PRINCIPAL VARIABLE CONTRACTS FUND INC
497, 2000-08-03
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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:

  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.











LV 10 S-5


                     PRINCIPAL VARIABLE CONTRACTS FUND, INC.






                              ACCOUNTS OF THE FUND


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












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





                   The date of this Prospectus is 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
              Balanced Account..............................................   6
              Bond Account..................................................   8
              Capital Value Account.........................................  10
              High Yield Account............................................  12
              MidCap Account................................................  14
              Money Market Account..........................................  16

         CERTAIN INVESTMENT STRATEGIES AND RELATED RISKS....................  18

         PRICING OF ACCOUNT SHARES..........................................  22

         DIVIDENDS AND DISTRIBUTIONS........................................  22

         MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE.....................  23
              The Manager...................................................  23
              The Sub-Advisors..............................................  23


         GENERAL INFORMATION ABOUT AN ACCOUNT...............................  29
              Shareholders Rights...........................................  29
              Purchase of Account Shares....................................  30
              Sale of Account Shares........................................  30
              Financial Statements..........................................  32


         FINANCIAL HIGHLIGHTS...............................................  32
              Notes to Financial Highlights.................................  35


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, Invista Capital Management LLC,
for certain Accounts (based on the Sub-Advisor's  experience with the investment
strategy  for  which it was  selected).  Principal  Management  Corporation  and
Invista are  members of the  Principal  Financial  Group.  The Manager  seeks to
provide a full range of investment approaches through the Fund.


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

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

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


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

Account Performance
Included in each Account's  description is a set of tables and a bar chart.  The
bar chart is included to provide you with an  indication  of the risks  involved
when you invest. The chart shows changes in the Account's  performance from year
to year.

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 these  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

Balanced Account
The Account seeks to generate a total return  consisting  of current  income and
capital appreciation.

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

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

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

Main Risks
The value of the stocks  owned by the Account  changes on a daily  basis.  Stock
prices  reflect the  activities of individual  companies and general  market and
economic conditions.  In the short term, stock prices can fluctuate dramatically
in response to these factors.

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

As with all mutual funds, as the value of the Account's assets rise or fall, the
Account's share price changes.  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 but are uncomfortable accepting the risks of investing entirely 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      -6.43
1991      34.36
1992      12.80
1993      11.06
1994      -2.09
1995      24.58
1996      13.13
1997      17.93
1998      11.91
1999      2.40


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

    Highest    12.62% (3/31/1991)
    Lowest    -11.70% (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 One Past FivePast Ten
       Account             Year     Years    Years                                                    Year     Years   Years

<S>                        <C>     <C>      <C>      <C>                                              <C>     <C>      <C>
     Balanced              2.40%   13.75%   11.38%   S&P 500 Stock Index                              21.04%  28.55%   18.21%
                                                     Lehman Brothers Government/Corporate Bond Index  -2.15    7.61     7.65
                                                     Lipper Balanced Fund Average                      8.69   16.39    11.94
</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
      ------------------------------------------------------
         $59            $186           $324            $726


                           Account Operating Expenses

       Management Fees...................   0.57%
       Other Expenses....................   0.01
                                            -----
         Total Account Operating Expenses   0.58%


                         Day-to-day Account Management

Since December 1997 Co-Manager:  Martin  J.  Schafer.  Mr.  Schafer  joined  the
                    Principal in 1977 and has broad  experience  in  residential
                    mortgage  related  securities.  He  served  as  Director  of
                    Investment  Securities  at the  Principal  prior to  joining
                    Invista  Capital  Management  in  1992.  He  holds  a BA  in
                    Accounting and Finance from the University of Iowa.

Since April 1993    Co-Manager:  Judith A. Vogel,  CFA. Ms. Vogel joined Invista
                    Capital  Management  in 1987.  She  holds  an  undergraduate
                    degree in Business Administration  from Central College. She
                    has earned the right to use the Chartered  Financial Analyst
                    designation.

Since February 2000 Co-Manager:  Mary Sunderland,  CFA. Prior to joining Invista
                    Capital  Management in 1999, Ms.  Sunderland  managed growth
                    and technology  portfolios for Skandia Asset  Management for
                    10  years.  She  holds  an  MBA  in  Finance  from  Columbia
                    University  Graduate School of Business and an undergraduate
                    degree  from  Northwestern  University.  She 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

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
      ------------------------------------------------------
         $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.

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      -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

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
    ------------------------------------------------------
       $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.


INCOME-ORIENTED ACCOUNT

High Yield Account
The Account seeks a high current income.

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

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

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

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

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

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

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

Investor Profile
The  Account is  generally  a suitable  investment  if you are  seeking  monthly
dividends to provide  income or to be reinvested  in Account  shares for growth.
However,  it is suitable only for that portion of your investments for which you
are willing to accept  potentially  greater risk. You should carefully  consider
your ability to assume the risks of this Account before making an investment and
be prepared to maintain your investment in the Account during periods of adverse
market  conditions.  This  Account  should  not be relied on to meet  short-term
financial  needs.  As with all mutual funds,  if you sell your shares when their
value is less than the price you paid, you will lose money.

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):

   0.41% in securities rated A            0.19% in securities rated Ca
   45.27% in securities rated Ba          1.77% in securities rated C
   51.92% in securities rated B           0.44% in securities rated D


The  above  percentages  for  Ba,  B  and D  rated  securities  include  unrated
securities  in the  amount of 0.36%,  0.28% and 0.04%,  respectively,  which the
Manager considers to be of comparable quality.

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      -7.70
1991      27.29
1992      14.58
1993      12.31
1994      0.62
1995      16.08
1996      13.13
1997      10.75
1998      -0.56
1999      1.76


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

    Highest     9.96% (3/31/1991)
    Lowest     -6.31% (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>
     High Yield            1.76%    8.03%   8.39%      Lehman Brothers High Yield
                                                          Composite Bond Index                        2.39%    9.31%   10.72%
                                                       Lipper High Current Yield Fund Average         4.53     8.89    10.08
</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
    ------------------------------------------------------
       $68            $214           $373            $835


                           Account Operating Expenses


       Management Fees...................   0.60%
       Other Expenses....................   0.07
                                            -----
         Total Account Operating Expenses   0.67%


                         Day-to-day Account Management

Since April 1998    Mark P. Denkinger,  CFA. Mr.  Denkinger joined the Principal
                    organization in 1990. He holds an MBA and BA in Finance from
                    the  University  of Iowa. 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.

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      -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

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
   ------------------------------------------------------
      $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.


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.

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      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

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
    -------------------------------------------------------
        $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.




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.

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

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

Note:     The  Capital  Value and MidCap  Accounts  invest  primarily  in equity
          securities.  The Balanced  Account invests in a mix of equity and debt
          securities.  The Bond and High Yield Accounts invest primarily in debt
          securities.

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 for
hedging and other non-speculative purposes. A forward currency contract involves
a privately  negotiated  obligation to purchase or sell a specific currency at a
future date at a price set in the contract.  An Account will not hedge  currency
exposure to an extent greater than the aggregate  market value of the securities
held or to be  purchased  by the Account  (denominated  or  generally  quoted or
currently convertible into the currency).

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

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


Warrants
Each of the  Accounts  (except  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.  Up to 2% of an Account's total assets may be invested
in  warrants  that are not  listed  on  either  the New York or  American  Stock
Exchanges.


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

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

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

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

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

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


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


Foreign Securities
Each of the following Accounts may invest in foreign securities to the indicated
percentage of its assets (debt  securities  issued in the United States pursuant
to a registration  statement  filed with the Securities and Exchange  Commission
are not treated as foreign securities for purposes of these limitations.):
o    Bond, Capital Value and High Yield Accounts - 20%;
o    Balanced and MidCap Accounts - 10%.


The Money Market Account does not invest in foreign  securities other than those
that are United States dollar  denominated.  All principal and interest payments
for the security are payable in U.S.  dollars.  The interest rate, the principal
amount to be repaid and the timing of payments  related to the securities do not
vary or float  with the value of a foreign  currency,  the rate of  interest  on
foreign  currency  borrowings or with any other interest rate or index expressed
in a currency other than U.S. dollars.

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.; an
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
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.

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

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.

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
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:      Balanced, Capital Value and MidCap
     Sub-Advisor:   Invista Capital Management,  LLC ("Invista"),  an indirectly
                    wholly-owned  subsidiary of Principal Life Insurance Company
                    and an  affiliate of the  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.


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


     Balanced                0.57%              0.01%              0.58%
     Bond                    0.49               0.01               0.50
     Capital Value           0.43               0.00               0.43
     High Yield              0.60               0.07               0.67
     MidCap                  0.61               0.00               0.61
     Money Market            0.50               0.02               0.52



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 available through
the FVLI policy).


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

Balanced Account
(Martin Schafer, Mary Sunderland and Judith Vogel)
In the stock market,  technology  was THE place to be for  performance.  Nothing
else came close. Early in the year it was the largest and most liquid technology
stocks that garnered investors' attention.  By the fourth quarter, Y2K liquidity
and  unprecedented  money flows into speculative  technology and Internet sector
funds sent already  strong  technology  stocks  through the roof.  Valuation was
seemingly given no  consideration as aggressive  growth and momentum  strategies
won over value, hands down.

The  macro-economic  picture was constructive  for the broad market  (especially
cheaper stocks) with strong real GDP growth,  improving  corporate profits,  and
interest  rates  moving  up.  Typically  value  stocks  outperform  under  these
conditions.  Yet it was the most richly priced companies that performed the best
in 1999 and it was these stocks that  boosted  index  returns for the year.  The
narrow  bull  market  in  technology  continues  to hide a broader  bear  market
underway in the U.S. as  evidenced by the fact that 70% of the universe of 6,000
common stocks are actually down in price since April of 1998.

With  ten-year  Treasury  yields up 1.75%  over the year,  fixed-income  markets
stalled in 1999. Bonds produced  negative returns as too-strong  economic growth
in the U.S.,  improving global demand,  and resulting fears of inflation spooked
fixed-income   investors.   Negative   bond   returns   couldn't   compete  with
off-the-chart  equity returns,  which contributed to extreme negative  sentiment
toward fixed-income investments, especially toward the end of the year.

The Balanced Account was underweighted in technology  throughout the year, based
on high valuations of most tech stocks.  While the prices of leading  technology
stocks  appeared to fully  discount very  optimistic  growth  expectations,  the
stocks of many financial,  energy,  healthcare,  and consumer staples  companies
were cheap.  Despite huge  valuation  disparities,  the market  continued to bid
already expensive tech stocks higher. Not having enough technology  exposure was
the single largest detriment to the Account's total performance, which landed in
the low single digits for the year.

There is no  independent  market  index  against  which to  measure  returns  of
balanced  portfolios,  however,  we show the S&P 500 Stock  Index and the Lehman
Government/Corporate Bond Index for your information.

Comparison  of Change in Value of $10,000  Invesmtnet  in the Balanced  Account,
Lipper Balanced Fund Average,  Lehman Brothers  Government/Corporate  Bond Index
and S&P 500 Stock Index

     Total Returns *
 As of December 31, 1998
  1 Year 5 Year 10 Year
 -----------------------
   2.40%  13.75%  11.38%


                                                Lipper          Lehman
             Balanced           S&P 500        Balanced       Govt Corp
             Account             Index         Fund Avg       Bond Index
             -------             -----         --------       ----------
             10,000             10,000          10,000          10,000
  1990        9,357              9,689           9,945          10,828
  1991       12,572             12,642          12,607          12,575
  1992       14,181             13,605          13,495          13,528
  1993       15,750             14,974          14,943          15,020
  1994       15,420             15,171          14,566          14,493
  1995       19,212             20,865          18,231          17,281
  1996       21,734             25,652          20,740          17,782
  1997       25,630             34,207          24,680          19,518
  1998       28,684             43,982          28,007          21,366
  1999       29,371             53,236          30,441          20,907

Note: Past performance is not predictive of future performance.


Capital Value Account
(Catherine A. 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.

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 Years
          ----------------------
          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.


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.

Lehman Brothers Government/Corporate Bond Index: This index consists of publicly
issued  securities  from the  Government  Index  and the  Corporate  Index.  The
Government  Index  includes U.S.  Treasuries and Agencies.  The Corporate  Index
includes  U.S.  Corporate  and  Yankee  debentures  and  secured  notes from the
Industrial, Utility, Finance, and Yankee categories.

Lipper  Balanced  Fund  Average:  This  average  consists of mutual  funds which
attempt to conserve  principal by maintaining at all times a balanced  portfolio
of both stocks and bonds. Typically, the stock/bond ratio ranges around 60%/40%.
The one year average currently contains 449 mutual 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.

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 MidCap 400 Index:  This index measures the  performance of the
mid-size company segment of the U.S. Market.

Note: Mutual fund data from Lipper Inc.

Income-Oriented  Accounts:


Bond Account
(Scott A. 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 $10,00  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           Average
        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.


High Yield Account
(Mark Denkinger)
In spite of the continual  strength of the U.S.  economy,  the high yield market
continued to be under pressure  during 1999. The High Yield Account posted a net
return of 1.76% for the year,  trailing  the  Lipper  High  Current  Yield  Fund
Average of 4.53% and the Lehman Brothers High Yield Index gross return of 2.39%.
The  High  Yield   Account's   performance   was  negatively   impacted  by  the
underperformance  of several  holdings that experienced  financial  difficulties
throughout the year as the market continued to punish issuers with poor results.

The high yield market typically thrives on a strong economy, unfortunately as of
late, this has not been the case. An important factor  negatively  impacting the
high yield market is mutual fund cash flows.  Cash  inflows  into mutual  funds,
which are reported weekly,  have  historically been one of the few indicators of
high  yield  demand.   Mutual  fund  inflows  for  1999  totaled  $5.0  billion,
substantially  behind the $19.3 billion in 1998. Combine this weak demand with a
healthy new issue  calendar of $101 billion during the year and the results were
investors demanding higher yields to compensate for lower demands.

The  most  noteworthy  trend  in  the  high  yield  market  has  been  increased
volatility,  primarily  driven by the equity markets.  Big swings in the Dow and
NASDAQ, and more specifically on individual stocks,  have correlated highly with
non-Treasury  fixed-income  products.  Any hint of bad news may have the issuers
severely punished.  While this trend is nothing new to the fixed-income  market,
the  magnitude  is far beyond what has been  experienced  before.  This trend is
likely to continue until more stability in the equity markets is seen.

The High Yield Account maintains a BB- average quality, primarily composed of BB
and B bonds.  This is a relatively  conservative risk position compared to other
funds in the high yield market.  Account  Managers have maintained the Account's
overweighting in BB's, supporting a belief that BB's are undervalued.  As market
conditions  improve,  Account  Managers will more  aggressively  move into the B
market.  The Account is well  diversified  with  numerous  industries,  with the
largest  weightings  in  telecommunications,  media and energy.  With high yield
spreads setting recent highs, Managers continue to believe the high yield market
looks  attractive  over the  long-term  and that these  short-term  fluctuations
create a buying opportunity.

Comparison of Change in Value of $10,000  Investment in the High Yield  Account,
Lipper High Current Yield Fund Average and Lehman  Brothers High Yield Composite
Bond Index


      Total Returns *
  As of December 31, 199
   1 Year 5 Year 10 Year
  ----------------------
  1.76%    8.03%  8.39%


          High         Lehman           Lipper
         Yield        High Yield      High Current
        Account         Index          Yield Avg
        10,000         10,000           10,000
1990    9,230           9,041            8,950
1991    11,750         13,217           12,346
1992    13,463         15,299           14,550
1993    15,120         17,918           17,351
1994    15,215         17,733           16,686
1995    17,661         21,132           19,436
1996    19,980         23,530           22,093
1997    22,127         26,532           24,956
1998    22,003         27,028           25,066
1999    22,390         27,674           26,201

Note:  Past performance is not predictive of future performance.


Important Notes of the Income-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.

The High Yield  Account is subject to the  greater  risks  associated  with high
yield bonds.

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.

Lehman  Brothers  High Yield Index:  This is an unmanaged  index of all publicly
issued fixed,  dollar-denominated,  SEC-registered  corporate  debt rated Ba1 or
lower with at least $100 million outstanding and one-year or more to maturity.

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.

Lipper  High  Current  Fund  Average:  This  average  consists  of mutual  funds
investing  in high  (relative)  current  yield fixed income  securities  with no
quality or maturity restrictions. The mutual funds tend to invest in lower grade
debt issues. The one year average currently contains 339 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 not restrictions on amounts to be invested in shares of the Accounts.

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

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


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

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

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




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:

<TABLE>
<CAPTION>
BALANCED ACCOUNT(a)                                                1999         1998         1997         1996         1995
<S>                                                            <C>          <C>          <C>          <C>          <C>
Net Asset Value, Beginning of Period.......................      $16.25       $15.51       $14.44       $13.97       $11.95
Income from Investment Operations:
   Net Investment Income...................................         .56          .49          .46          .40          .45
   Net Realized and Unrealized Gain (Loss) on Investments..       (.19)         1.33         2.11         1.41         2.44

                           Total from Investment Operations         .37         1.82         2.57         1.81         2.89

Less Dividends and Distributions:
   Dividends from Net Investment Income....................       (.57)        (.49)        (.45)        (.40)        (.45)
   Distributions from Capital Gains........................       (.62)        (.59)       (1.05)        (.94)        (.42)
   Excess Distributions from Capital Gains(b)..............       (.02)         --            --          --           --
                          Total Dividends and Distributions      (1.21)       (1.08)       (1.50)       (1.34)       (.87)

Net Asset Value, End of Period.............................      $15.41       $16.25       $15.51       $14.44       $13.97

Total Return...............................................       2.40%       11.91%       17.93%       13.13%       24.58%
Ratio/Supplemental Data:
   Net Assets, End of Period (in thousands)................    $209,747     $198,603     $133,827      $93,158      $45,403
   Ratio of Expenses to Average Net Assets.................        .58%         .59%         .61%         .63%         .66%
   Ratio of Net Investment Income to Average Net Assets           3.36%        3.37%        3.26%        3.45%        4.12%
   Portfolio Turnover Rate.................................       21.7%        24.2%        69.7%        22.6%        25.7%


BOND ACCOUNT(a)                                                    1999         1998         1997         1996         1995
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 Investment...      (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(b)..............        --          (.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%
</TABLE>


See accompanying notes.


Selected  data for a share of Capital  Stock  outstanding  throughout  each year
ended December 31:

<TABLE>
<CAPTION>
CAPITAL VALUE ACCOUNT(a)                                           1999         1998         1997         1996         1995

<S>                                                            <C>          <C>          <C>          <C>          <C>
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(b)..............       (.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>


<TABLE>
<CAPTION>
HIGH YIELD ACCOUNT(a)                                              1999         1998         1997         1996         1995

<S>                                                             <C>          <C>          <C>          <C>          <C>
Net Asset Value, Beginning of Period.......................       $8.06        $8.90        $8.72        $8.39        $7.91
Income from Investment Operations:
   Net Investment Income...................................         .72          .80          .76          .80          .76
   Net Realized and Unrealized Gain (Loss) on Investments..       (.58)        (.85)          .18          .30          .51
                           Total from Investment Operations         .14        (.05)          .94         1.10         1.27

Less Dividends and Distributions:
   Dividends from Net Investment Income....................       (.72)        (.79)        (.76)        (.77)        (.77)

   Excess Distributions from Net Investment Income (b).....       (.04)         --           --           --          (.02)
                          Total Dividends and Distributions       (.76)        (.79)        (.76)        (.77)        (.79)

Net Asset Value, End of Period.............................       $7.44        $8.06        $8.90        $8.72        $8.39

Total Return...............................................       1.76%       (.56)%       10.75%       13.13%       16.08%
Ratio/Supplemental Data:
   Net Assets, End of Period (in thousands)................     $13,678      $14,043      $15,837      $13,740      $11,830
   Ratio of Expenses to Average Net Assets.................        .67%         .68%         .68%         .70%         .73%
   Ratio of Net Investment Income to Average Net Assets....       8.52%        8.68%        8.50%        9.21%        9.09%
   Portfolio Turnover Rate.................................       93.8%        87.8%        32.0%        32.0%        35.1%
</TABLE>


See accompanying notes.


FINANCIAL HIGHLIGHTS (Continued)

PRINCIPAL VARIABLE CONTRACTS FUND, INC.

Selected  data for a share of Capital  Stock  outstanding  throughout  each year
ended December 31:


<TABLE>
<CAPTION>
MIDCAP ACCOUNT(a)                                                  1999         1998         1997         1996         1995

<S>                                                            <C>          <C>          <C>          <C>           <C>
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%


MONEY MARKET ACCOUNT(a)                                            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%
</TABLE>


See accompanying notes.


Notes to Financial Highlights

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

         Former Fund Name                                  Current Account Name
Principal Balanced Fund, Inc.                              Balanced Account
Principal Bond Fund, Inc.                                  Bond Account
Principal Capital Accumulation Fund, Inc.                  Capital Value Account
Principal High Yield Fund, Inc.                            High Yield Account
Principal Emerging Growth Fund, Inc.                       MidCap Account
Principal Money Market Fund, Inc.                          Money Market Account

(b)  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.


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


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

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

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


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



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