plis-partccoverpage.htm - Generated by SEC Publisher for SEC Filing

As filed with the Securities and Exchange Commission April 27, 2011.

Registration No. 333-171650

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No. 2

Post-Effective Amendment No. __

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 146

(Check appropriate box or boxes)

Principal Life Insurance Company Separate Account B

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(Exact Name of Registrant)

Principal Life Insurance Company

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(Name of Depositor)

The Principal Financial Group, Des Moines, Iowa 50392

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(Address of Depositor's Principal Executive Offices) (Zip Code)

(515) 248-3842

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Depositor's Telephone Number, including Area Code

M. D. Roughton,

The Principal Financial Group, Des Moines, Iowa 50392

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(Name and Address of Agent for Service)

Title of Securities Being Registered: Principal Lifetime Income Solutions^SM

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

Registration Statement.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay

its effective date until the registrant shall file a further amendment which specifically states that this

registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of

1933 or until the registration shall become effective on such date as the Commission, acting pursuant to Section

8(a), shall determine.

PRINCIPAL LIFETIME INCOME SOLUTIONS^SM

VARIABLE ANNUITY

Prospectus dated May 2, 2011


This prospectus describes Principal Lifetime Income Solutions^SM, an individual, flexible premium, deferred variable
annuity (the “Contract”), issued by Principal Life Insurance Company (“the Company”, “we”, “our” or “us”) through
Principal Life Insurance Company Separate Account B (“Separate Account”).

This prospectus provides information about the Contract and the Separate Account that you, as owner, should know
before investing. The prospectus should be read and retained for future reference. Additional information about the
Contract and the Separate Account is included in the Statement of Additional Information (“SAI”), dated May 2, 2011,
which has been filed with the Securities and Exchange Commission (the “SEC”) and is considered a part of this
prospectus. The table of contents of the SAI is at the end of this prospectus. You may obtain a free copy of the SAI
by writing or calling: Principal Lifetime Income Solutions^SM, Principal Financial Group, P. O. Box 9382, Des Moines,
Iowa 50306-9382, Telephone: 1-800-852-4450. You can also visit the SEC’s website at www.sec.gov, which contains
the SAI, material incorporated into this prospectus by reference, and other information about registrants that file
electronically with the SEC.

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

You generally may allocate your investment in the Contract in the Fixed Account and the divisions of the Separate
Account. The Fixed Account is a part of our General Account. Each division of the Separate Account invests in
shares of a corresponding mutual fund (the “underlying mutual funds”). A list of the underlying mutual funds available
under the Contract is shown below.

Guarantees are based on the claims-paying ability of Principal Life Insurance Company and its General Account.

Your accumulated value will vary according to the investment performance of the underlying mutual funds in which
your selected division(s) are invested. We do not guarantee the investment performance of the underlying
mutual funds.

The following underlying mutual funds are available under the Contract⁽¹⁾:

Principal Variable Contracts Funds - Class 2
• Diversified Balanced Account⁽²⁾
• Diversified Growth Account⁽²⁾
⁽¹⁾	In California, we allocate initial premium payments to the Money Market Division during the examination offer period unless you elect to
	immediately invest in the allocations you selected. This Division is not available under the Contract at any other time or in any other state.
⁽²⁾	This underlying mutual fund is a fund of funds and expenses may be higher due to the tiered level of expenses.

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

The Contract, certain Contract features, and/or some of the investment options may not be available in all states or
through all broker dealers.

This prospectus is valid only when accompanied by the current prospectuses for the underlying mutual funds. These
prospectuses should be kept for future reference. This prospectus is not an offer to sell, or solicitation of an offer to
buy, the Contract in states in which the offer or solicitation may not be lawfully made. No person is authorized to give
any information or to make any representation in connection with this Contract other than those contained in this
prospectus.


TABLE OF CONTENTS

Glossary	4
Summary of Expense Information	6
Example	7
Summary	8
Corporate Organization and Operation	10
The Contract	12
How To Buy a Contract	12
Premium Payments	13
Right to Examine the Contract (free look)	13
The Accumulation Period	14
Automatic Portfolio Rebalancing (APR)	16
Telephone and Internet Services	16
Surrenders	17
Death Benefit	19
The Annuitization Period	21
Charges and Deductions	23
Surrender Charge	23
Transaction Fee	25
Premium Taxes	25
Annual Fee	25
GMWB Charge	25
Separate Account Annual Expenses	26
Special Provisions for Group or Sponsored Arrangements	26
Rider Benefits	27
Waiver of Surrender Charge Rider	27
Guaranteed Minimum Withdrawal Benefit (GMWB)	28
Fixed Account	41
General Provisions	43
The Contract	43
Delay of Payments	43
Misstatement of Age or Gender	44
Assignment	44
Change of Owner or Annuitant	44
Beneficiary	44
Contract Termination	44
Reinstatement	45
Reports	45
Important Information about Customer Identification Procedures	45
Rights Reserved by the Company	45
Frequent Trading and Market-timing (Abusive Trading Practices)	46
Distribution of the Contract	47
Performance Calculation	47
Federal Tax Matters	48
Mutual Fund Diversification	51
State Regulation	51

GLOSSARY

accumulated value – the sum of the amounts invested in the Fixed Account and the Separate Account divisions.

anniversary – the same date and month of each year following the contract date.

annuitant – the person, including any joint annuitant, on whose life the annuity benefit payment is based. This

person may or may not be the owner.

annuitization – application of a portion or all of the accumulated value to an annuity benefit payment option to make

income payments.

annuitization date – the date all of the owner’s accumulated value is applied to an annuity benefit payment option.

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

contract year – the one-year period beginning on the contract date and ending one day before the contract

anniversary and any subsequent one-year period beginning on a contract anniversary (for example, if the contract

date is June 5, 2011, the first contract year ends on June 4, 2012, and the first contract anniversary falls on June 5,

2012).

data page – that portion of the Contract which contains the following: owner and annuitant data (names, gender,

annuitant age); the contract issue date; maximum annuitization date; contract charges and limits; benefits; and a

summary of any optional benefits chosen by the contract owner.

Fixed Account – an account which earns guaranteed interest.

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

good order – an instruction or request is in good order when it is received in our home office, or other place we may

specify, and has such clarity and completeness that we do not have to exercise any discretion to carry out the

instruction or request. We may require that the instruction or request be given in a certain form.

investment options – the Fixed Account and Separate Account divisions.

joint annuitant – an annuitant whose life determines the annuity benefit under this Contract. Any reference to the

death of the annuitant means the death of the first annuitant to die.

joint owner – an owner who has an undivided interest with the right of survivorship in this Contract with another

owner. Any reference to the death of the owner means the death of the first owner to die.

non-qualified contract – a Contract which does not qualify for favorable tax treatment as a Qualified Plan, Individual

Retirement Annuity, Roth IRA, SEP IRA, Simple-IRA or Tax Sheltered Annuity.

notice – any form of communication received by us, at the home office, either in writing or in another form approved

by us in advance.

Your notices may be mailed to us at:

Principal Life Insurance Company

P O Box 9382

Des Moines, Iowa 50306-9382

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

premium payments – the gross amount you contributed to the Contract.

qualified plans – retirement plans which receive favorable tax treatment under Section 401 or 403(a) of the Internal

Revenue Code.

Separate Account Division (division(s)) – a part of the Separate Account which invests in shares of an underlying

mutual fund. (Referred to in the marketing materials as “sub-accounts.”)

Separate Account division accumulated value – the amount of your accumulated value in all divisions.

surrender charge – the charge deducted upon certain partial surrenders or total surrender of the Contract before the

annuitization date.

surrender value – accumulated value less any applicable surrender charge, rider fees, annual fee, transaction fees

and any premium tax or other taxes.

transfer – moving all or a portion of your accumulated value to or from one investment option or among several

investment options. All transfers initiated during the same valuation period are considered to be one transfer for

purposes of calculating the transaction fee, if any.

underlying mutual fund – a registered open-end investment company, or a series or portfolio thereof, in which a

division invests.

unit – the accounting measure used to determine your proportionate interest in a division.

unit value – a measure used to determine the value of an investment in a division.

valuation date – each day the New York Stock Exchange (“NYSE”) is open for trading and trading is not restricted.

valuation period – the period of time from one determination of the value of a unit of a division to the next. Each

valuation period begins at the close of normal trading on the NYSE, generally 4:00 p.m. Eastern Time, on each

valuation date and ends at the close of normal trading of the NYSE on the next valuation date.

we, our, us – Principal Life Insurance Company. We are also referred to throughout this prospectus as the

Company.

you, your – the owner of this Contract, including any joint owner.

SUMMARY OF EXPENSE INFORMATION

The tables below describe the fees and expenses that you will pay when buying, owning and surrendering the

Contract.

The following table describes the fees and expenses you will pay at the time you buy the Contract, surrender the

Contract or transfer cash value between investment options.


Contract owner transaction expenses⁽¹⁾
	Maximum	Current
Highest deferred surrender charge (as a
percentage of amount surrendered)⁽²⁾	· 6%	· 6%

Transaction Fees for each unscheduled	· the lesser of $25 or 2%	· $0
partial surrender	of each unscheduled
	partial surrender after
	the 12th unscheduled
	partial surrender in a
	contract year

Transaction Fee⁽³⁾for each unscheduled	· the lesser of $30 or 2%	· $0
transfer	of each unscheduled
	transfer after the first
	unscheduled transfer in
	a contract year

State Premium Taxes (vary by state)	· 3.5% of premium	· 0%
NOTE: We do not currently assess premium taxes for	payments made
any Contract issued, but reserve the right in the future
to assess up to 3.5% of premium payments made for
Contract owners in those states where a premium tax
is assessed.

The following table describes the fees and expenses that are deducted periodically during the time that you own the

Contract, not including underlying mutual fund fees and expenses.


Periodic Expenses
Annual Fee (waived for Contracts with
accumulated value of $30,000 or more)	The lesser of $30 or 2.00% of the accumulated value

	Maximum	Current
Separate Account Annual Expenses (as a
percentage of average daily separate
account accumulated value)

Mortality and Expense Risks Charge	1.25%	1.25%
Administration Charge	0.15%	0.00%
Total Separate Account Annual Expense	1.40%	1.25%

GMWB Charge (as a percentage of the
average quarterly withdrawal benefit
base)⁽⁴⁾
NOTE: Contract must be issued with this rider.
You may not terminate this rider prior to the 5th
contract anniversary.	· 1.65%	· 0.73%

This table shows the minimum and maximum total operating expenses charged by the underlying mutual funds that

you may pay periodically during the time that you own the Contract. More detail concerning the fees and expenses of

each underlying mutual fund is contained in its prospectus.


Minimum and Maximum Annual Underlying Mutual Fund Operating Expenses
as of December 31, 2010
	Minimum	Maximum
Total annual underlying mutual fund operating expenses
(expenses that are deducted from underlying mutual fund
assets, including management fees, distribution and/or
service (12b-1) fees and other expenses)*	0.58%	0.58%

* The funds available are structured as a “fund of funds”. A fund of funds is a mutual fund that invests primarily in a

portfolio of other mutual funds. The expenses shown include the total fees and expenses of the fund of funds,

including the acquired fund fees and expenses of such fund of funds.

⁽¹⁾For additional information about the fees and expenses described in the table, see CHARGES AND DEDUCTIONS.

⁽²⁾Surrender Charge, as a percentage of the amount surrendered:


Table of Surrender Charges

Number of completed contract years	Surrender charge applied to all premium
since each premium payment was made	payments received in that contract year
0 (year of premium payment)	6%
1	6%
2	6%
3	5%
4	4%
5	3%
6	2%
7 and later	0%


⁽³⁾	Please note that in addition to the fees shown, the Separate Account and/or sponsors of the underlying mutual funds may adopt requirements
	pursuant to rules and/or regulations adopted by federal and/or state regulators which require us to collect additional transfer fees and/or
	impose restrictions on transfers.
⁽⁴⁾	At the end of each calendar quarter, one-fourth of the annual charge is multiplied by the average quarterly withdrawal benefit base. The
	average quarterly withdrawal benefit base is equal to the withdrawal benefit base at the beginning of the calendar quarter plus the withdrawal
	benefit base at the end of the calendar quarter and the sum is divided by two. There may be times when the sum of the four quarterly fee
	amounts is higher than the fee amount if we calculated it annually. For example, if your withdrawal benefit base is changed on your contract
	anniversary, the fee for that calendar quarter will vary from the other quarters.

EXAMPLE

This example is intended to help you compare the cost of investing in the Contract with the cost of investing in other
variable annuity contracts. These costs include contract owner transaction expenses, contract fees, Separate
Account annual expenses, and underlying mutual fund fees and expenses.

The example reflects the maximum charges imposed in purchasing the Contract. The amounts below are calculated
using the maximum GMWB fee and not the current GMWB fee.

The example assumes:
·	a $10,000 investment in the Contract for the time periods indicated;
·	a 5% return each year;
·	an annual contract fee of $30 (expressed as a percentage of the average accumulated value);
·	the minimum and maximum annual underlying mutual fund operating expenses as of December 31, 2010
	(without voluntary waivers of fees by the underlying funds, if any); and
·	no premium taxes are deducted.

Although your actual costs may be higher or lower, based on these assumptions, your costs would be as shown

below:

If you surrender your

If you fully annuitize your

contract at the end of the

If you do not

contract at the end of the

applicable time period

surrender your contract

applicable time period

1 Yr.

3 Yrs.

5 Yrs.

10 Yrs.

1 Yr.

3 Yrs.

5 Yrs.

10 Yrs.

1 Yr.

3 Yrs.

5 Yrs.

10 Yrs.

Maximum/Minimum

Total Underlying

Mutual Fund Operating

Expenses (0.58%)

1,314

2,425

3,461

5,889

603

1,821

3,044

5,889

603

1,821

3,044

5,889


SUMMARY

This prospectus describes an individual flexible premium deferred variable annuity offered by the Company. The
Contract is designed to provide individuals with retirement benefits, including:

·	non-qualified retirement programs; and
·	Individual Retirement Annuities (“IRA”), Simplified Employee Pension plans (“SEPs”) and Savings Incentive
	Match Plan for Employees (“SIMPLE”) IRAs adopted according to Section 408 of the Internal Revenue Code
	(see FEDERAL TAX MATTERS — Tax Qualified Contracts: IRA, SEP, and SIMPLE-IRA). The Contract does
	not provide any additional tax deferral if you purchase it to fund an IRA or other investment vehicle that
	already provides tax deferral.
For information on how to purchase the Contract, please see THE CONTRACT — How to Buy a Contract.
This is a brief summary of the Contract’s features. More detailed information follows later in this prospectus.

Issue Age
You and any joint owner must be at least age 60 and younger than age 81 to purchase this Contract. If the owner is
not a natural person, the annuitant(s) must meet these age requirements.

Investment Limitations

·	Initial premium payment must be at least $15,000 for non-qualified contracts.
·	Initial premium payment must be at least $5,000 for all other contracts.
·	Each subsequent premium payment must be at least $2,000.
·	If you are a member of a retirement plan covering three or more persons and premium payments are made
	through an automatic investment program, the initial and subsequent premium payments for the Contract must
	average at least $100 and not be less than $50.
·	The total sum of all premium payments may not be greater than $2,000,000 without prior home office approval.

You may allocate your net premium payments to the investment options.
·	A complete list of the divisions may be found in TABLE OF SEPARATE ACCOUNT DIVISIONS. Each division
	invests in shares of an underlying mutual fund. More detailed information about the underlying mutual funds may
	be found in the current prospectus for each underlying mutual fund.
·	The investment options also include the Fixed Account.

Guaranteed Minimum Withdrawal Benefit (GMWB)

This Contract must be issued with a Guaranteed Minimum Withdrawal Benefit (“GMWB”) rider which is designed to
help protect you against the risk of a decrease in the Contract accumulated value due to market declines. This
benefit is also intended to help you avoid the risk of outliving your money. The GMWB rider allows you to take certain
guaranteed annual withdrawals during the Contract accumulation phase, regardless of your Contract accumulated
value. You may not terminate this rider prior to the 5th contract anniversary following the rider effective date.

If you take withdrawals in an amount that exceeds an available withdrawal benefit payment (excess withdrawal), you
will shorten the life of the rider, lower the withdrawal benefit payments and/or cause the rider to terminate for lack of
value unless you make additional premium payments or a GMWB Step-Up is applied.


Transfers
During the accumulation period:
·	a dollar amount or percentage of transfer must be specified;
·	a transfer may occur on a scheduled or unscheduled basis; and
·	transfers to the Fixed Account are not permitted if a transfer has been made from the Fixed Account to a division
	within six months.

During the annuitization period, transfers are not permitted (no transfers once payments have begun).

See THE CONTRACT — The Accumulation Period, Division Transfers and FIXED ACCOUNT — Fixed Account
Transfers, and Total and Partial Surrenders for additional restrictions.

Surrenders

During the accumulation period:
·	a dollar amount must be specified;
·	surrendered amounts may be subject to surrender charges:
	· the maximum surrender charge is 6% of the amount(s) surrendered.
·	total surrenders may be subject to an annual Contract fee; and
·	during a contract year, partial surrenders that are less than the free surrender privilege amount are not subject to
	a surrender charge.

NOTE: The free surrender privilege is an amount normally subject to a surrender charge that may be surrendered
without a charge. See CHARGES AND DEDUCTIONS — Surrender Charge — Free Surrender Privilege.

See THE CONTRACT — Surrenders and FIXED ACCOUNT — Fixed Account Transfers, and Total and Partial
Surrenders for additional information.

Charges and Deductions

·	There is no sales charge on premium payments.
·	A contingent deferred surrender charge is imposed on certain total or partial surrenders.
·	An annual mortality and expense risks charge equal to 1.25% of amounts in the Separate Account divisions is
	imposed daily.
·	The current annual charge for the GMWB rider is 0.73% of the average quarterly withdrawal benefit base.
·	The daily Separate Account administration charge currently is zero but we reserve the right to assess a charge
	not to exceed 0.15% of Separate Account division value(s) annually.
·	Contracts with an accumulated value of less than $30,000 are subject to an annual fee of the lesser of $30 or 2%
	of the accumulated value. Currently we do not charge the annual fee if your accumulated value is $30,000 or
	more. If you own more than one variable annuity contract with us, then all the contracts you own or jointly own
	are aggregated on each contract’s anniversary to determine if the $30,000 minimum has been met and whether
	that contract will be charged.
·	Certain states and local governments impose a premium tax. We reserve the right to deduct the amount of the
	tax from premium payments or the accumulated value.

See CHARGES AND DEDUCTIONS for additional information.


Annuity Benefit Payments

·	You may choose from several fixed annuity benefit payment options which are described in THE CONTRACT —
	The Annuitization Period, Annuity Benefit Payment Options.
·	Payments are made to the owner (or beneficiary depending on the annuity benefit payment option selected). You
	should carefully consider the tax implications of each annuity benefit payment option (see THE CONTRACT —
	The Annuitization Period, Annuity Benefit Payment Options and FEDERAL TAX MATTERS).

Death Benefit

·	If the owner dies before the annuitization date, a death benefit is payable (see Death Benefit).
·	The death benefit may be paid as either a single payment or under an annuity benefit payment option (see Death
	Benefit).
·	If the annuitant dies after the annuitization date, payments will continue only as provided by the annuity benefit
	payment option in effect.

Examination Offer Period (free look)

You may return the Contract during the examination offer period, which is generally 10 days from the date you
receive the Contract. The examination offer period may be longer in certain states.
·	The amount refunded will be a full refund of your accumulated value plus any contract charges and premium
	taxes you paid unless state law requires otherwise. The underlying fund fees and charges are not refunded to
	you as they are already factored into the Separate Account division accumulated value.
·	The amount refunded may be more or less than the premium payments made.

See THE CONTRACT — Right to Examine the Contract (free look) for additional information.

CORPORATE ORGANIZATION AND OPERATION

Principal Life Insurance Company

Principal Life Insurance Company is a stock life insurance company with authority to transact life and annuity
business in all states of the United States and the District of Columbia. Our home office is located at: Principal
Financial Group, Des Moines, Iowa 50392. We are a wholly owned subsidiary of Principal Financial Services, Inc.,
which in turn, is a wholly owned direct subsidiary of Principal Financial Group, Inc., a publicly-traded company.

On June 24, 1879, we were incorporated under Iowa law as a mutual assessment life insurance company named
Bankers Life Association. We became a legal reserve life insurance company and changed our name to Bankers Life
Company in 1911. In 1986, we changed our name to Principal Mutual Life Insurance Company. In 1998, we became
Principal Life Insurance Company, a subsidiary stock life insurance company of Principal Mutual Holding Company,
as part of a reorganization into a mutual insurance holding company structure. In 2001, Principal Mutual Holding
Company converted to a stock company through a process called demutualization, resulting in our current
organizational structure.

Principal Life Insurance Company Separate Account B

The Separate Account was established under Iowa law on January 12, 1970 and was registered as a unit investment
trust with the SEC on July 17, 1970. This registration does not involve SEC supervision of the investments or
investment policies of the Separate Account. We do not guarantee the investment results of the Separate Account.
There is no assurance that the value of your Contract will equal the total of the payments you make to us.

The Separate Account is not affected by the rate of return of our general account or by the investment performance
of any of our other assets. Any income, gain, or loss (whether or not realized) from the assets of the Separate
Account are credited to or charged against the Separate Account without regard to our other income, gains, or
losses. Obligations arising from the Contract, including the promise to make annuity benefit payments, are general
corporate obligations of the Company. Assets of the Separate Account attributed to the reserves and other liabilities
under the Contract may not be charged with liabilities arising from any of our other businesses.

The Separate Account is divided into divisions. The assets of each division invest in a corresponding underlying

mutual fund. New divisions may be added and made available. Divisions may also be eliminated. These changes will

be made in a manner that is consistent with applicable laws and regulations.

The Underlying Mutual Funds

The underlying mutual funds are registered under the Investment Company Act of 1940 as open-end investment

management companies. The underlying mutual funds provide the investment vehicles for the Separate Account. A

full description of the underlying mutual funds, the investment objectives, policies and restrictions, charges and

expenses and other operational information are contained in the accompanying prospectuses (which should be read

carefully before investing) and the Statement of Additional Information (“SAI”). You may request additional copies

of these documents without charge from your registered representative or by calling us at 1-800-852-4450.

We purchase and sell shares of the underlying mutual fund for the Separate Account at their net asset value. Shares

represent interests in the underlying mutual fund available for investment by the Separate Account. Each underlying

mutual fund corresponds to one of the divisions. The assets of each division are separate from the others. A

division’s performance has no effect on the investment performance of any other division.

The underlying mutual funds are NOT available to the general public directly. The underlying mutual funds are

available only as investment options in variable life insurance policies or variable annuity contracts issued by life

insurance companies and qualified plans. Some of the underlying mutual funds have been established by investment

advisers that manage publicly traded mutual funds having similar names and investment objectives. While some of

the underlying mutual funds may be similar to, and may in fact be modeled after publicly traded mutual funds, you

should understand that the underlying mutual funds are not otherwise directly related to any publicly traded mutual

fund. Consequently, the investment performance of any underlying mutual fund may differ substantially from the

investment performance of a publicly traded mutual fund.

The Table of Separate Account Divisions included later in this prospectus contains a brief summary of the investment

objectives and a listing of the advisor and, if applicable, sub-advisor for each division.

You should note that the GMWB investment options are series of Principal Variable Contracts Funds, Inc., which is

managed by Principal Management Corporation ("PMC"), an affiliate of ours. If you wish to invest your Contract

accumulated value predominantly in underlying funds that are not managed by an affiliate of ours, this Contract may

not be appropriate for you.

To the extent that an underlying fund managed by PMC may be included as a GMWB investment option, PMC will

receive additional compensation from the management fee of the underlying fund. However, we do not take such

potential financial benefit into account in selecting the underlying fund to be a GMWB investment option.

Deletion or Substitution of Separate Account Divisions

We reserve the right, within the law, to make additions, deletions and substitutions for the divisions. We will make no

such substitution or deletion without first notifying you and obtaining approval of the appropriate insurance regulatory

authorities and the SEC (to the extent required by 1940 Act).

If the shares of a division are no longer available for investment or if, in the judgment of our management, investment

in a division becomes inappropriate for the purposes of our contract, we may eliminate the shares of a division and

substitute shares of another division of the Trust or another open-end registered investment company. Substitution

may be made with respect to both existing investments and the investment of future premium payments.

If we eliminate divisions, you may change allocation percentages and transfer any value in an affected division to

another division(s) without charge. You may exercise this exchange privilege until the later of 60 days after a) the

effective date of the additions, deletions and/or substitutions of the change, or b) the date you receive notice of the

options available. You may only exercise this right if you have any value in the affected division(s).

We also reserve the right to establish additional divisions, each of which would invest in a separate underlying mutual

fund with a specified investment objective.

Voting Rights

We vote shares of the underlying mutual funds owned by the Separate Account according to the instructions of

Contract owners.

We will notify you of shareholder meetings of the mutual funds underlying the divisions in which you hold units. We

will send you proxy materials and instructions for you to provide voting instructions to us. We will arrange for the

handling and tallying of proxies received from you and other owners. If you give no voting instructions, we will vote

those shares in the same proportion as shares for which we received instructions. Because there is no required

minimum number of votes, a small number of votes can have a disproportionate effect.

We determine the number of fund shares that you may instruct us to vote by allocating one vote for each $100 of

accumulated value in the division. Fractional votes are allocated for amounts less than $100. We determine the

number of underlying fund shares you may instruct us to vote as of the record date established by the underlying

mutual fund for its shareholder meeting. In the event that applicable law changes or we are required by regulators to

disregard voting instructions, we may decide to vote the shares of the underlying mutual funds in our own right.

THE CONTRACT

Principal Lifetime Income Solutions, a variable annuity, is significantly different from a fixed annuity. As the owner of

a variable annuity, you assume the risk of investment gain or loss (as to amounts in the Separate Account divisions)

rather than the Company. The Separate Account division accumulated value under a variable annuity is not

guaranteed and varies with the investment performance of the underlying mutual funds.

Based on your investment objectives, you direct the allocation of premium payments and accumulated values. There

can be no assurance that your investment objectives will be achieved.

You should refer to the terms and limitations of any qualified plan which is to be funded by the Contract. Qualified

plans are subject to several requirements and limitations which may affect the terms of any particular Contract or the

advisability of taking certain action permitted by the Contract.

How to Buy a Contract

If you want to buy a Contract, you must submit an application and make an initial premium payment. If you are

buying the Contract to fund a SIMPLE-IRA or SEP, an initial premium payment is not required at the time you send in

the application. If the application is complete and the Contract applied for is suitable, the Contract is issued. If the

completed application is received in good order, the initial premium payment is credited within two valuation days

after the later of receipt of the application or receipt of the initial premium payment at our home office. If the initial

premium payment is not credited within five valuation days, it is refunded unless we have received your permission to

retain the premium payment until we receive the information necessary to issue the Contract.

The date the Contract is issued is the contract date. The contract date is the date used to determine contract years,

regardless of when the Contract is delivered.

Tax-qualified retirement arrangements, such as IRAs, SEPs, and SIMPLE-IRAs, are tax-deferred. You derive no

additional benefit from the tax deferral feature of the annuity. Consequently, an annuity should be used to fund an

IRA or other tax qualified retirement arrangement to benefit from the annuity’s features other than tax deferral. These

features may include guaranteed lifetime income, death benefits without surrender charges, guaranteed caps on

fees, and the ability to transfer among investment options without sales or withdrawal charges.


Premium Payments

·	The initial premium payment must be at least $15,000 for non-qualified contracts.
·	The initial premium payment must be at least $5,000 for all other contracts.
·	If you are making premium payments through a payroll deduction plan or through a bank (or similar financial
	institution) account under an automated investment program, your initial and subsequent premium payments
	must be at least $100.
·	All premium payments are subject to a surrender charge period that begins in the contract year each premium
	payment is received.
·	Subsequent premium payments must be at least $2,000 and can be made until the annuitization date.
·	Premium payments are to be made by personal or financial institution check (for example, a bank or cashier’s
	check). We reserve the right to refuse any premium payment that we feel presents a fraud or money laundering
	risk. Examples of the types of premium payments we will not accept are cash, money orders, starter checks,
	travelers checks, credit card checks, and foreign checks.
·	If you are a member of a retirement plan covering three or more persons, the initial and subsequent premium
	payments for the Contract must average at least $100 and cannot be less than $50.
·	The total sum of all premium payments may not be greater than $2,000,000 without our prior approval. For
	further information, please call 1-800-852-4450.

Right to Examine the Contract (free look)

It is important to us that you are satisfied with the purchase of your Contract. Under state law, you have the right to
return the Contract for any reason during the examination offer period (a “free look”). The examination offer period is
the later of 10 days after the Contract is delivered to you, or such later date as specified by applicable state law.

Although we currently allocate your initial premium payments to the investment options you have selected, during
times of economic uncertainty and with prior notice to you, we may activate our right to allocate initial premium
payments to the Money Market Division during the examination offer period. If your initial premium payments are
allocated to the Money Market Division and the free look is exercised, you will receive the greater of premium
payments or the accumulated value without a surrender charge.

In California, we allocate initial premium payments to the Money Market Division during the examination offer period
unless you elect to immediately invest in the allocations you selected. If your premium payments were allocated to
the Money Market Division, after the free look period ends, your accumulated value will be converted into units of the
division(s) according to your allocation instructions. The units allocated will be based on the unit value next
determined for each division.

To exercise your free look, you must send the Contract and a written request to us before the close of business on
the last day of the examination offer period.

If you properly exercise your free look, we will cancel the Contract. In all states we will return at least your
accumulated value plus any premium tax charge deducted, and minus any applicable federal and state income tax
withholding. The amount returned may be higher or lower than the premium payment(s) applied during the
examination offer period. In the states that require us to return your premium payments, we will return the greater of
your premium payments or accumulated value.

If you are purchasing this Contract to fund an IRA, SIMPLE-IRA, or SEP-IRA and you return it on or before the
seventh day of the examination offer period, we will return the greater of:
·	the total premium payment(s) made; or
·	your accumulated value plus any premium tax charge deducted, less any applicable federal and state income tax
	withholding and depending upon the state in which the Contract was issued, any applicable fees and charges.

You may obtain more specific information regarding the free look from your registered representative or by calling us
at 1-800-852-4450.


The Accumulation Period

The Value of Your Contract
The accumulated value of your Contract is the total of the Separate Account division accumulated value plus the
Fixed Account accumulated value. The Fixed Account is described in the section titled FIXED ACCOUNT.

There is no guaranteed minimum Separate Account division accumulated value. The value reflects the investment
experience of the divisions that you choose and also reflects your premium payments, partial surrenders, surrender
charges, partial annuitizations and the Contract expenses deducted from the Separate Account.

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

The number of units is equal to the total units purchased by allocations to the division from:
·	your initial premium payment;
·	subsequent premium payments;
·	your exchange credit; and
·	transfers from another investment option

minus units sold:
·	for partial surrenders and/or partial annuitizations from the division;
·	as part of a transfer to another division or the Fixed Account; and
·	to pay contract charges and fees.

Unit values are calculated each valuation date at the close of normal trading of the NYSE. To calculate the unit value
of a division, the unit value from the previous valuation date is multiplied by the division’s net investment factor for the
current valuation period. The number of units does not change due to a change in unit value.

The net investment factor measures the performance of each division. The net investment factor for a valuation
period is [(a plus b) divided by (c)] minus d where:
a = the share price (net asset value) of the underlying mutual fund at the end of the valuation period;
b = the per share amount of any dividend* (or other distribution) made by the mutual fund during the valuation period;
c = the share price (net asset value) of the underlying mutual fund at the end of the previous valuation period; and
d = the total Separate Account annual expenses.
	*	When an investment owned by an underlying mutual fund pays a dividend, the dividend increases the net
		asset value of a share of the underlying mutual fund as of the date the dividend is recorded. As the net asset
		value of a share of an underlying mutual fund increases, the unit value of the corresponding division also
		reflects an increase. Payment of a dividend under these circumstances does not increase the number of
		units you own in the division.

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

Premium Payments

·	On your application, you direct how your premium payments will be allocated to the investment options.
·	Allocations must be in percentages.
·	Percentages must be in whole numbers and total 100%.
·	Subsequent premium payments are allocated according to your then current allocation instructions.
·	Changes to the allocation instructions are made without charge.
	·	A change is effective on the next valuation period after we receive your new instructions in good order.
	·	You can change the current allocations and future allocation instructions by:


		· mailing your instructions to us;
		· calling us at 1-800-852-4450 (if telephone privileges apply);
		· faxing your instructions to us at 1-866-894-2087; or
		· visiting www.principal.com.
·	Changes to premium payment allocations do not result in the transfer of any existing investment option
	accumulated values. You must provide specific instructions to transfer existing accumulated values.
·	Premium payments are credited on the basis of the unit value next determined after we receive a premium
	payment.
·	If no premium payments are made during two consecutive calendar years and the accumulated value is less than
	$2,000, we reserve the right to terminate the Contract (see GENERAL INFORMATION — Reservation of Rights).

Division Transfers

·	You may request an unscheduled transfer or set up a scheduled transfer by
	·	mailing your instructions to us;
	·	calling us at 1-800-852-4450 (if telephone privileges apply);
	·	faxing your instructions to us at 1-866-894-2087; or
	·	visiting www.principal.com.
·	You must specify the dollar amount or percentage to transfer from each division.
·	The minimum transfer amount is the lesser of $100 or the value of your division.
·	In states where allowed, we reserve the right to reject transfer instructions from someone providing them for
	multiple contracts for which he or she is not the owner.

You may not make a transfer to the Fixed Account if:
·	a transfer has been made from the Fixed Account to a division within six months; or
·	following the transfer, the Fixed Account value would be greater than $1,000,000.

Unscheduled Transfers

You may make unscheduled division transfers from one division to another division or to the Fixed Account.
·	Transfer values are calculated using the price next determined after we receive your request.
·	We reserve the right to impose a fee of the lesser of $30 or 2% of the amount transferred on each unscheduled
	transfer after the first unscheduled transfer in a contract year.

Limitations on Unscheduled Transfers. We reserve the right to reject excessive exchanges or purchases if the
trade would disrupt the management of the Separate Account, any division of the Separate Account or any
underlying mutual fund. In addition, we may suspend or modify transfer privileges in our sole discretion at any time to
prevent market timing efforts that could disadvantage other owners. These modifications could include, but not be
limited to:
·	requiring a minimum time period between each transfer;
·	imposing the transaction fee;
·	limiting the dollar amount that an owner may transfer at any one time; or
·	not accepting transfer requests from someone providing requests for multiple Contracts for which he or she is not
	the owner.

Scheduled Transfers (Dollar Cost Averaging)

·	You may elect to have transfers made on a scheduled basis.
·	There is no charge for scheduled transfers and no charge for participating in the scheduled transfer program.
·	You must specify the dollar amount of the transfer.
·	You select the transfer date (other than the 29th, 30th or 31st) and the transfer period (monthly, quarterly, semi-
	annually or annually).
·	If the selected date is not a valuation date, the transfer is completed on the next valuation date.
·	If you want to stop a scheduled transfer, you must provide us notice prior to the date of the scheduled transfer.
·	Transfers continue until your value in the division is zero or we receive notice to stop the transfers.
·	We reserve the right to limit the number of divisions from which simultaneous transfers are made.

Scheduled transfers are designed to reduce the risks that result from market fluctuations. They do this by spreading

out the allocation of your money to investment options over a longer period of time. This allows you to reduce the risk

of investing most of your money at a time when market prices are high. The results of this strategy depend on market

trends and are not guaranteed.


Example:

Month	Amount Invested	Share Price	Shares Purchased
January	$100	$25.00	4
February	$100	$20.00	5
March	$100	$20.00	5
April	$100	$10.00	10
May	$100	$25.00	4
June	$100	$20.00	5
Total	$600	$120.00	33


In the example above, the average share price is $20.00 [total of share prices ($120.00) divided by number of
purchases (6)]. The average share cost is $18.18 [amount invested ($600.00) divided by number of shares
purchased (33)].

Automatic Portfolio Rebalancing (APR)

APR allows you to maintain a specific percentage of your Separate Account division accumulated value in specified
divisions over time. APR is available only if you have the option to invest in more than one Separate Account
division; therefore, APR is currently not available with the GMWB rider. If the GMWB rider is terminated, APR is
available. APR is not available for values in the Fixed Account.

Telephone and Internet Services

If you elect telephone services or you elect internet services and satisfy our internet service requirements (which are
designed to ensure compliance with federal UETA and E-SIGN laws), instructions for the following transactions may
be given to us via the telephone or internet:
·	make premium payment allocation changes;
·	set up Dollar Cost Averaging (DCA) scheduled transfers;
·	make transfers; and
·	make changes to APR.

Neither the Company nor the Separate Account is responsible for the authenticity of telephone service or internet
transaction requests. We reserve the right to refuse telephone service or internet transaction requests. You are liable
for a loss resulting from a fraudulent telephone or internet order that we reasonably believe is genuine. We follow
procedures in an attempt to assure genuine telephone service or internet transactions. If these procedures are not
followed, we may be liable for loss caused by unauthorized or fraudulent transactions. The procedures may include
recording telephone service transactions, requesting personal identification (for example, name, address, security
phrase, password, daytime telephone number, or birth date) and sending written confirmation to your address of
record.

Instructions received via our telephone services and/or the internet are binding on both owners if the Contract is
jointly owned.

If the Contract is owned by a business entity or a trust, an authorized individual (with the proper password) may use
telephone and/or internet services. Instructions provided by the authorized individual are binding on the owner.


We reserve the right to modify or terminate telephone service or internet transaction procedures at any time.
Whenever reasonably feasible, we will provide you with prior notice (by mail or by email, if previously authorized by
you) if we modify or terminate telephone service or internet transaction procedures. In some instances, it may not be
reasonably feasible to provide prior notice if we modify or terminate telephone service or internet transaction
procedures; however, any modification or termination will apply to all Contract owners in a non-discriminatory
fashion.

Telephone Services

Telephone services are available to you. Telephone services may be declined on the application or at any later date
by providing us with written notice. You may also elect telephone authorization for your registered representative by
providing us written notice.

If you elect telephone privileges, instructions
·	may be given by calling us at 1-800-852-4450 while we are open for business (generally, between 8 a.m. and
	6 p.m. Eastern Time on any day that the NYSE is open).
·	that are in good order and received by us before the close of a valuation period will receive the price next
	determined (the value as of the close of that valuation period).
·	that are in good order and received by us after the close of a valuation period will receive the price next
	determined (the value as of the close of the next valuation period).
·	that are not in good order when received by us will be effective the next valuation date that we receive good
	order instructions.

Internet

Internet services are available to you if you register for a secure login on the Principal Financial Group web site,
www.principal.com. You may also elect internet authorization for your registered representative by providing us
written notice.

If you register for internet privileges, instructions
·	that are in good order and received by us before the close of a valuation period will receive the price next
	determined (the value as of the close of that valuation period).
·	that are in good order and received by us after the close of a valuation period will receive the price next
	determined (the value as of the close of the next valuation period).
·	that are not in good order when received by us will be effective the next valuation day that we receive good order
	instructions.

Surrenders

You may surrender your Contract by providing us notice. Surrender requests may be sent to us at:
	Principal Life Insurance Company
	P.O. Box 9382
	Des Moines, Iowa 50306-9382

Surrenders result in the redemption of units and your receipt of the value of the redeemed units minus any applicable
surrender charge and fees. Surrender values are calculated using the price next determined after we receive your
request. Surrenders from the Separate Account are generally paid within seven days of the effective date of the
request for surrender (or earlier if required by law). However, certain delays in payment are permitted (see Delay of
Payments).

You may specify surrender allocation percentages with each partial surrender request. If you do not provide us with
specific percentages, we will use your premium payment allocation percentages for the partial surrender. Surrenders
may be subject to a surrender charge (see CHARGES AND DEDUCTIONS — Surrender Charge).

Total Surrender

· You may surrender the Contract at any time before the annuitization date.

· Surrender values are calculated using the price next determined after we receive your request.

· The cash surrender value is your accumulated value minus any applicable fees and surrender charges.

· We reserve the right to require you to return the Contract.

· The written consent of all collateral assignees and irrevocable beneficiaries must be obtained prior to surrender.

Unscheduled Partial Surrender

· You may surrender a part of your accumulated value at any time before the annuitization date.

· You must specify the dollar amount of the surrender (which must be at least $100).

· The surrender is effective at the end of the valuation period during which we receive your written request for

surrender.

· The surrender is deducted from your investment options according to your surrender allocation percentages.

· If surrender allocation percentages are not specified, we use your premium payment allocation percentages.

· We surrender units from your investment options to equal the dollar amount of the surrender request plus any

applicable surrender charge and transaction fee, if any.

· Your accumulated value after the unscheduled partial surrender must be equal to or greater than $5,000; we

reserve the right to increase this amount up to and including $10,000.

· The written consent of all collateral assignees and irrevocable beneficiaries must be obtained prior to surrender.

Scheduled Partial Surrender

· You may elect partial surrenders from any of your investment options on a scheduled basis.

· Your accumulated value must be at least $5,000 when the scheduled partial surrenders begin.

· You may specify monthly, quarterly, semi-annually or annually and choose a surrender date (other than the 29th,

30th or 31st).

· If the selected date is not a valuation date, the partial surrender is completed on the next valuation date.

· We surrender units from your investment options to equal the dollar amount of the partial surrender request plus

any applicable partial surrender charge.

· The partial surrenders continue until your value in the investment option is zero or we receive written notice to

stop the partial surrenders.

· The written consent of all collateral assignees and irrevocable beneficiaries must be obtained prior to partial

surrender.

Death Benefit

This Contract provides a death benefit upon the death of the owner. The Contract will not provide death benefits

upon the death of an annuitant unless the annuitant is also an owner or the owner is not a natural person.

The following tables illustrate the various situations and the resulting death benefit payment if death occurs before

the annuitization date.


If you die and...	And...	Then...
You are the sole	Your spouse is not	The beneficiary(ies) receives the death benefit under
owner	named as a primary	the Contract.
	beneficiary
		If a beneficiary dies before you, on your death we will
		make equal payments to the surviving beneficiaries
		unless you provided us with other written instructions. If
		no beneficiary(ies) survives you, the death benefit is
		paid to your estate in a single payment.

		Upon your death, only your beneficiary’s(ies’) right to
		the death benefit will continue; all other rights and
		benefits under the Contract will terminate.

You are the sole	Your spouse is named	Your spouse may either
owner	as a primary beneficiary	a. continue the Contract; or
		b. receive the death benefit under the Contract.

		All other beneficiaries receive the death benefit under
		the Contract.

		If a beneficiary dies before you, on your death we will
		make equal payments to the surviving beneficiaries
		unless you provided us with other written instructions. If
		no beneficiary(ies) survives you, the death benefit is
		paid to your estate in a single payment.

		Unless your spouse elects to continue the Contract,
		only your spouse’s and any other beneficiary’s(ies’)
		right to the death benefit will continue; all other rights
		and benefits under the Contract will terminate.

You are a joint	The surviving joint	The surviving owner receives the death benefit under
owner	owner is not your	the Contract.
	spouse
		Upon your death, only the surviving owner’s right to the
		death benefit will continue; all other rights and benefits
		under the Contract will terminate.

You are a joint	The surviving joint	Your spouse may either
owner	owner is your spouse	a. continue the Contract; or
		b. receive the death benefit under the Contract.

		Unless your surviving spouse owner elects to continue
		the Contract, upon your death, only your spouse’s right
		to the death benefit will continue; all other rights and
		benefits under the Contract will terminate.


If...	And...	Then...
The annuitant dies	The owner is not a	The beneficiary(ies) receives the death benefit under
	natural person	the Contract.

		If a beneficiary dies before the annuitant, on the
		annuitant’s death we will make equal payments to the
		surviving beneficiaries unless the owner provided us
		with other written instructions.

		Upon the annuitant’s death, only the beneficiary’s(ies’)
		right to the death benefit will continue; all other rights
		and benefits under the Contract will terminate.

Before the annuitization date, you may give us written instructions for payment under a death benefit option. If we do

not receive your instructions, the death benefit is paid according to instructions from the beneficiary(ies). The

beneficiary(ies) may elect to apply the death benefit under an annuity benefit payment option or receive the death

benefit as a single payment. Generally, unless the beneficiary(ies) elects otherwise, we pay the death benefit in a

single payment, subject to proof of your death.

No surrender charge applies when a death benefit is paid.

Standard Death Benefit Formula

The amount of the standard death benefit is the greatest of a, b or c, where:

a = the accumulated value on the date we receive proof of death and all required documents;

b = the total of premium payments minus an adjustment for each partial surrender (and any applicable surrender

charges and fees) and minus an adjustment for each partial annuitization made prior to the date we receive proof

of death and all required documents; and

c = the highest accumulated value on any contract anniversary that is wholly divisible by seven (for example,

contract anniversaries 7, 14, 21, 28, etc.) plus any premium payments since that contract anniversary and minus

an adjustment for each partial surrender (and any applicable surrender charges and fees) and minus an

adjustment for each partial annuitization made after that contract anniversary.

The adjustment for each partial surrender (and any applicable surrender charges and fees) and for each partial

annuitization made prior to the date we receive proof of death and all required documents is equal to (x divided by y)

multiplied by z, where:

x = the amount of the partial surrender (and any applicable surrender charges and fees) or the amount of the partial

annuitization; and

y = the accumulated value immediately prior to the partial surrender or partial annuitization; and

z = the amounts determined in b or c above immediately prior to the partial surrender or partial annuitization.

Example: Your accumulated value is $10,000 and you take a partial surrender of $2,000 (20% of your

accumulated value). For purposes of calculating the death benefit, we reduce the amounts

determined in b or c above by 20%.

Payment of Death Benefit

The death benefit is usually paid within five business days of our receiving all required documents (including proof of

death) to process the claim. Payment is made according to benefit instructions provided by you. Some states require

this payment to be made in less than five business days. Under certain circumstances, this payment may be delayed

(see GENERAL PROVISIONS — Delay of Payments). We pay interest (as required by state law) on the death

benefit from the date we receive all required documents until payment is made or until the death benefit is applied

under an annuity benefit payment option.

NOTE: Proof of death includes: a certified copy of a death certificate; a certified copy of a court order; a written

statement by a medical doctor; or other proof satisfactory to us.

The accumulated value remains invested in the divisions until the valuation period during which we receive the

required documents. If more than one beneficiary is named, each beneficiary’s portion of the death benefit remains

invested in the divisions until the valuation period during which we receive the required documents for that

beneficiary. After payment of all of the death benefit, the Contract is terminated.

The Annuitization Period

Annuitization Date

You may specify an annuitization date in your application. You may change the annuitization date with our prior

approval. The request must be in writing. You may not select an annuitization date prior to the first contract

anniversary or after the maximum annuitization date (the later of age 85 or ten years after contract issue; state

variations may apply) found on the data pages. If you do not specify an annuitization date, the annuitization date is

the maximum annuitization date shown on the data pages.

Full Annuitization

Any time after the first contract year, you may annuitize your Contract by electing to receive payments under an

annuity benefit payment option. If the accumulated value on the annuitization date is less than $2,000 or if the

amount applied under an annuity benefit payment option is less than the minimum requirement, we may pay out the

entire amount in a single payment. The contract would then be canceled. You may select when you want the

payments to begin (within the period that begins the business day following our receipt of your instruction and ends

one year after our receipt of your instructions).

Once payments begin under the annuity benefit payment option you choose, the option may not be changed. In

addition, once payments begin, you may not surrender or otherwise liquidate or commute any of the portion of your

accumulated value that has been annuitized.

Depending on the type of annuity benefit payment option selected, payments that are initiated either before or after

the annuitization date may be subject to penalty taxes (see FEDERAL TAX MATTERS). You should consider this

carefully when you select or change the annuity benefit payment commencement date.

Partial Annuitization

After the first contract year and prior to the annuitization date, you may annuitize a portion of your accumulated value

by sending us a notice.

The minimum partial annuitization amount is $2,000. Any partial annuitization request that reduces the accumulated

value to less than $5,000 will be treated as a request for full annuitization.

You may select one of the annuity benefit payment options listed below. Once payments begin under the option you

selected, the option may not be changed. In addition, once payments begin you may not surrender or otherwise

liquidate or commute any portion of your accumulated value that has been annuitized.

Annuity Benefit Payment Options

We offer fixed annuity benefit payments only. No surrender charge is imposed on any portion of your accumulated

value that has been annuitized.

You may choose from several fixed annuity benefit payment options. Payments will be made on the frequency you

choose. You may elect to have your annuity benefit payments made on a monthly, quarterly, semiannual or annual

basis. The dollar amount of the payments is specified for the entire payment period according to the option selected.

There is no right to take any total or partial surrenders after the annuitization date. The fixed annuity benefit payment

must be made within one year of the annuity benefit election.


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

The amount of the initial payment is determined by applying all or a portion of the accumulated value as of the date
of the application to the annuity table for the annuitant’s annuity benefit payment option, gender, and age. The
annuity benefit payment tables contained in the Contract are based on the Annuity 2000 Mortality Table. These
tables are guaranteed for the life of the Contract.

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

You may select an annuity benefit payment option by written request only. Your selection of an annuity benefit
payment option for a partial annuitization must be in writing and may not be changed after payments begin. Your
selection of an annuity benefit payment option for any portion not previously annuitized may be changed by written
request prior to the annuitization date.

If an annuity benefit payment option is not selected, we will automatically apply:
·	for Contracts with one annuitant — Life Income with payments guaranteed for a period of 10 years.
·	for Contracts with joint annuitants — Joint and Full Survivor Life Income with payments guaranteed for a period
	of 10 years.

The available annuity benefit payment options for both full and partial annuitizations include:

·	Fixed Period Income – Level payments continue for a fixed period. You may select a range from 5 to 30 years
	(state variations may apply). If the annuitant dies before the selected period expires, payments continue to you or
	the person(s) you designate until the end of the fixed period. Payments stop after all guaranteed payments are
	received.

·	Life Income – Level payments continue for the annuitant’s lifetime. If you defer the first payment date, it is
	possible that you would receive no payments if the annuitant dies before the first payment date. NOTE: There is
	no death benefit value remaining and there are no further payments when the annuitant dies.

·	Life Income with Period Certain – Level payments continue during the annuitant’s lifetime with a guaranteed
	payment period of 5 to 30 years. If the annuitant dies before all of the guaranteed payments have been made,
	the guaranteed payments continue to you or the person(s) you designate until the end of the guaranteed
	payment period.

·	Joint and Survivor – Payments continue as long as either the annuitant or the joint annuitant is alive. You may
	also choose an option that lowers the amount of income after the death of a joint annuitant. It is possible that you
	would only receive one payment under this option if both annuitants die before the second payment is due. If you
	defer the first payment date, it is possible that you would receive no payments if both the annuitants die before
	the first payment date. NOTE: There is no death benefit value remaining and there are no further payments
	after both annuitants die.

·	Joint and Survivor with Period Certain – Payments continue as long as either the annuitant or the joint
	annuitant is alive with a guaranteed payment period of 5 to 30 years. You may choose an option that lowers the
	amount of income after the death of a joint annuitant. If both annuitants die before all guaranteed payments have
	been made, the guaranteed payments continue to you or the person(s) you designate until the end of the
	guaranteed payment period.

Other annuity benefit payment options may be available.

Tax Considerations Regarding Annuity Benefit Payment Options

If you own one or more tax qualified annuity contracts, you may avoid tax penalties if payments from at least one of

your tax qualified contracts begin no later than April 1 following the calendar year in which you turn age 70½. The

required minimum distribution payment must be in equal (or substantially equal) amounts over your life or over the

joint lives of you and your designated beneficiary. These required minimum distribution payments must be made at

least once a year. Tax penalties may apply at your death on certain excess accumulations. You should confer with

your tax advisor about any potential tax penalties before you select an annuity benefit payment option or take other

distributions from the Contract.

Additional rules apply to distributions under non-qualified contracts (see FEDERAL TAX MATTERS — Required

Distributions for Non-Qualified Contracts).

Death of Annuitant (During the Annuitization Period)

If the annuitant dies during the annuity benefit payment period, remaining payments are made to the owner

throughout the guaranteed payment period, if any, or for the life of any joint annuitant, if any. If the owner is the

annuitant, remaining payments are made to the contingent owner. In all cases the person entitled to receive

payments also receives any rights and privileges under the annuity benefit payment option.

CHARGES AND DEDUCTIONS

Certain charges are deducted under the Contract. If the charge is not sufficient to cover our costs, we bear the loss.

If the expense is more than our costs, the excess is profit to the Company. We expect a profit from all the fees and

charges listed below, except the Annual Fee, Transaction Fee and Premium Tax. For a summary, see SUMMARY

EXPENSE INFORMATION.

In addition to the charges under the Contract, there are also deductions from and expenses paid out of the assets of

the underlying mutual funds which are described in the underlying mutual funds’ prospectuses.

Surrender Charge

No sales charge is collected or deducted when premium payments are applied under the Contract. A surrender

charge is assessed on certain total or partial surrenders. The amounts we receive from the surrender charge are

used to cover some of the expenses of the sale of the Contract (primarily, commissions, as well as other promotional

or distribution expenses). If the surrender charge collected is not enough to cover the actual costs of distribution, the

costs are paid from the Company’s General Account assets which include profit, if any, from the mortality and

expense risks charge.

NOTE: If you plan to make multiple premium payments, you need to be aware that each premium payment has its

own surrender charge period (shown below). The surrender charge for any total or partial surrender is a

percentage of all the premium payments surrendered which were received by us during the contract years

prior to the surrender. The applicable percentage which is applied to the premium payments surrendered is

determined by the following tables.

Surrender Charge for Contracts (as a percentage of amounts surrendered):


Number of completed contract years	Surrender charge applied to all
since each premium payment	premium payments received in
was made	that contract year
0 (year of premium payment)	6%
1	6%
2	6%
3	5%
4	4%
5	3%
6	2%
7 and later	0%


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

NOTE: For Contracts written in the states of Alabama, Massachusetts, and Washington, the surrender charges are
	applicable only to premium payments made in the first three contract years.

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

NOTE: Partial surrenders may be subject to both a surrender charge and a transaction fee.

Free Surrender Privilege

The free surrender privilege is an amount normally subject to a surrender charge that may be surrendered without a
charge. The free surrender privilege is the greater of:

·	earnings in the Contract (earnings equal accumulated value less unsurrendered premium payments as of the
	date of the surrender); or
·	10% of the premium payments, decreased by any partial surrenders and partial annuitizations since the last
	contract anniversary.

Any amount not taken under the free surrender privilege in a contract year is not added to the amount available
under the free surrender privilege for any following contract year(s).

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

Waiver of Surrender Charge

The surrender charge does not apply to:
·	amounts applied under an annuity benefit payment option; or
·	payment of any death benefit, however, the surrender charge does apply to premium payments made by a
	surviving spouse after an owner’s death; or
·	amounts distributed to satisfy the minimum distribution requirement of Section 401(a)9 of the Internal Revenue
	Code, provided that the amount surrendered does not exceed the minimum distribution amount which would
	have been calculated based on the value of this Contract alone; or
·	an amount transferred from a Contract used to fund an IRA to another annuity contract issued by the Company
	to fund an IRA of the participant’s spouse when the distribution is made pursuant to a divorce decree.


In addition, the Waiver of Surrender Charge Rider is automatically added to your Contract at issue. This rider waives
the surrender charge on surrenders made after the first Contract anniversary if the original owner or original
annuitant has a critical need. See RIDER BENEFITS — Waiver of Surrender Charge Rider for more information.

Transaction Fee

To assist in covering our administration costs, we reserve the right to charge a transaction fee of the lesser of $25 or
2% of each unscheduled partial surrender after the 12th unscheduled partial surrender in a contract year. The
transaction fee would be deducted from the accumulated value remaining in the investment option(s) from which the
amount is surrendered, on a pro rata basis.

To assist in covering our administration costs or to discourage market timing, we also reserve the right to charge a
transaction fee of the lesser of $30 or 2% of each unscheduled transfer after the first unscheduled transfer in a
contract year. The transaction fee would be deducted from the investment option(s) from which the amount is
transferred, on a pro rata basis.

Premium Taxes

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

Annual Fee

Contracts with an accumulated value of less than $30,000 are subject to an annual Contract fee of the lesser of $30
or 2% of the accumulated value. Currently, we do not charge the annual fee if your accumulated value is $30,000 or
more. If you own more than one variable annuity contract with us, all the Contracts you own or jointly own are
aggregated, on each Contract’s anniversary, to determine if the $30,000 minimum has been met and whether that
Contract will be charged. The fee is deducted from the investment option that has the greatest value. The fee is
deducted on each Contract anniversary and upon total surrender of the Contract. The fee assists in covering
administration costs, primarily costs to establish and maintain the records which relate to the Contract.

GMWB Charge

The current annual charge for the rider is 0.73% of the average quarterly withdrawal benefit base. The charge is
taken at the end of the calendar quarter at a quarterly rate of 0.1825%, based on the average quarterly withdrawal
benefit base during the calendar quarter. The average quarterly withdrawal benefit base is equal to the withdrawal
benefit base at the beginning of the calendar quarter plus the withdrawal benefit base at the end of the calendar
quarter and the sum is divided by two. There may be times when the sum of the four quarterly fee amounts is
different than the fee amount if we calculated it annually. For example, if your withdrawal benefit base is changed on
your contract anniversary, the fee for that calendar quarter will vary from the other quarters.

If we increase the rider charge, you will be notified in advance. Before the effective date of the rider charge increase,
you have the following options:
·	Accept the increased rider charge and continue to be eligible to receive a GMWB Step-Up at each rider
	anniversary; or
·	Decline the increased rider charge by sending us notice that you are opting out of the GMWB Step-Up and
	electing to remain at your current rider charge. Once you opt out of the GMWB Step-Up, you will no longer be
	eligible for any future GMWB Step-Ups and the feature cannot be added back to this rider.

At the end of each calendar quarter, the rider charge is deducted through the redemption of units from your
accumulated value in the same proportion as the surrender allocation percentages. If this rider is purchased after the
beginning of a calendar quarter, the rider charge is prorated according to the number of days this rider is in effect
during the calendar quarter. Upon termination of this rider, the rider charge will be based on the number of days this
rider is in effect during the calendar quarter.


We reserve the right to increase the rider charge up to the maximum annual charge. The maximum annual charge is
1.65% (0.4125% quarterly) of the average quarterly withdrawal benefit base.

The rider charge is intended to reimburse us for the cost of the protection provided by this rider.

Separate Account Annual Expenses

Mortality and Expense Risks Charge

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

This charge is intended to compensate us for the mortality risk on the Contract. We have a mortality risk in that we
guarantee payment of a death benefit in a single payment or under an annuity benefit payment option. We do not
impose a surrender charge on a death benefit payment, which is an additional mortality risk.

This charge is also intended to cover our expenses, primarily related to operation of the Contract, including
·	furnishing periodic Contract statements, confirmations and other customer communications;
·	preparation and filing of regulatory documents (such as this prospectus);
·	preparing, distributing and tabulating proxy voting materials related to the underlying mutual funds; and
·	providing computer, actuarial and accounting services.

If the mortality and expense risks charge is not enough to cover our costs, we bear the loss. If the mortality and
expense risks charge is more than our costs, the excess is profit to the Company.

Administration Charge

Currently, we do not impose a Separate Account administration charge. We reserve the right to assess each
Separate Account division with a daily administration charge that is guaranteed not to exceed the annual rate of
0.15% of the average daily net asset value of the divisions. We will provide prior written notice in the event that we
exercise our right to assess the administration charge.

In the event that we assess the administration charge, it would be imposed in order to cover our costs for
administration of the Contract that are not covered in the mortality and expense risk charge, above. In the event that
we assess an administration charge, it would not be imposed after the annuitization date of the Contract. In the event
that we assess an administration charge, it would be assessed daily against the Separate Account division values in
the same manner as the mortality and expense risks charge, above.

Special Provisions for Group or Sponsored Arrangements

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

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


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

RIDER BENEFITS

Not all riders are available in all states or through all broker dealers and may be subject to additional
restrictions. Some rider provisions may vary from state to state. We may withdraw or prospectively restrict the
availability of any rider at any time. For information regarding availability of any rider, you may contact your registered
representative or call us at 1-800-852-4450.

See CHARGES AND DEDUCTIONS for current and maximum rider charges.

Waiver of Surrender Charge Rider

The Waiver of Surrender Charge Rider waives the surrender charge on surrenders made after the first Contract
anniversary if the original owner or original annuitant has a critical need. This rider is automatically made a part of the
Contract at issue. There is no charge for this rider.

The benefits under the Waiver of Surrender Charge Rider are available for a critical need if the following conditions
are met:
·	the original owner or original annuitant has a critical need (NOTE: A change of ownership will terminate this rider;
	once terminated the rider may not be reinstated.); and
·	the critical need did not exist before the contract date.

For the purposes of this rider, the following definitions apply:

·	critical need — owner’s or annuitant’s confinement to a health care facility, terminal illness diagnosis or total and
	permanent disability. If the critical need is confinement to a health care facility, the confinement must continue for
	at least 60 consecutive days after the contract date and the surrender must occur within 90 days of the
	confinement’s end.
·	health care facility — a licensed hospital or inpatient nursing facility providing daily medical treatment and
	keeping daily medical records for each patient (not primarily providing just residency or retirement care). This
	does not include a facility primarily providing drug or alcohol treatment, or a facility owned or operated by the
	owner, annuitant or a member of their immediate families.
·	terminal illness — sickness or injury that results in the owner’s or annuitant’s life expectancy being 12 months or
	less from the date notice to receive a distribution from the Contract is received by the Company. In Texas and
	New Jersey, terminal illness is not included in the criteria for critical need.
·	total and permanent disability — a disability that occurs after the contract date but before the original owner or
	annuitant reaches age 65 and qualifies to receive social security disability benefits. In New York, a different
	definition of total and permanent disability applies. In Oregon, total and permanent disability is not included in the
	criteria for critical need.

NOTE: The Waiver of Surrender Charge Rider is not available in Massachusetts.

You may obtain more specific information regarding the Waiver of Surrender Charge Rider from your registered
representative or by calling us at 1-800-852-4450.

Guaranteed Minimum Withdrawal Benefit (GMWB)

This Contract is issued with a Guaranteed Minimum Withdrawal Benefit (“GMWB”) rider which is designed to help

protect you against the risk of a decrease in the Contract accumulated value due to market declines. This benefit is

also intended to help you avoid the risk of outliving your money. The GMWB rider allows you to take certain

guaranteed annual withdrawals during the Contract accumulation phase, regardless of your Contract accumulated

value.

We use certain defined terms in our description of the rider. For your convenience, we have included definitions of

those terms in GMWB Terms.

GMWB Overview

For Life withdrawal benefit payment percentages. This rider permits an election of “Joint Life” For Life withdrawal

benefit payments or “Single Life” For Life withdrawal benefit payments.

Bonus feature. This rider has a Bonus feature (described below) which rewards you for not taking a withdrawal in

certain early years of the rider. The GMWB Bonus does not increase your Contract accumulated value.

Step-Up feature. This rider has a Step-Up feature (described below) which can increase your rider withdrawal

benefit payments if your Contract accumulated value increases. The Contract accumulated value increases

whenever additional premium payments are made, the division values rise with market growth, or exchange credits

are applied.

Maximum annual rider charge. This rider has a maximum annual rider charge of 1.65% of the For Life withdrawal

benefit base.

Spousal continuation. This rider provides that the For Life withdrawal benefit may be available to an eligible spouse

who continues the Contract with the rider.

GMWB Rider Restrictions/Limitations

This rider may not be terminated for five contract years following the rider effective date.

This rider does not restrict or change your right to take — or not take — withdrawals under the Contract. All

withdrawals reduce the Contract accumulated value by the amount withdrawn and are subject to the same

conditions, limitations, fees, charges and deductions as withdrawals otherwise taken under the provisions of the

Contract; for example, withdrawals will be subject to surrender charges if they exceed the free surrender amount

(see CHARGES AND DEDUCTIONS — Surrender Charge, Free Surrender Privilege). However, any withdrawals

may have an impact on the value of your rider’s benefits. If you take withdrawals in an amount that exceeds an

available withdrawal benefit payment (excess withdrawal), you will shorten the life of the rider, lower the withdrawal

benefit payments and/or cause the rider to terminate for lack of value unless you make additional premium payments

or a GMWB Step-Up is applied.

There is a charge for this rider which can increase up to the guaranteed maximum charge for the rider (see

SUMMARY OF EXPENSE INFORMATION — Periodic Expenses).

This rider restricts your Contract investment options (see Investment Options below).

Any ownership change, change of beneficiary or other change before the annuitization date which would cause a

change in a covered life may result in termination of this rider (see Covered Life Change).


GMWB Terms
We use the following definitions to describe the features of this rider:

·	Excess Withdrawal — the portion of a withdrawal that exceeds the available withdrawal benefit payment.
·	GMWB Bonus — a bonus credited to the withdrawal benefit base, provided certain conditions are met.
·	GMWB Step-Up — an increase to the withdrawal benefit base to an amount equal to your Contract’s
	accumulated value on the most recent Contract anniversary, provided certain conditions are met.
·	Required minimum distribution (“RMD”) amount — the amount required to be distributed each calendar year for
	purposes of satisfying the RMD rules of Section 401(a)(9) of the Internal Revenue Code of 1986, as amended,
	and related Code provisions in effect as of the rider effective date.
·	Rider effective date — the date the rider is issued.
·	Withdrawal — any partial surrender (including surrender charges, if any) and/or any partial annuitization of your
	Contract’s accumulated value.
·	Withdrawal benefit base (also referred to as For Life withdrawal benefit base) — the basis for determining the
	withdrawal benefit payment available each year.
·	Withdrawal benefit payment (also referred to as For Life withdrawal benefit payment) — the amount that we
	guarantee you may withdraw each contract year.

Investment Options

The investment options you may select are restricted. The investment options (the “investment options”) reflect a
balanced investment objective and if your investment goal is aggressive growth, these investment options may not
support your investment objective. With investment options that reflect a balanced investment objective, there is
potentially a reduced likelihood that we will have to make benefit payments when the Contract value goes to zero,
when the Contact reaches the maximum annuitization date, or if there is a death claim.

You must allocate 100% of your Separate Account division accumulated value and premium payments to one of the
available investment options while the GMWB rider is in effect. Any future premium payments are allocated to the
investment option your Separate Account division accumulated value is invested in at the time of the new premium
payments.

The available investment options are:
·	Diversified Growth Account; or
·	Diversified Balanced Account.

For more information about the Diversified Growth and Diversified Balanced Account, please see the prospectus
sections titled THE CONTRACT - The Underlying Mutual Funds, TABLE OF SEPARATE ACCOUNT DIVISIONS and
the underlying fund’s prospectus provided with this prospectus.

You may allocate premium payments and transfer Contract accumulated value to the Fixed Account. Such
allocations and transfers are subject to the provisions of your Contract. See FIXED ACCOUNT.

We reserve the right to modify the list of available of available investment options, subject to compliance with
applicable regulations. Changes or restrictions will apply only to new purchasers of the Contract or to you if you
transfer out of an investment option and wish to transfer back to that investment option.

The rider may not be terminated for five contract years following the rider effective date.

Please see Appendix A for information regarding transfers between GMWB Investment Options and GMWB
Investment Options Underlying Funds.


Withdrawal Benefit Base

The withdrawal benefit base is used to calculate the annual withdrawal benefit payment. We calculate the withdrawal
benefit base on the rider effective date and each contract anniversary.

The initial withdrawal benefit base is equal to the initial premium payment.

On each contract anniversary, the withdrawal benefit base is
·	increased dollar-for-dollar by any additional premium payments made since the previous contract anniversary,
	any GMWB Bonus credited since the previous contract anniversary, and any GMWB Step-Up; and
·	decreased to reflect any excess withdrawals taken since the previous contract anniversary (the reduction will be
	greater than dollar-for-dollar, if the Contract accumulated value is less than the withdrawal benefit base at the
	time of the excess withdrawal). See Excess Withdrawals, below, for information about the negative effect of
	excess withdrawals.

If the adjustment for any withdrawals causes the withdrawal benefit base to reduce to zero, the rider will terminate
(unless you make additional premium payments or a GMWB Step-Up is applied).

Withdrawal Benefit Payment

The For Life withdrawal benefit payments are automatically calculated as “Single Life” unless you provide notice and
good order instructions to select “Joint Life” For Life withdrawal benefit payments. If eligible, you may elect “Joint
Life” For Life withdrawal benefit payments anytime on or before your first withdrawal following the rider effective date.
Once you take this first withdrawal, you cannot change your election of “Single Life” or “Joint Life” For Life withdrawal
benefit payments, regardless of any change in life events.

“Single Life” For Life withdrawal benefit payments. “Single Life” For Life withdrawal benefit payments are based
on one covered life. The covered life for “Single Life” is the
	a.owner if there is only one owner;
	b.annuitant if the owner is not a natural person;
	c. youngest joint owner if there are joint owners; or
	d.youngest annuitant if there are joint annuitants and the owner is not a natural person.

In addition, the covered life must satisfy this rider’s issue age requirements on the date the covered life is designated
in accordance with the terms of this rider.

As long as the Contract is in effect, “Single Life” For Life withdrawal benefit payments may be taken until the earlier
of the date of the death of the first owner to die (first annuitant, if applicable) or the date the For Life withdrawal
benefit base reduces to zero.

“Joint Life” For Life withdrawal benefit payments. “Joint Life” For Life withdrawal benefit payments are based on
two covered lives. You may only elect “Joint Life” For Life withdrawal benefit payments if there are two covered lives
that meet the eligibility requirements. There can be no more than two covered lives. The “Joint Life” election is not
available if the owner is not a natural person.

To be eligible for “Joint Life” the covered lives must be
	a. the owner and the owner’s spouse, provided there is only one owner and the spouse is named as a primary ben-
	eficiary; or
	b. the joint owners, provided the joint owners are each other’s spouse.

NOTE: For purposes of this rider, “spouse” means the person who is recognized as the owner’s spouse and is
	eligible to make a spousal election under federal tax laws.

NOTE: At the time a covered life is designated, that covered life must satisfy the issue age requirements.

As long as the Contract is in effect, “Joint Life” For Life withdrawal benefit payments will continue until the earlier of
the date of the death of the last covered life or the date the “For Life” withdrawal benefit base reduces to zero.

Calculating the For Life Withdrawal Benefit Payment

The For Life withdrawal benefit payment is an amount equal to a percentage multiplied by the For Life withdrawal

benefit base.

The For Life withdrawal benefit payment percentage depends on whether you have elected “Single Life” or “Joint

Life” and the age of the covered life on the date of the first withdrawal following the rider effective date:


·	“Single Life”:

	Age of Covered Life at First	For Life Withdrawal Benefit
	Withdrawal	Payment Percentage
	60-64	5.00%
	65-69	5.25%
	70-74	5.50%
	75-79	6.00%
	80+	6.50%


·	“Joint Life”:

	Age of Younger Covered Life at	For Life Withdrawal Benefit
	First Withdrawal	Payment Percentage
	60-64	4.50%
	65-69	4.75%
	70-74	5.00%
	75-79	5.50%
	80+	6.00%


Because the For Life withdrawal benefit payments are tiered based on the age of the younger covered life at the time
of the first withdrawal, you should carefully choose when you take the first withdrawal following the rider effective
date. Once a withdrawal is taken, the For Life withdrawal benefit payment percentage is locked in for the life of this
rider. In addition, when you take your first withdrawal, your election of “Single Life” or “Joint Life” remains locked in
and cannot be changed. For example, if you have elected “Joint Life” For Life withdrawal benefit payments and take
the first withdrawal when the younger covered life is age 61, your For Life withdrawal benefit payment percentage will
be locked in at 4.50% for the remaining life of this rider and cannot be changed.

Covered Life Change. Any ownership change, change of beneficiary or other change before the annuitization date
which would cause a change in a covered life (a “Change”) will result in termination of this rider, except for the
following permissible Changes:

1.	Spousal continuation of this rider as described below in Spousal Continuation.

2.	If withdrawals have not been taken and you have not previously elected to continue this rider as provided in
	Spousal Continuation, then

	a.	you may add a joint owner or primary beneficiary to your Contract as a covered life, provided that the new
		joint owner or primary beneficiary is an eligible covered life as set forth above.

	b.	you may remove a joint owner or primary beneficiary as a covered life.

	c.	the For Life withdrawal benefit payment percentage will be based on the age of the covered lives and will
		lock in at the percentage applicable on the date of your first withdrawal.


3.	If withdrawals have been taken and you have locked in “Single Life” For Life withdrawal benefit payments, then

	a.	you may remove a joint owner as a covered life.

	b.	you may add a primary beneficiary to your Contract, however, you may not add a primary beneficiary as a
		covered life for purposes of this rider.

	c.	the For Life withdrawal benefit payment percentage will remain locked in at the percentage applicable on the
		date of your first withdrawal and will not be reset to reflect the removal of the covered life. For Life withdrawal
		benefit payments will cease upon your death.

4.	If withdrawals have been taken and you have locked in “Joint Life” For Life withdrawal benefit payments, then
	a.	you may remove a joint owner or primary beneficiary as a covered life.

	b.	you may add a primary beneficiary to your Contract; however, you may not add a primary beneficiary as a
		covered life for purposes of this rider.

	c.	the For Life withdrawal benefit payment percentage will remain locked in at the percentage applicable on the
		date of your first withdrawal and will not be reset to reflect the removal of the covered life. For Life withdrawal
		benefit payments will cease upon your death.

5.	If you have previously elected to continue this rider as provided in Spousal Continuation, then you may add a pri-
	mary beneficiary to your Contract; however, you may not add a primary beneficiary as a covered life for purposes
	of this rider. If the primary beneficiary that you add is your spouse, upon your death the spouse can continue the
	contract, but the rider will terminate.

No Change is effective until approved by us in writing. Upon our approval, the Change is effective as of the date you
signed the notice requesting the Change.

An assignment of the Contract or this rider shall be deemed a request for a Change. If the Change is not one of the
above permissible Changes, this rider will be terminated as of the date of the assignment.

Effect of Withdrawals

This rider does not require you to take an available withdrawal benefit payment. If you want to take advantage of this
rider’s GMWB Bonus feature, withdrawals cannot be taken during the period the GMWB Bonus is available. Please
see GMWB Bonus below.

If you elect not to take an available withdrawal benefit payment, that amount will not be carried forward to the next
contract year.

If you take excess withdrawals, the withdrawal benefit base for each withdrawal option will be reduced on the next
contract anniversary. See Excess Withdrawals for information about the negative effect of excess withdrawals.

To help you better understand the various features of this rider and to demonstrate how premium payments made
and withdrawals taken from the Contract affect the values and benefits under this rider, we have provided several
examples in Appendix B.

Excess Withdrawals

Any withdrawals that exceed the available withdrawal benefit payments are excess withdrawals. Excess withdrawals
decrease the withdrawal benefit base, which will reduce future withdrawal benefit payments.

Excess withdrawals reduce withdrawal benefit payments and the withdrawal benefit base. The reductions can be
greater than dollar-for-dollar when the Contract accumulated value is less than the withdrawal benefit base at the
time of the excess withdrawal, as shown below.


Effect on withdrawal benefit base. Excess withdrawals will reduce the withdrawal benefit base in an amount
equal to the greater of:
·	the excess withdrawal, or
·	the result of (a divided by b) multiplied by c, where:

	a = the amount withdrawn that exceeds the available withdrawal benefit payment prior to the withdrawal;
	b = the Contract accumulated value after the withdrawal benefit payment is deducted, but prior to deducting
	the amount of the excess withdrawal; and
	c = the withdrawal benefit base prior to the adjustment for the excess withdrawal.

Required Minimum Distributions (RMD)

Tax-qualified Contracts are subject to certain federal tax rules requiring that RMD be taken on a calendar year basis
(i.e., compared to a contract year basis), usually beginning after age 70½.

If you are eligible for and enroll in our RMD Program for GMWB, as discussed below, a withdrawal taken to satisfy
RMD for the Contract (an “RMD amount”) that exceeds a withdrawal benefit payment for that contract year will not be
deemed an excess withdrawal.

RMD Program. Eligibility in the RMD Program for GMWB is determined by satisfaction of the following requirements:

·	the amount required to be distributed each calendar year for purposes of satisfying the RMD rules of the Internal
	Revenue Code is based only on this Contract (the “RMD amount”); and
·	you have elected scheduled withdrawal payments.

NOTE: Although enrollment in the RMD Program for GMWB does not prevent you from taking an unscheduled
	withdrawal, an unscheduled withdrawal will cause you to lose the RMD Program protections for the
	remainder of the contract year. This means that any withdrawals (scheduled or unscheduled) during the
	remainder of the contract year that exceed applicable withdrawal benefit payments will be treated as excess
	withdrawals, even if the purpose is to take the RMD amount. You will automatically be re-enrolled in the
	RMD Program for GMWB on your next contract anniversary.

We reserve the right to modify or eliminate the RMD Program for GMWB; for example, if there is a change to the
Internal Revenue Code or Internal Revenue Service rules or interpretations relating to RMD, including the issuance
of relevant IRS guidance. We will send you at least 30 days advance notice of any change in or elimination of the
RMD Program for GMWB. Any modifications or elimination of the RMD Program for GMWB will take effect after
notice. If we exercise our right to modify or eliminate the RMD Program for GMWB, then any scheduled or
unscheduled withdrawal in excess of a withdrawal benefit payment after the effective date of the program’s
modification or elimination will be deemed an excess withdrawal.

You may obtain more information regarding our RMD Program for GMWB by contacting your registered
representative or by calling us at 1-800-852-4450.

GMWB Bonus

Under the GMWB Bonus, on each of the first two contract anniversaries following the rider effective date, we will
credit a bonus (“GMWB Bonus”) to the withdrawal benefit base, provided you have not taken any withdrawals since
the rider effective date.

The GMWB Bonus is equal to the total of all premium payments made prior to the applicable contract anniversary
multiplied by the applicable percentage shown in the chart below.


Contract Anniversary (following	GMWB Bonus Percentage
the rider effective date)
1	5.00%
2	5.00%


The GMWB Bonus is no longer available after the earlier of
·	The second contract anniversary following the rider effective date; or
·	The date you take a withdrawal following the rider effective date.

NOTE: The GMWB Bonus is used only for the purposes of calculating the withdrawal benefit base. The GMWB
	Bonus is not added to your Contract accumulated value.

GMWB Step-Up

The GMWB Step-Up is automatic and applies annually. Under this rider, unless an owner opts out of the automatic
GMWB Step-Up, the rider charge will increase if our then current rider charge is higher than when the rider was pur-
chased. The rider charge will never be greater than the maximum GMWB rider charge. See SUMMARY OF
EXPENSE INFORMATION section.

If you satisfy the eligibility requirements on a contract anniversary and your Contract accumulated value is greater
than the withdrawal benefit base, we will step-up the withdrawal benefit base to your Contract accumulated value on
that contract anniversary. We will not reduce your withdrawal benefit base if your Contract accumulated value on a
contract anniversary is less than the withdrawal benefit base.

If you are eligible for a GMWB Step-Up of the withdrawal benefit base, you will be charged the then current rider
charge. You may choose to opt out of the GMWB Step-Up feature if the charge for your rider will increase. We will
send you advance notice if the charge for your rider will increase in order to give you the opportunity to opt out of the
GMWB Step-Up feature. Once you opt out, you will no longer be eligible for future GMWB Step-Ups.

The GMWB Step-Up operates as follows:

	On each contract anniversary following the rider effective date, you are eligible for a GMWB Step-Up of the
	withdrawal benefit base if you satisfy all of the following requirements:

	1. the contract anniversary occurs before the later of
	a. the contract anniversary following the date the oldest owner (oldest annuitant if the owner is not a natural
	person) attains age 80; or
	b. ten years after the rider effective date;
	2. you have not declined any increases in the rider charge; and
	3. you have not fully annuitized the Contract.

Effect of Reaching the Maximum Annuitization Date Under the Rider

On or before the maximum annuitization date, you must elect one of the Contract or GMWB rider payment options
described below.

1. Contract payment options:
·	Payments resulting from applying the Contract accumulated value to an annuity benefit payment option.
·	Payment of the Contract accumulated value as a single payment.

2. GMWB rider payment option:
·	Fixed scheduled payments each year in the amount of the For Life withdrawal benefit payment, until the date of
	death of the last covered life.

Please see Effect of Withdrawals for information on how withdrawals prior to the maximum annuitization date affect
the GMWB values.

We will send you written notice at least 30 days prior to the maximum annuitization date and ask you to select one of
the available payment options listed above. If we have not received your election as of the maximum annuitization
date, we will automatically apply your Contract accumulated value to an annuity benefit payment option as described
in THE CONTRACT — The Annuitization Period, Annuity Benefit Payment Options.


Effect of the Contract Accumulated Value Reaching Zero under the Rider

In the event the Contract accumulated value reduces to zero, we will pay the withdrawal benefit payments to you as
follows:

·	If you have taken withdrawal benefit payments prior to the Contract accumulated value reaching zero, your For
	Life withdrawal option is either “Joint Life” or “Single Life” depending on your election at the time of your first
	withdrawal.
·	If you have not taken withdrawal benefit payments prior to the Contract accumulated value reaching zero, you
	must elect either
	·	the “Single Life” For Life withdrawal option: you will receive fixed scheduled payments each year in the
		amount of the “Single Life” For Life withdrawal benefit payment, until the date of your death (annuitant’s
		death if the owner is not a natural person).
	·	the “Joint Life” For Life withdrawal option: you will receive fixed scheduled payments each year in the amount
		of the “Joint Life” For Life withdrawal benefit payment, until the date of the death of the last covered life.

NOTE:		In the event that the Contract accumulated value reduces to zero, the withdrawal benefit payments elected
		above will continue, but all other rights and benefits under this rider and the Contract (including the death
		benefits) will terminate, and no additional premium payments will be accepted.

We will send you prior written notice whenever reasonably feasible if your Contract accumulated value is
approaching zero.

GMWB At Death

If the Contract Accumulated Value is Greater than Zero. The following table illustrates the various situations and

the resulting outcomes if your Contract accumulated value is greater than zero at your death.


If you die and...	And...	Then...
You are the sole	Your spouse is	The primary beneficiary(ies) will receive the death
owner	not named as a	benefit under the Contract*.
	primary
	beneficiary	All other rights and benefits under the rider and
		Contract will terminate.

You are the sole	Your spouse is	Your spouse may
owner	named as a
	primary	a. continue the contract with or without this rider as set
	beneficiary	forth below in GMWB Spousal Continuation; or
		b. receive the death benefit under the Contract*.

		All other primary beneficiaries will receive the death
		benefit under the contract.

		Unless your spouse elects to continue the contract
		with this rider, only your spouse’s and
		beneficiary(ies)’s right to the above-selected payments
		will continue; all other rights and benefits under the
		rider and Contract will terminate.

You are a joint	The surviving	Your surviving owner will receive the death benefit
owner	joint owner is not	under the Contract*.
	your spouse
		All other rights and benefits under the rider and
		Contract will terminate.

You are a joint	The surviving	Your spouse may
owner	joint owner is
	your spouse	a. continue the contract with or without this rider as set
		forth below in GWMB Spousal Continuation; or
		b. receive the death benefit under the Contract*.

		Unless the surviving spouse owner elects to continue
		the contract with this rider, upon your death, only your
		spouse’s right to the above-selected payments will
		continue; all other rights and benefits under the rider
		and Contract will terminate.

* Please see THE CONTRACT — Death Benefit for an explanation of the Contract’s death benefit and payment

options available for the Contract’s death benefit.


If...	And...	Then...
The annuitant dies	The owner is not	The beneficiary(ies) receive the death benefit under
	a natural person	the Contract.

		If a beneficiary dies before the annuitant, on the
		annuitant’s death we will make equal payments to the
		surviving beneficiaries unless the owner provided us
		with other written instructions. If no beneficiary(ies)
		survive the annuitant, the death benefit is paid to the
		owner.

		Upon the annuitant’s death, only the beneficiary(ies)
		right to the death benefit will continue; all other rights
		and benefits under the Contract will terminate.

NOTE: The “Joint Life” For Life withdrawal option is not available if the owner is not a natural person.

If the Contract Accumulated Value is Zero. The following table illustrates the various situations and the resulting

outcomes if the Contract accumulated value is zero at your death.


If you die and...	And...	Then...
You are the sole	You elected the	All payments stop and all rights and benefits under the
owner	“Single Life” For	Contract terminate.
	Life withdrawal
	option*

You are the sole	You elected the	We will continue payments to the surviving covered
owner	“Joint Life” For	life according to the schedule established when you
	Life withdrawal	made your election until the date of the surviving
	option*	covered life’s death.

		Upon the surviving covered life’s death, all payments
		stop and all rights and benefits under the Contract

You are a joint	You elected the	All payments stop and all rights and benefits under the
owner	“Single Life” For	Contract terminate.
	Life withdrawal
	option*

You are a joint	You elected the	We will continue payments to the surviving covered
owner	“Joint Life” For	life according to the schedule established when you
	Life withdrawal	made your election until the date of the surviving
	option*	covered life’s death.

		Upon the surviving joint owner’s death, all payments
		stop and all rights and benefits under the Contract
		terminate.

* Please see Effect of the Contract Accumulated Value Reaching Zero under the Rider for details regarding election

of the For Life withdrawal option.


If...	And...	Then...
The annuitant dies	The owner is not	The beneficiary(ies) receive the death benefit under
	a natural person	the Contract.

	The owner	All payments stop and all rights and benefits under the
	elected the	Contract terminate.
	"Single Life" For
	Life Withdrawal
	option*


NOTE: The “Joint Life” For Life withdrawal option is not available if the owner is not a natural person.

Termination and Reinstatement of the Rider

You may not terminate this rider prior to the 5th contract anniversary following the rider effective date.

We will terminate this rider upon the earliest to occur:
·	The date you send us notice to terminate the rider (after the 5th contract anniversary following the rider effective
	date). This will terminate the rider, not the Contract.
·	The date you fully annuitize, fully surrender or otherwise terminate the Contract.
·	The For Life withdrawal benefit base is zero.
·	The date the contract owner is changed (annuitant is changed if the owner is not a natural person), except a
	change in owner due to a spousal continuation of the rider as described in GMWB Spousal Continuation or the
	removal/ addition of a joint life as described in Covered Life Change.
·	The date your surviving spouse elects to continue the Contract without this rider (even if prior to the fifth Contract
	anniversary following the rider effective date).
·	The date you make an impermissible change in a covered life.

If this rider terminates for any reason other than full surrender of the Contract, this rider may not be reinstated.

If you surrender the Contract with this rider attached and the Contract is later reinstated, this rider also must be rein-
stated. At the time this rider is reinstated, we will deduct rider charges scheduled during the period of termination and
make any other adjustments necessary to reflect any changes in the amount reinstated and the contract
accumulated value as of the date of termination.

GMWB Spousal Continuation

This rider provides that the For Life withdrawal benefit may be available to an eligible spouse who continues the Con-
tract with the rider.

If you die while this rider is in effect and if your surviving spouse elects to continue the Contract in accordance with its
terms, the surviving spouse may also elect to continue this rider if

1.	the Contract accumulated value is greater than zero;
2.	there has not been a previous spousal continuation of the Contract and this rider; and
3.	your spouse is either
	a.	your primary beneficiary, if you were the sole owner; or
	b.	the surviving joint owner, if there were joint owners.

If your spouse elects to continue the Contract without this rider, this rider and all rights, benefits and charges under

this rider will terminate and cannot be reinstated.

NOTE: Although spousal continuation may be available under federal tax laws for a subsequent spouse, this rider

may be continued one time only.

The following table illustrates the various changes and the resulting outcomes associated with continuation of this

rider by an eligible surviving spouse.


If you die and...	And...	Then if your spouse continues this rider...
No withdrawals	Your spouse	Your spouse may take withdrawals until the earlier of
have been taken	meets the	the death of your spouse or the For Life withdrawal
since the rider	minimum issue	benefit base reduces to zero.
effective date	age requirement
		For Life withdrawal benefits will automatically be
		calculated as “Single Life” and your spouse will be the
		sole covered life. Your spouse may not add a new
		covered life or elect “Joint Life”.

		The For Life withdrawal benefit percentage will be
		based on your spouse’s age and will lock in at the
		“Single Life” percentage applicable on the date of your
		spouse’s first withdrawal.

		All other provisions of this rider will continue as in
		effect on the date of your death.

No withdrawals	Your spouse	The GMWB rider terminates upon your death.
have been taken	does not meet
since the rider	the minimum	All other provisions of the Contract will continue as in
effective date	issue age	effect on the date of your death.
	requirement


If you die and...	And...	And...	Then if your spouse continues this rider
Withdrawals have	You have	----	The GMWB rider terminates upon your death.
been taken since	locked in
the rider effective	“Single Life”		All other provisions of the Contract will continue as
date	For Life		in effect on the date of your death.
	withdrawal
	benefits

Withdrawals have	You have	Your spouse	Your spouse may continue to take For Life
been taken since	locked in	is the	withdrawal benefit payments until the earlier of the
the rider effective	“Joint Life” For	surviving	death of your spouse or the For Life withdrawal
date	Life	covered life	benefit base reduces to zero.
	withdrawal
	benefits		For Life withdrawal benefits will continue to be
			calculated as “Joint Life”.

			The For Life withdrawal benefit percentage will
			remain locked in at the “Joint Life” percentage
			applicable on the date of your first withdrawal and
			will not be reset to reflect your death.

			All other provisions of this rider will continue as in
			effect on the date of your death.

Withdrawals have	You have	There is no	The GMWB rider terminates upon your death.
been taken since	locked in	surviving
the rider effective	“Joint Life” For	covered life	All other provisions of the Contract will continue as
date	Life		in effect on the date of your death.
	withdrawal
	benefits

Effect of Divorce on the Rider

Generally, in the event of a divorce, the spouse who retains ownership of the Contract will continue to be entitled to

all rights and benefits of this rider while the former spouse will no longer have any such rights or be entitled to any

benefits under this rider. If you take a withdrawal to satisfy a court order to pay a portion of the Contract to your

former spouse, any portion of such withdrawal that exceeds the available withdrawal benefit payments will be

deemed an excess withdrawal under this rider.


GMWB Summary

Issue Age	60-80

Rider Charge	· Maximum annual charge is 1.65%.
(as a percentage of average	· Current annual charge is 0.73%.
quarterly For Life withdrawal
benefit base)

Annual Withdrawal Limits	· “Single Life” — tiered percentages based on age
	at first withdrawal, beginning at 5.00% and capping
	at a maximum of 6.50% of the For Life withdrawal
	benefit base
	· “Joint Life” — tiered percentages based on age at
	first withdrawal, beginning at 4.50% and capping at
	a maximum of 6.00% of the For Life withdrawal
	benefit base

For Life Withdrawal Benefit	· “Single Life” or “Joint Life” (your life and the lifetime
Payments	of your eligible spouse)
	· For Life withdrawal benefit payments default to
	“Single Life” unless “Joint Life” is elected

Termination	· You may terminate this rider anytime after the 5th
	contract anniversary following the rider effective
	date

GMWB Step-Up	· Automatic annual GMWB Step-Up available until
	the later of (a) the Contract Anniversary prior to age
	80 or (b) 10 years after the rider effective date.

GMWB Bonus	· If no withdrawals are taken, a GMWB Bonus is
	applied to the withdrawal benefit base on each
	contract anniversary as shown below.
	· Year 1 — 5.00% of premium payments
	· Year 2 — 5.00% of premium payments

Investment Restrictions	You must select either:
	· Diversified Growth; or
	· Diversified Balanced.

	There are no additional restrictions on allocations to
	the Fixed Account.

Spousal Continuation	· At the death of the first owner to die, a spouse who
	is a joint owner or primary beneficiary may have the
	option to continue the contract with this rider.

FIXED ACCOUNT

This prospectus is intended to serve as a disclosure document only for the Contract as it relates to the Separate

Account and contains only selected information regarding the fixed account. The Fixed Account is a part of our

general account. Because of exemptions and exclusions contained in the Securities Act of 1933 and the Investment

Company Act of 1940, the Fixed Account, and any interest in it, are not subject to the provisions of these acts. As a

result the SEC has not reviewed the disclosures in this prospectus relating to the Fixed Account. However,

disclosures relating to them are subject to generally applicable provisions of the federal securities laws relating to the

accuracy and completeness of statements made in prospectuses.

Our obligations with respect to the Fixed Account are supported by our general account. The general account is the

assets of the Company other than those assets allocated to any of our Separate Accounts. Subject to applicable law,

we have sole discretion over the assets in the general account. Separate Account expenses are not assessed

against any Fixed Account values. You can obtain more information concerning the Fixed Account from your

registered representative or by calling us at 1-800-852-4450.


We reserve the right to refuse premium payment allocations and transfers from the other investment options to the
Fixed Account. We will send you a written notice at least 30 days prior to the date we exercise this right. We will also
notify you if we lift such restrictions.

The guaranteed minimum interest rate (“GMIR”) is determined by a formula, with the general parameters established
by state law. The GMIR will never be less than one percent and no greater than three percent. The GMIR is set at
Contract issue and will not change for the life of the contract.

The Company guarantees that premium payments allocated and amounts transferred to the Fixed Account earn
interest at the interest rate in effect on the date premium payments are received or amounts are transferred. This
rate, which will never be less than the GMIR, applies to each premium payment or amount transferred through the
end of the Contract year.

Each contract anniversary, we declare a renewal interest rate that applies to the Fixed Account value in existence at
that time. This rate, which will never be less than the GMIR applies until the end of the contract year. Interest is
earned daily and compounded annually at the end of each contract year. Once credited, the interest is guaranteed
and becomes part of the Fixed Account accumulated value from which deductions for fees and charges may be
made.

NOTE 1:			Transfers and surrenders from the Fixed Account are subject to certain limitations as to frequency and
			amount. See FIXED ACCOUNT - Fixed Account Transfers, Total and Partial Surrenders.

NOTE 2:			We may defer payment of surrender proceeds payable out of the Fixed Account for up to six months. See
			GENERAL PROVISIONS - Delay of Payments.

Fixed Account Accumulated Value

Your Fixed Account accumulated value on any valuation date is equal to:
·	premium payments or credits allocated to the Fixed Account;
·	plus any transfers to the Fixed Account from the other investment options;
·	plus interest credited to the Fixed Account;
·	minus any surrenders or applicable surrender charges or partial annuitizations from the Fixed Account;
·	minus any transfers to the Separate Account.

Fixed Account Transfers, Total and Partial Surrenders

Transfers and surrenders from the Fixed Account are subject to certain limitations. In addition, surrenders from the
Fixed Account may be subject to a charge (see GLOSSARY — Surrender Charge).

You may transfer amounts from the Fixed Account to the Separate Account divisions before the annuitization date
and as provided below. The transfer is effective on the valuation date following our receipt of your instructions. You
may transfer amounts on either a scheduled or unscheduled basis. You may not make both scheduled and
unscheduled Fixed Account transfers in the same contract year.

	Unscheduled Fixed Account Transfers. The minimum transfer amount is $100 (or entire Fixed Account
	accumulated value if less than $100). Once per contract year, within the 30 days following the contract anniversary
	date, you can:

	·	transfer an amount not to exceed 25% of your Fixed Account accumulated value; or
	·	transfer up to 100% of your Fixed Account accumulated value if:
		·	your Fixed Account accumulated value is less than $1,000; or
		·	a minus b is greater than 1% where:
			·	a = the weighted average of your Fixed Account interest rates for the preceding contract year; and
			·	b = the renewal interest rate for the Fixed Account.


	Scheduled Fixed Account Transfers (Fixed Account Dollar Cost Averaging). You may make scheduled
	transfers on a monthly basis from the Fixed Account to the Separate Account as follows:

	· You may establish scheduled transfers by sending a written request or by telephoning the home office at 1-
	800-852-4450.
	· Transfers occur on a date you specify (other than the 29th, 30th or 31st of any month).
	· If the selected date is not a valuation date, the transfer is completed on the next valuation date.
	· Scheduled transfers are only available if the Fixed Account accumulated value is $5,000 or more at the time
	the scheduled transfers begin.
	· Scheduled monthly transfers of a specified dollar amount will continue until the Fixed Account accumulated
	value is zero or until you notify us to discontinue the transfers. This specified dollar amount cannot exceed 2%
	of your Fixed Account accumulated value.
	· The minimum transfer amount is $100.
	· If the Fixed Account accumulated value is less than $100 at the time of transfer, the entire Fixed Account
	accumulated value will be transferred.
	· If you stop the transfers, you may not start transfers again without our prior approval.

GENERAL PROVISIONS

The Contract

The entire Contract is made up of the Contract, amendments, riders and endorsements and data pages. Only our
corporate officers can agree to change or waive any provisions of a Contract. Any change or waiver must be in
writing and signed by an officer of the Company.

Delay of Payments

Surrendered amounts are generally disbursed within seven calendar days after we receive your instruction for a
surrender in a form acceptable to us. This period may be shorter where required by law. However, payment of any
amount upon total or partial surrender, death, annuitization of the accumulated value or the transfer to or from a
division may be deferred during any period when the right to sell mutual fund shares is suspended as permitted
under provisions of the Investment Company Act of 1940 (as amended).

The right to sell shares may be suspended during any period when:

·	trading on the NYSE is restricted as determined by the SEC or when the NYSE is closed for other than
	weekends and holidays; or
·	an emergency exists, as determined by the SEC, as a result of which:
	·	disposal by a mutual fund of securities owned by it is not reasonably practicable;
	·	it is not reasonably practicable for a mutual fund to fairly determine the value of its net assets; or
	·	the SEC permits suspension for the protection of security holders.

If payments are delayed the transfer will be processed on the first valuation date following the expiration of the
permitted delay unless we receive your written instructions to cancel your surrender, annuitization, or transfer. Your
written instruction must be received in the home office prior to the expiration of the permitted delay. The transaction
will be completed within seven business days following the expiration of a permitted delay.

In addition, we reserve the right to defer payment of that portion of your accumulated value that is attributable to a
premium payment made by check for a reasonable period of time (not to exceed 15 business days) to allow the
check to clear the banking system.

We may also defer payment of surrender proceeds payable out of the Fixed Account for a period of up to six months.

Misstatement of Age or Gender

If the age or, where applicable, gender of the annuitant has been misstated, we adjust the annuity benefit payment

under your Contract to reflect the amount that would have been payable at the correct age and gender. If we make

any overpayment because of incorrect information about age or gender, or any error or miscalculation, we deduct the

overpayment from the next payment or payments due. Underpayments are added to the next payment.

Assignment

If your Contract is part of your qualified plan, IRA, SEP, or SIMPLE-IRA, you may not assign ownership.

You may assign ownership of your non-qualified Contract. Each assignment is subject to any payments made or

action taken by the Company prior to our notification of the assignment. We assume no responsibility for the validity

of any assignment. An assignment or pledge of a Contract may have adverse tax consequences.

An assignment must be made in writing and filed with us at our home office. The irrevocable beneficiary(ies), if any,

must authorize any assignment in writing. Your rights, as well as those of the annuitant and beneficiary, are subject

to any assignment on file with us. Any amount paid to an assignee is treated as a partial surrender and is paid in a

single payment.

Change of Owner or Annuitant

If your Contract is part of your qualified plan, IRA, SEP, or SIMPLE-IRA you may not change either the owner or the

annuitant.

You may change the owner and/or annuitant of your non-qualified Contract at any time. Your request must be in

writing and approved by us. After approval, the change is effective as of the date you signed the request for change.

If ownership is changed, the benefits under certain riders may be affected. We reserve the right to require that you

send us the Contract so that we can record the change.

If an annuitant who is not an owner dies while the Contract is in force, a new annuitant may be named unless the

owner is a corporation, trust or other entity.

Beneficiary

While this Contract is in force, you have the right to name or change a beneficiary. This may be done as part of the

application process or by sending us a written request. Unless you have named an irrevocable beneficiary, you may

change your beneficiary designation by sending us notice.

Contract Termination

We reserve the right to terminate the Contract and make a single payment (without imposing any charges) to you if

your accumulated value at the end of the accumulation period is less than $2,000, unless you have the GMWB rider.

Before the Contract is terminated, we will send you a notice to increase the accumulated value to $2,000 within

60 days. Termination of the Contracts will not unfairly discriminate against any owner.


Reinstatement

Reinstatement is only available if you have surrendered your Contract for your full accumulated value. Any premium
payments you make after a partial surrender or partial annuitization will be deemed new premium payments.

If you have requested to replace this Contract with an annuity contract from another company and want to reinstate
this Contract, the following apply:
·	we reinstate the Contract effective on the original surrender date;
·	we apply the amount received from the other company (“reinstatement amount”) and the amount of the surrender
	charge you paid when you surrendered the Contract;
·	these amounts are priced on the valuation date the money from the other company is received by us;
·	commissions are not paid on the reinstatement amounts; and
·	new data pages are sent to your address of record.

If you have the GMWB rider, rider fees will apply for the period between the date you requested termination and the
date your contract was reinstated. Rider benefits will be adjusted when the amount originally surrendered differs from
the reinstatement amount.

Reports

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

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

Important Information About Customer Identification Procedures

To help the government fight the funding of terrorism and money laundering activities, Federal law requires financial
institutions to obtain, verify, and record information that identifies each person who applies for a Contract. When you
apply for a Contract, we will ask for your name, address, date of birth, and other information that will allow us to verify
your identity. We may also ask to see your driver’s license or other identifying documents.

If concerns arise with verification of your identification, no transactions will be permitted while we attempt to reconcile
the concerns. If we are unable to verify your identity within 30 days of our receipt of your original premium payment,
the Contract will be terminated and any value surrendered in accordance with normal redemption procedures.

Rights Reserved by the Company

We reserve the right, within the law, to make additions, deletions and substitutions for the divisions. We will make no
such substitution or deletion without first notifying you and obtaining approval of the appropriate insurance regulatory
authorities and the SEC (to the extent required by 1940 Act).

If the shares of a division are no longer available for investment or if, in the judgment of our management, investment
in a division becomes inappropriate for the purposes of our contract, we may eliminate the shares of a division and
substitute shares of another division of the Trust or another open-end registered investment company. Substitution
may be made with respect to both existing investments and the investment of future premium payments.

If we eliminate divisions, you may change allocation percentages and transfer any value in an affected division to
another division(s) without charge. You may exercise this exchange privilege until the later of 60 days after a) the
effective date of the additions, deletions and/or substitutions of the change, or b) the date you receive notice of the
options available. You may only exercise this right if you have any value in the affected division(s).

We also reserve the right to establish additional divisions, each of which would invest in a separate underlying mutual
fund with a specified investment objective.


Frequent Trading and Market-Timing (Abusive Trading Practices)

This Contract is not designed for frequent trading or market timing activity of the investment options. If you intend to
trade frequently and/or use market timing investment strategies, you should not purchase this Contract. The
Company does not accommodate market timing.

We consider frequent trading and market timing activities to be abusive trading practices because they:

·	Disrupt the management of the underlying mutual funds by:
	·	forcing the fund to hold short-term (liquid) assets rather than investing for long term growth, which results in
		lost investment opportunities for the fund; and
	·	causing unplanned portfolio turnover;
·	Hurt the portfolio performance of the underlying mutual funds; and
·	Increase expenses of the underlying mutual fund and separate account due to:
	·	increased broker-dealer commissions; and
	·	increased record keeping and related costs.

If we are not able to identify such abusive trading practices, the abuses described above will negatively impact the
Contract and cause investors to suffer the harms described.

We have adopted policies and procedures to help us identify and prevent abusive trading practices. In addition, the
underlying mutual funds monitor trading activity to identify and take action against abuses. While our policies and
procedures are designed to identify and protect against abusive trading practices, there can be no certainty that we
will identify and prevent abusive trading in all instances. When we do identify abusive trading, we will apply our
policies and procedures in a fair and uniform manner.

If we, or an underlying mutual fund that is an investment option with the Contract, deem abusive trading practices to
be occurring, we will take action that may include, but is not limited to:

·	Rejecting transfer instructions from a Contract owner or other person authorized by the owner to direct transfers;
·	Restricting submission of transfer requests by, for example, allowing transfer 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 number of unscheduled transfers during a Contract year to no more than 12;
·	Prohibiting you from requesting a transfer among the divisions for a minimum of thirty days where there is
	evidence of at least one round-trip transaction (exchange or redemption of shares that were purchased within
	30 days of the exchange/redemption) by you; and
·	Taking such other action as directed by the underlying mutual fund.

We support the underlying mutual funds right to accept, reject or restrict, without prior written notice, any transfer
requests into a fund.

In some instances, a transfer may be completed prior to a determination of abusive trading. In those instances, we
will reverse the transfer (within two business days of the transfer) and return the Contract to the investment option
holdings it had prior to the transfer. We will give you notice in writing in this instance.

Distribution of the Contract

The Company has appointed Princor Financial Services Corporation (“Princor”) (Des Moines, Iowa 50392-0200), a

broker-dealer registered under the Securities Exchange Act of 1934, a member of the Financial Industry Regulatory

Authority and affiliate of the Company, as the distributor and principal underwriter of the Contract. Princor is paid

6.5% of premium payments by the Company for the distribution of the Contract. Princor also may receive 12b-1 fees

in connection with purchases and sales of mutual funds underlying the Contracts.

Applications for the Contracts are solicited by registered representatives of Princor or such other broker-dealers as

have entered into selling agreements with Princor. Such registered representatives act as appointed agents of the

Company under applicable state insurance law and must be licensed to sell variable insurance products. The

Company intends to offer the Contract in all jurisdictions where it is licensed to do business and where the Contract

is approved.

Performance Calculation

The Separate Account may publish advertisements containing information (including graphs, charts, tables and

examples) about the hypothetical performance of its divisions for this Contract as if the Contract had been issued on

or after the date the underlying mutual fund in which the division invests was first offered. The hypothetical

performance from the date of the inception of the underlying mutual fund in which the division invests is calculated by

reducing the actual performance of the underlying mutual fund by the fees and charges of this Contract as if it had

been in existence.

The yield and total return figures described below vary depending upon market conditions, composition of the

underlying mutual fund’s portfolios and operating expenses. These factors and possible differences in the methods

used in calculating yield and total return should be considered when comparing the Separate Account performance

figures to performance figures published for other investment vehicles. The Separate Account may also quote

rankings, yields or returns as published by independent statistical services or publishers and information regarding

performance of certain market indices. Any performance data quoted for the Separate Account represents only

historical performance and is not intended to indicate future performance. For further information on how the

Separate Account calculates yield and total return figures, see the SAI.

From time to time the Separate Account advertises its Money Market Division’s “yield” and “effective yield” for these

Contracts. Both yield figures are based on historical earnings and are not intended to indicate future performance.

The “yield” of the division refers to the income generated by an investment in the division over a 7-day period (which

period is stated in the advertisement). This income is then “annualized.” That is, the amount of income generated by

the investment during that week is assumed to be generated each week over a 52-week period and is shown as a

percentage of the investment. The “effective yield” is calculated similarly but, when annualized, the income earned by

an investment in the division is assumed to be reinvested. The “effective yield” is slightly higher than the “yield”

because of the compounding effect of the assumed reinvestment.

The Separate Account also advertises the average annual total return of its various divisions. The average annual

total return for any of the divisions is computed by calculating the average annual compounded rate of return over the

stated period that would equate an initial $1,000 investment to the ending redeemable accumulated value.


FEDERAL TAX MATTERS

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

Non-Qualified Contracts

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

The following discussion applies generally to Contracts owned by natural persons.
·	Surrenders or partial surrenders are taxed as ordinary income to the extent of the accumulated income or gain
	under the Contract.
·	The value of the Contract pledged or assigned is taxed as ordinary income to the same extent as a partial
	surrender.
·	Annuity benefit payments:
	·	The “investment in the contract” is generally the total of the premium payments made.
	·	The basic rule for taxing annuity benefit payments is that part of each annuity benefit payment is considered
		a nontaxable return of the investment in the contract and part is considered taxable income. An “exclusion
		ratio” is applied to each annuity benefit payment to determine how much of the payment is excludable from
		gross income. The remainder of the annuity benefit payment is includable in gross income for the year
		received.
	·	After the premium payment(s) in the Contract is paid out, the full amount of any annuity benefit payment is
		taxable.

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

Transfer of ownership may have tax consequences to the owner. Please consult with your tax advisor before
changing ownership of your Contract.

Required Distributions for Non-Qualified Contracts

In order for a non-qualified Contract to be treated as an annuity contract for federal income tax purposes, the Internal
Revenue Code requires:
·	If the person receiving payments dies on or after the annuitization date but prior to the time the entire interest in
	the Contract has been distributed, the remaining portion of the interest is distributed at least as rapidly as under
	the method of distribution being used as of the date of that person’s death.
·	If you die prior to the annuitization date, the entire interest in the Contract will be distributed:
	·	within five years after the date of your death; or
	·	as annuity benefit payments which begin within one year of your death and which are made over the life of
		your designated beneficiary or over a period not extending beyond the life expectancy of that beneficiary.
·	If you take a distribution from the Contract before you are 59 ½, you may incur an income tax penalty.

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


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

TAX-QUALIFIED CONTRACTS: IRA, SEP, and SIMPLE-IRA

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

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

Tax-qualified retirement arrangements, such as IRAs, SEPs, and SIMPLE-IRAs, are tax-deferred. You derive
no additional benefit from the tax deferral feature of the annuity. Consequently, an annuity should be used to
fund an IRA, or other tax qualified retirement arrangement to benefit from the annuity’s features other than tax
deferral. These features may include guaranteed lifetime income, death benefits without surrender charges,
guaranteed caps on fees, and the ability to transfer among investment options without sales or withdrawal charges.

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

Premature Distributions: There is a 10% penalty under the Internal Revenue Code on the taxable portion of a
“premature distribution” from IRAs, IRA rollovers and SIMPLE-IRAs. The tax penalty is increased to 25% in the case
of distributions from SIMPLE-IRAs during the first two years of participation. Generally, an amount is a “premature
distribution” unless the distribution is:

·	made on or after you reach age 59 ½;
·	made to a beneficiary on or after your death;
·	made upon your disability;
·	part of a series of substantially equal periodic payments for the life or life expectancy of you or you and the
	beneficiary;
·	made to pay certain medical expenses;
·	for health insurance premiums while unemployed;
·	for first home purchases (up to $10,000);
·	for qualified higher education expenses;
·	for qualified disaster tax relief distributions (up to $100,000);
·	for qualified reservist distributions;
·	for amounts levied by the IRS directly against your IRA;
·	for earnings associated with refunds of excess IRA contributions paid prior to your tax filing deadline;
·	for Roth IRA conversions (assuming the conversion remains in the Roth IRA for 5 years); or
·	for transfer of IRA incident to divorce.

For more information regarding premature distributions, please reference IRS Publication 590 and consult your tax
advisor.

Rollover IRAs

If you receive a lump-sum distribution from a qualified retirement plan, tax-sheltered annuity or governmental 457(b)

plan, you may maintain the tax-deferred status of the distribution by rolling it over into an eligible retirement plan or

IRA. You can accomplish this by electing a direct rollover from the plan, or you can receive the distribution and roll it

over into an eligible retirement plan or IRA within 60 days. However, if you do not elect a direct rollover from the plan,

the plan is required to withhold 20% of the distribution. This amount is sent to the IRS as income tax withholding to

be credited against your taxes. Amounts received prior to age 59 ½ and not rolled over may be subject to an

additional 10% excise tax. You may roll over amounts from a qualified plan directly to a Roth IRA. As part of this

rollover, previously taxed deferred funds from the qualified plan are converted to after-tax funds under a Roth IRA.

Generally, the entire rollover is taxable (unless it includes after-tax dollars) and is included in gross income in the

year of the rollover/conversion. For more information, please see your tax advisor.

Roth IRAs

The Contract may be purchased to fund a Roth IRA. Contributions to a Roth IRA are not deductible from taxable

income. Subject to certain limitations, a traditional IRA, SIMPLE-IRA or SEP may be converted into a Roth IRA or a

distribution from such an arrangement may be rolled over to a Roth IRA. However, a conversion or a rollover to a

Roth IRA is not excludable from gross income. If certain conditions are met, qualified distributions from a Roth IRA

are tax-free. For more information, please contact your tax advisor.

Required Minimum Distributions for IRAs

The Required Minimum Distribution (RMD) regulations dictate when individuals must start taking payments from their

IRA. Generally speaking, RMDs for IRAs must begin no later than April 1 following the close of the calendar year in

which you turn 70 ½. Thereafter, the RMD is required no later than December 31 of each calendar year.

The RMD rules apply to traditional IRAs, as well as SEP-IRAs and SIMPLE-IRAs, during the lifetime and after the

death of IRA owners. They do not, however, apply to Roth IRAs during the lifetime of the Roth IRA owner. If an

individual owns more than one IRA, the RMD amount must be determined for each, but the actual distribution can be

satisfied from a combination of one or more of the owner's IRAs NOTE: Contractual limitations exist that may limit

the ability to satisfy an individual's multiple RMD obligations via this annuity. Please see GMWB Rider - Required

Minimum Distribution (RMD) for details.

Failure to comply with the RMD rules can result in an excise tax penalty. This penalty equals 50% of the amount of

the RMD that exceeds the actual distribution amount (if any) that occurred during the calendar year in question.

Withholding

Annuity benefit payments and other amounts received under the Contract are subject to income tax withholding

unless the recipient elects not to have taxes withheld. The amounts withheld vary among recipients depending on the

tax status of the individual and the type of payments from which taxes are withheld.

Notwithstanding the recipient’s election, withholding may be required on payments delivered outside the United

States. Moreover, special “backup withholding” rules may require us to disregard the recipient’s election if the

recipient fails to supply us with a “TIN” or taxpayer identification number (social security number for individuals), or if

the Internal Revenue Service notifies us that the TIN provided by the recipient is incorrect.


MUTUAL FUND DIVERSIFICATION

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

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

STATE REGULATION

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

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

GENERAL INFORMATION

Reservation of Rights

The Company reserves the right to:

·	increase the minimum amount for each premium payment; and
·	terminate a Contract and send you the accumulated value if no premiums are paid during two consecutive
	calendar years and the accumulated value (or total premium payments less partial surrenders and applicable
	surrender charges) is less than $2,000 unless you have a GMWB rider. The Company will first notify you of its
	intent to exercise this right and give you 60 days to increase the accumulated value to at least $2,000.

Legal Opinions

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

Legal Proceedings

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

12h-7 Representation

The company is relying on the exemption provided by Rule 12h-7 under the Securities Exchange Act of 1934
regarding the periodic reporting requirements of the Act.


Other Variable Annuity Contracts

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

Householding

To avoid sending duplicate copies of materials to owners, only one copy of the prospectus and annual and semi-
annual reports for the funds will be mailed to owners having the same name and address on our records. The
consolidation of these mailings, called householding, benefits us through reduced mailing expense. If you want to
receive multiple copies of these materials, you may call us at 1-800-852-4450. You may also notify us in writing.
Individual copies of prospectuses and reports will be sent to you within thirty (30) days after we receive your request
to stop householding.

Payments to Financial Intermediaries

The Company pays compensation to broker-dealers, financial institutions, and other parties
(“Financial Intermediaries”) for the sale of the Contract according to schedules in the sales agreements and other
agreements reached between the Company and the Financial Intermediaries. Such compensation generally consists
of commissions on premiums paid on the Contract. The Company and/or its affiliates may also pay other amounts
(“Additional Payments”) that include, but are not limited to, marketing allowances, expense reimbursements, and
educational payments. These Additional Payments are designed to provide incentives for the sale of the Contracts as
well as other products sold by the Company and may influence the Financial Intermediaries or their registered
representatives to recommend the purchase of this Contract over competing annuity contracts or other investment
products. You may ask your registered representative about these differing and divergent interests, how your
registered representative is personally compensated, and how your registered representative’s broker-dealer is
compensated for soliciting applications for the Contract.

We and/or our affiliates provide services to and/or funding vehicles for welfare benefit plans, retirement plans and
employer sponsored benefits. We and our affiliates may pay a bonus or other consideration or incentive to brokers or
dealers:

·	if a participant in such a welfare benefit or retirement plan or an employee covered under an employer sponsored
	benefit purchases an individual product with the assistance of a registered representative of an affiliate of ours;

·	if a participant in such a retirement plan establishes a rollover individual retirement account with the assistance of
	a registered representative of an affiliate of ours;

·	if the broker or dealer sold the funding vehicle the welfare benefit or retirement plan or employer sponsored
	benefit utilizes; or

·	based on the broker's or dealer's relationship to the welfare benefit or retirement plan or employer sponsored
	benefit.

The broker or dealer may pay to its financial professionals some or all of the amounts we pay to the broker or dealer.

Service Arrangements and Compensation

The Company has entered into agreements with the distributors, advisers, and/or the affiliates of some of the mutual
funds underlying the Contract and receives compensation for providing certain services including, but not limited to,
distribution and operational support services, to the underlying mutual fund. Fees for these services are paid
periodically (typically, quarterly or monthly) based on the average daily net asset value of shares of each fund held
by the Separate Account and purchased at the Contract owners’ instructions. Because the Company receives such
fees, it may be subject to competing interests in making these funds available as investment options under the
Contract. The Company takes into consideration the anticipated payments from underlying mutual funds when it
determines the charges assessed under the Contract. Without these payments, charges under the Contract are
expected to be higher.

REGISTRATION STATEMENT

This prospectus (Part A of the registration statement) omits some information contained in the Statement of

Additional Information (Part B of the registration statement) and Part C of the registration statement which the

Company has filed with the SEC. The SAI is hereby incorporated by reference into this prospectus. You may request

a free copy of the SAI by contacting your registered representative or calling us at 1-800-852-4450.

Information about the Contract (including the Statement of Additional Information and Part C of the registration

statement) can be reviewed and copied at the Securities and Exchange Commission’s Public Reference Room in

Washington, D.C. Information on the operation of the public reference room may be obtained by calling the

Commission at 202-551-8090. Reports and other information about the Contract are available on the Commission’s

internet site at http://www.sec.gov. Copies of this information may be obtained, upon payment of a duplicating fee, by

writing the Public Reference Section of the Commission, 100 F Street NE, Washington, D.C. 20549-0102.

The registration numbers for the Contract are 333-116220 and 811-02091.

CUSTOMER INQUIRIES

Your questions should be directed to: Principal Lifetime Income Solutions, Principal Financial Group, P.O. Box 9382,

Des Moines, Iowa 50306-9382, 1-800-852-4450. You may also contact us through our internet site:

www.principal.com.


TABLE OF CONTENTS OF THE SAI

General Information and History	3
Independent Registered Public Accounting Firm	3
Principal Underwriter	3
Calculation of Performance Data	3
Taxation Under Certain Retirement Plans	5
Principal Life Insurance Company Separate Account B
Report of Independent Registered Public Accounting Firm	9
Financial Statements	10
Principal Life Insurance Company
Report of Independent Registered Public Accounting Firm	150
Consolidated Financial Statements	151

To obtain a copy of the Statement of Additional Information, free of charge, write or telephone:

Princor Financial Services Corporation

a company of

the Principal Financial Group

Des Moines, IA 50392-2080

Telephone: 1-800-852-4450


APPENDIX A — GMWB INVESTMENT OPTIONS

GMWB Investment Options
While a GMWB rider is in effect, the investment options you may select are restricted. The investment options
available under a GMWB rider (the “GMWB investment options”) reflect a balanced investment objective and if your
investment goal is aggressive growth, a GMWB rider may not support your investment objective. With GMWB
investment options that reflect a balanced investment objective, there is potentially a reduced likelihood that we will
have to make GMWB benefit payments when the Contract value goes to zero, reaches the maximum annuitization
date, or if there is a death claim.

When you purchase a GMWB rider, you must allocate 100% of your Separate Account division accumulated value
and premium payments to one of the available GMWB investment options. Any future premium payments are
allocated to the GMWB investment option your Separate Account division accumulated value is invested in at the
time of the new premium payments.

The available GMWB investment options are:
·	Diversified Growth Account; or
·	Diversified Balanced Account.

For more information about the Diversified Growth and Diversified Balanced Account, please see the prospectus
sections titled THE CONTRACT - The Underlying Mutual Funds, TABLE OF SEPARATE ACCOUNT DIVISIONS and
the underlying fund’s prospectus provided with this prospectus.

You may allocate premium payments and transfer Contract accumulated value to the Fixed Account. Such
allocations and transfers are subject to the provisions of your Contract. See FIXED ACCOUNT.

We reserve the right to modify the list of available Separate Account divisions in a GMWB Model or modify the list of
available GMWB investment options, subject to compliance with applicable regulations. We may make available
other GMWB Models. We also may make changes to or restrict the availability of GMWB Models or other GMWB
investment options. Changes or restrictions will apply only to new purchasers of the Contract or to you if you transfer
out of a GMWB Model or investment option and wish to transfer back to that GMWB Model or investment option.

You must stay invested in the GMWB investment options as long as the GMWB rider is in effect. Note, the rider may
not be terminated for five contract years following the rider effective date.

Transfers Between GMWB Investment Options

You may transfer 100% of your Separate Account division accumulated value from your current GMWB investment
option to one other GMWB investment option which is available at the time of the transfer. If you transfer from a
discontinued GMWB investment option, you will not be able to transfer back to that GMWB investment option. You
may make a transfer by providing us notice (we will effect the transfer at the price next determined after we receive
your notice in good order).

If your Separate Account division accumulated value is invested in a GMWB investment option which is no longer
available with the rider but is still available under the Contract, you may continue to maintain that investment and
allocate new premium payments to it. If the discontinued GMWB investment option involves more than one Separate
Account division, we will rebalance your Separate Account division accumulated value each calendar quarter. You
may not transfer your Separate Account division accumulated value to any other discontinued GMWB investment
option. You may transfer your Separate Account division accumulated value to another GMWB investment option
that is available at the time of transfer; in this case, the discontinued GMWB investment option will no longer be
available to you.


APPENDIX B — GMWB EXAMPLES

These examples have been provided to assist you in understanding the various features of the GMWB rider and to
demonstrate how premium payments received and withdrawals taken from the Contract affect the values and
benefits under the GMWB rider. These examples are based on certain hypothetical assumptions and are for
illustrative purposes only. These examples are not intended to serve as projections of future investment returns.

NOTE: The owner’s actions determine the benefits received.

NOTE: For the purpose of the following examples, a partial annuitization has the same effect as a partial surrender
	and both are referred to as a withdrawal in the following examples.

Examples Without Excess Withdrawals (Examples 1-5)
The examples without excess withdrawals assume the following:
·	the client is age 62 and the client’s spouse is age 60 on the rider effective date.
·	initial premium payment = $100,000.
·	the withdrawal benefit base prior to partial surrender = $100,000.
·	“Single Life” For Life (5%) withdrawal benefit payment = $5,000, if withdrawals start prior to the client attaining
	age 65.
·	“Joint Life” For Life (4.5%) withdrawal benefit payment = $4,500, if withdrawals start prior to the spouse attaining
	age 65.

Example 1
In contract year one, no withdrawals are taken and no For Life withdrawal benefit payment election has been
designated. Because the client has not made a For Life withdrawal benefit payment election, we automatically
calculate the For Life withdrawal benefit payment as “Single Life”.

On the first contract anniversary:
·	a 5% GMWB bonus is credited to the withdrawal benefit base. The credit is $100,000 x 0.05 = $5,000.
·	there is no GMWB Step-Up because the withdrawal benefit base after the bonus is credited is larger than the
	Contract’s accumulated value.
·	the new withdrawal benefit base is $100,000 + 5,000 = $105,000;
·	the new withdrawal benefit is $105,000 x 0.05 = $5,250.

Example 2
In contract year one:
·	no withdrawals are taken and no For Life withdrawal benefit payment election has been designated. Because the
	client has not made a For Life withdrawal benefit payment election, we automatically calculate the For Life
	withdrawal benefit payment as “Single Life”.
·	the client makes a premium payment of $50,000.

On the first contract anniversary:
·	a 5% GMWB bonus is credited to the withdrawal benefit base. The credit is ($100,000 + $50,000) x 0.05 =
	$7,500.
·	there is no GMWB Step-Up because the withdrawal benefit base after the bonus is credited is larger than the
	Contract’s accumulated value.
·	the new withdrawal benefit base is $100,000 + $50,000 + $7,500 = $157,500;
·	the new withdrawal benefit is $157,500 x 0.05 = $7,875.


Example 3
In contract year one, the client elects the “Joint Life” For Life withdrawal benefit payment and takes a withdrawal of
$4,500. The “Joint Life” For Life withdrawal benefit payment percentage is locked-in at 4.5%.

On the first contract anniversary:
·	Since a withdrawal was taken in contract year one, no GMWB bonus is credited.
·	there is no GMWB Step-Up because the withdrawal benefit base is larger than the Contract’s accumulated value.
·	the withdrawal benefit base remains the same ($100,000);
·	the withdrawal benefit for the next contract year remains the same ($100,000 x 0.045 = $4,500).

Example 4
In contract year one, no withdrawals are taken and no For Life withdrawal benefit payment election has been
designated. Because the client has not made a For Life withdrawal benefit payment election, we automatically
calculate For Life withdrawal benefit payment as “Single Life”.

On the first contract anniversary:
·	a 5% GMWB bonus is credited to the withdrawal benefit base. The credit is $100,000 x 0.05 = $5,000.
·	there is no GMWB Step-Up because the withdrawal benefit base after the bonus is credited is larger than the
	Contract’s accumulated value.
·	the new withdrawal benefit base is $100,000 + 5,000 = $105,000;
·	the new withdrawal benefit is $105,000 x 0.05 = $5,250.

In contract year two, the client elects the “Joint Life” For Life withdrawal benefit payment and takes a withdrawal of
$4,500. The “Joint Life” For Life withdrawal benefit payment percentage is locked-in at 4.5%.

On the second contract anniversary:
·	Since a withdrawal was taken in contract year two, no GMWB bonus is credited.
·	there is no GMWB Step-Up because the withdrawal benefit base is larger than the Contract’s accumulated value.
·	the withdrawal benefit base remains the same ($105,000);
·	the withdrawal benefit for the next contract year is $105,000 x 0.045 = $4,725.

In contract year three, no withdrawals are taken. The “Joint Life” For Life withdrawal benefit payment percentage
remains locked-in at 4.5%.

On the third contract anniversary:
·	Since a withdrawal was taken in contract year two, no GMWB bonus is credited.
·	there is no GMWB Step-Up because the withdrawal benefit base is larger than the Contract’s accumulated value.
·	the withdrawal benefit base remains the same ($105,000);
·	the withdrawal benefit for the next contract year remains the same ($105,000 x 0.045 = $4,725).

Example 5
The client elects the “Single Life” For Life withdrawal benefit payment, and in each of the first two contract years,
takes a withdrawal of $5,000. Assume there is no GMWB Step-Up on the first contract anniversary. On the
2nd contract anniversary, the client will receive a GMWB Step-Up if the Contract’s accumulated value is greater than
the withdrawal benefit base.


If the accumulated value on the second
contract anniversary is:	$95,000	$110,000
For Life (“Single Life”)
Prior to step-up
Withdrawal Benefit Base	$100,000	$100,000
Withdrawal Benefit Payment	$100,000 x 0.05 = $5,000	$100,000 x 0.05 = $5,000
After step-up
Withdrawal Benefit Base	$100,000	$110,000
Withdrawal Benefit Payment	$100,000 x 0.05 = $5,000	$110,000 x 0.05 = $5,500


Examples With Excess Withdrawals (Examples 6-7)
The excess withdrawal examples assume the following:
·	the client is age 62 and elected “Single Life” For Life withdrawal benefit payments at the first withdrawal and
	therefore, locks-in the “Single Life” For Life withdrawal benefit payment percentage at 5%.
·	the initial premium payment is $100,000
·	the withdrawal benefit base prior to partial surrender = $100,000
·	“Single Life” For Life (5%) withdrawal benefit payment = $5,000
·	Withdrawal taken = $8,000
	· excess amount is $3,000

Example 6
In this example, assume the accumulated value prior to the withdrawal is $90,000.

Withdrawal Benefit Base Calculation
On the contract anniversary following the withdrawal, the withdrawal benefit base is adjusted for any excess
withdrawals.

The amount of the adjustment* is $3,529.41. The new For Life withdrawal benefit base is $100,000 - $3,529.41 =
$96,470.59.

*The amount of the adjustment for the excess withdrawal is the greater of a or b where:

	a = $3,000 (the amount of the excess withdrawal); and
	b = $3,529.41 (the result of (1 divided by 2) multiplied by 3) where:

	1 = the amount of the withdrawal greater than the “Single Life” For Life withdrawal benefit payment remaining
	prior to the withdrawal ($3,000);

	2 = the accumulated value after the “Single Life” For Life withdrawal benefit payment is deducted but prior to
	the withdrawal of the excess amount ($90,000 - $5,000); and

	3 = the For Life withdrawal benefit base prior to the adjustment for the excess amount ($100,000).

Withdrawal Benefit Payment Calculation (for the next contract year)
The withdrawal benefit payment is the new withdrawal benefit base (calculated on the contract anniversary)
multiplied by the associated percentage. The “Single Life” For Life withdrawal benefit payment percentage is locked-
in at 5%.

The new “Single Life” For Life withdrawal benefit payment is $96,470.59 x 0.05 = $4,823.53.

Example 7

In this example, assume the accumulated value prior to the withdrawal is $110,000.

Withdrawal Benefit Base Calculation

On the contract anniversary following the withdrawal, the withdrawal benefit base is adjusted for any excess

withdrawals.

The amount of the adjustment* is $3,000 (the amount of the excess withdrawal). The new For Life withdrawal benefit

base is $100,000 - $3,000 = $97,000.

*The amount of the adjustment for excess withdrawal is the greater of a or b where:

a = $3,000 (the amount of the excess withdrawal); and

b = $2,857.14 (the result of (1 divided by 2) multiplied by 3) where:

1 = the amount of the withdrawal greater than the “Single Life” For Life withdrawal benefit payment available

prior to the withdrawal ($3,000);

2 = the accumulated value after the “Single Life” For Life withdrawal benefit payment is deducted but prior to

the withdrawal of the excess amount ($110,000 minus $5,000); and

3 = the For Life withdrawal benefit base prior to the adjustment for the excess amount ($100,000).

Withdrawal Benefit Payment Calculation (for the next contract year)

The withdrawal benefit payment is the new withdrawal benefit base (calculated on the contract anniversary)

multiplied by the associated percentage. The “Single Life” For Life withdrawal benefit payment percentage is locked-

in at 5%.

The new “Single Life” For Life withdrawal benefit payment is $97,000 x 0.05 = $4,850.

GENERAL INFORMATION AND HISTORY

Principal Life Insurance Company (the “Company”) is the issuer of the Principal Lifetime Income Solutions

(the “Contract”) and serves as custodian of its assets. The Company is a stock life insurance company

with authority to transact life and annuity business in all states of the United States and the District of

Columbia. The Company’s home office is located at: Principal Financial Group, Des Moines, Iowa 50392.

The Company is a wholly owned subsidiary of Principal Financial Services, Inc., which in turn, is a wholly

owned direct subsidiary of Principal Financial Group, Inc., a publicly-traded company.

On June 24,1879, the Company was incorporated under Iowa law as a mutual assessment life insurance

company named Bankers Life Association. The Company became a legal reserve life insurance company

and changed its name to Bankers Life Company in 1911. In 1986, the Company changed its name to

Principal Mutual Life Insurance Company. In 1998, the Company became Principal Life Insurance

Company, a subsidiary stock life insurance company of Principal Mutual Holding Company, as part of a

reorganization into a mutual insurance holding company structure. In 2001, Principal Mutual Holding

Company converted to a stock company through a process called demutualization, resulting in the current

organizational structure.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Ernst & Young LLP, 801 Grand Avenue, Suite 3000, Des Moines, Iowa 50309, serves as the independent

registered public accounting firm for Principal Life Insurance Company Separate Account B and the

Principal Life Insurance Company.

PRINCIPAL UNDERWRITER

The principal underwriter of the Contract is Princor Financial Services Corporation ("Princor") which is a

wholly owned subsidiary of Principal Financial Services, Inc. and an affiliate of the Company. The

address of Princor is the Principal Financial Group, 650 8th Street, Des Moines, Iowa 50392-0200.

Princor was incorporated in Iowa in 1968 and is a securities broker-dealer registered with the Securities

Exchange Commission as well as a member of the FINRA. The Contracts may also be sold through other

broker-dealers authorized by Princor and applicable law to do so.

CALCULATION OF PERFORMANCE DATA

The Separate Account may publish advertisements containing information (including graphs, charts,

tables and examples) about the performance of one or more of its divisions.

The Contract was not offered prior to May 2, 2011. However, the certain divisions invest in underlying

mutual funds which were offered prior to the date the Contract was available. Thus, the Separate Account

may publish advertisements containing information about the hypothetical performance of one or more of

its divisions for this Contract as the Contract was issued on or after the date the underlying mutual fund

was first offered. The hypothetical performance from the date of inception of the underlying mutual fund in

which the division invests is derived by reducing the actual performance of the underlying mutual fund by

the highest level of fees and charges of the Contract as if it had been in existence.

In addition, as certain of the underlying mutual funds have added classes since the inception of the fund,

performance may be shown for periods prior to the inception date of the new class which represents the

historical results of initial class shares adjusted to reflect the fees and expenses of the new class.

The yield and total return figures described below will vary depending upon market conditions, the

composition of the underlying mutual fund’s portfolios and operating expenses. These factors and

possible differences in the methods used in calculating yield and total return should be considered when

comparing the Separate Account performance figures to performance figures published for other

investment vehicles.

The Separate Account may also quote rankings, yields or returns as published by independent statistical

services or publishers and information regarding performance of certain market indices. Any performance

data quoted for the Separate Account represents only historical performance and is not intended to

indicate future performance.

From time to time the Separate Account advertises its Money Market Division’s “yield” and “effective

yield” for the Contract. Both yield figures are based on historical earnings and are not intended to indicate

future performance. The “yield” of the division refers to the income generated by an investment under the

Contract in the division over a 7-day period (which period will be stated in the advertisement). This

income is then “annualized.” That is, the amount of income generated by the investment during that week

is assumed to be generated each week over a 52-week period and is shown as a percentage of the

investment. The “effective yield” is calculated similarly but, when annualized, the income earned by an

investment in the division is assumed to be reinvested. The “effective yield” will be slightly higher than the

“yield” because of the compounding effect of this assumed reinvestment. Neither yield quotation reflects a

sales load deducted from purchase payments which, if included, would reduce the “yield” and “effective

yield.”


Yield For the Period Ended December 31, 2010
For Contracts:	7-Day Annualized Yield	7-Day Effective Yield
without a surrender charge	-1.28%	-1.28%
with a surrender charge	-7.28%	-7.28%

Also, from time to time, the Separate Account will advertise the average annual total return of its various

divisions. The average annual total return for any of the divisions is computed by calculating the average

annual compounded rate of return over the stated period that would equate an initial $1,000 investment to

the ending redeemable Contract value. The Separate Account may also advertise total return figures for

its divisions for a specified period that does not take into account the surrender charge in order to

illustrate the change in the division’s unit value over time. See “Charges and Deductions” in the

Prospectus for a discussion of surrender charges.

Following are the hypothetical average annual total returns for the period ending December 31, 2010

assuming the Contract had been offered as of the effective dates of the underlying mutual funds in which

the divisions invest:


	For Contracts with Surrender Charge
	Effective			Ten	Since
Division	Date	One Year	Five Years	Years	Inception
Diversified Balanced Account	12/30/2009	2.80%			2.97%
Diversified Growth Account	12/30/2009	4.28%			4.26%
Money Market	3/18/1983	-7.28%	0.56%	0.85%

		For Contracts without Surrender Charge
	Effective			Ten	Since
Division	Date	One Year	Five Years	Years	Inception
Diversified Balanced Account	12/30/2009	8.80%			8.77%
Diversified Growth Account	12/30/2009	10.28%			10.25%
Money Market	3/18/1983	-1.28%	1.14%	0.85%

TAXATION UNDER CERTAIN RETIREMENT PLANS

INDIVIDUAL RETIREMENT ANNUITIES

Contributions. Individuals may make contributions for individual retirement annuity (IRA) contracts.

Individuals may make deductible contributions (for any year) up to the lesser of the amount shown in the

chart or 100% of compensation.

Individuals age 50 or over are also permitted to make additional “catch-up” contributions. The additional

contribution is $1,000 in 2010 and 2011.

Such individuals may establish a traditional IRA for a non-working spouse. The annual contribution for

both spouses’ contracts cannot exceed the lesser of the amount shown in the chart or 100% of the

working spouse’s compensation. No more than the individual IRA limit may be contributed to either

spouse’s IRA for any year.


IRA- Maximum Annual Contribution
Year	Individual IRA	Individual IRA + Spousal IRA
2010	$5,000	$10,000
2011	$5,000	$10,000

Starting in 2012, limits are indexed to inflation.

Contributions may be tax deductible. If an individual and his/her spouse do not participate in a qualified

retirement plan, the contributions to an IRA are fully tax deductible regardless of income. If an individual is

an active participant in a qualified retirement plan, his/her ability to deduct the contributions depends upon

his/her income level.

For individuals who are not active participants but whose spouses are, deductibility of traditional IRA

contributions is phased out if the couple files a joint return and the Adjusted Gross Income is between

$169,000 and $179,000 in 2011.


	Deductibility of Traditional IRA Contributions for Active Participants
	Married Individuals (Filing Jointly)			Single Individual
	Limited	No		Limited	No
Year	Deduction	Deduction	Year	Deduction	Deduction
2010	$89,000	$109,000	2010	$56,000	$66,000
2011	$90,000	$110,000	2011	$56,000	$66,000

An individual may make non-deductible IRA contributions to the extent of the excess of:

(1) The lesser of maximum annual contribution or 100% of compensation, over

(2) The IRA deductible contributions made with respect to the individual.

An individual may not make any contribution to his/her own IRA for the year in which he/she reaches

age 70 ½ or for any year thereafter.

Taxation of Distributions. Distributions from IRA Contracts are taxed as ordinary income to the recipient,

although special rules exist for the tax-free return of non-deductible contributions. In addition, taxable

distributions received under an IRA Contract prior to age 59 ½ are subject to a 10% penalty tax in

addition to regular income tax. Certain distributions are exempted from this penalty tax, including

distributions following the owner’s death or disability if the distribution is paid as part of a series of

substantially equal periodic payments made for the life (or life expectancy) of the Owner or the joint lives

(or joint life expectancies) of Owner and the Owner’s designated Beneficiary; distributions to pay medical

expenses; distributions for certain unemployment expenses; distributions for first home purchases (up to

$10,000) and distributions for higher education expenses and distributions for certain natural disaster

victims.

Required Distributions. Generally, distributions from IRA Contracts must commence not later than April 1

of the calendar year following the calendar year in which the owner attains age 70 ½, and such

distributions must be made over a period that does not exceed the uniform life distribution period

established by the IRS. A penalty tax of 50% may be imposed on any amount by which the minimum

required distribution in any year exceeded the amount actually distributed in that year. In addition, in the

event that the owner dies before his or her entire interest in the Contract has been distributed, the

owner’s entire interest must be distributed in accordance with rules similar to those applicable upon the

death of the Contract Owner in the case of a non-qualified Contract, as described in the Prospectus.

Tax-Free Rollovers. The Internal Revenue Code (the “Code”) permits the taxable portion of funds to be

transferred in a tax-free rollover from a qualified retirement plan, tax-deferred annuity plan or

governmental 457(b) plan to an IRA Contract if certain conditions are met, and if the rollover of assets is

completed within 60 days after the distribution from the qualified plan is received. A direct rollover of

funds may avoid a 20% federal tax withholding generally applicable to qualified plans, tax-deferred

annuity plan, or governmental 457(b) plan distributions. In addition, not more frequently than once every

twelve months, amounts may be rolled over tax-free from one IRA to another, subject to the 60-day

limitation and other requirements. The once-per-year limitation on rollovers does not apply to direct

transfers of funds between IRA custodians or trustees.

SIMPLIFIED EMPLOYEE PENSION PLANS AND SALARY REDUCTION SIMPLIFIED EMPLOYEE

PENSION PLANS

Contributions. Under Section 408(k) of the Code, employers may establish a type of IRA plan referred to

as a simplified employee pension plan (SEP). Employer contributions to a SEP cannot exceed the lesser

of 100% of compensation or $49,000 for 2011.

Employees of certain small employers may have contributions made to the salary reduction simplified

employee pension plan (SAR/SEP) on their behalf on a salary reduction basis. The amount that an

employee chooses to defer and contribute to the SAR/SEP is referred to as an elective deferral.

These elective deferrals are subject to the same cap as elective deferrals to IRC Section 401(k) plans,

see table below. In addition to the elective deferrals, SAR/SEP may permit additional elective deferrals by

individuals age 50 or over, referred to as “catch-up contributions”.

No new SAR/SEP are permitted after 1996 for any employer, but those in effect prior to 1997 may

continue to operate, receive contributions, and add new employees.

Employees of tax-exempt organizations and state and local government agencies are not eligible for

SAR/SEPs.


	Salary Reduction Simplified Employee Pension Plan (SAR-SEP)
Year	Elective Deferral	Catch-up Contribution
2010	$16,500	$5,500
2011	$16,500	$5,500

Taxation of Distributions. Generally, distribution payments from SEPs and SAR/SEPs are subject to the

same distribution rules described above for IRAs.

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

described above for IRAs.

Tax-Free Rollovers. Generally, rollovers and direct transfers may be made to and from SEPs and

SAR/SEPs in the same manner as described above for IRAs, subject to the same conditions and

limitations.

SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE IRA)

Contributions. Under Section 408(p) of the Code, employers may establish a type of IRA plan known as a

SIMPLE IRA. Employees may have contributions made to the SIMPLE IRA on a salary reduction basis.

The amount that an employee chooses to defer and contribute to the SIMPLE IRA is referred to as an

elective deferral.

These elective deferrals cannot exceed the amounts shown in the chart. In addition to the elective

deferrals, SIMPLE IRA may permit additional elective deferrals by individuals age 50 or over, referred to

as “catch-up contributions”.

Elective contribution amounts made under the salary reduction portions (i.e., those subject to the $11,500

limit in 2011) of a SIMPLE IRA plan are counted in the overall limit on elective deferrals by any individual.

For example, an individual under age 50 who defers the maximum of $11,500 to a SIMPLE IRA of (i.e.,

$16,500 for 2011) one employer and participates in a 401(k) plan of another employer would be limited to

an elective deferral of $5,000 in 2011 ($16,500 – $11,500) to the 401(k) plan.

The employer generally must match either 100% of the employee’s elective deferral, up to 3% of the

employee’s compensation or fixed nonelective contributions of 2% of compensation.


	Savings Incentive Match Plan for Employees (SIMPLE IRA)
			401(k) Elective
Year	Elective Deferral	Catch-up Contribution	Deferral
2010	$11,500	$2,500	$16,500
2011	$11,500	$2,500	$16,500

Taxation of Distributions. Generally, distribution payments from SIMPLE IRAs are subject to the same

distribution rules described above for IRAs, except that distributions made within two years of the date of

an employee’s first participation in a SIMPLE IRA of an employer are subject to a 25% penalty tax instead

of the 10% penalty tax discussed previously.

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

described above for IRAs.

Tax-Free Rollovers. Direct transfers may be made among SIMPLE IRAs in the same manner as

described above for IRAs, subject to the same conditions and limitations. Rollovers from SIMPLE IRAs

are permitted after two years have elapsed from the date of an employee’s first participation in a SIMPLE

IRA of the employer. Rollovers to SIMPLE IRAs from other plans are not permitted.

ROTH INDIVIDUAL RETIREMENT ANNUITIES (ROTH IRA)

Contribution. Under Section 408A of the Code, individuals may contribute to a Roth IRA on his/her own

behalf up to the lesser of maximum annual contribution limit as shown in the chart or 100% of

compensation. In addition, the contribution must be reduced by the amount of any contributions made to

other IRAs for the benefit of the same individual.

Individuals age 50 or over are also permitted to make additional “catch-up” contributions. The additional

contribution is $1,000 for 2010 and 2011.


	Roth IRA - Maximum Annual Contribution
Year	Individual Roth IRA	Catch-up Contribution
2010	$5,000	$1,000
2011	$5,000	$1,000

Starting in 2012, individual Roth IRA limits are indexed for cost-of-living.

The maximum contribution is phased out for single taxpayers with adjusted gross income between

$107,000 and $122,000 and for joint filers with adjusted gross income between $169,000 and $179,000

(see chart below).

For rollovers/conversion to Roth IRAs done in 2010 only, the taxpayer does have a choice of electing a

two-year spread option that allows deferral including the taxable amounts in gross income to years 2011

and 2012. For more information, please see your tax advisor.


Modified Adjusted Gross Income Limits - 2011
Single	Married Filing Joint	ROTH IRA Contribution
$107,000 or less	$169,000 or less	Full Contribution
$107,000 – $122,000	$169,000 – $179,000	Partial Contribution^*
$122,000 & over	$179,000 & over	No Contribution

* Those entitled to only a partial contribution should check with a tax advisor to determine the allowable

contribution.

A person whose filing status is “married, filing separately” may not make a full Roth IRA contribution,

unless the couple are separated and have been living apart for the entire year. Only a partial contribution

is allowed if the Modified Adjusted Gross Income is less than $10,000.

Taxation of Distribution. Qualified distributions are received income-tax free by the Roth IRA owner, or

beneficiary in case of the Roth IRA owner’s death. A qualified distribution is any distribution made after

five years if the IRA owner is over age 591/2, dies, becomes disabled, or uses the funds for first-time

home buyer expenses at the time of distribution. The five-year period for converted amounts begins from

the year of the conversion.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Participants

Principal Life Insurance Company

We have audited the accompanying statements of assets and liabilities of each of the

divisions of Principal Life Insurance Company Separate Account B (“Separate Account”)

comprised of the divisions described in Note 1, as of December 31, 2010, and the related

statements of operations for the year then ended and changes in net assets for each of the

two years in the period then ended, or for those divisions operating for portions of such

periods as disclosed in the financial statements. These financial statements are the

responsibility of the management of the Separate Account. Our responsibility is to

express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company

Accounting Oversight Board (United States). Those standards require that we plan and

perform the audit to obtain reasonable assurance about whether the financial statements

are free of material misstatement. We were not engaged to perform an audit of the

Separate Account’s internal control over financial reporting. Our audits included

consideration of internal control over financial reporting as a basis for designing audit

procedures that are appropriate in the circumstances, but not for the purpose of

expressing an opinion on the effectiveness of the Separate Account’s internal control over

financial reporting. Accordingly, we express no such opinion. An audit also includes

examining, on a test basis, evidence supporting the amounts and disclosures in the

financial statements, assessing the accounting principles used and significant estimates

made by management, and evaluating the overall financial statement presentation. Our

procedures included confirmation of securities owned as of December 31, 2010 by

correspondence with the fund companies or their transfer agents, as applicable. We

believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material

respects, the financial position of each of the respective divisions of Principal Life

Insurance Company Separate Account B at December 31, 2010, and the results of their

operations and the changes in their net assets for the periods described above, in

conformity with U.S. generally accepted accounting principles.

/s/Ernst & Young LLP

Des Moines, Iowa

April 26, 2011


Principal Life Insurance Company

Separate Account B


Statements of Assets and Liabilities


December 31, 2010


			American
	AllianceBernstein		Century VP
	Small Cap		Income &
		Growth	Growth
		Class A	Class I
		Division	Division
Assets
Investments in shares of mutual funds, at market	$ 3,666,223		$ 16,652,967
Liabilities		–	–
Net assets	$ 3,666,223		$ 16,652,967

Net assets
Applicable to accumulation units:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		–	3,093,498
Principal Freedom Variable Annuity 2		–	50,086
The Principal Variable Annuity		–	10,194,331
The Principal Variable Annuity with Purchase Payment Credit Rider		–	3,315,052
Principal Investment Plus Variable Annuity		2,658,489	–
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		1,007,734	–
Applicable to contracts in annuitization period:
Bankers Flexible Annuity		–	–
Pension Builder Plus – Rollover IRA		–	–
Total net assets	$ 3,666,223		$ 16,652,967

Investments in shares of mutual funds, at cost	$ 2,939,832		$ 17,125,671
Shares of mutual fund owned		224,097	2,752,556
Accumulation units outstanding:
Bankers Flexible Annuity		–	–
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		–	293,401
Principal Freedom Variable Annuity 2		–	5,247
The Principal Variable Annuity		–	1,000,308
The Principal Variable Annuity With Purchase Payment Credit Rider		–	344,633
Principal Investment Plus Variable Annuity		168,228	–
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		66,253	–
Accumulation unit value:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		–	10.54
Principal Freedom Variable Annuity 2		–	9.55
The Principal Variable Annuity		–	10.19
The Principal Variable Annuity With Purchase Payment Credit Rider		–	9.62
Principal Investment Plus Variable Annuity		15.80	–
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		15.21	–
Annuitized units outstanding:
Bankers Flexible Annuity		–	–
Pension Builder Plus – Rollover IRA		–	–
Annuitized unit value:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus – Rollover IRA		–	–

See accompanying notes.


American		American
Century VP		Century VP
Inflation		Mid Cap	American	American	American	American
Protection		Value	Century VP	Century VP	Century VP	Century VP
Class II		Class II	Ultra® Class I	Ultra® Class II	Value Class II	Vista^SMClass I
Division		Division	Division	Division	Division	Division

$ 86,143,856		$ 662,767	$ 4,935,390	$ 58,641,195	$ 25,179,723	$ 3,007,448
	–	–	–	–	–	–
$ 86,143,856		$ 662,767	$ 4,935,390	$ 58,641,195	$ 25,179,723	$ 3,007,448



$ –		$ –	$ –	$ –	$ –	$ –
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	339,910	3,771,991	–	17,898,816	–
	–	43,499	1,163,399	–	7,280,907	–
66,996,343		195,367	–	44,291,887	–	2,024,847
19,147,513		83,991	–	14,349,308	–	982,601

	–	–	–	–	–	–
	–	–	–	–	–	–
$ 86,143,856		$ 662,767	$ 4,935,390	$ 58,641,195	$ 25,179,723	$ 3,007,448

$ 80,946,151		$ 627,692	$ 4,560,480	$ 56,479,783	$ 30,301,526	$ 3,042,062
7,767,706		46,872	526,161	6,319,094	4,296,881	184,054

	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	29,358	396,599	–	1,373,048	–
	–	3,771	129,599	–	588,216	–
5,502,868		16,874	–	3,932,528	–	145,379
1,633,945		7,281	–	1,323,645	–	73,296

$ –		$ –	$ –	$ –	$ –	$ –
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	11.58	9.51	–	13.04	–
	–	11.54	8.98	–	12.38	–
	12.17	11.58	–	11.26	–	13.93
	11.72	11.54	–	10.84	–	13.41

	–	–	–	–	–	–
	–	–	–	–	–	–

$ –		$ –	$ –	$ –	$ –	$ –
	–	–	–	–	–	–

Principal Life Insurance Company

Separate Account B

Statements of Assets and Liabilities (continued)

December 31, 2010


	Asset
	Allocation		Balanced
	Division		Division
Assets
Investments in shares of mutual funds, at market	$ 49,340,010		$ 42,696,436
Liabilities		–	–
Net assets	$ 49,340,010		$ 42,696,436

Net assets
Applicable to accumulation units:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	472,734
Premier Variable		168,323	2,328,604
Principal Freedom Variable Annuity		–	–
Principal Freedom Variable Annuity 2		–	–
The Principal Variable Annuity	32,927,346		34,867,323
The Principal Variable Annuity With Purchase Payment Credit Rider	3,182,683		5,027,775
Principal Investment Plus Variable Annuity	9,519,192		–
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider	3,542,466		–
Applicable to contracts in annuitization period:
Bankers Flexible Annuity		–	–
Pension Builder Plus – Rollover IRA		–	–
Total net assets	$ 49,340,010		$ 42,696,436

Investments in shares of mutual funds, at cost	$ 48,198,839		$ 44,278,900
Shares of mutual fund owned	4,004,871		3,134,834
Accumulation units outstanding:
Bankers Flexible Annuity		–	–
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	223,276
Premier Variable		117,627	1,061,158
Principal Freedom Variable Annuity		–	–
Principal Freedom Variable Annuity 2		–	–
The Principal Variable Annuity	1,316,949		1,777,769
The Principal Variable Annuity With Purchase Payment Credit Rider		135,252	272,377
Principal Investment Plus Variable Annuity		380,713	–
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		150,536	–
Accumulation unit value:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	2.12
Premier Variable		1.43	2.19
Principal Freedom Variable Annuity		–	–
Principal Freedom Variable Annuity 2		–	–
The Principal Variable Annuity		25.00	19.61
The Principal Variable Annuity With Purchase Payment Credit Rider		23.53	18.46
Principal Investment Plus Variable Annuity		25.00	–
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		23.53	–
Annuitized units outstanding:
Bankers Flexible Annuity		–	–
Pension Builder Plus – Rollover IRA		–	–
Annuitized unit value:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus – Rollover IRA		–	–

See accompanying notes.


Bond &				Dreyfus IP
Mortgage	Diversified	Diversified	Diversified	Technology Growth	Equity
Securities	Balanced	Growth	International	Service Shares	Income
Division	Division	Division	Division	Division	Division

$ 253,668,870	$ 169,722,542	$ 323,912,050	$ 237,655,716	$ 3,834,413	$ 173,784,186
–	–	–	–	–	–
$ 253,668,870	$ 169,722,542	$ 323,912,050	$ 237,655,716	$ 3,834,413	$ 173,784,186



$ –	$ –	$ –	$ –	$ –	$ –
–	–	–	–	–	–
–	–	–	–	–	–
283,393	–	–	576,006	–	–
2,833,574	–	–	4,305,024	–	41,418
7,377,089	–	–	3,786,963	–	–
459,035	–	–	840,399	–	–
99,606,445	–	–	137,370,675	–	25,459,183
25,222,501	–	–	28,337,544	–	4,415,467
91,612,583	158,820,806	302,736,098	47,926,051	3,206,018	113,073,522
26,274,250	10,901,736	21,175,952	14,513,054	628,395	30,794,596

–	–	–	–	–	–
–	–	–	–	–	–
$ 253,668,870	$ 169,722,542	$ 323,912,050	$ 237,655,716	$ 3,834,413	$ 173,784,186

$ 268,504,409	$ 159,423,975	$ 300,461,242	$ 244,553,090	$ 3,047,054	$ 199,152,402
23,908,470	15,401,320	28,998,393	18,951,812	302,399	11,742,174

–	–	–	–	–	–
–	–	–	–	–	–
–	–	–	–	–	–
122,499	–	–	223,609	–	–
1,181,780	–	–	1,612,838	–	35,438
478,859	–	–	263,263	–	–
39,773	–	–	79,290	–	–
4,781,492	–	–	5,832,620	–	2,765,512
1,286,457	–	–	1,278,421	–	491,263
4,397,767	14,593,238	27,443,300	2,034,897	202,169	12,282,553
1,340,104	1,007,730	1,931,160	654,744	41,169	3,426,169

$ –	$ –	$ –	$ –	$ –	$ –
–	–	–	–	–	–
–	–	–	–	–	–
2.31	–	–	2.58	–	–
2.40	–	–	2.67	–	1.17
15.41	–	–	14.38	–	–
11.54	–	–	10.60	–	–
20.83	–	–	23.55	–	9.21
19.61	–	–	22.17	–	8.99
20.83	10.88	11.03	23.55	15.86	9.21
19.61	10.82	10.97	22.17	15.26	8.99

–	–	–	–	–	–
–	–	–	–	–	–

$ –	$ –	$ –	$ –	$ –	$ –
–	–	–	–	–	–


Principal Life Insurance Company

Separate Account B


Statements of Assets and Liabilities (continued)


December 31, 2010



	Fidelity VIP		Fidelity VIP
	Equity-Income		Growth
		Service	Service
		Class 2	Class
		Division	Division
Assets
Investments in shares of mutual funds, at market	$ 44,412,681		$ 18,619,921
Liabilities		–	–
Net assets	$ 44,412,681		$ 18,619,921

Net assets
Applicable to accumulation units:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		–	–
Principal Freedom Variable Annuity 2		–	–
The Principal Variable Annuity		25,199,208	16,057,152
The Principal Variable Annuity With Purchase Payment Credit Rider		10,957,285	2,562,769
Principal Investment Plus Variable Annuity		6,402,779	–
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		1,853,409	–
Applicable to contracts in annuitization period:
Bankers Flexible Annuity		–	–
Pension Builder Plus – Rollover IRA		–	–
Total net assets	$ 44,412,681		$ 18,619,921

Investments in shares of mutual funds, at cost	$ 51,333,942		$ 20,558,346
Shares of mutual fund owned		2,368,676	503,377
Accumulation units outstanding:
Bankers Flexible Annuity		–	–
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		–	–
Principal Freedom Variable Annuity 2		–	–
The Principal Variable Annuity		2,196,851	1,810,353
The Principal Variable Annuity With Purchase Payment Credit Rider		1,006,028	307,010
Principal Investment Plus Variable Annuity		558,225	–
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		170,179	–
Accumulation unit value:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		–	–
Principal Freedom Variable Annuity 2		–	–
The Principal Variable Annuity		11.47	8.87
The Principal Variable Annuity With Purchase Payment Credit Rider		10.89	8.35
Principal Investment Plus Variable Annuity		11.47	–
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		10.89	–
Annuitized units outstanding:
Bankers Flexible Annuity		–	–
Pension Builder Plus – Rollover IRA		–	–
Annuitized unit value:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus – Rollover IRA		–	–
See accompanying notes.

6 0707-0846563


Fidelity VIP		Fidelity VIP	Fidelity VIP	Fidelity VIP	Fidelity VIP	Franklin
Growth		Overseas	Contrafund	Contrafund	Mid Cap	Small Cap
Service		Service	Service	Service	Service	Value Securities
Class 2		Class 2	Class	Class 2	Class 2	Class 2
Division		Division	Division	Division	Division	Division

$ 7,987,849		$ 48,258,753	$ 63,340,887	$ 48,068,758	$ 12,783,816	$ 447,302
	–	–	–	–	–	–
$ 7,987,849		$ 48,258,753	$ 63,340,887	$ 48,068,758	$ 12,783,816	$ 447,302



$ –		$ –	$ –	$ –	$ –	$ –
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	55,175,790	–	–	–
	–	–	8,165,097	–	–	–
5,656,878		35,687,235	–	38,994,494	10,362,515	344,084
2,330,971		12,571,518	–	9,074,264	2,421,301	103,218

	–	–	–	–	–	–
	–	–	–	–	–	–
$ 7,987,849		$ 48,258,753	$ 63,340,887	$ 48,068,758	$ 12,783,816	$ 447,302

$ 7,535,822		$ 51,401,159	$ 67,240,998	$ 50,352,257	$ 11,276,893	$ 380,802
217,534		2,903,655	2,660,264	2,046,350	397,878	27,526

	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	3,660,877	–	–	–
	–	–	575,624	–	–	–
466,684		2,507,443	–	2,671,022	558,019	27,173
199,792		917,695	–	645,771	135,463	8,200

$ –		$ –	$ –	$ –	$ –	$ –
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	15.07	–	–	–
	–	–	14.18	–	–	–
	12.12	14.23	–	14.60	18.57	12.66
	11.67	13.70	–	14.05	17.87	12.59

	–	–	–	–	–	–
	–	–	–	–	–	–

$ –		$ –	$ –	$ –	$ –	$ –
	–	–	–	–	–	–


Principal Life Insurance Company

Separate Account B


Statements of Assets and Liabilities (continued)


December 31, 2010

			Goldman Sachs
	Goldman Sachs		VIT Structured
	VIT Mid Cap		Small Cap
	Value		Equity Service
	Institutional		Institutional
	Class		Class
	Division		Division
Assets
Investments in shares of mutual funds, at market	$ 17,385,279		$ 6,006,914
Liabilities		–	–
Net assets	$ 17,385,279		$ 6,006,914

Net assets
Applicable to accumulation units:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		–	–
Principal Freedom Variable Annuity 2		–	–
The Principal Variable Annuity		–	–
The Principal Variable Annuity With Purchase Payment Credit Rider		–	–
Principal Investment Plus Variable Annuity		12,410,921	4,638,934
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		4,974,358	1,367,980
Applicable to contracts in annuitization period:
Bankers Flexible Annuity		–	–
Pension Builder Plus – Rollover IRA		–	–
Total net assets	$ 17,385,279		$ 6,006,914

Investments in shares of mutual funds, at cost	$ 18,186,253		$ 5,861,859
Shares of mutual fund owned		1,232,999	525,999
Accumulation units outstanding:
Bankers Flexible Annuity		–	–
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		–	–
Principal Freedom Variable Annuity 2		–	–
The Principal Variable Annuity		–	–
The Principal Variable Annuity With Purchase Payment Credit Rider		–	–
Principal Investment Plus Variable Annuity		811,878	395,177
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		338,075	121,073
Accumulation unit value:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		–	–
Principal Freedom Variable Annuity 2		–	–
The Principal Variable Annuity		–	–
The Principal Variable Annuity With Purchase Payment Credit Rider		–	–
Principal Investment Plus Variable Annuity		15.29	11.74
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		14.71	11.30
Annuitized units outstanding:
Bankers Flexible Annuity		–	–
Pension Builder Plus – Rollover IRA		–	–
Annuitized unit value:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus – Rollover IRA		–	–
See accompanying notes.


Government			Invesco V.I.
& High	International	Invesco V.I.	Capital	Invesco V.I.	Invesco V.I.
Quality	Emerging	Basic Value	Appreciation	Core Equity	Dynamics
Bond	Markets	Series I	Series I	Series I	Series I
Division	Division	Division	Division	Division	Division

$ 216,706,645	$ 108,918,848	$ 4,297,986	$ 6,028,181	$ 27,717,050	$ 2,742,034
–	–	–	–	–	–
$ 216,706,645	$ 108,918,848	$ 4,297,986	$ 6,028,181	$ 27,717,050	$ 2,742,034



$ –	$ –	$ –	$ –	$ –	$ –
127,046	–	–	–	–	–
29,984	–	–	–	–	–
128,219	–	–	–	–	–
3,419,204	777,718	–	–	–	–
3,709,738	–	–	–	–	–
308,665	–	–	–	–	–
118,677,076	51,067,934	–	5,647,354	24,996,213	1,660,274
21,818,227	13,480,047	–	380,827	2,720,837	1,081,760
55,536,011	32,720,778	3,528,763	–	–	–
12,952,475	10,872,371	769,223	–	–	–

–	–	–	–	–	–
–	–	–	–	–	–
$ 216,706,645	$ 108,918,848	$ 4,297,986	$ 6,028,181	$ 27,717,050	$ 2,742,034

$ 221,805,056	$ 102,400,077	$ 3,681,318	$ 6,590,530	$ 26,091,507	$ 2,311,329
21,059,926	6,220,380	673,666	258,720	1,025,418	155,621

–	–	–	–	–	–
41,593	–	–	–	–	–
8,721	–	–	–	–	–
53,965	–	–	–	–	–
1,385,382	192,829	–	–	–	–
331,545	–	–	–	–	–
27,646	–	–	–	–	–
10,696,248	1,395,139	–	667,447	2,407,576	165,586
1,991,493	391,287	–	46,292	278,455	114,308
5,005,428	893,916	363,485	–	–	–
1,182,263	315,596	82,322	–	–	–

$ –	$ –	$ –	$ –	$ –	$ –
3.06	–	–	–	–	–
3.43	–	–	–	–	–
2.37	–	–	–	–	–
2.47	4.03	–	–	–	–
11.19	–	–	–	–	–
11.17	–	–	–	–	–
11.10	36.60	–	8.46	10.38	10.03
10.96	34.45	–	8.23	9.77	9.46
11.10	36.60	9.71	–	–	–
10.96	34.45	9.34	–	–	–

–	–	–	–	–	–
–	–	–	–	–	–

$ –	$ –	$ –	$ –	$ –	$ –
–	–	–	–	–	–


Principal Life Insurance Company

Separate Account B


Statements of Assets and Liabilities (continued)


December 31, 2010



	Invesco V.I.		Invesco V.I.
	Global		International
	Health Care		Growth
	Series I		Series I
	Division		Division
Assets
Investments in shares of mutual funds, at market	$ 7,322,711		$ 4,542,215
Liabilities		–	–
Net assets	$ 7,322,711		$ 4,542,215

Net assets
Applicable to accumulation units:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		–	–
Principal Freedom Variable Annuity 2		–	–
The Principal Variable Annuity		5,445,704	–
The Principal Variable Annuity With Purchase Payment Credit Rider		1,877,007	–
Principal Investment Plus Variable Annuity		–	4,038,379
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		–	503,836
Applicable to contracts in annuitization period:
Bankers Flexible Annuity		–	–
Pension Builder Plus – Rollover IRA		–	–
Total net assets	$ 7,322,711		$ 4,542,215

Investments in shares of mutual funds, at cost	$ 6,946,124		$ 3,998,171
Shares of mutual fund owned		438,223	158,320
Accumulation units outstanding:
Bankers Flexible Annuity		–	–
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		–	–
Principal Freedom Variable Annuity 2		–	–
The Principal Variable Annuity		486,010	–
The Principal Variable Annuity With Purchase Payment Credit Rider		177,480	–
Principal Investment Plus Variable Annuity		–	446,466
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		–	56,587
Accumulation unit value:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		–	–
Principal Freedom Variable Annuity 2		–	–
The Principal Variable Annuity		11.20	–
The Principal Variable Annuity With Purchase Payment Credit Rider		10.58	–
Principal Investment Plus Variable Annuity		–	9.05
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		–	8.90
Annuitized units outstanding:
Bankers Flexible Annuity		–	–
Pension Builder Plus – Rollover IRA		–	–
Annuitized unit value:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus – Rollover IRA		–	–
See accompanying notes.


Invesco V.I.
Small Cap	Invesco V.I.	Janus Aspen
Equity	Technology	Enterprise	LargeCap	LargeCap	LargeCap
Series I	Series I	Service Shares	Blend II	Growth	Growth I
Division	Division	Division	Division	Division	Division

$ 7,524,206	$ 4,980,784	$ 12,637,981	$ 157,178,665	$ 59,162,639	$ 116,970,484
–	–	–	–	–	–
$ 7,524,206	$ 4,980,784	$ 12,637,981	$ 157,178,665	$ 59,162,639	$ 116,970,484



$ –	$ –	$ –	$ –	$ –	$ –
–	–	–	–	–	–
–	–	–	–	–	–
–	–	–	–	671,357	–
–	–	–	–	3,775,146	243,611
–	–	–	–	–	1,816,008
–	–	–	–	–	96,299
2,572,040	3,385,712	11,099,309	43,715,052	39,905,675	93,712,733
910,249	1,595,072	1,538,672	17,432,672	1,990,927	10,021,725
3,332,986	–	–	72,713,750	10,149,124	8,290,086
708,931	–	–	23,317,191	2,670,410	2,790,022

–	–	–	–	–	–
–	–	–	–	–	–
$ 7,524,206	$ 4,980,784	$ 12,637,981	$ 157,178,665	$ 59,162,639	$ 116,970,484

$ 6,223,175	$ 3,412,985	$ 8,872,464	$ 200,603,546	$ 57,426,952	$ 96,626,076
455,185	311,299	336,743	22,912,342	3,912,873	5,473,584

–	–	–	–	–	–
–	–	–	–	–	–
–	–	–	–	–	–
–	–	–	–	343,827	–
–	–	–	–	1,865,621	198,696
–	–	–	–	–	169,160
–	–	–	–	–	9,003
168,919	514,830	1,215,866	3,598,350	2,158,431	2,785,888
62,109	256,979	179,098	1,511,222	114,422	316,559
218,907	–	–	5,985,371	548,967	246,445
48,375	–	–	2,021,355	153,477	88,129

$ –	$ –	$ –	$ –	$ –	$ –
–	–	–	–	–	–
–	–	–	–	–	–
–	–	–	–	1.95	–
–	–	–	–	2.02	1.23
–	–	–	–	–	10.74
–	–	–	–	–	10.70
15.23	6.58	9.13	12.15	18.49	33.64
14.66	6.21	8.59	11.54	17.40	31.66
15.23	–	–	12.15	18.49	33.64
14.66	–	–	11.54	17.40	31.66

–	–	–	–	–	–
–	–	–	–	–	–

$ –	$ –	$ –	$ –	$ –	$ –
–	–	–	–	–	–

Principal Life Insurance Company

Separate Account B

Statements of Assets and Liabilities (continued)

December 31, 2010


	LargeCap	LargeCap
	S&P 500 Index	Value
	Division	Division
Assets
Investments in shares of mutual funds, at market	$ 96,643,855	$ 97,515,490
Liabilities	–	–
Net assets	$ 96,643,855	$ 97,515,490

Net assets
Applicable to accumulation units:
Bankers Flexible Annuity	$ –	$ 1,173,281
Pension Builder Plus	–	1,668,022
Pension Builder Plus – Rollover IRA	–	117,289
Personal Variable	–	485,533
Premier Variable	146,316	6,339,559
Principal Freedom Variable Annuity	8,912,424	2,882,170
Principal Freedom Variable Annuity 2	630,742	490,577
The Principal Variable Annuity	46,288,856	63,419,602
The Principal Variable Annuity With Purchase Payment Credit Rider	10,990,972	6,061,438
Principal Investment Plus Variable Annuity	23,769,848	10,424,993
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider	5,904,697	4,345,673
Applicable to contracts in annuitization period:
Bankers Flexible Annuity	–	447
Pension Builder Plus – Rollover IRA	–	106,906
Total net assets	$ 96,643,855	$ 97,515,490

Investments in shares of mutual funds, at cost	$ 91,943,520	$ 118,400,646
Shares of mutual fund owned	10,846,673	4,076,735
Accumulation units outstanding:
Bankers Flexible Annuity	–	32,754
Pension Builder Plus	–	281,834
Pension Builder Plus – Rollover IRA	–	16,857
Personal Variable	–	164,068
Premier Variable	127,018	2,057,127
Principal Freedom Variable Annuity	882,871	283,292
Principal Freedom Variable Annuity 2	61,693	52,489
The Principal Variable Annuity	4,804,738	2,640,573
The Principal Variable Annuity With Purchase Payment Credit Rider	1,212,192	268,158
Principal Investment Plus Variable Annuity	2,467,311	434,082
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider	651,234	192,262
Accumulation unit value:
Bankers Flexible Annuity	$ –	$ 35.82
Pension Builder Plus	–	5.92
Pension Builder Plus – Rollover IRA	–	6.96
Personal Variable	–	2.96
Premier Variable	1.15	3.08
Principal Freedom Variable Annuity	10.09	10.17
Principal Freedom Variable Annuity 2	10.22	9.35
The Principal Variable Annuity	9.63	24.02
The Principal Variable Annuity With Purchase Payment Credit Rider	9.07	22.60
Principal Investment Plus Variable Annuity	9.63	24.02
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider	9.07	22.60
Annuitized units outstanding:
Bankers Flexible Annuity	–	12
Pension Builder Plus – Rollover IRA	–	15,363
Annuitized unit value:
Bankers Flexible Annuity	$ –	$ 35.82
Pension Builder Plus – Rollover IRA	–	6.96

See accompanying notes.


						Neuberger
		MFS® VIT	MFS® VIT			Berman AMT
LargeCap		Utilities	Value	MidCap	Money	Partners
Value III		Service Class	Service Class	Blend	Market	I Class
Division		Division	Division	Division	Division	Division

$ 126,522,916		$ 1,619,334	$ 1,459,189	$ 378,975,288	$ 115,063,727	$ 5,295,863
	–	–	–	–	–	–
$ 126,522,916		$ 1,619,334	$ 1,459,189	$ 378,975,288	$ 115,063,727	$ 5,295,863



$ –		$ –	$ –	$ –	$ –	$ –
	–	–	–	–	134,718	–
	–	–	–	–	1	–
	–	–	–	1,019,010	393,872	–
	–	–	–	5,680,179	4,167,695	–
	–	–	–	9,248,437	3,629,969	–
	–	–	–	875,873	840,573	–
31,872,343		–	–	204,109,244	55,135,826	–
10,981,514		–	–	33,566,032	12,486,972	–
63,006,949		1,233,347	1,330,958	96,201,696	28,757,389	3,904,503
20,662,110		385,987	128,231	28,274,817	9,516,712	1,391,360

	–	–	–	–	–	–
	–	–	–	–	–	–
$ 126,522,916		$ 1,619,334	$ 1,459,189	$ 378,975,288	$ 115,063,727	$ 5,295,863

$ 144,232,851		$ 1,478,743	$ 1,360,990	$ 337,495,312	$ 115,063,726	$ 5,931,202
13,179,470		64,903	113,733	10,017,851	115,063,728	469,908

	–	–	–	–	–	–
	–	–	–	–	59,589	–
	–	–	–	–	–	–
	–	–	–	214,773	241,168	–
	–	–	–	1,155,115	2,448,295	–
	–	–	–	393,523	294,969	–
	–	–	–	68,474	78,486	–
2,957,792		–	–	4,652,081	3,899,149	–
1,073,265		–	–	812,870	938,270	–
5,847,162		84,455	99,760	2,192,639	2,033,717	288,400
2,019,401		26,690	9,706	684,732	715,093	106,774

$ –		$ –	$ –	$ –	$ –	$ –
	–	–	–	–	2.26	–
	–	–	–	–	2.50	–
	–	–	–	4.74	1.63	–
	–	–	–	4.92	1.70	–
	–	–	–	23.50	12.31	–
	–	–	–	12.79	10.72	–
	10.78	–	–	43.87	14.14	–
	10.23	–	–	41.29	13.31	–
	10.78	14.60	13.34	43.87	14.14	13.54
	10.23	14.46	13.21	41.29	13.31	13.03

	–	–	–	–	–	–
	–	–	–	–	–	–

$ –		$ –	$ –	$ –	$ –	$ –
	–	–	–	–	–	–


Principal Life Insurance Company

Separate Account B


Statements of Assets and Liabilities (continued)


December 31, 2010


			Neuberger
	Neuberger		Berman AMT
	Berman AMT		Socially
	Small-Cap Growth		Responsive
	S Class		I Class
	Division		Division
Assets
Investments in shares of mutual funds, at market	$ 3,211,249		$ 6,359,439
Liabilities		–	–
Net assets	$ 3,211,249		$ 6,359,439

Net assets
Applicable to accumulation units:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		–	–
Principal Freedom Variable Annuity 2		–	–
The Principal Variable Annuity		–	–
The Principal Variable Annuity With Purchase Payment Credit Rider		–	–
Principal Investment Plus Variable Annuity		2,197,822	5,086,948
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		1,013,427	1,272,491
Applicable to contracts in annuitization period:
Bankers Flexible Annuity		–	–
Pension Builder Plus – Rollover IRA		–	–
Total net assets	$ 3,211,249		$ 6,359,439

Investments in shares of mutual funds, at cost	$ 3,195,215		$ 5,483,301
Shares of mutual fund owned		261,929	427,957
Accumulation units outstanding:
Bankers Flexible Annuity		–	–
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		–	–
Principal Freedom Variable Annuity 2		–	–
The Principal Variable Annuity		–	–
The Principal Variable Annuity With Purchase Payment Credit Rider		–	–
Principal Investment Plus Variable Annuity		223,438	373,281
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		107,041	97,013
Accumulation unit value:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		–	–
Principal Freedom Variable Annuity 2		–	–
The Principal Variable Annuity		–	–
The Principal Variable Annuity With Purchase Payment Credit Rider		–	–
Principal Investment Plus Variable Annuity		9.84	13.63
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		9.47	13.12
Annuitized units outstanding:
Bankers Flexible Annuity		–	–
Pension Builder Plus – Rollover IRA		–	–
Annuitized unit value:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus – Rollover IRA		–	–
See accompanying notes.


PIMCO	PIMCO	PIMCO		Principal
All Asset	High Yield	Total Return	Principal	LifeTime	Principal
Administrative	Administrative	Administrative	Capital	Strategic	LifeTime
Class	Class	Class	Appreciation	Income	2010
Division	Division	Division	Division	Division	Division

$ 2,993,563	$ 8,052,485	$ 16,609,083	$ 7,466,228	$ 24,279,554	$ 41,054,754
–	–	–	–	–	–
$ 2,993,563	$ 8,052,485	$ 16,609,083	$ 7,466,228	$ 24,279,554	$ 41,054,754



$ –	$ –	$ –	$ –	$ –	$ –
–	–	–	–	–	–
–	–	–	–	–	–
–	–	–	–	–	–
–	–	–	–	–	–
–	–	–	–	–	–
–	–	–	74,863	826,326	3,437,536
–	–	–	–	2,237,493	1,448,805
–	–	–	–	501,834	172,898
1,963,168	5,517,868	14,906,274	5,559,498	17,809,424	30,278,116
1,030,395	2,534,617	1,702,809	1,831,867	2,904,477	5,717,399

–	–	–	–	–	–
–	–	–	–	–	–
$ 2,993,563	$ 8,052,485	$ 16,609,083	$ 7,466,228	$ 24,279,554	$ 41,054,754

$ 3,016,713	$ 7,898,251	$ 16,822,622	$ 6,520,493	$ 24,421,430	$ 43,220,338
272,638	1,039,030	1,499,015	347,752	2,375,690	3,913,704

–	–	–	–	–	–
–	–	–	–	–	–
–	–	–	–	–	–
–	–	–	–	–	–
–	–	–	–	–	–
–	–	–	–	–	–
–	–	–	7,434	77,920	322,108
–	–	–	–	189,025	118,311
–	–	–	–	44,039	14,666
152,998	488,048	1,308,888	558,195	1,504,537	2,473,044
81,092	225,532	150,989	188,028	254,883	485,087

$ –	$ –	$ –	$ –	$ –	$ –
–	–	–	–	–	–
–	–	–	–	–	–
–	–	–	–	–	–
–	–	–	–	–	–
–	–	–	–	–	–
–	–	–	10.07	10.61	10.67
–	–	–	–	11.84	12.24
–	–	–	–	11.40	11.79
12.83	11.31	11.39	9.96	11.84	12.24
12.71	11.24	11.28	9.74	11.40	11.79

–	–	–	–	–	–
–	–	–	–	–	–

$ –	$ –	$ –	$ –	$ –	$ –
–	–	–	–	–	–


Principal Life Insurance Company

Separate Account B


Statements of Assets and Liabilities (continued)


December 31, 2010




	Principal		Principal
	LifeTime		LifeTime
	2020		2030
	Division		Division
Assets
Investments in shares of mutual funds, at market	$ 176,256,223		$ 63,026,188
Liabilities		–	–
Net assets	$ 176,256,223		$ 63,026,188

Net assets
Applicable to accumulation units:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		–	–
Principal Freedom Variable Annuity 2		5,280,578	3,111,993
The Principal Variable Annuity		3,422,424	1,172,660
The Principal Variable Annuity With Purchase Payment Credit Rider		740,136	44,534
Principal Investment Plus Variable Annuity		128,423,266	46,688,175
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		38,389,819	12,008,826
Applicable to contracts in annuitization period:
Bankers Flexible Annuity		–	–
Pension Builder Plus – Rollover IRA		–	–
Total net assets	$ 176,256,223		$ 63,026,188

Investments in shares of mutual funds, at cost	$ 186,144,336		$ 55,312,060
Shares of mutual fund owned		15,994,213	5,683,155
Accumulation units outstanding:
Bankers Flexible Annuity		–	–
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		–	–
Principal Freedom Variable Annuity 2		490,548	294,592
The Principal Variable Annuity		268,933	93,927
The Principal Variable Annuity With Purchase Payment Credit Rider		60,414	3,705
Principal Investment Plus Variable Annuity		10,091,129	3,739,525
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		3,133,516	999,149
Accumulation unit value:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		–	–
Principal Freedom Variable Annuity 2		10.76	10.56
The Principal Variable Annuity		12.73	12.49
The Principal Variable Annuity With Purchase Payment Credit Rider		12.25	12.02
Principal Investment Plus Variable Annuity		12.73	12.49
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		12.25	12.02
Annuitized units outstanding:
Bankers Flexible Annuity		–	–
Pension Builder Plus – Rollover IRA		–	–
Annuitized unit value:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus – Rollover IRA		–	–
See accompanying notes.


					SAM	SAM
Principal		Principal		SAM	Conservative	Conservative
LifeTime		LifeTime	Real Estate	Balanced	Balanced	Growth
2040		2050	Securities	Portfolio	Portfolio	Portfolio
Division		Division	Division	Division	Division	Division

$ 10,823,119		$ 5,829,572	$ 75,754,623	$ 684,067,078	$ 158,219,547	$ 55,154,255
	–	–	–	–	–	–
$ 10,823,119		$ 5,829,572	$ 75,754,623	$ 684,067,078	$ 158,219,547	$ 55,154,255



$ –		$ –	$ –	$ –	$ –	$ –
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	34,757	–	–	–
	–	–	–	–	–	–
297,485		109,416	219,209	2,050,781	1,236,191	1,143,983
	88,179	244,963	43,569,019	30,975,448	19,071,745	11,194,624
	62,735	50,821	14,015,083	8,475,314	2,909,435	3,734,979
8,475,965		4,113,980	13,368,602	569,306,104	115,537,655	29,986,714
1,898,755		1,310,392	4,547,953	73,259,431	19,464,521	9,093,955

	–	–	–	–	–	–
	–	–	–	–	–	–
$ 10,823,119		$ 5,829,572	$ 75,754,623	$ 684,067,078	$ 158,219,547	$ 55,154,255

$ 11,563,688		$ 6,091,032	$ 83,541,203	$ 617,605,339	$ 140,139,701	$ 50,123,235
956,951		518,645	5,734,642	45,543,747	13,546,194	3,590,772

	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	12,411	–	–	–
	–	–	–	–	–	–
	28,394	10,500	20,467	196,606	112,749	117,578
	6,995	19,453	1,405,921	3,002,464	1,758,703	1,163,334
	5,170	4,192	480,527	839,829	274,274	396,788
672,400		326,689	431,395	55,182,141	10,654,341	3,116,105
156,469		108,092	155,935	7,259,238	1,834,935	966,077

$ –		$ –	$ –	$ –	$ –	$ –
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	2.80	–	–	–
	–	–	–	–	–	–
	10.48	10.42	10.71	10.43	10.96	9.73
	12.61	12.59	30.99	10.32	10.84	9.62
	12.14	12.12	29.17	10.09	10.61	9.41
	12.61	12.59	30.99	10.32	10.84	9.62
	12.14	12.12	29.17	10.09	10.61	9.41

	–	–	–	–	–	–
	–	–	–	–	–	–

$ –		$ –	$ –	$ –	$ –	$ –
	–	–	–	–	–	–


Principal Life Insurance Company

Separate Account B


Statements of Assets and Liabilities (continued)


December 31, 2010



		SAM	SAM
		Flexible	Strategic
		Income	Growth
		Portfolio	Portfolio
		Division	Division
Assets
Investments in shares of mutual funds, at market	$ 157,634,626		$ 38,640,578
Liabilities		–	–
Net assets	$ 157,634,626		$ 38,640,578

Net assets
Applicable to accumulation units:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		–	–
Principal Freedom Variable Annuity 2		529,454	714,978
The Principal Variable Annuity		25,443,333	8,967,284
The Principal Variable Annuity With Purchase Payment Credit Rider		6,359,547	1,094,692
Principal Investment Plus Variable Annuity		105,889,878	20,560,786
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		19,412,414	7,302,838
Applicable to contracts in annuitization period:
Bankers Flexible Annuity		–	–
Pension Builder Plus – Rollover IRA		–	–
Total net assets	$ 157,634,626		$ 38,640,578

Investments in shares of mutual funds, at cost	$ 144,124,479		$ 33,997,246
Shares of mutual fund owned		12,610,770	2,297,299
Accumulation units outstanding:
Bankers Flexible Annuity		–	–
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		–	–
Principal Freedom Variable Annuity 2		46,524	76,721
The Principal Variable Annuity		2,260,478	972,914
The Principal Variable Annuity With Purchase Payment Credit Rider		577,598	121,418
Principal Investment Plus Variable Annuity		9,407,516	2,230,696
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		1,763,084	809,973
Accumulation unit value:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		–	–
Principal Freedom Variable Annuity 2		11.38	9.32
The Principal Variable Annuity		11.26	9.22
The Principal Variable Annuity With Purchase Payment Credit Rider		11.01	9.02
Principal Investment Plus Variable Annuity		11.26	9.22
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		11.01	9.02
Annuitized units outstanding:
Bankers Flexible Annuity		–	–
Pension Builder Plus – Rollover IRA		–	–
Annuitized unit value:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus – Rollover IRA		–	–
See accompanying notes.


					T. Rowe Price	T. Rowe Price
Short-Term		SmallCap	SmallCap	SmallCap	Blue Chip	Health
Income		Blend	Growth II	Value I	Growth II	Sciences II
Division		Division	Division	Division	Division	Division

$ 161,858,230		$ 35,312,556	$ 31,721,697	$ 86,698,136	$ 6,703,493	$ 6,428,884
	–	–	–	–	–	–
$ 161,858,230		$ 35,312,556	$ 31,721,697	$ 86,698,136	$ 6,703,493	$ 6,428,884



$ –		$ –	$ –	$ –	$ –	$ –
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	100,797	93,125	220,360	–	–
2,445,934		3,072,705	860,290	–	–	–
69,760		109,339	132,992	298,035	–	–
28,371,573		26,314,969	19,597,766	31,145,059	–	–
8,685,839		5,714,746	3,176,514	7,740,972	–	–
96,920,358		–	6,199,578	37,074,428	5,712,112	4,965,363
25,364,766		–	1,661,432	10,219,282	991,381	1,463,521

	–	–	–	–	–	–
	–	–	–	–	–	–
$ 161,858,230		$ 35,312,556	$ 31,721,697	$ 86,698,136	$ 6,703,493	$ 6,428,884

$ 162,693,862		$ 36,047,176	$ 32,885,913	$ 88,543,990	$ 5,254,443	$ 5,338,479
64,485,350		4,249,405	2,839,901	6,412,584	608,302	442,152

	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	79,982	115,210	123,391	–	–
217,376		192,638	89,161	–	–	–
	6,214	11,120	13,431	31,617	–	–
2,542,794		2,114,456	1,853,691	1,394,320	–	–
788,380		487,912	319,257	368,222	–	–
8,686,505		–	586,411	1,659,745	453,029	303,481
2,302,274		–	166,986	486,102	81,689	92,934

$ –		$ –	$ –	$ –	$ –	$ –
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	–	–	–	–	–
	–	1.26	0.81	1.79	–	–
	11.25	15.95	9.65	–	–	–
	11.23	9.83	9.90	9.43	–	–
	11.16	12.45	10.57	22.34	–	–
	11.02	11.71	9.95	21.02	–	–
	11.16	–	10.57	22.34	12.61	16.36
	11.02	–	9.95	21.02	12.14	15.75

	–	–	–	–	–	–
	–	–	–	–	–	–

$ –		$ –	$ –	$ –	$ –	$ –
	–	–	–	–	–	–


Principal Life Insurance Company

Separate Account B


Statements of Assets and Liabilities (continued)


December 31, 2010



			Van Eck
	Templeton		VIP Global
	Growth Securities		Hard Assets
	Class 2		Class
	Division		Division
Assets
Investments in shares of mutual funds, at market	$ 1,200,063		$ 5,397,141
Liabilities		–	–
Net assets	$ 1,200,063		$ 5,397,141

Net assets
Applicable to accumulation units:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		1,200,063	–
Principal Freedom Variable Annuity 2		–	–
The Principal Variable Annuity		–	1,294,121
The Principal Variable Annuity With Purchase Payment Credit Rider		–	99,329
Principal Investment Plus Variable Annuity		–	3,179,240
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		–	824,451
Applicable to contracts in annuitization period:
Bankers Flexible Annuity		–	–
Pension Builder Plus – Rollover IRA		–	–
Total net assets	$ 1,200,063		$ 5,397,141

Investments in shares of mutual funds, at cost	$ 1,323,935		$ 4,481,497
Shares of mutual fund owned		108,998	146,066
Accumulation units outstanding:
Bankers Flexible Annuity		–	–
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		78,783	–
Principal Freedom Variable Annuity 2		–	–
The Principal Variable Annuity		–	77,304
The Principal Variable Annuity With Purchase Payment Credit Rider		–	5,992
Principal Investment Plus Variable Annuity		–	189,912
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		–	49,732
Accumulation unit value:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus		–	–
Pension Builder Plus – Rollover IRA		–	–
Personal Variable		–	–
Premier Variable		–	–
Principal Freedom Variable Annuity		15.23	–
Principal Freedom Variable Annuity 2		–	–
The Principal Variable Annuity		–	16.74
The Principal Variable Annuity With Purchase Payment Credit Rider		–	16.58
Principal Investment Plus Variable Annuity		–	16.74
Principal Investment Plus Variable Annuity with Premium Payment Credit Rider		–	16.58
Annuitized units outstanding:
Bankers Flexible Annuity		–	–
Pension Builder Plus – Rollover IRA		–	–
Annuitized unit value:
Bankers Flexible Annuity	$ –		$ –
Pension Builder Plus – Rollover IRA		–	–
See accompanying notes.


Principal Life Insurance Company
Separate Account B


Statements of Operations (continued)


Year Ended December 31, 2010
			Goldman Sachs
		Goldman Sachs	VIT Structured
		VIT Mid Cap	Small Cap
		Value	Equity Service
		Institutional	Institutional
		Class	Class
		Division	Division
Investment income (loss)
Income:
Dividends	$ 108,518 $		28,387

Expenses:
Mortality and expense risks		203,001	62,021
Separate account rider charges		27,980	7,154
Net investment income (loss)		(122,463)	(40,788)

Realized gains (losses) on investments
Realized gains (losses) on sale of fund shares		(957,236)	(382,309)
Capital gains distributions		–	–
Total realized gains (losses) on investments		(957,236)	(382,309)

Change in net unrealized appreciation or depreciation of
investments		4,428,358	1,656,732
Net increase (decrease) in net assets resulting from operations	$ 3,348,659 $		1,233,635


(1) Commenced operations January 4, 2010.
(2) Represented the operations of Mortgage Securities Division until July 16, 2010 name change.
(3) Represented the operations of AIM V.I. Basic Value Series I Division until May 24, 2010 name change.
(4) Represented the operations of AIM V.I. Capital Appreciation Series I Division until May 24, 2010 name change.
(5) Represented the operations of AIM V.I. Core Equity Series I Division until May 24, 2010 name change.


See accompanying notes.


Principal Life Insurance Company
Separate Account B


Statements of Operations (continued)


Year Ended December 31, 2010



		Invesco V.I.	Invesco V.I.
		Global	International
		Health Care	Growth
		Series I	Series I
		Division (2)	Division (3)
Investment income (loss)
Income:
Dividends	$ – $		95,254

Expenses:
Mortality and expense risks		97,808	47,832
Separate account rider charges		13,210	2,488
Net investment income (loss)		(111,018)	44,934

Realized gains (losses) on investments
Realized gains (losses) on sale of fund shares		(32,163)	185,539
Capital gains distributions		–	–
Total realized gains (losses) on investments		(32,163)	185,539

Change in net unrealized appreciation or depreciation of
investments		378,037	256,168
Net increase (decrease) in net assets resulting from operations	$ 234,856 $		486,641


(1) Represented the operations of AIM V.I. Dynamics Series I Division until May 24, 2010 name change.
(2) Represented the operations of AIM V.I. Global Health Care Series I Division until May 24, 2010 name change.
(3) Represented the operations of AIM V.I. International Growth Series I Division until May 24, 2010 name change.
(4) Represented the operations of AIM V.I. Small Cap Equity Series I Division until May 24, 2010 name change.
(5) Represented the operations of AIM V.I. Technology Series I Division until May 24, 2010 name change.


See accompanying notes.


Principal Life Insurance Company
Separate Account B


Statements of Changes in Net Assets

Years Ended December 31, 2010 and 2009, Except as Noted



		AllianceBernstein
		Small Cap
		Growth
		Class A
		Division
		2010		2009
Increase (decrease) in net assets from
Operations:
Net investment income (loss)	$ (32,578)		$ (20,510)
Total realized gains (losses) on investments		(43,302)		(166,124)
Change in net unrealized appreciation or depreciation of investments		767,397		691,114
Net gains (losses) from investments		691,517		504,480

Payment from Affiliate		–		–

Net increase (decrease) in net assets resulting from operations		691,517		504,480

Changes from principal transactions:
Purchase payments, less sales charges, per payment fees
and applicable premium taxes		1,744,627		637,223
Administration charges		(256)		497
Contingent sales charges		(3,083)		(2,152)
Contract terminations		(89,634)		(55,946)
Death benefit payments		(4,534)		(11,558)
Flexible withdrawal option payments		(10,325)		(8,225)
Transfer payments to other contracts		(563,980)		(379,102)
Annuity payments		–		–
Increase (decrease) in net assets from principal transactions		1,072,815		180,737
Total increase (decrease)		1,764,332		685,217

Net assets at beginning of period		1,901,891		1,216,674
Net assets at end of period	$ 3,666,223		$ 1,901,891


(1) Commenced operations May 24, 2010.




See accompanying notes.


American		American			American
Century VP		Century VP			Century VP
Income &		Inflation			Mid Cap
Growth		Protection			Value
Class I		Class II			Class II
Division		Division			Division (1)
2010	2009	2010		2009	2010


$ 30,551	$567,795	$ 274,438	$ 272,679		$ 3,006
(559,787)	(1,338,661)	760,308		43,812	(47)
2,471,742	3,146,056	1,921,335		5,666,482	35,075
1,942,506	2,375,190	2,956,081		5,982,973	38,034

–	–	–		–	–

1,942,506	2,375,190	2,956,081		5,982,973	38,034



2,490,927	1,803,378	17,801,418		29,497,984	696,229
(2,212)	(2,262)	(524,277)		(488,652)	(13)
(16,767)	(20,716)	(92,960)		(74,695)	(283)
(2,127,392)	(1,647,955)	(2,702,278)		(1,941,779)	(13,165)
(168,246)	(82,851)	(187,696)		(302,585)	–
(248,280)	(269,872)	(1,650,662)		(1,451,541)	(600)
(2,723,918)	(2,524,477)	(10,648,255)		(17,713,331)	(57,435)
–	–	–		–	–
(2,795,888)	(2,744,755)	1,995,290		7,525,401	624,733
(853,382)	(369,565)	4,951,371		13,508,374	662,767

17,506,349	17,875,914	81,192,485		67,684,111	–
$ 16,652,967	$17,506,349	$ 86,143,856	$ 81,192,485		$ 662,767


Principal Life Insurance Company
Separate Account B


Statements of Changes in Net Assets (continued)

Years Ended December 31, 2010 and 2009, Except as Noted




		American
		Century VP
		Ultra® Class I
		Division
		2010		2009
Increase (decrease) in net assets from
Operations:
Net investment income (loss)	$ (42,714)		$ (52,284)
Total realized gains (losses) on investments		(139,841)		(425,458)
Change in net unrealized appreciation or depreciation of investments		796,574		1,738,953
Net gains (losses) from investments		614,019		1,261,211

Payment from Affiliate		–		–

Net increase (decrease) in net assets resulting from operations		614,019		1,261,211

Changes from principal transactions:
Purchase payments, less sales charges, per payment fees
and applicable premium taxes		1,149,863		925,765
Administration charges		(841)		(1,023)
Contingent sales charges		(5,595)		(6,412)
Contract terminations		(719,093)		(455,502)
Death benefit payments		(37,156)		(4,646)
Flexible withdrawal option payments		(72,069)		(65,015)
Transfer payments to other contracts		(1,119,308)		(922,283)
Annuity payments		–		–
Increase (decrease) in net assets from principal transactions		(804,199)		(529,116)
Total increase (decrease)		(190,180)		732,095

Net assets at beginning of period		5,125,570		4,393,475
Net assets at end of period	$ 4,935,390		$ 5,125,570


See accompanying notes.


American		American		American
Century VP		Century VP		Century VP
Ultra® Class II		Value Class II		Vista^SMClass I
Division		Division		Division
2010	2009	2010	2009	2010		2009


$ (590,139)	$(617,522)	$ 147,761	$969,114	$ (34,221)	$ (28,227)
(1,291,484)	(4,150,471)	(1,570,245)	(3,206,329)	(82,651)		(230,776)
10,029,002	19,391,959	4,086,189	6,029,843	603,706		625,969
8,147,379	14,623,966	2,663,705	3,792,628	486,834		366,966

–	–	–	–	–		–

8,147,379	14,623,966	2,663,705	3,792,628	486,834		366,966



5,804,184	4,811,592	2,352,402	2,251,924	616,017		367,636
(415,629)	(406,928)	(5,580)	(6,597)	(1,345)		(676)
(67,912)	(54,064)	(20,686)	(28,544)	(1,926)		(3,306)
(1,974,165)	(1,405,462)	(2,658,393)	(2,027,589)	(55,989)		(85,936)
(167,511)	(246,233)	(97,077)	(108,521)	–		–
(1,056,494)	(924,179)	(306,613)	(300,913)	(11,534)		(13,556)
(7,699,793)	(9,019,277)	(2,659,838)	(3,620,668)	(243,735)		(303,755)
–	–	–	–	–		–
(5,577,320)	(7,244,551)	(3,395,785)	(3,840,908)	301,488		(39,593)
2,570,059	7,379,415	(732,080)	(48,280)	788,322		327,373

56,071,136	48,691,721	25,911,803	25,960,083	2,219,126		1,891,753
$ 58,641,195	$56,071,136	$ 25,179,723	$25,911,803	$ 3,007,448	$ 2,219,126


Principal Life Insurance Company
Separate Account B


Statements of Changes in Net Assets (continued)

Years Ended December 31, 2010 and 2009, Except as Noted




		Asset
		Allocation
		Division
		2010		2009
Increase (decrease) in net assets from
Operations:
Net investment income (loss)	$ 546,815		$ 784,365
Total realized gains (losses) on investments		(564,387)		(2,124,367)
Change in net unrealized appreciation or depreciation of investments		3,577,611		8,962,274
Net gains (losses) from investments		3,560,039		7,622,272

Payment from Affiliate		–		–

Net increase (decrease) in net assets resulting from operations		3,560,039		7,622,272

Changes from principal transactions:
Purchase payments, less sales charges, per payment fees
and applicable premium taxes		4,942,823		7,596,204
Administration charges		(83,203)		(76,439)
Contingent sales charges		(54,824)		(63,498)
Contract terminations		(5,591,832)		(4,262,157)
Death benefit payments		(339,352)		(445,812)
Flexible withdrawal option payments		(950,906)		(1,059,829)
Transfer payments to other contracts		(5,007,308)		(6,959,658)
Annuity payments		–		–
Increase (decrease) in net assets from principal transactions		(7,084,602)		(5,271,189)
Total increase (decrease)		(3,524,563)		2,351,083

Net assets at beginning of period		52,864,573		50,513,490
Net assets at end of period	$ 49,340,010		$ 52,864,573


See accompanying notes.


		Bond &
		Mortgage		Diversified
Balanced		Securities		Balanced
Division		Division		Division (1)
2010	2009	2010	2009	2010


$ 620,571	$1,512,312	$ 9,970,520	$23,605,608	$ (925,807)
(1,449,570)	(3,562,620)	(3,979,942)	(10,699,786)	(35,682)
5,682,855	9,317,827	18,550,473	27,589,155	10,298,567
4,853,856	7,267,519	24,541,051	40,494,977	9,337,078

–	–	–	–	–

4,853,856	7,267,519	24,541,051	40,494,977	9,337,078



3,795,291	3,008,849	44,539,158	40,475,504	167,126,980
(22,795)	(24,230)	(649,923)	(631,491)	(738,034)
(29,820)	(60,865)	(293,973)	(319,042)	(32,632)
(4,726,211)	(5,096,297)	(24,029,631)	(18,561,331)	(948,604)
(461,889)	(419,374)	(1,212,464)	(1,253,313)	(78,615)
(805,584)	(892,954)	(4,920,415)	(4,865,974)	(728,598)
(3,958,501)	(4,705,157)	(35,710,398)	(42,550,343)	(4,215,033)
–	–	–	–	–
(6,209,509)	(8,190,028)	(22,277,646)	(27,705,990)	160,385,464
(1,355,653)	(922,509)	2,263,405	12,788,987	169,722,542

44,052,089	44,974,598	251,405,465	238,616,478	–
$ 42,696,436	$44,052,089	$ 253,668,870	$251,405,465	$ 169,722,542


Principal Life Insurance Company
Separate Account B


Statements of Changes in Net Assets (continued)


Years Ended December 31, 2010 and 2009, Except as Noted




	Diversified	Diversified
	Growth	International
	Division (1)	Division
	2010	2010		2009
Increase (decrease) in net assets from
Operations:
Net investment income (loss)	$ (1,727,767)	$ 1,461,101	$ 5,922,863
Total realized gains (losses) on investments	42,239	(11,854,379)		(13,975,971)
Change in net unrealized appreciation or depreciation of investments	23,450,808	41,204,160		44,023,516
Net gains (losses) from investments	21,765,280	30,810,882		35,970,408

Payment from Affiliate	–	–		1,400,614

Net increase (decrease) in net assets resulting from operations	21,765,280	30,810,882		37,371,022

Changes from principal transactions:
Purchase payments, less sales charges, per payment fees
and applicable premium taxes	308,672,441	83,449,602		27,906,687
Administration charges	(1,339,585)	(175,231)		(135,344)
Contingent sales charges	(28,332)	(198,144)		(195,065)
Contract terminations	(823,586)	(20,853,137)		(13,396,263)
Death benefit payments	(69,056)	(1,040,554)		(682,131)
Flexible withdrawal option payments	(710,047)	(1,965,128)		(1,774,997)
Transfer payments to other contracts	(3,555,065)	(29,125,870)		(23,879,337)
Annuity payments	–	–		–
Increase (decrease) in net assets from principal transactions	302,146,770	30,091,538		(12,156,450)
Total increase (decrease)	323,912,050	60,902,420		25,214,572

Net assets at beginning of period	–	176,753,296		151,538,724
Net assets at end of period	$ 323,912,050	$ 237,655,716	$ 176,753,296


(1) Commenced operations January 4, 2010.




See accompanying notes.


					Fidelity VIP
Dreyfus IP					Equity-Income
Technology Growth		Equity			Service
Service Shares		Income			Class 2
Division		Division			Division
2010	2009	2010		2009	2010		2009


$ (34,885)	$(16,045)	$ 3,059,518	$ 6,450,341		$ 56,628	$ 246,613
157,688	(79,610)	(6,777,325)		(12,322,227)	(2,350,284)		(4,148,510)
524,178	612,753	26,597,775		31,929,448	7,629,950		13,727,220
646,981	517,098	22,879,968		26,057,562	5,336,294		9,825,323

–	–	–		–	–		–

646,981	517,098	22,879,968		26,057,562	5,336,294		9,825,323



2,145,709	1,961,773	16,368,612		24,940,303	5,221,723		5,816,809
(330)	(152)	(957,659)		(921,639)	(10,314)		(9,988)
(3,434)	(1,997)	(185,773)		(164,248)	(41,954)		(42,835)
(99,818)	(51,910)	(7,857,059)		(6,022,332)	(4,069,770)		(2,646,592)
(11,146)	–	(555,275)		(858,200)	(202,074)		(158,526)
(27,264)	(19,668)	(3,011,898)		(2,693,097)	(439,800)		(424,975)
(1,241,259)	(689,693)	(15,540,669)		(20,643,016)	(6,118,493)		(6,006,640)
–	–	–		–	–		–
762,458	1,198,353	(11,739,721)		(6,362,229)	(5,660,682)		(3,472,747)
1,409,439	1,715,451	11,140,247		19,695,333	(324,388)		6,352,576

2,424,974	709,523	162,643,939		142,948,606	44,737,069		38,384,493
$ 3,834,413	$2,424,974	$ 173,784,186	$ 162,643,939		$ 44,412,681	$ 44,737,069


Principal Life Insurance Company
Separate Account B


Statements of Changes in Net Assets (continued)

Years Ended December 31, 2010 and 2009, Except as Noted



		Fidelity VIP
		Growth
		Service
		Class
		Division
		2010		2009
Increase (decrease) in net assets from
Operations:
Net investment income (loss)	$ (205,764)		$ (172,704)
Total realized gains (losses) on investments		(1,002,072)		(2,250,333)
Change in net unrealized appreciation or depreciation of investments		4,712,691		6,257,651
Net gains (losses) from investments		3,504,855		3,834,614

Payment from Affiliate		–		–

Net increase (decrease) in net assets resulting from operations		3,504,855		3,834,614

Changes from principal transactions:
Purchase payments, less sales charges, per payment fees
and applicable premium taxes		2,324,139		2,055,052
Administration charges		(4,773)		(4,184)
Contingent sales charges		(17,504)		(26,299)
Contract terminations		(2,249,538)		(1,868,100)
Death benefit payments		(39,177)		(57,398)
Flexible withdrawal option payments		(176,492)		(175,207)
Transfer payments to other contracts		(2,455,328)		(2,665,191)
Annuity payments		–		–
Increase (decrease) in net assets from principal transactions		(2,618,673)		(2,741,327)
Total increase (decrease)		886,182		1,093,287

Net assets at beginning of period		17,733,739		16,640,452
Net assets at end of period	$ 18,619,921		$ 17,733,739


See accompanying notes.


Fidelity VIP		Fidelity VIP		Fidelity VIP
Growth		Overseas		Contrafund
Service		Service		Service
Class 2		Class 2		Class
Division		Division		Division
2010	2009	2010	2009	2010	2009


$ (92,691)	$(67,930)	$ (66,247)	$224,314	$ (193,143)	$(58,306)
(144,375)	(406,451)	(2,781,420)	(3,702,872)	(2,632,949)	(5,878,582)
1,585,330	1,755,226	8,085,668	12,911,110	11,543,118	22,943,510
1,348,264	1,280,845	5,238,001	9,432,552	8,717,026	17,006,622

–	–	–	–	–	–

1,348,264	1,280,845	5,238,001	9,432,552	8,717,026	17,006,622



1,433,490	787,271	6,719,933	8,913,658	8,638,329	9,189,048
(975)	(728)	(228,818)	(213,855)	(19,698)	(23,142)
(13,930)	(9,697)	(65,891)	(48,344)	(66,908)	(90,727)
(404,935)	(252,078)	(1,915,408)	(1,256,750)	(8,598,547)	(6,444,754)
(6,620)	(51,568)	(178,321)	(250,244)	(211,646)	(291,957)
(19,101)	(15,040)	(623,232)	(553,958)	(763,928)	(852,097)
(786,613)	(542,695)	(6,884,924)	(7,206,063)	(10,382,093)	(10,133,864)
–	–	–	–	–	–
201,316	(84,535)	(3,176,661)	(615,556)	(11,404,491)	(8,647,493)
1,549,580	1,196,310	2,061,340	8,816,996	(2,687,465)	8,359,129

6,438,269	5,241,959	46,197,413	37,380,417	66,028,352	57,669,223
$ 7,987,849 $	6,438,269	$ 48,258,753 $	46,197,413	$ 63,340,887 $	66,028,352


Principal Life Insurance Company
Separate Account B


Statements of Changes in Net Assets (continued)

Years Ended December 31, 2010 and 2009, Except as Noted



		Fidelity VIP
		Contrafund
		Service
		Class 2
		Division
		2010		2009
Increase (decrease) in net assets from
Operations:
Net investment income (loss)	$ (142,296)		$ (37,040)
Total realized gains (losses) on investments		(1,800,418)		(3,922,022)
Change in net unrealized appreciation or depreciation of investments		8,468,091		13,888,919
Net gains (losses) from investments		6,525,377		9,929,857

Payment from Affiliate		–		–

Net increase (decrease) in net assets resulting from operations		6,525,377		9,929,857

Changes from principal transactions:
Purchase payments, less sales charges, per payment fees
and applicable premium taxes		8,804,155		13,945,048
Administration charges		(154,490)		(126,956)
Contingent sales charges		(54,381)		(40,831)
Contract terminations		(1,580,825)		(1,061,440)
Death benefit payments		(112,297)		(53,723)
Flexible withdrawal option payments		(541,390)		(418,219)
Transfer payments to other contracts		(6,184,787)		(9,543,718)
Annuity payments		–		–
Increase (decrease) in net assets from principal transactions		175,985		2,700,161
Total increase (decrease)		6,701,362		12,630,018

Net assets at beginning of period		41,367,396		28,737,378
Net assets at end of period	$ 48,068,758		$ 41,367,396


(1) Commenced operations January 4, 2010.




See accompanying notes.


Fidelity VIP		Franklin	Goldman Sachs
Mid Cap		Small Cap	VIT Mid Cap
Service		Value Securities	Value
Class 2		Class 2	Institutional Class
Division		Division (1)	Division
2010	2009	2010	2010	2009


$ (114,477)	$(53,524)	$ (1,421)	$ (122,463)	$60,019
(70,619)	(695,464)	(3,573)	(957,236)	(1,324,415)
2,481,192	2,625,370	66,500	4,428,358	4,974,063
2,296,096	1,876,382	61,506	3,348,659	3,709,667

–	–	–	–	–

2,296,096	1,876,382	61,506	3,348,659	3,709,667



4,968,450	2,791,365	471,143	2,024,312	1,518,621
(1,311)	(1,225)	(30)	(2,442)	(2,093)
(14,073)	(6,736)	(325)	(26,617)	(20,853)
(409,086)	(175,119)	(9,452)	(773,746)	(542,100)
(18,318)	(4,269)	–	(83,391)	(90,249)
(86,643)	(53,986)	(945)	(109,723)	(105,440)
(1,522,578)	(2,015,920)	(74,595)	(2,897,871)	(1,500,777)
–	–	–	–	–
2,916,441	534,110	385,796	(1,869,478)	(742,891)
5,212,537	2,410,492	447,302	1,479,181	2,966,776

7,571,279	5,160,787	–	15,906,098	12,939,322
$ 12,783,816	$7,571,279	$ 447,302	$ 17,385,279	$15,906,098


Principal Life Insurance Company
Separate Account B


Statements of Changes in Net Assets (continued)

Years Ended December 31, 2010 and 2009, Except as Noted

		Goldman Sachs
		VIT Structured
		Small Cap
		Equity Service
		Institutional Class
		Division
		2010		2009
Increase (decrease) in net assets from
Operations:
Net investment income (loss)	$ (40,788)		$ (3,847)
Total realized gains (losses) on investments		(382,309)		(506,526)
Change in net unrealized appreciation or depreciation of investments		1,656,732		1,344,984
Net gains (losses) from investments		1,233,635		834,611

Payment from Affiliate		–		–

Net increase (decrease) in net assets resulting from operations		1,233,635		834,611

Changes from principal transactions:
Purchase payments, less sales charges, per payment fees
and applicable premium taxes		1,587,957		1,035,644
Administration charges		(340)		(240)
Contingent sales charges		(4,757)		(4,419)
Contract terminations		(138,296)		(114,889)
Death benefit payments		(11,621)		(28,786)
Flexible withdrawal option payments		(36,422)		(30,460)
Transfer payments to other contracts		(1,036,777)		(587,474)
Annuity payments		–		–
Increase (decrease) in net assets from principal transactions		359,744		269,376
Total increase (decrease)		1,593,379		1,103,987

Net assets at beginning of period		4,413,535		3,309,548
Net assets at end of period	$ 6,006,914		$ 4,413,535


(1) Represented the operations of Mortgage Securities Division until July 16, 2010 name change.




See accompanying notes.


Government
& High			International		Invesco V.I.
Quality			Emerging		Basic Value
Bond			Markets		Series I
Division (1)			Division		Division (1)
2010		2009	2010	2009	2010	2009


$ 4,558,366	$ 10,515,508		$ (154,429)	$530,481	$ (28,472)	$19,948
286,309		(3,911,795)	(2,997,495)	(7,529,278)	(286,584)	(391,908)
(4,840,933)		1,430,068	19,109,070	46,845,737	595,238	1,033,694
3,742		8,033,781	15,957,146	39,846,940	280,182	661,734

–		–	–	227,485	–	–

3,742		8,033,781	15,957,146	40,074,425	280,182	661,734



242,212,813		48,967,188	20,410,810	26,921,227	1,321,562	3,293,374
(172,401)		(259,983)	(31,047)	(34,533)	(18,441)	(6,369)
(133,810)		(356,748)	(109,508)	(108,918)	(2,778)	(1,121)
(13,446,110)		(22,658,992)	(8,937,298)	(6,250,338)	(80,750)	(29,143)
(560,683)		(1,856,753)	(297,642)	(245,306)	–	–
(2,494,705)		(5,647,970)	(753,763)	(681,082)	(36,929)	(20,178)
(21,213,328)		(54,153,629)	(20,826,156)	(18,603,895)	(695,324)	(1,209,853)
–		–	–	–	–	–
204,191,776		(35,966,887)	(10,544,604)	997,155	487,340	2,026,710
204,195,518		(27,933,106)	5,412,542	41,071,580	767,522	2,688,444

12,511,127		237,196,678	103,506,306	62,434,726	3,530,464	842,020
$ 216,706,645	$ 209,263,572		$ 108,918,848	$103,506,306	$ 4,297,986	$3,530,464


Principal Life Insurance Company
Separate Account B


Statements of Changes in Net Assets (continued)


Years Ended December 31, 2010 and 2009, Except as Noted



		Invesco V.I.
		Capital
		Appreciation
		Series I
		Division (2)
		2010		2009
Increase (decrease) in net assets from
Operations:
Net investment income (loss)	$ (33,140)		$ (39,565)
Total realized gains (losses) on investments		(334,552)		(676,702)
Change in net unrealized appreciation or depreciation of investments		1,119,430		1,709,991
Net gains (losses) from investments		751,738		993,724

Payment from Affiliate		–		–

Net increase (decrease) in net assets resulting from operations		751,738		993,724

Changes from principal transactions:
Purchase payments, less sales charges, per payment fees
and applicable premium taxes		601,321		872,366
Administration charges		(1,708)		(1,974)
Contingent sales charges		(5,723)		(9,975)
Contract terminations		(735,478)		(708,562)
Death benefit payments		(53,857)		(71,879)
Flexible withdrawal option payments		(80,141)		(88,229)
Transfer payments to other contracts		(639,019)		(935,570)
Annuity payments		–		–
Increase (decrease) in net assets from principal transactions		(914,605)		(943,823)
Total increase (decrease)		(162,867)		49,901

Net assets at beginning of period		6,191,048		6,141,147
Net assets at end of period	$ 6,028,181		$ 6,191,048


(1) Represented the operations of AIM V.I. Basic Value Series I Division until May 24, 2010 name change.
(2) Represented the operations of AIM V.I. Capital Appreciation Series I Division until May 24, 2010 name change.
(3) Represented the operations of AIM V.I. Core Equity Series I Division until May 24, 2010 name change.
(4) Represented the operations of AIM V.I. Dynamics Series I Division until May 24, 2010 name change.


See accompanying notes.


				Invesco V.I.
Invesco V.I.		Invesco V.I.		Global
Core Equity		Dynamics		Health Care
Series I		Series I		Series I
Division (3)		Division (4)		Division (1)
2010	2009	2010	2009	2010	2009


$ (112,698)	$121,432	$ (37,357)	$(30,869)	$ (111,018)	$(90,476)
(112,947)	(1,517,994)	(44,243)	(134,599)	(32,163)	(442,399)
2,312,679	8,101,356	546,285	855,375	378,037	2,350,276
2,087,034	6,704,794	464,685	689,907	234,856	1,817,401

–	–	–	–	–	–

2,087,034	6,704,794	464,685	689,907	234,856	1,817,401



3,950,956	3,505,455	767,960	402,387	1,458,804	1,239,351
(10,108)	(15,645)	(403)	(274)	(2,259)	(3,225)
(34,569)	(49,692)	(1,203)	(1,450)	(8,394)	(12,526)
(4,442,592)	(3,529,853)	(154,573)	(102,974)	(1,078,737)	(889,779)
(192,129)	(207,348)	(1,564)	–	(14,101)	(65,830)
(453,455)	(516,173)	(35,318)	(27,877)	(105,223)	(99,921)
(4,708,330)	(4,455,884)	(765,295)	(291,792)	(1,817,706)	(1,735,382)
–	–	–	–	–	–
(5,890,227)	(5,269,140)	(190,396)	(21,980)	(1,567,616)	(1,567,312)
(3,803,193)	1,435,654	274,289	667,927	(1,332,760)	250,089

31,520,243	30,084,589	2,467,745	1,799,818	8,655,471	8,405,382
$ 27,717,050	$31,520,243	$ 2,742,034	$2,467,745	$ 7,322,711	$8,655,471


Principal Life Insurance Company
Separate Account B


Statements of Changes in Net Assets (continued)

Years Ended December 31, 2010 and 2009, Except as Noted



		Invesco V.I.
		International
		Growth
		Series I
		Division (2)
		2010		2009
Increase (decrease) in net assets from
Operations:
Net investment income (loss)	$ 44,934		$ 21,905
Total realized gains (losses) on investments		185,539		45,012
Change in net unrealized appreciation or depreciation of investments		256,168		300,228
Net gains (losses) from investments		486,641		367,145

Payment from Affiliate		–		–

Net increase (decrease) in net assets resulting from operations		486,641		367,145

Changes from principal transactions:
Purchase payments, less sales charges, per payment fees
and applicable premium taxes		2,100,832		3,315,133
Administration charges		(22,621)		(7,154)
Contingent sales charges		(2,623)		(670)
Contract terminations		(76,253)		(17,430)
Death benefit payments		(11,194)		–
Flexible withdrawal option payments		(13,032)		(3,233)
Transfer payments to other contracts		(1,162,177)		(522,784)
Annuity payments		–		–
Increase (decrease) in net assets from principal transactions		812,932		2,763,862
Total increase (decrease)		1,299,573		3,131,007

Net assets at beginning of period		3,242,642		111,635
Net assets at end of period	$ 4,542,215		$ 3,242,642


(1) Represented the operations of AIM V.I. Global Health Care Series I Division until May 24, 2010 name change.
(2) Represented the operations of AIM V.I. International Growth Series I Division until May 24, 2010 name change.
(3) Represented the operations of AIM V.I. Small Cap Equity Series I Division until May 24, 2010 name change.
(4) Represented the operations of AIM V.I. Technology Series I Division until May 24, 2010 name change.


See accompanying notes.


Invesco V.I.
Small Cap		Invesco V.I.		Janus Aspen
Equity		Technology		Enterprise
Series I		Series I		Service Shares
Division (3)		Division (4)		Division
2010	2009	2010	2009	2010	2009


$ (90,255)	$(52,729)	$ (70,243)	$(58,165)	$ (158,635)	$(151,366)
(163,779)	(493,994)	169,058	(265,623)	533,965	(266,512)
1,783,127	1,327,760	669,793	2,049,011	2,130,642	4,221,108
1,529,093	781,037	768,608	1,725,223	2,505,972	3,803,230

–	–	–	–	–	–

1,529,093	781,037	768,608	1,725,223	2,505,972	3,803,230



3,095,836	2,112,745	1,232,579	2,772,736	2,686,021	2,939,018
(10,507)	(4,196)	(788)	(800)	(4,956)	(4,600)
(7,990)	(6,954)	(4,092)	(6,207)	(13,858)	(20,597)
(607,474)	(385,147)	(525,819)	(440,936)	(1,780,881)	(1,463,064)
–	(2,057)	(12,279)	(2,564)	(44,331)	(33,604)
(58,290)	(49,723)	(58,983)	(54,851)	(119,025)	(103,710)
(2,078,242)	(856,179)	(1,806,368)	(1,402,634)	(3,046,261)	(2,644,969)
–	–	–	–	–	–
333,333	808,489	(1,175,750)	864,744	(2,323,291)	(1,331,526)
1,862,426	1,589,526	(407,142)	2,589,967	182,681	2,471,704

5,661,780	4,072,254	5,387,926	2,797,959	12,455,300	9,983,596
$ 7,524,206	$5,661,780	$ 4,980,784	$5,387,926	$ 12,637,981	$12,455,300


Principal Life Insurance Company
Separate Account B


Statements of Changes in Net Assets (continued)

Years Ended December 31, 2010 and 2009, Except as Noted




		LargeCap
		Blend II
		Division
		2010		2009
Increase (decrease) in net assets from
Operations:
Net investment income (loss)	$ 1,577,002		$ 627,062
Total realized gains (losses) on investments		(13,547,114)		(18,529,982)
Change in net unrealized appreciation or depreciation of investments		29,104,152		53,189,814
Net gains (losses) from investments		17,134,040		35,286,894

Payment from Affiliate		–		–

Net increase (decrease) in net assets resulting from operations		17,134,040		35,286,894

Changes from principal transactions:
Purchase payments, less sales charges, per payment fees
and applicable premium taxes		13,666,603		15,531,306
Administration charges		(513,440)		(494,973)
Contingent sales charges		(168,175)		(160,666)
Contract terminations		(10,228,041)		(6,903,254)
Death benefit payments		(596,049)		(549,741)
Flexible withdrawal option payments		(2,175,126)		(2,070,360)
Transfer payments to other contracts		(18,994,330)		(20,208,857)
Annuity payments		–		–
Increase (decrease) in net assets from principal transactions		(19,008,558)		(14,856,545)
Total increase (decrease)		(1,874,518)		20,430,349

Net assets at beginning of period		159,053,183		138,622,834
Net assets at end of period	$ 157,178,665		$ 159,053,183


See accompanying notes.


LargeCap		LargeCap		LargeCap
Growth		Growth I		S&P 500 Index
Division		Division		Division
2010	2009	2010	2009	2010		2009


$ (671,425)	$(249,736)	$ (1,337,102)	$(1,315,070)	$ 93,979	$ 2,638,665
(1,742,652)	(4,338,986)	1,092,996	(5,247,795)	(1,594,164)		(5,206,106)
11,215,610	16,423,590	18,663,714	47,815,801	12,961,305		21,526,447
8,801,533	11,834,868	18,419,608	41,252,936	11,461,120		18,959,006

–	–	–	–	–		–

8,801,533	11,834,868	18,419,608	41,252,936	11,461,120		18,959,006



7,251,506	10,816,058	11,784,858	14,510,734	13,879,610		20,108,044
(42,808)	(30,632)	(49,859)	(55,033)	(88,023)		(75,090)
(63,449)	(68,840)	(116,292)	(148,786)	(101,014)		(103,986)
(7,830,935)	(5,744,258)	(13,903,485)	(10,502,632)	(9,600,569)		(7,299,942)
(304,349)	(283,667)	(527,879)	(388,950)	(434,663)		(301,693)
(838,589)	(862,829)	(1,263,671)	(1,262,028)	(1,275,326)		(1,185,059)
(6,774,576)	(6,468,722)	(16,245,613)	(14,443,115)	(13,228,319)		(16,218,037)
–	–	–	–	–		–
(8,603,200)	(2,642,890)	(20,321,941)	(12,289,810)	(10,848,304)		(5,075,763)
198,333	9,191,978	(1,902,333)	28,963,126	612,816		13,883,243

58,964,306	49,772,328	118,872,817	89,909,691	96,031,039		82,147,796
$ 59,162,639	$58,964,306	$ 116,970,484	$118,872,817	$ 96,643,855	$ 96,031,039


Principal Life Insurance Company
Separate Account B


Statements of Changes in Net Assets (continued)

Years Ended December 31, 2010 and 2009, Except as Noted




		LargeCap
		Value
		Division
		2010		2009
Increase (decrease) in net assets from
Operations:
Net investment income (loss)	$ 486,594		$ 3,407,443
Total realized gains (losses) on investments		(7,684,280)		(11,114,027)
Change in net unrealized appreciation or depreciation of investments		18,508,724		20,128,881
Net gains (losses) from investments		11,311,038		12,422,297

Payment from Affiliate		–		–

Net increase (decrease) in net assets resulting from operations		11,311,038		12,422,297

Changes from principal transactions:
Purchase payments, less sales charges, per payment fees
and applicable premium taxes		9,204,068		11,026,669
Administration charges		(91,018)		(81,254)
Contingent sales charges		(80,753)		(96,595)
Contract terminations		(10,782,779)		(9,080,750)
Death benefit payments		(578,550)		(476,724)
Flexible withdrawal option payments		(1,450,105)		(1,492,304)
Transfer payments to other contracts		(9,169,429)		(10,343,707)
Annuity payments		–		(12,850)
Increase (decrease) in net assets from principal transactions		(12,948,566)		(10,557,515)
Total increase (decrease)		(1,637,528)		1,864,782

Net assets at beginning of period		99,153,018		97,288,236
Net assets at end of period	$ 97,515,490		$ 99,153,018


(1) Commenced operations May 18, 2009.




See accompanying notes.


			MFS® VIT			MFS® VIT
LargeCap			Utilities			Value
Value III			Service Class			Service Class
Division			Division (1)			Division (1)
2010		2009	2010		2009	2010		2009


$ 450,497	$ 2,614,336		$ 8,334	$ (1,958)		$ (1,691)	$ (1,318)
(7,283,917)		(10,525,317)	74,067		1,718	14,171		322
20,429,154		28,295,999	106,217		34,374	81,718		16,481
13,595,734		20,385,018	188,618		34,134	94,198		15,485

–		–	–		–	–		–

13,595,734		20,385,018	188,618		34,134	94,198		15,485



11,277,960		18,684,348	1,454,362		567,866	1,114,778		453,116
(457,465)		(432,107)	(51)		(14)	–		–
(137,010)		(132,166)	(1,490)		(195)	(3,630)		–
(8,260,591)		(5,630,936)	(43,320)		(5,068)	(105,523)		–
(485,794)		(662,047)	(9,885)		–	–		–
(1,825,716)		(1,674,043)	(7,586)		(860)	(14,598)		(1,110)
(15,364,407)		(15,358,813)	(554,814)		(2,363)	(93,310)		(217)
–		–	–		–	–		–
(15,253,023)		(5,205,764)	837,216		559,366	897,717		451,789
(1,657,289)		15,179,254	1,025,834		593,500	991,915		467,274

128,180,205		113,000,951	593,500		–	467,274		–
$ 126,522,916	$ 128,180,205		$ 1,619,334	$ 593,500		$ 1,459,189	$ 467,274


Principal Life Insurance Company
Separate Account B


Statements of Changes in Net Assets (continued)

Years Ended December 31, 2010 and 2009, Except as Noted




		MidCap
		Blend
		Division
		2010		2009
Increase (decrease) in net assets from
Operations:
Net investment income (loss)	$ 3,923,322		$ (1,023,661)
Total realized gains (losses) on investments		(2,886,295)		(2,729,529)
Change in net unrealized appreciation or depreciation of investments		69,136,060		64,122,590
Net gains (losses) from investments		70,173,087		60,369,400

Payment from Affiliate		–		–

Net increase (decrease) in net assets resulting from operations		70,173,087		60,369,400

Changes from principal transactions:
Purchase payments, less sales charges, per payment fees
and applicable premium taxes		137,908,371		26,474,039
Administration charges		(520,593)		(379,083)
Contingent sales charges		(302,627)		(279,436)
Contract terminations		(29,584,893)		(18,592,252)
Death benefit payments		(1,349,068)		(1,162,401)
Flexible withdrawal option payments		(3,903,130)		(3,113,784)
Transfer payments to other contracts		(38,873,256)		(29,620,513)
Annuity payments		–		–
Increase (decrease) in net assets from principal transactions		63,374,804		(26,673,430)
Total increase (decrease)		133,547,891		33,695,970

Net assets at beginning of period		245,427,397		211,731,427
Net assets at end of period	$ 378,975,288		$ 245,427,397


(1) Commenced operations May 18, 2009.




See accompanying notes.


		Neuberger		Neuberger
		Berman AMT		Berman AMT
Money		Partners		Small-Cap Growth
Market		I Class		S Class
Division		Division		Division
2010	2009	2010	2009	2010	2009


$ (1,729,480)	$(2,303,892)	$ (41,746)	$51,782	$ (41,272)	$(31,528)
–	–	(1,249,499)	(678,472)	(127,142)	(182,188)
–	–	1,843,911	2,281,197	662,737	656,221
(1,729,480)	(2,303,892)	552,666	1,654,507	494,323	442,505

–	–	–	–	–	–

(1,729,480)	(2,303,892)	552,666	1,654,507	494,323	442,505



86,669,046	140,034,568	1,308,429	1,866,255	455,558	743,271
(94,360)	(126,906)	(1,956)	(2,685)	(4,470)	(1,993)
(367,729)	(839,531)	(5,883)	(10,700)	(5,416)	(3,107)
(35,749,865)	(53,581,426)	(171,004)	(278,158)	(157,437)	(80,767)
(728,322)	(1,224,123)	(2,470)	(13,454)	(1,008)	(25,615)
(3,831,014)	(6,391,469)	(55,110)	(58,279)	(8,447)	(6,871)
(93,753,335)	(155,305,962)	(1,692,597)	(1,453,347)	(342,299)	(248,380)
–	–	–	–	–	–
(47,855,579)	(77,434,849)	(620,591)	49,632	(63,519)	376,538
(49,585,059)	(79,738,741)	(67,925)	1,704,139	430,804	819,043

164,648,786	244,387,527	5,363,788	3,659,649	2,780,445	1,961,402
$ 115,063,727	$164,648,786	$ 5,295,863	$5,363,788	$ 3,211,249	$2,780,445


Principal Life Insurance Company
Separate Account B


Statements of Changes in Net Assets (continued)

Years Ended December 31, 2010 and 2009, Except as Noted

		Neuberger
		Berman AMT
		Socially
		Responsive
		I Class
		Division
		2010		2009
Increase (decrease) in net assets from
Operations:
Net investment income (loss)	$ (78,264)		$ 39,387
Total realized gains (losses) on investments		(167,982)		(486,365)
Change in net unrealized appreciation or depreciation of investments		1,421,819		1,485,733
Net gains (losses) from investments		1,175,573		1,038,755

Payment from Affiliate		–		–

Net increase (decrease) in net assets resulting from operations		1,175,573		1,038,755

Changes from principal transactions:
Purchase payments, less sales charges, per payment fees
and applicable premium taxes		1,210,736		2,069,639
Administration charges		(31,739)		(22,192)
Contingent sales charges		(4,547)		(2,931)
Contract terminations		(132,176)		(76,199)
Death benefit payments		–		(12,311)
Flexible withdrawal option payments		(71,618)		(53,576)
Transfer payments to other contracts		(1,110,916)		(1,171,851)
Annuity payments		–		–
Increase (decrease) in net assets from principal transactions		(140,260)		730,579
Total increase (decrease)		1,035,313		1,769,334

Net assets at beginning of period		5,324,126		3,554,792
Net assets at end of period	$ 6,359,439		$ 5,324,126


(1) Commenced operations May 18, 2009.
(2) Commenced operations January 4, 2010.



See accompanying notes.


Principal Life Insurance Company
Separate Account B


Statements of Changes in Net Assets (continued)


Years Ended December 31, 2010 and 2009, Except as Noted




		Principal
		Capital
		Appreciation
		Division
		2010		2009
Increase (decrease) in net assets from
Operations:
Net investment income (loss)	$ 24,228		$ 9,333
Total realized gains (losses) on investments		15,974		(229,646)
Change in net unrealized appreciation or depreciation of investments		811,449		1,068,023
Net gains (losses) from investments		851,651		847,710

Payment from Affiliate		–		–

Net increase (decrease) in net assets resulting from operations		851,651		847,710

Changes from principal transactions:
Purchase payments, less sales charges, per payment fees
and applicable premium taxes		3,157,804		2,422,377
Administration charges		(858)		(753)
Contingent sales charges		(8,347)		(10,329)
Contract terminations		(246,490)		(268,506)
Death benefit payments		–		(100)
Flexible withdrawal option payments		(26,256)		(12,075)
Transfer payments to other contracts		(931,611)		(388,291)
Annuity payments		–		–
Increase (decrease) in net assets from principal transactions		1,944,242		1,742,323
Total increase (decrease)		2,795,893		2,590,033

Net assets at beginning of period		4,670,335		2,080,302
Net assets at end of period	$ 7,466,228		$ 4,670,335


(1) Commenced operations May 18, 2009.




See accompanying notes.


Principal
LifeTime		Principal		Principal
Strategic		LifeTime		LifeTime
Income		2010		2020
Division		Division		Division
2010	2009	2010	2009	2010	2009


$ 805,291	$707,519	$ 1,167,031	$957,606	$ 4,074,038	$2,805,156
(455,593)	(961,835)	(759,757)	(2,170,048)	(3,236,673)	(6,294,996)
1,786,753	3,352,920	4,249,324	8,075,389	20,442,319	35,355,976
2,136,451	3,098,604	4,656,598	6,862,947	21,279,684	31,866,136

–	–	–	–	–	–

2,136,451	3,098,604	4,656,598	6,862,947	21,279,684	31,866,136



4,474,233	7,079,955	2,567,643	6,483,192	9,908,242	25,585,481
(88,223)	(74,647)	(197,749)	(176,812)	(1,087,442)	(976,324)
(30,608)	(37,285)	(33,120)	(41,009)	(162,896)	(127,952)
(1,007,706)	(1,369,806)	(1,221,518)	(1,276,749)	(5,377,594)	(3,745,649)
(47,121)	(56,790)	(41,596)	(138,742)	(69,931)	(126,371)
(796,060)	(679,028)	(776,295)	(602,008)	(2,035,658)	(1,574,066)
(1,776,834)	(2,991,096)	(1,728,939)	(3,426,459)	(6,729,623)	(9,905,324)
–	–	–	–	–	–
727,681	1,871,303	(1,431,574)	821,413	(5,554,902)	9,129,795
2,864,132	4,969,907	3,225,024	7,684,360	15,724,782	40,995,931

21,415,422	16,445,515	37,829,730	30,145,370	160,531,441	119,535,510
$ 24,279,554	$21,415,422	$ 41,054,754	$37,829,730	$ 176,256,223	$160,531,441


Principal Life Insurance Company
Separate Account B


Statements of Changes in Net Assets (continued)

Years Ended December 31, 2010 and 2009, Except as Noted




		Principal
		LifeTime
		2030
		Division
		2010		2009
Increase (decrease) in net assets from
Operations:
Net investment income (loss)	$ 538,996		$ 153,699
Total realized gains (losses) on investments		(671,448)		(1,423,054)
Change in net unrealized appreciation or depreciation of investments		7,680,659		9,452,110
Net gains (losses) from investments		7,548,207		8,182,755

Payment from Affiliate		–		–

Net increase (decrease) in net assets resulting from operations		7,548,207		8,182,755

Changes from principal transactions:
Purchase payments, less sales charges, per payment fees
and applicable premium taxes		9,586,592		28,666,861
Administration charges		(308,795)		(131,539)
Contingent sales charges		(52,401)		(31,211)
Contract terminations		(1,732,840)		(1,083,295)
Death benefit payments		(288,089)		(236,074)
Flexible withdrawal option payments		(301,447)		(135,640)
Transfer payments to other contracts		(2,677,074)		(2,974,993)
Annuity payments		–		–
Increase (decrease) in net assets from principal transactions		4,225,946		24,074,109
Total increase (decrease)		11,774,153		32,256,864

Net assets at beginning of period		51,252,035		18,995,171
Net assets at end of period	$ 63,026,188		$ 51,252,035


See accompanying notes.


Principal			Principal
LifeTime			LifeTime			Real Estate
2040			2050			Securities
Division			Division			Division
2010		2009	2010		2009	2010	2009


$ 79,228	$ 95,589		$ 38,758	$ 39,632		$ 1,157,863	$1,626,108
(226,962)		(807,702)	(178,133)		(374,623)	(5,161,508)	(9,695,036)
1,432,053		2,436,867	885,658		1,361,523	19,836,091	23,372,325
1,284,319		1,724,754	746,283		1,026,532	15,832,446	15,303,397

–		–	–		–	–	–

1,284,319		1,724,754	746,283		1,026,532	15,832,446	15,303,397



2,263,592		776,432	957,796		825,814	14,149,521	10,938,745
(5,625)		(6,005)	(4,071)		(4,062)	(36,482)	(23,572)
(13,978)		(19,433)	(16,913)		(10,620)	(80,722)	(85,282)
(458,866)		(569,704)	(538,020)		(301,320)	(8,365,048)	(5,056,623)
(7,889)		(7,779)	(11,877)		(16,907)	(214,808)	(233,554)
(34,805)		(37,684)	(13,389)		(7,062)	(842,153)	(769,249)
(370,490)		(815,493)	(308,448)		(350,586)	(16,962,039)	(11,856,556)
–		–	–		–	–	–
1,371,939		(679,666)	65,078		135,257	(12,351,731)	(7,086,091)
2,656,258		1,045,088	811,361		1,161,789	3,480,715	8,217,306

8,166,861		7,121,773	5,018,211		3,856,422	72,273,908	64,056,602
$ 10,823,119	$ 8,166,861		$ 5,829,572	$ 5,018,211		$ 75,754,623	$72,273,908


Principal Life Insurance Company
Separate Account B


Statements of Changes in Net Assets (continued)

Years Ended December 31, 2010 and 2009, Except as Noted




		SAM
		Balanced
		Portfolio
		Division
		2010		2009
Increase (decrease) in net assets from
Operations:
Net investment income (loss)	$ 14,217,125		$ 9,286,184
Total realized gains (losses) on investments		(5,504,356)		8,364,614
Change in net unrealized appreciation or depreciation of investments		63,623,656		70,590,554
Net gains (losses) from investments		72,336,425		88,241,352

Payment from Affiliate		–		–

Net increase (decrease) in net assets resulting from operations		72,336,425		88,241,352

Changes from principal transactions:
Purchase payments, less sales charges, per payment fees
and applicable premium taxes		105,433,533		300,122,353
Administration charges		(4,193,350)		(2,566,950)
Contingent sales charges		(605,894)		(316,041)
Contract terminations		(22,919,907)		(10,193,525)
Death benefit payments		(2,466,521)		(989,664)
Flexible withdrawal option payments		(6,491,146)		(3,735,981)
Transfer payments to other contracts		(34,379,465)		(22,535,030)
Annuity payments		–		–
Increase (decrease) in net assets from principal transactions		34,377,250		259,785,162
Total increase (decrease)		106,713,675		348,026,514

Net assets at beginning of period		577,353,403		229,326,889
Net assets at end of period	$ 684,067,078		$ 577,353,403


See accompanying notes.


SAM		SAM		SAM
Conservative		Conservative		Flexible
Balanced		Growth		Income
Portfolio		Portfolio		Portfolio
Division		Division		Division
2010	2009	2010	2009	2010		2009


$ 4,391,541	$1,776,281	$ 797,094	$1,159,295	$ 5,717,476	$ 3,054,285
(4,727)	(499,621)	(2,452,442)	(571,701)	213,477		(1,515,430)
10,201,352	18,357,269	7,763,703	7,205,836	6,898,055		15,170,884
14,588,166	19,633,929	6,108,355	7,793,430	12,829,008		16,709,739

–	–	–	–	–		–

14,588,166	19,633,929	6,108,355	7,793,430	12,829,008		16,709,739



37,006,244	79,447,152	18,558,887	19,074,680	48,817,423		79,992,452
(764,225)	(526,866)	(12,646)	(10,488)	(631,403)		(424,123)
(263,131)	(70,890)	(45,962)	(51,719)	(182,162)		(103,063)
(10,891,423)	(2,830,493)	(2,398,833)	(1,684,947)	(9,949,963)		(4,188,488)
(1,294,773)	(708,418)	(69,613)	(56,840)	(1,027,852)		(308,853)
(2,128,515)	(1,547,890)	(317,659)	(197,284)	(2,799,113)		(1,977,476)
(16,681,359)	(14,892,253)	(8,274,489)	(5,754,212)	(18,100,938)		(27,390,453)
–	–	–	–	–		–
4,982,818	58,870,342	7,439,685	11,319,190	16,125,992		45,599,996
19,570,984	78,504,271	13,548,040	19,112,620	28,955,000		62,309,735

138,648,563	60,144,292	41,606,215	22,493,595	128,679,626		66,369,891
$ 158,219,547	$138,648,563	$ 55,154,255	$41,606,215	$ 157,634,626	$ 128,679,626


Principal Life Insurance Company
Separate Account B


Statements of Changes in Net Assets (continued)

Years Ended December 31, 2010 and 2009, Except as Noted



		SAM
		Strategic
		Growth
		Portfolio
		Division
		2010		2009
Increase (decrease) in net assets from
Operations:
Net investment income (loss)	$ 361,862		$ 534,685
Total realized gains (losses) on investments		(1,635,575)		(1,869,905)
Change in net unrealized appreciation or depreciation of investments		5,934,583		7,394,328
Net gains (losses) from investments		4,660,870		6,059,108

Payment from Affiliate		–		–

Net increase (decrease) in net assets resulting from operations		4,660,870		6,059,108

Changes from principal transactions:
Purchase payments, less sales charges, per payment fees
and applicable premium taxes		11,294,806		12,997,019
Administration charges		(9,853)		(8,327)
Contingent sales charges		(29,628)		(30,904)
Contract terminations		(1,432,845)		(1,030,461)
Death benefit payments		(22,366)		(162,037)
Flexible withdrawal option payments		(194,346)		(154,185)
Transfer payments to other contracts		(5,795,059)		(3,839,826)
Annuity payments		–		–
Increase (decrease) in net assets from principal transactions		3,810,709		7,771,279
Total increase (decrease)		8,471,579		13,830,387

Net assets at beginning of period		30,168,999		16,338,612
Net assets at end of period	$ 38,640,578		$ 30,168,999


See accompanying notes.


Short-Term			SmallCap		SmallCap
Income			Blend		Growth II
Division			Division		Division
2010		2009	2010	2009	2010	2009


$ 1,565,188	$ 732,443		$ (276,862)	$(187,424)	$ (379,812)	$(334,253)
796,722		36,022	(1,287,973)	(3,234,069)	(1,702,840)	(2,980,114)
(808,306)		(27,169)	8,337,628	8,913,069	8,475,160	9,861,828
1,553,604		741,296	6,772,793	5,491,576	6,392,508	6,547,461

–		–	–	–	–	–

1,553,604		741,296	6,772,793	5,491,576	6,392,508	6,547,461



183,643,483		27,914,538	4,255,523	3,891,119	4,265,934	3,973,681
(419,629)		(41,399)	(6,109)	(5,822)	(4,281)	(4,289)
(137,473)		(14,072)	(30,986)	(40,202)	(30,774)	(33,592)
(8,429,971)		(777,339)	(4,078,772)	(3,040,478)	(3,151,206)	(2,248,330)
(511,778)		(25,848)	(189,643)	(101,640)	(88,360)	(156,453)
(2,307,768)		(171,549)	(464,462)	(481,547)	(275,807)	(257,904)
(35,083,408)		(4,335,776)	(4,774,757)	(4,385,188)	(4,061,503)	(3,200,018)
–		–	–	–	–	–
136,753,456		22,548,555	(5,289,206)	(4,163,758)	(3,345,997)	(1,926,905)
138,307,060		23,289,851	1,483,587	1,327,818	3,046,511	4,620,556

23,551,170		261,319	33,828,969	32,501,151	28,675,186	24,054,630
$ 161,858,230	$ 23,551,170		$ 35,312,556	$33,828,969	$ 31,721,697	$28,675,186


Principal Life Insurance Company
Separate Account B


Statements of Changes in Net Assets (continued)

Years Ended December 31, 2010 and 2009, Except as Noted




		SmallCap
		Value I
		Division
		2010		2009
Increase (decrease) in net assets from
Operations:
Net investment income (loss)	$ (447,870)		$ 624,402
Total realized gains (losses) on investments		(4,331,528)		(7,979,980)
Change in net unrealized appreciation or depreciation of investments		22,956,837		17,927,225
Net gains (losses) from investments		18,177,439		10,571,647

Payment from Affiliate		–		–

Net increase (decrease) in net assets resulting from operations		18,177,439		10,571,647

Changes from principal transactions:
Purchase payments, less sales charges, per payment fees
and applicable premium taxes		10,555,133		14,066,914
Administration charges		(239,766)		(225,382)
Contingent sales charges		(90,296)		(92,958)
Contract terminations		(6,737,765)		(4,955,267)
Death benefit payments		(332,649)		(290,611)
Flexible withdrawal option payments		(1,045,657)		(972,043)
Transfer payments to other contracts		(14,220,207)		(12,096,755)
Annuity payments		–		–
Increase (decrease) in net assets from principal transactions		(12,111,207)		(4,566,102)
Total increase (decrease)		6,066,232		6,005,545

Net assets at beginning of period		80,631,904		74,626,359
Net assets at end of period	$ 86,698,136		$ 80,631,904


See accompanying notes.


T. Rowe Price		T. Rowe Price			Templeton
Blue Chip		Health			Growth Securities
Growth II		Sciences II			Class 2
Division		Division			Division
2010	2009	2010		2009	2010	2009


$ (77,481)	$(36,101)	$ (75,034)	$ (57,301)		$ 6,421	$25,874
(2,990)	(113,736)	53,728		(215,091)	(57,415)	(126,785)
989,068	1,079,077	775,129		1,376,826	115,557	399,572
908,597	929,240	753,823		1,104,434	64,563	298,661

–	–	–		–	–	–

908,597	929,240	753,823		1,104,434	64,563	298,661



2,224,032	4,043,942	1,757,262		1,763,044	31,844	66,181
(26,186)	(10,208)	(17,383)		(15,729)	–	–
(5,884)	(3,884)	(5,727)		(5,252)	(1,184)	(566)
(171,052)	(100,966)	(166,476)		(136,520)	(139,212)	(101,160)
(9,282)	(3,440)	(505)		(1,801)	(15,881)	(1,386)
(69,273)	(19,803)	(56,228)		(59,291)	(13,131)	(13,106)
(1,148,604)	(1,111,322)	(704,582)		(1,516,653)	(42,253)	(91,497)
–	–	–		–	–	–
793,751	2,794,319	806,361		27,798	(179,817)	(141,534)
1,702,348	3,723,559	1,560,184		1,132,232	(115,254)	157,127

5,001,145	1,277,586	4,868,700		3,736,468	1,315,317	1,158,190
$ 6,703,493	$5,001,145	$ 6,428,884	$ 4,868,700		$ 1,200,063	$1,315,317


Principal Life Insurance Company
Separate Account B


Statements of Changes in Net Assets (continued)

Years Ended December 31, 2010 and 2009, Except as Noted



		Van Eck
		VIP Global
		Hard Assets
		Class
		Division (1)
		2010		2009
Increase (decrease) in net assets from
Operations:
Net investment income (loss)	$ (30,614)		$ (3,425)
Total realized gains (losses) on investments		34,719		19,535
Change in net unrealized appreciation or depreciation of investments		889,614		26,030
Net gains (losses) from investments		893,719		42,140

Payment from Affiliate		–		–

Net increase (decrease) in net assets resulting from operations		893,719		42,140

Changes from principal transactions:
Purchase payments, less sales charges, per payment fees
and applicable premium taxes		3,976,972		1,205,728
Administration charges		(439)		(89)
Contingent sales charges		(2,827)		(478)
Contract terminations		(153,910)		(12,430)
Death benefit payments		–		–
Flexible withdrawal option payments		(10,896)		–
Transfer payments to other contracts		(386,943)		(153,406)
Annuity payments		–		–
Increase (decrease) in net assets from principal transactions		3,421,957		1,039,325
Total increase (decrease)		4,315,676		1,081,465

Net assets at beginning of period		1,081,465		–
Net assets at end of period	$ 5,397,141		$ 1,081,465


(1) Represented the operations of Van Eck Worldwide Hard Assets Service Class Division until May 24, 2010 name change.




See accompanying notes.

Principal Life Insurance Company

Separate Account B

Notes to Financial Statements

December 31, 2010

1. Nature of Operations and Significant Accounting Policies

Principal Life Insurance Company Separate Account B (Separate Account B) is a segregated

investment account of Principal Life Insurance Company (Principal Life) and is registered under

the Investment Company Act of 1940 as a unit investment trust, with no stated limitations on the

number of authorized units. As directed by eligible contractholders, each division of Separate

Account B invests exclusively in shares representing interests in a corresponding investment

option. As of December 31, 2010, contractholder investment options include the following open-

end management investment companies:

Principal Variable Contracts Funds, Inc. – Class 1 (1)

Asset Allocation Account

Balanced Account

Bond & Mortgage Securities Account

Diversified International Account

Equity Income Account (3)

Government & High Quality Bond Account (6,10)

International Emerging Markets Account

LargeCap Blend Account II

LargeCap Growth Account

LargeCap Growth Account I

LargeCap S&P 500 Index Account

LargeCap Value Account

LargeCap Value Account III

MidCap Blend Account

Money Market Account

Principal Capital Appreciation Account (4)

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

Real Estate Securities Account

Short-Term Income Account (6)

SmallCap Blend Account

SmallCap Growth Account II

SmallCap Value Account I

Strategic Asset Management Balanced Portfolio (4)

Strategic Asset Management Conservative Balanced Portfolio (4)

Strategic Asset Management Conservative Growth Portfolio (4)

Strategic Asset Management Flexible Income Portfolio (4)

Strategic Asset Management Strategic Growth Portfolio (4)

Principal Variable Contracts Funds, Inc. – Class 2 (1)

Diversified Balanced Account (8)

Diversified Growth Account (8)

Principal Life Insurance Company

Separate Account B

Notes to Financial Statements (continued)

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

AllianceBernstein Variable Product Series Fund, Inc:

Small Cap Growth Portfolio – Class A

American Century Investments®:

VP Income & Growth Fund – Class I

VP Inflation Protection Fund – Class II

VP Mid Cap Value Fund – Class II (9)

VP Ultra® Fund – Class I

VP Ultra® Fund – Class II

VP Value Fund – Class II

VP Vista^SMFund – Class I

Dreyfus Investment Portfolios:

Technology Growth Portfolio – Service Shares

Fidelity Variable Insurance Products Fund:

Contrafund Portfolio – Service Class

Contrafund Portfolio – Service Class 2

Equity-Income Portfolio – Service Class 2

Growth Portfolio – Service Class

Growth Portfolio – Service Class 2

Mid Cap Portfolio – Service Class 2

Overseas Portfolio – Service Class 2

Franklin Templeton Variable Insurance Products Trust:

Small Cap Value Securities Fund – Class 2 (8)

Templeton Growth Securities Fund – Class 2

Goldman Sachs Variable Insurance Trust:

Mid Cap Value Fund – Institutional Shares

Structured Small Cap Equity Fund – Institutional Shares

Invesco Variable Insurance Fund:

Basic Value Fund – Series I Shares (11)

Capital Appreciation Fund – Series I Shares (2,12)

Core Equity Fund – Series I Shares (13)

Dynamics Fund – Series I Shares (14)

Global Health Care Fund – Series I Shares (15)

International Growth Fund – Series I Shares (5,16)

Small Cap Equity Fund – Series I Shares (17)

Technology Fund – Series I Shares (18)

Janus Aspen Series:

Janus Aspen Series Enterprise Portfolio – Service Shares

MFS® Variable Insurance Trust:

Utilities Series – S Class (7)

Value Series – S Class (7)

Neuberger Berman Advisors Management Trust:

Partners Portfolio – I Class Shares

Small-Cap Growth Portfolio – S Class Shares

Socially Responsive Portfolio – I Class Shares

PIMCO Variable Insurance Trust:

All Asset Portfolio Administrative Class (7)

High Yield Portfolio Administrative Class (8)

Total Return Portfolio Administrative Class (7)

T. Rowe Price Equity Series, Inc.

Blue Chip Growth Portfolio – II

Health Sciences Portfolio – II

Van Eck VIP Trust:

Global Hard Assets Fund – S Class (7,19)

Principal Life Insurance Company

Separate Account B

Notes to Financial Statements (continued)

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

(1) Organized by Principal Life Insurance Company.

(2) Commenced operations April 28, 2006.

(3) Commenced operations January 5, 2007.

(4) Commenced operations May 1, 2007.

(5) Commenced operations May 19, 2008.

(6) Commenced operations November 24, 2008.

(7) Commenced operations May 18, 2009.

(8) Commenced operations January 4, 2010.

(9) Commenced operations May 24, 2010.

(10) Represented the operations of Mortgage Securities Account until July 16, 2010 name change.

(11) Represented the operations of AIM V.I. Basic Value Fund Series I until May 24, 2010 name change.

(12) Represented the operations of AIM V.I. Capital Appreciation Fund Series I until May 24, 2010 name change.

(13) Represented the operations of AIM V.I. Core Equity Fund Series I until May 24, 2010 name change.

(14) Represented the operations of AIM V.I. Dynamics Fund Series I until May 24, 2010 name change.

(15) Represented the operations of AIM V.I. Global Health Care Fund Series I until May 24, 2010 name change.

(16) Represented the operations of AIM V.I. International Growth Fund Series I until May 24, 2010 name change.

(17) Represented the operations of AIM V.I. Small Cap Equity Fund Series I until May 24, 2010 name change.

(18) Represented the operations of AIM V.I. Technology Fund Series I until May 24, 2010 name change.

(19) Represented the operations of Van Eck Worldwide Hard Assets Service Class until May 24, 2010 name change.

Commencement of operations date is the date that the division became available to contractholders.

The assets of Separate Account B are owned by Principal Life. The assets of Separate Account B

support the following variable annuity contracts of Principal Life and may not be used to satisfy

the liabilities arising from any other business of Principal Life: Bankers Flexible Annuity; Pension

Builder Plus; Pension Builder Plus – Rollover IRA; Personal Variable; Premier Variable; Principal

Freedom Variable Annuity; Principal Freedom Variable Annuity 2; The Principal Variable

Annuity; The Principal Variable Annuity with Purchase Payment Credit Rider; Principal

Investment Plus Variable Annuity, and Principal Investment Plus Variable Annuity with Premium

Payment Credit Rider. Principal Life no longer accepts contributions for Bankers Flexible

Annuity contracts, Pension Builder Plus contracts and Pension Builder Plus-Rollover IRA

contracts. Contractholders are being given the option of withdrawing their funds or transferring to

another contract. Contributions to the Personal Variable contracts are no longer accepted from

new customers, only from existing customers beginning January 1998.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements and accompanying notes of Separate Account B in

accordance with U.S. generally accepted accounting principals requires management to make

estimates and assumptions that affect the amounts reported and disclosed. These estimates and

assumptions could change in the future as more information becomes known, which could impact

the amounts reported and disclosed in the financial statements and accompanying notes.


Principal Life Insurance Company
Separate Account B

Notes to Financial Statements (continued)


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

Investments

Investments are stated at the closing net asset values (“NAV”) per share on December 31, 2010.
Net realized gains and losses on sales of investments are determined on the basis of the FIFO
method. Dividends are taken into income on an accrual basis as of the ex-dividend date.
Investment transactions are accounted for on a trade date basis.


Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date (an exit
price). The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair
value into three levels:

•	Level 1 – Fair values are based on unadjusted quoted prices in active markets for
	identical assets or liabilities.
•	Level 2 – Fair values are based on inputs other than quoted prices within Level 1 that
	are observable for the asset or liability, either directly or indirectly.
•	Level 3 – Fair values are based on significant unobservable inputs for the asset or
	liability.


All investments of the open-end management investment companies listed above represent
investments in mutual funds for which a daily NAV is calculated and published. Therefore, the
investments fall into Level 1 of the fair value hierarchy.

Foreign Tax Withholdings

Principal Life may be entitled to claim a federal income tax credit to the extent foreign income
taxes are withheld on investment income allocated to Separate Account B. Principal Life will
compensate each separate account division in an amount equal to the tax benefit claimed on its
federal income tax return, or subsequently claimed for refund, attributable to foreign taxes on the
division’s share of income associated with investments allocated to Separate Account B within a
reasonable time of receiving a tax benefit. The amounts presented as payment from affiliate on
the Statement of Operations and the Statement of Changes in Net Assets reflect compensation for
subsequently claimed refunds.

Principal Life Insurance Company

Separate Account B

Notes to Financial Statements (continued)

2. Expenses and Related Party Transactions

Principal Life is compensated for the following expenses:

Bankers Flexible Annuity contracts – Mortality and expense risks assumed by Principal

Life are compensated for by a daily charge resulting in a reduction of the unit value

equivalent to an annual rate of 0.48% of the asset value of each contract. An annual

administration charge of $7 for each participant’s account is deducted as compensation for

administrative expenses. This charge is collected by redeeming units of the separate

account.

Pension Builder Plus and Pension Builder Plus – Rollover IRA contracts – Mortality and

expense risks assumed by Principal Life are compensated for by a daily charge resulting in

a reduction of the unit value equivalent to an annual rate of 1.50% (1.0% for a Rollover

Individual Retirement Annuity) of the asset value of each contract. A contingent sales

charge of up to 7.0% may be deducted from withdrawals made during the first ten years of

a contract, except for withdrawals related to death or permanent disability. An annual

administration charge will be deducted ranging from a minimum of $25 to a maximum of

$275 depending upon a participant’s investment account values and the number of

participants under the retirement plan and their participant investment account value.

Personal Variable contracts – Mortality and expense risks assumed by Principal Life are

compensated for by a daily charge resulting in a reduction of the unit value equivalent to

an annual rate of 0.64% of the asset value of each contract. The contract provides for

recordkeeping and other services and allows the Contractholders, in their sole discretion, a

customized Plan-level service package and charges. An annual administration charge of

$34 (increased to $37 if the benefit plan reports are distributed directly to the homes of

plan participants) for each participant’s account plus 0.35% of the annual average balance

of investment account values which correlate to a plan participant will be deducted on a

quarterly basis.

Premier Variable contracts – Mortality and expense risks assumed by Principal Life are

compensated for by a daily charge resulting in a reduction of the unit value equivalent to

an annual rate of 0.42% of the asset value of each contract. The contract provides for

recordkeeping and other services and allows the Contractholders, in their sole discretion, a

customized Plan-level service package and charges. The amount varies by Plan document

and account balance of contract. Recordkeeping charges are also paid by the

Contractholder. The annual charge ranges from $2,250 to $25,316 plus $10 per

participant. The amount varies by total plan participants. There were no contingent sales

charges provided for in these contracts.

Principal Life Insurance Company

Separate Account B

Notes to Financial Statements (continued)

2. Expenses and Related Party Transactions (continued)

Principal Freedom Variable Annuity – Mortality and expenses risk assumed by Principal

Life are compensated for by a daily charge resulting in a reduction of the unit value

equivalent to an annual rate of 0.85% of the asset value of each contract. A surrender

charge up to 6.0% may be deducted from the withdrawals made during the first six years

of a contract, except for withdrawals related to death, annuitization, permanent disability,

confinement in a health facility, or terminal illness. Principal Life reserves the right to

charge an additional administrative fee of up to 0.15% of the asset value of each Division.

This fee is currently being waived.

Principal Freedom Variable Annuity 2 – Mortality and expenses risk assumed by Principal

Life are compensated for by a daily charge resulting in a reduction of the unit value

equivalent to an annual rate of 0.95% of the asset value of each contract. A surrender

charge up to 3.0% may be deducted from the withdrawals made during the first three

years of a contract, except for death, annuitization, permanent disability, confinement in a

health facility, or terminal illness. Principal Life reserves the right to charge an additional

administrative fee of up to 0.15% of the asset value of each Division. This fee is currently

being waived.

The Principal Variable Annuity – Mortality and expense risks assumed by Principal Life

are compensated for by a daily charge resulting in a reduction of the unit value equivalent

to an annual rate of 1.25% of the asset value of each contract. A surrender charge of up to

6.0% may be deducted from the withdrawals made during the first six years of a contract,

except for death, annuitization, permanent disability, confinement in a health care facility,

or terminal illness. Principal Life reserves the right to charge an additional administrative

fee of up to 0.15% of the asset value of each Division. This fee is currently being waived.

The product also contains an optional purchase payment credit rider, which charges an

annual rate of 0.6%. For electing participants, the rider is deducted from the daily unit

value. For contracts with the purchase payment credit rider, the maximum surrender

charge is 8.0% from withdrawals made during the first eight years.

The Principal Investment Plus Variable Annuity - Mortality and expense risks assumed by

Principal Life are compensated for by a daily charge resulting in a reduction of the unit

value equivalent to an annual rate of 1.25% of the asset value of each contract. A

surrender charge of up to 6.0% may be deducted from the withdrawals made during the

first six years of a contract, except for death, annuitization, permanent disability,

confinement in a health care facility, or terminal illness. An annual administration charge of

the lesser of 2.0% of the accumulated value or $30 is deducted at the end of the contract

year. Principal Life reserves the right to charge an additional administrative fee of up to

0.15% of the asset value of each Division. This fee is currently being waived. The product

also contains an optional premium payment credit rider, which charges an


Principal Life Insurance Company
Separate Account B

Notes to Financial Statements (continued)


2. Expenses and Related Party Transactions (continued)

annual rate of 0.6%. For electing participants, the rider is deducted from the daily unit
value. For contracts with the premium payment credit rider, the maximum surrender
charge is 8.0% from withdrawals made during the first eight years.

During the year ended December 31, 2010, management fees were paid indirectly to Principal
Management Corporation (wholly owned by Principal Financial Services, Inc. ), an affiliate of
Principal Life, in its capacity as advisor to Principal Variable Contracts Fund, Inc. Investment
advisory and management fees are computed on an annual rate of 0.25% of the average daily net
assets of the LargeCap S&P 500 Index Account and 0.03% of each of the Principal LifeTime
Accounts’ average daily net assets. Prior to July 1, 2009, the annual rate paid by each Principal
LifeTime Account was 0.1225% of the average daily net assets up to $3 billion and 0.1125% of
the average daily net assets over $3 billion. The annual rate paid by the SAM Portfolios is based
upon the aggregate average daily net assets (“aggregate net assets”) of the SAM Portfolios. The
investment advisory and management fee schedule for the SAM Portfolios is 0.25% of aggregate
net assets up to the first $1 billion and 0.20% of aggregate net assets over $1 billion.

The annual rates used in this calculation for each of the other Accounts are as shown in the
following tables.

		Net Assets of Accounts (in millions)

					Over
	First $100	Next $100	Next $100	Next $100	$400
Asset Allocation Account	0.80%	0.75%	0.70%	0.65%	0.60%
Balanced Account	0.60	0.55	0.50	0.45	0.40
Bond & Mortgage Securities Account	0.50	0.45	0.40	0.35	0.30
Equity Income Account	0.60	0.55	0.50	0.45	0.40
LargeCap Growth Account I	0.80	0.75	0.70	0.65	0.60
MidCap Blend Account	0.65	0.60	0.55	0.50	0.45
Money Market Account	0.50	0.45	0.40	0.35	0.30
Real Estate Securities Account	0.90	0.85	0.80	0.75	0.70
SmallCap Blend Account	0.85	0.80	0.75	0.70	0.65
SmallCap Growth Account II	1.00	0.95	0.90	0.85	0.80
SmallCap Value Account I	1.10	1.05	1.00	0.95	0.90


Principal Life Insurance Company
Separate Account B


Notes to Financial Statements (continued)


2. Expenses and Related Party Transactions (continued)

				Net Assets of Accounts (in millions)
							Over
			First $250	Next $250	Next $250	Next $250	$1000
Diversified International Account			0.85%	0.80%	0.75%	0.70%	0.65%
International Emerging Markets Account			1.25	1.20	1.15	1.10	1.05
LargeCap Blend Account II			0.75	0.70	0.65	0.60	0.55
LargeCap Value Account			0.60	0.55	0.50	0.45	0.40
LargeCap Value Account III			0.75	0.70	0.65	0.60	0.55



	Net Assets of Accounts				Net Assets of Accounts
		(in millions)			(in millions)
	First	Next	Over			First	Over
	$200	$300	$500			$500	$500
Short-Term				Principal Capital
Income Account	0.50%	0.45%	0.40%	Appreciation Account		0.625%	0.50%


			Net Assets of Accounts (in millions)
				Next $1	Next $1	Over $3
		First $500	Next $500	billion	billion	billion
LargeCap Growth Account		0.68%	0.63%	0.61%	0.56%	0.51%

Net Assets of Accounts
	First $2	Over $2
	billion	billion				Overall Fee
Equity Income	0.50%	0.45%				0.25%
Account			LargeCap S&P 500 Index Account
Government & High
Quality Bond Account	0.50	0.45



		All Assets
Diversified Balanced
Account		.05%
Diversified Growth Account		.05%


	Principal Life Insurance Company
	Separate Account B

	Notes to Financial Statements (continued)




4. Purchases and Sales of Investments

The aggregate cost of purchases and proceeds from sales of investments were as follows for the
period ended December 31, 2010:

	Division:	Purchases	Sales

	AllianceBernstein Small Cap Growth Class A Division:	$ 1,744,627	$ 704,390
	Principal Investment Plus Variable Annuity	$ 1,360,391	$ 663,994
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	384,236	40,396

	American Century VP Income & Growth Class I Division:	$ 2,739,657	$ 5,504,994
	Principal Freedom Variable Annuity	188,877	610,283
	Principal Freedom Variable Annuity 2	1,907	28,458
	The Principal Variable Annuity	2,353,299	2,724,032
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	195,574	2,142,221

	American Century VP Inflation Protection Class II Division:	19,182,161	16,912,433
	Principal Investment Plus Variable Annuity	15,350,539	13,235,186
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	3,831,622	3,677,247

	American Century VP Mid Cap Value Class II Division:	700,695	72,956
	The Principal Variable Annuity	329,328	7,979
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	48,346	7,061
	Principal Investment Plus Variable Annuity	243,931	57,592
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	79,090	324

	American Century VP Ultra® Class I Division:	1,176,575	2,023,488
	The Principal Variable Annuity	1,073,625	1,141,414
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	102,950	882,074


Principal Life Insurance Company
Separate Account B

Notes to Financial Statements (continued)




4. Purchases and Sales of Investments (continued)

	Division:	Purchases	Sales

	American Century VP Ultra® Class II Division:	6,004,248	12,171,707
	Principal Investment Plus Variable Annuity	$ 4,627,228	$ 9,112,959
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	1,377,020	3,058,748

American Century VP Value Class II Division:		$ 2,854,312	$ 6,102,336
	The Principal Variable Annuity	2,144,169	3,693,139
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	710,143	2,409,197

	American Century VP Vista^SMClass I Division:	616,017	348,750
	Principal Investment Plus Variable Annuity	581,104	300,009
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	34,913	48,741

Asset Allocation Division:		6,154,698	12,692,485
	Premier Variable	30,381	57,564
	The Principal Variable Annuity	3,292,654	8,048,121
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	493,743	2,122,253
	Principal Investment Plus Variable Annuity	1,776,715	1,728,548
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	561,205	735,999

Balanced Division:		4,960,949	10,549,887
	Personal Variable	77,843	311,177
	Premier Variable	471,359	602,464
	The Principal Variable Annuity	3,926,011	6,443,708
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	485,736	3,192,538


Principal Life Insurance Company
Separate Account B

Notes to Financial Statements (continued)




4. Purchases and Sales of Investments (continued)

	Division:	Purchases		Sales

	Bond & Mortgage Securities Division:		57,961,653	70,268,779
	Personal Variable	$ 81,102		$ 124,574
	Premier Variable		1,018,377	1,715,870
	Principal Freedom Variable Annuity		835,916	1,549,407
	Principal Freedom Variable Annuity 2		245,841	220,932
	The Principal Variable Annuity		24,878,495	28,211,444
	The Principal Variable Annuity with Purchase Payment
	Credit Rider		4,106,887	15,722,414
	Principal Investment Plus Variable Annuity		21,153,779	17,149,589
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider		5,641,256	5,574,549

	Principal Capital Appreciation Division:	$ 3,390,841		$ 1,294,545
	Principal Freedom Variable Annuity 2		12,064	5,273
	Principal Investment Plus Variable Annuity		2,577,186	907,645
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider		801,591	381,627

	Diversified Balanced Division:	167,126,980		7,667,323
	Principal Investment Plus Variable Annuity	156,621,500		7,501,515
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider		10,505,480	165,808

	Diversified Growth Division:	308,672,441		8,253,438
	Principal Investment Plus Variable Annuity	288,247,170		7,544,031
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider		20,425,271	709,407


Principal Life Insurance Company
Separate Account B

Notes to Financial Statements (continued)




4. Purchases and Sales of Investments (continued)

	Division:	Purchases		Sales

	Diversified International Division:		87,504,238	55,951,599
	Personal Variable	$ 87,994		$ 103,472
	Premier Variable		758,587	1,240,851
	Principal Freedom Variable Annuity		292,624	1,109,534
	Principal Freedom Variable Annuity 2		214,991	227,558
	The Principal Variable Annuity		48,509,048	29,175,720
	The Principal Variable Annuity with Purchase Payment
	Credit Rider		11,852,608	13,375,244
	Principal Investment Plus Variable Annuity		18,668,431	8,578,332
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider		7,119,955	2,140,888

	Dreyfus IP Technology Growth Service Shares Division:		2,145,709	1,418,136
	Principal Investment Plus Variable Annuity		1,952,178	1,204,771
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider		193,531	213,365

Equity Income Division:			21,689,441	30,369,644
	Premier Variable		25,037	18,029
	The Principal Variable Annuity		5,966,810	6,688,118
	The Principal Variable Annuity with Purchase Payment
	Credit Rider		944,437	2,630,520
	Principal Investment Plus Variable Annuity		12,200,476	16,470,134
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider		2,552,681	4,562,843

	Fidelity VIP Equity-Income Service Class 2 Division:	$ 5,892,064		$11,496,118
	The Principal Variable Annuity		3,654,310	6,480,931
	The Principal Variable Annuity with Purchase Payment
	Credit Rider		915,188	3,751,185
	Principal Investment Plus Variable Annuity		1,055,798	1,012,349
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider		266,768	251,653


Principal Life Insurance Company
Separate Account B

Notes to Financial Statements (continued)




4. Purchases and Sales of Investments (continued)

	Division:	Purchases	Sales
		0
	Fidelity VIP Growth Service Class Division:	2,409,769	5,177,363
	The Principal Variable Annuity	$ 2,205,990	$ 3,366,690
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	203,779	1,810,673

	Fidelity VIP Growth Service Class 2 Division:	1,458,897	1,326,974
	Principal Investment Plus Variable Annuity	1,329,764	858,699
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	129,133	468,275

	Fidelity VIP Overseas Service Class 2 Division:	7,377,799	10,533,588
	Principal Investment Plus Variable Annuity	5,678,586	7,805,489
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	1,699,213	2,728,099

	Fidelity VIP II Contrafund Service Class Division:	9,305,619	20,876,787
	The Principal Variable Annuity	7,969,677	13,520,497
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	1,335,942	7,356,290

	Fidelity VIP Contrafund Service Class 2 Division:	9,279,052	9,224,640
	Principal Investment Plus Variable Annuity	7,785,582	7,514,442
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	1,493,470	1,710,198

	Fidelity VIP Mid Cap Service Class 2 Division:	5,013,574	2,180,014
	Principal Investment Plus Variable Annuity	4,378,712	1,701,841
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	634,862	478,173

	Franklin Small Cap Value Securities Class 2 Division:	471,851	87,476
	Principal Investment Plus Variable Annuity	377,913	82,889
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	93,938	4,587


Principal Life Insurance Company
Separate Account B

Notes to Financial Statements (continued)




4. Purchases and Sales of Investments (continued)

	Division:	Purchases	Sales

	Goldman Sachs VIT Mid Cap Value Institutional Class
	Division:	2,132,830	4,124,771
	Principal Investment Plus Variable Annuity	$ 1,949,748	$ 3,298,793
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	183,082	825,978

	Goldman Sachs VIT Structured Small Cap Equity Institutional
	Class Division:	$ 1,616,344	$ 1,297,388
	Principal Investment Plus Variable Annuity	1,503,411	1,122,748
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	112,933	174,640

	Government & High Quality Bond Division:	248,250,225	39,500,083
	Pension Builder Plus	150,713	20,491
	Pension Builder Plus - Rollover IRA	30,863	141
	Personal Variable	257,645	127,624
	Premier Variable	4,720,137	1,218,717
	Principal Freedom Variable Annuity	4,111,451	441,626
	Principal Freedom Variable Annuity 2	474,277	164,143
	The Principal Variable Annuity	137,748,944	19,119,350
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	30,964,398	9,887,256
	Principal Investment Plus Variable Annuity	55,709,099	6,741,757
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	14,082,698	1,778,978

	International Emerging Markets Division:	21,640,982	32,340,015
	Premier Variable	242,271	227,597
	The Principal Variable Annuity	10,170,655	13,938,359
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	1,658,943	8,412,559
	Principal Investment Plus Variable Annuity	8,019,391	7,304,673
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	1,549,722	2,456,827


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)







4. Purchases and Sales of Investments (continued)

	Division:	Purchases	Sales

	Invesco V.I. Basic Value Series I Division:	1,347,326	888,458
	Principal Investment Plus Variable Annuity	$ 1,145,016	$ 710,739
	Principal Investment Plus Variable Annuity With Purchase
	Rider	202,310	177,719

	Invesco V.I. Capital Appreciation Series I Division:	644,641	1,592,386
	The Principal Variable Annuity	592,315	1,334,353
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	52,326	258,033

	Invesco V.I. Core Equity Series I Division:	4,219,145	10,222,070
	The Principal Variable Annuity	3,913,935	6,819,990
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	305,210	3,402,080

	Invesco V.I. Dynamics Series I Division:	767,960	995,713
	The Principal Variable Annuity	623,632	508,862
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	144,328	486,851

	Invesco V.I. Global Health Care Series I Division:	$ 1,458,804	$ 3,137,438
	The Principal Variable Annuity	1,276,840	1,771,299
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	181,964	1,366,139

	Invesco V.I. International Growth Series I Division:	2,196,086	1,338,220
	Principal Investment Plus Variable Annuity	1,980,600	1,249,570
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	215,486	88,650


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)







4. Purchases and Sales of Investments (continued)

	Division:	Purchases	Sales

	Invesco V.I. Small Cap Equity Series I Division:	3,095,836	2,852,758
	The Principal Variable Annuity	$ 1,013,861	$ 990,101
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	208,690	364,436
	Principal Investment Plus Variable Annuity	1,719,348	1,325,293
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	153,937	172,928

	Invesco V.I. Technology Series I Division:	1,232,579	2,478,572
	The Principal Variable Annuity	1,030,711	1,648,069
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	201,868	830,503

	Janus Aspen Enterprise Service Shares Division:	2,686,021	5,167,947
	The Principal Variable Annuity	2,513,933	3,337,908
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	172,088	1,830,039

	LargeCap Blend II Division:	17,405,285	34,836,841
	The Principal Variable Annuity	5,988,410	11,146,633
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	1,350,459	6,341,206
	Principal Investment Plus Variable Annuity	7,746,738	13,353,361
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	2,319,678	3,995,641


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)







4. Purchases and Sales of Investments (continued)

	Division:	Purchases	Sales

	LargeCap Growth Division:	7,286,795	16,561,420
	Personal Variable	$ 511,156	$ 608,741
	Premier Variable	576,682	1,326,804
	The Principal Variable Annuity	2,921,871	9,196,319
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	408,453	2,098,629
	Principal Investment Plus Variable Annuity	2,162,407	2,721,691
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	706,226	609,236

LargeCap Growth I Division:		$11,931,203	$33,590,246
	Premier Variable	41,156	261,741
	Principal Freedom Variable Annuity	115,480	266,649
	Principal Freedom Variable Annuity 2	3,336	14,962
	The Principal Variable Annuity	8,383,081	21,749,477
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	817,392	7,586,459
	Principal Investment Plus Variable Annuity	2,161,511	2,985,456
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	409,247	725,502

LargeCap S&P 500 Index Division:		15,200,774	25,955,099
	Premier Variable	109,515	656,609
	Principal Freedom Variable Annuity	360,396	1,536,322
	Principal Freedom Variable Annuity 2	313,319	403,900
	The Principal Variable Annuity	7,380,372	10,811,155
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	1,341,556	7,157,779
	Principal Investment Plus Variable Annuity	4,967,960	4,528,202
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	727,656	861,132


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)







4. Purchases and Sales of Investments (continued)

	Division:	Purchases		Sales

	LargeCap Value Division:		10,873,998	23,335,970
	Bankers Flexible Annuity	$ 19,672		$ 77,975
	Pension Builder Plus		27,771	145,873
	Pension Builder Plus - Rollover IRA		3,732	26,723
	Personal Variable		74,769	247,207
	Premier Variable		713,644	1,566,412
	Principal Freedom Variable Annuity		149,488	612,349
	Principal Freedom Variable Annuity 2		39,464	59,088
	The Principal Variable Annuity		6,591,604	13,040,154
	The Principal Variable Annuity with Purchase Payment
	Credit Rider		537,103	4,935,203
	Principal Investment Plus Variable Annuity		2,070,411	1,932,059
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider		646,340	692,927

	LargeCap Value III Division:		13,468,238	28,270,764
	The Principal Variable Annuity		4,280,036	8,771,703
	The Principal Variable Annuity with Purchase Payment
	Credit Rider		803,998	4,480,686
	Principal Investment Plus Variable Annuity		6,201,906	11,134,218
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider		2,182,298	3,884,157

MFS® VIT Utilities Service Class Division:		$ 1,478,711		$ 633,161
	Principal Investment Plus Variable Annuity		1,304,968	614,729
	Principal Investment Plus Variable Annuity With Purchase
	Rider		173,743	18,432

	MFS® VIT Value Service Class Division:		1,123,731	227,705
	Principal Investment Plus Variable Annuity		1,078,666	220,168
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider		45,065	7,537


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)







4. Purchases and Sales of Investments (continued)

	Division:	Purchases	Sales

MidCap Blend Division:		145,788,804	78,490,678
	Personal Variable	$ 112,868	$ 257,411
	Premier Variable	997,525	1,800,693
	Principal Freedom Variable Annuity	5,379,658	1,102,385
	Principal Freedom Variable Annuity 2	557,093	189,432
	The Principal Variable Annuity	63,225,787	39,626,397
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	19,042,489	16,883,604
	Principal Investment Plus Variable Annuity	43,399,293	14,077,924
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	13,074,091	4,552,832

	Money Market Division:	86,669,092	136,254,151
	Pension Builder Plus	1	19,840
	Pension Builder Plus - Rollover IRA	2	7,566
	Personal Variable	538,911	619,455
	Premier Variable	2,607,340	4,204,613
	Principal Freedom Variable Annuity	1,073,721	1,795,231
	Principal Freedom Variable Annuity 2	213,445	789,900
	The Principal Variable Annuity	28,945,280	57,501,559
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	4,730,340	13,620,969
	Principal Investment Plus Variable Annuity	38,025,930	45,176,411
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	10,534,122	12,518,607

Neuberger Berman AMT Partners I Class Division:		1,341,442	2,003,779
	Principal Investment Plus Variable Annuity	1,206,553	1,806,485
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	134,889	197,294


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)







4. Purchases and Sales of Investments (continued)

	Division:	Purchases	Sales

	Neuberger Berman AMT Small-Cap Growth S Class Division:	455,558	560,349
	Principal Investment Plus Variable Annuity	$ 376,798	$ 390,156
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	78,760	170,193

	Neuberger Berman AMT Socially Responsive I Class
	Division:	$ 1,212,950	$ 1,431,474
	Principal Investment Plus Variable Annuity	961,640	1,210,127
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	251,310	221,347

PIMCO All Asset Administrative Class Division:		3,372,784	920,028
	Principal Investment Plus Variable Annuity	2,372,373	844,639
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	1,000,411	75,389

	PIMCO High Yield Administrative Class Division:	9,744,829	1,869,030
	Principal Investment Plus Variable Annuity	6,806,553	1,420,892
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	2,938,276	448,138

	PIMCO Total Return Administrative Class Division:	17,004,023	4,652,838
i	Principal Investment Plus Variable Annuity	14,549,135	3,397,245
	Principal Investment Plus Variable Annuity with Premium
i	Payment Credit Rider	2,454,888	1,255,593


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)







4. Purchases and Sales of Investments (continued)

	Division:	Purchases		Sales

	Principal LifeTime Strategic Income Division:		5,582,585	4,049,613
	Principal Freedom Variable Annuity 2	$ 46,342		$ 224,865
	The Principal Variable Annuity		1,502,391	406,012
	The Principal Variable Annuity with Purchase Payment
	Credit Rider		332,146	294,063
	Principal Investment Plus Variable Annuity		2,438,268	2,627,428
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider		1,263,438	497,245

	Principal LifeTime 2010 Division:		4,247,543	4,512,086
	Principal Freedom Variable Annuity 2		146,754	200,971
	The Principal Variable Annuity		435,106	325,491
	The Principal Variable Annuity with Purchase Payment
	Credit Rider		60,049	88,314
	Principal Investment Plus Variable Annuity		2,545,034	3,374,833
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider		1,060,600	522,477

	Principal LifeTime 2020 Division:		16,257,578	17,738,442
	Principal Freedom Variable Annuity 2		883,999	975,068
	The Principal Variable Annuity		1,651,520	550,612
	The Principal Variable Annuity with Purchase Payment
	Credit Rider		91,900	201,782
	Principal Investment Plus Variable Annuity		10,243,184	13,323,419
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider		3,386,975	2,687,561


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)







4. Purchases and Sales of Investments (continued)

	Division:	Purchases	Sales

	Principal LifeTime 2030 Division:	$10,876,518	$ 6,111,576
	Principal Freedom Variable Annuity 2	$ 166,602	$ 253,653
	The Principal Variable Annuity	303,248	141,427
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	27,837	74,198
	Principal Investment Plus Variable Annuity	9,285,368	4,625,135
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	1,093,463	1,017,163

	Principal LifeTime 2040 Division:	2,466,234	1,015,067
	Principal Freedom Variable Annuity 2	46,440	55,716
	The Principal Variable Annuity	89,998	26,787
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	50,861	9,341
	Principal Investment Plus Variable Annuity	2,136,882	719,264
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	142,053	203,959

	Principal LifeTime 2050 Division:	1,071,136	967,300
	Principal Freedom Variable Annuity 2	2,654	27,788
	The Principal Variable Annuity	163,837	40,037
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	24,070	79,926
	Principal Investment Plus Variable Annuity	634,538	522,235
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	246,037	297,314


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)







4. Purchases and Sales of Investments (continued)

	Division:	Purchases	Sales

	Real Estate Securities Division:	16,351,262	27,545,130
	Premier Variable	$ 243,283	$ 378,422
	Principal Freedom Variable Annuity 2	100,266	119,396
	The Principal Variable Annuity	9,356,001	12,335,045
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	1,778,210	9,186,611
	Principal Investment Plus Variable Annuity	3,926,112	4,367,058
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	947,390	1,158,598

	SAM Balanced Portfolio Division:	127,863,037	79,268,662
	Principal Freedom Variable Annuity 2	389,226	363,363
	The Principal Variable Annuity	11,352,472	10,504,240
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	3,911,094	5,844,717
	Principal Investment Plus Variable Annuity	97,491,717	54,756,895
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	14,718,528	7,799,447

	SAM Conservative Balanced Portfolio Division:	$43,371,503	$33,997,144
	Principal Freedom Variable Annuity 2	788,616	154,290
	The Principal Variable Annuity	8,665,086	6,202,153
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	1,894,673	2,601,328
	Principal Investment Plus Variable Annuity	29,867,496	20,683,279
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	2,155,632	4,356,094


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)







4. Purchases and Sales of Investments (continued)

	Division:	Purchases		Sales

	SAM Conservative Growth Portfolio Division:		19,997,336	11,760,557
	Principal Freedom Variable Annuity 2	$ 98,841		$ 135,471
	The Principal Variable Annuity		3,891,566	3,048,035
	The Principal Variable Annuity with Purchase Payment
	Credit Rider		1,382,585	1,784,575
	Principal Investment Plus Variable Annuity		12,213,862	4,588,120
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider		2,410,482	2,204,356

	SAM Flexible Income Portfolio Division:		56,496,826	34,653,358
	Principal Freedom Variable Annuity 2		509,488	75,869
	The Principal Variable Annuity		15,420,523	9,987,301
	The Principal Variable Annuity with Purchase Payment
	Credit Rider		2,340,077	3,982,085
	Principal Investment Plus Variable Annuity		31,836,285	16,110,016
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider		6,390,453	4,498,087

	SAM Strategic Growth Portfolio Division:		12,114,153	7,941,582
	Principal Freedom Variable Annuity 2		143,316	122,715
	The Principal Variable Annuity		3,441,533	2,101,633
	The Principal Variable Annuity with Purchase Payment
	Credit Rider		204,705	1,185,577
	Principal Investment Plus Variable Annuity		6,389,179	2,364,486
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider		1,935,420	2,167,171


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)







4. Purchases and Sales of Investments (continued)

	Division:	Purchases	Sales

	Short-Term Income Division:	186,527,234	48,208,590
	Principal Freedom Variable Annuity	$ 2,972,014	$ 609,470
	Principal Freedom Variable Annuity 2	125,802	109,071
	The Principal Variable Annuity	35,054,213	12,339,174
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	9,554,840	2,541,964
	Principal Investment Plus Variable Annuity	111,693,811	29,461,900
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	27,126,554	3,147,011

	SmallCap Blend Division:	$ 4,419,277	$ 9,985,345
	Premier Variable	92,008	121,459
	Principal Freedom Variable Annuity	78,482	583,174
	Principal Freedom Variable Annuity 2	74,916	69,383
	The Principal Variable Annuity	3,594,222	6,273,619
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	579,649	2,937,710

	SmallCap Growth II Division:	4,265,934	7,991,743
	Premier Variable	99,034	76,918
	Principal Freedom Variable Annuity	20,836	157,088
	Principal Freedom Variable Annuity 2	13,164	9,693
	The Principal Variable Annuity	2,401,190	4,394,254
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	321,209	2,061,115
	Principal Investment Plus Variable Annuity	1,218,193	906,387
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	192,308	386,288


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)







4. Purchases and Sales of Investments (continued)

	Division:	Purchases	Sales

	SmallCap Value I Division:	11,240,279	23,799,356
	Premier Variable	$ 166,388	$ 145,382
	Principal Freedom Variable Annuity 2	20,302	27,356
	The Principal Variable Annuity	5,625,425	8,256,102
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	739,860	5,180,954
	Principal Investment Plus Variable Annuity	3,522,621	7,672,051
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	1,165,683	2,517,511

	T. Rowe Price Blue Chip Growth II Division:	2,224,032	1,507,762
	Principal Investment Plus Variable Annuity	1,964,144	1,316,644
	Principal Investment Plus Variable Annuity	259,888	191,118

	T. Rowe Price Health Sciences II Division:	1,757,262	1,025,935
	Principal Investment Plus Variable Annuity	1,460,309	840,297
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	296,953	185,638

	Templeton Growth Securities Class 2 Division:	48,370	221,766
	Principal Freedom Variable Annuity	48,370	221,766

	Van Eck VIP Global Hard Assets Class Division:	3,980,846	589,503
	The Principal Variable Annuity	1,224,810	130,227
	The Principal Variable Annuity with Purchase Payment
	Credit Rider	99,556	14,636
	Principal Investment Plus Variable Annuity	2,168,534	336,943
	Principal Investment Plus Variable Annuity with Premium
	Payment Credit Rider	487,946	107,697


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)








5. Changes in Units Outstanding

Transactions in units were as follows for each of the periods ended December 31:

	2010		2009
Division:	Purchased	Redeemed	Purchased	Redeemed

AllianceBernstein Small Cap Growth Class A
Division:
Principal Investment Plus Variable Annuity	97,233	51,152	55,641	42,447
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	27,463	3,112	11,007	6,855

American Century VP Income & Growth Class I
Division:
Principal Freedom Variable Annuity	14,447	60,875	14,243	73,516
Principal Freedom Variable Annuity 2	116	3,428	60	4,990
The Principal Variable Annuity	235,782	289,145	175,242	281,099
The Principal Variable Annuity With Purchase
Payment Credit Rider	19,595	227,388	41,712	247,627

American Century VP Inflation Protection Class II
Division:
Principal Investment Plus Variable Annuity	1,188,390	1,035,921	2,186,229	1,587,697
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	296,632	287,819	437,848	385,596

American Century VP Mid Cap Value Class II
Division:
The Principal Variable Annuity	30,088	730	–	–
The Principal Variable Annuity With Purchase
Payment Credit Rider	4,417	646	–	–
Principal Investment Plus Variable Annuity	22,555	5,681	–	–
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	7,313	32	–	–

American Century VP Ultra® Class I Division:
The Principal Variable Annuity	124,820	135,179	81,832	123,790
The Principal Variable Annuity With Purchase
Payment Credit Rider	11,969	104,465	55,296	99,562


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)








5. Changes in Units Outstanding (continued)

	2010		2009
Division:	Purchased	Redeemed	Purchased	Redeemed

American Century VP Ultra® Class II Division:
Principal Investment Plus Variable Annuity	484,585	833,468	519,671	1,121,101
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	144,208	279,752	84,109	356,216

American Century VP Value Class II Division:
The Principal Variable Annuity	150,913	297,383	163,935	381,966
The Principal Variable Annuity With Purchase
Payment Credit Rider	49,982	193,996	73,185	267,985

American Century VP Vista^SMClass I Division:
Principal Investment Plus Variable Annuity	45,240	22,854	32,558	35,007
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	2,718	3,713	5,375	8,630

Asset Allocation Division:
Premier Variable	19,052	42,371	69,592	58,686
The Principal Variable Annuity	107,087	330,347	152,397	386,578
The Principal Variable Annuity With Purchase
Payment Credit Rider	16,058	87,111	17,393	156,032
Principal Investment Plus Variable Annuity	66,908	69,957	173,611	86,245
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	21,134	29,787	25,146	20,748

Balanced Division:
Personal Variable	32,228	160,074	57,264	84,810
Premier Variable	200,790	295,799	252,260	361,205
The Principal Variable Annuity	164,885	342,341	139,000	527,132
The Principal Variable Annuity With Purchase
Payment Credit Rider	20,400	169,613	26,159	188,085


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)








5. Changes in Units Outstanding (continued)

	2010		2009
Division:	Purchased	Redeemed	Purchased	Redeemed

Bond & Mortgage Securities Division:
Personal Variable	29,404	55,515	41,115	22,468
Premier Variable	371,399	748,833	317,685	230,967
Principal Freedom Variable Annuity	29,362	99,956	37,888	172,908
Principal Freedom Variable Annuity 2	20,139	19,443	15,455	35,423
The Principal Variable Annuity	953,714	1,369,109	768,546	1,715,864
The Principal Variable Annuity With Purchase
Payment Credit Rider	157,437	763,013	347,151	961,114
Principal Investment Plus Variable Annuity	812,023	802,112	941,287	1,005,552
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	216,549	260,730	231,579	299,659

Principal Capital Appreciation Division:
Principal Freedom Variable Annuity 2	1,123	514	18	46
Principal Investment Plus Variable Annuity	270,778	97,584	251,542	69,296
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	84,221	41,030	78,501	30,163

Diversified Balanced Division:
Principal Investment Plus Variable Annuity	15,235,407	642,169	–	–
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	1,021,924	14,194	–	–

Diversified Growth Division:
Principal Investment Plus Variable Annuity	28,024,931	581,631	–	–
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	1,985,854	54,694	–	–

Diversified International Division:
Personal Variable	34,248	45,082	61,074	90,337
Premier Variable	287,415	521,578	341,345	425,703
Principal Freedom Variable Annuity	17,294	87,098	50,601	99,687
Principal Freedom Variable Annuity 2	21,042	24,582	16,143	20,737
The Principal Variable Annuity	2,341,567	1,337,057	672,532	1,230,330
The Principal Variable Annuity With Purchase
Payment Credit Rider	572,134	612,957	205,222	629,131
Principal Investment Plus Variable Annuity	917,137	380,732	594,116	362,187
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	349,787	95,019	100,095	83,972


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)








5. Changes in Units Outstanding (continued)

	2010		2009
Division:	Purchased	Redeemed	Purchased	Redeemed

Dreyfus IP Technology Growth Service Shares
Division:
Principal Investment Plus Variable Annuity	145,981	97,109	157,092	63,886
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	14,472	17,198	25,622	11,268

Equity Income Division:
Premier Variable	21,779	17,475	21,602	33,890
The Principal Variable Annuity	614,455	770,451	592,175	858,128
The Principal Variable Annuity With Purchase
Payment Credit Rider	97,257	303,028	121,933	488,474
Principal Investment Plus Variable Annuity	1,041,983	1,783,705	2,691,074	2,658,326
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	218,012	494,153	385,891	610,168

Fidelity VIP Equity-Income Service Class 2
Division:
The Principal Variable Annuity	315,280	605,881	369,927	587,377
The Principal Variable Annuity With Purchase
Payment Credit Rider	78,959	350,686	175,048	378,876
Principal Investment Plus Variable Annuity	92,916	91,241	154,896	170,557
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	23,477	22,681	25,785	33,733

Fidelity VIP Growth Service Class Division:
The Principal Variable Annuity	273,190	427,805	291,841	515,089
The Principal Variable Annuity With Purchase
Payment Credit Rider	25,236	230,082	56,462	301,356

Fidelity VIP Growth Service Class 2 Division:
Principal Investment Plus Variable Annuity	117,815	77,531	77,754	86,992
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	11,441	42,280	18,078	26,508

Fidelity VIP Overseas Service Class 2 Division:
Principal Investment Plus Variable Annuity	432,598	584,369	708,435	672,618
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	129,447	204,243	156,327	219,744


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)








5. Changes in Units Outstanding (continued)

	2010		2009
Division:	Purchased	Redeemed	Purchased	Redeemed

Fidelity VIP Contrafund Service Class Division:
The Principal Variable Annuity	555,080	992,668	669,805	1,116,432
The Principal Variable Annuity With Purchase
Payment Credit Rider	93,047	540,095	210,962	641,001

Fidelity VIP Contrafund Service Class 2 Division:
Principal Investment Plus Variable Annuity	580,732	544,356	1,197,898	973,294
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	111,399	123,889	152,197	141,617

Fidelity VIP Mid Cap Service Class 2 Division:
Principal Investment Plus Variable Annuity	260,883	99,059	181,357	141,950
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	37,825	27,833	36,517	44,730

Franklin Small Cap Value Securities Class 2
Division:
Principal Investment Plus Variable Annuity	34,654	7,481	–	–
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	8,614	414	–	–

Goldman Sachs VIT Mid Cap Value Institutional
Class Division:
Principal Investment Plus Variable Annuity	142,012	241,625	104,746	174,565
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	13,335	60,500	46,009	63,986

Goldman Sachs VIT Structured Small Cap Equity
Institutional Class Division:
Principal Investment Plus Variable Annuity	145,079	109,870	114,420	76,095
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	10,898	17,090	15,655	27,196


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)








5. Changes in Units Outstanding (continued)

	2010		2009
Division:	Purchased	Redeemed	Purchased	Redeemed

Government & High Quality Bond Division:
Pension Builder Plus	47,918	6,326	–	–
Pension Builder Plus - Rollover IRA	8,721	–	–	–
Personal Variable	107,222	53,257	–	–
Premier Variable	1,873,141	487,758	–	–
Principal Freedom Variable Annuity	356,884	36,934	21,985	10,390
Principal Freedom Variable Annuity 2	41,492	14,565	1,280	561
The Principal Variable Annuity	11,889,262	1,482,389	404,254	128,362
The Principal Variable Annuity With Purchase
Payment Credit Rider	2,672,571	766,593	153,802	68,287
Principal Investment Plus Variable Annuity	4,851,060	539,874	804,901	122,767
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	1,226,299	142,459	124,151	25,847

International Emerging Markets Division:
Premier Variable	66,816	68,477	132,252	112,723
The Principal Variable Annuity	301,985	438,103	515,924	510,836
The Principal Variable Annuity With Purchase
Payment Credit Rider	49,257	264,419	145,132	298,066
Principal Investment Plus Variable Annuity	240,392	224,219	346,347	224,871
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	46,455	75,413	81,980	94,628

Invesco V.I. Basic Value Series I Division:
Principal Investment Plus Variable Annuity	126,585	72,934	365,552	146,427
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	22,366	18,237	43,256	9,914

Invesco V.I. Capital Appreciation Series I Division:
The Principal Variable Annuity	74,077	170,119	132,141	204,722
The Principal Variable Annuity With Purchase
Payment Credit Rider	6,544	32,897	5,736	89,398

Invesco V.I. Core Equity Series I Division:
The Principal Variable Annuity	380,262	694,067	404,222	745,983
The Principal Variable Annuity With Purchase
Payment Credit Rider	29,653	346,228	35,511	394,899


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)








5. Changes in Units Outstanding (continued)

	2010		2009
Division:	Purchased	Redeemed	Purchased	Redeemed

Invesco V.I. Dynamics Series I Division:
The Principal Variable Annuity	71,680	59,881	36,222	38,413
The Principal Variable Annuity With Purchase
Payment Credit Rider	16,589	57,291	24,873	29,835

Invesco V.I. Global Health Care Series I Division:
The Principal Variable Annuity	119,233	164,001	112,275	176,220
The Principal Variable Annuity With Purchase
Payment Credit Rider	16,992	126,488	22,988	143,083

Invesco V.I. International Growth Series I Division:
Principal Investment Plus Variable Annuity	234,489	146,538	417,031	72,911
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	25,512	10,396	41,640	4,163

Invesco V.I. Small Cap Equity Series I Division:
The Principal Variable Annuity	77,270	73,628	45,900	61,881
The Principal Variable Annuity With Purchase
Payment Credit Rider	15,905	27,101	7,577	30,851
Principal Investment Plus Variable Annuity	132,522	101,247	132,229	26,381
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	11,865	13,211	14,226	15,367

Invesco V.I. Technology Series I Division:
The Principal Variable Annuity	188,146	301,533	499,585	351,364
The Principal Variable Annuity With Purchase
Payment Credit Rider	36,849	151,950	145,337	100,178

Janus Aspen Enterprise Service Shares Division:
The Principal Variable Annuity	322,509	427,451	439,368	389,732
The Principal Variable Annuity With Purchase
Payment Credit Rider	22,077	234,354	62,706	367,149

LargeCap Blend II Division:
The Principal Variable Annuity	436,531	979,404	431,804	1,021,961
The Principal Variable Annuity With Purchase
Payment Credit Rider	98,443	557,173	174,371	607,464
Principal Investment Plus Variable Annuity	577,299	1,124,814	998,697	1,412,870
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	172,866	336,571	156,683	423,159


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)








5. Changes in Units Outstanding (continued)

	2010		2009
Division:	Purchased	Redeemed	Purchased	Redeemed

LargeCap Growth Division:
Personal Variable	298,145	358,071	261,267	387,290
Premier Variable	314,479	733,147	381,871	622,068
The Principal Variable Annuity	176,849	540,926	270,082	569,800
The Principal Variable Annuity With Purchase
Payment Credit Rider	24,722	123,441	78,281	201,633
Principal Investment Plus Variable Annuity	132,177	159,079	336,767	121,951
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	43,168	35,609	59,500	36,463

LargeCap Growth I Division:
Premier Variable	36,502	257,433	784,793	406,700
Principal Freedom Variable Annuity	12,175	27,285	28,198	40,572
Principal Freedom Variable Annuity 2	328	1,619	142	949
The Principal Variable Annuity	280,919	715,433	366,116	792,951
The Principal Variable Annuity With Purchase
Payment Credit Rider	27,391	249,551	85,964	307,404
Principal Investment Plus Variable Annuity	72,866	99,851	114,310	72,908
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	13,796	24,265	31,619	27,770

LargeCap S&P 500 Index Division:
Premier Variable	104,110	645,040	172,130	283,611
Principal Freedom Variable Annuity	26,224	160,236	63,527	263,228
Principal Freedom Variable Annuity 2	33,298	43,656	41,240	43,978
The Principal Variable Annuity	775,768	1,218,564	968,609	1,498,753
The Principal Variable Annuity With Purchase
Payment Credit Rider	141,014	806,779	336,539	920,812
Principal Investment Plus Variable Annuity	538,125	487,178	1,294,878	766,267
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	78,819	92,647	166,235	130,815


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)








5. Changes in Units Outstanding (continued)

	2010		2009
Division:	Purchased	Redeemed	Purchased	Redeemed

LargeCap Value Division:
Bankers Flexible Annuity	–	2,258	–	10,373
Pension Builder Plus	–	22,117	2	18,122
Pension Builder Plus – Rollover IRA	–	3,807	8,800	17,733
Personal Variable	24,862	91,237	41,215	139,054
Premier Variable	214,993	556,119	420,756	765,646
Principal Freedom Variable Annuity	10,504	65,436	23,431	73,419
Principal Freedom Variable Annuity 2	3,562	6,703	614	5,514
The Principal Variable Annuity	252,151	575,841	266,421	660,646
The Principal Variable Annuity With Purchase
Payment Credit Rider	20,546	217,934	34,007	204,438
Principal Investment Plus Variable Annuity	88,715	82,156	193,897	128,784
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	27,695	29,465	52,495	50,461

LargeCap Value III Division:
The Principal Variable Annuity	372,646	863,581	441,149	924,480
The Principal Variable Annuity With Purchase
Payment Credit Rider	70,001	441,127	157,092	468,477
Principal Investment Plus Variable Annuity	556,089	1,045,247	1,434,778	1,248,879
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	195,674	364,633	420,165	370,842

MFS® VIT Utilities Service Class Division:
Principal Investment Plus Variable Annuity	96,147	42,155	31,084	621
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	12,801	1,264	15,229	76

MFS® VIT Value Service Class Division:
Principal Investment Plus Variable Annuity	84,685	16,680	31,848	93
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	3,538	571	6,756	17


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)








5. Changes in Units Outstanding (continued)

	2010		2009
Division:	Purchased	Redeemed	Purchased	Redeemed

MidCap Blend Division:
Personal Variable	21,400	61,635	41,150	104,630
Premier Variable	200,030	405,931	229,464	377,033
Principal Freedom Variable Annuity	262,147	49,093	18,989	41,480
Principal Freedom Variable Annuity 2	48,853	16,403	4,943	5,253
The Principal Variable Annuity	1,590,784	973,524	388,886	967,953
The Principal Variable Annuity With Purchase
Payment Credit Rider	479,116	414,789	79,997	394,153
Principal Investment Plus Variable Annuity	1,129,841	335,443	330,271	325,185
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	340,366	108,483	53,872	100,015

Money Market Division:
Pension Builder Plus	–	7,760	–	3,206
Pension Builder Plus – Rollover IRA	–	3,002	–	16
Personal Variable	328,762	376,226	330,846	384,119
Premier Variable	1,528,408	2,452,525	1,765,593	2,013,513
Principal Freedom Variable Annuity	86,846	142,484	119,853	334,460
Principal Freedom Variable Annuity 2	19,823	72,368	68,767	77,198
The Principal Variable Annuity	2,050,176	4,017,169	3,649,065	6,605,042
The Principal Variable Annuity With Purchase
Payment Credit Rider	335,047	951,587	1,323,797	2,888,997
Principal Investment Plus Variable Annuity	2,706,448	3,181,863	3,532,919	3,978,080
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	749,753	881,710	912,682	1,196,262

Neuberger Berman AMT Partners I Class Division:
Principal Investment Plus Variable Annuity	97,257	152,443	160,465	172,874
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	10,873	16,649	22,485	33,065

Neuberger Berman AMT Small-Cap Growth S Class
Division:
Principal Investment Plus Variable Annuity	44,674	42,559	80,003	37,747
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	9,338	18,565	24,952	17,992


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)








5. Changes in Units Outstanding (continued)

	2010		2009
Division:	Purchased	Redeemed	Purchased	Redeemed

Neuberger Berman AMT Socially Responsive I
Class Division:
Principal Investment Plus Variable Annuity	82,603	93,706	169,363	122,798
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	21,587	17,140	46,922	29,253

PIMCO All Asset Administrative Class Division:
Principal Investment Plus Variable Annuity	183,015	65,430	37,500	2,087
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	77,176	5,840	9,849	93

PIMCO High Yield Administrative Class Division:
Principal Investment Plus Variable Annuity	615,743	127,695	–	–
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	265,806	40,274	–	–

PIMCO Total Return Administrative Class
Division:
Principal Investment Plus Variable Annuity	1,245,783	289,782	362,358	9,471
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	210,202	107,101	50,069	2,181

Principal LifeTime Strategic Income Division:
Principal Freedom Variable Annuity 2	6	21,495	10,805	19,942
The Principal Variable Annuity	126,729	35,252	47,227	72,811
The Principal Variable Annuity With Purchase
Payment Credit Rider	28,017	25,532	42,548	9,653
Principal Investment Plus Variable Annuity	161,557	213,071	568,383	338,734
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	83,714	40,324	64,601	97,649

Principal LifeTime 2010 Division:
Principal Freedom Variable Annuity 2	739	16,782	–	65,777
The Principal Variable Annuity	32,976	27,550	42,114	42,497
The Principal Variable Annuity With Purchase
Payment Credit Rider	4,551	7,475	9,045	18,758
Principal Investment Plus Variable Annuity	134,333	259,670	559,036	426,510
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	55,981	40,201	71,024	80,179


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)








5. Changes in Units Outstanding (continued)

	2010		2009
Division:	Purchased	Redeemed	Purchased	Redeemed

Principal LifeTime 2020 Division:
Principal Freedom Variable Annuity 2	70,905	92,793	17,322	73,074
The Principal Variable Annuity	132,678	44,727	133,990	22,747
The Principal Variable Annuity With Purchase
Payment Credit Rider	7,383	16,391	48,285	12,835
Principal Investment Plus Variable Annuity	500,462	993,213	2,170,141	1,336,807
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	165,481	200,348	337,381	357,460

Principal LifeTime 2030 Division:
Principal Freedom Variable Annuity 2	10,634	24,182	18,613	91,834
The Principal Variable Annuity	25,186	12,115	53,212	22,194
The Principal Variable Annuity With Purchase
Payment Credit Rider	2,312	6,356	5,045	2,254
Principal Investment Plus Variable Annuity	730,983	360,466	2,304,264	267,889
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	86,082	79,274	631,822	139,772

Principal LifeTime 2040 Division:
Principal Freedom Variable Annuity 2	4,398	5,971	10	10,629
The Principal Variable Annuity	7,554	2,383	347	4,377
The Principal Variable Annuity With Purchase
Payment Credit Rider	4,269	831	1,206	2,898
Principal Investment Plus Variable Annuity	171,789	56,128	61,228	95,545
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	11,420	15,916	21,997	58,906

Principal LifeTime 2050 Division:
Principal Freedom Variable Annuity 2	–	3,008	–	5,795
The Principal Variable Annuity	13,899	3,527	1,378	3,137
The Principal Variable Annuity With Purchase
Payment Credit Rider	2,042	7,041	19,732	10,541
Principal Investment Plus Variable Annuity	49,453	41,805	55,534	41,275
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	19,175	23,800	14,638	24,773


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)








5. Changes in Units Outstanding (continued)

	2010		2009
Division:	Purchased	Redeemed	Purchased	Redeemed

Real Estate Securities Division:
Premier Variable	105,096	151,615	50,222	52,753
Principal Freedom Variable Annuity 2	10,524	12,288	9,014	13,037
The Principal Variable Annuity	282,804	436,827	287,038	502,930
The Principal Variable Annuity With Purchase
Payment Credit Rider	53,750	325,330	131,116	318,886
Principal Investment Plus Variable Annuity	125,990	148,720	159,238	122,341
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	30,402	39,456	45,685	53,068

SAM Balanced Portfolio Division:
Principal Freedom Variable Annuity 2	33,933	36,300	96,258	37,861
The Principal Variable Annuity	1,090,110	1,082,778	1,960,167	637,041
The Principal Variable Annuity With Purchase
Payment Credit Rider	375,559	602,474	586,391	446,853
Principal Investment Plus Variable Annuity	8,385,040	5,130,846	31,601,567	3,524,872
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	1,265,907	730,826	3,260,796	496,159

SAM Conservative Balanced Portfolio Division:
Principal Freedom Variable Annuity 2	74,533	14,329	25,862	16,702
The Principal Variable Annuity	782,238	590,656	1,076,882	299,127
The Principal Variable Annuity With Purchase
Payment Credit Rider	171,041	247,735	399,093	417,847
Principal Investment Plus Variable Annuity	2,437,221	1,910,427	6,520,200	1,259,636
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	175,902	402,354	1,256,439	471,221

SAM Conservative Growth Portfolio Division:
Principal Freedom Variable Annuity 2	6,817	14,407	42,850	13,020
The Principal Variable Annuity	408,011	340,298	614,175	134,095
The Principal Variable Annuity With Purchase
Payment Credit Rider	144,957	199,239	391,402	330,062
Principal Investment Plus Variable Annuity	1,307,458	508,300	1,296,712	413,304
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	258,035	244,212	360,583	187,139


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)








5. Changes in Units Outstanding (continued)

	2010		2009
Division:	Purchased	Redeemed	Purchased	Redeemed

SAM Flexible Income Portfolio Division:
Principal Freedom Variable Annuity 2	46,524	6,797	6,797	–
The Principal Variable Annuity	1,321,772	904,930	1,120,624	896,320
The Principal Variable Annuity With Purchase
Payment Credit Rider	200,580	360,809	498,896	525,267
Principal Investment Plus Variable Annuity	2,529,261	1,401,616	5,631,313	1,359,905
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	507,695	391,346	1,432,454	1,037,592

SAM Strategic Growth Portfolio Division:
Principal Freedom Variable Annuity 2	15,796	14,261	50,381	3,461
The Principal Variable Annuity	387,504	254,702	540,802	272,116
The Principal Variable Annuity With Purchase
Payment Credit Rider	23,049	143,683	228,434	115,749
Principal Investment Plus Variable Annuity	722,550	272,727	813,782	261,462
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	218,876	249,968	384,464	157,962

Short-Term Income Division:
Principal Freedom Variable Annuity	233,900	25,228	9,311	607
Principal Freedom Variable Annuity 2	11,127	9,662	4,749	–
The Principal Variable Annuity	3,076,190	1,042,146	648,474	145,251
The Principal Variable Annuity With Purchase
Payment Credit Rider	838,487	214,690	282,217	117,634
Principal Investment Plus Variable Annuity	9,923,549	2,558,945	1,492,632	189,874
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	2,410,086	273,337	226,614	64,063

SmallCap Blend Division:
Premier Variable	77,523	116,753	62,611	34,318
Principal Freedom Variable Annuity	4,585	40,956	17,803	45,402
Principal Freedom Variable Annuity 2	8,491	8,288	9,006	11,283
The Principal Variable Annuity	319,261	564,184	367,028	594,924
The Principal Variable Annuity With Purchase
Payment Credit Rider	51,488	264,187	57,724	337,505


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)








5. Changes in Units Outstanding (continued)

	2010		2009
Division:	Purchased	Redeemed	Purchased	Redeemed

SmallCap Growth II Division:
Premier Variable	129,833	114,231	339,591	272,832
Principal Freedom Variable Annuity	2,482	18,741	7,600	18,526
Principal Freedom Variable Annuity 2	1,313	1,110	115	917
The Principal Variable Annuity	267,846	485,686	285,723	485,373
The Principal Variable Annuity With Purchase
Payment Credit Rider	35,830	227,810	64,737	242,677
Principal Investment Plus Variable Annuity	132,596	97,392	150,826	97,162
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	20,932	41,507	50,215	35,433

SmallCap Value I Division:
Premier Variable	100,575	99,021	158,948	136,017
Principal Freedom Variable Annuity 2	2,027	3,143	147	5,285
The Principal Variable Annuity	277,941	418,869	268,036	446,076
The Principal Variable Annuity With Purchase
Payment Credit Rider	36,555	262,853	51,274	227,598
Principal Investment Plus Variable Annuity	170,806	363,707	541,262	454,240
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	56,522	119,347	107,571	121,592

T. Rowe Price Blue Chip Growth II Division:
Principal Investment Plus Variable Annuity	180,258	110,137	388,099	119,494
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	23,851	15,987	36,633	12,329

T. Rowe Price Health Sciences II Division:
Principal Investment Plus Variable Annuity	98,579	52,209	118,200	122,885
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	20,046	11,534	27,866	21,003

Templeton Growth Securities Class 2 Division:
Principal Freedom Variable Annuity	2,295	15,448	5,875	19,173

Van Eck VIP Global Hard Assets Class Division:
The Principal Variable Annuity	86,673	9,369	63,824	4,206
The Principal Variable Annuity With Purchase
Payment Credit Rider	7,045	1,053	31,414	8,853
Principal Investment Plus Variable Annuity	152,983	22,689	–	–
Principal Investment Plus Variable Annuity with
Premium Payment Credit Rider	34,423	7,252	–	–


Principal Life Insurance Company
Separate Account B

Notes to Financial Statements (continued)




6. Financial Highlights

Principal Life sells anumber of variable annuity products, which have unique combinations of
features and fees that are charged against the contract owner’s account balance. Differences in the
fee structures result in a variety of unit values, expense ratios, and total returns.

Separate Account B has presented the following disclosures for 2010, 2009, 2008, 2007, and 2006
in accordance with AICPA Audit and Accounting Guide for Investment Companies. The following
table was developed by determining which products issued by Principal Life have the lowest and
highest total return. Only product designs within each division that had units outstanding during the
respective periods were considered when determining the lowest and highest total return. The
summary may not reflect the minimum and maximum contract charges offered by Principal Life as
contract owners may not have selected all available and applicable contract options as discussed in
Note 2.

				For the Year Ended December 31,
		December 31		Except as Noted
		Unit Fair Value			Expense
		Corresponding to	Net	Investment	Ratio (2)
	Units	Lowest to Highest	Assets	Income	Lowest to	Total Return (3)
Division	(000’s)	Expense Ratio	(000’s)	Ratio (1)	Highest	Lowest to Highest
AllianceBernstein VP Series
Small Cap Growth Class A
Division:
2010	234	$15.80 to $15.21	$3,666	–%	1.25% to 1.85%	35.16% to 34.36%
2009	164	11.69 to 11.32	1,902	–	1.25 to 1.85	40.00 to 39.24
2008	147	8.35 to 8.13	1,217	–	1.25 to 1.85	(46.23) to (46.58)
2007	120	15.53 to 15.22	1,843	–	1.25 to 1.85	12.65 to 11.97
2006	72	13.78 to 13.59	994	–	1.25 to 1.85	9.31 to 8.66
American Century VP Income &
Growth Class I Division:
2010	1,644	10.54 to 9.62	16,653	1.52	0.85 to 1.85	13.09 to 12.12
2009	1,954	9.32 to 8.58	17,506	4.89	0.85 to 1.85	17.09 to 15.95
2008	2,330	7.96 to 7.40	17,876	2.11	0.85 to 1.85	(35.13) to (35.82)
2007	2,869	12.27 to 11.53	34,147	1.87	0.85 to 1.85	(0.92) to (1.91)
2006	3,173	12.38 to 11.76	38,341	1.80	0.85 to 1.85	16.10 to 14.95


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)








6. Financial Highlights (continued)
				For the Year Ended December 31,
		December 31		Except as Noted
		Unit Fair Value			Expense
		Corresponding to	Net	Investment	Ratio (2)
	Units	Lowest to Highest	Assets	Income	Lowest to	Total Return (3)
Division	(000’s)	Expense Ratio	(000’s)	Ratio (1)	Highest	Lowest to Highest

American Century VP Inflation
Protection Class II Division:
2010	7,137	$12.17 to $11.72	$86,144	1.68%	1.25% to 1.85%	3.75% to 3.17%
2009	6,976	11.73 to 11.36	81,192	1.75	1.25 to 1.85	8.91 to 8.29
2008	6,325	10.77 to 10.49	67,684	4.86	1.25 to 1.85	(2.89) to (3.50)
2007	6,990	11.09 to 10.87	77,061	4.39	1.25 to 1.85	8.17 to 7.52
2006	4,767	10.25 to 10.11	48,661	3.17	1.25 to 1.85	0.33 to (0.27)

American Century VP Mid Cap
Value Class II Division:
2010 (12)	57	11.58 to 11.54	663	3.40	1.25 to 1.85	17.33 to 16.92

American Century VP Ultra®
Class I Division:
2010	526	9.51 to 8.98	4,935	0.55	1.25 to 1.85	14.58 to 13.96
2009	629	8.30 to 7.88	5,126	0.29	1.25 to 1.85	32.80 to 31.99
2008	715	6.25 to 5.97	4,393	–	1.25 to 1.85	(42.18) to (42.54)
2007	907	10.81 to 10.39	9,654	–	1.25 to 1.85	19.51 to 18.79
2006	1,057	9.04 to 8.74	9,446	–	1.25 to 1.85	(4.47) to (5.04)

American Century VP Ultra®
Class II Division:
2010	5,256	11.26 to 10.84	58,641	0.36	1.25 to 1.85	14.31 to 13.75
2009	5,741	9.85 to 9.53	56,071	0.18	1.25 to 1.85	32.93 to 31.99
2008	6,614	7.41 to 7.22	48,692	–	1.25 to 1.85	(42.38) to (42.74)
2007	4,877	12.86 to 12.61	62,389	–	1.25 to 1.85	19.33 to 18.62
2006	3,842	10.78 to 10.63	41,243	–	1.25 to 1.85	(4.59) to (5.16)

American Century VP Value
Class II Division:
2010	1,961	13.04 to 12.38	25,180	2.05	1.25 to 1.85	11.64 to 11.03
2009	2,252	11.68 to 11.15	25,912	5.58	1.25 to 1.85	18.22 to 17.49
2008	2,665	9.88 to 9.49	25,960	2.38	1.25 to 1.85	(27.67) to (28.16)
2007	3,286	13.66 to 13.21	44,384	1.46	1.25 to 1.85	(6.49) to (7.05)
2006	3,494	14.61 to 14.21	50,565	1.17	1.25 to 1.85	17.00 to 16.30


Principal Life Insurance Company

Separate Account B


Notes to Financial Statements (continued)




6. Financial Highlights (continued)
				For the Year Ended December 31,
		December 31		Except as Noted
		Unit Fair Value			Expense
		Corresponding to	Net	Investment	Ratio (2)
	Units	Lowest to Highest	Assets	Income	Lowest to	Total Return (3)
Division	(000’s)	Expense Ratio	(000’s)	Ratio (1)	Highest	Lowest to Highest

American Century VP Vista^SM
Class I Division:
2010	219	$13.93 to $13.41	$3,007	–%	1.25% to 1.85%	22.41% to 21.69%
2009	197	11.38 to 11.02	2,219	–	1.25 to 1.85	20.94 to 20.17
2008	203	9.41 to 9.17	1,892	–	1.25 to 1.85	(49.27) to (49.56)
2007	163	18.55 to 18.18	2,996	–	1.25 to 1.85	38.03 to 37.20
2006	52	13.44 to 13.25	694	–	1.25 to 1.85	7.66 to 7.01

Asset Allocation Division:
2010	2,101	1.43 to 23.53	49,340	2.45	0.46 to 1.85	8.64 to 7.10
2009	2,430	1.32 to 21.97	52,865	2.97	0.44 to 1.85	18.28 to 16.61
2008	2,701	1.11 to 18.84	50,513	3.02	0.51 to 1.85	(25.15) to (26.20)
2007	3,276	1.49 to 25.53	85,057	1.39	0.42 to 1.85	11.31 to 9.72
2006	3,514	1.34 to 23.27	84,221	0.77	0.42 to 1.85	12.29 to 10.71

Balanced Division:
2010	3,334	2.19 to 18.46	42,696	2.76	0.42 to 1.85	13.15 to 11.54
2009	3,884	1.94 to 16.55	44,052	4.94	0.41 to 1.85	20.65 to 18.98
2008	4,571	1.61 to 13.91	44,975	3.67	0.41 to 1.85	(31.21) to (32.21)
2007	5,932	2.34 to 20.52	85,957	2.60	0.42 to 1.85	4.93 to 3.43
2006	6,432	2.17 to 19.84	92,320	2.49	0.42 to 1.85	10.73 to 9.40

Bond & Mortgage Securities
Division:
2010	13,628	2.40 to 19.61	253,669	5.27	0.43 to 1.85	11.19 to 9.61
2009	15,157	2.16 to 17.89	251,405	11.41	0.40 to 1.85	20.41 to 18.71
2008	16,901	1.79 to 15.07	238,616	6.18	0.44 to 1.85	(17.41) to (18.58)
2007	20,618	2.17 to 18.51	358,686	4.24	0.42 to 1.85	2.97 to 1.50
2006	18,814	2.11 to 18.24	319,793	3.87	0.42 to 1.85	4.21 to 2.73

Principal Capital Appreciation
2010	754	10.07 to 9.74	7,466	1.80	0.95 to 1.85	14.30 to 13.26
2009	537	8.81 to 8.60	4,670	1.68	0.95 to 1.85	28.61 to 27.41
2008	306	6.85 to 6.75	2,080	1.08	0.95 to 1.85	(34.01) to (34.59)
2007 (7)	139	10.38 to 10.32	1,433	0.08	0.95 to 1.85	3.48 to 2.86

Diversified Balanced Division:
2010 (11)	15,601	10.88 to 10.82	169,723	–	1.25 to 1.85	7.94 to 7.34


Principal Life Insurance Company

Separate Account B


Notes to Financial Statements (continued)




6. Financial Highlights (continued)
				For the Year Ended December 31,
		December 31			Except as Noted
		Unit Fair Value			Expense
		Corresponding to	Net	Investment	Ratio (2)
	Units	Lowest to Highest	Assets	Income	Lowest to	Total Return (3)
Division	(000’s)	Expense Ratio	(000’s)	Ratio (1)	Highest	Lowest to Highest

Diversified Growth Division:
2010 (11)	29,374	$11.03 to $10.97	$323,912	–%	1.25% to 1.85%	9.10% to 8.51%

Diversified International Division:
2010	11,979	2.67 to 22.17	237,656	2.09	0.41 to 1.85	13.25 to 11.63
2009 (4)	10,543	2.36 to 19.86	176,753	5.22	0.40 to 1.85	27.22 to 26.50
2008	11,444	1.85 to 15.70	151,539	1.79	0.41 to 1.85	(46.44) to (47.19)
2007	13,180	3.46 to 29.73	325,698	0.91	0.42 to 1.85	15.60 to 13.95
2006	13,309	2.99 to 26.09	290,731	1.18	0.42 to 1.85	27.43 to 25.63

Dreyfus IP Technology Growth
Service Shares Division:
2010	243	15.86 to 15.26	3,834	–	1.25 to 1.85	28.01 to 27.27
2009	197	12.39 to 11.99	2,425	0.12	1.25 to 1.85	55.26 to 54.11
2008	90	7.98 to 7.78	710	–	1.25 to 1.85	(42.01) to (42.33)
2007	75	13.76 to 13.49	1,018	–	1.25 to 1.85	13.01 to 12.33
2006	37	12.18 to 12.00	452	–	1.25 to 1.85	2.75 to 2.13

Equity Income Division:
2010	19,001	1.17 to 8.99	173,784	3.26	0.29 to 1.85	15.69 to 14.09
2009	20,376	1.01 to 7.88	162,644	5.86	0.55 to 1.85	19.23 to 17.79
2008	21,213	0.85 to 6.69	142,949	2.55	0.48 to 1.85	(34.22) to (35.17)
2007 (6)	20,275	1.29 to 10.32	209,477	0.94	0.42 to 1.85	5.73 to 3.46

Fidelity VIP Equity-Income
Service Class 2 Division:
2010	3,931	11.47 to 10.89	44,413	1.59	1.25 to 1.85	13.45 to 12.85
2009	4,491	10.11 to 9.65	44,737	2.08	1.25 to 1.85	28.30 to 27.48
2008	4,936	7.88 to 7.57	38,384	2.15	1.25 to 1.85	(43.51) to (43.88)
2007	5,796	13.95 to 13.49	79,977	1.62	1.25 to 1.85	0.01 to (0.59)
2006	5,585	13.95 to 13.57	77,174	2.96	1.25 to 1.85	18.44 to 17.74

Fidelity VIP Growth Service
Class Division:
2010	2,117	8.87 to 8.35	18,620	0.17	1.25 to 1.85	22.51 to 21.90
2009	2,477	7.24 to 6.85	17,734	0.33	1.25 to 1.85	26.57 to 25.69
2008	2,945	5.72 to 5.45	16,640	0.68	1.25 to 1.85	(47.91) to (48.19)
2007	3,524	10.98 to 10.52	38,299	0.62	1.25 to 1.85	25.29 to 24.53
2006	3,889	8.76 to 8.45	33,789	0.30	1.25 to 1.85	5.41 to 4.78


Principal Life Insurance Company

Separate Account B


Notes to Financial Statements (continued)




6. Financial Highlights (continued)
				For the Year Ended December 31,
		December 31		Except as Noted
		Unit Fair Value			Expense
		Corresponding to	Net	Investment	Ratio (2)
	Units	Lowest to Highest	Assets	Income	Lowest to	Total Return (3)
Division	(000’s)	Expense Ratio	(000’s)	Ratio (1)	Highest	Lowest to Highest

Fidelity VIP Growth Service
Class 2 Division:
2010	666	$12.12 to $11.67	$7,988	0.03%	1.25% to 1.85%	22.30% to 21.56%
2009	657	9.91 to 9.60	6,438	0.21	1.25 to 1.85	26.40 to 25.65
2008	675	7.84 to 7.64	5,242	0.61	1.25 to 1.85	(47.98) to (48.27)
2007	607	15.07 to 14.77	9,071	0.30	1.25 to 1.85	25.08 to 24.33
2006	364	12.05 to 11.88	4,365	0.09	1.25 to 1.85	5.25 to 4.62

Fidelity VIP Overseas Service
Class 2 Division:
2010	3,425	14.23 to 13.70	48,259	1.28	1.25 to 1.85	11.52 to 10.84
2009	3,652	12.76 to 12.36	46,197	1.96	1.25 to 1.85	24.61 to 23.97
2008	3,679	10.24 to 9.97	37,380	2.74	1.25 to 1.85	(44.65) to (45.01)
2007	2,903	18.50 to 18.13	53,358	2.91	1.25 to 1.85	15.59 to 14.90
2006	2,197	16.00 to 15.78	35,000	0.42	1.25 to 1.85	16.31 to 15.62

Fidelity VIP Contrafund
Service Class Division:
2010	4,237	15.07 to 14.18	63,341	1.05	1.25 to 1.85	15.66 to 14.91
2009	5,121	13.03 to 12.34	66,028	1.28	1.25 to 1.85	33.92 to 33.26
2008	5,998	9.73 to 9.26	57,669	0.83	1.25 to 1.85	(43.30) to (43.71)
2007	7,435	17.16 to 16.45	126,342	0.83	1.25 to 1.85	16.04 to 15.34
2006	8,076	14.79 to 14.26	118,478	1.10	1.25 to 1.85	10.21 to 9.55

Fidelity VIP Contrafund
Service Class 2 Division:
2010	3,317	14.60 to 14.05	48,069	1.05	1.25 to 1.85	15.51 to 14.79
2009	3,293	12.64 to 12.24	41,367	1.25	1.25 to 1.85	33.76 to 32.90
2008	3,058	9.45 to 9.21	28,737	0.84	1.25 to 1.85	(43.41) to (43.70)
2007	2,571	16.70 to 16.36	42,751	0.90	1.25 to 1.85	15.84 to 15.14
2006	1,620	14.41 to 14.21	23,281	1.10	1.25 to 1.85	10.05 to 9.39

Fidelity VIP Mid Cap Service
Class 2 Division:
2010	693	18.57 to 17.87	12,784	0.14	1.25 to 1.85	26.93 to 26.20
2009	522	14.63 to 14.16	7,571	0.48	1.25 to 1.85	38.02 to 37.21
2008	490	10.60 to 10.32	5,161	0.24	1.25 to 1.85	(40.35) to (40.72)
2007	426	17.77 to 17.41	7,539	0.49	1.25 to 1.85	13.90 to 13.21
2006	283	15.60 to 15.38	4,393	0.09	1.25 to 1.85	11.01 to 10.35

Principal Life Insurance Company

Separate Account B

Notes to Financial Statements (continued)


6. Financial Highlights (continued)
				For the Year Ended December 31,
		December 31		Except as Noted
		Unit Fair Value			Expense
		Corresponding to	Net	Investment	Ratio (2)
	Units	Lowest to Highest	Assets	Income	Lowest to	Total Return (3)
Division	(000’s)	Expense Ratio	(000’s)	Ratio (1)	Highest	Lowest to Highest

Franklin Small Cap Value
Securities Class 2 Division:
2010 (11)	35	$12.66 to $12.59	$447	0.42%	1.25% to 1.85%	23.75% to 23.07%

Goldman Sachs VIT Mid Cap
Value Institutional Class Division:
2010	1,150	15.29 to 14.71	17,385	0.67	1.25 to 1.85	23.51 to 22.69
2009	1,297	12.38 to 11.99	15,906	1.88	1.25 to 1.85	31.42 to 30.75
2008	1,385	9.42 to 9.17	12,939	1.07	1.25 to 1.85	(37.82) to (38.25)
2007	1,341	15.15 to 14.85	20,193	0.93	1.25 to 1.85	1.91 to 1.30
2006	853	14.86 to 14.65	12,621	1.43	1.25 to 1.85	14.72 to 14.04

Goldman Sachs VIT Structured
Small Cap Equity Institutional
Class Division:
2010	516	11.74 to 11.30	6,007	0.57	1.25 to 1.85	28.59 to 27.83
2009	487	9.13 to 8.84	4,414	1.30	1.25 to 1.85	26.10 to 25.21
2008	460	7.24 to 7.06	3,310	0.71	1.25 to 1.85	(34.89) to (35.23)
2007	419	11.12 to 10.90	4,626	0.42	1.25 to 1.85	(17.53) to (18.02)
2006	298	13.48 to 13.29	4,001	0.94	1.25 to 1.85	10.88 to 10.22

Government & High Quality
Bond Division:
2010 (22)	20,724	2.47 to 10.96	216,707	5.00	0.44 to 1.85	5.71 to 3.98
2009	1,180	10.66 to 10.54	12,511	8.98	0.85 to 1.85	5.54 to 103.87
2008 (9)	26	10.10 to 5.17	259	–	0.85 to 1.85	1.20 to (48.20)

International Emerging Markets
Division:
2010	3,189	4.03 to 34.45	108,919	1.25	0.41 to 1.85	18.76 to 17.10
2009 (4)	3,554	3.40 to 29.42	103,506	2.08	0.42 to 1.85	68.27 to 66.50
2008	3,574	2.02 to 17.67	62,435	1.14	0.43 to 1.85	(55.05) to (55.69)
2007	4,121	4.49 to 39.88	163,677	0.91	0.42 to 1.85	41.51 to 39.49
2006	3,632	3.17 to 28.59	104,347	–	0.42 to 1.85	37.74 to 35.79


Principal Life Insurance Company

Separate Account B


Notes to Financial Statements (continued)




6. Financial Highlights (continued)
				For the Year Ended December 31,
		December 31		Except as Noted
		Unit Fair Value			Expense
		Corresponding to	Net	Investment	Ratio (2)
	Units	Lowest to Highest	Assets	Income	Lowest to	Total Return (3)
Division	(000’s)	Expense Ratio	(000’s)	Ratio (1)	Highest	Lowest to Highest

Invesco V.I. Basic Value Series I
Division:
2010 (13)	446	$9.71 to $9.34	$4,298	0.65%	1.25% to 1.85%	6.00% to 5.30%
2009	388	9.16 to 8.87	3,530	2.35	1.25 to 1.85	46.09 to 45.41
2008	136	6.27 to 6.10	842	1.04	1.25 to 1.85	(52.32) to (52.68)
2007	113	13.15 to 12.89	1,479	0.55	1.25 to 1.85	0.28 to (0.33)
2006	82	13.12 to 12.93	1,073	0.64	1.25 to 1.85	11.80 to 11.13

Invesco V.I. Capital Appreciation
Series I Division:
2010 (14)	714	8.46 to 8.23	6,028	0.74	1.25 to 1.85	14.02 to 13.36
2009	836	7.42 to 7.26	6,191	0.63	1.25 to 1.85	19.68 to 19.02
2008	992	6.20 to 6.10	6,141	–	1.25 to 1.85	(43.22) to (43.62)
2007	1,295	10.92 to 10.82	14,126	–	1.25 to 1.85	10.61 to 9.95
2006 (5)	1,579	9.88 to 9.84	15,582	0.07	1.25 to 1.85	(1.12) to (1.52)

Invesco V.I. Core Equity Series I
Division:
2010 (15)	2,686	10.38 to 9.77	27,717	0.95	1.25 to 1.85	8.12 to 7.48
2009	3,316	9.60 to 9.09	31,520	1.80	1.25 to 1.85	26.82 to 26.07
2008	4,018	7.57 to 7.21	30,085	1.97	1.25 to 1.85	(31.06) to (31.46)
2007	5,185	10.98 to 10.52	56,331	1.05	1.25 to 1.85	6.77 to 6.12
2006	6,064	10.28 to 9.91	61,828	0.61	1.25 to 1.85	15.26 to 14.57

Invesco V.I. Dynamics Series I
Division:
2010 (16)	280	10.03 to 9.46	2,742	–	1.25 to 1.85	22.32 to 21.44
2009	309	8.20 to 7.79	2,468	–	1.25 to 1.85	40.65 to 39.86
2008	316	5.83 to 5.57	1,800	–	1.25 to 1.85	(48.72) to (48.99)
2007	395	11.37 to 10.92	4,416	–	1.25 to 1.85	10.79 to 10.12
2006	303	10.26 to 9.92	3,068	–	1.25 to 1.85	14.68 to 13.99

Invesco V.I. Global Health Care
Series I Division:
2010 (17)	663	11.20 to 10.58	7,323	–	1.25 to 1.85	3.99 to 3.42
2009	818	10.77 to 10.23	8,655	0.34	1.25 to 1.85	25.96 to 25.37
2008	1,002	8.55 to 8.16	8,405	–	1.25 to 1.85	(29.46) to (29.96)
2007	1,170	12.12 to 11.65	13,957	–	1.25 to 1.85	10.46 to 9.79
2006	1,279	10.98 to 10.61	13,857	–	1.25 to 1.85	3.93 to 3.31


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)









6. Financial Highlights (continued)
				For the Year Ended December 31,
		December 31		Except as Noted
		Unit Fair Value			Expense
		Corresponding to	Net	Investment	Ratio (2)
	Units	Lowest to Highest	Assets	Income	Lowest to	Total Return (3)
Division	(000’s)	Expense Ratio	(000’s)	Ratio (1)	Highest	Lowest to Highest

Invesco V.I. International
Growth Series I Division:
2010 (18)	503	$9.05 to $8.90	$4,542	2.48%	1.25% to 1.85%	11.45% to 10.70%
2009	400	8.12 to 8.04	3,243	2.96	1.25 to 1.85	33.55 to 32.89
2008 (8)	18	6.08 to 6.05	112	1.65	1.25 to 1.85	(39.14) to (39.44)

Invesco V.I. Small Cap Equity
Series I Division:
2010 (19)	498	15.23 to 14.66	7,524	–	1.25 to 1.85	27.02 to 26.27
2009	476	11.99 to 11.61	5,662	0.20	1.25 to 1.85	19.78 to 19.08
2008	410	10.01 to 9.75	4,072	–	1.25 to 1.85	(32.18) to (32.62)
2007	413	14.76 to 14.47	6,049	0.05	1.25 to 1.85	(1.03) to 3.25
2006	55	14.21 to 14.01	775	–	1.25 to 1.85	15.98 to 15.29

Invesco V.I. Technology Series I
Division:
2010 (20)	772	6.58 to 6.21	4,981	–	1.25 to 1.85	19.85 to 19.19
2009	1,000	5.49 to 5.21	5,388	–	1.25 to 1.85	55.52 to 54.60
2008	807	3.53 to 3.37	2,798	–	1.25 to 1.85	(45.19) to (45.56)
2007	1,034	6.44 to 6.19	6,561	–	1.25 to 1.85	6.36 to 5.72
2006	1,028	6.06 to 5.86	6,148	–	1.25 to 1.85	9.11 to 8.46

Janus Aspen Enterprise
Service Shares Division:
2010	1,395	9.13 to 8.59	12,638	–	1.25 to 1.85	24.05 to 23.24
2009	1,712	7.36 to 6.97	12,455	–	1.25 to 1.85	42.64 to 41.67
2008	1,967	5.16 to 4.92	9,984	0.06	1.25 to 1.85	(44.58) to (44.84)
2007	2,454	9.31 to 8.92	22,519	0.07	1.25 to 1.85	20.22 to 19.50
2006	2,530	7.74 to 7.47	19,323	–	1.25 to 1.85	11.90 to 11.23

LargeCap Blend II Division:
2010	13,116	12.15 to 11.54	157,179	2.47	1.25 to 1.85	11.88 to 11.18
2009	14,829	10.86 to 10.38	159,053	1.87	1.25 to 1.85	28.07 to 27.36
2008	16,533	8.48 to 8.15	138,623	1.40	1.25 to 1.85	(37.23) to (37.60)
2007	16,908	13.51 to 13.06	226,044	0.67	1.25 to 1.85	3.81 to 3.19
2006	14,897	13.01 to 12.65	192,106	0.62	1.25 to 1.85	14.38 to 13.70


		Principal Life Insurance Company

		Separate Account B


	Notes to Financial Statements (continued)




6. Financial Highlights (continued)
				For the Year Ended December 31,
		December 31		Except as Noted
		Unit Fair Value			Expense
		Corresponding to	Net	Investment	Ratio (2)
	Units	Lowest to Highest	Assets	Income	Lowest to	Total Return (3)
Division	(000’s)	Expense Ratio	(000’s)	Ratio (1)	Highest	Lowest to Highest

LargeCap Growth Division:
2010	5,184	$2.02 to $17.40	$59,163	0.06%	0.42% to 1.85%	17.88% to 16.23%
2009	6,145	1.72 to 14.97	58,964	0.76	0.40 to 1.85	26.48 to 24.65
2008	6,697	1.36 to 12.01	49,772	0.52	0.41 to 1.85	(43.40) to (44.19)
2007	7,931	2.40 to 21.52	104,201	0.17	0.42 to 1.85	22.68 to 20.93
2006	8,539	1.95 to 17.80	96,085	0.27	0.42 to 1.85	9.46 to 7.91

LargeCap Growth I Division:
2010	3,814	1.23 to 31.66	116,970	0.13	0.53 to 1.85	19.10 to 17.43
2009	4,745	1.03 to 26.96	118,873	0.05	0.49 to 1.85	52.05 to 49.86
2008	4,983	0.68 to 17.99	89,910	0.17	0.49 to 1.85	(40.85) to (41.69)
2007	6,013	1.14 to 30.85	185,017	0.53	0.42 to 1.85	8.14 to 6.52
2006	6,016	1.06 to 28.96	179,750	–	0.42 to 1.85	5.71 to 4.27

LargeCap S&P 500 Index
Division:
2010	10,207	1.15 to 9.07	96,644	1.44	0.21 to 1.85	14.19 to 12.67
2009	11,964	1.01 to 8.05	96,031	4.51	0.37 to 1.85	25.78 to 23.85
2008	12,828	0.80 to 6.50	82,148	2.42	0.43 to 1.85	(37.36) to (38.21)
2007	14,712	1.28 to 10.52	154,077	1.39	0.42 to 1.85	4.70 to 3.21
2006	15,070	1.22 to 10.19	152,650	1.33	0.42 to 1.85	15.09 to 13.46

LargeCap Value Division:
2010	6,439	35.82 to 22.60	97,515	1.77	0.29 to 1.85	13.54 to 11.99
2009	7,449	31.55 to 20.18	99,153	5.02	0.35 to 1.85	15.90 to 14.14
2008	8,481	2.34 to 17.68	97,288	2.36	0.41 to 1.85	(35.44) to (36.36)
2007	10,935	3.63 to 27.78	193,783	1.66	0.42 to 1.85	(0.52) to (1.94)
2006	11,695	3.65 to 28.33	213,650	1.57	0.42 to 1.85	19.45 to 17.76

LargeCap Value III Division:
2010	11,898	10.78 to 10.23	126,523	1.79	1.25 to 1.85	11.48 to 10.71
2009	13,417	9.67 to 9.24	128,180	3.72	1.25 to 1.85	18.36 to 17.71
2008	13,977	8.17 to 7.85	113,001	2.34	1.25 to 1.85	(41.56) to (41.89)
2007	13,775	13.98 to 13.51	190,694	1.26	1.25 to 1.85	(4.92) to (5.49)
2006	11,912	14.70 to 14.30	173,683	0.94	1.25 to 1.85	20.04 to 19.33

MFS® VIT Utilities Service Class
Division:
2010	111	14.60 to 14.46	1,619	2.09	1.25 to 1.85	12.05 to 11.40
2009 (11)	46	13.03 to 12.98	594	–	1.25 to 1.85	27.62 to 27.13


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)









6. Financial Highlights (continued)
				For the Year Ended December 31,
		December 31		Except as Noted
		Unit Fair Value			Expense
		Corresponding to	Net	Investment	Ratio (2)
	Units	Lowest to Highest	Assets	Income	Lowest to	Total Return (3)
Division	(000’s)	Expense Ratio	(000’s)	Ratio (1)	Highest	Lowest to Highest

MFS® VIT Value Service Class
Division:
2010	109	$13.34 to $13.21	$1,459	1.08%	1.25% to 1.85%	9.79% to 9.17%
2009 (11)	38	12.15 to 12.10	467	–	1.25 to 1.85	18.31 to 17.82

MidCap Blend Division:
2010	10,174	4.92 to 41.29	378,975	2.61	0.44 to 1.85	23.58 to 21.84
2009	8,467	3.98 to 33.89	245,427	0.86	0.40 to 1.85	33.20 to 31.31
2008	9,635	2.99 to 25.81	211,731	0.63	0.44 to 1.85	(34.20) to (35.15)
2007	11,351	4.54 to 39.80	380,164	0.61	0.42 to 1.85	8.99 to 7.43
2006	11,881	4.17 to 37.04	367,161	1.03	0.42 to 1.85	13.75 to 12.14

Money Market Division:
2010	10,709	1.70 to 13.31	115,064	–	0.40 to 1.85	(0.42) to (1.84)
2009	14,990	1.71 to 13.56	164,649	0.32	0.43 to 1.85	(0.20) to (1.60)
2008	20,768	1.71 to 13.78	244,388	2.44	0.40 to 1.85	2.15 to 0.73
2007	12,707	1.68 to 13.68	131,679	4.73	0.42 to 1.85	4.55 to 2.96
2006	9,838	1.60 to 13.29	94,506	4.53	0.42 to 1.85	4.32 to 2.71

Neuberger Berman AMT Partners
I Class Division:
2010	395	13.54 to 13.03	5,296	0.62	1.25 to 1.85	14.26 to 13.50
2009	456	11.85 to 11.48	5,364	2.65	1.25 to 1.85	54.10 to 53.27
2008	479	7.69 to 7.49	3,660	0.54	1.25 to 1.85	(53.00) to (53.28)
2007	440	16.36 to 16.03	7,154	0.70	1.25 to 1.85	7.97 to 7.32
2006	310	15.15 to 14.94	4,672	0.96	1.25 to 1.85	10.85 to 10.19

Neuberger Berman AMT Small
Cap Growth S Class Division:
2010	330	9.84 to 9.47	3,211	–	1.25 to 1.85	18.13 to 17.49
2009	338	8.33 to 8.06	2,780	–	1.25 to 1.85	21.25 to 20.48
2008	288	6.87 to 6.69	1,961	–	1.25 to 1.85	(40.21) to (40.59)
2007	273	11.49 to 11.26	3,111	–	1.25 to 1.85	(0.74) to (1.34)
2006	174	11.58 to 11.42	2,008	–	1.25 to 1.85	3.95 to 3.33


		Principal Life Insurance Company
		Separate Account B


	Notes to Financial Statements (continued)




6. Financial Highlights (continued)
				For the Year Ended December 31,
		December 31			Except as Noted
		Unit Fair Value			Expense
		Corresponding to	Net	Investment	Ratio (2)
	Units	Lowest to Highest	Assets	Income	Lowest to	Total Return (3)
Division	(000’s)	Expense Ratio	(000’s)	Ratio (1)	Highest	Lowest to Highest

Neuberger Berman AMT Socially
Responsive I Class Division:
2010	470	$13.63 to $13.12	$6,359	0.04%	1.25% to 1.85%	21.37% to 20.59%
2009	477	11.23 to 10.88	5,324	2.33	1.25 to 1.85	29.83 to 29.06
2008	413	8.65 to 8.43	3,555	2.30	1.25 to 1.85	(40.22) to (40.55)
2007	325	14.47 to 14.18	4,689	0.10	1.25 to 1.85	6.27 to 5.63
2006	186	13.62 to 13.43	2,519	0.14	1.25 to 1.85	12.29 to 11.62


PIMCO All Asset
Administrative Class Division:
2010	234	12.83 to 12.71	2,994	9.57	1.25 to 1.85	11.66 to 11.00
2009 (10)	45	11.49 to 11.45	519	15.41	1.25 to 1.85	14.21 to 13.82

PIMCO High Yield
Administrative Class Division:
2010 (11)	714	11.31 to 11.24	8,052	6.63	1.25 to 1.85	12.65 to 11.95

PIMCO Total Return
Administrative Class Division:
2010	1,460	11.39 to 11.28	16,609	2.31	1.25 to 1.85	6.75 to 6.11
2009 (10)	401	10.67 to 10.63	4,273	3.19	1.25 to 1.85	6.70 to 6.30

Principal LifeTime Strategic
Income Division:
2010	2,070	10.61 to 11.40	24,280	4.80	0.95 to 1.85	10.29 to 9.20
2009	2,006	9.62 to 10.44	21,415	5.09	0.95 to 1.85	17.75 to 16.78
2008	1,811	8.17 to 8.94	16,446	3.91	0.95 to 1.85	(24.63) to (25.25)
2007	1,725	10.84 to 11.97	20,783	1.19	0.95 to 1.85	1.15 to (0.06)
2006	1,035	10.71 to 11.93	12,491	0.13	0.95 to 1.85	1.69 to 8.24

Principal LifeTime 2010 Division:
2010	3,413	10.67 to 11.79	41,055	4.30	0.95 to 1.85	12.79 to 11.86
2009	3,536	9.46 to 10.54	37,830	4.27	0.95 to 1.85	23.98 to 22.84
2008	3,489	7.63 to 8.58	30,145	4.31	0.95 to 1.85	(31.57) to (32.17)
2007	3,408	11.15 to 12.66	43,289	1.12	0.95 to 1.85	2.75 to 0.95
2006	2,089	10.85 to 12.43	26,166	0.04	0.95 to 1.85	2.75 to 10.24


Principal Life Insurance Company Separate Account B Notes to Financial Statements (continued)









6. Financial Highlights (continued)
				For the Year Ended December 31,
		December 31		Except as Noted
		Unit Fair Value			Expense
		Corresponding to	Net	Investment	Ratio (2)
	Units	Lowest to Highest	Assets	Income	Lowest to	Total Return (3)
Division	(000’s)	Expense Ratio	(000’s)	Ratio (1)	Highest	Lowest to Highest

Principal LifeTime 2020 Division:
2010	14,045	$10.76 to $12.25	$176,256	3.85%	0.95% to 1.85%	13.86% to 12.90%
2009	14,515	9.45 to 10.85	160,531	3.46	0.95 to 1.85	26.34 to 25.14
2008	13,611	7.48 to 8.67	119,536	4.33	0.95 to 1.85	(34.79) to (35.35)
2007	12,818	11.47 to 13.42	173,292	0.49	0.95 to 1.85	3.87 to 1.54
2006	7,291	11.04 to 13.03	95,945	–	0.95 to 1.85	3.41 to 13.06

Principal LifeTime 2030 Division:
2010	5,131	10.56 to 12.02	63,026	2.32	0.95 to 1.85	14.29 to 13.29
2009	4,758	9.24 to 10.61	51,252	1.78	0.95 to 1.85	26.92 to 25.86
2008	2,269	7.28 to 8.43	18,995	4.09	0.95 to 1.85	(36.97) to (37.60)
2007	1,816	11.55 to 13.52	24,342	0.35	0.95 to 1.85	4.96 to 1.97
2006	914	11.01 to 12.99	11,982	0.01	0.95 to 1.85	3.90 to 12.73

Principal LifeTime 2040 Division:
2010	869	10.48 to 12.14	10,823	2.23	0.95 to 1.85	14.79 to 13.78
2009	751	9.13 to 10.67	8,167	2.73	0.95 to 1.85	28.23 to 27.18
2008	839	7.12 to 8.39	7,122	3.94	0.95 to 1.85	(38.73) to (39.33)
2007	799	11.62 to 13.84	11,107	0.29	0.95 to 1.85	5.52 to 2.13
2006	390	11.01 to 13.22	5,191	0.02	0.95 to 1.85	4.22 to 13.03

Principal LifeTime 2050 Division:
2010	469	10.42 to 12.12	5,830	2.13	0.95 to 1.85	15.14 to 14.02
2009	464	9.05 to 10.63	5,018	2.41	0.95 to 1.85	28.73 to 27.76
2008	458	7.03 to 8.32	3,856	4.05	0.95 to 1.85	(39.60) to (40.19)
2007	426	11.64 to 13.92	5,960	0.21	0.95 to 1.85	5.61 to 2.26
2006	260	11.02 to 13.29	3,485	0.01	1.25 to 1.85	4.59 to 13.38

Real Estate Securities Division:
2010	2,507	2.80 to 29.17	75,755	2.99	0.67 to 1.85	25.17 to 23.44
2009	3,012	2.24 to 23.63	72,274	4.21	0.37 to 1.85	28.33 to 26.50
2008	3,393	1.74 to 18.68	64,057	2.39	0.47 to 1.85	(33.14) to (34.09)
2007	4,085	2.61 to 28.34	116,915	0.83	0.42 to 1.85	(18.04) to (19.21)
2006	5,236	3.18 to 35.07	181,645	1.59	0.42 to 1.85	35.90 to 34.11

SAM Balanced Portfolio
Division:
2010	66,480	10.43 to 10.09	684,067	3.60	0.95 to 1.85	12.51 to 11.49
2009	62,913	9.27 to 9.05	577,353	3.66	0.95 to 1.85	22.62 to 21.64
2008	30,551	7.56 to 7.44	229,327	3.52	0.95 to 1.85	(26.82) to (27.56)
2007 (7)	3,428	10.33 to 10.28	35,315	0.06	0.95 to 1.85	3.35 to 2.20


		Principal Life Insurance Company
		Separate Account B


	Notes to Financial Statements (continued)




6. Financial Highlights (continued)
				For the Year Ended December 31,
		December 31		Except as Noted
		Unit Fair Value			Expense
		Corresponding to	Net	Investment	Ratio (2)
	Units	Lowest to Highest	Assets	Income	Lowest to	Total Return (3)
Division	(000’s)	Expense Ratio	(000’s)	Ratio (1)	Highest	Lowest to Highest

SAM Conservative Balanced
Portfolio Division:
2010	14,635	$10.96 to $10.61	$158,220	4.32%	0.95% to 1.85%	10.71% to 9.83%
2009	14,160	9.90 to 9.66	138,649	3.08	0.95 to 1.85	20.00 to 18.97
2008	7,346	8.25 to 8.12	60,144	3.11	0.95 to 1.85	(19.98) to (20.70)
2007 (7)	843	10.31 to 10.25	8,661	0.29	0.95 to 1.85	3.07 to 1.64

SAM Conservative Growth
Portfolio Division:
2010	5,760	9.73 to 9.41	55,154	3.12	0.95 to 1.85	14.07 to 13.10
2009	4,941	8.53 to 8.32	41,606	4.97	0.95 to 1.85	24.53 to 23.44
2008	3,313	6.85 to 6.74	22,494	3.79	0.95 to 1.85	(33.75) to (34.37)
2007 (7)	670	10.34 to 10.28	6,902	0.54	0.95 to 1.85	3.30 to 2.62

SAM Flexible Income Portfolio
Division:
2010	14,055	11.38 to 11.01	157,635	5.26	0.95 to 1.85	9.42 to 8.47
2009	12,515	10.40 to 10.15	128,680	4.54	0.95 to 1.85	18.86 to 17.75
2008	7,644	8.75 to 8.62	66,370	4.86	0.95 to 1.85	(14.55) to (15.32)
2007 (7)	149	10.24 to 10.19	1,519	0.49	0.95 to 1.85	2.43 to 1.12

SAM Strategic Growth Portfolio
Division:
2010	4,212	9.32 to 9.02	38,641	2.50	0.95 to 1.85	15.35 to 14.32
2009	3,779	8.08 to 7.89	30,169	3.70	0.95 to 1.85	26.25 to 25.04
2008	2,572	6.40 to 6.31	16,339	3.61	0.95 to 1.85	(38.04) to (38.56)
2007 (7)	659	10.33 to 10.27	6,786	0.18	0.95 to 1.85	3.16 to 2.87

Short-Term Income Division:
2010	14,544	11.25 to 11.02	161,858	2.79	0.85 to 1.85	3.31 to 2.32
2009	2,174	10.89 to 10.77	23,551	7.36	0.85 to 1.85	9.01 to 110.35
2008 (9)	28	9.99 to 5.12	261	–	0.85 to 1.85	0.30 to (48.59)

SmallCap Blend Division:
2010	2,886	1.26 to 11.71	33,079	0.50	0.20 to 1.85	23.74 to 21.98
2009	3,419	1.02 to 9.60	33,829	0.73	0.33 to 1.85	21.60 to 19.85
2008	3,928	0.84 to 8.01	32,501	0.45	0.43 to 1.85	(37.00) to (37.86)
2007	4,859	1.33 to 12.89	65,212	0.31	0.42 to 1.85	1.22 to (0.23)
2006	5,338	1.31 to 12.92	71,752	0.16	0.42 to 1.85	12.23 to 10.64

Principal Life Insurance Company

Separate Account B

Notes to Financial Statements (continued)


6. Financial Highlights (continued)
				For the Year Ended December 31,
		December 31		Except as Noted
		Unit Fair Value			Expense
		Corresponding to	Net	Investment	Ratio (2)
	Units	Lowest to Highest	Assets	Income	Lowest to	Total Return (3)
Division	(000’s)	Expense Ratio	(000’s)	Ratio (1)	Highest	Lowest to Highest

SmallCap Growth II Division:
2010	3,144	$0.81 to $9.95	$31,722	–%	0.23% to 1.85%	26.40% to 24.69%
2009	3,540	0.64 to 7.98	28,675	–	0.72 to 1.85	31.00 to 29.34
2008	3,794	0.49 to 6.17	24,055	–	0.43 to 1.85	(41.39) to (42.28)
2007	4,379	0.83 to 10.69	47,856	–	0.42 to 1.85	4.48 to 3.06
2006	4,608	0.80 to 10.37	48,773	–	0.42 to 1.85	8.52 to 6.98

SmallCap Value I Division:
2010	4,063	1.79 to 21.02	86,698	0.84	0.36 to 1.85	25.53 to 23.72
2009	4,686	1.42 to 16.99	80,632	2.30	0.46 to 1.85	15.68 to 14.10
2008	4,949	1.23 to 14.89	74,626	0.98	0.41 to 1.85	(32.10) to (33.08)
2007	5,471	1.81 to 22.25	123,310	0.36	0.42 to 1.85	(9.90) to (11.18)
2006	4,998	2.01 to 25.05	126,060	0.29	0.42 to 1.85	18.24 to 16.47

T. Rowe Price Blue Chip Growth
II Division:
2010	535	12.61 to 12.14	6,703	–	1.25 to 1.85	14.53 to 13.88
2009	457	11.01 to 10.66	5,001	–	1.25 to 1.85	40.08 to 39.16
2008	164	7.86 to 7.66	1,278	0.11	1.25 to 1.85	(43.37) to (43.68)
2007	136	13.88 to 13.60	1,872	0.11	1.25 to 1.85	11.08 to 10.42
2006	83	12.49 to 12.32	1,028	0.24	1.25 to 1.85	7.97 to 7.33

T. Rowe Price Health Sciences II
Division:
2010	396	16.36 to 15.75	6,429	–	1.25 to 1.85	13.85 to 13.23
2009	342	14.37 to 13.91	4,869	–	1.25 to 1.85	29.69 to 28.92
2008	339	11.08 to 10.79	3,736	–	1.25 to 1.85	(30.05) to (30.48)
2007	245	15.84 to 15.52	3,858	–	1.25 to 1.85	16.24 to 15.54
2006	162	13.62 to 13.43	2,197	–	1.25 to 1.85	7.09 to 6.45

Templeton Growth Securities
Class 2 Division:
2010	79	15.23	1,200	1.41	0.85	6.43
2009	92	14.31	1,315	3.15	0.85	29.97
2008	105	11.01	1,158	1.81	0.85	(42.81)
2007	138	19.25	2,663	1.33	0.85	1.48
2006	160	18.97	3,029	1.28	0.85	20.78

Principal Life Insurance Company

Separate Account B

Notes to Financial Statements (continued)


6. Financial Highlights (continued)
					For the Year Ended December 31,
			December 31		Except as Noted
			Unit Fair Value			Expense
			Corresponding to	Net	Investment	Ratio (2)
		Units	Lowest to Highest	Assets	Income	Lowest to	Total Return (3)
	Division	(000’s)	Expense Ratio	(000’s)	Ratio (1)	Highest	Lowest to Highest

Van Eck VIP Global Hard Assets
Class Division:
	2010 (21)	323	$16.74 to $16.58	$5,397	0.14%	1.25% to 1.85%	27.11% to 41.23%
	2009 (10)	82	13.17 to 13.12	1,081	–	1.25 to 1.85	26.63 to 26.28

(1)	These amounts represent the dividends, excluding distributions of capital gains, received by the division from the underlying
	mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude
	those expenses, such as mortality and expense charges, that result in direct reductions in the unit values. The recognition of
	investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which
	the subaccounts invest.
(2)	These ratios represent the annualized contract expenses of Separate Account B, consisting primarily of mortality and expense
	charges, for each period indicated. The ratios include only those expenses that result in adirect reduction to unit values.
	Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying fund are
	excluded.
(3)	These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and
	reflect deductions for all items included in the expense ratio. The total return does not include any expenses assessed through
	the redemption of units; inclusion of these expenses in the calculation would result in areduction in the total return presented.
	Investment options with adate notation indicate the effective date of that investment option in the variable account. The total
	return is calculated for the period indicated or from the effective date through the end of the reporting period. These
	percentages represent the range of total returns available as of the report date and correspond with the expense ratio lowest to
	highest.
(4)	These divisions received payment from an affiliate as compensation for foreign income tax credits. The total returns for these
	divisions would have been lower without the inclusion of the Payment from Affiliate.
(5)	Commenced operations April 28, 2006.
(6)	Commenced operations January 5, 2007.
(7)	Commenced operations May 1, 2007.
(8)	Commenced operations May 19, 2008.
(9)	Commenced operations November 24, 2008.
(10)	Commenced operations May 18, 2009.
(11)	Commenced operations January 4, 2010.
(12)	Commenced operations May 24, 2010.
(13)	Formerly known as AIM V.I. Basic Value Fund Series I Division when the name was changed on May 24, 2010.
(14)	Formerly known as AIM V.I. Core Equity Fund Series I Division when the name was changed on May 24, 2010.
(15)	Formerly known as AIM V.I. Capital Appreciation Fund Series I Division when the name was changed on May 24, 2010.
(16)	Formerly known as AIM V.I. Dynamics Fund Series I Division when the name was changed on May 24, 2010.
(17)	Formerly known as AIM V.I. Small Cap Equity Fund Series I Division when the name was changed on May 24, 2010.
(18)	Formerly known as AIM V.I. International Growth Fund Series I Division when the name was changed on May 24, 2010.
(19)	Formerly known as AIM V.I. Global Health Care Fund Series I Division when the name was changed on May 24, 2010.
(20)	Formerly known as AIM V.I. Technology Fund Series I Division when the name was changed on May 24, 2010.
(21)	Formerly known as Van Eck Worldwide Hard Assets Service Class Division when the name was changed on May 24, 2010.
(22)	Formerly known as Mortgage Securities Division when the name was changed on July 16, 2010.


Principal Life Insurance Company
Separate Account B


Notes to Financial Statements (continued)




6. Financial Highlights (continued)

There are divisions that have total return outside of the ranges indicated above. The following is
a list of the divisions and corresponding lowest total return and highest total return.

Division	2010 Unit Value	2010 Total Return

American Century VP Income & Growth Class I Division	$9.55	13.15%
Asset Allocation Division	25.00	–
Balanced Division	2.12 and 19.61
Bond & Mortgage Securities Division	2.31 and 20.83	–
Diversified International Division	2.58 and 23.55	–
Equity Income Division	9.21	–
	2.37, 11.10, 11.17 and
Government & High Quality Bond Division	11.19	–
International Emerging Markets Division	36.60	–
LargeCap Growth Division	1.95 and 18.49	–
LargeCap Growth I Division	33.64	–
LargeCap S&P 500 Index Division	9.63, 10.09 and 10.22	–
	2.96, 3.08, 5.92, 6.96,
LargeCap Value Division	9.35 and 10.17	13.60
MidCap Blend Division	4.74 and 43.87	–
Money Market Division	1.63 and 14.14	–
Principal LifeTime Strategic Income Division	11.84	–
Principal LifeTime 2010 Division	12.24	–
Principal LifeTime 2020 Division	12.73	–
Principal LifeTime 2030 Division	12.49	–
Principal LifeTime 2040 Division	12.61	–
Principal LifeTime 2050 Division	12.59	–
Real Estate Securities Division	30.99	–
SmallCap Blend Division	12.45 and 15.95	–
SmallCap Growth II Division	10.57	–
SmallCap Value I Division	22.34	–
Van Eck VIP Global Hard Assets Class Division	–	26.37 and 41.74


Division	2009 Unit Value	2009 Total Return

American Century VP Income & Growth Class I Division	$8.44	–%
Asset Allocation Division	23.21	–
Balanced Division	1.88 and 17.48	–
Bond & Mortgage Securities Division	2.09 and 18.89	–


Principal Life Insurance Company
Separate Account B


Notes to Financial Statements (continued)




6. Financial Highlights (continued)

Division	2009 Unit Value	2009 Total Return

Diversified International Division	$2.28 and $20.97	–%
Equity Income Division	8.02	–
Government & High Quality Bond Division	2.25 and 19.27	–
International Emerging Markets Division	31.08	–
International Small Cap Division	21.74	–
LargeCap Growth Division	1.66 and 15.81	–
LargeCap Growth I Division	28.48	–
LargeCap S&P 500 Index Division	8.51, 8.88 and 9.00	–
	2.61, 2.71, 5.27,
LargeCap Value Division	6.16, 8.27 and 8.99	–
MidCap Blend Division	3.85 and 35.80	–
		32.72, 33.42 and
MidCap Growth I Division	10.62 and 11.86	33.94
MidCap Value II Division	12.17 and 18.45	–
Money Market Division	1.64 and 14.32	–
Mortgage Securities Division	–	5.15 and 5.45
Principal LifeTime Strategic Income Division	10.78	–
Principal LifeTime 2010 Division	10.88	–
Principal LifeTime 2020 Division	11.20	–
Principal LifeTime 2030 Division	10.96	–
Principal LifeTime 2040 Division	11.02	–
Principal LifeTime 2050 Division	10.97	–
Real Estate Securities Division	24.96	–
Short-Term Income Division	–	8.51 and 8.91
SmallCap Blend Division	10.14 and 12.95	–
SmallCap Growth II Division	8.43	–
SmallCap Value I Division	17.94	–


Division	2008 Unit Value	2008 Total Return

American Century VP Income & Growth Class I Division	$7.22	–%
Asset Allocation Division	19.78	–
Balanced Division	1.56 and 14.61	–
Bond & Mortgage Securities Division	1.74 and 15.82	–
Diversified International Division	1.80 and 16.48	–
Equity Income Division	6.77	–
Government & High Quality Bond Division	2.15 and 18.53	–
International Emerging Markets Division	18.55	–


Principal Life Insurance Company
Separate Account B


Notes to Financial Statements (continued)




6. Financial Highlights (continued)

Division	2008 Unit Value	2008 Total Return

International SmallCap Division	$16.33	–%
LargeCap Growth Division	1.32 and 12.61	–
LargeCap Growth I Division	18.88	–
LargeCap S&P 500 Index Division	6.82, 7.09 and 7.19	–
LargeCap Value Division	2.26, 18.56 and 27.22	–
MidCap Blend Division	2.90 and 27.10	–
MidCap Growth I Division	7.96 and 8.85	–
MidCap Value II Division	9.19 and 13.88	–
Money Market Division	1.65 and 14.47	–
Principal LifeTime Strategic Income Division	9.17	(25.31)
Principal LifeTime 2010 Division	8.81	(32.23)
Principal LifeTime 2020 Division	8.90	(35.39)
Principal LifeTime 2030 Division	8.65	(37.65)
Principal LifeTime 2040 Division	8.61	(39.38)
Principal LifeTime 2050 Division	8.54	(40.23)
Real Estate Securities Division	19.61	–
SAM Balanced Portfolio Division	–	(27.63)
SAM Conservative Balanced Portfolio Division	–	(20.78)
SAM Conservative Growth Portfolio Division	–	(34.44)
SAM Flexible Income Portfolio Division	–	(15.41)
SmallCap Blend Division	8.40 and 10.69	–
SmallCap Growth II Division	6.48	–
SmallCap Value I Division	15.63	–


Division	2007 Unit Value	2007 Total Return

AIM V.I. SmallCap Equity Series I Division	$ –	(1.43)% and 3.87%
American Century VP Income and Growth Class I Division	11.14	–
Asset Allocation Division	26.65	–
Balanced Division	2.27 and 21.41	–
Bond Division	2.11 and 19.32	–
Principal Capital Value Division	3.51, 28.99 and 42.27	–
Diversified International Division	3.36 and 31.03	–
Equity Growth Division	32.19	2.66 and 2.73
Equity Income I Division	10.38	–
Government & High Quality Bond Division	2.20 and 19.07	–
Growth Division	2.33 and 22.46	–
International Emerging Markets Division	41.62	–


Principal Life Insurance Company
Separate Account B


Notes to Financial Statements (continued)




6. Financial Highlights (continued)

Division	2007 Unit Value	2007 Total Return

International SmallCap Division	$33.26	–%
	10.98, 11.37 and
LargeCap Stock Index Division	11.55	–
MidCap Division	4.41 and 41.53	–
MidCap Growth Division	13.69 and 15.16	–
MidCap Value Division	16.60 and 24.95	–
Money Market Division	1.62 and 14.28	–
Principal LifeTime Strategic Income Division	12.20	–
Principal LifeTime 2010 Division	12.91	–
Principal LifeTime 2020 Division	13.68	–
Principal LifeTime 2030 Division	13.78	–
Principal LifeTime 2040 Division	14.11	–
Principal LifeTime 2050 Division	14.20	–
Real Estate Securities Division	29.57	–
SAM Balanced Portfolio Division	10.27	–
SAM Conservative Balanced Portfolio Division	10.24	–
SAM Conservative Growth Portfolio Division	10.27	–
SAM Flexible Income Portfolio Division	10.18	–
SAM Strategic Growth Portfolio Division	–	2.54
SmallCap Division	13.45 and 17.04	–
SmallCap Growth Division	11.15	–
SmallCap Value Division	23.22	–


Division	2006 Unit Value	2006 Total Return

American Century VP Income & Growth Class I Division	$11.25	4.83%
Asset Allocation Division	24.14	–
Balanced Division	2.17 and 20.58	–
Bond Division	2.05 and 18.92	0.35
Capital Value Division	3.53, 29.38 and 42.51	4.47
Diversified International Division	2.91 and 27.07	6.56
Equity Growth Division	30.04	–
Government & High Quality Bond Division	2.11 and 18.41	0.29
Growth Division	1.90 and 18.46	–
International Emerging Markets Division	29.66	–
International SmallCap Division	30.83	–
	10.57, 10.90 and
LargeCap Stock Index Division	11.09	3.93

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholder
Principal Life Insurance Company

We have audited the accompanying consolidated statements of financial position of Principal Life Insurance Company (“the Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholder’s equity and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Principal Life Insurance Company at December 31, 2010 and 2009, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, in response to new accounting standards, the Company changed its methods of accounting for credit derivatives embedded in beneficial interests in securitized financial assets effective July 1, 2010; for variable interest entities effective January 1, 2010; for other-than-temporary impairments on debt securities and for the treatment of noncontrolling interests effective January 1, 2009; and for its pension and other postretirement benefits effective January 1, 2008.

/s/ Ernst & Young LLP

Des Moines, Iowa
March 16, 2011


Principal Life Insurance Company
Consolidated Statements of Financial Position

	December 31,
	2010	2009
	(in millions)
Assets
Fixed maturities, available-for-sale (2010 includes $257.9 million related to consolidated variable interest
entities)	$ 45,184.8	$ 43,518.4
Fixed maturities, trading (2010 includes $131.4 million related to consolidated variable interest entities)	606.9	484.8
Equity securities, available-for-sale	165.9	211.7
Equity securities, trading (2010 includes $158.6 million related to consolidated variable interest entities)	258.3	177.2
Mortgage loans	10,477.1	11,250.5
Real estate	1,052.3	1,022.2
Policy loans	878.3	881.3
Other investments (2010 includes $128.7 million related to consolidated variable interest entities of
which $128.3 million are measured at fair value under the fair value option)	1,407.6	1,398.5
Total investments	60,031.2	58,944.6
Cash and cash equivalents (2010 includes $100.0 million related to consolidated variable interest
entities)	1,546.8	2,044.5
Accrued investment income	655.7	681.7
Premiums due and other receivables	999.7	1,011.2
Deferred policy acquisition costs	3,258.8	3,454.8
Property and equipment	432.4	466.0
Goodwill	214.6	258.2
Other intangibles	139.7	145.7
Separate account assets	62,738.4	57,380.8
Other assets	921.8	1,311.3
Total assets	$ 130,939.1	$ 125,698.8

Liabilities
Contractholder funds	$ 37,092.1	$ 39,764.7
Future policy benefits and claims	16,068.1	15,944.4
Other policyholder funds	569.9	539.7
Short-term debt	294.4	312.1
Long-term debt	120.4	120.8
Income taxes currently payable	0.3	1.9
Deferred income taxes	267.8	4.9
Separate account liabilities	62,738.4	57,380.8
Other liabilities (2010 includes $433.6 million related to consolidated variable interest entities of which
$114.5 million are measured at fair value under the fair value option)	5,821.5	5,162.6
Total liabilities	122,972.9	119,231.9
Stockholder’s equity
Common stock, par value $1 per share — 5.0 million shares authorized, 2.5 million shares issued and
outstanding (wholly owned indirectly by Principal Financial Group, Inc.)	2.5	2.5
Additional paid-in capital	6,145.0	6,408.9
Retained earnings	1,472.4	1,024.3
Accumulated other comprehensive income (loss)	195.4	(1,086.8)
Total stockholder’s equity attributable to Principal Life Insurance Company	7,815.3	6,348.9
Noncontrolling interest	150.9	118.0
Total stockholder’s equity	7,966.2	6,466.9
Total liabilities and stockholder’s equity	$ 130,939.1	$ 125,698.8

See accompanying notes.


Principal Life Insurance Company
Consolidated Statements of Operations

	For the year ended December 31,
	2010	2009	2008
		(in millions)
Revenues
Premiums and other considerations	$ 3,300.3	$ 3,511.5	$ 4,005.1
Fees and other revenues	1,755.1	1,619.0	1,849.5
Net investment income	3,085.8	3,188.2	3,472.0
Net realized capital gains (losses), excluding impairment losses on available-for-sale
securities	(47.4)	6.2	(144.9)
Total other-than-temporary impairment losses on available-for-sale securities	(297.1)	(712.4)	(477.7)
Portion of impairment losses on fixed maturities, available-for-sale recognized in other
comprehensive income	56.1	260.9	—
Net impairment losses on available-for-sale securities	(241.0)	(451.5)	(477.7)
Net realized capital losses	(288.4)	(445.3)	(622.6)
Total revenues	7,852.8	7,873.4	8,704.0
Expenses
Benefits, claims and settlement expenses	4,840.6	5,005.9	5,634.0
Dividends to policyholders	219.9	242.2	267.3
Operating expenses	2,169.4	1,975.1	2,345.7
Total expenses	7,229.9	7,223.2	8,247.0
Income before income taxes	622.9	650.2	457.0
Income taxes	120.4	124.8	44.3
Net income	502.5	525.4	412.7
Net income attributable to noncontrolling interest	16.6	23.0	9.6
Net income attributable to Principal Life Insurance Company	$ 485.9	$ 502.4	$ 403.1

See accompanying notes.


Principal Life Insurance Company
Consolidated Statements of Stockholder’s Equity


				Accumulated
		Additional			other		Total
	Common	paid-in	Retained		comprehensive	Noncontrolling	stockholder’s
	stock	capital	earnings		income (loss)	interest	equity
				(in millions)
Balances at January 1, 2008	$ 2.5	$ 5,595.9	$ 760.8	$ 117.5		$ 89.9	$ 6,566.6
Return of capital to parent	—	(5.2)	—		—	—	(5.2)
Capital transactions of equity method investee, net of related income taxes	—	0.6			—	—	0.6
Stock-based compensation and additional related tax benefits	—	35.3	(0.8)		—	—	34.5
Dividends to parent	—	—	(5.5)		—	—	(5.5)
Distributions to noncontrolling interest	—	—	—		—	(14.7)	(14.7)
Contributions from noncontrolling interest	—	—	—		—	7.0	7.0
Effects of changing postretirement benefit plan measurement date, net of related income
taxes	—	—	0.9		(2.0)	—	(1.1)
Comprehensive loss:
Net income	—	—	403.1		—	9.6	412.7
Net unrealized losses, net	—	—	—		(4,205.1)	—	(4,205.1)
Foreign currency translation adjustment, net of related income taxes	—	—	—		(15.5)	—	(15.5)
Unrecognized postretirement benefit obligation, net of related income taxes	—	—	—		(632.5)	—	(632.5)
Comprehensive loss							(4,440.4)
Balances at December 31, 2008	2.5	5,626.6	1,158.5		(4,737.6)	91.8	2,141.8
Contributions from parent	—	795.9	—		—	—	795.9
Stock-based compensation and additional related tax benefits	—	32.3	(1.5)		—	—	30.8
Dividends to parent	—	—	(645.0)		—	—	(645.0)
Distributions to noncontrolling interest	—	—	—		—	(7.1)	(7.1)
Contributions from noncontrolling interest	—	—	—		—	10.1	10.1
Purchase of subsidiary shares from noncontrolling interest	—	(45.9)	—		—	0.2	(45.7)
Effects of reclassifying noncredit component of previously recognized impairment
losses on fixed maturities, available-for-sale, net	—	—	9.9		(9.9)	—	—
Comprehensive income:
Net income	—	—	502.4		—	23.0	525.4
Net unrealized gains, net	—	—	—		3,620.9	—	3,620.9
Noncredit component of impairment losses on fixed maturities, available-for-sale, net	—	—	—		(152.9)	—	(152.9)
Foreign currency translation adjustment, net of related income taxes	—	—	—		21.6	—	21.6
Unrecognized postretirement benefit obligation, net of related income taxes	—	—	—		171.1	—	171.1
Comprehensive income							4,186.1
Balances at December 31, 2009	2.5	6,408.9	1,024.3		(1,086.8)	118.0	6,466.9
Return of capital to parent	—	(301.8)	—		—	—	(301.8)
Stock-based compensation and additional related tax benefits	—	37.9	(1.7)		—	—	36.2
Distributions to noncontrolling interest	—	—	—		—	(7.8)	(7.8)
Contributions from noncontrolling interest	—	—	—		—	24.1	24.1
Effects of implementation of accounting change related to variable interest entities,
net	—	—	(10.7)		10.7	—	—
Effects of electing fair value option for fixed maturities upon implementation of
accounting change related to embedded credit derivatives, net	—	—	(25.4)		25.4	—	—
Comprehensive income:
Net income	—	—	485.9		—	16.6	502.5
Net unrealized gains, net	—	—	—		1,076.2	—	1,076.2
Noncredit component of impairment losses on fixed maturities, available-for-sale, net	—	—	—		(33.5)	—	(33.5)
Foreign currency translation adjustment, net of related income taxes	—	—	—		(4.6)	—	(4.6)
Unrecognized postretirement benefit obligation, net of related income taxes	—	—	—		208.0	—	208.0
Comprehensive income							1,748.6
Balances at December 31, 2010	$ 2.5	$ 6,145.0	$ 1,472.4	$ 195.4		$ 150.9	$ 7,966.2

See accompanying notes.


Principal Life Insurance Company
Consolidated Statements of Cash Flows

		For the year ended December 31,
		2010	2009	2008
			(in millions)
Operating activities
Net income	$ 502.5		$ 525.4	$ 412.7
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of deferred policy acquisition costs		201.6	93.9	375.0
Additions to deferred policy acquisition costs		(461.1)	(454.3)	(637.9)
Accrued investment income		26.0	62.3	22.3
Net cash flows for trading securities		78.8	299.9	(457.9)
Premiums due and other receivables		1.3	(124.6)	(74.9)
Contractholder and policyholder liabilities and dividends		1,165.9	1,422.3	2,010.4
Current and deferred income taxes (benefits)		29.8	35.4	(194.3)
Net realized capital losses		288.4	445.3	622.6
Depreciation and amortization expense		139.1	98.4	91.4
Mortgage loans held for sale, acquired or originated		—	(3.0)	(36.8)
Mortgage loans held for sale, sold or repaid, net of gain		1.7	17.5	18.1
Real estate acquired through operating activities		—	(19.8)	(77.5)
Real estate sold through operating activities		116.5	5.2	24.5
Stock-based compensation		36.2	30.0	23.2
Other		621.3	152.4	(58.9)
Net adjustments		2,245.5	2,060.9	1,649.3
Net cash provided by operating activities		2,748.0	2,586.3	2,062.0
Investing activities
Available-for-sale securities:
Purchases		(6,442.4)	(7,046.2)	(6,179.9)
Sales		1,491.6	3,115.5	1,087.1
Maturities		4,783.0	4,128.8	3,039.4
Mortgage loans acquired or originated		(1,189.8)	(514.8)	(3,395.7)
Mortgage loans sold or repaid		1,678.4	1,615.4	2,791.1
Real estate acquired		(53.8)	(62.2)	(33.3)
Real estate sold		—	25.3	68.7
Net purchases of property and equipment		(9.8)	(17.9)	(104.1)
Purchases of interest in subsidiaries, net of cash acquired		—	(45.7)	(18.0)
Net change in other investments		(15.1)	(8.7)	(31.5)
Net cash provided by (used in) investing activities	$ 242.1		$ 1,189.5	$ (2,776.2)


Principal Life Insurance Company
Consolidated Statements of Cash Flows — (continued)

		For the year ended December 31,
		2010	2009	2008
			(in millions)
Financing activities
Proceeds from financing element derivatives	$ 79.3		$ 122.0	$ 142.2
Payments for financing element derivatives		(46.5)	(67.4)	(114.6)
Excess tax benefits from share-based payment arrangements		0.8	0.2	2.7
Dividends to parent		—	(645.0)	(5.5)
Capital contributions from (to) parent		(301.8)	795.9	(5.2)
Issuance of long-term debt		—	—	0.1
Principal repayments of long-term debt		(0.4)	(0.4)	(65.8)
Net proceeds from (repayments of) short-term borrowings		(17.7)	21.0	(53.3)
Investment contract deposits		4,099.9	4,220.2	11,349.0
Investment contract withdrawals		(7,343.3)	(8,752.7)	(9,813.7)
Net increase in banking operation deposits		46.2	43.9	373.1
Other		(4.3)	(5.7)	(5.4)
Net cash provided by (used in) financing activities		(3,487.8)	(4,268.0)	1,803.6
Net increase (decrease) in cash and cash equivalents		(497.7)	(492.2)	1,089.4
Cash and cash equivalents at beginning of year		2,044.5	2,536.7	1,447.3
Cash and cash equivalents at end of year	$ 1,546.8		$ 2,044.5	$ 2,536.7

Supplemental Information:
Cash paid for interest	$ 10.7		$ 14.7	$ 15.2
Cash paid for income taxes	$ 88.6		$ 107.1	$ 227.5

See accompanying notes.

Principal Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 2010

1. Nature of Operations and Significant Accounting Policies

Description of Business

Principal Life Insurance Company (“PLIC”) along with its consolidated subsidiaries is a diversified financial services

organization engaged in promoting retirement savings and investment and insurance products and services in the U.S. We are a

direct wholly owned subsidiary of Principal Financial Services, Inc. (“PFSI”), which in turn is a direct wholly owned subsidiary

of Principal Financial Group, Inc. (“PFG”).

Basis of Presentation

The accompanying consolidated financial statements, which include our majority-owned subsidiaries and consolidated

variable interest entities (“VIEs”), have been prepared in conformity with U.S. generally accepted accounting principles (“U.S.

GAAP”). Less than majority-owned entities in which we have at least a 20% interest and limited liability companies (“LLCs”),

partnerships and real estate joint ventures in which we have at least a 5% interest, are reported on the equity method in the

consolidated statements of financial position as other investments. Investments in LLCs, partnerships and real estate joint

ventures in which we have an ownership percentage of 3% to 5% are accounted for under the equity or cost method depending

upon the specific facts and circumstances of our ownership and involvement. All significant intercompany accounts and

transactions have been eliminated. Information included in the notes to the financial statements excludes information applicable

to less than majority-owned entities reported on the equity and cost methods, unless otherwise noted.

We have evaluated subsequent events through March 16, 2011, which was the date our consolidated financial

statements were issued.

Reclassifications have been made to prior period financial statements to conform to the December 31, 2010,

presentation. See Recent Accounting Pronouncements for impact of new accounting guidance on prior period financial

statements.

Closed Block

We operate a closed block (“Closed Block”) for the benefit of individual participating dividend-paying policies in force

at the time of the 1998 mutual insurance holding company (“MIHC”) formation. See Note 7, Closed Block, for further details.

Recent Accounting Pronouncements

In October 2010, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that modifies the

definition of the types of costs incurred by insurance entities that can be capitalized in the successful acquisition of new or

renewal insurance contracts. Capitalized costs should include incremental direct costs of contract acquisition, as well as certain

costs related directly to acquisition activities such as underwriting, policy issuance and processing, medical and inspection and

sales force contract selling. This guidance will be effective for us on January 1, 2012, with retrospective application permitted

but not required. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

In July 2010, the FASB issued authoritative guidance that requires new and expanded disclosures related to the credit

quality of financing receivables and the allowance for credit losses. Reporting entities are required to provide qualitative and

quantitative disclosures on the allowance for credit losses, credit quality, impaired loans, modifications and nonaccrual and past

due financing receivables. The disclosures are required to be presented on a disaggregated basis by portfolio segment and class

of financing receivable. Disclosures required by the guidance that relate to the end of a reporting period were effective for us in

our December 31, 2010, consolidated financial statements. See Note 5, Investments, for further details. Disclosures required by

the guidance that relate to an activity that occurs during a reporting period will be effective for us on January 1, 2011, and will

not have a material impact on our consolidated financial statements. In January 2011, the FASB issued authoritative guidance

that deferred indefinitely the disclosures relating to troubled debt restructuring.

In April 2010, the FASB issued authoritative guidance addressing how investments held through the separate accounts

of an insurance entity affect the entity’s consolidation analysis. This guidance clarifies that an insurance entity should not

consider any separate account interests held for the benefit of policyholders in an investment to be the insurer’s interests and

should not combine those interests with its general account interest in the same investment when assessing the investment for

consolidation. This guidance will be effective for us on January 1, 2011, and will not have a material impact on our consolidated

financial statements.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

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

In March 2010, the FASB issued authoritative guidance that amends and clarifies the guidance on evaluation of credit

derivatives embedded in beneficial interests in securitized financial assets, including asset-backed securities, credit-linked notes,

collateralized loan obligations and collateralized debt obligations (“CDOs”). This guidance eliminates the scope exception for

bifurcation of embedded credit derivatives in interests in securitized financial assets, unless they are created solely by

subordination of one financial instrument to another. We adopted this guidance effective July 1, 2010, and within the scope of

this guidance reclassified fixed maturities with a fair value of $75.3 million, from available-for-sale to trading. The cumulative

change in accounting principle related to unrealized losses on these fixed maturities resulted in a net $25.4 million decrease to

retained earnings, with a corresponding increase to accumulated other comprehensive income (“AOCI”).

In January 2010, the FASB issued authoritative guidance that requires new disclosures related to fair value

measurements and clarifies existing disclosure requirements about the level of disaggregation, inputs and valuation techniques.

Specifically, reporting entities now must disclose separately the amounts of significant transfers in and out of Level 1 and Level

2 fair value measurements and describe the reasons for the transfers. In addition, in the reconciliation for Level 3 fair value

measurements, a reporting entity should present separately information about purchases, sales, issuances and settlements. The

guidance clarifies that a reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities for

disclosure of fair value measurement, considering the level of disaggregated information required by other applicable U.S.

GAAP guidance and should also provide disclosures about the valuation techniques and inputs used to measure fair value for

each class of assets and liabilities. This guidance was effective for us on January 1, 2010, except for the disclosures about

purchases, sales, issuances and settlements in the reconciliation for Level 3 fair value measurements, which will be effective for

us on January 1, 2011. This guidance will not have a material impact on our consolidated financial statements.

In September 2009, FASB issued authoritative guidance for measuring the fair value of certain alternative investments

and to offer investors a practical means for measuring the fair value of investments in certain entities that calculate net asset

value per share. This guidance was effective for us on October 1, 2009, and did not have a material impact on our consolidated

financial statements.

In August 2009, the FASB issued authoritative guidance to provide additional guidance on measuring the fair value of

liabilities. This guidance clarifies that the quoted price for the identical liability, when traded as an asset in an active market, is

also a Level 1 measurement for that liability when no adjustment to the quoted price is required. In the absence of a quoted price

in an active market, an entity must use one or more of the following valuation techniques to estimate fair value: (1) a valuation

technique that uses a quoted price (a) of an identical liability when traded as an asset or (b) of a similar liability when traded as

an asset; or (2) another valuation technique such as (a) a present value technique or (b) a technique based on the amount an

entity would pay to transfer the identical liability or would receive to enter into an identical liability. This guidance was effective

for us on October 1, 2009, and did not have a material impact on our consolidated financial statements.

In June 2009, the FASB issued authoritative guidance for the establishment of the FASB Accounting Standards

Codification^TM(“Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by

nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive

releases of the Securities and Exchange Commission (“SEC”) under federal securities laws are also sources of authoritative

U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. This guidance

was effective for us on July 1, 2009, and did not have a material impact on our consolidated financial statements.

In June 2009, the FASB issued authoritative guidance to improve the relevance, representational faithfulness and

comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the

effects of a transfer on its financial position, financial performance and cash flows; and a transferor’s continuing involvement

in transferred financial assets. The most significant change is the elimination of the concept of a qualifying special-purpose

entity (“QSPE”). Therefore, former QSPEs, as defined under previous accounting standards, should be evaluated for

consolidation by reporting entities on and after the effective date in accordance with the applicable consolidation guidance.

This guidance was effective for us on January 1, 2010, and did not have a material impact on our consolidated financial

statements.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

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

Also in June 2009, the FASB issued authoritative guidance related to the accounting for VIEs, which amends prior

guidance and requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests

give it a controlling financial interest in a VIE. This analysis identifies the primary beneficiary of a VIE as the enterprise with

(1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2) the

obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to

the VIE. In addition, this guidance requires ongoing reassessments of whether an enterprise is the primary beneficiary of a

VIE. Furthermore, we are required to enhance disclosures that will provide users of financial statements with more

transparent information about an enterprise’s involvement in a VIE. We adopted this guidance prospectively effective

January 1, 2010. Due to the implementation of this guidance, certain previously unconsolidated VIEs were consolidated and

certain previously consolidated VIEs were deconsolidated. The cumulative change in accounting principle from adopting this

guidance resulted in a net $10.7 million decrease to retained earnings and a net $10.7 million increase to AOCI. In February

2010, the FASB issued an amendment to this guidance. The amendment indefinitely defers the consolidation requirements

for reporting enterprises’ interests in entities that have the characteristics of investment companies and regulated money

market funds. This amendment was effective January 1, 2010, and did not have a material impact to our consolidated

financial statements. The required disclosures are included in our consolidated financial statements. See Note 4, Variable

Interest Entities, for further details.

In April 2009, the FASB issued authoritative guidance which relates to the recognition and presentation of an other-

than-temporary impairment (“OTTI”) of securities and requires additional disclosures. The recognition provisions apply only

to debt securities classified as available-for-sale and held-to-maturity, while the presentation and disclosure requirements

apply to both debt and equity securities. An impaired debt security will be considered other-than-temporarily impaired if a

holder has the intent to sell, or it more likely than not will be required to sell prior to recovery of the amortized cost. If a

holder of a debt security does not expect recovery of the entire cost basis, even if there is no intention to sell the security, it

will be considered an OTTI as well. This guidance also changes how an entity recognizes an OTTI for a debt security by

separating the loss between the amount representing the credit loss and the amount relating to other factors, if a holder does

not have the intent to sell or it more likely than not will not be required to sell prior to recovery of the amortized cost less any

current period credit loss. Credit losses will be recognized in net income and losses relating to other factors will be

recognized in other comprehensive income (“OCI”). If the holder has the intent to sell or it more likely than not will be

required to sell before its recovery of amortized cost less any current period credit loss, the entire OTTI will continue to be

recognized in net income. Furthermore, this guidance requires a cumulative effect adjustment to the opening balance of

retained earnings in the period of adoption with a corresponding adjustment to accumulated OCI. We adopted this guidance

effective January 1, 2009. The cumulative change in accounting principle from adopting this guidance resulted in a net $9.9

million increase to retained earnings and a corresponding decrease to accumulated OCI. The required disclosures have been

included in our consolidated financial statements.

Also in April 2009, the FASB issued authoritative guidance which provides additional information on estimating fair

value when the volume and level of activity for an asset or liability have significantly decreased in relation to normal market

activity for the asset or liability and clarifies that the use of multiple valuation techniques may be appropriate. It also provides

additional guidance on circumstances that may indicate a transaction is not orderly. Further, it requires additional disclosures

about fair value measurements in annual and interim reporting periods. We adopted this guidance effective January 1, 2009, and

it did not have a material impact on our consolidated financial statements. See Note 15, Fair Value Measurements, for further

details.

In January 2009, the FASB issued authoritative guidance related to the assessment of the OTTI of certain beneficial

interests in securitized financial assets, which eliminated the requirement that a financial instrument holder’s best estimate of

cash flows be based upon those that a market participant would use. Instead, this guidance requires the use of management’s

judgment in the determination of whether it is probable there has been an adverse change in estimated cash flow. This guidance

was effective for us on October 1, 2008, and did not have a material impact on our consolidated financial statements.

In December 2008, the FASB issued authoritative guidance requiring additional disclosures by public entities with

continuing involvement in transfers of financial assets to special purpose entities and with variable interests in VIEs. This

guidance was effective for us on October 1, 2008. We have included the required disclosures in our consolidated financial

statements. See Note 4, Variable Interest Entities for further details.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)


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

In September 2008, the FASB issued authoritative guidance (1) requiring disclosures by sellers of credit derivatives,
including credit derivatives embedded in a hybrid instrument and (2) requiring an additional disclosure about the current
status of the payment/performance risk of a guarantee. This guidance was effective for us on October 1, 2008. We have
included the required disclosures in our consolidated financial statements. See Note 6, Derivative Financial Instruments, for
further details relating to our credit derivatives.

In March 2008, the FASB issued authoritative guidance requiring (1) qualitative disclosures about objectives and
strategies for using derivatives, (2) quantitative disclosures about fair value amounts of gains and losses on derivative
instruments and related hedged items and (3) disclosures about credit-risk-related contingent features in derivative instruments.
The disclosures are intended to provide users of financial statements with an enhanced understanding of how and why derivative
instruments are used, how they are accounted for and the financial statement impacts. We adopted these changes on January 1,
2009. See Note 6, Derivative Financial Instruments, for further details.

In December 2007, the FASB issued authoritative guidance requiring that the acquiring entity in a business
combination establish the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed,
including any noncontrolling interests, and requires the acquirer to disclose additional information needed to more
comprehensively evaluate and understand the nature and financial effect of the business combination. In addition, direct
acquisition costs are to be expensed. We adopted this guidance on January 1, 2009, and all requirements are applied
prospectively.

Also in December 2007, the FASB issued authoritative guidance mandating the following changes to noncontrolling
interests:

(1)	Noncontrolling interests are to be treated as a separate component of equity, rather than as a liability or other item
	outside of equity.
(2)	Net income includes the total income of all consolidated subsidiaries, with separate disclosures on the face of the
	statement of operations of the income attributable to controlling and noncontrolling interests. Previously, net
	income attributable to the noncontrolling interest was reported as an operating expense in arriving at consolidated
	net income.
(3)	This guidance revises the accounting requirements for changes in a parent’s ownership interest when the parent
	retains control and for changes in a parent’s ownership interest that results in deconsolidation.

We adopted this guidance on January 1, 2009. Presentation and disclosure requirements have been applied
retrospectively for all periods presented. All other requirements have been applied prospectively.

In February 2007, the FASB issued authoritative guidance permitting entities to choose, at specified election dates, to
measure eligible financial instruments and certain other items at fair value that are not currently required to be reported at fair
value. Unrealized gains and losses on items for which the fair value option is elected shall be reported in net income. The
decision about whether to elect the fair value option (1) is applied instrument by instrument, with certain exceptions (2) is
irrevocable and (3) is applied to an entire instrument and not only to specified risks, specific cash flows, or portions of that
instrument. This guidance also requires additional disclosures that are intended to facilitate comparisons between entities that
choose different measurement attributes for similar assets and liabilities and between assets and liabilities in the financial
statements of an entity that selects different measurement attributes for similar assets and liabilities. At the effective date, the fair
value option may be elected for eligible items that exist at that date and the effect of the first remeasurement to fair value for
those items should be reported as a cumulative effect adjustment to retained earnings. We adopted this guidance on January 1,
2008, and the resulting cumulative effect of the change in accounting principle was immaterial. Therefore, the pre-tax
cumulative effect of the change in accounting principle is reflected in net realized capital gains (losses). Election of this option
upon acquisition or assumption of eligible items could introduce period to period volatility in net income.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)


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

	In September 2006, the FASB issued authoritative guidance related to defined benefit pension plans and other
postretirement benefit plans, which eliminated the ability to choose a measurement date by requiring that plan assets and benefit
obligations be measured as of the annual balance sheet date. This guidance was effective for us on December 31, 2008. For
2007, we used a measurement date of October 1 for the measurement of plan assets and benefit obligations. Two transition
methods were available when implementing the change in measurement date for 2008. We chose the alternative that allowed us
to use the October 1, 2007, measurement date as a basis for determining the 2008 expense and transition adjustment. The effect
of changing the measurement date resulted in a $0.9 million increase to retained earnings and a $2.0 million decrease to
accumulated OCI in the first quarter of 2008.

	In September 2006, the FASB issued authoritative guidance for using fair value to measure assets and liabilities, which
applies whenever other standards require or permit assets or liabilities to be measured at fair value, but does not expand the use
of fair value measurement. This guidance establishes a fair value hierarchy that gives the highest priority to quoted prices in
active markets and the lowest priority to unobservable data, and requires fair value measurements to be separately disclosed by
level within the hierarchy. In February 2008, the FASB deferred the effective date of this guidance for one year for nonfinancial
assets and nonfinancial liabilities that are recognized or disclosed at fair value on a nonrecurring basis. In February 2008, the
FASB issued authoritative guidance excluding instruments covered by lease accounting and its related interpretive guidance
from the scope of its fair value measurement guidance. In October 2008, the FASB issued authoritative guidance which clarifies
the application of its fair value measurement guidance in an inactive market and provides an illustrative example to demonstrate
how the fair value of a financial asset is determined when the market for that financial asset is inactive. Our adoption of the
FASB’s fair value measurement guidance on January 1, 2008, for assets and liabilities measured at fair value on a recurring
basis and financial assets and liabilities measured at fair value on a nonrecurring basis did not have a material impact on our
consolidated financial statements. We deferred the adoption for nonfinancial assets and liabilities measured at fair value on a
nonrecurring basis until January 1, 2009, which also did not have a material impact on our consolidated financial statements. See
Note 15, Fair Value Measurements, for further details.

Use of Estimates in the Preparation of Financial Statements

	The preparation of our consolidated financial statements and accompanying notes requires management to make
estimates and assumptions that affect the amounts reported and disclosed. These estimates and assumptions could change in the
future as more information becomes known, which could impact the amounts reported and disclosed in the consolidated
financial statements and accompanying notes. The most critical estimates include those used in determining:

•	the fair value of investments in the absence of quoted market values;
•	investment impairments and valuation allowances;
•	the fair value of and accounting for derivatives;
•	the deferred policy acquisition costs (“DPAC”) and other actuarial balances where the amortization is based on
	estimated gross profits;
•	the measurement of goodwill, indefinite lived intangible assets, finite lived intangible assets and related impairments
	or amortization, if any;
•	the liability for future policy benefits and claims;
•	the value of our pension and other postretirement benefit obligations and
•	accounting for income taxes and the valuation of deferred tax assets.

	A description of such critical estimates is incorporated within the discussion of the related accounting policies which
follow. In applying these policies, management makes subjective and complex judgments that frequently require estimates
about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the
insurance and financial services industries; others are specific to our businesses and operations. Actual results could differ
from these estimates.

Cash and Cash Equivalents

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

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

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

Investments

Fixed maturities include bonds, mortgage-backed securities, redeemable preferred stock and certain nonredeemable

preferred stock. Equity securities include mutual funds, common stock and nonredeemable preferred stock. We classify fixed

maturities and equity securities as either available-for-sale or trading at the time of the purchase and, accordingly, carry them at

fair value. See Note 15, Fair Value Measurements, for policies related to the determination of fair value. Unrealized gains and

losses related to available-for-sale securities, excluding those in fair value hedging relationships, are reflected in stockholder’s

equity, net of adjustments related to DPAC, sales inducements, unearned revenue reserves, derivatives in cash flow hedge

relationships and applicable income taxes. Unrealized gains and losses related to available-for-sale securities in fair value

hedging relationships and mark-to-market adjustments on trading securities are reflected in net realized capital gains (losses).

The cost of fixed maturities is adjusted for amortization of premiums and accrual of discounts, both computed using the

interest method. The cost of fixed maturities and equity securities is adjusted for declines in value that are other than temporary.

Impairments in value deemed to be other than temporary are primarily reported in net income as a component of net realized

capital gains (losses), with noncredit impairment losses for certain fixed maturities reported in OCI. See further discussion in

Note 4, Investments. For loan-backed and structured securities, we recognize income using a constant effective yield based on

currently anticipated cash flows.

Real estate investments are reported at cost less accumulated depreciation. The initial cost bases of properties acquired

through loan foreclosures are the lower of the fair market values of the properties at the time of foreclosure or the outstanding

loan balance. Buildings and land improvements are generally depreciated on the straight-line method over the estimated useful

life of improvements and tenant improvement costs are depreciated on the straight-line method over the term of the related lease.

We recognize impairment losses for properties when indicators of impairment are present and a property's expected

undiscounted cash flows are not sufficient to recover the property's carrying value. In such cases, the cost bases of the properties

are reduced to fair value. Real estate expected to be disposed is carried at the lower of cost or fair value, less cost to sell, with

valuation allowances established accordingly and depreciation no longer recognized. The carrying amount of real estate held for

sale was $41.7 million and $23.8 million as of December 31, 2010 and 2009, respectively. Any impairment losses and any

changes in valuation allowances are reported in net income.

Commercial and residential mortgage loans are generally reported at cost adjusted for amortization of premiums and

accrual of discounts, computed using the interest method, net of valuation allowances. Interest income is accrued on the

principal amount of the loan based on the loan’s contractual interest rate. Interest income, as well as prepayment of fees and the

amortization of the related premium or discount, is reported in net investment income. Any changes in the valuation allowances

are reported in net income as net realized capital gains (losses). We measure impairment based upon the difference between

carrying value and estimated value less cost to sell. Estimated value is based on either the present value of expected cash flows

discounted at the loan's effective interest rate, the loan's observable market price or the fair value of the collateral. If foreclosure

is probable, the measurement of any valuation allowance is based upon the fair value of the collateral.

Net realized capital gains and losses on sales of investments are determined on the basis of specific identification. In

general, in addition to realized capital gains and losses on investment sales and periodic settlements on derivatives not

designated as hedges, we report gains and losses related to the following in net realized capital gains (losses): other than

temporary impairments of securities and subsequent recoveries, mark-to-market adjustments on trading securities, mark-to-

market adjustments on certain seed money investments, fair value and cash flow hedge ineffectiveness, mark-to-market

adjustments on derivatives not designated as hedges, changes in the mortgage loan valuation allowance provision and

subsequent commercial mortgage loan recoveries and impairments of real estate held for investment. Investment gains and

losses on sales of certain real estate held for sale, which do not meet the criteria for classification as a discontinued operation are

reported as net investment income and are excluded from net realized capital gains (losses).

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

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)


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

Derivatives
*Overview.* Derivatives are financial instruments whose values are derived from interest rates, foreign exchange rates,
financial indices or the values of securities. Derivatives generally used by us include interest rate swaps, interest rate collars,
swaptions, futures, currency swaps, credit default swaps and options. Derivatives may be exchange traded or contracted in the
over-the-counter market. Derivative positions are either assets or liabilities in the consolidated statements of financial position
and are measured at fair value, generally by obtaining quoted market prices or through the use of pricing models. See Note 15,
Fair Value Measurements, for policies related to the determination of fair value. Fair values can be affected by changes in
interest rates, foreign exchange rates, financial indices, values of securities, credit spreads, and market volatility and liquidity.
*Accounting and Financial Statement Presentation.* We designate derivatives as either:
(a)	a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm
	commitment, including those denominated in a foreign currency (“fair value hedge”);
(b)	a hedge of a forecasted transaction or the exposure to variability of cash flows to be received or paid related to
	a recognized asset or liability, including those denominated in a foreign currency (“cash flow hedge”) or
(c)	a derivative not designated as a hedging instrument.

Our accounting for the ongoing changes in fair value of a derivative depends on the intended use of the derivative and
the designation, as described above, and is determined when the derivative contract is entered into or at the time of
redesignation. Hedge accounting is used for derivatives that are specifically designated in advance as hedges and that reduce our
exposure to an indicated risk by having a high correlation between changes in the value of the derivatives and the items being
hedged at both the inception of the hedge and throughout the hedge period.

*Fair Value Hedges.* When a derivative is designated as a fair value hedge and is determined to be highly effective,
changes in its fair value, along with changes in the fair value of the hedged asset, liability or firm commitment attributable to the
hedged risk, are reported in net realized capital gains (losses). Any difference between the net change in fair value of the
derivative and the hedged item represents hedge ineffectiveness.

*Cash Flow Hedges.* When a derivative is designated as a cash flow hedge and is determined to be highly effective,
changes in its fair value are recorded as a component of OCI. Any hedge ineffectiveness is recorded immediately in net income.
At the time the variability of cash flows being hedged impacts net income, the related portion of deferred gains or losses on the
derivative instrument is reclassified and reported in net income.

*Non-Hedge Derivatives.* If a derivative does not qualify or is not designated for hedge accounting, all changes in fair
value are reported in net income without considering the changes in the fair value of the economically associated assets or
liabilities.

*Hedge Documentation and Effectiveness Testing.* At inception, we formally document all relationships between
hedging instruments and hedged items, as well as our risk management objective and strategy for undertaking various hedge
transactions. This process includes associating all derivatives designated as fair value or cash flow hedges with specific assets or
liabilities on the statement of financial position or with specific firm commitments or forecasted transactions. Effectiveness of
the hedge is formally assessed at inception and throughout the life of the hedging relationship. Even if a derivative is highly
effective and qualifies for hedge accounting treatment, the hedge might have some ineffectiveness.
We use qualitative and quantitative methods to assess hedge effectiveness. Qualitative methods may include
monitoring changes to terms and conditions and counterparty credit ratings. Quantitative methods may include statistical tests
including regression analysis and minimum variance and dollar offset techniques.

*Termination of Hedge Accounting.* We prospectively discontinue hedge accounting when (1) the criteria to qualify for
hedge accounting is no longer met, e.g., a derivative is determined to no longer be highly effective in offsetting the change in fair
value or cash flows of a hedged item; (2) the derivative expires, is sold, terminated or exercised or (3) we remove the designation
of the derivative being the hedging instrument for a fair value or cash flow hedge.

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

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

If it is determined that a derivative no longer qualifies as an effective hedge, the derivative will continue to be carried

on the consolidated statements of financial position at its fair value, with changes in fair value recognized prospectively in net

realized capital gains (losses). The asset or liability under a fair value hedge will no longer be adjusted for changes in fair value

pursuant to hedging rules and the existing basis adjustment is amortized to the consolidated statements of operations line

associated with the asset or liability. The component of OCI related to discontinued cash flow hedges that are no longer highly

effective is amortized to the consolidated statements of operations consistent with the net income impacts of the original hedged

cash flows. If a cash flow hedge is discontinued because it is probable the hedged forecasted transaction will not occur, the

deferred gain or loss is immediately reclassified from OCI into net income.

Embedded Derivatives. We purchase and issue certain financial instruments and products that contain a derivative that

is embedded in the financial instrument or product. We assess whether this embedded derivative is clearly and closely related to

the asset or liability that serves as its host contract. If we deem that the embedded derivative's terms are not clearly and closely

related to the host contract, and a separate instrument with the same terms would qualify as a derivative instrument, the

derivative is bifurcated from that contract and held at fair value on the consolidated statements of financial position, with

changes in fair value reported in net income.

Contractholder and Policyholder Liabilities

Contractholder and policyholder liabilities (contractholder funds, future policy benefits and claims and other

policyholder funds) include reserves for investment contracts and reserves for universal life, term life insurance, participating

traditional individual life insurance, group life insurance, accident and health insurance and disability income policies, as well as

a provision for dividends on participating policies.

Investment contracts are contractholders' funds on deposit with us and generally include reserves for pension and

annuity contracts. Reserves on investment contracts are equal to the cumulative deposits less any applicable charges and

withdrawals plus credited interest. Reserves for universal life insurance contracts are equal to cumulative deposits less charges

plus credited interest, which represents the account balances that accrue to the benefit of the policyholders.

We hold additional reserves on certain long duration contracts where benefit features result in gains in early years

followed by losses in later years, universal life/variable universal life contracts that contain no lapse guarantee features, or

annuities with guaranteed minimum death benefits.

Reserves for nonparticipating term life insurance and disability income contracts are computed on a basis of assumed

investment yield, mortality, morbidity and expenses, including a provision for adverse deviation, which generally varies by plan,

year of issue and policy duration. Investment yield is based on our experience. Mortality, morbidity and withdrawal rate

assumptions are based on our experience and are periodically reviewed against both industry standards and experience.

Reserves for participating life insurance contracts are based on the net level premium reserve for death and endowment

policy benefits. This net level premium reserve is calculated based on dividend fund interest rates and mortality rates guaranteed

in calculating the cash surrender values described in the contract.

Participating business represented approximately 16%, 17% and 17% of our life insurance in force and 53%, 55% and

57% of the number of life insurance policies in force at December 31, 2010, 2009 and 2008, respectively. Participating business

represented approximately 67%, 68% and 68% of life insurance premiums for the years ended December 31, 2010, 2009 and

2008, respectively. The amount of dividends to policyholders is declared annually by our Board of Directors. The amount of

dividends to be paid to policyholders is determined after consideration of several factors including interest, mortality, morbidity

and other expense experience for the year and judgment as to the appropriate level of statutory surplus to be retained by us. At

the end of the reporting period, we establish a dividend liability for the pro rata portion of the dividends expected to be paid on

or before the next policy anniversary date.

Some of our policies and contracts require payment of fees or other policyholder assessments in advance for services

that will be rendered over the estimated lives of the policies and contracts. These payments are established as unearned revenue

liabilities upon receipt and included in other policyholder funds in the consolidated statements of financial position. These

unearned revenue reserves are amortized to operations over the estimated lives of these policies and contracts in relation to the

emergence of estimated gross profit margins.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

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

The liability for unpaid disability and health claims is an estimate of the ultimate net cost of reported and unreported

losses not yet settled. This liability is estimated using actuarial analyses and case basis evaluations. Although considerable

variability is inherent in such estimates, we believe that the liability for unpaid claims is adequate. These estimates are

continually reviewed and, as adjustments to this liability become necessary, such adjustments are reflected in net income.

Recognition of Premiums and Other Considerations, Fees and Other Revenues and Benefits

Traditional individual life insurance products include those products with fixed and guaranteed premiums and benefits

and consist principally of whole life and term life insurance policies. Premiums from these products are recognized as premium

revenue when due. Related policy benefits and expenses for individual life products are associated with earned premiums and

result in the recognition of profits over the expected term of the policies and contracts.

Immediate annuities with life contingencies include products with fixed and guaranteed annuity considerations and

benefits and consist principally of group and individual single premium annuities with life contingencies. Annuity considerations

from these products are recognized as revenue. However, the collection of these annuity considerations does not represent the

completion of the earnings process, as we establish annuity reserves, using estimates for mortality and investment assumptions,

which include provision for adverse deviation as required by U.S. GAAP. We anticipate profits to emerge over the life of the

annuity products as we earn investment income, pay benefits and release reserves.

Group life and health insurance premiums are generally recorded as premium revenue over the term of the coverage.

Certain group contracts contain experience premium refund provisions based on a pre-defined formula that reflects their claim

experience. Experience premium refunds reduce revenue over the term of the coverage and are adjusted to reflect current

experience. Related policy benefits and expenses for group life and health insurance products are associated with earned

premiums and result in the recognition of profits over the term of the policies and contracts. Fees for contracts providing claim

processing or other administrative services are recorded as revenue over the period the service is provided.

Universal life-type policies are insurance contracts with terms that are not fixed. Amounts received as payments for

such contracts are not reported as premium revenues. Revenues for universal life-type insurance contracts consist of policy

charges for the cost of insurance, policy initiation and administration, surrender charges and other fees that have been assessed

against policy account values and investment income. Policy benefits and claims that are charged to expense include interest

credited to contracts and benefit claims incurred in the period in excess of related policy account balances.

Investment contracts do not subject us to significant risks arising from policyholder mortality or morbidity and consist

primarily of guaranteed investment contracts (“GICs”), funding agreements and certain deferred annuities. Amounts received as

payments for investment contracts are established as investment contract liability balances and are not reported as premium

revenues. Revenues for investment contracts consist of investment income and policy administration charges. Investment

contract benefits that are charged to expense include benefit claims incurred in the period in excess of related investment

contract liability balances and interest credited to investment contract liability balances.

Fees and other revenues are earned for asset management services provided to retail and institutional clients based

largely upon contractual rates applied to the market value of the client's portfolio. Additionally, fees and other revenues are

earned for administrative services performed including recordkeeping and reporting services for retirement savings plans. Fees

and other revenues received for performance of asset management and administrative services are recognized as revenue when

earned, typically when the service is performed.

Deferred Policy Acquisition Costs

Commissions and other costs (underwriting, issuance and field expenses) that vary with and are primarily related to the

acquisition of new and renewal insurance policies and investment contract business are capitalized to the extent recoverable.

Maintenance costs and acquisition costs that are not deferrable are charged to operations as incurred.

DPAC for universal life-type insurance contracts, participating life insurance policies and certain investment contracts

are being amortized over the lives of the policies and contracts in relation to the emergence of estimated gross profit margins.

This amortization is adjusted in the current period when estimated gross profits are revised. For individual variable life

insurance, individual variable annuities and group annuities which have separate account equity investment options, we utilize a

mean reversion method (reversion to the mean assumption), a common industry practice, to determine the future domestic equity

market growth assumption used for the amortization of DPAC. The DPAC of nonparticipating term life insurance and individual

disability policies are being amortized over the premium-paying period of the related policies using assumptions consistent with

those used in computing policyholder liabilities.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

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

DPAC are subject to recoverability testing at the time of policy issue and loss recognition testing on an annual basis, or

when an event occurs that may warrant loss recognition. If loss recognition is necessary, DPAC would be written off to the

extent that it is determined that future policy premiums and investment income or gross profits are not adequate to cover related

losses and expenses.

Deferred Policy Acquisition Costs on Internal Replacements

All insurance and investment contract modifications and replacements are reviewed to determine if the internal

replacement results in a substantially changed contract. If so, the acquisition costs, sales inducements and unearned revenue

associated with the new contract are deferred and amortized over the lifetime of the new contract. In addition, the existing

DPAC, sales inducement costs and unearned revenue balances associated with the replaced contract are written off. If an internal

replacement results in a substantially unchanged contract, the acquisition costs, sales inducements and unearned revenue

associated with the new contract are immediately recognized in the period incurred. In addition, the existing DPAC, sales

inducement costs or unearned revenue balance associated with the replaced contract is not written off, but instead is carried over

to the new contract.

Long-Term Debt

Long-term debt includes notes payable, nonrecourse mortgages and other debt with a maturity date greater than one

year at the date of issuance. Current maturities of long-term debt are classified as long-term debt in our statement of financial

position.

Reinsurance

We enter into reinsurance agreements with other companies in the normal course of business. We may assume

reinsurance from or cede reinsurance to other companies. Assets and liabilities related to reinsurance ceded are reported on a

gross basis. Premiums and expenses are reported net of reinsurance ceded. The cost of reinsurance related to long-duration

contracts is accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to

account for the underlying policies. We are contingently liable with respect to reinsurance ceded to other companies in the event

the reinsurer is unable to meet the obligations it has assumed. At December 31, 2010 and 2009, our largest exposures to a single

third-party reinsurer in our individual life insurance business was $23.3 billion and $22.0 billion of life insurance in force,

representing 15% and 14% of total net individual life insurance in force, respectively. The financial statement exposure is

limited to the reinsurance recoverable related to this single third party reinsurer, which was $27.5 million and $26.8 million at

December 31, 2010 and 2009, respectively.

The effects of reinsurance on premiums and other considerations and policy and contract benefits were as follows:


	For the year ended December 31,
	2010	2009	2008
		(in millions)
Premiums and other considerations:
Direct	$ 3,604.0	$ 3,807.9 $	4,290.5
Assumed	3.5	5.2	9.7
Ceded	(307.2)	(301.6)	(295.1)
Net premiums and other considerations	$ 3,300.3	$ 3,511.5 $	4,005.1
Benefits, claims and settlement expenses:
Direct	$ 5,007.4	$ 5,234.0 $	5,853.7
Assumed	36.8	38.9	43.5
Ceded	(203.6)	(267.0)	(263.2)
Net benefits, claims and settlement expenses	$ 4,840.6	$ 5,005.9 $	5,634.0

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

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

Separate Accounts

The separate account assets presented in the consolidated financial statements represent the fair value of funds that are

separately administered by us for contracts with equity, real estate and fixed income investments. The separate account contract

owner, rather than us, bears the investment risk of these funds. The separate account assets are legally segregated and are not

subject to claims that arise out of any of our other business. We receive fees for mortality, withdrawal and expense risks, as well

as administrative, maintenance and investment advisory services that are included in the consolidated statements of operations.

Net deposits, net investment income and realized and unrealized capital gains and losses on the separate accounts are not

reflected in the consolidated statements of operations.

At December 31, 2010 and 2009, the separate accounts include a separate account valued at $221.7 million and

$191.5 million, respectively, which primarily includes shares of PFG stock that were allocated and issued to eligible participants

of qualified employee benefit plans administered by us as part of the policy credits issued under Principal Mutual Holding

Company’s 2001 demutualization. The separate account shares are recorded at fair value and are reported as separate account

assets with a corresponding separate account liability to eligible participants of the qualified plan. Changes in fair value of the

separate account shares are reflected in both the separate account assets and separate account liabilities and do not impact our

results of operations.

Income Taxes

Our ultimate parent, PFG, files a U.S. consolidated income tax return that includes all of our qualifying subsidiaries. In

addition, we file income tax returns in all states in which we conduct business. PFG allocates income tax expenses and benefits

to companies in the group generally based upon pro rata contribution of taxable income or operating losses. We are taxed at

corporate rates on taxable income based on existing tax laws. Current income taxes are charged or credited to net income based

upon amounts estimated to be payable or recoverable as a result of taxable operations for the current year. Deferred income taxes

are provided for the tax effect of temporary differences in the financial reporting and income tax bases of assets and liabilities

and net operating losses using enacted income tax rates and laws. The effect on deferred income tax assets and deferred income

tax liabilities of a change in tax rates is recognized in operations in the period in which the change is enacted.

Goodwill and Other Intangibles

Goodwill and other intangible assets include the cost of acquired subsidiaries in excess of the fair value of the net

tangible assets recorded in connection with acquisitions. Goodwill and indefinite-lived intangible assets are not amortized.

Rather, they are tested for impairment during the fourth quarter each year, or more frequently if events or changes in

circumstances indicate that the asset might be impaired. Goodwill is tested at the reporting unit level to which it was assigned. A

reporting unit is an operating segment or a business one level below that operating segment, if financial information is prepared

and regularly reviewed by management at that level. Once goodwill has been assigned to a reporting unit, it is no longer

associated with a particular acquisition; therefore, all of the activities within a reporting unit, whether acquired or organically

grown, are available to support the goodwill value. Impairment testing for indefinite-lived intangible assets consists of a

comparison of the fair value of the intangible asset with its carrying value.

Intangible assets with a finite useful life are amortized as related benefits emerge and are reviewed periodically for

indicators of impairment in value. If facts and circumstances suggest possible impairment, the sum of the estimated

undiscounted future cash flows expected to result from the use of the asset is compared to the current carrying value of the asset.

If the undiscounted future cash flows are less than the carrying value, an impairment loss is recognized for the excess of the

carrying amount of assets over their fair value.

2. Related Party Transaction

We have entered into various related party transactions with our ultimate parent and its other affiliates. During the

years ended December 31, 2010, 2009 and 2008, we received $210.8 million, $196.1 million and $199.2 million,

respectively, of expense reimbursements from affiliated entities.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

2. Related Party Transaction — (continued)

We and our direct parent, PFSI, are parties to a cash advance agreement, which allows us, collectively, to pool our

available cash in order to more efficiently and effectively invest our cash. The cash advance agreement allows (i) us to

advance cash to PFSI in aggregate principal amounts not to exceed $1.0 billion, with such advanced amounts earning interest

at the daily 30-day LIBOR rate (the “Internal Crediting Rate”); and (ii) PFSI to advance cash to us in aggregate principal

amounts not to exceed $1.0 billion, with such advance amounts paying interest at the Internal Crediting Rate plus 10 basis

points to reimburse PFSI for the costs incurred in maintaining short-term investing and borrowing programs. Under this cash

advance agreement, we had a receivable from PFSI of $547.5 million and $458.7 million at December 31, 2010 and 2009,

respectively, and earned interest of $1.4 million, $1.3 million and $10.9 million during 2010, 2009 and 2008, respectively.

We have short-term affiliated debt and long-term affiliated debt with our parent. See Note 10, Debt, for additional

information.

We and an affiliated entity, Principal National Life Insurance Company, are parties to a reinsurance agreement to

reinsure certain life insurance business. Under this agreement, we had an assumed reinsurance liability of $178.9 million and

$5.0 million as of December 31, 2010 and 2009, respectively. In addition, we had assumed reinsurance expenses of $115.2

million and $2.8 million for the years ended December 31, 2010 and 2009, respectively.

We receive commission fees, distribution and services fees from Principal Funds for distributing proprietary

products on our behalf. Furthermore, we receive management and administrative fees from Principal Funds for investments

our products hold in the Principal Mutual Funds and Principal Variable Contracts. Fees and other revenue was $282.4

million, $172.7 million and $101.9 million for the years ended December 31, 2010, 2009 and 2008, respectively. In addition,

we pay commission expense to affiliated registered representatives to sell proprietary products. Commission expense was

$61.4 million, $57.8 million and $145.2 million for the years ended December 31, 2010, 2009 and 2008, respectively.

Pursuant to certain regulatory requirements or otherwise in the ordinary course of business, we guarantee certain

payments of our subsidiaries and have agreements with affiliates to provide and/or receive management, administrative and

other services, all of which, individually and in the aggregate, are immaterial to our business, financial condition and net

income.

3. Goodwill and Other Intangible Assets

Goodwill

The changes in the carrying amount of goodwill reported in our segments were as follows:


	Retirement	Principal	U.S.
	and Investor	Global	Insurance
	Services	Investors	Solutions	Corporate	Consolidated
			(in millions)
Balances at December 31, 2009	$ 18.7	$ 152.5	$ 43.4	$ 43.6	$ 258.2

Balances at January 1, 2010	$ 18.7	$ 152.5	$ 43.4	$ 43.6	$ 258.2
Impairment	—	—	—	(43.6)	(43.6)
Balances at December 31, 2010	$ 18.7	$ 152.5	$ 43.4	$ —	$ 214.6

On September 30, 2010, we announced our decision to exit the group medical insurance business. This event

constituted a substantive change in circumstances that would more likely than not reduce the fair value of our group medical

insurance reporting unit below its carrying amount. Accordingly, we performed an interim goodwill impairment test as of

September 30, 2010. As a result of the shortened period of projected cash flows, we determined that the goodwill related to

this reporting unit within our Corporate operating segment was impaired and it was written down to a value of zero. We

recorded a $43.6 million pre-tax impairment loss as an operating expense in the consolidated statements of operations during

the year ended December 31, 2010.

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

3. Goodwill and Other Intangible Assets— (continued)

Finite Lived Intangible Assets

Amortized intangible assets that continue to be subject to amortization over a weighted average remaining expected life

of 18 years were as follows:


			December 31,
		2010			2009
	Gross		Net	Gross		Net
	carrying	Accumulated	carrying	carrying	Accumulated	carrying
	amount	amortization	amount	amount	amortization	amount
			(in millions)
Total finite lived intangible assets	$ 74.8	$ 29.6	$ 45.2	$ 80.3	$ 29.1	$ 51.2

During 2010, we recorded a $1.6 million pre-tax impairment loss as an operating expense related to finite lived

intangible assets with a gross carrying amount of $5.5 million and $3.9 million of accumulated amortization at the time of

impairment resulting from our decision to exit the group medical insurance business. We had no significant impairments in 2009

and 2008. The amortization expense for intangible assets with finite useful lives was $4.5 million, $6.0 million and $8.3 million

for 2010, 2009 and 2008, respectively. At December 31, 2010, the estimated amortization expense for the next five years is as

follows (in millions):


Year ending December 31:
2011	$ 4.4
2012	4.2
2013	3.7
2014	3.5
2015	2.0

Indefinite Lived Intangible Assets

The net carrying amount of unamortized indefinite lived intangible assets was $94.5 million as of both December 31,

2010 and 2009. This represents our share of the purchase price from our parent’s December 31, 2006, acquisition of WM

Advisors, Inc. related to investment management contracts that are not subject to amortization. We were allocated $99.9 million

of the purchase price based on the fact that we will benefit from our parent’s acquisition, which also included $3.2 million

related to goodwill and $2.2 million related to amortizable finite lived intangible assets that were subject to a three-year

amortization period.

4. Variable Interest Entities

We have relationships with and may have a variable interest in various types of special purpose entities. Following is a

discussion of our interest in entities that meet the definition of a VIE. When we are the primary beneficiary we are required to

consolidate the entity in our financial statements. On January 1, 2010, we adopted authoritative guidance that changed the

method of determining the primary beneficiary of a VIE. Prior to January 1, 2010, the primary beneficiary was the enterprise

who absorbed the majority of the entity’s expected losses, received a majority of the expected residual returns or both. The new

guidance identifies the primary beneficiary of a VIE as the enterprise with (1) the power to direct the activities of a VIE that

most significantly impact the entity’s economic performance and (2) the obligation to absorb losses of the entity or the right

to receive benefits from the entity that could potentially be significant to the VIE. We assess whether we are the primary

beneficiary of VIEs we have relationships with on an ongoing basis. See further discussion of the adoption in Note 1, Nature of

Operations and Significant Accounting Policies.

Consolidated Variable Interest Entities

Grantor Trusts

We contributed undated subordinated floating rate notes to three grantor trusts. The trusts separated the cash flows by

issuing an interest-only certificate and a residual certificate related to each note contributed. Each interest-only certificate entitles

the holder to interest on the stated note for a specified term, while the residual certificate entitles the holder to interest payments

subsequent to the term of the interest-only certificate and to all principal payments. We retained the interest-only certificates and

the residual certificates were subsequently sold to third parties.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

4. Variable Interest Entities — (continued)

We have determined these grantor trusts are VIEs due to insufficient equity to sustain them. As our interest-only

certificates are exposed to the majority of the risk of loss due to interest rate risk, we determined we were the primary

beneficiary prior to January 1, 2010. Beginning January 1, 2010, we determined we remain the primary beneficiary as a result of

our contribution of securities into the trusts.

Collateralized Private Investment Vehicles

We invest in synthetic CDOs, collateralized bond obligations, collateralized loan obligations, collateralized commodity

obligations and other collateralized structures, which are VIEs due to insufficient equity to sustain the entities (collectively

known as “collateralized private investment vehicles”). The performance of the notes of these structures is primarily linked to a

synthetic portfolio by derivatives; each note has a specific loss attachment and detachment point. The notes and related

derivatives are collateralized by a pool of permitted investments. The investments are held by a trustee and can only be

liquidated to settle obligations of the trusts. These obligations primarily include derivatives, financial guarantees and the notes

due at maturity or termination of the trusts.

Prior to January 1, 2010, we determined we were the primary beneficiary of a certain number of these entities due to

the nature of our direct investment in the VIEs. As of December 31, 2009, we consolidated five collateralized private investment

vehicles with assets of $135.6 million. Upon adoption of the new accounting guidance as of January 1, 2010, we determined we

were no longer the primary beneficiary of three of these entities with assets of $65.4 million. For these three entities, we do not

control the decisions affecting the economic performance of the entities and we were not involved with the design of the entities.

As of December 31, 2010, we continue to hold $53.9 million of investments in these entities classified on the consolidated

statements of financial position as fixed maturities, available-for-sale or fixed maturities, trading. We also determined we are the

primary beneficiary of two additional collateralized private investment vehicles. For all the collateralized structures consolidated

as of December 31, 2010, we are the primary beneficiary because we act as the investment manager of the underlying portfolio

and we have an ownership interest.

In October 2009, a synthetic CDO we had previously consolidated was terminated. During the year ended December

31, 2009, we recognized a pre-tax gain of $49.8 million related to the change in fair value and termination of the credit default

swaps within the VIE. We were considered the primary beneficiary due to our direct investment in the VIE and management of

the synthetic reference portfolios.

Commercial Mortgage-Backed Securities

In September 2000, we sold commercial mortgage loans to a real estate mortgage investment conduit trust. The trust

issued various commercial mortgage-backed securities (“CMBS”) certificates using the cash flows of the underlying commercial

mortgages it purchased. Prior to January 1, 2010, this entity was scoped out of the consolidation guidance as a QSPE. Based on

the new accounting guidance, the previous scope exception for QSPEs no longer exists and this entity is now a VIE due to the

entity having insufficient equity to sustain itself. We have determined we are the primary beneficiary as we retained the special

servicing role for the assets within the trust as well as the ownership of the bond class which controls the unilateral kick out

rights of the special servicer.

Hedge Funds

We are a general partner with an insignificant equity ownership in various hedge funds. These entities are deemed VIEs

due to the equity owners not having decision-making ability. Before January 1, 2010, we consolidated these VIEs due to our

related parties’ ownership. Beginning January 1, 2010, we continue to consolidate these entities due to our control through our

management relationship, related party ownership and our fee structure in certain of these funds. These entities contain various

fixed maturities held as available-for-sale and trading and equity securities held as trading.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

4. Variable Interest Entities — (continued)

The carrying amounts of our consolidated VIE assets, which can only be used to settle obligations of consolidated

VIEs, and liabilities of consolidated VIEs for which creditors do not have recourse are as follows:


		Collateralized
		private investment
	Grantor trusts	vehicles	CMBS	Hedge funds (2)	Total
			(in millions)
December 31, 2010
Fixed maturities, available-for-sale	$ 243.1	$ 14.8	$ —	$ —	$ 257.9
Fixed maturities, trading	—	131.4	—	—	131.4
Equity securities, trading	—	—	—	158.6	158.6
Other investments	—	—	128.4	0.3	128.7
Cash and cash equivalents	—	55.0	—	45.0	100.0
Accrued investment income	0.7	0.1	0.8	—	1.6
Premiums due and other receivables	—	1.6	—	13.9	15.5
Total assets	$ 243.8	$ 202.9	$ 129.2	$ 217.8	$ 793.7
Deferred income taxes	$ 2.4	$ —	$ —	$ —	$ 2.4
Other liabilities (1)	135.8	132.6	94.1	71.1	433.6
Total liabilities	$ 138.2	$ 132.6	$ 94.1	$ 71.1	$ 436.0
December 31, 2009
Fixed maturities, available-for-sale	$ 226.6	$ 59.2	$ —	$ —	$ 285.8
Fixed maturities, trading	—	19.8	—	—	19.8
Equity securities, trading	—	—	—	90.9	90.9
Cash and cash equivalents	—	55.0	—	45.1	100.1
Accrued investment income	0.8	0.2	—	—	1.0
Premiums due and other receivables	—	1.4	—	18.1	19.5
Total assets	$ 227.4	$ 135.6	$ —	$ 154.1	$ 517.1
Deferred income taxes	$ 2.7	$ —	$ —	$ —	$ 2.7
Other liabilities (1)	89.1	24.6	—	43.1	156.8
Total liabilities	$ 91.8	$ 24.6	$ —	$ 43.1	$ 159.5

(1) Grantor trusts contain an embedded derivative of a forecasted transaction to deliver the underlying securities;

collateralized private investment vehicles include derivative liabilities, financial guarantees and obligation to redeem

notes at maturity or termination of the trust; CMBS includes obligation to the bondholders; and hedge funds include

liabilities to securities brokers.

(2) The consolidated statements of financial position included a $145.9 million and $110.2 million as of December 31, 2010

and 2009, respectively, noncontrolling interest for hedge funds.

We did not provide financial or other support to investees designated as VIEs for the years ended December 31, 2010

and 2009.

Unconsolidated Variable Interest Entities

Invested Securities

We hold a variable interest in a number of VIEs where we are not the primary beneficiary. Our investments in

securities issued by these VIEs are reported in fixed maturities, available-for-sale and fixed maturities, trading in the

consolidated statements of financial position and are described below.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

4. Variable Interest Entities — (continued)

VIEs include CMBS, residential mortgage-backed securities and asset-backed securities. All of these entities were

deemed VIEs upon the removal of the QSPE scope exception because the equity within these entities is insufficient to sustain

them. We currently are not the primary beneficiary in any of the entities within these categories of investments. This

determination was based primarily on the fact we do not own the class of security that controls the unilateral right to replace

the special servicer or equivalent function.

As previously discussed, we invest in several types of collateralized private investment vehicles, which are VIEs.

These include cash and synthetic structures that we do not manage. We are currently not the primary beneficiary of these

collateralized private investment vehicles primarily because we do not control the economic performance of the entities and

were not involved with the design of the entities.

We have invested in various VIE trusts as a debt holder. All of these entities are classified as VIEs due to

insufficient equity to sustain them. Prior to January 1, 2010, we had performed a quantitative analysis and concluded that

although we held a significant variable interest in these entities we were not the primary beneficiary due to lack of majority of

the risk of loss or because they were scoped out as a QSPE. Beginning January 1, 2010, we concluded we are not the primary

beneficiary primarily because we do not control the economic performance of the entities and were not involved with the

design of the entities.

Prior to January 1, 2010, we were only required to disclose information about carrying value and maximum loss

exposure for our significant unconsolidated VIEs. The carrying value and maximum loss exposure for our unconsolidated

VIEs as of December 31, 2010, and for our significant unconsolidated VIEs as of December 31, 2009, were as follows:


		Maximum exposure to
	Asset carrying value	loss (1)
	(in millions)
December 31, 2010
Fixed maturities, available-for-sale:
Corporate	$ 429.0	$ 367.7
Residential mortgage-backed securities	3,164.0	3,047.9
Commercial mortgage-backed securities	3,842.2	4,424.9
Collateralized debt obligations	293.0	380.5
Other debt obligations	3,114.1	3,184.9
Fixed maturities, trading:
Residential mortgage-backed securities	130.3	130.3
Commercial mortgage-backed securities	5.1	5.1
Collateralized debt obligations	87.2	87.2
Other debt obligations	88.9	88.9

December 31, 2009
Fixed maturities, available-for-sale:
Corporate	$ 162.8	$ 144.2

(1) Our risk of loss is limited to our initial investment measured at amortized cost for fixed maturities, available-for-sale and

to fair value for our fixed maturities, trading.

Sponsored Investment Funds

We provide asset management and other services to certain investment structures that are considered VIEs as we

generally earn management fees and in some instances performance based fees. We are not the primary beneficiary of these

entities as we do not have the obligation to absorb losses of the entities that could be potentially significant to the VIE or the

right to receive benefits from these entities that could be potentially significant.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

5. Investments

Fixed Maturities and Equity Securities

The amortized cost, gross unrealized gains and losses, other-than-temporary impairments in AOCI and fair value of

fixed maturities and equity securities available-for-sale are summarized as follows:


				Other-than-
		Gross	Gross	temporary
		unrealized	unrealized	impairments in
	Amortized cost	gains	losses	AOCI	Fair value
	(in millions)
December 31, 2010
Fixed maturities, available-for-sale:
U.S. government and agencies	$ 529.1	$ 20.7	$ 0.1	$ —	$ 549.7
Non-U.S. governments	389.3	34.9	—	—	424.2
States and political subdivisions	2,615.0	64.7	23.3	—	2,656.4
Corporate	29,917.7	1,725.1	483.6	18.0	31,141.2
Residential mortgage-backed securities	3,047.9	122.0	5.9	—	3,164.0
Commercial mortgage-backed securities	4,424.9	118.0	506.1	194.6	3,842.2
Collateralized debt obligations	380.5	1.7	51.8	37.4	293.0
Other debt obligations	3,184.9	53.7	40.0	84.5	3,114.1
Total fixed maturities, available-for-sale	$ 44,489.3	$ 2,140.8	$ 1,110.8	$ 334.5	$ 45,184.8
Total equity securities, available-for-sale	$ 177.3	$ 6.8	$ 18.2		$ 165.9
December 31, 2009
Fixed maturities, available-for-sale:
U.S. government and agencies	$ 530.4	$ 8.7	$ 0.5	$ —	$ 538.6
Non-U.S. governments	421.1	42.4	1.1	—	462.4
States and political subdivisions	2,008.7	53.4	13.5	—	2,048.6
Corporate	30,592.6	1,222.0	989.6	58.0	30,767.0
Residential mortgage-backed securities	3,019.1	86.0	3.8	—	3,101.3
Commercial mortgage-backed securities	4,898.0	20.9	1,211.5	107.7	3,599.7
Collateralized debt obligations	607.5	1.8	200.7	39.0	369.6
Other debt obligations	2,900.2	34.5	229.8	73.7	2,631.2
Total fixed maturities, available-for-sale	$ 44,977.6	$ 1,469.7	$ 2,650.5	$ 278.4	$ 43,518.4
Total equity securities, available-for-sale	$ 229.9	$ 16.1	$ 34.3		$ 211.7

The amortized cost and fair value of fixed maturities available-for-sale at December 31, 2010, by expected maturity,

were as follows:


	Amortized
	cost	Fair value
	(in millions)
Due in one year or less	$ 2,325.6	$ 2,364.7
Due after one year through five years	13,357.5	13,937.6
Due after five years through ten years	8,495.7	8,919.3
Due after ten years	9,272.3	9,549.9
Subtotal	33,451.1	34,771.5
Mortgage-backed and other asset-backed securities	11,038.2	10,413.3
Total	$ 44,489.3	$ 45,184.8

Actual maturities may differ because borrowers may have the right to call or prepay obligations. Our portfolio is

diversified by industry, issuer and asset class. Credit concentrations are managed to established limits.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)


5. Investments — (continued)

Net Investment Income

Major categories of net investment income are summarized as follows:
	For the year ended December 31,
	2010	2009	2008
		(in millions)
Fixed maturities, available-for-sale	$ 2,500.1	$ 2,587.0	$ 2,748.3
Fixed maturities, trading	21.1	29.8	30.5
Equity securities, available-for-sale	11.4	16.8	16.2
Equity securities, trading	0.7	0.3	0.4
Mortgage loans	630.2	675.3	743.2
Real estate	57.1	35.8	54.0
Policy loans	54.9	57.0	54.1
Cash and cash equivalents	4.8	9.1	63.0
Derivatives	(153.2)	(128.3)	(56.8)
Other	47.1	15.9	(31.0)
Total	3,174.2	3,298.7	3,621.9
Investment expenses	(88.4)	(110.5)	(149.9)
Net investment income	$ 3,085.8	$ 3,188.2	$ 3,472.0

Net Realized Capital Gains and Losses

The major components of net realized capital gains (losses) on investments are summarized as follows:


	For the year ended December 31,
	2010	2009	2008
		(in millions)
Fixed maturities, available-for-sale:
Gross gains	$ 56.9	$ 109.0	$ 39.3
Gross losses	(339.5)	(701.9)	(436.2)
Portion of OTTI losses recognized in OCI	56.1	260.9	—
Hedging, net	142.2	(229.1)	496.3
Fixed maturities, trading	7.4	50.8	(41.1)
Equity securities, available-for-sale:
Gross gains	8.8	26.3	12.0
Gross losses	(3.2)	(46.2)	(56.6)
Equity securities, trading	24.2	37.3	(62.7)
Mortgage loans	(150.7)	(153.1)	(44.3)
Derivatives	(142.0)	230.1	(595.7)
Other	51.4	(29.4)	66.4
Net realized capital losses	$ (288.4)	$ (445.3)	$ (622.6)

Proceeds from sales of investments (excluding call and maturity proceeds) in fixed maturities, available-for-sale were

$1.4 billion, $3.0 billion and $1.1 billion in 2010, 2009 and 2008, respectively.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

5. Investments — (continued)

Other-Than-Temporary Impairments

We have a process in place to identify fixed maturity and equity securities that could potentially have a credit

impairment that is other than temporary. This process involves monitoring market events that could impact issuers’ credit

ratings, business climate, management changes, litigation and government actions and other similar factors. This process also

involves monitoring late payments, pricing levels, downgrades by rating agencies, key financial ratios, financial statements,

revenue forecasts and cash flow projections as indicators of credit issues.

During first quarter 2009, we adopted authoritative guidance that changed the recognition and presentation of other-

than-temporary impairments. See further discussion of the adoption in Note 1, Nature of Operations and Significant Accounting

Policies. The recognition provisions of the guidance apply only to debt securities classified as available-for-sale and held-to-

maturity, while the presentation and disclosure requirements apply to both debt and equity securities.

Each reporting period, all securities are reviewed to determine whether an other-than-temporary decline in value exists

and whether losses should be recognized. We consider relevant facts and circumstances in evaluating whether a credit or interest

rate-related impairment of a security is other than temporary. Relevant facts and circumstances considered include: (1) the extent

and length of time the fair value has been below cost; (2) the reasons for the decline in value; (3) the financial position and

access to capital of the issuer, including the current and future impact of any specific events; (4) for structured securities, the

adequacy of the expected cash flows; (5) for fixed maturities, our intent to sell a security or whether it is more likely than not we

will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity and

(6) for equity securities, our ability and intent to hold the security for a period of time that allows for the recovery in value. Prior

to 2009, our ability and intent to hold fixed maturities for a period of time that allowed for a recovery in value was considered

rather than our intent to sell these securities. To the extent we determine that a security is deemed to be other than temporarily

impaired, an impairment loss is recognized.

Impairment losses on equity securities are recognized in net income and are measured as the difference between

amortized cost and fair value. The way in which impairment losses on fixed maturities are now recognized in the financial

statements is dependent on the facts and circumstances related to the specific security. If we intend to sell a security or it is more

likely than not that we would be required to sell a security before the recovery of its amortized cost, less any current period

credit loss, we recognize an other-than-temporary impairment in net income for the difference between amortized cost and fair

value. If we do not expect to recover the amortized cost basis, we do not plan to sell the security and if it is not more likely than

not that we would be required to sell a security before the recovery of its amortized cost, less any current period credit loss, the

recognition of the other-than-temporary impairment is bifurcated. We recognize the credit loss portion in net income and the

noncredit loss portion in OCI. Prior to 2009, other-than-temporary impairments on fixed maturities were recorded in net income

in their entirety and the amount recognized was the difference between amortized cost and fair value.

We estimate the amount of the credit loss component of a fixed maturity security impairment as the difference between

amortized cost and the present value of the expected cash flows of the security. The present value is determined using the best

estimate cash flows discounted at the effective interest rate implicit to the security at the date of purchase or the current yield to

accrete an asset-backed or floating rate security. The methodology and assumptions for establishing the best estimate cash flows

vary depending on the type of security. The asset-backed securities cash flow estimates are based on security specific facts and

circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity and

prepayment speeds and structural support, including subordination and guarantees. The corporate security cash flow estimates

are derived from scenario-based outcomes of expected corporate restructurings or liquidations using bond specific facts and

circumstances including timing, security interests and loss severity.

Total other-than-temporary impairment losses, net of recoveries from the sale of previously impaired securities, were as

follows:


	For the year ended December 31,
	2010	2009	2008
		(in millions)
Fixed maturities, available-for-sale	$ (300.8)	$ (692.2)	$ (430.4)
Equity securities, available-for-sale	3.7	(20.2)	(47.3)
Total other-than-temporary impairment losses, net of recoveries from the sale of
previously impaired securities	$ (297.1)	$ (712.4)	$ (477.7)

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

5. Investments — (continued)

The change in accumulated credit losses associated with other-than-temporary impairments on fixed maturities for

which an amount related to credit losses was recognized in net realized capital gains (losses) and an amount related to noncredit

losses was recognized in OCI (“bifurcated OTTI”) is summarized as follows:


	For the year ended December 31,
	2010	2009
	(in millions)
Total other-than-temporary impairments on fixed maturities for which an amount related to
noncredit losses was recognized in OCI	$ (180.6) $	(448.7)
Noncredit loss recognized in OCI	56.1	260.9
Credit loss impairment recognized in net realized capital losses (1)	$ (124.5) $	(187.8)

(1) Includes additions to bifurcated credit losses recognized in net realized capital gains (losses) during the period for fixed

maturities for which an other-than-temporary impairment was not previously recognized and additional credit losses for

previously recognized other-than-temporary impairments of $222.1 million and $221.2 million for the years ended

December 31, 2010 and 2009, respectively. These losses were offset by reductions for previously recognized bifurcated

credit losses on fixed maturities now sold or intended to be sold and fixed maturities reclassified from available-for-sale to

trading due to the adoption of new accounting guidance, which did not impact net income for the period, of $97.6 million

and $33.4 million for the years ended December 31, 2010 and 2009, respectively. See the credit loss rollforward table below

for further details on bifurcated credit losses.

Non-bifurcated other-than-temporary impairment losses, net of recoveries from the sale of previously impaired available-

for-sale securities, for fixed maturities recognized in net realized capital gains (losses) during the period were $22.6 million

and $210.1 million for the years ended December 31, 2010 and 2009, respectively.

The following table provides a rollforward of accumulated credit losses for fixed maturities with bifurcated credit

losses. The purpose of the table is to provide detail of (1) additions to the bifurcated credit loss amounts recognized in net

realized capital gains (losses) during the period and (2) decrements for previously recognized bifurcated credit losses where the

loss is no longer bifurcated and/or there has been a positive change in expected cash flows or accretion of the bifurcated credit

loss amount.


	For the year ended December 31,
	2010		2009
	(in millions)
Beginning balance	$ (204.7)	$ (18.5)
Credit losses for which an other-than-temporary impairment was not previously
recognized	(112.4)	(168.5)
Credit losses for which an other-than-temporary impairment was previously recognized	(109.7)	(52.7)
Reduction for credit losses previously recognized on fixed maturities now sold or intended
to be sold	53.2	33.4
Reduction for credit losses previously recognized on fixed maturities reclassified to
trading (1)	44.4	—
Reduction for positive changes in cash flows expected to be collected and amortization (2)	3.5	1.6
Ending balance	$ (325.7)	$ (204.7)

(1) Fixed maturities previously classified as available-for-sale have been reclassified to trading as a result of electing the fair

value option upon adoption of accounting guidance related to the evaluation of credit derivatives embedded in beneficial

interests in securitized financial assets.

(2) Amounts are recognized in net investment income.

Gross Unrealized Losses for Fixed Maturities and Equity Securities

For fixed maturities and equity securities available-for-sale with unrealized losses, including other-than-temporary

impairment losses reported in OCI, the gross unrealized losses and fair value, aggregated by investment category and length of

time that individual securities have been in a continuous unrealized loss position are summarized as follows:


Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)
5. Investments — (continued)

	December 31, 2010
	Less than		Greater than or
	twelve months		equal to twelve months		Total
		Gross		Gross		Gross
	Carrying	unrealized	Carrying	unrealized	Carrying	unrealized
	value	losses	value	losses	value	losses
			(in millions)
Fixed maturities, available-for-sale:
U.S. government and agencies	$ 14.9	$ 0.1	$ —	$ —	$ 14.9	$ 0.1
States and political subdivisions	771.0	18.4	44.2	4.9	815.2	23.3
Corporate	2,189.5	57.5	3,759.9	444.1	5,949.4	501.6
Residential mortgage-backed securities	384.9	5.9	—	—	384.9	5.9
Commercial mortgage-backed securities	340.1	4.9	1,186.4	695.8	1,526.5	700.7
Collateralized debt obligations	10.4	0.5	233.0	88.7	243.4	89.2
Other debt obligations	401.5	8.4	578.4	116.1	979.9	124.5
Total fixed maturities, available-for-sale	$ 4,112.3	$ 95.7	$ 5,801.9	$ 1,349.6	$ 9,914.2	$ 1,445.3
Total equity securities, available-for-sale	$ 47.3	$ 7.2	$ 77.0	$ 11.0	$ 124.3	$ 18.2

Our consolidated portfolio consists of fixed maturities where 77% were investment grade (rated AAA through BBB-)

with an average price of 87 (carrying value/amortized cost) at December 31, 2010. Gross unrealized losses in our fixed

maturities portfolio decreased during the year ended December 31, 2010, due to a decline in interest rates and a tightening of

credit spreads primarily in the corporate and commercial mortgage-backed securities sectors.

For those securities that had been in a loss position for less than twelve months, our consolidated portfolio held 534

securities with a carrying value of $4,112.3 million and unrealized losses of $95.7 million reflecting an average price of 98 at

December 31, 2010. Of this portfolio, 94% was investment grade (rated AAA through BBB-) at December 31, 2010, with

associated unrealized losses of $88.7 million. The losses on these securities can primarily be attributed to changes in market

interest rates and changes in credit spreads since the securities were acquired.

For those securities that had been in a continuous loss position greater than or equal to twelve months, our consolidated

portfolio held 773 securities with a carrying value of $5,801.9 million and unrealized losses of $1,349.6 million. The average

rating of this portfolio was BBB with an average price of 81 at December 31, 2010. Of the $1,349.6 million in unrealized losses,

the commercial mortgage-backed securities sector accounts for $695.8 million in unrealized losses with an average price of 63

and an average credit rating of BBB. The remaining unrealized losses consist primarily of $444.1 million within the corporate

sector at December 31, 2010. The average price of the corporate sector was 89 and the average credit rating was BBB. The

losses on these securities can primarily be attributed to changes in market interest rates and changes in credit spreads since the

securities were acquired.

Because it was not our intent to sell the fixed maturity available-for-sale securities with unrealized losses and it was not

more likely than not that we would be required to sell these securities before recovery of the amortized cost, which may be

maturity, we did not consider these investments to be other-than-temporarily impaired at December 31, 2010.


Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)
5. Investments — (continued)

	December 31, 2009
	Less than		Greater than or
	twelve months		equal to twelve months		Total
		Gross		Gross		Gross
	Carrying	unrealized	Carrying	unrealized	Carrying	unrealized
	value	losses	value	losses	value	losses
			(in millions)
Fixed maturities, available-for-sale:
U.S. government and agencies	$ 32.7	$ 0.4	$ 1.0	$ 0.1	$ 33.7	$ 0.5
Non-U.S. governments	9.6	0.4	30.2	0.7	39.8	1.1
States and political subdivisions	242.8	1.9	247.9	11.6	490.7	13.5
Corporate	2,183.3	54.1	7,474.5	993.5	9,657.8	1,047.6
Residential mortgage-backed securities	489.9	3.7	0.6	0.1	490.5	3.8
Commercial mortgage-backed securities	468.1	16.7	2,217.3	1,302.5	2,685.4	1,319.2
Collateralized debt obligations	—	—	366.1	239.7	366.1	239.7
Other debt obligations	312.9	23.3	902.3	280.2	1,215.2	303.5
Total fixed maturities, available-for-sale	$ 3,739.3	$ 100.5	$ 11,239.9	$ 2,828.4	$ 14,979.2	$ 2,928.9
Total equity securities, available-for-sale	$ 4.4	$ 0.1	$ 116.1	$ 34.2	$ 120.5	$ 34.3

Our consolidated portfolio consists of fixed maturities where 83% were investment grade (rated AAA through BBB-)

with an average price of 84 (carrying value/amortized cost) at December 31, 2009. Due to the credit disruption that began in the

last half of 2007 and continued into first quarter of 2009, which reduced liquidity and led to wider credit spreads, we saw an

increase in unrealized losses in our securities portfolio. The unrealized losses were more pronounced in the Corporate sector and

in structured products, such as commercial mortgage-backed securities, collateralized debt obligations and asset-backed

securities (included in other debt obligations). During the second quarter of 2009 and continuing through the end of the year, a

narrowing of credit spreads and improvement in liquidity resulted in a decrease in the unrealized losses in our securities portfolio

relative to year-end 2008.

For those securities that had been in a loss position for less than twelve months, our consolidated portfolio held 406

securities with a carrying value of $3,739.3 million and unrealized losses of $100.5 million reflecting an average price of 97 at

December 31, 2009. Of this portfolio, 97% was investment grade (rated AAA through BBB-) at December 31, 2009, with

associated unrealized losses of $82.7 million. The losses on these securities can primarily be attributed to changes in market

interest rates and changes in credit spreads since the securities were acquired.

For those securities that had been in a continuous loss position greater than or equal to twelve months, our consolidated

portfolio held 1,481 securities with a carrying value of $11,239.9 million and unrealized losses of $2,828.4 million. The average

rating of this portfolio was BBB+ with an average price of 80 at December 31, 2009. Of the $2,828.4 million in unrealized

losses, the commercial mortgage-backed securities sector accounts for $1,302.5 million in unrealized losses with an average

price of 63 and an average credit rating of AA-. The remaining unrealized losses consist primarily of $993.5 million within the

Corporate sector at December 31, 2009. The average price of the Corporate sector was 88 and the average credit rating was

BBB. The losses on these securities can primarily be attributed to changes in market interest rates and changes in credit spreads

since the securities were acquired.

Because it was not our intent to sell the fixed maturity available-for-sale securities with unrealized losses and it was not

more likely than not that we would be required to sell these securities before recovery of the amortized cost, which may be

maturity, we did not consider these investments to be other-than-temporarily impaired at December 31, 2009.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)


5. Investments — (continued)

Net Unrealized Gains and Losses on Available-for-Sale Securities and Derivative Instruments

	The net unrealized gains and losses on investments in fixed maturities available-for-sale, equity securities available-for-
sale and derivative instruments are reported as a separate component of stockholder’s equity. The cumulative amount of net
unrealized gains and losses on available-for-sale securities and derivative instruments net of adjustments related to DPAC, sales
inducements, unearned revenue reserves and applicable income taxes was as follows:
				December 31,
				2010		2009
				(in millions)
Net unrealized gains (losses) on fixed maturities, available-for-sale (1)			$ 957.2		$ (1,180.8)
Noncredit component of impairment losses on fixed maturities, available-for-sale				(334.5)		(260.9)
Net unrealized losses on equity securities, available-for-sale				(11.4)		(18.2)
Adjustments for assumed changes in amortization patterns				(273.8)		211.9
Net unrealized gains on derivative instruments				122.4		90.4
Net unrealized gains on equity method subsidiaries and noncontrolling interest adjustments				74.9		103.2
Provision for deferred income tax benefits (taxes)				(186.3)		370.1
Effects of implementation of accounting change related to variable interest entities, net				10.7		—
Effects of electing fair value option for fixed maturities upon implementation of accounting
changes related to embedded credit derivatives, net				25.4		—
Effects of reclassifying noncredit component of previously recognized impairment losses on
fixed maturities, available-for-sale, net				—		(9.9)
Net unrealized gains (losses) on available-for-sale securities and derivative instruments			$ 384.6		$ (694.2)

(1)	Excludes net unrealized gains (losses) on fixed maturities, available-for-sale included in fair value hedging
	relationships.

Mortgage Loans

	Mortgage loans consist of commercial and residential mortgage loans. We evaluate risks inherent in our commercial
mortgage loans in two classes: (1) brick and mortar property loans, where we analyze the property's rent payments as support
for the loan, and (2) credit tenant loans (“CTL”), where we rely on the credit analysis of the tenant for the repayment of the loan
We evaluate risks inherent in our residential mortgage loan portfolio in two classes: (1) home equity mortgages and (2) first
lien mortgages. The carrying amount of our mortgage loan portfolio was as follows:
			December 31,
			2010		2009
			(in millions)

Commercial mortgage loans		$ 9,680.2		$ 10,254.4
Residential mortgage loans			915.2			1,157.4
Total amortized cost			10,595.4			11,411.8

Valuation allowance			(118.3)			(161.3)
Total carrying value		$ 10,477.1		$ 11,250.5

	Our commercial mortgage loan portfolio consists primarily of non-recourse, fixed rate mortgages on fully or near fully
leased properties. Commercial mortgage loans represent a primary area of credit risk exposure.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

5. Investments — (continued)

Our commercial mortgage loan portfolio is diversified by geographic region and specific collateral property type as

follows:


	December 31,
	2010		2009
	Amortized	Percent	Amortized	Percent
	cost	of total	cost	of total
		($ in millions)
Geographic distribution
New England	$ 430.3	4.4% $	446.3	4.4%
Middle Atlantic	1,648.4	17.0	1,535.4	15.0
East North Central	841.1	8.7	941.8	9.2
West North Central	466.7	4.8	504.3	4.9
South Atlantic	2,358.1	24.4	2,641.9	25.8
East South Central	231.5	2.4	300.0	2.9
West South Central	548.6	5.7	672.1	6.5
Mountain	691.0	7.1	835.4	8.1
Pacific	2,464.5	25.5	2,377.2	23.2
Total	$ 9,680.2	100.0% $	10,254.4	100.0%
Property type distribution
Office	$ 2,886.2	29.8% $	2,782.1	27.1%
Retail	2,503.0	25.9	2,782.0	27.1
Industrial	2,334.5	24.1	2,394.4	23.4
Apartments	1,138.1	11.8	1,415.2	13.8
Hotel	471.8	4.9	497.2	4.8
Mixed use/other	346.6	3.5	383.5	3.8
Total	$ 9,680.2	100.0% $	10,254.4	100.0%

Our residential mortgage loan portfolio is composed of home equity mortgages with an amortized cost of $719.3

million and $912.2 million and first lien mortgages with an amortized cost of $195.9 million and $245.2 million as of December

31, 2010 and 2009, respectively. Our residential home equity mortgages are concentrated in the United States and are generally

second lien mortgages comprised of closed-end loans and lines of credit.

Mortgage Loan Credit Monitoring

Commercial Credit Risk Profile Based on Internal Rating

We actively monitor and manage our commercial mortgage loan portfolio. All commercial mortgage loans are

analyzed regularly and substantially all are internally rated, based on a proprietary risk rating cash flow model, in order to

monitor the financial quality of these assets. The model stresses expected cash flows at various levels and at different points in

time depending on the durability of the income stream, which includes our assessment of factors such as location (macro and

micro markets), tenant quality and lease expirations. Our internal rating analysis results in expected credit losses comparable to

equivalent bond ratings. Internal ratings on commercial mortgage loans are updated at least annually and potentially more often

for certain loans with material changes in collateral value or occupancy and for loans on an internal “watch list”.

Commercial mortgage loans that require more frequent and detailed attention than other loans in our portfolio are

identified and placed on an internal “watch list”. Among the criteria that would indicate a potential problem are imbalances in

ratios of loan to value or contract rents to debt service, major tenant vacancies or bankruptcies, borrower sponsorship problems,

late payments, delinquent taxes and loan relief/restructuring requests.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

5. Investments — (continued)

Our commercial mortgage loan portfolio by credit risk, as determined by our internal rating system expressed in terms

of an S&P bond equivalent rating, was as follows:


	December 31, 2010
	Brick and mortar	CTL	Total
		(in millions)
A- and above	$ 4,780.1	$ 324.7	$ 5,104.8
BBB+ thru BBB-	2,629.5	249.5	2,879.0
BB+ thru BB-	726.1	38.5	764.6
B+ and below	927.9	3.9	931.8
Total	$ 9,063.6	$ 616.6	$ 9,680.2

Residential Credit Risk Profile Based on Performance Status

Our residential mortgage loan portfolio is monitored based on performance of the loans. Monitoring on a residential

mortgage loan increases when the loan is delinquent or earlier if there is an indication of impairment. We define non-

performing residential mortgage loans as loans 90 days or greater delinquent or on non-accrual status.


Our performing and non-performing residential mortgage loans were as follows:
	December 31, 2010
	Home equity	First liens	Total
		(in millions)
Performing	$ 705.0 $	186.2	$ 891.2
Nonperforming	14.3	9.7	24.0
Total	$ 719.3 $	195.9	$ 915.2

Non-Accrual Mortgage Loans

Commercial and residential mortgage loans are placed on non-accrual status if we have concern regarding the

collectability of future payments. Factors considered may include conversations with the borrower, loss of major tenant,

bankruptcy of borrower or major tenant, decreased property cash flow for commercial mortgage loans or number of days past

due for residential mortgage loans. Based on an assessment as to the collectability of the principal, a determination is made to

apply any payments received either against the principal or according to the contractual terms of the loan. Accrual of interest

resumes after factors resulting in doubts about collectability have improved.


Mortgage loans on non-accrual status were as follows:
	December 31, 2010
	(in millions)
Commercial:
Brick and mortar	$ 67.1
Residential:
Home equity	14.3
First liens	9.7
Total	$ 91.1

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

5. Investments — (continued)

The aging of mortgage loans was as follows:


	December 31, 2010
			90 days or
	30-59 days	60-89 days	more past	Total past
	past due	past due	due	due	Current	Total loans
				(in millions)
Commercial-brick and mortar	$ —	$ 22.5	$ 9.1	$ 31.6	$ 9,032.0	$ 9,063.6
Commercial-CTL	—	—	—	—	616.6	616.6
Residential-home equity	9.3	4.5	9.2	23.0	696.3	719.3
Residential-first liens	1.5	2.0	7.0	10.5	185.4	195.9
Total	$ 10.8	$ 29.0	$ 25.3	$ 65.1	$ 10,530.3	$ 10,595.4

We did not have any mortgage loans that were 90 days or more past due and still accruing interest as of December

31, 2010.

Mortgage Loan Valuation Allowance

We establish a valuation allowance to provide for the risk of credit losses inherent in our portfolio. The valuation

allowance includes loan specific reserves for loans that are deemed to be impaired as well as reserves for pools of loans with

similar risk characteristics where a property risk or market specific risk has not been identified but for which we expect to incur

a loss. Mortgage loans on real estate are considered impaired when, based on current information and events, it is probable that

we will be unable to collect all amounts due according to contractual terms of the loan agreement. When we determine that a

loan is impaired, a valuation allowance is established equal to the difference between the carrying amount of the mortgage loan

and the estimated value reduced by the cost to sell. Estimated value is based on either the present value of the expected future

cash flows discounted at the loan's effective interest rate, the loan's observable market price or fair value of the collateral.

Amounts on loans deemed to be uncollectible are charged off and removed from the valuation allowance. When a valuation

allowance is established, subsequent recoveries are removed from the valuation allowance and subsequent losses are added to

the valuation allowance. The change in the valuation allowance is included in net realized capital gains (losses) on our

consolidated statements of operations.

The valuation allowance is maintained at a level believed adequate by management to absorb estimated probable credit

losses. Management's periodic evaluation and assessment of the valuation allowance adequacy is based on known and inherent

risks in the portfolio, adverse situations that may affect a borrower's ability to repay, the estimated value of the underlying

collateral, composition of the loan portfolio, portfolio delinquency information, underwriting standards, peer group information,

current economic conditions, loss experience and other relevant factors. The evaluation of our impaired loan component is

subjective, as it requires the estimation of timing and amount of future cash flows expected to be received on impaired loans.

We review our commercial mortgage loan portfolio and analyze the need for a valuation allowance for any loan that is

delinquent for 60 days or more, in process of foreclosure, restructured, on the internal “watch list” or that currently has a

valuation allowance. In addition to establishing allowance levels for specifically identified impaired commercial mortgage loans,

management determines an allowance for all other loans in the portfolio for which historical experience and current economic

conditions indicate certain losses exist. These loans are segregated by major product type and/or risk level with an estimated loss

ratio applied against each product type and/or risk level. The loss ratio is generally based upon historic loss experience for each

loan type as adjusted for certain environmental factors management believes to be relevant.

For our residential mortgage loan portfolio, we separate the loans into several homogeneous pools, each of which

consist of loans of a similar nature including but not limited to loans similar in collateral, term and structure and loan purpose or

type. We evaluate loan pools based on aggregated risk ratings, estimated specific loss potential in the different classes of credits,

and historical loss experience by pool type. We adjust these quantitative factors for qualitative factors of present conditions.

Qualitative factors include items such as economic and business conditions, changes in the portfolio, value of underlying

collateral, and concentrations. Residential mortgage loan pools exclude loans that have been restructured or impaired, as those

loans are evaluated individually.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

5. Investments — (continued)

A rollforward of our valuation allowance and ending balances of the allowance and loan balance by basis of

impairment method was as follows:


	Commercial	Residential	Total
		(in millions)
December 31, 2010
Beginning balance	$ 132.5	$ 28.8	$ 161.3
Provision	54.1	97.5	151.6
Charge-offs	(106.0)	(89.7)	(195.7)
Recoveries	—	1.1	1.1
Ending balance	$ 80.6	$ 37.7	$ 118.3
Allowance ending balance by basis of impairment method:
Individually evaluated for impairment	$ 9.1	$ 3.0	$ 12.1
Collectively evaluated for impairment	71.5	34.7	106.2
Allowance ending balance	$ 80.6	$ 37.7	$ 118.3
Loan balance by basis of impairment method:
Individually evaluated for impairment	$ 29.8	$ 16.1	$ 45.9
Collectively evaluated for impairment	9,650.4	899.1	10,549.5
Loan ending balance	$ 9,680.2	$ 915.2	$ 10,595.4
December 31, 2009
Beginning balance	$ 57.0	$ 12.1	$ 69.1
Provision	115.4	32.9	148.3
Charge-offs/recoveries	(39.9)	(16.2)	(56.1)
Ending balance	$ 132.5	$ 28.8	$ 161.3
December 31, 2008
Beginning balance	$ 42.8	$ 5.7	$ 48.5
Provision	42.2	11.5	53.7
Charge-offs/recoveries	(28.0)	(5.1)	(33.1)
Ending balance	$ 57.0	$ 12.1	$ 69.1

We periodically purchase mortgage loans as well as sell mortgage loans we have originated. We sold $34.1 million of

commercial mortgage loans as of December 31, 2010.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

5. Investments — (continued)

Impaired Mortgage Loans

Impaired mortgage loans include loans with a related specific valuation allowance, loans whose carrying amount has

been reduced to the expected collectible amount because the impairment has been considered other than temporary or troubled

debt restructurings. Based on an assessment as to the collectability of the principal, a determination is made to apply any

payments received either against the principal or according to the contractual terms of the loan. Our recorded investment in and

unpaid principal balance of impaired loans along with the related loan specific allowance for losses, if any, for each reporting

period and the average recorded investment and interest income recognized during the time the loans were impaired were as

follows:


		Unpaid		Average
	Recorded	principal	Related	recorded	Interest income
	investment	balance	allowance	investment	recognized
			(in millions)
For the year ended, December 31, 2010
With no related allowance recorded:
Commercial-brick and mortar	$ 22.5	$ 28.9	$ —	$ 13.4	$ 1.1
Residential-first liens	5.3	5.2	—	5.3	—
With an allowance recorded:
Commercial-brick and mortar	29.8	29.7	9.1	77.2	1.8
Residential-home equity	11.5	11.2	2.4	12.2	—
Residential-first liens	4.6	4.6	0.6	11.7	—
Total:
Commercial	$ 52.3	$ 58.6	$ 9.1	$ 90.6	$ 2.9
Residential	$ 21.4	$ 21.0	$ 3.0	$ 29.2	$ —
For the year ended, December 31, 2009
Total:
Commercial	$ 120.7	$ 120.5	$ 43.8	$ 97.6	$ 0.3
Residential	$ 10.2	$ 14.7	$ 6.3	$ 12.5	$ —
For the year ended, December 31, 2008
Total:
Commercial	$ 74.4	$ 74.4	$ 13.4	$ 45.7	$ 0.1
Residential	$ 14.7	$ 14.7	$ 4.5	$ 15.5	$ —

Real Estate

Depreciation expense on invested real estate was $41.1 million, $41.7 million and $32.1 million in 2010, 2009 and

2008, respectively. Accumulated depreciation was $331.2 million and $290.1 million as of December 31, 2010 and 2009,

respectively.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

5. Investments — (continued)

Other Investments

Other investments include minority interests in unconsolidated entities, joint ventures and partnerships and properties

owned jointly with venture partners and operated by the partners. Such investments are generally accounted for using the equity

method. In applying the equity method, we record our share of income or loss reported by the equity investees in net investment

income. Summarized financial information for these unconsolidated entities was as follows:


	December 31,
	2010	2009
	(in millions)
Total assets	$ 6,366.8	$ 5,371.7
Total liabilities	2,972.9	2,839.8
Total equity	$ 3,393.9	$ 2,531.9

Net investment in unconsolidated entities	$ 77.4	$ 31.1

Derivative assets are carried at fair value and reported as a component of other investments. Certain seed money

investments are also carried at fair value and reported as a component of other investments, with changes in fair value included

in net realized capital gains (losses) on our consolidated statements of operations.

Securities Posted as Collateral

We posted $1,052.5 million in fixed maturities, available-for-sale securities at December 31, 2010, to satisfy collateral

requirements primarily associated with our derivative credit support annex (collateral) agreements and a reinsurance

arrangement. In addition, we posted $1,695.1 million in commercial mortgage loans as of December 31, 2010, to satisfy

collateral requirements associated with our obligation under funding agreements with the Federal Home Loan Bank of Des

Moines. Since we did not relinquish ownership rights on these securities, they are reported as fixed maturities, available-for-

sale and commercial mortgage loans, respectively, on our consolidated statements of financial position.


	For the year ended December 31,
	2010	2009	2008
		(in millions)
Total revenues	$ 3,076.1	$ 2,594.8	$ 2,198.6
Total expenses	2,782.7	2,770.2	2,414.4
Net income	269.8	129.4	(32.5)

Our share of net income of unconsolidated entities	28.9	2.5	(41.9)

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

6. Derivative Financial Instruments

Derivatives are generally used to hedge or reduce exposure to market risks associated with assets held or expected to be

purchased or sold and liabilities incurred or expected to be incurred. Derivatives are used to change the characteristics of our

asset/liability mix consistent with our risk management activities. Derivatives are also used in asset replication strategies.

Types of Derivative Instruments

Interest Rate Contracts

Interest rate risk is the risk that we will incur economic losses due to adverse changes in interest rates. Sources of

interest rate risk include the difference between the maturity and interest rate changes of assets with the liabilities they support,

timing differences between the pricing of liabilities and the purchase or procurement of assets and changing cash flow profiles

from original projections due to prepayment options embedded within asset and liability contracts. We use various derivatives to

manage our exposure to fluctuations in interest rates.

Interest rate swaps are contracts in which we agree with other parties to exchange, at specified intervals, the difference

between fixed rate and floating rate interest amounts based upon designated market rates or rate indices and an agreed upon

notional principal amount. Generally, no cash is exchanged at the outset of the contract and no principal payments are made by

either party. Cash is paid or received based on the terms of the swap. These transactions are entered into pursuant to master

agreements that provide for a single net payment to be made by one counterparty at each due date. We use interest rate swaps

primarily to more closely match the interest rate characteristics of assets and liabilities and to mitigate the risks arising from

timing mismatches between assets and liabilities (including duration mismatches). We also use interest rate swaps to hedge

against changes in the value of assets we anticipate acquiring and other anticipated transactions and commitments. Interest rate

swaps are used to hedge against changes in the value of the guaranteed minimum withdrawal benefit (“GMWB”) liability. The

GMWB rider on our variable annuity products provides for guaranteed minimum withdrawal benefits regardless of the actual

performance of various equity and/or fixed income funds available with the product.

Interest rate caps and interest rate floors, which can be combined to form interest rate collars, are contracts that entitle

the purchaser to pay or receive the amounts, if any, by which a specified market rate exceeds a cap strike interest rate, or falls

below a floor strike interest rate, respectively, at specified dates. We have entered into interest rate collars whereby we receive

amounts if a specified market rate falls below a floor strike interest rate, and we pay if a specified market rate exceeds a cap

strike interest rate. We use interest rate collars to manage interest rate risk related to guaranteed minimum interest rate liabilities

in our individual annuities contracts.

A swaption is an option to enter into an interest rate swap at a future date. We purchase swaptions to offset existing

exposures. We have also written these options and received a premium in order to transform our callable liabilities into fixed

term liabilities. Swaptions provide us the benefit of the agreed-upon strike rate if the market rates for liabilities are higher, with

the flexibility to enter into the current market rate swap if the market rates for liabilities are lower. Swaptions not only hedge

against the downside risk, but also allow us to take advantage of any upside benefits.

In exchange-traded futures transactions, we agree to purchase or sell a specified number of contracts, the values of

which are determined by the values of designated classes of securities, and to post variation margin on a daily basis in an amount

equal to the difference in the daily market values of those contracts. We enter into exchange-traded futures with regulated futures

commissions merchants who are members of a trading exchange. We have used exchange-traded futures to reduce market risks

from changes in interest rates and to alter mismatches between the assets in a portfolio and the liabilities supported by those

assets.

Foreign Exchange Contracts

Foreign currency risk is the risk that we will incur economic losses due to adverse fluctuations in foreign currency

exchange rates. This risk arises from foreign currency-denominated funding agreements we issue and foreign currency-

denominated fixed maturities we invest in. We may use currency swaps to hedge foreign currency risk.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

6. Derivative Financial Instruments — (continued)

Currency swaps are contracts in which we agree with other parties to exchange, at specified intervals, a series of

principal and interest payments in one currency for that of another currency. Generally, the principal amount of each currency is

exchanged at the beginning and termination of the currency swap by each party. The interest payments are primarily fixed-to-

fixed rate; however, they may also be fixed-to-floating rate or floating-to-fixed rate. These transactions are entered into pursuant

to master agreements that provide for a single net payment to be made by one counterparty for payments made in the same

currency at each due date. We use currency swaps to reduce market risks from changes in currency exchange rates with respect

to investments or liabilities denominated in foreign currencies that we either hold or intend to acquire or sell.

Equity Contracts

Equity risk is the risk that we will incur economic losses due to adverse fluctuations in common stock. We use various

derivatives to manage our exposure to equity risk, which arises from products in which the interest we credit is tied to an

external equity index as well as products subject to minimum contractual guarantees.

We may sell an investment-type insurance contract with attributes tied to market indices (an embedded derivative as

noted below), in which case we write an equity call option to convert the overall contract into a fixed-rate liability, essentially

eliminating the equity component altogether. We purchase equity call spreads to hedge the equity participation rates promised to

contractholders in conjunction with our fixed deferred annuity products that credit interest based on changes in an external

equity index. We use exchange-traded futures and equity put options to hedge against changes in the value of the GMWB

liability related to the GMWB rider on our variable annuity product, as previously explained. The premium associated with

certain options is paid quarterly over the life of the option contract.

Credit Contracts

Credit risk relates to the uncertainty associated with the continued ability of a given obligor to make timely payments of

principal and interest. We use credit default swaps to enhance the return on our investment portfolio by providing comparable

exposure to fixed income securities that might not be available in the primary market. They are also used to hedge credit

exposures in our investment portfolio. Credit derivatives are used to sell or buy credit protection on an identified name or names

on an unfunded or synthetic basis in return for receiving or paying a quarterly premium. The premium generally corresponds to a

referenced name's credit spread at the time the agreement is executed. In cases where we sell protection, at the same time we

enter into these synthetic transactions, we buy a quality cash bond to match against the credit default swap. When selling

protection, if there is an event of default by the referenced name, as defined by the agreement, we are obligated to pay the

counterparty the referenced amount of the contract and receive in return the referenced security in a principal amount equal to

the notional value of the credit default swap.

Other Contracts

Commodity Swaps. Commodity swaps are used to sell or buy protection on commodity prices in return for receiving or

paying a quarterly premium. We have purchased secured limited recourse notes from VIEs that were consolidated in our

financial results prior to 2010, but for which we are no longer the primary beneficiary. These VIEs used a commodity swap to

enhance the return on an investment portfolio by selling protection on a static portfolio of commodity trigger swaps, each

referencing a base or precious metal. The portfolio of commodity trigger swaps was a portfolio of deep out-of-the-money

European puts on various base or precious metals. The VIEs provided mezzanine protection that the average spot rate would not

fall below a certain trigger price on each commodity trigger swap in the portfolio and received guaranteed quarterly premiums in

return until maturity. At the same time the VIEs entered into this synthetic transaction, they bought a quality cash bond to match

against the commodity swaps.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

6. Derivative Financial Instruments — (continued)

Embedded Derivatives. We purchase or issue certain financial instruments or products that contain a derivative

instrument that is embedded in the financial instrument or product. When it is determined that the embedded derivative

possesses economic characteristics that are not clearly or closely related to the economic characteristics of the host contract and a

separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the

host instrument for measurement purposes. The embedded derivative, which is reported with the host instrument in the

consolidated statements of financial position, is carried at fair value.

We sell investment-type insurance contracts in which the return is tied to an external equity index, a leveraged inflation

index or leveraged reference swap. We economically hedge the risk associated with these investment-type insurance contracts.

We offer group benefit plan contracts that have guaranteed separate accounts as an investment option.

We have structured investment relationships with trusts we have determined to be VIEs, which are consolidated in our

financial statements. The notes issued by these trusts include obligations to deliver an underlying security to residual interest

holders and the obligations contain an embedded derivative of the forecasted transaction to deliver the underlying security.

We have fixed deferred annuities that credit interest based on changes in an external equity index. We also have certain

variable annuity products with a GMWB rider, which provides that the contractholder will receive at least their principal deposit

back through withdrawals of up to a specified annual amount, even if the account value is reduced to zero. Declines in the equity

market may increase our exposure to benefits under contracts with the GMWB. We economically hedge the exposure in these

annuity contracts, as previously explained.

Exposure

Our risk of loss is typically limited to the fair value of our derivative instruments and not to the notional or contractual

amounts of these derivatives. Risk arises from changes in the fair value of the underlying instruments. We are also exposed to

credit losses in the event of nonperformance of the counterparties. Our current credit exposure is limited to the value of

derivatives that have become favorable to us. This credit risk is minimized by purchasing such agreements from financial

institutions with high credit ratings and by establishing and monitoring exposure limits. We also utilize various credit

enhancements, including collateral and credit triggers to reduce the credit exposure to our derivative instruments.

Our derivative transactions are generally documented under International Swaps and Derivatives Association, Inc.

(“ISDA”) Master Agreements. Management believes that such agreements provide for legally enforceable set-off and close-out

netting of exposures to specific counterparties. Under such agreements, in connection with an early termination of a transaction,

we are permitted to set off our receivable from a counterparty against our payables to the same counterparty arising out of all

included transactions. For reporting purposes, we do not offset fair value amounts recognized for the right to reclaim cash

collateral or the obligation to return cash collateral against fair value amounts recognized for derivative instruments executed

with the same counterparties under master netting agreements.

We posted $376.8 million and $273.7 million in cash and securities under collateral arrangements as of December 31,

2010 and 2009, respectively, to satisfy collateral requirements associated with our derivative credit support agreements.

Certain of our derivative instruments contain provisions that require us to maintain an investment grade rating from

each of the major credit rating agencies on our debt. If the rating on our debt were to fall below investment grade, it would be in

violation of these provisions and the counterparties to the derivative instruments could request immediate payment or demand

immediate and ongoing full overnight collateralization on derivative instruments in net liability positions. The aggregate fair

value, inclusive of accrued interest, of all derivative instruments with credit-risk-related contingent features that were in a

liability position without regard to netting under derivative credit support annex agreements as of December 31, 2010 and 2009,

was $1,262.0 million and $1,139.7 million, respectively. With respect to these derivatives, we posted collateral of $376.8 million

and $273.7 million as of December 31, 2010 and 2009, respectively, in the normal course of business, which reflects netting

under derivative credit support annex agreements. If the credit-risk-related contingent features underlying these agreements were

triggered on December 31, 2010, we would be required to post an additional $56.6 million of collateral to our counterparties.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

6. Derivative Financial Instruments — (continued)

As of December 31, 2010 and 2009, we had received $233.1 million and $341.3 million, respectively, of cash collateral

associated with our derivative credit support annex agreements. The cash collateral is included in other assets on the

consolidated statements of financial position, with a corresponding liability reflecting our obligation to return the collateral

recorded in other liabilities.

Notional amounts are used to express the extent of our involvement in derivative transactions and represent a standard

measurement of the volume of our derivative activity. Notional amounts represent those amounts used to calculate contractual

flows to be exchanged and are not paid or received, except for contracts such as currency swaps. Credit exposure represents the

gross amount owed to us under derivative contracts as of the valuation date. The notional amounts and credit exposure of our

derivative financial instruments by type were as follows:


	December 31, 2010	December 31, 2009
	(in millions)
Notional amounts of derivative instruments
*Interest rate contracts:*
Interest rate swaps	$ 19,803.0	$ 19,531.0
Interest rate collars	500.0	—
Swaptions	68.5	—
Futures	0.8	43.3
*Foreign exchange contracts:*
Foreign currency swaps	4,553.9	5,253.2
*Equity contracts:*
Options	997.5	818.2
Futures	—	84.6
*Credit contracts:*
Credit default swaps	1,482.4	1,586.4
*Other contracts:*
Embedded derivative financial instruments	3,478.2	2,838.6
Commodity swaps	—	40.0
Total notional amounts at end of period	$ 30,884.3	$ 30,195.3

Credit exposure of derivative instruments
*Interest rate contracts:*
Interest rate swaps	$ 607.1	$ 578.9
Interest rate collars	1.7	—
Swaptions	0.1	—
*Foreign exchange contracts:*
Foreign currency swaps	471.8	578.7
*Equity contracts:*
Options	64.9	149.8
*Credit contracts:*
Credit default swaps	6.7	15.5
Total gross credit exposure	1,152.3	1,322.9
Less: collateral received	233.1	383.5
Net credit exposure	$ 919.2	$ 939.4

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

6. Derivative Financial Instruments — (continued)

The fair value of our derivative instruments classified as assets and liabilities was as follows:


	Derivative assets (1)		Derivative liabilities (2)
	December 31, 2010	December 31, 2009	December 31, 2010	December 31, 2009
	(in millions)
Derivatives designated as hedging instruments
Interest rate contracts	$ 66.6	$ 81.5	$ 405.4	$ 309.1
Foreign exchange contracts	390.8	444.4	142.5	240.6
Total derivatives designated as hedging
instruments	$ 457.4	$ 525.9	$ 547.9	$ 549.7

Derivatives not designated as hedging
instruments
Interest rate contracts	$ 488.4	$ 433.4	$ 459.5	$ 336.8
Foreign exchange contracts	41.1	88.0	60.3	72.2
Equity contracts	64.9	149.8	31.7	—
Credit contracts	6.7	15.5	171.7	84.0
Other contracts	—	—	131.8	121.7
Total derivatives not designated as hedging
instruments	$ 601.1	$ 686.7	$ 855.0	$ 614.7

Total derivative instruments	$ 1,058.5	$ 1,212.6	$ 1,402.9	$ 1,164.4


(1)	The fair value of derivative assets is reported with other investments on the consolidated statements of financial position.
(2)	The fair value of derivative liabilities is reported with other liabilities on the consolidated statements of financial
	position, with the exception of certain embedded derivative liabilities. Embedded derivative liabilities with a net (asset)
	liability fair value of $(7.4) million and $17.1 million as of December 31, 2010 and 2009, respectively, are reported with
	contractholder funds on the consolidated statements of financial position.

Credit Derivatives Sold

	When we sell credit protection, we are exposed to the underlying credit risk similar to purchasing a fixed maturity
security instrument. The majority of our credit derivative contracts sold reference a single name or reference security (referred to
as “single name credit default swaps”). The remainder of our credit derivatives reference either a basket or index of securities.
These instruments are either referenced in an over-the-counter credit derivative transaction, or embedded within an investment
structure that has been fully consolidated into our financial statements.

	These credit derivative transactions are subject to events of default defined within the terms of the contract, which
normally consist of bankruptcy, failure to pay, or modified restructuring of the reference entity and/or issue. If a default event
occurs for a reference name or security, we are obligated to pay the counterparty an amount equal to the notional amount of the
credit derivative transaction. As a result, our maximum future payment is equal to the notional amount of the credit derivative. In
certain cases, we also have purchased credit protection with identical underlyings to certain of our sold protection transactions.
The effect of this purchased protection would reduce our total maximum future payments by $10.0 million and $47.0 million as
of December 31, 2010 and 2009, respectively. These credit derivative transactions had a net asset (liability) fair value of $(0.8)
million and $2.4 million as of December 31, 2010 and 2009, respectively. Our potential loss could also be reduced by any
amount recovered in the default proceedings of the underlying credit name.

	We purchased certain investment structures with embedded credit features that are fully consolidated into our financial
statements. This consolidation results in recognition of the underlying credit derivatives and collateral within the structure,
typically high quality fixed maturities that are owned by a special purpose vehicle. These credit derivatives reference a single
name or several names in a basket structure. In the event of default, the collateral within the structure would typically be
liquidated to pay the claims of the credit derivative counterparty.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

6. Derivative Financial Instruments — (continued)

The following tables show our credit default swap protection sold by types of contract, types of referenced/underlying

asset class and external agency rating for the underlying reference security. The maximum future payments are undiscounted and

have not been reduced by the effect of any offsetting transactions, collateral or recourse features described above.


	December 31, 2010
				Weighted
			Maximum	average
	Notional	Fair	future	expected life
	amount	value	payments	(in years)
		(in millions)
Single name credit default swaps
Corporate debt
AA	$ 135.0	$ (0.5)	$ 135.0	3.9
A	564.0	0.9	564.0	2.9
BBB	150.0	0.3	150.0	1.1
Structured finance
B	25.9	(20.0)	25.9	5.9
CCC	22.0	(18.4)	22.0	9.4
Total single name credit default swaps	896.9	(37.7)	896.9	3.0

Basket and index credit default swaps
Corporate debt
A	6.0	—	6.0	1.0
CCC (1)	125.0	(103.0)	125.0	6.2
CC	15.0	(8.5)	15.0	2.0
Government/municipalities
A	40.0	(11.2)	40.0	5.4
Structured finance
AA	20.0	(2.0)	20.0	4.4
BBB	5.0	(0.3)	5.0	14.9
Total basket and index credit default swaps	211.0	(125.0)	211.0	5.6
Total credit default swap protection sold	$ 1,107.9	$ (162.7)	$ 1,107.9	3.5


(1)	The increase from December 31, 2009, resulted from the consolidation of additional collateralized private investment
	vehicles due to our implementation of new authoritative guidance related to the accounting for VIEs effective January 1,
	2010.


Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

6. Derivative Financial Instruments — (continued)
	December 31, 2009
				Weighted
			Maximum	average
	Notional	Fair	future	expected life
	amount	value	payments	(in years)
		(in millions)
Single name credit default swaps
Corporate debt
AA	$ 135.0	$ (0.6)	$ 135.0	4.9
A	609.0	1.2	609.0	3.6
BBB	220.0	0.2	220.0	1.8
BB	10.0	—	10.0	0.8
Structured finance
AA	9.9	(6.0)	9.9	2.5
BBB	16.0	(15.2)	16.0	9.6
CCC	22.0	(20.2)	22.0	10.4
Total single name credit default swaps	1,021.9	(40.6)	1,021.9	3.6

Basket and index credit default swaps
Corporate debt
A	6.0	(0.1)	6.0	2.0
BBB	20.0	—	20.0	0.5
CCC	15.0	(11.9)	15.0	3.0
Government/municipalities
A	50.0	(9.3)	50.0	5.1
Structured finance
AA	20.0	(5.9)	20.0	5.4
BBB	5.0	(1.2)	5.0	15.9
Total basket and index credit default swaps	116.0	(28.4)	116.0	4.4
Total credit default swap protection sold	$ 1,137.9 $	(69.0)	$ 1,137.9	3.6

We also have invested in fixed maturities classified as available-for-sale that contain credit default swaps that do not

require bifurcation and fixed maturities classified as trading that contain credit default swaps. These securities are subject to the

credit risk of the issuer, normally a special purpose vehicle, which consists of the underlying credit default swaps and high

quality fixed maturities that serve as collateral. A default event occurs if the cumulative losses exceed a specified attachment

point, which is typically not the first loss of the portfolio. If a default event occurs that exceeds the specified attachment point,

our investment may not be fully returned. We would have no future potential payments under these investments. The following

tables show, by the types of referenced/underlying asset class and external rating, our fixed maturities with embedded credit

derivatives.


	Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

6. Derivative Financial Instruments — (continued)
		December 31, 2010
				Weighted
				average
		Amortized	Carrying	expected life
		cost	value	(in years)
		(in millions)
Corporate debt
BB		$ 18.1	$18.1	6.0
CCC		50.0	46.2	2.1
CC		12.1	1.6	4.9
Total corporate debt		80.2	65.9	3.4
Structured finance
AA		5.2	5.2	5.8
BBB		26.8	23.1	5.5
BB		15.5	15.0	3.7
B		10.5	10.5	6.4
CCC		9.2	8.7	5.9
C		13.5	5.8	12.8
Total structured finance		80.7	68.3	6.6
Total fixed maturities with credit derivatives		$ 160.9	$ 134.2	5.0

		December 31, 2009
				Weighted
				average
		Amortized	Carrying	expected life
		cost	value	(in years)
		(in millions)
Corporate debt
AA		$ 15.0	$ 14.3	0.7
A		15.0	14.6	0.3
BBB		5.0	4.9	0.3
BB		35.0	29.1	5.1
CCC		51.4	43.8	4.5
C		22.7	6.5	6.6
Total corporate debt		144.1	113.2	4.3
Structured finance
AA		9.5	5.6	9.1
A		7.0	5.0	6.8
BBB		41.1	23.2	6.8
BB		32.6	17.4	7.3
B		7.4	3.1	7.3
CCC		16.1	5.7	19.4
CC		18.0	0.8	7.8
C		10.8	3.3	12.9
Total structured finance		142.5	64.1	11.2
Total fixed maturities with credit derivatives		$ 286.6	$ 177.3	8.3

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

6. Derivative Financial Instruments — (continued)

Fair Value Hedges

We use fixed-to-floating rate interest rate swaps to more closely align the interest rate characteristics of certain assets

and liabilities. In general, these swaps are used in asset and liability management to modify duration, which is a measure of

sensitivity to interest rate changes.

We enter into currency exchange swap agreements to convert certain foreign denominated assets and liabilities into

U.S. dollar floating-rate denominated instruments to eliminate the exposure to future currency volatility on those items.

We also sell callable investment-type insurance contracts and use cancellable interest rate swaps and have written

interest rate swaptions to hedge the changes in fair value of the callable feature.

The net interest effect of interest rate swap and currency swap transactions for derivatives in fair value hedges is

recorded as an adjustment to income or expense of the underlying hedged item in our consolidated statements of operations.

Hedge effectiveness testing for fair value relationships is performed utilizing a regression analysis approach for both

prospective and retrospective evaluations. This regression analysis will consider multiple data points for the assessment that the

hedge continues to be highly effective in achieving offsetting changes in fair value. In certain periods, the comparison of the

change in value of the derivative and the change in the value of the hedged item may not be offsetting at a specific period in time

due to small movements in value. However, any amounts recorded as fair value hedges have shown to be highly effective in

achieving offsetting changes in fair value both for present and future periods.

The following table shows the effect of derivatives in fair value hedging relationships and the related hedged items on

the consolidated statements of operations. All gains or losses on derivatives were included in the assessment of hedge

effectiveness.


	Amount of gain (loss) recognized in net income				Amount of gain (loss) recognized in net
Derivatives in fair	on derivatives for the year				income on related hedged item for the year
value hedging	ended December 31, (1)			Hedged items in fair value	ended December 31, (1)
relationships	2010	2009	2008	hedging relationships	2010	2009	2008
		(in millions)				(in millions)
Interest rate				Fixed maturities,
contracts	$ (100.2)	$ 308.6	$ (532.2)	available-for-sale	$ 106.4	$ (264.0) $	510.8
Interest rate				Investment-type
contracts	(19.2)	(30.8)	47.8	insurance contracts	20.6	46.9	(68.1)
Foreign
exchange				Fixed maturities,
contracts	6.9	4.8	(0.1)	available-for-sale	(5.6)	(6.0)	0.6
Foreign
exchange				Investment-type
contracts	(23.3)	82.4	(199.8)	insurance contracts	18.1	(86.2)	214.4
Total	$ (135.8)	$ 365.0	$ (684.3)	Total	$ 139.5	$ (309.3)	$ 657.7

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

6. Derivative Financial Instruments — (continued)

(1) The gain (loss) on both derivatives and hedged items in fair value relationships is reported in net realized capital gains

(losses) on the consolidated statements of operations. The net amount represents the ineffective portion of our fair value

hedges.

The following table shows the periodic settlements on interest rate contracts and foreign exchange contracts in fair

value hedging relationships.


	Amount of gain (loss) for the year ended December 31,
Hedged Item	2010	2009	2008
		(in millions)
Fixed maturities, available-for-sale (1)	$ (161.9) $	(143.5) $	(63.4)
Investment-type insurance contracts (2)	76.3	106.2	64.8


(1)	Reported in net investment income on the consolidated statements of operations.
(2)	Reported in benefits, claims and settlement expenses on the consolidated statements of operations.

Cash Flow Hedges

	We utilize floating-to-fixed rate interest rate swaps to eliminate the variability in cash flows of recognized financial
assets and liabilities and forecasted transactions.

	We enter into currency exchange swap agreements to convert both principal and interest payments of certain foreign
denominated assets and liabilities into U.S. dollar denominated fixed-rate instruments to eliminate the exposure to future
currency volatility on those items.

	The net interest effect of interest rate swap and currency swap transactions for derivatives in cash flow hedges is
recorded as an adjustment to income or expense of the underlying hedged item in our consolidated statements of operations.

	The maximum length of time that we are hedging our exposure to the variability in future cash flows for forecasted
transactions, excluding those related to the payments of variable interest on existing financial assets and liabilities, is 9.5 years.
At December 31, 2010, we had $65.8 million of gross unrealized gains reported in AOCI on the consolidated statements of
financial position related to active hedges of forecasted transactions. If a hedged forecasted transaction is no longer probable of
occurring, cash flow hedge accounting is discontinued. If it is probable that the hedged forecasted transaction will not occur, the
deferred gain or loss is immediately reclassified from OCI into net income. No amounts were reclassified from AOCI into net
realized capital gains (losses) as a result of the determination that hedged cash flows were probable of not occurring during the
years ended December 31, 2010 and 2008. During the year ended December 31, 2009, $40.4 million of gross unrealized losses
were reclassified from AOCI into net realized capital gains (losses) as a result of the determination that hedged cash flows of a
forecasted liability issuance were probable of not occurring.

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

6. Derivative Financial Instruments — (continued)

The following table shows the effect of derivatives in cash flow hedging relationships on the consolidated statements of

operations and consolidated statements of financial position. All gains or losses on derivatives were included in the assessment

of hedge effectiveness.


		Amount of gain (loss) recognized in				Amount of gain (loss) reclassified
Derivatives in		AOCI on derivatives (effective			Location of gain (loss)	from AOCI on derivatives
cash flow		portion) for the year ended			reclassified from AOCI	(effective portion) for the year
hedging			December 31,		into net income	ended December 31,
relationships	Related hedged item	2010	2009	2008	(effective portion)	2010	2009	2008
			(in millions)				(in millions)
Interest rate	Fixed maturities,				Net investment
contracts	available-for-sale	$ (18.0)	$ (124.4) $	206.7	income	$ 7.1	$ 4.8	$ 3.6
					Benefits, claims and
Interest rate	Investment-type				settlement
contracts	insurance contracts	18.4	112.3	(38.1)	expenses	(1.0)	(1.0)	(0.3)
Foreign
exchange	Fixed maturities,				Net investment
contracts	available-for-sale	136.7	(216.8)	234.6	income	—	—	—
Foreign					Benefits, claims and
exchange	Investment-type				settlement
contracts	insurance contracts	(76.5)	167.4	(316.0)	expenses	(6.1)	(5.6)	1.0
					Net realized capital
					gains (losses)	(0.1)	22.8	(4.0)
Total		$ 60.6	$ (61.5) $	87.2	Total	$ (0.1)	$ 21.0	$ 0.3

The following table shows the periodic settlements on interest rate contracts and foreign exchange contracts in cash

flow hedging relationships.


	Amount of gain (loss) for the year ended December 31,
Hedged Item	2010	2009	2008
		(in millions)
Fixed maturities, available-for-sale (1)	$ 11.1 $	16.9 $		8.0
Investment-type insurance contracts (2)	(12.5)	(20.0)		(2.7)


(1)	Reported in net investment income on the consolidated statements of operations.
(2)	Reported in benefits, claims and settlement expenses on the consolidated statements of operations.

	The ineffective portion of our cash flow hedges is reported in net realized capital gains (losses) on the consolidated
statements of operations. The net loss resulting from the ineffective portion of interest rate contracts in cash flow hedging
relationships was zero for the years ended December 31, 2010 and 2009, and $1.8 million for the year ended December 31,
2008. The net gain resulting from the ineffective portion of foreign currency contracts in cash flow hedging relationships was
$0.9 million, $2.2 million and $0.4 million for the years ended December 31, 2010, 2009 and 2008, respectively.

	We expect to reclassify net gains of $31.1 million from AOCI into net income in the next 12 months, which includes
both net deferred gains on discontinued hedges and net deferred losses on periodic settlements of active hedges. Actual amounts
may vary from this amount as a result of market conditions.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

6. Derivative Financial Instruments — (continued)

Derivatives Not Designated as Hedging Instruments

Our use of futures, certain swaptions and swaps, collars and options are effective from an economic standpoint, but

they have not been designated as hedges for financial reporting purposes. As such, periodic changes in the market value of these

instruments, which includes mark-to-market gains and losses as well as periodic and final settlements, flow directly into net

realized capital gains (losses) on the consolidated statements of operations.

The following tables show the effect of derivatives not designated as hedging instruments, including market value

changes of embedded derivatives that have been bifurcated from the host contract, on the consolidated statements of operations.


	Amount of gain (loss) recognized in net income on derivatives for the year
	ended December 31,
Derivatives not designated as hedging instruments	2010	2009	2008
		(in millions)
Interest rate contracts	$ 45.3	$ (58.8)	$ 90.4
Foreign exchange contracts	(79.6)	68.3	(128.3)
Equity contracts	(24.0)	(107.7)	86.3
Credit contracts	5.3	61.7	(102.0)
Other contracts (1)	(1.2)	7.8	(43.2)
Total	$ (54.2)	$ (28.7)	$ (96.8)

(1) Primarily includes the change in fair value of embedded derivatives.

7. Closed Block

In connection with the 1998 MIHC formation, we formed a Closed Block to provide reasonable assurance to

policyholders included therein that, after the formation of the MIHC, assets would be available to maintain dividends in

aggregate in accordance with the 1997 policy dividend scales, if the experience underlying such scales continued. Certain of our

assets were allocated to the Closed Block in an amount that produces cash flows which, together with anticipated revenue from

policies and contracts included in the Closed Block, were expected to be sufficient to support the Closed Block policies,

including, but not limited to, provisions for payment of claims, certain expenses, charges and taxes, and to provide for

continuation of policy and contract dividends in aggregate in accordance with the 1997 dividend scales, if the experience

underlying such scales continues, and to allow for appropriate adjustments in such scales, if such experience changes. Due to

adjustable life policies being included in the Closed Block, the Closed Block is charged with amounts necessary to properly fund

for certain adjustments, such as face amount and premium increases, that are made to these policies after the Closed Block

inception date. These amounts are referred to as Funding Adjustment Charges and are treated as capital transfers from the

Closed Block.

Assets allocated to the Closed Block inure solely to the benefit of the holders of policies included in the Closed Block.

Closed Block assets and liabilities are carried on the same basis as other similar assets and liabilities. We will continue to pay

guaranteed benefits under all policies, including the policies within the Closed Block, in accordance with their terms. If the

assets allocated to the Closed Block, the investment cash flows from those assets and the revenues from the policies included in

the Closed Block, including investment income thereon, prove to be insufficient to pay the benefits guaranteed under the policies

included in the Closed Block, we will be required to make such payments from their general funds. No additional policies were

added to the Closed Block, nor was the Closed Block affected in any other way, as a result of the demutualization.

A policyholder dividend obligation (“PDO”) is required to be established for earnings in the Closed Block that are not

available to PFG stockholders. A model of the Closed Block was established to produce the pattern of expected earnings in the

Closed Block, adjusted to eliminate the impact of related amounts in AOCI.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

7. Closed Block — (continued)

If actual cumulative earnings of the Closed Block are greater than the expected cumulative earnings of the Closed

Block, only the expected cumulative earnings will be recognized in income with the excess recorded as a PDO. This PDO

represents undistributed accumulated earnings that will be paid to Closed Block policyholders as additional policyholder

dividends unless offset by future performance of the Closed Block that is less favorable than originally expected. If actual

cumulative performance is less favorable than expected, only actual earnings will be recognized in income. At December 31,

2010 and 2009, cumulative actual earnings have been less than cumulative expected earnings. Additionally, cumulative net

unrealized gains were not greater than expected. Therefore, we had no PDO liability as of December 31, 2010 and 2009.


Closed Block liabilities and assets designated to the Closed Block were as follows:
	December 31,
	2010	2009
	(in millions)
Closed Block liabilities
Future policy benefits and claims	$ 5,003.1	$ 5,172.9
Other policyholder funds	21.7	23.9
Policyholder dividends payable	294.2	308.9
Other liabilities	79.2	14.7
Total Closed Block liabilities	5,398.2	5,520.4
Assets designated to the Closed Block
Fixed maturities, available-for-sale	2,833.7	2,748.6
Fixed maturities, trading	29.5	31.0
Equity securities, available-for-sale	11.2	14.4
Mortgage loans	677.9	591.8
Policy loans	725.4	747.2
Other investments	163.5	157.5
Total investments	4,441.2	4,290.5
Cash and cash equivalents	—	33.6
Accrued investment income	64.3	69.2
Premiums due and other receivables	17.9	18.7
Deferred income tax asset	60.2	133.3
Total assets designated to the Closed Block	4,583.6	4,545.3
Excess of Closed Block liabilities over assets designated to the Closed Block	814.6	975.1
Amounts included in accumulated other comprehensive income (loss)	33.0	(61.6)
Maximum future earnings to be recognized from Closed Block assets and liabilities	$ 847.6	$ 913.5


Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

7. Closed Block — (continued)

Closed Block revenues and expenses were as follows:
	For the year ended December 31,
	2010	2009	2008
		(in millions)
Revenues
Premiums and other considerations	$ 459.3	$ 508.6	$ 550.4
Net investment income	257.6	268.6	280.9
Net realized capital gains (losses)	1.8	(23.5)	(12.7)
Total revenues	718.7	753.7	818.6
Expenses
Benefits, claims and settlement expenses	385.5	422.1	467.6
Dividends to policyholders	215.1	235.9	261.8
Operating expenses	6.4	6.8	7.4
Total expenses	607.0	664.8	736.8
Closed Block revenues, net of Closed Block expenses, before income taxes	111.7	88.9	81.8
Income taxes	36.2	28.1	25.6
Closed Block revenues, net of Closed Block expenses and income taxes	75.5	60.8	56.2
Funding adjustment charges	(9.6)	(6.6)	(8.5)
Closed Block revenues, net of Closed Block expenses, income taxes and funding
adjustment charges	$ 65.9	$ 54.2	$ 47.7

The change in maximum future earnings of the Closed Block was as follows:


	For the year ended December 31,
	2010	2009	2008
		(in millions)
Beginning of year	$ 913.5	$ 967.7	$ 1,015.4
End of year	847.6	913.5	967.7
Change in maximum future earnings	$ (65.9)	$ (54.2)	$ (47.7)

We charge the Closed Block with federal income taxes, payroll taxes, state and local premium taxes and other state or

local taxes, licenses and fees as provided in the plan of reorganization.


8. Deferred Policy Acquisition Costs

Policy acquisition costs deferred and amortized were as follows:
	For the year ended December 31,
	2010	2009	2008
		(in millions)
Balance at beginning of year	$ 3,454.8	$ 3,970.1	$ 2,626.7
Cost deferred during the year	461.1	454.3	637.9
Amortized to expense during the year (1)	(201.6)	(93.9)	(375.0)
Adjustment related to unrealized (gains) losses on available-for-sale securities
and derivative instruments	(455.5)	(875.7)	1,080.5
Balance at end of year	$ 3,258.8	$ 3,454.8	$ 3,970.1

(1) Includes adjustments for revisions to estimated gross profits.

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

9. Insurance Liabilities

Contractholder Funds

Major components of contractholder funds in the consolidated statements of financial position are summarized as

follows:


	December 31,
	2010	2009
	(in millions)
Liabilities for investment-type insurance contracts:
GICs	$ 10,013.6	$ 10,839.2
Funding agreements	10,226.9	12,511.2
Other investment-type insurance contracts	758.6	891.4
Total liabilities for investment-type insurance contracts	20,999.1	24,241.8
Liabilities for individual annuities	11,718.7	11,428.4
Universal life and other reserves	4,374.3	4,094.5
Total contractholder funds	$ 37,092.1	$ 39,764.7

Our GICs and funding agreements contain provisions limiting or prohibiting early surrenders, which typically include

penalties for early surrenders, minimum notice requirements or, in the case of funding agreements with survivor options,

minimum pre-death holding periods and specific maximum amounts.

Funding agreements include those issued directly to nonqualified institutional investors, as well as to four separate

programs where the funding agreements have been issued directly or indirectly to unconsolidated special purpose entities.

Claims for principal and interest under funding agreements are afforded equal priority to claims of life insurance and annuity

policyholders under insolvency provisions of Iowa Insurance Laws.

We are authorized to issue up to $4.0 billion of funding agreements under a program established in 1998 to support the

prospective issuance of medium term notes by an unaffiliated entity in non-U.S. markets. As of December 31, 2010 and 2009,

$2,055.4 million and $2,502.2 million, respectively, of liabilities are outstanding with respect to the issuance outstanding under

this program. We do not anticipate any new issuance activity under this program as we are authorized to issue up to Euro

4.0 billion (approximately USD$5.3 billion) of funding agreements under a program established in 2006 to support the

prospective issuance of medium term notes by an unaffiliated entity in non-U.S. markets. The unaffiliated entity is an

unconsolidated special purpose vehicle. As of December 31, 2010 and 2009, $1,340.0 million and $1,404.2 million,

respectively, of liabilities are outstanding with respect to the issuances outstanding under this program.

In addition, we were authorized to issue up to $7.0 billion of funding agreements under a program established in 2001

to support the prospective issuance of medium term notes by an unaffiliated entity in both domestic and international markets.

The unaffiliated entity is an unconsolidated qualifying special purpose entity. As of December 31, 2010 and 2009, $2,224.7

million and $2,474.0 million, respectively, of liabilities are being held with respect to the issuance outstanding under this

program. We do not anticipate any new issuance activity under this program, given our December 2005 termination of the

dealership agreement for this program and the availability of the SEC-registered program described in the following paragraph.

We were authorized to issue up to $4.0 billion of funding agreements under a program established in March 2004 to

support the prospective issuance of medium term notes by unaffiliated entities in both domestic and international markets. In

February 2006, this program was amended to authorize issuance of up to an additional $5.0 billion in recognition of the use of

nearly all $4.0 billion of initial issuance authorization. In recognition of the use of nearly all $9.0 billion, this program was

amended in November 2007 to authorize issuance of up to an additional $5.0 billion. Under this program, both the notes and the

supporting funding agreements are registered with the SEC. As of December 31, 2010 and 2009, $3,597.8 million and

$5,122.4 million, respectively, of liabilities are being held with respect to the issuance outstanding under this program. In

contrast with direct funding agreements, GIC issuances and the other three funding agreement-backed medium term note

programs described above, our payment obligations on each funding agreement issued under this SEC-registered program are

guaranteed by PFG.

Due to a downturn in the credit market, we reduced the amount of medium term note issuances in 2008 and had no

issuances in 2009 and 2010. As economic conditions change, we will reassess the issuance of funding agreements to these

medium term note programs.

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

9. Insurance Liabilities — (continued)


Future Policy Benefits and Claims

Activity associated with unpaid disability and health claims is summarized as follows:
	For the year ended December 31,
	2010	2009	2008
		(in millions)
Balance at beginning of year	$ 1,025.6	$ 991.8	$ 964.3
Incurred:
Current year	1,611.9	1,888.3	1,994.5
Prior years	11.1	(33.4)	(56.7)
Total incurred	1,623.0	1,854.9	1,937.8
Payments:
Current year	1,269.4	1,507.1	1,588.6
Prior years	317.4	314.0	321.7
Total payments	1,586.8	1,821.1	1,910.3
Balance at end of year:
Current year	342.5	381.2	405.9
Prior years	719.3	644.4	585.9
Total balance at end of year	$ 1,061.8	$ 1,025.6	$ 991.8

Supplemental information:
Claim adjustment expense liabilities	$ 42.7	$ 40.7	$ 39.1
Reinsurance recoverables	1.6	3.7	4.3

Incurred liability adjustments relating to prior years, which affected current operations during 2010, 2009 and 2008,

resulted in part from developed claims for prior years being different than were anticipated when the liabilities for unpaid

disability and health claims were originally estimated. These trends have been considered in establishing the current year

liability for unpaid disability and health claims.

10. Debt

Short-Term Debt

As of both December 31, 2010 and 2009, we had credit facilities with various financial institutions in an aggregate

amount of $644.0 million. As of December 31, 2010 and 2009, we had $294.4 million and $312.1 million, respectively, of

outstanding borrowings related to our credit facilities, which consisted of a payable to PFSI, with zero assets pledged as support

as of December 31, 2010. Interest paid on intercompany debt was $1.3 million, $1.3 million and $8.3 million during 2010, 2009

and 2008.

The weighted-average interest rate on short-term borrowings as of both December 31, 2010 and 2009, was 0.4%.

Long-Term Debt

The components of long-term debt were as follows:


	December 31,
	2010	2009
	(in millions)
8% surplus notes payable, due 2044	$ 99.3	$ 99.2
Other mortgages and notes payable	21.1	21.6
Total long-term debt	$ 120.4	$ 120.8

The amounts included above are net of the discount and premium associated with issuing these notes, which are being

amortized to expense over their respective terms using the interest method.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

10. Debt — (continued)

On March 10, 1994, we issued $100.0 million of surplus notes due March 1, 2044, at an 8% annual interest rate. None

of our affiliates hold any portion of the notes. Each payment of interest and principal on the notes, however, may be made only

with the prior approval of the Commissioner of Insurance of the State of Iowa (the “Commissioner”) and only to the extent that

we have sufficient surplus earnings to make such payments. Interest of $8.0 million for each of the years ended December 31,

2010, 2009 and 2008 was approved by the Commissioner, and charged to expense.

Subject to Commissioner approval, the notes due March 1, 2044, may be redeemed at our election on or after March 1,

2014, in whole or in part at a redemption price of approximately 102.3% of par. The approximate 2.3% premium is scheduled to

gradually diminish over the following ten years. These notes may be redeemed on or after March 1, 2024, at a redemption price

of 100% of the principal amount plus interest accrued to the date of redemption.

The non-recourse mortgages, other mortgages and notes payable are primarily financings for real estate developments.

Outstanding principal balances as of December 31, 2010, ranged from $5.8 million to $8.9 million per development with interest

rates generally ranging from 5.5% to 5.8%. Outstanding principal balances as of December 31, 2009, ranged from $5.9 million

to $9.1 million per development with interest rates generally ranging from 5.5% to 5.8%. Outstanding debt is secured by the

underlying real estate properties, which were reported as real estate on our consolidated statements of financial position with a

carrying value of $29.6 million and $30.1 million as of December 31, 2010 and 2009, respectively.

At December 31, 2010, future annual maturities of the long-term debt were as follows (in millions):


Year ending December 31:
2011	$ 0.4
2012	0.4
2013	8.8
2014	6.0
2015	—
Thereafter	104.8
Total future maturities of the long-term debt	$ 120.4

11. Income Taxes

Income Tax Expense

Our income tax expense (benefit) was as follows:


	For the year ended December 31,
	2010	2009	2008
		(in millions)
Current income taxes:
U.S. federal	$ 120.0	$ 140.4	$ 116.0
State and foreign	15.8	10.3	34.7
Total current income taxes	135.8	150.7	150.7
Deferred income taxes	(15.4)	(25.9)	(106.4)
Total income taxes	$ 120.4	$ 124.8	$ 44.3

Effective Income Tax Rate

Our provision for income taxes may not have the customary relationship of taxes to income. A reconciliation between

the U.S. corporate income tax rate and the effective income tax rate is as follows:


	For the year ended
	December 31,
	2010	2009	2008
U.S. corporate income tax rate	35%	35%	35%
Dividends received deduction	(14)	(11)	(19)
Interest exclusion from taxable income	(4)	(4)	(6)
Other	2	(1)	—
Effective income tax rate	19%	19%	10%

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

11. Income Taxes — (continued)

Unrecognized Tax Benefits

A summary of the changes in unrecognized tax benefits follows.


	For the year ended December 31,
	2010	2009
	(in millions)
Balance at beginning of year	$ 52.6	$ 62.9
Additions based on tax positions related to the current year	1.6	1.6
Additions for tax positions of prior years	1.2	0.3
Reductions for tax positions related to the current year	(2.4)	(7.1)
Reductions for tax positions of prior years	—	(1.6)
Settlements	—	(3.5)
Balance at end of year (1)	$ 53.0	$ 52.6


(1)	Of this amount, $20.5 million, if recognized, would reduce the 2010 effective income tax rate. We recognize interest and
	penalties related to uncertain tax positions in operating expenses.

	As of December 31, 2010 and 2009, we had recognized $23.4 million and $22.5 million of accumulated pre-tax interest
and penalties related to unrecognized tax benefits, respectively.


Net Deferred Income Taxes

Significant components of our net deferred income taxes were as follows:
	December 31,
	2010	2009
	(in millions)
Deferred income tax assets:
Net unrealized losses on available-for-sale securities	$ —	$ 375.4
Insurance liabilities	337.1	344.6
Net operating and capital loss carryforwards	312.8	344.7
Postretirement benefits	320.9	327.0
Stock-based compensation	59.2	51.7
Other deferred income tax assets	67.6	54.3
Gross deferred income tax assets	1,097.6	1,497.7
Valuation allowance	(0.6)	—
Total deferred income tax assets	1,097.0	1,497.7
Deferred income tax liabilities:
Deferred policy acquisition costs	(1,012.7)	(924.0)
Net unrealized gains on available-for-sale securities	(205.9)	—
Real estate	(115.6)	(103.5)
Intangible assets	(26.5)	(42.1)
Other deferred income tax liabilities	(4.1)	(40.9)
Total deferred income tax liabilities	(1,364.8)	(1,110.5)
Total net deferred income tax assets (liabilities)	$ (267.8)	$ 387.2


Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

11. Income Taxes — (continued)

Net deferred income taxes by jurisdiction are as follows:

	December 31,
	2010	2009
	(in millions)
Deferred income tax assets:
U.S.	$ —	$ 392.1
Deferred income tax liabilities:
U.S.	(262.6)	—
State	(5.2)	(4.9)
Total net deferred income tax assets (liabilities)	$ (267.8)	$ 387.2

No valuation allowance was provided on the deferred income tax asset attributable to the net unrealized losses on

available-for-sale securities as of December 31, 2009. This deferred tax asset reversed during 2010 to a deferred tax liability

position attributable to the net unrealized gains on available-for-sale securities as of December 31, 2010.

The total deferred income tax asset also includes capital and net operating loss carryforwards for tax purposes available

to offset future capital gains and taxable income, respectively. The total capital loss carryforward, available to offset future

capital gains, was $209.1 million as of December 31, 2010. If not used, this remaining capital loss carryforward generated in

2009 will expire in 2014. Domestic state net operating loss carryforwards were $0.8 million as of December 31, 2010, and will

expire between 2017 and 2029. We maintain valuation allowances by jurisdiction against the deferred income tax assets related

to certain of these carryforwards, as utilization of these income tax benefits fail the more likely than not criteria in certain

jurisdictions. A valuation allowance has been recorded on income tax benefits associated with state net operating loss

carryforwards and foreign net operating loss carryforwards. Adjustments to the valuation allowance will be made if there is a

change in management’s assessment of the amount of the deferred income tax asset that is more likely than not to be realized.

Accumulated net operating losses of $640.8 million and $485.2 million at December 31, 2010 and 2009, respectively,

are attributed to captive reinsurance companies that are temporarily excluded from our consolidated U.S. federal income tax

return. These net operating losses will expire between 2021 and 2025. One of the captive reinsurance companies will be able to

join the consolidated U.S. federal income tax return in 2012, with the other in 2013. All accumulated net operating losses are

anticipated to be utilized before expiration. Therefore, no valuation allowance has been provided for the deferred income tax

assets attributable to these net operating losses.

Other Tax Information

The Internal Revenue Service (“IRS”) has completed examination of the consolidated federal income tax returns for

years prior to 2004. We are contesting certain issues and have filed suit in the Court of Federal Claims, requesting refunds for

the years 1995-2003. We are also litigating a partnership issue for the years 2002-2003 in the federal district court of Iowa.

We had $229.1 million and $241.0 million of current income tax receivables associated with outstanding audit issues

reported as other assets in our consolidated statements of financial position as of December 31, 2010 and 2009, respectively.

We do not expect the litigation to be resolved within the next twelve months.

The IRS commenced examination of the U.S. consolidated federal income tax returns for 2004-2005 in March 2007.

The fieldwork is substantially complete and the final report is expected to be received sometime in the first or second quarter of

2011. The statute of limitations for the 2004-2005 tax years expires on September 15, 2011. The IRS commenced examination

of the U.S. consolidated federal income tax returns for 2006-2007 in March 2009 and of the tax return for 2008 in January 2010.

We do not believe there is a reasonable possibility that the total amount of unrecognized tax benefits will significantly

increase or decrease in the next twelve months. We believe that we have adequate defenses against, or sufficient provisions for,

the contested issues, but final resolution of the contested issues could take several years while legal remedies are pursued.

Consequently, we do not expect the ultimate resolution of issues from tax years 1995 - 2003 to have a material impact on our net

income. Similarly, we believe there are adequate defenses against, or sufficient provisions for, any challenges that might arise in

tax years subsequent to 2003.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

12. Employee and Agent Benefits

We have post-retirement benefit plans covering substantially all of our employees and certain agents, including

employees of other companies affiliated with our ultimate parent, PFG ("affiliated companies"). Actuarial information

regarding the status of the post-retirement benefit plans is calculated for the total plan only. The affiliated company portion of

the actuarial present value of the accumulated or projected benefit obligations, or net assets available for benefits, is not

separately determined. However, we are reimbursed for employee benefits related to the affiliated companies. The

reimbursement is not reflected in our employee and agent benefits disclosures.

We have defined benefit pension plans covering substantially all of our employees and certain agents. Some of these

plans provide supplemental pension benefits to employees and agents with salaries and/or pension benefits in excess of the

qualified plan limits imposed by federal tax law. The employees and agents are generally first eligible for the pension plans

when they reach age 21. For plan participants employed prior to January 1, 2002, the pension benefits are based on the greater of

a final average pay benefit or a cash balance benefit. The final average pay benefit is based on the years of service and generally

the employee's or agent's average annual compensation during the last five years of employment. Partial benefit accrual of final

average pay benefits is recognized from first eligibility until retirement based on attained service divided by potential service to

age 65 with a minimum of 35 years of potential service. The cash balance portion of the plan started on January 1, 2002. An

employee's account is credited with an amount based on the employee's salary, age and service. These credits accrue with

interest. For plan participants hired on and after January 1, 2002, only the cash balance plan applies. Our policy is to fund the

cost of providing pension benefits in the years that the employees and agents are providing service to us. Our funding policy for

the qualified defined benefit plan is to contribute an amount annually at least equal to the minimum annual contribution required

under the Employee Retirement Income Security Act (“ERISA”), and, generally, not greater than the maximum amount that can

be deducted for federal income tax purposes. Our funding policy for the nonqualified benefit plan is to fund the plan in the years

that the employees are providing service, taking into account the funded status of the trust. While we designate assets to cover

the computed liability of the nonqualified plan, the assets are not included as part of the asset balances presented in this footnote

as they do not qualify as plan assets in accordance with U.S. GAAP.

We also provide certain health care, life insurance and long-term care benefits for retired employees. Subsidized retiree

health benefits are provided for employees hired prior to January 1, 2002. Employees hired after December 31, 2001, have

access to retiree health benefits but it is intended that they pay for the full cost of the coverage. The health care plans are

contributory with participants' contributions adjusted annually. The contributions are based on the number of years of service

and age at retirement for those hired prior to January 1, 2002, who retired prior to January 1, 2011. For employees hired prior to

January 1, 2002, who retire on or after January 1, 2011, the contributions are 60% of the expected cost. As part of the substantive

plan, the retiree health contributions are assumed to be adjusted in the future as claim levels change. The life insurance plans are

contributory for a small group of previously grandfathered participants that have elected supplemental coverage and dependent

coverage.

Covered employees are first eligible for the health and life postretirement benefits when they reach age 57 and have

completed ten years of service with us. Retiree long-term care benefits are provided for employees whose retirement was

effective prior to July 1, 2000. Our policy is to fund the cost of providing retiree benefits in the years that the employees are

providing service, taking into account the funded status of the trust.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

12. Employee and Agent Benefits — (continued)

Obligations and Funded Status

The plans' combined funded status, reconciled to amounts recognized in the consolidated statements of financial

position and consolidated statements of operations, was as follows:


			Other postretirement
	Pension benefits		benefits
	December 31,		December 31,
	2010	2009	2010	2009
	(in millions)
Change in benefit obligation
Benefit obligation at beginning of year	$ (1,797.4)	$ (1,712.1)	$ (360.1)	$ (335.0)
Service cost	(45.6)	(51.4)	(8.8)	(11.3)
Interest cost	(105.7)	(100.8)	(18.1)	(19.7)
Actuarial gain (loss)	(59.6)	(26.8)	62.5	(2.8)
Participant contributions	—	—	(6.0)	(5.5)
Benefits paid	70.2	72.8	15.3	15.0
Amount recognized due to special events	—	—	(0.2)	—
Plan amendment	—	—	153.6	—
Other	4.3	20.9	(0.8)	(0.8)
Benefit obligation at end of year	$ (1,933.8)	$ (1,797.4)	$ (162.6)	$ (360.1)
Change in plan assets
Fair value of plan assets at beginning of year	$ 1,250.3	$ 1,010.5	$ 421.5	$ 362.0
Actual return on plan assets	181.1	217.0	58.1	68.3
Employer contribution	56.5	95.6	1.4	0.7
Participant contributions	—	—	6.0	5.5
Benefits paid	(70.2)	(72.8)	(15.3)	(15.0)
Fair value of plan assets at end of year	$ 1,417.7	$ 1,250.3	$ 471.7	$ 421.5
Amount recognized in statement of financial position
Other assets	$ —	$ —	$ 309.4	$ 78.4
Other liabilities	(516.1)	(547.1)	(0.3)	(17.0)
Total	$ (516.1)	$ (547.1)	$ 309.1	$ 61.4
Amount recognized in accumulated other comprehensive
(income) loss
Total net actuarial loss	$ 469.7	$ 564.9	$ 10.2	$ 104.1
Prior service benefit	(41.6)	(52.7)	(148.8)	(6.8)
Pre-tax accumulated other comprehensive (income) loss	$ 428.1	$ 512.2	$ (138.6)	$ 97.3

The accumulated benefit obligation for all defined benefit pension plans was $1,811.7 million and $1,640.5 million at

December 31, 2010 and 2009, respectively.

Employer contributions to the pension plans include contributions made directly to the qualified pension plan assets

and contributions from corporate assets to pay nonqualified pension benefits. Benefits paid from the pension plans include both

qualified and nonqualified plan benefits. Nonqualified pension plan assets are not included as part of the asset balances

presented in this footnote. The nonqualified pension plan assets are held in Rabbi trusts for the benefit of all nonqualified plan

participants. The assets held in a Rabbi trust are available to satisfy the claims of general creditors only in the event of

bankruptcy. Therefore, these assets are fully consolidated in our consolidated statements of financial position and are not

reflected in our funded status as they do not qualify as plan assets under U.S. GAAP. The market value of assets held in these

trusts was $265.3 million and $245.1 million as of December 31, 2010 and 2009, respectively.

Pension Plan Changes and Plan Gains/Losses

On January 1, 2010, benefits under the Principal Pension Plan are frozen for certain participants. This change was

recognized as a prior service cost and resulted in a decrease in liabilities as of December 31, 2009.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

12. Employee and Agent Benefits — (continued)

For the year ended December 31, 2010, the pension plans had a loss primarily due to a decrease in the discount rate and

a change in the mortality assumption. The plans also had a gain resulting from asset returns greater than expected. The net result

was an actuarial gain for the year ended December 31, 2010. For the year ended December 31, 2009, the pension plans had an

actuarial loss primarily due to a greater than expected cost of living adjustment and greater number of early retirements.

Other Postretirement Plan Changes and Plan Gains/Losses

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Medicare

Modernization Act”) was signed into law. The Medicare Modernization Act introduced a prescription drug benefit under

Medicare (“Medicare Part D”) as well as a federal subsidy to sponsors of retiree medical benefit plans. During each of the years

ended December 31, 2010, 2009 and 2008, the Medicare subsidies we received and accrued for were $0.8 million.

An actuarial gain occurred during 2010 for the other postretirement benefit plans. This was due to a decrease in the

trend and claim cost assumptions and greater than expected increase in the medical premium equivalents. This was partially

offset by the decrease in the discount rate. An actuarial loss occurred during 2009 for the other postretirement benefit plans. This

was due to a less than expected increase in retiree contributions, an increase in assumed health care costs for our agents and an

increase in the trend assumption.

Impact of Amendment to Retiree Health Benefits

In September 2010, an amendment to retiree health benefits was announced. This amendment, which is effective for

individuals retiring on or after January 1, 2011, resulted in a plan remeasurement as of September 30, 2010. Under this

amendment, the company-paid subsidy for pre-Medicare-eligible coverage will be 40% and the cost of coverage for

Medicare-eligible retirees (or their dependents) will no longer be subsidized. Prior to amendment, the subsidy calculation was

complex and varied based on age and service with the company at the time of retirement. In addition to the changes for

individuals retiring on or after January 1, 2011, the plan was simplified to a single consolidated plan design, the coordination

with Medicare was changed for certain post-1984 retirees and the method for determining the premium equivalent rate was

changed to be based solely on retiree experience. For the remeasurement of the retiree health benefits as of September 30,

2010, the assumptions used were a 5.40% discount rate to determine the benefit obligation; a 7.25% weighted-average

expected long-term return on plan assets used to determine the net periodic benefit cost; and a health care cost initial trend

rate of 9.5% pre-Medicare and 9.0% post-Medicare, decreasing to an ultimate rate of 5.0% in the year 2022. The plan

amendment resulted in a $153.6 million reduction to the accumulated postretirement benefit obligation as of September 30,

2010. The plan amendment and remeasurement resulted in a $14.0 million reduction in the 2010 net periodic postretirement

benefit cost, which was reflected in the fourth quarter of 2010.

Impact from Exit of Group Medical Insurance Business

On September 30, 2010, we announced our decision to exit the group medical insurance business and entered into an

agreement with United Healthcare Services, Inc. to renew medical insurance coverage for our customers as the business

transitions. Our exit from the group medical insurance business will result in a curtailment associated with the pension and

other postretirement benefits of the impacted employees. We have determined that the curtailment will result in a gain, which

will be recognized quarterly in our consolidated financial statements as impacted employees are terminated. In the fourth

quarter of 2010, the curtailment gain recognized was $0.9 million for the pension benefits and $2.6 million for the other

postretirement benefits from the accelerated recognition of the existing prior service benefits. Also in the fourth quarter of

2010, the recognition of terminations resulted in a $0.2 million increase in the accumulated postretirement benefit obligation

resulting from losses associated with individuals who were retirement eligible at termination exceeding the gains associated

with those individuals who were not retirement eligible at termination.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

12. Employee and Agent Benefits — (continued)

Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets

For 2010 and 2009, both the qualified and nonqualified plans had accumulated benefit obligations in excess of plan

assets. As noted previously, the nonqualified plans have assets that are deposited in trusts that fail to meet the U.S. GAAP

requirements to be included in plan assets; however, these assets are included in our consolidated statements of financial

position.


	December 31,
	2010	2009
	(in millions)
Projected benefit obligation	$ 1,933.8	$ 1,797.4
Accumulated benefit obligation	1,811.7	1,640.5
Fair value of plan assets	1,417.7	1,250.3

Information for Other Postretirement Benefit Plans with an Accumulated Postretirement Benefit Obligation in Excess of

Plan Assets


					December 31,
					2010	2009
					(in millions)
Accumulated postretirement benefit obligation					$ 1.5	$ 98.7
Fair value of plan assets					1.4	81.7

Components of Net Periodic Benefit Cost
		Pension benefits		Other postretirement benefits
		For the year ended December 31,
	2010	2009	2008	2010	2009	2008
			(in millions)
Service cost	$ 45.6	$ 51.4	$ 62.0	$ 8.8	$ 11.3	$ 10.5
Interest cost	105.7	100.8	124.3	18.1	19.7	20.9
Expected return on plan assets	(98.4)	(79.5)	(162.8)	(30.6)	(25.9)	(46.9)
Amortization of prior service benefit	(10.1)	(7.7)	(9.6)	(9.1)	(2.1)	(3.1)
Recognized net actuarial (gain) loss	67.6	92.6	1.5	4.1	9.3	(4.0)
Amount recognized due to special events	(0.9)	—	—	(2.6)	—	—
Net periodic benefit cost (income)	$ 109.5	$ 157.6	$ 15.4	$ (11.3)	$ 12.3	$ (22.6)

For 2008, 2009 and 2010, we used a December 31 measurement date in connection with our adoption of required

measurement date guidance. Net periodic benefit cost shown above for 2008 covers the period of 15 months from October 1,

2007, through December 31, 2008. Net periodic benefit cost for the period from October 1, 2007, to December 31, 2007, was

recognized as a direct adjustment to retained earnings during 2008 as required by the measurement date guidance. The

breakdown of 2008 net periodic benefit cost between the two periods was as follows:


	Pension benefits		Other postretirement benefits
	10/1/07-	1/1/08-		10/1/07-	1/1/08-
	12/31/07	12/31/08	Total	12/31/07	12/31/08	Total
			(in millions)
Net periodic benefit cost (income)	$ 3.1	$ 12.3 $	15.4 $ (4.5) $ (18.1)			$ (22.6)

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

12. Employee and Agent Benefits — (continued)

The pension plans' actuarial gains and losses are amortized using a straight-line amortization method over the average

remaining service period of plan participants. For the qualified pension plan, gains and losses are amortized without use of the

10% allowable corridor. For the nonqualified pension plans and other postretirement benefit plans, the corridors allowed are

used.


			Other
			postretirement
	Pension benefits		benefits
	For the year ended December 31,
	2010	2009	2010	2009
	(in millions)
Other changes recognized in accumulated other comprehensive (income)
loss
Net actuarial gain	$ (27.5)	$ (110.7)	$ (89.8)	$ (39.6)
Prior service benefit	—	(20.9)	(153.7)	—
Amortization of net loss	(67.6)	(92.6)	(4.1)	(9.3)
Amortization of prior service benefit	11.0	7.7	11.7	2.1
Total recognized in pre-tax accumulated other comprehensive income	$ (84.1)	$ (216.5)	$(235.9)	$ (46.8)
Total recognized in net periodic benefit cost and pre-tax accumulated other
comprehensive (income) loss	$ 25.4	$ (58.9)	$(247.2)	$ (34.5)

Net actuarial (gain) loss and net prior service cost benefit have been recognized in AOCI.

The estimated net actuarial (gain) loss and prior service cost (benefit) that will be amortized from AOCI into net

periodic benefit cost for the pension benefits during the 2011 fiscal year are $62.8 million and $(9.8) million, respectively. The

estimated net actuarial (gain) loss and prior service cost (benefit) for the postretirement benefits that will be amortized from

AOCI into net periodic benefit cost during the 2011 fiscal year are $0.4 million and $(29.7) million, respectively. The estimated

amortization of net actuarial (gain) loss does not reflect future curtailment recognition.

Assumptions

Weighted-average assumptions used to determine benefit obligations as disclosed under the Obligations and Funded Status

section


						Other postretirement
			Pension benefits			benefits
			For the year ended December 31,
			2010		2009	2010	2009
Discount rate			5.65%		6.00%	5.65%	6.00%
Rate of compensation increase			5.00%		5.00%	5.00%	5.00%

*Weighted-average assumptions used to determine net periodic benefit cost*
		Pension benefits		Other postretirement benefits
	For the year ended December 31,
	2010	2009	2008	2010		2009	2008
Discount rate	6.00%	6.00%	6.30%	6.00%		6.00%	6.30%
Expected long-term return on plan assets	8.00%	8.00%	8.25%	7.30%		7.30%	7.30%
Rate of compensation increase	5.00%	5.00%	5.00%	5.00%		5.00%	5.00%

For the pension benefits, the expected return on plan assets is the long-term rate we expect to be earned based on the

plans’ investment strategy. Historical and expected future returns of multiple asset classes were analyzed to develop a risk free

rate of return and risk premiums for each asset class. The overall rate for each asset class was developed by combining a long-

term inflation component, the risk free real rate of return and the associated risk premium. A weighted average rate was

developed based on those overall rates and the target asset allocation of the plans.

For other postretirement benefits, the 7.3% expected long-term return on plan assets for 2010 is based on the weighted

average expected long-term asset returns for the medical, life and long-term care plans. The expected long-term rates for the

medical, life and long-term care plans are 7.25%, 7.75% and 5.85%, respectively.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

12. Employee and Agent Benefits — (continued)

Assumed Health Care Cost Trend Rates


	December 31,
	2010	2009
Health care cost trend rate assumed for next year under age 65	9.5%	11.0%
Health care cost trend rate assumed for next year age 65 and over	9.0%	10.5%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	5.0%	5.0%
Year that the rate reaches the ultimate trend rate	2022	2021

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-

percentage-point change in assumed health care cost trend rates would have the following effects:


	1-percentage-	1-percentage-
	point increase	point decrease
	(in millions)
Effect on total of service cost and interest cost components	$ 4.2 $	(3.4)
Effect on accumulated postretirement benefit obligation	(9.4)	8.2

Pension Plan and Other Postretirement Benefit Plan Assets


	Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market
participants at the measurement date (an exit price). The fair value hierarchy prioritizes the inputs to valuation techniques used to
measure fair value into three levels.

•	Level 1 – Fair values are based on unadjusted quoted prices in active markets for identical assets. Our Level 1 assets include
	cash, fixed income investment funds and exchange traded equity securities.
•	Level 2 – Fair values are based on inputs other than quoted prices within Level 1 that are observable for the asset, either
	directly or indirectly. Our Level 2 assets primarily include fixed income and equity investment funds.
•	Level 3 – Fair values are based on significant unobservable inputs for the asset. Our Level 3 assets include a real estate
	investment fund and a general account investment of ours.

	Our pension plan assets consist of investments in separate accounts. Net asset value (“NAV”) of the separate accounts
is calculated in a manner consistent with U.S. GAAP for investment companies and is determinative of their fair value. Several
of the separate accounts invest in publicly quoted mutual funds or actively managed stocks. The fair value of the underlying
mutual funds or stock is used to determine the NAV of the separate account, which is not publicly quoted. Some of the separate
accounts also invest in fixed income securities. The fair value of the underlying securities is based on quoted prices of similar
assets and used to determine the NAV of the separate account. One separate account invests in real estate, for which the fair
value of the underlying real estate is based on unobservable inputs and used to determine the NAV of the separate account. The
fair value of the underlying real estate is estimated using discounted cash flow valuation models that utilize public real estate
market data inputs such as transaction prices, market rents, vacancy levels, leasing absorption, market cap rates and discount
rates. In addition, each property is appraised annually by an independent appraiser.

	Our other postretirement benefit plan assets consist of cash, investments in fixed income security portfolios and
investments in equity security portfolios. Because of the nature of cash, its carrying amount approximates fair value. The fair
value of fixed income investment funds, U.S. equity portfolios and international equity portfolios is based on quoted prices in
active markets for identical assets. The fair value of our general account investment is the amount the plan would receive if
withdrawing funds from this participating contract. The amount that would be received is calculated using a cash-out factor
based on an associated pool of general account fixed income securities. The cash-out factor is a ratio of the asset investment
value of these securities to asset book value. As the investment values change, the cash-out factor is adjusted, impacting the
amount the plan receives at measurement date. To determine investment value for each category of assets, we project cash flows.
This is done using contractual provisions for the assets, with adjustment for expected prepayments and call provisions. Projected
cash flows are discounted to present value for each asset category. Interest rates for discounting are based on current rates on
similar new assets in the general account based on asset strategy.

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

12. Employee and Agent Benefits — (continued)

Pension Plan Assets

The fair value of the qualified pension plan’s assets by asset category as of the most recent measurement date is as

follows:


		As of December 31, 2010
Assets /
	(liabilities)	Fair value hierarchy level
measured at fair
	value	Level 1		Level 2	Level 3
		(in millions)
Asset category
U.S. large cap equity portfolios (1)	$ 580.9	$ —		$ 580.9	$ —
U.S. small/mid cap equity portfolios (2)	143.5	—		143.5	—
International equity portfolios (3)	241.7	—		241.7	—
Fixed income security portfolios (4)	331.5	—		331.5	—
Real estate investment portfolios:
Real estate investment trusts (5)	35.4	—		35.4	—
Direct real estate investments (6)	84.7	—		—	84.7
Total	$ 1,417.7	$ —		$ 1,333.0	$ 84.7

		As of December 31, 2009
Assets /
	(liabilities)		Fair value hierarchy level
measured at fair
	value	Level 1		Level 2	Level 3
		(in millions)
Asset category
U.S. large cap equity portfolios (1)	$ 555.5	$ —	$ 555.5 $		—
U.S. small/mid cap equity portfolios (2)	103.6	—		103.6	—
International equity portfolios (3)	215.5	—		215.5	—
Fixed income security portfolios (4)	288.3	—		288.3	—
Real estate investment portfolios:
Real estate investment trusts (5)	33.4	—		33.4	—
Direct real estate investments (6)	54.0	—		—	54.0
Total	$ 1,250.3	$ —	$ 1,196.3 $		54.0


(1)	The portfolios invest primarily in publicly traded equity securities of large U.S. companies.
(2)	The portfolios invest primarily in publicly traded equity securities of mid-sized and small U.S. companies.
(3)	The portfolios invest primarily in publicly traded equity securities of non-U.S. companies.
(4)	The portfolios invest in various fixed income securities, primarily of U.S. origin. These include, but are not limited to,
	corporate bonds, mortgage-backed securities, commercial mortgage-backed securities, U.S. Treasury securities,
	agency securities, asset-backed securities and collateralized mortgage obligations.
(5)	The portfolio invests primarily in publicly traded securities of U.S. equity real estate investment trusts.
(6)	The portfolio invests primarily in U.S. commercial real estate properties.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

12. Employee and Agent Benefits — (continued)

The reconciliation for all assets measured at fair value using significant unobservable inputs (Level 3) is as follows:


		For the year ended December 31, 2010
		Actual return gains (losses) on
	Beginning	plan assets				Ending
	asset	Relating to				asset
	balance as	assets still	Relating to			balance
	of	held at the	assets sold	Purchases,	Transfers	as of
	December	reporting	during the	sales and	in (out) of	December
	31, 2009	date	period	settlements	Level 3	31, 2010
			(in millions)
Asset category
Direct real estate investments	$ 54.0	$ 10.7	$ —	$ 20.0	$ —	$ 84.7
Total	$ 54.0	$ 10.7	$ —	$ 20.0	$ —	$ 84.7

		For the year ended December 31, 2009
		Actual return gains (losses) on
		plan assets				Ending
	Beginning	Relating to				asset
	asset	assets still	Relating to			balance
	balance as	held at the	assets sold	Purchases,	Transfers	as of
	of January	reporting	during the	sales and	in (out) of	December
	1, 2009	date	period	settlements	Level 3	31, 2009
			(in millions)
Asset category
Direct real estate investments	$ 78.8	$ (24.8)	$ —	$ —	$ —	$ 54.0
Total	$ 78.8	$ (24.8)	$ —	$ —	$ —	$ 54.0


We have established an investment policy that provides the investment objectives and guidelines for the pension plan.
Our investment strategy is to achieve the following:

•	Obtain a reasonable long-term return consistent with the level of risk assumed and at a cost of operation within
	prudent levels. Performance benchmarks are monitored.
•	Ensure sufficient liquidity to meet the emerging benefit liabilities for the plan.
•	Provide for diversification of assets in an effort to avoid the risk of large losses and maximize the investment
	return to the pension plan consistent with market and economic risk.

In administering the qualified pension plan’s asset allocation strategy, we consider the projected liability stream of
benefit payments, the relationship between current and projected assets of the plan and the projected actuarial liabilities streams,
the historical performance of capital markets adjusted for the perception of future short- and long-term capital market
performance and the perception of future economic conditions.

According to our investment policy, the target asset allocation for the qualified plan is:


Asset category	Target allocation
U.S. equity portfolios	35% - 60%
International equity portfolios	5% - 20%
Fixed income security portfolios	20% - 37%
Real estate investment portfolios	3% - 10%

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

12. Employee and Agent Benefits — (continued)

Other Postretirement Benefit Plan Assets

The fair value of the other postretirement benefit plans’ assets by asset category as of the most recent measurement date

is as follows:


		As of December 31, 2010
	Assets /
	(liabilities)	Fair value hierarchy level
	measured at fair
	value	Level 1	Level 2	Level 3
		(in millions)
Asset category
Cash and cash equivalents	$ 1.3	$ 1.3	$ —	$ —
Fixed income security portfolios:
Fixed income investment funds (1)	143.5	143.5	—	—
Principal Life general account investment (2)	44.5	—	—	44.5
U.S. equity portfolios (3)	232.2	190.0	42.2	—
International equity portfolios (4)	50.2	38.3	11.9	—
Total	$ 471.7	$ 373.1	$ 54.1	$ 44.5

		As of December 31, 2009
	Assets /
	(liabilities)	Fair value hierarchy level
	measured at fair
	value	Level 1	Level 2	Level 3
		(in millions)
Asset category
Cash and cash equivalents	$ 1.0	$ 1.0	$ —	$ —
Fixed income security portfolios:
Fixed income investment funds (1)	131.1	131.1	—	—
Principal Life general account investment (2)	45.5	—	—	45.5
U.S. equity portfolios (3)	198.9	162.5	36.4	—
International equity portfolios (4)	45.0	34.3	10.7	—
Total	$ 421.5	$ 328.9	$ 47.1	$ 45.5


(1)	The portfolios invest in various fixed income securities, primarily of U.S. origin. These include, but are not limited to,
	corporate bonds, mortgage-backed securities, commercial mortgage-backed securities, U.S. Treasury securities, agency
	securities, asset-backed securities and collateralized mortgage obligations.
(2)	The general account is invested in various fixed income securities.
(3)	The portfolios invest primarily in publicly traded equity securities of large U.S. companies.
(4)	The portfolios invest primarily in publicly traded equity securities of non-U.S. companies.

	As of December 31, 2010 and 2009, respectively, $54.1 million and $47.1 million of assets in the U.S. equity and
international equity portfolios were included in a trust owned life insurance contract.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

12. Employee and Agent Benefits — (continued)

The reconciliation for all assets measured at fair value using significant unobservable inputs (Level 3) is as follows:


	For the year ended December 31, 2010
		Actual return gains (losses) on
	Beginning	plan assets				Ending
	asset	Relating to				asset
	balance as	assets still	Relating to			balance
	of	held at the	assets sold	Purchases,	Transfers	as of
	December	reporting	during the	sales and	in (out) of	December
	31, 2009	date	period	settlements	Level 3	31, 2010
			(in millions)
Asset category
Principal Life general account investment	$ 45.5	$ 4.3 $	—	$ (5.3)	$ —	$ 44.5
Total	$ 45.5	$ 4.3 $	—	$ (5.3)	$ —	$ 44.5

	For the year ended December 31, 2009
		Actual return gains (losses) on
		plan assets				Ending
	Beginning	Relating to				asset
	asset	assets still	Relating to			balance
	balance as	held at the	assets sold	Purchases,	Transfers	as of
	of January	reporting	during the	sales and	in (out) of	December
	1, 2009	date	period	settlements	Level 3	31, 2009
			(in millions)
Asset category
Principal Life general account investment	$ 54.9	$ (1.3) $	—	$ (8.1)	$ —	$ 45.5
Total	$ 54.9	$ (1.3) $	—	$ (8.1)	$ —	$ 45.5

According to our investment policy, the target asset allocation for the other postretirement benefit plans is:


Asset category	Target allocation
U.S. equity portfolios	45% - 65%
International equity portfolios	5% - 15%
Fixed income security portfolios	30% - 50%

The investment strategies and policies for the other postretirement benefit plans are similar to those employed by the

qualified pension plan.

Contributions

Our funding policy for the qualified pension plan is to fund the plan annually in an amount at least equal to the

minimum annual contribution required under ERISA and, generally, not greater than the maximum amount that can be deducted

for federal income tax purposes. We do not anticipate contributions will be needed to satisfy the minimum funding requirements

of ERISA for our qualified plan. At this time, it is too early to estimate the amount that may be contributed, but it is possible that

we may fund the plans in 2011 in the range of $60-$90 million. This includes funding for both our qualified and nonqualified

pension plans. While we designate assets to cover the computed liability of the nonqualified plan, the assets are not included as

part of the asset balances presented in this footnote as they do not qualify as plan assets in accordance with U.S. GAAP. We may

contribute to our other postretirement benefit plans in 2011 pending future analysis.

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

12. Employee and Agent Benefits — (continued)

Estimated Future Benefit Payments

The estimated future benefit payments, which reflect expected future service, and the expected amount of subsidy

receipts under Medicare Part D are:


		Other postretirement benefits
		(gross benefit payments,
		including prescription drug	Amount of Medicare Part D
	Pension benefits	benefits)	subsidy receipts
		(in millions)
Year ending December 31:
2011	$ 76.9	$ 19.3	$ 0.9
2012	81.6	20.2	1.0
2013	86.5	21.3	1.1
2014	91.0	22.4	1.2
2015	95.2	23.4	1.3
2016-2020	567.0	126.8	6.9

The above table reflects the total estimated future benefits to be paid from the plan, including both our share of the

benefit cost and the participants' share of the cost, which is funded by their contributions to the plan.

The assumptions used in calculating the estimated future benefit payments are the same as those used to measure the

benefit obligation for the year ended December 31, 2010.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

12. Employee and Agent Benefits — (continued)

The information that follows shows supplemental information for our defined benefit pension plans. Certain key

summary data is shown separately for qualified and nonqualified plans.


	For the year ended December 31,
	2010				2009
	Qualified	Nonqualified		Qualified	Nonqualified
	plan	plans	Total	plan	plans	Total
			(in millions)
Amount recognized in statement of financial position
Other assets	$ —	$ —	$ —	$ —	$ —	$ —
Other liabilities	(210.8)	(305.3)	(516.1)	(249.9)	(297.2)	(547.1)
Total	$ (210.8)	$ (305.3)	$ (516.1)	$ (249.9)	$ (297.2)	$ (547.1)
Amount recognized in accumulated other
comprehensive loss
Total net actuarial loss	$ 404.1	$ 65.6	$ 469.7	$ 495.0	$ 69.9	$ 564.9
Prior service cost benefit	(26.6)	(15.0)	(41.6)	(33.9)	(18.8)	(52.7)
Total pre-tax accumulated other comprehensive loss	$ 377.5	$ 50.6	$ 428.1	$ 461.1	$ 51.1	$ 512.2
Components of net periodic benefit cost
Service cost	$ 39.3	$ 6.3	$ 45.6	$ 41.8	$ 9.6	$ 51.4
Interest cost	88.2	17.5	105.7	83.0	17.8	100.8
Expected return on plan assets	(98.4)	—	(98.4)	(79.5)	—	(79.5)
Amortization of prior service cost benefit	(6.6)	(3.5)	(10.1)	(5.4)	(2.3)	(7.7)
Recognized net actuarial loss	62.5	5.1	67.6	86.5	6.1	92.6
Amount recognized due to special events	(0.6)	(0.3)	(0.9)	—	—	—
Net periodic benefit cost	$ 84.4	$ 25.1	$ 109.5	$ 126.4	$ 31.2	$ 157.6
Other changes recognized in accumulated other
comprehensive (income) loss
Net actuarial (gain) loss	$ (28.4)	$ 0.9	$ (27.5)	$ (108.8)	$ (1.9)	$ (110.7)
Prior service benefit	—	—	—	(10.7)	(10.2)	(20.9)
Amortization of net loss	(62.5)	(5.1)	(67.6)	(86.5)	(6.1)	(92.6)
Amortization of prior service cost benefit	7.3	3.7	11.0	5.4	2.3	7.7
Total recognized in pre-tax accumulated other
comprehensive income	$ (83.6)	$ (0.5)	$ (84.1)	$ (200.6)	$ (15.9)	$ (216.5)
Total recognized in net periodic benefit cost and pre-
tax accumulated other comprehensive (income) loss	$ 0.8	$ 24.6	$ 25.4	$ (74.2)	$ 15.3	$ (58.9)

In addition, we have defined contribution plans that are generally available to all U.S. employees and agents. Eligible

participants could not contribute more than $16,500 of their compensation to the plans in 2010. Effective January 1, 2006, we

made several changes to the retirement programs. In general, the pension and supplemental executive retirement plan benefit

formulas were reduced, and the 401(k) matching contribution was increased. Employees who were ages 47 or older with at least

ten years of service on December 31, 2005, could elect to retain the prior benefit provisions and forgo receipt of the additional

matching contributions. The employees who elected to retain the prior benefit provisions are referred to as “Grandfathered

Choice Participants.” We match the Grandfathered Choice Participant's contribution at a 50% contribution rate up to a maximum

contribution of 3% of the participant's compensation. For all other participants, we match the participant's contributions at a 75%

contribution rate up to a maximum of 6% of the participant's compensation. The defined contribution plans allow employees to

choose among various investment options, including PFG common stock. We contributed $35.7 million, $33.9 million and

$41.2 million in 2010, 2009 and 2008, respectively, to our qualified defined contribution plans.

We also have nonqualified deferred compensation plans available to select employees and agents that allow them to

defer compensation amounts in excess of limits imposed by federal tax law with respect to the qualified plans. In 2010, we

matched the Grandfathered Choice Participant's deferral at a 50% match deferral rate up to a maximum matching deferral of 3%

of the participant's compensation. For all other participants, we matched the participant's deferral at a 75% match deferral rate up

to a maximum matching deferral of 6% of the participant's compensation. We contributed $2.8 million, $4.6 million and

$7.3 million in 2010, 2009 and 2008, respectively, to our nonqualified deferred compensation plans.

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

13. Contingencies, Guarantees and Indemnifications

Litigation and Regulatory Contingencies

We are regularly involved in litigation, both as a defendant and as a plaintiff, but primarily as a defendant. Litigation

naming us as a defendant ordinarily arises out of our business operations as a provider of asset management and accumulation

products and services, life, health and disability insurance. Some of the lawsuits are class actions, or purport to be, and some

include claims for unspecified or substantial punitive and treble damages. In addition, regulatory bodies such as state insurance

departments, the Securities Exchange Commission, the Financial Industry Regulatory Authority, the Department of Labor and

other regulatory agencies regularly make inquiries and conduct examinations or investigations concerning our compliance with,

among other things, insurance laws, securities laws, ERISA and laws governing the activities of broker-dealers. We receive

requests from regulators and other governmental authorities relating to industry issues and may receive additional requests,

including subpoenas and interrogatories, in the future.

On November 8, 2006, a trustee of Fairmount Park Inc. Retirement Savings Plan filed a putative class action lawsuit

the United States District Court for the Southern District of Illinois against us. Our motion to transfer venue was granted and the

case is now pending in the Southern District of Iowa. The complaint alleged, among other things, that we breached our alleged

fiduciary duties while performing services to 401(k) plans by failing to disclose, or adequately disclose, to employers or plan

participants the fact that we receive “revenue sharing fees from mutual funds that are included in its pre-packaged 401(k) plans”

and allegedly failed to use the revenue to defray the expenses of the services provided to the plans. Plaintiff further alleged that

these acts constitute prohibited transactions under ERISA. Plaintiff sought to certify a class of all retirement plans to which we

were a service provider and for which we received and retained “revenue sharing” fees from mutual funds. On August 27, 2008,

the plaintiff's motion for class certification was denied. The plaintiff’s new motion for class certification, filed May 11, 2009,

was stricken by the court on March 31, 2010. We continue to aggressively defend the lawsuit.

On October 28, 2009, Judith Curran filed a derivative action lawsuit on behalf of Principal Funds, Inc. Strategic Asset

Management Portfolios in the United States District Court for the Southern District of Iowa against Principal Management

Corporation, Principal Global Investors, LLC, and Principal Funds Distributor, Inc. (the “Curran Defendants”). The lawsuit

alleges the Curran Defendants breached their fiduciary duty under Section 36(b) of the Investment Company Act by charging

advisory fees and distribution fees that were excessive. The Curran Defendants filed a motion to dismiss the case on January

29, 2010. That motion was granted in part and overruled in part. Principal Global Investors, LLC was dismissed from the suit.

The remaining Curran Defendants are aggressively defending the lawsuit.

On December 2, 2009 and December 4, 2009, two plaintiffs, Cruise and Mullaney, each filed putative class action

lawsuits in the United States District Court for the Southern District of New York against us, PFG, Principal Global

Investors, LLC, and Principal Real Estate Investors, LLC (the “Cruise/Mullaney Defendants”). The lawsuits alleged the

Cruise/Mullaney Defendants failed to manage the Principal U.S. Property Separate Account (“PUSPSA”) in the best interests

of investors, improperly imposed a “withdrawal freeze” on September 26, 2008, and instituted a “withdrawal queue” to honor

withdrawal requests as sufficient liquidity became available. Plaintiffs allege these actions constitute a breach of fiduciary

duties under ERISA. Plaintiffs seek to certify a class including all qualified ERISA plans and the participants of those plans

that invested in PUSPSA between September 26, 2008, and the present that have suffered losses caused by the queue. The

two lawsuits, as well as two subsequently filed complaints asserting similar claims, have been consolidated and are now

known as In re Principal U.S. Property Account Litigation. On April 22, 2010, an order was entered granting the motion

made by the Cruise/Mullaney Defendants for change of venue to the United States District Court for the Southern District of

Iowa. The plaintiffs have filed a Consolidated Complaint adding five new plaintiffs. The Cruise/Mullaney Defendants are

aggressively defending the lawsuit.

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

13. Contingencies, Guarantees and Indemnifications — (continued)

On July 1, 2010, Debra and Russell Hurd filed a putative class action lawsuit in the United States District Court for

the Southern District of Iowa against us and PFG (the “Hurd Defendants”). The complaint alleges the Hurd Defendants

underpay out-of-network health claims by using an allegedly flawed database to calculate usual and customary charges.

Plaintiffs are suing on behalf of "all participants and/or beneficiaries in group health plans in the United States issued, insured

or administered by [us] as to which [we] have administered claims and/or paid or denied benefits for out-of-network benefit

claims." The complaint alleged four causes of action, all based on violations of ERISA. The Hurd Defendants filed a

stipulated dismissal with prejudice on December 8, 2010.

While the outcome of any pending or future litigation or regulatory matter cannot be predicted, management does not

believe that any pending litigation or regulatory matter will have a material adverse effect on our business or financial position.

The outcome of such matters is always uncertain, and unforeseen results can occur. It is possible that such outcomes could

materially affect net income in a particular quarter or annual period.

Guarantees and Indemnifications

In the normal course of business, we have provided guarantees to third parties primarily related to a former subsidiary,

joint ventures and industrial revenue bonds. These agreements generally expire through 2019. The maximum exposure under

these agreements as of December 31, 2010, was approximately $226.0 million. At inception, the fair value of such guarantees

was insignificant. In addition, we believe the likelihood is remote that material payments will be required. Therefore, any

liability accrued within our consolidated statements of financial position is insignificant. Should we be required to perform under

these guarantees, we generally could recover a portion of the loss from third parties through recourse provisions included in

agreements with such parties, the sale of assets held as collateral that can be liquidated in the event that performance is required

under the guarantees or other recourse generally available to us; therefore, such guarantees would not result in a material adverse

effect on our business or financial position. While the likelihood is remote, such outcomes could materially affect net income in

a particular quarter or annual period.

We are also subject to various other indemnification obligations issued in conjunction with divestitures, acquisitions

and financing transactions whose terms range in duration and often are not explicitly defined. Certain portions of these

indemnifications may be capped, while other portions are not subject to such limitations; therefore, the overall maximum

amount of the obligation under the indemnifications cannot be reasonably estimated. At inception, the fair value of such

indemnifications was insignificant. In addition, we believe the likelihood is remote that material payments will be required.

Therefore, any liability accrued within our consolidated statements of financial position is insignificant. While we are unable to

estimate with certainty the ultimate legal and financial liability with respect to these indemnifications, we believe that

performance under these indemnifications would not result in a material adverse effect on our business or financial position.

While the likelihood is remote, performance under these indemnifications could materially affect net income in a particular

quarter or annual period.

Guaranty Funds

Under state insurance guaranty fund laws, insurers doing business in a state can be assessed, up to prescribed limits, for

certain obligations of insolvent insurance companies to policyholders and claimants. A state’s fund assesses its members based

on their pro rata market share of written premiums in the state for the classes of insurance for which the insolvent insurer was

engaged. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets. We accrue

liabilities for guaranty fund assessments when an assessment is probable, can be reasonably estimated and when the event

obligating us to pay has occurred. While we cannot predict the amount and timing of any future assessments, we have

established reserves we believe are adequate for assessments relating to insurance companies that are currently subject to

insolvency proceedings. As of December 31, 2010 and 2009, the liability balance for guaranty fund assessments, which is not

discounted, was $14.5 million and $15.1 million, respectively, and was reported within other liabilities in the consolidated

statements of financial position. As of December 31, 2010 and 2009, $6.9 million and $7.4 million, respectively, related to

premium tax offsets were included in premiums due and other receivables in the consolidated statements of financial position.

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

13. Contingencies, Guarantees and Indemnifications — (continued)

Operating Leases

As a lessee, we lease office space, data processing equipment, office furniture and office equipment under various

operating leases. Rental expense for the years ended December 31, 2010, 2009 and 2008, respectively, was $45.0 million,

$47.8 million and $46.7 million.

The following represents payments due by period for operating lease obligations (in millions):


Year ending December 31:
2011	$ 41.0
2012	31.7
2013	23.6
2014	18.8
2015	14.5
2016 and thereafter	64.3
Total operating lease obligations	193.9
Less: Future sublease rental income on noncancelable leases	3.9
Total future minimum lease payments	$ 190.0

Capital Leases

We lease hardware storage equipment under capital leases. As of December 31, 2010 and 2009, these leases had a

gross asset balance of $17.4 million and $16.1 million and accumulated depreciation of $13.4 million and $9.2 million,

respectively. Depreciation expense for the years ended December 31, 2010, 2009 and 2008 was $4.2 million, $5.2 million

and $6.2 million, respectively.

The following represents future minimum lease payments due by period for capital lease obligations (in millions).


Year ending December 31:
2011	$ 3.0
2012	1.1
2013	0.3
Total	4.4
Less: Amounts representing interest	0.2
Net present value of minimum lease payments	$ 4.2

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

14. Stockholder’s Equity

Accumulated Other Comprehensive Income (Loss)

Comprehensive income includes all changes in stockholder’s equity during a period except those resulting from

investments by our stockholder and distributions to our stockholder.

The components of accumulated other comprehensive income (loss) were as follows:


	Net unrealized	Net unrealized	Foreign	Unrecognized	Accumulated
	gains (losses) on	gains on	currency	postretirement	other
	available-for-sale	derivative	translation	benefit	comprehensive
	securities	instruments	adjustment	obligations	income (loss)
			(in millions)
Balances at January 1, 2008	$ 31.2	$ 21.6	$ (2.5)	$ 67.2	$ 117.5
Net change in unrealized gains on fixed
maturities, available-for-sale	(7,782.1)	—	—	—	(7,782.1)
Net change in unrealized gains on equity
securities, available-for-sale	(61.1)	—	—	—	(61.1)
Net change in unrealized gains on equity
method subsidiaries and minority interest
adjustments	76.2	—	—	—	76.2
Adjustments for assumed changes in
amortization pattern	1,173.0	—	—	—	1,173.0
Net change in unrealized gains on derivative
instruments	—	124.5	—	—	124.5
Change in net foreign currency translation
adjustment	—	—	(23.8)	—	(23.8)
Effects of changing postretirement benefit
plan measurement date	—	—	—	(3.1)	(3.1)
Change in unrecognized postretirement
benefit obligations	—	—	—	(973.1)	(973.1)
Net change in provision for deferred income
tax benefit (expense)	2,307.9	(43.5)	8.3	341.7	2,614.4
Balances at December 31, 2008	$ (4,254.9)	$ 102.6	$ (18.0)	$ (567.3)	$ (4,737.6)

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

14. Stockholder’s Equity — (continued)


	Net unrealized	Net unrealized	Foreign	Unrecognized	Accumulated
	losses on	gains on	currency	postretirement	other
	available-for-sale	derivative	translation	benefit	comprehensive
	securities	instruments	adjustment	obligations	loss
			(in millions)
Balances at January 1, 2009	$ (4,254.9)	$ 102.6	$ (18.0)	$ (567.3)	$ (4,737.6)
Net change in unrealized losses on fixed
maturities, available-for-sale	6,548.5	—	—	—	6,548.5
Net change in noncredit component of
impairment losses on fixed maturities,
available-for-sale	(260.9)	—	—	—	(260.9)
Net change in unrealized losses on equity
securities, available-for-sale	47.8	—	—	—	47.8
Net change in unrealized losses on equity
method subsidiaries and noncontrolling
interest adjustments	29.6	—	—	—	29.6
Adjustments for assumed changes in
amortization pattern	(963.3)	—	—	—	(963.3)
Net change in unrealized gains on derivative
instruments	—	(66.4)	—	—	(66.4)
Change in net foreign currency translation
adjustment	—	—	33.2	—	33.2
Change in unrecognized postretirement benefit
obligations	—	—	—	263.3	263.3
Cumulative effect of reclassifying noncredit
component of previously recognized
impairment losses on fixed maturities,
available-for-sale, net	(9.9)	—	—	—	(9.9)
Net change in provision for deferred income
tax benefit (expense)	(1,890.6)	23.3	(11.6)	(92.2)	(1,971.1)
Balances at December 31, 2009	$ (753.7)	$ 59.5	$ 3.6	$ (396.2)	$ (1,086.8)

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

14. Stockholder’s Equity — (continued)


	Net unrealized	Net unrealized	Foreign	Unrecognized	Accumulated
	gains (losses) on	gains on	currency	postretirement	other
	available-for-sale	derivative	translation	benefit	comprehensive
	securities	instruments	adjustment	obligations	income (loss)
		(in millions)
Balances at January 1, 2010	$ (753.7)	$ 59.5	$ 3.6	$ (396.2)	$ (1,086.8)
Net change in unrealized losses on fixed
maturities, available-for-sale	2,138.0	—	—	—	2,138.0
Net change in noncredit component of
impairment losses on fixed maturities,
available-for-sale	(56.1)	—	—	—	(56.1)
Net change in unrealized losses on equity
securities, available-for-sale	6.8	—	—	—	6.8
Net change in unrealized losses on equity
method subsidiaries and noncontrolling
interest adjustments	(28.3)	—	—	—	(28.3)
Adjustments for assumed changes in
amortization pattern	(488.0)	—	—	—	(488.0)
Net change in unrealized gains on derivative
instruments	—	32.0	—	—	32.0
Change in net foreign currency translation
adjustment	—	—	(7.1)	—	(7.1)
Change in unrecognized postretirement benefit
obligations	—	—	—	320.0	320.0
Cumulative effect of implementation of
accounting change related to variable interest
entities, net	10.7	—	—	—	10.7
Cumulative effect of electing fair value option
for fixed maturities upon implementation of
accounting change related to embedded
credit derivatives, net	25.4	—	—	—	25.4
Net change in provision for deferred income
tax benefit (expense)	(550.5)	(11.2)	2.5	(112.0)	(671.2)
Balances at December 31, 2010	$ 304.3	$ 80.3	$ (1.0)	$ (188.2)	$ 195.4

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

14. Stockholder’s Equity — (continued)

The following table sets forth the adjustments necessary to avoid duplication of items that are included as part of net

income for a year that had been part of other comprehensive income in prior years:


	For the year ended December 31,
	2010	2009	2008
		(in millions)
Unrealized gains (losses) on available-for-sale securities and derivative instruments,
as reported	$ 1,078.8	$ 3,458.1	$ (4,205.1)
Adjustment for realized gains (losses) on available-for-sale securities and derivative
instruments included in net income	(94.0)	(465.4)	15.1
Unrealized gains (losses) on available-for-sale securities and derivative instruments
arising during the year	$ 984.8	$ 2,992.7	$ (4,190.0)

The above table includes unrealized gains (losses) on available-for-sale securities and derivatives in cash flow hedge

relationships net of adjustments related to DPAC, sales inducements, unearned revenue reserves, changes in policyholder

benefits and claims and applicable income taxes.

Dividend Limitations

Under Iowa law, we may pay stockholder dividends only from the earned surplus arising from our business and must

receive the prior approval of the Commissioner to pay a stockholder dividend if such a stockholder dividend would exceed

certain statutory limitations. The current statutory limitation is the greater of 10% of our policyholder surplus as of the preceding

year-end or the net gain from operations from the previous calendar year. Based on this limitation and 2010 statutory results, we

could pay approximately $509.7 million in stockholder dividends in 2011 without exceeding the statutory limitation.

Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)

15. Fair Value Measurements

We use fair value measurements to record fair value of certain assets and liabilities and to estimate fair value of

financial instruments not recorded at fair value but required to be disclosed at fair value. Certain financial instruments,

particularly policyholder liabilities other than investment-type insurance contracts, are excluded from these fair value

disclosure requirements.

Fair Value of Financial Instruments

The carrying value and estimated fair value of financial instruments were as follows:


	December 31, 2010		December 31, 2009
	Carrying amount	Fair value	Carrying amount	Fair value
		(in millions)
Assets (liabilities)
Fixed maturities, available-for-sale	$ 45,184.8 $	45,184.8 $	43,518.4 $	43,518.4
Fixed maturities, trading	606.9	606.9	484.8	484.8
Equity securities, available-for-sale	165.9	165.9	211.7	211.7
Equity securities, trading	258.3	258.3	177.2	177.2
Mortgage loans	10,477.1	10,540.3	11,250.5	10,808.7
Policy loans	878.3	986.6	881.3	1,001.4
Other investments	271.7	271.7	154.8	154.8
Cash and cash equivalents	1,546.8	1,546.8	2,044.5	2,044.5
Derivative assets	1,058.5	1,058.5	1,212.6	1,212.6
Separate account assets	62,738.4	62,738.4	57,380.8	57,380.8
Cash collateral	219.9	219.9	374.3	374.3
Investment-type insurance contracts	(32,717.8)	(32,826.2)	(35,670.2)	(34,873.7)
Short-term debt	(294.4)	(294.4)	(312.1)	(312.1)
Long-term debt	(120.4)	(130.7)	(120.8)	(104.7)
Separate account liabilities	(55,864.5)	(54,989.5)	(51,559.8)	(50,709.1)
Derivative liabilities	(1,274.5)	(1,274.5)	(1,048.1)	(1,048.1)
Bank deposits	(2,219.2)	(2,230.9)	(2,185.8)	(2,188.5)
Cash collateral payable	(219.9)	(219.9)	(355.6)	(355.6)
Other liabilities	(250.3)	(250.3)	(99.2)	(99.2)


Valuation Hierarchy

	Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date (an exit price). The fair value hierarchy prioritizes the inputs
to valuation techniques used to measure fair value into three levels.

•	Level 1 – Fair values are based on unadjusted quoted prices in active markets for identical assets or liabilities. Our Level
	1 assets and liabilities primarily include exchange traded equity securities, mutual funds and U.S. Treasury bonds.
•	Level 2 – Fair values are based on inputs other than quoted prices within Level 1 that are observable for the asset or
	liability, either directly or indirectly. Our Level 2 assets and liabilities primarily include fixed maturities (including
	public and private bonds), equity securities, over-the-counter derivatives and other investments for which public
	quotations are not available but that are priced by third-party pricing services or internal models using substantially all
	observable inputs.
•	Level 3 – Fair values are based on significant unobservable inputs for the asset or liability. Our Level 3 assets and
	liabilities include certain fixed maturities, private equity securities, real estate and commercial mortgage loan
	investments of our separate accounts, commercial mortgage loan investments and obligations of consolidated VIEs for
	which the fair value option was elected, complex derivatives and embedded derivatives that must be priced using broker
	quotes or other valuation methods that utilize at least one significant unobservable input.

Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)

15. Fair Value Measurements — (continued)

Determination of Fair Value

The following discussion describes the valuation methodologies and inputs used for assets and liabilities measured

at fair value on a recurring basis or disclosed at fair value. The techniques utilized in estimating the fair values of financial

instruments are reliant on the assumptions used. Care should be exercised in deriving conclusions about our business, its

value or financial position based on the fair value information of financial instruments presented below.

Fair value estimates are made at a specific point in time, based on available market information and judgments about

the financial instrument. Such estimates do not consider the tax impact of the realization of unrealized gains or losses. In

addition, the disclosed fair value may not be realized in the immediate settlement of the financial instrument. We validate

prices through an investment analyst review process, which includes validation through direct interaction with external

sources, review of recent trade activity or use of internal models. In circumstances where broker quotes are used to value an

instrument, we generally receive one non-binding quote. Broker quotes are validated through an investment analyst review

process, which includes validation through direct interaction with external sources and use of internal models or other

relevant information. We did not make any significant changes to our valuation processes during 2010.

Fixed Maturities

Fixed maturities include bonds, asset-backed securities, redeemable preferred stock and certain nonredeemable

preferred stock. When available, the fair value of fixed maturities is based on quoted prices of identical assets in active

markets. These are reflected in Level 1 and primarily include U.S. Treasury bonds and actively traded redeemable corporate

preferred securities.

When quoted prices are not available, our first priority is to obtain prices from third party pricing vendors. We have

regular interaction with these vendors to ensure we understand their pricing methodologies and to confirm they are utilizing

observable market information. Their methodologies vary by asset class and include inputs such as estimated cash flows,

benchmark yields, reported trades, broker quotes, credit quality, industry events and economic events. Fixed maturities with

validated prices from pricing services, which includes the majority of our public fixed maturities in all asset classes, are

generally reflected in Level 2. Also included in Level 2 are corporate bonds where quoted market prices are not available, for

which a matrix pricing valuation approach is used. In this approach, securities are grouped into pricing categories that vary

by sector, rating and average life. Each pricing category is assigned a risk spread based on studies of observable public

market data from the investment professionals assigned to specific security classes. The expected cash flows of the security

are then discounted back at the current Treasury curve plus the appropriate risk spread. Although the matrix valuation

approach provides a fair valuation of each pricing category, the valuation of an individual security within each pricing

category may actually be impacted by company specific factors.

If we are unable to price a fixed maturity security using prices from third party pricing vendors or other sources specific

to the asset class, we may obtain a broker quote or utilize an internal pricing model specific to the asset utilizing relevant market

information, to the extent available, which are reflected in Level 3 and can include fixed maturities across all asset classes. These

models primarily use projected cash flows discounted using a rate derived from market interest rate curves and relevant risk

spreads. As of December 31, 2010, less than 1% of our fixed maturities were valued using internal pricing models, which were

classified as Level 3 assets accordingly.

The primary inputs, by asset class, for valuations of the majority of our Level 2 investments from third party pricing

vendors or our internal pricing valuation approach are described below.

U.S. government and agencies/Non-U.S. governments – Inputs include recently executed market transactions,

interest rate yield curves, maturity dates, market price quotations and credit spreads relating to similar instruments.

State and political subdivisions – Inputs include Municipal Securities Rulemaking Board reported trades, U.S.

Treasury and other benchmark curves, material event notices, new issue data, and issuer financial statements.

Corporates – Inputs include recently executed transactions, market price quotations, benchmark yields, issuer

spreads and observations of equity and credit default swap curves related to the issuer. For private placement corporate

securities valued through the matrix valuation approach inputs include the current U.S. Treasury curve and risk spreads based

on sector, rating and average life of the issuance.

Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)

15. Fair Value Measurements — (continued)

RMBS, CMBS, CDOs and Other debt obligations — Inputs include cash flows, priority of the tranche in the capital

structure, expected time to maturity for the specific tranche, reinvestment period remaining and performance of the

underlying collateral including prepayments, defaults, deferrals, loss severity of defaulted collateral and, for RMBS,

prepayment speed assumptions. Other inputs include market indices and recently executed market transactions.

Equity Securities

Equity securities include mutual funds, common stock and nonredeemable preferred stock. Fair values of equity

securities are determined using quoted prices in active markets for identical assets when available, which are reflected in Level

1. When quoted prices are not available, we may utilize internal valuation methodologies appropriate for the specific asset that

use observable inputs such as underlying share prices, which are reflected in Level 2. Fair values might also be determined using

broker quotes or through the use of internal models or analysis that incorporate significant assumptions deemed appropriate

given the circumstances and consistent with what other market participants would use when pricing such securities, which are

reflected in Level 3.

Mortgage Loans

Mortgage loans are not measured at fair value on a recurring basis. Fair values of commercial and residential mortgage

loans are primarily determined by discounting the expected cash flows at current treasury rates plus an applicable risk spread,

which reflects credit quality and maturity of the loans. The risk spread is based on market clearing levels for loans with

comparable credit quality, maturities and risk. The fair value of mortgage loans may also be based on the fair value of the

underlying real estate collateral less cost to sell, which is estimated using appraised values.

Policy Loans

Policy loans are not measured at fair value on a recurring basis. Fair values of policy loans are estimated by discounting

expected cash flows using a risk-free rate based on the U.S. Treasury curve.

Derivatives

The fair values of exchange-traded derivatives are determined through quoted market prices, which are reflected in

Level 1. Exchange-traded derivatives include interest rate and equity futures that are settled daily such that their fair value is not

reflected in the consolidated statements of financial position. The fair values of over-the-counter derivative instruments are

determined using either pricing valuation models that utilize market observable inputs or broker quotes. The majority of our

over-the-counter derivatives are valued with models that use market observable inputs, which are reflected in Level 2.

Significant inputs include contractual terms, interest rates, currency exchange rates, credit spread curves, equity prices, and

volatilities. These valuation models consider projected discounted cash flows, relevant swap curves, and appropriate implied

volatilities. Certain over-the-counter derivatives utilize unobservable market data, primarily independent broker quotes that are

nonbinding quotes based on models that do not reflect the result of market transactions, which are reflected in Level 3.

Our derivative contracts are generally documented under ISDA Master Agreements, which provide for legally

enforceable set-off and close-out netting of exposures to specific counterparties. Collateral arrangements are bilateral and based

on current ratings of each entity. We utilize the LIBOR interest rate curve to value our positions, which includes a credit spread.

This credit spread incorporates an appropriate level of nonperformance risk into our valuations given the current ratings of our

counterparties, as well as the collateral agreements in place. Counterparty credit risk is routinely monitored to ensure our

adjustment for non-performance risk is appropriate.

Interest Rate Contracts. We use discounted cash flow valuation techniques to determine the fair value of interest rate

swaps using observable swap curves as the inputs. These are reflected in Level 2. In addition, we have a limited number of

complex inflation-linked interest rate swaps and interest rate collars that are valued using broker quotes. These are reflected in

Level 3. We use option pricing models to determine the fair value of swaptions using observable swap interest rate curves and

observable implied volatilities as inputs. These are reflected in Level 2.

Foreign Exchange Contracts. We use discounted cash flow valuation techniques that utilize observable swap curves

and exchange rates as the inputs to determine the fair value of foreign currency swaps. These are reflected in Level 2. In

addition, we have a limited number of non-standard currency swaps that are valued using broker quotes. These are reflected

within Level 3.

Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)

15. Fair Value Measurements — (continued)

Equity Contracts. We use an option pricing model using observable implied volatilities, dividend yields, index prices

and swap curves as the inputs to determine the fair value of equity options. These are reflected in Level 2.

Credit Contracts. We use either the ISDA Credit Default Swap Standard discounted cash flow model that utilizes

observable default probabilities and recovery rates as inputs or broker prices to determine the fair value of credit default swaps.

These are reflected in Level 3.

Other Contracts. We use broker prices to determine the fair value of commodity swaps. These are reflected in Level 3.

Other Investments

Other investments reported at fair value primarily include seed money investments, for which the fair value is

determined using the net asset value of the fund. The net asset value of the fund represents the price at which we feel we would

be able to initiate a transaction. Seed money investments in mutual funds for which the net asset value is published are reflected

in Level 1. Seed money investments in mutual funds or other investment funds in markets that do not have a published net asset

value are reflected in Level 2.

Other investments reported at fair value also include commercial mortgage loans of consolidated VIEs for which the

fair value option was elected, which are reflected in Level 3. Fair value of these commercial mortgage loans is computed

utilizing a discount rate based on the current market. The market discount rate is then adjusted based on various factors that

differentiate it from our pool of loans.

The carrying amounts of other assets classified as other investments in the accompanying consolidated statements of

financial position, which are not measured at fair value on a recurring basis, approximate their fair values.

Cash and Cash Equivalents

Certain cash equivalents are reported at fair value on a recurring basis and include money market instruments and other

short-term investments with maturities of less than three months. Fair values of these cash equivalents may be determined using

public quotations, when available, which are reflected in Level 1. When public quotations are not available, because of the

highly liquid nature of these assets, carrying amounts may be used to approximate fair values, which are reflected in Level 2.

The carrying amounts of cash and cash equivalents that are not reported at fair value on a recurring basis approximate

their fair value.

Separate Account Assets

Separate account assets include equity securities, debt securities and derivative instruments, for which fair values are

determined as previously described, and are reflected in Level 1, Level 2 and Level 3. Separate account assets also include

commercial mortgage loans, for which the fair value is estimated by discounting the expected total cash flows using market rates

that are applicable to the yield, credit quality and maturity of the loans. The market clearing spreads vary based on mortgage

type, weighted average life, rating and liquidity. These are reflected in Level 3. Finally, separate account assets include real

estate, for which the fair value is estimated using discounted cash flow valuation models that utilize public real estate market

data inputs such as transaction prices, market rents, vacancy levels, leasing absorption, market cap rates and discount rates. In

addition, each property is appraised annually by an independent appraiser. The real estate within the separate accounts is

reflected in Level 3.

Cash Collateral and Cash Collateral Payable

Cash collateral is not measured at fair value on a recurring basis. The carrying amounts of cash collateral received and

posted under derivative credit support annex (collateral) agreements and the carrying amount of the payable associated with

our obligation to return the cash collateral received approximate their fair value.

Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)

15. Fair Value Measurements — (continued)

Investment-Type Insurance Contracts

Investment-type insurance contracts are not measured at fair value on a recurring basis. The fair values of our

reserves and liabilities for investment-type insurance contracts are estimated using discounted cash flow analyses based on

current interest rates, including non-performance risk, being offered for similar contracts with maturities consistent with

those remaining for the investment-type contracts being valued. Investment-type insurance contracts include insurance,

annuity and other policy contracts that do not involve significant mortality or morbidity risk and are only a portion of the

policyholder liabilities appearing in the consolidated statements of financial position. Insurance contracts include insurance,

annuity and other policy contracts that do involve significant mortality or morbidity risk. The fair values for our insurance

contracts, other than investment-type contracts, are not required to be disclosed.

Certain annuity contracts and other investment-type insurance contracts include embedded derivatives that have

been bifurcated from the host contract and that are measured at fair value on a recurring basis, which are reflected in Level 3.

The key assumptions for calculating the fair value of the embedded derivative liabilities are market assumptions (such as

equity market returns, interest rate levels, market volatility and correlations) and policyholder behavior assumptions (such as

lapse, mortality, utilization and withdrawal patterns). They are valued using a combination of historical data and actuarial

judgment. Stochastic models are used to value the embedded derivatives that incorporate a spread reflecting our own

creditworthiness and risk margins.

The assumption for our own non-performance risk for investment-type insurance contracts and any embedded

derivatives bifurcated from certain annuity and investment-type insurance contracts is based on the current market credit

spreads for debt-like instruments that we have issued and are available in the market.

Short-Term Debt

Short-term debt is not measured at fair value on a recurring basis. The carrying amount of short-term debt

approximates its fair value because of the relatively short time between origination of the debt instrument and its maturity.

Long-Term Debt

Long-term debt is not measured at fair value on a recurring basis. Fair values for debt issues are estimated using

discounted cash flow analysis based on our incremental borrowing rate for similar borrowing arrangements.

Separate Account Liabilities

Separate account liabilities are not measured at fair value on a recurring basis. Fair values of separate account

liabilities, excluding insurance-related elements, are estimated based on market assumptions around what a potential acquirer

would pay for the associated block of business, including both the separate account assets and liabilities. As the applicable

separate account assets are already reflected at fair value, any adjustment to the fair value of the block is an assumed adjustment

to the separate account liabilities. To compute fair value, the separate account liabilities are originally set to equal separate

account assets because these are pass-through contracts. The separate account liabilities are reduced by the amount of future fees

expected to be collected that are intended to offset upfront acquisition costs already incurred that a potential acquirer would not

have to pay. The estimated future fees are adjusted by an adverse deviation discount and the amount is then discounted at a risk-

free rate as measured by the yield on U.S. Treasury securities at maturities aligned with the estimated timing of fee collection.

Bank Deposits

Bank deposits are not measured at fair value on a recurring basis. The fair value of deposits of our Principal Bank

subsidiary with no stated maturity, such as demand deposits, savings, and interest-bearing demand accounts, is equal to the

amount payable on demand (i.e., their carrying amounts). The fair value of certificates of deposit is based on the discounted

value of contractual cash flows. The discount is estimated using the rates currently offered for deposits of similar remaining

maturities.

Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)

15. Fair Value Measurements — (continued)

Other Liabilities

Certain obligations reported in other liabilities include embedded derivatives to deliver underlying securities of

structured investments to third parties. The fair value of the embedded derivatives is calculated based on the value of the

underlying securities. We have had an embedded derivative in which the fair value of the underlying securities was obtained

from a third party pricing vendor and was reflected in Level 2. We also have an embedded derivative in which the fair value of

the underlying securities is calculated utilizing the yield, credit quality and average maturity of each security, which is reflected

in Level 3.

Additionally, obligations of consolidated VIEs for which the fair value option was elected are included in other

liabilities. These obligations are valued either based on prices obtained from third party pricing vendors as utilized and described

in our discussion of how fair value is determined for fixed maturities, which are reflected in Level 2, or broker quotes, which are

reflected in Level 3.

Assets and liabilities measured at fair value on a recurring basis

Assets and liabilities measured at fair value on a recurring basis are summarized below.


		As of December 31, 2010
	Assets /
	(liabilities)	Fair value hierarchy level
	measured at fair
	value	Level 1	Level 2	Level 3
		(in millions)
Assets
Fixed maturities, available-for-sale:
U.S. government and agencies	$ 549.7	$ 15.0	$ 534.7	$ —
Non-U.S. governments	424.2	—	424.2	—
States and political subdivisions	2,656.4	—	2,656.4	—
Corporate	31,141.2	95.4	30,531.9	513.9
Residential mortgage-backed securities	3,164.0	—	3,164.0	—
Commercial mortgage-backed securities	3,842.2	—	3,826.0	16.2
Collateralized debt obligations	293.0	—	183.7	109.3
Other debt obligations	3,114.1	—	3,025.3	88.8
Total fixed maturities, available-for-sale	45,184.8	110.4	44,346.2	728.2
Fixed maturities, trading	606.9	—	337.8	269.1
Equity securities, available-for-sale	165.9	122.7	—	43.2
Equity securities, trading	258.3	162.2	96.1	—
Derivative assets (1)	1,058.5	—	1,025.2	33.3
Other investments (2)	198.0	1.4	68.3	128.3
Cash equivalents (3)	659.1	210.4	448.7	—
Sub-total excluding separate account assets	48,131.5	607.1	46,322.3	1,202.1

Separate account assets	62,738.4	49,789.3	9,311.0	3,638.1
Total assets	$ 110,869.9	$ 50,396.4	$ 55,633.3	$ 4,840.2

Liabilities
Investment-type insurance contracts (4)	$ 7.4	$ —	$ —	$ 7.4
Derivative liabilities (1)	(1,274.5)	—	(1,093.0)	(181.5)
Other liabilities (4)	(250.3)	—	(93.5)	(156.8)
Total liabilities	$ (1,517.4)	$ —	$ (1,186.5)	$ (330.9)

Net assets (liabilities)	$ 109,352.5	$ 50,396.4	$ 54,446.8	$ 4,509.3

Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)

15. Fair Value Measurements — (continued)


		As of December 31, 2009
	Assets /
	(liabilities)	Fair value hierarchy level
	measured at fair
	value	Level 1		Level 2	Level 3
		(in millions)
Assets
Fixed maturities, available-for-sale
U.S. government and agencies	$ 538.6	$ 11.2	$ 527.4		$ —
Non-U.S. governments	462.4	—	462.4		—
States and political subdivisions	2,048.6	—	2,037.1		11.5
Corporate	30,767.0	95.2	30,008.1		663.7
Residential mortgage-backed securities	3,101.3	—	3,101.3		—
Commercial mortgage-backed securities	3,599.7	—	3,565.4		34.3
Collateralized debt obligations	369.6	—	72.8		296.8
Other debt obligations	2,631.2	—	2,554.6		76.6
Total fixed maturities, available-for-sale	43,518.4	106.4	42,329.1		1,082.9
Fixed maturities, trading	484.8	—	421.3		63.5
Equity securities, available-for-sale	211.7	140.0	—		71.7
Equity securities, trading	177.2	91.2	86.0		—
Derivative assets (1)	1,212.6	—	1,158.2		54.4
Other investments (2)	63.1	4.1	59.0		—
Cash equivalents (3)	1,156.2	614.7	541.5		—
Sub-total excluding separate account assets	46,824.0	956.4	44,595.1		1,272.5

Separate account assets	57,380.8	39,511.7	13,872.1		3,997.0
Total assets	$ 104,204.8	$ 40,468.1	$ 58,467.2		$ 5,269.5

Liabilities
Investment-type insurance contracts (4)	$ (17.1)	$ —	$ —		$ (17.1)
Derivative liabilities (1)	(1,048.1)	—	(954.4)		(93.7)
Other liabilities (4)	(99.2)	—	(10.1)		(89.1)
Total liabilities	$ (1,164.4)	$ —	$ (964.5)		$ (199.9)

Net assets (liabilities)	$ 103,040.4	$ 40,468.1	$ 57,502.7		$ 5,069.6


(1)	Within the consolidated statements of financial position, derivative assets are reported with other investments and
	derivative liabilities are reported with other liabilities. Refer to Note 6, Derivative Financial Instruments, for further
	information on fair value by class of derivative instruments. Our derivatives are primarily Level 2, with the exception of
	some credit default swaps and other swaps that are Level 3.
(2)	Primarily includes seed money investments and, beginning in 2010, commercial mortgage loans of consolidated VIEs
	reported at fair value.
(3)	Includes money market instruments and short-term investments with a maturity date of three months or less when
	purchased.
(4)	Includes bifurcated embedded derivatives that are reported at fair value within the same line item in the consolidated
	statements of financial position in which the host contract is reported and, beginning in 2010, other liabilities include
	obligations of consolidated VIEs reported at fair value.

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

15. Fair Value Measurements — (continued)

Changes in Level 3 fair value measurements

The reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant

unobservable inputs (Level 3) are summarized as follows:


			For the year ended December 31, 2010					Changes in
	Beginning	Total realized/unrealized gains					Ending	unrealized
	asset /	(losses)		Purchases,			asset /	gains (losses)
	(liability)			sales,			(liability)	included in net
	balance as		Included in	issuances			balance	income
	of	Included in	other	and	Transfers	Transfers	as of	relating to
	December	net income	comprehensive	settlements	into	out of	December	positions still
	31, 2009	(1)	income	(4)	Level 3	Level 3	31, 2010	held (1)
				(in millions)
Assets
Fixed maturities,
available-for-sale:
State and political
subdivisions	11.5	—	1.0	—	11.5	(24.0)	—	—
Corporate	663.7	(1.2)	26.9	(155.9)	152.2	(171.8)	513.9	(2.1)
Commercial
mortgage-backed
securities	34.3	(0.1)	1.0	11.2	—	(30.2)	16.2	(0.1)
Collateralized
debt obligations	296.8	(14.9)	40.0	(125.2)	0.9	(88.3)	109.3	(1.9)
Other debt
obligations	76.6	—	4.5	36.9	32.9	(62.1)	88.8	—
Total fixed
maturities,
available-for-sale	1,082.9	(16.2)	73.4	(233.0)	197.5	(376.4)	728.2	(4.1)
Fixed maturities,
trading	63.5	13.5	—	194.1	—	(2.0)	269.1	13.2
Equity securities,
available-for-sale	71.7	2.6	(8.2)	(21.4)	0.1	(1.6)	43.2	3.3
Derivative assets	54.4	(18.3)	(0.1)	(2.7)	—	—	33.3	(17.1)
Other investments	—	25.9	—	102.4	—	—	128.3	25.9
Separate account
assets (2)	3,997.0	305.9	—	(576.2)	28.5	(117.1)	3,638.1	250.9

Liabilities
Investment-type
insurance
contracts	(17.1)	(0.7)	—	25.2	—	—	7.4	(1.1)
Derivative liabilities	(93.7)	9.9	(1.4)	(96.3)	—	—	(181.5)	8.0
Other liabilities (3)	(89.1)	9.3	(28.3)	(48.7)	—	—	(156.8)	2.3

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

15. Fair Value Measurements — (continued)


		For the year ended December 31, 2009					Changes in
	Beginning	Total realized/unrealized gains				Ending	unrealized
	asset /	(losses)				asset /	gains (losses)
	(liability)			Purchases,		(liability)	included in
	balance as		Included in	sales,		balance	net income
	of	Included in	other	issuances	Transfers	as of	relating to
	December	net income	comprehensive	and	in (out) of	December	positions still
	31, 2008	(1)	income	settlements	Level 3	31, 2009	held (1)
				(in millions)
Assets
Fixed maturities, available-for-sale
Non-U.S. governments	$ 33.6	$ (10.2)	$ 2.6	$ (26.0)	$ —	$ —	$ —
State and political subdivisions	—	—	1.3	—	10.2	11.5	—
Corporate	725.5	(25.9)	159.4	(382.9)	187.6	663.7	(31.5)
Commercial mortgage-backed
securities	58.0	(0.3)	9.8	(12.1)	(21.1)	34.3	—
Collateralized debt obligations	236.8	(63.9)	150.4	(10.6)	(15.9)	296.8	(63.5)
Other debt obligations	82.1	(2.1)	17.4	25.9	(46.7)	76.6	—
Total fixed maturities, available-
for-sale	1,136.0	(102.4)	340.9	(405.7)	114.1	1,082.9	(95.0)
Fixed maturities, trading	60.7	13.0	—	—	(10.2)	63.5	13.1
Equity securities, available-for-sale	56.2	(0.2)	30.3	(43.7)	29.1	71.7	(2.0)
Derivative assets	100.7	(43.6)	(0.2)	(2.5)	—	54.4	(30.5)
Separate account assets (2)	5,892.6	(1,577.4)	—	(290.2)	(28.0)	3,997.0	(1,464.2)

Liabilities
Investment-type insurance
contracts	(39.9)	(3.0)	—	25.8	—	(17.1)	(3.0)
Derivative liabilities	(266.9)	141.4	7.2	24.6	—	(93.7)	88.8
Other liabilities (3)	(103.8)	—	33.2	(18.5)	—	(89.1)	—

		For the year ended December 31, 2008					Changes in
		Total realized/unrealized gains				Ending	unrealized
	Beginning	(losses)				asset /	gains (losses)
	asset /			Purchases,		(liability)	included in
	(liability)		Included in	sales,		balance	net income
	balance as	Included in	other	issuances	Transfers	as of	relating to
	of January	net income	comprehensive	and	in (out) of	December	positions still
	1, 2008	(1)	income	settlements	Level 3	31, 2008	held (1)
			(in millions)
Assets
Fixed maturities, available-for-sale	$ 2,153.6	$ (148.5)	$ (508.7)	$ (567.8)	$ 207.4	$ 1,136.0	$ (116.7)
Fixed maturities, trading	92.3	(19.1)	—	(11.4)	(1.1)	60.7	(19.1)
Equity securities, available-for-sale	51.1	(41.5)	(12.1)	20.7	38.0	56.2	(35.3)
Derivative assets	54.3	74.7	(15.8)	(12.5)	—	100.7	62.4
Separate account assets (2)	7,122.2	(958.4)	—	(166.9)	(104.3)	5,892.6	(944.1)

Liabilities
Investment-type insurance
contracts	(49.3)	(38.2)	—	47.6	—	(39.9)	(50.3)
Derivative liabilities	(62.3)	(200.0)	(8.1)	3.5	—	(266.9)	(192.9)
Other liabilities (3)	(155.6)	—	70.0	(18.2)	—	(103.8)	—


(1)	Both realized gains (losses) and mark-to-market unrealized gains (losses) are generally reported in net realized capital
	gains (losses) within the consolidated statements of operations.

Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)


15. Fair Value Measurements — (continued)

(2)	Gains and losses for separate account assets do not impact net income as the change in value of separate account assets is
	offset by a change in value of separate account liabilities.

(3)	Certain embedded derivatives reported in other liabilities are part of a cash flow hedge, with the effective portion of the
	unrealized gains (losses) recorded in AOCI.

(4)	As a result of our implementation of new authoritative guidance related to the accounting for VIEs effective January 1,
	2010, certain previously unconsolidated VIEs were consolidated and certain previously consolidated VIEs were
	deconsolidated. The fair value of the Level 3 assets and liabilities of the newly consolidated and deconsolidated VIEs is
	primarily included in fixed maturities, trading; other investments; derivative liabilities and other liabilities. As a result of
	our implementation of new authoritative guidance related to the accounting for embedded credit derivatives effective July
	1, 2010, we elected the fair value option for certain securities previously included in fixed maturities, available-for-sale,
	effectively reclassifying them to fixed maturities, trading.

Transfers

	Transfers between fair value hierarchy levels are recognized at the beginning of the reporting period.

	Assets transferred into Level 3 during 2010, 2009 and 2008 were $226.1 million, $518.6 million and $1,405.6
million, respectively. The majority of assets transferred into Level 3 primarily include those assets for which we are now
unable to obtain pricing from a recognized third party pricing vendor and, to a lesser extent, assets added to our “watch list”
that were previously priced using a matrix pricing valuation approach that may no longer be relevant when applied to asset-
specific situations.

	Assets transferred out of Level 3 during 2010, 2009 and 2008 were $497.1 million, $413.6 million and $1,265.6
million, respectively. The majority of assets that transferred out of Level 3 include those for which we are now able to obtain
pricing from a recognized third party pricing vendor.

	We had significant transfers of separate account assets between Level 1 and Level 2, primarily related to foreign
equity securities. When these securities are valued at the local close price of the exchange where the assets traded, they are
reflected in Level 1. When events materially affecting the value occur between the close of the local exchange and the New
York Stock Exchange, we use adjusted prices determined by a third party pricing vendor to update the foreign market closing
prices and the fair value is reflected in Level 2. During 2010, $6,600.6 million of separate account assets transferred out of
Level 2 into Level 1. During 2010, $3,128.3 million of separate account assets transferred out of Level 1 into Level 2.

	Other transfers into and out of Level 2 during 2010 primarily included those that transferred out of and into Level 3,
respectively.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

	Certain assets are measured at fair value on a nonrecurring basis. During 2010, certain mortgage loans had been
impaired or written down to fair value of $250.7 million. The impairments resulted in a loss of $79.6 million that was
recorded in net realized capital gains (losses) as part of the mortgage loan valuation allowance. These collateral-dependent
mortgage loans are a Level 3 fair value measurement, as fair value is based on the fair value of the underlying real estate
collateral, which is estimated using appraised values that involve significant unobservable inputs.

	During 2010, real estate had been written down to fair value of $1.4 million. This write down resulted in a loss of
$0.3 million that was recorded in net realized capital gains (losses). This is a Level 3 fair value measurement, as the fair value
of real estate is estimated using appraised values that involve significant unobservable inputs.

	During 2010, mortgage servicing rights had been written down to fair value of $1.0 million, resulting in a charge of
$0.6 million that was recorded in operating expenses. These mortgage servicing rights are a Level 3 fair value measurement,
as fair value is determined by calculating the present value of the future servicing cash flows from the underlying mortgage
loans.

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

15. Fair Value Measurements — (continued)

During 2010, we impaired goodwill and finite lived intangible assets. See Note 3, Goodwill and Other Intangible

Assets, for further details.

During 2009, mortgage loans had been written down to fair value of $3.9 million. This write down resulted in a loss

of $8.0 million that was recorded in net realized capital gains (losses). These collateral-dependent mortgage loans are a Level

3 fair value measurement, as fair value is based on the fair value of the underlying real estate collateral, which is estimated

using appraised values that involve significant unobservable inputs.

During 2009, real estate had been written down to fair value of $0.9 million. This write down resulted in a loss of

$0.8 million that was recorded in net realized capital gains (losses). This is a Level 3 fair value measurement, as the fair value

of the real estate is estimated using appraised values that involve significant unobservable inputs.

During 2008, mortgage servicing rights had been written down to fair value of $13.4 million, resulting in a charge of

$1.5 million that was recorded in operating expenses. These mortgage servicing rights are a Level 3 fair value measurement,

as fair value is determined by calculating the present value of the future servicing cash flows from the underlying mortgage

loans.

Fair Value Option

As a result of our implementation of new authoritative guidance related to the accounting for VIEs effective January

1, 2010, we elected fair value accounting for certain assets and liabilities of newly consolidated VIEs for which it was not

practicable for us to determine the carrying value. The fair value option was elected for commercial mortgage loans reported

with other investments and obligations reported with other liabilities in the consolidated statements of financial position. The

changes in fair value of these items are reported in net realized capital gains (losses) on the consolidated statements of

operations.

The fair value and aggregate contractual principal amounts of commercial mortgage loans for which the fair value

option has been elected were $128.3 million and $124.4 million, respectively, as of December 31, 2010. The change in fair

value of the loans resulted in a $25.9 million pre-tax gain for the year ended December 31, 2010, none of which related to

instrument-specific credit risk. None of these loans were more than 90 days past due or in nonaccrual status. Interest income

on these commercial mortgage loans is included in net investment income on the consolidated statements of operations and is

recorded based on the effective interest rates as determined at the closing of the loan. For the year ended December 31, 2010,

we recorded $10.5 million of interest income on these commercial mortgage loans.

The fair value and aggregate unpaid principal amounts of obligations for which the fair value option has been

elected were $114.5 million and $186.5 million, respectively, as of December 31, 2010. The change in fair value of the

obligations resulted in a $2.9 million pre-tax loss, which includes a $3.0 million pre-tax gain related to instrument-specific

credit risk that is estimated based on credit spreads and quality ratings for the year ended December 31, 2010. Interest

expense recorded on these obligations is included in operating expenses on the consolidated statements of operations and was

$8.9 million for the year ended December 31, 2010.

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

16. Statutory Insurance Financial Information

We prepare statutory financial statements in accordance with the accounting practices prescribed or permitted by the

Insurance Division of the Department of Commerce of the State of Iowa (the “State of Iowa”). The State of Iowa recognizes

only statutory accounting practices prescribed or permitted by the State of Iowa for determining and reporting the financial

condition and results of operations of an insurance company to determine its solvency under the Iowa Insurance Law. The

National Association of Insurance Commissioners' (“NAIC”) Accounting Practices and Procedures Manual has been adopted as

a component of prescribed practices by the State of Iowa. The Commissioner has the right to permit other specific practices that

deviate from prescribed practices. Our use of prescribed and permitted statutory accounting practices has resulted in higher

statutory capital and surplus of $244.9 million relative to the accounting practices and procedures of the NAIC primarily due to a

state prescribed practice associated with reinsurance of our term life products and “secondary” or “no lapse” guarantee

provisions on our universal life products. Statutory accounting practices differ from U.S. GAAP primarily due to charging policy

acquisition costs to expense as incurred, establishing reserves using different actuarial assumptions, valuing investments on a

different basis and not admitting certain assets, including certain net deferred income tax assets.

Life and health insurance companies are subject to certain risk-based capital (“RBC”) requirements as specified by the

NAIC. Under those requirements, the amount of capital and surplus maintained by a life and health insurance company is to be

determined based on the various risk factors related to it. At December 31, 2010, we meet the minimum RBC requirements.

Statutory net income and statutory capital and surplus were as follows:


	As of or for the year ended December 31,
	2010	2009	2008
	(in millions)
Statutory net income	$ 404.6	$ 42.1 $	83.3
Statutory capital and surplus	4,377.8	4,588.7	4,810.2

17. Segment Information

We provide financial products and services through the following segments: Retirement and Investor Services,

Principal Global Investors and U.S. Insurance Solutions. In addition, there is a Corporate segment. The segments are managed

and reported separately because they provide different products and services, have different strategies or have different markets

and distribution channels.

Prior to third quarter 2010, amounts now reported in the U.S. Insurance Solutions segment and amounts for our group

medical insurance business now reported in the Corporate segment were reported together in the Life and Health Insurance

segment. This change was made due to our decision to exit the group medical insurance business (insured and administrative

services only) and has no impact on our consolidated financial statements for any period presented. Our segment results for 2009

and 2008 have been restated to conform to the current segment presentation. With the exception of corporate overhead, amounts

related to our group medical insurance business previously included in segment operating earnings have been removed from

operating earnings for all periods presented and are reported as other after-tax adjustments.

The Retirement and Investor Services segment provides retirement and related financial products and services

primarily to businesses, their employees and other individuals.

The Principal Global Investors segment provides asset management services to our asset accumulation business, our

insurance operations, the Corporate segment and third-party clients.

The U.S. Insurance Solutions segment provides individual life insurance and specialty benefits, which consists of group

dental and vision insurance, individual and group disability insurance and group life insurance, throughout the United States.

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

17. Segment Information — (continued)

The Corporate segment manages the assets representing capital that has not been allocated to any other segment.

Financial results of the Corporate segment primarily reflect our financing activities (including interest expense), income on

capital not allocated to other segments, inter-segment eliminations, income tax risks and certain income, expenses and other

after-tax adjustments not allocated to the segments based on the nature of such items.

Management uses segment operating earnings in goal setting, as a basis for determining employee compensation and

in evaluating performance on a basis comparable to that used by securities analysts. We determine segment operating

earnings by adjusting U.S. GAAP net income for net realized capital gains (losses), as adjusted, and other after-tax

adjustments which management believes are not indicative of overall operating trends. Net realized capital gains (losses), as

adjusted, are net of income taxes, related changes in the amortization pattern of DPAC and sales inducements, recognition of

deferred front-end fee revenues for sales charges on retirement products and services, net realized capital gains and losses

distributed, noncontrolling interest capital gains and losses and certain market value adjustments to fee revenues. Net realized

capital gains (losses), as adjusted, exclude periodic settlements and accruals on derivative instruments not designated as

hedging instruments and exclude certain market value adjustments of embedded derivatives and realized capital gains (losses)

associated with our exited group medical insurance business. Segment operating revenues exclude net realized capital gains

(losses) (except periodic settlements and accruals on derivatives not designated as hedging instruments), including their

impact on recognition of front-end fee revenues and certain market value adjustments to fee revenues, revenue from our

exited group medical insurance business and revenue from our terminated commercial mortgage securities issuance

operation. While these items may be significant components in understanding and assessing the consolidated financial

performance, management believes the presentation of segment operating earnings enhances the understanding of our results

of operations by highlighting earnings attributable to the normal, ongoing operations of the business.

The accounting policies of the segments are consistent with the accounting policies for the consolidated financial

statements, with the exception of income tax allocation. The Corporate segment functions to absorb the risk inherent in

interpreting and applying tax law. The segments are allocated tax adjustments consistent with the positions we took on tax

returns. The Corporate segment results reflect any differences between the tax returns and the estimated resolution of any

disputes.

The following tables summarize selected financial information by segment and reconcile segment totals to those

reported in the consolidated financial statements:


	December 31,
	2010	2009
	(in millions)
Assets:
Retirement and Investor Services	$ 109,335.7	$ 106,179.2
Principal Global Investors	1,095.6	1,069.0
U.S. Insurance Solutions	16,524.3	15,076.9
Corporate	3,983.5	3,373.7
Total consolidated assets	$ 130,939.1	$ 125,698.8

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

17. Segment Information — (continued)


	For the year ended December 31,
	2010	2009	2008
		(in millions)
Operating revenues by segment:
Retirement and Investor Services	$ 3,705.0	$ 3,673.7	$ 4,331.3
Principal Global Investors	432.6	392.8	545.8
U.S. Insurance Solutions	2,773.0	2,810.4	2,891.5
Corporate	(82.1)	(94.5)	(112.5)
Total segment operating revenues	6,828.5	6,782.4	7,656.1
Net realized capital losses (except periodic settlements and accruals on non-
hedge derivatives), including recognition of front-end fee revenues and
certain market value adjustments to fee revenues	(381.7)	(522.1)	(685.5)
Exited group medical insurance business	1,406.8	1,613.6	1,765.5
Terminated commercial mortgage securities issuance operation	(0.8)	(0.5)	(32.1)
Total revenues per consolidated statements of operations	$ 7,852.8	$ 7,873.4	$ 8,704.0
Operating earnings (loss) by segment, net of related income taxes:
Retirement and Investor Services	$ 543.4	$ 485.5	$ 499.6
Principal Global Investors	48.1	33.8	86.6
U.S. Insurance Solutions	193.8	204.0	208.1
Corporate	(37.0)	(38.6)	(15.7)
Total segment operating earnings, net of related income taxes	748.3	684.7	778.6
Net realized capital losses, as adjusted (1)	(279.5)	(254.4)	(451.5)
Other after-tax adjustments (2)	17.1	72.1	76.0
Net income attributable to PLIC per consolidated statements of operations	$ 485.9	$ 502.4	$ 403.1

(1) Net realized capital losses, as adjusted, is derived as follows:
	For the year ended December 31,
	2010	2009	2008
		(in millions)
Net realized capital losses:
Net realized capital losses	$ (288.4)	$ (445.3)	$ (622.6)
Periodic settlements and accruals on non-hedge derivatives	(88.4)	(70.9)	(59.0)
Certain market value adjustments to fee revenues	(3.4)	(1.5)	(3.9)
Recognition of front-end fee revenues	(1.5)	(4.4)	—
Net realized capital losses, net of related revenue adjustments	(381.7)	(522.1)	(685.5)
Amortization of deferred policy acquisition and sales inducement costs	(26.6)	155.2	(47.2)
Capital (gains) losses distributed	(11.3)	(18.8)	49.6
Certain market value adjustments of embedded derivatives	7.2	11.8	(9.5)
Net realized capital losses associated with exited group medical insurance
business	3.0	0.5	2.8
Noncontrolling interest capital (gains) losses	(11.3)	(18.5)	0.9
Income tax effect	141.2	137.5	237.4
Net realized capital losses, as adjusted	$ (279.5)	$ (254.4)	$ (451.5)

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)


17. Segment Information — (continued)

(2)	In 2010, other after-tax adjustments included (1) the positive effect of gains associated with our exited group medical
	insurance business that does not yet qualify for discontinued operations accounting treatment under U.S. GAAP ($24.8
	million) and (2) the negative effect resulting from: (a) the tax impact of healthcare reform, which eliminates the tax
	deductibility of retiree prescription drug expenses related to our employees incurred after 2012 ($7.2 million) and (b)
	losses associated with our terminated commercial mortgage securities issuance operation that has been exited but does not
	qualify for discontinued operations accounting treatment under U.S. GAAP ($0.5 million).

	In 2009, other after-tax adjustments included the positive effect of gains associated with our exited group medical
	insurance business that does not yet qualify for discontinued operations accounting treatment under U.S. GAAP ($72.8
	million) and the negative effect of losses associated with our terminated commercial mortgage securities issuance operation
	that has been exited but does not qualify for discontinued operations accounting treatment under U.S. GAAP ($0.7 million).

	In 2008, other after-tax adjustments included (1) the positive effect of: (a) gains associated with our exited group medical
	insurance business that does not yet qualify for discontinued operations accounting treatment under U.S. GAAP ($96.4
	million) (b) a change in an estimated loss related to a prior year legal contingency ($7.6 million) and (2) the negative effect
	of losses associated with our terminated commercial mortgage securities issuance operation that has been exited but does
	not qualify for discontinued operations accounting treatment under U.S. GAAP ($28.0 million).

	The following is a summary of income tax expense (benefit) allocated to our segments for purposes of determining
operating earnings. Segment income taxes are reconciled to income taxes reported on our consolidated statements of operations.


	For the year ended December 31,
	2010	2009	2008
		(in millions)
Income tax expense (benefit) by segment:
Retirement and Investor Services	$ 142.3	$ 127.2	$ 116.3
Principal Global Investors	26.0	18.6	46.4
U.S. Insurance Solutions	91.6	97.8	99.6
Corporate	(19.4)	(20.0)	(21.1)
Total segment income taxes from operating earnings	240.5	223.6	241.2
Tax benefit related to net realized capital losses, as adjusted	(141.2)	(137.5)	(237.4)
Tax expense related to other after-tax adjustments	21.1	38.7	40.5
Total income tax expense per consolidated statements of operations	$ 120.4	$ 124.8	$ 44.3

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

17. Segment Information — (continued)

The following table summarizes operating revenues for our products and services:


	For the year ended December 31,
	2010	2009	2008
		(in millions)
Retirement and Investor Services:
Full-service accumulation	$ 1,333.1	$ 1,280.7	$ 1,397.3
Individual annuities	1,018.6	945.6	1,017.1
Bank and trust services	91.8	83.9	74.4
Eliminations	(9.1)	(8.4)	(7.4)
Total Accumulation	2,434.4	2,301.8	2,481.4
Investment only	643.4	796.0	1,138.0
Full-service payout	627.2	575.9	711.9
Total Guaranteed	1,270.6	1,371.9	1,849.9
Total Retirement and Investor Services	3,705.0	3,673.7	4,331.3
Principal Global Investors (1)	432.6	392.8	545.8
U.S. Insurance Solutions:
Individual life insurance	1,360.9	1,357.7	1,393.3
Specialty benefits insurance	1,412.1	1,452.7	1,498.2
Total U.S. Insurance Solutions	2,773.0	2,810.4	2,891.5
Corporate	(82.1)	(94.5)	(112.5)
Total operating revenues	$ 6,828.5	$ 6,782.4	$ 7,656.1
Total operating revenues	$ 6,828.5	$ 6,782.4	$ 7,656.1
Net realized capital losses (except periodic settlements and accruals on non-hedge
derivatives), including recognition of front-end fee revenues and certain market
value adjustments to fee revenues	(381.7)	(522.1)	(685.5)
Exited group medical insurance business	1,406.8	1,613.6	1,765.5
Terminated commercial mortgage securities issuance operation	(0.8)	(0.5)	(32.1)
Total revenues per consolidated statements of operations	$ 7,852.8	$ 7,873.4	$ 8,704.0


(1)	Reflects inter-segment revenues of $189.4 million, $183.8 million and $230.0 million in 2010, 2009 and 2008,
	respectively. These revenues are eliminated within the Corporate segment.

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

18. Stock-Based Compensation Plans

As of December 31, 2010, our ultimate parent, PFG, has the 2010 Stock Incentive Plan (formerly known as the 2005

Stock Incentive Plan), the Employee Stock Purchase Plan, the Stock Incentive Plan and the Long-Term Performance Plan

("Stock-Based Compensation Plans"), which resulted in an expense to us. As of May 17, 2005, no new grants will be made

under the Stock Incentive Plan or the Long-Term Performance Plan. Under the terms of the 2010 Stock Incentive Plan, grants

may be nonqualified stock options, incentive stock options qualifying under Section 422 of the Internal Revenue Code, restricted

stock, restricted stock units, stock appreciation rights, performance shares, performance units or other stock based awards. To

date, PFG has not granted any incentive stock options, restricted stock or performance units. The following Stock-Based

Compensation Plans information represents all share based compensation data related to us and our subsidiaries’ employees.

For awards with graded vesting, we use an accelerated expense attribution method. The compensation cost that was

charged against income for stock-based awards granted under the Stock-Based Compensation Plans was as follows:


	For the year ended
	December 31,
	2010	2009	2008
		(in millions)
Compensation cost	$ 38.9	$ 39.5 $	26.1
Related income tax benefit	12.4	12.4	8.3
Capitalized as part of an asset	2.8	3.7	4.7

Nonqualified Stock Options

Nonqualified stock options were granted to certain employees under the 2010 Stock Incentive Plan and the Stock

Incentive Plan. Options outstanding under the 2010 Stock Incentive Plan and the Stock Incentive Plan were granted at an

exercise price equal to the fair market value of PFG common stock on the date of grant, and expire ten years after the grant date.

These options have graded or cliff vesting over a three-year period, except in the case of approved retirement.

The total intrinsic value of stock options exercised was $1.7 million, zero and $3.4 million during 2010, 2009, and

2008, respectively.

The weighted-average remaining contractual lives for stock options exercisable is approximately 5 years as of

December 31, 2010.

The fair value of stock options is estimated using the Black-Scholes option pricing model. The following is a summary

of the assumptions used in this model for the stock options granted during the period:


	For the year ended
	December 31,
Options	2010	2009	2008
Expected volatility	66.6%	55.0%	25.4%
Expected term (in years)	6	6	6
Risk-free interest rate	2.8%	2.1%	3.1%
Expected dividend yield	2.25%	4.07%	1.51%
Weighted average estimated fair value	$ 11.48	$ 4.07	$15.41

We determine expected volatility based on, among other factors, historical volatility using daily price observations. The

expected term represents the period of time that options granted are expected to be outstanding. We previously determined

expected term based on the simplified method as described by the Securities Exchange Commission. Beginning with stock

options granted in 2008, we determine expected term using historical exercise and employee termination data. The risk-free rate

for periods within the expected term of the option is based on the U.S. Treasury risk-free interest rate in effect at the time of

grant. The dividend yield is based on historical dividend distributions compared to the closing price of PFG common shares on

the grant date.

As of December 31, 2010, there was $3.1 million of total unrecognized compensation costs related to nonvested stock

options. The cost is expected to be recognized over a weighted-average service period of approximately 1.6 years.

Principal Life Insurance Company
Notes to Consolidated Financial Statements — (continued)

18. Stock-Based Compensation Plans — (continued)

Performance Share Awards

Performance share awards were granted to certain employees under the 2010 Stock Incentive Plan. The performance

share awards are treated as an equity award and are paid in shares. Whether the performance shares are earned depends upon the

participant's continued employment through the performance period (except in the case of an approved retirement) and PFG’s

performance against three-year goals set at the beginning of the performance period. Performance goals based on various factors,

including return on equity, PFG’s earnings per common share, operating income and PFG’s book value per common share, must

be achieved for any of the performance shares to be earned. If the performance requirements are not met, the performance shares

will be forfeited, no compensation cost is recognized and any previously recognized compensation cost is reversed. There is no

maximum contractual term on these awards. Dividend equivalents are credited on performance shares outstanding as of the

record date. These dividend equivalents are only paid on the shares released.

The total intrinsic value of performance share awards vested was zero, $6.0 million and zero during 2010, 2009 and

2008, respectively.

The fair value of performance share awards is determined based on the closing stock price of PFG common shares on

the grant date. The weighted-average grant-date fair value of performance share awards granted during 2010, 2009 and 2008

were $22.21, $11.64 and $56.92, respectively.

As of December 31, 2010, there was $4.2 million of total unrecognized compensation cost related to nonvested

performance share awards granted. The cost is expected to be recognized over a weighted-average service period of

approximately 1.6 years.

Restricted Stock Units

Restricted stock units were granted to certain employees and agents pursuant to the 2010 Stock Incentive Plan and the

Stock Incentive Plan. The restricted stock units are treated as an equity award. Under these plans, awards have graded or cliff

vesting over a three-year service period. When service for PFG ceases (except in the case of an approved retirement), all vesting

stops and unvested units are forfeited.There is no maximum contractual term on these awards. Dividend equivalents are credited

on restricted stock units outstanding as of the record date. These dividend equivalents are only paid on the shares released.

The total intrinsic value of restricted stock units vested was $8.8 million, $3.2 million and $23.8 million during 2010,

2009 and 2008, respectively.

The fair value of restricted stock units is determined based on the closing stock price of PFG common shares on the

grant date. The weighted-average grant-date fair value of restricted stock units granted during 2010, 2009 and 2008 was $22.42,

$11.70 and $57.96, respectively.

As of December 31, 2010, there was $19.7 million of total unrecognized compensation cost related to nonvested

restricted stock unit awards granted under these plans. The cost is expected to be recognized over a weighted-average period of

approximately 1.7 years.

Employee Stock Purchase Plan

Under the Employee Stock Purchase Plan, participating employees had the opportunity to purchase shares of PFG

common stock on a quarterly basis through 2008. Beginning in 2009, participating employees have the opportunity to purchase

shares of PFG common stock on a semi-annual basis. Employees may purchase up to $25,000 worth of PFG common stock each

year. Employees may purchase shares of PFG common stock at a price equal to 85% of the shares' fair market value as of the

beginning or end of the purchase period, whichever is lower.

We recognize compensation expense for the fair value of the discount granted to employees participating in the

employee stock purchase plan in the period of grant. Shares of the Employee Stock Purchase Plan are treated as an equity award.

The weighted-average fair value of the discount on the stock purchased was $7.37, $4.98 and $6.54 during 2010, 2009 and 2008,

respectively. The total intrinsic value of the Employee Stock Purchase Plan shares settled was $6.5 million, $5.2 million and

$4.8 million during 2010, 2009 and 2008, respectively.

Principal Life Insurance Company

Notes to Consolidated Financial Statements — (continued)

19. Quarterly Results of Operations (Unaudited)

The following is a summary of unaudited quarterly results of operations.


		For the three months ended
	December 31	September 30 (1)	June 30 (2)	March 31
		(in millions, except per share data)
2010
Total revenues	$ 2,053.3	$ 1,956.5	$ 1,865.3	$ 1,977.7
Total expenses	1,813.5	1,849.4	1,809.9	1,757.1
Net income	192.3	99.3	44.0	166.9
Net income attributable to PLIC	182.8	98.4	42.2	162.5
2009
Total revenues	$ 1,949.8	$ 2,009.0	$ 1,881.5	$ 2,033.1
Total expenses	1,808.1	1,782.9	1,721.0	1,911.2
Net income	119.5	174.5	122.4	109.0
Net income attributable to PLIC	114.8	163.2	117.0	107.4


(1) During the third quarter of 2009, we discovered a prior period error related to DPAC amortization of certain contracts in our
	full service accumulation business. We evaluated the materiality of the error from qualitative and quantitative perspectives
	and concluded it was not material to any prior periods. The correction of the error in the third quarter of 2009 could be
	considered material to the results of operations for the three months ended September 30, 2009, but is not material to the
	results of operations for any annual period presented. Accordingly, we made an adjustment in the third quarter of 2009 that
	resulted in a decrease in DPAC amortization expense. On an after-tax basis, the adjustment for prior periods resulted in an
	$18.9 million increase in net income for the three months ended September 30, 2009.

(2)	During the second quarter of 2010, we determined our residential mortgage loan portfolio, and in particular our home
	equity loan portfolio, had experienced an increase in severe delinquencies and loss severity from sustained elevated
	levels of unemployment along with continued depressed collateral values. The deterioration resulted in an increase in
	delinquencies and default costs. During the second quarter of 2010, we recorded a $41.9 million after-tax residential
	mortgage loan loss provision for our Bank and Trust Services business. Of this residential mortgage loan loss provision,
	$21.4 million after-tax could be attributed to 2009. We evaluated the qualitative and quantitative factors for materiality.
	The adjustment related to prior periods could be considered material to the results of operations for the three months ended
	June 30, 2010, but was not material to the results of operations for any annual period presented. The provision for loan loss
	is reported in net realized capital gains (losses) on our consolidated statements of operations and the adjustment for prior
	periods resulted in a decrease in net income for the three months ended June 30, 2010.

PART C

OTHER INFORMATION


Item 24.	Financial Statements and Exhibits


(a)	Financial Statements included in the Registration Statement
	(1)	Part A
		None

	(2)	Part B
		Principal Life Insurance Company Separate Account B:
		Report of Independent Registered Public Accounting Firm
		Statements of Assets and Liabilities, December 31, 2010
		Statements of Operations for the year ended December 31, 2010
		Statements of Changes in Net Assets for the years ended December 31, 2010 and 2009.
		Notes to Financial Statements.

		Principal Life Insurance Company:
		Report of Independent Registered Public Accounting Firm
		Consolidated Statements of Financial Position at December 31, 2010, and 2009.
		Consolidated Statements of Operations for the years ended December 31, 20010, 2009 and 2008.
		Consolidated Statements of Stockholder's Equity for the years ended December 31, 2010, 2009
		and 2008.
		Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008.
		Notes to Consolidated Financial Statements.

	(3)	Part C
		Principal Life Insurance Company
		Report of Independent Registered Public Accounting Firm on Schedules*
		Schedule I - Summary of Investments - Other Than Investments in Related Parties As of
		December 31, 2010*
		Schedule III - Supplementary Insurance Information as of December 31, 2010, 2009 and 2008 and
		for each of the years then ended*
		Schedule IV – Reinsurance as of December 31, 2010, 2009 and 2008 and for each of the years
		then ended*

All other schedules for which provision is made in the applicable accounting regulation of the Securities and

Exchange Commission are not required under the related instructions or are inapplicable and therefore have been

omitted.


(b)	Exhibits
	(1)	Resolution of Board of Directors of the Depositor - Filed as EX-99.b(1) on 01/11/11(Accession
		No. 0000898745-11-000017)
	(3a)	Distribution Agreement– Filed as EX- 99 b (3a) on 03/30/11 (Accession No. 0000898745-11-
		000175)
	(3b)	Selling Agreement– Filed as EX- 99 b (3b) on 03/30/11 (Accession No. 0000898745-11-
		000175)
	(4a)	Form of Variable Annuity Contract - Filed as EX-99.b (3a) on 01/11/11(Accession No.
		0000898745-11-000017)
	(4d)	Amendment to Fixed Account Endorsement - Filed as EX-99.b (3c) on 01/11/11(Accession
		No. 0000898745-11-000017)
	(4e)	Amendment to GMWB Rider– Filed as EX- 99 b (4e) on 03/30/11 (Accession No.
		0000898745-11-000175)
	(4f)	Amendment to Contract Data Page– Filed as EX- 99 b (4f) on 03/30/11 (Accession No.
		0000898745-11-000175)
	(4g)	Amendment to Partial Annuitization Endorsement - Filed as EX-99.b (3g) on
		01/11/11(Accession No. 0000898745-11-000017)
	(5a)	Form of Variable Annuity Application– Filed as EX- 99 b (5a) on 03/30/11 (Accession No.
		0000898745-11-000175)

Item 25. Officers and Directors of the Depositor

Principal Life Insurance Company is managed by a Board of Directors which is elected by its policyowners. The directors and

executive officers of the Company, their positions with the Company, including Board Committee

memberships, and their principal business address, are as follows:


DIRECTORS:

Name and Principal Business Address	Positions and Offices
BETSY J. BERNARD	Director
40 Shalebrook Drive	Chair, Nominating and Governance Committee
Morristown, NJ 07960	Member, Executive and Human Resources Committees

JOCELYN CARTER-MILLER	Director
TechEd Ventures	Member, Nominating and Governance Committee
3020 NW 33rd Avenue
Lauderdale Lakes, FL 33311

GARY E. COSTLEY	Director
257 Barefoot Beach Boulevard, Suite 404	Member, Audit Committee
Bonita Springs, FL 34134

MICHAEL T. DAN	Director
The Brink's Company	Chair, Human Resources Committee
1801 Bayberry Court
Richmond, VA 23226

DENNIS H. FERRO	Director
100 Dove Plum Road
Vero Beach, FL 32963

C. DANIEL GELATT, JR.	Director
NMT Corporation	Member, Audit Committee
2004 Kramer Street
La Crosse, WI 54603

SANDRA L. HELTON	Director
1040 North Lake Shore Drive #26A	Member, Audit Committee
Chicago, IL 60611

RICHARD L. KEYSER	Director
5215 Old Orchard Place	Member, Nominating and Governance and Human
Ste. 440	Resources Committees
Skokie, IL 60077

ARJUN K. MATHRANI	Director
176 East 71st Street, Apt. 9-F	Chair, Audit Committee
New York, NY 10021	Member, Executive Committee

ELIZABETH E. TALLETT	Director
Hunter Partners, LLC	Member, Executive, Human Resources and Nominating
12 Windswept Circle	and Governance Committees
Thornton, NH 03285-6883

LARRY D. ZIMPLEMAN	Chairman of the Board and Chair, Executive Committee,
The Principal Financial Group	Principal Life: Chairman, President and Chief Executive
Des Moines, IA 50392	Officer

EXECUTIVE OFFICERS (OTHER THAN DIRECTORS)


Name and Principal Business Address	Positions and Offices
REX AUYEUNG	Senior Vice President and President, Principal Financial Group
	– Asia

NED A. BURMEISTER	Senior Vice President and Chief Operating Officer, Principal
	International

GREGORY J. BURROWS	Senior Vice President Retirement and Investor Services

TERESA M. BUTTON	Vice President and Treasurer

RONALD L. DANILSON	Senior Vice President Retirement and Investor Services

TIMOTHY M. DUNBAR	Senior Vice President – Strategy and Finance

GREGORY B. ELMING	Senior Vice President and Chief Risk Officer

RALPH C. EUCHER	Senior Vice President Human Resources and Corporate
	Services

NORA M. EVERETT	Senior Vice President Retirement and Investor Services

JOYCE N. HOFFMAN	Senior Vice President and Corporate Secretary

DANIEL J. HOUSTON	President – Retirement, Insurance and Financial Services

JULIA M. LAWLER	Senior Vice President and Chief Investment Officer

TERRANCE J. LILLIS	Senior Vice President and Chief Financial Officer

JAMES P. MCCAUGHAN	President – Global Asset Management

TIMOTHY J. MINARD	Senior Vice President – Distribution

MARY A. O'KEEFE	Senior Vice President and Chief Marketing Officer

GARY P. SCHOLTEN	Senior Vice President and Chief Information Officer

KAREN E. SHAFF	Executive Vice President and General Counsel

NORMAN R. SORENSEN	Chairman – Principal International

DEANNA D. STRABLE	Senior Vice President – U.S. Insurance Solutions

LUIS E. VALDES	President – Principal International

Item 26. Persons Controlled by or Under Common Control with the Depositor or the Registrant

The Registrant is a separate account of Principal Life Insurance Company (the "Depositor") and is operated as a unit

investment trust. Registrant supports benefits payable under Depositor's variable life contracts by investing assets allocated to

various investment options in shares of Principal Variable Contracts Funds, Inc. and other mutual funds registered under the

Investment Company Act of 1940 as open-end management investment companies of the "series" type. No person is directly

or indirectly controlled by the Registrant.

The Depositor is wholly-owned by Principal Financial Services, Inc. Principal Financial Services, Inc. (an Iowa corporation) an

intermediate holding company organized pursuant to Section 512A.14 of the Iowa Code. In turn, Principal Financial Services,

Inc. is a wholly-owned subsidiary of Principal Financial Group, Inc., a publicly traded company that filed consolidated financial

statements with the SEC. A list of persons directly or indirectly controlled by or under common control with Depositor as of

December 31, 2010 appears below:

None of the companies listed in such organization chart is a subsidiary of the Registrant; therefore, only the separate financial

statements of Registrant and the consolidated financial statements of Depositor are being filed with this Registration Statement.


Item 27. Number of Contractowners – As of March 31, 2010

(1)	(2)	(3)
	Number of Plan	Number of

Title of Class	Participants	Contractowners
BFA Variable Annuity Contracts	28	6
Pension Builder Contracts	134	87
Personal Variable Contracts	230	17
Premier Variable Contracts	1158	35
Flexible Variable Annuity Contract	33,458	33,458
Freedom Variable Annuity Contract	1,304	1,304
Freedom 2 Variable Annuity Contract	345	345
Investment Plus Variable Annuity Contract	32,779	32,779
Principal Lifetime Income Solutions	N/A	N/A

Item 28. Indemnification

Sections 490.851 through 490.859 of the Iowa Business Corporation Act permit corporations to indemnify directors and

officers where (A) all of the following apply: the director or officer (i) acted in good faith; (ii) reasonably believed that (a) in the

case of conduct in the individual's official capacity, that the individual's conduct was in the best interests of the corporation or (b)

in all other cases, that the individual's conduct was at least not opposed to the best interests of the corporation; and (iii) in the

case of any criminal proceeding, the individual had no reasonable cause to believe the individual's conduct was unlawful; and

(B) the individual engaged in conduct for which broader indemnification has been made permissible or obligatory under a

provision of the corporation's articles of incorporation.

Unless ordered by a court pursuant to the Iowa Business Corporation Act, a corporation shall not indemnify a director or

officer in either of the following circumstances: (A) in connection with a proceeding by or in the right of the corporation, except

for reasonable expenses incurred in connection with the proceeding if it is determined that the director has met the relevant

standard of conduct (above) or (B) in connection with any proceeding with respect to conduct for which the director was

adjudged liable on the basis that the director receive a financial benefit to which he or she was not entitled, whether or not

involving action in the director's official capacity.

Registrant's By-Laws provide that it shall indemnify directors and officers against damages, awards, settlements and costs

reasonably incurred or imposed in connection with any suit or proceeding to which such person is or may be made a party by

reason of being a director or officer of the Registrant. Such rights of indemnification are in addition to any rights to indemnity to

which the person may be entitled under Iowa law and are subject to any limitations imposed by the Board of Directors. The

Board has provided that certain procedures must be followed for indemnification of officers, and that there is no indemnity of

officers when there is a final adjudication of liability based upon acts which constitute gross negligence or willful misconduct.

Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and

controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in

the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act

and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by

the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense

of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities

being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent,

submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed

in the Act and will be governed by the final adjudication of such issue.


Item 29. Principal Underwriters

(a)	Other Activity

Princor Financial Services Corporation acts as principal underwriter for variable annuity contracts issued by Principal Life Insurance
Company Separate Account B, a registered unit investment trust, and for variable life contracts issued by Principal Life Insurance
Company Variable Life Separate Account, a registered unit investment trust.


(b)	Management

	(b1)	(b2)
		Positions and offices
	Name and principal	with principal
	business address	underwriter
	Deborah J. Barnhart	Director/Distribution (PPN)
	The Principal
	Financial Group

	Patricia A. Barry	Assistant Corporate Secretary
	The Principal
	Financial Group(1)

	Michael J. Beer	President and Director
	The Principal
	Financial Group(1)

	Tracy W. Bollin	Assistant Controller
	The Principal
	Financial Group(1)

	David J. Brown	Senior Vice President
	The Principal
	Financial Group(1)

	Jill R. Brown	Senior Vice President and Chief Financial Officer
	The Principal
	Financial Group(1)

	Bret J. Bussanmas	Vice President/Distribution
	The Principal
	Financial Group(1)

	P. Scott Cawley	Product Marketing Officer
	The Principal
	Financial Group(1)

	Nicholas M. Cecere	Senior Vice President
	The Principal
	Financial Group(1)

	Ralph C. Eucher	Chairman of the Board
	The Principal
	Financial Group(1)

	Nora M. Everett	Director and Chief Financial Officer
	The Principal
	Financial Group (1)

	Stephen G. Gallaher	Assistant General Counsel
	The Principal
	Financial Group(1)

	Ernest H. Gillum	Vice President
	The Principal
	Financial Group(1)

	Eric W. Hays	Senior Vice President/Chief Information Officer
	The Principal
	Financial Group(1)


(c)	Compensation from the Registrant


			(3)
		(2)	Compensation on Events
		Net Underwriting	Occasioning the	(4)
	(1)	Discounts &	Deduction of a Deferred	Brokerage	(5)
Name of Principal Underwriter		Commissions	Sales Load	Commissions	Compensation
	Princor Financial Services	$26,132,360.18	0	0	0
	Corporation


Item 30. Location of Accounts and Records

All accounts, books or other documents of the Registrant are located at the offices of the Depositor, The Principal Financial
Group, Des Moines, Iowa 50392.

Item 31. Management Services

N/A

Item 32. Undertakings

The Registrant undertakes that in restricting cash withdrawals from Tax Sheltered Annuities to prohibit cash withdrawals before
the Participant attains age 59 1/2, separates from service, dies, or becomes disabled or in the case of hardship, Registrant acts
in reliance on SEC No Action Letter addressed to American Counsel of Life Insurance (available November 28, 1988).
Registrant further undertakes that:

1.	Registrant has included appropriate disclosure regarding the redemption restrictions imposed by Section 403(b)(11) in its
	registration statement, including the prospectus, used in connection with the offer of the contract;

2.	Registrant will include appropriate disclosure regarding the redemption restrictions imposed by Section 403(b)(11) in any
	sales literature used in connection with the offer of the contract;

3.	Registrant will instruct sales representatives who solicit Plan Participants to purchase the contract specifically to bring the
	redemption restrictions imposed by Section 403(b)(11) to the attention of the potential Plan Participants; and

4.	Registrant will obtain from each Plan Participant who purchases a Section 403(b) annuity contract, prior to or at the time of
	such purchase, a signed statement acknowledging the Plan Participant's understanding of (a) the restrictions on
	redemption imposed by Section 403(b)(11), and (b) the investment alternatives available under the employer's Section
	403(b) arrangement, to which the Plan Participant may elect to transfer his contract value.

Fee Representation

Principal Life Insurance Company represents the fees and charges deducted under the Policy, in the aggregate, are reasonable
in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the Company.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, Principal

Life Insurance Company Separate Account B, has duly caused this Amendment to the Registration Statement to be signed on

its behalf by the undersigned thereto duly authorized, and its seal to be hereunto affixed and attested, in the City of Des Moines

and State of Iowa, on the 27th day of April, 2011.

PRINCIPAL LIFE INSURANCE COMPANY

SEPARATE ACCOUNT B

(Registrant)

By : /s/ L. D. Zimpleman

L. D. Zimpleman

Chairman, President and Chief Executive Officer

PRINCIPAL LIFE INSURANCE COMPANY

(Depositor)

By : /s/ L. D. Zimpleman

L. D. Zimpleman

Chairman, President and Chief Executive Officer

Attest:

/s/ Joyce N. Hoffman

______________________________

Joyce N. Hoffman

Senior Vice President and Corporate Secretary

Pursuant to the requirements of the Securities Act, this amendment to the registration statement has been signed by the

following persons in the capacities and on the date indicated.


Signature	Title	Date


/s/ L. D. Zimpleman
______________________
L. D. Zimpleman	Chairman, President	April 27, 2011
	and Chief Executive Officer

/s/ G. B. Elming
______________________	Senior Vice President and	April 27, 2011
G. B. Elming	Controller
	(Principal Accounting Officer)

/s/ T. J. Lillis
______________________	Executive Vice President	April 27, 2011
T. J. Lillis	and Chief Financial Officer
	(Principal Financial Officer)

(B. J. Bernard)*	Director	April 27, 2011
B. J. Bernard

(J. Carter-Miller)*	Director	April 27, 2011
J. Carter-Miller

(G. E. Costley)*	Director	April 27, 2011
G. E. Costley

(M.T. Dan)*	Director	April 27, 2011
M. T. Dan

(C. D. Gelatt, Jr.)*	Director	April 27, 2011
C. D. Gelatt, Jr.

(J. B. Griswel)l*	Chairman
J. B. Griswell	of the Board	April 27, 2011


(S. L. Helton)*	Director	April 27, 2011
S. L. Helton

(R. L. Keyser)*	Director	April 27, 2011
R. L. Keyser

(A. K. Mathrani)*	Director	April 27, 2011
A. K. Mathrani

(E. E. Tallett)*	Director	April 27, 2011
E. E. Tallett

*By /s/ L.D. Zimpleman
L. D. Zimpleman
Chairman, President and Chief Executive Officer
Pursuant to Powers of Attorney
Previously Filed on January 11, 2001


General Information	51
Reservation of Rights	51
Legal Opinions	51
Legal Proceedings	51
Other Variable Annuity Contracts	52
Payments to Financial Intermediaries	52
Service Arrangements and Compensation	52
Independent Registered Public Accounting Firm	53
Financial Statements	53
Table of Separate Account Divisions	54
Registration Statement	55
Customer Inquiries	55
Table of Contents of the SAI	55
Appendix A — GMWB Investment Options	56
Appendix B — GMWB Examples	58
Appendix C — Condensed Financial Information	62


TABLE OF SEPARATE ACCOUNT DIVISIONS



Diversified Balanced Division

Invests in:	Principal Variable Contracts Funds Diversified Balanced Account - Class 2
Investment Advisor:	Principal Management Corporation
Investment Objective:	seeks to provide as high a level of total return (consisting of reinvested income
	and capital appreciation) as is consistent with reasonable risk.


Diversified Growth Division

Invests in:	Principal Variable Contracts Funds Diversified Growth Account - Class 2
Investment Advisor:	Principal Management Corporation
Investment Objective:	seeks to provide long-term capital appreciation.


Money Market Division

Invests in:	Principal Variable Contracts Funds Money Market Account – Class 1
Investment Advisor:	Principal Global Investors, LLC through a sub-advisory agreement with
	Principal Management Corporation
Investment Objective:	seeks as high a level of current income as is considered consistent with
	preservation of principal and maintenance of liquidity.


Principal Life Insurance Company
Separate Account B


Statements of Operations


Year Ended December 31, 2010

			American
	AllianceBernstein		Century VP
		Small Cap	Income &
		Growth	Growth
		Class A	Class I
		Division	Division
Investment income (loss)
Income:
Dividends	$ –		$ 248,730

Expenses:
Mortality and expense risks		29,089	194,756
Separate account rider charges		3,489	23,423
Net investment income (loss)		(32,578)	30,551

Realized gains (losses) on investments
Realized gains (losses) on sale of fund shares		(43,302)	(559,787)
Capital gains distributions		–	–
Total realized gains (losses) on investments		(43,302)	(559,787)

Change in net unrealized appreciation or depreciation of
investments		767,397	2,471,742
Net increase (decrease) in net assets resulting from operations	$ 691,517		$ 1,942,506


(1) Commenced operations May 24, 2010.




See accompanying notes.


(5b)	Form of Variable Annuity Application with Principal Connection– Filed as EX- 99 b (5b) on
	03/30/11 (Accession No. 0000898745-11-000175)
(6a)	Articles of Incorporation of the Depositor - Filed as EX-99.b(5a) on 01/11/11(Accession No.
	0000898745-11-000017)
(6b)	Bylaws of Depositor - Filed as EX-99.b(3c) on 01/11/11(Accession No. 0000898745-11-
	000017)
(8)	Participation Agreement– Filed as EX- 99 b (8) on 03/30/11 (Accession No. 0000898745-11-
	000175)
(9)	Opinion of Counsel – Filed as EX- 99 b (9) on 03/30/11 (Accession No. 0000898745-11-
	000175)
(10a)	Consent of Ernst & Young LLP*
(10b)	Powers of Attorney - Filed as EX-99.b(3c) on 01/11/11(Accession No. 0000898745-11-
	000017)
(11)	Financial Statement Schedules*