SUPPLEMENT, DATED AUGUST 31, 1995
TO THE PROSPECTUS DATED MARCH 31, 1995
FOR PRINCIPAL MUTUAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT B
FLEXIBLE VARIABLE ANNUITY (FVA) CONTRACT
Effective August 31, 1995, the Prospectus for the Principal Variable Annuity
contract is amended as follows:
1. The exchange offer described in Appendix A has been extended
indefinitely by the Company. The Company reserves the right to
terminate this exchange offer at any time.
2. The description of the California free look period provided in
Appendix B is hearby amended to reflect a free look period of 30
days applicable to Owner's who are age 60 or over.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B
FLEXIBLE VARIABLE ANNUITY ("FVA") CONTRACT
Issued by Principal Mutual Life Insurance Company (the "Company")
Prospectus dated March 31, 1995
This Prospectus concisely sets forth information about Principal Mutual Life
Insurance Company Separate Account B and the Flexible Variable Annuity Contract
(the "Contract") that an investor ought to know before investing. It should be
read and retained for future reference.
Contributions to the Contract are not deposits or obligations of, or guaranteed
by or endorsed by any bank nor are contributions to the Contract federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other governmental agency.
Additional information about the Contract, including a Statement of Additional
Information, dated March 31, 1995, has been filed with the Securities and
Exchange Commission. The Statement of Additional Information is incorporated by
reference into this Prospectus. The table of contents of the Statement of
Additional Information appears on page 26 of this Prospectus. A copy of the
Statement of Additional Information can be obtained, free of charge, upon
request by writing or telephoning:
Princor Financial Services Corporation
a Member of
The Principal Financial Group
Des Moines, IA 50392-0200
Telephone: 1-800-247-4123
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus is valid only when accompanied by the current prospectus for
Principal Aggressive Growth Fund, Inc., Principal Asset Allocation Fund, Inc.,
Principal Balanced Fund, Inc., Principal Bond Fund, Inc., Principal Capital
Accumulation Fund, Inc., Principal Emerging Growth Fund, Inc., Principal
Government Securities Fund, Inc., Principal Growth Fund, Inc., Principal Money
Market Fund, Inc. and Principal World Fund, Inc. These prospectuses should be
kept for future reference.
TABLE OF CONTENTS
Page
Glossary of Special Terms .................................................. 3
Expense Table and Example .................................................. 5
Summary .................................................................... 6
Description of Principal Mutual Life Insurance Company ..................... 8
Principal Mutual Life Insurance Company Separate Account B ................. 9
Mutual Funds .............................................................. 9
Surplus Distribution at Sole Discretion of the Company .................... 10
The Contract .............................................................. 10
Purchasing a Contract .................................................. 10
Purchase Payment Limitations ......................................... 10
Allocation of Purchase Payments ...................................... 11
Right to Examine the Contract ........................................ 11
Prior to the Retirement Date ........................................... 11
Determining the Accumulated Value of the Contract .................... 11
Allocation of Purchase Payments and Transfers ........................ 12
Total and Partial Surrenders ......................................... 13
Benefit Payable on Death of Annuitant or Owner ....................... 14
After the Retirement Date .............................................. 15
Retirement Date ...................................................... 15
Benefit Options ...................................................... 15
Death of Annuitant or Payee .......................................... 17
Charges and Deductions .................................................... 17
Annual Fee ............................................................. 17
Mortality and Expense Risks Charge ..................................... 17
Transaction Fee ........................................................ 18
Premium Taxes .......................................................... 18
Surrender Charge ....................................................... 18
Administrative Expense Charge .......................................... 19
Fixed Account ............................................................. 19
General Description .................................................... 20
Fixed Account Value .................................................... 20
Fixed Account Transfers, Total and Partial Surrenders .................. 20
General Provisions ........................................................ 21
The Contract ........................................................... 21
Postponement of Payments .................................................. 21
Misstatement of Age or Sex and Other Errors ............................... 21
Assignment ................................................................ 21
Change of Owner ........................................................... 21
Beneficiary ............................................................... 21
Reports ................................................................... 22
Rights Reserved by the Company ............................................ 22
Distribution of the Contract .............................................. 22
Performance Calculation ................................................... 22
Voting Rights ............................................................. 23
Federal Tax Matters ....................................................... 23
Non-Qualified Contracts ................................................ 24
Required Distributions for Non-Qualified Contracts ..................... 24
IRA, SEP and SAR/SEP ................................................... 25
Withholding ............................................................ 25
Mutual Fund Diversification ............................................ 25
State Regulation .......................................................... 25
Legal Opinions ............................................................ 26
Page
Legal Proceedings ......................................................... 26
Registration Statement .................................................... 26
Other Variable Annuity Contracts .......................................... 26
Experts ................................................................... 26
Financial Statements ...................................................... 26
Contractholders' Inquiries ................................................ 26
Table of Contents of the Statement of Additional Information .............. 26
Appendix A ................................................................ 27
Appendix B ................................................................ 29
This Prospectus does not constitute an offer of, or solicitation of any offer to
acquire, any interest in the Contract in any jurisdiction in which such an offer
or solicitation may not lawfully be made. No person is authorized to give any
information or to make any representations in connection with the Contract other
than those contained in this Prospectus.
GLOSSARY OF SPECIAL TERMS
Accumulated Value -- An amount equal to the Fixed Account Value plus the
Separate Account Value.
Anniversary -- The same date and month of each year following the Contract Date.
Annual Fee -- A charge deducted once each Contract Year prior to the Retirement
Date, either on the last day of the Contract Year or the date the Contract is
surrendered in full (a total redemption).
Annuitant -- The person, including any Joint Annuitant, on whose life the
Benefit Option payment is based. This person may or may not be the Owner.
Benefit Option -- The options described in the Benefit Options section of this
Prospectus.
Contract Date -- The date the contract is issued as shown on the current Data
Page of the contract.
Contract Year -- The one-year period beginning on the Contract Date and ending
one day before the Anniversary and any subsequent one-year period beginning on
an Anniversary.
Example: If the Contract Date is June 5, 2000, the first Contract Year ends
on June 4, 2001, and the first Anniversary falls on June 5, 2001. The
second Contract Year ends on June 4, 2002, and the second Anniversary falls
on June 5, 2002, etc.
Critical Need -- The Owner's or Annuitant's confinement to a Health Care
Facility, Terminal Illness diagnosis or Total and Permanent Disability.
Division -- A part of the Separate Account to which Purchase Payments may be
allocated which invests in shares of a single Mutual Fund. The value of an
investment in a Division is variable and not guaranteed. Division may sometimes
be referred to as a Subaccount.
Fixed Account -- An account to which Purchase Payments may be allocated which
earns guaranteed interest.
Fixed Account Value -- The amount of an Owner's Accumulated Value which is in
the Fixed Account.
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 that primarily provides drug or alcohol treatment, or a
facility owned or operated by the Owner or Annuitant or a member of their
immediate families.
Internal Revenue Code ("Code") -- The Internal Revenue Code of 1986, as amended,
and regulations thereunder. Reference to the Internal Revenue Code means such
Code or the corresponding provisions of any subsequent revenue code and any
regulations thereunder.
Joint Annuitant -- An additional Annuitant. The Joint Annuitants must be husband
and wife, and must be named as Owner and Joint Owner. Any reference to the
Annuitant's death means the death of the last surviving Annuitant.
Joint Owners -- An Owner who has an undivided interest with the right of
survivorship in this contract with another Owner. The Joint Owners must be
husband and wife, and must be named as Annuitant and Joint Annuitant. Any
reference to the Owner's death means the death of the last surviving Owner.
Joint ownership is not available for Contracts issued to residents of
Pennsylvania or New York.
Mutual Fund -- A registered open-end investment company in which a Division
invests.
Net Investment Factor -- The factor used to determine the change in the value of
a Unit during a Valuation Period.
Notice -- Any form of written communication received by the Company at its home
office or in another form approved in advance by the Company.
Owner -- The person, including any Joint Owner, who owns all rights and
privileges of this contract. If the Owner is not a natural person, the Owner
must be an entity with its own taxpayer identification number.
Purchase Payments -- The gross amount contributed to the Contract less any
applicable premium taxes or similar governmental assessments.
Retirement Date -- The date the Owner's Accumulated Value is applied under a
Benefit Option to make income payments.
Separate Account B -- A separate account established by the Company under Iowa
law to receive Purchase Payments under the contract offered by this Prospectus
and other contracts issued by the Company. It is divided into ten Divisions each
of which invests in shares of a Mutual Fund. Divisions may be added, eliminated
or combined in the future.
Separate Account Value -- The amount of an Owner's Accumulated Value in all the
Divisions of the Separate Account.
Surrender Charge -- The charge deducted upon any partial or total surrender of
the Contract before the Retirement Date.
Terminal Illness -- A 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 provided to the Company.
Total and Permanent Disability -- A disability that occurs after the Contract
Date and that qualifies the Owner or Annuitant to receive Social Security
disability benefits.
Transaction Fee -- A charge deducted due to unscheduled partial surrenders from
the Contract after the first such surrender in a Contract Year and from
unscheduled transfers from a Separate Account Division after the twelfth such
transfer in a Contract Year.
Unit -- The accounting measure used to calculate the value of the Separate
Account Value prior to the Retirement Date.
Unit Value -- A measure used to determine the value of an investment in a
Division.
Valuation Date -- The date as of which the net asset value of a Mutual Fund is
determined.
Valuation Period -- The period of time between when the net asset value of a
Mutual Fund is determined on one Valuation Date and when such value is
determined on the next following Valuation Date.
<PAGE>
EXPENSE TABLE AND EXAMPLE
The following tables depict fees and expenses applicable to the Contract. The
example below should not be considered a representation of past or future
expenses; actual expenses may be greater or less than those shown. See "Charges
and Deductions."
<TABLE>
<CAPTION>
EXPENSE TABLE
Transaction Expenses
Sales Load Imposed on Purchases
(as a percentage of Purchase Payments) None
Surrender Charge (as a percentage Number of Completed Contract Years Since Surrender Charge Applied to all Purchase
of amount surrendered) Surrendered Purchase Payment was made Payments Received in that Contract Year
<S> <C> <C>
0 (year of Purchase Payment) 6%
1 6%
2 6%
3 5%
4 4%
5 3%
6 2%
7 and later 0%
<CAPTION>
Transaction Fee(a) No fee on first unscheduled partial surrender during a
Contract Year; $30 on each unscheduled surrender thereafter.
Annual Contract Fee The lesser of $30 or 2% of the Accumulated Value.
Separate Account Annual Expenses (b)
(as a percentage of average account value)
Mortality and Expense Risk Fees 1.25%
Total Separate Account Annual
Expenses 1.25%
Annual Expenses of Mutual Funds
(as a percentage of average net assets)
Management Total Mutual Fund
Fees Other Expenses Annual Expenses
<S> <C> <C> <C>
Aggressive Growth Fund .80% .23% (c) 1.03% (c)
Asset Allocation Fund .80% .15% (c) .95% (c)
Balanced Fund .60% .09% .69%
Bond Fund .50% .08% .58%
Capital Accumulation Fund .49% .02% .51%
Emerging Growth Fund .65% .09% .74%
Government Securities Fund .50% .06% .56%
Growth Fund .50% .25% (c) .75% (c)
Money Market Fund .50% .10% .60%
World Fund .75% .49% (c) 1.24% (c)
<FN>
(a) A $30 transaction fee will be assessed on each unscheduled transfer after
the twelfth such transfer during a Contract Year.
(b) The Company has reserved the right to assess a daily administrative
charge at a nominal annual rate of .15% of the average daily net assets
of each Division of the Separate Account.
(c) The figures are estimates of expected annualized expenses for the
period ending December 31, 1995. The Aggressive Growth Fund, Asset
Allocation Fund, Growth Fund and World Fund have not been in operation
for a 10-month period.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE*
Separate Account
Division 1 Year 3 Years
<S> <C> <C> <C>
If you surrender your contract at the end Aggressive Growth Division $86 $128
of the applicable time period: Asset Allocation Division $85 $126
Balanced Division $82 $118
You would pay the following Bond Division $81 $115
expenses on a $1,000 investment, Capital Accumulation Division $81 $113
assuming 5% annual return on assets: Emerging Growth Division $83 $120
Government Securities Division $81 $115
Growth Division $83 $120
Money Market Division $82 $116
World Division $88 $134
If you annuitize at the end of the Aggressive Growth Division $24 $74
applicable time period or do not Asset Allocation Division $23 $72
surrender your contract: Balanced Division $21 $64
Bond Division $20 $60
Capital Accumulation Division $19 $58
You would pay the following Emerging Growth Division $21 $65
expenses on a $1,000 investment, Government Securities Division $19 $60
assuming 5% annual return on assets: Growth Division $21 $66
Money Market Division $20 $61
World Division $26 $80
<FN>
* No Annual Fees were collected on the contracts during the period ended
December 31, 1994. Therefore, to derive estimated expenses, the $30 Annual
Fee was converted to a percentage of the average contract value of $31,420
for the Contracts issued as of December 31, 1994.
</FN>
</TABLE>
The purpose of the above table is to assist the Owner in understanding the
various costs and expenses that a Owner will bear directly or indirectly. The
table reflects expenses of the Separate Account as well as the expenses of the
Mutual Funds in which the Separate Account invests. In certain circumstances,
state premium taxes will also be applicable. See "Charges and Deductions."
<PAGE>
SUMMARY
The following summary should be read in conjunction with the detailed
information in this Prospectus. This Prospectus generally describes only the
portion of the Contract involving the Separate Account. For a brief description
of the Fixed Account, please refer to the heading "Fixed Account" in this
Prospectus.
The Flexible Variable Annuity Contract (also known as the Principal Variable
Annuity Contract) (the "Contract") described in this Prospectus is designed to
provide individuals with retirement benefits in connection with (1) Individual
Retirement Annuity plans or programs ("IRA Plans"), Simplified Employee Pension
Plans ("SEPs") and Salary Reduction Simplified Employee Pension Plans
("SAR/SEPs") adopted pursuant to Section 408 of the Internal Revenue Code and
(2) non-qualified retirement plans.
Minimum Investment Amount
For Contracts issued in connection with non-qualified retirement plans, the
initial Purchase Payment must be at least $2,500. The initial Purchase Payment
for all other Contracts must be at least $1,000. The minimum subsequent
investment is $100. A $100 monthly minimum for initial and subsequent
investments is available for Contracts to which Purchase Payments are made on a
monthly basis through a payroll deduction plan or through an account of bank or
similar financial institution under an Automatic Investment Program. Forms and
preauthorized check agreements to establish an Automatic Investment Program are
available from Princor Financial Services Corporation. For Contracts which are
issued in connection with a retirement plan covering more than four people, the
initial and subsequent monthly Purchase Payment under each Contract must at all
times average at least $100 and in no case be less than $50. The Company
reserves the right to terminate a Contract and distribute the Accumulated Value,
less any applicable charges, if no Purchase Payments are paid during two
consecutive calendar years and the Accumulated Value or total Purchase Payments
less partial surrenders and applicable surrender charges is less than $2,000.
See "Purchase Payment Limitations."
The initial Purchase Payment is allocated, as specified by the Owner in the
Contract application, among one or more of the Divisions of the Separate
Account, or to the Fixed Account, or to both. Subsequent Purchase Payments are
allocated in the same way, or pursuant to different allocation percentages that
the Owner may subsequently specify.
Separate Account Investment Options
Each of the ten Divisions (or Subaccounts) of the Separate Account invests in
shares of a corresponding Mutual Fund. The Accumulated Value in each of the
Divisions of the Separate Account will vary to reflect the investment experience
of each of the corresponding Mutual Funds as well as deductions for certain
charges.
Each Mutual Fund has a separate and distinct investment objective and is managed
by Princor Management Corporation ("Manager"). For providing investment
management services to the Mutual Funds, the Manager receives fees from each
Fund based on the average daily net assets of the Fund. Each Mutual Fund also
bears most of its other expenses. A full description of the Mutual Funds and
their investment objectives, policies and risks can be found in the current
Prospectus for the Funds, which accompanies this Prospectus.
Transfers
Subject to restrictions described in this Prospectus, an Owner can transfer all
or part of the Accumulated Value among the Contract's investment options prior
to the Retirement Date. Transfers from one Division to another or into the Fixed
Account can be made by the Owner on an unscheduled or scheduled basis. Owners
may transfer limited amounts once each Contract Year from the Fixed Account to
the Separate Account or may elect to make scheduled monthly transfers.
Total or Partial Surrenders
All or part of the Accumulated Value of a Contract may be surrendered by the
Owner prior to the Retirement Date. Amounts surrendered may be subject to a
Surrender Charge and total surrenders will be subject to the Annual Fee, if
applicable. The Surrender Charge does not apply to certain withdrawals including
the withdrawal during any Contract Year of an amount not to exceed the greater
of the earnings in the Contract or 10% of the Purchase Payments otherwise
subject to the Surrender Charge. See "Total and Partial Surrenders," "Surrender
Charge" and "Annual Fee." Particular attention should be paid to the tax
implications of any surrender, including possible penalties for premature
distributions. See "Federal Tax Matters."
Charges and Deductions
The Company deducts daily charges at a rate of 1.25% per annum of the value of
the average net assets of the Separate Account for the mortality and expense
risks it assumes. The Company has reserved the right to assess a daily charge at
a rate of .15% per annum of the value of the average net assets in the Separate
Account to cover certain administrative expenses. See "Mortality and Expense
Risks Charge" and "Administrative Expense Charge."
To permit investment of the entire Purchase Payment, the Company does not deduct
sales charges at the time of investment. However, a Surrender Charge is imposed
on certain total or partial surrenders of the Contract to help defray expenses
relating to the sale of the Contract, including commissions to registered
representatives and other promotional expenses. Certain amounts may be
surrendered without the imposition of any Surrender Charge. See "Surrender
Charge."
There is also an Annual Fee for Contract administration and maintenance. This
charge is the lesser of $30 or 2% of the Owner's Accumulated Value (subject to
any applicable state law limitations) and is deducted on each Anniversary and
upon total surrender of the Contract. This charge is not deducted during the
Benefit Option period. The Company currently waives the Annual Fee for Contracts
that have an Accumulated Value on the last day of the Contract Year of at least
$30,000.
Certain states and other jurisdictions impose premium taxes or similar
assessments upon the Company, either at the time Purchase Payments are made or
when the Accumulated Value is surrendered or applied under a Benefit Option. The
Company reserves the right to deduct an amount from Purchase Payments or
Accumulated Value to cover such taxes or assessments, if any, when applicable.
Benefit Option Payments
The Contract provides several types of fixed payment Benefit Options to
Annuitants or their Beneficiaries. The Owner has considerable flexibility in
choosing the Retirement Date. However, the tax implications of distributions
must be carefully considered, including the possibility of penalties for
commencing benefits either too soon or too late. See "Benefit Options" and
"Federal Tax Matters."
Death Benefit
In the event that the Annuitant or Owner dies prior to the Retirement Date, an
enhanced death benefit is payable to the Beneficiary of the Contract. The death
benefit may be paid as either a single sum cash benefit or under a Benefit
Option. See "Benefit Payable on Death of Annuitant or Owner." In the event the
Annuitant dies on or after the Retirement Date, the Beneficiary will receive
only any continuing payments which may be provided by the Benefit Option in
effect.
Right to Examine the Contract
The Owner has a right to examine the Contract. The Owner can cancel the Contract
by delivering or mailing it, together with a written request, to the Company's
home office or to the sales representative through whom it was purchased, before
the close of business on the tenth day (or such later date as provided by
applicable state law) after receipt of the Contract. If these items are sent by
mail, properly addressed and postage prepaid, they will be deemed to be received
by the Company on the date postmarked. The Company will return either all
Purchase Payments made, without interest or appreciation, or the Accumulated
Value of the Contract, whichever is required by applicable state law. See
Appendix B for "Free Look" information.
Tax Implications
The tax implications for Owners, Annuitants and Beneficiaries can be quite
important. A brief discussion of some of these is set out under "Federal Tax
Matters" in this Prospectus, but such discussion is not comprehensive.
Therefore, an Owner should consider these matters carefully and consult a
qualified tax advisor before making Purchase Payments or taking any other action
in connection with the Contract. Failure to do so could result in serious
adverse tax consequences which might otherwise have been avoided.
Questions and Other Communications
Any question about procedures or the Contract should be directed to a sales
representative, or the Company's home office: The Principal Financial Group, Des
Moines, Iowa 50392-1770; 1-800-852-4450. Purchase Payments and written requests
should be mailed or delivered to the same home office address. All
communications should include the Contract number, the Owner's name and, if
different, the Annuitant's name.
Any Purchase Payment or other communication, except a cancellation notice
described above under "Right to Examine the Contract," is deemed received at the
Company's home office on the actual date of receipt there in proper form unless
received (1) after the close of regular trading on the New York Stock Exchange,
or (2) on a date that is not a Valuation Date. In either of these two cases, the
date of receipt will be deemed to be the next Valuation Date.
Total or Partial Surrenders
An Owner may withdraw cash from the Contract at any time prior to the Retirement
Date subject to any charges that may be applied. See "Total and Partial
Surrenders." Note that withdrawals before age 59 1/2 may involve an income tax
penalty. See "Federal Tax Matters."
DESCRIPTION OF PRINCIPAL MUTUAL LIFE INSURANCE COMPANY (The "Company")
Principal Mutual Life Insurance Company is a mutual life insurance company with
its home office at The Principal Financial Group, Des Moines, Iowa, telephone
number 515-247-5111. It was originally incorporated under the laws of the State
of Iowa in 1879 as Bankers Life Association, changed its name to Bankers Life
Company in 1911 and changed its name to Principal Mutual Life Insurance Company
in 1986. It is a member of The Principal Financial Group, a diversified family
of insurance and financial services corporations.
Principal Mutual Life Insurance Company is authorized to do business in the 50
states of the United States, the District of Columbia, the Commonwealth of
Puerto Rico, and the Canadian Provinces of Alberta, British Columbia, Manitoba,
Ontario and Quebec. The Company offers a full range of products and services for
businesses, groups and individuals including individual insurance, pension plans
and group/employee benefits. The Company has ranked in the upper one percent of
life insurers in assets and premium income and has consistently received
excellent ratings from the major rating firms based upon the Company's
claims-paying ability. The Company has $44.1 billion in assets under management
and serves more than 8.8 million individuals and their families.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT B
Separate Account B was established on January 12, 1970 pursuant to a resolution
(as amended) of the Executive Committee of the Board of Directors of the
Company. Under Iowa insurance laws and regulations the income, gains or losses,
whether or not realized, of Separate Account B are credited to or charged
against the assets of Separate Account B without regard to the other income,
gains or losses of the Company. Although the assets of Separate Account B equal
to the reserves and liabilities arising under the contracts issued thereunder
will not be charged with any liabilities arising out of any other business
conducted by the Company, the reverse is not true. Hence, all obligations
arising under the Contract, including the promise to make payments under the
Benefit Options, are general corporate obligations of the Company.
Separate Account B was registered on July 17, 1970 with the Securities and
Exchange Commission as a unit investment trust under the Investment Company Act
of 1940, as amended. Such registration does not involve supervision by the
Commission of the investments or investment policies of Separate Account B.
The Company is taxed as a life insurance company under the Internal Revenue
Code. The operations of Separate Account B are part of the total operations of
the Company but are treated separately for accounting and financial statement
purposes and are considered separately in computing the Company's tax liability.
Separate Account B is not affected by federal income taxes paid by the Company
with respect to its other operations, and under existing federal income tax law,
investment income and capital gains attributable to Separate Account B are not
taxed. The Company reserves the right to charge Separate Account B with, and to
create a reserve for, any tax liability which the Company determines may result
from maintenance of Separate Account B. To the best of the Company's knowledge,
there is no current prospect of any such liability.
There are currently ten Divisions (or Subaccounts) in Separate Account B. The
assets of Divisions are invested exclusively in shares of a Principal Mutual
Fund. New Divisions may be added and made available to Owners of the Contract.
Divisions may also be eliminated from the Separate Account.
MUTUAL FUNDS
The Divisions of Separate Account B currently invest exclusively in shares of a
Principal Mutual Fund. The ten Principal Mutual Funds available for investment
are as follows: Aggressive Growth Fund, Asset Allocation Fund, Balanced Fund,
Bond Fund, Capital Accumulation Fund, Emerging Growth Fund, Government
Securities Fund, Growth Fund, Money Market Fund and World Fund. A full
description of the Mutual Funds, their investment policies and restrictions,
their charges, the risks attendant to investing in them, and other aspects of
their operations is contained in the Prospectus for the Funds accompanying this
Prospectus and in the Statement of Additional Information for the Funds referred
to therein. Additional copies of these documents may be obtained from a sales
representative or from the Company's home office.
The Mutual Funds are separately incorporated, diversified, open-end investment
management companies, typically known as Mutual Funds. The Manager for the
Mutual Funds is Princor Management Corporation. Some of the Mutual Funds are
also used to fund variable life insurance contracts issued by the Company. Each
such Fund's Board of Directors will monitor events in order to identify any
material irreconcilable conflicts between the interests of the variable annuity
contract owners and life insurance policyowners that may develop and to
determine what action, if any, should be taken in response thereto. If it
becomes necessary for any separate account to replace shares of any Mutual Fund
with another investment, the Mutual Fund may have to liquidate securities on a
disadvantageous basis. See "Eligible Purchasers and Purchase of Shares" in the
Funds' prospectus for a discussion of the potential risks associated with "mixed
funding."
The Company purchases and redeems shares of the Mutual Funds for the Separate
Account at their net asset value without the imposition of any sales or
redemption charges. Such shares represent interests in the ten Mutual Funds
available for investment by the Separate Account. Each Mutual Fund corresponds
to one of the Divisions of the Separate Account. The assets of each Mutual Fund
are separate from the others and each is a separate corporation whose
performance has no effect on the investment performance of any other Mutual
Fund.
Any dividend or capital gain distributions attributable to the Contract are
automatically reinvested in shares of the Mutual Fund from which they are
received at that Mutual Fund's net asset value on the date paid. Such dividends
and distributions will have the effect of reducing the net asset value of each
share of the corresponding Mutual Fund and increasing, by an equivalent value,
the number of shares outstanding of that Mutual Fund. However, the value of the
interests of Owners in the corresponding Division will not change as a result of
any such dividends and distributions.
SURPLUS DISTRIBUTION AT SOLE DISCRETION OF THE COMPANY
It is not anticipated that any divisible surplus will ever be distributable to
these Contracts in the future because the Contracts are not expected to result
in a contribution to the divisible surplus of the Company. However, if any
distribution of divisible surplus is made, it will be made to Owners in the form
of cash.
THE CONTRACT
The Contract described in this Prospectus is designed to provide individuals
with retirement benefits in connection with (1) Individual Retirement Annuity
plans or programs ("IRA Plans"), Simplified Employee Pension Plans ("SEPs") and
Salary Reduction Simplified Employee Pension Plans ("SAR/SEPs") adopted pursuant
to Section 408 of the Internal Revenue Code and (2) non-qualified retirement
plans. The Contract provides for the accumulation of values on a fixed and
variable basis and the payment of annuity benefits in the form of Benefit
Options on a fixed basis.
A. Purchasing a Contract
Persons wishing to purchase a Contract must complete an application and
make an initial Purchase Payment. The application is forwarded to the
Company for processing. Acceptance is subject to underwriting and
suitability rules and procedures. The Company reserves the right to reject
any application or any Purchase Payment if, in the view of the Company, the
Company's underwriting and suitability rules and procedures are not
satisfied.
Purchase Payments which are remitted through an employer for multiple
employee-Owner/Annuitants must also be accompanied by information
identifying the proper Contracts and accounts to be credited with Purchase
Payments.
If the application can be accepted in the form received, the initial
Purchase Payment will be credited within two Valuation Dates after the
later of receipt of the application or receipt of the initial Purchase
Payment at the Company's home office. If the initial Purchase Payment
cannot be credited within five Valuation Dates after receipt because the
application or other issuing requirements are incomplete, the initial
Purchase Payment will be returned unless the applicant consents to our
retaining the initial Purchase Payment and crediting it within two
Valuation Dates after the necessary requirements are fulfilled.
The date that 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. The crediting of investment experience in the
Separate Account, or a fixed rate of return in the Fixed Account, begins as
of the Contract Date, even if that date is delayed due to underwriting or
administrative requirements.
Generally, additional Purchase Payments will be accepted at any time after
the Contract Date and prior to the Retirement Date, as long as the
Annuitant is living. Purchase Payments (together with any required
information identifying the proper Contracts and accounts to be credited
with Purchase Payments) must be delivered to the Company's home office.
Additional Purchase Payments are credited to the Contract and added to the
Accumulated Value as of the end of the Valuation Period in which they are
received.
1. Purchase Payment Limitations
For Contracts issued in connection with non-qualified retirement Plans,
the initial Purchase Payment must be at least $2,500. The initial
Purchase Payment for all other Contracts must be at least $1,000. The
minimum subsequent investment is $100. A $100 monthly minimum for
initial and subsequent investments is available for Contracts to which
Purchase Payments are made on a monthly basis through an account of a
bank or similar financial institution under an Automatic Investment
Program. Forms and preauthorized check agreements to establish an
Automatic Investment Program are available from Princor Financial
Services Corporation. For Contracts which are issued in connection with
a retirement plan covering more than four people, the initial and
subsequent monthly Purchase Payments under each Contract must at all
times average at least $100 and in no case be less than $50. The
Company reserves the right to increase the minimum amount for each
Purchase Payment to not more than $1,000. The Company reserves the
right to terminate a Contract and distribute the Accumulated Value,
less any applicable charges, if no premiums are paid during two
consecutive calendar years and the Accumulated Value or total Purchase
Payments less partial surrenders and applicable surrender charges is
less than $2,000. The Company will notify the Owner of its intent to
exercise this right and provide the Owner a 60 day period to increase
the Accumulated Value to $2,000.
The total of all Purchase Payments may not exceed $1,000,000 without
the Company's prior approval.
2. Allocation of Purchase Payments
The initial Purchase Payment is allocated, as specified by the Owner in
the Contract application, among one or more of the Divisions of the
Separate Account, or to the Fixed Account, or to both. Subsequent
Purchase Payments are allocated in the same way, or pursuant to
different allocation percentages that the Owner may subsequently
specify. Allocations to the Fixed Account are not allowed if the Fixed
Account Value immediately after the allocation exceeds $1,000,000,
except with our prior approval.
Several states require the Company to return the initial Purchase
Payment to an Owner who reconsiders the decision to purchase the
Contract within a certain time period. See "Right to Examine the
Contract." Initial Purchase Payments for a Contract issued in such a
state are allocated to the Money Market Division until the expiration
of the applicable "free-look" period at which time they are reallocated
in accordance with the Owner's allocation instructions. For this
purpose, the Contract will be presumed to have been delivered to the
Owner 10 days after the Contract Date.
3. Right to Examine the Contract
The Owner has the right to examine the Contract. The Owner can cancel
the Contract by delivering or mailing it, together with a written
request, to the Company's home office or to the sales representative
through whom it was purchased, before the close of business on the
tenth day (or such later date as provided by applicable state statute)
after receipt of the Contract. If these items are sent by mail,
properly addressed and postage prepaid, they will be deemed to be
received by the Company on the date postmarked for the purpose of
determining whether the 10 day period has elapsed. If the Purchase
Payments are allocated to the Money Market Division as described above
under "Allocation of Purchase Payments," the Company will return the
greater of the Contract's value or Purchase Payments paid if the
Contract is cancelled. Otherwise, the Company will return the
Accumulated Value of the Contract. See Appendix B.
B. Prior to the Retirement Date
1. Determining the Accumulated Value of the Contract
The Owner's Accumulated Value is the total of any Separate Account
Value plus any Fixed Account Value under the Contract. For a discussion
of how Fixed Account Value is calculated, see "Fixed Account."
There is no guaranteed minimum Separate Account Value. The Separate
Account Value will reflect the investment experience of the chosen
Divisions of the Separate Account, all Purchase Payments made, any
partial surrenders, and all charges assessed in connection with the
Contract. Therefore, the Separate Account Value changes from Valuation
Period to Valuation Period. To the extent Accumulated Value is
allocated to the Separate Account, the Owner bears the entire
investment risk.
A Contract's Separate Account Value is based on Unit Values, which are
determined on each Valuation Date. The value of a Unit for a Division
on any Valuation Date is equal to the previous value of that Division's
Unit multiplied by that Division's Net Investment Factor (discussed
directly below) for the Valuation Period ending on that Valuation Date.
Net Purchase Payments applied to a given Division will be used to
purchase Units at the Unit Value of that Division next determined after
receipt of a Purchase Payment. See "Allocation of Purchase Payments and
Transfers."
At the end of any Valuation Period, a Contract's Separate Account Value
in a Division is equal to:
o The number of Units in the Division; times
o The value of one Unit for that Division.
The number of Units in each Division is equal to:
o The initial Units purchased on the Contract Date; plus
o Units purchased at the time that additional Purchase Payments
are allocated to the Division; plus
o Units purchased through transfers from another Division or
from the Fixed Account; less
o Units redeemed to pay for the portion of any partial
surrenders allocated to the Division; less
o Units redeemed as part of a transfer to another Division or
to the Fixed Account; less
o Units redeemed to pay charges under the Contract.
Net Investment Factor. Each Net Investment Factor is the quantitative measure of
the investment performance of each Division of Separate Account B. For any
specified Valuation Period the Net Investment Factor for a Division for a
Contract is equal to
(a) the quotient obtained by dividing (i) the net asset value of a
share of the underlying Mutual Fund as of the end of the
Valuation Period, plus the per share amount of any dividend or
other distribution made by the Mutual Fund during the
Valuation Period (less an adjustment for taxes, if any) by
(ii) the net asset value of a share of the Mutual Fund as of
the end of the immediately preceding Valuation Period,
reduced by
(b) a mortality and expense risks charge in an amount equal to a
simple interest rate for the number of days within the
Valuation Period equivalent to an annual rate of 1.25%. The
Company has reserved the right to assess a daily
administrative expense charge at an annual rate of up to .15%
of the value of the average Separate Account net assets. If
and to the extent such a charge is assessed, such charge will
be included in the calculation of the Net Investment Factor in
the same manner as the mortality and expense risks charge.
The amount of any taxes referred to in subparagraph (a) above
(currently none) and the amounts derived from applying the rate
specified in subparagraph (b) above will be accrued daily and will be
transferred from Separate Account B at the discretion of the Company.
2. Allocation of Purchase Payments and Transfers
Allocation of Purchase Payments. In the application for a Contract, the
Owner can allocate Purchase Payments, or portions thereof, to the
available Divisions of the Separate Account or to the Fixed Account, or
both. Percentages must be in whole numbers and the total allocation
must equal 100%. The percentage allocations for future Purchase
Payments may be changed, without charge, at any time by sending a
written request to the Company's home office or by telephone as
described below. Changes in the allocation of future Purchase Payments
will be effective at the end of the Valuation Period in which the
Company receives the Owner's request.
Unscheduled Transfers. Transfers of amounts from one available Division
of the Separate Account to another or into the Fixed Account can be
made by the Owner. A transfer from a Division of the Separate Account
to the Fixed Account may not be made if a transfer from the Fixed
Account to a Division of the Separate Account has been made within the
six-month period prior to the date of the requested transfer to the
Separate Account or if immediately after the transfer to the Fixed
Account the Owner's Fixed Account Value exceeds $1 million. The amount
to be transferred may be stated as a dollar amount or as a percentage
of the Separate Account Value of the Division from which the transfer
is to be made. The amount transferred from each Division must equal or
exceed the lesser of $100 or 100% of the Owner's interest in the
Division. Transfers may be completed by sending a written request to
the Company at its home office, or by telephone as described below.
All or part of the values in one or more Divisions of the Separate
Account may be transferred at one time. Transfers from the Fixed
Account are restricted on both amount and timing. See "Fixed Account
Transfers, Total and Partial Surrenders." Transfers from a Division of
the Separate Account will be executed and values will be determined in
connection with the transfers as of the end of the Valuation Period in
which the Company receives the transfer request. There is currently no
charge for the transfer but the Company reserves the right to impose
charges (not to exceed $30 per transfer) on unscheduled transfers after
the twelfth such transfer during a Contract year. For this purpose, all
transfers between and among the Divisions of the Separate Account and
the Fixed Account will be treated as one transfer, if all the transfer
requests are made at the same time as part of one request. The Company
also reserves the right to reject transfer instructions provided by a
person providing them for multiple contracts.
Scheduled Transfers. The owner may elect to have automatic transfers
completed on a periodic basis from any Division of the Separate
Account. Scheduled transfers are available from a Division only if the
value of the Separate Account Value in such Division equals or exceeds
$5,000. An Owner may establish scheduled transfers by sending a written
request to the Company at its home office or by telephone as described
below. Scheduled transfers will be completed on a monthly, quarterly,
semi-annual or annual basis on the date (other than the 29th, 30th or
31st) specified by the Owner. If the requested date is not a Valuation
Date, the transfer will be completed on the next valuation date
following such specified date. Scheduled transfers of the dollar amount
specified by the Owner (minimum of $100) will continue until the
Separate Account Value in the Division from which such transfers are
made is exhausted or until the Owner notifies the Company to
discontinue such transfers. The Company reserves the right to limit the
number of Divisions from which transfers will be made simultaneously,
but in no event will such limitation be less than two Divisions.
Telephone Services. Unless telephone transaction services are declined
on the application for a Contract, or at any subsequent time the Owner
notifies the Company in writing to remove telephone transaction
services, changes in the allocation of future Purchase Payments and
transfers may be made pursuant to telephone instructions, subject to
the above terms. The telephone transactions may be exercised by
telephoning 1-800-852-4450. Telephone transfer requests must be
received by the close of the New York Stock Exchange on a day when the
Company is open for business to be effective that day. Requests made
after that time or on a day when the Company is not open for business
will be effective the next business day. Although neither the Separate
Account nor the Company is responsible for the authenticity of
telephone transaction requests, the right is reserved to refuse to
accept telephone requests when in the opinion of the Company it seems
prudent to do so. The Owner bears the risk of loss caused by fraudulent
telephone instructions the Company reasonably believes to be genuine.
The Company will employ reasonable procedures to assure telephone
instructions are genuine and if such procedures are not followed, the
Company may be liable for losses due to unauthorized or fraudulent
transactions. Such procedures include recording all telephone
instructions, requesting personal identification information such as
the caller's name, daytime telephone number, social security number
and/or birthdate and sending a written confirmation of the transaction
to the Owner's address of record. Owners may obtain additional
information and assistance by telephoning the toll free number.
The Company may modify or terminate telephone transfer procedures at
any time.
3. Total and Partial Surrenders
Total Surrenders. The Owner may surrender all of the cash surrender
value at any time during the life of the Annuitant and prior to the
Retirement Date by a written request sent to the Company's home office.
The Company reserves the right to require that the Contract be returned
to the Company prior to making payment, although this will not affect
the determination of the amount of the cash surrender value. Cash
surrender value is the Accumulated Value at the end of the Valuation
Period during which the written request for the total surrender is
received by the Company at its home office, less any applicable
Surrender Charge, Annual Fee and Transaction Fee. For discussion of
these charges and the circumstances under which they apply, see "Annual
Fee," "Surrender Charge," and "Transaction Fee."
The written consent of all collateral assignees and irrevocable
beneficiaries of a non-qualified Contract must be obtained prior to any
total surrender. Surrenders from the Separate Account will generally be
paid within seven days of the date of receipt by the Company's home
office of the written request, or such earlier date as required by law.
Postponement of payments may occur, however, in certain circumstances.
See "Postponement of Payments."
Since the Owner assumes the investment risk with respect to amounts
allocated to the Separate Account, and because certain surrenders are
subject to a Surrender Charge, the amount paid upon total surrender of
the cash surrender value (taking into account any prior partial
surrenders) may be more or less than the total Purchase Payments made.
Unscheduled Partial Surrenders. At any time prior to the Retirement
Date and during the lifetime of the Annuitant, the Owner may surrender
a portion of the Fixed Account Value and/or the Separate Account Value
by sending a written request to the Company's home office. The minimum
unscheduled partial surrender amount is $100 and the Accumulated Value
of the Contract must be $5,000 or more immediately after the partial
surrender. The Company reserves the right to increase the minimum
$5,000 remaining Accumulated Value but in no event will it exceed
$10,000.
In order for a request to be processed, the Owner must specify the
dollar amount of the Accumulated Value to surrender. The amount
surrendered will be deducted from the Owner's Fixed Account Value
and/or interest in a Division according to the surrender allocation
percentages provided by the Owner. Percentages may be either zero or
any whole number and must total 100%.
The Company will surrender Units from the Separate Account and/or
dollar amounts from the Fixed Account so that the total amount of the
partial surrender equals the dollar amount of the partial surrender
request plus any applicable Surrender Charge. The partial surrender
will be effective at the end of the Valuation Period in which the
Company receives the written request for partial surrender at its home
office. Payments will generally be made within seven days of the
effective date of such request or such earlier date as required by law,
although certain delays are permitted. See "Postponement of Payments."
Scheduled Partial Surrenders. The owner may elect to have partial
surrenders completed on a periodic basis from any Division of the
Separate Account and/or Fixed Account. Scheduled partial surrenders
(sometimes referred to as a "Flexible Withdrawal Option") are available
only if the value of the Accumulated Value is at least $5,000 at the
time the surrenders begin. Scheduled partial surrenders may be
established by the Owner by providing written notice to the Company at
the Company's home office. The Owner may specify monthly, quarterly,
semi-annual or annual partial surrenders to be completed on any date
other than 29th, 30th or 31st. If the specified date is not a Valuation
Date, surrenders will be completed on the next Valuation Date following
such specified date. Partial surrenders will continue until the
Accumulated Value is exhausted or until the Owner notifies the Company
to discontinue the scheduled surrenders.
The Internal Revenue Code provides that a penalty tax will be imposed
on certain premature surrenders. For a discussion of this and other tax
implications of total and partial surrenders, including withholding
requirements, see "Federal Tax Matters."
4. Benefit Payable on Death of Annuitant or Owner
If the Annuitant or Owner dies prior to the Retirement Date, a death
benefit will be paid to the deceased's Beneficiary. The amount of the
death benefit will be the greater of:
(1) the Accumulated Value on the date the Company receives Notice
(including proof) of death; or
(2) total Purchase Payments less any partial surrenders and
Surrender Charges as of the date the Company receives Notice
(including proof) of death; or
(3) the death benefit that was in effect on any prior Anniversary
that is divisible equally by seven, plus any Purchase Payments
and less any partial surrenders made after that Anniversary.
The death benefit generally will be paid within seven days after the
Company receives Notice (including proof) of death and written
instructions as to the manner of payment to the Beneficiary, or such
earlier date as required by law. Under certain circumstances, payment
of the death benefit may be postponed. See "Postponement of Payments."
If benefit instructions have been provided by the deceased, the death
benefit will be paid according to those instructions. If benefit
instructions have not been provided and the Company does not receive a
written request for settlement method, the Company will pay the death
benefit in a single sum. The Company will pay interest (at an annual
rate equal to or greater than 3%) on the death benefit from the date it
receives proof of death until the date of payment or until the date the
death benefit is applied under a Benefit Option.
If the Owner dies before the Annuitant and the Owner's Beneficiary is
the surviving spouse, the Company will continue the Contract with the
spouse as the new Owner unless the spouse elects to receive the death
benefit. If benefit instructions have not been provided, the
Beneficiary may (a) receive a single sum payment, which terminates the
Contract, or (b) select a Benefit Option. If the beneficiary selects a
Benefit Option, he or she will have all the rights and privileges of an
Annuitant under the Contract. If the Beneficiary desires a Benefit
Option, the election should be made within 60 days of the date the
death benefit becomes payable. Failure to make a timely election can
result in unfavorable tax consequences. For further information, see
"Federal Tax Matters."
We accept any of the following as proof of death: a certified copy of a
death certificate; a copy of a certified decree of a court of competent
jurisdiction as to the finding of death; a written statement by a
medical doctor who attended the deceased at the time of death; or any
other proof satisfactory to us.
If the Owner dies before the Annuitant and before the Retirement Date
with respect to a Contract not issued in connection with retirement
plans qualified under Section 408 of the Internal Revenue Code, certain
additional requirements are mandated by the Internal Revenue Code,
which are discussed under "Required Distributions for Non-Qualified
Contracts." It is imperative that written notice of the death of the
Owner be promptly transmitted to the Company at its home office, so
that arrangements can be made for distribution of the entire interest
in the Contract to the Beneficiary in a manner that satisfies the
Internal Revenue Code requirements. Failure to satisfy these
requirements may result in the Contract not being treated as an annuity
for federal income tax purposes, which could have adverse tax
consequences.
C. After the Retirement Date
1. Retirement Date
The Owner may specify a Retirement Date in the application. The
Retirement Date marks the beginning of the period during which an
Annuitant receives Benefit Option payments under the Contract. The
Company may not permit a Retirement Date which is on or after the later
of the Annuitant's 85th birthday or ten years after the Contract Date
(but no later than age 88 in Pennsylvania and age 85 in New York).
Depending on the type of retirement arrangement in connection with
which a Contract is issued, amounts that are distributed either too
soon or too late may be subject to penalty taxes under the Internal
Revenue Code. See "Federal Tax Matters." Owners should consider this
carefully in selecting or changing a Retirement Date.
The Owner may change the Retirement Date with the Company's prior
approval, by written request any time prior to the issuance of a
supplementary contract which provides a Benefit Option. The new
Retirement Date must be any Anniversary on or before the maximum
Retirement Date.
2. Benefit Options
The Company currently offers only fixed Benefit Option payments;
variable Benefit Option payments are not currently offered. If the
Accumulated Value at the end of the Valuation Period which contains the
Retirement Date is less than $5,000 or if the amount applied under a
Benefit Option would result in a periodic payment below the Company's
minimum requirements in effect at that time, the Company may pay the
entire Accumulated Value, without the imposition of any charges, in a
single sum payment to the Annuitant or other properly designated payee
and cancel the Contract. Otherwise, the Company will apply the
Accumulated Value to provide a fixed Benefit Option.
Benefit Option payments will be made as elected by the Owner on a
monthly, quarterly, semi-annual or annual basis to the Annuitant or
other properly-designated payee. The dollar amount of any Benefit
Option payment is specified during the entire period of payments
according to the provisions of the Benefit Option selected. There is no
right to make any total or partial surrender after Benefit Option
payments commence.
The amount of each Benefit Option payment will depend on the amount of
Accumulated Value applied to the Benefit Option, the form of Benefit
Option selected and, for Benefit Options other than Fixed Income
described below, the age of the Annuitant. The amount of each Benefit
Option payment ordinarily will be higher for a male Annuitant than for
a female Annuitant with an otherwise identical Contract. This is
because, statistically, females tend to have longer life expectancies
than males. However, there will be no differences between male and
female Annuitants in any jurisdiction where such differences are not
permitted. The Company will also make available Contracts with no such
differences in connection with certain employer-sponsored benefit
plans. Employers should be aware that, under most such plans, Contracts
that make distinctions based on gender are prohibited by law.
The Owner may select a Benefit Option form or change a previous
selection by written request, which must be received by the Company on
or before the Retirement Date. If no Benefit Option form is chosen by
the Owner, the Company automatically applies a Life Income Benefit
Option (described below), with payments guaranteed for 10 years. If an
Annuitant and Joint Annuitant have been designated under the Contract,
payments will be made pursuant to a Joint and Full Survivor Income
Benefit Option (described below) with payments guaranteed for 10 years,
unless otherwise elected. Tax laws and regulations may impose further
restrictions on Benefit Options.
The following Benefit Options are available:
Fixed Income. Payments of a fixed amount or payments for a fixed
period of at least 5 years but not more than 30 years, are made as
of the first day of each payment period starting with the
Retirement Date. Payments will stop after all guaranteed payments
are made.
Life Income. Payments are made as of the first day of each payment
period during the Annuitant's life, starting with the Retirement
Date. No payments will be made after the Annuitant dies. It is
possible for the payee to receive only one payment under this
option if the Annuitant dies before the second payment is due.
Life Income with Payments Guaranteed for a Period of 5 to 20
Years. Payments are made as of the first day of each payment
period starting on the Retirement Date. Payments will continue as
long as the Annuitant lives. If the Annuitant dies before all of
the guaranteed payments have been made, the Company will continue
installments of the guaranteed payments to the Beneficiary.
Joint and Full Survivor Income with Payments Guaranteed for a
Period of 10 Years. Payments are made as of the first day of each
payment period starting with the Retirement Date. Payments will
continue as long as either the Annuitant or the Joint Annuitant is
alive. If the Annuitant and Joint Annuitant die before all of the
guaranteed payments have been made, the Company will continue
installments of the guaranteed payments to the Beneficiary.
Joint and Two-Thirds Survivor Life Income. Payments are made as of
the first day of each payment period starting with the Retirement
Date. Payments will continue as long as either the Annuitant or
the Joint Annuitant is alive. If either the Annuitant or the Joint
Annuitant dies, payments will continue to the survivor at
two-thirds the original amount. Payments will stop when both the
Annuitant and Joint Annuitant have died. It is possible for the
payee or payees under this option to receive only one payment if
both Annuitants die before the second payment is due.
Other Benefit Options may be made available with the Company's
approval.
In order to avoid tax penalties, distributions from any Contract that
is not a non-qualified contract must begin no later than April 1st
following the calendar year in which the Owner attains age 70 1/2. The
minimum distribution requirement is a distribution in equal or
substantially equal amounts over the Owner's life or over the joint
lives of the Owner and Owner's designated beneficiary, or a period not
extending beyond the Owner's life expectancy, or the joint life
expectancy of the Owner and Owner's designated beneficiary. In
addition, distribution payments must be made at least annually. Tax
penalties may also apply at the Owner's death on certain excess
accumulations. Owners should consider potential tax penalties with
their tax advisors when electing a Benefit Option or taking other
distributions from the Contract.
3. Death of Annuitant or Other Payee
Under the Benefit Options offered by the Company, the amounts, if any,
payable on the death of the Annuitant during the Benefit Option payment
period are the continuation of payments for any remaining guarantee
period or for the life of any Joint Annuitant. In all cases, the person
entitled to receive payments also receives any rights and privileges
under the Benefit Option.
Additional rules applicable to such distributions under Non-Qualified
Contracts are described under "Required Distributions for Non-Qualified
Contracts." Though the rules there described do not apply to Contracts
issued in connection with IRAs, SEPs or SAR/SEPs, similar rules apply
to the plans, themselves.
CHARGES AND DEDUCTIONS
An Annual Fee, a mortality and expense risks charge and, in certain
circumstances, a Transaction Fee and state premium taxes are deducted under the
Contract. Also, in certain circumstances, a Surrender Charge may be deducted
from certain cash withdrawals before the Retirement Date. The Company has also
reserved the right to assess a daily Administrative Expense Charge.
There are also deductions from and expenses paid out of the assets of the Mutual
Funds which are described in the Mutual Funds' prospectus.
A. Annual Fee
An Annual Fee equal to the lesser of $30 or 2% of the Owner's Accumulated
Value is deducted on the day before each Contract Anniversary prior to the
Retirement Date. (This charge will be lower to the extent legally required
in some states.) The Annual Fee will be deducted from either the Fixed
Account Value or the Owner's interest in a Separate Account Division,
whichever has the greatest value on the date the fee is deducted. If the
Contract is fully surrendered, the full amount of the Annual Fee will be
deducted at the time of surrender. The Annual Fee currently does not apply
to Contracts that have an Accumulated Value of at least $30,000 on the day
before the Contract Anniversary. This charge is to help cover
administrative costs such as those incurred in issuing Contracts,
establishing and maintaining the records relating to Contracts, making
regulatory filings and furnishing confirmation notices, voting materials
and other communications, providing computer, actuarial and accounting
services, and processing Contract transactions. The Company does not
anticipate any profit from this charge.
B. Mortality and Expense Risks Charge
The Company will assess each Division of the Separate Account with a daily
charge for mortality and expense risks at a nominal annual rate of 1.25% of
the average daily net assets of the Separate Account (consisting of
approximately .80% for mortality risk and approximately .45% for expense
risk). This charge is assessed only prior to the Retirement Date. The
Company guarantees not to increase this charge for the duration of the
Contract. This charge is assessed daily when determining the value of an
accumulation Unit.
The mortality risk borne by the Company arises from its obligation to make
Benefit Options payments (determined in accordance with the annuity tables
and other provisions contained in the Contract) for the full life of all
Annuitants regardless of how long all Annuitants or any individual
Annuitant might live. This undertaking assures that neither an Annuitant's
own longevity, nor an improvement in life expectancy generally, will have
any adverse effect on the Benefit Option payments the Annuitant will
receive under the Contract. This, therefore, relieves the Annuitant of the
risk that he or she will outlive the funds accumulated for retirement. The
Benefit Option tables contained in the Contract are based on the Annuity
Mortality 1983 Table a. These tables are guaranteed for the life of the
Contract.
In addition, the Company bears a mortality risk in that it guarantees to
pay a death benefit in a single sum (which may also be taken in the form of
a Benefit Option) upon the death of an Annuitant or Owner prior to the
Retirement Date. No Surrender Charge is imposed upon the payment of a death
benefit, which places a further mortality risk on the Company.
The expense risk assumed is that actual expenses incurred in connection
with issuing and administering the Contracts will exceed the limits on
administrative charges set in the Contracts.
If the mortality and expense risk charge is insufficient to cover the costs
assumed, the loss will be borne by the Company. Conversely, if the amount
deducted proves more than sufficient, the excess will be profit to the
Company. The Company expects a profit from the mortality and expense risks
charge.
C. Transaction Fee
A Transaction Fee of $30 applies to each unscheduled partial surrender
after the first such surrender made during a Contract Year. The Company
reserves the right to apply the Transaction Fee to each unscheduled
transfer from a Division after the twelfth such transfer in a Contract
Year. The Transaction Fee will be deducted from the Fixed Account Value
and/or the Owner's interest in a Separate Account Division from which the
amount is surrendered or transferred, on a pro rata basis.
D. Premium Taxes
The Company has reserved the right to deduct amounts to cover any premium
taxes that are imposed by states or other jurisdictions, when applicable.
Any such deduction will be made from either a Purchase Payment when
received by the Company, or the Accumulated Value when surrendered (in
whole or part) or applied under a Benefit Option.
E. Surrender Charge
No sales charge is collected or deducted at the time Purchase Payments are
applied under a Contract. A Surrender Charge will be assessed on certain
total or partial surrenders. The amounts obtained from the Surrender Charge
will be used to partially defray expenses incurred in the sale of the
Contract, including commissions and other promotional or distribution
expenses associated with the marketing of the Contract. If the Surrender
Charge is insufficient to cover the actual cost of distribution, such costs
will be paid from the Company's General Account assets, which will include
profit, if any, derived from the mortality and expense risks charge.
The Surrender Charge for any full or partial surrender is a percentage of
the Purchase Payments withdrawn or surrendered which were received by us
during the seven completed Contract Year period prior to the withdrawal or
surrender. The applicable percentage which is applied to the sum of the
Purchase Payments paid during each Contract Year, is determined in
accordance with the following table.
TABLE OF SURRENDER CHARGES
Number of Completed Contract Surrender Charge Applied to all
Years Since Purchase Purchase Payments Received in
Payment was Paid that Contract Year
0-2 6%
3 5%
4 4%
5 3%
6 2%
7 and later 0%
For this purpose, it is assumed that amounts are withdrawn in the following
order: (1) From Purchase Payments received by the Company more than seven
completed Contract Years prior to the withdrawal or surrender; (2) From the
Free Surrender Privilege described below (from contract earnings first, if
any, and then from Purchase Payments on a first-in, first-out basis); and
(3) From Purchase Payments received by the Company within the seven
completed Contract Year period prior to the withdrawal or surrender on a
first-in first-out basis. There is no Surrender Charge, under these
guidelines, on withdrawals of Purchase Payments made more than seven
completed Contract Years prior to the withdrawal or surrender, nor are
there Surrender Charges imposed on withdrawals of the Free Surrender
Privilege.
Waiver of the Surrender Charge. The Surrender Charge will not apply:
1. To any amount applied under a Benefit Option;
2. To the payment of a Death Benefit;
3. To any amount distributed to satisfy the minimum distribution
requirement of Sec. 401(a)9 of the Internal Revenue Code;
4. Where permitted by state law, to a withdrawal made after the first
Anniversary as a result of the Owner's or Annuitant's Critical
Need provided that:
(a) the Owner or Annuitant to which the Critical Need applies is
the original Owner or Annuitant;
(b) the Critical Need did not exist prior to the Contract Date;
and
(c) if the Critical Need is Confinement to a Health Care Facility,
the confinement must continue for at least 60 consecutive days
after Contract Date and the withdrawal must occur within 90 days
after confinement ends. No additional Purchase Payments may be
made to the Contract if the Company waives the Surrender Charge
due to a Critical Need.
5. To the Free Surrender Privilege which is an amount surrendered
during a Contract Year in an amount not to exceed the greater of:
(a) Earnings in the Contract (Earnings = Accumulated Value less
unsurrendered Purchase Payments as of the surrender
date); or
(b) 10% of the Purchase Payments still subject to the Surrender
Charge, decreased by any partial surrenders since the last
Anniversary.
6. To any amount transferred from the Contract to a Single Premium
Immediate Annuity issued by the Company after the seventh Contract
Year.
7. Where prohibited by state law.
F. Administrative Expense Charge
The Company reserves the right to assess each Division of the Separate
Account with a daily charge at a nominal annual rate of .15% of the average
daily net assets of the Division. This charge would be imposed only prior
to the Retirement Date. The daily Administrative Expense Charge would be
assessed to help cover administrative expenses such as those described
under "Annual Fee." The daily Administrative Expense Charge, like the
Annual Fee, is designed to defray expenses actually incurred, without
profit. Even if the Administrative Expense Charge was imposed, the total
anticipated revenues from both charges are not expected to exceed the
actual administrative costs incurred by the Company.
FIXED ACCOUNT
Owners may allocate Purchase Payments and transfer amounts from the Separate
Account to the Fixed Account, in which case such amounts are held in the General
Account of the Company. Because of exemptive and exclusionary provisions,
interests in the Fixed Account have not been registered under the Securities Act
of 1933 and the General Account has not been registered as an investment company
under the Investment Company Act of 1940. Accordingly, neither the Fixed Account
nor any interests therein are subject to the provisions of these acts and, as a
result, the staff of the Securities and Exchange Commission has not reviewed the
disclosures in this Prospectus relating to the Fixed Account. Disclosures
regarding the Fixed Account may, however, be subject to certain generally
applicable provisions of the federal securities laws relating to the accuracy
and completeness of statements made in prospectuses. This Prospectus is
generally intended to serve as a disclosure document only for the aspects of the
Contract involving the Separate Account and contains only selected information
regarding the Fixed Account. More information regarding the Fixed Account may be
obtained from the Company's home office or from a sales representative.
General Description
The Company's obligations with respect to the Fixed Account are supported by the
Company's General Account. Subject to applicable law, the Company has sole
discretion over the investment of the assets in the General Account.
The Company guarantees that Purchase Payments allocated to the Fixed Account
will accrue interest at a guaranteed interest rate. In no event will the
guaranteed interest rate be less than 3% compounded annually. Each Purchase
Payment or amount transferred to the Fixed Account earns interest at the
guaranteed rate in effect on the date it is received or transferred. This rate
applies to each Purchase Payment or amount transferred until the end of the
Contract Year.
Each Anniversary the Company declares a renewal interest rate that is guaranteed
and applies to the Fixed Account Value in existence at that time. This rate
applies until the end of the Contract Year. Interest is earned daily and
compounded annually at the end of each Contract Year. Once credited, such
interest will be guaranteed and will become part of the Accumulated Value in the
Fixed Account from which deductions for fees and charges may be made.
Charges under the Contract are the same as when the Separate Account is being
used, except that the 1.25% per annum charged for mortality and expense risks
and, if applicable, the .15% per annum charged for administrative expenses are
not imposed on amounts of Accumulated Value in the Fixed Account.
Fixed Account Value
The Contract's Fixed Account Value on any Valuation Date is the sum of the
Purchase Payments allocated to the Fixed Account, plus any transfers from the
Separate Account, plus interest credited to the Fixed Account, less any
surrenders, Surrender Charges, Annual Fees or Transaction Fees allocated to the
Fixed Account or transfers to the Separate Account.
Fixed Account Transfers, Total and Partial Surrenders
Amounts in the Fixed Account are generally subject to the same rights and
limitations and will be subject to the same charges as are amounts allocated to
the Divisions of the Separate Account with respect to total and partial
surrenders. See "Total and Partial Surrenders."
Transfers out of the Fixed Account have special limitations. No transfers from
the Fixed Account may be made after the Retirement Date. Prior to the Retirement
Date, Owners may transfer part or all of the Accumulated Value from the Fixed
Account to the Separate Account in one of two ways, a single transfer or
pursuant to scheduled transfers, both of which are described below. An Owner may
not make both a single transfer and scheduled transfers during the same Contract
Year.
Single Transfer. A single transfer in an amount not to exceed 25% of
the Owner's Fixed Account Value as of the later of the Contract Date or
the last Anniversary, may be made each Contract Year during the 30-day
period following the Contract Date or Anniversary. A transfer request
must be made by the owner within such 30-day period. An Owner may
transfer up to the entire Fixed Account Value if the Owner's Fixed
Account Value is less than $1,000 or the renewal interest rate declared
for the Owner's Fixed Account Value is more than one percentage point
lower than the average of the Owner's total Fixed Account Value
earnings for the preceding Contract Year. The Company will notify the
Owner if the renewal interest rate falls to that threshold. The minimum
transfer amount is $100 (or, if less, the entire amount of the Fixed
Account Value).
Scheduled Transfers. During the 30-day period following the later of
the Contract Date or any Anniversary, the Owner may elect to have
automatic transfers completed on a monthly basis from the Fixed Account
to any Division of the Separate Account. Scheduled transfers are
available from the Fixed Account only if the Owner's Fixed Account
Value equals or exceeds $5,000 at the time scheduled transfers are
initiated. (The Company reserves the right to change that amount but it
will never exceed $10,000.) An Owner may establish scheduled transfers
by sending a written request to the Company at its home office or by
telephone. Scheduled transfers will be completed on a monthly basis on
the date (other than the 29th, 30th or 31st) specified by the Owner. If
the requested date is not a Valuation Date, the transfer will be
completed on the next valuation date following such specified date.
Scheduled monthly transfers of an amount equal to 2% of the Owner's
Fixed Account Value as of the later of the Contract Date or the Last
Anniversary will continue until the Fixed Account Value is exhausted or
until the Owner notifies the Company to discontinue the scheduled
transfers. If the Owner discontinues the scheduled transfers, transfers
may not begin again without the Company's prior approval.
GENERAL PROVISIONS
The Contract
The Contract, copies of any applications, amendments, riders, or endorsements
attached to the Contract, the Contract current data page, and copies of any
supplemental applications, amendments, endorsements, or revised Contract pages
or Contract data pages which are mailed to the Owner are the entire Contract.
Only the Company's corporate officers can agree to change or waive any
provisions of a Contract. Any change or waiver must be in writing and signed by
one of these representatives of the Company.
Postponement of Payments
Any partial surrender to be made from the Contract will be made within seven
days after acceptable Notice for such payment is received by the Company, or
such earlier date as required by law. However, such surrender may be deferred
during any period when the right to redeem Mutual Fund shares is suspended as
permitted under provisions of the Investment Company Act of 1940, as amended.
The right to redeem shares may be suspended during any period when (a) trading
on the New York Stock Exchange is restricted as determined by the Securities and
Exchange Commission or such Exchange is closed for other than weekends and
holidays; (b) an emergency exists, as determined by the Securities and Exchange
Commission, as a result of which (i) disposal by the Mutual Fund of securities
owned by it is not reasonably practicable or (ii) it is not reasonably
practicable for the Mutual Fund to fairly determine the value of its net assets;
or (c) the Commission by order so permits for the protection of security
holders. If any deferment of a surrender is in effect and has not been cancelled
by written notification to the Company within the period of deferment, the
amount to be withdrawn shall be determined as of the first Valuation Date
following expiration of the permitted deferment, and the surrender will be made
within seven days thereafter.
The Company may also defer for up to 15 days the payment of any amount
attributable to a Purchase Payment made by check to allow the check reasonable
time to clear. The Company may also defer payment of surrender proceeds payable
out of the Fixed Account for a period of up to 6 months.
Misstatement of Age or Sex and Other Errors
If the age or , where applicable, gender of the Annuitant has been misstated,
any amount payable will be that which would have been purchased at the correct
age and gender. If the Company has made any overpayments because of incorrect
information about age or gender, or any error or miscalculation, it will deduct
the overpayment from the next payment or payments due. Underpayments are added
to the next payment.
Assignment
Ownership of a non-qualified contract may be assigned. The Company assumes no
responsibility for the validity of any assignment. An assignment or pledge of a
Contract may have adverse tax consequences. See "Federal Tax Matters."
An assignment must be made in writing and filed with the Company at its home
office. Owner, Annuitant and Beneficiary rights are subject to any assignment of
record at the Company's home office. Any amount paid to an assignee will be
treated as a partial surrender and will be paid in a single sum.
Change of Owner
The Owner may change ownership of the Contract at any time. A request to change
ownership must be in writing and must be approved by the Company. After the
Company approves of the change, the change is effective as of the date the
written request for the change was signed by the Owner. The waiver of the
Contingent Deferred Sales Charge for withdrawals made due to a Critical Need of
the Owner, is not available if Ownership is changed. See "Surrender Charge."
Beneficiary
Before the Retirement Date and while the Annuitant is living, the Owner may name
or change the Owner's or Annuitant's Beneficiary or a successor Beneficiary by
sending a written request of the change to the Company. Under certain retirement
programs, however, spousal consent may be required to name or change a
Beneficiary, and the right to name a Beneficiary other than the spouse may be
subject to applicable tax laws and regulations. The Company is not responsible
for the validity of any change. A change will take effect as of the date it is
signed but will not affect any payments made or action taken before the Company
receives and approves the written request. The Company also needs the consent of
any irrevocably named person before making a requested change.
If no Beneficiary designated as the Annuitant's Beneficiary is living at the
time of the Annuitant's death, any benefits otherwise payable under the Contract
to the Beneficiary will be paid to the Owner, if living, otherwise to the
Annuitant's estate. If a Beneficiary dies while receiving payments under the
Contract, and if no other Beneficiary is then living, any remaining benefits
owed under the Contract will be paid to such Beneficiary's estate.
Reports
We will mail to the Owner at the last known address of record a statement of the
Owner's current Accumulated Value at least once each year prior to the
Retirement Date and any reports required by any applicable law or regulation.
After the Retirement Date, any reports will be mailed to the person receiving
Benefit Option payments, rather than to the Owner.
RIGHTS RESERVED BY THE COMPANY
The Company reserves the right to make certain changes if, in its judgement,
they would best serve the interests of Owners and Annuitants or would be
appropriate in carrying out the purpose of the Contract. Any changes will be
made only to the extent and in the manner permitted by applicable laws. Also,
when required by law, the Company will obtain the Owner's approval of the
changes and approval from any appropriate regulatory authority. Such approval
may not be required in all cases, however. Examples of the changes the Company
may make include:
o To transfer any assets in any Division to another Division, or
to the Fixed Account; or to add, combine or eliminate
Divisions in the Separate Account.
o To substitute, for the Mutual Fund shares held in any
Division, the shares of another Mutual Fund, if shares of a
Mutual Fund are no longer available for investment or if in
the Company's judgement, investment in a Mutual Fund becomes
inappropriate considering the purposes of the Separate
Account.
DISTRIBUTION OF THE CONTRACT
The Contract, which is continuously offered, will be sold primarily by persons
who are insurance agents of or brokers for the Company authorized by applicable
law to sell life and other forms of personal insurance and variable annuities.
In addition, these persons will usually be registered representatives of Princor
Financial Services Corporation, The Principal Financial Group, Des Moines, Iowa,
a broker-dealer registered under the Securities Exchange Act of 1934 and a
member of the National Association of Securities Dealers, Inc. Princor Financial
Services Corporation, the principal underwriter, is paid 6.5% of Purchase
Payments by Principal Mutual Life Insurance Company for the distribution of the
Contract. The Contract may also be sold through other selected broker-dealers
registered under the Securities Exchange Act of 1934 or firms that are exempt
from such registration. Princor Financial Services Corporation is also the
principal underwriter for various registered investment companies organized by
the Company. Princor Financial Services Corporation is a wholly-owned subsidiary
of Principal Holding Company. Principal Holding Company is a holding company and
a wholly-owned subsidiary of the Company.
PERFORMANCE CALCULATION
The Separate Account may publish advertisements containing information
(including graphs, charts, tables and examples) about the performance of one or
more of its Divisions. The Contract was not offered prior to June 16, 1994.
However, shares of Principal Mutual Funds in which Divisions of the Separate
Account invest, were offered prior to that date. Thus, the Separate Account may
publish advertisements containing information about the hypothetical performance
of one or more of its Divisions for this Contract had the Contract been issued
on or after the date the Mutual Fund in which such Division invests was first
offered. The yield and total return figures described below will vary depending
upon market conditions, the composition of the underlying Mutual Funds'
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 Statement of Additional Information.
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 seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the Division is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. Neither yield quotation
reflects a sales load deducted from Purchase Payments which, if included, would
reduce the "yield" and "effective yield."
In addition, from time to time, the Separate Account will advertise the "yield"
for certain other Divisions for the Contract. The "yield" of a Division is
determined by annualizing the net investment income per unit for a specific,
historical 30-day period and dividing the result by the ending maximum offering
price of the unit for the same period. This yield quotation does not reflect a
contingent deferred sales charge which, if included, would reduce the "yield."
Also, from time to time, the Separate Account will advertise the average annual
total return of its various Divisions. The average annual total return for any
of the Divisions is computed by calculating the average annual compounded rate
of return over the stated period that would equate an initial $1,000 investment
to the ending redeemable Contract value. In this calculation the ending value is
reduced by a Surrender Charge that decreases from 6% to 0% over a period of 7
years. The Separate Account may also advertise total return figures of its
Divisions for a specified period that do 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" and "Surrender Charge."
VOTING RIGHTS
The Company shall vote Mutual Fund shares held in Separate Account B at regular
and special meetings of shareholders of each Mutual Fund, but will follow voting
instructions received from Owners of the Contract whose Accumulated Value
includes amounts invested in the corresponding Division of the Separate Account.
The number of Mutual Fund shares as to which an Owner has the voting interest
will be determined by the Company as of a date which will not be more than
ninety days prior to the meeting of the Mutual Fund, and voting instructions
will be solicited by written communication at least ten days prior to the
meeting. The number of Mutual Fund shares held in Separate Account B which are
attributable to the Owner's interest in each Division is determined by dividing
the value of the Owner's interest in that Division by the net asset value of one
share of the underlying Mutual Fund. Mutual Fund shares for which Owners are
entitled to give voting instructions, but for which none are received, and
shares of the Fund owned by the Company will be voted in the same proportion as
the aggregate shares for which voting instructions have been received.
Proxy material will be provided to each Owner together with an appropriate form
which may used to give voting instructions to the Company.
If the Company determines pursuant to applicable law that Mutual Fund shares
held in Separate Account B need not be voted pursuant to instructions received
from Owners, then the Company may vote Mutual Fund shares held in Separate
Account B in its own right.
FEDERAL TAX MATTERS
The following description is a general summary of the tax rules, primarily
related to federal income taxes, which in the opinion of the Company 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. Owners
should consult a qualified tax adviser as to the tax implications of taking
action under a Contract or related retirement plan.
Non-Qualified Contracts
Section 72 of the Internal Revenue Code ("Code") governs the taxation of
annuities in general. Purchase Payments made under non-qualified contracts are
not excludible or deductible from the gross income of the Owner or any other
person. However, any increase in the Accumulated Value of a non-qualified
contract resulting from the investment performance of the Separate Account or
interest credit to the Fixed Account is generally not taxable to the Owner or
other payee until received by him or her, as surrender proceeds, death benefit
proceeds, or otherwise. The exception to this rule is that, generally, Owners
who are not natural persons are immediately taxed on any increase in the
Accumulated Value. However, this exception does not apply in all cases.
The following discussion applies generally to Contracts owned by natural
persons.
In general, surrenders or partial surrenders under Contracts are taxed as
ordinary income to the extent of the accumulated income or gain under the
Contract. If an Owner assigns or pledges any part of the value of a Contract,
the value so pledged or assigned is taxed to the Owner as ordinary income to the
same extent as a partial withdrawal.
With respect to Benefit Options payments, although the tax consequences may vary
depending on the option elected under the Contract, until the investment in the
Contract is recovered, generally only the portion of the payment that represents
the amount by which the Accumulated Value exceeds the "investment in the
contract" will be taxed. In general, an Annuitant's or other payee's "investment
in the contract" is the aggregate amount of Purchase Payments made by him or
her. After the "investment in the contract" is recovered, the full amount of any
additional Benefit Option payments is taxable. Prior to recovery of the
"investment in the contract," there is no tax on the amount of each payment
which bears the same ratio to such payment that the "investment in the contract"
bears to the total expected return under the Contract. The remainder of each
Benefit Option payment is taxable. The taxable portion of a distribution is
taxed as ordinary income.
For purposes of determining the amount of taxable income resulting from
distributions, all Contracts and other annuity contracts issued by the Company
or its affiliates to the same Owner within the same calendar year will be
treated as if they were a single contract.
There is a 10% penalty under the Code on the taxable portion of a "premature
distribution." Generally, an amount is a "premature distribution" unless the
distribution is (1) made on or after the Owner reaches age 59 1/2, (2) made to a
Beneficiary on or after death of the Owner, (3) made upon the disability of the
Owner, or (4) part of a series of substantially equal periodic payments for the
life or life expectancy of the Owner or the Owner and Beneficiary. Premature
distributions may result, for example, from an early Retirement Date, any early
surrender, partial surrender or assignment of a Contract or the death of an
Annuitant who is not the Owner prior to the Owner attaining age 59 1/2.
A transfer of ownership of a Contract, or designation of an Annuitant or other
payee who is not also the Owner, may result in a certain income or gift tax
consequences to the Owner that are beyond the scope of this discussion. An Owner
contemplating any transfer or assignment of a Contract should contact a
competent tax advisor with respect to the potential tax effects of such
transactions.
Required Distributions for Non-Qualified Contracts
In order for a non-qualified contract to be treated as an annuity contract for
federal income tax purposes, Section 72(s) of the Code requires (a) if the
person receiving payments dies on or after the Retirement Date but prior to the
time the entire interest in the Contract has been distributed, the remaining
portion of such interest will be distributed at least as rapidly as under the
method of distribution being used as of the date of that person's death; and (b)
if any Owner dies prior to the Retirement Date, the entire interest in the
Contract will be distributed (1) within five years after the date of that
Owner's death or (2) as annuity payments which will begin within one year of
that Owner's death and which will be made over the life of the Owner's
designated Beneficiary or over a period not extending beyond the life expectancy
of that Beneficiary. However, if the Owner's designated Beneficiary is the
surviving spouse of the Owner, the Contract may be continued with the surviving
spouse deemed to be the new Owner for purposes of Section 72(s). Where the Owner
or other person receiving payments is not a natural person, the required
distributions provided for in Section 72(s) apply upon the death of the primary
Annuitant.
Generally, unless the Beneficiary elects otherwise, the above requirements will
be satisfied prior to the Retirement Date by paying the death benefit in a
single sum, subject to proof of the Owner's death. The Beneficiary, however, may
elect by written request to receive a Benefit Option instead of a lump sum
payment. However, if the election is not made within 60 days of the date the
single sum death benefit otherwise becomes payable, the IRS may disregard the
election for tax purposes and tax the Beneficiary as if a single sum payment had
been made.
IRA, SEP and SAR/SEP
The Contract may be used to fund IRAs, SEPs and SAR/SEPs. The tax rules
applicable to Owners, Annuitants and other payees vary according to the type of
plan and the terms and conditions of the plan itself. In general, Purchase
Payments made under a retirement program recognized under the Code by or on
behalf of an individual are excludible from the individual's gross income for
tax purposes prior to the Retirement Date. The portion, if any, of any Purchase
Payment made by or on behalf of an individual under a Contract that is not
excluded from the individuals' gross income for tax purposes constitutes the
individual's "investment in the contract." Aggregate deferrals under all plans
at the employee's option may be subject to limitations. The tax implications of
these plans are further discussed in the Statement of Additional Information
under the heading "Taxation Under Certain Retirement Plans."
Withholding
Benefit Option 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 will 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 with
respect to certain payments to be delivered outside the United States. Moreover,
special "backup withholding" rules may require the Company to disregard the
recipient's election if the recipient fails to supply the Company with a "TIN"
or taxpayer identification number (social security number for individuals), or
if the Internal Revenue Service notifies the Company that the TIN provided by
the recipient is incorrect.
Mutual Fund Diversification
The United States Treasury Department has adopted regulations under Section
817(h) of the Code which establishes standards of diversification for the
investment underlying the Contracts. Under this Code Section, Separate Account B
investments must be adequately diversified in order for the increase in the
value of non-qualified contracts to receive tax-deferred treatment. In order to
be adequately diversified, the portfolio of each underlying Mutual Fund must, as
of the end of each calendar quarter or within 30 days thereafter, have no more
than 55% of its assets invested in any one investment, 70% in any two
investments, 80% in any three investments and 90% in any four investments.
Failure of a Fund to meet the diversification requirements could result in tax
liability to non-qualified contractholders.
The investment opportunities of the Funds could conceivably be limited by
adhering to the above diversification requirements. This would affect all
Owners, including those 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 the operations of the Company for the preceding year and its financial
condition on December 31st of such year. Its books and assets are subject to
review or examination by the Commissioner of Insurance of the State of Iowa or
his representatives at all times, and a full examination of its 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, the Company is subject to the insurance laws and regulations of
other states and jurisdictions in which it is licensed to operate. Generally,
the insurance departments of these states and jurisdictions apply the laws of
the state of domicile in determining the field of permissible investments.
LEGAL OPINIONS
Legal matters applicable to the issue and sale of the Contracts, including the
right of the Company to issue Contracts under Iowa Insurance Law, have been
passed upon by Gregg R. Narber, Senior Vice President and General Counsel.
LEGAL PROCEEDINGS
There are no legal proceedings pending to which Separate Account B is a party or
which would materially affect Separate Account B.
REGISTRATION STATEMENT
This Prospectus omits some information contained in the Statement of Additional
Information (or Part B of the Registration Statement) and Part C of the
Registration Statement which the Company has filed with the Securities and
Exchange Commission. The Statement of Additional Information is hereby
incorporated by reference into this Prospectus. A copy of the Statement of
Additional Information can be obtained upon request, free of charge, by writing
or telephoning Princor Financial Services Corporation. You may obtain a copy of
Part C of the Registration Statement filed with the Securities and Exchange
Commission, Washington, D.C. from the Commission upon payment of the prescribed
fees.
OTHER VARIABLE ANNUITY CONTRACTS
The Company currently offers other Variable Annuity Contracts that participate
in Separate Account B. In the future, additional group or individual variable
annuity contracts may be designated by the Company as participating in Separate
Account B.
EXPERTS
The financial statements of Principal Mutual Life Insurance Company Separate
Account B and Principal Mutual Life Insurance Company which are included in the
Statement of Additional Information have been audited by Ernst & Young LLP,
independent auditors, for the periods indicated in their reports thereon which
appear in the Statement of Additional Information.
FINANCIAL STATEMENTS
The financial statements of the Company which are included in this Prospectus
should be considered only as bearing on the ability of the Company to meet its
obligations under the Contract. They should not be considered as bearing on the
investment performance of the assets held in the Separate Account.
CONTRACTHOLDERS' INQUIRIES
Contractholders' inquiries should be directed to Princor Financial Services
Corporation, The Principal Financial Group, Des Moines, Iowa 50392-0200, (515)
247-5711.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The table of contents for the Statement of Additional Information is
provided below.
TABLE OF CONTENTS
Page
Independent Auditors ..................................................... 3
Calculation of Yield and Total Return .................................... 3
Taxation Under Certain Retirement Plans..................................... 4
Financial Statements:
Principal Mutual Life Insurance Company Separate Account B .......... 6
Report of Independent Auditors..................................... 22
Principal Mutual Life Insurance Company................................ 23
Report of Independent Auditors..................................... 42
To obtain a copy of the Statement of Additional Information, free of charge,
write or telephone:
Princor Financial Services Corporation
a Member of
The Principal Financial Group
Des Moines, Iowa 50392-0200
Telephone: 1-800-247-4123
APPENDIX A
The Company hereby offers to exchange the Contract described in this Prospectus
("PVA Contract") for certain outstanding Pension Builder Plus Variable Annuity
Contracts ("Pension Builder Plus Contracts") issued in connection with
Individual Retirement Annuity ("IRA") plans or programs, including SEPs and
SAR-SEPs (but excluding employer-sponsored IRAs) adopted pursuant to Section 408
of the Internal Revenue Code or for such Pension Builder Plus Contracts the
withdrawals from which may be transferred to the Contract described in this
prospectus to fund an IRA. This exchange offer will expire at 3:00 p.m. CST on
August 31, 1995, unless extended by the Company. In considering whether to
accept the exchange offer you should consult the Pension Builder Plus Contract
Prospectus since the provisions and charges of the Pension Builder Plus Contract
differ from those of the PVA Contract.
The Pension Builder Plus Contract may be exchanged at net asset value for the
PVA Contract. To effect an exchange, the Company must receive from you (1) a
completed application for the PVA Contract, (2) a written request and release
for the exchange, and (3) the Pension Builder Plus Contract to be exchanged. The
exchange will become effective as of the close of the Valuation Period in which
all of these three items are received by the Company at its home office. A
Participant's Investment Account Value of the Pension Builder Plus Contract will
be determined as of the time the exchange becomes effective and will be
transferred to the PVA Contract. No surrender charge otherwise applicable to the
Pension Builder Plus Contract will apply to the surrender affecting the
exchange. The PVA Contract's contingent deferred sales charge will be computed
as if prior Purchase Payments for the Pension Builder Plus Contract have been
made for the PVA Contract on the date of issue of the Pension Builder Plus
Contract. The contingent deferred sales charge for additional Purchase Payments
made under the PVA Contract after the transfer of the Accumulated Value from the
Pension Builder Plus Contract will be computed based on the number of years that
the additional Purchase Payments to which the withdrawal is attributed has been
credited under the PVA Contract, as provided in this Prospectus.
Summary of Differences between Contracts
The Pension Builder Plus Contract and the PVA Contract differ substantially, as
summarized below. There may be additional differences important to you and the
prospectuses of both contracts should be reviewed carefully before making the
exchange.
Contingent Deferred Sales Charge. The contingent deferred sales charge under the
PVA Contract applies to all Purchase Payments received during any Contract Year.
The contingent deferred sales charge for the Pension Builder Plus Contract is
based upon the number of Contribution Years a Participant has been covered under
the Contract (rather than on the year in which the Contribution was made). Thus,
for certain Participants of the Pension Builder Plus Contracts, new Purchase
Payments made after accepting the exchange offer would be subject to the
contingent deferred sales charge under the PVA Contract, but new Purchase
Payments made under the Pension Builder Plus Contract would not have been
subject to such a charge, or would have been subject to a lesser charge had the
offer been rejected.
The contingent deferred sales charge of the PVA Contract will be waived under
all of the circumstances under which the contingent deferred sales charge to the
Pension Builder Plus Contract would be waived and, in addition the PVA
Contract's charge does not apply to:
1. any amount distributed to satisfy the minimum distribution requirements
of Section 401(a)9 of the Internal Revenue Code;
2. where permitted by state law, to a withdrawal made after the first
Anniversary as a result of the Owner's or Annuitant's Critical Need,
as described in this Prospectus; and
3. to the Free Surrender Privilege as defined in this Prospectus.
Annual Fee versus Administration Charge. The PVA Contract is subject to an
Annual Fee equal to the lesser of $30 or 2% of the Owner's Accumulated Value.
The Annual Fee currently does not apply to Contracts that have an Accumulated
Value of at least $30,000. In addition, the Company has reserved the right to
assess each Division of the Separate Account with a daily administrative expense
charge at an annual rate of .15% of the average daily net assets of the
Division. This charge is not currently imposed. The Pension Builder Plus
Contract is subject to annual Administration Charge equal to $25 plus an amount
equal to .5% of the first $50,000 of the value of all Investment Accounts of the
Participant under the Contract. Thus, the maximum annual Administration Charge
under the Pension Builder Plus Variable Annuity Contract is $275.
Mortality and Expense Risks Charge. The annual mortality and expense risks
charge of the PVA Contract is equal to 1.25% of the average daily net assets of
the Separate Account. The mortality and expense risks charges applicable to the
Pension Builder Plus Contract are 1.4965% (1.0001% for Roll-over Individual
Retirement Annuities) of the average daily net assets.
Death Benefit. The benefit payable on death of the annuitant or owner of the PVA
Contract is the greater of :
1. the Accumulated Value on the date the Company receives Notice of death;
or
2. Total Purchase Payments less any partial surrenders and Surrender
Charges as of the date the Company receives Notice of death; or
3. the death benefit that was in effect on any prior anniversary that is
divisible equally by 7, plus any Purchase Payments and less any partial
surrenders made after that Anniversary.
The death benefit payable under the Pension Builder Plus Contract is equal to
the market value of a Participant's Investment Account Values as of the date the
Company receives proof of death. The PVA Contract's death benefit thus will be
at least equal to, and perhaps greater than, that of the Pension Builder Plus
Contract.
Right to Examine after Exchange
Persons who, under the terms of this exchange offer, exchange their Pension
Builder Plus Contract for the PVA Contract and subsequently revoke the PVA
Contract within the time permitted, as described in the section of this
Prospectus captioned "Right to Examine the Contract," will have their Pension
Builder Plus Contract automatically reinstated as of the date of revocation. The
refunded amount will be applied as the new current Accumulated Value under the
reinstated Contract, which may be more or less than it would have been had no
exchange and reinstatement occurred. The refunded amount will be allocated
initially among the Divisions of the reinstated Pension Builder Plus Contract in
the same proportion that the value in each Division bore to the transferred
Accumulated Value on the date of the exchange of the PVA Contract. For purposes
of calculating any contingent deferred sales charge under the reinstated Pension
Builder Plus Contract, the reinstated Contract will be deemed to have been
issued and to have received past Purchase Payments as if there had been no
exchange.
APPENDIX B
"Free Look" Periods
States in Which Purchase Payments are Returned
Free Look Period
State Number of Days
Connecticut*, Georgia, 10 days
Hawaii, Indiana,
Kentucky, Louisiana,
Maryland, Michigan,
Missouri, Nebraska,
North Carolina, Oklahoma,
Rhode Island, South Carolina,
Utah, Washington
Idaho 20 days
* Purchase Payments are refunded if the Contract is cancelled prior to its
delivery, otherwise the account value is refunded.
States in Which Account Value is Returned
Free Look Period
State Number of Days
Alabama, Alaska, 10 days
Arizona, Arkansas,
Delaware, District of Columbia, Florida, Illinois, Iowa, Kansas, Maine,
Massachusetts, Minnesota, Mississippi, Montana, Nevada, New Hampshire, New
Jersey, New Mexico, New York, Ohio, Oregon, Pennsylvania, South Dakota,
Tennessee, Texas, Vermont, Virginia, West Virginia, Wisconsin, Wyoming
California Owner's age 60 + 230 days
Owners less than 60 = 10 days
Colorado 15 days
North Dakota 20 days
