First Quarter 2016 Quarterly Commentary Inv Manager or Sub-Advisor Benchmark Morningstar Category Investment Objective Principal Real Estate Inv MSCI US REIT Index Real Estate Speciality - Real Estate Economic Overview The global economy seems to be in the midst of a mild cyclical upturn after several quarters of slumping growth, falling profits, and credit stress. With the dollar off its peak and oil prices up from the lows, the extreme market volatility from early this year has diminished; markets have rebounded and the manufacturing sector seems to have found a bottom. In the U.S., job growth stayed consistently strong this quarter, with the March payroll report adding 215,000 plus job gains, a robust first-quarter average job growth of 209,000, and the unemployment rate up to 5.0%.1 Even as other economic indicators weakened, retail sales, durable goods orders, and construction spending suggest first-quarter GDP growth is less than 1%, with revisions likely boosted to 1.5% last quarter and 2.0% for the year. 2 Recent comments from Federal Reserve Chair Janet Yellen reaffirmed the ultra-easy and super slow pace of future rate hikes.3 The economy in China appears to have stopped weakening after 18 months of gradual stimulus and monetary easing. China's purchasing manager indices (PMIs) all grew higher in March, with official PMI at a nine-month high of 50.2, 4 while the Caixin PMI, which focuses on small and mid-sized companies, was up 1.7 points to 49.7.5 The services PMI also picked up over a point to 53.8. 6 Price pressures are easing, a real positive after four plus years of deflation. 7 House prices are still rising across the country, housing starts are up and home sales are growing. 8 Despite the recent terror attacks and immigration problems, the greater European economy is enjoying the cyclical upturn. March PMIs grew more than expected, bringing the composite Eurozone PMI up to 53.7, consistent with almost 2% growth. The German PMI was flat at a robust level, while the French composite was up 1.8 points. Economic sentiment fell some, but from elevated levels. Retail sales stayed relatively healthy as household spending is leading the recovery. 9 Unemployment fell to 10.3% in February, and while still very high, that's the lowest since 2011. 10 Loan demand is slowly rising, with lending standards easing and the central bank offering loans to banks that relend to the private sector at incredibly easy terms. One large economic area not yet enjoying the upturn is Japan. Its economy shrank in the fourth quarter and recent data hasn't offered much rebound hope. The closely watched Tankan confidence index for large manufacturers dropped from 12 to 6, the largest quarterly decline since the end of 2012. 11 The Nikkei manufacturing PMI for March declined to 49.1 with new export orders at the lowest since January 2013.6 The labor market is still a bright spot with a very low jobless rate of 3.3%. With the huge market volatility in February, the yen rose and at the end of March was up over 10% against the dollar since bottoming last summer. Strong currency and poor data weighed on the Topix Index, down nearly 13% in the first quarter. 12 Real Estate U.S. real estate investment trusts (REITs) were positive for the quarter, returning 6.3%, easily outpacing the broad U.S. equities market. Results by subsector were largely positive, with net lease and other delivering the strongest returns and diversified performing the worst. Global REITs were positive, posting a return of 5.2%, but outperforming international equities in developed markets, and largely keeping pace with emerging markets. As was the case with U.S. REITs, subsector performance was largely positive, with data centers and net lease delivering the best results, while realty services were the weakest.13 Not FDIC or NCUA insured May lose value Not a deposit No bank or credit union guarantee Not insured by any Federal government agency Page 1
Performance Contributors During last quarter: Positive Contributors Lack of allocation to HCP contributed as a result of worsening operational struggles for its largest tenant, HCR ManorCare. A non-benchmark allocation to Hilton Worldwide Holdings contributed due to compelling valuation and growth prospects, especially as investors favored more economically sensitive companies during the second half of the quarter. Underweight to Vornado Realty Trust contributed as the stock underperformed the broader index as a result of weak New York City operating metrics and continued drag from operations in Washington, DC. During last 12 months: Overweight to Public Storage contributed as self-storage fundamentals showed continuous strength, driven by improving pricing power, limited new supply, accretive external opportunities, and a better ability to handle rising interest rates due to its shorter lease duration. An underweight to NorthStar Realty Finance Corp was a top contributor due to investor concerns over investment strategy, an earnings slowdown, and the spin-out of its European platform. Lack of allocation to HCP contributed as a result of worsening operational struggles for its largest tenant, HCR ManorCare. During last quarter: Negative Contributors Overweight to SL Green Realty Corp. detracted due to the possibility of slowing New York City office leasing demand after recent forecasts that job growth is expected to moderate. Lack of allocation to Realty Income Corporation was a detractor to relative performance due to outperformance of net lease stocks as expectation of a slower pace of interest rate hikes set in and rumors about an accretive mergers & acquisition opportunity helped boost the stock price. Allocation to Essex Property Trust detracted due to fears about the effect a tech bubble could have on its exposure to the Bay Area. During last 12 months: Overweight to Pebblebrook Hotel Trust detracted due to weakening demand from transient travelers and visitors from overseas. Overweight to SL Green detracted due to the possibility of slowing New York City office leasing demand after recent forecasts that job growth is expected to moderate. Lack of allocation to Digital Realty Trust detracted as wholesale data center providers saw record demand from hyper-scale cloud providers and other internet companies. Changes to the investment option's structure or portfolio: No material changes occurred in the portfolio structure. Page 2
Performance Investment results shown represent historical performance and do not guarantee future results. Investment returns and principal values fluctuate with changes in interest rates and other market conditions so the value, when redeemed, may be worth more or less than original costs. Current performance may be lower or higher than the performance data shown. For more performance information, including most recent month-end performance, visit www.principal.com, contact your representative of the Principal Financial Group, or contact our participant contact center at 1-800-547-7754. In situations where the net and gross expense figures are different, the investment manager has contractually agreed to limit the investment option's expense. Differences may also be shown due to the investment manager choosing to pay certain expenses that would normally be payable by the investment option. The gross total investment expense figure does not reflect any waivers or caps on the mutual fund or underlying mutual fund in which a Separate Account invests. Returns displayed are always based on net total investment expense. Average Annual Total Returns (%) as of 03/31/2016 Real Estate Securities Separate Account-R6 QTR YTD 1 Year 3 Year 5 Year 10 Year Since Inception 5.22 5.22 4.01 11.97 12.33 6.99 12.15 MSCI US REIT Index 6.31 6.31 4.05 10.45 11.85 6.49 - Real Estate Category 4.68 4.68 2.66 9.43 10.78 5.73 - Morningstar Percentile Ranking - - 32 3 7 13 - Total Funds in Category 294 294 281 240 208 153 - Inception Date 12/31/2002 Ext. Perf. Inc. Date 12/06/2000 Total Inv. Exp Gross 1.19 Total Inv Exp Net 1.19 Waiver Date - Contractual Cap Date - Past performance is no guarantee of future results. Market indices have been provided for comparison purposes only. They are unmanaged and do not reflect fees or expenses. Individuals cannot invest directly in an index. These calculated returns reflect the historical performance of the oldest share class of the fund, adjusted to reflect a portion of the fees and expenses of this share class. For time periods prior to inception date of the fund, predecessor performance is reflected. Please see the fund's prospectus for more information on specific expenses, and the fund's most recent shareholder report for actual date of first sale. Expenses are deducted from income earned by the fund. As a result, dividends and investment results will differ for each share class. Page 3
Statistics Summary as of 03/31/2016 Risk and Return Statistics Summary Upside/Downside Capture Ratio Alpha Beta R2 Sharpe Info Std # of Months Avg Returns % Benchmark % Ratio Ratio Dev Up Down Up Down Up Down 3 Year 3 Year Real Estate Securities Separate Account-R6 1.54 0.98 99.25 0.80 1.11 15.56 22 14 3.73-3.71 101.70 94.86 MSCI US REIT Index N/A N/A N/A N/A N/A N/A 23 13 3.67-3.91 100.00 100.00 5 Year 5 Year Real Estate Securities Separate Account-R6 0.43 1.00 99.19 0.79 0.32 16.39 35 25 3.96-3.55 100.49 98.26 MSCI US REIT Index N/A N/A N/A N/A N/A N/A 37 23 3.94-3.61 100.00 100.00 Risk and return statistical data is calculated by Morningstar, Inc. Please see Important Notes section for definitions of Risk and Return Statistics. Top Ten Holdings as of 02/29/2016 Security Net Assets (%) Simon Property Group Inc 12.01 Equity Residential 5.61 Welltower Inc 5.27 AvalonBay Communities Inc 4.97 Equinix Inc 4.95 Essex Property Trust Inc 4.72 Public Storage 4.51 Boston Properties Inc 4.32 General Growth Properties Inc 4.23 Prologis Inc 4.13 Total % in Top 10 54.72 Page 4
Manager(s) Start Date Degree Alma Mater Kelly D. Rush 12/06/2000 M.B.A. University of Iowa Anthony Kenkel 06/15/2012 M.B.A. University of Chicago Keith Bokota 11/22/2013 B.A. Georgetown University Investment Strategy The investment seeks to generate a total return. Under normal circumstances, the fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies principally engaged in the real estate industry at the time of each purchase. It invests in equity securities of small, medium, and large market capitalization companies. The fund concentrates its investments (invest more than 25% of its net assets) in securities in the real estate industry. It is non-diversified. About Principal Real Estate Inv Principal Real Estate Investors is the dedicated real estate asset manager for Principal Global Investors. Principal Real Estate Investors' capabilities include commercial mortgage-backed securities, real estate equity securities and a broad range of private market real estate equity and debt alternatives. Page 5
Important Notes Separate Accounts are available through a group annuity contract with Principal Life Insurance Company. Insurance products and plan administrative services, if applicable, are provided by Principal Life Insurance Company, a member of the Principal Financial Group, Des Moines, IA 50392. See the fact sheet for the full name of the Separate Account. Certain investment options may not be available in all states or U.S. commonwealths. Principal Life Insurance Company reserves the right to defer payments or transfers from Principal Life Separate Accounts as described in the group annuity contracts providing access to the Separate Accounts or as required by applicable law. Such deferment will be based on factors that may include situations such as: unstable or disorderly financial markets; investment conditions which do not allow for an orderly investment transactions; or investment, liquidity, and other risks inherent in real estate (such as those associated with general and local economic conditions). If you elect to allocate funds to a Separate Account, you may not be able to immediately withdraw them. Before directing retirement funds to a separate account, investors should carefully consider the investment objectives, risks, charges and expenses of the separate account as well as their individual risk tolerance, time horizon and goals. For additional information contact us at 1-800-547-7754 or by visiting principal.com. The value of the investment options will fluctuate so that when redeemed, shares or units may be worth more or less than the original cost. Returns shown for periods of less than one year are not annualized. All returns displayed here are after Total Investment Expense of the investment option. Any operating expenses of a mutual fund or underlying mutual fund that are part of net Total Investment Expense are obtained from the mutual fund's most recent prospectus. The operating expenses shown as part of the Total Investment Expense include voluntary expense limits and fee credit. 2016 Morningstar, Inc. All Rights Reserved. Part of the mutual fund data contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The full name of this investment option is Principal Real Estate Securities Separate Account-R6. Principal Real Estate Securities investment option is available as a mutual fund and as a Separate Account that invests wholly in Institutional class shares of the Principal Funds, Inc. Real Estate Securities Inst Fund. All voting rights associated with ownership of shares in the mutual fund are the rights of the Separate Account, not of contract holders investing in the Separate Account. For further information on the underlying mutual fund, see the prospectus of the fund (PIREX) at http://www.principal.com/retirement/prospectuses/prospect.htm. About Principal Financial Group The Principal Financial Group (The Principal ) is a leading global financial company offering businesses, individuals and institutional clients a wide range of financial products and services. Our range of products and services includes retirement solutions, life and health insurance, wellness programs, and investment and banking products through our diverse family of financial services companies and national network of financial professionals. Page 6
Important Notes These calculated returns reflect the historical performance of the oldest share class of the fund, adjusted to reflect a portion of the fees and expenses of this share class. For time periods prior to inception date of the fund, predecessor performance is reflected. Please see the fund's prospectus for more information on specific expenses, and the fund's most recent shareholder report for actual date of first sale. Expenses are deducted from income earned by the fund. As a result, dividends and investment results will differ for each share class. Real Estate investment options are subject to investment and liquidity risk and other risks inherent in real estate such as those associated with general and local economic conditions. Property values can decline due to environmental and other reasons. In addition, fluctuation in interest rates can negatively impact the performance of real estate investment options. MSCI US REIT Index is a capitalization-weighted benchmark index of most actively traded Real Estate Investment Trusts (REITs), designed to measure real estate performance. Extended Performance Inception Date (Ext. Perf. Inc. Date) - Inception date of the oldest share class of the fund, or underlying fund of the Separate Account. Risk and Return Statistics: Alpha - The difference between an investment's actual returns and its expected performance, given its level of risk (as measured by beta). Beta - An investment's sensitivity to market movements. R-squared - Ranges from 0 to 100 and reveals how closely an investment's returns track those of a benchmark index. Standard Deviation - Measures how much an investment's returns are likely to fluctuate. Sharpe Ratio - Measures how an investment balances risks and rewards. The higher the Sharpe ratio, the better the investment's historical risk-adjusted performance. Information Ratio - A risk-adjusted measure commonly used to evaluate an active manager's involvement skill. It's defined as the manager's excess return divided by the variability or standard deviation of the excess return. Up-Market Capture Ratio - A statistical measure of an investment option's performance relative to a comparative index in months in which that index has risen. An up-market capture ratio of greater than 100 would indicate that the investment option performed better than the comparative index during months in which the index had risen over a specified time period. Down-Market Capture Ratio - A statistical measure of an investment option's performance relative to a comparative index in months in which that index has fallen. A down-market capture ratio of greater than 100 would indicate that the investment option performed worse than the comparative index during months in which the index had fallen over a specified time period. Principal Life Insurance Company, Des Moines, Iowa 50392-0001, principal.com 03/31/2016 #t16040102dk Page 7
Important Notes 1Bureau of Labor Statistics, 4/1/16 2Bureau of Economic Analysis, PGI Internal estimates based on historical statistics 3Associated Press, 2/10/16 4Bloomberg, 3/31/16 5Market Watch, 4/1/16 6The Fiscal Times, 3/ 31/ 16 7CNBC, 3/31/16 8Bloomberg, 3/17/16 9Market Watch, 3/22/16 Principal Life Insurance Company, Des Moines, Iowa 50392-0001, principal.com 03/31/2016 #t16040102dk Page 8
Important Notes 10Financial Times, 4/4/16 11Associated Press, 3/31/16 12BBC,3/29/16 13Global REITs: FTSE/EPRA NAREIT Developed Markets Index; international equities in developed markets: MSCI EAFE Index; international emerging markets: MSCI Emerging Markets Index This report is not complete unless all pages, as noted below, are included. Principal Life Insurance Company, Des Moines, Iowa 50392-0001, principal.com 03/31/2016 #t16040102dk Page 9