pvc-c741.htm - Generated by SEC Publisher for SEC Filing

485APOS 1 pvc2010afiling.htm PVC A FILING DATED 3-2-2010 pvc-c741.htm - Generated by SEC Publisher for SEC Filing


	Registration No. 02-35570


U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------
POST-EFFECTIVE AMENDMENT NO. 74 TO
FORM N-1A
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
and
REGISTRATION STATEMENT
under
THE INVESTMENT COMPANY ACT OF 1940
--------
PRINCIPAL VARIABLE CONTRACTS FUNDS, INC.
formerly Principal Variable Contracts Fund, Inc.
(Exact name of Registrant as specified in Charter)

The Principal Financial Group
Des Moines, Iowa 50392
(Address of principal executive offices)
--------
Telephone Number (515) 248-3842
--------

Copy to:
MICHAEL D. ROUGHTON	JOHN W. BLOUCH, Esq.
The Principal Financial Group	Dykema Gossett PLLC
Des Moines, Iowa 50392	Franklin Square, Suite 300 West
	1300 I Street, N.W.
	Washington, DC 20005-3306
(Name and address of agent for service)
----------

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

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


PRINCIPAL VARIABLE CONTRACTS FUNDS, INC.

(“the Fund”)


ACCOUNTS OF THE FUND
Equity Accounts	Fixed-Income Accounts
Diversified International Account	Bond & Mortgage Securities Account
Equity Income Account	Government & High Quality Bond Account
International Emerging Markets Account	Income Account
International SmallCap Account	Money Market Account
LargeCap Blend Account II	Mortgage Securities Account
LargeCap Growth Account	Short-Term Bond Account
LargeCap Growth Account I	Short-Term Income Account
LargeCap S&P 500 Index Account
LargeCap Value Account	Asset Allocation Accounts
LargeCap Value Account III	Asset Allocation Account
MidCap Blend Account	Balanced Account
MidCap Growth Account I	Diversified Balanced Account
MidCap Value Account II	Diversified Growth Account
Principal Capital Appreciation Account (f/k/a West Coast Equity Account)	Principal LifeTime Accounts
Real Estate Securities Account	2010 Account
SmallCap Blend Account	2020 Account
SmallCap Growth Account II	2030 Account
SmallCap Value Account I	2040 Account
	2050 Account
	Strategic Income Account
	Strategic Asset Management Portfolios
	Balanced Portfolio
	Conservative Balanced Portfolio
	Conservative Growth Portfolio
	Flexible Income Portfolio
	Strategic Growth Portfolio

This prospectus describes a mutual fund organized by Principal Life Insurance Company^®(“Principal Life”). The Fund
provides a choice of investment objectives through the Accounts listed above.

The date of this Prospectus is ________________.


TABLE OF CONTENTS
ACCOUNT SUMMARIES	4
Asset Allocation Account	7
Balanced Account	10
Bond & Mortgage Securities Account	13
Diversified Balanced Account
Diversified Growth Account
Diversified International Account	16
Equity Income Account	19
Government & High Quality Bond Account	22
Income Account	25
International Emerging Markets Account	28
International SmallCap Account	31
LargeCap Blend Account II	34
LargeCap Growth Account	37
LargeCap Growth Account I	40
LargeCap S&P 500 Index Account	43
LargeCap Value Account	46
LargeCap Value Account III	49
MidCap Blend Account	52
MidCap Growth Account I	55
MidCap Value Account II
Money Market Account
Mortgage Securities Account
Principal Capital Appreciation Account (f/k/a West Coast Equity Account)
Principal LifeTime Accounts
Principal LifeTime 2010 Account
Principal LifeTime 2020 Account
Principal LifeTime 2030 Account
Principal LifeTime 2040 Account
Principal LifeTime 2050 Account
Principal LifeTime Strategic Income Account
Real Estate Securities Account
Short-Term Bond Account
Short-Term Income Account
SmallCap Blend Account
SmallCap Growth Account II
SmallCap Value Account I
Strategic Asset Management Portfolios
Flexible Income Portfolio
Conservative Balanced Portfolio
Balanced Portfolio
Conservative Growth Portfolio
Strategic Growth Portfolio
CERTAIN INVESTMENT STRATEGIES AND RELATED RISKS
PRICING OF ACCOUNT SHARES
DIVIDENDS AND DISTRIBUTIONS

1-800-852-4450

MANAGEMENT OF THE FUND

NOTES ABOUT CERTAIN FEES AND EXPENSES

DISTRIBUTION PLAN AND ADDITIONAL INFORMATION REGARDING INTERMEDIARY

COMPENSATION

GENERAL INFORMATION ABOUT AN ACCOUNT

Frequent Trading and Market Timing (Abusive Trading Practices)

Eligible Purchasers

Shareholder Rights

Purchase of Account Shares

Sale of Account Shares

Restricted Transfers

Financial Statements

TAX INFORMATION

FINANCIAL HIGHLIGHTS

APPENDIX A—DESCRIPTION OF BOND RATINGS

ADDITIONAL INFORMATION


ASSET ALLOCATION ACCOUNT

Objective:	The Account seeks to generate a total investment return consistent with preservation of
	capital.

Fees and Expenses of the Account

This table describes the fees and expenses that you may pay if you buy and hold shares of the Account. These fees and expenses do not include the effect of any sales charge, separate account expenses or other contract level expenses which may be applied at the variable life insurance or variable annuity product level. If such charges or fees were included, overall expenses would be higher and would lower the Account’s performance.

Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses

(expenses that you pay each year as a percentage of the value of your investment)


For the year ended December 31, 2008	Class 1
Management Fees	0.80%
Other Expenses⁽¹⁾	0.08
Acquired Fund Fees and Expenses	0.02
Total Annual Account Operating Expenses	0.90%
⁽¹⁾Other Expenses have been restated to reflect expenses being deducted from current assets.

Example

This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each year and that the Account’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be:


	1 year	3 years	5 years	10 years
Class 1	$92	$287	$498	$1,108
Class 2

Portfolio Turnover

The Account pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual Account operating expenses or in the example, affect the Account’s performance. During the most recent fiscal year, the Account’s portfolio turnover rate was ______% of the average value of its portfolio.


Investor Profile:	The Account may be an appropriate investment for investors seeking a moderate risk
	approach towards long-term growth.

Principal Investment Strategies

The Account invests in a portfolio of securities that is broadly diversified by asset class, global region, country, economic sector, and currency. The Account’s portfolio manager makes broad asset allocation decisions and delegates responsibility for selection of specific individual securities to the internal, active management teams of the Sub-Advisor, Morgan Stanley Investment Management.


In deciding how to allocate the Account’s assets, Morgan Stanley Investment Management assesses three sets of
factors:
•	the relative value of the stock, bond and money markets in the various regions, countries, and economic sectors;
•	the long-term dynamic forces that are driving economies, economic sectors, and companies; and
•	the short-term technical forces that are affecting market pricing.
Factors evaluated include growth rates in gross domestic product, inflation and corporation earnings, labor market
conditions, interest rate levels, sales growth, return on equity, dividend yields, price to book ratios, and currency
valuations.

From time-to-time, Morgan Stanley Investment Management changes the Account’s allocation of assets in various ways, including by asset class, global region, country, economic sector, and currency, in order to keep the portfolio in alignment with its global investment outlook. The Account may actively trade portfolio securities in an attempt to achieve its investment objective.

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 Investment Management reallocates among asset classes and eliminates asset classes for a period of time, when in its judgment the shift offers better prospects of achieving the investment objective of the Account. Under normal market conditions, abrupt reallocations among asset classes will not occur.


Morgan Stanley Investment Management does not allocate a specific percentage of the Account’s assets to a class.
Over time, it expects the asset mix to be within the following ranges:
•	25% to 75% in equity securities;
•	20% to 60% in fixed-income securities; and
•	0% to 40% in money market instruments.
The Account may invest up to 25% of its assets in foreign securities. The Account may invest in high yield securities in
an attempt to achieve its investment objective. The Account may invest in small cap stocks, which as of December 31,
2008 ranged between $0.01 billion and $3.3 billion, as defined by the Russell 2000^®Index. The Account may invest in
mid cap stocks, which as of December 31, 2008 ranged between $0.02 billion and $14.9 billion, as defined by the
Russell Midcap Index.

Allowable instruments include individual securities (stocks, without regard to the market capitalization of the issuing company, and bonds), equity and interest rate futures, currency forward contracts, futures contracts, fixed-income structured products, and listed options. The Account may purchase securities issued as part of, or a short period after, companies’ initial public offerings and may at times dispose of those shares shortly after their acquisition. Morgan Stanley Investment Management may utilize currency contracts, currency or index futures, or other derivatives for hedging or other purposes, including modifying the Account’s exposure to various currency, equity, or fixed-income markets. The Account may lend its portfolio securities to brokers, dealers and other financial institutions.

Principal Risks

The value of your investment in the Account changes with the value of the Account’s investments. Many factors affect that value, and it is possible to lose money by investing in the Account. The principal risks of investing in the Account, in alphabetical order, are:

Active Trading Risk. Actively trading portfolio securities may result in high portfolio turnover rates and increase brokerage costs, accelerate realization of taxable gains and adversely impact fund performance.

Asset Allocation Risk. A fund's selection and weighting of asset classes and/or underlying funds may cause it to underperform other funds with a similar investment objective.

Derivatives Risk. Transactions in derivatives (such as options, futures, and swaps) may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and produce disproportionate losses. Certain Fund transactions, such as reverse repurchase agreements, loans of portfolio securities, and the use of when-issued, delayed delivery or forward commitment transactions, or derivative instruments, may give rise to leverage, causing the Fund to be more volatile than if it had not been leveraged.

Equity Securities Risk. Equity securities (common, preferred, and convertible preferred stocks and securities whose values are tied to the price of stocks, such as rights, warrants and convertible debt securities) could decline in value if the issuer's financial condition declines or in response to overall market and economic conditions. A fund's principal market segment(s), such as large cap, mid cap or small cap stocks, or growth or value stocks, may underperform other market segments or the equity markets as a whole. Investments in smaller companies and mid-size companies may involve greater risk and price volatility than investments in larger, more mature companies.

Exchange-Traded Funds ("ETFs") Risk. An ETF is subject to the risks associated with direct ownership of the securities comprising the index on which the ETF is based. Fund shareholders indirectly bear their proportionate share of the expenses of the ETFs in which the fund invests.

Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate risk and credit quality risk. The market value of fixed-income securities generally declines when interest rates rise, and an issuer of fixed-income securities could default on its payment obligations.

Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; changes in foreign exchange rates and foreign exchange restrictions; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).

High Yield Securities Risk. High yield fixed-income securities (commonly referred to as "junk bonds") are subject to greater credit quality risk than higher rated fixed-income securities and should be considered speculative.

Initial Public Offerings ("IPOs") Risk. The market for IPO shares may be volatile, continued access to IPO offerings cannot be assured, and a fund may dispose of IPO shares shortly after their acquisition.

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

U.S. Government Sponsored Securities Risk. Securities issued by U.S. government-sponsored or -chartered enterprises such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Home Loan Banks are not issued or guaranteed by the U.S. Treasury.

Performance

The following information provides an indication of the risks of investing in the Account. The bar chart shows the investment returns of the Account’s Class 1 shares for each full calendar year of operations for 10 years (or, if shorter, the life of the Account). The table shows, for each share class of the Account and for the last one, five, and ten calendar year periods (or, if shorter, the life of the Account), how the Account’s average annual total returns compare to the returns of one or more broad-based market indices. Past performance is not necessarily an indication of how the Account will perform in the future. Performance figures for the Accounts do not include any separate account expenses, cost of insurance, or other contract-level expenses. Total returns for the Accounts would be lower if such expenses were included. You may get updated performance information online at www.principalfunds.com or by calling 1-800-852-4450.

Calendar Year Total Returns (%) as of 12/31 each year (Class 1 Shares)


The year-to-date return as of March 31, 2009 is -6.97%

Highest return for a quarter during the period of the bar chart above:		Q2 ‘03	12.11
Lowest return for a quarter during the period of the bar chart above:		Q3 ‘02	-12.41

Average Annual Total Returns (%)

		Past	Past
For the periods ended December 31, 2008		1 Year	5 Years	Past 10 Years
Asset Allocation Account - Class 1		-24.84%	1.69%	2.99%
S&P 500 Index (reflects no deduction for fees, expenses, or taxes)		-37.00	-2.19	-1.38
Barclays Capital Aggregate Bond Index (reflects no deduction for fees,
expenses, or taxes)⁽¹⁾		5.24	4.65	5.63
MSCI EAFE (Europe, Australia, Far East) Index NDTR D (reflects no
deduction for fees, expenses, or taxes)⁽¹⁾		-43.38	1.66	0.80

The additional indices are used to display the performance of the various asset classes used by the Account.

Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
Morgan Stanley Investment Management Inc.
•	Francine J. Bovich (since 1994), Managing Director
•	Henry McVey (since 2010), Managing Director

Purchase and Redemption of Account Shares

There are no restrictions on amounts to be invested in PVC shares of the Account for an eligible purchaser. You may purchase or redeem shares on any business day (normally any day when the New York Stock Exchange is open for regular trading) through the insurance company issuing the variable annuity, variable life contract, or the trustees or administrators of the qualified retirement plan offering the Account.

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.

If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment adviser, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend one variable annuity, variable life insurance policy or mutual fund over another, or to recommend one share class of the Fund over another share class. Ask your salesperson or visit your financial intermediary’s Web site for more information.


BALANCED ACCOUNT

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

Fees and Expenses of the Account

Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses

(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets


For the year ended December 31, 2008	Class 1
Management Fees	0.60%
Other Expenses⁽¹⁾	0.09
Acquired Fund Fees and Expenses	0.01
Total Annual Account Operating Expenses	0.70%
⁽¹⁾Other Expenses have been restated to reflect expenses being deducted from current assets.

Example

This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other mutual funds.


	Number of years you own your shares
	1	3	5	10
Balanced Account - Class 1	$72	$224	$390	$871
Portfolio Turnover

Investor Profile:	The Account may be an appropriate investment for investors seeking current income as
	well as long-term growth of capital.

Principal Investment Strategies

The Account seeks growth of capital and current income by investing primarily in common stocks and corporate bonds. It may also invest in other equity securities, government bonds and notes (obligations of the U.S. government or its agencies or instrumentalities), 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. The Account may invest in foreign securities, and up to 10% of its assets in below investment grade securities (“junk bonds”). The Account may engage in certain options transactions, enter into financial futures contracts, and related options for the purpose of portfolio hedging, and enter into currency forwards or futures contracts, and related options for the purpose of currency hedging. The Account may, but is not required to, use derivative instruments (“derivatives”) for risk management purposes or as part of the Account’s investment strategies. Examples of derivatives include options, futures, swaps, and forward currency exchange agreements. The Account may use derivatives to earn income and enhance returns, to manage or adjust the risk profile of the Account, to replace non-traditional direct investments, or to obtain exposure to certain markets. The Account may invest in small cap stocks, which as of December 31, 2008 ranged between $0.01 billion and $3.3 billion, as defined by the Russell 2000^®Index. The Account may invest in mid cap stocks, which as of December 31, 2008 ranged between $0.02 billion and $14.9 billion, as defined by the Russell Midcap Index.

The Account is actively managed and prepared to invest in securities, sectors, or industries differently from the benchmark. The account may actively trade securities in an attempt to achieve its objective. The Account may lend its portfolio securities to brokers, dealers and other financial institutions.

PGI utilizes an asset allocation approach to the management and development of a diversified balanced account. The strategy incorporates a wide range of asset classes and investment styles with primary emphasis placed on equity versus fixed income allocation decisions. Secondary focus is then placed on growth versus value, large cap versus small cap, and domestic versus international equity exposure. Strategic or long-term asset class targets are determined with gradual adjustments to the mix to enhance risk-adjusted results over time. Any asset allocation adjustments fall within a predetermined range and do not deviate by more than 10% of the long-term asset class targets.

All marginal shifts in the asset mix are based on a consistent three-dimensional analytical framework. First, securities are reviewed based on price, earnings, and yield measures relative to long-term historical norms. Next, fundamental economic and market conditions are analyzed to identify opportunities, and finally, market trends are used to compare relative price strength and investor sentiment.


During the fiscal year ended December 31, 2008, the average ratings of the fund’s fixed income assets, based on
market value at each month-end, were as follows (all ratings are by Moody’s):

64.95% in securities rated Aaa	3.34% in securities rated Ba	0.00% in securities rated C
5.45% in securities rated Aa	2.28% in securities rated B	0.01% in securities rated D
7.95% in securities rated A	0.24% in securities rated Caa	0.41% in securities not rated
15.36% in securities rated Baa	0.01% in securities rated Ca

Principal Risks

Asset Allocation Risk. A fund's selection and weighting of asset classes and/or underlying funds may cause it to underperform other funds with a similar investment objective.

Municipal Securities Risk. Principal and interest payments on municipal securities may not be guaranteed by the issuing body and may be payable only from a particular source. That source may not perform as expected and payment obligations may not be made or made on time.

Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund's average portfolio duration, the more sensitive the fund will be to changes in interest rates.

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance

Calendar Year Total Returns (%) as of 12/31 each year (Class 1 Shares)


The year-to-date return as of March 31, 2009 is -7.66%

Highest return for a quarter during the period of the bar chart above:	Q2 ‘03		9.82
Lowest return for a quarter during the period of the bar chart above:	Q4 ‘08		-17.87

Average Annual Total Returns (%)

	Past	Past
For the periods ended December 31, 2008	1 Year	5 Years	Past 10 Years
Balanced Account - Class 1	-30.92%	-0.95%	-0.64%
S&P 500 Index (reflects no deduction for fees, expenses, or taxes)	-37.00	-2.19	-1.38
Barclays Capital Aggregate Bond Index (reflects no deduction for fees,
expenses, or taxes)	5.24	4.65	5.63
60% S&P 500 Index/40% Barclays Capital Aggregate Bond Index (reflects
no deduction for fees, expenses, or taxes)	-20.91	1.10	1.93

The additional indices are used to display the performance of the various asset classes used by the Account.

Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):

Principal Global Investors, LLC (“PGI”)

• Dirk Laschanzky (since 2001), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.


BOND & MORTGAGE SECURITIES ACCOUNT

Objective: The Account seeks to provide current income.

Fees and Expenses of the Account
This table describes the fees and expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not include the effect of any sales charge, separate account expenses or other contract level
expenses which may be applied at the variable life insurance or variable annuity product level. If such charges or fees
were included, overall expenses would be higher and would lower the Account’s performance.

Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets

For the year ended December 31, 2008	Class 1
Management Fees⁽¹⁾	0.44%
Other Expenses⁽¹⁾	0.01
Total Annual Account Operating Expenses	0.45%
⁽¹⁾Management Fees and Other Expenses have been restated to reflect expenses being deducted from current assets.

Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:


	Number of years you own your shares
	1	3	5	10
Bond & Mortgage Securities Account - Class 1	$46	$144	$252	$567

Portfolio Turnover
The Account pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in
annual Account operating expenses or in the example, affect the Account’s performance. During the most recent fiscal
year, the Account’s portfolio turnover rate was ______% of the average value of its portfolio.

Investor Profile: The Account may be an appropriate investment for investors seeking diversification by
investing in a fixed-income mutual fund.

Principal Investment Strategies

Under normal circumstances, the Account invests at least 80% of its net assets (plus any borrowings for investment

purposes) in intermediate maturity fixed-income or debt securities rated, at the time of purchase, BBB- or higher by

Standard & Poor's Rating Service (“S&P”) or Baa3 or higher by Moody's Investors Service, Inc. (“Moody's”). These

include:

• securities issued or guaranteed by the U.S. government or its agencies or instrumentalities;

• asset-backed securities or mortgage-backed securities representing an interest in a pool of mortgage loans or

other assets;

• debt securities and taxable municipal bonds; and

• securities issued or guaranteed by the governments of Canada (provincial or federal government) or the United

Kingdom payable in U.S. dollars.

The rest of the Account's assets may be invested in:

• preferred securities and/or common and preferred stock that may be convertible (may be exchanged for a fixed

number of shares of common stock of the same issuer) or may be non-convertible;

• foreign securities; or

• securities rated at the time of purchase BB+ or lower by S&P or Ba1 or lower by Moody’s (i.e. less than investment

grade (commonly known as “junk bonds”)) or if not rated, of comparable quality in the opinion of the Fund’s sub-

advisor.

The Fund may enter into dollar roll transactions, which may involve leverage. The Fund may utilize derivative strategies, which are financial contracts whose value depends upon, or is derived from, the value of an underlying asset, reference rate, or index, and may relate to stocks, bonds, interest rates, currencies or currency exchange rates, and related indexes. Derivative strategies may include certain options transactions, financial futures contracts, swaps, currency forwards, and related options for purposes such as earning income and enhancing returns, managing or adjusting the risk profile of the Fund, replacing more traditional direct investments, or obtaining exposure to certain markets.

The Fund (i) may actively trade securities to achieve its investment objective, and (ii) may be used as part of a fund of funds strategy.


During the fiscal year ended December 31, 2008, 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):

62.00% in securities rated Aaa	4.42% in securities rated Ba	0.00% in securities rated C
6.61% in securities rated Aa	3.71% in securities rated B	0.01% in securities rated D
9.96% in securities rated A	0.30% in securities rated Caa	0.13% in securities not rated
12.85% in securities rated Baa	0.01% in securities rated Ca

Principal Risks

High Yield Securities Risk. High yield fixed-income securities (commonly referred to as “junk bonds”) are subject to greater credit quality risk than higher rated fixed-income securities and should be considered speculative.

Prepayment Risk. Unscheduled prepayments on mortgage-backed and asset-backed securities may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk).

Real Estate Securities Risk. Real estate securities (including real estate investment trusts (“REITs”)) are subject to the risks associated with direct ownership of real estate, including declines in value, adverse economic conditions, increases in expenses, regulatory changes and environmental problems. A REIT could fail to qualify for tax-free pass-through of income under the Internal Revenue Code, and Fund shareholders will indirectly bear their proportionate share of the expenses of REITs in which the Fund invests.

Risk of Being an Underlying Fund. An underlying fund to a fund of funds may experience relatively large redemptions or investments as the fund of funds periodically reallocates or rebalances its assets. These transactions may cause the underlying fund to sell portfolio securities to meet such redemptions, or to invest cash from such investments, at times it would not otherwise do so, and may as a result increase transaction costs and adversely affect underlying fund performance.

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


The year-to-date return as of March 31, 2009 is -0.96%

Highest return for a quarter during the period of the bar chart above:		Q3 ‘02		4.30
Lowest return for a quarter during the period of the bar chart above:		Q4 ‘08		-8.24

Average Annual Total Returns (%)

	Past		Past
For the periods ended December 31, 2008	1 Year		5 Years		Past 10 Years
Bond & Mortgage Securities Account - Class 1	-17.06%		-0.70%		2.32%
Barclays Capital Aggregate Bond Index (reflects no deduction for fees,
expenses or taxes)	5.24		4.65		5.63


Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
Principal Global Investors, LLC
•	William C. Armstrong (since 2000), Portfolio Manager
•	Timothy R. Warrick (since 2000), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.


DIVERSIFIED BALANCED ACCOUNT

Objective: Objective:The Account seeks to provide as high a level of total return (consisting of
reinvested income and capital appreciation) as is consistent with reasonable risk.

Fees and Expenses of the Account

This table describes the fees and expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not include the effect of any sales charge, separate account expenses or other contract level
expenses which may be applied at the variable life insurance or variable annuity product level. If such charges or fees
were included, overall expenses would be higher and would lower the Account's performance. The Account operates
as a fund of funds and thus bears both its own expenses and, indirectly, its proportionate share of the expenses of the
underlying funds in which it invests.

Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)

For the year ended December 31, 2010		Class 2
Management Fees		0.05%
Distribution and/or Service (12b-1) Fees Other Expenses		0.25
Other Expenses		0.01
Acquired Fund (Underlying Fund) Operating Expenses		0.30
Total Annual Account Operating Expenses		0.61%

Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account's operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
	Number of years you own your shares
	1	3
Diversified Balanced Account - Class 2	$62	$195

Investor Profile: The Account may be an appropriate investment for investors seeking the potential for a
medium level of income and a medium level of capital growth, while exposing them to a
medium level of principal risk.

Principal Investment Strategies
The Account operates as a fund of funds and invests in underlying funds. In pursuing its investment objective, the
Account typically allocates its assets, within predetermined percentage ranges, among four Funds of Principal Funds,
Inc. ("PFI") (Institutional class shares) - the International Equity Index, MidCap S&P 400 Index, SmallCap S&P 600
Index and the Bond Market Index Funds - and one Account of Principal Variable Contracts Funds, Inc. ("PVC") (Class
1 Shares) - LargeCap S&P 500 Index Account (together, the "underlying funds"). The Account will generally allocate
approximately 40% of its assets to the equity index funds according to U.S. and non-U.S. market capitalizations and
approximately 60% to the Bond Market Index Fund for intermediate duration. The percentages reflect the extent to
which the Account will normally invest in the particular market segment represented by the underlying funds, and the
varying degrees of potential investment risk and reward represented by the Account's investments in those market

segments and its underlying funds. Without shareholder approval, the Advisor may alter the percentage ranges and/or substitute or remove underlying funds when it deems appropriate in order to achieve its investment objective. The assets of the Account will be allocated among underlying funds in accordance with its investment objective, which is to achieve a balance between income and growth, while considering the Advisor's outlook for the economy, the financial markets, and the relative market valuations of the underlying funds. The Account will be re-balanced monthly.

In selecting underlying funds and target weights, Principal considers, among other things, quantitative measures, such as past performance, expected levels of risk and returns, expense levels, diversification of existing funds, and style consistency. Principal determines whether to use cash flows or asset transfers or both to achieve the target weights established from time to time for underlying funds. Principal monitors the performance of the Sub-Advisor of each underlying fund relative to that fund's appropriate benchmark and peer group.

Principal, the manager for PVC, is the manager for PFI. The Account may invest in other Accounts of PVC, other Funds of PFI, or other investment companies, at the Advisor's discretion, in order to achieve its goal. The underlying funds provide the Account with exposure to different asset classes, including domestic and foreign equity and fixed-income securities.

There can be no assurance that the Account will achieve its investment objective. The net asset value of the Account's shares is affected by changes in the value of the shares of the underlying funds it owns. The Account's investments are invested in the underlying funds and, as a result, the Account's performance is directly related to their performance. The Account's ability to meet its investment objective depends on the ability of the underlying funds to achieve their investment objectives. The Account invests in several index funds. Due to cashflows and expenses, an index fund may not produce the same investment performance of the corresponding index.

The Account's diversification is designed to help cushion severe losses in any one investment sector and moderate the Account's overall price swings. However, the Account's share price will fluctuate as the prices of the underlying funds rise or fall with changing market conditions.

Principal Risks

The diversification of the Account is designed to cushion severe losses in any one investment sector and moderate overall price volatility. However, the Account is subject to the particular risks of the underlying funds in the proportions in which the Fund invests in them, and its share prices will fluctuate as the prices of underlying fund shares rise or fall with changing market conditions. If you sell your shares when their value is less than the price you paid, you will lose money. The principal risks of investing in the Account, in alphabetical order, are:

Asset Allocation Risk. A fund's selection and weighting of asset classes and/or underlying funds may cause it to underperform other funds with a similar investment objective.

Conflict of Interest Risk. The Advisor and its affiliates earn different fees from different underlying funds and may have an incentive to allocate more fund-of-fund assets to underlying funds from which they receive higher fees.

Investment Company Securities Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies in which the Fund invests. Investments in closed-end funds may involve payment of substantial premiums above the value of such companies' portfolio securities.

Real Estate Securities Risk. Real estate securities (including real estate investment trusts ("REITs")) are subject to the risks associated with direct ownership of real estate, including declines in value, adverse economic conditions, increases in expenses, regulatory changes and environmental problems. A REIT could fail to qualify for tax-free pass-through of income under the Internal Revenue Code, and Fund shareholders will indirectly bear their proportionate share of the expenses of REITs in which the Fund invests.

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.


Management

Investment Advisor: Principal Management Corporation
•	James Fennessey (since 2009), Vice President
•	"Randy Welch (since 2009), Vice President

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.

DIVERSIFIED GROWTH ACCOUNT

Objective: The Account seeks to provide long-term capital appreciation.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)

Estimated for the year ended December 31, 2010	Class 2
Management Fees	0.05%
Distribution and/or Service (12-b1) Fees	0.25
Other Expenses	0.01
Acquired Fund (Underlying Fund) Operating Expenses	0.30
Total Annual Fund Operating Expenses	0.61%

Example
This Example is intended to help you compare the cost of investing in the Account with the cost of
investing in other mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:


	Number of years you own your shares
	1	3
Diversified Growth Account - Class 2	$62	$195


Investor Profile:	The Account may be an appropriate investment for investors seeking the potential for a low
	to medium level of income and a medium to high level of capital growth, while exposing
	them to a medium to high level of principal risk.

Principal Investment Strategies

The Account operates as a fund of funds and invests in underlying funds. In pursuing its investment objective, the Account typically allocates its assets, within predetermined percentage ranges, among four Funds of Principal Funds, Inc. (“PFI”) (Institutional class shares) – the International Equity Index, MidCap S&P 400 Index, SmallCap S&P 600 Index and the Bond Market Index Funds – and one Account of Principal Variable Contracts Funds, Inc. (“PVC”) (Class 1 Shares) – LargeCap S&P 500 Index Account (together, the “underlying funds”). The Account will generally allocate approximately 65% of its assets to the equity index funds according to U.S. and non-U.S. market capitalizations and approximately 35% to the Bond Market Index Fund for intermediate duration. The percentages reflect the extent to which the Account will normally invest in the particular market segment represented by the underlying funds, and the varying degrees of potential investment risk and reward represented by the Account’s

investments in those market segments and its underlying funds. Without shareholder approval, the Advisor may alter the percentage ranges and/or substitute or remove underlying funds when it deems appropriate in order to achieve its investment objective. The assets of the Account will be allocated among underlying funds in accordance with its investment objective, which is to achieve long-term growth of capital while considering the Advisor’s outlook for the economy, the financial markets, and the relative market valuations of the underlying funds. The Account will be re-balanced monthly.

Principal, the manager for PVC, is the manager for PFI. The Account may invest in other Accounts of PVC, other Funds of PFI, or other investment companies, at the Advisor’s discretion, in order to achieve its goal. The underlying funds provide the Account with exposure to different asset classes, including domestic and foreign equity and fixed-income securities.

There can be no assurance that the Account will achieve its investment objective. The net asset value of the Account’s shares is affected by changes in the value of the shares of the underlying funds it owns. The Account’s investments are invested in the underlying funds and, as a result, the Account’s performance is directly related to their performance. The Account’s ability to meet its investment objective depends on the ability of the underlying funds to achieve their investment objectives. The Account invests in several index funds. Due to cashflows and expenses, an index fund may not produce the same investment performance of the corresponding index.

The Account’s diversification is designed to help cushion severe losses in any one investment sector and moderate the Account’s overall price swings. However, the Account’s share price will fluctuate as the prices of the underlying funds rise or fall with changing market conditions.

Principal Risks

Asset Allocation Risk. A fund's selection and weighting of asset classes and/or underlying funds may cause it to underperform other funds with a similar investment objective.

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.


Management

Investment Advisor: Principal Management Corporation
•	James Fennessey (since 2009), Vice President
•	Randy Welch (since 2009), Vice President

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.

DIVERSIFIED INTERNATIONAL ACCOUNT

Objective: The Account seeks long-term growth of capital.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets

For the year ended December 31, 2008	Class 1	Class 2
Management Fees⁽¹⁾	0.85%	0.85%
Distribution and/or Service (12b-1) Fees	N/A	0.25
Other Expenses⁽¹⁾	0.16	0.16
Total Annual Account Operating Expenses	1.01%	1.26%


⁽¹⁾Management Fees and Other Expenses have been restated to reflect expenses being deducted from current assets.

Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:


	Number of years you own your shares
	1	3	5	10
Diversified International Account - Class 1	$103	$322	$558	$1,236
Diversified International Account - Class 2	128	400	692	1,523

Portfolio Turnover

Investor Profile:	The Account may be an appropriate investment for investors seeking long-term growth of
	capital in markets outside of the U.S. who are 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.

Principal Investment Strategies

The Account invests in a portfolio of equity securities of companies domiciled in any of the nations of the world. The

Fund invests in foreign securities, which are:

• companies with their principal place of business or principal office outside the U.S. or

• companies for which the principal securities trading market is outside the U.S.

Primary consideration is given to securities of corporations of developed areas, such as Western Europe, Canada, Australia, New Zealand, and the Pacific Islands. However, the Fund may invest in emerging market securities in an attempt to achieve its investment objective. The Fund will invest in equity securities of small, medium, and large capitalization companies.

The Fund has no limitation on the percentage of assets that are invested in any one country or denominated in any one currency. However, under normal circumstances, the Fund intends to invest at least 80% of its net assets (plus any borrowings for investment purposes) in companies in at least three different countries. One of those countries may be the U.S. though currently the Fund does not intend to invest in equity securities of U.S. companies.

The equity management philosophy of Principal Global Investors, LLC (“PGI”) is based on the belief that superior stock selection and disciplined risk management provide consistent outperformance. PGI focuses on companies with improving and sustainable business fundamentals, rising investor expectations, and attractive relative valuation. PGI uses a research-driven investment approach to minimize unintended portfolio risks (including sector and market cap biases relative to the index) so that stock selection drives performance.

PGI constructs a portfolio that is “benchmark aware” in that it is sensitive to the sector (companies with similar characteristics) and security weightings of its benchmark.

The Fund may actively trade securities in an attempt to achieve its investment objective. The Fund may engage in certain options transactions, enter into financial futures contracts and related options for the purpose of portfolio hedging, and enter into currency forwards or futures contracts and related options for the purpose of currency hedging. This Fund may be used as part of a fund of funds strategy.

Principal Risks

Performance

The year-to-date return as of March 31, 2009 is -14.16%

Highest return for a quarter during the period of the bar chart above:	Q2 ‘03		17.25
Lowest return for a quarter during the period of the bar chart above:	Q3 ‘08		-24.01

Average Annual Total Returns (%)

	Past	Past
For the periods ended December 31, 2008	1 Year	5 Years	Past 10 Years
Diversified International - Class 1	-46.22%	3.66%	1.51%
Diversified International - Class 2⁽¹⁾	-46.37	3.43	1.25
MSCI ACWI Ex-US Index (reflects no deduction for fees, expenses, or
taxes)	-45.53	2.56	1.95
⁽¹⁾Class 1 shares began operations on May 2, 1994 and Class 2 shares began operations on January 8, 2007. The returns for Class 2 shares for
the periods prior to January 8, 2007 are based on the performance of Class 1 shares adjusted to reflect the fees and expenses of Class 2
shares. The adjustment results in performance for such periods that is no higher than the historical performance of the Class 1 shares.


Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
Principal Global Investors, LLC
•	Paul H. Blankenhagen (since 2003), Portfolio Manager
•	Juliet Cohn (since 2004), Managing Director - Portfolio Manager
•	Chris Ibach (since 2005), Associate Portfolio Manager and Equity Research Analyst

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.


EQUITY INCOME ACCOUNT

Objective:	The Account seeks to provide a relatively high level of current income and long-term
	growth of income and capital.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets

For the year ended December 31, 2008	Class 1	Class 2
Management Fees⁽¹⁾	0.55%	0.55%
Distribution and/or Service (12b-1) Fees	N/A	0.25
Other Expenses⁽¹⁾	0.01	0.01
Acquired Fund Fees and Expenses	0.05	0.05
Total Annual Account Operating Expenses	0.61%	0.86%


⁽¹⁾Management Fees and Other Expenses have been restated to reflect expenses being deducted from current assets.

Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:


	Number of years you own your shares
	1	3	5	10
Equity Income Account - Class 1	$62	$195	$340	$ 762
Equity Income Account - Class 2	88	274	477	1,061

Portfolio Turnover

Investor Profile:	The Account may be an appropriate investment for investors who seek dividends to be
	reinvested for growth and who can accept fluctuations in the value of investments and the
	risks of investing in real estate investment trust (“REIT”) securities, below-investment
	grade bonds, or foreign securities.

Principal Investment Strategies

Under normal circumstances, the Account invests at least 80% of its net assets (plus any borrowings for investment purposes) in dividend-paying common stocks and preferred stocks. The Fund usually invests in large cap stocks, which as of the most recent calendar year end ranged between $1.1 billion and $323.7 billion, as defined by the S&P 500 Index, but may also invest in mid cap stocks, which as of the most recent calendar year end ranged between $0.03 billion and $15.5 billion, as defined by the Russell Midcap Index. Market capitalization is defined as total current market value of a company’s outstanding common stock. The Fund may invest up to 20% in fixed-income securities of any maturity, including below-investment-grade fixed-income securities (sometimes called “junk bonds”) (rated at the time of purchase BB+ or lower by S&P or Ba1 or lower by Moody’s) and preferred securities. The Fund may invest up to 20% of its assets in real estate investment trust securities. The Fund may invest in securities of foreign issuers.

In selecting investments for the Fund, Edge Asset Management, Inc. (“Edge”) looks for investments that provide regular income in addition to some opportunity for capital appreciation. Equity investments are typically made in “value” stocks currently selling for less than Edge believes they are worth. This Fund may be used as part of a fund of funds strategy. The Fund could purchase shares issued by an exchange-traded funds (“ETF”) to temporarily gain broad exposure to the equity market while awaiting purchase of underlying securities.

Principal Risks

Value Stock Risk. The market may not recognize the intrinsic value of value stocks for a long time, or they may be appropriately priced at the time of purchase.

Performance


The year-to-date return as of March 31, 2009 is -12.84%

Highest return for a quarter during the period of the bar chart above:		Q2 ‘03	15.69
Lowest return for a quarter during the period of the bar chart above:		Q4 ‘08	-19.89

	Average Annual Total Returns (%)⁽¹⁾

		Past	Past
	For the periods ended December 31, 2008	1 Year	5 Years	Past 10 Years
	Equity Income Account - Class 1	-33.94%	1.53%	4.76%
	Equity Income Account - Class 2⁽²⁾	-34.12	1.27	4.52
	S&P 500 Index (reflects no deduction for fees, expenses, or taxes)	-37.00	-2.19	-1.38
	S&P 500/Citigroup Value Index (reflects no deduction for fees, expenses,
	or taxes	-39.22	-1.30	-0.25
⁽¹⁾	Performance reflects the performance of the predecessor fund.
⁽²⁾	Class 1 shares began operations on April 28, 1998 and Class 2 shares began operations on May 1, 2001. The returns for Class 2 shares for the
	periods prior to May 1, 2001 are based on the performance of Class 1 shares adjusted to reflect the fees and expenses of Class 2 shares. The
	adjustment results in performance for such periods that is no higher than the historical performance of the Class 1 shares.

Until December 16, 2005, when Standard & Poor’s changed the name of the index and its calculation methodology, the index was called the S&P 500/Barra Value Index. The additional indices are used to display the performance of the various asset classes used by the Account.


Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
Edge Asset Management, Inc.
•	David W. Simpson (since 2008), Portfolio Manager
•	Joseph T. Suty (since 2005), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.

GOVERNMENT & HIGH QUALITY BOND ACCOUNT

Objective: The Account seeks a high level of current income, liquidity and safety of principal.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets

For the year ended December 31, 2008	Class 1
Management Fees⁽¹⁾	0.46%
Other Expenses⁽¹⁾	0.01
Total Annual Account Operating Expenses	0.47%


⁽¹⁾Management Fees and Other Expenses have been restated to reflect expenses being deducted from current assets.

Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:


	Number of years you own your shares
	1	3	5	10
Government & High Quality Bond Account - Class 1	$48	$151	$263	$591

Portfolio Turnover


Investor Profile:	The Account may be an appropriate investment for investors seeking diversification by
	investing in a fixed-income mutual fund.

Principal Investment Strategies

The Account seeks to achieve its investment objective by investing primarily (at least 80% of its net assets, plus any borrowings for investment purposes) in securities that are AAA rated or issued by the U.S. government, its agencies or instrumentalities. The Account may invest in mortgage-backed securities representing an interest in a pool of mortgage loans. These securities are rated AAA by Standard & Poor’s Corporation or Aaa by Moody’s Investor Services, Inc. or, if unrated, determined by PGI to be of equivalent quality.

PGI seeks undervalued securities that represent good long-term investment opportunities. Securities may be sold when PGI believes they no longer represent good long-term value. The Account may actively trade portfolio securities in an attempt to achieve its investment objective.

The Account may lend its portfolio securities to brokers, dealers and other financial institutions. PGI may, but is not required to, use derivative instruments (“derivatives”) for risk management purposes or as part of the Account’s investment strategies. Generally, derivatives are financial contracts whose value depends upon, or is derived from, the value of an underlying asset, reference rate, or index, and may relate to stocks, bonds, interest rates, currencies or currency exchange rates, and related indexes. Examples of derivatives include options, futures, swaps, and forward currency agreements. The Account may use derivatives to earn income and enhance returns, to manage or adjust the risk profile of the Account, to replace more traditional direct investments, or to obtain exposure to certain markets. The Account is actively managed and prepared to invest in securities, sectors, or industries differently from the benchmark.

Principal Risks

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance

expenses were included. You may get updated performance information online at www.principalfunds.com or calling 1-800-852-4450.


The year-to-date return as of March 31, 2009 is 0.75%

Highest return for a quarter during the period of the bar chart above:		Q3 ‘01		4.41
Lowest return for a quarter during the period of the bar chart above:		Q2 ‘04		-1.48

Average Annual Total Returns (%)

	Past		Past
For the periods ended December 31, 2008	1 Year		5 Years		Past 10 Years
Government & High Quality Bond Account - Class 1	-1.63%		2.59%		4.17%
Barclays Capital Government Mortgage Index (reflects no deduction for
fees, expenses, or taxes)	10.17		5.74		6.04


Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
Principal Global Investors, LLC
•	Bryan C. Davis (since 2008), Senior Trader/Research Analyst
•	Brad Fredericks (since 2005), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.


INCOME ACCOUNT

Objective:	The Account seeks to provide a high level of current income consistent with preservation of
	capital.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets

For the year ended December 31, 2008	Class 1	Class 2
Management Fees	0.50%	0.50%
Distribution and/or Service (12b-1) Fees	N/A	0.25
Other Expenses	0.01	0.01
Total Annual Account Operating Expenses	0.51%	0.76%


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:


	Number of years you own your shares
	1	3	5	10
Income Account - Class 1	$52	$164	$285	$640
Income Account - Class 2	78	243	422	942

Portfolio Turnover

Investor Profile:	The Account may be an appropriate investment for investors seeking diversification by
	investing in a fixed-income mutual fund, and who are willing to accept the risks associated
	with investing in “junk bonds,” foreign securities, and real estate investment trust (“REIT”)
	securities.

Principal Investment Strategies

Under normal circumstances, the Account invests primarily in a diversified pool of fixed-income securities including corporate securities, U.S. government securities, and mortgage-backed securities (including collateralized mortgage obligations), up to 35% of which may be in below investment-grade fixed-income securities (sometimes called “junk bonds”) (rated at the time of purchase BB+ or lower by S&P or Ba1 or lower by Moody’s). The Fund may also invest convertible securities, preferred securities, foreign securities, and real estate investment trust (“REIT”) securities. This Fund may be used as part of a fund of funds strategy.


During the fiscal year ended December 31, 2008, the average rating of the fund’s assets, based on market value at
each month-end, were as follows (all ratings are by Moody’s):

31.74% in securities rated Aaa	33.34% in securities rated Baa	2.02% in securities rated Caa
7.00% in securities rated Aa	3.78% in securities rated Ba	0.00% in securities rated Ca
14.36% in securities rated A	6.66% in securities rated B	0.01% in securities rated C
		1.09% in securities not rated

Principal Risks

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


The year-to-date return as of March 31, 2009 is 0.96%

Highest return for a quarter during the period of the bar chart above:	Q2 ‘03	5.00
Lowest return for a quarter during the period of the bar chart above:	Q4 ‘08	-4.21


Average Annual Total Returns (%)⁽¹⁾

	Past	Past
For the periods ended December 31, 2008	1 Year	5 Years	Past 10 Years
Income Account - Class 1	-3.47%	3.00%	5.00%
Income Account - Class 2⁽²⁾	-3.75	2.73	4.74
Citigroup Broad Investment-Grade Bond Index (reflects no deduction for
fees, expenses, or taxes)	7.02	5.11	5.86
⁽¹⁾Performance reflects the performance of the predecessor fund.
⁽²⁾Class 1 shares began operations on May 7, 1993, and Class 2 shares began operations on November 6, 2001. The returns for Class 2 shares
for the periods prior to November 6, 2001 are based on the performance of Class 1 shares adjusted to reflect the fees and expenses of
Class 2 shares. The adjustment results in performance for such periods that is no higher than the historical performance of the Class 1 shares.

Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
Edge Asset Management, Inc.
• John R. Friedl (since 2005), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.

INTERNATIONAL EMERGING MARKETS ACCOUNT

Objective: The Account seeks long-term growth of capital.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets
For the year ended December 31, 2008	Class 1
Management Fees	1.25%
Other Expenses⁽¹⁾	0.37
Total Annual Account Operating Expenses	1.62%
⁽¹⁾Other Expenses have been restated to reflect expenses being deducted from current assets.


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

	Number of years you own your shares
	1	3	5	10
International Emerging Markets Account - Class 1	$165	$511	$881	$1,922

Portfolio Turnover

The Account pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its

portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in

annual Account operating expenses or in the example, affect the Account’s performance. During the most recent fiscal

year, the Account’s portfolio turnover rate was ______% of the average value of its portfolio.

Investor Profile:	The Account may be an appropriate investment for investors seeking long-term growth of
	capital in securities of emerging market countries who are 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.

Principal Investment Strategies

The Account invests in foreign securities, which are:

• companies with their principal place of business or principal office in emerging market countries or

• companies for which their principal securities trading market is an emerging market country.

Under normal circumstances, the Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in emerging market country equity securities. For this Fund, 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 MSCI Emerging Markets Index). 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. Principal Global Investors, LLC (“PGI”) focuses on those emerging market countries that it believes have strongly developing economies and markets which are becoming more sophisticated.

The equity management philosophy of PGI is based on the belief that superior stock selection and disciplined risk management provide consistent outperformance. PGI focuses on companies with improving and sustainable business fundamentals, rising investor expectations, and attractive relative valuation. PGI uses a research-driven investment approach to minimize unintended portfolio risks (including sector and market cap biases relative to the index) so that stock selection drives performance.

PGI constructs a portfolio that is “benchmark aware” in that it is sensitive to the sector (companies with similar characteristics) and security weightings of its benchmark. The Fund will invest in equity securities of small, medium, and large capitalization companies.

The Fund may engage in certain options transactions, enter into financial futures contracts, currency forwards, and related options for the purpose of portfolio hedging, and other purposes. The Fund may actively trade securities in an attempt to achieve its investment objective. This Fund may be used as part of a fund of funds strategy.

Principal Risks

Performance


The year-to-date return as of March 31, 2009 is -1.12%
Highest return for a quarter during the period of the bar chart above:		Q4 ‘01	26.63
Lowest return for a quarter during the period of the bar chart above:		Q3 ‘08	-29.34

Average Annual Total Returns (%)
	Past	Past
For the periods ended December 31, 2008	1 Year	5 Years		Life of Account⁽¹⁾
International Emerging Markets - Class 1	-54.86%	8.28%		8.45%
MSCI Emerging Markets Free Index - NDTR (reflects no deduction for
fees, expenses, or taxes)	-53.33	7.65		8.35
⁽¹⁾Lifetime results are measured from the date the Account was first sold (October 24, 2000).


Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
Principal Global Investors, LLC
•	Michael Ade (since 2007), Portfolio Manager
•	Mihail Dobrinov (since 2007), Research Analyst and Portfolio Manager
•	Michael L. Reynal (since 2001), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.


INTERNATIONAL SMALLCAP ACCOUNT

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

Fees and Expenses of the Account

Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets
For the year ended December 31, 2008	Class 1
Management Fees⁽¹⁾	1.20%
Other Expenses⁽¹⁾	0.30
Total Annual Account Operating Expenses	1.50%
⁽¹⁾Management Fees and Other Expenses have been restated to reflect expenses being deducted from current assets.

Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

	Number of years you own your shares
	1	3	5	10
International SmallCap Account - Class 1	$153	$474	$818	$1,791

Portfolio Turnover

Investor Profile:	The Account may be an appropriate investment for investors seeking long-term growth of
	capital in smaller companies outside of the U.S. who are 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.

Principal Investment Strategies

The Account invests primarily in equity securities of non-U.S. companies with comparatively smaller market

capitalizations. Under normal market conditions, the Account invests at least 80% of its net assets (plus borrowings for

investment purposes) in securities of companies similar in size to companies included in the S&P Developed ex-U.S.

Small Cap Index f/k/a Citigroup Extended Market Index (EMI) World ex US (as of the most recent calendar year end

this range was between approximately $______ million and $______ billion). Market capitalization is defined as total

current market value of a company’s outstanding common stock.

The Account invests in securities of:

• companies with their principal place of business or principal office outside the U.S. or

• companies for which the principal securities trading market is outside the U.S.

The equity management philosophy of PGI, the Sub-Advisor, is based on the belief that superior stock selection and disciplined risk management provide consistent outperformance. PGI focuses on companies with improving and sustainable business fundamentals, rising investor expectations, and attractive relative valuation. PGI uses a research-driven investment approach to minimize unintended portfolio risks (including sector and market cap biases relative to the index) so that stock selection drives performance.

PGI focuses its stock selections on established companies that it believes have a improving business fundamentals. PGI constructs a portfolio that is “benchmark aware” in that it is sensitive to the sector (companies with similar characteristics) and security weightings of its benchmark. However, the Account is actively managed and prepared to invest in securities, sectors, or industries differently from the benchmark. The Account may actively trade portfolio securities in an attempt to achieve its investment objective. The Account may engage in certain options transactions, enter into financial futures contracts and related options for the purpose of portfolio hedging, and enter into currency forwards or futures contracts and related options for the purpose of currency hedging. The Account could purchase shares issued by an ETF to temporarily gain broad exposure to the equity market while awaiting purchase of underlying securities. The Account may lend its portfolio securities to brokers, dealers and other financial institutions.

Principal Risks

Performance


The year-to-date return as of March 31, 2009 is -14.57%

Highest return for a quarter during the period of the bar chart above:		Q4 ‘99	36.59
Lowest return for a quarter during the period of the bar chart above:		Q3 ‘08	-26.46

Average Annual Total Returns (%)

	Past	Past
For the periods ended December 31, 2008	1 Year	5 Years		Past 10 Years
International SmallCap Account - Class 1	-50.29%	3.54%		7.50%
MSCI World Ex US Small Cap Index (reflects no deduction for fees,
expenses, or taxes)	-48.03	0.74		N/A

Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):

Principal Global Investors, LLC

• Brian W. Pattinson (since 2001), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.

LARGECAP BLEND ACCOUNT II

Objective: The Account seeks long-term growth of capital.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets

For the year ended December 31, 2008		Class 1	Class 2
	Management Fees⁽¹⁾	0.75%	0.75%
	Distribution and/or Service (12b-1) Fees	N/A	0.25
	Other Expenses⁽²⁾	0.03	0.03
	Total Annual Account Operating Expenses	0.78%	1.03%
⁽¹⁾	Effective July 1, 2009 Principal will contractually limit the Account’s Management Fees through the period ending April 30, 2011. The expense
	limit will reduce the Fund’s Management Fees by 0.018% (expressed as a percent of average net assets on an annualized basis).
⁽²⁾	Other Expenses have been restated to reflect expenses being deducted from current assets.

Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

	Number of years you own your shares
	1	3	5	10
LargeCap Blend Account II - Class 1	$ 80	$249	$433	$ 966
LargeCap Blend Account II - Class 2	105	328	569	1,259

Portfolio Turnover

Investor Profile:	The Account may be an appropriate investment for investors seeking long-term growth of
	capital and willing to accept the risks of investing in an aggressively managed portfolio of
	common stocks, but who prefer investing in larger, established companies.

Principal Investment Strategies

The Account pursues its investment objective by investing primarily in equity securities of U.S. companies. Under normal circumstances, the Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of companies with large market capitalizations (those with market capitalizations within the range of companies in the S&P 500 Index (as of the most recent calendar year end, this range was between approximately $1.1 billion and $323.7 billion)) at the time of purchase. Market capitalization is defined as total current market value of a company's outstanding common stock. As a blend fund, the fund assets will be invested in equity securities with both growth and value characteristics. Small- and mid-capitalization stocks and foreign stocks may also be purchased in keeping with Fund objectives. The market capitalization of companies in the Fund's portfolio and the S&P 500 Index will change over time, and the Fund will not automatically sell or cease to purchase equity securities of a company it owns if the company's market capitalization falls outside of the index range.

T. Rowe Price Associates, Inc. (“T. Rowe Price”) uses a disciplined portfolio construction process whereby it weights each sector and industry approximately the same as the S&P 500 Index. Within each sector and industry, the weighting of individual fund holdings can vary significantly from their weighting within the S&P 500 Index. T. Rowe Price’s portfolio is constructed to outperform the S&P 500 Index by overweighting those stocks that are viewed favorably relative to their weighting in the Index, and underweighting or avoiding those stocks that are viewed negatively. T. Rowe Price equity analysts select stocks within industries where they have focused expertise. The analysts actively select stocks from the industries they cover, and determine the stocks’ weights within their industry-specific portfolios, based on fundamental research, which considers various factors such as the quality of the business franchise, earnings growth potential of a company, and valuation.

ClearBridge Advisors, LLC (“ClearBridge”) seeks to construct an investment portfolio with a weighted average market capitalization similar to the S&P 500 Index. ClearBridge uses fundamental analysis to identify companies it views as high quality and to determine whether it believes the companies' equity securities are relatively over- or under-valued. ClearBridge favors companies with above-average growth in dividend yields.

Principal Management Corporation invests between 10% and 40% of the Fund's assets in common stocks. It employs an active, quantitative “structured equity” strategy in an attempt to match or exceed the performance of the Fund's benchmark index (identified in the average annual total returns table below) with lower risk and improved predictability of returns for the entire Fund compared to the benchmark index. This strategy applies a risk-controlled investment process that slightly over/underweights individual stocks relative to their weight in the Fund's benchmark index.

Principal Risks

Growth Stock Risk. Market prices of growth stocks are often more sensitive than other securities to earnings expectations.

Value Stock Risk. The market may not recognize the intrinsic value of value stocks for a long time, or they may be appropriately priced at the time of purchase.

Performance


The year-to-date return as of March 31, 2009 is -9.22%

Highest return for a quarter during the period of the bar chart above:		Q2 ‘03	14.07
Lowest return for a quarter during the period of the bar chart above:		Q4 ‘08	-21.92


Average Annual Total Returns (%)

	Past	Past
For the periods ended December 31, 2008	1 Year	5 Years	Life of Account⁽¹⁾
LargeCap Blend Account II - Class 1	-36.41%	-2.19%	-0.98%
LargeCap Blend Account II - Class 2⁽²⁾	-36.50	-2.42	-1.16
S&P 500 Index (reflects no deduction for fees, expenses, or taxes)	-37.00	-2.19	-0.72
⁽¹⁾Lifetime results are measured by the date the Account was first sold (May 1, 2002).
⁽²⁾Class 1 shares began operations on May 1, 2002 and Class 2 shares began operations on January 8, 2007. The returns for Class 2 shares for
the periods prior to January 8, 2007 are based on the performance of Class 1 shares adjusted to reflect the fees and expenses of
Class 2 shares. The adjustment results in performance for such periods that is no higher than the historical performance of the Class 1 shares.


Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
T. Rowe Price Associates, Inc.
•	Anna M. Dopkin (since 2007), Vice President
•	Ann M. Holcomb (since 2009), Vice President

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.

LARGECAP GROWTH ACCOUNT

Objective: The Account seeks long-term growth of capital.

Fees and Expenses of the Account

This table describes the fees and expenses that you may pay if you buy and hold shares of the Account. These and expenses do not include the effect of any sales charge, separate account expenses or other contract level expenses which may be applied at the variable life insurance or variable annuity product level. If such charges or were included, overall expenses would be higher and would lower the Account’s performance.


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets

For the year ended December 31, 2008	Class 1	Class 2
Management Fees	0.68%	0.68%
Distribution and/or Service (12b-1) Fees	N/A	0.25
Other Expenses⁽¹⁾	0.02	0.02
Total Annual Account Operating Expenses	0.70%	0.95%
⁽¹⁾Other Expenses have been restated to reflect expenses being deducted from current assets.


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

	Number of years you own your shares
	1	3	5	10
LargeCap Growth Account - Class 1	$72	$224	$390	$ 871
LargeCap Growth Account - Class 2	97	303	525	1,166

Portfolio Turnover

The Account may be an appropriate investment for investors seeking long-term growth of capital and 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.

Principal Investment Strategies

The Account invests primarily in equity securities of large capitalization companies with strong earnings growth potential. Under normal circumstances, the Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in common stocks of companies with large market capitalizations (those with market capitalizations similar to companies in the Russell 1000^®Growth Index (as of the most recent calendar year end, this range was between approximately $0.02 billion and $323.7billion)) at the time of purchase. Market capitalization is defined as total current market value of a company’s outstanding common stock. The Fund invests in growth stocks; growth orientation emphasizes buying stocks of companies whose potential for growth of capital and earnings is expected to be above average. To meet its investment objective, the Fund may invest in initial public offerings and foreign securities. This Fund may be used as part of a fund of funds strategy.

Columbus Circle Investors (“CCI”) uses a bottom-up approach (focusing on individual stock selection rather than forecasting market trends) in its selection of individual securities that it believes have an above average potential for earnings growth. Selection is based on the premise that companies doing better than expected will have rising securities prices, while companies producing less than expected results will not. CCI refers to its discipline as positive momentum and positive surprise.

Through in depth analysis of company fundamentals in the context of the prevailing economic environment, CCI’s team of investment professionals selects companies that meet the criteria of positive momentum in a company’s progress and positive surprise in reported results.

Principal Risks

Growth Stock Risk. Market prices of growth stocks are often more sensitive than other securities to earnings expectations.

Performance


The year-to-date return as of March 31, 2009 is -5.23%

Highest return for a quarter during the period of the bar chart above:		Q4 ‘99	16.08
Lowest return for a quarter during the period of the bar chart above:		Q4 ‘08	-25.99

Average Annual Total Returns (%)

	Past	Past
For the periods ended December 31, 2008	1 Year	5 Years	Past 10 Years
LargeCap Growth Account - Class 1	-43.16%	-1.15%	-4.07%
LargeCap Growth Account - Class 2⁽¹⁾	-43.30	-1.40	-4.35
Russell 1000 Growth Index (reflects no deduction for fees, expenses, or
taxes)	-38.44	-3.42	-4.27
⁽¹⁾Class 1 shares began operations on May 2, 1994 and Class 2 shares began operations on January 8, 2007. The returns for Class 2 shares for
the periods prior to January 8, 2007 are based on the performance of Class 1 shares adjusted to reflect the fees and expenses of
Class 2 shares. The adjustment results in performance for such periods that is no higher than the historical performance of the Class 1 shares.


Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
Columbus Circle Investors
•	Thomas J. Bisighini (since 2009), Senior Vice President/Co-Portfolio Manager
•	Anthony Rizza (since 2005), Senior Managing Director/Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.

LARGECAP GROWTH ACCOUNT I

Objective: The Account seeks long-term growth of capital.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets

	For the year ended December 31, 2008	Class 1
	Management Fees⁽¹⁾⁽²⁾	0.78%
	Other Expenses⁽¹⁾	0.02
	Total Annual Account Operating Expenses	0.80%
⁽¹⁾	Management Fees and Other Expenses have been restated to reflect expenses being deducted from current assets.
⁽²⁾	Effective July 1, 2009 Principal will contractually limit the Account’s Management Fees through the period ending April 30, 2011. The expense
	limit will reduce the Fund’s Management Fees by 0.016% (expressed as a percent of average net assets on an annualized basis).


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

	Number of years you own your shares
	1	3	5	10
LargeCap Growth Account I - Class 1	$82	$255	$444	$990

Portfolio Turnover

Investor Profile:	The Account may be an appropriate investment for investors seeking long-term growth of
	capital and 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.

Principal Investment Strategies

The Account seeks to maximize long-term capital appreciation by investing primarily in growth-oriented equity securities of U.S. and, to a limited extent, foreign companies with large market capitalizations that exhibit strong growth and free cash flow potential. These companies are generally characterized as “growth” companies. Under normal circumstances, the Account invests at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of companies with market capitalizations within the range of companies in the Russell 1000^®Growth Index

(as of the most recent calendar year end, this range was between approximately $0.02 billion and $323.7 billion) at the time of purchase. Market capitalization is defined as total current market value of a company’s outstanding common stock. The Account may invest in some mid cap and other stocks that fall below the range of companies in the Russell Index. The Account may invest in foreign securities. This Fund may be used as part of a fund of funds strategy.

The market capitalization of companies in the Account’s portfolio and the Russell index will change over time, and the Account will not automatically sell or cease to purchase the stock of a company it already owns just because the company’s market capitalization grows or falls outside of the index range. The Account may invest in some securities that do not meet the normal investment criteria when the sub-advisors perceive unusual opportunities for gain.

The Account may utilize derivative strategies, which are financial contracts whose value depends upon, or is derived from, the value of an underlying asset, reference rate, or index, and may relate to stocks, bonds, interest rates, currencies or currency exchange rates, and related indexes. Derivative strategies may include certain options transactions, financial futures contracts, swaps, currency forwards, and related options for purposes such as earning income and enhancing returns, managing or adjusting the risk profile of the Account, replacing more traditional direct investments, or obtaining exposure to certain markets.

The portion of the portfolio sub-advised by Brown Investment Advisory Incorporated (“Brown”) will focus on an industry diversified but relatively concentrated portfolio of companies that seek to generate high, sustainable earnings growth rates over long periods of time. Brown will use its in-house research capabilities and other sources to identify companies that have the ability to grow revenue and/or earnings at above average rates over several years.


Brown may sell a stock or reduce its position in a stock if:
•	The stock subsequently fails to meet Brown’s initial investment criteria or violates the growth thesis;
•	A better opportunity is found or if funds are needed for other purposes;
•	The stock becomes overvalued relative to the long-term expectation for the stock price.

In pursuing its investment objective, Brown may sell securities to secure gains, limit losses, or redeploy assets into a more promising opportunity. The fund may also increase or decrease exposure to a specific industry or broad segment of the market in an effort to protect the value of the overall portfolio.

T. Rowe Price Associates, Inc. (“T. Rowe Price”) generally looks for companies with an above-average rate of earnings and cash flow growth and a lucrative niche in the economy that gives them the ability to sustain earnings momentum even during times of slow economic growth. As a growth investor, T. Rowe Price believes that when a company increases its earnings faster than both inflation and the overall economy, the market will eventually reward it with a higher stock price. T. Rowe may sell securities for a variety of reasons, such as to secure gains, limit losses, or redeploy assets into more promising opportunities.

Principal Management Corporation invests between 10% and 40% of the Account's assets in common stocks. It employs an active, quantitative “structured equity” strategy in an attempt to match or exceed the performance of the Account's benchmark index (identified in the average annual total returns table below) with lower risk and improved predictability of returns for the entire Account compared to the benchmark index. This strategy applies a risk-controlled investment process that slightly over/underweights individual stocks relative to their weight in the Account's benchmark index.

Principal Risks

Growth Stock Risk. Market prices of growth stocks are often more sensitive than other securities to earnings expectations.

Performance


The year-to-date return as of March 31, 2009 is 1.19%

Highest return for a quarter during the period of the bar chart above:		Q4 ‘99		21.84
Lowest return for a quarter during the period of the bar chart above:		Q4 ‘08		-22.69

Average Annual Total Returns (%)

	Past		Past
For the periods ended December 31, 2008	1 Year		5 Years		Past 10 Years
LargeCap Growth I - Class 1	-40.60%		-4.24%		-2.60%
Russell 1000 Growth Index (reflects no deduction for fees, expenses, or
taxes)	-38.44		-3.42		-4.27

Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):

T. Rowe Price Associates, Inc.

Brown Investment Advisory Incorporated

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.


LARGECAP S&P 500 INDEX ACCOUNT

Objective: The Account seeks long-term growth of capital.

Fees and Expenses of the Account
This table describes the fees and expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not include the effect of any sales charge, separate account expenses or other contract level
expenses which may be applied at the variable life insurance or variable annuity product level. If such charges or fees
were included, overall expenses would be higher and would lower the Account’s performance.

Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets

For the year ended December 31, 2008				Class 1
Management Fees				0.25%
Other Expenses⁽¹⁾				0.05
Total Annual Account Operating Expenses				0.30%
⁽¹⁾Other Expenses have been restated to reflect expenses being deducted from current assets.

Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

	Number of years you own your shares
	1	3	5	10
LargeCap S&P 500 Index Account - Class 1	$31	$97	$169	$381

Portfolio Turnover
The Account pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in
annual Account operating expenses or in the example, affect the Account’s performance. During the most recent fiscal
year, the Account’s portfolio turnover rate was ______% of the average value of its portfolio.

Investor Profile: The Account may be an appropriate investment for investors seeking long-term growth of
capital, willing to accept the potential for volatile fluctuations in the value of investments
and preferring a passive, rather than active, management style.

Principal Investment Strategies

Under normal circumstances, the Account invests at least 80% of its net assets (plus any borrowings for investment purposes) in common stocks of companies that compose the S&P 500 Index. Principal Global Investors, LLC (“PGI”) attempts to mirror the investment performance of the Index by allocating the Account’s assets in approximately the same weightings as the S&P 500. The S&P 500 is an unmanaged index of 500 common stocks chosen to reflect the industries of the U.S. economy and is often considered a proxy for the stock market in general. Each stock is weighted by its market capitalization which means larger companies have greater representation in the Index than smaller ones.

As of the most recent calendar year end, the market capitalization range of the Index was between approximately $1.1 billion and $323.7 billion. Market capitalization is defined as total current market value of a company's outstanding common stock. PGI may also use stock index futures and options as a substitute for the sale or purchase of securities. This Account may be used as part of a fund of funds strategy.

The Account uses an indexing strategy or a passive investment approach designed to track the performance of the S&P 500. It does not attempt to manage market volatility, use defensive strategies or reduce the effect of any long-term periods of poor stock performance.

Over the long-term, PGI seeks a very close correlation between performance of 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 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.

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 affected 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.

PGI 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 PGI to believe that it should not be a part of the Account’s assets. PGI may also elect to omit any S&P 500 stocks from the Account if such stocks are issued by an affiliated company.

NOTE: “Standard & Poor’s 500” and “S&P 500^®” are trademarks of The McGraw-Hill Companies, Inc. and have been licensed by Principal. The Account is not sponsored, endorsed, sold, or promoted by Standard & Poor’s and Standard & Poor’s makes no representation regarding the advisability of investing in the Account.

Principal Risks

The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. The principal risks of investing in the Fund, in alphabetical order, are:

Performance


The year-to-date return as of March 31, 2009 is -10.89%
Highest return for a quarter during the period of the bar chart above:	Q2 ‘03		15.28
Lowest return for a quarter during the period of the bar chart above:	Q4 ‘08		-22.01

Average Annual Total Returns (%)
	Past	Past
For the periods ended December 31, 2008	1 Year	5 Years		Life of Account⁽¹⁾
LargeCap S&P 500 Index - Class 1	-37.10%	-2.49%		-2.81%
S&P 500 Index (reflects no deduction for fees, expenses, or taxes)	-37.00	-2.19		-2.31
⁽¹⁾Lifetime results are measured from the date the Account was first sold (May 3, 1999).

Management


Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
Principal Global Investors, LLC
•	Dirk Laschanzky (since 2003), Portfolio Manager
•	Scott W. Smith (since 2007), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.


LARGECAP VALUE ACCOUNT

Objective: The Account seeks long-term growth of capital.

Fees and Expenses of the Account
This table describes the fees and expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not include the effect of any sales charge, separate account expenses or other contract level
expenses which may be applied at the variable life insurance or variable annuity product level. If such charges or fees
were included, overall expenses would be higher and would lower the Account’s performance.

Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account Assets) as a Percentage of Average Daily Net Assets

For the year ended December 31, 2008				Class 1
Management Fees				0.60%
Other Expenses⁽¹⁾				0.02
Acquired Fund Fees and Expenses				0.01
Total Annual Account Operating Expenses				0.63%
⁽¹⁾Other Expenses have been restated to reflect expenses being deducted from current assets.

Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

	Number of years you own your shares
	1	3	5	10
LargeCap Value Account - Class 1	$64	$202	$351	$786

Portfolio Turnover
The Account pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in
annual Account operating expenses or in the example, affect the Account’s performance. During the most recent fiscal
year, the Account’s portfolio turnover rate was ______% of the average value of its portfolio.

Investor Profile: The Account may be an appropriate investment for investors seeking long-term growth of
capital and willing to accept the risks of investing in common stocks, but who prefer
investing in companies that appear to be considered undervalued relative to similar
companies.

Principal Investment Strategies

The Account invests primarily in equity securities of large capitalization companies. Under normal circumstances, the Account invests at least 80% of its net assets (plus any borrowings for investment purposes) in common stocks of companies with large market capitalizations (those with market capitalizations similar to companies in the Russell 1000^®Value Index, which as of the most recent calendar year end ranged between approximately $0.02 billion and $323.7 billion) at the time of purchase. Market capitalization is defined as total current market value of a company’s outstanding common stock.

The Account invests in stocks that, in the opinion of Principal Global Investors, LLC ("PGI"), are undervalued in the marketplace at the time of purchase. Value stocks are often characterized by below average price/earnings ratios (P/E) and above average dividend yields relative to the overall market. Securities for the Fund are selected by consideration of the quality and price of individual issuers rather than forecasting stock market trends.

The equity investment philosophy of PGI is based on the belief that superior stock selection and disciplined risk management provide consistent outperformance. PGI focuses on companies with improving and sustainable business fundamentals, rising investor expectations, and attractive relative valuation. PGI uses a research-driven investment approach to minimize unintended portfolio risks (including sector and market cap biases relative to the index) so that stock selection drives performance.

PGI constructs a portfolio that is “benchmark aware” in that it is sensitive to the sector (companies with similar characteristics) and security weightings of its benchmark. The Account may actively trade portfolio securities in an attempt to achieve its investment objective. This Account may be used as part of a fund of funds strategy.

Principal Risks

Value Stock Risk. The market may not recognize the intrinsic value of value stocks for a long time, or they may be appropriately priced at the time of purchase.

Performance


The year-to-date return as of March 31, 2009 is -14.62%

Highest return for a quarter during the period of the bar chart above:	Q2 ‘03	15.52
Lowest return for a quarter during the period of the bar chart above:	Q4 ‘08	-21.55

Average Annual Total Returns (%)

	Past	Past
For the periods ended December 31, 2008	1 Year	5 Years	Past 10 Years
LargeCap Value Account - Class 1	-35.16%	-1.39%	-0.96%
Russell 1000 Value Index (reflects no deduction for fees, expenses, or
taxes)	-36.85	-0.79	1.36


Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
Principal Global Investors, LLC
•	Arild Holm (since 2007), Portfolio Manager
•	Jeffrey A. Schwarte (since 2010), Portfolio Manager.

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.


LARGECAP VALUE ACCOUNT III

Objective: The Account seeks long-term growth of capital.

Fees and Expenses of the Account
This table describes the fees and expenses that you may pay if you buy and hold shares of the Account. These fees
and expenses do not include the effect of any sales charge, separate account expenses or other contract level
expenses which may be applied at the variable life insurance or variable annuity product level. If such charges or fees
were included, overall expenses would be higher and would lower the Account’s performance.

Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets

For the year ended December 31, 2008				Class 1
Management Fees⁽¹⁾				0.75%
Other Expenses				0.01
Total Annual Account Operating Expenses				0.76%
⁽¹⁾Effective July 1, 2009, Principal will contractually limit the Account’s Management Fees through the period ending April 30, 2011. The expense
limit will reduce the Fund’s Management Fees by 0.012% (expressed as a percent of average net assets on an annualized basis).

Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

	Number of years you own your shares
	1	3	5	10
LargeCap Value Account III - Class 1	$78	$243	$422	$942

Portfolio Turnover
The Account pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its
portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in
annual Account operating expenses or in the example, affect the Account’s performance. During the most recent fiscal
year, the Account’s portfolio turnover rate was ______% of the average value of its portfolio.

Investor Profile: The Account may be an appropriate investment for investors seeking long-term growth of
capital and willing to accept the risks of investing in common stocks but who prefer
investing in companies that appear to be considered undervalued relative to similar
companies.

Principal Investment Strategies

Under normal circumstances, the Account invests at least 80% of its net assets (plus any borrowings for investment purposes) in companies with large market capitalizations similar to companies in the Russell 1000 Value Index (approximately $0.02 billion to $323.7 billion as of the most recent calendar year end) at the time of purchase. Market capitalization is defined as total current market value of a company's outstanding common stock.The Account may invest in some mid cap and other stocks that fall below the range of companies in the Russell Index. The Account invests in value stocks; value orientation emphasizes buying stocks at less than their expected investment value and avoiding stocks whose price has been artificially built up. The Account may invest in securities of foreign companies and may be used as part of a fund of funds strategy.

AllianceBernstein L.P. (“AllianceBernstein”) invests primarily in undervalued equity securities of companies that it believes offer above-average potential for earnings growth. It seeks securities that exhibit low financial ratios and can be acquired for less than what AllianceBernstein believes is their intrinsic value or have an attractive price relative to the value of expected future dividends. These investments may include securities of companies that have not performed well in the recent past but are undergoing management, corporate, asset restructuring or other transitions. Portfolio securities that have reached their intrinsic value or a target financial ratio will generally be sold.

Westwood Management Corp. (“Westwood”) generally invests in approximately 40-60 securities that it believes are currently undervalued in the market and possess limited downside risk. Other key metrics for evaluating the risk/return profile of an investment include an improving return on equity, a declining debt/equity ratio and, in the case of common equities, positive earnings surprises without a corresponding increase in Wall Street estimates. Westwood may determine to sell a security that has reached a predetermined price target or if a change to a company's fundamentals negatively impacts the original investment thesis. Westwood will not necessarily sell a security that has depreciated below the Account’s target capitalization range.

Principal Management Corporation invests between 10% and 40% of the Account’s assets in common stocks. It employs an active, quantitative “structured equity” strategy in an attempt to match or exceed the performance of the Account’s benchmark index (identified in the average annual total returns table below) with lower risk and improved predictability of returns for the entire Fund compared to the benchmark index. This strategy applies a risk-controlled investment process that slightly over/underweights individual stocks relative to their weight in the Account’s benchmark index.

Principal Risks

Value Stock Risk. The market may not recognize the intrinsic value of value stocks for a long time, or they may be appropriately priced at the time of purchase.

Performance


The year-to-date return as of March 31, 2009 is -15.35%

Highest return for a quarter during the period of the bar chart above:			Q2 ‘03	16.19
Lowest return for a quarter during the period of the bar chart above:			Q4 ‘08	-20.82

Average Annual Total Returns (%)

		Past	Past
For the periods ended December 31, 2008		1 Year	5 Years	Life of Account⁽¹⁾
LargeCap Value Account III - Class 1		-40.78%	-3.74%	-1.44%
Russell 1000 Value Index (reflects no deduction for fees, expenses,
or taxes)		-36.85	-0.79	-0.50
⁽¹⁾Lifetime results are measured from the date the Account was first sold (May 1, 2002).

Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
AllianceBernstein L.P.
•	Christopher W. Marx (since 2006), Senior Portfolio Manager
•	Joseph Gerard Paul (since 2009), Co-CIO -- US Large Cap Value Equities; CIO--North American Value
	Equities; Global Head--Diversified Value Services
•	John D. Phillips, Jr. (since 2002), Senior Portfolio Manager
•	David Yuen (since 2009), Co-CIO and Director of Research--US Value Equities; CIO--Advanced Value Fund


Westwood Management Corp.
•	Susan M. Byrne (since 2008), Chairman and Chief Investment Officer
•	Mark R. Freeman (since 2008), Senior Vice President and Portfolio Manager
•	Kellie R. Stark (since 2008), Executive Vice President and Associate Portfolio Manager
•	Scott D. Lawson (since 2008), Vice President and Senior Research Analyst
•	Jay K. Singhania (since 2008), Vice President and Research Analyst

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.

MIDCAP BLEND ACCOUNT

Objective: The Account seeks long-term growth of capital.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets

For the year ended December 31, 2008	Class 1	Class 2⁽²⁾
Management Fees⁽¹⁾	0.61%	0.61%
Distribution and/or Service (12b-1) Fees	N/A	0.25
Other Expenses⁽¹⁾	0.01%	0.01%
Total Annual Account Operating Expenses	0.62%	0.87%
⁽¹⁾Management Fees and Other Expenses have been restated to reflect expenses being deducted from current assets.
(2) Class 2 information is estimated for the year ended December 31, 2009.


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes that you invest $10,000 in the Account for the time periods indicated and then redeem all
your shares at the end of those periods. The Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based
these assumptions your costs would be:

		Number of years you own your shares
	1	3	5	10
MidCap Blend Account - Class 1	$63	$199	$346	$ 774
MidCap Blend Account - Class 2	$89	$278	$482	$1,073

Portfolio Turnover

Investor Profile:	The Account may be an appropriate investment for investors seeking long-term growth of
	capital and willing to accept the potential for short-term fluctuations in the value of
	investments.

Principal Investment Strategies

The Account invests primarily in equity securities of medium capitalization companies. Under normal circumstances, the Account invests at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of companies with medium market capitalizations (those with market capitalizations similar to companies in the Russell Midcap^®Index (as of the most recent calendar year end, this range was between approximately $0.03 billion and $15.5 billion) 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, Principal Global Investors, LLC (“PGI”) looks at stocks with value and/or growth characteristics and constructs an investment portfolio that has a “blend” of stocks with these characteristics. In managing the assets of the Account, PGI does not have a policy of preferring one of these categories to the other. The value orientation emphasizes buying stocks at less than their inherent 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.

PGI believes that superior stock selection is the key to consistent out-performance. PGI seeks to achieve superior stock selection by systematically evaluating company fundamentals and in-depth original research.

PGI focuses its stock selections on established companies that it believes have a sustainable competitive advantage. PGI constructs a portfolio that is “benchmark aware” in that it is sensitive to the sector (companies with similar characteristics) and security weightings of its benchmark.

The Account may purchase securities issued as part of, or a short period after, companies’ initial public offerings and may at times dispose of those shares shortly after their acquisition.

Principal Risks

Growth Stock Risk. Market prices of growth stocks are often more sensitive than other securities to earnings expectations.

Value Stock Risk. The market may not recognize the intrinsic value of value stocks for a long time, or they may be appropriately priced at the time of purchase.

Performance


The year-to-date return as of March 31, 2009 is -7.86%

Highest return for a quarter during the period of the bar chart above:	Q4 ‘99	23.31
Lowest return for a quarter during the period of the bar chart above:	Q4 ‘08	-23.92

Average Annual Total Returns (%)

	Past	Past
For the periods ended December 31, 2008	1 Year	5 Years	Past 10 Years
MidCap Blend Account - Class 1	-33.92%	1.22%	4.85%
MidCap Blend Account - Class 2⁽¹⁾	-34.13%	0.93%	4.57%
Russell Midcap Index (reflects no deduction for fees, expenses, or taxes)	-41.46	-0.71	3.18
⁽¹⁾The returns for Class 2 as of December 31, 2008, are based on the performance of Class 1 shares adjusted to reflect the fees and expenses of
Class 2 shares. The adjustment results in performance for such periods that is no higher than the historical performance of the Class 1 shares.
Class 1 shares began operations on December 18, 1987.

Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):

Principal Global Investors, LLC

• K. William Nolin (since 2000), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.

MIDCAP GROWTH ACCOUNT I

Objective: The Account seeks long-term growth of capital.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets
For the year ended December 31, 2008	Class 1
Management Fees	0.90%
Other Expenses⁽¹⁾	0.04
Total Annual Account Operating Expenses	0.94%
⁽¹⁾Other Expenses have been restated to reflect expenses being deducted from current assets.


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

	Number of years you own your shares
	1	3	5	10
MidCap Growth Account I - Class 1	$96	$300	$520	$1,155

Portfolio Turnover

Investor Profile:	The Account may be an appropriate investment for investors seeking long-term growth and
	willing to accept the potential for short-term fluctuations in the value of their investments.


Principal Investment Strategies
Under normal market conditions, the Account invests at least 80% of its net assets (plus any borrowings for
investment purposes) in common stocks of companies with medium market capitalization (those with market
capitalizations similar to companies in the Russell Midcap^®Growth Index (as of the most recent calendar year end,
this range was between approximately $_______ billion and $_______ billion)) at the time of purchase. In the view of
the Mellon Capital, many medium-sized companies:
•	are in fast growing industries,
•	offer superior earnings growth potential, and
•	are characterized by strong balance sheets and high returns on equity.
The Account may also hold investments in large and small capitalization companies, including emerging and cyclical
growth companies. The Account may invest up to 25% of its net assets in securities of foreign companies, including
securities of issuers in emerging countries and securities quoted in foreign currencies.

Mellon Capital 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.

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 Mellon Capital 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. In addition, Mellon Capital manages risk by diversifying across companies and industries, limiting the potential adverse impact from any one stock or industry.

The Account may purchase securities issued as part of, or a short period after, companies’ initial public offerings and may at times dispose of those shares shortly after their acquisition. The Account is actively managed and prepared to invest in securities, sectors, or industries differently from the benchmark. The Account may lend its portfolio securities to brokers, dealers and other financial institutions.

Principal Risks

Growth Stock Risk. Market prices of growth stocks are often more sensitive than other securities to earnings expectations.

Performance

The year-to-date return as of March 31, 2009 is -5.49%


Highest return for a quarter during the period of the bar chart above:	Q4 ‘01	24.12
Lowest return for a quarter during the period of the bar chart above:	Q3 ‘01	-25.25

Average Annual Total Returns (%)

	Past	Past
For the periods ended December 31, 2008	1 Year	5 Years	Past 10 Years
MidCap Growth Account I - Class 1	-41.14%	-1.89%	-0.65%
Russell Midcap Growth Index (reflects no deduction for fees, expenses, or
taxes)	-44.32	-2.33	-0.19


Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
Mellon Capital Management Corporation
•	Adam T. Logan (since 2005), Vice President and Senior Portfolio Manager
•	John O’Toole (since 1998), Director and Senior Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.

MIDCAP VALUE ACCOUNT II

Objective: The Account seeks long-term growth of capital.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets

For the year ended December 31, 2008		Class 1⁽¹⁾
	Management Fees	1.05%
	Other Expenses⁽²⁾	0.03
	Total Annual Account Operating Expenses	1.08%
	Expense Reimbursement	0.07
	Net Expenses	1.01%
⁽¹⁾	Principal has contractually agreed to limit the Account’s expenses attributable to Class 1 shares and, if necessary, pay expenses normally
	payable by the Account, excluding interest expense, through the period ending April 30, 2010. The expense limits will maintain a total level of
	operating expenses, not including acquired fund fees and expenses or interest expense, (expressed as a percent of average net assets on an
	annualized basis) not to exceed 1.01% for Class 1 shares.
⁽²⁾	Other Expenses have been restated to reflect expenses being deducted from current assets.

Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

	Number of years you own your shares
	1	3	5	10
MidCap Value Account II - Class 1	$103	$345	$621	$1,410

Portfolio Turnover

Investor Profile:	The Account may be an appropriate investment for investors seeking long-term growth and
willing to accept short-term fluctuations in the value of investments.

Principal Investment Strategies

The Account invests primarily in common stocks of medium capitalization companies. Under normal circumstances, the Account invests at least 80% of its net assets (plus any borrowings for investment purposes) in common stocks of companies with a medium market capitalization (those with market capitalizations similar to companies in the Russell Midcap^®Value Index (as of the most recent calendar year end, this range was between approximately $_______ billion and $_______ billion)) at the time of purchase. Market capitalization is defined as total current market value of a company’s outstanding common stock. The Account is actively managed and prepared to invest in securities, sectors, or industries differently from the benchmark. Companies may range from the well-established and well-known to the new and unseasoned. The Account may invest up to 25% of its assets in securities of foreign companies. The Account may invest in real estate investment trusts in an attempt to achieve its investment objective. The Account could purchase shares issued by an ETF to temporarily gain broad exposure to the equity market while awaiting purchase of underlying securities. The Account may actively trade portfolio securities in an attempt to achieve its investment objective. The Account may lend its portfolio securities to brokers, dealers and other financial institutions.

Jacobs Levy selects stocks by using a value oriented investment approach and using proprietary research that attempts to detect and take advantage of market inefficiencies. Its approach combines human insight and intuition, finance and behavioral theory, and quantitative and statistical methods in a proprietary process it refers to as “disentangling.” The disentangling process evaluates various market inefficiencies simultaneously, isolating each potential source of return.

Jacobs Levy believes that disentangling provides more reliable predictions of future stock price behavior than simple single-factor analyses. Security valuation entails sophisticated modeling of large numbers of stocks and proprietary factors based on reasonable, intuitive relationships. The firm examines a wide range of data, including balance sheets and income statements, analyst forecasts, corporate management signals, economic releases, and security prices.

Principal Risks

Value Stock Risk. The market may not recognize the intrinsic value of value stocks for a long time, or they may be appropriately priced at the time of purchase.

Performance


The year-to-date return as of March 31, 2009 is -19.92%
Highest return for a quarter during the period of the bar chart above:		Q2 ‘03	14.93
Lowest return for a quarter during the period of the bar chart above:		Q4 ‘08	-29.07

Average Annual Total Returns (%)
	Past	Past
For the periods ended December 31, 2008	1 Year	5 Years		Life of Account⁽¹⁾
MidCap Value Account II - Class 1	-43.92%	-3.14%		4.10%
Russell Midcap Value Index reflects no deduction for fees, expenses,
or taxes)	-38.44	0.33		3.97
⁽¹⁾Lifetime results are measured from the date the Account was first sold (May 3, 1999).

Management


Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
Jacobs Levy Equity Management, Inc.
•	Bruce Jacobs (since 2006), Co-Chief Investment Officer, Portfolio Manager, and Co-Director of Research
•	Ken Levy (since 2006), Co-Chief Investment Officer, Portfolio Manager, and Co-Director of Research

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.


MONEY MARKET ACCOUNT

Objective:	The Account seeks as high a level of current income as is considered consistent with
	preservation of principal and maintenance of liquidity.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets

For the year ended December 31, 2008	Class 1	Class 2
Management Fees	0.43%	0.43%
Distribution and/or Service (12b-1) Fees	N/A	0.25
Other Expenses	0.02	0.02
Total Annual Account Operating Expenses	0.45%	0.70%


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

	Number of years you own your shares
	1	3	5	10
Money Market Account - Class 1	$46	$144	$252	$567
Money Market Account - Class 2	72	224	390	871

Investor Profile:	The Account may be an appropriate investment for investors seeking monthly dividends
	without incurring much principal risk. 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 Federal Deposit Insurance Corporation
	or any other government agency.

Principal Investment Strategies

The Account invests its assets in a portfolio of high quality, short-term money market instruments. The investments are U.S. dollar denominated securities which Principal Global Investors, LLC (“PGI”) 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, as amended.

The Account maintains a dollar weighted average portfolio maturity of 90 days or less. It intends to hold its

investments until maturity. However, the Account may sell a security before it matures:

• to take advantage of market variations;

• to generate cash to cover sales of Fund shares by its shareholders; or

• upon revised credit opinions of the security’s issuer.


The sale of a security by the Account before maturity may not be in the best interest of the Account. The 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:
•	securities issued or guaranteed by the U.S. government, including Treasury bills, notes and bonds;
•	securities issued or guaranteed by agencies or instrumentalities of the U.S. government. These are backed either
	by the full faith and credit of the U.S. government or by the credit of the particular agency or instrumentality;
•	bank obligations including:
	•	certificates of deposit which generally are negotiable certificates against funds deposited in a commercial bank;
		or,
	•	bankers acceptances which are time drafts drawn on a commercial bank, usually in connection with
		international commercial transactions.
•	commercial paper which is short-term promissory notes issued by U.S. or foreign corporations primarily to finance
	short-term credit needs;
•	corporate debt consisting of notes, bonds or debentures which at the time of purchase by the Fund has 397 days or
	less remaining to maturity;
•	repurchase agreements under which securities are purchased with an agreement by the seller to repurchase the
	security at the same price plus interest at a specified rate. Generally these have a short maturity (less than a week)
	but may also have a longer maturity; and
•	taxable municipal obligations which are short-term obligations issued or guaranteed by state and municipal issuers
	which generate taxable income.

Among the certificates of deposit typically held by the Account are Eurodollar and Yankee obligations which are issued in U.S. dollars by foreign banks and foreign branches of U.S. banks. Before the Sub-Advisor selects a Eurodollar or Yankee obligation, however, the foreign issuer undergoes the same credit-quality analysis and tests of financial strength as an issuer of domestic securities.

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 Federal Deposit Insurance Corporation or any other government agency.

Principal Risks

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


The year-to-date return as of March 31, 2009 is 0.17%

Highest return for a quarter during the period of the bar chart above:			Q3 ‘00 - Q4 ‘00	1.56
Lowest return for a quarter during the period of the bar chart above:			Q4 ‘03 - Q2 ‘04	0.15

Average Annual Total Returns (%)

		Past	Past
For the periods ended December 31, 2008		1 Year	5 Years	Past 10 Years
Money Market Account - Class 1		2.58%	3.15%	3.27%
Money Market Account - Class 2⁽¹⁾		2.33	2.83	2.93
Barclays Capital U.S. Treasury Bellwethers 3 Month Index		2.24	3.30	3.49
⁽¹⁾Class 1 shares began operations on March 18, 1983 and Class 2 shares began operations on January 8, 2007. The returns for Class 2 shares
for the periods prior to January 8, 2007 are based on the performance of Class 1 shares adjusted to reflect the fees and expenses of
Class 2 shares. The adjustment results in performance for such periods that is no higher than the historical performance of the Class 1 shares.

To obtain the Account’s current yield information, call 1-800-852-4450

Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
Principal Global Investors, LLC
•	Tracy Reeg (since 2004), Portfolio Manager
•	Alice Robertson (since 2000), Trade

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.


MORTGAGE SECURITIES ACCOUNT

Objective:	The Account seeks to provide a high level of current income consistent with safety and
	liquidity.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets

For the year ended December 31, 2008	Class 1	Class 2
Management Fees	0.50%	0.50%
Distribution and/or Service (12b-1) Fees	N/A	0.25
Other Expenses	0.01	0.01
Total Annual Account Operating Expenses	0.51%	0.76%


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

	Number of years you own your shares
	1	3	5	10
Mortgage Securities Account - Class 1	$52	$164	$285	$640
Mortgage Securities Account - Class 2	78	243	422	942

Portfolio Turnover

Investor Profile:	The Account may be an appropriate investment for investors seeking diversification by
	investing in a fixed-income mutual fund.

Principal Investment Strategies

The Account invests primarily in mortgage-backed securities, including collateralized mortgage obligations. The Account may also invest in dollar rolls, which may involve leverage.

Under normal circumstances, the Account invests at least 80% of its net assets (plus any borrowings for investment purposes) in mortgage-backed securities, including collateralized mortgage obligations, and in other obligations that are secured by mortgages or mortgage-backed securities, including repurchase agreements. The Account may also invest in U.S. government securities. Certain issuers of U.S. government securities are sponsored or chartered by Congress but their securities are neither issued or guaranteed by the U.S. Treasury. The Account may lend its portfolio securities to brokers, dealers, and other financial institutions. The Account may use futures, options, swaps and derivative instruments to “hedge” or protect its portfolio from adverse movements in securities prices and interest rates.

The Account invests in mortgage securities which represent good longer term value, taking into account potential returns, prepayment and credit risk as well as deal-structure where appropriate. The Account also invests in Treasury and Agency securities primarily for duration and liquidity management purposes. The Account is actively managed and prepared to invest in securities, sectors, or industries differently from the benchmark. This Account may be used as part of a fund of funds strategy.

Principal Risks

Industry Concentration (Sector) Risk. A fund that concentrates investments in a particular industry or group of industries (e.g., real estate, technology, financial services) has greater exposure than other funds to market, economic and other factors affecting that industry or sector.

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


The year-to-date return as of March 31, 2009 is 2.14%

Highest return for a quarter during the period of the bar chart above:		Q3 ‘01	4.24
Lowest return for a quarter during the period of the bar chart above:		Q2 ‘04	-1.26

	Average Annual Total Returns (%)⁽¹⁾

		Past	Past
	For the periods ended December 31, 2008	1 Year	5 Years	Past 10 Years
	Mortgage Securities Account - Class 1	4.68%	4.34%	5.04%
	Mortgage Securities Account - Class 2⁽²⁾	4.41	4.08	4.78
	Citigroup Mortgage Index (reflects no deduction for fees, expenses, or
	taxes)	8.49	5.61	6.10
⁽¹⁾	Performance reflects the performance of the predecessor fund. On March 1, 2004, the investment policies of the predecessor Fund were
	modified. As a result, the predecessor Fund’s performance for periods prior to that date may not be representative of the performance it would
	have achieved had its current investment policies been in place.
⁽²⁾	Class 1 shares began operations on May 6, 1993 and Class 2 shares began operations on November 6, 2001. The returns for Class 2 shares
	for the periods prior to November 6, 2001 are based on the performance of Class 1 shares adjusted to reflect the fees and expenses of
	Class 2 shares. The adjustment results in performance for such periods that is no higher than the historical performance of the Class 1 shares.

Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):

Edge Asset Management, Inc.

• Scott J. Peterson (since 2010), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.


PRINCIPAL LIFETIME 2010 ACCOUNT

Objective:	The Account seeks a total return consisting of long-term growth of capital and current
	income.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

	Annual Account Operating Expenses
	(expenses that you pay each year as a percentage of the value of your investment)

For the year ended December 31, 2008		Class 1
	Management Fees⁽¹⁾	0.12%
	Other Expenses⁽²⁾	0.04
	Acquired Fund (Underlying Fund) Operating Expenses	0.65
	Total Annual Account Operating Expenses	0.81%
⁽¹⁾	Effective July 1, 2009, the Fund’s Management Fees will be reduced to 0.03%. This reduction is not reflected in the expense table or the
	expense examples.
⁽²⁾	Other Expenses have been restated to reflect expenses being deducted from current assets.


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:


	Number of years you own your shares
	1	3	5	10
Principal LifeTime 2010 Account - Class 1	$83	$259	$450	$1,002

Portfolio Turnover

As a fund of funds, the Account does not pay transaction costs, such as commissions, when it buys and sells shares of underlying funds (or “turns over” its portfolio). An underlying fund does pay transaction costs when it buys and sells portfolio securities, and a higher portfolio turnover may indicate higher transaction costs. These costs, which are not reflected in annual account operating expenses or in the examples, affect the performance of the underlying fund and the Account. During its most recent fiscal year, the Account's portfolio turnover rate was ____% of the average value of its portfolio.

Principal Investment Strategies

The Account operates as a “target date fund.” It invests in underlying Principal Funds, Inc. domestic and foreign equity, real estate investments, and fixed-income Accounts according to an asset allocation strategy designed for investors having an investment time horizon comparable to that of the Account. The Account’s asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. The Account invests in Institutional Class shares of underlying funds. It is managed by Principal Management Corporation (“Principal”) and Principal Global Investors, LLC (“PGI”).

PGI develops, implements and monitors the Account’s strategic or long-term asset class targets and target ranges, is also responsible for an active rebalancing strategy designed to identify asset classes that appear attractive over the short term and sets the percentage of Account assets to be allocated to a particular asset class. Principal selects the underlying funds for each asset class and the target weights for each underlying fund. Shifts in asset class targets or underlying funds may occur in response to the normal evaluative processes of PGI and Principal, the shortening time horizon of the Account or changes in market forces or Account circumstances. Principal may add, remove, or substitute underlying funds at any time.

In selecting underlying funds and target weights, Principal considers both quantitative measures (e.g., past performance, expected levels of risk and returns, expense levels, diversification and style consistency) and qualitative factors (e.g., organizational stability, investment experience, investment and risk management processes, and information, trading, and compliance systems). There are no minimum or maximum percentages of assets that the Fund must invest in a specific asset class or underlying fund. Principal determines whether to use cash flows or asset transfers or both to achieve the target weights established for underlying funds. Principal monitors the performance of the underlying funds relative to their benchmarks and peer groups.

Within 10 to 15 years after its target year, the Account’s underlying fund allocation is expected to match that of the Principal LifeTime Strategic Income Account. At that time, the Account may be combined with that fund if the Board of Directors determines that the combination is in the best interests of Account shareholders. It is expected that at the target date, the shareholder will begin gradually withdrawing the account's value. There is no guarantee that this Account will provide adequate income at or through retirement.

Principal Risks

The broad diversification of the Fund is designed to cushion severe losses in any one investment sector and moderate overall price volatility. However, the Fund is subject to the particular risks of the underlying funds in the proportions in which the Fund invests in them, and its share prices will fluctuate as the prices of underlying fund shares rise or fall with changing market conditions. If you sell your shares when their value is less than the price you paid, you will lose money. The principal risks of investing in the Fund, in alphabetical order, are:

Asset Allocation Risk. A fund's selection and weighting of asset classes and/or underlying funds may cause it to underperform other funds with a similar investment objective.

Growth Stock Risk. Market prices of growth stocks are often more sensitive than other securities to earnings expectations.

Real Estate Securities Risk. Real estate securities (including real estate investment trusts (“REITs”)) are subject to the risks associated with direct ownership of real estate, including declines in value, adverse economic conditions, increases in expenses, regulatory changes and environmental problems. A REIT could fail to qualify for tax-free pass through of income under the Internal Revenue Code, and Fund shareholders will indirectly bear their proportionate share of the expenses of REITs in which the Fund invests.

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Value Stock Risk. The market may not recognize the intrinsic value of value stocks for a long time, or they may be appropriately priced at the time of purchase.

Performance


The year-to-date return as of March 31, 2009 is -7.31%

Highest return for a quarter during the period of the bar chart above:	Q4 ‘06	5.11
Lowest return for a quarter during the period of the bar chart above:	Q4 ‘08	-17.06


Average Annual Total Returns (%)

		Past
	For the periods ended December 31, 2008	1 Year	Life of Account⁽¹⁾
	Principal LifeTime 2010 - Class 1	-30.91%	-1.66%
	Barclays Capital Aggregate Bond Index (reflects no deduction for fees, expenses,
	or taxes)	5.24	4.65
	Russell 3000 Index (reflects no deduction for fees, expenses, or taxes)	-37.31	-2.27
	MSCI EAFE (Europe, Australia, Far East) NDTR D	-43.38	1.54
	Principal LifeTime 2010 Blended Index (reflects no deduction for fees, expenses, or
	taxes)⁽²⁾	-21.60	0.57
⁽¹⁾	Lifetime results are measured from the date the Account first sold its shares (August 30, 2004).
⁽²⁾	The weightings for this blended index as of March 31, 2009, were 39.9% Russell 3000 Index, 14.1% MSCI EAFE Index NDTR D, and 46.0%
	Barclays Capital Aggregate Bond Index.

Performance of a blended index shows how the Fund's performance compares to an index with similar investment objectives. Performance of the components of the blended index are also shown. Effective March 31, 2010, the weightings for the Principal LifeTime 2010 Blended Index were 38.8% Russell 3000 Index, 13.7% MSCI EAFE NDTR-D Index, and 47.5% Barclays Capital Aggregate Bond Index.

The Investment Advisor believes the Barclays Capital Aggregate Bond Index is a better representation of the investment universe for this Account's investment philosophy than the Russell 3000 Index.


Management

Investment Advisor:
Principal Management Corporation
•	James Fennessey (since 2008), Vice President
•	Michael P. Finnegan (since 2008), Chief Investment Officer
•	Randy L. Welch (since 2008), Vice President

Sub-Advisor(s) and Portfolio Manager(s):
Principal Global Investors, LLC
•	David M. Blake (since 2008), Executive Director and Chief Investment Officer of Fixed Income
•	Tim Dunbar (since 2008), Executive Director and Head of Equities
•	Dirk Laschanzky (since 2008), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.


PRINCIPAL LIFETIME 2020 ACCOUNT

Objective:	The Account seeks a total return consisting of long-term growth of capital and current
	income.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)

For the year ended December 31, 2008	Class 1
Management Fees⁽¹⁾	0.12%
Other Expenses	0.01
Acquired Fund (Underlying Fund) Operating Expenses	0.71
Total Annual Account Operating Expenses	0.84%
⁽¹⁾Effective July 1, 2009, the Fund’s Management Fees will be reduced to 0.03%. This reduction is not reflected in the expense table or the
expense examples.

Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:


	Number of years you own your shares
	1	3	5	10
Principal LifeTime 2020 Account - Class 1	$86	$268	$466	$1,037

Portfolio Turnover

Principal Investment Strategies

The Account operates as a “target date fund.” It invests in underlying Principal Funds, Inc. domestic and foreign equity, real estate investments, and fixed-income Funds according to an asset allocation strategy designed for investors having an investment time horizon comparable to that of the Fund. The Account's asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. The Account invests in Institutional Class shares of underlying funds. It is managed by Principal Management Corporation (“Principal”) and Principal Global Investors, LLC (“PGI”).

PGI develops, implements and monitors the Account's strategic or long-term asset class targets and target ranges, is also responsible for an active rebalancing strategy designed to identify asset classes that appear attractive over the short term and sets the percentage of Account assets to be allocated to a particular asset class. Principal selects the underlying funds for each asset class and the target weights for each underlying fund. Shifts in asset class targets or underlying funds may occur in response to the normal evaluative processes of PGI and Principal, the shortening time horizon of the Account or changes in market forces or Account circumstances. Principal may add, remove, or substitute underlying funds at any time.

In selecting underlying funds and target weights, Principal considers both quantitative measures (e.g., past performance, expected levels of risk and returns, expense levels, diversification and style consistency) and qualitative factors (e.g., organizational stability, investment experience, investment and risk management processes, and information, trading, and compliance systems). There are no minimum or maximum percentages of assets that the Account must invest in a specific asset class or underlying fund. Principal determines whether to use cash flows or asset transfers or both to achieve the target weights established for underlying funds. Principal monitors the performance of the underlying funds relative to their benchmarks and peer groups.

Within 10 to 15 years after its target year, the Account's underlying fund allocation is expected to match that of the Principal LifeTime Strategic Income Account. At that time, the Account may be combined with that fund if the Board of Directors determines that the combination is in the best interests of Account shareholders. It is expected that at the target date, the shareholder will begin gradually withdrawing the account's value. There is no guarantee that this Account will provide adequate income at or through retirement.

Principal Risks

Asset Allocation Risk. A fund's selection and weighting of asset classes and/or underlying funds may cause it to underperform other funds with a similar investment objective.

Growth Stock Risk. Market prices of growth stocks are often more sensitive than other securities to earnings expectations.

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Value Stock Risk. The market may not recognize the intrinsic value of value stocks for a long time, or they may be appropriately priced at the time of purchase.

Performance


The year-to-date return as of March 31, 2009 is -8.51%

Highest return for a quarter during the period of the bar chart above:	Q4 ‘06	6.11
Lowest return for a quarter during the period of the bar chart above:	Q4 ‘08	-18.82


Average Annual Total Returns (%)

		Past
	For the periods ended December 31, 2008	1 Year	Life of Account⁽¹⁾
	Principal LifeTime 2020 - Class 1	-34.16%	-1.44%
	Russell 3000 Index (reflects no deduction for fees, expenses, or taxes)	-37.31	-2.27
	Barclays Capital Aggregate Bond Index (reflects no deduction for fees, expenses,
	or taxes)	5.24	4.65
	MSCI EAFE (Europe, Australia, Far East) Index NDTR D	-43.38	1.54
	Principal LifeTime 2020 Blended Index	-27.44	-0.07
⁽¹⁾	Lifetime results are measured from the date the Account first sold its shares (August 30, 2004).

Performance of a blended index shows how the Account's performance compares to an index with similar investment objectives. Performance of the components of the blended index are also shown. Effective March 31, 2010, the weightings for the Principal LifeTime 2020 Blended Index were 49.0% Russell 3000 Index, 18.5% MSCI EAFE NDTR-D Index, and 32.5% Barclays Capital Aggregate Bond Index.


Management

Investment Advisor:
Principal Management Corporation
•	James Fennessey (since 2007), Vice President
•	Michael P. Finnegan (since 2007), Chief Investment Officer
•	Randy L. Welch (since 2007), Vice President

Sub-Advisor(s) and Portfolio Manager(s):
Principal Global Investors, LLC
•	David M. Blake (since 2008), Executive Director and Chief Investment Officer of Fixed Income
•	Tim Dunbar (since 2008), Executive Director and Head of Equities
•	Dirk Laschanzky (since 2001), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.


PRINCIPAL LIFETIME 2030 ACCOUNT

Objective:	The Account seeks a total return consisting of long-term growth of capital and current
	income.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)

For the year ended December 31, 2008	Class 1
Management Fees⁽¹⁾	0.12%
Other Expenses	0.04
Acquired Fund (Underlying Fund) Operating Expenses	0.76
Total Annual Account Operating Expenses	0.92%
⁽¹⁾Effective July 1, 2009, the Fund’s Management Fees will be reduced to 0.03%. This reduction is not reflected in the expense table or the
expense examples.


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:


	Number of years you own your shares
	1	3	5	10
Principal LifeTime 2030 Account - Class 1	$94	$293	$509	$1,131

Portfolio Turnover

Principal Investment Strategies

The Account operates as a “target date fund.” It invests in underlying Principal Funds, Inc. domestic and foreign equity, real estate investments, and fixed-income Funds according to an asset allocation strategy designed for investors having an investment time horizon comparable to that of the Account. The Account's asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. The Account invests in Institutional Class shares of underlying funds. It is managed by Principal Management Corporation (“Principal”) and Principal Global Investors, LLC (“PGI”).

In selecting underlying funds and target weights, Principal considers both quantitative measures (e.g., past performance, expected levels of risk and returns, expense levels, diversification and style consistency) and qualitative factors (e.g., organizational stability, investment experience, investment and risk management processes, and information, trading, and compliance systems). There are no minimum or maximum percentages of assets that the Account must invest in a specific asset class or underlying fund. Principal determines whether to use cash flows or asset transfers or both to achieve the target weights established for underlying funds. Principal monitors the performance of the underlying funds relative to their benchmarks and peer groups.

Principal Risks

Asset Allocation Risk. A fund's selection and weighting of asset classes and/or underlying funds may cause it to underperform other funds with a similar investment objective.

Growth Stock Risk. Market prices of growth stocks are often more sensitive than other securities to earnings expectations.

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Value Stock Risk. The market may not recognize the intrinsic value of value stocks for a long time, or they may be appropriately priced at the time of purchase.

Performance


The year-to-date return as of March 31, 2009 is -9.29%

Highest return for a quarter during the period of the bar chart above:	Q4 ‘06	6.54
Lowest return for a quarter during the period of the bar chart above:	Q4 ‘08	-20.20


Average Annual Total Returns (%)

	Past
For the periods ended December 31, 2008	1 Year	Life of Account⁽¹⁾
Principal LifeTime 2030 - Class 1	-36.42%	-2.07%
Russell 3000 Index (reflects no deduction for fees, expenses, or taxes)	-37.31	-2.27
MSCI EAFE (Europe, Australia, Far East) Index NDTR D	-43.38	1.54
Barclays Capital Aggregate Bond Index (reflects no deduction for fees, expenses,
or taxes)	5.24	4.65
Principal LifeTime 2030 Blended Index (reflects no deduction for fees, expenses,
or taxes)	-31.24	-0.75
⁽¹⁾Lifetime results are measured from the date the Account first sold its shares (August 30, 2004).

Performance of a blended index shows how the Account's performance compares to an index with similar investment objectives. Performance of the components of the blended index are also shown. Effective March 31, 2010, the weightings for the Principal LifeTime 2030 Blended Index were 55.8% Russell 3000 Index, 21.7% MSCI EAFE NDTR-D Index, and 22.5% Barclays Capital Aggregate Bond Index.


Management

Investment Advisor:
Principal Management Corporation
•	James Fennessey (since 2007), Vice President
•	Michael P. Finnegan (since 2007), Chief Investment Officer
•	Randy L. Welch (since 2007), Vice President

Sub-Advisor(s) and Portfolio Manager(s):
Principal Global Investors, LLC
•	David M. Blake (since 2008), Executive Director and Chief Investment Officer of Fixed Income
•	Tim Dunbar (since 2008), Executive Director and Head of Equities
•	Dirk Laschanzky (since 2001), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.


PRINCIPAL LIFETIME 2040 ACCOUNT

Objective:	The Account seeks a total return consisting of long-term growth of capital and current
	income.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

	Annual Account Operating Expenses
	(expenses that you pay each year as a percentage of the value of your investment)

For the year ended December 31, 2008		Class 1
	Management Fees⁽¹⁾	0.12%
	Other Expenses⁽²⁾	0.09
	Acquired Fund (Underlying Fund) Operating Expenses	0.78
	Total Annual Account Operating Expenses	0.99%
⁽¹⁾	Effective July 1, 2009, the Fund’s Management Fees will be reduced to 0.03%. This reduction is not reflected in the expense table or the
	expense examples.
⁽²⁾	Other Expenses have been restated to reflect expenses being deducted from current assets.


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each year
and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

	Number of years you own your shares
	1	3	5	10
Principal LifeTime 2040 Account - Class 1	$101	$315	$547	$1,213

Portfolio Turnover

Principal Investment Strategies

The Account operates as a “target date fund.” It invests in underlying Principal Funds, Inc. domestic and foreign equity, real estate investments, and fixed-income Funds according to an asset allocation strategy designed for investors having an investment time horizon comparable to that of the Account. The Account's asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. The Account invests in Institutional Class shares of underlying funds. It is managed by Principal Management Corporation (“Principal”) and Principal Global Investors, LLC (“PGI”).

In selecting underlying funds and target weights, Principal considers both quantitative measures (e.g., past performance, expected levels of risk and returns, expense levels, diversification and style consistency) and qualitative factors (e.g., organizational stability, investment experience, investment and risk management processes, and information, trading, and compliance systems). There are no minimum or maximum percentages of assets that the Account must invest in a specific asset class or underlying fund. Principal determines whether to use cash flows or asset transfers or both to achieve the target weights established for underlying funds. Principal monitors the performance of the underlying funds relative to their benchmarks and peer groups.

Principal Risks

Asset Allocation Risk. A fund's selection and weighting of asset classes and/or underlying funds may cause it to underperform other funds with a similar investment objective.

Growth Stock Risk. Market prices of growth stocks are often more sensitive than other securities to earnings expectations.

Value Stock Risk. The market may not recognize the intrinsic value of value stocks for a long time, or they may be appropriately priced at the time of purchase.

Performance


The year-to-date return as of March 31, 2009 is -9.82%

Highest return for a quarter during the period of the bar chart above:	Q4 ‘06	7.00
Lowest return for a quarter during the period of the bar chart above:	Q4 ‘08	-21.31

Average Annual Total Returns (%)

	Past
For the periods ended December 31, 2008	1 Year	Life of Account⁽¹⁾
Principal LifeTime 2040 - Class 1	-38.16%	-2.16%
Russell 3000 Index (reflects no deduction for fees, expenses, or taxes)	-37.31	-2.27
MSCI EAFE (Europe, Australia, Far East) Index NDTR D	-43.38	1.54
Barclays Capital Aggregate Bond Index (reflects no deduction for fees, expenses,
or taxes)	5.24	4.65
Principal LifeTime 2040 Blended Index (reflects no deduction for fees, expenses,
or taxes)	-33.92	-1.10
⁽¹⁾Lifetime results are measured from the date the Account first sold its shares (August 30, 2004).

Performance of a blended index shows how the Account's performance compares to an index with similar investment objectives. Performance of the components of the blended index are also shown. Effective March 31, 2010, the weightings for the Principal LifeTime 2040 Blended Index will be 60.6% Russell 3000 Index, 24.4% MSCI EAFE NDTR-D Index, and 15.0% Barclays Capital Aggregate Bond Index.


Management

Investment Advisor:
Principal Management Corporation
•	James Fennessey (since 2007), Vice President
•	Michael P. Finnegan (since 2007), Chief Investment Officer
•	Randy L. Welch (since 2007), Vice President

Sub-Advisor(s) and Portfolio Manager(s):
Principal Global Investors, LLC
•	David M. Blake (since 2008), Executive Director and Chief Investment Officer of Fixed Income
•	Tim Dunbar (since 2008), Executive Director and Head of Equities
•	Dirk Laschanzky (since 2001), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.


PRINCIPAL LIFETIME 2050 ACCOUNT

Objective:	The Account seeks a total return consisting of long-term growth of capital and current
	income.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

	Annual Account Operating Expenses
	(expenses that you pay each year as a percentage of the value of your investment)

For the year ended December 31, 2008		Class 1
	Management Fees⁽¹⁾	0.12%
	Other Expenses⁽²⁾	0.13
	Acquired Fund (Underlying Fund) Operating Expenses	0.80
	Total Annual Account Operating Expenses	1.05%
⁽¹⁾	Effective July 1, 2009, the Fund’s Management Fees will be reduced to 0.03%. This reduction is not reflected in the expense table or the
	expense examples.
⁽²⁾	Other Expenses have been restated to reflect expenses being deducted from current assets.


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:


	Number of years you own your shares
	1	3	5	10
Principal LifeTime 2050 Account - Class 1	$107	$334	$579	$1,283

Portfolio Turnover

Principal Investment Strategies

The Account operates as a “target date fund.” It invests in underlying Principal Funds, Inc. domestic and foreign equity, real estate investments, and fixed-income Accounts according to an asset allocation strategy designed for investors having an investment time horizon comparable to that of the Fund. The Fund's asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. The Account invests in Institutional Class shares of underlying funds. It is managed by Principal Management Corporation (“Principal”) and Principal Global Investors, LLC (“PGI”).

In selecting underlying funds and target weights, Principal considers both quantitative measures (e.g., past performance, expected levels of risk and returns, expense levels, diversification and style consistency) and qualitative factors (e.g., organizational stability, investment experience, investment and risk management processes, and information, trading, and compliance systems). There are no minimum or maximum percentages of assets that the Account must invest in a specific asset class or underlying fund. Principal determines whether to use cash flows or asset transfers or both to achieve the target weights established for underlying funds. Principal monitors the performance of the underlying funds relative to their benchmarks and peer groups.

Principal Risks

Asset Allocation Risk. A fund's selection and weighting of asset classes and/or underlying funds may cause it to underperform other funds with a similar investment objective.

Growth Stock Risk. Market prices of growth stocks are often more sensitive than other securities to earnings expectations.

Value Stock Risk. The market may not recognize the intrinsic value of value stocks for a long time, or they may be appropriately priced at the time of purchase.

Performance


The year-to-date return as of March 31, 2009 is -10.13%

Highest return for a quarter during the period of the bar chart above:	Q4 ‘06	7.46
Lowest return for a quarter during the period of the bar chart above:	Q4 ‘08	-22.08

Average Annual Total Returns (%)

	Past
For the periods ended December 31, 2008	1 Year	Life of Account⁽¹⁾
Principal LifeTime 2050 - Class 1	-39.05%	-2.35%
Russell 3000 Index (reflects no deduction for fees, expenses, or taxes)	-37.31	-2.27
MSCI EAFE (Europe, Australia, Far East) Index NDTR D	-43.38	1.54
Barclays Capital Aggregate Bond Index (reflects no deduction for fees, expenses,
or taxes)	5.24	4.65
Principal LifeTime 2050 Blended Index (reflects no deduction for fees, expenses,
or taxes)	-35.39	-1.06
⁽¹⁾Lifetime results are measured from the date the Account first sold its shares (August 30, 2004).

Performance of a blended index shows how the Account's performance compares to an index with similar investment objectives. Performance of the components of the blended index are also shown. Effective March 31, 2010, the weightings for the Principal LifeTime 2050 Blended Index will be 64.2% Russell 3000 Index, 25.8% MSCI EAFE NDTR-D Index, and 10.0% Barclays Capital Aggregate Bond Index.


Management

Investment Advisor:
Principal Management Corporation
•	James Fennessey (since 2007), Vice President
•	Michael P. Finnegan (since 2007), Chief Investment Officer
•	Randy L. Welch (since 2007), Vice President

Sub-Advisor(s) and Portfolio Manager(s):
Principal Global Investors, LLC
•	David M. Blake (since 2008), Executive Director and Chief Investment Officer of Fixed Income
•	Tim Dunbar (since 2008), Executive Director and Head of Equities
•	Dirk Laschanzky (since 2001), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.

PRINCIPAL LIFETIME STRATEGIC INCOME ACCOUNT

Objective: The Account seeks current income, and as a secondary objective, capital appreciation.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

	Annual Account Operating Expenses
	(expenses that you pay each year as a percentage of the value of your investment)

For the year ended December 31, 2008		Class 1
	Management Fees⁽¹⁾	0.12%
	Other Expenses⁽²⁾	0.06
	Acquired Fund (Underlying Fund) Operating Expenses	0.52
	Total Annual Account Operating Expenses	0.70%
⁽¹⁾	Effective July 1, 2009, the Fund’s Management Fees will be reduced to 0.03%. This reduction is not reflected in the expense table or the
	expense examples.
⁽²⁾	Other Expenses have been restated to reflect expenses being deducted from current assets.


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:


	Number of years you own your shares
	1	3	5	10
Principal LifeTime Strategic Income Account - Class 1	$72	$224	$390	$871

Portfolio Turnover

Principal Investment Strategies

The Account operates as a “target date fund.” It invests in underlying Principal Funds, Inc. domestic and foreign equity, real estate investments, and fixed-income Accounts according to an asset allocation strategy designed for investors having an investment time horizon comparable to that of the Account. The Account's asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. The Account invests in Institutional Class shares of underlying funds. It is managed by Principal Management Corporation (“Principal”) and Principal Global Investors, LLC (“PGI”).

In selecting underlying funds and target weights, Principal considers both quantitative measures (e.g., past performance, expected levels of risk and returns, expense levels, diversification and style consistency) and qualitative factors (e.g., organizational stability, investment experience, investment and risk management processes, and information, trading, and compliance systems). There are no minimum or maximum percentages of assets that the Account must invest in a specific asset class or underlying fund. Principal determines whether to use cash flows or asset transfers or both to achieve the target weights established for underlying funds. Principal monitors the performance of the underlying funds relative to their benchmarks and peer groups.

Principal Risks

Asset Allocation Risk. A fund's selection and weighting of asset classes and/or underlying funds may cause it to underperform other funds with a similar investment objective.

Growth Stock Risk. Market prices of growth stocks are often more sensitive than other securities to earnings expectations.

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Value Stock Risk. The market may not recognize the intrinsic value of value stocks for a long time, or they may be appropriately priced at the time of purchase.

Performance


The year-to-date return as of March 31, 2009 is -4.40%

Highest return for a quarter during the period of the bar chart above:	Q2 ‘05	3.87
Lowest return for a quarter during the period of the bar chart above:	Q4 ‘08	-12.55

Average Annual Total Returns (%)

	Past
For the periods ended December 31, 2008	1 Year	Life of Account⁽¹⁾
Principal LifeTime Strategic Income - Class 1	-23.89%	-0.74%
Barclays Capital Aggregate Bond Index (reflects no deduction for fees, expenses,
or taxes)⁽²⁾	5.24	4.65
Russell 3000 Index (reflects no deduction for fees, expenses, or taxes)	-37.31	-2.27
MSCI EAFE (Europe, Australia, Far East) Index NDTR D	-43.38	1.54
Principal LifeTime Strategic Income Blended Index (reflects no deduction for fees,
expenses, or taxes)⁽	-7.47	3.46
⁽¹⁾Lifetime results are measured from the date the Account first sold its shares (August 30, 2004).
⁽²⁾The Manager and portfolio manager believe the Barclays Capital Aggregate Bond Index is a better representation of the universe of investment
choices open to the Account under its investment philosophy than the Russell 3000 Index. The Russell 3000 Index is also shown.

Performance of a blended index shows how the Account's performance compares to an index with similar investment objectives. Performance of the components of the blended index are also shown. Effective March 31, 2010, the weightings for the Principal LifeTime Strategic Income Blended Index will be 19.0% Russell 3000 Index, 6.0% MSCI EAFE NDTR-D Index, and 75.0% Barclays Capital Aggregate Bond Index.


Management

Investment Advisor:
Principal Management Corporation
•	James Fennessey (since 2007), Vice President
•	Michael P. Finnegan (since 2007), Chief Investment Officer
•	Randy L. Welch (since 2007), Vice President

Sub-Advisor(s) and Portfolio Manager(s):
Principal Global Investors, LLC
•	David M. Blake (since 2008), Executive Director and Chief Investment Officer of Fixed Income
•	Tim Dunbar (since 2008), Executive Director and Head of Equities
•	Dirk Laschanzky (since 2001), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.

REAL ESTATE SECURITIES ACCOUNT

Objective: The Account seeks to generate a total return.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets

For the year ended December 31, 2008	Class 1	Class 2
Management Fees	0.90%	0.90%
Distribution and/or Service (12b-1) Fees	N/A	0.25
Other Expenses⁽¹⁾	0.03	0.03
Total Annual Account Operating Expenses	0.93%	1.18%
⁽¹⁾Other Expenses have been restated to reflect expenses being deducted from current assets.


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

	Number of years you own your shares
	1	3	5	10
Real Estate Securities Account - Class 1	$ 95	$296	$515	$1,143
Real Estate Securities Account - Class 2	120	375	649	1,432

Portfolio Turnover

Investor Profile:	The Account may be an appropriate investment for investors who seek a total return, want
	to invest in companies engaged in the real estate industry and can accept the potential
	for volatile fluctuations in the value of investments.

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of companies principally engaged in the real estate industry. For purposes of the Fund’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 (“real estate companies”) include real estate investment trusts and companies with substantial real estate holdings such as paper, lumber, hotel and entertainment companies as well as those whose products and services relate to the real estate industry include building supply manufacturers, mortgage lenders and mortgage servicing companies. The Fund may invest up to 10% of its assets in fixed income securities issued by real estate companies. The Fund will invest in equity securities of small, medium, and large capitalization companies. The Fund may purchase securities issued as part of, or a short period after, companies' initial public offerings and may at times dispose of those shares shortly after their acquisition.


Real estate investment trusts (“REITs”) are corporations or business trusts that are permitted to eliminate corporate
level federal income taxes by meeting certain requirements of the Internal Revenue Code. REITs are characterized
as:
•	equity REITs, which primarily own property and generate revenue from rental income;
•	mortgage REITs, which invest in real estate mortgages; and
•	hybrid REITs, which combine the characteristics of both equity and mortgage REITs.
In selecting securities for the Fund, Principal-REI focuses on equity REITs.

The Fund may invest in securities of real estate companies. The Fund is “non-diversified,” which means that it may invest more of its assets in the securities of fewer issuers than diversified mutual funds. Thus, the Fund is subject to non-diversification risk. The Fund could purchase shares issued by an ETF to temporarily gain broad exposure to the equity market while awaiting purchase of underlying securities. This Fund may be used as part of a fund of funds strategy.

Principal Risks

Non-Diversification Risk. A non-diversified fund may invest a high percentage of its assets in the securities of a small number of issuers and is more likely than diversified funds to be significantly affected by a specific security’s poor performance.

Performance


The year-to-date return as of March 31, 2009 is -29.14%
Highest return for a quarter during the period of the bar chart above:		Q4 ‘04	17.84
Lowest return for a quarter during the period of the bar chart above:		Q4 ‘08	-34.16

Average Annual Total Returns (%)

	Past	Past	Past
For the periods ended December 31, 2008	1 Year	5 Years	10 Years
Real Estate Securities Account - Class 1	-32.86%	3.31%	9.13%
Real Estate Securities Account - Class 2⁽¹⁾	-33.01	3.06	8.90
MSCI US REIT Index (reflects no deduction for fees, expenses, or taxes)	-37.97	0.67	7.19
⁽¹⁾Class 1 shares began operations on May 1, 1998 and Class 2 shares began operations on January 8, 2007. The returns for Class 2 shares for
the periods prior to January 8, 2007 are based on the performance of Class 1 shares adjusted to reflect the fees and expenses of Class 2
shares. The adjustment results in performance for such periods that is no higher than the historical performance of the Class 1 shares.

Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):

Principal Real Estate Investors, LLC

• Kelly D. Rush (since 2000), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.

SHORT-TERM BOND ACCOUNT

Objective: The Account seeks to provide current income.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets
For the year ended December 31, 2008	Class 1
Management Fees⁽¹⁾	0.49%
Other Expenses⁽¹⁾	0.03
Total Annual Account Operating Expenses	0.52%
⁽¹⁾Management Fees and Other Expenses have been restated to reflect expenses being deducted from current assets.


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

	Number of years you own your shares
	1	3	5	10
Short-Term Bond Account - Class 1	$53	$167	$291	$653

Portfolio Turnover

Investor Profile:	The Account may be an appropriate investment for investors seeking diversification by
	investing in a fixed-income mutual fund.


Principal Investment Strategies
The Fund invests primarily in short-term fixed-income securities. Under normal circumstances, the Fund maintains an
effective maturity of four years or less and a dollar-weighted effective maturity of not more than three years. In
determining the average effective maturity of the Fund’s assets, the maturity date of a callable security or probable
securities may be adjusted to reflect the judgment of Principal Global Investors, LLC (“PGI”) regarding the likelihood
the security being called or prepaid. The Fund considers the term “bond” to mean any debt security. Under normal
circumstances, it invests at least 80% of its net assets (plus any borrowings for investment purposes) in the following
types of securities rated, at the time of purchase, BBB- or higher by Standard & Poor's Rating Service ("S&P") or Baa3
or higher by Moody's Investors Service, Inc. ("Moody's"):
•	securities issued or guaranteed by the U.S. government or its agencies or instrumentalities;
•	debt securities of U.S. issuers; and
•	mortgage-backed securities representing an interest in a pool of mortgage loans.

The Fund may invest in below-investment-grade fixed-income securities (commonly known as “junk bonds” or “high yield securities”) (rated at the time of purchase BB+ or lower by S&P or Ba1 or lower by Moody’s).

The Fund may invest in Eurodollar and Yankee Obligations and foreign securities. The Fund may invest in asset-backed securities. The Fund may enter into dollar roll transactions, which may involve leverage. The Fund may utilize derivative strategies, which are financial contracts whose value depends upon, or is derived from, the value of an underlying asset, reference rate, or index, and may relate to stocks, bonds, interest rates, currencies or currency exchange rates, and related indexes. Derivative strategies may include certain options transactions, financial futures contracts, swaps, currency forwards, and related options for purposes such as earning income and enhancing returns, managing or adjusting the risk profile of the Fund, replacing more traditional direct investments, or obtaining exposure to certain markets.

Principal Risks

Real Estate Securities Risk. Real estate securities (including real estate investment trusts ("REITs")) are subject the risks associated with direct ownership of real estate, including declines in value, adverse economic conditions, increases in expenses, regulatory changes and environmental problems. A REIT could fail to qualify for tax-free through of income under the Internal Revenue Code, and Fund shareholders will indirectly bear their proportionate share of the expenses of REITs in which the Fund invests.

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


The year-to-date return as of March 31, 2009 is 0.12%

Highest return for a quarter during the period of the bar chart above:	Q3 ‘06	2.21
Lowest return for a quarter during the period of the bar chart above:	Q4 ‘08	-6.30


Average Annual Total Returns (%)

	Past	Past
For the periods ended December 31, 2008	1 Year	5 Years	Life of Account
Short-Term Bond Account - Class 1	-11.68%	-0.39%	-0.21%
Barclays Capital MF (1-3) US Government Credit Index reflects no deduction for fees, expenses, or taxes)	4.97	3.80	3.83
⁽¹⁾Lifetime results are measured from the date the Account was first sold (May 1, 2003).


Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
Principal Global Investors, LLC
•	Craig Dawson (since 2005), Portfolio Manager
•	Timothy R. Warrick (since 2009), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.


SHORT-TERM INCOME ACCOUNT

Objective:	The Account seeks to provide as high a level of current income as is consistent with
	prudent investment management and stability of principal.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets

For the year ended December 31, 2008	Class 1	Class 2
Management Fees	0.50%	0.50%
Distribution and/or Service (12b-1) Fees	N/A	0.25
Other Expenses⁽¹⁾	0.03	0.03
Total Annual Account Operating Expenses	0.53%	0.78%
⁽¹⁾Other Expenses have been restated to reflect expenses being deducted from current assets.


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

	Number of years you own your shares
	1	3	5	10
Short-Term Income Account - Class 1	$54	$170	$296	$665
Short-Term Income Account - Class 2	80	249	433	966

Portfolio Turnover


Investor Profile:	The Account may be an appropriate investment for investors seeking diversification by
	investing in a fixed-income mutual fund.

Principal Investment Strategies

The Fund invests in high quality short-term bonds and other fixed-income securities that, at the time of purchase, are rated BBB- or higher by Standard & Poor’s Rating Service or Baa3 or higher by Moody’s Investors Service, Inc. or, if unrated, in the opinion of Edge Asset Management, Inc. (“Edge”) of comparable quality. Under normal circumstances, the Fund maintains an effective maturity of five years or less and a dollar-weighted average duration of three years or less. The Fund’s investments may also include corporate securities, U.S. and foreign government securities, repurchase agreements, mortgage-backed and asset-backed securities, and real estate investment trust securities.

The Fund may invest in foreign fixed-income securities, primarily bonds of foreign governments or their political subdivisions, foreign companies and supranational organizations, including non-U.S. dollar-denominated securities and U.S. dollar-denominated fixed-income securities issued by foreign issuers and foreign branches of U.S. banks. The Fund may invest in preferred securities. The Fund may enter into dollar roll transactions, which may involve leverage. The Fund may utilize derivative strategies, which are financial contracts whose value depends upon, or is derived from, the value of an underlying asset, reference rate, or index, and may relate to stocks, bonds, interest rates, currencies or currency exchange rates, and related indexes. Derivative strategies may include certain options transactions, financial futures contracts, swaps, currency forwards, and related options for purposes such as earning income and enhancing returns, managing or adjusting the risk profile of the Fund, replacing more traditional direct investments, or obtaining exposure to certain markets. This Fund may be used as part of a fund of funds strategy.

Principal Risks

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Performance


The year-to-date return as of March 31, 2009 is 2.49%

Highest return for a quarter during the period of the bar chart above:		Q3 ‘01		3.20
Lowest return for a quarter during the period of the bar chart above:		Q4 ‘08		-2.03

Average Annual Total Returns (%)⁽¹⁾

		Past	Past	Past
	For the periods ended December 31, 2008	1 Year	5 Years	10 Years
	Short-Term Income Account - Class 1	-0.57%	2.43%	4.29%
	Short-Term Income Account - Class 2⁽²⁾	-1.23	2.10	4.01
	Citigroup Broad Investment-Grade Credit 1-3 Years Index (reflects no
	deduction for fees, expenses, or taxes)	0.28	2.95	4.81
⁽¹⁾	Performance reflects the performance of the predecessor fund.
⁽²⁾	Class 1 shares began operations on January 12, 1994 and Class 2 shares began operations on November 6, 2001. The returns for
	Class 2 shares for the periods prior to November 6, 2001 are based on the performance of Class 1 shares adjusted to reflect the fees and
	expenses of Class 2 shares. The adjustments results in performance for such periods that is no higher than the historical performance of the
	Class 1 shares.

Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):

Edge Asset Management, Inc.

• Scott J. Peterson (since 2010), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.

SMALLCAP BLEND ACCOUNT

Objective: The Account seeks long-term growth of capital.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets

For the year ended December 31, 2008	Class 1
Management Fees	0.85%
Other Expenses⁽¹⁾	0.05
Acquired Fund Fees and Expenses	0.07
Total Annual Account Operating Expenses	0.97%
⁽¹⁾Other Expenses have been restated to reflect expenses being deducted from current assets.


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

	Number of years you own your shares
	1	3	5	10
SmallCap Blend Account - Class 1	$99	$309	$536	$1,190

Portfolio Turnover


Investor Profile:	The Account may be an appropriate investment for investors seeking long-term growth of
	capital and willing to accept the potential for volatile fluctuations in the value of
	investments.

Principal Investment Strategies

The Fund invests primarily in equity securities of small capitalization companies. Under normal circumstances, the Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of companies with small market capitalizations (those with market capitalizations similar to companies in the Russell 2000^®Index (as of the most recent calendar year end, this range was between approximately $0.01 billion and $5.1 billion)) 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, Principal Global Investors (“PGI”) looks at stocks with value and/or growth characteristics and constructs an investment portfolio that has a “blend” of stocks with these characteristics. In managing the assets of the Fund, PGI 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.

The equity investment philosophy of PGI is based on the belief that superior stock selection and disciplined risk management provide consistent out-performance. PGI focuses on companies with improving and sustainable business fundamentals, rising investor expectations, and attractive relative valuation. PGI uses a research-driven investment approach to minimize unintended portfolio risks (including sector and market cap biases relative to the index) so that stock selection drives performance.

PGI constructs a portfolio that is “benchmark aware” in that it is sensitive to the sector (companies with similar characteristics) and security weightings of its benchmark. PGI may purchase securities issued as part of, or a short period after, companies’ initial public offerings (“IPOs”), and may at times dispose of those shares shortly after their acquisition.

Principal Risks

Growth Stock Risk. Market prices of growth stocks are often more sensitive than other securities to earnings expectations.

Value Stock Risk. The market may not recognize the intrinsic value of value stocks for a long time, or they may be appropriately priced at the time of purchase.

Performance

expenses, cost of insurance, or other contract-level expenses. Total returns for the Accounts would be lower if such expenses were included. You may get updated performance information online at www.principalfunds.com or by calling 1-800-852-4450.


The year-to-date return as of March 31, 2009 is -15.16%
Highest return for a quarter during the period of the bar chart above:	Q2 ‘99	26.75
Lowest return for a quarter during the period of the bar chart above:	Q4 ‘08	-26.33

Average Annual Total Returns (%)
	Past	Past	Past
For the periods ended December 31, 2008	1 Year	5 Years	10 Years
SmallCap Blend Account - Class 1	-36.73%	-1.45%	1.85%
Russell 2000 Index (reflects no deduction for fees, expenses, or taxes)	-33.79	-0.93	3.02


Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
Principal Global Investors, LLC
•	Thomas Morabito (since 2006), Portfolio Manager
•	Phil Nordhus (since 2006), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.

SMALLCAP GROWTH ACCOUNT II

Objective: The Account seeks long-term growth of capital

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets

For the year ended December 31, 2008		Class 1	Class 2
	Management Fees⁽¹⁾	1.00%	1.00%
	Distribution and/or Service (12b-1) Fees	N/A	0.25
	Other Expenses⁽²⁾	0.08	0.08
	Total Annual Account Operating Expenses	1.08%	1.33%
⁽¹⁾	Effective July 1, 2009, Principal will contractually limit the Account’s Management Fees through the period ending April 30, 2011. The expense
	limit will reduce the Fund’s Management Fees by 0.02% (expressed as a percent of average net assets on an annualized basis).
⁽²⁾	Other Expenses have been restated to reflect expenses being deducted from current assets.


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

	Number of years you own your shares
	1	3	5	10
SmallCap Growth Account II - Class 1	$110	$343	$595	$1,317
SmallCap Growth Account II - Class 2	135	421	729	1,601

Portfolio Turnover

Investor Profile:	The Account may be an appropriate investment for investors seeking long-term growth of
	capital and 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.

Principal Investment Strategies

The Fund pursues its investment objective by investing primarily in equity securities. Under normal circumstances, the Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of companies with small market capitalizations (those with market capitalizations equal to or smaller than the greater of 1) $2.5 billion or 2) the highest market capitalization of the companies in the Russell 2000 Growth Index (as of the most recent calendar year end, this range was between approximately $0.01 billion and $5.1 billion)) at the time of purchase. Market capitalization is defined as total current market value of a company’s outstanding common stock. The Fund invests in growth stocks; growth orientation emphasizes buying stocks of companies whose potential for growth of capital and earnings is expected to be above average. The Fund may invest in securities of foreign companies. The Fund may purchase securities issued as part of, or a short period after, companies’ initial public offerings and may at times dispose of those shares shortly after their acquisition. This Fund may be used as part of a fund of funds strategy. The Fund may actively trade portfolio securities in an attempt to achieve its investment objective.

Utilizing fundamental analysis, Emerald Advisers, Inc. (“Emerald”) seeks to invest in the common stock of companies with distinct competitive advantages, strong management teams, leadership positions, high revenue and earnings growth rates versus peers, differentiated growth drivers and limited sell-side research.

Essex Investment Management Company, LLC (“Essex”) selects stocks of companies that are exhibiting improving business fundamentals and that Essex believes are undervalued relative to each company’s future growth potential. Ordinarily, the Fund will invest in companies from all sectors of the market based on Essex’s fundamental research and analysis of various characteristics, including financial statements, sales and expense trends, earnings estimates, market position of the company and industry outlook. Essex uses earnings models to value a company against its own history, the industry and the market to identify securities that are undervalued relative to their future growth potential. Ordinarily, the Fund will sell a stock if the business fundamentals demonstrate a significant deterioration, or if the valuation is no longer attractive relative to Essex’s long-term growth expectations.

Principal Risks

Growth Stock Risk. Market prices of growth stocks are often more sensitive than other securities to earnings expectations.

Performance


The year-to-date return as of March 31, 2009 is -8.38%

Highest return for a quarter during the period of the bar chart above:	Q4 ‘99	59.52
Lowest return for a quarter during the period of the bar chart above:	Q3 ‘01	-37.66


Average Annual Total Returns (%)

	Past	Past	Past
For the periods ended December 31, 2008	1 Year	5 Years	10 Years
SmallCap Growth Account II - Class 1	-41.15%	-4.39%	-3.21%
SmallCap Growth Account II - Class 2⁽¹⁾	-41.25	-4.64	-3.45
Russell 2000 Growth Index (reflects no deduction for fees, expenses, or
taxes)	-38.54	-2.35	-0.76
⁽¹⁾Class 1 shares began operations on May 1, 1998 and Class 2 shares began operations on January 8, 2007. The returns for Class 2 shares for
the periods prior to January 8, 2007 are based on the performance of Class 1 shares adjusted to reflect the fees and expenses of Class 2
shares. The adjustment results in performance for such periods that is no higher than the historical performance of the Class 1 shares.


Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
Emerald Advisers, Inc.
•	Joseph W. Garner (since 2005), Portfolio Manager and Director of Research
•	Kenneth G. Mertz II (since 1992), Portfolio Manager, Chief Investment Officer, and President
•	Peter J. Niedland (since 2009), Portfolio Manager
•	Stacey L. Sears (since 2002), Portfolio Manager and Senior Vice President

Essex Investment Management Company, LLC (“Essex”)
•	Nancy B. Prial (since 2006), Portfolio Manager and Senior Principal

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.

SMALLCAP VALUE ACCOUNT I

Objective: The Account seeks long-term growth of capital.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets

	For the year ended December 31, 2008	Class 1⁽¹⁾	Class 2⁽¹⁾
	Management Fees⁽²⁾⁽³⁾	1.10%	1.10%
	Distribution and/or Service (12b-1) Fees	N/A	0.25
	Other Expenses⁽²⁾	0.05	0.05
	Acquired Fund Fees and Expenses	0.03	0.03
	Total Annual Account Operating Expenses	1.18%	1.43%
	Expense Reimbursement	0.14	0.14
	Net Expenses	1.04%	1.29%
⁽¹⁾Principal has contractually agreed to limit the Account’s expenses attributable to Class 1 and Class 2 shares and, if necessary, pay expenses
	normally payable by the Account, excluding interest expense and Acquired Fund Fees and Expenses, through the period ending April 30, 2010.
	The expense limits will maintain a total level of operating expenses, not including Acquired Fund Fees and Expenses or interest expense,
	(expressed as a percent of average net assets on an annualized basis) not to exceed 1.01% for Class 1 shares and 1.26% for Class 2 shares.
⁽²⁾	Management Fees and Other Expenses have been restated to reflect expenses being deducted from current assets.
⁽³⁾	Effective July 1, 2009, Principal will contractually limit the Account’s Management Fees through the period ending April 30, 2011. The expense
	limit will reduce the Fund’s Management Fees by 0.02% (expressed as a percent of average net assets on an annualized basis).


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

	Number of years you own your shares
	1	3	5	10
SmallCap Value Account I - Class 1	$106	$356	$631	$1,416
SmallCap Value Account I - Class 2	131	434	764	1,697

Portfolio Turnover

Investor Profile:	The Account may be an appropriate investment for investors seeking long-term growth and
	willing to accept volatile fluctuations in the value of their investment.

Principal Investment Strategies

The Fund invests primarily in a diversified group of equity securities of U.S. companies with small market capitalizations (those with market capitalizations similar to companies in the Russell 2000^®Value Index (as of the most recent calendar year end, this range was between approximately $0.01 billion and $3.4 billion)) at the time of purchase. Market capitalization is defined as total current market value of a company's outstanding common stock. Under normal conditions, the Fund invests at least 80% of its net assets in equity securities of such companies. The Fund invests in value stocks; value orientation emphasizes buying stocks at less than their expected investment value and avoiding stocks whose price has been artificially built up. The Fund’s assets may be invested in foreign securities. The Fund may invest in real estate investment trusts in an attempt to achieve its investment objective. The Fund may also purchase securities issued as part of, or a short period after, companies’ initial public offerings (“IPOs”), and may at times dispose of those shares shortly after their acquisition. This Fund may be used as part of a fund of funds strategy.

J.P. Morgan Investment Management, Inc. (“J.P. Morgan”) uses a combination of quantitative and fundamental research, and then implements a disciplined portfolio construction process to build a portfolio. It seeks to enhance returns and reduce the volatility in the value of the Fund relative to that of the U.S. small company value universe, represented by the Russell 2000^®Value Index. J.P. Morgan continuously screens the small company universe to identify those companies that exhibit favorable valuation and momentum factor rankings. J.P. Morgan ranks these companies within economic sectors according to their relative attractiveness. J.P. Morgan then selects for purchase the companies it feels to be most attractive within each economic sector.

Under normal market conditions, the portion of the Fund sub-advised by J.P. Morgan 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.

In selecting investments for the Fund, Mellon Capital Management Corporation (“Mellon Capital”) uses a disciplined investment process that combines fundamental analysis and risk management with a multi-factor model that searches for undervalued stocks. Undervalued stocks are those selling at a low price relative to their profits and prospective earnings growth. The stock evaluation process uses several different characteristics, including changes in earnings estimates and change in valuation metrics, in an attempt to identify value among individual stocks.

Rather than using broad economic or market trends, Mellon Capital selects stocks on a company-by-company basis. To ensure ample diversification, the portion of the Fund’s assets managed by Mellon Capital are allocated among industries and economic sectors in similar proportions to those of the Index. The portfolio is generally kept broadly diversified in an attempt to capture opportunities that may be realized quickly during periods of above-average market volatility. By maintaining such a diversified stance, stock selection drives performance.

Principal Risks

Value Stock Risk. The market may not recognize the intrinsic value of value stocks for a long time, or they may be appropriately priced at the time of purchase.

Performance


The year-to-date return as of March 31, 2009 is -19.98%

Highest return for a quarter during the period of the bar chart above:	Q2 ‘03	23.76
Lowest return for a quarter during the period of the bar chart above:	Q4 ‘08	-25.12


	Average Annual Total Returns (%)

	Past	Past	Past
For the periods ended December 31, 2008	1 Year	5 Years	10 Years
SmallCap Value Account I - Class 1	-31.82%	-0.88%	7.70%
SmallCap Value Account I - Class 2⁽¹⁾	-31.89	-1.09	7.51
Russell 2000 Value Index (reflects no deduction for fees, expenses, or
taxes)	-28.92	0.27	6.11
⁽¹⁾Class 1 shares began operations on May 1, 1998 and Class 2 shares began operations on January 8, 2007. The returns for Class 2 shares for
the periods prior to January 8, 2007 are based on the performance of Class 1 shares adjusted to reflect the fees and expenses of
Class 2 shares. The adjustment results in performance for such periods that is no higher than the historical performance of the Class 1 shares.


Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
Mellon Capital Management Corporation
•	Ronald P. Gala (since 2002), Director, Senior Portfolio Manager, Active Equity Strategies
•	Peter D. Goslin (since 2005), Vice President, Senior Portfolio Manager, Active Equity Strategies

J.P. Morgan Investment Management, Inc.
•	Christopher T. Blum (since 2002), Managing Director, Chief Investment Officer of the U.S. Behavioral Finance
	Group
•	Dennis S. Ruhl (since 2005), Vice President, head of the U.S. Behavioral Finance Small Cap Equity Group

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.


STRATEGIC ASSET MANAGEMENT (“SAM”) FLEXIBLE INCOME PORTFOLIO

Objective:	The Portfolio seeks to provide a high level of total return (consisting of reinvestment of
	income with some capital appreciation). In general, relative to the other Portfolios, the
	Flexible Income Portfolio should offer investors the potential for a high level of income and
	a low level of capital growth, while exposing them to a low level of principal risk.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)

For the year ended December 31, 2008	Class 1	Class 2
Management Fees⁽¹⁾	0.25%	0.25%
Distribution and/or Service (12b-1) Fees	N/A	0.25
Other Expenses⁽¹⁾	0.01	0.01
Acquired Fund (Underlying Fund) Operating Expenses	0.58	0.58
Total Annual Account Operating Expenses	0.84%	1.09%
⁽¹⁾Management Fees and Other Expenses have been restated to reflect expenses being deducted from current assets.


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:


	Number of years you own your shares
	1	3	5	10
Flexible Income Portfolio - Class 1	$ 86	$268	$466	$1,037
Flexible Income Portfolio - Class 2	111	347	601	1,329

Portfolio Turnover

Principal Investment Strategies

The Portfolio is one of five Strategic Asset Management (“SAM”) Portfolios: Flexible Income, Conservative Balanced, Balanced, Conservative Growth and Strategic Growth. The SAM Portfolios offer long-term investors different asset allocation strategies having different levels of potential investment risk and reward. The Portfolio is intended to offer the potential for a high level of income and a low level of capital growth, with exposure to a low level of principal risk.

The SAM Portfolios operate as funds of funds and invest principally in Institutional Class shares of Principal Funds, Inc. equity funds, fixed-income funds and money market fund (“Underlying Funds”). Each SAM Portfolio typically allocates its assets among Underlying Funds, and within predetermined percentage ranges, as determined by the Sub-Advisor in accordance with its outlook for the economy, the financial markets and the relative market valuations of the Underlying Funds.


The Portfolio:
•	invests up to 40% of its assets in any single fixed-income fund as well as cash equivalents;
•	generally invests no more than 30% of its net assets in equity funds; and
•	may invest up to 30% of its assets in any single equity fund.

The Portfolio may temporarily exceed these percentage ranges for short periods, and the Sub-Advisor may alter the percentage ranges when it deems appropriate.

The Fund may utilize derivative strategies, which are financial contracts whose value depends upon, or is derived from, the value of an underlying asset, reference rate, or index, and may relate to stocks, bonds, interest rates, currencies or currency exchange rates, and related indexes. Derivative strategies may include certain options transactions, financial futures contracts, swaps, currency forwards, and related options for purposes such as earning income and enhancing returns, managing or adjusting the risk profile of the Fund, replacing more traditional direct investments, or obtaining exposure to certain markets.

The Portfolio may also invest, including for temporary defensive purposes and to meet liquidity needs, directly in U.S. government securities, fixed-income securities rated at the time of purchase A- or higher by S&P or A3 or higher by Moody’s, commercial paper (including master notes), bank obligations and repurchase agreements.

Principal Risks

The broad diversification of the Portfolio is designed to cushion severe losses in any one investment sector and moderate overall price volatility. However, the Portfolio is subject to the particular risks of the Underlying Funds in which it invests, and its share prices and performance will fluctuate with the shares prices and performance of the Underlying Funds. If you sell your shares when their value is less than the price you paid, you will lose money.

The SAM Portfolios share the same risks but often with different levels of exposure.

The Portfolio has greater exposure than the Balanced, Conservative Growth and Strategic Growth Portfolios to:

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

The Portfolio has less exposure than the Balanced, Conservative Growth and Strategic Growth Portfolios to:

Growth Stock Risk. Market prices of growth stocks are often more sensitive than other securities to earnings expectations.

Value Stock Risk. The market may not recognize the intrinsic value of value stocks for a long time, or they may be appropriately priced at the time of purchase.

Each of the SAM Portfolios is subject to:

Asset Allocation Risk. A fund's selection and weighting of asset classes and/or underlying funds may cause it to underperform other funds with a similar investment objective.

Performance


The year-to-date return as of March 31, 2009 is -2.93%

Highest return for a quarter during the period of the bar chart above:		Q2 ‘03		6.48
Lowest return for a quarter during the period of the bar chart above:		Q4 ‘08		-6.95

Average Annual Total Returns (%)⁽¹⁾

		Past	Past
	For the periods ended December 31, 2008	1 Year	5 Years	Past 10 Years
	SAM Flexible Income Portfolio - Class 1	-13.76%	1.48%	4.14%
	SAM Flexible Income Portfolio - Class 2⁽²⁾	-14.02	1.22	3.88
	Barclays Capital Aggregate Bond Index (reflects no deduction for fees,
	expenses, or taxes)	5.24	4.65	5.63
	S&P 500 Index (reflects no deduction for fees, expenses, or taxes)	-37.00	-2.19	-1.38
	Capital Benchmark (20/80)	-4.56	3.39	4.41
⁽¹⁾	Performance reflects the performance of the predecessor fund. The predecessor fund’s performance in 1999 benefited from the agreement of
	Edge and its affiliates to limit the fund’s expenses.
⁽²⁾	Class 1 shares began operations on September 9, 1997 and Class 2 shares began operations on November 6, 2001. The returns for Class 2
	shares for the periods prior to November 6, 2001 are based on the performance of Class 1 shares adjusted to reflect the fees and expenses of
	Class 2 shares. The adjustment results in performance for such periods that is no higher than the historical performance of the Class 1 shares.

Performance of a blended index shows how the Account's performance compares to an index with similar investment objectives. Performance of the components of the blended index are also shown. The weightings for Capital Benchmark 25/75 are 25% S&P 500 Index and 75% Barclays Capital Aggregate Bond Index.


Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
Edge Asset Management, Inc.
•	Charlie D. Averill (since 2010), Portfolio Manager
•	Jill R. Cuniff (since 2010), President and Portfolio Manager
•	Todd A. Jablonski (since 2010), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.


STRATEGIC ASSET MANAGEMENT (“SAM”) CONSERVATIVE BALANCED PORTFOLIO

Objective:	The Portfolio seeks to provide a high level of total return (consisting of reinvestment of
	income and capital appreciation), consistent with a moderate degree of principal risk. In
	general, relative to the other Portfolios, the Conservative Balanced Portfolio should offer
	investors the potential for a medium to high level of income and a medium to low level of
	capital growth, while exposing them to a medium to low level of principal risk.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None
Annual Account Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)

For the year ended December 31, 2008	Class 1	Class 2
Management Fees⁽¹⁾	0.25%	0.25%
Distribution and/or Service (12b-1) Fees	N/A	0.25
Other Expenses⁽¹⁾	0.02	0.02
Acquired Fund (Underlying Fund) Operating Expenses	0.62	0.62
Total Annual Account Operating Expenses	0.89%	1.14%
⁽¹⁾Management Fees and Other Expenses have been restated to reflect expenses being deducted from current assets.


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:


	Number of years you own your shares
	1	3	5	10
Conservative Balanced Portfolio - Class 1	$ 91	$284	$493	$1,096
Conservative Balanced Portfolio - Class 2	116	362	628	1,386

Portfolio Turnover

Principal Investment Strategies

The Portfolio is one of five Strategic Asset Management (“SAM”) Portfolios: Flexible Income, Conservative Balanced, Balanced, Conservative Growth and Strategic Growth. The SAM Portfolios offer long-term investors different asset allocation strategies having different levels of potential investment risk and reward. The Portfolio is intended to offer the potential for a medium to high level of income and medium to low level of capital growth, with exposure to a medium to low level of principal risk.

The SAM Portfolios operate as funds of funds and invest principally in Institutional Class shares of Principal Funds, Inc., equity funds, fixed-income funds and money market fund (“Underlying Funds”). Each SAM Portfolio typically allocates its assets among Underlying Funds, and within predetermined percentage ranges, as determined by the Sub-Advisor in accordance with its outlook for the economy, the financial markets and the relative market valuations the Underlying Funds.


The Portfolio:
•	invests between 40% and 80% of its net assets in a combination of fixed-income funds and cash equivalents
	and between 20% and 60% of its net assets in equity funds
•	may invest up to 40% of its assets in any single fixed-income fund as well as cash equivalents
•	may invest up to 30% of its assets in any single equity fund

The Portfolio may temporarily exceed these percentage ranges for short periods, and the Sub-Advisor may alter the percentage ranges when it deems appropriate.

Principal Risks

The SAM Portfolios share the same risks but often with different levels of exposure.

The Portfolio has greater exposure than the Balanced, Conservative Growth and Strategic Growth Portfolios to:

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

The Portfolio has less exposure than the Balanced, Conservative Growth and Strategic Growth Portfolios to:

Each of the SAM Portfolios is subject to:

Asset Allocation Risk. A fund's selection and weighting of asset classes and/or underlying funds may cause it to underperform other funds with a similar investment objective.

Performance


The year-to-date return as of March 31, 2009 is -4.32%

Highest return for a quarter during the period of the bar chart above:	Q2 ‘03		8.35
Lowest return for a quarter during the period of the bar chart above:	Q4 ‘08		-10.39

Average Annual Total Returns (%)⁽¹⁾

	Past	Past
For the periods ended December 31, 2008	1 Year	5 Years	Past 10 Years
SAM Conservative Balanced Portfolio - Class 1	-19.21%	1.37%	2.99%
SAM Conservative Balanced Portfolio - Class 2⁽²⁾	-19.41	1.11	2.74
Barclays Capital Aggregate Bond Index (reflects no deduction for fees,
expenses, or taxes)	5.24	4.65	5.63
S&P 500 Index (reflects no deduction for fees, expenses, or taxes)	-37.00	-2.19	-1.38
Capital Benchmark (40/60)	-13.65	2.08	3.09
⁽¹⁾Performance reflects the performance of the predecessor fund. Effective August 1, 2000, the investment objective and policies of the
predecessor fund changed. Accordingly, the performance of the predecessor fund shown above may not reflect what the predecessor fund’s
performance would have been under its current investment objective and policies. The predecessor fund’s performance between 1999 and 2003
benefited from the agreement of Edge and its affiliates to limit the predecessor fund’s expenses.
⁽²⁾Class 1 shares began operations on April 23, 1998 and Class 2 shares began operations on November 6, 2001. The returns for Class 2 shares
for the periods prior to November 6, 2001 are based on the performance of Class 1 shares adjusted to reflect the fees and expenses of
Class 2 shares. The adjustment results in performance for such periods that is no higher than the historical performance of the Class 1 shares.

Performance of a blended index shows how the Account's performance compares to an index with similar investment objectives. Performance of the components of the blended index are also shown. The weightings for Capital Benchmark 40/60 are 40% S&P 500 Index and 60% Barclays Capital Aggregate Bond Index.


Management
Investment Advisor: Principal Management Corporation
Sub-Advisor(s) and Portfolio Manager(s):
Edge Asset Management, Inc.
•	Charlie D. Averill (since 2010), Portfolio Manager
•	Jill R. Cuniff (since 2010), President and Portfolio Manager
•	Todd A. Jablonski (since 2010), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.


STRATEGIC ASSET MANAGEMENT (“SAM”) BALANCED PORTFOLIO

Objective:	The Portfolio seeks to provide as high a level of total return (consisting of reinvested
	income and capital appreciation) as is consistent with reasonable risk. In general, relative
	to the other Portfolios, the Balanced Portfolio should offer investors the potential for a
	medium level of income and a medium level of capital growth, while exposing them to a
	medium level of principal risk.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None
Annual Account Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)

For the year ended December 31, 2008	Class 1	Class 2
Management Fees⁽¹⁾	0.25%	0.25%
Distribution and/or Service (12b-1) Fees	N/A	0.25
Other Expenses⁽¹⁾	0.01	0.01
Acquired Fund (Underlying Fund) Operating Expenses	0.66	0.66
Total Annual Account Operating Expenses	0.92%	1.17%
⁽¹⁾Management Fees and Other Expenses have been restated to reflect expenses being deducted from current assets.


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:


	Number of years you own your shares
	1	3	5	10
Balanced Portfolio - Class 1	$ 94	$293	$509	$1,131
Balanced Portfolio - Class 2	119	372	644	1,420

Portfolio Turnover

Principal Investment Strategies

The Portfolio is one of five Strategic Asset Management (“SAM”) Portfolios: Flexible Income, Conservative Balanced, Balanced, Conservative Growth and Strategic Growth. The SAM Portfolios offer long-term investors different asset allocation strategies having different levels of potential investment risk and reward. The Portfolio is intended to offer the potential for a medium level of income and capital growth, with exposure to a medium level of principal risk.


The Portfolio:
•	invests between 30% and 70% of its net assets in equity funds and between 30% and 70% of its net assets in
	fixed-income funds and cash equivalents
•	may invest up to 30% of its assets in any single equity fund
•	may invest up to 40% of its assets in any single fixed-income fund as well as cash equivalents

The Portfolio may temporarily exceed the applicable percentage ranges for short periods, and the Sub-Advisor may alter the percentage ranges when it deems appropriate

Principal Risks

The SAM Portfolios share the same risks but often with different levels of exposure.

The Portfolio has greater exposure than the Flexible Income and Conservative Balanced Portfolios to:

The Portfolio has less exposure than the Flexible Income and Conservative Balanced Portfolio to:

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Each of the SAM Portfolios is subject to:

Asset Allocation Risk. A fund's selection and weighting of asset classes and/or underlying funds may cause it to underperform other funds with a similar investment objective.

Performance


Highest return for a quarter during the period of the bar chart above:		Q4 ‘99	15.37
Lowest return for a quarter during the period of the bar chart above:		Q4 ‘08	-14.58

Average Annual Total Returns (%)⁽¹⁾

	Past	Past
For the periods ended December 31, 2008	1 Year	5 Years	Past 10 Years
SAM Balanced Portfolio - Class 1	-26.18%	0.70%	4.07%
SAM Balanced Portfolio - Class 2⁽²⁾	-26.42	0.44	3.81
S&P 500 Index (reflects no deduction for fees, expenses, or taxes)	-37.00	-2.19	-1.38
Barclays Capital Aggregate Bond Index (reflects no deduction for fees,
expenses, or taxes)	5.24	4.65	5.63
Capital Benchmark (60/40)	-22.06	0.71	1.69
⁽¹⁾Performance reflects the performance of the predecessor fund.
⁽²⁾Class 1 shares began operations on June 3, 1997 and Class 2 shares began operations on November 6, 2001. The returns for Class 2 shares
for the periods prior to November 6, 2001 are based on the performance of Class 1 shares adjusted to reflect the fees and expenses of
Class 2 shares. The adjustment results in performance for such periods that is no higher than the historical performance of the Class 1 shares.

Performance of a blended index shows how the Account's performance compares to an index with similar investment objectives. Performance of the components of the blended index are also shown. The weightings for Capital Benchmark 40/60 are 40% S&P 500 Index and 60% Barclays Capital Aggregate Bond Index.


Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
Edge Asset Management, Inc.
•	Charlie D. Averill (since 2010), Portfolio Manager
•	Jill R. Cuniff (since 2010), President and Portfolio Manager
•	Todd A. Jablonski (since 2010), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.


STRATEGIC ASSET MANAGEMENT (“SAM”) CONSERVATIVE GROWTH PORTFOLIO

Objective:	The Portfolio seeks to provide long-term capital appreciation. In general, relative to the
	other Portfolios, the Conservative Growth Portfolio should offer investors the potential for
	a low to medium level of income and a medium to high level of capital growth, while
	exposing them to a medium to high level of principal risk.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)

For the year ended December 31, 2008	Class 1	Class 2
Management Fees⁽¹⁾	0.25%	0.25%
Distribution and/or Service (12b-1) Fees	N/A	0.25
Other Expenses⁽¹⁾	0.01	0.01
Acquired Fund (Underlying Fund) Operating Expenses	0.70	0.70
Total Annual Account Operating Expenses	0.96%	1.21%
⁽¹⁾Management Fees and Other Expenses have been restated to reflect expenses being deducted from current assets.

Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:


	Number of years you own your shares
	1	3	5	10
Conservative Growth Portfolio - Class 1	$ 98	$306	$531	$1,178
Conservative Growth Portfolio - Class 2	123	384	665	1,466

Portfolio Turnover

Principal Investment Strategies

The Portfolio is one of five Strategic Asset Management (“SAM”) Portfolios: Flexible Income, Conservative Balanced, Balanced, Conservative Growth and Strategic Growth. The SAM Portfolios offer long-term investors different asset allocation strategies having different levels of potential investment risk and reward. The Portfolio is intended to offer the potential for a low to medium level of income and a medium to high level of capital growth, with exposure to a medium to high level of principal risk.


The Portfolio:
•	generally invests at least 60% of its net assets in equity funds
•	may invest up to 40% of its assets in any single equity fund
•	may invest up to 30% of its assets in any single fixed-income fund as well as cash equivalents

The Portfolio may temporarily exceed the applicable percentage ranges for short periods, and the Sub-Advisor may alter the percentage ranges when it deems appropriate

Principal Risks

The SAM Portfolios share the same risks but often with different levels of exposure.

The Portfolio has greater exposure than the Flexible Income and Conservative Balanced Portfolios to:

The Portfolio has less exposure than the Flexible Income and Conservative Balanced Portfolios to:

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Each of the SAM Portfolios is subject to:

Asset Allocation Risk. A fund's selection and weighting of asset classes and/or underlying funds may cause it to underperform other funds with a similar investment objective.

Performance


Highest return for a quarter during the period of the bar chart above:	Q4 ‘99		21.54
Lowest return for a quarter during the period of the bar chart above:	Q4 ‘08		-19.24

Average Annual Total Returns (%)⁽¹⁾

	Past	Past
For the periods ended December 31, 2008	1 Year	5 Years	Past 10 Years
SAM Conservative Growth Portfolio - Class 1	-33.11%	-0.38%	3.41%
SAM Conservative Growth Portfolio - Class 2⁽²⁾	-33.30	-0.62	3.16
S&P 500 Index (reflects no deduction for fees, expenses, or taxes)	-37.00	-2.19	-1.38
Barclays Capital Aggregate Bond Index (reflects no deduction for fees,
expenses, or taxes)	5.24	4.65	5.63
Capital Benchmark (80/20)	-29.83	-0.71	0.19
⁽¹⁾Performance reflects the performance of the predecessor fund.
⁽²⁾Class 1 shares began operations on June 3, 1997 and Class 2 shares began operations on November 6, 2001. The returns for Class 2 shares
for the periods prior to November 6, 2001 are based on the performance of Class 1 shares adjusted to reflect the fees and expenses of
Class 2 shares. The adjustment results in performance for such periods that is no higher than the historical performance of the Class 1 shares.

Performance of a blended index shows how the Account's performance compares to an index with similar investment objectives. Performance of the components of the blended index are also shown. The weightings for Capital Benchmark 80/20 are 80% S&P 500 Index and 20% Barclays Capital Aggregate Bond Index.


Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
Edge Asset Management, Inc.
•	Charlie D. Averill (since 2010), Portfolio Manager
•	Jill R. Cuniff (since 2010), President and Portfolio Manager
•	Todd A. Jablonski (since 2010), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.


STRATEGIC ASSET MANAGEMENT (“SAM”) STRATEGIC GROWTH PORTFOLIO

Objective:	The Portfolio seeks to provide long-term capital appreciation. In general, relative to the
	other Portfolios, the Strategic Growth Portfolio should offer investors the potential for a
	high level of capital growth, and a corresponding level of principal risk.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)

For the year ended December 31, 2008	Class 1	Class 2
Management Fees⁽¹⁾	0.25%	0.25%
Distribution and/or Service (12b-1) Fees	N/A	0.25
Other Expenses⁽¹⁾	0.02	0.02
Acquired Fund (Underlying Fund) Operating Expenses	0.73	0.73
Total Annual Account Operating Expenses	1.00%	1.25%
⁽¹⁾Management Fees and Other Expenses have been restated to reflect expenses being deducted from current assets.


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:


	Number of years you own your shares
	1	3	5	10
Strategic Growth Portfolio - Class 1	$102	$318	$552	$1,225
Strategic Growth Portfolio - Class 2	127	397	686	1,511

Portfolio Turnover

Principal Investment Strategies

The Portfolio is one of five Strategic Asset Management (“SAM”) Portfolios: Flexible Income, Conservative Balanced, Balanced, Conservative Growth and Strategic Growth. The SAM Portfolios offer long-term investors different asset allocation strategies having different levels of potential investment risk and reward. The Portfolio is intended to offer the potential for a high level of capital growth, with a corresponding level of principal risk.


The Portfolio:
•	generally invests at least 75% of its net assets in equity funds
•	may invest up to 50% of its assets in any single equity fund
•	may invest up to 25% of its assets in any single fixed-income fund as well as cash equivalents

The Portfolio may temporarily exceed the applicable percentage ranges for short periods, and the Sub-Advisor may alter the percentage ranges when it deems appropriate

Principal Risks

The SAM Portfolios share the same risks but often with different levels of exposure.

The Portfolio has greater exposure than the Flexible Income and Conservative Balanced Portfolios to:

The Portfolio has less exposure than the Flexible Income and Conservative Balanced Portfolios to:

U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.

Each of the SAM Portfolios is subject to:

Asset Allocation Risk. A fund's selection and weighting of asset classes and/or underlying funds may cause it to underperform other funds with a similar investment objective.

Performance


Highest return for a quarter during the period of the bar chart above:	Q4 ‘99	25.82
Lowest return for a quarter during the period of the bar chart above:	Q4 ‘08	-22.38

Average Annual Total Returns (%)⁽¹⁾

	Past	Past
For the periods ended December 31, 2008	1 Year	5 Years	Past 10 Years
SAM Strategic Growth Portfolio - Class 1	-37.42%	-1.18%	2.90%
SAM Strategic Growth Portfolio - Class 2⁽²⁾	-37.56	-1.42	2.67
S&P 500 Index (reflects no deduction for fees, expenses, or taxes)	-37.00	-2.19	-1.38
Barclays Capital Aggregate Bond Index (reflects no deduction for fees,
expenses, or taxes)	5.24	4.65	5.63
Russell 3000 Index (reflects no deduction for fees, expenses, or taxes)	-37.31	-1.95	-0.80
⁽¹⁾Performance reflects the performance of the predecessor fund. The predecessor fund’s performance in 1999 benefited from the agreement of
Edge and its affiliates to limit the predecessor fund’s expenses.
⁽²⁾Class 1 shares began operations on June 3, 1997 and Class 2 shares began operations on November 6, 2001. The returns for Class 2 shares
for the periods prior to November 6, 2001 are based on the performance of Class 1 shares adjusted to reflect the fees and expenses of
Class 2 shares. The adjustment results in performance for such periods that is no higher than the historical performance of the Class 1 shares.

The additional indices are used to display the performance of the various asset classes used by the Account.

The Investment Advisor and Sub-Advisor believe the S&P 500 Index is a better representation of the investment universe for this Account's investment philosophy than the Barclays Capital Aggregate Bond Index or the Russell 3000 Index.


Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):
Edge Asset Management, Inc.
•	Charlie D. Averill (since 2010), Portfolio Manager
•	Jill R. Cuniff (since 2010), President and Portfolio Manager
•	Todd A. Jablonski (since 2010), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.

PRINCIPAL CAPITAL APPRECIATION ACCOUNT (F/K/A WEST COAST EQUITY ACCOUNT)

Objective: The Account seeks to provide long-term growth of capital.

Fees and Expenses of the Account


Shareholder Fees (fees paid directly from your investment): None

Annual Account Operating Expenses
(expenses that are deducted from Account assets) as a Percentage of Average Daily Net Assets

For the year ended December 31, 2008	Class 1	Class 2
Management Fees	0.63%	0.63%
Distribution and/or Service (12b-1) Fees	N/A	0.25
Other Expenses⁽¹⁾	0.04	0.04
Total Annual Account Operating Expenses	0.67%	0.92%
⁽¹⁾Other Expenses have been restated to reflect expenses being deducted from current assets.


Example
This Example is intended to help you compare the cost of investing in the Account with the cost of investing in other
mutual funds.

The Example assumes 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 Example also assumes that your investment has a 5% return each
year and that the Account’s operating expenses remain the same. If separate account expenses and contract level
expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

	Number of years you own your shares
	1	3	5	10
Principal Capital Appreciation Account - Class 1	$68	$214	$373	$ 835
Principal Capital Appreciation Account - Class 2	94	293	509	1,131

Portfolio Turnover

Investor Profile:	The Account may be an appropriate investment for investors seeking long-term growth of
	capital and willing to accept the risks of investing in common stocks that may have greater
	risks than stocks of companies with lower potential for earnings growth, as well as the risks
	of investing in below investment grade bonds and REIT securities.

Principal Investment Strategies

Under normal circumstances, the Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of small, medium, and large capitalization companies.

The Fund may invest up to 20% of its assets in both real estate investment trust ("REIT") securities and below investment-grade fixed-income securities (sometimes called "junk bonds") (rated at the time of purchase BB+ or lower by S&P or Ba1 or lower by Moody’s). The Fund may invest in securities of foreign issuers. This Fund may be used as part of a fund of funds strategy.

In selecting investments for the Fund, Edge Asset Management, Inc. (“Edge”) selects equity securities based upon rigorous fundamental analysis that assesses the quality of each company's business, earnings growth potential, and stock valuation. Edge seeks to invest in good businesses that are well-managed, hold competitive advantages and generate high returns on invested capital. Also taken into consideration is the industry in which a company operates, its position in the marketplace and the barriers to entry to prevent further competition. Edge seeks to buy companies at attractive prices compared to their business value.

Principal Risks

Growth Stock Risk. Market prices of growth stocks are often more sensitive than other securities to earnings expectations.

Value Stock Risk. The market may not recognize the intrinsic value of value stocks for a long time, or they may be appropriately priced at the time of purchase.

Performance


The year-to-date return as of March 31, 2009 is -9.37%

Highest return for a quarter during the period of the bar chart above:		Q2 ‘01	30.34
Lowest return for a quarter during the period of the bar chart above:		Q3 ‘01	-25.94

Average Annual Total Returns (%)⁽¹⁾

		Past	Past	Past
	For the periods ended December 31, 2008	1 Year	5 Years	10 Years
	Principal Capital Appreciation Account - Class 1	-33.37%	-0.08%	5.84%
	Principal Capital Appreciation Account - Class 2⁽²⁾	-33.56	-0.34	5.58
	Russell 3000 Index (reflects no deduction for fees, expenses, or taxes)	-37.31	-1.95	-0.80
⁽¹⁾	Performance reflects the performance of the predecessor fund.
⁽²⁾	Class 1 shares began operations on April 28, 1998 and Class 2 shares began operations on November 6, 2001. The returns for
	Class 2 shares for the periods prior to November 6, 2001 are based on the performance of Class 1 shares adjusted to reflect the fees and
	expenses of Class 2 shares. The adjustment results in performance for such periods that is no higher than the historical performance of the
	Class 1 shares.

Management

Investment Advisor: Principal Management Corporation

Sub-Advisor(s) and Portfolio Manager(s):

Edge Asset Management, Inc.

• Philip M. Foreman (since 2002), Portfolio Manager

Purchase and Redemption of Account Shares

Tax Information

The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract.

Payments to Broker-Dealers and Other Financial Intermediaries.

CERTAIN INVESTMENT STRATEGIES AND RELATED RISKS

Each Account's investment objective is described in the summary description of each Account. The Board of Directors may change an Account's objective or the investment strategies without a shareholder vote if it determines such a change is in the best interests of the Account. If there is a material change to the Account’s investment objective or investment strategies, you should consider whether the Account remains an appropriate investment for you. There is no guarantee that an Account will meet its objective.

Each Account is designed to be a portion of an investor's portfolio. None of the Accounts is intended to be a complete investment program. Investors should consider the risks of each Account before making an investment and be prepared to maintain the investment during periods of adverse market conditions. It is possible to lose money by investing in the Accounts.

Each Account is subject to risk of being an underlying fund to the extent that a fund of fund invests in the Account.

The information in this section does not apply directly to the Principal LifeTime Accounts, the Strategic Asset Management (“SAM”) Portfolios, the Diversified Balanced Account, or the Diversified Growth Account, except to the extent the Principal LifeTime Accounts, SAM Portfolios, the Diversified Balanced Account, or the Diversified Growth Account invest in securities other than shares of the Underlying Funds. The Statement of Additional Information (“SAI”) contains additional information about investment strategies and their related risks. The term “Account,” as used in this section, includes any of the investment portfolios of Principal Funds, Inc. in which the SAM Portfolios may invest from time to time at the discretion of Edge, the Sub-Advisor for the SAM Portfolios, the underlying funds of the Principal LifeTime Accounts, or the underlying funds of the Diversified Balanced Account or the Diversified Growth Account.

Securities and Investment Practices

Market Volatility. The value of a fund’s portfolio securities may go down in response to overall stock or bond market movements. Markets tend to move in cycles, with periods of rising prices and periods of falling prices. Stocks tend to go up and down in value more than bonds. If the fund’s investments are concentrated in certain sectors, its performance could be worse than the overall market. The value of an individual security or particular type of security can be more volatile than the market as a whole and can perform differently from the value of the market as a whole. It is possible to lose money when investing in the fund.

Equity Securities. Equity securities include common stocks, preferred stocks, convertible securities, depositary receipts, rights (a right is an offering of common stock to investors who currently own shares which entitle them to buy subsequent issues at a discount from the offering price), and 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). Common stocks, the most familiar type, represent an equity (ownership) interest in a corporation. The value of a company’s stock may fall as a result of factors directly relating to that company, such as decisions made by its management or lower demand for the company’s products or services. A stock’s value may also fall because of factors affecting not just the company, but also companies in the same industry or in a number of different industries, such as increases in production costs. The value of a company’s stock may also be affected by changes in financial markets that are relatively unrelated to the company or its industry, such as changes in interest rates or currency exchange rates. In addition, a company’s stock generally pays dividends only after the company invests in its own business and makes required payments to holders of its bonds and other debt. For this reason, the value of a company’s stock will usually react more strongly than its bonds and other debt to actual or perceived changes in the company’s financial condition or prospects. Stocks of smaller companies may be more vulnerable to adverse developments than those of larger companies.

Fixed-Income Securities. Fixed-income securities include bonds and other debt instruments that are used by issuers to borrow money from investors (some examples include investment grade corporate bonds, mortgage-backed securities, U.S. government securities and asset-backed securities). 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.

Interest Rate Changes. Fixed-income securities are sensitive to changes in interest rates. In general, fixed-income security 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. If interest rates fall, issuers of callable bonds may call (repay) securities with high interest rates before their maturity dates; this is known as call risk. In this case, a fund would likely reinvest the proceeds from these securities at lower interest rates, resulting in a decline in the fund's income.

Credit Risk. Fixed-income security 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.

Counterparty Risk. Each of the Funds is subject to the risk that the issuer or guarantor of a fixed-income security or other obligation, the counterparty to a derivatives contract or repurchase agreement, or the borrower of a portfolio’s securities will be unable or unwilling to make timely principal, interest, or settlement payments, or otherwise to honor its obligations.

Management Risk

The Funds (except the Funds with "Index" in the name) are actively managed and prepared to invest in securities, sectors, or industries differently from the benchmark. For all Funds, if a sub-advisor's investment strategies do not perform as expected, the Fund could underperform other funds with similar investment objectives or lose money.

Liquidity Risk

A fund is exposed to liquidity risk when trading volume, lack of a market maker, or legal restrictions impair the fund’s ability to sell particular securities or close derivative positions at an advantageous price. Funds with principal investment strategies that involve securities of companies with smaller market capitalizations, foreign securities, derivatives, or securities with substantial market and/or credit risk tend to have the greatest exposure to liquidity risk.

Repurchase Agreements

Although not a principal investment strategy, some Funds 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 Fund 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 a Fund collateralized by the underlying securities. This arrangement results in a fixed rate of return that is not subject to market fluctuation while the Fund holds the security. In the event of a default or bankruptcy by a selling financial institution, the affected Fund bears a risk of loss. To minimize such risks, the Fund enters into repurchase agreements only with parties a Sub-Advisor deems creditworthy (those that are large, well-capitalized and well-established financial institutions). In addition, the value of the securities collateralizing the repurchase agreement is, and during the entire term of the repurchase agreement remains, at least equal to the repurchase price, including accrued interest.

Bank Loans (also known as Senior Floating Rate Interests)

Some of the funds invest in bank loans. Bank loans hold the most senior position in the capital structure of a business entity (the “Borrower”), are typically secured by specific collateral, and have a claim on the assets and/or stock of the Borrower that is senior to that held by subordinated debtholders and stockholders of the Borrower. Bank loans are typically structured and administered by a financial institution that acts as the agent of the lenders participating in the bank loan. Bank loans are rated below-investment-grade, which means they are more likely to default than investment-grade loans. A default could lead to non-payment of income which would result in a reduction of income to the fund and there can be no assurance that the liquidation of any collateral would satisfy the Borrower’s obligation in the event of non-payment of scheduled interest or principal payments, or that such collateral could be readily liquidated.

Bank loans pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate (LIBOR) or the prime rate offered by one or more major United States banks.

Bank loans generally are subject to mandatory and/or optional prepayment. Because of these mandatory prepayment conditions and because there may be significant economic incentives for the borrower to repay, prepayments of senior floating rate interests may occur.

High Yield Securities

The Asset Allocation, Balanced, Bond & Mortgage Securities, Equity Income, Income, Principal Capital Appreciation Account, and Short-Term Bond Accounts may invest in debt securities rated BB or lower by Standard & Poor’s Ratings Services or Ba or lower by Moody’s or, if not rated, determined to be of equivalent quality by the Manager or the Sub-Advisor. Such securities are sometimes referred to as high yield or “junk bonds” and are considered speculative. The Principal Funds, Inc. High Yield Fund may invest all of its assets in these securities and will generally invest at least 80% of its assets (plus any borrowings for investment purposes) in such securities.

Investment in high yield bonds involves special risks in addition to the risks associated with investment in highly 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 credit 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 credit 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 or Sub-Advisor thinks it is in the best interest of shareholders.

Real Estate Investment Trusts

The Accounts, except the Money Market Account, may invest in real estate investment trust securities, herein referred to as “REITs.” REITs involve certain unique risks in addition to those risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack of availability of mortgage funds, or extended vacancies of property). Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, risks of default by borrowers, and self-liquidation. As an investor in a REIT, the Account will be subject to the REIT’s expenses, including management fees, and will remain subject to the Account’s advisory fees with respect to the assets so invested. REITs are also subject to the possibilities of failing to qualify for the special tax treatment accorded REITs under the Internal Revenue Code, and failing to maintain their exemptions from registration under the 1940 Act.

Investment in REITs involves risks similar to those associated with investing in small capitalization companies. REITs may have limited financial resources, may trade less frequently and in a limited volume, and may be subject to more abrupt or erratic price movements than larger company securities.

Initial Public Offerings (“IPOs”)

Certain of the Accounts may invest in IPOs. An IPO is a company’s first offering of stock to the public. IPO risk is that the market value of IPO shares will fluctuate considerably due to factors such as the absence of a prior public market, unseasoned trading, the small number of shares available for trading and limited information about the issuer. The purchase of IPO shares may involve high transaction costs. IPO shares are subject to market risk and liquidity risk. In addition, the market for IPO shares can be speculative and/or inactive for extended periods of time. The limited number of shares available for trading in some IPOs may make it more difficult for an Account to buy or sell significant amounts of shares without an unfavorable impact on prevailing prices. Investors in IPO shares can be affected by substantial dilution in the value of their shares by sales of additional shares and by concentration of control in existing management and principal shareholders.

When the Account’s asset base is small, a significant portion of the Account’s performance could be attributable to investments in IPOs because such investments would have a magnified impact on the Account. As the Account’s assets grow, the effect of the Account’s investments in IPOs on the Account’s performance probably will decline, which could reduce the Account’s performance. Because of the price volatility of IPO shares, an Account may choose to hold IPO shares for a very short period of time. This may increase the turnover of the Account’s portfolio and lead to increased expenses to the Account, such as commissions and transaction costs. By selling IPO shares, the Account may realize taxable gains it will subsequently distribute to shareholders.

Municipal Obligations and AMT-Subject Bonds

The two principal classifications of municipal bonds are “general obligation” and “revenue” bonds. General obligation bonds are secured by the issuer’s pledge of its full faith and credit, with either limited or unlimited taxing power for the payment of principal and interest. Revenue bonds are not supported by the issuer’s full taxing authority. Generally, they are payable only from the revenues of a particular facility, a class of facilities, or the proceeds of another specific revenue source.

“AMT-subject bonds” are municipal obligations issued to finance certain “private activities,” such as bonds used to finance airports, housing projects, student loan programs, and water and sewer projects. Interest on AMT-subject bonds is an item of tax preference for purposes of the federal individual alternative minimum tax (“AMT”) and will also give rise to corporate alternative minimum taxes. See “Tax Considerations” for a discussion of the tax consequences of investing in the Funds.

Current federal income tax laws limit the types and volume of bonds qualifying for the federal income tax exemption of interest, which may have an effect upon the ability of the Fund to purchase sufficient amounts of tax-exempt securities.

Derivatives

To the extent permitted by its investment objectives and policies, each of the Accounts (except Money Market) may invest in securities that are commonly referred to as derivative securities. Generally, a derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. Certain derivative securities are described more accurately as index/structured securities. Index/structured securities are derivative securities whose value or performance is linked to other equity securities (such as depositary receipts), currencies, interest rates, indices, or other financial indicators (reference indices).

Some derivatives, such as mortgage-related and other asset-backed securities, are in many respects like any other investment, although they may be more volatile or less liquid than more traditional debt securities.

There are many different types of derivatives and many different ways to use them. Futures, forward contracts, and options are commonly used for traditional hedging purposes to attempt to protect a Fund from exposure to changing interest rates, securities prices, or currency exchange rates and for cash management purposes as a low-cost method of gaining exposure to a particular securities market without investing directly in those securities. The Funds may enter into put or call options, futures contracts, options on futures contracts, over-the-counter swap contracts (e.g., interest rate swaps, total return swaps and credit default swaps), currency futures contracts and options, options on currencies, and forward currency contracts for both hedging and non-hedging 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. A Fund will not hedge currency exposure to an extent greater than the approximate aggregate market value of the securities held or to be purchased by the Fund (denominated or generally quoted or currently convertible into the currency). The Funds may enter into forward commitment agreements (not as a principal investment strategy), which call for the Fund to purchase or sell a security on a future date at a fixed price. Each of the Funds may also enter into contracts to sell its investments either on demand or at a specific interval.

Generally, no Account may invest in a derivative security unless the reference index or the instrument to which it relates is an eligible investment for the Account or the reference currency relates to an eligible investment for the Account.

The return on a derivative security may increase or decrease, depending upon changes in the reference index or

instrument to which it relates. If an Account’s 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. 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. The risks associated with derivative investments include:

• the risk that the underlying security, interest rate, market index, or other financial asset will not move in the

direction the Manager or Sub-Advisor anticipated;

• the possibility that there may be no liquid secondary market which may make it difficult or impossible to close out a

position when desired;

• the risk that adverse price movements in an instrument can result in a loss substantially greater than an Account’s

initial investment; and

• the possibility that the counterparty may fail to perform its obligations.

For currency contracts, there is also a risk of government action through exchange controls that would restrict the ability of the Fund to deliver or receive currency.

Exchange Traded Funds (ETFs)

These are a type of index or actively managed fund bought and sold on a securities exchange. An ETF trades like common stock. Shares in an index ETF represent an interest in a fixed portfolio of securities designed to track a particular market index. An Account could purchase shares issued by an ETF to temporarily gain exposure to a portion of the U.S. or a foreign market while awaiting purchase of underlying securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities they are designed to track, although ETFs have management fees that increase their costs. Account shareholders indirectly bear their proportionate share of the expenses of the ETFs in which the fund invests.

Convertible Securities

Convertible securities are fixed-income securities that an Account has the right to exchange for equity securities at a specified conversion price. The option allows the Account to realize additional returns if the market price of the equity securities exceeds the conversion price. For example, the Account may hold fixed-income securities that are convertible into shares of common stock at a conversion price of $10 per share. If the market value of the shares of common stock reached $12, the Account could realize an additional $2 per share by converting its fixed-income securities.

Convertible securities have lower yields than comparable fixed-income securities. In addition, at the time a convertible security is issued, the conversion price exceeds the market value of the underlying equity securities. Thus, convertible securities may provide lower returns than non-convertible fixed-income securities or equity securities depending upon changes in the price of the underlying equity securities. However, convertible securities permit the Account to realize some of the potential appreciation of the underlying equity securities with less risk of losing its initial investment.

An Account treats convertible securities as both fixed-income and equity securities for purposes of investment policies and limitations because of their unique characteristics. An Account may invest in convertible securities without regard to their ratings.


Foreign Investing
As a principal investment strategy, the Diversified International, International Emerging Markets, and International
SmallCap Accounts may invest in securities of foreign companies. The other Accounts (except the Government &
High Quality Bond and Mortgage Securities Accounts) may invest in securities of foreign companies but not as a
principal investment strategy. For the purpose of this restriction, foreign companies are:
•	companies with their principal place of business or principal office outside the U.S. or
•	companies for which the principal securities trading market is outside the U.S.

Foreign companies may not be subject to the same uniform accounting, auditing, and financial reporting practices as are required of U.S. companies. In addition, there may be less publicly available information about a foreign company than about a U.S. company. Securities of many foreign companies are less liquid and more volatile than securities of comparable U.S. companies. Commissions on foreign securities exchanges may be generally higher than those on U.S. exchanges.

Foreign markets also have different clearance and settlement procedures than those in U.S. markets. In certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct these transactions. Delays in settlement could result in temporary periods when a portion of Account assets is not invested and earning no return. If an Account is unable to make intended security purchases due to settlement problems, the Account may miss attractive investment opportunities. In addition, an Account may incur a loss as a result of a decline in the value of its portfolio if it is unable to sell a security.

With respect to certain foreign countries, there is the possibility of expropriation or confiscatory taxation, political or social instability, or diplomatic developments that could affect an Account’s investments in those countries. In addition, an Account may also suffer losses due to nationalization, expropriation or differing accounting practices and treatments. Investments in foreign securities are subject to laws of the foreign country that may limit the amount and types of foreign investments. Changes of governments or of economic or monetary policies, in the U.S. or abroad, changes in dealings between nations, currency convertibility or exchange rates could result in investment losses for an Account. Finally, even though certain currencies may be convertible into U.S. dollars, the conversion rates may be artificial relative to the actual market values and may be unfavorable to Account investors. To protect against future uncertainties in foreign currency exchange rates, the Accounts are authorized to enter into certain foreign currency exchange transactions.

Foreign securities are often traded with less frequency and volume, and therefore may have greater price volatility, than is the case with many U.S. securities. Brokerage commissions, custodial services, and other costs relating to investment in foreign countries are generally more expensive than in the U.S. Though the Accounts intend to acquire the securities of foreign issuers where there are public trading markets, economic or political turmoil in a country in which an Account has a significant portion of its assets or deterioration of the relationship between the U.S. and a foreign country may negatively impact the liquidity of an Account’s portfolio. An Account may have difficulty meeting a large number of redemption requests. Furthermore, there may be difficulties in obtaining or enforcing judgments against foreign issuers.

An Account may choose to invest in a foreign company by purchasing depositary receipts. Depositary receipts are certificates of ownership of shares in a foreign-based issuer held by a bank or other financial institution. They are alternatives to purchasing the underlying security but are subject to the foreign securities to which they relate.

Investments in companies of developing (also called “emerging”) countries are subject to higher risks than

investments in companies in more developed countries. These risks include:

• increased social, political, and economic instability;

• a smaller market for these securities and low or nonexistent volume of trading that results in a lack of liquidity and

in greater price volatility;

• lack of publicly available information, including reports of payments of dividends or interest on outstanding

securities;

• foreign government policies that may restrict opportunities, including restrictions on investment in issuers or

industries deemed sensitive to national interests;

• relatively new capital market structure or market-oriented economy;

• the possibility that recent favorable economic developments may be slowed or reversed by unanticipated political

or social events in these countries;

• restrictions that may make it difficult or impossible for the Account to vote proxies, exercise shareholder rights,

pursue legal remedies, and obtain judgments in foreign courts; and

• possible losses through the holding of securities in domestic and foreign custodial banks and depositories.

In addition, many developing countries have experienced substantial and, in some periods extremely high, rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may continue to have negative effects on the economies and securities markets of those countries.

Repatriation of investment income, capital and proceeds of sales by foreign investors may require governmental registration and/or approval in some developing countries. An Account could be adversely affected by delays in or a refusal to grant any required governmental registration or approval for repatriation.

Further, the economies of developing countries generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade.

Small and Medium Capitalization Companies

The Accounts (except Bond & Mortgage Securities, Government & High Quality Bond, Money Market, and Short-Term Bond) may invest in securities of companies with small- or mid-sized market capitalizations. The LargeCap Blend II, LargeCap S&P 500 Index, LargeCap Value, and LargeCap Value III Accounts may hold securities of small and medium capitalization companies but not as a principal investment strategy. 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. Small companies 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.

Smaller companies may be less mature than larger 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. Unseasoned issuers are companies with a record of less than three years of 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, 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.

Master Limited Partnerships

Certain Funds invest in master limited partnerships (“MLPs”). MLPs tend to pay relatively higher distributions than other types of companies. The amount of cash that each individual MLP can distribute to its partners will depend on the amount of cash it generates from operations, which will vary from quarter to quarter depending on factors affecting the market generally and on factors affecting the particular business lines of the MLP. Available cash will also depend on the MLPs' level of operating costs (including incentive distributions to the general partner), level of capital expenditures, debt service requirements, acquisition costs (if any), fluctuations in working capital needs and other factors. The benefit derived from investment in MLPs depends largely on the MLPs being treated as partnerships for federal income tax purposes. As a partnership, an MLP has no federal income tax liability at the entity level. If, as a result of a change in current law or a change in an MLP's business, an MLP were treated as a corporation for federal income tax purposes, the MLP would be obligated to pay federal income tax on its income at the corporate tax rate. If an MLP were classified as a corporation for federal income tax purposes, the amount of cash available for distribution would be reduced and the distributions received might be taxed entirely as dividend income.

Temporary Defensive Measures

From time to time, as part of its investment strategy, each Account (other than the Money Market Account which may invest in high quality money market securities at any time) may invest without limit in cash and cash equivalents for temporary defensive purposes in response to adverse market, economic, or political conditions. To the extent that the Account is in a defensive position, it may lose the benefit of upswings and limit its ability to meet its investment objective. For this purpose, cash equivalents include: bank notes, 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.

Fund of Funds and Underlying Funds

The performance and risks of the Diversified Balanced Account, Diversified Growth Account and each Principal LifeTime Account and Strategic Asset Management (“SAM”) Portfolio directly correspond to the performance and risks of the underlying funds in which the Account or Portfolio invests. By investing in many underlying funds, the Diversified Balanced Account, Diversified Growth Account, Principal LifeTime Accounts and SAM Portfolios have partial exposure to the risks of many different areas of the market. The more the Diversified Balanced Account, Diversified Growth Account, a Principal LifeTime Account or SAM Portfolio allocates to stock funds, the greater the expected risk.


As of December 31, 2008, the Principal LifeTime Accounts’ and SAM Portfolios’ assets were allocated among the
underlying funds as identified in the tables below:

						Principal
	Principal	Principal	Principal	Principal	Principal	Income
	Lifetime	Lifetime	Lifetime	Lifetime	Lifetime	Strategic
	2010	2020	2030	2040	2050	Income
Underlying Fund	Account	Account	Account	Account	Account	Account
Bond & Mortgage Securities Account	30.97%	25.05%	12.91%	6.95%	2.82%	42.95%
Core Plus Bond Fund I	0.72	0.62	2.38	0.54	0.38	0.60
Disciplined LargeCap Blend Fund	8.35	10.57	12.42	12.97	13.06	2.93
High Yield Fund I	3.33	4.71	5.38	5.83	6.27	1.15
Inflation Protection Fund	4.34	—	—	—	—	13.60
International Emerging Markets Fund	1.66	2.35	3.02	3.31	3.49	0.59
International Fund I	1.33	2.21	3.65	3.49	3.94	0.88
International Growth Fund	6.36	8.23	8.13	10.21	10.46	2.39
International Value Fund I	2.59	3.46	4.99	4.99	5.37	0.93
LargeCap Blend Fund I	4.47	5.45	6.16	6.72	6.77	1.66
LargeCap Growth Account	3.43	4.38	5.71	6.32	7.01	1.40
LargeCap Growth Account I	3.59	4.92	5.98	7.25	7.70	1.25
LargeCap Value Account	2.35	3.01	3.97	4.56	4.99	1.28
LargeCap Value Account III	2.04	2.82	3.58	4.19	4.58	1.20
LargeCap Value Fund I	2.17	2.91	3.62	4.20	4.63	0.80
MidCap Growth Fund III	1.18	1.37	1.78	2.00	2.17	0.69
MidCap Value Fund I	1.05	1.39	1.86	2.13	2.28	0.82
Money Market Account	0.19	—	—	—	—	0.73
Preferred Securities Fund	6.69	6.09	4.52	4.11	3.28	6.19
Real Estate Securities Account	5.70	5.01	4.44	3.83	4.06	3.98
SmallCap Growth Fund I	0.21	0.23	0.93	1.22	1.36	—
SmallCap Growth Fund III	0.76	1.43	1.15	1.28	1.36	—
SmallCap S&P 600 Index Fund	1.42	1.98	1.28	1.17	1.09	1.41
SmallCap Value Account I	0.24	0.26	1.01	1.34	1.41	—
SmallCap Value Fund	0.92	1.55	1.13	1.39	1.52	—
Ultra Short Bond Fund	3.94	—	—	—	—	12.57
TOTAL	100.00%	100.00%	100.00%	100.00%	100.00%	100.00%


		SAM	SAM	SAM	SAM
	SAM	Conservative	Conservative	Flexible	Strategic
	Balanced	Balanced	Growth	Income	Growth
Underlying Fund	Portfolio	Portfolio	Portfolio	Portfolio	Portfolio
Disciplined LargeCap Blend Fund	5.97%	3.87%	7.43%	2.53%	9.11%
Diversified International Account	6.37	4.40	8.80	2.94	10.18
Equity Income Account	12.32	7.88	16.67	4.67	17.90
High Yield Fund	4.19	6.56	2.95	7.22	4.24


			SAM	SAM	SAM	SAM
		SAM	Conservative	Conservative	Flexible	Strategic
		Balanced	Balanced	Growth	Income	Growth
Underlying Fund		Portfolio	Portfolio	Portfolio	Portfolio	Portfolio
Income Account		10.42	16.75	4.02	20.84	—
International Emerging Markets Account		1.99	1.49	2.38	0.78	3.03
LargeCap Growth Account		8.74	5.88	11.20	3.90	11.85
LargeCap Growth Fund II		8.78	5.95	10.68	3.99	12.14
LargeCap Value Account III		5.48	3.44	6.52	4.20	8.49
Money Market Account		0.59	0.73	0.70	0.25	0.42
Mortgage Securities Account		14.83	22.22	6.75	26.25	—
Preferred Securities Fund		3.73	4.68	1.99	6.30	—
Principal Capital Appreciation Account		4.16	2.91	6.08	1.01	6.99
Real Estate Securities Account		2.77	1.81	3.33	1.48	3.54
Short-Term Income Account		2.58	6.21	0.65	9.56	0.46
SmallCap Growth Account II		1.81	1.41	2.22	0.82	2.70
SmallCap Value Account I		1.87	1.26	2.23	0.86	2.74
	TOTAL	100.00%	100.00%	100.00%	100.00%	100.00%

The Diversified Balanced Account, Diversified Growth Account and each Principal LifeTime Account and SAM Portfolio indirectly bear its pro-rata share of the expenses of the Underlying Funds in which they invest, as well as directly incurring expenses. Therefore, investment in the Diversified Balanced Account, Diversified Growth Account, a Principal LifeTime Account or SAM Portfolio is more costly than investing directly in shares of the Underlying Funds. If you are considering investing in a Principal LifeTime Account, you should take into account your estimated retirement date and risk tolerance. In general, each Principal LifeTime Account is managed with the assumption that the investor will invest in a Principal LifeTime Account whose stated date is closest to the date the shareholder retires. Choosing an Account targeting an earlier date represents a more conservative choice; targeting an Account with a later date represents a more aggressive choice. It is important to note that the retirement year of the Account you select should not necessarily represent the specific year you intend to start drawing retirement assets. It should be a guide only. Generally, the potential for higher returns over time is accompanied by the higher risk of a decline in the value of your principal. Investors should realize that the Principal LifeTime Accounts are not a complete solution to their retirement needs. Investors must weigh many factors when considering when to retire, what their retirement needs will be, and what sources of income they may have.

Funds of funds can be subject to payment in kind liquidity risk: If an underlying fund pays a redemption request by the Fund wholly or partly by a distribution-in-kind of portfolio securities rather than in cash, the Fund may hold such portfolio securities until its subadvisor determines that it is appropriate to dispose of them.

An underlying fund to a fund of funds may experience relatively large redemptions or investments as the fund of funds periodically reallocates or rebalances its assets. These transactions may accelerate the realization of taxable income if sales of portfolio securities result in gains, and could increase transaction costs. In addition, when a fund of funds reallocates or redeems significant assets away from an underlying fund, the loss of assets to the underlying fund could result in increased expense ratios for that fund. Principal and the Sub-Advisors for the funds of funds are committed to minimizing the potential impact of underlying fund risk on underlying funds to the extent consistent with pursuing the investment objectives of the fund of funds which it manages.


The following tables show the percentage of the outstanding shares of underlying funds owned by the Principal
LifeTime Funds and SAM Portfolios as of December 31, 2008.

PRINCIPAL LIFETIME ACCOUNTS

						Principal
	Principal	Principal	Principal	Principal	Principal	LifeTime
	LifeTime	LifeTime	LifeTime	LifeTime	LifeTime	Strategic
	2010	2020	2030	2040	2050	Income
Underlying Fund	Account	Account	Account	Account	Account	Account	Total
Bond & Mortgage Securities Account	2.97%	9.45%	0.98%	0.24%	0.06%	2.19%	15.89%
Core Plus Bond Fund I	0.08	0.26	0.20	0.02	—	0.03	0.59
Disciplined LargeCap Blend Fund	0.14	0.69	0.16	0.08	0.05	0.03	1.15
High Yield Fund I	0.16	0.92	0.21	0.10	0.07	0.03	1.49
Inflation Protection Fund	0.36	—	—	—	—	0.60	0.96
International Emerging Markets Fund	0.07	0.42	0.11	0.05	0.04	0.01	0.70
International Fund I	0.04	0.27	0.09	0.04	0.03	0.01	0.48
International Growth Fund	0.15	0.79	0.16	0.09	0.06	0.03	1.28
International Value Fund I	0.20	1.07	0.31	0.14	0.09	0.04	1.85
LargeCap Blend Fund I	0.21	1.01	0.23	0.11	0.07	0.04	1.67
LargeCap Growth Account	0.63	3.18	0.83	0.41	0.29	0.14	5.48
LargeCap Growth Account I	0.73	3.95	0.96	0.52	0.35	0.14	6.65
LargeCap Value Account	0.52	2.61	0.69	0.36	0.25	0.15	4.58
LargeCap Value Account III	0.36	1.94	0.50	0.26	0.18	0.11	3.35
LargeCap Value Fund I	0.08	0.41	0.10	0.05	0.04	0.02	0.70
MidCap Growth Fund III	0.05	0.25	0.07	0.03	0.02	0.02	0.44
MidCap Value Fund I	0.05	0.26	0.07	0.04	0.02	0.02	0.46
Money Market Account	0.01	—	—	—	—	0.03	0.04
Preferred Securities Fund	0.16	0.58	0.09	0.03	0.02	0.08	0.96
Real Estate Securities Account	1.43	4.93	0.88	0.34	0.23	0.53	8.34
SmallCap Growth Fund I	0.06	0.25	0.21	0.12	0.09	—	0.73
SmallCap Growth Fund III	0.13	0.99	0.16	0.08	0.05	—	1.41
SmallCap S&P 600 Index Fund	0.13	0.73	0.09	0.04	0.02	0.07	1.08
SmallCap Value Account I	0.07	0.28	0.22	0.13	0.09	—	0.79
SmallCap Value Fund	0.07	0.49	0.07	0.04	0.03	—	0.70
Ultra Short Bond Fund	0.83	—	—	—	—	1.41	2.24


	SAM PORTFOLIOS

		SAM	SAM	Flexible	SAM
	SAM	Conservative	Conservative	Income	Strategic
	Balanced	Balanced	Growth	Portfolio	Growth
Underlying Fund	Portfolio	Portfolio	Portfolio	o	Portfolio	Total
Disciplined LargeCap Blend Fund	1.54%	0.18%	0.67%	0.16%	0.44%	2.99%
Diversified International Account	11.07	1.40	5.31	1.27	3.28	22.33
Equity Income Account	18.43	2.15	8.66	1.74	4.96	35.94
High Yield Fund	1.47	0.42	0.36	0.63	0.28	3.16
Income Account	40.37	11.85	5.41	20.15	—	77.78
International Emerging Markets Account	10.36	1.42	4.29	1.01	2.92	20.00
LargeCap Growth Account	25.15	3.09	11.18	2.80	6.32	48.54
LargeCap Growth Fund II	3.40	0.42	1.43	0.39	0.87	6.51
LargeCap Value Account III	14.95	1.72	6.18	2.86	4.30	30.01
MidCap Stock Account	33.59	4.60	18.51	5.90	11.37	73.97
Money Market Account	0.62	0.14	0.26	0.07	0.08	1.17
Mortgage Securities Account	47.91	13.11	7.57	21.16	—	89.75
Preferred Securities Fund	1.40	0.32	0.26	0.59	—	2.57
Real Estate Securities Account	10.83	1.29	4.52	1.45	2.57	20.66
Short-Term Income Account	32.47	14.28	2.85	30.06	1.07	80.73
SmallCap Growth Account II	14.84	2.11	6.32	1.67	4.09	29.03
SmallCap Value Account I	8.20	1.01	3.40	0.94	2.23	15.78
West Coast Equity Account	28.92	3.69	14.66	1.75	8.99	58.01

Securities Lending Risk

To earn additional income, each Fund may lend portfolio securities to approved financial institutions. Risks of such a practice include the possibility that a financial institution becomes insolvent, increasing the likelihood that the Fund will be unable to recover the loaned security or its value. Further, the cash collateral received by the Fund in connection with such a loan may be invested in a security that subsequently loses value.

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 that engage in active trading may have high portfolio turnover rates.

Accounts with high turnover rates (more than 100%) often have higher transaction costs (which are paid by the Account) and may lower the Account’s performance. No turnover rate can be calculated for the Money Market Account because of the short maturities of the securities in which it invests. Turnover rates for each of the other Accounts may be found 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 reflects portfolio turnover costs.

PRICING OF ACCOUNT SHARES

Each Account’s shares are bought and sold at the current net asset value (“NAV”) per share. Each Account’s NAV is calculated each day the New York Stock Exchange (“NYSE”) is open (shares are not priced on the days on which the NYSE is closed for trading). The NYSE is closed on the following holidays: New Year’s Day, Martin Luther King, Jr. Day, Washington’s Birthday/Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas. The NAV is determined at the close of business of the NYSE (normally 3:00 p.m. Central Time). When an 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 received in proper form.


For all Accounts, except the Money Market Account, the NAV is calculated by:
•	taking the current market value of the total assets of the Account
•	subtracting liabilities of the Account
•	dividing the remainder proportionately into the classes of the Account
•	subtracting the liabilities of each class
•	dividing the remainder by the total number of shares owned in that class.

With respect to the Diversified Balanced Account, Diversified Growth Account, Principal LifeTime Accounts, and SAM Portfolios, which invest in other registered investment company Accounts and Funds, each Account’s or Portfolio’s NAV is calculated based on the NAV of such other registered investment company Accounts and Funds in which the Account or Portfolio invests.

The securities of the Money Market Account are valued at amortized cost. The calculation procedure is described in the Statement of Additional Information.

NOTES:

• If market quotations are not readily available for a security owned by an Account, its fair value is determined using

a policy adopted by the Directors.

• An Account’s securities may be traded on foreign securities markets that generally complete trading at various

times during the day prior to the close of the NYSE. Generally, the values of foreign securities used in computing

an Account’s NAV are the market quotations as of the close of the foreign market. Foreign securities and

currencies are also converted to U.S. dollars using the exchange rate in effect at the close of the NYSE.

Occasionally, events affecting the value of foreign securities occur when the foreign market is closed and the

NYSE is open. The Account has adopted policies and procedures to “fair value” some or all securities held by an

Account if significant events occur after the close of the market on which the foreign securities are traded but

before the Account’s NAV is calculated. Significant events can be specific to a single security or can include events

that affect a particular foreign market or markets. A significant event can also include a general market movement

in the U.S. securities markets. If Principal believes that the market value of any or all of the foreign securities is

materially affected by such an event, the securities will be valued, and the Account’s NAV will be calculated, using

the policy adopted by the Account. These fair valuation procedures are intended to discourage shareholders from

investing in the Account for the purpose of engaging in market timing or arbitrage transactions.

The trading of foreign securities generally or in a particular country or countries may not take place on all days the

NYSE is open, or may trade on days the NYSE is closed. Thus, the value of the foreign securities held by the

Account may change on days when shareholders are unable to purchase or redeem shares.

• Certain securities issued by companies in emerging market countries may have more than one quoted valuation at

any point in time. These may be referred to as local price and premium price. The premium price is often a

negotiated price that may not consistently represent a price at which a specific transaction can be effected. The

Fund has a policy to value such securities at a price at which the Sub-Advisor expects the securities may be sold.

DIVIDENDS AND DISTRIBUTIONS

The Accounts earn dividends, interest, and other income from investments and distribute this income (less expenses) as dividends. The Accounts also realize capital gains from investments and distribute these gains (less any losses) as capital gain distributions. The Accounts normally make dividends and capital gain distributions at least annually, in June. Dividends and capital gain distributions are automatically reinvested in additional shares of the Account making the distribution.

MANAGEMENT OF THE FUND

The Manager

Principal Management Corporation (“Principal”) serves as the manager for the Fund. In its handling of the business affairs of the Fund, Principal provides clerical, recordkeeping and bookkeeping services, and keeps the required financial and accounting records.

Principal is a subsidiary of Principal Financial Services, Inc. and has managed mutual funds since 1969. The Manager’s address is Principal Financial Group, 680 8th Street, Des Moines, Iowa 50392.

Principal provides investment advisory services with respect to 10-40% of the assets of the following Accounts: LargeCap Blend Account II, LargeCap Growth Account I, LargeCap Value Account III, SmallCap Growth Account II, and SmallCap Value Account I. The remaining assets in each of these Accounts will be managed by the sub-advisor(s) named in the prospectus.

Principal provides these investment advisory services through a portfolio manager who functions as a co-employee of Principal and Principal Global Investors, LLC ("PGI") under an investment service agreement. Through the agreement, the portfolio manager has access to PGI's equity management processes, systems, staff, proprietary quantitative model, portfolio construction disciplines, experienced portfolio management, and quantitative research staff. This portfolio manager also has access to PGI's trading staff and trade execution capabilities along with PGI's order management system, pre- and post-trade compliance system, portfolio accounting system and performance attribution and risk management system. Mariateresa Monaco has been the lead portfolio manager for the 10-40% of the assets to which Principal will provide investment advisory services since 2009.

Mariateresa Monaco. Ms. Monaco has worked as a portfolio manager for Principal since 2009. Previously, she worked as a portfolio manager for Principal Global Investors, LLC, where she worked as a portfolio manager since 2005. Prior to that, Ms. Monaco worked for Fidelity Management and Research. She earned a Master’s degree in Electrical Engineering from Politecnico di Torino, Italy, a Master’s degree in Electrical Engineering from Northeastern University, and an MBA from the Sloan School of Management at the Massachusetts Institute of Technology.

Principal provides investment advisory services to the Diversified Balanced and Diversified Growth Accounts. The portfolio managers are James W. Fennessey and Randy L. Welch. They operate as a team, sharing authority, with no limitation on the authority of one portfolio manager in relation to another.

Principal provides a substantial part of the investment advisory services to each of the Principal LifeTime Accounts directly, while engaging PGI as a sub-advisor to provide asset allocation services to the Accounts. The portfolio managers Principal has appointed for each Principal LifeTime Account are James Fennessey, Michael P. Finnegan, and Randy L. Welch. The portfolio managers PGI have appointed for each Principal LifeTime Account are David M. Blake, Tim Dunbar, and Dirk Laschanzky. Messrs. Blake, Dunbar, Fennessey, Finnegan, Laschanzky, and Welch share day-to-day management of the Principal LifeTime Accounts according to their respective responsibilities which are described as follows. On behalf of PGI, Messrs. Blake, Dunbar, and Laschanzky develop, implement, and monitor the Account’s strategic or long-term asset class targets and target ranges. On behalf of Principal, Messrs. Fennessey, Finnegan, and Welch implement the strategic asset allocation Messrs. Blake, Dunbar and Laschanzky set, operating as a team, sharing authority and responsibility for research with no limitation on the authority of one portfolio manager in relation to another.

James W. Fennessey, CFA. Mr. Fennessey is a Vice President of Principal Management Corporation.

Mr. Fennessey joined the Principal Financial Group in 2000. He is the Head of the Manager Research Team that is responsible for analyzing, interpreting and coordinating investment performance data and evaluation of the investment managers under the due diligence program that monitors investment managers used by the Principal Funds.

Mr. Fennessey graduated from Truman State University with a BS in Business Administration, with an emphasis in Finance, and a minor in Economics. He has earned the right to use the Chartered Financial Analyst designation. He has had responsibility for the Principal LifeTime 2010, 2020, 2030, 2040, 2050, and Strategic Income Accounts since 2008.

Michael P. Finnegan, CFA. Mr. Finnegan is Chief Investment Officer for Principal Management Corporation.

Mr. Finnegan joined the Principal Financial Group in May of 2001 and leads the Investment Services group. As head of Investment Services, Mr. Finnegan is primarily responsible for developing and implementing Principal’s investment and product development strategies. Prior to joining Principal, Mr. Finnegan worked for Wilshire Associates’ consulting division providing investment consulting and client service to large institutional clients. Mr. Finnegan has earned the right to use the Chartered Financial Analyst designation and is a member of the ICFA and the Iowa Society of Financial Analysts. He received an M.A. in Finance from the University of Iowa and a B.B.A. in Finance from Iowa State University. He has had responsibility for the Principal LifeTime 2010, 2020, 2030, 2040, 2050, and Strategic Income Accounts since 2008.

Randy L. Welch. Mr. Welch is a Vice President of Principal Management Corporation. Mr. Welch joined the Principal Financial Group in 1989 and oversees the functions of the Investment Services group, which includes investment manager research, investment consulting, performance analysis, and investment communication. He is also responsible for the due diligence program that monitors investment managers used by the Principal Funds. Mr. Welch is an affiliate member of the Chartered Financial Analysts (CFA) Institute. Mr. Welch earned his undergraduate degree from Grand View College and an MBA from Drake University. He has had responsibility for the Principal LifeTime 2010, 2020, 2030, 2040, 2050, and Strategic Income Accounts since 2008.

Cash Management Program

Each account has cash available in its portfolios to meet redemption requests and to pay expenses. Additionally, accounts receive cash flows when shareholders purchase shares. Principal will invest the cash, which comprises a very small portion of the accounts’ portfolios, in money market investments and in stock index futures contracts based on the account’s market cap to gain exposure to the market. Stock index futures provide returns similar to those of common stocks. Principal believes that, over the long term, this strategy will enhance the investment performance of the Accounts. Principal will implement a cash management program for the following Accounts: LargeCap Blend II, LargeCap Growth I, LargeCap Value III, SmallCap Growth II, and SmallCap Value I.

The Sub-Advisors

Principal has signed contracts with various Sub-Advisors. Under each Sub-Advisory agreement, the Sub-Advisor agrees to assume the obligations of Principal to provide investment advisory service to the portion of the assets of a specific Account or Portfolio allocated to it by Principal. For these services, Principal pays the Sub-Advisor a fee.

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

Several of the Accounts have multiple Sub-Advisors. For those Accounts, a team at Principal, consisting of Jessica Bush, James Fennessey and Randy Welch, determines the portion of the Account’s assets each Sub-Advisor will manage and may, from time-to-time, reallocate Account assets among the Sub-Advisors. The decision to do so may be based on a variety of factors, including but not limited to: the investment capacity of each Sub-Advisor, portfolio diversification, volume of net cash flows, fund liquidity, investment performance, investment strategies, changes in each Sub-Advisor’s firm or investment professionals or changes in the number of Sub-Advisors. Ordinarily, reallocations of Account assets among Sub-Advisors occur as a Sub-Advisor liquidates assets in the normal course of portfolio management and with net new cash flows; however, at times, existing Account assets may be reallocated among Sub-Advisors.

Jessica S. Bush, CFA. Ms. Bush joined the Principal Financial Group in 2006. Prior to joining the Principal Financial

Group she spent over three years at Putnam Investments. She is a member of the Manager Research Team that is

responsible for analyzing, interpreting and coordinating investment performance data and evaluation of the

subadvisors under the due diligence program that monitors investment managers used by the Principal Funds. Ms.

Bush earned a Bachelors degree in Business Administration from the University of Michigan. She has earned the right

to use the Chartered Financial Analyst designation.

The Account summaries identified the portfolio managers and the funds they manage. Additional information about the

portfolio managers follows. The SAI provides additional information about each portfolio manager’s compensation,

other accounts managed by the portfolio manager, and the portfolio manager’s ownership of securities in the Account.

Sub-Advisor: AllianceBernstein L.P. “AllianceBernstein”). AllianceBernstein is located at 1345 Avenue of the

Americas, New York, NY 10105 was founded in 1971 as an independent investment advisor registered

with the SEC.

The management of, and investment decisions for, the LargeCap Value Account III portfolio are currently made by the

North American Investment Policy Group. Joseph G. Paul, David Yuen, Christopher W. Marx, and John D. Phillips are

the persons with the most significant responsibility for the day-to-day management of the Fund’s portfolio.

Christopher W. Marx. Mr. Marx joined AllianceBernstein in 1997 as a research analyst. He covered a variety of

industries both domestically and internationally, including chemicals, food, supermarkets, beverages and tobacco.

Mr. Marx earned an AB in Economics from Harvard, and an MBA from the Stanford Graduate School of Business.

Joseph G. Paul. Mr. Paul is Co-CIO of US Large Cap Value Equities and CIO of North American Value Equities. He is

also the Global Head of Diversified Value Services and is responsible for product design research for diversified value

services. Previously, he was CIO—Advanced Value Fund (1999- 2009), CIO—Small and Mid-Cap Value (2002-2008),

and Co-CIO—Real Estate Investments (2004-2008). He earned a BS from the University of Arizona and an MS from

the Sloan School of Management of the Massachusetts Institute of Technology.

John D. Phillips, Jr., CFA. Mr. Phillips joined AllianceBernstein in 1994 and is a senior portfolio manager. He is also

chairman of AllianceBernstein’s Proxy Voting Committee. Mr. Phillips earned a BA from Hamilton College and an MBA

from Harvard University. He has also earned the right to use the Chartered Financial Analyst designation.

David Yuen. Mr. Yuen is Co-CIO of US Large Cap Value and CIO of the Advanced Value Fund. He has been the

Director of Research for US Large Cap Value since early 2008. Previously, Mr. Yuen was the Director of Research for

Emerging Markets Value since August 2002. Mr. Yuen earned a BS in operations research from Columbia University’s

School of Engineering.

Sub-Advisor: Brown Investment Advisory Incorporated (“Brown”), 901 South Bond Street, Suite 400, Baltimore,

Maryland 21231, incorporated in 1995, is a wholly-owned subsidiary of Brown Investment Advisory &

Trust Company, which is a wholly-owned subsidiary of Brown Advisory Holdings Incorporated.

Kenneth M. Stuzin, CFA. Mr. Stuzin has been a portfolio manager at Brown since 1996. Mr. Stuzin earned a B.A.

from Columbia University and an M.B.A. from Columbia University. He has earned the right to use the Chartered

Financial Analyst designation.

Sub-Advisor: ClearBridge Advisors, LLC, 620 8th Avenue, New York, NY 10018, formed in 2005, is a wholly-owned

subsidiary of Legg Mason, Inc.

Michael Kagan is lead portfolio manager for the mandate, along with Scott Glasser. As portfolio managers, they are

aware of any and all activity in the portfolio, and share full authority for all purchase and sell decisions.

Scott Glasser. Mr. Glasser is a Senior Portfolio Manager and a Managing Director of ClearBridge. He is also a

member of the ClearBridge Management Committee. He joined ClearBridge in 2005 in connection with the Legg

Mason/Citigroup transaction. Previously, Mr. Glasser was a Managing Director of Citigroup Global Markets, Inc. and

served as a Portfolio Manager at Smith Barney Asset Management. He earned a BA from Middlebury College and an

MBA from Pennsylvania State University.

Michael Kagan. Mr. Kagan is a Senior Portfolio Manager and a Managing Director of ClearBridge. He is also a

member of the ClearBridge Management Committee and the ClearBridge Brokerage Committee. He joined

ClearBridge in 2005 in connection with the Legg Mason/Citigroup transaction. Previously, Mr. Kagan was a Managing

Director of Citigroup Global Markets, Inc. and served as a Portfolio Manager at Salomon Brothers Asset Management.

Mr. Kagan earned a BA from Harvard College and attended the Massachusetts Institute of Technology Sloan School

of Management.

Sub-Advisor: Columbus Circle Investors (“CCI”) is an affiliate of PGI and a member of the Principal Financial Group.

CCI was founded in 1975. Its address is Metro Center, One Station Place, Stamford, CT 06902.

Anthony Rizza is the lead portfolio manager, and Thomas J. Bisighini as co-portfolio manager has responsibility for

research and supports Mr. Rizza on the day-to-day management of the Account. Mr. Rizza is the lead portfolio

manager, and Mr. Bisighini has responsibility for research and supports Mr. Rizza on the day-to-day management of

the Fund.

Thomas J. Bisighini, CFA. Mr. Bisighini, Senior Vice President/Senior Securities Analyst, joined Columbus Circle

Investors in May 2004. He earned a BS from Bentley College and an MBA in Finance from Fordham University. Mr.

Bisighini has earned the right to use the Chartered Financial Analyst designation and is a member of the New York

Society of Security Analysts.

Anthony Rizza, CFA. Mr. Rizza, portfolio manager, joined CCI in 1991. He earned a BS in Business from the

University of Connecticut. Mr. Rizza has earned the right to use the Chartered Financial Analyst designation and is a

member of the Hartford Society of Security Analysts.

Sub-Advisor: Edge Asset Management, Inc. (“Edge”) is an affiliate of Principal and a member of the Principal

Financial Group. Edge has been in the business of investment management since 1944. Its address is

Two Union Square, 601 Union Street, Suite 2200, Seattle, WA 98101-1377.

When more than one portfolio manager is identified as being responsible for the day-to day portfolio management, the

portfolio managers operate as a team, sharing authority, with no limitation on the authority of one portfolio manager in

relation to another.

Charlie D. Averill previously was a senior quantitative analyst and has worked at Edge since 1990. He earned a

Bachelor’s degree in Economics from Reed College and a Master’s degree in Economics from Princeton University.

Mr. Averill has earned the right to use the Chartered Financial Analyst designation.

Jill R. Cuniff became President of Edge in 2009 and became a portfolio manager in 2010. Prior to becoming the President of Edge, Ms. Cuniff was the President of Morley Financial. She earned a Bachelor’s degree in Business Finance from Montana State University.

Philip M. Foreman, CFA. Mr. Foreman, Portfolio Manager, has been employed by Edge since January of 2002. Mr. Foreman earned a Bachelor’s degree in Economics from the University of Washington and an MBA from the University of Puget Sound. He has earned the right to use the Chartered Financial Analyst designation.

John R. Friedl, CFA. Mr. Friedl, Portfolio Manager, has been employed as an investment professional at Edge since August 1998. Mr. Friedl earned a BA in Communications and History from the University of Washington and a Master's degree in Finance from Seattle University. He has earned the right to use the Chartered Financial Analyst designation.

Todd A. Jablonski, portfolio manager, has been with Edge since 2010. Previously, he was an Executive Director and Portfolio manager at UBS. Prior to that, he was the lead portfolio manager of US large cap strategies at Credit Suisse Asset Management. He earned a Bachelors degree in Economics from the University of Virginia and an MBA with an emphasis in Quantitative Finance from New York University's Stern School of Business. Mr. Jablonski has earned the right to use the Chartered Financial Analyst designation.

Scott J. Peterson has been with Edge since 2002. He earned a Bachelor’s degree in Mathematics from Brigham Young University and an MBA from New York University’s Stern School of Business. Mr. Peterson has earned the right to use the Chartered Financial Analyst designation.

David W. Simpson, CFA. Mr. Simpson, portfolio manager, joined Edge in 2003. Mr. Simpson earned a Bachelor's degree from the University of Illinois and an MBA in Finance from the University of Wisconsin. He has earned the right to use the Chartered Financial Analyst designation.

Joseph T. Suty, CFA. Mr. Suty, Portfolio Manager, joined Edge in September 2005, Mr. Suty managed personal and foundation portfolios from January 2005 until August 2005. From December 1991 until December 2004, Mr. Suty was a portfolio manager of large-cap value stocks at Washington Capital Management, Inc., where he was a principal and director of the firm. He earned a Bachelor's degree in Finance from the University of Detroit and an MBA in Finance from Stanford University. He has earned the right to use the Chartered Financial Analyst designation.

Sub-Advisor: Emerald Advisers, Inc. (“Emerald”) is a wholly owned subsidiary of Emerald Asset Management.

Emerald provides professional investment advisory services to institutional investors, high net worth

individuals and the general public. Emerald’s offices are located at 1703 Oregon Pike Road, Suite 101,

Lancaster, PA 17601.

The portfolio managers work as a team. Each person has the authority to make buy and sell decisions for the portfolio.

Each also has sector-specific research responsibilities as well.

Joseph W. Garner. Mr. Garner joined Emerald in 1994 and serves as Director of Emerald Research and Portfolio

Manager. Mr. Garner earned a BA in Economics from Millersville University and an MBA from the Katz Graduate

School of Business, University of Pittsburgh.

Kenneth G. Mertz II, CFA. Mr. Mertz joined Emerald in 1992 and serves as President of Emerald Advisers, Inc. He

earned a BA in Economics from Millersville University.

Peter J. Niedland has been with Emerald since 2009. Before joining Emerald, he was co-founder and portfolio

manager for NS Investment Partners, LLC. Prior thereto, he served as research analyst and portfolio manager at

Liberty Ridge Capital. Mr. Niedland earned a BS in Business Administration from the University of Richmond. He has

also earned the right to use the Chartered Financial Analyst designation.

Stacey L. Sears. Ms. Sears joined Emerald in 1991 and serves as Senior Vice President and Portfolio Manager of Emerald Advisers, Inc. She is a member of the Portfolio Management team. Additionally, Ms. Sears maintains research coverage of retail, apparel, consumer goods and consumer technology companies. Ms. Sears earned a BS in Business Administration from Millersville University and an MBA from Villanova University.

Sub-Advisor: Essex Investment Management Company, LLC (“Essex”) is a Boston-based management firm which

specializes in growth equity investments. Essex manages portfolios for corporations, endowments,

foundations, municipalities, public funds, Taft-Hartley accounts, and private clients. Essex offers a

range of growth equity strategies and employs proprietary fundamental research combined with active

portfolio management. Its address is 125 High Street, 29th Floor, Boston, MA 02110.

Nancy B. Prial, CFA. Ms. Prial is a Portfolio Manager and Senior Principal on the Essex Small-Micro Cap Growth and

Small-Mid Cap Growth strategies. Prior to joining the firm in 2004, she spent six years at The Burridge Group, LLC as

Vice President and Chief Investment Officer. Ms. Prial graduated from Bucknell University with a BS in Electrical

Engineering and a BA in Mathematics. She also earned an MBA from Harvard Business School. Ms. Prial has earned

the right to use the Chartered Financial Analyst designation.

Sub-Advisor: Jacobs Levy Equity Management, Inc. (“Jacobs Levy”) provides investment advice based upon

quantitative equity strategies. The firm focuses on detecting opportunities in the U.S. equity market and

attempting to profit from them through engineered, risk-controlled portfolios. Based in Florham Park,

New Jersey, Jacobs Levy is focused exclusively on the management of U.S. equity portfolios for

institutional clients. Its address is 100 Campus Drive, Florham Park, NJ 07932-0650.

The two Principals, Bruce Jacobs and Ken Levy, are jointly responsible for the design and implementation of the

Jacobs investment process and the management of all client portfolios. There is no limitation on the authority of one

portfolio manager in relation to another.

Bruce Jacobs, Ph.D. Dr. Jacobs serves as co-chief investment officer, portfolio manager, and co-director of

research. He co-founded Jacobs Levy in 1986. Dr. Jacobs earned a BA from Columbia College, an MS in Operations

Research and Computer Science from Columbia University, an MSIA from Carnegie Mellon University, and an MA in

Applied Economics and a Ph.D. in Finance from the University of Pennsylvania’s Wharton School.

Ken Levy, CFA. Mr. Levy serves as co-chief investment officer, portfolio manager, and co-director of research. He co-

founded Jacobs Levy in 1986. He earned a BA in Economics from Cornell University and an MBA and an MA in

Business Economics from the University of Pennsylvania’s Wharton School. He has earned the right to use the

Chartered Financial Analyst designation.

Sub-Advisor: J.P. Morgan Investment Management Inc. (“J.P. Morgan”), 245 Park Avenue, New York, NY 10167 is

an indirect wholly owned subsidiary of JPMorgan Chase & Co. (“JPMorgan”), a bank holding company.

Morgan offers a wide range of services to governmental, institutional, corporate, and individual

customers and acts as investment advisor to individual and institutional clients.

The portfolio managers operate as a team, sharing authority and responsibility for research and the day-to-day

management of the portfolio with no limitation on the authority of one portfolio manager in relation to another.

Christopher T. Blum, CFA. Managing Director, is the CIO of the U.S. Behavioral Finance Group responsible for the

Intrepid and Behavioral Small Cap strategies. He rejoined the firm in 2001, as a portfolio manager and headed the

U.S. Behavioral Finance Small Cap Equity Group. Mr. Blum has earned the right to use the Chartered Financial

Analyst designation.

Dennis S. Ruhl, CFA. Mr. Ruhl, Vice President, joined the company in 1999. He is the head of the U.S. Behavioral Finance Small Cap Equity Group. A member of the team since 2001, Mr. Ruhl also acts as a portfolio manager and leads the group’s quantitative research effort. He previously worked on quantitative equity research (focusing on trading) as well as business development. Mr. Ruhl earned Bachelor’s degrees in Mathematics and Computer Science and a Master’s degree in Computer Science, all from MIT. He has earned the right to use the Chartered Financial Analyst designation.


Sub-Advisor: Mellon Capital Management Corporation (“Mellon Capital”), with offices located at 50 Fremont Street,
San Francisco, California 94105 and offices located at 500 Grant Street, Suite 4200, Pittsburgh,
PA 15258, is a wholly owned subsidiary of The Bank of New York Mellon (“BNY Mellon”).

Portfolio management decisions are made on a team basis and are accomplished on a regular basis at periodic
portfolio rebalance meetings. The team's decisions are systematically implemented across all accounts managed to
the same benchmark, subject to the approval of the portfolio manager specifically assigned to each account, who must
confirm that each trade fits within the specific policy guidelines of each account.

Ronald P. Gala, CFA. Mr. Gala, Director and Senior Portfolio Manager with Mellon Capital, joined the firm in 1993.
Mr. Gala earned a BS in Business Administration from Duquesne University and an MBA in Finance from the
University of Pittsburgh. He has earned the right to use the Chartered Financial Analyst designation.

Peter D. Goslin, CFA. Mr. Goslin, Vice President and Senior Portfolio Manager with Mellon Capital, joined the firm in
1999. Mr. Goslin earned a BS in Finance from St. Vincent College and an MBA in Finance at the University of Notre
Dame Graduate School of Business. He has earned the right to use the Chartered Financial Analyst designation.

Adam T. Logan, CFA. Mr. Logan, Vice President and Senior Portfolio Manager with Mellon Capital, joined the
company in 1998. He is currently responsible for the management of client portfolios with a specific focus on mid and
small capitalization securities. He earned a BA in Finance from Westminster College and an MBA from the Katz
Graduate School of Business at the University of Pittsburgh. He has earned the right to use the Chartered Financial
Analyst designation.

John O’Toole, CFA. Mr. O’Toole, Director and Senior Portfolio Manager with Mellon Capital, joined the company in
1990. Mr. O’Toole earned a BA in Economics from the University of Pennsylvania and an MBA in Finance from the
University of Chicago. He has earned the right to use the Chartered Financial Analyst designation.

Sub-Advisor: Morgan Stanley Investment Management, Inc. (“Morgan Stanley Investment Management”), 522 Fifth

Avenue, New York, NY 10036, is an indirect wholly owned subsidiary of Morgan Stanley, a publicly

held global financial services company. Morgan Stanley Investment Management provides investment

advice to a wide variety of individual, institutional, and investment company clients.

Francine J. Bovich. Ms. Bovich has been a Managing Director of Morgan Stanley and Morgan Stanley & Co.

Incorporated since 1997 and a Principal prior thereto. Ms. Bovich holds a BA in Economics from Connecticut College,

and an MBA in Finance from New York University.

Ms. Bovich is co-head of Morgan Stanley’s Global Tactical Asset Allocation Team. Ms. Bovich is responsible for the

overall allocation of the Account’s assets among equities, bonds and money market instruments.

Henry McVey, Managing Director, rejoined Morgan Stanley in 2009 as a managing director and Head of the Global

Macro and Asset Allocation team. Prior to returning to the firm, he was a portfolio manager for the Fortress

Drawbridge Global Macro Fund from September 2007 to May 2009. Mr. McVey also worked as the Chief U.S.

Investment Strategist for Morgan Stanley from 2004 to 2007.

Sub-Advisor: Principal Global Investors, LLC (“PGI”) is an indirect wholly owned subsidiary of Principal Life

Insurance Company, an affiliate of Principal, and a member of the Principal Financial Group. PGI

manages equity, fixed-income, and real estate investments primarily for institutional investors,

including Principal Life. PGI’s headquarters address is 801 Grand Avenue, Des Moines, IA 50392. Its

other primary asset management office is in New York, with asset management offices of affiliate

advisors in several non-U.S. locations, including London, Sydney, and Singapore.

As reflected in the Account summaries, the day-to-day portfolio management, for some Accounts, is shared by multiple portfolio managers. In each such case, except where noted in the Management of the Funds section describing the management of the Principal LifeTime Accounts, the portfolio managers operate as a team, sharing authority and responsibility for research and the day-to-day management of the portfolio with no limitation on the authority of one portfolio manager in relation to another.

Michael Ade, CFA. Mr. Ade is a portfolio manager at an affiliate advisor in Singapore. He serves as a co-manager for diversified emerging markets and Asian equity strategies. Based in Singapore, his analytical responsibilities are focused on the Asian consumers sector. Mr. Ade joined the firm in 2001. He earned a bachelor's degree in finance from the University of Wisconsin. Mr. Ade has earned the right to use the Chartered Financial Analyst designation and is a member of the CFA Institute.

William C. Armstrong, CFA. Mr. Armstrong is a portfolio manager for PGI. He manages multi-sector portfolios that invest in corporate bonds, mortgage-backed securities, commercial mortgage-backed securities, asset-backed securities, sovereigns, and agencies. He joined the firm in 1992. He earned a Bachelor’s degree from Kearney State College and a Master’s degree from the University of Iowa. He has earned the right to use the Chartered Financial Analyst designation.

David M. Blake, CFA. Mr. Blake, executive director and chief investment officer of fixed income for PGI, joined PGI in 2000. Mr. Blake earned a Bachelor’s degree and an MBA from Saint Louis University. He has earned the right to use the Chartered Financial Analyst designation and is a member of the CFA Institute.

Paul H. Blankenhagen, CFA. Mr. Blankenhagen joined PGI in 1992 and was named a portfolio manager in 2000. He is responsible for developing portfolio strategy and the ongoing management of core international equity portfolios. He earned a Bachelor’s degree in Finance from Iowa State University and a Master’s degree from Drake University. He has earned the right to use the Chartered Financial Analyst designation, and is a member of the Association for Investment Management and Research (AIMR) and the Iowa Society of Financial Analysts.

Juliet Cohn, MSI. Ms. Cohn is a managing director - portfolio manager at an affiliate advisor in London. She is responsible for managing the firm's Dublin-domiciled European equity fund and co-managing core international equity portfolios, where she has a primary focus on Europe. Ms. Cohn is also active in company research with an emphasis on the health care sector. She joined the firm in 2003. Ms. Cohn earned a bachelor's degree in mathematics from Trinity College, Cambridge, England. She is a Member of the Securities Institute.

Bryan C. Davis, CFA. Mr. Davis is a senior trader/research analyst for Principal Global investors. He is responsible for trading mortgage-backed securities and developing investment strategies related to mortgages and derivatives. Mr. Davis joined the firm in 1993 as a servicing valuation director for Principal Residential Mortgage. He became the director of servicing hedging in 2002 before moving into his current position in 2004. Mr. Davis received a bachelor’s degree in finance from University of lowa. He has earned the right to use the Chartered Financial Analyst designation and is a member of the CFA Institute.

Craig Dawson, CFA. Mr. Dawson is a portfolio manager at PGI. He joined the firm in 1998 as a research associate, then moved into a portfolio analyst role before moving into a portfolio manager position in 2002. He earned a Bachelor’s degree in Finance and an MBA from the University of Iowa. Mr. Dawson has earned the right to use the Chartered Financial Analyst designation.

Mihail Dobrinov, CFA. Mr. Dobrinov is a research analyst and serves as a co-portfolio manager for PGI. He specializes primarily in the analysis of companies in the industrial sector, and serves as co-manager for diversified emerging markets portfolios. He joined the equities team in 2002. Mr. Dobrinov received an MBA in finance from the University of Iowa and a law degree from Sofia University, Bulgaria. Mr. Dobrinov has earned the right to use the Chartered Financial Analyst designation. (Mr. Dobrinov does not provide legal services on behalf of any of the member companies of the Principal Financial Group.)

Tim Dunbar. Mr. Dunbar is executive director and head of equities for PGI. In this capacity, he oversees the business management and strategic direction of the firm's equity group on a global basis. He joined Principal Financial Group in 1986 and has held a wide range of investment management roles and has been a member of the PGI senior management team for nearly five years. Most recently, he was responsible for overseeing asset management merger and acquisition activities. Mr. Dunbar earned a Bachelor's degree from Iowa State University.

Brad Fredericks. Mr. Fredericks is a portfolio manager at PGI. He is responsible for co-managing the government securities accounts. His responsibilities include general portfolio overview and security analysis. He joined the firm in 1998 as a financial accountant and was named a portfolio manager in 2002. Previously, Mr. Fredericks was an assistant trader at Norwest Mortgage. He earned a Bachelor’s degree in Finance from Iowa State University.

Mr. Fredericks is a Fellow of the Life Management Institute (FLMI).

Arild Holm, CFA. Mr. Holm, portfolio manager, joined PGI in 2002. He specializes in the management of large cap value portfolios and also provides analyst coverage of domestic energy companies. Mr. Holm earned a Bachelor’s degree in Management Sciences from the University of Manchester Institute of Science and Technology (England) and an MBA in Finance from the University of Colorado. He has earned the right to use the Chartered Financial Analyst designation and is a member of the CFA Institute.

Christopher Ibach, CFA. Mr. Ibach, associate portfolio manager and equity research analyst, joined PGI in 2002. He specializes primarily in the analysis of international technology companies, with a particular emphasis on semiconductor research. Mr. Ibach earned a Bachelor’s degree in Electrical Engineering and an MBA in Finance from the University of Iowa. He has earned the right to use the Chartered Financial Analyst designation.

Dirk Laschanzky, CFA. Mr. Laschanzky, portfolio manager, joined PGI in 1997. He is responsible for portfolio implementation strategies, asset allocation and managing the midcap value and index portfolios. Mr. Laschanzky earned a BA and an MBA, both in Finance, from the University of Iowa. He has earned the right to use the Chartered Financial Analyst designation.

Thomas Morabito, CFA. Mr. Morabito joined PGI in 2000 and leads the small-cap portfolio management team for PGI. He earned a BA in Economics from State University of New York and an MBA in Finance from Northeastern University. He has earned the right to use the Chartered Financial Analyst designation.

K. William Nolin, CFA. Mr. Nolin, portfolio manager, joined PGI in 1994. He serves as the portfolio manager for the firm’s international small-cap equity portfolios. He earned a Bachelor’s degree in Finance from the University of Iowa and an MBA from the Yale School of Management. He has earned the right to use the Chartered Financial Analyst designation.

Phil Nordhus, CFA. Mr. Nordhus joined PGI in 1990. Most recently, he has been involved in managing the small-cap portfolios and has responsibility for managing the small-cap analyst team. Mr. Nordhus earned a Bachelor’s degree in Economics from Kansas State University and an MBA from Drake University. He has earned the right to use the Chartered Financial Analyst designation.

Brian W. Pattinson, CFA. Mr. Pattinson is a portfolio manager at PGI. He serves as the portfolio manager for the firm’s international small-cap equity portfolios. He joined PGI in 1994. Mr. Pattinson earned a Bachelor’s and an MBA degree in Finance from the University of Iowa. he has earned the right to use the Chartered Financial Analyst designation.

Tracy Reeg. Ms. Reeg, portfolio manager, joined PGI in 1993. She is involved in the portfolio management of money market portfolios. Ms. Reeg earned a Bachelor’s degree in Finance from the University of Northern Iowa. She is a member of the Life Office Management Association (LOMA) and is a Fellow of the Life Management Institute (FLMI).

Michael L. Reynal. Mr. Reynal, portfolio manager, joined PGI in 2001. He specializes in the management of emerging markets portfolios, as well as regional Asian equity portfolios. Mr. Reynal earned a BA in History from Middlebury College, an MBA from the Amos Tuck School at Dartmouth College and an MA in History from Christ’s College at the University of Cambridge.

Alice Robertson. Ms. Robertson is a trader for PGI on the corporate fixed-income trading desk. She joined the Principal Financial Group in 1990 as a credit analyst and moved to her current position in 1993. Ms. Robertson earned a Bachelor’s degree in Economics from Northwestern University and a Master’s degree in Finance and Marketing from DePaul University.

Jeffrey A. Schwarte has been with PGI since 1993. He earned a Bachelor’s degree in Accounting from the University of Northern Iowa. Mr. Schwarte is a CPA and has earned the right to use the Chartered Financial Analyst designation.

Scott W. Smith. Mr. Smith, research analyst and portfolio manager, joined PGI in 1999. He is an analyst within the firm’s asset allocation and structured investments group. He also provides research assistance to various business units within PGI. He earned a Bachelor’s degree in Finance from Iowa State University.

Timothy R. Warrick, CFA. Mr. Warrick joined PGI in 1990 and is a portfolio manager with responsibility for the corporate and U.S. multi-sector portfolios. He also serves as portfolio management team leader with responsibility for overseeing portfolio management function for all total return fixed income products. Prior to his portfolio management responsibilities with the firm, Mr. Warrick was a fixed income credit analyst and extensively involved in product development. He earned a Bachelor’s degree in Accounting and Economics from Simpson College and an MBA in Finance from Drake University. He has earned the right to use the Chartered Financial Analyst designation.

Sub-Advisor: Principal Real Estate Investors, LLC (“Principal - REI”), an indirect wholly owned subsidiary of Principal

Life, an affiliate of Principal, and a member of the Principal Financial Group, was founded in 2000. It

manages investments for institutional investors, including Principal Life. Principal—REI’s address is

801 Grand Avenue, Des Moines, IA 50392.

Kelly D. Rush, CFA. As portfolio manager, Mr. Rush directs the real estate investment trust (REIT) activity for

Principal - REI, the dedicated real estate group of PGI. He has been with the real estate investment area of the firm

since 1987. He earned a Bachelor’s degree in Finance and an MBA in Business Administration from the University of

Iowa. He has earned the right to use the Chartered Financial Analyst designation.

Sub-Advisor: T. Rowe Price Associates, Inc. (“T. Rowe Price”), a wholly owned subsidiary of T. Rowe Price Group,

Inc., a financial services holding company, has over 69 years of investment management experience.

T. Rowe Price is located at 100 East Pratt Street, Baltimore, MD 21202.

Ms. Dopkin serves as a portfolio coordinator for the LargeCap Blend Account II. Instead of making stock selection

decisions, she is responsible for ensuring adherence to portfolio constraints and risk controls, along with managing

inter-analyst activity. As the lead portfolio coordinator, Ms. Dopkin has ultimate accountability for the LargeCap Blend

Account II.

Anna M. Dopkin, CFA. Ms. Dopkin serves as Chairman of the Investment Advisory Committee for the Fund.

Ms. Dopkin is a Vice President of T. Rowe Price Group, Inc. and T. Rowe Price, Director of U.S. Equity Research

North America, and a member of the firm’s Equity Steering Committee. She joined T. Rowe Price in 1996. Ms. Dopkin

earned a BS from The Wharton School of the University of Pennsylvania. She has earned the right to use the

Chartered Financial Analyst designation.

Ann M. Holcomb, CFA. Ms. Holcomb is a vice president of T. Rowe Price Group, Inc., T. Rowe Price Associates, Inc., and T. Rowe Price Trust Company. She is also a portfolio manager and quantitative analyst in the Quantitative Equity Group. Ms. Holcomb is a vice president and Investment Advisory Committee member of the Capital Opportunity Fund. She joined the firm in 1996. Ms. Holcomb earned a BA in Mathematics from Goucher College and an MS in Finance from Loyola College. She has also earned the right to use the Chartered Financial Analyst designation.

Robert W. Sharps, CFA, CPA. Mr. Sharps is a Vice President of T. Rowe Price Group, Inc., and T. Rowe Price. He is also the lead Portfolio Manager with the Large-Cap Growth Strategy Team in the U.S. Equity Division and a member of the Equity Steering Committee. Mr. Sharps joined the firm in 1997. He earned a BS in Accounting from Towson University and an MBA in Finance from the Wharton School, University of Pennsylvania. He has earned the right to use the Chartered Financial Analyst designation and the Certified Public Accountant accreditation.

Sub-Advisor: Westwood Management Corp. (“Westwood”), a New York corporation formed in 1983, is a wholly

owned subsidiary of Westwood Holdings Group, Inc., an institutional asset management company.

Westwood’s principal place of business is located at 200 Crescent Court, Suite 1200, Dallas, Texas

75201.

The day-to-day portfolio management is shared by a portfolio management team that has responsibility for security

research and portfolio management.

Susan M. Byrne. Ms. Byrne has served as Chairman and Chief Investment Officer since founding Westwood in 1983.

She participates in the investment decision process during the portfolio team meetings in which the team decides the

stock selection and weights for the model portfolio. She has authority to direct trading activity for the Fund. Ms. Byrne

attended the University of California at Berkeley.

Mark R. Freeman, CFA. Mr. Freeman has served as Senior Vice President and Portfolio Manager for Westwood

since 2006. He joined Westwood in 1999 and served as Vice President and Portfolio Manager from 2000 to 2006. Mr.

Freeman participates in the investment decision process during the portfolio team meetings in which the team

determines the stock selection and weights for the model portfolio. He has authority to direct trading activity for the

Fund. Mr. Freeman earned a BA in Economics from Millsaps College and an MS in Economics from Louisiana State

University. Mr. Freeman has earned the right to use the Chartered Financial Analyst designation.

Scott D. Lawson, CFA. Mr. Lawson has served as Vice President and Senior Research Analyst since joining

Westwood in 2003. Mr. Lawson participates in the investment decision process during the portfolio team meetings in

which the team decides the stock selection and weights for the model portfolio. He has authority to direct trading

activity for the Fund. Mr. Lawson earned a BS in Economics from Texas Christian University and an MBA from St.

Louis University. Mr. Lawson has earned the right to use the Chartered Financial Analyst designation.

Jay K. Singhania, CFA. Mr. Singhania has served as Vice President and Research Analyst for Westwood since

2004. Prior to this appointment, Mr. Singhania served as Assistant Vice President and Research Analyst for

Westwood from 2002 to 2004. He participates in the investment decision process during the portfolio team meetings in

which the team decides the stock selection and weights for the model portfolio. He has authority to direct trading

activity on the Fund. Mr. Singhania earned a BBA in Finance from the University of Texas at Austin and participated in

its MBA Undergraduate Financial Analyst Program, specializing in the Energy sector. Mr. Singhania has earned the

right to use the Chartered Financial Analyst designation.

Kellie R. Stark, CFA. Ms. Stark has served as Senior Vice President for Westwood since 2004. Prior to this

appointment, she served as Vice President and Associate Portfolio Manager for Westwood from 1997 to 2004. She

joined Westwood in 1992. Ms. Stark participates in the investment decision process during the portfolio team meetings

in which the team decides the stock selection and weights for the model portfolio. She has authority to direct trading

activity for the Fund. Ms. Stark earned a BS in Finance and an MBA with an emphasis in Accounting from the

University of Colorado at Boulder. Ms. Stark has earned the right to use the Chartered Financial Analyst designation.

The Sub-Sub-Advisors

Principal Global Investors, LLC (“PGI”) has entered into a sub-sub-advisory agreement for the Bond & Mortgage Securities Account. Under this agreement, the sub-sub-advisor has agreed to assume the obligations of PGI for a certain portion of the Account’s assets. PGI pays the sub-sub-advisor a fee. Day-to-day management decisions concerning a portion of the Bond & Mortgage Securities Account’s portfolio are made by Spectrum Asset Management, Inc. (“Spectrum”), which serves as sub-sub-advisor.

Sub-Sub-Advisor:	Spectrum Asset Management, Inc. (“Spectrum”) is an indirect subsidiary of Principal Life and
	an affiliate of Principal Global Investors LLC and a member of the Principal Financial Group.
	Spectrum was founded in 1987. Its address is 4 High Ridge Park, Stamford, CT 06905.

The day-to day portfolio management is shared by two portfolio managers. The portfolio managers operate as a team,
sharing authority and responsibility for research and the day-to-day management of the portfolio with no limitation on
the authority of one portfolio manager in relation to another.

L. Phillip Jacoby. Mr. Jacoby, Sr. Vice President and Portfolio Manager for Spectrum and chairman of Spectrum’s
Investment Committee, joined Spectrum in 1995. He earned his BS in Finance from Boston University.

Mark A. Lieb. Mr. Lieb, Executive Director and Co-Chief Executive Officer for Spectrum, founded Spectrum in 1987.
He earned a BA in Economics from Central Connecticut State University and an MBA in Financial from the University
of Hartford.

Fees Paid to Principal
Each Account pays Principal a fee for its services, which includes any fee Principal pays to the Account’s Sub-Advisor.
Each Account paid the following fee (as a percentage of the Account’s average daily net assets) for the fiscal year
ended December 31, 2008:

Asset Allocation Account	0.80%	Mortgage Securities Account	0.50%
Balanced Account	0.60	Principal Capital Appreciation Account	0.63
Bond & Mortgage Securities Account	0.42	Principal LifeTime 2010 Account	0.12
Diversified International Account	0.83	Principal LifeTime 2020 Account	0.12
Equity Income Account	0.51	Principal LifeTime 2030 Account	0.12
Government & High Quality Bond Account	0.45	Principal LifeTime 2040 Account	0.12
Income Account	0.50	Principal LifeTime 2050 Account	0.12
International Emerging Markets Account	1.25	Principal LifeTime Strategic Income Account	0.12
International SmallCap Account	1.19	Real Estate Securities Account	0.88
LargeCap Blend Account II	0.75	SAM Balanced Portfolio	0.24
LargeCap Growth Account	0.68	SAM Conservative Balanced Portfolio	0.24
LargeCap Growth Account I	0.76	SAM Conservative Growth Portfolio	0.24
LargeCap S&P 500 Index Account	0.25	SAM Flexible Income Portfolio	0.24
LargeCap Value Account	0.60	SAM Strategic Growth Portfolio	0.24
LargeCap Value Account III	0.75	Short-Term Bond Account	0.48
MidCap Blend Account	0.57	Short-Term Income Account	0.50
MidCap Growth Account I	0.90	SmallCap Blend Account	0.85
MidCap Value Account II	1.05	SmallCap Growth Account II	1.00
Money Market Account	0.43	SmallCap Value Account I	1.09

The management fee for the Diversified Balanced and Diversified Growth Accounts (as a percentage of the average daily net assets) is 0.05% on all assets.

A discussion regarding the basis for the Board of Director approval of the management agreement with Principal and the sub-advisory agreements with each Sub-Advisor is available in the annual report to shareholders for the fiscal year ended December 31, 2009.

The Fund operates as a Manager of Managers. Under an order received from the SEC, the Fund and Principal may

enter into and materially amend agreements with Sub-Advisors, other than those affiliated with Principal, without

obtaining shareholder approval. For any Account that is relying on that order, Principal may, without obtaining

shareholder approval:

• hire one or more Sub-Advisors;

• change Sub-Advisors; and

• reallocate management fees between itself and Sub-Advisors.

Principal has ultimate responsibility for the investment performance of each Account that utilizes a Sub-Advisor due to its responsibility to oversee Sub-Advisors and recommend their hiring, termination, and replacement. No Account will rely on the order until it receives approval from its shareholders or, in the case of a new Account, the Account’s sole initial shareholder before the Account is available to the other purchasers, and the Account states in its prospectus that it intends to rely on the order.

The shareholders of each of the Accounts have approved the Account’s reliance on the order; however, only the Asset Allocation, LargeCap Blend II, LargeCap Growth I, LargeCap Value II, MidCap Growth I, MidCap Value II, SmallCap Growth II, and SmallCap Value I Accounts intend to rely on the order.

NOTES ABOUT CERTAIN FEES AND EXPENSES

Diversified Balanced Account: Principal has voluntarily agreed to limit the Account’s expenses attributable to Class 2 shares and, if necessary, pay expenses normally payable by the Account, excluding interest expense incurred with an investment the Account makes and Acquired Fund Fees and Expenses. The expense limit will maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.31%. The expense limit may be terminated at anytime.

Diversified Growth Account: Principal has voluntarily agreed to limit the Account’s expenses attributable to Class 2 shares and, if necessary, pay expenses normally payable by the Account, excluding interest expense incurred with an investment the Account makes and Acquired Fund Fees and Expenses. The expense limit will maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.31%. The expense limit may be terminated at anytime.

Money Market Account: The Distributor has voluntarily agreed to limit the Account’s Distribution and/or Service (12b-1) Fees normally payable by the Account. The expense limit will maintain a level of Distribution and/or Service (12b-1) Fees (expressed as a percent of average net assets on an annualized basis) not to exceed 0.00% for Class 2 shares. The expense limit may be terminated at any time.

DISTRIBUTION PLAN AND ADDITIONAL INFORMATION REGARDING INTERMEDIARY COMPENSATION

The Fund has adopted a 12b-1 Plan for the Class 2 shares of some of the Accounts. Under the 12b-1 Plan, each Account may make payments from its assets attributable to the Class 2 shares to the Fund’s Distributor (Principal Funds Distributor, Inc. a subsidiary of Principal Financial Group, Inc. and member of the Principal Financial Group, “the Distributor”) for distribution-related expenses and for providing services to shareholders of that share class. Payments under the 12b-1 plans will not automatically terminate for the Accounts that are closed to new investors or to additional purchases by existing shareholders. The Fund Board will determine whether to terminate, modify, or leave unchanged the 12b-1 plan at the time the Board directs the implementation of the closure of the Account. Because Rule 12b-1 fees are ongoing fees, over time they will increase the cost of an investment in the Accounts and may cost more than paying other types of sales charges.

The maximum annualized Rule 12b-1 distribution and/or service fee (as a percentage of average daily net assets) for the Class 2 shares of each of the Accounts is 0.25%.

Payments to Financial Professionals and Their Firms. Financial intermediaries receive compensation from the Distributor and its affiliates for marketing, selling, and/or providing services to variable annuities and variable life insurance contracts that invest in the Accounts. Financial intermediaries also receive compensation for marketing, selling, and/or providing services to certain retirement plans that offer the Accounts as investment options. Financial intermediaries may include, among others, broker/dealers, registered investment advisors, banks, trust companies, pension plan consultants, retirement plan administrators, and insurance companies. Financial Professionals who deal with investors on an individual basis are typically associated with a financial intermediary. The Distributor and its affiliates may fund this compensation from various sources, including any Rule 12b-1 Plan fee that the Accounts pay to the Distributor. Individual Financial Professionals may receive some or all of the amounts paid to the financial intermediary with which he or she is associated.

Ongoing Payments. In the case of Class 2 shares, and pursuant to the Rule 12b-1 Plan applicable to the

Class 2 shares, the Distributor generally makes ongoing payments to your financial intermediary for services provided to you at an annual rate of 0.25% of average net assets attributable to your indirect investment in the Accounts. In addition, the Distributor or the Advisor may make from its own resources ongoing payments to an insurance company of up to 0.25% of the average net assets of the Accounts held by the insurance company in its separate accounts. The payments are for administrative services and may be made with respect to either or both classes of shares of the Accounts.

Other Payments to Intermediaries. In addition to any commissions that may be paid at the time of sale, ongoing payments and the reimbursement of costs associated with education, training, and marketing efforts, conferences, seminars, due diligence trip expenses, ticket charges, and other general marketing expenses, some or all of which may be paid to financial intermediaries (and, in turn, to your Financial Professional), the Distributor and its affiliates, at their expense, currently provide additional payments to financial intermediaries that sell variable annuities and variable life insurance contracts that may be funded by shares of the Accounts, or may sell shares of the Accounts to retirement plans for distribution services. Although payments made to each qualifying financial intermediary in any given year may vary, such payments will generally not exceed 0.25% of the current year’s sales of applicable variable annuities and variable life insurance contracts that may be funded by account shares, or 0.25% of the current year’s sales of Account shares to retirement plans by that financial intermediary.

A number of factors are considered in determining the amount of these additional payments, including each financial intermediary’s Fund sales, assets, and redemption rates of applicable variable annuities, variable life insurance contracts, and retirement plans as well as the willingness and ability of the financial intermediary to give the Distributor access to its Financial Professionals for educational and marketing purposes. In some cases, financial intermediaries will include applicable variable annuities, variable life insurance contracts, and Account shares in retirement plans on a “preferred list.” The Distributor’s goals include making the Financial Professionals who interact with current and prospective investors and shareholders more knowledgeable about the Accounts so that they can provide suitable information and advice about the Accounts and related investor services. Additionally, the Distributor may provide payments to reimburse directly or indirectly the costs incurred by these financial intermediaries and their associated Financial Professionals in connection with educational seminars and training and marketing efforts related to Accounts for the firms’ employees and/or their clients and potential clients. The costs and expenses associated with these efforts may include travel, lodging, entertainment, and meals. The Distributor may also provide payment or reimbursement for expenses associated with qualifying dealers’ conferences, ticket charges, and general marketing expenses.

If one mutual fund sponsor makes greater distribution assistance payments than another, your Financial Professional and his or her financial intermediary may have an incentive to recommend one variable annuity, variable life insurance policy or mutual fund over another.

Please speak with your Financial Professional to learn more about the total amounts paid to your Financial Professional and his or her financial intermediary by the Accounts, the Distributor and its affiliates, and by sponsors of other mutual funds he or she may recommend to you. You should also carefully review disclosures made by your Financial Professional at the time of purchase.

Although an Account’s sub-advisor may use brokers who sell shares of the Accounts to effect portfolio transactions, the sale of Account shares is not considered as a factor when selecting brokers to effect portfolio transactions. The Fund has adopted procedures to ensure that the sale of account shares is not considered when selecting brokers to effect portfolio transactions.

Your Contract or retirement plan may impose other charges and expenses, some of which may also be used in connection with the sale of such contracts in addition to those described in this Prospectus. The amount and applicability of any such fee are determined and disclosed separately within the prospectus for your insurance contract. Your financial intermediary may charge fees and commissions, including processing fees, in addition to those described in this prospectus. The amount and applicability of any such fee are determined and disclosed separately by the financial intermediary. You should ask your Financial Professional for information about any fees and/or commissions that are charged.

GENERAL INFORMATION ABOUT AN ACCOUNT

Frequent Trading and Market Timing (Abusive Trading Practices)

The Accounts are not designed for, and do not knowingly accommodate, frequent purchases and redemptions (“excessive trading”) of Account shares by investors. If you intend to trade frequently and/or use market timing investment strategies, do not purchase shares of these Accounts.


Frequent purchases and redemptions pose a risk to the Accounts because they may:
• Disrupt the management of the Accounts by:
•	forcing the Account to hold short-term (liquid) assets rather than investing for long-term growth, which results in
	lost investment opportunities for the Account and
•	causing unplanned portfolio turnover;
• Hurt the portfolio performance of the Account; and
• Increase expenses of the Account due to:
•	increased broker-dealer commissions and
•	increased recordkeeping and related costs.

If we are not able to identify such excessive trading practices, the Accounts and their shareholders may be harmed. The harm of undetected excessive trading in shares of the underlying Accounts in which the Diversified Balanced Account, Diversified Growth Account, Principal LifeTime Accounts or Strategic Asset Management Portfolios invest could flow through to the Diversified Balanced Account, Diversified Growth Account, Principal LifeTime Accounts and Strategic Asset Management Portfolios as they would for any fund shareholder.

Certain Accounts may be at greater risk of harm due to frequent purchase and redemptions. For example, those Accounts that invest in foreign securities may appeal to investors attempting to take advantage of time-zone arbitrage. This risk is particularly relevant to the Diversified International, International Emerging Markets, and International SmallCap Accounts. The Fund has adopted fair valuation procedures to be used in the case of significant events, including broad market movements, occurring after the close of a foreign market in which securities are traded. The procedures will be followed if the Manager believes the events will impact the value of the foreign securities. These procedures are intended to discourage market timing transactions in shares of the Accounts.

As the Accounts are only available through variable annuity or variable life contracts or to qualified retirement plans, the Fund must rely on the insurance company that issues the contract, or the trustees or administrators of qualified retirement plans, (“intermediary”) to monitor customer trading activity to identify and take action against excessive trading. There can be no certainty that the intermediary will identify and prevent excessive trading in all instances. When an intermediary identifies excessive trading, it will act to curtail such trading in a fair and uniform manner. If an intermediary is unable to identify such abusive trading practices, the abuses described above may negatively impact the Accounts.


If an intermediary, or the Fund, deems excessive trading practices to be occurring, it will take action that may include,
but is not limited to:
•	Rejecting exchange instructions from a shareholder or other person authorized by the shareholder to direct
	exchanges;
•	Restricting submission of exchange requests by, for example, allowing exchange requests to be submitted by
	1st class U.S. mail only and disallowing requests made via the internet, by facsimile, by overnight courier, or by
	telephone;
•	Limiting the dollar amount of an exchange and/or the number of exchanges during a year;
•	Requiring a holding period of a minimum of 30 days before permitting exchanges among the Accounts where there
	is evidence of at least one round-trip exchange (exchange or redemption of shares that were purchased within
	30 days of the exchange/redemption); and
•	Taking such other action as directed by the Fund.

The Fund Board of Directors has found the imposition of a redemption fee with respect to redemptions from Class 1 and Class 2 shares of the Accounts is neither necessary nor appropriate in light of measures taken by intermediaries through which such shares are currently available. Each intermediary’s excessive trading policies and procedures will be reviewed by Fund management prior to making shares of the Fund available through such intermediary to determine whether, in management’s opinion, such procedures are reasonably designed to prevent excessive trading in Fund shares.

The Fund has reserved the right to accept or reject, without prior written notice, any exchange requests. In some instances, an exchange may be completed prior to a determination of abusive trading. In those instances, the intermediary will reverse an exchange (within one business day of the exchange) and return the account holdings to the positions held prior to the exchange. The intermediary will give you notice in writing in this instance.

Eligible Purchasers

Only certain eligible purchasers may buy shares of the Accounts. Eligible purchasers are limited to 1) separate accounts of Principal Life or of other insurance companies, 2) Principal Life 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 or Washington Mutual Life Insurance Company, or any subsidiary or affiliate of such company, 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 and by other insurance companies as well as for certain qualified plans. It is possible that in the future, it may not be advantageous for variable life insurance separate accounts, variable annuity separate accounts, and qualified plan investors 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, contract holders, and qualified plan investors. 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, those given by contract holders, and those given by qualified plan investors. 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 or qualified plans, which could have adverse consequences.

Principal may recommend to the Board, and the Board may elect, to close certain accounts to new investors or close certain accounts to new and existing investors.

Shareholder Rights

Each shareholder of an Account 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 cast at a meeting of all Account shareholders.

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 1940 Act: 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 Funds, Inc., Principal Financial Group, Des Moines, IA 50392.

Principal Life votes each Account’s shares allocated to each of its separate accounts registered under the 1940 Act 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 in that separate account. Principal Life will vote the shares based upon the instructions received from contract owners regardless of the number of contract owners who provide such instructions. A potential effect of this proportional voting is that a small number of contract owners may determine the outcome of a shareholder vote if only a small number of contract owners provide voting instructions. 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. Shares held by retirement plans are voted in accordance with the governing documents of the plans.

Purchase of Account Shares

Shares are purchased from the Distributor, the Fund’s principal underwriter (“Distributor”). There are no sales charges on shares of the Accounts, however, your variable contract may impose a charge. There are no restrictions on amounts to be invested in shares of the Accounts.

The Accounts may, at their discretion and under certain limited circumstances, accept securities as payment for Account shares at the applicable NAV. Each Account will value securities used to purchase its shares using the same method the Account uses to value its portfolio securities as described in this prospectus.

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.

NOTE: 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 not contained in this

prospectus may not be relied upon as having been provided or made by the Principal Variable Contracts

Funds, Inc., an Account, Principal, any Sub-Advisor, or PFD.

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.

Sale 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 NYSE is restricted as determined by the SEC or when the NYSE is closed for reasons other than weekends and holidays or 2) an emergency exists, as determined by the SEC, as a result of which a) disposal by a fund of securities owned by it is not reasonably practicable, b) it is not reasonably practicable for a fund to fairly determine the value of its net assets, or c) 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.

Distributions in Kind. The Fund may determine that it would be detrimental to the remaining shareholders of an Account to make payment of a redemption order wholly or partly in cash. Under certain circumstances, therefore, each of the accounts may pay the redemption proceeds in whole or in part by a distribution “in kind” of securities from the Account’s portfolio in lieu of cash provided the shareholder to whom such distribution is made was invested in such securities. If an Account pays the redemption proceeds in kind, the redeeming shareholder might incur brokerage or other costs in selling the securities for cash. Each Account will value securities used to pay redemptions in kind using the same method the Account uses to value its portfolio securities as described in this prospectus.

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, audited by the Fund’s independent registered public accounting firm. You will also receive a semiannual financial statement that is unaudited.

TAX INFORMATION

The Fund intends to comply with applicable variable asset diversification regulations. If the Fund fails to comply with such regulations, contracts invested in the Fund will not be treated as annuity, endowment, or life insurance contracts under the Internal Revenue Code.

Contract owners should review the applicable contract prospectus for information concerning the federal income tax treatment of their contracts and distributions from the Fund to the separate accounts.

Contract owners are urged to consult their tax advisors regarding the status of their contracts under state and local tax laws.

FINANCIAL HIGHLIGHTS

The financial highlights table for each Account is intended to help you understand the Account’s financial performance for the past 5 years (or since inception, if shorter). Certain information reflects financial results for a single Account share. The total returns in the table for each Account represent the rate that an investor would have earned, or lost, on an investment in the Account (assuming reinvestment of all dividends and distributions), but do not reflect insurance-related charges and expenses which, if included, would have lowered the performance shown.

To be filed by amendment.

APPENDIX A

Description of Bond Ratings:

Moody’s Investors Service, Inc. Rating Definitions:

Long-Term Obligation Ratings


Moody’s long-term obligation ratings are opinions of the relative credit risk of fixed-income obligations with an original
maturity of one year or more. They address the possibility that a financial obligation will not be honored as promised.
Such ratings reflect both the likelihood of default and any financial loss suffered in the event of default.

Aaa:	Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk.
Aa:	Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
A:	Obligations rated A are considered upper-medium grade and are subject to low credit risk.
Baa:	Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as
	such may possess certain speculative characteristics.
Ba:	Obligations rated Ba are judged to have speculative elements and are subject to substantial credit
	risk.
B:	Obligations rated B are considered speculative and are subject to high credit risk.
Caa:	Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.
Ca:	Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect
	of recovery of principal and interest.
C:	Obligations rated C are the lowest rated class of bonds and are typically in default, with little prospect
	for recovery of principal or interest.

NOTE: Moody’s appends numerical modifiers, 1, 2, and 3 to each generic rating classification from Aa through Caa.

The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category, the modifier 2

indicates a mid-range ranking, and the modifier 3 indicates a ranking in the lower end of that generate rating category.

SHORT-TERM NOTES: The four ratings of Moody’s for short-term notes are MIG 1, MIG 2, MIG 3, and MIG 4. MIG 1

denotes “best quality, enjoying strong protection from established cash flows.” MIG 2 denotes “high quality” with

“ample margins of protection.” MIG 3 notes are of “favorable quality but lacking the undeniable strength of the

preceding grades.” MIG 4 notes are of “adequate quality, carrying specific risk for having protection and not distinctly

or predominantly speculative.”

Description of Moody’s Commercial Paper Ratings:

Moody’s Commercial Paper ratings are opinions of the ability to repay punctually promissory obligations not having an

original maturity in excess of nine months. Moody’s employs the following three designations, all judged to be

investment grade, to indicate the relative repayment capacity of rated issuers:

Issuers rated Prime-1 (or related supporting institutions) have a superior capacity for repayment of short-term

promissory obligations.

Issuers rated Prime-2 (or related supporting institutions) have a strong capacity for repayment of short-term

promissory obligations.

Issuers rated Prime-3 (or related supporting institutions) have an acceptable capacity for repayment of short-term

promissory obligations.

Issuers rated Not Prime do not fall within any of the Prime rating categories.

Description of Standard & Poor’s Corporation’s Debt Ratings:

A Standard & Poor’s debt rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. This assessment may take into consideration obligors such as guarantors, insurers, or lessees.

The debt rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment as to market price or suitability for a particular investor.

The ratings are based on current information furnished by the issuer or obtained by Standard & Poor’s from other sources Standard & Poor’s considers reliable. Standard & Poor’s does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or for other circumstances.


The ratings are based, in varying degrees, on the following considerations:

I. Likelihood of default — capacity and willingness of the obligor as to the timely payment of interest and repayment of
principal in accordance with the terms of the obligation;

II. Nature of and provisions of the obligation;

III. Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other
arrangement under the laws of bankruptcy and other laws affecting creditor’s rights.

AAA:	Debt rated “AAA” has the highest rating assigned by Standard & Poor’s. Capacity to pay interest and
	repay principal is extremely strong.
AA:	Debt rated “AA” has a very strong capacity to pay interest and repay principal and differs from the
	highest-rated issues only in small degree.
A:	Debt rated “A” has a strong capacity to pay interest and repay principal although they are somewhat
	more susceptible to the adverse effects of changes in circumstances and economic conditions than debt
	in higher-rated categories.
BBB:	Debt rated “BBB” is regarded as having an adequate capacity to pay interest and repay principal.
	Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing
	circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt
	in this category than for debt in higher-rated categories.

	BB, B, CCC, CC: Debt rated “BB,” “B,” “CCC,” and “CC” is regarded, on balance, as predominantly speculative
	with respect to capacity to pay interest and repay principal in accordance with the terms of the
	obligation. “BB” indicates the lowest degree of speculation and “CC” the highest degree of
	speculation. While such debt will likely have some quality and protective characteristics, these
	are outweighed by large uncertainties or major risk exposures to adverse conditions.

C:	The rating “C” is reserved for income bonds on which no interest is being paid.

D:	Debt rated “D” is in default, and payment of interest and/or repayment of principal is in arrears.

Plus (+) or Minus (-): The ratings from “AA” to “B” may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.

Provisional Ratings: The letter “p” indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the bonds being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, while addressing credit quality subsequent to completion of the project, makes no comment on the likelihood of, or the risk of default upon failure of, such completion. The investor should exercise his own judgment with respect to such likelihood and risk.

NR: Indicates that no rating has been requested, that there is insufficient information on which to base a rating or that

Standard & Poor’s does not rate a particular type of obligation as a matter of policy.

Standard & Poor’s, Commercial Paper Ratings

A Standard & Poor’s Commercial Paper Rating is a current assessment of the likelihood of timely payment of debt

having an original maturity of no more than 365 days. Ratings are graded into four categories, ranging from “A” for the

highest quality obligations to “D” for the lowest. Ratings are applicable to both taxable and tax-exempt commercial

paper. The four categories are as follows:

A:	Issues assigned the highest rating are regarded as having the greatest capacity for timely payment.
	Issues in this category are delineated with the numbers1, 2, and 3 to indicate the relative degree of
	safety.

A-1:	This designation indicates that the degree of safety regarding timely payment is either overwhelming or
	very strong. Issues that possess overwhelming safety characteristics will be given a “+” designation.

A-2:	Capacity for timely payment on issues with this designation is strong. However, the relative degree of
	safety is not as high as for issues designated “A-1.”

A-3:	Issues carrying this designation have a satisfactory capacity for timely payment. They are, however,
	somewhat more vulnerable to the adverse effects of changes in circumstances than obligations carrying
	the highest designations.

B:	Issues rated “B” are regarded as having only an adequate capacity for timely payment. However, such
	capacity may be damaged by changing conditions or short-term adversities.

C:	This rating is assigned to short-term debt obligations with a doubtful capacity for payment.
D:	This rating indicates that the issue is either in default or is expected to be in default upon maturity.

The Commercial Paper Rating is not a recommendation to purchase or sell a security. The ratings are based on
current information furnished to Standard & Poor’s by the issuer and obtained by Standard & Poor’s from other
sources it considers reliable. The ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of, such information.

Standard & Poor’s rates notes with a maturity of less than three years as follows:

SP-1:	A very strong, or strong, capacity to pay principal and interest. Issues that possess overwhelming safety
	characteristics will be given a “+” designation.
SP-2:	A satisfactory capacity to pay principal and interest.
SP-3:	A speculative capacity to pay principal and interest.

ADDITIONAL INFORMATION

Additional information about the Fund (including the Fund’s policy regarding the disclosure of portfolio securities) is available in the Statement of Additional Information dated May __________, which is incorporated by reference into this prospectus. Additional information about the Funds’ investments is available in the Fund’s annual and semiannual 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 Funds’ performance during the last fiscal year. The Statement of Additional Information and the Fund’s annual and semi-annual reports can be obtained free of charge by writing Principal Funds, P.O. Box 8024, Boston, MA 02266-8024. In addition, the Fund makes its annual and semi-annual reports and Statement of Additional Information available, free of charge, on www.PrincipalFunds.com. To request this and other information about the Fund and to make shareholder inquiries, telephone 1-800-852-4450.

Information about the Fund (including the Statement of Additional Information) 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 1-202-551-8090. Reports and other information about the Fund are available on the EDGAR Database 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 electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the Commission’s Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549-0102.

The U.S. government does not insure or guarantee an investment in any of the Accounts. There can be no assurance that the Money Market Account will be able to maintain a stable share price of $1.00 per share.

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

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

PRINCIPAL VARIABLE CONTRACTS FUNDS, INC.

(the “Fund”)

Statement of Additional Information

dated


Information incorporated by reference: to be filed by amendment.

This Statement of Additional Information (SAI) is not a prospectus. It contains information in addition to the information
in the Fund’s prospectus. The Fund's prospectus, which we may amend from time to time, contains the basic
information you should know before investing in the Fund. You should read this SAI for the Classes 1 and 2 shares
together with the Fund's prospectuses dated	for the Classes 1 and 2 shares.

For a free copy of the current prospectus or a semi-annual or annual report, call 1-800-852-4450 or write:

Principal Variable Contracts Funds, Inc.

P. O. Box 8024

Boston, MA 02266-8024

The Principal Variable Contracts Funds, Inc. prospectus may be viewed at www.PrincipalFunds.com.


TABLE OF CONTENTS
Fund History	3
Description of the Fund’s Investments and Risks	4
Management	23
Control Persons & Principal Securities Holders	29
Investment Advisory and Other Services	49
Cost of Manager’s Services	53
Brokerage Allocation and Other Practices	60
Pricing of Fund Shares	68
Multiple Class Structure	69
Tax Status	71
Portfolio Holdings Disclosure	72
Proxy Voting Policies and Procedures	73
General Information	73
Financial Statements	74
Independent Registered Public Accounting Firm	74
Disclosure Regarding Portfolio Managers	74
Appendix A - Description of Bond Ratings	111
Appendix B - Proxy Voting Policies	114

FUND HISTORY

Principal Variable Contracts Funds, Inc. (the “Fund”) was organized as Principal Variable Contracts Fund, Inc. on

May 27, 1997 as a Maryland corporation. The Fund changed its name to Principal Variable Contracts Funds, Inc.

effective May 17, 2008.

The Articles of Incorporation were amended on: October 2, 2006 to rename the existing share class of each series of

the Corporation as Class 1 shares, to add Class 2 shares to the Diversified International, Growth, LargeCap Blend,

Money Market, Real Estate Securities, SmallCap Growth, and SmallCap Value series; to add the Equity Income I,

Income, MidCap Stock, Mortgage Securities, Short-Term Income, Strategic Asset Management Balanced Portfolio,

Strategic Asset Management Conservative Balanced Portfolio, Strategic Asset Management Conservative Growth

Portfolio, Strategic Asset Management Flexible Income Portfolio, Strategic Asset Management Strategic Growth

Portfolio, and West Coast Equity series, to the Corporation, and add Class 1 and Class 2 shares for each such series.


Classes offered by each Account are shown in the table below:

	Share Class
Account Name	1	2
Asset Allocation Account	X
Balanced Account	X
Bond & Mortgage Securities Account	X
Diversified Balanced Account		X
Diversified Growth Account		X
Diversified International Account	X	X
Equity Income Account	X	X
Government & High Quality Bond Account	X
Income Account	X	X
International Emerging Markets Account	X
International SmallCap Account	X
LargeCap Blend Account II	X	X
LargeCap Growth Account	X	X
LargeCap Growth Account I	X
LargeCap S&P 500 Index Account	X
LargeCap Value Account	X
LargeCap Value Account III	X
MidCap Blend Account	X	X
MidCap Growth Account I	X
MidCap Value Account II	X
Money Market Account	X	X
Mortgage Securities Account	X	X
Principal Capital Appreciation Account	X	X
Principal LifeTime 2010 Account	X
Principal LifeTime 2020 Account	X
Principal LifeTime 2030 Account	X
Principal LifeTime 2040 Account	X
Principal LifeTime 2050 Account	X
Principal LifeTime Strategic Income Account	X
Real Estate Securities Account	X	X
SAM Balanced Portfolio	X	X
SAM Conservative Balanced Portfolio	X	X
SAM Conservative Growth Portfolio	X	X
SAM Flexible Income Portfolio	X	X
SAM Strategic Growth Portfolio	X	X
Short-Term Bond Account	X
Short-Term Income Account	X	X
SmallCap Blend Account	X
SmallCap Growth Account II	X	X
SmallCap Value Account I	X	X


DESCRIPTION OF THE FUND’S INVESTMENTS AND RISKS

The Fund is a registered, open-end management investment company, commonly called a mutual fund. The Fund
consists of multiple investment portfolios which are referred to as "Accounts." Each portfolio operates for many
purposes as if it were an independent mutual fund. Each portfolio has its own investment objective, strategy, and
management team. Each of the Accounts is diversified except Real Estate Securities Account which is non-diversified.

Fund Policies
The investment objectives, investment strategies and the principal risks of each Account are described in the
Prospectus. This Statement of Additional Information contains supplemental information about those strategies and
risks and the types of securities the Sub-Advisor can select for each Account. Additional information is also provided
about the strategies that the Account may use to try to achieve its objective.

The composition of each Account and the techniques and strategies that the Sub-Advisor may use in selecting
securities will vary over time. An Account is not required to use all of the investment techniques and strategies
available to it in seeking its goals.

Unless otherwise indicated, with the exception of the percentage limitations on borrowing, the restrictions apply at the
time transactions are entered into. Accordingly, any later increase or decrease beyond the specified limitation,
resulting from market fluctuations or in a rating by a rating service, does not require elimination of any security from the
portfolio.

The investment objective of each Account and, except as described below as “Fundamental Restrictions,” the
investment strategies described in this Statement of Additional Information and the prospectuses are not fundamental
and may be changed by the Board of Directors without shareholder approval. The Fundamental Restrictions may not
be changed without a vote of a majority of the outstanding voting securities of the affected Account. The Investment
Company Act of 1940, as amended, (“1940 Act”) provides that “a vote of a majority of the outstanding voting
securities” of an Account means the affirmative vote of the lesser of 1) more than 50% of the outstanding shares or
2) 67% or more of the shares present at a meeting if more than 50% of the outstanding Account shares are
represented at the meeting in person or by proxy. Each share has one vote, with fractional shares voting
proportionately. Shares of all classes of an Account will vote together as a single class except when otherwise
required by law or as determined by the Board of Directors.

With the exception of the diversification test required by the Internal Revenue Code, the Accounts will not consider
collateral held in connection with securities lending activities when applying any of the following fundamental
restrictions or any other investment restriction set forth in each Account’s prospectus or Statement of Additional
Information.

Fundamental Restrictions
Each of the following numbered restrictions for the Accounts and the Strategic Asset Management Portfolios is a
matter of fundamental policy and may not be changed without shareholder approval. Except as noted below, each of
the Accounts and Strategic Asset Management Portfolios may not:

1)	Issue senior securities as defined in the 1940 Act. Purchasing and selling securities and futures contracts and
	options thereon and borrowing money in accordance with restrictions described below do not involve the issuance
	of a senior security.

2) Invest in physical commodities or commodity contracts (other than foreign currencies), but it may purchase and sell
	financial futures contracts, options on such contracts, swaps and securities backed by physical commodities.

3)	Invest in real estate, although it may invest in securities that are secured by real estate and securities of issuers
	that invest or deal in real estate.

4)	Borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted,
	modified or otherwise permitted by regulatory authority having jurisdiction, from time to time.


5)	Make loans, except that the Account may a) purchase and hold debt obligations in accordance with its investment
	objectives and policies; b) enter into repurchase agreements; and c) lend its portfolio securities without limitation
	against collateral (consisting of cash or liquid assets) equal at all times to not less than 100% of the value of the
	securities lent. This limit does not apply to purchases of debt securities or commercial paper. This paragraph does
	not apply to the Diversified Balanced Account or Diversified Growth Account.

6)	Invest more than 5% of its total assets in the securities of any one issuer (other than obligations issued or
	guaranteed by the U.S. government or its agencies or instrumentalities) or purchase more than 10% of the
	outstanding voting securities of any one issuer, except that this limitation shall apply only with respect to 75% of the
	total assets of the Account. This restriction does not apply to the Principal LifeTime Accounts, the Strategic Asset
	Management Portfolios, the Real Estate Securities Account, the Diversified Balanced Account, or the Diversified
	Growth Account.

7)	Act as an underwriter of securities, except to the extent that the Account may be deemed to be an underwriter in
	connection with the sale of securities held in its portfolio.

8)	Concentrate its investments in any particular industry, except that the Account may invest up to 25% of the value of
	its total assets in a single industry, provided that, when the Account has adopted a temporary defensive posture,
	there shall be no limitation on the purchase of obligations issued or guaranteed by the U.S. government or its
	agencies or instrumentalities. This restriction applies to the LargeCap S&P 500 Index Account except to the extent
	that the related Index also is so concentrated. This restriction does not apply to the Real Estate Securities Account.

9)	Sell securities short (except where the Account holds or has the right to obtain at no added cost a long position in
	the securities sold that equals or exceeds the securities sold short).

10)Make loans, except that the Account may a) purchase and hold debt obligations in accordance with its investment
	objectives and policies, b) enter into repurchase agreements, c) participate in an interfund lending program with
	affiliated investment companies to the extent permitted by the 1940 Act or by any exemptions that may be granted
	by the Securities and Exchange Commission, and d) lend its portfolio securities without limitation against collateral
	(consisting of cash or liquid assets) equal at all times to not less than 100% of the value of the securities lent. This
	limit does not apply to purchases of debt securities or commercial paper. The paragraph applies only to the
	Diversified Balanced Account and Diversified Growth Account.

Non-Fundamental Restrictions
Each of the Accounts, except the Diversified Balanced Account, Diversified Growth Account, Principal LifeTime
Accounts and the Strategic Asset Management Portfolios, has also adopted the following restrictions that are not
fundamental policies and may be changed without shareholder approval. It is contrary to each Account’s present
policy to:

1)	Invest more than 15% (10% in the case of the Money Market Account) of its net assets in illiquid securities and in
	repurchase agreements maturing in more than seven days except to the extent permitted by applicable law.

2)	Pledge, mortgage, or hypothecate its assets, except to secure permitted borrowings. The deposit of underlying
	securities and other assets in escrow and other collateral arrangements in connection with transactions in put or
	call options, futures contracts, options on futures contracts, and over-the-counter swap contracts are not deemed
	to be pledges or other encumbrances.

3)	Invest in companies for the purpose of exercising control or management.

4)	Invest more than 25% of its assets in foreign securities, except that the Diversified International, International
	Emerging Markets, International SmallCap, and Money Market Accounts each may invest up to 100% of its assets
	in foreign securities. The LargeCap S&P 500 Index Account may invest in foreign securities to the extent that the
	relevant index is so invested. The Government & High Quality Bond Account and Mortgage Securities Account
	may not invest in foreign securities.


5)	Invest more than 5% of its total assets in real estate limited partnership interests (except Real Estate Securities
	Account).

6)	Acquire securities of other investment companies in reliance on Section 12(d)(1)(F) or (G) of the 1940 Act, invest
	more than 10% of its total assets in securities of other investment companies, invest more than 5% of its total
	assets in the securities of any one investment company, or acquire more than 3% of the outstanding voting
	securities of any one investment company except in connection with a merger, consolidation or plan of
	reorganization. The Account may purchase securities of closed-end investment companies in the open market
	where no underwriter or dealer’s commission or profit, other than a customary broker’s commission, is involved.

Each Account (except Asset Allocation, Balanced, LargeCap Value, Diversified International, Income, International
Emerging Markets, LargeCap Growth, and Short-Term Income) has also adopted the non-fundamental restriction,
pursuant to SEC Rule 35d-1, which requires it, under normal circumstances, to invest at least 80% of its net assets in
the type of securities, industry or geographic region (as described in the prospectus) as suggested by the name of the
Account. The Account will provide 60-days notice to shareholders prior to implementing a change in this policy for the
Account.

Each of the Principal LifeTime Accounts and Strategic Asset Management Portfolios and the Diversified Balanced
Account and Diversified Growth Account have also adopted the following restrictions that are not fundamental policies
and may be changed without shareholder approval. It is contrary to each Account’s and each Strategic Asset
Management Portfolio’s present policy to:

1)	Pledge, mortgage or hypothecate its assets, except to secure permitted borrowings. For the purpose of this
	restriction, collateral arrangements with respect to the writing of options by the underlying funds and collateral
	arrangements with respect to initial or variation margin for futures by the underlying funds are not deemed to be
	pledges of assets.

2)	Invest in companies for the purpose of exercising control or management.

Investment Strategies and Risks
Restricted Securities
Generally, restricted securities are not readily marketable because they are subject to legal or contractual restrictions
upon resale. They are sold only in a public offering with an effective registration statement or in a transaction that is
exempt from the registration requirements of the Securities Act of 1933. When registration is required, an Account
may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the
time of the decision to sell and the time the Account may be permitted to sell a security. If adverse market conditions
were to develop during such a period, the Account might obtain a less favorable price than existed when it decided to
sell. Restricted securities and other securities not readily marketable are priced at fair value as determined in good
faith by or under the direction of the Directors.

Each of the Accounts (except the Money Market Account) has adopted investment restrictions that limit its
investments in restricted securities or other illiquid securities up to 15% of its net assets (or, in the case of the Money
Market Account, 10%). The Directors have adopted procedures to determine the liquidity of Rule 4(2) short-term paper
and of restricted securities under Rule 144A. Securities determined to be liquid under these procedures are excluded
from the preceding investment restriction.

Foreign Securities
Foreign companies may not be subject to the same uniform accounting, auditing, and financial reporting practices as
are required of U.S. companies. In addition, there may be less publicly available information about a foreign company
than about a U.S. company. Securities of many foreign companies are less liquid and more volatile than securities of
comparable U.S. companies. Commissions on foreign securities exchanges may be generally higher than those on
U.S. exchanges.


Foreign markets also have different clearance and settlement procedures than those in U.S. markets. In certain
markets there have been times when settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct these transactions. Delays in settlement could result in temporary periods
when a portion of an Account’s assets is not invested and is earning no return. If an Account is unable to make
intended security purchases due to settlement problems, the Account may miss attractive investment opportunities. In
addition, an Account may incur a loss as a result of a decline in the value of its portfolio if it is unable to sell a security.

With respect to certain foreign countries, there is the possibility of expropriation or confiscatory taxation, political, or
social instability, or diplomatic developments that could affect an Account’s investments in those countries. In addition,
an Account may also suffer losses due to nationalization, expropriation, or differing accounting practices and
treatments. Investments in foreign securities are subject to laws of the foreign country that may limit the amount and
types of foreign investments. Changes of governments or of economic or monetary policies, in the U.S. or abroad,
changes in dealings between nations, currency convertibility, or exchange rates could result in investment losses for
an Account. Finally, even though certain currencies may be convertible into U.S. dollars, the conversion rates may be
artificial relative to the actual market values and may be unfavorable to an Account’s investors.

Foreign securities are often traded with less frequency and volume, and therefore may have greater price volatility,
than is the case with many U.S. securities. Brokerage commissions, custodial services, and other costs relating to
investment in foreign countries are generally more expensive than in the U.S. Though the Accounts intend to acquire
the securities of foreign issuers where there are public trading markets, economic or political turmoil in a country in
which an Account has a significant portion of its assets or deterioration of the relationship between the U.S. and a
foreign country may negatively impact the liquidity of an Account’s portfolio. The Account may have difficulty meeting
a large number of redemption requests. Furthermore, there may be difficulties in obtaining or enforcing judgments
against foreign issuers.

Investments in companies of developing (also called “emerging”) countries are subject to higher risks than
investments in companies in more developed countries. These risks include:
•	increased social, political, and economic instability;
•	a smaller market for these securities and low or nonexistent volume of trading that results in a lack of liquidity and
	in greater price volatility;
•	lack of publicly available information, including reports of payments of dividends or interest on outstanding
	securities;
•	foreign government policies that may restrict opportunities, including restrictions on investment in issuers or
	industries deemed sensitive to national interests;
•	relatively new capital market structure or market-oriented economy;
•	the possibility that recent favorable economic developments may be slowed or reversed by unanticipated political
	or social events in these countries;
•	restrictions that may make it difficult or impossible for the fund to vote proxies, exercise shareholder rights, pursue
	legal remedies, and obtain judgments in foreign courts; and
•	possible losses through the holding of securities in domestic and foreign custodial banks and depositories.

In addition, many developing countries have experienced substantial and, in some periods, extremely high rates of
inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of those countries.

Repatriation of investment income, capital and proceeds of sales by foreign investors may require governmental
registration and/or approval in some developing countries. An Account could be adversely affected by delays in or a
refusal to grant any required governmental registration or approval for repatriation.

Further, the economies of developing countries generally are heavily dependent upon international trade and,
accordingly, have been and may continue to be adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with
which they trade.


Depositary Receipts
Depositary Receipts are generally subject to the same sort of risks as direct investments in a foreign country, such as,
currency risk, political and economic risk, and market risk, because their values depend on the performance of a
foreign security denominated in its home currency.

The Accounts that may invest in foreign securities may invest in:
•	American Depositary Receipts (“ADRs”) - receipts issued by an American bank or trust company evidencing
	ownership of underlying securities issued by a foreign issuer. They are designed for use in U.S. securities markets.
•	European Depositary Receipts (“EDRs”) and Global Depositary Receipts (“GDRs”) - receipts typically issued by a
	foreign financial institution to evidence an arrangement similar to that of ADRs.

Depositary Receipts may be issued by sponsored or unsponsored programs. In sponsored programs, an issuer has
made arrangements to have its securities traded in the form of Depositary Receipts. In unsponsored programs, the
issuer may not be directly involved in the creation of the program. Although regulatory requirements with respect to
sponsored and unsponsored programs are generally similar, in some cases it may be easier to obtain financial
information from an issuer that has participated in the creation of a sponsored program. Accordingly, there may be
less information available regarding issuers of securities of underlying unsponsored programs, and there may not be a
correlation between the availability of such information and the market value of the Depositary Receipts.

Securities of Smaller Companies
The 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. Small company stocks may decline in price as large
company stocks rise, or rise in price while larger company stocks decline. Investors should therefore expect the net
asset value of the Account that invests a substantial portion of its assets in small company stocks may be more volatile
than the shares of an Account that invests solely in larger company stocks.

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 companies’ 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.
Spread Transactions, Options on Securities and Securities Indices, and Futures Contracts and Options on Futures
Contracts
The Accounts may each engage in the practices described under this heading.
•	Spread Transactions. Each Account may purchase covered spread options. Such covered spread options are not
	presently exchange listed or traded. The purchase of a spread option gives the Account the right to put, or sell, a
	security that it owns at a fixed dollar spread or fixed yield spread in relationship to another security that the Account
	does not own, but which is used as a benchmark. The risk to the Account in purchasing covered spread options is
	the cost of the premium paid for the spread option and any transaction costs. In addition, there is no assurance that
	closing transactions will be available. The purchase of spread options can be used to protect each Account against
	adverse changes in prevailing credit quality spreads, i.e., the yield spread between high quality and lower quality
	securities. The security covering the spread option is maintained in segregated accounts either with the Account’s
	custodian or on the Account’s records. The Accounts do not consider a security covered by a spread option to be
	“pledged” as that term is used in the Account’s policy limiting the pledging or mortgaging of assets.

• Options on Securities and Securities Indices. Each Account may write (sell) and purchase call and put options on

securities in which it invests and on securities indices based on securities in which the Account invests. The

Accounts may engage in these transactions to hedge against a decline in the value of securities owned or an

increase in the price of securities which the Account plans to purchase, or to generate additional revenue.

• Writing Covered Call and Put Options. When an Account writes a call option, it gives the purchaser of the option

the right to buy a specific security at a specified price at any time before the option expires. When an Account

writes a put option, it gives the purchaser of the option the right to sell to the Account a specific security at a

specified price at any time before the option expires. In both situations, the Account receives a premium from the

purchaser of the option.

The premium received by an Account reflects, among other factors, the current market price of the underlying

security, the relationship of the exercise price to the market price, the time period until the expiration of the option

and interest rates. The premium generates additional income for the Account if the option expires unexercised or is

closed out at a profit. By writing a call, an Account limits its opportunity to profit from any increase in the market

value of the underlying security above the exercise price of the option, but it retains the risk of loss if the price of the

security should decline. By writing a put, an Account assumes the risk that it may have to purchase the underlying

security at a price that may be higher than its market value at time of exercise.

The Accounts write only covered options and comply with applicable regulatory and exchange cover requirements.

The Accounts usually own the underlying security covered by any outstanding call option. With respect to an

outstanding put option, each Account deposits and maintains with its custodian or segregates on the Account’s

records, cash, or other liquid assets with a value at least equal to the exercise price of the option.

Once an Account has written an option, it may terminate its obligation before the option is exercised. The Account

executes a closing transaction by purchasing an option of the same series as the option previously written. The

Account has a gain or loss depending on whether the premium received when the option was written exceeds the

closing purchase price plus related transaction costs.

• Purchasing Call and Put Options. When an Account purchases a call option, it receives, in return for the premium it

pays, the right to buy from the writer of the option the underlying security at a specified price at any time before the

option expires. An Account purchases call options in anticipation of an increase in the market value of securities

that it intends ultimately to buy. During the life of the call option, the Account is able to buy the underlying security

at the exercise price regardless of any increase in the market price of the underlying security. In order for a call

option to result in a gain, the market price of the underlying security must exceed the sum of the exercise price, the

premium paid, and transaction costs.

When an Account purchases a put option, it receives, in return for the premium it pays, the right to sell to the writer

of the option the underlying security at a specified price at any time before the option expires. An Account

purchases put options in anticipation of a decline in the market value of the underlying security. During the life of

the put option, the Account is able to sell the underlying security at the exercise price regardless of any decline in

the market price of the underlying security. In order for a put option to result in a gain, the market price of the

underlying security must decline, during the option period, below the exercise price enough to cover the premium

and transaction costs.

Once an Account purchases an option, it may close out its position by selling an option of the same series as the

option previously purchased. The Account has a gain or loss depending on whether the closing sale price exceeds

the initial purchase price plus related transaction costs.

• Options on Securities Indices. Each Account may purchase and sell put and call options on any securities index

based on securities in which the Account may invest. Securities index options are designed to reflect price

fluctuations in a group of securities or segment of the securities market rather than price fluctuations in a single

security. Options on securities indices are similar to options on securities, except that the exercise of securities

index options requires cash payments and does not involve the actual purchase or sale of securities. The Accounts

engage in transactions in put and call options on securities indices for the same purposes as they engage in

transactions in options on securities. When an Account writes call options on securities indices, it holds in its

portfolio underlying securities which, in the judgment of the Sub-Advisor, correlate closely with the securities index

and which have a value at least equal to the aggregate amount of the securities index options.

• Risks Associated with Option Transactions. An option position may be closed out only on an exchange that

provides a secondary market for an option of the same series. The Accounts generally purchase or write only those

options for which there appears to be an active secondary market. However, there is no assurance that a liquid

secondary market on an exchange exists for any particular option, or at any particular time. If an Account is unable

to effect closing sale transactions in options it has purchased, it has to exercise its options in order to realize any

profit and may incur transaction costs upon the purchase or sale of underlying securities. If an Account is unable to

effect a closing purchase transaction for a covered option that it has written, it is not able to sell the underlying

securities, or dispose of the assets held in a segregated account, until the option expires or is exercised. An

Account’s ability to terminate option positions established in the over-the-counter market may be more limited than

for exchange-traded options and may also involve the risk that broker-dealers participating in such transactions

might fail to meet their obligations.

• Futures Contracts and Options on Futures Contracts. Each Account may purchase 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 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. Through the purchase and sale of futures contracts and related

options, an Account may seek to hedge against a decline in the value of securities owned by the Account or an

increase in the price of securities that the Account plans to purchase. Each Account may also purchase and sell

futures contracts and related options to maintain cash reserves while simulating full investment in securities and to

keep substantially all of its assets exposed to the market. Each Account may enter into futures contracts and

related options transactions both for hedging and non-hedging purposes.

• Futures Contracts. When an Account sells a futures contract based on a financial instrument, the Account is

obligated to deliver that kind of instrument at a specified future time for a specified price. When an Account

purchases that kind of contract, it is obligated to take delivery of the instrument at a specified time and to pay the

specified price. In most instances, these contracts are closed out by entering into an offsetting transaction before

the settlement date. The Account realizes a gain or loss depending on whether the price of an offsetting purchase

plus transaction costs are less or more than the price of the initial sale or on whether the price of an offsetting sale

is more or less than the price of the initial purchase plus transaction costs. Although the Accounts usually liquidate

futures contracts on financial instruments, by entering into an offsetting transaction before the settlement date, they

may make or take delivery of the underlying securities when it appears economically advantageous to do so.

A futures contract based on a securities index provides for the purchase or sale of a group of securities at a

specified future time for a specified price. These contracts do not require actual delivery of securities but result in a

cash settlement. The amount of the settlement is based on the difference in value of the index between the time the

contract was entered into and the time it is liquidated (at its expiration or earlier if it is closed out by entering into an

offsetting transaction).

When an Account purchases or sells a futures contract, it pays a commission to the futures commission merchant

through which the Account executes the transaction. When entering into a futures transaction, the Account does

not pay the execution price, as it does when it purchases a security, or a premium, as it does when it purchases an

option. Instead, the Account deposits an amount of cash or other liquid assets (generally about 5% of the futures

contract amount) with its futures commission merchant. This amount is known as “initial margin.” In contrast to the

use of margin account to purchase securities, the Account’s deposit of margin does not constitute the borrowing of

money to finance the transaction in the futures contract. The initial margin represents a good faith deposit that

helps assure the Account’s performance of the transaction. The futures commission merchant returns the initial

margin to the Account upon termination of the futures contract if the Account has satisfied all its contractual

obligations.

Subsequent payments to and from the futures commission merchant, known as “variation margin,” are required to

be made on a daily basis as the price of the futures contract fluctuates, a process known as “marking to market.”

The fluctuations make the long or short positions in the futures contract more or less valuable. If the position is

closed out by taking an opposite position prior to the settlement date of the futures contract, a final determination of

variation margin is made. Any additional cash is required to be paid to or released by the broker and the Account

realizes a loss or gain.

In using futures contracts, the Account may seek to establish more certainly, than would otherwise be possible, the

effective price of or rate of return on portfolio securities or securities that the Account proposes to acquire. An

Account, for example, sells futures contracts in anticipation of a rise in interest rates that would cause a decline in

the value of its debt investments. When this kind of hedging is successful, the futures contract increases in value

when the Account’s debt securities decline in value and thereby keeps the Account’s net asset value from declining

as much as it otherwise would. An Account may also sell futures contracts on securities indices in anticipation of or

during a stock market decline in an endeavor to offset a decrease in the market value of its equity investments.

When an Account is not fully invested and anticipates an increase in the cost of securities it intends to purchase, it

may purchase financial futures contracts. When increases in the prices of equities are expected, an Account may

purchase futures contracts on securities indices in order to gain rapid market exposure that may partially or entirely

offset increases in the cost of the equity securities it intends to purchase.

• Options on Futures Contracts. The Accounts may also purchase and write call and put options on futures

contracts. A call option on a futures contract gives the purchaser the right, in return for the premium paid, to

purchase a futures contract (assume a long position) at a specified exercise price at any time before the option

expires. A put option gives the purchaser the right, in return for the premium paid, to sell a futures contract (assume

a short position), for a specified exercise price, at any time before the option expires.

Upon the exercise of a call, the writer of the option is obligated to sell the futures contract (to deliver a long position

to the option holder) at the option exercise price, which will presumably be lower than the current market price of

the contract in the futures market. Upon exercise of a put, the writer of the option is obligated to purchase the

futures contract (deliver a short position to the option holder) at the option exercise price, which will presumably be

higher than the current market price of the contract in the futures market. However, as with the trading of futures,

most options are closed out prior to their expiration by the purchase or sale of an offsetting option at a market price

that reflects an increase or a decrease from the premium originally paid. Options on futures can be used to hedge

substantially the same risks addressed by the direct purchase or sale of the underlying futures contracts. For

example, if an Account anticipates a rise in interest rates and a decline in the market value of the debt securities in

its portfolio, it might purchase put options or write call options on futures contracts instead of selling futures

contracts.

If an Account purchases an option on a futures contract, it may obtain benefits similar to those that would result if it

held the futures position itself. But in contrast to a futures transaction, the purchase of an option involves the

payment of a premium in addition to transaction costs. In the event of an adverse market movement, however, the

Account is not subject to a risk of loss on the option transaction beyond the price of the premium it paid plus its

transaction costs.

When an Account writes an option on a futures contract, the premium paid by the purchaser is deposited with the

Account’s custodian. The Account must maintain with its futures commission merchant all or a portion of the initial

margin requirement on the underlying futures contract. It assumes a risk of adverse movement in the price of the

underlying futures contract comparable to that involved in holding a futures position. Subsequent payments to and

from the futures commission merchant, similar to variation margin payments, are made as the premium and the

initial margin requirements are marked to market daily. The premium may partially offset an unfavorable change in

the value of portfolio securities, if the option is not exercised, or it may reduce the amount of any loss incurred by

the Account if the option is exercised.

• Risks Associated with Futures Transactions. There are a number of risks associated with transactions in futures

contracts and related options. An Account’s successful use of futures contracts is subject to the ability of the Sub-

Advisor to predict correctly the factors affecting the market values of the Account’s portfolio securities. For

example, if an Account is hedged against the possibility of an increase in interest rates which would adversely

affect debt securities held by the Account and the prices of those debt securities instead increases, the Account

loses part or all of the benefit of the increased value of its securities it hedged because it has offsetting losses in its

futures positions. Other risks include imperfect correlation between price movements in the financial instrument or

securities index underlying the futures contract, on the one hand, and the price movements of either the futures

contract itself or the securities held by the Account, on the other hand. If the prices do not move in the same

direction or to the same extent, the transaction may result in trading losses.

Prior to exercise or expiration, a position in futures may be terminated only by entering into a closing purchase or

sale transaction. This requires a secondary market on the relevant contract market. The Account enters into a

futures contract or related option only if there appears to be a liquid secondary market. There can be no assurance,

however, that such a liquid secondary market exists for any particular futures contract or related option at any

specific time. Thus, it may not be possible to close out a futures position once it has been established. Under such

circumstances, the Account continues to be required to make daily cash payments of variation margin in the event

of adverse price movements. In such situations, if the Account has insufficient cash, it may be required to sell

portfolio securities to meet daily variation margin requirements at a time when it may be disadvantageous to do so.

In addition, the Account may be required to perform under the terms of the futures contracts it holds. The inability to

close out futures positions also could have an adverse impact on the Account’s ability effectively to hedge its

portfolio.

Most United States futures exchanges limit the amount of fluctuation permitted in futures contract prices during a

single trading day. This daily limit establishes the maximum amount that the price of a futures contract may vary

either up or down from the previous day’s settlement price at the end of a trading session. Once the daily limit has

been reached in a particular type of contract, no more trades may be made on that day at a price beyond that limit.

The daily limit governs only price movements during a particular trading day and therefore does not limit potential

losses because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have

occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby

preventing prompt liquidation of futures positions and subjecting some futures traders to substantial losses.

• Limitations on the Use of Futures and Options on Futures Contracts. Each Account that utilizes futures contracts

has claimed an exclusion from the definition of a "commodity pool operator" under the Commodity Exchange Act

and is not subject to registration or regulation as a commodity pool operator under the Commodity Exchange Act.

Each Account may enter into futures contracts and related options transactions, for hedging purposes and for other

appropriate risk management purposes, and to modify the Account’s exposure to various currency, equity, or fixed-

income markets. Each Account (other than Asset Allocation and Equity Growth) may engage in speculative futures

trading. When using futures contracts and options on futures contracts for hedging or risk management purposes,

each Account determines that the price fluctuations in the contracts and options are substantially related to price

fluctuations in securities held by the Account or which it expects to purchase. In pursuing traditional hedging

activities, each Account may sell futures contracts or acquire puts to protect against a decline in the price of

securities that the Account owns. Each Account may purchase futures contracts or calls on futures contracts to

protect the Account against an increase in the price of securities the Account intends to purchase before it is in a

position to do so.

When an Account purchases a futures contract, or purchases a call option on a futures contract, it segregates

portfolio assets, which must be liquid and marked to the market daily, in a segregated account. The amount so

segregated plus the amount of initial margin held for the account of its futures commission merchant equals the

market value of the futures contract.

With respect to futures contracts that are not legally required to “cash settle,” an Account may cover the open

position by setting aside or “earmarking” liquid assets in an amount equal to the market value of the futures

contract. With respect to futures that are contractually required to “cash settle,” however, an Account is permitted to

set aside or “earmark” liquid assets in an amount equal to the Account’s daily marked to market (net) obligation, if

any (in other words, the Account’s daily net liability, if any) rather than the market value of the futures contract. By

setting aside or “earmarking” assets equal to only its net obligation under cash-settled futures, a Account will have

the ability to utilize these contracts to a greater extent than if the Account were required to segregate or “earmark”

assets equal to the full market value of the futures contract.

Forward Foreign Currency Exchange Contracts

The Accounts may, but are not obligated to, enter into forward foreign currency exchange contracts under various

circumstances. Currency transactions include forward currency contracts and exchange listed or over-the-counter

options on currencies. A forward currency contract involves a privately negotiated obligation to purchase or sell a

specific currency at a specified future date at a price set at the time of the contract.

The typical use of a forward contract is to “lock in” the price of a security in U.S. dollars or some other foreign currency

which an Account is holding in its portfolio. By entering into a forward contract for the purchase or sale, for a fixed

amount of dollars or other currency, of the amount of foreign currency involved in the underlying security transactions,

an Account may be able to protect itself against a possible loss resulting from an adverse change in the relationship

between the U.S. dollar or other currency which is being used for the security purchase and the foreign currency in

which the security is denominated in or exposed to during the period between the date on which the security is

purchased or sold and the date on which payment is made or received.

The Sub-Advisor also may from time to time utilize forward contracts for other purposes. For example, they may be

used to hedge a foreign security held in the portfolio or a security which pays out principal tied to an exchange rate

between the U.S. dollar and a foreign currency, against a decline in value of the applicable foreign currency. They also

may be used to lock in the current exchange rate of the currency in which those securities anticipated to be purchased

are denominated in or exposed to. At times, an Account may enter into “cross-currency” hedging transactions

involving currencies other than those in which securities are held or proposed to be purchased are denominated.

An Account segregates liquid assets in an amount equal to its daily marked-to-market (net) obligation (i.e., its daily net

liability, if any) with respect to forward currency contracts. It should be noted that the use of forward foreign currency

exchange contracts does not eliminate fluctuations in the underlying prices of the securities. It simply establishes a

rate of exchange between the currencies that can be achieved at some future point in time. Additionally, although such

contracts tend to minimize the risk of loss due to a decline in the value of the hedged currency, they also tend to limit

any potential gain that might result if the value of the currency increases.

Currency hedging involves some of the same risks and considerations as other transactions with similar instruments.

Currency transactions can result in losses to an Account if the currency being hedged fluctuates in value to a degree

or in a direction that is not anticipated. Further, the risk exists that the perceived linkage between various currencies

may not be present or may not be present during the particular time that an Account is engaging in proxy hedging.

Currency transactions are also subject to risks different from those of other portfolio transactions. Because currency

control is of great importance to the issuing governments and influences economic planning and policy, purchases and

sales of currency and related instruments can be adversely affected by government exchange controls, limitations or

restrictions on repatriation of currency, and manipulations or exchange restrictions imposed by governments. These

forms of governmental actions can result in losses to an Account if it is unable to deliver or receive currency or monies

in settlement of obligations. They could also cause hedges the Account has entered into to be rendered useless,

resulting in full currency exposure as well as incurring transaction costs. Currency exchange rates may also fluctuate

based on factors extrinsic to a country’s economy. Buyers and sellers of currency forward contracts are subject to the

same risks that apply to the use of forward contracts generally. Further, settlement of a currency forward contract for

the purchase of most currencies must occur at a bank based in the issuing nation. The ability to establish and close

out positions on trading options on currency forward contracts is subject to the maintenance of a liquid market that

may not always be available.

Moreover, an Account bears the risk of loss of the amount expected to be received under a forward contract in the

event of the default as bankruptcy of a forward counterparty.

Repurchase and Reverse Repurchase Agreements, Mortgage Dollar Rolls and Sale-Buybacks

The Accounts may invest in repurchase and reverse repurchase agreements. In a repurchase agreement, an Account

purchases a security and simultaneously commits to resell that security to the seller at an agreed upon price on an

agreed upon date within a number of days (usually not more than seven) from the date of purchase. The resale price

consists of the purchase price plus an amount that is unrelated to the coupon rate or maturity of the purchased

security. A repurchase agreement involves the obligation of the seller to pay the agreed upon price, which obligation is

in effect secured by the value (at least equal to the amount of the agreed upon resale price and marked-to-market

daily) of the underlying security or “collateral.” A risk associated with repurchase agreements is the failure of the seller

to repurchase the securities as agreed, which may cause an Account to suffer a loss if the market value of such

securities declines before they can be liquidated on the open market. In the event of bankruptcy or insolvency of the

seller, an Account may encounter delays and incur costs in liquidating the underlying security. Repurchase

agreements that mature in more than seven days are subject to each Account’s limit on illiquid investments. While it is

not possible to eliminate all risks from these transactions, it is the policy of the Account to limit repurchase agreements

to those parties whose creditworthiness has been reviewed and found satisfactory by the Sub-Advisor.

An Account may use reverse repurchase agreements, mortgage dollar rolls, and economically similar transactions to

obtain cash to satisfy unusually heavy redemption requests or for other temporary or emergency purposes without the

necessity of selling portfolio securities, or to earn additional income on portfolio securities, such as Treasury bills or

notes. In a reverse repurchase agreement, an Account sells a portfolio security to another party, such as a bank or

broker-dealer, in return for cash and agrees to repurchase the instrument at a particular price and time. While a

reverse repurchase agreement is outstanding, an Account will maintain cash or appropriate liquid assets to cover its

obligation under the agreement. The Account will enter into reverse repurchase agreements only with parties that the

Sub-Advisor deems creditworthy. Using reverse repurchase agreements to earn additional income involves the risk

that the interest earned on the invested proceeds is less than the expense of the reverse repurchase agreement

transaction. This technique may also have a leveraging effect on the Account, although the Account’s intent to

segregate assets in the amount of the reverse repurchase obligation minimizes this effect.

A “mortgage dollar roll” is similar to a reverse repurchase agreement in certain respects. In a “dollar roll” transaction an

Account sells a mortgage-related security, such as a security issued by the Government National Mortgage

Association, to a dealer and simultaneously agrees to repurchase a similar security (but not the same security) in the

future at a pre-determined price. A dollar roll can be viewed, like a reverse repurchase agreement, as a collateralized

borrowing in which an Account pledges a mortgage-related security to a dealer to obtain cash. Unlike in the case of

reverse repurchase agreements, the dealer with which an Account enters into a dollar roll transaction is not obligated

to return the same securities as those originally sold by the Account, but only securities which are “substantially

identical.” To be considered “substantially identical,” the securities returned to an Account generally must: (1) be

collateralized by the same types of underlying mortgages; (2) be issued by the same agency and be part of the same

program; (3) have a similar original stated maturity; (4) have identical net coupon rates; (5) have similar market yields

(and therefore price); and (6) satisfy “good delivery” requirements, meaning that the aggregate principal amounts of

the securities delivered and received back must be within 0.01% of the initial amount delivered.

An Account’s obligations under a dollar roll agreement must be covered by segregated liquid assets equal in value to

the securities subject to repurchase by the Account.

An Account also may effect simultaneous purchase and sale transactions that are known as “sale-buybacks.” A sale-

buyback is similar to a reverse repurchase agreement, except that in a sale-buyback, the counterparty who purchases

the security is entitled to receive any principal or interest payments made on the underlying security pending

settlement of the Account’s repurchase of the underlying security. An Account’s obligations under a sale-buyback

typically would be offset by liquid assets equal in value to the amount of the Account’s forward commitment to

repurchase the subject security.

Real Estate Investment Trusts

Equity real estate investment trusts own real estate properties, while mortgage real estate investment trusts make

construction, development, and long-term mortgage loans. Their value may be affected by changes in the underlying

property of the trusts, the creditworthiness of the issuer, property taxes, interest rates, and tax and regulatory

requirements, such as those relating to the environment. Both types of trusts are not diversified, are dependent upon

management skill, are subject to heavy cash flow dependency, defaults by borrowers, self-liquidation, and the

possibility of failing to qualify for tax-free status of income under the Internal Revenue Code and failing to maintain

exemption from the 1940 Act.

High-Yield/High-Risk Bonds

The Asset Allocation, Balanced, Bond & Mortgage Securities, Equity Income, Income, MidCap Value II, Principal

Capital Appreciation, and Short-Term Bond Accounts each may invest a portion of its assets in bonds that are rated

below investment grade (i.e., bonds rated BB or lower by Standard & Poor’s Ratings Services or Ba or lower by

Moody’s Investors Service, Inc.) (commonly known as “junk bonds”). Lower rated bonds involve a higher degree of

credit risk, which is the risk that the issuer will not make interest or principal payments when due. In the event of an

unanticipated default, an Account would experience a reduction in its income and could expect a decline in the market

value of the bonds so affected. The Asset Allocation, Balanced, Bond & Mortgage Securities, Equity Income,

Government & High Quality Bond, Income, Principal Capital Appreciation, Short-Term Bond, and Short-Term Income

Accounts may also invest in unrated bonds of foreign and domestic issuers. Unrated bonds, while not necessarily of

lower quality than rated bonds, may not have as broad a market. Because of the size and perceived demand of the

issue, among other factors, certain municipalities may not incur the expense of obtaining a rating. The Sub-Advisor will

analyze the creditworthiness of the issuer, as well as any financial institution or other party responsible for payments

on the bond, in determining whether to purchase unrated bonds. Unrated bonds will be included in the limitation each

Account has with regard to high yield bonds unless the Sub-Advisor deems such securities to be the equivalent of

investment grade bonds.

Mortgage- and Asset-Backed Securities

The yield characteristics of the mortgage- and asset-backed securities in which the Asset Allocation, Balanced, Bond

& Mortgage Securities, Equity Income, Government & High Quality Bond, Income, Mortgage Securities, Principal

Capital Appreciation, Short-Term Bond, and Short-Term Income Accounts may invest differ from those of traditional

debt securities. Among the major differences are that the interest and principal payments are made more frequently on

mortgage- and asset-backed securities (usually monthly) and that principal may be prepaid at any time because the

underlying mortgage loans or other assets generally may be prepaid at any time. As a result, if the Account purchases

those securities at a premium, a prepayment rate that is faster than expected will reduce their yield, while a

prepayment rate that is slower than expected will have the opposite effect of increasing yield. If the Account purchases

these securities at a discount, faster than expected prepayments will increase their yield, while slower than expected

prepayments will reduce their yield. Amounts available for reinvestment by the Account are likely to be greater during

a period of declining interest rates and, as a result, are likely to be reinvested at lower interest rates than during a

period of rising interest rates.

In general, the prepayment rate for mortgage-backed securities decreases as interest rates rise and increases as

interest rates fall. However, rising interest rates will tend to decrease the value of these securities. In addition, an

increase in interest rates may affect the volatility of these securities by effectively changing a security that was

considered a short-term security at the time of purchase into a long-term security. Long-term securities generally

fluctuate more widely in response to changes in interest rates than short- or medium-term securities.

The market for privately issued mortgage- and asset-backed securities is smaller and less liquid than the market for

U.S. government mortgage-backed securities. A collateralized mortgage obligation (“CMO”) may be structured in a

manner that provides a wide variety of investment characteristics (yield, effective maturity, and interest rate

sensitivity). As market conditions change, and especially during periods of rapid market interest rate changes, the

ability of a CMO to provide the anticipated investment characteristics may be greatly diminished. Increased market

volatility and/or reduced liquidity may result.

Swap Agreements and Options on Swap Agreements

Each Account (except Money Market Account) may engage in swap transactions, including, but not limited to, swap

agreements on interest rates, security or commodity indexes, specific securities and commodities, and credit and

event-linked swaps, to the extent permitted by its investment restrictions. To the extent an Account may invest in

foreign currency-denominated securities, it may also invest in currency exchange rate swap agreements. An Account

may also enter into options on swap agreements (“swap options”).

An Account may enter into swap transactions for any legal purpose consistent with its investment objectives and

policies, such as for the purpose of attempting to obtain or preserve a particular return or spread at a lower cost than

obtaining a return or spread through purchases and/or sales of instruments in other markets, to protect against

currency fluctuations, as a duration management technique, to protect against any increase in the price of securities

an Account anticipates purchasing at a later date, or to gain exposure to certain markets in the most economical way

possible.

Swap agreements are two party contracts entered into primarily by institutional investors for periods ranging from a

few weeks to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or

differentials in rates of return) earned or realized on particular predetermined investments or instruments, which may

be adjusted for an interest factor. The gross returns to be exchanged or “swapped” between the parties are generally

calculated with respect to a “notional amount,” i.e., the return on or increase in value of a particular dollar amount

invested at a particular interest rate, in a particular foreign currency, or in a “basket” of securities or commodities

representing a particular index. Forms of swap agreements include interest rate caps, under which, in return for a

premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or

“cap”; interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the

extent that interest rates fall below a specified rate, or “floor”; and interest rate collars, under which a party sells a cap

and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given

minimum or maximum levels. Consistent with an Account’s investment objectives and general investment policies,

certain of the Accounts may invest in commodity swap agreements. For example, an investment in a commodity swap

agreement may involve the exchange of floating-rate interest payments for the total return on a commodity index. In a

total return commodity swap, an Account will receive the price appreciation of a commodity index, a portion of the

index, or a single commodity in exchange for paying an agreed-upon fee. If the commodity swap is for one period, an

Account may pay a fixed fee, established at the outset of the swap. However, if the term of the commodity swap is for

more than one period, with interim swap payments, an Account may pay an adjustable or floating fee. With a “floating”

rate, the fee may be pegged to a base rate, such as the London Interbank Offered Rate, and is adjusted each period.

Therefore, if interest rates increase over the term of the swap contract, an Account may be required to pay a higher

fee at each swap reset date.

An Account may enter into credit default swap agreements. The “buyer” in a credit default contract is obligated to pay

the “seller” a periodic stream of payments over the term of the contract provided that no event of default on an

underlying reference obligation has occurred. If an event of default occurs, the seller must pay the buyer the full

notional value, or “par value,” of the reference obligation in exchange for the reference obligation. An Account may be

either the buyer or seller in a credit default swap transaction. If an Account is a buyer and no event of default occurs,

the Account will lose its investment and recover nothing. However, if an event of default occurs, the Account (if the

buyer) will receive the full notional value of the reference obligation that may have little or no value. As a seller, an

Account receives a fixed rate of income throughout the term of the contract, which typically is between six months and

three years, provided that there is no default event. If an event of default occurs, the seller must pay the buyer the full

notional value of the reference obligation.

A swap option is a contract that gives a counterparty the right (but not the obligation) in return for payment of a

premium, to enter into a new swap agreement or to shorten, extend, cancel, or otherwise modify an existing swap

agreement, at some designated future time on specified terms. Each Account (except Money Market Account) may

write (sell) and purchase put and call swap options. Most swap agreements entered into by the Accounts would

calculate the obligations of the parties to the agreement on a “net basis.” Consequently, an Account’s current

obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received

under the agreement based on the relative values of the positions held by each party to the agreement (the “net

amount”). An Account’s current obligations under a swap agreement will be accrued daily (offset against any amounts

owed to the Account) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by the

segregation of assets determined to be liquid by the Manager or Sub-Advisor in accordance with procedures

established by the Board of Directors, to avoid any potential leveraging of the Account’s portfolio. Obligations under

swap agreements so covered will not be construed to be “senior securities” for purposes of the Account’s investment

restriction concerning senior securities. Each Account will not enter into a swap agreement with any single party if the

net amount owed or to be received under existing contracts with that party would exceed 5% of the Account’s total

assets.

Whether an Account’s use of swap agreements or swap options will be successful in furthering its investment

objective of total return will depend on the ability of the Account’s Manager or Sub-Advisor to predict correctly whether

certain types of investments are likely to produce greater returns than other investments. Because they are two party

contracts and because they may have terms of greater than seven days, swap agreements may be considered to be

illiquid. Moreover, an Account bears the risk of loss of the amount expected to be received under a swap agreement in

the event of the default or bankruptcy of a swap agreement counterparty. The Accounts will enter into swap

agreements only with counterparties that present minimal credit risks, as determined by the Account’s Manager or

Sub-Advisor. Certain restrictions imposed on the Accounts by the Internal Revenue Code may limit the Accounts’

ability to use swap agreements. The swaps market is a relatively new market and is largely unregulated. It is possible

that developments in the swaps market, including potential government regulation, could adversely affect an

Account’s ability to terminate existing swap agreements or to realize amounts to be received under such agreements.

Depending on the terms of the particular option agreement, an Account will generally incur a greater degree of risk

when it writes a swap option than it will incur when it purchases a swap option. When an Account purchases a swap

option, it risks losing only the amount of the premium it has paid should it decide to let the option expire unexercised.


However, when an Account writes a swap option, upon exercise of the option the Account will become obligated
according to the terms of the underlying agreement.

Liquidity. Some swap markets have grown substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, these
swap markets have become relatively liquid.
The liquidity of swap agreements will be determined by the Manager or Sub-Advisor based on various factors,
including:
•	the frequency of trades and quotations,
•	the number of dealers and prospective purchasers in the marketplace,
•	dealer undertakings to make a market,
•	the nature of the security (including any demand or tender features), and
•	the nature of the marketplace for trades (including the ability to assign or offset a portfolio’s rights and obligations
	relating to the investment).

Such determination will govern whether a swap will be deemed to be within each Account’s restriction on investments
in illiquid securities.
For purposes of applying the Accounts’ investment policies and restrictions (as stated in the Prospectuses and this
Statement of Additional Information) swap agreements are generally valued by the Accounts at market value. In the
case of a credit default swap sold by an Account (i.e., where the Account is selling credit default protection), however,
the Account will value the swap at its notional amount. The manner in which the Accounts value certain securities or
other instruments for purposes of applying investment policies and restrictions may differ from the manner in which
those investments are valued by other types of investors.

Zero-coupon securities
The Accounts may invest in zero-coupon securities. Zero-coupon securities have no stated interest rate and pay only
the principal portion at a stated date in the future. They usually trade at a substantial discount from their face (par)
value. Zero-coupon securities are subject to greater market value fluctuations in response to changing interest rates
than debt obligations of comparable maturities that make distributions of interest in cash.
Securities Lending
All Accounts may lend their portfolio securities. None of the Accounts will lend its portfolio securities if as a result the
aggregate of such loans made by the Account would exceed the limits established by the 1940 Act. Portfolio securities
may be lent to unaffiliated broker-dealers and other unaffiliated qualified financial institutions provided that such loans
are callable at any time on not more than five business days’ notice and that cash or other liquid assets equal to at
least 100% of the market value of the securities loaned, determined daily, is deposited by the borrower with the
Account and is maintained each business day. While such securities are on loan, the borrower pays the Account any
income accruing thereon. The Account may invest any cash collateral, thereby earning additional income, and may
receive an agreed-upon fee from the borrower. Borrowed securities must be returned when the loan terminates. Any
gain or loss in the market value of the borrowed securities that occurs during the term of the loan belongs to the
Account and its shareholders. An Account pays reasonable administrative, custodial, and other fees in connection with
such loans and may pay a negotiated portion of the interest earned on the cash or government securities pledged as
collateral to the borrower or placing broker. An Account does not normally retain voting rights attendant to securities it
has lent, but it may call a loan of securities in anticipation of an important vote.

Short Sales
Each Account, other than the Diversified Balanced Account, Diversified Growth Account, Principal LifeTime Accounts
and the SAM Portfolios, may engage in “short sales against the box.” This technique involves selling either a security
owned by the Account, or a security equivalent in kind and amount to the security sold short that the Account has the
right to obtain, for delivery at a specified date in the future. An Account may enter into a short sale against the box to
hedge against anticipated declines in the market price of portfolio securities. If the value of the securities sold short
increases prior to the scheduled delivery date, an Account loses the opportunity to participate in the gain.

When-Issued, Delayed Delivery, and Forward Commitment Transactions
Each of the Accounts may purchase or sell securities on a when-issued, delayed delivery, or forward commitment
basis. When such purchases are outstanding, the Account will segregate until the settlement date assets determined
to be liquid by the Sub-Advisor in accordance with procedures established by the Board of Directors, in an amount


sufficient to meet the purchase price. Typically, no income accrues on securities an Account has committed to
purchase prior to the time delivery of the securities is made, although an Account may earn income on securities it has
segregated.

When purchasing a security on a when-issued, delayed delivery, or forward commitment basis, the Account assumes
the rights and risks of ownership of the security, including the risk of price and yield fluctuations, and takes such
fluctuations into account when determining its net asset value. Because the Account is not required to pay for the
security until the delivery date, these risks are in addition to the risks associated with the Account’s other investments.
If the Account remains substantially fully invested at a time when when-issued, delayed delivery, or forward
commitment purchases are outstanding, the purchases may result in a form of leverage.

When the Account has sold a security on a when-issued, delayed delivery, or forward commitment basis, the Account
does not participate in future gains or losses with respect to the security. If the other party to a transaction fails to
deliver or pay for the securities, the Account could miss a favorable price or yield opportunity or could suffer a loss. An
Account may dispose of or renegotiate a transaction after it is entered into, and may sell when-issued, delayed
delivery, or forward commitment securities before they are delivered, which may result in a capital gain or loss. There
is no percentage limitation on the extent to which the Accounts may purchase or sell securities on a when-issued,
delayed delivery, or forward commitment basis.

Money Market Instruments/Temporary Defensive Position
The Money Market Account invests all of its available assets in money market instruments maturing in 397 days or
less. In addition, all of the Accounts may make money market investments (cash equivalents), without limit, pending
other investment or settlement, for liquidity, or in adverse market conditions. Following are descriptions of the types of
money market instruments that the Accounts may purchase:
•	U.S. Government Securities – Securities issued or guaranteed by the U.S. government, including treasury bills,
	notes, and bonds.
•	U.S. Government Agency Securities – Obligations issued or guaranteed by agencies or instrumentalities of the
	U.S. government.
	•	U.S. agency obligations include, but are not limited to, the Bank for Cooperatives, Federal Home Loan
		Banks, and Federal Intermediate Credit Banks.
	•	U.S. instrumentality obligations include, but are not limited to, the Export-Import Bank, Federal Home Loan
		Mortgage Corporation, and Federal National Mortgage Association.

Some obligations issued or guaranteed by U.S. government agencies and instrumentalities are supported by the full
faith and credit of the U.S. Treasury. Others, such as those issued by the Federal National Mortgage Association, are
supported by discretionary authority of the U.S. government to purchase certain obligations of the agency or
instrumentality. Still others, such as those issued by the Student Loan Marketing Association, are supported only by
the credit of the agency or instrumentality.

•	Bank Obligations – Certificates of deposit, time deposits and bankers’ acceptances of U.S. commercial banks
	having total assets of at least one billion dollars and overseas branches of U.S. commercial banks and foreign
	banks, which in the opinion of the Sub-Advisor, are of comparable quality. However, each such bank with its
	branches has total assets of at least five billion dollars, and certificates, including time deposits of domestic savings
	and loan associations having at least one billion dollars in assets that are insured by the Federal Savings and Loan
	Insurance Corporation. The Account may acquire obligations of U.S. banks that are not members of the Federal
	Reserve System or of the Federal Deposit Insurance Corporation.

	Obligations of foreign banks and obligations of overseas branches of U.S. banks are subject to somewhat different
	regulations and risks than those of U.S. domestic banks. For example, an issuing bank may be able to maintain
	that the liability for an investment is solely that of the overseas branch which could expose an Account to a greater
	risk of loss. In addition, obligations of foreign banks or of overseas branches of U.S. banks may be affected by
	governmental action in the country of domicile of the branch or parent bank. Examples of adverse foreign
	governmental actions include the imposition of currency controls, the imposition of withholding taxes on interest
	income payable on such obligations, interest limitations, seizure or nationalization of assets, or the declaration of a
	moratorium. Deposits in foreign banks or foreign branches of U.S. banks are not covered by the Federal Deposit
	Insurance Corporation. An Account only buys short-term instruments where the risks of adverse governmental


	action are believed by the Sub-Advisor to be minimal. An Account considers these factors, along with other
	appropriate factors, in making an investment decision to acquire such obligations. It only acquires those which, in
	the opinion of management, are of an investment quality comparable to other debt securities bought by the
	Account. An Account may invest in certificates of deposit of selected banks having less than one billion dollars of
	assets providing the certificates do not exceed the level of insurance (currently $100,000) provided by the
	applicable government agency.

	A certificate of deposit is issued against funds deposited in a bank or savings and loan association for a definite
	period of time, at a specified rate of return. Normally they are negotiable. However, an Account occasionally may
	invest in certificates of deposit which are not negotiable. Such certificates may provide for interest penalties in the
	event of withdrawal prior to their maturity. A bankers’ acceptance is a short-term credit instrument issued by
	corporations to finance the import, export, transfer, or storage of goods. They are termed “accepted” when a bank
	guarantees their payment at maturity and reflect the obligation of both the bank and drawer to pay the face amount
	of the instrument at maturity.

•	Commercial Paper – Short-term promissory notes issued by U.S. or foreign corporations.

•	Short-term Corporate Debt – Corporate notes, bonds, and debentures that at the time of purchase have 397 days
	or less remaining to maturity.

•	Repurchase Agreements – Instruments under which securities are purchased from a bank or securities dealer with
	an agreement by the seller to repurchase the securities at the same price plus interest at a specified rate.

•	Taxable Municipal Obligations – Short-term obligations issued or guaranteed by state and municipal issuers which
	generate taxable income.

The ratings of nationally recognized statistical rating organization (“NRSRO”), such as Moody’s Investor Services, Inc.
(“Moody’s”) and Standard & Poor’s (“S&P”), which are described in Appendix A, represent their opinions as to the
quality of the money market instruments which they undertake to rate. It should be emphasized, however, that ratings
are general and are not absolute standards of quality. These ratings, including ratings of NRSROs other than Moody’s
and S&P, are the initial criteria for selection of portfolio investments, but the Sub-Advisor further evaluates these
securities.

Other Investment Companies
Each Account may invest in the securities of investment companies, subject to its fundamental and non-fundamental
investment restrictions. Securities of other investment companies, including shares of closed-end investment
companies, unit investment trusts, various exchange-traded funds (“ETFs”), and other open-end investment
companies, represent interests in professionally managed portfolios that may invest in any type of instrument. Certain
types of investment companies, such as closed-end investment companies, issue a fixed number of shares that trade
on a stock exchange or over-the-counter at a premium or a discount to their net asset value. Others are continuously
offered at net asset value, but may also be traded in the secondary market. ETFs are often structured to perform in a
similar fashion to a broad-based securities index. Investing in ETFs involves substantially the same risks as investing
directly in the underlying instruments. In addition, ETFs involve the risk that they will not perform in exactly the same
fashion, or in response to the same factors, as the index or underlying instruments.
As a shareholder in an investment company, an Account would bear its ratable share of that entity’s expenses,
including its advisory and administrative fees. The Fund would also continue to pay its own advisory fees and other
expenses. Consequently, the Account and its shareholders, in effect, will be absorbing two levels of fees with respect
to investments in other investment companies.
Bank Loans (also known as Senior Floating Rate Interests)
The Bond & Mortgage Securities and Short-Term Bond Accounts invest in bank loans. Bank loans hold the most
senior position in the capital structure of a business entity (the “Borrower”), are typically secured by specific collateral,
and have a claim on the assets and/or stock of the Borrower that is senior to that held by subordinated debtholders
and stockholders of the Borrower. Bank loans are typically structured and administered by a financial institution that
acts as the agent of the lenders participating in the bank loan. Bank loans are rated below-investment-grade, which

means they are more likely to default than investment-grade loans. A default could lead to non-payment of income

which would result in a reduction of income to the fund and there can be no assurance that the liquidation of any

collateral would satisfy the Borrower’s obligation in the event of non-payment of scheduled interest or principal

payments, or that such collateral could be readily liquidated.

Bank loans pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These

base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered

Rate (LIBOR) or the prime rate offered by one or more major United States banks.

Bank loans generally are subject to mandatory and/or optional prepayment. Because of these mandatory prepayment

conditions and because there may be significant economic incentives for the Borrower to repay, prepayments of

senior floating rate interests may occur.

Industry Concentrations

The Diversified Balanced Account, Diversified Growth Account and each of the Principal LifeTime Accounts and

Strategic Asset Management Portfolios concentrate its investments in the mutual fund industry. Each of the other

Accounts, except the Real Estate Securities Account, may not concentrate (invest more than 25% of its assets) its

investments in any particular industry. The Real Estate Securities Account may hold more than 25% of its assets in

securities of companies in the real estate industry. The LargeCap S&P 500 Index Account may concentrate its

investments in a particular industry only to the extent that the S&P 500 Index is concentrated.

For purposes of applying the SmallCap Growth Account II (portion sub-advised by Emerald Advisers, Inc.) industry

concentration restrictions, the Account uses the industry groups used in the Data Monitor Portfolio Monitoring System

of William O’Neil & Co., Incorporated. Each of the Accounts sub-advised by Edge Asset Management, Inc. (“Edge”),

use the Global Industry Classification Standard industry classifications. The other Accounts use industry

classifications based on the “Directory of Companies Filing Annual Reports with the Securities and Exchange

Commission (“SEC”).” The Accounts interpret their policy with respect to concentration in a particular industry to apply

to direct investments in the securities of issuers in a particular industry. For purposes of this restriction, government

securities such as treasury securities or mortgage-backed securities that are issued or guaranteed by the

U.S. government, its agencies or instrumentalities are not subject to the Accounts’ industry concentration restrictions.

In the case of privately issued mortgage-related securities, or any asset-backed securities, the Accounts take the

position that such securities do not represent interests in any particular “industry” or group of industries.

Portfolio Turnover

Portfolio turnover is a measure of how frequently a portfolio’s securities are bought and sold. The portfolio turnover

rate is generally calculated as the dollar value of the lesser of a portfolio’s purchases or sales of shares of securities

during a given year, divided by the monthly average value of the portfolio securities during that year (excluding

securities whose maturity or expiration at the time of acquisition were less than one year). For example, a portfolio

reporting a 100% portfolio turnover rate would have purchased and sold securities worth as much as the monthly

average value of its portfolio securities during the year.

It is not possible to predict future turnover rates with accuracy. Many variable factors are outside the control of a

portfolio manager. The investment outlook for the securities in which a portfolio may invest may change as a result of

unexpected developments in securities markets, economic or monetary policies, or political relationships. High market

volatility may result in a portfolio manager using a more active trading strategy than might otherwise be employed.

Each portfolio manager considers the economic effects of portfolio turnover but generally does not treat the portfolio

turnover rate as a limiting factor in making investment decisions.

Sale of shares by investors may require the liquidation of portfolio securities to meet cash flow needs. In addition,

changes in a particular portfolio’s holdings may be made whenever the portfolio manager considers that a security is

no longer appropriate for the portfolio or that another security represents a relatively greater opportunity. Such

changes may be made without regard to the length of time that a security has been held.

Higher portfolio turnover rates generally increase transaction costs that are expenses of the Account. Active trading

may generate short-term gains (losses) for taxable shareholders.


The following Accounts had significant variation in portfolio turnover rates over the two most recently completed fiscal
years:
•	Asset Allocation Account (243.1% in 2008 and 125.3% in 2007). The turnover rate for the Asset Allocation Account
	was higher in 2008 due to allocation changes as a result of the volatile global financial markets.
•	LargeCap Value Account III (56.5% in 2008 and 21.0% in 2007). The turnover rate for the LargeCap Value Account
	III was higher in 2008 due to the addition of a Sub-Advisor, Westwood Management Corporation, to the portfolio.
	The portfolio transition increased portfolio turnover.
•	Principal LifeTime 2010 Account (26.0% in 2008 and 67.0% in 2007). In 2007, the Principal LifeTime 2010 Account
	went through a significant reallocation, increasing portfolio turnover in 2007.
•	Principal LifeTime 2020 Account (14.6% in 2008 and 60.3% in 2007). In 2007, the Principal LifeTime 2020 Account
	went through a significant reallocation, increasing portfolio turnover in 2007.
•	Principal LifeTime 2030 Account (18.0% in 2008 and 66.7% in 2007). In 2007, the Principal LifeTime 2030 Account
	went through a significant reallocation, increasing portfolio turnover in 2007.
•	Principal LifeTime 2040 Account (22.6% in 2008 and 72.7% in 2007). In 2007, the Principal LifeTime 2040 Account
	went through a significant reallocation, increasing portfolio turnover in 2007.
•	Principal LifeTime 2050 Account (16.1% in 2008 and 93.1% in 2007). In 2007, the Principal LifeTime 2050 Account
	went through a significant reallocation, increasing portfolio turnover in 2007.
•	Principal LifeTime Strategic Income Account (26.8% in 2008 and 54.4% in 2007). In 2007, the Principal LifeTime
	Strategic Income Account went through a significant reallocation, increasing portfolio turnover in 2007.
•	SAM Conservative Growth Portfolio (24.4% in 2008 and 46.8% in 2007). In 2007, the Conservative Growth
	Portfolio had a large reallocation which included adding a few new underlying equity options. This led to a turnover
	that was higher than usual.
•	SAM Flexible Income Portfolio (53.9% in 2008 and 28.4% in 2007). In 2008, the Flexible Income Portfolio had a
	higher than normal turnover due to a reallocation in underlying fixed-income options.

Closed Accounts
Principal Management Corporation (the “Manager”) may recommend to the Board, and the Board may elect, to close
certain accounts to new investors or close certain accounts to new and existing investors. The Manager may make
such a recommendation when an account approaches a size where additional investments in the Account have the
potential to adversely impact Account performance and make it increasingly difficult to keep the Account fully invested
in a manner consistent with its investment objective.

LEADERSHIP STRUCTURE AND BOARD OF DIRECTORS

Overall responsibility for directing the business and affairs of the Fund rests with the Board of Directors, who are
elected by the Fund's shareholders. In addition to serving on the Board of Directors of the Fund, each director serves
on the Board of Principal Funds, Inc. (PFI). The Board is responsible for overseeing the operations of the Fund in
accordance with the provisions of the Investment Company Act, other applicable laws and the Fund's charter. The
Board of Directors elects the officers of the Fund to supervise its day-to-day operations. The Board meets in regularly
scheduled meetings eight times throughout the year. Board meetings may occur in-person or by telephone. In
addition, the Board holds special in-person or telephonic meetings or informal conference calls to discuss specific
matters that may arise or require action between regular meetings. The Board is currently composed of twelve
members, nine of whom are not "interested persons" ("Independent Directors") of the Fund, as that term is defined in
the Investment Company Act. Each director has significant prior senior management and/or board experience.

The Chairman of the Board is an interested person of the Fund. The independent directors of the Fund have appointed
a lead independent director whose role is to review and approve, with the Chairman, the agenda for each Board
meeting and facilitate communication among the Fund's independent directors as well as communication between the
independent directors, management of the Fund and the full Board. The Fund has determined that the Board's
leadership structure is appropriate given the characteristics and circumstances of the Fund, including such items as
the number of series or portfolios that comprise the Fund, the variety of asset classes those series reflect, the net
assets of the Fund, the committee structure of the Fund and the distribution arrangements of the Fund.

The following is a brief discussion of the specific experience, qualifications, attributes or skills that led to the
conclusion, as of the date of this Statement of Additional Information, that each person identified below should serve

as a director for the Fund. As required by rules the Securities and Exchange Commission has adopted under the

Investment Company Act, the Fund's Independent Directors select and nominate all candidates for Independent

Director positions.

Elizabeth Ballantine. Ms. Ballantine has served as a director of the Fund since 2004. Ms. Ballantine has also served

as a director of PFI since 2004. Through her experience as a director of Principal Funds, investment consultant and

director of McClatchy Company, Ms. Ballantine is experienced in financial, investment and regulatory matters.

Kristianne Blake. Ms. Blake has served as a director of the Fund since 2007. Ms. Blake has also served as a director

of PFI since 2007. From 1998-2007, Ms. Blake served as a Trustee of the WM Group of Funds. Ms. Blake has been a

director of the Russell Investment Funds since 2000. Through her education, experience as a director of mutual funds

and employment experience, Ms. Blake is experienced with financial, accounting, regulatory and investment matters.

Craig Damos. Mr. Damos has served as a director of the Fund since 2008. Mr. Damos has also served as a director

of PFI since 2008. Mr. Damos is the Chief Executive Officer of Weitz Company. From 2000-2004, Mr. Damos served

as the Chief Financial Officer of Weitz Company. From 2005-2008, Mr. Damos served as a director of West Bank. Mr.

Damos is a certified public accountant. Through his education, experience as a director of Principal Funds and

employment experience, Mr. Damos is experienced with financial, accounting, regulatory and investment matters.

Ralph C. Eucher. Mr. Eucher has served as a director of the Fund since 1999. Mr. Eucher has also served as a

director of PFI since 1999. Mr. Eucher has served as a director of Principal Management Corporation and Princor

Financial Services Corporation since 1999. Mr. Eucher has been a Senior Vice President at Principal Financial

Group, Inc. since 2002. Through his service as a director of Principal Funds and his employment experience, Mr.

Eucher is experienced with financial, regulatory and investment matters.

Nora M. Everett. Ms. Everett has served as a director of the Fund since 2008. Ms. Everett has also served as a

director of PFI since 2008. From 2004-2008, Ms. Everett was Senior Vice President and Deputy General Counsel at

Principal Financial Group, Inc. From 2001-2004, Ms. Everett was Vice President and Counsel at Principal Financial

Group. Through her service as a director of Principal Funds and her employment experience, Ms. Everett is

experienced with financial, regulatory and investment matters.

Richard W. Gilbert. Mr. Gilbert has served as a director of the Fund since 2000. Mr. Gilbert has also served as a

director of PFI since 2000. From 1988-1993, Mr. Gilbert served as the Chairman of the Board of the Federal Home

Loan Bank of Chicago. Since 2005, Mr. Gilbert has served as a director of Calamos Asset Management, Inc. Through

his service as a director of Principal Funds and his employment experience, Mr. Gilbert is experienced with financial,

regulatory and investment matters.

Mark A. Grimmet. Mr. Grimmet has served as a director of the Fund since 2004. Mr. Grimmet has also served as a

director of PFI since 2004. Mr. Grimmett is a certified public accountant. Since 1996, Mr. Grimmet has served as the

Chief Financial Officer for Merle Norman Cosmetics, Inc. Through his service as a director of Principal Funds, his

education and his employment experience, Mr. Grimmet is experienced with financial, accounting, regulatory and

investment matters.

Fritz Hirsch. Mr. Hirsch has served as director of the Fund since 2005. Mr. Hirsch has also served as a director of the

PFI since 2005. From 1983-1985, Mr. Hirsch served as Chief Financial Officer of Sassy, Inc. From 1986-2009, Mr.

Hirsch served as President and Chief Executive Officer of Sassy, Inc. Through his experience as a director of the

Principal Funds and employment experience, Mr. Hirsch is experienced with financial, accounting, regulatory and

investment matters.

William Kimball. Mr. Kimball has served as director of the Fund since 2000. Mr. Kimball has also served as a director

of the PFI since 2000. From 1998-2004, Mr. Kimball served as Chairman and CEO of Medicap Pharmacies, Inc. Prior

to 1998, Mr. Kimball served as President and CEO of Medicap. Since 2004, Mr. Kimball has served as director of

Casey's General Store, Inc. Through his experience as a director of the Principal Funds and his employment

experience, Mr. Kimball is experienced with financial, regulatory and investment matters.

Barbara Lukavsky. Ms. Lukavsky has served as a director of the Fund since 1993. Ms. Lukavsky has also served as

a director of PFI since 1993. Ms. Lukavsky founded Barbican Enterprises, Inc. and since 1994 has served as its

President and CEO. Through her experience as a director of the Principal Funds and employment experience, Ms.

Lukavsky is experienced with financial, regulatory, marketing and investment matters.

William G. Papesh. Mr. Papesh has served as a director of the Fund since 2007. Mr. Papesh has also served as a

director of PFI since 2007. From 1987-2007, Mr. Papesh served as a Trustee, President and Chief Executive Officer of

the WM Group of Funds. Through his experience as a director of mutual funds and his employment experience, Mr.

Papesh is experienced with financial, regulatory and investment matters.

Daniel Pavelich. Mr. Pavelich has served as a director of the Fund since 2007. Mr. Pavelich has also served as a

director of PFI since 2007. From 1998-2007, Mr. Pavelich served as a Trustee of the WM Group of Funds. From 1996-

1999, Mr. Pavelich served as Chairman and CEO of BDO Seidman and as its Chairman from 1994-1996. Through his

education, experience as a director of mutual funds and his employment experience, Mr. Pavelich is experienced with

financial, accounting, regulatory and investment matters.

Risk oversight forms part of the Board's general oversight of the Fund and is addressed as part of various Board and

Committee activities. As part of its regular oversight of the Funds, the Board, directly or through a Committee, interacts

with and reviews reports from, among others, Fund management, subadvisers, the Fund's Chief Compliance Officer,

the independent registered public accounting firm for the Fund, internal auditors for Principal or its affiliates, as

appropriate, regarding risks faced by the Fund. The Board, with the assistance of Fund management and Principal,

reviews investment policies and risks in connection with its review of the Funds' performance. The Board has

appointed a Chief Compliance Officer who oversees the implementation and testing of the Fund's compliance program

and reports to the Board regarding compliance matters for the Fund and its principal service providers. In addition, as

part of the Board's periodic review of the Fund's advisory, subadvisory and other service provider agreements, the

Board may consider risk management aspects of their operations and the functions for which they are responsible.

With respect to valuation, the Board oversees a Principal valuation committee comprised of Fund officers and officers

of Principal and has approved and periodically reviews valuation policies applicable to valuing the Fund's shares.

The Board has established the following committees and the membership of each committee to assist in its oversight

functions, including its oversight of the risks the Fund faces.

Committee membership is identified on the following pages. Each committee must report its activities to the Board on

a regular basis.

Audit Committee

The primary purpose of the Committee is to assist the Board in fulfilling certain of its responsibilities. The Audit

Committee serves as an independent and objective party to monitor the Fund Complex's accounting policies, financial

reporting and internal control system, as well as the work of the independent registered public accountants. The Audit

Committee assists Board oversight of 1) the integrity of the Fund Complex's financial statements; 2) the Fund

Complex's compliance with certain legal and regulatory requirements; 3) the independent registered public

accountants' qualifications and independence; and 4) the performance of the Fund Complex's independent registered

public accountants. The Audit Committee also serves to provide an open avenue of communication among the

independent registered public accountants, the Manager's internal auditors, Fund Complex management, and the

Board. The Audit Committee held five meetings during the last fiscal year.

Executive Committee

The Committee's primary purpose is to exercise certain powers of the Board of Directors when the Board is not in

session. When the Board is not in session, the Committee may exercise all powers of the Board in the management of

the business of the Fund Complex except the power to 1) authorize dividends or distributions on stock; 2) issue stock,

except as permitted by law 3) recommend to the stockholders any action which requires stockholder approval; 4)

amend the bylaws; or 5) approve any merger or share exchange which does not require stockholder approval. The

Executive Committee held no meetings during the last fiscal year.

Nominating and Governance Committee

The Committee's primary purpose is to oversee 1) the structure and efficiency of the Boards of Directors and the

committees the Boards establish, and 2) the activities of the Fund Complex's Chief Compliance Officer. The

Committee responsibilities include evaluating board membership and functions, committee membership and

functions, insurance coverage, and legal and compliance matters.

The nominating functions of the Nominating and Governance Committee include selecting and nominating all

candidates who are not "interested persons" of the Fund Complex (as defined in the 1940 Act) for election to the

Board. Generally, the committee requests director nominee suggestions from the committee members and

management. In addition, the committee will consider director candidates recommended by shareholders of the Fund

Complex. Recommendations should be submitted in writing to Principal Variable Contracts Funds, Inc. at 680 8th

Street, Des Moines, Iowa 50392. The committee has not established any specific minimum qualifications for

nominees. When evaluating a person as a potential nominee to serve as an independent director, the committee will

generally consider, among other factors: age; education; relevant business experience; geographical factors; whether

the person is "independent" and otherwise qualified under applicable laws and regulations to serve as a director; and

whether the person is willing to serve, and willing and able to commit the time necessary for attendance at meetings

and the performance of the duties of an independent director. The committee also meets personally with the nominees

and conducts a reference check. The final decision is based on a combination of factors, including the strengths and

the experience an individual may bring to the Board. The Board does not use regularly the services of any professional

search firms to identify or evaluate or assist in identifying or evaluating potential candidates or nominees. The

Nominating and Governance Committee held four meetings during the last fiscal year.

Operations Committee

The Committee's primary purpose is to oversee the provision of administrative and distribution services to the Fund

Complex, communications with the Fund Complex's shareholders, and review and oversight of the Fund Complex's

operations. The Operations Committee held four meetings during the last fiscal year.

Management Information

The following table presents certain information regarding the Directors of the Fund, including their principal

occupations which, unless specific dates are shown, are of more than five years duration. In addition, the table

includes information concerning other directorships held by each Director in reporting companies under the Securities

Exchange Act of 1934 or registered investment companies under the 1940 Act. Information is listed separately for

those Directors who are “interested persons” (as defined in the 1940 Act) of the Fund (the “Interested Directors”) and

those Directors who are Independent Directors. All Directors serve as directors for each of the two investment

companies (with a total of 110 portfolios) sponsored by Principal Life Insurance Company (“Principal Life”): the Fund

and Principal Funds, Inc. (collectively, the “Fund Complex”).

Each officer of the Fund holds the same position with respect to Principal Funds, Inc.


The following directors are considered not to be “interested persons” as defined in the 1940 Act.


				Number
				of Portfolios
				in Fund	Other
		Length of		Complex	Directorships
Name, Address, and		Time Served	Principal Occupation(s)	Overseen	Held by
Year of Birth	Position(s) Held with Fund	as Director	During Past 5 Years	by Director	Director
Elizabeth Ballantine	Director	Since 2004	Principal, EBA Associates	106	Durango Herald, Inc.;
711 High Street	Member Nominating and		(consulting and investments		McClatchy
Des Moines, Iowa 50392	Governance Committee				Newspapers, Inc.
1948

Kristianne Blake	Director	Since 2007	President, Kristianne Gates	106	Avista Corporation; Russell
711 High Street	Member Operations Committee		Blake, P.S. (personal financial		Investment Company*
Des Moines, Iowa 50392			and tax planning)		Russell Investment Funds*
1954					(48 portfolios overseen)

Craig Damos	Director	Since 2008	Chairman/CEO/President and	106	None
711 High Street	Member Operations Committee		Vertical Growth Officer, and The
Des Moines, Iowa 50392			Weitz Company (general
1954			construction)

Richard W. Gilbert	Director	Since 2000	President, Gilbert	106	Calamos Asset
711 High Street	Member Executive Committee		Communications, Inc.		Management, Inc.
Des Moines,	Member Nominating and		(business consulting)		(2005)
Iowa 50392	Governance Committee
1940

Mark A. Grimmett	Director	Since 2004	Executive Vice President and	106	None
711 High Street	Member Audit Committee		CFO, Merle Norman Cosmetics,
Des Moines,			Inc. (cosmetics manufacturing)
Iowa 50392
1960

Fritz S. Hirsch	Director	Since 2005	Director, Focus Products Group	106	None
711 High Street	Member Audit Committee		(housewares); formerly
Des Moines,			President, Sassy, Inc.
Iowa 50392			(manufacturer of infant and
1951			juvenile products)

William C. Kimball	Director	Since 2000	Partner, Kimball - Porter	106	None
711 High Street	Member Nominating and		Investments L.L.C.
Des Moines,	Governance Committee
Iowa 50392
1947

Barbara A. Lukavsky	Director	Since 1993	President and CEO, Barbican	106	None
711 High Street	Member Nominating and		Enterprises, Inc.
Des Moines,	Governance Committee		(cosmetics manufacturing)
Iowa 50392
1940


				Number
				of Portfolios
				in Fund	Other
		Length of		Complex	Directorships
Name, Address, and		Time Served	Principal Occupation(s)	Overseen	Held by
Year of Birth	Position(s) Held with Fund	as Director	During Past 5 Years	by Director	Director
Daniel Pavelich	Director	Since 2007	Retired	106	Catalytic Inc.
711 High Street	Member Audit Committee				(offshore software;
Des Moines,					development); Vaagan Bros.
Iowa 50392					Lumber, Inc.
1944

* The Funds and the Funds of Russell Investment Funds and Russell Investment Company have one or more common sub-advisors.


The following directors are considered to be Interested Directors because they are affiliated persons of Principal Management Corporation (the
“Manager”), Principal Funds Distributor, Inc. (the “Distributor”), the Fund’s principal underwriter, or Princor Financial Services Corporation (“Princor”),
the Fund’s former principal underwriter.

			Positions with the Manager and its	Number of Portfolios	Other
Name, Address and			Affiliates; Principal Occupation(s)	in Fund Complex	Directorships
Year of Birth	Position(s) Held with Fund	Length of Time Served	During Past 5 Years	Overseen by Director	Held by Director
Ralph C. Eucher	Chairman	Since 2000	Director, Principal, since 2008; Chairman,	106	None
711 High Street	Director	Since 1999	PFD and Princor, since 2008;
Des Moines,			Senior Vice President, Principal Life,
Iowa 50392			and Principal Financial Group, since
1952			2008; Director, PSS and Currency
			Management Committee - London, since
			2008; Director, CCI since 2009; Director,
			Spectrum since 2005; Director,
			PSS since 2008

Nora M. Everett	Chief Executive Officer	Since 2010	President and Director, Principal, since	106	None
711 High Street	President	Since 2008	2008; Senior Vice President, Retirement &
Des Moines,	Director	Since 2008	Investor Services, Principal Life, since
Iowa 50392			2008; Senior Vice President & Deputy
1959			General Counsel, Principal Life, 2004-
			2008; Director, PFD, since 2008; CEO,
			Princor, since 2009; Director, Princor,
			PSS, Edge, Principal Asset Management
			Co. (Asia) Limited, since 2008; Chairman,
			PFA, since 2010; Director, Principal
			International and Principal International
			Holding Company, LLC, since 2006

William G. Papesh	Director	Since 2007	Retired December 2007. Prior thereto,	106	None
711 High Street	Member Operations Committee		President and CEO of WM Group of
Des Moines,			Funds; President and Director of Edge
Iowa 50392			Asset Management, Inc.
1943


* The Fund and the funds of Russell Investment Funds and Russell Investment Company have one or more common sub-advisors.

Officers of the Fund

The following table presents certain information regarding the officers of the Fund, including their principal occupations which, unless specific dates

are shown, are of more than five years duration. Officers serve at the pleasure of the Board of Directors.


Name, Address and	Position(s) Held with Fund and	Positions with the Manager and its Affiliates;
Year of Birth	Length of Time Served	Principal Occupations During Past 5 Years
Craig L. Bassett	Treasurer	Vice President and Treasurer, Principal Life;
711 High Street	(since 1996)	Treasurer, Principal, PFD, Princor and Spectrum since 2006;
Des Moines, Iowa 50392		Vice President and Treasure, Edge and Principal - REI since 2006;
1952		Treasurer, PSS since 2007; Vice President and Treasurer, Principal
		Principal Global Columbus Circle, LLC and PGI since 2007

Michael J. Beer	Executive Vice President	Executive Vice President, Chief Operating Officer and Director, Principal,
711 High Street	(since 1999)	since 2008; Executive Vice President, PFD since 2006;
Des Moines, Iowa 50392		President and Director, Princor since 2006; Vice President/Mutual Funds
1961		and Broker Dealer, Principal Life, since 2001; President and Director,
		PSS since 2007

Randy L. Bergstrom	Assistant Tax Counsel	Counsel, Principal Life; Counsel, PGI, since 2006
711 High Street	(since 2005)
Des Moines, Iowa 50392
1955

David J. Brown	Chief Compliance Officer	Vice President/Product and Distribution Compliance, Principal Life;
711 High Street	(since 2004)	Senior Vice President, PFD, Principal and Princor, since 2006;
Des Moines, Iowa 50392		Senior Vice President PSS, since 2007
1960

Jill R. Brown	Senior Vice President	President, PFD since 2010; Senior Vice President/Chief Financial Officer,
1100 Investment Boulevard, Ste 200	(since 2007)	Princor since 2006; Senior Vice President/Chief Financial Officer, PFD and
El Dorado Hills, CA 95762		PSS since 2007; Senior Vice President/Chief Financial Officer, Principal
1967		since 2008

Cary Fuchs	Senior Vice President of Distribution	President, PFD, 2007-2010; Vice President, PSS, since 2008; FVO, WMSS,
1100 Investment Boulevard, Ste 200	(since 2007)	2005-2007; prior thereto, Divisional Vice President, BFDS
El Dorado Hills, CA 95762
1957

Stephen G. Gallaher	Assistant Counsel	Assistant General Counsel, Principal Life and PFD since 2006;
711 High Street	(since 2006)	Assistant General Counsel, PMC, PSS, and Princor since 2007;
Des Moines, Iowa 50392		Prior thereto, self-employed writer
1955

Ernest H. Gillum	Vice President (since 1998)	Chief Compliance Officer, Principal since 2004; Vice President - Product
711 High Street	Assistant Secretary (since 1993)	Development, Principal and Princor, since 2000; Vice President, PSS, since
Des Moines, Iowa 50392		2007
1955


Name, Address and	Position(s) Held with Fund and	Positions with the Manager and its Affiliates;
Year of Birth	Length of Time Served	Principal Occupations During Past 5 Years
Patrick A. Kirchner	Assistant Counsel	Counsel, Principal Life; Assistant General Counsel, Principal, PGI
711 High Street	(since 2002)	and Princor since 2008
Des Moines, Iowa 50392
1960

Carolyn F. Kolks	Assistant Tax Counsel	Counsel, Principal Life since, 2005
711 High Street	(since 2005)
Des Moines, Iowa 50392
1962

Jennifer A. Mills	Assistant Counsel	Attorney, Principal Life since 2008; Counsel, Princor, PSS, Principal, and
711 High Street	(since 2010)	PFD, since 2009; Counsel, Principal, Princor, and PFD since 2009;
Des Moines, IA 50392		Registered Product Analyst, Principal Funds, 2007-2008, Registered Product
1973		Development Consultant, Princor, 2006-2007; and prior thereto, Judicial Law
		Clerk, Iowa Supreme Court

Layne A. Rasmussen	Chief Financial Officer (since 2008)	Financial Controller, Principal Financial Group, since 2005
711 High Street	Vice President (since 2005)
Des Moines, Iowa 50392	Controller (since 2000)
1958

Michael D. Roughton	Counsel	Vice President and Associate General Counsel, Principal Life and
711 High Street	(since 1991)	Principal Financial Group since 2001; Counsel, PGI, since 2001; Senior Vice
Des Moines, Iowa 50392		President and Counsel, Principal and Princor, since 2001; Senior Vice
1951		President and Counsel, PFD since 2007

Adam U. Shaikh	Assistant Counsel	Counsel, Principal Life and PFD, since 2006. Prior thereto, practicing
711 High Street	(since 2006)	attorney; Counsel, Principal, since 2007
Des Moines, Iowa 50392
1972

Dan L. Westholm	Assistant Treasurer	Director - Treasury, Principal Life, Principal, and Princor.
711 High Street	(since 2006)
Des Moines, Iowa 50392
1966

Beth C. Wilson	Vice President and Secretary	Vice President, Principal, since 2007. Prior thereto, Segment Business
711 High Street	(since 2007)	Manager for Pella Corp.
Des Moines, Iowa 50392
1956

The following tables set forth the aggregate dollar range of the equity securities of the mutual funds within the Fund Complex which were beneficially
owned by the Directors as of December 31, 2008. The Fund Complex currently includes the separate series of the Fund and of Principal Funds, Inc.

For the purpose of these tables, beneficial ownership means a direct or indirect pecuniary interest. Only the Directors who are “interested persons”
are eligible to participate in an employee benefit program which invests in Principal Investors Fund. Directors who beneficially owned shares of the
series of the Fund did so through variable life insurance and variable annuity contracts. Please note that exact dollar amounts of securities held are
not listed. Rather, ownership is listed based on the following dollar ranges:

Independent Directors (Not Considered to be “Interested Persons”)

A $0

B $1 up to and including $10,000

C $10,001 up to and including $50,000

D $50,001 up to and including $100,000

E $100,001 or more


*Principal Variable Contracts Funds Ballatine**		Blake	Damos	Gilbert Grimmett Hirsch			Kimball Lukavsky Pavelich
Bond & Mortgage Securities	A	A	A	A	A	A	B	A	A
International SmallCap	A	A	A	A	A	A	D	A	A
LargeCap Growth I	A	A	A	A	A	A	B	A	A
LargeCap Value III	A	A	A	A	A	A	D	A	A
MidCap Blend	A	A	A	A	A	A	E	A	A
MidCap Growth I	A	A	A	A	A	A	C	A	A
Real Estate Securities	A	A	A	A	A	A	D	A	A
SAM Balanced Portfolio	A	A	A	A	A	A	A	E	A
SmallCap Growth II	A	A	A	A	A	A	C	A	A
Total Fund Complex	D	E	C	E	E	E	E	E	E

* Directors own shares of Principal Variable Contracts Funds, Inc. through variable annuity or variable life insurance contracts.

Directors Considered to be “Interested Persons”

A $0

B $1 up to and including $10,000

C $10,001 up to and including $50,000

D $50,001 up to and including $100,000

E $100,001 or more


	Nora M.	Ralph C.	William
Principal Variable Contracts Funds*	Everett	Eucher	Papesh
Diversified International	A	C	A
LargeCap Growth I	A	C	A
LargeCap Value	A	C	A
SmallCap Blend	A	C	A
Total Fund Complex	E	E	A

* Directors own shares of Principal Variable Contracts Funds, Inc. through variable annuity or variable life insurance contracts.

Compensation. The Fund does not pay any remuneration to its Directors who are employed by the Manager or its

affiliates or to its officers who are furnished to the Fund by the Manager and its affiliates pursuant to the Management

Agreement. Each Director who is not an “interested person” received compensation for service as a member of the

Boards of all investment companies sponsored by Principal Life based on a schedule that takes into account an

annual retainer amount, the number of meetings attended, and expenses incurred. Director compensation and related

expenses are allocated to each of the Accounts based on the net assets of each relative to combined net assets of all

of the investment companies sponsored by Principal Life.

The following table provides information regarding the compensation received by the Independent Directors from the

Fund and from the Fund Complex during the fiscal year ended December 31, 2008. On that date, there were 2 funds

(with a total of 112 portfolios in the Fund Complex). The Fund does not provide retirement benefits to any of the

Directors.


Director	TheFund	FundComplex
Elizabeth Ballantine	$12,854	$119,750
Kristianne Blake	13,710	127,750
Craig Damos*	13,547	127,000
Richard W. Gilbert	14,939	139,250
Mark A. Grimmett	13,496	125,750
Fritz Hirsch	13,976	130,250
William C. Kimball	13,232	123,250
Barbara A. Lukavsky	13,710	127,750
Daniel Pavelich	13,604	126,750

* Did not begin serving as a director until March 10, 2008.

CONTROL PERSONS & PRINCIPAL SECURITIES HOLDERS

The following list identifies shareholders who own more than 25% of the voting securities of an Account as of

March 31, 2009. It is presumed that a person who owns more than 25% of the voting securities of an account controls

the account. A control person could control the outcome of proposals presented to shareholders for approval. The list

is represented in alphabetical order by account.


		Percentage	Jurisdiction under	Parent of
		of Voting	which the Company	Control Person
		Securities	is Organized (when	(when control
		Owned of	control person is a	person is a
Control Person - Name and Address	Account Name	each Account	company)	company)
PRINCIPAL LIFE INSURANCE CO	ASSET ALLOCATION	64.13%	IOWA	PRINCIPAL FINANCIAL GROUP
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	BALANCED	73.16%	IOWA	PRINCIPAL FINANCIAL GROUP
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	BOND & MORTGAGE SECURITIES	28.74%	IOWA	PRINCIPAL FINANCIAL GROUP
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	BOND & MORTGAGE SECURITIES	39.49%	IOWA	PRINCIPAL FINANCIAL GROUP
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	DIVERSIFIED INTERNATIONAL	38.42%	IOWA	PRINCIPAL FINANCIAL GROUP
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	EQUITY INCOME	32.99%	IOWA	PRINCIPAL FINANCIAL GROUP
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	GOV & HIGH QUALITY BOND	65.14%	IOWA	PRINCIPAL FINANCIAL GROUP
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

SAM BALANCED PORTFOLIO PVC	INCOME	42.02%	MARYLAND	PRINCIPAL FINANCIAL GROUP
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001


PRINCIPAL LIFE INSURANCE CO	INTERNATIONAL SMALLCAP	47.14%	IOWA	PRINCIPAL FINANCIAL GROUP
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	INTERNATIONAL EMERGING MARKETS	40.63%	IOWA	PRINCIPAL FINANCIAL GROUP
FLEX VARIABLE ANNUITY
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	LARGECAP BLEND II	36.25%	IOWA	PRINCIPAL FINANCIAL GROUP
FLEX VARIABLE ANNUITY
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001


		Percentage	Jurisdiction under	Parent of
		of Voting	which the Company	Control Person
		Securities	is Organized (when	(when control
		Owned of	control person is a	person is a
Control Person - Name and Address	Account Name	each Account	company)	company)
PRINCIPAL MUTUAL LIFE	LARGECAP BLEND II	50.18%	IOWA	PRINCIPAL FINANCIAL GROUP
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	LARGECAP GROWTH I	50.93%	IOWA	PRINCIPAL FINANCIAL GROUP
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

SAM BALANCED PORTFOLIO PVC	LARGECAP GROWTH	26.72%	MARYLAND	PRINCIPAL FINANCIAL GROUP
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001


PRINCIPAL LIFE INSURANCE CO	LARGECAP S&P 500 INDEX	54.71%	IOWA	PRINCIPAL FINANCIAL GROUP
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	LARGECAP VALUE II	100.00%	IOWA	PRINCIPAL FINANCIAL GROUP
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	LARGECAP VALUE III	36.16%	IOWA	PRINCIPAL FINANCIAL GROUP
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	LARGECAP VALUE	49.27%	IOWA	PRINCIPAL FINANCIAL GROUP
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	PRINCIPAL LIFETIME 2010	79.28%	IOWA	PRINCIPAL FINANCIAL GROUP
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	PRINCIPAL LIFETIME 2020	88.93%	IOWA	PRINCIPAL FINANCIAL GROUP
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	PRINCIPAL LIFETIME 2030	62.75%	IOWA	PRINCIPAL FINANCIAL GROUP
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO CUST	PRINCIPAL LIFETIME 2040	25.16%	IOWA	PRINCIPAL FINANCIAL GROUP
VUL INCOME
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	PRINCIPAL LIFETIME 2040	55.94%	IOWA	PRINCIPAL FINANCIAL GROUP
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO CUST	PRINCIPAL LIFETIME 2050	27.90%	IOWA	PRINCIPAL FINANCIAL GROUP
VUL INCOME
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001


		Percentage	Jurisdiction under	Parent of
		of Voting	which the Company	Control Person
		Securities	is Organized (when	(when control
		Owned of	control person is a	person is a
Control Person - Name and Address	Account Name	each Account	company)	company)
PRINCIPAL MUTUAL LIFE	PRINCIPAL LIFETIME 2050	48.12%	IOWA	PRINCIPAL FINANCIAL GROUP
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	PRINCIPAL LIFETIME STRATEGIC	83.25%	IOWA	PRINCIPAL FINANCIAL GROUP
INVESTMENT PLUS VARIABLE ANNUITY	INCOME
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	MIDCAP BLEND	55.24%	IOWA	PRINCIPAL FINANCIAL GROUP
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	MIDCAP GROWTH I	57.59%	IOWA	PRINCIPAL FINANCIAL GROUP
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	MIDCAP VALUE II	37.94%	IOWA	PRINCIPAL FINANCIAL GROUP
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	MIDCAP VALUE II	39.09%	IOWA	PRINCIPAL FINANCIAL GROUP
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	MONEY MARKET	35.58%	IOWA	PRINCIPAL FINANCIAL GROUP
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

SAM BALANCED PORTFOLIO PVC	MORTGAGE SECURITIES	46.31%	MARYLAND	PRINCIPAL FINANCIAL GROUP
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

SAM BALANCED PORTFOLIO PVC	PRINCIPAL CAPITAL APPRECIATION	31.68%	MARYLAND	PRINCIPAL FINANCIAL GROUP
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	REAL ESTATE SECURITIES	39.20%	IOWA	PRINCIPAL FINANCIAL GROUP
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	S A M BALANCED PORTFOLIO	49.54%	IOWA	PRINCIPAL FINANCIAL GROUP
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

	S A M CONSERVATIVE BALANCED
PRINCIPAL MUTUAL LIFE		62.27%	IOWA	PRINCIPAL FINANCIAL GROUP
	PORTFOLIO
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	S A M FLEXIBLE INCOME PORTFOLIO	44.01%	IOWA	PRINCIPAL FINANCIAL GROUP
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001


		Percentage	Jurisdiction under	Parent of
		of Voting	which the Company	Control Person
		Securities	is Organized (when	(when control
		Owned of	control person is a	person is a
Control Person - Name and Address	Account Name	each Account	company)	company)
PRINCIPAL MUTUAL LIFE	SHORT-TERM BOND	69.70%	IOWA	PRINCIPAL FINANCIAL GROUP
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

SAM FLEXIBLE INCOME PORTFOLIO PVC	SHORT-TERM INCOME	25.61%	MARYLAND	PRINCIPAL FINANCIAL GROUP
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

SAM BALANCED PORTFOLIO PVC	SHORT-TERM INCOME	29.59%	MARYLAND	PRINCIPAL FINANCIAL GROUP
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	SMALLCAP BLEND	59.58%	IOWA	PRINCIPAL FINANCIAL GROUP
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	SMALLCAP GROWTH II	30.00%	IOWA	PRINCIPAL FINANCIAL GROUP
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	SMALLCAP VALUE I	30.96%	IOWA	PRINCIPAL FINANCIAL GROUP
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	SMALLCAP VALUE I	31.18%	IOWA	PRINCIPAL FINANCIAL GROUP
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

The Diversified Balanced Account, Diversified Growth Account, Principal LifeTime Accounts, SAM Portfolios, or

Principal Life Insurance Company will vote in the same proportion as shares of the Accounts owned by other

shareholders. Therefore the Diversified Balanced Account, Diversified Growth Account, Principal Lifetime Accounts,

SAM Portfolios, and Principal Life Insurance Company do not exercise voting discretion.

The By-laws of the Fund set the quorum requirement (a quorum must be present at a meeting of shareholders for

business to be transacted). The By-laws of the Fund state that a quorum is “The presence in person or by proxy of

one-third of the shares of each Fund outstanding at the close of business on the Record Date constitutes a quorum for

a meeting of that Fund.”

Certain proposals presented to shareholders for approval require the vote of a “majority of the outstanding voting

securities,” which is a term defined in the 1940 Act to mean, with respect to a Fund, the affirmative vote of the lesser of

(1) 67% or more of the voting securities of the Fund present at the meeting of that Fund, if the holders of more than

50% of the outstanding voting securities of the Fund are present in person or by proxy, or (2) more than 50% of the

outstanding voting securities of the Fund (a “Majority of the Outstanding Voting Securities”) .

Principal Holders of Securities

The Fund is unaware of any persons who own beneficially more than 5% of the Fund’s outstanding shares. The

following list identifies the shareholders of record who own 5% or more of any class of the Fund’s outstanding shares

as of March 31, 2009. The list is presented in alphabetical order by account.


		Percentage
		of Ownership
		of an
Principal Holders of Securities		Account
Name and Address	Account and Class Name	by Class
PRINCIPAL MUTUAL LIFE	ASSET ALLOCATION ACCOUNT Class 1	15.09%
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	ASSET ALLOCATION ACCOUNT Class 1	15.16
PRINFLEX LIFE
ATTN LIFE & HEALTH ACTG
G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	ASSET ALLOCATION ACCOUNT Class 1	64.13
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	BALANCED ACCOUNT Class 1	13.91
PRINFLEX LIFE
ATTN LIFE & HEALTH ACTG
G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	BALANCED ACCOUNT Class 1	73.16
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

LIFETIME 2020 ACCOUNT	BOND & MORTGAGE SECURITIES ACCOUNT Class 1	10.15
ATTN MUTUAL FUND ACCOUNTING- H221
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	BOND & MORTGAGE SECURITIES ACCOUNT Class 1	28.74
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	BOND & MORTGAGE SECURITIES ACCOUNT Class 1	39.49
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

SAM CONS GROWTH PORTFOLIO PVC	DIVERSIFIED INTERNATIONAL ACCOUNT Class 1	5.36
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	DIVERSIFIED INTERNATIONAL ACCOUNT Class 1	5.47
EVUL
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	DIVERSIFIED INTERNATIONAL ACCOUNT Class 1	8.55
PRINFLEX LIFE
ATTN LIFE & HEALTH ACTG
G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001


PRINCIPAL MUTUAL LIFE	DIVERSIFIED INTERNATIONAL ACCOUNT Class 1	9.5
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

SAM BALANCED PORTFOLIO PVC	DIVERSIFIED INTERNATIONAL ACCOUNT Class 1	12.2


		Percentage
		of Ownership
		of an
Principal Holders of Securities		Account
Name and Address	Account and Class Name	by Class
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	DIVERSIFIED INTERNATIONAL ACCOUNT Class 1	38.68
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

FIRST SUNAMERICA LIFE INS CO	DIVERSIFIED INTERNATIONAL ACCOUNT Class 2	19.98
FS VARIABLE SEPARATE ACCT
ATTN VARIABLE ANNUITY ACCOUNTING
PO BOX 54299
LOS ANGELES CA 90054-0299

FARMERS NEW WORLD LIFE INS CO	DIVERSIFIED INTERNATIONAL ACCOUNT Class 2	26.3
VARIABLE UNIVERSAL LIFE II AGENT
ATTN SEPARATE ACCOUNTS
3003 77TH AVE SE
MERCER ISLAND WA 98040-2890

AIG SUNAMERICA LIFE ASSURANCE CO	DIVERSIFIED INTERNATIONAL ACCOUNT Class 2	53.72
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

SAM STRATEGIC GROWTH PORTFOLIO PVC	EQUITY INCOME ACCOUNT Class 1	5.59
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

AIG SUNAMERICA LIFE ASSURANCE CO	EQUITY INCOME ACCOUNT Class 1	8.35
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

PRINCIPAL LIFE INSURANCE CO	EQUITY INCOME ACCOUNT Class 1	8.68
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

SAM CONS GROWTH PORTFOLIO PVC	EQUITY INCOME ACCOUNT Class 1	9.31
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

SAM BALANCED PORTFOLIO PVC	EQUITY INCOME ACCOUNT Class 1	22.77
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	EQUITY INCOME ACCOUNT Class 1	36.33
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

FARMERS NEW WORLD LIFE INS CO	EQUITY INCOME ACCOUNT Class 2	7.16
ATTN SEGREGATED ASSETS
3003 77TH AVE SE
MERCER ISLAND WA 98040-2890




FARMERS NEW WORLD LIFE INS CO	EQUITY INCOME ACCOUNT Class 2	23.89
ATTN SEGREGATED ASSETS
3003 77TH AVE SE
MERCER ISLAND WA 98040-2890

AIG SUNAMERICA LIFE ASSURANCE CO	EQUITY INCOME ACCOUNT Class 2	62.45
VARIABLE SEPARATE ACCOUNT


		Percentage
		of Ownership
		of an
Principal Holders of Securities		Account
Name and Address	Account and Class Name	by Class
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

PRINCIPAL MUTUAL LIFE	GOV & HIGH QUALITY BOND ACCOUNT Class 1	18.3
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	GOV & HIGH QUALITY BOND ACCOUNT Class 1	65.14
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

SAM CONS GROWTH PORTFOLIO PVC	INCOME ACCOUNT Class 1	5.37
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

AIG SUNAMERICA LIFE ASSURANCE CO	INCOME ACCOUNT Class 1	8.55
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

SAM CONS BALANCED PORTFOLIO PVC	INCOME ACCOUNT Class 1	13.52
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

SAM FLEXIBLE INCOME PORTFOLIO PVC	INCOME ACCOUNT Class 1	21.81
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

SAM BALANCED PORTFOLIO PVC	INCOME ACCOUNT Class 1	44.28
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

AIG SUNAMERICA LIFE ASSURANCE CO	INCOME ACCOUNT Class 2	93.96
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

PRINCIPAL LIFE INSURANCE CO	INTERNATIONAL SMALLCAP ACCOUNT Class 1	10.01
EVUL
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	INTERNATIONAL SMALLCAP ACCOUNT Class 1	15.4
PRINFLEX LIFE
ATTN LIFE & HEALTH ACTG
G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	INTERNATIONAL SMALLCAP ACCOUNT Class 1	16.45
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001



PRINCIPAL LIFE INSURANCE CO	INTERNATIONAL SMALLCAP ACCOUNT Class 1	47.14
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	INTL EMERGING MARKETS ACCOUNT Class 1	5.22


		Percentage
		of Ownership
		of an
Principal Holders of Securities		Account
Name and Address	Account and Class Name	by Class
PRINFLEX LIFE
ATTN LIFE & HEALTH ACTG
G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

SAM BALANCED PORTFOLIO PVC	INTL EMERGING MARKETS ACCOUNT Class 1	12.24
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	INTL EMERGING MARKETS ACCOUNT Class 1	20.57
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	INTL EMERGING MARKETS ACCOUNT Class 1	40.63
FLEX VARIABLE ANNUITY
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	LARGECAP BLEND II ACCOUNT Class 1	36.44
FLEX VARIABLE ANNUITY
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	LARGECAP BLEND II ACCOUNT Class 1	50.43
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

FIRST SUNAMERICA LIFE INS CO	LARGECAP BLEND II ACCOUNT Class 2	10
FS VARIABLE SEPARATE ACCT
ATTN VARIABLE ANNUITY ACCOUNTING
PO BOX 54299
LOS ANGELES CA 90054-0299

FARMERS NEW WORLD LIFE INS CO	LARGECAP BLEND II ACCOUNT Class 2	14.86
VARIABLE UNIVERSAL LIFE II AGENT
ATTN SEPARATE ACCOUNTS
3003 77TH AVE SE
MERCER ISLAND WA 98040-2890

AIG SUNAMERICA LIFE ASSURANCE CO	LARGECAP BLEND II ACCOUNT Class 2	74.17
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

PRINCIPAL LIFE INSURANCE CO	LARGECAP GROWTH I ACCOUNT Class 1	7.4
VUL
ATTN LIFE & HEALTH ACTG
G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	LARGECAP GROWTH I ACCOUNT Class 1	23.29
PRINFLEX LIFE
ATTN LIFE & HEALTH ACTG
G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001



PRINCIPAL LIFE INSURANCE CO	LARGECAP GROWTH I ACCOUNT Class 1	50.93
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

SAM STRATEGIC GROWTH PORTFOLIO PVC	LARGECAP GROWTH ACCOUNT Class 1	6.53


		Percentage
		of Ownership
		of an
Principal Holders of Securities		Account
Name and Address	Account and Class Name	by Class
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	LARGECAP GROWTH ACCOUNT Class 1	7.34
PRINFLEX LIFE
ATTN LIFE & HEALTH ACTG
G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

SAM CONS GROWTH PORTFOLIO PVC	LARGECAP GROWTH ACCOUNT Class 1	10.93
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	LARGECAP GROWTH ACCOUNT Class 1	21.28
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

SAM BALANCED PORTFOLIO PVC	LARGECAP GROWTH ACCOUNT Class 1	26.8
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

FIRST SUNAMERICA LIFE INS CO	LARGECAP GROWTH ACCOUNT Class 2	7.39
FS VARIABLE SEPARATE ACCT
ATTN VARIABLE ANNUITY ACCOUNTING
PO BOX 54299
LOS ANGELES CA 90054-0299

FARMERS NEW WORLD LIFE INS CO	LARGECAP GROWTH ACCOUNT Class 2	24.94
VARIABLE UNIVERSAL LIFE II AGENT
ATTN SEPARATE ACCOUNTS
3003 77TH AVE SE
MERCER ISLAND WA 98040-2890

AIG SUNAMERICA LIFE ASSURANCE CO	LARGECAP GROWTH ACCOUNT Class 2	66.23
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

PRINCIPAL LIFE INSURANCE CO	LARGECAP S&P 500 INDEX ACCOUNT Class 1	8.43
FREEDOM VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	LARGECAP S&P 500 INDEX ACCOUNT Class 1	10.31
PRINFLEX LIFE
ATTN LIFE & HEALTH ACTG
G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	LARGECAP S&P 500 INDEX ACCOUNT Class 1	19.07
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	LARGECAP S&P 500 INDEX ACCOUNT Class 1	54.71
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001
PRINCIPAL MUTUAL LIFE	LARGECAP VALUE II ACCOUNT Class 1	100
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

SAM CONS GROWTH PORTFOLIO PVC	LARGECAP VALUE III ACCOUNT Class 1	6.24


		Percentage
		of Ownership
		of an
Principal Holders of Securities		Account
Name and Address	Account and Class Name	by Class
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

SAM BALANCED PORTFOLIO PVC	LARGECAP VALUE III ACCOUNT Class 1	15.07
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	LARGECAP VALUE III ACCOUNT Class 1	23.79
FLEX VARIABLE ANNUITY
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	LARGECAP VALUE III ACCOUNT Class 1	36.16
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	LARGECAP VALUE ACCOUNT Class 1	7.21
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	LARGECAP VALUE ACCOUNT Class 1	9.87
VUL
ATTN LIFE & HEALTH ACTG
G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	LARGECAP VALUE ACCOUNT Class 1	13.14
PRINFLEX LIFE
ATTN LIFE & HEALTH ACTG
G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	LARGECAP VALUE ACCOUNT Class 1	49.27
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	LIFETIME 2010 ACCOUNT Class 1	6.88
EVUL
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	LIFETIME 2010 ACCOUNT Class 1	8.39
FREEDOM 2 VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	LIFETIME 2010 ACCOUNT Class 1	79.28
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001


PRINCIPAL MUTUAL LIFE	LIFETIME 2020 ACCOUNT Class 1	88.93
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	LIFETIME 2030 ACCOUNT Class 1	8.56


		Percentage
		of Ownership
		of an
Principal Holders of Securities		Account
Name and Address	Account and Class Name	by Class
FREEDOM 2 VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO CUST	LIFETIME 2030 ACCOUNT Class 1	10.16
VUL INCOME
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	LIFETIME 2030 ACCOUNT Class 1	11.46
EVUL
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	LIFETIME 2030 ACCOUNT Class 1	62.75
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	LIFETIME 2040 ACCOUNT Class 1	6.17
VUL II
ATTN LIFE & HEALTH ACTG
G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	LIFETIME 2040 ACCOUNT Class 1	6.41
EVUL
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO CUST	LIFETIME 2040 ACCOUNT Class 1	25.16
VUL INCOME
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	LIFETIME 2040 ACCOUNT Class 1	55.94
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO CUST	LIFETIME 2050 ACCOUNT Class 1	5.68
BVUL
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	LIFETIME 2050 ACCOUNT Class 1	7.04
EVUL
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	LIFETIME 2050 ACCOUNT Class 1	8
VUL II
ATTN LIFE & HEALTH ACTG
G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001



PRINCIPAL LIFE INSURANCE CO CUST	LIFETIME 2050 ACCOUNT Class 1	27.9
VUL INCOME
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	LIFETIME 2050 ACCOUNT Class 1	48.12


		Percentage
		of Ownership
		of an
Principal Holders of Securities		Account
Name and Address	Account and Class Name	by Class
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	LIFETIME STRATEGIC INC ACCOUNT Class 1	6.87
FLEX VARIABLE ANNUITY
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	LIFETIME STRATEGIC INC ACCOUNT Class 1	83.25
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	MIDCAP BLEND ACCOUNT Class 1	11.64
PRINFLEX LIFE
ATTN LIFE & HEALTH ACTG
G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	MIDCAP BLEND ACCOUNT Class 1	19.46
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	MIDCAP BLEND ACCOUNT Class 1	55.24
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	MIDCAP GROWTH I ACCOUNT Class 1	11.07
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	MIDCAP GROWTH I ACCOUNT Class 1	12.52
PRINFLEX LIFE
ATTN LIFE & HEALTH ACTG
G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	MIDCAP GROWTH I ACCOUNT Class 1	57.59
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	MIDCAP VALUE II ACCOUNT Class 1	37.94
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	MIDCAP VALUE II ACCOUNT Class 1	39.09
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	MONEY MARKET ACCOUNT Class 1	6.87
PRINFLEX LIFE
ATTN LIFE & HEALTH ACTG
G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	MONEY MARKET ACCOUNT Class 1	14.42
INVESTMENT PLUS VARIABLE ANNUITY


		Percentage
		of Ownership
		of an
Principal Holders of Securities		Account
Name and Address	Account and Class Name	by Class
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	MONEY MARKET ACCOUNT Class 1	24.22
EVUL
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001




PRINCIPAL LIFE INSURANCE CO	MONEY MARKET ACCOUNT Class 1	36.46
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

AIG SUNAMERICA LIFE ASSURANCE CO	MONEY MARKET ACCOUNT Class 2	95.79
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

SAM CONS GROWTH PORTFOLIO PVC	MORTGAGE SECURITIES ACCOUNT Class 1	6.68
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

SAM CONS BALANCED PORTFOLIO PVC	MORTGAGE SECURITIES ACCOUNT Class 1	15.29
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

SAM FLEXIBLE INCOME PORTFOLIO PVC	MORTGAGE SECURITIES ACCOUNT Class 1	21
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

SAM BALANCED PORTFOLIO PVC	MORTGAGE SECURITIES ACCOUNT Class 1	47.07
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

AIG SUNAMERICA LIFE ASSURANCE CO	MORTGAGE SECURITIES ACCOUNT Class 2	99.25
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

PRINCIPAL LIFE INSURANCE CO	REAL ESTATE SECURITIES ACCOUNT Class 1	5.04
PRINFLEX LIFE
ATTN LIFE & HEALTH ACTG
G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

LIFETIME 2020 ACCOUNT	REAL ESTATE SECURITIES ACCOUNT Class 1	5.22
ATTN MUTUAL FUND ACCOUNTING- H221
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	REAL ESTATE SECURITIES ACCOUNT Class 1	7.45
EVUL
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	REAL ESTATE SECURITIES ACCOUNT Class 1	9.21
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

SAM BALANCED PORTFOLIO PVC	REAL ESTATE SECURITIES ACCOUNT Class 1	11.48


		Percentage
		of Ownership
		of an
Principal Holders of Securities		Account
Name and Address	Account and Class Name	by Class
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	REAL ESTATE SECURITIES ACCOUNT Class 1	39.36
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001




AIG SUNAMERICA LIFE ASSURANCE CO	REAL ESTATE SECURITIES ACCOUNT Class 2	96.46
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

PRINCIPAL LIFE INSURANCE CO	S A M BALANCED PORT ACCOUNT Class 1	5.47
FLEX VARIABLE ANNUITY
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001

AMERICAN GENERAL LIFE INSURANCE CO	S A M BALANCED PORT ACCOUNT Class 1	9.39
VARIABLE PRODUCTS DEPARTMENT
ATTN: DEBORAH KERAI
PO BOX 1591
HOUSTON TX 77251-1591

AIG SUNAMERICA LIFE ASSURANCE CO	S A M BALANCED PORT ACCOUNT Class 1	19.97
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

PRINCIPAL MUTUAL LIFE	S A M BALANCED PORT ACCOUNT Class 1	61.91
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

FIRST SUNAMERICA LIFE INS CO	S A M BALANCED PORT ACCOUNT Class 2	9.14
FS VARIABLE SEPARATE ACCT
ATTN VARIABLE ANNUITY ACCOUNTING
PO BOX 54299
LOS ANGELES CA 90054-0299

FARMERS NEW WORLD LIFE INS CO	S A M BALANCED PORT ACCOUNT Class 2	25.86
ATTN SEGREGATED ASSETS
3003 77TH AVE SE
MERCER ISLAND WA 98040-2890

AIG SUNAMERICA LIFE ASSURANCE CO	S A M BALANCED PORT ACCOUNT Class 2	59.02
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

AIG SUNAMERICA LIFE ASSURANCE CO	S A M CONSERVATIVE BALANCED PORT ACCOUNT Class 1	9.13
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

PRINCIPAL LIFE INSURANCE CO	S A M CONSERVATIVE BALANCED PORT ACCOUNT Class 1	12.57
FLEX VARIABLE ANNUITY
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	S A M CONSERVATIVE BALANCED PORT ACCOUNT Class 1	72.96
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP


		Percentage
		of Ownership
		of an
Principal Holders of Securities		Account
Name and Address	Account and Class Name	by Class
DES MOINES IA 50392-0001

FARMERS NEW WORLD LIFE INS CO	S A M CONSERVATIVE BALANCED PORT ACCOUNT Class 2	35.06
ATTN SEGREGATED ASSETS
3003 77TH AVE SE
MERCER ISLAND WA 98040-2890

AIG SUNAMERICA LIFE ASSURANCE CO	S A M CONSERVATIVE BALANCED PORT ACCOUNT Class 2	55.43
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

AMERICAN GENERAL LIFE INSURANCE CO.	S A M CONSERVATIVE GROWTH PORT ACCOUNT Class 1	5.48
VARIABLE PRODUCTS DEPARTMENT,5-36
ATTN: DEBORAH KERAI
PO BOX 1591
HOUSTON TX 77251-1591

PRINCIPAL LIFE INSURANCE CO	S A M CONSERVATIVE GROWTH PORT ACCOUNT Class 1	8.13
FLEX VARIABLE ANNUITY
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	S A M CONSERVATIVE GROWTH PORT ACCOUNT Class 1	17.37
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

AMERICAN GENERAL LIFE INSURANCE CO	S A M CONSERVATIVE GROWTH PORT ACCOUNT Class 1	27.7
VARIABLE PRODUCTS DEPARTMENT
ATTN: DEBORAH KERAI
PO BOX 1591
HOUSTON TX 77251-1591

AIG SUNAMERICA LIFE ASSURANCE CO	S A M CONSERVATIVE GROWTH PORT ACCOUNT Class 1	31.75
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

FARMERS NEW WORLD LIFE INS CO	S A M CONSERVATIVE GROWTH PORT ACCOUNT Class 2	19.28
ATTN SEGREGATED ASSETS
3003 77TH AVE SE
MERCER ISLAND WA 98040-2890

FARMERS NEW WORLD LIFE INS CO	S A M CONSERVATIVE GROWTH PORT ACCOUNT Class 2	31.92
ATTN SEGREGATED ASSETS
3003 77TH AVE SE
MERCER ISLAND WA 98040-2890

AIG SUNAMERICA LIFE ASSURANCE CO	S A M CONSERVATIVE GROWTH PORT ACCOUNT Class 2	43.95
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

AMERICAN GENERAL LIFE INSURANCE CO	S A M FLEXIBLE INCOME PORT ACCOUNT Class 1	7.77
VARIABLE PRODUCTS DEPARTMENT
ATTN: DEBORAH KERAI
PO BOX 1591
HOUSTON TX 77251-1591

AIG SUNAMERICA LIFE ASSURANCE CO	S A M FLEXIBLE INCOME PORT ACCOUNT Class 1	16.81
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

PRINCIPAL LIFE INSURANCE CO	S A M FLEXIBLE INCOME PORT ACCOUNT Class 1	19.45
FLEX VARIABLE ANNUITY
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001


		Percentage
		of Ownership
		of an
Principal Holders of Securities		Account
Name and Address	Account and Class Name	by Class

PRINCIPAL MUTUAL LIFE	S A M FLEXIBLE INCOME PORT ACCOUNT Class 1	54.06
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

FARMERS NEW WORLD LIFE INS CO	S A M FLEXIBLE INCOME PORT ACCOUNT Class 2	24.07
ATTN SEGREGATED ASSETS
3003 77TH AVE SE
MERCER ISLAND WA 98040-2890


AIG SUNAMERICA LIFE ASSURANCE CO	S A M FLEXIBLE INCOME PORT ACCOUNT Class 2	68.98
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

PRINCIPAL LIFE INSURANCE CO CUST	S A M STRATEGIC GROWTH PORT ACCOUNT Class 1	5.25
VUL INCOME
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	S A M STRATEGIC GROWTH PORT ACCOUNT Class 1	11.53
FLEX VARIABLE ANNUITY
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001

AMERICAN GENERAL LIFE INSURANCE CO	S A M STRATEGIC GROWTH PORT ACCOUNT Class 1	22.18
VARIABLE PRODUCTS DEPARTMENT
ATTN: DEBORAH KERAI
PO BOX 1591
HOUSTON TX 77251-1591

AIG SUNAMERICA LIFE ASSURANCE CO	S A M STRATEGIC GROWTH PORT ACCOUNT Class 1	23.01
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

PRINCIPAL MUTUAL LIFE	S A M STRATEGIC GROWTH PORT ACCOUNT Class 1	28.6
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

FARMERS NEW WORLD LIFE INS CO	S A M STRATEGIC GROWTH PORT ACCOUNT Class 2	6.32
VARIABLE UNIVERSAL LIFE II AGENT
ATTN SEPARATE ACCOUNTS
3003 77TH AVE SE
MERCER ISLAND WA 98040-2890

AIG SUNAMERICA LIFE ASSURANCE CO	S A M STRATEGIC GROWTH PORT ACCOUNT Class 2	29.5
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

FARMERS NEW WORLD LIFE INS CO	S A M STRATEGIC GROWTH PORT ACCOUNT Class 2	30.04
ATTN SEGREGATED ASSETS
3003 77TH AVE SE
MERCER ISLAND WA 98040-2890

FARMERS NEW WORLD LIFE INS CO	S A M STRATEGIC GROWTH PORT ACCOUNT Class 2	33.14
ATTN SEGREGATED ASSETS
3003 77TH AVE SE
MERCER ISLAND WA 98040-2890

PRINCIPAL LIFE INSURANCE CO	SHORT-TERM BOND ACCOUNT Class 1	24.79
FLEX VARIABLE ANNUITY
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001


		Percentage
		of Ownership
		of an
Principal Holders of Securities		Account
Name and Address	Account and Class Name	by Class

PRINCIPAL MUTUAL LIFE	SHORT-TERM BOND ACCOUNT Class 1	69.7
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	SHORT-TERM INCOME ACCOUNT Class 1	6.5
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

AIG SUNAMERICA LIFE ASSURANCE CO	SHORT-TERM INCOME ACCOUNT Class 1	8.09
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

SAM CONS BALANCED PORTFOLIO PVC	SHORT-TERM INCOME ACCOUNT Class 1	12.42
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

SAM FLEXIBLE INCOME PORTFOLIO PVC	SHORT-TERM INCOME ACCOUNT Class 1	26.67
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

SAM BALANCED PORTFOLIO PVC	SHORT-TERM INCOME ACCOUNT Class 1	30.81
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

AIG SUNAMERICA LIFE ASSURANCE CO	SHORT-TERM INCOME ACCOUNT Class 2	97.16
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

PRINCIPAL LIFE INSURANCE CO	SMALLCAP BLEND ACCOUNT Class 1	5.45
FREEDOM VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	SMALLCAP BLEND ACCOUNT Class 1	11.69
PRINFLEX LIFE
ATTN LIFE & HEALTH ACTG
G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	SMALLCAP BLEND ACCOUNT Class 1	17.03
VUL
ATTN LIFE & HEALTH ACTG
G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	SMALLCAP BLEND ACCOUNT Class 1	59.58
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	SMALLCAP GROWTH II ACCOUNT Class 1	5.2
EVUL
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001

SAM CONS GROWTH PORTFOLIO PVC	SMALLCAP GROWTH II ACCOUNT Class 1	6.32
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001


		Percentage
		of Ownership
		of an
Principal Holders of Securities		Account
Name and Address	Account and Class Name	by Class

PRINCIPAL MUTUAL LIFE	SMALLCAP GROWTH II ACCOUNT Class 1	7.7
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	SMALLCAP GROWTH II ACCOUNT Class 1	13.15
PRINFLEX LIFE
ATTN LIFE & HEALTH ACTG
G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001
SAM BALANCED PORTFOLIO PVC	SMALLCAP GROWTH II ACCOUNT Class 1	15.86
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	SMALLCAP GROWTH II ACCOUNT Class 1	31.08
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

FARMERS NEW WORLD LIFE INS CO	SMALLCAP GROWTH II ACCOUNT Class 2	5.13
VARIABLE UNIVERSAL LIFE II AGENT
ATTN SEPARATE ACCOUNTS
3003 77TH AVE SE
MERCER ISLAND WA 98040-2890

AIG SUNAMERICA LIFE ASSURANCE CO	SMALLCAP GROWTH II ACCOUNT Class 2	13.35
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

FARMERS NEW WORLD LIFE INS CO	SMALLCAP GROWTH II ACCOUNT Class 2	37.55
ATTN SEGREGATED ASSETS
3003 77TH AVE SE
MERCER ISLAND WA 98040-2890

FARMERS NEW WORLD LIFE INS CO	SMALLCAP GROWTH II ACCOUNT Class 2	42.96
ATTN SEGREGATED ASSETS
3003 77TH AVE SE
MERCER ISLAND WA 98040-2890

PRINCIPAL LIFE INSURANCE CO	SMALLCAP VALUE I ACCOUNT Class 1	6.24
EVUL
ATTN LIFE ACTG G-12-N11
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	SMALLCAP VALUE I ACCOUNT Class 1	7.16
PRINFLEX LIFE
ATTN LIFE & HEALTH ACTG
G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

SAM BALANCED PORTFOLIO PVC	SMALLCAP VALUE I ACCOUNT Class 1	8.7
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

PRINCIPAL MUTUAL LIFE	SMALLCAP VALUE I ACCOUNT Class 1	30.99
INVESTMENT PLUS VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
THE PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001

PRINCIPAL LIFE INSURANCE CO	SMALLCAP VALUE I ACCOUNT Class 1	31.2
FLEX VARIABLE ANNUITY
ATTN LIFE & HEALTH ACCTNG G-008-N20
PRINCIPAL FINANCIAL GROUP
DES MOINES IA 50392-0001


		Percentage
		of Ownership
		of an
Principal Holders of Securities		Account
Name and Address	Account and Class Name	by Class
AIG SUNAMERICA LIFE ASSURANCE CO	SMALLCAP VALUE I ACCOUNT Class 2	100
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

SAM CONS BALANCED PORTFOLIO PVC	WEST COAST EQUITY ACCOUNT Class 1	5.05
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001



AMERICAN GENERAL LIFE INSURANCE CO	WEST COAST EQUITY ACCOUNT Class 1	6.21
VARIABLE PRODUCTS DEPARTMENT
ATTN: DEBORAH KERAI
PO BOX 1591
HOUSTON TX 77251-1591

SAM STRATEGIC GROWTH PORTFOLIO PVC	WEST COAST EQUITY ACCOUNT Class 1	10.04
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

SAM CONS GROWTH PORTFOLIO PVC	WEST COAST EQUITY ACCOUNT Class 1	15.69
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

AIG SUNAMERICA LIFE ASSURANCE CO	WEST COAST EQUITY ACCOUNT Class 1	22.07
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299

SAM BALANCED PORTFOLIO PVC	WEST COAST EQUITY ACCOUNT Class 1	34.81
ATTN MUTUAL FUND ACCOUNTING-H221
711 HIGH ST
DES MOINES IA 50392-0001

FIRST SUNAMERICA LIFE INS CO	WEST COAST EQUITY ACCOUNT Class 2	6.09
FS VARIABLE SEPARATE ACCT
ATTN VARIABLE ANNUITY ACCOUNTING
PO BOX 54299
LOS ANGELES CA 90054-0299

FARMERS NEW WORLD LIFE INS CO	WEST COAST EQUITY ACCOUNT Class 2	7.62
ATTN SEGREGATED ASSETS
3003 77TH AVE SE
MERCER ISLAND WA 98040-2890

FARMERS NEW WORLD LIFE INS CO	WEST COAST EQUITY ACCOUNT Class 2	9.79
VARIABLE UNIVERSAL LIFE II AGENT
ATTN SEPARATE ACCOUNTS
3003 77TH AVE SE
MERCER ISLAND WA 98040-2890

FARMERS NEW WORLD LIFE INS CO	WEST COAST EQUITY ACCOUNT Class 2	13.47
ATTN SEGREGATED ASSETS
3003 77TH AVE SE
MERCER ISLAND WA 98040-2890

AIG SUNAMERICA LIFE ASSURANCE CO	WEST COAST EQUITY ACCOUNT Class 2	62.67
VARIABLE SEPARATE ACCOUNT
WM DIVERSIFIED STRATEGIES
PO BOX 54299
LOS ANGELES CA 90054-0299


Management Ownership
As of March 31, 2009, all officers and directors, in the aggregate, owned less than 1% of the Fund’s outstanding
shares.

INVESTMENT ADVISORY AND OTHER SERVICES

Investment Advisors

The Manager of the Fund is Principal Management Corporation (“Principal”), a wholly owned subsidiary of Principal

Financial Services, Inc. Principal is an affiliate of Principal Life. The address of Principal is the Principal Financial

Group, Des Moines, Iowa 50392. Principal was organized on January 10, 1969, and since that time has managed

various mutual funds sponsored by Principal Life.

Principal provides investment advisory services with respect to 10-40% of the assets of the following Accounts:

LargeCap Blend Account II, LargeCap Growth Account I, LargeCap Value Account III, SmallCap Growth Account II,

and SmallCap Value Account I.

Principal provides investment advisory services to the Diversified Balanced Account and the Diversified Growth

Account.

Principal also provides a substantial part of the investment advisory services to each of the Principal LifeTime

Accounts directly, while engaging a Sub-Advisor to provide asset allocation services to those Accounts.

Principal implemented a cash management program in the following Accounts: LargeCap Blend II, LargeCap Growth

I, LargeCap Value III, SmallCap Growth II, and SmallCap Value I. Principal will invest the cash, which comprises a

very small portion of the Accounts’ portfolios, in money market investments and in stock index futures contracts based

on the Account’s market cap to gain exposure to the market.

Principal has executed agreements with various Sub-Advisors. Under those Sub-Advisory agreements, the Sub-

Advisor agrees to assume the obligations of Principal to provide investment advisory services for a specific Account.

For these services, each Sub-Advisor is paid a fee by Principal.


Sub-Advisor:	AllianceBernstein L.P. ("AllianceBernstein") provides investment advisory services. AXA, AXA
	Financial, Inc., AXA Equitable Life Insurance Company ("AXA Equitable"), and certain subsidiaries of
	AXA Equitable directly and indirectly represent a controlling economic interest in AllianceBernstein.
	AllianceBernstein is located at 1345 Avenue of the Americas, New York, NY 10105.
Account(s):	a portion of the assets of LargeCap Value III


Sub-Advisor:	Brown Investment Advisory Incorporated (“Brown”) was founded in 1993 and is located at 901 South
	Bond Street, Suite 400, Baltimore, Maryland 21231. Brown is a wholly-owned subsidiary of Brown
	Investment Advisory & Trust Company, which is a wholly-owned subsidiary of Brown Advisory Holdings
	Incorporated.
Account(s):	a portion of the assets of LargeCap Growth I


Sub-Advisor:	ClearBridge Advisors, LLC (“ClearBridge”) is registered as an investment adviser under the Advisers
	Act and is located 620 8th Avenue, New York, NY 10018 . ClearBridge Advisors, LLC is a wholly-
	owned subsidiary of Legg Mason, Inc.
Account(s):	a portion of the assets of LargeCap Blend II


Sub-Advisor:	Columbus Circle Investors ("CCI") is an affiliate of PGI and a member of the Principal Financial Group.
	CCI provides investment advisory services and was founded in 1975. Its address is Metro Center, One
	Station Place, Stamford, CT 06902.
Account(s):	LargeCap Growth


Sub-Advisor:	Edge Asset Management, Inc. ("Edge") is an affiliate of Principal and a member of the Principal
	Financial Group. Edge has been in the business of investment management since 1944. Its address is
	601 Union Street, Suite 2200, Seattle, WA 98101-1377.
Account(s):	Equity Income, Income, Mortgage Securities, Principal Capital Appreciation, SAM Balanced, SAM
	Conservative Balanced, SAM Conservative Growth, SAM Flexible Income, SAM Strategic Growth, and
	Short-Term Income


Sub-Advisor:	Emerald Advisers, Inc. ("Emerald") is a wholly owned subsidiary of Emerald Asset Management.
	Emerald provides professional investment advisory services to institutional investors and the general
	public. Emerald's offices are located at 1703 Oregon Pike Road, Suite 101, Lancaster, PA 17601.
Account(s):	a portion of the assets of SmallCap Growth II


Sub-Advisor:	Essex Investment Management Company, LLC ("Essex") is a Boston-based management firm which
	specializes in growth equity investments. Essex manages portfolios for corporations, endowments,
	foundations, municipalities, public funds, Taft-Hartley accounts, and private clients. Essex offers a
	range of growth equity strategies and employs proprietary fundamental research combined with active
	portfolio management. Essex Investment Management is majority owned by Affiliated Managers
	Group, Inc., a publically reporting diversified asset management company. Its address is 125 High
	Street, 29th Floor, Boston, MA 02110.

Account(s):	a portion of the assets of SmallCap Growth II



Sub-Advisor:	Jacobs Levy Equity Management, Inc. ("Jacobs Levy") provides investment advice based upon
	quantitative equity strategies. The firm focuses on detecting opportunities in the U.S. equity market and
	attempting to profit from them through engineered, risk-controlled portfolios. Based in Florham Park,
	New Jersey, Jacobs Levy is focused exclusively on the management of U.S. equity separate accounts
	for institutional clients. Jacobs Levey is co-owned Bruce Jacobs and Kenneth Levy. Its address is 100
	Campus Drive, Florham Park, NJ 07932-0650.
Account(s):	MidCap Value II



Sub-Advisor:	J.P. Morgan Investment Management Inc. ("J.P. Morgan"), 245 Park Avenue, New York, NY 10167 is
	an indirect wholly owned subsidiary of JPMorgan Chase & Co. ("JPMorgan"), a bank holding company.
	J.P. Morgan offers a wide range of services to governmental, institutional, corporate, and individual
	customers and acts as investment advisor to individual and institutional clients.

Account(s):	a portion of the assets of SmallCap Value I



Sub-Advisor:	Mellon Capital Management Corporation ("Mellon Capital"), 500 Grant Street, Suite 4200, Pittsburgh,
	PA 15258. Mellon Capital provides investment advisory services and is a wholly owned subsidiary of
	Mellon Financial Corporation ("Mellon").
Account(s):	MidCap Growth I and a portion of the assets of SmallCap Value I


Sub-Advisor:	Morgan Stanley Investment Management, Inc. (“Morgan Stanley Investment Management”), 522 Fifth
	Avenue, New York, NY 10036. Morgan Stanley Investment Management is an indirect wholly owned
	subsidiary of Morgan Stanley, a publicly held global financial services company. Van Kampen provides
	investment advice to a wide variety of individual, institutional, and investment company clients.

Account(s):	Asset Allocation


Sub-Advisor:	Principal Global Investors, LLC (“PGI”) is an indirect wholly owned subsidiary of Principal Life
	Insurance Company, an affiliate of Principal, and a member of the Principal Financial Group. PGI
	manages equity, fixed-income, and real estate investments primarily for institutional investors, including
	Principal Life. PGI’s headquarters address is 801 Grand Avenue, Des Moines, IA 50392. Its other
	primary asset management office is in New York, with asset management offices of affiliate advisors in
	several non-U.S. locations including London, Sydney and Singapore.

Account(s):	Balanced, Bond & Mortgage Securities, Diversified International, Government & High Quality Bond,
	International Emerging Markets, International SmallCap, LargeCap S&P 500 Index, LargeCap Value,
	MidCap Blend, Money Market, Principal LifeTime 2010, Principal LifeTime 2020, Principal LifeTime
	2030, Principal LifeTime 2040, Principal LifeTime 2050, Principal LifeTime Strategic Income, Short-
	Term Bond, and SmallCap Blend


Sub-Advisor:	Principal Real Estate Investors, LLC ("Principal - REI"), an indirect wholly owned subsidiary of Principal
	Life, an affiliate of Principal, and a member of the Principal Financial Group, was founded in 2000. It
	manages investments for institutional investors, including Principal Life. Principal-REI's address is 801
	Grand Avenue, Des Moines, IA 50392.
Account(s):	Real Estate Securities


Sub-Advisor:	T. Rowe Price Associates, Inc. ("T. Rowe Price"), a wholly owned subsidiary of T. Rowe Price Group,
	Inc., a financial services holding company, has over 70 years of investment management experience.
	T. Rowe Price is located at 100 East Pratt Street, Baltimore, MD 21202.
Account(s):	LargeCap Blend II and LargeCap Growth I


Sub-Advisor:	Westwood Management Corp. ("Westwood"), a New York corporation formed in 1983, is a wholly
	owned subsidiary of Westwood Holdings Group, Inc., an institutional asset management company.
	Westwood's principal place of business is located at 200 Crescent Court, Suite 1200, Dallas, Texas
	75201.
Account(s):	a portion of the assets of LargeCap Value III

The Sub-Sub-Advisors

PGI has entered into a sub-sub-advisory agreement with Spectrum Asset Management, Inc. (“Spectrum”) for the Bond

& Mortgage Securities Account. Under the agreement, the sub-sub-advisor agrees to manage the day-to-day

investment of the Account’s assets allocated to it consistent with the Account’s investment objectives, policies and

restrictions and will be responsible for, among other things, placing all orders for the purchase and sale of portfolio

securities, subject to supervision and monitoring by PGI and oversight by the Board. The firm, at its own expense, will

provide all investment, management and administrative personnel, facilities and equipment necessary for the

investment advisory services which it conducts for the Account.

Under the agreements, PGI pays the sub-sub-advisor a fee which is accrued daily and paid monthly (calculated as

percentage of the average daily net assets managed by the respective firm). Entering into these agreements does not

change the management fee that the Account pays Principal under its Management Agreement or the sub-advisory

fee that Principal pays PGI under its sub-advisory agreement. PGI, and not the Account, will bear the expenses of the

services that each of the sub-sub-advisors provides to the Account under the agreements.


Sub-Sub-Advisor:	Spectrum Asset Management, Inc. (“Spectrum”) is an indirect subsidiary of Principal
	Life and an affiliate of Principal Global Investors, LLC and a member of the Principal
	Financial Group. Spectrum was founded in 1987. Its address is 4 High Ridge Park,
	Stamford, CT 06905.

Affiliated Persons of the Fund Who are Affiliated Persons of the Advisor

For information about affiliated persons of the Fund who are also affiliated persons of Principal or affiliated advisors,

see the Interested Director and Officer tables in the “Management” section.

Codes of Ethics

The Fund, Principal, each of the Sub-Advisors, and the Distributor have adopted Codes of Ethics (“Codes”) under

Rule 17j-1 of the 1940 Act. Principal has also adopted such a Code under Rule 204A-1 of the Investment Advisers Act

of 1940. These Codes are designed to prevent persons with access to information regarding the portfolio trading

activity of an Account from using that information for their personal benefit. In certain circumstances, personal

securities trading is permitted in accordance with procedures established by the Codes. The Boards of Directors of

Principal, the Fund, the Distributor, and each of the Sub-Advisors periodically review their respective Codes. The

Codes are on file with, and available from, the Securities and Exchange Commission. A copy of the Fund’s Code will

also be provided upon request, which may be made by contacting the Fund.

COST OF MANAGER’S SERVICES

For providing the investment advisory services, and specified other services, Principal, under the terms of the

Management Agreement for the Fund, is entitled to receive a fee computed and accrued daily and payable monthly, at

the following annual rates:


		Net Asset Value of Account
	First	Next	Next	Next
Account	$250 Million	$250 Million	$250 Million	$250 Million	Thereafter
LargeCap Value	0.60%	0.55%	0.50%	0.45%	0.40%
LargeCap Blend II and LargeCap Value III	0.75	0.70	0.65	0.60	0.55
Diversified International	0.85	0.80	0.75	0.70	0.65
International Emerging Markets	1.25	1.20	1.15	1.10	1.05
MidCap Value II	1.05	1.00	0.95	0.90	0.85


	First	Next	Next	Next	Over
Account	$500 million	$500 million	$1 billion	$1 billion	$3 billion
LargeCap Growth	0.68%	0.63%	0.61%	0.56%	0.51%


	First $2	Over $2
Account	billion	billion
Income	0.50%	0.45%
Mortgage Securities	0.50	0.45

	First	Over
Account	$3 billion	$3 billion
Principal LifeTime 2010*	0.1225%	0.1125%
Principal LifeTime 2020*	0.1225	0.1125
Principal LifeTime 2030*	0.1225	0.1125
Principal LifeTime 2040*	0.1225	0.1125
Principal LifeTime 2050*	0.1225	0.1125
Principal LifeTime Strategic Income*	0.1225	0.1125

* Effective July 1, 2009, the management fee will be reduced to 0.03%.


	First $200	Next $300	Over $500
Account	million	million	million
Short-Term Income	0.50%	0.45%	0.40%


	First $500	Over $500
Account	million	million
Principal Capital Appreciation	0.625%	0.500%

	First	Over
Account	$1 billion	$1 billion
SAM Balanced Portfolio*	0.25%	0.20%
SAM Conservative Balanced Portfolio*	0.25	0.20
SAM Conservative Growth Portfolio*	0.25	0.20
SAM Flexible Income Portfolio*	0.25	0.20
SAM Strategic Growth Portfolio*	0.25	0.20

*Breakpoints based on aggregate SAM Portfolio net assets


	Overall
Account	Fee
LargeCap S&P 500 Index	0.25%

Account	All Assets
Diversified Balanced	0.05%
Diversified Growth	0.05%


	First	Next	Next	Next
Account	$100 million	$100 million	$100 million	$100 million	Thereafter
Asset Allocation and LargeCap Growth I	0.80%	0.75%	0.70%	0.65%	0.60%
Balanced and Equity Income	0.60	0.55	0.50	0.45	0.40
International SmallCap	1.20	1.15	1.10	1.05	1.00
SmallCap Growth II	1.00	0.95	0.90	0.85	0.80
MidCap Blend	0.65	0.60	0.55	0.50	0.45
MidCap Growth I and Real Estate Securities	0.90	0.85	0.80	0.75	0.70
SmallCap Blend	0.85	0.80	0.75	0.70	0.65
SmallCap Value I	1.10	1.05	1.00	0.95	0.90
All Other	0.50	0.45	0.40	0.35	0.30

Except for certain Fund expenses set out below, Principal is responsible for expenses, administrative duties, and

services including the following: expenses incurred in connection with the registration of the Fund and Fund shares

with the SEC; office space, facilities, and costs of keeping the books of the Fund; compensation of all personnel who

are officers and any directors who are also affiliated with Principal; fees for auditors and legal counsel; preparing and

printing Fund prospectuses; and administration of shareholder accounts, including issuance, maintenance of open

account system, dividend disbursement, reports to shareholders, and redemptions. However, some or all of these

expenses may be assumed by Principal Life and some or all of the administrative duties and services may be

delegated by Principal to Principal Life or affiliate thereof.

Each Account pays for certain corporate expenses incurred in its operation. Among such expenses, the Account pays

brokerage commissions on portfolio transactions, transfer taxes and other charges and fees attributable to investment

transactions, any other local, state, or federal taxes, fees, and expenses of all directors of the Fund who are not

persons affiliated with Principal, interest, fees for Custodian of the Account, and the cost of meetings of shareholders.

Fees paid for investment management services during the periods indicated were as follows:


Management Fees For Periods Ended December 31,
Account	2008	2007*	2006*
Asset Allocation	$ 683	$ 823	$ 799
Balanced	493	658	669
Bond & Mortgage Securities	1,767	1,843	1,598
Diversified International	3,637	4,666	2,873
Equity Income	2,329	2,860	2,049
Government & High Quality Bond	1,370	1,381	1,373
Income	781	953	1,019
International Emerging Markets	2,065	2,296	1,209
International SmallCap	1,712	2,392	1,936
LargeCap Blend II	1,675	2,433	1,235
LargeCap Growth	1,950	3,041	732
LargeCap Growth I	1,794	2,225	1,969
LargeCap S&P 500 Index	375	532	485
LargeCap Value	1,269	1,715	1,616
LargeCap Value III	1,428	1,631	1,181
MidCap Blend	2,230	2,666	2,441
MidCap Growth I	562	712	653
MidCap Value II	1,251	1,608	1,319
Money Market	1,524	1,073	775
Mortgage Securities	963	1,236	1,372
Principal Capital Appreciation	659	940	981
Principal LifeTime 2010	53	45	25
Principal LifeTime 2020	200	172	71
Principal LifeTime 2030	35	29	11
Principal LifeTime 2040	18	14	5
Principal LifeTime 2050	11	9	3
Principal LifeTime Strategic Income	26	21	11
Real Estate Securities	1,552	2,306	1,881
SAM Balanced Portfolio	1,392	1,624	712
SAM Conservative Balanced Portfolio	201	172	75
SAM Conservative Growth Portfolio	635	911	397
SAM Flexible Income Portfolio	329	406	205


Management Fees For Periods Ended December 31,
Account	2008	2007*	2006*
SAM Strategic Growth Portfolio	344	521	202
Short-Term Bond	712	680	501
Short-Term Income	318	222	248
SmallCap Blend	611	865	840
SmallCap Growth II	841	1,188	722
SmallCap Value I	1,607	2,174	1,634

*Amounts in thousands.

Sub-Advisory Agreements

For providing the investment advisory services, and specified other services, the Sub-Advisor, under the terms of the

Sub-Advisory Agreement for the Account, is entitled to receive a fee computed and accrued daily and payable

monthly, at the following annual rates:

Accounts for which Edge serves as Sub-Advisor. Edge is Sub-Advisor for each Account identified below in Tables

A, B, and C. Principal pays Edge a fee, computed and paid monthly, at an annual rate as shown below.

In calculating the fee for an Account included in Table A, assets of all other Accounts included in Table A as well as

assets of any unregistered separate account of Principal Life Insurance Company and any investment company

sponsored by Principal Life Insurance Company to which Edge or PGI provides investment advisory services and

which invests primarily in fixed-income securities (except money market separate accounts or investment companies),

will be combined with the assets of the Account to arrive at net assets.

In calculating the fee for an Account included in Table B, assets of any unregistered separate account of Principal Life

Insurance Company and any investment company sponsored by Principal Life Insurance Company to which Edge or

PGI provides investment advisory services and which have the same investment mandate (e.g. Income) as the

Account for which the fee is calculated, will be combined with the assets of the Account to arrive at net assets.


		Table A
Edge Sub-Advised Accounts		Net Asset Value of Account
	First	Next	Next	Over
Account	$5 billion	$1 billion	$4 billion	$10 billion
Income, Mortgage Securities, and Short-Term Income	0.1126%	0.0979%	0.0930%	0.0881%


				Table B
			Net Asset Value of Account
	First	Next	Next	Next	Next	Next	Over
Account	$50 million	$50 million	$100 million	$200 million	$350 million	$750 million	$1.5 billion
Equity Income	0.2643%	0.2448%	0.2154%	0.1762%	0.1273%	0.0881%	0.0587%

	First	Next	Next	Next	Next	Next	Over
Account	$25 million	$75 million	$100 million	$300 million	$500 million	$500 million	$1.5 billion
Principal Capital Appreciation	0.3916%	0.3133%	0.2643%	0.2252%	0.1762%	0.1273%	0.0783%


	Table C
Account	Sub-Advisor Fee as a % of Net Assets
SAM Balanced Portfolio	0.0416%
SAM Conservative Balanced Portfolio	0.0416
SAM Conservative Growth Portfolio	0.0416
SAM Flexible Income Portfolio	0.0416
SAM Strategic Growth Portfolio	0.0416

Accounts for which PGI serves as Sub-Advisor. PGI is Sub-Advisor for each Account identified below. Principal

pays PGI a fee, computed and paid monthly, at an annual rate as shown below.

To calculate the fee for an Account in Table A, assets of the Account, along with the assets of all other Accounts in

Table A, are combined with any:


•	Principal Life non-registered separate account sub-advised by PGI with assets invested primarily in fixed-income
	securities (except money market separate accounts) and
•	Principal Life sponsored mutual fund sub-advised by PGI with assets invested primarily in fixed-income securities
	(except money market mutual funds).

To calculate the fee for an Account in Table B, the assets of the Account are combined with assets sub-advised by
Principal with the same investment mandate (e.g. midcap value) in
•	(a) Principal Life non-registered separate account sub-advised by PGI and
•	(b) Principal Life sponsored mutual fund sub-advised by PGI.


		Table A
PGI Sub- Advised Accounts		Net Asset Value of Fund
	First	Next	Next	Over
Account	$5 billion	$1 billion	$4 billion	$10 billion
Balanced, Bond & Mortgage Securities, Government & High Quality Bond, and
Short-Term Bond	0.1126%	0.0979%	0.0930%	0.0881%


				Table B
			Net Asset Value of Account
	First	Next	Next	Next	Next	Next	Over
Account	$50 million	$50 million	$100 million	$200 million	$350 million	$750 million	$1.5 billion
Diversified International	0.3427%	0.2741%	0.1958%	0.1566%	0.1175%	0.0979%	0.0783%
LargeCap Value	0.2643	0.2448	0.2154	0.1762	0.1273	0.0881	0.0587


				Table B
			Net Asset Value of Account
	First	Next	Next	Next	Next	Next	Over
Account	$25 million	$75 million	$100 million	$300 million	$500 million	$500 million	$1.5 billion
MidCap Blend	0.3916%	0.3133%	0.2643%	0.2252%	0.1762%	0.1273%	0.0783%
SmallCap Blend	0.4699	0.3524	0.2643	0.2448	0.2154	0.1762	0.1175


Table C
		Sub-Advisor
		Percentage
Account		Fee
International Emerging Markets		0.4895%
International SmallCap		0.4895
LargeCap S&P 500 Index		0.0147
Money Market		0.0734
Principal LifeTime 2010		0.03
Principal LifeTime 2020		0.03
Principal LifeTime 2030		0.03
Principal LifeTime 2040		0.03
Principal LifeTime 2050		0.03
Principal LifeTime Strategic Income		0.03

All Other Accounts. In calculating the fee for each Account, each Sub-Advisor, except J.P. Morgan, has agreed that

assets of any existing registered investment company sponsored by Principal Life Insurance Company to which the

Sub-Advisor provides investment advisory services and which have the same investment mandate as the Account for

which the fee is being calculated, will be combined (together, the “Aggregated Assets”). The fee charged for the assets

in an Account shall be determined by calculating a fee on the value of the Aggregated Assets using the fee schedules

described in the tables below and multiplying the aggregate fee by a fraction, the numerator of which is the amount of

assets in the Account and the denominator of which is the amount of the Aggregated Assets.


		Net Asset Value of Account
	First	Next	Next	Over
Account	$40 million	$160 million	$100 million	$300 million
Asset Allocation - Morgan Stanley Investment Management	0.45%	0.30%	0.25%	0.20%

		Net Asset Value of Account


	First	Next	Assets Over
Account	$250 million	$250 million	$500 million
LargeCap Blend II - ClearBridge	0.25%	0.20%	0.15%
Cash and cash equivalents shall be included in the Series net assets calculation up to a
maximum of 1.00% of the Series net assets.


	Net Asset Value of Account
	First	Next	Next	Next	Over
Account	$50 million	$200 million	$350 million	$400 million	$1 billion
					0.275% on all
LargeCap Blend II - T. Rowe Price	0.40%	0.35%	0.30%	0.275%	assets
Cash and cash equivalents shall be included in the Series
net assets calculation up to a maximum of 1.00% of the
Series net assets.


				Net Asset Value of Account
	First	Next	Next	Next	Next	Next	Next	Next	Over
Account	$50 million $50 million $100 million $200 million $350 million $750 million $500 million $2.5 billion $4.5 billion
LargeCap Growth - CCI	0.2643%	0.2448%	0.2154%	0.1762% 0.1273% 0.0881%			0.0587%	0.2448%	0.1664%


	Net Asset Value of Fund
	First	Next	Over
Fund	$100 million	$100 million	$200 million
LargeCap Growth I - Brown	0.30%	0.25%	0.20%
*Cash and cash equivalents shall be included in the Series’ net assets calculation up to a maximum of 1.00% of the Series’ net assets.


		Net Asset Value of Account
	First	Next	Next	Over
Account	$250 million	$250 million	$500 million	$1 billion
				0.35% on all
LargeCap Growth I - T. Rowe Price	0.40%	0.375%	0.35%	assets
Cash and cash equivalents shall be included in the Series net assets
calculation up to a maximum of 1.00% of the Series net assets.


	Net Asset Value of Account
	First	Above
Account	$300 million	$300 million
LargeCap Value III - AllianceBernstein	0.230%	0.200%
Cash and cash equivalents shall be included in the Series net assets calculation up to a maximum of 1.00% of
the Series net assets.


	Net Asset Value of Account
	First	Next	Above
Account	$200 million	$800 million	$1 billion
LargeCap Value III - Westwood	0.30%	0.20%	0.18%
Cash and cash equivalents shall be included in the Series net assets calculation up to a
maximum of 1.00% of the Series net assets.


	Net Asset Value of Account
	First	Over
Account	$50 million	$50 million
MidCap Growth I - Mellon Capital	0.40%	0.35%


	Net Asset Value of Account
	First	Over
Account	$100 million	$100 million
MidCap Value II - Jacobs Levy	0.65%	0.50%


		Net Asset Value of Account
	First	Next	Over
Account	$1 billion	$500 million	$1.5 billion
Real Estate Securities - Principal - REI	0.4895%	0.4405%	0.3916%


	Net Asset Value of Account
	First	Over
Account	$200 million	$200 million
SmallCap Growth II - Emerald	0.50%	0.45%
Cash and cash equivalents shall be included in the Series net assets calculation up to a maximum of
1.00% of the Series net assets.


		Net Asset Value of Fund
	First	Next	Next	Over
Fund	$50 million	$50 million	$50 million	$150 million
SmallCap Growth II - Essex	0.70%	0.60%	0.55%	0.50%
Cash and cash equivalents shall be included in the Series net
assets calculation up to a maximum of 1.00% of the Series net
assets.


	Net Asset Value of Account
	First	Above
Account	$300 million	$300 million
SmallCap Value I - J.P. Morgan	0.450%	0.350%
Cash and cash equivalents shall be included in the Series net assets calculation up to a maximum of
1.00% of the Series net assets.


	Net Asset Value of Account
	First	Next	Above
Account	$100 million	$200 million	$300 million
SmallCap Value I - Mellon Capital	0.450%	0.400%	0.350%
Cash and cash equivalents shall be included in the Series net assets calculation
up to a maximum of 1.00% of the Series net assets.


Fees paid for Sub-Advisory services during the periods indicated were as follows:

	Sub-Advisor Fees For Periods Ended December 31,
Account	2008	2007	2006
Asset Allocation	$316,002	$ 369,463	$ 359,724
Balanced	83,448	109,551	116,451
Bond & Mortgage Securities	424,056	440,899	379,920
Diversified International	404,369	517,796	319,193
Equity Income	380,131	488,078	175,439
Government & High Quality Bond	303,729	305,090	316,939
Income	155,360	192,912	—
International Emerging Markets	849,997	884,010	466,669
International SmallCap	743,826	1,001,512	803,709
LargeCap Blend II	592,550	851,699	433,882
LargeCap Growth	539,356	828,116	142,364
LargeCap Growth I	785,511	988,104	874,301
LargeCap S&P 500 Index	22,908	31,489	28,318
LargeCap Value	175,381	228,834	358,080
LargeCap Value III	399,784	451,379	329,869
MidCap Blend	578,552	645,722	674,092
MidCap Growth I	224,747	282,246	259,299
MidCap Value II	616,941	773,981	603,960
Money Market	252,144	168,860	117,413
Mortgage Securities	191,155	248,907	—
Principal Capital Appreciation	157,029	208,412	—
Principal LifeTime 2010	18,174	14,863	8,192
Principal LifeTime 2020	69,919	57,697	22,924
Principal LifeTime 2030	12,164	9,531	3,574


	Sub-Advisor Fees For Periods Ended December 31,
Account	2008	2007	2006
Principal LifeTime 2040	6,257	4,519	1,629
Principal LifeTime 2050	3,916	3,070	1,021
Principal LifeTime Strategic Income	8,979	6,827	3,769
Real Estate Securities	849,838	1,254,211	1,025,123
SAM Balanced	245,298	296,104	—
SAM Conservative Balanced	34,638	31,213	—
SAM Conservative Growth	114,109	166,143	—
SAM Flexible Income	57,154	73,919	—
SAM Strategic Growth	61,801	94,259	—
Short-Term Bond	146,576	137,116	102,644
Short-Term Income	63,505	43,955	—
SmallCap Blend	159,226	191,628	184,784
SmallCap Growth II	462,305	660,763	387,466
SmallCap Value I	711,223	976,668	737,912

Operating Expense Limits

Principal has contractually agreed to limit the Fund’s expenses for Class 1 and Class 2 shares of certain Accounts.

The reductions and reimbursements are in amounts that maintain total operating expenses, excluding interest

expense and acquired fund fees and expenses, at or below certain limits. The limits are expressed as a percentage of

average daily net assets attributable to each respective class on an annualized basis. The operating expense limits

and the agreement terms are as follows:


Account	Class 1	Class 2	Expiration
MidCap Value Account II	1.01%	N/A	April 30,2010
SmallCap Value Account I	1.01%	1.26%	April 30,2010

Custodian

The custodian for the portfolio securities and cash assets of the Accounts is Bank of New York Mellon, One Wall

Street, New York, NY 10286. The custodian performs no managerial or policymaking functions for the Fund or the

Accounts.

Principal Shareholder Services, Inc. (1100 Investment Boulevard, El Dorado Hills, CA 95762-5710) provides transfer

agency services for Principal Variable Contracts Funds, Inc.

BROKERAGE ALLOCATION AND OTHER PRACTICES

Brokerage on Purchases and Sales of Securities

All orders for the purchase or sale of portfolio securities are placed on behalf of an Account by the Account’s Sub-

Advisor or Sub-Sub-Advisor pursuant to the terms of the applicable sub-advisory agreement. In distributing brokerage

business arising out of the placement of orders for the purchase and sale of securities for any Account, the objective of

each Account’s Sub-Advisor is to obtain the best overall terms. In pursuing this objective, a Sub-Advisor considers all

matters it deems relevant, including the breadth of the market in the security, the price of the security, the financial

condition and executing capability of the broker or dealer, confidentiality, including trade anonymity, and the

reasonableness of the commission, if any (for the specific transaction and on a continuing basis). This may mean in

some instances that a Sub-Advisor will pay a broker commissions that are in excess of the amount of commissions

another broker might have charged for executing the same transaction when the Sub-Advisor believes that such

commissions are reasonable in light of a) the size and difficulty of the transaction, b) the quality of the execution

provided, and c) the level of commissions paid relative to commissions paid by other institutional investors. (Such

factors are viewed both in terms of that particular transaction and in terms of all transactions that broker executes for

accounts over which the Sub-Advisor exercises investment discretion. The Board has also adopted a policy and

procedure designed to prevent the funds from compensating a broker/dealer for promoting or selling fund shares by

directing brokerage transactions to that broker/dealer for the purpose of compensating the broker/dealer for promoting

or selling fund shares. Therefore, the Sub-Advisor may not compensate a broker/dealer for promoting or selling fund

shares by directing brokerage transactions to that broker/dealer for the purpose of compensating the broker/dealer for

promoting or selling fund shares. A Sub-Advisor may purchase securities in the over-the-counter market, utilizing the

services of principal market makers unless better terms can be obtained by purchases through brokers or dealers, and

may purchase securities listed on the NYSE from non-Exchange members in transactions off the Exchange.)

A Sub-Advisor may give consideration in the allocation of business to services performed by a broker (e.g., the

furnishing of statistical data and research generally consisting of, but not limited to, information of the following types:

analyses and reports concerning issuers, industries, economic factors and trends, portfolio strategy, and performance

of client accounts). If any such allocation is made, the primary criteria used will be to obtain the best overall terms for

such transactions. A Sub-Advisor may also pay additional commission amounts for research services. Such statistical

data and research information received from brokers or dealers as described above may be useful in varying degrees

and a Sub-Advisor may use it in servicing some or all of the accounts it manages. Sub-Advisors allocated portfolio

transactions for the Accounts indicated in the following table to certain brokers for the year ended December 31, 2008

due to research services provided by such brokers. The table also indicates the commissions paid to such brokers as

a result of these portfolio transactions.


	Amount of Transactions	Soft Dollar
	for which Soft Dollar	Commissions
Account	Commissions were Paid	Paid
Diversified International	$763,492,324	$1,198,969
Equity Income	390,490,600	363,464
International Emerging Markets	394,166,084	887,337
International SmallCap	309,319,098	443,381
LargeCap Blend II	101,516,692	81,914
LargeCap Growth I	105,307,191	106,530
LargeCap S&P 500 Index	115,721,680	17,184
LargeCap Value	418,316,010	361,766
LargeCap Value III	60,202,839	19,235
MidCap Blend	154,027,023	184,102
Principal Capital Appreciation	19,653,012	22,473
Real Estate Securities	87,659,869	106,558
SmallCap Blend	63,987,857	127,771
SmallCap Growth II	91,202,109	169,923
SmallCap Value I	73,239,452	9,355

Subject to the rules promulgated by the SEC, as well as other regulatory requirements, the Board has approved

procedures whereby an Account may purchase securities that are offered in underwritings in which an affiliate of a

Sub-Advisor, or the Manager, participates. These procedures prohibit an Account from directly or indirectly benefiting

a Sub-Advisor affiliate or a Manager affiliate in connection with such underwritings. In addition, for underwritings where

a Sub-Advisor affiliate or a Manager participates as a principal underwriter, certain restrictions may apply that could,

among other things, limit the amount of securities that the Account could purchase in the underwritings. The Sub-

Advisor shall determine the amounts and proportions of orders allocated to the Sub-Advisor or affiliate. The Directors

of the Fund will receive quarterly reports on these transactions.

The Board has approved procedures that permit an Account to effect a purchase or sale transaction between the

Account and any other affiliated mutual fund or between the Account and affiliated persons of the Account under

limited circumstances prescribed by SEC rules. Any such transaction must be effected without any payment other than

a cash payment for the securities, for which a market quotation is readily available, at the current market price; no

brokerage commission or fee (except for customary transfer fees), or other remuneration may be paid in connection

with the transaction. The Board receives quarterly reports of all such transactions.

The Board has also approved procedures that permit an Account’s sub-advisor to place portfolio trades with an

affiliated broker under circumstances prescribed by SEC Rules 17e-1 and 17a-10. The procedures require that total

commissions, fees, or other remuneration received or to be received by an affiliated broker must be reasonable and

fair compared to the commissions, fees or other remuneration received by other brokers in connection with

comparable transactions involving similar securities being purchased or sold on a securities exchange during a

comparable time period. The Board receives quarterly reports of all transactions completed pursuant to the Account’s

procedures.

Purchases and sales of debt securities and money market instruments usually are principal transactions; portfolio

securities are normally purchased directly from the issuer or from an underwriter or marketmakers for the securities.

Such transactions are usually conducted on a net basis with the Account paying no brokerage commissions.

Purchases from underwriters include a commission or concession paid by the issuer to the underwriter, and the

purchases from dealers serving as marketmakers include the spread between the bid and asked prices.

The Board has approved procedures whereby an Account may participate in a commission recapture program.

Commission recapture is a form of institutional discount brokerage that returns commission dollars directly to an

Account. It provides a way to gain control over the commission expenses incurred by an Account’s Manager and/or

Sub-Advisor, which can be significant over time and thereby reduces expenses, improves cash flow and conserves

assets. An Account can derive commission recapture dollars from both equity trading commissions and fixed-income

(commission equivalent) spreads. The Accounts may participate in a program through a relationship with Frank

Russell Securities, Inc. From time to time, the Board reviews whether participation in the recapture program is in the

best interest of the Accounts.


The following table shows the brokerage commissions paid during the periods indicated.

	Total Brokerage Commissions Paid
	for Periods ended December 31
Account	2008	2007	2006
Asset Allocation	$ 18,333	$ 21,941	$ 14,456
Balanced	102,949	113,233	127,011
Bond & Mortgage Securities	11,500	20,780	0
Diversified International	1,410,823	2,289,939	1,355,357
Equity Income	594,977	601,005	N/A
International Emerging Markets	978,724	1,384,577	728,373
International SmallCap	519,769	865,035	872,866
LargeCap Blend II	230,453	490,490	167,835
LargeCap Growth	442,682	808,948	271,278
LargeCap Growth I	188,341	251,095	258,008
LargeCap S&P 500 Index	19,051	15,042	10,996
LargeCap Value	540,865	575,706	494,187
LargeCap Value III	204,856	61,114	62,195
MidCap Blend	242,978	299,014	493,827
MidCap Growth I	104,402	135,473	180,936
MidCap Value II	222,791	219,280	293,679
Principal Capital Appreciation	39,656	79,225	N/A
Real Estate Securities	179,826	349,868	149,463
SmallCap Blend	207,256	156,020	398,512
SmallCap Growth II	253,043	417,582	197,944
SmallCap Value I	215,760	254,841	182,235

The primary reasons for changes in several Accounts’ brokerage commissions for the three years were changes in

Account size; changes in market conditions; and changes in money managers of certain Accounts, which required

substantial portfolio restructurings, resulting in increased securities transactions and brokerage commissions.

Certain broker-dealers are considered to be affiliates of the Fund:


Brokerage Commissions
were Paid to the Following			Principal Variable
Broker-Dealers who are			Contracts Funds, Inc.
Affiliated with a Sub-Advisor	Sub-Advisor Employed	Principal Funds, Inc.	Account Advised
Employed by Principal	by Principal	Fund Advised by Sub-Advisor	by Sub-Advisor


B-Trade Services, LLC;	Mellon Capital Management	MidCap Growth III and SmallCap	MidCap Growth I and SmallCap
BNY Brokerage, Inc.; Mellon Financial	Corporation	Value I	Value I
Markets, LLC; Pershing, LLC

BTIG, LLC	Goldman Sachs Asset Management LP	LargeCap Blend I and MidCap	N/A
Goldman Sachs & Co.;		Value I
Goldman Sachs Execution & Clearing, LP

Bear Stearns (a JP Morgan Co);	American Century Investment	LargeCap Growth II	N/A
JP Morgan Cazenove Limited;	Management, Inc.
JP Morgan Securities; and
Morgan Joseph & Co.


Bear Stearns (a JP Morgan Co);	J.P. Morgan Investment	High Yield I and SmallCap Value I	SmallCap Value I
JP Morgan Cazenove Limited;	Management, Inc.
JP Morgan Securities; and
Morgan Joseph & Co.

Morgan Stanley & Co. Inc.	Morgan Stanley Investment	California Municipal and Tax-	Asset Allocation
	Management Inc. (doing business	Exempt Bond
	as Van Kampen)

Dresdner Kleinwort Securities, LLC	Pacific Investment Management Co LLC	Core Plus Bond I	N/A

Fidelity Brokerage Services, LLC;	Pyramis Global Advisors, LLC	International I	N/A
National Financial Services, LLC

Lehman Brothers, Inc.	Lehman Brothers Asset Management,	High Yield I	N/A
	LLC

Sanford C. Bernstein & Co., LLC	AllianceBernstein L.P.	LargeCap Value III and SmallCap	LargeCap Value III
		Growth I

Spectrum Asset Management, Inc.	Columbus Circle Investors	LargeCap Growth, MidCap	LargeCap Growth
		Growth and SmallCap Growth III

Spectrum Asset Management, Inc.	Edge Asset Management, Inc.	Equity Income, High Yield,	Equity Income, Income,
		Income, Mortgage Securities,	Mortgage Securities, Principal
		Principal Capital Appreciation,	Capital Appreciation, Short-
		Short-Term Income, and Strategic	Term Income, and Strategic
		Asset Management Portfolios	Asset Management Portfolios

Spectrum Asset Management, Inc.	Principal Global Investors, LLC	Bond & Mortgage Securities,	Balanced, Bond & Mortgage
		Disciplined LargeCap Blend,	Securities, Diversified
		Diversified International, Global	International, Government &
		Diversified Income, High Quality	High Quality Bond, International
		Intermediate-Term Bond, Inflation	Emerging Markets,
		Protection, International	International SmallCap,
		Emerging Markets, International	LargeCap S&P 500 Index,
		Growth, LargeCap S&P 500	LargeCap Value, MidCap
		Index, LargeCap Value, MidCap	Blend, Money Market, Principal
		Blend; MidCap S&P 400 Index,	LifeTime Accounts, Short-Term
		MidCap Value III, Money Market,	Bond, SmallCap Blend
		Principal LifeTime Funds, Short-
		Term Bond, SmallCap Blend,
		SmallCap Growth, SmallCap S&P
		600 Index, SmallCap Value, Ultra
		Short Bond

Spectrum Asset Management, Inc.	Principal Real Estate Investors, LLC	Global Diversified Income, Global	Real Estate Securities
		Real Estate Securities, Real
		Estate Securities

Spectrum Asset Management, Inc.	Spectrum Asset Management, Inc.	Global Diversified Income and	N/A
		Preferred
		Securities

UBS Financial Services, Inc.;	UBS Global Asset Management	LargeCap Value I and SmallCap
UBS Securities LLC	(Americas) Inc.	Growth II

Brokerage commissions paid to affiliates during the period ending December 31, 2008 were as follows:


Commissions Paid to B-Trade Services, LLC
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
Balanced	2009	$ %		%
	2008	66
	2007	121
Diversified International	2009
	2008	346
	2007	34
International Emerging Markets	2009
	2007	73
International SmallCap	2009
	2008	215
	2007	525
LargeCap Blend II	2009
	2008	1,569
	2007	5,305
LargeCap Growth	2009
	2008	471
LargeCap Growth I	2009
	2008	1,226
	2007	1,742
MidCap Growth I	2009
	2007	364
SmallCap Blend	2009
	2008	98
	2007	697
SmallCap Growth II	2009
	2008	20,760
	2007	23,065


Commissions Paid to Bear Stearns & Co, Inc.
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
Balanced	2009	$ %		%
	2008	888
Diversified International	2009
	2008	13,773
Equity Income	2009
	2008	10,085
International Emerging Markets	2009
	2008	7,156
LargeCap Blend II	2009
	2008	1,286
LargeCap Growth	2009
	2008	12,182
LargeCap Growth I	2009
	2008	2,646
LargeCap Value	2009
	2008	3,157
MidCap Blend	2009
	2008	1,723
MidCap Growth I	2009
	2008	2,262
MidCap Value II	2009
	2008	2,721
Principal Capital Appreciation	2009
	2008	564
SmallCap Blend	2009
	2008	797
SmallCap Growth II	2009


Commissions Paid to Bear Stearns & Co, Inc.
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
	2008	28
SmallCap Value I	2009
	2008	650


Commissions Paid to BNY Brokerage, Inc.
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
Balanced	2009	$ %		%
	2008	3,416
	2007	2,791
Diversified International	2009
	2008	258
Equity Income	2009
	2008	100,920
	2007	43,769
International Emerging Markets	2009
	2008	68
	2007	598
International SmallCap	2009
	2008	348
LargeCap Blend II	2009
	2008	97
	2007	795
LargeCap Growth I	2009
	2007	127
LargeCap S&P 500 Index	2009
	2008	959
	2007	210
LargeCap Value	2009
	2008	10,299
	2007	10,597
LargeCap Value III	2009
	2007	574
MidCap Blend	2009
	2008	3,884
	2007	6,796
MidCap Growth I	2009
	2007	290
Principal Capital Appreciation	2009
	2008	2,729
	2007	9,897
Real Estate Securities	2009
	2008	748
SmallCap Blend	2009
	2008	1,777
	2007	375
SmallCap Growth II	2009
	2008	159
	2007	39


Commissions Paid to BNY Capital Markets, Inc.
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
SmallCap Growth II	2009	$ %		%
	2007	3,270


Commissions Paid to BTIG, LLC
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
LargeCap Value III	2009	$ %		%
	2008	16
MidCap Value II	2009
	2008	482
SmallCap Growth II	2009
	2008	199


Commissions Paid to Dresdner Kleinwort Securities, LLC
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
International SmallCap	2009	$ %		%
	2008	29


Commissions Paid to Fidelity Brokerage Services, LLC
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
MidCap Value II	2009	$ %		%
	2008	1,019
	2007	1,772


Commissions Paid to Goldman Sachs & Co.
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
Asset Allocation	2009	$ %		%
	2008	527
Balanced	2009
	2008	915
	2007	1,549
Diversified International	2009
	2008	55,457
	2007	134,250
International Emerging Markets	2009
	2008	52,339
	2007	59,774
International SmallCap	2009
	2008	14,429
	2007	33,996
LargeCap Blend II	2009
	2008	14,197
	2007	16,925
LargeCap Growth	2009
	2008	25,172
	2007	4,116
LargeCap Growth I	2009
	2008	12,207
	2007	9,560
LargeCap Value	2009
	2008	1,098
	2007	4,283
LargeCap Value III	2009
	2008	16,369
	2007	2,285
MidCap Blend	2009
	2008	2,998
	2007	5,557


Commissions Paid to Goldman Sachs & Co.
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
MidCap Growth I	2009
	2008	1,834
	2007	2,411
MidCap Value II	2009
	2008	1,865
	2007	1,446
Real Estate Securities	2009
	2008	761
	2007	4,520
SmallCap Blend	2009
	2008	3,025
	2007	2,824
SmallCap Growth II	2009
	2008	949
	2007	1,192
SmallCap Value I	2009
	2008	658
	2007	10,944


Commissions Paid to Goldman Sachs Execution & Clearing, LP
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
LargeCap Blend II	2009	$ %		%
	2008	2,005
	2007	2,721
LargeCap Growth	2009
	2008	73
	2007	66
LargeCap Growth I	2009
	2008	1,739
	2007	493
MidCap Value II	2009
	2008	160
	2007	270
SmallCap Growth II	2009
	2008	4,488
	2007	7,471
SmallCap Value I	2009
	2008	662


Commissions Paid to J.P. Morgan Securities
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
Asset Allocation	2009	$ %		%
	2008	114
Balanced	2009
	2008	6,138
	2007	4,643
Diversified International	2009
	2008	106,701
	2007	126,726
Equity Income	2009
	2008	28,908
	2007	6,204
International Emerging Markets	2009
	2008	118,547
	2007	93,837
International SmallCap	2009


Commissions Paid to J.P. Morgan Securities
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
	2008	19,945
	2007	26,681
LargeCap Blend II	2009
	2008	19,782
	2007	9,537
LargeCap Growth	2009
	2008	33,262
	2007	20,694
LargeCap Growth I	2009
	2008	23,601
	2007	18,650
LargeCap S&P 500 Index	2009
	2008	125
LargeCap Value	2009
	2008	36,851
	2007	33,521
LargeCap Value III	2009
	2008	5,714
	2007	277
MidCap Blend	2009
	2008	33,157
	2007	11,529
MidCap Growth I	2009
	2008	6,816
	2007	9,559
MidCap Value II	2009
	2008	1,724
	2007	2,040
Principal Capital Appreciation	2009
	2008	980
	2007	196
Real Estate Securities	2009
	2008	5,952
	2007	25,306
SmallCap Blend	2009
	2008	13,321
	2007	8,067
SmallCap Growth II	2009
	2008	16,225
	2007	22,969
SmallCap Value I	2009
	2008	4,239
	2007	7,025


Commissions Paid to JPMorgan Cazenove Limited
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
Diversified International	2009	$ %		%
	2008	8,004
	2007	4,180
International SmallCap	2009
	2008	1,926
	2007	3,491


Commissions Paid to Lehman Brothers, Inc.
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
Asset Allocation	2009	$ %		%


Commissions Paid to Lehman Brothers, Inc.
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
	2008	286
	2007	7
Balanced	2009
	2008	2,683
	2007	6,986
Diversified International	2009
	2008	30,782
	2007	72,663
Equity Income	2009
	2008	3,256
	2007	12,528
International Emerging Markets	2009
	2008	10,521
	2007	30,501
International SmallCap	2009
	2008	6,038
	2007	20,653
LargeCap Blend II	2009
	2008	4,828
	2007	6,559
LargeCap Growth	2009
	2008	21,246
	2007	90,353
LargeCap Growth I	2009
	2008	5,093
	2007	6,130
LargeCap S&P 500 Index	2009
	2008	613
	2007	10,479
LargeCap Value	2009
	2008	26,759
	2007	38,759
LargeCap Value III	2009
	2008	2,334
	2007	1,544
MidCap Blend	2009
	2008	6,352
	2007	11,737
MidCap Growth I	2009
	2008	2,724
	2007	4,461
MidCap Value II	2009
	2008	3,437
	2007	28,813
Principal Capital Appreciation	2009
	2008	74
	2007	422
Real Estate Securities	2009
	2008	3,543
	2007	46,816
SmallCap Blend	2009
	2008	3,248
	2007	3,376
SmallCap Growth II	2009
	2008	1,469
	2007	2,102
SmallCap Value I	2009
	2008	1,177
	2007	9,973


Commissions Paid to Mellon Financial Markets LLC
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
SmallCap Growth II	2009	$ %		%
	2008	5


Commissions Paid to Morgan Joseph & Co
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
SmallCap Growth II	2009	$ %		%
	2008	298


Commissions Paid to Morgan Stanley & Co. Inc.
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
Balanced	2009	$ %		%
	2008	1,037
	2007	3,730
Diversified International	2009
	2008	86,942
	2007	159,216
Equity Income	2009
	2008	8,380
	2007	20,234
International Emerging Markets	2009
	2008	82,337
	2007	117,344
International SmallCap	2009
	2008	18,035
	2007	62,610
LargeCap Blend II	2009
	2008	14,996
	2007	13,493
LargeCap Growth	2009
	2008	5,144
	2007	25,261
LargeCap Growth I	2009
	2008	13,952
	2007	22,063
LargeCap S&P 500 Index	2009
	2008	83
	2007	767
LargeCap Value	2009
	2008	10,615
	2007	10,3786
LargeCap Value III	2009
	2008	5,372
	2007	716
MidCap Blend	2009
	2008	3,034
	2007	4,923
MidCap Growth I	2009
	2008	1,567
	2007	8,116
MidCap Value II	2009
	2008	6,244
	2007	5,605
Real Estate Securities	2009
	2008	503
	2007	6,208


Commissions Paid to Morgan Stanley & Co. Inc.
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
SmallCap Blend	2009
	2008	3,386
	2007	1,212
SmallCap Growth II	2009
	2008	7,582
	2007	4,263
SmallCap Value I	2009
	2008	2,881
	2007	3,885


Commissions Paid to National Financial Services, LLC
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
LargeCap Blend II	2009	$ %		%
	2008	212
	2007	12
LargeCap Growth	2009
	2008	2,640
LargeCap Growth I	2009
	2007	45
MidCap Value II	2009
	2007	98
SmallCap Value I	2009
	2008	146


Commissions Paid to Pershing, LLC
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
International SmallCap	2009	$ %		%
	2007	435
LargeCap S&P 500 Index	2009
	2008	34
LargeCap Value III	2009
	2007	476
MidCap Value II	2009
	2008	54
	2007	340
Principal Capital Appreciation	2009
	2008	55
SmallCap Growth II	2009
	2008	13,621
	2007	995


Commissions Paid to Sanford C. Bernstein & Co. LLC
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
Asset Allocation	2009	$ %		%
	2008	4,738
Balanced	2009
	2008	612
	2007	258
Diversified International	2009
	2008	3,785
Equity Income	2009
	2008	51,244
	2007	50,557


Commissions Paid to Sanford C. Bernstein & Co. LLC
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
International SmallCap	2009
	2008	404
LargeCap Blend II	2009
	2008	4,518
	2007	4,664
LargeCap Growth	2009
	2008	1,861
LargeCap Growth I	2009
	2008	2,590
	2007	4,335
LargeCap S&P 500 Index	2009
	2008	8
LargeCap Value	2009
	2008	904
	2007	1,875
LargeCap Value III	2009
	2008	785
MidCap Blend	2009
	2008	257
	2007	2,065
MidCap Growth I	2009
	2008	946
	2007	1,158
MidCap Value II	2009
	2008	1,422
	2007	3,645
Principal Capital Appreciation	2009
	2008	1,672
	2007	3,655
Real Estate Securities	2009
	2008	123
	2007	2,465
SmallCap Blend	2009
	2008	1,243
	2007	234
SmallCap Growth II	2009
	2008	21
	2007	32
SmallCap Value I	2009
	2008	475
	2007	1,983


Commissions Paid to Spectrum Asset Management
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
Bond & Mortgage Securities	2009	$ %		%
	2008	11,500
	2007	20,780


Commissions Paid to UBS Financial Services, Inc.
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
Balanced	2009	$ %		%
	2008	23
International SmallCap	2009
	2007	146
LargeCap S&P 500 Index	2009
	2008	26


Commissions Paid to UBS Securities LLC
	Fiscal			Percent of Dollar
	Year	Total Dollar	As Percent of	Amount of Commissionable
Account	Ended	Amount	Total Commissions	Transactions
Asset Allocation	2009	$ %		%
	2008	545
	2007	1,557
Balanced	2009
	2008	6,145
	2007	11,199
Diversified International	2009
	2008	148,955
	2007	234,676
Equity Income	2009
	2008	24,728
	2007	29,165
International Emerging Markets	2009
	2008	79,550
	2007	150,516
International SmallCap	2009
	2008	78,905
	2007	63,643
LargeCap Blend II	2009
	2008	8,326
	2007	91,009
LargeCap Growth	2009
	2008	11,629
	2007	49,100
LargeCap Growth I	2009
	2008	11,276
	2007	8,183
LargeCap S&P 500 Index	2009
	2008	11,048
	2007	230
LargeCap Value	2009
	2008	28,457
	2007	32,286
LargeCap Value III	2009
	2008	8,844
	2007	6,306
MidCap Blend	2009
	2008	3,166
	2007	14,921
MidCap Value II	2009
	2008	1,097
	2007	5,491
Principal Capital Appreciation	2009
	2008	720
	2007	963
Real Estate Securities	2009
	2008	15,216
	2007	22,567
SmallCap Blend	2009
	2008	16,414
	2007	8,055
SmallCap Growth II	2009
	2008	2,922
	2007	46,640
SmallCap Value I	2009
	2008	4,812
	2007	19,962

Material differences, if any, between the percentage of an Account’s brokerage commissions paid to a broker and the

percentage of transactions effected through that broker reflect the commissions rates the sub-advisor has negotiated

with the broker. Commission rates a sub-advisor pays to brokers may vary and reflect such factors as the trading

volume placed with a broker, the type of security, the market in which a security is traded and the trading volume of

that security, the types of services provided by the broker (i.e. execution services only or additional research services)

and the quality of a broker’s execution.

Allocation of Trades

By The Manager. The Manager shares a common trading platform and personnel that perform trade-related functions

with Principal Global Investors (“PGI”) and, where applicable, the Manager and PGI coordinate trading activities on

behalf of their respective clients. Such transactions are executed in accordance with the firms’ trading policies and

procedures, including, but not limited to trade allocations, purchase of new issues, and directed brokerage. The

Manager acts as investment adviser for registered investment companies and PGI acts as investment adviser for a

variety of individual accounts, ERISA accounts, mutual funds, insurance company separate accounts, and public

employee retirement plans and places orders to trade portfolio securities for each of these accounts. Managing

multiple accounts may give rise to potential conflicts of interest including, for example, conflicts among investment

strategies and conflicts in the allocation of investment opportunities. Each has adopted and implemented policies and

procedures that it believes address the potential conflicts associated with managing accounts for multiple clients and

ensures that all clients are treated fairly and equitably. These procedures include allocation policies and procedures

and internal review processes.

If, in carrying out the investment objectives of their respective clients, occasions arise in which the Manager and PGI

deem it advisable to purchase or sell the same equity securities for two or more client accounts at the same or

approximately the same time, the Manager and PGI may submit the orders to purchase or sell to a broker/dealer for

execution on an aggregate or "bunched" basis. The Manager and PGI will not aggregate orders unless it believes that

aggregation is consistent with (1) its duty to seek best execution and (2) the terms of its investment advisory

agreements. In distributing the securities purchased or the proceeds of sale to the client accounts participating in a

bunched trade, no advisory account will be favored over any other account and each account that participates in an

aggregated order will participate at the average share price for all transactions of the Manager and PGI relating to that

aggregated order on a given business day, with all transaction costs relating to that aggregated order shared on a pro

rata basis.

By the Sub-Advisors and Sub-Sub-Advisors. Each Sub-Advisor and Sub-Sub-Advisor manages a number of

accounts other than the Account's portfolios including personal accounts. Managing multiple accounts may give rise to

potential conflicts of interest including, for example, conflicts among investment strategies, allocation of investment

opportunities and compensation for the account. Each has adopted and implemented policies and procedures that it

believes address the potential conflicts associated with managing accounts for multiple clients and ensures that all

clients are treated fairly and equitably. These procedures include allocation policies and procedures, internal review

processes and, in some cases, review by independent third parties.

Investments the Sub-Advisor or Sub-Sub-Advisor deems appropriate for the Account's portfolio may also be deemed

appropriate by it for other accounts. Therefore, the same security may be purchased or sold at or about the same time

for both the Account's portfolio and other accounts. In such circumstances, the Sub-Advisor or Sub-Sub-Advisor may

determine that orders for the purchase or sale of the same security for the Account's portfolio and one or more other

accounts should be combined. In this event the transactions will be priced and allocated in a manner deemed by the

Sub-Advisor or Sub-Sub-Advisor to be equitable and in the best interests of the Account portfolio and such other

accounts. While in some instances combined orders could adversely affect the price or volume of a security, the

Account believes that its participation in such transactions on balance will produce better overall results for the

Account.

PRICING OF FUND SHARES

Each Account’s shares are bought and sold at the current net asset value (“NAV”) per share. Each Account’s NAV for

each class is calculated each day the New York Stock Exchange (“NYSE”) is open, as of the close of business of the

Exchange (normally 3:00 p.m. Central Time). The NAV of Account shares is not determined on days the NYSE is

closed (generally, New Year’s Day, Martin Luther King, Jr. Day, Washington’s Birthday/Presidents’ Day, Good Friday,

Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas). When an 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 received in proper

form.


For all Accounts except the Money Market Account, the share price is calculated by:
•	taking the current market value of the total assets of the Fund
•	subtracting liabilities of the Fund
•	dividing the remainder proportionately into the classes of the Fund
•	subtracting the liability of each class
•	dividing the remainder by the total number of shares owned in that class.
In determining NAV, securities listed on an Exchange, the NASDAQ National Market and foreign markets are valued
at the closing prices on such markets, or if such price is lacking for the trading period immediately preceding the time
of determination, such securities are valued at their current bid price.
Municipal securities held by the Accounts are traded primarily in the over-the-counter market. Valuations of such
securities are furnished by one or more pricing services employed by the Accounts and are based upon appraisals
obtained by a pricing service, in reliance upon information concerning market transactions and quotations from
recognized municipal securities dealers.

Other securities that are traded on the over-the-counter market are valued at their closing bid prices. Each Account will
determine the market value of individual securities held by it, by using prices provided by one or more professional
pricing services which may provide market prices to other funds, or, as needed, by obtaining market quotations from
independent broker-dealers. Short-term securities maturing within 60 days are valued on an amortized cost basis.
Securities for which quotations are not readily available, and other assets, are valued at fair value determined in good
faith under procedures established by and under the supervision of the Board of Directors.

A Fund’s securities may be traded on foreign securities markets that close each day prior to the time the NYSE closes.
In addition, foreign securities trading generally or in a particular country or countries may not take place on all
business days in New York. The Fund has adopted policies and procedures to “fair value” some or all securities held
by a Fund if significant events occur after the close of the market on which the foreign securities are traded but before
the Fund’s NAV is calculated. Significant events can be specific to a single security or can include events that impact
a particular foreign market or markets. A significant event can also include a general market movement in the
U.S. securities markets. These fair valuation procedures are intended to discourage shareholders from investing in the
Fund for the purpose of engaging in market timing or arbitrage transactions. The values of foreign securities used in
computing share price are determined at the time the foreign market closes. Foreign securities and currencies are
converted to U.S. dollars using the exchange rate in effect at the close of the NYSE. Occasionally, events affecting the
value of foreign securities occur when the foreign market is closed and the NYSE is open. The NAV of a Fund
investing in foreign securities may change on days when shareholders are unable to purchase or redeem shares. If
the Sub-Advisor believes that the market value is materially affected, the share price will be calculated using the policy
adopted by the Fund.

Certain securities issued by companies in emerging market countries may have more than one quoted valuation at
any point in time, sometimes referred to as a “local” price and a “premium” price. The premium price is often a
negotiated price which may not consistently represent a price at which a specific transaction can be effected. It is the
policy of the Accounts to value such securities at prices at which it is expected those shares may be sold, and the
Manager or any Sub-Advisor is authorized to make such determinations subject to the oversight of the Board of
Directors as may from time to time be necessary.

Money Market Account
The share price of shares of the Money Market Account is determined at the same time and on the same days as the
Accounts described above. All securities held by the Money Market Account are valued on an amortized cost basis.
Under this method of valuation, a security is initially valued at cost; thereafter, the Account assumes a constant
proportionate amortization in value until maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the security. While this method provides certainty in valuation, it may result in
periods during which value, as determined by amortized cost, is higher or lower than the price that would be received
upon sale of the security.

Use of the amortized cost valuation method by the Money Market Account requires the Account to maintain a dollar
weighted average maturity of 90 days or less and to purchase only obligations that have remaining maturities of
397 days or less or have a variable or floating rate of interest. In addition, the Account invests only in obligations
determined by the Directors to be of high quality with minimal credit risks.

The Board of Directors has established procedures for the Money Market Account designed to stabilize, to the extent

reasonably possible, the Account’s price per share as computed for the purpose of sales and redemptions at $1.00.

Such procedures include a directive to the Manager to test price the portfolio or specific securities on a weekly basis

using a mark-to-market method of valuation to determine possible deviations in the net asset value from $1.00 per

share. If such deviation exceeds ½ of 1%, the Board of Directors promptly considers what action, if any, will be

initiated. In the event the Board of Directors determines that a deviation exists which may result in material dilution or

other unfair results to shareholders, it takes such corrective action as it regards as appropriate, including: sale of

portfolio instruments prior to maturity; the withholding of dividends; redemptions of shares in kind; the establishment of

a net asset value per share based upon available market quotations; or splitting, combining or otherwise recapitalizing

outstanding shares. The Account may also reduce the number of shares outstanding by redeeming proportionately

from shareholders, without the payment of any monetary compensation, such number of full and fractional shares as

is necessary to maintain the net asset value at $1.00 per share.

MULTIPLE CLASS STRUCTURE

The Board of Directors has adopted a multiple class plan (the Multiple Class Plan) pursuant to SEC Rule 18f-3. Each

Account offers Class 1 shares. The Accounts that offer Class 2 shares are identified in the chart included under the

heading “Fund History.”

Distributor

Principal Funds Distributor, Inc. (“PFD”), a Washington corporation, serves as the Distributor for the Fund’s Class 1

and Class 2 share classes on a continuous basis. PFD is a registered broker-dealer under the Securities and

Exchange Act of 1934 and is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”).

PFD is located at 1100 Investment Boulevard, El Dorado Hills, CA 95762-5710.

PFD serves as distributor to the Fund pursuant to a Distribution Agreement (“Distribution Agreement”), which provides

that the Fund will pay all fees and expenses in connection with (1) the preparation and filing of registration statements

(2) necessary state filings (3) preparation and distribution of prospectuses and shareholder reports to current

shareholders, tax information, notices, proxy statements and proxies, (4) preparation and distribution of dividend and

capital gain payments to shareholders, (5) issuance, transfer, registry and maintenance of open account charges and

(6) communication with shareholders concerning these items. The Fund will also pay taxes including, in the case of

redeemed shares, any initial transfer taxes unpaid. PFD will assume responsibility for (or will enter into arrangements

providing for the payment of) the expense of printing prospectuses used for the solicitation of new accounts of the

Fund. PFD will also pay (or will enter into arrangements providing for the payment of) the expenses of other sales

literature for the Fund as well as other expenses in connection with the sale and offering for sale of Fund shares.

Pursuant to the Distribution Agreement, PFD acts as an agent of the Fund in connection with the sale of Fund shares

in the various states PFD is qualified as a broker-dealer. PFD accepts orders for Fund shares at net asset value. Other

than a 12b-1 fees paid to PFD with respect Class 2 shares, no compensation is paid to PFD.

The Class 1 and Class 2 shares are available without any front-end sales charge or contingent deferred sales charge.

Rule 12b-1 Fees /Distribution Plans and Agreements

Class 2 shares of the Fund are subject to a Distribution Plan and Agreement (described below) sometimes referred to

as a Rule 12b-1 Plan. Rule 12b-1 permits a fund to pay expenses associated with the distribution of its shares in

accordance with a plan adopted by the Board of Directors and approved by its shareholders. Pursuant to such rule,

the Board of Directors and initial shareholders of the Class 2 shares have approved and entered into a Distribution

Plan and Agreement. The Fund believes the Distribution Plan and Agreement will be beneficial as it may position the

Fund to be able to build and retain assets which will, in turn, have a positive effect on total expense ratios and provide

flexibility in the management of the Fund by reducing the need to liquidate portfolio securities to meet redemptions.

The Fund also believes the Plan will encourage registered representatives to provide ongoing servicing to the

shareholders.

In adopting the Plan, the Board of Directors (including a majority of directors who are not interested persons of the

Fund (as defined in the 1940 Act), hereafter referred to as the independent directors) determined that there was a

reasonable likelihood that the Plan would benefit the Accounts and the shareholders of the affected class. Pursuant to


Rule 12b-1, information about revenues and expenses under the Plan is presented to the Board of Directors each
quarter for its consideration in continuing the Plan. Continuance of the Plan must be approved by the Board of
Directors, including a majority of the independent directors, annually. The Plan may be amended by a vote of the
Board of Directors, including a majority of the independent directors, except that the Plan may not be amended to
materially increase the amount spent for distribution without majority approval of the shareholders of the affected
class. The Plan may be terminated upon a vote of a majority of the independent directors or by vote of a majority of the
outstanding voting securities of the affected class.

Payments under the 12b-1 plans will normally be made for accounts that are closed to new investors.

The Plan provides that each Account makes payments to the Distributor from assets of the Class 2 shares to
compensate the Distributor and other selling dealers, various banks, broker-dealers, and other financial
intermediaries, for providing certain services to the Account. Such services may include:
•	formulation and implementation of marketing and promotional activities;
•	preparation, printing, and distribution of sales literature;
•	preparation, printing, and distribution of prospectuses and the Account reports to other than existing shareholders;
•	obtaining such information with respect to marketing and promotional activities as the Distributor deems advisable;
•	making payments to dealers and others engaged in the sale of shares or who engage in shareholder support
	services; and
•	providing training, marketing, and support with respect to the sale of shares.

The Account pays the Distributor a fee after the end of each month at an annual rate of 0.25% of the daily net asset
value of the assets attributable to the Class 2 shares.

The Distributor may remit on a continuous basis up to 0.25% to its registered representatives and other financial
intermediaries as a trail fee in recognition of their services and assistance.

At least quarterly, the Distributor will provide to the Fund’s Board of Directors, and the Board will review, a written
report of the amounts expended pursuant to the Plan and the purposes for which such expenditures were made.

If the Distributor’s actual expenses are less than the Rule 12b-1 fee it receives, the Distributor is entitled to retain the
full amount of the fees.

As of the date of this SAI, the Distributor anticipates that the firms that will receive additional payments for distribution
of the applicable variable annuities and variable life insurance contracts that include shares of the Accounts as
investment options, or for the distribution of the Accounts to retirement plans (other than commissions paid at the time
of sale, ongoing payments, and the reimbursement of cost associated with education, training and marketing efforts,
conferences, ticket charges, and other general marketing expenses) include:


Advantage Capital Corporation	McDonald Investments, Inc.
A.G. Edwards & Sons, Inc.	Mutual Service Corporation
AIG Advisors, Inc.	NFP Securities, Inc.
American Portfolios Financial Services, Inc.	Oppenheimer & Co., Inc.
Associated Financial Group, Inc.	ProEquities, Inc.
Commonwealth Financial Network	Prospera Financial Services, Inc.
FFP Securities, Inc.	Royal Alliance Associates, Inc.
FSC Securities Corporation	Securities America, Inc.
G.A. Repple & Company	Triad Advisors, Inc.
H. Beck, Inc.	United Planners’ Financial Services of America
Investacorp, Inc.	Waterstone Financial Group, Inc.
Investment Advisors & Consultants, Inc.	WaMu Investments
Jefferson Pilot Securities Corporation

To obtain a current list of such firms, call 1-800-222-5852.

The following 12b-1 payments were made to Principal Funds Distributor, Inc. for the period ending December 31,

2008:


	12b-1 Fees for the
	Periods Ended
Account	December 31, 2008*
Diversified International	$ 13
Equity Income	139
Income	28
LargeCap Blend II	4
LargeCap Growth	2
Money Market	26
Mortgage Securities	7
Principal Capital Appreciation	29
Real Estate Securities	3
SAM Balanced	418
SAM Conservative Balanced	62
SAM Conservative Growth	255
SAM Flexible Income	107
SAM Strategic Growth	166
Short-Term Income	5
SmallCap Growth II	8
SmallCap Value I	—**


*	Amounts in thousands.
**	Less than $500.

TAX STATUS

It is the policy of each Account to distribute substantially all net investment income and net realized gains. Through

such distributions, and by satisfying certain other requirements, the Fund intends to qualify for the tax treatment

accorded to regulated investment companies under the applicable provisions of the Internal Revenue Code. This

means that in each year in which the Fund so qualifies, it is exempt from federal income tax upon the amount so

distributed to investors. If an Account fails to qualify as a regulated investment company, it will be liable for taxes,

significantly reducing its distributions to shareholders and eliminating shareholders’ ability to treat distributions of the

Account in the manner they were received by the Account.

For federal income tax purposes, capital gains and losses on futures contracts or options thereon, index options or

options traded on qualified exchanges are generally treated at 60% long-term and 40% short-term. In addition, an

Account must recognize any unrealized gains and losses on such positions held at the end of the fiscal year. An

Account may elect out of such tax treatment, however, for a futures or options position that is part of an “identified

mixed straddle” such as a put option purchased by the Account with respect to a portfolio security. Gains and losses

on figures and options included in an identified mixed straddle will be considered 100% short-term and unrealized gain

or loss on such positions will not be realized at year end. The straddle provisions of the Code may require the deferral

of realized losses to the extent that the Account has unrealized gains in certain offsetting positions at the end of the

fiscal year, and may also require recharacterization of all or a part of losses on certain offsetting positions from short-

term to long-term, as well as adjustment of the holding periods of straddle positions.

The 1986 Tax Reform Act imposes an excise tax on mutual funds that fail to distribute net investment income and

capital gains by the end of the calendar year in accordance with the provisions of the Act. The Fund intends to comply

with the Act’s requirements and to avoid this excise tax.

Qualification as a Regulated Investment Company

The Accounts intend to qualify annually to be treated as regulated investment companies (RICs) under the Internal

Revenue Code of 1986, as amended, (the IRC). To qualify as RICs, the Accounts must invest in assets which produce

types of income specified in the IRC (Qualifying Income). Whether the income from derivatives, swaps, commodity-

linked derivatives and other commodity/natural resource-related securities is Qualifying Income is unclear under

current law. Accordingly, the Accounts' ability to invest in certain derivatives, swaps, commodity-linked derivatives and

other commodity/natural resource-related securities may be restricted. Further, if the Accounts do invest in these

types of securities and the income is not determined to be Qualifying Income, it may cause such Account to fail to

qualify as a RIC under the IRC.


PORTFOLIO HOLDINGS DISCLOSURE

It is the Fund’s policy to disclose only public information regarding portfolio holdings, except as described below.

Policy. The Fund and Principal have adopted a policy of disclosing non-public portfolio holdings information to third
parties only to the extent required by federal law, and to the following third parties, so long as such third party has
agreed, or is legally obligated, to maintain the confidentiality of the information and to refrain from using such
information to engage in securities transactions:

1)	Daily to the Fund’s portfolio pricing services, FT Interactive Data Corporation, to obtain prices for portfolio
	securities;

2)	Upon proper request to government regulatory agencies or to self regulatory organizations;

3)	As needed to Ernst & Young LLP, the independent registered public accounting firm, in connection with the
	performance of the services provided by Ernst & Young LLP to the Fund;

4)	To the sub-adviser’s proxy service providers (Automatic Data Process, Glass Lewis & Co., and, Risk Metrics
	Group) to facilitate voting of proxies; and

5)	To the Account’s custodian, the Bank of New York Mellon, in connection with the services provided by the
	custodian to the Account.

The Account is also permitted to enter into arrangements to disclose portfolio holdings to other third parties in
connection with the performance of a legitimate business purpose if such third party agrees in writing to maintain the
confidentiality of the information prior to the information being disclosed. Any such written agreement must be
approved by an officer of the Fund, the Manager or the Account’s sub-advisor. Approval must be based on a
reasonable belief that disclosure to such other third party is in the best interests of the Account’s shareholders. If a
conflict of interest is identified in connection with disclosure to any such third party, the Fund’s Chief Compliance
Officer (“CCO”) must approve such disclosure, in writing before it occurs. Such third parties currently include:


AIG Sunamerica Life Assurance Company	Financial Tracking	Principal Life Insurance Company
American General Life Insurance Company	First SunAmerica Life Insurance Company	Russell Implementation Services
Bloomberg, LP	Frank Russell Securities, Inc.	R.R. Donnelley and Sons Company
Check Free Investment Services	Frank Russell Company	Standard Insurance Company
Confluence Technologies, Inc.	Hub Data	TIAA-CREF Life Insurance Company
Depository Trust Co.	Investment Company Institute	The Washington Mutual, Inc. Plan
Eagle Investment Systems	Mellon Analytical Solutions	Administration Committee
EzE Castle Software LLC	Merrill Communications	Vestek
FactSet Research Systems	Plexus Plan Sponsor Group	Wolters Kluwer Financial Services
Farmers New World Insurance Company

Any agreement by which any Account or any party acting on behalf of the Fund agrees to provide Account portfolio

information to a third party, other than a third party identified in the policy described above, must be approved prior to

information being provided to the third party, unless the third party is a regulator or has a duty to maintain the

confidentiality of such information and to refrain from using such information to engage in securities transactions. A

written record of approval will be made by the person granting approval.

The Fund may also disclose to Edge, non-public portfolio holdings information relating to the underlying Accounts in

which the SAM portfolios invest to facilitate Edge’s management of the portfolios. Edge may use Underlying Fund

portfolio holdings information of fund managed by unaffiliated advisory firms solely for the purpose of managing the

SAM portfolios.

The Fund’s non-public portfolio holdings information policy applies without variation to individual investors, institutional

investors, intermediaries that distribute the Fund’s shares, third party service providers, rating and ranking

organizations, and affiliated persons of the Fund. Neither the Fund nor the Manager nor any other party receive

compensation in connection with the disclosure of Fund portfolio information. The Fund’s CCO will periodically, but no

less frequently than annually, review the Fund’s portfolio holdings disclosure policy and recommend changes the CCO

believes are appropriate, if any, to the Fund’s Board of Directors. In addition, the Fund’s Board of Directors must

approve any change in the Fund’s portfolio holdings disclosure policy that would expand the distribution of such

information.

PROXY VOTING POLICIES AND PROCEDURES

The Fund has adopted a policy delegating to the Fund’s Manager or Sub-Advisor, as appropriate, authority to vote

proxies relating to the portfolio securities held in each Account, with the Board exercising continuing oversight of the

exercise of the delegated authority. The Manager or Sub-Advisor follows its own proxy voting policies and procedures.

A copy of each Sub-Advisor’s proxy voting policies and procedures is included in Appendix B. Any material changes to

the proxy policies and procedures will be submitted to the Board for approval.

The Diversified Balanced Account, Diversified Growth Account, Principal LifeTime Accounts and SAM Portfolios invest

in shares of other Accounts. The Manager is authorized to vote proxies related to the underlying funds. If an

underlying fund holds a shareholder meeting, in order to avoid any potential conflict of interest, the Manager will vote

shares of such fund on any proposal submitted to the fund’s shareholders in the same proportion as the votes of other

shareholders of the underlying fund.

Principal Life votes each Account’s shares allocated to each of its separate accounts registered under the 1940 Act

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 in that separate account. Principal Life will vote the shares based upon the instructions received

from contract owners, regardless of the number of contract owners who provide such instructions. A potential effect of

this proportional voting is that a small number of contract owners may determine the outcome of a shareholder vote if

only a small number of contract owners provide voting instructions. 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. Shares held by retirement plans are voted in accordance with the governing documents of the plans.

Information regarding the Fund’s proxy voting record for the 12 month period ended June 30, 2008, is available,

without charge, upon request by calling 1-800-852-4450 or on the SEC website at http://www.sec.gov.

GENERAL INFORMATION

The Distributor may, from time to time, at its expense or as an expense for which it may be compensated under a

distribution plan, if applicable, pay a bonus or other consideration or incentive to dealers who sell a minimum dollar

amount of the shares of the Fund during a specific period of time. In some instances, these incentives may be offered

only to certain dealers who have sold or may sell significant amounts of shares. The total amount of such additional

bonus payments or other consideration shall not exceed 0.25% of the public offering price of the shares sold. Any

such bonus or incentive program will not change the price paid by investors for the purchase of the Fund’s shares or

the amount that any particular Account receives as the proceeds from such sales. Dealers may not use sales of the

Fund’s shares to qualify for any incentives to the extent that such incentives may be prohibited by the laws of any

state.

LargeCap S&P 500 Index Account only

The Account is not sponsored, endorsed, sold or promoted by Standard & Poor’s (“S&P”), a division of The McGraw-

Hill Companies, Inc. S&P makes no representation or warranty, express or implied, to Account shareholders or any

member of the public regarding the advisability of investing in securities generally or in the Account particularly or the

ability of the S&P 500 Index to track general stock market performance. S&P’s only relationship to Principal Life

Insurance Company and the Manager is the licensing of certain trademarks and trade names of S&P and the S&P 500

Index which is determined, composed and calculated by S&P without regard to Principal Life Insurance Company, the

Manager or the Account. S&P has no obligation to take the needs of Principal Life Insurance Company, the Manager

or Account shareholders into consideration in determining, composing or calculating the S&P 500 Index. S&P is not

responsible for and has not participated in the determination of the prices of the Account or the timing of the issuance

or sale of the Account or in the determination or calculation of the equation by which the Account is to be converted

into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of the Account.

S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX OR

ANY DATA CONTAINED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR

INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE

OBTAINED BY PRINCIPAL LIFE INSURANCE COMPANY, THE MANAGER, ACCOUNT SHAREHOLDERS, OR

ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED

THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL

WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT

TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING,

IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR

CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF

SUCH DAMAGES.

FINANCIAL STATEMENTS

To be filed by amendment.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Ernst & Young LLP (233 South Wacker Drive, Chicago, IL 60606), independent registered public accounting firm, is

the independent registered public accounting firm for the Fund Complex.

DISCLOSURE REGARDING PORTFOLIO MANAGERS

(as provided by the Investment Advisors)

This section contains information about portfolio managers and the other accounts they manage, their compensation,

and their ownership of securities. For information about potential material conflicts of interest, see Brokerage

Allocation and Other Practices - Allocation of Trades.

Information in this section is as of December 31, 2008 unless otherwise noted.

Advisor: Principal

Other Accounts Managed


				Total Assets of the
			Number of	Accounts that
		Total Assets	Accounts that	base the
	Total	in the	base the Advisory	Advisory Fee
	Number of	Accounts	Fee on	on Performance
	Accounts	(in $ millions)	Performance	(in $ millions)
Michael P. Finnegan, CFA
Principal LifeTime Strategic Income, 2010, 2020, 2030,
2040, 2050
Registered investment companies	11	9,344	0	0
Other pooled investment vehicles	0	0	0	0
Other accounts	0	0	0	0

Randy L. Welch
Principal LifeTime Strategic Income, 2010, 2020, 2030,
2040, 2050
Registered investment companies	11	9,344	0	0
Other pooled investment vehicles	0	0	0	0
Other accounts	0	0	0	0

James W. Fennessey, CFA


Principal LifeTime Strategic Income, 2010, 2020, 2030,
2040, 2050
Registered investment companies	11	9,344	0	0
Other pooled investment vehicles	0	0	0	0
Other accounts	0	0	0	0


Compensation

1.	Describe the structure of, and the method used to determine, the compensation of each Portfolio
	Manager. For each type of compensation (e.g., salary, bonus, deferred compensation, retirement plans
	and arrangements), describe with specificity the criteria on which that type of compensation is based,
	for example, whether compensation is fixed, whether (and, if so, how) compensation is based on Fund
	pre- or after-tax performance over a certain time period, and whether (and, if so, how) compensation is
	based on the value of assets held in the Fund's portfolio. For example, if compensation is based solely
	or in part on performance, identify any benchmark used to measure performance and state the length of
	the period over which performance is measured.

	•	Compensation includes, without limitation, salary, bonus, deferred compensation, and pension and
		retirement plans and arrangements, whether the compensation is cash or non-cash. Group life,
		health, hospitalization, medical reimbursement, relocation, and pension and retirement plans and
		arrangements may be omitted, provided that they do not discriminate in scope, terms, or operation
		in favor of the Portfolio Manager or a group of employees that includes the Portfolio Manager and
		are available generally to all salaried employees. The value of compensation is not required to be
		disclosed.

	•	Include a description of the structure of, and the method used to determine, any compensation
		received by the Portfolio Manager from the Fund, the Fund’s investment adviser, or any other source
		with respect to management of the Fund and any other accounts included in this questionnaire. This
		description must clearly disclose any differences between the method used to determine the
		Portfolio Manager’s compensation with respect to the Fund and other accounts, **e.g., if the Portfolio**
		Manager receives part of an advisory fee that is based on performance with respect to some
		accounts but not the Fund, this must be disclosed.

Compensation is predominantly composed of salary. Salary is reviewed annually. Annual bonus is driven primarily by
company and business unit performance. Fund performance is taken into account when determining bonuses. No
part of salary, bonus, or retirement plan compensation is tied to asset levels.

Ownership of Securities

2.	For each Portfolio Manager, state the dollar range of equity securities in the Fund beneficially owned
	(as defined by Securities Exchange Act of 1934 Rule 16a-1(a)(2)) by the Portfolio Manager using the
	following ranges: none, $1 - $10,000; $10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000;
	$500,001 - $1,000,000; or over $1,000,000. If the Portfolio Manager has reasons for not holding shares of
	the Fund, e. g., that its investment objectives do not match the Portfolio Manager's, you may provide an
	explanation of those reasons.


		Dollar Range of
	Funds Managed by Portfolio Manager	Securities Owned by the
Portfolio Manager	(list each fund on its own line)	Portfolio Manager
James W. Fennessey	PVC Principal LifeTime Accounts	NONE
Michael P. Finnegan	PVC Principal LifeTime Accounts	NONE
Randy L. Welch	PVC Principal LifeTime Accounts	NONE


Sub-Advisor: AllianceBernstein
Other Accounts Managed

				Total Assets of the
			Number of	Accounts that
		Total Assets	Accounts that	base the
	Total	in the	base the Advisory	Advisory Fee
	Number of	Accounts	Fee on	on Performance
	Accounts	(in $ millions)	Performance	(in $ millions)
John Mahedy
PVC - LargeCap Value Account III
Registered investment companies	117	38,754	3	6,350
Other pooled investment vehicles	137	15,855	3	202
Other accounts	37,429	81,728	110	6,887

David Yuen
PVC - LargeCap Value Account III
Registered investment companies	93	35,915	3	6,350
Other pooled investment vehicles	105	17,604	6	479
Other accounts	37,396	83,298	116	7,885

Marilyn Fedak
PVC - LargeCap Value Account III
Registered investment companies	118	38,978	3	6,350
Other pooled investment vehicles	138	15,969	3	202
Other accounts	37,448	83,111	113	7,087

Chris Marx
PVC - LargeCap Value Account III
Registered investment companies	23	11,446	1	3,725
Other pooled investment vehicles	15	1,301	—	—
Other accounts	36,618	26,302	8	624

John Phillips
PVC - LargeCap Value Account III
Registered investment companies	23	11,446	1	3,725
Other pooled investment vehicles	15	1,301	—	—
Other accounts	36,618	26,302	8	624


Compensation

1.	Describe the structure of, and the method used to determine, the compensation of each Portfolio
	Manager. For each type of compensation (e.g., salary, bonus, deferred compensation, retirement plans
	and arrangements), describe with specificity the criteria on which that type of compensation is based,
	for example, whether compensation is fixed, whether (and, if so, how) compensation is based on Fund
	pre- or after-tax performance over a certain time period, and whether (and, if so, how) compensation is
	based on the value of assets held in the Fund's portfolio. For example, if compensation is based solely
	or in part on performance, identify any benchmark used to measure performance and state the length of
	the period over which performance is measured.

	• Compensation includes, without limitation, salary, bonus, deferred compensation, and pension and
	retirement plans and arrangements, whether the compensation is cash or non-cash. Group life,
	health, hospitalization, medical reimbursement, relocation, and pension and retirement plans and
	arrangements may be omitted, provided that they do not discriminate in scope, terms, or operation


	in favor of the Portfolio Manager or a group of employees that includes the Portfolio Manager and
	are available generally to all salaried employees. The value of compensation is not required to be
	disclosed.

	• Include a description of the structure of, and the method used to determine, any compensation
	received by the Portfolio Manager from the Fund, the Fund’s investment adviser, or any other source
	with respect to management of the Fund and any other accounts included in this questionnaire. This
	description must clearly disclose any differences between the method used to determine the
	Portfolio Manager’s compensation with respect to the Fund and other accounts, **e.g., if the Portfolio**
	Manager receives part of an advisory fee that is based on performance with respect to some
	accounts but not the Fund, this must be disclosed.

They state that they recruit and retain outstanding individuals both by offering attractive financial incentives and by
providing a highly stimulating work environment characterized by intellectual challenge, variety and a high level of
personal independence within the framework of a clear and disciplined investment process. They keep the
effectiveness of their compensation and incentives under constant review.

Compensation is typically paid in the form of base salary and a performance bonus. A portion of the bonus is
deferred. The mix of different elements varies from person to person, with the element of deferred compensation
typically more significant for more senior members of the firm. They aim to pay compensation which is highly
competitive within the industry. Equity incentives are not generally offered.

Bonuses are based on evaluation of their investment professionals using a range of criteria that is not formulaic.
Analysts, for example, are assessed on the basis of a ranking by Chief Investment Officers and Directors of Research
from around the world. Their evaluation is based on factors including the contribution made by the analyst to alpha,
their breadth and depth of research knowledge, and their attention to issues that can drive the performance of the
stocks that they follow. Portfolio managers are assessed by the Chief Investment Officers to whom they report on
their involvement in the research process and in other aspects of portfolio management; their success in establishing
and maintaining client relationships and their contribution to team effectiveness.

The results of this evaluation help determine annual compensation, but individual elements of compensation are not
mechanically determined. This balanced approach to appraisal and compensation helps to maintain the integrity of
their investment approach by ensuring, for example, that investment professionals are not tempted to chase short-
term performance.

Ownership of Securities

2.	For each Portfolio Manager, state the dollar range of equity securities in the Fund beneficially owned
	(as defined by Securities Exchange Act of 1934 Rule 16a-1(a)(2)) by the Portfolio Manager using the
	following ranges: none, $1 - $10,000; $10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000;
	$500,001 - $1,000,000; or over $1,000,000. If the Portfolio Manager has reasons for not holding shares of
	the Fund, e. g., that its investment objectives do not match the Portfolio Manager's, you may provide an
	explanation of those reasons.


		Dollar Range of
	Funds Managed by Portfolio Manager	Securities Owned by the
Portfolio Manager	(list each fund on its own line)	Portfolio Manager
John Mahedy	PVC Large Cap Value III	0
David Yuen	PVC Large Cap Value III	0
Marilyn Fedak	PVC Large Cap Value III	0
John Phillips	PVC Large Cap Value III	0

Sub-Advisor: Brown Investment Advisory Incorporated - information presented is as of May 31, 2009

Other Accounts Managed


				Total Assets of the
			Number of	Accounts that
		Total Assets	Accounts that	base the
	Total	in the	base the Advisory	Advisory Fee
	Number of	Accounts	Fee on	on Performance
	Accounts	(in $ millions)	Performance	(in $ millions)
Kenneth M. Stuzin, CFA
PVC LargeCap Growth Account I	1	65	0	0
Other Registered investment companies	1	450	0	0
Other Pooled Funds	2	58	0	0
Other accounts	528	1,082	0	0


Compensation

The portfolio manager of the Sub-Advisor receives a compensation package that includes a base salary and variable
incentive bonus. A portfolio manager who is also a member of the Sub-Advisor's management team maintains a
significant equity interest in Brown Advisory Holdings Incorporated. The incentive bonus is subjective. It takes into
consideration a number of factors including but not limited to performance, client satisfaction and service and the
profitability of the Sub-Advisor's business. When evaluating a portfolio manager's performance the Sub-Advisor
compares the pre-tax performance of a portfolio manager's accounts to a relative broad-based market index over a
trailing 1, 3, and 5 year time period. The performance bonus is distributed at calendar year-end based on, among
other things, the pre-tax investment return over the prior 1,3, and 5 year periods.

Accounts managed in the large-cap growth equity strategy are typically compared to the Russell 1000 Growth Index.

All portions of a portfolio manager's compensation package are paid by the Sub-Advisor and not by any client account.

Ownership of Securities

1.	For each Portfolio Manager, state the dollar range of equity securities in the Fund beneficially owned (as
	defined by Securities Exchange Act of 1934 Rule 16a-1(a)(2)) by the Portfolio Manager using the following
	ranges: none, $1 - $10,000; $10,001 - $50,000; $50,001 - $ 100,000; $100,001 - $500,000; $500,001 -
	$1,000,000; or over $1,000,000. If the Portfolio Manager has reasons for not holding shares of the Fund, e. g. ,
	that its investment objectives do not match the Portfolio Manager's, you may provide an explanation of those
	reasons.


		Dollar Range of
	Funds Managed by Portfolio Manager	Securities Owned by the
Portfolio Manager	(list each fund on its own line)	Portfolio Manager
Kenneth M. Stuzin, MCFA	PVC LargeCap Growth Account I	None

Sub-Advisor: ClearBridge Advisor, LLC

this information is as of June 30, 2009.

Other Accounts Managed


				Total Assets of the
			Number of	Accounts that
		Total Assets	Accounts that	base the
	Total	in the	base the Advisory	Advisory Fee
	Number of	Accounts	Fee on	on Performance
	Accounts	(in $ millions)	Performance	(in $ millions)
Michael Kagan
LargeCap Blend Account II
Registered investment companies	2	$473	1	$451
Other pooled investment vehicles	2	$17	0	N/A
Other accounts	17	$3	0	N/A

Scott Glasser
LargeCap Blend Account II
Registered investment companies	4	$5,249	0	N/A
Other pooled investment vehicles	1	$54	0	N/A
Other accounts	13,132	$2,021	0	N/A


Compensation

1.	Describe the structure of, and the method used to determine, the compensation of each Portfolio Manager. For
	each type of compensation (e.g., salary, bonus, deferred compensation, retirement plans and arrangements),
	describe with specificity the criteria on which that type of compensation is based, for example, whether
	compensation is fixed, whether (and, if so, how) compensation is based on Account pre- or after-tax performance
	over a certain time period, and whether (and, if so, how) compensation is based on the value of assets held in the
	Account's portfolio. For example, if compensation is based solely or in part on performance, identify any
	benchmark used to measure performance and state the length of the period over which performance is measured.

•	Compensation includes, without limitation, salary, bonus, deferred compensation, and pension and retirement
	plans and arrangements, whether the compensation is cash or non-cash. Group life, health, hospitalization,
	medical reimbursement, relocation, and pension and retirement plans and arrangements may be omitted, provided
	that they do not discriminate in scope, terms, or operation in favor of the Portfolio Manager or a group of employees
	that includes the Portfolio Manager and are available generally to all salaried employees. The value of
	compensation is not required to be disclosed.

•	Include a description of the structure of, and the method used to determine, any compensation received by the
	Portfolio Manager from the Account, the Account's investment adviser, or any other source with respect to
	management of the Account and any other accounts included in this questionnaire. This description must clearly
	disclose any differences between the method used to determine the Portfolio Manager's compensation with
	respect to the Account and other accounts, e.g., if the Portfolio Manager receives part of an advisory fee that is
	based on performance with respect to some accounts but not the Account, this must be disclosed.

Compensation

ClearBridge investment professionals receive base salary, other employee benefits and are eligible to receive
incentive compensation. Base salary is fixed and typically determined based on market factors and the skill and
experience of individual investment personnel.

ClearBridge has incentive and deferred compensation plans (the "Plans") for its investment professionals, including

the fund's portfolio manager(s) and research analysts. The Plans are designed to align the objectives of ClearBridge

investment professionals with those of fund shareholders and other ClearBridge clients. Additionally, the deferred

plans are designed to retain its investment professionals and reward long-term performance.

Incentive Compensation

Investment performance is the key component in determining the final incentive award for all of ClearBridge's

investment professionals. A portfolio manager's initial incentive award is based on the investment professional's

ongoing contribution to ClearBridge's investment and business results and externally measured competitive pay

practices for the portfolio manager's position/experience within the firm. This award is then adjusted upward or

downward based on investment performance during the most recent year over a rolling 1, 3, and 5 year time period.

Product performance is ranked among a "peer group" of non-ClearBridge investment managers and the applicable

product benchmark (e.g., a securities index and, with respect to a fund, the benchmark set forth in the fund's

prospectus to which the fund's average annual total returns are compared).

The peer group of non-ClearBridge investment managers is defined by product style/type, vehicle type and geography

and selected by independent vendors that track and provide (for a fee paid by ClearBridge) relevant peer group

performance and ranking data (e.g., primarily Lipper or Callan) .

The 1, 3, and 5 year performance versus benchmark and peer group approximate effective weightings are 35% for

trailing 1 year performance, 50% for trailing 3 year performance, and 15% for trailing 5 year performance.

Lastly, the incentive award for an investment professional may also be adjusted by ClearBridge's Chief Investment

Officer and Chief Operating Officer based on other qualitative factors such as contribution to the firm and the

development of investment staff.

For ClearBridge's centralized research professionals, there is an annual incentive compensation plan with a combined

scorecard based on portfolio manager questionnaires/surveys, stock picking performance, and contribution to the firm.

The analyst's stock picks are tracked on a formal basis through Factset and make up a portion of the analyst's overall

scorecard performance. These stock picks are measured versus their respective sector indexes.

Deferred Award

Up to 20% of an investment professional's annual incentive compensation is subject to deferral. For portfolio

managers, one-quarter of this deferral is invested in their primary managed product, one-quarter in a composite

portfolio of the firm's new products, and one-quarter in up to 14 elected proprietary ClearBridge managed funds.

Consequently, portfolio managers potentially could have 50% of their deferred award amount tracking the

performance of their primary managed product. The final one-quarter of the deferral is received in the form of Legg

Mason restricted stock shares.

For centralized research analysts, one-half of their deferral is invested in up to 14 elected proprietary funds, while one-

quarter is invested in the new product composite and the remaining one-quarter is received in the form of Legg Mason

restricted stock shares.

Legg Mason then makes a company investment in the proprietary ClearBridge-managed funds equal to the deferral

amounts by fund. This investment is a company asset held on the Legg Mason balance sheet and paid out to the

employees in shares upon vesting over a four year deferral period.

Ownership of Securities

2. For each Portfolio Manager, state the dollar range of equity securities in the Account beneficially owned (as defined

by Securities Exchange Act of 1934 Rule 16a-1(a)(2)) by the Portfolio Manager using the following ranges: none,

$1 - $10,000; $10,001 - $50,000; $50,001 - $ 100,000; $100,001 - $500,000; $500,001 - $1,000,000; or over

$1,000,000. If the Portfolio Manager has reasons for not holding shares of the Account, e.g., that its investment

objectives do not match the Portfolio Manager's, you may provide an explanation of those reasons.


		Dollar Range of
	Funds Managed by Portfolio Manager	Securities Owned by the
Portfolio Manager	(list each fund on its own line)	Portfolio Manager
Scot Glasser	LargeCap Blend Account II	None
Michael Kagan	LargeCap Blend Account II	None

Sub-Advisor: CCI

Other Accounts Managed


				Total Assets of the
			Number of	Accounts that
		Total Assets	Accounts that	base the
	Total	in the	base the Advisory	Advisory Fee
	Number of	Accounts	Fee on	on Performance
	Accounts	(in $ millions)	Performance	(in $ millions)
Anthony Rizza, CFA
Large Cap Growth
Registered investment companies	6	$2,783.2
Other pooled investment vehicles	7	$594.0
Other accounts	125	$3,702.3	3	$388.7

Tom Bisighini, CFA
Large Cap Growth
Registered investment companies	0
Other pooled investment vehicles	0
Other accounts	0


Compensation

1.	Describe the structure of, and the method used to determine, the compensation of each Portfolio
	Manager. For each type of compensation (e.g., salary, bonus, deferred compensation, retirement plans
	and arrangements), describe with specificity the criteria on which that type of compensation is based,
	for example, whether compensation is fixed, whether (and, if so, how) compensation is based on Fund
	pre- or after-tax performance over a certain time period, and whether (and, if so, how) compensation is
	based on the value of assets held in the Fund's portfolio. For example, if compensation is based solely
	or in part on performance, identify any benchmark used to measure performance and state the length of
	the period over which performance is measured.

	•	Compensation includes, without limitation, salary, bonus, deferred compensation, and pension and
		retirement plans and arrangements, whether the compensation is cash or non-cash. Group life,
		health, hospitalization, medical reimbursement, relocation, and pension and retirement plans and
		arrangements may be omitted, provided that they do not discriminate in scope, terms, or operation
		in favor of the Portfolio Manager or a group of employees that includes the Portfolio Manager and
		are available generally to all salaried employees. The value of compensation is not required to be
		disclosed.

	•	Include a description of the structure of, and the method used to determine, any compensation
		received by the Portfolio Manager from the Fund, the Fund’s investment adviser, or any other source
		with respect to management of the Fund and any other accounts included in this questionnaire. This
		description must clearly disclose any differences between the method used to determine the


	Portfolio Manager’s compensation with respect to the Fund and other accounts, **e.g., if the Portfolio**
	Manager receives part of an advisory fee that is based on performance with respect to some
	accounts but not the Fund, this must be disclosed.

Columbus Circle Investors seeks to maintain a competitive compensation program based on investment management
industry standards to attract and retain superior investment professionals. Compensation structure is comprised of
the following:

•	Base Salary. Each portfolio manager is paid a fixed base salary, which varies among portfolio managers
	depending on the experience and responsibilities of the portfolio manager. The firm's goal is to maintain
	competitive base salaries through an annual review process, which includes an analysis of industry standards,
	market conditions, and salary surveys.
•	Bonus. Each portfolio manager is eligible to receive an annual bonus. Targeted bonus amounts vary among
	portfolio managers based on the experience level and responsibilities of the portfolio manager. Bonus
	compensation is based upon the performance of the investment strategy for which the portfolio manager is
	responsible and the role the portfolio manager plays in that performance, plus the value to the firm that the strategy
	the portfolio manager has provided. Value to the firm is related to the assets under management that employ the
	portfolio manager's strategy as well as the part that success and the portfolio manager personally play in overall
	firm success. Portfolio managers who are partners receive quarterly bonus compensation based upon overall
	revenue generated by the products for which they are responsible.
•	Equity Payments. Portfolio managers who are partners of CCI receive quarterly distributions based upon their
	equity ownership share and firm profitability. They believe this structure allows them to retain highly qualified
	portfolio managers, as it provides the opportunity to share directly in the success of the business.

Each portfolio manger is eligible to participate in a competitive benefits package including health and retirement
benefits [in the form of a 401(k) plan], which are available to all of Columbus Circle employees.


Ownership of Securities

2.	For each Portfolio Manager, state the dollar range of equity securities in the Fund beneficially owned
	(as defined by Securities Exchange Act of 1934 Rule 16a-1(a)(2)) by the Portfolio Manager using the
	following ranges: none, $1 - $10,000; $10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000;
	$500,001 - $1,000,000; or over $1,000,000. If the Portfolio Manager has reasons for not holding shares of
	the Fund, e. g., that its investment objectives do not match the Portfolio Manager's, you may provide an
	explanation of those reasons.


		Dollar Range of
	Funds Managed by Portfolio Manager	Securities Owned by the
Portfolio Manager	(list each fund on its own line)	Portfolio Manager
Anthony Rizza, CFA	Large Growth	0
Tom Bisignini	Large Growth	0

Sub-Advisor: Edge

Other Accounts Managed


				Total Assets of the
			Number of	Accounts that
		Total Assets	Accounts that	base the
	Total	in the	base the Advisory	Advisory Fee
	Number of	Accounts	Fee on	on Performance
	Accounts	(in $ millions)	Performance	(in $ millions)
Phil Foreman
Principal Capital Appreciation Account
Registered investment companies	1	829,658,443.63	0	0
Other pooled investment vehicles	0	0	0	0
Other accounts	0	0	0	0

John Friedl
Income Account (EAM)
Registered investment companies	1	855,048,754.65	0	0
Other pooled investment vehicles	0	0	0	0
Other accounts	0	0	0	0

Michael Meighan
SAM Accounts
Registered investment companies	6	7,810,581,079.44	0	0
Other pooled investment vehicles	0	0	0	0
Other accounts	0	0	0	0

David Simpson
Equity Income Account
Registered investment companies	1	1,999,903,470.91	0	0
Other pooled investment vehicles	0	0	0	0
Other accounts	0	0	0	0

Craig Sosey
Mortgage Securities Account (EAM)
Registered investment companies	2	1,284,486,919.03	0	0
Other pooled investment vehicles	0	0	0	0
Other accounts	0	0	0	0

Joseph Suty
Equity Income Account
Registered investment companies	1	1,999,903,470.91	0	0
Other pooled investment vehicles	0	0	0	0
Other accounts	0	0	0	0


Randy Yoakum
SAM Accounts
Registered investment companies	6	7,810,581,079.44	0	0
Other pooled investment vehicles	0	0	0	0
Other accounts	0	0	0	0


Compensation

1.	Describe the structure of, and the method used to determine, the compensation of each Portfolio
	Manager. For each type of compensation (e.g., salary, bonus, deferred compensation, retirement plans
	and arrangements), describe with specificity the criteria on which that type of compensation is based,
	for example, whether compensation is fixed, whether (and, if so, how) compensation is based on Fund
	pre- or after-tax performance over a certain time period, and whether (and, if so, how) compensation is
	based on the value of assets held in the Fund's portfolio. For example, if compensation is based solely
	or in part on performance, identify any benchmark used to measure performance and state the length of
	the period over which performance is measured.

	•	Compensation includes, without limitation, salary, bonus, deferred compensation, and pension and
		retirement plans and arrangements, whether the compensation is cash or non-cash. Group life,
		health, hospitalization, medical reimbursement, relocation, and pension and retirement plans and
		arrangements may be omitted, provided that they do not discriminate in scope, terms, or operation
		in favor of the Portfolio Manager or a group of employees that includes the Portfolio Manager and
		are available generally to all salaried employees. The value of compensation is not required to be
		disclosed.

	•	Include a description of the structure of, and the method used to determine, any compensation
		received by the Portfolio Manager from the Fund, the Fund’s investment adviser, or any other source
		with respect to management of the Fund and any other accounts included in this questionnaire. This
		description must clearly disclose any differences between the method used to determine the
		Portfolio Manager’s compensation with respect to the Fund and other accounts, **e.g., if the Portfolio**
		Manager receives part of an advisory fee that is based on performance with respect to some
		accounts but not the Fund, this must be disclosed.

The portfolio manager receives a fixed salary as well as incentive-based compensation. Salary is based upon a variety
of factors including education, professional experience, seniority, and annual surveys of investment advisor
compensation. The incentive-based portion of the portfolio manager's compensation is determined by an evaluation of
professional and investment performance. Professional performance is assessed by reference to the portfolio
manager's satisfaction of goals such as those related to compliance, team contribution, and research. The portfolio
manager's investment performance for compensation purposes is measured by the Fund's 1-, 2-, 3-, and 5-year
percentile rankings among the Lipper peer universe.

Certain portfolio managers receive additional compensation that is credited to a deferred compensation account,
which vests after three years. The deferred compensation account value is adjusted as though the account had been
invested directly in the Funds for which the portfolio manager is primarily responsible. The account value also takes
into consideration the Funds or portfolios where the portfolio manager is a contributor; the primary Funds or Portfolios
are weighted more heavily. This is intended to help align the portfolio manager's economic interests with those of the
shareholders of the applicable Fund or Portfolio.

In addition, Portfolio Managers may receive additional compensation in the form of long-term incentive awards,
depending on the position, either non-qualified stock option grants or a combination of performance shares and
options to eligible participants who obtain high performance levels in the preceding year. The grant is based on the
preceding year's performance. Participation each year will depend on individual performance levels. Actual number of
options granted will be based on level of performance. All Portfolio Managers are eligible to participate in the firm's
standard employee health and welfare programs, including retirement.


Ownership of Securities
2.	For each Portfolio Manager, state the dollar range of equity securities in the Fund beneficially owned
	(as defined by Securities Exchange Act of 1934 Rule 16a-1(a)(2)) by the Portfolio Manager using the
	following ranges: none, $1 - $10,000; $10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000;
	$500,001 - $1,000,000; or over $1,000,000. If the Portfolio Manager has reasons for not holding shares of
	the Fund, e. g., that its investment objectives do not match the Portfolio Manager's, you may provide an
	explanation of those reasons.


		Dollar Range of
	Funds Managed by Portfolio Manager	Securities Owned by the
Portfolio Manager	(list each fund on its own line)	Portfolio Manager
Phil Foreman	Principal Capital Appreciation Account	0
John Friedl	Income Account	0
Michael Meighan	SAM Accounts	0
David Simpson	Equity Income Account	0
Craig Sosey	Mortgage Securities Account	0
Joseph Suty	Equity Income Account	0
Randy Yoakum	SAM Accounts	0

Sub-Advisor: Emerald

Other Accounts Managed


				Total Assets of the
			Number of	Accounts that
		Total Assets	Accounts that	base the
	Total	in the	base the Advisory	Advisory Fee
	Number of	Accounts	Fee on	on Performance
	Accounts	(in $ millions)	Performance	(in $ millions)
Kenneth G. Mertz II, CFA	58	1172	0	0
PVC -SmallCap Growth Account II
Registered investment companies	2	172	0	0
Other pooled investment vehicles	0	0	0	0
Other accounts	56	1,000	0	0

Stacey L. Sears	55	1073	0	0
PVC -SmallCap Growth Account II
Registered investment companies	1	100	0	0
Other pooled investment vehicles	0	0	0	0
Other accounts	54	973	0	0

Joseph W. Garner	55	1073	0	0
PVC -SmallCap Growth Account II
Registered investment companies	1	100	0	0
Other pooled investment vehicles	0	0	0	0
Other accounts	54	973	0	0


Compensation

1.	Describe the structure of, and the method used to determine, the compensation of each Portfolio
	Manager. For each type of compensation (e.g., salary, bonus, deferred compensation, retirement plans
	and arrangements), describe with specificity the criteria on which that type of compensation is based,
	for example, whether compensation is fixed, whether (and, if so, how) compensation is based on Fund
	pre- or after-tax performance over a certain time period, and whether (and, if so, how) compensation is
	based on the value of assets held in the Fund's portfolio. For example, if compensation is based solely


	or in part on performance, identify any benchmark used to measure performance and state the length of
	the period over which performance is measured.

	•	Compensation includes, without limitation, salary, bonus, deferred compensation, and pension and
		retirement plans and arrangements, whether the compensation is cash or non-cash. Group life,
		health, hospitalization, medical reimbursement, relocation, and pension and retirement plans and
		arrangements may be omitted, provided that they do not discriminate in scope, terms, or operation
		in favor of the Portfolio Manager or a group of employees that includes the Portfolio Manager and
		are available generally to all salaried employees. The value of compensation is not required to be
		disclosed.

	•	Include a description of the structure of, and the method used to determine, any compensation
		received by the Portfolio Manager from the Fund, the Fund’s investment adviser, or any other source
		with respect to management of the Fund and any other accounts included in this questionnaire. This
		description must clearly disclose any differences between the method used to determine the
		Portfolio Manager’s compensation with respect to the Fund and other accounts, **e.g., if the Portfolio**
		Manager receives part of an advisory fee that is based on performance with respect to some
		accounts but not the Fund, this must be disclosed.

Emerald has a company-wide compensation/incentive plan. A consulting firm aided in the development of this plan.
The first stage was implemented in 1999, and included a salary grid structure for all employees and job titles. The
firm's Compensation Committee (which includes members of Emerald's board of directors) can adjust an individual's
salary based on actual job performance. The salary grid points were chosen in concert with the Consultant following
an industry review and comparison survey.

The second stage is a quarterly Bonus Plan that keys job performance to eligibility and amount. The "firm-wide"
component, which mandates whether or not the firm as a whole will pay yearly bonuses, is tied to the firm's
performance and was adopted beginning in 2000. Bonuses can range from zero to 300% of base salaries. If the firm's
performance is sufficient to warrant bonus payments, the Compensation Committee decides on a percentage payout
of the eligible bonus pool to each operating area: Portfolio Management, Research, Marketing and Operations.

Finally, each unit's Managing Director assigns specific employee bonus amounts from the eligible pool, based on
quarterly performance reviews and the manager's relative performance against the comparable index for rolling
Quarter, Year, and Five Year periods.

Emerald has consistently awarded or offered the purchase of direct equity ownership in the firm to key employees.
Emerald believes it has a competitive compensation/incentive structure relative to its industry based both on the
involvement of the Consultant and the fact that it has consistently retained its key senior management staff over the
long-term.

Ownership of Securities

2.	For each Portfolio Manager, state the dollar range of equity securities in the Fund beneficially owned
	(as defined by Securities Exchange Act of 1934 Rule 16a-1(a)(2)) by the Portfolio Manager using the
	following ranges: none, $1 - $10,000; $10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000;
	$500,001 - $1,000,000; or over $1,000,000. If the Portfolio Manager has reasons for not holding shares of
	the Fund, e. g., that its investment objectives do not match the Portfolio Manager's, you may provide an
	explanation of those reasons.


		Dollar Range of
	Funds Managed by Portfolio Manager	Securities Owned by the
Portfolio Manager	(list each fund on its own line)	Portfolio Manager
Kenneth G. Mertz II	PVC -SmallCap Growth Account II	NONE
Stacey L. Sears	PVC -SmallCap Growth Account II	NONE
Joseph W. Garner	PVC -SmallCap Growth Account II	NONE

Sub-Advisor: Essex

Other Accounts Managed


				Total Assets of the
			Number of	Accounts that
		Total Assets	Accounts that	base the
	Total	in the	base the Advisory	Advisory Fee
	Number of	Accounts	Fee on	on Performance
	Accounts	(in $ millions)	Performance	(in $ millions)
Nancy Prial
Principal Variable Contracts Funds, Inc.
Small Cap Growth Account
Registered investment companies	5	237	0	0
Other pooled investment vehicles	10	160	1	8
Other accounts	45	252	0	0


Compensation

1.	Describe the structure of, and the method used to determine, the compensation of each Portfolio
	Manager. For each type of compensation (e.g., salary, bonus, deferred compensation, retirement plans
	and arrangements), describe with specificity the criteria on which that type of compensation is based,
	for example, whether compensation is fixed, whether (and, if so, how) compensation is based on Fund
	pre- or after-tax performance over a certain time period, and whether (and, if so, how) compensation is
	based on the value of assets held in the Fund's portfolio. For example, if compensation is based solely
	or in part on performance, identify any benchmark used to measure performance and state the length of
	the period over which performance is measured.

	•	Compensation includes, without limitation, salary, bonus, deferred compensation, and pension and
		retirement plans and arrangements, whether the compensation is cash or non-cash. Group life,
		health, hospitalization, medical reimbursement, relocation, and pension and retirement plans and
		arrangements may be omitted, provided that they do not discriminate in scope, terms, or operation
		in favor of the Portfolio Manager or a group of employees that includes the Portfolio Manager and
		are available generally to all salaried employees. The value of compensation is not required to be
		disclosed.

	•	Include a description of the structure of, and the method used to determine, any compensation
		received by the Portfolio Manager from the Fund, the Fund’s investment adviser, or any other source
		with respect to management of the Fund and any other accounts included in this questionnaire. This
		description must clearly disclose any differences between the method used to determine the
		Portfolio Manager’s compensation with respect to the Fund and other accounts, **e.g., if the Portfolio**
		Manager receives part of an advisory fee that is based on performance with respect to some
		accounts but not the Fund, this must be disclosed.

The professionals at Essex are compensated by a three-tiered approach. First, all of the investment professionals
have industry-competitive base salaries and receive a percentage of the firm's profits through a profit-sharing/pension
plan. Second, Essex's professionals receive a year-end bonus based on their personal performance and Essex's
composite performance relative to their peers and benchmark. Third, Essex offers a competitive benefit package
including comprehensive family health coverage.

Essex's yearly investment performance drives the portfolio managers' incentive portion ("bonus") of their
compensation package. The portfolio managers' bonus is based on their respective portfolios' absolute, relative, and
risk-adjusted performance. Sixty percent of the evaluation is based on performance of the portfolios and 40% is based
on teamwork, communication, and other subjective criteria. They also incent them on their 1,2 and 3 year performance
track record.


As an added retention mechanism, Essex offers ownership to both existing and prospective employees. The current
ownership structure allows Essex to capitalize a portion of its free cash flow each year and transform it into stock
ownership. Essex envisions granting ownership as an additional incentive to the employees who contribute the
greatest to the firm's future success.

Finally, Essex is committed to using a fundamental team approach and culture that encourages continuity among its
investment professionals and makes a conscious effort to reward its team members accordingly.

Ownership of Securities

2.	For each Portfolio Manager, state the dollar range of equity securities in the Fund beneficially owned
	(as defined by Securities Exchange Act of 1934 Rule 16a-1(a)(2)) by the Portfolio Manager using the
	following ranges: none, $1 - $10,000; $10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000;
	$500,001 - $1,000,000; or over $1,000,000. If the Portfolio Manager has reasons for not holding shares of
	the Fund, e. g., that its investment objectives do not match the Portfolio Manager's, you may provide an
	explanation of those reasons.


			Dollar Range of
		Funds Managed by Portfolio Manager	Securities Owned by the
	Portfolio Manager	(list each fund on its own line)	Portfolio Manager
Nancy Prial		Small Cap Growth	None

Sub-Advisor: Jacobs Levy

Other Accounts Managed


					Total Assets of the
				Number of	Accounts that
			Total Assets	Accounts that	base the
		Total	in the	base the Advisory	Advisory Fee
		Number of	Accounts	Fee on	on Performance
		Accounts	(in $ millions)	Performance	(in $ millions)
Bruce I. Jacobs
Principal Variable Contracts Funds, Inc. -	MidCap Value
Account II
Registered investment companies		2
Other pooled investment vehicles		1	69,237	-	-
Other accounts		93	10,076,752	18	2,204,509

Kenneth N. Levy
Principal Variable Contracts Funds, Inc. -	MidCap Value
Account II
Registered investment companies		2
Other pooled investment vehicles		1	69,237	-	-
Other accounts		93	10,076,752	18	2,204,509


Compensation

1.	Describe the structure of, and the method used to determine, the compensation of each Portfolio
	Manager. For each type of compensation (e.g., salary, bonus, deferred compensation, retirement plans
	and arrangements), describe with specificity the criteria on which that type of compensation is based,
	for example, whether compensation is fixed, whether (and, if so, how) compensation is based on Fund
	pre- or after-tax performance over a certain time period, and whether (and, if so, how) compensation is
	based on the value of assets held in the Fund's portfolio. For example, if compensation is based solely


	or in part on performance, identify any benchmark used to measure performance and state the length of
	the period over which performance is measured.

	•	Compensation includes, without limitation, salary, bonus, deferred compensation, and pension and
		retirement plans and arrangements, whether the compensation is cash or non-cash. Group life,
		health, hospitalization, medical reimbursement, relocation, and pension and retirement plans and
		arrangements may be omitted, provided that they do not discriminate in scope, terms, or operation
		in favor of the Portfolio Manager or a group of employees that includes the Portfolio Manager and
		are available generally to all salaried employees. The value of compensation is not required to be
		disclosed.

	•	Include a description of the structure of, and the method used to determine, any compensation
		received by the Portfolio Manager from the Fund, the Fund’s investment adviser, or any other source
		with respect to management of the Fund and any other accounts included in this questionnaire. This
		description must clearly disclose any differences between the method used to determine the
		Portfolio Manager’s compensation with respect to the Fund and other accounts, **e.g., if the Portfolio**
		Manager receives part of an advisory fee that is based on performance with respect to some
		accounts but not the Fund, this must be disclosed.

Each portfolio manager receives a fixed salary and a percentage of the profits of the firm, which is based upon the
portfolio manager's ownership interest in the firm. The firm's profits are derived from the fees it receives from client
accounts. For most client accounts, the firm receives a fee based upon a percentage of assets under management
(the "Basic Fee"). For some accounts, the firm receives a fee that is adjusted based upon the performance of the
account compared to a benchmark. The type of performance adjusted fee, the measurement period for the fee and
the benchmark vary by client. Common benchmarks include the S&P 500, Russell 1000, Russell 2000 and Russell
3000. In some cases, the Basic Fee is adjusted based upon the trailing returns (e.g., annualized trailing 12 quarter
returns) of the account relative to an annualized benchmark return plus a specified number of basis points. In other
cases, the firm receives the Basic Fee and a percentage of the profits in excess of a benchmark plus a specified
number of basis points.

Ownership of Securities

2.	For each Portfolio Manager, state the dollar range of equity securities in the Fund beneficially owned
	(as defined by Securities Exchange Act of 1934 Rule 16a-1(a)(2)) by the Portfolio Manager using the
	following ranges: none, $1 - $10,000; $10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000;
	$500,001 - $1,000,000; or over $1,000,000. If the Portfolio Manager has reasons for not holding shares of
	the Fund, e. g., that its investment objectives do not match the Portfolio Manager's, you may provide an
	explanation of those reasons.


		Dollar Range of
	Funds Managed by Portfolio Manager	Securities Owned by the
Portfolio Manager	(list each fund on its own line)	Portfolio Manager
Bruce I. Jacobs	PVC - MidCap Value Account II	None
Kenneth N. Levy	PVC - MidCap Value Account II	None

Sub-Advisor: J.P. Morgan

Other Accounts Managed


				Total Assets of the
			Number of	Accounts that
		Total Assets	Accounts that	base the
	Total	in the	base the Advisory	Advisory Fee
	Number of	Accounts	Fee on	on Performance
	Accounts	(in $ millions)	Performance	(in $ millions)
Christopher T. Blum
Principal Small Cap Value Account I
Registered investment companies	21	5,331.67	0	0.00
Other pooled investment vehicles	12	2,060.02	1	10.73
Other accounts	8	246.66	2	56.37

Dennis Ruhl
Principal Small Cap Value Account I
Registered investment companies	15	2,325.00	0	0.00
Other pooled investment vehicles	5	288.82	1	10.73
Other accounts	8	246.66	2	56.37


Compensation

1.	Describe the structure of, and the method used to determine, the compensation of each Portfolio
	Manager. For each type of compensation (e.g., salary, bonus, deferred compensation, retirement plans
	and arrangements), describe with specificity the criteria on which that type of compensation is based,
	for example, whether compensation is fixed, whether (and, if so, how) compensation is based on Fund
	pre- or after-tax performance over a certain time period, and whether (and, if so, how) compensation is
	based on the value of assets held in the Fund's portfolio. For example, if compensation is based solely
	or in part on performance, identify any benchmark used to measure performance and state the length of
	the period over which performance is measured.

	•	Compensation includes, without limitation, salary, bonus, deferred compensation, and pension and
		retirement plans and arrangements, whether the compensation is cash or non-cash. Group life,
		health, hospitalization, medical reimbursement, relocation, and pension and retirement plans and
		arrangements may be omitted, provided that they do not discriminate in scope, terms, or operation
		in favor of the Portfolio Manager or a group of employees that includes the Portfolio Manager and
		are available generally to all salaried employees. The value of compensation is not required to be
		disclosed.

	•	Include a description of the structure of, and the method used to determine, any compensation
		received by the Portfolio Manager from the Fund, the Fund’s investment adviser, or any other source
		with respect to management of the Fund and any other accounts included in this questionnaire. This
		description must clearly disclose any differences between the method used to determine the
		Portfolio Manager’s compensation with respect to the Fund and other accounts, **e.g., if the Portfolio**
		Manager receives part of an advisory fee that is based on performance with respect to some
		accounts but not the Fund, this must be disclosed.

J.P. Morgan Investment Management Inc. (JP Morgan)'s Portfolio managers participate in a competitive
compensation program that is designed to attract and retain outstanding people and closely link the performance of
investment professionals to client investment objectives. The total compensation program includes a base salary fixed
from year to year and a variable performance bonus consisting of cash incentives and restricted stock and, in some


cases, mandatory deferred compensation. These elements reflect individual performance and the performance of JP
Morgan's business as a whole.

Each portfolio manager's performance is formally evaluated annually based on a variety of factors including the
aggregate size and blended performance of the portfolios such portfolio manager manages. Individual contribution
relative to client goals carries the highest impact. Portfolio manager compensation is primarily driven by meeting or
exceeding clients' risk and return objectives, relative performance to competitors or competitive indices and
compliance with firm policies and regulatory requirements. In evaluating each portfolio manager's performance with
respect to the mutual funds he or she manages, the funds' pre-tax performance is compared to the appropriate market
peer group and to each fund's benchmark index listed in the fund's prospectus over one, three and five year periods
(or such shorter time as the portfolio manager has managed the fund). Investment performance is generally more
heavily weighted to the long term.

Awards of restricted stock are granted as part of an employee's annual performance bonus and comprise from 0% to
35% of a portfolio manager's total bonus. As the level of incentive compensation increases, the percentage of
compensation awarded in restricted stock also increases. Up to 50% of the restricted stock portion of a portfolio
manager's bonus may instead be subject to a mandatory notional investment in selected mutual funds advised by the
JP Morgan or its affiliates. When these deferred amounts vest, the portfolio manager receives cash equal to the
market value of the notional investment in the selected mutual funds.

Ownership of Securities

2.	For each Portfolio Manager, state the dollar range of equity securities in the Fund beneficially owned
	(as defined by Securities Exchange Act of 1934 Rule 16a-1(a)(2)) by the Portfolio Manager using the
	following ranges: none, $1 - $10,000; $10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000;
	$500,001 - $1,000,000; or over $1,000,000. If the Portfolio Manager has reasons for not holding shares of
	the Fund, e. g., that its investment objectives do not match the Portfolio Manager's, you may provide an
	explanation of those reasons.


		Dollar Range of
	Funds Managed by Portfolio Manager	Securities Owned by the
Portfolio Manager	(list each fund on its own line)	Portfolio Manager
Christopher T. Blum	Principal Small Cap Value Account I	N/A
Dennis Ruhl	Principal Small Cap Value Account I	N/A

Sub-Advisor: Mellon Capital

Other Accounts Managed


				Total Assets of the
			Number of	Accounts that
		Total Assets	Accounts that	base the
	Total	in the	base the Advisory	Advisory Fee
	Number of	Accounts	Fee on	on Performance
	Accounts	(in $ millions)	Performance	(in $ millions)
*Ronald Gala	70	$2,882	9	$1,274
PVC - SmallCap Value Account I
Registered investment companies	8	$ 810	0	$0
Other pooled investment vehicles	19	$1,297	4	$377
Other accounts	80	$3,828	5	$897

*John O’Toole	70	$2,882	9	$1,274
PVC - MidCap Growth Account I
Registered investment companies	8	$ 810	0	$0


Other pooled investment vehicles	19	$1,297	4	$377
Other accounts	80	$3,828	5	$897

*Adam Logan	70	$2,882	9	$1,274
PVC - MidCap Growth Account I
Registered investment companies	8	$ 810	0	$0
Other pooled investment vehicles	19	$1,297	4	$377
Other accounts	80	$3,828	5	$897

*Peter Goslin	70	$2,882	9	$1,274
PVC - SmallCap Value Account I
Registered investment companies	8	$ 810	0	$0
Other pooled investment vehicles	19	$1,297	4	$377
Other accounts	80	$3,828	5	$897
* Note: Due to the team approach all members of the team report the same number of accounts and assets.


Compensation

1.	Describe the structure of, and the method used to determine, the compensation of each Portfolio
	Manager. For each type of compensation (e.g., salary, bonus, deferred compensation, retirement plans
	and arrangements), describe with specificity the criteria on which that type of compensation is based,
	for example, whether compensation is fixed, whether (and, if so, how) compensation is based on Fund
	pre- or after-tax performance over a certain time period, and whether (and, if so, how) compensation is
	based on the value of assets held in the Fund's portfolio. For example, if compensation is based solely
	or in part on performance, identify any benchmark used to measure performance and state the length of
	the period over which performance is measured.

	•	Compensation includes, without limitation, salary, bonus, deferred compensation, and pension and
		retirement plans and arrangements, whether the compensation is cash or non-cash. Group life,
		health, hospitalization, medical reimbursement, relocation, and pension and retirement plans and
		arrangements may be omitted, provided that they do not discriminate in scope, terms, or operation
		in favor of the Portfolio Manager or a group of employees that includes the Portfolio Manager and
		are available generally to all salaried employees. The value of compensation is not required to be
		disclosed.

	•	Include a description of the structure of, and the method used to determine, any compensation
		received by the Portfolio Manager from the Fund, the Fund’s investment adviser, or any other source
		with respect to management of the Fund and any other accounts included in this questionnaire. This
		description must clearly disclose any differences between the method used to determine the
		Portfolio Manager’s compensation with respect to the Fund and other accounts, **e.g., if the Portfolio**
		Manager receives part of an advisory fee that is based on performance with respect to some
		accounts but not the Fund, this must be disclosed.

The primary objectives of the Mellon Capital Management Corporation's ("Mellon Capital's") compensation plans are
to:
•	Motivate and reward continued growth and profitability
•	Attract and retain high-performing individuals critical to the on-going success of Mellon Capital
•	Motivate and reward strong business/investment performance
•	Create an ownership mentality for all employees

The investment professionals' cash compensation is comprised primarily of a market-based base salary and (variable)
incentives (annual and long term). An investment professional's base salary is determined by the employees'
experience and performance in the role, taking into account the ongoing compensation benchmark analyses. A
portfolio manager's base salary is generally a fixed amount that may change as a result of an annual review, upon


assumption of new duties, or when a market adjustment of the position occurs. Funding for the Mellon Capital Annual
Incentive Plan and Long Term Incentive Plan is through a pre-determined fixed percentage of overall Mellon Capital
profitability. Therefore, all bonus awards are based initially on Mellon Capital's financial performance. The employees
are eligible to receive annual cash bonus awards from the Annual Incentive Plan. Annual incentive opportunities are
pre-established for each individual, expressed as a percentage of base salary ("target awards"). These targets are
derived based on a review of competitive market data for each position annually. Annual awards are determined by
applying multiples to this target award. Awards are 100% discretionary. Factors considered in awards include
individual performance, team performance, investment performance of the associated portfolio(s) and qualitative
behavioral factors. Other factors considered in determining the award are the asset size and revenue growth/retention
of the products managed. Awards are paid in cash on an annual basis.

All key staff of Mellon Capital are also eligible to participate in the Mellon Capital Long Term Incentive Plan. These
positions have a high level of accountability and a large impact on the success of the business due to the position's
scope and overall responsibility. In addition, the participants have demonstrated a long-term performance track record
and have the potential for a continued leadership role. This plan provides for an annual award, payable in cash after a
three-year cliff vesting period. The value of the award increases during the vesting period based upon the growth in
Mellon Capital's net income.

Mellon Capital's portfolio managers responsible for managing mutual funds are paid by Mellon Capital and not by the
mutual funds. The same methodology described above is used to determine portfolio manager compensation with
respect to the management of mutual funds and other accounts.

Mutual fund portfolio managers are also eligible for the standard retirement benefits and health and welfare benefits
available to all Mellon Capital employees. Certain portfolio managers may be eligible for additional retirement benefits
under several supplemental retirement plans that Mellon Capital provides to restore dollar-for-dollar the benefits of
management employees that had been cut back solely as a result of certain limits due to the tax laws. These plans
are structured to provide the same retirement benefits as the standard retirement benefits. In addition, mutual fund
portfolio managers whose compensation exceeds certain limits may elect to defer a portion of their salary and/or
bonus under The Bank of New York Mellon Corporation Deferred Compensation Plan for Employees.

Ownership of Securities

2.	For each Portfolio Manager, state the dollar range of equity securities in the Fund beneficially owned
	(as defined by Securities Exchange Act of 1934 Rule 16a-1(a)(2)) by the Portfolio Manager using the
	following ranges: none, $1 - $10,000; $10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000;
	$500,001 - $1,000,000; or over $1,000,000. If the Portfolio Manager has reasons for not holding shares of
	the Fund, e. g., that its investment objectives do not match the Portfolio Manager's, you may provide an
	explanation of those reasons.


		Dollar Range of
	Funds Managed by Portfolio Manager	Securities Owned by the
Portfolio Manager	(list each fund on its own line)	Portfolio Manager
None of the Portfolio Managers own any equity securities in the Fund

Sub-Advisor: Morgan Stanley Investment Management

Other Accounts Managed


				Total Assets of the
			Number of	Accounts that
		Total Assets	Accounts that	base the
	Total	in the	base the Advisory	Advisory Fee
	Number of	Accounts	Fee on	on Performance
	Accounts	(in $ millions)	Performance	(in $ millions)
Francine Bovich


Asset Allocation
Registered investment companies	4	$167,792,700	N/A	N/A
Other pooled investment vehicles	1	$38,446,208	N/A	N/A
Other accounts	16	$4,677,049,090	1	$198,474,926


Compensation

1.	Describe the structure of, and the method used to determine, the compensation of each Portfolio
	Manager. For each type of compensation (e.g., salary, bonus, deferred compensation, retirement plans
	and arrangements), describe with specificity the criteria on which that type of compensation is based,
	for example, whether compensation is fixed, whether (and, if so, how) compensation is based on Fund
	pre- or after-tax performance over a certain time period, and whether (and, if so, how) compensation is
	based on the value of assets held in the Fund's portfolio. For example, if compensation is based solely
	or in part on performance, identify any benchmark used to measure performance and state the length of
	the period over which performance is measured.

	•	Compensation includes, without limitation, salary, bonus, deferred compensation, and pension and
		retirement plans and arrangements, whether the compensation is cash or non-cash. Group life,
		health, hospitalization, medical reimbursement, relocation, and pension and retirement plans and
		arrangements may be omitted, provided that they do not discriminate in scope, terms, or operation
		in favor of the Portfolio Manager or a group of employees that includes the Portfolio Manager and
		are available generally to all salaried employees. The value of compensation is not required to be
		disclosed.

	•	Include a description of the structure of, and the method used to determine, any compensation
		received by the Portfolio Manager from the Fund, the Fund’s investment adviser, or any other source
		with respect to management of the Fund and any other accounts included in this questionnaire. This
		description must clearly disclose any differences between the method used to determine the
		Portfolio Manager’s compensation with respect to the Fund and other accounts, **e.g., if the Portfolio**
		Manager receives part of an advisory fee that is based on performance with respect to some
		accounts but not the Fund, this must be disclosed.

PORTFOLIO MANAGER COMPENSATION STRUCTURE
Portfolio managers receive a combination of base compensation and discretionary compensation, comprising a cash
bonus and several deferred compensation programs described below. The methodology used to determine portfolio
manager compensation is applied across all funds/accounts managed by the portfolio managers.

BASE SALARY COMPENSATION. Generally, portfolio managers receive base salary compensation based on the
level of their position with Morgan Stanley Investment Management

DISCRETIONARY COMPENSATION. In addition to base compensation, portfolio managers may receive
discretionary compensation.

Discretionary compensation can include:
•	Cash Bonus.
•	Morgan Stanley's Long Term Incentive Compensation awards - a mandatory program that defers a portion of
	discretionary year-end compensation into restricted stock units or other awards based on Morgan Stanley common
	stock or other investments that are subject to vesting and other conditions.
•	Investment Management Alignment Plan (IMAP) awards - a mandatory program that defers a portion of
	discretionary year-end compensation and notionally invests it in designated funds advised by the Morgan Stanley
	Investment Management or its affiliates. The award is subject to vesting and other conditions. Portfolio managers
	must notionally invest a minimum of 25% to a maximum of 100% of the IMAP deferral into a combination of the
	designated funds they manage that are included in the IMAP fund menu, which may or may not include the Fund.
•	Voluntary Deferred Compensation Plans - voluntary programs that permit certain employees to elect to defer a
	portion of their discretionary year-end compensation and directly or notionally invest the deferred amount: (1)


	across a range of designated investment funds, including funds advised by the Morgan Stanley Investment
	Management or its affiliates; and/or (2) in Morgan Stanley stock units.

Several factors determine discretionary compensation, which can vary by portfolio management team and
circumstances. In order of relative importance, these factors include:

•	Investment performance. A portfolio manager's compensation is linked to the pre-tax investment performance of
	the funds/accounts managed by the portfolio manager. Investment performance is calculated for one-, three- and
	five-year periods measured against a fund's/account's primary benchmark (as set forth in the fund's prospectus),
	indices and/or peer groups where applicable. Generally, the greatest weight is placed on the three- and five-year
	periods.
•	Revenues generated by the investment companies, pooled investment vehicles and other accounts managed by
	the portfolio manager.
•	Contribution to the business objectives of Morgan Stanley Investment Management.
•	The dollar amount of assets managed by the portfolio manager.
•	Market compensation survey research by independent third parties.
•	Other qualitative factors, such as contributions to client objectives.
•	Performance of Morgan Stanley and Morgan Stanley Investment Management, and the overall performance of the
	investment team(s) of which the portfolio manager is a member.

Ownership of Securities

2.	For each Portfolio Manager, state the dollar range of equity securities in the Fund beneficially owned
	(as defined by Securities Exchange Act of 1934 Rule 16a-1(a)(2)) by the Portfolio Manager using the
	following ranges: none, $1 - $10,000; $10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000;
	$500,001 - $1,000,000; or over $1,000,000. If the Portfolio Manager has reasons for not holding shares of
	the Fund, e. g., that its investment objectives do not match the Portfolio Manager's, you may provide an
	explanation of those reasons.


		Dollar Range of
	Funds Managed by Portfolio Manager	Securities Owned by the
Portfolio Manager	(list each fund on its own line)	Portfolio Manager
Francine Bovich	Asset Allocation	None

Sub-Advisor: PGI

Other Accounts Managed


				Total Assets of the
			Number of	Accounts that
		Total Assets	Accounts that	base the
	Total	in the	base the Advisory	Advisory Fee
	Number of	Accounts	Fee on	on Performance
	Accounts	(in $ millions)	Performance	(in $ millions)
Michael Ade
International Emerging Markets Account
Registered investment companies	3	843,955,525.87
Other pooled investment vehicles	2	685,591,543.77
Other accounts	19	1,580,792,478.60

Bill Armstrong
Bond & Mortgage Securities Account
Registered investment companies	2	2,419,008,547.69
Other pooled investment vehicles	3	4,529,084,877.68
Other accounts	22	4,051,180,333.75


Paul Blankenhagen
Diversified International Account
Registered investment companies	1	1,123,218,743.35
Other pooled investment vehicles	3	2,165,610,908.53
Other accounts	8	982,649,880.62

Juliet Cohn
Diversified International Account
Registered investment companies	1	1,123,218,743.35
Other pooled investment vehicles	2	2,162,349,897.47
Other accounts	10	652,131,526.84

Bryan Davis
Government & High Quality Bond Acct
Registered investment companies	1	351,988,792.29
Other pooled investment vehicles	1	770,255,572.37
Other accounts	0	0

Craig Dawson
Short-Term Account
Registered investment companies	3	454,355,131.42
Other pooled investment vehicles	0	0
Other accounts	3	76,031,629.26

Mihail Dobrinov
Government & High Quality Bond Acct
Registered investment companies	3	843,955,525.87
Other pooled investment vehicles	2	685,591,543.77
Other accounts	17	1,426,397,441.64

Doug Earney
Short-Term Account
Registered investment companies	2	303,687,494.91
Other pooled investment vehicles	1	37,789,402.40
Other accounts	26	3,020,090,933.81

Brad Fredericks
Government & High Quality Bond Acct
Registered investment companies	1	351,988,792.29
Other pooled investment vehicles	1	770,255,572.37
Other accounts	0	0

Arild Holm
LargeCap Value Account
Registered investment companies	1	637,627,236.76
Other pooled investment vehicles	2	255,419,572.73
Other accounts	2	69,695,625.03


Chris Ibach
Diversified International Account
Registered investment companies	0	0
Other pooled investment vehicles	1	4,868,872.51
Other accounts	9	936,917,570.51

Dirk Laschanzky
Principal LifeTime Accounts
LargeCap S&P 500 Index Account
Registered investment companies	3	1,259,627,325.29


Other pooled investment vehicles	3	5,353,597,975.25
Other accounts	4	84,267,396.60

Thomas Morabito
SmallCap Blend Account
Registered investment companies	2	386,040,622.59
Other pooled investment vehicles	9	1,089,789,703.50
Other accounts	0	0

Bill Nolin
MidCap Blend Account
Registered investment companies	1	553,441,625.82
Other pooled investment vehicles	3	878,191,443.29
Other accounts	0	0

Phil Nordhus
SmallCap Blend Account
Registered investment companies	2	574,144,345.56
Other pooled investment vehicles	3	1,086,536,741.83
Other accounts	1	27,363,317.01

Brian Pattinson
International SmallCap Account
Registered investment companies	0	0
Other pooled investment vehicles	1	534,659,098.07
Other accounts	4	622,332,580.93

John Pihlblad
LargeCap Value Account
Registered investment companies	3	1,960,983,733.47
Other pooled investment vehicles	2	339,080,687.44
Other accounts	9	1,201,784,035.66




Michael Reynal
International Emerging Markets Account
Registered investment companies	3	843,955,525.87
Other pooled investment vehicles	2	685,591,543.77
Other accounts	18	1,550,056,316.58

Tracy Reeg
Money Market Account
Registered investment companies	1	2,853,619,426.77
Other pooled investment vehicles	1	5,222,995,727.61
Other accounts	0	0

Alice Robertson
Money Market Account
Registered investment companies	1	2,853,619,426.77
Other pooled investment vehicles	1	5,222,995,727.61
Other accounts	0	0

Scott W. Smith
LargeCap S&P 500 Index Account
Registered investment companies	3	1,259,627,325.29
Other pooled investment vehicles	4	5,368,577,460.80
Other accounts	6	442,117,998.22


Tim Warrick
Bond & Mortgage Securities Account
Registered investment companies	3	2,439,748,151.34
Other pooled investment vehicles	4	4,566,874,280.08
Other accounts	27	5,460,437,233.77

Tim Dunbar
Principal LifeTime Accounts
Registered investment companies	0	0
Other pooled investment vehicles	0	0
Other accounts	0	0

David Blake
Principal LifeTime Accounts
Registered investment companies	0	0
Other pooled investment vehicles	0	0
Other accounts	0	0


Compensation

1.	Describe the structure of, and the method used to determine, the compensation of each Portfolio
	Manager. For each type of compensation (e.g., salary, bonus, deferred compensation, retirement plans
	and arrangements), describe with specificity the criteria on which that type of compensation is based,
	for example, whether compensation is fixed, whether (and, if so, how) compensation is based on Fund
	pre- or after-tax performance over a certain time period, and whether (and, if so, how) compensation is
	based on the value of assets held in the Fund's portfolio. For example, if compensation is based solely
	or in part on performance, identify any benchmark used to measure performance and state the length of
	the period over which performance is measured.

	•	Compensation includes, without limitation, salary, bonus, deferred compensation, and pension and
		retirement plans and arrangements, whether the compensation is cash or non-cash. Group life,
		health, hospitalization, medical reimbursement, relocation, and pension and retirement plans and
		arrangements may be omitted, provided that they do not discriminate in scope, terms, or operation
		in favor of the Portfolio Manager or a group of employees that includes the Portfolio Manager and
		are available generally to all salaried employees. The value of compensation is not required to be
		disclosed.

	•	Include a description of the structure of, and the method used to determine, any compensation
		received by the Portfolio Manager from the Fund, the Fund’s investment adviser, or any other source
		with respect to management of the Fund and any other accounts included in this questionnaire. This
		description must clearly disclose any differences between the method used to determine the
		Portfolio Manager’s compensation with respect to the Fund and other accounts, **e.g., if the Portfolio**
		Manager receives part of an advisory fee that is based on performance with respect to some
		accounts but not the Fund, this must be disclosed.

Principal Global Investors offers a globally competitive salary and incentive compensation plan that are evaluated
annually relative to other top-tier asset management firms. Percentages of base salary versus performance bonus
vary by position but are based on national market data and are consistent with industry standards. Total cash
compensation is targeted to be consistent with the national averages. The primary driver for incentive compensation
for their investment professionals is investment performance relative to appropriate client benchmarks and peer
groups.

Percentages vary by position, but generally, the largest component of total potential compensation is the performance
bonus, of which, a substantial portion is in the form of long-term incentives.


All investment staff members are eligible for annual incentive bonuses. In 2008 they introduced a supplemental profit
sharing plan for select senior members of the investment team. This plan will provide additional long-term incentives
tied specifically to growth and profitability of the equities group.

Ownership of Securities

2.	For each Portfolio Manager, state the dollar range of equity securities in the Fund beneficially owned
	(as defined by Securities Exchange Act of 1934 Rule 16a-1(a)(2)) by the Portfolio Manager using the
	following ranges: none, $1 - $10,000; $10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000;
	$500,001 - $1,000,000; or over $1,000,000. If the Portfolio Manager has reasons for not holding shares of
	the Fund, e. g., that its investment objectives do not match the Portfolio Manager's, you may provide an
	explanation of those reasons.


		Dollar Range of
	Funds Managed by Portfolio Manager	Securities Owned by the
Portfolio Manager	(list each fund on its own line)	Portfolio Manager
Michael Ade	International Emerging Markets Account	0
Bill Armstrong	Bond & Mortgage Securities Account	0
Paul Blankenhagen	Diversified International Account	0
Juliet Cohn	Diversified International Account	0
Bryan Davis	Government & High Quality Bond Acct	0
Craig Dawson	Short-Term Account	0
Mihail Dobrinov	International Emerging Markets Account	0
Doug Earney	Short-Term Account	0
Brad Fredericks	Government & High Quality Bond Acct	0
Arild Holm	LargeCap Value Account	0
Chris Ibach	Diversified International Account	0
Dirk Laschanzky	LargeCap S&P 500 Index Account	0
Dirk Laschanzky	Principal LifeTime Accounts	0
Thomas Morabito	SmallCap Blend Account	0
Bill Nolin	MidCap Blend Account	0
Phil Nordhus	SmallCap Blend Account	0
Brian Pattinson	International SmallCap Account	0
John Pihlblad	LargeCap Value Account	10,001 - $50,000
Michael Reynal	International Emerging Markets Account	0
Tracy Reeg	Money Market Account	0
Alice Robertson	Money Market Account	0
Scott W. Smith	LargeCap S&P 500 Index Account	0
Tim Warrick	Bond & Mortgage Securities Account	0
Tim Dunbar	Principal LifeTime Accounts	0
David Blake	Principal LifeTime Accounts	0

Sub-Advisor: Principal - REI

Other Accounts Managed


				Total Assets of the
			Number of	Accounts that
		Total Assets	Accounts that	base the
	Total	in the	base the Advisory	Advisory Fee
	Number of	Accounts	Fee on	on Performance
	Accounts	(in $ millions)	Performance	(in $ millions)
Kelly Rush
Real Estate Securities Account


Registered investment companies	4	1,120,103,338.90
Other pooled investment vehicles	11	72,011,754.89
Other accounts	14	181,036,886.04


Compensation
1.	Describe the structure of, and the method used to determine, the compensation of each Portfolio
	Manager. For each type of compensation (e.g., salary, bonus, deferred compensation, retirement plans
	and arrangements), describe with specificity the criteria on which that type of compensation is based,
	for example, whether compensation is fixed, whether (and, if so, how) compensation is based on Fund
	pre- or after-tax performance over a certain time period, and whether (and, if so, how) compensation is
	based on the value of assets held in the Fund's portfolio. For example, if compensation is based solely
	or in part on performance, identify any benchmark used to measure performance and state the length of
	the period over which performance is measured.
	•	Compensation includes, without limitation, salary, bonus, deferred compensation, and pension and
		retirement plans and arrangements, whether the compensation is cash or non-cash. Group life,
		health, hospitalization, medical reimbursement, relocation, and pension and retirement plans and
		arrangements may be omitted, provided that they do not discriminate in scope, terms, or operation
		in favor of the Portfolio Manager or a group of employees that includes the Portfolio Manager and
		are available generally to all salaried employees. The value of compensation is not required to be
		disclosed.

	•	Include a description of the structure of, and the method used to determine, any compensation
		received by the Portfolio Manager from the Fund, the Fund’s investment adviser, or any other source
		with respect to management of the Fund and any other accounts included in this questionnaire. This
		description must clearly disclose any differences between the method used to determine the
		Portfolio Manager’s compensation with respect to the Fund and other accounts, **e.g., if the Portfolio**
		Manager receives part of an advisory fee that is based on performance with respect to some
		accounts but not the Fund, this must be disclosed.

Principal Real Estate Investors offers a globally competitive salary and incentive compensation plan that are evaluated
annually relative to other top-tier asset management firms. Percentages of base salary versus performance bonus
vary by position but are based on national market data and are consistent with industry standards. Total cash
compensation is targeted to be consistent with the national averages. The primary driver for incentive compensation
for Principal - REI’s investment professionals is investment performance relative to appropriate client benchmarks and
peer groups.

Percentages vary by position, but generally, the largest component of total potential compensation is the performance
bonus, of which, a substantial portion is in the form of long-term incentives.

All investment staff members are eligible for annual incentive bonuses. In 2008 Principal - REI introduced a
supplemental profit sharing plan for select senior members of the investment team. This plan will provide additional
long-term incentives tied specifically to growth and profitability of the equities group.

Ownership of Securities
2.	For each Portfolio Manager, state the dollar range of equity securities in the Fund beneficially owned
	(as defined by Securities Exchange Act of 1934 Rule 16a-1(a)(2)) by the Portfolio Manager using the
	following ranges: none, $1 - $10,000; $10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000;
	$500,001 - $1,000,000; or over $1,000,000. If the Portfolio Manager has reasons for not holding shares of
	the Fund, e. g., that its investment objectives do not match the Portfolio Manager's, you may provide an
	explanation of those reasons.


		Dollar Range of
	Funds Managed by Portfolio Manager	Securities Owned by the
Portfolio Manager	(list each fund on its own line)	Portfolio Manager


Kelly Rush	Real Estate Securities Account	0

Sub-Sub-Advisor: Spectrum

Other Accounts Managed


			Number of	Total Assets of the
			Accounts that	Accounts that
	Total	Total Assets	base the Advisory	base the
	Number of	in the	Fee on	Advisory Fee
	Accounts	Accounts	Performance	on Performance
L. Philip Jacoby: Global Diversified Income, Preferred	N/A	N/A	N/A	N/A
Securities, Bond & Mortgage Securities, and High Quality
Intermediate-Term Bond Funds
Registered investment companies	8	$3.3 billion	0	$0
Other pooled investment vehicles	6	$450.9 million	0	$0
Other accounts	28	$1.5 billion	0	$0

Mark A. Lieb: Global Diversified Income, Preferred	N/A	N/A	N/A	N/A
Securities, Bond & Mortgage Securities, and High Quality
Intermediate-Term Bond Funds
Registered investment companies	8	$3.3 billion	0	$0
Other pooled investment vehicles	6	$450.9 million	0	$0
Other accounts	33	$1.6 billion	0	$0

Compensation

Describe the structure of, and the method used to determine, the compensation of each Portfolio Manager. For each

type of compensation (e.g., salary, bonus, deferred compensation, retirement plans and arrangements), describe with

specificity the criteria on which that type of compensation is based, for example, whether compensation is fixed,

whether (and, if so, how) compensation is based on Fund pre- or after-tax performance over a certain time period, and

whether (and, if so, how) compensation is based on the value of assets held in the Fund's portfolio. For example, if

compensation is based solely or in part on performance, identify any benchmark used to measure performance and

state the length of the period over which performance is measured.

• Compensation includes, without limitation, salary, bonus, deferred compensation, and pension and retirement

plans and arrangements, whether the compensation is cash or non-cash. Group life, health, hospitalization,

medical reimbursement, relocation, and pension and retirement plans and arrangements may be omitted, provided

that they do not discriminate in scope, terms, or operation in favor of the Portfolio Manager or a group of employees

that includes the Portfolio Manager and are available generally to all salaried employees. The value of

compensation is not required to be disclosed.

• Include a description of the structure of, and the method used to determine, any compensation received by the

Portfolio Manager from the Fund, the Fund’s investment adviser, or any other source with respect to management

of the Fund and any other accounts included in this questionnaire. This description must clearly disclose any

differences between the method used to determine the Portfolio Manager’s compensation with respect to the Fund

and other accounts, e.g., if the Portfolio Manager receives part of an advisory fee that is based on performance

with respect to some accounts but not the Fund, this must be disclosed.

Spectrum professionals are paid a base salary as well as quarterly and year-end performance bonuses. The

performance bonuses are based on overall firm revenues (25% weighting), assets under management (25%), and

individual performance and contributions to the investment team (50%). The performance bonuses may comprise

up to 90% of an individual’s total compensation.

Salaries of our senior executive and investment staff are benchmarked against national compensation levels of

asset management firms and the bonus is driven by investment performance and factors described earlier, such

that top quartile fund performance generates top quartile compensation.

Ownership of Securities

For each Portfolio Manager, state the dollar range of equity securities in the Fund beneficially owned (as defined by

Securities Exchange Act of 1934 Rule 16a-1(a)(2)) by the Portfolio Manager using the following ranges: none, $1 -

$10,000; $10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000; $500,001 - $1,000,000; or over $1,000,000. If

the Portfolio Manager has reasons for not holding shares of the Fund, e.g., that its investment objectives do not match

the Portfolio Manager's, you may provide an explanation of those reasons.


		Dollar Range of
	Funds Managed by Portfolio Manager	Securities Owned by the
Portfolio Manager	(list each fund on its own line)	Portfolio Manager
L. Philip Jacoby	Global Diversified Income Fund	None
	Preferred Securities Fund	None
	Bond & Mortgage Securities Fund	None
	High Quality Intermediate-Term Bond Fund	None
Mark A. Lieb	Global Diversified Income Fund	None
	Preferred Securities Fund	$10,001-$50,000
	Bond & Mortgage Securities Fund	$100,001-$500,000
	High Quality Intermediate-Term Bond Fund	None

Sub-Advisor: T. Rowe Price

Other Accounts Managed


			Number of	Total Assets of the
			Accounts that	Accounts that
	Total	Total Assets	base the Advisory	base the
	Number of	in the	Fee on	Advisory Fee
	Accounts	Accounts	Performance	on Performance
Anna M. Dopkin, CFA: LargeCap Blend Fund II	N/A	N/A	N/A	N/A
Registered investment companies	6	$1.6 billion*	0	$0
Other pooled investment vehicles	8	$2.6 billion	0	$0
Other accounts	57	$16.5 billion	0	$0
			0	$0
Ann M. Holcomb: LargeCap Blend Fund II	N/A	N/A	N/A	N/A
Registered investment companies	6	$1.6 billion*	0	$0
Other pooled investment vehicles	8	$2.6 billion	0	$0
Other accounts	57	$16.5 billion	0	$0


	Robert W. Sharps: LargeCap Growth Fund I	N/A	N/A	N/A	N/A
	Registered investment companies	4	$2.3 billion**	0	$0
	Other pooled investment vehicles	3	$918.6 million	0	$0
	Other accounts	43	$10.3 billion	0	$0
*	Does not include assets of the LargeCap Blend II Series.
**	Does not include assets of the LargeCap Growth I Series.


Compensation

1.	Describe the structure of, and the method used to determine, the compensation of each Portfolio
	Manager. For each type of compensation (e.g., salary, bonus, deferred compensation, retirement plans
	and arrangements), describe with specificity the criteria on which that type of compensation is based,
	for example, whether compensation is fixed, whether (and, if so, how) compensation is based on Fund
	pre- or after-tax performance over a certain time period, and whether (and, if so, how) compensation is
	based on the value of assets held in the Fund's portfolio. For example, if compensation is based solely
	or in part on performance, identify any benchmark used to measure performance and state the length of
	the period over which performance is measured.

	•	Compensation includes, without limitation, salary, bonus, deferred compensation, and pension and
		retirement plans and arrangements, whether the compensation is cash or non-cash. Group life,
		health, hospitalization, medical reimbursement, relocation, and pension and retirement plans and
		arrangements may be omitted, provided that they do not discriminate in scope, terms, or operation
		in favor of the Portfolio Manager or a group of employees that includes the Portfolio Manager and
		are available generally to all salaried employees. The value of compensation is not required to be
		disclosed.

	•	Include a description of the structure of, and the method used to determine, any compensation
		received by the Portfolio Manager from the Fund, the Fund’s investment adviser, or any other source
		with respect to management of the Fund and any other accounts included in this questionnaire. This
		description must clearly disclose any differences between the method used to determine the
		Portfolio Manager’s compensation with respect to the Fund and other accounts, **e.g., if the Portfolio**
		Manager receives part of an advisory fee that is based on performance with respect to some
		accounts but not the Fund, this must be disclosed.

Portfolio manager compensation consists primarily of a base salary, a cash bonus, and an equity incentive that usually
comes in the form of a stock option grant. Occasionally, portfolio managers will also have the opportunity to participate
in certain investment partnerships. Compensation is variable and is determined based on the following factors.

Portfolio manager compensation is based partly on performance. Investment performance over one-, three-, five-,
and 10-year periods is the most important input. T. Rowe Price evaluates performance in absolute, relative, and risk-
adjusted terms. Relative performance and risk-adjusted performance are determined with reference to the broad
based index (ex. S&P500) and an applicable Lipper index (ex. Large-Cap Blend), though other benchmarks may be
used as well. Investment results are also compared to comparably managed funds of competitive investment
management firms.

Performance is primarily measured on a pre-tax basis though tax-efficiency is considered and is especially important
for tax efficient funds. It is important to note that compensation is viewed with a long term time horizon. The more
consistent a manager's performance over time, the higher the compensation opportunity. The increase or decrease in
a fund's assets due to the purchase or sale of fund shares is not considered a material factor.

Contribution to T. Rowe Price’s overall investment process is an important consideration as well. Sharing ideas with
other portfolio managers, working effectively with and mentoring their younger analysts, and being good corporate
citizens are important components of their long term success and are highly valued.


All employees of T. Rowe Price, including portfolio managers, participate in a 401(k) plan sponsored by T. Rowe Price
Group. In addition, all employees are eligible to purchase T. Rowe Price common stock through an employee stock
purchase plan that features a limited corporate matching contribution. Eligibility for and participation in these plans is
on the same basis as for all employees. Finally, all vice presidents of T. Rowe Price Group, including all portfolio
managers, receive supplemental medical/hospital reimbursement benefits.

This compensation structure is used for all portfolios managed by the portfolio manager.

Ownership of Securities

2.	For each Portfolio Manager, state the dollar range of equity securities in the Fund beneficially owned
	(as defined by Securities Exchange Act of 1934 Rule 16a-1(a)(2)) by the Portfolio Manager using the
	following ranges: none, $1 - $10,000; $10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000;
	$500,001 - $1,000,000; or over $1,000,000. If the Portfolio Manager has reasons for not holding shares of
	the Fund, e. g., that its investment objectives do not match the Portfolio Manager's, you may provide an
	explanation of those reasons.


		Dollar Range of
	Funds Managed by Portfolio Manager	Securities Owned by the
Portfolio Manager	(list each fund on its own line)	Portfolio Manager
Anna Dopkin	LargeCap Blend II	None
Ann Holcomb	LargeCap Blend II	None
Robert Sharps	LargeCap Growth I	None

Sub-Advisor: Westwood

Other Accounts Managed


				Total Assets of the
			Number of	Accounts that
		Total Assets	Accounts that	base the
	Total	in the	base the Advisory	Advisory Fee
	Number of	Accounts	Fee on	on Performance
	Accounts	(in $ millions)	Performance	(in $ millions)
Susan M. Byrne, PVC LargeCap Value Account III
Registered investment companies	14	1747.35	0	0
Other pooled investment vehicles	10	884.35	0	0
Other accounts	97	3045.21	1	344.36

Mark R. Freeman, CFA, PVC LargeCap Value Account III
Registered investment companies	12	1694.10	0	0
Other pooled investment vehicles	11	886.49	0	0
Other accounts	67	2252.93	3	487.47

Scott D. Lawson, CFA, PVC LargeCap Value Account III
Registered investment companies	13	1748.55	0	0
Other pooled investment vehicles	10	743.34	0	0
Other accounts	78	2174.62	1	344.36

Jay K. Singhania, CFA, PVC LargeCap Value Account III
Registered investment companies	10	1599.65	0	0
Other pooled investment vehicles	6	613.04	0	0
Other accounts	65	2260.11	3	487.47

Kellie R. Stark, CFA, PVC LargeCap Value Account III
Registered investment companies	16	1815.39	0	0


Other pooled investment vehicles	10	889.67	0	0
Other accounts	101	3104.44	1	344.36


Compensation

1.	Describe the structure of, and the method used to determine, the compensation of each Portfolio
	Manager. For each type of compensation (e.g., salary, bonus, deferred compensation, retirement plans
	and arrangements), describe with specificity the criteria on which that type of compensation is based,
	for example, whether compensation is fixed, whether (and, if so, how) compensation is based on Fund
	pre- or after-tax performance over a certain time period, and whether (and, if so, how) compensation is
	based on the value of assets held in the Fund's portfolio. For example, if compensation is based solely
	or in part on performance, identify any benchmark used to measure performance and state the length of
	the period over which performance is measured.

	•	Compensation includes, without limitation, salary, bonus, deferred compensation, and pension and
		retirement plans and arrangements, whether the compensation is cash or non-cash. Group life,
		health, hospitalization, medical reimbursement, relocation, and pension and retirement plans and
		arrangements may be omitted, provided that they do not discriminate in scope, terms, or operation
		in favor of the Portfolio Manager or a group of employees that includes the Portfolio Manager and
		are available generally to all salaried employees. The value of compensation is not required to be
		disclosed.

	•	Include a description of the structure of, and the method used to determine, any compensation
		received by the Portfolio Manager from the Fund, the Fund’s investment adviser, or any other source
		with respect to management of the Fund and any other accounts included in this questionnaire. This
		description must clearly disclose any differences between the method used to determine the
		Portfolio Manager’s compensation with respect to the Fund and other accounts, **e.g., if the Portfolio**
		Manager receives part of an advisory fee that is based on performance with respect to some
		accounts but not the Fund, this must be disclosed.

Westwood's compensation package includes base salary, cash bonus, and equity-based incentive compensation as
well as a full benefits package for all employees, including those involved in the product. Westwood annually reviews
all forms of compensation for all employees of the company. Base salary levels are maintained at levels that the
compensation committee deems to be commensurate with similar companies in the asset management industry.

Percentages for each component of compensation are variable. Cash bonus awards are determined at year-end.
The firm also offers a stock incentive program for all employees throughout the firm. Equity-based compensation
awards, which currently consist of time vested restricted stock, are granted each February and vest over a four-year
period from the date of grant. As employees remain with Westwood, restricted stock grants can become meaningful
components of their wealth creation, and due to the public nature of the share pricing, can be more visible and tangible
to the grantee. Therefore, the granting of restricted stock not only serves as an effective tool in retaining talented
individuals, it also serves as an effective tool in attracting other talented, seasoned professionals. As owners,
Westwood’s employees' interests are closely aligned with those of its stockholders and clients; as a result, they all
succeed together.

In determining incentive compensation and annual merit-based salary increases, employees on the investment team
are evaluated according to a combination of quantitative and qualitative factors. A major component of this evaluation
is based upon the performance of individual stock recommendations and portfolio performance. Traders are
evaluated on qualitative factors as well as quantitative factors, which include accuracy and execution of trading orders.

The analyst and portfolio manager cash bonus pool is determined by the firm's success, which is directly linked to total
fund performance. In awarding cash bonuses for the investment professionals, Westwood considers composite
performance vs. a passive benchmark as well as industry peer group performance. In addition to measuring overall
composite performance, Westwood wants to recognize and reward individual performance, regardless of timing and
buy or sell decisions made by the Portfolio Team. For this reason, Westwood tracks the individual buy and sell


recommendations of each analyst and measures their performance against a predetermined universe of securities
representing their assigned sector responsibilities.

Health insurance, employer-paid life insurance and employer-paid short and long-term disability insurance packages
including a 401(k) plan with employer matching, are provided to all Westwood employees.

Ownership of Securities

2.	For each Portfolio Manager, state the dollar range of equity securities in the Fund beneficially owned
	(as defined by Securities Exchange Act of 1934 Rule 16a-1(a)(2)) by the Portfolio Manager using the
	following ranges: none, $1 - $10,000; $10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000;
	$500,001 - $1,000,000; or over $1,000,000. If the Portfolio Manager has reasons for not holding shares of
	the Fund, e. g., that its investment objectives do not match the Portfolio Manager's, you may provide an
	explanation of those reasons.


		Dollar Range of
	Funds Managed by Portfolio Manager	Securities Owned by the
Portfolio Manager	(list each fund on its own line)	Portfolio Manager
Susan M. Byrne	Principal Variable Contracts LargeCap Fund III	None
Mark R. Freeman, CFA	Principal Variable Contracts LargeCap Fund III	None
Scott D. Lawson, CFA	Principal Variable Contracts LargeCap Fund III	None
Jay K. Singhania, CFA	Principal Variable Contracts LargeCap Fund III	None
Kellie R. Stark, CFA	Principal Variable Contracts LargeCap Fund III	None

APPENDIX A

Description of Bond Ratings:

Moody’s Investors Service, Inc. Rating Definitions:

Long-Term Obligation Ratings


Moody’s long-term obligation ratings are opinions of the relative credit risk of fixed-income obligations with an original
maturity of one year or more. They address the possibility that a financial obligation will not be honored as promised.
Such ratings reflect both the likelihood of default and any financial loss suffered in the event of default.

Aaa:	Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk.

Aa:	Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.

A:	Obligations rated A are considered upper-medium grade and are subject to low credit risk.

Baa:	Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as
	such may possess certain speculative characteristics.

Ba:	Obligations rated Ba are judged to have speculative elements and are subject to substantial credit
	risk.

B:	Obligations rated B are considered speculative and are subject to high credit risk.

Caa:	Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.

Ca:	Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect
	of recovery of principal and interest.

C:	Obligations rated C are the lowest rated class of bonds and are typically in default, with little prospect
	for recovery of principal or interest.


NOTE: Moody’s appends numerical modifiers, 1, 2, and 3 to each generic rating classification from Aa through Caa.
The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category, the modifier 2
indicates a mid-range ranking, and the modifier 3 indicates a ranking in the lower end of that generate rating category.

SHORT-TERM NOTES: The four ratings of Moody’s for short-term notes are MIG 1, MIG 2, MIG 3, and MIG 4. MIG 1
denotes “best quality, enjoying strong protection from established cash flows.” MIG 2 denotes “high quality” with
“ample margins of protection.” MIG 3 notes are of “favorable quality but lacking the undeniable strength of the
preceding grades.” MIG 4 notes are of “adequate quality, carrying specific risk for having protection and not distinctly
or predominantly speculative.”

Description of Moody’s Commercial Paper Ratings:

Moody’s Commercial Paper ratings are opinions of the ability to repay punctually promissory obligations not having an
original maturity in excess of nine months. Moody’s employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:

Issuers rated Prime-1 (or related supporting institutions) have a superior capacity for repayment of short-term
promissory obligations.

Issuers rated Prime-2 (or related supporting institutions) have a strong capacity for repayment of short-term
promissory obligations.


Issuers rated Prime-3 (or related supporting institutions) have an acceptable capacity for repayment of short-term
promissory obligations.

Issuers rated Not Prime do not fall within any of the Prime rating categories.

Description of Standard & Poor’s Corporation’s Debt Ratings:

A Standard & Poor’s debt rating is a current assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as guarantors, insurers, or lessees.

The debt rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment as to
market price or suitability for a particular investor.

The ratings are based on current information furnished by the issuer or obtained by Standard & Poor’s from other
sources Standard & Poor’s considers reliable. Standard & Poor’s does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or
withdrawn as a result of changes in, or unavailability of, such information, or for other circumstances.

The ratings are based, in varying degrees, on the following considerations:

I.	Likelihood of default — capacity and willingness of the obligor as to the timely payment of interest and repayment of
	principal in accordance with the terms of the obligation;

II.	Nature of and provisions of the obligation;

III.	Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other
	arrangement under the laws of bankruptcy and other laws affecting creditor’s rights.

AAA:		Debt rated “AAA” has the highest rating assigned by Standard & Poor’s. Capacity to pay interest and
		repay principal is extremely strong.

AA:		Debt rated “AA” has a very strong capacity to pay interest and repay principal and differs from the
		highest-rated issues only in small degree.

A:		Debt rated “A” has a strong capacity to pay interest and repay principal although they are somewhat
		more susceptible to the adverse effects of changes in circumstances and economic conditions than
		debt in higher-rated categories.

BBB: Debt rated “BBB” is regarded as having an adequate capacity to pay interest and repay principal.
		Whereas it normally exhibits adequate protection parameters, adverse economic conditions or
		changing circumstances are more likely to lead to a weakened capacity to pay interest and repay
		principal for debt in this category than for debt in higher-rated categories.


BB, B, CCC, CC: Debt rated “BB,” “B,” “CCC,” and “CC” is regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. “BB” indicates the
lowest degree of speculation and “CC” the highest degree of speculation. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse
conditions.

C:		The rating “C” is reserved for income bonds on which no interest is being paid.

D:		Debt rated “D” is in default, and payment of interest and/or repayment of principal is in arrears.


Plus (+) or Minus (-): The ratings from “AA” to “B” may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.

Provisional Ratings: The letter “p” indicates that the rating is provisional. A provisional rating assumes the successful
completion of the project being financed by the bonds being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the project, makes no comment on the likelihood
of, or the risk of default upon failure of, such completion. The investor should exercise his own judgment with respect
to such likelihood and risk.

NR: Indicates that no rating has been requested, that there is insufficient information on which to base a rating or that
Standard & Poor’s does not rate a particular type of obligation as a matter of policy.

Standard & Poor’s, Commercial Paper Ratings

A Standard & Poor’s Commercial Paper Rating is a current assessment of the likelihood of timely payment of debt
having an original maturity of no more than 365 days. Ratings are graded into four categories, ranging from “A” for the
highest quality obligations to “D” for the lowest. Ratings are applicable to both taxable and tax-exempt commercial
paper. The four categories are as follows:

A:	Issues assigned the highest rating are regarded as having the greatest capacity for timely payment.
	Issues in this category are delineated with the numbers 1, 2, and 3 to indicate the relative degree of
	safety.

A-1:	This designation indicates that the degree of safety regarding timely payment is either overwhelming
or very strong. Issues that possess overwhelming safety characteristics will be given a “+”
	designation.

A-2:	Capacity for timely payment on issues with this designation is strong. However, the relative degree of
	safety is not as high as for issues designated “A-1.”

A-3:	Issues carrying this designation have a satisfactory capacity for timely payment. They are, however,
	somewhat more vulnerable to the adverse effects of changes in circumstances than obligations
	carrying the highest designations.

B:	Issues rated “B” are regarded as having only an adequate capacity for timely payment. However,
	such capacity may be damaged by changing conditions or short-term adversities.

C:	This rating is assigned to short-term debt obligations with a doubtful capacity for payment.

D:	This rating indicates that the issue is either in default or is expected to be in default upon maturity.


The Commercial Paper Rating is not a recommendation to purchase or sell a security. The ratings are based on
current information furnished to Standard & Poor’s by the issuer and obtained by Standard & Poor’s from other
sources it considers reliable. The ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of, such information.

Standard & Poor’s rates notes with a maturity of less than three years as follows:

SP-1:	A very strong, or strong, capacity to pay principal and interest. Issues that possess overwhelming
	safety characteristics will be given a “+” designation.

SP-2:	A satisfactory capacity to pay principal and interest.

SP-3:	A speculative capacity to pay principal and interest.

APPENDIX B

Proxy Voting Policies

The Proxy voting policies applicable to each Account follows.

The order in which the Proxy Voting Policies are arranged is in alphabetical order by Manager and then each Sub-

Advisor.

TO BE FILED BY AMENDMENT


PART C. OTHER INFORMATION

Item 28. Exhibits.

(a)	(1)	Amendment and Restatement of the Articles of Incorporation -- Filed as Ex-99.A on
		10/24/00 (Accession No. 0000012601-00-500016) and Filed as Ex-99.A on 04/27/06
		(Accession No. 0000009713-06-000042)

	(2)	(a)	Articles of Amendment (Incorporated by reference from exhibit #1(b)to registration
			statement No. 333-137812 filed on Form N-14 on 10/5/06) (Accession No.
			0000012601-06-000026)

		(b)	Articles of Amendment effective May 17, 2008 Filed as Ex-99.A4 on 04/27/09
			(Accession No. 0000898745-09-000217)

		(c)	Articles of Amendment dated 06/30/09 – Filed as Ex-99.(A)(2)(C) on 10/07/09
			(Accession No. 0000898745-09-000486)

	(3)	(a)	Articles Supplementary -- Filed as Ex-99.A.1 on 02/13/02 (Accession No.
			0001126872-02-000002)

		(b)	Articles Supplementary dtd 12/15/03 -- Filed as Ex-99.A on 02/26/04 (Accession No.
			0000870786-04-000042)

		(c)	Articles Supplementary dtd 6/14/04 -- Filed as Ex-99.A on 08/27/04 (Accession No.
			0001127048-04-000101)

		(d)	Certificate of Correction of Articles Supplementary dtd 10/7/04 -- Filed as Ex-99.A
			on 02/24/05 (Accession No. 000087086-05-000028)

		(e)	Articles Supplementary dtd 12/13/04 -- Filed as Ex-99.A on 04/29/05 (Accession No.
			0000870786-05-000132)

		(f)	Articles Supplementary dtd 07/07/2006 (Incorporated by reference from exhibit
			#1(b)(6)to registration statement No. 333-137812 filed on Form N-14 on 10/5/06)
			(Accession No. 0000012601-06-000026)

		(g)	Articles Supplementary dtd 06/19/09 – Filed as Ex-99.(A)(3)(G) on 10/07/09
			(Accession No. 0000898745-09-000486)

(b)	By-laws -- Filed as Ex-99.B on 12-31-03 (Accession No. 0000870786-03-000210)

(c)	These have been previously filed as noted in response to Items 23(a) and 23(b).

(d)	(1)	(a)	Management Agreement -- Filed as Ex-99.B5.A on 10/24/97 (Accession No.
			0000915728-97-000059)

		(b)	First Amendment to Management Agreement -- Filed as Ex-99.B5.A1 on 02/13/98
			(Accession No. 0000012601-98-000001)

		(c)	Second Amendment to Management Agreement -- Filed as Ex-99.D.3 on 10/24/00
			(Accession No. 0000012601-00-500016)

		(d)	Third Amendment to Management Agreement -- Filed as Ex-99.D.4 on 10/24/00
			(Accession No. 0000012601-00-500016)

		(e)	Fourth Amendment to Management Agreement -- Filed as Ex-99.D on 12/31/03
			(Accession No. 000087086-03-000210)


	(f)	Amended & Restated Management Agreement -- Filed as Ex-99.D on 12/31/03
		(Accession No. 000087086-03-000210)

	(g)	Amended & Restated Management Agreement dtd 3/11/04 -- Filed as Ex-99.D on
		06/15/04 (Accession No. 0000870786-04-000104)

	(h)	Amended & Restated Management Agreement dtd 6/14/04 -- Filed as Ex-99.D on
		08/27/04 (Accession No. 0001127048-04-000101)

	(i)	Amended & Restated Management Agreement dtd 12/13/04 -- Filed as Ex-99.D on
		02/24/05 (Accession No. 000087086-05-000028)

	(j)	Amended & Restated Management Agreement dtd 9/30/05 -- Filed as Ex-99.D on
		04/27/06 (Accession No. 0000009713-06-000042)

	(k)	Amended & Restated Management Agreement dtd 1/4/07 -- Filed as Ex-99.D on
		01/09/07 (Accession No. 0000898745-07-000006)

	(l)	Amended & Restated Management Agreement dtd 10/31/07 -- Filed as Ex-
		99.(D)(1)(L) on 04/25/08 (Accession No. 0000950137-08-006048)

	(m)	Amended & Restated Management Agreement dtd 9/9/08 -- Filed as Ex-99.D1M on
		04/27/09 (Accession No. 0000898745-09-000217)

	(n)	Amended & Restated Management Agreement dtd 7/1/09 – Filed as Ex-
		99.(D)(1)(N) on 10/07/09 (Accession No. 0000898745-09-000486)

	(o)	Amended & Restated Management Agreement dtd 12/31/2009 *

(2)	(a)	Investment Service Agreement -- Filed as Ex-99.B5.B on 10/24/97 (Accession No.
		0000915728-97-000059)

	(b)	Amended & Restated Investment Service Agreement dtd 4/1/04 -- Filed as Ex-99.D
		on 06/15/04 (Accession No. 0000870786-04-000104)

(3)	(a)	Bernstein Sub-Advisory Agreement -- Filed as Ex-99.D.19 on 04/29/02 (Accession
		No. 0000870786-02-000084)

	(b)	Amended & Restated Sub-Advisory Agreement — Bernstein dtd 7/1/04 -- Filed as
		Ex-99.D on 08/27/04 (Accession No. 0001127048-04-000101)

(4)	(a)	Brown Investment Advisory Incorporated Sub-Advisory Agreement dtd 07/01/09 –
		Filed as Ex-99.D on 08/20/2009 (Accession No. 0000898745-09-000377)

(5)	(a)	ClearBridge Advisors, LLC Sub-Advisory Agreement dtd 10/1/09 – Filed as Ex-
		99.(D)(5)(A) on 10/07/09 (Accession No. 0000898745-09-000486)

(6)	(a)	Columbus Circle Investors Sub-Advisory Agreement dtd 1/5/05 -- Filed as Ex-99.D
		on 04/29/05 (Accession No. 0000870786-05-000132)

	(b)	Amended & Restated Sub-Advisory Agreement — CCI dtd 9/12/05 -- Filed as Ex-
		99.D on 10/24/06 (Accession No. 000012601-06-000029)

	(c)	Amended & Restated Sub-Advisory Agreement — CCI dtd 12/15/06 -- Filed as Ex-
		99.D on 04/19/07 (Accession No. 0000898745-07-000045)

(7)	(a)	Edge Asset Management, Inc. Sub-Advisory Agreement dtd 1/4/07 -- Filed as Ex-
		99.D on 01/09/07 (Accession No. 0000898745-07-000006)


(8)	(a)	Emerald Sub-Advisory Agreement dtd 9/1/04 -- Filed as Ex-99.D on 02/24/05
		(Accession No. 000087086-05-000028)

	(b)	Emerald Sub-Advisory Agreement dtd 7/1/09 – Filed as Ex-99.(D)(8)(B) on
		10/07/09 (Accession No. 0000898745-09-000486)

(9)	(a)	Essex Sub-Advisory Agreement dtd 6/30/06 -- Filed as Ex-99.D on 10/24/06
		(Accession No. 000012601-06-000029)

	(b)	Essex Amended and Restated Sub-Advisory Agreement dtd 1/1/2010 *

(10)	(a)	JP Morgan Sub-Advisory Agreement -- Filed as Ex-99.B5.H on 04/17/98
		(Accession No. 0000012601-98-000009)

	(b)	Amended & Restated Sub-Advisory Agreement — JP Morgan dtd 7/2/03 -- Filed as
		Ex-99.D on 02/24/05 (Accession No. 000087086-05-000028)

	(c)	Amended & Restated Sub-Advisory Agreement — JP Morgan dtd 1/5/05 -- Filed as
		Ex-99.D on 02/24/05 (Accession No. 000087086-05-000028)

(11)	(a)	Jacobs Levy Sub-Advisory Agreement dtd 6/15/06 -- Filed as Ex-99.D on 10/24/06
		(Accession No. 000012601-06-000029)

(12)	(a)	Dreyfus Corp. Sub-Advisory Agreement -- Filed as Ex-99.B5.F on 04/17/98
		(Accession No. 0000012601-98-000009)

	(b)	Amended & Restated Sub-Adv. — Dreyfus dtd 11/25/03 Filed as Ex-99.D on
		02/26/04 (Accession No. 0000870786-04-000042)

	(c)	Amended & Restated Sub-Advisory Agreement — The Dreyfus Group dtd 7/1/04
		Filed as Ex-99.D on 02/24/05 (Accession No. 000087086-05-000028)

	(d)	Amended & Restated Sub-Advisory Agreement — Mellon Equity dtd 12/22/04 Filed
		as Ex-99.D on 02/24/05 (Accession No. 000087086-05-000028)

	(e)	Amended & Restated Sub-Advisory Agreement — Mellon Equity dtd 08/08/2005
		Filed as Ex-99.D57 on 04/27/06 (Accession No. 0000009713-06-000042)

	(f)	Amended & Restated Sub-Advisory Agreement — Mellon Equity dtd 01/01/08 Filed
		as Ex-99.(5)(F) on 02/29/08 (Accession No. 0000950137-08-003049)

(13)	(a)	Morgan Stanley Asset Mgmt. Sub-Advisory Agreement Filed as Ex-99.B5.D on
		10/24/97 (Accession No. 0000915728-97-000059)

	(b)	Amended & Restated Sub-Advisory Agreement — MSAM dtd 6/30/04 Filed as Ex-
		99.D on 08/27/04 (Accession No. 0001127048-04-000101)

	(c)	Amended & Restated Sub-Advisory Agreement — Morgan Stanley dtd 11/25/03 --
		Filed as Ex-99.D on 02/24/05 (Accession No. 000087086-05-000028)

	(d)	Amended & Restated Sub-Advisory Agreement — Morgan Stanley dtd 8/23/04 --
		Filed as Ex-99.D on 02/24/05 (Accession No. 000087086-05-000028)

(14)	(a)	Invista Sub-Advisory Agreement -- Filed as Ex-99.B5.C on 10/24/97 (Accession No.
		0000915728-97-000059)

	(b)	First Amendment to Sub-Advisory Agrmt. -- Filed as Ex-99.B5.A1 on 02/13/98
		(Accession No. 0000012601-98-000001)


	(c)	Second Amendment to Sub-Advisory Agrmt. -- Filed as Ex-99.D.8 on 10/24/00
		(Accession No. 0000012601-00-500016)

	(d)	Third Amendment to Sub-Advisory Agrmt. -- Filed as Ex-99.D.9 on 10/24/00
		(Accession No. 0000012601-00-500016)

	(e)	6th Amdt. to Sub-Adv. Agreement w/Invista -- -- Filed as Ex-99.D.21 on 04/29/02
		(Accession No. 0000870786-02-000084)

	(f)	Amended & Restated Sub-Adv — PGI dtd 4/1/04 -- Filed as Ex-99.D on 06/15/04
		(Accession No. 0000870786-04-000104)

	(g)	Amended & Restated Sub-Advisory Agreement — PGI dtd 6/30/04 Filed as Ex-
		99.D on 08/27/04 (Accession No. 0001127048-04-000101)

	(h)	Amended & Restated Sub-Advisory Agreement — PGI dtd 3/11/03 -- Filed as Ex-
		99.D on 02/24/05 (Accession No. 000087086-05-000028)

	(i)	Amended & Restated Sub-Advisory Agreement — PGI dtd 12/13/04 -- Filed as Ex-
		99.D on 02/24/05 (Accession No. 000087086-05-000028)

	(j)	Amended & Restated Sub-Advisory Agreement — PGI dtd 07/01/2005 -- Filed as
		Ex-99.D58 on 04/27/06 (Accession No. 0000009713-06-000042)

	(k)	Amended & Restated Sub-Advisory Agreement — PGI dtd 09/12/2005 -- Filed as
		Ex-99.D59 on 04/27/06 (Accession No. 0000009713-06-000042)

	(l)	Amended & Restated Sub-Advisory Agreement — PGI dtd 7/1/2009 – Filed as Ex-
		99.(D)(14)(L) on 10/07/09 (Accession No. 0000898745-09-000486)

(15)	(a)	PREI Sub-Advisory Agreement dtd 07/01/2005 -- Filed as Ex-99.D60 on 04/27/06
		(Accession No. 0000009713-06-000042)

	(b)	PREI Sub-Sub-Advisory Agreement dtd 07/01/2005 -- Filed as Ex-99.D63 on
		04/27/06 (Accession No. 0000009713-06-000042)

	(c)	Amended & Restated Sub-Advisory Agreement — PREI dtd 09/12/2005 -- Filed as
		Ex-99.D61 on 04/27/06 (Accession No. 0000009713-06-000042)

	(d)	Amended & Restated Sub-Advisory Agreement — PREI dtd 1/1/06 -- Filed as Ex-
		99.D on 10/24/06 (Accession No. 000012601-06-000029)

(16)	(a)	Spectrum Sub-Sub-Advisory Agreement dtd 07/01/2005 Filed as Ex-99.D64 on
		04/27/06 (Accession No. 0000009713-06-000042)

(17)	(a)	T. Rowe PriceSub-Advisory Agreement dtd 3/8/04 -- Filed as Ex-99.D on 06/15/04
		(Accession No. 0000870786-04-000104)

	(b)	Amended & Restated Sub-Advisory Agreement — T. Rowe Price dtd 8/24/04 --
		Filed as Ex-99.D on 08/27/04 (Accession No. 0001127048-04-000101)

	(c)	Amended & Restated Sub-Advisory Agreement – T. Rowe Price dtd 8/01/2005 --
		Filed as Ex-99.D56 on 04/27/06 (Accession No. 0000009713-06-000042)

	(d)	Amended & Restated Sub-Advisory Agreement — T. Rowe Price dtd 8/1/06 -- Filed
		as Ex-99.D on 10/24/06 (Accession No. 000012601-06-000029)

	(e)	Amended & Restated Sub-Advisory Agreement — T. Rowe Price dtd 9/15/06 --
		Filed as Ex-99.D on 10/24/06 (Accession No. 000012601-06-000029)


	(18)	(a)	Westwood Sub-Advisory Agreement dtd 07/15/08 -- Filed as Ex-99.D19A on
			04/27/09 (Accession No. 0000898745-09-000217)
(e)	Distribution Agreement -- Filed as Ex-99.E on 10/24/00 (Accession No. 0000012601-00-500016)
	(1)	Amended & Restated Distribution Agreement dtd 6/14/04 -- Filed as Ex-99.E on 08/27/04
		(Accession No. 0001127048-04-000101)
	(2)	Distribution Agreement dtd 1/12/07 -- Filed as Ex-99.(E)(2) on 02/29/08 (Accession No.
		0000950137-08-003049)
	(3)	Amended Distribution Plan and Agreement Class 2 Shares dtd 5/01/2009 – Filed as Ex-
		99.(E)(3) on 10/07/09 (Accession No. 0000898745-09-000486)
	(4)	Amended Distribution Plan and Agreement Class 2 Shares dtd 7/21/2009 – Filed as Ex-
		99.(E)(4) on 10/07/09 (Accession No. 0000898745-09-000486)
	(5)	Amended Distribution Plan and Agreement Class 2 Shares dtd 9/21/2009 – Filed as Ex-
		99.(E)(5) on 10/07/09 (Accession No. 0000898745-09-000486)
(f)	N/A
(g)	Custodian Agreement
	(1)	Domestic and Global Custodian Agreement with Bank of New York -- Filed as Ex-
		99.(G)(1) on 04/25/08 (Accession No. 0000950137-08-006048)
(h)	(1)	Agreement and Plan of Reorganization and Liquidation -- Filed as Ex-99.B9 on 10/24/97
		(Accession No. 0000915728-97-000059)
	(2)	Transfer Agency Agreement dated 9/9/08 -- Filed as Ex-99.H2 on 04/27/09 (Accession
		No. 0000898745-09-000217)
	(3)	Capital Support Agreement dated 9/22/08 -- Filed as Ex-99.H3 on 04/27/09 (Accession
		No. 0000898745-09-000217)
	(4)	Contractual Fee Waiver Agreement dated 4/29/08 -- Filed as Ex-99.H4 on 04/27/09
		(Accession No. 0000898745-09-000217)
(i)	Legal Opinion -- Filed as Ex-99.I on 10/24/00 (Accession No. 0000012601-00-500016)
(j)	(1)	Consent of Independent Auditors – N/A
	(2)	Rule 485(b) opinion – N/A
	(3)	Powers of Attorney -- Filed as Ex-99.(J)(3) on 04/25/08 (Accession No. 0000950137-08-
		006048)
(k)	Omitted Financial Statements N/A
(l)	Initial Capital Agreements
	(1-11)		Initial Capital Agreements 1987 -- Filed as Ex-99.L on 04/27/01 (Accession No.
			0000012601-01-500015)
	(12-19)		Initial Capital Agreements 1998 -- Filed as Ex-99.L on 04/27/01 (Accession No.
			0000012601-01-500015)
	(20-23)		Initial Capital Agreements 1999 -- Filed as Ex-99.L on 04/27/01 (Accession No.
			0000012601-01-500015)
	(24-26)		Initial Capital Agreements 2000 -- Filed as Ex-99.L on 04/27/01 (Accession No.
			0000012601-01-500015)


	(27)	Initial Capital Agreements 5/1/2003 -- Filed as Ex-99.L on 02/26/04 (Accession No.
		0000870786-04-000042)
	(28)	Initial Capital Agreements 8/30/2004 -- Filed as Ex-99.L on 02/24/05 (Accession No.
		000087086-05-000028)
	(29)	Initial Capital Agreement 1/5/07 -- Filed as Ex-99.(L)(29) on 02/29/08 (Accession No.
		0000950137-08-003049)

(m)	Rule 12b-1 Plan

	(1)	Class 2 Plan as of 5/1/09 -- Filed as Ex-99.M (1) on 06/26/09 (Accession No.
		0000898745-09-000330)

	(2)	Amended Distribution Plan and Agreement Class 2 Shares dtd 5/01/2009 – Filed as Ex-
		99.(E)(3) on 10/07/09 (Accession No. 0000898745-09-000486)

	(3)	Amended Distribution Plan and Agreement Class 2 Shares dtd 7/21/2009 – Filed as Ex-
		99.(E)(4) on 10/07/09 (Accession No. 0000898745-09-000486)

	(4)	Amended Distribution Plan and Agreement Class 2 Shares dtd 9/21/2009 – Filed as Ex-
		99.(E)(5) on 10/07/09 (Accession No. 0000898745-09-000486)

(n)	Rule 18f-3 Plan –Filed as Ex-99.N on 06/26/09 (Accession No. 0000898745-09-000330)

(o)	Reserved

(p)	Codes of Ethics

	(1)	AllianceBernstein Code of Ethics -- Filed as Ex-99.(P)(1) on 02/29/08 (Accession No.
		0000950137-08-003049); Filed as Ex-99.P on 02/24/05 (Accession No. 000087086-05-
		000028)
	(2)	Brown Investment Advisory Incorporated Code of Ethics – Filed as Ex-99.P on 08/20/09
		(Accession No. 0000898745-09-000377)
	(3)	ClearBridge Advisors, LLC Code of Ethics – Filed as Ex-99.(P)(3) on 10/07/09 (Accession
		No. 0000898745-09-000486)
	(4)	Columbus Circle Investors Code of Ethics – Filed as Ex-99(P)(4) on 12/18/09 (Accession
		No. 0000898745-09-000544)
	(5)	Edge Asset Management Code of Ethics -- Filed as Ex-99.(P)(4) on 02/29/08 (Accession
		No. 0000950137-08-003049)
	(6)	Emerald Code of Ethics -- Filed as Ex-99.P on 02/24/05 (Accession No. 000087086-05-
		000028)
	(7)	Essex Code of Ethics -- Filed as Ex-99.(P)(6) on 02/29/08 (Accession No. 0000950137-
		08-003049)
	(8)	JP Morgan Code of Ethics -- Filed as Ex-99.(P)(7) on 02/29/08 (Accession No.
		0000950137-08-003049); Filed as Ex-99.P on 02/24/05 (Accession No. 000087086-05-
		000028)
	(9)	Jacobs Levy Code of Ethics -- Filed as Ex-99.(P)(8) on 02/29/08 (Accession No.
		0000950137-08-003049)
	(10)	Mellon Code of Ethics – Filed as Ex-99.P on 08/20/09 (Accession No. 0000898745-09-
		000377)
	(11)	Morgan Stanley Investment Management Code of Ethics -- Filed as Ex-99.P on 02/24/05
		(Accession No. 000087086-05-000028); Filed as Ex-99.P on 10/24/06 (Accession No.
		000012601-06-000029); Filed as Ex-99.P on 04/19/07 (Accession No. 0000898745-07-
		000045)
	(12)	Principal Global Investors/Principal Real Estate Investors Code of Ethics -- Filed as Ex-
		99.P on 04/19/07 (Accession No. 0000898745-07-000045)


(13)	Principal Fund Entities Code of Ethics (Principal Funds, Inc., Principal Variable Contracts
	Funds, Inc. , Principal Management Corporation, Principal Financial Advisors, Princor
	Financial Services Corporation, Principal Funds Distributor, Inc.) – Filed as Ex-99.P on
	08/20/09 (Accession No. 0000898745-09-000377)
(14)	Sr. & Executive Officers Code of Ethics (Sarbanes) -- Filed as Ex-99.P on 12/31/03
	(Accession No. 000087086-03-000210)
(15)	Spectrum Code of Ethics – Filed as Ex-99(P)16(a) on 12/18/09 (Accession No.
	0000898745-09-000544)
(16)	T. Rowe Price Code of Ethics -- Filed as Ex-99.P on 02/24/05 (Accession No.
	000087086-05-000028)
(16)	Westwood Code of Ethics -- Filed as Ex-99.P18 on 04/27/09 (Accession No.
	0000898745-09-000217)

*	Filed herein.
**	To be filed by amendment.

Item 29.	Persons Controlled by or Under Common Control with Registrant

The Registrant does not control and is not under common control with any person.

Item 30.	Indemnification


Under Section 2-418 of the Maryland General Corporation Law, with respect to any proceedings
against a present or former director, officer, agent or employee (a "corporate representative") of the
Registrant, the Registrant may indemnify the corporate representative against judgments, fines, penalties,
and amounts paid in settlement, and against expenses, including attorneys' fees, if such expenses were
actually incurred by the corporate representative in connection with the proceeding, unless it is established
that:

(i)	The act or omission of the corporate representative was material to the matter giving rise to the
proceeding; and
	1. Was committed in bad faith; or
	2. Was the result of active and deliberate dishonesty; or

(ii) The corporate representative actually received an improper personal benefit in money,
property, or services; or

(iii) In the case of any criminal proceeding, the corporate representative had reasonable cause to
believe that the act or omission was unlawful.

If a proceeding is brought by or on behalf of the Registrant, however, the Registrant may not
indemnify a corporate representative who has been adjudged to be liable to the Registrant. Under the
Registrant's Articles of Incorporation and Bylaws, directors and officers of Registrant are entitled to
indemnification by the Registrant to the fullest extent permitted under Maryland law and the Investment
Company Act of 1940. Reference is made to Article VI, Section 7 of the Registrant's Articles of Incorporation,
Article 12 of Registrant's Bylaws and Section 2-418 of the Maryland General Corporation Law.

The Registrant has agreed to indemnify, defend and hold the Distributors, their officers and directors,
and any person who controls the Distributors within the meaning of Section 15 of the Securities Act of 1933,
free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost
of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection
therewith) which the Distributors, their officers, directors or any such controlling person may incur under the
Securities Act of 1933, or under common law or otherwise, arising out of or based upon any untrue statement
of a material fact contained in the Registrant's registration statement or prospectus or arising out of or based
upon any alleged omission to state a material fact required to be stated in either thereof or necessary to
make the statements in either thereof not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission made in conformity with
information furnished in writing by the Distributors to the Registrant for use in the Registrant's registration
statement or prospectus: provided, however, that this indemnity agreement, to the extent that it might require


indemnity of any person who is also an officer or director of the Registrant or who controls the Registrant
within the meaning of Section 15 of the Securities Act of 1933, shall not inure to the benefit of such officer,
director or controlling person unless a court of competent jurisdiction shall determine, or it shall have been
determined by controlling precedent that such result would not be against public policy as expressed in the
Securities Act of 1933, and further provided, that in no event shall anything contained herein be so construed
as to protect the Distributors against any liability to the Registrant or to its security holders to which the
Distributors would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence, in
the performance of their duties, or by reason of their reckless disregard of their obligations under this
Agreement. The Registrant's agreement to indemnify the Distributors, their officers and directors and any
such controlling person as aforesaid is expressly conditioned upon the Registrant being promptly notified of
any action brought against the Distributors, their officers or directors, or any such controlling person, such
notification to be given by letter or telegram addressed to the Registrant.

	Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

Item 31.	Business or Other Connection of Investment Adviser

	Principal Management Corporation ("PMC") serves as investment adviser and administrator for
Principal Variable Contracts Funds, Inc. ("PVC") and Principal Funds, Inc. ("Principal Funds"). PVC and
Principal Funds are funds sponsored by Principal Life Insurance Company.

	A complete list of the officers and directors of the investment adviser, Principal Management
Corporation, are set out below. This list includes some of the same people (designated by an *), who serve
as officers and directors of the Registrant. For these people the information as set out in the Statement of
Additional Information (See Part B) under the caption "Directors and Officers of the Fund" is incorporated by
reference.


NAME &	COMPANY &
OFFICE WITH	PRINCIPAL
INVESTMENT	BUSINESS	NATURE OF
ADVISER	ADDRESS	RELATIONSHIP
Patricia A. Barry	Principal Life	Counsel
Assistant Corporate Secretary	Insurance Company (1)

*Craig L. Bassett	Principal Life	See Part B
Treasurer	Insurance Company (1)

*Michael J. Beer	Principal Life	See Part B
Executive Vice President/	Insurance Company (1)
Chief Operating Officer, Director

Tracy W. Bollin	Principal Funds Distributor, Inc. (2)	Financial Controller
Financial Controller	and Princor Financial
	Services Corporation (1)

*David J. Brown	Principal Life	See Part B
Senior Vice President	Insurance Company (1)


*Jill R. Brown	Principal Funds	See Part B
Senior Vice President/	Distributor, Inc.(2)
Chief Financial Officer

David P. Desing	Principal Life	Assistant Treasurer
Assistant Treasurer	Insurance Company (1)

*Ralph C. Eucher	Principal Life	See Part B
Director	Insurance Company (1)

*Nora M. Everett	Principal Life	See Part B
President and Director	Insurance Company (1)

James W. Fennessey	Principal	Head of Investment
Vice President	Financial Advisors, Inc.(1)	Manager Research

Michael P. Finnegan	Principal Life	Chief Vice President -
Senior Vice President -	Insurance Company (1)	Investment Officer
Investment Services

Louis E. Flori	Principal Life	Vice President –
Vice President – Capital Markets	Insurance Company (1)	Capital Markets

*Stephen G. Gallaher	Principal Life	See Part B
Assistant General Counsel	Insurance Company (1)

*Ernest H. Gillum	Principal Life	See Part B
Vice President and Chief	Insurance Company (1)
Compliance Officer

Joyce N. Hoffman	Principal Life	Senior Vice President and
Senior Vice President and	Insurance Company (1)	Corporate Secretary
Corporate Secretary

*Patrick A. Kirchner	Principal Life	See Part B
Assistant General Counsel	Insurance Company (1)

Deanna L. Mankle	Principal Life	Assistant Treasurer
Assistant Treasurer	Insurance Company (1)

*Jennifer A. Mills	Principal Life	See Part B
Counsel	Insurance Company (1)

Mariateresa Monaco	Principal Life	Portfolio Manager
Vice President/Portfolio Management	Insurance Company (1)

*Layne A. Rasmussen	Principal Life	See Part B
Vice President and	Insurance Company (1)
Controller - Principal Funds

David L. Reichart	Princor	Head of Business
Senior Vice President	Financial Services	Development
	Corporation(1)

*Michael D. Roughton	Principal Life	See Part B
Senior Vice President and	Insurance Company (1)
Senior Securities Counsel


*Adam U. Shaikh	Principal Life	See Part B
Counsel	Insurance Company (1)

Mark A. Stark	Principal Life	Director
Vice President -	Insurance Company (1)	Investment Services
Investment Services

Randy L. Welch	Principal Life	Director
Vice President -	Insurance Company (1)	Investment Services
Investment Services

*Dan L. Westholm	Principal Life	See Part B
Director - Treasury	Insurance Company (1)

*Beth C. Wilson	Principal Life	See Part B
Vice President	Insurance Company (1)

Larry D. Zimpleman	Principal Life	President and Chief Executive
Chairman of the Board	Insurance Company (1)	Officer


(1)	711 High Street
	Des Moines, IA 50309

(2)	1100 Investment Boulevard, Ste 200
	El Dorado Hills, CA 95762


Item 32.	Principal Underwriters

(a) Principal Funds Distributor, Inc. ("PFD") act as principal underwriter for Principal Funds, Inc. and
Principal Variable Contracts Funds, Inc. PFD also serves as the principal underwriter for certain variable
contracts issued by Farmers New World Life Insurance Company through Farmers Variable Life
Separate Account A. PFD also serves as the principal underwriter for certain variable contracts issued by
AIG SunAmerica Life Assurance Company and First SunAmerica Life Insurance Company, through their
respective separate accounts.


(1)	(2)	(3)
	Positions and offices
Name and principal	with principal	Positions and Offices
business address	underwriter (PFD)	with the Fund
Lindsay L. Amadeo	Director - Marketing	None
The Principal	Communications
Financial Group(1)

Michael C. Anagnost	Vice President -	None
The Principal	Chief Technology Officer
Financial Group(1)

Phillip J. Barbaria	Chief Compliance Officer	None
Principal Funds
Distributor, Inc. (1)

Patricia A. Barry	Assistant Corporate	None
The Principal	Secretary
Financial Group(1)

Craig L. Bassett	Treasurer	Treasurer
The Principal
Financial Group(1)

Michael J. Beer	Executive Vice President	Executive Vice President
The Principal
Financial Group(1)


Lisa Bertholf	Director - Marketing	None
The Principal
Financial Group(1)

Tracy W. Bollin	Assistant Controller	None
The Principal
Financial Group(1)

David J. Brown	Senior Vice President	Chief Compliance Officer
The Principal
Financial Group(1)

Jill R. Brown	Director	Senior Vice President
The Principal	President and
Financial Group(1)	Chief Financial Officer

Bret J. Bussanmas	Vice President -	None
The Principal	Distribution
Financial Group(1)

P. Scott Cawley	Product Marketing Officer	None
The Principal
Financial Group(1)

Ralph C. Eucher	Chairman of the Board	Chairman of the Board and
The Principal		Chief Executive Officer
Financial Group(1)

Nora M. Everett	Director	President and Director
The Principal
Financial Group (1)

Cary Fuchs	Chief Operating Officer	Senior Vice President
Principal Funds		of Distribution
Distributor, Inc.(2)

Stephen G. Gallaher	Assistant General Counsel	Assistant Counsel
The Principal
Financial Group(1)

Eric W. Hays	Senior Vice President and	None
The Principal	Chief Information Officer
Financial Group(1)

Tim Hill	Vice President - Distribution	None
Principal Funds
Distributor, Inc.(1)

Joyce N. Hoffman	Senior Vice President and	None
The Principal	Corporate Secretary
Financial Group(1)

Daniel J. Houston	Director	None
The Principal
Financial Group(1)

Jennifer A. Mills	Counsel	Assistant Counsel
The Principal
Financial Group (1)


Timothy J. Minard	Director	None
The Principal
Financial Group(1)

Kevin J. Morris	Senior Vice President and	None
Principal Funds	Chief Marketing Officer
Distributor, Inc.(1)

David L. Reichart	Senior Vice President/Distribution	None
The Principal
Financial Group(1)

Michael D. Roughton	Senior Vice President/Counsel	Counsel
The Principal
Financial Group(1)

Paul Schieber	Regional Vice President	None
The Principal
Financial Group (1)

Adam U. Shaikh	Counsel	Assistant Counsel
The Principal
Financial Group(1)

Mark A. Stark	Vice President – Investor	None
The Principal	Services
Financial Group(1)


		(1)	1100 Investment Boulevard, Ste 200
			El Dorado Hills, CA 95762-5710
(c)	N/A.


Item 33.	Location of Accounts and Records

	All accounts, books or other documents of the Registrant are located at the offices of the Registrant
and its Investment Adviser in the Principal Life Insurance Company home office building, The Principal
Financial Group, Des Moines, Iowa 50392.

Item 34.	Management Services
	N/A.

Item 35.	Undertakings
	N/A.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant

has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, duly

authorized in the City of Des Moines and State of Iowa, on the 2nd day of March, 2010.

Principal Variable Contracts Funds, Inc.

(Registrant)

/s/ R. C. Eucher

R. C. Eucher

Chairman of the Board and

Chief Executive Officer

Attest:

/s/ Beth Wilson

Beth Wilson

Vice President and Secretary

Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.


Signature	Title	Date


/s/ R. C. Eucher		March 2, 2010
	Chairman of the Board
R. C. Eucher	and Chief Executive Officer
	(Principal Executive Officer)

/s/ L. A. Rasmussen		March 2, 2010
	Vice President, Controller
L. A. Rasmussen	and Chief Financial Officer
	(Principal Financial Officer and Controller)

/s/ N. M. Everett		March 2, 2010
	President and Director
N. M. Everett

/s/ M. J. Beer		March 2, 2010
	Executive Vice President
M. J. Beer

(E. Ballantine)*		March 2, 2010
	Director
E. Ballantine

(K. Blake)*		March 2, 2010
	Director
K. Blake

(C. Damos)*		March 2, 2010
	Director
C. Damos

(R. W. Gilbert)*		March 2, 2010
	Director
R. W. Gilbert

(M. A. Grimmett)*		March 2, 2010
	Director
M. A. Grimmett

(F. S. Hirsch)*		March 2, 2010
	Director
F. S. Hirsch

(W. C. Kimball)*		March 2, 2010
	Director
W. C. Kimball

(B. A. Lukavsky)*		March 2, 2010
	Director
B. A. Lukavsky


(W. G. Papesh)*		March 2, 2010
	Director
W. G. Papesh

(D. Pavelich)*		March 2, 2010
	Director
D. Pavelich


	/s/ M. J. Beer
*By
	M. J. Beer
	Executive Vice President

	* Pursuant to Powers of Attorney
	Previously filed on April 25, 2008