Principal Life Insurance Co Separate Account B · N-4/A · On 11/15/00

Filed On 11/15/00 5:17pm ET   ·   SEC Files 333-40254, 811-02091   ·   Accession Number 9713-0-500006

Pre-Effective Amendment to Registration Statement for a Separate Account (Unit Investment Trust)   ·   Form N-4
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: N-4/A       Principal Fva With Ppc Rider                         157±   477K 
 2: EX-99.B.3A  Distribution Agreement                                 3     10K 
 3: EX-99.10A   Consent of Ernst & Young Llp                           1      3K 

N-4/A   ·   Principal Fva With Ppc Rider
Document Table of Contents

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                                                      Registration No. 333-40254

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-4

 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

   Pre-Effective Amendment No. _____ __2__

  Post-Effective Amendment No. _____ _____

and/or

 REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

 Amendment No. ___ _____

(Check appropriate box or boxes)

 Principal Life Insurance Company Separate Account B
--------------------------------------------------------------------------------
(Exact Name of Registrant)

Principal Life Insurance Company
--------------------------------------------------------------------------------
 (Name of Depositor)

      The Principal Financial Group, Des Moines, Iowa              50392
--------------------------------------------------------------------------------
 (Address of Depositor's Principal Executive Offices)               (Zip Code)

Depositor's Telephone Number, including Area Code   (515) 248-3842              

M. D. Roughton, The Principal Financial Group, Des Moines, Iowa  50392      
--------------------------------------------------------------------------------
 (Name and Address of Agent for Service)

Approximate Date of Proposed Public Offering:  As soon as practicable 
after the effective date of the Registration Statement                

   Title of Securities Being Registered: Principal Flexible Variable Annuity
Contract with Purchase Payment Credit                                 

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 PRINCIPAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT B
PRINCIPAL FLEXIBLE VARIABLE ANNUITY CONTRACT
WITH PURCHASE PAYMENT CREDIT

Registration Statement on Form N-4
 Cross Reference Sheet

Form N-4 Item                                    Caption in Prospectus          

Part A                                                                          

1.   Cover Page                                Principal Flexible Variable  
                                       Annuity Contract with
                                         Purchase Payment Credit

2.   Definitions                               Glossary                     

 3.   Synopsis                                  Summary of Expense Information
Summary                                                           

4.   Condensed Financial                       Performance Calculation,     
Information                               Independent Auditors,   
                                      Financial Statements

5.   General Description of                    Summary, The Company, The    
Registrant                                Separate Account, Fixed 
                                                Account and DCA Plus Accounts,
                               Voting Rights

6.   Deductions                                Summary, Charges and         
                                         Deductions, Annual Fee,
                                             Mortality and Expense Risks
                                                 Charge, Purchase Payment Credit
                                              Rider Charge, Premium Taxes,
                                   Surrender Charge,
                                                Administrative Charge, Special
                                         Provisions for Group or
                                         Sponsored Arrangements,
                                     Distribution of the
                          Contract

7.   General Description of                    Summary, Investment Limita-  
       Variable Annuity Contract                 tions, Separate Account Invest-
                                          ment Options, Transfers,
                                         Surrenders, Charges and
                                               Deductions, Annuity Payments,
                                          Death Benefit, Free-Look
                                               Period, The Separate Account,
                                                 The Contract,To Buy a Contract,
                                          The Accumulation Period,
                                            General Provisions, Rights
                                          Reserved By The Company,

8.   Annuity Period                            The Accumulation Period, The 
                                        Annuity Payment Period

9.   Death Benefit                             Death Benefit, The           
                                          Accumulation Period, The
                                         Annuity Payment Period,
                                             Mortality and Expense Risks
                                             Charge,  Delay of Payments,
                                          Non-Qualified Contracts,
                                                 Required Distributions for Non-
                                               Qualified Contracts, IRA, SEP
                                               and Simple-IRA, Rollover IRAs

10.   Purchase and Contract Value               Summary, Free-Look Period,    
                                        The Contract, To Buy a
                                            Contract, The Accumulation
                                             Period, The Annuity Payment
                                          Period, Exchange Credit,
                                                Purchase Payment Credit Rider,
                                                 Delay of Payments, Distribution
                                 of the Contract

11.   Redemptions                               Summary, Annuity Payments,    
                                          The Accumulation Period,
                                         Charges and Deductions,
                                              Annual Fee, Purchase Payment
                                                Credit Rider Charge,  Delay of
                                                Payments, Contract Termination

12.   Taxes                                     Summary, Annuity Payments,    
                                      Federal Tax Matters,
                                          Non-Qualified Contracts,
                                            Required Distributions for
                                               Non-Qualified Contracts, IRA,
                                            SEP & Simple-IRA, Rollover
                                                IRAs, Withholding, Mutual Fund
                                 Diversification

13.   Legal Proceedings                         Legal Proceedings             

14.   Table of Contents of the                  Table of Contents of the      
Statement of Additional                   Statement of Additional 
Information                               Information             

Part B                                           Statement of Additional        
                             Information

                           Caption**

15.   Cover Page                                Principal Flexible            
                                                Variable Annuity Contract with
                                         Purchase Payment Credit

16.   Table of Contents                         Table of Contents             

17.   General Information and                   General Information and       
History                                   History                 

18.   Services                                  Independent Auditors**,       
                                      Independent Auditors

19.   Purchase of Securities                    Summary**, To Buy a Contract**
      Being Offered                             Distribution of the Contract**

20.   Underwriters                              Summary**, Distribution of the
                            Contract**

21.   Calculation of Performance                Calculation of Yield and      
Data                                      Total Return            

22.   Annuity Payments                          Annuity Payments**,           
                                     Delay of Payments**

23.   Financial Statements                      Financial Statements          

** Prospectus caption given where appropriate.                                  

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SUPPLEMENT DATED NOVEMBER 15, 2000
 TO THE PROSPECTUS FOR
 PRINCIPAL FLEXIBLE VARIABLE ANNUITY
 DATED NOVEMBER 15, 2000

This document is a supplement to the prospectus  dated November 15, 2000 for the
Principal Flexible Variable Annuity.  This supplement must be accompanied by the
prospectus.                                                                     

As described in the  prospectus,  if you purchase the Contract with the purchase
payment  credit rider,  we will add a credit to each  purchase  payment that you
make during the first Contract year. We have sought an order from the Securities
and  Exchange  Commission  (the "SEC") that will permit us, as  described in the
prospectus,  to take back all of the credit if you return your  Contract  during
the  examination  period.  Once the SEC grants the order,  we will take back the
credit as  described  in the  prospectus.  We expect that the SEC will grant the
order on November 28, 2000, although we cannot be sure that the SEC will do so. 

Until the SEC grants the order,  the special  rules  described  below will apply
regarding  the amount you will  receive  if you  return  the  Contract  with the
purchase payment credit rider during the examination period.  These rules do not
apply to a Contract without the purchase payment credit rider.                  

         If your Contract accumulated value has increased or stayed the same, we
         will refund your Contract  accumulated  value minus any credit but plus
         any purchase  payment credit rider charge that we deducted on or before
the date we receive your Contract.                            

         If your Contract  accumulated value has decreased,  we will refund your
         Contract  accumulated  value  minus any  credit  but plus any  purchase
         payment credit rider charge and plus any investment loss (including any
         charges  made  by  the  Mutual  Funds  in  which  you  have   invested)
     attributable to the credit as of the date we receive your Contract.

         This means you receive any gains, and we bear any losses,  attributable
to the credit during the examination period.                                    

         In those states that require it, we will refund the full amount of your
 purchase payment if it is more than the amount specified above.

         We will not assess a surrender  charge or an annual Contract fee if you
return the Contract during the examination period.                              

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 Flexible Variable Annuity

Issued by Principal Life Insurance Company (the "Company")

     This prospectus is dated November 15, 2000.

The  individual  deferred  annuity  contract  ("Contract")   described  in  this
prospectus is funded with the Principal Life Insurance  Company Separate Account
B  ("Separate  Account"),  dollar  cost  averaging  fixed  accounts  ("DCA  Plus
Accounts")  and a fixed account  ("Fixed  Account").  The assets of the Separate
Account Divisions  ("Divisions") are invested in a corresponding  Account of the
Principal  Variable  Contracts Fund, Inc., AIM V.I. Growth Fund, AIM V.I. Growth
and Income Fund, AIM V.I. Value Fund,  Fidelity Variable Insurance Products Fund
II  Contrafund  Portfolio,  Fidelity  Variable  Insurance  Products  Fund Growth
Portfolio and Janus Aspen Series - Service Shares  Aggressive  Growth  Portfolio
(the  "Funds").  The DCA Plus  Accounts and the Fixed  Account are a part of the
General Account of the Company.                                                 

This prospectus provides information about the Contract and the Separate Account
that you, as owner, should know before investing. It should be read and retained
for future reference.  Additional  information about the Contract is included in
the Statement of Additional  Information ("SAI"), dated November 15, 2000, which
has been filed with the Securities and Exchange  Commission (the "SEC"). The SAI
is a part of this prospectus.  The table of contents of the SAI is on page 46 of
this  prospectus.  You  may  obtain  a free  copy  of  the  SAI  by  writing  or
telephoning:                                                                    

 Principal Flexible Variable Annuity
Principal Financial Group         
P. O. Box 9382                    
Des Moines, Iowa 50306-9382       
Telephone: 1-800-852-4450         

An  investment in the Contract is not a deposit or obligation of any bank and is
not insured or guaranteed by any bank, the Federal Deposit Insurance Corporation
or any other government agency.                                                 

   As the owner of this Contract,  you may elect a purchase payment credit rider
   with an additional  charge and an associated  9-year surrender charge period.
   The  purchase  payment  credit rider is only  available  when the Contract is
   issued. The portions of this prospectus that specifically pertain to election
of the purchase payment credit rider are shown by gray boxes.             

   The charges used to recoup our expense of paying the purchase  payment credit
include the surrender charge and the purchase payment credit rider charge.

   The Contract is available with or without the purchase  payment credit rider.
   There may be  circumstances  where electing the purchase payment credit rider
   is not to your advantage. In certain circumstances,  the amount of the credit
   may be more than  offset by the  charges  associated  with it.  The  Contract
   without the purchase  payment  credit rider has  surrender  charges and total
   Separate  Account annual  expenses that may be lower than the charges for the
   Contract with the purchase payment credit rider. You should consult with your
   sales  representative  to  decide if the  purchase  payment  credit  rider is
   suitable.  In making this  determination,  you and your sales  representative
should consider the following  factors:                                   
o    the length of time you plan to own the Contract;                           
o    the frequency, amount and timing of any partial surrenders; and            
o    the amount and timing of your purchase payment(s).                         
Additionally,  if you  decide to return  the  Contract  during  the  examination
period,  we will recover the  original  purchase  payment  credit  amount.  As a
result,  if the value of the purchase  payment  credit has  declined  during the
examination  period,  then we still  recover  the full  amount  of the  purchase
payment credit.                                                                 

The  Contract  provides  an  exchange  credit  that  is  available  to  eligible
purchasers (see Replacement Contracts - Exchange Credit). The exchange credit is
paid for by a  reduction  in  sales  commissions  for  Contracts  sold  with the
exchange credit.  Sales commissions are paid by Contract charges and deductions.
The charges and deductions are neither  proportionally reduced nor increased for
Contracts sold with the exchange credit.                                        

These  securities  have not been approved or  disapproved  by the Securities and
Exchange  Commission or any state  securities  commission nor has the Securities
and  Exchange  Commission  or any state  securities  commission  passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.                                                               

This prospectus is valid only when  accompanied by the current  prospectuses for
the Funds. These prospectuses should be kept for future reference.              

 TABLE OF CONTENTS

              GLOSSARY ....................................................    4
              SUMMARY OF EXPENSE INFORMATION...............................    6
              SUMMARY  ....................................................   10
                  Investment Limitations...................................   10
                  Separate Account Investment Options......................   10
                  Transfers................................................   11
                  Surrenders...............................................   11
                  Charges and Deductions...................................   11
                  Annuity Payments.........................................   12
                  Death Benefit............................................   12
                  Examination Period (Free-Look)...........................   12
              CONDENSED FINANCIAL INFORMATION..............................   13
              THE PRINCIPAL FLEXIBLE VARIABLE ANNUITY......................   16
              THE COMPANY..................................................   16
              THE SEPARATE ACCOUNT.........................................   16
              THE UNDERLYING MUTUAL FUNDS..................................   16
              SURPLUS DISTRIBUTIONS........................................   21
              THE CONTRACT.................................................   21
                  To Buy a Contract........................................   21
              Purchase Payments............................................   21
                  Right to Examine the Contract (Free-Look)................   22
                  Replacement Contracts....................................   22
                  Purchase Payment Credit Rider............................   23
                  The Accumulation Period..................................   25
                  Automatic Portfolio Rebalancing (APR)....................   27
                  Telephone Services.......................................   27
                  Direct Dial..............................................   27
                  Internet.................................................   28
                  Surrenders...............................................   28
                  Death Benefit............................................   29
                  The Annuity Payment Period...............................   30
              CHARGES AND DEDUCTIONS.......................................   32
                  Annual Fee...............................................   32
                  Mortality and Expense Risks Charge.......................   33
                  Purchase Payment Credit..................................   33
                  Transaction Fee..........................................   33
                  Premium Taxes............................................   33
                  Surrender Charge.........................................   34
                  Free Surrender Privilege.................................   35
                  Administration Charge....................................   36
                  Special Provisions for Group or Sponsored Arrangements...   36
              FIXED ACCOUNT AND DCA PLUS ACCOUNTS..........................   36
                  Fixed Account............................................   36
              Fixed Account Accumulated Value..............................   37
                  Fixed Account Transfers, Total and Partial Surrenders....   37
                  Dollar Cost Averaging Plus Program (DCA Plus Program)....   38
              GENERAL PROVISIONS...........................................   39
                  The Contract.............................................   39
                  Delay of Payments........................................   39
                  Misstatement of Age or Gender............................   39
                  Assignment...............................................   39
                  Change of Owner..........................................   39
                  Beneficiary..............................................   40
                  Contract Termination.....................................   40
                  Reinstatement............................................   40
                  Reports..................................................   40
              RIGHTS RESERVED BY THE COMPANY...............................   40
              DISTRIBUTION OF THE CONTRACT.................................   41
              PERFORMANCE CALCULATION......................................   41
              VOTING RIGHTS................................................   41
              FEDERAL TAX MATTERS..........................................   42
                  Non-Qualified Contracts..................................   42
                  Required Distributions for Non-Qualified Contracts.......   43
                  IRA, SEP and SIMPLE-IRA..................................   43
                  Rollover IRAs............................................   44
                  Withholding..............................................   44
              MUTUAL FUND DIVERSIFICATION..................................   44
              STATE REGULATION.............................................   45
              LEGAL OPINIONS...............................................   45
              LEGAL PROCEEDINGS............................................   45
              REGISTRATION STATEMENT.......................................   45
              OTHER VARIABLE ANNUITY CONTRACTS.............................   45
              INDEPENDENT AUDITORS.........................................   45
              FINANCIAL STATEMENTS.........................................   45
              CUSTOMER INQUIRIES...........................................   46
              TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.   46

              The Contract  offered by this  prospectus  may not be available in
              all  states.   This  prospectus  is  not  an  offer  to  sell,  or
              solicitation  of an offer to buy,  the Contract in states in which
              the offer or  solicitation  may not be lawfully made. No person is
              authorized to give any  information or to make any  representation
              in  connection  with this Contract  other than those  contained in
this prospectus.                                    

GLOSSARY                                                                        

Accumulated  value - an amount equal to the DCA Plus  Account(s)  value plus the
Fixed Account value plus the Separate Account value.                            

Anniversary - the same date and month of each year following the Contract date. 

Annuitant - the person, including any joint annuitant, on whose life the annuity
payment is based. This person may or may not be the owner.                      

Annuity payment date - the date the owner's accumulated value is applied,  under
an annuity payment option, to make income payments. (Referred to in the Contract
as "Retirement Date.")                                                          

Contract  date - the date  that the  Contract  is  issued  and  which is used to
determine Contract years.                                                       

Contract  year - the one-year  period  beginning on the Contract date and ending
one day before the  Contract  anniversary  and any  subsequent  one-year  period
beginning on a Contract anniversary. (e.g. If the contract date is June 5, 2000,
the first Contract year ends on June 4, 2001, and the first Contract anniversary
falls on June 5, 2001.)                                                         

Dollar  Cost  Averaging  Plus  (DCA  Plus)  Account  - an  account  which  earns
guaranteed interest for a specific amount of time.  (Referred to in the Contract
as "Fixed DCA Account.")                                                        

Dollar Cost  Averaging  Plus (DCA Plus)  accumulated  value - the amount of your
accumulated value which is in the DCA Plus Account(s).                          

Dollar Cost Averaging Plus (DCA Plus) Program - a program through which purchase
payments are  transferred  from a DCA Plus Account to the  Divisions  and/or the
Fixed Account over a specified  period of time.  (Referred to in the Contract as
"Fixed DCA Account.")                                                           

Fixed Account - an account which earns guaranteed interest.                     

Fixed Account  accumulated value - the amount of your accumulated value which is
in the Fixed Account.                                                           

Investment  Options - the DCA Plus Accounts,  Fixed Account and Separate Account
Divisions.                                                                      

Joint  annuitant - additional  annuitant.  Joint  annuitants must be husband and
wife and must be named as owner and joint owner.                                

Joint  owner  - an  owner  who has an  undivided  interest  with  the  right  of
survivorship  in this Contract with another owner.  Joint owners must be husband
and wife and must be named as annuitant and joint annuitant.                    

Mutual Fund - a registered open-end  investment  company,  including a series or
portfolio thereof, in which a Division invests.                                 

Non-Qualified  Contract - a Contract  which does not qualify for  favorable  tax
treatment as a Qualified Plan, Individual Retirement Annuity, Roth IRA, SEP IRA,
Simple-IRA or Tax Sheltered Annuity.                                            

Notice  - any form of  written  communication  received  by us,  at the  annuity
service office, P.O. Box 9382, Des Moines,  Iowa 50306-9382,  or in another form
approved by us in advance.                                                      

Owner  - the  person,  including  joint  owner,  who  owns  all the  rights  and
privileges of this Contract.                                                    

Purchase payments - the gross amount contributed to the Contract.               

Qualified Plans - retirement  plans which receive  favorable tax treatment under
Section 401 or 403(a) of the Internal Revenue Code (the "Code").                

Separate Account  Division  (Division(s) )- a part of the Separate Account which
invests in shares of a Mutual Fund.  (Referred to in the marketing  materials as
"sub-accounts.")                                                                

Separate Account accumulated value - the amount of your accumulated value in all
Divisions.                                                                      

Surrender  charge - the charge  deducted upon certain partial or total surrender
of the Contract before the annuity payment date.                                

Surrender value - accumulated value less any applicable surrender charge, annual
fee, transaction fee and any premium or other taxes.                            

Unit - the accounting measure used to calculate the value of a Division prior to
annuity payment date.                                                           

Unit  value - a  measure  used to  determine  the  value of an  investment  in a
Division.                                                                       

Valuation date - each day the New York Stock Exchange ("NYSE") is open.         

Valuation  period - the period of time from one  determination of the value of a
unit of a Division to the next.  Each  valuation  period  begins at the close of
normal  trading on the NYSE,  generally  4:00 p.m. E.T. (3:00 p.m. C.T.) on each
valuation  date and ends at the close of normal  trading of the NYSE on the next
valuation date.                                                                 

You, Your - the owner of this Contract, including any joint owner.              

SUMMARY OF EXPENSE INFORMATION                                                  

The purpose of these tables is to assist you in understanding  the various costs
and expenses of the Contract. This information includes expenses of the Contract
as well as the Mutual  Funds but does not  include  any  premium  taxes that may
apply. For a more complete  description of the Contract expenses see CHARGES AND
DEDUCTIONS.                                                                     

Contract owner transaction expenses:                                            
o    There is no sales charge imposed on purchase payments.           
     o    Surrender  charge  without the  purchase  payment  credit  rider (as a
percentage of amounts surrendered):                         

Table of surrender charges without the purchase payment credit rider

 Number of completed Contract years        Surrender charge applied to all
   since each purchase payment             purchase payments received in
    was made                            that Contract year

0 (year of purchase payment)                       6%             
1                                                  6%             
2                                                  6%             
3                                                  5%             
4                                                  4%             
5                                                  3%             
6                                                  2%             
7 and later                                        0%             

     o    Surrender  charge  with  the  purchase  payment  credit  rider  (as  a
percentage of amounts surrendered):                         

Table of surrender charges with the purchase payment credit rider 

 Number of completed  Contract  years      Surrender charge applied to all
   since each purchase payment             purchase payments received in
    was made                            that Contract year

0 (year of purchase payment)                       8%             
1                                                  8%             
2                                                  8%             
3                                                  8%             
4                                                  7%             
5                                                  6%             
6                                                  5%             
7                                                  4%             
8                                                  3%             
9 and later                                        0%             

     o    Annual  Contract  fee--  the  lesser  of $30 or 2% of the  accumulated
value.                                                      
     o    Transaction  fee  (currently  not  assessed)  -- a $30  fee  for  each
          unscheduled  partial  surrender  after  the 12th  unscheduled  partial
surrender in a Contract year.                               
     o    Transaction  fee  (currently  not  assessed)  -- a $30  fee  for  each
          unscheduled transfer after the 12th unscheduled transfer in a Contract
year.                                                       

Separate Account  annual expenses (as a  percentage  of average  account  value)
   mortality and expense risks charge              1.25%
  other Separate  Account expenses                 .00
         total Separate Account annual expenses     1.25%*

   optional purchase payment credit rider charge   0.60%
total Separate Account annual expenses  
         with the purchase payment credit rider     1.85%*

               *    Currently,   the  administrative  charge  is  not  assessed.
                    However, if the entire  administrative  charge were imposed,
                    then the total Separate  Account  expenses would increase by
0.15% (1.40% and 2.00%, respectively).  

Annual  expenses of the Mutual Funds (as a percentage  of average net assets) as
of December 31, 1999:                                                           

                                                        [Enlarge/Download Table]

                                                   Management       Other   Rule 12(b)1  Total Annual Expenses
                 Mutual Fund                          Fees        Expenses     Fees        After Reimbursement

                                                                                                              

Principal Variable Contracts Fund, Inc.                                                                       
                                                                                                              
  Aggressive Growth                                   0.75%          0.02%      N/A               0.77%       
  Asset Allocation                                    0.80           0.05       N/A               0.85        
  Balanced                                            0.57           0.01       N/A               0.58        
  Bond                                                0.49           0.01       N/A               0.50        
  Capital Value                                       0.43(1)        0.00       N/A               0.43        
  Government Securities                               0.49           0.01       N/A               0.50        
  Growth                                              0.45(1)        0.00       N/A               0.45        
  International                                       0.73(1)        0.05       N/A               0.78        
  International Emerging Markets                      0.97           0.38       N/A               1.35(2)     
  International SmallCap                              1.20           0.12       N/A               1.32        
  LargeCap Growth                                     1.07           0.13       N/A               1.20(2)     
  LargeCap Growth Equity                              0.78           0.32       N/A               1.10(2)     
  LargeCap Stock Index                                0.35           0.14       N/A               0.40(2)     
  MicroCap                                            1.00           0.28       N/A               1.06(2)     
  MidCap                                              0.61           0.00       N/A               0.61        
  MidCap Growth                                       0.90           0.19       N/A               0.96(2)     
  MidCap Growth Equity                                0.78           0.32       N/A               1.10(2)     
  Money Market                                        0.50           0.02       N/A               0.52        
  Real Estate                                         0.90           0.09       N/A               0.99        
  SmallCap                                            0.85           0.06       N/A               0.91        
  SmallCap Growth                                     1.00           0.07       N/A               1.06(2)     
  SmallCap Value                                      1.10           0.34       N/A               1.16(2)     
  Utilities                                           0.60           0.04       N/A               0.64        

AIM V.I. Growth Fund                                  0.63           0.10       N/A               0.73        
AIM V.I. Growth and Income Fund                       0.61           0.16       N/A               0.77        
AIM V.I. Value Fund                                   0.61           0.15       N/A               0.76        
Fidelity Variable Insurance Products Fund II                                                                  
  Fidelity VIP II Contrafund Portfolio-Service Class  0.58           0.10    0.10%(3)             0.78(4)     
Fidelity Variable Insurance Products Fund                                                                     
  Fidelity VIP Growth Portfolio-Service Class         0.58           0.09    0.10(3)              0.77(4)     
Janus Aspen Series - Service Shares Aggressive                                                                
  Growth Portfolio                                    0.65           0.02    0.25(3)              0.92        

<FN>                                                                                                              
 (1)  As a result of a shareholder meeting the Account's management fee                                       
      was modified effective 1/1/2000.                                                                        

 (2)  If total annual  expenses  exceed the amount stated on the chart,                                       
      then the Manager has  voluntarily  agreed to reimburse  expenses.                                       
      Without the  reimbursement,  the total  annual  expenses for 2000                                       
      would be:                                                                                               
           International  Emerging  Markets   1.63%                                                           
           LargeCap Growth                    1.23%                                                           
           LargeCap  Growth Equity            1.32%                                                           
           LargeCap  Stock Index              0.49%                                                           
           MicroCap                           1.28%                                                           
           MidCap  Growth  Equity             1.32%                                                           
           MidCap  Growth                     1.09%                                                           
           SmallCap Growth                    1.07%                                                           
           SmallCap Value                     1.44%                                                           

 (3)  The  Company  and  Princor  Financial  Services  Corporation  may                                       
      receive  a  portion  of  the  Mutual  Fund  Annual  Expenses  for                                       
      recordkeeping, marketing and distribution services.                                                     

 (4)  Without  third party  payments  or  reductions  the Total  Annual                                       
      Expenses would have been:                                                                               

           Fidelity VIP II Contrafund Portfolio-Service Class     0.81%                                       
           Fidelity VIP Growth Portfolio-Service Class            0.79%                                       
</FN>                                                                                                              

Example:                                                                        

The  purpose of the  following  examples is to assist you in  understanding  the
various  costs and  expenses  that you, as a Contract  owner,  bear  directly or
indirectly. They reflect expenses of the Division as well as the expenses of the
Mutual  Fund in which the  Division  invests.  In certain  circumstances,  state
premium taxes also apply.                                                       

The  examples  should  not be  considered  representations  of  past  or  future
expenses. Actual expenses may be more or less than those shown.                 

If you surrender  your Contract at the end of the  applicable  time period,  you
would pay the following  expenses on a $1,000  investment.  The examples  assume
that your  investment has a 5% return each year and that current  expense levels
(and waivers and reimbursements, if any) continue.                              

                                                        [Enlarge/Download Table]

Separate Account Division         1 Year  1 Year  3 Years  3 Years  5 Years  5 Years  10 years  10 Years

                                                                                                        
 Aggressive Growth                 $83     $109   $119       $168    $145     $208      $238      $299  
 Asset Allocation                   83      109    121        170     149      212       247       307  
 Balanced                           81      107    113        163     136      199       218       280  
 Bond                               80      106    111        161     132      196       210       272  
 Capital Value                      79      106    109        159     128      192       202       265  
 Government Securities              80      106    111        161     132      196       210       272  
 Growth                             80      106    110        159     129      193       205       267  
 International                      83      109    119        169     146      209       239       300  
 International Emerging Markets     91      117    143        191     187      247       324       379  
 International SmallCap             88      114    135        183     172      233       294       351  
 LargeCap Growth                    87      113    132        181     168      229       285       342  
 LargeCap Growth Equity             88      114    135        183     172      233       294       351  
 LargeCap Stock Index*              85      111    125        174     156      218       261       320  
 MicroCap*                          87      113    134        182     170      231       290       347  
 MidCap                             81      107    114        164     137      201       222       283  
 MidCap Growth*                     86      112    128        177     161      223       271       329  
 MidCap Growth Equity               88      114    135        183     172      233       294       351  
 Money Market                       80      106    112        161     133      196       212       274  
 Real Estate                        85      111    125        174     156      218       261       320  
 SmallCap                           84      110    123        172     152      215       253       312  
 SmallCap Growth*                   85      111    128        176     160      222       269       328  
 SmallCap Value*                    89      115    138        186     178      239       306       362  
 Utilities                          81      108    115        165     139      202       225       286  
 AIM V.I. Growth                    82      108    118        167     143      206       234       295  
 AIM V.I. Growth and Income         83      109    119        168     145      208       238       299  
 AIM V.I. Value                     83      109    119        168     145      208       237       298  
 Fidelity VIP II Contrafund         83      109    119        169     146      209       239       300  
 Fidelity VIP Growth                83      109    119        168     145      208       238       299  
 Janus Aspen Aggressive Growth      84      110    123        172     153      215       254       313  
<FN>                                                                                                        
 *   After expense reimbursement                                                                        
</FN>                                                                                                        

If you elect to receive payments under an annuity payment option (referred to in
the Contract as "Benefit Option") at the end of the applicable time period or do
not surrender  your Contract,  you would pay the following  expenses on a $1,000
investment. The examples assume that your investment has a 5% annual return each
year and that current  expense levels (and waivers and  reimbursements,  if any)
continue.                                                                       

                                                        [Enlarge/Download Table]

Separate Account Division         1 Year  1 Year  3 Years  3 Years  5 Years  5 Years  10 years  10 Years

                                                                                                        
 Aggressive Growth                 $21      $27     $64      $82     $111      $141      $238     $299  
 Asset Allocation                   22       28      67       85      115       145       247      307  
 Balanced                           19       25      59       77      101       131       218      280  
 Bond                               18       24      56       74       97       127       210      272  
 Capital Value                      17       23      54       72       93       124       202      265  
 Government Securities              18       24      56       74       97       127       210      272  
 Growth                             18       24      55       73       94       125       205      267  
 International                      21       27      65       83      111       141       239      300  
 International Emerging Markets     29       35      90      108      154       182       324      379  
 International SmallCap             26       32      81       99      138       168       294      351  
 LargeCap Growth                    25       31      78       96      134       163       285      342  
 LargeCap Growth Equity             26       32      81       99      138       168       294      351  
 LargeCap Stock Index*              23       29      71       89      122       152       261      320  
 MicroCap*                          26       32      80       98      136       166       290      347  
 MidCap                             19       25      60       78      102       133       222      283  
 MidCap Growth*                     24       30      74       92      127       156       271      329  
 MidCap Growth Equity               26       32      81       99      138       168       294      351  
 Money Market                       18       24      57       75       98       128       212      274  
 Real Estate                        23       29      71       89      122       152       261      320  
 SmallCap                           22       28      69       87      118       148       253      312  
 SmallCap Growth*                   24       30      73       91      126       155       269      328  
 SmallCap Value*                    28       34      85      102      144       173       306      362  
 Utilities                          20       26      60       79      104       134       225      286  
 AIM V.I. Growth                    20       26      63       81      109       139       234      295  
 AIM V.I. Growth and Income         21       27      64       82      111       141       238      299  
 AIM V.I. Value                     21       27      64       82      110       140       237      298  
 Fidelity VIP II Contrafund         21       27      65       83      111       141       239      300  
 Fidelity VIP Growth                21       27      64       82      111       141       238      299  
 Janus Aspen Aggressive Growth      22       28      69       87      118       148       254      313  
<FN>                                                                                                        
 *   After expense reimbursement                                                                        
</FN>                                                                                                        

SUMMARY                                                                         

This prospectus  describes a flexible  variable  annuity offered by the Company.
The  Contract is  designed  to provide  individuals  with  retirement  benefits,
including (1)  Individual  Retirement  Annuity plans ("IRA  Plans"),  Simplified
Employee  Pension plans ("SEPs") and Savings  Incentive Match Plan for Employees
("SIMPLE")  IRAs adopted  according to Section 408 of the Internal  Revenue Code
(the "Code") and (2) non-qualified retirement programs.                         

This is a brief summary of the Contract's  features.  More detailed  information
follows later in this prospectus.                                               

Investment Limitations                                                          
o    Initial  purchase  payment  must  be  $2,500  or  more  for   non-qualified
retirement programs.                                                  
o    Initial purchase payment must be $1,000 for all other contracts.           
o    Each subsequent payment must be at least $100.                             
o    If you are a member of a retirement plan covering three or more persons and
     payments are made through an automatic investment program, then the initial
     and  subsequent  purchase  payments for the Contract  must average at least
$100 and not be less than $50.                                        

If purchase payments are not paid during two consecutive  calendar years and the
accumulated  value  or total  purchase  payments  less  partial  surrenders  and
applicable  surrender charges is less than $2,000,  then we reserve the right to
terminate a Contract and distribute the accumulated  value,  less any applicable
charges.                                                                        

Separate Account Investment Options (see THE UNDERLYING MUTUAL FUNDS):          

                                                        [Enlarge/Download Table]

          Division                          invests in:                              
                                                                                     
                                Principal Variable Contracts Fund, Inc.              
Aggressive Growth                  Aggressive Growth Account                         
Asset Allocation                   Asset Allocation Account                          
Balanced                           Balanced Account                                  
Bond                               Bond Account                                      
Capital Value                      Capital Value Account                             
Government Securities              Government Securities Account                     
Growth                             Growth Account                                    
International                      International Account                             
International Emerging Markets     International Emerging Markets Account            
International SmallCap             International SmallCap Account                    
LargeCap Growth                    LargeCap Growth Account                           
LargeCap Growth Equity             LargeCap Growth Equity Account                    
LargeCap Stock Index               LargeCap Stock Index Account                      
MicroCap                           MicroCap Account                                  
MidCap                             MidCap Account                                    
MidCap Growth                      MidCap Growth Account                             
MidCap Growth Equity               MidCap Growth Equity Account                      
Money Market                       Money Market Account                              
Real Estate                        Real Estate Account                               
SmallCap                           SmallCap Account                                  
SmallCap Growth                    SmallCap Growth Account                           
SmallCap Value                     SmallCap Value Account                            
Utilities                          Utilities Account                                 
AIM V.I. Growth                 AIM V.I. Growth Fund                                 
AIM V.I. Growth and Income      AIM V.I. Growth and Income Fund                      
AIM V.I. Value                  AIM V.I. Value Fund                                  
                                Fidelity Variable Insurance Products Fund II         
Fidelity VIP II Contrafund         Fidelity VIP II Contrafund Portfolio Service Class
                                Fidelity Variable Insurance Products Fund            
Fidelity VIP Growth                Fidelity VIP Growth Portfolio Service Class       
                                Janus Aspen Series -                                 
Janus Aspen Aggressive Growth      Service Shares Aggressive Growth Portfolio        

You may allocate your net premium  payments to Divisions,  the DCA Plus Accounts
and/or  the  Fixed  Account.  Not all  Divisions  or the DCA Plus  Accounts  are
available in all states. A current list of Divisions available in your state may
be obtained from a sales representative or our annuity service office.          

Each  Division  invests in shares of an  underlying  Mutual Fund.  More detailed
information  about  the  underlying  Mutual  Funds  may be found in the  current
prospectus for each underlying Mutual Fund.                                     

The underlying  Mutual Funds are NOT available to the general  public  directly.
The underlying Mutual Funds are available only as investment options in variable
life insurance  policies or variable annuity  contracts issued by life insurance
companies.  Some  of the  underlying  Mutual  Funds  have  been  established  by
investment  advisers that manage  publicly  traded  mutual funds having  similar
names and investment  objectives.  While some of the underlying Mutual Funds may
be similar to, and may in fact be modeled  after  publicly  traded mutual funds,
you  should  understand  that the  underlying  Mutual  Funds  are not  otherwise
directly  related  to  any  publicly  traded  mutual  fund.  Consequently,   the
investment  performance  of publicly  traded mutual funds and of any  underlying
Mutual Fund may differ substantially.                                           

Transfers (See SEPARATE ACCOUNT DIVISION  TRANSFERS and FIXED ACCOUNT TRANSFERS,
TOTAL AND PARTIAL SURRENDERS for additional restrictions.) This section does not
apply to transfers  under the DCA Plus Program (see SCHEDULED DCA PLUS TRANSFERS
and UNSCHEDULED DCA PLUS TRANSFERS).                                            
During the accumulation period:                                                 
o    a dollar amount or percentage of transfer must be specified;               
o    a transfer may occur on a scheduled or unscheduled basis; and              
o    transfers into DCA Plus Accounts are not permitted.                        
During the annuity  payment  period,  transfers  are not permitted (no transfers
once payments have begun).                                                      

Surrenders  (see  SURRENDERS  and FIXED  ACCOUNT  TRANSFERS,  TOTAL AND  PARTIAL
SURRENDERS and DCA PLUS SURRENDERS)                                             
During the accumulation  period:                                                
o    a dollar amount must be specified;                                         
o    surrendered amounts may be subject to surrender charge;                    
o    total surrenders may be subject to an annual Contract fee;                 
o    during a  Contract  year,  partial  surrenders  less  than  the  Contract's
     earnings or 10% of purchase payments are not subject to a surrender charge;
and                                                                   
o    withdrawals  before  age 59 1/2 may  involve  an income  tax  penalty  (see
FEDERAL TAX MATTERS).                                                 

Charges and Deductions                                                          
o    No sales charge on purchase payments.                                      
o    A  contingent  deferred  surrender  charge is imposed  on certain  total or
partial surrenders.                                                   
o    A mortality  and expense risks daily charge equal to 1.25% per year applies
to amounts in the Separate Account.                                   
o    If elected, a purchase payment credit rider daily charge equal to 0.60% per
     year  applies to amounts in the  Separate  Account.  The  purchase  payment
   credit rider charge terminates upon completion of your 8th Contract year.
o    Daily  Separate  Account  administration  charge is  currently  zero but we
reserve the right to assess a charge not to exceed 0.15% annually.    
o    Contracts with an accumulated  value of less than $30,000 are subject to an
     annual  Contract fee of the lesser of $30 or 2% of the  accumulated  value.
     Currently  we do not charge the  annual  fee if your  accumulated  value is
     $30,000 or more. If you own more than one Contract,  then all the Contracts
     you own or jointly own are aggregated,  on each Contract's anniversary,  to
determine if the $30,000 minimum has been met.                        
o    Certain  states and local  governments  impose a premium  tax.  The Company
     reserves the right to deduct the amount of the tax from  purchase  payments
or accumulated values.                                                

Annuity Payments                                                                
o    You may choose from several  fixed annuity  payment  options which start on
your selected annuity payment date.                                   
o    Payments  are made to the owner (or  beneficiary  depending  on the annuity
     payment  option   selected).   You  should   carefully   consider  the  tax
     implications  of each annuity  payment option (see ANNUITY  PAYMENT OPTIONS
and FEDERAL TAX MATTERS).                                             
o    Your Contract refers to annuity payments as "retirement benefit" payments. 

Death Benefit                                                                   
o    If the  annuitant  or owner dies before the annuity  payment  date,  then a
death benefit is payable to the beneficiary of the Contract.          
o    The death  benefit may be paid as either a single sum cash benefit or under
an annuity payment option (see DEATH BENEFIT).                        
o    If the  annuitant  dies on or after  the  annuity  payment  date,  then the
     beneficiary will receive only any continuing payments which may be provided
by the annuity payment option in effect.                              

Examination Period (Free-Look)                                                  
o    You may  return  the  Contract  during  the  examination  period  which  is
     generally 10 days from the date you receive the Contract.  The  examination
period may be longer in certain states.                               
o    We return all  purchase  payments if required  by state law.  Otherwise  we
return accumulated value.                                             
o    We recover the full amount of any purchase payment credit.                 

CONDENSED FINANCIAL INFORMATION                                                 

Financial  statements  are included in the Statement of Additional  Information.
Following are unit values for the Contract for the periods ended December 31.   

                                                        [Enlarge/Download Table]

                                                                                               Number of    
                                                 Accumulation Unit Value                  Accumulation Units
                                                                                              Outstanding   
                                    Beginning          End of       Percentage of Change     End of Period  
                                    of Period          Period         from Prior Period     (in thousands)  

Aggressive Growth Division                                                                                  
   Year Ended December 31                                                                                   
                                                                                                            
     1999                            $27.815          $38.363              37.92%               9,018       
     1998                             23.689           27.815              17.42                7,486       
     1997                             18.340           23.689              29.17                6,077       
     1996                             14.503           18.340              26.46                3,971       
     1995                             10.184           14.503              42.41                1,324       
   Period Ended December 31, 1994(1)  10.075           10.184               1.08                  362       

Asset Allocation Division                                                                                   
   Year Ended December 31                                                                                   
     1999                             16.690           19.696              18.01                3,913       
     1998                             15.478           16.690               7.83                3,762       
     1997                             13.260           15.478              16.73                3,134       
     1996                             11.891           13.260              11.51                2,264       
     1995                              9.978           11.891              19.17                  912       
   Period Ended December 31, 1994(1)  10.075            9.978              -0.96                  303       

Balanced Division                                                                                           
   Year Ended December 31                                                                                   
     1999                             17.647           17.846               1.13                9,103       
     1998                             15.966           17.647              10.53                8,903       
     1997                             13.708           15.966              16.47                6,717       
     1996                             12.270           13.708              11.72                4,661       
     1995                              9.972           12.270              23.04                1,373       
   Period Ended December 31, 1994(1)  10.266            9.972              -2.86                  370       

Bond Division                                                                                               
   Year Ended December 31                                                                                   
     1999                             14.260           13.718              -3.80                7,677       
     1998                             13.408           14.260               6.35                7,499       
     1997                             12.275           13.408               9.23                5,017       
     1996                             12.143           12.275               1.09                3,872       
     1995                             10.064           12.143              20.66                1,401       
   Period Ended December 31, 1994(1)  10.050           10.064               0.14                  301       

Capital Value Division                                                                                      
   Year Ended December 31                                                                                   
     1999                             23.156           21.888              -5.48               11,634       
     1998                             20.642           23.156              12.18               11,720       
     1997                             16.261           20.642              26.94                9,320       
     1996                             13.333           16.261              21.96                6,267       
     1995                             10.234           13.333              30.28                2,232       
   Period Ended December 31, 1994(1)  10.328           10.234              -0.91                  699       

Government Securities Division                                                                              
   Year Ended December 31                                                                                   
     1999                             13.954           13.741              -1.53                8,554       
     1998                             13.049           13.954               6.94                8,554       
     1997                             11.969           13.049               9.02                5,946       
     1996                             11.728           11.969               2.06                5,443       
     1995                              9.973           11.728              17.60                2,023       
   Period Ended December 31, 1994(1)  10.133            9.973              -1.93                  572       

Growth Division                                                                                             
   Year Ended December 31                                                                                   
     1999                            $21.657          $24.904              14.99%              10,999       
     1998                             18.070           21.657              19.85                9,863       
     1997                             14.411           18.070              25.39                7,898       
     1996                             12.970           14.411              11.11                6,089       
     1995                             10.454           12.970              24.07                2,619       
   Period Ended December 31, 1994(1)  10.336           10.454               1.14                  764       

International Division                                                                                      
   Year Ended December 31                                                                                   
     1999                             16.071           19.987              24.37                7,799       
     1998                             14.795           16.071               8.62                7,866       
     1997                             13.347           14.795              10.85                7,316       
     1996                             10.804           13.347              23.54                4,797       
     1995                              9.582           10.804              12.75                2,146       
   Period Ended December 31, 1994(1)   9.624            9.582              -0.43                  936       

International SmallCap Division                                                                             
   Year Ended December 31                                                                                   
     1999                              8.978           17.184              91.40                1,246       
   Period Ended December 31, 1998(2)  10.000            8.978             -10.22                  419       

LargeCap Stock Index Division(3)                                                                            
   Period Ended December 31, 1999(4)  10.000           10.956               9.56                2,314       

MicroCap Division                                                                                           
   Year Ended December 31                                                                                   
     1999                              8.106            7.920              -2.30                  244       
   Period Ended December 31, 1998(2)  10.000            8.106             -18.94                  141       

MidCap Division                                                                                             
   Year Ended December 31                                                                                   
     1999                             19.125           21.351              11.64                9,229       
     1998                             18.676           19.125               2.40               10,738       
     1997                             15.405           18.676              21.23                9,820       
     1996                             12.880           15.405              19.60                7,285       
     1995                             10.108           12.880              27.42                3,059       
   Period Ended December 31, 1994(1)  10.157           10.108              -0.48                  973       

MidCap Growth Division                                                                                      
   Year Ended December 31                                                                                   
     1999                              9.607           10.522               9.52                  746       
   Period Ended December 31, 1998(2)  10.000            9.607              -3.93                  352       

Money Market Division                                                                                       
   Year Ended December 31                                                                                   
     1999                             11.913           12.306               3.30                7,145       
     1998                             11.463           11.913               3.93                4,905       
     1997                             11.027           11.463               3.95                2,752       
     1996                             10.628           11.027               3.75                2,929       
     1995                             10.194           10.628               4.26                1,370       
   Period Ended December 31, 1994(1)  10.027           10.194               1.67                  702       

Real Estate Division                                                                                        
   Year Ended December 31                                                                                   
     1999                            $ 9.275          $ 8.750              -5.66%                 261       
   Period Ended December 31, 1998(2)  10.000            9.275              -7.25                  195       

SmallCap Division                                                                                           
   Year Ended December 31                                                                                   
     1999                              7.928           11.242              41.80                1,208       
   Period Ended December 31, 1998(2)  10.000            7.928             -20.72                  459       

SmallCap Growth Division                                                                                    
   Year Ended December 31                                                                                   
     1999                             10.179           19.672              93.26                1,388       
   Period Ended December 31, 1998(2)  10.000           10.179               1.79                  314       

SmallCap Value Division                                                                                     
   Year Ended December 31                                                                                   
     1999                              8.440           10.123              19.94                  536       
   Period Ended December 31, 1998(2)  10.000            8.440             -15.60                  306       

Utilities Division                                                                                          
   Year Ended December 31                                                                                   
     1999                             11.464           11.581               1.02                1,670       
   Period Ended December 31, 1998(2)  10.000           11.464              14.64                  639       

AIM V.I. Growth Division                                                                                    
   Period Ended December 31, 1999(4)  10.000           12.256              22.56                  968       

AIM V.I. Growth and Income Division                                                                         
   Period Ended December 31, 1999(4)  10.000           12.101              21.01                1,494       

AIM V.I. Value Division                                                                                     
   Period Ended December 31, 1999(4)  10.000           11.553              15.53                1,149       

Fidelity VIP II Contrafund Division                                                                         
   Period Ended December 31, 1999(4)  10.000           11.294              12.94                1,436       

Fidelity VIP Growth Division                                                                                
   Period Ended December 31, 1999(4)  10.000           12.108              21.08                1,441       

<FN>                                                                                                        
(1)  Commenced operations on June 16, 1994.                                                                 
(2)  Commenced operations on May 1, 1998.                                                                   
(3)  Formerly known as Stock Index 500 Division.                                                            
(4)  Commenced operations on July 30, 1999.                                                                 
</FN>                                                                                                       

THE PRINCIPAL FLEXIBLE VARIABLE ANNUITY                                         

The Principal Flexible Variable Annuity is significantly  different from a fixed
annuity.  As the owner of a variable annuity,  you assume the risk of investment
gain or loss (as to amounts in the Divisions) rather than the insurance company.
The Separate Account value under a variable annuity is not guaranteed and varies
with the investment performance of the underlying Mutual Funds.                 

Based on your  investment  objectives,  you direct the  allocation  of  purchase
payments and accumulated values.  There can be no assurance that your investment
objectives will be achieved.                                                    

THE COMPANY                                                                     

The Company is a stock life insurance company with its home office at: Principal
Financial Group,  Des Moines,  Iowa 50306. It is authorized to transact life and
annuity  business in all of the United States and the District of Columbia.  The
Company is a wholly owned subsidiary of Principal Financial Services, Inc.      

In 1879, the Company was incorporated  under Iowa law as a mutual life insurance
company  named  Bankers  Life  Association.  It changed its name to Bankers Life
Company in 1911 and then to Principal Mutual Life Insurance Company in 1986. The
name change to Principal Life Insurance Company and reorganization into a mutual
holding company structure took place in 1998.                                   

THE SEPARATE ACCOUNT                                                            

Separate  Account B was  established  under Iowa law on January 12, 1970. It was
registered  as a unit  investment  trust  with  the SEC on July 17,  1970.  This
registration  does not involve SEC  supervision of the investments or investment
policies of the Separate Account.                                               

The income, gains, and losses,  whether or not realized, of the Separate Account
are credited to or charged against the Separate  Account without regard to other
income, gains, or losses of the Company.  Obligations arising from the Contract,
including  the  promise  to  make  annuity   payments,   are  general  corporate
obligations of the Company.  However,  the Contract provides that the portion of
the Separate  Account's assets equal to the reserves and other liabilities under
the  Contract  are not  charged  with any  liabilities  arising out of any other
business of the Company.                                                        

The assets of each Division invest in a corresponding Mutual Fund. New Divisions
may be added  and made  available.  Divisions  may also be  eliminated  from the
Separate Account.                                                               

THE UNDERLYING MUTUAL FUNDS                                                     

The Principal  Variable  Contracts  Fund,  Inc., AIM V.I.  Growth Fund, AIM V.I.
Growth and Income Fund, AIM V.I. Value Fund, Fidelity Variable Insurance Product
Fund,  Fidelity  Variable  Insurance  Product Fund II and Janus Aspen Series are
Mutual Funds  registered  under the  Investment  Company Act of 1940 as open-end
investment  management  companies.  The  Mutual  Funds  provide  the  investment
vehicles for the Separate  Account.  A full description of the Mutual Funds, the
investment objectives, policies and restrictions, charges and expenses and other
operational  information are contained in the accompanying  prospectuses  (which
should be read  carefully  before  investing)  and the  Statement of  Additional
Information  ("SAI").  Additional copies of these documents are available from a
sales representative or our annuity service office.                             

Principal  Management  Corporation (the "Manager") serves as the manager for the
Principal  Variable  Contracts  Fund.  The  Manager is a  subsidiary  of Princor
Financial  Services  Corporation.  It has managed mutual funds since 1969. As of
June 30, 2000,  the funds it managed had assets of  approximately  $6.6 billion.
The Manager's address is Principal Financial Group, Des Moines, Iowa 50392-0200.

Some of the Principal  Variable  Contracts  Fund's Accounts are used to fund the
Company's  variable  life  insurance  contracts.  The  Board of  Directors  (the
"Board")  monitors  events  in order to  identify  any  material  irreconcilable
conflicts  between the  interests of the variable  annuity  contract  owners and
variable life insurance policyowners. The Board determines any responsive action
which may need to be taken. If it becomes  necessary for any Separate Account to
replace shares of any Division with an alternate  investment,  then the Division
may have to liquidate securities on a disadvantageous basis.                    

AIM Advisors,  Inc. (the advisor)  serves as the investment  advisor for the AIM
V.I.  Growth Fund, AIM V.I.  Growth and Income Fund and the AIM V.I. Value Fund.
The  advisor  is  located  at 11  Greenway  Plaza,  Suite  100,  Houston,  Texas
77046-1173.  The advisor  supervises  all aspects of the funds'  operations  and
provides  investment  advisory  services to the funds,  including  obtaining and
evaluating  economic,  statistical  and financial  information  to formulate and
implement investment programs for the funds.                                    

Fidelity  Investments  Institutional  Services,  Inc.  is the  manager  for  the
Fidelity  Insurance Products Fund and Fidelity Insurance Products Fund II. As of
December 31,  1999,  Fidelity had  approximately  $863 billion in  discretionary
assets under management. The manager is located at 82 Devonshire Street, Boston,
Massachusetts  02109.  As the manager,  Fidelity is responsible for choosing the
account investments and handling their business affairs.                        

Janus Capital  ("Janus") is the  investment  advisor for the Janus Aspen Series.
Janus is located at 100 Fillmore Street, Denver,  Colorado 80206-4928.  Janus is
responsible  for the  day-to-day  management of  investment  portfolio and other
business affairs of the portfolio.                                              

The Company  purchases and sells Mutual Fund shares for the Separate  Account at
their net asset value without any sales or redemption  charge.  Shares represent
interests in the Mutual Fund available for  investment by the Separate  Account.
Each  Mutual  Fund  corresponds  to one of the  Divisions.  The  assets  of each
Division are separate from the others. A Division's performance has no effect on
the investment performance of any other Division.                               

The following is a brief summary of the investment objectives of each Division: 

                                                        [Enlarge/Download Table]

Division              Division Invests In             Investment Advisor*               Investment Objective                        
--------              -------------------             ------------------                --------------------                        
                                                                                                                                    
Aggressive Growth     Principal Variable Contracts    Morgan Stanley Asset              to provide long-term capital appreciation   
                      Fund, Inc. - Aggressive Growth  Management through a              by investing primarily in growth-oriented   
                      Account                         sub-advisory agreement            common stocks of medium and large           
                                                                                        capitalization U.S. corporations and, to a  
                                                                                        limited extent, foreign corporations.       

Asset Allocation      Principal Variable Contracts    Morgan Stanley Asset              to generate a total investment return       
                      Fund, Inc. - Asset Allocation   Management through a              consistent with the preservation of capital.
                      Account                         sub-advisory agreement            The Account intends to pursue a flexible    
                                                                                        investment policy in seeking to achieve     
                                                                                        this investment objective.                  

Balanced              Principal Variable Contracts    Invista Capital Management, LLC   to generate a total return consisting of    
                      Fund, Inc. - Balanced Account   through a sub-advisory agreement  current income and capital appreciation     
                      (equity securities  portion)                                      while assuming reasonable risks in          
                      Balanced Account (fixed         Principal Capital Income          furtherance of this objective.              
                      securities portion)             Investors, LLC through a                                                      
                                                      sub-advisory agreement                                                        

Bond                  Principal Variable Contracts    Principal Management Corporation  to provide as high a level of income as is  
                      Fund, Inc. - Bond Account                                         consistent with preservation of capital and 
                                                                                        prudent investment risk.                    

Capital Value         Principal Variable Contracts    Invista Capital Management, LLC   to provide long-term capital appreciation   
                      Fund, Inc. - Capital Value      through a sub-advisory agreement  and secondarily growth of investment        
                      Account                                                           income. The Account seeks to achieve its    
                                                                                        investment objectives through the purchase  
                                                                                        primarily of common stocks, but the Account 
                                                                                        may invest in other securities.             

Government Securities Principal Variable Contracts    Principal Capital Income          to seek a high level of current income,     
                      Fund, Inc. - Government         Investors, LLC through a          liquidity and safety of principal. The      
                      Securities Account              sub-advisory agreement            Account seeks to achieve its objective      
                                                                                        through the purchase of obligations         
                                                                                        issued or guaranteed by the United States   
                                                                                        Government or its agencies, with            
                                                                                        emphasis on Government National             
                                                                                        Mortgage Association Certificates           
                                                                                        ("GNMA Certificates"). Account shares       
                                                                                        are not guaranteed by the United States     
                                                                                        Government.                                 

Growth                Principal Variable Contracts    Invista Capital Management, LLC   to seek growth of capital. The Account      
                      Fund, Inc. - Growth Account     through a sub-advisory agreement  seeks to achieve its objective through the  
                                                                                        purchase primarily of common stocks, but    
                                                                                        the Account may invest in other securities. 

International         Principal Variable Contracts    Invista Capital Management, LLC   to seek long-term growth of capital by      
                      Fund, Inc. - International      through a sub-advisory agreement  investing in a portfolio of equity          
                      Account                                                           securities domiciled in any of the nations  
                                                                                        of the world.                               

International         Principal Variable Contracts    Invista Capital Management, LLC   seeks to achieve long-term growth of capital
Emerging Markets      Fund, Inc. - International      through a sub-advisory agreement  by investing primarily in equity securities 
                      Emerging Account                                                  of issuers in emerging market countries.    

International         Principal Variable Contracts    Invista Capital Management, LLC   seeks long-term growth of capital. The      
SmallCap              Fund, Inc. - International      through a sub-advisory agreement  Account will attempt to achieve its         
                      SmallCap Account                                                  objective by investing primarily in equity  
                                                                                        securities of non-United States companies   
                                                                                        with comparatively smaller market           
                                                                                        capitalizations.                            

LargeCap Growth       Principal Variable Contracts    Janus Capital Management, LLC     seeks long-term growth of capital by        
                      Fund, Inc. - LargeCap Growth    through a sub-advisory agreement  investing in equity securities of growth    
                      Account                                                           companies with market capitalization of     
                                                                                        greater than $10 billion.                   

LargeCap Growth       Principal Variable Contracts    Duncan-Hurst Capital              seeks to achieve long-term growth of capital
Equity                Fund, Inc. - LargeCap Growth    Management, Inc.                  investing primarily in common stocks        
                      Equity Account                  through a sub-advisory agreement  of larger capitalization domestic companies.

LargeCap Stock Index  Principal Variable Contracts    Invista Capital Management, LLC   The Account attempts to mirror the          
                      Fund, Inc. - LargeCap Stock     through a sub-advisory agreement  investment results of the Standard &        
                      Index Account                                                     Poor's 500 Stock Index.                     

MicroCap              Principal Variable Contracts    Goldman Sachs Asset Management    seeks long-term growth of capital. The      
                      Fund, Inc. - MicroCap Account   through a sub-advisory agreement  Account will attempt to achieve its         
                                                                                        objective by investing primarily in value   
                                                                                        and growth oriented companies with          
                                                                                        small market capitalizations, generally     
                                                                                        less than $700 million.                     

MidCap                Principal Variable Contracts    Invista Capital Management, LLC   to achieve capital appreciation by          
                      Fund, Inc. - MidCap Account     through a sub-advisory agreement  investing primarily in securities of        
                                                                                        emerging and other growth-oriented          
                                                                                        companies.                                  

MidCap Growth         Principal Variable Contracts    Dreyfus Corporation through       seeks long-term growth of capital. The      
                      Fund, Inc. - MidCap Growth      a sub-advisory agreement          Account will attempt to achieve its         
                      Account                                                           objective by investing primarily in growth  
                                                                                        stocks of companies with market             
                                                                                        capitalizations in the $1 billion to $10    
                                                                                        billion range.                              

MidCap Growth         Principal Variable Contracts    Turner Investment Partners, Inc.  seeks to achieve long-term growth of        
Equity                Fund, Inc. - MidCap Growth      through a sub-advisory agreement  capital by investing primarily in medium    
Equity Account                                                                          capitalization of U.S. companies with       
                                                                                        strong earnings growth potential.           

Money Market          Principal Variable Contracts    Principal Management Corporation  to seek as high a level of current income   
                      Fund, Inc. - Money Market                                         available from short-term securities as is  
                      Account                                                           considered consistent with preservation of  
                                                                                        principal and maintenance of liquidity by   
                                                                                        investing all of its assets in a portfolio  
                                                                                        of  money  market instruments.              

Real Estate           Principal Variable Contracts    Principal Management Corporation  seeks to generate a high total return. The  
                      Fund, Inc. - Real Estate                                          Account will attempt to achieve its         
                      Account                                                           objective by investing primarily in equity  
                                                                                        securities of companies principally         
                                                                                        engaged in the real estate industry.        

SmallCap              Principal Variable Contracts    Invista Capital Management, LLC   seeks long-term growth of capital. The      
                      Fund, Inc. - SmallCap Account   through a sub-advisory agreement  Account will attempt to achieve its         
                                                                                        objective by investing primarily in equity  
                                                                                        securities of both growth and value         
                                                                                        oriented companies with comparatively       
                                                                                        smaller market capitalizations.             

SmallCap Growth       Principal Variable Contracts    Berger LLC through                seeks long-term growth of capital. The      
                      Fund, Inc. - SmallCap           a sub-advisory agreement          Account will attempt to achieve its         
                      Growth Account                                                    objective by investing primarily in equity  
                                                                                        securities of small growth companies with   
                                                                                        market capitalization of less than          
                                                                                        $1 billion.                                 

SmallCap Value        Principal Variable Contracts    J.P. Morgan Investment            seeks long-term growth of capital. The      
                      Fund, Inc. - SmallCap Value     Management Inc. through a         Account will attempt to achieve its         
                      Account                         sub-advisory agreement            objective by investing primarily in equity  
                                                                                        securities of small companies with value    
                                                                                        characteristics and market capitalizations  
                                                                                        of less than $1 billion.                    

Utilities             Principal Variable Contracts    Invista Capital Management, LLC   seeks to provide current income and long-   
                      Fund, Inc. - Utilities Account  through a sub-advisory agreement  term growth of income and capital. The      
                                                                                        Account will attempt to achieve its         
                                                                                        objective by investing  primarily in equity 
                                                                                        and fixed-income securities of companies    
                                                                                        in the public utilities industry.           

AIM V.I. Growth       AIM V.I. Growth Fund            AIM Advisors, Inc.                seeks growth of capital primarily by        
                                                                                        investing in seasoned and better capitalized
                                                                                        companies considered to have strong earnings
                                                                                        momentum.                                   

AIM V.I. Growth       AIM V.I. Growth                 AIM Advisors, Inc.                seeks growth of capital with a secondary    
and Income            and Income Fund                                                   objective of current income.                

AIM V.I. Value        AIM V.I. Value Fund             AIM Advisors, Inc.                seeks long-term growth of capital by        
                                                                                        investing primarily in equity securities    
                                                                                        judged by the fund's investment advisor to  
                                                                                        be undervalued relative to the investment   
                                                                                        advisor's appraisal of the current or       
                                                                                        projected earnings of the companies         
                                                                                        issuing the securities, or relative to      
                                                                                        current market values of assets owned by the
                                                                                        companies issuing the securities or relative
                                                                                        to the equity market generally. Income is a 
                                                                                        secondary objective.                        

Fidelity VIP II       Fidelity Variable Insurance     Fidelity Management               seeks long-term capital appreciation.       
Contrafund            Products Fund II                and Research Company                                                          
                      Fidelity VIP II                                                                                               
                      Contrafund Portfolio                                                                                          
                      Service Class                                                                                                 

Fidelity VIP Growth   Fidelity Variable Insurance     Fidelity Management               seeks to maximize total return by allocating
                      Products Fund                   and Research Company              its assets among stocks, bonds, short-term  
                      Fidelity VIP Growth                                               instruments, and other investments.         
                      Portfolio Service Class                                                                                       

Janus Aspen           Janus Aspen Series -            Janus Capital Corporation         seeks long-term growth of capital. It       
Aggressive Growth     Service Shares                                                    pursues its objective by investing primarily
                      Aggressive Growth                                                 in common stocks selected for their growth  
                      Portfolio                                                         potential, and normally invests at least 50%
                                                                                        of its equity assets in medium-sized        
                                                                                        companies. Medium-sized companies are those 
                                                                                        whose market capitalization falls within    
                                                                                        the range of companies in the S&P MidCap    
                                                                                        400 Index.                                  

<FN>                                                                                                                                
*    An Investment Advisor agrees to provide investment  advisory services for a                                                    
     specific  underlying  Mutual Fund or underlying  Mutual Fund  Account.  For                                                    
     these services, each Investment Advisor is paid a fee.                                                                         
</FN>                                                                                                                               

SURPLUS DISTRIBUTIONS                                                           

Divisible surplus  distributions  are not anticipated  because the Contracts are
not  expected  to result  in a  contribution  to the  divisible  surplus  of the
Company. However, if any divisible surplus distribution is made, then it will be
made to the owners in the form of cash.                                         

THE CONTRACT                                                                    

The following  descriptions  are based on provisions of the Contract  offered by
this  prospectus.  You  should  refer to the actual  Contract  and the terms and
limitations  of any  qualified  plan  which  is to be  funded  by the  Contract.
Qualified plans are subject to several  requirements  and limitations  which may
affect  the  terms of any  particular  Contract  or the  advisability  of taking
certain action permitted by the Contract.                                       

To Buy a Contract                                                               
If you  want to buy a  Contract,  you must  submit  an  application  and make an
initial purchase payment. If you are buying the Contract to fund a SIMPLE-IRA or
SEP,  an initial  purchase  payment is not  required at the time you send in the
application.  If the  application  is complete and the  Contract  applied for is
suitable,  the  Contract is issued  subject to  underwriting.  If the  completed
application  is  received  in proper  order,  the  initial  purchase  payment is
credited within two valuation days after the later of receipt of the application
or receipt of the initial purchase payment at the annuity service office. If the
initial  purchase  payment is not credited  within five  valuation  days,  it is
refunded unless we have received your permission to retain the purchase  payment
until we receive the information necessary to issue the Contract.               

The date the Contract is issued is the Contract  date.  The Contract date is the
date used to  determine  Contract  years,  regardless  of when the  Contract  is
delivered.                                                                      

Purchase Payments                                                               
o    The initial  purchase  payment  must be at least  $2,500 for  non-qualified
retirement programs.                                                  
o    All other initial purchase payments must be at least $1,000.               
o    If you are making  purchase  payments  through a payroll  deduction plan or
     through  a  bank  account  (or  similar  financial  institution)  under  an
     automated  investment  program,  then your initial and subsequent  purchase
payments must be at least $100.                                       
o    You may elect a purchase payment credit rider with an additional charge and
an associated 9-year surrender charge period.                         
o    All purchase payments are subject to a surrender charge period that begins 
from the Contract year each payment is received.                      
   o    If you do not elect the purchase payment credit rider, each purchase
payment is subject to a 7 year surrender charge period.     
    o    If you elect the purchase payment credit rider, each purchase payment
is subject to a 9 year surrender charge period.             
o    Subsequent payments must be at least $100 and can be made until the annuity
payment date.                                                         
o    If you are a member of a retirement  plan  covering  three or more persons,
     then the initial and  subsequent  purchase  payments for the Contract  must
average at least $100 and cannot be less than $50.                    
o    The total of all  purchase  payments  may not be  greater  than  $2,000,000
without our prior approval.                                           
o    In New Jersey  after the first  Contract  year,  purchase  payments  cannot
exceed $100,000 per Contract year.                                    

The Company reserves the right to:                                              
o    increase  the  minimum  amount for each  purchase  payment to not more than
$1,000; and                                                           
o    terminate* a Contract and send you the accumulated value if no premiums are
     paid during two consecutive  calendar years and the  accumulated  value (or
     total purchase  payments less partial  surrenders and applicable  surrender
charges) is less than $2,000.                                         
     *    The Company will first notify you of its intent to exercise this right
          and give you 60 days to  increase  the  accumulated  value to at least
$2,000.                                                     

Right to Examine the Contract (Free-Look)                                       
Under state law, you have the right to return the Contract for any reason during
the examination  period. The examination period is 10 days after the Contract is
delivered to you in all states, unless your Contract is issued in:              
a. California and you are age 60 and over (30 day examination period);
b. Colorado (15 day examination period); or                           
c. Idaho or North Dakota (20 day examination period).                 

Some states require us to return the initial purchase payment.  If your Contract
is issued in one of those states,  your initial purchase  payments are allocated
to the Money Market Division for 15 days (20 days for Contracts issued in Idaho)
after the Contract  date.  After the 15-day period (20 days in Idaho),  the then
current  value of the Money  Market  Division is  reallocated  according to your
allocation instructions. The states in which purchase payments are returned are:
Colorado              Kentucky             North Carolina   
Connecticut*          Louisiana            Oklahoma         
Georgia               Maryland             Rhode Island     
Hawaii                Michigan             South Carolina   
Idaho                 Missouri             Utah             
Indiana               Nebraska             Washington       

     *    Purchase  payments are  refunded if the Contract is canceled  prior to
its delivery, otherwise the accumulated value is refunded.  

If your  Contract  is issued in a state not  listed  above and if you return the
Contract during the examination period, you will receive the accumulated value. 

Additionally,  if you  decide to return  the  Contract  during  the  examination
period,  the amount  returned  is reduced  by any  credits.  If the value of the
purchase payment credit declines during the examination  period,  we recover the
full amount of the purchase payment credit.                                     

If you are purchasing this Contract to fund an IRA, Roth IRA,  Simple-IRA or SEP
IRA and you return it on or before the seventh day of the free-look period, then
we will return the greater of:                                                  
o    total purchase payments; or                                      
o    Contract accumulated value.                                      

To  return a  Contract  you must send it and a written  request  to the  annuity
service  office or to the sales  representative  who sold it to you  before  the
close of business  on the last day of the  examination  period.  If you send the
request (properly  addressed and postage prepaid) to the annuity service office,
the date of the  postmark is used to  determine  if the  examination  period has
expired.                                                                        

Replacement Contracts                                                           
If the purchase of this Contract is a replacement for another  annuity  contract
or a life insurance policy, different examination periods may apply. The Company
reserves  the right to keep the  initial  purchase  payment in the Money  Market
Division  longer  than 15 days to  correspond  to the  examination  periods of a
particular state's replacement requirements.                                    

Exchange Credit                                                       
     If you own a Single Premium  Deferred  Annuity ("SPDA") or a Single Premium
     Deferred  Annuity  Plus  ("SPDA+")  issued by us and are  within at least 8
     months of the 8th Contract  year,  then you may  transfer  the  accumulated
     value,  without  charge,  to the  Contract  described  in this  prospectus.
     Additionally,  we will add 1% of the current SPDA/SPDA+  surrender value to
     the  purchase  payment.  We reserve the right to change or  terminate  this
 program. Any changes or termination will follow at least 1 year notice.

     Both  SPDA  and  SPDA+  are  annuities   which  provide  a  fixed  rate  of
     accumulation.  This  Contract  varies with the  investment  experience  and
     objectives of the various  Divisions.  Thus, the value of your Contract may
increase or decrease with the investment holdings of the Divisions.   

     When making an exchange  decision,  the owner should  carefully  review the
     SPDA or  SPDA+  contract  and  this  prospectus  because  the  charges  and
     provisions of the contracts  differ. An existing SPDA or SPDA+ contract may
     be currently  eligible for waiver of surrender charge due to critical need,
     while similar riders may not be available under this Contract. Electing the
     exchange  credit does not result in additional  charges or deductions.  The
     charges and deductions  associated  with your Contract and any riders still
apply.                                                                

To complete a transfer to this Contract, send                           
1) a Contract application,                                              
2) a SPDA/SPDA+ surrender form,                                         
3) a replacement form (based on state written), and                     
4) an Annuity Exchange Request and Release Form.                        
    The exchange is effective when we receive the completed forms and accept the
    application. The transaction is valued at the end of the valuation period in
which we receive the necessary documents.                               

    (This  "exchange  credit"  is not  available  in New  York  and  may  not be
    available in other states as well.  Specific  information  is available from
    your   registered    representative    or   the   annuity   service   office
(1-800-852-4450)).                                                      

    The Exchange Credit is allocated among the Separate Account  Divisions,  the
    DCA Plus Account(s) or the Fixed Account in the same ratio as the allocation
    of the purchase payment. The credit is treated as earnings. The 1% credit is
    subject to a vesting  period.  Therefore,  the 1% credit is not  credited to
    your Contract until the examination period has expired. If you exercise your
    right to return the Contract during the examination  period, then the amount
    returned  is  the  original  amount  invested  (see  RIGHT  TO  EXAMINE  THE
CONTRACT).                                                              

Purchase Payment Credit Rider                                                   
You may elect a purchase payment credit rider at the time the Contract is issued
(may not be available in all states;  consult your sales  representative  or the
annuity service office for  availability).  If the purchase payment credit rider
is elected, then the following provisions apply to the Contract:                
o    A credit of 5% will be applied to purchase  payments  received  during your
     first Contract year. For example,  if you make purchase  payments  totaling
     $10,000 in your first  Contract year, a credit amount of $500 will be added
     to your  Contract  (5% x $10,000).  If an  additional  purchase  payment of
     $5,000 is made in your second  Contract year, then a credit is not added as
a result of the $5,000 purchase payment.                              
o    The credit is allocated among the Fixed Account and the Divisions according
to your then current purchase payment allocations.                    
o    If you exercise  your right to return the Contract  during the  examination
period, the amount returned to you is reduced by any credits.         
o    Credits are considered earnings under the Contract.                        
o    All purchase payments are subject to the 9-year surrender charge table (see
Surrender Charge).                                                    
o    The purchase  payment  credit rider may not be cancelled and the associated
9-year surrender charge period cannot be changed.                     
o    You may not participate in the DCA Plus Program.                           

The 0.60% purchase  payment  credit rider charge is assessed  against the entire
Separate  Account  accumulated  value for the first eight Contract years. If you
anticipate making additional purchase payments after the first Contract year you
should  carefully  examine the  purchase  payment  credit rider and consult your
sales representative regarding its desirability.                                

The following tables demonstrate hypothetical values. The first tables shows    
Contract accumulated values. The second table shows surrender values. The tables
are based on:                                                                   
o a $100,000  initial  purchase  payment and no additional  purchase payments;  
o the deduction of total Separate Account annual expenses of 1.85% (for the     
  first eight  Contract  years) annually for Contracts with the purchase payment
credit rider and 1.25% annually for Contracts  without the rider;           
o the deduction of Mutual Fund expenses equal to those calculated as of December
31, 1999;                                                                   
o purchase payment allocation among the Divisions proportionally equal to the   
allocation of the company's  total Separate  Account assets as of April 30, 
2000; and                                                                   
o 5% and 10% annual rates of return before charges.                             

                                                        [Enlarge/Download Table]

                               5% Annual Return                      10% Annual Return               
                    Contract                 Contract          Contract                  Contract    
               accumulated value        accumulated value  accumulated value        accumulated value
                     without                   with             without                    with      
                purchase payment         purchase payment   purchase payment         purchase payment
Contract Year     credit rider             credit rider       credit rider             credit rider  
                                                                                                     
     1             $103,138                  $107,648           $108,410                $113,151     
     2             $106,383                  $110,371           $117,553                $121,960     
     3             $109,731                  $113,164           $127,468                $131,455     
     4             $113,185                  $116,027           $138,219                $141,691     
     5             $116,747                  $118,964           $149,878                $152,723     
     6             $120,423                  $121,975           $162,521                $164,616     
     7             $124,214                  $125,062           $176,232                $177,435     
     8             $128,126                  $128,229           $191,099                $191,253     
     9             $132,161                  $132,265           $207,222                $207,385     
    10             $136,323                  $136,431           $224,705                $224,882     
    15             $159,196                  $159,322           $336,921                $337,186     
    20             $185,924                  $186,070           $505,220                $505,617     

                                                        [Enlarge/Download Table]

                              5% Annual Return                     10% Annual Return               
                Surrender value          Surrender value   Surrender value          Surrender value
                    without                    with            without                   with      
               purchase payment         purchase payment  purchase payment         purchase payment
Contract Year    credit rider             credit rider      credit rider             credit rider  
                                                                                                   

     1             $97,550                   $99,836          $102,505                $105,151     
     2            $100,600                  $102,371          $111,553                $113,960     
     3            $103,747                  $105,164          $121,468                $123,455     
     4            $108,185                  $108,027          $133,219                $133,691     
     5            $112,747                  $111,964          $145,878                $145,723     
     6            $117,423                  $115,975          $159,521                $158,616     
     7            $122,214                  $120,062          $174,232                $172,435     
     8            $128,126                  $124,229          $191,099                $187,253     
     9            $132,161                  $129,265          $207,222                $204,385     
    10            $136,323                  $136,431          $224,705                $224,882     
    15            $159,196                  $159,322          $336,921                $337,186     
    20            $185,924                  $186,070          $505,220                $505,617     

Based on the assumptions stated above, Contract accumulated value will generally
be higher for  Contracts  with the purchase  payment  credit rider than without,
regardless  of the rate of return.  In addition,  the higher the rate of return,
the more  advantageous  the  purchase  payment  credit rider  becomes.  However,
Contracts  with the purchase  payment credit rider are subject to both a greater
surrender  charge and a longer  surrender  charge period than  Contracts  issued
without the purchase  payment credit rider.  If you surrender your Contract with
the purchase  payment  credit rider while  subject to a surrender  charge,  your
Contract  surrender  value  may be less than a  Contract  without  the  purchase
payment credit rider.                                                           

The Accumulation Period                                                         
The Value of Your Contract                                            
     The value of your Contract is the total of the Separate  Account value plus
     the DCA Plus  Account(s)  value plus the Fixed Account value.  The DCA Plus
     Accounts  and Fixed  Account  are  described  in the section  titled  FIXED
ACCOUNT AND DCA PLUS ACCOUNTS.                                        

     There is no guaranteed  minimum  Separate Account value. Its value reflects
     the  investment  experience  of the  Divisions  that  you  choose.  It also
     reflects your purchase payments, partial surrenders,  surrender charges and
the Contract expenses deducted from the Separate Account.             

     The  Separate  Account  value  changes  from day to day.  To the extent the
     accumulated  value  is  allocated  to the  Separate  Account,  you bear the
     investment risk. At the end of any valuation period,  your Contract's value
in a Division  is:                                                    
o    the number of units you have in a Division multiplied by         
o    the value of a unit in the Division.                             

     The number of units is the total of units  purchased by  allocations to the
Division from:                                                        
o    your initial purchase payment;                                   
o    an exchange credit (if applicable);                              
o    subsequent investments;                                          
o    purchase payment credits; and                                    
     o    transfers  from  another  Division,  a DCA Plus  Account  or the Fixed
Account.                                                    
minus units sold:                                                     
o    for partial surrenders from the Division;                        
  o    as part of a transfer to another Division or the Fixed Account; and
o    to pay contract charges and fees.                                

Unit values are calculated each valuation date at the close of normal trading of
the NYSE  (generally  3:00 p.m.  Central Time). To calculate the unit value of a
Division,  the unit value from the previous  valuation date is multiplied by the
Division's net investment factor for the current valuation period. The number of
units does not change due to a change in unit value.                            

The net investment  factor  measures the  performance of each Division.  The net
investment factor for a valuation period is calculated as follows:              

          [{share  price (net asset value) of the underlying  Mutual Fund at the
end of the valuation period                                 
plus
          per share amount of any dividend* (or other distribution) made  by the
Mutual Fund during the valuation period}                    
divided by
          share price (net asset value) of the underlying Mutual Fund at the end
of the previous valuation period]                           
 minus
{total Separate Account annual expenses}                    

  *   When an investment owned by a Mutual Fund pays a dividend,
      the dividend  increases  the net asset value of a share of
      the Mutual Fund as of the date the  dividend is  recorded.
      As the  net  asset  value  of a  share  of a  Mutual  Fund
      increases,  the unit value of the  corresponding  Division
      also  reflects an  increase.  Payment of a dividend  under
      these  circumstances does not increase the number of units
you own in the Division.                            

The Separate Account charges are calculated by dividing the annual amount of the
charge by 365 and multiplying by the number of days in the valuation period.    

The Separate  Account charges and any taxes  (currently  none) are accrued daily
and are transferred from the Separate Account at the Company's discretion.      

Purchase Payments                                                     
     o    On your application, you direct your purchase payments to be allocated
to the Investment Options.                                  
o    Allocations may be in percentages.                               
o    Percentages must be in whole numbers and total 100%.             
     o    Subsequent  purchase payments are allocated  according to your current
allocation instructions.                                    
 o    Changes to the allocation instructions may be made without charge.
          o    A change  is  effective  on the next  valuation  period  after we
receive your new instructions.                    
       o    You can change the allocations and allocation instructions by:
1) mailing your instructions to us;                 
              2) calling us at 1-800-852-4450  (if telephone  privileges apply);
   3) faxing your instructions to us at 1-515-248-9800; or
4) visting www.principal.com.                       
     o    Changes to purchase  payment  allocations do not transfer any existing
Investment Option accumulated values.                       
     o    Purchase  payments  are  credited  on the  basis  of unit  value  next
determined after we receive a purchase payment.             

Separate Account Division Transfers                                   
     o   You may request an unscheduled  transfer or set up a scheduled transfer
         by sending us a written  request,  by telephoning if you have telephone
   privileges (1-800-852-4450) or sending us a fax (1-515-248-9800).
     o    You must specify the dollar amount or percentage to transfer from each
Division.                                                   
     o    The  minimum  amount is $100 or if the  Division's  value is less than
          $100, then 100% of the Division from which the transfer is being made.
     o    In states  where  allowed,  we  reserve  the right to reject  transfer
          instructions  from someone  providing them for multiple  Contracts for
which he or she is not the owner.                           
You may not make a transfer to the Fixed Account if:                  
     o    a transfer has been made from the Fixed  Account to a Division  within
six months; or                                              
     o    following the transfer,  the Fixed Account value would be greater than
$1,000,000 (without our prior approval).                    

Unscheduled Transfers                                                 
     o    You may make unscheduled Division transfers from a Division to another
Division or to the Fixed Account by:                        
1) mailing  your instructions to us;                
            2) calling us at 1-800-852-4450 (if telephone privileges apply);
       3) faxing  your instructions  to  us  at 1-515-248-9800; or
4) visting www.principal.com.                       
o    Transfers are not permitted into DCA Plus Accounts.              
     o    The  transfer  is made,  and values  determined,  as of the end of the
valuation period in which we receive your request.          

Scheduled  Transfers  (Dollar  Cost  Averaging)                       
o    You may elect to have transfers made on a scheduled basis.       
o    You must specify the dollar amount of the transfer.              
     o    You select the transfer  date (other than the 29th,  30th or 31st) and
        the transfer period (monthly, quarterly, semi-annually or annually).
     o    If the  selected  date  is  not a  valuation  date,  the  transfer  is
completed on the next valuation date.                       
o    Transfers are not permitted into DCA Plus Accounts.              
     o    If you want to stop a  scheduled  transfer,  then you must  provide us
notice prior to the date of the scheduled transfer.         
     o    Transfers  continue  until  your value in the  Division  is zero or we
receive notice to stop them.                                
     o    We  reserve  the right to limit the  number of  Divisions  from  which
          simultaneous transfers are made. In no event will it ever be less than
two.                                                        

Automatic Portfolio Rebalancing (APR)                                           
o    APR allows you to maintain a specific  percentage of your Separate  Account
accumulated value in specified Divisions over time.                   
o    You may elect APR at any time.                                             
o    APR is not  available  for  values  in the  Fixed  Account  or the DCA Plus
Accounts.                                                             
o    APR is not available if you have arranged scheduled transfers from the same
Division.                                                             
o    APR will not begin until the examination period has expired.               
o    There is no charge for APR transfers.                                      
o    APR can be selected for quarterly, semi-annual or annual rebalancing.      
o    You may rebalance by completing and submitting a form to us, by telephoning
     if  you  have  telephone   privileges   (1-800-852-4450)   or  faxing  your
     instructions to us  (1-515-248-9800).  (Divisions are rebalanced at the end
of the next valuation period following your request.)                 
Example:                                                              
     You elect APR to maintain your Separate Account  accumulated value with 50%
     in the A Division  and 50% in the B Division.  At the end of the  specified
     period, 60% of the values are in the A Division,  with the remaining 40% in
     the B  Division.  By  rebalancing,  units from the A Division  are sold and
     applied to the B Division so that 50% of the Separate  Account  accumulated
value is once again in each Division.                                 

Telephone  Services*  Telephone  services are permitted for:                    
o    purchase payment allocation changes;                                       
o    transfers; and                                                             
o    changes to APR.                                                            

Telephone  services are  available  for both you and your sales  representative.
Telephone  services may be declined on the  application  or at any later date by
providing us with written notice.  Telephone  services are used by calling us at
1-800-852-4450.                                                                 

Telephone  instructions  must be made while we are open for  business.  They are
effective  when  received  by us before the close of normal  trading of the NYSE
(generally 3 p.m.  Central  Time).  Requests  received  when we are not open for
business or after the NYSE closes its normal  trading  will be  effective on the
next valuation date.                                                            

Direct Dial*                                                                    
You may obtain  Contract  information  from our direct dial system  between 7:00
a.m. and 9:00 p.m.,  Central Time, Sunday through Friday,  and between 7:00 a.m.
and  4:00  p.m.,   Central   Time,  on  Saturday.   The   telephone   number  is
1-800-852-4450.                                                                 

Internet*                                                                       
Internet  access is  available  for both you and your  sales  representative  at
www.principal.com.  Internet  access may be declined on the  application or at a
later date by providing us with written notice.                                 

     *    Instructions  received via our telephone services,  direct dial system
          and  internet  are binding on both  owners if the  Contract is jointly
          owned.  Neither the Company nor the Separate  Account are  responsible
          for the  authenticity  of telephone  service,  direct dial or internet
          transaction  requests.  We  reserve  the  right  to  refuse  telephone
          service,  direct dial or internet transaction requests. You assume the
          risk of loss caused by fraudulent  telephone  service,  direct dial or
          internet  transactions we reasonably believe to be genuine.  We follow
          procedures in an attempt to assure genuine telephone  service,  direct
          dial or internet  transactions.  If these procedures are not followed,
          then we may be liable for loss caused by  unauthorized  or  fraudulent
          transactions.  The procedures may include recording  telephone service
          transactions, recording direct dial transactions,  requesting personal
          identification (name, daytime telephone number, social security number
          and/or birth date) and sending written confirmation to your address of
record.                                                     

We reserve the right to modify or terminate  telephone  service,  direct dial or
internet transaction procedures at any time.                                    

Surrenders                                                                      
Surrenders  result in the cancellation of units and your receipt of the canceled
unit values minus any applicable fee and surrender  charge.  Surrenders from the
Separate  Account are generally  paid within seven days of the effective date of
the request for  surrender  (or  earlier if required by law).  However,  certain
delays in payment are permitted (see DELAY OF PAYMENTS).  Surrenders  before age
59 1/2 may involve an income tax penalty  (see  FEDERAL TAX  MATTERS).  You must
send us a written request for any surrender.                                    

You may specify  surrender  allocation  percentages with each partial  surrender
request.  If you don't  provide us with specific  percentages,  we will use your
purchase payment allocation  percentages for the partial  surrender.  Surrenders
may be subject to a surrender charge (see SURRENDER CHARGE).                    

Total Surrender                                                       
     o    You may surrender the Contract at any time before the annuity  payment
date.                                                       
     o    You  receive  the cash  surrender  value  at the end of the  valuation
period during which we receive your surrender request.      
     o    The  cash  surrender  value  is  your  accumulated   value  minus  any
applicable fee and charge.                                  
     o    The  written  consent  of all  collateral  assignees  and  irrevocable
beneficiaries must be obtained prior to surrender.          
     o    We reserve the right to require you to return the Contract to us prior
          to making any  payment  though  this does not affect the amount of the
cash surrender value.                                       

Unscheduled Partial Surrender                                         
     o    Prior to the  annuity  payment  date and  during the  lifetime  of the
          Annuitant,  you may  surrender  a part  of the  accumulated  value  by
sending us a written request.                               
     o    You must specify the dollar amount of the surrender  (which must be at
least $100).                                                
     o    The surrender is effective at the end of the  valuation  period during
which we receive your written request for surrender.        
     o    The surrender is deducted from your  Investment  Options  according to
the surrender allocation percentages you specify.           
     o    If surrender  allocation  percentages  are not specified,  we use your
purchase payment allocation percentages.                    
     o    We surrender  units from your  Investment  Options to equal the dollar
          amount of the surrender  request plus any applicable  surrender charge
and fee.                                                    
     o    The accumulated value after the unscheduled  partial surrender must be
          equal to or greater  than  $5,000 (we  reserve the right to change the
          minimum  remaining  accumulated  value but it will not be greater than
$10,000).                                                   

Scheduled Partial Surrender                                           
     o    You may elect partial surrenders from any of the Investment Options on
a scheduled basis by sending us written notice.             
     o    Your  accumulated  value must be at least  $5,000  when the  scheduled
surrenders begin.                                           
     o    You may specify  monthly,  quarterly,  semi-annually  or annually  and
choose a surrender date (other than the 29th, 30th or 31st).
     o    If the  selected  date  is not a  valuation  date,  the  surrender  is
          completed on the next valuation date. o The surrenders  continue until
          your value in the  Division  is zero or we receive  written  notice to
stop them.                                                  

Death Benefit                                                                   
If you or the annuitant die before the annuity  payment date, then we will pay a
death benefit.  In the case of joint annuitants,  the death benefit is paid upon
death of the  first  annuitant.  If the  owner is not a  natural  person,  death
benefits are paid to the beneficiary(ies) upon the death of the annuitant.      

Before  the  annuity  payment  date,  you may give us written  instructions  for
payment under a death benefit  option.  If we do not receive your  instructions,
the death benefit is paid according to instructions  from the  beneficiary(ies).
You  name  the   beneficiary  or   beneficiaries   in  your   application.   The
beneficiary(ies)  receives  benefits  upon your  death.  Generally,  unless  the
beneficiary(ies)  elects  otherwise  we pay the death  benefit in a single  sum,
subject to proof of your death.                                                 

Unless  you have named an  irrevocable  beneficiary(ies),  you may  change  your
beneficiary by providing us with written  notice.  If a beneficiary  dies before
you, on your death we will make equal  payments to the  surviving  beneficiaries
unless you had  provided  us with other  written  instructions.  If none of your
beneficiaries  survive  you,  we will pay the death  benefit to your estate in a
lump sum.                                                                       

Upon death of the annuitant,  your  beneficiary  may elect to:                  
o    apply the death benefit under an annuity payment option; or                
o    receive the death benefit as a single payment.                             

No surrender charge applies when a death benefit is paid.                       

If you die before the annuitant  and your  beneficiary  is your spouse,  we will
continue  the  Contract  with your  spouse as the new owner  unless  your spouse
elects to receive the death benefit.                                            

If the owner or annuitant of a Contract, not issued as an IRA, Roth IRA, SEP IRA
or  Simple-IRA,  dies before the annuitant and before the annuity  payment date,
written  notice  of the  death  must  be  sent to us  promptly  so  distribution
arrangements can be made to avoid adverse tax consequences.                     

Standard Death Benefit                                                
The amount of the standard death benefit is the greatest of:          
     o    your  accumulated  value on the date we receive proof of death and all
required documents;                                         
     o    the total of purchase payments minus any partial surrenders,  fees and
          charges as of the date we receive all  required  documents  and notice
(including proof) of death; or                              
     o    the highest  accumulated value on any prior Contract  anniversary that
          is divisible equally by seven, plus any purchase payments and less any
          partial  surrenders (and surrender  charges  incurred) made after that
Contract anniversary.                                       

Annual Enhanced Death Benefit                                         
     This is an optional death benefit rider.  Under this rider, if the original
     annuitant  or owner dies before the annuity  payment  date,  then the death
benefit payable to the beneficiary is the greatest of:                
1)   the standard death benefit;                            
          2)   the annual  increasing death benefit,  based on purchase payments
               (accumulated  at 5% annually)  minus any surrenders and surrender
               charges  (accumulated  at 5%  annually)  until  the  later of the
               Contract  anniversary  after the  original  owner's  or  original
               annuitant's  75th birthday or five years from the effective  date
of the rider; or                                  
          3)   the highest accumulated value on a Contract anniversary, plus any
               subsequent  purchase  payments minus any surrenders and surrender
               charges,  until the Contract  anniversary  following the original
               owner's or original  annuitant's 75th birthday or five years from
    the effective date of the rider, whichever comes last.

     For  Contracts  issued  in New York - under  this  rider,  if the  original
     annuitant  or owner dies before the annuity  payment  date,  then the death
benefit payable to the beneficiary is the greater of:                 
1)   the standard death benefit; or                         
          2)   the highest accumulated value on a Contract anniversary until the
               Contract  anniversary  following the original owner's or original
               annuitant's  75th birthday or five years from the effective  date
of the rider, whichever comes last.               

Lock-In Feature                                             
          At the  later  of the  Contract  anniversary  following  the  original
          owner's or original  annuitant's 75th birthday  ("lock-in date"),  the
          death benefit  amount is locked-in.  After the lock-in date, the death
          benefit   increases  by  purchase   payments  (subject  to  applicable
          restrictions)  made after the lock-in date,  minus any  surrenders and
          surrender charges. However, because the death benefit is locked-in, it
          will only  decrease by  surrenders  and  surrender  charges.  Once the
          standard death benefit equals the annual enhanced death benefit,  then
          the annual enhanced death benefit and any associated charge terminate.
The standard death benefit then applies.                    

Termination                                                 
          You may terminate the annual  enhanced death benefit at anytime.  Once
          the  annual  enhanced  death  benefit  is  terminated,  it  cannot  be
reinstated (except in Florida).                             

          The annual cost of the rider is 0.20% of the annual  accumulated value
          (0.15% in New  York).  The  charge is equal to 0.05%  (0.0375%  in New
          York) of the average  accumulated  value during the calendar  quarter.
          The cost will be deducted throughout the redemption of units from your
          Contract's  accumulated  value in the same  proportion as the purchase
          payment  allocations  among the DCA Plus  Accounts,  Fixed Account and
          Separate  Account  Divisions.  If the  rider is  purchased  after  the
          beginning of a quarter,  then the charge is prorated  according to the
          number of days it is in effect during the quarter. Upon termination of
          the rider or upon  death,  you will be charged  based on the number of
          days it is in effect  during the quarter.  The enhanced  death benefit
          rider is only available at the time the Contract is issued. Thus, once
          a Contract has been purchased  without the rider,  it may not be added
at a later date.                                            

Payment of Death Benefit                                              
     The death  benefit is usually paid within seven days of our  receiving  all
     documents  (including proof of death) that we require to process the claim.
     Payment is made  according to benefit  instructions  provided by you.  Some
     states  require  this  payment  to be made in less than seven  days.  Under
     certain circumstances, this payment may be delayed (see DELAY OF PAYMENTS).
     We pay  interest  (at least 3% or as  required  by state  law) on the death
     benefit from the date we receive all required  documents  until  payment is
     made or until the death benefit is applied under an annuity payment option.

          NOTE:Proof  of  death   includes:   a   certified   copy  of  a  death
               certificate;  a  certified  copy  of a  court  order;  a  written
               statement by a medical doctor; or other proof satisfactory to us.

The Annuity Payment Period                                                      
Annuity Payment Date                                                  
     You may specify an annuity payment date in your application.  You may elect
     to receive  payments under an annuity payment option at any time. If you do
     not specify an annuity  payment date,  then the annuity payment date is the
     later of the older annuitant's 85th birthday or 10 years after issuance. If
     the  annuitant is living and the Contract is in force on that date, we will
     notify you to begin taking payments under the Contract.  You may not select
     an annuity  payment  date which is on or after the older  annuitant's  85th
     birthday or 10 years after the Contract date,  whichever is the later.  (No
later than age 88 in Pennsylvania or age 90 in New York.)             

     Depending on the type of annuity payment option selected, payments that are
     initiated either before or after the annuity payment date may be subject to
     penalty taxes (see FEDERAL TAX MATTERS). You should consider this carefully
when you select or change the annuity payment date.                   

     You may  change  the  annuity  payment  date with our prior  approval.  The
     request  must be in writing and  approved  before we issue a  supplementary
Contract which provides an annuity payment option.                    

Annuity Payment Options                                               
     We offer fixed annuity payments.  If, however, the accumulated value on the
     annuity  payment date is less than $5,000 or if the amount applied under an
     annuity payment option is less than the minimum  requirement we may pay out
     the entire amount. No surrender charge would be imposed. The Contract would
then be canceled.                                                     

     You may choose from several fixed annuity payment options. Payments will be
     made on the  frequency  you  choose.  You may  elect to have  your  annuity
     payments made on a monthly,  quarterly,  semiannual  or annual  basis.  The
     dollar  amount of the payments is specified for the entire  payment  period
     according  to the option  selected.  There is no right to make any total or
partial surrender after the annuity payments start.                   

The amount of the annuity payment depends on:                         
o    amount of accumulated value;                                     
o    annuity payment option selected; and                             
    o    age and gender of annuitant (unless fixed income option is selected).

     Annuity  payments  generally are higher for male annuitants than for female
     annuitants  with  an  otherwise   identical   Contract.   This  is  because
     statistically  females have longer life expectancies than males. In certain
     states,  this difference may not be taken into  consideration in fixing the
     payment amount.  Additionally,  Contracts with no gender  distinctions  are
     made available for certain employer-sponsored plans because under most such
plans, such Contract provisions are prohibited by law.                

     You may select an annuity payment option or change a previous  selection by
     written  request.  We must  receive  the  request on or before the  annuity
     payment date. If an annuity  payment  option is not selected,  then we will
     automatically  apply the Life Income with Payments  Guaranteed for a Period
     of 10 Years (see below).  If you designate joint  annuitants,  then payment
     will be made pursuant to a Joint and Full Survivor Life Income for a Period
     of 10 Years  (see  below).  Tax laws and  regulations  may  impose  further
restrictions on annuity payment options.                              

     Payments under the annuity  payment options are made as of the first day of
     each payment period  beginning with the annuity payment date. The available
annuity payment options are:                                          

          Fixed  Income.  Payments  of a fixed  amount or  payments  for a fixed
          period of at least  five  years  but not more than 30 years.  Payments
stop after all guaranteed payments are made.                

          Life  Income.  Payments  are made as of the first day of each  payment
          period during the annuitant's life,  starting with the annuity payment
          date.  No payments are made after the  annuitant  dies. It is possible
          that you would only  receive  one  payment  under  this  option if the
annuitant dies before the second payment is due.            

          Life Income with  Payments  Guaranteed  for a Period of 5 to 20 Years.
          Payments are made on the first day of each payment period beginning on
          the annuity  payment date.  Payments will continue until the annuitant
          dies. If the annuitant dies before all of the guaranteed payments have
          been  made,  then we will  continue  the  guaranteed  payments  to the
beneficiary.                                                

          Joint and Full  Survivor Life Income with  Payments  Guaranteed  for a
          Period of 10 Years.  Payments continue as long as either the annuitant
          or the joint  annuitant  is alive.  If both die before all  guaranteed
          payments have been made, the guaranteed remaining payments are made to
the beneficiary.                                            

          Joint and Two-thirds  Survivor Life Income.  Payments continue as long
          as either the annuitant or the joint annuitant is alive. If either the
          annuitant or joint annuitant dies,  payments  continue to the survivor
          at  two-thirds  the  original  amount.  Payments  stop  when  both the
          annuitant and joint  annuitant have died. It is possible that only one
          payment is made under this  option if both  annuitants  die before the
second payment is due.                                      

     Other annuity payment options may be available with our approval.

Death of Annuitant                                                    
     If the owner or annuitant dies during the annuity payment period, remaining
     payments are made to the beneficiary  throughout the guarantee  period,  if
     any,  or for the life of any  joint  annuitant,  if any.  In all  cases the
     person entitled to receive payments also receives any rights and privileges
under the annuity payment option.                                     

     The mortality  risk assumed by the Company is to make annuity  payments for
     the  full  life of all  annuitants  regardless  of how  long  they,  or any
     individual  annuitant,  might  live.  Mortality  risk does not apply to the
     Fixed Income option.  Annuity  payments are  determined in accordance  with
     annuity tables and other provisions contained in the Contract. This assures
     neither  an  annuitant's   own  longevity,   nor  an  improvement  in  life
     expectancy,  will have an adverse effect on the annuity  payments  received
     under this Contract.  The annuity payment tables contained in this Contract
     are  based  on the  Annuity  Mortality  1983  Table  a.  These  tables  are
guaranteed for the life of the Contract.                              

     If you own one or more qualified annuity  contracts,  in order to avoid tax
     penalties,  payments  from at least one of your  qualified  contracts  must
     start no later than April 1 following  the calendar  year in which you turn
     age 70 1/2. The required  minimum  payment is a  distribution  in equal (or
     substantially  equal) amounts over your life or over the joint lives of you
     and your  designated  beneficiary.  In addition,  payments  must be made at
     least once a year.  Tax  penalties  may also apply at your death on certain
     excess accumulations. You should consider potential tax penalties with your
     tax  advisor  when  selecting  an annuity  payment  option or taking  other
distributions from the Contract.                                      

     Additional rules apply to distributions under non-qualified  contracts (see
     REQUIRED DISTRIBUTIONS FOR NON-QUALIFIED CONTRACTS).  However, the rules do
     not apply to contracts issued in connection with IRAs, SEPs or SIMPLE-IRAs.

CHARGES AND DEDUCTIONS                                                          

An annual fee, a mortality and expense risks charge and in some  circumstances a
purchase credit rider charge are deducted under the Contract. A surrender charge
may also be deducted  from certain  surrenders  made before the annuity  payment
date. We reserve the right to assess a transaction  fee, state premium taxes and
a daily administration  charge. There are also deductions from and expenses paid
out of the assets of the Mutual Funds which are  described in the Mutual  Funds'
prospectuses.                                                                   

Annual Fee                                                                      
An annual fee exists which is the lesser of $30 or 2% of your accumulated  value
(subject to any applicable state law limitations).  The fee is deducted from the
DCA Plus Accounts,  Fixed Account or your interest in a Division,  whichever has
the greatest  value.  The fee is deducted on each contract  anniversary and upon
total  surrender of the  Contract.  This fee is currently  waived for  Contracts
having an  accumulated  value on the last day of the Contract year of $30,000 or
more. The aggregate value of multiple  Contracts owned, or jointly owned, by you
is used to attain the  $30,000  accumulated  value.  Aggregation  occurs on each
Contract's  anniversary.  The fee assists in covering  administrative costs. The
Company does not anticipate any profit from this fee.                           

The administrative costs include costs associated with:                         
o    issuing Contracts;                                                         
o    establishing and maintaining the records which relate to Contracts;        
o    making regulatory filings and furnishing confirmation notices;             
o    preparing,   distributing   and  tabulating   voting  materials  and  other
communications;                                                       
o    providing computer, actuarial and accounting services; and                 
o    processing Contract transactions.                                          

Mortality and Expense Risks Charge                                              
We assess each Division with a daily charge for mortality and expense risks. The
annual  rate of the  charge  is 1.25% of the  average  daily  net  assets of the
Separate  Account.  We agree not to increase this charge for the duration of the
Contract.  This charge is assessed only prior to the annuity  payment date. This
charge is assessed daily when the value of a unit is calculated.                

We have a mortality  risk in that we guarantee  payment of a death  benefit in a
single sum or under an annuity payment option. No surrender charge is imposed on
a death benefit payment which gives us an additional mortality risk.            

The expense risk that we assume is that the actual expenses  incurred in issuing
and  administering  the Contract  exceed the Contract  limits on  administrative
charges.                                                                        

If the mortality  and expense risks charge is not enough to cover the costs,  we
bear the loss. If the amount of mortality  and expense risks charge  deducted is
more than our  costs,  the excess is profit to the  Company.  We expect a profit
from the mortality and expense risks charge.                                    

Purchase Payment Credit                                                         
If you elect the purchase  payment  credit rider we assess each Division with an
additional  daily charge.  The annual rate of the charge is 0.60% of the average
daily net assets of the Separate  Account.  We agree not to increase this charge
for the duration of the Contract.  This charge is assessed  until  completion of
your 8th Contract year and only prior to the annuity  payment date.  This charge
is assessed daily when the value of a unit is calculated.                       

If the purchase  payment  credit rider charge is not enough to cover the cost of
the credit, we bear the loss. If the amount of the purchase payment credit rider
charge deducted is more than our costs, the excess is profit to the Company.  We
expect a profit from the purchase payment credit rider charge.                  

Transaction Fee                                                                 
We reserve  the right to charge a  transaction  fee of $30 that  applies to each
unscheduled  partial surrender after the 12th unscheduled partial surrender in a
Contract year. We also reserve the right to charge a $30 transaction fee on each
unscheduled  transfer  after the 12th such  transfer  in a  Contract  year.  The
transaction  fee would be deducted  from the DCA Plus  Accounts,  Fixed  Account
and/or  your  interest  in a Division  from which the amount is  surrendered  or
transferred, on a pro rata basis.                                               

Premium Taxes                                                                   
We reserve the right to deduct an amount to cover any premium  taxes  imposed by
states or other  jurisdictions.  Any  deduction  is made from  either a purchase
payment  when we  receive  it,  or the  accumulated  value  when you  request  a
surrender  (total or partial) or it is applied under an annuity  payment option.
Premium taxes range from 0% in most states to as high as 3.50%.                 

Surrender Charge                                                                
No sales  charge is  collected or deducted  when  purchase  payments are applied
under the Contract.  A surrender  charge is assessed on certain total or partial
surrenders.  The amounts we receive from the surrender  charge are used to cover
some  of the  expenses  of the  sale  of the  Contract  (commissions  and  other
promotional or distribution  expenses). If the surrender charge collected is not
enough to cover the actual  costs of  distribution,  the costs are paid from the
company's  General  Account  assets  which  includes  profit,  if any,  from the
mortality and expense risks charge.                                             

The surrender  charge for any total or partial  surrender is a percentage of the
purchase  payments  surrendered  which were  received by us during the  Contract
years prior to the surrender.  The applicable percentage which is applied to the
sum of the purchase payments paid during each Contract year is determined by the
following tables.                                                               

Surrender  Charge without the purchase  payment credit rider (as a percentage of
amounts surrendered)                                                            

Table of surrender charges without the purchase payment credit rider

 Number of completed Contract years        Surrender charge applied to all
   since each purchase payment             purchase payments received in
     was made                             that Contract year

0 (year of purchase payment)*                       6%            
1                                                   6%            
2                                                   6%            
3                                                   5%            
4                                                   4%            
5                                                   3%            
6                                                   2%            
7 and later                                         0%            

Surrender  Charge with the purchase  payment  credit  rider (as a percentage  of
amounts surrendered)                                                            

Table of surrender charges with the purchase payment credit rider 

 Number of completed  Contract  years      Surrender charge applied to all
   since each purchase payment             purchase payments received in
     was made                             that Contract year

0 (year of purchase payment)*                         8%          
1                                                     8%          
2                                                     8%          
3                                                     8%          
4                                                     7%          
5                                                     6%          
6                                                     5%          
7                                                     4%          
8                                                     3%          
9 and later                                           0%          

     *    Each purchase payment begins in year 0 for purposes of calculating the
          percentage  applied to that payment.  However,  purchase  payments are
          added  together  by Contract  year for  purposes  of  determining  the
          applicable  surrender charge percentage.  If your Contract year begins
          April 1 and  ends  March 31 the  following  year,  then  all  purchase
          payments  received during that period are considered to have been made
in that Contract year.                                      

For purpose of  calculating  surrender  charges,  we assume that  surrenders and
transfers are made in the  following  order:                                    
o    first from purchase payments no longer subject to a surrender charge;      
o    then from the free surrender privilege (first from the earnings,  then from
  the oldest purchase payments (first-in, first-out)) described below; and
o    then from purchase  payments  subject to a surrender  charge on a first-in,
first-out basis.                                                      

A surrender charge is not imposed in states where it is prohibited, including:  
o    New Jersey- no surrender  charge for total  surrender on or after the later
of the annuitant's 64th birthday or 4 years after the Contract date.  
o    Washington- no surrender  charge for total  surrender on or after the later
of the annuitant's 70th birthday or 10 years after the Contract date. 

Free Surrender Privilege                                                        
The free surrender privilege is an amount normally subject to a surrender charge
that may be surrendered  without a charge.  The free surrender  privilege is the
greater  of:                                                                    
o    earnings in the Contract  (earnings = accumulated value less  unsurrendered
purchase payments as of the surrender date); or                       
o    10% of the  purchase  payments  still  subject  to  the  surrender  charge,
  decreased by any partial surrenders since the last Contract anniversary.
The free  surrender  privilege  not used in a Contract  year is not added to the
free surrender privilege for any following Contract year(s).                    

Unscheduled partial surrenders of the free surrender privilege may be subject to
the transaction fee described above.                                            

Waiver of Surrender Charge                                            
The surrender charge does not apply to:                               
o    amounts applied under an annuity payment option; or              
     o    payment of any death benefit, however, the surrender charge does apply
          to  purchase  payments  made by a  surviving  spouse  after an owner's
death; or                                                   
     o    amounts distributed to satisfy the minimum distribution requirement of
          Section 401(a)9 of the Code provided that the amount  surrendered does
          not exceed  the  minimum  distribution  amount  which  would have been
calculated based on the value of this Contract alone; or    
     o    an amount  transferred from the Contract to a single premium immediate
          annuity  issued by the Company after the  surrender  charge period has
expired; or                                                 
     o    an amount  transferred  from a Contract used to fund an IRA to another
          annuity  contract  issued  by  the  Company  to  fund  an  IRA  of the
          participant's  spouse  when the  distribution  is made  pursuant  to a
divorce decree; or                                          
     o    if permitted by state law,  withdrawals  made after the first Contract
          anniversary if the original owner or original annuitant has a critical
need.                                                       

     Waiver  of the  surrender  charge is  available  for  critical  need if the
following  conditions are met:                                        
o    original owner or original annuitant has a critical need; and    
o    the critical need did not exist before the Contract date.        

For the purposes of this section, the following definitions apply:              
o    critical  need -  owner's  or  annuitant's  confinement  to a  health  care
     facility,  terminal illness diagnosis or total and permanent disability. If
     the critical need is confinement to a health care facility, the confinement
     must continue for at least 60 consecutive  days after the Contract date and
the surrender must occur within 90 days of the confinement's end.     
o    health care facility - a licensed  hospital or inpatient  nursing  facility
     providing  daily medical  treatment  and keeping daily medical  records for
     each patient (not primarily  providing just residency or retirement  care).
     This does not  include  a  facility  primarily  providing  drug or  alcohol
     treatment,  or a facility  owned or operated by the owner,  annuitant  or a
member of their immediate families.                                   
o    terminal  illness -  sickness  or injury  that  results  in the  owner's or
     annuitant's life expectancy being 12 months or less from the date notice to
receive a distribution from the Contract is received by the Company.  
o    total  and  permanent  disability  - a  disability  that  occurs  after the
     Contract date but before the original owner or annuitant reaches age 65 and
     qualifies to receive social security disability  benefits.  In New York and
     West  Virginia,  different  definitions  of total and permanent  disability
apply. Contact us at 1-800-852-4450 for additional information.       

This waiver of surrender  charge rider is not  available in  Massachusetts,  New
Jersey or  Pennsylvania.  In New York,  the rider only  applies if the  original
owner or original annuitant suffers a total and permanent  disability.  Specific
information is available from your sales  representative  or the annuity service
office (1-800-852-4450).                                                        

Administration Charge                                                           
We reserve the right to assess each  Division  with a daily charge at the annual
rate of 0.15% of the average daily net assets of the Division. This charge would
only be imposed before the annuity  payment date.  This charge would be assessed
to help cover administrative expenses.  Administrative expenses include the cost
of issuing the  Contract,  clerical,  recordkeeping  and  bookkeeping  services,
keeping the  required  financial  and  accounting  records,  communicating  with
Contract owners and making regulatory filings.                                  

Special Provisions for Group or Sponsored Arrangements                          
Wherepermitted by state law, Contracts may be purchased under group or sponsored
arrangements as well as on an individual basis.                                 
     Group  Arrangement  - program  under  which a trustee,  employer or similar
     entity  purchases  Contracts  covering  a group of  individuals  on a group
basis.                                                                
     Sponsored  Arrangement  - program  under  which an employer  permits  group
     solicitation of its employees or an association  permits group solicitation
of its members for the purchase of Contracts on an individual basis.  

The charges and  deductions  described  above may be reduced or  eliminated  for
Contracts issued in connection with group or sponsored  arrangements.  The rules
in effect at the time the  application  is approved will determine if reductions
apply. Reductions may include but are not limited to sales of Contracts without,
or with reduced,  mortality and expense risks charges,  annual fees or surrender
charges.                                                                        

Availability of the reduction and the size of the reduction (if any) is based on
certain criteria.                                                               

Eligibility for and the amount of these reductions are determined by a number of
factors,  including  the  number of  individuals  in the  group,  the  amount of
expected  purchase  payments,  total  assets under  management  for the Contract
owner,  the relationship  among the group's  members,  the purpose for which the
Contract is being purchased,  the expected persistency of the Contract,  and any
other circumstances which, in our opinion are rationally related to the expected
reduction  in  expenses.  Reductions  reflect  the  reduced  sales  efforts  and
administrative  costs  resulting  from  these  arrangements.  We may  modify the
criteria for and the amount of the reduction in the future.  Modifications  will
not unfairly discriminate against any person, including affected Contract owners
and other contract owners with contracts funded by the Separate Account.        

FIXED ACCOUNT AND DCA PLUS ACCOUNTS                                             

This  prospectus  is intended  to serve as a  disclosure  document  only for the
Contract  as it relates  to the  Separate  Account.  It only  contains  selected
information  regarding  the Fixed Account and DCA Plus  Accounts.  Assets in the
Fixed  Account  and DCA Plus  Accounts  are held in the  General  Account of the
Company.                                                                        

The General  Account is the assets of the Company other than those  allocated to
any of the Company's Separate  Accounts.  Subject to applicable law, the Company
has sole discretion over the assets in the General Account. Because of exemptive
and  exclusionary  provisions,  interests  in the  Fixed  Account  and DCA  Plus
Accounts are not  registered  under the  Securities  Act of 1933 and the General
Account is not registered as an investment  company under the Investment Company
Act of 1940.  The Fixed  Account and DCA Plus  Accounts are not subject to these
Acts. The staff of the SEC does not review the prospectus  disclosures  relating
to the Fixed  Account  or DCA Plus  Accounts.  However,  these  disclosures  are
subject to certain  generally  applicable  provisions of the federal  securities
laws  relating  to the  accuracy  and  completeness  of  statements  made in the
prospectus. Separate Account expenses are not assessed against any Fixed Account
or DCA Plus Account values.  More  information  concerning the Fixed Account and
DCA Plus Accounts is available  from our annuity  service office or from a sales
representative.                                                                 

Fixed Account                                                                   
The Company  guarantees  that purchase  payments  allocated to the Fixed Account
earn interest at a guaranteed  interest  rate.  In no event will the  guaranteed
interest rate be less than 3% compounded annually.                              

Each purchase payment allocated or amount transferred to the Fixed Account earns
interest  at the  guaranteed  rate  in  effect  on the  date it is  received  or
transferred.  This rate applies to each purchase  payment or amount  transferred
through the end of the Contract year.                                           

Each Contract anniversary, we declare a renewal interest rate that is guaranteed
and applies to the Fixed  Account  value in  existence  at that time.  This rate
applies  until  the end of the  Contract  year.  Interest  is  earned  daily and
compounded  annually  at the end of  each  Contract  year.  Once  credited,  the
interest is guaranteed and becomes part of the Fixed Account  accumulated  value
from which deductions for fees and charges may be made.                         

Fixed Account Accumulated Value                                                 
Your Fixed Account value on any valuation date is equal to:                     
o    purchase payments allocated to the Fixed Account;                          
o    plus any transfers to the Fixed  Account from the Separate  Account and DCA
Plus Accounts;                                                        
o    plus interest credited to the Fixed Account;                               
o    minus  any  surrenders  or  applicable  surrender  charges  from the  Fixed
Account;                                                              
o    minus any transfers to the Separate Account.                               

Fixed Account Transfers, Total and Partial Surrenders                           
Transfers  and  surrenders  from  the  Fixed  Account  are  subject  to  certain
limitations. In addition,  surrenders from the Fixed Account may be subject to a
charge (see SURRENDER CHARGE).                                                  

You may transfer  amounts  from the Fixed  Account to the  Divisions  before the
annuity  payment  date and as provided  below.  The transfer is effective on the
valuation  date  following our  receiving  your  instructions.  You may transfer
amounts  on  either a  scheduled  or  unscheduled  basis.  You may not make both
scheduled and unscheduled Fixed Account transfers in the same Contract year.    

Unscheduled Fixed Account Transfers                                   
     The minimum  transfer  amount is $100 (or entire Fixed Account  accumulated
     value if less  than  $100).  Once per  Contract  year,  within  the 30 days
following the Contract anniversary date, you can:                     
     1)   transfer an amount not to exceed 25% of your Fixed Account accumulated
value; or                                                   
2)   transfer up to 100% of your Fixed Account accumulated value if:  
o    your Fixed Account value is less than $1,000; o        
          o    the  renewal  interest  rate for your Fixed  Account  accumulated
               value for the current  Contract year is more than one  percentage
               point  lower than the  weighted  average  of your  Fixed  Account
               interest  rates for the preceding  Contract  year. We will inform
   you if the renewal interest rate falls to that level.

Scheduled Fixed Account Transfers                                     
Fixed Account Dollar Cost Averaging                                   
     You may make scheduled  transfers on a monthly basis from the Fixed Account
to the Separate Account as follows:                                   
     o    You may establish  scheduled transfers by sending a written request or
by telephoning the annuity service office at 1-800-852-4450.
     o    Transfers  occur on a date you specify  (other than the 29th,  30th or
31st of any month).                                         
     o    If the  selected  date  is  not a  valuation  date,  the  transfer  is
completed on the next valuation date.                       
     o    Scheduled   transfers   are  only   available  if  the  Fixed  Account
          accumulated  value  is  $5,000  or  more  at the  time  the  scheduled
transfers begin.                                            
     o    Scheduled  monthly  transfers  of an  amount  not to exceed 2% of your
          Fixed Account  accumulated value at the beginning of the Contract year
          or the  current  Fixed  Account  value will  continue  until the Fixed
     Account value is zero or until you notify us to discontinue them.
o    The minimum transfer amount is $100.                             
     o    If the Fixed Account  accumulated  value is less than $100 at the time
          of transfer,  then the entire Fixed Account  accumulated value will be
transferred.                                                
     o    If you stop the  transfers,  you may not start them again  without our
prior approval.                                             

Dollar Cost Averaging Plus Program (DCA Plus Program)                           
Purchase payments allocated to the DCA Plus Accounts earn a guaranteed  interest
rate.  A portion  of your DCA Plus  Account  accumulated  value is  periodically
transferred (on the 28th of each month) to Divisions or to the Fixed Account. If
the 28th is not a valuation date, then the transfer occurs on the next valuation
date.  The  transfers  are  allocated  according  to your  DCA  Plus  allocation
instructions.  Transfers into a DCA Plus Account are not permitted. If you elect
the purchase  payment  credit  rider,  you may not  participate  in the DCA Plus
Program.                                                                        

DCA Plus Purchase Payments                                            
     You may enroll in the DCA Plus  program by  allocating  a minimum  purchase
     payment of $1,000 into a DCA Plus Account and  selecting  Divisions  and/or
     the Fixed Account into which  transfers will be made.  Subsequent  purchase
     payments  of at least  $1,000 are  permitted.  You can change your DCA Plus
     allocation  instructions  during the transfer period.  Automatic  portfolio
rebalancing does not apply to DCA Plus Accounts.                      

     DCA Plus  purchase  payments  receive the fixed rate of return in effect on
     the date  each  purchase  payment  is  received  by us.  The rate of return
     remains in effect for the  remainder  of the 6-month or  12-month  DCA Plus
transfer program.                                                     

Selecting A DCA Plus Account                                          
     DCA Plus Accounts are available in either a 6-month  transfer  program or a
     12-month  transfer  program.  The 6-month transfer program and the 12-month
     transfer program generally will have different credited interest rates. You
     may enroll in both a 6-month and 12-month DCA Plus  program.  However,  you
     may only  participate in one 6-month and one 12-month DCA Plus program at a
     time. Under the 6-month transfer program, all payments and accrued interest
     must be  transferred  from the DCA Plus Account to the  selected  Divisions
     and/or Fixed Account in no more than 6 months.  Under the 12-month transfer
     program,  all  payments and accrued  interest  must be  transferred  to the
selected Divisions and/or Fixed Account in no more than 12 months.    

     We will  transfer  an  amount  each  month  which is equal to your DCA Plus
     Account  value  divided by the number of months  remaining in your transfer
     program.  For  example,  if 4 scheduled  transfers  remain in your  6-month
     transfer program and you had a $4,000 DCA Plus Account  accumulated  value,
the transfer amount would be $1,000 ($4,000 / 4).                     

Scheduled DCA Plus Transfers                                          
     Transfers  are made  from DCA Plus  Accounts  to  Divisions  and the  Fixed
     Account  according to your  allocation  instructions.  The transfers  begin
     after  we  receive  your   purchase   payment  and   completed   enrollment
     instructions.  Transfers  occur on the 28th of the month and continue until
your entire DCA Plus Account accumulated value is transferred.        

Unscheduled DCA Plus Transfers                                        
     You may make  unscheduled  transfers  from DCA Plus  Accounts to  Divisions
     and/or the Fixed Account. A transfer is made, and values determined,  as of
the end of the valuation period in which we receive your request.     

DCA Plus Surrenders                                                   
     You may make  scheduled or unscheduled  surrenders  from DCA Plus Accounts.
     Purchase payments earn interest  according to the corresponding  rate until
     the surrender  date.  Surrenders  are subject to any  applicable  surrender
charge.                                                               

GENERAL PROVISIONS                                                              

The Contract                                                                    
The entire  Contract is made up of: the  Contract,  copies of any  applications,
amendments,  riders and  endorsements  attached to the  Contract;  current  data
pages;  copies of any supplemental  applications,  amendments,  endorsements and
revised Contract pages or data pages which are mailed to you. Only our corporate
officers can agree to change or waive any  provisions of a Contract.  Any change
or waiver must be in writing and signed by an officer of the Company.           

Delay of Payments                                                               
Surrenders   are  generally  made  within  seven  days  after  we  receive  your
instruction  for a  surrender  in a form  acceptable  to us.  This period may be
shorter  where  required  by law.  However,  payment of any amount upon total or
partial  surrender,  death or the transfer to or from a Division may be deferred
during any period  when the right to sell Mutual  Fund  shares is  suspended  as
permitted under provisions of the Investment Company Act of 1940 (as amended).  

The right to sell shares may be suspended during any period when:               
o    trading on the NYSE is restricted as determined by the SEC or when the NYSE
is closed for other than weekends and holidays; or                    
o    an emergency exists, as determined by the SEC, as a result of which:       
     o    disposal by a Mutual Fund of securities  owned by it is not reasonably
practicable;                                                
     o    it is not reasonably practicable for a Mutual Fund to fairly determine
the value of its net assets; or                             
 o    the SEC permits suspension for the protection of security holders.

If payments  are delayed and your  surrender or transfer is not canceled by your
written  instruction,  the  amount  to be  surrendered  or  transferred  will be
determined  the first  valuation  date following the expiration of the permitted
delay. The surrender or transfer will be made within seven days thereafter.     

In addition,  payments on surrenders  attributable to a purchase payment made by
check may be delayed up to 15 days.  This permits payment to be collected on the
check. We may also defer payment of surrender  proceeds payable out of the Fixed
Account for a period of up to six months.                                       

Misstatement of Age or Gender                                                   
If the age or, where applicable,  gender of the annuitant has been misstated, we
adjust the annuity  payment under your Contract to reflect the amount that would
have been  payable at the  correct age and  gender.  If we make any  overpayment
because  of  incorrect  information  about  age  or  gender,  or  any  error  or
miscalculation, we deduct the overpayment from the next payment or payments due.
Underpayments are added to the next payment.                                    

Assignment                                                                      
You may assign  ownership of your  non-qualified  Contract.  Each  assignment is
subject  to any  payments  made or  action  taken  by the  Company  prior to our
notification of the assignment.  We assume no responsibility for the validity of
any  assignment.  An  assignment  or pledge of a Contract  may have  adverse tax
consequences.                                                                   

An assignment  must be made in writing and filed with us at the annuity  service
office. The irrevocable beneficiary(ies),  if any, must authorize any assignment
in writing. Your rights, as well as those of the annuitant and beneficiary,  are
subject to any  assignment  on file with us. Any amount  paid to an  assignee is
treated as a partial surrender and is paid in a single lump sum.                

Change of Owner                                                                 
You may change your non-qualified  Contract  ownership  designation at any time.
Your request must be in writing and approved by us. After  approval,  the change
is effective  as of the date you signed the request for change.  If ownership is
changed,  then the waiver of the surrender charge for surrenders made because of
critical  need of the owner is not  available.  We reserve  the right to require
that you send us the Contract so that we can record the change.                 

Beneficiary                                                                     
Before the annuity  payment date and while the annuitant is alive,  you have the
right  to  name  or  change  a  beneficiary.  This  may be  done  as part of the
application process or by sending us a written request. Under certain retirement
programs,  however,  spousal  consent  may be  required  to  name  or  change  a
beneficiary.  Unless you have named an irrevocable  beneficiary,  you may change
your beneficiary  designation by sending us a written request.  If a beneficiary
has not been named at the time of the annuitant's  death,  then the benefit will
be paid to the owner,  if  living,  otherwise,  to the  owner's  estate.  If the
beneficiary dies during the annuity payment period,  and no other beneficiary is
alive, then any remaining benefits will be paid to the beneficiary's estate.    

If there are joint annuitants on the Contract,  the benefit is paid on the first
annuitant's death.                                                              

Contract Termination                                                            
We reserve the right to  terminate  the  Contract  and make a single sum payment
(without  imposing any charges) to you if your  accumulated  value at the end of
the accumulation period is less than $2,000.  Before the Contract is terminated,
we will send you a notice to increase the accumulated  value to $2,000 within 60
days.                                                                           

Reinstatement                                                                   
If you have replaced this Contract with an annuity contract from another company
and want to reinstate  this Contract,  then the following  apply:               
o    we reinstate the Contract effective on the original surrender date;        
o    if you  elect  the  purchase  payment  credit  rider  on the  reinstatement
     Contract,  then the 9-year  surrender  charge period will commence from the
     date of reinstatement we calculate the purchase payment credit based on the
amount of the reinstatement;                                          
o    we apply the amount  received  from the other company and the amount of the
surrender charge you paid when you surrendered the Contract;          
o    these  amounts  are  priced on the  valuation  day the money from the other
company is received by us;                                            
o    commissions are not paid on the reinstatement amounts; and                 
o    new data pages are sent to your address of record.                         

Reports                                                                         
We will mail to you a statement,  along with any reports  required by state law,
of your  current  accumulated  value at least once per year prior to the annuity
payment date.  After the annuity payment date, any reports will be mailed to the
person receiving the annuity payments.                                          

Quarterly  statements  reflect  purchases and  surrenders  occurring  during the
quarter as well as the balance of units owned and accumulated values.           

RIGHTS RESERVED BY THE COMPANY                                                  

We reserve  the right to make  certain  changes if, in our  judgment,  they best
serve the interests of you and the annuitant or are  appropriate in carrying out
the purpose of the Contract.  Any changes will be made only to the extent and in
the manner  permitted by applicable  laws.  Also,  when required by law, we will
obtain your approval of the changes and approval from any appropriate regulatory
authority.  Approvals may not be required in all cases.  Examples of the changes
the  Company  may make  include:                                                
o    transfer  assets  in any  Division  to  another  Division  or to the  Fixed
Account;                                                              
o    add, combine or eliminate a Division(s);                                   
o    substitute the units of a Division for the units of another Division;      
o    if units of a Division are no longer available for investment; or
     o    if in our  judgment,  investment in a Division  becomes  inappropriate
considering the purposes of the Separate Account.           

DISTRIBUTION OF THE CONTRACT                                                    

The  individuals  who sell the  Contract are  authorized  to sell life and other
forms of personal insurance and variable annuities. These people will usually be
representatives of Princor Financial Services Corporation ("Princor"), Principal
Financial Group, Des Moines, Iowa 50392-0200 which is a broker-dealer registered
under  the  Securities  Exchange  Act of  1934  and a  member  of  the  National
Association of Securities Dealers, Inc. As the principal underwriter, Princor is
paid 6.5% of  purchase  payments  by the  Company  for the  distribution  of the
Contract. The Company and Princor may receive a portion of the Fidelity Variable
Insurance  Products and Janus Aspen Series  Funds'  expenses for  recordkeeping,
marketing and distribution services. The Contract may also be sold through other
selected broker-dealers registered under the Securities and Exchange Act of 1933
or firms that are exempt from such  registration.  Princor is also the principal
underwriter  for  various  registered  investment  companies  organized  by  the
Company. Princor is a subsidiary of Principal Financial Services, Inc.          

PERFORMANCE CALCULATION                                                         

The  Separate  Account  may  publish   advertisements   containing   information
(including  graphs,   charts,   tables  and  examples)  about  the  hypothetical
performance  of its  Divisions  for this  Contract as if the  Contract  had been
issued on or after the date the Mutual  Fund in which the  Division  invests was
first offered.  The  hypothetical  performance from the date of the inception of
the Mutual Fund in which the  Division  invests is  calculated  by reducing  the
actual performance of the underlying Mutual Fund by the fees and charges of this
Contract as if it had been in existence.                                        

The yield and total return  figures  described  below vary depending upon market
conditions, composition of the underlying Mutual Fund's portfolios and operating
expenses.  These  factors  and  possible  differences  in the  methods  used  in
calculating  yield and total return  should be  considered  when  comparing  the
Separate Account  performance figures to performance figures published for other
investment  vehicles.  The Separate  Account may also quote rankings,  yields or
returns as published  by  independent  statistical  services or  publishers  and
information  regarding  performance of certain market  indices.  Any performance
data quoted for the Separate Account represents only historical  performance and
is not intended to indicate future  performance.  For further information on how
the Separate Account calculates yield and total return figures, see the SAI.    

From time to time the Separate  Account  advertises its Money Market  Division's
"yield" and "effective yield" for these Contracts.  Both yield figures are based
on historical earnings and are not intended to indicate future performance.  The
"yield" of the Division  refers to the income  generated by an investment in the
division over a 7-day period (which period is stated in the advertisement). This
income is then  "annualized."  That is,  the amount of income  generated  by the
investment  during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment.  The "effective yield" is
calculated similarly but, when annualized, the income earned by an investment in
the  Division is assumed to be  reinvested.  The  "effective  yield" is slightly
higher  than the  "yield"  because  of the  compounding  effect  of the  assumed
reinvestment.                                                                   

In addition, the Separate Account advertises the "yield" for other Divisions for
the Contract.  The "yield" of a Division is determined  by  annualizing  the net
investment income per unit for a specific, historical 30-day period and dividing
the result by the ending maximum offering price of the unit for the same period.

The Separate  Account  also  advertises  the average  annual total return of its
various  Divisions.  The average annual total return for any of the Divisions is
computed by calculating  the average annual  compounded  rate of return over the
stated  period  that would  equate an initial  $1,000  investment  to the ending
redeemable accumulated value.                                                   

VOTING RIGHTS                                                                   

The Company votes shares of the Principal  Variable  Contracts  Fund,  Inc., AIM
V.I. Growth Fund, AIM V.I. Growth and Income Fund, AIM V.I. Value Fund, Fidelity
Variable Insurance  Products Fund,  Fidelity Variable Insurance Products Fund II
and Janus Aspen Series - Service Shares  Aggressive Growth Portfolio held in the
Separate  Account at meetings of  shareholders of those Mutual Funds. It follows
your  voting  instructions  if you  have  an  investment  in  the  corresponding
Division.                                                                       

The  number  of  Mutual  Fund  shares  in which  you have a voting  interest  is
determined  by your  investments  in a Mutual  Fund as of a "record  date."  The
record date is set by the Mutual Fund within the requirements of the laws of the
state which govern the various  Mutual  Funds.  The number of Mutual Fund shares
held in the Separate  Account  attributable to your interest in each Division is
determined  by dividing the value of your  interest in that  Division by the net
asset  value of one  share of the  Mutual  Fund.  Shares  for which  owners  are
entitled  to give  voting  instructions,  but for which none are  received,  and
shares of the Mutual Fund owned by the Company are voted in the same  proportion
as the total shares for which voting instructions have been received.           

Voting  materials are provided to you along with an appropriate form that may be
used to give voting instructions to the Company.                                

If the Company  determines  pursuant to applicable  law, that Mutual Fund shares
held in Separate  Account B need not be voted pursuant to instructions  received
from  owners,  then the Company may vote Mutual Fund shares held in the Separate
Account in its own right.                                                       

FEDERAL TAX MATTERS                                                             

The  following  description  is a general  summary of the tax  rules,  primarily
related to federal  income taxes,  which in our opinion are currently in effect.
These rules are based on laws, regulations and interpretations which are subject
to change at any time. This summary is not  comprehensive and is not intended as
tax advice.  Federal  estate and gift tax  considerations,  as well as state and
local taxes,  may also be material.  You should  consult a qualified tax adviser
about  the tax  implications  of  taking  action  under a  Contract  or  related
retirement plan.                                                                

Non-Qualified Contracts                                                         

Section 72 of the Code governs the income taxation of annuities in general.     
o    Purchase payments made under non-qualified  Contracts are not excludable or
deductible from your gross income or any other person's gross income. 
o    An increase in the accumulated value of a non-qualified Contract owned by a
     natural person  resulting  from the investment  performance of the Separate
     Account or interest credited to the DCA Plus Accounts and the Fixed Account
     is  generally  not  taxable  until paid out as  surrender  proceeds,  death
benefit proceeds, or otherwise.                                       
o    Generally,  owners who are not natural persons are immediately taxed on any
increase in the accumulated value.                                    

The  following  discussion  applies  generally  to  Contracts  owned by  natural
persons.                                                                        
o    Surrenders or partial surrenders are taxed as ordinary income to the extent
of the accumulated income or gain under the Contract.                 
o    The value of the Contract  pledged or assigned is taxed as ordinary  income
to the same extent as a partial surrender.                            
o    Annuity payments:                                                          
     o    The  investment in the Contract is generally the total of the purchase
payments made.                                              
     o    The portion of the annuity payment that represents the amount by which
          the accumulated  value exceeds purchase  payments is taxed as ordinary
income. The remainder of each annuity payment is not taxed. 
     o    After the  purchase  payment(s)  in the Contract is paid out, the full
amount of any annuity payment is taxable.                   

For  purposes  of  determining  the  amount of  taxable  income  resulting  from
distributions,  all Contracts and other  annuity  contracts  issued by us or our
affiliates  to the same owner  within the same  calendar  year are treated as if
they are a single contract.                                                     

A transfer of ownership of a Contract,  or  designation of an annuitant or other
payee who is not also the  owner,  may  result  in a certain  income or gift tax
consequences to the owner. If you are  contemplating  any transfer or assignment
of a Contract,  you should  contact a competent  tax advisor with respect to the
potential tax effects of such transactions.                                     

Required Distributions for Non-Qualified Contracts                              
In order for a non-qualified  Contract to be treated as an annuity  contract for
federal  income tax  purposes,  the Code  requires:                             
o    If the person receiving  payments dies on or after the annuity payment date
     but  prior  to the  time  the  entire  interest  in the  Contract  has been
     distributed,  the remaining portion of the interest is distributed at least
     as rapidly as under the method of distribution being used as of the date of
that person's death.                                                  
o    If you die prior to the annuity  payment date,  the entire  interest in the
Contract will be distributed:                                         
o    within five years after the date of your death; or               
     o    as  annuity  payments  which  begin  within one year of your death and
          which are made over the life of your designated  beneficiary or over a
        period not extending beyond the life expectancy of that beneficiary.
o    If you take a distribution from the Contract before you are 59 1/2, you may
incur an income tax penalty.                                          

Generally,  unless the beneficiary elects otherwise,  the above requirements are
satisfied  prior to the annuity  payment  date by paying the death  benefit in a
single sum, subject to proof of your death. The beneficiary may elect by written
request to receive an annuity payment option instead of a lump sum payment.     

If your  designated  beneficiary is your surviving  spouse,  the Contract may be
continued  with your spouse deemed to be the new owner for purposes of the Code.
Where the owner or other person receiving  payments is not a natural person, the
required  distributions  provided  for in the Code  apply  upon the death of the
annuitant.                                                                      

IRA, SEP, and SIMPLE-IRA                                                        
The Contract may be used to fund IRAs, SEPs, and SIMPLE-IRAs.                   
o    IRA - An  Individual  Retirement  Annuity  (IRA)  is a  retirement  savings
annuity. Contributions grow tax deferred.                             
o    SEP-IRA - A SEP is a form of IRA.  A SEP allows  you,  as an  employer,  to
     provide  retirement  benefits for your employees by  contributing  to their
IRAs.                                                                 
o    SIMPLE-IRA - SIMPLE stands for Savings  Incentive Match Plan for Employers.
     A SIMPLE-IRA allows employees to save for retirement by deferring salary on
a pre-tax basis and receiving predetermined company contributions.    

The tax rules  applicable to owners,  annuitants and other payees vary according
to the type of plan and the terms and conditions of the plan itself. In general,
purchase payments made under a retirement  program recognized under the Code are
excluded  from the  participant's  gross  income for tax  purposes  prior to the
annuity payment date (subject to applicable state law). The portion,  if any, of
any purchase  payment made that is not excluded from their gross income is their
investment  in  the  Contract.  Aggregate  deferrals  under  all  plans  at  the
employee's option may be subject to limitations.                                

If you are purchasing this Contract to fund a tax qualified retirement plan, you
should be aware that the  tax-deferred  accrual  feature is  available  with any
qualified  investment  vehicle  within a  qualified  plan and is NOT unique to a
variable annuity.  This Contract provides  additional  benefits such as lifetime
income options, death benefit protection and guaranteed expense levels.         

The tax  implications of these plans are further  discussed in the SAI under the
heading Taxation Under Certain Retirement Plans. Check with your tax advisor for
the rules which apply to your specific situation.                               

With respect to IRAs, IRA rollovers and SIMPLE-IRAs there is a 10% penalty under
the  Code on the  taxable  portion  of a  "premature  distribution."  The tax is
increased to 25% in the case of distributions  from SIMPLE-IRAs during the first
two years of participation.  Generally, an amount is a "premature  distribution"
unless the distribution is:                                                     
o    made on or after you reach age 59 1/2;                                     
o    made to a beneficiary on or after your death;                              
o    made upon your disability;                                                 
o    part of a series of substantially  equal periodic  payments for the life or
life expectancy of you or you and the beneficiary;                    
o    made to pay medical expenses;                                              
o    for certain unemployment expenses;                                         
o    for first home purchases (up to $10,000); or                               
o    for higher education expenses.                                             

Rollover IRAs                                                                   
If you receive a lump-sum  distribution from a pension or profit sharing plan or
tax-sheltered  annuity, you may maintain the tax-deferred status of the money by
rolling  it  into  a  "Rollover   Individual   Retirement  Annuity."  Generally,
distributions  from a  qualified  plan  are  subject  to  mandatory  income  tax
withholding at a rate of 20%, unless the participant  elects a direct  rollover.
You have 60 days from receipt of the money to complete this transaction.  If you
choose not to  reinvest  or go beyond the 60 day limit and are under age 59 1/2,
you will incur a 10% IRS penalty as well as income tax expenses.                

Withholding                                                                     
Annuity  payments and other amounts  received  under the Contract are subject to
income tax withholding  unless the recipient  elects not to have taxes withheld.
The amounts  withheld vary among  recipients  depending on the tax status of the
individual and the type of payments from which taxes are withheld.              

Notwithstanding  the  recipient's  election,  withholding  may  be  required  on
payments  delivered  outside  the  United  States.  Moreover,   special  "backup
withholding"  rules may require us to disregard the recipient's  election if the
recipient  fails to supply  us with a "TIN" or  taxpayer  identification  number
(social  security number for  individuals),  or if the Internal  Revenue Service
notifies us that the TIN provided by the recipient is incorrect.                

Mutual Fund Diversification                                                     

The United States  Treasury  Department  has adopted  regulations  under Section
817(h)  of the Code  which  establishes  standards  of  diversification  for the
investments underlying the Contracts.  Under this Code Section, Separate Account
investments  must be  adequately  diversified  in order for the  increase in the
value of non-qualified  Contracts to receive tax-deferred treatment. In order to
be adequately diversified, the portfolio of each underlying Mutual Fund must, as
of the end of each calendar quarter or within 30 days  thereafter,  have no more
than  55%  of its  assets  invested  in  any  one  investment,  70%  in any  two
investments,  80% in any  three  investments  and 90% in any  four  investments.
Failure of a Mutual Fund to meet the  diversification  requirements could result
in tax liability to non-qualified Contract holders.                             

The investment opportunities of the Mutual Funds could conceivably be limited by
adhering  to the above  diversification  requirements.  This  would  affect  all
owners,  including  owners  of  Contracts  for  whom  diversification  is  not a
requirement for tax-deferred treatment.                                         

STATE REGULATION                                                                

The  Company  is subject  to the laws of the State of Iowa  governing  insurance
companies and to regulation by the Insurance Department of the State of Iowa. An
annual  statement  in a  prescribed  form  must be filed by March 1 in each year
covering our operations  for the preceding  year and our financial  condition on
December 31 of the prior year.  Our books and assets are subject to  examination
by the Commissioner of Insurance of the State of Iowa or her  representatives at
all times. A full examination of our operations is conducted periodically by the
National Association of Insurance  Commissioners.  Iowa law and regulations also
prescribe permissible investments,  but this does not involve supervision of the
investment management or policy of the Company.                                 

In  addition,  we are subject to the  insurance  laws and  regulations  of other
states and  jurisdictions  where we are  licensed  to  operate.  Generally,  the
insurance  departments of these states and  jurisdictions  apply the laws of the
state of domicile in determining the field of permissible investments.          

LEGAL OPINIONS                                                                  

Legal matters  applicable to the issue and sale of the Contracts,  including our
right to issue  Contracts  under Iowa  Insurance  Law,  have been passed upon by
Karen Shaff, General Counsel and Senior Vice President.                         

LEGAL PROCEEDINGS                                                               

There are no legal proceedings pending to which Separate Account B is a party or
which would materially affect Separate Account B.                               

REGISTRATION STATEMENT                                                          

This  prospectus  omits  some  information  contained  in the SAI (Part B of the
registration  statement)  and Part C of the  registration  statement  which  the
Company has filed with the SEC. The SAI is hereby incorporated by reference into
this  prospectus.  You  may  request  a free  copy  of the  SAI  by  writing  or
telephoning the annuity  service office.  You may obtain a copy of Part C of the
registration  statement from the SEC, Washington,  D.C. by paying the prescribed
fees.                                                                           

OTHER VARIABLE ANNUITY CONTRACTS                                                

The Company  currently offers other variable annuity  contracts that participate
in  Separate  Account B. In the future,  we may  designate  additional  group or
individual variable annuity contracts as participating in Separate Account B.   

INDEPENDENT AUDITORS                                                            

The financial  statements of Principal Life Insurance Company Separate Account B
and the consolidated  financial  statements of Principal Life Insurance  Company
are  included in the SAI.  Those  statements  have been audited by Ernst & Young
LLP, independent auditors, for the periods indicated in their reports which also
appear in the SAI.                                                              

FINANCIAL STATEMENTS                                                            

The consolidated  financial statements of Principal Life Insurance Company which
are included in the SAI should be considered  only as they relate to our ability
to meet our  obligations  under the  Contract.  They do not relate to investment
performance of the assets held in the Separate Account.                         

CUSTOMER INQUIRIES                                                              

Your  questions  should be directed to:  Principal  Flexible  Variable  Annuity,
Principal   Financial  Group,  P.O.  Box  9382,  Des  Moines,  Iowa  50306-9382,
1-800-852-4450.                                                                 

TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION                    

Independent Auditors   .....................................................   4
Calculation of Yield and Total Return   ....................................   4
Taxation Under Certain Retirement Plans.....................................   8
Principal Life Insurance Company Separate Account B                             
     Report of Independent Auditors ........................................   9
     Financial Statements...................................................  10
Principal Life Insurance Company                                                
     Report of Independent Auditors ........................................  37
     Consolidated Financial Statements......................................  38

To obtain a free copy of the SAI write or telephone:                            

 Principal Flexible Variable Annuity
 Principal Financial Group
 P.O. Box 9382
 Des Moines, Iowa 50306-9382
 Telephone: 1-800-852-4450

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PART B

 PRINCIPAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT B

FLEXIBLE VARIABLE ANNUITY ("FVA") CONTRACT

 Statement of Additional Information

 dated November 15, 2000

This Statement of Additional  Information  provides  information about Principal
Life  Insurance  Company  Separate  Account B  Flexible  Variable  Annuity  (the
"Contract") in addition to the  information  that is contained in the Contract's
Prospectus, dated November 15, 2000.                                            

This Statement of Additional Information is not a prospectus.  It should be read
in  conjunction  with the  Prospectus,  a copy of which can be obtained  free of
charge by writing or telephoning:                                               

Variable Annuity
 The Principal Financial Group
 P.O. Box 9382
Des Moines Iowa 50306-9382
 Telephone: 1-800-852-4450

 TABLE OF CONTENTS

Independent Auditors ..................................................       4 

Principal Underwriter..................................................       4 

Calculation of Yield and Total Return..................................       4 

Taxation Under Certain Retirement Plans................................       8 

Principal Life Insurance Company Separate Account B                             

       Report of Independent Auditors.................................       9

       Financial Statements...........................................      10

Principal Life Insurance Company                                                

       Report of Independent Auditors.................................      37

       Consolidated Financial Statements..............................      38

INDEPENDENT AUDITORS                                                            

Ernst & Young LLP, Des Moines, Iowa, serve as independent auditors for Principal
Life Insurance  Company Separate Account B and Principal Life Insurance  Company
and perform audit and accounting  services for Separate  Account B and Principal
Life Insurance Company.                                                         

PRINCIPAL UNDERWRITER                                                           

Princor Financial Services Corporation  ("Princor") is the principal underwriter
of the Contract.  Princor is a subsidiary of Principal Financial Services,  Inc.
The  Contract's  offering  to  the  public  is  continuous.   As  the  principal
underwriter,  Princor is paid for the distribution of the Contract. For the last
three fiscal years Princor has received and retained the following commissions: 

    1999                   1998                     1997
     received/retained      received/retained        received/retained
     -----------------      -----------------        -----------------
    $11,907,807/$0         $13,284,014/$0           $11,491,356/$0

CALCULATION OF YIELD AND TOTAL RETURN                                           

The  Separate  Account  may  publish   advertisements   containing   information
(including graphs,  charts, tables and examples) about the performance of one or
more of its Divisions.                                                          

The Contract  was not offered  prior to June 16, 1994.  However,  the  Divisions
invest in Accounts of the Principal  Variable  Contracts  Fund,  Inc.,  AIM V.I.
Growth Fund,  AIM V.I.  Growth and Income Fund,  AIM V.I.  Value Fund,  Fidelity
Variable Insurance Products Fund, and Fidelity Variable Income Products Fund II.
Effective June 12, 2000 the Principal  Variable Contracts Fund, Inc. Stock Index
500 Account  changed its name to the  LargeCap  Stock Index  Account.  Effective
January 1, 1998 the Mutual Funds which  correspond  to Accounts of the Principal
Variable Contracts Fund, Inc. were reorganized as follows:                      

                                                                [Download Table]

      Old Mutual Fund Name                         New Corresponding Name         
      --------------------                         ----------------------         
                                           Principal Variable Contracts Fund, Inc.
                                                                                  
Principal Aggressive Growth Fund, Inc.        Aggressive Growth Account           
Principal Asset Allocation Fund, Inc.         Asset Allocation Account            
Principal Balanced Fund, Inc.                 Balanced Account                    
Principal Bond Fund, Inc.                     Bond Account                        
Principal Capital Accumulation Fund, Inc.     Capital Value Account               
Principal Emerging Growth Fund, Inc.          MidCap Account                      
Principal Government Securities Fund, Inc.    Government Securities Account       
Principal Growth Fund, Inc.                   Growth Account                      
Principal Money Market Fund, Inc.             Money Market Account                
Principal World Fund, Inc.                    International Account               

These  Accounts,  along with AIM V.I.  Growth Fund,  AIM V.I.  Growth and Income
Fund, AIM V.I. Value Fund and Fidelity VIP Growth Portfolio  Service Class, were
offered prior to the date the Contract was available. Thus, the Separate Account
may  publish  advertisements   containing  information  about  the  hypothetical
performance  of one or more of its  Divisions for this Contract had the Contract
been issued on or after the date the Mutual Fund in which such Division  invests
was first  offered.  Because  Service  Class  shares for the Fidelity VIP Growth
Division were not offered until November 3, 1997,  performance shown for periods
prior to that date represent the historical  results of Initial Class shares and
do not  include  the  effects  of the  Service  Class'  higher  annual  fees and
expenses.  Service  Shares of the Janus  Aspen  Series  were  first  offered  on
December 31,  1999.  Performance  shown for periods  prior to December 31, 1999,
reflects  performance of a different class of shares (the Institutional  Shares)
restated based on the Service Shares' estimated fees and expenses  including the
Service Shares' .25% 12b-1 fee and ignoring any fee and expense limitations. The
hypothetical  performance from the date of inception of the Mutual Fund in which
the  Division  invests is  derived by  reducing  the actual  performance  of the
underlying Mutual Fund by the fees and charges of the Contract as if it had been
in  existence.  The yield and total  return  figures  described  below will vary
depending upon market  conditions,  the  composition  of the  underlying  Mutual
Fund's portfolios and operating expenses. These factors and possible differences
in the methods used in  calculating  yield and total return should be considered
when comparing the Separate Account  performance  figures to performance figures
published for other  investment  vehicles.  The Separate  Account may also quote
rankings,  yields or returns as published by independent statistical services or
publishers and information  regarding performance of certain market indices. Any
performance  data quoted for the Separate  Account  represents  only  historical
performance and is not intended to indicate future performance.                 

From time to time the Separate  Account  advertises its Money Market  Division's
"yield" and "effective yield" for these Contracts.  Both yield figures are based
on historical earnings and are not intended to indicate future performance.  The
"yield" of the Division  refers to the income  generated by an investment  under
the  Contract in the  Division  over a seven-day  period  (which  period will be
stated in the  advertisement).  This income is then  "annualized."  That is, the
amount of income  generated by the investment  during that week is assumed to be
generated  each week over a 52-week  period and is shown as a percentage  of the
investment.  The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the Division is assumed to be  reinvested.
The "effective  yield" will be slightly  higher than the "yield"  because of the
compounding  effect  of  this  assumed  reinvestment.  Neither  yield  quotation
reflects a sales load deducted from purchase payments which, if included,  would
reduce the "yield" and "effective yield."                                       

In addition,  from time to time, the Separate Account will advertise the "yield"
for  certain  other  Divisions  for the  Contract.  The "yield" of a Division is
determined by  annualizing  the net  investment  income per unit for a specific,
historical  30-day period and dividing the result by the ending maximum offering
price of the unit for the same period.  This yield  quotation does not reflect a
surrender charge which, if included, would reduce the "yield."                  

Also, from time to time, the Separate  Account will advertise the average annual
total return of its various  Divisions.  The average annual total return for any
of the Divisions is computed by calculating  the average annual  compounded rate
of return over the stated period that would equate an initial $1,000  investment
to the ending redeemable Contract value. In this calculation the ending value is
reduced by a surrender  charge that  decreases  from 6% to 0% over a period of 7
years.  The Separate  Account may also  advertise  total return  figures for its
Divisions  for a specified  period that does not take into account the surrender
charge in order to illustrate the change in the Division's unit value over time.
See "Charges and  Deductions"  in the  Prospectus  for a discussion of surrender
charges.                                                                        

Following  are the  hypothetical  average  annual  total  returns for the period
ending  December  31, 1999  assuming  the  Contract  had been  offered as of the
effective dates of the underlying Mutual Funds in which the Divisions invest:   

                                                        [Enlarge/Download Table]

                 Contract without purchase payment credit rider                                                                 

                                                  With Surrender Charge                Without Surrender Charge                 

           Division                     One Year       Five Year       Ten Year       One Year       Five Year       Ten Year   
-----------------------------------------------------------------------------------------------------------------------------   
                                                                                                                                
Aggressive Growth Division                31.74%          30.07%        27.01%(1)       37.74%          30.34%         27.19%(1)
Asset Allocation Division                 11.98           14.06         12.56(1)        17.98           14.53          12.87(1) 
Balanced Division                         (4.91)          11.80          9.94            1.09           12.31           9.94    
Bond Division                             (9.83)           5.72          6.38           (3.83)           6.35           6.38    
Capital Value Division                   (11.51)          15.95         11.48           (5.51)          16.39          11.48    
Government Securities Division            (7.56)           5.96          6.36           (1.56)           6.58           6.36    
Growth Division                            8.96           18.52         17.19(2)        14.96           18.92          17.44(2) 
International Division                    18.34           15.35         12.66(2)        24.34           15.80          12.96(2) 
International Emerging Markets Division     N/A            N/A           N/A              N/A            N/A            N/A     
International SmallCap Division           85.38           34.55(3)       N/A            91.38           37.47(3)        N/A     
LargeCap Growth Division                  25.34(4)         N/A           N/A            31.34(4)         N/A            N/A     
LargeCap Growth Equity Division             N/A            N/A           N/A              N/A            N/A            N/A     
LargeCap Stock Index Division              2.00(4)         N/A           N/A             8.00 (4)        N/A            N/A     
MicroCap Division                         (8.33)         (17.20) (3)     N/A            (2.33)         (13.18) (3)      N/A     
MidCap Division                            5.61           15.65         13.87           11.61           16.10          13.87    
MidCap Growth Division                     3.27           (0.82) (3)     N/A             9.27            2.76(3)        N/A     
MidCap Growth Equity Division               N/A            N/A           N/A              N/A            N/A            N/A     
Money Market Division                     (2.51)           3.32          3.63            3.49            3.84           3.63    
Real Estate Division                     (11.69)         (11.63) (3)     N/A            (5.69)          (7.78) (3)      N/A     
SmallCap Division                         35.77            3.38(3)       N/A            41.77            6.86(3)        N/A     
SmallCap Growth Division                  87.23           47.50(3)       N/A            93.23           50.25(3)        N/A     
SmallCap Value Division                   13.91           (3.05)(3)      N/A            19.91            0.58(3)        N/A     
Utilities Division                        (5.01)           5.60(3)       N/A             0.99            9.03(3)        N/A     
AIM V.I. Growth Division                  27.54           27.79         21.37(5)        33.54           28.02          21.37(5) 
AIM V.I. Growth and Income Division       26.57           26.34         22.79(2)        32.57           26.57          22.93(2) 
AIM V.I. Value Division                   22.27           25.39         21.51(5)        28.27           25.64          21.51(5) 
Fidelity VIP II Contrafund Division       16.58           26.71(6)       N/A            22.58           26.95(6)        N/A     
Fidelity VIP Growth Division              29.57           27.84         18.38           35.57           28.06          18.38    
Janus Aspen Aggressive Growth Division   114.53           33.97         32.31(7)       120.53           34.15          32.31(7) 

<FN>                                                                                                                            
 (1) Partial period beginning June 1, 1994.                                                                                     
 (2) Partial period beginning May 2, 1994.                                                                                      
 (3) Partial period beginning May 1, 1998.                                                                                      
 (4) Partial period beginning May 3, 1999.                                                                                      
 (5) Partial period beginning May 5, 1993.                                                                                      
 (6) Partial period beginning January 31, 1995.                                                                                 
 (7) Partial period beginning September 13, 1993.                                                                               
</FN>                                                                                                                           

                                                        [Enlarge/Download Table]

                   Contract with purchase payment credit rider                                                                  

                                                  With Surrender Charge                Without Surrender Charge                 

           Division                     One Year       Five Year       Ten Year       One Year       Five Year       Ten Year   
-----------------------------------------------------------------------------------------------------------------------------   
                                                                                                                                
Aggressive Growth Division                28.92%          29.14%        26.13%(1)       36.92           29.57%         26.43%(1)
Asset Allocation Division                  9.27           13.12         11.66(1)        17.27           13.85          12.19(1) 
Balanced Division                         (7.51)          10.85          9.28            0.49           11.64           9.28    
Bond Division                            (12.41)           4.74          5.74           (4.41)           5.72           5.74    
Capital Value Division                   (14.07)          15.01         10.81           (6.07)          15.69          10.81    
Government Securities Division           (10.15)           4.97          5.72           (2.15)           5.94           5.72    
Growth Division                            6.27           17.59         16.30(2)        14.27           18.21          16.74(2) 
International Division                    15.59           14.42         11.76(2)        23.59           15.11          12.28(2) 
International Emerging Markets Division     N/A            N/A           N/A              N/A            N/A            N/A     
International SmallCap Division           82.23           32.72(3)       N/A            90.23           36.65(3)        N/A     
LargeCap Growth Division                  22.82(4)         N/A           N/A            30.82(4)         N/A            N/A     
LargeCap Growth Equity Division             N/A            N/A           N/A              N/A            N/A            N/A     
LargeCap Stock Index Division             (0.43) (4)       N/A           N/A             7.57(4)         N/A            N/A     
MicroCap Division                        (10.92)         (19.11) (3)     N/A            (2.92)         (13.70) (3)      N/A     
MidCap Division                            2.94           14.72         13.19           10.94           15.40          13.19    
MidCap Growth Division                     0.61           (2.66) (3)     N/A             8.61            2.14(3)        N/A     
MidCap Growth Equity Division               N/A            N/A           N/A              N/A            N/A            N/A     
Money Market Division                     (5.13)           2.14          3.01            2.87            3.22           3.01    
Real Estate Division                     (14.26)         (13.51) (3)     N/A            (6.26)          (8.33) (3)      N/A     
SmallCap Division                         32.92            1.55(3)       N/A            40.92            6.22(3)        N/A     
SmallCap Growth Division                  84.08           45.66(3)       N/A            92.08           49.35(3)        N/A     
SmallCap Value Division                   11.19           (4.90) (3)     N/A            19.19           (0.02) (3)      N/A     
Utilities Division                        (7.61)           3.77(3)       N/A             0.39            8.38(3)        N/A     
AIM V.I. Growth Division                  24.75           26.80         20.44(5)        32.75           27.26          20.65(5) 
AIM V.I. Growth and Income Division       23.78           25.34         21.85(2)        31.78           25.82          22.20(2) 
AIM V.I. Value Division                   19.51           24.39         20.59(5)        27.51           24.89          20.79(5) 
Fidelity VIP II Contrafund Division       13.86           25.70(6)       N/A            21.86           26.20(6)        N/A     
Fidelity VIP Growth Division              26.76           26.84         17.68           34.76           27.31          17.68    
Janus Aspen Aggressive Growth Division   111.29           32.98         31.39(7)       119.29           33.37          31.58(7) 

<FN>                                                                                                                            
 (2) Partial period beginning May 2, 1994.                                                                                      
 (3) Partial period beginning May 1, 1998.                                                                                      
 (4) Partial period beginning May 3, 1999.                                                                                      
 (5) Partial period beginning May 5, 1993.                                                                                      
 (6) Partial period beginning January 31, 1995.                                                                                 
 (7) Partial period beginning September 13, 1993.                                                                               
</FN>                                                                                                                           

TAXATION UNDER CERTAIN RETIREMENT PLANS                                         

INDIVIDUAL RETIREMENT ANNUITIES                                                 

Purchase Payments.  Individuals may make contributions for individual retirement
annuity ("IRA") Contracts.  Deductible contributions for any year may be made up
to the lesser of $2,000 or 100% of compensation  for individuals who (1) are not
active  participants  in another  retirement  plan,  (2) are  unmarried and have
adjusted  gross income of $40,000 or less,  or (3) are married and have adjusted
gross income of $60,000 or less.  Such  individuals  may  establish an IRA for a
spouse who makes no contribution to an IRA for the tax year. The annual purchase
payments for both spouses'  Contracts cannot exceed the lesser of $4,000 or 100%
of  the  working  spouse's  earned  income,  and  no  more  than  $2,000  may be
contributed  to either  spouse's  IRA for any year.  Individuals  who are active
participants  in other  retirement  plans and whose  adjusted gross income (with
certain special  adjustments)  exceeds the cut-off point ($40,000 for unmarried,
$60,000 for married persons filing jointly,  and $0 for married persons filing a
separate  return) by less than  $10,000  are  entitled  to make  deductible  IRA
contributions  in  proportionately  reduced  amounts.  For  example,  a  married
individual who is an active  participant in another  retirement plan and files a
separate tax return is entitled to a partial IRA  deduction if the  individual's
adjusted  gross income is less than $10,000,  and no IRA deduction if his or her
adjusted  gross income is equal to or greater than  $10,000.  Individuals  whose
spouse is an active  participant  in other  retirement  plans and whose combined
adjusted  gross income exceeds the cutoff point of $150,000 by less than $10,000
are entitled to make deductible IRA  contributions  in  proportionately  reduced
amounts.                                                                        

An individual may make  non-deductible  IRA  contributions  to the extent of the
excess of (1) the lesser of $2,000 ($4,000 in the case of a spousal IRA) or 100%
of compensation over (2) the IRA deductible  contributions  made with respect to
the individual.                                                                 

An individual may not make any  contribution  to his/her own IRA for the year in
which he/she reaches age 70 1/2 or for any year thereafter.                     

Taxation  of  Distributions.  Distributions  from  IRA  Contracts  are  taxed as
ordinary income to the recipient,  although special rules exist for the tax-free
return of  non-deductible  contributions.  In  addition,  taxable  distributions
received  under an IRA Contract prior to age 59 1/2 are subject to a 10% penalty
tax in addition to regular income tax. Certain  distributions  are exempted from
this  penalty  tax,  including  distributions  following  the  owner's  death or
disability  if the  distribution  is paid as part of a series  of  substantially
equal periodic  payments made for the life (or life  expectancy) of the Owner or
the joint lives (or joint life expectancies) of Owner and the Owner's designated
Beneficiary;  distributions to pay medical  expenses;  distributions for certain
unemployment  expenses;  distributions  for first home purchases (up to $10,000)
and distributions for higher education expenses.                                

Required  Distributions.   Generally,  distributions  from  IRA  Contracts  must
commence not later than April 1 of the calendar year following the calendar year
in which the owner attains age 70 1/2, and such  distributions must be made over
a period that does not exceed the life expectancy of the owner (or the owner and
beneficiary).  A penalty  tax of 50% would be imposed on any amount by which the
minimum  required   distribution  in  any  year  exceeded  the  amount  actually
distributed  in that year. In addition,  in the event that the owner dies before
his or her entire  interest in the  Contract has been  distributed,  the owner's
entire  interest must be distributed  in accordance  with rules similar to those
applicable  upon the death of the Contract Owner in the case of a  non-qualified
Contract, as described in the Prospectus.                                       

Tax-Free  Rollovers.  The Internal Revenue Code (the "Code") permits the taxable
portion of funds to be  transferred  in a  tax-free  rollover  from a  qualified
employer pension, profit-sharing, annuity, bond purchase or tax-deferred annuity
plan to an IRA  Contract if certain  conditions  are met, and if the rollover of
assets is completed  within 60 days after the  distribution  from the  qualified
plan is  received.  A direct  rollover  of funds  may  avoid a 20%  federal  tax
withholding generally applicable to qualified plans or tax-deferred annuity plan
distributions.  In addition,  not more frequently than once every twelve months,
amounts may be rolled  over  tax-free  from one IRA to  another,  subject to the
60-day  limitation  and other  requirements.  The  once-per-year  limitation  on
rollovers does not apply to direct  transfers of funds between IRA custodians or
trustees.                                                                       

SIMPLIFIED  EMPLOYEE  PENSION  PLANS AND SALARY  REDUCTION  SIMPLIFIED  EMPLOYEE
PENSION PLANS                                                                   

Purchase Payments.  Under Section 408(k) of the Code,  employers may establish a
type of IRA plan  referred  to as a  simplified  employee  pension  plan  (SEP).
Employer  contributions  to a SEP cannot  exceed the lesser of $24,000 or 15% or
the  employee's  earned  income.  Employees of certain small  employers may have
contributions  made to the salary  reduction  simplified  employee  pension plan
("SAR/SEP") on their behalf on a salary reduction basis.  These salary reduction
contributions  may not exceed  $10,000 in 2000,  which is indexed for inflation.
Employees of tax-exempt  organizations  and state and local government  agencies
are not eligible for SAR/SEPs.                                                  

Taxation  of  Distributions.  Generally,  distribution  payments  from  SEPs and
SAR/SEPs are subject to the same distribution rules described above for IRAs.   

Required  Distributions.  SEPs and  SAR/SEPs  are  subject  to the same  minimum
required distribution rules described above for IRAs.                           

Tax-Free Rollovers. Generally, rollovers and direct transfers may be made to and
from SEPs and SAR/SEPs in the same manner as described  above for IRAs,  subject
to the same conditions and limitations.                                         

SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE IRA)                        

Purchase Payments.  Under Section 408(p) of the Code,  employers may establish a
type of IRA plan known as a Simple IRA. Employees may have contributions made to
the SIMPLE IRA on a salary reduction basis. These salary reduction contributions
may not exceed  $6,000 in 2000,  which is indexed for  inflation.  Total  salary
reduction  contributions  are limited to $10,000 per year for any  employee  who
makes  salary  reduction  contributions  to more  than one plan.  Employers  are
required to contribute to the SIMPLE IRA, which contributions may not exceed the
lesser of:  (1) The amount of salary  deferred  by the  employee,  (2) 3% of the
employee's  compensation,  or (3)  $6,000,  if  the  employer  contributes  on a
matching basis; or the lesser of: (1) 2% of the employee's compensation,  or (2)
$3,200, if the employer makes  non-elective  contributions.  An employer may not
make contributions to both a SIMPLE IRA and another retirement plan for the same
calendar year.                                                                  

Taxation of Distributions. Generally, distribution payments from SIMPLE IRAs are
subject to the same  distribution  rules described  above for IRAs,  except that
distributions  made  within  two  years  of  the  date  of an  employee's  first
participation  in a SIMPLE IRA of an  employer  are subject to a 25% penalty tax
instead of the 10% penalty tax discussed previously.                            

Required  Distributions.  SIMPLE IRAs are subject to the same  minimum  required
distribution rules described above for IRAs.                                    

Tax-Free  Rollovers.  Direct transfers may be made among SIMPLE IRAs in the same
manner  as  described  above  for  IRAs,  subject  to the  same  conditions  and
limitations.  Rollovers  from  SIMPLE  IRAs are  permitted  after two years have
elapsed from the date of an employee's  first  participation  in a SIMPLE IRA of
the employer. Rollovers to SIMPLE IRAs from other plans are not permitted.      

ROTH INDIVIDUAL RETIREMENT ANNUITIES (ROTH IRA)                                 

Purchase  Payments.  Under  Section  408A  of the  Code,  Individuals  may  make
nondeductible   contributions   to  Roth  IRA  contracts  up  to  $2,000.   This
contribution  amount must be reduced by the amount of any contributions  made to
other  IRAs  for  the  benefit  of  the  Roth  IRA  owner.  The  maximum  $2,000
contribution  is phased out for single  taxpayers  with  adjusted  gross  income
between  $95,000 and $110,000 and for joint  filers with  adjusted  gross income
between  $150,000 and $160,000.  If taxable  income is recognized on the regular
IRA, an IRA owner with adjusted gross income of less than $100,000 may convert a
regular  IRA into a Roth IRA.  If the  conversion  is made in 1999,  IRA  income
recognized may be spread over four years. Otherwise, all IRA income will need to
be  recognized in the year of  conversion.  No IRS 10% tax penalty will apply to
the conversion.                                                                 

Taxation of Distribution.  Qualified  distributions are received income-tax free
by the Roth IRA owner,  or  beneficiary in case of the Roth IRA owner's death. A
qualified  distribution  is any  distribution  made  after five years if the IRA
owner  is over  age 59 1/2,  dies,  becomes  disabled,  or uses  the  funds  for
first-time home buyer expenses at the time of distribution. The five-year period
for converted amounts begins from the year of the conversion.                   

Report of Independent Auditors        

Board of Directors and Participants                                             
Principal Life Insurance Company                                                

We have  audited the  accompanying  individual  and combined  statements  of net
assets of Principal Life Insurance  Company Separate Account B (comprised of the
Aggressive  Growth, AIM V.I. Growth, AIM V.I. Growth and Income, AIM V.I. Value,
American  Century VP Growth & Income,  Asset  Allocation,  Balanced,  Blue Chip,
Bond, Capital Value, Fidelity VIP II Contrafund, Fidelity VIP Growth, Government
Securities,  Growth,  International,  International  SmallCap,  LargeCap Growth,
MicroCap,  MidCap,  MidCap  Growth,  MidCap Value,  Money  Market,  Real Estate,
SmallCap, Small Cap Growth, SmallCap Value, Stock Index 500, Templeton VP Stock,
and Utilities  Divisions) as of December 31, 1999, and the related statements of
operations  for the year then  ended,  and changes in net assets for each of the
two years in the period then ended,  except for those  divisions  operating  for
portions  of such  periods  as  disclosed  in the  financial  statements.  These
financial  statements are the responsibility of the management of Principal Life
Insurance  Company.  Our  responsibility  is to  express  an  opinion  on  these
financial statements based on our audits.                                       

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the  amounts  and  disclosures  in  the  financial  statements.  Our
procedures included confirmation of securities owned as of December 31, 1999, by
correspondence  with the transfer agents.  An audit also includes  assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.  We believe that our
audits provide a reasonable basis for our opinion.                              

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the individual and combined  financial  position of the
respective  divisions of Principal Life Insurance  Company Separate Account B at
December 31, 1999, and the individual and combined  results of their  operations
and the  changes  in their  net  assets  for the  periods  described  above,  in
conformity with accounting principles generally accepted in the United States.  

/s/ Ernst & Young LLP                                                           

Des Moines, Iowa                                                                
January 31, 2000                                                                

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Principal Life Insurance Company
Separate Account B

Statements of Net Assets

 December 31, 1999

                                                        [Enlarge/Download Table]

                                                                                                            
Assets                                                                                                      
Investments:                                                                                                
     Aggressive Growth Division:                                                                            
         Aggressive Growth Account - 14,480,324 shares at net asset value of $23.89                         
              per share (cost - $247,636,940)                                                $   345,934,950
AIM V.I. Growth Division:                                                                                   
         AIM V.I. Growth Fund - 367,954 shares at net asset value of                                        
              $32.25 per share (cost - $10,843,312)                                               11,866,523
AIM V.I. Growth and Income Division:                                                                        
         AIM V.I. Growth and Income Fund - 572,233 shares at net asset value                                
              of $31.59 per share (cost - $15,842,561)                                            18,076,830
AIM V.I. Value Division:                                                                                    
         AIM V.I. Value Fund - 396,108 shares at net asset value of                                         
              $33.50 per share (cost - $12,184,028)                                               13,269,626
American Century VP Growth & Income Division:                                                               
         American Century Variable Portfolios Inc.: VP Income & Growth - 59,948                             
              shares at net asset value of $8.00 per share (cost - $452,533)                         479,584
Asset Allocation Division:                                                                                  
         Asset Allocation Account - 5,825,489 shares at net asset value of                                  
              $13.23 per share (cost - $69,961,149)                                               77,071,217
Balanced Division:                                                                                          
         Balanced Account - 12,810,215 shares at net asset value                                            
              of $15.41 per share (cost - $195,788,197)                                          197,405,415
Blue Chip Division:                                                                                         
         Blue Chip Account - 121,699 shares at net asset value of                                           
              $10.38 per share (cost - $1,209,626)                                                 1,263,239
Bond Division:                                                                                              
         Bond Account - 10,877,467 shares at net asset value of                                             
              $10.89 per share (cost - $127,987,262)                                             118,455,611
Capital Value Division:                                                                                     
         Capital Value Account - 10,954,082 shares at net asset value of                                    
              $30.74 per share (cost - $347,959,367)                                             336,728,479
Fidelity VIP II Contrafund Division:                                                                        
         Fidelity Variable Insurance Products Fund II: Fidelity VIP II Contrafund Portfolio                 
              -557,500 shares at net asset value of $29.10 per share (cost - $14,465,592)         16,223,239
Fidelity VIP Growth Division:                                                                               
         Fidelity Variable Insurance Products Fund: Fidelity VIP Growth Portfolio -                         
              318,430 shares at net asset value of $54.80 per share (cost - $15,490,259)          17,449,942
Government Securities Division:                                                                             
         Government Securities Account - 13,106,099 shares at                                               
              net asset value of $10.26 per share (cost - $140,102,412)                          134,468,582
Growth Division:                                                                                            
         Growth Account - 14,144,733 shares at net asset value of                                           
              $23.56 per share (cost - $225,380,262)                                             333,249,917

See accompanying notes.                                                                                     

Assets (continued)                                                                                          
International Division:                                                                                     
     International Account - 11,452,229 shares at net asset value of                                        
              $15.95 per share (cost - $152,867,356)                                         $   182,663,050
International SmallCap Division:                                                                            
     International SmallCap Account - 1,285,315 shares at net asset                                         
              value of $16.66 per share (cost - $15,116,129)                                      21,413,344
LargeCap Growth Division:                                                                                   
         LargeCap Growth Account - 31,315 shares at net asset value of                                      
              $13.26 per share (cost - $348,017)                                                     415,243
MicroCap Division:                                                                                          
         MicroCap Account - 239,140 shares at net asset value of                                            
              $8.07 per share (cost - $2,025,966)                                                  1,929,858
MidCap Division:                                                                                            
         MidCap Account - 6,237,946 shares at net asset value of                                            
              $36.90 per share (cost - $185,823,068)                                             230,180,208
MidCap Growth Division:                                                                                     
         MidCap Growth Account - 746,126 shares at net asset value                                          
              of $10.66 per share (cost - $6,962,670)                                              7,953,706
MidCap Value Division:                                                                                      
         MidCap Value Account - 18,033 shares at net asset value of                                         
              $11.11 per share (cost - $182,264)                                                     200,351
Money Market Division:                                                                                      
         Money Market Account - 105,970,695 shares at net asset value of $1.00 per share         105,970,695
Real Estate Division:                                                                                       
         Real Estate Account - 278,645 shares at net asset value of $8.20                                   
              per share (cost - $2,533,981)                                                        2,284,887
SmallCap Division:                                                                                          
         SmallCap Account - 1,328,035 shares at net asset value of $10.74                                   
              per share (cost - $12,087,261)                                                      14,263,092
SmallCap Growth Division:                                                                                   
         SmallCap Growth Account - 1,417,579 shares at net asset value of                                   
              $19.56 per share (cost - $18,398,605)                                               27,727,835
SmallCap Value Division:                                                                                    
         SmallCap Value Account - 539,656 shares at net asset value                                         
              of $10.06 per share (cost - $4,578,677)                                              5,428,934
Stock Index 500 Division:                                                                                   
         Stock Index 500 Account - 2,676,801 shares at net asset value of                                   
              $10.71 per share (cost - $26,690,451)                                               28,668,536
Templeton VP Stock Division:                                                                                
         Templeton Variable Products Series Fund: Templeton Stock Fund Class 2 -                            
              9,444 shares at net asset value of $24.29 per share (cost - $206,732)                  229,397
Utilities Division:                                                                                         
         Utilities Account - 1,774,898 shares at net asset value of $10.90 per share                        
              (cost - $18,915,925)                                                                19,346,388

Combined net assets                                                                           $2,270,618,678

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Principal Life Insurance Company
Separate Account B

Statements of Net Assets (continued)

 December 31, 1999

                                                        [Enlarge/Download Table]


                                                      Units  Unit                    
                                                             Value                   
                                                                                     
Net assets are represented by:                                                       
   Aggressive Growth Division:                                                       
     Contracts in accumulation period:                                               
       The Principal Variable Annuity             9,017,582   $38.36   $345,934,950  

AIM V.I. Growth Division:                                                            
     Contracts in accumulation period:                                               
       The Principal Variable Annuity               968,222    12.26     11,866,523  

AIM V.I. Growth and Income Division:                                                 
     Contracts in accumulation period:                                               
       The Principal Variable Annuity             1,493,915    12.10     18,076,830  

AIM V.I. Value Division:                                                             
     Contracts in accumulation period:                                               
       The Principal Variable Annuity             1,148,659    11.55     13,269,626  

American Century VP Growth & Income Division:                                        
     Contracts in accumulation period:                                               
       Principal Freedom Variable Annuity            43,170    11.11        479,584  

Asset Allocation Division:                                                           
     Contracts in accumulation period:                                               
       The Principal Variable Annuity             3,913,104    19.70     77,071,217  

Balanced Division:                                                                   
     Contracts in accumulation period:                                               
       Personal Variable                          2,848,631     1.80      5,131,683  
       Premier Variable                          16,370,101     1.82     29,830,647  
       The Principal Variable Annuity             9,102,804    17.85    162,443,085  

                                                                        197,405,415  
Blue Chip Division:                                                                  
     Contracts in accumulation period:                                               
     Principal Freedom Variable Annuity             123,177    10.26      1,263,239  

Bond Division:                                                                       
     Contracts in accumulation period:                                               
       Personal Variable                            998,334     1.42      1,421,734  
       Premier Variable                           7,414,544     1.44     10,676,104  
       Principal Freedom Variable Annuity           107,056     9.71      1,039,234  
       The Principal Variable Annuity             7,677,363    13.72    105,318,539  

                                                                        118,455,611  

See accompanying notes.                                                              

                                                      Units    Unit                  
                                                               Value                 

Net assets are represented by (continued):                                           
   Capital Value Division:                                                           
     Currently payable annuity contracts:                                            
       Bankers Flexible Annuity                       3,544    30.01   $    106,344  
       Pension Builder Plus - Rollover IRA           50,709     6.17        313,027  
       Premier Variable                             135,307     2.56        346,812  

                                                                            766,183  
     Contracts in accumulation period:                                               
       Bankers Flexible Annuity                     199,132   $30.01      5,976,135  
       Pension Builder Plus                       1,091,155     5.54      6,047,096  
       Pension Builder Plus - Rollover IRA          167,496     6.17      1,033,755  
       Personal Variable                          4,014,371     2.52     10,123,021  
       Premier Variable                          22,330,793     2.56     57,237,192  
       Principal Freedom Variable Annuity           103,107     8.87        914,718  
       Principal Variable Annuity                11,633,608    21.89    254,630,379  

                                                                        335,962,296  

                                                                        336,728,479  
   Fidelity VIP II Contrafund Division:                                              
     Contracts in accumulation period:                                               
       The Principal Variable Annuity             1,436,477    11.29     16,223,239  

   Fidelity VIP Growth Division:                                                     
     Contracts in accumulation period:                                               
       The Principal Variable Annuity             1,441,196    12.11     17,449,942  

   Government Securities Division:                                                   
     Contracts in accumulation period:                                               
       Pension Builder Plus                         356,199     2.14        760,507  
       Pension Builder Plus - Rollover IRA           30,817     2.28         70,140  
       Personal Variable                          2,110,735     1.51      3,182,014  
       Premier Variable                           8,431,716     1.53     12,921,136  
       The Principal Variable Annuity             8,553,790    13.74    117,534,785  

                                                                        134,468,582  
   Growth Division:                                                                  
     Contracts in accumulation period:                                               
       Personal Variable                          3,115,301     2.46      7,664,116  
       Premier Variable                          20,774,213     2.49     51,676,583  
       The Principal Variable Annuity            10,998,654    24.90    273,909,218  

                                                                        333,249,917  
   International Division:                                                           
     Contracts in accumulation period:                                               
       Personal Variable                          1,754,632     2.06      3,619,950  
       Premier Variable                          10,814,176     2.09     22,547,859  
       Principal Freedom Variable Annuity            53,300    11.68        622,564  
       The Principal Variable Annuity             7,798,860    19.99    155,872,677  

                                                                        182,663,050  
   International SmallCap Division:                                                  
     Contracts in accumulation period:                                               
       The Principal Variable Annuity             1,246,116    17.18     21,413,344  

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             Principal Life Insurance Company                                        
                    Separate Account B                                               

           Statements of Net Assets (continued)                                      

                     December 31, 1999                                               

                                                      Units    Unit                  
                                                               Value                 

Net assets are represented by (continued):                                           
   LargeCap Growth Division:                                                         
     Contracts in accumulation period:                                               
       Principal Freedom Variable Annuity            31,275    $13.28  $    415,243  

   MicroCap Division:                                                                
     Contracts in accumulation period:                                               
       The Principal Variable Annuity               243,675     7.92      1,929,858  

   MidCap Division:                                                                  
     Contracts in accumulation period:                                               
       Personal Variable                          2,156,005     2.16      4,654,699  
       Premier Variable                          12,882,746     2.18     28,134,044  
       Principal Freedom Variable Annuity            32,346    10.94        353,982  
       The Principal Variable Annuity             9,229,032    21.35    197,037,483  

                                                                        230,180,208  
   MidCap Growth Division:                                                           
     Contracts in accumulation period:                                               
       Principal Freedom Variable Annuity             9,046    11.28        102,078  
       The Principal Variable Annuity               746,186    10.52      7,851,628  

                                                                          7,953,706  
   MidCap Value Division:                                                            
     Contracts in accumulation period:                                               
       Principal Freedom Variable Annuity            17,888    11.20        200,351  

   Money Market Division:                                                            
     Contracts in accumulation period:                                               
       Pension Builder Plus                         338,145     2.01        680,364  
       Pension Builder Plus - Rollover IRA           10,610     2.12         22,536  
       Personal Variable                          1,512,864     1.33      2,009,728  
       Premier Variable                          10,632,065     1.35     14,359,351  
       Principal Freedom Variable Annuity            94,450    10.25        968,430  
       The Principal Variable Annuity             7,145,096    12.31     87,930,286  

                                                                        105,970,695  
   Real Estate Division:                                                             
     Contracts in accumulation period:                                               
       The Principal Variable Annuity               261,126     8.75      2,284,887  

   SmallCap Division:                                                                
     Contracts in accumulation period:                                               
       Principal Freedom Variable Annuity            49,733    13.79        685,747  
       The Principal Variable Annuity             1,207,717    11.24     13,577,345  

                                                                         14,263,092  

See accompanying notes.                                                              
                                                      Units    Unit                  
                                                               Value                 

Net assets are represented by (continued):                                           
   SmallCap Growth Division:                                                         
     Contracts in accumulation period:                                               
       Principal Freedom Variable Annuity            24,440    $17.18  $    419,827  
       The Principal Variable Annuity             1,388,214    19.67     27,308,008  

                                                                         27,727,835  
   SmallCap Value Division:                                                          
     Contracts in accumulation period:                                               
       The Principal Variable Annuity               536,295    10.12      5,428,934  

   Stock Index 500 Division:                                                         
     Contracts in accumulation period:                                               
       Principal Freedom Variable Annuity           301,818    10.98      3,315,448  
       The Principal Variable Annuity             2,314,127    10.96     25,353,088  

                                                                         28,668,536  
   Templeton VP Stock Division:                                                      
     Contracts in accumulation period:                                               
       Principal Freedom Variable Annuity            19,975    11.48        229,397  

   Utilities Division:                                                               
     Contracts in accumulation period:                                               
       The Principal Variable Annuity             1,670,481    11.58     19,346,388  

Combined net assets                                                    $2,270,618,678


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Principal Life Insurance Company
Separate Account B

Statements of Operations

Year ended December 31, 1999

                                                        [Enlarge/Download Table]

                                                                                                  AIM V.I.  
                                                                Aggressive        AIM V.I.       Growth and 
                                                                  Growth          Growth           Income   
                                                    Combined     Division       Division (2)    Division (2)
                                                                                                            
Investment income                                                                                           
Income:                                                                                                     
   Dividends                                     $  45,282,090    $        -   $     17,806   $     77,291  
   Capital gains distributions                     105,806,830    21,397,989        312,127         53,367  

Total income                                       151,088,920    21,397,989        329,933        130,658  

Expenses:                                                                                                   
   Mortality and expense risks                      22,763,225     3,276,716         20,980         34,219  
   Administration charges                              742,370       194,565            456            385  
   Contingent sales charges                          3,165,426       457,098          3,214          4,269  

                                                    26,671,021     3,928,379         24,650         38,873  

Net investment income (loss)                       124,417,899    17,469,610        305,283         91,785  

Realized and unrealized gains (losses)                                                                      
on investments                                                                                              
Net realized gains (losses) on investments          22,090,229     3,196,766          6,593            573  
Change in net unrealized appreciation or                                                                    
   depreciation of investments                      63,116,910    68,126,668      1,023,211      2,234,269  

Net increase (decrease) in net assets resulting                                                             
   from operations                                $209,625,038    $88,793,044    $1,335,087     $2,326,627  

<FN>                                                                                                        
(1)  Commenced operations April 30, 1999.                                                                   
(2)  Commenced operations July 30, 1999.                                                                    
</FN>                                                                                                       

See accompanying notes.                                                         

                                                        [Enlarge/Download Table]

                   American                                                            
                 Century VP                                                            
   AIM V.I.        Growth &       Asset                                                
     Value         Income       Allocation    Balanced       Blue Chip                 
 Division (2)    Division (1)    Division     Division      Division (1)  Bond Division

                                                                                       
$     29,001   $         -     $  1,831,944  $  6,834,925      $10,146    $  8,279,063 
     151,654             -        5,618,939     7,645,759            -               - 

     180,655                      7,450,883    14,480,684       10,146       8,279,063 

      26,428         1,079          854,745     2,242,611        2,912       1,408,549 
         430             -           13,026        58,446            -          24,428 
       1,915             2           91,473       294,250            4         186,790 

      28,773         1,081          959,244     2,595,307        2,916       1,619,767 

     151,882        (1,081)       6,491,639    11,885,377        7,230       6,659,296 

         891          (497)         481,462     1,484,227        2,512        (108,685)

   1,085,598        27,051        4,561,739   (11,427,368)      53,613     (11,364,679)

  $1,238,371       $25,473      $11,534,840  $  1,942,236      $63,355    $ (4,814,068)


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Principal Life Insurance Company
Separate Account B

Statements of Operations (continued)

Year ended December 31, 1999

                                                        [Enlarge/Download Table]

                                                          Fidelity VIP II  Fidelity VIP    Government 
                                           Capital Value    Contrafund       Growth         Securities
                                             Division      Division (2)    Division (2)     Division  
                                                                                                      
Investment income                                                                                     
Income:                                                                                               
   Dividends                              $   7,693,507       $        -    $        -   $ 8,714,628  
   Capital gains distributions               38,733,240                -             -             -  

Total income                                 46,426,747                -             -     8,714,628  

Expenses:                                                                                             
   Mortality and expense risks                4,005,315           34,580        31,417     1,602,756  
   Administration charges                       156,269              665           492        43,008  
   Contingent sales charges                     498,264            1,863         3,790       242,416  

                                              4,659,848           37,108        35,699     1,888,180  

Net investment income (loss)                 41,766,899          (37,108)      (35,699)    6,826,448  

Realized and unrealized gains                                                                         
(losses) on investments                                                                               
Net realized gains (losses) on                                                                        
   investments                                4,658,058            1,648         5,275       484,422  
Change in net unrealized appreciation                                                                 
   or depreciation of investments           (67,359,377)       1,757,647     1,959,683    (9,574,634) 

Net increase (decrease) in net asset                                                                  
    resulting from operations              $(20,934,420)      $1,722,187    $1,929,259   $(2,263,764) 

<FN>                                                                                                  
(1)  Commenced operations April 30, 1999.                                                             
(2)  Commenced operations July 30, 1999.                                                              
</FN>                                                                                                 

See accompanying notes.                                                         

                                                        [Enlarge/Download Table]

                                 International   LargeCap                              
    Growth        International   SmallCap       Growth        MicroCap       MidCap   
   Division         Division      Division      Division(1)    Division      Division  

                                                                                       
$  1,947,097   $  4,726,274      $         -    $         -   $   2,813   $     703,317
   1,329,905     17,318,991          862,692              -           -      10,660,187

   3,277,002     22,045,265          862,692              -       2,813      11,363,504

   3,297,312      1,777,625          105,356            782      19,385       2,532,895
     123,956         33,015            2,741              -         495          51,070
     372,883        228,462            5,566              4       1,058         372,706

   3,794,151      2,039,102          113,663            786      20,938       2,956,671

    (517,149)    20,006,163          749,029           (786)    (18,125)      8,406,833

   4,769,748      1,999,070          155,306           (259)    (21,284)      4,548,722

  37,519,367     13,548,007        6,340,627         67,226     (16,637)     10,460,479

 $41,771,966    $35,553,240       $7,244,962        $66,181    $(56,046)    $23,416,034


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Principal Life Insurance Company
Separate Account B

Statements of Operations (continued)

Year ended December 31, 1999

                                                        [Enlarge/Download Table]


                                          MidCap         MidCap          Money               
                                          Growth          Value         Market    Real Estate
                                         Division     Division (1)     Division    Division  
                                                                                             
Investment income                                                                            
Income:                                                                                      
   Dividends                              $  13,485       $     303   $3,691,350  $ 117,060  
   Capital gains distributions                    -           3,640            -          -  

Total income                                 13,485           3,943    3,691,350    117,060  

Expenses:                                                                                    
   Mortality and expense risks               64,265             494      869,510     27,254  
   Administration charges                     1,602               -       23,537        383  
   Contingent sales charges                   3,790               -      357,209      1,571  

                                             69,657             494    1,250,256     29,208  

Net investment income (loss)                (56,172)          3,449    2,441,094     87,852  

Realized and unrealized gains                                                                
(losses) on investments                                                                      
Net realized gains (losses) on                                                               
   investments                               29,979             (55)           -    (22,348) 
Change in net unrealized appreciation                                                        
    or depreciation of investments          706,786          18,087            -   (203,890) 

Net increase (decrease) in net assets                                                        
   resulting from operations               $680,593         $21,481   $2,441,094  $(138,386) 

<FN>                                                                                         
(1) Commenced operations April 30, 1999.                                                     
</FN>                                                                                        

See accompanying notes.                                                         

                                                                [Download Table]

               SmallCap                      Stock         Templeton              
 SmallCap       Growth      SmallCap       Index 500       VP Stock    Utilities  
 Division      Division  Value Division  Division (1)    Division (1)  Division   

                                                                                  
$    4,386  $        -        $  34,529     $   160,270     $     -      $392,895 
 1,164,756     260,578               -         207,423            -        85,583 

 1,169,142     260,578          34,529         367,693            -       478,478 

    95,691     104,663          48,384         106,102          537       170,663 
     2,565       3,410             893           1,910            -         4,623 
     5,893       6,248           2,023          10,768            2        11,895 

   104,149     114,321          51,300         118,780          539       187,181 

 1,064,993     146,257         (16,771)        248,913         (539)      291,297 

   181,690     159,077          28,958           4,053         (696)       45,023 

 2,055,517   8,873,343         830,881       1,978,085       22,665      (187,054)

$3,302,200  $9,178,677        $843,068      $2,231,051      $21,430      $149,266 


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Principal Life Insurance Company
Separate Account B
 Statements of Changes in Net Assets
Years ended December 31, 1999 and 1998

                                                        [Enlarge/Download Table]

                                                                                                       AIM V.I.  
                                                                       Aggrewssive       AIM V.I.     Growth and 
                                                                         Growth           Growth        Income   
                                                       Combined         Division       Division (3)  Division (3)
                                                                                                                 
Net assets at January 1, 1998                         $1,288,183,210   $143,957,816$            -    $         - 
Increase (decrease) in net assets                                                                                
Operations:                                                                                                      
   Net investment income (loss)                           65,953,139      7,934,103             -              - 
   Net realized gains (losses) on investments             12,416,637      2,390,605             -              - 
   Change in net unrealized appreciation or                                                                      
     depreciation of investments                          69,585,710     16,690,371             -              - 

Net increase (decrease) in net assets resulting from                                                             
   operations                                            147,955,486     27,015,079             -              - 
Changes from principal transactions:                                                                             
   Purchase payments, less sales charges, per                                                                    
     payment fees and applicable premium taxes           880,179,184     89,426,487             -              - 
   Contract terminations                                 (82,987,332)    (7,493,332)            -              - 
   Death benefit payments                                 (6,720,662)      (574,590)            -              - 
   Flexible withdrawal option payments                   (13,530,855)    (1,052,669)            -              - 
   Transfer payments to other contracts                 (410,965,015)   (42,840,180)            -              - 
   Annuity payments                                          (47,900)             -             -              - 

Increase in net assets from principal transactions       365,927,420     37,465,716             -              - 

Total increase                                           513,882,906     64,480,795             -              - 

Net assets at December 31, 1998                        1,802,066,116    208,438,611             -              - 
Increase (decrease) in net assets                                                                                
Operations:                                                                                                      
   Net investment income (loss)                          124,417,899     17,469,610       305,283         91,785 
   Net realized gains (losses) on investments             22,090,229      3,196,766         6,593            573 
   Change in net unrealized appreciation or                                                                      
     depreciation of investments                          63,116,910     68,126,668     1,023,211      2,234,269 

Net increase (decrease) in net assets resulting from                                                             
   operations                                            209,625,038     88,793,044     1,335,087      2,326,627 
Changes from principal transactions:                                                                             
   Purchase payments, less sales charges, per                                                                    
     payment fees and applicable premium taxes           910,344,713    101,064,152    11,334,680     16,624,717 
   Contract terminations                                (141,526,084)   (15,104,428)     (106,201)      (141,058)
   Death benefit payments                                (10,198,348)      (983,013)            -              - 
   Flexible withdrawal option payments                   (21,852,225)    (1,779,766)      (15,533)       (59,632)
   Transfer payments to other contracts                 (477,791,128)   (34,493,650)     (681,510)      (673,824)
   Annuity payments                                          (49,404)             -             -              - 

Increase (decrease) in net assets from principal                                                                 
   transactions                                          258,927,524     48,703,295    10,531,436     15,750,203 

Total increase (decrease)                                468,552,562    137,496,339    11,866,523     18,076,830 

Net assets at December 31, 1999                       $2,270,618,678   $345,934,950   $11,866,523    $18,076,830 

<FN>                                                                                                             
(1)  Commenced operations May 1, 1998.                                                                           
(2)  Commenced operations April 30, 1999.                                                                        
(3)  Commenced operations July 30, 1999.                                                                         
</FN>                                                                                                            

See accompanying notes.                                                         

                                                        [Enlarge/Download Table]

                  American                                                                              
                 Century VP                                                                             
  AIM V.I.        Growth &       Asset                                                       Capital    
    Value          Income     Allocation     Balanced         Blue Chip                       Value     
Division (3)    Division (2)   Division      Division       Division (2)   Bond Division    Division    

                                                                                                        
  $         -      $      -    $48,511,958   $127,099,255     $        -    $ 73,489,868   $269,251,746 

            -             -      2,564,027      9,165,298              -       4,819,740     14,865,520 
            -             -        109,943        612,459              -         256,093      3,370,612 

            -             -      1,193,914      5,916,307              -         403,378     16,709,725 

            -             -      3,867,884     15,694,064              -       5,479,211     34,945,857 

            -             -     20,700,753     75,135,480              -      58,231,814    104,873,017 
            -             -     (2,607,601)    (7,275,303)             -      (4,182,861)   (20,291,443)
            -             -       (356,750)      (782,491)             -        (501,389)    (1,069,753)
            -             -       (647,508)    (2,009,052)             -      (1,522,331)    (2,067,909)
            -             -     (6,686,437)   (20,238,081)             -     (14,012,541)   (27,234,001)
            -             -              -              -              -               -        (47,900)

            -             -     10,402,457     44,830,553              -      38,012,692     54,162,011 

            -             -     14,270,341     60,524,617              -      43,491,903     89,107,868 

            -             -     62,782,299    187,623,872              -     116,981,771    358,359,614 

      151,882        (1,081)     6,491,639     11,885,377          7,230       6,659,296     41,766,899 
          891          (497)       481,462      1,484,227          2,512        (108,685)     4,658,058 

    1,085,598        27,051      4,561,739    (11,427,368)        53,613     (11,364,679)   (67,359,377)

    1,238,371        25,473     11,534,840      1,942,236         63,355      (4,814,068)   (20,934,420)

   13,050,220       524,993     14,766,942     53,940,183      1,333,008      42,269,162     78,514,936 
      (63,264)       (1,423)    (3,022,661)   (14,926,025)        (3,596)     (7,755,652)   (27,487,047)
            -             -       (516,925)    (1,306,378)             -      (1,261,033)    (1,652,461)
      (34,809)       (2,610)      (881,819)    (2,961,604)       (51,191)     (2,492,384)    (3,352,498)
     (920,892)      (66,849)    (7,591,459)   (26,906,869)       (78,337)    (24,472,185)   (46,670,241)
            -             -              -              -              -               -        (49,404)

   12,031,255       454,111      2,754,078      7,839,307      1,199,884       6,287,908       (696,715)

   13,269,626       479,584     14,288,918      9,781,543      1,263,239       1,473,840    (21,631,135)

  $13,269,626      $479,584    $77,071,217   $197,405,415     $1,263,239    $118,455,611   $336,728,479 


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Principal Life Insurance Company
Separate Account B
 Statements of Changes in Net Assets (continued)
Years ended December 31, 1999 and 1998

                                                        [Enlarge/Download Table]

                                                      Fidelity VIP II  Fidelity VIP   Government                 
                                                        Contrafund        Growth      Securities        Growth   
                                                       Division (3)    Division (3)    Division        Division  

                                                                                                                 
Net assets at January 1, 1998                             $       -    $         -   $ 92,854,016   $165,813,925 
Increase (decrease) in net assets                                                                                
Operations:                                                                                                      
   Net investment income (loss)                                   -              -      5,457,597      2,355,086 
   Net realized gains (losses) on investments                     -              -        519,217      2,312,393 
   Change in net unrealized appreciation or                                                                      
     depreciation of investments                                  -              -      1,581,620     32,170,680 

Net increase (decrease) in net assets resulting from                                                             
   operations                                                     -              -      7,558,434     36,838,159 
Changes from principal transactions:                                                                             
   Purchase payments, less sales charges, per                                                                    
     payment fees and applicable premium taxes                    -              -     63,571,935     84,755,953 
   Contract terminations                                          -              -     (6,906,897)    (9,260,589)
   Death benefit payments                                         -              -       (712,491)      (806,053)
   Flexible withdrawal option payments                            -              -     (1,740,621)    (1,381,999)
   Transfer payments to other contracts                           -              -    (17,983,933)   (22,495,558)
   Annuity payments                                               -              -              -              - 

Increase in net assets from principal transactions                -              -     36,227,993     50,811,754 

Total increase                                                    -              -     43,786,427     87,649,913 

Net assets at December 31, 1998                                   -              -    136,640,443    253,463,838 
Increase (decrease) in net assets                                                                                
Operations:                                                                                                      
   Net investment income (loss)                             (37,108)       (35,699)     6,826,448       (517,149)
   Net realized gains (losses) on investments                 1,648          5,275        484,422      4,769,748 
   Change in net unrealized appreciation or                                                                      
     depreciation of investments                          1,757,647      1,959,683     (9,574,634)    37,519,367 

Net increase (decrease) in net assets resulting from                                                             
   operations                                             1,722,187      1,929,259     (2,263,764)    41,771,966 
Changes from principal transactions:                                                                             
   Purchase payments, less sales charges, per                                                                    
     payment fees and applicable premium taxes           14,931,250     16,698,633     47,743,208     91,335,475 
   Contract terminations                                    (61,565)      (125,229)   (10,465,377)   (19,217,469)
   Death benefit payments                                         -              -     (1,341,588)    (1,006,757)
   Flexible withdrawal option payments                      (24,879)       (26,375)    (2,664,620)    (2,479,569)
   Transfer payments to other contracts                    (343,754)    (1,026,346)   (33,179,720)   (30,617,567)
   Annuity payments                                               -              -              -              - 

Increase (decrease) in net assets from principal                                                                 
    transactions                                         14,501,052     15,520,683         91,903     38,014,113 

Total increase (decrease)                                16,223,239     17,449,942     (2,171,861)    79,786,079 

Net assets at December 31, 1999                         $16,223,239    $17,449,942   $134,468,582   $333,249,917 

<FN>                                                                                                             
(1)      Commenced operations May 1, 1998.                                                                       
(2)      Commenced operations April 30, 1999.                                                                    
(3)      Commenced operations July 30, 1999.                                                                     
</FN>                                                                                                            

See accompanying notes.                                                         

                                                                [Download Table]

               International    LargeCap                               
International    SmallCap        Growth       MicroCap       MidCap    
  Division     Division (1)   Division (2)  Division (1)    Division   

                                                                       
$121,436,154    $         -      $      -    $        -   $204,088,063 

   5,420,947         (7,494)            -        (1,807)    11,348,399 
   1,240,861        (34,310)            -       (30,669)     1,666,097 
   3,163,616        (43,412)            -       (79,471)    (9,573,159)

   9,825,424        (85,216)            -      (111,947)     3,441,337 

  43,354,442      4,389,570             -     1,525,355     66,169,872 
  (6,288,874)        (3,166)            -       (13,672)   (11,333,222)
    (361,156)             -             -             -       (893,824)
    (842,431)        (8,380)            -          (764)    (1,395,916)
 (22,528,113)      (534,238)                   (252,998)   (27,342,936)
           -              -             -             -              - 

  13,333,868      3,843,786             -     1,257,921     25,203,974 

  23,159,292      3,758,570             -     1,145,974     28,645,311 

 144,595,446      3,758,570             -     1,145,974    232,733,374 

  20,006,163        749,029          (786)      (18,125)     8,406,833 
   1,999,070        155,306          (259)      (21,284)     4,548,722 

  13,548,007      6,340,627        67,226       (16,637)    10,460,479 

  35,553,240      7,244,962        66,181       (56,046)    23,416,034 

  34,132,051     13,166,004       375,030     1,266,131     35,597,163 
 (10,091,869)      (183,916)       (3,596)      (34,951)   (16,031,613)
    (525,124)       (45,140)            -        (1,942)      (831,361)
  (1,246,885)       (74,313)         (687)       (3,256)    (1,703,550)
 (19,753,809)    (2,452,823)      (21,685)     (386,052)   (42,999,839)
           -              -             -             -              - 

   2,514,364     10,409,812       349,062       839,930    (25,969,200)

  38,067,604     17,654,774       415,243       783,884     (2,553,166)

$182,663,050    $21,413,344      $415,243    $1,929,858   $230,180,208 


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Principal Life Insurance Company
Separate Account B
 Statements of Changes in Net Assets (continued)
Years ended December 31, 1999 and 1998

                                                        [Enlarge/Download Table]

                                                         MidCap         MidCap         Money                  
                                                         Growth          Value        Market       Real Estate
                                                      Division (1)   Division (2)    Division     Division (1)

                                                                                                              
Net assets at January 1, 1998                           $        -      $      -   $  41,680,409   $        - 
Increase (decrease) in net assets                                                                             
Operations:                                                                                                   
Net investment income (loss)                               (13,725)            -      1,944,535        44,944 
Net realized gains (losses) on investments                  (8,805)            -              -        (1,854)
   Change in net unrealized appreciation or                                                                   
     depreciation of investments                           284,250             -              -       (45,204)

Net increase (decrease) in net assets resulting from                                                          
   operations                                              261,720             -      1,944,535        (2,114)
Changes from principal transactions:                                                                          
   Purchase payments, less sales charges, per                                                                 
     payment fees and applicable premium taxes           3,381,739             -    245,196,048     1,979,207 
   Contract terminations                                   (46,096)            -     (7,232,550)       (6,972)
   Death benefit payments                                        -             -       (658,257)            - 
   Flexible withdrawal option payments                      (5,134)            -       (797,929)       (4,598)
   Transfer payments to other contracts                   (203,258)            -   (206,535,244)     (152,812)
   Annuity payments                                              -             -              -             - 

Increase in net assets from principal transactions       3,127,251             -     29,972,068     1,814,825 

Total increase                                           3,388,971             -     31,916,603     1,812,711 

Net assets at December 31, 1998                          3,388,971             -     73,597,012     1,812,711 
Increase (decrease) in net assets                                                                             
Operations:                                                                                                   
   Net investment income (loss)                            (56,172)        3,449      2,441,094        87,852 
   Net realized gains (losses) on investments               29,979           (55)             -       (22,348)
   Change in net unrealized appreciation or                                                                   
     depreciation of investments                           706,786        18,087              -      (203,890)

Net increase (decrease) in net assets resulting from                                                          
   operations                                              680,593        21,481      2,441,094      (138,386)
Changes from principal transactions:                                                                          
   Purchase payments, less sales charges, per                                                                 
     payment fees and applicable premium taxes           5,299,244       199,655    238,793,125     1,050,155 
   Contract terminations                                  (125,252)            -    (15,296,261)      (51,913)
   Death benefit payments                                  (60,684)            -       (340,462)       (1,942)
   Flexible withdrawal option payments                     (41,920)       (1,137)    (1,358,192)      (39,089)
   Transfer payments to other contracts                 (1,187,246)      (19,648)  (191,865,621)     (346,649)
   Annuity payments                                              -             -              -             - 

Increase (decrease) in net assets from principal                                                              
   transactions                                          3,884,142       178,870     29,932,589       610,562 

Total increase (decrease)                                4,564,735       200,351     32,373,683       472,176 

Net assets at December 31, 1999                         $7,953,706      $200,351   $105,970,695    $2,284,887 

<FN>                                                                                                          
(1)  Commenced operations May 1, 1998.                                                                        
(2)  Commenced operations April 30, 1999.                                                                     
(3)  Commenced operations July 30, 1999.                                                                      
</FN>                                                                                                         

See accompanying notes.                                                         

                                                        [Enlarge/Download Table]

                  SmallCap      SmallCap         Stock        Templeton               
  SmallCap         Growth        Value         Index 500      VP Stock      Utilities 
Division  (1)  Division  (1)  Division (1)   Division (2)   Division (2)  Division (1)

                                                                                      
 $         -    $        -      $       -     $         -     $      -    $         - 

     (13,548)       (11,681)          (737)             -            -         81,935 
      (4,971)         1,417         (6,817)             -            -         24,366 
     120,314        455,888         19,376              -            -        617,517 

     101,795        445,624         11,822              -            -        723,818 

   3,787,231      3,229,155      2,802,830              -            -      7,668,296 
      (3,155)       (12,246)       (10,976)             -            -        (18,377)
           -         (3,908)             -              -            -              - 
      (9,905)        (1,997)        (9,311)             -            -        (32,401)
    (240,611)      (456,290)      (215,381)             -            -     (1,012,403)
           -              -              -              -            -              - 

   3,533,560      2,754,714      2,567,162              -            -      6,605,115 

   3,635,355      3,200,338      2,578,984              -            -      7,328,933 

   3,635,355      3,200,338      2,578,984              -            -      7,328,933 

   1,064,993        146,257        (16,771)       248,913         (539)       291,297 
     181,690        159,077         28,958          4,053         (696)        45,023 

   2,055,517      8,873,343        830,881      1,978,085       22,665       (187,054)

   3,302,200      9,178,677        843,068      2,231,051       21,430        149,266 

  10,140,290     19,156,102      2,804,702     28,866,212      233,152     15,134,138 
    (194,731)      (206,447)       (66,861)      (363,196)      (1,423)      (393,060)
     (72,373)      (142,968)             -              -            -       (108,197)
     (55,329)       (61,773)       (31,699)      (160,894)        (687)      (245,525)
  (2,492,320)    (3,396,094)      (699,260)    (1,904,637)     (23,075)    (2,519,167)
           -              -              -              -            -              - 

   7,325,537     15,348,820      2,006,882     26,437,485      207,967     11,868,189 

  10,627,737     24,527,497      2,849,950     28,668,536      229,397     12,017,455 

 $14,263,092    $27,727,835     $5,428,934    $28,668,536     $229,397    $19,346,388 


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Principal Life Insurance Company
Separate Account B

 Notes to Financial Statements

 December 31, 1999

1. Investment and Accounting Policies                                           

Principal Life Insurance  Company Separate  Account B (Separate  Account B) is a
segregated  investment  account of Principal Life Insurance  Company  (Principal
Life) and is  registered  under  the  Investment  Company  Act of 1940 as a unit
investment trust, with no stated  limitations on the number of authorized units.
As directed by eligible  contractholders,  each  division of Separate  Account B
invests  exclusively  in  shares  representing   interests  in  a  corresponding
investment  option. As of December 31, 1999,  contractholder  investment options
include the following open-end management investment companies:                 

                                                        [Enlarge/Download Table]
                                                                                                      
Principal Variable Contracts Fund, Inc. (4)            Principal Variable Contracts Fund, Inc. (4)    
   Aggressive Growth Account                              (continued):                                
   Asset Allocation Account                               SmallCap Account (1)                        
   Balanced Account                                       Small Cap Growth Account (1)                
   Blue Chip Account (2)                                  SmallCap Value Account (1)                  
   Bond Account                                           Stock Index 500 Account (2)                 
   Capital Value Account                                  Utilities Account (1)                       
   Government Securities Account                       AIM V.I. Growth Fund (3)                       
   Growth Account                                      AIM V.I. Growth & Income Fund (3)              
   International Account                               AIM V.I. Value Fund (3)                        
   International SmallCap Account (1)                  American Century Variable Portfolios Inc.      
   LargeCap Growth Account (2)                            VP Income & Growth (2)                      
   MicroCap Account (1)                                Fidelity Variable Insurance Products Fund      
   MidCap Account                                         II: Fidelity VIP II Contrafund Portfolio (3)
   MidCap Growth Account (1)                           Fidelity Variable Insurance Products Fund:     
   MidCap Value Account (2)                               Fidelity VIP Growth Portfolio (3)           
   Money Market Account                                Templeton Variable Products Series Fund:       
   Real Estate Account (1)                                Templeton Stock Fund Class 2 (2)            
<FN>                                                                                                  
(1)  Additional  investment  option  available to  contractholders  as of May 1,                      
     1998.                                                                                            
(2)  Additional  investment option available to  contractholders as of April 30,                      
     1999.                                                                                            
(3)  Additional  investment option available to  contractholders  as of July 30,                      
     1999.                                                                                            
(4)  Organized by Principal Life Insurance Company.                                                   
</FN>                                                                                                 

Investments are stated at the closing net asset values per share on December 31,
1999.                                                                           

The  average  cost  method is used to  determine  realized  gains and  losses on
investments.  Dividends  are taken  into  income on an  accrual  basis as of the
ex-dividend date.                                                               

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Principal Life Insurance Company
Separate Account B

 Notes to Financial Statements (continued)

1. Investment and Accounting Policies (continued)                               

Separate  Account  B  supports  the  following  variable  annuity  contracts  of
Principal  Life:  Bankers  Flexible  Annuity  Contracts;  Pension  Builder  Plus
Contracts;  Pension  Builder Plus - Rollover IRA  Contracts;  Personal  Variable
Contracts;  Premier Variable  Contracts;  and The Principal Variable Annuity. On
April 30, 1999,  Principal  Life  introduced a new  product,  Principal  Freedom
Variable  Annuity,  which invests in Separate  Account B.  Contributions  to the
Personal Variable contracts are no longer accepted from new customers, only from
existing customers beginning January 1, 1998.                                   

Use of Estimates in the Preparation of Financial Statements                     

The preparation of Separate  Account B's financial  statements and  accompanying
notes  requires  management to make  estimates and  assumptions  that affect the
amounts reported and disclosed.  These estimates and assumptions could change in
the future as more  information  becomes  known,  which could impact the amounts
reported and disclosed in the financial statements and accompanying notes.      

2. Expenses                                                                     

Principal Life is compensated for the following expenses:                       

Bankers  Flexible  Annuity  Contracts - Mortality  and expense  risks assumed by
Principal Life are compensated  for by a charge  equivalent to an annual rate of
0.48% of the asset value of each contract. An annual administration charge of $7
for each  participant's  account is deducted as compensation for  administrative
expenses.  The  mortality  and expense  risk and annual  administration  charges
amounted to $32,392 and $917,  respectively,  during the year ended December 31,
1999.                                                                           

Pension  Builder  Plus and  Pension  Builder  Plus - Rollover  IRA  Contracts  -
Mortality and expense risks assumed by Principal Life are  compensated  for by a
charge  equivalent  to an  annual  rate  of  1.4965%  (1.0001%  for  a  Rollover
Individual Retirement Annuity) of the asset value of each contract. A contingent
sales charge of up to 7% may be deducted from  withdrawals made during the first
10 years of a  contract,  except for death or  permanent  disability.  An annual
administration  charge  will be  deducted  ranging  from a  minimum  of $25 to a
maximum of $275 depending upon a participant's investment account values and the
number  of  participants   under  the  retirement  plan  and  their  participant
investment   account  value.  The  charges  for  mortality  and  expense  risks,
contingent  sales,  and annual  administration  amounted to  $145,840,  $14, and
$38,283, respectively, during the year ended December 31, 1999.                 

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Principal Life Insurance Company
Separate Account B

 Notes to Financial Statements (continued)

2. Expenses (continued)                                                         

Personal  Variable  Contracts - Mortality and expense risks assumed by Principal
Life are  compensated  for by a charge  equivalent to an annual rate of 0.64% of
the asset value of each contract.  A contingent  sales charge of up to 5% may be
deducted  from  withdrawals  from an investment  account  during the first seven
years from the date the first  contribution which relates to such participant is
accepted by Principal Life. This charge does not apply to withdrawals  made from
investment  accounts  which  correlate to a plan  participant as a result of the
plan  participant's  death or  permanent  disability.  An annual  administration
charge of $34 for each  participant's  account plus 0.35% of the annual  average
balance of investment  account values which correlate to a plan participant will
be deducted on a quarterly  basis.  The charges for mortality and expense risks,
contingent sales and annual  administration  amounted to $219,455,  $46,869, and
$71,216, respectively, during the year ended December 31, 1999.                 

Premier  Variable  Contracts - Mortality  and expense risks assumed by Principal
Life are  compensated  for by a charge  equivalent to an annual rate of 0.42% of
the asset value of each contract. A fixed contract administration charge ranging
from $163 to $250  depending on plan type,  plus a variable  charge ranging from
.06% to .3% of quarterly assets (with a minimum charge of $188) is billed to the
contractholder each quarter.  Additional  quarterly  administration  charges for
recordkeeping  services  are based on the  number of plan  participants  and can
range from a minimum of $512 to $22,579,  plus $3.25 for each  participant  over
5,000.  The  charges  for  mortality  expense  risks and  annual  administration
amounted to $891,515 and $19,221,  respectively,  during the year ended December
31, 1999.                                                                       
There were no contingent sales charges provided for in these contracts.         

The  Principal  Variable  Annuity -  Mortality  and  expense  risks  assumed  by
Principal Life are compensated  for by a charge  equivalent to an annual rate of
1.25% of the asset value of each contract. A contingent sales charge of up to 6%
may be  deducted  from the  withdrawals  made  during  the  first six years of a
contract, except for death, annuitization,  permanent disability, confinement in
a health care facility,  or terminal illness. An annual administration charge of
the lessor of two percent of the accumulated value or $30 is deducted at the end
of the contract year.  Principal Life reserves the right to charge an additional
administrative fee of up to 0.15% of the asset value of each Division.  This fee
is currently being waived.  The mortality  expense risks,  contingent sales, and
annual  administration  amounted  to  $21,448,417,   $3,118,480,  and  $612,733,
respectively, during the year ended December 31, 1999.                          

Principal Freedom Variable Annuity  (beginning in 1999) - Mortality and expenses
risk assumed by Principal Life are compensated for by a charge  equivalent to an
annual rate of 0.85% of the asset value of each  contract.  A  contingent  sales
charge up to 6% may be deducted from the  withdrawals  made during the first six
years of a  contract,  except for death,  annuitization,  permanent  disability,
confinement in a health facility,  or terminal illness.  Principal Life reserves
the right to charge an additional administrative fee of up to 0.15% of the asset
value of each Division.  The mortality expense risk and contingent sales charges
amounted to $25,606 and $62,  respectively,  during the year ended  December 31,
1999.                                                                           

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Principal Life Insurance Company
Separate Account B

 Notes to Financial Statements (continued)

3. Federal Income Taxes                                                         

The  operations of Separate  Account B are a part of the operations of Principal
Life. Under current practice, no federal income taxes are allocated by Principal
Life to the operations of Separate Account B.                                   

4. Purchases and Sales of Investment Securities                                 

The aggregate units and cost of purchases and proceeds from sales of investments
were as follows:                                                                

                                                        [Enlarge/Download Table]

                                                        Year ended December 31, 1999                

                                         Units        Amount                 Units         Amount   
                                       Purchased     Purchased             Redeemed       Redeemed  
                                                                                                    
Aggressive Growth Division:                                                                         
   The Principal Variable Annuity      3,214,960  $122,462,141              1,683,015  $  56,289,236

AIM V.I. Growth Division:                                                                           
   The Principal Variable Annuity      1,043,639    11,664,612                 75,317        827,893

AIM V.I. Growth and Income Division:                                                                
   The Principal Variable Annuity      1,576,345    16,755,376                 82,430        913,388

AIM V.I. Value Division:                                                                            
   The Principal Variable Annuity      1,243,905    13,230,876                 95,246      1,047,739

American Century VP Growth &                                                                        
   Income Division:                                                                                 
   Principal Freedom Variable Annuity     50,412       524,993                  7,242         71,963

Asset Allocation Division:                                                                          
   The Principal Variable Annuity        834,729    22,217,825                683,360     12,972,108

Balanced Division:                                                                                  
   Personal Variable                     886,567     1,955,537                359,165        673,706
   Premier Variable                    6,339,318    13,629,736              4,740,045      8,750,890
   The Principal Variable Annuity      2,284,756    52,835,595              2,085,229     39,271,588

                                       9,510,641    68,420,868              7,184,439     48,696,184
Blue Chip Division:                                                                                 
   Principal Freedom Variable Annuity    136,422     1,343,154                 13,245        136,040

Bond Division:                                                                                      
   Personal Variable                     418,281       704,639                185,727        277,590
   Premier Variable                    4,132,232     6,826,337              2,731,487      4,028,982
   Principal Freedom Variable Annuity    111,634     1,149,316                  4,578         47,159
   The Principal Variable Annuity      2,468,514    41,867,932              2,289,764     33,247,289

                                       7,130,661    50,548,224              5,211,556     37,601,020

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Principal Life Insurance Company
Separate Account B

 Notes to Financial Statements (continued)

4. Purchases and Sales of Investment Securities (continued)                     

                                                        [Enlarge/Download Table]
                                                         Year ended December 31, 1999               

                                          Units        Amount                 Units        Amount   
                                        Purchased     Purchased             Redeemed      Redeemed  
                                                                                                    
Capital Value Division:                                                                             
   Bankers Flexible Annuity                     -  $    841,253                 22,885  $    766,530
   Pension Builder Plus                     7,017       888,413                204,326     1,317,343
   Pension Builder - Rollover                 769       200,803                130,658       853,075
   Personal Variable                      967,223     3,979,495                717,700     1,970,499
   Premier Variable                     5,573,357    22,944,583              5,435,276    14,926,095
   Principal Freedom Variable Annuity     103,693     1,078,445                    586         7,725
   The Principal Variable Annuity       2,548,728    95,008,690              2,635,305    64,030,231

                                        9,200,787   124,941,682              9,146,736    83,871,498
Fidelity VIP II Contrafund Division:                                                                
   The Principal Variable Annuity       1,478,491    14,931,250                 42,014       467,306

Fidelity VIP Growth Division:                                                                       
   The Principal Variable Annuity       1,551,497    16,698,632                110,301     1,213,648

Government Securities Division:                                                                     
   Pension Builder Plus                     3,243        57,016                135,077       304,315
   Pension Builder - Rollover               2,725        10,957                123,261       281,975
   Personal Variable                      559,774     1,055,722                402,979       629,754
   Premier Variable                     3,747,210     6,587,956              3,673,738     5,697,825
   The Principal Variable Annuity       2,981,151    48,746,184              2,981,307    42,625,616

                                        7,294,103    56,457,835              7,316,362    49,539,485
Growth Division:                                                                                    
   Personal Variable                    1,269,770     2,904,572                386,799       896,579
   Premier Variable                     9,481,990    21,824,588              5,078,610    11,584,283
   The Principal Variable Annuity       2,961,592    69,883,318              1,825,509    44,634,652

                                       13,713,352    94,612,478              7,290,918    57,115,514
International Division:                                                                             
   Personal Variable                      582,324     1,455,068                338,607       600,098
   Premier Variable                     3,664,161     9,217,380              2,292,432     4,103,134
   Principal Freedom Variable Annuity      54,996       630,306                  1,696        19,226
   The Principal Variable Annuity       1,517,640    44,874,562              1,584,525    28,934,331

                                        5,819,121    56,177,316              4,217,260    33,656,789
International SmallCap Division:                                                                    
   The Principal Variable Annuity       1,049,723    14,028,696                222,261     2,869,855

LargeCap Growth Division:                                                                           
   Principal Freedom Variable Annuity      33,844       375,030                  2,569        26,754

MicroCap Division:                                                                                  
   The Principal Variable Annuity         156,137     1,268,945                 53,831       447,140


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Principal Life Insurance Company
Separate Account B

 Notes to Financial Statements (continued)

4. Purchases and Sales of Investment Securities (continued)                     

                                                        [Enlarge/Download Table]

                                                            Year ended December 31, 1999               

                                           Units          Amount                 Units        Amount   
                                         Purchased       Purchased             Redeemed      Redeemed  
                                                                                                       
MidCap Division:                                                                                       
   Personal Variable                       731,578  $    1,597,024                493,072  $    956,950
   Premier Variable                      4,873,689      10,698,589              4,195,358     8,136,930
   Principal Freedom Variable Annuity       34,298         347,942                  1,952        19,145
   The Principal Variable Annuity        1,298,049      34,317,113              2,807,445    55,410,009

                                         6,937,614      46,960,668              7,497,827    64,523,034
MidCap Growth Division:                                                                                
   Principal Freedom Variable Annuity        9,110          96,654                     64           834
   The Principal Variable Annuity          542,934       5,216,076                148,770     1,483,926

                                           552,044       5,312,730                148,834     1,484,760
MidCap Value Division:                                                                                 
   Principal Freedom Variable Annuity       20,181         203,598                  2,293        21,279

Money Market Division:                                                                                 
   Pension Builder Plus                      1,340          32,651                 32,978        75,711
   Pension Builder - Rollover                  668           2,380                    725         1,672
   Personal Variable                     4,953,979       6,553,954              4,771,035     6,240,201
   Premier Variable                     35,455,605      47,466,345             34,692,221    45,871,646
   Principal Freedom Variable Annuity      306,893       3,135,144                212,443     2,166,714
   The Principal Variable Annuity       15,033,975     185,294,000             12,793,632   155,754,849

                                        55,752,460     242,484,474             52,503,034   210,110,793
Real Estate Division:                                                                                  
   The Principal Variable Annuity          115,608       1,167,215                 49,917       468,801

SmallCap Division:                                                                                     
   Principal Freedom Variable Annuity       49,860         662,386                    127         2,684
   The Principal Variable Annuity        1,050,452      10,647,045                301,274     2,916,217

                                         1,100,312      11,309,431                301,401     2,918,901
SmallCap Growth Division:                                                                              
   Principal Freedom Variable Annuity       28,563         318,177                  4,123        56,732
   The Principal Variable Annuity        1,353,563      19,098,502                279,769     3,864,869

                                         1,382,126      19,416,679                283,892     3,921,601
SmallCap Value Division:                                                                               
   The Principal Variable Annuity          320,599       2,839,231                 89,876       849,120

Stock Index 500 Division:                                                                              
   Principal Freedom Variable Annuity      321,884       3,278,717                 20,066       209,923
   The Principal Variable Annuity        2,535,758      25,955,190                221,631     2,337,587

                                         2,857,642      29,233,907                241,697     2,547,510
Templeton VP Stock Division:                                                                           
   Principal Freedom Variable Annuity       22,553         233,152                  2,578        25,724

Utilities Division:                                                                                    
   The Principal Variable Annuity        1,317,255      15,612,615                286,073     3,453,129

                                       135,417,163  $1,061,433,633            104,845,624  $678,088,212


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Principal Life Insurance Company
Separate Account B

 Notes to Financial Statements (continued)

4. Purchases and Sales of Investment Securities (continued)                     

                                                        [Enlarge/Download Table]

                                                      Year ended December 31, 1998               


                                      Units         Amount                 Units        Amount   
                                    Purchased      Purchased             Redeemed      Redeemed  
                                                                                                 
Aggressive Growth Division:                                                                      
   The Principal Variable Annuity   3,499,221  $  99,901,754              2,090,432  $ 54,501,935

Asset Allocation Division:                                                                       
   The Principal Variable Annuity   1,282,525     24,046,561                654,896    11,080,077

Balanced Division:                                                                               
   Personal Variable                1,004,328      1,912,930                457,683       780,708
   Premier Variable                10,422,806     19,013,537              6,268,556    10,551,964
   The Principal Variable Annuity   3,344,124     65,310,536              1,158,043    20,908,480

                                   14,771,258     86,237,003              7,884,282    32,241,152
Bond Division:                                                                                   
   Personal Variable                  483,609        749,413                204,963       298,308
   Premier Variable                 3,340,901      5,252,870              1,335,734     1,947,955
   The Principal Variable Annuity   3,782,130     58,262,756              1,300,729    19,186,344

                                    7,606,640     64,265,039              2,841,426    21,432,607
Capital Value Division:                                                                          
   Bankers Flexible Annuity                 -        378,745                 33,142     1,019,158
   Pension Builder Plus                12,400        489,669                347,496     2,079,127
   Pension Builder - Rollover          13,394        206,030                 61,664       413,253
   Personal Variable                1,028,159      3,098,635                706,659     1,805,819
   Premier Variable                 6,692,409     20,064,223              5,703,586    14,753,134
   The Principal Variable Annuity   3,851,690     99,320,683              1,451,484    34,459,963

                                   11,598,052    123,557,985              8,304,031    54,530,454
Government Securities Division:                                                                  
   Pension Builder Plus                 2,440         59,890                144,796       323,157
   Pension Builder - Rollover           6,075         31,150                 46,361       105,763
   Personal Variable                  533,981        932,430                395,901       592,463
   Premier Variable                 3,808,301      6,299,202              3,136,542     4,703,918
   The Principal Variable Annuity   4,224,663     63,176,336              1,616,290    23,088,117

                                    8,575,460     70,499,008              5,339,890    28,813,418
Growth Division:                                                                                 
   Personal Variable                1,056,605      2,120,837                399,346       785,794
   Premier Variable                 9,492,310     19,278,673              4,562,959     9,075,786
   The Principal Variable Annuity   3,220,065     68,289,943              1,255,802    26,661,033

                                   13,768,980     89,689,453              6,218,107    36,522,613
International Division:                                                                          
   Personal Variable                  805,432      1,415,902                308,660       500,015
   Premier Variable                 4,733,201      8,515,990              2,974,704     4,950,251
   The Principal Variable Annuity   2,153,106     40,571,261              1,603,148    26,298,072

                                    7,691,739     50,503,153              4,886,512    31,748,338

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Principal Life Insurance Company
Separate Account B

 Notes to Financial Statements (continued)

4. Purchases and Sales of Investment Securities (continued)                     

                                                        [Enlarge/Download Table]

                                                        Year ended December 31, 1998               


                                       Units          Amount                 Units        Amount   
                                     Purchased       Purchased             Redeemed      Redeemed  
                                                                                                   
International SmallCap Division:                                                                   
   The Principal Variable Annuity      483,237  $    4,399,364                 64,583  $    563,072

MicroCap Division:                                                                                 
   The Principal Variable Annuity      175,619       1,530,140                 34,250       274,026

MidCap Division:                                                                                   
   Personal Variable                   879,026       1,880,837                439,232       851,883
   Premier Variable                  5,642,259      12,250,222              2,973,492     5,798,868
   The Principal Variable Annuity    2,793,284      66,291,200              1,875,347    37,219,135

                                     9,314,569      80,422,259              5,288,071    43,869,886
MidCap Growth Division:                                                                            
   The Principal Variable Annuity      381,976       3,381,739                 29,954       268,213

Money Market Division:                                                                             
   Pension Builder Plus                 53,479         135,725                102,745       203,381
   Pension Builder - Rollover            1,336           3,925                  6,405        13,015
   Personal Variable                 3,575,718       4,528,715              3,302,133     4,121,381
   Premier Variable                 48,477,115      61,598,188             45,123,308    56,876,964
   The Principal Variable Annuity   15,337,299     181,640,592             13,184,712   154,775,801

                                    67,444,947     247,907,145             61,719,303   215,990,542
Real Estate Division:                                                                              
   The Principal Variable Annuity      213,750       2,032,472                 18,315       172,703

SmallCap Division:                                                                                 
   The Principal Variable Annuity      492,217       3,787,569                 33,678       267,557

SmallCap Growth Division:                                                                          
   The Principal Variable Annuity      368,419       3,229,155                 53,999       486,122

SmallCap Value Division:                                                                           
   The Principal Variable Annuity      334,867       2,812,751                 29,295       246,326

Utilities Division:                                                                                
   The Principal Variable Annuity      741,204       7,775,696                101,905     1,088,646

                                   148,744,680    $965,978,246            105,592,929  $534,097,687


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Principal Life Insurance Company
Separate Account B

 Notes to Financial Statements (continued)

4. Purchases and Sales of Investment Securities (continued)                     

Purchases include reinvested dividends and capital gains.  Mortality adjustments
are included in purchases and redemptions, as applicable.                       

Money Market purchases include transactions where investment allocations are not
known at the time of the deposit.  Redemptions reflect subsequent allocations to
directed investment divisions.                                                  

5. Year 2000 Issues (Unaudited)                                                 

As of January 31, 2000, virtually all of the major technology systems, processes
and  infrastructure,  including  those which rely on third party vendors used by
Principal  Life and other service  providers of Separate  Account B appear to be
operating smoothly  following the rollover to the Year 2000.  Principal Life has
experienced  no  significant   interruptions  to  normal  business   operations,
including the processing of customer  account data and  transactions.  Principal
Life will continue its Year 2000 vigilance into early 2001.                     

Based on the performance of its major technology  systems to date, ongoing plans
to deal with external  relationships,  and  contingency  plans,  Principal  Life
believes that in the worst case scenario it will experience,  at most,  isolated
and  insignificant  disruptions  of business  processes as a result of Year 2000
issues.  Such disruptions are not expected to have a material effect on Separate
Account B's future results of operations, liquidity, or financial condition.    

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Report of Independent Auditors  

The Board of Directors                                                          
Principal Life Insurance Company                                                

We have audited the accompanying  consolidated  statements of financial position
of Principal  Life  Insurance  Company (the  Company,  an indirect  wholly-owned
subsidiary  of  Principal  Mutual  Holding  Company) as of December 31, 1999 and
1998,  and the related  consolidated  statements  of  operations,  stockholder's
equity and cash flows for each of the three years in the period  ended  December
31, 1999.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.                                                 

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.                                                                        

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial  position of Principal Life
Insurance Company at December 31, 1999 and 1998, and the consolidated results of
its  operations  and its cash  flows for each of the three  years in the  period
ended  December 31, 1999, in conformity  with  accounting  principles  generally
accepted in the United States.                                                  

/s/Ernst & Young LLP                                                            

Des Moines, Iowa                                                                
January 31, 2000                                                                

Principal Life Insurance Company

 Consolidated Statements of Operations

                                                                [Download Table]

                                               Year ended December 31           
                                          1999          1998          1997      
                                      ------------------------------------------
                                                    (In Millions)               
                                                                                
Revenues                                                                        
Premiums and other considerations         $3,152        $3,409        $4,668    
Fees and other revenue                     1,125           992           881    
Net investment income                      2,777         2,806         2,937    
Net realized capital gains                   459           466           176    
Contribution from closed block                11            13             -    
                                      ------------------------------------------
Total revenues                             7,524         7,686         8,662    

Expenses                                                                        
Policy and contract benefits               4,210         4,500         5,271    
Change in future policy benefits and                                            
   contractholder funds                      415           277           361    
Dividends to policyholders                     9           155           299    
Operating expenses                         1,757         2,015         2,036    
                                      ------------------------------------------
                                      ------------------------------------------
Total expenses                             6,391         6,947         7,967    
                                      ------------------------------------------

Income before income taxes                 1,133           739           695    

Income taxes                                 323            44           241    
                                      ------------------------------------------
                                      ==========================================
Net income                                $  810        $  695        $  454    
                                      ==========================================

See accompanying notes.                                                         

Principal Life Insurance Company

 Consolidated Statements of Financial Position

                                                        [Enlarge/Download Table]

                                                                                        December 31         
                                                                                     1999         1998      
                                                                                 ---------------------------
                                                                                 ---------------------------
                                                                                       (In Millions)        
                                                                                                            
Assets                                                                                                      
Fixed maturities, available-for-sale                                                $21,660      $21,006    
Equity securities, available-for-sale                                                   864        1,102    
Mortgage loans                                                                       12,296       12,091    
Real estate                                                                           2,212        2,585    
Policy loans                                                                             28           25    
Other investments                                                                       637          349    
                                                                                 ---------------------------
Total investments                                                                    37,697       37,158    

Cash and cash equivalents                                                               362          461    
Accrued investment income                                                               408          375    
Deferred policy acquisition costs                                                       792          456    
Property and equipment                                                                  458          451    
Goodwill and other intangibles                                                          152          161    
Premiums due and other receivables                                                      284          261    
Mortgage loan servicing rights                                                        1,081          778    
Closed block assets                                                                   4,318        4,251    
Separate account assets                                                              33,307       29,009    
Other assets                                                                            451          582    
                                                                                 ---------------------------
                                                                                 ===========================
Total assets                                                                        $79,310      $73,943    
                                                                                 ===========================
                                                                                 ===========================

Liabilities                                                                                                 
Contractholder funds                                                                $24,523      $23,339    
Future policy benefits and claims                                                     7,623        7,082    
Other policyholder funds                                                                271          293    
Short-term debt                                                                           -          200    
Long-term debt                                                                          834          671    
Income taxes currently payable                                                           15           27    
Deferred income taxes                                                                   159          497    
Closed block liabilities                                                              5,395        5,299    
Separate account liabilities                                                         33,307       29,009    
Other liabilities                                                                     2,232        2,057    
                                                                                 ---------------------------
                                                                                 ---------------------------
Total liabilities                                                                    74,359       68,474    

Stockholder's equity                                                                                        
Common stock, par value $1 per share - authorized  5,000,000 shares,  issued and                            
   outstanding 2,500,000 shares (wholly owned indirectly by Principal Mutual                                
   Holding Company)                                                                       3            3    
Retained earnings                                                                     5,110        4,749    
Accumulated other comprehensive income (loss):                                                              
   Net unrealized gains (losses) on available-for-sale securities                      (102)         746    
   Net foreign currency translation adjustment                                          (60)         (29)   
                                                                                 ---------------------------
                                                                                 ---------------------------
Total stockholder's equity                                                            4,951        5,469    
                                                                                 ---------------------------
                                                                                 ===========================
Total liabilities and stockholder's equity                                          $79,310      $73,943    
                                                                                 ===========================

See accompanying notes.                                                         

Principal Life Insurance Company

 Consolidated Statements of Stockholder's Equity

                                                        [Enlarge/Download Table]

                                                         Net Unrealized                                       
                                                       Gains (Losses) on      Net Foreign                     
                                                       Available-for-Sale      Currency            Total      
                                 Common     Retained       Securities         Translation      Stockholder's  
                                  Stock     Earnings                          Adjustment          Equity      
                               -------------------------------------------------------------------------------
                                                               (In Millions)                                  
                                                                                                              
Balances at January 1, 1997         $-       $3,803          $   860             $  (9)            $4,654     
Comprehensive income:                                                                                         
  Net income                         -          454                -                 -                454     
  Net change in unrealized                                                                                    
    gains and losses on fixed                                                                                 
    maturities,                      -            -              197                 -                197     
    available-for-sale                                                                                        
  Net change in unrealized                                                                                    
    gains and losses on                                                                                       
    equity securities,               -            -              118                 -                118     
    available-for-sale                                                                                        
  Adjustments for assumed                                                                                     
    changes in amortization                                                                                   
    patterns:                                                                                                 
    Deferred policy                                                                                           
      acquisition costs              -            -              (44)                -                (44)    
    Unearned revenue reserves        -            -                4                 -                  4     
  Provision for deferred                                                                                      
    income taxes                     -            -              (97)                -                (97)    
  Change in net foreign                                                                                       
    currency translation             -            -                -                (2)                (2)    
    adjustment                                                                                                
                                                                                              ----------------
Comprehensive income                                                                                  630     
                               -------------------------------------------------------------------------------
Balances at December 31, 1997        -        4,257            1,038               (11)             5,284     
Issuance of 2,500,000 shares                                                                                  
  of common stock to parent                                                                                   
  holding company                    3           (3)              -                  -                  -     
Dividend to parent holding           -         (200)              -                  -               (200)    
  company                                                                                                     
Comprehensive income:                                                                                         
  Net income                         -          695               -                  -                695     
  Net change in unrealized                                                                                    
    gains and losses on fixed                                                                                 
    maturities,                      -            -            (203)                 -               (203)    
    available-for-sale                                                                                        
  Net change in unrealized                                                                                    
    gains and losses on                                                                                       
    equity securities,                                                                                        
    available-for-sale,              -            -            (292)                 -               (292)    
    including seed money in                                                                                   
    separate accounts                                                                                         
  Adjustments for assumed                                                                                     
    changes in amortization                                                                                   
    patterns:                                                                                                 
    Deferred policy                                                                                           
      acquisition costs              -            -              37                  -                 37     
    Unearned revenue reserves        -            -              (4)                 -                 (4)    
  Provision for deferred                                                                                      
    income tax benefit               -            -             170                  -                170     
  Change in net foreign                                                                                       
    currency translation             -            -               -                (18)               (18)    
    adjustment                                                                                                
                                                                                              ----------------
Comprehensive income                                                                                  385     
                               -------------------------------------------------------------------------------
Balances at December 31, 1998        3        4,749             746                (29)             5,469     

Principal Life Insurance Company

 Consolidated Statements of Stockholder's Equity (continued)

                                                        [Enlarge/Download Table]

                                                         Net Unrealized                                       
                                                       Gains (Losses) on      Net Foreign                     
                                                       Available-for-Sale      Currency            Total      
                                 Common     Retained       Securities         Translation      Stockholder's  
                                  Stock     Earnings                          Adjustment          Equity      
                               -------------------------------------------------------------------------------
                                                               (In Millions)                                  

                                                                                                              
Balances at January 1, 1999         $3       $4,749          $  746              $ (29)            $5,469     
Dividend to parent holding           -         (449)              -                  -               (449)    
  company                                                                                                     
Comprehensive loss:                                                                                           
  Net income                         -          810               -                  -                810     
  Net change in unrealized                                                                                    
    gains and losses on fixed                                                                                 
    maturities,                      -            -          (1,375)                 -             (1,375)    
    available-for-sale                                                                                        
  Net change in unrealized                                                                                    
    gains and losses on                                                                                       
    equity securities,                                                                                        
    available-for-sale,              -            -            (142)                 -               (142)    
    including seed money in                                                                                   
    separate accounts                                                                                         
  Adjustments for assumed                                                                                     
    changes in amortization                                                                                   
    patterns:                                                                                                 
    Deferred policy                                                                                           
      acquisition costs                           -             246                  -                246     
    Unearned revenue reserves                     -             (30)                 -                (30)    
  Provision for deferred                                                                                      
    income tax benefit                            -             453                  -                453     
  Change in net foreign                                                                                       
    currency translation                          -               -                (31)               (31)    
    adjustment                                                                                                
                                                                                              ----------------
Comprehensive loss                                                                                    (69)    
                               ===============================================================================
Balances at December 31, 1999       $3       $5,110         $  (102)              $(60)            $4,951     
                               ===============================================================================

See accompanying notes.                                                         

Principal Life Insurance Company

 Consolidated Statements of Cash Flows

                                                        [Enlarge/Download Table]

                                                                      Year ended December 31         
                                                                  1999         1998         1997     
                                                              ---------------------------------------
                                                                          (In Millions)              
                                                                                                     
Operating activities                                                                                 
Net income                                                     $     810   $     695      $   454    
Adjustments to reconcile net income to net cash provided by                                          
   operating activities:                                                                             
   Amortization of deferred policy acquisition costs                  76         170          170    
   Additions to deferred policy acquisition costs                   (254)       (229)        (213)   
   Gain on sales of subsidiaries                                     (11)         (6)         (14)   
   Accrued investment income                                         (33)         24            7    
   Premiums due and other receivables                                (21)         87          (78)   
   Contractholder and policyholder liabilities and dividends                                         
                                                                   1,430       1,489        1,396    
   Current and deferred income taxes                                 103        (265)          96    
   Net realized capital gains                                       (459)       (466)        (176)   
   Depreciation and amortization expense                              72         100          117    
   Change in closed block operating assets and                                                       
     liabilities, net                                                174         230            -    
   Other                                                             163         115         (185)   
                                                              ---------------------------------------
Net adjustments                                                    1,240       1,249        1,120    
                                                              ---------------------------------------
Net cash provided by operating activities                          2,050       1,944        1,574    

Investing activities Available-for-sale securities:                                                  
   Purchases                                                     (10,956)     (7,141)      (7,478)   
   Sales                                                           6,852       5,684        7,475    
   Maturities                                                      2,500       1,377        1,204    
Mortgage loans acquired or originated                            (16,503)    (14,162)      (9,925)   
Mortgage loans sold or repaid                                     16,242      14,414        8,977    
Net change in mortgage servicing rights                             (307)       (387)        (144)   
Real estate acquired                                                (449)       (436)        (309)   
Real estate sold                                                     870         662          198    
Net change in property and equipment                                 (20)        (20)           -    
Change in closed block investments, net                             (169)       (201)           -    
Proceeds from sales of subsidiaries                                   42          96           35    
Purchases of interest in subsidiaries, net of cash acquired          (13)       (218)         (99)   
Net change in other investments                                     (260)       (249)         (83)   
                                                              ---------------------------------------
Net cash used in investing activities                             (2,171)       (581)        (149)   

Principal Life Insurance Company

 Consolidated Statements of Cash Flows (continued)

                                                        [Enlarge/Download Table]

                                                                              Year ended December 31         
                                                                          1999         1998         1997     
                                                                      ---------------------------------------
                                                                                  (In Millions)              
                                                                                                             
Financing activities                                                                                         
Issuance of debt                                                       $     203    $     243     $     75   
Principal repayments of debt                                                 (40)         (51)         (28)  
Proceeds of short-term borrowings                                          4,952        8,628        5,089   
Repayment of short-term borrowings                                        (4,896)      (8,924)      (4,974)  
Dividend paid to parent holding company                                     (441)        (140)           -   
Investment contract deposits                                               5,325        5,854        4,134   
Investment contract withdrawals                                           (5,081)      (7,058)      (5,446)  
                                                                      ---------------------------------------
Net cash provided by (used in) financing activities                           22       (1,448)      (1,150)  
                                                                      ---------------------------------------

Net increase (decrease) in cash and cash equivalents                         (99)         (85)         275   

Cash and cash equivalents at beginning of year                               461          546          271   
                                                                      =======================================
Cash and cash equivalents at end of year                               $     362    $     461      $   546   
                                                                      =======================================

Schedule of noncash operating and investing activities                                                       
Dividend of net noncash assets and liabilities of Princor Financial                                          
   Services Corporation to Principal Financial Services, Inc. on                                             
   April 1, 1999                                                       $      12                             
                                                                      =============                          
Thefollowing  noncash  assets and  liabilities  were  transferred  to the Closed                             
   Block as a result of the July 1, 1998 mutual holding company formation:                                   
   Operating activities:                                                                                     
     Accrued investment income                                                     $       59                
     Deferred policy acquisition costs                                                    697                
     Other assets                                                                          12                
     Future policy benefits and claims                                                 (4,545)               
     Other policyholder funds                                                              (7)               
     Policyholder dividends payable                                                      (388)               
     Other liabilities                                                                   (173)               
                                                                                   -------------             
   Total noncash operating activities (4,345) Investing activities:                                          
     Fixed maturities, available-for-sale                                               1,562                
     Mortgage loans                                                                     1,027                
     Policy loans                                                                         736                
     Other investments                                                                      1                
                                                                                   -------------             
   Total noncash investing activities                                                   3,326                
                                                                                   =============             
   Total noncash operating and investing activities                                   $(1,019)               
                                                                                   =============             

Net transfer of noncash assets and liabilities of Principal Health                                           
   Care Inc. on April 1, 1998 in exchange for common shares of                                               
   Coventry Health Care, Inc.                                                        $   (160)               
                                                                                   =============             

See accompanying notes.                                                                                      

Principal Life Insurance Company

Notes to Consolidated Financial Statements

 December 31, 1999

1. Nature of Operations and Significant Accounting Policies                     

Reorganization                                                                  

Effective July 1, 1998,  Principal Mutual Life Insurance Company formed a mutual
insurance holding company  ("Principal Mutual Holding Company") and converted to
a stock life insurance company ("Principal Life Insurance Company").  All of the
shares of Principal  Life  Insurance  Company  were issued to  Principal  Mutual
Holding  Company  through  two  newly  formed  intermediate  holding  companies,
Principal  Financial  Group,  Inc. and Principal  Financial  Services,  Inc. The
reorganization itself did not have a material financial impact on Principal Life
Insurance  Company  and its  consolidated  subsidiaries,  as the net  assets  so
transferred  to achieve the change in legal  organization  were accounted for at
historical carrying amounts in a manner similar to that in  pooling-of-interests
accounting.                                                                     

Description of Business                                                         

Principal  Life  Insurance  Company  and  its  consolidated  subsidiaries  ("the
Company")  is a  diversified  financial  services  organization  engaged  in the
marketing and management of life insurance,  annuity,  health, pension and other
financial products and services, primarily in the United States.                

Basis of Presentation                                                           

The  accompanying  consolidated  financial  statements  of the  Company  and its
majority-owned  subsidiaries  have been prepared in conformity  with  accounting
principles  generally  accepted  in  the  United  States  ("GAAP").   Less  than
majority-owned  entities in which the Company  has at least a 20%  interest  are
reported  on the  equity  basis  in the  consolidated  statements  of  financial
position  as  other  investments.  All  significant  intercompany  accounts  and
transactions have been eliminated.                                              

Total assets of the unconsolidated entities amounted to $2.3 billion at December
31,  1999  and  $2.2  billion  at  December  31,  1998.  Total  revenues  of the
unconsolidated entities were $2.0 billion in 1999, $1.8 billion in 1998 and $294
million in 1997.  During 1999, 1998 and 1997, the Company included $108 million,
$18 million and $19 million, respectively, in net investment income representing
the Company's share of current year net income of the unconsolidated entities.  

Closed Block                                                                    

In conjunction with the formation of the mutual insurance  holding company,  the
Company  established  a Closed  Block for the  benefit  of  certain  classes  of
individual participating and dividend-paying policies in force on that date. The
Closed  Block was  designed to provide  reasonable  assurance  to  policyholders
included therein that, after                                                    

Principal Life Insurance Company

Notes to Consolidated Financial Statements (continued)

1. Nature of Operations and Significant Accounting Policies (continued)         

the Reorganization, assets would be available to maintain the aggregate dividend
scales in effect for 1997 if the experience  underlying  such scales  continued.
Assets were  allocated to the Closed Block in amounts such that their cash flows
together with anticipated  revenues from policies  included in the Closed Block,
were  reasonably  expected to be sufficient to support such policies,  including
provisions for payment of claims,  certain  expenses,  charges and taxes, and to
provide for the continuation of aggregate dividend scales in accordance with the
1997 policy dividend scales if the experience  underlying such scales continued,
and to allow  for  appropriate  adjustments  in such  scales  if the  experience
changes.                                                                        

Assets  allocated  to the Closed  Block inure to the  benefits of the holders of
policies  included in the Closed Block.  Closed Block assets and liabilities are
carried on the same basis as similar assets and liabilities held by the Company.
The  Company  will  continue  to pay  guaranteed  benefits  under all  policies,
including the policies  included in the Closed Block,  in accordance  with their
terms.  If the assets  allocated to the Closed Block,  the investment cash flows
from those  assets and the  revenues  from the  policies  included in the Closed
Block,  including investment income thereon, prove to be insufficient to pay the
benefits guaranteed under the policies included in the Closed Block, the Company
will be required to make such payments from its general funds.                  

The contribution to the operating income of the Company from the Closed Block is
reported  as a single line item in the  statement  of  operations.  Accordingly,
premiums, net investment income,  realized capital gains (losses),  policyholder
benefits and dividends  attributable to the Closed Block,  less certain expenses
and charges and the amortization of deferred policy acquisition costs, are shown
as a net number  under the caption  "Contribution  from the Closed  Block." This
results in material  reductions in the respective line items in the statement of
operations  while  having no effect on net income.  All assets  allocated to the
Closed Block are grouped  together and shown as a separate item entitled "Closed
Block assets"; and all liabilities attributable to the Closed Block are combined
and  disclosed  as the "Closed  Block  liabilities".  The excess of Closed Block
liabilities  over Closed Block assets  represents the expected  future  post-tax
contribution from the Closed Block which would be recognized in operating income
or other comprehensive  income over the period the policies and contracts in the
Closed Block remain in force.                                                   

The   Contribution   from  the  Closed  Block  does  not   represent  the  total
profitability attributable to the policies included in the Closed Block. Certain
expenses  attributable  to  the  policies  included  in  the  Closed  Block  and
commissions on these policies are not included in the reported Contribution from
the Closed Block, but rather are included in operating expenses  consistent with
the initial  regulatory  funding of the Closed Block.  Consequently,  the assets
needed to fund the  Closed  Block are less  than the  total  accumulated  assets
attributable to the policies included in the Closed Block.  Income on the assets
held  outside of the Closed Block is included in net  investment  income and not
included in the Contribution from the Closed Block.                             

Principal Life Insurance Company

Notes to Consolidated Financial Statements (continued)

1. Nature of Operations and Significant Accounting Policies (continued)         

Use of Estimates in the Preparation of Financial Statements                     

The  preparation  of  the  Company's   consolidated   financial  statements  and
accompanying  notes requires  management to make estimates and assumptions  that
affect the amounts reported and disclosed. These estimates and assumptions could
change in the future as more information  becomes known,  which could impact the
amounts  reported and disclosed in the  consolidated  financial  statements  and
accompanying notes.                                                             

Cash and Cash Equivalents                                                       

Cash and cash  equivalents  include cash on hand,  money market  instruments and
other debt issues with a maturity date of three months or less when purchased.  

Investments                                                                     

Investments  in  fixed  maturities  and  equity  securities  are  classified  as
available-for-sale and, accordingly, are carried at fair value. (See Note 12 for
policies  related  to the  determination  of fair  value.)  The  cost  of  fixed
maturities  is adjusted for  amortization  of premiums and accrual of discounts,
both computed using the interest method. The cost of fixed maturities and equity
securities is adjusted for declines in value that are other than temporary.  For
the loan-backed and structured  securities  included in the bond portfolio,  the
Company  recognizes  income using a constant  effective yield based on currently
anticipated  prepayments  as  determined  by  broker-dealer  surveys or internal
estimates and the estimated lives of the securities.                            

Real estate investments are reported at cost less accumulated depreciation.  The
initial cost bases of  properties  acquired  through loan  foreclosures  are the
lower of the loan balances or fair market  values of the  properties at the time
of foreclosure. Buildings and land improvements are generally depreciated on the
straight-line method over the estimated useful life of improvements,  and tenant
improvement costs are depreciated on the  straight-line  method over the term of
the related lease. The Company  recognizes  impairment losses for its properties
when indicators of impairment are present and a property's expected undiscounted
cash flows are not sufficient to recover the property's  carrying value. In such
cases,  the cost bases of the  properties are reduced  accordingly.  Real estate
expected to be disposed is carried at the lower of cost or fair value, less cost
to sell, with valuation allowances  established  accordingly and depreciation no
longer recognized. Any impairment losses and any changes in valuation allowances
are reported as net realized capital losses.                                    

Principal Life Insurance Company

Notes to Consolidated Financial Statements (continued)

1. Nature of Operations and Significant Accounting Policies (continued)         

Commercial  and  residential  mortgage  loans are reported at cost  adjusted for
amortization  of premiums and accrual of discounts,  computed using the interest
method, and net of valuation allowances. Any changes in the valuation allowances
are  reported as net  realized  capital  gains  (losses).  The Company  measures
impairment based upon the present value of expected cash flows discounted at the
loan's effective  interest rate. If foreclosure is probable,  the measurement of
any  valuation  allowance  is based upon the fair value of the  collateral.  The
Company includes  residential mortgage loans held for sale in the amount of $432
million and $743  million  and  commercial  mortgage  loans held for sale in the
amount  of $280  million  and  $22  million  at  December  31,  1999  and  1998,
respectively,  which are carried at lower of cost or fair value and  reported as
mortgage loans in the statements of financial position.                         

Net realized  capital gains and losses on investments  are determined  using the
specific identification basis.                                                  

Policy loans and other  investments,  excluding  investments  in  unconsolidated
entities, are primarily reported at cost.                                       

Derivatives                                                                     

Derivatives are generally held for purposes other than trading and are primarily
used to hedge or reduce  exposure to interest  rate and foreign  currency  risks
associated with assets held or expected to be purchased or sold, and liabilities
incurred or  expected  to be  incurred.  Additionally,  derivatives  are used to
change the characteristics of the Company's  asset/liability mix consistent with
the Company's risk management activities.                                       

The  Company's  risk of loss is  typically  limited  to the  fair  value  of its
derivative  instruments and not to the notional or contractual  amounts of these
derivatives.  Risk  arises  from  changes  in the fair  value of the  underlying
instruments.  The  Company  is also  exposed  to  credit  losses in the event of
nonperformance  of  the  counterparties.   This  credit  risk  is  minimized  by
purchasing such agreements from financial  institutions with high credit ratings
and by establishing and monitoring exposure limits.                             

The  Company's  use of  derivatives  is  further  described  in Note 4.  The net
interest  effect of interest rate and currency swap  transactions is recorded as
an adjustment to net investment income or interest expense, as appropriate, over
the periods covered by the agreements. The cost of other derivative contracts is
amortized over the life of the contracts and classified  with the results of the
underlying  hedged item.  Certain contracts are designated as hedges of specific
assets and, to the extent those assets are marked to market, the hedge contracts
are also marked to market and included as an adjustment of the underlying  asset
value.  Other  contracts are  designated  and accounted for as hedges of certain
liabilities and are not marked to market.                                       

Principal Life Insurance Company

Notes to Consolidated Financial Statements (continued)

1. Nature of Operations and Significant Accounting Policies (continued)         

Hedge  accounting is used for derivatives  that are  specifically  designated in
advance as hedges and that reduce the Company's exposure to an indicated risk by
having a high  correlation  between  changes in the value of the derivatives and
the items being  hedged at both the  inception of the hedge and  throughout  the
hedge  period.  Should such criteria not be met or if the hedged items are sold,
terminated or matured,  the changes in value of the  derivatives are included in
net income.                                                                     

Contractholder and Policyholder Liabilities                                     

Contractholder and policyholder liabilities (contractholder funds, future policy
benefits  and  claims,  and  other  policyholder  funds)  include  reserves  for
investment   contracts  and  reserves  for  universal  life,   limited  payment,
participating and traditional life insurance policies.  Investment contracts are
contractholders'  funds  on  deposit  with the  Company  and  generally  include
reserves for pension and annuity contracts. Reserves on investment contracts are
equal to the  cumulative  deposits  less any  applicable  charges plus  credited
interest.                                                                       

Reserves for universal life insurance contracts are equal to cumulative premiums
less charges plus credited  interest which  represents the account balances that
accrue to the benefit of the policyholders.  Reserves for non-participating term
life insurance  contracts are computed on a basis of assumed  investment  yield,
mortality,  morbidity and expenses, including a provision for adverse deviation,
which  generally  vary by plan,  year of issue and policy  duration.  Investment
yield is based on the Company's experience.  Mortality, morbidity and withdrawal
rate  assumptions  are based on experience  of the Company and are  periodically
reviewed against both industry standards and experience.                        

Reserves for participating  life insurance  contracts are based on the net level
premium reserve for death and endowment policy benefits.  This net level premium
reserve is calculated  based on dividend fund interest rate and mortality  rates
guaranteed in calculating the cash surrender values described in the contract.  

Some of the Company's  policies and contracts require payment of fees in advance
for services that will be rendered over the estimated  lives of the policies and
contracts.  These  payments are  established as unearned  revenue  reserves upon
receipt and included in other policyholder funds in the consolidated  statements
of  financial  position.  These  unearned  revenue  reserves  are  amortized  to
operations over the estimated lives of these policies and contracts.            

The  liability  for unpaid  accident  and health  claims is an  estimate  of the
ultimate  net cost of  reported  and  unreported  losses not yet  settled.  This
liability  is estimated  using  actuarial  analyses and case basis  evaluations.
Although  considerable  variability is inherent in such  estimates,  the Company
believes that the liability for unpaid claims is adequate.  These  estimates are
continually  reviewed and, as adjustments to this  liability  become  necessary,
such adjustments are reflected in current operations.                           

Principal Life Insurance Company

Notes to Consolidated Financial Statements (continued)

1. Nature of Operations and Significant Accounting Policies (continued)         

Recognition of Premiums, Fees and Benefits                                      

Traditional individual life and health insurance products include those products
with fixed and  guaranteed  premiums and benefits,  and consist  principally  of
whole life and term life insurance policies and certain immediate annuities with
life  contingencies.  Premiums  from these  products are  recognized  as premium
revenue when due.                                                               

Group life and health  insurance  premiums  are  generally  recorded  as premium
revenue over the term of the coverage.  Some group  contracts allow for premiums
to be  adjusted to reflect  emerging  experience.  Such  adjusted  premiums  are
recognized in the period that the related experience emerges. Fees for contracts
providing claim  processing or other  administrative  services are recorded over
the period the service is provided.                                             

Related  policy  benefits and expenses for  individual and group life and health
insurance  products  are  associated  with  earned  premiums  and  result in the
recognition of profits over the expected lives of the policies and contracts.   

Universal  life-type  policies are insurance  contracts  with terms that are not
fixed and  guaranteed.  Amounts  received as payments for such contracts are not
reported  as  premium  revenues.  Revenues  for  universal  life-type  insurance
contracts consist of policy charges for the cost of insurance, policy initiation
and  administration,  surrender  charges and other fees that have been  assessed
against policy account  values.  Policy  benefits and claims that are charged to
expense  include  interest  credited to contracts and benefit claims incurred in
the period in excess of related policy account balances.                        

Investment   contracts  do  not  subject  the  Company  to  risks  arising  from
policyholder  mortality  or  morbidity,  and  consist  primarily  of  Guaranteed
Investment  Contracts ("GICs") and certain deferred annuities.  Amounts received
as payments for  investment  contracts are  established  as investment  contract
liability  balances  and are not  reported  as premium  revenues.  Revenues  for