PRINCIPAL VARIABLE CONTRACTS FUND INC, 497, 2000-11-21

PRINCIPAL VARIABLE CONTRACTS FUND INC
497, 2000-11-21

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(SVUL) SUPPLEMENT DATED NOVEMBER 27, 2000
TO THE PROSPECTUS FOR
PRINCIPAL VARIABLE CONTRACTS FUND, INC.
DATED MAY 1, 2000

On page 21, under the Day-to-day Account Management section, remove the first
paragraph.

On page 23, under the Day-to-day Account Management section, remove the first
paragraph.

On page 35, under the Day-to-day Account Mnaagement section, replace the second
paragraph with the following:

Since October 2000 Tom Morabito, CFA. Mr. Morabito joined Invista in 2000
as the lead small-cap value portfolio manager. He has more than 12
years of analytical and portfolio management expertise. Since 1994,
Mr. Morabito was a manager for INVESCO Management & Research. He
received his MBA in Finance from Northestern University and his
Bachelor's degree in Economics from State University of New York. He
has earned the right to use the Chartered Financial Analyst
designation.

On page 1 of the Supplement to the Prospectus, dated August 4, 2000, under the
section replacing material on page 25, remove the second paragraph.

<PAGE>
(PFLX) SUPPLEMENT DATED NOVEMBER 27, 2000
TO THE PROSPECTUS FOR
PRINCIPAL VARIABLE CONTRACTS FUND, INC.
DATED MAY 1, 2000

On page 21, under the Day-to-day Account Management section, remove the first
paragraph.

On page 23, under the Day-to-day Account Management section, remove the first
paragraph.

On page 35, under the Day-to-day Account Management section, remove the replace
the second paragraph with the following:

On page 1 of the Supplement to the Prospectus, dated August 4, 2000, under the
section replacing material on page 25, remove the second paragraph.

PRINCIPAL VARIABLE CONTRACTS FUND, INC.

ACCOUNTS OF THE FUND

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

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

The date of this Prospectus is 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
Aggressive Growth Account..................................... 6
Asset Allocation Account...................................... 8
Balanced Account.............................................. 10
Bond Account.................................................. 12
Capital Value Account......................................... 14
Government Securities Account................................. 16
Growth Account................................................ 18
International Account......................................... 20
International SmallCap Account................................ 22
MicroCap Account.............................................. 24
MidCap Account................................................ 26
MidCap Growth Account......................................... 28
Money Market Account.......................................... 30
Real Estate Account........................................... 32
SmallCap Account.............................................. 34
SmallCap Growth Account....................................... 36
SmallCap Value Account........................................ 38
Stock Index 500 Account....................................... 40
Utilities Account............................................. 42

CERTAIN INVESTMENT STRATEGIES AND RELATED RISKS.................... 44

PRICING OF ACCOUNT SHARES.......................................... 48

DIVIDENDS AND DISTRIBUTIONS........................................ 48

MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE..................... 49
The Manager................................................... 49
The Sub-Advisors.............................................. 49

GENERAL INFORMATION ABOUT AN ACCOUNT............................... 66
Shareholders Rights........................................... 66
Purchase of Account Shares.................................... 67
Sale of Account Shares........................................ 67
Financial Statements.......................................... 69

FINANCIAL HIGHLIGHTS............................................... 70
Notes to Financial Highlights................................. 78

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

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

</TABLE>

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

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

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

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

Account Performance
Included in each Account's description is a set of tables and a bar chart. As
certain Accounts have been operating for a limited period of time, complete
historical information is not available for those Accounts. If complete
historical information is available, a bar chart is included to provide you with
an indication of the risks involved when you invest. The chart shows changes in
the Account's performance from year to year.

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

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

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

NOTE: Investments in 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

Aggressive Growth Account
The Account seeks to provide long-term capital appreciation by investing
primarily in equity securities.

Main Strategies
The Account seeks to maximize long-term capital appreciation by investing
primarily in equity securities of U.S. and, to a limited extent, foreign
companies that exhibit strong or accelerating earnings growth. The universe of
eligible companies generally includes those with market capitalizations of $1
billion or more. The Sub-Advisor Morgan Stanley, emphasizes individual security
selection and may focus the Account's holdings within the limits permissible for
a diversified fund.

Morgan Stanley follows a flexible investment program in looking for companies
with above average capital appreciation potential. Morgan Stanley focuses on
companies with consistent or rising earnings growth records and compelling
business strategies. Morgan Stanley continually and rigorously studies company
developments, including business strategy, management focus and financial
results, to identify companies with earnings growth and business momentum. In
addition, Morgan Stanley closely monitors analysts' expectations to identify
issuers that have the potential for positive earnings surprises versus consensus
expectations. Valuation is of secondary importance and is viewed in the context
of prospects for sustainable earnings growth and the potential for positive
earnings surprises in relation to consensus expectations.

The Account has a long-term investment approach. However, Morgan Stanley
considers selling securities of issuers that no longer meet its criteria. To the
extent that the Account engages in short-term trading, it may have increased
transaction costs.

Main Risks
The value of the stocks owned by the Account changes on a daily basis. Stock
prices can fluctuate dramatically both in the long-term and short-term. The
current price reflects the activities of individual companies and general market
and economic conditions. Prices of equity securities tend to be more volatile
than prices of fixed income securities. The prices of equity securities rise and
fall in response to a number of different factors. In particular, prices of
equity securities respond to events that affect entire financial markets or
industries (for example, changes in inflation or consumer demand) and to events
that affect particular issuers (for example, news about the success or failure
of a new product).

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

At times, the Account's market sector (mid- to large-capitalization
growth-oriented equity securities) may underperform relative to other sectors.
The Account may purchase stocks of companies that may have greater risks than
other stocks with lower potential for earnings growth.

Investor Profile
The Account is generally a suitable investment if you are willing to accept the
risks and uncertainties of investing in equity securities in the hope of earning
superior returns. As with all mutual funds, as the value of the Account's assets
rise and fall, the Account's share price changes. If you sell your shares when
their value is less than the price you paid, you will lose money.

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

1995 44.19
1996 28.05
1997 30.86
1998 18.95
1999 39.50

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

Highest 22.68% (12/31/1998)
Lowest -16.05% (9/30/1998)

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

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

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

<S> <C> <C> <C> <C> <C> <C> <C>
Aggressive Growth 39.50% 32.01% 28.82%* S&P 500 Stock Index 21.04% 28.55% 18.21%
Lipper Large-Cap Growth Fund Average(1) 38.09 30.55 19.73

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

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

Examples

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
--------------------------------------------------------
$79 $246 $428 $954

Account Operating Expenses

Management Fees...................... 0.75%
Other Expenses....................... 0.02
-----
Total Account Operating Expenses 0.77%

Day-to-day Account Management

Since October 1998 Co-Manager: William S. Auslander, Portfolio Manager and
Principal of Morgan Stanley & Co. Incorporated and Morgan
Stanley Dean Witter Investment Management Inc. Prior
thereto, equity analyst since 1995. Equity analyst at Icahn
& Co., 1986-1995. He holds a BA in Economics from the
University of Wisconsin and an MBA from Columbia University.

Since October 1998 Co-Manager: Philip W. Friedman, Managing Director of Morgan
Stanley & Co. Incorporated and Morgan Stanley Dean Witter
Investment Management Inc. since 1997. Member of Morgan
Stanley & Co. Research since 1990, served as Director of
North America Research 1995-1997. Prior thereto, Assistant
to the Controller and Chief Equity Financial Officer, Arthur
Andersen & Company. He holds a BA from Rutgers University
and an MBA from Northwestern - J.L. Kellogg School.

GROWTH-ORIENTED ACCOUNT

Asset Allocation Account
The Account seeks to generate a total investment return consistent with
preservation of capital.

Main Strategies
The Account uses a flexible investment policy to establish a diversified global
portfolio that will invest in equities and fixed income securities. The
Sub-Advisor, Morgan Stanley, will invest in equity securities of domestic and
foreign corporations that appear to be undervalued relative to their earnings
results or potential, or whose earnings growth prospects appear to be more
attractive than the economy as a whole. In addition, Morgan Stanley will invest
in debt securities to provide income and to moderate the overall portfolio risk.
Typically Morgan Stanley will invest in high quality fixed-income securities but
may invest up to 20% of the Account's assets in high yield securities.

The securities which the Account purchases are identified as belonging to an
asset class which include:
o stocks of growth-oriented companies (companies with earnings that are
expected to grow more rapidly than the economy as a whole), both foreign
and domestic;
o stocks of value-oriented companies (companies with distinctly below average
stock price to earnings ratios and stock price to book value ratios, and
higher than average dividend yields), both foreign and domestic;
o domestic real estate investment trusts;
o fixed income securities, both foreign and domestic; and
o domestic high yield fixed-income securities.

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

Main Risks
As with any security, the securities in which the Account invests have
associated risks. These include risks of:
o High yield securities. 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.
o Foreign securities. These have risks that are not generally found in
securities of U.S. companies. For example, 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.
o Securities of smaller companies. Historically, small company securities
have been more volatile in price than larger company securities, especially
over the short-term. While small companies may offer greater opportunities
for capital growth than larger, more established companies, they also
involve greater risks and should be considered speculative.

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

The net asset value of the Account's shares is effected by changes in the value
of the securities it owns. The prices of equity securities held by the Account
may decline in response to certain events including those directly involving
issuers of these securities, adverse conditions affecting the general economy,
or overall market declines. In the short term, stock prices can fluctuate
dramatically in response to these factors. The value of debt securities held by
the Account may be affected by factors such as changing interest rates, credit
rating, and effective maturities. When interest rates fall, the price of a bond
rises and when interest rates rise, the price declines. Lower quality and longer
maturity bonds will be subject to greater credit risk and price fluctuations
than higher quality and shorter maturity bonds. Money market instruments held by
the Account may be affected by unfavorable political, economic, or governmental
developments that could affect the repayment of principal or the payment of
interest.

Investor Profile
The Account is generally a suitable investment if you are seeking a moderate
risk approach towards long-term growth. As with all mutual funds, if you sell
your shares when their value is less than the price you paid, you will lose
money.

Annual Total Returns

1995 20.66
1996 12.92
1997 18.19
1998 9.18
1999 19.49

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

Highest 11.48% (12/31/1999)
Lowest -8.16% (9/30/1998)

Average annual total returns for the period ending Decmeber 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>
Asset Allocation 19.49% 16.01% 14.32%* S&P 500 Stock Index 21.04% 28.55% 18.21%
Lipper Flexible Portfolio Fund Average 12.55 17.17 12.81

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

Examples

1 Year 3 Years 5 Years 10 Years
------------------------------------------------------
$87 $271 $471 $1,049

Account Operating Expenses

Management Fees.................... 0.80%
Other Expenses..................... 0.05
-----
Total Account Operating Expenses 0.85%

Day-to-day Account Management

Since May 1994 Francine J. Bovich, Managing Director of Morgan Stanley Dean
(Account's inception) Witter Investment Management Inc. and Morgan Stanley &
Co. Incorporated since 1997. Principal 1993-1996. She holds
a BA in Economics from Connecticut College, and an MBA in
Finance from New York University.

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

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.

Annual Total Returns

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

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

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

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

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

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

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

Examples

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

Account Operating Expenses

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

Day-to-day Account Management

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

GROWTH-ORIENTED ACCOUNT

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

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

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

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

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

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

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

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

Main Risks
The value of the stocks owned by the Account changes on a daily basis. The
current price reflects the activities of individual companies and general market
and economic conditions. In the short term, stock prices can fluctuate
dramatically in response to these factors. As with all mutual funds, if you sell
shares when their value is less than the price you paid, you will lose money.

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

Annual Total Returns

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

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

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

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

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

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

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

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

Examples

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

Account Operating Expenses

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

Day-to-day Account Management

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

INCOME-ORIENTED ACCOUNT

Government Securities Account
The Account seeks a high level of current income, liquidity and safety of
principal.

Main Strategies
The Account invests in securities supported by:
o full faith and credit of the U.S. Government (e.g. GNMA certificates); or
o credit of a U.S. Government agency or instrumentality (e.g. bonds issued by
the Federal Home Loan Bank).
In addition, the Account may invest in money market investments.

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

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

Main Risks
Although some of the securities the Account purchases are backed by the U.S.
government and its agencies, shares of the Account are not guaranteed. When
interest rates fall, the value of the Account's shares rises, and when rates
rise, the value declines. Because of the fluctuation in the value of Account
shares, if you sell your shares when their value is less than the price you
paid, you will lose money.

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

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

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

Investor Profile
The Account is generally a suitable investment if you want monthly dividends to
provide income or to be reinvested in additional Account shares to produce
growth and prefer to have the repayment of principal and interest on most of the
securities in which the Account invests to be backed by the U.S. Government or
its agencies.

Annual Total Returns

1990 9.54
1991 16.95
1992 6.84
1993 10.07
1994 -4.53
1995 19.07
1996 3.35
1997 10.39
1998 8.27
1999 -0.29

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

Highest 6.17% (6/30/1995)
Lowest -3.94% (3/31/1994)

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>
Government Securities -0.29% 7.96% 7.75% Lehman Brothers Mortgage Index 1.86% 7.98% 7.78%
Lipper U.S. Mortgage Fund Average 0.65 7.00 6.95
</TABLE>

Examples

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

Account Operating Expenses

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

Day-to-day Account Management

Since May 1987 Martin J. Schafer. Mr. Schafer joined the Principal in 1977
(Account's and has broad experience in residential mortgage related
inception) securities. He served as Director of Investment Securities
at the Principal prior to joining Invista Capital Management
in 1992. He holds a BBA in Accounting and Finance from the
University of Iowa.

GROWTH-ORIENTED ACCOUNT

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

Main Strategies
The Account seeks to achieve its objective by investing in common stocks and
other equity securities. In selecting securities for investment, the
Sub-Advisor, Invista, looks at stocks it believes have prospects for above
average growth over an extended period of time. Invista uses an approach
described as "fundamental analysis" as it selection process.

o Valuation - use of the research to allow Invista to identify segments of
the market for investment. Invista considers various factors including
sustainable, superior earnings growth and above average or accelerating
rates of growth;

o Stock selection - Invista buys and sells stocks using its research and
valuation as the basis. It attempts to identify the individual issuers that
it considers to have high growth potential, that are market share leaders
and/or have high quality management with consistent track records and solid
balance sheets.

Main Risks
Prices of equity securities rise and fall in response to a number of factors
including events that affect entire financial markets or industries (for
example, changes in inflation or consumer demand) as well as events impacting a
particular issuer (for example, news about the success or failure of a new
product). The securities purchased by the Account present greater opportunities
for growth because of high potential earnings growth, but may also involve
greater risks than securities that do not have the same potential. The Account
may invest in companies with limited product lines, markets or financial
resources. As a result, these securities may change in value more than those of
larger, more established companies. As the value of the stocks owned by the
Account changes, the Account share price changes. In the short-term, the price
can fluctuate dramatically.

As with all mutual funds, as the value of the Account's assets rise and fall,
the Account's share price changes. 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. You must be willing to accept the risks of investing in common stocks
that may have greater risks than stocks of companies with lower potential for
earnings growth.

Annual Total Returns

1995 25.62
1996 12.51
1997 26.96
1998 21.36
1999 16.44

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

Highest 21.35% (12/31/1998)
Lowest -14.63% (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> <C>
Growth 16.44% 20.45% 18.94%* S&P 500 Stock Index 21.04% 28.55% 18.21%
Lipper Large-Cap Growth Fund Average(1) 38.09 30.55 19.73

<FN>
* Period from May 1, 1994, date first offered to the public, through
December 31, 1999.
(1) Lipper has discontinued calculation of the Average previously used for
this Account. This chart reflects information for the discontinued
Average for years prior to 1999. The newly assigned Average will be
reflected for 1999 and beyond.
</FN>
</TABLE>

Examples

1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------
$46 $144 $252 $567

Account Operating Expenses

Management Fees................... 0.45%
Other Expenses.................... 0.00
-----
Total Account Operating Expenses 0.45%

Day-to-day Fund Management

Since January 2000 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.

GROWTH-ORIENTED ACCOUNT

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

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

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

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

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

Main Risks
The values of the stocks owned by the Account change on a daily basis. Stock
prices reflect the activities of individual companies as well as general market
and economic conditions. In the short term, stock prices and currencies can
fluctuate dramatically in response to these factors. In addition, there are
risks involved with any investment in foreign securities that are not generally
found in stocks of U.S. companies. These include the risk that a foreign
security could lose value as a result of political, financial and economic
events in foreign countries. In addition, foreign securities may be subject to
securities regulators with less stringent accounting and disclosure standards
than are required of U.S. companies.

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

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

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

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

Annual Total Returns

1995 14.17
1996 25.09
1997 12.24
1998 9.98
1999 25.93

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

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

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

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

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

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

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

Examples

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

Account Operating Expenses

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

Day-to-day Account Management

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

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

GROWTH-ORIENTED ACCOUNT

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

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

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

Main Risks
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.

Investments in companies with small market capitalizations carry their own
risks. Historically, small company securities have been more volatile in price
than larger company securities, especially over the short-term. While small
companies may offer greater opportunities for capital growth than larger, more
established companies, they also involve greater risks and should be considered
speculative.

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

Investor Profile
This Account is not an appropriate investment if you are seeking either
preservation of capital or high current income. You must be able to assume the
increased risks of higher price volatility and currency fluctuations associated
with investments in international stocks which trade in non-U.S. currencies. The
Account is generally a suitable investment if you are seeking long-term growth
and want to invest a portion of your assets in smaller, non-U.S. companies.

Annual Total Returns

1999 93.81

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

Highest 36.59% (12/31/1999)
Lowest -19.31% (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 Five Past OnePast FivePast Ten
Account Year Years Year Years Years

<S> <C> <C> <C> <C> <C>
International SmallCap 93.81% 39.24%* Morgan Stanley Capital International EAFE
(Europe, Australia and Far East) Index 26.96% 12.83% 7.01%
Lipper International SmallCap Fund Average 75.41 19.91 13.04

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

Examples

1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------
$134 $418 $723 $1,590

Account Operating Expenses

Management Fees................... 1.20%
Other Expenses.................... 0.12
-----
Total Account Operating Expenses 1.32%

Day-to-day Account Management

Since March 2000 Co-Manager: Dan J. Sherman, CFA. Mr. Sherman joined Invista
Capital Management in 1998. Prior to joining the firm, he
led a regional research team for Salomon Smith Barney. He
holds an MBA from the University of Wisconsin. He has earned
the right to use the Chartered Financial Analyst
designation.

Since April 1998 Co-Manager: Darren K. Sleister, CFA. Mr. Sleister joined
(Account's Invista Capital Management as a Portfolio Strategist in
inception) 1993. He holds an MBA from the University of Iowa, and an
undergraduate degree from Central College. He has earned the
right to use the Chartered Financial Analyst designation.

GROWTH-ORIENTED ACCOUNT

MicroCap Account
The Account seeks to achieve long-term growth of capital.

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

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

The Account may invest in securities of small market capitalization companies
that have experienced financial difficulties. Investments may also be made in
companies that are in the early stages of their life and that Goldman believes
have significant growth potential. Goldman believes that the companies in which
the Account may invest offer greater opportunities for growth of capital than
larger, more mature, better known companies.

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

The Account may invest in real estate investment trusts (REITs) which are pooled
investment vehicles that invest in either real estate or real estate related
loans.

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

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

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

The Account's share price may fluctuate more than that of funds primarily
invested in stocks of mid-sized and large companies. Occasionally, small company
securities may underperform as compared to the securities of larger companies.
As the value of the stocks owned by the Account changes, the Account's share
price changes. In the short-term, the share price can fluctuate dramatically. 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 want long-term growth of
capital. Additionally, you must be willing to accept the risks of investing in
securities that may have greater risks than stocks of companies with lower
potential for growth.

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

Annual Total Returns

1999 -1.07

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

Highest 27.70% (6/30/1999)
Lowest -26.11% (9/30/1998)

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

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

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

<S> <C> <C> <C> <C> <C> <C>
MicroCap -1.07% -12.05%* Russell 2000 Index 21.26% 16.69% 13.40%
Lipper Small-Cap Core Fund Average 28.43 17.88 13.39

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

Examples

1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------
$130 $406 $702 $1,545

Account Operating Expenses

Management Fees................... 1.00%
Other Expenses.................... 0.28
-----
Total Account Operating Expenses 1.28%*

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

Day-to-day Account Management

Since April 1998 Co-Manager: Eileen A. Aptman, Vice President of Goldman
(Account's since 1993. Prior thereto, she worked at Delphi Management
inception) as an equity analyst. She holds a BA from Tufts University.

Since April 1998 Co-Manager: Matthew B. McLennan, Associate of Goldman since
(Account's 1995. Prior thereto, Queensland Investment Corporation in
inception) Australia. He holds an undergraduate degree in Commerce from
the University of Queensland, Australia as well as an
Honours degree.

Since October 1999 Co-Manager: Eileen Rominger, Ms. Rominger joined the
sub-advisor as a senior portfolio manager in 1999. From 1981
to 1999, she worked at Oppenheimer Capital, most recently as
a senior portfolio manager. She holds an MBA from Wharton
School of Business and a BA from Fairfield University.

GROWTH-ORIENTED ACCOUNT

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

Main Strategies
Stocks that are chosen for the Account by the Sub-Advisor, Invista, are thought
to be responsive to changes in the marketplace and have the fundamental
characteristics to support growth. The Account may invest for any period in any
industry, in any kind of growth-oriented company. Companies may range from well
established, well known to new and unseasoned. While small, unseasoned companies
may offer greater opportunities for capital growth than larger, more established
companies, they also involve greater risks and should be considered speculative.

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

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

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

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

Annual Total Returns

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

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

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

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

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

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

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

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

Examples

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

Account Operating Expenses

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

Day-to-day Account Management

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

GROWTH-ORIENTED ACCOUNT

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

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

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

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

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

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

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

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

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

* "Standard & Poor's MidCap 400 Index" is a trademark of Standard & Poor's
Corporation (S&P). S&P is not affiliated with Principal Variable Contracts
Fund, Inc., Invista Capital Management, LLC or Principal Life Insurance
Company.

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

Annual Total Returns

1999 10.67

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

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

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

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

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

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

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

Examples

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

Account Operating Expenses

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

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

Day-to-day Account Management

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

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

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

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

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

Main Risks
As with all mutual funds, the value of the Account's assets may rise or fall.
Although the Account seeks to preserve the value of an investment at $1.00 per
share, it is possible to lose money by investing in the Account. An investment
in the Account is not insured or guaranteed by the FDIC or any other government
agency.

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

Annual Total Returns

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

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

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

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

Past One Past FivePast Ten
Account Year Years Years

Money Market 4.84% 5.20% 4.94%

Examples

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

Account Operating Expenses

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

Day-to-day Account Management

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

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

GROWTH-ORIENTED ACCOUNT

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

Main Strategies
The Account invests primarily in equity securities of companies engaged in the
real estate industry. For purposes of the Account's investment policies, a real
estate company has at least 50% of its assets, income or profits derived from
products or services related to the real estate industry. Real estate companies
include real estate investment trusts and companies with substantial real estate
holdings such as paper, lumber, hotel and entertainment companies. Companies
whose products and services relate to the real estate industry include building
supply manufacturers, mortgage lenders and mortgage servicing companies.

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

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

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

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

Because of these factors, the values of the securities held by the Account, and
in turn the net asset value of the shares of the Account, change on a daily
basis. In addition, the prices of the equity securities held by the Account may
decline in response to certain events including those directly involving issuers
of these securities, adverse conditions affecting the general economy, or
overall market declines. In the short term, share prices can fluctuate
dramatically in response to these factors. Because of these fluctuations,
principal values and investment returns vary. When shares of the Account are
sold, they may be worth more or less than the amount paid for them.

Investor Profile
The Account is generally a suitable investment if you are seeking long-term
growth, want to invest in companies engaged in the real estate industry and are
willing to accept fluctuations in the value of your investment.

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

Annual Total Returns

1999 -4.48

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

Highest 11.37% (6/30/1999)
Lowest -8.40% (9/30/1999)

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

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

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

<S> <C> <C> <C> <C> <C>
Real Estate -4.48% -6.58%* Morgan Stanley REIT Index -4.55% 7.61% -- %
Lipper Real Estate Fund Average -3.14 8.38 6.62

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

Examples

1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------
$101 $315 $547 $1,213

Account Operating Expenses

Management Fees................... 0.90%
Other Expenses.................... 0.09
-----
Total Account Operating Expenses 0.99%

Day-to-day Account Management

Since April 1998 Kelly D. Rush, CFA. Mr. Rush has been with the Principal
(Account's organization since 1995. He holds an MBA and a BA in Finance
inception) from the University of Iowa. He has earned the right to use
the Chartered Financial Analyst designation.

GROWTH-ORIENTED ACCOUNT

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

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

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

Main Risks
Investments in companies with smaller market capitalizations may involve greater
risks and price volatility (wide, rapid fluctuations) than investments in
larger, more mature companies. Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become established. While small, unseasoned companies may offer greater
opportunities for capital growth than larger, more established companies, they
also involve greater risks and should be considered speculative.

The net asset value of the Account's shares is based on the values of the
securities it holds. The value of the stocks owned by the Account changes on a
daily basis. The current share price reflects the activities of individual
companies as well as general market and economic conditions. In the short term,
stock prices can fluctuate dramatically in response to these factors. The
Account's share price may fluctuate more than that of funds primarily invested
in stocks of mid-sized and large companies and may underperform as compared to
the securities of larger companies. Because of these fluctuations, principal
values and investment returns vary. As with all mutual funds, if you sell your
shares when their value is less than the price you paid, you will lose money.

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

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

Annual Total Returns

1999 43.58

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

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

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

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

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

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

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

Examples

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

Account Operating Expenses

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

Day-to-day Account Management

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

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

GROWTH-ORIENTED ACCOUNT

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

Main Strategies
The Account invests primarily in a diversified group of equity securities of
small growth companies. Generally, at the time of the Account's initial purchase
of a security, the market capitalization of the issuer is less than $1 billion.
Growth companies are generally those with sales and earnings growth that is
expected to exceed the growth rate of corporate profits of the S&P 500.

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

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

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

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

The net asset value of the Account's shares is based on the values of the
securities it holds. The value of the stocks owned by the Account changes on a
daily basis. The current share price reflects the activities of individual
companies and general market and economic conditions. In the short term, stock
prices can fluctuate dramatically in response to these factors. Because of these
fluctuations, principal values and investment returns vary. As with all mutual
funds, if you sell your shares when their value is less than the price you paid,
you will lose money.

The Account's share price may fluctuate more than that of funds primarily
invested in stocks of mid-sized and large companies and may underperform as
compared to the securities of larger companies. This Account is designed for
long term investors for a portion of their investments. It is not designed for
investors seeking income or conservation of capital.

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

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

Annual Total Returns

1999 95.69

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

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

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

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

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

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

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

Examples

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

Account Operating Expenses

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

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

Day-to-day Account Management

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

GROWTH-ORIENTED ACCOUNT

SmallCap Value Account

The Account seeks long-term growth of capital.

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

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

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

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

Main Risks
As with any security, the securities in which the Account invests have
associated risks. These include risks of:
o Securities of smaller companies. Historically, small company securities
have been more volatile in price than larger company securities, especially
over the short-term. While small companies may offer greater opportunities
for capital growth than larger, more established companies, they also
involve greater risks and should be considered speculative.

o Unseasoned issuers. Smaller companies may be developing or marketing new
products or services for which markets are not yet established and may
never become established.

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

The Account's share price may fluctuate more than that of funds primarily
invested in stocks of mid-sized and large companies and may underperform as
compared to the securities of larger companies. The Account is not designed for
investors seeking income or conservation of capital. 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 volatile fluctuations in the value of your
investment.

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

Annual Total Returns

1999 21.45

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

Highest 15.32% (6/30/1999)
Lowest -19.14% (9/30/1998)

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

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

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

<S> <C> <C> <C> <C> <C> <C>
SmallCap Value 21.45% 1.88%* Russell 2000 Value Index -1.49% 13.14% 12.46%
Lipper Small-Cap Value Fund Average(1) 6.33 13.92 12.04

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

Examples

1 Year 3 Years 5 Years 10 Years
------------------------------------------------------
$147 $456 $787 $1,724

Account Operating Expenses

Management Fees................... 1.10%
Other Expenses.................... 0.34
-----
Total Account Operating Expenses 1.44%*

* Manager has agreed to reimburse operating expenses so that total
Account operating expenses will not be greater than 1.16% for 2000.

Day-to-day Account Management

Since January 2000 Co-Manager: Marian U. Pardo, Managing Director of J.P.
Morgan Investment Management Inc. since 1998. Ms. Pardo is a
senior portfolio manager in the Small Cap Equity Group at
J.P. Morgan. She has been at J.P. Morgan since 1968, except
for 5 months in 1998 when she was president of a small
investment management firm. She holds a BA degree from
Barnard College.

Since January 2000 Co-Manager: Leon Roisenberg, Vice President of J.P. Morgan
Investment Management Inc. since 1996. Prior to joining J.P.
Morgan, Mr. Roisenberg worked as an analyst and portfolio
manager at Bankers Trust. He earned his MBA from Columbia
University and received his BS degree from MIT.

GROWTH-ORIENTED ACCOUNT

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

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

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

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

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

The Account uses an indexing strategy. It does not attempt to manage market
volatility, use defensive strategies or reduce the effects of any long-term
periods of poor stock performance. The correlation between Account and index
performance may be affected by the Account's expenses, changes in securities
markets, changes in the composition of the index and the timing of purchases and
sales of Account shares. The Account may invest in futures and options, which
could carry additional risks such as losses due to unanticipated market price
movements, and could also reduce the opportunity for gain.

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

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

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

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

Annual Total Returns

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

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

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

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

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

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

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

Examples

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

Account Operating Expenses

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

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

Day-to-day Account Management

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

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

GROWTH-ORIENTED ACCOUNT

Utilities Account
The Account seeks to provide current income and long-term growth of income and
capital.

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

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

The Account invests in fixed income securities, which at the time of purchase,
are:
o rated 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.

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

Generally, the prices charged by utilities are regulated with the intention of
protecting the public while ensuring that utility companies earn a return
sufficient to attract capital to grow and provide appropriate services. However,
due to political and regulatory factors, rate changes ordinarily occur following
a change in financing costs. This delay tends to favorably affect a utility
company's earnings and dividends when costs are decreasing but also adversely
affects earnings and dividends when costs are rising. In addition, the value of
the utility company bonds rise when interest rates fall and fall when interest
rates rise. Certain states are adopting deregulation plans. These plans
generally allow for the utility company to set the amount of their earnings
without regulatory approval.

The share price of the Account may fluctuate more widely than the value of
shares of a fund that invests in a broader range of industries. Because of these
fluctuations, principal values and investment returns vary. 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 quarterly
dividends for income or to be reinvested for growth, want to invest in companies
in the utilities industry and are willing to accept fluctuations in the value of
your investment.

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

Annual Total Returns

1999 2.29

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

Highest 11.80% (6/30/1999)
Lowest -6.22% (3/31/1999)

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

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

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

<S> <C> <C> <C> <C> <C> <C>
Utilities 2.29% 10.43%* S&P 500 Stock Index 21.04% 28.55% 18.21%
Dow Jones Utilities Index with Income -5.73 14.74 --
Lipper Utilities Fund Average 15.82 18.70 12.80

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

Examples

1 Year 3 Years 5 Years 10 Years
-----------------------------------------------------
$65 $205 $357 $798

Account Operating Expenses

Management Fees.................... 0.60%
Other Expenses..................... 0.04
-----
Total Account Operating Expenses 0.64%

Day-to-day Account Management

Since April 1998 Catherine A. Zaharis, CFA. Ms. Zaharis joined Invista
(Account's Capital Management in 1987. She holds a BA in Finance from
inception) the University of Iowa and an MBA from Drake University. She
has earned the right to use the Chartered Financial Analyst
designation.

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.

Accounts that focus their investments in equity securities include: Aggressive
Growth, Capital Value, Growth, International, International SmallCap, MicroCap,
MidCap, MidCap Value, SmallCap, SmallCap Growth, SmallCap Value, Stock Index 500
and Utilities. The Asset Allocation and Balanced Accounts invest in a mix of
equity and fixed income securities.

Fixed income securities include bonds and other debt instruments that are used
by issuers to borrow money from investors. The issuer generally pays the
investor a fixed, variable or floating rate of interest. The amount borrowed
must be repaid at maturity. Some debt 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.

Accounts that focus their investments in fixed income securities include the
Bond and Government Securities Accounts.

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

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

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

Warrants
Each of the Accounts (except Government Securities and Money Market) may invest
up to 5% of its total assets in warrants. 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. For the International and International SmallCap
Accounts, the 2% limitation also applies to warrants not listed on the Toronto
Stock Exchange and Chicago Board Options Exchange.

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

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

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

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

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

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

Options, Futures Contract
Each of the Accounts (except Money Market) may buy and sell certain types of
options. Each type, and their associated risks, 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 Asset Allocation, International and International SmallCap Accounts - 100%;
o Aggressive Growth, MicroCap, Real Estate and SmallCap Growth Accounts -
25%;
o Bond, Capital Value, SmallCap and Utilities Accounts - 20%;
o Balanced, Growth, MidCap, MidCap Growth, SmallCap Value and Stock Index 500
Accounts - 10%.

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

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

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

Securities of many foreign issuers may be less liquid and their prices more
volatile than those of comparable domestic issuers. Foreign securities markets,
particularly those in emerging market countries, are known to experience long
delays between the trade and settlement dates of securities purchased and sold.
Such delays may result in a lack of liquidity and greater volatility in the
price of securities on those markets. As a result of these factors, the Board of
Directors of the Fund has adopted Daily Pricing and Valuation Procedures for the
Fund. These procedures outline the steps to be followed by the Manager and
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 Asset Allocation, International SmallCap, MicroCap, MidCap, MidCap Growth,
SmallCap, SmallCap Growth and SmallCap Value Accounts may invest in securities
of companies with small- or mid-sized market capitalizations. Market
capitalization is defined as total current market value of a company's
outstanding common stock. Investments in companies with smaller market
capitalizations may involve greater risks and price volatility (wide, rapid
fluctuations) than investments in larger, more mature companies. Smaller
companies may be less mature than older companies. At this earlier stage of
development, the companies may have limited product lines, reduced market
liquidity for their shares, limited financial resources or less depth in
management than larger or more established companies. Small companies also may
be less significant within their industries and may be at a competitive
disadvantage relative to their larger competitors. While smaller companies may
be subject to these additional risks, they may also realize more substantial
growth than larger or more established companies.

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

Temporary 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: Aggressive Growth and Asset Allocation
Sub-Advisor: Morgan Stanley Asset Management ("Morgan Stanley"), with
principal offices at 1221 Avenue of the Americas, New York, NY 10020,
provides a broad range of portfolio management services to customers in the
U.S. and abroad. As of December 31, 1999, Morgan Stanley, together with its
affiliated institutional asset management companies, managed investments
totaling approximately $184.9 billion as named fiduciary or fiduciary
adviser. On December 1, 1998 Morgan Stanley Asset Management Inc. changed
its name to Morgan Stanley Dean Witter Investment Management Inc. but
continues to do business in certain instances using the name Morgan Stanley
Asset Management.

Accounts: Balanced, Capital Value, Government Securities, Growth,
International, International SmallCap, MidCap, SmallCap, Stock Index 500,
and Utilities
Sub-Advisor: Invista Capital Management, LLC ("Invista"), an indirectly
wholly-owned subsidiary of Principal Life Insurance Company and an
affiliate of the Manager, was founded in 1985. It manages investments for
institutional investors, including Principal Life. Assets under management
as of December 31, 1999 were approximately $35.3 billion. Invista's address
is 1800 Hub Tower, 699 Walnut, Des Moines, Iowa 50309.

Account: MicroCap
Sub-Advisor: Goldman Sachs Assets Management ("GSAM"), 32 Old Slip, 17th
Floor, New York, NY 10005. As of September 1, 1999, the Investment Division
("IMD") was established as a new operating division of Goldman, Sachs & Co.
("Goldman Sachs"). This newly created entity includes GSAM. GSAM provides a
wide range of discretionary investment advisory services, quantitatively
driven and actively managed to U.S. and international equity portfolios,
U.S. and global fixed-income portfolios, commodity and currency products
and money market accounts. As of December 31, 1999, GSAM, along with other
units of IMD, had assets under management of $258.5 billion.

Account: MidCap Growth
Sub-Advisor: The Dreyfus Corporation ("Dreyfus"), 200 Park Avenue, New
York, NY 10166, was formed in 1947. Dreyfus is a wholly owned subsidiary of
Mellon Bank, N.A., which is a wholly owned subsidiary of Mellon Bank
Corporation ("Mellon"). As of December 31, 1999, Dreyfus managed or
administered approximately $119.6 billion in assets for approximately 1.7
million investor accounts nationwide.

Account: SmallCap Growth
Sub-Advisor: Berger LLC ("Berger"), 210 University Boulevard, Suite 900,
Denver, CO 80206. It serves as investment advisor, sub-advisor,
administrator or sub-administrator to mutual funds and institutional
investors. Berger is a wholly owned subsidiary of Kansas City Southern
Industries, Inc. ("KCSI"). KCSI is a publicly traded holding company with
principal operations in rail transportation, through its subsidiary the
Kansas City Southern Railway Company, and financial asset management
businesses. Assets under management for Berger as of December 31, 1999 were
approximately $7.1 billion.

Account: SmallCap Value
Sub-Advisor: J.P. Morgan Investment Management, Inc. ("Morgan"), 522 Fifth
Avenue, New York, NY 10036 is a wholly-owned subsidiary of J.P. Morgan &
Co. Incorporated ("J.P. Morgan") a bank holding company. J.P. Morgan,
through Morgan and its other subsidiaries, offers a wide range of services
to governmental, institutional, corporate and individual customers and acts
as investment advisor to individual and institutional clients. As of
December 31, 1999, J.P. Morgan and its subsidiaries had total combined
assets under management of approximately $349 billion.

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

The Manager is paid a fee by each Account for its services, which includes any
fee paid to the Sub-Advisor. The fee paid by each Account (as a percentage of
the average daily net assets) for the fiscal year ended December 31, 1999 was:

Management Other Total Operating
Account Fees Expenses Expenses

Aggressive Growth 0.75% 0.02% 0.77%
Asset Allocation 0.80 0.05 0.85
Balanced 0.57 0.01 0.58
Bond 0.49 0.01 0.50
Capital Value 0.43 0.00 0.43
Government Securities 0.49 0.01 0.50
Growth 0.45 0.00 0.45
International 0.73 0.05 0.78
International SmallCap 1.20 0.12 1.32
MicroCap 1.00 0.28 1.28*
MidCap 0.61 0.00 0.61
MidCap Growth 0.90 0.19 1.09*
Money Market 0.50 0.02 0.52
Real Estate 0.90 0.09 0.99
SmallCap 0.85 0.06 0.91
SmallCap Growth 1.00 0.07 1.07*
SmallCap Value 1.10 0.34 1.44*
Stock Index 500 0.35 0.14 0.49*
Utilities 0.60 0.04 0.64

* Before waiver

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

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

Aggressive Growth Account
(William Auslander and Philip Friedman)
The Aggressive Growth Account seeks to provide long-term capital appreciation by
investing primarily in growth-oriented common stocks of large capitalization
U.S. corporations and, to a limited extent, foreign corporations. The portfolio
of this Account generated excellent returns in 1999. The portfolio appreciated
40.2% versus 21.0% for the S&P 500 and 34.8% for the Lipper Large-Cap Growth
Index. Fourth quarter performance was solid as well with the portfolio
appreciating 22.0% versus 14.9% for the S&P 500 and 25.5% for the Lipper
Large-Cap Growth Index. The Account maintained and benefited from its philosophy
of opportunistic concentration driven by bottom-up fundamental company analysis
and an emphasis on gaining an "information edge" in the sectors and companies in
which the Account invests. At year-end, the Account's top 10 holdings accounted
for about 36% of total assets and the portfolio held positions in 80 stocks

U.S. equity markets again set records in 1999, led by large capitalization
growth stocks in general and a white-hot technology sector in particular. The
S&P 500's 21.0% increase left the index at an all-time high and 1999 marked the
10th consecutive up year for this index. The compounded return for the past five
years is a stunning 250%. With the exception of a brief period in the spring,
growth outperformed value throughout the year. Investors continue to believe and
invest in the sustainability of the growth of the largest companies, and for the
most part, these companies continue to deliver stellar results.

In the Aggressive Growth Account long-term capital appreciation is sought by
investing in growth-oriented equity securities of large capitalization,
predominantly U.S. corporations. The Account continues to reflect a mix of
classic growth stocks such as Microsoft, Cisco Systems, General Electric, Home
Depot and less well known growth names such as Tyco International, Clear Channel
Communications, and United Technologies. Managers were pleased with the
Account's broad-based performance, particularly in the context of a market that
continued to be dominated by a small number of large capitalization stocks. No
single stock accounted for more than 10% of the Account's absolute performance.
In addition, about 70% of the Account's relative outperformance was driven by
stock picking versus sector allocation.

Technology dominated the headlines and the sector performance charts in 1999.
Given the tremendous outperformance of the group, technology stocks now account
for 30% of the S&P 500's total market capitalization, up from 19% at the end of
1998 and 10% five years ago. Given technology's extremely strong performance,
one might find two things surprising. First, only about 27% of the Account's
1999 outperformance relative to the S&P 500 was attributable to technology
holdings. Second, about 86% of that relative outperformance was attributable to
successful stock picking within the group as the Account maintained a relatively
neutral posture toward technology versus the index weight throughout most of the
year. Account Managers feel this reflects well on the bottom-up, research
intensive approach used in stock picking.

Avoiding prominent underperformers remains important to the Account's success.
In a bull market, it is very easy to focus excessive attention on picking
winning stocks. Simple math reinforces the view that equal effort should be
spent attempting to avoid those companies with potential disappointing
fundamental changes, particularly in a current environment that has little
tolerance for "negative newsflow." In fact, much of the Account's outperformance
in 1999 was attributable to avoiding companies with deteriorating fundamentals.

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

Total Returns*
as of December 31, 1999
1 Year 5 Year 10 Year
------------------------
39.50% 32.01% 28.82%**

** Since inception 6/1/94

S&P 500
PAG Broad Lipper Large-Cap
Total Based Growth
Return Index Average
10,000 10,000 10,000
1994 10,259 10,230 10,055
1995 14,793 14,069 13,151
1996 18,942 17,297 15,681
1997 24,788 23,066 19,649
1998 29,486 29,657 24,140
1999 41,130 35,896 33,335

Note: Past performance is not predictive of future performance.

Asset Allocation Account
(Francine Bovich)
Global equity markets finished 1999 with strong gains, as the global economy
began to heal after the Asian and Russian economic crises experienced in 1997
and 1998. The S&P 500 delivered its fifth year of double-digit returns rising
21.0% in calendar year 1999. Morgan Stanley Capital International EAFE (Europe,
Australia and Far East) Index returned 27.0%, beating the S&P 500 for the first
time in five years, despite weak currencies in Europe. The most disappointing
asset class was fixed-income. As global growth stabilized and resumed,
inflationary fears mounted driving bond yields higher in the U.S. and Europe.
The Lehman Aggregate Index returned -0.8% during a volatile year.

Although the U.S. bull market in the first half showed signs of broadening,
market leadership narrowed dramatically in the second half. Value stocks, which
began to outperform growth in February and March, stagnated later in the year,
as inflation fears moderated and economic growth surprised on the upside. The
year ended with growth stocks again dominating value stocks by a wide margin.
Although rising interest rates and inflation expectations are usually bad for
stocks, markets have shrugged off rising rates as growth surprises outpaced
inflation surprises throughout 1999. This growth environment was also reflected
in the bond market. As investor confidence improved, risk tolerance rose to more
normal levels, benefiting spread products, which had suffered large losses in
the flight to quality at the end of 1998. Fixed-income spreads narrowed, and
investment grade governments and corporates underperformed mortgages, high yield
debt, and emerging market debt.

Non-U.S. stock market performance was strong, despite being held back by weaker
European currencies. The strongest performing regions were those which had
suffered the most over the past three years of currency crises and debt
deflation. Japan led the developed markets, rising 61.5% in 1999, as the
Japanese economy bottomed and began to recover. The combination of low
valuations, low interest rates, and a better earnings outlook was a powerful
contributor to the rise in the Japanese market and a strengthening of the Yen.
Pacific region stock performance was also strong, but was highly differentiated,
as the countries hardest hit by the emerging market debt crisis, Hong Kong and
Singapore, outperformed the more stable economies of Australia and New Zealand.
Asian economies bottomed in the early part of the year, and began a steep
trajectory of recovery. The depegging of Asian currencies from the U.S. Dollar
enabled many countries to exercise more flexibility in economic management, and
to some extent, decreased their vulnerability to rising U.S. interest rates.

European stock performance was mixed during the year. In the first half,
Eurozone economic performance disappointed on the downside, as Germany continued
to lag contributing to poor equity performance and a weaker currency. Although
European economic performance was more robust in the second half, the Euro
continued to weaken, closing the year 15% below its January 1 level. Europe
returned 15.9% in 1999.

The Account appreciated 19.5% for the year, outperforming the Lipper Flexible
Portfolio Fund average gain of 12.6%. The outperformance of the Account was due
to allocation decisions and strong security selection within certain of the
underlying implementation strategies. Allocation decisions that contributed
positively to results included overweighting equities relative to fixed-income
throughout the year, as equities significantly outperformed fixed-income, and an
emphasis on growth. Security selection within the U.S. growth strategies (Large
Cap and Emerging Growth) was the largest contributor to outperformance.

Throughout the year, the Account maintained a diversified investment strategy.
The Account's allocation to non-U.S. stocks also added value, as non-U.S. stocks
outperformed the S&P during this period. Account allocations to value-based
equity strategies and fixed-income detracted from results, but were more than
offset by other favorable portfolio decisions.

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

Total Returns*
as of December 31, 1999
1 Year 5 Year 10 Year
-----------------------
19.49% 16.01% 14.32%**

** Since inception 6/1/94

PAA Lipper
Total Flexible Portfolio
Return S&P 500 Index
10,000 10,000 10,000
1994 10,052 10,230 10,008
1995 12,128 14,069 12,518
1996 13,696 17,297 14,220
1997 16,187 23,066 16,878
1998 17,673 29,657 19,268
1999 21,117 35,897 21,686

Note: Past performance is not predictive of future performance.

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 Investment 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, 1999
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 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.

Growth Account
(Mary Sunderland)
Technology stocks drove the market in 1999. The technology sector of the S&P 500
returned 74% for the year. Coming out of 1998, technology stocks had been down
on concerns of a global economic slowdown. The slowdown did not occur and, in
fact, accelerated as world economic growth picked up. Technology is very
sensitive to global growth since 50% of the S&P 500 technology companies
earnings come from outside the U.S. The other major driver of technology stocks
was the realization that the Internet is for real and that it requires
technology spending to support its growth. The Growth Account trailed the S&P
500 by 4.60% in 1999. Returns were hampered by healthcare overweighting
throughout the year and a technology underweighting over the first nine months
of the year. Healthcare stocks were hurt by fears of further governmental
involvement, patent expirations and moderating earnings growth.

At the beginning of this year, management of the Growth Account was assumed by a
new large cap growth team based in New York City. During the transition, the
Account's exposure to technology and financials was increased and exposure to
healthcare and consumer staples was decreased.

Going forward, the technology sector continues to be seen as the highest growth
area of the economy and Account Managers expect to remain overweighted in
technology. The Internet is still in the early stages of its development.
Companies representing both the "old" and "new" economy must continue their
aggressive spending on infrastructure, irrespective of economic conditions, in
order to remain competitive. This sector is expected to continue to benefit from
increased usage of the World Wide Web for a wide range of purposes including
business-to-business e-commerce, communication, and entertainment.

Account Managers are currently looking to increase exposure to the health care
area. They feel current political concerns are overblown and issues related to
product pipelines are manageable. This sector exhibits superior growth at a
reasonable value.

Account Managers plan to remain neutral-weighted in the financial sector. This
sector offers solid potential based on very favorable demographics; an aging
worldwide population will fuel demand for retirement savings products. There is
a trend globally for increased demand for financial services. Although the
current interest rate environment augurs a short-term period of uncertainty,
Account Managers believe that interest rates are near their top and they are
bullish longer term on the direction of rates.

Consumer cyclical and retail stores focused on the baby boomer offer very good
growth potential. Management plans to be over-weighted in this sector, with
positive contributions to performance likely over the next 6-12 months.

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

Total Returns*
as of December 31, 1999
1 Year 5 Year 10 Year
-----------------------
16.44% 20.45% 18.94%**

** Since inception 5/2/94

Lipper
Growth S&P 500 Large-Cap Growth
Account Index Fund Avg.
10,000 10,000 10,000
1994 10,542 10,131 10,090
1995 13,243 13,934 13,197
1996 14,899 17,131 15,736
1997 18,916 22,844 19,717
1998 22,956 29,372 24,224
1999 26,729 35,552 33,451

Note: Past performance is not predictive of future performance.

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

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

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

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

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

** Since inception date 5/2/94

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

Note: Past performance is not predictive of future performance.

International SmallCap Account
(Dan Sherman and Darren Sleister)
The international small cap arena saw returns that were unprecedented previous
to 1999. The median international small cap fund's return according to Lipper
was 75.41% for the year. The International SmallCapAccount's return exceeded the
Lipper International Small-Cap Fund Average by 18.4% on a 1-year basis. Earlier
this year Japan was a significant outperformer in the small cap world and the
Account's holdings outpaced the index, returning on average, some 60%. The
Account went from a zero weighting in Japan to one that more closely matched the
benchmark mid-year, to lightening, fourth quarter, as Managers felt much of the
Japanese market had simply run out of steam. Fourth quarter saw investors taking
gains in the Japanese small caps as the economy once again came into question of
what could be delivered and how much restructuring was actually occurring.

1999 was a year for European start-up companies, many of which were
technology-oriented that soon turned into mid-caps due to massive price
appreciation in a short time span. A fundamental change was seen in the
liquidity flows as capital began to pour into the European markets in the fourth
quarter. The top performing sectors included media, telecommunications and
technology as those companies that had exposure in these areas saw strong price
appreciation in the fourth quarter as investors scrambled to gain exposure to
these industries.

Account Managers continue to look for market leaders in their respective fields
with good growth characteristics, a solid business strategy and strong barriers
to entry. 1999 was a year of stellar performance for technology companies as the
Internet and e-commerce began to demonstrate that they would revolutionize the
business world. Account Managers found some strong companies that were global
leaders and would benefit from the explosion of growth in e-commerce. We have
rotated out of many of the stronger performers and continue to look for new
opportunities where growth opportunities are undervalued relative to stock
price.

The International SmallCap Account continues to benefit from themes such as
outsourcing of electronic components, increasing advertising expenditures,
market research companies and indirect e-commerce solutions. At the current
time, growth companies offer the most attractive investments from a risk/return
trade-off compared to the more traditional value stocks. Managers continue to
look for companies that are at attractive valuations and also offer long-term
earnings growth potential.

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

Total Returns*
as of December 31, 1999
1 Year 5 Year 10 Year
-----------------------
93.81% 39.24%** --

** Since inception date 5/1/98

Morgan Stanley Lipper International
Capital International International SmallCap SmallCap
EAFE Index Fund Average Account*
--------------------- ---------------------- -------------
10,000 10,000 10,000
"1998" 10,379 9,320 8,963
"1999" 13,177 16,348 17,371

Note: Past performance is not predictive of future performance.

MicroCap Account
(Eileen Aptman, Paul Farrell and Eileen Rominger)
1999 ended on a positive note, as interest rate concerns dissipated, Y2K-related
liquidity fears proved unsubstantiated and the marketplace evaded any actual
trading volume declines or grand-scale increases in cash levels. During the
year, restrained inflation, solid growth in corporate profits and gains by a few
lead sectors drove U.S. indexes to record levels; the S&P 500 Index, Russell
Midcap Index and Russell 2000 Index ("Index") gained 21.0%, 18.2% and 21.3%,
respectively.

The Account's performance lagged the Index, as the small cap market was led by
an extremely narrow band of companies in a select few industries. The top 10
performers in the Index logged an extraordinary gain of 719% (weighted average
return of top 10 performers); nine of these ten stocks were in technology or
telecommunications. In fact, technology and media/telecom industries accounted
for more than 100% of the gain for the Index in 1999. These industries -
wireless, semiconductors, media, computer software and hardware, electronic
equipment and information services - together contributed 24 percentage points
of positive performance, compared to the index total return of 21%. The
Account's underweight in several of these industries hurt performance for the
year.

In an extraordinary period for the overall economy, many companies have posted
solid operating results. Lacking the badges of a) high-visibility growth or b)
an obvious role in the "New Economy," however, these same solid operators have
lagged in the stock market. Investors' gravitation to a very few leaders has
driven remarkable stock price performance commensurate with remarkably high
growth expectations. Since the year end, though, the rising interest rate
environment has bred increased investor impatience toward those stocks which
have not yet delivered earnings results to match their valuations. This
impatience has translated into tremendous volatility among expensively priced
stocks and some solid returns among those stocks which had gone unrecognized
even as their underlying businesses performed well. The Microcap Account has
benefited by owning well-positioned businesses selling at conservative
valuations.

Even though there has been a broadening of the market since the end of 1999,
Account Managers feel there is no simple answer when asked about the "New
Economy" vs. the "Old Economy." The New Economy (i.e., companies and industries
which offer new technological tools and platforms) has indeed changed the way to
conduct - and for analysts, the way to evaluate - a business. We acknowledge the
vast potential for new technologies' ability to enhance productivity, provide
new delivery and access mechanisms for both hard goods and entertainment
content, and shorten cycle times. Many holdings in the Account have benefited
already from their exposure to the New Economy, and Account Managers feel any
company's ability to utilize new technologies - whether the company is in the
technology or transportation sector - will likely be critical to its long-term
success. By owning some of the companies which are in the business of these new
technologies, and many companies which are their direct beneficiaries, Account
Managers believe the Account offers substantial upside to the long-term
investor.

Although the Account has experienced strong gains since the end of 1999, the
narrow leadership of the market by technology, internet and telecom stocks over
the last two years has left many excellent, highly profitable, well-managed
companies behind in terms of performance, even as these companies have posted
solid operating results. Our research-based investments offer substantial upside
potential, as they represent quality businesses selling at conservative
valuations.

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

Total Returns*
as of December 31, 1999
1 Year 5 Year 10 Year
-----------------------
-1.07% -12.05%** --

** Since inception date 5/1/98

Lipper
Russell Small-Cap Core MicroCap
2000 Index Fund Average Account*
---------- -------------- --------
10,000 10,000 10,000
"1998" 8,806 8,468 8,158
"1999" 10,678 10,875 8,071

Note: Past performance is not predictive of future performance.

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

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

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

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

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

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

Note: Past performance is not predictive of future performance.

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

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

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

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

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

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

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

** Since inception date 5/1/98

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

Note: Past performance is not predictive of future performance.

Real Estate Account
(Kelly Rush)
Signs that earnings growth was peaking in 1998 started a slide in real estate
stock prices that year which continued in 1999. Earnings growth of over 13% in
1998 fell to 10% in 1999. This pattern of decelerating earnings caused real
estate stocks to lose favor in a market focused on the extraordinary growth of
high technology companies. The result has been a price decline of over 30% in
the past two years.

The Real Estate Account performed in line with its benchmark index for the
twelve months ended December 31, 1999 and fell short of its peer group average.
Poor relative performance was concentrated in the first quarter where the
Account underperformed its peers by 1.90%.

The primary reason for underperformance versus peers was the Account's
underweighting in office property owners early in the year. Several office
companies delivered positive returns throughout the year and many peers elected
to overweight these companies. The Account lost ground in the first quarter
while it was underweighted in office owners. This exposure was later increased
and this shift helped contribute to the recovery in the Account's relative
performance.

The Account's exposure to industrial property owners also hampered performance.
The decision to overweight industrial owners proved right as this group
outperformed. However, security selection was poor causing a drag on returns.

Favorably impacting the Account's relative returns was the decision to
underweight owners of hotels and net leased properties. Account Managers
generally avoided hotel owners as lodging fundamentals declined and avoided net
lease property owners as they correctly anticipated rising interest rates would
hurt prices.

In 2000 Account Managers will continue to follow the relative valuation approach
used successfully in the past. Simply, the objective is to buy good companies at
attractive prices and sell them when more attractive opportunities are
uncovered. It is a fairly simple concept Account Managers diligently and
consistently seek to execute.

Comparison of Change in Value of $10,000 Investment in the Real Estate Account,
Lipper Real Estate Fund Average and Morgan Stanley REIT Index

Total Returns*
as of December 31, 1999
1 Year 5 Year 10 Year
-----------------------
-4.48% -6.58%** --

** Since inception date 5/1/98

Lipper
Morgan Stanley Real Estate Real Estate
REIT Index Fund Average Account*
10,000 10,000 10,000
-------------- ------------ -----------
"1998" 8,677 8,250 9,344
"1999" 8,282 7,991 8,925

Note: Past performance is not predictive of future performance.

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

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

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

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

** Since inception date 5/1/98

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

Note: Past performance is not predictive of future performance.

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

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

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

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

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

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

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

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

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

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

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

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

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

** Since inception date 5/1/98

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

Note: Past performance is not predictive of future performance.

SmallCap Value Account
(Marian Pardo and Leon Roisenberg)
The much anticipated Y2K rollover was the focus of attention for investors
throughout 1999. Expectations of a smooth transition were realized at year-end
with very little disruption. The Federal Reserve delayed raising interest rates
in December, despite a very strong economy, in order to prevent a Y2K market
correction. The resulting surge in the money supply contributed to a very strong
stock market. The S&P 500 ended the year up 21.04% but was surpassed by the
Russell 2000 Index (+21.26%) for the first time in six years.

As in the large cap market, technology stocks dominated the performance of the
small cap market. The growth in technology spending caused by the explosion of
the Internet has caused a frenzy among investors and many of the companies in
this sector traded at record high valuations. A number of newly public Internet
infrastructure, communications and software companies were top performers for
the year. The Initial Public Offering market flourished and merger and
acquisition activity continued at a record pace despite Y2K and interest rate
fears.

The strong performance by technology and Internet related shares perpetuated the
division between growth and value companies. The Russell 2000 Value Index
finished the year in negative territory -1.49% and significantly underperformed
the Russell 2000 Growth Index, which rose +43.09%.

The Account was up 21.5% for the year, versus the Russell 2000 Value Index,
which returned -1.5% for the 12-month period ending December 31, 1999.

The portfolio's top performing sectors were technology hardware +409.3%, drugs
+277.0% and technology software +80.8%. The weakest sector was retail, which
returned -44.4%. Other sectors that detracted from performance included health
services -24.5% and miscellaneous finance -24.4%. Stock selection had a
significant positive impact on performance.

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

Total Returns*
as of December 31, 1999
1 Year 5 Year 10 Year
-----------------------
21.45% 1.88%** --

** Since inception date 5/1/98

Lipper
Russell 2000 Small-Cap Value SmallCap Value
Value Index Fund Average Account*
------------ --------------- --------------
10,000 10,000 10,000
"1998" 8,592 8,873 8,494
"1999" 8,464 9,435 10,316

Note: Past performance is not predictive of future performance.

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

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

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

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

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

** Since inception date 5/3/99

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

Note: Past performance is not predictive of future performance.

Utilities Account
(Catherine Zaharis)
The Utilities Account had a stronger return than its index, and was ahead of
many diversified managers even though it lagged behind the average utility fund.

The reason for the dichotomy of performance was quite evident. The Account's
performance relative to the benchmark was due to a focus on telecommunications
that is no longer represented in the index. The telecommunications portion of
the utility universe had stronger relative returns, as the core growth prospects
of these companies are stronger than the electric and gas companies. The
telecommunications sector is one where growth has come from a variety of new
sources, particularly the new need for data transmission.

Many members of the peer group had investments in companies outside of the U.S.
These companies, both in telecommunications and electricity, performed better
than their U.S. counterparts. That was the primary source of underperformance,
in addition to energy-related holdings that were not included in the portfolio
in 1999.

Going forward, Account Managers continue to focus on growth opportunities within
all industries of this sector. The telecommunications industry has many new
entrants who are not only establishing a piece of market share, but are also
creating new ways of delivering service.

On the electric and gas side, mergers and maximizing opportunities in all areas
of providing energy to customers are key to long-term success. Companies are
looking at the optimal ways to provide the energy needs for their clients,
whether it is through traditional services or a variety of new and exciting
options. Account Managers are continually monitoring these companies for the
most promising opportunities within these fields.

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

Total Returns*
as of December 31, 1999
1 Year 5 Year 10 Year
-----------------------
2.29% 10.43%** --

** Since inception date 5/1/98

Standard & Poor's Dow Jones Lipper
500 Stock Utilities Index with Utilities Utilities
Index Income Fund Average Fund Average Account*
10,000 10,000 10,000 10,000
"1998" 11,172 10,250 10,957 11,536
"1999" 13,523 9,663 12,690 11,800

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.

Dow Jones Utility Index with Income: This average is a price-weighted average of
15 utility companies that are listed on the New York Stock Exchange and are
involved in the production of electrical energy.

Lehman Brothers 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 Flexible Portfolio Fund Average: This average consists of funds which
allocate their investments across various asset classes, including domestic
common stocks, bonds and money market instruments, with a focus on total return.
The one-year average currently contains 223 funds.

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

Lipper International Small-Cap Funds Average: This average consists of funds
which invest at least 65% of their assets in equity securities of non-United
States companies with market capitalizations less than U.S. $1 billion at the
time of purchase. The one-year average currently contains 70 funds.

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

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

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

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

Lipper Real Estate Fund Average: This average consists of funds which invest 65%
of their equity portfolio in equity securities of domestic and foreign companies
engaged in the real estate industry. The one-year average currently contains 132
funds.

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

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

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

Lipper Small-Cap Value Fund Average: This average consists of funds that invest
at least 75% of their equity assets in companies with market capitalizations of
less than 250% of the dollar weighted median market capitalization of the S&P
Small-Cap 600 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 263 funds.

Lipper Utilities Fund Average: This average consists of funds which invest 65%
of their equity portfolio in utility shares. The one-year average currently
contains 100 funds.

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

Morgan Stanley REIT Index: This is a capitalization-weighted index of the most
actively traded real estate investment trusts, and is designed to be a measure
of real estate equity performance.

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

Russell 2000 Value Index measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth values.

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

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

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

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

Income-Oriented Accounts:

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

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

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

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

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

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

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

Note: Past performance is not predictive of future performance.

Government Securities Account
(Martin Schafer)
This Account underperformed for the period ended December 31, 1999. A slightly
longer duration and the performance of the noncallable Private Export Funding
Corporation and Student Loan Marketing Association bonds versus mortgage-backed
securities (MBS), led to a modest underperformance for the period ended December
31, 1999.

Over the last year the Federal Reserve has cut interest rates to stabilize the
global financial turmoil, only to reverse course and start raising rates as
markets stabilized and global growth resumed. Account Managers view the Federal
Reserve actions as the equivalent of a doctor prescribing aspirin to treat the
economic patient. These are mild treatments, needed to keep inflation low and
growth reasonable.

On an absolute basis, the return for the Government Securities Account for the
year was poor. Fixed-income securities had no momentum, especially with the
Federal Reserve raising interest rates. This was especially true during December
as investors poured money into "Go-Go" name stocks and away from fixed-income
securities. Their attitude seems to be, "Why buy bonds when a stock will give
you one year's worth of returns in one day!"

Account Managers continue to believe that mortgage-backed securities (MBS) will
do well into the future. The quality, liquidity, lack of credit volatility and
agency participation are cited as the key drivers. The agency participation is a
"Huge" factor. Federal National Mortgage Association (FNMA) and Federal Home
Loan Mortgage Corporation (FHLMC) are stock companies driven by stockholders. In
order to grow earnings in the face of declining new issue MBS (rates have
risen), they are arbitraging more of the outstanding MBS. These agencies issue
debt and buy MBS to earn the "spread" for their stockholders. FNMA and FHLMC
should buy 60% of net MBS issuance in 2000 - keeping spreads very tight!

The Account continues to hold more discount MBS securities than the Lehman MBS
index (this leads to a bias of longer duration) as the Managers believe the
homeowner's propensity to refinance and the mortgage banker's technology driven
inducement to refinance loans puts great risk on securities priced above par.
This is especially true in a market when overall volume is declining as higher
interest rates impact both new and existing home markets.

Account Managers expect to stay close to the duration benchmarks. Currently the
Account is a little long but the Managers expect to be duration neutral soon,
and patiently wait for the opportunity to strategically lengthen.

As we look forward to 2000 keep in mind that a diamond is a lump of coal that
made good under severe pressure.

Comparison of Change in Value of $10,000 Investment in the Government Securities
Account, Lipper U.S. Mortgage Fund Average and Lehman Brothers Mortgage Index

Total Returns*
as of December 31, 1999
1 Year 5 Year 10 Year
-----------------------
-0.29% 7.96% 7.75%

Government Lehman Lipper
Securities Mortgage U.S. Mortgage
Account Index Index
10,000 10,000 10,000
1990 10,955 11,072 10,938
1991 12,812 12,813 12,556
1992 13,688 13,706 13,323
1993 15,066 14,643 14,316
1994 14,384 14,407 13,719
1995 17,127 16,827 15,946
1996 17,700 17,727 16,563
1997 19,538 19,409 17,984
1998 21,154 20,760 19,077
1999 21,094 21,146 19,201

Note: Past performance is not predictive of future performance.

Important Notes of the Income-Oriented Accounts:

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

Lehman Brothers Mortgage Index: This is an unmanaged index of 15- and 30-year
fixed rate securities backed by mortgage pools of the Government National
Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), and
Federal National Mortgage Association (FNMA).

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 U.S. Mortgage Fund Average: This average consists of mutual funds
investing at least 65% of their assets in mortgages/securities issued or
guaranteed as to principal and interest by the U.S. Government and certain
federal agencies. The one year average currently contains 62 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 which the Fund has the
authority to issue, without a shareholder vote.

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

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

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

Principal Life votes each Account's shares allocated to each of its separate
accounts registered under the Investment Company Act of 1940 and attributable to
variable annuity contracts or variable life insurance policies participating in
the separate accounts. The shares are voted in accordance with instructions
received from contract holders, policy owners, participants and annuitants.
Other shares of each Account held by each separate account, including shares for
which no timely voting instructions are received, are voted in proportion to the
instructions that are received with respect to contracts or policies
participating that separate account. Shares of each of the Accounts held in the
general account of Principal Life or in the unregistered separate accounts are
voted in proportion to the instructions that are received with respect to
contracts and policies 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>
AGGRESSIVE GROWTH ACCOUNT(a) 1999 1998 1997 1996 1995

<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $18.33 $16.30 $14.52 $12.94 $10.11
Income from Investment Operations:
Net Investment Income (Operating Loss)................ (.01) .04 .04 .11 .13
Net Realized and Unrealized Gain on Investments....... 7.17 2.99 4.26 3.38 4.31
Total from Investment Operations 7.16 3.03 4.30 3.49 4.44

Less Dividends and Distributions:
Dividends from Net Investment Income.................. -- (.04) (.04) (.11) (.13)
Distributions from Capital Gains...................... (1.60) (.96) (2.48) (1.80) (1.48)
Total Dividends and Distributions (1.60) (1.00) (2.52) (1.91) (1.61)

Net Asset Value, End of Period........................... $23.89 $18.33 $16.30 $14.52 $12.94

Total Return............................................. 39.50% 18.95% 30.86% 28.05% 44.19%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $379,062 $224,058 $149,182 $90,106 $33,643
Ratio of Expenses to Average Net Assets............... .77% .78% .82% .85% .90%
Ratio of Net Investment Income (Operating Loss) to
Average Net Assets.................................. (.08)% .22% .29% 1.05% 1.34%
Portfolio Turnover Rate............................... 89.6% 155.6% 172.6% 166.9% 172.9%
</TABLE>

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

<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $12.30 $11.94 $11.48 $11.11 $9.79
Income from Investment Operations:
Net Investment Income................................. .35 .31 .30 .36 .40
Net Realized and Unrealized Gain on Investments....... 2.00 .76 1.72 1.06 1.62
Total from Investment Operations 2.35 1.07 2.02 1.42 2.02

Less Dividends and Distributions:
Dividends from Net Investment Income.................. (.35) (.31) (.30) (.36) (.40)
Distributions from Capital Gains...................... (1.07) (.40) (1.26) (.69) (.30)
Total Dividends and Distributions (1.42) (.71) (1.56) (1.05) (.70)

Net Asset Value, End of Period........................... $13.23 $12.30 $11.94 $11.48 $11.11

Total Return............................................. 19.49% 9.18% 18.19% 12.92% 20.66%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $89,711 $84,089 $76,804 $61,631 $41,074
Ratio of Expenses to Average Net Assets............... .85% .89% .89% .87% .89%
Ratio of Net Investment Income to Average Net Assets.. 2.50% 2.51% 2.55% 3.45% 4.07%
Portfolio Turnover Rate............................... 86.7% 162.7% 131.6% 108.2% 47.1%
</TABLE>

See accompanying notes.

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%
</TABLE>

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

<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $12.02 $11.78 $11.33 $11.73 $10.12
Income from Investment Operations:
Net Investment Income................................. .81 .66 .76 .68 .62
Net Realized and Unrealized Gain (Loss) on Investments (1.12) .25 .44 (.40) 1.62
Total from Investment Operations (.31) .91 1.20 .28 2.24

Less Dividends and Distributions:
Dividends from Net Investment Income.................. (.82) (.66) (.75) (.68) (.63)
Excess Distributions from Capital Gains(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.

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>
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>
GOVERNMENT SECURITIES ACCOUNT(a) 1999 1998 1997 1996 1995

<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $11.01 $10.72 $10.31 $10.55 $9.38
Income from Investment Operations:
Net Investment Income................................. .71 .60 .66 .59 .60
Net Realized and Unrealized Gain (Loss) on Investments (.74) .28 .41 (.24) 1.18
Total from Investment Operations (.03) .88 1.07 .35 1.78

Less Dividends from Net Investment Income................ (.72) (.59) (.66) (.59) (.61)
Net Asset Value, End of Period........................... $10.26 $11.01 $10.72 $10.31 $10.55

Total Return............................................. (.29)% 8.27% 10.39% 3.35% 19.07%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $137,787 $141,317 $94,322 $85,100 $50,079
Ratio of Expenses to Average Net Assets............... .50% .50% .52% .52% .55%
Ratio of Net Investment Income to Average Net Assets.. 6.16% 6.15% 6.37% 6.46% 6.73%
Portfolio Turnover Rate............................... 19.7% 11.0% 9.0% 8.4% 9.8%
</TABLE>

See accompanying notes.

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

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

<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $20.46 $17.21 $13.79 $12.43 $10.10
Income from Investment Operations:
Net Investment Income................................. .14 .21 .18 .16 .17
Net Realized and Unrealized Gain on Investments....... 3.20 3.45 3.53 1.39 2.42
Total from Investment Operations 3.34 3.66 3.71 1.55 2.59

Less Dividends and Distributions:
Dividends from Net Investment Income.................. (.14) (.21) (.18) (.16) (.17)
Distributions from Capital Gains...................... (.10) (.20) (.10) (.03) (.09)
Excess Distributions from Capital Gains(b)............ -- -- (.01) -- --
Total Dividends and Distributions (.24) (.41) (.29) (.19) (.26)

Net Asset Value, End of Period........................... $23.56 $20.46 $17.21 $13.79 $12.43
Total Return............................................. 16.44% 21.36% 26.96% 12.51% 25.62%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $345,882 $259,828 $168,160 $99,612 $42,708
Ratio of Expenses to Average Net Assets............... .45% .48% .50% .52% .58%
Ratio of Net Investment Income to Average Net Assets.. .67% 1.25% 1.34% 1.61% 2.08%
Portfolio Turnover Rate............................... 65.7% 9.0% 15.4% 2.0% 6.9%
</TABLE>

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

<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $14.51 $13.90 $13.02 $10.72 $9.56
Income from Investment Operations:
Net Investment Income................................. .48 .26 .23 .22 .19
Net Realized and Unrealized Gain on Investments....... 3.14 1.11 1.35 2.46 1.16
Total from Investment Operations 3.62 1.37 1.58 2.68 1.35

Less Dividends and Distributions:
Dividends from Net Investment Income.................. (.47) (.25) (.23) (.22) (.18)
Distributions from Capital Gains...................... (1.46) (.51) (.47) (.16) (.01)
Excess Distributions from Capital Gains(b)............ (.25) -- -- -- --
Total Dividends and Distributions (2.18) (.76) (.70) (.38) (.19)

Net Asset Value, End of Period........................... $15.95 $14.51 $13.90 $13.02 $10.72
Total Return............................................. 25.93% 9.98% 12.24% 25.09% 14.17%
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $197,235 $153,588 $125,289 $71,682 $30,566
Ratio of Expenses to Average Net Assets............... .78% .77% .87% .90% .95%
Ratio of Net Investment Income to Average Net Assets.. 3.11% 1.80% 1.92% 2.28% 2.26%
</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 (except as noted):

<TABLE>
<CAPTION>
INTERNATIONAL SMALLCAP ACCOUNT 1999 1998(c)

<S> <C> <C>
Net Asset Value, Beginning of Period..................... $9.00 $9.97
Income from Investment Operations:
Net Investment Income (Operating Loss)................ (.02) .01
Net Realized and Unrealized Gain (Loss) on Investments 8.41 (.95)
Total from Investment Operations 8.39 (.94)

Less Dividends and Distributions:
Dividends from Net Investment Income.................. -- (.03)
Distributions from Capital Gains...................... (.73) --
Net Asset Value, End of Period........................... $16.66 $9.00

Total Return............................................. 93.81% (10.37)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $40,040 $13,075
Ratio of Expenses to Average Net Assets............... 1.32% 1.34%(e)
Ratio of Net Investment Income (Operating Loss) to
Average Net Assets.................................. (.28)% .24%(e)
Portfolio Turnover Rate............................... 241.2% 60.3%(e)
</TABLE>

<TABLE>
<CAPTION>
MICROCAP ACCOUNT 1999 1998(c)

<S> <C> <C>
Net Asset Value, Beginning of Period..................... $8.17 $10.04
Income from Investment Operations:
Net Investment Income(f).............................. .02 .03
Net Realized and Unrealized Gain (Loss) on Investments (.11) (1.86)
Total from Investment Operations (.09) (1.83)

Less Dividends from Net Investment Income................ (.01) (.04)
Net Asset Value, End of Period........................... $8.07 $8.17

Total Return............................................. (1.07)% (18.42)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $6,418 $5,384
Ratio of Expenses to Average Net Assets(f)............ 1.06% 1.38%(e)
Ratio of Net Investment Income to Average Net Assets.. 0.22% 0.57%(e)
Portfolio Turnover Rate............................... 88.9% 55.3%(e)
</TABLE>

See accompanying notes.

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

<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%
</TABLE>

<TABLE>
<CAPTION>
MIDCAP GROWTH ACCOUNT 1999 1998(c)

<S> <C> <C>
Net Asset Value, Beginning of Period..................... $9.65 $9.94
Income from Investment Operations:
Net Investment Income (Operating Loss)(f)............. .02 (.01)
Net Realized and Unrealized Gain (Loss) on Investments 1.01 (.28)
Total from Investment Operations 1.03 (.29)

Less Dividends from Net Investment Income................ (.02) --
Net Asset Value, End of Period........................... $10.66 $9.65

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

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

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

<TABLE>
<CAPTION>
REAL ESTATE ACCOUNT 1999 1998(c)

<S> <C> <C>
Net Asset Value, Beginning of Period..................... $9.07 $10.01
Income from Investment Operations:
Net Investment Income................................. .43 .32
Net Realized and Unrealized Gain (Loss) on Investments (.85) (.97)
Total from Investment Operations (.42) (.65)

Less Dividends from Net Investment Income................ (.45) (.29)
Net Asset Value, End of Period........................... $8.20 $9.07

Total Return............................................. (4.48)% (6.56)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $10,560 $10,909
Ratio of Expenses to Average Net Assets............... .99% 1.00%(e)
Ratio of Net Investment Income to Average Net Assets 4.92% 5.40%(e)
Portfolio Turnover Rate............................... 101.9% 5.6%(e)
</TABLE>

<TABLE>
<CAPTION>
SMALLCAP ACCOUNT 1999 1998(c)

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

Less Distributions from Capital Gains.................... (.99) --
Net Asset Value, End of Period........................... $10.74 $8.21

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

See accompanying notes.

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

<TABLE>
<CAPTION>
SMALLCAP GROWTH ACCOUNT 1999 1998(c)

<S> <C> <C>
Net Asset Value, Beginning of Period..................... $10.10 $9.84
Income from Investment Operations:
Net Investment Income (Operating Loss)(f)............. (.05) (.04)
Net Realized and Unrealized Gain on Investments....... 9.70 .30
Total from Investment Operations 9.65 .26

Less Distributions from Capital Gains.................... (.19) --
Net Asset Value, End of Period........................... $19.56 $10.10

Total Return............................................. 95.69% 2.96%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $39,675 $8,463
Ratio of Expenses to Average Net Assets(f)............ 1.05% 1.31%(e)
Ratio of Net Investment Income (Operating Loss) to
Average Net Assets.................................. (.61)% (.80)%(e)
Portfolio Turnover Rate............................... 98.0% 166.5%(e)
</TABLE>

<TABLE>
<CAPTION>
SMALLCAP VALUE ACCOUNT 1999 1998(c)

<S> <C> <C>
Net Asset Value, Beginning of Period..................... $8.34 $9.84
Income from Investment Operations:
Net Investment Income(f).............................. .06 .03
Net Realized and Unrealized Gain (Loss) on Investments 1.72 (1.50)
Total from Investment Operations 1.78 (1.47)

Less Dividends from Net Investment Income................ (.06) (.03)
Net Asset Value, End of Period........................... $10.06 $8.34

Total Return............................................. 21.45% (15.06)%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $11,080 $6,895
Ratio of Expenses to Average Net Assets(f)............ 1.16% 1.56%(e)
Ratio of Net Investment Income to Average Net Assets.. .82% .73%(e)
Portfolio Turnover Rate............................... 89.7% 53.4%(e)
</TABLE>

<TABLE>
<CAPTION>
STOCK INDEX 500 ACCOUNT 1999(g)

<S> <C>
Net Asset Value, Beginning of Period..................... $9.83
Income from Investment Operations:
Net Investment Income(f).............................. .06
Net Realized and Unrealized Gain on Investments....... .97
.. Total from Investment Operations 1.03

Less Dividends and Distributions:
Dividends from Net Investment Income.................. (.07)
Distributions from Capital Gains...................... (.08)
Total from Dividends and Distributions (.15)

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

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

FINANCIAL HIGHLIGHTS (Continued)

PRINCIPAL VARIABLE CONTRACTS FUND, INC.

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

<TABLE>
<CAPTION>
UTILITIES ACCOUNT 1999 1998(c)

<S> <C> <C>
Net Asset Value, Beginning of Period..................... $10.93 $9.61
Income from Investment Operations:
Net Investment Income................................. .23 .15
Net Realized and Unrealized Gain on Investments....... .02 1.35
Total from Investment Operations .25 1.50

Less Dividends and Distributions:
Dividends from Net Investment Income.................. (.23) (.18)
Distributions from Captial Gains...................... (.05) --

Total Dividends and Distributions (.28) (.18)

Net Asset Value, End of Period........................... $10.90 $10.93
Total Return............................................. 2.29% 15.36%(d)
Ratio/Supplemental Data:
Net Assets, End of Period (in thousands).............. $30,684 $18,298
Ratio of Expenses to Average Net Assets............... .64% .69%(e)
Ratio of Net Investment Income to Average Net Assets.. 2.52% 2.93%(e)
Portfolio Turnover Rate............................... 23.0% 9.5%(e)
</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
Principal Aggressive Growth Fund, Inc. Aggressive Growth Account
Principal Asset Allocation Fund, Inc. Asset Allocation Account
Principal Balanced Fund, Inc. Balanced Account
Principal Bond Fund, Inc. Bond Account
Principal Capital Accumulation Fund, Inc. Capital Value Account
Principal Government Securities Fund, Inc. Government Securities Account
Principal Growth Fund, Inc. Growth Account
Principal High Yield Fund, Inc. High Yield Account
Principal World Fund, Inc. International Account
Principal Emerging Growth Fund, Inc. MidCap Account
Principal Money Market Fund, Inc. Money Market Account

(b) 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.

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

<TABLE>
<CAPTION>
Date Net Per Share Realized
Operations Investment and Unrealized
Account Commenced Income Gains (Losses)

<S> <C> <C> <C>
International SmallCap Account April 16, 1998 $.02 $(.05)
MicroCap Account April 9, 1998 .01 .03
MidCap Growth Account April 23, 1998 .01 (.07)
Real Estate Account April 23, 1998 .01 --
SmallCap Account April 9, 1998 -- .27
SmallCap Growth Account April 2, 1998 -- (.16)
SmallCap Value Account April 16, 1998 .01 (.17)
Utilities Account April 2, 1998 .04 (.43)
</TABLE>

(d) Total return amounts have not been annualized.

(e) Computed on an annualized basis.

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

<TABLE>
<CAPTION>
Per Share Ratio of Expenses
Periods Ended Net Investment to Average Net Amount
Account December 31 Income (Loss) Assets Waived

<S> <C> <C> <C> <C>
MicroCap Account 1999 $(.01) 1.28% $13,239
MidCap Growth Account 1999 .01 1.09 14,359
MidCap Value Account 1999 .01 1.26 2,360
SmallCap Growth Account 1999 (.05) 1.07 3,049
SmallCap Value Account 1999 .04 1.44 23,900
Stock Index 500 Account 1999 .05 .49 15,231
</TABLE>

(g) Period from May 1, 1999, date shares first offered to the public, through
December 31, 1999. Per share net investment income and realized and
unrealized gains (losses) for the period from the initial purchase of
shares through April 30, 1999, were recognized as follows, none of which
was distributed to the sole shareholder, Principal Life Insurance Company,
during the period. This represents activities of each account prior to the
initial public offering.

Date Net Per Share Realized
Operations Investment and Unrealized
Account Commenced Income Gains (Losses)
Stock Index 500 Account April 22, 1999 $.01 $(.18)

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

<PAGE>
(FREEDOM) SUPPLEMENT DATED NOVEMBER 27, 2000
TO THE PROSPECTUS FOR
PRINCIPAL VARIABLE CONTRACTS FUND, INC.
DATED MAY 1, 2000

On page 7, under the Day-to-day Account Management section, replace with the
following:

Since October 2000 Tom Morabito, CFA. Mr. Morabito joined Invista in 2000 as the
lead small-cap value portfolio manager. He has more than 12 years of
analytical and portfolio management expertise. Since 1994, Mr. Morabito was
a manager for INVESCO Management & Research. He received his MBA in Finance
from Northestern University and his Bachelor's degree in Economics from
State University of New York. He has earned the right to use the Chartered
Financial Analyst designation.

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.

On page 13, under the Day-to-day Account Management section, remove the first
paragraph.

On page 25, under the Day-to-day Account Mnaagement section, replace the second
paragraph with the following:

Since October 2000 Tom Morabito, CFA. Mr. Morabito joined Invista in 2000 as the
lead small-cap value portfolio manager. He has more than 12 years of
analytical and portfolio management expertise. Since 1994, Mr. Morabito was
a manager for INVESCO Management & Research. He received his MBA in Finance
from Northestern University and his Bachelor's degree in Economics from
State University of New York. He has earned the right to use the Chartered
Financial Analyst designation.

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

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

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

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

PRINCIPAL VARIABLE CONTRACTS FUND, INC.

ACCOUNTS OF THE FUND

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

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

The date of this Prospectus is May 1, 2000.

TABLE OF CONTENTS

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

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

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

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

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

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

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

ACCOUNT DESCRIPTIONS.......

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

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

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

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

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

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

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

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

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

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

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

GROWTH-ORIENTED ACCOUNT

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

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

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

Invista may invest up to 35% of Account assets in equity securities, other than
common stocks, issued by blue chip companies and in equity securities of
companies that do not fit the blue chip definition. It may also invest up to 5%
of Account assets in securities of unseasoned issuers. Unseasoned issuers may be
developing or marketing new products or services for which markets are not yet
established and may never become established. While small, unseasoned companies
may offer greater opportunities for capital growth than larger, more established
companies, they also involve greater risks and should be considered speculative.

Up to 20% of Account assets may be invested in foreign securities. The issuers
of the foreign securities do not have to meet the criteria for blue chip
companies. Foreign stocks carry risks that are not generally found in stocks of
U.S. companies. These include the risk that a foreign security could lose value
as a result of political, financial and economic events in foreign countries. In
addition, foreign securities may be subject securities regulators with less
stringent accounting and disclosure standards than are required of U.S.
companies.

Main Risks
While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of the stocks owned by the Account changes
on a daily basis. The current price reflects the activities of individual
companies and general market and economic conditions. In the short-term, stock
prices can fluctuate dramatically in response to these factors. As a result, the
value of your investment in the Account will go up and down. If you sell your
shares when their value is less than the price you paid, you will lose money.
Because different types of stocks tend to shift in and out of favor depending on
market and economic conditions, the Account's performance may sometimes be lower
or higher than that of other types of funds.

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

Annual Total Returns

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

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

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

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

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

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

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

Examples

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

Account Operating Expenses

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

Day-to-day Account Management

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

INCOME-ORIENTED ACCOUNT

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

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

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

Annual Total Returns

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

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

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

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

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

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

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

Examples

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

Account Operating Expenses

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

Day-to-day Account Management

GROWTH-ORIENTED ACCOUNT

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

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:

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

Examples

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

Account Operating Expenses

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

Day-to-day Account Management

GROWTH-ORIENTED ACCOUNT

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

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

Annual Total Returns

1995 14.17
1996 25.09
1997 12.24
1998 9.98
1999 25.93

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

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

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

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

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

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

Examples

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

Account Operating Expenses

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

Day-to-day Account Management

GROWTH-ORIENTED ACCOUNT

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

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

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

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

Although Janus expects that under normal market conditions the assets of the
Account will be invested in common stocks, it may also invest in other
securities when Janus perceives an opportunity for capital growth from such
securities or to receive a return on idle cash. These may include: U.S.
Government obligations, corporate bonds and debentures, high grade commercial
paper, preferred stocks, convertible securities, warrants or other securities of
U.S. issuers. Pursuant to an exemptive order that Janus has received from the
SEC, the Account may also invest in money market funds managed by Janus as a
means of receiving a return on idle cash. The Account's cash position may
increase when Janus is unable to locate investment opportunities that it
believes have desirable risk/reward characteristics.

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

The Account may invest up to 5% of its assets in high-yield/high-risk bonds.
Such securities are sometimes referred to as "junk bonds" and are considered
speculative. These securities offer a higher yield than other, higher rated
securities, but they carry a greater degree of risk and are considered
speculative by the major credit rating agencies.

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

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

Annual Total Returns

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

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

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

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

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

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

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

Examples

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

Account Operating Expenses

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

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

Day-to-day Account Management

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

GROWTH-ORIENTED ACCOUNT

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

Annual Total Returns

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

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

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

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

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

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

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

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

Examples

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

Account Operating Expenses

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

Day-to-day Account Management

GROWTH-ORIENTED ACCOUNT

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

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

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

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

Annual Total Returns

1999 10.67

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

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

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

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

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

Examples

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

Account Operating Expenses

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

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

Day-to-day Account Management

GROWTH-ORIENTED ACCOUNT

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

Main Strategies
Under normal market conditions, the Account invests at least 65% of its total
assets in common stocks of companies with a medium market capitalization.
Companies may range from the well established and well known to the new and
unseasoned.

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

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

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

The net asset value of the Account's shares is based on the value of the
securities it holds. The value of the stocks owned by the Account changes on a
daily basis. The current share price reflects the activities of individual
companies and general market and economic conditions. In the short term, stock
prices can fluctuate dramatically in response to these factors. The Account's
share price may fluctuate more than that of funds primarily invested in stocks
of large companies. Mid-sized companies may pose greater risk due to narrow
product lines, limited financial resources, less depth in management or a
limited trading market for their stocks. Because of these fluctuations,
principal values and investment returns vary. As with all mutual funds, if you
sell your shares when their value is less than the price you paid, you will lose
money.

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

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

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

Annual Total Returns

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

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

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

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

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

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

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

Examples

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

Account Operating Expenses

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

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

Day-to-day Account Management

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

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

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

Annual Total Returns

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

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

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

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

Past One Past FivePast Ten
Account Year Years Years

Money Market 4.84% 5.20% 4.94%

Examples

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

Account Operating Expenses

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

Day-to-day Account Management

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

GROWTH-ORIENTED ACCOUNT

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

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

Annual Total Returns

1999 43.58

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

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

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

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

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

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

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

Examples

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

Account Operating Expenses

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

Day-to-day Account Management

GROWTH-ORIENTED ACCOUNT

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

The net asset value of the Account's shares is based on the values of the
securities it holds. The value of the stocks owned by the Account changes on a
daily basis. The current share price reflects the activities of individual
companies and general market and economic conditions. In the short term, stock
prices can fluctuate dramatically in response to these factors. Because of these
fluctuations, principal values and investment returns vary. As with all mutual
funds, if you sell your shares when their value is less than the price you paid,
you will lose money.

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

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

Annual Total Returns

1999 95.69

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

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

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

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

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

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

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

Examples

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

Account Operating Expenses

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

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

Day-to-day Account Management

GROWTH-ORIENTED ACCOUNT

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

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

Annual Total Returns

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

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

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

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

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

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

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

Examples

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

Account Operating Expenses

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

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

Day-to-day Account Management

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

The Growth-Oriented Accounts invest primarily in common stocks. Under normal
market conditions, the Blue Chip, Capital Value, International, and MidCap
Accounts are fully invested in equity securities. Under unusual circumstances,
each of the Growth-Oriented Accounts may invest without limit in cash for
temporary or defensive purposes. The Accounts also maintain a portion of their
assets in cash while they are making long-term investment decisions and to cover
sell orders from shareholders.

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

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

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

Each of the Accounts may lend its portfolio securities to unaffiliated
broker-dealers and other unaffiliated qualified financial institutions.

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

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

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

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

Foreign Securities
Each of the following Accounts may invest in foreign securities to the indicated
percentage of its assets (debt securities issued in the United States pursuant
to a registration statement filed with the Securities and Exchange Commission
are not treated as foreign securities for purposes of these limitations.):
International Account - 100%;
LargeCap Growth and SmallCap Growth Accounts - 25%; Blue Chip, Bond,
Capital Value and SmallCap Accounts - 20%; MidCap, MidCap Growth, MidCap
Value and Stock Index 500 Accounts - 10%.

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

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

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

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

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

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

PRICING OF ACCOUNT SHARES

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

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

Accounts: Blue Chip, Capital Value, International, MidCap, SmallCap and
Stock Index 500

Sub-Advisor: Invista Capital Management, LLC ("Invista"), an indirectly
wholly-owned subsidiary of Principal Life Insurance Company and
an affiliate of the Manager, was founded in 1985. It manages
investments for institutional investors, including Principal
Life. Assets under management as of December 31, 1999 were
approximately $35.3 billion. Invista's address is 1800 Hub Tower,
699 Walnut, Des Moines, Iowa 50309.

Account: LargeCap Growth
Sub-Advisor: Janus Capital Corporation ("Janus"), 100 Fillmore Street,
Denver CO 80206-4928, was formed in 1969. Kansas City
Southern Industries, Inc. ("KCSI") owns approximately 82%
of the outstanding voting stock of Janus, indirectly
through its subsidiary Stillwell Financial Inc., most of
which it acquired in 1984. KCSI has announced its intention
to spin-off its financial services subsidiaries, which it
expects to complete in the first half of 2000. As of
January 31, 2000, Janus managed or administered over $256
billion in assets.

Account: MidCap Growth
Sub-Advisor: The Dreyfus Corporation ("Dreyfus"), 200 Park Avenue, New York,
NY 10166, was formed in 1947. The Dreyfus Corporation is a
wholly-owned subsidiary of Mellon Bank, N.A., which is a
wholly-owned subsidiary of Mellon Bank Corporation (Mellon). As
of December 31, 1999 the Dreyfus Corporation managed or
administered approximately $119.6 billion in assets for
approximately 1.7 million investor accounts nationwide.

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

Account: SmallCap Growth
Sub-Advisor: Berger LLC ("Berger") 210 University Boulevard, Suite 900, Denver
CO 80206. It serves as investment advisor, sub-advisor,
administrator or sub-administrator to mutual funds and
institutional investors. Berger is a wholly-owned subsidiary of
Kansas City Southern Industries, Inc. (KCSI). KCSI is a publicly
traded holding company with principal operations in rail
transportation, through its subsidiary The Kansas City Southern
Railway Company, and financial asset management businesses.
Assets under management for Berger as of December 31, 1999 were
approximately $7.1 billion.

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

* Before waiver

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

MANAGERS' COMMENTS

Growth-Oriented Accounts

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

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

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

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

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

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

** Since inception date 5/3/99

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

Note: Past performance is not predictive of future performance

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%

Note: Past performance is not predictive of future performance.

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

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

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

** Since inception date 5/2/94

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

Note: Past performance is not predictive of future performance.

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

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

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

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

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

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

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

** Since inception date 5/3/99

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

Note: Past performance is not predictive of future performance.

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

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

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

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

Note: Past performance is not predictive of future performance.

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

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

** Since inception date 5/1/98

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

Note: Past performance is not predictive of future performance.

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

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

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

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

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

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

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

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

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

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

** Since inception date 5/3/99

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

Note: Past performance is not predictive of future performance.

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

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

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

** Since inception date 5/1/98

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

Note: Past performance is not predictive of future performance

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

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

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

** Since inception date 5/1/98

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

Note: Past performance is not predictive of future performance.

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

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

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

** Since inception date 5/3/99

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

Note: Past performance is not predictive of future performance.

Important Notes of the Growth-Oriented Accounts:

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

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

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

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

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

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

Income-Oriented Accounts:

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

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

Note: Past performance is not predictive of future performance.

Important Notes of the Income-Oriented Accounts:

Note: Mutual fund data from Lipper Inc.

GENERAL INFORMATION ABOUT AN ACCOUNT

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

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

Purchase of Account Shares
Shares are purchased from Princor Financial Services Corporation, the Fund's
principal underwriter. There are no sales charges on shares of the Accounts.
There are no restrictions on amounts to be invested in shares of the Accounts.

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

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

FINANCIAL HIGHLIGHTS

PRINCIPAL VARIABLE CONTRACTS FUND, INC.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

</TABLE>

See accompanying notes.

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

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

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

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

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

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

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

Total from Investment Operations 3.33

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

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

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

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

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

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

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

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

See accompanying notes.
</TABLE>

<TABLE>
FINANCIAL HIGHLIGHTS (Continued)

PRINCIPAL VARIABLE CONTRACTS FUND, INC.

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

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

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

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

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

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

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

Total from Dividends and Distributions (.24)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Total from Dividends and Distributions (.15)

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

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

FINANCIAL HIGHLIGHTS (Continued)

Notes to Financial Highlights

(a) Period from May 1, 1999, date shares first offered to the public, through
December 31, 1999. Per share net investment income and realized and
unrealized gains (losses) for the period from the initial purchase of
shares through April 30, 1999, were recognized as follows, none of which
was distributed to the sole shareholder, Principal Life Insurance Company,
during the period. This represents activities of each Account prior to the
initial public offering.

Date Net Per Share Realized
Operations Investment and Unrealized
Account Commenced Income Gains (Losses)

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

(b) Total return amounts have not been annualized.

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

Former Fund Name Current Account Name
Principal Bond Fund, Inc. Bond Account
Principal Capital Accumulation Fund, Inc. Capital Value Account
Principal World Fund, Inc. International Account
Principal Emerging Growth Fund, Inc. MidCap Account
Principal Money Market Fund, Inc. Money Market Account

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

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

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

Date Net Per Share Realized
Operations Investment and Unrealized
Account Commenced Income Gains (Losses)

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

Additional information about the Fund is available in the Statement of
Additional Information dated May 1, 2000 and which is part of this prospectus.
Information about the Funds investments is also available in the Funds annual
and semi-annual reports to shareholders. In the Funds annual report, you will
find a discussion of the market conditions and investment strategies that
significantly affected the Funds performance during its last fiscal year. The
Statement of Additional Information and annual and semi-annual reports can be
obtained free of charge by writing or telephoning Princor Financial Services
Corporation, P.O. Box 10423, Des Moines, IA 50306. Telephone 1-800-451-5447.

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

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

<PAGE>
(FVA) SUPPLEMENT DATED NOVEMBER 27, 2000
TO THE PROSPECTUS FOR
PRINCIPAL VARIABLE CONTRACTS FUND, INC.
DATED MAY 1, 2000 AS REVISED THROUGH OCTOBER 24, 2000

On page 21, under the Day-to-day Account Management section, remove the first
paragraph.

On page 25, under the Day-to-day Account Management section, remove the first
paragraph.

On page 33, under the Day-to-day Account Management section, remove the second
paragraph.

On page 45, under the Day-to-day Account Management section, replace the second
paragraph with the following:

Since ctober 2000 Tom Morabito, CFA. Mr. Morabito joined Invista in 2000 as the
lead small-cap value portfolio manager. He has more than 12 years of
analytical and portfolio management expertise. Since 1994, Mr. Morabito was
a manager for INVESCO Management & Research. He received his MBA in Finance
from Northestern University and his Bachelor's degree in Economics from
State University of New York. He has earned the right to use the Chartered
Financial Analyst designation.

PRINCIPAL VARIABLE CONTRACTS FUND, INC.

ACCOUNTS OF THE FUND

Aggressive Growth Account
Asset Allocation Account
Balanced Account
Bond Account
Capital Value Account
Government Securities Account
Growth Account
International Account
International Emerging Markets Account
International SmallCap Account
LargeCap Growth Account
LargeCap Growth Equity Account
LargeCap Stock Index Account
(previously Stock Index 500 Account)
MicroCap Account
MidCap Account
MidCap Growth Account
MidCap Growth Equity Account
Money Market Account
Real Estate Account
SmallCap Account
SmallCap Growth Account
SmallCap Value Account
Utilities 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
as revised through October 24, 2000

TABLE OF CONTENTS

ACCOUNT DESCRIPTIONS .................................................. 4
Aggressive Growth Account.......................................... 6
Asset Allocation Account........................................... 8
Balanced Account................................................... 10
Bond Account....................................................... 12
Capital Value Account.............................................. 14
Government Securities Account...................................... 16
Growth Account..................................................... 18
International Account.............................................. 20
International Emerging Markets Account............................. 22
International SmallCap Account..................................... 24
LargeCap Growth Account............................................ 26
LargeCap Growth Equity Account..................................... 28
LargeCap Stock Index Account....................................... 30
MicroCap Account................................................... 32
MidCap Account..................................................... 34
MidCap Growth Account.............................................. 36
MidCap Growth Equity Account....................................... 38
Money Market Account............................................... 40
Real Estate Account................................................ 42
SmallCap Account................................................... 44
SmallCap Growth Account............................................ 46
SmallCap Value Account............................................. 48
Utilities Account.................................................. 50

CERTAIN INVESTMENT STRATEGIES AND RELATED RISKS......................... 52

PRICING OF ACCOUNT SHARES............................................... 57

DIVIDENDS AND DISTRIBUTIONS............................................. 57

MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE.......................... 58
The Manager........................................................ 58
The Sub-Advisors................................................... 58
Duties of the Manager and Sub-Advisor.............................. 60

MANAGERS' COMMENTS...................................................... 62

GENERAL INFORMATION ABOUT AN ACCOUNT.................................... 76
Eligible Purchasers................................................ 76
Shareholders Rights................................................ 76
Non-Cumulative Voting.............................................. 77
Purchase of Account Shares......................................... 77
Sale of Account Shares............................................. 77
Restricted Transfers............................................... 78
Financial Statements............................................... 78

FINANCIAL HIGHLIGHTS.................................................... 80
Notes to Financial Highlights...................................... 88

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

<TABLE>
<CAPTION>
Sub-Advisor Account
----------- -------
<S> <C>

Berger LLC ("Berger") SmallCap Growth
Dreyfus Corporation ("Dreyfus") MidCap Growth
Duncan-Hurst Capital Management Inc. ("Duncan-Hurst") LargeCap Growth Equity
Goldman Sachs Asset Management ("Goldman") MicroCap
Invista Capital Management, LLC* ("Invista") Balanced (equity securities portion), Capital Value,
Growth, International, International Emerging
Markets, International SmallCap, LargeCap Stock
Index (previously Stock Index 500), MidCap,
SmallCap and Utilities
Janus Capital Corporation ("Janus") LargeCap Growth
J.P. Morgan Investment Management, Inc. ("Morgan") SmallCap Value
Morgan Stanley Asset Management ("Morgan Stanley") Aggressive Growth and Asset Allocation
Principal Capital Income Investors, LLC* ("PCII") Balanced (fixed-income securities portion)and
Government Securities

Turner Investment Partners, Inc. ("Turner") MidCap Growth Equity
</TABLE>

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

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

Primary investment strategy

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

Annual operating expenses

The annual operating expenses for each Account are deducted from Account assets
(stated as a percentage of Account assets) and are shown as of the end of the
most recent fiscal year (estimates of expenses are shown for Accounts which have
not completed a fiscal year of operation). The example is intended to help you
compare the cost of investing in a particular Account with the cost of investing
in other mutual funds. The example assumes you invest $10,000 in an Account for
the time periods indicated. The example also assumes that your investment has a
5% total return each year and that the Account's operating expenses are the same
as the most recent fiscal year expenses (or estimated expenses for the new
Accounts). 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

As certain Accounts have been operating for a limited period of time, no
historical information is available for those Accounts. If historical
information is available, the Account's description includes 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.

The other table provides the highest and lowest quarterly rate of return for the
Account's shares over the same period of time used in the bar chart.

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.

GROWTH-ORIENTED ACCOUNT

Aggressive Growth Account

The Account seeks to provide long-term capital appreciation by investing
primarily in equity securities.

Main Strategies

The Account seeks to maximize long-term capital appreciation by investing
primarily in equity securities of U.S. and, to a limited extent, foreign
companies that exhibit strong or accelerating earnings growth. The universe of
eligible companies generally includes those with market capitalizations of $1
billion or more. The Sub-Advisor, Morgan Stanley, emphasizes individual security
selection and may focus the Account's holdings within the limits permissible for
a diversified fund.

Main Risks

The value of the stocks owned by the Account changes on a daily basis. Stock
prices can fluctuate dramatically both in the long-term and short-term. The
current price reflects the activities of individual companies and general market
and economic conditions. Prices of equity securities tend to be more volatile
than prices of fixed-income securities. The prices of equity securities rise and
fall in response to a number of different factors. In particular, prices of
equity securities respond to events that affect entire financial markets or
industries (for example, changes in inflation or consumer demand) and to events
that affect particular issuers (for example, news about the success or failure
of a new product).

Investor Profile

The Account is generally a suitable investment if you are willing to accept the
risks and uncertainties of investing in equity securities in the hope of earning
superior returns. As with all mutual funds, as the value of the Account's assets
rise and fall, the Account's share price changes. If you sell your shares when
their value is less than the price you paid, you will lose money.

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

1995 44.19
1996 28.05
1997 30.86
1998 18.95
1999 39.50

The year-to-date return as of September 29, 2000 is 4.15%.

The account's highest/lowest quarterly results during the time period covered by
the chart were:

Highest 22.68% (12/31/1998)
Lowest -16.05% (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.

Past One Past FivePast Ten
Account Year Years Years

Aggressive Growth 39.50% 32.01% 28.82%*

Past OnePast FivePast Ten
Year Years Years

S&P 500 Stock Index 21.04% 28.55% 18.21%
Lipper Large-Cap Growth Fund Average(1) 38.09 30.55 19.73

* Period from June 1, 1994, date first offered to the public,

(1) Lipper has discontinued calculation of the Average previously used for
this Account. through December 31, 1999. This chart reflects
information for the discontinued Average for years prior to 1999. The
newly assigned Average will be reflected for 1999 and beyond.

Account Operating Expenses

Management Fees................ 0.75%
Other Expenses................. 0.02

Total Account Operating Expenses 0.77%

Annual operating expenses do not include any separate account expenses,
cost of insurance or other contract-level expenses.

Examples

1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
$79 $246 $428 $954

Day-to-day Account Management

GROWTH-ORIENTED ACCOUNT

Asset Allocation Account

The Account seeks to generate a total investment return consistent with
preservation of capital.

Main Strategies

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

Main Risks

As with any security, the securities in which the Account invests have
associated risks. These include risks of:

o High yield securities. 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.
o Foreign securities. These have risks that are not generally found in
securities of U.S. companies. For example, 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.
o Securities of smaller companies. Historically, small company securities
have been more volatile in price than larger company securities, especially
over the short-term. While small companies may offer greater opportunities
for capital growth than larger, more established companies, they also
involve greater risks and should be considered speculative.

Investor Profile

The Account is generally a suitable investment if you are seeking a moderate
risk approach towards long-term growth. As with all mutual funds, if you sell
your shares when their value is less than the price you paid, you will lose
money.

Account Performance Information

Annual Total Returns
1995 20.66
1996 12.92
1997 18.19
1998 9.18
1999 19.49

The year-to-date return as of September 29, 2000 is 5.34%.

The account's highest/lowest quarterly results during the time period covered by
the chart were:

Highest 11.48% (12/31/1999)
Lowest -8.16% (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.

Past One Past FivePast Ten
Account Year Years Years

Asset Allocation 19.49% 16.01% 14.32%*

Past OnePast FivePast Ten
Year Years Years

S&P 500 Stock Index 21.04% 28.55% 18.21%
Lipper Flexible Portfolio Fund Average 12.55 17.17 12.81

* Period from June 1, 1994, date shares first offered to the public, through
December 31, 1999.

Account Operating Expenses

Management Fees....................... 0.80%
Other Expenses........................ 0.05
Total Account Operating Expenses 0.85%

Annual operating expenses do not include any separate account expenses,
cost of insurance or other contract-level expenses.

Examples

1 Year 3 Years 5 Years 10 Years
------------------------------------------------------
$87 $271 $471 $1,049

Day-to-day Account Management

Since May 1994 Francine J. Bovich, Managing Director of Morgan Stanley Dean
(Account's inception)Witter Investment Management Inc. and Morgan Stanley & Co.
Incorporated since 1997. Principal 1993-1996. She holds a BA
in Economics from Connecticut College, and an MBA in Finance
from New York University.

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.

Invista serves as Sub-Advisor for the portion of the Fund's portfolio that is
invested in equity securities. In making its selection Invista looks for
companies that have predictable earnings and which, based on growth prospects,
it believes 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 Fund may invest up to 25% of its assets in securities of
foreign companies.

PCII serves as Sub-Advisor for the portion of the Fund's portfolio that is
invested in fixed-income securities. Fixed-income securities are purchased to
generate income and for capital appreciation purposes when PCII thinks that
declining interest rates may increase market value. Deep discount bonds (those
which sell at a substantial discount from their face amount) are also purchased
to generate capital appreciation. The Fund 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 Standard & Poor's Rating Service or Baa by Moody's
Investors Service, Inc. 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.

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 year-to-date return as of September 29, 2000 is 3.11%.

The account's highest/lowest quarterly results during the time period covered by
the chart 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.

Past One Past FivePast Ten
Account Year Years Years

Balanced 2.40% 13.75% 11.38%

Past One Past FivePast Ten
Year Years Years

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

Account Operating Expenses

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

Annual operating expenses do not include any separate account expenses,
cost of insurance or other contract-level expenses.

Examples

1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------
$59 $186 $324 $726

Day-to-day Account Management

Since October, 2000
Co-Manager: William C. Armstrong, CFA. Mr. Armstrong leads
the multi-sector/core portfolio management group for
Principal Capital Income Investors' stable value division.
Mr. Armstrong has been with Principal since 1992. He earned
his Master's degree from the University of Iowa and his
Bachelor's degree from Kearney State College. He has earned
the right to use the Chartered Financial Analyst
designation.

INCOME-ORIENTED ACCOUNT

Bond Account

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

Main Strategies

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

Under normal circumstances, the Account invests at least 65% of its assets in:
o debt securities and taxable municipal bonds;
o rated, at purchase, in one of the top four categories by S&P or
Moody's, or
o if not rated, in the opinion of the Manager, 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.

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

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

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 year-to-date return as of September 29, 2000 is 4.59%.

The account's highest/lowest quarterly results during the time period covered by
the chart were:

Highest 8.25% (6/30/1995)
Lowest -0.48% (3/31/1999)

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

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

Past One Past FivePast Ten
Account Year Years Years

Bond -2.59% 7.73% 7.77%

Past OnePast FivePast Ten
Year Years Years

Lehman Brothers BAA Corporate Index -0.82% 8.49% 8.48%
Lipper Corporate Debt BBB Rated Fund Average -1.68 7.71 8.01

Account Operating Expenses

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

Annual operating expenses do not include any separate account expenses,
cost of insurance or other contract-level expenses.

Examples

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

Day-to-day Account Management

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.

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

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 year-to-date return as of September 29, 2000 is -1.98%.

The account's highest/lowest quarterly results during the time period covered by
the chart 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.

Past One Past FivePast Ten
Account Year Years Years

Capital Value -4.29% 17.88% 12.94%

Past OnePast FivePast Ten
Year Years Years

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

(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.

Account Operating Expenses

Management Fees................ 0.43%
Other Expenses................. 0.00
Total Account Operating Expenses0.43%

Annual operating expenses do not include any separate account expenses,
cost of insurance or other contract-level expenses.

Examples

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

Day-to-day Account Management

INCOME-ORIENTED ACCOUNT

Government Securities Account

The Account seeks a high level of current income, liquidity and safety of
principal.

Main Strategies

The Account invests in securities supported by:
o full faith and credit of the U.S. Government (e.g. GNMA certificates); or
o credit of a U.S. Government agency or instrumentality (e.g. bonds issued by
the Federal Home Loan Bank).
In addition, the Account may invest in money market investments.

Main Risks

Although some of the securities the Account purchases are backed by the U.S.
government and its agencies, shares of the Account are not guaranteed. When
interest rates fall, the value of the Account's shares rises, and when rates
rise, the value declines. Because of the fluctuation in the value of Account
shares, 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 want monthly dividends to
provide income or to be reinvested in additional Account shares to produce
growth and prefer to have the repayment of principal and interest on most of the
securities in which the Account invests to be backed by the U.S. Government or
its agencies.

Account Performance Information

Annual Total Returns

1990 9.54
1991 16.95
1992 6.84
1993 10.07
1994 -4.53
1995 19.07
1996 3.35
1997 10.39
1998 8.27
1999 -0.29

The year-to-date return as of September 29, 2000 is 6.73%.

The account's highest/lowest quarterly results during the time period covered by
the chart were:

Highest 6.17% (6/30/1995)
Lowest -3.94% (3/31/1994)

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.

Past One Past FivePast Ten
Account Year Years Years

Government Securities -0.29% 7.96% 7.75%

Past OnePast FivePast Ten
Year Years Years

Lehman Brothers Mortgage Index 1.86% 7.98% 7.78%
Lipper U.S. Mortgage Fund Average 0.65 7.00 6.95

Account Operating Expenses

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

Annual operating expenses do not include any separate account expenses,
cost of insurance or other contract-level expenses.

Examples

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

Day-to-day Account Management

Since May 1987 Martin J. Schafer. Mr. Schafer is a portfolio manager for
(Account's inception)Principal Capital Income Investors specializing in the
management of mortgage-backed securities utilizing an
active, total return approach. He joined Principal in 1977.
He holds a BBA in Accounting and Finance from the University
of Iowa.

GROWTH-ORIENTED ACCOUNT

Growth Account

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

Main Strategies

The Account seeks to achieve its objective by investing in common stocks and
other equity securities. In selecting securities for investment, the
Sub-Advisor, Invista, looks at stocks it believes have prospects for above
average growth over an extended period of time. Invista uses an approach
described as "fundamental analysis" as it selection process.

The three basic steps of fundamental analysis are:
o Research - consideration of 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 - use of the research to allow Invista to identify segments of
the market for investment. Invista considers various factors including
sustainable, superior earnings growth and above average or accelerating
rates of growth;
o Stock selection - Invista buys and sells stocks using its research and
valuation as the basis. It attempts to identify the individual issuers that
it considers to have high growth potential, that are market share leaders
and/or have high quality management with consistent track records and solid
balance sheets.

Main Risks

Prices of equity securities rise and fall in response to a number of factors
including events that affect entire financial markets or industries (for
example, changes in inflation or consumer demand) as well as events impacting a
particular issuer (for example, news about the success or failure of a new
product). The securities purchased by the Account present greater opportunities
for growth because of high potential earnings growth, but may also involve
greater risks than securities that do not have the same potential. The Account
may invest in companies with limited product lines, markets or financial
resources. As a result, these securities may change in value more than those of
larger, more established companies. As the value of the stocks owned by the
Account changes, the Account share price changes. In the short-term, the price
can fluctuate dramatically.

Investor Profile

The Account is generally a suitable investment if you are seeking long-term
growth. You must be willing to accept the risks of investing in common stocks
that may have greater risks than stocks of companies with lower potential for
earnings growth.

Account Performance Information

Annual Total Returns

1995 25.62
1996 12.51
1997 26.96
1998 21.36
1999 16.44

The year-to-date return as of September 29, 2000 is 8.24%.

The account's highest/lowest quarterly results during the time period covered by
the chart were:

Highest 21.35% (12/31/1998)
Lowest -14.63% (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.

Past One Past FivePast Ten
Account Year Years Years

Growth 16.44% 20.45% 18.94%*

Past OnePast FivePast Ten
Year Years Years

S&P 500 Stock Index 21.04% 28.55% 18.21%
Lipper Large-Cap Growth Fund Average(1) 38.09 30.55 19.73

* Period from May 1, 1994, date first offered to the public,

Account Operating Expenses

Management Fees................... 0.45%
Other Expenses.................... 0.00
Total Account Operating Expenses 0.45%

Annual operating expenses do not include any separate account expenses,
cost of insurance or other contract-level expenses.

Examples

1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------
$46 $144 $252 $567

Day-to-day Account Management

GROWTH-ORIENTED ACCOUNT

International Account

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

Main Strategies

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

Main Risks

The values of the stocks owned by the Account change on a daily basis. Stock
prices reflect the activities of individual companies as well as general market
and economic conditions. In the short term, stock prices and currencies can
fluctuate dramatically in response to these factors. In addition, there are
risks involved with any investment in foreign securities that are not generally
found in stocks of U.S. companies. These include the risk that a foreign
security could lose value as a result of political, financial and economic
events in foreign countries. In addition, foreign securities may be subject to
securities regulators with less stringent accounting and disclosure standards
than are required of U.S. companies.

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

Investor Profile

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

Account Performance Information

Annual Total Returns

1995 14.17
1996 25.09
1997 12.24
1998 9.98
1999 25.93

The year-to-date return as of September 29, 2000 is -8.38%.

The account's highest/lowest quarterly results during the time period covered by
the chart were:

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

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

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

Past One Past FivePast Ten
Account Year Years Years

International 25.93% 17.29% 14.41%*

Past OnePast FivePast Ten
Year Years Years

Morgan Stanley Capital International EAFE
(Europe, Australia and Far East) Index 26.96% 12.83% 7.01%
Lipper International Fund Average 40.80 15.37 10.54

* Period from May 1, 1994, date shares first offered to the public, through
December 31, 1999.

Account Operating Expenses

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

Annual operating expenses do not include any separate account expenses,
cost of insurance or other contract-level expenses.

Examples

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

Day-to-day Account Management

GROWTH-ORIENTED ACCOUNT

International Emerging Markets Account

The Account seeks to achieve long-term growth of capital by investing primarily
in equity securities of issuers in emerging market countries.

Main Strategies

The Account seeks to achieve its objective by investing in common stocks of
companies in emerging market countries. For this Account, the term "emerging
market country" means any country which is considered to be an emerging country
by the international financial community (including the International Bank for
Reconstruction and Development (also known as the World Bank) and the
International Financial Corporation). These countries generally include every
nation in the world except the United States, Canada, Japan, Australia, New
Zealand and most nations located in Western Europe. Investing in many emerging
market countries is not feasible or may involve unacceptable political risk.
Invista, the Sub-Advisor, focuses on those emerging market countries that it
believes have strongly developing economies and markets which are becoming more
sophisticated.

Under normal conditions, at least 65% of the Account's assets are invested in
emerging market country equity securities. The Account invests in securities of:
o companies with their principal place of business or principal office in
emerging market countries;
o companies for which the principal securities trading market is an emerging
market country; or
o companies, regardless of where its securities are traded, that derive 50%
or more of their total revenue from either goods or services produced in
emerging market countries or sales made in emerging market countries.

Main Risks

Investments in emerging market countries involve special risks. Certain emerging
market countries have historically experienced, and may continue to experience,
certain economic problems. These may include: high rates of inflation, high
interest rates, exchange rate fluctuations, large amounts of debt, balance of
payments and trade difficulties, and extreme poverty and unemployment.

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

Because the values of the Account's assets are likely to rise or fall
dramatically, if you sell your shares when their value is less than the price
you paid, you will lose money.

Investor Profile

The Account is generally a suitable investment if you are seeking long-term
growth and want to invest a portion of your assets in securities of companies in
emerging market countries. This Account is not an appropriate investment if you
are seeking either preservation of capital or high current income. You must be
able to assume the increased risks of higher price volatility and currency
fluctuations associated with investments in international stocks which trade in
non-U.S. currencies.
Account Performance Information

As the inception date of the Fund is October 24, 2000, historical performance
data is not available. Estimated annual Account operating expenses are as
follows:

Account Operating Expenses

Management Fees.................... 1.25%
Other Expenses..................... 0.38
Total Account Operating Expenses 1.63%*

* The Manager has voluntarily agreed to reimburse operating expenses so
that total Account operating expenses will not be greater than 1.35%
for 2000.

Annual operating expenses do not include any separate account
expenses, cost of insurance or other contract-level expenses.

Examples

1 Year 3 Years
-----------------------
$166 $514

Day-to-day Account Management

Since October, 2000 Kurtis D. Spieler, CFA. Mr. Spieler joined Invista Capital
(Account's inception)Management in 1995. He holds an MBA from Drake University
and a BBA from Iowa State University. He has earned the
right to use the Chartered Financial Analyst designation.

GROWTH-ORIENTED ACCOUNT

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

Main Strategies

The Account invests in stocks of non-U.S. companies with comparatively smaller
market capitalizations. Market capitalization is defined as total current market
value of a company's outstanding common stock. Under normal market conditions,
the Account invests at least 65% of its assets in securities of companies having
market capitalizations of $1.5 billion or less at the time of purchase.

Main Risks

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

Investor Profile

This Account is not an appropriate investment if you are seeking either
preservation of capital or high current income. You must be able to assume the
increased risks of higher price volatility and currency fluctuations associated
with investments in international stocks which trade in non-U.S. currencies. The
Account is generally a suitable investment if you are seeking long-term growth
and want to invest a portion of your assets in smaller, non-U.S. companies.

Account Performance Information

Annual Total Returns

1999 93.81

The year-to-date return as of September 29, 2000 is -0.01%.

The account's highest/lowest quarterly results during the time period covered by
the chart were:

Highest 36.59% (12/31/1999)
Lowest -19.31% (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.

Past One Past Five
Account Year Years

International SmallCap 93.81% 39.24%*

Past OnePast FivePast Ten
Year Years Years

Morgan Stanley Capital International EAFE
(Europe, Australia and Far East) Index 26.96% 12.83% 7.01%
Lipper International SmallCap Fund Average 75.41 19.91 13.04

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

Account Operating Expenses

Management Fees...................... 1.20%
Other Expenses....................... 0.12
Total Account Operating Expenses 1.32%

Annual operating expenses do not include any separate account expenses,
cost of insurance or other contract-level expenses.

Examples

1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------
$134 $418 $723 $1,590

Day-to-day Account Management

Since April 1998 Co-Manager: Darren K. Sleister, CFA. Mr. Sleister joined
(Account's inception)Invista Capital Management as a Portfolio Strategist in
1993. He holds an MBA from the University of Iowa, and an
undergraduate degree from Central College. He has earned the
right to use the Chartered Financial Analyst designation.

GROWTH-ORIENTED ACCOUNT

LargeCap Growth Account

The Account seeks long-term growth of capital.

Main Strategies

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

Main Risks

While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of the stocks owned by the Account changes
on a daily basis. The current price reflects the activities of individual
companies and general market and economic conditions. In the short-term, stock
prices can fluctuate dramatically in response to these factors. As a result, the
value of your investment in the Account will go up and down. If you sell your
shares when their value is less than the price you paid, you will lose money.
Because different types of stocks tend to shift in and out of favor depending on
market and economic conditions, the Account's performance may sometimes be lower
or higher than that of other types of funds.

Investor Profile

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

Account Performance Information

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

Annual Total Returns

The year-to-date return as of September 29, 2000 is 5.13%.

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

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

* Period from May 1, 1999, date shares first offered to the public,
through December 31, 1999.

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

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

Past One
Account Year

LargeCap Growth 32.47%*

Past OnePast FivePast Ten
Year Years Years

Russell 1000 Growth Index 33.16% 32.41% 20.32%
Lipper Large-Cap Growth Fund Average 38.09 30.55 19.73

* Period from May 1, 1999, date shares first offered to the public,
through December 31, 1999.

Account Operating Expenses

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

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

Annual operating expenses do not include any separate account
expenses, cost of insurance or other contract-level expenses.

Examples

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

Day-to-day Account Management

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

GROWTH-ORIENTED ACCOUNT

LargeCap Growth Equity Account

The Account seeks to achieve long-term growth of capital by investing primarily
in common stocks of larger capitalization domestic companies.

Main Strategies

The Account is a non-diversified Account that invests primarily in 20-30 common
stocks of companies in the U.S. with comparatively larger market
capitalizations. Market capitalization is defined as total current market value
of a company's outstanding common stock. Under normal market conditions, the
Account invests at least 75% of its total assets in domestic companies with
market capitalizations in excess of $10 billion. In addition, the Account may
invest up to 25% of its assets in securities of foreign issuers.

In selecting securities for investment, the Sub-Advisor, Duncan-Hurst, looks at
stocks it believes have prospects for above average growth over an extended
period of time. Duncan-Hurst seeks to identify companies with accelerating
earnings growth and positive company fundamentals. While economic forecasting
and industry sector analysis play a part in its research effort, Duncan-Hurst's
stock selection process begins with individual company analysis. This is often
referred to as a bottom-up approach to investing. From a group of companies that
meet Duncan-Hurst's standards, it selects the securities of those companies that
it believes will have accelerating earnings growth. In making this
determination, Duncan-Hurst considers certain characteristics of a particular
company including new product development, change in management and competitive
market dynamics.

Main Risks

While stocks have historically been a leading choice of long-term investors,
they do fluctuate in price. The value of the stocks owned by the Account changes
on a daily basis. The current price reflects the activities of individual
companies and general market conditions. In the short-term, stock prices
fluctuate dramatically in response to these factors. As a result, the value of
your investment in the Account will go up and down. If you sell your shares when
their value is less than the price you paid, you will lose money. Because
different types of stocks tend to shift in and out of favor depending on market
and economic conditions, the Account's performance may sometimes be lower or
higher than that of other funds.

The Account anticipates that its portfolio turnover rate will typically exceed
150%. Turnover rates in excess of 100% generally result in higher transaction
costs and a possible increase in short-term capital gains (or losses).

The Account is a non-diversified investment company, as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), which means that a
relatively high percentage of assets of the Account may be invested in the
stocks of a limited number of issuers. The share price of the Account may be
more volatile than the share price of a diversified fund. The value of the
shares of the Account may be more susceptible to a single economic, political or
regulatory occurrence than the shares of a diversified investment company.

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, volatile
fluctuations in the value of your investment. This Account is designed as a
long- term investment with growth potential. It is not appropriate if you are
seeking income or short-term conservation of capital.

Account Performance Information

As the inception date of the Fund is October 24, 2000, historical performance
data is not available. Estimated annual Account operating expenses are as
follows:

Account Operating Expenses

Management Fees................... 1.00%
Other Expenses.................... 0.32
Total Account Operating Expenses 1.32%*

* The Manager has voluntarily agreed to reimburse operating expenses so
that total Account operating expenses will not be greater than 1.10%
for 2000.

Annual operating expenses do not include any separate account
expenses, cost of insurance or other contract-level expenses.

Examples

1 Year 3 Years
-----------------------
$134 $418

Day-to-day Account Management

Since October 2000 David C. Magee. Mr. Magee is Vice President of Duncan-Hurst
(Account's inception)Capital Management Inc., and has been with the firm since
1992. Mr. Magee has managed the large-cap growth equity
portfolios of the firm's private accounts since December
1995. Previously he served as Senior Research Analyst for
the firm's small-cap and medium-cap portfolios and as an
investment banker at prior employers. He holds an MBA in
Finance from UCLA and a BS in Economics and Business
Management from the University of California, Davis.

GROWTH-ORIENTED ACCOUNT

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

Main Strategies

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

Main Risks

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

Investor Profile

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

* formerly known as "Stock Index 500 Account"

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

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

Annual Total Returns

The year-to-date return as of September 29, 2000 is -1.78%.

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

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

* Period from May 1, 1999, date shares first offered to the public,
through December 31, 1999.

Average annual total retuns 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.

Past One

Account Year

LargeCap Stock Index 8.93%*

Past OnePast FivePast Ten

Year Years Years

S&P 500 Stock Index 21.04% 28.55% 18.21%
Lipper S&P 500 Fund Average 20.22 27.96 17.69

* Period from May 1, 1999, date shares first offered to the public,
through December 31, 1999.

Account Operating Expenses

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

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

Annual operating expenses do not include any separate account
expenses, cost of insurance or other contract-level expenses.

Examples

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

Day-to-day Account Management

GROWTH-ORIENTED ACCOUNT

MicroCap Account

The Account seeks to achieve long-term growth of capital.

Main Strategies

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

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

The Account may invest in real estate investment trusts (REITs) which are pooled
investment vehicles that invest in either real estate or real estate related
loans.

Main Risks

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

Investor Profile

The Account is generally a suitable investment if you want long-term growth of
capital. Additionally, you must be willing to accept the risks of investing in
securities that may have greater risks than stocks of companies with lower
potential for growth.

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

Annual Total Returns

1999 -1.07

The year-to-date return as of September 29, 2000 is 19.45%.

The account's highest/lowest quarterly results during the time period covered by
the chart were:

Highest 27.70% (6/30/1999)
Lowest -26.11% (9/30/1998)

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

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

Past One Past Five
Account Year Years

MicroCap -1.07% -12.05%*

Past OnePast FivePast Ten
Year Years Years

Russell 2000 Index 21.26% 16.69% 13.40%
Lipper Small-Cap Core Fund Average 28.43 17.88 13.39

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

Account Operating Expenses

Management Fees..................... 1.00%
Other Expenses...................... 0.28
Total Account Operating Expenses 1.28%*

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

Annual operating expenses do not include any separate account
expenses, cost of insurance or other contract-level expenses.

Examples

1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------
$130 $406 $702 $1,545

Day-to-day Account Management

Since June 2000 Melissa Brown, Vice President, Goldman. Ms. Brown joined the
firm as a senior portfolio manager in 1998. From 1984 to
1998, she was the director of Quantitative Equity Research
and served on the Investment Policy Committee at Prudential
Securities.

Since June 2000 Kent A. Clark, Managing Director, Goldman. Mr. Clark joined
Goldman as a portfolio manager in the Quantitative Equity
Management team in 1992.

Since June 2000 Robert C. Jones, Managing Director, Goldman. Mr. Jones
joined Goldman as a portfolio manager in 1989.

Since June 2000 Victor H. Pinter, Vice President, Goldman. Mr. Pinter joined
Goldman as a research analyst in 1990. He became a portfolio
manager in 1992.

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.

Main Risks

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

Investor Profile

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

Annual Total Returns

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

The year-to-date return as of September 29, 2000 is 12.04%.

The account's highest/lowest quarterly results during the time period covered by
the chart 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.

Past One Past FivePast Ten
Account Year Years Years

MidCap 13.04% 17.59% 15.35%

Past OnePast FivePast Ten
Year Years Years

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

Account Operating Expenses

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

Annual operating expenses do not include any separate account expenses,
cost of insurance or other contract-level expenses.

Examples

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

Day-to-day Account Management

GROWTH-ORIENTED ACCOUNT

MidCap Growth Account

The Account seeks long-term growth of capital.

Main Strategies

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

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

Main Risks

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

Investor Profile

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

Account Performance Information

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

Annual Total Returns

1999 10.67

The year-to-date return as of September 29, 2000 is 14.54%.

The account's highest/lowest quarterly results during the time period covered by
the chart were:

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

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

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

Past One Past Five
Account Year Years

MidCap Growth 10.67% 4.09%*

Past OnePast FivePast Ten
Year Years Years

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

* Period from May 1, 1998, date first offered to the public,

Account Operating Expenses

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

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

Annual operating expenses do not include any separate account
expenses, cost of insurance or other contract-level expenses.

Examples

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

Day-to-day Account Management

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

GROWTH-ORIENTED ACCOUNT

MidCap Growth Equity Account

The Account seeks to achieve long-term growth of capital by investing primarily
in medium capitalization U.S. companies with strong earnings growth potential.

Main Strategies

The Account invests primarily in common stocks and other equity securities of
U.S. companies. Under normal market conditions, the Account invests at least 65%
of its assets in companies with market capitalizations in the $1 billion and $10
billion range.

The Account invests in securities of companies that are diversified across
economic sectors. It attempts to maintain sector concentrations that approximate
those of its current benchmark, the Russell MidCap Index. The Account is not an
index fund and does not limit its investment to the securities of issuers in the
Russell MidCap Index.

The Sub-Advisor, Turner, selects stocks that it believes have strong earnings
growth potential. Turner invests in companies with strong earnings dynamics, and
sells those with deteriorating earnings prospects. Turner believes forecasts for
market timing and sector rotation are unreliable, and introduce an unacceptable
level of risk. As a result, under normal market conditions the Account is fully
invested.

Main Risks

Because it purchases equity securities, the Account is subject to the risk that
stock prices will fall over short or extended periods of time. Individual
companies may report poor results or be negatively affected by industry and/or
economic trends and developments. The price of securities issued by such
companies may suffer a decline in response. These factors contribute to price
volatility, which is the principal risk of investing in the Account.

In addition, the Account is subject to the risk that its principal market
segment, medium capitalization growth stocks, may underperform compared to other
market segments or to the equity markets as a whole. Because of this volatility,
the value of the Account's equity securities may fluctuate on a daily basis.
These fluctuations may reduce your principal investment and lead to varying
returns. If you sell your shares when their value is less than the price you
paid, you will lose money.

Due to its investment strategy, the Account may buy and sell securities
frequently. Turnover rates in excess of 100% generally result in higher
transaction costs and a possible increase in short-term capital gains (or
losses).

The medium capitalization companies the Account invests in may be more
vulnerable to adverse business or economic events than larger, more established
companies. In particular, these mid-size companies may pose greater risk due to
narrow product lines, limited financial resources, less depth in management or a
limited trading market for their securities.

Investor Profile

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

Account Performance Information

As the inception date of the Fund is October 24, 2000, historical performance
data is not available. Estimated annual Account operating expenses are as
follows:

Account Operating Expenses

Management Fees.................... 1.00%
Other Expenses..................... 0.32
Total Account Operating Expenses 1.32%*

* The Manager has voluntarily agreed to reimburse operating expenses so
that total Account operating expenses will not be greater than 1.10%
for 2000.

Annual operating expenses do not include any separate account
expenses, cost of insurance or other contract-level expenses.

Examples

1 Year 3 Years
-----------------------
$134 $418

Day-to-day Account Management

Since October 2000 Christopher K. McHugh. Mr. McHugh joined Turner Investment
(Account's inception)Partners, Inc. in 1990. He holds a BS in Accounting
Accounting from Philadelphia College of Textiles and Science
and an MBA in Finance from St. Joseph's University.

Money Market Account

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

Main Strategies

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

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

Main Risks

As with all mutual funds, the value of the Account's assets may rise or fall.
Although the Account seeks to preserve the value of an investment at $1.00 per
share, it is possible to lose money by investing in the Account. An investment
in the Account is not insured or guaranteed by the FDIC or any other government
agency.

Investor Profile

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

Annual Total Returns

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

The 7-day yield for the period ended September 26, 2000 was 6.16%. 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%

Account Operating Expenses

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

Annual operating expenses do not include any separate account expenses,
cost of insurance or other contract-level expenses.

Examples

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

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.

GROWTH-ORIENTED ACCOUNT

Real Estate Account

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

Main Strategies

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

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

The Account may invest up to 25% of its assets in securities of foreign real
estate companies. In selecting securities for the Account, the Manager focuses
on equity REITs.

Main Risks

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

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

Investor Profile

The Account is generally a suitable investment if you are seeking long-term
growth, want to invest in companies engaged in the real estate industry and are
willing to accept fluctuations in the value of your investment.

Account Performance Information

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

Annual Total Returns

1999 -4.48

The year-to-date return as of September 29, 2000 is 25.98%.

The account's highest/lowest quarterly results during the time period covered by
the chart were:

Highest 11.37% (6/30/1999)
Lowest -8.40% (9/30/1999)

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

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

Past One Past Five
Account Year Years

Real Estate -4.48% -6.58%*

Past OnePast FivePast Ten
Year Years Years

Morgan Stanley REIT Index -4.55% 7.61% -- %
Lipper Real Estate Fund Average -3.14 8.38 6.62

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

Account Operating Expenses

Management Fees..................... 0.90%
Other Expenses...................... 0.09
Total Account Operating Expenses 0.99%

Annual operating expenses do not include any separate account expenses,
cost of insurance or other contract-level expenses.

Examples

1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
$101 $315 $547 $1,213

Day-to-day Account Management

Since April 1998 Kelly D. Rush, CFA. Mr. Rush has been with the Principal
(Account's inception)organization since 1995.He holds an MBA and a BA in Finance
from the University of Iowa. He has earned the right to use
the Chartered Financial Analyst designation.

GROWTH-ORIENTED ACCOUNT

SmallCap Account

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

Main Strategies

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

Main Risks

Investments in companies with smaller market capitalizations may involve greater
risks and price volatility (wide, rapid fluctuations) than investments in
larger, more mature companies. Smaller companies may be developing or marketing
new products or services for which markets are not yet established and may never
become established. While small, unseasoned companies may offer greater
opportunities for capital growth than larger, more established companies, they
also involve greater risks and should be considered speculative.

Investor Profile

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

Account Performance Information

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

Annual Total Returns

1999 43.58

The year-to-date return as of September 29, 2000 is 2.41%.

The account's highest/lowest quarterly results during the time period covered by
the chart were:

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

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

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

Past One Past Five
Account Year Years

SmallCap 43.58% 8.24%*

Past OnePast FivePast Ten
Year Years Years

S&P 600 Index 12.40% 17.05% 13.04%
Lipper Small-Cap Core Fund Average(1) 28.43 17.88 13.39

* Period from May 1, 1998, date first offered to the public,

Account Operating Expenses

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

Annual operating expenses do not include any separate account expenses,
cost of insurance or other contract-level expenses.

Examples

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

Day-to-day Account Management

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

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

GROWTH-ORIENTED ACCOUNT

SmallCap Growth Account

The Account seeks long-term growth of capital.

Main Strategies

The Account invests primarily in a diversified group of equity securities of
small growth companies. Generally, at the time of the Account's initial purchase
of a security, the market capitalization of the issuer is less than $1.5
billion.

Under normal market conditions, the Account invests at least 65% of its assets
in equity securities of small companies with the potential for rapid earnings
growth. In selecting securities for investment, the Sub-Advisor, Berger, focuses
on companies which it believes demonstrate the following traits:

o Long-term appreciation potential: open-ended business opportunity;
o Strong revenue-driven earnings growth;
o Seasoned management team: integrity, ability, commitment, execution;
o Innovative products or services;
o Defensible barriers to entry: e.g. proprietary technology;
o Solid financial statements: profitability, conservative balance sheet and
accounting;
o Long-term market share leaders in emerging and growing industries; and
o Appropriate valuations.

Berger will generally sell a security when it no longer meets Berger's
investment criteria or when it has met Berger's expectations for appreciation.
Portfolio securities may be actively traded in pursuit of the Account's goal.
Active trading may result in higher brokerage costs to the account.

Main Risks

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

The net asset value of the Account's shares is based on the values of the
securities it holds. The value of the stocks owned by the Account changes on a
daily basis. The current share price reflects the activities of individual
companies and general market and economic conditions. In the short term, stock
prices can fluctuate dramatically in response to these factors. Because of these
fluctuations, principal values and investment returns vary. As with all mutual
funds, if you sell your shares when their value is less than the price you paid,
you will lose money.

Investor Profile

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

Account Performance Information

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

Annual Total Returns

1999 95.69

The year-to-date return as of September 29, 2000 is 8.57%.

The account's highest/lowest quarterly results during the time period covered by
the chart were:

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

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

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

Past One Past Five
Account Year Years

SmallCap Growth 95.69% 52.17%*

Past OnePast FivePast Ten
Year Years Years

Russell 2000 Growth Index 43.09% 18.99% 13.51%
Lipper Small-Cap Growth Fund Average(1) 62.63 24.05 18.36

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

Account Operating Expenses

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

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

Annual operating expenses do not include any separate account
expenses, cost of insurance or other contract-level expenses.

Examples

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

Day-to-day Account Management

Since June 2000 Jay W. Tracey III. Mr. Tracey joined Berger in June 2000 as
Executive Vice President and Chief Investment Officer. Mr.
Tracey had been Vice President and portfolio manager of
Oppenheimer Funds, Inc. since November 1995. He has more
than 23 years of experience in the investment management
industry.

GROWTH-ORIENTED ACCOUNT

SmallCap Value Account

The Account seeks long-term growth of capital.

Main Strategies

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

Main Risks

As with any security, the securities in which the Account invests have
associated risks. These include risks of: o Securities of smaller companies.
Historically, small company securities have been more volatile in price than
larger company

securities, especially over the short-term. While small companies may offer
greater opportunities for capital growth than larger, more established
companies, they also involve greater risks and should be considered
speculative.

o Unseasoned issuers. Smaller companies may be developing or marketing new
products or services for which markets are not yet established and may
never become established.

The Account's share price may fluctuate more than that of funds primarily
invested in stocks of mid-sized and large companies and may underperform as
compared to the securities of larger companies. The Account is not designed for
investors seeking income or conservation of capital. 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 volatile fluctuations in the value of your
investment.

Account Performance Information

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

Annual Total Returns

1999 21.45

The year-to-date return as of September 29, 2000 is 14.81%.

The account's highest/lowest quarterly results during the time period covered by
the chart were:

Highest 15.32% (6/30/1999)
Lowest -19.14% (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.

Past One Past Five
Account Year Years

SmallCap Value 21.45% 1.88%*

Past OnePast FivePast Ten
Year Years Years

Russell 2000 Value Index -1.49% 13.14% 12.46%
Lipper Small-Cap Value Fund Average(1) 6.33 13.92 12.04

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

Account Operating Expenses

Management Fees.................... 1.10%
Other Expenses..................... 0.34
Total Account Operating Expenses 1.44%*

* The Manager has voluntarily agreed to reimburse operating expenses so
that total Account operating expenses will not be greater than 1.16%
for 2000.

Annual operating expenses do not include any separate account
expenses, cost of insurance or other contract-level expenses.

Examples

1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
$147 $456 $787 $1,724

Day-to-day Account Management

GROWTH-ORIENTED ACCOUNT

Utilities Account

The Account seeks to provide current income and long-term growth of income and
capital.

Main Strategies

The Account seeks to achieve its objective by investing primarily in equity and
fixed income securities companies in the public utilities industry. These
companies include:
o companies engaged in the manufacture, production, generation, sale or
distribution of electric or gas energy or other types of energy; and
o companies engaged in telecommunications, including telephone, telegraph,
satellite, microwave and other communications media (but not public
broadcasting or cable television).

The Sub-Advisor, Invista, considers a company to be in the public utilities
industry if, at the time of investment, at least 50% of the company's assets,
revenues or profits are derived from one or more of those industries.

Main Risks

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

Investor Profile

The Account is generally a suitable investment if you are seeking quarterly
dividends for income or to be reinvested for growth, want to invest in companies
in the utilities industry and are willing to accept fluctuations in the value of
your investment.

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

Annual Total Returns

1999 2.29

The year-to-date return as of September 29, 2000 is 19.51%.

The account's highest/lowest quarterly results during the time period covered by
the chart were:

Highest 11.80% (6/30/1999)
Lowest -6.22% (3/31/1999)

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

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

Past One Past Five
Account Year Years

Utilities 2.29% 10.43%*

Past OnePast FivePast Ten
Year Years Years

S&P 500 Stock Index 21.04% 28.55% 18.21%
Dow Jones Utilities Index with Income -5.73 14.74 --
Lipper Utilities Fund Average 15.82 18.70 12.80

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

Account Operating Expenses

Management Fees...................... 0.60%
Other Expenses....................... 0.04
Total Account Operating Expenses 0.64%

Annual operating expenses do not include any separate account expenses,
cost of insurance or other contract-level expenses.

Examples

1 Year 3 Years 5 Years 10 Years
------------------------------------------------------
$65 $205 $357 $798

Day-to-day Account Management

Since April 1998 Catherine A. Zaharis, CFA. Ms. Zaharis joined Invista
(Account's inception)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.

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

Accounts that focus their investments in equity securities include: Aggressive
Growth, Capital Value, Growth, International, International Emerging Markets,
International SmallCap, LargeCap Growth, LargeCap Growth Equity, LargeCap Stock
Index (previously Stock Index 500), MicroCap, MidCap, MidCap Growth, MidCap
Growth Equity, SmallCap, SmallCap Growth, SmallCap Value and Utilities. The
Asset Allocation and Balanced Accounts invest in a mix of equity and
fixed-income securities.

Fixed-income securities include bonds and other debt instruments that are used
by issuers to borrow money from investors. The issuer generally pays the
investor a fixed, variable or floating rate of interest. The amount borrowed
must be repaid at maturity. Some debt 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, such
as lower grade or "junk" bonds, may have speculative characteristics and may be
particularly sensitive to economic conditions and the financial condition of the
issuers.

Accounts that focus their investments in fixed income securities include the
Bond and Government Securities Accounts.

Each of the Accounts may lend its portfolio securities to unaffiliated
broker-dealers and other unaffiliated qualified financial institutions.

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

Options, Futures Contract
Each of the Accounts (except Money Market) may buy and sell certain types of
options. Each type, and their associated risks, 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 Asset Allocation, International, International Emerging Markets and
International SmallCap Accounts - 100%;
o Aggressive Growth, LargeCap Growth, LargeCap Growth Equity, MicroCap, Real
Estate and SmallCap Growth Accounts - 25%;
o Bond, Capital Value, SmallCap and Utilities Accounts - 20%;
o Balanced, Growth, LargeCap Stock Index (previously Stock Index 500),
MidCap, MidCap Growth, MidCap Growth Equity and SmallCap Value Accounts -
10%.

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

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

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,
bankers 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.

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.
No turnover rate is calculated for the Money Market Account because of the short
maturities of the securities in which it invests. No turnover rates are
calculated for the Accounts which have been in existence for less than six
months (International Emerging Markets, LargeCap Growth Equity and MidCap Growth
Equity). You can find the turnover rate for each of the other Accounts in the
Account's Financial Highlights table.

PRICING OF ACCOUNT SHARES

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 and/or Sub-Advisor 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

Accounts: Aggressive Growth and Asset Allocation
Sub-Advisor: Morgan Stanley Asset Management ("Morgan Stanley"), with
principal offices at 1221 Avenue of the Americas, New York, NY 10020,
provides a broad range of portfolio management services to customers in
the U.S. and abroad. As of June 30, 2000, Morgan Stanley, together with
its affiliated institutional asset management companies, managed
investments totaling approximately $177.2 billion as named fiduciary or
fiduciary adviser. On December 1, 1998 Morgan Stanley Asset Management
Inc. changed its name to Morgan Stanley Dean Witter Investment Management
Inc. but continues to do business in certain instances using the name
Morgan Stanley Asset Management.

Accounts: Balanced (equity securities portion), Capital Value, Growth,
International, International Emerging Markets, International SmallCap,
LargeCap Stock Index (previously Stock Index 500), MidCap, SmallCap, and
Utilities
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 June 30, 2000 were approximately $35.3 billion. Invista's address is
1800 Hub Tower, 699 Walnut, Des Moines, Iowa 50309.

Accounts: Balanced (fixed-income securities portion) and Government
Securities
Sub-Advisor: Principal Capital Income Investors, LLC ("PCII"), 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 Insurance Company.
Assets under management as of June 30, 2000 were approximately $29 billion.
PCII's address is 1800 Hub Tower, 699 Walnut, Des Moines, Iowa 50309.

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

Account: LargeCap Growth Equity
Sub-Advisor: Duncan-Hurst Capital Management Inc. ("Duncan-Hurst") was
founded in 1990. Its address is 4365 Executive Drive, Suite 1520, San
Diego, CA 92121. As of June 30, 2000, Duncan-Hurst managed assets of
approximately $4.5 billion for institutional and individual investors.

Account: MicroCap
Sub-Advisor: Goldman Sachs Assets Management ("GSAM"), 32 Old Slip, 17th
Floor, New York, NY 10005. As of September 1, 1999, the Investment Division
("IMD") was established as a new operating division of Goldman, Sachs & Co.
("Goldman Sachs"). This newly created entity includes GSAM. GSAM provides a
wide range of discretionary investment advisory services, quantitatively
driven and actively managed to U.S. and international equity portfolios,
U.S. and global fixed-income portfolios, commodity and currency products
and money market accounts. As of June 30, 2000, GSAM, along with other
units of IMD, had assets under management of $270.8 billion.

Account: MidCap Growth
Sub-Advisor: The Dreyfus Corporation ("Dreyfus"), 200 Park Avenue, New
York, NY 10166, was formed in 1947. Dreyfus is a wholly owned subsidiary of
Mellon Bank, N.A., which is a wholly owned subsidiary of Mellon Bank
Corporation ("Mellon"). As of June 30, 2000, Dreyfus managed or
administered approximately $131.2 billion in assets for approximately 1.7
million investor accounts nationwide.

Account: MidCap Growth Equity
Sub-Advisor: Turner Investment Partners, Inc. ("Turner") was founded in
1990. Its address is 1235 Westlake Drive, Suite 350, Berwyn, PA 19312. As
of June 30, 2000, Turner had discretionary management authority with
respect to approximately $10.2 billion in assets.

Account: SmallCap Value
Sub-Advisor: J.P. Morgan Investment Management, Inc. ("Morgan"), 522 Fifth
Avenue, New York, NY 10036 is a wholly-owned subsidiary of J.P. Morgan &
Co. Incorporated ("J.P. Morgan") a bank holding company. J.P. Morgan,
through Morgan and its other subsidiaries, offers a wide range of services
to governmental, institutional, corporate and individual customers and acts
as investment advisor to individual and institutional clients. As of June
30, 2000, J.P. Morgan and its subsidiaries had total combined assets under
management of approximately $372 billion.

Management Other Total Operating
Account Fees Expenses Expenses

Aggressive Growth 0.75% 0.02% 0.77%
Asset Allocation 0.80 0.05 0.85
Balanced 0.57 0.01 0.58
Bond 0.49 0.01 0.50
Capital Value 0.43 0.00 0.43
Government Securities 0.49 0.01 0.50
Growth 0.45 0.00 0.45
International 0.73 0.05 0.78
International SmallCap 1.20 0.12 1.32
LargeCap Growth 1.10 0.13 1.23*
LargeCap Stock Index 0.35 0.14 0.49*
(previously Stock Index 500)
MicroCap 1.00 0.28 1.28*
MidCap 0.61 0.00 0.61
MidCap Growth 0.90 0.19 1.09*
Money Market 0.50 0.02 0.52
Real Estate 0.90 0.09 0.99
SmallCap 0.85 0.06 0.91
SmallCap Growth 1.00 0.07 1.07*
SmallCap Value 1.10 0.34 1.44*
Utilities 0.60 0.04 0.64

* Before waiver

The three Accounts which are being added to the Fund as of October 24, 2000 have
also entered into agreements with Sub-Advisors. Under those agreements, the
Manager will pay the Sub-Advisor (based on a percentage of average daily net
assets) as follows:

Management
Account Fees

International Emerging Markets 0.55%
LargeCap Growth Equity 0.50
MidCap Growth Equity 0.50

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, LargeCap Growth Equity,
MicroCap, MidCap Growth, MidCap Growth Equity, MidCap Value, SmallCap Growth and
SmallCap Value Accounts (not all of these Accounts are available through this
contract).