PRINCIPAL VARIABLE CONTRACTS FUND INC, 485APOS, 1999-02-16

PRINCIPAL VARIABLE CONTRACTS FUND INC
485APOS, 1999-02-16

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Registration No. 02-35570

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------

POST-EFFECTIVE AMENDMENT NO. 43 TO

FORM N-1A

REGISTRATION STATEMENT

under

THE SECURITIES ACT OF 1933

and

REGISTRATION STATEMENT

under

THE INVESTMENT COMPANY ACT OF 1940
--------

PRINCIPAL VARIABLE CONTRACTS FUND, INC.
(Exact name of Registrant as specified in Charter)

The Principal Financial Group
Des Moines, Iowa 50392
(Address of principal executive offices)
--------

Telephone Number (515) 248-3842
--------

MICHAEL D. ROUGHTON Copy to:
The Principal Financial Group JONES & BLOUCH L.L.P.
Des Moines, Iowa 50392 Suite 405 West
1025 Thomas Jefferson Street, N.W.
Washington, DC 20007-0805

(Name and address of agent for service)
----------

It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b)of Rule 485
on (date) pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a)(1) of Rule 485
on (date) pursuant to paragraph (a)(1) of Rule 485
75 days after filing pursuant to paragraph (a)(2) of Rule 485
X on May 1, 1999 pursuant to paragraph (a)(2) of Rule 485

If appropriate, check the following box:
This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
----------
<PAGE>

PRINCIPAL VARIABLE CONTRACTS FUND, INC.

ACCOUNTS OF THE FUND

Aggressive Growth Account MidCap Account
Asset Allocation Account MidCap Growth Account
Balanced Account Money Market Account
Bond Account Real Estate Account
Capital Value Account SmallCap Account
Government Securities Account SmallCap Growth Account
Growth Account SmallCap Value Account
International Account Stock Index 500 Account
International SmallCap Account Utilities Account
MicroCap Account

This Prospectus describes a mutual fund organized by Principal Life
Insurance Company. The Fund provides a choice of investment objectives through
the accounts listed above.

The date of this Prospectus is ----------------.

Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of these securities or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.

ACCOUNT DESCRIPTIONS
The Principal Variable Contracts Fund is made up of several different Accounts.
Each Account has its own investment objective. Nineteen of the Account are
available through the PrinFlex Life(R) Variable Life Insurance. The accounts and
investment objectives are:

Growth-Oriented Funds:

Aggressive Growth - seeks long-term growth of capital appreciation by investing
primarily in growth-oriented common stocks of medium and large capitalization
U.S. corporations and, to a limited extent, foreign corporations.

Asset Allocation - seeks a total investment return consistent with the
preservation of capital.

Balanced - seeks a total return consisting of current income and capital
appreciation while assuming reasonable risks in furtherance of the investment
objective.

Blue Chip - seeks to achieve growth of capital and growth of income by investing
primarily in common stocks of well capitalized, established companies.

Capital Value - seeks to achieve primarily long-term capital appreciation and
secondarily growth of investment income through the purchase primarily of common
stocks, but the Account may invest in other securities.

Growth - seeks growth of capital through the purchase primarily of common
stocks, but the Account may invest in other securities.

International - seeks long-term growth of capital by investing in a portfolio of
equity securities of companies domiciled in any of the nations of the world.

International SmallCap - seeks long-term growth of capital by investing
primarily in equity securities of non-United States companies with comparatively
smaller market capitalizations.

MicroCap - seeks long-term growth of capital by investing primarily in value and
growth oriented companies with small market capitalizations, generally less than
$700 million.

MidCap - seeks growth of capital through the purchase primarily of common stocks
but the Account may invest in other securities.

MidCap Growth - seeks long term growth of capital by investing primarily in
growth stocks of companies with market capitalizations in the $1 billion to $10
billion range.

Real Estate - seeks to generate a high total return by investing primarily in
equity securities of companies principally engaged in the real estate industry.

SmallCap - seeks long-term growth of capital by investing primarily in equity
securities of both growth and value oriented companies with comparatively
smaller market capitalizations.

SmallCap Growth - seeks long-term growth of capital through investing primarily
in equity securities of small growth companies with market capitalizations of
less than $1 billion at the time of the initial purchase.

SmallCap Value - seeks long-term growth of capital by investing primarily in
equity securities of small companies with value characteristics and market
capitalizations of less than $1 billion.

Stock Index 500 - seeks long-term growth of capital. The Account attempts to
mirror the investment results of the Standard & Poor's 500 Stock Index.

Utilities - seeks to provide current income and long-term growth of income and
capital by investing primarily in equity and fixed income securities of
companies in the public utilities industry.

The Growth-Oriented Accounts (except the Balanced and Utilities Accounts that
invest in a mix of equity and debt securities) invest primarily in common
stocks. Under normal market conditions the Growth-Oriented Funds (except
Balanced and Utilities) are fully invested in equity securities. Under unusual
circumstances, each of the Growth-Oriented Accounts may invest without limit in
cash for temporary defensive purposes (see Temporary Defensive Measures). When
doing so, the Account is not investing to achieve its investment objective. The
Accounts also maintain a portion of their assets in cash while they are making
long-term investment decisions and to cover sell orders from shareholders.

Income-Oriented Accounts:

Bond - seeks to provide as high a level of income as is consistent with
preservation of capital and prudent investment risk.

Government Securities - seeks a high level of income, liquidity and safety of
principal through the purchase of obligations issued or guaranteed by the United
States Government or its agencies, with emphasis on Government National Mortgage
Association Certificates ("GNMA Certificates"). Account shares are not
guaranteed by the United States Government.

The Income-Oriented Accounts each has a rating limitation with regard to the
quality of the bonds that are held in its portfolio. The rating limitation
applies when the Account purchases a bond. If the rating on a bond changes while
the Account owns it the Account is not required to sell the bond. The SAI
contains additional information about bond ratings by Moody's Investor Services,
Inc. (Moody's) and Standard & Poor's Corporation (S&P).

Money Market - seeks as high a level of income available from short-term
securities as is consistent with preservation of principal and maintenance of
liquidity by investing all of its assets in a portfolio of money market
investments.

In the description for each Account, you will find important information about
the Account's:

Primary investment strategy
This section summarizes how the Account intends to achieve its investment
objective. It identifies the Account's primary investment strategy (including
the type or types of securities in which the Account primarily invests) and any
policy to concentrate in securities of issuers in a particular industry or group
of industries.

Annual operating expenses
The annual operating expenses for each Account are deducted from Account assets
(stated as a percentage of Account assets) and are shown as of the end of the
most recent fiscal year. Estimates of the expenses are shown for the new
Account. The example is intended to help you compare the cost of investing in a
particular account with the cost of investing in other mutual funds. The example
assumes you invest $10,000 in an Account for the time periods indicated. The
example also assumes that your investment has a 5% return each year and that the
Account's operating expenses are the same as the most recent fiscal year
expenses (or estimated expenses for the new Account). Although your actual costs
may be higher or lower, based on these assumptions, your costs would be as
shown.

Day-to-day Account management
The investment professionals who manage the assets of each Account are listed
with each Account. Backed by their staffs of experienced securities analysts,
they provide the Accounts with professional investment management.

Sub-Advisor Account
Berger Associates ("Berger") SmallCap Growth
Dreyfus Corporation ("Dreyfus") MidCap Growth
Goldman Sachs Asset Management ("GSAM") MicroCap
Invista Capital Management, LLC Balanced, Capital Value,
("Invista") Government Securities,
Growth, International,
International SmallCap,
MidCap, SmallCap, Stock
Index 500 and Utilities
J.P. Morgan Investment Management, Inc. SmallCap Value
("Morgan")
Morgan Stanley Asset
Management ("MSAM") Aggressive Growth and Asset
Allocation

Account Performance
Included in each Account's description is a set of tables and a bar chart.
Together, these provide an indication of the risks involved when you invest.

The bar chart shows changes in the Account's performance from year to year.

One of the tables compares the Account's average annual returns for 1, 5 and 10
years with a broad based securities market index (a broad measure of market
performance) and an average of mutual funds with a similar investment objective
and management style. The averages used are prepared by Lipper, Inc. (an
independent statistical service). The table shows how the Account's performance
compares with the returns of an index and with funds having similar investment
objectives. The other table for each Account provides the highest and lowest
quarterly return for that Account's Class A shares during the last 10 calendar
years.

An Account's past performance is not necessarily an indication of how the
Account will perform in the future.

You may call Principal Mutual Funds (1-800-247-4123) to get the current 7-day
yield for the Money Market Account.

NOTE: All investors should read the prospectus sections discussing
the Accounts and expenses and management (See Account
Descriptions; The Costs of Investing, Management, Organization
and Capital Structure; Dividends and Distributions; Pricing of
Account Shares; and Financial Highlights).

Investments in these Accounts are not deposits of a bank and are not insured or
guaranteed by the FDIC or any other government agency.

GROWTH-ORIENTED ACCOUNT

Aggressive Growth Account

The Aggressive Growth Account seeks to provide long-term capital appreciation by
investing primarily in growth-oriented common stocks of medium and large
capitalization U.S. corporations and, to a limited extent, foreign corporations.

---------------------------------- -----------------------------------
Annual Total Returns Total Returns
---------------------------------- highest & lowest quarterly returns
for the last 5 years
-----------------------------------
Bar Chart Quarter Ended Return
-----------------------------------
0/00/00 00.00%
Calendar Years Ended December 31 0/00/00 (00.00%)
-----------------------------------
-----------------------------------------------------
Average annual total return
(for the period ending December 31, 1998)
-----------------------------------------------------
Past One Past Five
Year Years
-------- ---------
Aggressive Growth Account 18.95% 26.61%*

S&P 500 Stock Index 28.58 24.06
Lipper Growth Fund Average 22.86 19.03
-----------------------------------------------------
* Period from June 1, 1994, date first offered
to the public, through December 31, 1998.

The year to date return as of December 31, 1998 is 18.95%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.77% $80 $249 $433 $966
Other Expenses........................ 0.01%
-----
Total Account Operating Expenses 0.78%
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since October 1998 Phil Friedman, Managing Director of Morgan Stanley
Dean Witter & Co. since 1990.

Since April 1994 Margaret Johnson, CFA. Portfolio Manager Morgan
Stanley Dean investment management since 1984.

The Aggressive Growth Account invests primarily in growth-oriented stocks of
medium and large capitalization U.S. corporations and to a limited extent,
foreign corporations that exhibit strong accelerating earnings growth. Under
normal circumstances, the Account invests at least 65% of the value of its
assets in common stocks.

The Account uses a flexible investment process in pursuit of its investment
objective. In selecting stocks for the Account, the Sub-Advisor, MSAM,
concentrates on companies with consistent or rising earnings growth records and
compelling business strategies. MSAM focuses on companies with market
capitalizations of $1 billion or more and is not limited to specific market
sectors.

MSAM continually and rigorously studies company developments, including business
strategy, management focus and financial results, to identify companies with
earnings growth and business momentum. In addition, MSAM closely monitors
analysts' expectations to identify issuers that have the potential for positive
earnings surprises versus consensus expectations. Valuation is of secondary
importance and is viewed in the context of propects for sustainable earnings
growth and the potential for positive earnings surprises in relation to
consensus expectations. The Portfolio considers selling securities of issuers
that no longer meet MSAM criteria.

When it selects a security for the Account, MSAM emphasizes individual security
selection. Account investments are generally diversified by industry but
concentrated sector positions may result from the selection process.

The Account has a long-term investment approach. However, MSAM may take
advantage of short-term opportunities that are consistent with its objective by
selling recently purchased securities that have increased in value (see
Portfolio Turnover).

The Account may invest up to 25% of its assets in securities of foreign
companies. See Foreign Securities for a description of the unique risks
associated with foreign securities.

The Aggressive Growth Account is generally a suitable investment for investors
who want long-term growth. Additionally, the investor must be willing to accept
the risks of investing in common stocks that may have greater risks than stocks
of companies with lower potential for earnings growth. As the value of the
stocks owned by the Account changes, the Account share price changes. In the
short term, the share price can fluctuate dramatically. When shares of the
Account are sold, they may be worth more or less than the amount paid for them.

GROWTH-ORIENTED ACCOUNT

Asset Allocation Account

The Asset Allocation Account seeks to generate a total investment return
consistent with the preservation of capital. The Account intends to pursue a
flexible investment policy in seeking to achieve this investment objective.

S&P 500 Stock Index 28.58 24.06
Lipper Flexible Portfolio
Fund Average 14.16 14.54
-----------------------------------------------------
* Period from June 1, 1994, date first offered
to the public, through December 31, 1998.

The year to date return as of December 31, 1998 is 9.18%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.80% $91 $284 $493 $1,096
Other Expenses........................ 0.09%
-----
Total Account Operating Expenses 0.89%
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since April 1994 Francine J. Bovich, Principal of Morgan Stanley Asset
Management, Inc. and Morgan Stanley & Co.
Incorporated since 1993.

Since October 1998 Phil Friedman, Managing Director of Morgan Stanley
Dean Witter & Co. since 1990.

Since April 1996 Stephan C. Sexauer, Principal of Morgan Stanley Asset
Management, Inc. and Morgan Stanley & Co.
Incorporated since 1989.

The Asset Allocation Account uses a flexible investment policy to establish a
diversivied global portfolio that will invest in equities and fixed income
securities. The Sub-Advisor will invest in equity securities of domestic and
foreign corporations that appear to be undervalued relative to their earnings
results or potential, or whose earnings growth prospectus appear to be more
attractive than the economy as a whole. In addition, the Sub-Advisor, MSAM, will
invest in debt securities to provide income and to moderate the overall
portfolio risk. Typically the Sub-Advisor will invest in high quality fixed
income securities but may invest up to 20% of the Account's assets in high yield
securities (see Risks of High Yield Securities).

The securities which the Account purchases are identified as belonging to an
asset class which include:
stocks of growth-oriented companies, both foreign and domestic;
Growth stocks are generally defined as stocks of companies with
earnings that are expected to grow more rapidly than the economy as a
whole.
stocks of value oriented companies, both foreign and domestic;
Value stocks are generally defined as stocks of companies with
distinctly below average stock price to earnings ratios and stock price
to book value ratios, and higher than average dividend yields.
domestic real estate investment trusts; fixed income securities, both
foreign and domestic; and domestic high yield fixed-income securities.
Please review the sections of this prospectus which discuss the risks involved
with any investment in foreign securities (see Foreign Securities) and with
investments in companies with small market capitalizations (see Securities of
Smaller Companies).

Allocation among asset classes is designed to lessen overall investment risk by
diversifying the Account's assets among different types of investments in
different markets. MSAM reallocates among asset classes and eliminates asset
classes for a period of time, when in it's judgment the shift offers better
prospects of achieving the investment objective of the Account. Under normal
market conditions, abrupt shifts among asset classes will not occur.

MSAM does not allocate a specific percentage of the Account's assets to a class.
Over time, it expects the asset mix to be within the following ranges:
25% to 75% in equity securities; 20% to 60% in debt securities; and 0% to
40% in money market instruments.
The allocation is based on MSAM's judgement as to the general market and
economic conditions, trends and investment yields, interest rates, and changes
in fiscal or monetary policies.

The value of the stocks owned by the Account changes on a daily basis. Stock
prices reflect the activities of individual companies and general market and
economic conditions. In the short term, stock prices can fluctuate dramatically
in response to these factors. Bond values also change daily. Their prices
reflect changes in interest rates, market conditions and announcements of other
economic, political or financial information. Generally, when interest rates
fall, the price of a bond rises and when interest rates rise, the price
declines. Because the values of the Account's assets may rise or fall, when
shares of the Account are sold they may be worth more or less than the amount
paid for them.

The Asset Allocation Account is generally a suitable investment for investors
who are seeking a moderate risk approach towards long-term growth.

GROWTH-ORIENTED ACCOUNT

Balanced Account

The Balanced Account seeks to generate a total return consisting of current
income and capital appreciation while assuming reasonable risks in furtherance
of the investment objective.

---------------------------------- -----------------------------------
Annual Total Returns Total Returns
---------------------------------- highest & lowest quarterly returns
for the last 10 years
-----------------------------------
Bar Chart Quarter Ended Return
-----------------------------------
0/00/00 00.00%
Calendar Years Ended December 31 0/00/00 (00.00%)
-----------------------------------
-----------------------------------------------------
Average annual total return
(for the period ending December 31, 1998)
-----------------------------------------------------
Past One Past Five Past Ten
Year Years Years
-------- --------- --------
Balanced Account 11.91% 12.74% 12.33%

S&P 500 Stock Index 28.58 24.06 19.21
Lehman Brothers
Government/Corporate
Bond Index 8.42 6.60 8.52
Lipper Balanced Fund
Average 13.48 13.93 13.04
-----------------------------------------------------

The year to date return as of December 31, 1998 is 11.91%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.57% $60 $189 $329 $738
Other Expenses........................ 0.02%
-----
Total Account Operating Expenses 0.59%
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since April 1993 Judith A. Vogel, CFA. Portfolio Manager of Invista
Capital Management, LLC since 1987.

Since October 1998 Douglas D. Herold, CFA. Portfolio Manager of Invista
Capital Management, LLC since 1998. Invista Capital
Management, LLC since 1993.

Since December 1997 Martin J. Schafer, Portfolio Manager of Invista
Capital Management, LLC since 1992.

The Balanced Account invests primarily in common stocks and corporate bonds. It
may also invest in other equity securities, government bonds and notes
(obligations of the U.S. government or its agencies) and cash. Though the
percentages in each category are not fixed, common stocks generally represent
40% to 70% of the Account's assets. The remainder of the Account's assets are
invested in bonds and cash.

In selecting common stocks, the Sub-Advisor, Invista, looks for companies that
have predictable earnings and which, based on growth prospects, are undervalued
in the marketplace. Invista buys stocks with the objective of long-term capital
appreciation. From time to time, Invista purchases stocks with the expectation
of price appreciation over the short term. In response to changes in economic
conditions, Invista may change the make-up of the portfolio and emphasize
different market sectors by buying and selling the portfolio's stocks.

The Account generates interest income by investing in bonds and notes. Bonds and
notes are also purchased for capital appreciation purposes when Invista thinks
that declining interest rates may increase market value. Deep discount bonds
(those which sell at a substantial discount from their face amount) are also
purchased to generate capital appreciation. The Account may invest in bonds with
speculative characteristics but does not intend to invest more than 5% of its
assets in securities rated below BBB by S&P or Baa by Moody's (see Risks of High
Yield Securities).

Bond values change daily. Their prices reflect changes in interest rates, market
conditions and announcements of other economic, political or financial
information. Generally, when interest rates fall, the price of a bond rises and
when interest rates rise, the price declines.

Because the values of the Account's assets may rise or fall, when shares of the
Account are sold they may be worth more or less than the amount paid for them.

The Balanced Account is generally a suitable investment for investors seeking
long-term growth but who are uncomfortable accepting the risks of investing
entirely in common stocks.

INCOME-ORIENTED ACCOUNT

Bond Account

The Bond Account seeks to provide as high a level of income as is consistent
with preservation of capital and prudent investment risk.

Lehman Brothers
BAA Corporate
Index 6.96 7.34 9.25
Lipper Corporate
Debt BBB Rated
Fund Average 6.25 7.00 9.19
---------------------------------------------

The year to date return as of December 31, 1998 is 7.69%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.49% $52 $164 $285 $640
Other Expenses........................ 0.02%
-----
Total Account Operating Expenses 0.51%
- --------------------------------------------------------------------------------

During the fiscal year ended December 31, 1998, based on the dollar-weighted
average ratings of the Account's portfolio at the end of each month in the
fiscal year, net assets of the Account were invested in securities rated as
follows (all ratings are by Moody's):
0.24% in securities rated Aaa
1.29% in securities rated Aa
17.32% in securities rated A
72.48% in securities rated Baa
8.67% in securities rated Ba

Day-to-day Account management:
Since November 1996 Scott A. Bennett, CFA. Assistant Director - Securities
Investment of Principal Life Insurance Company since
1996. Prior thereto, Investment Manager.

The Bond Account invests in fixed-income securities. Generally, the Account
invests on a long-term basis but may make short-term investments. Longer
maturities typically provide better yields but expose the Account to the
possibility of changes in the values of its securities as interest rates change.
Generally, when interest rates fall, the price per share rises, and when rates
rise, the price per share declines.

Under normal circumstances, the Account invests at least 65% of its assets in:
debt securities and taxable municipal bonds;
rated, at purchase, in one of the top four categories by S&P
or Moody's, or if not rated, in the Manager's opinion are of
comparable quality.
similar Canadian, Provincial or Federal Government securities payable
in U.S. dollars; and securities issued or guaranteed by the U.S.
Government or its agencies.

The rest of the Account's assets may be invested in securities that may be
convertible (may be exchanged for a fixed number of shares of common stock of
the same issuer) or nonconvertible including:
domestic and foreign debt securities;
preferred and common stock;
foreign government securities; and
securities rated less than the four highest grades of S&P or Moody's
but not lower BB- (S&P) or Ba3 (Moody's) (see Risks of High Yield
Securities).

Under unusual market or economic conditions, the Account may invest up to 100%
of its assets in cash and cash equivalents (see Temporary Defensive Measures).

The Bond Account is generally a suitable investment for an investor seeking
monthly dividends to produce income or to be reinvested in additional Account
shares to help achieve modest growth objectives without accepting the risks of
investing in common stocks. However, because of fluctuations in value, when
sold, shares of the Account may be worth more or less than the amount paid for
them.

GROWTH-ORIENTED ACCOUNT

Capital Value Account

The Capital Value Account seeks to provide long-term capital appreciation and
secondarily growth of investment income. The Account seeks to achieve its
investment abjectives through the purchase primarily of common stocks, but the
Account may invest in other securities.

---------------------------------- -----------------------------------
Annual Total Returns Total Returns
---------------------------------- highest & lowest quarterly returns
for the last 10 years
-----------------------------------
Bar Chart Quarter Ended Return
-----------------------------------
mm/dd/yy 00.00%
Calendar Years Ended December 31 mm/dd/yy (00.00%)
-----------------------------------
-----------------------------------------------------
Average annual total return
(for the period ending December 31, 1998)
-----------------------------------------------------
Past One Past Five Past Ten
Year Years Years
-------- -------- --------
Capital Value Account 13.58% 19.03% 15.15%

S&P 500 Stock Index 28.58 24.06 19.21
Lipper Growth and Income
Fund Average 15.61 18.53 15.76
-----------------------------------------------------

The year to date return as of December 31, 1998 is 13.58%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.43% $45 $141 $246 $555
Other Expenses........................ 0.01%
-----
Total Account Operating Expenses 0.44%
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since November 1996 Catherine A. Zaharis, CFA. Portfolio Manager of
Invista Capital Management, LLC since 1987.

The Capital Value Account invests primarily in common stocks. It may also invest
in other equity securities. To achieve its investment objective, the
Sub-Advisor, Invista, invests primarily in securities that have "value"
characteristics. This process is known as "value investing." Value stocks tend
to have higher yields and lower price to earnings (P/E) ratios than other
stocks.

Securities chosen for investment may include those of companies that Invista
believes can be expected to share in the growth of the nation's economy over the
long term. The current price of the Account's assets reflect the activities of
the individual companies and general market and economic conditions. In the
short term, stock prices can fluctuate dramatically in response to these
factors. Because of these fluctuations, principal values and investment returns
vary.

In making selections for the Account's investment portfolio, Invista uses an
approach described as "fundamental analysis." The basic steps involved in this
analysis are:

Research. Invista researches economic prospects over the next one to
two years rather than focusing on near term expectations. This approach
is designed to provide insight into a company's real growth potential.

Valuation. The research findings allow Invista to identify the
prospects for the major industrial, commercial and financial segments
of the economy. Invista looks at such factors as demand for products,
capacity to produce, operating costs, pricing structure, marketing
techniques, adequacy of raw materials and components, domestic and
foreign competition and research productivity. It then uses this
information to judge the prospects for each industry for the near and
intermediate term.

Ranking. Invista then ranks the companies in each industry group
according to their relative value. The greater a company's estimated
worth compared to the current market price of its stock, the more
undervalued the company. Computer models help to quantify the research
findings.

Stock selection. Invista buys and sells stocks according to the
Account's own policies using the research and valuation rankings as a
basis. In general, Invista buys stocks that are identified as
undervalued and considers selling them when they appear overvalued.
Along with attractive valuation, other factors may be taken into
account such as:
events that could cause a stock's price to rise or fall;
anticipation of high potential reward compared to potential
risk; and belief that a stock is temporarily mispriced
because of market overreactions.

The Capital Value Account is generally a suitable investment for investors
seeking long-term growth, who are willing to accept the risks of investing in
common stocks but also prefer investing in companies that appear to be
considered undervalued company to similar companies. When shares of the Account
are sold, they may be worth more or less than the amount paid for them.

MONEY MARKET ACCOUNT

Money Market Account

The Money Market Account seeks a high level of current income available from
short-term securities as is considered consistent with preservation of principal
and maintenance of liquidity by investing all of its assets in a portfolio of
money market instruments.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.50% $53 $167 $291 $653
Other Expenses........................ 0.02%
-----
Total Account Operating Expenses 0.52%
- --------------------------------------------------------------------------------

The Account invests its assets in a portfolio of money market instruments. The
investments are U. S. dollar denominated securities which the Manager believes
present minimal credit risks. At the time the Account purchases each security,
it is an "eligible security" as defined in the regulations issued under the
Investment Company Act of 1940.

The Account maintains a dollar weighted average portfolio maturity of 90 days or
less. It intends to hold its investments until maturity. However, the Account
may sell a security before it matures:
to take advantage of market variations;
to generate cash to cover sales of Account shares by its shareholders;
or upon revised credit opinions of the security's issuer.
The sale of a security by the Account before maturity may not be in the best
interest of the Account. The Account does have an ability to borrow money to
cover the sale of Account shares. The sale of portfolio securities is usually a
taxable event.

It is the policy of the Account to be as fully invested as possible to maximize
current income. Securities in which the Account invests include:

Government securities that are issued or guaranteed by the U. S.
Government, including treasury bills, notes and bonds.
U.S. Government agency securities that are issued or guaranteed by
agencies or instrumentalities of the U.S. Government. These are backed
either by the full faith and credit of the U. S. Government or by the
credit of the particular agency or instrumentality.
Bank obligations consisting of:
certificates of deposit which generally are negotiable
certificates against funds deposited in a commercial bank, or
bankers acceptances which are time drafts drawn on a commercial
bank, usually in connection with international commercial
transactions.
Commercial paper that is short-term promissory notes issued by U. S.
or foreign corporations primarily to finance short-term credit needs.
Short-term corporate debt consisting of notes, bonds or debentures
which at the time of purchase by the Account has 397 days or less
remaining to maturity.
Repurchase agreements under which securities are purchased with an
agreement by the seller to repurchase the security at the same price
plus interest at a specified rate. Generally these have a short
duration (less than a week) but may also have a longer one.
Taxable municipal obligations that are short-term obligations issued
or guaranteed by state and municipal issuers that generate taxable
income.

An investment in the Account is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Account seeks
to preserve the value of your investment at $1.00 per share, it is possible to
lose money by investing in the Account.

The Cash Management Account is generally a suitably investment for investors
seeking monthly dividends to produce income without incurring much principal
risk or for investors short-term needs.

INCOME-ORIENTED ACCOUNT

Government Securities Account

The Government Securities Account seeks a high level of current income,
liquidity and safety of principal. The Account seeks to achieve its objective
through the purchase of obligations issued or guaranteed by the United States
Government or its agencies, with emphasis on Government National Mortgage
Associations Certificates. Account shares are not guaranteed by the United
States government.

----------------------------- ---------------------------------------
Annual Total Returns Total Returns
----------------------------- highest and lowest quarterly returns
for the last 10 years
Bar Chart ---------------------------------------
Quarter Ended Quarterly Return
---------------------------------------
mm/dd/yy 00.00%
mm/dd/yy (00.00%)
---------------------------------------

------------------------------------------------
Average annual total returns
(for the period ending December 31, 1998)
------------------------------------------------
Past One Past Five Past Ten
Year Years Years
-------- --------- --------
Government Securities
Account 8.27% 7.02% 9.35%
Calendar Years Ending December 31
Lehman Brothers
Mortgage Index 6.96 7.23 9.13
Lipper U.S. Mortgage
Fund Average 6.08 5.98 8.04
------------------------------------------------

The year to date return as of December 31, 1998 is 8.27%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.49% $51 $160 $280 $628
Other Expenses........................ 0.01%
-----
Total Account Operating Expenses 0.50%
- --------------------------------------------------------------------------------

Day-to-day Account Management:
Since May 1985 Martin J. Schafer, CFA. Portfolio Manager of Invista
Capital Management, LLC since 1992.

The Government Securities Income Account invests in U. S. Government securities,
which include obligations issued or guaranteed by the U. S. Government or its
agencies or instrumentalities. The Account may invest in securities supported
by:
full faith and credit of the U. S. Government (e.g. GNMA certificates); or
credit of the instrumentality (e.g. bonds issued by the Federal Home Loan
Bank).

Although some of the securities the Account purchases are backed by the U.S.
government and its agencies, shares of the Account are not guaranteed.
Generally, when interest rates fall, the value of the Account's shares rises,
and when rates rise, the value declines. Because of the fluctuation in values of
the Account's shares, when sold, shares of the Account may be worth more or less
than the amount paid for them.

U.S. Government securities do not involve the degree of credit risk associated
with investments in lower quality fixed-income securities. As a result, the
yields available from U.S. Government securities are generally lower than the
yields available from many other fixed-income securities. Like other
fixed-income securities, the values of U.S. Government securities change as
interest rates fluctuate. Fluctuations in the value of the Account's securities
do not effect interest income on securities already held by the Account, but are
reflected in the Account's price per share. Since the magnitude of these
fluctuation generally are greater at times when the Account's average maturity
is longer, under certain market conditions the Account may invest in short term
investments yielding lower current income rather than investing in higher
yielding longer term securities.

GNMA Certificates are mortgage-backed securities representing an interest in a
pool of mortgage loans. Various lenders make the loans that are then insured (by
the Federal Housing Administration) or loans that are guaranteed (by Veterans
Administration or Farmers Home Administration). The lender or other security
issuer creates a pool of mortgages that it submits to GNMA for approval.

The Account invests in modified pass-through GNMA Certificates. Owners of
Certificates receive all interest and principal payments owed on the mortgages
in the pool, regardless of whether or not the mortgagor has made the payment.
Timely payment of interest and principal is guaranteed by the full faith and
credit of the U. S. Government.

Mortgage-backed securities are subject to prepayment risk. Prepayments,
unscheduled principal payments, may result from voluntary prepayment,
refinancing or foreclosure of the underlying mortgage. When interest rates
decline, significant unscheduled prepayments may result. These prepayments must
then be reinvested at lower rates. Prepayments may also shorten the effective
maturities of these securities, especially during periods of declining interest
rates. On the other hand, during period of rising interest rates, a reduction in
prepayments may increase the effective maturities of these securities,
subjecting them to the risk of decline in market value in response to rising
interest and potentially increasing the volatility of the Account.

In addition, prepayments may cause losses on securities purchased at a premium
(dollar amount by which the price of the bond exceeds its face value). At times,
mortgage-backed securities may have higher than market interest rates and are
purchased at a premium. Unscheduled prepayments are made at par and cause the
Account to experience a loss of some or all of the premium.

The Government Securities Income Account is generally a suitable investment for
investors who want monthly dividends to provide income or to be reinvested in
additional Account shares to produce growth. Such investors prefer to have the
repayment of principal and interest on most of the securities in which the
Account invests to be back by the U.S. Government or its agencies.

GROWTH-ORIENTED ACCOUNT

Growth Account

The Growth Account seeks growth of capital through the purchase primarily of
common stocks, but the Account may invest in other securities.

---------------------------------------------
Average annual total returns
(for the period ending December 31, 1989)
---------------------------------------------
Past One Past Five
Year Years
-------- ---------
Growth Account 21.36% 19.48%*
Calendar Years Ended December 31
S&P 500 Stock Index 28.58 24.06
Lipper Growth Fund Average 22.86 19.03
---------------------------------------------
* Period from May 1, 1994, date first
offered to the public, through
December 31, 1998.

The year to date return as of December 31, 1998 is 21.36%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.47% $49 $154 $269 $604
Other Expenses........................ 0.01%
-----
Total Account Operating Expenses 0.48%
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since August 1987 Michael R. Hamilton, Portfolio Manager of Invista
Capital Management, LLC since 1987.

The Growth Account primarily invests in common stocks. It may also invest in
other equity securities. In seeking the Account's objective of capital growth,
the Sub-Advisor, Invista, uses an approach described as "fundamental analysis."
The basic steps involved in this analysis are:

Stock selection. Invista then purchases securities of issuers that
appear to have high growth potential. Common stocks selected for the
Account may include securities of companies that:
have a record of sales and earnings growth that exceeds the
growth rate of corporate profits of the S&P 500, or offer new
products or new services.

These securities present greater opportunities for capital growth because of
high potential earnings growth, but may also involve greater risk than
securities that do not have the same potential. The companies may have limited
product lines, markets or financial resources, or may depend on a limited
management group. Their securities may trade less frequently and in limited
volume. As a result, these securities may change in value more than those of
larger, more established companies.

The Growth Account is generally a suitable investment for investors who want
long-term growth. Additionally, the investor must be willing to accept the risks
of investing in common stocks that may have greater risks than stocks of
companies with lower potential for earnings growth. As the value of the stocks
owned by the Account changes, the Account share price changes. In the short
term, the share price can fluctuate dramatically. When shares of the Account are
sold, they may be worth more or less than the amount paid for them.

GROWTH-ORIENTED ACCOUNT

International Account

The International Account seeks long-term growth of capital by
investing in a portfolio of equity securities of companies domiciled in any of
the nations of the world.

------------------------------- ----------------------------------------
Annual Total Return Total Return
------------------------------- highest & lowest quarterly returns
for the last 5 years
----------------------------------------
Bar Chart Quarter Ended Return
----------------------------------------
mm/dd/yy 00.00%
mm/dd/yy (00.00%)
----------------------------------------
Calendar Years Ended December 31
----------------------------------------------
Average annual total returns
(for the period ending December 31, 1989)
----------------------------------------------
Past One Past Five
Year Years
-------- ---------
International Account 9.98% 12.09%*

Morgan Stanley Capital
International EAFE
(Europe, Australia and
Far East) Index 20.00 9.19
Lipper International Fund
Average 13.02 7.87
----------------------------------------------
* Period from May 1, 1994, date first
offered to the public, through
December 31, 1998.

The year to date return as of December 31, 1998 is 9.98%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.73% $79 $246 $428 $954
Other Expenses........................ 0.04%
-----
Total Account Operating Expenses 0.77%
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since April 1994 Scott D. Opsal, CFA. Chief Investment Officer of
Invista Capital Management, LLC since 1997.
Vice President, 1986-1997.

The International Account invests in common stocks of companies established
outside of the U.S. The Account has no limitation on the percentage of assets
that are invested in any one country or denominated in any one currency. However
under normal market conditions, the Account intends to have at least 65% of its
assets invested in companies in at least three different countries. One of those
countries may be the U.S. though currently the Account does not intend to invest
in equity securities of U.S.
companies.

Investments may be made anywhere in the world. Primary consideration is given to
securities of corporations of Western Europe, North America and Australasia
(Australia, Japan and Far East Asia). Changes in investments are made as
prospects change for particular countries, industries or companies.

In choosing investments for the Account, the Sub-Advisor, Invista, pays
particular attention to the long-term earnings prospects of the various
companies under consideration. Invista then weighs those prospects relative to
the price of the security.

The values of the stocks owned by the Account change on a daily basis. Stock
prices reflect the activities of individual companies as well as general market
and economic conditions. In the short term, stock prices and currencies can
fluctuate dramatically in response to these factors. In addition, there are
risks involved with any investment in foreign securities (see Foreign
Securities). Because the values of the Account's assets may rise or fall, when
shares of the Account are sold they may be worth more or less than the amount
paid for them.

The International Account is generally a suitable investment for investors who
seek long-term growth and who want to invest in non-U.S. companies. This Account
is not an appropriate investment for investors who are seeking either
preservation of capital or high current income. Suitable investors must be able
to assume the increased risks of higher price volatility and currency
fluctuations associated with investments in international stocks which trade in
non-U.S. currencies.

Under unusual market or economic conditions, the Account may invest in the same
kinds of securities as the other Growth-Oriented Accounts. These include
securities issued by domestic corporations, governments or governmental
agencies, instrumentalities or political subdivisions. The securities may be
denominated in U. S. dollars or other currencies.

GROWTH-ORIENTED ACCOUNT

International SmallCap Account

The International SmallCap Account seeks long-term growth of capital. The
Account will attempt to achieve its objective by investing primarily in equity
securities of non-United States companies with comparatively smaller market
capitalizations.

-------------------------------------------
Average annual total return
(for the period ending December 31, 1998)
-------------------------------------------
Past One
Year
--------

International SmallCap Account (10.37)%*
Calendar Years Ended December 31
______________________ 00.00
Lipper International SmallCap
Fund Average 13.02
------------------------------------------
* Periodfrom May 1, 1998, date first
offered to the public, through
December 31, 1998.

The year to date return as of December 31, 1998 is (10.37)%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 1.21% $136 $425 $734 $1,613
Other Expenses........................ 0.13%
-----
Total Account Operating Expenses 1.34%
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since April 1998 Darren K. Sleister, Portfolio Manager of Invista Capital
Management, LLC since 1995. Prior thereto, Securities
Analyst.

The International SmallCap Account invests in stocks of non-U.S. companies with
comparatively smaller market capitalizations. Market capitalization is defined
as total current market value of a company's outstanding common stock. Under
normal market conditions, the Account invests at least 65% of its assets in
securities of companies having market capitalizations of $1 billion or less.
Please review the sections of this prospectus which discuss the risks involved
with any investment in foreign securities (see Foreign Securities) and with
investments in companies with small market capitalizations (see Securities of
Smaller Companies).

The Account diversifies its investments geographically. There is no limitation
of the percentage of assets that may be invested in one country or denominated
in any one currency. However, under normal market circumstances, the Account
intends to have at least 65% of its assets invested in securities of companies
of at least three countries.

This Account is not an appropriate investment for investors seeking either
preservation of capital or high current income. Investors must be able to assume
the increased risks of higher price volatility and currency fluctuations
associated with investments in international stocks which trade in non-U.S.
currencies.

The International SmallCap Account is generally a suitable investment for
investors seeking long-term growth who want to invest a portion of their assets
in smaller, non-U.S. companies. Because the values of the Account's assets may
rise or fall, when shares of the Account are sold they may be worth more or less
than the amount paid for them.

GROWTH-ORIENTED ACCOUNT

MicroCap Account

The MicroCap Account seeks long-term growth of capital. The Account will attempt
to achieve its objective by investing primarily in value and growth oriented
companies with small market capitalizations, generally less than $700 million.

-------------------------------------------
Average annual total return
(for the period ending December 31, 1998)
-------------------------------------------
Past One
Year
--------
MicroCap Account (18.42)%*
Calendar Years Ended December 31
______________________ 00.00
____________________
______________________ 00.00
Lipper Micro Cap Fund
Average 00.00
-------------------------------------------
* Periodfrom May 1, 1998, date first
offered to the public, through
December 31, 1998.

The year to date return as of December 31, 1998 is (18.42)%.

Matthew B. McLennan, Associate of GSAM since 1995. Prior
thereto, Queensland Investment Corporation in Australia.

Eileen A. Aptman, Vice President of GSAM since 1993.

Under normal market conditions, the MicroCap Account invests at least 65% of its
total assets in equity securities of companies with market capitalizations of
$700 million of less at the time of investment. Under normal circumstances, the
Account's investment horizon for ownership of equity securities is two to three
years.

The Account invests in companies that the Sub-Advisor, GSAM, believes are well
managed niche businesses that have the potential to achieve high or improving
returns on capital and/or above average sustainable growth. GSAM invests in
companies that have value characteristics as well as those with growth
characteristics with no consistent preference between the two categories. Growth
stocks are considered to be those with potential for growth of capital and
earnings which is expected to be above average. Value stocks tend to have higher
yields and lower price to earnings (P/E) ratios than other stocks.

The Account may invest in securities of small market capitalization companies
that may have experienced financial difficulties. Investments may also be made
in companies that are in the early stages of their life and that GSAM believes
have significant growth potential. GSAM believes that the companies in which the
Account may invest offer greater opportunities for growth of capital than
larger, more mature, better known companies. However, investments in such small
market capitalization companies involve special risks. For a more thorough
discussion of the risks of investing in small companies, please review the
sections of this prospectus which discuss the risks of investing in companies
with small market capitalizations (see Securities of Smaller Companies) and the
risks of investing in companies with limited operating history (see Unseasoned
Issuers)

The Account may invest up to 35% of its total assets in equity securities of
companies with market capitalizations of more than $700 million at the time of
the investment and in fixed income securities. In addition, although the Account
invests primarily in securities of domestic corporations, it may invest up to
25% of its total assets in foreign securities. These may include securities of
issuers in emerging countries and securities denominated in foreign currencies.
See Foreign Securities for a description of the unique risks associated with
foreign securities.

The Account may invest in real estate investment trusts (REITs) which are pooled
investment vehicles that invest in either real estate or real estate related
loans. The value of a REIT is affected by changes in the value of the underlying
property owned by the trust, quality of any credit extended and the ability of
the trust's management. REITs are also subject to risks generally associated
with investments in real estate (a more complete discussion of these risks is
found in the description of the Real Estate Account). The Account will
indirectly bear its proportionate share of any expenses, including management
fees, paid by a REIT in which it invests.

The MicroCap Account is generally a suitable investment for investors who want
longer-term growth of capital. Additionally, the investor must be willing to
accept the risks of investing in securities that may have greater risks than
stocks of companies with lower potential for growth. As the value of the stocks
owned by the Account changes, the Account's share price changes. In the
short-term, the share price can fluctuate dramatically. When shares of the
Account are sold, they may be worth more or less than their original cost.

GROWTH-ORIENTED ACCOUNT

MidCap Account

The MidCap Account seeks to achieve capital appreciation by investing primarily
in securities of emerging and other growth-oriented companies.

---------------------------------- -----------------------------------
Annual Total Returns Total Returns
---------------------------------- highest & lowest quarterly returns
for the last 10 years
-----------------------------------
Bar Chart Quarter Ended Return
-----------------------------------
mm/dd/yy 00.00%
Calendar Years Ended December 31 mm/dd/yy (00.00%)
-----------------------------------
-----------------------------------------------------
Average annual total return
(for the period ending December 31, 1998)
-----------------------------------------------------
Past One Past Five Past Ten
Year Years Years
-------- -------- --------
MidCap Account 3.69% 14.92% 16.22%

S&P 500 Stock Index 28.58 24.06 19.21
Lipper Mid-Cap Fund Average 12.16 15.18 15.83
-----------------------------------------------------

The year to date return as of December 31, 1998 is 3.69%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.61% $63 $199 $346 $774
Other Expenses........................ 0.01%
-----
Total Account Operating Expenses 0.62%
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since December 1987 Michael R. Hamilton, Portfolio Manager of Invista
Capital Management, LLC since 1987.

The MidCap Account primarily invests in stocks of growth-oriented companies.
Stocks that are chosen for the Account by the Sub-Advisor, Invista, are thought
to be responsive to changes in the marketplace and have the fundamental
characteristics to support growth. The Account may invest for any period in any
industry, in any kind of growth-oriented company. Companies may range from the
well-established and well known to the new and unseasoned (see Unseasoned
Issuers).

Under normal market conditions, the Account invests at least 65% of its assets
in securities of companies with market capitalizations in the $1 billion to $10
billion range. Market capitalization is defined as total current market value of
a company's outstanding common stock.

The value of the stocks owned by the Account changes on a daily basis. The
current share price reflects the activities of individual companies and general
market and economic conditions. In the short term, stock prices can fluctuate
dramatically in response to these factors. Because of these fluctuations,
principal values and investment returns vary. When shares of the Account are
sold, they may be worth more or less than the amount paid for them.

The MidCap Account is generally a suitable investment for investors seeking
long-term growth and who are willing to accept the potential short-term
fluctuations in the value of their investments. It is designed for long term
investors for a portion of their investments and not designed for investors
seeking income or conservation of capital.

GROWTH-ORIENTED ACCOUNT

MidCap Growth Account

The MidCap Growth Account seeks long-term growth of capital. The Account will
attempt to achieve its objective by investing primarily in growth stocks of
companies with market capitalizations in the $1 billion to $10 billion range.

-------------------------------------------
Average annual total return
(for the period ending December 31, 1998)
-------------------------------------------
Past One
Year
--------
MidCap Growth Account (3.40)%*
Calendar Years Ended December 31
______________________ 00.00
Lipper MidCap Growth
Fund Average 00.00
------------------------------------------
* Periodfrom May 1, 1998, date first
offered to the public, through
December 31, 1998.

The year to date return as of December 31, 1998 is (3.40)%.

* Manager has agreed to cap expenses so that total Account operating
expenses will be ____% for 1999.
- --------------------------------------------------------------------------------
Day-to-day Account management:
Since April 1998 John O'Toole, CFA. Portfolio Manager of The Dreyfus
Corporation and Senior Vice President of Mellon Equity
Associates LLP since 1990.

The MidCap Growth Account invests primarily in common stocks of medium
capitalization companies, generally firms with a market value between $1 billion
and $10 billion. In the view of the Sub-Advisor, Dreyfus, many medium sized
companies:
are in fast growing industries;
offer superior earnings growth potential, and
are characterized by strong balance sheets and high returns on equity.

Because companies in this market are smaller, prices of their stocks tend to be
more volatile than stocks of companies with larger capitalizations. The Account
may also hold investments in large and small capitalization companies, including
emerging and cyclical growth companies. For a discussion of the risks of
investing in small companies, please review the sections of this prospectus
which discuss the risks of investing in companies with small market
capitalizations (see Securities of Smaller Companies) and the risks of investing
in companies with limited operating history (see Unseasoned Issuers).

Common stocks are selected for the Account so that in the aggregate, the
investment characteristics and risk profile of the Account are similar to the
Standard & Poor's MidCap 400 Index (S&P MidCap). While it may maintain
investment characteristics similar to the S&P MidCap, the Account seeks to
invest in companies that in the aggregate will provide a higher total return
than the S&P MidCap. The Account is not an index fund and does not limit its
investments to the securities of issuers in the S&P MidCap.

Dreyfus uses valuation models designed to identify common stocks of companies
that have demonstrated consistent earnings momentum and delivered superior
results relative to market analyst expectations. Other considerations include
profit margins, growth in cash flow and other standard balance sheet measures.
The securities held are generally characterized by strong earnings momentum
measures and higher expected earnings per share growth.

Once such common stocks are identified, Dreyfus constructs a portfolio, that in
the aggregate breakdown and risk profile resembles the S&P MidCap, but is
weighted toward the most attractive stocks. The valuation model incorporates
information about the relevant criteria as of the most recent period for which
data are available. Once ranked, the securities are categorized under the
headings "buy", "sell" or "hold". The decision to buy, sell or hold is made by
Dreyfus based primarily on output of the valuation model. However, that decision
may be modified due to subsequently available or other specific relevant
information about the security.

The MidCap Growth Account is generally a suitable investment for investors
seeking long-term growth and who are willing to accept the potential for
short-term fluctuations in the value of their investments. It is designed for
long term investors for a portion of their investments and not designed for
investors seeking income or conservation of capital.

"Standard & Poor's MidCap 400 Index" is a trademark of Standard & Poor's
Corporation (S&P). S&P is not affiliated with Principal Life Insurance Company
or with the Fund.

GROWTH-ORIENTED ACCOUNT

Real Estate Account

The Real Estate Account seeks to generate a high total return. The Account will
attempt to achieve its objective by investing primarily in equity securities of
companies principally engaged in the real estate industry.

----------------------------- ------------------------------------
Annual Total Returns Total Returns
------------------------------ highest & lowest quarterly returns
for the last 3 quarters
Bar Chart ------------------------------------
Quarter Ended Return
------------------------------------
0/0/00 00.00%
0/00/00 (00.00%)
------------------------------------
Calendar Years Ended December 31
-------------------------------------------
Average annual total return
(for the period ending December 31, 1998)
-------------------------------------------
Past One
Year
--------
Real Estate Account (6.56)%*

______________________ 00.00
Lipper Real Estate
Fund Average (15.46)
------------------------------------------
* Periodfrom May 1, 1998, date first
offered to the public, through
December 31, 1998.

The year to date return as of December 31, 1998 is (6.56)%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.90% $102 $318 $552 $1,225
Other Expenses........................ 0.10%
-----
Total Account Operating Expenses 1.00%
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since April 1998 Kelly D. Rush, Assistant Director of Commercial Real
Estate, Principal Life Insurance Company since 1996.
Prior thereto, Senior Administrator, Investment -
Commercial Real Estate.

The Real Estate Account invests primarily in equity securities of companies
engaged in the real estate industry. For purposes of the Account's investment
policies, a real estate company has at least 50% of its assets, income or
profits derived from products or services related to the real estate industry.
Real estate companies include real estate investment trusts and companies with
substantial real estate holdings such as paper, lumber, hotel and entertainment
companies. Companies whose products and services relate to the real estate
industry include building supply manufacturers, mortgage lenders and mortgage
servicing companies. The Account may invest up to 25% of its assets in
securities of foreign real estate companies. See Foreign Securities for a
description of the unique risks associated with foreign securities.

Real estate investment trusts ("REITs") are corporations or business trusts that
are effectively permitted to eliminate corporate level federal income taxes if
they meet certain requirements of the Internal Revenue Code. The Account focuses
on equity REITs.
REITs are characterized as:
equity REITs, which primarily own property and generate revenue from
rental income; mortgage REITs, which invest in real estate mortgages;
and hybrid REITs, which combine the characteristics of both equity and
mortgage REITs.

Securities of real estate companies are subject to securities market risks as
well as risks similar those of direct ownership of real estate. These include:
declines in the value of real estate risks related to general and local economic
conditions dependency on management skills heavy cash flow dependency possible
lack of available mortgage funds overbuilding extended vacancies in properties
increases in property taxes and operating expenses changes in zoning laws
expenses incurred in the cleanup of environmental problems casualty or
condemnation losses changes in interest rates

In addition to the risks listed above, equity REITs are affected by the changes
in the value of the properties owned by the trust. Mortgage REITs are affected
by the quality of the credit extended. Both equity and mortgage REITs:
are dependent upon management skills and may not be diversified; are
subject to cash flow dependency and defaults by borrowers; and could
fail to qualify for tax-free pass through of income under the Code.

Because of these factors, the values of the Account's assets change on a daily
basis. The current share price reflects the activities of individual companies
and general market and economic conditions. In the short term, share prices can
fluctuate dramatically in response to these factors. Because of these
fluctuations, principal values and investment returns vary. When shares of the
Account are sold, they may be worth more or less than the amount paid for them.

The Real Estate Account is generally a suitable investment for investors seeking
long-term growth, who want to invest in companies engaged in the real estate
industry and who are willing to accept fluctuations in the value of their
investment.

GROWTH-ORIENTED ACCOUNT

SmallCap Account

The SmallCap Account seeks long-term growth of capital. The Account will attempt
to achieve its objective by investing primarily in equity securities of both
growth and value oriented companies with comparatively smaller market
capitalizations.

Calendar Years Ended December 31
______________________ 00.00
Lipper SmallCap Fund Average (0.33)
---------------------------------------
* Period from May 1, 1998, date first
offered to the public, through
December 31, 1998.

The year to date return as of December 31, 1998 is (20.51)%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.85% $100 $312 $542 $1,201
Other Expenses........................ 0.13%
-----
Total Account Operating Expenses 0.98%
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since April 1998 Mark T. Williams, Portfolio Manager of Invista Capital
Management, LLC since 1995. Investment Officer,
1992-1995.

John F. McClain, Portfolio Manager of Invista Capital
Management, LLC since 1995. Investment Officer,
1992-1995.

The SmallCap Account invests in equity securities of companies in the U.S. with
comparatively smaller market capitalizations. Market capitalization is defined
as total current market value of a company's outstanding common stock. Under
normal market conditions, the Account invests at least 65% of its assets in
securities of companies with market capitalizations of $1 billion or less.

In selecting securities for investment, Invista looks at stocks with value and
growth characteristics. In managing the assets of the Account, the Sub-Advisor,
Invista, does not have a policy of preferring one of these categories to the
other. The value orientation emphasizes buying stocks at less than their
investment value and avoiding stocks whose price has been artificially built up.
The growth orientation emphasizes buying stocks of companies whose potential for
growth of capital and earnings is expected to be above average. Selection is
based on fundamental analysis of the company relative to other companies with
the focus being on Invista's estimation of forward looking rates of return.

Investments in companies with smaller market capitalizations may involve greater
risks and price volatility (wide, rapid fluctuations) than investments in
larger, more mature companies. For a more thorough discussion of the risks of
investing in small companies, please review the sections of this prospectus
which discuss the risks of investing in companies with small market
capitalizations (see Securities of Smaller Companies) and the risks of investing
in companies with limited operating history (see Unseasoned Issuers).

The value of the stocks owned by the Account changes on a daily basis. The
current share price reflects the activities of individual companies as well as
general market and economic conditions. In the short term, stock prices can
fluctuate dramatically in response to these factors. Because of these
fluctuations, principal values and investment returns vary. When shares of the
Account are sold, they may be worth more or less than the amount paid for them.

The SmallCap Account is generally a suitable investment for investors seeking
long-term growth and who are willing to accept the potential for volatile
fluctuations in the value of their investment. This Account is designed for long
term investors for a portion of their investments. It is not designed for
investors seeking income or conservation of capital.

GROWTH-ORIENTED ACCOUNT

SmallCap Growth Account

The SmallCap Growth Account seeks long-term growth of capital. The Account will
attempt to achieve its objective by investing primarily in equity securities of
small growth companies with market capitalizations of less than $1 billion.

-------------------------------------------
Average annual total return
(for the period ending December 31, 1998)
-------------------------------------------
Past One
Year
--------
SmallCap Growth Account 2.96%*
Calendar Years Ended December 31
______________________ 00.00
Lipper SmallCap Fund Average (0.33)
-------------------------------------------
* Periodfrom May 1, 1998, date first
offered to the public, through
December 31, 1998.

The year to date return as of December 31, 1998 is 2.96%.

* Manager has agreed to cap expenses so that total Account operating
expenses will be ____% for 1999.
- --------------------------------------------------------------------------------
Day-to-day Account management:
Since November 1998 Amy Selner, _____________ of Berger Associates, Inc.
since _____. Prior thereto, --------------------.

The SmallCap Growth Account invests primarily in a diversified group of equity
securities of small growth companies. Generally, at the time of the Account's
initial purchase of a security, the market capitalization of the issuer is less
than $1 billion. Growth companies are generally those with sales and earnings
growth that is expected to exceed the growth rate of corporate profits of the
S&P 500. They may also include companies that offer new products or new services
(see Securities of Smaller Companies and Unseasoned Issuers).

Under normal market conditions, the Account invests at least 65% of its assets
in equity securities of small growth companies. The balance of the Account may
include equity securities of companies with market capitalizations in excess of
$1 billion, foreign securities (see Foreign Securities), corporate fixed-income
securities, government securities and short term investments.

In selecting securities for investment, the Sub-Advisor, Berger, places primary
emphasis on companies which it believes have favorable growth prospects. Berger
seeks to identify small growth companies that either:
occupy a dominant position in an emerging industry, or growing market
share in larger, fragmented industries.
While these companies may present above average risk, Berger believes that they
may have the potential to achieve long-term earnings growth substantially above
the earnings growth of other companies.

The SmallCap Growth Account is generally a suitable investment for investors
seeking long-term growth and who are willing to accept the potential for
volatile fluctuations in the value of their investment. This Account is designed
for long term investors for a portion of their investments. It is not designed
for investors seeking income or conservation of capital.

GROWTH-ORIENTED ACCOUNT

SmallCap Value Account

The SmallCap Value Account seeks long-term growth of capital. The Account will
attempt to achieve its objective by investing primarily in equity securities of
small companies with value caracteristics and market capitalizations of less
than $1 billion.

--------------------------------------------
Average annual total returns
(for the period ending December 31, 1989)
--------------------------------------------
Past One
Year
---------
SmallCap Value Account (15.06)%*
Calendar Years Ended December 31
______________________ 00.00
Lipper SmallCap Fund Average (0.33)
--------------------------------------------
* Period from May 1, 1998, date first
offered to the public, through
December 31, 1998.

The year to date return as of December 31, 1998 is (15.06)%.

* Manager has agreed to cap expenses so that total Account operating
expenses will be ____% for 1999.
- --------------------------------------------------------------------------------
Day-to-day Account management:
Since April 1998 Stephen Rich, Vice President of J.P. Morgan Investment
Management, Inc. since 1997. Prior thereto, held
positions in J.P. Morgan's structured equity and
balanced/equity groups.

Denise Higgins, Vice President of J.P. Morgan Investment
Management, Inc. since 1998. Balanced and equity
portfolio manager at J.P. Morgan Investment Management,
Inc., 1994 - 1998. Prior thereto, portfolio manager at
Lord Abbett & Company.

"Standard & Poor's 500" is a trademark of Standard & Poor's Corporation (S&P).
S&P is not affiliated with Principal Life Insurance Company or with the Fund.
SmallCap Value Account The SmallCap Value Account seeks long-term growth of
capital by investing primarily in equity securities of small companies with
value characteristics and market capitalizations of less than $1 billion.

The SmallCap Value Account invests primarily in a diversified group of equity
securities of small U. S. companies with a market capitalization of less than $1
billion at the time of the initial purchase. Under normal market conditions, the
Account invests at least 65% of its assets in equity securities of such
companies. Emphasis is given to those companies that exhibit value
characteristics. These characteristics are above average dividend yield and
below average price to earnings (P/E) ratios.

The Sub-Advisor, Morgan, uses fundamental research, systematic stock valuation
and a disciplined portfolio construction process. It seeks to enhance returns
and reduce the volatility in the value of the Account relative to that of the
U.S. small company value universe, represented by the Russell 2000(R) Value
Index. Morgan continuously screens the small company universe to identify for
further analysis those companies that exhibit favorable characteristics. Such
characteristics include: significant and predictable cash flow and high quality
management. Based on fundamental research and using a dividend discount model,
Morgan ranks these companies within economic sectors according to their relative
values. Morgan then selects for purchase the companies it feels to be most
attractive within each economic sector.

Under normal market conditions, the Account will have sector weightings
comparable to that of the U.S. small company value universe though it may under
or over-weight selected economic sectors. In addition as a company moves out of
the market capitalization range of the small company universe, it generally
becomes a candidate for sale by the Account.

The Account intends to manage its investments actively to accomplish its
investment objective. Since the Account has a long-term investment perspective,
it does not intend to respond to short-term market fluctuations or to acquire
securities for the purpose of short-term trading. The Account may however take
advantage of short-term trading opportunities that are consistent with its
objective. To the extent that the Account engages in short-term trading, it may
have increased transactions costs (see Portfolio Turnover).

For a discussion of the risks of investing in small companies, please review the
sections of this prospectus which discuss the risks of investing in companies
with small market capitalizations (see Securities of Smaller Companies) and the
risks of investing in companies with limited operating history (see Unseasoned
Issuers). See Foreign Securities for a description of the unique risks
associated with foreign securities.

The SmallCap Value Account is generally a suitable investment for investors
seeking long-term growth and who are willing to accept volatile fluctuations in
the value of their investment. It is not designed for investors seeking income
or conservation of capital.

GROWTH-ORIENTED ACCOUNT

Stock Index 500 Account

The Stock Index 500 Account seeks long-term growth of capital. The Account
attempts to mirror the investment results of the Standard & Poor's 500 Stock
Index.

* Estimated (Manager has agreed to cap expenses so that the total Account
operating expenses will be 0.40% for 1999.)
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since ______ (Account's inception) Dean Roth, Portfolio Manager of Invista
Capital Management, LLC since _______.
Prior thereto, _______________________.

The investment objective of the Stock Index 500 is to achieve investment
results, that before expenses, approximate the performance of the Standard &
Poor's 500 Composite Stock Price Index (S&P 500)*. The Account invests in stocks
included in the S&P 500 Index in proportion to their weighting in the index.

Under normal market conditions, the Account invests at least 80% of its assets
in common stocks of companies that compose the S&P 500. The Sub-Advisor,
Invista, will attempt to mirror the investment performance of the index by
allocating the Account's assets in approximately the same weightings as the S&P
500. Over the long-term, Invista seeks a correlation between the Account, before
expenses, and that of the S&P 500. It is unlikely that a perfect correlation of
1.00 will be achieved.

The Account is not managed according to traditional methods of "active"
investment management. Active management would include buying and selling
securities based on economic, financial and investment judgement. Instead, the
Account uses a passive investment approach. Rather than judging the merits of a
particular stock in selecting investments, Invista focuses on tracking the S&P
500.

Because of the difficulty and expense of executing relatively small stock
trades, the Account may not always be invested in the less heavily weighted S&P
500 stocks. At times, the Account's portfolio may be weighted differently from
the S&P 500, particularly if the Account has a small level of assets to invest.
In addition, the Account's ability to match the performance of the S&P 500 is
effected to some degree by the size and timing of cash flows into and out of the
Account. The Account is managed to attempt to minimize such effects.

Invista reserves the right to omit or remove any of the S&P 500 stocks from the
Account if it determines that the stock is not sufficiently liquid. In addition,
a stock might be excluded or removed from the Account if extraordinary events or
financial conditions lead Invista to believe that it should not be a part of the
Account's assets.

The value of the stocks owned by the Account changes on a daily basis. The
current price reflects the activities of individual companies and general market
and economic conditions. In the short term, stock prices can fluctuate
dramatically in response to these factors. Because of these fluctuations,
principal values and investment returns vary. When shares of the Account are
sold, they may be worth more or less than the amount paid for them.

The Stock Index 500 Account is generally a suitable investment for investors
seeking long-term growth who are willing to accept the risks of investing in
common stocks and prefer a passive rather than active management style.

* Standard & Poor's Corporation is not affiliated with Principal Variable
Contracts Fund, Inc., Invista Capital Management, LLC, or with Principal Life
Insurance Company.

GROWTH-ORIENTED ACCOUNT

Utilities Account

The Utilities Account seeks to provide current income and long-term growth of
income and capital. The Account will attempt to achieve its objective by
investing primarily in equity and fixed-income securities of companies in the
public utilities industry.

---------------------------- ------------------------------------
Annual Total Returns Total Returns
----------------------------- highest & lowest quarterly returns
for the last 3 quarters
Bar Chart ------------------------------------
Quarter Ended Return
------------------------------------
0/0/00 00.00%
0/00/00 (00.00%)
------------------------------------

-----------------------------------------
Average annual total returns
(for the period ending December 31, 1998)
-----------------------------------------
Calendar Years Ended December 31 Past One
Year
--------
Utilities Account 15.36%*

_______________ 00.00
Lipper Utilities Fund Average 18.30
-----------------------------------------
* Period from May 1, 1998, date first
offered to the public, through
December 31, 1998.

The year to date return as of December 31, 1998 is 15.36%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.60% $70 $221 $384 $859
Other Expenses........................ 0.09%
-----
Total Account Operating Expenses 0.69%
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since April 1998 Catherine Zaharis, Portfolio Manager of Invista
Capital Management, LLC since 1987.

The Utilities Account invests in securities issued by companies in the
public utilities industry. These companies include: companies engaged
in the manufacture, production, generation, sale or distribution of
electric or gas energy or other
types of energy, and
companies engaged in telecommunications, including telephone,
telegraph, satellite, microwave and other communications media (but not
public broadcasting or cable television).
The Sub-Advisor, Invista, considers a company to be in the public utilities
industry if, at the time of investment, at least 50% of the company's assets,
revenues or profits are derived from one or more of those industries.

Under normal market conditions, at least 65% (and up to 100%) of the assets of
the Account are invested in equity securities and fixed-income securities in the
public utilities industry. The Account does not have any policy to concentrate
its assets in any segment of the utilities industry. The portion of Account
assets invested in equity securities and fixed-income securities varies from
time to time. When determining how to invest the Account's assets to achieve its
investment objective, Invista considers:
changes in interest rates, prevailing market conditions, and general
economic and financial conditions.

The Account invests in fixed income securities, which at the time of
purchase, are rated in one of the top four categories by S&P or
Moody's, or if not rated, in the Manager's opinion are of comparable
quality.

Since the Account's investments are concentrated in the utilities industry, the
value of its shares changes in response to factors affecting those industries.
Many utility companies have been subject to risks of:
increase in fuel and other operating costs;
changes in interests rates on borrowings for capital improvement
programs; changes in applicable laws and regulations; changes in
technology which render existing plants, equipment or products
obsolete; effects of conservation; and increase in costs and delays
associated with environmental regulations.

Generally, the prices charged by utilities are regulated with the intention of
protecting the public while ensuring that utility companies earn a return
sufficient to attract capital to grow and provide appropriate services. However,
due to political and regulatory factors, rate changes ordinarily occur following
a change in financing costs. This delay tends to favorably affect a utility
company's earnings and dividends when costs are decreasing but also adversely
affects earnings and dividends when costs are rising. In addition, the value of
the utility company bonds rise when interest rates fall and fall when interest
rates rise.

Certain states are adopting deregulation plans. These plans generally allow for
the utility company to set the amount of their earnings without regulatory
approval.

The Utilities Account is generally a suitable investment for investors seeking
quarterly dividends for income or to be reinvested for growth. Suitable
investors are those who want to invest in companies in the utilities industry
and are willing to accept fluctuations in the value of their investment. The
share price of the Account may fluctuate more widely than the value of shares of
a fund that invests in a broader range of industries. Because of these
fluctuations, principal values and investment returns vary. When shares of the
Account are sold, they may be worth more or less than the amount paid for them.

CERTAIN INVESTMENT STRATEGIES AND RELATED RISKS
The Statement of Additional Information (SAI) contains additional information
about investment strategies and their related risks.

Securities and Investment Practices
Equity securities include common stocks, preferred stocks, convertible
securities and warrants. Common stocks, the most familiar type, represent an
equity (ownership) interest in a corporation. Although equity securities have a
history of long term growth in value, their prices fluctuate based on changes in
a company's financial condition and on overall market and economic conditions.
Smaller companies are especially sensitive to these factors.

Debt securities include bonds and other debt instruments that are used by
issuers to borrow money from investors. The issuer generally pays the investor a
fixed, variable or floating rate of interest. The amount borrowed must be repaid
at maturity. Some debt securities, such as zero coupon bonds, do not pay current
interest, but are sold at a discount from their face values.

Debt securities are sensitive to changes in interest rates. In general, bond
prices rise when interest rates fall and fall when interest rates rise. Longer
term bonds and zero coupon bonds are generally more sensitive to interest rate
changes.

Bond prices are also affected by the credit quality of the issuer. Investment
grade debt securities are medium and high quality securities. Some bonds may
have speculative characteristics and be particularly sensitive to economic
conditions and the financial condition of the issuers.

Repurchase Agreements and Loaned Securities
Each of the Accounts may invest a portion of its assets in repurchase
agreements. Repurchase agreements typically involve the purchase of debt
securities from a financial institution such as a bank, savings and loan
association or broker-dealer. A repurchase agreement provides that the Account
sells back to the seller and that the seller repurchases the underlying
securities at a specified price on a specific date. Repurchase agreements may be
viewed as loans by an Account collateralized by the underlying securities. This
arrangement results in a fixed rate of return that is not subject to market
fluctuation while the Account holds the security. In the event of a default or
bankruptcy by a selling financial institution, the affected Account bears a risk
of loss. To minimize such risks, the Account enters into repurchase agreements
only with large, well-capitalized and well-established financial institutions.
In addition, the value of the collateral underlying the repurchase agreement is
always at least equal to the repurchase price, including accrued interest.

Each of the Accounts, except the Capital Value and Money Market Accounts, may
lend its portfolio securities to unaffiliated broker-dealers and other
unaffiliated qualified financial institutions.

Currency Contracts
The Accounts (except Government Securities and Money Market) may each enter into
forward currency contracts, currency futures contracts and options, and options
on currencies for hedging and other non-speculative purposes. A forward currency
contract involves a privately negotiated obligation to purchase or sell a
specific currency at a future date at a price set in the contract. An Account
will not hedge currency exposure to an extent greater than the aggregate market
value of the securities held or to be purchased by the Account (denominated or
generally quoted or currently convertible into the currency).

Hedging is a technique used in an attempt to reduce risk. If an Account's
Manager or Sub-Advisor hedges market conditions incorrectly or employs a
strategy that does not correlate well with the Account's investment, these
techniques could result in a loss, regardless of whether the intent was to
reduce risk or to increase return. These techniques may increase the volatility
of an Account and may involve a small investment of cash relative to the
magnitude of the risk assumed. In addition, these techniques could result in a
loss if the other party to the transaction does not perform as promised.
Additionally, there is the risk of governmental action through exchange controls
that would restrict the ability of the Account to deliver or receive currency.

Forward Commitments
Each of the Accounts may enter into forward commitment agreements. These
agreements call for the Account to purchase or sell a security on a future date
at a fixed price. Each of these Accounts may also enter into contracts to sell
its investments either on demand or at a specific interval.

Warrants
Each of the Accounts (except Government Securities and Money Market) may invest
up to 5% of its total assets in warrants. Up to 2% of an Account's total assets
may be invested in warrants that are not listed on either the New York or
American Stock Exchanges. For the International and International SmallCap
Accounts, the 2% limitation also applies to warrants not listed on the Toronto
Stock Exchange and Chicago Board Options Exchange.

Risks of High Yield Securities
The Asset Allocation, Balanced, and Bond Accounts may, to varying degrees,
invest in debt securities rated lower than BBB by S&P or Baa by Moody's or, if
not rated, determined to be of equivalent quality by the Manager. Such
securities are sometimes referred to as high yield or "junk bonds" and are
considered speculative.

Investment in high yield bonds involves special risks in addition to the risks
associated with investment in high rated debt securities. High yield bonds may
be regarded as predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments. Moreover, such securities may,
under certain circumstances, be less liquid than higher rated debt securities.

Analysis of the creditworthiness of issuers of high yield securities may be more
complex than for issuers of higher quality debt securities. The ability of an
Account to achieve its investment objective may, to the extent of its investment
in high yield bonds, be more dependent on such creditworthiness analysis than
would be the case if the Account were investing in higher quality bonds.

High yield bonds may be more susceptible to real or perceived adverse economic
and competitive industry conditions than higher-grade bonds. The prices of high
yield bonds have been found to be less sensitive to interest rate changes than
more highly rated investments, but more sensitive to adverse economic downturns
or individual corporate developments. If the issuer of high yield bonds
defaults, an Account may incur additional expenses to seek recovery.

The secondary market on which high yield bonds are traded may be less liquid
than the market for higher-grade bonds. Less liquidity in the secondary trading
market could adversely affect the price at which an Account could sell a high
yield bond and could adversely affect and cause large fluctuations in the daily
price of the Account's shares. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may decrease the value and
liquidity of high yield bonds, especially in a thinly traded market.

The use of credit ratings for evaluating high yield bonds also involves certain
risks. For example, credit ratings evaluate the safety of principal and interest
payments, not the market value risk of high yield bonds. Also, credit rating
agencies may fail to change ratings in a timely manner to reflect subsequent
events. If a credit rating agency changes the rating of a portfolio security
held by an Account, the Account may retain the security if the Manager thinks it
is in the best interest of shareholders.

Options
Each of the Accounts (except Capital Value and Money Market) may buy and sell
certain types of options. Each type is more fully discussed in the SAI.

Foreign Securities
Each of the following Accounts may invest in foreign securities to the indicated
percentage of its assets (debt securities issued in the United States pursuant
to a registration statement filed with the Securities and Exchange Commission
are not treated as foreign securities for purposes of these limitations.):
Asset Allocation, International and International SmallCap Accounts -
100%; Aggressive Growth, MicroCap, Real Estate and SmallCap Growth
Accounts - 25%; Bond, Capital Value, SmallCap and Utilities Accounts -
20%. Balanced, Growth, MidCap, MidCap Growth, SmallCap Value and Stock
Index 500 Accounts - 10%.
The Money Market Account does not invest in foreign securities other
than those that are United States dollar denominated. All principal and
interest payments for the security are payable in U.S. dollars. The
interest rate, the principal amount to be repaid and the timing of
payments related to the securities do not vary or float with the value of
a foreign currency, the rate of interest on foreign currency borrowings
or with any other interest rate or index expressed in a currency other
than U.S.
dollars.

Investment in foreign securities presents certain risks including:
fluctuations in currency exchange rates, revaluation of currencies, the
imposition of foreign taxes, future political and economic developments
including war, expropriations, nationalization, the possible imposition of
currency exchange controls and other foreign governmental laws or restrictions.
In addition, there may be reduced availability of public information concerning
issuers compared to domestic issuers. Foreign issuers are not generally subject
to uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements that apply to domestic issuers.
Transactions in foreign securities may be subject to higher costs. Each
Account's investment in foreign securities may also result in higher custodial
costs and the costs associated with currency conversions.

Securities of many foreign issuers may be less liquid and their prices
more volatile than those of comparable domestic issuers. Foreign securities
markets, particularly those in emerging market countries, are known to
experience long delays between the trade and settlement dates of securities
purchased and sold. Such delays may result in a lack of liquidity and greater
volatility in the price of securities on those markets. As a result of these
factors, the Boards of Directors of the Funds have adopted Daily Pricing and
Valuation Procedures for the Funds. These procedures outline the steps to be
followed by the Manager and Sub-Advisor to establish a reliable market or fair
value if a reliable market value is not available through normal market
quotations. The Executive Committee of the Boards of Directors oversees this
process.

Securities of Smaller Companies
The Asset Allocation, International SmallCap, MicroCap, MidCap, MidCap
Growth, SmallCap, SmallCap Growth and SmallCap Value Accounts invest in
securities of companies with small- or mid-sized market capitalizations. Market
capitalization is defined as total current market value of a company's
outstanding common stock. Investments in companies with smaller market
capitalizations may involve greater risks and price volatility (wide, rapid
fluctuations) than investments in larger, more mature companies. Smaller
companies may be less mature than older companies. At this earlier stage of
development, the companies may have limited product lines, reduced market
liquidity for their shares, limited financial resources or less depth in
management than larger or more established companies. Small companies also may
be less significant within their industries and may be at a competitive
disadvantage relative to their larger competitors. While smaller companies may
be subject to these additional risks, they may also realize more substantial
growth than larger or more established companies.

Unseasoned Issuers
The Accounts (except Government Securities) may invest in the
securities of unseasoned issuers. Unseasoned issuers are companies with a record
of less than three years continuous operation, including the operation of
predecessors and parents. Unseasoned issuers by their nature have only a limited
operating history that can be used for evaluating the company's growth
prospects. As a result, investment decisions for these securities may place a
greater emphasis on current or planned product lines and the reputation and
experience of the company's management and less emphasis on fundamental
valuation factors than would be the case for more mature growth companies. In
addition, many unseasoned issuers also may be small companies and involve the
risks and price volatility associated with smaller companies.

Temporary Defensive Measures
For temporary defensive purposes in times of unusual or adverse market
conditions, the Growth-Oriented Accounts, the Bond and Limited Term Bond
Accounts, may invest without limit in cash and cash equivalents. For this
purpose, cash equivalents include: bank certificates of deposit, bank
acceptances, repurchase agreements, commercial paper, and commercial paper
master notes which are floating rate debt instruments without a fixed maturity.
In addition, an Account may purchase U.S. Government securities, preferred
stocks and debt securities, whether or not convertible into or carrying rights
for common stock.

Portfolio Turnover
"Portfolio Turnover" is the term used in the industry for measuring
the amount of trading that occurs in an Account's portfolio during the year. For
example, a 100% turnover rate means that on average every security in the
portfolio has been replaced once during the year.

Accounts with high turnover rates (more than 100%) often have higher
transaction costs (which are paid by the Account) and may generate short-term
capital gains (on which you pay taxes even if you don't sell any of your shares
during the year). You can find the turnover rate for each Account, except for
the Money Market Account, in the Account's Financial Highlights table.

Please consider all the factors when you compare the turnover rates of
different funds. A fund with consistently higher total returns and higher
turnover rates than another fund may actually be achieving better performance
precisely because the managers are active traders. You should also be aware that
the "total return" line in the Financial Highlights section already includes
portfolio turnover costs.

PRICING OF ACCOUNT SHARES

Each Account's shares are bought and sold at the current share price. The
share price of each Account is calculated each day the New York Stock Exchange
is open. The share price is determined at the close of business of the Exchange
(normally at 3:00 p.m. Central Time). When Princor receives orders to buy or
sell shares, the share price used to fill the order is the next price calculated
after the order is placed.

For all Accounts, except the Money Market Account, the share price is
calculated by: taking the current market value of the total assets of the
Account subtracting liabilities of the Account dividing the remainder by
the total number of shares owned by the Account.

The securities of the Money Market Account are valued at amortized cost.
The calculation procedure is described in the Statement of Additional
Information. The Money Market Account reserves the right to determine a share
price more than once a day.

NOTES:
If current market values are not readily available for a security, its
fair value is determined using a policy adopted by the Fund's Board of
Directors.
An Account's securities may be traded on foreign securities markets that
generally complete trading at various times during the day prior to the
close of the New York Stock Exchange. The values of foreign securities used
in computing share price are determined at the time the foreign market
closes. Occasionally, events affecting the value of foreign securities
occur when the foreign market is closed and the New York Stock Exchange is
open. If the Manager believes the market value is materially affected, the
share price will be calculated using the policy adopted by the Fund.
Foreign securities markets may trade on days when the New York Stock
Exchange is closed (such as customary U.S. holidays) and an Account's share
price is not calculated. As a result, the value of an Account's assets may
be significantly affected by such trading on days when you cannot purchase
or sell shares of the Fund.

DIVIDENDS AND DISTRIBUTIONS

Growth-Oriented and Income-Oriented Accounts
Investments owned by each of the Accounts may make payments of dividends and or
distributions of capital gains. Each of the Accounts has a policy to distribute
substantially all of the net dividend income and net capital gains that it
receives. Except for the Money Market Account, these payments will be made
annually.

When an Account receives a dividend or capital gain distribution, it increases
the net asset value of a share of the Account as of the date the payment is
recorded. As the net asset value of a share of an Account increases, the unit
value of the corresponding division also reflects an increase. The number of
units you own in the Account are not increased because of the dividend or
capital gain distribution.

Money Market Account
The Money Market Account declares dividends of all its daily net investment
income each day its shares are priced. The dividends are paid daily and are
automatically reinvested back into additional share of the Fund. You may ask to
have your dividends paid to you monthly in cash.

Under normal circumstances, the Account intends to hold portfolio securities
until maturity and value them at amortized cost. Therefore, the Account does not
expect any capital gains or losses. Should there be any gain, it could result in
an increase in dividends. A capital loss could result in a dividend decrease.

MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE

The Manager
Principal Management Corporation (the "Manager") serves as the manager for the
Principal Variable Contracts Fund, Inc. In its handling of the business affairs
of the Fund, the Manager provides clerical, recordkeeping and bookkeeping
services, and keeps the financial and accounting records required for the
Accounts.

The Manager is a subsidiary of Principal Life Insurance Company. It has managed
mutual funds since 1969. As of December 31, 1998, the Funds it managed had
assets of approximately $5.9 billion. The Manager's address is Principal
Financial Group, Des Moines, Iowa 50392-0200.

The Sub-Advisors
The Manager has signed contracts with various Sub-Advisors. Under the
Sub-Advisory agreements, the Sub-Advisor agrees to assume the obligations of the
Manager to provide investment advisory services for a specific Account. For
these services, each Sub-Advisor is paid a fee by the Manager.

Accounts: Aggressive Growth and Asset Allocation
Sub-Advisor: Morgan Stanley Asset Management Inc.("MSAM"). MSAM,
with principal offices at 1221 Avenue of the Americas, New York,
NY 10020, provides a broad range of portfolio management services
to customers in the U.S. and abroad. As of December 31, 1998,
MSAM managed investments totaling approximately $163.4 billion as
named fiduciary or fiduciary adviser. On December 1, 1998 Morgan
Stanley Asset Management Inc. changed its name to Morgan Stanley
Dean Witter Investment Management Inc. but continues to do
business in certain instances using using the name Morgan Stanley
Asset Management.

Accounts: Balanced, Capital Value, Government Securities, Growth,
International, International SmallCap, MidCap, SmallCap, Stock
Index 500, and Utilities
Sub-Advisor: Invista Capital Management, LLC ("Invista"), an indirectly
wholly-owned subsidiary of Principal Life Insurance Company and
an affiliate of the Manger was founded in 1985. It manages
investments for institutional investors, including Principal
Life. Assets under management as of December 31, 1998 were
approximately $31 billion. Invista's address is 1800 Hub Tower,
699 Walnut, Des Moines, Iowa 50309.

Account: MicroCap
Sub-Advisor: Goldman Sachs Assets Management ("GSAM"), One New York
Plaza, New York, NY 10004, is a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"). Goldman Sachs provides a
wide range of fully discretionary investment advisory services
for quantitatively driven and actively managed U.S. and
international equity portfolios, U.S. and global fixed income
portfolios, commodity and currency products, and money market
mutual funds. As of December 31, 1998, GSAM, together with its
affiliates, managed assets in excess of $________ billion.

Account: MidCap Growth
Sub-Advisor: The Dreyfus Corporation, located at 200 Park Avenue, New
York, NY 10166, was formed in 1947. The Dreyfus Corporation is a
wholly owned subsidiary of Mellon Bank, N.A., which is a wholly
owned subsidiary of Mellon Bank Corporation (Mellon). As of
_____________, The Dreyfus Corporation managed or administered
approximately $______ billion in assets for approximately _____
million investor accounts nationwide.

Account: SmallCap Growth
Sub-Advisor: Berger Associates, Inc. Berger's address is 210
University Boulevard, Suite 900, Denver CO 80206. It serves as
investment advisor, sub-advisor, administrator or
sub-administrator to mutual funds and institutional investors.
Kansas City Southern Industries, Inc. (KCSI) owns approximately
____% of Berger. KCSI is a publicly traded holding company with
principal operations in rail transportation, through its
subsidiary The Kansas City Southern Railway Company, and
financial asset management businesses.

Account: SmallCap Value
Sub-Advisor: J.P. Morgan Investment Management, Inc. Morgan, with
principal offices at 522 Fifth Avenue, New York, NY 10036 is a
wholly-owned subsidiary of J.P. Morgan & Co. Incorporated (J.P.
Morgan) a bank holding company. J.P. Morgan, through Morgan and
its other subsidiaries, offers a wide range of services to
governmental, institutional, corporate and individual customers
and acts as investment advisor to individual and institutional
clients. As of December 31, 1998, J.P. Morgan and its
subsidiaries had total combined assets under management of
approximately $300 billion.

Duties of the Manager and Sub-Advisor
The Manager or the Sub-Advisor provides the Board of Directors of the Fund a
recommended investment program. Each program must be consistent with the
Account's investment objective and policies. Within the scope of the approved
investment program, the Manager or the Sub-Advisor advises each Account on its
investment policies and determines which securities are bought and sold, and in
what amounts.

The Manager is paid a fee by each Account for its services, which includes any
fee paid to the Sub-Advisor. The fee paid by each Account (as a percentage of
the average daily net assets) for the fiscal year ended December 31, 1998 was:

Management Other Total Operating
Account Fees Expenses Expenses
Aggressive Growth 0.77% 0.01% 0.78%
Asset Allocation 0.80 0.09 0.89
Balanced 0.57 0.02 0.59
Bond 0.49 0.02 0.51
Capital Value 0.43 0.01 0.44
Government Securities 0.49 0.01 0.50
Growth 0.47 0.01 0.48
International 0.73 0.04 0.77
International SmallCap 1.21 0.13 1.34
MicroCap 1.00 0.38 1.38
MidCap 0.61 0.01 0.62
MidCap Growth 0.90 0.37 1.27
Money Market 0.50 0.02 0.52
Real Estate 0.90 0.10 1.00
SmallCap 0.85 0.13 0.98
SmallCap Growth 1.01 0.30 1.31
SmallCap Value 1.10 0.46 1.56
Utilities 0.60 0.09 0.69

Account Manager Comments

(This section will be filed by amendment.)

GENERAL INFORMATION ABOUT AN ACCOUNT

Eligible Purchasers
Only certain eligible purchasers may buy shares of the Accounts. Eligible
purchasers are limited to 1) separate accounts of Principal Life Insurance
Company or of other insurance companies, 2) Principal Life Insurance Company or
any of its subsidiaries or affiliates, 3) trustees of other managers of any
qualified profit sharing, incentive or bonus plan established by Principal Life
Insurance Company or any of its subsidiaries or affiliates for employees of such
company, subsidiary or affiliate. Such trustees or managers may buy Account
shares only in their capacities as trustees or managers and not for their
personal accounts. The Board of Directors of the Fund reserves the right to
broaden or limit the designation of eligible purchaser.

Each Account serves as the underlying investment vehicle for variable annuity
contracts and variable life insurance policies that are funded in separate
accounts established by Principal Life. It is possible that in the future, it
may not be advantageous for variable life insurance separate accounts and
variable annuity separate accounts to invest in the Accounts at the same time.
Although neither Principal Life nor the Fund currently foresees any such
disadvantage, the Fund's Board of Directors monitors events in order to identify
any material conflicts between such policy owners and contract holders. Material
conflict could result from, for example 1) changes in state insurance laws, 2)
changes in Federal income tax law, 3) changes in the investment management of an
Account, or 4) differences in voting instructions between those given by policy
owners and those given by contract holders. Should it be necessary, the Board
would determine what action, if any, should be taken. Such action could include
the sale of Account shares by one or more of the separate accounts which could
have adverse consequences.

Shareholder Rights
The following information applies to each Account of the Principal Variable
Contracts Fund, Inc. Each Account share is eligible to vote, either in person or
by proxy, at all shareholder meetings for that Account. This includes the right
to vote on the election of directors, selection of independent auditors and
other matters submitted to meetings of shareholders of the Account. Each share
has equal rights with every other share of the Account as to dividends,
earnings, voting, assets and redemption. Shares are fully paid, non-assessable
and have no preemptive or conversion rights. Shares of an Account are issued as
full or fractional shares. Each fractional share has proportionately the same
rights including voting as are provided for a full share. Shareholders of the
Fund may remove any director with or without cause by the vote of a majority of
the votes entitled to be case at a meeting of all Account shareholders.

The bylaws of the Fund provide that the Board of Directors of the Fund may
increase or decrease the aggregate number of shares which the Fund has the
authority to issue, without a shareholder vote.

The bylaws of the Fund also provide that the Fund does not need to hold an
annual meeting of shareholders unless one of the following is required to be
acted upon by shareholders under the Investment Company Act of 1940: election of
directors, approval of an investment advisory agreement, ratification of the
selection of independent auditors, and approval of the distribution agreement.
The Fund intends to hold shareholder meetings only when required by law and at
such other times when the Board of Directors deems it to be appropriate.

Shareholder inquiries should be directed to: Principal Variable Contracts Fund,
Inc., Principal Financial Group, Des Moines, Iowa 50392-0200.

Non-Cumulative Voting
The Fund's shares have non-cumulative voting rights. This means that the holders
of more than 50% if the shares voting for the election of directors of the Fund
can elect 100% of the directors if they choose to do so. In such event, the
holders of the remaining shares voting for the election of directors will not be
able to elect any directors.

Principal Life votes each Account's shares allocated to each of its separate
accounts registered under the Investment Company Act of 1940 and attributable to
variable annuity contracts or variable life insurance policies participating in
the separate accounts. The shares are voted in accordance with instructions
received from contract holders, policy owners, participants and annuitants.
Other shares of each Account held by each separate account, including shares for
which no timely voting instructions are received, are voted in proportion to the
instructions that are received with respect to contracts or policies
participating that separate account. Shares of each of the Accounts held in the
general account of Principal Life or in the unregistered separate accounts are
voted in proportion to the instructions that are received with respect to
contracts and policies participated in its registered and unregistered separate
accounts. If Principal Life determines, under applicable law, that an Account's
shares held in one or more separate accounts or in its general account need not
be voted according to the instructions that are received, it may vote those
Account shares in its own right.

Purchase of Account Shares
Shares are purchased from Princor Financial Services Corporation, the Fund's
principal underwriter. There are no sales charges on shares of the Accounts.
There are not restrictions on amounts to be invested in shares of the Accounts.

Shareholder accounts for each Account are maintained under an open account
system. Under this system, an account is opened and maintained for each
investor. Each investment is confirmed by sending the investor a statement of
account showing the current purchase and the total number of shares owned. The
statement of account is treated by each Account as evidence of ownership of
Account shares. Share certificates are not issued.

Sale of Account Shares
This section applies to eligible purchasers other than the separate accounts of
Principal Life and its subsidiaries.

Each Account sells its shares upon request. There is no charge for the sale. A
shareholder sends a written request to the Account requesting the sale of any
part or all of the shares. The letter must be signed exactly as the account is
registered. If payment is to be made to the registered shareholder or joint
shareholder, the Account does not require a signature guarantee. If payment is
to be made to another party, the shareholder's signature(s) must be guaranteed
by a commercial bank, trust company, credit union, savings and loan association,
national securities exchange member or brokerage firm. Shares are redeemed at
the net asset value per share next computed after the required is received by
the Account in proper and complete form.

Sales proceeds are generally sent within three business days after the request
is received in proper form. However, the right to sell shares may be suspended
during any period when 1) trading on the New York Stock Exchange is restricted
as determined by the SEC or when the Exchange is closed for other than weekends
and holidays, or 2) an emergency exists, as determined by the SEC, as a result
of which i) disposal by a fund of securities owned by it is not reasonably
practicable, ii) it is not reasonably practicable for a fund to fairly determine
the value of its net assets; or iii) the SEC permits suspension for the
protection of security holders.

If payments are delayed and the instruction is not canceled by the shareholder's
written instruction, the amount of the transaction is determined the first
valuation date following the expiration of the permitted delay. The transaction
is made within five days thereafter.

In addition, payments on surrenders attributable to a premium payment made by
check may be delayed up to 15 days. This permits payment to be collected on the
check.

Restricted Transfers
Shares of each of the Accounts may be transferred to an eligible purchaser.
However, if an Account is requested to transfer shares to other than an eligible
purchaser, the Account has the right, at its election, to purchase the shares at
the net asset value next calculated after the receipt of the transfer request.
However, the Account must give written notification to the transferee(s) of the
shares of the election to buy the shares within seven days of the request.
Settlement for the shares shall be made within the seven day period.

Year 2000 Readiness Disclosure
The business operations of the Fund depend on computer systems that contain date
fields. These systems include securities transfer agent operations and
securities pricing systems. Many of these systems were constructed using a two
digit date field to represent the date. Unless these systems are changed or
modified, they may not be able to distinguish the Year 1900 from the Year 2000
(commonly referred to as the Year 2000 Problem).

When the Year 2000 arrives, the Fund's operations could be adversely affected if
the computer systems used by the Manager, the service providers and other third
parties it does business with are not Year 2000 compliant. For example, the
Accounts' portfolios and operational areas could be impacted, included
securities pricing, dividend and interest payments, shareholder account
servicing and reporting functions. In addition, an Account could experience
difficulties in transactions if foreign broker-dealers or foreign markets are
not Year 2000 compliant.

The Manager relies on public filings and other statements made by companies
about their Year 2000 readiness. Issuers in countries outside of the U.S.,
particularly in emerging countries, may not be required to make the same
disclosures about their readiness as are required in the U.S. It is likely that
if a company an Account invests in is adversely affected by Year 2000 problems,
the price of its securities will also be negatively impacted. A decrease in
value of one or more of an Account's securities will decrease that Account's
share price.

In addition, the Manager and affiliated service providers are working to
identify their Year 2000 problems and taking steps they reasonably believe will
address these issues. This process began in 1996 with the identification of
product vendors and service providers as well as the internal systems that might
be impacted.

At this time, testing of internal systems has been completed. The Manager is now
participating in a corporate-wide initiative lead by senior management
representatives of Principal Life. Currently they are engaged in regression
testing of internal programs. They are also participating in development of
contingency plans in the event that Year 2000 problems develop and/or persist on
or after January 1, 2000. This plan is scheduled to be completed by March 19,
1999. The contingency plan calls for:
identification of business risks;
consideration of alternative approaches to critical business risks; and
development of action plans to address problems.

Other important Year 2000 initiatives include:
the service provider for our transfer agent system has renovated its code.
Client testing will occur in the first and second quarters of 1999. The
service provider is also participating in a securities industry wide
testing program that is scheduled to be completed by the end of April 1999;
the securities pricing system we use has renovated its code and conducted
client testing in June 1998;
Facilities Management of Principal Life has identified non-systems issues
(heat, lights, water, phone, etc.) and is working with these service
providers to ensure continuity of service; and
the Manager and other areas of Principal Life have contacted all vendors
with which we do business to receive assurances that they are able to deal
with any Year 2000 problems. We continue to work with the vendors to
identify any areas of risk.

In its budget for 1999 and 2000, the Manager has estimated expenses of between
$100,000 and $500,000 to deal with Year 2000 issues.

Financial Statements
You will receive an annual financial statement for the Funds, examined by the
Funds' independent auditors, Ernst & Young LLP. That report is a part of this
prospectus. You will also receive a semiannual financial statement that is
unaudited. The following financial highlights are based on financial statements
that were audited by Ernst & Young LLP.

FINANCIAL HIGHLIGHTS

PRINCIPAL VARIABLE CONTRACTS FUND, INC.

Selected data for a share of Capital Stock outstanding throughout each year
ended December 31 (except as noted):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>

AGGRESSIVE GROWTH ACCOUNT(a) 1998 1997 1996 1995 1994(b)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $16.30 $14.52 $12.94 $10.11 $9.92
Income from Investment Operations:
Net Investment Income............................... .04 .04 .11 .13 .05
Net Realized and Unrealized Gain (Loss) on Investments 2.99 4.26 3.38 4.31 .24

Total from Investment Operations 3.03 4.30 3.49 4.44 .29
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.04) (.04) (.11) (.13) (.05)
Distributions from Capital Gains.................... (.96) (2.48) (1.80) (1.48) (.05)
---------------------------------------------------------------

Total Dividends and Distributions (1.00) (2.52) (1.91) (1.61) (.10)
----------------------------------------------------------------

Net Asset Value, End of Period......................... $18.33 $16.30 $14.52 $12.94 $10.11
================================================================

Total Return........................................... 18.95% 30.86% 28.05% 44.19% 2.59%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $224,058 $149,182 $90,106 $33,643 $13,770
Ratio of Expenses to Average Net Assets............. .78% .82% .85% .90% 1.03%(d)
Ratio of Net Investment Income to Average Net Assets .22% .29% 1.05% 1.34% 1.06%(d)
Portfolio Turnover Rate............................. 155.6% 172.6% 166.9% 172.9% 105.6%(d)

ASSET ALLOCATION ACCOUNT(a) 1998 1997 1996 1995 1994(b)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $11.94 $11.48 $11.11 $9.79 $9.98
Income from Investment Operations:
Net Investment Income............................... .31 .30 .36 .40 .23
Net Realized and Unrealized Gain (Loss) on Investments .76 1.72 1.06 1.62 (.18)

Total from Investment Operations 1.07 2.02 1.42 2.02 .05
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.31) (.30) (.36) (.40) (.23)
Distributions from Capital Gains.................... (.40) (1.26) (.69) (.30) --
Excess Distributions from Capital Gains(e).......... -- -- -- -- (.01)

Total Dividends and Distributions (.71) (1.56) (1.05) (.70) (.24)
---------------------------------------------------------------

Net Asset Value, End of Period......................... $12.30 $11.94 $11.48 $11.11 $9.79
================================================================

Total Return........................................... 9.18% 18.19% 12.92% 20.66% .52%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $84,089 $76,804 $61,631 $41,074 $28,041
Ratio of Expenses to Average Net Assets............. .89% .89% .87% .89% .95%(d)
Ratio of Net Investment Income to Average Net Assets 2.51% 2.55% 3.45% 4.07% 4.27%(d)
Portfolio Turnover Rate............................. 162.7% 131.6% 108.2% 47.1% 60.7%(d)
</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
BALANCED ACCOUNT(a) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $15.51 $14.44 $13.97 $11.95 $12.77
Income from Investment Operations:
Net Investment Income............................... .49 .46 .40 .45 .37
Net Realized and Unrealized Gain (Loss) on Investments 1.33 2.11 1.41 2.44 (.64)

Total from Investment Operations 1.82 2.57 1.81 2.89 (.27)
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.49) (.45) (.40) (.45) (.37)
Distributions from Capital Gains.................... (.59) (1.05) (.94) (.42) (.18)
----------------------------------------------------------

Total Dividends and Distributions (1.08) (1.50) (1.34) (.87) (.55)
-----------------------------------------------------------

Net Asset Value, End of Period......................... $16.25 $15.51 $14.44 $13.97 $11.95
===========================================================

Total Return........................................... 11.91% 17.93% 13.13% 24.58% (2.09)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $198,603 $133,827 $93,158 $45,403 $25,043
Ratio of Expenses to Average Net Assets............. .59% .61% .63% .66% .69%
Ratio of Net Investment Income to Average Net Assets 3.37% 3.26% 3.45% 4.12% 3.42%
Portfolio Turnover Rate............................. 24.2% 69.7% 22.6% 25.7% 31.5%

BOND ACCOUNT(a) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $11.78 $11.33 $11.73 $10.12 $11.16
Income from Investment Operations:
Net Investment Income............................... .66 .76 .68 .62 .72
Net Realized and Unrealized Gain (Loss) on Investments .25 .44 (.40) 1.62 (1.04)
---------------------------------------------------------

Total from Investment Operations .91 1.20 .28 2.24 (.32)
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.66) (.75) (.68) (.63) (.72)
Excess Distributions from Capital Gains(e).......... (.01) -- -- -- --
--------------------------------------------------------

Total Dividends and Distributions (.67) (.75) (.68) (.63) (.72)
----------------------------------------------------------

Net Asset Value, End of Period......................... $12.02 $11.78 $11.33 $11.73 $10.12
===========================================================

Total Return........................................... 7.69% 10.60% 2.36% 22.17% (2.90)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $121,973 $81,921 $63,387 $35,878 $17,108
Ratio of Expenses to Average Net Assets............. .51% .52% .53% .56% .58%
Ratio of Net Investment Income to Average Net Assets 6.41% 6.85% 7.00% 7.28% 7.86%
Portfolio Turnover Rate............................. 26.7% 7.3% 1.7% 5.9% 18.2%

CAPITAL VALUE ACCOUNT(a) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $34.61 $29.84 $27.80 $23.44 $24.61
Income from Investment Operations:
Net Investment Income............................... .71 .68 .57 .60 .62
Net Realized and Unrealized Gain (Loss) on Investments 3.94 7.52 5.82 6.69 (.49)

Total from Investment Operations 4.65 8.20 6.39 7.29 .13
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.71) (.67) (.58) (.60) (.61)
Distributions from Capital Gains.................... (1.36) (2.76) (3.77) (2.33) (.69)
-----------------------------------------------------------

Total Dividends and Distributions (2.07) (3.43) (4.35) (2.93) (1.30)
-----------------------------------------------------------

Net Asset Value, End of Period......................... $37.19 $34.61 $29.84 $27.80 $23.44
===========================================================

Total Return........................................... 13.58% 28.53% 23.50% 31.91% .49%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $385,724 $285,231 $205,019 $135,640 $120,572
Ratio of Expenses to Average Net Assets............. .44% .47% .49% .51% .51%
Ratio of Net Investment Income to Average Net Assets 2.07% 2.13% 2.06% 2.25% 2.36%
Portfolio Turnover Rate............................. 22.0% 23.4% 48.5% 49.2% 44.5%

GOVERNMENT SECURITIES ACCOUNT(a) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $10.72 $10.31 $10.55 $9.38 $10.61
Income from Investment Operations:
Net Investment Income............................... .60 .66 .59 .60 .76
Net Realized and Unrealized Gain (Loss) on Investments .28 .41 (.24) 1.18 (1.24)

Total from Investment Operations .88 1.07 .35 1.78 (.48)

Less Dividends from Net Investment Income.............. (.59) (.66) (.59) (.61) (.75)
-----------------------------------------------------------

Net Asset Value, End of Period......................... $11.01 $10.72 $10.31 $10.55 $9.38
===========================================================

Total Return........................................... 8.27% 10.39% 3.35% 19.07% (4.53)%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $141,317 $94,322 $85,100 $50,079 $36,121
Ratio of Expenses to Average Net Assets............. .50% .52% .52% .55% .56%
Ratio of Net Investment Income to Average Net Assets 6.15% 6.37% 6.46% 6.73% 7.05%
Portfolio Turnover Rate............................. 11.0% 9.0% 8.4% 9.8% 23.2%

GROWTH ACCOUNT(a) 1998 1997 1996 1995 1994(f)
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $17.21 $13.79 $12.43 $10.10 $9.60
Income from Investment Operations:
Net Investment Income............................... .21 .18 .16 .17 .07
Net Realized and Unrealized Gain (Loss) on Investments 3.45 3.53 1.39 2.42 .51
----------------------------------------------------------

Total from Investment Operations 3.66 3.71 1. 55 2.59 .58
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.21) (.18) (.16) (.17) (.08)
Distributions from Capital Gains.................... (.20) (.10) (.03) (.09) --
Excess Distributions from Capital Gains(e).......... -- (.01) -- -- --
-------------------------------------------------------

Total Dividends and Distributions (.41) (.29) (.19) (.26) (.08)
----------------------------------------------------------

Net Asset Value, End of Period......................... $20.46 $17.21 $13.79 $12.43 $10.10
===========================================================

Total Return........................................... 21.36% 26.96% 12.51% 25.62% 5.42%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $259,828 $168,160 $99,612 $42,708 $13,086
Ratio of Expenses to Average Net Assets............. .48% .50% .52% .58% .75%(d)
Ratio of Net Investment Income to Average Net Assets 1.25% 1.34% 1.61% 2.08% 2.39%(d)
Portfolio Turnover Rate............................. 9.0% 15.4% 2.0% 6.9% 0.9%(d)

INTERNATIONAL ACCOUNT(a) 1998 1997 1996 1995 1994(f)
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $13.90 $13.02 $10.72 $9.56 $9.94
Income from Investment Operations:
Net Investment Income............................... .26 .23 .22 .19 .03
Net Realized and Unrealized Gain (Loss) on Investments 1.11 1.35 2.46 1.16 (.33)
----------------------------------------------------------

Total from Investment Operations 1.37 1.58 2.68 1.35 (.30)
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.25) (.23) (.22) (.18) (.05)
Excess Distributions from Net Investment Income(e).. -- -- -- -- (.02)
Distributions from Capital Gains.................... (.51) (.47) (.16) (.01) (.01)
----------------------------------------------------------

Total Dividends and Distributions (.76) (.70) (.38) (.19) (.08)
----------------------------------------------------------

Net Asset Value, End of Period......................... $14.51 $13.90 $13.02 $10.72 $9.56
===========================================================

Total Return........................................... 9.98% 12.24% 25.09% 14.17% (3.37)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $153,588 $125,289 $71,682 $30,566 $13,746
Ratio of Expenses to Average Net Assets............. .77% .87% .90% .95% 1.24%(d)
Ratio of Net Investment Income to Average Net Assets 1.80% 1.92% 2.28% 2.26% 1.31%(d)
Portfolio Turnover Rate............................. 33.9% 22.7% 12.5% 15.6% 14.4%(d)
</TABLE>

INTERNATIONAL SMALLCAP ACCOUNT 1998(g)
- -------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $9.97
Income from Investment Operations:
Net Investment Income............................... .01
Net Realized and Unrealized Gain (Loss) on Investments (.95)
-----

Total from Investment Operations (.94)
Less Dividends from Net Investment Income.............. (.03)
-----

Net Asset Value, End of Period......................... $9.00
=====

Total Return........................................... (10.37)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $13,075
Ratio of Expenses to Average Net Assets............. 1.34%(d)
Ratio of Net Investment Income to Average Net Assets .24%(d)
Portfolio Turnover Rate............................. 60.3%(d)

MICROCAP ACCOUNT 1998(g)
- -------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $10.04
Income from Investment Operations:
Net Investment Income............................... .03
Net Realized and Unrealized Gain (Loss) on Investments (1.86)
------

Total from Investment Operations (1.83)
Less Dividends from Net Investment Income.............. (.04)
-----

Net Asset Value, End of Period......................... $8.17
=====

Total Return........................................... (18.42)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $5,384
Ratio of Expenses to Average Net Assets............. 1.38%(d)
Ratio of Net Investment Income to Average Net Assets 0.57%(d)
Portfolio Turnover Rate............................. 55.3%(d)

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
MIDCAP ACCOUNT(a) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $35.47 $29.74 $25.33 $19.97 $20.79
Income from Investment Operations:
Net Investment Income............................... .22 .24 .22 .22 .14
Net Realized and Unrealized Gain (Loss) on Investments .94 6.48 5.07 5.57 .03
---------------------------------------------------------

Total from Investment Operations 1.16 6.72 5.29 5.79 .17
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.22) (.23) (.22) (.22) (.14)
Distributions from Capital Gains.................... (2.04) (.76) (.66) (.21) (.85)
-----------------------------------------------------------
Total Dividends and Distributions (2.26) (.99) (.88) (.43) (.99)
-----------------------------------------------------------

Net Asset Value, End of Period......................... $34.37 $35.47 $29.74 $25.33 $19.97
===========================================================

Total Return........................................... 3.69% 22.75% 21.11% 29.01% .78%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $259,470 $224,630 $137,161 $58,520 $23,912
Ratio of Expenses to Average Net Assets............. .62% .64% .66% .70% .74%
Ratio of Net Investment Income to Average Net Assets .63% .79% 1.07% 1.23% 1.15%
Portfolio Turnover Rate............................. 26.9% 7.8% 8.8% 13.1% 12.0%
</TABLE>

MIDCAP GROWTH ACCOUNT 1998(g)
- -------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $9.94
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.01)
Net Realized and Unrealized Gain (Loss) on Investments (.28)
-----
Total from Investment Operations (.29)
Net Asset Value, End of Period $9.65
=====

Total Return........................................... (3.40%)(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $8,534
Ratio of Expenses to Average Net Assets............. 1.27%(d)
Ratio of Net Investment Income to Average Net Assets (.14)%(d)
Portfolio Turnover Rate............................. 91.9%(d)

MONEY MARKET ACCOUNT(a) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $1.000 $1.000 $1.000 $1.000 $1.000
Income from Investment Operations:
Net Investment Income............................... .051 .051 .049 .054 .037
Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- --
-------------- ----------------------------------------

Total from Investment Operations .051 .051 .049 .054 .037
Less Dividends from Net Investment Income.............. (.051) (.051) (.049) (.054) (.037)
-----------------------------------------------------------

Net Asset Value, End of Period......................... $1.000 $1.000 $1.000 $1.000 $1.000
===========================================================
Total Return 5.20% 5.04% 5.07% 5.59% 3.76%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $83,263 $47,315 $46,244 $32,670 $29,372
Ratio of Expenses to Average Net Assets............. .52% .55% .56% .58% .60%
Ratio of Net Investment Income to Average Net Assets 5.06% 5.12% 5.00% 5.32% 3.81%
</TABLE>

REAL ESTATE ACCOUNT 1998(g)
- -------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $10.01
Income from Investment Operations:
Net Investment Income............................... .32
Net Realized and Unrealized Gain (Loss) on Investments (.97)
-----

Total from Investment Operations (.65)
Less Dividends from Net Investment Income.............. (.29)
-----
Net Asset Value, End of Period......................... $9.07
=====

Total Return........................................... (6.56)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $10,909
Ratio of Expenses to Average Net Assets............. 1.00%(d)
Ratio of Net Investment Income to Average Net Assets 5.40%(d)
Portfolio Turnover Rate............................. 5.6%(d)

See accompanying notes.

SMALLCAP ACCOUNT 1998(g)
- -------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $10.27
Income from Investment Operations:
Net Investment Income............................... --
Net Realized and Unrealized Gain (Loss) on Investments (2.06)
------
Total from Investment Operations (2.06)
Net Asset Value, End of Period......................... $8.21
=====

Total Return........................................... (20.51)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $12,094
Ratio of Expenses to Average Net Assets............. .98%(d)
Ratio of Net Investment Income to Average Net Assets (.05)%(d)
Portfolio Turnover Rate............................. 45.2%(d)

SMALLCAP GROWTH ACCOUNT 1998(g)
- ----------------------- ----
Net Asset Value, Beginning of Period................... $9.84
Income from Investment Operations:
Net Investment Income (Operating Loss).............. (.04)
Net Realized and Unrealized Gain (Loss) on Investments .30
---
Total from Investment Operations .26

Net Asset Value, End of Period......................... $10.10
======

Total Return........................................... 2.96%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $8,463
Ratio of Expenses to Average Net Assets............. 1.31%(d)
Ratio of Net Investment Income to Average Net Assets (.80)%(d)
Portfolio Turnover Rate............................. 166.5%(d)

SMALLCAP VALUE ACCOUNT 1998(g)
- -------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $9.84
Income from Investment Operations:
Net Investment Income............................... .03
Net Realized and Unrealized Gain (Loss) on Investments (1.50)
------

Total from Investment Operations (1.47)
Less Dividends from Net Investment Income.............. (.03)
-----

Net Asset Value, End of Period......................... $8.34
=====

Total Return........................................... (15.06)%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $6,895
Ratio of Expenses to Average Net Assets............. 1.56%(d)
Ratio of Net Investment Income to Average Net Assets .73%(d)
Portfolio Turnover Rate............................. 53.4%(d)

UTILITIES ACCOUNT 1998(g)
- -------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $9.61
Income from Investment Operations:
Net Investment Income............................... .15
Net Realized and Unrealized Gain (Loss) on Investments 1.35
----

Total from Investment Operations 1.50
Less Dividends from Net Investment Income.............. (.18)
-----
Net Asset Value, End of Period......................... $10.93
======
Total Return........................................... 15.36%(c)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $18,298
Ratio of Expenses to Average Net Assets............. .69%(d)
Ratio of Net Investment Income to Average Net Assets 2.93%(d)
Portfolio Turnover Rate............................. 9.5%(d)

Notes to Financial Highlights

(a) Effective January 1, 1998 the following mutual funds were reorganized into
the Principal Variable Contracts Fund, Inc. as follows:

Former Fund Name Current Account Name
- --------------------------------------------------------------------------------
Principal Aggressive Growth Fund, Inc. Aggressive Growth Account
Principal Asset Allocation Fund, Inc. Asset Allocation Account
Principal Balanced Fund, Inc. Balanced Account
Principal Bond Fund, Inc. Bond Account
Principal Capital Accumulation Fund, Inc. Capital Value Account
Principal Government Securities Fund, Inc. Government Securities Account
Principal Growth Fund, Inc. Growth Account
Principal High Yield Fund, Inc. High Yield Account
Principal World Fund, Inc. International Account
Principal Emerging Growth Fund, Inc. MidCap Account
Principal Money Market Fund, Inc. Money Market Account

(b) Period from June 1, 1994, date shares first offered to public, through
December 31, 1994. Net investment income, aggregating $.01 per share for
the Aggressive Growth Account and $.01 per share for the Asset Allocation
Account for the period from the initial purchase of shares on May 23, 1994
through May 31, 1994, was recognized, none of which was distributed to the
sole shareholder, Principal Life Insurance Company, during the period.
Additionally, the Aggressive Growth Account and the Asset Allocation
Account incurred unrealized losses on investments of $.09 and $.03 per
share, respectively, during the initial interim period. This represented
activities of each account prior to the initial public offering of account
shares.

(d) Computed on an annualized basis.

(e) Dividends and distributions which exceed net investment income and net
realized gains for financial reporting purposes but not for tax purposes
are reported as dividends in excess of net investment income or
distributions in excess of net realized gains on investments. To the extent
distributions exceed current and accumulated earnings and profits for
federal income tax purposes, they are reported as tax return of capital
distributions.

(f) Period from May 1, 1994, date shares first offered to the public, through
December 31, 1994. Net investment income, aggregating $.01 per share for
the Growth Account and $.04 per share for the International Account for the
period from the initial purchase of shares on March 23, 1994 through April
30, 1994, was recognized, none of which was distributed to the sole
shareholder, Principal Life Insurance Company, during the period.
Additionally, the Growth Account and the International Account incurred
unrealized losses on investments of $.41 and $.10 per share, respectively,
during the initial interim period. This represented activities of each
account prior to the initial public offering of account shares.

(g) Period from May 1, 1998, date shares first offered to the public, through
December 31, 1998. Per share net investment income and realized and
unrealized gains (losses) for the period from the initial purchase of
shares through April 30, 1998, were recognized as follows, none of which
was distributed to the sole shareholder, Principal Life Insurance Company,
during the period. This represents activities of each account prior to the
initial public offering.

Date Net Per Share Realized
Operations Investment and Unrealized
Account Commenced Income Gains (Losses)
<S> <C> <C> <C>
International SmallCap Account April 16, 1998 $.02 $(.05)
MicroCap Account April 9, 1998 .01 .03
MidCap Growth Account April 23, 1998 .01 (.07)
Real Estate Account April 23, 1998 .01 --
SmallCap Account April 9, 1998 -- .27
SmallCap Growth Account April 2, 1998 -- (.16)
SmallCap Value Account April 16, 1998 .01 (.17)
Utilities Account April 2, 1998 .04 (.43)
</TABLE>

Additional information about the Fund is available in the Statement of
Additional Information dated ____________ and which is part of this prospectus.
Information about the Fund's investments is also available in the Fund's annual
and semi-annual reports to shareholders. In the Fund's annual report, you will
find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. The
Statement of Additional Information and annual and semi-annual reports can be
obtained free of charge by writing or telephoning Princor Financial Services
Corporation, P.O. Box 10423, Des Moines, IA 50306. Telephone 1-800-451-5447.

Information about the Fund can be reviewed and copied at the Securities and
Exchange Commission's Public Reference Room in Washington, D.C. Information on
the operation of the public reference room may be obtained by calling the
Commission at 800-SEC-0330. Reports and other information about the Fund are
available on the Commission's internet site at http://www.sec.gov. Copies of
this information may be obtained, upon payment of a duplicating fee, by writing
the Public Reference Section of the Commission, Washington, D.C. 20549-6009.

The U.S. Government does not insure or guarantee an investment in the Fund.

Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any financial institution, nor are shares of the Fund federally insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency.

Principal Variable Contracts Fund, Inc. SEC File 811-01944

PRINCIPAL VARIABLE CONTRACTS FUND, INC.

ACCOUNTS OF THE FUND

Blue Chip Account
Bond Account
Capital Value Account
International Account
LargeCap Growth Account
MidCap Account
MidCap Growth Account
MidCap Value Account
Money Market Account
SmallCap Account
SmallCap Growth Account
Stock Index 500 Account

This Prospectus describes a mutual fund organized by Principal Life
Insurance Company. The Fund provides a choice of investment objectives through
the accounts listed above.

The date of this Prospectus is ________________.

ACCOUNT DESCRIPTIONS

Twelve accounts of the Principal Variable Contracts Fund, Inc. are available
through the Principal Freedom Annuity:

GROWTH-ORIENTED ACCOUNTS:

Blue Chip - seeks to achieve growth of capital and income. The Account attempts
to achieve its objective by investing primarily in common stocks of well
capitalized, established companies.

Capital Value - seeks to provide long-term capital appreciation and secondarily
growth of investment income. The Account seeks to achieve its investment
objectives through the purchase primarily of common stocks, but the Account may
invest in other securities.

International - seeks long-term growth of capital by investing in a portfolio of
equity securities of companies domiciled in any of the nations of the world.

LargeCap Growth - seeks long-term growth of capital. The Account attempts to
achieve its objective by investing primarily in growth stocks of companies with
market capitalizations over $10 billion.

MidCap - seeks to achieve capital appreciation by investing primarily in
securities of emerging and other growth-oriented companies.

MidCap Growth - seeks long-term growth of capital. The Account attempts to
achieve its objective by investing primarily in growth stocks of companies with
market capitalizations in the $1 billion to $10 billion range.

MidCap Value - seeks long-term growth of capital. The Account attempts to
achieve its objective by investing primarily in equity securities of companies
with value characteristics and market capitalizations in the $1 billion to $10
billion range.

SmallCap - seeks long-term growth of capital. The Account attempts to achieve
its objective by investing primarily in equity securities of both growth and
value oriented companies with comparatively smaller market capitalizations.

SmallCap Growth - seeks long-term growth of capital. The Account attempts to
achieve its objective by investing primarily in equity securities of small
growth companies with market capitalizations of less than $1 billion at the time
of initial purchase.

Stock Index 500 - seeks long-term growth of capital. The Account attempts to
mirror the investment results of the Standard & Poor's 500 Stock Index.
"Standard & Poor's 500" is a trademark of Standard & Poor's Corporation (S&P).
S&P is not affiliated with Principal Life Insurance Company or with the Fund.

The Growth-Oriented Accounts invest primarily in common stocks. Under normal
market conditions, the Blue Chip, Capital Value, International, and MidCap
Accounts are fully invested in equity securities. Under unusual circumstances,
each of the Growth-Oriented Accounts may invest without limit in cash for
temporary defensive purposes. See "Temporary Defensive Measures." When doing so,
the Account is not investing to achieve its investment objective. The Accounts
also maintain a portion of their assets in cash while they are making long-term
investment decisions and to cover sell orders from shareholders.

INCOME-ORIENTED ACCOUNT

Bond - seeks to provide as high a level of income as is consistent with
preservation of capital and prudent investment risk.

The Bond Account has a rating limitation with regard to the quality of the bonds
that are held in its portfolio. The rating limitation applies when the Account
purchases a bond. If the rating on a bond changes while the Account owns it, the
Account is not required to sell the bond. The SAI contains additional
information about bond ratings by Moody's Investors Service, Inc.
("Moody's") and S&P.

MONEY MARKET ACCOUNT

Money Market Account - has the investment objective of high level of income
through investments in short-term securities.

In the description for each Account, you will find important information about
the Account's:

Annual operating expenses
The annual operating expenses for each Account are deducted from Account assets
(stated as a percentage of Account assets) and are shown as of the end of the
most recent fiscal year. Estimates of the expenses are shown for the new
Accounts. The example is intended to help you compare the cost of investing in a
particular account with the cost of investing in other mutual funds. The example
assumes you invest $10,000 in an Account for the time periods indicated. The
example also assumes that your investment has a 5% return each year and that the
Account's operating expenses are the same as the most recent fiscal year
expenses (or estimated expenses for a new Account). Although your actual costs
may be higher or lower, based on these assumptions, your costs would be as
shown.

Principal investment strategy
This section summarizes how the Account intends to achieve its investment
objective. It identifies the Account's principal investment strategy (including
the type or types of securities in which the Account invests) and any policy to
concentrate in securities of issuers in a particular industry or group of
industries.

Day-to-day Account management
The people who manage the assets of each Account are listed with each Account.
Backed by their staffs of experienced securities analysts, they provide the
Accounts with professional investment management.

Principal Management Corporation serves as the manager for the Principal Mutual
Funds. It has signed contracts with various Sub-Advisors under which the
Sub-Advisor provides portfolio management for the certain Accounts (see
Management, Organization and Capital Structure).
Sub-Advisor Account
Berger Associates ("Berger") SmallCap Growth
The Dreyfus Corporation ("Dreyfus") MidCap Growth
Invista Capital Management, LLC Blue Chip, Capital Value,
("Invista") International, MidCap, SmallCap,
and Stock Index 500
Janus Capital Corportion ("Janus") LargeCap Growth
Neuberger Berman Management Inc MidCap Value

Account Performance
Included in most Account's description is a set of tables and a bar chart. As
certain Accounts have not been offered before, no historical information is
available. If historical data is available, the bar chart is included to provide
you with an indication of the risks involved when you invest. The chart shows
changes in the Account's performance from year to year. As Account shares are
sold without a sales charge the performance reflected in the chart does not
include a sales charge.

If historical information is available for the Account, a table is also included
that compares the Account's average annual returns for 1, 5 and 10 years with a
broad based securities market index and an average of mutual funds with a
similar investment objective and management style. The averages used are
prepared by Lipper Analytical Services (an independent statistical service). The
table shows how the Account's performance compares with the returns of an index
and with funds having similar investment objectives. Another table for each
Account provides the highest and lowest quarterly return for that Account's
Class A shares during the last 10 years.

An Account's past performance is not necessarily an indication of how the
Account will perform in the future.

You may call Principal Mutual Funds (1-800-247-4123) to get the current 7-day
yield for the Money Market Account.

GROWTH-ORIENTED ACCOUNT

Blue Chip Account

The Blue Chip Account seeks to achieve growth of capital and income. The Account
attempts to achieve its objective by investing primarily in common stocks of
well capitalized, established companies.

- --------------------------------------------------------------------------------
Fund Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees...................... 1.05% $72 $224 N/A N/A
Other Expenses....................... 0.30%
-----
Total Account Operating Expenses 1.35%*

* Estimated
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since _______ (Account's inception) Mark T. Williams, Portfolio Manager
of Invista Capital Management, LLC
since 1995. Investment Officer,
1992-1995.

John F. McClain, Portfolio Manager
of Invista Capital Management, LLC
since 1995. Investment Officer,
1992-1995.

The Blue Chip Account invests primarily in common stocks of large, established
companies. The Sub-Advisor, Invista, selects the companies it believes to have
the potential for growth of capital, earnings and dividends. Under normal market
conditions, the Account invests at least 65% (and may invest up to 100%) of its
assets in blue chip companies. Blue chip companies are easily identified by:
size (market capitalization of at least $1 billion) good industry
position established history of earnings and dividends superior
management structure easy access to credit

In addition, the large market of publicly held shares for these companies and
their generally high trading volume results in a relatively high degree of
liquidity for these stocks.

Invista may invest up to 35% of Account assets in equity securities, other than
common stocks, issued by blue chip companies and in equity securities of
companies that do not fit the blue chip definition. It may also invest up to 5%
of Account assets in securities of unseasoned issuers, which are more
speculative than blue chip company securities (see Securities of Unseasoned
Issuers). Up to 20% of Account assets may be invested in foreign securities. The
issuers of the foreign securities do not have to meet the criteria for blue chip
companies (see Foreign Securities).

The Blue Chip Account is generally a suitable investment for investors seeking
long-term growth who are willing to accept the risks of investing in common
stocks but who prefer investing in larger, established companies.

INCOME-ORIENTED ACCOUNT

Bond Account

The Bond Account seeks to provide as high a level of income as is consistent
with preservation of capital and prudent investment risk.

Lehman Brothers
BAA Corporate
Index 6.96 7.34 9.25
Lipper Corporate
Debt BBB Rated
Fund Average 6.25 7.00 9.19
---------------------------------------------

The year to date return as of December 31, 1998 is 7.69%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.49% $52 $164 $285 $640
Other Expenses........................ 0.02%
-----
Total Account Operating Expenses 0.51%
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since November 1996 Scott A. Bennett, CFA. Assistant Director - Securities
Investment of Principal Life Insurance Company since
1996. Prior thereto, Investment Manager.

Under normal circumstances, the Account invests at least 65% of its assets in:
debt securities and taxable municipal bonds;
rated, at purchase, in one of the top four categories by S&P
or Moody's, or if not rated, in the Manager's opinion are of
comparable quality.
similar Canadian, Provincial or Federal Government securities payable
in U.S. dollars; and
securities issued or guaranteed by the U.S. Government or its agencies.

Under unusual market or economic conditions, the Account may invest up to 100%
of its assets in cash and cash equivalents. (See Temporary Defensive Measures)

GROWTH-ORIENTED ACCOUNT

Capital Value Account

---------------------------------- -----------------------------------
Annual Total Returns Total Returns
---------------------------------- highest & lowest quarterly returns
for the last 10 years
-----------------------------------
Bar Chart Quarter Ended Return
-----------------------------------
mm/dd/yy 00.00%
Calendar Years Ended December 31 mm/dd/yy (00.00%)
-----------------------------------
-----------------------------------------------------
Average annual total return
(for the period ending December 31, 1998)
-----------------------------------------------------
Past One Past Five Past Ten
Year Years Years
-------- -------- --------
Capital Value Account 13.58% 19.03% 15.15%

S&P 500 Stock Index 28.58 24.06 19.21
Lipper Growth and Income
Fund Average 15.61 18.53 15.76
-----------------------------------------------------

The year to date return as of December 31, 1998 is 13.58%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.43% $45 $141 $246 $555
Other Expenses........................ 0.01%
-----
Total Account Operating Expenses 0.44%
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since November 1996 Catherine A. Zaharis, CFA. Portfolio Manager of
Invista Capital Management, LLC since 1987.

The Capital Value Account invests primarily in common stocks. It may also invest
in other equity securities. To achieve its investment objective, the
Sub-Advisor, Invista, invests in securities that have "value" characteristics.
This process is known as "value investing." Value stocks tend to have higher
yields and lower price to earnings (P/E) ratios than other stocks.

Securities chosen for investment may include those of companies that Invista
believes can be expected to share in the growth of the nation's economy over the
long term. The current price of the Account's assets reflects the activities of
the individual companies and general market and economic conditions. In the
short term, stock prices can fluctuate dramatically in response to these
factors. Because of these fluctuations, principal values and investment returns
vary.

In making selections for the Account's investment portfolio, Invista uses an
approach described as "fundamental analysis." The basic steps are involved in
this analysis are:

Research. Invista researches economic prospects over the next one to two
years rather than focusing on near term expectations. This approach is
designed to provide insight into a company's real growth potential.

Valuation. The research findings allow Invista to identify the prospects
for the major industrial, commercial and financial segments of the economy.
Invista looks at such factors as demand for products, capacity to produce,
operating costs, pricing structure, marketing techniques, adequacy of raw
materials and components, domestic and foreign competition and research
productivity. It then uses this information to judge the prospects for each
industry for the near and intermediate term.

Ranking. Invista then ranks the companies in each industry group according
to their relative value. The greater a company's estimated worth compared
to the current market price of its stock, the more undervalued the company.
Computer models help to quantify the research findings.

Stock selection. Invista buys and sells stocks according to the Account's
own policies using the research and valuation ranking as a basis. In
general, Invista buys stocks that are identified as undervalued and
considers selling them when they appear overvalued. Along with attractive
valuation, other factors may be taken into account such as:
events that could cause a stock's price to rise or fall; anticipation
of high potential reward compared to potential risk; and belief that a
stock is temporarily mispriced because of market overreactions.

The Capital Value Account is generally a suitable investment for investors
seeking long-term growth who are willing to accept the risks of investing in
common stocks but also prefer investing in companies that appear to be
considered undervalued relative to similar companies. When shares of the Account
are sold, they may be worth more or less than the amount paid for them.

MONEY MARKET ACCOUNT

Money Market Account

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.50% $53 $167 $291 $653
Other Expenses........................ 0.02%
-----
Total Account Operating Expenses 0.52%
- --------------------------------------------------------------------------------

The Money Market Account invests its assets in a portfolio of money market
instruments. The investments are U. S. dollar denominated securities which the
Manager believes present minimal credit risks. At the time the Account purchases
each security, it is an "eligible security" as defined in the regulations issued
under the Investment Company Act of 1940.

The Account maintains a dollar weighted average portfolio maturity of 90 days or
less. It intends to hold its investments until maturity. However, the Account
may sell a security before it matures:
to take advantage of market variations;
to generate cash to cover sales of Account shares by its shareholders;
or upon revised valuation of the security's issuer.
The sale of a security by the Account before maturity may not be in the best
interest of the Account. The Account does have an ability to borrow money to
cover the sale of Accounts shares. The sale of portfolio securities is usually a
taxable event.

It is the policy of the Account to be as fully invested as possible to maximize
current income. Securities in which the Account invests include:
U.S. Government securities which are issued or guaranteed by the U. S.
Government, including treasury bills, notes and bonds.
U. S. Government agency securities which are issued or guaranteed by
agencies or instrumentalities of the U. S. Government.
These are backed either by the full faith and credit of the U. S.
Government or by the credit of the particular agency or
instrumentality.
Bank obligations consisting of:
certificates of deposit which generally are negotiable
certificates against funds deposited in a commercial bank
or
bankers acceptances which are time drafts drawn on a
commercial bank, usually in connection with international
commercial transactions.
Commercial paper that is short-term promissory notes issued by U. S.
or foreign corporations primarily to finance
short-term credit needs.
Short-term corporate debt consisting of notes, bonds or debentures
which at the time of purchase by the Account has 397 days or less
remaining to maturity.
Repurchase agreements under which securities are purchased with an
agreement by the seller to repurchase the security at the same price
plus interest at a specified rate. Generally these have a short
duration (less than a week) but may have a longer duration.
Taxable municipal obligations that are short-term obligations issued
or guaranteed by state and municipal issuers that generate taxable
income.

An investment in the Account is not insured or guaranteed by the FDIC or any
other government agency. Although the Account seeks to preserve the value of an
investment at $1.00 per share, it is possible to lose money by investing in the
Account.

The Money Market Account is generally a suitable investment for investors
seeking monthly dividends to produce income without incurring much principal
risk or for investor's short-term needs.

GROWTH-ORIENTED ACCOUNT

International Account

The International Account seeks long-term growth of capital by
investing in a portfolio of equity securities of companies domiciled in any of
the nations of the world.

The year to date return as of December 31, 1998 is 9.98%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.73% $79 $246 $428 $954
Other Expenses........................ 0.04%
-----
Total Account Operating Expenses 0.77%
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since April 1994 Scott D. Opsal, CFA. Chief Investment Officer of
Invista Capital Management, LLC since 1997.
Vice President, 1986-1997.

The International Account invests in common stocks of companies established
outside of the U. S. The Account has no limitation on the percentage of assets
that are invested in any one country or denominated in any one currency. However
under normal market conditions, the Account intends to have at least 65% of its
assets invested in companies of at least three countries. One of those countries
may be the U. S. though currently the Account does not intend to invest in
equity securities of U. S. companies.

The International Account is generally a suitable investment for investors who
seek long-term growth and who want to investment in non-U.S. companies. This
Account is not an appropriate investment for investors who are seeking either
preservation of capital or high current income. Suitable investors must be able
to assume the increased risks of higher price volatility and currency
fluctuations associated with investments in international stocks which trade in
non-U.S. currencies.

Under unusual market or economic conditions, the Account may invest in
securities issued by domestic or foreign corporations, governments or
governmental agencies, instrumentalities or political subdivisions. The
securities may be denominated in U.S.
dollars or other currencies.

GROWTH-ORIENTED ACCOUNT

LargeCap Growth Account

The LargeCap Growth Account seeks long-term growth of capital. The Account
attempts to achieve its objective by investing primarily in growth stocks of
companies with market capitalizations over $10 billion.

* Estimated (Manager has agreed to cap expenses so that the total Account
operating expenses will be ____% for 1999.)

- --------------------------------------------------------------------------------

Day-to-day Account management:
Since __________ (Account's inception) E. Marc Pinto, Vice President
Janus since 1994.

The LargeCap Growth Account primarily invests in stocks of growth-oriented
companies. Under normal market conditions, the Account invests at least 65% of
its total assets in common stocks of growth companies with a large market
capitalization, generally greater than $10 billion. The Sub-Advisor, Janus,
selects stocks for the Account's portfolio when it believes that the market
environment favors investment in those securities. Common stock investments are
selected in industries and companies that Janus believes are experiencing
favorable demand for their products and services. In addition, such companies
are operating in a favorable environment from a competitive and regulatory
standpoint.

It is the policy of the Account to purchase and hold securities for capital
growth. If Janus is satisfied with the performance of a security and anticipates
continued appreciation, the Account will generally retain the security. However,
changes in the Account are made if Janus believes they are advisable. This may
occur if a security reaches a price objective or if a change is warranted by
developments that were not foreseen at the time of the decision to buy the
security. Since investment decisions generally are made without reference to the
length of time the Account has held a security, a significant number of
short-term transactions may result (see Portfolio Turnover). To a limited
extent, the Account may also purchase a security in anticipation of relatively
short-term price gain.

Although Janus expects that under normal market conditions, the assets of the
Account will be invested in common stocks, it may also invest in other
securities when Janus perceives an opportunity for capital growth from such
securities. These may include: U. S. Government obligations, corporate bonds and
debentures, high grade commercial paper, preferred stocks, convertible
securities, warrants or other securities of U. S. issuers. Investment in debt
securities is limited to securities of U. S. companies, the U. S. Government,
foreign governments and foreign governmental entities (including supranational
agencies such as the European Economic Community and the World Bank). All debt
securities the Account purchases, except as noted below, have credit ratings in
the four highest rating categories of S & P or Moody's or other NRSROs. The
Account may also invest in unrated securities that Janus believes to be of
comparable quality.

The Account may invest up to 5% of its assets in high-yield/high-risk bonds.
Such securities are sometimes referred to as "junk bonds" and are considered
speculative (see Risks of High Yield Securities). The Account may also invest up
to 25% of its assets in securities of foreign companies. See Foreign Securities
for a description of the unique risks associated with foreign securities.

Pursuant to an exemptive order that Janus has received from the SEC, the Account
may also invest in money market funds managed by Janus as a means of receiving a
return on idle cash. The Account's cash position may increase when Janus is
unable to locate investment opportunities that it believes have desirable
risk/reward characteristics.

The LargeCap Growth Account is designed for long-term investors for a portion of
their investments. It is not designed for investors seeking income or
conservation of capital.

GROWTH-ORIENTED ACCOUNT

MidCap Account

The MidCap Account seeks to achieve capital appreciation by investing primarily
in securities of emerging and other growth-oriented companies.

---------------------------------- -----------------------------------
Annual Total Returns Total Returns
---------------------------------- highest & lowest quarterly returns
for the last 10 years
-----------------------------------
Bar Chart Quarter Ended Return
-----------------------------------
mm/dd/yy 00.00%
Calendar Years Ended December 31 mm/dd/yy (00.00%)
-----------------------------------
-----------------------------------------------------
Average annual total return
(for the period ending December 31, 1998)
-----------------------------------------------------
Past One Past Five Past Ten
Year Years Years
-------- -------- --------
MidCap Account 3.69% 14.92% 16.22%

S&P 500 Stock Index 28.58 24.06 19.21
Lipper Mid-Cap Fund Average 12.16 15.18 15.83
-----------------------------------------------------

The year to date return as of December 31, 1998 is 3.69%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.61% $63 $199 $346 $774
Other Expenses........................ 0.01%
-----
Total Account Operating Expenses 0.62%
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since December 1987 Michael R. Hamilton, Portfolio Manager of Invista
Capital Management, LLC since 1987.

The MidCap Account primarily invests in stocks of growth-oriented companies.
Stocks that are chosen for the Account by the Sub-Advisor, Invista, are thought
to be responsive to changes in the marketplace and have the fundamental
characteristics to support growth. The Account may invest for any period in any
industry, in any kind of growth-oriented company. Companies may range from well
established, well known to new and unseasoned (see Unseasoned Issuers).

The Account may invest up to 20% of its assets in securities of foreign
companies. See Foreign Securities for a description of the unique risks
associated with foreign securities.

The values of the stocks owned by the Account change on a daily basis. The
current share price reflects the activities of individual companies and general
market and economic conditions. In the short term, stock prices can fluctuate
dramatically in response to these factors. Because of these fluctuations,
principal values and investment returns vary. When shares of the Account are
sold, they may be worth more or less than the amount paid for them.

The MidCap Account is generally a suitable investment for investors seeking
long-term growth and who are willing to accept the potential for short-term
fluctuations in the value of their investments. The Account is an aggressive
capital appreciation fund. It is designed for long-term investors for a portion
of their investments and not designed for investors seeking income or
conservation of capital.

GROWTH-ORIENTED ACCOUNT

MidCap Growth Account

-------------------------------------------
Average annual total return
(for the period ending December 31, 1998)
-------------------------------------------
Past One
Year
--------
MidCap Growth Account (3.40)%*
Calendar Years Ended December 31
______________________ 00.00
Lipper MidCap Growth
Fund Average 00.00
------------------------------------------
* Periodfrom May 1, 1998, date first
offered to the public, through
December 31, 1998.

The year to date return as of December 31, 1998 is (3.40)%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.90% $129 $403 $697 $1,534
Other Expenses........................ 0.37%
-----
Total Account Operating Expenses 1.27%*
- --------------------------------------------------------------------------------
* Manager has agreed to cap expenses so that total Account operating
expenses will be ____% for 1999.

Day-to-day Account management:
Since April 1998 John O'Toole, CFA. Portfolio Manager of The Dreyfus
Corporation and Senior Vice President of Mellon Equity
Associates LLP since 1990.

"Standard & Poor's MidCap 400 Index" is a trademark of Standard & Poor's
Corporation (S&P). S&P is not affiliated with Principal Life Insurance Company
or with the Fund.

GROWTH-ORIENTED ACCOUNT

MidCap Value Account

The MidCap Value Account seeks long-term growth of capital. The Account attempts
to achieve its objective by investing primarily in equity securities of
companies with value characteristics and market capitalizations in the $1
billion to $10 billion range.

Total Account Operating Expenses 1.35%*

* Estimated (Manager has agreed to cap expenses so that the total Account
operating expenses will be ____% for 1999.)
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since ______ (Account's inception) ______________________________________.

MidCap Value seeks long-term growth of capital by investing primarily in equity
securities of companies with value characteristics and market capitalizations in
the $1 billion to $10 billion range.

The investment objective of the MidCap Value Account is long-term growth of
capital. Under normal market conditions, the Account invests at least 65% of its
total assets in common stocks of companies with a medium market capitalization.
Companies may range from the well established and well known to the new and
unseasoned (see Unseasoned Issuers). In addition, please review the sections of
this prospectus which discuss the risks of investing in companies with small
and medium-sized market capitalizations (see Securities of Smaller Companies).

The stocks are selected using a value-oriented investment approach by the
Sub-Advisor, Neuberger Berman Management Inc. The Sub-Advisor identifies value
stocks in several ways. One of the most common identifiers is a low
price-to-earnings ratio (stocks selling at multiples of earnings per share that
are lower than that of the market as a whole). Other criteria are high dividend
yield, a strong balance sheet and financial position, a recent company
restructuring with the potential to realize hidden values, strong management and
low price-to-book value (net value of the company's assets). The Sub-Advisor
also looks for companies with consistent cash flow, a sound track record through
all phases of the market cycle, a strong position relative to competitors, a
high level of management stock ownership and a recent sharp stock price decline
that appears to result from a short-term market overreaction to negative news.
The Sub-Advisor believes that, over time, securities that are undervalued are
more likely to appreciate in price and are subject to less risk of price decline
than securities whose market prices have already reached their perceived
economic value.

This approach also involves selling portfolio securities when the Sub-Advisor
believes they have reached their potential, when the securities fail to perform
as expected or when other opportunities appear more attractive. It is
anticipated that the annual portfolio turnover rate may be greater than 100%.
Turnover rates in excess of 100% generally result in higher transaction costs
and a possible increase in short-term capital gains (or losses) (see Portfolio
Turnover).

The Sub-Advisor also may invest in foreign securities, which involve additional
risks (see Foreign Securities).

The MidCap Value Account is generally a suitable investment for investors
seeking long-term growth and who are willing to accept short-term fluctuations
in the value of their investments. The Account is an aggressive capital
appreciation vehicle. It is designed for long term investors for a portion of
their investments and not designed for investors seeking income or conservation
of capital.

GROWTH-ORIENTED ACCOUNT

SmallCap Account

The year to date return as of December 31, 1998 is (20.51)%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.85% $100 $312 $542 $1,201
Other Expenses........................ 0.13%
-----
Total Account Operating Expenses 0.98%
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since April 1998 Mark T. Williams, Portfolio Manager of Invista Capital
Management, LLC since 1995. Investment Officer,
1992-1995.

John F. McClain, Portfolio Manager of Invista Capital
Management, LLC since 1995. Investment Officer,
1992-1995.

In selecting securities for investment, the Sub-Advisor, Invista, looks at
stocks with value and/or growth characteristics. In managing the assets of the
Account, Invista does not have a policy of preferring one of these categories to
the other. The value orientation emphasizes buying stocks at less than their
investment value and avoiding stocks whose price has been artificially built up.
The growth orientation emphasizes buying stocks of companies whose potential for
growth of capital and earnings is expected to be above average. Selection is
based on fundamental analysis of the company relative to other companies with
the focus being on Invista's estimation of forwarding looking rates of return.

The SmallCap Account is generally a suitable investment for investors seeking
long-term growth and who are willing to accept the potential for volatile
fluctuations in the value of their investment. This Account is an aggressive
capital appreciation fund designed for long term investors for a portion of
their investments. It is not designed for investors seeking income or
conservation of capital.

GROWTH-ORIENTED ACCOUNT

SmallCap Growth Account

-------------------------------------------
Average annual total return
(for the period ending December 31, 1998)
-------------------------------------------
Past One
Year
--------
SmallCap Growth Account 2.96%*
Calendar Years Ended December 31
______________________ 00.00
Lipper SmallCap Fund Average (0.33)
-------------------------------------------
* Periodfrom May 1, 1998, date first
offered to the public, through
December 31, 1998.

The year to date return as of December 31, 1998 is 2.96%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 1.01% $133 $415 $718 $1,579
Other Expenses........................ 0.30%
-----
Total Account Operating Expenses 1.31%*
- --------------------------------------------------------------------------------
* Manager has agreed to cap expenses so that total Account operating
expenses will be ____% for 1999.

Day-to-day Account management:
Since November 1998 Amy Selner, _____________ of Berger Associates, Inc.
since _____. Prior thereto, --------------------.

The SmallCap Account is generally a suitable investment for investors seeking
long-term growth and who are willing to accept the potential for volatile
fluctuations in the value of their investment. This Account is an aggressive
capital appreciation fund designed for long term investors for a portion of
their investments. It is not designed for investors seeking income or
conservation of capital.

GROWTH-ORIENTED ACCOUNT

Stock Index 500 Account

The Stock Index 500 Account seeks long-term growth of capital. The Account
attempts to mirror the investment results of the Standard & Poor's 500 Stock
Index.

* Estimated (Manager has agreed to cap expenses so that the total Account
operating expenses will be 0.40% for 1999.)

- --------------------------------------------------------------------------------

Day-to-day Account management:
Since ______ (Account's inception) Dean Roth, Portfolio Manager of Invista
Capital Management, LLC since _______.
Prior thereto, _______________________.

Under normal market conditions, the Stock Index 500 Account invests at least 80%
of its assets in common stocks of companies that compose the S&P 500. The
Sub-Advisor, Invista, will attempt to mirror the investment performance of the
index by allocating the Account's assets in approximately the same weightings as
the S&P 500. Over the long-term, Invista seeks a correlation between the
Account, before expenses, and that of the S&P 500. It is unlikely that a perfect
correlation of 1.00 will be achieved.

* Standard & Poor's Corporation is not affiliated with Principal Variable
Contracts Fund, Inc., Invista Capital Management, LLC, or with Principal Life
Insurance Company.

CERTAIN INVESTMENT STRATEGIES AND RELATED RISKS
The Statement of Additional Information (SAI) contains additional information
about investment strategies and their related risks.

Each of the Accounts, except the Capital Value and Money Market Accounts, may
lend its portfolio securities to unaffiliated broker-dealers and other
unaffiliated qualified financial institutions.

Risks of High Yield Securities
The Bond Account and MidCap Value Account (up to 15% of its net assets) may
invest in debt securities rated lower than BBB by S&P or Baa by Moody's or, if
not rated, determined to be of equivalent quality by the Manager or Sub-Advisor.
Such securities are sometimes referred to as high yield or "junk bonds" and are
considered speculative.

Options
Each of the Accounts (except Capital Value and Money Market) may buy and sell
certain types of options. Each type is more fully discussed in the SAI.

Foreign Securities
Each of the following Accounts may invest in foreign securities to the indicated
percentage of its assets (debt securities issued in the United States pursuant
to a registration statement filed with the Securities and Exchange Commission
are not treated as foreign securities for purposes of these limitations.):
International Account - 100%;
LargeCap Growth and SmallCap Growth Accounts - 25%;
Blue Chip, Bond, Capital Value and SmallCap Accounts - 20%.
MidCap, MidCap Growth, MidCap Value and Stock Index 500 Accounts - 10%.
The Money Market Account does not invest in foreign securities other
than those that are United States dollar denominated. All principal and
interest payments for the security are payable in U.S. dollars. The
interest rate, the principal amount to be repaid and the timing of
payments related to the securities do not vary or float with the value of
a foreign currency, the rate of interest on foreign currency borrowings
or with any other interest rate or index expressed in a currency other
than U.S.
dollars.

Securities of Smaller Companies
The MidCap, MidCap Growth, MidCap Value, SmallCap and SmallCap Growth
Accounts invest in securities of companies with small- or mid-sized market
capitalizations. Market capitalization is defined as total current market value
of a company's outstanding common stock. Investments in companies with smaller
market capitalizations may involve greater risks and price volatility (wide,
rapid fluctuations) than investments in larger, more mature companies. Smaller
companies may be less mature than older companies. At this earlier stage of
development, the companies may have limited product lines, reduced market
liquidity for their shares, limited financial resources or less depth in
management than larger or more established companies. Small companies also may
be less significant within their industries and may be at a competitive
disadvantage relative to their larger competitors. While smaller companies may
be subject to these additional risks, they may also realize more substantial
growth than larger or more established companies.

Unseasoned Issuers
The Accounts may invest in the securities of unseasoned issuers.
Unseasoned issuers are companies with a record of less than three years
continuous operation, including the operation of predecessors and parents.
Unseasoned issuers by their nature have only a limited operating history that
can be used for evaluating the company's growth prospects. As a result,
investment decisions for these securities may place a greater emphasis on
current or planned product lines and the reputation and experience of the
company's management and less emphasis on fundamental valuation factors than
would be the case for more mature growth companies. In addition, many unseasoned
issuers also may be small companies and involve the risks and price volatility
associated with smaller companies.

Temporary Defensive Measures
For temporary defensive purposes in times of unusual or adverse market
conditions, the Growth-Oriented Accounts and Bond Account, may invest without
limit in cash and cash equivalents. For this purpose, cash equivalents include:
bank certificates of deposit, bank acceptances, repurchase agreements,
commercial paper, and commercial paper master notes which are floating rate debt
instruments without a fixed maturity. In addition, an Account may purchase U.S.
Government securities, preferred stocks and debt securities, whether or not
convertible into or carrying rights for common stock.

PRICING OF ACCOUNT SHARES

DIVIDENDS AND DISTRIBUTIONS

MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE

The Manager is a subsidiary of Principal Life Insurance Company. It has managed
mutual funds since 1969. As of December 31, 1998, the Funds it managed had
assets of approximately $__ billion. The Manager's address is Principal
Financial Group, Des Moines, Iowa 50392-0200.

Accounts: Blue Chip, Capital Value, International, MidCap, SmallCap and
Stock Index 500
Sub-Advisor: Invista Capital Management, LLC ("Invista"), an indirectly
wholly-owned subsidiary of Principal Life Insurance Company and
an affiliate of the Manger was founded in 1985. It manages
investments for institutional investors, including Principal
Life. Assets under management as of December 31, 1998 were
approximately $31 billion. Invista's address is 1800 Hub Tower,
699 Walnut, Des Moines, Iowa 50309.

Account: LargeCap Growth
Sub-Advisor: Janus Capital Corporation ("Janus"), 100 Fillmore Street,
Denver CO 80206-4928, was formed in 1970. Kansas City Southern
Industries, Inc. owns approximately 82% of the outstanding voting
stock of Janus, most of which it acquired in 1984. As of February
1, 1999, Janus managed or administered over $120 billion in
assets.

Account: MidCap Value
Sub-Advisor: Neuberger Berman Management Inc. ("Neuberger Berman") is
an affiliate of Neuberger Berman, LLC. Neuberger Berman is
located at 605 Third Avenue, 2nd Floor, New York, NY 10158-0180.
Together with Neuberger Berman, the firms manage more than $49
billion in total assets (as of September 30, 1998) and continue
an asset management history that began in 1939.

Account: SmallCap Growth
Sub-Advisor: Berger Associates, Inc. Berger's address is 210 University
Boulevard, Suite 900, Denver CO 80206. It serves as investment
advisor, sub-advisor, administrator or sub-administrator to
mutual funds and institutional investors. Berger is a wholly
owned subsidiary of Kansas City Southern Industries, Inc. (KCSI).
KCSI is a publicly traded holding company with principal
operations in rail transportation, through its subsidiary The
Kansas City Southern Railway Company, and financial asset
management businesses. Assets under management for Berger as of
December 31, 1998 were approximately $3.4 billion.

Management Other Total Operating
Account Fees Expenses Expenses
- ------- ---- -------- --------
Bond 0.49% 0.02% 0.51%
Capital Value 0.43 0.01 0.44
International 0.73 0.04 0.77
MidCap 0.61 0.01 0.62
MidCap Growth 0.90 0.37 1.27
Money Market 0.50 0.02 0.52
SmallCap 0.85 0.13 0.98
SmallCap Growth 1.01 0.30 1.31

Account Manager Comments

(This section will be filed by amendment)

GENERAL INFORMATION ABOUT AN ACCOUNT

The bylaws of the Fund provide that the Board of Directors of the Fund may
increase or decrease the aggregate number of shares that the Fund has the
authority to issue, without a shareholder vote.

Shareholder inquiries should be directed to: Principal Variable Contracts Fund,
Inc., Principal Financial Group, Des Moines, Iowa 50392-0200.

Sale of Account Shares
This section applies to eligible purchasers other than the separate accounts of
Principal Life and its subsidiaries.

In addition, payments on surrenders attributable to a premium payment made by
check may be delayed up to 15 days. This permits payment to be collected on the
check.

In its budget for 1999 and 2000, the Manager has estimated expenses of between
$100,000 and $500,000 to deal with Year 2000 issues.

FINANCIAL HIGHLIGHTS

PRINCIPAL VARIABLE CONTRACTS FUND, INC.

Selected data for a share of Capital Stock outstanding throughout each year
ended December 31 (except as noted):

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
BOND ACCOUNT(a) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $11.78 $11.33 $11.73 $10.12 $11.16
Income from Investment Operations:
Net Investment Income............................... .66 .76 .68 .62 .72
Net Realized and Unrealized Gain (Loss)on Investments .25 .44 (.40) 1.62 (1.04)
---------------------------------------------------------

Total Dividends and Distributions (.67) (.75) (.68) (.63) (.72)
----------------------------------------------------------

Net Asset Value, End of Period......................... $12.02 $11.78 $11.33 $11.73 $10.12
===========================================================

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CAPITAL VALUE ACCOUNT(a) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $34.61 $29.84 $27.80 $23.44 $24.61
Income from Investment Operations:
Net Investment Income............................... .71 .68 .57 .60 .62
Net Realized and Unrealized Gain (Loss)on Investments 3.94 7.52 5.82 6.69 (.49)

Total Dividends and Distributions (2.07) (3.43) (4.35) (2.93) (1.30)
-----------------------------------------------------------

Net Asset Value, End of Period......................... $37.19 $34.61 $29.84 $27.80 $23.44
===========================================================

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
INTERNATIONAL ACCOUNT(a) 1998 1997 1996 1995 1994(f)
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $13.90 $13.02 $10.72 $9.56 $9.94
Income from Investment Operations:
Net Investment Income............................... .26 .23 .22 .19 .03
Net Realized and Unrealized Gain (Loss)on Investments 1.11 1.35 2.46 1.16 (.33)
----------------------------------------------------------

Total Dividends and Distributions (.76) (.70) (.38) (.19) (.08)
----------------------------------------------------------

Net Asset Value, End of Period......................... $14.51 $13.90 $13.02 $10.72 $9.56
===========================================================

Net Asset Value, End of Period......................... $34.37 $35.47 $29.74 $25.33 $19.97
===========================================================

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
MONEY MARKET ACCOUNT(a) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $1.000 $1.000 $1.000 $1.000 $1.000
Income from Investment Operations:
Net Investment Income............................... .051 .051 .049 .054 .037
Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- --
-------------- ----------------------------------------

Net Asset Value, End of Period......................... $10.10
======

Former Fund Name Current Account Name
- ----------------------------------------------------------------------
Principal Aggressive Growth Fund, Inc. Aggressive Growth Account
Principal Asset Allocation Fund, Inc. Asset Allocation Account
Principal Balanced Fund, Inc. Balanced Account
Principal Bond Fund, Inc. Bond Account
Principal Capital Accumulation Fund, Inc. Capital Value Account
Principal Government Securities Fund, Inc. Government Securities Account
Principal Growth Fund, Inc. Growth Account
Principal High Yield Fund, Inc. High Yield Account
Principal World Fund, Inc. International Account
Principal Emerging Growth Fund, Inc. MidCap Account
Principal Money Market Fund, Inc. Money Market Account

(d) Computed on an annualized basis.

<TABLE>
<CAPTION>
Date Net Per Share Realized
Operations Investment and Unrealized
Account Commenced Income Gains (Losses)
<S> <C> <C> <C>
International SmallCap Account April 16, 1998 $.02 $(.05)
MicroCap Account April 9, 1998 .01 .03
MidCap Growth Account April 23, 1998 .01 (.07)
Real Estate Account April 23, 1998 .01 --
SmallCap Account April 9, 1998 -- .27
SmallCap Growth Account April 2, 1998 -- (.16)
SmallCap Value Account April 16, 1998 .01 (.17)
Utilities Account April 2, 1998 .04 (.43)
</TABLE>

The U.S. Government does not insure or guarantee an investment in the Fund.

Principal Variable Contracts Fund, Inc. SEC File 811-01944

PRINCIPAL VARIABLE CONTRACTS FUND, INC.

ACCOUNTS OF THE FUND

Balanced Account
Bond Account
Capital Value Account
High Yield Account
MidCap Account
Money Market Account

This Prospectus describes a mutual fund organized by Principal Life
Insurance Company. The Fund provides a choice of investment objectives through
the accounts listed above.

The date of this Prospectus is
________________.

ACCOUNT DESCRIPTIONS

The Principal Variable Contracts Fund is made up of several different Accounts.
Each Account has its own investment objective. Six of the Account are available
through the Flexible Variable Life Insurance. The accounts and investment
objectives are:

Balanced - seeks a total return consisting of current income and capital
appreciation while assuming reasonable risks in furtherance of the investment
objective.

Bond - seeks to provide as high a level of income as is consistent with
preservation of capital and prudent investment risk.

High Yield - seeks high current income. Capital growth is a secondary objective
when consistent with the objective of high current income. The Account seeks to
achieve its objective primarily through the purchase of high yielding, lower or
non-rated fixed income securities commonly referred to as "junk bonds." Bonds of
this type are considered to be speculative with regard to payment of interest
and return of principal. Purchasers should carefully assess the risks associated
with an investment in this Account.

MidCap - seeks growth of capital through the purchase primarily of common stocks
but the Account may invest in other securities.

The Balanced Account invests in a mix of equity and debt securities while the
Capital Value and MidCap Accounts invest primarily in common stocks. Under
normal market conditions the Capital Value and MidCap Accounts are fully
invested in equity securities. Under unusual circumstances, the Balanced,
Capital Value and MidCap Accounts each may invest without limit in cash for
temporary defensive purposes (see Temporary Defensive Measures). When doing so,
the Account is not investing to achieve its investment objective. The Accounts
also maintain a portion of their assets in cash while they are making long-term
investment decisions and to cover sell orders from shareholders.

The Bond and High Yield Accounts each has a rating limitation with regard to the
quality of the bonds that are held in its portfolio. The rating limitation
applies when the Account purchases a bond. If the rating on a bond changes while
the Account owns it the Account is not required to sell the bond. The SAI
contains additional information about bond ratings by Moody's Investor Services,
Inc. (Moody's) and Standard & Poor's Corporation (S&P).

In the description for each Account, you will find important information about
the Account's:

Annual operating expenses
The annual operating expenses for each Account are deducted from Account assets
(stated as a percentage of Account assets) and are shown as of the end of the
most recent fiscal year. The examples are intended to help you compare the cost
of investing in a particular Account with the cost of investing in other mutual
funds. The examples assume you invest $10,000 in an Account for the time periods
indicated. The examples also assume that your investment has a 5% return each
year and that the Account's operating expenses are the same as the most recent
fiscal year expenses. Although your actual costs may be higher or lower, based
on these assumptions, your costs would be as shown.

Principal Management Corporation serves as the manager for the Principal Mutual
Funds. It has signed a suv-advisory agreement with Invista Capital Management,
LLC ("Invista") under which Invista provides portfolio management for the
certain Accounts (see Management, Organization and Capital Structure).

Sub-Advisor Account
Invista Balanced, Capital Value, Government
Securities, and MidCap

Account Performance
Included in each Account's description is a set of tables and a bar chart.
Together, these provide an indication of the risks involved when you invest.

The bar chart shows changes in the Account's performance from year to year.

An Account's past performance is not necessarily an indication of how the
Account will perform in the future.

You may call Principal Mutual Funds (1-800-247-4123) to get the current 7-day
yield for the Money Market Account.

Investments in these Accounts are not deposits of a bank and are not insured or
guaranteed by the FDIC or any other government agency.

GROWTH-ORIENTED ACCOUNT

Balanced Account

The Balanced Account seeks to generate a total return consisting of current
income and capital appreciation while assuming reasonable risks in furtherance
of the investment objective.

---------------------------------- -----------------------------------
Annual Total Returns Total Returns
---------------------------------- highest & lowest quarterly returns
for the last 10 years
-----------------------------------
Bar Chart Quarter Ended Return
-----------------------------------
0/00/00 00.00%
Calendar Years Ended December 31 0/00/00 (00.00%)
-----------------------------------
-----------------------------------------------------
Average annual total return
(for the period ending December 31, 1998)
-----------------------------------------------------
Past One Past Five Past Ten
Year Years Years
-------- --------- --------
Balanced Account 11.91% 12.74% 12.33%

The year to date return as of December 31, 1998 is 11.91%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.57% $60 $189 $329 $738
Other Expenses........................ 0.02%
-----
Total Account Operating Expenses 0.59%
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since April 1993 Judith A. Vogel, CFA. Portfolio Manager of Invista
Capital Management, LLC since 1987.

Since October 1998 Douglas D. Herold, CFA. Portfolio Manager of Invista
Capital Management, LLC since 1998. Invista Capital
Management, LLC since 1993.

Since December 1997 Martin J. Schafer, Portfolio Manager of Invista
Capital Management, LLC since 1992.

Because the values of the Account's assets may rise or fall, when shares of the
Account are sold they may be worth more or less than the amount paid for them.

The Balanced Account is generally a suitable investment for investors seeking
long-term growth but who are uncomfortable accepting the risks of investing
entirely in common stocks.

INCOME-ORIENTED ACCOUNT

Bond Account

The Bond Account seeks to provide as high a level of income as is consistent
with preservation of capital and prudent investment risk.

Lehman Brothers
BAA Corporate
Index 6.96 7.34 9.25
Lipper Corporate
Debt BBB Rated
Fund Average 6.25 7.00 9.19
---------------------------------------------

The year to date return as of December 31, 1998 is 7.69%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.49% $52 $164 $285 $640
Other Expenses........................ 0.02%
-----
Total Account Operating Expenses 0.51%
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since November 1996 Scott A. Bennett, CFA. Assistant Director - Securities
Investment of Principal Life Insurance Company since
1996. Prior thereto, Investment Manager.

Under unusual market or economic conditions, the Account may invest up to 100%
of its assets in cash and cash equivalents (see Temporary Defensive Measures).

GROWTH-ORIENTED ACCOUNT

Capital Value Account

---------------------------------- -----------------------------------
Annual Total Returns Total Returns
---------------------------------- highest & lowest quarterly returns
for the last 10 years
-----------------------------------
Bar Chart Quarter Ended Return
-----------------------------------
mm/dd/yy 00.00%
Calendar Years Ended December 31 mm/dd/yy (00.00%)
-----------------------------------
-----------------------------------------------------
Average annual total return
(for the period ending December 31, 1998)
-----------------------------------------------------
Past One Past Five Past Ten
Year Years Years
-------- -------- --------
Capital Value Account 13.58% 19.03% 15.15%

S&P 500 Stock Index 28.58 24.06 19.21
Lipper Growth and Income
Fund Average 15.61 18.53 15.76
-----------------------------------------------------

The year to date return as of December 31, 1998 is 13.58%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.43% $45 $141 $246 $555
Other Expenses........................ 0.01%
-----
Total Account Operating Expenses 0.44%
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since November 1996 Catherine A. Zaharis, CFA. Portfolio Manager of
Invista Capital Management, LLC since 1987.

In making selections for the Account's investment portfolio, Invista uses an
approach described as "fundamental analysis." The basic steps involved in this
analysis are:

Research. Invista researches economic prospects over the next one to
two years rather than focusing on near term expectations. This
approach is designed to provide insight into a company's real growth
potential.

events that could cause a stock's price to rise or fall;
anticipation of high potential reward compared to potential
risk; and belief that a stock is temporarily mispriced
because of market overreactions.

Money Market Account

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.50% $53 $167 $291 $653
Other Expenses........................ 0.02%
-----
Total Account Operating Expenses 0.52%
- --------------------------------------------------------------------------------

The sale of a security by the Account before maturity may not be in the best
interest of the Account. The Account does have an ability to borrow money to
cover the sale of Account shares. The sale of portfolio securities is usually a
taxable event.

It is the policy of the Account to be as fully invested as possible to maximize
current income. Securities in which the Account invests include:

Commercial paper that is short-term promissory notes issued by U. S.or
foreign corporations primarily to finance
short-term credit needs.
Short-term corporate debt consisting of notes, bonds or debentures
which at the time of purchase by the Account has 397 days or less
remaining to maturity.
Repurchase agreements under which securities are purchased with an
agreement by the seller to repurchase the security at the same price
plus interest at a specified rate. Generally these have a short
duration (less than a week) but may also have a longer one.
Taxable municipal obligations that are short-term obligations issued
or guaranteed by state and municipal issuers that generate taxable
income.

The Cash Management Account is generally a suitably investment for investors
seeking monthly dividends to produce income without incurring much principal
risk or for investors short-term needs.

INCOME-ORIENTED ACCOUNT

High Yield Account

The High Yield Account seeks high current income primarily by purchasing high
yielding, lower or non-rated fixed income securities which are believed not to
involve undue risk to income or principal. Capital growth is a secondary
objective when consistent with the objective of high current income.

------------------------------------------------
Average annual total returns
(for the period ending December 31, 1989)
------------------------------------------------
Past One Past Five Past Ten
Year Years Years

High Yield Account (0.56)% 7.79% 8.43%
Calendar Years Ended December 31

Lehman Brothers High
Yield Composite
Bond Index 1.87 8.57 10.55
Lipper High Current
Yield Fund Average (0.44) 7.42 9.40
------------------------------------------------

The year to date return as of December 31, 1998 is (0.56%)%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.60% $69 $218 $379 $847
Other Expenses........................ 0.08%
-----
Total Account Operating Expenses 0.68%
- --------------------------------------------------------------------------------

During the fiscal year ended December 31, 1998, based on the dollar-weighted
average ratings of the Account's portfolio at the end of each month in the
fiscal year, net assets of the Account were invested in securities rated as
follows (all ratings are by Moody's):
32.84% in securities rated Ba
64.35% in securities rated B
2.74% in securities rated C
0.07% in securities rated Ca

Day-to-day Account management:
Since April 1998 Mark P. Denkinger, CFA. Assistant Director - Securities
Investment of Principal Life Insurance Company since
1998. Prior thereto, Investment Manager.

The High Yield Account invests in high yield, lower or unrated fixed income
securities commonly known as "junk bonds" (see Risks of High Yield Securities).
The Account invests its assets in securities rated Ba1 or lower by Moody's or
BB+ or lower by S&P. The Account may also invest in unrated securities that the
Manager believes to be of comparable quality. These securities are considered to
be speculative with respect to the issuer's ability to pay interest and repay
principal. The Account does not invest in securities rated below Caa (Moody's)
or below CCC (S&P) at the time of purchase. The SAI contains descriptions of the
securities rating categories.

Investors assume special risks when investing in the Account. Compared to higher
rated securities, lower rated securities may: have a more volatile
market value, generally reflecting specific events affecting the
issuer; be subject to greater risk of loss of income and principal
(issuers are generally not as financially secure); have a lower volume
of trading, making it more difficult to value or sell the security;
and be more susceptible to a change in value or liquidity based on
adverse publicity and investor perception, whether or not
based on factual analysis.

The market for higher-yielding, lower rated securities has not been tested by an
economic recession. An economic downturn may severely disrupt the market for
these securities. This could cause financial stress to the issuer negatively
affecting the issuer's ability to pay principal and interest. This may also
negatively affect the value of the Account's securities. In addition, if an
issuer defaults the Account may have additional expenses if it tries to recover
the amounts due it.

Some securities the Account buys have call provisions. A call provision allows
the issuer of the security to redeem it before its maturity date. If a bond is
called in a declining interest rate market, the Account would have to replace it
with a lower yielding security. This results in a decreased return for
investors. In addition, in a rising interest rate market, a higher yielding
security's value decreases. This is reflected in a lower share price for the
Account.

The Account tries to minimize the risks of investing in lower rated securities
by diversification, investment analysis and attention to current developments in
interest rates and economics conditions. Although the Account's Manager
considers securities ratings when making investment decisions, it performs its
own investment analysis. This analysis includes traditional security analysis
considerations such as: experience and managerial strength changing financial
condition borrowing requirements or debt maturity schedules responsiveness to
changes in business conditions relative value based on anticipated cash flow
earnings prospects

The Manager continuously monitors the issuers of the Account's securities to
determine if the issuers will have sufficient cash flow and profits to meet
required principal and interest payments. It also monitors each security to
assure the security's liquidity so the Account can meet requests for sales of
Account shares.

For defensive purposes, the Account may invest in other securities. During
periods of adverse market conditions, the Account may invest in all types of
money market instruments, higher rated fixed income securities or any other
fixed income securities consistent with the temporary defensive strategy. The
yield to maturity on these securities is generally lower than the yield to
maturity on lower rated fixed income securities.

The High Yield Account is generally a suitable investment for investors seeking
monthly divided to provide income or to be reinvested in Account shares for
growth. However, it is suitable only for that portion of the investor's
investments for which the investor is willing to accept potentially greater
risk. Investors should carefully consider their ability to assume the risks of
this Account before making an investment. Investors should be prepared to
maintain their investment in the Account during periods of adverse market
conditions. This Account should not be relied on to meet short-term financial
needs. When shares of the Account are sold, they may be worth more or less than
the amount paid for them.

GROWTH-ORIENTED ACCOUNT

MidCap Account

The MidCap Account seeks to achieve capital appreciation by investing primarily
in securities of emerging and other growth-oriented companies.

---------------------------------- -----------------------------------
Annual Total Returns Total Returns
---------------------------------- highest & lowest quarterly returns
for the last 10 years
-----------------------------------
Bar Chart Quarter Ended Return
-----------------------------------
mm/dd/yy 00.00%
Calendar Years Ended December 31 mm/dd/yy (00.00%)
-----------------------------------
-----------------------------------------------------
Average annual total return
(for the period ending December 31, 1998)
-----------------------------------------------------
Past One Past Five Past Ten
Year Years Years
-------- -------- --------
MidCap Account 3.69% 14.92% 16.22%

S&P 500 Stock Index 28.58 24.06 19.21
Lipper Mid-Cap Fund Average 12.16 15.18 15.83
-----------------------------------------------------

The year to date return as of December 31, 1998 is 3.69%.

- --------------------------------------------------------------------------------
Account Operating Expenses Examples
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Management Fees....................... 0.61% $63 $199 $346 $774
Other Expenses........................ 0.01%
-----
Total Account Operating Expenses 0.62%
- --------------------------------------------------------------------------------

Day-to-day Account management:
Since December 1987 Michael R. Hamilton, Portfolio Manager of Invista
Capital Management, LLC since 1987.

CERTAIN INVESTMENT STRATEGIES AND RELATED RISKS
The Statement of Additional Information (SAI) contains additional information
about investment strategies and their related risks.

Each of the Accounts, except the Capital Value and Money Market Accounts, may
lend its portfolio securities to unaffiliated broker-dealers and other
unaffiliated qualified financial institutions.

Warrants
Each of the Accounts (except Government Securities and Money Market) may invest
up to 5% of its total assets in warrants. Up to 2% of an Account's total assets
may be invested in warrants that are not listed on either the New York or
American Stock Exchanges. Risks of High Yield Securities The Balanced, Bond, and
High Yield Accounts may, to varying degrees, invest in debt securities rated
lower than BBB by S&P or Baa by Moody's or, if not rated, determined to be of
equivalent quality by the Manager. Such securities are sometimes referred to as
high
yield or "junk bonds" and are considered speculative.

Options
Each of the Accounts (except Capital Value and Money Market) may buy and sell
certain types of options. Each type is more fully discussed in the SAI.

Foreign Securities
Each of the following Accounts may invest in foreign securities to the indicated
percentage of its assets (debt securities issued in the United States pursuant
to a registration statement filed with the Securities and Exchange Commission
are not treated as foreign securities for purposes of these limitations.):
Bond, Capital Value and High Yield Accounts - 20%.
Balanced and MidCap Accounts - 10%.
The Money Market Account does not invest in foreign securities other
than those that are United States dollar denominated. All principal and
interest payments for the security are payable in U.S. dollars. The
interest rate, the principal amount to be repaid and the timing of
payments related to the securities do not vary or float with the value of
a foreign currency, the rate of interest on foreign currency borrowings
or with any other interest rate or index expressed in a currency other
than U.S.
dollars.

Securities of Smaller Companies
The MidCap Account invests in securities of companies with small- or
mid-sized market capitalizations. Market capitalization is defined as total
current market value of a company's outstanding common stock. Investments in
companies with smaller market capitalizations may involve greater risks and
price volatility (wide, rapid fluctuations) than investments in larger, more
mature companies. Smaller companies may be less mature than older companies. At
this earlier stage of development, the companies may have limited product lines,
reduced market liquidity for their shares, limited financial resources or less
depth in management than larger or more established companies. Small companies
also may be less significant within their industries and may be at a competitive
disadvantage relative to their larger competitors. While smaller companies may
be subject to these additional risks, they may also realize more substantial
growth than larger or more established companies.

PRICING OF ACCOUNT SHARES

DIVIDENDS AND DISTRIBUTIONS

MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE

Accounts: Balanced, Capital Value and MidCap
Sub-Advisor: Invista Capital Management, LLC ("Invista"), an indirectly
wholly-owned subsidiary of Principal Life Insurance Company and an
affiliate of the Manger was founded in 1985. It manages investments for
institutional investors, including Principal Life. Assets under
management as of December 31, 1998 were approximately $31 billion.
Invista's address is 1800 Hub Tower, 699 Walnut, Des Moines, Iowa
50309.

Management Other Total Operating
Account Fees Expenses Expenses
- ------- ---- -------- --------
Balanced 0.57% 0.02% 0.59%
Bond 0.49 0.02 0.51
Capital Value 0.43 0.01 0.44
High Yield 0.60 0.08 0.68
MidCap 0.61 0.01 0.62
Money Market 0.50 0.02 0.52

Account Manager Comments

(This section will be filed by amendment.)

GENERAL INFORMATION ABOUT AN ACCOUNT

The bylaws of the Fund provide that the Board of Directors of the Fund may
increase or decrease the aggregate number of shares that the Fund has the
authority to issue, without a shareholder vote.

Shareholder inquiries should be directed to: Principal Variable Contracts Fund,
Inc., Principal Financial Group, Des Moines, Iowa 50392-0200.

Sale of Account Shares
This section applies to eligible purchasers other than the separate accounts of
Principal Life and its subsidiaries.

In addition, payments on surrenders attributable to a premium payment made by
check may be delayed up to 15 days. This permits payment to be collected on the
check.

In its budget for 1999 and 2000, the Manager has estimated expenses of between
$100,000 and $500,000 to deal with Year 2000 issues.

FINANCIAL HIGHLIGHTS

PRINCIPAL VARIABLE CONTRACTS FUND, INC.

Selected data for a share of Capital Stock outstanding throughout each year
ended December 31 (except as noted):

Total Dividends and Distributions (1.08) (1.50) (1.34) (.87) (.55)
-----------------------------------------------------------

Net Asset Value, End of Period......................... $16.25 $15.51 $14.44 $13.97 $11.95
===========================================================

Total from Investment Operations .91 1.20 .28 2.24 (.32)
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.66) (.75) (.68) (.63) (.72)
- ---
Excess Distributions from Capital Gains(e).......... (.01) -- -- -- --
--------------------------------------------------------

Total Dividends and Distributions (.67) (.75) (.68) (.63) (.72)
----------------------------------------------------------

Net Asset Value, End of Period......................... $12.02 $11.78 $11.33 $11.73 $10.12
===========================================================

Total Dividends and Distributions (2.07) (3.43) (4.35) (2.93) (1.30)
-----------------------------------------------------------

Net Asset Value, End of Period......................... $37.19 $34.61 $29.84 $27.80 $23.44
===========================================================

HIGH YIELD ACCOUNT(a) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $8.90 $8.72 $8.39 $7.91 $8.62
Income from Investment Operations:
Net Investment Income............................... .80 .76 .80 .76 .77
Net Realized and Unrealized Gain (Loss) on Investments (.85) .18 .30 .51 (.72)

Total from Investment Operations (.05) .94 1.10 1.27 .05
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.79) (.76) (.77) (.77) (.76)
Excess Distributions from Net Investment Income(e).. -- -- -- (.02) --
-------------------------------------------------------------

Total Dividends and Distributions (.79) (.76) (.77) (.79) (.76)
----------------------------------------------------------

Net Asset Value, End of Period......................... $8.06 $8.90 $8.72 $8.39 $7.91
==========================================================

Total Return........................................... (.56)% 10.75% 13.13% 16.08% .62%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $14,043 $15,837 $13,740 $11,830 $9,697
Ratio of Expenses to Average Net Assets............. .68% .68% .70% .73% .73%
Ratio of Net Investment Income to Average Net Assets 8.68% 8.50% 9.21% 9.09% 9.02%
Portfolio Turnover Rate............................. 87.8% 32.0% 32.0% 35.1% 30.6%

See accompanying notes.

MIDCAP ACCOUNT(a) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period................... $35.47 $29.74 $25.33 $19.97 $20.79
Income from Investment Operations:
Net Investment Income............................... .22 .24 .22 .22 .14
Net Realized and Unrealized Gain (Loss) on Investments .94 6.48 5.07 5.57 .03
---------------------------------------------------------

Net Asset Value, End of Period......................... $34.37 $35.47 $29.74 $25.33 $19.97
===========================================================

Notes to Financial Highlights

(a) Effective January 1, 1998 the following mutual funds were reorganized into
the Principal Variable Contracts Fund, Inc. as follows:

(d) Computed on an annualized basis.

The U.S. Government does not insure or guarantee an investment in the Fund.

Principal Variable Contracts Fund, Inc. SEC File 811-01944

PRINCIPAL VARIABLE CONTRACTS FUND, INC.

ACCOUNTS OF THE FUND

Balanced Account
Bond Account
Capital Value Account
Government Securities Account
Growth Account
International Account
MidCap Account
Money Market Account

This Prospectus describes a mutual fund organized by Principal Life
Insurance Company. The Fund provides a choice of investment objectives through
the accounts listed above.

The date of this Prospectus is ________________.

ACCOUNT DESCRIPTIONS
The Principal Variable Contracts Fund is made up of several different Accounts.
Each Account has its own investment objective. The accounts and investment
objectives are:

GROWTH-ORIENTED ACCOUNTS

Balanced - seeks a total return consisting of current income and capital
appreciation while assuming reasonable risks in furtherance of the investment
objective.

Growth - seeks growth of capital through the purchase primarily of common
stocks, but the Account may invest in other securities.

International - seeks long-term growth of capital by investing in a portfolio of
equity securities of companies domiciled in any of the nations of the world.

MidCap - seeks to achieve capital appreciation by investing primarily in
securities of emerging and other growth-oriented companies.

INCOME-ORIENTED ACCOUNT

Bond - seeks to provide as high a level of income as is consistent with
preservation of capital and prudent investment risk.

The Income-Oriented Accounts have a rating limitation with regard to the quality
of the bonds that are held in its portfolio. The rating limitation applies when
the Account purchases a bond. If the rating on a bond changes while the Account
owns it, the Account is not required to sell the bond. The SAI contains
additional information about bond ratings by Moody's Investors Service, Inc.
("Moody's") and S&P.

MONEY MARKET ACCOUNT

Money Market - has the investment objective of high level of income through
investments in short-term securities.

In the description for each Account, you will find important information about
the Account's:

Annual operating expenses
The annual operating expenses for each Account are deducted from Account assets
(stated as a percentage of Account assets) and are shown as of the end of the
most recent fiscal year. The examples are intended to help you compare the cost
of investing in a particular Account with the cost of investing in other mutual
funds. The examples assume you invest $10,000 in an Account for the time periods
indicated. The examples also assume that your investment has a 5% return each
year and that the Account's operating expenses are the same as the most recent
fiscal year expenses. Although your actual costs may be higher or lower, based
on these assumptions, your costs would be as shown.

Principal Management Corporation serves as the manager for the Principal Mutual
Funds. It has signed a sub-advisory agreement with Invista Capital Management,
LLC ("Invista") under which Invista provides portfolio management for the
Balanced, Capital Value, Government Securities, and MidCap Accounts (see
Management, Organization and Capital Structure).