETS
(-1.11%) (3,454,065)
TOTAL NET ASSETS (100.00%) $310,282,076
---------------
/1 /Non-income producing security.
/2 /Security was purchased with the cash proceeds from securities loans.
SCHEDULE OF INVESTMENTS
PRINCIPAL LARGECAP STOCK INDEX FUND, INC.
OCTOBER 31, 2003
Shares
Held Value
- ----------------------------------------------------------------------------------
COMMON STOCKS (96.26%)
ADVERTISING AGENCIES (0.20%)
$
Interpublic Group 1,916 28,510
Omnicom Group 930 74,214
102,724
AEROSPACE & DEFENSE (0.61%)
Boeing 4,115 158,386
Northrop Grumman 896 80,102
Raytheon 2,025 53,622
Rockwell Collins 879 24,129
316,239
AEROSPACE & DEFENSE EQUIPMENT (0.77%)
General Dynamics 966 80,854
Goodrich 576 15,909
Lockheed Martin 2,207 102,316
United Technologies 2,295 194,364
393,443
AGRICULTURAL OPERATIONS (0.06%)
Monsanto 1,280 32,064
AIRLINES (0.16%)
Delta Air Lines 610 7,942
Southwest Airlines 3,831 74,322
82,264
APPAREL MANUFACTURERS (0.12%)
Jones Apparel Group 619 21,356
Liz Claiborne 532 19,625
VF 526 22,329
63,310
APPLIANCES (0.06%)
Maytag 385 9,779
Whirlpool 337 23,748
33,527
APPLICATIONS SOFTWARE (2.96%)
Citrix Systems /1/ 809 20,451
Compuware /1/ 1,873 10,526
Intuit /1/ 1,004 50,180
Mercury Interactive /1/ 422 19,598
Microsoft 52,928 1,384,067
Parametric Technology /1/ 1,298 4,037
Siebel Systems /1/ 2,418 30,443
1,519,302
ATHLETIC FOOTWEAR (0.18%)
Nike 1,290 82,431
Reebok International 289 11,257
93,688
AUTO-CARS & LIGHT TRUCKS (0.44%)
Ford Motor 8,959 108,673
General Motors 2,745 117,129
225,802
AUTO-MEDIUM & HEAVY DUTY TRUCKS (0.11%)
Navistar International /1/ 337 13,625
Paccar 570 45,007
58,632
Shares
Held Value
- ----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL (0.08%)
$
Dana 734 11,949
Delphi Automotive Systems 2,743 24,413
Visteon 639 4,128
40,490
BEVERAGES-NON-ALCOHOLIC (2.02%)
Coca-Cola 12,029 558,146
Coca-Cola Enterprises 2,214 44,634
Pepsi Bottling Group 1,312 29,244
Pepsico 8,446 403,888
1,035,912
BEVERAGES-WINE & SPIRITS (0.05%)
Brown-Forman 298 25,145
BREWERY (0.41%)
Adolph Coors 180 10,089
Anheuser-Busch 4,047 199,355
209,444
BROADCASTING SERVICES & PROGRAMMING (0.24%)
Clear Channel Communications 3,010 122,868
BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS (0.17%)
Masco 2,300 63,250
Vulcan Materials 497 22,022
85,272
BUILDING PRODUCTS-AIR & HEATING (0.07%)
American Standard /1/ 354 33,878
BUILDING-MAINTENANCE & SERVICE (0.07%)
Ecolab 1,271 34,177
BUILDING-RESIDENTIAL & COMMERCIAL (0.14%)
Centex 302 29,445
KB Home 230 15,753
Pulte 303 26,212
71,410
CABLE TV (0.73%)
Comcast /1/ 11,014 373,595
CASINO HOTELS (0.04%)
Harrah's Entertainment 536 23,316
CASINO SERVICES (0.11%)
International Game Technology 1,689 55,315
CELLULAR TELECOMMUNICATIONS (0.43%)
AT&T Wireless Services /1/ 13,274 96,236
Nextel Communications /1/ 5,068 122,646
218,882
CHEMICALS-DIVERSIFIED (0.90%)
Dow Chemical 4,494 169,379
E. I. Du Pont de Nemours 4,875 196,950
Hercules /1/ 540 5,643
PPG Industries 830 47,849
Rohm & Haas 1,089 42,798
462,619
CHEMICALS-SPECIALTY (0.10%)
Eastman Chemical 381 12,367
Shares
Held Value
- ----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
CHEMICALS-SPECIALTY (CONTINUED)
$
Engelhard 617 17,634
Great Lakes Chemical 248 5,332
Sigma-Aldrich 346 18,148
53,481
CIRCUIT BOARDS (0.05%)
Jabil Circuit /1/ 974 27,126
COATINGS & PAINT (0.05%)
Sherwin-Williams 715 23,981
COMMERCIAL BANKS (0.78%)
AmSouth Bancorp 1,718 40,579
BB&T 2,643 102,205
First Tennessee National 617 27,987
Marshall & Ilsley 1,110 39,760
North Fork Bancorp. 745 29,040
Regions Financial 1,090 40,058
SouthTrust 1,652 52,616
Synovus Financial 1,476 40,738
Zions Bancorp 439 26,906
399,889
COMMERCIAL SERVICE-FINANCE (0.40%)
Concord EFS /1/ 2,381 25,453
Deluxe 260 10,496
Equifax 691 16,888
H&R Block 879 41,392
Moody's 730 42,216
Paychex 1,843 71,730
208,175
COMMERCIAL SERVICES (0.02%)
Convergys /1/ 699 11,226
COMPUTER AIDED DESIGN (0.02%)
Autodesk 547 10,530
COMPUTER SERVICES (0.29%)
Computer Sciences /1/ 916 36,292
Electronic Data Systems 2,348 50,364
Sungard Data Systems /1/ 1,400 39,270
Unisys /1/ 1,613 24,776
150,702
COMPUTERS (2.34%)
Apple Computer /1/ 1,775 40,630
Gateway /1/ 1,586 7,993
Hewlett-Packard 14,941 333,334
International Business Machines 8,468 757,716
Sun Microsystems /1/ 15,802 62,576
1,202,249
COMPUTERS-INTEGRATED SYSTEMS (0.92%)
Dell /1/ 12,571 454,064
NCR /1/ 467 16,784
470,848
COMPUTERS-MEMORY DEVICES (0.44%)
EMC /1/ 10,738 148,614
Veritas Software /1/ 2,084 75,337
223,951
Shares
Held Value
- ----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
COMPUTERS-PERIPHERAL EQUIPMENT (0.09%)
$
Lexmark International /1/ 627 46,153
CONSUMER PRODUCTS-MISCELLANEOUS (0.21%)
American Greetings /1/ 325 6,932
Clorox 1,061 48,063
Fortune Brands 712 46,387
Tupperware 288 4,335
105,717
CONTAINERS-METAL & GLASS (0.03%)
Ball 277 15,567
CONTAINERS-PAPER & PLASTIC (0.10%)
Bemis 261 12,069
Pactiv /1/ 771 17,000
Sealed Air /1/ 414 22,037
51,106
COSMETICS & TOILETRIES (2.27%)
Alberto-Culver 288 18,259
Avon Products 1,156 78,562
Colgate-Palmolive 2,634 140,102
Gillette 4,993 159,277
International Flavors &
Fragrances 461 15,259
Kimberly-Clark 2,480 130,969
Procter & Gamble 6,347 623,847
1,166,275
CRUISE LINES (0.21%)
Carnival 3,081 107,558
DATA PROCESSING & MANAGEMENT (0.53%)
Automatic Data Processing 2,927 110,465
First Data 3,623 129,341
Fiserv /1/ 945 33,377
273,183
DISPOSABLE MEDICAL PRODUCTS (0.04%)
C.R. Bard 255 20,413
DISTRIBUTION-WHOLESALE (0.09%)
Genuine Parts 851 27,079
W.W. Grainger 447 20,463
47,542
DIVERSIFIED FINANCIAL SERVICES (2.32%)
Citigroup 25,211 1,195,001
DIVERSIFIED MANUFACTURING OPERATIONS (4.60%)
3M 3,832 302,230
Cooper Industries 451 23,858
Crane 294 8,261
Danaher 750 62,138
Eaton 366 36,688
General Electric /2/ 49,037 1,422,563
Honeywell International 4,209 128,838
Illinois Tool Works 1,506 110,766
ITT Industries 452 30,731
Textron 661 32,845
Tyco International 9,775 204,102
2,363,020
Shares
Held Value
- ----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
DIVERSIFIED OPERATORS-COMMERCIAL SERVICES (0.20%)
$
Cendant /1/ 4,962 101,374
E-COMMERCE-SERVICES (0.37%)
eBay /1/ 3,143 175,819
Monster Worldwide /1/ 549 13,983
189,802
ELECTRIC PRODUCTS-MISCELLANEOUS (0.28%)
Emerson Electric 2,060 116,905
Molex 936 29,381
146,286
ELECTRIC-GENERATION (0.05%)
AES /1/ 3,034 26,547
ELECTRIC-INTEGRATED (2.23%)
Allegheny Energy /1/ 621 6,570
Ameren 791 35,318
American Electric Power 1,934 54,519
Centerpoint Energy 1,505 14,764
Cinergy 868 31,517
CMS Energy 712 5,781
Consolidated Edison 1,101 44,558
Constellation Energy Group 814 29,605
Dominion Resources 1,583 97,513
DTE Energy 824 30,389
Duke Energy 4,427 80,350
Edison International /1/ 1,595 31,437
Entergy 1,115 60,099
Exelon 1,595 101,203
FirstEnergy 1,594 54,818
FPL Group 899 57,302
NiSource 1,285 26,612
PG&E /1/ 2,017 49,316
Pinnacle West Capital 447 16,342
PPL 865 34,531
Progress Energy 1,191 51,332
Public Service Enterprise Group 1,108 45,284
Southern 3,566 106,267
TECO Energy 923 12,119
TXU 1,578 36,010
XCEL Energy 1,952 32,013
1,145,569
ELECTRICAL COMPONENTS & EQUIPMENT (0.01%)
Power-One /1/ 407 3,687
ELECTRONIC COMPONENTS-MISCELLANEOUS (0.09%)
Sanmina /1/ 2,496 26,333
Solectron /1/ 4,061 22,498
48,831
ELECTRONIC COMPONENTS-SEMICONDUCTOR (3.15%)
Advanced Micro Devices /1/ 1,698 25,810
Altera /1/ 1,874 37,911
Applied Micro Circuits /1/ 1,502 8,742
Broadcom /1/ 1,450 46,327
Intel 31,863 1,053,072
LSI Logic /1/ 1,853 17,122
Micron Technology /1/ 2,979 42,719
Shares
Held Value
- ----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
ELECTRONIC COMPONENTS-SEMICONDUCTOR (CONTINUED)
$
National Semiconductor /1/ 899 36,526
Nvidia /1/ 779 13,773
PMC - Sierra /1/ 828 15,045
QLogic /1/ 461 25,839
Texas Instruments 8,474 245,068
Xilinx /1/ 1,669 52,907
1,620,861
ELECTRONIC CONNECTORS (0.01%)
Thomas & Betts /1/ 288 5,126
ELECTRONIC FORMS (0.10%)
Adobe Systems 1,143 50,109
ELECTRONIC MEASUREMENT INSTRUMENTS (0.13%)
Agilent Technologies /1/ 2,310 57,565
Tektronix 415 10,653
68,218
ENGINEERING-RESEARCH & DEVELOPMENT SERVICES (0.03%)
Fluor 397 14,721
ENGINES-INTERNAL COMBUSTION (0.02%)
Cummins Engine 204 9,670
ENTERPRISE SOFTWARE & SERVICE (0.86%)
BMC Software /1/ 1,115 19,379
Computer Associates International 2,833 66,632
Novell /1/ 1,821 10,689
Oracle /1/ 25,617 306,380
Peoplesoft /1/ 1,782 36,994
440,074
ENTERTAINMENT SOFTWARE (0.14%)
Electronic Arts /1/ 720 71,309
FIDUCIARY BANKS (0.61%)
Bank of New York 3,770 117,586
Mellon Financial 2,108 62,966
Northern Trust 1,079 50,120
State Street 1,627 85,190
315,862
FILTRATION & SEPARATION PRODUCTS (0.03%)
Pall 608 14,227
FINANCE-CONSUMER LOANS (0.17%)
SLM 2,207 86,426
FINANCE-CREDIT CARD (1.04%)
American Express 6,299 295,612
Capital One Financial 1,113 67,670
MBNA 6,254 154,787
Providian Financial /1/ 1,418 15,754
533,823
FINANCE-INVESTMENT BANKER & BROKER (1.93%)
Bear Stearns 488 37,210
Charles Schwab 6,629 89,889
Goldman Sachs Group 2,320 217,848
Lehman Brothers Holdings 1,184 85,248
Merrill Lynch 4,577 270,958
Shares
Held Value
- ----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
FINANCE-INVESTMENT BANKER & BROKER (CONTINUED)
$
Morgan Stanley 5,325 292,183
993,336
FINANCE-MORTGAGE LOAN/BANKER (1.17%)
Countrywide Credit Industries 666 70,010
Federal Home Loan Mortgage 3,406 191,179
Federal National Mortgage
Association 4,766 341,674
602,863
FINANCIAL GUARANTEE INSURANCE (0.20%)
Ambac Financial Group 524 37,068
MBIA 710 42,323
MGIC Investment 483 24,783
104,174
FOOD-CONFECTIONERY (0.22%)
Hershey Foods 640 49,344
Wm. Wrigley Jr. 1,101 62,096
111,440
FOOD-FLOUR & GRAIN (0.09%)
Archer-Daniels-Midland 3,154 45,260
FOOD-MISCELLANEOUS/DIVERSIFIED (0.82%)
Campbell Soup 2,010 52,099
ConAgra Foods 2,628 62,651
General Mills 1,825 81,851
H.J. Heinz 1,720 60,768
Kellogg 1,998 66,194
McCormick 681 20,185
Sara Lee 3,804 75,814
419,562
FOOD-RETAIL (0.30%)
Albertson's 1,795 36,421
Kroger /1/ 3,678 64,328
Safeway /1/ 2,161 45,597
Winn-Dixie Stores 696 5,631
151,977
FOOD-WHOLESALE & DISTRIBUTION (0.24%)
Supervalu 655 16,519
Sysco 3,180 107,039
123,558
FORESTRY (0.05%)
Plum Creek Timber 896 23,610
GAS-DISTRIBUTION (0.14%)
KeySpan 776 27,137
Nicor 216 7,402
Peoples Energy 180 7,281
Sempra Energy 1,093 30,385
72,205
GOLD MINING (0.17%)
Newmont Mining 1,998 87,472
HEALTH CARE COST CONTAINMENT (0.08%)
McKesson 1,421 43,014
HOME DECORATION PRODUCTS (0.06%)
Newell Rubbermaid 1,342 30,598
Shares
Held Value
- ----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
HOME FURNISHINGS (0.04%)
$
Leggett & Platt 944 19,720
HOTELS & MOTELS (0.22%)
Hilton Hotels 1,844 29,209
Marriott International 1,139 49,205
Starwood Hotels & Resorts
Worldwide 985 33,224
111,638
HUMAN RESOURCES (0.04%)
Robert Half International /1/ 833 19,667
IDENTIFICATION SYSTEM-DEVELOPMENT (0.03%)
Symbol Technologies 1,129 14,101
INDEPENDENT POWER PRODUCER (0.02%)
Calpine /1/ 1,869 8,616
INDUSTRIAL AUTOMATION & ROBOTS (0.05%)
Rockwell International 907 28,162
INDUSTRIAL GASES (0.21%)
Air Products & Chemicals 1,112 50,496
Praxair 797 55,455
105,951
INSTRUMENTS-CONTROLS (0.18%)
Johnson Controls 438 47,098
Parker Hannifin 579 29,512
Thermo Electron /1/ 792 17,408
94,018
INSTRUMENTS-SCIENTIFIC (0.12%)
Applied Biosystems Group 1,023 23,611
Millipore /1/ 239 10,480
PerkinElmer 624 11,238
Waters /1/ 602 18,921
64,250
INSURANCE BROKERS (0.28%)
Aon 1,531 33,529
Marsh & McLennan 2,607 111,449
144,978
INTERNET SECURITY (0.10%)
Symantec /1/ 742 49,454
INVESTMENT MANAGEMENT & ADVISORY SERVICES (0.22%)
Federated Investors 533 14,737
Franklin Resources 1,228 58,232
Janus Capital Group 1,171 16,558
T. Rowe Price Group 604 24,855
114,382
LEISURE & RECREATION PRODUCTS (0.03%)
Brunswick 446 13,233
LIFE & HEALTH INSURANCE (0.60%)
Aflac 2,512 91,638
Jefferson-Pilot 696 33,227
John Hancock Financial Services 1,414 49,985
Lincoln National 870 34,739
Principal Financial Group /3/ 1,584 49,658
Torchmark 559 24,529
Shares
Held Value
- ----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
LIFE & HEALTH INSURANCE (CONTINUED)
$
UnumProvident 1,449 23,720
307,496
LINEN SUPPLY & RELATED ITEMS (0.07%)
Cintas 834 35,578
MACHINERY-CONSTRUCTION & MINING (0.24%)
Caterpillar 1,689 123,770
MACHINERY-FARM (0.14%)
Deere 1,172 71,047
MACHINERY-GENERAL INDUSTRY (0.17%)
Dover 992 38,708
Ingersoll-Rand 838 50,615
89,323
MEDICAL INFORMATION SYSTEM (0.05%)
IMS Health 1,170 27,530
MEDICAL INSTRUMENTS (1.13%)
Biomet 1,255 45,004
Boston Scientific /1/ 2,016 136,524
Guidant 1,507 76,872
Medtronic 5,955 271,369
St. Jude Medical /1/ 841 48,913
578,682
MEDICAL LABORATORY & TESTING SERVICE (0.07%)
Quest Diagnostics /1/ 515 34,840
MEDICAL PRODUCTS (1.96%)
Baxter International 2,980 79,209
Becton Dickinson 1,243 45,444
Johnson & Johnson 14,527 731,144
Stryker 975 79,082
Zimmer Holdings /1/ 1,111 70,893
1,005,772
MEDICAL-BIOMEDICAL/GENE (1.01%)
Amgen /1/ 6,318 390,200
Biogen /1/ 731 29,584
Chiron /1/ 912 49,822
Genzyme /1/ 1,087 49,893
519,499
MEDICAL-DRUGS (6.24%)
Abbott Laboratories 7,648 325,958
Allergan 640 48,397
Bristol-Myers Squibb 9,487 240,685
Eli Lilly 5,495 366,077
Forest Laboratories /1/ 1,787 89,368
King Pharmaceuticals /1/ 1,179 15,799
Medimmune /1/ 1,223 32,605
Merck 10,957 484,847
Pfizer 38,110 1,204,276
Schering-Plough 7,189 109,776
Wyeth 6,516 287,616
3,205,404
MEDICAL-GENERIC DRUGS (0.04%)
Watson Pharmaceutical /1/ 528 20,735
Shares
Held Value
- ----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MEDICAL-HMO (0.62%)
$
Aetna 754 43,287
Anthem /1/ 679 46,464
Humana /1/ 791 16,049
UnitedHealth Group 2,919 148,519
Wellpoint Health Networks /1/ 718 63,830
318,149
MEDICAL-HOSPITALS (0.29%)
HCA 2,445 93,521
Health Management Associates 1,174 26,004
Tenet Healthcare /1/ 2,270 31,326
150,851
MEDICAL-NURSING HOMES (0.03%)
Manor Care 436 14,510
MEDICAL-WHOLESALE DRUG DISTRIBUTION (0.31%)
AmerisourceBergen 548 31,110
Cardinal Health 2,185 129,658
160,768
METAL PROCESSORS & FABRICATION (0.01%)
Worthington Industries 425 6,197
METAL-ALUMINUM (0.25%)
Alcoa 4,142 130,763
METAL-COPPER (0.05%)
Phelps Dodge /1/ 436 26,919
METAL-DIVERSIFIED (0.06%)
Freeport-McMoran Copper & Gold 825 31,969
MISCELLANEOUS INVESTING (0.35%)
Apartment Investment & Management 460 18,814
Equity Office Properties Trust 1,953 54,703
Equity Residential Properties
Trust 1,339 39,166
Prologis Trust 879 25,966
Simon Property Group 941 42,420
181,069
MONEY CENTER BANKS (1.77%)
Bank of America 7,315 553,965
JP Morgan Chase 9,968 357,851
911,816
MOTORCYCLE & MOTOR SCOOTER (0.14%)
Harley-Davidson 1,479 70,119
MULTI-LINE INSURANCE (2.62%)
Allstate 3,446 136,117
American International Group 12,770 776,799
Cigna 686 39,136
Cincinnati Financial 787 32,204
Hartford Financial Services 1,382 75,872
Loews 907 39,001
MetLife 3,720 116,808
Prudential Financial 2,672 103,246
Safeco 678 24,883
1,344,066
MULTIMEDIA (2.12%)
Gannett 1,321 111,109
Shares
Held Value
- ----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MULTIMEDIA (CONTINUED)
$
McGraw-Hill 936 62,665
Meredith 243 11,790
Time Warner 22,088 337,726
Viacom 8,591 342,523
Walt Disney 10,001 226,423
1,092,236
NETWORKING PRODUCTS (1.61%)
Cisco Systems /1/ 34,355 720,768
Lucent Technologies /1/ 20,363 65,162
Network Appliance /1/ 1,674 41,314
827,244
NON-HAZARDOUS WASTE DISPOSAL (0.17%)
Allied Waste Industries /1/ 1,023 11,540
Waste Management 2,895 75,038
86,578
OFFICE AUTOMATION & EQUIPMENT (0.17%)
Pitney Bowes 1,147 47,142
Xerox /1/ 3,870 40,635
87,777
OFFICE SUPPLIES & FORMS (0.05%)
Avery Dennison 541 28,446
OIL & GAS DRILLING (0.18%)
Nabors Industries /1/ 715 27,027
Noble /1/ 654 22,452
Rowan /1/ 463 11,089
Transocean Sedco Forex /1/ 1,565 30,032
90,600
OIL COMPANY-EXPLORATION & PRODUCTION (0.50%)
Anadarko Petroleum 1,222 53,304
Apache 790 55,079
Burlington Resources 983 47,813
Devon Energy 1,135 55,047
EOG Resources 563 23,725
Kerr-McGee 493 20,459
255,427
OIL COMPANY-INTEGRATED (3.78%)
Amerada Hess 440 22,713
ChevronTexaco 5,229 388,515
ConocoPhillips 3,328 190,195
Exxon Mobil 32,485 1,188,301
Marathon Oil 1,516 44,828
Occidental Petroleum 1,873 66,042
Unocal 1,263 40,012
1,940,606
OIL REFINING & MARKETING (0.06%)
Ashland 334 12,438
Sunoco 377 16,498
28,936
OIL-FIELD SERVICES (0.50%)
Baker Hughes 1,638 46,290
BJ Services /1/ 775 25,428
Halliburton 2,140 51,103
Shares
Held Value
- ----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
OIL-FIELD SERVICES (CONTINUED)
$
Schlumberger 2,850 133,864
256,685
OPTICAL SUPPLIES (0.02%)
Bausch & Lomb 263 12,666
PAPER & RELATED PRODUCTS (0.48%)
Boise Cascade 288 8,078
Georgia-Pacific 1,242 32,640
International Paper 2,348 92,394
Louisiana-Pacific /1/ 516 9,814
MeadWestvaco 980 25,402
Temple-Inland 265 14,318
Weyerhaeuser 1,072 64,566
247,212
PHARMACY SERVICES (0.13%)
Express Scripts /1/ 398 21,858
Medco Health Solutions /1/ 1,323 43,924
65,782
PHOTO EQUIPMENT & SUPPLIES (0.07%)
Eastman Kodak 1,402 34,251
PIPELINES (0.17%)
Dynegy /1/ 1,836 7,363
El Paso 2,933 21,528
Kinder Morgan 604 32,344
Williams 2,534 25,847
87,082
POWER CONVERTER & SUPPLY EQUIPMENT (0.04%)
American Power Conversion 969 19,603
PRINTING-COMMERCIAL (0.03%)
R.R. Donnelley & Sons 554 14,404
PROPERTY & CASUALTY INSURANCE (0.70%)
ACE 1,362 49,032
Chubb 917 61,265
Progressive 1,063 78,449
St. Paul 1,115 42,515
Travelers Property Casualty 4,926 80,639
XL Capital 668 46,426
358,326
PUBLICLY TRADED INVESTMENT FUND (3.71%)
iShares S&P 500 Index Fund 18,100 1,908,283
PUBLISHING-NEWSPAPERS (0.31%)
Dow Jones 398 20,684
Knight Ridder 393 28,815
New York Times 731 34,744
Tribune 1,535 75,292
159,535
REGIONAL BANKS (3.98%)
Bank One 5,533 234,876
Comerica 857 44,118
Fifth Third Bancorp 2,789 161,651
FleetBoston Financial 5,147 207,887
Huntington Bancshares 1,119 24,238
Shares
Held Value
- ----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
REGIONAL BANKS (CONTINUED)
$
KeyCorp 2,060 58,195
National City 3,007 98,209
PNC Financial Services Group 1,371 73,445
SunTrust Banks 1,377 92,355
U.S. Bancorp 9,428 256,630
Union Planters 959 31,906
Wachovia 6,521 299,118
Wells Fargo 8,220 462,950
2,045,578
RETAIL-APPAREL & SHOE (0.29%)
Gap 4,373 83,437
Limited 2,556 44,985
Nordstrom 665 20,276
148,698
RETAIL-AUTO PARTS (0.08%)
Autozone /1/ 438 42,092
RETAIL-AUTOMOBILE (0.05%)
AutoNation /1/ 1,346 25,170
RETAIL-BEDDING (0.12%)
Bed Bath & Beyond /1/ 1,447 61,121
RETAIL-BUILDING PRODUCTS (1.25%)
Home Depot 11,246 416,889
Lowe's 3,834 225,938
642,827
RETAIL-CONSUMER ELECTRONICS (0.24%)
Best Buy /1/ 1,578 92,013
Circuit City Stores 1,014 9,674
RadioShack 811 24,322
126,009
RETAIL-DISCOUNT (3.21%)
Big Lots /1/ 574 8,616
Costco Wholesale /1/ 2,237 79,123
Dollar General 1,633 36,693
Family Dollar Stores 842 36,719
Target 4,458 177,161
TJX 2,499 52,454
Wal-Mart Stores 21,385 1,260,646
1,651,412
RETAIL-DRUG STORE (0.47%)
CVS 1,928 67,827
Walgreen 5,016 174,657
242,484
RETAIL-JEWELRY (0.07%)
Tiffany 711 33,737
RETAIL-MAJOR DEPARTMENT STORE (0.28%)
J.C. Penney 1,326 31,360
May Department Stores 1,412 39,480
Sears Roebuck 1,386 72,945
143,785
RETAIL-OFFICE SUPPLIES (0.17%)
Office Depot /1/ 1,511 22,559
Shares
Held Value
- ----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
RETAIL-OFFICE SUPPLIES (CONTINUED)
$
Staples /1/ 2,399 64,341
86,900
RETAIL-REGIONAL DEPARTMENT STORE (0.28%)
Dillards 409 6,614
Federated Department Stores 907 43,128
Kohls /1/ 1,662 93,188
142,930
RETAIL-RESTAURANTS (0.59%)
Darden Restaurants 804 16,844
McDonald's 6,227 155,737
Starbucks /1/ 1,917 60,577
Wendy's International 555 20,563
Yum! Brands /1/ 1,437 49,059
302,780
RETAIL-TOY STORE (0.03%)
Toys R Us /1/ 1,051 13,663
RUBBER-TIRES (0.03%)
Cooper Tire & Rubber 363 7,136
Goodyear Tire & Rubber 867 5,948
13,084
SAVINGS & LOANS-THRIFTS (0.60%)
Charter One Financial 1,101 35,188
Golden West Financial 747 75,021
Washington Mutual 4,519 197,706
307,915
SCHOOLS (0.11%)
Apollo Group /1/ 862 54,763
SEMICONDUCTOR COMPONENT-INTEGRATED CIRCUITS (0.43%)
Analog Devices /1/ 1,788 79,262
Linear Technology 1,532 65,279
Maxim Integrated Products 1,588 78,939
223,480
SEMICONDUCTOR EQUIPMENT (0.57%)
Applied Materials /1/ 8,112 189,578
Kla-Tencor /1/ 931 53,374
Novellus Systems /1/ 739 30,513
Teradyne /1/ 924 21,049
294,514
STEEL PRODUCERS (0.06%)
Nucor 382 20,945
United States Steel 505 11,943
32,888
STEEL-SPECIALTY (0.01%)
Allegheny Technologies 398 3,045
TELECOMMUNICATION EQUIPMENT (0.50%)
ADC Telecommunications /1/ 3,965 10,111
Andrew /1/ 752 9,836
Comverse Technology /1/ 928 16,741
Qualcomm 3,884 184,490
Scientific-Atlanta 730 21,608
Shares
Held Value
- ----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TELECOMMUNICATION EQUIPMENT (CONTINUED)
$
Tellabs /1/ 2,018 15,196
257,982
TELECOMMUNICATION EQUIPMENT-FIBER OPTICS (0.22%)
CIENA /1/ 2,305 14,775
Corning /1/ 6,516 71,546
JDS Uniphase /1/ 7,000 24,850
111,171
TELECOMMUNICATION SERVICES (0.08%)
Avaya /1/ 2,048 26,501
Citizens Communications /1/ 1,396 17,380
43,881
TELEPHONE-INTEGRATED (2.67%)
ALLTEL 1,524 72,039
AT&T 3,857 71,702
BellSouth 9,040 237,842
CenturyTel 704 25,168
Qwest Communications
International /1/ 8,298 29,292
SBC Communications 16,267 390,083
Sprint 4,421 70,736
Sprint PCS /1/ 5,064 22,028
Verizon Communications 13,491 453,297
1,372,187
TELEVISION (0.10%)
Univision Communications /1/ 1,587 53,879
TOBACCO (0.99%)
Altria Group 9,934 461,931
RJ Reynolds Tobacco Holdings 413 19,837
UST 815 27,726
509,494
TOOLS-HAND HELD (0.08%)
Black & Decker 380 18,168
Snap-On 287 8,420
Stanley Works 418 13,936
40,524
TOYS (0.12%)
Hasbro 855 18,639
Mattel 2,149 41,605
60,244
TRANSPORT-RAIL (0.39%)
Burlington Northern Santa Fe 1,824 52,787
CSX 1,047 33,315
Norfolk Southern 1,908 38,446
Union Pacific 1,246 78,000
202,548
TRANSPORT-SERVICES (0.99%)
FedEx 1,460 110,610
United Parcel Service 5,508 399,440
510,050
TRAVEL SERVICES (0.03%)
Sabre Holdings 705 15,447
Shares
Held Value
- ----------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TRUCKING & LEASING (0.02%)
$
Ryder System 308 9,240
WEB PORTALS (0.27%)
Yahoo /1/ 3,178 138,879
WIRELESS EQUIPMENT (0.30%)
Motorola 11,391 154,120
TOTAL COMMON STOCKS 49,463,844
Principal
Amount Value
- ----------------------------------------------------------------------------------
COMMERCIAL PAPER (4.02%)
FINANCE-MORTGAGE LOAN/BANKER (4.02%)
Investment in Joint Trading
Account; Federal Home Loan Bank 10,000,000
$ $
0.94%; 11/03/03 2,064,274 2,064,167
TOTAL COMMERCIAL PAPER 2,064,167
Principal Amount
Value
- ----------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (0.57%)
Citigroup Global Markets
Holdings; 0.99%, 11/03/03
(collateralized by U.S. Treasury
Note; $297,059; 02/15/11) /4/ 294,000 294,000
TOTAL REPURCHASE AGREEMENTS 294,000
-----------
TOTAL PORTFOLIO INVESTMENTS (100.85%) 51,822,011
LIABILITIES, NET OF
CASH, RECEIVABLES
AND OTHER ASSETS
(-0.85%) (434,526)
TOTAL NET ASSETS (100.00%) $51,387,485
--------------
Unrealized
Contract Opening Current Gain (Loss)
Type Commitment Market Value Market Value
- --------------------------------------------------------------------
FUTURES CONTRACTS
17 S&P 500 Buy $1,799,050 $1,836,626 $37,576
December, 2003
Futures
/1 /Non-income producing security.
/2 /Security or a portion of the security was pledged to cover margin
requirements for futures contracts.
/3 /Affiliated security.
/4 /Security was purchased with the cash proceeds from securities loans.
See accompanying notes.
SCHEDULE OF INVESTMENTS
PRINCIPAL MIDCAP FUND, INC.
OCTOBER 31, 2003
Shares
Held Value
- ---------------------------------------------------------------------------------------------------
COMMON STOCKS (98.56%)
ADVERTISING AGENCIES (1.10%)
$
Interpublic Group 344,447 5,125,371
AEROSPACE & DEFENSE (1.11%)
Raytheon 122,238 3,236,862
Rockwell Collins 70,391 1,932,233
5,169,095
AEROSPACE & DEFENSE EQUIPMENT (1.33%)
Alliant Techsystems /1/ 120,119 6,217,359
AGRICULTURAL OPERATIONS (0.58%)
Delta & Pine Land 117,585 2,687,993
APPAREL MANUFACTURERS (0.85%)
Polo Ralph Lauren 130,914 3,979,786
APPLICATIONS SOFTWARE (0.60%)
Intuit /1/ 56,518 2,824,770
AUDIO & VIDEO PRODUCTS (0.31%)
Polycom /1/ 72,702 1,456,221
BEVERAGES-NON-ALCOHOLIC (0.40%)
Coca-Cola Enterprises 91,959 1,853,893
BROADCASTING SERVICES & PROGRAMMING (1.15%)
Liberty Media /1/ 531,635 5,364,197
BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS (0.74%)
Vulcan Materials 77,671 3,441,602
BUILDING PRODUCTS-AIR & HEATING (0.60%)
American Standard /1/ 29,214 2,795,780
BUILDING PRODUCTS-WOOD (1.49%)
Rayonier 165,125 6,943,506
CASINO HOTELS (0.77%)
Harrah's Entertainment 82,687 3,596,884
CASINO SERVICES (1.66%)
International Game Technology 237,196 7,768,169
COMMERCIAL BANKS (6.36%)
M&T Bank 84,724 7,955,584
Marshall & Ilsley 47,788 1,711,766
North Fork Bancorp. 106,529 4,152,500
SouthTrust 91,528 2,915,167
TCF Financial 224,016 11,689,155
Westamerica Bancorp. 24,866 1,244,792
29,668,964
COMMERCIAL SERVICE-FINANCE (2.09%)
Deluxe 22,913 924,998
Dun & Bradstreet /1/ 141,025 6,564,714
Shares
Held Value
- ---------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
COMMERCIAL SERVICE-FINANCE (CONTINUED)
$
Moody's 39,253 2,270,001
9,759,713
COMMERCIAL SERVICES (1.94%)
Arbitron /1/ 147,774 5,837,073
Servicemaster 281,101 3,224,228
9,061,301
COMPUTER SERVICES (3.32%)
Ceridian /1/ 228,650 4,801,650
DST Systems /1/ 129,700 4,905,254
Sungard Data Systems /1/ 67,125 1,882,856
Unisys /1/ 253,539 3,894,359
15,484,119
COMPUTERS-INTEGRATED SYSTEMS (1.21%)
Diebold 26,224 1,496,342
NCR /1/ 64,461 2,316,728
Synopsys /1/ 57,645 1,828,499
5,641,569
COMPUTERS-MEMORY DEVICES (1.76%)
Quantum /1/ 417,878 1,299,601
Storage Technology /1/ 287,281 6,923,472
8,223,073
COMPUTERS-PERIPHERAL EQUIPMENT (1.60%)
Lexmark International /1/ 101,387 7,463,097
CONSUMER PRODUCTS-MISCELLANEOUS (0.63%)
Dial 122,193 2,932,632
COSMETICS & TOILETRIES (0.74%)
International Flavors & Fragrances 104,864 3,470,998
DATA PROCESSING & MANAGEMENT (1.53%)
Certegy 64,900 2,184,534
Reynolds & Reynolds 126,707 3,441,362
SEI Investments 52,447 1,527,257
7,153,153
DENTAL SUPPLIES & EQUIPMENT (0.89%)
Dentsply International 93,524 4,132,826
DIVERSIFIED MANUFACTURING OPERATIONS (0.84%)
ITT Industries 25,179 1,711,920
Lancaster Colony 55,226 2,193,025
3,904,945
DIVERSIFIED OPERATORS-COMMERCIAL SERVICES (0.69%)
Viad 128,700 3,214,926
ELECTRIC-INTEGRATED (2.09%)
Ameren 115,044 5,136,715
Duquesne Light Holdings 120,426 1,935,246
Scana 78,511 2,692,142
9,764,103
Shares
Held Value
- ---------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
ELECTRONIC COMPONENTS-MISCELLANEOUS (0.89%)
$
Gentex 106,322 4,151,874
ELECTRONIC COMPONENTS-SEMICONDUCTOR (0.77%)
Applied Micro Circuits /1/ 614,295 3,575,197
FINANCE-MORTGAGE LOAN/BANKER (0.54%)
Countrywide Credit Industries 23,997 2,522,565
FOOD-CANNED (0.32%)
Del Monte Foods /1/ 156,238 1,485,823
FOOD-CONFECTIONERY (0.25%)
Tootsie Roll Industries 34,791 1,147,755
FOOD-DAIRY PRODUCTS (0.50%)
Dean Foods /1/ 76,998 2,329,190
FOOD-MISCELLANEOUS/DIVERSIFIED (0.89%)
McCormick 140,799 4,173,282
GOLD MINING (0.80%)
Newmont Mining 85,085 3,725,021
HOSPITAL BEDS & EQUIPMENT (1.13%)
Hillenbrand Industries 88,856 5,289,598
HOTELS & MOTELS (0.33%)
Choice Hotels International /1/ 46,551 1,537,114
INSURANCE BROKERS (1.36%)
Aon 110,775 2,425,973
Arthur J. Gallagher 134,206 3,917,473
6,343,446
INVESTMENT MANAGEMENT & ADVISORY SERVICES (1.12%)
Federated Investors 84,490 2,336,148
Nuveen Investments 103,716 2,904,048
5,240,196
LIFE & HEALTH INSURANCE (1.41%)
Aflac 98,003 3,575,150
Torchmark 68,588 3,009,641
6,584,791
LOTTERY SERVICES (1.34%)
GTECH Holdings 140,324 6,269,676
MACHINERY-GENERAL INDUSTRY (0.47%)
Dover 56,800 2,216,336
MACHINERY-PRINT TRADE (0.78%)
Zebra Technologies /1/ 63,549 3,619,116
MACHINERY-PUMPS (0.43%)
Graco 52,738 2,009,318
Shares
Held Value
- ---------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MEDICAL INFORMATION SYSTEM (1.70%)
$
IMS Health 337,152 7,933,187
MEDICAL INSTRUMENTS (4.62%)
Beckman Coulter 97,569 4,844,301
Biomet 116,199 4,166,896
Edwards Lifesciences /1/ 203,665 5,906,285
Guidant 81,569 4,160,835
St. Jude Medical /1/ 42,664 2,481,338
21,559,655
MEDICAL PRODUCTS (2.48%)
Becton Dickinson 98,180 3,589,461
Varian Medical Systems /1/ 44,072 2,817,964
Zimmer Holdings /1/ 81,367 5,192,028
11,599,453
MEDICAL-BIOMEDICAL/GENE (1.10%)
Biogen /1/ 126,790 5,131,191
MEDICAL-DRUGS (0.46%)
Medimmune /1/ 80,305 2,140,931
MEDICAL-HMO (0.42%)
Anthem /1/ 28,796 1,970,510
MEDICAL-HOSPITALS (0.89%)
Health Management Associates 188,082 4,166,016
MEDICAL-OUTPATIENT & HOME MEDICAL CARE (1.01%)
Lincare Holdings /1/ 120,624 4,697,099
METAL-DIVERSIFIED (1.44%)
Freeport-McMoran Copper & Gold 173,171 6,710,376
MISCELLANEOUS INVESTING (3.59%)
AMB Property 101,834 3,054,002
Federal Realty Investment Trust 62,640 2,377,188
Kimco Realty 133,291 5,552,903
Prologis Trust 92,260 2,725,360
Public Storage 75,721 3,028,840
16,738,293
MULTIMEDIA (1.45%)
Belo 114,415 3,118,953
E.W. Scripps 39,332 3,654,336
6,773,289
NETWORKING PRODUCTS (0.37%)
3Com /1/ 241,522 1,738,958
NON-HAZARDOUS WASTE DISPOSAL (2.51%)
Republic Services 349,778 8,132,338
Waste Management 138,688 3,594,793
11,727,131
OFFICE AUTOMATION & EQUIPMENT (0.43%)
Pitney Bowes 49,385 2,029,724
Shares
Held Value
- ---------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
OIL & GAS DRILLING (0.25%)
$
Noble /1/ 33,900 1,163,787
OIL COMPANY-EXPLORATION & PRODUCTION (2.14%)
Apache 49,792 3,471,498
Burlington Resources 61,970 3,014,221
XTO Energy 148,249 3,509,054
9,994,773
OIL COMPANY-INTEGRATED (0.73%)
Marathon Oil 114,965 3,399,515
OIL-FIELD SERVICES (1.16%)
BJ Services /1/ 106,710 3,501,155
Weatherford International /1/ 55,594 1,931,892
5,433,047
PAPER & RELATED PRODUCTS (0.66%)
Boise Cascade 110,131 3,089,175
PIPELINES (1.59%)
Equitable Resources 64,986 2,677,423
Questar 149,007 4,730,972
7,408,395
POWER CONVERTER & SUPPLY EQUIPMENT (1.25%)
American Power Conversion 288,064 5,827,535
PRINTING-COMMERCIAL (0.49%)
Valassis Communications /1/ 89,149 2,308,959
PROPERTY & CASUALTY INSURANCE (2.12%)
Fidelity National Financial 185,742 5,743,143
Leucadia National 98,990 4,157,580
9,900,723
PUBLICLY TRADED INVESTMENT FUND (1.46%)
iShares S&P MidCap 400 Fund 5,920 651,792
Standard & Poor's MidCap 400 Depository
Receipts 61,262 6,161,732
6,813,524
PUBLISHING-NEWSPAPERS (0.70%)
Knight Ridder 44,545 3,266,039
REAL ESTATE OPERATOR & DEVELOPER (0.61%)
Forest City Enterprises 5,640 249,909
St. Joe 78,203 2,583,827
2,833,736
REINSURANCE (2.01%)
Everest Re Group 113,037 9,376,419
RETAIL-DISCOUNT (1.24%)
Costco Wholesale /1/ 84,258 2,980,206
TJX 133,667 2,805,670
5,785,876
Shares
Held Value
- ---------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
RETAIL-HOME FURNISHINGS (0.35%)
$
Pier 1 Imports 71,000 1,640,100
RETAIL-JEWELRY (0.54%)
Tiffany 53,540 2,540,473
RETAIL-REGIONAL DEPARTMENT STORE (0.74%)
Neiman Marcus Group /1/ 72,670 3,455,459
SAVINGS & LOANS-THRIFTS (1.11%)
Charter One Financial 162,808 5,203,344
TELECOMMUNICATION EQUIPMENT (0.99%)
Comverse Technology /1/ 256,356 4,624,662
TELECOMMUNICATION SERVICES (0.53%)
Citizens Communications /1/ 197,521 2,459,136
TELEPHONE-INTEGRATED (0.35%)
Telephone & Data Systems 26,448 1,655,645
TEXTILE-HOME FURNISHINGS (0.53%)
Mohawk Industries /1/ 33,366 2,473,088
TOBACCO (1.71%)
UST 234,965 7,993,509
TOYS (0.76%)
Mattel 182,765 3,538,330
TRANSPORT-TRUCK (0.36%)
Heartland Express 66,896 1,661,697
TOTAL COMMON STOCKS 460,083,102
Principal
Amount Value
- ---------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (1.58%)
DIVERSIFIED FINANCIAL SERVICES (1.58%)
Investment in Joint Trading Account; General
Electric Capital 100,000,000
$ $
1.04%; 11/03/03 7,369,526 7,369,526
TOTAL COMMERCIAL PAPER 7,369,526
Principal Amount
Value
- ---------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (3.13%)
Citigroup Global Markets Holdings; 0.99%,
11/03/03 (collateralized by U.S. Treasury $
Note; $14,770,107; 02/15/11) /2/ $ 14,618,000 14,618,000
TOTAL REPURCHASE AGREEMENTS 14,618,000
------------
TOTAL PORTFOLIO INVESTMENTS (103.27%) 482,070,628
LIABILITIES, NET OF CASH, RECEIVABLES, AND
OTHER ASSETS (-3.27%) (15,245,292)
TOTAL NET ASSETS (100.00%) $466,825,336
---------------
/1 //Non-income producing security./
/2 //Security was purchased with the cash proceeds from securities loans./
94
See accompanying notes.
SCHEDULE OF INVESTMENTS
PRINCIPAL PARTNERS BLUE CHIP FUND, INC.
OCTOBER 31, 2003
Shares
Held Value
- -----------------------------------------------------------------------------------------------------
COMMON STOCKS (99.47%)
ADVERTISING AGENCIES (0.27%)
$
Omnicom Group 5,045 402,591
AEROSPACE & DEFENSE (0.22%)
Boeing 4,800 184,752
Rockwell Collins 4,900 134,505
319,257
AEROSPACE & DEFENSE EQUIPMENT (0.78%)
General Dynamics 3,500 292,950
Lockheed Martin 3,900 180,804
United Technologies 8,000 677,520
1,151,274
AGRICULTURAL OPERATIONS (0.60%)
Monsanto 35,100 879,255
AIRLINES (0.07%)
Southwest Airlines 5,400 104,760
APPAREL MANUFACTURERS (0.33%)
Coach /1/ 13,800 489,486
APPLICATIONS SOFTWARE (3.43%)
Citrix Systems /1/ 7,600 192,128
Microsoft 185,744 4,857,206
5,049,334
ATHLETIC FOOTWEAR (0.28%)
Nike 6,444 411,772
AUTO-CARS & LIGHT TRUCKS (1.10%)
Ford Motor 46,800 567,684
General Motors 24,700 1,053,949
1,621,633
BEVERAGES-NON-ALCOHOLIC (1.36%)
Coca-Cola 24,900 1,155,360
Pepsico 17,572 840,293
1,995,653
BROADCASTING SERVICES & PROGRAMMING (0.49%)
Fox Entertainment Group /1/ 25,800 714,660
BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS (0.35%)
Masco 18,851 518,403
CABLE TV (0.93%)
Comcast /1/ 23,500 797,120
Comcast /1/ 17,621 574,797
1,371,917
CELLULAR TELECOMMUNICATIONS (0.60%)
AT&T Wireless Services /1/ 104,100 754,725
U.S. Cellular /1/ 3,600 121,896
876,621
CHEMICALS-DIVERSIFIED (0.53%)
Dow Chemical 9,098 342,904
E. I. Du Pont de Nemours 10,700 432,280
775,184
COATINGS & PAINT (0.07%)
Sherwin-Williams 3,200 107,328
Shares
Held Value
- -----------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
COMMERCIAL BANKS (0.09%)
$
UnionBanCal 2,500 135,425
COMMERCIAL SERVICE-FINANCE (0.79%)
Concord EFS /1/ 12,200 130,418
Deluxe 3,500 141,295
Moody's 15,300 884,799
1,156,512
COMMERCIAL SERVICES (0.11%)
Convergys /1/ 10,200 163,812
COMPUTER SERVICES (0.37%)
Computer Sciences /1/ 13,900 550,718
COMPUTERS (2.89%)
Hewlett-Packard 98,700 2,201,997
International Business Machines 20,288 1,815,370
Sun Microsystems /1/ 61,000 241,560
4,258,927
COMPUTERS-INTEGRATED SYSTEMS (0.80%)
Dell /1/ 32,600 1,177,512
COMPUTERS-MEMORY DEVICES (0.59%)
SanDisk /1/ 6,000 483,600
Veritas Software /1/ 10,800 390,420
874,020
COMPUTERS-PERIPHERAL EQUIPMENT (0.20%)
Lexmark International /1/ 4,000 294,440
CONSULTING SERVICES (0.88%)
Accenture /1/ 55,606 1,301,180
CONSUMER PRODUCTS-MISCELLANEOUS (0.34%)
Clorox 10,900 493,770
COSMETICS & TOILETRIES (3.25%)
Avon Products 8,200 557,272
Colgate-Palmolive 1,800 95,742
Gillette 46,527 1,484,211
Procter & Gamble 26,845 2,638,595
4,775,820
DATA PROCESSING & MANAGEMENT (0.22%)
First Data 9,200 328,440
DISTRIBUTION-WHOLESALE (0.14%)
Ingram Micro /1/ 7,000 103,600
W.W. Grainger 2,100 96,138
199,738
DIVERSIFIED FINANCIAL SERVICES (2.47%)
Citigroup 76,790 3,639,846
DIVERSIFIED MANUFACTURING OPERATIONS (3.74%)
3M 18,930 1,493,009
General Electric 132,383 3,840,431
ITT Industries 2,500 169,975
5,503,415
ELECTRIC-INTEGRATED (1.64%)
Allegheny Energy /1/ 42,000 444,360
Edison International /1/ 44,000 867,240
Shares
Held Value
- -----------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
ELECTRIC-INTEGRATED (CONTINUED)
$
Entergy 5,600 301,840
Exelon 8,016 508,615
FPL Group 4,600 293,204
2,415,259
ELECTRONIC COMPONENTS-SEMICONDUCTOR (3.90%)
Altera /1/ 5,400 109,242
Intel 138,468 4,576,367
National Semiconductor /1/ 8,200 333,166
Nvidia /1/ 6,100 107,848
Texas Instruments 21,400 618,888
5,745,511
ELECTRONIC FORMS (0.64%)
Adobe Systems 21,600 946,944
ELECTRONIC PARTS DISTRIBUTION (0.16%)
Arrow Electronics /1/ 5,100 108,885
Avnet /1/ 6,600 128,040
236,925
ENTERPRISE SOFTWARE & SERVICE (0.52%)
BMC Software /1/ 6,800 118,184
Computer Associates International 27,300 642,096
760,280
FIDUCIARY BANKS (0.38%)
State Street 10,681 559,257
FINANCE-AUTO LOANS (0.08%)
AmeriCredit /1/ 9,100 121,940
FINANCE-COMMERCIAL (0.34%)
CIT Group 15,000 504,300
FINANCE-CONSUMER LOANS (0.56%)
SLM 21,200 830,192
FINANCE-CREDIT CARD (0.93%)
American Express 13,400 628,862
MBNA 29,600 732,600
1,361,462
FINANCE-INVESTMENT BANKER & BROKER (2.65%)
A.G. Edwards 2,700 109,350
Bear Stearns 7,800 594,750
Lehman Brothers Holdings 12,300 885,600
Merrill Lynch 39,098 2,314,602
3,904,302
FINANCE-MORTGAGE LOAN/BANKER (0.38%)
Federal National Mortgage Association 7,711 552,802
FINANCIAL GUARANTEE INSURANCE (0.19%)
MBIA 4,700 280,167
FOOD-FLOUR & GRAIN (0.65%)
Archer-Daniels-Midland 66,900 960,015
FOOD-MISCELLANEOUS/DIVERSIFIED (0.75%)
General Mills 6,626 297,176
Kraft Foods 27,800 808,980
1,106,156
Shares
Held Value
- -----------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
FOOD-RETAIL (0.13%)
$
Albertson's 9,600 194,784
FOOD-WHOLESALE & DISTRIBUTION (0.75%)
Supervalu 4,000 100,880
Sysco 29,900 1,006,434
1,107,314
HEALTH CARE COST CONTAINMENT (0.57%)
McKesson 27,700 838,479
INDUSTRIAL AUTOMATION & ROBOTS (0.23%)
Rockwell International 11,000 341,550
INSTRUMENTS-CONTROLS (0.13%)
Johnson Controls 1,800 193,554
INTERNET SECURITY (0.64%)
Symantec /1/ 14,100 939,765
INVESTMENT MANAGEMENT & ADVISORY SERVICES (0.18%)
Franklin Resources 5,600 265,552
MACHINERY-CONSTRUCTION & MINING (1.04%)
Caterpillar 20,860 1,528,621
MEDICAL INSTRUMENTS (1.77%)
Boston Scientific /1/ 13,400 907,448
Guidant 26,751 1,364,569
Medtronic 7,200 328,104
2,600,121
MEDICAL PRODUCTS (2.30%)
Johnson & Johnson 45,918 2,311,053
Zimmer Holdings /1/ 16,800 1,072,008
3,383,061
MEDICAL-BIOMEDICAL/GENE (1.33%)
Amgen /1/ 25,526 1,576,486
Genentech /1/ 4,600 377,062
1,953,548
MEDICAL-DRUGS (6.01%)
Abbott Laboratories 20,433 870,854
American Pharmaceutical Partners /1/ 6,500 158,275
Eli Lilly 21,533 1,434,528
Merck 32,900 1,455,825
Pfizer 142,950 4,201,220
Wyeth 16,232 716,481
8,837,183
MEDICAL-HMO (0.36%)
Health Net /1/ 9,200 290,628
Pacificare Health Systems /1/ 4,100 243,950
534,578
MEDICAL-WHOLESALE DRUG DISTRIBUTION (0.32%)
Cardinal Health 8,000 474,720
METAL-ALUMINUM (0.97%)
Alcoa 45,081 1,423,207
METAL-DIVERSIFIED (0.11%)
Freeport-McMoran Copper & Gold 4,200 162,750
Shares
Held Value
- -----------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MISCELLANEOUS INVESTING (0.26%)
$
Equity Office Properties Trust 9,900 277,299
Mack-Cali Realty 2,600 97,994
375,293
MONEY CENTER BANKS (1.96%)
Bank of America 38,079 2,883,723
MULTI-LINE INSURANCE (3.37%)
American International Group 36,187 2,201,255
Hartford Financial Services 4,035 221,522
Loews 8,900 382,700
MetLife 35,200 1,105,280
Prudential Financial 27,100 1,047,144
4,957,901
MULTIMEDIA (3.60%)
Gannett 2,594 218,181
Time Warner 162,719 2,487,974
Viacom 46,900 1,869,903
Walt Disney 31,900 722,216
5,298,274
NETWORKING PRODUCTS (1.11%)
Cisco Systems /1/ 77,719 1,630,545
NON-HAZARDOUS WASTE DISPOSAL (0.39%)
Republic Services 7,100 165,075
Waste Management 15,582 403,885
568,960
OFFICE AUTOMATION & EQUIPMENT (0.09%)
Xerox /1/ 12,000 126,000
OIL & GAS DRILLING (0.58%)
Transocean Sedco Forex /1/ 44,500 853,955
OIL COMPANY-EXPLORATION & PRODUCTION (0.13%)
Apache 1,470 102,488
Burlington Resources 1,900 92,416
194,904
OIL COMPANY-INTEGRATED (4.17%)
ChevronTexaco 9,542 708,970
ConocoPhillips 19,900 1,137,285
Exxon Mobil 99,691 3,646,697
Marathon Oil 5,400 159,678
Occidental Petroleum 13,700 483,062
6,135,692
OIL REFINING & MARKETING (0.61%)
Sunoco 17,000 743,920
Valero Energy 3,500 149,450
893,370
OIL-FIELD SERVICES (0.92%)
Halliburton 31,600 754,608
Schlumberger 12,719 597,411
1,352,019
PAPER & RELATED PRODUCTS (0.55%)
Boise Cascade 3,700 103,785
Georgia-Pacific 6,300 165,564
Shares
Held Value
- -----------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
PAPER & RELATED PRODUCTS (CONTINUED)
$
International Paper 13,546 533,035
802,384
PHARMACY SERVICES (0.10%)
Medco Health Solutions /1/ 4,365 144,918
POULTRY (0.41%)
Tyson Foods 42,300 603,621
PROPERTY & CASUALTY INSURANCE (1.23%)
Chubb 10,700 714,867
Fidelity National Financial 14,450 446,794
Travelers Property Casualty 39,512 646,811
1,808,472
REAL ESTATE MANAGEMENT & SERVICES (0.07%)
LNR Property 2,500 102,250
REGIONAL BANKS (4.87%)
Bank One 32,056 1,360,777
FleetBoston Financial 11,700 472,563
National City 7,800 254,748
SunTrust Banks 6,400 429,248
U.S. Bancorp 35,800 974,476
Wachovia 43,122 1,978,006
Wells Fargo 30,200 1,700,864
7,170,682
RETAIL-APPAREL & SHOE (0.37%)
Chico's FAS /1/ 3,400 127,636
Gap 21,700 414,036
541,672
RETAIL-AUTOMOBILE (0.51%)
AutoNation /1/ 39,900 746,130
RETAIL-BUILDING PRODUCTS (0.69%)
Home Depot 2,900 107,503
Lowe's 15,400 907,522
1,015,025
RETAIL-CONSUMER ELECTRONICS (0.22%)
Best Buy /1/ 5,600 326,536
RETAIL-DISCOUNT (3.77%)
Dollar General 23,500 528,045
Target 11,500 457,010
Wal-Mart Stores 77,370 4,560,962
5,546,017
RETAIL-DRUG STORE (0.58%)
CVS 24,316 855,437
RETAIL-MAJOR DEPARTMENT STORE (0.27%)
J.C. Penney 11,400 269,610
Saks /1/ 8,800 122,320
391,930
RETAIL-OFFICE SUPPLIES (0.67%)
Staples /1/ 36,700 984,294
RETAIL-REGIONAL DEPARTMENT STORE (0.63%)
Federated Department Stores 19,600 931,980
Shares
Held Value
- -----------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
RETAIL-RESTAURANTS (0.30%)
$
CBRL Group 3,800 147,250
Starbucks /1/ 9,200 290,720
437,970
RETAIL-TOY STORE (0.06%)
Toys R Us /1/ 7,000 91,000
SATELLITE TELECOM (0.12%)
PanAmSat /1/ 8,500 175,950
SAVINGS & LOANS-THRIFTS (0.43%)
Charter One Financial 8,600 274,856
Hudson City Bancorp. 5,800 200,332
Washington Mutual 3,600 157,500
632,688
SCHOOLS (0.16%)
ITT Educational Services /1/ 4,600 229,080
SEMICONDUCTOR COMPONENT-INTEGRATED CIRCUITS (0.14%)
Maxim Integrated Products 4,200 208,782
SEMICONDUCTOR EQUIPMENT (0.57%)
Applied Materials /1/ 17,740 843,657
TELECOMMUNICATION EQUIPMENT (0.82%)
Qualcomm 15,400 731,500
Scientific-Atlanta 16,200 479,520
1,211,020
TELECOMMUNICATION EQUIPMENT-FIBER OPTICS (0.14%)
Corning /1/ 19,300 211,914
TELEPHONE-INTEGRATED (2.65%)
BellSouth 18,800 494,628
CenturyTel 5,500 196,625
SBC Communications 31,700 760,166
Sprint 61,700 987,200
Verizon Communications 43,583 1,464,389
3,903,008
THERAPEUTICS (0.50%)
Gilead Sciences /1/ 13,400 731,372
TOBACCO (0.76%)
Altria Group 3,300 153,450
RJ Reynolds Tobacco Holdings 20,200 970,206
1,123,656
TRANSPORT-RAIL (0.60%)
Burlington Northern Santa Fe 17,900 518,026
CSX 11,700 372,294
890,320
TRANSPORT-SERVICES (0.50%)
FedEx 8,245 624,641
United Parcel Service 1,500 108,780
733,421
WIRELESS EQUIPMENT (0.69%)
Motorola 74,600 1,009,338
TOTAL COMMON STOCKS 146,382,162
Principal Amount
Value
- -----------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (1.13%)
Citigroup Global Markets Holdings; 0.99%, 11/03/03
(collateralized by U.S. Treasury Note; $1,682,325; $
02/15/11) /2/ $1,665,000 1,665,000
TOTAL REPURCHASE AGREEMENTS 1,665,000
------------
TOTAL PORTFOLIO INVESTMENTS (100.60%) 148,047,162
LIABILITIES, NET OF CASH, RECEIVABLES, AND OTHER ASSETS
(-0.60%) (883,611)
TOTAL NET ASSETS (100.00%) $147,163,551
---------------
Unrealized
Contract Opening Current Gain (Loss)
Type Commitment Market Value Market Value
- --------------------------------------------------------------------
FUTURES CONTRACTS
11 S&P eMini Buy $569,952 $577,224 $7,272
December, 2003
Futures
/1 /Non-income producing security.
/2 /Security was purchased with the cash proceeds from securities loans.
See accompanying notes.
SCHEDULE OF INVESTMENTS
PRINCIPAL PARTNERS EQUITY GROWTH FUND, INC.
OCTOBER 31, 2003
Shares
Held Value
- --------------------------------------------------------------------------------------
COMMON STOCKS (95.63%)
APPLICATIONS SOFTWARE (5.49%)
$
Mercury Interactive /1/ 9,600 445,824
Microsoft 98,850 2,584,927
Siebel Systems /1/ 12,000 151,080
3,181,831
BEVERAGES-NON-ALCOHOLIC (3.14%)
Coca-Cola 25,175 1,168,120
Pepsico 13,645 652,504
1,820,624
BROADCASTING SERVICES & PROGRAMMING (1.53%)
Citadel Broadcasting /1/ 12,750 251,175
Clear Channel Communications 15,500 632,710
883,885
CABLE TV (0.77%)
Comcast /1/ 13,175 446,896
CELLULAR TELECOMMUNICATIONS (0.20%)
AT&T Wireless Services /1/ 16,100 116,725
CIRCUIT BOARDS (0.43%)
Jabil Circuit /1/ 8,880 247,308
COMMERCIAL SERVICES (0.44%)
Weight Watchers International /1/ 6,905 254,795
COMPUTERS (1.24%)
International Business Machines 8,050 720,314
COMPUTERS-INTEGRATED SYSTEMS (1.63%)
Dell /1/ 26,050 940,926
COMPUTERS-MEMORY DEVICES (1.07%)
EMC /1/ 15,425 213,482
Veritas Software /1/ 11,200 404,880
618,362
CONSULTING SERVICES (0.78%)
Accenture /1/ 19,400 453,960
COSMETICS & TOILETRIES (2.88%)
Colgate-Palmolive 7,750 412,222
Procter & Gamble 12,800 1,258,112
1,670,334
DATA PROCESSING & MANAGEMENT (0.61%)
First Data 9,900 353,430
DIVERSIFIED FINANCIAL SERVICES (3.58%)
Citigroup 43,716 2,072,138
DIVERSIFIED MANUFACTURING OPERATIONS (5.43%)
3M 15,300 1,206,711
General Electric 66,750 1,936,417
3,143,128
E-COMMERCE-SERVICES (1.02%)
eBay /1/ 10,100 564,994
Priceline.com /1/ 1,000 28,060
593,054
ELECTRIC PRODUCTS-MISCELLANEOUS (0.49%)
Emerson Electric 5,000 283,750
Shares
Held Value
- --------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
ELECTRONIC COMPONENTS-SEMICONDUCTOR (4.71%)
$
Intel 61,200 2,022,660
Texas Instruments 14,625 422,955
Xilinx /1/ 8,800 278,960
2,724,575
ELECTRONIC CONNECTORS (0.36%)
Amphenol /1/ 3,500 205,625
ELECTRONIC FORMS (0.44%)
Adobe Systems 5,800 254,272
ENTERPRISE SOFTWARE & SERVICE (1.50%)
Oracle /1/ 50,200 600,392
Peoplesoft /1/ 13,000 269,880
870,272
FIDUCIARY BANKS (0.93%)
Bank of New York 17,250 538,028
FINANCE-CONSUMER LOANS (0.07%)
First Marblehead 1,800 39,870
FINANCE-CREDIT CARD (1.29%)
American Express 15,900 746,187
FINANCE-INVESTMENT BANKER & BROKER (2.60%)
Charles Schwab 33,300 451,548
Goldman Sachs Group 5,775 542,272
Lehman Brothers Holdings 7,100 511,200
1,505,020
FINANCE-MORTGAGE LOAN/BANKER (0.92%)
Federal National Mortgage Association 7,400 530,506
HEALTH CARE COST CONTAINMENT (0.43%)
Caremark Rx /1/ 9,900 247,995
INTERNET SECURITY (0.41%)
Symantec /1/ 3,590 239,274
LIFE & HEALTH INSURANCE (0.97%)
Aflac 15,400 561,792
MEDICAL INSTRUMENTS (2.19%)
Boston Scientific /1/ 4,500 304,740
Guidant 6,200 316,262
Medtronic 7,875 358,864
St. Jude Medical /1/ 4,925 286,438
1,266,304
MEDICAL PRODUCTS (2.11%)
Johnson & Johnson 24,275 1,221,761
MEDICAL-BIOMEDICAL/GENE (2.02%)
Amgen /1/ 15,715 970,558
IDEC Pharmaceuticals /1/ 5,600 196,728
1,167,286
MEDICAL-DRUGS (8.77%)
Abbott Laboratories 11,550 492,261
Celgene /1/ 2,975 124,028
Eli Lilly 9,200 612,904
Merck 11,550 511,087
Pfizer 87,195 2,755,362
Shares
Held Value
- --------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MEDICAL-DRUGS (CONTINUED)
$
Wyeth 13,250 584,855
5,080,497
MEDICAL-HMO (0.96%)
UnitedHealth Group 10,950 557,136
MEDICAL-HOSPITALS (0.22%)
Health Management Associates 5,700 126,255
MEDICAL-WHOLESALE DRUG DISTRIBUTION (0.38%)
AmerisourceBergen 3,900 221,403
MULTI-LINE INSURANCE (2.12%)
American International Group 20,225 1,230,287
MULTIMEDIA (1.57%)
Gannett 2,600 218,686
Viacom 17,320 690,548
909,234
NETWORKING PRODUCTS (2.83%)
Cisco Systems /1/ 78,025 1,636,964
OIL COMPANY-EXPLORATION & PRODUCTION (0.43%)
Burlington Resources 5,100 248,064
OIL COMPANY-INTEGRATED (0.48%)
Exxon Mobil 7,650 279,837
OIL FIELD MACHINERY & EQUIPMENT (1.11%)
Smith International /1/ 17,230 641,473
OIL-FIELD SERVICES (0.91%)
Baker Hughes 9,175 259,286
BJ Services /1/ 8,200 269,042
528,328
REGIONAL BANKS (1.48%)
Wells Fargo 15,250 858,880
RETAIL-APPAREL & SHOE (0.59%)
Abercrombie & Fitch /1/ 12,000 342,000
RETAIL-BEDDING (0.54%)
Bed Bath & Beyond /1/ 7,400 312,576
RETAIL-BUILDING PRODUCTS (2.49%)
Home Depot 27,280 1,011,270
Lowe's 7,300 430,189
1,441,459
RETAIL-DISCOUNT (6.39%)
Costco Wholesale /1/ 5,400 190,998
Dollar Tree Stores /1/ 16,000 610,880
Target 18,200 723,268
TJX 12,550 263,425
Wal-Mart Stores 32,450 1,912,927
3,701,498
RETAIL-DRUG STORE (0.48%)
Walgreen 7,975 277,690
RETAIL-JEWELRY (0.41%)
Tiffany 5,025 238,436
Shares
Held Value
- --------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
RETAIL-RESTAURANTS (1.01%)
$
McDonald's 8,800 220,088
Yum! Brands /1/ 10,700 365,298
585,386
SATELLITE TELECOM (0.68%)
EchoStar Communications /1/ 10,300 394,696
SCHOOLS (0.37%)
Apollo Group /1/ 3,400 216,002
SEMICONDUCTOR COMPONENT-INTEGRATED CIRCUITS (3.44%)
Analog Devices /1/ 14,100 625,053
Linear Technology 14,150 602,931
Marvell Technology Group /1/ 8,800 386,056
Maxim Integrated Products 7,600 377,796
1,991,836
SEMICONDUCTOR EQUIPMENT (1.96%)
Applied Materials /1/ 36,225 846,578
Novellus Systems /1/ 6,950 286,966
1,133,544
TELECOMMUNICATION EQUIPMENT (1.67%)
Nokia 29,000 492,710
Qualcomm 9,975 473,813
966,523
TELEVISION (0.61%)
Univision Communications /1/ 10,350 351,383
THERAPEUTICS (0.33%)
Gilead Sciences /1/ 3,550 193,759
TOBACCO (0.35%)
Altria Group 4,400 204,600
TOYS (0.25%)
LeapFrog Enterprises /1/ 4,200 145,194
TRANSPORT-SERVICES (0.51%)
United Parcel Service 4,100 297,332
TRANSPORT-TRUCK (0.07%)
Overnite 1,700 37,672
WEB PORTALS (0.54%)
Yahoo /1/ 7,100 310,270
TOTAL COMMON STOCKS 55,380,441
99
See accompanying notes.
SCHEDULE OF INVESTMENTS
PRINCIPAL PARTNERS EQUITY GROWTH FUND, INC.
OCTOBER 31, 2003
Principal Amount
Value
- -------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (1.17%)
Citigroup Global Markets Holdings;
0.99%, 11/03/03 (collateralized by
U.S. Treasury Note; $684,045;
02/15/11) /2/ $677,000 $ 677,000
TOTAL REPURCHASE AGREEMENTS 677,000
-----------
TOTAL PORTFOLIO INVESTMENTS (96.80%) 56,057,441
CASH, RECEIVABLES AND OTHER ASSETS, NET OF
LIABILITIES (3.20%) 1,852,772
TOTAL NET ASSETS (100.00%) $57,910,213
-------------
/1 /Non-income producing security.
/2 /Security was purchased with the cash proceeds from securities loans.
See accompanying notes.
SCHEDULE OF INVESTMENTS
PRINCIPAL PARTNERS LARGECAP BLEND FUND, INC.
OCTOBER 31, 2003
Shares
Held Value
- -------------------------------------------------------------------------------------------
COMMON STOCKS (96.19%)
ADVERTISING AGENCIES (0.86%)
$
Interpublic Group 7,900 117,552
Omnicom Group 3,700 295,260
412,812
AEROSPACE & DEFENSE (0.65%)
Raytheon 11,800 312,464
AEROSPACE & DEFENSE EQUIPMENT (0.71%)
Lockheed Martin 7,300 338,428
APPLICATIONS SOFTWARE (2.90%)
Intuit /1/ 4,200 209,916
Microsoft 45,100 1,179,365
1,389,281
ATHLETIC FOOTWEAR (0.65%)
Nike 4,900 313,110
BEVERAGES-NON-ALCOHOLIC (2.59%)
Coca-Cola 14,600 677,440
Pepsico 11,790 563,798
1,241,238
BROADCASTING SERVICES & PROGRAMMING (0.51%)
Clear Channel Communications 6,000 244,920
CABLE TV (0.69%)
Comcast /1/ 9,700 329,024
COMPUTERS (4.16%)
Apple Computer /1/ 14,100 322,749
Hewlett-Packard 44,600 995,026
International Business Machines 7,500 671,100
1,988,875
COMPUTERS-INTEGRATED SYSTEMS (1.06%)
Dell /1/ 14,100 509,292
COMPUTERS-MEMORY DEVICES (0.91%)
EMC /1/ 31,500 435,960
COMPUTERS-PERIPHERAL EQUIPMENT (0.94%)
Lexmark International /1/ 6,100 449,021
COSMETICS & TOILETRIES (1.77%)
Gillette 7,500 239,250
Procter & Gamble 6,200 609,398
848,648
DATA PROCESSING & MANAGEMENT (0.72%)
First Data 9,600 342,720
DIVERSIFIED FINANCIAL SERVICES (2.42%)
Citigroup 24,400 1,156,560
DIVERSIFIED MANUFACTURING OPERATIONS (7.40%)
3M 9,100 717,717
Danaher 5,400 447,390
Eaton 5,200 521,248
General Electric 35,600 1,032,756
Textron 8,600 427,334
Tyco International 18,900 394,632
3,541,077
Shares
Held Value
- -------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
DIVERSIFIED OPERATORS-COMMERCIAL SERVICES (0.75%)
$
Cendant /1/ 17,600 359,568
ELECTRIC-INTEGRATED (2.39%)
Cinergy 11,700 424,827
FirstEnergy 7,000 240,730
FPL Group 2,600 165,724
NiSource 15,100 312,721
1,144,002
ELECTRONIC COMPONENTS-SEMICONDUCTOR (2.89%)
Intel 32,900 1,087,345
Texas Instruments 10,200 294,984
1,382,329
ENTERPRISE SOFTWARE & SERVICE (0.71%)
Oracle /1/ 28,400 339,664
FIDUCIARY BANKS (0.96%)
Bank of New York 14,700 458,493
FINANCE-CONSUMER LOANS (0.20%)
SLM 2,500 97,900
FINANCE-CREDIT CARD (0.59%)
MBNA 11,500 284,625
FINANCE-INVESTMENT BANKER & BROKER (1.55%)
Lehman Brothers Holdings 8,500 612,000
Morgan Stanley 2,400 131,688
743,688
FINANCE-MORTGAGE LOAN/BANKER (1.03%)
Federal Home Loan Mortgage 3,400 190,842
Federal National Mortgage Association 4,200 301,098
491,940
FOOD-CONFECTIONERY (0.53%)
Wm. Wrigley Jr. 4,500 253,800
FOOD-MISCELLANEOUS/DIVERSIFIED (0.45%)
Sara Lee 10,800 215,244
FOOD-RETAIL (0.90%)
Kroger /1/ 24,600 430,254
GAS-DISTRIBUTION (0.58%)
Sempra Energy 10,000 278,000
INSTRUMENTS-CONTROLS (0.88%)
Johnson Controls 3,900 419,367
LIFE & HEALTH INSURANCE (0.81%)
Lincoln National 9,700 387,321
MACHINERY-CONSTRUCTION & MINING (0.67%)
Caterpillar 4,400 322,432
MACHINERY-FARM (0.56%)
Deere 4,400 266,728
MEDICAL INSTRUMENTS (1.74%)
Boston Scientific /1/ 3,400 230,248
Guidant 6,500 331,565
Medtronic 2,200 100,254
Shares
Held Value
- -------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MEDICAL INSTRUMENTS (CONTINUED)
$
St. Jude Medical /1/ 2,900 168,664
830,731
MEDICAL PRODUCTS (1.93%)
Baxter International 12,300 326,934
Johnson & Johnson 11,900 598,927
925,861
MEDICAL-BIOMEDICAL/GENE (1.16%)
Amgen /1/ 4,900 302,624
Biogen /1/ 6,200 250,914
553,538
MEDICAL-DRUGS (8.36%)
Abbott Laboratories 8,200 349,484
Bristol-Myers Squibb 11,900 301,903
Eli Lilly 8,700 579,594
Forest Laboratories /1/ 7,100 355,071
Merck 12,600 557,550
Pfizer 38,381 1,212,839
Schering-Plough 21,700 331,359
Wyeth 7,100 313,394
4,001,194
MEDICAL-WHOLESALE DRUG DISTRIBUTION (0.43%)
Cardinal Health 3,500 207,690
METAL-ALUMINUM (1.06%)
Alcoa 16,000 505,120
MONEY CENTER BANKS (1.25%)
Bank of America 7,900 598,267
MULTI-LINE INSURANCE (2.19%)
Allstate 11,800 466,100
American International Group 9,600 583,968
1,050,068
MULTIMEDIA (3.06%)
Gannett 5,000 420,550
Time Warner 21,600 330,264
Viacom 6,900 275,103
Walt Disney 19,300 436,952
1,462,869
NETWORKING PRODUCTS (1.39%)
Cisco Systems /1/ 22,300 467,854
Lucent Technologies /1/ 62,100 198,720
666,574
NON-HAZARDOUS WASTE DISPOSAL (0.85%)
Waste Management 15,600 404,352
OIL & GAS DRILLING (0.72%)
Transocean Sedco Forex /1/ 18,000 345,420
OIL COMPANY-INTEGRATED (4.62%)
ChevronTexaco 5,100 378,930
ConocoPhillips 8,100 462,915
Exxon Mobil 37,400 1,368,092
2,209,937
OIL-FIELD SERVICES (2.18%)
Halliburton 14,600 348,648
Shares
Held Value
- -------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
OIL-FIELD SERVICES (CONTINUED)
$
Schlumberger 7,300 342,881
Weatherford International /1/ 10,100 350,975
1,042,504
PAPER & RELATED PRODUCTS (1.66%)
International Paper 13,500 531,225
MeadWestvaco 10,100 261,792
793,017
PHARMACY SERVICES (0.09%)
Medco Health Solutions /1/ 1,278 42,430
REGIONAL BANKS (2.17%)
Bank One 2,700 114,615
Fifth Third Bancorp 2,900 168,084
FleetBoston Financial 4,200 169,638
Wachovia 3,100 142,197
Wells Fargo 7,900 444,928
1,039,462
RETAIL-BUILDING PRODUCTS (1.39%)
Home Depot 17,900 663,553
RETAIL-DISCOUNT (3.73%)
Costco Wholesale /1/ 9,500 336,015
Target 12,400 492,776
Wal-Mart Stores 16,200 954,990
1,783,781
RETAIL-DRUG STORE (0.74%)
Rite Aid /1/ 22,800 130,644
Walgreen 6,400 222,848
353,492
RETAIL-REGIONAL DEPARTMENT STORE (0.15%)
Kohls /1/ 1,300 72,891
RETAIL-RESTAURANTS (1.01%)
McDonald's 19,300 482,693
SAVINGS & LOANS-THRIFTS (0.85%)
Washington Mutual 9,300 406,875
SEMICONDUCTOR COMPONENT-INTEGRATED CIRCUITS (0.79%)
Maxim Integrated Products 7,600 377,796
SEMICONDUCTOR EQUIPMENT (0.79%)
Applied Materials /1/ 8,400 196,308
Kla-Tencor /1/ 3,200 183,456
379,764
TELECOMMUNICATION EQUIPMENT (0.77%)
Nokia 21,700 368,683
TELEPHONE-INTEGRATED (4.28%)
AT&T 10,300 191,477
BellSouth 13,200 347,292
SBC Communications 28,600 685,828
Sprint 11,500 184,000
Verizon Communications 19,000 638,400
2,046,997
Shares
Held Value
- -------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TOBACCO (1.44%)
$
Altria Group 10,400 483,600
UST 6,100 207,522
691,122
TOTAL COMMON STOCKS 46,035,466
-----------
TOTAL PORTFOLIO INVESTMENTS (96.19%) 46,035,466
CASH, RECEIVABLES AND OTHER ASSETS, NET OF
LIABILITIES (3.81%) 1,821,219
TOTAL NET ASSETS (100.00%) $47,856,685
-------------
/1 //Non-income producing security./
See accompanying notes.
SCHEDULE OF INVESTMENTS
PRINCIPAL PARTNERS LARGECAP VALUE FUND, INC.
OCTOBER 31, 2003
Shares
Held Value
- -------------------------------------------------------------------------------
COMMON STOCKS (95.39%)
AEROSPACE & DEFENSE EQUIPMENT (0.57%)
$
Goodrich 9,775 269,986
AGRICULTURAL OPERATIONS (0.13%)
Monsanto 2,400 60,120
APPAREL MANUFACTURERS (0.69%)
Liz Claiborne 3,200 118,048
VF 4,900 208,005
326,053
APPLIANCES (0.54%)
Whirlpool 3,675 258,977
AUTO-CARS & LIGHT TRUCKS (0.82%)
General Motors 9,100 388,297
AUTO-MEDIUM & HEAVY DUTY TRUCKS (0.15%)
Paccar 900 71,064
AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL (2.22%)
Autoliv 7,500 248,400
Dana 9,900 161,172
Delphi Automotive Systems 21,100 187,790
Lear /1/ 3,700 214,933
Magna International 3,000 240,690
1,052,985
BUILDING-RESIDENTIAL & COMMERCIAL (1.34%)
Centex 1,300 126,750
KB Home 3,000 205,470
Pulte 3,500 302,785
635,005
CABLE TV (1.62%)
Comcast /1/ 22,711 770,357
CELLULAR TELECOMMUNICATIONS (0.59%)
AT&T Wireless Services /1/ 38,600 279,850
CHEMICALS-DIVERSIFIED (2.30%)
Dow Chemical 13,100 493,739
E. I. Du Pont de Nemours 8,750 353,500
Lyondell Chemical 4,200 60,060
PPG Industries 3,200 184,480
1,091,779
CHEMICALS-SPECIALTY (0.48%)
Cabot 3,400 94,860
Lubrizol 4,400 133,320
228,180
COATINGS & PAINT (0.28%)
Sherwin-Williams 4,000 134,160
COMMERCIAL BANKS (1.48%)
AmSouth Bancorp 8,300 196,046
Regions Financial 6,150 226,012
SouthTrust 3,600 114,660
UnionBanCal 3,050 165,219
701,937
COMPUTERS (2.48%)
Hewlett-Packard 38,100 850,011
Shares
Held Value
- -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
COMPUTERS (CONTINUED)
$
International Business Machines 3,650 326,602
1,176,613
COMPUTERS-MEMORY DEVICES (0.06%)
Quantum /1/ 8,800 27,368
CONTAINERS-METAL & GLASS (0.05%)
Owens-Illinois /1/ 2,000 24,600
CONTAINERS-PAPER & PLASTIC (0.20%)
Smurfit-Stone Container /1/ 6,200 96,100
COSMETICS & TOILETRIES (0.35%)
Procter & Gamble 1,700 167,093
DISTRIBUTION-WHOLESALE (0.82%)
Genuine Parts 4,800 152,736
Ingram Micro /1/ 8,700 128,760
Tech Data /1/ 3,300 108,636
390,132
DIVERSIFIED FINANCIAL SERVICES (4.64%)
Citigroup 46,500 2,204,100
DIVERSIFIED MANUFACTURING OPERATIONS (2.20%)
Cooper Industries 3,800 201,020
Eaton 3,100 310,744
Textron 6,300 313,047
Tyco International 10,600 221,328
1,046,139
DIVERSIFIED OPERATORS-COMMERCIAL SERVICES (0.32%)
Cendant /1/ 7,400 151,182
ELECTRIC-INTEGRATED (5.29%)
Alliant Energy 9,300 223,758
American Electric Power 10,850 305,861
Cinergy 5,500 199,705
Constellation Energy Group 6,100 221,857
Edison International /1/ 2,600 51,246
Entergy 6,100 328,790
FirstEnergy 9,900 340,461
Northeast Utilities 10,900 205,356
PG&E /1/ 3,900 95,355
PPL 5,300 211,576
Puget Energy 4,400 100,012
XCEL Energy 14,000 229,600
2,513,577
ELECTRONIC COMPONENTS-MISCELLANEOUS (1.01%)
Flextronics International /1/ 18,200 254,800
Solectron /1/ 40,200 222,708
477,508
ELECTRONIC CONNECTORS (0.05%)
Thomas & Betts /1/ 1,300 23,140
ELECTRONIC PARTS DISTRIBUTION (0.42%)
Arrow Electronics /1/ 2,000 42,700
Avnet /1/ 8,000 155,200
197,900
Shares
Held Value
- -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
FINANCE-INVESTMENT BANKER & BROKER (2.85%)
$
Bear Stearns 2,800 213,500
Lehman Brothers Holdings 5,450 392,400
Merrill Lynch 6,200 367,040
Morgan Stanley 6,900 378,603
1,351,543
FINANCE-MORTGAGE LOAN/BANKER (1.59%)
Countrywide Credit Industries 3,500 367,920
Federal Home Loan Mortgage 3,700 207,681
Federal National Mortgage
Association 2,525 181,017
756,618
FINANCIAL GUARANTEE INSURANCE (0.64%)
MBIA 5,100 304,011
FOOD-FLOUR & GRAIN (0.35%)
Archer-Daniels-Midland 11,625 166,819
FOOD-MISCELLANEOUS/DIVERSIFIED (0.76%)
H.J. Heinz 4,300 151,919
Sara Lee 10,600 211,258
363,177
FOOD-RETAIL (1.02%)
Albertson's 5,200 105,508
Kroger /1/ 10,100 176,649
Safeway /1/ 9,600 202,560
484,717
FOOD-WHOLESALE & DISTRIBUTION (0.16%)
Supervalu 3,000 75,660
GAS-DISTRIBUTION (0.52%)
Sempra Energy 8,900 247,420
HOME FURNISHINGS (0.25%)
Leggett & Platt 5,600 116,984
INDUSTRIAL AUTOMATION & ROBOTS (0.11%)
Rockwell International 1,700 52,785
INSURANCE BROKERS (0.51%)
Aon 11,100 243,090
LIFE & HEALTH INSURANCE (1.44%)
Jefferson-Pilot 6,200 295,988
John Hancock Financial Services 9,500 335,825
Torchmark 1,225 53,753
685,566
MACHINERY-CONSTRUCTION & MINING (0.49%)
Caterpillar 3,200 234,496
MEDICAL INSTRUMENTS (0.49%)
Guidant 4,600 234,646
MEDICAL PRODUCTS (0.08%)
Becton Dickinson 1,000 36,560
MEDICAL-DRUGS (2.71%)
Abbott Laboratories 800 34,096
Bristol-Myers Squibb 6,400 162,368
GlaxoSmithKline 5,400 233,766
Merck 13,950 617,288
Shares
Held Value
- -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MEDICAL-DRUGS (CONTINUED)
$
Wyeth 5,400 238,356
1,285,874
MEDICAL-HMO (1.25%)
Aetna 2,800 160,748
Health Net /1/ 6,700 211,653
Humana /1/ 11,000 223,190
595,591
METAL-ALUMINUM (0.47%)
Alcan 5,600 223,608
MONEY CENTER BANKS (3.42%)
Bank of America 17,000 1,287,410
JP Morgan Chase 9,400 337,460
1,624,870
MULTI-LINE INSURANCE (2.56%)
Allstate 12,500 493,750
American International Group 5,889 358,228
MetLife 8,450 265,330
Old Republic International 2,800 100,632
1,217,940
MULTIMEDIA (1.13%)
Time Warner 24,500 374,605
Viacom 2,500 99,675
Walt Disney 2,700 61,128
535,408
NETWORKING PRODUCTS (0.26%)
Lucent Technologies /1/ 38,400 122,880
OIL COMPANY-INTEGRATED (8.36%)
ChevronTexaco 11,628 863,960
ConocoPhillips 9,997 571,329
Exxon Mobil 52,600 1,924,108
Marathon Oil 10,400 307,528
Occidental Petroleum 8,600 303,236
3,970,161
OIL REFINING & MARKETING (0.89%)
Ashland 5,900 219,716
Valero Energy 4,800 204,960
424,676
PAPER & RELATED PRODUCTS (0.79%)
Boise Cascade 1,600 44,880
Georgia-Pacific 12,550 329,814
374,694
PHARMACY SERVICES (0.12%)
Medco Health Solutions /1/ 1,682 55,842
PIPELINES (0.10%)
Williams 4,800 48,960
POULTRY (0.53%)
Tyson Foods 17,535 250,224
POWER CONVERTER & SUPPLY EQUIPMENT (0.26%)
Hubbell 2,900 124,236
Shares
Held Value
- -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
PRINTING-COMMERCIAL (0.42%)
$
R.R. Donnelley & Sons 7,600 197,600
PROPERTY & CASUALTY INSURANCE (2.42%)
ACE 2,800 100,800
Chubb 4,750 317,348
St. Paul 7,125 271,676
Travelers Property Casualty 13,562 221,061
Travelers Property Casualty 2,387 39,075
XL Capital 2,850 198,075
1,148,035
REGIONAL BANKS (9.55%)
Bank One 8,300 352,335
Comerica 4,600 236,808
FleetBoston Financial 16,087 649,754
Huntington Bancshares 10,300 223,098
KeyCorp 11,550 326,288
National City 9,950 324,967
PNC Financial Services Group 7,300 391,061
SunTrust Banks 4,600 308,522
U.S. Bancorp 15,997 435,438
Union Planters 3,562 118,508
Wachovia 17,300 793,551
Wells Fargo 6,650 374,528
4,534,858
REINSURANCE (0.19%)
RenaissanceRe Holdings 2,000 89,960
RETAIL-APPAREL & SHOE (0.03%)
Foot Locker 900 16,110
RETAIL-MAJOR DEPARTMENT STORE (1.66%)
May Department Stores 10,400 290,784
Sears Roebuck 9,500 499,985
790,769
RETAIL-OFFICE SUPPLIES (0.44%)
Office Depot /1/ 13,900 207,527
RETAIL-REGIONAL DEPARTMENT STORE (0.69%)
Federated Department Stores 6,900 328,095
RETAIL-RESTAURANTS (0.11%)
McDonald's 2,000 50,020
RUBBER-TIRES (0.08%)
Cooper Tire & Rubber 2,000 39,320
SAVINGS & LOANS-THRIFTS (2.42%)
Astoria Financial 6,500 225,160
Golden West Financial 3,200 321,376
Washington Mutual 13,787 603,181
1,149,717
TELECOMMUNICATION EQUIPMENT (1.26%)
Nortel Networks /1/ 96,600 429,870
Tellabs /1/ 22,300 167,919
597,789
TELECOMMUNICATION EQUIPMENT-FIBER OPTICS (1.41%)
Corning /1/ 44,800 491,904
Shares
Held Value
- -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TELECOMMUNICATION EQUIPMENT-FIBER OPTICS (CONTINUED)
$
JDS Uniphase /1/ 49,700 176,435
668,339
TELEPHONE-INTEGRATED (4.95%)
BellSouth 20,400 536,724
Qwest Communications International
/1/ 43,000 151,790
SBC Communications 25,800 618,684
Sprint 22,500 360,000
Sprint PCS /1/ 35,600 154,860
Verizon Communications 15,800 530,880
2,352,938
TEXTILE-HOME FURNISHINGS (0.39%)
Mohawk Industries /1/ 2,500 185,300
TOBACCO (2.39%)
Altria Group 18,650 867,225
UST 7,900 268,758
1,135,983
TOOLS-HAND HELD (0.23%)
Black & Decker 2,300 109,963
TRANSPORT-RAIL (1.54%)
Burlington Northern Santa Fe 9,050 261,907
CSX 7,600 241,832
Norfolk Southern 11,300 227,695
731,434
TOTAL COMMON STOCKS 45,307,015
-----------
TOTAL PORTFOLIO INVESTMENTS (95.39%) 45,307,015
CASH, RECEIVABLES AND
OTHER ASSETS, NET OF
LIABILITIES (4.61%) 2,187,477
TOTAL NET ASSETS (100.00%) $47,494,492
-------------
/1 /Non-income producing security.
SCHEDULE OF INVESTMENTS
PRINCIPAL PARTNERS MIDCAP GROWTH FUND, INC.
OCTOBER 31, 2003
Shares
Held Value
- -----------------------------------------------------------------------------------------
COMMON STOCKS (96.72%)
ADVERTISING AGENCIES (0.77%)
$
Interpublic Group 15,870 236,146
AIRLINES (0.29%)
JetBlue Airways /1/ 1,560 89,981
APPAREL MANUFACTURERS (1.20%)
Coach /1/ 6,840 242,615
Quiksilver /1/ 7,300 125,341
367,956
APPLICATIONS SOFTWARE (2.81%)
Citrix Systems /1/ 8,380 211,846
Mercury Interactive /1/ 4,090 189,940
Red Hat /1/ 13,000 195,520
Siebel Systems /1/ 21,190 266,782
864,088
AUDIO & VIDEO PRODUCTS (0.95%)
Polycom /1/ 14,530 291,036
AUTO-MEDIUM & HEAVY DUTY TRUCKS (0.56%)
Navistar International /1/ 4,250 171,828
BUILDING-MAINTENANCE & SERVICE (0.83%)
Ecolab 9,430 253,573
CASINO HOTELS (0.57%)
MGM Mirage /1/ 4,950 175,725
CASINO SERVICES (0.94%)
International Game Technology 8,790 287,872
CELLULAR TELECOMMUNICATIONS (0.46%)
Western Wireless /1/ 7,210 139,874
COMMERCIAL BANKS (0.46%)
Silicon Valley Bancshares /1/ 4,070 142,857
COMMERCIAL SERVICES (0.96%)
Alliance Data Systems /1/ 6,090 169,180
Wireless Facilities /1/ 7,350 126,273
295,453
COMPUTER DATA SECURITY (0.34%)
NetScreen Technologies /1/ 3,940 104,883
COMPUTER GRAPHICS (0.64%)
Pixar /1/ 2,860 196,797
COMPUTER SERVICES (1.58%)
Ceridian /1/ 7,740 162,540
Sungard Data Systems /1/ 11,530 323,416
485,956
COMPUTERS-MEMORY DEVICES (0.62%)
Maxtor /1/ 14,040 191,927
COMPUTERS-PERIPHERAL EQUIPMENT (0.57%)
Lexar Media /1/ 7,700 176,407
CONTAINERS-METAL & GLASS (0.47%)
Crown Holdings /1/ 18,230 144,017
Shares
Held Value
- -----------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
CRUISE LINES (0.58%)
$
Royal Caribbean Cruises 5,950 176,775
DATA PROCESSING & MANAGEMENT (3.06%)
Fair, Isaac 3,820 243,640
Fiserv /1/ 12,080 426,665
SEI Investments 9,310 271,107
941,412
DECISION SUPPORT SOFTWARE (0.49%)
Cognos /1/ 4,330 149,255
DENTAL SUPPLIES & EQUIPMENT (1.62%)
Dentsply International 2,615 115,557
Patterson Dental /1/ 5,980 382,600
498,157
DIAGNOSTIC EQUIPMENT (0.67%)
Gen-Probe /1/ 7,740 207,200
DISTRIBUTION-WHOLESALE (1.22%)
CDW 6,250 375,312
DIVERSIFIED MANUFACTURING OPERATIONS (0.47%)
SPX /1/ 3,020 145,322
E-COMMERCE-SERVICES (0.76%)
Monster Worldwide /1/ 9,110 232,032
ELECTRIC PRODUCTS-MISCELLANEOUS (0.92%)
Molex 9,020 283,138
ELECTRIC-GENERATION (0.66%)
AES /1/ 23,010 201,337
ELECTRONIC COMPONENTS-MISCELLANEOUS (1.69%)
Sanmina /1/ 30,150 318,082
Vishay Intertechnology /1/ 10,800 202,500
520,582
ELECTRONIC COMPONENTS-SEMICONDUCTOR (3.04%)
Agere Systems /1/ 61,520 214,089
Fairchild Semiconductor International /1/ 10,640 240,464
National Semiconductor /1/ 7,760 315,289
PMC - Sierra /1/ 9,070 164,802
934,644
ENGINEERING-RESEARCH & DEVELOPMENT SERVICES (0.64%)
Fluor 5,270 195,412
ENGINES-INTERNAL COMBUSTION (0.65%)
Cummins Engine 4,210 199,554
ENTERPRISE SOFTWARE & SERVICE (1.18%)
BEA Systems /1/ 25,890 359,871
MicroStrategy /1/ 32 9
MicroStrategy /1/ 43 2,365
362,245
ENTERTAINMENT SOFTWARE (1.94%)
Electronic Arts /1/ 3,840 380,314
Take-Two Interactive Software /1/ 5,440 215,152
595,466
Shares
Held Value
- -----------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
ENVIRONMENTAL CONSULTING & ENGINEERING (0.47%)
$
Tetra Tech /1/ 6,380 143,422
FIDUCIARY BANKS (1.00%)
Investors Financial Services 8,660 305,958
FINANCE-CREDIT CARD (0.47%)
Providian Financial /1/ 13,120 145,763
FINANCE-INVESTMENT BANKER & BROKER (2.08%)
Bear Stearns 2,630 200,538
Jefferies Group 3,710 115,010
Legg Mason 3,890 323,842
639,390
FINANCIAL GUARANTEE INSURANCE (0.50%)
Radian Group 2,930 154,997
FOOD-BAKING (0.33%)
Flowers Foods 4,290 101,802
FOOD-DAIRY PRODUCTS (0.60%)
Dean Foods /1/ 6,100 184,525
HEALTH CARE COST CONTAINMENT (0.91%)
Caremark Rx /1/ 11,190 280,309
HOTELS & MOTELS (1.63%)
Marriott International 5,190 224,208
Starwood Hotels & Resorts Worldwide 8,230 277,598
501,806
HUMAN RESOURCES (1.15%)
Manpower 7,630 354,032
INDUSTRIAL AUTOMATION & ROBOTS (0.67%)
UNOVA /1/ 9,470 205,594
INDUSTRIAL GASES (0.50%)
Air Products & Chemicals 3,400 154,394
INSTRUMENTS-SCIENTIFIC (0.90%)
Fisher Scientific International /1/ 6,860 276,115
INTERNET BROKERS (0.92%)
Ameritrade Holding /1/ 20,620 281,257
INTERNET CONTENT-INFORMATION/NEWS (1.19%)
CNET Networks /1/ 26,140 212,779
SINA /1/ 3,930 151,816
364,595
INTERNET SECURITY (1.83%)
CheckFree /1/ 7,800 214,734
VeriSign /1/ 21,930 348,029
562,763
LASERS-SYSTEMS & COMPONENTS (0.91%)
Cymer /1/ 6,150 280,809
LEISURE & RECREATION PRODUCTS (0.49%)
WMS Industries /1/ 6,510 150,576
LINEN SUPPLY & RELATED ITEMS (0.58%)
Cintas 4,150 177,039
Shares
Held Value
- -----------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MACHINERY-PRINT TRADE (0.68%)
$
Zebra Technologies /1/ 3,680 209,576
MEDICAL LASER SYSTEMS (0.57%)
VISX /1/ 7,180 174,187
MEDICAL PRODUCTS (4.11%)
Henry Schein /1/ 6,500 403,325
INAMED /1/ 1,860 160,648
Varian Medical Systems /1/ 4,440 283,894
Zimmer Holdings /1/ 6,510 415,403
1,263,270
MEDICAL-BIOMEDICAL/GENE (2.15%)
Chiron /1/ 8,050 439,772
Invitrogen /1/ 3,460 220,021
659,793
MEDICAL-DRUGS (2.56%)
Allergan 2,110 159,558
Celgene /1/ 6,880 286,827
Medicis Pharmaceutical 5,350 338,923
785,308
MEDICAL-GENERIC DRUGS (2.64%)
Mylan Laboratories 10,305 248,866
Pharmaceutical Resources /1/ 4,260 307,913
Taro Pharmaceuticals Industries /1/ 2,400 154,200
Watson Pharmaceutical /1/ 2,520 98,960
809,939
MEDICAL-HMO (2.09%)
Aetna 3,830 219,880
Coventry Health Care /1/ 2,320 127,020
Mid Atlantic Medical Services /1/ 5,050 294,920
641,820
MEDICAL-HOSPITALS (0.41%)
Community Health Systems /1/ 5,220 125,384
METAL-COPPER (0.72%)
Phelps Dodge /1/ 3,560 219,794
METAL-DIVERSIFIED (0.72%)
Freeport-McMoran Copper & Gold 5,730 222,037
NETWORKING PRODUCTS (0.71%)
Network Appliance /1/ 8,900 219,652
NON-HAZARDOUS WASTE DISPOSAL (0.42%)
Allied Waste Industries /1/ 11,440 129,043
OIL & GAS DRILLING (0.40%)
Nabors Industries /1/ 3,290 124,362
OIL COMPANY-EXPLORATION & PRODUCTION (1.15%)
Chesapeake Energy 12,390 147,813
XTO Energy 8,660 204,982
352,795
OIL FIELD MACHINERY & EQUIPMENT (1.00%)
Smith International /1/ 8,260 307,520
Shares
Held Value
- -----------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
PHARMACY SERVICES (0.67%)
$
Omnicare 5,400 207,036
PIPELINES (1.24%)
Kinder Morgan 3,230 172,966
Williams 20,270 206,754
379,720
RADIO (0.40%)
XM Satellite Radio Holdings /1/ 6,130 124,194
REINSURANCE (0.40%)
AXIS Capital Holdings 4,950 123,998
RETAIL-APPAREL & SHOE (0.82%)
Chico's FAS /1/ 6,700 251,518
RETAIL-DISCOUNT (1.72%)
Dollar Tree Stores /1/ 7,770 296,659
Family Dollar Stores 5,340 232,877
529,536
RETAIL-DRUG STORE (0.67%)
Rite Aid /1/ 36,180 207,311
RETAIL-HOME FURNISHINGS (0.57%)
Cost Plus /1/ 3,830 175,682
RETAIL-JEWELRY (0.70%)
Tiffany 4,560 216,372
RETAIL-RESTAURANTS (1.63%)
Cheesecake Factory /1/ 3,770 150,574
Starbucks /1/ 11,090 350,444
501,018
SAVINGS & LOANS-THRIFTS (0.62%)
Sovereign Bancorp 9,230 192,076
SEMICONDUCTOR COMPONENT-INTEGRATED CIRCUITS (2.16%)
Cypress Semiconductor /1/ 6,130 131,550
Integrated Device Technology /1/ 23,920 375,544
Marvell Technology Group /1/ 3,600 157,932
665,026
SEMICONDUCTOR EQUIPMENT (3.85%)
Kla-Tencor /1/ 7,030 403,030
Lam Research /1/ 17,800 511,572
Novellus Systems /1/ 6,490 267,972
1,182,574
TELECOMMUNICATION EQUIPMENT (2.22%)
Comverse Technology /1/ 20,870 376,495
Sonus Networks /1/ 37,080 304,427
680,922
TELECOMMUNICATION EQUIPMENT-FIBER OPTICS (1.92%)
CIENA /1/ 33,240 213,068
Corning /1/ 34,260 376,175
589,243
TELECOMMUNICATION SERVICES (0.53%)
Time Warner Telecom /1/ 15,710 162,599
Shares
Held Value
- -----------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TELEVISION (0.71%)
$
Univision Communications /1/ 6,420 217,959
THERAPEUTICS (0.63%)
Neurocrine Biosciences /1/ 4,160 194,813
TOYS (1.72%)
LeapFrog Enterprises /1/ 6,630 229,199
Marvel Enterprises /1/ 10,140 298,623
527,822
TRANSPORT-TRUCK (0.54%)
Swift Transportation /1/ 7,370 165,309
VITAMINS & NUTRITION PRODUCTS (0.45%)
NBTY /1/ 5,130 139,793
WEB HOSTING & DESIGN (0.48%)
Macromedia /1/ 7,750 148,103
TOTAL COMMON STOCKS 29,726,469
-----------
TOTAL PORTFOLIO INVESTMENTS (96.72%) 29,726,469
CASH, RECEIVABLES AND OTHER ASSETS, NET OF
LIABILITIES (3.28%) 1,007,820
TOTAL NET ASSETS (100.00%) $30,734,289
-------------
/1 /Non-income producing security.
See accompanying notes.
SCHEDULE OF INVESTMENTS
PRINCIPAL PARTNERS SMALLCAP GROWTH FUND, INC.
OCTOBER 31, 2003
Shares
Held Value
- ---------------------------------------------------------------------------------------
COMMON STOCKS (96.15%)
APPAREL MANUFACTURERS (0.04%)
$
Carter's /1/ 200 5,600
APPLICATIONS SOFTWARE (0.64%)
Mercury Interactive /1/ 2,000 92,880
AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL (1.24%)
American Axle & Manufacturing Holdings /1/ 5,200 179,920
BEVERAGES-NON-ALCOHOLIC (1.04%)
Cott /1/ 5,800 151,090
BEVERAGES-WINE & SPIRITS (1.32%)
Constellation Brands /1/ 6,100 191,357
BUILDING-RESIDENTIAL & COMMERCIAL (2.08%)
Hovnanian Enterprises /1/ 1,900 154,432
NVR /1/ 300 146,820
301,252
CELLULAR TELECOMMUNICATIONS (0.04%)
Western Wireless /1/ 300 5,820
CHEMICALS-SPECIALTY (0.79%)
Albemarle 4,300 115,326
CIRCUIT BOARDS (2.07%)
Benchmark Electronics /1/ 5,400 263,088
TTM Technologies /1/ 2,300 37,030
300,118
COMMERCIAL BANKS (2.83%)
UCBH Holdings 11,520 411,379
COMPUTER SERVICES (6.17%)
CACI International /1/ 6,290 311,544
Cognizant Technology Solutions /1/ 10,430 473,418
FactSet Research Systems 2,540 110,845
895,807
COMPUTERS-INTEGRATED SYSTEMS (0.79%)
RadiSys /1/ 5,900 115,345
COMPUTERS-MEMORY DEVICES (2.62%)
Advanced Digital Information /1/ 14,800 240,500
Dot Hill Systems /1/ 10,400 139,464
379,964
DATA PROCESSING & MANAGEMENT (2.11%)
Fair, Isaac 4,800 306,144
DENTAL SUPPLIES & EQUIPMENT (1.50%)
Patterson Dental /1/ 3,400 217,532
DIVERSIFIED MANUFACTURING OPERATIONS (2.09%)
A.O. Smith 4,900 155,085
ESCO Technologies /1/ 3,400 147,832
302,917
DRUG DELIVERY SYSTEMS (0.70%)
Penwest Pharmaceuticals /1/ 6,200 101,556
E-MARKETING-INFORMATION (1.40%)
Digital River /1/ 7,400 202,612
Shares
Held Value
- ---------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
ELECTRONIC COMPONENTS-SEMICONDUCTOR (1.28%)
$
Cree /1/ 3,200 56,832
Intersil Holding 5,000 128,950
185,782
ELECTRONIC DESIGN AUTOMATION (2.09%)
Magma Design Automation /1/ 8,200 198,686
Verisity /1/ 8,400 104,916
303,602
ELECTRONICS-MILITARY (1.31%)
Engineered Support Systems 2,820 190,660
ENGINEERING-RESEARCH & DEVELOPMENT SERVICES (0.75%)
EMCOR Group /1/ 2,900 109,301
ENTERTAINMENT SOFTWARE (0.60%)
THQ /1/ 4,880 86,571
ENVIRONMENTAL CONSULTING & ENGINEERING (0.20%)
Tetra Tech /1/ 1,300 29,224
FIDUCIARY BANKS (1.66%)
Investors Financial Services 6,800 240,244
FOOD-WHOLESALE & DISTRIBUTION (1.00%)
Performance Food Group /1/ 3,900 145,275
INDUSTRIAL AUTOMATION & ROBOTS (1.29%)
Cognex 7,000 187,950
INSTRUMENTS-SCIENTIFIC (0.78%)
Fisher Scientific International /1/ 2,800 112,700
INSURANCE BROKERS (0.79%)
Hilb, Rogal & Hamilton 2,030 60,941
Hub International 3,500 53,900
114,841
INTERNET INFRASTRUCTURE EQUIPMENT (0.81%)
Avocent /1/ 3,100 117,180
MEDICAL INSTRUMENTS (1.58%)
Advanced Neuromodulation Systems /1/ 5,600 229,600
MEDICAL PRODUCTS (1.90%)
INAMED /1/ 3,200 276,384
MEDICAL-BIOMEDICAL/GENE (1.24%)
Affymetrix /1/ 2,100 53,823
InterMune /1/ 1,400 28,000
Telik /1/ 4,800 97,536
179,359
MEDICAL-DRUGS (0.26%)
POZEN /1/ 3,000 37,590
MEDICAL-GENERIC DRUGS (1.24%)
Taro Pharmaceuticals Industries /1/ 2,800 179,900
MEDICAL-HOSPITALS (1.52%)
VCA Antech /1/ 7,800 220,272
MEDICAL-OUTPATIENT & HOME MEDICAL CARE (3.27%)
Odyssey HealthCare /1/ 8,750 242,725
Shares
Held Value
- ---------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MEDICAL-OUTPATIENT & HOME MEDICAL CARE (CONTINUED)
$
Select Medical /1/ 6,900 231,633
474,358
MISCELLANEOUS INVESTING (2.78%)
American Financial Realty Trust 6,400 97,280
Mills 3,700 150,960
Ventas 8,300 155,210
403,450
NETWORKING PRODUCTS (1.41%)
Foundry Networks /1/ 8,200 190,732
Ixia /1/ 1,200 14,400
205,132
OFFICE SUPPLIES & FORMS (1.18%)
Moore Wallace /1/ 12,000 171,600
OIL & GAS DRILLING (0.73%)
Patterson-UTI Energy /1/ 3,700 105,783
OIL COMPANY-EXPLORATION & PRODUCTION (2.20%)
Patina Oil & Gas 4,475 188,755
Quicksilver Resources /1/ 5,100 131,070
319,825
OIL-FIELD SERVICES (1.43%)
Tetra Technologies /1/ 9,150 206,882
PHYSICIAN PRACTICE MANAGEMENT (2.17%)
Pediatrix Medical Group /1/ 5,880 314,286
PROPERTY & CASUALTY INSURANCE (0.66%)
Direct General 500 14,995
RLI 2,400 80,640
95,635
PUBLICLY TRADED INVESTMENT FUND (2.33%)
iShares Russell 2000 Index Fund 3,200 337,696
RADIO (1.42%)
Cumulus Media /1/ 8,400 157,332
Salem Communications /1/ 2,100 48,825
206,157
REAL ESTATE MANAGEMENT & SERVICES (0.29%)
Jones Lang LaSalle /1/ 2,200 41,910
RESEARCH & DEVELOPMENT (1.04%)
Pharmaceutical Product Development /1/ 5,000 150,350
RESPIRATORY PRODUCTS (0.41%)
ResMed /1/ 1,435 59,940
RETAIL-APPAREL & SHOE (2.85%)
Chico's FAS /1/ 11,000 412,940
RETAIL-COMPUTER EQUIPMENT (0.95%)
Electronics Boutique Holdings /1/ 4,837 137,613
RETAIL-PET FOOD & SUPPLIES (1.51%)
PETCO Animal Supplies /1/ 6,600 218,988
RETAIL-RESTAURANTS (2.41%)
Panera Bread /1/ 3,750 150,862
Shares
Held Value
- ---------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
RETAIL-RESTAURANTS (CONTINUED)
$
Ruby Tuesday 7,300 199,655
350,517
SAVINGS & LOANS-THRIFTS (3.62%)
BankUnited Financial /1/ 7,900 174,669
First Niagara Financial Group 3,200 45,728
Harbor Florida Bancshares 3,100 83,452
New York Community Bancorp 6,133 222,015
525,864
SCHOOLS (2.03%)
Career Education /1/ 5,500 294,525
SEMICONDUCTOR COMPONENT-INTEGRATED CIRCUITS (2.73%)
Exar /1/ 7,150 115,043
Pericom Semiconductor /1/ 5,200 59,228
Power Integrations /1/ 5,500 191,510
Standard Microsystems /1/ 1,000 30,000
395,781
SEMICONDUCTOR EQUIPMENT (1.90%)
August Technology 900 17,460
Rudolph Technologies /1/ 4,500 117,675
Ultratech /1/ 4,500 140,445
275,580
SEMICONDUCTORS (0.61%)
Artisan Components /1/ 4,300 88,193
SOFTWARE TOOLS (0.58%)
Borland Software /1/ 9,476 84,147
THERAPEUTICS (4.17%)
Amylin Pharmaceuticals /1/ 2,900 79,257
CV Therapeutics /1/ 2,600 45,838
Isis Pharmaceuticals /1/ 7,900 52,535
Medicines /1/ 3,900 103,935
Neurocrine Biosciences /1/ 2,861 133,981
NPS Pharmaceuticals /1/ 3,900 102,687
Vicuron Pharmaceuticals /1/ 4,700 86,245
604,478
TOYS (0.86%)
LeapFrog Enterprises /1/ 3,600 124,452
TRANSPORT-SERVICES (0.74%)
UTI Worldwide 3,100 107,384
WEB PORTALS (0.10%)
Yahoo /1/ 330 14,421
TOTAL COMMON STOCKS 13,950,941
-----------
TOTAL PORTFOLIO INVESTMENTS (96.15%) 13,950,941
CASH, RECEIVABLES AND OTHER ASSETS, NET OF
LIABILITIES (3.85%) 558,959
TOTAL NET ASSETS (100.00%) $14,509,900
-------------
/1 /Non-income producing security.
See accompanying notes.
SCHEDULE OF INVESTMENTS
PRINCIPAL REAL ESTATE FUND, INC.
OCTOBER 31, 2003
Shares
Held Value
- --------------------------------------------------------------------------------
COMMON STOCKS (97.47%)
APARTMENT REITS (9.88%)
Apartment Investment & $
Management 15,900 650,310
Archstone-Smith Trust 47,030 1,255,701
Equity Residential Properties
Trust 65,000 1,901,250
Home Properties of New York 23,200 893,200
Mid-America Apartment
Communities 5,800 182,120
United Dominion Realty Trust 67,800 1,183,110
6,065,691
DIVERSIFIED REITS (14.89%)
Brookfield Properties 71,400 1,823,556
Capital Automotive 69,640 2,166,500
Catellus Development 34,657 771,811
Entertainment Properties Trust 17,014 547,511
Liberty Property Trust 17,700 643,926
Vornado Realty Trust 63,000 3,184,650
9,137,954
FACTORY OUTLET REITS (4.27%)
Chelsea Property Group 53,200 2,617,440
HEALTHCARE REITS (1.68%)
Health Care 11,300 374,595
Healthcare Realty Trust 12,500 421,875
Ventas 12,576 235,171
1,031,641
HOTEL REITS (5.82%)
Hilton Hotels 54,200 858,528
Host Marriott /1/ 118,090 1,234,040
LaSalle Hotel Properties 23,096 389,168
Starwood Hotels & Resorts
Worldwide 32,300 1,089,479
3,571,215
MALL REITS (17.82%)
CBL & Associates Properties 44,690 2,381,977
General Growth Properties 47,400 3,626,100
Macerich 17,400 699,480
Mills 43,600 1,778,880
Simon Property Group 54,300 2,447,844
10,934,281
MANUFACTURED HOUSING REITS (1.28%)
Manufactured Home Communities 20,600 782,800
OFFICE & INDUSTRIAL REITS (23.32%)
Alexandria Real Estate Equities 6,759 344,709
AMB Property 26,617 798,244
American Financial Realty Trust 32,710 497,192
Boston Properties 45,400 2,008,950
Centerpoint Properties Trust 25,718 1,747,538
Corporate Office Properties
Trust 46,200 893,508
Cousins Properties 14,200 408,250
Duke-Weeks Realty 9,200 269,376
Equity Office Properties Trust 90,001 2,520,928
Prologis Trust 91,650 2,707,341
PS Business Parks 15,342 578,394
SL Green Realty 42,500 1,536,375
14,310,805
SELF STORAGE REITS (2.63%)
Public Storage 40,400 1,616,000
Shares
Held Value
- --------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
SHOPPING CENTER REITS (15.88%)
$
Acadia Realty Trust 8,300 94,122
Developers Diversified Realty 77,419 2,237,409
Kimco Realty 80,000 3,332,800
Pan Pacific Retail Properties 47,870 2,123,035
Realty Income 11,100 437,340
Regency Centers 18,748 695,176
Weingarten Realty Investors 19,000 822,130
9,742,012
TOTAL COMMON STOCKS 59,809,839
Principal
Amount Value
- --------------------------------------------------------------------------------
COMMERCIAL PAPER (2.83%)
DIVERSIFIED FINANCIAL SERVICES (2.83%)
Investment in Joint Trading
Account; General Electric
Capital
$ $
1.04%; 11/03/03 1,735,153 1,735,153
TOTAL COMMERCIAL PAPER 1,735,153
-----------
TOTAL PORTFOLIO INVESTMENTS (100.30%) 61,544,992
LIABILITIES, NET OF
CASH, RECEIVABLES
AND OTHER ASSETS
(-0.30%) (181,149)
TOTAL NET ASSETS (100.00%) $61,363,843
--------------
/1 //Non-income producing security./
See accompanying notes.
113
SCHEDULE OF INVESTMENTS
PRINCIPAL SMALLCAP FUND, INC.
OCTOBER 31, 2003
Shares
Held Value
- -----------------------------------------------------------------------------------------------
COMMON STOCKS (95.90%)
AEROSPACE & DEFENSE (0.64%)
$
Herley Industries /1/ 32,295 610,375
AEROSPACE & DEFENSE EQUIPMENT (1.72%)
Moog /1/ 15,153 642,487
Orbital Sciences /1/ 49,865 458,259
United Defense Industries /1/ 16,709 541,372
1,642,118
AIRLINES (0.94%)
AirTran Holdings /1/ 23,637 383,156
Mesa Air Group /1/ 47,662 513,320
896,476
APPAREL MANUFACTURERS (1.25%)
Carter's 4,423 123,844
Kellwood 14,625 546,536
Quiksilver /1/ 30,472 523,204
1,193,584
APPLICATIONS SOFTWARE (0.65%)
Verint Systems /1/ 27,985 626,584
AUTO-MEDIUM & HEAVY DUTY TRUCKS (0.94%)
Oshkosh Truck 19,748 905,051
BUILDING PRODUCTS-WOOD (0.88%)
Universal Forest Products 28,401 840,670
CASINO HOTELS (0.46%)
Ameristar Casinos /1/ 20,669 436,529
CHEMICALS-SPECIALTY (1.15%)
MacDermid 19,607 585,857
Minerals Technologies 9,389 514,517
1,100,374
CIRCUIT BOARDS (0.43%)
Benchmark Electronics /1/ 8,483 413,292
COAL (0.70%)
Massey Energy 48,091 668,465
COMMERCIAL BANKS (6.85%)
AMCORE Financial 22,472 606,744
City Holding 9,952 336,577
Columbia Banking Systems 26,606 515,358
Community Bank System 12,874 627,608
Community First Bankshares 19,722 535,452
First Republic Bank 19,378 693,733
Hudson United Bancorp 20,346 738,356
Local Financial /1/ 23,566 457,416
Provident Bankshares 17,960 557,299
South Financial Group 28,186 736,500
Wintrust Financial 17,304 749,955
6,554,998
COMMERCIAL SERVICES (0.66%)
Arbitron /1/ 15,950 630,025
COMMUNICATIONS SOFTWARE (0.76%)
Inter-Tel 28,798 725,422
Shares
Held Value
- -----------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
COMPUTER SERVICES (1.62%)
$
Anteon International /1/ 24,067 821,648
CACI International /1/ 14,755 730,815
1,552,463
COMPUTERS-INTEGRATED SYSTEMS (1.10%)
Radisys /1/ 20,532 401,401
Systems & Computer Technology /1/ 44,648 656,325
1,057,726
COMPUTERS-MEMORY DEVICES (1.36%)
Advanced Digital Information /1/ 41,239 670,134
Hutchison Technology /1/ 18,880 632,669
1,302,803
COMPUTERS-PERIPHERAL EQUIPMENT (0.83%)
Electronics for Imaging /1/ 29,163 790,317
CONSULTING SERVICES (0.59%)
Charles River Associates /1/ 18,419 565,832
CONTAINERS-METAL & GLASS (0.59%)
Silgan Holdings /1/ 17,766 568,157
DATA PROCESSING & MANAGEMENT (1.19%)
Global Payments 14,289 595,137
Group 1 Software /1/ 30,135 543,937
1,139,074
DENTAL SUPPLIES & EQUIPMENT (0.64%)
Sybron Dental Specialties /1/ 26,790 616,170
DIAGNOSTIC EQUIPMENT (0.32%)
Gen-Probe /1/ 11,350 303,839
DISPOSABLE MEDICAL PRODUCTS (0.88%)
Merit Medical Systems /1/ 32,212 843,632
DISTRIBUTION-WHOLESALE (2.98%)
Aviall /1/ 67,600 1,030,900
Owens & Minor 21,532 437,961
United Stationers /1/ 14,418 536,494
Watsco 39,404 843,639
2,848,994
DIVERSIFIED MANUFACTURING OPERATIONS (1.10%)
Ameron International 10,214 335,428
Griffon /1/ 37,208 719,975
1,055,403
E-MARKETING-INFORMATION (0.56%)
Digital River /1/ 19,771 541,330
E-SERVICES-CONSULTING (0.56%)
Digital Insight /1/ 25,713 539,459
ELECTRIC PRODUCTS-MISCELLANEOUS (0.71%)
Ametek 14,461 680,390
ELECTRONIC COMPONENTS-MISCELLANEOUS (1.72%)
Cubic 22,859 649,196
DSP Group /1/ 20,707 494,483
Planar Systems /1/ 21,796 504,359
1,648,038
Shares
Held Value
- -----------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
ELECTRONIC COMPONENTS-SEMICONDUCTOR (1.11%)
$
Integrated Silicon Solutions /1/ 27,860 393,383
Microsemi /1/ 32,260 667,782
1,061,165
ELECTRONIC MEASUREMENT INSTRUMENTS (0.50%)
Flir Systems /1/ 15,183 474,621
ENGINEERING-RESEARCH & DEVELOPMENT SERVICES (0.51%)
URS /1/ 22,244 486,921
ENGINES-INTERNAL COMBUSTION (0.52%)
Briggs & Stratton 7,736 502,917
ENTERPRISE SOFTWARE & SERVICE (2.42%)
Ascential Software /1/ 30,687 680,945
ManTech International /1/ 24,631 602,474
Manugistics Group /1/ 79,476 576,996
Micromuse /1/ 56,389 453,931
2,314,346
ENTERTAINMENT SOFTWARE (0.77%)
Take-Two Interactive Software /1/ 18,586 735,076
ENVIRONMENTAL CONSULTING & ENGINEERING (0.78%)
Tetra Tech /1/ 33,430 751,506
FILTRATION & SEPARATION PRODUCTS (0.67%)
CLARCOR 15,743 639,953
FINANCE-CONSUMER LOANS (0.27%)
First Marblehead 11,519 255,146
FOOD-MISCELLANEOUS/DIVERSIFIED (0.40%)
Sensient Technologies 19,976 383,539
FOOTWEAR & RELATED APPAREL (0.54%)
Wolverine World Wide 25,484 514,777
GARDEN PRODUCTS (0.53%)
Toro 10,142 504,057
GAS-DISTRIBUTION (2.92%)
Energen 21,392 788,723
New Jersey Resources 13,716 519,151
Northwest Natural 22,901 664,129
Southern Union /1/ 46,505 818,953
2,790,956
HOTELS & MOTELS (0.47%)
Choice Hotels International /1/ 13,589 448,709
HUMAN RESOURCES (0.64%)
CDI 18,840 617,010
INDUSTRIAL AUTOMATION & ROBOTS (0.48%)
Cognex 17,003 456,531
INSTRUMENTS-SCIENTIFIC (0.59%)
Dionex /1/ 13,309 566,165
INTERNET FINANCIAL SERVICES (0.49%)
IndyMac Bancorp 15,833 465,490
Shares
Held Value
- -----------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
INTERNET SECURITY (0.33%)
$
RSA Security /1/ 24,450 317,116
LIFE & HEALTH INSURANCE (0.10%)
UICI /1/ 6,428 96,163
MACHINERY-CONSTRUCTION & MINING (0.52%)
Joy Global /1/ 26,179 498,972
MACHINERY-GENERAL INDUSTRY (1.68%)
Albany International 32,414 1,001,593
Gardner Denver /1/ 29,396 607,321
1,608,914
MEDICAL INSTRUMENTS (0.30%)
Advanced Neuromodulation Systems /1/ 7,132 292,412
MEDICAL LASER SYSTEMS (0.35%)
Candela /1/ 19,492 334,288
MEDICAL PRODUCTS (0.94%)
Cooper 11,067 480,861
INAMED /1/ 4,856 419,413
900,274
MEDICAL STERILIZATION PRODUCT (0.51%)
Steris /1/ 23,654 492,476
MEDICAL-BIOMEDICAL/GENE (1.15%)
Celera Genomics Group /1/ 40,484 541,271
Lexicon Genetics /1/ 47,702 267,131
Myogen 18,086 289,376
1,097,778
MEDICAL-DRUGS (1.03%)
aaiPharma /1/ 23,699 428,715
Adolor /1/ 30,388 555,189
983,904
MEDICAL-HMO (1.11%)
Amerigroup /1/ 13,084 547,173
Sierra Health Services /1/ 22,105 514,825
1,061,998
MEDICAL-HOSPITALS (1.20%)
United Surgical Partners International /1/ 25,423 766,758
VCA Antech /1/ 13,665 385,899
1,152,657
METAL PROCESSORS & FABRICATION (0.70%)
Quanex 16,860 675,243
MISCELLANEOUS INVESTING (5.07%)
CBL & Associates Properties 20,006 1,066,320
Chelsea Property Group 8,377 412,148
Entertainment Properties Trust 18,283 588,347
Newcastle Investment 24,661 577,067
Pan Pacific Retail Properties 10,220 453,257
PS Business Parks 16,018 603,879
SL Green Realty 14,219 514,017
Ventas 34,093 637,539
4,852,574
Shares
Held Value
- -----------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MOTION PICTURES & SERVICES (0.58%)
$
Macrovision /1/ 25,225 554,193
MULTIMEDIA (0.47%)
Journal Communications 25,373 451,386
OIL COMPANY-EXPLORATION & PRODUCTION (3.19%)
Comstock Resources /1/ 38,304 571,879
Denbury Resources /1/ 28,814 363,633
Forest Oil /1/ 19,443 455,938
Houston Exploration /1/ 20,407 714,245
Nuevo Energy /1/ 26,722 525,889
Unit /1/ 21,559 418,029
3,049,613
OIL FIELD MACHINERY & EQUIPMENT (0.67%)
FMC Technologies /1/ 32,010 642,761
PROPERTY & CASUALTY INSURANCE (1.93%)
Arch Capital Group /1/ 16,223 592,140
PMA Capital 7,589 99,795
RLI 15,086 506,890
Selective Insurance Group 21,013 645,099
1,843,924
PUBLICLY TRADED INVESTMENT FUND (1.55%)
iShares Russell 2000 Index Fund 7,118 751,162
iShares S&P SmallCap 600 Index Fund 5,787 737,264
1,488,426
RACETRACKS (0.68%)
Penn National Gaming /1/ 27,683 655,810
REINSURANCE (0.62%)
Platinum Underwriters Holdings 20,510 589,457
RETAIL-APPAREL & SHOE (2.31%)
Aeropostale /1/ 20,017 617,524
bebe Stores /1/ 16,410 457,839
Brown Shoe 18,707 647,262
Christopher & Banks 16,859 492,283
2,214,908
RETAIL-AUTO PARTS (0.86%)
CSK Auto /1/ 47,794 819,667
RETAIL-BOOKSTORE (0.75%)
Borders Group /1/ 31,571 715,083
RETAIL-MAIL ORDER (0.56%)
Sharper Image /1/ 18,592 535,450
RETAIL-MUSIC STORE (0.67%)
Guitar Center /1/ 19,796 644,360
RETAIL-RESTAURANTS (0.70%)
Ruby Tuesday 24,359 666,219
RETAIL-SPORTING GOODS (0.83%)
Sports Authority /1/ 21,383 795,448
RETAIL-VIDEO RENTAL (1.07%)
Hollywood Entertainment /1/ 32,315 491,188
Shares
Held Value
- -----------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
RETAIL-VIDEO RENTAL (CONTINUED)
$
Movie Gallery /1/ 25,690 531,269
1,022,457
SAVINGS & LOANS-THRIFTS (3.46%)
Dime Community Bancshares 26,548 740,158
First Federal Capital 23,774 522,790
FirstFed Financial /1/ 14,093 634,185
Independence Community Bank 22,737 835,585
Sterling Financial /1/ 18,415 576,574
3,309,292
SEMICONDUCTOR COMPONENT-INTEGRATED CIRCUITS (0.98%)
Exar /1/ 22,106 355,686
Micrel /1/ 35,110 579,315
935,001
SEMICONDUCTOR EQUIPMENT (1.72%)
Brooks Automation /1/ 16,124 402,294
Mykrolis /1/ 28,422 419,225
Varian Semiconductor Equipment Associates
/1/ 9,174 443,563
Veeco Instruments /1/ 14,916 377,971
1,643,053
STEEL PRODUCERS (0.53%)
Schnitzer Steel Industries 13,458 507,097
SUPERCONDUCTOR PRODUCTION & SYSTEMS (0.53%)
Intermagnetics General /1/ 21,681 510,371
TELECOMMUNICATION EQUIPMENT (1.35%)
Arris Group /1/ 39,531 237,186
Comtech Telecommunications /1/ 16,238 478,209
Tekelec /1/ 35,989 579,063
1,294,458
TELECOMMUNICATION SERVICES (0.89%)
Aspect Communications /1/ 32,417 438,602
Commonwealth Telephone Enterprises /1/ 10,066 410,290
848,892
TELEVISION (0.55%)
Sinclair Broadcast Group /1/ 45,123 525,232
THERAPEUTICS (2.31%)
Ilex Oncology /1/ 26,754 558,088
Medarex /1/ 43,578 311,583
MGI Pharmaceuticals /1/ 9,899 371,806
Onyx Pharmaceuticals /1/ 14,664 358,828
Tanox /1/ 16,322 292,980
Vicuron Pharmaceuticals /1/ 17,336 318,116
2,211,401
TOBACCO (0.60%)
Universal 13,198 575,169
TRANSPORT-AIR FREIGHT (0.44%)
EGL /1/ 25,575 417,128
TRANSPORT-TRUCK (0.72%)
Heartland Express 23,918 594,123
Shares
Held Value
- -----------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TRANSPORT-TRUCK (CONTINUED) (0.72%)
$
Overnite 4,383 97,127
691,250
TOTAL COMMON STOCKS 91,788,750
Principal
Amount Value
- -----------------------------------------------------------------------------------------------
COMMERCIAL PAPER (4.32%)
DIVERSIFIED FINANCIAL SERVICES (4.32%)
Investment in Joint Trading Account; General
Electric Capital
$ $
1.04%; 11/03/03 4,133,602 4,133,602
TOTAL COMMERCIAL PAPER 4,133,602
Principal Amount
Value
- -----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (5.13%)
Citigroup Global Markets Holdings; 0.99%,
11/03/03 (collateralized by U.S. Treasury
Note; $4,960,080; 02/15/11) /2/ 4,909,000 4,909,000
TOTAL REPURCHASE AGREEMENTS 4,909,000
------------
TOTAL PORTFOLIO INVESTMENTS (105.35%) 100,831,352
LIABILITIES, NET OF CASH, RECEIVABLES, AND OTHER ASSETS
(-5.35%) (5,124,227)
TOTAL NET ASSETS (100.00%) $ 95,707,125
---------------
/1 //Non-income producing security./
/2 //Security was purchased with the cash proceeds from securities loans./
See accompanying notes.
117
SCHEDULE OF INVESTMENTS
PRINCIPAL UTILITIES FUND, INC.
OCTOBER 31, 2003
Shares
Held Value
- --------------------------------------------------------------------------------
COMMON STOCKS (62.55%)
ELECTRIC-INTEGRATED (44.03%)
$
Alliant Energy 33,900 815,634
Ameren 13,300 593,845
American Electric Power 50,900 1,434,871
Consolidated Edison 19,266 779,695
Constellation Energy Group 80,000 2,909,600
Dominion Resources 66,500 4,096,400
DTE Energy 35,544 1,310,863
Energy East 62,600 1,405,370
Entergy 75,200 4,053,280
Exelon 60,900 3,864,105
FirstEnergy 66,804 2,297,389
FPL Group 34,400 2,192,656
NiSource 110,025 2,278,618
Public Service Enterprise Group 36,200 1,479,494
Southern 51,045 1,521,141
31,032,961
ELECTRIC-TRANSMISSION (2.01%)
National Grid Group 43,620 1,413,724
GAS-DISTRIBUTION (4.62%)
New Jersey Resources 50,850 1,924,672
Peoples Energy 32,900 1,330,805
3,255,477
PIPELINES (0.94%)
El Paso 90,000 660,600
TELEPHONE-INTEGRATED (10.95%)
BellSouth 98,550 2,592,851
SBC Communications 97,250 2,332,055
Verizon Communications 83,214 2,795,990
7,720,896
TOTAL COMMON STOCKS 44,083,658
Shares
Held Value
- --------------------------------------------------------------------------------
PREFERRED STOCKS (15.60%)
CELLULAR TELECOMMUNICATIONS (2.62%)
U.S. Cellular 65,000 1,847,300
ELECTRIC-INTEGRATED (3.30%)
Atlantic Capital Trust II 7,400 186,480
Consolidated Edison 7,556 204,465
DTE Energy Trust I 9,140 246,140
Entergy Louisiana 39,580 1,070,639
OGE Energy Capital Trust I 18,326 481,058
Ohio Power 5,550 139,860
2,328,642
FINANCE-OTHER SERVICES (0.55%)
PSO Capital I 15,260 385,315
FOOD-DAIRY PRODUCTS (0.50%)
Dairy Farmers of America /1/ 3,500 353,391
Shares
Held Value
- --------------------------------------------------------------------------------
PREFERRED STOCKS (CONTINUED)
GAS-DISTRIBUTION (2.81%)
$
AGL Capital Trust II 25,385 680,064
KeySpan 25,000 1,298,250
1,978,314
MISCELLANEOUS INVESTING (1.73%)
HRPT Properties Trust 45,000 1,215,450
PIPELINES (1.21%)
TransCanada PipeLines 33,457 850,142
TELECOMMUNICATION SERVICES (0.36%)
Citizens Communications 10,000 256,700
TELEPHONE-INTEGRATED (2.52%)
ALLTEL 19,500 955,500
Telephone & Data Systems 30,991 821,572
1,777,072
TOTAL PREFERRED STOCKS 10,992,326
Principal
Amount Value
- ---------------------------------------------------------------------------------------------
BONDS (18.56%)
AUTO-CARS & LIGHT TRUCKS (2.82%)
Ford Motor
$
9.98%; 02/15/47 $1,825,000 1,986,598
ELECTRIC-INTEGRATED (7.36%)
Duke Energy
6.60%; 04/01/22 3,250,000 3,393,761
Georgia Power Capital Trust VI
4.88%; 11/01/42 1,200,000 1,246,604
TXU Gas Capital I
2.51%; 07/01/28 700,000 546,349
5,186,714
OIL COMPANY-INTEGRATED (3.91%)
Phillips 66 Capital Trust II
8.00%; 01/15/37 2,475,000 2,759,086
PIPELINES (4.47%)
KN Capital Trust III
7.63%; 04/15/28 2,900,000 3,150,000
TOTAL BONDS 13,082,398
-----------
TOTAL PORTFOLIO INVESTMENTS (96.71%) 68,158,382
CASH, RECEIVABLES AND OTHER ASSETS, NET OF
LIABILITIES (3.29%) 2,319,550
TOTAL NET ASSETS (100.00%) $70,477,932
-------------
/1 //Restricted Security - The fund held securities which may require /
/registration under the Securities Act of 1933, or an exemption / /therefrom,
in order to effect their sale in the ordinary course of / /business. At the
end of the period, restricted securities totaled / /$353,391 or 0.50% of net
assets./
See accompanying notes.
FINANCIAL HIGHLIGHTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
-------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31 (EXCEPT AS NOTED):
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL BALANCED FUND, INC.
- -----------------------------
CLASS A SHARES
- --------------
Net Asset Value,
Beginning of Period.. $10.63 $12.17 $14.50 $15.13 $15.28
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.16 0.20/(d)/ 0.29 0.32 0.40
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 1.26 (1.51)/(d)/ (2.13) 0.02 0.34
---- ----- ----- ---- ----
Total From Investment
Operations 1.42 (1.31) (1.84) 0.34 0.74
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.16) (0.23) (0.28) (0.33) (0.44)
Distributions from
Realized Gains...... -- -- (0.21) (0.64) (0.45)
---- ----- ----- -----
Total Dividends and
Distributions (0.16) (0.23) (0.49) (0.97) (0.89)
----- ----- ----- ----- -----
Net Asset Value, End
of Period............ $11.89 $10.63 $12.17 $14.50 $15.13
====== ====== ====== ====== ======
Total Return /(b)/ ... 13.52% (10.94)% (12.91)% 2.40% 4.85%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $82,198 $77,483 $80,547 $94,763 $112,329
Ratio of Expenses to
Average Net Assets.. 1.46% 1.42% 1.35% 1.32% 1.28%
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 1.47% 1.43% -- -- --
Ratio of Net
Investment Income to
Average Net Assets.. 1.42% 1.71%/(d)/ 2.14% 2.26% 2.67%
Portfolio Turnover
Rate................ 117.0% 88.1% 107.5% 54.4% 24.2%
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL BALANCED FUND, INC.
- -----------------------------
CLASS B SHARES
- --------------
Net Asset Value,
Beginning of Period.. $10.59 $12.12 $14.43 $15.06 $15.22
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.07 0.12/(e)/ 0.19 0.21 0.29
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 1.26 (1.51)/(e)/ (2.11) 0.02 0.32
---- ----- ----- ---- ----
Total From Investment
Operations 1.33 (1.39) (1.92) 0.23 0.61
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.08) (0.14) (0.18) (0.22) (0.32)
Distributions from
Realized Gains...... -- -- (0.21) (0.64) (0.45)
---- ----- ----- -----
Total Dividends and
Distributions (0.08) (0.14) (0.39) (0.86) (0.77)
----- ----- ----- ----- -----
Net Asset Value, End
of Period............ $11.84 $10.59 $12.12 $14.43 $15.06
====== ====== ====== ====== ======
Total Return /(b)/ ... 12.63% (11.55)% (13.53)% 1.61% 4.02%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $15,405 $14,658 $17,900 $20,680 $23,570
Ratio of Expenses to
Average Net Assets.. 2.25% 2.12% 2.05% 2.12% 2.02%
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 2.25% 2.13% -- -- --
Ratio of Net
Investment Income to
Average Net Assets.. 0.64% 1.02%/(e)/ 1.44% 1.46% 1.93%
Portfolio Turnover
Rate................ 117.0% 88.1% 107.5% 54.4% 24.2%
/(a) //Effective November 1, 2002, calculated based on average shares
outstanding during the period./
/(b) /Total return is calculated without the front-end sales charge or
contingent deferred sales charge.
/(c) //Expense ratio without fees paid indirectly./
/(d) //Effective November 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies. The effect of this /
/change for the year ended October 31, 2002 for Class A was to decrease net
investment income by $.01 per share, increase net realized and unrealized /
/gain (loss) on investments by $.01 per share, and decrease the ratio of net
investment income to average net assets by .09%. Prior periods have not /
/been restated to reflect this change in presentation./
/(e) //Effective November 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies. The effect of this /
/change for the year ended October 31, 2002 for Class B was to decrease net
investment income by $.01 per share, increase net realized and unrealized /
/gain (loss) on investments by $.01 per share, and decrease the ratio of net
investment income to average net assets by .08%. Prior periods have not /
/been restated to reflect this change in presentation./
See accompanying notes.
120
FINANCIAL HIGHLIGHTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
-------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31 (EXCEPT AS NOTED):
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL CAPITAL VALUE FUND, INC.
- ----------------------------------
CLASS A SHARES
- --------------
Net Asset Value,
Beginning of Period.. $18.48 $20.61 $25.04 $29.58 $31.07
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.21 0.22 0.20 0.34 0.52
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 3.30 (2.16) (3.40) (2.10) 0.45
---- ----- ----- ----- ----
Total From Investment
Operations 3.51 (1.94) (3.20) (1.76) 0.97
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.22) (0.19) (0.30) (0.25) (0.51)
Distributions from
Realized Gains...... -- -- (0.93) (2.53) (1.95)
---- ----- ----- -----
Total Dividends and
Distributions (0.22) (0.19) (1.23) (2.78) (2.46)
----- ----- ----- ----- -----
Net Asset Value, End
of Period............ $21.77 $18.48 $20.61 $25.04 $29.58
====== ====== ====== ====== ======
Total Return /(b)/ ... 19.23% (9.52)% (13.31)% (6.20)% 3.00%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $326,089 $333,016 $386,827 $452,251 $573,485
Ratio of Expenses to
Average Net Assets.. 1.00% 1.01% 0.95% 0.94% 0.75%
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 1.01% 1.01% -- -- --
Ratio of Net
Investment Income to
Average Net Assets.. 1.05% 1.00% 0.90% 1.38% 1.73%
Portfolio Turnover
Rate................ 132.1% 128.8% 126.2% 107.8% 44.5%
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL CAPITAL VALUE FUND, INC.
- ----------------------------------
CLASS B SHARES
- --------------
Net Asset Value,
Beginning of Period.. $18.30 $20.38 $24.76 $29.41 $30.90
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.02 0.06 0.03 0.11 0.29
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 3.28 (2.12) (3.37) (2.09) 0.44
---- ----- ----- ----- ----
Total From Investment
Operations 3.30 (2.06) (3.34) (1.98) 0.73
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.09) (0.02) (0.11) (0.14) (0.27)
Distributions from
Realized Gains...... -- -- (0.93) (2.53) (1.95)
---- ----- ----- -----
Total Dividends and
Distributions (0.09) (0.02) (1.04) (2.67) (2.22)
----- ----- ----- ----- -----
Net Asset Value, End
of Period............ $21.51 $18.30 $20.38 $24.76 $29.41
====== ====== ====== ====== ======
Total Return /(b)/ ... 18.09% (10.13)% (13.96)% (7.03)% 2.24%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $29,412 $27,235 $32,975 $39,017 $53,169
Ratio of Expenses to
Average Net Assets.. 1.97% 1.72% 1.71% 1.82% 1.52%
Ratio of Gross
Expenses to Average
Net Assets /(d)/ ... 1.98% 1.72% -- -- --
Ratio of Net
Investment Income to
Average Net Assets.. 0.08% 0.29% 0.15% 0.51% 0.96%
Portfolio Turnover
Rate................ 132.1% 128.8% 126.2% 107.8% 44.5%
/(a) //Effective November 1, 2002, calculated based on average shares
outstanding during the period./
/(b) //Total return is calculated without the front-end sales charge or
contingent deferred sales charge./
/(c) //Expense ratio without fees paid indirectly and the Manager's voluntary
expense limit. The voluntary expense limit began on March 1, 2003./
/(d) //Expense ratio without fees paid indirectly./
See accompanying notes.
121
FINANCIAL HIGHLIGHTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
-------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31 (EXCEPT AS NOTED):
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL GROWTH FUND, INC.
- ---------------------------
CLASS A SHARES
- --------------
Net Asset Value,
Beginning of Period.. $22.10 $27.06 $71.22 $65.57 $56.09
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. (0.09) (0.18) (0.30) (0.37) 0.21
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 3.43 (4.78) (21.79) 8.43 9.56
---- ----- ------ ---- ----
Total From Investment
Operations 3.34 (4.96) (22.09) 8.06 9.77
Less Dividends and
Distributions:
Dividends from Net
Investment Income... -- -- -- -- (0.29)
Distributions from
Realized Gains...... -- -- (22.07) (2.41) --
---- ------ -----
Total Dividends and
Distributions -- -- (22.07) (2.41) (0.29)
---- ------ ----- -----
Net Asset Value, End
of Period............ $25.44 $22.10 $27.06 $71.22 $65.57
====== ====== ====== ====== ======
Total Return /(b)/ ... 15.11% (18.33)% (41.87)% 12.64% 17.46%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $263,119 $243,504 $291,541 $525,175 $493,117
Ratio of Expenses to
Average Net Assets.. 1.37% 1.41% 1.30% 1.08% 0.89%
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 1.37% -- -- -- --
Ratio of Net
Investment Income to
Average Net Assets.. (0.42)% (0.66)% (0.71)% (0.52)% 0.33%
Portfolio Turnover
Rate................ 46.6%/(d)/ 22.4% 33.4% 121.5% 32.4%
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL GROWTH FUND, INC.
- ---------------------------
CLASS B SHARES
- --------------
Net Asset Value,
Beginning of Period.. $21.45 $26.43 $70.41 $65.33 $55.98
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. (0.28) (0.41) (0.24) (0.89) (0.17)
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 3.32 (4.57) (21.67) 8.38 9.55
---- ----- ------ ---- ----
Total From Investment
Operations 3.04 (4.98) (21.91) 7.49 9.38
Less Dividends and
Distributions:
Dividends from Net
Investment Income... -- -- -- -- (0.03)
Distributions from
Realized Gains...... -- -- (22.07) (2.41) --
----
Total Dividends and
Distributions -- -- (22.07) (2.41) (0.03)
----
Net Asset Value, End
of Period............ $24.49 $21.45 $26.43 $70.41 $65.33
====== ====== ====== ====== ======
Total Return /(b)/ ... 14.17% (18.84)% (42.21)% 11.79% 16.75%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $47,163 $48,214 $64,111 $110,001 $96,116
Ratio of Expenses to
Average Net Assets.. 2.22% 2.05% 1.88% 1.85% 1.50%
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 2.22% -- -- -- --
Ratio of Net
Investment Income to
Average Net Assets.. (1.27)% (1.30)% (1.29)% (1.30)% (0.28)%
Portfolio Turnover
Rate................ 46.6%/(d)/ 22.4% 33.4% 121.5% 32.4%
/(a) //Effective November 1, 2002, calculated based on average shares
outstanding during the period./
/(b) //Total return is calculated without the front-end sales charge or
contingent deferred sales charge./
/(c) //Expense ratio without fees paid indirectly./
/(d) //Portfolio turnover rate excludes portfolio realignment of approximately
$7,623,000 from the acquisition of Principal Partners LargeCap Growth Fund,
Inc./
See accompanying notes.
122
FINANCIAL HIGHLIGHTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
-------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31 (EXCEPT AS NOTED):
2003 2002 2001 2000/(D)/
---- ---- ---- ----
PRINCIPAL LARGECAP STOCK INDEX FUND, INC.
- -----------------------------------------
CLASS A SHARES
- --------------
Net Asset Value,
Beginning of Period.. $6.57 $7.85 $10.59 $10.00
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.06 0.05 0.05 0.03
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 1.22 (1.29) (2.74) 0.56
---- ----- ----- ----
Total From Investment
Operations 1.28 (1.24) (2.69) 0.59
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.05) (0.04) (0.05) --
---- ----- ----- -----
Total Dividends and
Distributions (0.05) (0.04) (0.05) --
---- ----- ----- -----
Net Asset Value, End
of Period............ $7.80 $6.57 $7.85 $10.59
===== ===== ===== ======
Total Return /(b)/ ... 19.62% (15.92)% (25.46)% 4.96%/(e)/
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $41,913 $33,538 $15,886 $9,855
Ratio of Expenses to
Average Net Assets.. 0.90% 0.90% 0.90% 0.79%/(f)/
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 1.25% 1.20% 1.44% 1.82%/(f)/
Ratio of Net
Investment Income to
Average Net Assets.. 0.89% 0.65% 0.59% 0.76%/(f)/
Portfolio Turnover
Rate................ 20.1% 19.3% 39.3% 189.7%/(f)/
2003 2002 2001 2000/(D)/
---- ---- ---- ----
PRINCIPAL LARGECAP STOCK INDEX FUND, INC.
- -----------------------------------------
CLASS B SHARES
- --------------
Net Asset Value,
Beginning of Period.. $6.57 $7.84 $10.56 $10.00
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.04 0.01 0.01 0.02
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 1.22 (1.28) (2.72) 0.54
---- ----- ----- ----
Total From Investment
Operations 1.26 (1.27) (2.71) 0.56
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.03) -- (0.01) --
----- ----- -----
Total Dividends and
Distributions (0.03) -- (0.01) --
----- ----- -----
Net Asset Value, End
of Period............ $7.80 $6.57 $7.84 $10.56
===== ===== ===== ======
Total Return /(b)/ ... 19.20% (16.18)% (25.65)% 4.66%/(e)/
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $9,474 $5,684 $4,731 $2,838
Ratio of Expenses to
Average Net Assets.. 1.25% 1.25% 1.25% 1.14%/(f)/
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 1.71% 1.74% 1.87% 2.44%/(f)/
Ratio of Net
Investment Income to
Average Net Assets.. 0.53% 0.33% 0.23% 0.45%/(f)/
Portfolio Turnover
Rate................ 20.1% 19.3% 39.3% 189.7%/(f)/
/(a) /Effective November 1, 2002, calculated based on average shares outstanding
during the period.
/(b) //Total return is calculated without the front-end sales charge or
contingent deferred sales charge./
/(c) /Expense ratio without the Manager's voluntary expense limit. The expense
limit began on the first day of the period ended October 31, 2000. The expense
limits for each class were increased on November 1, 2000.
/(d) /Period from March 1, 2000, date shares first offered, through October 31,
2000.
/(e) /Total return amounts have not been annualized.
/(f) /Computed on an annualized basis.
See accompanying notes.
123
FINANCIAL HIGHLIGHTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
-------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31 (EXCEPT AS NOTED):
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL MIDCAP FUND, INC.
- ---------------------------
CLASS A SHARES
- --------------
Net Asset Value,
Beginning of Period.. $31.01 $33.08 $52.01 $42.12 $39.90
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.09 0.08 (0.02) (0.16) (0.06)
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 8.20 (1.09) (3.75) 12.08 2.28
---- ----- ----- ----- ----
Total From Investment
Operations 8.29 (1.01) (3.77) 11.92 2.22
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.10) (0.07) -- -- --
Distributions from
Realized Gains...... -- (0.99) (15.16) (2.03) --
---- ----- ------ -----
Total Dividends and
Distributions (0.10) (1.06) (15.16) (2.03) --
---- ----- ----- ------ -----
Net Asset Value, End
of Period............ $39.20 $31.01 $33.08 $52.01 $42.12
====== ====== ====== ====== ======
Total Return /(b)/ ... 26.81% (3.36)% (9.14)% 29.21% 5.56%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $396,239 $319,410 $319,523 $364,639 $313,984
Ratio of Expenses to
Average Net Assets.. 1.19% 1.24% 1.16% 1.17% 1.22%
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 1.19% 1.25% -- -- --
Ratio of Net
Investment Income to
Average Net Assets.. 0.28% 0.27% 0.20% (0.36)% (0.17)%
Portfolio Turnover
Rate................ 50.4% 76.2% 66.6% 161.8% 59.9%
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL MIDCAP FUND, INC.
- ---------------------------
CLASS B SHARES
- --------------
Net Asset Value,
Beginning of Period.. $29.59 $31.75 $50.71 $41.29 $39.29
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. (0.05) (0.15) 0.22 (0.42) (0.28)
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 7.81 (1.02) (4.02) 11.87 2.28
---- ----- ----- ----- ----
Total From Investment
Operations 7.76 (1.17) (3.80) 11.45 2.00
Less Dividends and
Distributions:
Distributions from
Realized Gains...... -- (0.99) (15.16) (2.03) --
---- ----- ------ -----
Total Dividends and
Distributions -- (0.99) (15.16) (2.03) --
---- ----- ------ -----
Net Asset Value, End
of Period............ $37.35 $29.59 $31.75 $50.71 $41.29
====== ====== ====== ====== ======
Total Return /(b)/ ... 26.23% (4.00)% (9.55)% 28.63% 5.09%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $70,586 $64,538 $71,330 $80,721 $68,639
Ratio of Expenses to
Average Net Assets.. 1.64% 1.90% 1.61% 1.62% 1.67%
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 1.64% 1.90% -- -- --
Ratio of Net
Investment Income to
Average Net Assets.. (0.16)% (0.39)% (0.25)% (0.80)% (0.62)%
Portfolio Turnover
Rate................ 50.4% 76.2% 66.6% 161.8% 59.9%
/(a) //Effective November 1, 2002, calculated based on average shares
outstanding during the period./
/(b) //Total return is calculated without the front-end sales charge or
contingent deferred sales charge./
/(c) //Expense ratio without fees paid indirectly./
See accompanying notes.
124
FINANCIAL HIGHLIGHTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
-------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31 (EXCEPT AS NOTED):
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL PARTNERS BLUE CHIP FUND, INC.
- ---------------------------------------
CLASS A SHARES /(A)/
- --------------------
Net Asset Value,
Beginning of Period.. $13.59 $17.04 $24.26 $25.25 $21.71
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(b)/ .............. -- (0.02) (0.02) 0.04 0.15
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 2.57 (3.42) (6.84) (0.69) 3.53
---- ----- ----- ----- ----
Total From Investment
Operations 2.57 (3.44) (6.86) (0.65) 3.68
Less Dividends and
Distributions:
Dividends from Net
Investment Income... -- -- -- (0.05) (0.14)
Distributions from
Realized Gains...... -- -- (0.33) (0.29) --
Tax Return of Capital
Distributions /(c)/. -- (0.01) (0.03) -- --
---- ----- -----
Total Dividends and
Distributions -- (0.01) (0.36) (0.34) (0.14)
---- ----- ----- ----- -----
Net Asset Value, End
of Period............ $16.16 $13.59 $17.04 $24.26 $25.25
====== ====== ====== ====== ======
Total Return /(d)/ ... 18.91% (20.19)% (28.63)% (2.60)% 17.00%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $117,931 $104,481 $120,173 $170,462 $184,217
Ratio of Expenses to
Average Net Assets.. 1.68% 1.54% 1.50% 1.19% 1.26%
Ratio of Gross
Expenses to Average
Net Assets /(e)/ ... 1.69% 1.54% -- 1.33% --
Ratio of Net
Investment Income to
Average Net Assets.. 0.00% (0.08)% (0.10)% 0.19% 0.63%
Portfolio Turnover
Rate................ 87.6% 79.8% 74.4% 73.6% 16.4%
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL PARTNERS BLUE CHIP FUND, INC.
- ---------------------------------------
CLASS B SHARES /(A)/
- --------------------
Net Asset Value,
Beginning of Period.. $13.22 $16.65 $23.89 $25.00 $21.55
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(b)/ .............. (0.11) (0.13) (0.16) (0.14) (0.02)
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 2.49 (3.30) (6.72) (0.67) 3.48
---- ----- ----- ----- ----
Total From Investment
Operations 2.38 (3.43) (6.88) (0.81) 3.46
Less Dividends and
Distributions:
Dividends from Net
Investment Income... -- -- -- (0.01) (0.01)
Distributions from
Realized Gains...... -- -- (0.33) (0.29) --
Tax Return of Capital
Distributions /(c)/. -- -- (0.03) -- --
---- -----
Total Dividends and
Distributions -- -- (0.36) (0.30) (0.01)
---- ----- ----- -----
Net Asset Value, End
of Period............ $15.60 $13.22 $16.65 $23.89 $25.00
====== ====== ====== ====== ======
Total Return /(d)/ ... 18.00% (20.60)% (29.16)% (3.30)% 16.09%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $29,233 $27,704 $38,531 $54,550 $56,493
Ratio of Expenses to
Average Net Assets.. 2.46% 2.10% 2.21% 1.94% 2.04%
Ratio of Gross
Expenses to Average
Net Assets /(e)/ ... 2.47% 2.10% -- 2.05% --
Ratio of Net
Investment Income to
Average Net Assets.. (0.78)% (0.64)% (0.81)% (0.56)% (0.15)%
Portfolio Turnover
Rate................ 87.6% 79.8% 74.4% 73.6% 16.4%
/(a) //Effective September 18, 2002, Principal Blue Chip Fund, Inc. changed its
name to Principal Partners Blue Chip Fund, Inc./
/(b) //Effective November 1, 2002, calculated based on average shares
outstanding during the period./
/(c) //See "Distributions to Shareholders" in the Notes to Financial
Statements./
/(d) //Total return is calculated without the front-end sales charge or
contingent deferred sales charge./
/(e) //Expense ratio without fees paid indirectly and the Manager's voluntary
expense limit. The expense limit was effective for the year ended October 31,
/ /2000./
See accompanying notes.
125
FINANCIAL HIGHLIGHTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
-------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31 (EXCEPT AS NOTED):
2003 2002 2001 2000
---- ---- ---- ----
PRINCIPAL PARTNERS EQUITY GROWTH FUND, INC.
- -------------------------------------------
CLASS A SHARES
- --------------
Net Asset Value,
Beginning of Period.. $6.12 $7.62 $11.36 $10.00
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. (0.05) (0.10) (0.10) (0.05)
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 0.93 (1.40) (3.64) 1.41
---- ----- ----- ----
Total From Investment
Operations 0.88 (1.50) (3.74) 1.36
---- ----- ----- ----
Net Asset Value, End
of Period............ $7.00 $6.12 $7.62 $11.36
===== ===== ===== ======
Total Return /(b)/ ... 14.38% (19.69)% (32.92)% 13.60%/(d)/
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $43,061 $37,451 $38,303 $49,794
Ratio of Expenses to
Average Net Assets.. 1.89% 1.98% 1.90% 1.57%/(e)/
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 1.99% -- -- 1.99%/(e)/
Ratio of Net
Investment Income to
Average Net Assets.. (0.74)% (1.07)% (1.10)% (0.68)%/(e)/
Portfolio Turnover
Rate................ 124.7% 138.9% 86.4% 62.0%/(e)/
2003 2002 2001 2000
---- ---- ---- ----
PRINCIPAL PARTNERS EQUITY GROWTH FUND, INC.
- -------------------------------------------
CLASS B SHARES
- --------------
Net Asset Value,
Beginning of Period.. $5.99 $7.52 $11.28 $10.00
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. (0.09) (0.11) (0.13) (0.10)
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 0.89 (1.42) (3.63) 1.38
---- ----- ----- ----
Total From Investment
Operations 0.80 (1.53) (3.76) 1.28
---- ----- ----- ----
Net Asset Value, End
of Period............ $6.79 $5.99 $7.52 $11.28
===== ===== ===== ======
Total Return /(b)/ ... 13.36% (20.35)% (33.33)% 12.80%/(d)/
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $14,849 $12,939 $15,419 $19,430
Ratio of Expenses to
Average Net Assets.. 2.65% 2.76% 2.63% 2.31%/(e)/
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 2.72% -- -- 2.61%/(e)/
Ratio of Net
Investment Income to
Average Net Assets.. (1.50)% (1.85)% (1.82)% (1.41)%/(e)/
Portfolio Turnover
Rate................ 124.7% 138.9% 86.4% 62.0%/(e)/
/(a) //Effective November 1, 2002, calculated based on average shares
outstanding during the period./
/(b) //Total return is calculated without the front-end sales charge or
contingent deferred sales charge./
/(c) /Expense ratio without the Manager's voluntary expense limit. The expense
limit was effective for the year ended October 31, 2000. The expense limit
began again on March 1, 2003.
/(d) /Total return amounts have not been annualized.
/(e) /Computed on an annualized basis.
See accompanying notes.
126
FINANCIAL HIGHLIGHTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
-------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31 (EXCEPT AS NOTED):
2003 2002 2001/(D)/
---- ---- ----
PRINCIPAL PARTNERS LARGECAP BLEND FUND, INC.
- --------------------------------------------
CLASS A SHARES
- --------------
Net Asset Value,
Beginning of Period.. $7.97 $9.00 $10.00
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. -- (0.01) --
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 1.17 (1.02) (1.00)
---- ----- -----
Total From Investment
Operations 1.17 (1.03) (1.00)
---- ----- -----
Net Asset Value, End
of Period............ $9.14 $7.97 $9.00
===== ===== =====
Total Return /(b)/ ... 14.68% (11.44)% (10.00)%/(e)/
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $33,155 $18,781 $7,694
Ratio of Expenses to
Average Net Assets.. 1.79% 1.95% 1.95%/(f)/
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 1.82% 1.98% 2.25%/(f)/
Ratio of Net
Investment Income to
Average Net Assets.. 0.06% (0.02)% (0.09)%/(f)/
Portfolio Turnover
Rate................ 33.0% 67.5% 56.9%/(f)/
2003 2002 2001/(D)/
---- ---- ----
PRINCIPAL PARTNERS LARGECAP BLEND FUND, INC.
- --------------------------------------------
CLASS B SHARES
- --------------
Net Asset Value,
Beginning of Period.. $7.87 $8.94 $10.00
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. (0.05) (0.03) (0.04)
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 1.13 (1.04) (1.02)
---- ----- -----
Total From Investment
Operations 1.08 (1.07) (1.06)
---- ----- -----
Net Asset Value, End
of Period............ $8.95 $7.87 $8.94
===== ===== =====
Total Return /(b)/ ... 13.72% (11.97)% (10.60)%/(e)/
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $14,702 $6,552 $2,670
Ratio of Expenses to
Average Net Assets.. 2.49% 2.70% 2.70%/(f)/
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 2.55% 2.78% 3.01%/(f)/
Ratio of Net
Investment Income to
Average Net Assets.. (0.64)% (0.77)% (0.84)%/(f)/
Portfolio Turnover
Rate................ 33.0% 67.5% 56.9%/(f)/
/(a) /Effective November 1, 2002, calculated based on average shares outstanding
during the period.
/(b) //Total return is calculated without the front-end sales charge or
contingent deferred sales charge./
/(c) //Expense ratio without fees paid indirectly and the Manager's voluntary
expense limit. Expense limits for each class were decreased on March 1, 2003./
/(d) /Period from December 22, 2000, date shares first offered, through October
31, 2001.
/(e) /Total return amounts have not been annualized.
/(f) //Computed on an annualized basis./
See accompanying notes.
127
FINANCIAL HIGHLIGHTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
-------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31 (EXCEPT AS NOTED):
2003 2002 2001/(D)/
---- ---- ----
PRINCIPAL PARTNERS LARGECAP VALUE FUND, INC.
- --------------------------------------------
CLASS A SHARES
- --------------
Net Asset Value,
Beginning of Period.. $8.89 $9.98 $10.00
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.08 0.03 0.02
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 2.00 (1.00) (0.04)
---- ----- -----
Total From Investment
Operations 2.08 (0.97) (0.02)
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.03) (0.03) --
Distributions from
Realized Gains...... -- (0.09) --
----- -----
Total Dividends and
Distributions (0.03) (0.12) --
---- ----- -----
Net Asset Value, End
of Period............ $10.94 $8.89 $9.98
====== ===== =====
Total Return /(b)/ ... 23.51% (9.89)% (0.20)%/(e)/
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $34,298 $21,677 $8,146
Ratio of Expenses to
Average Net Assets.. 1.73% 1.90% 1.95%/(f)/
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 1.76% 1.90% 2.04%/(f)/
Ratio of Net
Investment Income to
Average Net Assets.. 0.81% 0.45% 0.43%/(f)/
Portfolio Turnover
Rate................ 18.5% 10.5% 35.1%/(f)/
2003 2002 2001/(D)/
---- ---- ----
PRINCIPAL PARTNERS LARGECAP VALUE FUND, INC.
- --------------------------------------------
CLASS B SHARES
- --------------
Net Asset Value,
Beginning of Period.. $8.79 $9.92 $10.00
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.01 (0.01) (0.02)
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 1.98 (1.03) (0.06)
---- ----- -----
Total From Investment
Operations 1.99 (1.04) (0.08)
Less Dividends and
Distributions:
Distributions from
Realized Gains...... -- (0.09) --
----- -----
Total Dividends and
Distributions -- (0.09) --
----- -----
Net Asset Value, End
of Period............ $10.78 $8.79 $9.92
====== ===== =====
Total Return /(b)/ ... 22.64% (10.62)% (0.80)%/(e)/
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $13,196 $7,439 $2,786
Ratio of Expenses to
Average Net Assets.. 2.48% 2.70% 2.70%/(f)/
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 2.51% 2.71% 2.82%/(f)/
Ratio of Net
Investment Income to
Average Net Assets.. 0.06% (0.35)% (0.33)%/(f)/
Portfolio Turnover
Rate................ 18.5% 10.5% 35.1%/(f)/
/(a) /Effective November 1, 2002, calculated based on average shares outstanding
during the period.
/(b) /Total return is calculated without the front-end sales charge or
contingent deferred sales charge.
/(c) //Expense ratio without fees paid indirectly and the Manager's voluntary
expense limit. Expense limits for each class were decreased on March 1, 2003./
/(d) /Period from December 22, 2000, date shares first offered, through October
31, 2001.
/(e) /Total return amounts have not been annualized.
/(f) //Computed on an annualized basis./
See accompanying notes.
128
FINANCIAL HIGHLIGHTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
-------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31 (EXCEPT AS NOTED):
2003 2002 2001 2000/(D)/
---- ---- ---- ----
PRINCIPAL PARTNERS MIDCAP GROWTH FUND, INC.
- -------------------------------------------
CLASS A SHARES
- --------------
Net Asset Value,
Beginning of Period.. $3.61 $4.55 $9.09 $10.00
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. (0.07) (0.08) (0.10) (0.04)
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 1.53 (0.86) (4.44) (0.87)
---- ----- ----- -----
Total From Investment
Operations 1.46 (0.94) (4.54) (0.91)
---- ----- ----- -----
Net Asset Value, End
of Period............ $5.07 $3.61 $4.55 $9.09
===== ===== ===== =====
Total Return /(b)/ ... 40.44% (20.66)% (49.94)% (12.68)%/(e)/
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $22,206 $12,745 $11,207 $11,875
Ratio of Expenses to
Average Net Assets.. 1.95% 1.95% 1.95% 1.79%/(f)/
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 2.39% 2.40% 2.67% 2.50%/(f)/
Ratio of Net
Investment Income to
Average Net Assets.. (1.72)% (1.74)% (1.64)% (1.40)%/(f)/
Portfolio Turnover
Rate................ 175.6% 234.9% 334.0% 265.5%/(f)/
2003 2002 2001 2000/(D)/
---- ---- ---- ----
PRINCIPAL PARTNERS MIDCAP GROWTH FUND, INC.
- -------------------------------------------
CLASS B SHARES
- --------------
Net Asset Value,
Beginning of Period.. $3.54 $4.49 $9.04 $10.00
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. (0.10) (0.08) (0.08) (0.07)
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 1.53 (0.87) (4.47) (0.89)
---- ----- ----- -----
Total From Investment
Operations 1.43 (0.95) (4.55) (0.96)
---- ----- ----- -----
Net Asset Value, End
of Period............ $4.97 $3.54 $4.49 $9.04
===== ===== ===== =====
Total Return /(b)/ ... 40.40% (21.16)% (50.33)% (13.16)%/(e)/
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $8,528 $4,160 $3,967 $4,093
Ratio of Expenses to
Average Net Assets.. 2.70% 2.70% 2.70% 2.54%/(f)/
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 3.17% 3.32% 3.45% 3.22%/(f)/
Ratio of Net
Investment Income to
Average Net Assets.. (2.47)% (2.49)% (2.40)% (2.18)%/(f)/
Portfolio Turnover
Rate................ 175.6% 234.9% 334.0% 265.5%/(f)/
/(a) /Effective November 1, 2002, calculated based on average shares outstanding
during the period.
/(b) //Total return is calculated without the front-end sales charge or
contingent deferred sales charge./
/(c) /Expense ratio without the Manager's voluntary expense limit. The expense
limit began on the first day of the period ended October 31, 2000. The expense
limits for each class were increased on November 1, 2000.
/(d) /Period from March 1, 2000, date shares first offered, through October 31,
2000.
/(e) //Total return amounts have not been annualized./
/(f) /Computed on an annualized basis.
See accompanying notes.
129
FINANCIAL HIGHLIGHTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
-------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31 (EXCEPT AS NOTED):
2003 2002 2001/(D)/
---- ---- ----
PRINCIPAL PARTNERS SMALLCAP
- ---------------------------
GROWTH FUND, INC.
- -----------------
CLASS A SHARES
- --------------
Net Asset Value,
Beginning of Period.. $3.99 $6.24 $10.00
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. (0.07) (0.08) (0.07)
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 1.51 (2.17) (3.69)
---- ----- -----
Total From Investment
Operations 1.44 (2.25) (3.76)
---- ----- -----
Net Asset Value, End
of Period............ $5.43 $3.99 $6.24
===== ===== =====
Total Return /(b)/ ... 36.09% (36.06)% (37.60)%/(e)/
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $10,108 $4,899 $4,107
Ratio of Expenses to
Average Net Assets.. 1.95% 1.95% 1.95%/(f)/
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 2.88% 2.95% 2.94%/(f)/
Ratio of Net
Investment Income to
Average Net Assets.. (1.59)% (1.69)% (1.55)%/(f)/
Portfolio Turnover
Rate................ 72.2% 303.3% 144.5%/(f)/
2003 2002 2001/(D)/
---- ---- ----
PRINCIPAL PARTNERS SMALLCAP
- ---------------------------
GROWTH FUND, INC.
- -----------------
CLASS B SHARES
- --------------
Net Asset Value,
Beginning of Period.. $3.93 $6.20 $10.00
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. (0.10) (0.08) (0.11)
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 1.48 (2.19) (3.69)
---- ----- -----
Total From Investment
Operations 1.38 (2.27) (3.80)
---- ----- -----
Net Asset Value, End
of Period............ $5.31 $3.93 $6.20
===== ===== =====
Total Return /(b)/ ... 35.11% (36.61)% (38.00)%/(e)/
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $4,402 $1,579 $1,230
Ratio of Expenses to
Average Net Assets.. 2.70% 2.70% 2.70%/(f)/
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 3.76% 3.98% 3.82%/(f)/
Ratio of Net
Investment Income to
Average Net Assets.. (2.34)% (2.43)% (2.29)%/(f)/
Portfolio Turnover
Rate................ 72.2% 303.3% 144.5%/(f)/
/(a) /Effective November 1, 2002, calculated based on average shares outstanding
during the period.
/(b) //Total return is calculated without the front-end sales charge or
contingent deferred sales charge./
/(c) //Expense ratio without fees paid indirectly and the Manager's voluntary
expense limit./
/(d) //Period from December 22, 2000, date shares first offered, through October
31, 2001./
/(e) //Total return amounts have not been annualized./
/(f) //Computed on an annualized basis./
See accompanying notes.
130
FINANCIAL HIGHLIGHTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
-------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31 (EXCEPT AS NOTED):
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL REAL ESTATE FUND, INC.
- --------------------------------
CLASS A SHARES
- --------------
Net Asset Value,
Beginning of Period.. $10.03 $9.45 $9.03 $7.73 $8.39
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.34 0.30 0.34 0.35 0.31
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 3.01 0.57 0.42 1.30 (0.67)
---- ---- ---- ---- -----
Total From Investment
Operations 3.35 0.87 0.76 1.65 (0.36)
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.32) (0.29) (0.34) (0.35) (0.30)
----- ----- ----- ----- -----
Total Dividends and
Distributions (0.32) (0.29) (0.34) (0.35) (0.30)
----- ----- ----- ----- -----
Net Asset Value, End
of Period............ $13.06 $10.03 $9.45 $9.03 $7.73
====== ====== ===== ===== =====
Total Return /(b)/ ... 34.00% 9.13% 8.49% 21.86% (4.38)%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $46,131 $29,198 $12,700 $9,439 $6,459
Ratio of Expenses to
Average Net Assets.. 1.82% 1.76% 1.97% 1.88% 2.19%
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... -- -- -- 2.17% --
Ratio of Net
Investment Income to
Average Net Assets.. 3.05% 2.87% 3.57% 4.28% 3.77%
Portfolio Turnover
Rate................ 58.4% 65.4% 69.5% 79.8% 55.1%
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL REAL ESTATE FUND, INC.
- --------------------------------
CLASS B SHARES
- --------------
Net Asset Value,
Beginning of Period.. $9.98 $9.41 $9.00 $7.71 $8.38
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.26 0.23 0.28 0.30 0.24
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 2.98 0.57 0.42 1.29 (0.66)
---- ---- ---- ---- -----
Total From Investment
Operations 3.24 0.80 0.70 1.59 (0.42)
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.24) (0.23) (0.29) (0.30) (0.25)
----- ----- ----- ----- -----
Total Dividends and
Distributions (0.24) (0.23) (0.29) (0.30) (0.25)
----- ----- ----- ----- -----
Net Asset Value, End
of Period............ $12.98 $9.98 $9.41 $9.00 $7.71
====== ===== ===== ===== =====
Total Return /(b)/ ... 32.95% 8.38% 7.76% 21.00% (5.10)%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $15,232 $8,982 $5,663 $4,488 $3,351
Ratio of Expenses to
Average Net Assets.. 2.51% 2.47% 2.58% 2.62% 2.98%
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... -- -- -- 2.75% --
Ratio of Net
Investment Income to
Average Net Assets.. 2.34% 2.26% 2.97% 3.53% 2.98%
Portfolio Turnover
Rate................ 58.4% 65.4% 69.5% 79.8% 55.1%
/(a) //Effective November 1, 2002, calculated based on average shares
outstanding during the period./
/(b) //Total return is calculated without the front-end sales charge or
contingent deferred sales charge./
/(c) //Expense ratio without the Manager's voluntary expense limit. The expense
limit was effective for the year ended October 31, 2000./
See accompanying notes.
131
FINANCIAL HIGHLIGHTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
-------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31 (EXCEPT AS NOTED):
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL SMALLCAP FUND, INC.
- -----------------------------
CLASS A SHARES
- --------------
Net Asset Value,
Beginning of Period.. $6.23 $7.60 $11.24 $11.34 $8.43
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. (0.06) (0.12) (0.11) (0.11) (0.11)
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 2.11 (1.25) (1.91) 1.27 3.02
---- ----- ----- ---- ----
Total From Investment
Operations 2.05 (1.37) (2.02) 1.16 2.91
Less Dividends and
Distributions:
Distributions from
Realized Gains...... -- -- (1.62) (1.26) --
---- ----- -----
Total Dividends and
Distributions -- -- (1.62) (1.26) --
---- ----- -----
Net Asset Value, End
of Period............ $8.28 $6.23 $7.60 $11.24 $11.34
===== ===== ===== ====== ======
Total Return /(b)/ ... 32.91% (18.03)% (19.37)% 9.89% 34.52%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $73,671 $56,334 $53,763 $60,660 $41,598
Ratio of Expenses to
Average Net Assets.. 1.98% 1.94% 1.87% 1.75% 1.92%
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 1.98% 1.95% -- 1.76% --
Ratio of Net
Investment Income to
Average Net Assets.. (0.85)% (0.93)% (0.80)% (0.61)% (1.04)%
Portfolio Turnover
Rate................ 165.6% 218.2% 154.9% 138.4% 100.7%
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL SMALLCAP FUND, INC.
- -----------------------------
CLASS B SHARES
- --------------
Net Asset Value,
Beginning of Period.. $5.99 $7.36 $11.02 $11.21 $8.41
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. (0.10) (0.09) (0.06) (0.10) (0.11)
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 2.01 (1.28) (1.98) 1.17 2.91
---- ----- ----- ---- ----
Total From Investment
Operations 1.91 (1.37) (2.04) 1.07 2.80
Less Dividends and
Distributions:
Distributions from
Realized Gains...... -- -- (1.62) (1.26) --
---- ----- -----
Total Dividends and
Distributions -- -- (1.62) (1.26) --
---- ----- -----
Net Asset Value, End
of Period............ $7.90 $5.99 $7.36 $11.02 $11.21
===== ===== ===== ====== ======
Total Return /(b)/ ... 31.89% (18.61)% (20.05)% 9.14% 33.29%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $22,036 $15,624 $17,342 $19,022 $14,158
Ratio of Expenses to
Average Net Assets.. 2.70% 2.75% 2.74% 2.41% 2.63%
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 2.70% 2.75% -- 2.41% --
Ratio of Net
Investment Income to
Average Net Assets.. (1.58)% (1.73)% (1.67)% (1.27)% (1.75)%
Portfolio Turnover
Rate................ 165.6% 218.2% 154.9% 138.4% 100.7%
/(a) //Effective November 1, 2002, calculated based on average shares
outstanding during the period./
/(b) //Total return is calculated without the front-end sales charge or
contingent deferred sales charge./
/(c) //Expense ratio without fees paid indirectly and the Manager's voluntary
expense limit. The expense limit was effective for the year ended October 31,
/ /2000./
See accompanying notes.
132
FINANCIAL HIGHLIGHTS
PRINCIPAL MUTUAL FUNDS
DOMESTIC GROWTH FUNDS
-------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31 (EXCEPT AS NOTED):
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL UTILITIES FUND, INC.
- ------------------------------
CLASS A SHARES
- --------------
Net Asset Value,
Beginning of Period.. $8.57 $10.69 $18.40 $17.86 $16.11
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.36 0.31 0.20 0.27 0.33
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 0.81 (2.14) (4.05) 1.68 2.00
---- ----- ----- ---- ----
Total From Investment
Operations 1.17 (1.83) (3.85) 1.95 2.33
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.36) (0.29) (0.20) (0.27) (0.34)
Distributions from
Realized Gains...... -- -- (3.66) (1.14) (0.24)
---- ----- ----- -----
Total Dividends and
Distributions (0.36) (0.29) (3.86) (1.41) (0.58)
----- ----- ----- ----- -----
Net Asset Value, End
of Period............ $9.38 $8.57 $10.69 $18.40 $17.86
===== ===== ====== ====== ======
Total Return /(b)/ ... 13.86% (17.30)% (25.74)% 12.09% 14.74%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $60,703 $57,881 $72,581 $101,352 $99,857
Ratio of Expenses to
Average Net Assets.. 1.46% 1.48% 1.31% 1.23% 1.20%
Ratio of Net
Investment Income to
Average Net Assets.. 4.02% 3.15% 1.51% 1.59% 1.94%
Portfolio Turnover
Rate................ 19.1% 79.4% 106.2% 150.8% 23.5%
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL UTILITIES FUND, INC.
- ------------------------------
CLASS B SHARES
- --------------
Net Asset Value,
Beginning of Period.. $8.53 $10.64 $18.37 $17.83 $16.09
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.28 0.21 0.10 0.14 0.22
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 0.80 (2.11) (4.07) 1.69 1.98
---- ----- ----- ---- ----
Total From Investment
Operations 1.08 (1.90) (3.97) 1.83 2.20
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.27) (0.21) (0.10) (0.15) (0.22)
Distributions from
Realized Gains...... -- -- (3.66) (1.14) (0.24)
---- ----- ----- -----
Total Dividends and
Distributions (0.27) (0.21) (3.76) (1.29) (0.46)
----- ----- ----- ----- -----
Net Asset Value, End
of Period............ $9.34 $8.53 $10.64 $18.37 $17.83
===== ===== ====== ====== ======
Total Return /(b)/ ... 12.85% (18.02)% (26.41)% 11.30% 13.85%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $9,775 $9,982 $15,152 $19,624 $18,282
Ratio of Expenses to
Average Net Assets.. 2.34% 2.37% 2.15% 2.00% 1.95%
Ratio of Net
Investment Income to
Average Net Assets.. 3.14% 2.19% 0.66% 0.82% 1.19%
Portfolio Turnover
Rate................ 19.1% 79.4% 106.2% 150.8% 23.5%
/(a) //Effective November 1, 2002, calculated based on average shares
outstanding during the period./
/(b) //Total return is calculated without the front-end sales charge or
contingent deferred sales charge./
See accompanying notes.
133
STATEMENTS OF ASSETS AND LIABILITIES
PRINCIPAL MUTUAL FUNDS
INTERNATIONAL GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
INTERNATIONAL EMERGING INTERNATIONAL
MARKETS FUND, INC. FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INVESTMENT IN AFFILIATED
SECURITIES--AT COST................. $ 293,834 $ 9,244,130
============ =============
INVESTMENT IN SECURITIES--AT COST ... $ 27,222,892 $ 206,895,165
============ =============
FOREIGN CURRENCY--AT COST ........... $ 14,396 $ 252,062
============ =============
ASSETS
Investment in affiliated
securities--at value................ $ 386,390 $ 6,115,975
Investment in securities--at value... 35,391,258 237,449,473
Foreign currency--at value........... 14,369 250,615
Cash................................. 318,914 701,268
Receivables:
Capital Shares sold................. 24,842 24,240
Dividends and interest.............. 88,454 573,318
Investment securities sold.......... 20,898 3,885,869
Other assets......................... 263 4,847
Prepaid expenses..................... 55 --
------------ -------------
Total Assets 36,245,443 249,005,605
LIABILITIES
Accrued management and investment
advisory fees....................... 8,156 36,985
Accrued distribution fees............ 2,507 9,050
Accrued directors' expenses.......... -- 102
Accrued transfer and administrative
fees................................ 31,823 166,388
Accrued other expenses............... 39,214 95,531
Payables:
Capital Shares reacquired........... 3,342 107,984
Investment securities purchased..... 54,828 3,239,911
Collateral obligation on securities
loaned, at value.................... 1,487,000 16,847,091
------------ -------------
Total Liabilities 1,626,870 20,503,042
------------ -------------
NET ASSETS APPLICABLE TO OUTSTANDING
SHARES ............................. $ 34,618,573 $ 228,502,563
============ =============
NET ASSETS CONSIST OF:
Capital Shares and additional
paid-in-capital..................... $ 31,641,029 $ 311,796,065
Accumulated undistributed
(overdistributed) net investment
income (operating loss)............. -- 1,658,650
Accumulated undistributed
(overdistributed) net realized gain
(loss).............................. (5,278,400) (112,369,991)
Net unrealized appreciation
(depreciation) of investments....... 8,260,922 27,426,153
Net unrealized appreciation
(depreciation) on translation of
assets and liabilities in foreign
currencies.......................... (4,978) (8,314)
------------ -------------
Total Net Assets $ 34,618,573 $ 228,502,563
============ =============
CAPITAL STOCK (PAR VALUE: $.01 A
SHARE):
Shares authorized.................... 100,000,000 325,000,000
NET ASSET VALUE PER SHARE:
Class A: Net Assets.................. $ 26,908,390 $ 200,004,936
Shares issued and outstanding...... 2,647,567 32,282,299
Net asset value per share.......... $ 10.16 $ 6.20
Maximum offering price per share
/(a)/ .............................. $ 10.78 $ 6.58
============ =============
Class B: Net Assets.................. $ 7,710,183 $ 28,497,627
Shares issued and outstanding...... 790,272 4,708,366
Net asset value per share /(b)/ ... $ 9.76 $ 6.05
============ =============
/(a) //Maximum offering price equals net asset value plus a front-end sales
charge of 5.75% of the offering price or 6.10% of the net asset value./
/(b) //Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge./
See accompanying notes.
134
STATEMENTS OF ASSETS AND LIABILITIES
PRINCIPAL MUTUAL FUNDS
INTERNATIONAL GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
PRINCIPAL
INTERNATIONAL
SMALLCAP FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INVESTMENT IN SECURITIES--AT COST ...................... $ 38,188,190
============
FOREIGN CURRENCY--AT COST .............................. $ 58
============
ASSETS
Investment in securities--at value...................... $ 49,685,535
Foreign currency--at value.............................. 58
Cash.................................................... 560,650
Receivables:
Capital Shares sold.................................... 22,753
Dividends and interest................................. 111,905
Investment securities sold............................. 505,517
Other assets............................................ 454
------------
Total Assets 50,886,872
LIABILITIES
Accrued management and investment advisory fees......... 10,404
Accrued distribution fees............................... 3,428
Accrued transfer and administrative fees................ 60,820
Accrued other expenses.................................. 36,271
Payables:
Investment securities purchased........................ 576,925
Collateral obligation on securities loaned, at value.... 4,360,235
------------
Total Liabilities 5,048,083
------------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES ............ $ 45,838,789
============
NET ASSETS CONSIST OF:
Capital Shares and additional paid-in-capital........... $ 51,062,169
Accumulated undistributed (overdistributed) net
investment income (operating loss)..................... (108,330)
Accumulated undistributed (overdistributed) net realized
gain (loss)............................................ (16,611,620)
Net unrealized appreciation (depreciation) of
investments............................................ 11,497,345
Net unrealized appreciation (depreciation) on
translation of assets and liabilities in foreign
currencies............................................. (775)
------------
Total Net Assets $ 45,838,789
============
CAPITAL STOCK (PAR VALUE: $.01 A SHARE):
Shares authorized....................................... 100,000,000
NET ASSET VALUE PER SHARE:
Class A: Net Assets..................................... $ 35,587,944
Shares issued and outstanding......................... 3,006,601
Net asset value per share............................. $ 11.84
Maximum offering price per share /(a)/ ............... $ 12.56
============
Class B: Net Assets..................................... $ 10,250,845
Shares issued and outstanding......................... 906,291
Net asset value per share /(b)/ ...................... $ 11.31
============
/(a) //Maximum offering price equals net asset value plus a front-end sales
charge of 5.75% of the offering price or 6.10% of the net asset value./
/(b) //Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge./
See accompanying notes.
135
STATEMENTS OF OPERATIONS
PRINCIPAL MUTUAL FUNDS
INTERNATIONAL GROWTH FUNDS
YEAR ENDED OCTOBER 31, 2003
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
INTERNATIONAL EMERGING INTERNATIONAL
MARKETS FUND, INC. FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME (OPERATING LOSS)
Income:
Dividends............................ $ 744,988 $ 5,736,448
Dividends from affiliates............ 36,939 87,467
Withholding tax on foreign dividends. (80,305) (725,067)
Interest............................. 717 31,576
Securities lending................... 2,560 59,159
----------- -----------
Total Income 704,899 5,189,583
Expenses:
Management and investment advisory
fees................................ 328,625 1,853,833
Distribution fees - Class A.......... 51,058 318,257
Distribution fees - Class B.......... 50,056 240,852
Registration fees - Class A.......... 8,202 13,580
Registration fees - Class B.......... 8,143 8,855
Shareholder reports - Class A........ 3,172 19,453
Shareholder reports - Class B........ 966 4,446
Transfer and administrative fees -
Class A............................. 49,128 318,141
Transfer and administrative fees -
Class B............................. 14,893 78,971
Auditing and legal fees.............. 13,490 14,227
Custodian fees....................... 90,000 130,009
Directors' expenses.................. 929 9,063
Registration fees.................... 11,800 20,652
Transfer and administrative fees..... 119,036 575,103
Other expenses....................... 2,263 16,897
----------- -----------
Total Gross Expenses 751,761 3,622,339
Less: Fees paid indirectly........... 3,987 7,110
Less: Fees waived - Class A.......... 24,073 --
Less: Fees waived - Class B.......... 6,574 --
----------- -----------
Total Net Expenses 717,127 3,615,229
----------- -----------
Net Investment Income (Operating Loss) (12,228) 1,574,354
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND FOREIGN
CURRENCIES
Net realized gain (loss) from:
Investment transactions.............. 2,513,635 (9,722,616)
Investment transactions in affiliates 52,974 228,757
Foreign currency transactions........ (66,867) 93,149
Change in unrealized
appreciation/depreciation of:
Investments.......................... 8,794,074 51,589,548
Investments in affiliates............ 90,655 1,172,610
Translation of assets and liabilities
in foreign currencies............... 1,296 (24,202)
----------- -----------
Net Realized and Unrealized Gain
(Loss) on Investments and Foreign
Currencies 11,385,767 43,337,246
----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Operations $11,373,539 $44,911,600
=========== ===========
See accompanying notes.
136
STATEMENTS OF OPERATIONS
PRINCIPAL MUTUAL FUNDS
INTERNATIONAL GROWTH FUNDS
YEAR ENDED OCTOBER 31, 2003
-------------------------------------------------------------------------------
PRINCIPAL
INTERNATIONAL
SMALLCAP FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME (OPERATING LOSS)
Income:
Dividends.............................................. $ 978,184
Withholding tax on foreign dividends................... (106,183)
Interest............................................... 3,895
Securities lending..................................... 6,494
-----------
Total Income 882,390
Expenses:
Management and investment advisory fees................ 441,388
Distribution fees - Class A............................ 71,670
Distribution fees - Class B............................ 74,866
Registration fees - Class A............................ 11,390
Registration fees - Class B............................ 9,886
Shareholder reports - Class A.......................... 6,509
Shareholder reports - Class B.......................... 2,338
Transfer and administrative fees - Class A............. 89,293
Transfer and administrative fees - Class B............. 30,115
Auditing and legal fees................................ 10,085
Custodian fees......................................... 56,908
Directors' expenses.................................... 1,456
Registration fees...................................... 17,250
Transfer and administrative fees....................... 208,879
Other expenses......................................... 3,053
-----------
Total Gross Expenses 1,035,086
Less: Fees paid indirectly............................. 4,127
-----------
Total Net Expenses 1,030,959
-----------
Net Investment Income (Operating Loss) (148,569)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES
Net realized gain (loss) from:
Investment transactions................................ (2,827,946)
Foreign currency transactions.......................... (4,675)
Change in unrealized appreciation/depreciation of:
Investments............................................ 16,403,970
Translation of assets and liabilities in foreign
currencies............................................ 381
-----------
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currencies 13,571,730
-----------
Net Increase (Decrease) in Net Assets Resulting from
Operations $13,423,161
===========
See accompanying notes.
137
STATEMENTS OF CHANGES IN NET ASSETS
PRINCIPAL MUTUAL FUNDS
INTERNATIONAL GROWTH FUNDS
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
INTERNATIONAL EMERGING INTERNATIONAL
MARKETS FUND, INC. FUND, INC.
- -----------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2003 2002 2003 2002
------------ --------------- ------------- -------------------
- -----------------------------------------------------------------------------------------
OPERATIONS
Net investment income
(operating loss)..... $ (12,228) $ (143,870) $ 1,574,354 $ 512,850
Net realized gain
(loss) from
investment
transactions and
foreign currency
transactions......... 2,499,742 275,027 (9,400,710) (44,717,355)
Change in unrealized
appreciation/depreciation
of investments and
translations of assets
and liabilities in
foreign currencies.... 8,886,025 765,341 52,737,956 14,492,073
----------- ----------- ------------ -------------
Net Increase (Decrease)
in Net Assets
Resulting from
Operations 11,373,539 896,498 44,911,600 (29,712,432)
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment
income:
Class A............... -- -- (64,843) (494,213)
----------- ----------- ------------ -------------
Total Dividends and
Distributions -- -- (64,843) (494,213)
CAPITAL SHARE
TRANSACTIONS
Shares sold:
Class A............... 5,140,060 7,139,364 26,417,570 97,714,235
Class B............... 867,475 999,656 4,426,535 5,656,985
Class C............... N/A 7,606/(a)/ N/A 227,812/(a)/
Class R............... N/A 18,175/(b)/ N/A 324,145/(b)/
Shares issued in
acquisitions:
Class A............... -- -- -- 6,240,753
Class B............... -- -- -- 1,912,304
Shares issued in
reinvestment of
dividends and
distributions:
Class A............... -- -- 63,916 483,496
Shares redeemed:
Class A............... (5,148,772) (4,890,180) (64,183,379) (103,330,268)
Class B............... (892,548) (630,729) (9,662,970) (8,312,991)
Class C............... N/A (261,587)/(a)/ N/A (1,250,137)/(a)/
Class R............... N/A (1,791,967)/(b)/ N/A (18,046,474)/(b)/
----------- ----------- ------------ -------------
Net Increase (Decrease)
in Net Assets from
Capital Share
Transactions (33,785) 590,338 (42,938,328) (18,380,140)
----------- ----------- ------------ -------------
Redemption fees - Class
A..................... 8,757 -- 41,470 --
----------- ----------- ------------ -------------
Total Increase
(Decrease) 11,348,511 1,486,836 1,949,899 (48,586,785)
NET ASSETS
Beginning of period.... 23,270,062 21,783,226 226,552,664 275,139,449
----------- ----------- ------------ -------------
End of period
(including
undistributed net
investment income as
set forth below)...... $34,618,573 $23,270,062 $228,502,563 $ 226,552,664
=========== =========== ============ =============
Undistributed
(Overdistributed) Net
Investment Income
(Operating Loss)...... $ -- $ -- $ 1,658,650 $ 72,775
=========== =========== ============ =============
/(a) //Period from November 1, 2001 through January 31, 2002 (discontinuation of
class)./
/(b) //Period from November 1, 2001 through December 28, 2001 (discontinuation
of class)./
See accompanying notes.
138
STATEMENTS OF CHANGES IN NET ASSETS
PRINCIPAL MUTUAL FUNDS
INTERNATIONAL GROWTH FUNDS
-------------------------------------------------------------------------------
PRINCIPAL
INTERNATIONAL
SMALLCAP FUND, INC.
- -------------------------------------------------------------------------------
YEAR YEAR
ENDED ENDED
OCTOBER 31, OCTOBER 31,
2003 2002
------------- ------------------
- -------------------------------------------------------------------------------
OPERATIONS
Net investment income (operating loss)...... $ (148,569) $ (245,681)
Net realized gain (loss) from investment
transactions and foreign currency
transactions............................... (2,832,621) (2,286,565)
Change in unrealized
appreciation/depreciation of investments
and translation of assets and liabilities
in foreign currencies...................... 16,404,351 (1,861,795)
------------ ------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 13,423,161 (4,394,041)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From net investment income:
Class A.................................... (19,057) --
------------ ------------
Total Dividends and Distributions (19,057) --
CAPITAL SHARE TRANSACTIONS
Shares sold:
Class A.................................... 8,564,118 23,663,602
Class B.................................... 1,749,352 2,084,900
Class C.................................... N/A 1,286,305/(a)/
Class R.................................... N/A 31,922/(b)/
Shares issued in reinvestment of dividends
and distributions:
Class A.................................... 17,605 --
Shares redeemed:
Class A.................................... (10,326,549) (22,250,092)
Class B.................................... (1,941,831) (2,102,781)
Class C.................................... N/A (1,756,461)/(a)/
Class R.................................... N/A (3,272,881)/(b)/
------------ ------------
Net Increase (Decrease) in Net Assets from
Capital Share Transactions (1,937,305) (2,315,486)
------------ ------------
Redemption fees - Class A................... 14,686 --
------------ ------------
Total Increase (Decrease) 11,481,485 (6,709,527)
NET ASSETS
Beginning of period......................... 34,357,304 41,066,831
------------ ------------
End of period (including undistributed net
investment income as set forth below)...... $ 45,838,789 $ 34,357,304
============ ============
Undistributed (Overdistributed) Net
Investment Income (Operating Loss)......... $ (108,330) $ 13,480
============ ============
/(a) //Period from November 1, 2001 through January 31, 2002 (discontinuation of
class)./
/(b) //Period from November 1, 2001 through December 28, 2001 (discontinuation
of class)./
See accompanying notes.
139
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
INTERNATIONAL GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
1. ORGANIZATION
Principal International Emerging Markets Fund, Inc., Principal International
Fund, Inc., and Principal International SmallCap Fund, Inc. (the "International
Growth 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.
Each fund offers both Class A shares and Class B shares to the public. Class A
shares generally are sold with an initial sales charge based on declining rates
and certain purchases may be subject to a contingent deferred sales charge
("CDSC") upon redemption. Class B shares are sold without an initial sales
charge, but bear higher ongoing distribution fees and are subject to a declining
CDSC on certain redemptions made within six years of purchase. Class B shares
automatically convert into Class A shares, based on relative net asset value
(without a sales charge), seven years after purchase. Both classes of shares for
each fund represent interests in the same portfolio of investments, and will
vote together as a single class except where otherwise required by law or as
determined by each of the International Growth Funds' respective Board of
Directors. In addition, the Board of Directors of each fund declares separate
dividends on each class of shares.
Effective October 29, 2002, Principal International Fund, Inc. acquired all the
assets and assumed all the liabilities of Principal European Equity Fund, Inc.
and Principal Pacific Basin Fund, Inc. pursuant to a plan of acquisition
approved by shareholders of Principal European Equity Fund, Inc. and Principal
Pacific Basin Fund, Inc. on October 28, 2002. The acquisition was accomplished
by a tax-fee exchange of shares from Principal European Equity Fund, Inc. and
Principal Pacific Basin Fund, Inc. for the shares of Principal International
Fund, Inc. The aggregate net assets of Principal International Fund, Inc.,
Principal European Equity Fund, Inc. and Principal Pacific Basin Fund, Inc.
immediately before the acquisiton were approximately $212,063,000, $4,411,000
and $3,742,000, respectively.
Principal Management Corporation is currently in the process of reviewing
policies and trading records to determine whether the International Growth Funds
have been used as vehicles for late trading or market timing. While the review
is not yet complete, Principal Management Corporation has no reason to believe
at this time that any International Growth Fund will experience any material
gain or loss as a result of the review.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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. The
following summarizes the significant accounting policies of the International
Growth Funds:
SECURITY VALUATION . The International Growth Funds value securities for which
market quotations are readily available at market value, which is determined
using the last reported sale price. If no sales are reported, as is regularly
the case for some securities traded over-the-counter, securities are valued
using the last reported bid price or an evaluated bid price based on information
provided by a pricing service. Pricing services use electronic modeling
techniques that incorporate security characteristics, market conditions and
dealer-supplied valuations. 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 at their fair value as determined in good faith by
Principal Management Corporation (the "Manager") under procedures established
and periodically reviewed by each fund's Board of Directors. Short-term
securities are valued at amortized cost, which approximates market.
FOREIGN SECURITIES. . 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. 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 periodically reviewed by each fund's Board of Directors. To the
extent each 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 weekends and other customary national U.S. holidays, each fund's net
asset value could be significantly affected on days when shareholders cannot
purchase or redeem shares.
140
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
INTERNATIONAL GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
Growth Funds 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 each fund's Board of Directors
as may occasionally be necessary.
The value of foreign securities based in foreign currency amounts is translated
to U.S. dollars using the exchange rate at the daily close of the London
Exchange. The identified cost of the fund 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.
Net realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between 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
(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.
INCOME AND INVESTMENT TRANSACTIONS. . The International Growth Funds record
investment transactions on a trade date basis. 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
International Growth 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. Discounts
and premiums on securities are accreted/amortized over the lives of the
respective securities. The International Growth Funds allocate daily all income
and realized and unrealized gains or losses to each class of shares based upon
the relative proportion of the value of shares outstanding of each class.
EXPENSES . The International Growth Funds allocate daily all expenses (other
than class-specific expenses) to each class of shares based upon the relative
proportion of the value of shares outstanding of each class. Class-specific
expenses charged to each class during the year ended October 31, 2003 are
included separately in the statements of operations.
DISTRIBUTIONS TO SHAREHOLDERS . Dividends and distributions 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 accounting principles generally accepted in the United States.
These differences are primarily due to differing treatments for foreign currency
transactions, net operating losses, losses deferred due to wash sales,
commission recapture, sales of Passive Foreign Investment Companies, and
limitations imposed by Sections 381-384 of the Internal Revenue Code. 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.
Distributions which exceed current and accumulated earnings and profits for
federal income tax purposes, are reported as tax return of capital
distributions.
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.
REDEMPTION FEES . The International Growth Funds will impose a redemption fee on
redemptions of $30,000 or more of Class A shares redeemed within 30 days after
they are purchased. The fee is equal to 1.00% of the total redemption amount.
The fee is paid to the fund and is intended to offset the trading costs, market
impact, and other costs associated with short-term money movement in and out of
the International Growth Funds. These amounts are reflected in the statements of
changes in net assets.
141
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
INTERNATIONAL GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
3. OPERATING POLICIES
FEES PAID INDIRECTLY . The International Growth Funds direct certain portfolio
transactions to brokerage firms that, in turn, pay a portion of the Fund's
operating expenses. The International Growth Funds have also entered into an
arrangement with their custodian whereby interest earned on uninvested cash
balances is used to offset a portion of each fund's expenses. These amounts are
reflected in the statements of operations.
LINE OF CREDIT . The International Growth Funds participate with other funds
managed by Principal Management Corporation in an unsecured joint line of credit
with two banks which allow the participants to borrow up to $75 million,
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 .09% on
the amount of the line of credit. The commitment fee is allocated among the
participating funds in proportion to their average net assets during each
calendar quarter. At October 31, 2003, the International Growth Funds had no
outstanding borrowings under the line of credit.
REPURCHASE AGREEMENTS . The International Growth Funds may invest in repurchase
agreements that are fully collateralized, typically by U.S. government or U.S.
government agency securities. The value of the collateral is maintained, at a
minimum, in an amount equal to the principal amount plus accrued interest of
each repurchase agreement. In the event the seller of a repurchase agreement
defaults, the fund could experience delays in the realization of the collateral.
SECURITIES LENDING. . The International Growth Funds may lend portfolio
securities to approved brokerage firms to earn additional income. Each
applicable fund receives collateral (in the form of U.S. government securities,
U.S. government agency securities, letters of credit, and/or cash) against the
loaned securities and maintains collateral in an amount not less than 100% of
the market value of the loaned securities during the period of the loan. Cash
collateral is usually invested in short-term securities. The market value of
loaned securities is determined at the close of business of the funds and any
additional required collateral is delivered to the funds on the next business
day. Although risk is mitigated by the collateral, the fund could experience a
delay in recovering its securities and possible loss of income or value if the
borrower fails to return them. As of October 31, 2003, Principal International
Emerging Markets Fund, Inc., Principal International Fund, Inc., and Principal
International SmallCap Fund, Inc. had securities on loan with market values of
$1,392,836, $15,822,625 and $4,095,401 and collateral values of $1,487,000,
$16,847,091 and $4,360,235, respectively.
4. MANAGEMENT AGREEMENT AND TRANSACTIONS WITH AFFILIATES
MANAGEMENT SERVICES . The International Growth Funds have agreed to pay
investment advisory and management fees to Principal Management Corporation
(wholly owned by Princor Financial Services Corporation, a subsidiary of
Principal Financial Services, Inc.) computed at an annual percentage rate of
each fund's average daily net assets. The annual rates used in this calculation
for the International Growth Funds are as follows:
NET ASSETS OF FUNDS (IN MILLIONS)
---------------------------------------------
FIRST NEXT NEXT NEXT OVER
$100 $100 $100 $100 $400
-------- -------- -------- -------- ----------
Principal International 1.25% 1.20% 1.15% 1.10% 1.05%
Emerging Markets Fund, Inc.
Principal International 1.20 1.15 1.10 1.05 1.00
SmallCap Fund, Inc.
NET ASSETS OF FUNDS (IN MILLIONS)
--------------------------------------------
FIRST NEXT NEXT NEXT OVER
$250 $250 $250 $250 $1,000
-------- -------- -------- -------- ----------
Principal International .85% .80% .75% .70% .65%
Fund, Inc.
The International Growth Funds also reimburse the Manager for transfer and
administrative services, including the cost of accounting, data processing,
supplies and other services rendered.
142
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
INTERNATIONAL GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
4. MANAGEMENT AGREEMENT AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
The Manager has voluntarily agreed to limit the Fund's expenses for certain of
the International Growth Funds. The limits are expressed as a percentage of
average daily net assets attributable to each class on an annualized basis
during the reporting period. The limits may be changed at anytime. Effective
March 1, 2003, the operating expense limits for Principal International Emerging
Markets Fund, Inc. increased from 2.50% to 2.75% for Class A shares and 3.25% to
3.50% for Class B shares. Also effective March 1, 2003, an expense limit of
1.63% began for Class A shares of Principal International Fund, Inc.
DISTRIBUTION FEES . The International Growth Funds bear distribution fees with
respect to each class computed at an annual rate of up to .25% for Class A
shares and 1.00% for Class B shares of the average daily net assets attributable
to each class of each fund.
Distribution fees are paid to Princor Financial Services Corporation, the
principal underwriter. A portion of the fees is subsequently remitted to retail
dealers. Pursuant to the distribution agreements for Class A and Class B shares,
fees that are unused by the principal underwriter at the end of the fiscal year
are returned to the respective International Growth Funds which generated the
excess.
SALES CHARGES . Princor Financial Services Corporation, as principal
underwriter, receives proceeds of any CDSC on certain Class A and Class B share
redemptions. The charge is based on declining rates which for Class A shares
begin at .75% and Class B shares at 4.00% of the lesser of current market value
or the cost of shares being redeemed. Princor Financial Services Corporation
also retains sales charges on sales of Class A shares based on declining rates.
As of March 1, 2003, the maximum rate increased from 4.75% to 5.75% of the
offering price. The aggregate amounts of these charges retained by Princor
Financial Services Corporation for the year ended October 31, 2003, were as
follows:
CLASS A CLASS B
------- -------
Principal International Emerging Markets Fund, Inc. $ 65,986 $10,303
Principal International Fund, Inc. 337,496 53,545
Principal International SmallCap Fund, Inc. 131,154 18,816
AFFILIATED OWNERSHIP . At October 31, 2003, Principal Life Insurance Company (an
affiliate of the Manager), affiliates of Principal Life Insurance Company and
benefit plans sponsored on behalf of Principal Life Insurance Company owned
shares of the International Growth Funds as follows:
CLASS A CLASS B
------- -------
Principal International Emerging Markets Fund, Inc. 692,531 302,268
Principal International Fund, Inc. 6,303,716 --
The International Growth Funds hold affiliated securities, defined by the
Investment Company Act of 1940 as owning 5% or more of the outstanding voting
securities of an issuer. For the year ended October 31, 2003, the cost of
affiliated securities purchased and proceeds from affiliated securities sold by
the International Growth Funds were as follows:
PURCHASES SALES
--------- -----
SHARES COST SHARES PROCEEDS
------ ---- ------ --------
Principal
International Emerging
Markets Fund, Inc.
Tele Norte 30,799,589 $ 419,763 11,856,503 $ 178,904
Leste Participacoes
Principal
International Fund,
Inc.
Vodafone Group 1,702,400 3,161,254 1,378,900 2,621,868
AFFILIATED BROKERAGE COMMISSIONS . No brokerage commissions were paid by the
International Growth Funds to affiliated broker dealers or any member of the
Principal Financial Group during the period.
143
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
INTERNATIONAL GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
5. INVESTMENT TRANSACTIONS
For the year ended October 31, 2003, the cost of investment securities purchased
and proceeds from investment securities sold (not including short-term
investments and U.S. government securities) by the International Growth Funds
were as follows:
PURCHASES SALES
------------------------ --------------
Principal International Emerging $ 31,022,054 $ 30,427,934
Markets Fund, Inc.
Principal International Fund, Inc. 220,650,698 255,515,929
Principal International SmallCap 52,375,772 53,908,182
Fund, Inc.
At October 31, 2003, net federal income tax unrealized appreciation
(depreciation) of investments held by the International Growth Funds was
composed of the following:
TAX COST OF NET UNREALIZED
INVESTMENTS GROSS UNREALIZED APPRECIATION
----------------------------------- (DEPRECIATION)
IN SECURITIES APPRECIATION (DEPRECIATION) OF INVESTMENTS
------------- ------------ -------------- ---------------
Principal International Emerging Markets $ 27,582,547
Fund, Inc. $ 8,578,435 $ (383,334) $ 8,195,101
Principal International Fund, Inc. 216,756,057 32,521,667 (5,712,276) 26,809,391
Principal International SmallCap Fund, Inc. 38,326,365 11,475,030 (115,860) 11,359,170
The International Growth Funds' investments are with various issuers in various
industries. The schedules of investments contained herein summarize
concentrations of credit risk by country, issuer and industry.
144
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
INTERNATIONAL GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
6. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares were as follows:
PRINCIPAL PRINCIPAL PRINCIPAL
INTERNATIONAL EMERGING INTERNATIONAL INTERNATIONAL
MARKETS FUND, INC. FUND, INC. SMALLCAP FUND, INC.
---------------------- ------------- ---------------------
YEAR ENDED OCTOBER 31, 2003:
Shares sold:
Class A..................................................... 677,583 4,996,858 952,739
Class B..................................................... 113,913 856,080 196,756
Shares issued in reinvestment of dividends and distributions:
Class A..................................................... -- 12,732 2,098
Class B..................................................... -- -- --
Shares redeemed:
Class A..................................................... (691,258) (11,938,750) (1,145,682)
Class B..................................................... (123,067) (1,894,920) (222,570)
-------- ----------- ----------
Net Increase (Decrease) (22,829) (7,968,000) (216,659)
======== =========== ==========
PRINCIPAL PRINCIPAL PRINCIPAL
INTERNATIONAL EMERGING INTERNATIONAL INTERNATIONAL
MARKETS FUND, INC. FUND, INC. SMALLCAP FUND, INC.
---------------------- ------------- ---------------------
YEAR ENDED OCTOBER 31, 2002:
Shares sold:
Class A..................................................... 918,757 16,716,133 2,378,719
Class B..................................................... 132,156 994,232 216,748
Class C*.................................................... 1,050 38,093 133,839
Class R**................................................... 2,476 54,645 2,917
Shares issued in acquisitions:
Class A..................................................... -- 1,273,623 --
Class B..................................................... -- 395,922 --
Shares issued in reinvestment of dividends and distributions:
Class A..................................................... -- 98,673 --
Class B..................................................... -- -- --
Class C*.................................................... -- -- --
Class R**................................................... -- -- --
Shares redeemed:
Class A..................................................... (639,348) (17,839,244) (2,233,689)
Class B..................................................... (85,426) (1,475,529) (220,443)
Class C*.................................................... (33,546) (216,532) (181,428)
Class R**................................................... (239,773) (2,974,499) (321,216)
-------- ----------- ----------
Net Increase (Decrease) 56,346 (2,934,483) (224,553)
======== =========== ==========
* Period from November 1, 2001 through January 31, 2002 (discontinuation of
Class C shares).
** Period from November 1, 2001 through December 28, 2001 (discontinuation of
Class R shares).
145
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
INTERNATIONAL GROWTH FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
6. CAPITAL SHARE TRANSACTIONS (CONTINUED)
Effective January 31, 2002 and December 28, 2001, respectively, Class C shares
and Class R shares were discontinued and exchanged into Class A shares as
follows:
CLASS C CLASS R
---------------------- --------------------------------
SHARES DOLLARS SHARES DOLLARS
EXCHANGED EXCHANGED EXCHANGED EXCHANGED
---------- ---------- --------- -------------
Principal 32,613 $ 258,946 231,357 $ 1,749,057
International Emerging
Markets Fund, Inc.
Principal 174,698 1,023,732 2,804,637 17,192,424
International Fund,
Inc.
Principal 66,379 669,769 311,786 3,186,457
International SmallCap
Fund, Inc.
7. FEDERAL TAX INFORMATION
DISTRIBUTIONS TO SHAREHOLDERS . The federal income tax character of
distributions paid for years ended October 31, 2003 and 2002 were as follows:
ORDINARY INCOME LONG-TERM CAPITAL GAIN
----------- -------------
2003 2002 2003 2002
---- ---- ---- ----
Principal International Emerging Markets Fund, Inc. $ -- $ -- $-- $--
Principal International Fund, Inc. 64,843 494,213 -- --
Principal International SmallCap Fund, Inc. 19,057 -- -- --
For federal income tax purposes, short-term capital gain distributions are
considered ordinary income distributions.
DISTRIBUTABLE EARNINGS .
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY INCOME LONG-TERM CAPITAL GAINS
---------------- -----------------------
Principal International Emerging
Markets Fund, Inc. $ -- $--
Principal International Fund,
Inc. 1,658,650 --
Principal International SmallCap
Fund, Inc. -- --
As of October 31, 2003, the components of distributable earnings on a federal
tax basis were as follows:
CAPITAL LOSS CARRYFORWARDS . Capital loss carryforwards are losses that can be
used to offset future capital gains of the fund. At October 31, 2003, the
International Growth Funds had approximate net capital loss carryforwards as
follows:
NET CAPITAL LOSS CARRYFORWARDS EXPIRING IN:
2008 2009 2010 2011
---------- ----------- ----------- ----------
Principal International Emerging Markets Fund, Inc. $ -- $ 4,527,000 $ 689,000 $ --
Principal International Fund, Inc. 1,144,000 55,755,000 46,940,000 7,915,000
Principal International SmallCap Fund, Inc. -- 10,352,000 3,157,000 3,073,000
146
SCHEDULE OF INVESTMENTS
PRINCIPAL INTERNATIONAL EMERGING MARKETS FUND, INC.
OCTOBER 31, 2003
Shares
Held Value
- ------------------------------------------------------------------------------------------
COMMON STOCKS (95.53%)
AGRICULTURAL OPERATIONS (0.40%)
$
Bunge 5,104 138,318
AIRLINES (0.49%)
Korean Air 12,680 169,281
AUTO-MEDIUM & HEAVY DUTY TRUCKS (0.71%)
Ashok Leyland 48,864 246,261
AUTO/TRUCK PARTS & EQUIPMENT-REPLACEMENT (1.45%)
Hyundai Mobis 13,040 503,530
BREWERY (1.84%)
Anadolu Efes Biracilik ve Malt Sanayii 17,992,156 220,807
Companhia de Bebidas das Americas 19,705 417,746
638,553
BROADCASTING SERVICES & PROGRAMMING (0.92%)
Grupo Televisa 8,255 319,881
BUILDING & CONSTRUCTION-MISCELLANEOUS (0.46%)
Murray & Roberts Holdings 93,500 160,693
BUILDING PRODUCTS-CEMENT & AGGREGATE (3.02%)
Anhui Conch Cement 426,000 485,481
Cemex 11,859 284,616
Sungshin Cement 12,560 273,805
1,043,902
BUILDING-RESIDENTIAL & COMMERCIAL (2.71%)
Corporacion GEO /1/ 74,827 401,765
Land & Houses Public 1,586,839 536,967
938,732
CASINO HOTELS (0.92%)
Genting Berhad 65,657 319,646
CELLULAR TELECOMMUNICATIONS (2.52%)
Advanced Info Service Public 181,914 282,709
America Movil 12,462 296,596
Taiwan Cellular 326,000 292,656
871,961
CHEMICALS-FIBERS (0.50%)
Formosa Chemicals & Fibre 109,000 173,245
CHEMICALS-PLASTICS (0.97%)
Formosa Plastics 219,540 336,014
COMMERCIAL BANKS (7.95%)
Akbank 63,762,678 298,820
Banco Santander Chile 6,970 165,607
Bank Rakyat 527,126 54,285
Chinatrust Financial Holding 184,822 192,030
Hansabank 6,763 154,016
Komercni Banka 1,717 153,326
Kookmin Bank 11,535 421,050
Krung Thai Bank 916,605 204,482
OTP Bank /1/ 13,485 165,204
Public Bank 345,875 240,292
Standard Bank Investment 62,840 304,494
Thai Farmers Bank /1/ 164,713 183,726
Shares
Held Value
- ------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
COMMERCIAL BANKS (CONTINUED)
$
Unibanco - Uniao de Bancos Brasileiros 9,771 216,037
2,753,369
COMPUTERS (0.68%)
Compal Electronics 155,000 234,952
COMPUTERS-PERIPHERAL EQUIPMENT (0.39%)
Ambit Microsystems 49,800 136,318
CONSULTING SERVICES (0.47%)
Linmark Group 401,912 161,734
CONTAINERS-PAPER & PLASTIC (0.38%)
Taiwan Hon Chuan Enterprise 101,024 131,428
DISTRIBUTION-WHOLESALE (0.52%)
Esprit Holdings 57,230 179,818
DIVERSIFIED FINANCIAL SERVICES (0.94%)
Shinhan Financial Group 22,694 325,981
DIVERSIFIED MINERALS (4.42%)
Anglo American 50,668 1,031,364
Antofagasta 11,003 195,678
Cia Vale do Rio Doce 6,645 304,008
1,531,050
DIVERSIFIED OPERATIONS (1.19%)
Alfa 144,983 412,159
DIVERSIFIED OPERATORS-COMMERCIAL SERVICES (0.60%)
Enka Insaat ve Sanayi 5,960,645 209,004
ELECTRIC PRODUCTS-MISCELLANEOUS (2.72%)
LG Electronics 5,670 293,681
Moatech 17,181 179,286
Techtronic Industries 169,778 467,858
940,825
ELECTRIC-GENERATION (0.51%)
Beijing Datang Power Generation 278,000 178,097
ELECTRONIC COMPONENTS-MISCELLANEOUS (7.57%)
AU Optronics 302,400 407,650
Samsung Electronics 4,900 1,945,923
Samsung SDI 2,580 265,957
2,619,530
ELECTRONIC COMPONENTS-SEMICONDUCTOR (1.03%)
Malaysian Pacific Industries 76,151 356,707
ELECTRONIC CONNECTORS (1.25%)
Hon Hai Precision Industry 96,600 432,177
FINANCE-CONSUMER LOANS (1.13%)
African Bank Investments 327,905 392,345
FINANCE-OTHER SERVICES (1.63%)
Fubon Financial Holding 327,000 344,565
Grupo Financiero BBVA Bancomer /1/ 256,756 217,928
562,493
GAS-DISTRIBUTION (1.03%)
OAO Gazprom 14,870 356,880
Shares
Held Value
- ------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
GOLD MINING (0.75%)
$
Harmony Gold Mining 16,975 260,964
INTERNET INFRASTRUCTURE SOFTWARE (0.69%)
RADVision /1/ 22,042 238,274
LIFE & HEALTH INSURANCE (2.10%)
Cathay Financial Holding 105,000 173,068
Cathay Financial Holding 16,409 273,210
New Africa Capital 169,761 164,960
Sanlam 93,544 115,319
726,557
MACHINERY-GENERAL INDUSTRY (0.41%)
Kaulin Manufacturing 87,000 140,839
MEDICAL-DRUGS (0.43%)
Teva Pharmaceutical Industries 2,590 147,345
METAL-ALUMINUM (0.58%)
Hindalco Industries 8,229 199,452
METAL-DIVERSIFIED (1.14%)
MMC Norilsk Nickel 7,655 394,079
MONEY CENTER BANKS (2.05%)
ICICI Bank 18,700 237,490
State Bank of India /2/ 15,644 473,231
710,721
OIL COMPANY-EXPLORATION & PRODUCTION (0.37%)
PTT Public 53,493 127,380
OIL COMPANY-INTEGRATED (4.37%)
LUKOIL 3,880 316,996
PetroChina 487,225 177,242
Petroleo Brasileiro 30,186 709,371
YUKOS 6,729 310,207
1,513,816
OIL REFINING & MARKETING (0.27%)
Hindustan Petroleum 12,848 93,327
PETROCHEMICALS (2.06%)
LG Chemical 8,130 326,299
Reliance Industries 16,338 388,028
714,327
PHOTO EQUIPMENT & SUPPLIES (0.65%)
Largan Precision 21,000 224,371
PLATINUM (1.36%)
Impala Platinum Holdings 5,116 470,049
POWER CONVERTER & SUPPLY EQUIPMENT (0.74%)
Bharat Heavy Electricals 23,979 254,764
PROPERTY & CASUALTY INSURANCE (0.55%)
Samsung Fire & Marine Insurance 3,310 189,063
REAL ESTATE OPERATOR & DEVELOPER (1.14%)
Consorcio ARA /1/ 144,430 393,485
RETAIL-APPAREL & SHOE (1.01%)
Edgars Consolidated Stores 23,735 349,054
Shares
Held Value
- ------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
RETAIL-APPLIANCES (0.29%)
$
Courts Mammoth 119,210 100,387
RETAIL-DISCOUNT (0.75%)
Lojas Americanas 36,137,656 260,781
RETAIL-HYPERMARKETS (0.51%)
Pick'n Pay Stores 82,070 177,352
RETAIL-MAJOR DEPARTMENT STORE (1.79%)
Ramayana Lestari Sentosa 323,016 178,682
Shinsegae Department Store 2,199 441,287
619,969
SEMICONDUCTOR COMPONENT-INTEGRATED CIRCUITS (3.98%)
Taiwan Semiconductor Manufacturing /1/ 477,793 942,225
United Microelectronics /1/ 263,000 240,745
Winbond Electronics /1/ 391,000 195,644
1,378,614
SEMICONDUCTOR EQUIPMENT (0.89%)
Advanced Semiconductor Engineering /1/ 331,100 306,980
SHIP BUILDING (0.83%)
Daewoo Shipbuilding & Marine Engineering 21,286 285,972
STEEL PRODUCERS (2.79%)
China Steel 240,555 194,002
POSCO 14,246 412,849
Tata Iron & Steel 45,155 357,145
963,996
TELECOMMUNICATION SERVICES (3.50%)
China Telecom 448,575 148,741
Indonesian Satellite 210,182 295,613
SK Telecom 12,721 249,332
Telekomunikasi Indonesia 731,794 516,773
1,210,459
TELEPHONE-INTEGRATED (3.33%)
Brasil Telecom Participacoes 2,685 98,056
KT 22,989 453,113
Philippine Long Distance Telephone /1/ 26,309 363,850
Telkom /1/ 30,456 236,316
1,151,335
TOBACCO (1.97%)
Gudang Garam 219,934 340,391
Philip Morris 298 154,790
Souza Cruz 20,796 188,059
683,240
TRANSPORT-MARINE (2.91%)
China Shipping Development 655,102 430,228
Evergreen Marine 265,620 232,979
Malaysia International Shipping 119,347 345,478
1,008,685
TOTAL COMMON STOCKS 33,070,521
Shares
Held Value
- ------------------------------------------------------------------------------------------
PREFERRED STOCKS (3.52%)
BREWERY (0.55%)
$
Quilmes Industrial 12,300 189,420
COMMERCIAL BANKS (0.73%)
Banco Itau Holding Financeira 3,082,644 252,544
STEEL-SPECIALTY (0.71%)
Gerdau 17,021 247,675
TELEPHONE-INTEGRATED (1.11%)
Tele Norte Leste Participacoes /3/ 18,943,087 386,390
TEXTILE-PRODUCTS (0.42%)
Cia de Tecidos do Norte de Minas -
Coteminas 2,119,718 144,098
TOTAL PREFERRED STOCKS 1,220,127
Principal Amount
Value
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (4.30%)
Credit Suisse First Boston;
1.04%, 11/03/03
(collateralized by GNMAs;
$1,516,751; 05/15/18 -
10/15/43) /4/ $1,487,000 $ 1,487,000
TOTAL REPURCHASE AGREEMENTS 1,487,000
-----------
TOTAL PORTFOLIO INVESTMENTS (103.35%) 35,777,648
LIABILITIES, NET OF
CASH, RECEIVABLES
AND OTHER ASSETS
(-3.35%) (1,159,075)
TOTAL NET ASSETS (100.00%) $34,618,573
--------------
/1 //Non-income producing security./
/2 //Restricted Security - The fund held securities which were purchased in /
/private placement transactions and may require registration, or an /
/exemption therefrom, in order to effect their sale in the ordinary course /
/of business. At the end of the period, restricted securities totaled /
/$473,231 or 1.37% of net assets./
/3 //Affiliated security./
/4 //Security was purchased with the cash proceeds from securities loans./
INVESTMENTS BY COUNTRY
Country Value Percentage of
Total Value
- ---------------------------------------------------------------
$
Argentina 189,420 0.53%
Brazil 3,363,084 9.40
Chile 165,607 0.46
China 607,470 1.70
Czech Republic 308,116 0.86
Hong Kong 1,621,730 4.53
Hungary 165,204 0.46
India 2,249,696 6.29
Indonesia 1,385,745 3.87
Israel 385,619 1.08
Korea 6,736,407 18.83
Malaysia 1,362,511 3.81
Mexico 2,326,429 6.50
Philippines 363,851 1.02
Russia 1,378,162 3.85
South Africa 2,631,545 7.35
Spain 154,016 0.43
Taiwan 5,605,098 15.67
Thailand 1,335,264 3.73
Turkey 728,632 2.04
United Kingdom 1,227,042 3.43
United States 1,487,000 4.16
TOTAL $35,777,648 100.00%
------------- ---------
See accompanying notes.
149
SCHEDULE OF INVESTMENTS
PRINCIPAL INTERNATIONAL FUND, INC.
OCTOBER 31, 2003
Shares
Held Value
- ----------------------------------------------------------------------------------------------
COMMON STOCKS (99.22%)
ADVERTISING SERVICES (0.97%)
$
Aegis Group 974,390 1,649,357
WPP Group 59,700 569,351
2,218,708
AUDIO & VIDEO PRODUCTS (0.39%)
Matsushita Electric Industrial 67,000 883,095
AUTO-CARS & LIGHT TRUCKS (3.38%)
Bayerische Motoren Werke 50,500 2,025,365
Honda Motor 47,219 1,864,106
Hyundai Motor 28,790 959,667
Nissan Motor 256,770 2,877,524
7,726,662
BEVERAGES-WINE & SPIRITS (0.59%)
Pernod-Ricard 14,000 1,350,825
BREWERY (0.59%)
Molson 52,338 1,351,683
BROADCASTING SERVICES & PROGRAMMING (0.50%)
Grupo Televisa 29,700 1,150,875
BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS (0.63%)
CRH 80,500 1,436,472
BUILDING-HEAVY CONSTRUCTION (0.63%)
Vinci 19,830 1,437,316
CELLULAR TELECOMMUNICATIONS (4.23%)
America Movil 54,200 1,289,960
mm02 /1/ 1,152,000 1,251,127
NTT DoCoMo 465 1,006,686
Vodafone Group /2/ 2,912,403 6,115,975
9,663,748
CHEMICALS-DIVERSIFIED (2.27%)
Akzo Nobel 36,767 1,162,573
Asahi Kasei 511,000 2,435,657
BASF 34,600 1,588,789
5,187,019
CHEMICALS-FIBERS (0.52%)
Formosa Chemicals & Fibre 741,000 1,177,748
COMMERCIAL BANKS (4.66%)
Banco Santander Central Hispano 270,000 2,589,469
Bank of Nova Scotia 36,000 1,788,187
BOC Hong Kong 522,000 904,091
Chinatrust Financial Holding 2,825,110 2,935,287
Kookmin Bank 25,700 938,099
National Bank of Canada 47,941 1,488,006
10,643,139
COMPUTERS-INTEGRATED SYSTEMS (0.89%)
Fujitsu /1/ 324,914 2,036,346
COOPERATIVE BANKS (1.07%)
Banco Popolare di Verona e Novara 158,700 2,453,700
COSMETICS & TOILETRIES (0.64%)
Kao 71,500 1,469,869
Shares
Held Value
- ----------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
DISTRIBUTION-WHOLESALE (0.76%)
$
Wolseley 141,500 1,732,454
DIVERSIFIED MANUFACTURING OPERATIONS (1.28%)
Siemens 43,500 2,922,874
DIVERSIFIED MINERALS (1.68%)
BHP Billiton 302,658 2,383,083
Cia Vale do Rio Doce 31,670 1,448,903
3,831,986
DIVERSIFIED OPERATORS-COMMERCIAL SERVICES (0.68%)
Rentokil Initial 409,220 1,555,514
ELECTRIC PRODUCTS-MISCELLANEOUS (0.72%)
Sharp 104,321 1,642,604
ELECTRIC-INTEGRATED (3.00%)
E.ON 31,125 1,566,716
Endesa 94,982 1,507,186
Iberdrola 114,100 1,903,402
Korea Electric Power 65,730 1,269,058
Scottish Power 101,016 600,824
6,847,186
ELECTRONIC COMPONENTS-MISCELLANEOUS (2.65%)
Koninklijke Philips Electronics 86,000 2,318,420
Murata Manufacturing 19,600 1,114,295
Samsung Electronics 6,612 2,625,805
6,058,520
ELECTRONIC COMPONENTS-SEMICONDUCTOR (1.10%)
Infineon Technologies /1/ 170,180 2,512,495
ELECTRONIC CONNECTORS (0.59%)
Hon Hai Precision Industry 302,000 1,351,111
FINANCE-INVESTMENT BANKER & BROKER (0.97%)
Nomura Securities 129,700 2,227,440
FINANCE-OTHER SERVICES (0.50%)
Grupo Financiero BBVA Bancomer /1/ 1,340,700 1,137,953
FOOD-MISCELLANEOUS/DIVERSIFIED (0.99%)
Nestle 5,024 1,106,119
Unilever 20,056 1,165,056
2,271,175
FOOD-RETAIL (0.94%)
Tesco 538,000 2,156,866
GAS-DISTRIBUTION (1.61%)
Centrica 491,772 1,541,762
Tokyo Gas 620,000 2,126,165
3,667,927
GOLD MINING (0.53%)
Placer Dome 78,600 1,213,543
IMPORT & EXPORT (1.23%)
Mitsubishi 270,619 2,808,717
INTERNET CONNECTIVE SERVICES (0.42%)
Hanaro Telecom 304,143 958,558
Shares
Held Value
- ----------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
INVESTMENT MANAGEMENT & ADVISORY SERVICES (0.52%)
$
Schroders 93,000 1,182,439
LEISURE & RECREATION-GAMES (0.21%)
Namco 17,263 475,798
LIFE & HEALTH INSURANCE (1.44%)
Cathay Financial Holding 1,119,000 1,844,415
Power Corporation of Canada 44,010 1,446,131
3,290,546
MACHINERY-CONSTRUCTION & MINING (1.34%)
Atlas Copco 55,014 1,932,332
Komatsu 207,000 1,120,344
3,052,676
MACHINERY-GENERAL INDUSTRY (0.99%)
MAN 39,000 1,072,232
Sumitomo Heavy Industries /1/ 534,538 1,181,541
2,253,773
MEDICAL-DRUGS (6.05%)
AstraZeneca 32,500 1,529,334
GlaxoSmithKline 176,208 3,773,584
Novartis 67,814 2,584,890
Novo Nordisk 31,800 1,143,786
QLT 34,300 529,935
Roche Holding 14,000 1,158,498
Takeda Chemical Industries 27,539 974,455
Teva Pharmaceutical Industries 15,400 876,106
Yamanouchi Pharmaceutical 50,385 1,264,953
13,835,541
MONEY CENTER BANKS (9.94%)
ABN AMRO Holding 132,381 2,777,767
Barclays 514,466 4,343,290
BNP Paribas 82,168 4,317,517
Credit Suisse Group 124,723 4,394,516
Mitsubishi Tokyo Financial Group 133 955,747
Royal Bank of Scotland 141,320 3,791,443
UniCredito Italiano 434,100 2,139,679
22,719,959
MORTGAGE BANKS (0.51%)
DEPFA Bank 10,370 1,163,320
MULTI-LINE INSURANCE (2.58%)
AXA 102,181 1,936,202
ING Groep 53,300 1,106,628
Riunione Adriatica di Sicurta 74,507 1,164,098
Zurich Financial Services 13,229 1,694,057
5,900,985
MULTIMEDIA (3.08%)
Lagardere 24,250 1,219,808
News 81,628 2,910,038
Vivendi Universal /1/ 138,300 2,905,182
7,035,028
OFFICE AUTOMATION & EQUIPMENT (1.38%)
Canon 64,956 3,143,366
OIL COMPANY-EXPLORATION & PRODUCTION (1.03%)
Canadian Natural Resources 47,431 2,014,841
Shares
Held Value
- ----------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
OIL COMPANY-EXPLORATION & PRODUCTION (CONTINUED)
$
Talisman Energy 6,990 341,479
2,356,320
OIL COMPANY-INTEGRATED (5.76%)
BP Amoco 306,511 2,126,047
ENI 230,543 3,660,965
Repsol YPF 182,300 3,178,857
TotalFinaElf 27,071 4,207,544
13,173,413
OIL REFINING & MARKETING (0.63%)
Statoil 152,790 1,436,717
OIL-FIELD SERVICES (0.12%)
Saipem 37,000 269,258
PHOTO EQUIPMENT & SUPPLIES (0.40%)
Fuji Photo Film 30,920 911,273
PRINTING-COMMERCIAL (0.39%)
Dai Nippon Printing 57,953 895,113
PROPERTY & CASUALTY INSURANCE (1.82%)
Mitsui Sumitomo Insurance 336,297 2,771,502
QBE Insurance Group 190,700 1,393,705
4,165,207
PUBLICLY TRADED INVESTMENT FUND (1.21%)
iShares MSCI Emerging Markets Index Fund /1/ 18,670 2,770,815
REAL ESTATE MANAGEMENT & SERVICES (0.30%)
Unibail 8,800 694,105
REAL ESTATE OPERATOR & DEVELOPER (0.75%)
Mitsui Fudosan 183,999 1,712,202
RETAIL-APPAREL & SHOE (0.40%)
Next 45,800 917,100
RETAIL-BUILDING PRODUCTS (0.54%)
Kingfisher 256,840 1,232,351
RETAIL-CATALOG SHOPPING (0.67%)
GUS 125,000 1,526,725
RETAIL-MAJOR DEPARTMENT STORE (0.70%)
Metro 39,430 1,599,724
SEMICONDUCTOR COMPONENT-INTEGRATED CIRCUITS (3.02%)
Taiwan Semiconductor Manufacturing /1/ 1,043,480 2,057,783
United Microelectronics /1/ 5,300,000 4,851,508
6,909,291
SOAP & CLEANING PRODUCTS (1.13%)
Reckitt Benckiser 122,900 2,581,913
STEEL PRODUCERS (1.78%)
JFE Holdings 104,529 2,671,820
Pohang Iron & Steel 11,880 1,385,247
4,057,067
TELECOMMUNICATION EQUIPMENT (1.19%)
TANDBERG /1/ 80,900 569,682
Shares
Held Value
- ----------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TELECOMMUNICATION EQUIPMENT (CONTINUED)
$
Telefonaktiebolaget LM Ericsson /1/ 1,247,065 2,142,160
2,711,842
TELECOMMUNICATION SERVICES (2.99%)
Allstream /1/ 30,562 1,535,740
Cable & Wireless 958,924 2,217,122
e.Biscom /1/ 54,700 2,543,550
Equant 60,500 534,518
6,830,930
TELEPHONE-INTEGRATED (2.83%)
Deutsche Telekom /1/ 231,586 3,634,453
Nippon Telegraph & Telephone 287 1,281,821
Royal KPN /1/ 133,354 1,013,857
VersaTel Telecom International /1/ 233,000 536,308
6,466,439
TELEVISION (0.47%)
Fuji Television Network 202 1,074,908
TRANSPORT-MARINE (0.39%)
Nippon Yusen Kabushiki Kaisha 207,800 884,617
TRANSPORT-RAIL (0.24%)
East Japan Railway 123 557,184
WIRE & CABLE PRODUCTS (0.81%)
Fujikura 307,067 1,846,284
TOTAL COMMON STOCKS 226,718,357
Principal Amount
Value
- ----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (7.37%)
Credit Suisse First Boston; 1.04%, 11/03/03
(collateralized by GNMAs; $17,184,159;
05/15/18 - 10/15/43) /3/ $16,847,091 $ 16,847,091
TOTAL REPURCHASE AGREEMENTS 16,847,091
------------
TOTAL PORTFOLIO INVESTMENTS (106.59%) 243,565,448
LIABILITIES, NET OF CASH, RECEIVABLES AND OTHER ASSETS
(-6.59%) (15,062,885)
TOTAL NET ASSETS (100.00%) $228,502,563
---------------
/1 //Non-income producing security./
/2 //Affiliated security./
/3 //Security was purchased with the cash proceeds from securities loans./
INVESTMENTS BY COUNTRY
Country Value Percentage of
Total Value
- ----------------------------------------------------------------
$
Australia 4,303,743 1.77%
Brazil 1,448,902 0.60
Canada 11,709,545 4.81
Denmark 1,143,787 0.47
France 18,068,500 7.42
Germany 16,922,648 6.95
Hong Kong 904,091 0.37
Ireland 2,599,792 1.07
Israel 876,106 0.36
Italy 12,231,250 5.02
Japan 46,215,431 18.97
Korea 8,136,434 3.34
Mexico 3,578,788 1.47
Netherlands 10,615,126 4.36
Norway 2,006,399 0.82
Spain 9,178,913 3.77
Sweden 4,074,493 1.67
Switzerland 10,938,080 4.49
Taiwan 14,217,853 5.84
United Kingdom 44,777,661 18.38
United States 19,617,906 8.05
TOTAL $243,565,448 100.00%
-------------- ---------
152
See accompanying notes.
SCHEDULE OF INVESTMENTS
PRINCIPAL INTERNATIONAL SMALLCAP FUND, INC.
OCTOBER 31, 2003
Shares
Held Value
- ----------------------------------------------------------------------------------------------
COMMON STOCKS (98.88%)
ADVERTISING SERVICES (0.60%)
$
Aegis Group 163,230 276,301
APPAREL MANUFACTURERS (0.42%)
Sanyo Shokai 31,265 192,251
APPLIANCES (1.84%)
Fisher & Paykel Appliances Holdings 22,255 201,427
Merloni Elettrodomestici 19,969 336,603
Noritz 22,208 303,015
841,045
ATHLETIC FOOTWEAR (1.16%)
Puma 3,673 530,317
AUDIO & VIDEO PRODUCTS (0.74%)
Skyworth Digital Holdings 1,363,889 337,209
AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL (0.60%)
Exedy 24,118 273,133
BEVERAGES-NON-ALCOHOLIC (0.29%)
Cott /1/ 5,092 132,627
BEVERAGES-WINE & SPIRITS (0.67%)
Davide Campari 7,106 305,647
BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS (2.35%)
Fletcher Building 123,059 331,944
Geberit 1,101 453,476
Kingspan Group 66,818 291,285
1,076,705
BUILDING & CONSTRUCTION-MISCELLANEOUS (0.45%)
Balfour Beatty 62,670 204,720
BUILDING PRODUCTS-CEMENT & AGGREGATE (1.07%)
Hanil Cement Manufacturing 2,100 96,172
Italcementi 32,733 393,840
490,012
BUILDING-HEAVY CONSTRUCTION (3.48%)
Daelim Industrial 14,242 363,421
Fomento de Construcciones y Contratas 8,810 287,380
Grupo Dragados 13,188 269,367
Vinci 9,281 672,704
1,592,872
BUILDING-RESIDENTIAL & COMMERCIAL (0.35%)
McCarthy & Stone 19,587 160,208
CELLULAR TELECOMMUNICATIONS (0.24%)
Mobistar 2,182 109,580
CHEMICALS-DIVERSIFIED (2.09%)
Celanese 13,899 476,649
Mitsubishi Gas Chemical 170,630 482,703
959,352
COATINGS & PAINT (0.80%)
Kansai Paint 91,951 368,021
COLLECTIBLES (0.30%)
Sanrio /1/ 16,452 138,129
Shares
Held Value
- ----------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
COMMERCIAL BANKS (4.54%)
$
Anglo Irish Bank 56,571 679,340
Bank of Kyoto 49,054 259,247
Bank of Piraeus 12,325 115,196
Bank of Queensland 19,269 133,168
Canadian Western Bank /1/ 3,930 119,118
Hiroshima Bank 60,576 210,488
Industrial & Commercial Bank of China 169,799 228,492
Jyske Bank /1/ 6,973 335,862
2,080,911
COMMERCIAL SERVICES (2.12%)
Societe Generale de Surveillance Holding 944 533,026
TIS 12,429 437,533
970,559
COMPUTER SERVICES (1.14%)
Indra Sistemas 27,796 312,788
Misys 41,584 211,698
524,486
DIAGNOSTIC EQUIPMENT (0.48%)
Draegerwerk 3,941 220,366
DIAMONDS & PRECIOUS STONES (1.03%)
Aber Diamond /1/ 14,907 471,057
DISTRIBUTION-WHOLESALE (3.62%)
Esprit Holdings 124,292 390,528
Inchcape 26,303 609,713
Wolseley 53,895 659,863
1,660,104
DIVERSIFIED MINERALS (0.73%)
Jubilee Mines 111,538 335,561
DIVERSIFIED OPERATORS-COMMERCIAL SERVICES (0.39%)
Jarvis 43,432 178,727
ELECTRIC PRODUCTS-MISCELLANEOUS (0.57%)
Techtronic Industries 94,000 259,037
ELECTRIC-TRANSMISSION (0.35%)
Red Electrica de Espana 11,814 159,312
ELECTRONIC MEASUREMENT INSTRUMENTS (0.28%)
Techem /1/ 7,346 128,950
ELECTRONIC SECURITY DEVICES (0.32%)
Gunnebo 6,699 148,135
ENERGY-ALTERNATE SOURCES (0.67%)
Gamesa Corporacion Tecnologica 11,404 308,626
ENGINEERING-RESEARCH & DEVELOPMENT SERVICES (0.36%)
Downer EDI 267,697 167,151
ENTERPRISE SOFTWARE & SERVICE (0.53%)
Business Objects /1/ 7,436 243,771
FINANCE-CONSUMER LOANS (0.94%)
Cattles 79,517 430,447
Shares
Held Value
- ----------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
FINANCE-INVESTMENT BANKER & BROKER (1.33%)
$
ICAP 26,027 608,888
FINANCE-LEASING COMPANY (0.75%)
Ricoh Leasing 1,532 28,568
Sumisho Lease 10,196 313,480
342,048
FINANCE-MORTGAGE LOAN/BANKER (0.36%)
Kensington Group 32,140 164,958
FINANCE-OTHER SERVICES (1.30%)
Man Group 24,137 593,500
FISHERIES (0.40%)
Maruha 135,885 185,407
FOOD-DAIRY PRODUCTS (0.53%)
Meiji Dairies 65,184 244,288
FOOD-FLOUR & GRAIN (0.46%)
Nisshin Seifun Group 25,625 210,016
FOOD-MISCELLANEOUS/DIVERSIFIED (2.77%)
Bonduelle 1,321 104,732
COFCO International 596,003 368,391
CoolBrands International /1/ 26,214 368,136
Global Bio-Chem Technology Group 613,698 312,156
IAWS Group 10,931 116,907
1,270,322
FOOD-RETAIL (1.92%)
Colruyt 4,361 395,434
Delhaize Group 10,200 484,379
879,813
FOOD-WHOLESALE & DISTRIBUTION (0.29%)
Metcash Trading 81,462 134,099
GAS-DISTRIBUTION (0.90%)
Enagas 21,005 194,125
Toho Gas 73,949 216,597
410,722
HUMAN RESOURCES (0.77%)
Adecco 6,021 355,078
INVESTMENT COMPANIES (0.35%)
Macquarie Infrastructure Group 72,195 162,386
INVESTMENT MANAGEMENT & ADVISORY SERVICES (0.80%)
CI Fund Management 32,596 364,774
LEISURE & RECREATION PRODUCTS (0.94%)
Daiichikosho 5,839 310,712
Trigano 2,836 121,852
432,564
LEISURE & RECREATION-GAMES (0.47%)
Namco 7,778 214,375
MACHINERY TOOLS & RELATED PRODUCTS (0.64%)
ASM Pacific Technology 77,994 291,761
Shares
Held Value
- ----------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MACHINERY-CONSTRUCTION & MINING (0.98%)
$
Hitachi Construction Machinery 34,403 448,755
MACHINERY-GENERAL INDUSTRY (0.72%)
Makino Milling Machine 62,010 328,283
MEDICAL INFORMATION SYSTEM (0.77%)
iSoft Group 60,841 350,679
MEDICAL INSTRUMENTS (1.81%)
Elekta /1/ 12,825 254,828
Getinge 12,875 471,206
Radiometer 1,748 105,653
831,687
MEDICAL-DRUGS (2.77%)
Fujirebio 31,209 328,456
Galen Holdings 38,317 490,266
Kissei Pharmaceutical 15,706 249,445
STADA Arzneimittel 3,935 202,236
1,270,403
METAL PROCESSORS & FABRICATION (0.54%)
Sims Group 33,275 246,964
METAL-DIVERSIFIED (1.05%)
Mitsui Mining & Smelting 119,655 478,903
MISCELLANEOUS INVESTING (0.47%)
Japan Retail Fund Investment 37 216,410
MORTGAGE BANKS (2.49%)
DEPFA Bank 6,121 686,665
Northern Rock 37,700 453,263
1,139,928
MULTI-LINE INSURANCE (0.72%)
Storebrand 59,633 332,229
NON-FERROUS METALS (0.97%)
Cameco 10,314 446,819
NON-HOTEL GAMBLING (1.33%)
Paddy Power 28,727 211,391
William Hill 69,006 396,968
608,359
OFFICE AUTOMATION & EQUIPMENT (0.73%)
Neopost 6,768 336,034
OIL & GAS DRILLING (0.33%)
Ensign Resource Service Group 10,049 152,102
OIL COMPANY-EXPLORATION & PRODUCTION (1.08%)
Paladin Resources 128,148 197,889
Penn West Petroleum /1/ 8,760 298,347
496,236
OIL REFINING & MARKETING (0.93%)
Nippon Mining Holdings 116,919 427,538
OPTICAL SUPPLIES (0.76%)
Essilor International 7,277 350,055
Shares
Held Value
- ----------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
PAPER & RELATED PRODUCTS (0.85%)
$
Mayr-Melnhof Karton 3,074 307,180
Rottneros 76,468 83,812
390,992
PROPERTY & CASUALTY INSURANCE (1.99%)
Aioi Insurance 85,582 319,176
Northbridge Financial 8,029 127,923
Promina Group 197,273 464,717
911,816
PROPERTY TRUST (0.79%)
Investa Property Group 152,603 208,980
Mirvac Group 51,285 155,018
363,998
PROTECTION-SAFETY (0.50%)
Kidde 133,530 228,293
PUBLIC THOROUGHFARES (0.65%)
Autostrada Torino 23,285 295,862
PUBLISHING-BOOKS (0.24%)
Bloomsbury Publishing 25,148 111,808
PUBLISHING-NEWSPAPERS (1.20%)
Arnoldo Mondadori Editore 26,875 206,199
Johnston Press 43,523 342,250
548,449
PUBLISHING-PERIODICALS (0.93%)
Emap 31,518 428,143
RADIO (0.28%)
GWR Group 34,056 130,319
REAL ESTATE MANAGEMENT & SERVICES (2.05%)
Corio 6,313 210,552
Daibiru 30,400 160,939
Klepierre 6,139 327,213
Pierre & Vacances 2,963 242,836
941,540
REAL ESTATE OPERATOR & DEVELOPER (2.51%)
British Land 51,832 454,954
Inmobiliaria Urbis 30,106 251,987
Keppel Land 336,800 328,878
NHP 51,150 115,009
1,150,828
RETAIL-APPAREL & SHOE (1.86%)
Cortefiel 23,382 171,788
Next 34,087 682,558
854,346
RETAIL-BUILDING PRODUCTS (0.89%)
Grafton Group 65,296 406,100
RETAIL-CONSUMER ELECTRONICS (0.29%)
EDION 18,435 134,487
RETAIL-CONVENIENCE STORE (0.43%)
Alimentation Couche Tard 11,461 195,647
Shares
Held Value
- ----------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
RETAIL-MISCELLANEOUS/DIVERSIFIED (0.81%)
$
Ryohin Keikaku 11,570 371,511
RETAIL-SPORTING GOODS (0.26%)
Xebio 5,937 118,540
RUBBER & VINYL (0.79%)
Zeon 39,650 360,668
RUBBER-TIRES (1.50%)
Continental 20,159 686,641
SATELLITE TELECOM (0.82%)
PT Multimedia Servicos de Telecomunicacoes e
Multimedia /1/ 21,991 376,821
SEMICONDUCTOR EQUIPMENT (0.39%)
SEZ Holding /1/ 5,427 178,821
SOAP & CLEANING PRODUCTS (0.42%)
Mcbride 103,446 193,097
STEEL PRODUCERS (0.56%)
BHP Steel 66,480 255,666
TELECOMMUNICATION EQUIPMENT (1.14%)
TANDBERG /1/ 30,736 216,437
TANDBERG Television /1/ 81,819 307,745
524,182
TELECOMMUNICATION SERVICES (0.32%)
e.Biscom /1/ 3,195 148,568
TELEPHONE-INTEGRATED (0.30%)
VersaTel Telecom International /1/ 60,090 138,312
TELEVISION (0.52%)
Modern Times Group /1/ 12,599 236,609
TOYS (0.75%)
Bandai 7,278 193,312
Zapf Creation 4,858 150,504
343,816
TRANSPORT-MARINE (1.05%)
Kawasaki Kisen Kaisha 120,364 482,836
TRANSPORT-SERVICES (1.16%)
FirstGroup 62,488 319,442
Toll Holdings 35,579 211,049
530,491
TRANSPORT-TRUCK (0.33%)
Seino Transportation 21,120 148,888
WATER (0.72%)
Kelda Group 43,741 329,750
WIRE & CABLE PRODUCTS (1.08%)
Fujikura 82,642 496,897
WIRELESS EQUIPMENT (1.55%)
Hitachi Kokusai Electric 53,294 360,674
Shares
Held Value
- ----------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
WIRELESS EQUIPMENT (CONTINUED)
$
Uniden 18,314 348,172
708,846
TOTAL COMMON STOCKS 45,325,300
Principal Amount
Value
- ----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (9.51%)
Credit Suisse First Boston; 1.04%, 11/03/03
(collateralized by GNMAs; $4,447,473;
05/15/18 - 10/15/43) /2/ $4,360,235 $ 4,360,235
TOTAL REPURCHASE AGREEMENTS 4,360,235
-----------
TOTAL PORTFOLIO INVESTMENTS (108.39%) 49,685,535
LIABILITIES, NET OF CASH AND RECEIVABLES (-8.39%) (3,846,746)
TOTAL NET ASSETS (100.00%) $45,838,789
--------------
/1 //Non-income producing security./
/2 //Security was purchased with the cash proceeds from securities loans./
INVESTMENTS BY COUNTRY
Country Value Percentage of
Total Value
- ---------------------------------------------------------------
$
Australia 2,340,660 4.71%
Austria 441,279 0.89
Belgium 989,393 1.99
Bermuda 368,391 0.74
Canada 2,676,549 5.39
Denmark 441,515 0.89
France 2,399,196 4.83
Germany 2,395,662 4.82
Greece 115,196 0.23
Hong Kong 1,819,182 3.66
Ireland 2,391,689 4.81
Italy 1,686,717 3.39
Japan 10,361,856 20.86
Korea 459,593 0.93
Netherlands 348,864 0.70
New Zealand 533,370 1.07
Norway 856,411 1.72
Portugal 376,821 0.76
Singapore 328,878 0.66
Spain 1,955,374 3.94
Sweden 1,194,590 2.40
Switzerland 1,520,401 3.06
United Kingdom 9,323,713 18.77
United States 4,360,235 8.78
TOTAL $49,685,535 100.00%
------------- ---------
156
See accompanying notes.
FINANCIAL HIGHLIGHTS
PRINCIPAL MUTUAL FUNDS
INTERNATIONAL GROWTH FUNDS
-------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31 (EXCEPT AS NOTED):
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL INTERNATIONAL EMERGING
- --------------------------------
MARKETS FUND, INC.
- ------------------
CLASS A SHARES
- --------------
Net Asset Value,
Beginning of Period.. $6.77 $6.44 $8.75 $8.56 $6.54
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.01 (0.05) (0.03) (0.10) (0.03)
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 3.38 0.38 (2.22) 0.31 2.05
---- ---- ----- ---- ----
Total From Investment
Operations 3.39 0.33 (2.25) 0.21 2.02
Less Dividends and
Distributions:
Dividends from Net
Investment Income... -- -- -- (0.02) --
Distributions from
Realized Gains...... -- -- (0.06) -- --
---- -----
Total Dividends and
Distributions -- -- (0.06) (0.02) --
---- ----- -----
Net Asset Value, End
of Period............ $10.16 $6.77 $6.44 $8.75 $8.56
====== ===== ===== ===== =====
Total Return /(b)/ ... 50.07% 5.12% (25.85)% 2.36% 30.89%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $26,909 $18,029 $15,335 $17,890 $13,401
Ratio of Expenses to
Average Net Assets.. 2.57% 2.48% 2.50% 2.49% 2.75%
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 2.70% 2.77% 2.71% 2.59% --
Ratio of Net
Investment Income to
Average Net Assets.. 0.12% (0.36)% (0.06)% (1.05)% (0.35)%
Portfolio Turnover
Rate................ 117.3% 165.4% 120.5% 112.9% 95.8%
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL INTERNATIONAL EMERGING
- --------------------------------
MARKETS FUND, INC.
- ------------------
CLASS B SHARES
- --------------
Net Asset Value,
Beginning of Period.. $6.56 $6.28 $8.60 $8.47 $6.52
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. (0.05) (0.06) (0.05) (0.16) (0.07)
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 3.25 0.34 (2.21) 0.29 2.02
---- ---- ----- ---- ----
Total From Investment
Operations 3.20 0.28 (2.26) 0.13 1.95
Less Dividends and
Distributions:
Distributions from
Realized Gains...... -- -- (0.06) -- --
---- -----
Total Dividends and
Distributions -- -- (0.06) -- --
---- -----
Net Asset Value, End
of Period............ $9.76 $6.56 $6.28 $8.60 $8.47
===== ===== ===== ===== =====
Total Return /(b)/ ... 48.78% 4.46% (26.42)% 1.53% 29.91%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $7,710 $5,241 $4,728 $6,198 $5,051
Ratio of Expenses to
Average Net Assets.. 3.29% 3.23% 3.25% 3.22% 3.57%
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 3.42% 3.50% 3.39% 3.22% --
Ratio of Net
Investment Income to
Average Net Assets.. (0.61)% (1.13)% (0.84)% (1.78)% (1.12)%
Portfolio Turnover
Rate................ 117.3% 165.4% 120.5% 112.9% 95.8%
/(a) //Effective November 1, 2002, calculated based on average shares
outstanding during the period./
/(b) //Total return is calculated without the front-end sales charge or
contingent deferred sales charge./
/(c) //Expense ratio without fees paid indirectly and the Manager's voluntary
expense limit. The expense limit began on the first day of the period ended /
/October 31, 2000. Expense limits were increased on March 1, 2003./
See accompanying notes.
157
FINANCIAL HIGHLIGHTS
PRINCIPAL MUTUAL FUNDS
INTERNATIONAL GROWTH FUNDS
-------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31 (EXCEPT AS NOTED):
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL INTERNATIONAL FUND, INC.
- ----------------------------------
CLASS A SHARES
- --------------
Net Asset Value,
Beginning of Period.. $5.05 $5.75 $8.85 $10.04 $9.20
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.04 0.02 0.02 0.16 0.13
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 1.11 (0.71) (2.34) 0.20 1.28
---- ----- ----- ---- ----
Total From Investment
Operations 1.15 (0.69) (2.32) 0.36 1.41
Less Dividends and
Distributions:
Dividends from Net
Investment Income... -- (0.01) (0.05) (0.23) (0.11)
Distributions from
Realized Gains...... -- -- (0.73) (1.32) (0.46)
----
Total Dividends and
Distributions -- (0.01) (0.78) (1.55) (0.57)
----
Net Asset Value, End
of Period............ $6.20 $5.05 $5.75 $8.85 $10.04
===== ===== ===== ===== ======
Total Return /(b)/ ... 22.81% (11.94)% (28.64)% 3.04% 16.18%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $200,005 $197,946 $224,177 $325,369 $338,144
Ratio of Expenses to
Average Net Assets.. 1.55% 1.57% 1.42% 1.27% 1.22%
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 1.55% 1.57% -- -- --
Ratio of Net
Investment Income to
Average Net Assets.. 0.84% 0.32% 0.27% 1.76% 1.35%
Portfolio Turnover
Rate................ 100.8%/(d)/ 73.5% 93.9% 92.7% 58.7%
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL INTERNATIONAL FUND, INC.
- ----------------------------------
CLASS B SHARES
- --------------
Net Asset Value,
Beginning of Period.. $4.98 $5.71 $8.78 $9.96 $9.14
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. (0.01) (0.03) (0.03) 0.11 0.06
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 1.08 (0.70) (2.31) 0.20 1.27
---- ----- ----- ---- ----
Total From Investment
Operations 1.07 (0.73) (2.34) 0.31 1.33
Less Dividends and
Distributions:
Dividends from Net
Investment Income... -- -- -- (0.17) (0.05)
Distributions from
Realized Gains...... -- -- (0.73) (1.32) (0.46)
----
Total Dividends and
Distributions -- -- (0.73) (1.49) (0.51)
----
Net Asset Value, End
of Period............ $6.05 $4.98 $5.71 $8.78 $9.96
===== ===== ===== ===== =====
Total Return /(b)/ ... 21.49% (12.78)% (28.97)% 2.43% 15.27%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $28,498 $28,607 $33,277 $48,692 $48,319
Ratio of Expenses to
Average Net Assets.. 2.47% 2.39% 2.08% 1.88% 1.90%
Ratio of Gross
Expenses to Average
Net Assets /(e)/ ... 2.47% 2.40% -- -- --
Ratio of Net
Investment Income to
Average Net Assets.. (0.13)% (0.50)% (0.41)% 1.13% 0.67%
Portfolio Turnover
Rate................ 100.8%/(d)/ 73.5% 93.9% 92.7% 58.7%
/(a) //Effective November 1, 2002, calculated based on average shares
outstanding during the period./
/(b) //Total return is calculated without the front-end sales charge or
contingent deferred sales charge./
/(c) //Expense ratio without fees paid indirectly and the Manager's voluntary
expense limit. The voluntary expense limit began on March 1, 2003./
/(d) //Portfolio turnover rate excludes portfolio realignment of approximately
$4,997,000 from the acquisition of Principal European Equity Fund, Inc. and /
/Principal Pacific Basin Fund, Inc./
/(e) //Expense ratio without fees paid indirectly./
/ /
See accompanying notes.
158
FINANCIAL HIGHLIGHTS
PRINCIPAL MUTUAL FUNDS
INTERNATIONAL GROWTH FUNDS
-------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31 (EXCEPT AS NOTED):
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL INTERNATIONAL SMALLCAP FUND, INC.
- -------------------------------------------
CLASS A SHARES
- --------------
Net Asset Value,
Beginning of Period.. $8.39 $9.49 $17.00 $15.32 $9.99
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. (0.02) (0.05) (0.23) (0.32) (0.12)
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 3.47 (1.05) (4.62) 3.51 5.53
---- ----- ----- ---- ----
Total From Investment
Operations 3.45 (1.10) (4.85) 3.19 5.41
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.01) -- -- -- --
Distributions from
Realized Gains...... -- -- (2.66) (1.51) (0.08)
---- ----- ----- -----
Total Dividends and
Distributions (0.01) -- (2.66) (1.51) (0.08)
---- ----- ----- ----- -----
Redemption Fees /(a)/ 0.01 -- -- -- --
---- ----
Net Asset Value, End
of Period............ $11.84 $8.39 $9.49 $17.00 $15.32
====== ===== ===== ====== ======
Total Return /(b)/ ... 41.22% (11.59)% (33.02)% 21.21% 54.52%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $35,588 $26,821 $28,977 $36,322 $23,612
Ratio of Expenses to
Average Net Assets.. 2.62% 2.49% 2.74% 2.46% 2.21%
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 2.63% 2.49% -- -- --
Ratio of Net
Investment Income to
Average Net Assets.. (0.22)% (0.35)% (1.08)% (1.41)% (1.02)%
Portfolio Turnover
Rate................ 144.5% 80.3% 151.6% 329.8% 191.5%
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL INTERNATIONAL SMALLCAP FUND, INC.
- -------------------------------------------
CLASS B SHARES
- --------------
Net Asset Value,
Beginning of Period.. $8.08 $9.23 $16.72 $15.18 $9.97
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. (0.09) (0.13) (0.05) (0.41) (0.20)
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 3.32 (1.02) (4.78) 3.46 5.49
---- ----- ----- ---- ----
Total From Investment
Operations 3.23 (1.15) (4.83) 3.05 5.29
Less Dividends and
Distributions:
Distributions from
Realized Gains...... -- -- (2.66) (1.51) (0.08)
---- ----- ----- -----
Total Dividends and
Distributions -- -- (2.66) (1.51) (0.08)
---- ----- ----- -----
Net Asset Value, End
of Period............ $11.31 $8.08 $9.23 $16.72 $15.18
====== ===== ===== ====== ======
Total Return /(b)/ ... 39.98% (12.46)% (33.52)% 20.43% 53.42%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $10,251 $7,536 $8,641 $12,539 $10,926
Ratio of Expenses to
Average Net Assets.. 3.44% 3.40% 3.46% 3.04% 2.87%
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 3.46% 3.41% -- -- --
Ratio of Net
Investment Income to
Average Net Assets.. (1.05)% (1.27)% (1.83)% (1.99)% (1.68)%
Portfolio Turnover
Rate................ 144.5% 80.3% 151.6% 329.8% 191.5%
/(a) //Effective November 1, 2002, calculated based on average shares
outstanding during the period./
/(b) //Total return is calculated without the front-end sales charge or
contingent deferred sales charge./
/(c) //Expense ratio without fees paid indirectly./
See accompanying notes.
159
STATEMENTS OF ASSETS AND LIABILITIES
PRINCIPAL MUTUAL FUNDS
INCOME FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
BOND GOVERNMENT SECURITIES
FUND, INC. INCOME FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INVESTMENT IN SECURITIES--AT COST . $227,844,592 $361,802,972
============ ============
ASSETS
Investment in securities--at value. $233,257,450/(c)/ $365,537,925
Cash............................... 10,001 11,249
Receivables:
Capital Shares sold............... 37,455 77,294
Dividends and interest............ 2,286,864 1,667,989
Investment securities sold........ 403,005 --
Other assets....................... 7,702 20,042
------------ ------------
Total Assets 236,002,477 367,314,499
LIABILITIES
Accrued management and investment
advisory fees..................... 19,711 30,456
Accrued distribution fees.......... 14,760 25,508
Accrued directors' expenses........ 542 1,369
Accrued transfer and administrative
fees.............................. 102,573 144,602
Accrued other expenses............. 26,893 24,146
Payables:
Capital Shares reacquired......... 257,341 324,156
Investment securities purchased... 15,564,453 --
Collateral obligation on securities
loaned, at value.................. 1,162,070 --
------------ ------------
Total Liabilities 17,148,343 550,237
------------ ------------
NET ASSETS APPLICABLE TO
OUTSTANDING SHARES................ $218,854,134 $366,764,262
============ ============
NET ASSETS CONSIST OF:
Capital Shares and additional
paid-in-capital................... $227,204,385 $368,152,210
Accumulated undistributed
(overdistributed) net investment
income (operating loss)........... (470,787) 276,421
Accumulated undistributed
(overdistributed) net realized
gain (loss)....................... (13,292,322) (5,399,322)
Net unrealized appreciation
(depreciation) of investments..... 5,412,858 3,734,953
------------ ------------
Total Net Assets $218,854,134 $366,764,262
============ ============
CAPITAL STOCK (PAR VALUE: $.01 A
SHARE):
Shares authorized.................. 200,000,000 125,000,000
NET ASSET VALUE PER SHARE:
Class A: Net Assets................ $184,971,159 $304,191,579
Shares issued and outstanding.... 16,824,479 26,657,417
Net asset value per share........ $ 10.99 $ 11.41
Maximum offering price per share
/(a)/ ............................ $ 11.54 $ 11.98
============ ============
Class B: Net Assets................ $ 33,882,975 $ 62,572,683
Shares issued and outstanding.... 3,086,018 5,513,971
Net asset value per share /(b)/ . $ 10.98 $ 11.35
============ ============
/(a) //Maximum offering price equals net asset value plus a front-end sales
charge of 4.75% of the offering price or 4.99% of the net asset value./
/(b) //Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge./
/(c) //Includes fair market value of securities loaned, see "Securities Lending"
in Notes to Financial Statements./
See accompanying notes.
160
STATEMENTS OF ASSETS AND LIABILITIES
PRINCIPAL MUTUAL FUNDS
INCOME FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
LIMITED TERM TAX-EXEMPT
BOND FUND, INC. BOND FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INVESTMENT IN SECURITIES--AT COST ...... $111,548,736 $183,671,310
============ ============
ASSETS
Investment in securities--at value...... $113,414,770/(c)/ $191,151,041
Cash.................................... 1,956 56,229
Receivables:
Capital Shares sold.................... 337,232 5,504
Dividends and interest................. 1,195,363 2,587,202
Investment securities sold............. 3,768 --
Other assets............................ 594 9,264
Prepaid expenses........................ 190 --
------------ ------------
Total Assets 114,953,873 193,809,240
LIABILITIES
Accrued management and investment
advisory fees.......................... 10,814 17,222
Accrued distribution fees............... 4,381 9,938
Accrued directors' expenses............. -- 330
Accrued transfer and administrative fees 33,214 30,622
Accrued other expenses.................. 17,841 12,205
Payables:
Capital Shares reacquired.............. 42,850 6,258
Indebtedness........................... 90,000 --
Investment securities purchased........ 199,945 2,100,000
Collateral obligation on securities
loaned, at value....................... 207,820 --
------------ ------------
Total Liabilities 606,865 2,176,575
------------ ------------
NET ASSETS APPLICABLE TO OUTSTANDING
SHARES ................................ $114,347,008 $191,632,665
============ ============
NET ASSETS CONSIST OF:
Capital Shares and additional
paid-in-capital........................ $115,039,321 $183,248,718
Accumulated undistributed
(overdistributed) net investment income
(operating loss)....................... (1,141,630) 417,241
Accumulated undistributed
(overdistributed) net realized gain
(loss)................................. (1,416,717) 486,975
Net unrealized appreciation
(depreciation) of investments.......... 1,866,034 7,479,731
------------ ------------
Total Net Assets $114,347,008 $191,632,665
============ ============
CAPITAL STOCK (PAR VALUE: $.01 A SHARE):
Shares authorized....................... 100,000,000 100,000,000
NET ASSET VALUE PER SHARE:
Class A: Net Assets..................... $ 96,567,864 $178,378,535
Shares issued and outstanding......... 9,910,264 14,488,555
Net asset value per share............. $ 9.74 $ 12.31
Maximum offering price per share /(a)/
...................................... $ 9.89 $ 12.92
============ ============
Class B: Net Assets..................... $ 17,779,144 $ 13,254,130
Shares issued and outstanding......... 1,798,673 1,072,587
Net asset value per share /(b)/ ...... $ 9.88 $ 12.36
============ ============
/(a) //Maximum offering price equals net asset value plus a front-end sales
charge of 1.50% of the offering price or 1.52% of the net asset value for
Principal / /Limited Term Bond Fund, Inc. and 4.75% of the offering price or
4.99% of the net asset value for Principal Tax-Exempt Bond Fund, Inc./
/(b) //Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge./
/(c) //Includes fair market value of securities loaned, see "Securities Lending"
in Notes to Financial Statements./
See accompanying notes.
161
STATEMENTS OF OPERATIONS
PRINCIPAL MUTUAL FUNDS
INCOME FUNDS
YEAR ENDED OCTOBER 31, 2003
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
BOND GOVERNMENT SECURITIES
FUND, INC. INCOME FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME (OPERATING LOSS)
Income:
Interest............................... $11,302,511 $18,327,897
Securities lending..................... 5,210 44,687
----------- -----------
Total Income 11,307,721 18,372,584
Expenses:
Management and investment advisory fees 1,047,637 1,652,300
Distribution fees - Class A............ 435,000 787,407
Distribution fees - Class B............ 319,073 586,911
Registration fees - Class A............ 15,956 25,009
Registration fees - Class B............ 12,077 19,998
Shareholder reports - Class A.......... 11,409 13,264
Shareholder reports - Class B.......... 3,229 3,989
Transfer and administrative fees -
Class A............................... 169,838 208,047
Transfer and administrative fees -
Class B............................... 53,119 63,281
Auditing and legal fees................ 10,969 12,586
Custodian fees......................... 21,126 19,633
Directors' expenses.................... 9,927 16,702
Registration fees...................... 19,659 27,100
Transfer and administrative fees....... 452,747 607,650
Other expenses......................... 13,701 23,765
----------- -----------
Total Expenses 2,595,467 4,067,642
----------- -----------
Net Investment Income (Operating Loss) 8,712,254 14,304,942
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) from:
Investment transactions................ 2,735,130 467,983
Change in unrealized
appreciation/depreciation of:
Investments............................ (1,569,324) (9,669,235)
----------- -----------
Net Realized and Unrealized Gain (Loss)
on Investments 1,165,806 (9,201,252)
----------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Operations $ 9,878,060 $ 5,103,690
=========== ===========
See accompanying notes.
162
STATEMENTS OF OPERATIONS
PRINCIPAL MUTUAL FUNDS
INCOME FUNDS
YEAR ENDED OCTOBER 31, 2003
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
LIMITED TERM TAX-EXEMPT
BOND FUND, INC. BOND FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME (OPERATING LOSS)
Income:
Interest.................................. $4,066,174 $8,889,789
Securities lending........................ 1,129 --
---------- ----------
Total Income 4,067,303 8,889,789
Expenses:
Management and investment advisory fees... 512,518 921,819
Distribution fees - Class A............... 130,743 414,681
Distribution fees - Class B............... 73,497 110,967
Registration fees - Class A............... 14,498 11,428
Registration fees - Class B............... 14,182 8,666
Shareholder reports - Class A............. 3,235 2,517
Shareholder reports - Class B............. 924 255
Transfer and administrative fees - Class A 44,452 39,518
Transfer and administrative fees - Class B 13,421 3,902
Auditing and legal fees................... 8,254 12,161
Custodian fees............................ 15,911 3,178
Directors' expenses....................... 3,830 8,247
Registration fees......................... 18,250 13,114
Transfer and administrative fees.......... 167,647 118,946
Other expenses............................ 5,944 12,270
---------- ----------
Total Expenses 1,027,306 1,681,669
---------- ----------
Net Investment Income (Operating Loss) 3,039,997 7,208,120
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) from:
Investment transactions................... 397,486 458,841
Change in unrealized
appreciation/depreciation of:
Investments............................... (595,106) 587,146
---------- ----------
Net Realized and Unrealized Gain (Loss) on
Investments (197,620) 1,045,987
---------- ----------
Net Increase (Decrease) in Net Assets
Resulting from Operations $2,842,377 $8,254,107
========== ==========
See accompanying notes.
163
STATEMENTS OF CHANGES IN NET ASSETS
PRINCIPAL MUTUAL FUNDS
INCOME FUNDS
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
(UNAUDITED)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
BOND GOVERNMENT SECURITIES
FUND, INC. INCOME FUND, INC.
- -------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2003 2002 2003 2002
------------- ---------------- -------------- ------------------
- -------------------------------------------------------------------------------------------
OPERATIONS
Net investment income
(operating loss)..... $ 8,712,254 $ 9,036,456 $ 14,304,942 $ 15,858,636
Net realized gain
(loss) from
investment
transactions......... 2,735,130 (849,697) 467,983 (358,940)
Change in unrealized
appreciation/depreciation
of investments........ (1,569,324) (418,405) (9,669,235) 1,434,192
------------ ------------ ------------- ------------
Net Increase (Decrease)
in Net Assets
Resulting from
Operations 9,878,060 7,768,354 5,103,690 16,933,888
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment
income:
Class A............... (8,361,854) (8,243,914) (14,291,737) (15,053,562)
Class B............... (1,258,821) (1,240,075) (2,267,795) (1,976,685)
Class C............... N/A (9,853)/(a)/ N/A (49,830)/(a)/
Class R............... N/A (117,194)/(b)/ N/A (122,126)/(b)/
------------ ------------ ------------- ------------
Total Dividends and
Distributions (9,620,675) (9,611,036) (16,559,532) (17,202,203)
CAPITAL SHARE
TRANSACTIONS
Shares sold:
Class A............... 40,228,179 64,929,924 94,074,528 126,608,103
Class B............... 9,474,047 10,896,586 31,134,090 25,559,953
Class C............... N/A 197,254/(a)/ N/A 1,604,828/(a)/
Class R............... N/A 313,807/(b)/ N/A 156,658/(b)/
Shares issued in
acquisition:
Class A............... -- 16,770,890 -- --
Class B............... -- 3,749,720 -- --
Shares issued in
reinvestment of
dividends and
distributions:
Class A............... 7,225,606 7,015,398 12,244,953 12,799,155
Class B............... 1,153,000 1,102,034 2,050,680 1,720,114
Class C............... N/A 7,765/(a)/ N/A 41,984/(a)/
Class R............... N/A 116,372/(b)/ N/A 120,948/(b)/
Shares redeemed:
Class A............... (49,476,966) (44,822,312) (103,064,902) (72,987,837)
Class B............... (10,967,903) (7,694,108) (21,564,510) (10,755,746)
Class C............... N/A (1,406,213)/(a)/ N/A (5,684,635)/(a)/
Class R............... N/A (17,318,230)/(b)/ N/A (14,295,188)/(b)/
------------ ------------ ------------- ------------
Net Increase (Decrease)
in Net Assets from
Capital Share
Transactions (2,364,037) 33,858,887 14,874,839 64,888,337
------------ ------------ ------------- ------------
Redemption fees - Class
A..................... 48,023 -- 48 --
------------ ------------ ------------- ------------
Total Increase
(Decrease) (2,058,629) 32,016,205 3,419,045 64,620,022
NET ASSETS
Beginning of period.... 220,912,763 188,896,558 363,345,217 298,725,195
------------ ------------ ------------- ------------
End of period
(including
undistributed net
investment income as
set forth below)...... $218,854,134 $220,912,763 $ 366,764,262 $363,345,217
============ ============ ============= ============
Undistributed
(Overdistributed) Net
Investment Income
(Operating Loss)...... $ (470,787) $ (248,552) $ 276,421 $ 22,064
============ ============ ============= ============
/(a) //Period from November 1, 2001 through January 31, 2002 (discontinuation of
class)./
/(b) //Period from November 1, 2001 through December 28, 2001 (discontinuation
of class)./
See accompanying notes.
164
STATEMENTS OF CHANGES IN NET ASSETS
PRINCIPAL MUTUAL FUNDS
INCOME FUNDS
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
(UNAUDITED)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
LIMITED TERM TAX-EXEMPT
BOND FUND, INC. BOND FUND, INC.
- ------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2003 2002 2003 2002
------------- ---------------- ------------- ------------------
- ------------------------------------------------------------------------------------------
OPERATIONS
Net investment income
(operating loss)..... $ 3,039,997 $ 2,721,199 $ 7,208,120 $ 7,304,823
Net realized gain
(loss) from
investment
transactions......... 397,486 (561,029) 458,841 1,377,490
Change in unrealized
appreciation/depreciation
of investments........ (595,106) 1,055,788 587,146 1,384,664
------------ ------------ ------------ ------------
Net Increase (Decrease)
in Net Assets
Resulting from
Operations 2,842,377 3,215,958 8,254,107 10,066,977
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment
income:
Class A............... (3,682,022) (2,741,164) (6,588,804) (6,722,419)
Class B............... (590,061) (422,154) (401,196) (410,274)
Class C............... N/A (8,529)/(a)/ N/A (4,720)/(a)/
Class R............... N/A (46,881)/(b)/ N/A N/A
From net realized gain
on investments:
Class A............... -- -- (706,938) --
Class B............... -- -- (53,429) --
------------ ------------ ------------ ------------
Total Dividends and
Distributions (4,272,083) (3,218,728) (7,750,367) (7,137,413)
CAPITAL SHARE
TRANSACTIONS
Shares sold:
Class A............... 61,128,599 54,036,307 20,987,302 28,581,161
Class B............... 8,437,473 8,099,738 2,316,581 3,426,721
Class C............... N/A 116,201/(a)/ N/A 147,114/(a)/
Class R............... N/A 152,408/(b)/ N/A N/A
Shares issued in
reinvestment of
dividends and
distributions:
Class A............... 3,358,719 2,516,175 5,359,665 4,717,856
Class B............... 561,209 398,711 318,557 282,570
Class C............... N/A 6,946/(a)/ N/A 3,704/(a)/
Class R............... N/A 46,360/(b)/ N/A N/A
Shares redeemed:
Class A............... (41,413,201) (19,955,634) (31,545,809) (19,967,853)
Class B............... (4,403,641) (2,117,724) (3,265,865) (2,171,188)
Class C............... N/A (1,137,681)/(a)/ N/A (1,010,061)/(a)/
Class R............... N/A (6,222,733)/(b)/ N/A N/A
------------ ------------ ------------ ------------
Net Increase (Decrease)
in Net Assets from
Capital Share
Transactions 27,669,158 35,939,074 (5,829,569) 14,010,024
------------ ------------ ------------ ------------
Redemption fees - Class
A..................... 1,231 -- 10,084 --
------------ ------------ ------------ ------------
Total Increase
(Decrease) 26,240,683 35,936,304 (5,315,745) 16,939,588
NET ASSETS
Beginning of period.... 88,106,325 52,170,021 196,948,410 180,008,822
------------ ------------ ------------ ------------
End of period
(including
undistributed net
investment income as
set forth below)...... $114,347,008 $ 88,106,325 $191,632,665 $196,948,410
============ ============ ============ ============
Undistributed
(Overdistributed) Net
Investment Income
(Operating Loss)...... $ (1,141,630) $ (293,955) $ 417,241 $ 260,217
============ ============ ============ ============
/(a) //Period from November 1, 2001 through January 31, 2002 (discontinuation of
class)./
/(b) //Period from November 1, 2001 through December 28, 2001 (discontinuation
of class)./
See accompanying notes.
165
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
INCOME FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
1. ORGANIZATION
Principal Bond Fund, Inc., Principal Government Securities Income Fund, Inc.,
Principal Limited Term Bond Fund, Inc., and Principal Tax-Exempt Bond Fund, Inc.
(the "Income 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.
Each fund offers both Class A shares and Class B shares to the public. Class A
shares generally are sold with an initial sales charge based on declining rates
and certain purchases may be subject to a contingent deferred sales charge
("CDSC") upon redemption. Class B shares are sold without an initial sales
charge, but bear higher ongoing distribution fees and are subject to a declining
CDSC on certain redemptions made within six years of purchase. Class B shares
automatically convert into Class A shares, based on relative net asset value
(without a sales charge), seven years after purchase. Both classes of shares for
each fund represent interests in the same portfolio of investments, and will
vote together as a single class except where otherwise required by law or as
determined by each of the Income Funds' respective Board of Directors. In
addition, the Board of Directors of each fund declares separate dividends on
each class of shares.
Effective July 31, 2002, Principal Bond Fund, Inc. acquired all the assets and
assumed all the liabilites of Principal High Yield Fund, Inc. pursuant to a plan
of acquisition approved by shareholders of Principal High Yield Fund, Inc. on
June 26, 2002. The acquisition was accomplished by a tax-free exchange of shares
from Principal High Yield Fund, inc. for shares of Principal Bond Fund, Inc. the
aggregate net assets of Principal Bond Fund, inc. and Principal High Yield Fund,
Inc. immediately before the acquisition were approximately $195,345,000 and
$20,521,000, respectively.
Principal Management Corporation is currently in the process of reviewing
policies and trading records to determine whether the Income Funds have been
used as vehicles for late trading or market timing. While the review is not yet
complete, Principal Management Corporation has no reason to believe at this time
that any Income Fund will experience any material gain or loss as a result of
the review.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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. The
following summarizes the significant accounting policies of the Income Funds:
SECURITY VALUATION . The Income Funds value securities for which market
quotations are readily available at market value, which is determined using the
last reported sale price. If no sales are reported, as is regularly the case for
some securities traded over-the-counter, securities are valued using the last
reported bid price or an evaluated bid price based on information provided by a
pricing service. Pricing services use electronic modeling techniques that
incorporate security characteristics, market conditions and dealer-supplied
valuations. When reliable market quotations are not considered to be readily
available, which may be the case, for example, with respect to certain debt
securities and preferred stocks, the investments are valued at their fair value
as determined in good faith by Principal Management Corporation (the "Manager")
under procedures established and periodically reviewed by each fund's Board of
Directors. Short-term securities are valued at amortized cost, which
approximates market.
INCOME AND INVESTMENT TRANSACTIONS. . The Income Funds record investment
transactions on a trade date basis. 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 Income Funds record
dividend income on the ex-dividend date. Interest income is recognized on an
accrual basis. Discounts and premiums on securities are amortized/accreted over
the lives of the respective securities. The Income Funds allocate daily all
income and realized and unrealized gains or losses to each class of shares based
upon the relative proportion of the value of shares outstanding of each class.
EXPENSES . The Income Funds allocate daily all expenses (other than
class-specific expenses) to each class of shares based upon the relative
proportion of the value of shares outstanding of each class. Class-specific
expenses charged to each class during the year ended October 31, 2003, are
included separately in the statements of operations.
166
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
INCOME FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DISTRIBUTIONS TO SHAREHOLDERS . Dividends and distributions are recorded on the
ex-dividend date. Dividends and distributions to shareholders from net
investment income and net realized gain from investments are determined in
accordance with federal tax regulations, which may differ from accounting
principles generally accepted in the United States. These differences are
primarily due to differing treatments for mortgage-backed securities,
amortization of premiums and discounts, expiring capital loss carryforwards,
certain defaulted securities, and limitations imposed by Sections 381-384 of the
Internal Revenue Code. 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.
Distributions which exceed current and accumulated earnings and profits for
federal income tax purposes, are reported as tax return of capital
distributions.
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.
REDEMPTION FEES . The Income Funds will impose a redemption fee on redemptions
of $30,000 or more of Class A shares redeemed within 30 days after they are
purchased. The fee is equal to 1.00% of the total redemption amount. The fee is
paid to the fund and is intended to offset the trading costs, market impact, and
other costs associated with short-term money movement in and out of the Income
Funds. These amounts are reflected in the statements of changes in net assets.
3. OPERATING POLICIES
JOINT TRADING ACCOUNT . The Income Funds 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 Income Funds' 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.
LINE OF CREDIT . The Income Funds participate with other funds managed by
Principal Management Corporation in an unsecured joint line of credit with two
banks which allow the participants to borrow up to $75 million, 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 .09% on
the amount of the line of credit. The commitment fee is allocated among the
participating funds in proportion to their average net assets during each
calendar quarter. At October 31, 2003, the Principal Limited Term Bond Fund,
Inc. had outstanding borrowing of $90,000 at an annual rate of 1.57%. No other
Income Fund had outstanding borrowings under the line of credit.
REPURCHASE AGREEMENTS . The Income Funds may invest in repurchase agreements
that are fully collateralized, typically by U.S. government or U.S. government
agency securities. The value of the collateral is maintained, at a minimum, in
an amount equal to the principal amount plus accrued interest of each repurchase
agreement. In the event the seller of a repurchase agreement defaults, the fund
could experience delays in the realization of the collateral.
SECURITIES LENDING. . Certain of the Income Funds may lend portfolio securities
to approved brokerage firms to earn additional income. Each applicable fund
receives collateral (in the form of U.S. government securities, U.S. government
agency securities, letters of credit, and/or cash) against the loaned securities
and maintains collateral in an amount not less than 100% of the market value of
the loaned securities during the period of the loan. Cash collateral is usually
invested in short-term securities. The market value of loaned securities is
determined at the close of business of the funds and any additional required
collateral is delivered to the funds on the next business day. Although risk is
mitigated by the collateral, the fund could experience a delay in recovering its
securities and possible loss of income or value if the borrower fails to return
them. As of October 31, 2003, Principal Bond Fund, Inc. and Principal Limited
Term Bond Fund, Inc. had securities on loan with market values of $1,135,375 and
$203,493 and collateral values of $1,162,070, and $207,820, respectively.
167
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
INCOME FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
4. MANAGEMENT AGREEMENT AND TRANSACTIONS WITH AFFILIATES
MANAGEMENT SERVICES . The Income Funds have agreed to pay investment advisory
and management fees to Principal Management Corporation (wholly owned by Princor
Financial Services Corporation, a subsidiary of Principal Financial Services,
Inc.) computed at an annual percentage rate of each fund's average daily net
assets. The annual rates used in this calculation for the Income Funds are as
follows:
NET ASSETS OF FUNDS (IN MILLIONS)
----------------------------------------
FIRST NEXT NEXT NEXT OVER
$100 $100 $100 $100 $400
----- ---- ---- ---- ----
Income Funds .50% .45% .40% .35% .30%
The Income Funds also reimburse the Manager for transfer and administrative
services, including the cost of accounting, data processing, supplies and other
services rendered.
DISTRIBUTION FEES . The Income Funds bear distribution fees with respect to each
class computed at an annual rate of the average daily net assets attributable to
each class of each fund. The annual rate will not exceed the following limits:
CLASS A CLASS B
------- -------
Principal Bond Fund, Inc. .25% 1.00%
Principal Government Securities Income Fund, Inc. .25 1.00
Principal Limited Term Bond Fund, Inc. .15 .50
Principal Tax-Exempt Bond Fund, Inc. .25 1.00
Distribution fees are paid to Princor Financial Services Corporation, the
principal underwriter. A portion of the fees is subsequently remitted to retail
dealers. Pursuant to the distribution agreements for Class A and Class B shares,
fees that are unused by the principal underwriter at the end of the fiscal year
are returned to the respective Income Funds which generated the excess.
SALES CHARGES . Princor Financial Services Corporation, as principal
underwriter, receives proceeds of any CDSC on certain Class A and Class B share
redemptions. The charge is based on declining rates which for Class A shares
begin at .75% and Class B shares at 4.00% (.25% and 1.25% for Principal Limited
Term Bond Fund, Inc. share classes, respectively) of the lesser of current
market value or the cost of shares being redeemed. Princor Financial Services
Corporation also retains sales charges on sales of Class A shares based on
declining rates which begin at 4.75% of the offering price (1.50% for Principal
Limited Term Bond Fund, Inc.). The aggregate amounts of these charges retained
by Princor Financial Services Corporation for the year ended October 31, 2003,
were as follows:
CLASS A CLASS B
------- -------
Principal Bond Fund, Inc. $ 545,765 $ 73,715
Principal Government Securities Income Fund, Inc. 1,416,225 191,621
Principal Limited Term Bond Fund, Inc. 256,154 21,686
Principal Tax-Exempt Bond Fund, Inc. 299,591 16,390
AFFILIATED OWNERSHIP . At October 31, 2003, Principal Life Insurance Company (an
affiliate of the Manager), affiliates of Principal Life Insurance Company and
benefit plans sponsored on behalf of Principal Life Insurance Company owned
shares of the Income Funds as follows:
CLASS A
-------
Principal Bond Fund, Inc. 317,479
Principal Government Securities Income Fund, Inc. 101,106
Principal Limited Term Bond Fund, Inc. 535,786
AFFILIATED BROKERAGE COMMISSIONS . No brokerage commissions were paid by the
Income Funds to affiliated broker dealers or any member of the Principal
Financial Group during the period.
168
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
INCOME FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
5. INVESTMENT TRANSACTIONS
For the year ended October 31, 2003, the cost of investment securities purchased
and proceeds from investment securities sold (not including short-term
investments and U.S. government securities) by the Income Funds were as follows:
PURCHASES SALES
------------ --------------
Principal Bond Fund, Inc. $169,260,191 $150,206,920
Principal Limited Term Bond Fund, Inc. 52,799,526 25,880,515
Principal Tax-Exempt Bond Fund, Inc. 59,966,910 62,249,370
The Income Funds 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 October 31, 2003, Principal Bond Fund, Inc.
had TBA purchase commitments involving securities with face amounts of
$14,450,000, cost of $14,582,789, and market values of $14,565,323.
At October 31, 2003, net federal income tax unrealized appreciation
(depreciation) of investments held by the Income Funds was composed of the
following:
TAX COST OF GROSS UNREALIZED
INVESTMENTS -----------------------------------
IN SECURITIES APPRECIATION (DEPRECIATION)
------------- ------------ --------------
Principal Bond Fund, Inc. $228,386,011 $ 6,260,987 $ (1,389,548)
Principal Government Securities Income Fund, Inc. 361,802,972 6,344,356 (2,609,403)
Principal Limited Term Bond Fund, Inc. 112,820,375 1,677,146 (1,082,751)
Principal Tax-Exempt Bond Fund, Inc. 183,385,313 7,786,643 (20,915)
NET UNREALIZED
APPRECIATION
(DEPRECIATION)
OF INVESTMENTS
-----------------
Principal Bond Fund, Inc. $ 4,871,439
Principal Government Securities Income Fund, Inc. 3,734,953
Principal Limited Term Bond Fund, Inc. 594,395
Principal Tax-Exempt Bond Fund, Inc. 7,765,728
The Income Funds' investments are with various issuers in various industries.
The schedules of investments contained herein summarize concentrations of credit
risk by issuer and industry.
169
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
INCOME FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
6. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares were as follows:
PRINCIPAL PRINCIPAL
BOND GOVERNMENT SECURITIES
FUND, INC. INCOME FUND, INC.
----------- ---------------------
YEAR ENDED OCTOBER 31, 2003:
Shares sold:
Class A..................................... 3,611,102 8,034,398
Class B..................................... 855,831 2,674,412
Shares issued in reinvestment of dividends
and distributions:
Class A..................................... 653,047 1,052,514
Class B..................................... 104,254 177,297
Shares redeemed:
Class A..................................... (4,457,936) (8,883,041)
Class B..................................... (990,352) (1,863,692)
---------- ----------
Net Increase (Decrease) (224,054) 1,191,888
========== ==========
PRINCIPAL PRINCIPAL
BOND GOVERNMENT SECURITIES
FUND, INC. INCOME FUND, INC.
----------- -----------------------
YEAR ENDED OCTOBER 31, 2002:
Shares sold:
Class A 6,011,021 10,915,925
Class B 1,005,009 2,208,107
Class C* 18,013 139,333
Class R** 28,816 13,341
Shares issued in acquisition:
Class A 1,554,299 --
Class B 347,840 --
Shares issued in reinvestment of dividends and distributions:
Class A 649,056 1,105,437
Class B 102,030 149,301
Class C* 722 3,651
Class R** 10,721 10,554
Shares redeemed:
Class A (4,140,062) (6,296,173)
Class B (710,125) (931,646)
Class C* (131,049) (494,168)
Class R** (1,608,357) (1,256,671)
---------- ----------
Net Increase (Decrease) 3,137,934 5,566,991
========== ==========
6. CAPITAL SHARE TRANSACTIONS (CONTINUED)
PRINCIPAL PRINCIPAL
LIMITED TERM TAX-EXEMPT
BOND FUND, INC. BOND FUND, INC.
--------------- -----------------
YEAR ENDED OCTOBER 31, 2003:
Shares sold:
Class A.................................. 6,193,684 1,698,369
Class B.................................. 843.804 186,585
Shares issued in reinvestment of dividends
and distributions:
Class A.................................. 340,884 435,536
Class B.................................. 56,149 25,811
Shares redeemed:
Class A.................................. (4,200,931) (2,547,538)
Class B.................................. (440,246) (263,637)
---------- ----------
Net Increase (Decrease) 2,793,344 (464,874)
========== ==========
170
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
INCOME FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
LIMITED TERM TAX-EXEMPT
BOND FUND, INC. BOND FUND, INC.
--------------- -----------------
YEAR ENDED OCTOBER 31, 2002:
Shares sold:
Class A.................................. 5,568,112 2,361,316
Class B.................................. 823,632 282,539
Class C*................................. 11,808 12,436
Class R**................................ 15,574 N/A
Shares issued in reinvestment of dividends
and distributions:
Class A.................................. 259,412 392,114
Class B.................................. 40,525 23,443
Class C*................................. 705 314
Class R**................................ 4,724 N/A
Shares redeemed:
Class A.................................. (2,052,813) (1,655,386)
Class B.................................. (214,912) (179,211)
Class C*................................. (115,970) (85,493)
Class R**................................ (639,878) N/A
---------- ----------
Net Increase (Decrease) 3,700,919 1,152,072
========== ==========
*Period from November 1, 2001 through January 31, 2002 (discontinuation of Class
C shares).
**Period from November 1, 2001 through December 28, 2001 (discontinuation of
Class R shares).
Effective January 31, 2002 and December 28, 2001, respectively, Class C shares
and Class R shares were discontinued and exchanged into Class A shares as
follows:
CLASS C CLASS R
--------------------- ----------------------
SHARES DOLLARS SHARES DOLLARS
EXCHANGED EXCHANGED EXCHANGED EXCHANGED
--------- ---------- --------- -------------
Principal Bond Fund, Inc. 120,703 $1,303,594 1,509,274 $16,179,413
Principal Government Securities Income Fund, Inc. 369,029 4,258,598 1,175,559 13,436,636
Principal Limited Term Bond Fund, Inc. 102,938 997,469 601,584 5,817,318
Principal Tax-Exempt Bond Fund, Inc. 80,794 964,684 N/A N/A
171
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
INCOME FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
7. FEDERAL TAX INFORMATION
DISTRIBUTIONS TO SHAREHOLDERS . The federal income tax character of
distributions paid for years ended October 31, 2003 and 2002 was as follows:
ORDINARY INCOME LONG-TERM CAPITAL GAIN
------------- --------------
2003 2002 2003 2002
---- ---- ---- ----
Principal Bond Fund, Inc. $ 9,620,675 $ 9,611,036 $ -- $ --
Principal Government Securities Income Fund, Inc. 16,559,532 17,202,203 -- --
Principal Limited Term Bond Fund, Inc. 4,272,083 3,218,728 -- --
Principal Tax-Exempt Bond Fund, Inc. 6,990,000 7,137,413 760,367 --
For federal income tax purposes, short-term capital gain distributions are
considered ordinary income distributions.
DISTRIBUTABLE EARNINGS . As of October 31, 2003, the components of distributable
earnings on a federal tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY INCOME LONG-TERM CAPITAL GAINS
---------------- -----------------------
Principal Bond Fund, Inc. $ 69,279 $ --
Principal Government Securities
Income Fund, Inc. 276,421 --
Principal Limited Term Bond Fund,
Inc. 130,010 --
Principal Tax-Exempt Bond Fund,
Inc. 156,460 461,759
CAPITAL LOSS CARRYFORWARDS . Capital loss carryforwards are losses that can be
used to offset future capital gains of the fund. At October 31, 2003, the Income
Funds had approximate net capital loss carryforwards as follows:
NET CAPITAL LOSS CARRYFORWARDS EXPIRING IN:
2005 2006 2007 2008 2009 2010 2011
------- ------ ------- ---------- ---------- ---------- ---------
Principal Bond Fund, Inc. $ -- $ -- $ -- $6,331,000 $5,680,000 $1,281,000 $--
Principal Government Securities
Income Fund, Inc. 776,000 -- 6,000 942,000 -- 1,635,000 2,041,000
Principal Limited Term Bond Fund, Inc. 21,000 9,000 32,000 263,000 197,000 895,000 --
172
SCHEDULE OF INVESTMENTS
PRINCIPAL BOND FUND, INC.
OCTOBER 31, 2003
Principal
Amount Value
- ------------------------------------------------------------------------------------------------------------------------
BONDS (57.04%)
AEROSPACE & DEFENSE (0.47%)
Boeing
$ $
6.13%; 02/15/33 100,000 97,402
Raytheon
5.70%; 11/01/03 925,000 925,000
1,022,402
AEROSPACE & DEFENSE EQUIPMENT (0.11%)
Lockheed Martin
7.65%; 05/01/16 200,000 240,798
AGRICULTURAL OPERATIONS (0.07%)
Bunge Limited Finance
5.88%; 05/15/13 160,000 161,080
AIRLINES (0.26%)
Northwest Airlines
7.58%; 09/01/20 308,934 318,703
Southwest Airlines
5.10%; 05/01/06 233,506 245,587
564,290
ASSET BACKED SECURITIES (0.25%)
Chase Funding Mortgage Loan
3.07%; 08/25/17 550,000 553,358
AUTO-CARS & LIGHT TRUCKS (0.39%)
DaimlerChrysler Holding
4.05%; 06/04/08 175,000 169,166
4.75%; 01/15/08 75,000 74,939
7.30%; 01/15/12 190,000 205,399
Ford Motor
7.45%; 07/16/31 125,000 112,287
General Motors
8.25%; 07/15/23 275,000 289,283
851,074
AUTO-MEDIUM & HEAVY DUTY TRUCKS (0.17%)
Navistar International
9.38%; 06/01/06 335,000 366,825
AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL (0.29%)
Delphi
6.50%; 05/01/09 110,000 116,268
6.50%; 08/15/13 175,000 177,749
Lear
7.96%; 05/15/05 320,000 344,000
638,017
AUTOMOBILE SEQUENTIAL (1.84%)
Capital Auto Receivables Asset Trust
4.50%; 10/15/07 950,000 985,096
Ford Credit Auto Owner Trust
4.01%; 03/15/06 1,125,000 1,149,114
6.66%; 01/15/05 767,413 775,433
Toyota Auto Receivables Owner Trust
2.65%; 11/15/06 1,100,000 1,110,558
4,020,201
BEVERAGES-NON-ALCOHOLIC (0.30%)
Coca-Cola Enterprises
4.38%; 09/15/09 175,000 177,841
Principal
Amount Value
- ------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
BEVERAGES-NON-ALCOHOLIC (CONTINUED)
Coca-Cola Enterprises (continued)
$ $
5.25%; 05/15/07 235,000 252,687
PepsiAmericas
3.88%; 09/12/07 220,000 222,257
652,785
BREWERY (0.42%)
Cia Brasileira de Bebidas
8.75%; 09/15/13 /1/ 150,000 155,250
10.50%; 12/15/11 300,000 339,750
Coors Brewing
6.38%; 05/15/12 245,000 266,380
SABMiller /1/
6.63%; 08/15/33 150,000 157,122
918,502
BROADCASTING SERVICES & PROGRAMMING (0.22%)
Grupo Televisa
8.50%; 03/11/32 100,000 105,000
Liberty Media
3.50%; 09/25/06 385,000 380,219
485,219
BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS (0.42%)
CRH America
6.40%; 10/15/33 155,000 158,111
6.95%; 03/15/12 229,000 258,358
Masco
6.00%; 05/03/04 500,000 510,358
926,827
BUILDING PRODUCTS-AIR & HEATING (0.10%)
York International
6.63%; 08/15/06 200,000 216,482
BUILDING PRODUCTS-WOOD (0.04%)
Celulosa Arauco y Constitucion /1/
5.13%; 07/09/13 90,000 87,552
BUILDING-RESIDENTIAL & COMMERCIAL (0.33%)
DR Horton
8.50%; 04/15/12 335,000 376,875
KB Home
7.75%; 02/01/10 325,000 342,875
719,750
CABLE & OTHER PAY TV SERVICES (0.23%)
AT&T Broadband
8.38%; 03/15/13 412,000 498,024
CABLE TV (1.37%)
British Sky Broadcasting
8.20%; 07/15/09 290,000 337,866
Comcast
5.30%; 01/15/14 50,000 49,143
5.50%; 03/15/11 240,000 247,731
5.85%; 01/15/10 30,000 31,871
7.05%; 03/15/33 230,000 245,042
Comcast Cable Communications
6.75%; 01/30/11 220,000 243,522
Principal
Amount Value
- ------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
CABLE TV (CONTINUED)
COX Communications
$ $
5.50%; 10/01/15 155,000 153,785
6.75%; 03/15/11 630,000 702,488
CSC Holdings
7.25%; 07/15/08 150,000 150,000
EchoStar DBS
5.75%; 10/01/08/ 1/ 255,000 254,044
10.38%; 10/01/07 275,000 303,531
Rogers Cable
6.25%; 06/15/13 280,000 280,000
2,999,023
CASINO HOTELS (0.71%)
Boyd Gaming
9.25%; 08/01/09 360,000 404,550
Mandalay Resort Group
6.45%; 02/01/06 185,000 191,937
6.50%; 07/31/09 160,000 165,000
MGM Mirage
6.00%; 10/01/09 155,000 156,938
7.25%; 10/15/06 45,000 48,038
8.50%; 09/15/10 265,000 300,444
Park Place Entertainment
8.50%; 11/15/06 265,000 292,162
1,559,069
CASINO SERVICES (0.16%)
International Game Technology
8.38%; 05/15/09 290,000 346,078
CELLULAR TELECOMMUNICATIONS (0.71%)
AT&T Wireless Services
7.88%; 03/01/11 295,000 337,091
Telus
7.50%; 06/01/07 445,000 494,205
8.00%; 06/01/11 40,000 45,987
Verizon Wireless Capital
5.38%; 12/15/06 480,000 512,633
Vodafone Group
5.00%; 12/16/13 175,000 172,385
1,562,301
CHEMICALS-DIVERSIFIED (0.25%)
Chevron Phillips Chemical
5.38%; 06/15/07 240,000 254,853
7.00%; 03/15/11 265,000 292,821
547,674
CIRCUIT BOARDS (0.13%)
Jabil Circuit
5.88%; 07/15/10 275,000 284,099
COAL (0.14%)
Peabody Energy
6.88%; 03/15/13 290,000 305,225
COATINGS & PAINT (0.08%)
Valspar
6.00%; 05/01/07 160,000 171,673
Principal
Amount Value
- ------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
COMMERCIAL BANKS (0.34%)
AmSouth Bank
$ $
4.85%; 04/01/13 225,000 222,011
Fleet National Bank
5.75%; 01/15/09 250,000 271,235
Union Planters Bank
5.13%; 06/15/07 240,000 253,990
747,236
COMMERCIAL SERVICE-FINANCE (0.04%)
Deluxe
5.00%; 12/15/12 95,000 94,651
COMPUTER SERVICES (0.12%)
Unisys
8.13%; 06/01/06 250,000 273,750
COMPUTERS-INTEGRATED SYSTEMS (0.04%)
NCR
7.13%; 06/15/09 75,000 82,211
CONSUMER PRODUCTS-MISCELLANEOUS (0.16%)
American Greetings
6.10%; 08/01/28 335,000 340,444
CONTAINERS-PAPER & PLASTIC (0.13%)
Norampac /1/
6.75%; 06/01/13 275,000 286,000
CREDIT CARD ASSET BACKED SECURITIES (1.62%)
American Express Credit Account Master Trust
5.60%; 11/15/06 1,265,000 1,289,940
American Express Master Trust
7.85%; 08/15/05 600,000 633,604
MBNA Master Credit Card Trust
6.90%; 01/15/08 1,500,000 1,627,204
3,550,748
CRUISE LINES (0.06%)
Royal Caribbean Cruises
8.00%; 05/15/10 120,000 129,000
DATA PROCESSING & MANAGEMENT (0.06%)
Certegy /1/
4.75%; 09/15/08 135,000 137,846
DIVERSIFIED FINANCIAL SERVICES (1.75%)
Citigroup
3.50%; 02/01/08 410,000 409,687
5.75%; 05/10/06 750,000 807,278
6.00%; 02/21/12 85,000 92,468
6.63%; 06/15/32 315,000 340,829
General Electric Capital
4.63%; 09/15/09 390,000 402,706
6.75%; 03/15/32 475,000 526,710
John Deere Capital
3.13%; 12/15/05 160,000 163,435
3.90%; 01/15/08 100,000 101,245
5.52%; 04/30/04 440,000 448,947
7.00%; 03/15/12 165,000 188,952
Principal
Amount Value
- ------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
DIVERSIFIED FINANCIAL SERVICES (CONTINUED)
NiSource Finance
$ $
3.20%; 11/01/06 120,000 120,134
5.40%; 07/15/14 225,000 224,974
3,827,365
DIVERSIFIED MANUFACTURING OPERATIONS (0.53%)
General Electric
5.00%; 02/01/13 265,000 266,679
Pacifica Papers
10.00%; 03/15/09 290,000 307,400
SPX
6.25%; 06/15/11 265,000 265,663
Tyco International
6.38%; 02/15/06 300,000 317,625
1,157,367
DIVERSIFIED MINERALS (0.15%)
Corp. Nacional del Cobre de Chile /1/
5.50%; 10/15/13 125,000 125,566
Vale Overseas /1/
9.00%; 08/15/13 185,000 196,100
321,666
DIVERSIFIED OPERATIONS (0.15%)
Hutchison Whampoa International /1/
6.50%; 02/13/13 325,000 338,501
ELECTRIC-INTEGRATED (3.89%)
Alabama Power
5.60%; 03/15/33 110,000 104,970
Appalachian Power
5.95%; 05/15/33 90,000 84,143
Arizona Public Service
6.50%; 03/01/12 205,000 224,296
CenterPoint Energy Houston Electric /1/
5.70%; 03/15/13 145,000 151,292
5.88%; 06/01/08 180,000 185,248
CenterPoint Energy Resources /1/
7.88%; 04/01/13 270,000 306,796
Cincinnati Gas & Electric
5.40%; 06/15/33 115,000 102,074
Consolidated Edison
3.63%; 08/01/08 185,000 183,520
Consumers Energy
4.25%; 04/15/08 70,000 70,450
6.00%; 03/15/05 /1/ 160,000 168,129
Dayton Power & Light /1/
5.13%; 10/01/13 200,000 200,683
Dominion Resources
7.82%; 09/15/14 1,000,000 1,052,979
DTE Energy
6.00%; 06/01/04 525,000 538,285
7.05%; 06/01/11 60,000 67,748
Duke Energy
4.50%; 04/01/10 200,000 201,549
Entergy Gulf States /1/
3.60%; 06/01/08 180,000 172,317
Exelon
6.75%; 05/01/11 200,000 221,626
Principal
Amount Value
- ------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
ELECTRIC-INTEGRATED (CONTINUED)
FPL Group Capital
$ $
3.25%; 04/11/06 170,000 171,989
GPU
7.70%; 12/01/05 465,000 502,530
Indianapolis Power & Light
7.38%; 08/01/07 230,000 254,407
MidAmerican Energy Holdings
4.63%; 10/01/07 200,000 204,572
6.75%; 12/30/31 235,000 252,084
Northeast Utilities
3.30%; 06/01/08 145,000 139,637
Ohio Power
4.85%; 01/15/14 185,000 178,522
Oncor Electric Delivery
6.38%; 05/01/12 275,000 301,293
PacifiCorp
5.45%; 09/15/13 175,000 179,976
Pepco Holdings
3.75%; 02/15/06 565,000 574,947
4.00%; 05/15/10 70,000 67,728
Power Contract Financing /1/
5.20%; 02/01/06 175,000 174,612
Progress Energy
6.05%; 04/15/07 165,000 177,998
PSI Energy
5.00%; 09/15/13 220,000 216,733
Puget Energy
3.36%; 06/01/08 175,000 169,065
Southern California Edison
8.00%; 02/15/07 290,000 325,525
Southwestern Electric Power
4.50%; 07/01/05 240,000 248,587
TXU Energy /1/
6.13%; 03/15/08 140,000 150,013
Wisconsin Electric Power
5.63%; 05/15/33 195,000 186,330
8,512,653
ELECTRONIC CONNECTORS (0.13%)
Thomas & Betts
8.25%; 01/15/04 280,000 281,400
ENTERPRISE SOFTWARE & SERVICE (0.16%)
Oracle
6.72%; 02/15/04 335,000 340,026
FEDERAL & FEDERALLY SPONSORED CREDIT (0.15%)
Housing Urban Development
2.99%; 08/01/05 325,000 330,616
FINANCE-AUTO LOANS (1.20%)
Ford Motor Credit
5.75%; 02/23/04 350,000 354,215
6.88%; 02/01/06 160,000 167,455
7.25%; 10/25/11 450,000 457,058
7.38%; 02/01/11 165,000 167,996
General Motors Acceptance
5.13%; 05/09/08 255,000 258,995
6.88%; 09/15/11 285,000 294,007
Principal
Amount Value
- ------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
FINANCE-AUTO LOANS (CONTINUED)
General Motors Acceptance (continued)
$ $
6.88%; 08/28/12 250,000 256,268
7.00%; 02/01/12 250,000 258,386
8.00%; 11/01/31 180,000 185,112
Toyota Motor Credit
2.80%; 01/18/06 220,000 223,413
2,622,905
FINANCE-CONSUMER LOANS (0.80%)
American General Finance
5.38%; 09/01/09 200,000 211,911
5.88%; 07/14/06 200,000 215,979
Household Finance
3.38%; 02/21/06 95,000 96,951
4.75%; 07/15/13 155,000 149,900
5.75%; 01/30/07 700,000 755,767
7.00%; 05/15/12 125,000 141,959
7.63%; 05/17/32 145,000 172,264
1,744,731
FINANCE-INVESTMENT BANKER & BROKER (1.58%)
Banque Paribas
6.88%; 03/01/09 400,000 453,646
Bear Stearns
3.00%; 03/30/06 165,000 167,104
4.00%; 01/31/08 210,000 213,360
Goldman Sachs Group
4.13%; 01/15/08 110,000 112,306
6.60%; 01/15/12 480,000 532,394
6.88%; 01/15/11 475,000 537,196
Lehman Brothers Holdings
6.63%; 01/18/12 450,000 503,547
Merrill Lynch
4.50%; 11/04/10 225,000 224,865
Morgan Stanley /2/
0.91%; 04/15/34 4,670,060 150,333
4.25%; 05/15/10 135,000 132,999
5.30%; 03/01/13 165,000 167,452
6.75%; 04/15/11 225,000 252,835
3,448,037
FINANCE-LEASING COMPANY (0.09%)
Boeing Capital
4.75%; 08/25/08 185,000 190,460
FINANCE-MORTGAGE LOAN/BANKER (6.08%)
Countrywide Home Loan
4.25%; 12/19/07 120,000 122,413
5.25%; 06/15/04 1,000,000 1,022,590
Federal Home Loan Mortgage
2.65%; 05/30/08 275,000 266,191
3.25%; 02/25/08 1,675,000 1,655,196
4.75%; 10/11/12 550,000 539,784
4.75%; 05/06/13 575,000 557,866
6.25%; 07/15/32 125,000 134,831
6.75%; 03/15/31 541,000 620,029
Federal National Mortgage Association
2.38%; 03/17/06 575,000 573,259
2.88%; 05/19/08 275,000 266,485
Principal
Amount Value
- ------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
FINANCE-MORTGAGE LOAN/BANKER (CONTINUED)
Federal National Mortgage Association (continued)
$ $
3.32%; 11/25/32 600,000 604,686
3.70%; 11/01/07 1,430,000 1,445,730
3.75%; 07/29/05 1,075,000 1,094,950
4.00%; 09/02/08 425,000 427,210
4.32%; 07/26/07 530,000 551,217
4.75%; 02/21/13 550,000 538,784
5.25%; 08/01/12 985,000 999,371
6.25%; 05/15/29 1,000,000 1,072,299
7.25%; 05/15/30 680,000 822,775
13,315,666
FINANCE-OTHER SERVICES (0.96%)
Verizon Global Funding
6.75%; 12/01/05 1,000,000 1,088,718
7.25%; 12/01/10 690,000 788,024
7.75%; 12/01/30 200,000 231,497
2,108,239
FOOD-DAIRY PRODUCTS (0.16%)
Dean Foods
6.63%; 05/15/09 270,000 283,500
8.15%; 08/01/07 60,000 66,300
349,800
FOOD-MISCELLANEOUS/DIVERSIFIED (0.68%)
Cadbury Schweppes US Finance /1/
3.88%; 10/01/08 265,000 262,946
Corn Products International
8.45%; 08/15/09 265,000 297,462
General Mills
6.00%; 02/15/12 240,000 256,588
Kellogg
6.60%; 04/01/11 180,000 201,110
Kraft Foods
4.63%; 11/01/06 325,000 338,745
6.50%; 11/01/31 125,000 128,435
1,485,286
FOOD-RETAIL (1.17%)
Delhaize America
7.38%; 04/15/06 360,000 384,300
Kroger
6.20%; 06/15/12 200,000 213,728
Safeway
3.63%; 11/05/03 1,800,000 1,800,000
5.80%; 08/15/12 35,000 36,273
6.50%; 03/01/11 125,000 136,380
2,570,681
FORESTRY (0.09%)
Tembec Industries
7.75%; 03/15/12 100,000 92,750
8.63%; 06/30/09 100,000 97,500
190,250
GAS-DISTRIBUTION (0.08%)
KeySpan
7.63%; 11/15/10 140,000 166,553
Principal
Amount Value
- ------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
GOLD MINING (0.04%)
Placer Dome
$ $
6.38%; 03/01/33 30,000 29,997
6.45%; 10/15/35 50,000 50,370
80,367
HOME DECORATION PRODUCTS (0.08%)
Newell Rubbermaid
4.00%; 05/01/10 100,000 94,437
4.63%; 12/15/09 85,000 84,946
179,383
HOME EQUITY-SEQUENTIAL (0.57%)
Long Beach Mortgage Loan Trust
4.92%; 05/25/32 311,088 313,338
Residential Asset Securities
3.28%; 08/25/29 550,000 550,690
4.59%; 10/25/26 380,000 390,357
1,254,385
HOTELS & MOTELS (0.23%)
Marriott International
6.63%; 11/15/03 500,000 500,604
INDUSTRIAL GASES (0.19%)
Praxair
4.75%; 07/15/07 235,000 246,775
6.50%; 03/01/08 150,000 167,089
413,864
INSTRUMENTS-CONTROLS (0.05%)
Parker Hannifin
4.88%; 02/15/13 115,000 113,717
INSTRUMENTS-SCIENTIFIC (0.12%)
PerkinElmer
8.88%; 01/15/13 250,000 273,750
INVESTMENT MANAGEMENT & ADVISORY SERVICES (0.09%)
AMVESCAP
5.38%; 02/27/13 75,000 72,552
5.90%; 01/15/07 110,000 118,515
191,067
LIFE & HEALTH INSURANCE (0.24%)
Lincoln National
5.25%; 06/15/07 180,000 190,765
Nationwide Financial Services
5.63%; 02/13/15 60,000 60,646
Protective Life
4.30%; 06/01/13 285,000 267,955
519,366
LOTTERY SERVICES (0.16%)
GTECH Holdings /1/
4.75%; 10/15/10 350,000 351,669
MACHINERY-CONSTRUCTION & MINING (0.15%)
Case
6.25%; 12/01/03 335,000 335,000
Principal
Amount Value
- ------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
MEDICAL-DRUGS (0.10%)
Wyeth
$ $
5.25%; 03/15/13 225,000 228,309
MEDICAL-HMO (0.24%)
Anthem
4.88%; 08/01/05 500,000 520,084
MEDICAL-HOSPITALS (0.21%)
HCA
7.13%; 06/01/06 225,000 240,988
Tenet Healthcare
5.00%; 07/01/07 240,000 223,200
464,188
METAL PROCESSORS & FABRICATION (0.12%)
Timken
5.75%; 02/15/10 275,000 268,344
METAL-DIVERSIFIED (0.39%)
Falconbridge
5.38%; 06/01/15 115,000 110,439
7.35%; 06/05/12 65,000 73,178
Noranda
7.25%; 07/15/12 240,000 268,146
Rio Tinto Finance
5.75%; 07/03/06 380,000 409,775
861,538
MISCELLANEOUS INVESTING (0.34%)
Centerpoint Properties Trust
4.75%; 08/01/10 225,000 225,168
Duke Realty
4.63%; 05/15/13 275,000 262,345
United Dominion Realty Trust
6.50%; 06/15/09 240,000 264,047
751,560
MONEY CENTER BANKS (0.69%)
Bank of America
4.88%; 09/15/12 1,085,000 1,082,520
7.40%; 01/15/11 55,000 64,196
HBOS /1/
6.00%; 11/01/33 225,000 221,765
United Overseas Bank /1/
4.50%; 07/02/13 150,000 142,644
1,511,125
MORTGAGE BACKED SECURITIES (3.94%)
Chase Manhattan Bank-First Union National Bank Commercial
Mortgage Trust
7.44%; 08/15/31 1,750,000 2,022,599
CS First Boston Mortgage Securities
6.39%; 10/15/11 750,000 830,295
GMAC Commercial Mortgage Securities
7.72%; 03/15/33 2,000,000 2,345,286
LB-UBS Commercial Mortgage Trust /1/ /2/
0.63%; 03/15/34 3,257,726 91,902
Merrill Lynch Mortgage Investors
7.34%; 12/26/25 3,000,000 3,210,389
Principal
Amount Value
- ------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
MORTGAGE BACKED SECURITIES (CONTINUED)
Morgan Stanley Capital I
$ $
7.11%; 04/15/33 100,000 114,210
8,614,681
MULTI-LINE INSURANCE (0.60%)
Allstate
5.35%; 06/01/33 145,000 132,251
Hartford Financial Services Group
2.38%; 06/01/06 250,000 247,306
4.63%; 07/15/13 70,000 66,737
4.70%; 09/01/07 170,000 177,991
MetLife
5.25%; 12/01/06 325,000 350,431
5.38%; 12/15/12 135,000 138,673
Safeco
4.88%; 02/01/10 190,000 194,513
1,307,902
MULTIMEDIA (1.02%)
AOL Time Warner
7.63%; 04/15/31 785,000 877,172
Gannett
4.95%; 04/01/05 475,000 495,092
News America
4.75%; 03/15/10 90,000 91,528
6.55%; 03/15/33 225,000 229,834
6.63%; 01/09/08 250,000 277,575
Viacom
7.88%; 07/30/30 60,000 72,830
Walt Disney
5.38%; 06/01/07 175,000 186,899
2,230,930
NON-HAZARDOUS WASTE DISPOSAL (0.16%)
Allied Waste
8.50%; 12/01/08 325,000 358,313
NON-HOTEL GAMBLING (0.13%)
Mohegan Tribal Gaming Authority /1/
6.38%; 07/15/09 280,000 286,650
OIL & GAS DRILLING (0.49%)
Nabors Holdings
4.88%; 08/15/09 270,000 281,502
Nabors Industries
6.80%; 04/15/04 335,000 343,029
Pride International
9.38%; 05/01/07 275,000 283,937
Transocean
6.63%; 04/15/11 150,000 166,041
1,074,509
OIL COMPANY-EXPLORATION & PRODUCTION (1.94%)
Alberta Energy
7.38%; 11/01/31 55,000 64,150
Anadarko Finance
6.75%; 05/01/11 275,000 309,237
Anadarko Petroleum
5.38%; 03/01/07 325,000 348,163
Principal
Amount Value
- ------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
OIL COMPANY-EXPLORATION & PRODUCTION (CONTINUED)
Canadian Natural Resources
$ $
7.20%; 01/15/32 145,000 165,357
Chesapeake Energy
8.38%; 11/01/08 345,000 377,775
Devon Energy
7.95%; 04/15/32 255,000 304,920
Forest Oil
8.00%; 06/15/08 270,000 288,900
Kerr-McGee
5.88%; 09/15/06 510,000 546,923
Nexen
7.88%; 03/15/32 125,000 147,209
Pemex Project Funding Master Trust
7.88%; 02/01/09 700,000 784,000
Petroleos Mexicanos
6.50%; 02/01/05 600,000 627,000
XTO Energy
6.25%; 04/15/13 50,000 52,188
7.50%; 04/15/12 205,000 229,600
4,245,422
OIL COMPANY-INTEGRATED (0.54%)
Amerada Hess
7.88%; 10/01/29 70,000 74,476
Conoco Funding
7.25%; 10/15/31 175,000 202,089
Occidental Petroleum
4.00%; 11/30/07 175,000 176,721
PanCanadian Energy
7.20%; 11/01/31 200,000 228,024
Petro-Canada
5.35%; 07/15/33 135,000 119,250
Petrobras International Finance
9.13%; 02/01/07 225,000 247,500
Petronas Capital /1/
7.88%; 05/22/22 125,000 141,754
1,189,814
OIL FIELD MACHINERY & EQUIPMENT (0.17%)
Grant Prideco
9.00%; 12/15/09 345,000 372,600
OIL REFINING & MARKETING (0.32%)
Enterprise Products Partners
6.38%; 02/01/13 110,000 119,124
Tesoro Petroleum
8.00%; 04/15/08 310,000 328,600
Valero Energy
6.88%; 04/15/12 225,000 247,140
694,864
OPTICAL SUPPLIES (0.08%)
Bausch & Lomb
6.75%; 12/15/04 165,000 170,775
PAPER & RELATED PRODUCTS (0.97%)
Abitibi-Consolidated
6.95%; 12/15/06 225,000 231,954
Principal
Amount Value
- ------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
PAPER & RELATED PRODUCTS (CONTINUED)
Cascades
$ $
7.25%; 02/15/13 335,000 350,075
International Paper
5.85%; 10/30/12 55,000 57,140
6.75%; 09/01/11 50,000 55,224
Norske Skog /1/
7.63%; 10/15/11 500,000 559,060
Sappi Papier Holding /1/
6.75%; 06/15/12 140,000 150,860
Smurfit Capital Funding
6.75%; 11/20/05 330,000 338,250
Weyerhaeuser
6.13%; 03/15/07 275,000 297,388
7.38%; 03/15/32 75,000 80,741
2,120,692
PHARMACY SERVICES (0.29%)
Express Scripts
9.63%; 06/15/09 285,000 307,087
Omnicare
8.13%; 03/15/11 295,000 323,025
630,112
PIPELINES (0.92%)
Buckeye Partners
4.63%; 07/15/13 275,000 263,461
Duke Energy Field Services
7.88%; 08/16/10 485,000 566,698
Enbridge Energy Partners
4.75%; 06/01/13 225,000 215,452
Equitable Resources
5.15%; 11/15/12 130,000 133,291
Kinder Morgan Energy Partners
5.35%; 08/15/07 170,000 181,254
6.75%; 03/15/11 160,000 180,094
National Fuel Gas
5.25%; 03/01/13 175,000 173,041
TEPPCO Partners
6.13%; 02/01/13 45,000 47,378
Texas Eastern Transmission
5.25%; 07/15/07 245,000 259,233
2,019,902
POULTRY (0.44%)
Tyson Foods
6.63%; 10/01/04 785,000 814,425
7.25%; 10/01/06 130,000 143,573
957,998
PROPERTY & CASUALTY INSURANCE (0.27%)
ACE INA Holdings
8.20%; 08/15/04 225,000 235,865
Travelers Property Casualty
6.38%; 03/15/33 100,000 103,866
XL Capital
6.50%; 01/15/12 225,000 245,384
585,115
Principal
Amount Value
- ------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
PUBLISHING-BOOKS (0.17%)
Reed Elsevier Capital
$ $
6.13%; 08/01/06 350,000 381,662
REAL ESTATE OPERATOR & DEVELOPER (0.18%)
EOP Operating
7.00%; 07/15/11 350,000 394,018
REGIONAL AUTHORITY (0.29%)
Province of Manitoba
2.75%; 01/17/06 300,000 301,987
Province of Quebec
7.50%; 09/15/29 275,000 338,271
640,258
REGIONAL BANKS (1.95%)
Bank One
7.63%; 08/01/05 725,000 793,323
KeyCorp
4.63%; 05/16/05 475,000 494,782
8.00%; 07/01/04 225,000 234,269
Korea Development Bank
7.13%; 04/22/04 500,000 512,498
PNC Funding
5.75%; 08/01/06 650,000 699,028
Wachovia
5.63%; 12/15/08 600,000 647,696
6.38%; 02/01/09 100,000 111,191
Wells Fargo
3.12%; 08/15/08 200,000 196,033
5.00%; 11/15/14 80,000 79,455
5.13%; 02/15/07 470,000 501,119
4,269,394
REINSURANCE (0.16%)
Berkshire Hathaway /1/
4.63%; 10/15/13 350,000 343,332
RESEARCH & DEVELOPMENT (0.12%)
Science Applications International
7.13%; 07/01/32 240,000 262,911
RETAIL-MAJOR DEPARTMENT STORE (0.13%)
JC Penney
9.75%; 06/15/21 265,000 275,600
RETAIL-REGIONAL DEPARTMENT STORE (0.04%)
Kohls
6.00%; 01/15/33 80,000 79,992
RETAIL-RESTAURANTS (0.16%)
Yum! Brands
7.70%; 07/01/12 310,000 349,525
SAVINGS & LOANS-THRIFTS (0.29%)
Washington Mutual
3.97%; 03/25/33 528,000 526,774
5.50%; 01/15/13 100,000 102,367
629,141
Principal
Amount Value
- ------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
SOVEREIGN (0.87%)
Chile Government
$ $
5.50%; 01/15/13 80,000 81,864
Mexico Government
8.00%; 09/24/22 175,000 190,312
8.30%; 08/15/31 260,000 288,860
8.38%; 01/14/11 990,000 1,161,765
Poland Government
6.25%; 07/03/12 175,000 188,563
1,911,364
SPECIAL PURPOSE ENTITY (0.16%)
Fondo Latinoamericano de Reservas /1/
3.00%; 08/01/06 270,000 268,181
PDVSA Finance
8.50%; 11/16/12 100,000 89,000
357,181
SUPRANATIONAL BANK (0.21%)
Corp Andina de Fomento
6.75%; 03/15/05 190,000 200,207
6.88%; 03/15/12 230,000 253,052
453,259
TELECOMMUNICATION SERVICES (0.27%)
Citizens Communications
7.63%; 08/15/08 250,000 286,963
MasTec
7.75%; 02/01/08 315,000 315,000
601,963
TELEPHONE COMMUNICATION (0.10%)
Telstra
6.38%; 04/01/12 190,000 209,095
TELEPHONE-INTEGRATED (2.38%)
ALLTEL
7.00%; 07/01/12 275,000 312,822
7.88%; 07/01/32 60,000 72,640
AT&T
6.00%; 03/15/09 130,000 138,450
BellSouth
6.88%; 10/15/31 125,000 136,751
British Telecommunications
7.88%; 12/15/05 940,000 1,040,809
Deutsche Telekom International Finance
5.25%; 07/22/13 580,000 576,425
France Telecom
9.00%; 03/01/11 505,000 609,242
SBC Communications
5.88%; 08/15/12 200,000 211,551
Sprint Capital
6.13%; 11/15/08 100,000 105,322
6.88%; 11/15/28 100,000 94,107
6.90%; 05/01/19 100,000 99,109
8.75%; 03/15/32 230,000 261,605
Telecom Italia Capital /1/
4.00%; 11/15/08 220,000 219,730
5.25%; 11/15/13 200,000 198,444
6.38%; 11/15/33 130,000 128,795
Principal
Amount Value
- ------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
TELEPHONE-INTEGRATED (CONTINUED)
Telefonica Europe
$ $
7.75%; 09/15/10 400,000 472,045
Telefonos de Mexico
8.25%; 01/26/06 385,000 425,906
Verizon Florida
6.13%; 01/15/13 90,000 95,334
5,199,087
TEXTILE-HOME FURNISHINGS (0.07%)
Mohawk Industries
6.50%; 04/15/07 145,000 159,697
TOOLS-HAND HELD (0.06%)
Stanley Works
4.90%; 11/01/12 140,000 140,201
TRANSPORT-MARINE (0.13%)
Stena
9.63%; 12/01/12 260,000 283,400
TRANSPORT-RAIL (0.79%)
Burlington Northern Santa Fe
7.95%; 08/15/30 110,000 134,146
Canadian Pacific Railway
7.13%; 10/15/31 225,000 255,909
CSX
6.25%; 10/15/08 400,000 439,063
Union Pacific
4.70%; 01/02/24 100,000 97,720
5.75%; 10/15/07 690,000 740,511
6.63%; 02/01/29 50,000 53,153
1,720,502
TRANSPORT-SERVICES (0.26%)
FedEx
8.40%; 03/23/10 500,000 571,125
VENTURE CAPITAL (0.13%)
Arch Western Finance /1/
6.75%; 07/01/13 280,000 289,800
TOTAL BONDS 124,843,522
Principal
Type Rate Maturity Amount Value
- ------------------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) CERTIFICATES (16.21%)
$ $
FHLMC /3/ 4.50% 12/01/09 - 11/01/33 4,437,093 4,455,351
FHLMC /3/ 5.00% 01/01/18 - 08/01/33 13,319,648 13,328,552
FHLMC 5.50% 05/01/17 - 04/01/33 4,989,759 5,080,604
FHLMC 6.00% 03/01/22 - 11/01/32 5,448,603 5,600,428
FHLMC 6.50% 03/01/17 - 07/01/31 3,977,459 4,158,319
FHLMC 7.00% 12/01/29 - 05/01/31 1,336,229 1,406,034
FHLMC 7.50% 11/01/29 - 03/01/31 796,334 850,448
FHLMC 8.00% 09/01/30 559,252 602,012
TOTAL FHLMC CERTIFICATES 35,481,748
Principal
Type Rate Maturity Amount Value
- ------------------------------------------------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) CERTIFICATES (14.75%)
$ $
FNMA 4.50% 05/01/33 - 08/01/33 3,961,507 3,778,165
FNMA 5.00% 03/01/18 - 06/01/18 4,421,030 4,493,920
FNMA /3/ 5.50% 07/01/33 - 11/01/33 13,958,980 14,088,003
FNMA 6.00% 05/01/09 - 05/01/32 2,261,951 2,364,012
FNMA 6.50% 01/01/11 - 09/01/32 6,059,797 6,339,437
FNMA 7.00% 08/01/29 - 02/01/32 1,163,409 1,225,017
TOTAL FNMA CERTIFICATES 32,288,554
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) CERTIFICATES (5.39%)
GNMA I 6.50% 12/15/31 - 12/15/32 5,771,334 6,043,367
GNMA I 7.00% 10/15/29 - 06/15/32 1,628,092 1,725,222
GNMA I 7.50% 10/15/31 542,596 579,668
GNMA II 6.00% 07/20/28 - 07/20/29 2,946,705 3,038,644
GNMA II 6.50% 03/20/28 - 05/20/29 392,388 410,015
TOTAL GNMA CERTIFICATES 11,796,916
Principal
Amount Value
- ------------------------------------------------------------------------------------------------------------------------
TREASURY BONDS (8.22%)
U.S. Treasury 10,000,000
$ $
3.50%; 11/15/06 170,000 175,459
4.25%; 08/15/13 2,750,000 2,738,830
4.88%; 02/15/12 1,490,000 1,571,834
5.38%; 02/15/31 2,055,000 2,123,633
6.13%; 08/15/29 25,000 28,067
6.25%; 08/15/23 2,300,000 2,595,766
6.25%; 05/15/30 1,310,000 1,497,851
6.75%; 08/15/26 1,000,000 1,200,078
7.50%; 11/15/16 2,870,000 3,629,766
8.00%; 11/15/21 760,000 1,018,548
U.S. Treasury Inflation-Indexed Obligations 10,000,000
3.38%; 01/15/07 1,281,500 1,397,486
TOTAL TREASURY BONDS 17,977,318
Shares
Held Value
- ------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (0.00%)
COMPUTER SERVICES (0.00%)
$
Decisionone /4/ 3,500 -
Decisionone /4/ 2,054 -
Decisionone /4/ 3,540 -
Shares
Held Value
- ------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
COMPUTER SERVICES (CONTINUED)
$
Decisionone /4/ 2,100 -
TOTAL COMMON STOCKS -
Principal
Amount Value
- ------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (4.44%)
DIVERSIFIED FINANCIAL SERVICES (4.44%)
Investment in Joint Trading Account; General Electric
Capital
$ $
1.04%; 11/03/03 9,707,322 9,707,322
TOTAL COMMERCIAL PAPER 9,707,322
Principal Amount
Value
- ------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (0.53%)
Lehman Brothers; 1.04%, 11/03/03 (collateralized by
FHLBC; $1,185,311; 02/06/09) /5/ 1,162,070 1,162,070
TOTAL REPURCHASE AGREEMENTS 1,162,070
------------
TOTAL PORTFOLIO INVESTMENTS (106.58%) 233,257,450
LIABILITIES, NET OF CASH, RECEIVABLES AND OTHER ASSETS (-6.58%) (14,403,316)
TOTAL NET ASSETS (100.00%) $218,854,134
---------------
/1 /Restricted Security - The fund held securities which may require
registration under the Securities Act of 1933, or an exemption therefrom, in
order to effect their sale in the ordinary course of business. At the end of
the period, restricted securities totaled $6,904,603 or 3.15% of net assets.
/2 /Variable rate.
/3 /Security or a portion of the security was purchased in a "to-be-announced"
("TBA") transaction. See Notes to Financial Statements.
/4 /Non-income producing security.
/5 /Security was purchased with the cash proceeds from securities loans.
See accompanying notes.
181
SCHEDULE OF INVESTMENTS
PRINCIPAL GOVERNMENT SECURITIES INCOME FUND, INC.
OCTOBER 31, 2003
Principal
Type Rate Maturity Amount Value
- -------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) CERTIFICATES (95.48%)
$ $
GNMA I 5.00% 04/15/33 - 08/15/33 45,055,647 44,577,433
GNMA I 5.50% 12/15/13 - 05/15/33 51,411,005 52,161,728
GNMA I 6.00% 03/15/17 - 02/15/33 55,399,027 57,350,500
GNMA I 6.50% 07/15/08 - 09/15/32 41,228,959 43,269,669
GNMA I 7.00% 10/15/22 - 06/15/32 34,128,166 36,237,803
GNMA I 7.25% 09/15/25 - 10/15/25 647,477 692,235
GNMA I 7.50% 04/15/17 - 05/15/31 14,056,830 15,060,591
GNMA I 8.00% 08/15/16 - 04/15/31 5,488,936 5,950,086
GNMA II 3.50% 10/20/30 10,123,735 10,089,839
GNMA II 5.50% 07/20/14 - 09/20/33 66,626,066 66,896,342
GNMA II 6.00% 01/20/24 - 03/20/32 6,075,931 6,276,333
GNMA II 6.50% 03/20/24 - 08/20/33 11,127,635 11,627,924
TOTAL GNMA CERTIFICATES 350,190,483
Principal
Amount Value
- -------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (4.19%)
FINANCE-MORTGAGE LOAN/BANKER (4.19%)
Investment in Joint Trading Account; Federal
Home Loan Bank
$ $
0.94%; 11/03/03 15,348,243 15,347,442
TOTAL COMMERCIAL PAPER 15,347,442
------------
TOTAL PORTFOLIO INVESTMENTS (99.67%) 365,537,925
CASH, RECEIVABLES AND OTHER ASSETS, NET OF
LIABILITIES (0.33%) 1,226,337
TOTAL NET ASSETS (100.00%) $366,764,262
--------------
182
See accompanying notes.
SCHEDULE OF INVESTMENTS
PRINCIPAL LIMITED TERM BOND FUND, INC.
OCTOBER 31, 2003
Principal
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
BONDS (91.14%)
AEROSPACE & DEFENSE (0.23%)
Raytheon
$ $
5.70%; 11/01/03 60,000 60,000
6.30%; 03/15/05 190,000 199,823
259,823
AEROSPACE & DEFENSE EQUIPMENT (0.29%)
General Dynamics
3.00%; 05/15/08 115,000 112,046
Lockheed Martin
7.45%; 06/15/04 115,000 118,634
United Technologies
4.88%; 11/01/06 100,000 106,194
336,874
AIRLINES (0.12%)
Southwest Airlines
5.50%; 11/01/06 125,000 134,579
AUTO-CARS & LIGHT TRUCKS (0.53%)
DaimlerChrysler Holding
6.90%; 09/01/04 590,000 611,598
AUTOMOBILE SEQUENTIAL (6.85%)
Capital Auto Receivables Asset Trust
3.58%; 10/16/06 425,000 436,077
3.82%; 07/15/05 407,985 412,142
4.16%; 07/16/07 800,000 823,895
Chase Manhattan Auto Owner Trust
4.21%; 01/15/09 1,000,000 1,036,544
DaimlerChrysler Auto Trust
3.09%; 01/08/08 100,000 101,484
6.70%; 03/08/06 500,000 512,805
6.85%; 11/06/05 534,794 546,753
7.63%; 06/08/05 355,541 361,345
Ford Credit Auto Owner Trust
2.70%; 06/15/07 125,000 125,915
4.01%; 03/15/06 720,000 735,433
4.72%; 12/15/05 935,000 959,405
Honda Auto Receivables Owner Trust
2.70%; 03/17/08 200,000 201,066
M&I Auto Loan Trust
3.04%; 10/20/08 500,000 507,058
Nissan Auto Receivables Owner Trust
1.89%; 12/15/06 150,000 150,353
3.33%; 01/15/08 200,000 204,034
Toyota Auto Receivables Owner Trust
4.72%; 09/15/08 700,000 719,735
7,834,044
BEVERAGES-NON-ALCOHOLIC (0.14%)
Coca-Cola Enterprises
5.25%; 05/15/07 150,000 161,290
BEVERAGES-WINE & SPIRITS (0.19%)
Diageo
7.13%; 09/15/04 115,000 120,531
Diageo Capital
3.38%; 03/20/08 100,000 99,181
219,712
Principal
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS (0.11%)
Masco
$ $
6.00%; 05/03/04 120,000 122,486
CABLE TV (0.29%)
Comcast Cable Communications
8.13%; 05/01/04 195,000 200,840
Cox Communications
6.88%; 06/15/05 120,000 128,885
329,725
CASINO SERVICES (0.07%)
International Game Technology
7.88%; 05/15/04 80,000 82,438
CELLULAR TELECOMMUNICATIONS (0.83%)
360 Communications
7.50%; 03/01/06 140,000 155,199
AT&T Wireless Services
7.35%; 03/01/06 180,000 197,495
Cingular Wireless
5.63%; 12/15/06 125,000 134,791
Verizon Wireless Capital
5.38%; 12/15/06 325,000 347,095
Vodafone Group
7.63%; 02/15/05 105,000 112,662
947,242
CHEMICALS-DIVERSIFIED (0.28%)
Chevron Phillips Chemical
5.38%; 06/15/07 110,000 116,807
E. I. Du Pont de Nemours
3.38%; 11/15/07 100,000 100,430
8.13%; 03/15/04 100,000 102,452
319,689
COATINGS & PAINT (0.07%)
Valspar
6.00%; 05/01/07 75,000 80,472
COMMERCIAL BANKS (0.30%)
AmSouth Bank
2.82%; 11/03/06 115,000 114,803
Marshall & Isley Bank
4.13%; 09/04/07 100,000 103,921
Union Planters Bank
5.13%; 06/15/07 120,000 126,995
345,719
COMMERCIAL SERVICE-FINANCE (0.06%)
Equifax
4.95%; 11/01/07 65,000 67,376
COMPUTER SERVICES (0.07%)
Electronic Data Systems
6.85%; 10/15/04 80,000 82,800
COMPUTERS (0.25%)
Hewlett-Packard
5.50%; 07/01/07 185,000 199,236
Principal
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
COMPUTERS (CONTINUED)
International Business Machines
$ $
4.25%; 09/15/09 85,000 86,497
285,733
COSMETICS & TOILETRIES (0.19%)
Gillette
2.50%; 06/01/08 55,000 53,146
4.00%; 06/30/05 80,000 82,898
Procter & Gamble
4.75%; 06/15/07 75,000 79,245
215,289
CREDIT CARD ASSET BACKED SECURITIES (7.41%)
American Express Credit Account Master Trust
5.60%; 11/15/06 700,000 713,801
American Express Master Trust
7.85%; 08/15/05 830,000 876,486
Bank One Issuance Trust
2.94%; 06/16/08 1,350,000 1,369,624
3.35%; 03/15/11 200,000 197,995
Capital One Master Trust
5.30%; 06/15/09 700,000 745,334
5.45%; 03/16/09 750,000 794,938
Chase Credit Card Master Trust
5.50%; 11/17/08 100,000 107,652
Citibank Credit Card Issuance Trust
2.70%; 01/15/08 300,000 302,239
6.90%; 10/15/07 750,000 816,953
Discover Card Master Trust I
5.60%; 05/16/06 250,000 250,412
6.05%; 08/18/08 710,000 766,995
MBNA Master Credit Card Trust
6.35%; 12/15/06 750,000 776,309
6.90%; 01/15/08 700,000 759,362
8,478,100
CREDIT CARD CONTROL AMORTIZATION (0.05%)
Sears Credit Account Master Trust
7.25%; 11/15/07 57,083 57,214
DATA PROCESSING & MANAGEMENT (0.09%)
First Data
3.38%; 08/01/08 105,000 103,656
DIVERSIFIED FINANCIAL SERVICES (2.26%)
Citigroup
6.75%; 12/01/05 1,240,000 1,351,165
General Electric Capital
4.25%; 01/15/08 450,000 463,345
5.00%; 06/15/07 110,000 116,617
John Deere Capital
4.50%; 08/22/07 95,000 98,899
NiSource Finance
3.20%; 11/01/06 85,000 85,095
7.50%; 11/15/03 390,000 390,631
Textron Financial
5.88%; 06/01/07 75,000 80,794
2,586,546
Principal
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
DIVERSIFIED MANUFACTURING OPERATIONS (0.07%)
Cooper Industries
$ $
5.25%; 07/01/07 80,000 85,188
ELECTRIC-DISTRIBUTION (0.07%)
Detroit Edison
5.05%; 10/01/05 75,000 78,875
ELECTRIC-INTEGRATED (1.94%)
Appalachian Power
4.80%; 06/15/05 140,000 145,301
Commonwealth Edison
6.40%; 10/15/05 215,000 231,050
Conectiv
5.30%; 06/01/05 45,000 46,386
Consolidated Edison
3.63%; 08/01/08 110,000 109,120
Dominion Resources
3.88%; 01/15/04 115,000 115,514
7.82%; 09/15/14 200,000 210,596
Duke Energy
3.75%; 03/05/08 85,000 84,962
Energy East
7.75%; 11/15/34 100,000 100,159
FirstEnergy
5.50%; 11/15/06 95,000 99,832
FPL Group Capital
3.25%; 04/11/06 125,000 126,463
MidAmerican Energy Holdings
4.63%; 10/01/07 90,000 92,057
Niagara Mohawk Power
7.75%; 05/15/06 110,000 123,753
Oncor Electric Delivery
5.00%; 09/01/07 95,000 99,866
Pepco Holdings
5.50%; 08/15/07 105,000 111,096
Progress Energy
6.75%; 03/01/06 210,000 228,523
Public Service Company of Colorado
4.38%; 10/01/08 105,000 107,721
Tennessee Valley Authority
6.38%; 06/15/05 175,000 187,572
2,219,971
ELECTRONIC COMPONENTS-MISCELLANEOUS (0.10%)
Koninklijke Philips Electronics
7.75%; 04/15/04 110,000 112,684
ENTERPRISE SOFTWARE & SERVICE (0.13%)
Oracle
6.72%; 02/15/04 150,000 152,251
FEDERAL & FEDERALLY SPONSORED CREDIT (2.17%)
Federal Farm Credit Bank
7.25%; 06/12/07 2,000,000 2,296,554
Student Loan Marketing Association
5.00%; 06/30/04 180,000 184,687
2,481,241
Principal
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
FIDUCIARY BANKS (0.15%)
Bank of New York
$ $
4.14%; 08/02/07 100,000 102,303
5.20%; 07/01/07 70,000 74,842
177,145
FINANCE-AUTO LOANS (2.31%)
Ford Motor Credit
5.75%; 02/23/04 1,540,000 1,558,546
General Motors Acceptance
5.13%; 05/09/08 135,000 137,115
6.13%; 08/28/07 160,000 168,551
6.75%; 01/15/06 630,000 671,708
Toyota Motor Credit
2.80%; 01/18/06 100,000 101,552
2,637,472
FINANCE-COMMERCIAL (1.12%)
CIT Group
7.38%; 04/02/07 470,000 530,155
Heller Financial
6.00%; 03/19/04 645,000 656,382
Tyco Capital
7.50%; 11/14/03 95,000 95,152
1,281,689
FINANCE-CONSUMER LOANS (1.61%)
American General Finance
5.88%; 07/14/06 495,000 534,550
Household Finance
3.38%; 02/21/06 210,000 214,314
6.50%; 01/24/06 545,000 593,034
Sears Roebuck Acceptance
6.56%; 11/20/03 55,000 55,133
SLM
3.63%; 03/17/08 85,000 84,958
5.63%; 04/10/07 105,000 113,219
Washington Mutual Financial
6.50%; 11/15/03 250,000 250,368
1,845,576
FINANCE-CREDIT CARD (0.23%)
American Express
3.75%; 11/20/07 100,000 101,339
Capital One Bank
6.65%; 03/15/04 155,000 157,660
258,999
FINANCE-INVESTMENT BANKER & BROKER (2.47%)
Banque Paribas
8.35%; 06/15/07 140,000 162,337
Bear Stearns
3.00%; 03/30/06 130,000 131,658
6.50%; 05/01/06 315,000 344,105
Credit Suisse First Boston
5.75%; 04/15/07 365,000 395,374
Goldman Sachs Group
7.63%; 08/17/05 175,000 192,066
Lehman Brothers Holdings
6.25%; 05/15/06 505,000 550,149
Principal
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
FINANCE-INVESTMENT BANKER & BROKER (CONTINUED)
Merrill Lynch
$ $
6.00%; 11/15/04 400,000 418,084
Morgan Stanley
7.75%; 06/15/05 575,000 627,272
2,821,045
FINANCE-LEASING COMPANY (0.26%)
Boeing Capital
7.10%; 09/27/05 275,000 299,180
FINANCE-MORTGAGE LOAN/BANKER (25.82%)
Countrywide Home Loan
6.85%; 06/15/04 345,000 356,137
Federal Home Loan Bank System
4.88%; 11/15/06 5,200,000 5,516,311
Federal Home Loan Mortgage
5.25%; 01/15/06 5,225,000 5,560,941
5.75%; 04/15/08 5,900,000 6,479,521
Federal National Mortgage Association
5.25%; 04/15/07 4,750,000 5,107,561
7.00%; 07/15/05 6,000,000 6,508,596
29,529,067
FINANCE-OTHER SERVICES (0.92%)
Caterpillar Financial Services
4.69%; 04/25/05 80,000 83,628
7.59%; 12/10/03 175,000 176,096
Mellon Funding
4.88%; 06/15/07 70,000 74,312
5.75%; 11/15/03 50,000 50,063
National Rural Utilities
6.00%; 01/15/04 245,000 247,271
Pemex Finance
6.13%; 11/15/03 29,590 29,725
Verizon Global Funding
6.75%; 12/01/05 355,000 386,495
1,047,590
FOOD-MISCELLANEOUS/DIVERSIFIED (0.97%)
Campbell Soup
5.50%; 03/15/07 265,000 286,570
General Mills
5.13%; 02/15/07 85,000 90,510
HJ Heinz /1/
6.56%; 11/15/03 100,000 100,122
Kellogg
6.00%; 04/01/06 165,000 177,700
Kraft Foods
4.63%; 11/01/06 220,000 229,304
Sara Lee
2.75%; 06/15/08 60,000 57,782
Unilever Capital
6.88%; 11/01/05 155,000 169,222
1,111,210
FOOD-RETAIL (0.64%)
Fred Meyer
7.38%; 03/01/05 190,000 202,942
Principal
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
FOOD-RETAIL (CONTINUED)
Safeway
$ $
2.50%; 11/01/05 105,000 103,709
6.05%; 11/15/03 430,000 430,385
737,036
HOME EQUITY-SEQUENTIAL (0.64%)
Ameriquest Mortgage Securities
3.02%; 10/25/33 75,000 74,244
Residential Asset Securities
4.99%; 02/25/27 650,000 656,708
730,952
INDUSTRIAL GASES (0.11%)
Praxair
4.75%; 07/15/07 115,000 120,762
INSURANCE BROKERS (0.14%)
Aon
6.30%; 01/15/04 65,000 65,592
Marsh & McLennan
3.63%; 02/15/08 95,000 95,141
160,733
INVESTMENT MANAGEMENT & ADVISORY SERVICES (0.10%)
AMVESCAP
6.60%; 05/15/05 105,000 111,689
LIFE & HEALTH INSURANCE (0.26%)
Lincoln National
5.25%; 06/15/07 110,000 116,579
Torchmark
6.25%; 12/15/06 160,000 176,062
292,641
MEDICAL PRODUCTS (0.07%)
Baxter International
5.25%; 05/01/07 80,000 85,511
MEDICAL-DRUGS (0.19%)
Eli Lilly
5.50%; 07/15/06 95,000 102,128
Wyeth
7.90%; 02/15/05 105,000 112,845
214,973
MEDICAL-HMO (0.10%)
Anthem
4.88%; 08/01/05 115,000 119,619
METAL-ALUMINUM (0.27%)
Alcan
6.25%; 11/01/08 95,000 105,481
Alcoa
4.25%; 08/15/07 50,000 51,972
7.25%; 08/01/05 135,000 147,227
304,680
METAL-DIVERSIFIED (0.09%)
Rio Tinto Finance
2.63%; 09/30/08 110,000 104,754
Principal
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
MISCELLANEOUS INVESTING (0.64%)
Archstone-Smith Operating Trust
$ $
3.00%; 06/15/08 100,000 95,983
Camden Property Trust
5.88%; 06/01/07 70,000 75,177
CarrAmerica Realty
7.20%; 07/01/04 30,000 31,062
Mack-Cali Realty
7.00%; 03/15/04 120,000 122,348
New Plan Excel Realty Trust
5.88%; 06/15/07 125,000 134,582
Oasis Residential
7.00%; 11/15/03 95,000 95,154
Regency Centers
7.40%; 04/01/04 105,000 107,570
Simon Property Group
6.75%; 02/09/04 70,000 70,949
732,825
MONEY CENTER BANKS (1.12%)
Bank of America
4.75%; 10/15/06 640,000 675,009
JP Morgan Chase
5.25%; 05/30/07 385,000 411,146
5.35%; 03/01/07 180,000 193,240
1,279,395
MORTGAGE BACKED SECURITIES (9.81%)
Bear Stearns Commercial Mortgage Securities
3.97%; 11/11/35 438,804 440,121
6.08%; 02/15/35 457,502 493,163
7.64%; 02/15/32 814,919 899,789
Chase Commercial Mortgage Securities
7.03%; 01/15/32 361,511 397,067
7.56%; 10/15/32 500,000 581,136
Chase Manhattan Bank-First Union National Bank Commercial
Mortgage Trust
7.13%; 08/15/31 328,960 359,960
Commercial Mortgage Acceptance
6.79%; 06/15/31 76,016 82,662
Commercial Mortgage Pass-Through Certificate /1/
3.25%; 06/10/38 98,497 94,598
CS First Boston Mortgage Securities
4.39%; 07/15/06 290,900 299,623
6.25%; 12/16/35 400,000 437,921
6.38%; 12/16/35 100,000 110,185
DLJ Commercial Mortgage
6.14%; 10/15/06 277,393 289,757
DLJ Mortgage Acceptance /1/
7.58%; 03/13/28 48,336 48,444
First Union Commercial Mortgage Securities
7.38%; 04/18/29 600,000 673,819
GE Capital Commercial Mortgage
3.35%; 08/11/36 340,407 346,196
5.99%; 12/10/35 130,000 141,569
Principal
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
MORTGAGE BACKED SECURITIES (CONTINUED)
GMAC Commercial Mortgage Securities
$ $
4.32%; 10/15/38 137,075 141,994
6.57%; 09/15/33 309,826 332,822
JP Morgan Chase Commercial Mortgage Securities
4.37%; 10/12/37 482,053 489,372
4.55%; 05/12/34 529,209 549,642
JP Morgan Commercial Mortgage Finance
7.07%; 09/15/29 356,045 373,280
LB-UBS Commercial Mortgage Trust
4.90%; 06/15/26 985,000 1,034,522
5.40%; 03/15/26 452,349 477,122
Lehman Large Loan
6.79%; 06/12/04 552,969 566,925
Merrill Lynch Mortgage Investors
7.12%; 06/18/29 450,247 489,899
Morgan Stanley Capital I
4.57%; 12/18/32 923,416 957,401
NationsLink Funding
7.23%; 06/20/31 100,000 113,792
11,222,781
MULTI-LINE INSURANCE (0.18%)
Allstate
7.88%; 05/01/05 90,000 97,843
Hartford Financial Services Group
4.70%; 09/01/07 105,000 109,936
207,779
MULTIMEDIA (0.68%)
AOL Time Warner
6.13%; 04/15/06 305,000 328,059
Gannett
5.50%; 04/01/07 70,000 75,836
Time Warner
7.98%; 08/15/04 25,000 26,067
Viacom
7.75%; 06/01/05 135,000 147,047
Walt Disney
7.30%; 02/08/05 185,000 197,243
774,252
MUTUAL INSURANCE (0.07%)
Metropolitan Life Insurance /1/
6.30%; 11/01/03 75,000 75,000
OIL COMPANY-EXPLORATION & PRODUCTION (0.67%)
Anadarko Petroleum
5.38%; 03/01/07 205,000 219,610
Canadian Occidental Petroleum
7.13%; 02/04/04 125,000 126,716
Kerr-McGee
5.38%; 04/15/05 70,000 72,779
PennzEnergy
10.25%; 11/01/05 175,000 200,339
Petroleos Mexicanos
6.50%; 02/01/05 140,000 146,300
765,744
Principal
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
OIL COMPANY-INTEGRATED (0.89%)
Amerada Hess
$ $
5.90%; 08/15/06 125,000 132,175
BP Canada Finance
3.63%; 01/15/09 145,000 144,166
ChevronTexaco Capital
3.38%; 02/15/08 75,000 75,061
Conoco
5.90%; 04/15/04 200,000 204,080
Marathon Oil
5.38%; 06/01/07 75,000 80,134
Occidental Petroleum
4.00%; 11/30/07 150,000 151,475
Phillips Petroleum
8.50%; 05/25/05 150,000 164,959
Union Oil Company of California
6.38%; 02/01/04 65,000 65,592
1,017,642
OIL REFINING & MARKETING (0.07%)
Valero Energy
6.13%; 04/15/07 70,000 76,577
PAPER & RELATED PRODUCTS (0.25%)
International Paper
6.13%; 11/01/03 18,000 18,000
Union Camp
7.00%; 08/15/06 129,000 142,273
Weyerhaeuser
5.50%; 03/15/05 115,000 119,820
280,093
PHOTO EQUIPMENT & SUPPLIES (0.09%)
Eastman Kodak
3.63%; 05/15/08 110,000 102,081
PIPELINES (0.46%)
Duke Energy Field Services
7.50%; 08/16/05 240,000 260,810
Kinder Morgan
6.65%; 03/01/05 150,000 159,187
Kinder Morgan Energy Partners
5.35%; 08/15/07 100,000 106,620
526,617
POULTRY (0.09%)
Tyson Foods
6.63%; 10/01/04 100,000 103,748
PROPERTY & CASUALTY INSURANCE (0.39%)
ACE INA Holdings
8.20%; 08/15/04 200,000 209,658
St. Paul
7.88%; 04/15/05 125,000 134,784
Travelers Property Casualty
3.75%; 03/15/08 105,000 105,075
449,517
PUBLISHING-NEWSPAPERS (0.09%)
Thomson
5.75%; 02/01/08 95,000 102,003
Principal
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
REAL ESTATE OPERATOR & DEVELOPER (0.37%)
EOP Operating
$ $
7.38%; 11/15/03 420,000 420,671
REGIONAL AUTHORITY (0.80%)
New Brunswick
3.50%; 10/23/07 40,000 40,560
Province of Manitoba
2.75%; 01/17/06 155,000 156,027
Province of Ontario
3.50%; 09/17/07 415,000 418,023
Province of Quebec
5.50%; 04/11/06 285,000 305,211
919,821
REGIONAL BANKS (2.88%)
Bank One
7.63%; 08/01/05 625,000 683,899
Fifth Third Bancorp
3.38%; 08/15/08 80,000 79,225
First Union
7.55%; 08/18/05 515,000 564,985
FleetBoston Financial
7.25%; 09/15/05 300,000 327,768
KeyCorp
4.63%; 05/16/05 160,000 166,664
Korea Development Bank
7.13%; 04/22/04 165,000 169,124
PNC Funding
5.75%; 08/01/06 170,000 182,823
SunTrust Banks
2.50%; 11/01/06 55,000 54,726
5.05%; 07/01/07 70,000 75,041
U.S. Bancorp
6.75%; 10/15/05 177,000 192,393
Wells Fargo
5.90%; 05/21/06 730,000 793,708
3,290,356
REINSURANCE (0.09%)
Berkshire Hathaway /1/
3.38%; 10/15/08 100,000 98,778
RENTAL-AUTO & EQUIPMENT (0.09%)
Hertz
4.70%; 10/02/06 100,000 98,786
RETAIL-DISCOUNT (0.53%)
Costco Wholesale
5.50%; 03/15/07 90,000 97,566
Target
5.40%; 10/01/08 100,000 107,498
Wal-Mart Stores
6.55%; 08/10/04 388,000 403,170
608,234
RETAIL-DRUG STORE (0.09%)
CVS
3.88%; 11/01/07 100,000 102,020
Principal
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
RETAIL-RESTAURANTS (0.11%)
McDonald's
$ $
5.38%; 04/30/07 113,000 121,827
SAVINGS & LOANS-THRIFTS (0.09%)
Golden West Financial
4.13%; 08/15/07 100,000 103,035
SOVEREIGN (1.33%)
Finland Government
4.75%; 03/06/07 150,000 159,752
Italy Government
4.38%; 10/25/06 900,000 943,876
Mexico Government
8.50%; 02/01/06 370,000 416,250
1,519,878
SPECIAL PURPOSE BANKS (1.01%)
KFW International Finance
3.75%; 10/01/04 955,000 975,301
Kreditanstalt fuer Wiederaufbau
2.38%; 09/25/06 175,000 174,330
1,149,631
SUPRANATIONAL BANK (2.17%)
Asian Development Bank
2.38%; 03/15/06 345,000 346,710
Corp Andina de Fomento
6.75%; 03/15/05 180,000 189,670
European Investment Bank
4.63%; 03/01/07 1,145,000 1,222,605
Inter-American Development Bank
6.50%; 10/20/04 685,000 717,943
2,476,928
TELECOMMUNICATION SERVICES (0.05%)
Citizens Communications
7.60%; 06/01/06 55,000 61,109
TELEPHONE-INTEGRATED (1.61%)
AT&T
7.50%; 04/01/04 30,000 30,713
BellSouth
5.00%; 10/15/06 225,000 239,234
British Telecommunications
7.88%; 12/15/05 295,000 326,637
CenturyTel
6.30%; 01/15/08 110,000 120,339
Deutsche Telekom International Finance
8.25%; 06/15/05 170,000 185,737
France Telecom
8.70%; 03/01/06 125,000 139,989
SBC Communications
5.75%; 05/02/06 325,000 349,724
Sprint Capital
7.13%; 01/30/06 335,000 362,199
Telecom Italia Capital /1/
4.00%; 11/15/08 90,000 89,890
1,844,462
Principal
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
BONDS (CONTINUED)
TEXTILE-HOME FURNISHINGS (0.12%)
Mohawk Industries
$ $
6.50%; 04/15/07 125,000 137,669
TOOLS-HAND HELD (0.09%)
Stanley Works
3.50%; 11/01/07 100,000 100,296
TRANSPORT-RAIL (0.58%)
Burlington Northern Santa Fe
6.38%; 12/15/05 230,000 249,646
CSX
7.25%; 05/01/04 115,000 118,094
Norfolk Southern
7.88%; 02/15/04 100,000 101,782
Union Pacific
7.60%; 05/01/05 175,000 189,871
659,393
TOTAL BONDS 104,213,886
Principal
Type Rate Maturity Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) CERTIFICATES (4.55%)
$ $
FHLMC 4.50% 10/01/09 - 10/01/10 3,698,730 3,748,262
FHLMC 5.00% 09/01/09 242,127 247,501
FHLMC 5.50% 12/01/08 - 04/01/09 581,321 595,628
FHLMC 6.50% 04/01/09 - 04/01/15 90,680 95,194
FHLMC 7.00% 12/01/22 182,940 193,380
FHLMC 7.25% 12/01/07 71,010 74,863
FHLMC 7.50% 12/01/29 32,551 34,771
FHLMC 8.00% 12/01/11 - 10/01/22 117,458 127,824
FHLMC 8.25% 01/01/12 8,395 9,075
FHLMC 9.00% 09/01/09 71,548 76,311
TOTAL FHLMC CERTIFICATES 5,202,809
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) CERTIFICATES (3.26%)
FNMA 4.00% 05/01/10 - 08/01/10 1,597,023 1,594,808
FNMA 4.50% 03/01/10 419,895 425,168
FNMA 5.50% 02/01/09 - 10/01/09 958,852 981,300
FNMA 6.00% 07/01/28 197,506 203,228
FNMA 7.50% 10/01/29 113,154 120,610
FNMA 8.00% 10/01/06 - 05/01/27 55,142 59,594
FNMA 8.50% 05/01/22 226,057 247,516
FNMA 9.00% 02/01/25 91,958 102,481
TOTAL FNMA CERTIFICATES 3,734,705
Principal
Type Rate Maturity Amount Value
- ----------------------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) CERTIFICATES (0.05%)
$ $
GNMA II 8.00% 01/20/16 51,152 55,550
TOTAL GNMA CERTIFICATES 55,550
Principal Amount
Value
- ----------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (0.18%)
Lehman Brothers; 1.04%, 11/03/03 (collateralized by FHLBC; $
$211,976; 02/06/09) /2/ $ 207,820 207,820
TOTAL REPURCHASE AGREEMENTS 207,820
------------
TOTAL PORTFOLIO INVESTMENTS (99.18%) 113,414,770
CASH, RECEIVABLES AND OTHER ASSETS, NET OF LIABILITIES (0.82%) 932,238
TOTAL NET ASSETS (100.00%) $114,347,008
--------------
/1 /Restricted Security - The fund held securities which may require
registration under the Securities Act of 1933, or an exemption therefrom, in
order to effect their sale in the ordinary course of business. At the end of
the period, restricted securities totaled $506,832 or 0.44% of net assets.
/2 /Security was purchased with the cash proceeds from securities loans.
See accompanying notes.
189
SCHEDULE OF INVESTMENTS
PRINCIPAL TAX-EXEMPT BOND FUND, INC.
OCTOBER 31, 2003
Principal
Amount Value
- --------------------------------------------------------------------------------------
TAX-EXEMPT BONDS (98.86%)
ALASKA (0.91%)
North Slope Boro, Alaska /1/
MBIA
$ $
0.00%; 06/30/10 2,220,000 1,748,894
ARIZONA (1.13%)
Arizona Agricultural
Improvement
Salt River Project
5.25%; 01/01/18 1,000,000 1,078,300
Arizona State University
FGIC
5.50%; 07/01/21 1,000,000 1,083,740
2,162,040
ARKANSAS (1.15%)
Arkansas
5.25%; 08/01/12 2,000,000 2,202,780
CALIFORNIA (0.89%)
California Department of Water
Resources
MBIA
5.25%; 05/01/09 1,500,000 1,697,310
COLORADO (1.13%)
Platte River Power Authority
5.38%; 06/01/17 2,000,000 2,173,820
CONNECTICUT (1.16%)
Connecticut
5.38%; 04/15/14 2,000,000 2,216,780
FLORIDA (9.75%)
Dade County, Florida
FGIC
5.25%; 10/01/11 1,040,000 1,150,999
Florida Municipal Power
AMBAC
5.50%; 10/01/16 2,930,000 3,254,468
Florida State Board of
Education
5.00%; 06/01/10 2,000,000 2,229,340
Florida State Board of
Education
FGIC
5.50%; 06/01/14 3,000,000 3,364,050
Orange County, Florida
AMBAC
5.50%; 10/01/32 3,000,000 3,172,170
Orlando Utilities Commission
5.25%; 10/01/16 3,125,000 3,395,032
Sunrise, Florida Utilities
AMBAC
5.20%; 10/01/22 2,000,000 2,123,960
18,690,019
GEORGIA (2.60%)
Fulco, Georgia
St. Joseph's Hospital
5.50%; 10/01/14 2,000,000 2,107,060
Georgia
5.25%; 07/01/13 2,600,000 2,872,220
4,979,280
Principal
Amount Value
- --------------------------------------------------------------------------------------
TAX-EXEMPT BONDS (CONTINUED)
ILLINOIS (12.07%)
Chicago Midway Airport
MBIA
$ $
5.50%; 01/01/11 1,500,000 1,656,600
Chicago Park District
FGIC
5.50%; 01/01/18 2,000,000 2,187,900
Chicago Park District
MBIA
5.60%; 01/01/21 1,400,000 1,514,814
Du Page & Cook Counties
FGIC
5.50%; 01/01/19 2,855,000 3,196,315
Illinois
FGIC
5.00%; 03/01/14 2,000,000 2,126,000
Illinois
FSA
5.38%; 10/01/14 2,160,000 2,434,817
Illinois
MBIA
5.25%; 04/01/08 2,000,000 2,234,800
Illinois Health Facility
Advocate Health
5.25%; 08/15/18 320,000 363,962
7.00%; 02/15/09 270,000 308,858
7.00%; 02/15/18 720,000 897,682
Illinois Health Facility
Northwestern Memorial Hospital
6.10%; 08/15/14 1,000,000 1,056,170
Illinois Sales Tax
FGIC
6.00%; 06/15/23 3,000,000 3,491,880
Springfield, Illinois
MBIA
5.50%; 03/01/15 1,500,000 1,660,275
23,130,073
INDIANA (6.90%)
Indiana Bond Bank
5.38%; 02/01/17 3,000,000 3,295,380
Indiana Bond Bank
Water & Sewer
5.88%; 08/01/13 1,060,000 1,213,011
Indiana Health Facility
Clarion Health Partners
5.38%; 02/15/09 2,020,000 2,189,963
Indianapolis Public Improvement
MBIA
5.50%; 01/01/16 3,000,000 3,310,500
Lawrenceburg, Indiana
Indiana Michigan Power
5.90%; 11/01/19 2,000,000 2,003,720
Warrick County, Indiana
Southern Indiana Gas &
Electric
6.00%; 05/01/23 1,190,000 1,207,505
13,220,079
Principal
Amount Value
- --------------------------------------------------------------------------------------
TAX-EXEMPT BONDS (CONTINUED)
IOWA (1.63%)
Chillicothe, Iowa
IES Utilities
$ $
3.60%; 11/01/23 1,100,000 1,100,000
Eddyville, Iowa
Cargill
5.63%; 12/01/13 1,000,000 1,022,000
Lansing, Iowa
Interstate Power
3.60%; 11/01/08 1,000,000 1,000,000
3,122,000
KENTUCKY (1.75%)
Kentucky Property & Buildings
Commission
FSA
5.38%; 02/01/18 1,000,000 1,080,420
Kentucky Turnpike Authority
AMBAC
5.50%; 07/01/12 2,000,000 2,272,680
3,353,100
MAINE (0.91%)
Maine Governmental Facilities
Authority
MBIA
5.38%; 10/01/17 1,600,000 1,754,000
MASSACHUSETTS (4.13%)
Commonwealth of Massachusetts
5.75%; 06/15/15 2,000,000 2,315,960
Massachusetts
5.25%; 01/01/08 2,000,000 2,217,960
5.50%; 03/01/15 3,000,000 3,390,480
7,924,400
MICHIGAN (4.34%)
Michigan
Drinking Water State Revolving
Fund
5.00%; 10/01/23 1,165,000 1,191,876
Michigan Comprehensive
Transportation
FSA
5.25%; 05/15/22 1,715,000 1,797,886
Michigan State Building
Authority
FSA
5.00%; 10/15/10 2,000,000 2,231,460
Michigan State Trunk Line
FSA
5.25%; 10/01/21 1,000,000 1,056,050
Michigan Strategic Fund
Detroit Edison
5.45%; 09/01/29 2,000,000 2,033,220
8,310,492
MINNESOTA (1.16%)
Minnesota
5.00%; 10/01/07 2,000,000 2,220,920
MISSISSIPPI (1.20%)
Mississippi
5.50%; 09/01/10 2,000,000 2,292,520
Principal
Amount Value
- --------------------------------------------------------------------------------------
TAX-EXEMPT BONDS (CONTINUED)
NEVADA (1.08%)
Nevada
$ $
5.25%; 09/15/27 2,000,000 2,060,640
NEW HAMPSHIRE (1.11%)
New Hampshire Health &
Education Facilities Authority
FSA
5.50%; 08/01/27 2,000,000 2,125,940
NEW YORK (6.30%)
City of New York
XLCA
6.25%; 04/15/17 1,500,000 1,690,860
Long Island Power Authority
5.25%; 06/01/12 3,000,000 3,241,110
New York State Dormitory
Authority
MBIA
5.25%; 10/01/23 1,500,000 1,568,370
New York State Environmental
Facilities
5.25%; 06/15/17 2,000,000 2,171,600
New York State Thruway
Authority
MBIA
5.50%; 04/01/12 3,000,000 3,402,000
12,073,940
OHIO (1.69%)
Ohio
5.50%; 02/01/05 2,000,000 2,106,420
Summit County, Ohio
FGIC
5.50%; 12/01/13 1,000,000 1,141,440
3,247,860
OKLAHOMA (3.32%)
Grand River Dam Authority
FSA
5.00%; 06/01/12 3,500,000 3,854,340
Tulsa Industrial Authority
St. John Medical Center
6.25%; 02/15/14 1,280,000 1,412,442
6.25%; 02/15/17 1,000,000 1,103,470
6,370,252
PENNSYLVANIA (2.44%)
Pennsylvania
FSA
5.50%; 05/01/17 3,000,000 3,312,480
Pennsylvania Industrial
Development Authority
AMBAC
5.50%; 07/01/21 1,250,000 1,358,562
4,671,042
PUERTO RICO (2.31%)
Commonwealth of Puerto Rico
FGIC
5.50%; 07/01/12 1,000,000 1,145,940
Principal
Amount Value
- --------------------------------------------------------------------------------------
TAX-EXEMPT BONDS (CONTINUED)
PUERTO RICO (CONTINUED)
Puerto Rico Highway &
Transportation Authority
AMBAC
$ $
5.00%; 07/01/35 2,000,000 2,207,560
Puerto Rico Highway &
Transportation Authority
FGIC
5.25%; 07/01/21 1,000,000 1,071,160
4,424,660
RHODE ISLAND (0.60%)
Rhode Island
FGIC
5.50%; 08/01/11 1,000,000 1,141,160
SOUTH CAROLINA (4.58%)
South Carolina
5.25%; 04/01/05 2,000,000 2,113,720
5.75%; 01/01/13 3,000,000 3,384,660
South Carolina Public Service
FSA
5.38%; 01/01/16 3,000,000 3,273,900
8,772,280
TENNESSEE (1.43%)
Louden County, Tennessee
Kimberly Clark
6.20%; 02/01/23 2,700,000 2,747,547
TEXAS (13.07%)
Brazos River Authority
Houston Industries; AMBAC
5.13%; 05/01/19 2,000,000 2,092,820
Guadalupe-Blanco River
Authority
E.I. Dupont De Nemours
6.35%; 07/01/22 2,500,000 2,578,325
Harris County, Texas
5.50%; 08/15/20 2,000,000 2,172,460
Houston, Texas Water & Sewer
FSA
5.75%; 12/01/32 2,135,000 2,436,419
Lower Colorado River Authority
FSA
6.00%; 05/15/13 2,500,000 2,875,250
Lower Colorado River Authority
MBIA
5.38%; 05/15/20 3,000,000 3,205,950
San Antonio, Texas
FSA
5.50%; 05/15/17 2,090,000 2,291,079
Texas State Department Of
Housing & Community Affairs
5.70%; 01/01/33 2,925,000 3,086,197
Texas Technical University
MBIA
5.50%; 08/15/12 2,000,000 2,254,080
Principal
Amount Value
- --------------------------------------------------------------------------------------
TAX-EXEMPT BONDS (CONTINUED)
TEXAS (CONTINUED)
University of Texas
$ $
5.25%; 07/01/17 1,905,000 2,051,513
25,044,093
UTAH (1.78%)
Utah
5.38%; 07/01/11 3,000,000 3,410,880
WASHINGTON (2.77%)
Washington
5.50%; 01/01/11 2,000,000 2,228,240
Washington
FGIC
5.00%; 07/01/21 3,000,000 3,080,460
5,308,700
WEST VIRGINIA (3.00%)
Marshall County, West Virginia
Ohio Power; MBIA
5.90%; 04/01/22 3,500,000 3,581,900
Pleasants County, West Virginia
Potomac Edison; MBIA
6.15%; 05/01/15 2,000,000 2,172,140
5,754,040
WISCONSIN (0.57%)
Wisconsin Health & Educational
Facilities
Franciscan Skemp Medical
Center
6.13%; 11/15/15 1,000,000 1,099,500
TOTAL TAX-EXEMPT BONDS 189,451,041
Shares
Held Value
- --------------------------------------------------------------------------------------
OTHER (0.89%)
Municipal Fund for Temporary
Investment-Blackrock $
Institutional Funds 1,700,000 1,700,000
TOTAL OTHER 1,700,000
------------
TOTAL PORTFOLIO INVESTMENTS (99.75%) 191,151,041
CASH, RECEIVABLES AND
OTHER ASSETS, NET OF
LIABILITIES (0.25%) 481,624
TOTAL NET ASSETS (100.00%) $191,632,665
--------------
/1 /Non-income producing security.
See accompanying notes.
See accompanying notes.
FINANCIAL HIGHLIGHTS
PRINCIPAL MUTUAL FUNDS
INCOME FUNDS
-------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31 (EXCEPT AS NOTED):
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL BOND FUND, INC.
- -------------------------
CLASS A SHARES
- --------------
Net Asset Value,
Beginning of Period.. $10.97 $11.11 $10.25 $10.66 $11.59
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.45 0.51/(c)/ 0.61 0.72 0.70
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 0.06 (0.11)/(c)/ 0.88 (0.40) (0.91)
---- ----- ---- ----- -----
Total From Investment
Operations 0.51 0.40 1.49 0.32 (0.21)
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.49) (0.54) (0.63) (0.73) (0.69)
Distributions from
Realized Gains...... -- -- -- -- (0.03)
---- -----
Total Dividends and
Distributions (0.49) (0.54) (0.63) (0.73) (0.72)
----- ----- ----- ----- -----
Net Asset Value, End
of Period............ $10.99 $10.97 $11.11 $10.25 $10.66
====== ====== ====== ====== ======
Total Return /(b)/ ... 4.68% 3.83% 14.96% 3.23% (1.92)%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $184,971 $186,723 $143,818 $124,630 $145,975
Ratio of Expenses to
Average Net Assets.. 1.03% 1.06% 1.05% 1.06% 1.04%
Ratio of Net
Investment Income to
Average Net Assets.. 4.00% 4.73%/(c)/ 5.67% 6.96% 6.25%
Portfolio Turnover
Rate................ 79.7% 78.9% 152.0% 60.7% 48.9%
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL BOND FUND, INC.
- -------------------------
CLASS B SHARES
- --------------
Net Asset Value,
Beginning of Period.. $10.97 $11.11 $10.24 $10.65 $11.58
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.35 0.43/(d)/ 0.54 0.64 0.61
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 0.07 (0.11)/(d)/ 0.88 (0.39) (0.91)
---- ----- ---- ----- -----
Total From Investment
Operations 0.42 0.32 1.42 0.25 (0.30)
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.41) (0.46) (0.55) (0.66) (0.60)
Distributions from
Realized Gains...... -- -- -- -- (0.03)
---- -----
Total Dividends and
Distributions (0.41) (0.46) (0.55) (0.66) (0.63)
----- ----- ----- ----- -----
Net Asset Value, End
of Period............ $10.98 $10.97 $11.11 $10.24 $10.65
====== ====== ====== ====== ======
Total Return /(b)/ ... 3.86% 3.07% 14.23% 2.45% (2.68)%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $33,883 $34,190 $26,348 $22,577 $25,451
Ratio of Expenses to
Average Net Assets.. 1.84% 1.83% 1.68% 1.85% 1.79%
Ratio of Net
Investment Income to
Average Net Assets.. 3.20% 3.95%/(d)/ 5.04% 6.16% 5.50%
Portfolio Turnover
Rate................ 79.7% 78.9% 152.0% 60.7% 48.9%
/(a) //Effective November 1, 2002, calculated based on average shares
outstanding during the period./
/(b) /Total return is calculated without the front-end sales charge or
contingent deferred sales charge.
/(c) //Effective November 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies. The effect of this /
/change for the year ended October 31, 2002 for Class A was to decrease net
investment income by $.03 per share, increase net realized and unrealized /
/gain (loss) on investments by $.03 per share, and decrease the ratio of net
investment income to average net assets by .30%. Prior periods have not /
/been restated to reflect this change in presentation./
/(d) //Effective November 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies. The effect of this /
/change for the year ended October 31, 2002 for Class B was to decrease net
investment income by $.03 per share, increase net realized and unrealized /
/gain (loss) on investments by $.03 per share, and decrease the ratio of net
investment income to average net assets by .30%. Prior periods have not /
/been restated to reflect this change in presentation./
See accompanying notes.
193
FINANCIAL HIGHLIGHTS
PRINCIPAL MUTUAL FUNDS
INCOME FUNDS
-------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31 (EXCEPT AS NOTED):
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL GOVERNMENT SECURITIES INCOME FUND, INC.
- -------------------------------------------------
CLASS A SHARES
- --------------
Net Asset Value,
Beginning of Period.. $11.74 $11.77 $11.18 $11.10 $11.63
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.45 0.60 0.65 0.68 0.69
Net Realized and
Unrealized Gain
(Loss) on
Investments......... (0.26) 0.01 0.61 0.07 (0.52)
----- ---- ---- ---- -----
Total From Investment
Operations 0.19 0.61 1.26 0.75 0.17
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.52) (0.64) (0.67) (0.67) (0.70)
----- ----- ----- ----- -----
Total Dividends and
Distributions (0.52) (0.64) (0.67) (0.67) (0.70)
----- ----- ----- ----- -----
Net Asset Value, End
of Period............ $11.41 $11.74 $11.77 $11.18 $11.10
====== ====== ====== ====== ======
Total Return /(b)/ ... 1.59% 5.41% 11.64% 7.09% 1.47%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $304,191 $310,506 $243,876 $213,114 $237,811
Ratio of Expenses to
Average Net Assets.. 0.93% 0.90% 0.90% 0.94% 0.89%
Ratio of Net
Investment Income to
Average Net Assets.. 3.82% 5.11% 5.68% 6.14% 6.04%
Portfolio Turnover
Rate................ 181.1% 36.5% 51.9% 6.9% 19.4%
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL GOVERNMENT SECURITIES INCOME FUND, INC.
- -------------------------------------------------
CLASS B SHARES
- --------------
Net Asset Value,
Beginning of Period.. $11.67 $11.71 $11.13 $11.05 $11.60
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.35 0.52 0.58 0.58 0.61
Net Realized and
Unrealized Gain
(Loss) on
Investments......... (0.24) (0.01) 0.59 0.09 (0.54)
----- ----- ---- ---- -----
Total From Investment
Operations 0.11 0.51 1.17 0.67 0.07
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.43) (0.55) (0.59) (0.59) (0.62)
----- ----- ----- ----- -----
Total Dividends and
Distributions (0.43) (0.55) (0.59) (0.59) (0.62)
----- ----- ----- ----- -----
Net Asset Value, End
of Period............ $11.35 $11.67 $11.71 $11.13 $11.05
====== ====== ====== ====== ======
Total Return /(b)/ ... 0.91% 4.54% 10.82% 6.32% 0.65%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $62,573 $52,839 $36,303 $27,395 $29,751
Ratio of Expenses to
Average Net Assets.. 1.70% 1.71% 1.59% 1.75% 1.63%
Ratio of Net
Investment Income to
Average Net Assets.. 3.06% 4.30% 4.98% 5.33% 5.30%
Portfolio Turnover
Rate................ 181.1% 36.5% 51.9% 6.9% 19.4%
/(a) //Effective November 1, 2002, calculated based on average shares
outstanding during the period./
/(b) //Total return is calculated without the front-end sales charge or
contingent deferred sales charge./
See accompanying notes.
194
FINANCIAL HIGHLIGHTS
PRINCIPAL MUTUAL FUNDS
INCOME FUNDS
-------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31 (EXCEPT AS NOTED):
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL LIMITED TERM BOND FUND, INC.
- --------------------------------------
CLASS A SHARES
- --------------
Net Asset Value,
Beginning of Period.. $9.86 $9.98 $9.50 $9.54 $9.93
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.29 0.43/(d)/ 0.56 0.59 0.57
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 0.01 (0.08)/(d)/ 0.49 (0.05) (0.39)
---- ----- ---- ----- -----
Total From Investment
Operations 0.30 0.35 1.05 0.54 0.18
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.42) (0.47) (0.57) (0.58) (0.57)
----- ----- ----- ----- -----
Total Dividends and
Distributions (0.42) (0.47) (0.57) (0.58) (0.57)
----- ----- ----- ----- -----
Net Asset Value, End
of Period............ $9.74 $9.86 $9.98 $9.50 $9.54
===== ===== ===== ===== =====
Total Return /(b)/ ... 3.04% 3.70% 11.36% 5.94% 1.83%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $96,568 $74,719 $37,942 $25,183 $27,096
Ratio of Expenses to
Average Net Assets.. 0.93% 0.94% 1.01% 0.99% 1.00%
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... -- -- -- 1.20% 1.14%
Ratio of Net
Investment Income to
Average Net Assets.. 3.02% 4.07%/(d)/ 5.69% 6.16% 5.76%
Portfolio Turnover
Rate................ 26.2% 97.6% 65.7% 31.5% 20.9%
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL LIMITED TERM BOND FUND, INC.
- --------------------------------------
CLASS B SHARES
- --------------
Net Asset Value,
Beginning of Period.. $10.00 $10.11 $9.60 $9.60 $9.98
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.26 0.37/(e)/ 0.49 0.55 0.52
Net Realized and
Unrealized Gain
(Loss) on
Investments......... (0.01) (0.06)/(e)/ 0.53 (0.02) (0.39)
----- ----- ---- ----- -----
Total From Investment
Operations 0.25 0.31 1.02 0.53 0.13
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.37) (0.42) (0.51) (0.53) (0.51)
----- ----- ----- ----- -----
Total Dividends and
Distributions (0.37) (0.42) (0.51) (0.53) (0.51)
----- ----- ----- ----- -----
Net Asset Value, End
of Period............ $9.88 $10.00 $10.11 $9.60 $9.60
===== ====== ====== ===== =====
Total Return /(b)/ ... 2.54% 3.25% 10.84% 5.69% 1.29%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $17,779 $13,387 $6,970 $3,291 $2,696
Ratio of Expenses to
Average Net Assets.. 1.35% 1.39% 1.50% 1.34% 1.35%
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... -- -- -- 1.93% 1.92%
Ratio of Net
Investment Income to
Average Net Assets.. 2.60% 3.61%/(e)/ 5.17% 5.81% 5.41%
Portfolio Turnover
Rate................ 26.2% 97.6% 65.7% 31.5% 20.9%
/(a) //Effective November 1, 2002, calculated based on average shares
outstanding during the period./
/(b) /Total return is calculated without the front-end sales charge or
contingent deferred sales charge.
/(c) //Expense ratio without the Manager's voluntary expense limit. The expense
limit ceased on November 1, 2000./
/(d) //Effective November 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies. The effect of this /
/change for the year ended October 31, 2002 for Class A was to decrease net
investment income by $.07 per share, increase net realized and unrealized /
/gain (loss) on investments by $.07 per share, and decrease the ratio of net
investment income to average net assets by 1.81%. Prior periods have not /
/been restated to reflect this change in presentation./
/(e) //Effective November 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies. The effect of this /
/change for the year ended October 31, 2002 for Class B was to decrease net
investment income by $.07 per share, increase net realized and unrealized /
/gain (loss) on investments by $.07 per share, and decrease the ratio of net
investment income to average net assets by 1.86%. Prior periods have not /
/been restated to reflect this change in presentation./
See accompanying notes.
195
FINANCIAL HIGHLIGHTS
PRINCIPAL MUTUAL FUNDS
INCOME FUNDS
-------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31 (EXCEPT AS NOTED):
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL TAX-EXEMPT BOND FUND, INC.
- ------------------------------------
CLASS A SHARES
- --------------
Net Asset Value,
Beginning of Period.. $12.29 $12.10 $11.65 $11.69 $12.59
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.47 0.48/(c)/ 0.54 0.59 0.60
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 0.05 0.18/(c)/ 0.51 0.06 (0.90)
---- ---- ---- ---- -----
Total From Investment
Operations 0.52 0.66 1.05 0.65 (0.30)
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.45) (0.47) (0.55) (0.58) (0.59)
Distributions from
Realized Gains...... (0.05) -- (0.05) (0.11) (0.01)
---- ----- ----- ----- -----
Total Dividends and
Distributions (0.50) (0.47) (0.60) (0.69) (0.60)
----- ----- ----- ----- -----
Net Asset Value, End
of Period............ $12.31 $12.29 $12.10 $11.65 $11.69
====== ====== ====== ====== ======
Total Return /(b)/ ... 4.25% 5.64% 9.28% 5.81% (2.51)%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $178,379 $183,100 $167,016 $163,846 $186,973
Ratio of Expenses to
Average Net Assets.. 0.81% 0.77% 0.82% 0.88% 0.80%
Ratio of Net
Investment Income to
Average Net Assets.. 3.71% 4.02%/(c)/ 4.59% 5.12% 4.84%
Portfolio Turnover
Rate................ 31.2% 60.0% 51.8% 7.6% 15.6%
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL TAX-EXEMPT BOND FUND, INC.
- ------------------------------------
CLASS B SHARES
- --------------
Net Asset Value,
Beginning of Period.. $12.32 $12.16 $11.71 $11.70 $12.59
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.38 0.38/(d)/ 0.48 0.57 0.53
Net Realized and
Unrealized Gain
(Loss) on
Investments......... 0.07 0.17/(d)/ 0.51 0.07 (0.89)
---- ---- ---- ---- -----
Total From Investment
Operations 0.45 0.55 0.99 0.64 (0.36)
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.36) (0.39) (0.49) (0.52) (0.52)
Distributions from
Realized Gains...... (0.05) -- (0.05) (0.11) (0.01)
---- ----- ----- ----- -----
Total Dividends and
Distributions (0.41) (0.39) (0.54) (0.63) (0.53)
----- ----- ----- ----- -----
Net Asset Value, End
of Period............ $12.36 $12.32 $12.16 $11.71 $11.70
====== ====== ====== ====== ======
Total Return /(b)/ ... 3.68% 4.67% 8.70% 5.69% (3.01)%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $13,254 $13,848 $12,122 $10,744 $11,480
Ratio of Expenses to
Average Net Assets.. 1.44% 1.60% 1.33% 1.37% 1.32%
Ratio of Net
Investment Income to
Average Net Assets.. 3.07% 3.19%/(d)/ 4.07% 4.60% 4.32%
Portfolio Turnover
Rate................ 31.2% 60.0% 51.8% 7.6% 15.6%
/(a) //Effective November 1, 2002, calculated based on average shares
outstanding during the period./
/(b) //Total return is calculated without the front-end sales charge or
contingent deferred sales charge./
/(c) //Effective November 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies. There was no effect / /to
the Class A per share net investment income or net realized and unrealized
gain (loss) on investments for the year ended October 31, 2002. The ratio /
/of net investment income to average net assets increased by .06%. Prior
periods have not been restated to reflect this change in presentation./
/(d) //Effective November 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies. There was no effect / /to
the Class B per share net investment income or net realized and unrealized
gain (loss) on investments for the year ended October 31, 2002. The ratio /
/of net investment income to average net assets increased by .06%. Prior
periods have not been restated to reflect this change in presentation./
See accompanying notes.
196
STATEMENT OF ASSETS AND LIABILITIES
PRINCIPAL MUTUAL FUNDS
MONEY MARKET FUND
OCTOBER 31, 2003
-------------------------------------------------------------------------------
PRINCIPAL
CASH MANAGEMENT
FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INVESTMENT IN SECURITIES--AT COST .......................... $ 354,995,993
==============
ASSETS
Investment in securities--at value.......................... $ 354,995,993
Cash........................................................ 4,878
Receivables:
Capital Shares sold........................................ 59,507
Dividends and interest..................................... 351,310
Other assets................................................ 27,339
--------------
Total Assets 355,439,027
LIABILITIES
Accrued management and investment advisory fees............. 29,720
Accrued distribution fees................................... 626
Accrued directors' expenses................................. 837
Accrued transfer and administrative fees.................... 196,992
Accrued other expenses...................................... 31,310
Payables:
Capital Shares reacquired.................................. 1,192,266
--------------
Total Liabilities 1,451,751
--------------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES ................ $ 353,987,276
==============
NET ASSETS CONSIST OF:
Capital Shares and additional paid-in-capital............... $ 353,987,276
--------------
Total Net Assets $ 353,987,276
==============
CAPITAL STOCK (PAR VALUE: $.01 A SHARE):
Shares authorized........................................... 2,000,000,000
NET ASSET VALUE PER SHARE:
Class A: Net Assets......................................... $ 346,291,630
Shares issued and outstanding............................. 346,291,630
Net asset value per share................................. $ 1.000
==============
Class B: Net Assets......................................... $ 7,695,646
Shares issued and outstanding............................. 7,695,646
Net asset value per share /(a)/ .......................... $ 1.000
==============
/(a) //Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge./
See accompanying notes.
197
STATEMENT OF OPERATIONS
PRINCIPAL MUTUAL FUNDS
MONEY MARKET FUND
YEAR ENDED OCTOBER 31, 2003
-------------------------------------------------------------------------------
PRINCIPAL
CASH MANAGEMENT
FUND, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME (OPERATING LOSS)
Income:
Interest................................................... $4,991,685
Expenses:
Management and investment advisory fees.................... 1,603,203
Distribution fees - Class B................................ 22,589
Registration fees - Class A................................ 30,382
Registration fees - Class B................................ 8,991
Shareholder reports - Class A............................. 19,351
Shareholder reports - Class B............................. 510
Transfer and administrative fees - Class A................. 493,052
Transfer and administrative fees - Class B................. 10,527
Auditing and legal fees.................................... 13,204
Custodian fees............................................. 12,685
Directors' expenses........................................ 16,328
Registration fees.......................................... 19,600
Transfer and administrative fees........................... 545,616
Other expenses............................................. 28,423
----------
Total Gross Expenses 2,824,461
Less: Fees waived - Class B................................ 988
----------
Total Net Expenses 2,823,473
----------
Net Investment Income (Operating Loss) $2,168,212
==========
See accompanying notes.
198
STATEMENT OF CHANGES IN NET ASSETS
PRINCIPAL MUTUAL FUNDS
MONEY MARKET FUND
-------------------------------------------------------------------------------
PRINCIPAL
CASH MANAGEMENT
FUND, INC.
- -------------------------------------------------------------------------------
YEAR YEAR
ENDED ENDED
OCTOBER 31, OCTOBER 31,
2003 2002
-------------- -------------------
- -------------------------------------------------------------------------------
OPERATIONS
Net investment income (operating loss).... $ 2,168,212 $ 5,860,948
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS
From net investment income:
Class A.................................. (2,146,556) (5,755,124)
Class B.................................. (21,656) (61,584)
Class C.................................. N/A (1,043)/(a)/
Class R.................................. N/A (43,197)/(b)/
------------- -------------
Total Dividends and Distributions (2,168,212) (5,860,948)
CAPITAL SHARE TRANSACTIONS
Shares sold:
Class A.................................. 655,800,513 736,479,913
Class B.................................. 5,907,858 7,267,116
Class C.................................. N/A 1,054,984/(a)/
Class R.................................. N/A 531,583/(b)/
Shares issued in reinvestment of dividends
and distributions:
Class A.................................. 2,068,086 5,468,029
Class B.................................. 20,850 58,982
Class C.................................. N/A 560/(a)/
Class R.................................. N/A 42,920/(b)/
Shares redeemed:
Class A.................................. (708,963,596) (756,970,073)
Class B.................................. (6,947,881) (5,266,501)
Class C.................................. N/A (1,459,373)/(a)/
Class R.................................. N/A (18,809,442)/(b)/
------------- -------------
Net Increase (Decrease) in Net Assets from
Capital Share Transactions (52,114,170) (31,601,302)
------------- -------------
Total Increase (Decrease) (52,114,170) (31,601,302)
NET ASSETS
Beginning of period....................... 406,101,446 437,702,748
------------- -------------
End of period............................. $ 353,987,276 $ 406,101,446
============= =============
/(a) //Period from November 1, 2001 through January 31, 2002 (discontinuation of
class)./
/(b) //Period from November 1, 2001 through December 28, 2001 (discontinuation
of class)./
See accompanying notes.
199
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
MONEY MARKET FUND
OCTOBER 31, 2003
-------------------------------------------------------------------------------
1. ORGANIZATION
Principal Cash Management 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 offers both Class A shares and Class B shares to the public. Shares of
the Fund are sold at net asset value; no sales charge applies to purchases of
the Fund. Certain purchases of Class A shares of the Fund may be subject to a
contingent deferred sales charge ("CDSC") if redeemed within eighteen months of
purchase. Class B shares are sold without an initial sales charge, but bear
higher ongoing distribution fees and are subject to a declining CDSC on certain
redemptions made within six years of purchase. Class B shares automatically
convert into Class A shares, based on relative net asset value (without a sales
charge), seven years after purchase. Both classes of shares in the Fund
represent interests in the same portfolio of investments, and will vote together
as a single class except where otherwise required by law or as determined by the
Fund's Board of Directors. In addition, the Board of Directors declares separate
dividends on each class of shares.
Principal Management Corporation is currently in the process of reviewing
policies and trading records to determine whether the Fund has been used as a
vehicle for late trading or market timing. While the review is not yet complete,
Principal Management Corporation has no reason to believe at this time that the
Fund will experience any material gain or loss as a result of the review.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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. The
following summarizes the significant accounting policies of the Fund:
SECURITY VALUATION . The Fund values its securities at amortized cost, which
approximates market. Under the amortized cost method, a security is valued by
applying a constant yield to maturity of the difference between the principal
amount due at maturity and the cost of the security to the Fund.
INCOME AND INVESTMENT TRANSACTIONS. . The Fund records investment transactions
on a trade date basis. The identified cost basis has been used in determining
the net realized gain or loss from investment transactions. Interest income is
recognized on an accrual basis. Discounts and premiums on securities are
accreted/amortized over the lives of the respective securities. The Fund
allocates daily all income and realized gains or losses to each class of shares
based upon the relative proportion of the number of settled shares outstanding
of each class.
The Fund's investments are with various issuers in various industries. The
schedule of investments contained herein summarizes concentration of credit risk
by issuer and industry.
EXPENSES . The Fund allocates daily all expenses (other than class-specific
expenses) to each class of shares based upon the relative proportion of the
number of settled shares outstanding of each class. Class-specific expenses
charged to each class during the year ended October 31, 2003, are included
separately in the statement of operations.
DISTRIBUTIONS TO SHAREHOLDERS . The Fund declares all net investment income and
any net realized gains and losses from investment transactions as dividends
daily to settled shares of record as of that day. Dividends from net investment
income and net realized gain from investments are determined in accordance with
federal tax regulations, which may differ from accounting principles generally
accepted in the United States.
FEDERAL INCOME TAXES . No provision for federal income taxes is considered
necessary because the 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.
200
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
MONEY MARKET FUND
OCTOBER 31, 2003
-------------------------------------------------------------------------------
3. OPERATING POLICIES
JOINT TRADING ACCOUNT . The Fund 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 Fund's cash balance to be deposited into
a single joint account along with the cash of other registered investment
companies managed by Principal Management Corporation (the "Manager"). These
balances may be invested in one or more short-term instruments.
LINE OF CREDIT . The Fund participates with other funds managed by Principal
Management Corporation in an unsecured joint line of credit with two banks which
allow the participants to borrow up to $75 million, 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 .09% on the amount of the line
of credit. The commitment fee is allocated among the participating funds in
proportion to their average net assets during each calendar quarter. At October
31, 2003, the Fund had no outstanding borrowings under the line of credit.
4. MANAGEMENT AGREEMENT AND TRANSACTIONS WITH AFFILIATES
MANAGEMENT SERVICES . The Fund has agreed to pay investment advisory and
management fees to Principal Management Corporation (wholly owned by Princor
Financial Services Corporation, a subsidiary of Principal Financial Services,
Inc.) computed at an annual percentage rate of the Fund's average daily net
assets. The annual rate used in this calculation for the Fund is as follows:
NET ASSETS OF FUND (IN MILLIONS)
- --------------------------------------------
FIRST NEXT NEXT NEXT OVER
$100 $100 $100 $100 $400
----- ---- ---- ---- ----
.50% .45% .40% .35% .30%
The Fund also reimburses the Manager for transfer and administrative services,
including the cost of accounting, data processing, supplies and other services
rendered.
The Manager has voluntarily agreed to limit expenses paid by the Fund to the
extent necessary to assure the net asset value of the Fund's shares does not
fall to less than one dollar. The limit may be changed at anytime.
DISTRIBUTION FEES . Class B shares bear distribution fees computed at an annual
rate of up to 1.00% of the average daily net assets attributable to the class of
the Fund.
Distribution fees are paid to Princor Financial Services Corporation, the
principal underwriter. A portion of the fees is subsequently remitted to retail
dealers. Pursuant to the distribution agreement for Class B shares, fees that
are unused by the principal underwriter at the end of the fiscal year are
returned to the Fund.
SALES CHARGES . Princor Financial Services Corporation, as principal
underwriter, receives proceeds of any CDSC on certain Class A and Class B share
redemptions. The charge is based on declining rates which for Class A shares
begin at .75% and Class B shares at 4.00% of the lesser of current market value
or the cost of shares being redeemed. The aggregate amounts of these charges for
Class A shares and Class B shares retained by Princor Financial Services
Corporation for the year ended October 31, 2003, were $5,649 and $46,719,
respectively.
AFFILIATED OWNERSHIP . At October 31, 2003, Principal Life Insurance Company (an
affiliate of the Manager), affiliates of Principal Life Insurance Company,
benefit plans sponsored on behalf of Principal Life Insurance Company and
several joint ventures (in each of which a subsidiary of Principal Life
Insurance Company is a participant) owned 12,275,984 Class A shares of the Fund.
AFFILIATED BROKERAGE COMMISSIONS . No brokerage commissions were paid by the
Fund to affiliated broker dealers or any member of the Principal Financial Group
during the period.
201
NOTES TO FINANCIAL STATEMENTS
PRINCIPAL MUTUAL FUNDS
MONEY MARKET FUND
OCTOBER 31, 2003
-------------------------------------------------------------------------------
5. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares were as follows:
YEAR ENDED YEAR ENDED
OCTOBER 31, 2003 OCTOBER 31, 2002
---------------- ------------------
Shares sold:
Class A..................................... 655,800,513 736,479,913
Class B..................................... 5,907,858 7,267,116
Class C..................................... N/A 1,054,984*
Class R..................................... N/A 531,583**
Shares issued in reinvestment of dividends:
Class A..................................... 2,068,086 5,468,029
Class B..................................... 20,850 58,982
Class C..................................... N/A 560*
Class R..................................... N/A 42,920**
Shares redeemed:
Class A..................................... (708,963,596) (756,970,073)
Class B..................................... (6,947,881) (5,266,501)
Class C..................................... N/A (1,459,373)*
Class R..................................... N/A (18,809,442)**
------------ ------------
Net Increase (Decrease) (52,114,170) (31,601,302)
============ ============
* Period from November 1, 2001, through January 31, 2002 (discontinuation of
Class C shares).
** Period from November 1, 2001, through December 28, 2001 (discontinuation of
Class R shares).
With the discontinuation of Class C shares, $342,482 and 342,482 shares were
exchanged into Class A shares on January 31, 2002. With the discontinuation of
Class R shares, $17,764,708 and 17,764,708 shares were exchanged into Class A
shares on December 28, 2001.
6. FEDERAL TAX INFORMATION
DISTRIBUTION TO SHAREHOLDERS. . Federal tax distributions of ordinary income
paid in 2003 and 2002 were $2,168,212 and $5,860,948, respectively.
202
SCHEDULE OF INVESTMENTS
PRINCIPAL CASH MANAGEMENT FUND, INC.
OCTOBER 31, 2003
Principal
Amount Value
- -----------------------------------------------------------------------------------------
COMMERCIAL PAPER (93.59%)
ASSET BACKED SECURITIES (16.16%)
CAFCO
$ $
1.05%; 12/03/03 2,000,000 1,998,133
1.06%; 12/09/03 2,000,000 1,997,762
1.07%; 01/16/04 3,000,000 2,993,223
1.08%; 01/15/04 2,500,000 2,494,375
CRC Funding
1.06%; 11/25/03 1,800,000 1,798,728
1.07%; 11/05/03 2,500,000 2,499,703
1.07%; 11/20/03 2,100,000 2,098,814
1.07%; 12/10/03 1,000,000 998,841
1.08%; 01/14/04 2,000,000 1,995,560
CXC
1.07%; 11/20/03 2,000,000 1,998,871
1.07%; 11/21/03 2,000,000 1,998,811
1.08%; 12/05/03 2,000,000 1,997,960
FCAR Owner Trust I
1.02%; 11/07/03 2,600,000 2,599,558
1.02%; 11/12/03 2,700,000 2,699,158
1.02%; 11/13/03 2,000,000 1,999,320
1.03%; 12/03/03 2,000,000 1,998,169
1.04%; 11/06/03 2,290,000 2,289,663
1.05%; 01/13/04 2,200,000 2,195,316
1.09%; 11/12/03 2,000,000 1,999,340
Receivables Capital
1.05%; 11/24/03 2,000,000 1,998,658
1.05%; 11/25/03 2,200,000 2,198,460
Windmill Funding
1.05%; 12/29/03 1,870,000 1,866,837
1.07%; 11/12/03 2,000,000 1,999,346
Yorktown Capital
1.05%; 12/02/03 1,540,000 1,538,608
1.07%; 11/04/03 2,960,000 2,959,736
1.08%; 01/08/04 2,000,000 1,995,920
1.09%; 01/14/04 2,000,000 1,995,519
57,204,389
CHEMICALS-DIVERSIFIED (0.57%)
E. I. Du Pont de Nemours
1.05%; 11/17/03 2,025,000 2,024,055
COMMERCIAL BANKS (5.05%)
Nordea North America
1.06%; 11/07/03 2,000,000 1,999,647
1.06%; 11/17/03 2,360,000 2,358,893
1.08%; 01/06/04 2,350,000 2,345,325
Svenska Handelsbanken
1.05%; 12/08/03 595,000 594,358
1.06%; 11/14/03 2,000,000 1,999,238
1.06%; 12/09/03 1,400,000 1,398,441
1.06%; 12/30/03 2,000,000 1,996,526
1.07%; 12/08/03 2,500,000 2,497,264
1.08%; 12/04/03 2,700,000 2,697,339
17,887,031
DIVERSIFIED FINANCIAL SERVICES (6.85%)
Amstel Funding
0.93%; 12/12/03 1,700,000 1,698,199
0.95%; 12/19/03 2,500,000 2,496,833
Principal
Amount Value
- -----------------------------------------------------------------------------------------
COMMERCIAL PAPER (CONTINUED)
DIVERSIFIED FINANCIAL SERVICES (CONTINUED)
Amstel Funding (continued)
$ $
1.10%; 01/28/04 2,400,000 2,393,547
1.12%; 03/24/04 2,000,000 1,991,040
1.12%; 03/25/04 2,300,000 2,289,624
1.13%; 03/05/04 1,015,000 1,011,018
1.22%; 11/05/03 2,000,000 1,999,729
General Electric Capital
1.03%; 12/16/03 1,190,000 1,188,394
1.05%; 12/11/03 4,065,000 4,060,257
1.07%; 01/05/04 1,835,000 1,831,455
1.09%; 01/06/04 2,000,000 1,996,003
1.09%; 01/07/04 1,300,000 1,297,363
24,253,462
FINANCE-AUTO LOANS (0.56%)
Paccar Financial
1.21%; 01/16/04 2,000,000 1,994,891
FINANCE-COMMERCIAL (3.50%)
CIT Group
1.07%; 12/05/03 2,500,000 2,497,474
1.08%; 11/03/03 2,500,000 2,499,850
1.08%; 11/10/03 2,700,000 2,699,271
1.11%; 12/17/03 2,100,000 2,097,021
1.12%; 02/18/04 2,600,000 2,591,183
12,384,799
FINANCE-CONSUMER LOANS (3.82%)
Household Finance
1.05%; 12/02/03 2,370,000 2,367,857
1.08%; 01/07/04 2,600,000 2,594,726
1.08%; 01/28/04 2,000,000 1,994,622
1.09%; 01/12/04 3,000,000 2,993,460
1.10%; 01/06/04 2,700,000 2,694,555
1.10%; 01/09/04 870,000 868,166
13,513,386
FINANCE-CREDIT CARD (0.65%)
American Express Credit
1.03%; 11/25/03 2,315,000 2,313,410
FINANCE-INVESTMENT BANKER & BROKER (17.59%)
Bear Stearns
1.06%; 11/21/03 2,700,000 2,698,410
1.06%; 01/14/04 2,000,000 1,995,642
1.07%; 01/09/04 2,000,000 1,995,898
1.07%; 02/11/04 2,500,000 2,492,421
1.08%; 02/06/04 2,000,000 1,994,180
Citigroup Global Markets Holdings
1.05%; 12/09/03 735,000 734,185
1.06%; 11/05/03 2,335,000 2,334,725
1.06%; 11/13/03 2,550,000 2,549,107
1.06%; 11/18/03 2,000,000 1,998,999
1.07%; 01/09/04 1,700,000 1,696,514
1.07%; 02/02/04 1,635,000 1,630,481
Goldman Sachs Group
1.02%; 11/14/03 2,700,000 2,699,005
1.03%; 11/18/03 2,400,000 2,398,833
1.23%; 11/19/03 2,000,000 1,998,770
Principal
Amount Value
- -----------------------------------------------------------------------------------------
COMMERCIAL PAPER (CONTINUED)
FINANCE-INVESTMENT BANKER & BROKER (CONTINUED)
Goldman Sachs Group (continued)
$ $
1.30%; 11/04/03 2,000,000 1,999,783
ING U.S. Funding
1.06%; 12/22/03 2,400,000 2,396,430
1.07%; 12/04/03 1,500,000 1,498,529
1.07%; 12/17/03 1,950,000 1,947,334
1.07%; 02/05/04 1,545,000 1,540,592
1.11%; 03/30/04 2,200,000 2,189,825
1.12%; 01/02/04 2,000,000 1,996,142
1.13%; 03/01/04 2,200,000 2,191,644
JP Morgan
1.05%; 01/21/04 2,400,000 2,394,330
1.05%; 01/27/04 2,000,000 1,994,925
Morgan Stanley Group
1.05%; 12/08/03 2,000,000 1,997,842
1.05%; 12/10/03 3,630,000 3,625,871
1.06%; 11/19/03 2,300,000 2,298,781
1.07%; 12/08/03 2,000,000 1,997,801
1.07%; 12/18/03 3,000,000 2,995,809
62,282,808
FINANCE-MORTGAGE LOAN/BANKER (8.08%)
Federal Home Loan Bank
1.00%; 01/22/04 1,948,000 1,943,563
1.03%; 12/10/03 2,000,000 1,997,768
Federal Home Loan Mortgage
0.90%; 11/20/03 2,500,000 2,498,813
1.00%; 11/19/03 1,250,000 1,249,375
1.06%; 02/04/04 2,000,000 1,994,406
1.08%; 12/15/03 2,735,000 2,731,390
1.08%; 01/22/04 2,000,000 1,995,080
1.14%; 01/29/04 900,000 897,464
Federal National Mortgage
Association
1.06%; 11/18/03 1,025,000 1,024,487
1.06%; 01/07/04 1,545,000 1,541,966
1.06%; 01/20/04 1,735,000 1,730,913
1.07%; 11/26/03 2,500,000 2,498,142
1.09%; 03/10/04 1,800,000 1,792,915
1.10%; 03/03/04 2,100,000 2,092,179
1.20%; 12/12/03 2,615,000 2,611,426
28,599,887
FINANCE-OTHER SERVICES (10.29%)
ABN-AMRO North America Finance
1.07%; 12/03/03 1,500,000 1,498,573
Caterpillar Financial Services
1.06%; 12/02/03 1,410,000 1,408,725
1.11%; 03/22/04 2,500,000 2,489,054
1.15%; 05/03/04 2,015,000 2,003,156
Commoloco
1.05%; 11/14/03 1,500,000 1,499,431
1.06%; 11/17/03 2,810,000 2,808,676
1.06%; 11/21/03 2,000,000 1,998,845
1.07%; 01/30/04 2,600,000 2,593,045
1.08%; 01/08/04 2,000,000 1,995,920
1.08%; 02/03/04 2,000,000 1,994,360
Delaware Funding
1.05%; 12/01/03 1,790,000 1,788,434
Principal
Amount Value
- -----------------------------------------------------------------------------------------
COMMERCIAL PAPER (CONTINUED)
FINANCE-OTHER SERVICES (CONTINUED)
Delaware Funding (continued)
$ $
1.05%; 12/05/03 2,000,000 1,998,017
1.08%; 01/13/04 2,000,000 1,995,620
1.09%; 01/13/04 2,000,000 1,995,579
Private Export Funding
0.93%; 12/15/03 940,000 938,932
1.02%; 01/15/04 2,400,000 2,394,900
Sheffield Receivables
1.05%; 11/19/03 2,000,000 1,998,950
1.07%; 12/17/03 3,020,000 3,015,871
36,416,088
INSURANCE BROKERS (0.51%)
Marsh & McLennan
1.03%; 11/10/03 1,800,000 1,799,536
METAL-DIVERSIFIED (3.14%)
Rio Tinto
1.04%; 11/26/03 1,400,000 1,398,989
1.05%; 12/16/03 2,000,000 1,997,375
1.08%; 01/23/04 2,000,000 1,995,020
1.09%; 02/24/04 2,500,000 2,491,295
1.10%; 02/10/04 2,000,000 1,993,828
1.15%; 01/23/04 1,227,000 1,223,747
11,100,254
MONEY CENTER BANKS (8.13%)
BNP Paribas
1.06%; 11/04/03 2,000,000 1,999,823
Citicorp
1.05%; 12/19/03 2,000,000 1,997,200
1.06%; 11/06/03 2,070,000 2,069,695
1.08%; 01/26/04 2,830,000 2,822,699
HBOS Treasury Services
1.06%; 11/03/03 2,280,000 2,279,866
1.06%; 11/10/03 2,000,000 1,999,470
1.06%; 11/24/03 2,200,000 2,198,510
1.06%; 12/23/03 1,518,000 1,515,676
1.07%; 12/09/03 2,500,000 2,497,229
1.08%; 12/22/03 2,500,000 2,496,175
JP Morgan Chase
1.06%; 11/06/03 2,000,000 1,999,706
1.06%; 11/07/03 2,400,000 2,399,576
1.08%; 02/20/04 2,500,000 2,491,675
28,767,300
OIL COMPANY-INTEGRATED (1.47%)
Shell Finance
1.06%; 12/01/03 2,000,000 1,998,233
1.07%; 12/30/03 1,200,000 1,197,896
1.08%; 03/02/04 2,000,000 1,992,680
5,188,809
PIPELINES (0.56%)
Equitable Resources
1.02%; 11/26/03 2,000,000 1,998,583
REGIONAL BANKS (1.07%)
Bank One
1.32%; 11/28/03 2,000,000 2,000,000
Principal
Amount Value
- -----------------------------------------------------------------------------------------
COMMERCIAL PAPER (CONTINUED)
REGIONAL BANKS (CONTINUED)
Wells Fargo
$ $
1.05%; 12/26/03 1,800,000 1,797,112
3,797,112
SPECIAL PURPOSE ENTITY (3.38%)
Cortez Capital
1.05%; 11/24/03 2,190,000 2,188,531
1.07%; 12/05/03 1,385,000 1,383,600
1.07%; 12/15/03 1,935,000 1,932,469
Southern Company Funding
1.03%; 11/18/03 1,950,000 1,949,052
Tulip Funding
1.05%; 12/01/03 2,500,000 2,497,813
1.08%; 12/29/03 2,000,000 1,996,520
11,947,985
SUPRANATIONAL BANK (0.76%)
Corp Andina de Fomento
1.08%; 11/13/03 2,700,000 2,699,028
TELEPHONE COMMUNICATION (1.45%)
Telstra
1.06%; 12/31/03 5,135,000 5,125,928
TOTAL COMMERCIAL PAPER 331,298,741
Principal
Amount Value
- -----------------------------------------------------------------------------------------
BONDS (6.69%)
AEROSPACE & DEFENSE EQUIPMENT (0.59%)
United Technologies
6.63%; 11/15/04 2,000,000 2,104,340
BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS (0.60%)
Vulcan Materials
5.75%; 04/01/04 2,100,000 2,137,315
COMMERCIAL BANKS (0.59%)
Svenska Handelsbanken
8.35%; 07/15/04 2,000,000 2,101,870
DIVERSIFIED FINANCIAL SERVICES (0.42%)
Associates Corp. of North America
5.75%; 11/01/03 1,500,000 1,500,000
FINANCE-INVESTMENT BANKER & BROKER (1.15%)
JP Morgan
5.75%; 02/25/04 2,000,000 2,027,295
Lehman Brothers Holdings
6.63%; 04/01/04 2,000,000 2,043,023
4,070,318
FINANCE-OTHER SERVICES (1.72%)
Caterpillar Financial Services
6.88%; 08/01/04 2,000,000 2,083,707
Principal
Amount Value
- -----------------------------------------------------------------------------------------
BONDS (CONTINUED)
FINANCE-OTHER SERVICES (CONTINUED)
Verizon Global Funding /1/
$ $
1.21%; 12/15/03 4,000,000 4,000,000
6,083,707
MONEY CENTER BANKS (0.45%)
Bank of America
7.75%; 08/15/04 1,500,000 1,573,631
REGIONAL BANKS (0.59%)
Bank One
7.25%; 08/15/04 2,000,000 2,091,197
TELEPHONE-INTEGRATED (0.58%)
SBC Communications
4.18%; 06/05/04 2,000,000 2,034,874
TOTAL BONDS 23,697,252
------------
TOTAL PORTFOLIO INVESTMENTS (100.28%) 354,995,993
LIABILITIES, NET OF
CASH, RECEIVABLES
AND OTHER ASSETS
(-0.28%) (1,008,717)
TOTAL NET ASSETS (100.00%) $353,987,276
---------------
/1/ Variable rate.
See accompanying notes.
205
FINANCIAL HIGHLIGHTS
PRINCIPAL MUTUAL FUNDS
MONEY MARKET FUND
-------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31 (EXCEPT AS NOTED):
-------------------------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL CASH MANAGEMENT FUND, INC.
- ------------------------------------
CLASS A SHARES
- --------------
Net Asset Value,
Beginning of Period.. $1.000 $1.000 $1.000 $1.000 $1.000
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.006 0.013 0.043 0.056 0.045
----- ----- ----- ----- -----
Total From Investment
Operations 0.006 0.013 0.043 0.056 0.045
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.006) (0.013) (0.043) (0.056) (0.045)
------ ------ ------ ------ ------
Total Dividends and
Distributions (0.006) (0.013) (0.043) (0.056) (0.045)
------ ------ ------ ------ ------
Net Asset Value, End
of Period............ $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ======
Total Return /(b)/ ... 0.59% 1.36% 4.44% 5.71% 4.56%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $346,292 $397,386 $412,409 $390,154 $352,675
Ratio of Expenses to
Average Net Assets.. 0.75% 0.72% 0.70% 0.70% 0.69%
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 0.75% -- -- -- --
Ratio of Net
Investment Income to
Average Net Assets.. 0.59% 1.35% 4.33% 5.54% 4.45%
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
PRINCIPAL CASH MANAGEMENT FUND, INC.
- ------------------------------------
CLASS B SHARES
- --------------
Net Asset Value,
Beginning of Period.. $1.000 $1.000 $1.000 $1.000 $1.000
Income from Investment
Operations:
Net Investment Income
(Operating Loss)
/(a)/ .............. 0.003 0.009 0.037 0.049 0.039
----- ----- ----- ----- -----
Total From Investment
Operations 0.003 0.009 0.037 0.049 0.039
Less Dividends and
Distributions:
Dividends from Net
Investment Income... (0.003) (0.009) (0.037) (0.049) (0.039)
------ ------ ------ ------ ------
Total Dividends and
Distributions (0.003) (0.009) (0.037) (0.049) (0.039)
------ ------ ------ ------ ------
Net Asset Value, End
of Period............ $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ======
Total Return /(b)/ ... 0.25% 0.88% 3.71% 5.01% 4.00%
Ratio/Supplemental
Data:
Net Assets, End of
Period (in
thousands).......... $7,695 $8,715 $6,655 $5,318 $6,330
Ratio of Expenses to
Average Net Assets.. 1.09% 1.27% 1.40% 1.33% 1.19%
Ratio of Gross
Expenses to Average
Net Assets /(c)/ ... 1.10% -- -- -- --
Ratio of Net
Investment Income to
Average Net Assets.. 0.25% 0.87% 3.59% 4.87% 4.00%
/(a) //Effective November 1, 2002, calculated based on average shares
outstanding during the period./
/(b) //Total return is calculated without the front-end sales charge or
contingent deferred sales charge./
/(c) //Expense ratio without the Manager's voluntary expense limit./
See accompanying notes.
206
REPORT OF INDEPENDENT AUDITORS
The Boards of Directors
and Shareholders
Principal Balanced Fund, Principal Real Estate Fund, Inc.
Inc.
Principal Capital Value Principal SmallCap Fund, Inc.
Fund, Inc.
Principal Growth Fund, Principal Utilities Fund, Inc.
Inc.
Principal LargeCap Stock Principal International Emerging Markets Fund, Inc.
Index Fund, Inc.
Principal MidCap Fund, Principal International Fund, Inc.
Inc.
Principal Partners Blue Principal International SmallCap Fund, Inc.
Chip Fund, Inc.
Principal Partners Principal Bond Fund, Inc.
Equity Growth Fund, Inc.
Principal Partners Principal Government Securities Income Fund, Inc.
LargeCap Blend Fund,
Inc.
Principal Partners Principal Limited Term Bond Fund, Inc.
LargeCap Value Fund,
Inc.
Principal Partners Principal Tax-Exempt Bond Fund, Inc.
MidCap Growth Fund, Inc.
Principal Partners Principal Cash Management Fund, Inc.
SmallCap Growth Fund,
Inc.
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of Principal Domestic Growth Funds (comprising
Principal Balanced Fund, Inc., Principal Capital Value Fund, Inc., Principal
Growth Fund, Inc., Principal LargeCap Stock Index Fund, Inc., Principal MidCap
Fund, Inc., Principal Partners Blue Chip Fund, Inc., Principal Partners Equity
Growth Fund, Inc., Principal Partners LargeCap Blend Fund, Inc., Principal
Partners LargeCap Value Fund, Inc., Principal Partners MidCap Growth Fund, Inc.,
Principal Partners SmallCap Growth Fund, Inc., Principal Real Estate Fund, Inc.,
Principal SmallCap Fund, Inc. and Principal Utilities Fund, Inc.), Principal
International Growth Funds (comprising Principal International Emerging Markets
Fund, Inc., Principal International Fund, Inc. and Principal International
SmallCap Fund, Inc.), Principal Income Funds (comprising Principal Bond Fund,
Inc., Principal Government Securities Income Fund, Inc., Principal Limited Term
Bond Fund, Inc. and Principal Tax-Exempt Bond Fund, Inc.) and Principal Money
Market Fund (Principal Cash Management Fund, Inc.) as of October 31, 2003, and
the related statements of operations, statements of changes in net assets and
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 auditing standards generally accepted
in the United States. 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. Our procedures included confirmation of securities
owned as of October 31, 2003, by correspondence with the custodians and brokers.
As to certain securities relating to uncompleted transactions, we performed
other audit procedures. 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 each
of the respective funds constituting Principal Domestic Growth Funds, Principal
International Growth Funds, Principal Income Funds and Principal Money Market
Fund at October 31, 2003, and the results of their operations, the changes in
their net assets and their financial highlights for each of the periods
indicated therein, in conformity with accounting principles generally accepted
in the United States.
/s/Ernst & Young LLP
Des Moines, Iowa
November 26, 2003
207
FUND DIRECTORS
Under Maryland law, a Board of Directors oversees the Funds. The Directors have
financial or other relevant experience and meet several times during the year to
review contracts, Funds activities and the quality of services provided to the
Funds. Each director also has the same position with Principal Investors Fund,
Inc. and Principal Variable Contracts Fund, Inc. that are also sponsored by
Principal Life Insurance Company. Each director holds office for an indefinite
term. Directors considered to be "interested persons" are defined in the
Investment Company Act of 1940, as amended. The interested persons shown below
are considered to be interested because of a current or former affiliation with
the Manager or Principal Life Insurance Company.
THE FOLLOWING DIRECTORS ARE CONSIDERED NOT TO BE "INTERESTED PERSONS" AS DEFINED
IN THE 1940 ACT .
NUMBER OF
PORTFOLIOS IN
FUND OTHER
COMPLEX DIRECTORSHIPS
NAME, POSITION HELD WITH THE FUND, PRINCIPAL OCCUPATION(S) OVERSEEN BY HELD BY
ADDRESS, AND DATE OF BIRTH DURING PAST 5 YEARS DIRECTOR DIRECTOR*
----------------------- ------------- -------------
93 None
James D. Davis
Director since 1974 Attorney. Vice
Member Audit and President, Deere and
Nominating Committee Company, Retired.
4940 Center Court,
Bettendorf, Iowa
03/22/34
93 None
Pamela A. Ferguson
Director since 1993 Professor of
Member Audit and Mathematics, Grinnell
Nominating Committee College, since 1998.
4112 River Oaks Prior thereto,
Drive, Des Moines, President, Grinnell
Iowa College.
05/05/43
93 None
Richard W. Gilbert
Director since 1985 President, Gilbert
Member Audit and Communications, Inc.,
Nominating Committee since 1993. Prior
5040 Arbor Lane, thereto, President
#302, Northfield, and Publisher,
Illinois. Pioneer Press.
05/08/40
93 None
William C. Kimball Chairman and CEO,
Director since 1999 Medicap Pharmacies,
Member Audit and Inc., since 1998.
Nominating Committee Prior thereto,
4350 Westown Parkway, President and CEO.
Suite 400
West Des Moines, Iowa
11/28/47
93 None
Barbara A. Lukavsky
Director since 1987 President and CEO,
Member Audit and Barbican Enterprises,
Nominating Committee Inc. since 1997.
Member Executive President and CEO, Lu
Committee San ELITE USA, L.C.,
13731 Bay Hill Court, 1985-1998.
Clive, Iowa
09/10/40
* Directorships of any company registered pursuant to Section 12 of the
Securities Exchange Act or subject to the requirements of Section 15(d) of
the Securities Exchange Act or any other mutual fund.
THE FOLLOWING DIRECTORS ARE CONSIDERED TO BE "INTERESTED PERSONS" AS DEFINED IN
THE 1940 ACT, AS AMENDED, BECAUSE OF CURRENT OR FORMER AFFILIATION WITH THE
MANAGER OR PRINCIPAL LIFE. .
Executive Vice
President, Principal
Life, since 2000.
Senior Vice
President, 1996-2000.
John E. Aschenbrenner Vice President - 93 None
Director since 1998 Individual Markets
08/16/49 1990-1996. Director,
Principal Management
Corporation and
Princor Financial
Services Corporation
("Princor").
Director and
President, Princor
and Principal
Ralph C. Eucher Management
Director and Corporation, since
President since 1999 1999. Senior Vice 93 None
Member Executive President, Principal
Committee Life, since 2002.
06/14/52 Vice President,
1999-2002. Prior
thereto, Second Vice
President.
Chairman and
Director, Princor and
Larry D. Zimpleman Principal Management 93 None
Director and Chairman Corporation since
of the Board since 2002. Executive Vice
December 2001 President, Principal
Member Executive Life, since 2001.
Committee Senior Vice
09/07/51 President,1999-2001.
Prior thereto, Vice
President.
208
The Audit and Nominating Committee considers management's recommendation of
independent auditors for the Funds and oversees the activities of the
independent auditors as well as the internal auditors. The committee also
receives reports about accounting and financial matters affecting the Funds. In
addition, the committee selects and nominates all candidates who are not
"interested persons" of the Funds for election to the Board.
The Executive Committee is selected by the Board. It may exercise all the powers
of the Board, with certain exceptions, when the Board is not in session. The
Committee must report its actions to the Board.
Additional information about the Fund is available in the Prospectus and
Statement of Additional Information both dated March 1, 2003. These documents
may be obtained free of charge by writing or telephoning Princor Financial
Services Corporation, P.O. Box 10423, Des Moines, IA 50306. Telephone
1-800-247-4123.
209
FEDERAL INCOME TAX INFORMATION
PRINCIPAL MUTUAL FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
Information for federal income tax purposes is presented as an aid to
shareholders in reporting the dividend distributions shown below. Shareholders
should consult a tax advisor on how to report these distributions for state and
local purposes.
DIVIDEND RECEIVED DEDUCTION . For corporate shareholders, the percentage of
ordinary income distributions (dividend income and short-term gains, if any) for
the year ended October 31, 2003 that qualifies for the dividend received
deduction is as follows:
DEDUCTIBLE
PERCENTAGE
------------
Principal Balanced Fund, Inc. 57%
Principal Capital Value Fund, Inc. 100
Principal LargeCap Stock Index Fund, Inc. 100
Principal MidCap Fund, Inc. 100
Principal Partners LargeCap Value Fund, Inc. 100
Principal Utilities Fund, Inc. 79
QUALIFIED DIVIDEND INCOME . For the fiscal year ended October 31, 2003, certain
dividends paid by the Funds may be subject to a maximum tax rate of 15%, as
provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The
percentage of ordinary income distributions for the fiscal year ended October
31, 2003, taxed at the maximum rate of 15% is as follows:
PERCENTAGE
------------
Principal Balanced Fund, Inc. 40%
Principal Utilities Fund, Inc. 47
This information is given to meet certain requirements of the Internal Revenue
Code and should not be used by shareholders for preparing their income tax
returns. For tax return preparation purposes, please refer to the information
supplied with the 1099-DIV form you receive from the Fund's transfer agent.
TAX-EXEMPT DIVIDENDS . Dividends from the Principal Tax-Exempt Bond Fund, Inc.
were exempt from federal income taxation for non-corporate shareholders.
FOREIGN TAXES PAID . Principal International Fund, Inc. makes an election under
the Internal Revenue Code Section 853 to pass through foreign taxes paid by the
fund to its shareholders. The total amount of foreign taxes passed through to
shareholders for the year ended October 31, 2003 totals $.0196 per share. This
information is given to meet certain requirements of the Internal Revenue Code
and should not be used by shareholders for preparing their income tax returns.
For tax return preparation purposes, please refer to the information supplied
with the 1099 form you receive from the fund's transfer agent.
LONG TERM CAPITAL GAIN DIVIDENDS . For federal income tax purposes, the Fund
designates long term capital gain dividends for all share classes for the year
ended October 31, 2003 as follows:
PER SHARE
LONG TERM
CAPITAL GAIN
DISTRIBUTIONS
-----------------
Principal Tax Exempt Bond Fund, Inc. $ .0474
210
FEDERAL INCOME TAX INFORMATION
PRINCIPAL MUTUAL FUNDS
OCTOBER 31, 2003
-------------------------------------------------------------------------------
Information for federal income tax purposes is presented as an aid to
shareholders in reporting the dividend distributions shown below. Shareholders
should consult a tax advisor on how to report these distributions for state and
local purposes.
DIVIDEND RECEIVED DEDUCTION . For corporate shareholders, the percentage of
ordinary income distributions (dividend income and short-term gains, if any) for
the year ended October 31, 2003 that qualifies for the dividend received
deduction is as follows:
DEDUCTIBLE
PERCENTAGE
------------
Principal Balanced Fund, Inc. 57%
Principal Capital Value Fund, Inc. 100
Principal LargeCap Stock Index Fund, Inc. 100
Principal MidCap Fund, Inc. 100
Principal Partners LargeCap Value Fund, Inc. 100
Principal Utilities Fund, Inc. 79
QUALIFIED DIVIDEND INCOME . For the fiscal year ended October 31, 2003, certain
dividends paid by the Funds may be subject to a maximum tax rate of 15%, as
provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The
percentage of ordinary income distributions for the fiscal year ended October
31, 2003, taxed at the maximum rate of 15% is as follows:
PERCENTAGE
------------
Principal Balanced Fund, Inc. 40%
Principal Utilities Fund, Inc. 47
This information is given to meet certain requirements of the Internal Revenue
Code and should not be used by shareholders for preparing their income tax
returns. For tax return preparation purposes, please refer to the information
supplied with the 1099-DIV form you receive from the Fund's transfer agent.
TAX-EXEMPT DIVIDENDS . Dividends from the Principal Tax-Exempt Bond Fund, Inc.
were exempt from federal income taxation for non-corporate shareholders.
FOREIGN TAXES PAID . Principal International Fund, Inc. makes an election under
the Internal Revenue Code Section 853 to pass through foreign taxes paid by the
fund to its shareholders. The total amount of foreign taxes passed through to
shareholders for the year ended October 31, 2003 totals $.0196 per share. This
information is given to meet certain requirements of the Internal Revenue Code
and should not be used by shareholders for preparing their income tax returns.
For tax return preparation purposes, please refer to the information supplied
with the 1099 form you receive from the fund's transfer agent.
LONG TERM CAPITAL GAIN DIVIDENDS . For federal income tax purposes, the Fund
designates long term capital gain dividends for all share classes for the year
ended October 31, 2003 as follows:
PER SHARE
LONG TERM
CAPITAL GAIN
DISTRIBUTIONS
-----------------
Principal Tax Exempt Bond Fund, Inc. $ .0474
210
Item 2. Code of Ethics.
(a) The Registrant has adopted a code of ethics (the "Code of
Ethics") that applies to its principal executive officer,
principal financial officer, principal accounting officer or
controller, or persons performing similar functions.
(b) Not applicable.
(c) The Registrant has not amended its Code of Ethics during the
period covered by the shareholder report presented in Item 1
hereto.
(d) The Registrant has not granted a waiver or an implicit waiver
from a provision of its Code of Ethics during the period covered
by the shareholder report presented in Item 1 hereto.
(e) Not applicable.
(f) The Registrant's Code of Ethics is attached as an Exhibit hereto.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The Registrant's Board has determined that Richard Gilbert, a member
of the Registrant's Audit and Nominating Committee, is an "audit
committee financial expert" and "independent," as such terms are
defined in this Item. This designation will not increase the
designee's duties, obligations or liability as compared to his duties,
obligations and liability as a member of the Audit and Nominating
Committee and of the Board; nor will it reduce the responsibility of
the other Audit and Nominating Committee members.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Not applicable until annual reports for fiscal years ending after
December 15, 2003.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6. RESERVED
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not applicable.
ITEM 8. RESERVED
ITEM 9. CONTROLS AND PROCEDURES
a) The registrant's principal executive officer and principal
financial officer have concluded that the registrant's disclosure
controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended) are effective based
on their evaluation of these controls and procedures as of a date
within 90 days of the filing date of this document.
(b) The registrant's principal executive officer and principal
financial officer are aware of no changes in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal half-year that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 10. EXHIBITS
(a) Code of ethics required to be disclosed under Item 2 of Form
N-CSR attached hereto as Exhibit 99.CODE ETH.**
(b) (1) Certifications pursuant to Rule 30a-2(a) under the Investment
Company Act of 1940 (17 CFR 270.30a-2(a)) attached hereto as
Exhibit 99.CERT.**
(c) (2) Certification pursuant to Rule 301-2(b) under the Investment
Company Act of 1940 (17 CFR 270.30a-2(b)) attached hereto as
Exhibit 99.906CERT.**
* To be filed with the annual filing.
** Included as a part of this filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of Des Moines and State of Iowa, on the 19th day of December, 2003.
Principal Capital Value Fund, Inc.
(Registrant)
/s/ Ralph C. Eucher
By _____________________________________
Ralph C. Eucher, President
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/ R. C. Eucher
_____________________________ President and Director December 19, 2003
R. C. Eucher _________________
/s/ Jill R. Brown
_____________________________ Vice President and December 19, 2003
J. R. Brown Chief Financial Officer _________________