PRINCIPAL VARIABLE CONTRACTS FUND INC, 497, 2000-08-16

PRINCIPAL VARIABLE CONTRACTS FUND INC
497, 2000-08-16

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SUPPLEMENT DATED AUGUST 4, 2000
TO THE PROSPECTUS FOR
PRINCIPAL VARIABLE CONTRACTS FUND, INC.
DATED MAY 1, 2000

On page 11, under the Day-to-day Account Management section, replace with the
following:

<TABLE>
<S> <C>
Since July 2000 Scott D. Opsal, CFA. Mr. Opsal is Chief Investment Officer of Invista Capital Management and has been with
the organization since 1993. He holds an MBA from the University of Minnesota and BS from Drake University.
He has earned the right to use the Chartered Financial Analyst designation.
</TABLE>

On page 27, Remove Amy K. Selner as portfolio manager and add the following
information:

<TABLE>
<S> <C>
Since June 2000 Jay W. Tracey III , Executive Vice President and Chief Investment Officer of Berger Associates. Mr. Tracey
comes to Berger from Oppenheimer Funds, Inc. where he was Vice President and portfolio manager of the
Oppenheimer Enterprise Fund since its inception in November, 1995. Mr. Tracey has more than 23 years of
experience in the investment management industry.
</TABLE>

On page 35, remove the Janus Capital Corporation information and replace with
the following:

Account: LargeCap Growth
Sub-Advisor: Janus Capital Corporation ("Janus"), 100 Fillmore Street,
Denver CO 80306-4928, was formed in 1969. Effective July 12,
2000, Janus is owned in part by Stilwell Financial Inc.
("Stilwell"), which owns approximately 81.5% of the
outstanding voting stock of Janus. Stilwell is a publicly
traded holding company with principal operations in
financial asset management businesses. Thomas H. Bailey,
President and Chairman of the Board of Janus, owns
approximately 12% of Janus' voting stock and, by agreement
with Stilwell, selects at least a majority of Janus' Board,
subject to the approval of Stilwell, which approval cannot
be unreasonably withheld. As of June 30, 2000, Janus managed
or administered over $304 billion in assets.

RF 668 S-5

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 May 1, 2000.

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.

TABLE OF CONTENTS

ACCOUNT DESCRIPTIONS .................................................. 4
Blue Chip Account.................................................. 6
Bond Account....................................................... 8
Capital Value Account.............................................. 10
International Account.............................................. 12
LargeCap Growth Account............................................ 14
MidCap Account..................................................... 16
MidCap Growth Account.............................................. 18
MidCap Value Account............................................... 20
Money Market Account............................................... 22
SmallCap Account................................................... 24
SmallCap Growth Account............................................ 26
Stock Index 500 Account............................................ 28

CERTAIN INVESTMENT STRATEGIES AND RELATED RISKS......................... 30

PRICING OF ACCOUNT SHARES............................................... 34

DIVIDENDS AND DISTRIBUTIONS............................................. 34

MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE.......................... 35
The Manager........................................................ 35
The Sub-Advisors................................................... 35

GENERAL INFORMATION ABOUT AN ACCOUNT.................................... 43
Shareholders Rights................................................ 43
Purchase of Account Shares......................................... 44
Sale of Account Shares............................................. 44
Financial Statements............................................... 45

FINANCIAL HIGHLIGHTS.................................................... 46
Notes to Financial Highlights...................................... 50

ACCOUNT DESCRIPTIONS.......

The Principal Variable Contracts Fund (the "Fund") is made up of Accounts. Each
Account has its own investment objective. Principal Management Corporation, the
Manager of the Fund, has selected a Sub-Advisor for certain Accounts (based on
the Sub-Advisor's experience with the investment strategy for which it was
selected). The Manager seeks to provide a full range of investment approaches
through the Fund.

<TABLE>
<CAPTION>
Sub-Advisor Account
----------- -------
<S> <C>
Berger LLC ("Berger") SmallCap Growth
Dreyfus Corporation ("Dreyfus") MidCap Growth
Invista Capital Management, LLC Blue Chip, Capital Value, International,
("Invista") MidCap, SmallCap, and Stock Index 500
Janus Capital Corporation ("Janus") LargeCap Growth
Neuberger Berman Management Inc. MidCap Value
("Neuberger Berman")
</TABLE>

Principal Management Corporation and Invista are members of the Principal
Financial Group.

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 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% total 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.

Account Performance
Included in each Account's description is a set of tables and a bar chart. As
certain Accounts have been operating for a limited period of time, complete
historical information is not available for those Accounts. If complete
historical information is available, a 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.

One of the tables compares the Account's average annual returns with:
o a broad-based securities market index (An index measures the market price
of a specific group of securities in a particular market of securities in a
market sector. You cannot invest directly in an index. An index does not
have an investment advisor and does not pay any commissions or expenses. If
an index had expenses, its performance would be lower.); and
o an average of mutual funds with a similar investment objective and
management style. The averages used are prepared by independent statistic
services.

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

No salesperson, dealer or other person is authorized to give information or
make representations about an Account other than those contained in this
Prospectus. Information or representations from unauthorized parties may
not be relied upon as having been made by an Account, the Fund, the Manager
or any Sub-Advisor.

GROWTH-ORIENTED ACCOUNT

Blue Chip Account
The Account seeks to achieve growth of capital and growth of income.

Main Strategies
The Account invests primarily in common stocks of well-capitalized, 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:
o size (market capitalization of at least $1 billion)
o good industry position
o established history of earnings and dividends
o superior management structure
o 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. Unseasoned issuers may be
developing or marketing new products or services for which markets are not yet
established and may never become established. While small, unseasoned companies
may offer greater opportunities for capital growth than larger, more established
companies, they also involve greater risks and should be considered speculative.

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. Foreign stocks carry risks that are not generally found in stocks of
U.S. companies. These include the risk that a foreign security could lose value
as a result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.

Main Risks
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. 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. As a result, the
value of your investment in the Account will go up and down. If you sell your
shares when their value is less than the price you paid, you will lose money.
Because different types of stocks tend to shift in and out of favor depending on
market and economic conditions, the Account's performance may sometimes be lower
or higher than that of other types of funds.

Investor Profile
The Account is generally a suitable investment if you are seeking long-term
growth and are willing to accept the risks of investing in common stocks but
prefer investing in larger, established companies. Account Performance
Information As the inception date of the Account is May 1, 1999, historical
performance data based on a full calendar year is not available.

Annual Total Returns

The account's highest/lowest quarterly results during this time period were:

Highest 7.60% (12/31/1999)
Lowest -6.44% (9/30/1999)

Average annual total returns for the period ending December 31, 1999

This table shows how the Account's average annual returns compare with those of
a broad-based securities market index and an index of funds with similar
investment objectives.

<TABLE>
<CAPTION>
Past One Past OnePast FivePast Ten
Account Year Year Years Years

<S> <C> <C> <C> <C> <C>
Blue Chip 1.15%* S&P 500 Stock Index 21.04% 28.55% 18.21%
Lipper Large-Cap Value Fund Average 11.23 22.56 15.06

<FN>
* Period from May 1, 1999, date shares first offered to the public,
through December 31, 1999.
</FN>
</TABLE>

Examples

The Examples assume that you invest $10,000 in the Account for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Examples also assume that your investment has a 5% return each year and that the
Account's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:

1 Year 3 Years 5 Years 10 Years
------------------------------------------------------
$71 $221 $385 $863

Account Operating Expenses

Management Fees.................. 0.60%
Other Expenses................... 0.09
-----
Total Account Operating Expenses 0.69%

Day-to-day Account Management

Since April 1999 Mark T. Williams, CFA. Mr. Williams joined Invista Capital
Management in 1989. He holds an MBA from (Account's
inception) Drake University and a BA in Finance from the
University of the State of New York. He has earned the right
to use the Chartered Financial Analyst designation.

INCOME-ORIENTED ACCOUNT

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

Main Strategies
The 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. 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:
o debt securities and taxable municipal bonds;
o rated, at purchase, in one of the top four categories by S&P or
Moody's, or
o if not rated, in the Manager's opinion are of comparable quality.
o similar Canadian, Provincial or Federal Government securities payable in
U.S. dollars; and
o 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:
o domestic and foreign debt securities;
o preferred and common stock;
o foreign government securities; and
o securities rated less than the four highest grades of S&P or Moody's but
not lower BB- (S&P) or Ba3 (Moody's). Fixed-income securities that are not
investment grade are commonly referred to as junk bonds or high yield
securities. These securities offer a higher yield than other, higher rated
securities, but they carry a greater degree of risk and are considered
speculative by the major credit rating agencies.

During the fiscal year ended December 31, 1999, the average ratings of the
Account's assets based on market value at each month-end, were as follows (all
ratings are by Moody's):

0.69% in securities rated Aa
19.06% in securities rated A
68.52% in securities rated Baa
11.60% in securities rated Ba
0.13% in securities rated B

Under unusual market or economic conditions, the Account may invest up to 100%
of its assets in cash and cash equivalents. When doing so, the Account is not
investing to achieve its investment objectives.

Main Risks
When interest rates fall, the price of a bond rises and when interest rates
rise, the price declines. In addition, the value of the securities held by the
Account may be affected by factors such as credit rating of the entity that
issued the bond and effective maturities of the bond. Lower quality and longer
maturity bonds will be subject to greater credit risk and price fluctuations
than higher quality and shorter maturity bonds.

As with all mutual funds, if you sell your shares when their value is less than
the price you paid, you will lose money.

Investor Profile
The Account is generally a suitable investment if you are 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.

Account Performance Information
The Account's past performance is not necessarily an indication of future
performance. The bar chart and tables provide some indication of the risks of
investing in the Account by showing changes in share performance from year to
year.

Annual Total Returns

1990 5.22
1991 16.72
1992 9.38
1993 11.67
1994 -2.90
1995 22.17
1996 2.36
1997 10.60
1998 7.69
1999 -2.59

The account's highest/lowest quarterly results during this time period were:

Highest 8.25% (6/30/1995)
Lowest -3.24% (3/31/1996)

Average annual total returns for the period ending December 31, 1999

This table shows how the Account's average annual returns compare with those of
a broad-based securities market index and an index of funds with similar
investment objectives.

<TABLE>
<CAPTION>
Past One Past FivePast Ten Past OnePast FivePast Ten
Account Year Years Years Year Years Years

<S> <C> <C> <C> <C> <C> <C>
Bond -2.59% 7.73% 7.77% Lehman Brothers BAA Corporate Index -0.82% 8.49% 8.48%
Lipper Corporate Debt BBB Rated Fund Average -1.68 7.71 8.01
</TABLE>

Examples

1 Year 3 Years 5 Years 10 Years
------------------------------------------------------
$51 $160 $280 $628

Account Operating Expenses

Management Fees................ 0.49%
Other Expenses................. 0.01
-----
Total Account Operating Expenses 0.50%

Day-to-day Account Management

Since November 1996 Scott A. Bennett, CFA. Mr. Bennett has been with the
Principal organization since 1988. He holds an MBA and a BA
from the University of Iowa. He has earned the right to use
the Chartered Financial Analyst designation.

GROWTH-ORIENTED ACCOUNT

Capital Value Account
The Account seeks to provide long-term capital appreciation and secondarily
growth of investment income.

Main Strategies
The Account invests primarily in common stocks and 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:

o 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.

o 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.

o 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.

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

Main Risks
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. As with all mutual funds, if you sell
shares when their value is less than the price you paid, you will lose money.

Investor Profile
The Account is generally a suitable investment if you are seeking long-term
growth and are willing to accept the risks of investing in common stocks but
prefer investing in companies that appear to be considered undervalued relative
to similar companies.

Annual Total Returns

1990 -9.86
1991 38.67
1992 9.52
1993 7.79
1994 0.49
1995 31.91
1996 23.50
1997 28.53
1998 13.58
1999 -4.29

The account's highest/lowest quarterly results during this time period were:

Highest 17.85% (3/31/1991)
Lowest -17.01% (9/30/1990)

Average annual total returns for the period ending December 31, 1999

This table shows how the Account's average annual returns compare with those of
a broad-based securities market index and an index of funds with similar
investment objectives.

<TABLE>
<CAPTION>
Past One Past FivePast Ten Past OnePast FivePast Ten
Account Year Years Years Year Years Years

<S> <C> <C> <C> <C> <C> <C> <C>
Capital Value -4.29% 17.88% 12.94% S&P 500 Barra Value Index(1) 12.72% 22.94% 15.37%
S&P 500 Stock Index 21.04 28.55 18.21
Lipper Large-Cap Value Fund Average(2) 11.23 22.56 15.06

<FN>
(1) This index is now the benchmark against which the Account measures its
performance. The Manager and portfolio manager believe it better
represents the universe of investment choices open to the Account
under its investment philosophy. The index formerly used is also
shown.
(2) Lipper has discontinued calculation of the Average previously used for
this Account. This chart reflects information for the discontinued
Average for years prior to 1999. The newly assigned Average will be
reflected for 1999 and beyond.
</FN>
</TABLE>

Examples

1 Year 3 Years 5 Years 10 Years
------------------------------------------------------
$44 $138 $241 $542

Account Operating Expenses

Management Fees.................. 0.43%
Other Expenses................... 0.00
-----
Total Account Operating Expenses 0.43%

Day-to-day Account Management

Since November 1996 Catherine A. Zaharis, CFA. Ms. Zaharis joined Invista
Capital Management in 1987. She holds a BA in Finance from
the University of Iowa and an MBA from Drake University. She
has earned the right to use the Chartered Financial Analyst
designation.

GROWTH-ORIENTED ACCOUNT

International Account
The Account seeks long-term growth of capital by investing in a portfolio of
equity securities of companies established outside of the U.S.

Main Strategies
The Account invests in equity securities of:
o companies with their principal place of business or principal office
outside the U.S.;
o companies for which the principal securities trading market is outside the
U.S.; and
o companies, regardless of where their securities are traded, that derive 50%
or more of their total revenue from goods or services produced or sales
made outside 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.

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.

Main Risks
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 that are not generally
found in stocks of U.S. companies. These include the risk that a foreign
security could lose value as a result of political, financial and economic
events in foreign countries. In addition, foreign securities may be subject to
securities regulators with less stringent accounting and disclosure standards
than are required of U.S. companies.

Because foreign securities generally are denominated in foreign currencies, the
value of the net assets of the Account as measured in U.S. dollars will be
affected by changes in exchange rates. To protect against future uncertainties
in foreign currency exchange rates, the Account is authorized to enter into
certain foreign currency exchange transactions. In addition, the Account's
foreign investments may be less liquid and their price more volatile than
comparable investments in U.S. securities. Settlement periods may be longer for
foreign securities and that may affect portfolio liquidity.

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.

As with all mutual funds, the value of the Account's assets may rise or fall. If
you sell your shares when their value is less than the price you paid, you will
lose money.

Investor Profile
The Account is generally a suitable investment if you are seeking long-term
growth and want to invest in non-U.S. companies. This Account is not an
appropriate investment if you are seeking either preservation of capital or high
current income. You 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.

Annual Total Returns

1995 14.17
1996 25.09
1997 12.24
1998 9.98
1999 25.93

The account's highest/lowest quarterly results during this time period were:

Highest 16.60% (12/31/1998)
Lowest -17.11% (9/30/1998)

Average annual total returns for the period ending December 31, 1999

This table shows how the Account's average annual returns compare with those of
a broad-based securities market index and an index of funds with similar
investment objectives.

<TABLE>
<CAPTION>
Past One Past FivePast Ten Past OnePast FivePast Ten
Account Year Years Years Year Years Years

<S> <C> <C> <C> <C> <C> <C>
International 25.93% 17.29% 14.41%* Morgan Stanley Capital International EAFE
(Europe, Australia and Far East) Index 26.96% 12.83% 7.01%
Lipper International Fund Average 40.80 15.37 10.54

<FN>
* Period from May 1, 1994, date shares first offered to the public,
through December 31, 1999.
</FN>
</TABLE>

Examples

1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------
$80 $249 $433 $966

Account Operating Expenses

Management Fees.................. 0.73%
Other Expenses................... 0.05
-----
Total Account Operating Expenses 0.78%

Day-to-day Account Management

Since March 1994 Co-Manager: Scott D. Opsal, CFA. Mr. Opsal is Chief
Investment Officer of Invista Capital Management and has
been with the organization since 1993. He holds an MBA from
the University of Minnesota and BS from Drake University. He
has earned the right to use the Chartered Financial Analyst
designation.

Since March 2000 Co-Manager: Kurtis D. Spieler, CFA. Mr. Spieler joined
Invista Capital Management in 1995. He holds an MBA from
Drake University and a BBA from Iowa State University. He
has earned the right to use the Chartered Financial Analyst
designation.

GROWTH-ORIENTED ACCOUNT

LargeCap Growth Account
The Account seeks long-term growth of capital.

Main Strategies
The 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 measured at the time of investment. 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 or are operating
in a favorable environment from a competitive and regulatory standpoint.

Janus uses a bottom-up approach in building the portfolio. This approach seeks
to identify individual companies with earnings growth potential that may not be
recognized by the market at large. Although themes may emerge in the Account,
securities are generally selected without regard to any defined industry sector
or other similarly defined selection procedure.

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. To a limited extent, the Account may also
purchase a security in anticipation of relatively short-term price gain. To the
extent that the Account engages in short-term trading, it may have increased
transaction costs.

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 or to receive a return on idle cash. 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. 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 Account may also invest up to 25% of its assets in securities of foreign
companies. Foreign stocks carry risks that are not generally found in stocks of
U.S. companies. These include the risk that a foreign security could lose value
as a result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.

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. These securities offer a higher yield than other, higher rated
securities, but they carry a greater degree of risk and are considered
speculative by the major credit rating agencies.

Investor Profile
The Account is generally a suitable investment if you are seeking long-term
growth and are willing to accept the potential for short-term fluctuations in
the value of your investments. It is not appropriate if you are seeking income
or conservation of capital.

Account Performance Information
As the inception date of the Account is May 1, 1999, historical performance data
based on a full calendar year is not available.

Annual Total Returns

The account's highest/lowest quarterly results during this time period were:

Highest 29.75% (12/31/1999)
Lowest -3.13% (9/30/1999)

Average annual total returns for the period ending December 31, 1999

This table shows how the Account's average annual returns compare with those of
a broad-based securities market index and an index of funds with similar
investment objectives.

<TABLE>
<CAPTION>
Past One Past OnePast FivePast Ten
Account Year Year Years Years

<S> <C> <C> <C> <C> <C>
LargeCap Growth 32.47%* Russell 1000 Growth Index 33.16% 32.41% 20.32%
Lipper Large-Cap Growth Fund Average 38.09 30.55 19.73

<FN>
* Period from May 1, 1999, date shares first offered to the public,
through December 31, 1999.
</FN>
</TABLE>

Examples

1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------
$125 $390 $674 $1,482

Account Operating Expenses

Management Fees.................... 1.10%
Other Expenses..................... 0.13
-----
Total Account Operating Expenses 1.23%*

* Manager has agreed to reimburse operating expenses so that total
Account operating expenses will not be greater than 1.20% for 2000.

Day-to-day Account Management

Since April 1999 E. Marc Pinto, CFA. Mr. Pinto is a Vice President, Janus
(Account's Capital Corporation and has been with the organization since
inception) 1994. Prior to that, Mr. Pinto was employed by a family firm
and as an Associate in the Investment Banking Division of
Goldman Sachs. He holds a BA in History from Yale University
and an MBA from Harvard. He has earned the right to use the
Chartered Financial Analyst designation.

GROWTH-ORIENTED ACCOUNT

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

Main Strategies
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. While small, unseasoned companies
may offer greater opportunities for capital growth than larger, more established
companies, they also involve greater risks and should be considered speculative.

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 Account may invest up to 20% of its assets in securities of foreign
companies. Foreign stocks carry risks that are not generally found in stocks of
U.S. companies. These include the risk that a foreign security could lose value
as a result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.

Main Risks
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. The Account's share price may fluctuate more
than that of funds primarily invested in stocks of large companies. Mid-sized
companies may pose greater risk due to narrow product lines, limited financial
resources, less depth in management or a limited trading market for their
stocks. In the short term, stock prices can fluctuate dramatically in response
to these factors. Because of these fluctuations, principal values and investment
returns vary. As with all mutual funds, if you sell your shares when their value
is less than the price you paid, you will lose money.

Investor Profile
The Account is generally a suitable investment if you are seeking long-term
growth and are willing to accept the potential for short-term fluctuations in
the value of your investments. It is designed for a portion of your investments.
It is not appropriate if you are seeking income or conservation of capital.

Annual Total Returns

1990 -12.50
1991 53.50
1992 14.94
1993 19.28
1994 0.78
1995 29.01
1996 21.11
1997 22.75
1998 3.69
1999 13.04

The account's highest/lowest quarterly results during this time period were:

Highest 25.86% (3/31/1991)
Lowest -26.61% (9/30/1990)

Average annual total returns for the period ending December 31, 1999

This table shows how the Account's average annual returns compare with those of
a broad-based securities market index and an index of funds with similar
investment objectives.

<TABLE>
<CAPTION>
Past One Past FivePast Ten Past OnePast FivePast Ten
Account Year Years Years Year Years Years

<S> <C> <C> <C> <C> <C> <C> <C>
MidCap 13.04% 17.59% 15.35% S&P 400 MidCap Index(1) 14.72% 23.05% -- %
S&P 500 Stock Index 21.04 28.55 18.21
Lipper Mid-Cap Core Fund Average(2) 38.27 21.93 16.28

<FN>
(1)This index is now the benchmark against which the Account measures its
performance. The Manager and portfolio manager believe it better
represents the universe of investment choices open to the Account under
its investment philosophy. The index formerly used is also shown.
(2)Lipper has discontinued calculation of the Average previously used for
this Account. This chart reflects information for the discontinued
Average for years prior to 1999. The newly assigned Average will be
reflected for 1999 and beyond.
</FN>
</TABLE>

Examples

1 Year 3 Years 5 Years 10 Years
------------------------------------------------------
$62 $195 $340 $762

Account Operating Expenses

Management Fees.................... 0.61%
Other Expenses..................... 0.00
-----
Total Account Operating Expenses 0.61%

Day-to-day Account Management

Since February 2000 K. William Nolin, CFA. Mr. Nolin joined Invista Capital
Management in 1996. He holds an MBA from The Yale School of
Management and a BA in Finance from the University of Iowa.
He has earned the right to use the Chartered Financial
Analyst designation.

GROWTH-ORIENTED ACCOUNT

MidCap Growth Account
The Account seeks long-term growth of capital.

Main Strategies
The 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: o
are in fast growing industries; o offer superior earnings growth potential; and
o are characterized by strong balance sheets and high returns on equity.

The Account may also hold investments in large and small capitalization
companies, including emerging and cyclical growth companies.

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.

Main Risks
Because companies in this market are smaller, prices of their stocks tend to be
more volatile than stocks of companies with larger capitalizations. Smaller
companies may be developing or marketing new products or services for which
markets are not yet established and may never become established. While small,
unseasoned companies may offer greater opportunities for capital growth than
larger, more established companies, they also involve greater risks and should
be considered speculative.

The Account's share price may fluctuate more than that of funds primarily
invested in stocks of large companies. Mid-sized companies may pose greater risk
due to narrow product lines, limited financial resources, less depth in
management or a limited trading market for their stocks. As with all mutual
funds, if you sell your shares when their value is less than the price you paid,
you will lose money.

Investor Profile
The Account is generally a suitable investment if you are seeking long-term
growth and are willing to accept the potential for short-term fluctuations in
the value of your investments. The Account is designed for a portion of your
investments. It is not appropriate if you are 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 Variable Contracts
Fund, Inc., Invista Capital Management, LLC or Principal Life Insurance
Company.

Account Performance Information
The Account's past performance is not necessarily an indication of future
performance.

Annual Total Returns

1999 10.67

The account's highest/lowest quarterly results during this time period were:

Highest 22.31% (12/31/1998)
Lowest -16.95% (9/30/1998)

Average annual total returns for the period ending December 31, 1999

This table shows how the Account's average annual returns compare with those of
a broad-based securities market index and an index of funds with similar
investment objectives.

<TABLE>
<CAPTION>
Past One Past Five Past OnePast FivePast Ten
Account Year Years Year Years Years

<S> <C> <C> <C> <C> <C> <C>
MidCap Growth 10.67% 4.09%* S&P 400 MidCap Index 14.72% 23.05% -- %
Lipper Mid-Cap Core Fund Average(1) 38.27 21.93 16.28
Lipper Mid-Cap Growth Fund Average(1) 72.86 28.03 19.11

<FN>
* Period from May 1, 1998, date first offered to the public, through
December 31, 1999.
(1) Lipper has discontinued calculation of the Average previously used for
this Account. This chart reflects information for the discontinued
Average for years prior to 1999. The newly assigned Average will be
reflected for 1999 and beyond.
</FN>
</TABLE>

Examples

1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------
$111 $347 $601 $1,329

Account Operating Expenses

Management Fees................... 0.90%
Other Expenses.................... 0.19
-----
Total Account Operating Expenses 1.09%*

* Manager has agreed to reimburse operating expenses so that total
Account operating expenses will not be greater than 0.96% for 2000.

Day-to-day Account Management

Since April 1998 John O'Toole, CFA. Portfolio Manager of The Dreyfus
(Account's Corporation and Senior Vice President of Mellon Equity
inception) Associates LLP (an affiliate of The Dreyfus Corporation)
since 1990. He holds an MBA in Finance from the University
of Chicago and a BA in Economics from the University of
Pennsylvania. He has earned the right to use the Chartered
Financial Analyst designation.

GROWTH-ORIENTED ACCOUNT

MidCap Value Account
The Account 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.

Main Strategies
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.

The stocks are selected using a value-oriented investment approach by the
Sub-Advisor, Neuberger Berman Management Inc. Neuberger Berman 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). Neuberger Berman
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.
Neuberger Berman 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 Neuberger Berman
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).

Main Risks
While small, unseasoned companies may offer greater opportunities for capital
growth than larger, more established companies, they also involve greater risks
and should be considered speculative. Smaller companies may also be developing
or marketing new products or services for which markets are not yet established
and may never become established.

The net asset value of the Account's shares is based on the value of the
securities it holds. 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. The Account's
share price may fluctuate more than that of funds primarily invested in stocks
of large companies. Mid-sized companies may pose greater risk due to narrow
product lines, limited financial resources, less depth in management or a
limited trading market for their stocks. Because of these fluctuations,
principal values and investment returns vary. As with all mutual funds, if you
sell your shares when their value is less than the price you paid, you will lose
money.

Neuberger Berman also may invest in foreign securities. Foreign securities carry
risks that are not generally found in securities of U.S. companies. These
include the risk that a foreign security could lose value as a result of
political, financial and economic events in foreign countries. In addition,
foreign securities may be subject to securities regulators with less stringent
accounting and disclosure standards than are required of U.S. companies.

Investor Profile
The Account is generally a suitable investment if you are seeking long-term
growth and are willing to accept short-term fluctuations in the value of your
investments. It is designed for a portion of your investments and not designed
for you if you are seeking income or conservation of capital.

Account Performance Information
As the inception date of the Account is May 1, 1999, historical performance data
based on a full calendar year is not available.

Annual Total Returns

The account's highest/lowest quarterly results during this time period were:

Highest 23.54% (12/31/1999)
Lowest -12.71% (9/30/1999)

Average annual total returns for the period ending December 31, 1999

This table shows how the Account's average annual returns compare with those of
a broad-based securities market index and an index of funds with similar
investment objectives.

<TABLE>
<CAPTION>
Past One Past OnePast FivePast Ten
Account Year Year Years Years

<S> <C> <C> <C> <C>
MidCap Value 10.24%* Russell MidCap Value Index -0.11% 18.01% 13.81%
Lipper Mid-Cap Value Fund Average 9.33 16.55 12.71

<FN>
* Period from May 1, 1999, date shares first offered to the public,
through December 31, 1999.
</FN>
</TABLE>

Examples

1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------
$128 $401 $695 $1,536

Account Operating Expenses

Management Fees................... 1.05%
Other Expenses.................... 0.21
----
Total Account Operating Expenses 1.26%*

* Manager has agreed to reimburse operating expenses so that total
Account operating expenses will not be greater than 1.20% for 2000.)

Day-to-day Account Management

Since April 1999 Co-Manager, Robert I. Gendelman, Portfolio Manager,
(Account's Neuberger Berman Management, Inc., since 1994. He holds a BA
inception) from the University of Michigan as well as a JD and an MBA
from the University of Chicago.

Since April 1999 Co-Manager, S. Basu Mullick, Portfolio Manager, Neuberger
(Account's Berman Management, Inc., since 1998. Prior thereto,
inception) Portfolio Manager, Ark Asset Management Co, Inc. from
1993-1998. He holds a BA from the Presidency College of
India as well as an MA and ABD in Finance from Rutgers
University.

Money Market Account
The Account has an investment objective of as high a level of current income
available from investments in short-term securities as is consistent with
preservation of principal and maintenance of liquidity.

Main Strategies
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:
o to take advantage of market variations;
o to generate cash to cover sales of Account shares by its shareholders; or
o 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 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:
o U.S. Government securities which are issued or guaranteed by the U.S.
Government, including treasury bills, notes and bonds.
o 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.
o Bank obligations consisting of:
o certificates of deposit which generally are negotiable certificates
against funds deposited in a commercial bank or
o bankers acceptances which are time drafts drawn on a commercial bank,
usually in connection with international commercial transactions.
o Commercial paper that is short-term promissory notes issued by U.S. or
foreign corporations primarily to finance short-term credit needs.
o 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.
o 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.
o Taxable municipal obligations that are short-term obligations issued or
guaranteed by state and municipal issuers that generate taxable income.

Main Risks
As with all mutual funds, the value of the Account's assets may rise or fall.
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. An investment
in the Account is not insured or guaranteed by the FDIC or any other government
agency.

Investor Profile
The Account is generally a suitable investment if you are seeking monthly
dividends to produce income without incurring much principal risk or for your
short-term needs.

Annual Total Returns

1990 8.01
1991 5.92
1992 3.48
1993 2.69
1994 3.76
1995 5.59
1996 5.07
1997 5.04
1998 5.20
1999 4.84

The 7-day yield for the period ended December 31, 1999 was 5.47%. To obtain the
Account's current yield information, please call 1-800-247-4123.

Average annual total returns for the period ending December 31, 1999

This table shows the Account's average annual returns over the periods
indicated.

Past One Past FivePast Ten
Account Year Years Years

Money Market 4.84% 5.20% 4.94%

Examples

1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------
$53 $167 $291 $653

Account Operating Expenses

Management Fees.................... 0.50%
Other Expenses..................... 0.02
-----
Total Account Operating Expenses 0.52%

Day-to-day Account Management

Since June 1999 Co-Manager: Alice Robertson. Ms. Robertson has been with the
Principal organization since 1990. She holds an MBA from
DePaul and a BA in Economics from Northwestern University.

Since March 1983 Co-Manager: Michael R. Johnson. Mr. Johnson has been with
the Principal organization since 1982. He holds a BA from
Iowa State University. He is a Fellow of the Life Management
Institute.

GROWTH-ORIENTED ACCOUNT

SmallCap Account
The Account seeks long-term growth of capital by investing primarily in equity
securities of companies with comparatively small market capitalizations.

Main Strategies
Under normal market conditions, the Account invests at least 65% of its assets
in securities of companies with market capitalizations of $1.5 billion or less
at the time of purchase. Market capitalization is defined as total current
market value of a company's outstanding common stock.

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.

Main Risks
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 developing or marketing
new products or services for which markets are not yet established and may never
become established. While small, unseasoned companies may offer greater
opportunities for capital growth than larger, more established companies, they
also involve greater risks and should be considered speculative.

The net asset value of the Account's shares is based on the values of the
securities it holds. 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. The
Account's share price may fluctuate more than that of funds primarily invested
in stocks of mid-sized and large companies and may underperform as compared to
the securities of larger companies. Because of these fluctuations, principal
values and investment returns vary. As with all mutual funds, if you sell your
shares when their value is less than the price you paid, you will lose money.

Investor Profile
The Account is generally a suitable investment if you are seeking long-term
growth and are willing to accept the potential for volatile fluctuations in the
value of your investment. This Account is designed for a portion of your
investments.

Account Performance Information
The Account's past performance is not necessarily an indication of future
performance.

Annual Total Returns

1999 43.58

The account's highest/lowest quarterly results during this time period were:

Highest 26.75% (6/30/1999)
Lowest -24.33% (9/30/1998)

Average annual total returns for the period ending December 31, 1999

This table shows how the Account's average annual returns compare with those of
a broad-based securities market index and an index of funds with similar
investment objectives.

<TABLE>
<CAPTION>
Past One Past Five Past OnePast FivePast Ten
Account Year Years Year Years Years

<S> <C> <C> <C> <C> <C> <C>
SmallCap 43.58% 8.24%* S&P 600 Index 12.40% 17.05% 13.04%
Lipper Small-Cap Core Fund Average(1) 28.43 17.88 13.39

<FN>
* Period from May 1, 1998, date first offered to the public, through
December 31, 1999.

(1) Lipper has discontinued calculation of the Average previously used for
this Account. This chart reflects information for the discontinued
Average for years prior to 1999. The newly assigned Average will be
reflected for 1999 and beyond.
</FN>
</TABLE>

Examples

1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
$93 $290 $504 $1,120

Account Operating Expenses

Management Fees.................... 0.85%
Other Expenses..................... 0.06
-----
Total Account Operating Expenses 0.91%

Day-to-day Account Management

Since April 1998 Co-Manager: John F. McClain. Mr. McClain joined Invista
(Account's Capital Management as a Portfolio Analyst in 1990. He holds
inception) an undergraduate degree in Economics from the University of
Iowa and an MBA from Indiana University.

Since April 1998 Co-Manager: Mark T. Williams, CFA. Mr. Williams joined
(Account's Invista Capital Management in 1989. He holds an MBA from
inception) Drake University and a BA in Finance from the University of
the State of New York. He has earned the right to use the
Chartered Financial Analyst designation.

GROWTH-ORIENTED ACCOUNT

SmallCap Growth Account
The Account seeks long-term growth of capital.

Main Strategies
The 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.

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, 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:
o occupy a dominant position in an emerging industry; or
o have a 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.

Main Risks
Investments in companies with small market capitalizations carry their own
risks. Historically, small company securities have been more volatile in price
than larger company securities, especially over the short-term. Smaller
companies may be developing or marketing new products or services for which
markets are not yet established and may never become established. While small
companies may offer greater opportunities for capital growth than larger, more
established companies, they also involve greater risks and should be considered
speculative.

Foreign stocks carry risks that are not generally found in stocks of U.S.
companies. These include the risk that a foreign security could lose value as a
result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject to securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.

The net asset value of the Account's shares is based on the values of the
securities it holds. 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. As with all mutual
funds, if you sell your shares when their value is less than the price you paid,
you will lose money.

The Account's share price may fluctuate more than that of funds primarily
invested in stocks of mid-sized and large companies and may underperform as
compared to the securities of larger companies. 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.

Investor Profile
The Account is generally a suitable investment if you are seeking long-term
growth and are willing to accept the potential for volatile fluctuations in the
value of your investment.

Account Performance Information
The Account's past performance is not necessarily an indication of future
performance.

Annual Total Returns

1999 95.69

The account's highest/lowest quarterly results during this time period were:

Highest 59.52% (12/31/1999)
Lowest -18.94% (9/30/1998)

Average annual total returns for the period ending December 31, 1999

This table shows how the Account's average annual returns compare with those of
a broad-based securities market index and an index of funds with similar
investment objectives.

<TABLE>
<CAPTION>
Past One Past Five Past OnePast FivePast Ten
Account Year Years Year Years Years

<S> <C> <C> <C> <C> <C> <C>
SmallCap Growth 95.69% 52.17%* Russell 2000 Growth Index 43.09% 18.99% 13.51%
Lipper Small-Cap Growth Fund Average(1) 62.63 24.05 18.36

<FN>
* Period from May 1, 1998, date first offered to the public, through
December 31, 1999.

Examples

1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------
$109 $340 $590 $1,306

Account Operating Expenses

Management Fees................... 1.00%
Other Expenses.................... 0.07
-----
Total Account Operating Expenses 1.07%*

* Manager has agreed to reimburse operating expenses so that total
Account operating expenses will not be greater than 1.06% for 2000.

Day-to-day Account Management

Since November 1998 Amy K. Selner, Vice President and portfolio manager of
Berger Associates, Inc. since 1997. Senior Research Analyst,
1996-1997. Prior thereto, Assistant Portfolio Manager and
Research Analyst with INVESCO Trust Company, 1991-1996.

GROWTH-ORIENTED ACCOUNT

Stock Index 500 Account
The Account seeks long-term growth of capital.

Main Strategies
Under normal market conditions, the Account invests at least 80% of its assets
in common stocks of companies that compose the Standard & Poor's* ("S&P") 500
Index. 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 Account uses an indexing strategy. It does not attempt to manage market
volatility, use defensive strategies or reduce the effects of any long-term
periods of poor stock performance. The correlation between Account and index
performance may be affected by the Account's expenses, changes in securities
markets, changes in the composition of the index and the timing of purchases and
sales of Account shares. The Account may invest in futures and options, which
could carry additional risks such as losses due to unanticipated market price
movements, and could also reduce the opportunity for gain.

Main Risks
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of your investment in the Account will go
up and down, which means that you could lose money. Because different types of
stocks tend to shift in and out of favor depending on market and economic
conditions, the Account's performance may sometimes be lower or higher than that
of other types of funds.

Investor Profile
The Account is generally a suitable investment if you are seeking long-term
growth, are willing to accept the risks of investing in common stocks and prefer
a passive rather than active management style.

* "Standard & Poor's 500 Index" is a trademark of Standard & Poor's
Corporation ("S&P"). S&P is not affiliated with Principal Variable
Contracts Fund, Inc., Invista Capital Management, LLC, or with Principal
Life Insurance Company.

Account Performance Information
As the inception date of the Account is May 1, 1999, historical performance data
based on a full calendar year is not available.

Annual Total Returns

The account's highest/lowest quarterly results during this time period were:

Highest 14.68% (12/31/1999)
Lowest -6.24% (9/30/1999)

Average annual total returns for the period ending December 31, 1999

This table shows how the Account's average annual returns compare with those of
a broad-based securities market index and an index of funds with similar
investment objectives.

<TABLE>
<CAPTION>
Past One Past OnePast FivePast Ten
Account Year Year Years Years

<S> <C> <C> <C> <C> <C> <C>
Stock Index 500 8.93%* S&P 500 Stock Index 21.04% 28.55% 18.21%
Lipper S&P 500 Fund Average 20.22 27.96 17.69

<FN>
* Period from May 1, 1999, date shares first offered to the public,
through December 31, 1999.
</FN>
</TABLE>

Examples

1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------
$50 $156 $271 $600

Account Operating Expenses

Management Fees.................... 0.35%
Other Expenses..................... 0.14
-----
Total Account Operating Expenses 0.49%*

* Manager has agreed to reimburse operating expenses so that total
Account operating expenses will not be greater than 0.40% for 2000.

Day-to-day Account Management

Since March 2000 Co-Manager: Robert Baur, Ph.D. Dr. Baur joined Invista
Capital Management in 1995. Prior to joining the firm, he
was a Professor of Finance and Economics at Drake University
and Grand View College. He received his Ph.D. in Economics
from Iowa State University and did post-doctoral study at
the University of Minnesota. He also holds a BS in
Mathematics from Iowa State University.

Since March 2000 Co-Manager: Rhonda VanderBeek. Ms. VanderBeek joined Invista
Capital Management in 1983. She directs trading operations
for the firm and has extensive experience trading both
domestic and international securities.

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.

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 or defensive purposes. 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 Account invests primarily in fixed-income securities. Fixed-income
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 fixed-income securities, such as zero coupon bonds, do not pay
current interest, but are sold at a discount from their face values.

Fixed-income securities are sensitive to changes in interest rates. In general,
their 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 fixed-income 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 may lend its portfolio securities to unaffiliated
broker-dealers and other unaffiliated qualified financial institutions.

Currency Contracts
The Accounts (except Money Market) may each enter into forward currency
contracts, currency futures contracts and options, and options on currencies. 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 in or exposed to or generally quoted or currently convertible into
the currency).

Hedging is a technique that may be 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 Money Market) may invest up to 5% of its total
assets in warrants. A warrant is a certificate granting its owner the right to
purchase securities from the issuer at a specified price, normally higher than
the current market price.

Risks of High Yield Securities
The Bond Account and MidCap Value Account (up to 15% of its net assets) and the
LargeCap Growth Account may invest in fixed-income 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.

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.

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.

For purposes of these restrictions, foreign securities include:
o companies organized under the laws of countries outside of the U.S.;
o companies for which the principal securities trading market is outside of
the U.S.; and
o companies, regardless of where its securities are traded, that derive 50% or
more of their total revenue from either goods or services produced outside
the U.S. or sales made outside of the U.S.

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 Board of
Directors of the Fund has adopted Daily Pricing and Valuation Procedures for the
Fund. These procedures outline the steps to be followed by the Manager and/or
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 Board of Directors oversees this process.

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

Futures
Each Account may buy and sell financial futures contracts and options on those
contracts. Financial futures contracts are commodities contracts based on
financial instruments such as U.S. Treasury bonds or bills, foreign currencies,
or on securities indices such as the S&P 500 Index. Futures contracts, options
on futures contracts and the commodity exchanges on which they are traded are
regulated by the Commodity Futures Trading Commission ("CFTC"). By buying and
selling futures contracts and related options, an Account seeks to hedge against
a decline in securities owned by the Account or an increase in the price of
securities which the Account plans to purchase. An Account may also buy and sell
futures contracts and related options to maintain cash reserves while simulating
full investment in equity securities and to keep substantially all of its assets
exposed to the market.

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. The LargeCap Growth Account may also, to a limited degree,
invest in securities of smaller companies. 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 or Defensive Measures
For temporary or defensive purposes in times of unusual or adverse market
conditions, the 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. The LargeCap Growth Account may invest in money market funds
sponsored by Janus.

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.
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 as of the close of business of the Exchange
(normally at 3:00 p.m. Central Time). When your order to buy or sell shares is
received, 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:
o taking the current market value of the total assets of the Account
o subtracting liabilities of the Account, and
o 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:
o 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.

o 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.

o 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

The issuer of an equity security held by an Account may make a dividend payment.
When an Account receives a dividend, it increases the net asset value of a share
of the Account.

An Account accrues interest daily on its fixed-income securities in anticipation
of an interest payment from the issuer of the security. This accrual increases
the net asset value of an Account.

The Money Market Account (or any other Account holding commercial paper)
amortizes the discount on commercial paper it owns on a daily basis. This
increases the net asset value of the Account.

NOTE: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.

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 Princor Financial Services Corporation and an
affiliate of Principal Life Insurance Company. It has managed mutual funds since
1969. As of December 31, 1999, the Funds it managed had assets of approximately
$6.42 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: 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 Manager, was founded in 1985. It manages
investments for institutional investors, including Principal
Life. Assets under management as of December 31, 1999 were
approximately $35.3 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 1969. Kansas City
Southern Industries, Inc. ("KCSI") owns approximately 82%
of the outstanding voting stock of Janus, indirectly
through its subsidiary Stillwell Financial Inc., most of
which it acquired in 1984. KCSI has announced its intention
to spin-off its financial services subsidiaries, which it
expects to complete in the first half of 2000. As of
January 31, 2000, Janus managed or administered over $256
billion in assets.

Account: MidCap Growth
Sub-Advisor: The Dreyfus Corporation ("Dreyfus"), 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 December 31, 1999 the Dreyfus Corporation managed or
administered approximately $119.6 billion in assets for
approximately 1.7 million investor accounts nationwide.

Account: MidCap Value
Sub-Advisor: Neuberger Berman Management Inc. ("Neuberger Berman") is an
affiliate of Neuberger Berman, LLC. Neuberger Berman LLC is
located at 605 Third Avenue, 2nd Floor, New York, NY 10158-0180.
Together with Neuberger Berman, the firms manage more than $54
billion in total assets (as of December 31, 1999) and continue an
asset management history that began in 1939.

Account: SmallCap Growth
Sub-Advisor: Berger LLC ("Berger") 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, 1999 were
approximately $7.1 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, 1999 was:

Management Other Total Operating
Account Fees Expenses Expenses
--------------- ---------- -------- ---------------
Blue Chip 0.60% 0.09% 0.69%
Bond 0.49 0.01 0.50
Capital Value 0.43 0.00 0.43
International 0.73 0.05 0.78
LargeCap Growth 1.10 0.13 1.23*
MidCap 0.61 0.00 0.61
MidCap Growth 0.90 0.19 1.09*
MidCap Value 1.05 0.21 1.26*
Money Market 0.50 0.02 0.52
SmallCap 0.85 0.06 0.91
SmallCap Growth 1.00 0.07 1.07*
Stock Index 500 0.35 0.14 0.49*

* Before waiver

The Fund and the Manager, under an order received from the SEC, may enter into
and materially amend agreements with Sub-Advisors without obtaining shareholder
approval. For any Accounts as to which the Fund is relying on the order, the
Manager may:
o hire one or more Sub-Advisors;
o change Sub-Advisors; and
o reallocate management fees between itself and Sub-Advisors.
The Manager will continue to have the ultimate responsibility for the investment
performance of these Accounts due to its responsibility to oversee Sub-Advisors
and recommend their hiring, termination and replacement. The Fund will not rely
on the order as to any Account until it receives approval from:
o contract owners who have assets in the Account, or
o in the case of a new Account, the Account's sole initial shareholder before
the Account is available to contract owners, and
the Fund states in its prospectus that it intends to rely on the order with
respect to the Account. The Manager will not enter into an agreement with an
affiliated Sub-Advisor without that agreement, including the compensation to be
paid under it, being similarly approved. The Fund has received the necessary
shareholder approval and intends to rely on the order with respect to the
Aggressive Growth, Asset Allocation, LargeCap Growth, MicroCap, MidCap Growth,
MidCap Value, SmallCap Growth and SmallCap Value Accounts (not all of these
Accounts are available through the Principal FreedomSM Variable Annuity).

MANAGERS' COMMENTS

Principal Management Corporation and its Sub-Advisors are staffed with
investment professionals who manage each individual Account. Comments by these
individuals in the following paragraphs summarize in capsule form the general
strategy and results of each Account for 1999. The accompanying graphs display
results for the past 10 years or the life of the Account, whichever is shorter.
Average annual total return figures provided for each Account in the graphs
reflect all expenses of the Account and assume all distributions are reinvested
at net asset value. The figures do not reflect expenses of the variable life
insurance contracts or variable annuity contracts that purchase Account shares;
performance figures for the divisions of the contracts would be lower than
performance figures for the Accounts due to the additional contract expenses.
Past performance is not predictive of future performance. Returns and net asset
values fluctuate. Shares are redeemable at current net asset value, which may be
more or less than original cost.

The various indices included in the following graphs are unmanaged and do not
reflect any commissions or fees which would be incurred by an investor
purchasing the securities included in the index. Investors cannot invest
directly into these or any indices.

Growth-Oriented Accounts

Blue Chip Account
(Mark Williams)
The Blue Chip Account began operations on April 15 1999.

The objective of the Account is to invest primarily in high quality companies.
In order to do this, emphasis is placed on companies with strong management
teams, powerful competitive positions, demonstrated earnings power, and
significant growth opportunities. Large companies typically have less business
risk, easier access to financing and less volatility in earnings than smaller
companies, and so deserve a place in the portfolios of many investors.

The Lipper Large Cap Value Fund Average had a total return of 3.9% for the
period of May 1, 1999 through December 31, 1999. The Account had a total return
of 1.2% for that period, underperforming its peer group by 2.7%. This was
primarily due to underweighting technology stocks and overweighting consumer
staples and healthcare stocks. The Account did demonstrate superior security
selection throughout the year. Technology stocks soared in the fourth quarter as
investors chased growth, and consumer staples and healthcare underperformed as
investors shed more defensive holdings. The Account was ahead of its benchmark
until October 19, when technology stocks moved sharply upwards, and the
Account's underweighting hurt it even though a demonstration of superior
security selection in this sector was seen. Motorola Inc. was the Account's main
contributor in technology with a return of 84.3%. The Account was helped by its
performance in the consumer cyclical, financial and utility sectors. In
cyclicals, Wal-Mart Stores, Inc. was the best contributor with a return of
41.8%.

The Account has reduced its underweighting in technology stocks, thus reducing
its index risk relative to the technology sector. In general, the Account will
continue to seek performance through security selection rather than
overweighting specific market sectors. This should reduce the risk of the
Account relative to the average large cap core equity fund.

Comparison of Change in Value of $10,000 Investment in the Blue Chip Account,
Lipper Large-Cap Value Fund Average and S&P 500 Stock Index

Total Returns*
as of December 31, 1999
1 Year 5 Year 10 Year
1.15%** -- --

** Since inception date 5/3/99

Lipper
S&P 500 Large-Cap Value Blue Chip
Stock Index Fund Average Account*
----------- --------------- ---------
10,000 10,000 10,000
"1999" 11,100 10,391 10,115

Note: Past performance is not predictive of future performance

Capital Value Account
(Catherine Zaharis)
The market divergence has been the most dramatic in performance since the late
1960's. It has been a very simple process to determine which stocks will
outperform. On average, stocks with earnings underperformed the market. Stocks
with high P/E ratios tended to outperform the market. For the Capital Value
Account, this means the history of the account and its philosophy and process
fly in the face of what has worked the past year on Wall Street.

The Account Managers prefer to invest in companies that have earnings, but
prefer not to pay a premium for those earnings. In 1999 this led the Account
into consumer staples, financials and health care. The only problem was that
while technology was the favored sector, these three sectors were closer to the
bottom of relative returns.

Account Managers have struggled with this year and how to deal with markets that
do not favor value investors, and in fact punish them severely. Account Managers
have reviewed their process in a detailed manner and added some flexibility
without compromising philosophy. Valuations are now analyzed by sector versus
the overall market. For example comparing paper company stocks to technology
stocks, technology will nearly always look expensive. But, when looking at
technology as its own universe, many attractive opportunities appear. This
approach will work better in an environment where there is minimal change in
portfolio emphasis.

Comparison of Change in Value of $10,000 Investment in the Capital Value
Account, Lipper Large-Cap Value Fund Average, S&P 500 Stock Index and S&P 500
Barra Value Index

Total Returns*
as of December 31, 1999
1 Year 5 Year 10 Year
-4.29% 17.88% 12.94%

Capital S&P 500 S&P 500 Lipper
Value Stock Barra Value Large-Cap Value
Account Index Index Fund Average
10,000 10,000 10,000 10,000
1990 9,014 9,689 9,315 9,555
1991 12,499 12,642 11,416 12,334
1992 13,690 13,605 12,617 13,442
1993 14,746 14,974 14,965 14,995
1994 14,818 15,171 14,869 14,854
1995 19,547 20,865 20,369 19,432
1996 24,139 25,652 24,850 23,470
1997 31,027 34,207 32,300 29,840
1998 35,240 43,982 37,038 34,498
1999 33,730 53,236 41,479 38,372

Note: Past performance is not predictive of future performance.

International Account
(Scott Opsal and Kurt Spieler)
The International Account's return of 25.93% in 1999 was slightly below the
Morgan Stanley Capital International EAFE (Europe, Australia and Far East) Index
return of 26.96%. Throughout 1999 the world economy continued to strengthen.
Leading economic indicators in Europe, Japan and the emerging markets were all
positive. Recovery of the emerging markets and Japan, as well as an attractively
valued European currency, resulted in an export-led recovery in Europe.

During 1999 merger and acquisition (M&A) activity in Europe doubled, setting a
record, and positively impacting several companies in the Account's portfolio.
Emerging markets exposure added marginally to performance, mainly in the fourth
quarter, as changes made in the emerging holdings in the beginning of the year
performed strongly. The largest move made in the Account during 1999 was the
entry into Japanese equities. As the Japanese market underperformed other
developed markets year after year, the forward-looking return spread relative to
equities in the rest of the world narrowed. As Account Managers monitored
valuation levels, investments were made in companies that were trading at
attractive levels. The Account also benefited from increased exposure to the
"new economy", including telecommunications, technology and media.

The Account continues to invest in companies that have sustainable competitive
advantages that will allow continued growth in earnings and cash flow sufficient
to justify their current trading price. This strategy is consistently applied to
build a diversified portfolio with exposure to both "new" and "old" economy
companies - all with positive forward-looking return profiles. Changes are being
made to the portfolio in media, energy and financials. Media stocks are highly
valued along with other technology and telecom stocks, but possess lower growth
rates, causing a lightening of the Account's weighting in select holdings.
Account Managers have become slightly more positive on the energy sector due to
the disconnect between oil prices and the valuation levels of the energy
companies and have added to the energy weighting. Within the financial sector
the Managers are lightening some banks and adding to diversified financials.
Companies that have ability to gather assets, benefiting from the long-term
savings trends throughout Europe are preferred. The Account has invested in some
brokerage firms in Japan which are expected to benefit from outflows out of the
postal savings system into the equity market.

Comparison of Change in Value of $10,000 Investment in the International
Account, Lipper International Fund Average and MSCI EAFE Index

Total Returns*
as of December 31, 1999
1 Year 5 Year 10 Year
------------------------
25.93% 17.29% 14.41%**

** Since inception date 5/2/94

Morgan Stanley Lipper
International EAFE International
Account Index Index
10,000 10,000 10,000
1994 9,663 9,990 9,758
1995 11,032 11,110 10,676
1996 13,800 11,781 11,934
1997 15,488 11,991 12,583
1998 17,034 14,389 14,221
1999 21,451 18,268 20,023

Note: Past performance is not predictive of future performance.

LargeCap Growth Account
(E. Marc Pinto)
The LargeCap Growth Account returned 32.47% between its inception on April 15,
1999 and December 31, 1999. This was significantly better than the 10.99% earned
by its benchmark, the S&P 500 Index, over the same period. The Account's success
is owed to the efforts of its research staff, who spent the Account's first year
of operations scouring the market for individual companies believed capable of
performing well in any market.

Fears that economic growth in the U.S. would force the Federal Reserve to
aggressively increase interest rates in a bid to forestall inflation pressured
fast-growing stocks during May. Although the Account held its own during this
difficult period, interest rate uneasiness and a brief rotation into
economically sensitive sectors of the market kept a lid on performance
throughout the spring and into early summer. Growth shares staged a dramatic
mid-summer comeback, however, and eventually finished the year far ahead of
their value-oriented peers.

Despite the market's mixed signals, Account Managers held firm to their belief
that companies are ultimately rewarded for sustainable earnings growth. More
importantly, the Managers successfully anticipated the staying power of the
market's return to growth-oriented stocks and substantially increased the
Account's growth profile during the third quarter. This strategy paid off
handsomely and was largely responsible for the strong performance in 1999.

Looking ahead, interest rate uncertainty seems likely to persist in 2000 and
could keep markets volatile for the foreseeable future. In addition, investors
may begin to question the extremely high valuations placed on several of the
technology sector's most visible companies. However, by focusing on
fast-growing, well-managed and fundamentally sound companies, the Account
Managers believe they have assembled a portfolio capable of performing well
across a range of economic scenarios.

The Managers believe they have developed an information edge that enables them
to invest with confidence by getting to know the details that drive each
individual holding in the portfolio - a process that begins with the development
of extensive, proprietary financial models and often involves meeting a
company's customers, competitors and suppliers. For that reason, many of the
same themes that contributed to performance in 1999 will continue to play a
central role in 2000. These include wireless, telecommunications, media,
semiconductors, and selected technology companies. At the same time, a
deliberate attempt has been made to balance the portfolio between fast-growing
companies and more traditional growth franchises - a strategy that allows
participation in the unbounded upside associated with a number of the New
Economy's most compelling opportunities while simultaneously providing a measure
of downside protection.

Comparison of Change in Value of $10,000 Investment in the LargeCap Growth
Account, Lipper Large-Cap Growth Fund Average and Russell 1000 Growth Index.

Total Returns*
as of December 31, 1999
1 Year 5 Year 10 Year
32.47%** -- --

** Since inception date 5/3/99

Russell Lipper
1000 Growth Large-Cap Growth LargeCap Growth
Index Fund Average Account*
---------- ---------------- ---------------
10,000 10,000 10,000
"1999" 12,504 14,359 13,247

Note: Past performance is not predictive of future performance.

MidCap Account
(William Nolin)
In 1999, the Midcap Account trailed the S&P 400 Index slightly, despite rallying
strongly in the fourth quarter. Technology was the story for the market as a
whole. It was a strange year, with technology up strongly and almost everything
else unchanged. The divergence between the Account and the Index was mainly due
to several technology stocks in the Index performing well which were not in the
Account. One of these companies is no longer in the Index and the others
continue to be overvalued.

The Account changed portfolio managers in the fourth quarter of 1999. The
underlying philosophy of investing and the fundamental analysis process will not
change.

Going forward the Account is positioned to take advantage of the growth in
technology and communications. Technology will continue to benefit from the
substitution of capital for labor, the growth of the Internet, and the
acceleration of global economic growth. The cost of labor is going up 3% per
year, while the cost of capital equipment is falling 4% per year. This
divergence is causing companies either to provide their workers with better
tools or replace those workers with machines. This process is being accelerated
by the low availability of workers in this country. Communications benefit from
many of the same trends as technology. Valuations remain high in these sectors,
but Account Managers believe the strong business fundamentals justify the
valuations.

Comparison of Change in Value of $10,000 Investment in the MidCap Account,
Lipper Mid-Cap Core Fund Average, S&P 500 Stock Index and S&P 400 MidCap Index

Total Returns*
as of December 31, 1999
1 Year 5 Year 10 Year
------------------------
13.04% 17.59% 15.35%

S&P 400 Lipper
MidCap S&P 500 MidCap Mid-Cap Core
Account Index Index Index
10,000 10,000 10,000 10,000
1990 8,750 9,689 9,488 9,644
1991 13,431 12,642 14,239 14,586
1992 15,437 13,605 15,933 15,915
1993 18,414 14,974 18,152 18,255
1994 18,558 15,171 17,500 17,881
1995 23,942 20,865 22,911 23,633
1996 28,996 25,652 27,305 27,868
1997 35,594 34,207 36,111 33,338
1998 36,906 43,982 43,012 37,392
1999 41,719 53,236 49,343 51,702

Note: Past performance is not predictive of future performance.

MidCap Growth Account
(John O'Toole)
For the calendar year 1999, the portfolio return was below the performance
benchmark, and obviously disappointing. The primary causes of the
underperformance relative to the benchmark were individual stock selection along
with a portfolio beta (price volatility) that was modestly below that of the
benchmark.

The quantitative process used in managing this Account performed below its
historical trend in 1999, which implies that individual stock selection had the
greatest negative impact on return. The Account Manager's approach to equity
management continues to focus on determining what types of valuation
characteristics are preferred by the market, and then to select stocks that
exhibit those preferred traits. Though this valuation system uses a number of
fundamental characteristics that are earnings (growth) driven, some factors that
are price (value) sensitive are also included. An economic sector neutral
approach to portfolio construction has also been maintained. During most of 1999
the Account operated in a market environment where investors also had total
focus on growth type valuation factors, and paid little attention to traditional
price sensitive measures of value.

Companies with the highest price multiples and in many cases very modest real
earnings provided the most attractive returns during 1999. Account Managers use
long-term trends to guide stock selection, and thus continue to operate with
some sensitivity to issues such as actual earnings and measures of value. A
review of 1999 seems to indicate that any valuation process that exhibited even
a modest focus on "value" type inputs, was penalized by the strong emphasis on
growth type factors by investors. The Account's management process did not
preclude the portfolio from owning any of these types of issues, and in fact a
number of holdings in a variety of industries owned by the Account had total
returns during the year of over 50%. These issues include Young & Rubicam,
Biogen, Lexmark International, and Kansas City Southern Industries. As for
issues that had a negative impact upon the annual return, Quintiles
Transnational and TJX Companies would be included.

Another factor that had a negative impact upon return was a modestly below
benchmark beta. The beta of the portfolio was within the historical range
(benchmark beta +/- 0.05), but given the positive equity market returns during
1999, this was a negative factor. 1999 was a year during which investors
rewarded volatility, and the portfolio was modestly less volatile than the
general middle capitalization equity market.

Finally, 1999 was also an equity market environment where the Account saw a
concentration of performance in certain sectors (technology). Thus, the
valuation process and the broadly diversified sector neutral portfolio
construction techniques used by Account Managers tended to result, at least in
the period of this report, in a portfolio whose structure did not generate
optimum results.

Comparison of Change in Value of $10,000 Investment in the MidCap Growth
Account, Lipper Mid-Cap Core Fund Average, Lipper Mid-Cap Growth Fund Average
and S&P 400 MidCap Index

Total Returns*
as of December 31, 1999
1 Year 5 Year 10 Year
10.67% 4.09%** --

** Since inception date 5/1/98

S&P 400 Lipper MidCap Lipper
MidCap Mid-Cap Core Growth Mid-Cap Growth
Index Fund Average Account* Fund Average
------ ------------ -------- --------------
10,000 10,000 10,000 10,000
"1998" 10,538 9,814 9,660 9,814
"1999" 12,089 13,570 10,691 16,964

Note: Past performance is not predictive of future performance.

MidCap Value Account
((Robert Gendelman and S. Basu Mullick)
The MidCap Value Account posted a 12.64% total return for the reporting period
May 1 through December 31, 1999. These results compare favorably with the
Account's benchmark, the Russell Midcap Value Index, which produced a total
return of -5.82%.

The Account Managers were pleased with the Account's overall performance in the
period, despite the fact that investors continued to prefer large-capitalization
growth stocks over the mid-cap value stocks in which the Account primarily
invests. Relative to the Russell Midcap Value Index, the Account's
outperformance was largely the result of successful security selection in a
number of market sectors.

Throughout 1999, investors were concerned about the potentially adverse effects
of global economic weakness on the U.S. economy. As it turned out, fears of
economic slow-down were unfounded. In fact, it soon became apparent that the
opposite was true: international and domestic economies were growing faster than
analysts expected, giving rise to concerns that long-dormant inflationary
pressures might re-emerge. The Federal Reserve Board eventually raised key
short-term interest rates three times during the summer and fall of 1999 in
order to help prevent a reacceleration of inflation.

Stronger than expected economic growth and higher interest rates constrained the
performance of mid-cap stocks for much of the period. Until the fourth quarter,
only a handful of growth-oriented technology and telecommunications stocks drove
the market averages higher. Many of these high-flying stocks were selling at
very high valuations, and some had no earnings at all, making them unsuitable
for a value-oriented portfolio in the Account Managers' opinion. In the fourth
quarter, a more broad-based rally began to emerge, sending most major stock
market averages, including the large-cap S&P 500 and the small-cap Russell 2000,
to new highs on the last trading day of 1999. Value-oriented stocks were the
notable exception to this list of winners, however.

In this environment, the Account's performance was driven primarily by
investments in communications services and technology. Individual holdings such
as satellite television provider GM Hughes and CAD software manufacturer
Parametric Technology rallied strongly after encountering temporary setbacks in
1998, which had enabled the Account Managers to acquire the stock at attractive
prices. Global Crossing, a telecommunications holding, and Comdisco, a
technology holding, also recovered from previous problems and contributed
significantly to the Account's returns.

On the other hand, performance was hurt by declines in the financial sector.
Higher interest rates punished the stocks of fundamentally sound companies such
as Countrywide Credit and the Williams Companies.

Toward the end of the year, the Account Managers began to reposition the fund
for 2000 and beyond. They reduced their exposure to highly-valued technology
stocks and re-deployed those assets to more economically sensitive stocks in
areas such as energy and the basic materials sector. Within these sectors, the
Account Managers focused mainly on out-of-favor companies or those experiencing
temporary problems, with strong fundamentals.

Looking forward, the Account Managers believe that the global economy's
persistent strength may translate into higher earnings for economically
sensitive companies, particularly in industries such as paper and chemical
manufacturing with little new capacity and rising demand. Yet, they remain
cautious regarding the broader U.S. stock market, where concerns about
potentially higher interest rates and deteriorating credit quality could offset
the positive effects of a strong economy.

Comparison of Change in Value of $10,000 Investment in the MidCap Value Account,
Lipper Mid-Cap Value Fund Average and Russell MidCap Value Index.

Total Returns*
as of December 31, 1999
1 Year 5 Year 10 Year
-----------------------
10.24%** -- --

** Since inception date 5/3/99

Russell Lipper
MidCap Value Mid-Cap Value MidCap Value
Index Fund Average Account*
------------ ------------- ------------
10,000 10,000 10,000
"1999" 9,419 10,943 11,024

Note: Past performance is not predictive of future performance.

SmallCap Account
(John McClain and Mark Williams)
The Account's yearly return figure of 43.6% compared favorably to the S&P 600
Index return of 12.4%. The growth segments of the Account and the benchmark
handily beat their value counterparts. The decision by Account Managers to
allocate more of the assets to the growth segment continues to pay dividends.
Because the Account was overweighted in the better performing growth sector, it
realized a positive asset allocation return.

The return and weighting components of certain sectors contributed to the
Account's outperformance relative to its benchmark. The technology sector return
of 68.1% led all sectors in the benchmark. The Account's technology sector
return was an incredible 208.5%. The Account's second best performing sector for
the year was consumer cyclicals. Teen retailing is the main contributor to this
return. Communication services sector's return was substantially higher than
that of the benchmark 179.6% versus 25.9%. The Account's sector weighting of
5.4% was approximately 11 times the benchmark sector weighting of 0.5%.

Comparison of Change in Value of $10,000 Investment in the SmallCap Account,
Lipper Small-Cap Core Fund Average and S&P 600 Index

Total Returns*
as of December 31, 1999
1 Year 5 Year 10 Year
-----------------------
43.58% 8.24%** --

** Since inception date 5/1/98

Lipper
S&P 600 Small-Cap Core SmallCap
Index Fund Average Account*
------- -------------- --------
10,000 10,000 10,000
"1998" 8,835 8,873 7,949
"1999" 9,931 11,396 11,413

Note: Past performance is not predictive of future performance

SmallCap Growth Account
(Amy Selner)
For the year, the SmallCap Growth Account rose 95.69 % versus the 43.09% rise of
the Russell 2000 Growth Index. The Account outperformed the Russell Growth Index
by 52.60 percentage points.

Small cap stocks began 1999 very weak, as seen in the 10.4% underperformance of
the Russell 2000 versus the S&P500 in the first quarter of 1999. During this
quarter, which signaled the end of the interest rate easing by the Federal
Reserve Bank, the market was fraught with volatility in illiquid stocks. The
second quarter of 1999 marked the best quarterly outperformance for small caps
since the fourth quarter of 1992, as small caps outperformed large caps by
7.93%. Small caps were much cheaper on a valuation basis, after their first
quarter drubbing, and bounced nicely in the second quarter. Also in June, small
cap funds had positive inflows of $1.3 billion, after experiencing large cash
outflows in the first five months of 1999. The general market quickly discounted
the Federal Reserve's .25% rise in interest rates during the second quarter and
continued to rise modestly.

The second half of 1999 was a roller coaster. During the third quarter, both
small and large cap stocks fell close to 6% as interest rate fears crept back
into the marketplace. This volatility was exaggerated by the slowdown in
news-flow over the summer period. The fourth quarter roared as the Russell 2000
rose over 18% and the Russell 2000 Growth rose over 33%. All in all, the Russell
2000 and the S&P 500 ended 1999 up over 21% and 19% respectively, marking a
solid year of gains.

Throughout the year, the U.S. economy has remained undeniably robust while
international economies were picking up. The deflationary boom continued as
labor markets remained tight and inflation remained relatively benign. Operating
profits were quite strong.

Despite this up and down year for small cap stocks, the Account was able to
considerably outperform its benchmarks mainly due to stock selection.

The Account remained heavily weighted in industries where growth prospects are
the most visible and consistent. Technology, the Account's largest sector,
continues to have the greatest long-term growth fundamentals. Account Managers
believe that the growth prospects are explosive for the Internet infrastructure
in particular. Therefore, a focus continues on telecommunication and broadband
companies, which provide the plumbing that enables broad acceptance of Internet
applications and services. Similarly, companies such as Proxim, which
manufactures wireless local-area networking products, contributed to
performance.

The Account lowered its exposure to the healthcare group over this fiscal year.
Uncertainty surrounding prescription drug benefits and the government's impact
on drug pricing kept a lid on these stocks. One bright spot in the sector was
biotechnology stocks. Account Managers believe the biotech industry continues to
acquire critical mass as genomics and combinatorial chemistry lead to an
explosion in new drug targets. Emerging biotechnology companies such as Biocryst
Pharmaceutical and Cephalon boosted Account performance.

An energy weighting contributed to the Account's outperformance in 1999.
Although there are worries that OPEC will irrationally increase oil production,
the Account remains positive on the long-term supply/demand fundamentals within
the sector.

Within the consumer group, radio stocks were solid performers. The environment
for radio advertising was robust in 1999, and we expect this group's strong
fundamentals to carry into next year. Over the short term these stocks may be
prone to profit taking as their valuations are high, but long term the
management team remains comfortable.

The Account Managers remain cautiously optimistic about the market entering
2000. The U.S. economy remains robust and international economies are picking
up. Productivity is expected to continue to grow and to fuel low inflationary
growth into 2000.

Moving through 2000, Account Managers are cautious as to the potential for
profit taking in the technology sector due to tremendous performance in the
fourth quarter of 1999. If economic metrics continue to show an overheating
economy, interest rates will continue to creep up and the market may become
volatile and move sideways as the slower summer period is entered. It is
estimated that a potential correction in technology stocks which, while
uncomfortable, will be healthy for the market over the long-term and may present
an excellent buying opportunity in the strongest growth stocks.

Comparison of Change in Value of $10,000 Investment in the SmallCap Growth
Account, Lipper Small-Cap Growth Fund Average and Russell 2000 Growth Index.

Total Returns*
as of December 31, 1999
1 Year 5 Year 10 Year
-----------------------
95.69% 52.17%** --

** Since inception date 5/1/98

Lipper
Russell 2000 Small-Cap Growth SmallCap Growth
Growth Index Fund Average Account*
10,000 10,000 10,000
"1998" 10,123 8,873 10,296
"1999" 14,485 14,430 20,148

Note: Past performance is not predictive of future performance.

Stock Index 500 Account
(William Baur and Rhonda VanderBeek)
The Stock Index 500 Account seeks investment results that correspond with the
total return performance of the Standard & Poor's 500 Index. The percentage of
total assets of the Account allocated to each of the 500 stocks closely follows
the weighting of each of the stocks in the S&P 500 Index.

The Stock Index 500 Account began May 3, 1999. The total return from inception
through year-end 1999 was 8.93%; during the same period, the total return of the
S&P 500 Index was 11.00%. The difference was attributable to start-up costs and
other variables intrinsic to the creation of a new account.

The performance of the stock market since inception date of the Account was
strong, but there were some rough periods. During the third quarter, investors
had some fears about inflation, disappointing profits and the potential for the
Federal Reserve to raise interest rates. The broad market declined about 12% in
response. Those fears dissipated during the fourth quarter as business profits
perked up, the economy accelerated, and inflation stayed under control. As a
result, the return from the bottom of the correction was spectacular with the
S&P 500 Index up 17.5%.

Comparison of Change in Value of $10,000 Investment in the Stock Index 500
Account, Lipper S&P 500 Fund Average and S&P 500 Stock Index

Total Returns*
as of December 31, 1999
1 Year 5 Year 10 Year
8.93%** -- --

** Since inception date 5/3/99

Standard & Poor's Lipper
500 Stock S&P 500 Stock Index
Index Fund Average 500 Account*
---------------- ------------ ------------
10,000 10,000 10,000
"1999" 11,100 11,615 10,893

Note: Past performance is not predictive of future performance.

Important Notes of the Growth-Oriented Accounts:

The values of these indexes will vary according to the aggregzte value of the
common equity of each of the securities included. The indexes represented asset
types which are subject to risk, including possible loss of principal. You
cannot invest directly in an index. An index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower.

Lipper International Fund Average: This average consists of funds which invest
in securities primarily traded in markets outside of the United States. The
one-year average currently contains 618 funds.

Lipper Large-Cap Growth Fund Average: This average consists of funds which
invest at least 75% of their equity assets in companies with market
capitalizations of greater than 300% of the dollar-weighted median market
capitalization of the S&P Mid-Cap 400 Index. These funds normally invest in
companies with long-term earnings expected to grow significantly faster than the
earnings of the stocks represented in a major unmanaged stock index. The
one-year average currently contains 364 funds.

Lipper Large-CapValue Fund Average: This average consists of funds which invest
at least 75% of their equity assets in companies with market capitalizations of
greater than 300% of the dollar-weighted median market capitalization of the S&P
Mid-Cap 400 Index. These funds seek long-term growth of capital by investing in
companies that are considered to be undervalued relative to a major unmanaged
stock index based on price-to-current earnings, book value, asset value, or
other factors. The one-year average currently contains 279 funds.

Lipper Mid-Cap Core Fund Average: This average consists of funds that invest at
least 75% of their equity assets in companies with market capitalizations of
less than 300% of the dollar weighted median market capitalization of the S&P
Mid-Cap 400 Index. These funds have wide latitude in the companies in which they
invest. The one-year average currently contains 144 funds.

Lipper Mid-Cap Growth Fund Average: This average consists of funds that invest
at least 75% of their equity assets in companies with market capitalizations of
less than 300% of the dollar weighted median market capitalization of the S&P
Mid-Cap 400 Index. These funds normally invest in companies with long-term
earnings expected to grow significantly faster than the earnings of the stocks
represented in a major unmanaged stock index. The one-year average currently
contains 230 funds.

Lipper Mid-Cap Value Fund Average: This average consists of funds that invest at
least 75% of their equity assets in companies with market capitalizations of
less than 300% of the dollar weighted median market capitalization of the S&P
Mid-Cap 400 Index. These funds seek long-term growth of capital by investing in
companies that are considered to be undervalued relative to a major unmanaged
stock index based on price-to-current earnings, book value, asset value, or
other factors. The one-year average currently contains 197 funds.

Lipper S&P 500 Fund Average: This average consists of funds that are passively
managed, have limited expenses (advisor fee no higher than 0.50%), and are
designed to replicate the performance of the Standard & Poor's 500 Index on a
reinvested basis. The one-year average currently contains 107 funds.

Lipper Small-Cap Core Fund Average: This average consists of funds that invest
at least 75% of their equity assets in companies with market capitalizations of
less than 250% of the dollar weighted median market capitalization of the S&P
Small-Cap 600 Index. These funds have wide latitude in the companies in which
they invest. The one-year average currently contains 188 funds.

Lipper Small-Cap Growth Fund Average: This average consists of funds that invest
at least 75% of their equity assets in companies with market capitalizations of
less than 250% of the dollar weighted median market capitalization of the S&P
Small-Cap 600 Index. These funds normally invest in companies with long-term
earnings expected to grow significantly faster than the earnings of the stocks
represented in a major unmanaged stock index. The one-year average currently
contains 263 funds.

Morgan Stanley EAFE (Europe, Australia and Far East) Index: This average
reflects an arithmetic, market value weighted average of performance of more
than 900 securities which are listed on the stock exchanges of the following
countries: Australia, Austria, Belgium, Denmark, Netherlands, New Zealand,
Norway, Singapore/Malaysia, Spain, Sweden, Switzerland, and the United Kingdom.

Russell 1000 Growth Index: This index measures the performance of those Russell
1000 companies with higher price-to-book ratios and higher forecasted growth
values.

Russell 2000 Growth Index: This index measures the performance of those Russell
2000 companies with higher price-to-book ratios and lower forecasted growth
values.

Russell Midcap Value Index: This index measures the performance of those Russell
Midcap companies with lower price-to-book ratios and lower forecasted growth
values. The stocks are also members of the Russell 1000 Value index.

Standard & Poor's 500 Barra Value Index: This is a market
capitalization-weighted index of the stocks in the Standard & Poor's 500 Index
having the highest book to price ratios. The index consists of approximately
half of the S&P 500 on a market capitalization basis.

Standard & Poor's 500 Stock Index: This is an unmanaged index of 500 widely held
common stocks representing industrial, financial, utility and transportation
companies listed on the New York Stock Exchange, American Stock Exchange and the
Over-the-Counter market.

Standard & Poor's 600 Index: This is a market-value weighted index consisting of
600 domestic stocks chosen for market size, liquidity and industry group
representation.

Standard & Poor's MidCap 400 Index: This index measures the performance of the
mid-size company segment of the U.S. Market.

Income-Oriented Accounts:

Bond Account
(Scott Bennett)
Interest rates moved significantly higher last year as the world economy
rebounded from the emerging market crisis of 1998 and investors became less
interested in holding super-safe U.S. Treasury obligations. The increase in
rates pushed most fixed-income product returns negative for the year, including
the Bond Account.

Corporate bonds performed relatively well in this environment, significantly
outperforming Treasuries, as investors put additional money into higher yielding
assets. The fundamentals continued to be very positive for U.S. corporations
with strong U.S. and world economies producing strong earnings growth with
little inflation. The Account was positioned to take advantage of this rebound
through an increase in holdings of higher yielding securities.

The performance of the Account was below expectations in 1999 due to
underperformance of several holdings. The corporate bond market has become more
equity like in its increasing hostility towards companies reporting below
expected earnings or any whiff of other problems. Given the expectation of
further downside risk, several of the Account's holdings were sold after
year-end 1999, including J.C. Penney and Rite Aid Corporation.

Account Managers expect underlying economic fundamentals to remain strong which
is positive for corporate securities. Corporate yield premiums to Treasuries
remain high and should produce long-term performance relative to Treasuries.

Comparison of Change in Value of $10,000 Investment in the Bond Account, Lipper
Corporate Debt BBB Rated Fund Average and Lehman Brothers BAA Corporate Index.

Total Returns*
as of December 31, 1999
1 Year 5 Year 10 Year
-2.59% 7.73% 7.77%

Lehman Lipper
Bond BAA BBB
Account Index Avg
10,000 10,000 10,000
1990 10,522 10,528 10,573
1991 12,281 12,561 12,455
1992 13,432 13,742 13,481
1993 14,999 15,518 15,142
1994 14,565 15,022 14,467
1995 17,793 18,435 17,370
1996 18,214 19,176 17,924
1997 20,144 21,304 19,731
1998 21,693 21,577 20,964
1999 21,131 21,400 20,612

Note: Past performance is not predictive of future performance.

Important Notes of the Income-Oriented Accounts:

Lehman Brothers, BAA Corporate Index: This is an unmanaged index of all publicly
issued fixed rate nonconvertible, dollar-denominated, SEC-registered corporate
debt rated Baa or BBB by Moody's or S&P.

Lipper Corporate Debt BBB Rated Funds Average: This average consists of mutual
funds investing at least 65% of their assets in corporate and government debt
issues rated by S&P or Moody's in the top four grades. The one year average
currently contains 132 mutual funds.

Note: Mutual fund data from Lipper Inc.

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 through 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 that 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 participating 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 no 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 request 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 as of the first
valuation date following the expiration of the permitted delay. The transaction
occurs 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.

Financial Statements
You will receive an annual financial statement for the Fund, examined by the
Fund's 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 derived from 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):

BLUE CHIP ACCOUNT 1999(a)
----------------- ----
Net Asset Value, Beginning of Period................... $10.15
Income from Investment Operations:
Net Investment Income............................... .08
Net Realized and Unrealized Gain on Investments..... .24

Total from Investment Operations .32
Less Dividends from Net Investment Income.............. (.09)

Net Asset Value, End of Period......................... $10.38

Total Return........................................... 1.15%(b)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $6,453
Ratio of Expenses to Average Net Assets............. .69%(c)
Ratio of Net Investment Income to Average Net Assets 1.33%(c)
Portfolio Turnover Rate............................. 16.2%(c)

<TABLE>
<CAPTION>
BOND ACCOUNT(d) 1999 1998 1997 1996 1995
------------ ------------------------------ ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $12.02 $11.78 $11.33 $11.73 $10.12
Income from Investment Operations:
Net Investment Income............................... .81 .66 .76 .68 .62
Net Realized and Unrealized Gain (Loss) on Investments (1.12) .25 .44 (.40) 1.62

Total from Investment Operations (.31) .91 1.20 .28 2.24
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.82) (.66) (.75) (.68) (.63)
Excess Distributions from Capital Gains(e).......... -- (.01) -- -- --

Total Dividends and Distributions (.82) (.67) (.75) (.68) (.63)

Net Asset Value, End of Period......................... $10.89 $12.02 $11.78 $11.33 $11.73

Total Return........................................... (2.59)% 7.69% 10.60% 2.36% 22.17%

Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $125,067 $121,973 $81,921 $63,387 $35,878
Ratio of Expenses to Average Net Assets............. .50% .51% .52% .53% .56%
Ratio of Net Investment Income to Average Net Assets 6.78% 6.41% 6.85% 7.00% 7.28%
Portfolio Turnover Rate............................. 40.1% 26.7% 7.3% 1.7% 5.9%

CAPITAL VALUE ACCOUNT(d) 1999 1998 1997 1996 1995
--------------------- ------------------------------ ---- ----
Net Asset Value, Beginning of Period................... $37.19 $34.61 $29.84 $27.80 $23.44
Income from Investment Operations:
Net Investment Income............................... .78 .71 .68 .57 .60
Net Realized and Unrealized Gain (Loss) on Investments (2.41) 3.94 7.52 5.82 6.69

Total from Investment Operations (1.63) 4.65 8.20 6.39 7.29
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.80) (.71) (.67) (.58) (.60)
Distributions from Capital Gains.................... (3.13) (1.36) (2.76) (3.77) (2.33)
Excess Distributions from Capital Gains(e).......... (.89) -- -- -- --

Total Dividends and Distributions (4.82) (2.07) (3.43) (4.35) (2.93)

Net Asset Value, End of Period......................... $30.74 $37.19 $34.61 $29.84 $27.80

Total Return........................................... (4.29)% 13.58% 28.53% 23.50% 31.91%

Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $367,927 $385,724 $285,231 $205,019 $135,640
Ratio of Expenses to Average Net Assets............. .43% .44% .47% .49% .51%
Ratio of Net Investment Income to Average Net Assets 2.05% 2.07% 2.13% 2.06% 2.25%
Portfolio Turnover Rate............................. 43.4% 22.0% 23.4% 48.5% 49.2%

</TABLE>

See accompanying notes.

<TABLE>
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
<CAPTION>
INTERNATIONAL ACCOUNT(d) 1999 1998 1997 1996 1995
--------------------- ------------------------------ ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $14.51 $13.90 $13.02 $10.72 $9.56
Income from Investment Operations:
Net Investment Income............................... .48 .26 .23 .22 .19
Net Realized and Unrealized Gain on Investments..... 3.14 1.11 1.35 2.46 1.16

Total from Investment Operations 3.62 1.37 1.58 2.68 1.35
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.47) (.25) (.23) (.22) (.18)
Distributions from Capital Gains.................... (1.46) (.51) (.47) (.16) (.01)
Excess Distributions from Capital Gains(e).......... (.25) -- -- -- --

Total Dividends and Distributions (2.18) (.76) (.70) (.38) (.19)

Net Asset Value, End of Period......................... $15.95 $14.51 $13.90 $13.02 $10.72

Total Return 25.93% 9.98% 12.24% 25.09% 14.17%

Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $197,235 $153,588 $125,289 $71,682 $30,566
Ratio of Expenses to Average Net Assets............. .78% .77% .87% .90% .95%
Ratio of Net Investment Income to Average Net Assets 3.11% 1.80% 1.92% 2.28% 2.26%
Portfolio Turnover Rate............................. 65.5% 33.9% 22.7% 12.5% 15.6%

LARGECAP GROWTH ACCOUNT 1999(a)
----------------------- ----
Net Asset Value, Beginning of Period................... $9.93
Income from Investment Operations:
Net Investment Income (Operating Loss)(f)........... (.03)
Net Realized and Unrealized Gain (Loss) on Investments 3.36

Total from Investment Operations 3.33

Net Asset Value, End of Period......................... $13.26

Total Return........................................... 32.47%(b)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $7,045
Ratio of Expenses to Average Net Assets(f).......... 1.16%(c)
Ratio of Net Investment Income (Operating Loss) to
Average Net Assets................................ (.47)%(c)
Portfolio Turnover Rate............................. 39.6%(c)

MIDCAP ACCOUNT(d) 1999 1998 1997 1996 1995
-------------- ------------------------------ ---- ----
Net Asset Value, Beginning of Period................... $34.37 $35.47 $29.74 $25.33 $19.97
Income from Investment Operations:
Net Investment Income............................... .12 .22 .24 .22 .22
Net Realized and Unrealized Gain on Investments..... 4.20 .94 6.48 5.07 5.57

Total from Investment Operations 4.32 1.16 6.72 5.29 5.79
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.12) (.22) (.23) (.22) (.22)
Distributions from Capital Gains.................... (1.67) (2.04) (.76) (.66) (.21)

Total Dividends and Distributions (1.79) (2.26) (.99) (.88) (.43)

Net Asset Value, End of Period......................... $36.90 $34.37 $35.47 $29.74 $25.33

Total Return........................................... 13.04% 3.69% 22.75% 21.11% 29.01%

Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $262,350 $259,470 $224,630 $137,161 $58,520
Ratio of Expenses to Average Net Assets............. .61% .62% .64% .66% .70%
Ratio of Net Investment Income to Average Net Assets .32% .63% .79% 1.07% 1.23%
Portfolio Turnover Rate............................. 79.6% 26.9% 7.8% 8.8% 13.1%

See accompanying notes.
</TABLE>

<TABLE>
FINANCIAL HIGHLIGHTS (Continued)

PRINCIPAL VARIABLE CONTRACTS FUND, INC.

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

<CAPTION>
MIDCAP GROWTH ACCOUNT 1999 1998(g)
--------------------- -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $9.65 $9.94
Income from Investment Operations:
Net Investment Income (Operating Loss)(f)........... .02 (.01)
Net Realized and Unrealized Gain (Loss) on Investments 1.01 (.28)

Total from Investment Operations 1.03 (.29)
Less Dividends from Net Investment Income.............. (.02) --

Net Asset Value, End of Period......................... $10.66 $9.65

Total Return........................................... 10.67% (3.40%)(b)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $14,264 $8,534
Ratio of Expenses to Average Net Assets(f).......... .96% 1.27%(c)
Ratio of Net Investment Income (Operating Loss) to
Average Net Assets................................ .26% (.14)%(c)
Portfolio Turnover Rate............................. 74.1% 91.9%(c)

MIDCAP VALUE ACCOUNT 1999(a)
-------------------- ----
Net Asset Value, Beginning of Period................... $10.09
Income from Investment Operations:
Net Investment Income(f)............................ .02
Net Realized and Unrealized Gain on Investments..... 1.24

Total from Investment Operations 1.26
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.02)
Distributions from Capital Gains.................... (.22)

Total from Dividends and Distributions (.24)

Net Asset Value, End of Period......................... $11.11

Total Return........................................... 10.24%(b)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $5,756
Ratio of Expenses to Average Net Assets(f).......... 1.19%(c)
Ratio of Net Investment Income to Average Net Assets .30%(c)
Portfolio Turnover Rate............................. 154.0%(c)

MONEY MARKET ACCOUNT(d) 1999 1998 1997 1996 1995
-------------------- ------------------------------ ---- ----
Net Asset Value, Beginning of Period................... $1.000 $1.000 $1.000 $1.000 $1.000
Income from Investment Operations:
Net Investment Income............................... .048 .051 .051 .049 .054

Less Dividends from Net Investment Income.............. (.048) (.051) (.051) (.049) (.054)

Net Asset Value, End of Period......................... $1.000 $1.000 $1.000 $1.000 $1.000

Total Return........................................... 4.84% 5.20% 5.04% 5.07% 5.59%

Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $120,924 $83,263 $47,315 $46,244 $32,670
Ratio of Expenses to Average Net Assets............. .52% .52% .55% .56% .58%
Ratio of Net Investment Income to Average Net Assets 4.79% 5.06% 5.12% 5.00% 5.32%

See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
Selected data for a share of Capital Stock outstanding throughout the periods ended December 31 (except as noted):

SMALLCAP ACCOUNT 1999 1998(g)
---------------- -----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $8.21 $10.27
Income from Investment Operations:
Net Investment Income............................... -- --
Net Realized and Unrealized Gain (Loss) on Investments 3.52 (2.06)

Total from Investment Operations 3.52 (2.06)
Less Distributions from Capital Gains.................. (.99) --

Net Asset Value, End of Period......................... $10.74 $8.21

Total Return........................................... 43.58% (20.51)%(b)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $26,110 $12,094
Ratio of Expenses to Average Net Assets............. .91% .98%(c)
Ratio of Net Investment Income (Operating Loss) to
Average Net Assets................................ .05% (.05)%(c)
Portfolio Turnover Rate............................. 111.1% 45.2%(c)

SMALLCAP GROWTH ACCOUNT 1999 1998(g)
----------------------- -----------------
Net Asset Value, Beginning of Period................... $10.10 $9.84
Income from Investment Operations:
Net Investment Income (Operating Loss)(f)........... (.05) (.04)
Net Realized and Unrealized Gain on Investments..... 9.70 .30

Total from Investment Operations 9.65 .26
Less Distributions from Capital Gains.................. (.19) --

Net Asset Value, End of Period......................... $19.56 $10.10

Total Return........................................... 95.69% 2.96%(b)

Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ $39,675 $8,463
Ratio of Expenses to Average Net Assets(f).......... 1.05% 1.31%(c)
Ratio of Net Investment Income (Operating Loss) to
Average Net Assets................................ (.61)% (.80)%(c)
Portfolio Turnover Rate............................. 98.0% 166.5%(c)

STOCK INDEX 500 ACCOUNT 1999(a)
----------------------- ----
Net Asset Value, Beginning of Period................... $9.83
Income from Investment Operations:
Net Investment Income(f)............................ .06
Net Realized and Unrealized Gain on Investments..... .97

Total from Investment Operations 1.03
Less Dividends and Distributions:
Dividends from Net Investment Income................ (.07)
Distributions from Capital Gains.................... (.08)

Total from Dividends and Distributions (.15)

Net Asset Value, End of Period......................... $10.71

Total Return........................................... 8.93%(b)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands)............ 46,088
Ratio of Expenses to Average Net Assets(f).......... .40%(c)
Ratio of Net Investment Income to Average Net Assets 1.41%(c)
Portfolio Turnover Rate............................. 3.8%(c)
</TABLE>

FINANCIAL HIGHLIGHTS (Continued)

Notes to Financial Highlights

(a) Period from May 1, 1999, date shares first offered to the public, through
December 31, 1999. Per share net investment income and realized and
unrealized gains (losses) for the period from the initial purchase of
shares through April 30, 1999, 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)

Blue Chip Account April 15, 1999 $.01 $.14
LargeCap Growth Account April 15, 1999 -- (.07)
MidCap Value Account April 22, 1999 -- .09
Stock Index 500 Account April 22, 1999 .01 (.18)

(b) Total return amounts have not been annualized.

(d) 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 Bond Fund, Inc. Bond Account
Principal Capital Accumulation Fund, Inc. Capital Value Account
Principal World Fund, Inc. International Account
Principal Emerging Growth Fund, Inc. MidCap Account
Principal Money Market Fund, Inc. Money Market Account

(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) Without the Managers voluntary waiver of a portion of certain of its
expenses for the periods indicated, the following Accounts would have had
per share net investment income and the ratios of expenses to average net
assets as shown:

(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)

MidCap Growth Account April 23, 1998 $.01 $(.07)
SmallCap Account April 9, 1998 -- .27
SmallCap Growth Account April 2, 1998 -- (.16)

Additional information about the Fund is available in the Statement of
Additional Information dated May 1, 2000 and which is part of this prospectus.
Information about the Funds investments is also available in the Funds annual
and semi-annual reports to shareholders. In the Funds annual report, you will
find a discussion of the market conditions and investment strategies that
significantly affected the Funds 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