2022 PVC 485B Annual
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PRINCIPAL VARIABLE CONTRACTS FUNDS, INC.
(“PVC” or the “Registrant”)
Class 1 Shares
Class 2 Shares
Class 3 Shares
The date of this Prospectus is May 1, 2022.
ACCOUNTS OF THE REGISTRANT
(each, a “Fund” and, together, the “Funds”)
Equity Accounts
Blue Chip Account (Class 3)
Diversified International Account (Class 1)
Equity Income Account (Classes 1, 2 & 3)
Global Emerging Markets Account (formerly, International Emerging Markets Account) (Class 1)
LargeCap Growth Account I (Class 1)
LargeCap S&P 500 Index Account (Classes 1 & 2)
LargeCap S&P 500 Managed Volatility Index Account (Class 1)
MidCap Account (Classes 1 & 2)
Principal Capital Appreciation Account (Classes 1 & 2)
Real Estate Securities Account (Classes 1 & 2)
SmallCap Account (Classes 1 & 2)
U.S. LargeCap Buffer July Account (Class 2)
Fixed-Income Accounts
Bond Market Index Account (Class 1)
Core Plus Bond Account (Class 1)
Government & High Quality Bond Account (Class 1)
Short-Term Income Account (Class 1)
Asset Allocation Accounts
Diversified Balanced Account (Classes 1, 2 & 3)
Diversified Balanced Managed Volatility Account (Classes 2 & 3)
Diversified Balanced Volatility Control Account (Classes 2 & 3)
Diversified Growth Account (Classes 2 & 3)
Diversified Growth Managed Volatility Account (Classes 2 & 3)
Diversified Growth Volatility Control Account (Classes 2 & 3)
Diversified Income Account (Classes 2 & 3)
Principal LifeTime Accounts
Strategic Income Account (Class 1)
2010 Account (Class 1)
2020 Account (Class 1)
2030 Account (Class 1)
2040 Account (Class 1)
2050 Account (Class 1)
2060 Account (Class 1)
Strategic Asset Management Portfolios
SAM Balanced Portfolio (Classes 1 & 2)
SAM Conservative Balanced Portfolio (Classes 1 & 2)
SAM Conservative Growth Portfolio (Classes 1 & 2)
SAM Flexible Income Portfolio (Classes 1 & 2)
SAM Strategic Growth Portfolio (Classes 1 & 2)
 
This Prospectus describes a mutual fund organized by Principal Life Insurance Company® (“Principal Life”). The Registrant provides a choice of investment objectives through the Funds listed above.
The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this Prospectus. Any representation to the contrary is a criminal offense.
Table of Contents 
 
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2
3
Blue Chip Account
Objective
The Fund seeks long-term growth of capital.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 3
Management Fees
0.60%
Distribution and/or Service (12b-1) Fees
0.25%
Other Expenses
0.32%
Total Annual Fund Operating Expenses
1.17%
Expense Reimbursement(1)
(0.12)%
Total Annual Fund Operating Expenses after Expense Reimbursement
1.05%
(1)
Principal Global Investors, LLC (“PGI”), the investment advisor, has contractually agreed to limit the Fund's expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and tax reclaim recovery expenses and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.05% for Class 3 shares. It is expected the expense limit will continue through the period ending April 30, 2023; however, Principal Variable Contracts Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period. Subject to applicable expense limits, the Fund may reimburse PGI for expenses incurred during the current fiscal year.
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. The calculation of costs takes into account any applicable contractual fee waivers and/or expense reimbursements for the period noted in the table above. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Blue Chip Account - Class 3
$107
$360
$632
$1,410
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 12.5% of the average value of its portfolio.
Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies with large market capitalizations at the time of purchase that, in the opinion of Principal Global Investors, LLC (“PGI,” the Fund’s investment advisor), display characteristics of a “blue chip” company. For this Fund, companies with large market capitalizations are those with market capitalizations similar to companies in the Russell 1000® Growth Index (as of December 31, 2021, this range was between approximately $1.2 billion and $2.9 trillion). In PGI’s view, “blue chip” companies typically display some or all of the following characteristics: (1) large, well-established and financially sound companies; (2) issuers with market capitalizations in the billions; (3) are considered market leaders or among the top three companies in its sector; and (4) commonly considered household names. The Fund tends to focus on securities of companies that show potential for growth of capital as well as an expectation for above average earnings. In selecting securities in which to invest, the investment advisor uses a bottom-up, fundamental process, focusing on a fundamental analysis of individual companies. The Fund invests in securities of foreign companies.
4
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Growth Style Risk. Growth investing entails the risk that if growth companies do not increase their earnings at a rate expected by investors, the market price of their stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
Life of Fund returns are measured from the date the Fund’s shares were first sold (December 9, 2020).
5
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2021
14.64%
Lowest return for a quarter during the period of the bar chart above:
Q3 2021
1.17%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
Life of Fund
 
 
12/09/2020
Blue Chip Account - Class 3
24.72%
27.11%
Russell 1000 Growth Index (reflects no deduction for fees, expenses, or taxes)
27.62%
30.72%
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
K. William Nolin (since 2020), Portfolio Manager
•
Tom Rozycki (since 2020), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
6
Bond Market Index Account
Objective
The Fund seeks to provide current income.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Management Fees
0.14%
Other Expenses
—%
Acquired Fund Fees and Expenses
0.01%
Total Annual Fund Operating Expenses
0.15%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Bond Market Index Account - Class 1
$15
$48
$85
$192
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 130.5% of the average value of its portfolio.
Principal Investment Strategies
Under normal circumstances, the Fund uses a passive investment approach known as “sampling” to invest at least 80% of its net assets, plus any borrowings for investment purposes, in investments designed to track the Bloomberg US Aggregate Bond Index (the “Index”) at the time of purchase. The Index is composed of investment grade, fixed rate debt issues with maturities of one year or more, including government securities, corporate securities, and asset-backed and mortgage-backed securities (securitized products). As of December 31, 2021, the Index was composed of 12,372 issues. The Index is rebalanced monthly to reflect securities that have dropped out of or entered the Index in the preceding month. Generally, the Fund makes corresponding changes to its portfolio shortly after Index changes are made public. Because of the practical difficulties and expense of purchasing all of the securities in the Index, the Fund does not purchase all of the securities in the Index. Instead, the Fund uses a sampling methodology to purchase securities with generally the same risk and return characteristics of the Index. Under normal circumstances, the Fund maintains an average portfolio duration that is in line with the duration of the Index, which as of December 31, 2021 was 6.78 years. The Fund’s strategies may result in the active and frequent trading of the Fund’s portfolio securities.
The Fund will not concentrate (i.e., invest more than 25% of its assets) its investments in a particular industry except to the extent the Index is so concentrated. As of December 31, 2021, approximately 27% of the bonds represented in the Index were U.S. agency mortgage-backed pass-through securities. U.S. agency mortgage-backed pass-through securities are securities issued by entities such as the Government National Mortgage Association (GNMA) and the Federal National Mortgage Association (FNMA) that are backed by pools of mortgages.
7
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.
High Portfolio Turnover Risk. High portfolio turnover (more than 100%) caused by active and frequent trading of portfolio securities may result in accelerating the realization of taxable gains and losses, lower fund performance and increased brokerage costs.
Index Fund Risk. Index funds use a passive investment approach and generally do not attempt to manage market volatility, use defensive strategies, or reduce the effect of any long-term periods of poor investment performance. Therefore, the Fund may hold securities that present risks that an investment advisor researching individual securities might seek to avoid. An index fund has operating and other expenses while an index does not. As a result, over time, index funds tend to underperform the index. The correlation between fund performance and index performance may also be affected by the type of passive investment approach used by a fund (sampling or replication), changes in securities markets, changes in the composition of the index, and the timing of purchases and sales of fund shares. Errors or delays in compiling or rebalancing the Index may impact the performance of the Fund and increase transaction costs.
Industry Concentration Risk. A fund that concentrates investments in a particular industry or group of industries has greater exposure than other funds to market, economic and other factors affecting that industry or group of industries.
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.
Real Estate Securities Risk. Investing in real estate securities subjects the fund to the risks associated with the real estate market (which are similar to the risks associated with direct ownership in real estate), including declines in real estate values, loss due to casualty or condemnation, property taxes, interest rate changes, increased expenses, cash flow of underlying real estate assets, regulatory changes (including zoning, land use and rents), and environmental problems, as well as to the risks related to the management skill and creditworthiness of the issuer.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Securitized Products Risk. Investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Unscheduled prepayments on securitized products may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk).
U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.
U.S. Government-Sponsored Securities Risk. Securities issued by U.S. government-sponsored enterprises such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Home Loan Banks are not issued or guaranteed by the U.S. government.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
8
The bar chart shows changes in the Fund’s performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
Life of Fund returns are measured from the date the Fund’s shares were first sold (May 15, 2012).
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q1 2020
3.26%
Lowest return for a quarter during the period of the bar chart above:
Q1 2021
(3.39)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
Life of Fund
 
 
 
05/15/2012
Bond Market Index Account - Class 1
(1.83)%
3.32%
2.50%
Bloomberg US Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)
(1.54)%
3.57%
2.81%
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
Jeff Callahan (since 2020), Portfolio Manager
•
Darryl Trunnel (since 2019), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
9
Core Plus Bond Account
Objective
The Fund seeks to provide current income and, as a secondary objective, capital appreciation.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Management Fees
0.46%
Other Expenses
0.01%
Acquired Fund Fees and Expenses
0.02%
Total Annual Fund Operating Expenses
0.49%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Core Plus Bond Account - Class 1
$50
$157
$274
$616
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 150.8% of the average value of its portfolio.
Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in bonds or other debt securities at the time of purchase. Such investments include securities issued or guaranteed by the U.S. government or its agencies or instrumentalities (including collateralized mortgage obligations); asset-backed securities and mortgage-backed securities (securitized products); corporate bonds; and foreign securities, including emerging market securities. The Fund invests in investment-grade securities and, with respect to up to 25% of its assets, in below investment grade securities (sometimes called “high yield” or “junk”), which are rated at the time of purchase Ba1 or lower by Moody’s Investors Service, Inc. (“Moody’s”) and BB+ or lower by S&P Global Ratings (“S&P Global”) (if the security has been rated by only one of those agencies, that rating will determine whether the security is below investment grade; if the security has not been rated by either of those agencies, those selecting such investments will determine whether the security is of a quality comparable to those rated below investment grade; if securities are rated differently by the rating agencies, the highest rating is used). The Fund is not managed to a particular maturity. Under normal circumstances, the Fund maintains an average portfolio duration that is within ±25% of the duration of the Bloomberg US Aggregate Bond Index, which as of December 31, 2021 was 6.78 years. The Fund’s strategies may result in the active and frequent trading of the Fund’s portfolio securities.
The Fund enters into dollar roll transactions which may involve leverage. The Fund invests in derivatives, including Treasury futures and interest rate swaps to manage the fixed-income exposure (including for hedging purposes) and credit default swaps to increase or decrease, in an efficient manner, exposures to certain sectors or individual issuers. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index.
10
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund’s initial investment.
•
Credit Default Swaps. Credit default swaps involve special risks in addition to those associated with swaps generally because they are difficult to value, are highly susceptible to liquidity and credit risk, and generally pay a return to the party that has paid the premium only in the event of an actual default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial difficulty). The protection “buyer” in a credit default contract may be obligated to pay the protection “seller” an up-front payment or a periodic stream of payments over the term of the contract provided generally that no credit event on a reference obligation has occurred. If a credit event occurs, the seller generally must pay the buyer the “par value” (i.e., full notional value) of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described in the swap, or the seller may be required to deliver the related net cash amount, if the swap is cash settled. The Fund may be either the buyer or seller in the transaction.
•
Currency Contracts. Derivatives related to currency contracts involve the specific risk of government action through exchange controls that would restrict the ability of the fund to deliver or receive currency.
•
Futures and Swaps. These derivative instruments involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the instruments; possible lack of a liquid secondary market for an instrument and the resulting inability to close it when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet any applicable daily variation margin requirements.
Emerging Markets Risk. Investments in emerging markets may have more risk than those in developed markets because the emerging markets are less developed and more illiquid. Emerging markets can also be subject to increased social, economic, regulatory, and political uncertainties and can be extremely volatile. The U.S. Securities and Exchange Commission, the U.S. Department of Justice, and other U.S. authorities may be limited in their ability to pursue bad actors in emerging markets, including with respect to fraud.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
Hedging Risk. A fund that implements a hedging strategy using derivatives and/or securities could expose the fund to the risk that can arise when a change in the value of a hedge does not match a change in the value of the asset it hedges. In other words, the change in value of the hedge could move in a direction that does not match the change in value of the underlying asset, resulting in a risk of loss to the fund.
High Portfolio Turnover Risk. High portfolio turnover (more than 100%) caused by active and frequent trading of portfolio securities may result in accelerating the realization of taxable gains and losses, lower fund performance and increased brokerage costs.
High Yield Securities Risk. High yield fixed-income securities (commonly referred to as “junk bonds”) are subject to greater credit quality risk than higher rated fixed-income securities and should be considered speculative.
11
Leverage Risk. Leverage created by borrowing or certain types of transactions or investments may impair the fund’s liquidity, cause it to liquidate positions at an unfavorable time, increase volatility of the fund’s net asset value, or diminish the fund’s performance.
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.
Real Estate Securities Risk. Investing in real estate securities subjects the fund to the risks associated with the real estate market (which are similar to the risks associated with direct ownership in real estate), including declines in real estate values, loss due to casualty or condemnation, property taxes, interest rate changes, increased expenses, cash flow of underlying real estate assets, regulatory changes (including zoning, land use and rents), and environmental problems, as well as to the risks related to the management skill and creditworthiness of the issuer.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Securitized Products Risk. Investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Unscheduled prepayments on securitized products may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk).
U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.
U.S. Government-Sponsored Securities Risk. Securities issued by U.S. government-sponsored enterprises such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Home Loan Banks are not issued or guaranteed by the U.S. government.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
12
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
5.45%
Lowest return for a quarter during the period of the bar chart above:
Q1 2021
(2.72)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
Core Plus Bond Account - Class 1
(0.45)%
4.35%
3.70%
Bloomberg US Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)
(1.54)%
3.57%
2.90%
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
William C. Armstrong (since 2000), Portfolio Manager
•
Bryan C. Davis (since 2022), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
13
Diversified Balanced Account
Objective
The Fund seeks to provide as high a level of total return (consisting of reinvested income and capital appreciation) as is consistent with reasonable risk.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Class 2
Class 3
Management Fees
0.05%
0.05%
0.05%
Distribution and/or Service (12b-1) Fees
N/A
0.25%
0.25%
Other Expenses
—%
—%
0.15%
Acquired Fund Fees and Expenses
0.19%
0.19%
0.19%
Total Annual Fund Operating Expenses
0.24%
0.49%
0.64%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Diversified Balanced Account - Class 1
$25
$77
$135
$306
Diversified Balanced Account - Class 2
50
157
274
616
Diversified Balanced Account - Class 3
65
205
357
798
Portfolio Turnover
The Fund and each underlying fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s and the underlying fund's performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 14.3% of the average value of its portfolio.
Principal Investment Strategies
The Fund operates as a fund of funds and invests in funds and exchange-traded funds (“ETFs”) of Principal Funds, Inc., PVC, Principal Exchange-Traded Funds, and other fund complexes (collectively, the “Underlying Funds”). The Fund generally allocates approximately 50% of its assets to equity index Underlying Funds to gain broad market capitalization exposure to both U.S. and non-U.S investments, including investments in smaller companies, and approximately 50% to fixed-income index Underlying Funds for intermediate duration fixed-income exposure. The asset class diversification of the Fund is designed to moderate overall price volatility and cushion severe losses in any one investment sector.
The Fund’s assets are allocated among Underlying Funds in accordance with the Fund’s investment objective and based on qualitative and quantitative analyses and the relative market valuations of the Underlying Funds. Without shareholder approval, the Advisor may alter the percentage ranges and/or substitute or remove Underlying Funds when it deems appropriate. The Fund is re-balanced monthly.
The Underlying Funds utilize derivative strategies. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. Specifically, the Underlying Funds invest in equity index futures and ETFs to manage the equity exposure.
14
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Principal Risks of Investing in a Fund of Funds
Fund of Funds Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies (for example, other mutual funds or exchange-traded funds) in which the Fund invests (“underlying funds”). The Fund’s selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Fund’s performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Fund entails potential conflicts of interest: the Fund invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Fund assets to underlying funds from which they receive higher fees.
Principal Risks due to the Fund’s Investments in Underlying Funds
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund’s initial investment.
•
Futures. Futures contracts involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the futures contract; possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.
Index Fund Risk. Index funds use a passive investment approach and generally do not attempt to manage market volatility, use defensive strategies, or reduce the effect of any long-term periods of poor investment performance. Therefore, the Fund may hold securities that present risks that an investment advisor researching individual securities might seek to avoid. An index fund has operating and other expenses while an index does not. As a result, over time, index funds tend to underperform the index. The correlation between fund performance and index performance may also be affected by the type of passive investment approach used by a fund (sampling or replication), changes in securities markets, changes in the composition of the index, and the timing of purchases and sales of fund shares. Errors or delays in compiling or rebalancing the Index may impact the performance of the Fund and increase transaction costs.
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.
15
Real Estate Securities Risk. Investing in real estate securities subjects the fund to the risks associated with the real estate market (which are similar to the risks associated with direct ownership in real estate), including declines in real estate values, loss due to casualty or condemnation, property taxes, interest rate changes, increased expenses, cash flow of underlying real estate assets, regulatory changes (including zoning, land use and rents), and environmental problems, as well as to the risks related to the management skill and creditworthiness of the issuer.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Securitized Products Risk. Investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Unscheduled prepayments on securitized products may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk).
U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.
U.S. Government-Sponsored Securities Risk. Securities issued by U.S. government-sponsored enterprises such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Home Loan Banks are not issued or guaranteed by the U.S. government.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s Class 2 performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
For periods prior to the inception date of Class 1 shares (May 1, 2017) and Class 3 shares (December 9, 2020), the performance shown in the table for these newer classes is that of the Fund’s Class 2 shares, adjusted to reflect the respective fees and expenses of each class. However, where the adjustment for fees and expenses results in performance for a newer class that is higher than the historical performance of the Class 2 shares, the historical performance of Class 2 shares is used. These adjustments result in performance for such periods that is no higher than the historical performance of the Class 2 shares.
16
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
11.21%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(9.43)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
Diversified Balanced Account - Class 1
11.06%
9.94%
8.63%
Diversified Balanced Account - Class 2
10.83%
9.70%
8.51%
Diversified Balanced Account - Class 3
10.65%
9.54%
8.35%
Bloomberg US Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)
(1.54)%
3.57%
2.90%
S&P 500 Index (reflects no deduction for fees, expenses, or taxes)
28.73%
18.48%
16.55%
MSCI EAFE Index NTR (reflects withholding taxes on foreign dividends, but no deduction for fees,
expenses, or other taxes)
11.27%
9.55%
8.03%
S&P MidCap 400 Index (reflects no deduction for fees, expenses, or taxes)
24.78%
13.09%
14.20%
S&P SmallCap 600 Index (reflects no deduction for fees, expenses, or taxes)
26.84%
12.42%
14.50%
Diversified Balanced Custom Index (except as noted for MSCI EAFE Index NTR, reflects no
deduction for fees, expenses, or taxes)
11.49%
10.14%
9.08%
The Bloomberg US Aggregate Bond Index is used to show performance of domestic, taxable fixed-income securities performance. The S&P 500 Index is used to show large cap U.S. equity market performance. The MSCI EAFE Index NTR is used to show international stock performance. The S&P MidCap 400 Index is used to show mid cap U.S. equity market performance. The S&P SmallCap 600 Index is used to show small cap U.S. equity market performance. The custom index (as defined below) is used to show the performance of the various asset classes used by the Fund, and the Average Annual Total Returns table shows performance of the components of the custom index. The weightings for the Diversified Balanced Custom Index are 50% Bloomberg US Aggregate Bond Index, 35% S&P 500 Index, 7% MSCI EAFE Index NTR, 4% S&P MidCap 400 Index, and 4% S&P SmallCap 600 Index.
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
James W. Fennessey (since 2009), Portfolio Manager
•
Randy L. Welch (since 2009), Portfolio Manager
17
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
18
Diversified Balanced Managed Volatility Account
Objective
The Fund seeks to provide as high a level of total return (consisting of reinvested income and capital appreciation) as is consistent with reasonable risk, with an emphasis on managing volatility.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 2
Class 3
Management Fees
0.05%
0.05%
Distribution and/or Service (12b-1) Fees
0.25%
0.25%
Other Expenses
0.01%
0.16%
Acquired Fund Fees and Expenses
0.26%
0.26%
Total Annual Fund Operating Expenses
0.57%
0.72%
Expense Reimbursement(1)
—%
N/A
Total Annual Fund Operating Expenses after Expense Reimbursement
0.57%
0.72%
(1)
Principal Global Investors, LLC (“PGI”), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and tax reclaim recovery expenses and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.31% for Class 2 shares. It is expected that the expense limit will continue through the period ending April 30, 2023; however, Principal Variable Contracts Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period. Subject to applicable expense limits, the Fund may reimburse PGI for expenses incurred during the current fiscal year.
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. The calculation of costs takes into account any applicable contractual fee waivers and/or expense reimbursements for the period noted in the table above. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Diversified Balanced Managed Volatility Account - Class 2
$58
$183
$318
$714
Diversified Balanced Managed Volatility Account - Class 3
74
230
401
894
Portfolio Turnover
The Fund and each underlying fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s and the underlying fund's performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 18.7% of the average value of its portfolio.
Principal Investment Strategies
The Fund operates as a fund of funds and invests in funds and exchange-traded funds (“ETFs”) of Principal Funds, Inc., PVC, Principal Exchange-Traded Funds and other fund complexes (collectively, the “Underlying Funds”). The Fund generally allocates approximately 50% of its assets to equity index Underlying Funds to gain broad market capitalization exposure to both U.S. and non-U.S investments, including investments in smaller companies, and approximately 50% to fixed-income index Underlying Funds for intermediate duration fixed-income exposure. The asset class diversification of the Fund is designed to moderate overall price volatility and cushion severe losses in any one investment sector.
19
The Fund’s assets are allocated among Underlying Funds in accordance with the Fund’s investment objective and based on qualitative and quantitative analyses and the relative market valuations of the Underlying Funds. Without shareholder approval, the Advisor may alter the percentage ranges and/or substitute or remove Underlying Funds when it deems appropriate. The Fund is re-balanced monthly.
The Underlying Funds utilize derivative strategies. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. Specifically, the Underlying Funds invest in equity index futures and ETFs to manage the equity exposure, as well as vertical call spreads and vertical put spreads as part of an active strategy intended to reduce volatility. Vertical spreads are the simultaneous purchase and sale of two options of the same type with the same expiration date but two different strike prices. The strike price is the fixed price at which the owner of the option can buy (in the case of a call), or sell (in the case of a put), the underlying security.
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Principal Risks of Investing in a Fund of Funds
Fund of Funds Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies (for example, other mutual funds or exchange-traded funds) in which the Fund invests (“underlying funds”). The Fund’s selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Fund’s performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Fund entails potential conflicts of interest: the Fund invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Fund assets to underlying funds from which they receive higher fees.
Principal Risks due to the Fund’s Investments in Underlying Funds
Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund’s initial investment.
•
Futures. Futures contracts involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the futures contract; possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.
•
Options. Options involve specific risks, including: imperfect correlation between the change in market value of the instruments held by the fund and the price of the options, counterparty risk, difference in trading hours for the options markets and the markets for the underlying securities (rate movements can take place in the underlying markets that cannot be reflected in the options markets), and an insufficient liquid secondary market for particular options.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
20
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.
Hedging Risk. A fund that implements a hedging strategy using derivatives and/or securities could expose the fund to the risk that can arise when a change in the value of a hedge does not match a change in the value of the asset it hedges. In other words, the change in value of the hedge could move in a direction that does not match the change in value of the underlying asset, resulting in a risk of loss to the fund.
Index Fund Risk. Index funds use a passive investment approach and generally do not attempt to manage market volatility, use defensive strategies, or reduce the effect of any long-term periods of poor investment performance. Therefore, the Fund may hold securities that present risks that an investment advisor researching individual securities might seek to avoid. An index fund has operating and other expenses while an index does not. As a result, over time, index funds tend to underperform the index. The correlation between fund performance and index performance may also be affected by the type of passive investment approach used by a fund (sampling or replication), changes in securities markets, changes in the composition of the index, and the timing of purchases and sales of fund shares. Errors or delays in compiling or rebalancing the Index may impact the performance of the Fund and increase transaction costs.
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.
Real Estate Securities Risk. Investing in real estate securities subjects the fund to the risks associated with the real estate market (which are similar to the risks associated with direct ownership in real estate), including declines in real estate values, loss due to casualty or condemnation, property taxes, interest rate changes, increased expenses, cash flow of underlying real estate assets, regulatory changes (including zoning, land use and rents), and environmental problems, as well as to the risks related to the management skill and creditworthiness of the issuer.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Securitized Products Risk. Investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Unscheduled prepayments on securitized products may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk).
U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.
U.S. Government-Sponsored Securities Risk. Securities issued by U.S. government-sponsored enterprises such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Home Loan Banks are not issued or guaranteed by the U.S. government.
Volatility Mitigation Risk. Volatility mitigation strategies may increase fund transaction costs, which could increase losses or reduce gains. These strategies may not protect the fund from market declines and may reduce the fund’s participation in market gains.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
21
The bar chart shows changes in the Fund’s Class 2 performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
For periods prior to the inception date of Class 3 shares (December 9, 2020), the performance shown in the table for Class 3 shares is that of the Fund’s Class 2 shares, adjusted to reflect the fees and expenses of the Class 3 shares. These adjustments result in performance for such periods that is no higher than the historical performance of the Class 2 shares.
Life of Fund returns are measured from the date the Fund’s shares were first sold (October 31, 2013).
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
10.73%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(9.06)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
Life of Fund
 
 
 
10/31/2013
Diversified Balanced Managed Volatility Account - Class 2
9.94%
9.21%
7.46%
Diversified Balanced Managed Volatility Account - Class 3
9.81%
9.05%
7.29%
Bloomberg US Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)
(1.54)%
3.57%
3.18%
S&P 500 Index (reflects no deduction for fees, expenses, or taxes)
28.73%
18.48%
15.23%
MSCI EAFE Index NTR (reflects withholding taxes on foreign dividends, but no deduction for
fees, expenses, or other taxes)
11.27%
9.55%
5.41%
S&P MidCap 400 Index (reflects no deduction for fees, expenses, or taxes)
24.78%
13.09%
11.90%
S&P SmallCap 600 Index (reflects no deduction for fees, expenses, or taxes)
26.84%
12.42%
11.86%
Diversified Balanced Managed Volatility Custom Index (except as noted for MSCI EAFE Index
NTR, reflects no deduction for fees, expenses, or taxes)
11.49%
10.14%
8.44%
The Bloomberg US Aggregate Bond Index is used to show performance of domestic, taxable fixed-income securities performance. The S&P 500 Index is used to show large cap U.S. equity market performance. The MSCI EAFE Index NTR is used to show international stock performance. The S&P MidCap 400 Index is used to show mid cap U.S. equity market performance. The S&P SmallCap 600 Index is used to show small cap U.S. equity market performance. The custom index (as defined below) is used to show the performance of the various asset classes used by the Fund, and the Average Annual Total Returns table shows performance of the components of the custom index. The weightings for the Diversified Balanced Managed Volatility Custom Index are 50% Bloomberg US Aggregate Bond Index, 35% S&P 500 Index, 7% MSCI EAFE Index NTR, 4% S&P MidCap 400 Index, and 4% S&P SmallCap 600 Index.
22
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
James W. Fennessey (since 2013), Portfolio Manager
•
Randy L. Welch (since 2013), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
23
Diversified Balanced Volatility Control Account
Objective
The Fund seeks to provide as high a level of total return (consisting of reinvested income and capital appreciation) as is consistent with reasonable risk, while seeking to control volatility.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 2
Class 3
Management Fees
0.12%
0.12%
Distribution and/or Service (12b-1) Fees
0.25%
0.25%
Other Expenses
0.01%
0.16%
Acquired Fund Fees and Expenses
0.15%
0.15%
Total Annual Fund Operating Expenses
0.53%
0.68%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Diversified Balanced Volatility Control Account - Class 2
$54
$170
$296
$665
Diversified Balanced Volatility Control Account - Class 3
69
218
379
847
Portfolio Turnover
The Fund and each underlying fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s and the underlying fund's performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 47.6% of the average value of its portfolio.
Principal Investment Strategies
The Fund operates as a fund of funds and invests in funds and exchange-traded funds (“ETFs”) of Principal Funds, Inc., PVC, Principal Exchange-Traded Funds and other fund complexes (collectively, the “Underlying Funds”). The Fund also invests in cash and cash equivalents (as investments and/or to serve as margin or collateral for derivatives positions) and derivative instruments (primarily exchange-traded futures). A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index.
The Fund uses a systematic approach to identify volatility signals in the market and determine whether equity market volatility is below or above average. During periods of lower equity market volatility, the Fund generally allocates approximately 50% of its assets to equity index Underlying Funds and long positions in ETFs and exchange-traded futures to gain broad market capitalization exposure to both U.S. and non-U.S. equity investments, including investments in smaller companies, and approximately 50% to fixed-income Underlying Funds for intermediate duration fixed-income exposure.
During periods of higher equity market volatility, the Fund implements a volatility control strategy to hedge its equity exposure. Specifically, the Fund invests in cash and/or cash equivalents such as high quality short-term money market investments and/or takes short positions in exchange-traded futures.
The Fund’s assets are allocated among Underlying Funds in accordance with the Fund’s investment objective and based on qualitative and quantitative analyses and the relative market valuations of the Underlying Funds. Without shareholder approval, the Advisor may alter the percentage ranges and strategy allocations and/or substitute or remove Underlying
24
Funds when it deems appropriate. For example, during periods of higher equity market volatility, the allocations to the equity Underlying Funds might be reduced. The asset class diversification of the Fund is designed to moderate overall price volatility and cushion severe losses in any one investment sector.
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Principal Risks of Investing in a Fund of Funds
Fund of Funds Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies (for example, other mutual funds or exchange-traded funds) in which the Fund invests (“underlying funds”). The Fund’s selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Fund’s performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Fund entails potential conflicts of interest: the Fund invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Fund assets to underlying funds from which they receive higher fees.
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund’s initial investment.
•
Futures. Futures contracts involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the futures contract; possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.
Hedging Risk. A fund that implements a hedging strategy using derivatives and/or securities could expose the fund to the risk that can arise when a change in the value of a hedge does not match a change in the value of the asset it hedges. In other words, the change in value of the hedge could move in a direction that does not match the change in value of the underlying asset, resulting in a risk of loss to the fund.
Short Sales Risk. A short sale involves the sale by the fund of a security that it does not own with the hope of purchasing the same security at a later date at a lower price. A fund may also enter into a short derivative position through a futures contract or swap agreement. If the price of the security or derivative has increased during this time, then the fund will incur a loss equal to the increase in price from the time that the short sale was entered into plus any premiums and interest paid to the third party. Therefore, short sales involve the risk that losses may be exaggerated, potentially losing more money than the actual cost of the investment. Also, there is the risk that the third party to the short sale may fail to honor its contract terms, causing a loss to the fund.
Volatility Mitigation Risk. Volatility mitigation strategies may increase fund transaction costs, which could increase losses or reduce gains. These strategies may not protect the fund from market declines and may reduce the fund’s participation in market gains.
Principal Risks due to the Fund’s Investments in Underlying Funds
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund’s initial investment.
•
Futures. Futures contracts involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the futures contract; possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.
25
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.
Index Fund Risk. Index funds use a passive investment approach and generally do not attempt to manage market volatility, use defensive strategies, or reduce the effect of any long-term periods of poor investment performance. Therefore, the Fund may hold securities that present risks that an investment advisor researching individual securities might seek to avoid. An index fund has operating and other expenses while an index does not. As a result, over time, index funds tend to underperform the index. The correlation between fund performance and index performance may also be affected by the type of passive investment approach used by a fund (sampling or replication), changes in securities markets, changes in the composition of the index, and the timing of purchases and sales of fund shares. Errors or delays in compiling or rebalancing the Index may impact the performance of the Fund and increase transaction costs.
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.
Real Estate Securities Risk. Investing in real estate securities subjects the fund to the risks associated with the real estate market (which are similar to the risks associated with direct ownership in real estate), including declines in real estate values, loss due to casualty or condemnation, property taxes, interest rate changes, increased expenses, cash flow of underlying real estate assets, regulatory changes (including zoning, land use and rents), and environmental problems, as well as to the risks related to the management skill and creditworthiness of the issuer.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Securitized Products Risk. Investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Unscheduled prepayments on securitized products may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk).
U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.
U.S. Government-Sponsored Securities Risk. Securities issued by U.S. government-sponsored enterprises such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Home Loan Banks are not issued or guaranteed by the U.S. government.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
26
The bar chart shows changes in the Fund’s Class 2 performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
For periods prior to the inception date of Class 3 shares (December 9, 2020), the performance shown in the table for Class 3 shares is that of the Fund’s Class 2 shares, adjusted to reflect the fees and expenses of the Class 3 shares. These adjustments result in performance for such periods that is no higher than the historical performance of the Class 2 shares.
Life of Fund returns are measured from the date the Fund’s shares were first sold (March 30, 2017).
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q4 2020
6.16%
Lowest return for a quarter during the period of the bar chart above:
Q4 2018
(5.76)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
Life of Fund
 
 
03/30/2017
Diversified Balanced Volatility Control Account - Class 2
10.08%
7.96%
Diversified Balanced Volatility Control Account - Class 3
9.94%
7.82%
Bloomberg US Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)
(1.54)%
3.61%
S&P 500 Index (reflects no deduction for fees, expenses, or taxes)
28.73%
17.98%
MSCI EAFE Index NTR (reflects withholding taxes on foreign dividends, but no deduction for fees, expenses, or
other taxes)
11.27%
8.35%
S&P MidCap 400 Index (reflects no deduction for fees, expenses, or taxes)
24.78%
12.90%
S&P SmallCap 600 Index (reflects no deduction for fees, expenses, or taxes)
26.84%
12.90%
Diversified Balanced Volatility Control Custom Index (except as noted for MSCI EAFE Index NTR, reflects no
deduction for fees, expenses, or taxes)
11.49%
9.94%
The Bloomberg US Aggregate Bond Index is used to show performance of domestic, taxable fixed-income securities performance. The S&P 500 Index is used to show large cap U.S. equity market performance. The MSCI EAFE Index NTR is used to show international stock performance. The S&P MidCap 400 Index is used to show mid cap U.S. equity market performance. The S&P SmallCap 600 Index is used to show small cap U.S. equity market performance. The custom index (as defined below) is used to show the performance of the various asset classes used by the Fund, and the Average Annual Total Returns table shows performance of the components of the custom index. The weightings for the Diversified Balanced Volatility Control Custom Index are 50% Bloomberg US Aggregate Bond Index, 35% S&P 500 Index, 7% MSCI EAFE Index NTR, 4% S&P MidCap 400 Index, and 4% S&P SmallCap 600 Index.
27
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
James W. Fennessey (since 2017), Portfolio Manager
•
Jeffrey A. Schwarte (since 2017), Portfolio Manager
•
Aaron J. Siebel (since 2018), Portfolio Manager
•
Randy L. Welch (since 2017), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
28
Diversified Growth Account
Objective
The Fund seeks to provide long-term capital appreciation.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 2
Class 3
Management Fees
0.05%
0.05%
Distribution and/or Service (12b-1) Fees
0.25%
0.25%
Other Expenses
—%
0.15%
Acquired Fund Fees and Expenses
0.21%
0.21%
Total Annual Fund Operating Expenses
0.51%
0.66%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Diversified Growth Account - Class 2
$52
$164
$285
$640
Diversified Growth Account - Class 3
67
211
368
822
Portfolio Turnover
The Fund and each underlying fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s and the underlying fund's performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 14.7% of the average value of its portfolio.
Principal Investment Strategies
The Fund operates as a fund of funds and invests in funds and exchange-traded funds (“ETFs”) of Principal Funds, Inc., PVC, Principal Exchange-Traded Funds, and other fund complexes (collectively, the “Underlying Funds”). The Fund generally allocates approximately 65% of its assets to equity index Underlying Funds to gain broad market capitalization exposure to both U.S. and non-U.S investments, including investments in smaller companies, and approximately 35% to fixed-income index Underlying Funds for intermediate duration fixed-income exposure. The asset class diversification of the Fund is designed to moderate overall price volatility and cushion severe losses in any one investment sector.
The Fund’s assets are allocated among Underlying Funds in accordance with the Fund’s investment objective and based on qualitative and quantitative analyses and the relative market valuations of the Underlying Funds. Without shareholder approval, the Advisor may alter the percentage ranges and/or substitute or remove Underlying Funds when it deems appropriate. The Fund is re-balanced monthly.
The Underlying Funds utilize derivative strategies. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. Specifically, the Underlying Funds invest in equity index futures and ETFs to manage the equity exposure.
29
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Principal Risks of Investing in a Fund of Funds
Fund of Funds Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies (for example, other mutual funds or exchange-traded funds) in which the Fund invests (“underlying funds”). The Fund’s selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Fund’s performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Fund entails potential conflicts of interest: the Fund invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Fund assets to underlying funds from which they receive higher fees.
Principal Risks due to the Fund’s Investments in Underlying Funds
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund’s initial investment.
•
Futures. Futures contracts involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the futures contract; possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
Index Fund Risk. Index funds use a passive investment approach and generally do not attempt to manage market volatility, use defensive strategies, or reduce the effect of any long-term periods of poor investment performance. Therefore, the Fund may hold securities that present risks that an investment advisor researching individual securities might seek to avoid. An index fund has operating and other expenses while an index does not. As a result, over time, index funds tend to underperform the index. The correlation between fund performance and index performance may also be affected by the type of passive investment approach used by a fund (sampling or replication), changes in securities markets, changes in the composition of the index, and the timing of purchases and sales of fund shares. Errors or delays in compiling or rebalancing the Index may impact the performance of the Fund and increase transaction costs.
30
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.
Real Estate Securities Risk. Investing in real estate securities subjects the fund to the risks associated with the real estate market (which are similar to the risks associated with direct ownership in real estate), including declines in real estate values, loss due to casualty or condemnation, property taxes, interest rate changes, increased expenses, cash flow of underlying real estate assets, regulatory changes (including zoning, land use and rents), and environmental problems, as well as to the risks related to the management skill and creditworthiness of the issuer.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Securitized Products Risk. Investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Unscheduled prepayments on securitized products may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk).
U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.
U.S. Government-Sponsored Securities Risk. Securities issued by U.S. government-sponsored enterprises such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Home Loan Banks are not issued or guaranteed by the U.S. government.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s Class 2 performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
For periods prior to the inception date of Class 3 shares (December 9, 2020), the performance shown in the table for Class 3 shares is that of the Fund’s Class 2 shares, adjusted to reflect the fees and expenses of the Class 3 shares. These adjustments result in performance for such periods that is no higher than the historical performance of the Class 2 shares.
31
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
13.81%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(13.22)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
Diversified Growth Account - Class 2
14.79%
11.53%
10.26%
Diversified Growth Account - Class 3
14.63%
11.37%
10.09%
S&P 500 Index (reflects no deduction for fees, expenses, or taxes)
28.73%
18.48%
16.55%
Bloomberg US Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)
(1.54)%
3.57%
2.90%
MSCI EAFE Index NTR (reflects withholding taxes on foreign dividends, but no deduction for fees,
expenses, or other taxes)
11.27%
9.55%
8.03%
S&P MidCap 400 Index (reflects no deduction for fees, expenses, or taxes)
24.78%
13.09%
14.20%
S&P SmallCap 600 Index (reflects no deduction for fees, expenses, or taxes)
26.84%
12.42%
14.50%
Diversified Growth Custom Index (except as noted for MSCI EAFE Index NTR, reflects no deduction
for fees, expenses, or taxes)
15.50%
11.99%
10.83%
The S&P 500 Index is used to show large cap U.S. equity market performance. The Bloomberg US Aggregate Bond Index is used to show performance of domestic, taxable fixed-income securities performance. The MSCI EAFE Index NTR is used to show international stock performance. The S&P MidCap 400 Index is used to show mid cap U.S. equity market performance. The S&P SmallCap 600 Index is used to show small cap U.S. equity market performance. The custom index (as defined below) is used to show the performance of the various asset classes used by the Fund, and the Average Annual Total Returns table shows performance of the components of the custom index. The weightings for the Diversified Growth Custom Index are 45% S&P 500 Index, 35% Bloomberg US Aggregate Bond Index, 10% MSCI EAFE Index NTR, 5% S&P MidCap 400 Index, and 5% S&P SmallCap 600 Index.
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
James W. Fennessey (since 2009), Portfolio Manager
•
Randy L. Welch (since 2009), Portfolio Manager
32
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
33
Diversified Growth Managed Volatility Account
Objective
The Fund seeks to provide long-term capital appreciation, with an emphasis on managing volatility.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 2
Class 3
Management Fees
0.05%
0.05%
Distribution and/or Service (12b-1) Fees
0.25%
0.25%
Other Expenses
—%
0.15%
Acquired Fund Fees and Expenses
0.30%
0.30%
Total Annual Fund Operating Expenses
0.60%
0.75%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Diversified Growth Managed Volatility Account - Class 2
$61
$192
$335
$750
Diversified Growth Managed Volatility Account - Class 3
77
240
417
930
Portfolio Turnover
The Fund and each underlying fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s and the underlying fund's performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 17.4% of the average value of its portfolio.
Principal Investment Strategies
The Fund operates as a fund of funds and invests in funds and exchange-traded funds (“ETFs”) of Principal Funds, Inc., PVC, Principal Exchange-Traded Funds and other fund complexes (collectively, the “Underlying Funds”). The Fund generally allocates approximately 65% of its assets to equity index Underlying Funds to gain broad market capitalization exposure to both U.S. and non-U.S investments, including investments in smaller companies, and approximately 35% to fixed-income index Underlying Funds for intermediate duration fixed-income exposure. The asset class diversification of the Fund is designed to moderate overall price volatility and cushion severe losses in any one investment sector.
The Fund’s assets are allocated among Underlying Funds in accordance with the Fund’s investment objective and based on qualitative and quantitative analyses and the relative market valuations of the Underlying Funds. Without shareholder approval, the Advisor may alter the percentage ranges and/or substitute or remove Underlying Funds when it deems appropriate. The Fund is re-balanced monthly.
The Underlying Funds utilize derivative strategies. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. Specifically, the Underlying Funds invest in equity index futures and ETFs to manage the equity exposure, as well as vertical call spreads and vertical put spreads as part of an active strategy intended to reduce volatility. Vertical spreads are the simultaneous purchase and sale of two options of the same type with the same expiration date but two different strike prices. The strike price is the fixed price at which the owner of the option can buy (in the case of a call), or sell (in the case of a put), the underlying security.
34
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Principal Risks of Investing in a Fund of Funds
Fund of Funds Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies (for example, other mutual funds or exchange-traded funds) in which the Fund invests (“underlying funds”). The Fund’s selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Fund’s performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Fund entails potential conflicts of interest: the Fund invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Fund assets to underlying funds from which they receive higher fees.
Principal Risks due to the Fund’s Investments in Underlying Funds
Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund’s initial investment.
•
Futures. Futures contracts involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the futures contract; possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.
•
Options. Options involve specific risks, including: imperfect correlation between the change in market value of the instruments held by the fund and the price of the options, counterparty risk, difference in trading hours for the options markets and the markets for the underlying securities (rate movements can take place in the underlying markets that cannot be reflected in the options markets), and an insufficient liquid secondary market for particular options.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
35
Hedging Risk. A fund that implements a hedging strategy using derivatives and/or securities could expose the fund to the risk that can arise when a change in the value of a hedge does not match a change in the value of the asset it hedges. In other words, the change in value of the hedge could move in a direction that does not match the change in value of the underlying asset, resulting in a risk of loss to the fund.
Index Fund Risk. Index funds use a passive investment approach and generally do not attempt to manage market volatility, use defensive strategies, or reduce the effect of any long-term periods of poor investment performance. Therefore, the Fund may hold securities that present risks that an investment advisor researching individual securities might seek to avoid. An index fund has operating and other expenses while an index does not. As a result, over time, index funds tend to underperform the index. The correlation between fund performance and index performance may also be affected by the type of passive investment approach used by a fund (sampling or replication), changes in securities markets, changes in the composition of the index, and the timing of purchases and sales of fund shares. Errors or delays in compiling or rebalancing the Index may impact the performance of the Fund and increase transaction costs.
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.
Real Estate Securities Risk. Investing in real estate securities subjects the fund to the risks associated with the real estate market (which are similar to the risks associated with direct ownership in real estate), including declines in real estate values, loss due to casualty or condemnation, property taxes, interest rate changes, increased expenses, cash flow of underlying real estate assets, regulatory changes (including zoning, land use and rents), and environmental problems, as well as to the risks related to the management skill and creditworthiness of the issuer.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Securitized Products Risk. Investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Unscheduled prepayments on securitized products may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk).
U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.
U.S. Government-Sponsored Securities Risk. Securities issued by U.S. government-sponsored enterprises such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Home Loan Banks are not issued or guaranteed by the U.S. government.
Volatility Mitigation Risk. Volatility mitigation strategies may increase fund transaction costs, which could increase losses or reduce gains. These strategies may not protect the fund from market declines and may reduce the fund’s participation in market gains.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s Class 2 performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
For periods prior to the inception date of Class 3 shares (December 9, 2020), the performance shown in the table for Class 3 shares is that of the Fund’s Class 2 shares, adjusted to reflect the fees and expenses of the Class 3 shares. These adjustments result in performance for such periods that is no higher than the historical performance of the Class 2 shares.
36
Life of Fund returns are measured from the date the Fund’s shares were first sold (October 31, 2013).
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
13.21%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(12.71)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
Life of Fund
 
 
 
10/31/2013
Diversified Growth Managed Volatility Account - Class 2
13.70%
10.93%
8.78%
Diversified Growth Managed Volatility Account - Class 3
13.44%
10.74%
8.59%
S&P 500 Index (reflects no deduction for fees, expenses, or taxes)
28.73%
18.48%
15.23%
Bloomberg US Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)
(1.54)%
3.57%
3.18%
MSCI EAFE Index NTR (reflects withholding taxes on foreign dividends, but no deduction for
fees, expenses, or other taxes)
11.27%
9.55%
5.41%
S&P MidCap 400 Index (reflects no deduction for fees, expenses, or taxes)
24.78%
13.09%
11.90%
S&P SmallCap 600 Index (reflects no deduction for fees, expenses, or taxes)
26.84%
12.42%
11.86%
Diversified Growth Managed Volatility Custom Index (except as noted for MSCI EAFE Index NTR,
reflects no deduction for fees, expenses, or taxes)
15.50%
11.99%
9.88%
The S&P 500 Index is used to show large cap U.S. equity market performance. The Bloomberg US Aggregate Bond Index is used to show performance of domestic, taxable fixed-income securities performance. The MSCI EAFE Index NTR is used to show international stock performance. The S&P MidCap 400 Index is used to show mid cap U.S. equity market performance. The S&P SmallCap 600 Index is used to show small cap U.S. equity market performance. The custom index (as defined below) is used to show the performance of the various asset classes used by the Fund, and the Average Annual Total Returns table shows performance of the components of the custom index. The weightings for the Diversified Growth Managed Volatility Custom Index are 45% S&P 500 Index, 35% Bloomberg US Aggregate Bond Index, 10% MSCI EAFE Index NTR, 5% S&P MidCap 400 Index, and 5% S&P SmallCap 600 Index.
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
James W. Fennessey (since 2013), Portfolio Manager
•
Randy L. Welch (since 2013), Portfolio Manager
37
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
38
Diversified Growth Volatility Control Account
Objective
The Fund seeks to provide long-term capital appreciation, while seeking to control volatility.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 2
Class 3
Management Fees
0.12%
0.12%
Distribution and/or Service (12b-1) Fees
0.25%
0.25%
Other Expenses
—%
0.15%
Acquired Fund Fees and Expenses
0.16%
0.16%
Total Annual Fund Operating Expenses
0.53%
0.68%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Diversified Growth Volatility Control Account - Class 2
$54
$170
$296
$665
Diversified Growth Volatility Control Account - Class 3
69
218
379
847
Portfolio Turnover
The Fund and each underlying fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s and the underlying fund's performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 57.4% of the average value of its portfolio.
Principal Investment Strategies
The Fund operates as a fund of funds and invests in funds and exchange-traded funds (“ETFs”) of Principal Funds, Inc., PVC, Principal Exchange-Traded Funds, and other fund complexes (collectively, the “Underlying Funds”). The Fund also invests in cash and cash equivalents (as investments and/or to serve as margin or collateral for derivatives positions) and derivative instruments (primarily exchange-traded futures). A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index.
The Fund uses a systematic approach to identify volatility signals in the market and determine whether equity market volatility is below or above average. During periods of lower equity market volatility, the Fund generally allocates approximately 65% of its assets to equity index Underlying Funds and long positions in ETFs and exchange-traded futures to gain broad market capitalization exposure to both U.S. and non-U.S. equity investments, including investments in smaller companies, and approximately 35% to fixed-income Underlying Funds for intermediate duration fixed-income exposure.
During periods of higher equity market volatility, the Fund implements a volatility control strategy to hedge its equity exposure. Specifically, the Fund invests in cash and/or cash equivalents such as high quality short-term money market investments and/or takes short positions in exchange-traded futures.
The Fund’s assets are allocated among Underlying Funds in accordance with the Fund’s investment objective and based on qualitative and quantitative analyses and the relative market valuations of the Underlying Funds. Without shareholder approval, the Advisor may alter the percentage ranges and strategy allocations and/or substitute or remove Underlying
39
Funds when it deems appropriate. For example, during periods of higher equity market volatility, the allocations to the equity Underlying Funds might be reduced. The asset class diversification of the Fund is designed to moderate overall price volatility and cushion severe losses in any one investment sector.
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Principal Risks of Investing in a Fund of Funds
Fund of Funds Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies (for example, other mutual funds or exchange-traded funds) in which the Fund invests (“underlying funds”). The Fund’s selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Fund’s performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Fund entails potential conflicts of interest: the Fund invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Fund assets to underlying funds from which they receive higher fees.
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund’s initial investment.
•
Futures. Futures contracts involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the futures contract; possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.
Hedging Risk. A fund that implements a hedging strategy using derivatives and/or securities could expose the fund to the risk that can arise when a change in the value of a hedge does not match a change in the value of the asset it hedges. In other words, the change in value of the hedge could move in a direction that does not match the change in value of the underlying asset, resulting in a risk of loss to the fund.
Short Sales Risk. A short sale involves the sale by the fund of a security that it does not own with the hope of purchasing the same security at a later date at a lower price. A fund may also enter into a short derivative position through a futures contract or swap agreement. If the price of the security or derivative has increased during this time, then the fund will incur a loss equal to the increase in price from the time that the short sale was entered into plus any premiums and interest paid to the third party. Therefore, short sales involve the risk that losses may be exaggerated, potentially losing more money than the actual cost of the investment. Also, there is the risk that the third party to the short sale may fail to honor its contract terms, causing a loss to the fund.
Volatility Mitigation Risk. Volatility mitigation strategies may increase fund transaction costs, which could increase losses or reduce gains. These strategies may not protect the fund from market declines and may reduce the fund’s participation in market gains.
Principal Risks due to the Fund’s Investments in Underlying Funds
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund’s initial investment.
•
Futures. Futures contracts involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the futures contract; possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.
40
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
Index Fund Risk. Index funds use a passive investment approach and generally do not attempt to manage market volatility, use defensive strategies, or reduce the effect of any long-term periods of poor investment performance. Therefore, the Fund may hold securities that present risks that an investment advisor researching individual securities might seek to avoid. An index fund has operating and other expenses while an index does not. As a result, over time, index funds tend to underperform the index. The correlation between fund performance and index performance may also be affected by the type of passive investment approach used by a fund (sampling or replication), changes in securities markets, changes in the composition of the index, and the timing of purchases and sales of fund shares. Errors or delays in compiling or rebalancing the Index may impact the performance of the Fund and increase transaction costs.
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.
Real Estate Securities Risk. Investing in real estate securities subjects the fund to the risks associated with the real estate market (which are similar to the risks associated with direct ownership in real estate), including declines in real estate values, loss due to casualty or condemnation, property taxes, interest rate changes, increased expenses, cash flow of underlying real estate assets, regulatory changes (including zoning, land use and rents), and environmental problems, as well as to the risks related to the management skill and creditworthiness of the issuer.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Securitized Products Risk. Investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Unscheduled prepayments on securitized products may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk).
U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.
U.S. Government-Sponsored Securities Risk. Securities issued by U.S. government-sponsored enterprises such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Home Loan Banks are not issued or guaranteed by the U.S. government.
41
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s Class 2 performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
For periods prior to the inception date of Class 3 shares (December 9, 2020), the performance shown in the table for Class 3 shares is that of the Fund’s Class 2 shares, adjusted to reflect the fees and expenses of the Class 3 shares. These adjustments result in performance for such periods that is no higher than the historical performance of the Class 2 shares.
Life of Fund returns are measured from the date the Fund’s shares were first sold (March 30, 2017).
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q4 2020
7.82%
Lowest return for a quarter during the period of the bar chart above:
Q4 2018
(7.74)%
42
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
Life of Fund
 
 
03/30/2017
Diversified Growth Volatility Control Account - Class 2
13.89%
9.31%
Diversified Growth Volatility Control Account - Class 3
13.74%
9.17%
S&P 500 Index (reflects no deduction for fees, expenses, or taxes)
28.73%
17.98%
Bloomberg US Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)
(1.54)%
3.61%
MSCI EAFE Index NTR (reflects withholding taxes on foreign dividends, but no deduction for fees, expenses, or
other taxes)
11.27%
8.35%
S&P MidCap 400 Index (reflects no deduction for fees, expenses, or taxes)
24.78%
12.90%
S&P SmallCap 600 Index (reflects no deduction for fees, expenses, or taxes)
26.84%
12.90%
Diversified Growth Volatility Control Custom Index (except as noted for MSCI EAFE Index NTR, reflects no
deduction for fees, expenses, or taxes)
15.50%
11.70%
The Bloomberg US Aggregate Bond Index is used to show performance of domestic, taxable fixed-income securities performance. The S&P 500 Index is used to show large cap U.S. equity market performance. The MSCI EAFE Index NTR is used to show international stock performance. The S&P MidCap 400 Index is used to show mid cap U.S. equity market performance. The S&P SmallCap 600 Index is used to show small cap U.S. equity market performance. The custom index (as defined below) is used to show the performance of the various asset classes used by the Fund, and the Average Annual Total Returns table shows performance of the components of the custom index. The weightings for the Diversified Growth Volatility Control Custom Index are 45% S&P 500 Index, 35% Bloomberg US Aggregate Bond Index, 10% MSCI EAFE Index NTR, 5% S&P MidCap 400 Index, and 5% S&P SmallCap 600 Index.
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
James W. Fennessey (since 2017), Portfolio Manager
•
Jeffrey A. Schwarte (since 2017), Portfolio Manager
•
Aaron J. Siebel (since 2018), Portfolio Manager
•
Randy L. Welch (since 2017), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
43
Diversified Income Account
Objective
The Fund seeks to provide a high level of total return (consisting of reinvestment of income with some capital appreciation).
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 2
Class 3
Management Fees
0.05%
0.05%
Distribution and/or Service (12b-1) Fees
0.25%
0.25%
Other Expenses
—%
0.15%
Acquired Fund Fees and Expenses
0.17%
0.17%
Total Annual Fund Operating Expenses
0.47%
0.62%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Diversified Income Account - Class 2
$48
$151
$263
$591
Diversified Income Account - Class 3
63
199
346
774
Portfolio Turnover
The Fund and each underlying fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s and the underlying fund's performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 24.8% of the average value of its portfolio.
Principal Investment Strategies
The Fund operates as a fund of funds and invests in funds and exchange-traded funds (“ETFs”) of Principal Funds, Inc., PVC, Principal Exchange-Traded Funds, and other fund complexes (collectively, the “Underlying Funds”). The Fund generally allocates approximately 35% of its assets to equity index Underlying Funds to gain broad market capitalization exposure to both U.S. and non-U.S investments, including investments in smaller companies, and approximately 65% to fixed-income index Underlying Funds for intermediate duration fixed-income exposure. The asset class diversification of the Fund is designed to moderate overall price volatility and cushion severe losses in any one investment sector.
The Fund’s assets are allocated among Underlying Funds in accordance with the Fund’s investment objective and based on qualitative and quantitative analyses and the relative market valuations of the Underlying Funds. Without shareholder approval, the Advisor may alter the percentage ranges and/or substitute or remove Underlying Funds when it deems appropriate. The Fund is re-balanced monthly.
The Underlying Funds utilize derivative strategies. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. Specifically, the Underlying Funds invest in equity index futures and ETFs to manage the equity exposure.
44
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Principal Risks of Investing in a Fund of Funds
Fund of Funds Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies (for example, other mutual funds or exchange-traded funds) in which the Fund invests (“underlying funds”). The Fund’s selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Fund’s performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Fund entails potential conflicts of interest: the Fund invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Fund assets to underlying funds from which they receive higher fees.
Principal Risks due to the Fund’s Investments in Underlying Funds
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund’s initial investment.
•
Futures. Futures contracts involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the futures contract; possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.
Index Fund Risk. Index funds use a passive investment approach and generally do not attempt to manage market volatility, use defensive strategies, or reduce the effect of any long-term periods of poor investment performance. Therefore, the Fund may hold securities that present risks that an investment advisor researching individual securities might seek to avoid. An index fund has operating and other expenses while an index does not. As a result, over time, index funds tend to underperform the index. The correlation between fund performance and index performance may also be affected by the type of passive investment approach used by a fund (sampling or replication), changes in securities markets, changes in the composition of the index, and the timing of purchases and sales of fund shares. Errors or delays in compiling or rebalancing the Index may impact the performance of the Fund and increase transaction costs.
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.
45
Real Estate Securities Risk. Investing in real estate securities subjects the fund to the risks associated with the real estate market (which are similar to the risks associated with direct ownership in real estate), including declines in real estate values, loss due to casualty or condemnation, property taxes, interest rate changes, increased expenses, cash flow of underlying real estate assets, regulatory changes (including zoning, land use and rents), and environmental problems, as well as to the risks related to the management skill and creditworthiness of the issuer.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Securitized Products Risk. Investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Unscheduled prepayments on securitized products may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk).
U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.
U.S. Government-Sponsored Securities Risk. Securities issued by U.S. government-sponsored enterprises such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Home Loan Banks are not issued or guaranteed by the U.S. government.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s Class 2 performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
For periods prior to the inception date of Class 3 shares (December 9, 2020), the performance shown in the table for Class 3 shares is that of the Fund’s Class 2 shares, adjusted to reflect the fees and expenses of the Class 3 shares. These adjustments result in performance for such periods that is no higher than the historical performance of the Class 2 shares.
Life of Fund returns are measured from the date the Fund’s shares were first sold (May 15, 2012).
46
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
8.67%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(5.64)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
Life of Fund
 
 
 
05/15/2012
Diversified Income Account - Class 2
6.96%
7.80%
6.75%
Diversified Income Account - Class 3
6.78%
7.63%
6.58%
Bloomberg US Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)
(1.54)%
3.57%
2.81%
S&P 500 Index (reflects no deduction for fees, expenses, or taxes)
28.73%
18.48%
16.46%
MSCI EAFE Index NTR (reflects withholding taxes on foreign dividends, but no deduction for
fees, expenses, or other taxes)
11.27%
9.55%
8.25%
S&P MidCap 400 Index (reflects no deduction for fees, expenses, or taxes)
24.78%
13.09%
13.82%
S&P SmallCap 600 Index (reflects no deduction for fees, expenses, or taxes)
26.84%
12.42%
14.37%
Diversified Income Custom Index (except as noted for MSCI EAFE Index NTR, reflects no
deduction for fees, expenses, or taxes)
7.58%
8.26%
7.22%
The Bloomberg US Aggregate Bond Index is used to show performance of domestic, taxable fixed-income securities performance. The S&P 500 Index is used to show large cap U.S. equity market performance. The MSCI EAFE Index NTR is used to show international stock performance. The S&P MidCap 400 Index is used to show mid cap U.S. equity market performance. The S&P SmallCap 600 Index is used to show small cap U.S. equity market performance. The custom index (as defined below) is used to show the performance of the various asset classes used by the Fund, and the Average Annual Total Returns table shows performance of the components of the custom index. The weightings for the Diversified Income Custom Index are 65% Bloomberg US Aggregate Bond Index, 25% S&P 500 Index, 4% MSCI EAFE Index NTR, 3% S&P MidCap 400 Index, and 3% S&P SmallCap 600 Index.
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
James W. Fennessey (since 2012), Portfolio Manager
•
Randy L. Welch (since 2012), Portfolio Manager
47
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
48
Diversified International Account
Objective
The Fund seeks long-term growth of capital.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Management Fees
0.84%
Other Expenses
0.06%
Total Annual Fund Operating Expenses
0.90%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Diversified International Account - Class 1
$92
$287
$498
$1,108
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 36.6% of the average value of its portfolio.
Principal Investment Strategies
The Fund invests primarily in foreign equity securities. The Fund has no limitation on the percentage of assets that are invested in any one country or denominated in any one currency, but the Fund typically invests in foreign securities of at least 20 countries. Primary consideration is given to securities of issuers of developed areas (for example, Japan, Western Europe, Canada, Australia, Hong Kong, and Singapore); however, the Fund also invests in emerging market securities. The Fund invests in equity securities regardless of market capitalization size (small, medium or large) and style (growth or value).
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Emerging Markets Risk. Investments in emerging markets may have more risk than those in developed markets because the emerging markets are less developed and more illiquid. Emerging markets can also be subject to increased social, economic, regulatory, and political uncertainties and can be extremely volatile. The U.S. Securities and Exchange Commission, the U.S. Department of Justice, and other U.S. authorities may be limited in their ability to pursue bad actors in emerging markets, including with respect to fraud.
49
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Growth Style Risk. Growth investing entails the risk that if growth companies do not increase their earnings at a rate expected by investors, the market price of their stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
•
Value Style Risk. Value investing entails the risk that value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by a fund, or the events that would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock that appears to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
50
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
18.11%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(23.04)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
Diversified International Account - Class 1
9.75%
10.73%
8.49%
MSCI ACWI Ex USA Index NTR (reflects withholding taxes on foreign dividends, but no deduction for
fees, expenses, or other taxes)
7.83%
9.61%
7.28%
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
Paul H. Blankenhagen (since 2003), Portfolio Manager
•
Juliet Cohn (since 2004), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
51
Equity Income Account
Objective
The Fund seeks to provide current income and long-term growth of income and capital.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Class 2
Class 3
Management Fees
0.47%
0.47%
0.47%
Distribution and/or Service (12b-1) Fees
N/A
0.25%
0.25%
Other Expenses
—%
—%
0.15%
Total Annual Fund Operating Expenses
0.47%
0.72%
0.87%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Equity Income Account - Class 1
$48
$151
$263
$591
Equity Income Account - Class 2
74
230
401
894
Equity Income Account - Class 3
89
278
482
1,073
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 9.6% of the average value of its portfolio.
Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in dividend-paying equity securities at the time of purchase. The Fund usually invests in equity securities of companies with large and medium market capitalizations. The Fund invests in value equity securities, an investment strategy that emphasizes buying equity securities that appear to be undervalued. The Fund also invests in securities of foreign issuers.
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
52
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
•
Value Style Risk. Value investing entails the risk that value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by a fund, or the events that would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock that appears to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s Class 1 performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
For periods prior to the inception date of Class 3 shares (December 9, 2020), the performance shown in the table for Class 3 shares is that of the Fund’s Class 1 shares, adjusted to reflect the fees and expenses of the Class 3 shares. These adjustments result in performance for such periods that is no higher than the historical performance of the Class 1 shares.
53
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q4 2020
15.69%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(25.51)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
Equity Income Account - Class 1
22.47%
14.11%
13.32%
Equity Income Account - Class 2
22.15%
13.83%
13.03%
Equity Income Account - Class 3
21.97%
13.67%
12.88%
Russell 1000 Value Index (reflects no deduction for fees, expenses, or taxes)
25.18%
11.17%
12.96%
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
Daniel R. Coleman (since 2010), Portfolio Manager
•
Sarah E. Radecki (since 2021), Portfolio Manager
•
Nedret Vidinli (since 2017), Associate Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
54
Global Emerging Markets Account (formerly, International Emerging Markets Account)
Objective
The Fund seeks long-term growth of capital.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Management Fees(1)
1.00%
Other Expenses
0.08%
Total Annual Fund Operating Expenses
1.08%
Expense Reimbursement(2)
—%
Total Annual Fund Operating Expenses after Expense Reimbursement
1.08%
(1)
Fees have been restated to reflect current fees.
(2)
Principal Global Investors, LLC (“PGI”), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and tax reclaim recovery expenses and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 1.20% for Class 1 shares. It is expected that the expense limit will continue through the period ending April 30, 2023; however, Principal Variable Contracts Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period. Subject to applicable expense limits, the Fund may reimburse PGI for expenses incurred during the current fiscal year.
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. The calculation of costs takes into account any applicable contractual fee waivers and/or expense reimbursements for the period noted in the table above. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Global Emerging Markets Account - Class 1
$110
$343
$595
$1,317
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 35.7% of the average value of its portfolio.
Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of emerging market companies at the time of purchase. The Fund considers a security to be tied economically to an emerging market (an “emerging market security”) if the issuer of the security has its principal place of business or principal office in an emerging market, has its principal securities trading market in an emerging market, or derives a majority of its revenue from emerging markets.
Here, “emerging market” means any market which is considered to be an emerging market by the international financial community (including the MSCI Emerging Markets Index or Bloomberg Emerging Markets USD Aggregate Bond Index). Emerging markets generally exclude the United States, Canada, Japan, Australia, Hong Kong, Singapore, New Zealand, and most nations located in Western Europe. The Fund invests in equity securities regardless of market capitalization (small, medium or large) and style (growth or value).
55
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Emerging Markets Risk. Investments in emerging markets may have more risk than those in developed markets because the emerging markets are less developed and more illiquid. Emerging markets can also be subject to increased social, economic, regulatory, and political uncertainties and can be extremely volatile. The U.S. Securities and Exchange Commission, the U.S. Department of Justice, and other U.S. authorities may be limited in their ability to pursue bad actors in emerging markets, including with respect to fraud.
•
China Investment Risk. The Fund invests a significant portion of its assets in securities of issuers located or operating in China. Investing in China involves certain heightened risks and considerations, including, among others: frequent trading suspensions and government interventions (including by nationalizing assets); currency exchange rate fluctuations or blockages; limits on using brokers and on foreign ownership; different financial reporting standards; higher dependence on exports and international trade; political and social instability; infectious disease outbreaks; regional and global conflicts; increased trade tariffs, embargoes and other trade limitations; custody and other risks associated with programs used to access Chinese securities; and uncertainties in tax rules that could result in unexpected tax liabilities for the Fund. Significant portions of the Chinese securities markets may become rapidly illiquid, as Chinese issuers have the ability to suspend the trading of their equity securities. Moreover, actions by the U.S. government, such as delisting of certain Chinese companies from U.S. securities exchanges or otherwise restricting their operations in the U.S., may negatively impact the value of such securities held by the funds.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Growth Style Risk. Growth investing entails the risk that if growth companies do not increase their earnings at a rate expected by investors, the market price of their stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
•
Value Style Risk. Value investing entails the risk that value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by a fund, or the events that would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock that appears to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
56
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
During 2016, the Fund experienced a significant one-time gain of approximately $0.07 per share as the result of a settlement in a litigation proceeding. If such gain had not been recognized, the total return amounts expressed herein would have been lower.
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
19.63%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(24.46)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
Global Emerging Markets Account - Class 1
0.58%
9.42%
5.03%1
MSCI Emerging Markets Index NTR (reflects withholding taxes on foreign dividends, but no deduction
for fees, expenses, or other taxes)
(2.54)%
9.88%
5.49%
1
During 2016, the Fund experienced a significant one-time gain of approximately $0.07 per share as the result of a settlement in a litigation proceeding. If such gain had not been recognized, the total return amounts expressed herein would have been lower.
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
Jeffrey Kilkenny (since 2020), Portfolio Manager
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Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
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Government & High Quality Bond Account
Objective
The Fund seeks to provide a high level of current income consistent with safety and liquidity.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Management Fees
0.49%
Other Expenses
0.01%
Acquired Fund Fees and Expenses
0.01%
Total Annual Fund Operating Expenses
0.51%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Government & High Quality Bond Account - Class 1
$52
$164
$285
$640
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 360.7% of the average value of its portfolio.
Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in debt securities issued by the U.S. government, its agencies or instrumentalities or debt securities that are rated, at the time of purchase, AAA by S&P Global Ratings (“S&P Global”) or Aaa by Moody’s Investors Service, Inc. (“Moody’s”) (if securities are rated differently by S&P Global and Moody’s, the highest rating is used; or, if unrated, in the opinion of those selecting such investments, are of comparable quality), including but not limited to asset-backed securities (“ABS”), mortgage securities such as agency and non-agency collateralized mortgage obligations, and other obligations that are secured by mortgages or mortgage-backed securities (“MBS”) (also referred to as securitized products). The Fund also invests in ABS and MBS that are rated lower than AAA by S&P Global or Aaa by Moody’s (or of comparable quality), including collateralized mortgage obligations, and in other obligations that are secured by mortgages or MBS. The MBS in which the Fund invests include MBS trading in the to-be-announced (“TBA”) markets.
Under normal circumstances, the Fund maintains an average portfolio duration that is within ±50% of the duration of the Bloomberg Fixed-Rate MBS Index, which as of December 31, 2021 was 4.76 years. The Fund is not managed to a particular maturity. The Fund’s strategies may result in the active and frequent trading of the Fund’s portfolio securities.
The Fund invests in derivatives, including Treasury futures and securities delivered in TBA transactions, to manage the fixed-income exposure. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index.
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Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund’s initial investment.
•
Futures. Futures contracts involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the futures contract; possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.
High Portfolio Turnover Risk. High portfolio turnover (more than 100%) caused by active and frequent trading of portfolio securities may result in accelerating the realization of taxable gains and losses, lower fund performance and increased brokerage costs.
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.
Real Estate Securities Risk. Investing in real estate securities subjects the fund to the risks associated with the real estate market (which are similar to the risks associated with direct ownership in real estate), including declines in real estate values, loss due to casualty or condemnation, property taxes, interest rate changes, increased expenses, cash flow of underlying real estate assets, regulatory changes (including zoning, land use and rents), and environmental problems, as well as to the risks related to the management skill and creditworthiness of the issuer.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Securitized Products Risk. Investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Unscheduled prepayments on securitized products may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk). With respect to securities that are delivered in TBA transactions, there is a risk that the actual securities received by the Fund may be less favorable than what was anticipated when entering into the transaction.
U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.
U.S. Government-Sponsored Securities Risk. Securities issued by U.S. government-sponsored enterprises such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Home Loan Banks are not issued or guaranteed by the U.S. government.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
60
The bar chart shows changes in the Fund’s performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2019
2.28%
Lowest return for a quarter during the period of the bar chart above:
Q4 2016
(1.96)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
Government & High Quality Bond Account - Class 1
(1.32)%
2.13%
2.11%
Bloomberg U.S. Agency Fixed Rate MBS Index (reflects no deduction for fees, expenses, or taxes)
(1.04)%
2.50%
2.28%
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
Bryan C. Davis (since 2019), Portfolio Manager
•
Zach Gassmann (since 2019), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
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LargeCap Growth Account I
Objective
The Fund seeks long-term growth of capital.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Management Fees
0.68%
Other Expenses
—%
Total Annual Fund Operating Expenses
0.68%
Fee Waiver and Expense Reimbursement(1),(2)
(0.02)%
Total Annual Fund Operating Expenses after Fee Waiver and Expense Reimbursement
0.66%
(1)
Principal Global Investors, LLC (“PGI”), the investment advisor, has contractually agreed to limit the Fund's Management Fees through the period ending April 30, 2023. The fee waiver will reduce the Fund's Management Fees by 0.016% (expressed as a percent of average net assets on an annualized basis). It is expected that the fee waiver will continue through the period disclosed; however, Principal Variable Contracts Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the fee waiver prior to the end of the period.
(2)
Principal Global Investors, LLC (“PGI”), the investment advisor, has contractually agreed to limit the Fund’s expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and tax reclaim recovery expenses and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.69% for Class 1 shares. It is expected that the expense limit will continue through the period ending April 30, 2023; however, Principal Variable Contracts Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expense limit prior to the end of the period. Subject to applicable expense limits, the Fund may reimburse PGI for expenses incurred during the current fiscal year.
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. The calculation of costs takes into account any applicable contractual fee waivers and/or expense reimbursements for the period noted in the table above. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
LargeCap Growth Account I - Class 1
$67
$216
$377
$845
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 22.1% of the average value of its portfolio.
Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies with large market capitalizations at the time of purchase. For this Fund, companies with large market capitalizations are those with market capitalizations within the range of companies comprising the Russell 1000® Growth Index (as of December 31, 2021, this range was between approximately $1.2 billion and $2.9 trillion). The Fund invests in growth equity securities, an investment strategy that emphasizes buying equity securities of companies whose potential for growth of capital and earnings is expected to be above average.
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The Fund is primarily actively managed by the sub-advisors. In addition, Principal Global Investors, LLC may invest up to 30% of the Fund’s assets using an index sampling strategy designed to match the performance of the Russell 1000® Growth Index.
The Fund is considered non-diversified, which means it can invest a higher percentage of assets in securities of individual issuers than a diversified fund. As a result, changes in the value of a single investment could cause greater fluctuations in the Fund’s share price than would occur in a more diversified fund.
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Growth Style Risk. Growth investing entails the risk that if growth companies do not increase their earnings at a rate expected by investors, the market price of their stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.
Non-Diversification Risk. A non-diversified fund may invest a high percentage of its assets in the securities of a small number of issuers and is more likely than diversified funds to be significantly affected by a specific security’s poor performance.
Passive Strategy Risk. A portion of the fund seeks to match the performance of a specified index. However, the correlation between the performance of this portion of the fund and index performance may be affected by many factors, such as fund expenses, the timing of cash flows into and out of the fund, changes in securities markets, and changes in the composition of the index.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
63
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
27.91%
Lowest return for a quarter during the period of the bar chart above:
Q4 2018
(13.98)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
LargeCap Growth Account I - Class 1
21.89%
25.41%
19.27%
Russell 1000 Growth Index (reflects no deduction for fees, expenses, or taxes)
27.62%
25.32%
19.78%
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
James W. Fennessey (since 2009), Portfolio Manager
•
Randy L. Welch (since 2009), Portfolio Manager
Sub-Advisors
Brown Advisory, LLC
T. Rowe Price Associates, Inc.
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
64
LargeCap S&P 500 Index Account
Objective
The Fund seeks long-term growth of capital.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Class 2
Management Fees(1)
0.24%
0.24%
Distribution and/or Service (12b-1) Fees
N/A
0.25%
Other Expenses
—%
—%
Total Annual Fund Operating Expenses
0.24%
0.49%
(1)
Fees have been restated to reflect current fees.
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
LargeCap S&P 500 Index Account - Class 1
$25
$77
$135
$306
LargeCap S&P 500 Index Account - Class 2
50
157
274
616
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 2.6% of the average value of its portfolio.
Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies that compose the Standard & Poor’s (“S&P”) 500 Index (the “Index”) at the time of purchase. The Index is designed to represent U.S. equities with risk/return characteristics of the large cap universe. As of December 31, 2021, the market capitalization range of the companies comprising the Index was between approximately $4.0 billion and $2.9 trillion. Each component stock of the Index is weighted in proportion to its total market value. The Index is balanced quarterly.
The Fund employs a passive investment approach designed to attempt to track the performance of the Index. In seeking its objective, the Fund typically employs a replication strategy which involves investing in all the securities that make up the Index, in the same proportions as the Index.
The Fund uses derivative strategies and invests in exchange-traded funds (“ETFs”). A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. Specifically, the Fund invests in index futures and equity ETFs on a daily basis to gain exposure to the Index in an effort to minimize tracking error relative to the benchmark.
65
The Fund will not concentrate (i.e., invest more than 25% of its assets) its investments in a particular industry except to the extent the Index is so concentrated. As of December 31, 2021, the Index was not concentrated in any industry.
Note:
“Standard & Poor’s 500” and “S&P 500®” are trademarks of S&P Global and have been licensed by Principal. The Fund is not sponsored, endorsed, sold, or promoted by S&P Global and S&P Global makes no representation regarding the advisability of investing in the Fund.
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund’s initial investment.
•
Futures. Futures contracts involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the futures contract; possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
Index Fund Risk. Index funds use a passive investment approach and generally do not attempt to manage market volatility, use defensive strategies, or reduce the effect of any long-term periods of poor investment performance. Therefore, the Fund may hold securities that present risks that an investment advisor researching individual securities might seek to avoid. An index fund has operating and other expenses while an index does not. As a result, over time, index funds tend to underperform the index. The correlation between fund performance and index performance may also be affected by the type of passive investment approach used by a fund (sampling or replication), changes in securities markets, changes in the composition of the index, and the timing of purchases and sales of fund shares. Errors or delays in compiling or rebalancing the Index may impact the performance of the Fund and increase transaction costs.
Industry Concentration Risk. A fund that concentrates investments in a particular industry or group of industries has greater exposure than other funds to market, economic and other factors affecting that industry or group of industries.
Investment Company Securities Risk. A fund that invests in another investment company (for example, another fund or an exchange-traded fund (“ETF”)) is subject to the risks associated with direct ownership of the securities in which such investment company invests. Fund shareholders indirectly bear their proportionate share of the expenses of each such investment company.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s Class 1 performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
66
For periods prior to the inception date of Class 2 shares (May 1, 2015), the performance shown in the table for Class 2 shares is that of the Fund’s Class 1 shares, adjusted to reflect the fees and expenses of the Class 2 shares. These adjustments result in performance for such periods that is no higher than the historical performance of the Class 1 shares.
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
20.47%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(19.66)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
LargeCap S&P 500 Index Account - Class 1
28.33%
18.16%
16.21%
LargeCap S&P 500 Index Account - Class 2
28.05%
17.85%
15.92%
S&P 500 Index (reflects no deduction for fees, expenses, or taxes)
28.73%
18.48%
16.55%
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
Jeffrey A. Schwarte (since 2016), Portfolio Manager
•
Aaron J. Siebel (since 2018), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
67
LargeCap S&P 500 Managed Volatility Index Account
Objective
The Fund seeks long-term growth of capital, with an emphasis on managing volatility.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Management Fees
0.45%
Other Expenses
0.01%
Total Annual Fund Operating Expenses
0.46%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
LargeCap S&P 500 Managed Volatility Index Account -
Class 1
$47
$148
$258
$579
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 2.6% of the average value of its portfolio.
Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies that compose the Standard & Poor’s (“S&P”) 500 Index (the “Index”) at the time of each purchase. The Index is designed to represent U.S. equities with risk/return characteristics of the large cap universe, which include growth and value stocks. As of December 31, 2021, the market capitalization range of the Index was between approximately $4.0 billion and $2.9 trillion. The index is rebalanced quarterly.
In part, the Fund employs a passive investment approach designed to attempt to track the performance of the Index. In seeking its objective, the Fund typically employs a replication strategy which involves investing in all the securities that make up the Index, in the same proportion as the Index. The Fund also uses derivative strategies and exchange-traded funds (“ETFs”). A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. Specifically, this portion of the Fund invests in index futures and ETFs on a daily basis to gain exposure to the Index in an effort to minimize tracking error relative to the benchmark.
The Fund also employs an active volatility management strategy that buys vertical put spreads and vertical call spreads on the S&P 500 Index, S&P 500 Index futures, and an S&P 500 Index ETF. Vertical spreads are the simultaneous purchase and sale of two options of the same type with the same expiration date but two different strike prices. The strike price is the fixed price at which the owner of the option can buy (in the case of a call), or sell (in the case of a put), the underlying security. This strategy seeks to produce gains regardless of the directional movement of the S&P 500 Index and mitigate volatility.
The Fund will not concentrate (i.e., invest more than 25% of its assets) its investments in a particular industry except to the extent the Index is so concentrated. As of December 31, 2021, the Index was not concentrated in any industry.
68
Note:
“Standard & Poor’s 500” and “S&P 500®” are trademarks of S&P Global and have been licensed by PGI. The Fund is not sponsored, endorsed, sold, or promoted by S&P Global and S&P Global makes no representation regarding the advisability of investing in the Fund.
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund’s initial investment.
•
Futures. Futures contracts involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the futures contract; possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.
•
Options. Options involve specific risks, including: imperfect correlation between the change in market value of the instruments held by the fund and the price of the options, counterparty risk, difference in trading hours for the options markets and the markets for the underlying securities (rate movements can take place in the underlying markets that cannot be reflected in the options markets), and an insufficient liquid secondary market for particular options.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
Hedging Risk. A fund that implements a hedging strategy using derivatives and/or securities could expose the fund to the risk that can arise when a change in the value of a hedge does not match a change in the value of the asset it hedges. In other words, the change in value of the hedge could move in a direction that does not match the change in value of the underlying asset, resulting in a risk of loss to the fund.
Index Fund Risk. Index funds use a passive investment approach and generally do not attempt to manage market volatility, use defensive strategies, or reduce the effect of any long-term periods of poor investment performance. Therefore, the Fund may hold securities that present risks that an investment advisor researching individual securities might seek to avoid. An index fund has operating and other expenses while an index does not. As a result, over time, index funds tend to underperform the index. The correlation between fund performance and index performance may also be affected by the type of passive investment approach used by a fund (sampling or replication), changes in securities markets, changes in the composition of the index, and the timing of purchases and sales of fund shares. Errors or delays in compiling or rebalancing the Index may impact the performance of the Fund and increase transaction costs.
Industry Concentration Risk. A fund that concentrates investments in a particular industry or group of industries has greater exposure than other funds to market, economic and other factors affecting that industry or group of industries.
Investment Company Securities Risk. A fund that invests in another investment company (for example, another fund or an exchange-traded fund (“ETF”)) is subject to the risks associated with direct ownership of the securities in which such investment company invests. Fund shareholders indirectly bear their proportionate share of the expenses of each such investment company.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Volatility Mitigation Risk. Volatility mitigation strategies may increase fund transaction costs, which could increase losses or reduce gains. These strategies may not protect the fund from market declines and may reduce the fund’s participation in market gains.
69
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
Life of Fund returns are measured from the date the Fund’s shares were first sold (October 31, 2013).
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
19.15%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(18.53)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
Life of Fund
 
 
 
10/31/2013
LargeCap S&P 500 Managed Volatility Index Account - Class 1
25.55%
16.80%
13.60%
S&P 500 Index (reflects no deduction for fees, expenses, or taxes)
28.73%
18.48%
15.23%
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
Jeffrey A. Schwarte (since 2016), Portfolio Manager
•
Aaron J. Siebel (since 2018), Portfolio Manager
Sub-Advisor and Portfolio Managers
Spectrum Asset Management, Inc.
•
L. Phillip Jacoby, IV (since 2013), Chief Investment Officer and Back-up Portfolio Manager
•
Manu Krishnan (since 2013), Vice President and Back-up Portfolio Manager
•
Kevin Nugent (since 2013), Vice President and Primary Portfolio Manager
70
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
71
MidCap Account
Objective
The Fund seeks long-term growth of capital.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Class 2
Management Fees
0.53%
0.53%
Distribution and/or Service (12b-1) Fees
N/A
0.25%
Other Expenses
—%
—%
Total Annual Fund Operating Expenses
0.53%
0.78%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
MidCap Account - Class 1
$54
$170
$296
$665
MidCap Account - Class 2
80
249
433
966
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 17.1% of the average value of its portfolio.
Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies with medium market capitalizations at the time of purchase. For this Fund, companies with medium market capitalizations are those with market capitalizations within the range of companies comprising the Russell Midcap® Index (as of December 31, 2021, this range was between approximately $163.8 million and $71.7 billion). The Fund also invests in foreign securities.
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
72
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s Class 1 performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
24.91%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(23.86)%
73
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
MidCap Account - Class 1
25.53%
20.05%
17.59%
MidCap Account - Class 2
25.20%
19.74%
17.30%
Russell MidCap Index (reflects no deduction for fees, expenses, or taxes)
22.60%
15.10%
14.90%
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
K. William Nolin (since 2000), Portfolio Manager
•
Tom Rozycki (since 2013), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
74
Principal Capital Appreciation Account
Objective
The Fund seeks to provide long-term growth of capital.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Class 2
Management Fees
0.62%
0.62%
Distribution and/or Service (12b-1) Fees
N/A
0.25%
Other Expenses
0.01%
0.01%
Total Annual Fund Operating Expenses
0.63%
0.88%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Principal Capital Appreciation Account - Class 1
$64
$202
$351
$786
Principal Capital Appreciation Account - Class 2
90
281
488
1,084
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 30.6% of the average value of its portfolio.
Principal Investment Strategies
The Fund invests primarily in equity securities of companies with any market capitalization, but it has a greater exposure to large market capitalization companies than small or medium market capitalization companies. Those managing the Fund’s investments seek to invest in securities of businesses that they believe are trading at a discount to their private market value (i.e., the value of the business if it was sold), have a competitive advantage, and/or that have barriers to entry in their respective industries.
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
75
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s Class 1 performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
19.79%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(19.40)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
Principal Capital Appreciation Account - Class 1
27.82%
18.58%
16.07%
Principal Capital Appreciation Account - Class 2
27.50%
18.28%
15.78%
Russell 3000 Index (reflects no deduction for fees, expenses, or taxes)
25.68%
17.97%
16.30%
76
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
Daniel R. Coleman (since 2010), Portfolio Manager
•
Theodore Jayne (since 2015), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
77
Principal Lifetime Strategic Income Account
Objective
The Fund seeks current income, and as a secondary objective, capital appreciation.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Management Fees
—%
Other Expenses
0.02%
Acquired Fund Fees and Expenses
0.50%
Total Annual Fund Operating Expenses
0.52%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Principal LifeTime Strategic Income Account – Class 1
$53
$167
$291
$653
Portfolio Turnover
The Fund and each underlying fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s and the underlying fund's performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 35.6% of the average value of its portfolio.
Principal Investment Strategies
The Fund invests according to an asset allocation strategy designed for investors primarily seeking current income and secondarily capital appreciation. The Fund’s asset allocation is designed for investors who are approximately 10 years beyond the normal retirement age of 65. The Fund is a fund of funds and invests in underlying funds of Principal Funds, Inc. (“PFI”) and of Principal Variable Contracts Funds, Inc. (“PVC”). Its underlying funds consist of domestic and foreign equity funds, fixed-income funds, real asset funds, and other funds that aim to offer diversification beyond traditional equity and fixed-income securities. The diversification of the Fund is designed to moderate overall price volatility. The Fund may add, remove, or substitute underlying funds at any time.
The Fund is managed with strategic or long-term asset class targets and target ranges. There is a rebalancing strategy that aligns with the target weights to identify asset classes that are either overweight or underweight. The Fund may shift asset class targets in response to normal evaluative processes, the shortening time horizon of the Fund or changes in market forces or Fund circumstances.
In selecting underlying funds and target weights, the Fund considers both quantitative measures (e.g., past performance, expected levels of risk and returns, expense levels, diversification and style consistency) and qualitative factors (e.g., organizational stability, investment experience, investment and risk management processes, and information, trading, and compliance systems). There are no minimum or maximum percentages of assets that the Fund must invest in a specific asset class or underlying fund.
The underlying funds invest in growth and value stocks of large market capitalization companies, fixed-income securities, domestic and foreign securities, securities denominated in foreign currencies, investment companies, securitized products, U.S. government and U.S. government-sponsored securities, and derivatives. A derivative is a financial arrangement, the
78
value of which is derived from, or based on, a traditional security, asset, or market index. The underlying funds principally use futures, options, swaps (including, for example, credit default, interest rate, and currency swaps) and forwards in order to gain exposure to a variety of securities or asset classes or attempt to reduce risk.
 
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Principal Risks of Investing in a Fund of Funds
Fund of Funds Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies (for example, other mutual funds or exchange-traded funds) in which the Fund invests (“underlying funds”). The Fund’s selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Fund’s performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Fund entails potential conflicts of interest: the Fund invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Fund assets to underlying funds from which they receive higher fees.
Target Date Fund Risk. A target date fund should not be selected based solely on age or retirement date because there is no guarantee that this fund will provide adequate income at or through retirement.
Principal Risks due to the Fund’s Investments in Underlying Funds
Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.
79
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund’s initial investment.
•
Credit Default Swaps. Credit default swaps involve special risks in addition to those associated with swaps generally because they are difficult to value, are highly susceptible to liquidity and credit risk, and generally pay a return to the party that has paid the premium only in the event of an actual default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial difficulty). The protection “buyer” in a credit default contract may be obligated to pay the protection “seller” an up-front payment or a periodic stream of payments over the term of the contract provided generally that no credit event on a reference obligation has occurred. If a credit event occurs, the seller generally must pay the buyer the “par value” (i.e., full notional value) of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described in the swap, or the seller may be required to deliver the related net cash amount, if the swap is cash settled. The Fund may be either the buyer or seller in the transaction.
•
Forward Contracts, Futures and Swaps. Forward contracts, futures, and swaps involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the forward contract, future or swap; possible lack of a liquid secondary market for a forward contract, future or swap and the resulting inability to close a forward contract, future or swap when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.
•
Options. Options involve specific risks, including: imperfect correlation between the change in market value of the instruments held by the fund and the price of the options, counterparty risk, difference in trading hours for the options markets and the markets for the underlying securities (rate movements can take place in the underlying markets that cannot be reflected in the options markets), and an insufficient liquid secondary market for particular options.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Growth Style Risk. Growth investing entails the risk that if growth companies do not increase their earnings at a rate expected by investors, the market price of their stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.
•
Value Style Risk. Value investing entails the risk that value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by a fund, or the events that would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock that appears to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable
80
income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Securitized Products Risk. Investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Unscheduled prepayments on securitized products may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk).
U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.
U.S. Government-Sponsored Securities Risk. Securities issued by U.S. government-sponsored enterprises such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Home Loan Banks are not issued or guaranteed by the U.S. government.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
8.47%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(5.87)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
Principal LifeTime Strategic Income Account - Class 1
4.53%
6.47%
5.52%
S&P Target Date Retirement Income Index (reflects no deduction for fees, expenses, or taxes)
5.11%
6.52%
5.58%
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Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
James W. Fennessey (since 2007), Portfolio Manager
•
Scott Smith (since 2017), Portfolio Manager
•
Randy L. Welch (since 2007), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
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Principal Lifetime 2010 Account
Objective
The Fund seeks a total return consisting of long-term growth of capital and current income.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Management Fees
—%
Other Expenses
0.02%
Acquired Fund Fees and Expenses
0.52%
Total Annual Fund Operating Expenses
0.54%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Principal LifeTime 2010 Account - Class 1
$55
$173
$302
$677
Portfolio Turnover
The Fund and each underlying fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s and the underlying fund's performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 26.4% of the average value of its portfolio.
Principal Investment Strategies
The Fund operates as a “target date fund” that invests according to an asset allocation strategy designed for investors having a retirement investment goal close to the year in the Fund’s name. The Fund is a fund of funds and invests in underlying funds of Principal Funds, Inc. (“PFI”) and of Principal Variable Contracts Funds, Inc. (“PVC”). Its underlying funds consist of domestic and foreign equity funds, fixed-income funds, real asset funds, and other funds that aim to offer diversification beyond traditional equity and fixed-income securities. The asset class diversification of the Fund is designed to moderate overall price volatility. The Fund may add, remove, or substitute underlying funds at any time.
The Fund is managed with strategic or long-term asset class targets and target ranges. There is a rebalancing strategy that aligns with the target weights to identify asset classes that are either overweight or underweight. The Fund may shift asset class targets in response to normal evaluative processes, the shortening time horizon of the Fund or changes in market forces or Fund circumstances.
In selecting underlying funds and target weights, the Fund considers both quantitative measures (e.g., past performance, expected levels of risk and returns, expense levels, diversification and style consistency) and qualitative factors (e.g., organizational stability, investment experience, investment and risk management processes, and information, trading, and compliance systems). There are no minimum or maximum percentages of assets that the Fund must invest in a specific asset class or underlying fund.
The underlying funds invest in growth and value stocks of large market capitalization companies, fixed-income securities, domestic and foreign securities, securities denominated in foreign currencies, investment companies, securitized products, U.S. government and U.S. government-sponsored securities, and derivatives. A derivative is a financial arrangement, the
83
value of which is derived from, or based on, a traditional security, asset, or market index. The underlying funds principally use futures, options, swaps (including, for example, credit default, interest rate, and currency swaps) and forwards in order to gain exposure to a variety of securities or asset classes or attempt to reduce risk.
The Fund’s asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. Approximately 10 years after its target year, the Fund’s underlying fund allocation is expected to match that of the Principal LifeTime Strategic Income Account. At that time, the Fund may be combined with the Principal LifeTime Strategic Income Account if the Board of Directors determines that the combination is in the best interests of Fund shareholders. It is expected that at the target date in the Fund’s name, the shareholder will begin gradually withdrawing the account’s value.
 
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Principal Risks of Investing in a Fund of Funds
Fund of Funds Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies (for example, other mutual funds or exchange-traded funds) in which the Fund invests (“underlying funds”). The Fund’s selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Fund’s performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Fund entails potential conflicts of interest: the Fund invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Fund assets to underlying funds from which they receive higher fees.
Target Date Fund Risk. A target date fund should not be selected based solely on age or retirement date because there is no guarantee that this fund will provide adequate income at or through retirement.
Principal Risks due to the Fund’s Investments in Underlying Funds
Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.
84
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund’s initial investment.
•
Credit Default Swaps. Credit default swaps involve special risks in addition to those associated with swaps generally because they are difficult to value, are highly susceptible to liquidity and credit risk, and generally pay a return to the party that has paid the premium only in the event of an actual default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial difficulty). The protection “buyer” in a credit default contract may be obligated to pay the protection “seller” an up-front payment or a periodic stream of payments over the term of the contract provided generally that no credit event on a reference obligation has occurred. If a credit event occurs, the seller generally must pay the buyer the “par value” (i.e., full notional value) of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described in the swap, or the seller may be required to deliver the related net cash amount, if the swap is cash settled. The Fund may be either the buyer or seller in the transaction.
•
Forward Contracts, Futures and Swaps. Forward contracts, futures, and swaps involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the forward contract, future or swap; possible lack of a liquid secondary market for a forward contract, future or swap and the resulting inability to close a forward contract, future or swap when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.
•
Options. Options involve specific risks, including: imperfect correlation between the change in market value of the instruments held by the fund and the price of the options, counterparty risk, difference in trading hours for the options markets and the markets for the underlying securities (rate movements can take place in the underlying markets that cannot be reflected in the options markets), and an insufficient liquid secondary market for particular options.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Growth Style Risk. Growth investing entails the risk that if growth companies do not increase their earnings at a rate expected by investors, the market price of their stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.
•
Value Style Risk. Value investing entails the risk that value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by a fund, or the events that would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock that appears to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable
85
income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Securitized Products Risk. Investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Unscheduled prepayments on securitized products may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk).
U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.
U.S. Government-Sponsored Securities Risk. Securities issued by U.S. government-sponsored enterprises such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Home Loan Banks are not issued or guaranteed by the U.S. government.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
10.11%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(7.69)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
Principal LifeTime 2010 Account - Class 1
5.94%
7.60%
6.89%
S&P Target Date 2010 Index (reflects no deduction for fees, expenses, or taxes)
6.55%
7.36%
6.55%
86
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
James W. Fennessey (since 2007), Portfolio Manager
•
Scott Smith (since 2017), Portfolio Manager
•
Randy L. Welch (since 2007), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
87
Principal Lifetime 2020 Account
Objective
The Fund seeks a total return consisting of long-term growth of capital and current income.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Management Fees
—%
Other Expenses
—%
Acquired Fund Fees and Expenses
0.55%
Total Annual Fund Operating Expenses
0.55%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Principal LifeTime 2020 Account - Class 1
$56
$176
$307
$689
Portfolio Turnover
The Fund and each underlying fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s and the underlying fund's performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 23.3% of the average value of its portfolio.
Principal Investment Strategies
The Fund operates as a “target date fund” that invests according to an asset allocation strategy designed for investors having a retirement investment goal close to the year in the Fund’s name. The Fund is a fund of funds and invests in underlying funds of Principal Funds, Inc. (“PFI”) and of Principal Variable Contracts Funds, Inc. (“PVC”). Its underlying funds consist of domestic and foreign equity funds, fixed-income funds, real asset funds, and other funds that aim to offer diversification beyond traditional equity and fixed-income securities. The asset class diversification of the Fund is designed to moderate overall price volatility. The Fund may add, remove, or substitute underlying funds at any time.
The Fund is managed with strategic or long-term asset class targets and target ranges. There is a rebalancing strategy that aligns with the target weights to identify asset classes that are either overweight or underweight. The Fund may shift asset class targets in response to normal evaluative processes, the shortening time horizon of the Fund or changes in market forces or Fund circumstances.
In selecting underlying funds and target weights, the Fund considers both quantitative measures (e.g., past performance, expected levels of risk and returns, expense levels, diversification and style consistency) and qualitative factors (e.g., organizational stability, investment experience, investment and risk management processes, and information, trading, and compliance systems). There are no minimum or maximum percentages of assets that the Fund must invest in a specific asset class or underlying fund.
The underlying funds invest in growth and value stocks of small, medium, and large market capitalization companies, fixed-income securities, domestic and foreign securities, securities denominated in foreign currencies, investment companies, U.S. government and U.S. government-sponsored securities, and derivatives. A derivative is a financial arrangement, the
88
value of which is derived from, or based on, a traditional security, asset, or market index. The underlying funds principally use futures, options, swaps (including, for example, credit default, interest rate, and currency swaps) and forwards in order to gain exposure to a variety of securities or asset classes or attempt to reduce risk.
The Fund’s asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. Approximately 10 years after its target year, the Fund’s underlying fund allocation is expected to match that of the Principal LifeTime Strategic Income Account. At that time, the Fund may be combined with the Principal LifeTime Strategic Income Account if the Board of Directors determines that the combination is in the best interests of Fund shareholders. It is expected that at the target date in the Fund’s name, the shareholder will begin gradually withdrawing the account’s value.
 
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Principal Risks of Investing in a Fund of Funds
Fund of Funds Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies (for example, other mutual funds or exchange-traded funds) in which the Fund invests (“underlying funds”). The Fund’s selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Fund’s performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Fund entails potential conflicts of interest: the Fund invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Fund assets to underlying funds from which they receive higher fees.
Target Date Fund Risk. A target date fund should not be selected based solely on age or retirement date because there is no guarantee that this fund will provide adequate income at or through retirement.
Principal Risks due to the Fund’s Investments in Underlying Funds
Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.
89
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund’s initial investment.
•
Credit Default Swaps. Credit default swaps involve special risks in addition to those associated with swaps generally because they are difficult to value, are highly susceptible to liquidity and credit risk, and generally pay a return to the party that has paid the premium only in the event of an actual default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial difficulty). The protection “buyer” in a credit default contract may be obligated to pay the protection “seller” an up-front payment or a periodic stream of payments over the term of the contract provided generally that no credit event on a reference obligation has occurred. If a credit event occurs, the seller generally must pay the buyer the “par value” (i.e., full notional value) of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described in the swap, or the seller may be required to deliver the related net cash amount, if the swap is cash settled. The Fund may be either the buyer or seller in the transaction.
•
Forward Contracts, Futures and Swaps. Forward contracts, futures, and swaps involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the forward contract, future or swap; possible lack of a liquid secondary market for a forward contract, future or swap and the resulting inability to close a forward contract, future or swap when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.
•
Options. Options involve specific risks, including: imperfect correlation between the change in market value of the instruments held by the fund and the price of the options, counterparty risk, difference in trading hours for the options markets and the markets for the underlying securities (rate movements can take place in the underlying markets that cannot be reflected in the options markets), and an insufficient liquid secondary market for particular options.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Growth Style Risk. Growth investing entails the risk that if growth companies do not increase their earnings at a rate expected by investors, the market price of their stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
•
Value Style Risk. Value investing entails the risk that value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by a fund, or the events that would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock that appears to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.
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Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Securitized Products Risk. Investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Unscheduled prepayments on securitized products may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk).
U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.
U.S. Government-Sponsored Securities Risk. Securities issued by U.S. government-sponsored enterprises such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Home Loan Banks are not issued or guaranteed by the U.S. government.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
12.53%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(11.58)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
Principal LifeTime 2020 Account - Class 1
9.17%
9.63%
8.83%
S&P Target Date 2020 Index (reflects no deduction for fees, expenses, or taxes)
8.77%
8.60%
8.13%
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Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
James W. Fennessey (since 2007), Portfolio Manager
•
Scott Smith (since 2017), Portfolio Manager
•
Randy L. Welch (since 2007), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
92
Principal Lifetime 2030 Account
Objective
The Fund seeks a total return consisting of long-term growth of capital and current income.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Management Fees
—%
Other Expenses
—%
Acquired Fund Fees and Expenses
0.59%
Total Annual Fund Operating Expenses
0.59%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Principal LifeTime 2030 Account - Class 1
$60
$189
$329
$738
Portfolio Turnover
The Fund and each underlying fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s and the underlying fund's performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 26.8% of the average value of its portfolio.
Principal Investment Strategies
The Fund operates as a “target date fund” that invests according to an asset allocation strategy designed for investors having a retirement investment goal close to the year in the Fund’s name. The Fund is a fund of funds and invests in underlying funds of Principal Funds, Inc. (“PFI”) and of Principal Variable Contracts Funds, Inc. (“PVC”). Its underlying funds consist of domestic and foreign equity funds, fixed-income funds, real asset funds, and other funds that aim to offer diversification beyond traditional equity and fixed-income securities. The asset class diversification of the Fund is designed to moderate overall price volatility. The Fund may add, remove, or substitute underlying funds at any time.
The Fund is managed with strategic or long-term asset class targets and target ranges. There is a rebalancing strategy that aligns with the target weights to identify asset classes that are either overweight or underweight. The Fund may shift asset class targets in response to normal evaluative processes, the shortening time horizon of the Fund or changes in market forces or Fund circumstances.
In selecting underlying funds and target weights, the Fund considers both quantitative measures (e.g., past performance, expected levels of risk and returns, expense levels, diversification and style consistency) and qualitative factors (e.g., organizational stability, investment experience, investment and risk management processes, and information, trading, and compliance systems). There are no minimum or maximum percentages of assets that the Fund must invest in a specific asset class or underlying fund.
The underlying funds invest in growth and value stocks of small, medium, and large market capitalization companies, fixed-income securities, domestic and foreign securities, securities denominated in foreign currencies, investment companies (including index funds), U.S. government and U.S. government-sponsored securities and derivatives. A derivative is a financial
93
arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. The underlying funds principally use futures, options, swaps (including, for example, credit default, interest rate, and currency swaps) and forwards in order to gain exposure to a variety of securities or asset classes or attempt to reduce risk.
The Fund’s asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. Approximately 10 years after its target year, the Fund’s underlying fund allocation is expected to match that of the Principal LifeTime Strategic Income Account. At that time, the Fund may be combined with the Principal LifeTime Strategic Income Account if the Board of Directors determines that the combination is in the best interests of Fund shareholders. It is expected that at the target date in the Fund’s name, the shareholder will begin gradually withdrawing the account’s value.
 
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Principal Risks of Investing in a Fund of Funds
Fund of Funds Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies (for example, other mutual funds or exchange-traded funds) in which the Fund invests (“underlying funds”). The Fund’s selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Fund’s performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Fund entails potential conflicts of interest: the Fund invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Fund assets to underlying funds from which they receive higher fees.
Target Date Fund Risk. A target date fund should not be selected based solely on age or retirement date because there is no guarantee that this fund will provide adequate income at or through retirement.
Principal Risks due to the Fund’s Investments in Underlying Funds
Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.
94
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund’s initial investment.
•
Credit Default Swaps. Credit default swaps involve special risks in addition to those associated with swaps generally because they are difficult to value, are highly susceptible to liquidity and credit risk, and generally pay a return to the party that has paid the premium only in the event of an actual default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial difficulty). The protection “buyer” in a credit default contract may be obligated to pay the protection “seller” an up-front payment or a periodic stream of payments over the term of the contract provided generally that no credit event on a reference obligation has occurred. If a credit event occurs, the seller generally must pay the buyer the “par value” (i.e., full notional value) of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described in the swap, or the seller may be required to deliver the related net cash amount, if the swap is cash settled. The Fund may be either the buyer or seller in the transaction.
•
Forward Contracts, Futures and Swaps. Forward contracts, futures, and swaps involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the forward contract, future or swap; possible lack of a liquid secondary market for a forward contract, future or swap and the resulting inability to close a forward contract, future or swap when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.
•
Options. Options involve specific risks, including: imperfect correlation between the change in market value of the instruments held by the fund and the price of the options, counterparty risk, difference in trading hours for the options markets and the markets for the underlying securities (rate movements can take place in the underlying markets that cannot be reflected in the options markets), and an insufficient liquid secondary market for particular options.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Growth Style Risk. Growth investing entails the risk that if growth companies do not increase their earnings at a rate expected by investors, the market price of their stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
•
Value Style Risk. Value investing entails the risk that value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by a fund, or the events that would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock that appears to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
Index Fund Risk. Index funds use a passive investment approach and generally do not attempt to manage market volatility, use defensive strategies, or reduce the effect of any long-term periods of poor investment performance. Therefore, the Fund may hold securities that present risks that an investment advisor researching individual securities might seek to avoid. An index fund has operating and other expenses while an index does not. As a result, over time, index funds tend to underperform the index. The correlation between fund performance and index performance may also be affected by the
95
type of passive investment approach used by a fund (sampling or replication), changes in securities markets, changes in the composition of the index, and the timing of purchases and sales of fund shares. Errors or delays in compiling or rebalancing the Index may impact the performance of the Fund and increase transaction costs.
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Securitized Products Risk. Investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Unscheduled prepayments on securitized products may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk).
U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.
U.S. Government-Sponsored Securities Risk. Securities issued by U.S. government-sponsored enterprises such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Home Loan Banks are not issued or guaranteed by the U.S. government.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
96
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
15.73%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(15.70)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
Principal LifeTime 2030 Account - Class 1
12.79%
11.68%
10.25%
S&P Target Date 2030 Index (reflects no deduction for fees, expenses, or taxes)
12.61%
10.63%
9.83%
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
James W. Fennessey (since 2007), Portfolio Manager
•
Scott Smith (since 2017), Portfolio Manager
•
Randy L. Welch (since 2007), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
97
Principal Lifetime 2040 Account
Objective
The Fund seeks a total return consisting of long-term growth of capital and current income.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Management Fees
—%
Other Expenses
0.01%
Acquired Fund Fees and Expenses
0.64%
Total Annual Fund Operating Expenses
0.65%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Principal LifeTime 2040 Account - Class 1
$66
$208
$362
$810
Portfolio Turnover
The Fund and each underlying fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s and the underlying fund's performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 19.9% of the average value of its portfolio.
Principal Investment Strategies
The Fund operates as a “target date fund” that invests according to an asset allocation strategy designed for investors having a retirement investment goal close to the year in the Fund’s name. The Fund is a fund of funds and invests in underlying funds of Principal Funds, Inc. (“PFI”) and of Principal Variable Contracts Funds, Inc. (“PVC”). Its underlying funds consist of domestic and foreign equity funds, fixed-income funds, real asset funds, and other funds that aim to offer diversification beyond traditional equity and fixed-income securities. The asset class diversification of the Fund is designed to moderate overall price volatility. The Fund may add, remove, or substitute underlying funds at any time.
The Fund is managed with strategic or long-term asset class targets and target ranges. There is a rebalancing strategy that aligns with the target weights to identify asset classes that are either overweight or underweight. The Fund may shift asset class targets in response to normal evaluative processes, the shortening time horizon of the Fund or changes in market forces or Fund circumstances.
In selecting underlying funds and target weights, the Fund considers both quantitative measures (e.g., past performance, expected levels of risk and returns, expense levels, diversification and style consistency) and qualitative factors (e.g., organizational stability, investment experience, investment and risk management processes, and information, trading, and compliance systems). There are no minimum or maximum percentages of assets that the Fund must invest in a specific asset class or underlying fund.
The underlying funds invest in growth and value stocks of small, medium, and large market capitalization companies, fixed-income securities, domestic and foreign (including those in emerging markets) securities, securities denominated in foreign currencies, investment companies (including index funds), U.S. government and U.S. government-sponsored
98
securities, and derivatives. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. The underlying funds principally use equity index futures and options in order to gain exposure to a variety of securities or asset classes or attempt to reduce risk.
The Fund’s asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. Approximately 10 years after its target year, the Fund’s underlying fund allocation is expected to match that of the Principal LifeTime Strategic Income Account. At that time, the Fund may be combined with the Principal LifeTime Strategic Income Account if the Board of Directors determines that the combination is in the best interests of Fund shareholders. It is expected that at the target date in the Fund’s name, the shareholder will begin gradually withdrawing the account’s value.
 
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Principal Risks of Investing in a Fund of Funds
Fund of Funds Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies (for example, other mutual funds or exchange-traded funds) in which the Fund invests (“underlying funds”). The Fund’s selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Fund’s performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Fund entails potential conflicts of interest: the Fund invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Fund assets to underlying funds from which they receive higher fees.
Target Date Fund Risk. A target date fund should not be selected based solely on age or retirement date because there is no guarantee that this fund will provide adequate income at or through retirement.
Principal Risks due to the Fund’s Investments in Underlying Funds
Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.
99
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund’s initial investment.
•
Futures. Futures contracts involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the futures contract; possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.
•
Options. Options involve specific risks, including: imperfect correlation between the change in market value of the instruments held by the fund and the price of the options, counterparty risk, difference in trading hours for the options markets and the markets for the underlying securities (rate movements can take place in the underlying markets that cannot be reflected in the options markets), and an insufficient liquid secondary market for particular options.
Emerging Markets Risk. Investments in emerging markets may have more risk than those in developed markets because the emerging markets are less developed and more illiquid. Emerging markets can also be subject to increased social, economic, regulatory, and political uncertainties and can be extremely volatile. The U.S. Securities and Exchange Commission, the U.S. Department of Justice, and other U.S. authorities may be limited in their ability to pursue bad actors in emerging markets, including with respect to fraud.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Growth Style Risk. Growth investing entails the risk that if growth companies do not increase their earnings at a rate expected by investors, the market price of their stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
•
Value Style Risk. Value investing entails the risk that value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by a fund, or the events that would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock that appears to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
Index Fund Risk. Index funds use a passive investment approach and generally do not attempt to manage market volatility, use defensive strategies, or reduce the effect of any long-term periods of poor investment performance. Therefore, the Fund may hold securities that present risks that an investment advisor researching individual securities might seek to avoid. An index fund has operating and other expenses while an index does not. As a result, over time, index funds tend to underperform the index. The correlation between fund performance and index performance may also be affected by the type of passive investment approach used by a fund (sampling or replication), changes in securities markets, changes in the composition of the index, and the timing of purchases and sales of fund shares. Errors or delays in compiling or rebalancing the Index may impact the performance of the Fund and increase transaction costs.
100
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Securitized Products Risk. Investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Unscheduled prepayments on securitized products may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk).
U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.
U.S. Government-Sponsored Securities Risk. Securities issued by U.S. government-sponsored enterprises such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Home Loan Banks are not issued or guaranteed by the U.S. government.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
18.06%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(18.74)%
101
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
Principal LifeTime 2040 Account - Class 1
15.29%
13.18%
11.41%
S&P Target Date 2040 Index (reflects no deduction for fees, expenses, or taxes)
16.56%
12.40%
11.19%
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
James W. Fennessey (since 2007), Portfolio Manager
•
Scott Smith (since 2017), Portfolio Manager
•
Randy L. Welch (since 2007), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
102
Principal Lifetime 2050 Account
Objective
The Fund seeks a total return consisting of long-term growth of capital and current income.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Management Fees
—%
Other Expenses
0.01%
Acquired Fund Fees and Expenses
0.65%
Total Annual Fund Operating Expenses
0.66%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Principal LifeTime 2050 Account - Class 1
$67
$211
$368
$822
Portfolio Turnover
The Fund and each underlying fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s and the underlying fund's performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 28.1% of the average value of its portfolio.
Principal Investment Strategies
The Fund operates as a “target date fund” that invests according to an asset allocation strategy designed for investors having a retirement investment goal close to the year in the Fund’s name. The Fund is a fund of funds and invests in underlying funds of Principal Funds, Inc. (“PFI”) and of Principal Variable Contracts Funds, Inc. (“PVC”). Its underlying funds consist of domestic and foreign equity funds, fixed-income funds, real asset funds, and other funds that aim to offer diversification beyond traditional equity and fixed-income securities. The asset class diversification of the Fund is designed to moderate overall price volatility. The Fund may add, remove, or substitute underlying funds at any time.
The Fund is managed with strategic or long-term asset class targets and target ranges. There is a rebalancing strategy that aligns with the target weights to identify asset classes that are either overweight or underweight. The Fund may shift asset class targets in response to normal evaluative processes, the shortening time horizon of the Fund or changes in market forces or Fund circumstances.
In selecting underlying funds and target weights, the Fund considers both quantitative measures (e.g., past performance, expected levels of risk and returns, expense levels, diversification and style consistency) and qualitative factors (e.g., organizational stability, investment experience, investment and risk management processes, and information, trading, and compliance systems). There are no minimum or maximum percentages of assets that the Fund must invest in a specific asset class or underlying fund.
103
The underlying funds invest in growth and value stocks of small, medium, and large market capitalization companies, fixed-income securities, domestic and foreign (including those in emerging markets) securities, securities denominated in foreign currencies, investment companies (including index funds), and derivatives. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. The underlying funds principally use equity index futures and options in order to gain exposure to a variety of securities or asset classes or attempt to reduce risk.
The Fund’s asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. Approximately 10 years after its target year, the Fund’s underlying fund allocation is expected to match that of the Principal LifeTime Strategic Income Account. At that time, the Fund may be combined with the Principal LifeTime Strategic Income Account if the Board of Directors determines that the combination is in the best interests of Fund shareholders. It is expected that at the target date in the Fund’s name, the shareholder will begin gradually withdrawing the account’s value.
 
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Principal Risks of Investing in a Fund of Funds
Fund of Funds Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies (for example, other mutual funds or exchange-traded funds) in which the Fund invests (“underlying funds”). The Fund’s selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Fund’s performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Fund entails potential conflicts of interest: the Fund invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Fund assets to underlying funds from which they receive higher fees.
Target Date Fund Risk. A target date fund should not be selected based solely on age or retirement date because there is no guarantee that this fund will provide adequate income at or through retirement.
104
Principal Risks due to the Fund’s Investments in Underlying Funds
Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund’s initial investment.
•
Futures. Futures contracts involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the futures contract; possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.
•
Options. Options involve specific risks, including: imperfect correlation between the change in market value of the instruments held by the fund and the price of the options, counterparty risk, difference in trading hours for the options markets and the markets for the underlying securities (rate movements can take place in the underlying markets that cannot be reflected in the options markets), and an insufficient liquid secondary market for particular options.
Emerging Markets Risk. Investments in emerging markets may have more risk than those in developed markets because the emerging markets are less developed and more illiquid. Emerging markets can also be subject to increased social, economic, regulatory, and political uncertainties and can be extremely volatile. The U.S. Securities and Exchange Commission, the U.S. Department of Justice, and other U.S. authorities may be limited in their ability to pursue bad actors in emerging markets, including with respect to fraud.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Growth Style Risk. Growth investing entails the risk that if growth companies do not increase their earnings at a rate expected by investors, the market price of their stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
•
Value Style Risk. Value investing entails the risk that value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by a fund, or the events that would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock that appears to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
Index Fund Risk. Index funds use a passive investment approach and generally do not attempt to manage market volatility, use defensive strategies, or reduce the effect of any long-term periods of poor investment performance. Therefore, the Fund may hold securities that present risks that an investment advisor researching individual securities might seek to avoid. An index fund has operating and other expenses while an index does not. As a result, over time, index funds tend to underperform the index. The correlation between fund performance and index performance may also be affected by the
105
type of passive investment approach used by a fund (sampling or replication), changes in securities markets, changes in the composition of the index, and the timing of purchases and sales of fund shares. Errors or delays in compiling or rebalancing the Index may impact the performance of the Fund and increase transaction costs.
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
19.68%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(20.78)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
Principal LifeTime 2050 Account - Class 1
17.02%
14.00%
12.00%
S&P Target Date 2050 Index (reflects no deduction for fees, expenses, or taxes)
18.01%
13.07%
11.83%
106
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
James W. Fennessey (since 2007), Portfolio Manager
•
Scott Smith (since 2017), Portfolio Manager
•
Randy L. Welch (since 2007), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
107
Principal Lifetime 2060 Account
Objective
The Fund seeks a total return consisting of long-term growth of capital and current income.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Management Fees
—%
Other Expenses
0.03%
Acquired Fund Fees and Expenses
0.66%
Total Annual Fund Operating Expenses
0.69%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Principal LifeTime 2060 Account - Class 1
$70
$221
$384
$859
Portfolio Turnover
The Fund and each underlying fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s and the underlying fund's performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 25.3% of the average value of its portfolio.
Principal Investment Strategies
The Fund operates as a “target date fund” that invests according to an asset allocation strategy designed for investors having a retirement investment goal close to the year in the Fund’s name. The Fund is a fund of funds and invests in underlying funds of Principal Funds, Inc. (“PFI”) and of Principal Variable Contracts Funds, Inc. (“PVC”). Its underlying funds consist of domestic and foreign equity funds, fixed-income funds, real asset funds, and other funds that aim to offer diversification beyond traditional equity and fixed-income securities. The asset class diversification of the Fund is designed to moderate overall price volatility. The Fund may add, remove, or substitute underlying funds at any time.
The Fund is managed with strategic or long-term asset class targets and target ranges. There is a rebalancing strategy that aligns with the target weights to identify asset classes that are either overweight or underweight. The Fund may shift asset class targets in response to normal evaluative processes, the shortening time horizon of the Fund or changes in market forces or Fund circumstances.
In selecting underlying funds and target weights, the Fund considers both quantitative measures (e.g., past performance, expected levels of risk and returns, expense levels, diversification and style consistency) and qualitative factors (e.g., organizational stability, investment experience, investment and risk management processes, and information, trading, and compliance systems). There are no minimum or maximum percentages of assets that the Fund must invest in a specific asset class or underlying fund.
108
The underlying funds invest in growth and value stocks of small, medium, and large market capitalization companies, fixed-income securities, domestic and foreign (including those in emerging markets) securities, securities denominated in foreign currencies, investment companies (including index funds), and derivatives. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. The underlying funds principally use equity index futures and options in order to gain exposure to a variety of securities or asset classes or attempt to reduce risk.
The Fund’s asset allocation will become more conservative over time as investment goals near (for example, retirement, which is assumed to begin at age 65) and investors become more risk-averse. Approximately 10 years after its target year, the Fund’s underlying fund allocation is expected to match that of the Principal LifeTime Strategic Income Account. At that time, the Fund may be combined with the Principal LifeTime Strategic Income Account if the Board of Directors determines that the combination is in the best interests of Fund shareholders. It is expected that at the target date in the Fund’s name, the shareholder will begin gradually withdrawing the account’s value.
 
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Principal Risks of Investing in a Fund of Funds
Fund of Funds Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies (for example, other mutual funds or exchange-traded funds) in which the Fund invests (“underlying funds”). The Fund’s selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Fund’s performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Fund entails potential conflicts of interest: the Fund invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Fund assets to underlying funds from which they receive higher fees.
Target Date Fund Risk. A target date fund should not be selected based solely on age or retirement date because there is no guarantee that this fund will provide adequate income at or through retirement.
109
Principal Risks due to the Fund’s Investments in Underlying Funds
Counterparty Risk. Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations.
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund’s initial investment.
•
Futures. Futures contracts involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the futures contract; possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.
•
Options. Options involve specific risks, including: imperfect correlation between the change in market value of the instruments held by the fund and the price of the options, counterparty risk, difference in trading hours for the options markets and the markets for the underlying securities (rate movements can take place in the underlying markets that cannot be reflected in the options markets), and an insufficient liquid secondary market for particular options.
Emerging Markets Risk. Investments in emerging markets may have more risk than those in developed markets because the emerging markets are less developed and more illiquid. Emerging markets can also be subject to increased social, economic, regulatory, and political uncertainties and can be extremely volatile. The U.S. Securities and Exchange Commission, the U.S. Department of Justice, and other U.S. authorities may be limited in their ability to pursue bad actors in emerging markets, including with respect to fraud.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Growth Style Risk. Growth investing entails the risk that if growth companies do not increase their earnings at a rate expected by investors, the market price of their stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
•
Value Style Risk. Value investing entails the risk that value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by a fund, or the events that would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock that appears to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
Index Fund Risk. Index funds use a passive investment approach and generally do not attempt to manage market volatility, use defensive strategies, or reduce the effect of any long-term periods of poor investment performance. Therefore, the Fund may hold securities that present risks that an investment advisor researching individual securities might seek to avoid. An index fund has operating and other expenses while an index does not. As a result, over time, index funds tend to underperform the index. The correlation between fund performance and index performance may also be affected by the
110
type of passive investment approach used by a fund (sampling or replication), changes in securities markets, changes in the composition of the index, and the timing of purchases and sales of fund shares. Errors or delays in compiling or rebalancing the Index may impact the performance of the Fund and increase transaction costs.
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
Life of Fund returns are measured from the date the Fund’s shares were first sold (May 1, 2013).
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
20.23%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(21.87)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
Life of Fund
 
 
 
05/01/2013
Principal LifeTime 2060 Account - Class 1
17.96%
14.28%
11.13%
S&P Target Date 2060 Index (reflects no deduction for fees, expenses, or taxes)
18.06%
13.28%
10.98%
111
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
James W. Fennessey (since 2013), Portfolio Manager
•
Scott Smith (since 2017), Portfolio Manager
•
Randy L. Welch (since 2013), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
112
Real Estate Securities Account
Objective
The Fund seeks to generate a total return.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Class 2
Management Fees(1)
0.78%
0.78%
Distribution and/or Service (12b-1) Fees
N/A
0.25%
Other Expenses
0.01%
0.01%
Total Annual Fund Operating Expenses
0.79%
1.04%
(1)
Fees have been restated to reflect current fees.
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Real Estate Securities Account - Class 1
$81
$252
$439
$978
Real Estate Securities Account - Class 2
106
331
574
1,271
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 23.1% of the average value of its portfolio.
Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies principally engaged in the real estate industry at the time of purchase. A real estate company has at least 50% of its assets, income or profits derived from products or services related to the real estate industry. Real estate companies include real estate investment trusts (“REITs”) and companies with substantial real estate holdings such as paper, lumber, hotel and entertainment companies as well as those whose products and services relate to the real estate industry, including building supply manufacturers, mortgage lenders and mortgage servicing companies.
REITs are pooled investment vehicles that invest in income producing real estate, real estate related loans, or other types of real estate interests. REITs are corporations or business trusts that are permitted to eliminate corporate level federal income taxes by meeting certain requirements of the Internal Revenue Code.
The Fund invests in equity securities regardless of market capitalization (small, medium or large). The Fund invests in growth equity securities. The Fund concentrates its investments (invest more than 25% of its net assets) in securities in the real estate industry.
The Fund is considered non-diversified, which means it can invest a higher percentage of assets in securities of individual issuers than a diversified fund. As a result, changes in the value of a single investment could cause greater fluctuations in the Fund’s share price than would occur in a more diversified fund.
113
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Growth Style Risk. Growth investing entails the risk that if growth companies do not increase their earnings at a rate expected by investors, the market price of their stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
Industry Concentration Risk. A fund that concentrates investments in a particular industry or group of industries has greater exposure than other funds to market, economic and other factors affecting that industry or group of industries.
•
Real Estate. A fund concentrating in the real estate industry is subject to the risks associated with direct ownership of real estate, securities of companies in the real estate industry, and/or real estate investment trusts. These risks are explained more fully below in Real Estate Investment Trusts (REITs) Risk and Real Estate Securities Risk.
Non-Diversification Risk. A non-diversified fund may invest a high percentage of its assets in the securities of a small number of issuers and is more likely than diversified funds to be significantly affected by a specific security’s poor performance.
Real Estate Investment Trusts (“REITs”) Risk. In addition to risks associated with investing in real estate securities, REITs are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, risks of default by borrowers, and self-liquidation. Investment in REITs also involves risks similar to risks of investing in small market capitalization companies, such as limited financial resources, less frequent and limited volume trading, and may be subject to more abrupt or erratic price movements than larger company securities. A REIT could fail to qualify for tax-free pass-through of income under the Internal Revenue Code. Fund shareholders will indirectly bear their proportionate share of the expenses of REITs in which the fund invests.
Real Estate Securities Risk. Investing in real estate securities subjects the fund to the risks associated with the real estate market (which are similar to the risks associated with direct ownership in real estate), including declines in real estate values, loss due to casualty or condemnation, property taxes, interest rate changes, increased expenses, cash flow of underlying real estate assets, regulatory changes (including zoning, land use and rents), and environmental problems, as well as to the risks related to the management skill and creditworthiness of the issuer.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
114
The bar chart shows changes in the Fund’s Class 1 performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q1 2019
17.53%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(22.98)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
Real Estate Securities Account - Class 1
40.44%
13.24%
12.77%
Real Estate Securities Account - Class 2
40.04%
12.95%
12.49%
MSCI US REIT Index (reflects no deduction for fees, expenses, or taxes)
43.10%
10.78%
11.32%
Investment Advisor
Principal Global Investors, LLC
Sub-Advisor and Portfolio Managers
Principal Real Estate Investors, LLC
•
Keith Bokota (since 2013), Portfolio Manager
•
Anthony Kenkel (since 2012), Portfolio Manager
•
Kelly D. Rush (since 2000), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
115
SAM (Strategic Asset Management) Balanced Portfolio
Objective
The Portfolio seeks to provide as high a level of total return (consisting of reinvested income and capital appreciation) as is consistent with reasonable risk.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Class 2
Management Fees
0.23%
0.23%
Distribution and/or Service (12b-1) Fees
N/A
0.25%
Other Expenses
—%
—%
Acquired Fund Fees and Expenses
0.54%
0.54%
Total Annual Fund Operating Expenses
0.77%
1.02%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
SAM Balanced Portfolio - Class 1
$79
$246
$428
$954
SAM Balanced Portfolio - Class 2
104
325
563
1,248
Portfolio Turnover
The Fund and each underlying fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s and the underlying fund's performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 38.9% of the average value of its portfolio.
Principal Investment Strategies
The SAM Portfolios operate as funds of funds and invest principally in funds and exchange-traded funds (“ETFs”) of Principal Funds, Inc., PVC, and Principal Exchange-Traded Funds (“Underlying Funds”). Each SAM Portfolio generally categorizes each Underlying Fund as a fixed-income, equity or specialty fund based on its investment profile. Each SAM Portfolio typically allocates its assets among Underlying Funds, and within predetermined percentage ranges, as determined by the SAM Portfolio in accordance with its outlook for the economy, the financial markets and the relative market valuations of the Underlying Funds. The asset class diversification of the SAM Portfolio is designed to moderate overall price volatility and cushion severe losses in any one investment sector.
116
The Portfolio generally invests:
•
between 20% and 60% of its assets in fixed-income funds, and less than 40% in any one fixed-income fund; such funds generally invest in fixed-income instruments such as securitized products and corporate bonds;
•
between 40% and 80% of its assets in equity funds, and less than 30% in any one equity fund; such funds generally invest in equity securities of domestic and foreign companies (including in emerging markets), including small, medium, and large market capitalization companies, and growth and value stock; and
•
less than 20% of its assets in specialty funds, and less than 20% in any one specialty fund; such funds generally offer unique combinations of traditional equity securities and fixed-income securities or use alternative investment strategies that aim to offer diversification beyond traditional equity and fixed-income securities and include investments in such assets as infrastructure, commodities, currencies, and natural resources companies.
The Portfolio may temporarily exceed these percentage ranges and may alter the percentage ranges when it deems appropriate.
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Principal Risks of Investing in a Fund of Funds
Fund of Funds Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies (for example, other mutual funds or exchange-traded funds) in which the Fund invests (“underlying funds”). The Fund’s selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Fund’s performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Fund entails potential conflicts of interest: the Fund invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Fund assets to underlying funds from which they receive higher fees.
Principal Risks due to the Fund’s Investments in Underlying Funds
Emerging Markets Risk. Investments in emerging markets may have more risk than those in developed markets because the emerging markets are less developed and more illiquid. Emerging markets can also be subject to increased social, economic, regulatory, and political uncertainties and can be extremely volatile. The U.S. Securities and Exchange Commission, the U.S. Department of Justice, and other U.S. authorities may be limited in their ability to pursue bad actors in emerging markets, including with respect to fraud.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Growth Style Risk. Growth investing entails the risk that if growth companies do not increase their earnings at a rate expected by investors, the market price of their stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
•
Value Style Risk. Value investing entails the risk that value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by a fund, or the events that would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock that appears to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.
117
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Securitized Products Risk. Investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Unscheduled prepayments on securitized products may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk).
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s Class 1 performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
118
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
13.19%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(15.32)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
SAM Balanced Portfolio - Class 1
13.74%
10.69%
9.58%
SAM Balanced Portfolio - Class 2
13.39%
10.40%
9.29%
Russell 3000 Index (reflects no deduction for fees, expenses, or taxes)
25.68%
17.97%
16.30%
Bloomberg US Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)
(1.54)%
3.57%
2.90%
MSCI EAFE Index NTR (reflects withholding taxes on foreign dividends, but no deduction for fees,
expenses, or other taxes)
11.27%
9.55%
8.03%
SAM Balanced Blended Index (except as noted for MSCI EAFE Index NTR, reflects no deduction for
fees, expenses, or taxes)
12.14%
11.12%
9.82%
Performance of a blended index shows how the Portfolio’s performance compares to a blend of indices with similar investment objectives. Performance of the components of the blended index is also shown. The weightings for SAM Balanced Blended Index are 45% Russell 3000® Index, 40% Bloomberg US Aggregate Bond Index, and 15% MSCI EAFE Index NTR.
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
Brody Dass (since 2022), Portfolio Manager
•
Todd A. Jablonski (since 2010), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
119
SAM (Strategic Asset Management) Conservative Balanced Portfolio
Objective
The Portfolio seeks to provide a high level of total return (consisting of reinvestment of income and capital appreciation), consistent with a moderate degree of principal risk.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Class 2
Management Fees
0.23%
0.23%
Distribution and/or Service (12b-1) Fees
N/A
0.25%
Other Expenses
—%
—%
Acquired Fund Fees and Expenses
0.54%
0.54%
Total Annual Fund Operating Expenses
0.77%
1.02%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
SAM Conservative Balanced Portfolio - Class 1
$79
$246
$428
$954
SAM Conservative Balanced Portfolio - Class 2
104
325
563
1,248
Portfolio Turnover
The Fund and each underlying fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s and the underlying fund's performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 41.2% of the average value of its portfolio.
Principal Investment Strategies
The SAM Portfolios operate as funds of funds and invest principally in funds and exchange-traded funds (“ETFs”) of Principal Funds, Inc., PVC, and Principal Exchange-Traded Funds (“Underlying Funds”). Each SAM Portfolio generally categorizes each Underlying Fund as a fixed-income, equity or specialty fund based on its investment profile. Each SAM Portfolio typically allocates its assets among Underlying Funds, and within predetermined percentage ranges, as determined by the SAM Portfolio in accordance with its outlook for the economy, the financial markets and the relative market valuations of the Underlying Funds. The asset class diversification of the SAM Portfolio is designed to moderate overall price volatility and cushion severe losses in any one investment sector.
120
The Portfolio generally invests:
•
between 40% and 80% of its assets in fixed-income funds, and less than 40% in any one fixed-income fund; such funds generally invest in fixed-income instruments such as high yield securities (or “junk” bonds), securitized products and corporate bonds;
•
between 20% and 60% of its assets in equity funds, and less than 30% in any one equity fund; such funds generally invest in equity securities of domestic and foreign companies (including in emerging markets), including small, medium and large market capitalization companies, and growth and value stock; and
•
less than 20% of its assets in specialty funds, and less than 20% in any one specialty fund; such funds generally offer unique combinations of traditional equity securities and fixed-income securities or use alternative investment strategies that aim to offer diversification beyond traditional equity and fixed-income securities and include investments in such assets as infrastructure, commodities, currencies, and natural resources companies.
The Portfolio may temporarily exceed these percentage ranges and may alter the percentage ranges when it deems appropriate.
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Principal Risks of Investing in a Fund of Funds
Fund of Funds Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies (for example, other mutual funds or exchange-traded funds) in which the Fund invests (“underlying funds”). The Fund’s selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Fund’s performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Fund entails potential conflicts of interest: the Fund invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Fund assets to underlying funds from which they receive higher fees.
Principal Risks due to the Fund’s Investments in Underlying Funds
Emerging Markets Risk. Investments in emerging markets may have more risk than those in developed markets because the emerging markets are less developed and more illiquid. Emerging markets can also be subject to increased social, economic, regulatory, and political uncertainties and can be extremely volatile. The U.S. Securities and Exchange Commission, the U.S. Department of Justice, and other U.S. authorities may be limited in their ability to pursue bad actors in emerging markets, including with respect to fraud.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Growth Style Risk. Growth investing entails the risk that if growth companies do not increase their earnings at a rate expected by investors, the market price of their stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
•
Value Style Risk. Value investing entails the risk that value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by a fund, or the events that would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock that appears to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.
121
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
High Yield Securities Risk. High yield fixed-income securities (commonly referred to as “junk bonds”) are subject to greater credit quality risk than higher rated fixed-income securities and should be considered speculative.
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Securitized Products Risk. Investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Unscheduled prepayments on securitized products may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk).
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s Class 1 performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
122
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
10.38%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(11.48)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
SAM Conservative Balanced Portfolio - Class 1
9.71%
8.43%
7.62%
SAM Conservative Balanced Portfolio - Class 2
9.48%
8.15%
7.35%
Bloomberg US Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)
(1.54)%
3.57%
2.90%
Russell 3000 Index (reflects no deduction for fees, expenses, or taxes)
25.68%
17.97%
16.30%
MSCI EAFE Index NTR (reflects withholding taxes on foreign dividends, but no deduction for fees,
expenses, or other taxes)
11.27%
9.55%
8.03%
SAM Conservative Balanced Blended Index (except as noted for MSCI EAFE Index NTR, reflects no
deduction for fees, expenses, or taxes)
7.43%
8.65%
7.54%
Performance of a blended index shows how the Portfolio’s performance compares to a blend of indices with similar investment objectives. Performance of the components of the blended index is also shown. The weightings for SAM Conservative Balanced Blended Index are 60% Bloomberg US Aggregate Bond Index, 30% Russell 3000® Index, and 10% MSCI EAFE Index NTR.
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
Brody Dass (since 2022), Portfolio Manager
•
Todd A. Jablonski (since 2010), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
123
SAM (Strategic Asset Management) Conservative Growth Portfolio
Objective
The Portfolio seeks to provide long-term capital appreciation.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Class 2
Management Fees
0.23%
0.23%
Distribution and/or Service (12b-1) Fees
N/A
0.25%
Other Expenses
—%
—%
Acquired Fund Fees and Expenses
0.54%
0.54%
Total Annual Fund Operating Expenses
0.77%
1.02%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
SAM Conservative Growth Portfolio - Class 1
$79
$246
$428
$954
SAM Conservative Growth Portfolio - Class 2
104
325
563
1,248
Portfolio Turnover
The Fund and each underlying fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s and the underlying fund's performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 43.6% of the average value of its portfolio.
Principal Investment Strategies
The SAM Portfolios operate as funds of funds and invest principally in funds and exchange-traded funds (“ETFs”) of Principal Funds, Inc., PVC, and Principal Exchange-Traded Funds (“Underlying Funds”). Each SAM Portfolio generally categorizes each Underlying Fund as a fixed-income, equity or specialty fund based on its investment profile. Each SAM Portfolio typically allocates its assets among Underlying Funds, and within predetermined percentage ranges, as determined by the SAM Portfolio in accordance with its outlook for the economy, the financial markets and the relative market valuations of the Underlying Funds. The asset class diversification of the SAM Portfolio is designed to moderate overall price volatility and cushion severe losses in any one investment sector.
The Portfolio generally invests:
•
between 0% and 40% of its assets in fixed-income funds, and less than 30% in any one fixed-income fund; such funds generally invest in fixed-income instruments such as corporate bonds;
•
between 60% and 100% of its assets in equity funds, and less than 40% in any one equity fund; such funds generally invest in equity securities of domestic and foreign companies (including in emerging markets), including small, medium, and large market capitalization companies, and growth and value stock; and
•
less than 20% of its assets in specialty funds, and less than 20% in any one specialty fund; such funds generally offer unique combinations of traditional equity securities and fixed-income securities or use alternative investment strategies that aim to offer diversification beyond traditional equity and fixed-income securities and include investments in such assets as infrastructure, commodities, currencies, and natural resources companies.
124
The Portfolio may temporarily exceed these percentage ranges and may alter the percentage ranges when it deems appropriate.
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Principal Risks of Investing in a Fund of Funds
Fund of Funds Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies (for example, other mutual funds or exchange-traded funds) in which the Fund invests (“underlying funds”). The Fund’s selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Fund’s performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Fund entails potential conflicts of interest: the Fund invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Fund assets to underlying funds from which they receive higher fees.
Principal Risks due to the Fund’s Investments in Underlying Funds
Emerging Markets Risk. Investments in emerging markets may have more risk than those in developed markets because the emerging markets are less developed and more illiquid. Emerging markets can also be subject to increased social, economic, regulatory, and political uncertainties and can be extremely volatile. The U.S. Securities and Exchange Commission, the U.S. Department of Justice, and other U.S. authorities may be limited in their ability to pursue bad actors in emerging markets, including with respect to fraud.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Growth Style Risk. Growth investing entails the risk that if growth companies do not increase their earnings at a rate expected by investors, the market price of their stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
•
Value Style Risk. Value investing entails the risk that value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by a fund, or the events that would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock that appears to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
125
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s Class 1 performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
16.04%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(19.01)%
126
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
SAM Conservative Growth Portfolio - Class 1
17.75%
13.04%
11.42%
SAM Conservative Growth Portfolio - Class 2
17.44%
12.75%
11.13%
Russell 3000 Index (reflects no deduction for fees, expenses, or taxes)
25.68%
17.97%
16.30%
Bloomberg US Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)
(1.54)%
3.57%
2.90%
MSCI EAFE Index NTR (reflects withholding taxes on foreign dividends, but no deduction for fees,
expenses, or other taxes)
11.27%
9.55%
8.03%
SAM Conservative Growth Blended Index (except as noted for MSCI EAFE Index NTR, reflects no
deduction for fees, expenses, or taxes)
16.99%
13.52%
12.05%
Performance of a blended index shows how the Portfolio’s performance compares to a blend of indices with similar investment objectives. Performance of the components of the blended index is also shown. The weightings for SAM Conservative Growth Blended Index are 60% Russell 3000® Index, 20% Bloomberg US Aggregate Bond Index and 20% MSCI EAFE Index NTR.
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
Brody Dass (since 2022), Portfolio Manager
•
Todd A. Jablonski (since 2010), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
127
SAM (Strategic Asset Management) Flexible Income Portfolio
Objective
The Portfolio seeks to provide a high level of total return (consisting of reinvestment of income with some capital appreciation).
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Class 2
Management Fees
0.23%
0.23%
Distribution and/or Service (12b-1) Fees
N/A
0.25%
Other Expenses
—%
—%
Acquired Fund Fees and Expenses
0.50%
0.50%
Total Annual Fund Operating Expenses
0.73%
0.98%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
SAM Flexible Income Portfolio - Class 1
$75
$233
$406
$906
SAM Flexible Income Portfolio - Class 2
100
312
542
1,201
Portfolio Turnover
The Fund and each underlying fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s and the underlying fund's performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 44.0% of the average value of its portfolio.
Principal Investment Strategies
The SAM Portfolios operate as funds of funds and invest principally in funds and exchange-traded funds (“ETFs”) of Principal Funds, Inc., PVC, and Principal Exchange-Traded Funds (“Underlying Funds”). Each SAM Portfolio generally categorizes each Underlying Fund as a fixed-income, equity, or specialty fund based on its investment profile. Each SAM Portfolio typically allocates its assets among Underlying Funds, and within predetermined percentage ranges, as determined by the SAM Portfolio in accordance with its outlook for the economy, the financial markets and the relative market valuations of the Underlying Funds. The asset class diversification of the SAM Portfolio is designed to moderate overall price volatility and cushion severe losses in any one investment sector.
128
The Portfolio generally invests:
•
between 55% and 95% of its assets in fixed-income funds, and less than 40% in any one fixed-income fund; such funds generally invest in fixed-income instruments such as high yield securities (or “junk” bonds), securitized products and corporate bonds;
•
between 5% and 45% of its assets in equity funds, and less than 30% in any one equity fund; such funds generally invest in equity securities of domestic and foreign companies, including small, medium and large market capitalization companies, and growth and value stock; and
•
less than 20% of its assets in specialty funds, and less than 20% in any one specialty fund; such funds generally offer unique combinations of traditional equity securities and fixed-income securities or use alternative investment strategies that aim to offer diversification beyond traditional equity and fixed-income securities and include investments in such assets as infrastructure, commodities, currencies, and natural resources companies.
The Portfolio may temporarily exceed these percentage ranges and may alter the percentage ranges when it deems appropriate.
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Principal Risks of Investing in a Fund of Funds
Fund of Funds Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies (for example, other mutual funds or exchange-traded funds) in which the Fund invests (“underlying funds”). The Fund’s selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Fund’s performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Fund entails potential conflicts of interest: the Fund invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Fund assets to underlying funds from which they receive higher fees.
Principal Risks due to the Fund’s Investments in Underlying Funds
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Growth Style Risk. Growth investing entails the risk that if growth companies do not increase their earnings at a rate expected by investors, the market price of their stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
•
Value Style Risk. Value investing entails the risk that value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by a fund, or the events that would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock that appears to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.
129
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
High Yield Securities Risk. High yield fixed-income securities (commonly referred to as “junk bonds”) are subject to greater credit quality risk than higher rated fixed-income securities and should be considered speculative.
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Securitized Products Risk. Investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Unscheduled prepayments on securitized products may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk).
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s Class 1 performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
7.83%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(8.66)%
130
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
SAM Flexible Income Portfolio - Class 1
6.89%
6.65%
6.30%
SAM Flexible Income Portfolio - Class 2
6.61%
6.39%
6.04%
Bloomberg US Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)
(1.54)%
3.57%
2.90%
Russell 3000 Index (reflects no deduction for fees, expenses, or taxes)
25.68%
17.97%
16.30%
MSCI EAFE Index NTR (reflects withholding taxes on foreign dividends, but no deduction for fees,
expenses, or other taxes)
11.27%
9.55%
8.03%
SAM Flexible Income Blended Index (except as noted for MSCI EAFE Index NTR, reflects no
deduction for fees, expenses, or taxes)
4.16%
6.87%
5.91%
Performance of a blended index shows how the Portfolio’s performance compares to a blend of indices with similar investment objectives. Performance of the components of the blended index is also shown. The weightings for SAM Flexible Income Blended Index are 75% Bloomberg US Aggregate Bond Index, 20% Russell 3000® Index, and 5% MSCI EAFE Index NTR.
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
Brody Dass (since 2022), Portfolio Manager
•
Todd A. Jablonski (since 2010), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
131
SAM (Strategic Asset Management) Strategic Growth Portfolio
Objective
The Portfolio seeks to provide long-term capital appreciation.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Class 2
Management Fees
0.23%
0.23%
Distribution and/or Service (12b-1) Fees
N/A
0.25%
Other Expenses
—%
—%
Acquired Fund Fees and Expenses
0.56%
0.56%
Total Annual Fund Operating Expenses
0.79%
1.04%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
SAM Strategic Growth Portfolio - Class 1
$81
$252
$439
$978
SAM Strategic Growth Portfolio - Class 2
106
331
574
1,271
Portfolio Turnover
The Fund and each underlying fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s and the underlying fund's performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 35.9% of the average value of its portfolio.
Principal Investment Strategies
The SAM Portfolios operate as funds of funds and invest principally in funds and exchange-traded funds (“ETFs”) of Principal Funds, Inc., PVC, and Principal Exchange-Traded Funds (“Underlying Funds”). Each SAM Portfolio generally categorizes each Underlying Fund as a fixed income, equity, or specialty fund based on its investment profile. Each SAM Portfolio typically allocates its assets among Underlying Funds, and within predetermined percentage ranges, as determined by the SAM Portfolio in accordance with its outlook for the economy, the financial markets and the relative market valuations of the Underlying Funds. The asset class diversification of the SAM Portfolio is designed to moderate overall price volatility and cushion severe losses in any one investment sector.
The Portfolio generally invests:
•
between 75% and 100% of its assets in equity funds, and less than 50% in any one equity fund; such funds generally invest in equity securities of domestic and foreign companies (including in emerging markets), including small, medium, and large market capitalization companies, and growth and value stock;
•
and less than 20% of its assets in specialty funds, and less than 20% in any one specialty fund; such funds generally offer unique combinations of traditional equity securities or use alternative investment strategies that aim to offer diversification beyond traditional equity securities and include investments in such assets as infrastructure, commodities, currencies, and natural resources companies.
The Portfolio may temporarily exceed these percentage ranges and may alter the percentage ranges when it deems appropriate.
132
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Principal Risks of Investing in a Fund of Funds
Fund of Funds Risk. Fund shareholders bear indirectly their proportionate share of the expenses of other investment companies (for example, other mutual funds or exchange-traded funds) in which the Fund invests (“underlying funds”). The Fund’s selection and weighting of asset classes and allocation of investments in underlying funds may cause it to underperform other funds with a similar investment objective. The Fund’s performance and risks correspond directly to the performance and risks of the underlying funds in which it invests, proportionately in accordance with the weightings of such investments, and there is no assurance that the underlying funds will achieve their investment objectives. Management of the Fund entails potential conflicts of interest: the Fund invests in affiliated underlying funds; and the Advisor and its affiliates may earn different fees from different underlying funds and may have an incentive to allocate more Fund assets to underlying funds from which they receive higher fees.
Principal Risks due to the Fund’s Investments in Underlying Funds
Emerging Markets Risk. Investments in emerging markets may have more risk than those in developed markets because the emerging markets are less developed and more illiquid. Emerging markets can also be subject to increased social, economic, regulatory, and political uncertainties and can be extremely volatile. The U.S. Securities and Exchange Commission, the U.S. Department of Justice, and other U.S. authorities may be limited in their ability to pursue bad actors in emerging markets, including with respect to fraud.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
•
Growth Style Risk. Growth investing entails the risk that if growth companies do not increase their earnings at a rate expected by investors, the market price of their stock may decline significantly, even if earnings show an absolute increase. Growth company stocks also typically lack the dividend yield that can lessen price declines in market downturns.
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
•
Value Style Risk. Value investing entails the risk that value stocks may continue to be undervalued by the market for extended periods, including the entire period during which the stock is held by a fund, or the events that would cause the stock price to increase may not occur as anticipated or at all. Moreover, a stock that appears to be undervalued actually may be appropriately priced at a low level and therefore would not be profitable for the fund.
Foreign Currency Risk. Risks of investing in securities denominated in, or that trade in, foreign (non-U.S.) currencies include changes in foreign exchange rates and foreign exchange restrictions.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
133
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s Class 1 performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
19.27%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(22.11)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
SAM Strategic Growth Portfolio - Class 1
19.86%
14.51%
12.64%
SAM Strategic Growth Portfolio - Class 2
19.54%
14.23%
12.36%
Russell 3000 Index (reflects no deduction for fees, expenses, or taxes)
25.68%
17.97%
16.30%
MSCI EAFE Index NTR (reflects withholding taxes on foreign dividends, but no deduction for fees,
expenses, or other taxes)
11.27%
9.55%
8.03%
Bloomberg US Aggregate Bond Index (reflects no deduction for fees, expenses, or taxes)
(1.54)%
3.57%
2.90%
SAM Strategic Growth Blended Index (except as noted for MSCI EAFE Index NTR, reflects no
deduction for fees, expenses, or taxes)
20.54%
15.18%
13.59%
Performance of a blended index shows how the Portfolio’s performance compares to a blend of indices with similar investment objectives. Performance of the components of the blended index is also shown. The weightings for SAM Strategic Growth Blended Index are 70% Russell 3000® Index, 25% MSCI EAFE Index NTR and 5% Bloomberg US Aggregate Bond Index.
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
Brody Dass (since 2022), Portfolio Manager
•
Todd A. Jablonski (since 2010), Portfolio Manager
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Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
135
Short-Term Income Account
Objective
The Fund seeks to provide as high a level of current income as is consistent with prudent investment management and stability of principal.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Management Fees
0.45%
Other Expenses
0.02%
Total Annual Fund Operating Expenses
0.47%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
Short-Term Income Account - Class 1
$48
$151
$263
$591
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 56.7% of the average value of its portfolio.
Principal Investment Strategies
The Fund seeks to achieve its investment objective by investing in a broad range of high-quality, fixed-income securities. The Fund invests primarily in high quality short-term bonds and other fixed-income securities that, at the time of purchase, are rated BBB- or higher by S&P Global Ratings (“S&P Global”) or Baa3 or higher by Moody’s Investors Service, Inc. (“Moody’s”) (if securities are rated differently by S&P Global and Moody’s, the highest rating is used; or, if unrated, in the opinion of those selecting such investments, are of comparable quality). The Fund’s investments also include corporate securities, government securities, and mortgage-backed and asset-backed securities (securitized products). The Fund invests in foreign securities.
Under normal circumstances, the Fund maintains an effective maturity of five years or less and an average portfolio duration that is within ±15% of the duration of the Bloomberg Credit 1-3 Year Index, which as of December 31, 2021 was 1.83 years.
The Fund invests in derivatives, including Treasury futures, to manage the fixed-income exposure. A derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index.
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
136
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund’s initial investment.
•
Futures. Futures contracts involve specific risks, including: the imperfect correlation between the change in market value of the instruments held by the fund and the price of the futures contract; possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; counterparty risk; and if the fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements.
Fixed-Income Securities Risk. Fixed-income securities are subject to interest rate, credit quality, and liquidity risks. The market value of fixed-income securities generally declines when interest rates rise, and increased interest rates may adversely affect the liquidity of certain fixed-income securities. Moreover, an issuer of fixed-income securities could default on its payment obligations due to increased interest rates or for other reasons.
Foreign Securities Risk. The risks of foreign securities include loss of value as a result of: political or economic instability; nationalization, expropriation or confiscatory taxation; settlement delays; and limited government regulation (including less stringent reporting, accounting, and disclosure standards than are required of U.S. companies).
Portfolio Duration Risk. Portfolio duration is a measure of the expected life of a fixed-income security and its sensitivity to changes in interest rates. The longer a fund’s average portfolio duration, the more sensitive the fund will be to changes in interest rates, which means funds with longer average portfolio durations may be more volatile than those with shorter durations.
Real Estate Securities Risk. Investing in real estate securities subjects the fund to the risks associated with the real estate market (which are similar to the risks associated with direct ownership in real estate), including declines in real estate values, loss due to casualty or condemnation, property taxes, interest rate changes, increased expenses, cash flow of underlying real estate assets, regulatory changes (including zoning, land use and rents), and environmental problems, as well as to the risks related to the management skill and creditworthiness of the issuer.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Securitized Products Risk. Investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Unscheduled prepayments on securitized products may have to be reinvested at lower rates. A reduction in prepayments may increase the effective maturities of these securities, exposing them to the risk of decline in market value over time (extension risk).
U.S. Government Securities Risk. Yields available from U.S. government securities are generally lower than yields from many other fixed-income securities.
U.S. Government-Sponsored Securities Risk. Securities issued by U.S. government-sponsored enterprises such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, and the Federal Home Loan Banks are not issued or guaranteed by the U.S. government.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
137
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
3.14%
Lowest return for a quarter during the period of the bar chart above:
Q4 2021
(0.78)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
Short-Term Income Account - Class 1
(0.72)%
2.13%
2.13%
Bloomberg Credit 1-3 Year Index (reflects no deduction for fees, expenses, or taxes)
(0.17)%
2.35%
2.09%
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
John R. Friedl (since 2010), Portfolio Manager
•
Scott J. Peterson (since 2010), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
138
SmallCap Account
Objective
The Fund seeks long-term growth of capital.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 1
Class 2
Management Fees
0.81%
0.81%
Distribution and/or Service (12b-1) Fees
N/A
0.25%
Other Expenses
0.01%
0.01%
Total Annual Fund Operating Expenses
0.82%
1.07%
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
5 years
10 years
SmallCap Account - Class 1
$84
$262
$455
$1,014
SmallCap Account - Class 2
109
340
590
1,306
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 36.6% of the average value of its portfolio.
Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies with small market capitalizations at the time of purchase. For this Fund, companies with small market capitalizations are those with market capitalizations within the range of companies comprising the Russell 2000® Index (as of December 31, 2021, this range was between approximately $31.6 million and $14.0 billion). Those managing the Fund’s investments seek to invest in securities of companies that they believe have improving and sustainable business fundamentals, rising investor expectations, and attractive relative valuations.
Principal Risks
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
139
•
Smaller Companies Risk. Investments in smaller companies may involve greater risk and price volatility than investments in larger, more mature companies. Smaller companies may have limited product lines, markets or financial resources, lack the competitive strength of larger companies, have less experienced managers or depend on a few key employees. Their securities often are less widely held and trade less frequently and in lesser quantities, and their market prices often fluctuate more, than securities of larger companies.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
Performance
The following information provides some indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
The bar chart shows changes in the Fund’s Class 1 performance from year to year. The table shows how the Fund’s average annual returns for 1, 5, and 10 years (or, if shorter, the life of the Fund) compare with those of one or more broad measures of market performance. Performance figures for the Fund do not include any separate account expenses, cost of insurance, or other contract-level expenses; total returns for the Fund would be lower if such expenses were included.
For periods prior to the inception date of Class 2 shares (February 17, 2015), the performance shown in the table for Class 2 shares is that of the Fund’s Class 1 shares, adjusted to reflect the fees and expenses of the Class 2 shares. These adjustments result in performance for such periods that is no higher than the historical performance of the Class 1 shares.
Total Returns as of December 31
  
Highest return for a quarter during the period of the bar chart above:
Q2 2020
28.64%
Lowest return for a quarter during the period of the bar chart above:
Q1 2020
(30.53)%
Average Annual Total Returns
For the periods ended December 31, 2021 
 
1 Year
5 Years
10 Years
SmallCap Account - Class 1
20.12%
13.47%
14.65%
SmallCap Account - Class 2
19.86%
13.18%
14.37%
Russell 2000 Index (reflects no deduction for fees, expenses, or taxes)
14.83%
12.02%
13.23%
140
Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
Phil Nordhus (since 2006), Portfolio Manager
•
Brian W. Pattinson (since 2011), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
141
U.S. LargeCap Buffer July Account
•
The Fund employs a defined outcome strategy, but there is no guarantee that such outcomes for an Outcome Period will be achieved. You may lose some or all of your money by investing in the Fund. The Fund’s defined outcome strategy seeks to provide investors with returns (before Fund fees and expenses) based on the S&P 500 Price Return Index (the “Index”), while seeking to provide a buffer against the first 10% of Index losses (before Fund fees and expenses), over a twelve-month period beginning on July 1 and ending on June 30. The Fund has characteristics unlike many other typical investment products and may not be suitable for all investors. It is important that investors understand the Fund’s investment strategy before making an investment in the Fund.
•
The defined outcomes may only be realized if you are holding shares on the first day of an Outcome Period and continue to hold them on the last day of that Outcome Period. If you purchase shares after an Outcome Period has begun or sell shares prior to an Outcome Period’s conclusion, you may experience investment returns very different from those that the Fund seeks to provide. Investors purchasing shares of the Fund after the Outcome Period begins can see their expected outcomes until the end of the period by visiting the Fund’s website, www.annuities.principal.com/variableannuity/bufferaccounts. The Fund’s performance over an Outcome Period will be exposed to losses beyond the Buffer in the amount of the Fund’s expenses.
•
The Fund will not terminate after the conclusion of the Outcome Period. After the conclusion of an Outcome Period with respect to the Fund, another will begin.
•
The Fund only seeks to provide shareholders that hold shares for an entire Outcome Period with a Buffer against a pre-determined percentage of Index declines. You will bear all losses beyond that pre-determined percentage as described below. While the Fund seeks to limit losses for shareholders who hold shares for the entire Outcome Period, there is no guarantee it will successfully do so.
•
The Fund’s website, www.annuities.principal.com/variableannuity/bufferaccounts, provides important information about the Fund, including, among other items, Outcome Period start and end dates, information about the Buffer, the Fund’s performance during the current Outcome Period relative to its Buffer, and potential outcomes for the Fund updated on a daily basis. If you are contemplating purchasing or selling shares of the Fund, please visit the website.
•
Investors should consider this investment only under the following circumstances: they fully understand the risks inherent in an investment in the Fund; they seek returns based on the performance of the Index, while also seeking to be buffered against the first 10% of Index losses, over an Outcome Period; they are willing to hold shares for the entirety of an Outcome Period; they are willing to accept the risk of losing their entire investment; and they have visited the Fund’s website and understand the outcomes available based on timing of purchase.
Objective
The Fund seeks to provide investors with returns (before fees and expenses) based on the S&P 500 Price Return Index (the “Index”), while seeking to provide a buffer against the first 10% (prior to taking into account any fees and expenses of the Fund) of Index losses, over a twelve-month period beginning on July 1 and ending on June 30.
142
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the table and examples below. These fees and expenses do not reflect the fees and expenses of any variable insurance contract that may invest in the Fund and would be higher if they did.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment) 
 
Share Class
 
Class 2
Management Fees
0.69%
Distribution and/or Service (12b-1) Fees
0.25%
Other Expenses(1)
0.09%
Acquired Fund Fees and Expenses(1)
0.03%
Total Annual Fund Operating Expenses
1.06%
Expense Reimbursement(2)
(0.08)%
Total Annual Fund Operating Expenses after Expense Reimbursement
0.98%
(1)
Based on estimated amounts for the current fiscal year.
(2)
Principal Global Investors, LLC (“PGI”), the investment advisor, has contractually agreed to limit the Fund's expenses by paying, if necessary, expenses normally payable by the Fund, (excluding interest expense, expenses related to fund investments, acquired fund fees and expenses, and tax reclaim recovery expenses and other extraordinary expenses) to maintain a total level of operating expenses (expressed as a percent of average net assets on an annualized basis) not to exceed 0.95% for Class 2 shares. It is expected the expense limit will continue through the period ending April 30, 2024; however, Principal Variable Contracts Funds, Inc. and PGI, the parties to the agreement, may mutually agree to terminate the expenses limit prior to the end of the period. Subject to applicable expense limits, the Fund may reimburse PGI for expenses incurred during the current fiscal year.
Example
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. If separate account expenses and contract level expenses were included, expenses would be higher. The calculation of costs takes into account any applicable contractual fee waivers and/or expense reimbursements for the period noted in the table above. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 
 
1 year
3 years
U.S. LargeCap Buffer July Account - Class 2
$100
$321
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. This is a new Fund and does not yet have a portfolio turnover rate to disclose.
Principal Investment Strategies
Under normal circumstances, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in exchange-traded funds (“ETFs”) and options that reference the S&P 500 Price Return Index (the “Index”) at the time of each purchase. The Index represents U.S. equities with risk/return characteristics of the large cap universe. As of December 31, 2021, the market capitalization range of the Index was between approximately $4.0 billion and $2.9 trillion. The Index is distinct from the S&P 500 Total Return Index in that it only tracks the performance of the stock prices of the companies included in the Index and does not include returns from dividends paid by the companies included in the Index.
The Fund’s investment advisor, Principal Global Investors, LLC (“PGI”), employs a defined outcome strategy that uses options to seek to achieve exposure to the Index while mitigating the first 10% decline in the Index (the “Buffer”) over a 12-month period beginning on the first day of each July (the “Specified Date”). The one-year period following the Specified Date is referred to as the “Outcome Period.” As described in more detail below, the Fund generally seeks to maintain net costs from its use of options approximately equal to its anticipated receipt of dividends, which could cause the Fund’s performance return to be lower than the performance return of the Index.
143
At the beginning of each Outcome Period, the Fund will purchase ETFs that reference the Index and a put option at-the-money for the purpose of providing downside protection. The Fund will sell (write) put options on the Index or an ETF that tracks the Index with a strike price approximately 10% lower than the closing value of the Index or an ETF that tracks the Index at the beginning of the Outcome Period. The Fund will sell (write) call options on the Index or an ETF that tracks the Index with a strike price approximately 10% higher than the closing value of the Index or an ETF that tracks the Index at the beginning of the Outcome Period. As the seller of these options, the Fund receives a premium from the buyer of the options. The Fund expects to write the call options on one or more of the ETFs owned by the Fund to the extent necessary to maintain its net costs from the purchase and sale of options approximately equal to its anticipated receipt of dividends, but it will do so only to the extent that the written call options on each respective ETF have an aggregate notional value less than or equal to the market value of the respective ETF owned by the Fund at the beginning of the Outcome Period. The Fund’s returns are generally expected to appreciate to a similar extent as the Index for the first 10% of the Index gains. The prices of the call options and put options sold and purchased by the Fund, in addition to the Fund’s direct investments in underlying ETFs, will determine the Fund’s exposure to the Index during the Outcome Period.
An option gives the purchaser of the option the right to purchase (for a call option) or sell (for a put option) the underlying asset (or deliver cash equal to the value of an underlying index) at a specified price (the strike price). If the underlying asset declines in value, the value of a put option will generally increase (and the value of a call option will generally decrease and may end up worthless), and in the event the underlying asset appreciates in value, the value of a put option will generally decrease and may end up worthless (and the value of a call option will generally increase). Due to the cost of the options used by the Fund, the correlation of the Fund’s performance to that of the Index is expected to be less than if the Fund invested directly in the Index without using options, and could be substantially less. This means that if the Index experiences gains for an Outcome Period, the Fund may not realize gains to the same extent, as illustrated in the second hypothetical graphical illustration below.
The Fund’s strategy is to seek to protect investors from a decline of up to 10% in the performance of the Index over the Outcome Period. The Fund is not designed to protect against declines of more than 10% in the level of the Index, and there can be no guarantee that the Fund will be successful in implementing its strategy to buffer against the first 10% of Index losses. The Fund, and therefore investors, will bear all losses exceeding 10%. In addition, because the outcome is calculated before taking into account the Fund’s expenses, Fund performance over an Outcome Period will be exposed to losses beyond the Buffer in the amount of such Fund expenses. The Fund may underperform the Index due to the cost of the Buffer protection.
The Fund will invest in exchange-traded FLexible EXchange Options (“FLEX Options”), which are customized exchange-traded option contracts available through the Chicago Board Option Exchange (“Cboe”) that are guaranteed for settlement by The Options Clearing Corporation (“OCC”). FLEX Options provide investors with the ability to customize exercise prices, exercise styles, and expiration dates. All FLEX Options in the Fund are European-style options (i.e., they can only be exercised at the expiration date of the option) based on the Index or an ETF that tracks the Index and have an expiration date that is the last day of the Outcome Period.
The hypothetical graphical illustrations provided below are designed to illustrate the hypothetical outcomes of the Buffer strategy based upon hypothetical performance of the Index for a shareholder that holds shares for the entirety of an Outcome Period. The illustrations assume that the Fund will write call options with an aggregate notional amount approximately equal to 50% of the market value of the ETFs. There is no guarantee that the Fund will be successful in its attempt to provide such outcomes for an Outcome Period, and the actual aggregate notional amount of written call options could be significantly different depending upon the relative prices of the options used by the Fund. The returns that the Fund seeks to provide do not include the costs associated with purchasing shares of the Fund and the expenses incurred by the Fund.
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The Buffer is designed to have its full effect only for investors who continually hold Fund shares for an entire Outcome Period. The Fund is designed to seek to achieve the results described above for investments made on the first day of the Outcome Period and held until the last day of the Outcome Period. Investments made on any other day may differ significantly, positively or negatively, from the results described above.
The Fund’s operations are intended to be continuous. It will not terminate and distribute its assets at the conclusion of each Outcome Period. On the Specified Date, another Outcome Period will commence, and the Fund will invest in a new set of FLEX Options.
The Fund will not concentrate (i.e., invest more than 25% of its assets) its investments in a particular industry except to the extent the Index is so concentrated. As of December 31, 2021, the Index was not concentrated in any industry.
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The Fund’s website, www.annuities.principal.com/variableannuity/bufferaccounts, provides important Fund information on a daily basis, including information about the Buffer, current Outcome Period start and end dates, and information relating to the remaining potential outcomes of an investment in the Fund. Investors considering purchasing shares should visit the website for the latest information.
Note:
“Standard & Poor's 500” and “S&P 500®” are trademarks of S&P Global and have been licensed by PGI. The Fund is not sponsored, endorsed, sold, or promoted by S&P Global and S&P Global makes no representation regarding the advisability of investing in the Fund.
Principal Risks
The Fund has characteristics unlike many other traditional investment products and is not appropriate for all investors. In particular, investment in the Fund may not be appropriate for investors who do not intend to maintain their investment through the entire Outcome Period. There is no guarantee that the Fund will be able to achieve the stated Defined Outcome.
The value of your investment in the Fund changes with the value of the Fund’s investments. Many factors affect that value, and it is possible to lose money by investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The principal risks of investing in the Fund are listed below in alphabetical order and not in order of significance.
Buffered Loss Risk. There can be no guarantee that the Fund will be successful in its strategy to provide buffer protection against Index losses if the Index decreases over the Outcome Period by 10% or less. A shareholder may lose his or her entire investment. The Fund’s strategy seeks to deliver returns that match the Index (but will be less than the Index due to the cost of the options used by the Fund), while limiting downside losses, if shares are bought on the day on which the Fund enters into the options and held until those options expire at the end of each Outcome Period. In the event an investor purchases shares after the date on which the options were entered into or sells shares prior to the expiration of the options, the Buffer that the Fund seeks to provide may not be available. The Fund does not provide principal protection, and an investor may experience significant losses on its investment, including the loss of its entire investment.
Derivatives Risk. Derivatives may not move in the direction anticipated by the portfolio manager. Transactions in derivatives may increase volatility, cause the liquidation of portfolio positions when not advantageous to do so and result in disproportionate losses that may be substantially greater than a fund’s initial investment.
•
Options. Options involve specific risks, including: imperfect correlation between the change in market value of the instruments held by the fund and the price of the options, counterparty risk, difference in trading hours for the options markets and the markets for the underlying securities (rate movements can take place in the underlying markets that cannot be reflected in the options markets), and an insufficient liquid secondary market for particular options.
Equity Securities Risk. A variety of factors can negatively impact the value of equity securities held by a fund, including a decline in the issuer’s financial condition, unfavorable performance of the issuer’s sector or industry, or changes in response to overall market and economic conditions. A fund’s principal market segment(s) (such as market capitalization or style) may underperform other market segments or the equity markets as a whole.
Exchange-Traded Funds Risk. When the Fund invests in exchange-traded funds (“ETFs”), you will indirectly bear fees and expenses charged by the ETFs in addition to the Fund’s direct fees and expenses. In addition, the Fund may be affected by losses of the ETFs and the level of risk arising from the investment practices of the ETFs (such as the use of leverage by the ETFs). The Fund has no control over the investments and related risks taken by the ETFs in which it invests. Additionally, investments in ETFs are also subject to the following risks: (i) the market price of an ETF’s shares may trade above or below their net asset value; (ii) an active trading market for an ETF’s shares may not develop or be maintained; or (iii) trading of an ETF’s shares may be halted for a number of reasons.
FLEX Options Risk. The Fund may invest in FLEX Options issued and guaranteed for settlement by the OCC. The Fund bears the risk that the OCC will be unable or unwilling to perform its obligations under the FLEX Options contracts. If the OCC becomes insolvent or is otherwise unable to meet its settlement obligations, the Fund could incur significant losses. Additionally, FLEX Options may be illiquid if trading in the FLEX Options is limited or absent, and in such cases, the Fund may have difficulty closing out certain FLEX Options positions at desired times and prices, decreasing the value of the FLEX Options. There is no guarantee that a liquid secondary trading market will exist for FLEX Options, and a less liquid trading market may adversely impact the value of FLEX Options. The Fund intends to treat any income it may derive from the FLEX Options as “qualifying income” under the provisions of the Internal Revenue Code applicable to regulated investment companies (“RICs”). In addition, based upon language in legislative history, the Fund intends to treat the issuer of the FLEX Options as the referenced asset for diversification purposes. If the income is not qualifying income or the issuer of the FLEX Options is not appropriately the referenced asset, the Fund could lose its own status as a RIC.
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Hedging Risk. A fund that implements a hedging strategy using derivatives and/or securities could expose the fund to the risk that can arise when a change in the value of a hedge does not match a change in the value of the asset it hedges. In other words, the change in value of the hedge could move in a direction that does not match the change in value of the underlying asset, resulting in a risk of loss to the fund.
Industry Concentration Risk. A fund that concentrates investments in a particular industry or group of industries has greater exposure than other funds to market, economic and other factors affecting that industry or group of industries.
Investment Company Securities Risk. A fund that invests in another investment company (for example, another fund or an exchange-traded fund (“ETF”)) is subject to the risks associated with direct ownership of the securities in which such investment company invests. Fund shareholders indirectly bear their proportionate share of the expenses of each such investment company.
Outcome Period Risk. The Fund’s strategy seeks to match the performance of the Index, before the deduction of Fund expenses, and subject to the Buffer amount, only if an investor holds Fund shares on the first day of the Outcome Period and continues holding his or her shares until the last day of the Outcome Period. If you redeem your shares before the end of the Outcome Period, you may experience investment returns very different from those that the Fund seeks to provide, including potentially a loss of some or all of your investment. In particular, you will receive no protection against losses from the Buffer amount if you redeem before the last day of the Outcome Period, and you might lose some or all of your investment.
Passive Strategy Risk. A portion of the fund seeks to match the performance of a specified index. However, the correlation between the performance of this portion of the fund and index performance may be affected by many factors, such as fund expenses, the timing of cash flows into and out of the fund, changes in securities markets, and changes in the composition of the index.
Redemption and Large Transaction Risk. Ownership of the fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause the fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption. Further, the fund’s strategy may be sensitive to large purchases and redemptions, which may affect the fund’s ability to achieve its defined outcome strategy.
Short Sales Risk. A short sale involves the sale by the fund of a security that it does not own with the hope of purchasing the same security at a later date at a lower price. A fund may also enter into a short derivative position through a futures contract or swap agreement. If the price of the security or derivative has increased during this time, then the fund will incur a loss equal to the increase in price from the time that the short sale was entered into plus any premiums and interest paid to the third party. Therefore, short sales involve the risk that losses may be exaggerated, potentially losing more money than the actual cost of the investment. Also, there is the risk that the third party to the short sale may fail to honor its contract terms, causing a loss to the fund.
Tracking Error Risk. The Fund may be subject to tracking error, which is the divergence of the Fund’s performance (without regard to the Buffer amount) from that of the Index. Tracking error may occur because of differences between the securities and other instruments held in the Fund’s portfolio and those included in the Index, the Fund’s expenses, changes in the composition of the index, transaction costs incurred by the Fund (such as brokerage commissions in executing transactions), the Fund’s holding of uninvested cash and the timing of purchases and redemptions of Fund shares.
Volatility Mitigation Risk. Volatility mitigation strategies may increase fund transaction costs, which could increase losses or reduce gains. These strategies may not protect the fund from market declines and may reduce the fund’s participation in market gains.
Performance
No performance information is shown below because the Fund has not yet had a calendar year of performance. The Fund’s performance is benchmarked against the S&P 500 Price Return Index. Performance information provides an indication of the risks of investing in the Fund. Past performance is not necessarily an indication of how the Fund will perform in the future. You may get updated performance information by calling 1-800-222-5852.
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Investment Advisor and Portfolio Managers
Principal Global Investors, LLC
•
Jeffrey A. Schwarte (since 2022), Portfolio Manager
•
Aaron J. Siebel (since 2022), Portfolio Manager
Tax Information
The Fund intends to comply with applicable variable asset diversification regulations. Taxation to you will depend on what you do with your variable life insurance or variable annuity contract. See your variable product prospectus for information about the tax implications of investing in the Funds.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase through a broker-dealer or other financial intermediary (such as a bank, insurance company, investment advisor, etc.), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment, to recommend one Fund or share class of the Fund over another Fund or share class, or to recommend one variable annuity, variable life insurance policy or mutual fund over another. Ask your salesperson or visit your financial intermediary’s website for more information.
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ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Each Fund’s investment objective is described in the summary section for each Fund. The summary section also describes each Fund’s principal investment strategies, including the types of securities in which each Fund invests, and the principal risks of investing in each Fund. The principal investment strategies are not the only investment strategies available to each Fund, but they are the ones each Fund primarily uses to achieve its investment objective.
Except for Fundamental Restrictions described in the Registrant’s Statement of Additional Information (“SAI”), the Registrant’s Board (the “Board”) may change any Fund’s objective or investment strategies without a shareholder vote if it determines such a change is in the best interests of the Fund. If there is a material change to a Fund’s investment objective or investment strategies, you should consider whether the Fund remains an appropriate investment for you. There is no guarantee that each Fund will meet its objective.
Each Fund is designed to be a portion of an investor’s portfolio. No Fund is intended to be a complete investment program. Investors should consider the risks of a Fund before making an investment; it is possible to lose money by investing in a Fund.
Active Management
The performance of a fund that is actively managed (including hybrid funds or passively-managed funds that use a sampling approach that includes some actively-managed components) will reflect in part the ability of those managing the investments of the fund to make investment decisions that are suited to achieving the fund’s investment objective. Actively-managed funds may invest differently from the benchmark against which the Fund’s performance is compared. When making decisions about whether to buy or sell equity securities, considerations may include, among other things, a company’s strength in fundamentals, its potential for earnings growth over time, its ability to navigate certain macroeconomic environments, the current price of its securities relative to their perceived worth and relative to others in its industry, and analysis from computer models. When making decisions about whether to buy or sell fixed-income investments, considerations may include, among other things, the strength of certain sectors of the fixed-income market relative to others, interest rates, a range of economic, political and financial factors, the balance between supply and demand for certain asset classes, the credit quality of individual issuers, the fundamental strengths of corporate and municipal issuers, and other general market conditions.
Models, which may assist portfolio managers and analysts in formulating their securities trading and allocation decisions by providing investment and risk management insights, may also expose a fund to risks. Models may be predictive in nature, which models depend heavily on the accuracy and reliability of historical data that is supplied by others and may be incorrect or incorrectly input. The fund bears the risk that the quantitative models used will not be successful in identifying trends or in determining the size and direction of investment positions that will enable the fund to achieve its investment objective. In addition, “model prices” will often differ substantially from market prices, especially for instruments with complex characteristics, such as derivative instruments.
An active fund’s investment performance depends upon the successful allocation of the fund’s assets among asset classes, geographical regions, industry sectors, and specific issuers and investments. There is no guarantee that these allocation techniques and decisions will produce the desired results. It is possible to lose money on an investment in a fund as a result of these allocation decisions. If a fund’s investment strategies do not perform as expected, the fund could underperform other funds with similar investment objectives or lose money. Moreover, buying and selling securities to adjust the fund’s asset allocation may increase portfolio turnover and generate transaction costs.
Investment advisors with large assets under management in a Fund, or in other funds that have the same strategy as a Fund, may have difficulty fully investing such Fund’s assets according to its investment objective due to potential liquidity constraints and high transaction costs. Typically, small-cap, mid-cap and emerging market equity funds are more susceptible to such a risk. A Fund may add additional investment advisors or close the Fund to new investors to address such risks.
Passive Management (Index Funds)
Some funds (including index funds, hybrid funds that include a passive component, and “buffer” funds that seek returns based on an index) use a passive, or indexing, investment approach. Funds that are pure index funds do not attempt to manage market volatility, use defensive strategies or reduce the effect of any long-term periods of poor stock or bond performance. Some index funds attempt to fully replicate their relevant target index by investing primarily in the securities held by the index in approximately the same proportion of the weightings in the index. However, because of the difficulty of executing some relatively small securities trades, other index funds may use a “sampling” approach and may not be invested in the less heavily weighted securities held by the index. Some index funds may invest in index futures, swaps, and/or exchange-traded funds on a daily basis in an effort to minimize tracking error relative to the benchmark.
It is unlikely that an index fund’s performance will perfectly correlate with the performance of the fund’s relevant index. An index fund’s ability to match the performance of its index may be affected by many factors, such as fund expenses, the timing of cash flows into and out of the fund, changes in securities markets, and changes in the composition of the index.
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The providers of the Funds' respective underlying indexes do not provide any warranty or accept any liability for the quality, accuracy or completeness of any index or its related data. Those managing an index fund’s investments manage such fund consistently with the underlying index provided by the index provider and do not provide any warranty or guarantee against the index provider’s or its agent’s errors. Errors in the quality, accuracy and completeness of the data used to compile an underlying index may occur and may not be identified and corrected in a timely manner, or at all. Such errors may negatively or positively impact the performance of a fund.
Unusual market conditions may cause an index provider to postpone a scheduled rebalance, which could cause a fund’s underlying index to vary from its normal or expected composition. The postponement of a scheduled rebalance, particularly in a time of market volatility, could mean that constituents that would otherwise be removed at rebalance due to changes in market capitalizations, issuer credit ratings, or other reasons may remain, causing the performance and constituents of the underlying index to vary from those expected under normal conditions. Apart from scheduled rebalances, an index provider may carry out additional index rebalances due to unusual market conditions or in order, for example, to correct an error in the selection of index constituents. When an index is rebalanced and an index fund in turn rebalances its portfolio, such fund and its shareholders bear any related transaction costs and market exposure.
Cash Management
Funds may have uninvested cash balances pending investment in other securities, pending payment of redemptions, or in other circumstances where liquidity is necessary or desirable. A Fund may hold uninvested cash; invest it in cash equivalents such as money market funds, including the Principal Funds, Inc. Government Money Market Fund; lend it to other Funds pursuant to the Funds' interfund lending facility; and/or invest in other instruments that those managing the Fund’s assets deem appropriate for cash management purposes. Generally, these types of investments offer less potential for gains than other types of securities. For example, to attempt to provide returns similar to its benchmark, a Fund (regardless of how it designates usage of derivatives and investment companies in the table below) may invest uninvested cash in derivatives, such as stock index futures contracts, or exchange-traded funds (“ETFs”), including Principal Exchange-Traded Funds ETFs. In selecting such investments, the Advisor may have conflicts of interest due to economic or other incentives to make or retain an investment in certain affiliated funds instead of in other investments that may be appropriate for the Fund.
Liquidity
The Funds have established a liquidity risk management program as required by the SEC’s Liquidity Rule. Under the program, PGI assesses, manages, and periodically reviews each Fund’s liquidity risk, which is the risk that a Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund. As part of the program, PGI classifies each investment as a “highly liquid investment,” “moderately liquid investment,” “less liquid investment” or “illiquid investment.” The liquidity of a Fund’s portfolio investments is determined based on relevant market, trading and investment-specific considerations under the program. To the extent that an investment is deemed to be an illiquid investment or a less liquid investment, a Fund can expect to be exposed to greater liquidity risk.
Certain fund holdings may be deemed to be less liquid or illiquid because they cannot be readily sold without significantly impacting the value of the holdings. A fund is exposed to liquidity risk when trading volume, lack of a market maker, or legal restrictions impair its ability to sell particular securities or close derivative positions at an advantageous price. Funds with principal investment strategies that involve securities of companies with smaller market capitalizations, foreign securities, derivatives, high yield bonds and bank loans or securities with substantial market and/or credit risk tend to have the greatest exposure to liquidity risk.
Liquidity risk also refers to the risk of unusually high redemption requests, redemption requests by certain large shareholders such as institutional investors or asset allocators, or other unusual market conditions that may make it difficult for a fund to sell investments within the allowable time period to meet redemptions. Meeting such redemption requests could require a fund to sell securities at reduced prices or under unfavorable conditions, which would reduce the value of the fund.
Market Volatility and Securities Issuers
The value of a fund’s portfolio securities may decrease in response to overall stock or bond market movements. Markets tend to move in cycles, with periods of rising prices and periods of falling prices. Stocks tend to go up and down in value more than bonds. The value of a security may decline for reasons directly related to the issuer, such as management performance, financial leverage, and reduced demand for the issuer’s goods or services. As a result, the value of an individual security or particular type of security can be more volatile than the market as a whole and can perform differently from the value of the market as a whole.
Additionally, US and world economies, as well as markets (or certain market sectors), may experience greater volatility in response to the occurrence of natural or man-made disasters and geopolitical events, such as war, acts of terrorism, pandemics, military actions, trade disputes, or political instability. Moreover, if a fund’s investments are concentrated in certain sectors, its performance could be worse than the overall market.
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Recent events are impacting the securities markets. Russia's invasion of the Ukraine in 2022 has resulted in sanctions being levied by the United States, European Union and other countries against Russia. Russia's military actions and the resulting sanctions could adversely affect global energy and financial markets and, thus, could affect the value of the fund's investments, even beyond any direct exposure the fund may have to Russian issuers or the adjoining geographic regions. The extent and duration of the military action, sanctions and resulting market disruptions could be substantial.
Other recent market disruption events include the pandemic spread of the novel coronavirus designated as COVID-19. The transmission of COVID-19 and efforts to contain its spread resulted in border closings and other travel restrictions and disruptions, disruptions to business operations, supply chains and customer activity, event cancellations and restrictions, service cancellations and reductions, significant challenges in the healthcare industry, and quarantines. As experienced with the COVID-19 pandemic, health crises may exacerbate other pre-existing political, social, economic, market and financial risks and negatively affect the global economy, as well as the economies of individual countries, the financial performance of individual companies and sectors, and the markets in general in significant ways.
Market disruption events could also impair the information technology and other operational systems upon which a fund’s investment advisor or sub-advisor rely, and could otherwise disrupt the ability of the fund’s service providers to perform essential tasks. In certain cases, an exchange or market may close or issue trading halts on either specific securities or even the entire market, which may result in a fund being, among other things, unable to buy or sell certain securities or financial instruments or accurately price its investments.
Governmental and quasi-governmental authorities and regulators throughout the world, such as the Federal Reserve, have in the past responded to major economic disruptions with a variety of significant fiscal and monetary policy changes, including but not limited to, direct capital infusions into companies, new monetary programs, and dramatically lower interest rates. Certain of those policy changes were implemented or considered in response to the COVID-19 outbreak. Such policy changes may adversely affect the value, volatility and liquidity of dividend and interest paying securities.
The impact of current and future market disruption events may last for an extended period of time and could result in a substantial economic downturn or recession. Such events could have significant adverse direct or indirect effects on the funds and their investments, and may result in a fund’s inability to achieve its investment objectives, cause funds to experience significant redemptions, cause the postponement of reconstitution/rebalance dates of passive funds’ underlying indices, adversely affect the prices and liquidity of the securities and other instruments in which a fund invests, negatively impact the fund’s performance, and cause losses on your investment in the fund. You should also review this Prospectus and the Statement of Additional Information to understand each fund’s discretion to implement temporary defensive measures, as well as the circumstances in which a fund may satisfy redemption requests in-kind.
Securities Lending
To generate additional income, a Fund may lend its portfolio securities to broker-dealers and other institutional borrowers to the extent permitted under the 1940 Act or the rules, regulations or interpretations thereunder. A Fund that lends its securities will continue to receive amounts equal to the interest or dividend payments generated by the loaned securities. In addition to receiving these amounts, the Fund generates income on the loaned securities by receiving a fee from the borrower, and by earning interest on the collateral received from the borrower. A negotiated portion of the income is paid to a securities lending agent (e.g., a bank or trust company) who arranged the loan. During the term of the loan, the Fund’s investment performance will reflect changes in the value of the loaned securities.
A borrower’s obligations under a securities loan is secured continuously by collateral posted by the borrower and held by the custodian in an amount at least equal to the market value of the loaned securities. Generally, cash collateral that a Fund receives from securities lending activities will be invested in the Principal Funds, Inc. Government Money Market Fund, which is managed by PGI and for which PGI receives a management fee. The collateral may also be invested in unaffiliated money market funds.
Securities lending involves exposure to certain risks, including the risk of losses resulting from problems in the settlement and accounting process, the risk of a mismatch between the return on cash collateral reinvestments and the fees each Fund has agreed to pay a borrower, and credit, legal, counterparty and market risk. A Fund’s participation in a securities lending transaction may affect the amount, timing, and character of distributions derived from such transaction to shareholders. Qualified dividend income does not include “payments in lieu of dividends,” which the Funds anticipate they will receive in securities lending transactions.
Temporary Defensive Measures
From time to time, as part of its investment strategy, a Fund may invest without limit in cash and cash equivalents for temporary defensive purposes in response to adverse market, economic, or political conditions. For this purpose, cash equivalents include: bank notes, bank certificates of deposit, bankers’ acceptances, repurchase agreements, commercial paper, and commercial paper master notes, which are floating rate debt instruments without a fixed maturity. In addition,
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a Fund may purchase U.S. government securities, preferred stocks, and debt securities, whether or not convertible into or carrying rights for common stock. There is no limit on the extent to which a Fund may take temporary defensive measures. In taking such measures, a Fund may lose the benefit of upswings and may limit its ability to meet, or fail to achieve, its investment objective.
Strategy and Risk Table
The following table lists each Fund and identifies whether the strategies and risks discussed in this section (listed in alphabetical order) are principal, non-principal (meaning they are relevant to a Fund but to a lesser degree than those designated as principal), or not applicable for each Fund. The risks described below for each Fund that operates as a fund of funds (as identified in the table) include risks at both the fund of funds level and underlying funds level. Each Fund is also subject to the risks of any underlying funds in which it invests.
The SAI contains additional information about investment strategies and their related risks. 
INVESTMENT STRATEGIES AND RISKS
BLUE CHIP
BOND MARKET
INDEX
CORE PLUS
BOND
DIVERSIFIED
BALANCED
Bank Loans (also known as Senior Floating Rate
Interests)
Not Applicable
Not Applicable
Non-Principal
Not Applicable
Commodity-Related Investments
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Contingent Convertible Securities (“CoCos”)
Not Applicable
Not Applicable
Non-Principal
Not Applicable
Convertible Securities
Non-Principal
Not Applicable
Non-Principal
Non-Principal
Counterparty Risk
Not Applicable
Non-Principal
Principal
Non-Principal
Derivatives
Non-Principal
Non-Principal
Principal
Principal
Emerging Markets
Not Applicable
Non-Principal
Principal
Non-Principal
Equity Securities
Principal
Not Applicable
Non-Principal
Principal
•Growth Style
Principal
Not Applicable
Non-Principal
Non-Principal
•Smaller Companies
Non-Principal
Not Applicable
Non-Principal
Principal
•Value Style
Non-Principal
Not Applicable
Non-Principal
Non-Principal
Fixed-Income Securities
Non-Principal
Principal
Principal
Principal
Foreign Currency
Principal
Non-Principal
Principal
Non-Principal
Foreign Securities
Principal
Non-Principal
Principal
Non-Principal
Fund of Funds
Not Applicable
Not Applicable
Not Applicable
Principal
Hedging
Not Applicable
Not Applicable
Principal
Non-Principal
High Portfolio Turnover
Non-Principal
Principal
Principal
Non-Principal
High Yield Securities
Not Applicable
Not Applicable
Principal
Not Applicable
Industry Concentration
Not Applicable
Principal (1)
Not Applicable
Not Applicable
Investment Company Securities
Non-Principal
Non-Principal
Non-Principal
Principal
Leverage
Non-Principal
Non-Principal
Principal
Non-Principal
Master Limited Partnerships (“MLPs”)
Non-Principal
Not Applicable
Not Applicable
Not Applicable
Municipal Obligations and AMT-Subject Bonds
Not Applicable
Non-Principal
Non-Principal
Non-Principal
Portfolio Duration
Non-Principal
Principal
Principal
Principal
Preferred Securities
Non-Principal
Not Applicable
Non-Principal
Not Applicable
Real Estate Investment Trusts (“REITs”)
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Real Estate Securities
Non-Principal
Principal
Principal
Principal
Redemption and Large Transaction Risk
Principal
Principal
Principal
Principal
Securitized Products
Not Applicable
Principal
Principal
Principal
Short Sales
Not Applicable
Not Applicable
Not Applicable
Not Applicable
U.S. Government and U.S. Government-Sponsored
Securities
Not Applicable
Principal
Principal
Principal
Volatility Mitigation
Not Applicable
Not Applicable
Non-Principal
Not Applicable
(1)
The Account will not concentrate (i.e., invest more than 25% of its assets) its investments in a particular industry except to the extent the Index is so concentrated.
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INVESTMENT STRATEGIES
AND RISKS
DIVERSIFIED
BALANCED
MANAGED
VOLATILITY
DIVERSIFIED
BALANCED
VOLATILITY
CONTROL
DIVERSIFIED
GROWTH
DIVERSIFIED
GROWTH
MANAGED
VOLATILITY
Bank Loans (also known as Senior Floating Rate
Interests)
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Commodity-Related Investments
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Contingent Convertible Securities (“CoCos”)
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Convertible Securities
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Counterparty Risk
Principal
Non-Principal
Non-Principal
Principal
Derivatives
Principal
Principal
Principal
Principal
Emerging Markets
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Equity Securities
Principal
Principal
Principal
Principal
•Growth Style
Non-Principal
Non-Principal
Non-Principal
Non-Principal
•Smaller Companies
Principal
Principal
Principal
Principal
•Value Style
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Fixed-Income Securities
Principal
Principal
Principal
Principal
Foreign Currency
Non-Principal
Non-Principal
Principal
Principal
Foreign Securities
Non-Principal
Non-Principal
Principal
Principal
Fund of Funds
Principal
Principal
Principal
Principal
Hedging
Principal
Principal
Non-Principal
Principal
High Portfolio Turnover
Non-Principal
Non-Principal
Non-Principal
Non-Principal
High Yield Securities
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Industry Concentration
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Investment Company Securities
Principal
Principal
Principal
Principal
Leverage
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Master Limited Partnerships (“MLPs”)
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Municipal Obligations and AMT-Subject Bonds
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Portfolio Duration
Principal
Principal
Principal
Principal
Preferred Securities
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Real Estate Investment Trusts (“REITs”)
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Real Estate Securities
Principal
Principal
Principal
Principal
Redemption and Large Transaction Risk
Principal
Principal
Principal
Principal
Securitized Products
Principal
Principal
Principal
Principal
Short Sales
Not Applicable
Principal
Not Applicable
Not Applicable
U.S. Government and U.S. Government-Sponsored
Securities
Principal
Principal
Principal
Principal
Volatility Mitigation
Principal
Principal
Not Applicable
Principal
153
 
INVESTMENT STRATEGIES
AND RISKS
DIVERSIFIED
GROWTH
VOLATILITY
CONTROL
DIVERSIFIED
INCOME
DIVERSIFIED
INTERNATIONAL
EQUITY INCOME
Bank Loans (also known as Senior Floating Rate
Interests)
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Commodity-Related Investments
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Contingent Convertible Securities (“CoCos”)
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Convertible Securities
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Counterparty Risk
Non-Principal
Non-Principal
Non-Principal
Not Applicable
Derivatives
Principal
Principal
Non-Principal
Not Applicable
Emerging Markets
Non-Principal
Non-Principal
Principal
Non-Principal
Equity Securities
Principal
Principal
Principal
Principal
•Growth Style
Non-Principal
Non-Principal
Principal
Non-Principal
•Smaller Companies
Principal
Principal
Principal
Principal
•Value Style
Non-Principal
Non-Principal
Principal
Principal
Fixed-Income Securities
Principal
Principal
Non-Principal
Not Applicable
Foreign Currency
Principal
Non-Principal
Principal
Non-Principal
Foreign Securities
Principal
Non-Principal
Principal
Principal
Fund of Funds
Principal
Principal
Not Applicable
Not Applicable
Hedging
Principal
Non-Principal
Not Applicable
Not Applicable
High Portfolio Turnover
Non-Principal
Non-Principal
Non-Principal
Non-Principal
High Yield Securities
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Industry Concentration
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Investment Company Securities
Principal
Principal
Non-Principal
Non-Principal
Leverage
Non-Principal
Non-Principal
Non-Principal
Not Applicable
Master Limited Partnerships (“MLPs”)
Not Applicable
Not Applicable
Non-Principal
Non-Principal
Municipal Obligations and AMT-Subject Bonds
Non-Principal
Non-Principal
Not Applicable
Not Applicable
Portfolio Duration
Principal
Principal
Not Applicable
Not Applicable
Preferred Securities
Not Applicable
Not Applicable
Non-Principal
Non-Principal
Real Estate Investment Trusts (“REITs”)
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Real Estate Securities
Principal
Principal
Non-Principal
Non-Principal
Redemption and Large Transaction Risk
Principal
Principal
Principal
Principal
Securitized Products
Principal
Principal
Not Applicable
Not Applicable
Short Sales
Principal
Not Applicable
Not Applicable
Not Applicable
U.S. Government and U.S. Government-Sponsored
Securities
Principal
Principal
Not Applicable
Not Applicable
Volatility Mitigation
Principal
Not Applicable
Not Applicable
Not Applicable
154
 
INVESTMENT STRATEGIES
AND RISKS
GLOBAL
EMERGING
MARKETS
GOVERNMENT &
HIGH QUALITY
BOND
LARGECAP
GROWTH I
LARGECAP
S&P 500 INDEX
Bank Loans (also known as Senior Floating Rate
Interests)
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Commodity-Related Investments
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Contingent Convertible Securities (“CoCos”)
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Convertible Securities
Non-Principal
Not Applicable
Non-Principal
Not Applicable
Counterparty Risk
Non-Principal
Non-Principal
Not Applicable
Non-Principal
Derivatives
Non-Principal
Principal
Non-Principal
Principal
Emerging Markets
Principal
Not Applicable
Non-Principal
Not Applicable
Equity Securities
Principal
Not Applicable
Principal
Principal
•Growth Style
Principal
Not Applicable
Principal
Non-Principal
•Smaller Companies
Principal
Not Applicable
Non-Principal
Non-Principal
•Value Style
Principal
Not Applicable
Non-Principal
Non-Principal
Fixed-Income Securities
Non-Principal
Principal
Non-Principal
Not Applicable
Foreign Currency
Principal
Not Applicable
Non-Principal
Not Applicable
Foreign Securities
Principal
Not Applicable
Non-Principal
Not Applicable
Fund of Funds
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Hedging
Non-Principal
Non-Principal
Non-Principal
Not Applicable
High Portfolio Turnover
Non-Principal
Principal
Non-Principal
Non-Principal
High Yield Securities
Not Applicable
Non-Principal
Not Applicable
Not Applicable
Industry Concentration
Not Applicable
Not Applicable
Not Applicable
Principal (1)
Investment Company Securities
Non-Principal
Not Applicable
Non-Principal
Principal
Leverage
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Master Limited Partnerships (“MLPs”)
Non-Principal
Not Applicable
Non-Principal
Not Applicable
Municipal Obligations and AMT-Subject Bonds
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Portfolio Duration
Not Applicable
Principal
Not Applicable
Not Applicable
Preferred Securities
Non-Principal
Not Applicable
Non-Principal
Not Applicable
Real Estate Investment Trusts (REITs)
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Real Estate Securities
Non-Principal
Principal
Non-Principal
Non-Principal
Redemption and Large Transaction Risk
Principal
Principal
Principal
Principal
Securitized Products
Not Applicable
Principal
Not Applicable
Not Applicable
Short Sales
Not Applicable
Not Applicable
Not Applicable
Not Applicable
U.S. Government and U.S. Government-Sponsored
Securities
Not Applicable
Principal
Not Applicable
Not Applicable
Volatility Mitigation
Not Applicable
Not Applicable
Not Applicable
Not Applicable
(1)
The Account will not concentrate (i.e., invest more than 25% of its assets) its investments in a particular industry except to the extent the Index is so concentrated.
155
 
INVESTMENT STRATEGIES
AND RISKS
LARGECAP
S&P 500
MANAGED
VOLATILITY
INDEX
MIDCAP
PRINCIPAL
CAPITAL
APPRECIATION
PRINCIPAL
LIFETIME
STRATEGIC
INCOME
Bank Loans (also known as Senior Floating Rate
Interests)
Not Applicable
Not Applicable
Not Applicable
Non-Principal
Commodity-Related Investments
Not Applicable
Not Applicable
Not Applicable
Non-Principal
Contingent Convertible Securities (“CoCos”)
Not Applicable
Not Applicable
Not Applicable
Non-Principal
Convertible Securities
Not Applicable
Non-Principal
Non-Principal
Non-Principal
Counterparty Risk
Non-Principal
Not Applicable
Not Applicable
Principal
Derivatives
Principal
Non-Principal
Not Applicable
Principal
Emerging Markets
Not Applicable
Not Applicable
Non-Principal
Non-Principal
Equity Securities
Principal
Principal
Principal
Principal
•Growth Style
Non-Principal
Non-Principal
Non-Principal
Principal
•Smaller Companies
Non-Principal
Principal
Principal
Non-Principal
•Value Style
Non-Principal
Non-Principal
Non-Principal
Principal
Fixed-Income Securities
Not Applicable
Non-Principal
Not Applicable
Principal
Foreign Currency
Not Applicable
Principal
Non-Principal
Principal
Foreign Securities
Not Applicable
Principal
Non-Principal
Principal
Fund of Funds
Not Applicable
Not Applicable
Not Applicable
Principal
Hedging
Principal
Non-Principal
Not Applicable
Non-Principal
High Portfolio Turnover
Non-Principal
Non-Principal
Non-Principal
Non-Principal
High Yield Securities
Not Applicable
Not Applicable
Not Applicable
Non-Principal
Industry Concentration
Principal (1)
Not Applicable
Not Applicable
Not Applicable
Investment Company Securities
Principal
Non-Principal
Non-Principal
Principal
Leverage
Non-Principal
Non-Principal
Not Applicable
Non-Principal
Master Limited Partnerships (“MLPs”)
Not Applicable
Non-Principal
Non-Principal
Non-Principal
Municipal Obligations and AMT-Subject Bonds
Not Applicable
Not Applicable
Not Applicable
Non-Principal
Portfolio Duration
Not Applicable
Not Applicable
Not Applicable
Principal
Preferred Securities
Not Applicable
Non-Principal
Non-Principal
Non-Principal
Real Estate Investment Trusts (REITs)
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Real Estate Securities
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Redemption and Large Transaction Risk
Principal
Principal
Principal
Principal
Securitized Products
Not Applicable
Not Applicable
Not Applicable
Principal
Short Sales
Not Applicable
Not Applicable
Not Applicable
Non-Principal
U.S. Government and U.S. Government-Sponsored
Securities
Non-Principal
Not Applicable
Not Applicable
Principal
Volatility Mitigation
Principal
Not Applicable
Not Applicable
Not Applicable
(1)
The Account will not concentrate (i.e., invest more than 25% of its assets) its investments in a particular industry except to the extent the Index is so concentrated.
156
 
INVESTMENT STRATEGIES
AND RISKS
PRINCIPAL
LIFETIME 2010
PRINCIPAL
LIFETIME 2020
PRINCIPAL
LIFETIME 2030
PRINCIPAL
LIFETIME 2040
Bank Loans (also known as Senior Floating Rate
Interests)
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Commodity-Related Investments
Non-Principal
Non-Principal
Non-Principal
Not Applicable
Contingent Convertible Securities (“CoCos”)
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Convertible Securities
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Counterparty Risk
Principal
Principal
Principal
Principal
Derivatives
Principal
Principal
Principal
Principal
Emerging Markets
Non-Principal
Non-Principal
Non-Principal
Principal
Equity Securities
Principal
Principal
Principal
Principal
•Growth Style
Principal
Principal
Principal
Principal
•Smaller Companies
Non-Principal
Principal
Principal
Principal
•Value Style
Principal
Principal
Principal
Principal
Fixed-Income Securities
Principal
Principal
Principal
Principal
Foreign Currency
Principal
Principal
Principal
Principal
Foreign Securities
Principal
Principal
Principal
Principal
Fund of Funds
Principal
Principal
Principal
Principal
Hedging
Non-Principal
Non-Principal
Non-Principal
Non-Principal
High Portfolio Turnover
Non-Principal
Non-Principal
Non-Principal
Non-Principal
High Yield Securities
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Industry Concentration
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Investment Company Securities
Principal
Principal
Principal
Principal
Leverage
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Master Limited Partnerships (“MLPs”)
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Municipal Obligations and AMT-Subject Bonds
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Portfolio Duration
Principal
Principal
Principal
Principal
Preferred Securities
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Real Estate Investment Trusts (“REITs”)
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Real Estate Securities
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Redemption and Large Transaction Risk
Principal
Principal
Principal
Principal
Securitized Products
Principal
Principal
Principal
Principal
Short Sales
Non-Principal
Non-Principal
Non-Principal
Non-Principal
U.S. Government and U.S. Government-Sponsored
Securities
Principal
Principal
Principal
Principal
Volatility Mitigation
Not Applicable
Not Applicable
Not Applicable
Not Applicable
157
 
INVESTMENT STRATEGIES
AND RISKS
PRINCIPAL
LIFETIME 2050
PRINCIPAL
LIFETIME 2060
REAL ESTATE
SECURITIES
SAM BALANCED
Bank Loans (also known as Senior Floating Rate
Interests)
Non-Principal
Non-Principal
Not Applicable
Non-Principal
Commodity-Related Investments
Not Applicable
Not Applicable
Not Applicable
Non-Principal
Contingent Convertible Securities (“CoCos”)
Non-Principal
Non-Principal
Not Applicable
Non-Principal
Convertible Securities
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Counterparty Risk
Principal
Principal
Not Applicable
Non-Principal
Derivatives
Principal
Principal
Non-Principal
Non-Principal
Emerging Markets
Principal
Principal
Not Applicable
Principal
Equity Securities
Principal
Principal
Principal
Principal
•Growth Style
Principal
Principal
Principal
Principal
•Smaller Companies
Principal
Principal
Principal
Principal
•Value Style
Principal
Principal
Non-Principal
Principal
Fixed-Income Securities
Principal
Principal
Non-Principal
Principal
Foreign Currency
Principal
Principal
Not Applicable
Principal
Foreign Securities
Principal
Principal
Non-Principal
Principal
Fund of Funds
Principal
Principal
Not Applicable
Principal
Hedging
Non-Principal
Non-Principal
Non-Principal
Non-Principal
High Portfolio Turnover
Non-Principal
Non-Principal
Non-Principal
Non-Principal
High Yield Securities
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Industry Concentration
Not Applicable
Not Applicable
Principal
Not Applicable
Investment Company Securities
Principal
Principal
Non-Principal
Principal
Leverage
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Master Limited Partnerships (“MLPs”)
Non-Principal
Non-Principal
Not Applicable
Non-Principal
Municipal Obligations and AMT-Subject Bonds
Non-Principal
Non-Principal
Not Applicable
Non-Principal
Portfolio Duration
Principal
Principal
Not Applicable
Principal
Preferred Securities
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Real Estate Investment Trusts (“REITs”)
Non-Principal
Non-Principal
Principal
Non-Principal
Real Estate Securities
Non-Principal
Non-Principal
Principal
Non-Principal
Redemption and Large Transaction Risk
Principal
Principal
Principal
Principal
Securitized Products
Non-Principal
Non-Principal
Not Applicable
Principal
Short Sales
Non-Principal
Non-Principal
Not Applicable
Non-Principal
U.S. Government and U.S. Government-Sponsored
Securities
Non-Principal
Non-Principal
Not Applicable
Non-Principal
Volatility Mitigation
Not Applicable
Not Applicable
Not Applicable
Non-Principal
158
 
INVESTMENT STRATEGIES
AND RISKS
SAM
CONSERVATIVE
BALANCED
SAM
CONSERVATIVE
GROWTH
SAM
FLEXIBLE
INCOME
SAM
STRATEGIC
GROWTH
Bank Loans (also known as Senior Floating Rate
Interests)
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Commodity-Related Investments
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Contingent Convertible Securities (“CoCos”)
Non-Principal
Non-Principal
Non-Principal
Not Applicable
Convertible Securities
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Counterparty Risk
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Derivatives
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Emerging Markets
Principal
Principal
Non-Principal
Principal
Equity Securities
Principal
Principal
Principal
Principal
•Growth Style
Principal
Principal
Principal
Principal
•Smaller Companies
Principal
Principal
Principal
Principal
•Value Style
Principal
Principal
Principal
Principal
Fixed-Income Securities
Principal
Principal
Principal
Non-Principal
Foreign Currency
Principal
Principal
Non-Principal
Principal
Foreign Securities
Principal
Principal
Principal
Principal
Fund of Funds
Principal
Principal
Principal
Principal
Hedging
Non-Principal
Non-Principal
Non-Principal
Non-Principal
High Portfolio Turnover
Non-Principal
Non-Principal
Non-Principal
Non-Principal
High Yield Securities
Principal
Non-Principal
Principal
Not Applicable
Industry Concentration
Not Applicable
Not Applicable
Not Applicable
Not Applicable
Investment Company Securities
Principal
Principal
Principal
Principal
Leverage
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Master Limited Partnerships (“MLPs”)
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Municipal Obligations and AMT-Subject Bonds
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Portfolio Duration
Principal
Principal
Principal
Non-Principal
Preferred Securities
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Real Estate Investment Trusts (“REITs”)
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Real Estate Securities
Non-Principal
Non-Principal
Non-Principal
Non-Principal
Redemption and Large Transaction Risk
Principal
Principal
Principal
Principal
Securitized Products
Principal
Non-Principal
Principal
Non-Principal
Short Sales
Non-Principal
Non-Principal
Non-Principal
Non-Principal
U.S. Government and U.S. Government-Sponsored
Securities
Non-Principal
Non-Principal
Non-Principal
Not Applicable
Volatility Mitigation
Non-Principal
Non-Principal
Non-Principal
Not Applicable
159
 
INVESTMENT STRATEGIES
AND RISKS
SHORT-TERM
INCOME
SMALLCAP
U.S. LARGECAP
BUFFER JULY
Bank Loans (also known as Senior Floating Rate Interests)
Not Applicable
Not Applicable
Not Applicable
Commodity-Related Investments
Not Applicable
Not Applicable
Not Applicable
Contingent Convertible Securities (“CoCos”)
Non-Principal
Not Applicable
Not Applicable
Convertible Securities
Non-Principal
Non-Principal
Not Applicable
Counterparty Risk
Non-Principal
Not Applicable
Non-Principal
Derivatives
Principal
Non-Principal
Principal
Emerging Markets
Non-Principal
Not Applicable
Not Applicable
Equity Securities
Not Applicable
Principal
Principal
•Growth Style
Not Applicable
Non-Principal
Non-Principal
•Smaller Companies
Not Applicable
Principal
Non-Principal
•Value Style
Not Applicable
Non-Principal
Non-Principal
Fixed-Income Securities
Principal
Non-Principal
Not Applicable
Foreign Currency
Non-Principal
Not Applicable
Not Applicable
Foreign Securities
Principal
Non-Principal
Not Applicable
Fund of Funds
Not Applicable
Not Applicable
Not Applicable
Hedging
Non-Principal
Non-Principal
Principal
High Portfolio Turnover
Non-Principal
Non-Principal
Non-Principal
High Yield Securities
Non-Principal
Not Applicable
Not Applicable
Industry Concentration
Not Applicable
Not Applicable
Principal (1)
Investment Company Securities
Non-Principal
Non-Principal
Principal
Leverage
Non-Principal
Non-Principal
Non-Principal
Master Limited Partnerships (“MLPs”)
Not Applicable
Non-Principal
Not Applicable
Municipal Obligations and AMT-Subject Bonds
Non-Principal
Not Applicable
Not Applicable
Portfolio Duration
Principal
Not Applicable
Not Applicable
Preferred Securities
Non-Principal
Non-Principal
Not Applicable
Real Estate Investment Trusts (“REITs”)
Non-Principal
Non-Principal
Non-Principal
Real Estate Securities
Principal
Non-Principal
Non-Principal
Redemption and Large Transaction Risk
Principal
Principal
Principal
Securitized Products
Principal
Not Applicable
Not Applicable
Short Sales
Not Applicable
Not Applicable
Principal
U.S. Government and U.S. Government-Sponsored Securities
Principal
Not Applicable
Non-Principal
Volatility Mitigation
Not Applicable
Not Applicable
Principal
(1)
The Account will not concentrate (i.e., invest more than 25% of its assets) its investments in a particular industry except to the extent the Index is so concentrated.
Bank Loans (also known as Senior Floating Rate Interests)
Bank loans typically hold the most senior position in the capital structure of a business entity (the “Borrower”), are secured by specific collateral, and have a claim on the Borrower’s assets and/or stock that is senior to that held by the Borrower’s unsecured subordinated debtholders and stockholders. The proceeds of bank loans primarily are used to finance leveraged buyouts, recapitalizations, mergers, acquisitions, stock repurchases, dividends, and, to a lesser extent, to finance internal growth and for other corporate purposes. Bank loans are typically structured and administered by a financial institution that acts as the agent of the lenders participating in the bank loan. The Funds may purchase bank loans that are rated below-investment-grade (sometimes called “junk”) or will be comparable if unrated, which means they are more likely to default than investment-grade loans. A default could lead to non-payment of income which would result in a reduction of income to the fund, and there can be no assurance that the liquidation of any collateral would satisfy the Borrower’s obligation in the event of non-payment of scheduled interest or principal payments, or that such collateral could be readily liquidated. Most bank loans are not traded on any national securities exchange. Bank loans generally have less liquidity than investment-grade bonds and there may be less public information available about them. Bank loan interests may not be considered “securities,” and purchasers therefore may not be entitled to rely on the anti-fraud protections of the federal securities laws.
The primary and secondary market for bank loans may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods, which may cause a fund to be unable to realize full value and thus cause a material decline in a fund’s net asset value. Because transactions in bank loans may be subject to extended settlement periods, a fund may not receive proceeds from the sale of a bank loan for a period of time after the sale. As a result, sale proceeds may not be available to make additional investments or to meet a fund’s redemption obligations for a period of time after the sale of the bank loans, which could lead to a fund having to sell other investments, borrow to meet obligations, or borrow to remain fully invested while awaiting settlement.
160
Bank loans pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank, the London InterBank Offered Rate (LIBOR), the Secured Overnight Financing Rate (SOFR), a similar reference rate, or the prime rate offered by one or more major U.S. banks.
Bank loans generally are subject to mandatory and/or optional prepayment. Because of these prepayment conditions and because there may be significant economic incentives for the borrower to repay, prepayments may occur.
Commodity-Related Investments
Commodities are assets that have tangible properties, such as oil, coal, natural gas, agricultural products, industrial metals, livestock, and precious metals. The value of commodities investments will generally be affected by overall market movements and factors specific to a particular industry or commodity, which may include weather, embargoes, tariffs, and health, political, international, and regulatory developments. Economic and other events (whether real or perceived) can reduce the demand for commodities, which may reduce market prices and cause the value of fund shares to fall. The frequency and magnitude of such changes cannot be predicted. Exposure to commodities and commodities markets may subject a fund to greater volatility than investments in traditional securities. No active trading market may exist for certain commodities investments, which may impair the ability of a fund to sell or to realize the full value of such investments in the event of the need to liquidate such investments. In addition, adverse market conditions may impair the liquidity of actively traded commodities investments. Certain types of commodities instruments (such as commodity swaps) are subject to the risk that the counterparty to the instrument will not perform or will be unable to perform in accordance with the terms of the instrument.
Contingent Convertible Securities (“CoCos”)
Contingent convertible securities (“CoCos”) are hybrid debt securities intended to either convert into equity or have their principal written down upon the occurrence of certain “triggers.” The triggers are generally linked to regulatory capital thresholds or regulatory actions calling into question the issuing banking institution’s continued viability as a going-concern if the conversion trigger were not exercised. CoCos’ unique equity conversion or principal write-down features are tailored to the issuing banking institution and its regulatory requirements. Some additional risks associated with CoCos include, but are not limited to, the following:
•
The occurrence of a conversion event is inherently unpredictable and depends on many factors, some of which will be outside the issuer’s control. Because of the uncertainty regarding whether a conversion event will occur, it may be difficult to predict when, if at all, a CoCo will be converted to equity, and a fund may suffer losses as a result.
•
CoCos may have no stated maturity and fully discretionary coupons. This means coupon (i.e., interest) payments can be canceled at the banking institution’s discretion or at the request of the relevant regulatory authority in order to help the bank absorb losses, without causing a default.
•
CoCos are usually issued in the form of subordinated debt instruments to provide the appropriate regulatory capital treatment. If an issuer liquidates, dissolves or winds-up before a conversion to equity has occurred, the rights and claims of the holders of the CoCos (such as a fund) against the issuer generally rank junior to the claims of holders of unsubordinated obligations of the issuer. In addition, if the CoCos are converted into the issuer’s underlying equity securities after a conversion event (i.e., a “trigger”), each holder will be further subordinated.
•
The value of CoCos is unpredictable and is influenced by many factors including, without limitation: the creditworthiness of the issuer and/or fluctuations in such issuer’s applicable capital ratios; supply and demand for CoCos; general market conditions and available liquidity; and economic, financial and political events that affect the issuer, its particular market or the financial markets in general. Moreover, the performance of CoCos may be correlated with one another and as a result negative information of one issuer may cause decline in the value of CoCos of many other issuers.
Due to these features, CoCos may have substantially greater risk than other securities in times of financial stress. If the trigger level is breached, the issuer’s decision to write down, write off or convert a CoCo may result in the fund’s complete loss on an investment in CoCos with no chance of recovery even if the issuer remains in existence.
Convertible Securities
Convertible securities are usually fixed-income securities that a fund has the right to exchange for equity securities at a specified conversion price. Convertible securities could also include corporate bonds, notes, or preferred stocks of U.S. or foreign issuers. Convertible securities allow a fund to realize additional returns if the market price of the equity securities exceeds the conversion price. For example, a fund may hold fixed-income securities that are convertible into shares of common stock at a conversion price of $10 per share. If the market value of the shares of common stock reached $12, the fund could realize an additional $2 per share by converting its fixed-income securities.
161
Convertible securities have lower yields than comparable fixed-income securities. In addition, at the time a convertible security is issued the conversion price exceeds the market value of the underlying equity securities. Thus, convertible securities may provide lower returns than non-convertible fixed-income securities or equity securities depending upon changes in the price of the underlying equity securities. However, convertible securities permit a fund to realize some of the potential appreciation of the underlying equity securities with less risk of losing its initial investment.
Depending on the features of the convertible security, a fund will treat a convertible security as a fixed-income security, equity security, or preferred security for purposes of investment policies and limitations because of the unique characteristics of convertible securities. Funds that invest in convertible securities may invest in convertible securities that are below investment grade (sometimes referred to as “junk”). Many convertible securities are relatively illiquid.
Counterparty Risk
Counterparty risk is the risk that the counterparty to a contract or other obligation will be unable or unwilling to honor its obligations. If a counterparty fails to meet its contractual obligations, goes bankrupt, or otherwise experiences a business interruption, a fund could miss investment opportunities or otherwise hold investments it would prefer to sell, resulting in losses for the fund. In addition, a fund may suffer losses if a counterparty fails to comply with applicable laws or other requirements. Counterparty risk is pronounced during unusually adverse market conditions and is particularly acute in environments in which financial services firms are exposed to systemic risks.
Derivatives
Generally, a derivative is a financial arrangement, the value of which is derived from, or based on, a traditional security, asset, or market index. A fund may invest in certain derivative strategies to earn income, manage or adjust the risk profile of the fund, replace more direct investments, or obtain exposure to certain markets. A fund may enter into forward commitment agreements, which call for the fund to purchase or sell a security on a future date at a fixed price. A fund may also enter into contracts to sell its investments either on demand or at a specific interval.
The risks associated with derivative investments include:
•
increased volatility of a fund and/or the failure of the investment to mitigate volatility as intended;
•
the inability of those managing investments of the fund to correctly predict the direction of securities prices, interest rates, currency exchange rates, asset values, and other economic factors;
•
losses caused by unanticipated market movements, which may be substantially greater than a fund’s initial investment and are potentially unlimited;
•
the possibility that there may be no liquid secondary market, which may make it difficult or impossible to close out a position when desired;
•
the possibility that the counterparty may fail to perform its obligations; and
•
the inability to close out certain hedged positions to avoid adverse tax consequences.
There are many different types of derivatives and many different ways to use them. The specific derivatives that are principal strategies of each Fund are listed in its Fund Summary.
•
Commodity Index-Linked Notes are derivative debt instruments issued by U.S. and foreign banks, brokerage firms, insurance companies and other corporations with principal and/or coupon payments linked to the performance of commodity indices. These notes expose a fund to movements in commodity prices. They are also subject to credit, counterparty, and interest rate risk. Commodity index-linked notes are often leveraged, increasing the volatility of each note’s market value relative to changes in the underlying commodity index. At the maturity of the note, a fund may receive more or less principal than it originally invested. A fund may also receive interest payments on the note that are less than the stated coupon interest payments.
•
Credit Default Swap Agreements may be entered into by a fund as a “buyer” or “seller” of credit protection. Credit default swap agreements involve special risks because they may be difficult to value, are highly susceptible to liquidity and credit risk, and generally pay a return to the party that has paid the premium only in the event of an actual default by the issuer of the underlying obligation (as opposed to a credit downgrade or other indication of financial difficulty). Credit default swaps can increase credit risk because a fund has exposure to both the issuer of the referenced obligation and the counterparty to the credit default swap.
•
Foreign Currency Contracts (such as foreign currency options and foreign currency forward and swap agreements) may be used by funds to increase exposure to a foreign currency or to shift exposure to foreign currency fluctuations from one country to another. A forward currency contract involves a privately negotiated obligation to purchase or sell a specific currency at a future date at a price set in the contract. For currency contracts, there is also a risk of government action through exchange controls that would restrict the ability of a fund to deliver or receive currency.
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•
Forwards, futures contracts and options thereon (including commodities futures); options (including put or call options); and swap agreements and over-the-counter swap agreements (e.g., interest rate swaps, total return swaps and credit default swaps) may be used by funds for hedging purposes in order to try to mitigate or protect against potential losses due to changing interest rates, securities prices, asset values, currency exchange rates, and other market conditions; non-hedging purposes to seek to increase the fund’s income or otherwise enhance return; and as a low-cost method of gaining exposure to a particular market without investing directly in those securities or assets.
These derivative investments are subject to special risk considerations, particularly the imperfect correlation between the change in market value of the instruments held by a fund and the price of the derivative instrument. If a fund has insufficient cash, it may have to sell securities from its portfolio to meet daily variation margin requirements, even when it may be disadvantageous to do so. Options and Swap Agreements also involve counterparty risk. With respect to options, there may be difference in trading hours for the options markets and the markets for the underlying securities (rate movements can take place in the underlying markets that cannot be reflected in the options markets) and an insufficient liquid secondary market for particular options.
•
Index/structured securities. Certain derivative securities are described more accurately as index/structured securities, which are derivative securities whose value or performance is linked to other equity securities (such as depositary receipts), currencies, interest rates, indices, or other financial indicators (reference indices).
Emerging Markets
The Funds consider a security to be tied economically to an emerging market (an “emerging market security”) if the issuer of the security has its principal place of business or principal office in an emerging market, has its principal securities trading market in an emerging market, or derives a majority of its revenue from emerging markets.
Usually, the term “emerging market” (also called a “developing market”) means any market that is considered to be an emerging market by the international financial community (such as markets tied to securities included in the MSCI Emerging Markets Index or Bloomberg Emerging Markets USD Aggregate Bond Index). Emerging markets generally exclude the U.S., Canada, Japan, Hong Kong, Singapore, Australia, New Zealand, and most nations located in Western Europe.
Investments in companies in emerging markets are subject to higher risks than investments in companies in more developed markets. These risks include:
•
increased social, political, and economic instability;
•
a smaller market for these securities and low or nonexistent trading volume that results in a lack of liquidity and greater price volatility;
•
lack of publicly available information, including reports of payments of dividends or interest on outstanding securities;
•
foreign government policies that may restrict opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests;
•
relatively new capital market structure or market-oriented economy;
•
the possibility that recent favorable economic developments may be slowed or reversed by unanticipated political or social events in these countries;
•
restrictions that may make it difficult or impossible for a fund to vote proxies, exercise shareholder rights, pursue legal remedies, and obtain judgments in foreign courts; and
•
possible losses through the holding of securities in domestic and foreign custodial banks and depositories.
In addition, many developing markets have experienced substantial and, in some periods, extremely high rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may continue to have negative effects on the economies, currencies, interest rates, and securities markets of those markets.
Repatriation of investment income, capital, and proceeds of sales by foreign investors may require governmental registration and/or approval in some developing markets. A fund could be adversely affected by delays in or a refusal to grant any required governmental registration or approval for repatriation.
Further, the economies of developing markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade.
The U.S. Securities and Exchange Commission, the U.S. Department of Justice, and other U.S. authorities may be limited in their ability to pursue bad actors, including instances of fraud in emerging markets. For example, in certain emerging markets, there are significant legal obstacles to obtaining information needed for investigations or litigation. Similar limitations
163
apply to the pursuit of actions against individuals, including officers, who may have engaged in fraud or wrongdoing. In addition, local authorities often are constrained in their ability to assist U.S. authorities and overseas investors more generally. There are also legal or other obstacles to seeking access to funds in a foreign country.
Equity Securities
Equity securities include common stocks, convertible securities, depositary receipts, rights (an offering of common stock to investors who currently own shares which entitle them to buy subsequent issues at a discount from the offering price), and warrants (the right to purchase securities from the issuer at a specified price, normally higher than the current market price). Common stocks, the most familiar type, represent an equity (ownership) interest in a corporation. The value of a company’s stock may fall as a result of factors directly relating to that company, such as decisions made by its management or lower demand for the company’s products or services. A stock’s value may also fall because of factors affecting not just the company, but also companies in the same industry or in a number of different industries, such as increases in production costs. The value of a company’s stock may also be affected by changes in financial markets that are relatively unrelated to the company or its industry, such as changes in interest rates or currency exchange rates. In addition, a company’s stock generally pays dividends only after the company invests in its own business and makes required payments to holders of its bonds and other debt. For this reason, the value of a company’s stock will usually react more strongly than its bonds and other debt to actual or perceived changes in the company’s financial condition or prospects.
Some funds focus their investments on certain market capitalization ranges. Market capitalization is defined as total current market value of a company’s outstanding equity securities. The market capitalization of companies in a fund’s portfolios and their related indexes will change over time, and, except to the extent consistent with its principal investment strategies (for example, for an index fund that uses a replication strategy), a fund will not automatically sell a security just because it falls outside of the market capitalization range of its index(es).
Growth Style
The prices of growth stocks may be based largely on expectations of future earnings, and their prices can decline rapidly and significantly in reaction to negative news about such factors as earnings, revenues, the economy, political developments, or other news. Growth stocks may underperform value stocks and stocks in other broad style categories (and the stock market as a whole) over any period of time and may shift in and out of favor with investors generally, sometimes rapidly, depending on changes in market, economic, and other factors. As a result, a fund that holds substantial investments in growth stocks may underperform other funds that invest more broadly or favor different investment styles. Because growth companies typically reinvest their earnings, growth stocks typically do not pay dividends at levels associated with other types of stocks, if at all.
Smaller Companies
Investments in companies with smaller market capitalizations may involve greater risks and price volatility (wide, rapid fluctuations) than investments in larger, more mature companies. Small company stocks may decline in price as large company stocks rise, or rise in price while larger company stocks decline. The net asset value of a fund that invests a substantial portion of its assets in small company stocks may therefore be more volatile than the shares of a fund that invests solely in larger company stocks. Small companies may be less significant within their industries and may be at a competitive disadvantage relative to their larger competitors. Smaller companies may be less mature than larger companies. At this earlier stage of development, the companies may have limited product lines, reduced market liquidity for their shares, limited financial resources, or less depth in management than larger or more established companies. While smaller companies may be subject to these additional risks, they may also realize more substantial growth than larger or more established companies.
Unseasoned issuers are companies with a record of less than three years continuous operation, including the operation of predecessors and parents. Many unseasoned issuers also may be small companies and involve the risks and price volatility associated with smaller companies. Unseasoned issuers by their nature have only a limited operating history that can be used for evaluating the company’s growth prospects. As a result, these securities may place a greater emphasis on current or planned product lines and the reputation and experience of the company’s management and less emphasis on fundamental valuation factors than would be the case for more mature growth companies.
Value Style
Value stocks present the risk that they may decline in price or never reach their expected full market value because the market fails to recognize the stock’s intrinsic worth. Value stocks may underperform growth stocks and stocks in other broad style categories (and the stock market as a whole) over any period of time and may shift in and out of favor with investors generally, sometimes rapidly, depending on changes in market, economic, and other factors. As a result, a fund that holds substantial investments in value stocks may underperform other funds that invest more broadly or favor different investment styles.
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Fixed-Income Securities
Fixed-income securities include bonds and other debt instruments that are used by issuers to borrow money from investors (examples include corporate bonds, convertible securities, asset- and mortgage-backed securities, and municipal, agency, and U.S. government securities). The issuer of a fixed-income security generally pays the investor a fixed, variable, or floating rate of interest. The amount borrowed must be repaid at maturity. Some debt securities, such as zero coupon bonds, do not pay current interest, but are sold at a discount from their face values.
Fixed-income securities are sensitive to changes in interest rates. In general, fixed-income security prices rise when interest rates fall and fall when interest rates rise. An increase in interest rates from a low interest rate environment may lead to heightened volatility and redemptions alongside reduced liquidity and dealer market-making capacity in fixed income markets. If interest rates fall, issuers of callable bonds may call (repay) securities with high interest rates before their maturity dates; this is known as call risk. In this case, a fund would likely reinvest the proceeds from these securities at lower interest rates, resulting in a decline in the fund’s income. Very low interest rates, including rates that fall below zero (where banks charge for depositing money), may detract from a Fund’s performance and its ability to maintain positive returns to the extent the Fund is exposed to such interest rates. To the extent a Fund holds an investment with a negative interest rate to maturity, the Fund would generate a negative return on that investment. Floating rate securities generally are less sensitive to interest rate changes but may decline in value if their interest rates do not rise as much, or as quickly, as interest rates in general. Conversely, floating rate securities will not generally increase in value if interest rates decline.
The United Kingdom’s Financial Conduct Authority, which regulates the London Inter-bank Offered Rate (“LIBOR”), will no longer publish non-U.S. dollar LIBOR, 1-week U.S. dollar LIBOR, or 2-month U.S. dollar LIBOR rates after December 31, 2021. The remaining, most widely used U.S. dollar LIBOR rates will no longer be published after June 30, 2023. There remains uncertainty regarding the future utilization of LIBOR and the nature of a replacement rate and, as a result, the potential effect of a transition away from LIBOR on a fund or certain of its investments cannot be determined. LIBOR’s discontinuation and replacement could lead to short-term and long-term uncertainty, market instability, and adverse impacts to newly issued and existing financial instruments that reference LIBOR. While some instruments may contemplate the discontinuation of LIBOR by providing for an alternative rate-setting methodology, not all instruments may have such provisions and there is uncertainty regarding the effectiveness of any alternative methodology. In addition, LIBOR’s discontinuation or replacement may affect the value, liquidity, or return on certain Fund investments and may result in costs in connection with closing out positions and entering into new trades. These risks are likely to persist until new reference rates and fallbacks for both legacy and new instruments and contracts are commercially accepted and market practices become settled.
The U.S. Federal Reserve, along with a steering committee comprised of large U.S. financial institutions known as the Alternative Reference Rates Committee, intends to replace U.S. dollar LIBOR with the Secured Overnight Financing Rate (“SOFR”), a new index calculated by short-term repurchase agreements, backed by Treasury securities. Bank working groups and regulators in other countries have suggested other alternatives for their markets.
Fixed-income securities are also affected by the credit quality of the issuer. Investment-grade debt securities are medium and high quality securities. Some bonds, such as lower grade or “junk” bonds, may have speculative characteristics and may be particularly sensitive to economic conditions and the financial condition of the issuers. Credit risk refers to the possibility that the issuer of the security will not be able to make principal and interest payments when due.
Additionally, a Fund’s investments in companies with smaller market capitalizations may involve greater risks, price volatility (wide, rapid fluctuations), and less liquidity than investments in larger, more mature companies.
Foreign Currency
Certain of a fund’s investments will be denominated in foreign currencies or traded in securities markets in which settlements are made in foreign currencies. Any income on such investments is generally paid to a fund in foreign currencies. In addition, funds may engage in foreign currency transactions for both hedging and investment purposes, as well as to increase exposure to a foreign currency or to shift exposure to foreign currency fluctuations from one country to another.
The value of foreign currencies relative to the U.S. dollar varies continually, causing changes in the dollar value of a fund’s portfolio investments (even if the local market price of the investments is unchanged) and changes in the dollar value of a fund’s income available for distribution to its shareholders. The effect of changes in the dollar value of a foreign currency on the dollar value of a fund’s assets and on the net investment income available for distribution may be favorable or unfavorable. Transactions in non-U.S. currencies are also subject to many of the risks of investing in foreign (non-U.S.) securities; for example, changes in foreign economies and political climates are more likely to affect a fund that has foreign currency exposure than a fund that invests exclusively in U.S. companies and currency. There also may be less government supervision of foreign markets, resulting in non-uniform accounting practices and less publicly available information.
165
Transactions in foreign currencies, foreign currency denominated debt and certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned.
A fund may incur costs in connection with conversions between various currencies. In addition, a fund may be required to liquidate portfolio assets, or may incur increased currency conversion costs, to compensate for a decline in the dollar value of a foreign currency occurring between the time when a fund declares and pays a dividend, or between the time when a fund accrues and pays an operating expense in U.S. dollars. To protect against a change in the foreign currency exchange rate between the date on which a fund contracts to purchase or sell a security and the settlement date for the purchase or sale, to gain exposure to one or more foreign currencies or to “lock in” the equivalent of a dividend or interest payment in another currency, a fund might purchase or sell a foreign currency on a spot (i.e., cash) basis at the prevailing spot rate.
Currency hedging involves some of the same general risks and considerations as other transactions with similar instruments (i.e., derivative instruments) and hedging. Currency transactions are also subject to additional risks. Because currency control is of great importance to the issuing governments and influences economic planning and policy, purchases and sales of currency and related instruments can be adversely affected by government exchange controls, limitations or restrictions on repatriation of currency, and manipulations or exchange restrictions imposed by governments. These forms of governmental actions can result in losses to a fund if it is unable to deliver or receive currency or monies in settlement of obligations. They could also cause hedges the fund has entered into to be rendered useless, resulting in full currency exposure as well as incurring transaction costs. Settlement of a currency forward contract for the purchase of most currencies must occur at a bank based in the issuing nation. The ability to establish and close out positions on trading options on currency futures contracts is subject to the maintenance of a liquid market that may not always be available.
Foreign Securities
The Funds consider a security to be tied economically to countries outside the U.S. (a “foreign security”) if the issuer of the security has its principal place of business or principal office outside the U.S., has its principal securities trading market outside the U.S., or derives a majority of its revenue from outside the U.S.
There may be less publicly available information about foreign companies than U.S. companies, and information about foreign securities in which the Funds invest may be less reliable or complete. Foreign companies, including those listed on U.S. securities exchanges, may not be subject to the same uniform accounting, auditing, and financial reporting practices as are required of U.S. companies with respect to such matters as insider trading rules, tender offer regulation, accounting standards or auditor oversight, stockholder proxy requirements and the requirements mandating timely and accurate disclosure of information. For example, the Chinese government has taken positions that prevent the Public Company Accounting Oversight Board from inspecting the audit work and practices of accounting firms in mainland China and Hong Kong for compliance with U.S. law and professional standards. In addition, securities of many foreign companies are less liquid and more volatile than securities of comparable U.S. companies. Commissions on foreign securities exchanges may be generally higher than those on U.S. exchanges.
Foreign markets also have different clearance and settlement procedures than those in U.S. markets. In certain markets, there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct these transactions. Delays in settlement could result in temporary periods when a portion of fund assets is not invested and earning no return. If a fund is unable to make intended security purchases due to settlement problems, the fund may miss attractive investment opportunities. In addition, a fund may incur a loss as a result of a decline in the value of its portfolio if it is unable to sell a security.
With respect to certain foreign countries, there is the possibility of nationalization, expropriation or confiscatory taxation, political or social instability, or diplomatic developments that could affect a fund’s investments in those countries. In addition, a fund may also suffer losses due to differing accounting practices and treatments. Investments in foreign securities are subject to laws of the foreign country that may limit the amount and types of foreign investments. Changes of governments or of economic or monetary policies, in the U.S. or abroad, changes in dealings between nations, currency convertibility or exchange rates could result in investment losses for a fund.
Foreign securities are often traded with less frequency and volume, and therefore may have greater price volatility than is the case with many U.S. securities. Brokerage commissions, custodial services, and other costs relating to investment in foreign countries are generally more expensive than in the U.S. Though the fund intends to acquire the securities of foreign issuers where there are public trading markets, economic or political turmoil in a country in which a fund has a significant portion of its assets or deterioration of the relationship between the U.S. and a foreign country may reduce the liquidity of a fund’s portfolio. The fund may have difficulty meeting a large number of redemption requests. Furthermore, there may be difficulties in obtaining or enforcing judgments against foreign issuers.
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A fund may invest in a foreign company by purchasing depositary receipts. Depositary receipts are certificates of ownership of shares in a foreign-based issuer held by a bank or other financial institution. They are alternatives to purchasing the underlying security but are subject to the foreign securities risks to which they relate.
A fund may file claims to recover foreign withholding taxes on dividend and interest income (if any) received from issuers in certain countries and capital gains on the disposition of stocks or securities where such withholding tax reclaim is possible. Whether or when a fund will receive a withholding tax refund is within the control of the tax authorities in such countries. Where a fund expects to recover withholding taxes, the net asset value of a fund generally includes accruals for such tax refunds. If the likelihood of recovery materially decreases, accruals in the fund’s net asset value for such refunds may be written down partially or in full, which will adversely affect the fund’s net asset value. Shareholders in the fund at the time an accrual is written down will bear the impact of the resulting reduction in net asset value regardless of whether they were shareholders during the accrual period. Conversely, if a fund receives a tax refund that has not been previously accrued, shareholders in the fund at the time of the successful recovery will benefit from the resulting increase in the fund’s net asset value. Shareholders who sold their shares prior to such time will not benefit from such increase in the fund’s net asset value.
If a fund’s portfolio invests significantly in a certain geographic region, any negative development affecting that region will have a greater impact on the fund than a fund that is not as heavily invested in that region. For example, with respect to funds that invest significantly in China or the EU:
•
Investing in China involves certain heightened risks and considerations, including, among others: frequent trading suspensions and government interventions (including by nationalizing assets); currency exchange rate fluctuations or blockages; limits on using brokers and on foreign ownership; different financial reporting standards, as described above; higher dependence on exports and international trade; political and social instability; infectious disease outbreaks; regional and global conflicts; increased trade tariffs, embargoes and other trade limitations; custody and other risks associated with programs used to access Chinese securities; and uncertainties in tax rules that could result in unexpected tax liabilities for the Fund. Significant portions of the Chinese securities markets may become rapidly illiquid, as Chinese issuers have the ability to suspend the trading of their equity securities. Moreover, actions by the U.S. government, such as delisting of certain Chinese companies from U.S. securities exchanges or otherwise restricting their operations in the U.S., may negatively impact the value of such securities held by the funds.
•
Funds that invest in the United Kingdom (the “UK”) face risks related to the UK's departure from the European Union (the “EU”), commonly known as “Brexit.” Brexit has resulted in significant uncertainties and instability in the financial markets, and considerable uncertainty remains related to the potential consequences associated with the exit, how the negotiations for the withdrawal and new trade agreements will be conducted, and whether the UK's exit will increase the likelihood of other countries also departing the EU. Brexit may have significant political and financial consequences in the UK, as well as in European markets and the broader global economy, which may result in increased volatility and illiquidity, and potentially lower economic growth in markets in the UK, Europe and globally.
Fund of Funds
The performance and risks of a fund of funds directly correspond to the performance and risks of the underlying funds in which the fund invests.
As of December 31, 2021, the PVC Principal LifeTime Accounts, PVC SAM Portfolios, Diversified Balanced Account, Diversified Balanced Managed Volatility Account, Diversified Balanced Volatility Control Account, Diversified Growth Account, Diversified Growth Managed Volatility Account, Diversified Growth Volatility Control Account, and Diversified Income Account assets were allocated among the underlying funds as identified in the tables below. 
Underlying Fund
Diversified
Balanced
Account
Diversified
Balanced
Managed
Volatility
Account
Diversified
Balanced
Volatility
Control
Account
Diversified
Growth
Account
Diversified
Growth
Managed
Volatility
Account
Diversified
Growth
Volatility
Control
Account
Diversified
Income
Account
Bond Market Index Account
49.6%
49.6%
57.8%
34.6%
34.7%
39.5%
64.5%
Government Money Market Fund
0.0%
0.0%
6.9%
0.0%
0.0%
8.8%
0.0%
International Equity Index Fund
7.1%
7.1%
8.2%
10.1%
10.1%
11.5%
4.1%
LargeCap S&P 500 Index Account
35.1%
0.0%
17.5%
45.1%
0.0%
28.6%
25.2%
LargeCap S&P 500 Managed Volatility Index Account
0.0%
35.1%
0.0%
0.0%
45.0%
0.0%
0.0%
MidCap S&P 400 Index Fund
4.1%
4.1%
4.8%
5.1%
5.1%
5.8%
3.1%
SmallCap S&P 600 Index Fund
4.1%
4.1%
4.8%
5.1%
5.1%
5.8%
3.1%
Total
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
 
167
Underlying Fund
Principal
LifeTime
Strategic
Income
Account
Principal
LifeTime
2010 Account
Principal
LifeTime
2020 Account
Principal
LifeTime
2030 Account
Principal
LifeTime
2040 Account
Principal
LifeTime
2050 Account
Principal
LifeTime
2060 Account
Blue Chip Fund
3.9%
4.1%
5.2%
7.2%
9.0%
10.3%
10.2%
Core Fixed Income Fund
31.5%
31.6%
29.0%
28.6%
11.4%
1.6%
1.6%
Diversified International Fund
6.5%
6.7%
8.8%
11.5%
15.1%
16.7%
16.7%
Diversified Real Asset Fund
2.4%
2.3%
2.3%
0.0%
0.0%
0.0%
0.0%
Equity Income Fund
3.7%
3.8%
4.9%
6.7%
8.5%
9.7%
9.6%
High Income Fund
7.1%
7.1%
5.9%
4.6%
2.4%
0.4%
0.6%
Inflation Protection Fund
6.1%
6.1%
5.1%
0.0%
0.0%
0.0%
0.0%
International Small Company Fund
1.2%
1.2%
1.6%
2.1%
2.8%
3.1%
3.1%
LargeCap Growth Fund I
3.8%
3.9%
5.0%
6.9%
8.7%
10.0%
9.9%
LargeCap S&P 500 Index Fund
2.8%
2.5%
3.6%
5.4%
7.9%
9.5%
9.8%
LargeCap Value Fund III
3.8%
3.8%
4.9%
6.8%
8.6%
9.8%
9.8%
MidCap Fund
2.1%
1.9%
2.5%
3.4%
0.0%
0.0%
0.0%
MidCap Growth Fund III
0.0%
0.0%
0.0%
0.0%
4.3%
5.0%
4.9%
MidCap Value Fund I
2.1%
2.0%
2.4%
3.4%
4.6%
5.3%
5.2%
Origin Emerging Markets Fund
1.7%
1.6%
2.1%
2.6%
3.6%
4.1%
4.0%
Overseas Fund
2.8%
2.8%
3.7%
4.8%
6.3%
6.9%
7.2%
Real Estate Securities Fund
0.0%
0.0%
0.0%
2.6%
2.6%
2.6%
2.6%
Short-Term Income Fund
16.7%
16.7%
10.6%
0.0%
0.0%
0.0%
0.0%
SmallCap Growth Fund I
0.8%
0.9%
1.1%
1.6%
2.0%
2.3%
2.2%
SmallCap Value Fund II
1.0%
1.0%
1.3%
1.8%
2.2%
2.7%
2.6%
Total
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
 
Underlying Fund
SAM
Balanced Portfolio
SAM
Conservative
Balanced
Portfolio
SAM
Conservative
Growth
Portfolio
SAM
Flexible Income
Portfolio
SAM
Strategic
Growth Portfolio
Blue Chip Fund
10.3%
7.3%
13.9%
5.1%
14.3%
Core Fixed Income Fund
10.9%
18.3%
4.0%
17.9%
0.0%
Diversified International Fund
2.6%
1.0%
3.5%
2.5%
5.9%
Diversified Real Asset Fund
5.1%
4.8%
4.8%
6.5%
4.5%
Edge MidCap Fund
2.4%
1.7%
3.4%
0.0%
3.8%
Equity Income Account
8.3%
5.6%
11.1%
2.8%
11.6%
Finisterre Emerging Markets Total Return Bond Fund
3.1%
5.8%
0.9%
3.0%
0.0%
Global Real Estate Securities Fund
2.3%
3.4%
1.8%
4.2%
0.8%
Government & High Quality Bond Account
3.6%
6.0%
1.2%
10.9%
0.0%
Government Money Market Fund
3.1%
2.4%
3.2%
2.0%
2.3%
High Yield Fund
2.2%
3.9%
0.5%
1.1%
0.0%
International Small Company Fund
1.3%
1.2%
1.7%
0.0%
2.3%
LargeCap Growth Fund I
4.2%
3.0%
5.9%
0.0%
12.7%
LargeCap Value Fund III
5.1%
2.5%
6.6%
1.8%
7.8%
MidCap Account
1.0%
1.1%
1.7%
0.0%
3.1%
Origin Emerging Markets Fund
6.5%
4.3%
8.4%
0.9%
6.0%
Overseas Fund
1.0%
0.7%
1.4%
0.0%
3.6%
Principal Active High Yield ETF
0.0%
0.0%
0.0%
6.2%
0.0%
Principal Capital Appreciation Fund
1.8%
1.0%
1.8%
1.7%
2.2%
Principal Investment Grade Corporate Active ETF
1.4%
2.3%
0.4%
9.8%
0.0%
Principal U.S. Mega-Cap ETF
9.0%
6.2%
12.0%
4.1%
10.1%
Principal U.S. Small-Cap Multi-Factor ETF
7.1%
3.6%
9.6%
1.0%
9.0%
Short-Term Income Fund
3.4%
6.0%
1.0%
7.7%
0.0%
Small-MidCap Dividend Income Fund
0.0%
0.0%
0.0%
2.2%
0.0%
Spectrum Preferred and Capital Securities Income Fund
4.3%
7.9%
1.2%
8.6%
0.0%
Total
100.0%
100.0%
100.0%
100.0%
100.0%
A fund of funds indirectly bears its pro-rata share of the expenses of the underlying funds in which it invests, as well as directly incurring expenses. Therefore, investment in a fund of funds is more costly than investing directly in shares of the underlying funds. Generally, if an underlying fund offers multiple classes of shares for investment by funds of funds, the Funds will purchase shares of the class with the lowest expense ratio (expressed as a percent of average net assets on an annualized basis) at the time of purchase.
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If you are considering investing in a Principal LifeTime Account , you should take into account your estimated retirement date and risk tolerance. In general, each Principal LifeTime Account is managed with the assumption that the investor will invest in a Principal LifeTime Account whose stated date is closest to the date the shareholder retires. Choosing a fund targeting an earlier date represents a more conservative choice; choosing a fund with a later date represents a more aggressive choice. It is important to note that the retirement year of the fund you select should not necessarily represent the specific year you intend to start drawing retirement assets. It should be a guide only. Generally, the potential for higher returns over time is accompanied by the higher risk of a decline in the value of your principal. Investors should realize that the Principal LifeTime Accounts are not a complete solution to their retirement needs. Investors must weigh many factors when considering when to retire, what their retirement needs will be, and what sources of income they may have.
There are five Strategic Asset Management (“SAM”) Portfolios: Flexible Income, Conservative Balanced, Balanced, Conservative Growth and Strategic Growth. The SAM Portfolios offer long-term investors different asset allocation strategies having different levels of potential investment risk and reward. The SAM Portfolios share the same risks but often with different levels of exposure. In general, relative to the other Portfolios:
•
the Balanced Portfolio should offer investors the potential for a medium level of income and a medium level of capital growth, while exposing them to a medium level of principal risk,
•
the Conservative Balanced Portfolio should offer investors the potential for a medium to high level of income and a medium to low level of capital growth, while exposing them to a medium to low level of principal risk,
•
the Conservative Growth Portfolio should offer investors the potential for a low to medium level of income and a medium to high level of capital growth, while exposing them to a medium to high level of principal risk,
•
the Flexible Income Portfolio should offer investors the potential for a high level of income and a low level of capital growth, while exposing them to a low level of principal risk, and
•
the Strategic Growth Portfolio should offer investors the potential for a high level of capital growth, and a corresponding level of principal risk.
Funds of funds can be subject to payment in kind liquidity risk: If an underlying fund pays a redemption request by the fund wholly or partly by a distribution-in-kind of portfolio securities rather than in cash, the fund may hold such portfolio securities until those managing the investments of the fund determine that it is appropriate to dispose of them.
Management of funds of funds entails potential conflicts of interest: a fund of fund may invest in affiliated underlying funds; and those who manage the fund’s investments and their affiliates may earn different fees from different underlying funds and may have an incentive to allocate more fund of fund assets to underlying funds from which they receive higher fees.
Hedging
Hedging is a strategy that can be used to attempt to mitigate or protect against potential losses due to changing interest rates, securities prices, asset values, currency exchange rates, and other market conditions. The success of a fund’s hedging strategy will be subject to the ability of those managing the fund’s investments to correctly assess the degree of correlation between the performance of the instruments used in the hedging strategy and the performance of the investments in the portfolio being hedged. Since the characteristics of many securities change as markets change or time passes, the success of a fund’s hedging strategy will also be subject to the ability of those managing the fund’s investments to continually recalculate, readjust, and execute hedges in an efficient and timely manner. For a variety of reasons, those managing the fund’s investments may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Such imperfect correlation may prevent a fund from achieving the intended hedge or expose a fund to risk of loss. In addition, it is not possible to hedge fully or perfectly against any risk, and hedging entails its own costs.
High Portfolio Turnover
“Portfolio Turnover” is the term used in the industry for measuring the amount of trading that occurs in a fund’s portfolio during the year. For example, a 100% turnover rate means that on average every security in the portfolio has been replaced once during the year. Funds with high turnover rates (more than 100%) often have higher transaction costs (which are paid by the fund), and may lower the fund’s performance. High portfolio turnover can result in a lower capital gain distribution due to higher transaction costs added to the basis of the assets or can result in lower ordinary income distributions to shareholders when the transaction costs cannot be added to the basis of assets. Both events reduce fund performance.
Please consider all the factors when you compare the turnover rates of different funds. You should also be aware that the “total return” line in the Financial Highlights section reflects portfolio turnover costs.
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High Yield Securities
Below investment grade securities are fixed income securities that are rated at the time of purchase Ba1 or lower by Moody’s Investors Service, Inc. (“Moody’s”) and BB+ or lower by S&P Global Ratings (“S&P Global”) (if the security has been rated by only one of those agencies, that rating will determine if the security is below investment grade; if the security has not been rated by either of those agencies, those managing investments of a Fund will determine whether the security is of a quality comparable to those rated below investment grade).
Below investment grade securities are sometimes referred to as high yield or “junk bonds” and are considered speculative, particularly with respect to the issuer’s continuing ability to meet principal and interest payments. Such securities could be in default at time of purchase. Each fund of funds may invest in underlying funds that may invest in such securities.
Investing in high yield securities involves special risks in addition to those associated with investing in investment grade securities:
•
High yield securities may be less liquid than investment grade securities.
•
The secondary market on which high yield securities are traded may be less liquid, which may reduce the price of the security and adversely affect and cause large fluctuations in the daily price of the Fund’s shares.
•
Analysis of the creditworthiness of issuers of high yield securities is more complex. To the extent a Fund invests in high yield securities, its ability to meet its objective may be more dependent on such credit analyses.
•
High yield securities may be more susceptible to real or perceived adverse economic and competitive industry conditions. Although high yield securities prices tend to be less sensitive to interest rate changes than those of investment grade securities, they tend to be more sensitive to adverse economic downturns or individual corporate developments. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the value and liquidity of high yield securities, especially in a thinly traded market.
•
If the issuer of high yield securities defaults, a Fund may incur additional expenses to seek recovery.
•
If an issuer of high yield securities undergoes a corporate restructuring, such high yield securities may become exchanged for or converted into reorganized equity of the underlying issuer. Moreover, to the extent that a bond indenture or loan agreement does not contain sufficiently protective covenants or otherwise permits the issuer to take certain actions to the Fund’s detriment (such as distributing cash to equity holders, incurring additional indebtedness, and disposing of assets), the underlying value of the high yield security may decline.
The use of credit ratings for evaluating high yield securities also involves certain risks. For example, credit ratings reflect the safety of principal and interest payments, not the market value risk of high yield securities. Also, credit rating agencies may fail to change credit ratings in a timely manner to reflect subsequent events. If a credit rating agency changes the rating of a portfolio security held by a Fund, the Fund may retain the security.
Industry Concentration
A fund that concentrates its investments (invests more than 25% of its net assets) in a particular industry (or group of industries) is more exposed to the overall condition of the particular industry than a fund that invests in a wider variety of industries. A particular industry could be affected by economic, business, supply-and-demand, political, or regulatory factors. Companies within the same industry could react similarly to such factors. As a result, a fund’s concentration in a particular industry would increase the possibility that the fund’s performance will be affected by such factors.
Investment Company Securities
Securities of other investment companies, including shares of closed-end investment companies, unit investment trusts, various exchange-traded funds (“ETFs”), and other open-end investment companies, represent interests in professionally managed portfolios that may invest in a variety of instruments. Certain types of investment companies, such as closed-end investment companies, issue a fixed number of shares that trade on a stock exchange or over-the-counter at a premium or a discount to their net asset value. Others are continuously offered at net asset value, but may also be traded in the secondary market. ETFs are often structured to perform in a similar fashion to a broad-based securities index. Investing in ETFs involves generally the same risks as investing directly in the underlying instruments. Investing in ETFs involves the risk that they will not perform in exactly the same fashion, or in response to the same factors, as the index or underlying instruments. Shares of ETFs may trade at prices other than NAV.
A fund that invests in another investment company is subject to the risks associated with direct ownership of the securities in which such investment company invests. Fund shareholders indirectly bear their proportionate share of the expenses of each such investment company, including its advisory and administrative fees. The Fund would also continue to pay its own advisory fees and other expenses. Consequently, the Fund and its shareholders would, in effect, absorb two levels of fees with respect to investments in other investment companies.
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A fund may invest in affiliated underlying funds, and those who manage such fund’s investments and their affiliates may earn different fees from different underlying funds and may have an incentive to allocate more fund assets to underlying funds from which they receive higher fees.
Leverage
If a fund makes investments in futures contracts, forward contracts, swaps and other derivative instruments, these instruments provide the economic effect of financial leverage by creating additional investment exposure, as well as the potential for greater loss. If a fund uses leverage through activities such as borrowing, entering into short sales, purchasing securities on margin or on a “when-issued” basis or purchasing derivative instruments in an effort to increase its returns, the fund has the risk of magnified capital losses that occur when losses affect an asset base, enlarged by borrowings or the creation of liabilities, that exceeds the net assets of the fund. The net asset value of a fund employing leverage will be more volatile and sensitive to market movements. Leverage may involve the creation of a liability that requires the fund to pay interest. Leveraging may cause a fund to liquidate portfolio positions to satisfy its obligations or to meet segregation requirements when it may not be advantageous to do so. To the extent that a fund is not able to close out a leveraged position because of market illiquidity, a fund’s liquidity may be impaired to the extent that it has a substantial portion of liquid assets segregated or earmarked to cover obligations.
Master Limited Partnerships (“MLPs”)
An MLP that invests in a particular industry (e.g., oil and gas) will be harmed by detrimental economic events within that industry. For example, the business of certain MLPs is affected by supply and demand for energy commodities because such MLPs derive revenue and income based upon the volume of the underlying commodity produced, transported, processed, distributed, and/or marketed. Many MLPs are also subject to various federal, state and local environmental laws and health and safety laws as well as laws and regulations specific to their particular activities.
MLPs tend to pay relatively higher distributions than other types of companies. The amount of cash that an MLP can distribute to its partners will depend on the amount of cash it generates from operations, which will vary from quarter to quarter depending on factors affecting the market generally and on factors affecting the particular business lines of the MLP. Available cash will also depend on the MLPs’ level of operating costs (including incentive distributions to the general partner), level of capital expenditures, debt service requirements, acquisition costs (if any), fluctuations in working capital needs and other factors.
Certain benefits derived from investment in MLPs depend largely on the MLPs being treated as partnerships for federal income tax purposes. As a partnership, an MLP has no federal income tax liability at the entity level. MLPs taxed as partnerships file a partnership tax return for U.S. federal, state and local income tax purposes and communicate the Fund’s allocable share of the MLP’s income, gains, losses, deductions and expenses via a “Schedule K-1.”
If, as a result of a change in current law or a change in an MLP’s business, an MLP was treated as a corporation for federal income tax purposes, the MLP would be obligated to pay federal income tax on its income at the corporate tax rate. If an MLP was classified as a corporation for federal income tax purposes, the amount of cash available for distribution would be reduced and the distributions received might be taxed entirely as dividend income.
To the extent a distribution received by a fund from an MLP is treated as a return of capital, the fund's adjusted tax basis in the interests of the MLP will be reduced, which may increase the fund's tax liability upon the sale of the interests in the MLP or upon subsequent distributions in respect of such interests.
Municipal Obligations and AMT-Subject Bonds
The term “municipal obligations” generally is understood to include debt obligations issued by municipalities to obtain funds for various public purposes. The two principal classifications of municipal bonds are “general obligation” and “revenue” bonds. General obligation bonds are secured by the issuer’s pledge of its full faith and credit, with either limited or unlimited taxing power for the payment of principal and interest. Revenue bonds are not supported by the issuer’s full taxing authority; generally, they are payable only from the revenues of a particular facility, a class of facilities, or the proceeds of another specific revenue source.
AMT-subject bonds are municipal obligations issued to finance certain “private activities,” such as bonds used to finance airports, housing projects, student loan programs, and water and sewer projects. Interest on AMT-subject bonds is an item of tax preference for purposes of the federal individual alternative minimum tax (“AMT”). See “Tax Considerations” for a discussion of the tax consequences of investing in the fund.
Current federal income tax laws limit the types and volume of bonds qualifying for the federal income tax exemption of interest, which may have an effect upon the ability of the fund to purchase sufficient amounts of tax-exempt securities.
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Portfolio Duration
Average duration is a mathematical calculation of the average life of a bond (or for a bond fund, the average life of the fund’s underlying bonds, weighted by the percentage of the fund’s assets that each represents) that serves as a useful measure of its price risk. Duration is an estimate of how much the value of the bonds held by a fund will fluctuate in response to a change in interest rates. For example, if a fund has an average duration of 4 years and interest rates rise by 1%, the value of the bonds held by the fund will decline by approximately 4%, and if the interest rates decline by 1%, the value of the bonds held by the fund will increase by approximately 4%. Longer term bonds and zero coupon bonds are generally more sensitive to interest rate changes. Duration, which measures price sensitivity to interest rate changes, is not necessarily equal to average maturity.
Preferred Securities
Preferred securities include preferred stock and various types of junior subordinated debt and trust preferred securities. Preferred securities may pay fixed rate or adjustable rate distributions and generally have a payment “preference” over common stock, but are junior to the issuer’s senior debt in a liquidation of the issuer’s assets. Preference would mean that a company must pay on its preferred securities before paying on its common stock, and that any claims of the preferred security holder would typically be ahead of common stockholders’ claims on assets in a corporate liquidation.
Holders of preferred securities usually have no right to vote for corporate directors or on other matters. The market value of preferred securities is sensitive to changes in interest rates as they are typically fixed income securities; the fixed-income payments are expected to be the primary source of long-term investment return. While some preferred securities are issued with a final maturity date, others are perpetual in nature. In certain instances, a final maturity date may be extended and/or the final payment of principal may be deferred at the issuer’s option for a specified time without triggering an event of default for the issuer. In addition, an issuer of preferred securities may have the right to redeem the securities before their stated maturity date. For instance, for certain types of preferred securities, a redemption may be triggered by a change in federal income tax or securities laws. As with call provisions, a redemption by the issuer may reduce the return of the security held by the fund. Preferred securities may be subject to provisions that allow an issuer, under certain circumstances to skip (indefinitely) or defer (possibly up to 10 years) distributions. If a fund owns a preferred security that is deferring its distribution, the fund may be required to report income for tax purposes while it is not receiving any income.
Preferred securities are typically issued by corporations, generally in the form of interest or dividend bearing instruments, or by an affiliated business trust of a corporation, generally in the form of beneficial interests in subordinated debentures or similarly structured securities. The preferred securities market is generally divided into the $25 par “retail” and the $1,000 par “institutional” segments. The $25 par segment includes securities that are listed on the New York Stock Exchange (exchange traded), which trade and are quoted with accrued dividend or interest income, and which are often callable at par value five years after their original issuance date. The institutional segment includes $1,000 par value securities that are not exchange-listed (over the counter), which trade and are quoted on a “clean” price, i.e., without accrued dividend or interest income, and which often have a minimum of 10 years of call protection from the date of their original issuance. Preferred securities can also be issued by real estate investment trusts and involve risks similar to those associated with investing in real estate investment trust companies.
Real Estate Investment Trusts (“REITs”)
REITs involve certain unique risks in addition to the risks associated with investing in the real estate industry in general (such as possible declines in the value of real estate, lack of availability of mortgage funds, or extended vacancies of property). REITs are characterized as: equity REITs, which primarily own property and generate revenue from rental income; mortgage REITs, which invest in real estate mortgages; and hybrid REITs, which combine the characteristics of both equity and mortgage REITs. Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills, are not diversified, and are subject to heavy cash flow dependency, risks of default by borrowers, and self-liquidation. A fund that invests in a REIT is subject to the REIT’s expenses, including management fees, and will remain subject to the fund’s advisory fees with respect to the assets so invested. REITs are also subject to the possibilities of failing to qualify for the special tax treatment accorded REITs under the Code, and failing to maintain their exemptions from registration under the 1940 Act.
Regular REIT dividends received by a Fund from a REIT will not qualify for the corporate dividends-received deduction and generally will not constitute qualified dividend income for U.S. income tax purposes. Any distribution of income attributable to regular REIT dividends from a Fund’s investment in a REIT will not qualify for the deduction that would be available to a non-corporate shareholder were the shareholder to own such REIT directly.
Investment in REITs also involves risks similar to those associated with investing in small market capitalization companies. REITs may have limited financial resources, may trade less frequently and in a limited volume, and may be subject to more abrupt or erratic price movements than larger company securities.
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Real Estate Securities
Investing in securities of companies in the real estate industry subjects a fund to the special risks associated with the real estate market and the real estate industry in general. Generally, companies in the real estate industry are considered to be those that have principal activity involving the development, ownership, construction, management or sale of real estate; have significant real estate holdings, such as hospitality companies, healthcare facilities, supermarkets, mining, lumber and/or paper companies; and/or provide products or services related to the real estate industry, such as financial institutions that make and/or service mortgage loans and manufacturers or distributors of building supplies. Securities of companies in the real estate industry are sensitive to factors such as loss to casualty or condemnation, changes in real estate values, property taxes, interest rates, cash flow of underlying real estate assets, occupancy rates, government regulations affecting zoning, land use and rents, and the management skill and creditworthiness of the issuer. Companies in the real estate industry may also be subject to liabilities under environmental and hazardous waste laws.
Redemption and Large Transaction Risk
Ownership of a fund’s shares may be concentrated in one or a few large investors (such as funds of funds, institutional investors, and asset allocation programs) that may redeem or purchase shares in large quantities. These transactions may cause a fund to sell securities to meet redemptions or to invest additional cash at times it would not otherwise do so, which may result in increased transaction costs, increased expenses, changes to expense ratios, and adverse effects to fund performance. Such transactions may also accelerate the realization of taxable income if sales of portfolio securities result in gains. Moreover, reallocations by large shareholders among share classes of a fund may result in changes to the expense ratios of affected classes, which may increase the expenses paid by shareholders of the class that experienced the redemption.
As an example, as of December 31, 2021, Principal Variable Contracts Funds, Inc. (“PVC”) funds of funds owned the following percentages, in the aggregate, of the outstanding shares of the underlying funds listed below. Principal Global Investors, LLC (“PGI”) is the advisor to the PFI and PVC funds of funds and is committed to minimizing the potential impact of redemption and large transaction risk on underlying funds to the extent consistent with pursuing the investment objectives of the funds of funds that it manages. However, PGI and its affiliates may face conflicts of interest in fulfilling responsibilities to all such funds. 
Account/Portfolio
Total Percentage
of Outstanding
Shares Owned
Bond Market Index
98.96%
Equity Income
23.35%
Government & High Quality Bond
32.99%
LargeCap S&P 500 Index
80.46%
LargeCap S&P 500 Managed Volatility Index
100.00%
MidCap
4.06%
Securitized Products
Securitized products are fixed income instruments that represent interests in underlying pools of collateral or assets. The value of the securitized product is derived from the performance, value, and cash flows of the underlying asset(s).
A fund’s investments in securitized products are subject to risks similar to traditional fixed income securities, such as credit, interest rate, liquidity, prepayment, extension, and default risk, as well as additional risks associated with the nature of the assets and the servicing of those assets. Prepayment risk may make it difficult to calculate the average life of a fund’s investment in securitized products. Securitized products are generally issued as pass-through certificates, which represent the right to receive principal and interest payments collected on the underlying pool of assets, which are passed through to the security holder. Therefore, repayment depends on the cash flows generated by the underlying pool of assets. The securities may be rated as investment-grade or below-investment-grade.
The specific securitized products that are principal strategies of each Fund are listed in its Fund Summary.
•
Mortgage-backed securities (“MBS”) represent an interest in a pool of underlying mortgage loans secured by real property. MBS are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loans. If interest rates fall and the underlying loans are prepaid faster than expected, the fund may have to reinvest the prepaid principal in lower yielding securities, thus reducing the fund’s income. Conversely, rising interest rates tend to discourage refinancings and the underlying loans may be prepaid more slowly than expected, reducing a fund’s potential to reinvest the principal in higher yielding securities and extending the duration of the underlying loans. In addition, when market conditions result in an increase in default rates on the underlying loans and the foreclosure values of the underlying real estate is less
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than the outstanding amount due on the underlying loan, collection of the full amount of accrued interest and principal on these investments may be doubtful. The risk of such defaults is generally higher in the case of underlying mortgage pools that include sub-prime mortgages (mortgages granted to borrowers whose credit histories would not support conventional mortgages).
•
Commercial mortgage-backed securities (“CMBS”) represent an interest in a pool of underlying commercial mortgage loans secured by real property such as retail, office, hotel, multi-family, and industrial properties. CMBS are issued in several classes with different levels of yield and credit protection, and the CMBS class in which a fund invests influences the interest rate, credit and prepayment risks. Many of the loans related to CMBS do not allow voluntary prepayment, which can help mitigate or eliminate prepayment risk.
•
Asset-backed securities (“ABS”) are backed by non-mortgage assets such as company receivables, company loans, truck and auto loans, student loans, leases and credit card receivables. ABS entail credit risk. They also may present a risk that, in the event of default, the liquidation value of the underlying assets may be inadequate to pay any unpaid interest or principal.
Short Sales
A fund enters into a short sale by selling a security it has borrowed (typically from a broker or other institution) with the hope of purchasing the same security at a later date at a lower price. A fund may also take a short position in a derivative instrument, such as a future, forward or swap. If the market price of the security or derivatives increases, the fund will suffer a (potentially unlimited) loss when it replaces the security or derivative at the higher price. In certain cases, purchasing a security to cover a short position can itself cause the price of the security to rise further, thereby exacerbating the loss. In addition, a fund may not always be able to borrow the security at a particular time or at an acceptable price. Before a fund replaces a borrowed security, it is required to designate on its books cash or liquid assets as collateral to cover the fund’s short position, marking the collateral to market daily. This obligation limits a fund’s investment flexibility, as well as its ability to meet redemption requests or other current obligations. A short position in a derivative instrument involves the risk of a theoretically unlimited increase in the value of the underlying instrument. Short sales also involve transaction and other costs that will reduce potential fund gains and increase potential fund losses.
Certain funds may also invest the proceeds received from short selling securities, which creates additional leverage. Using such leverage allows the fund to use the proceeds to purchase additional securities, thereby increasing its exposure to assets, such that its total assets may be greater than its capital. Leverage also magnifies the volatility of changes in the value of the fund’s portfolio. The effect of the use of leverage by the fund in a market that moves adversely to its investments could result in substantial losses to the fund, which would be greater than if the fund were not leveraged. Because a short position loses value as the security’s price increases, the loss on a short sale is theoretically unlimited.
The short sale proceeds utilized by a fund to leverage investments are collateralized by all or a portion of such fund’s portfolio. Accordingly, a fund may pledge securities in order to effect short sales, utilize short sale proceeds or otherwise obtain leverage for investment or other purposes. Should the securities pledged to brokers to secure the fund’s margin accounts decline in value, the fund could be subject to a “margin call”, pursuant to which the fund must either deposit additional funds or securities with the broker or suffer mandatory liquidation of all or a portion of the pledged securities to compensate for the decline in value. The banks and dealers that provide leverage to the fund have discretion to change the fund’s margin requirements at any time. Changes by counterparties in the foregoing may result in large margin calls, loss of leverage and forced liquidations of positions at disadvantageous prices. The utilization of short sale proceeds for leverage will cause the fund to be subject to higher transaction fees and other costs.
U.S. Government and U.S. Government-Sponsored Securities
U.S. Government securities, such as Treasury bills, notes and bonds and mortgage-backed securities guaranteed by the Government National Mortgage Association (Ginnie Mae), are supported by the full faith and credit of the United States; others are supported by the right of the issuer to borrow from the U.S. Treasury; others are supported by the discretionary authority of the U.S. Government to purchase the agency’s obligations; and still others are supported only by the credit of the issuing agency, instrumentality, or enterprise.
Although U.S. Government-sponsored enterprises such as the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae) may be chartered or sponsored by Congress, they are not funded by Congressional appropriations, and their securities are not issued by the U.S. Treasury nor supported by the full faith and credit of the U.S. Government.
174
There is no assurance that the U.S. Government would provide financial support to its agencies and instrumentalities if not required to do so. In addition, certain governmental entities have been subject to regulatory scrutiny regarding their accounting policies and practices and other concerns that may result in legislation, changes in regulatory oversight and/or other consequences that could adversely affect the credit quality, availability, or investment character of securities issued by these entities. The value and liquidity of U.S. Government securities may be affected adversely by changes in the ratings of those securities.
Volatility Mitigation
Volatility mitigation strategies may increase fund transaction costs, which could increase losses or reduce gains. These strategies may not protect the fund from market declines and may reduce the fund’s participation in market gains.
PORTFOLIO HOLDINGS INFORMATION
A description of the Funds’ policies and procedures with respect to disclosure of the Funds’ portfolio securities is available in the Funds’ Statement of Additional Information.
MANAGEMENT OF THE FUNDS
The Manager and Advisor
Principal Global Investors, LLC (“PGI”), an indirect subsidiary of Principal Financial Group, Inc. (“Principal®”), serves as the manager and advisor for the Funds. Through the Management Agreement with the Registrant, PGI provides investment advisory services and certain corporate administrative services for the Funds. 
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Advisor:
Principal Global Investors, LLC (“PGI”), 711 High Street, Des Moines, IA 50392, is part of a
diversified global asset management organization which utilizes a multi-boutique strategy of
specialized investment groups and affiliates to provide institutional investors and individuals with
diverse investment capabilities, including fixed income, equities, real estate, currency, asset
allocation and stable value. In addition to its asset management offices in the U.S., PGI has
asset management offices of affiliate advisors located in Europe, Asia, Latin America and
Australia. PGI has been an investment advisor since 1998.
Accounts/Portfolios:
In fulfilling its investment advisory responsibilities, PGI provides day-to-day discretionary
investment services (directly making decisions to purchase or sell securities) for all or a portion
of the following Accounts/Portfolios:
 
•Blue Chip (services provided by Aligned Investors, a specialized boutique of PGI)
•Bond Market Index
•Core Plus Bond
•Diversified Balanced (services provided by Principal® Global Asset Allocation)
•Diversified Balanced Managed Volatility (services provided by Principal® Global Asset
Allocation)
•Diversified Balanced Volatility Control (services provided by Principal® Global Asset
Allocation)
•Diversified Growth (services provided by Principal® Global Asset Allocation)
•Diversified Growth Managed Volatility (services provided by Principal® Global Asset
Allocation)
•Diversified Growth Volatility Control (services provided by Principal® Global Asset
Allocation)
•Diversified Income (services provided by Principal® Global Asset Allocation)
•Diversified International
•Equity Income (services provided by Edge Asset Management, a specialized boutique of
PGI)
•Global Emerging Markets
•Government & High Quality Bond
•LargeCap Growth I (services provided by Principal® Global Asset Allocation)
•LargeCap S&P 500 Index
•LargeCap S&P 500 Managed Volatility Index (passive index strategy portion)
•MidCap (services provided by Aligned Investors, a specialized boutique of PGI)
•Principal Capital Appreciation (services provided by Edge Asset Management, a specialized
boutique of PGI)
•Principal LifeTime Accounts (services provided by Principal® Global Asset Allocation)
•SAM (Strategic Asset Management) Portfolios (services provided by Principal® Global
Asset Allocation)
•Short-Term Income
•SmallCap
•U.S. LargeCap Buffer July
Several of the Funds have multiple sub-advisors. For those Funds, a team at PGI consisting of James W. Fennessey and Randy L. Welch determines the portion of those Funds’ assets that PGI and each sub-advisor will manage and may reallocate Fund assets among PGI and the sub-advisors from time-to-time. This team shares equally in the day-to-day portfolio management responsibility and agrees on allocation decisions.
The decision to reallocate Fund assets between PGI acting in a discretionary advisory capacity and the sub-advisors may be based on a variety of factors, including but not limited to: the investment capacity of PGI and each sub-advisor, portfolio diversification, volume of net cash flows, fund liquidity, investment performance, investment strategies, changes in PGI or each sub-advisor’s firm or investment professionals, or changes in the number of sub-advisors. Ordinarily, reallocations of Fund assets among sub-advisors occur as a sub-advisor liquidates assets in the normal course of portfolio management or with net new cash flows; however, at times, existing Fund assets may be reallocated among PGI and/or the sub-advisors.
The Fund summaries identified the portfolio managers and the Funds they manage. Additional information about the portfolio managers follows. With respect to the biographies of PGI portfolio managers, references to Principal® encompass various entities and groups within the Principal organization, such as its majority- and wholly-owned subsidiaries, as well as the internal boutiques referenced above.
176
As reflected in the Fund summaries, the day-to-day portfolio management, for some Funds, is shared by multiple portfolio managers. In each such case, the portfolio managers operate as a team, sharing authority and responsibility for research and the day-to-day management of the portfolio. However:
•
For the Blue Chip and MidCap Accounts, Mr. Nolin has ultimate decision making authority. Mr. Rozycki may make investment decisions in Mr. Nolin’s absence.
William C. Armstrong has been with Principal® since 1992. He earned a bachelor’s degree from Kearney State College and an M.B.A. from the University of Iowa. Mr. Armstrong has earned the right to use the Chartered Financial Analyst designation.
Paul H. Blankenhagen has been with Principal® since 1992. He earned a bachelor’s degree in Finance from Iowa State University and a master’s degree from Drake University. Mr. Blankenhagen has earned the right to use the Chartered Financial Analyst designation.
Jeff Callahan has been with Principal® since 2006. He earned a bachelor’s degree in Business Administration with an emphasis in Finance from Wartburg College and an M.B.A. from the University of Iowa. Mr. Callahan has earned the right to use the Chartered Financial Analyst designation.
Juliet Cohn has been with Principal® since 2003. She earned a bachelor’s degree in Mathematics from Trinity College, Cambridge, England.
Daniel R. Coleman has been with Principal® since 2001 and has held various investment management roles on the equity team, including Portfolio Manager and some senior management roles. He earned a bachelor’s degree in Finance from the University of Washington and an M.B.A. from New York University.
Brody Dass has been with Principal® since 2015. He earned a bachelor’s degree from the University of Iowa. Mr. Dass has earned the right to use the Chartered Financial Analyst designation.
Bryan C. Davis has been with Principal® since 1993. He earned a bachelor’s degree in Finance from the University of Iowa. Mr. Davis has earned the right to use the Chartered Financial Analyst designation.
James W. Fennessey has been with Principal® since 2000. He is a portfolio manager for Principal Global Asset Allocation, a specialized boutique within PGI. Mr. Fennessey earned a bachelor’s degree in Business Administration, with an emphasis in Finance, and a minor in Economics from Truman State University. He has earned the right to use the Chartered Financial Analyst designation.
John R. Friedl has been with Principal® since 2017. Prior thereto, he was with Edge Asset Management, Inc. (which merged with and into PGI in 2017) since 1998. He earned a bachelor’s degree in Communications and History from the University of Washington and a master’s degree in Finance from Seattle University. Mr. Friedl has earned the right to use the Chartered Financial Analyst designation.
Zach Gassmann has been with Principal® since 2007. He received a bachelor’s degree in Accounting from Simpson College and a master’s degree in Financial Management from Drake University. Mr. Gassmann has earned the right to use the Chartered Financial Analyst designation.
Todd A. Jablonski has been with Principal® since 2010. He earned a bachelor’s degree in Economics from the University of Virginia and an M.B.A. with an emphasis in Quantitative Finance from New York University’s Stern School of Business. Mr. Jablonski has earned the right to use the Chartered Financial Analyst designation.
Theodore Jayne has been with Principal® since 2015. He earned a bachelor’s degree in Anthropology from Harvard University. Mr. Jayne has earned the right to use the Chartered Financial Analyst designation.
Jeffrey Kilkenny was with Principal® from 1999-2006 and rejoined Principal® in 2012. He earned a bachelor’s degree in Finance from the University of Iowa. Mr. Kilkenny has earned the right to use the Chartered Financial Analyst designation.
K. William Nolin has been with Principal® since 1993. He earned a bachelor’s degree in Finance from the University of Iowa and an M.B.A. from the Yale School of Management. Mr. Nolin has earned the right to use the Chartered Financial Analyst designation.
Phil Nordhus has been with Principal® since 1990. He earned a bachelor’s degree in Economics from Kansas State University and an M.B.A. from Drake University. Mr. Nordhus has earned the right to use the Chartered Financial Analyst designation.
Brian W. Pattinson has been with Principal® since 1994. He earned a bachelor’s degree and an M.B.A. in Finance from the University of Iowa. Mr. Pattinson has earned the right to use the Chartered Financial Analyst designation.
177
Scott J. Peterson has been with Principal® since 2002. He earned a bachelor’s degree in Mathematics from Brigham Young University and an M.B.A. from New York University’s Stern School of Business. Mr. Peterson has earned the right to use the Chartered Financial Analyst designation.
Sarah E. Radecki has been with Principal® since 1999. She earned bachelor’s degrees in political science and economics from Saint Mary’s College of California and a master’s degree in economics from the University of California at Santa Barbara. Ms. Radecki has earned the right to use the Chartered Financial Analyst designation.
Tom Rozycki has been with Principal® since 2001. He earned a bachelor’s degree in Finance from Drake University. Mr. Rozycki has earned the right to use the Chartered Financial Analyst designation.
Jeffrey A. Schwarte has been with Principal® since 1993. He earned a bachelor’s degree in Accounting from the University of Northern Iowa. Mr. Schwarte has earned the right to use the Chartered Financial Analyst designation.
Aaron J. Siebel has been with Principal® since 2005. He earned a bachelor’s degree in Finance from the University of Iowa.
Scott Smith has been with Principal® since 1999. He earned a bachelor’s degree in Finance from Iowa State University.
Darryl Trunnel has been with Principal® since 2008. He earned a bachelor’s degree in Agricultural Business from Iowa State University. Mr. Trunnel has earned the right to use the Chartered Financial Analyst designation.
Nedret Vidinli has been with Principal® since 2010. He earned a bachelor’s degree in Business Administration at Drake University and an M.B.A. at Benedictine University. Mr. Vidinli has earned the right to use the Chartered Financial Analyst designation.
Randy L. Welch has been with Principal® since 1989. As Managing Director, Portfolio Manager at Principal Global Asset Allocation, a specialized boutique within PGI, he is responsible for overseeing the Strategic Asset Allocation Team. Mr. Welch is an affiliate member of the Chartered Financial Analysts (CFA) Institute. He earned a bachelor’s degree in Business/Finance from Grand View College and an M.B.A. from Drake University.
The Sub-Advisors
PGI has signed contracts with various sub-advisors. Under the sub-advisory agreements, the sub-advisor agrees to assume the obligations of PGI to provide investment advisory services to the portion of the assets of a specific Fund allocated to it by PGI. For these services, PGI pays the sub-advisor a fee.
PGI or the sub-advisor provides the Board with a recommended investment program. The program must be consistent with the Fund’s investment objective and policies. Within the scope of the approved investment program, the sub-advisor advises the Fund on its investment policy and determines which securities are bought or sold, and in what amounts.
The Fund summaries identified the sub-advisors, portfolio managers and the Funds they manage. Additional information follows. 
Sub-Advisor:
Brown Advisory, LLC (“Brown”), 901 South Bond Street, Suite 400, Baltimore, Maryland 21231, is a
registered investment advisor that works with institutions, corporations, nonprofits, families and
individuals.
Fund(s):
a portion of LargeCap Growth I
Sub-Advisor:
Principal Real Estate Investors, LLC (“Principal - REI”), 711 High Street, Des Moines, IA 50392, was
founded in 2000 and manages commercial real estate across the spectrum of public and private equity
and debt investments, primarily for institutional investors.
Fund(s):
Real Estate Securities
The portfolio managers operate as a team, sharing authority and responsibility for research and the day-to-day management of the portfolio with no limitation on the authority of one portfolio manager in relation to another.
Keith Bokota has been with Principal - REI since 2007. He earned a bachelor’s degree in Finance and International Business from Georgetown University. Mr. Bokota has earned the right to use the Chartered Financial Analyst designation.
Anthony Kenkel has been with Principal - REI since 2005. He earned a bachelor’s degree in Finance from Drake University and an M.B.A. from the University of Chicago Graduate School of Business. Mr. Kenkel has earned the right to use the Chartered Financial Analyst and Financial Risk Manager designations.
178
Kelly D. Rush has been with Principal - REI since 2000 and the predecessor firms since 1987. He earned a B.A. in Finance and an M.B.A. in Business Administration from the University of Iowa. Mr. Rush has earned the right to use the Chartered Financial Analyst designation. 
Sub-Advisor:
Spectrum Asset Management, Inc. (“Spectrum”), 2 High Ridge Park, Stamford, CT 06905, founded
in 1987, manages portfolios of preferred securities for corporate, pension fund, insurance and
endowment clients, open-end and closed-end mutual funds, and separately managed account programs
for high net worth individual investors as well as providing volatility mitigation solutions for some client
portfolios.
Fund(s):
a portion of LargeCap S&P 500 Managed Volatility Index (active volatility mitigation strategy)
Mr. Nugent is the primary portfolio manager and is responsible for the overall volatility mitigation strategy and day-to-day portfolio management of this strategy.
L. Phillip Jacoby, IV joined Spectrum in 1995. Mr. Jacoby earned a B.S. in Finance from the Boston University School of Management.
Manu Krishnan joined Spectrum in 2004. Mr. Krishnan earned a B.S. in Mechanical Engineering from the College of Engineering, Osmania University, India, an M.S. in Mechanical Engineering from the University of Delaware, and an M.B.A. in Finance from Cornell University. Mr. Krishnan has earned the right to use the Chartered Financial Analyst designation.
Kevin Nugent joined Spectrum in 2012. Mr. Nugent earned a B.A. from Ohio Wesleyan University. 
Sub-Advisor:
T. Rowe Price Associates, Inc. (“T. Rowe Price”), 100 East Pratt Street, Baltimore, MD 21202, has
over 75 years of investment management experience.
Fund(s):
a portion of LargeCap Growth I
The SAI provides additional information about each portfolio manager’s compensation, other accounts managed by the portfolio manager, and the portfolio manager’s ownership of securities in the Funds.
Participating Affiliate Agreement
In rendering investment advisory services to a Fund, the advisor and each sub-advisor may use the resources of one or more of its respective foreign (non-U.S.) affiliates that are not registered under the Investment Advisers Act of 1940, as amended, to provide portfolio management, research, and trading services to the Fund. Under a Participating Affiliate Agreement, and pursuant to applicable guidance from the staff of the SEC, U.S. registered advisors are allowed to use investment advisory and trading resources of such unregistered advisory affiliates subject to the regulatory supervision of the registered advisor. For example, some Principal Fund Complex assets are managed by employees of Principal Global Investors (Europe) Limited pursuant to such an arrangement. Each such affiliate and any of their respective employees who provide services to the Fund are considered under the Participating Affiliate Agreement to be “supervised persons” of the advisor or sub-advisor (as applicable) as that term is defined in the Investment Advisers Act of 1940.
Fees Paid to PGI
Each Fund pays PGI a fee for its services, which includes the fee PGI pays to sub-advisors, as applicable.
The management fee schedule for the U.S. LargeCap Buffer July Account, which has not completed a full fiscal year, is as follows: 
Net Asset Value of Account
Account/Portfolio
All Assets
U.S. LargeCap Buffer July
0.69%
The fee each Fund paid (as a percentage of the Fund’s average daily net assets) for the fiscal year ended December 31, 2021 was:
 
Account/Portfolio
Blue Chip
0.60%
Bond Market Index
0.14%
Core Plus Bond
0.46%
Diversified Balanced
0.05%
Diversified Balanced Managed Volatility
0.05%
Diversified Balanced Volatility Control
0.12%
Account/Portfolio
Diversified Growth
0.05%
Diversified Growth Managed Volatility
0.05%
Diversified Growth Volatility Control
0.12%
Diversified Income
0.05%
Diversified International
0.84%
Equity Income
0.47%
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Account/Portfolio
Global Emerging Markets
1.10%
Government & High Quality Bond
0.49%
LargeCap Growth I
0.68%
LargeCap S&P 500 Index
0.25%
LargeCap S&P 500 Index Managed Volatility
0.45%
MidCap
0.53%
Principal Capital Appreciation
0.62%
Principal LifeTime 2010
0.00%
Principal LifeTime 2020
0.00%
Principal LifeTime 2030
0.00%
Principal LifeTime 2040
0.00%
Account/Portfolio
Principal LifeTime 2050
0.00%
Principal LifeTime 2060
0.00%
Principal LifeTime Strategic Income
0.00%
Real Estate Securities
0.81%
SAM Balanced
0.23%
SAM Conservative Balanced
0.23%
SAM Conservative Growth
0.23%
SAM Flexible Income
0.23%
SAM Strategic Growth
0.23%
Short-Term Income
0.45%
SmallCap
0.81%
Availability of the discussions regarding the basis for the Board’s approval of various management and sub-advisory agreements is as follows: 
 
Annual Report to Shareholders
for the period ending December 31, 2021
Semi-Annual Report to Shareholders
for the period ending June 30, 2022
Account/Portfolio
Management Agreement
Sub-Advisory Agreement
Management Agreement
Sub-Advisory Agreement
U.S. LargeCap Buffer July
 
 
X
X
All Other Accounts/Portfolios
X
X
 
 
Manager of Managers
The Registrant operates as a Manager of Managers. Under an order received from the SEC (the “order”), the Registrant and PGI may enter into and materially amend agreements with unaffiliated and wholly-owned affiliated sub-advisors (affiliated sub-advisors that are at least 95% owned, directly or indirectly, by PGI or an affiliated person of PGI) without obtaining shareholder approval, including to:
•
hire one or more sub-advisors;
•
change sub-advisors; and
•
reallocate management fees between PGI and sub-advisors.
Although there is no present intent to do so, the Funds may, in the future, rely on current SEC Staff guidance that expands relief under the order to allow PGI to enter into and materially amend agreements with majority-owned affiliated sub-advisors (affiliated sub-advisors that are at least 50% owned, directly or indirectly, by PGI or an affiliated person of PGI), and, further, to all sub-advisors regardless of the degree of affiliation with PGI.
In order to rely on the varying degrees of relief granted by the order and/or the SEC Staff guidance, a Fund must receive approval from its shareholders (or, in the case of a new Fund, the Fund’s sole initial shareholder before the Fund is available to the other purchasers).
The shareholders of each Fund have approved such Fund’s reliance on the order, as supplemented by the SEC Staff guidance, as follows: 
Account/Portfolio
Unaffiliated
Sub-Advisors
Wholly-Owned
Affiliated
Sub-Advisors
Majority-Owned
Affiliated
Sub-Advisors
Any Other Sub-Advisors
Regardless of Degree
of Affiliation
All Accounts/Portfolios (except Blue Chip and U.S.
LargeCap Buffer July)
X
X
X
 
Blue Chip and U.S. LargeCap Buffer July
X
X
X
X
PGI has ultimate responsibility for the investment performance of each Fund that utilizes a sub-advisor due to its responsibility to oversee sub-advisors and recommend their hiring, termination, and replacement.
In accordance with a separate exemptive order that the Registrant and PGI have obtained from the SEC, the Board may approve a new sub-advisory agreement or a material amendment to an existing sub-advisory agreement at a meeting that is not in person, provided that the Board Members are able to participate in the meeting using a means of communication that allows them to hear each other simultaneously during the meeting and the other conditions in the exemptive order are met.
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PRICING OF FUND SHARES
Each Fund’s shares are bought and sold at the current net asset value (“NAV”) per share. Each Fund’s NAV is calculated each day the New York Stock Exchange (“NYSE”) is open (shares are not priced on the days on which the NYSE is closed for trading, generally: New Year’s Day, Martin Luther King, Jr. Day, Washington’s Birthday/Presidents’ Day, Good Friday, Memorial Day, Juneteenth, Independence Day, Labor Day, Thanksgiving Day, and Christmas). The NAV is determined at the close of business of the NYSE (normally 3:00 p.m. Central Time). When an order to buy or sell shares is received, the share price used to fill the order is the next price calculated after we receive the order in proper form.
The Funds will not treat an intraday unscheduled disruption in NYSE trading as a closure of the NYSE and will price shares as of 3:00 p.m. Central Time, if the particular disruption directly affects only the NYSE.
For all Funds, the NAV is calculated by:
•
taking the current market value of the total assets of the Fund
•
subtracting liabilities of the Fund
•
dividing the remainder proportionately into the classes of the Fund
•
subtracting the liability of each class
•
dividing the remainder by the total number of shares outstanding for that class.
With respect to any portion of a Fund’s assets invested in other registered investment companies, that portion of the Fund’s NAV is calculated based on the price (NAV or market, as applicable) of such other registered investment companies.
Notes:
•
If market quotations are not readily available for a security owned by a Fund, its fair value is determined using a policy adopted by the Board. Fair valuation pricing is subjective and creates the possibility that the fair value determined for a security may differ materially from the value that could be realized upon the sale of the security.
•
A Fund’s securities may be traded on foreign securities markets that generally complete trading at various times during the day before the close of the NYSE. Foreign securities and currencies are converted to U.S. dollars using the exchange rate in effect at the close of the NYSE. Securities traded outside of the Western Hemisphere are valued using a fair value policy adopted by the Fund. These fair valuation procedures are intended to discourage shareholders from investing in the Fund for the purpose of engaging in market timing or arbitrage transactions.
•
The trading of foreign securities generally or in a particular country or countries may not take place on all days the NYSE is open or may trade on days the NYSE is closed. Thus, the value of the foreign securities held by the Fund may change on days when shareholders are unable to purchase or redeem shares.
•
Certain securities issued by companies in emerging markets may have more than one quoted valuation at any point in time. These may be referred to as local price and premium price. The premium price is often a negotiated price that may not consistently represent a price at which a specific transaction can be effected. The Fund has a policy to value such securities at a price at which the Manager expects the securities may be sold.
Purchase of Fund Shares
Principal Variable Contracts Funds, Inc. offers accounts in three share classes: 1, 2 and 3. Funds available in multiple share classes have the same investments, but differing expenses. Classes 1, 2 and 3 shares are available in this Prospectus.
Shares are purchased from the Funds’ principal underwriter (the “Distributor”) on any business day (normally any day when the New York Stock Exchange is open for regular trading) upon request through the insurance company issuing the variable annuity, variable life contract, or the trustees or administrators of the qualified retirement plan offering the Fund. There are no sales charges on shares of the Funds; however, your variable contract may impose a charge. There are no restrictions on amounts to be invested in shares of the Funds.
The Funds, at their discretion, may permit the purchase of shares using securities as consideration (a purchase in-kind) in accordance with procedures approved by the Board. Each Fund will value securities used to purchase its shares using the same method the Registrant uses to value its portfolio securities as described in this Prospectus.
Shareholder accounts for each Fund are maintained under an open account system. Under this system, an account is opened and maintained for each investor. Each investment is confirmed by sending the investor a statement of account showing the current purchase and the total number of shares owned. The statement of account is treated by each Fund as evidence of ownership of Fund shares. Share certificates are not issued.
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No salesperson, broker-dealer or other person is authorized to give information or make representations about a Fund other than those contained in this Prospectus. Information or representations not contained in this Prospectus may not be relied upon as having been provided or made by Principal Variable Contracts Funds, Inc., a Fund, PGI, any sub-advisor, or Principal Funds Distributor, Inc.
Eligible Purchasers
Only certain eligible purchasers may buy shares of the Funds. Eligible purchasers are limited to 1) separate accounts of Principal Life or of other insurance companies, 2) Principal Life or any of its subsidiaries or affiliates, and 3) trustees of other managers of any qualified profit sharing, incentive, or bonus plan established by Principal Life or any subsidiary or affiliate of such company, for employees of such company, subsidiary, or affiliate. Such trustees or managers may buy Fund shares only in their capacities as trustees or managers and not for their personal accounts. The Board reserves the right to broaden or limit the designation of eligible purchaser.
Each Fund serves as the underlying investment vehicle for variable annuity contracts and variable life insurance policies that are funded through separate accounts established by Principal Life and by other insurance companies as well as for certain qualified plans. It is possible that in the future, it may not be advantageous for variable life insurance separate accounts, variable annuity separate accounts, and qualified plan investors to invest in the Funds at the same time. Although neither Principal Life nor the Registrant currently foresees any such disadvantage, the Board monitors events in order to identify any material conflicts between such policy owners, contract holders, and qualified plan investors. Material conflict could result from, for example, 1) changes in state insurance laws, 2) changes in Federal income tax law, 3) changes in the investment management of a Fund, or 4) differences in voting instructions between those given by policy owners, those given by contract holders, and those given by qualified plan investors. Should it be necessary, the Board would determine what action, if any, should be taken. Such action could include the sale of Fund shares by one or more of the separate accounts or qualified plans, which could have adverse consequences.
PGI may recommend to the Board, and the Board may elect, to close certain Funds or share classes to new investors or close certain Funds or share classes to new and existing investors.
Restricted Transfers
Shares of each of the Funds may be transferred to an eligible purchaser. However, if a Fund is requested to transfer shares to other than an eligible purchaser, the Fund has the right, at its election, to purchase the shares at the net asset value next calculated after the receipt of the transfer request. However, the Fund must give written notification to the transferee(s) of the shares of the election to buy the shares within seven days of the request. Settlement for the shares shall be made within the seven-day period.
Sale of Fund Shares
Variable contracts owners should refer to the variable contract product prospectus for details on how to allocate policy or contract value. Qualified plan participants should refer to the qualified plan documents.
Each Fund sells its shares on any business day (normally any day when the New York Stock Exchange is open for regular trading) upon request through the insurance company issuing the variable annuity, variable life contract, or the trustees or administrators of the qualified retirement plan offering the Fund. There is no charge for the redemption. Shares are redeemed at the NAV per share next computed after the request is received by the Fund in proper and complete form.
Sale proceeds are generally sent within three business days after the request is received in proper form. However, the right to sell shares may be suspended up to seven days, as permitted by federal securities law, during any period when 1) trading on the NYSE is restricted as determined by the SEC or when the NYSE is closed for reasons other than weekends and holidays or 2) an emergency exists, as determined by the SEC, as a result of which a) disposal by a fund of securities owned by it is not reasonably practicable, b) it is not reasonably practicable for a fund to fairly determine the value of its net assets, or c) the SEC permits suspension for the protection of security holders.
If payments are delayed and the instruction is not canceled by the shareholder’s written instruction, the amount of the transaction is determined as of the first valuation date following the expiration of the permitted delay. The transaction occurs within five days thereafter.
In addition, payments on surrender requests submitted before a related premium payment made by check has cleared may be delayed up to seven days. This permits payment to be collected on the check.
Distributions in Kind
The Registrant may determine that it would be detrimental to the remaining shareholders of a Fund to make payment of a redemption order wholly or partly in cash. Under certain circumstances, therefore, each of the Funds may pay the redemption proceeds in whole or in part by a distribution “in kind” of securities from the Fund’s portfolio in lieu of cash. If
182
a Fund pays the redemption proceeds in kind, the redeeming shareholder might incur brokerage or other costs in selling the securities for cash. In addition, the securities received will be subject to market risk until sold. Typically, such in kind redemptions would be distributed pro rata. Each Fund will value securities used to pay redemptions in kind using the same method the Registrant uses to value its portfolio securities as described in this Prospectus.
Under normal circumstances, each Fund expects to meet redemption requests through holdings of cash, the sale of investments held in cash equivalents, and/or by selling liquid index futures or other instruments used for cash management purposes. In situations in which such holdings are not sufficient to meet redemption requests, a Fund will typically borrow money through the Fund’s interfund lending facility or through a bank line-of-credit. No Fund can borrow under the bank line-of-credit while also a lender under the interfund lending facility. Each Fund may also choose to sell portfolio assets for the purpose of meeting such requests. Each Fund further reserves the right to distribute “in kind” securities from the Fund’s portfolio in lieu (in whole or in part) of cash under certain circumstances, including under stressed market conditions.
The agreement for the above-mentioned line of credit is with The Bank of New York Mellon.
DIVIDENDS AND DISTRIBUTIONS
The Funds earn dividends, interest, and other income from investments and distribute this income (less expenses) as dividends. The Funds also realize capital gains from investments and distribute these gains (less any losses) as capital gain distributions. The Funds normally make dividends and capital gain distributions at least annually, in September. Dividends and capital gain distributions are automatically reinvested in additional shares of the Fund making the distribution.
To the extent that distributions the Fund pays are derived from a source other than net income (such as a return of capital), you will receive a notice disclosing the source of such distributions. You may request a copy of all such notices, free of charge, by telephoning 1-800-222-5852. The amounts and sources of distributions included in such notices are estimates only and you should not rely upon them for purposes of reporting income taxes. The Fund will send shareholders a Form 1099-DIV for the calendar year that will tell shareholders how to report these distributions for federal income tax purposes.
FREQUENT PURCHASES AND REDEMPTIONS
The Funds are not designed for, and do not knowingly accommodate, frequent purchases and redemptions (“excessive trading”) of Fund shares by investors. If you intend to trade frequently and/or use market timing investment strategies, do not purchase shares of these Funds.
Frequent purchases and redemptions pose a risk to the Funds because they may:
•
Disrupt the management of the Funds by:
•
forcing the Funds to hold short-term (liquid) assets rather than investing for long-term growth, which results in lost investment opportunities for the Funds and
•
causing unplanned portfolio turnover;
•
Hurt the portfolio performance of the Funds; and
•
Increase expenses of the Funds due to:
•
increased broker-dealer commissions and
•
increased recordkeeping and related costs.
If we are not able to identify such excessive trading practices, the funds and their shareholders may be harmed. The harm of undetected excessive trading in shares of the underlying funds in which the funds of funds invest could flow through to the funds of funds as they would for any fund shareholder.
Certain Funds may be at greater risk of harm due to frequent purchases and redemptions. For example, those Funds that invest in foreign securities may appeal to investors attempting to take advantage of time-zone arbitrage. This risk is particularly relevant to the Diversified International and Global Emerging Market Accounts. The Funds have adopted fair valuation procedures. These procedures are intended to discourage market timing transactions in shares of the Funds.
As each Fund is only available through variable annuity or variable life contracts or to qualified retirement plans, the Funds must rely on the insurance company that issues the contract, or the trustees or administrators of qualified retirement plans (“intermediary”), to monitor customer trading activity to identify and take action against excessive trading. There can be no certainty that the intermediary will identify and prevent excessive trading in all instances. As such, the Funds’ transfer agent also employs transaction monitoring that management believes is reasonably likely to assist in identifying and
183
preventing excessive trading in Fund shares. When an intermediary or the Funds’ transfer agent identifies excessive trading, it will act to curtail such trading in a fair and uniform manner. If an intermediary or the Funds’ transfer agent is unable to identify such abusive trading practices, the abuses described above may negatively impact the Funds.
If an intermediary, or the Fund, deems excessive trading practices to be occurring, it will take action that may include, but is not limited to:
•
Rejecting exchange instructions from a shareholder or other person authorized by the shareholder to direct exchanges;
•
Restricting submission of exchange requests by, for example, allowing exchange requests to be submitted by 1st class U.S. mail only and disallowing requests made via the internet, by facsimile, by overnight courier, or by telephone;
•
Limiting the dollar amount of an exchange and/or the number of exchanges during a year;
•
Requiring a holding period of a minimum of 30 days before permitting exchanges among the Funds where there is evidence of at least one round-trip exchange (exchange or redemption of shares that were purchased within 30 days of the exchange/redemption); and
•
Taking such other action as directed by the Fund.
The Board has found the imposition of a redemption fee with respect to redemptions from Class 1, Class 2 and Class 3 shares of the Funds is neither necessary nor appropriate in light of measures taken by intermediaries through which such shares are currently available.
In order to prevent excessive trading, the Funds have reserved the right to accept or reject, without prior written notice, any exchange requests (an exchange request is a redemption request coupled with a request to purchase shares with the proceeds of the redemption; such restriction applies to the purchase of fund shares in an exchange request and does not restrict a shareholder from requesting a redemption). In some instances, an exchange may be completed prior to a determination of abusive trading. In those instances, the intermediary will reverse an exchange (within one business day of the exchange) and return the account holdings to the positions held prior to the exchange. The intermediary will give you notice in writing in this instance.
TAX CONSIDERATIONS
The Funds intend to comply with applicable variable asset diversification regulations. If a Fund fails to comply with such regulations, contracts invested in the Fund will not be treated as annuity, endowment, or life insurance contracts under the Internal Revenue Code.
Contract owners should review the applicable contract prospectus for information concerning the federal income tax treatment of their contracts and distributions from the Fund to the separate accounts.
Contract owners are urged to consult their tax advisors regarding the status of their contracts under state and local tax laws.
ONGOING FEES
Ongoing fees reduce the value of each share. Because they are ongoing, they increase the cost of investing in the Funds.
The Funds that operate as funds of funds, as shareholders in the underlying funds, bear their pro rata share of the operating expenses incurred by each underlying fund. The investment return of each fund of funds is net of the underlying funds’ operating expenses.
Each Fund pays ongoing fees to PGI and others who provide services to the Fund. These fees include:
•
Management Fee—Through the Management Agreement with the Registrant, PGI has agreed to provide investment advisory services and corporate administrative services to the Funds.
•
Distribution Fee—The Funds with Class 2 and Class 3 shares have adopted a distribution plan under Rule 12b-1 of the Investment Company Act of 1940 for its Class 2 and Class 3 shares. Under the plan, Class 2 and Class 3 shares of each Fund pays a distribution fee based on the average daily NAV of the Fund. These fees pay distribution and other expenses for the sale of Fund shares and for services provided to shareholders. Because they are ongoing fees, over time they will increase the cost of your investment and may cost you more than paying other types of sales charges.
•
Other Expenses—A portion of expenses that are allocated to all classes of the Funds. For Class 3 shares, “Other Expenses” include an Administrative Services Fee pursuant an Administrative Services Plan and Agreement under which PSS or certain intermediaries are required to provide shareholder and administrative services for variable contract owners that allocate their contract values to Class 3 shares of the Fund.
184
•
Acquired Fund Fees and Expenses—Fees and expenses charged by other investment companies in which a Fund invests a portion of its assets.
DISTRIBUTION PLANS AND INTERMEDIARY COMPENSATION
Distribution and/or Service (12b-1) Fees
Principal Funds Distributor, Inc. (“PFD” or the “Distributor”) is the distributor for the shares of the Funds. PFD is an affiliate of Principal Life Insurance Company, a subsidiary of Principal Financial Group, Inc., and a member of Principal®.
The Registrant has adopted a distribution plan pursuant to Rule 12b-1 under the Investment Company Act for Class 2 and Class 3 shares of the Funds. Under the 12b-1 plans, each Fund makes payments from its assets attributable to Class 2 and Class 3 shares to the Fund’s Distributor for distribution-related expenses and for providing services to shareholders of that share class. Payments under the 12b-1 plans are made by the Funds to the Distributor pursuant to the 12b-1 plans regardless of the expenses incurred by the Distributor. When the Distributor receives Rule 12b-1 fees, it may pay some or all of them to financial intermediaries whose customers are Class 2 and Class 3 shareholders for sales support services and for providing services to shareholders of that share class. Financial intermediaries may include, among others, broker-dealers, registered investment advisors, banks, trust companies, pension plan consultants, retirement plan administrators, and insurance companies.
Because Rule 12b-1 fees are paid out of Fund assets and are ongoing fees, over time they will increase the cost of your investment in the Funds and may cost you more than other types of sales charges.
The maximum annualized Rule 12b-1 fee for distribution related expenses and/or for providing services to shareholders (as a percentage of average daily net assets) for Class 2 and Class 3 shares of each Fund is 0.25%.
Payments under the 12b-1 plans will not automatically terminate for Funds that are closed to new investors or to additional purchases by existing shareholders. The Board will determine whether to terminate, modify, or leave unchanged the 12b-1 plan if the Board directs the closure of a Fund.
Payments to Financial Professionals and Their Firms
Financial intermediaries receive compensation from the Distributor and its affiliates for marketing, selling, and/or providing services to variable annuities and variable life insurance contracts that invest in the Funds. Financial intermediaries also receive compensation for marketing, selling, and/or providing services to certain retirement plans that offer the Funds as investment options. Financial intermediaries may include, among others, broker/dealers, registered investment advisors, banks, trust companies, pension plan consultants, retirement plan administrators, and insurance companies. Financial Professionals who deal with investors on an individual basis are typically associated with a financial intermediary. The Distributor and its affiliates may fund this compensation from various sources, including any Rule 12b-1 Plan fee that the Fund pays to the Distributor. Individual Financial Professionals may receive some or all of the amounts paid to the financial intermediary with which he or she is associated.
Ongoing Payments
In the case of Class 2 and Class 3 , and pursuant to the Rule 12b-1 Plan applicable to Class 2 and Class 3 shares, the Distributor generally makes ongoing payments to your financial intermediary at an annual rate of 0.25% of average net assets attributable to your indirect investment in the Funds. In addition, the Distributor or PGI may make from its own resources ongoing payments to an insurance company, which payments will generally not exceed 0.27% of the average net assets of the Funds held by the insurance company in its separate accounts. The payments are for distribution support and/or administrative services and may be made with respect to either or all classes of shares of the Funds.
Other Payments to Intermediaries
In addition to any commissions that may be paid at the time of sale and ongoing payments, the Distributor and its affiliates, at their expense, currently provide additional payments to financial intermediaries that sell variable annuities and variable life insurance contracts that may be funded by shares of the Funds, or may sell shares of the Funds to retirement plans for distribution services. Although payments made to each qualifying financial intermediary in any given year may vary, such payments will generally not exceed 0.25% of the current year’s sales of applicable variable annuities and variable life insurance contracts that may be funded by account shares, or 0.25% of the current year’s sales of Fund shares to retirement plans by that financial intermediary.
Additionally, in some cases the Distributor and its affiliates will provide payments or reimbursements in connection with the costs of conferences, educational seminars, due diligence trips, training and marketing efforts related to the Funds for the financial intermediary’s personnel and/or their clients and potential clients. Such activities may be sponsored by financial intermediaries or the Distributor. The costs associated with such activities may include travel, lodging, entertainment, and meals. In some cases the Distributor will also provide payment or reimbursement for expenses associated with transactions (“ticket”) charges and general marketing expenses.
185
In addition to the other payments described in this section, the Registrant has entered into an Administrative Services Plan and Agreement with Principal Shareholder Services (“PSS”), pursuant to which intermediaries receive payments for providing administrative services relating to the Funds' Class 3 shares. Such compensation is paid out of the Administrative Service Fees that are disclosed in this Prospectus as Other Expenses.
For more information, see the Statement of Additional Information (SAI). See also the section titled “Payments to Broker-Dealers and Other Financial Intermediaries” in each Fund Summary.
Your variable life insurance or variable annuity contract or your retirement plan may impose other charges and expenses, some of which may also be used in connection with the sale of such contracts in addition to those described in the prospectus. The amount and applicability of any insurance contract fee are determined and disclosed separately within the prospectus for your insurance contract.
The payments described in this Prospectus may create a conflict of interest by influencing your Financial Professional or your financial intermediary to recommend one variable annuity, variable life insurance policy or mutual fund over another, or to recommend one Fund or share class over another Fund or share class. Ask your Financial Professional or visit your financial intermediary’s website for more information about the total amounts paid to them by PGI and its affiliates, and by sponsors of other investment companies your Financial Professional may recommend to you.
Your financial intermediary may charge you additional fees other than those disclosed in this Prospectus. Ask your Financial Professional about any fees and commissions they charge.
Fund Account Information
Financial Statements
Shareholders will receive an annual financial statement for the Funds, audited by the Registrant’s independent registered public accounting firm. Shareholders will also receive a semi-annual financial statement that is unaudited.
186
APPENDIX A—DESCRIPTION OF BOND RATINGS
Moody’s Investors Service, Inc. Rating Definitions:
Long-Term Obligation Ratings
Ratings assigned on Moody’s global long-term obligation rating scales are forward-looking opinions of the relative credit risk of financial obligations issued by non-financial corporates, financial institutions, structured finance vehicles, project finance vehicles, and public sector entities. Long-term ratings are assigned to issuers or obligations with an original maturity of one year or more and reflect both on the likelihood of a default or impairment on contractual financial obligations and the expected financial loss suffered in the event of default or impairment.1
1
For certain structured finance, preferred stock and hybrid securities in which payment default events are either not defined or do not match investor’s expectations for timely payment, the ratings reflect the likelihood of impairment and the expected financial loss in the event of impairment. 
Aaa:
Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
Aa:
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
A:
Obligations rated A are considered upper-medium grade and are subject to low credit risk.
Baa:
Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may
possess certain speculative characteristics.
Ba:
Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
B:
Obligations rated B are considered speculative and are subject to high credit risk.
Caa:
Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.
Ca:
Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of
recovery of principal and interest.
C:
Obligations rated C are the lowest rated class of bonds and are typically in default, with little prospect for
recovery of principal or interest.
NOTE:
Moody’s appends numerical modifiers, 1, 2, and 3 to each generic rating classification from Aa through Caa.
The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category, the modifier 2
indicates a mid-range ranking, and the modifier 3 indicates a ranking in the lower end of that generic rating
category. Additionally, a “(hyb)” indicator is appended to all ratings of hybrid securities issued by banks, issuers,
financial companies, and securities firms.*
*
By their terms, hybrid securities allow for the omission of scheduled dividends, interest, or principal payments, which can potentially result in impairment if such an omission occurs. Hybrid securities may also be subject to contractually allowable write-downs of principal that could result in impairment. Together the hybrid indicator, the long-term obligation rating assigned to a hybrid security is an expression of the relative credit risk associated with that security.
SHORT-TERM NOTES: Short-term ratings are assigned to obligations with an original maturity of thirteen months or less and reflect both on the likelihood of a default or impairment on contractual financial obligations and the expected financial loss suffered in the event of default. Moody’s employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a superior ability to repay short-term debt obligations.
Issuers rated Prime-2 (or related supporting institutions) have a strong ability to repay short-term debt obligations.
Issuers rated Prime-3 (or related supporting institutions) have an acceptable ability to repay short-term obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
US MUNICIPAL SHORT-TERM DEBT: The Municipal Investment Grade (MIG) scale is used to rate US municipal bonds of up to five years maturity. MIG ratings are divided into three levels - MIG 1 through MIG 3 - while speculative grade short-term obligations are designated SG.
MIG 1 denotes superior credit quality, afforded excellent protection from highly reliable liquidity support, or demonstrated broad-based access to the market for refinancing.
MIG 2 denotes strong credit quality with ample margins of protection, although not as large as in the preceding group.
A-1
MIG 3 notes are of acceptable credit quality. Liquidity and cash-flow protection may be narrow and market access for refinancing is likely to be less well-established.
SG denotes speculative-grade credit quality and may lack sufficient margins of protection.
Description of S&P Global Ratings’ Credit Rating Definitions:
S&P Global’s credit rating, both long-term and short-term, is a forward-looking opinion of the creditworthiness of an obligor with respect to a specific obligation. This assessment takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation.
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment as to market price or suitability for a particular investor.
The ratings are statements of opinion as of the date they are expressed furnished by the issuer or obtained by S&P Global Ratings from other sources S&P Global Ratings considers reliable. S&P Global Ratings does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
•
Likelihood of payment - capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation;
•
Nature of and provisions of the financial obligation;
•
Protection afforded by, and relative position of, the financial obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditor’s rights.
LONG-TERM CREDIT RATINGS: 
AAA:
Obligations rated ‘AAA’ have the highest rating assigned by S&P Global Ratings. The obligor’s capacity to
meet its financial commitment on the obligation is extremely strong.
AA:
Obligations rated ‘AA’ differ from the highest-rated issues only in small degree. The obligor’s capacity to
meet its financial commitment on the obligation is very strong.
A:
Obligations rated ‘A’ have a strong capacity to meet financial commitment on the obligation although they
are somewhat more susceptible to the adverse effects of changes in circumstances and economic
conditions than obligations in higher-rated categories.
BBB:
Obligations rated ‘BBB’ exhibit adequate protection parameters; however, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to meet financial commitment on
the obligation.
BB, B, CCC,
CC and C:
Obligations rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded, on balance, as having significant speculative
characteristics. ‘BB’ indicates the lowest degree of speculation and ‘C’ the highest degree of speculation.
While such obligations will likely have some quality and protective characteristics, these may be
outweighed by large uncertainties or major risk exposures to adverse conditions.
BB:
Obligations rated ‘BB’ are less vulnerable to nonpayment than other speculative issues. However it faces
major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which
could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.
B:
Obligations rated ‘B’ are more vulnerable to nonpayment than ‘BB’ but the obligor currently has the
capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair this capacity.
CCC:
Obligations rated ‘CCC’ are currently vulnerable to nonpayment and is dependent upon favorable
business, financial, and economic conditions for the obligor to meet its financial commitment on the
obligation. If adverse business, financial, or economic conditions occur, the obligor is not likely to have the
capacity to meet its financial commitment on the obligation.
CC:
Obligations rated ‘CC’ are currently highly vulnerable to nonpayment. The ‘CC’ rating is used when a
default has not yet occurred but S&P Global Ratings expects default to be a virtual certainty, regardless of
anticipated time to default.
C:
The rating ‘C’ is highly vulnerable to nonpayment, the obligation is expected to have lower relative seniority
or lower ultimate recovery compared to higher rated obligations.
A-2
D:
Obligations rated ‘D’ are in default, or in breach of an imputed promise. For non-hybrid capital instruments,
the ‘D’ rating category is used when payments on an obligation are not made on the date due, unless S&P
Global Ratings believes that such payments will be made within five business days in the absence of a
stated grace period or within the earlier of the stated grace period or 30 calendar days. The rating will also
be used upon filing for bankruptcy petition or the taking of similar action and where default is a virtual
certainty. If an obligation is subject to a distressed exchange offer the rating is lowered to ‘D’.
Plus (+) or Minus (-): The ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. 
NR:
Indicates that no rating has been requested, that there is insufficient information on which to base a rating or
that S&P Global Ratings does not rate a particular type of obligation as a matter of policy.
SHORT-TERM CREDIT RATINGS: Ratings are graded into four categories, ranging from ‘A-1’ for the highest quality obligations to ‘D’ for the lowest. 
A-1:
This is the highest category. The obligor’s capacity to meet its financial commitment on the obligation is strong.
Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor’s
capacity to meet its financial commitment on these obligations is extremely strong.
A-2:
Issues carrying this designation are somewhat more susceptible to the adverse effects of the changes in
circumstances and economic conditions than obligations in higher rating categories. However, the obligor’s
capacity to meet its financial commitment on the obligation is satisfactory.
A-3:
Issues carrying this designation exhibit adequate capacity to meet their financial obligations. However, adverse
economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to
meet it financial commitment on the obligation.
B:
Issues rated ‘B’ are regarded as vulnerable and have significant speculative characteristics. The obligor has
capacity to meet financial commitments; however, it faces major ongoing uncertainties which could lead to
obligor’s inadequate capacity to meet its financial obligations.
C:
This rating is assigned to short-term debt obligations that are currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions to meet its financial commitment on the
obligation.
D:
This rating indicates that the issue is either in default or in breach of an imputed promise. For non-hybrid capital
instruments, the ‘D’ rating category is used when payments on an obligation are not made on the date due,
unless S&P Global Ratings believes that such payments will be made within five business days in the absence
of a stated grace period or within the earlier of the stated grace period or 30 calendar days. The rating will also
be used upon filing for bankruptcy petition or the taking of similar action and where default is a virtual certainty.
If an obligation is subject to a distressed exchange offer the rating is lowered to ‘D’.
MUNICIPAL SHORT-TERM NOTE RATINGS: S&P Global Ratings rates U.S. municipal notes with a maturity of less than three years as follows: 
SP-1:
A strong capacity to pay principal and interest. Issues that possess a very strong capacity to pay debt service is
given a “+” designation.
SP-2:
A satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic
changes over the terms of the notes.
SP-3:
A speculative capacity to pay principal and interest.
A-3
APPENDIX B—INDEX ABBREVIATIONS
Some of the indices in the Prospectus are identified with abbreviations. The abbreviations for those indices are spelled out below: 
Index Name shown in the
Average Annual Total Returns Table
Full Index Name
Bloomberg US Agency Fixed Rate MBS Index
Bloomberg Mortgage Backed Securities Index
MSCI Emerging Markets Index NTR
Morgan Stanley Capital International Emerging Markets
Net Dividend Total Return Dollar Index
MSCI EAFE Index NTR
Morgan Stanley Capital International Europe, Australasia,
and Far East Index Net Dividend Total Return Dollar Index
MSCI ACWI Ex USA Index NTR
Morgan Stanley Capital International All Country World
Index Ex-U.S.
MSCI US REIT Index
Morgan Stanley Capital International United States Real
Estate Investment Trust Index
B-1
APPENDIX c—financial highlights
The following financial highlights tables are intended to help you understand the Fund’s financial performance for the periods shown. Certain information reflects returns for a single Fund share. The total returns in each table represent the rate that an investor would have earned or lost each period on an investment in the Fund (assuming reinvestment of all distributions). This information has been derived from the financial statements audited by Ernst & Young LLP, Independent Registered Public Accounting Firm, whose report, along with each Fund’s financial statements, is included in Principal Variable Contracts Funds, Inc. Annual Report to Shareholders for the fiscal year ended December 31, 2021, which is available upon request, and incorporated by reference into the SAI.
To request a free copy of the latest Annual or Semi-Annual Report for the Fund, you may telephone 1-800-222-5852.
•
Effective May 1, 2022, International Emerging Markets Account changed its name to Global Emerging Markets Account.
C-1
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
Net Asset
Value, End
of Period
BLUE CHIP ACCOUNT
Class 3 shares
2021
$10.34
$(0.08)
$2.64
$2.56
$(0.09)
$(0.09)
$12.81
2020(d)
10.00
–
0.34
0.34
–
–
10.34
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Reflects Manager's contractual expense limit.
(d)
Period from December 9, 2020 date operations commenced, through December 31, 2020.
(e)
Total return amounts have not been annualized.
(f)
Computed on an annualized basis.
C-2
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
24.72%
$13,515
1.05%(c)
(0.63)%
12.5%
3.40(e)
5,170
1.05(c)(f)
(0.66)(f)
54.6(f)
C-3
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
BOND MARKET INDEX ACCOUNT
Class 1 shares
2021
$11.21
$0.17
$(0.37)
$(0.20)
$(0.22)
$(0.03)
$(0.25)
2020
10.72
0.23
0.55
0.78
(0.29)
–
(0.29)
2019
10.15
0.28
0.58
0.86
(0.29)
–
(0.29)
2018
10.39
0.26
(0.28)
(0.02)
(0.22)
–
(0.22)
2017
10.25
0.22
0.11
0.33
(0.19)
–
(0.19)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Reflects Manager's contractual expense limit.
C-4
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$10.76
(1.83)%
$2,900,608
0.14%
1.58%
130.5%
11.21
7.29
2,735,259
0.14
2.04
104.0
10.72
8.47
2,539,460
0.15(c)
2.60
93.6
10.15
(0.19)
2,213,355
0.15(c)
2.52
123.1
10.39
3.27
2,448,068
0.23(c)
2.10
108.9
C-5
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
CORE PLUS BOND ACCOUNT
Class 1 shares
2021
$12.15
$0.25
$(0.30)
$(0.05)
$(0.32)
$(0.30)
$(0.62)
2020
11.50
0.23
0.86
1.09
(0.44)
–
(0.44)
2019
10.81
0.34
0.72
1.06
(0.37)
–
(0.37)
2018
11.35
0.36
(0.52)
(0.16)
(0.38)
–
(0.38)
2017
11.15
0.35
0.18
0.53
(0.33)
–
(0.33)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
C-6
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$11.48
(0.45)%
$236,382
0.47%
2.12%
150.8%
12.15
9.55
255,956
0.47
1.92
210.3
11.50
9.81
252,874
0.47
2.99
152.4
10.81
(1.41)
280,760
0.47
3.27
127.5
11.35
4.81
293,662
0.46
3.08
123.5
C-7
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
DIVERSIFIED BALANCED ACCOUNT
Class 1 shares
2021
$17.58
$0.36
$1.55
$1.91
$(0.40)
$(0.98)
$(1.38)
2020
16.52
0.36
1.70
2.06
(0.40)
(0.60)
(1.00)
2019
14.87
0.36
2.34
2.70
(0.35)
(0.70)
(1.05)
2018
15.98
0.31
(0.78)
(0.47)
(0.43)
(0.21)
(0.64)
2017(c)
15.36
0.45
0.65
1.10
(0.26)
(0.22)
(0.48)
Class 2 shares
2021
17.61
0.31
1.57
1.88
(0.36)
(0.98)
(1.34)
2020
16.55
0.32
1.70
2.02
(0.36)
(0.60)
(0.96)
2019
14.88
0.32
2.36
2.68
(0.31)
(0.70)
(1.01)
2018
15.99
0.27
(0.78)
(0.51)
(0.39)
(0.21)
(0.60)
2017
14.76
0.35
1.32
1.67
(0.22)
(0.22)
(0.44)
Class 3 shares
2021
17.58
0.68
1.16
1.84
(0.40)
(0.98)
(1.38)
2020(h)
17.32
0.05
0.21
0.26
–
–
–
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Period from May 1, 2017 date operations commenced, through December 31, 2017.
(d)
Total return amounts have not been annualized.
(e)
Computed on an annualized basis.
(f)
Reflects Manager's voluntary expense limit.
(g)
Excludes expense reimbursement from Manager.
(h)
Period from December 9, 2020 date operations commenced, through December 31, 2020.
C-8
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Gross
Expenses to
Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$18.11
11.06%
$41,982
0.05%
–%
2.00%
14.3%
17.58
12.96
40,515
0.05
–
2.18
23.6
16.52
18.43
40,694
0.05
–
2.25
16.9
14.87
(3.14)
36,763
0.05
–
1.95
15.7
15.98
7.27(d)
42,702
0.05(e)
–
4.27(e)
13.9
 
 
 
 
 
 
 
18.15
10.83
962,935
0.30
–
1.72
14.3
17.61
12.63
979,751
0.30
–
1.95
23.6
16.55
18.23
988,264
0.30(f)
0.30(g)
1.96
16.9
14.88
(3.40)
968,449
0.30(f)
0.30(g)
1.69
15.7
15.99
11.43
1,131,373
0.30(f)
0.30(g)
2.27
13.9
 
 
 
 
 
 
 
18.04
10.65
327
0.45
–
3.79
14.3
17.58
1.50(d)
10
0.45(e)
–
4.31(e)
23.6
C-9
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
DIVERSIFIED BALANCED MANAGED VOLATILITY ACCOUNT
Class 2 shares
2021
$13.65
$0.32
$1.03
$1.35
$(0.25)
$(0.32)
$(0.57)
2020
12.91
0.24
1.26
1.50
(0.25)
(0.51)
(0.76)
2019
11.34
0.23
1.74
1.97
(0.21)
(0.19)
(0.40)
2018
12.25
0.19
(0.55)
(0.36)
(0.46)
(0.09)
(0.55)
2017
11.27
0.43
0.78
1.21
(0.15)
(0.08)
(0.23)
Class 3 shares
2021
13.65
0.31
1.02
1.33
(0.28)
(0.32)
(0.60)
2020(d)
13.46
0.04
0.15
0.19
–
–
–
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Reflects Manager's contractual expense limit.
(d)
Period from December 9, 2020 date operations commenced, through December 31, 2020.
(e)
Total return amounts have not been annualized.
(f)
Computed on an annualized basis.
C-10
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$14.43
9.94%
$184,060
0.31%(c)
2.24%
18.7%
13.65
12.03
185,139
0.31(c)
1.84
25.0
12.91
17.48
176,235
0.31(c)
1.90
21.3
11.34
(3.20)
162,166
0.31(c)
1.59
16.2
12.25
10.90
181,005
0.31(c)
3.65
13.6
 
 
 
 
 
 
14.38
9.81
11
0.46
2.17
18.7
13.65
1.41(e)
10
0.46(f)
4.31(f)
25.0
C-11
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
DIVERSIFIED BALANCED VOLATILITY CONTROL ACCOUNT
Class 2 shares
2021
$12.40
$0.22
$1.02
$1.24
$(0.17)
$(0.20)
$(0.37)
2020
11.71
0.20
0.81
1.01
(0.18)
(0.14)
(0.32)
2019
10.31
0.28
1.30
1.58
(0.09)
(0.09)
(0.18)
2018
10.80
0.20
(0.58)
(0.38)
(0.08)
(0.03)
(0.11)
2017(e)
10.00
0.27
0.53
0.80
–
–
–
Class 3 shares
2021
12.40
0.19
1.03
1.22
(0.19)
(0.20)
(0.39)
2020(h)
12.22
0.04
0.14
0.18
–
–
–
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Reflects Manager's contractual expense limit.
(d)
Total return is calculated using the traded net asset value which may differ from the reported net asset value. The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.
(e)
Period from March 30, 2017 date operations commenced, through December 31, 2017.
(f)
Total return amounts have not been annualized.
(g)
Computed on an annualized basis.
(h)
Period from December 9, 2020 date operations commenced, through December 31, 2020.
C-12
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$13.27
10.08%
$229,787
0.38%
1.67%
47.6%
12.40
8.82
184,469
0.38(c)
1.73
83.5
11.71
15.47
145,371
0.38(c)
2.47
33.1
10.31
(3.71)(d)
66,983
0.38(c)
1.90
99.6
10.80
8.10(d)(f)
36,522
0.39(c)(g)
3.36(g)
8.0(g)
 
 
 
 
 
 
13.23
9.94
11
0.53
1.48
47.6
12.40
1.47(f)
10
0.53(g)
5.62(g)
83.5
C-13
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
DIVERSIFIED GROWTH ACCOUNT
Class 2 shares
2021
$20.15
$0.37
$2.56
$2.93
$(0.38)
$(1.02)
$(1.40)
2020
18.69
0.35
2.12
2.47
(0.37)
(0.64)
(1.01)
2019
16.29
0.34
3.06
3.40
(0.33)
(0.67)
(1.00)
2018
17.66
0.30
(1.03)
(0.73)
(0.45)
(0.19)
(0.64)
2017
15.93
0.43
1.79
2.22
(0.23)
(0.26)
(0.49)
Class 3 shares
2021
20.15
0.42
2.48
2.90
(0.43)
(1.02)
(1.45)
2020(f)
19.80
0.07
0.28
0.35
–
–
–
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Reflects Manager's voluntary expense limit.
(d)
Excludes expense reimbursement from Manager.
(e)
Total return is calculated using the traded net asset value which may differ from the reported net asset value. The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.
(f)
Period from December 9, 2020 date operations commenced, through December 31, 2020.
(g)
Total return amounts have not been annualized.
(h)
Computed on an annualized basis.
C-14
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Gross
Expenses to
Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$21.68
14.79%
$3,974,179
0.30%
–%
1.74%
14.7%
20.15
13.76
3,853,082
0.30
–
1.89
23.0
18.69
21.20
3,772,145
0.30(c)
0.30(d)
1.89
16.0
16.29
(4.51)(e)
3,488,312
0.30(c)
0.30(d)
1.69
15.5
17.66
14.21(e)
3,945,713
0.30(c)
0.30(d)
2.52
10.9
 
 
 
 
 
 
 
21.60
14.63
277
0.45
–
2.00
14.7
20.15
1.77(g)
10
0.45(h)
–
5.91(h)
23.0
C-15
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
DIVERSIFIED GROWTH MANAGED VOLATILITY ACCOUNT
Class 2 shares
2021
$14.33
$0.36
$1.58
$1.94
$(0.24)
$(0.37)
$(0.61)
2020
13.53
0.23
1.46
1.69
(0.25)
(0.64)
(0.89)
2019
11.61
0.23
2.09
2.32
(0.20)
(0.20)
(0.40)
2018
12.72
0.19
(0.66)
(0.47)
(0.54)
(0.10)
(0.64)
2017
11.46
0.52
0.99
1.51
(0.15)
(0.10)
(0.25)
Class 3 shares
2021
14.33
0.35
1.56
1.91
(0.28)
(0.37)
(0.65)
2020(d)
14.09
0.05
0.19
0.24
–
–
–
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Reflects Manager's contractual expense limit.
(d)
Period from December 9, 2020 date operations commenced, through December 31, 2020.
(e)
Total return amounts have not been annualized.
(f)
Computed on an annualized basis.
C-16
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$15.66
13.70%
$388,912
0.30%
2.39%
17.4%
14.33
13.06
378,238
0.30(c)
1.74
22.3
13.53
20.18
353,687
0.31(c)
1.80
18.8
11.61
(4.07)
325,228
0.30(c)
1.53
16.3
12.72
13.34
355,062
0.30(c)
4.30
12.5
 
 
 
 
 
 
15.59
13.44
12
0.45
2.31
17.4
14.33
1.70(e)
10
0.45(f)
5.91(f)
22.3
C-17
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
DIVERSIFIED GROWTH VOLATILITY CONTROL ACCOUNT
Class 2 shares
2021
$12.68
$0.23
$1.52
$1.75
$(0.16)
$(0.20)
$(0.36)
2020
12.00
0.19
0.86
1.05
(0.18)
(0.19)
(0.37)
2019
10.37
0.26
1.55
1.81
(0.10)
(0.08)
(0.18)
2018
10.97
0.21
(0.71)
(0.50)
(0.07)
(0.03)
(0.10)
2017(d)
10.00
0.30
0.67
0.97
–
–
–
Class 3 shares
2021
12.68
0.20
1.53
1.73
(0.18)
(0.20)
(0.38)
2020(g)
12.47
0.05
0.16
0.21
–
–
–
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Reflects Manager's contractual expense limit.
(d)
Period from March 30, 2017 date operations commenced, through December 31, 2017.
(e)
Total return amounts have not been annualized.
(f)
Computed on an annualized basis.
(g)
Period from December 9, 2020 date operations commenced, through December 31, 2020.
C-18
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$14.07
13.89%
$1,277,128
0.37%
1.69%
57.4%
12.68
8.98
995,575
0.37
1.63
85.9
12.00
17.57
765,417
0.37(c)
2.32
36.2
10.37
(4.60)
384,706
0.37(c)
1.96
103.6
10.97
9.70(e)
171,769
0.38(c)(f)
3.80(f)
0.9(f)
 
 
 
 
 
 
14.03
13.74
12
0.52
1.46
57.4
12.68
1.68(e)
10
0.52(f)
7.20(f)
85.9
C-19
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
DIVERSIFIED INCOME ACCOUNT
Class 2 shares
2021
$14.82
$0.26
$0.77
$1.03
$(0.29)
$(0.35)
$(0.64)
2020
13.82
0.30
1.23
1.53
(0.28)
(0.25)
(0.53)
2019
12.46
0.29
1.58
1.87
(0.22)
(0.29)
(0.51)
2018
13.12
0.22
(0.51)
(0.29)
(0.28)
(0.09)
(0.37)
2017
12.34
0.26
0.82
1.08
(0.18)
(0.12)
(0.30)
Class 3 shares
2021
14.82
0.58
0.42
1.00
(0.32)
(0.35)
(0.67)
2020(e)
14.65
0.02
0.15
0.17
–
–
–
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Reflects Manager's voluntary expense limit.
(d)
Excludes expense reimbursement from Manager.
(e)
Period from December 9, 2020 date operations commenced, through December 31, 2020.
(f)
Total return amounts have not been annualized.
(g)
Computed on an annualized basis.
C-20
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Gross
Expenses to
Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$15.21
6.96%
$325,983
0.30%(c)
0.30%(d)
1.75%
24.8%
14.82
11.27
323,525
0.30(c)
0.30(d)
2.10
31.2
13.82
15.16
279,888
0.31(c)
0.31(d)
2.16
25.6
12.46
(2.38)
241,331
0.30(c)
0.30(d)
1.72
22.8
13.12
8.81
268,135
0.30(c)
0.30(d)
2.06
21.2
 
 
 
 
 
 
 
15.15
6.78
781
0.45
–
3.83
24.8
14.82
1.16(f)
10
0.45(g)
–
2.69(g)
31.2
C-21
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
DIVERSIFIED INTERNATIONAL ACCOUNT
Class 1 shares
2021
$17.77
$0.28
$1.46
$1.74
$(0.25)
$(0.09)
$(0.34)
2020
15.71
0.18
2.29
2.47
(0.41)
–
(0.41)
2019
13.72
0.28
2.75
3.03
(0.26)
(0.78)
(1.04)
2018
17.01
0.31
(3.25)
(2.94)
(0.35)
–
(0.35)
2017
13.42
0.21
3.67
3.88
(0.29)
–
(0.29)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
C-22
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$19.17
9.75%
$299,426
0.90%
1.49%
36.6%
17.77
16.16
291,726
0.92
1.19
47.1
15.71
22.69
266,768
0.93
1.86
43.7
13.72
(17.54)
233,612
0.91
1.91
59.3
17.01
29.06
292,975
0.91
1.37
42.8
C-23
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
EQUITY INCOME ACCOUNT
Class 1 shares
2021
$28.54
$0.55
$5.82
$6.37
$(0.64)
$(0.02)
$(0.66)
2020
28.19
0.55
1.08
1.63
(0.52)
(0.76)
(1.28)
2019
22.86
0.56
6.00
6.56
(0.51)
(0.72)
(1.23)
2018
26.08
0.64
(1.72)
(1.08)
(0.52)
(1.62)
(2.14)
2017
23.20
0.56
4.14
4.70
(0.58)
(1.24)
(1.82)
Class 2 shares
2021
28.26
0.47
5.75
6.22
(0.59)
(0.02)
(0.61)
2020
27.93
0.48
1.06
1.54
(0.45)
(0.76)
(1.21)
2019
22.66
0.49
5.95
6.44
(0.45)
(0.72)
(1.17)
2018
25.87
0.57
(1.70)
(1.13)
(0.46)
(1.62)
(2.08)
2017
23.03
0.49
4.11
4.60
(0.52)
(1.24)
(1.76)
Class 3 shares
2021
28.53
0.47
5.76
6.23
(0.64)
(0.02)
(0.66)
2020(c)
27.94
0.03
0.56
0.59
–
–
–
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Period from December 9, 2020 date operations commenced, through December 31, 2020.
(d)
Total return amounts have not been annualized.
(e)
Computed on an annualized basis.
C-24
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$34.25
22.47%
$701,625
0.47%
1.73%
9.6%
28.54
6.43
755,882
0.48
2.18
21.0
28.19
29.09
741,311
0.47
2.16
17.9
22.86
(5.01)
636,177
0.49
2.47
13.2
26.08
21.08
572,629
0.50
2.26
15.9
 
 
 
 
 
 
33.87
22.15
53,723
0.72
1.48
9.6
28.26
6.15
33,951
0.73
1.93
21.0
27.93
28.78
31,874
0.72
1.91
17.9
22.66
(5.24)
25,207
0.74
2.23
13.2
25.87
20.77
27,469
0.75
2.00
15.9
 
 
 
 
 
 
34.10
21.97
148
0.87
1.43
9.6
28.53
2.11(d)
10
0.88(e)
1.88(e)
21.0
C-25
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
INTERNATIONAL EMERGING MARKETS ACCOUNT
Class 1 shares
2021
$19.94
$0.21
$(0.08)
$0.13
$(0.09)
$(0.31)
$(0.40)
2020
17.13
0.12
3.10
3.22
(0.41)
–
(0.41)
2019
15.12
0.40
2.20
2.60
(0.15)
(0.44)
(0.59)
2018
19.40
0.19
(4.25)
(4.06)
(0.22)
–
(0.22)
2017
13.94
0.15
5.53
5.68
(0.22)
–
(0.22)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Reflects Manager's contractual expense limit.
(d)
Includes .01% of expenses associated with the reclaim of foreign taxes paid. The expense is not subject to the Manager's contractual expense limit.
C-26
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$19.67
0.58%
$90,815
1.18%(c)
1.01%
35.7%
19.94
19.23
93,839
1.21(c)(d)
0.71
57.6
17.13
17.60
89,729
1.20(c)
2.46
112.5
15.12
(21.02)
83,366
1.35(c)
1.05
121.8
19.40
40.84
114,735
1.35(c)
0.91
98.6
C-27
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Total
Dividends
and
Distributions
Net Asset
Value, End
of Period
GOVERNMENT & HIGH QUALITY BOND ACCOUNT
Class 1 shares
2021
$9.83
$0.04
$(0.17)
$(0.13)
$(0.22)
$(0.22)
$9.48
2020
9.81
0.12
0.16
0.28
(0.26)
(0.26)
9.83
2019
9.47
0.22
0.39
0.61
(0.27)
(0.27)
9.81
2018
9.76
0.23
(0.15)
0.08
(0.37)
(0.37)
9.47
2017
9.98
0.31
(0.12)
0.19
(0.41)
(0.41)
9.76
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
C-28
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
(1.32)%
$197,777
0.50%
0.40%
360.7%
2.87
227,996
0.51
1.22
124.6
6.45
241,332
0.51
2.26
22.5
0.91
219,612
0.51
2.43
17.4
1.88
241,839
0.51
3.09
24.3
C-29
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
LARGECAP GROWTH ACCOUNT I
Class 1 shares
2021
$48.46
$(0.14)
$10.65
$10.51
$–
$(6.49)
$(6.49)
2020
37.64
(0.06)
13.36
13.30
(0.01)
(2.47)
(2.48)
2019
30.10
0.01
10.27
10.28
(0.02)
(2.72)
(2.74)
2018
31.18
0.03
1.41
1.44
(0.01)
(2.51)
(2.52)
2017
24.55
0.01
8.13
8.14
(0.01)
(1.50)
(1.51)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Reflects Manager's contractual expense limit.
C-30
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$52.48
21.89%
$706,656
0.66%(c)
(0.26)%
22.1%
48.46
36.20
612,357
0.69(c)
(0.14)
42.2
37.64
34.92
502,653
0.71(c)
0.03
30.4
30.10
3.60
296,139
0.74(c)
0.08
36.9
31.18
33.71
302,147
0.75(c)
0.03
36.2
C-31
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
LARGECAP S&P 500 INDEX ACCOUNT
Class 1 shares
2021
$21.94
$0.27
$5.77
$6.04
$(0.35)
$(2.10)
$(2.45)
2020
20.19
0.31
3.12
3.43
(0.37)
(1.31)
(1.68)
2019
16.39
0.34
4.66
5.00
(0.37)
(0.83)
(1.20)
2018
18.06
0.36
(1.06)
(0.70)
(0.32)
(0.65)
(0.97)
2017
15.44
0.29
2.97
3.26
(0.29)
(0.35)
(0.64)
Class 2 shares
2021
21.65
0.21
5.69
5.90
(0.32)
(2.10)
(2.42)
2020
19.97
0.26
3.07
3.33
(0.34)
(1.31)
(1.65)
2019
16.24
0.29
4.62
4.91
(0.35)
(0.83)
(1.18)
2018
17.95
0.32
(1.07)
(0.75)
(0.31)
(0.65)
(0.96)
2017
15.38
0.25
2.95
3.20
(0.28)
(0.35)
(0.63)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
C-32
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$25.53
28.33%
$3,162,615
0.25%
1.11%
2.6%
21.94
18.08
2,892,842
0.25
1.60
11.1
20.19
31.10
2,693,344
0.25
1.80
3.5
16.39
(4.58)
2,378,088
0.25
1.94
8.7
18.06
21.49
2,563,986
0.25
1.71
3.0
 
 
 
 
 
 
25.13
28.05
46,634
0.50
0.86
2.6
21.65
17.77
27,801
0.50
1.35
11.1
19.97
30.82
15,834
0.50
1.56
3.5
16.24
(4.90)
7,081
0.50
1.77
8.7
17.95
21.20
3,234
0.50
1.46
3.0
C-33
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
LARGECAP S&P 500 MANAGED VOLATILITY INDEX ACCOUNT
Class 1 shares
2021
$16.90
$0.15
$4.02
$4.17
$(0.23)
$(1.98)
$(2.21)
2020
15.06
0.20
2.24
2.44
(0.25)
(0.35)
(0.60)
2019
12.74
0.23
3.36
3.59
(0.24)
(1.03)
(1.27)
2018
13.42
0.23
(0.71)
(0.48)
(0.20)
–
(0.20)
2017
12.15
0.18
2.11
2.29
(0.18)
(0.84)
(1.02)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Reflects Manager's contractual expense limit.
C-34
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$18.86
25.55%
$239,895
0.46%
0.84%
2.6%
16.90
16.67
235,112
0.46
1.31
8.9
15.06
28.92
217,779
0.47
1.59
3.8
12.74
(3.73)
205,655
0.46
1.64
11.2
13.42
19.55
222,026
0.46(c)
1.40
3.0
C-35
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
MIDCAP ACCOUNT
Class 1 shares
2021
$63.69
$–
$15.93
$15.93
$(0.09)
$(4.77)
$(4.86)
2020
59.93
0.08
9.93
10.01
(0.44)
(5.81)
(6.25)
2019
48.53
0.43
19.93
20.36
(0.17)
(8.79)
(8.96)
2018
59.42
0.17
(2.93)
(2.76)
(0.17)
(7.96)
(8.13)
2017
50.96
0.19
12.48
12.67
(0.32)
(3.89)
(4.21)
Class 2 shares
2021
63.08
(0.18)
15.76
15.58
–
(4.77)
(4.77)
2020
59.42
(0.07)
9.84
9.77
(0.30)
(5.81)
(6.11)
2019
48.19
0.28
19.77
20.05
(0.03)
(8.79)
(8.82)
2018
59.05
0.02
(2.89)
(2.87)
(0.03)
(7.96)
(7.99)
2017
50.69
0.05
12.39
12.44
(0.19)
(3.89)
(4.08)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Total return is calculated using the traded net asset value which may differ from the reported net asset value. The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.
C-36
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$74.76
25.53%
$711,126
0.53%
(0.01)%
17.1%
63.69
18.33(c)
604,094
0.54
0.14
12.2
59.93
43.10(c)
587,854
0.55
0.72
10.5
48.53
(6.55)
474,365
0.54
0.29
24.6
59.42
25.51
575,104
0.54
0.34
13.4
 
 
 
 
 
 
73.89
25.20
38,773
0.78
(0.26)
17.1
63.08
18.07
25,643
0.79
(0.12)
12.2
59.42
42.72(c)
20,808
0.80
0.48
10.5
48.19
(6.79)(c)
15,710
0.79
0.04
24.6
59.05
25.19(c)
17,792
0.79
0.09
13.4
C-37
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
PRINCIPAL CAPITAL APPRECIATION ACCOUNT
Class 1 shares
2021
$34.30
$0.28
$9.13
$9.41
$(0.33)
$(1.51)
$(1.84)
2020
30.72
0.31
5.21
5.52
(0.41)
(1.53)
(1.94)
2019
25.86
0.38
7.77
8.15
(0.50)
(2.79)
(3.29)
2018
28.54
0.44
(1.19)
(0.75)
(0.34)
(1.59)
(1.93)
2017
23.94
0.28
4.66
4.94
(0.34)
–
(0.34)
Class 2 shares
2021
33.81
0.18
8.99
9.17
(0.28)
(1.51)
(1.79)
2020
30.32
0.24
5.13
5.37
(0.35)
(1.53)
(1.88)
2019
25.58
0.30
7.67
7.97
(0.44)
(2.79)
(3.23)
2018
28.25
0.37
(1.17)
(0.80)
(0.28)
(1.59)
(1.87)
2017
23.71
0.22
4.60
4.82
(0.28)
–
(0.28)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Total return is calculated using the traded net asset value which may differ from the reported net asset value. The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.
C-38
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$41.87
27.82%
$163,159
0.63%
0.73%
30.6%
34.30
18.72
147,026
0.63
1.03
36.5
30.72
32.49
143,227
0.64
1.27
29.5
25.86
(3.41)
128,547
0.63
1.52
44.9
28.54
20.75
154,472
0.63
1.07
28.5
 
 
 
 
 
 
41.19
27.50
31,088
0.88
0.47
30.6
33.81
18.44
18,688
0.88
0.79
36.5
30.32
32.10
13,536
0.89
1.03
29.5
25.58
(3.64)(c)
8,757
0.88
1.28
44.9
28.25
20.46(c)
8,526
0.88
0.83
28.5
C-39
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
PRINCIPAL LIFETIME STRATEGIC INCOME ACCOUNT
Class 1 shares
2021
$12.84
$0.37
$0.21
$0.58
$(0.25)
$(0.55)
$(0.80)
2020
11.92
0.25
0.96
1.21
(0.28)
(0.01)
(0.29)
2019
11.30
0.33
1.06
1.39
(0.29)
(0.48)
(0.77)
2018
12.11
0.31
(0.66)
(0.35)
(0.33)
(0.13)
(0.46)
2017
11.40
0.30
0.69
0.99
(0.28)
–
(0.28)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
C-40
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$12.62
4.53%
$30,129
0.02%
2.85%
35.6%
12.84
10.30
31,025
0.03
2.07
68.6
11.92
12.46
26,279
0.06
2.79
69.0
11.30
(3.00)
20,664
0.03
2.61
31.2
12.11
8.76
24,630
0.02
2.56
20.0
C-41
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
PRINCIPAL LIFETIME 2010 ACCOUNT
Class 1 shares
2021
$13.59
$0.38
$0.43
$0.81
$(0.24)
$(0.75)
$(0.99)
2020
12.75
0.25
1.17
1.42
(0.33)
(0.25)
(0.58)
2019
12.18
0.32
1.37
1.69
(0.39)
(0.73)
(1.12)
2018
13.41
0.32
(0.80)
(0.48)
(0.41)
(0.34)
(0.75)
2017
12.48
0.34
1.07
1.41
(0.29)
(0.19)
(0.48)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
C-42
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$13.41
5.94%
$37,297
0.02%
2.79%
26.4%
13.59
11.40
35,824
0.02
1.94
71.6
12.75
14.10
31,499
0.04
2.51
60.8
12.18
(3.87)
31,890
0.02
2.43
29.0
13.41
11.42
41,836
0.01
2.57
21.7
C-43
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
PRINCIPAL LIFETIME 2020 ACCOUNT
Class 1 shares
2021
$14.99
$0.42
$0.94
$1.36
$(0.26)
$(0.90)
$(1.16)
2020
13.90
0.25
1.49
1.74
(0.38)
(0.27)
(0.65)
2019
12.60
0.34
1.90
2.24
(0.34)
(0.60)
(0.94)
2018
14.11
0.33
(1.04)
(0.71)
(0.38)
(0.42)
(0.80)
2017
12.66
0.36
1.52
1.88
(0.27)
(0.16)
(0.43)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
C-44
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$15.19
9.17%
$196,334
0.00%
2.72%
23.3%
14.99
12.89
194,167
0.01
1.81
53.4
13.90
18.12
190,475
0.01
2.47
52.7
12.60
(5.40)
172,173
0.01
2.37
28.7
14.11
15.00
197,935
0.00
2.64
23.6
C-45
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
PRINCIPAL LIFETIME 2030 ACCOUNT
Class 1 shares
2021
$14.51
$0.43
$1.41
$1.84
$(0.21)
$(0.54)
$(0.75)
2020
13.12
0.23
1.67
1.90
(0.28)
(0.23)
(0.51)
2019
11.58
0.32
2.18
2.50
(0.27)
(0.69)
(0.96)
2018
13.17
0.29
(1.15)
(0.86)
(0.32)
(0.41)
(0.73)
2017
11.45
0.34
1.73
2.07
(0.20)
(0.15)
(0.35)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
C-46
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$15.60
12.79%
$262,864
0.00%
2.78%
26.8%
14.51
14.89
228,291
0.01
1.77
52.3
13.12
22.01
182,172
0.01
2.47
35.8
11.58
(7.06)
140,617
0.01
2.21
28.6
13.17
18.26
152,469
0.01
2.77
31.0
C-47
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
PRINCIPAL LIFETIME 2040 ACCOUNT
Class 1 shares
2021
$18.09
$0.62
$2.13
$2.75
$(0.25)
$(0.65)
$(0.90)
2020
16.22
0.29
2.23
2.52
(0.32)
(0.33)
(0.65)
2019
13.94
0.37
3.01
3.38
(0.30)
(0.80)
(1.10)
2018
15.97
0.34
(1.50)
(1.16)
(0.33)
(0.54)
(0.87)
2017
13.52
0.36
2.41
2.77
(0.20)
(0.12)
(0.32)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
C-48
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$19.94
15.29%
$134,172
0.01%
3.18%
19.9%
18.09
16.11
107,137
0.01
1.82
38.9
16.22
24.74
85,405
0.02
2.36
28.8
13.94
(7.85)
62,741
0.01
2.17
14.5
15.97
20.68
63,759
0.01
2.43
28.3
C-49
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
PRINCIPAL LIFETIME 2050 ACCOUNT
Class 1 shares
2021
$17.47
$0.64
$2.32
$2.96
$(0.22)
$(0.61)
$(0.83)
2020
15.59
0.27
2.24
2.51
(0.28)
(0.35)
(0.63)
2019
13.37
0.32
3.12
3.44
(0.29)
(0.93)
(1.22)
2018
15.62
0.31
(1.53)
(1.22)
(0.33)
(0.70)
(1.03)
2017
13.06
0.32
2.55
2.87
(0.19)
(0.12)
(0.31)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
C-50
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$19.60
17.02%
$68,527
0.01%
3.37%
28.1%
17.47
16.68
49,779
0.02
1.75
32.8
15.59
26.39
38,881
0.04
2.11
24.9
13.37
(8.64)
30,354
0.02
2.03
22.6
15.62
22.14
31,610
0.02
2.23
36.5
C-51
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
PRINCIPAL LIFETIME 2060 ACCOUNT
Class 1 shares
2021
$16.49
$0.61
$2.33
$2.94
$(0.18)
$(0.44)
$(0.62)
2020
14.68
0.25
2.10
2.35
(0.22)
(0.32)
(0.54)
2019
12.32
0.30
2.99
3.29
(0.20)
(0.73)
(0.93)
2018
14.38
0.25
(1.47)
(1.22)
(0.31)
(0.53)
(0.84)
2017
11.88
0.40
2.29
2.69
(0.12)
(0.07)
(0.19)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Reflects Manager's contractual expense limit.
C-52
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$18.81
17.96%
$17,280
0.03%(c)
3.38%
25.3%
16.49
16.58
11,468
0.07(c)
1.73
58.8
14.68
27.24
8,131
0.10(c)
2.15
38.6
12.32
(9.25)
4,649
0.10(c)
1.71
84.9
14.38
22.74
5,712
0.10(c)
2.98
33.1
C-53
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
REAL ESTATE SECURITIES ACCOUNT
Class 1 shares
2021
$19.11
$0.28
$7.26
$7.54
$(0.33)
$(1.50)
$(1.83)
2020
21.50
0.36
(1.21)
(0.85)
(0.39)
(1.15)
(1.54)
2019
17.86
0.34
5.18
5.52
(0.40)
(1.48)
(1.88)
2018
20.62
0.37
(1.09)
(0.72)
(0.37)
(1.67)
(2.04)
2017
21.30
0.25
1.62
1.87
(0.39)
(2.16)
(2.55)
Class 2 shares
2021
19.16
0.23
7.26
7.49
(0.29)
(1.50)
(1.79)
2020
21.56
0.34
(1.24)
(0.90)
(0.35)
(1.15)
(1.50)
2019
17.92
0.30
5.18
5.48
(0.36)
(1.48)
(1.84)
2018
20.70
0.34
(1.12)
(0.78)
(0.33)
(1.67)
(2.00)
2017
21.36
0.19
1.64
1.83
(0.33)
(2.16)
(2.49)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Reflects Manager's contractual expense limit.
C-54
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$24.82
40.44%
$174,922
0.82%
1.25%
23.1%
19.11
(3.42)
129,617
0.83
1.89
35.4
21.50
31.26
155,569
0.88(c)
1.62
19.3
17.86
(4.21)
133,429
0.89
1.89
17.3
20.62
9.19
154,615
0.89
1.19
19.6
 
 
 
 
 
 
24.86
40.04
11,650
1.07
1.02
23.1
19.16
(3.65)
6,965
1.08
1.80
35.4
21.56
30.94
6,361
1.13(c)
1.43
19.3
17.92
(4.47)
3,493
1.14
1.73
17.3
20.70
8.94
2,830
1.14
0.89
19.6
C-55
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
SAM BALANCED PORTFOLIO
Class 1 shares
2021
$16.51
$0.35
$1.91
$2.26
$(0.28)
$(0.38)
$(0.66)
2020
15.67
0.26
1.43
1.69
(0.35)
(0.50)
(0.85)
2019
13.90
0.31
2.43
2.74
(0.40)
(0.57)
(0.97)
2018
15.89
0.36
(1.07)
(0.71)
(0.50)
(0.78)
(1.28)
2017
14.44
0.45
1.71
2.16
(0.34)
(0.37)
(0.71)
Class 2 shares
2021
16.29
0.32
1.85
2.17
(0.24)
(0.38)
(0.62)
2020
15.48
0.23
1.39
1.62
(0.31)
(0.50)
(0.81)
2019
13.74
0.28
2.39
2.67
(0.36)
(0.57)
(0.93)
2018
15.72
0.32
(1.06)
(0.74)
(0.46)
(0.78)
(1.24)
2017
14.30
0.42
1.67
2.09
(0.30)
(0.37)
(0.67)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Reflects Manager's contractual expense limit.
C-56
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$18.11
13.74%
$588,703
0.23%
2.00%
38.9%
16.51
11.28
568,806
0.23
1.74
18.9
15.67
20.01
574,960
0.24(c)
2.06
23.0
13.90
(5.04)
561,162
0.23(c)
2.29
18.2
15.89
15.21
678,409
0.23
2.92
27.4
 
 
 
 
 
 
17.84
13.39
156,241
0.48
1.83
38.9
16.29
10.96
134,181
0.48
1.56
18.9
15.48
19.74
123,870
0.49(c)
1.89
23.0
13.74
(5.25)
104,051
0.48(c)
2.10
18.2
15.72
14.88
110,129
0.48
2.77
27.4
C-57
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
SAM CONSERVATIVE BALANCED PORTFOLIO
Class 1 shares
2021
$12.80
$0.29
$0.95
$1.24
$(0.25)
$(0.18)
$(0.43)
2020
12.19
0.24
0.89
1.13
(0.29)
(0.23)
(0.52)
2019
11.05
0.28
1.45
1.73
(0.35)
(0.24)
(0.59)
2018
12.33
0.34
(0.73)
(0.39)
(0.42)
(0.47)
(0.89)
2017
11.50
0.38
0.92
1.30
(0.34)
(0.13)
(0.47)
Class 2 shares
2021
12.61
0.26
0.93
1.19
(0.22)
(0.18)
(0.40)
2020
12.03
0.22
0.86
1.08
(0.27)
(0.23)
(0.50)
2019
10.91
0.25
1.43
1.68
(0.32)
(0.24)
(0.56)
2018
12.19
0.31
(0.73)
(0.42)
(0.39)
(0.47)
(0.86)
2017
11.38
0.36
0.89
1.25
(0.31)
(0.13)
(0.44)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Reflects Manager's contractual expense limit.
C-58
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$13.61
9.71%
$169,338
0.23%
2.13%
41.2%
12.80
9.60
164,411
0.24
2.03
23.4
12.19
15.88
164,095
0.24(c)
2.32
30.8
11.05
(3.49)
154,297
0.22(c)
2.79
19.5
12.33
11.46
178,523
0.23
3.16
26.3
 
 
 
 
 
 
13.40
9.48
34,318
0.48
1.95
41.2
12.61
9.25
30,178
0.49
1.85
23.4
12.03
15.66
25,380
0.49(c)
2.15
30.8
10.91
(3.75)
20,449
0.47(c)
2.59
19.5
12.19
11.14
20,541
0.48
3.06
26.3
C-59
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
SAM CONSERVATIVE GROWTH PORTFOLIO
Class 1 shares
2021
$21.75
$0.44
$3.40
$3.84
$(0.29)
$(0.48)
$(0.77)
2020
19.94
0.28
2.22
2.50
(0.37)
(0.32)
(0.69)
2019
17.16
0.36
3.68
4.04
(0.36)
(0.90)
(1.26)
2018
19.86
0.35
(1.51)
(1.16)
(0.56)
(0.98)
(1.54)
2017
17.22
0.54
2.82
3.36
(0.30)
(0.42)
(0.72)
Class 2 shares
2021
21.40
0.39
3.32
3.71
(0.24)
(0.48)
(0.72)
2020
19.63
0.24
2.17
2.41
(0.32)
(0.32)
(0.64)
2019
16.92
0.32
3.61
3.93
(0.32)
(0.90)
(1.22)
2018
19.60
0.31
(1.50)
(1.19)
(0.51)
(0.98)
(1.49)
2017
17.01
0.49
2.78
3.27
(0.26)
(0.42)
(0.68)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Reflects Manager's contractual expense limit.
C-60
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$24.82
17.75%
$242,713
0.23%
1.85%
43.6%
21.75
12.95
226,009
0.23
1.46
20.7
19.94
24.06
213,346
0.24(c)
1.89
16.2
17.16
(6.62)
189,654
0.23(c)
1.81
27.0
19.86
19.78
220,054
0.23
2.88
35.1
 
 
 
 
 
 
24.39
17.44
192,114
0.48
1.67
43.6
21.40
12.68
158,606
0.48
1.28
20.7
19.63
23.68
143,501
0.49(c)
1.68
16.2
16.92
(6.82)
118,307
0.48(c)
1.60
27.0
19.60
19.46
127,079
0.48
2.68
35.1
C-61
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
SAM FLEXIBLE INCOME PORTFOLIO
Class 1 shares
2021
$12.81
$0.32
$0.55
$0.87
$(0.31)
$(0.20)
$(0.51)
2020
12.58
0.31
0.57
0.88
(0.36)
(0.29)
(0.65)
2019
11.86
0.33
1.22
1.55
(0.46)
(0.37)
(0.83)
2018
12.95
0.40
(0.63)
(0.23)
(0.53)
(0.33)
(0.86)
2017
12.45
0.47
0.56
1.03
(0.44)
(0.09)
(0.53)
Class 2 shares
2021
12.66
0.30
0.53
0.83
(0.29)
(0.20)
(0.49)
2020
12.44
0.28
0.56
0.84
(0.33)
(0.29)
(0.62)
2019
11.74
0.31
1.19
1.50
(0.43)
(0.37)
(0.80)
2018
12.83
0.38
(0.63)
(0.25)
(0.51)
(0.33)
(0.84)
2017
12.34
0.45
0.54
0.99
(0.41)
(0.09)
(0.50)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
C-62
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$13.17
6.89%
$148,266
0.23%
2.41%
44.0%
12.81
7.27
149,396
0.24
2.51
38.6
12.58
13.25
157,922
0.24
2.65
37.4
11.86
(1.97)
157,019
0.23
3.19
19.9
12.95
8.41
194,742
0.23
3.69
29.3
 
 
 
 
 
 
13.00
6.61
45,586
0.48
2.31
44.0
12.66
7.03
34,866
0.49
2.31
38.6
12.44
12.97
30,663
0.49
2.46
37.4
11.74
(2.20)
25,656
0.48
3.07
19.9
12.83
8.13
23,003
0.48
3.57
29.3
C-63
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
SAM STRATEGIC GROWTH PORTFOLIO
Class 1 shares
2021
$24.17
$0.53
$4.24
$4.77
$(0.26)
$(0.59)
$(0.85)
2020
21.85
0.26
2.96
3.22
(0.38)
(0.52)
(0.90)
2019
18.36
0.39
4.54
4.93
(0.33)
(1.11)
(1.44)
2018
21.72
0.33
(2.01)
(1.68)
(0.52)
(1.16)
(1.68)
2017
18.54
0.51
3.54
4.05
(0.30)
(0.57)
(0.87)
Class 2 shares
2021
23.80
0.46
4.16
4.62
(0.21)
(0.59)
(0.80)
2020
21.53
0.22
2.91
3.13
(0.34)
(0.52)
(0.86)
2019
18.11
0.34
4.47
4.81
(0.28)
(1.11)
(1.39)
2018
21.46
0.28
(2.00)
(1.72)
(0.47)
(1.16)
(1.63)
2017
18.33
0.47
3.48
3.95
(0.25)
(0.57)
(0.82)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Reflects Manager's contractual expense limit.
C-64
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$28.09
19.86%
$223,578
0.23%
1.97%
35.9%
24.17
15.40
187,904
0.23
1.24
22.3
21.85
27.44
169,489
0.24(c)
1.89
20.3
18.36
(8.60)
140,247
0.23(c)
1.56
37.8
21.72
22.22
163,861
0.23
2.50
37.7
 
 
 
 
 
 
27.62
19.54
205,369
0.48
1.76
35.9
23.80
15.13
167,706
0.48
1.09
22.3
21.53
27.13
145,924
0.49(c)
1.67
20.3
18.11
(8.87)
114,902
0.48(c)
1.34
37.8
21.46
21.95
126,632
0.48
2.33
37.7
C-65
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
SHORT-TERM INCOME ACCOUNT
Class 1 shares
2021
$2.60
$0.03
$(0.05)
$(0.02)
$(0.04)
$(0.01)
$(0.05)
2020
2.57
0.04
0.05
0.09
(0.06)
–
(0.06)
2019
2.52
0.06
0.06
0.12
(0.07)
–
(0.07)
2018
2.55
0.06
(0.03)
0.03
(0.06)
–
(0.06)
2017
2.54
0.05
0.01
0.06
(0.05)
–
(0.05)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Reflects Manager's contractual expense limit.
C-66
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$2.53
(0.72)%
$140,532
0.47%
1.09%
56.7%
2.60
3.36
157,019
0.51(c)
1.61
73.7
2.57
4.70
130,852
0.51(c)
2.31
54.2
2.52
1.02
149,075
0.50(c)
2.19
49.9
2.55
2.39
158,446
0.50(c)
2.01
67.3
C-67
Financial Highlights
Principal VARIABLE CONTRACTS Funds, Inc.
Selected data for a share of Capital Stock outstanding throughout each year ended December 31 (except as noted):
 
 
Net Asset
Value,
Beginning
of Period
Net
Investment
Income (Loss)(a)
Net Realized
and Unrealized
Gain (Loss) on
Investments
Total From
Investment
Operations
Dividends
from Net
Investment
Income
Distributions
from Realized
Gains
Total
Dividends
and
Distributions
SMALLCAP ACCOUNT
Class 1 shares
2021
$17.26
$(0.01)
$3.48
$3.47
$(0.06)
$(0.62)
$(0.68)
2020
15.33
0.03
3.03
3.06
(0.07)
(1.06)
(1.13)
2019
14.30
0.08
3.67
3.75
(0.06)
(2.66)
(2.72)
2018
17.10
0.03
(1.62)
(1.59)
(0.06)
(1.15)
(1.21)
2017
15.21
0.06
1.89
1.95
(0.06)
–
(0.06)
Class 2 shares
2021
17.17
(0.06)
3.47
3.41
(0.03)
(0.62)
(0.65)
2020
15.26
–
3.01
3.01
(0.04)
(1.06)
(1.10)
2019
14.24
0.04
3.66
3.70
(0.02)
(2.66)
(2.68)
2018
17.04
(0.01)
(1.62)
(1.63)
(0.02)
(1.15)
(1.17)
2017
15.17
0.02
1.87
1.89
(0.02)
–
(0.02)
(a)
Calculated based on average shares outstanding during the period.
(b)
Total return does not reflect charges attributable to separate accounts. Inclusion of these charges would reduce the amounts shown.
(c)
Total return is calculated using the traded net asset value which may differ from the reported net asset value. The traded net asset value is the net asset value which a shareholder would have paid or received from a subscription or redemption.
C-68
Financial Highlights (Continued)
Principal VARIABLE CONTRACTS Funds, Inc.
 
Net Asset
Value, End
of Period
Total
Return(b)
Net Assets,
End of Period
(in thousands)
Ratio of
Expenses
to Average
Net Assets
Ratio of Net
Investment
Income to
Average
Net Assets
Portfolio
Turnover
Rate
 
 
 
 
 
 
 
 
 
 
 
 
$20.05
20.12%
$213,890
0.82%
(0.04)%
36.6%
17.26
22.20
195,848
0.84
0.24
38.8
15.33
27.40
184,434
0.84
0.53
34.7
14.30
(10.89)
163,243
0.83
0.20
45.0
17.10
12.87
208,669
0.83
0.37
64.1
 
 
 
 
 
 
19.93
19.86
10,497
1.07
(0.29)
36.6
17.17
21.87
8,414
1.09
(0.01)
38.8
15.26
27.12
6,829
1.09
0.28
34.7
14.24
(11.17)(c)
4,874
1.08
(0.05)
45.0
17.04
12.57(c)
5,371
1.08
0.12
64.1
C-69
ADDITIONAL INFORMATION
Additional information about the Registrant is available in the Statement of Additional Information dated May 1, 2022, which is incorporated by reference into this Prospectus. Additional information about the Funds' investments is available in Registrant’s Annual and Semi-Annual Reports to Shareholders. In the Registrant’s Annual Report, you will find a discussion of the market conditions and investment strategies that significantly affected Funds' performance during the last fiscal year. The Statement of Additional Information and the Registrant’s Annual and Semi-Annual Reports can be obtained free of charge by writing Principal Variable Contracts Funds, Inc., P.O. Box 219971, Kansas City, MO 64121-9971. In addition, the Registrant makes its Statement of Additional Information and Annual and Semi-Annual Reports available, free of charge, on our website www.principalfunds.com/pvcprospectus. To request this and other information about the Registrant and to make shareholder inquiries, telephone 1-800-222-5852.
Reports and other information about the Registrant are available on the EDGAR Database on the Commission’s internet site at www.sec.gov. Copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: [email protected].
The Registrant has entered into a management agreement with Principal Global Investors, LLC (“PGI”). The Registrant and/or PGI, on behalf of the Funds, enter into contractual arrangements with various parties, including, among others, the Funds' sub-advisors, distributor, transfer agent and custodian, who provide services to the Funds. These arrangements are between the Registrant and/or PGI and the applicable service provider. Shareholders are not parties to, or intended to be third-party beneficiaries of, any of these arrangements. Such arrangements are not intended to create in any individual shareholder or group of shareholders any right, including the right to enforce such arrangements against the service providers or to seek any remedy thereunder against PGI or any other service provider, either directly or on behalf of the Registrant or any individual series (or fund).
This Prospectus provides information that you should consider in determining whether to purchase shares of a Fund. This Prospectus, the Statement of Additional Information, or the contracts that are exhibits to the Registrant’s registration statement are not intended to give rise to any agreement or contract between the Registrant and/or any Fund and any investor, or give rise to any contract or other rights in any individual shareholder, group of shareholders or other person other than any rights conferred explicitly by federal or state securities laws that may not be waived.
The U.S. government does not insure or guarantee an investment in any of the Funds.
Shares of the Funds are not deposits or obligations of, or guaranteed or endorsed by, Principal Bank or any other financial institution, nor are shares of the Funds federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other agency.
Principal Variable Contracts Funds, Inc. SEC File 811-01944
D
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